A True Dead Cat Bounce?

It has been quite a while since we've seen anything "true" in the market, driven by retail demand or supply with what seems to be a notable absence of smart money or their games, but to me, that's what today looked like, parhaps they were reconfiguring their trading systems and algos for the worst quarterly GDP print in 5 years at Q1 final of -2.9%. Some back of the napkin math tells us that even if the remaining 3 quarters all come in at 3% GDP growth, the best we could hope for on a full year 2014 basis is 1.5%, quite a bit below the F_E_D's recently dialed down forecast at last week's meeting that took full year GDP forecasts from 2.8-3% to 2.1-2.3%!

Here's their track record.

And now, assuming we go from -2.9% to positive 3.0% for the rest of the year, the F_E_D still has a major miss and recent economic data doesn't suggest we'll hit the 3% mark this quarter as Durable Goods missed by the biggest margin of 2014 this morning.

Still, it was difficult to watch today's market and try to glean information from it, at best it seemed like an old-fashioned 66% retrace (of yesterday's range), dead cat bounce.

The SPX closed for a 48th consecutive day below the +/- 1% mark, which , as mentioned earlier today is the worst stretch of low market volatility since 1995 according to the Associated Press. The Dow came in at +.29%, the NDX at +.72% which is interesting as it was the first to complete a positive divegrence by the close yesterday and the R2K at +.81%.

Of the 9 S&P Sectors...

 8 of 9 came in green today with Healthcare (which seems to be a flight to safety as it seems to always be up on the same days Utilities are outperforming, and why shouldn't they be with some of the biggest inflationary gains in healthcare and prescription drugs.

On a 2-week basis, the leading sectors are Utilities, Energy (as the Iraq crisis has sent oil higher) and right there at #3, Healthcare with every other sector posting a gain of less than half a percent or in the red.

I looked for an obvious catalyst for the move up in stocks, it didn't feel like a typical short squeeze which have gone to lasting long enough to run the entire February rally, approximately 1 month, to running most of the mid-May bear-flag/bear trap rally that broke above the 3-month range and SPX 1900 which has been approximately 2 weeks to the F_O_M_C last week which was half a day to yesterday which couldn't even hold half a day, the short squeeze lever seems to be broken. As for today...

The Most Shorted Index underperformed the Russell 3000, it also gave out first yesterday (red).

I looked at carry trades which have been all but dead,

 Longer term the USD/JPY (4 hour chart-each bar=4 hours) has been dead and it's only the BOJ trying to maintain the Yen at USD/JPY $102 as that's the line in the sand where it starts negatively effecting exports.

ES / SPX E-mini futures (purple) have long been seriously disconnected from the USD/JPY.

You can see the correlation between EUR/USD was very tight on this 4-hour chart from January 2014 to early May, then they dislocated badly.

Intraday the SPX (red/green) is quite out of sync with USD/JPY, it certainly wasn't lifting the market.

Then there's always the VIX to look at,

 SPX (green prices are inverted to show the natural correlation) and VIX (light blue), not only did the VIX outperform (not lead the market lower) as SPY/SPX prices lagged VIX today, but VIX also showed a lot of strength at yesterday's SPY/SPX short squeeze making a higher low vs. the 20th (last Friday). This is why I have been very interested in the long volatility trade, but as I said last night, I felt yesterday was a bit too early for anything more than a day trade.

Here's the normal correlation between the VIX in green and the SPX in red over the last 5-days, note the SPX (see the red trendline on the red SPX price line) is almost exactly where it was on the 20th when the VIX hit lows not seen since Feb. of 2007 compared to now as the VIX is higher while the SPX is virtually in the exact same spot.

Of course Treasuries are another one to look at,

 SPX (green with prices inverted to show the natural correlation) vs. TLT, again at yesterday's SPX highs, treasuries were headed higher right in to today where they saw a slight pullback intraday, but still outperformed the SPX.

Yields confirm the same...
5- Year Yields (red) vs. SPX (green) show that they were far from leading the market and are actually negatively divergent as yields tend to pull equities toward them, note the divergence in yields from the 17th to yesterday and the market's move toward the negatively dislocated yields, this is what I have been pointing out on a macro basis with 10-year rates as they have called the 2007 top, the 2009 bottom, the 2011 -20% decline and are diverging to the downside again at least as bad if not worse than the 2007 top, 10-Year Yield (Bemchmark) vs. the Market

As I was looking around for anything out of place today, I came across the Dominant Price/Volume Relationship which were heavily dominant in all of the major averages, 15 of the Dow-30, 61 of the NASDAQ 100, 891 of the Russell 2000 and 222 of the S&P-500 (of 4 possible relationships), the Dominant P/V relationship today was the most bearish of the 4, Price Up/Volume Down. 

Furthermore in looking closely at breadth indicators, I found this which may speak to high beta stocks that the market has been chasing all year and then some...

 Percentage of NYSE Stocks Trading Two-Standard Deviations Above their 40-day Moving Average.

Percentage of NYSE Stocks Trading Two-Standard Deviations Above their 200-day Moving Average.

In both cases, this is only the second time since late 1013 to early 2014 that the indicator in green (vs the SPX in red) have failed to make a higher high, in both cases the SPX had its biggest loss of the year, about -6% over 8-days.

Hopefully tomorrow we'll have some more insightful signals. All of the averages ended with 1 and 2 min negative divergences at the end of the day.