EOD Update

Don't forget tomorrow is a Friday and that means it's likely the market will open near today's close and we'll have a weekly op-ex max-pain pin until about 2 p.m. so we may not get a lot of action tomorrow.


I still think all "potential" bounce or failure of the market here depends on the $USD/JPY pair, we'll get to that.

As far as some of the near term and big picture signals, here are leading indicators

 HYG went positive in to the lows yesterday and is still in line, I'd think this would be leading negative if we were on the edge of imminent collapse.

 High Yield Credit is essentially the exact same situation as HYG (Corp. Credit).

 Pro sentiment went positive at the lows yesterday and fell off a bit today, that's probably in line with afternoon trade.

The big picture though is very bearish in sentiment alone. This is the Feb. Cycle with the 4 stages and 4a being the volatility shakeout that happens early in stage 4 decline.

Our other sentiment indicator is in line with the SPX, in line with an op-ex pin tomorrow.

VXX had a nearly perfect correlation with the SPX today so no point in showing it, this chart of TLT with SPX (green) prices inverted so you can see the normal correlation shows TLT went from leading yesterday and early today to negative, which makes sense considering the earlier TLT/TBT post and TLT expectations of some decline.

Yields as one of my favorite leading indicators as they pull equities toward them are just getting worse as they dislocate negatively from the SPX, so this is the near term move I expect, after we get a bounce or what remains of a bounce assuming USD/JPY hold up as I think it will.

As for the more important near term driver of market activity, USD/JPY carry trade...

 This 5 min chart of USD/JPY (red/green candles) vs ES/SPX Futures (purple) shows the correlation, a little screwy today, but this is the driver right now of the market.

 This 5 min 3C chart of USD/JPY looks to be a "W" base to me with price now pulling back toward the second bottom of the "W", meaning almost done, there's a positive divegrence at the first bottom and a leading positive right now.

Resistance is clearly at the $102 level, if USD/JPY breaks $102 where there are bound to be tons of BTC stops and long orders, the market will get a bounce and I suspect it will no matter what the 3C charts look like, without decent 3C charts though to hold the market together, the relative performance and the staying power would be greatly diminished.

UNLESS THERE'S A VERY STRONG POSITIVE SIGNAL IN THE AVERAGES, THE ONLY USE I HAVE FOR A BOUNCE IS TO SHORT IN TO PRICE STRENGTH AND UNDERLYING WEAKNESS, IT'S A FREE GIFT IF YOU HAVE THE OBJECTIVITY TO OVERCOME THE EMOTIONAL DIFFICULTY OF SHORTING IN TO PRICE STRENGTH, it sounds easy now, but when the moment comes and sentiment in financial media has changed, it's a lot different.

"Every boxer has a fight plan until the first punch is thrown"

For the $USD/JPY to move up, the Yen either has to move down significantly, the $USD has to move up significantly or best of all both happen, the Yen moves down and the $USD moves up.

 Here the 5 min chart of the Yen is threatening to make a move lower which would help to send the USD/JPY and Index futures (the market as well) higher., however this is not the main signal that has me watching for this outcome...

The 15 min Yen chart is showing and has been showing a significant 15 min negative divegrence, price "should " follow the divergence lower sending the USD/JPY/market higher, however this is ONLY out to the 15 min chart, there's no divegrence past the 15 min, which means in my view that any USD/JPY move up (market move up) is limited because the roof is established at this 15 min chart.

 The $USD moving up would send the USD/JPY higher and this 60 min chart suggests that will happen. We have also seen a recent return to the long term "$USD Legacy Arbitrage" which has been missing since the F_E_D's intervention in 2009, that correlation means $USD higher=stocks, precious metals, energy and most commodities lower. We are just seeing this correlation re-establish as the F_E_D continues to taper out of QE which is what killed the correlation in the first place.

This could mean GLD/gold heads lower near term which would make sense then to wait a few more days before entering a NUGT/GDX long as the correlation between gold and GDX is very high, but once again, we are just "starting to see" the correlation return, it's not dominant.

 This $USD 15 min chart has a small negative divegrence, this "may" be enough to pull the USD/JPY back down to support which would form the "W" base that I have been talking about.

 The $USD intraday 1 min chart suggests the same right now, but this is unlikely to hold overnight, the 5 min may.

 If you look at a monthly VWAP of ES, this looks like a normal sell at VWAP, price moves down to the lower standard deviation and then bounces to VWAP where it would be sold again, in other words, this looks like a pretty normal move to the downside.

The ES 5 min chart is showing a negative divegrence, which would fit with a USD/JPY pullback to the support forming a "W".

As far as market signals in to the close and beyond, there's what looks like some rotation, but there are very poor divergences in intraday timeframes...

 DIA intraday 1 min didn't close looking very good, distribution of any gains.

DIA 2 min is probably one of the better migration signals, leading negative

And 5 min leading negative

 As far as probabilities, this is the 2 hour chart, the divegrence has grown exponentially to the downside.

SPY intraday with a very small relative positive.

The 10 min SPY is really showing this is ready to fall off a cliff, it's pretty much up to the USD/JPY and $102 at this point.

We haven't talked about what a base and failure of $102 in the USD/JPY would look like, likely an instant sell off.

 SPY probabilities with distribution at 4 hours

The IWM did show some late day strength, but this was isolated.

At the 3 min chart there wasn't enough migration to move this very far.

And 4 hour probabilities are clear which way this is heading.

QQQ also has an intraday closing positive, but like the IWM, it couldn't make it to the 3 min chart, it may be early, or it may just be weak, trying to hold the two averages at the op-ex pin for tomorrow.

QQQ 5 min shows how close the averages really are to the cliff.

I'll check the Futures later as that's really all that can save this market or rather give it a VERY temporary reprieve.