A.M. Update

Overnight there was more evidence of a global economic downturn. The days of China's dynamo growth seem almost to be a lifetime ago. Overnight Chia'a HSBC PMI came in with the biggest miss on record. Following China, the Eurozone didn't do much better as Manufacturing PMI dipped from 51.8 to 50.8 vs expectations of 51.3. Eurozone Services PMI slipped from 54.2 to 53.5 on expectations of 53.7 which brought the composite PMI down from 53.8 to 52.8.

In other words, all the evidence of a cooling Chinese economy while running some hot inflationary trends continues just as does the prospect of a Eurozone recession to join Italy which recently entered its 3rd recession since Lehman.

In the US Initial Claims came in under the line in the sand of 300k , printing at 298k. Continuing Claims fell to the lowest print since 2007!


It seems some thought the market didn't like that, although I don't think it's quite out of its knee jerk scramble as evidenced by the panic pump yesterday after the minutes with distribution in to it and sharply declining intraday breadth, instead I think the reaction in prices was a simple move from the VWAP sell area.

 ES's dip looks like a simple correction from VWAP's upper (sell) band rather than a reaction to Initial Claims.

 AUD/JPY is in charge this morning (ES in purple) as the USD/JPY is lagging on the retracement of some of yesterday's knee jerk gains in the $USD.

AUD/JPY is in charge for now, however it may not hold up too long.

The decline/negative divergences in the $USD overnight are responsible in part for the USD/JPY falling out of favor today. This is an interesting correction starting from yesterday's knee jerk reaction sending the $USD flying higher.

Even though volatility still abounds and the knee jerk is not over, the more important perspective is the flattening out of the market which is what was expected after two initial days of gains this week.

I used the QQQ as it's a good average as SPY is a bit more on the upside, the IWM is sloppy and choppy on the downside. The turn to the right is what I'm most interested in along with the base divegrence charts shown last night, we'll see how they develop today.

It looks like several other asset classes are starting to move off yesterday's knee jerk, some aren't yet like Gold, however treasuries are starting to look interesting as they pick up some upside momentum this morning.