From over the weekend (Saturday) at the Jacksom Hole Symposium, the BoJ's Kuroda made it clear that there was no more easing/QE on the horizon (in his words) for years and that the current plan, despite all economic data to the contrary, is on its way to meeting the objective of stamping out Japanese inflation. The key take away is NO MORE STIMULUS, for a market addicted to printing.
Then this morning we had some diverging data points, depending if you still believe the "Good news is good news, bad news is good news" motto that use to be nothing more than a F_E_D increasing their balance sheet from 850 billion to over 4 trillion since pre-Lehman to now, I'm sure you can guess where most of that money went to create Bernanke's version of trickle down economics known as the "Wealth Effect", one Yellen and Crew and promptly cutting off at the spick-et as well as raising rates by...well no one knows which is the thing the market hates the most, uncertainty and rate hikes.
In any case, this is about a cycle set in motion, a cycle that's nearing completion no matter what the data, but as long as we are on data, Markit's US Services PMI dropped to 58.5 (3 month lows), although anything above 50 still represent expansion. This was the biggest M.o.M. drop in 6 months. Employment trends continue to slow, essentially this print says, "The recovery lost momentum".
New Home Sales were expected t beat consensus of 430k after last week's strong Housing Starts, instead New Home Sales printed at a miss of 412k making this the 5th miss of the last 6 and the lowest print since March's 403k. The NorthEast was the brunt off the slowdown with a sequential drop of 31% (only 18k new homes sold) and a Y.oY. drop of 44%. The median house price fell and there's about 6 months of supply, the highest amount in almost 3 years.
The Dallas F_E_D missed at 7.1 vs consensus of 12.7, the biggest miss in 16 months. Production, Cap-Ex spending and Employment all drug the index down. New Orders fell at the fastest rate in over a year and they also now sit at 2014 lows.
Then we saw diverging data as the Chicago F_E_D came in at +.39 vs consensus of +.20 and a previous of +.12 (subsequently revised up to .21 for June). Manufacturing was strong, Employment indices held up and Sales, New Orders and Inventories all saw slight gains. Consumption and Housing were the 2 dark spots, both weak.
So? Buy the bad news or buy the good news? Perhaps sell the geo-political news or ignore it? My point is pretty simple, a cycle is a cycle, it has been predictable, it has hit most of our targets and the pivot for where this would end for the IWM which was drawn and posted 11 trading days ago (over 2 weeks) is exactly on spot. Be careful about 30 second soundbites explaining the market.
On all of that, the SPX hit $2000 today...
What is going on with the market after Europe closes?
And on the close, we know that VIX futures have outperformed their SPX correlation several times the last week, but look at Spot VIX which WOULD NORMALLY BE SMASHED TO PUSH THE MARKET HIGHER IN TO THE CLOSE.
AS STOCKS FELL, BONDS RALLIED, in fact I wonder if anyone finds this to be more than just an oddity that should be ignored because after all, the SPX did touch $2000 and closed at a new all time high?
USO was down a bit, presumably on the stronger dollar, although we had a trade set up out for a USO short as the charts looked horrible and USO has lost about 9% since, however, it looks like something may be brewing there, even if it's a counter trend move.
Gold and Silver were both down modestly on the day (-.37 / -.48% respectively), but as mentioned several times today, there appears to be something going on with gold which seems to be bleeding over to gold miners as well.
With gold and oil looking this way and CITI's announcement they have sold all $USD longs, it makes you wonder (as they never disclose anything that's not to their advantage unless forced to) whether they've already set up their $USD shorts and/or USO/GLD longs as commodities/precious metals typically move opposite the $USD.
As for the carry trades, almost all of them (JPY crosses) are negatively diverging from the market which means it's very likely that the carry trade financing for risk on leverage of AUM is being shut down as there are fears for what comes next and as long positions that were bought with the proceeds are closed.
I showed some Leading indicators earlier today and last week, HYG is clearly leading the market to the downside as it lead the market to the upside starting around 8/3 and through most of the rally with about 5 days now of leading to the downside.
Other than treasuries/ yields, some interesting activity in VIX and VIX futures, the Pro sentiment indicators have been right in nearly every day, here's what they are looking like now...
I MENTIONED BREADTH BEFORE AND THIS IS IMPORTANT BECAUSE IT WAS THE COLLAPSE IN BREADTH THAT MADE ME SAY ON JULY 31ST THAT I THOUGHT WE'D RALLY/BOUNCE BASED ON AN OVERSOLD CONDITION, BUT NOT THE MARKET'S 4% DECLINE, THE MARKET BREADTH DECLINE TO LEVELS I HAVEN'T SEEN FOR YEARS.
You might think that breadth would continue to improve as market prices make higher gains, you'd be wrong!
In fact, breadth made an initial gain from the close of 8/8 (the end of the base) to Tuesday 8/19 and has gone nowhere since, some even lower than they were in the 19th even though the SPX sits at all time new highs today on the lowest volume of the year.
Market Breadth fails to make anymore gains...
This is similar to the concept that a healthy market should see rising volume, but in this case, even a beaten up market should still see breadth recovery, it seems there are enough sellers to offset any gains there should have been in the indicator, after all, if stocks aren't crossing back above a moving average they recently slipped under, then they are quite weak.
AGAIN, COMPARE BREADTH AT THE JUNE SPX HIGHS VS THE NEW ALL TIME HIGHS! Just a reminder, there's no interpretation of this, it's hard math.
Also among breadth indicators (almost none moved which has been going on for several days now), the Russell 3000, Russell 2000, the NASDAQ 100, the NYSE and the NASDAQ Composite all saw their Advance / Decline lines stop improving as of last Tuesday, August 19th like the other indicators above, interesting given the market's move, but that's part of the cycle.
As for some more hard numbers, all 9 of the S&P sectors closed green with Energy performing the best at +.89% and Tech performing the worst at +.10% (think about the recent AAL charts).
Of the 239 Morningstar Industry/Sub-industry groups, 176 closed green, Biotechs and Energy were among the leaders, gold and silver were the laggards.
As for the Dominant Price/Volume Relationship, 4 of 4 major averages had the same one, the Russell 2000 had no dominant theme. The dominant theme was "Close Up/Volume Down", which is the most bearish of the 4 themes. The Dow had 19 of 30, the NASDAQ 100 42, the SPX 252.
Typically this results in a 1-day overbought condition, it's not as strong of an overbought condition as Close Up/Volume up, but often it will lead to a close lower the next day, however it was not dominant in all 4 majors (R2K excluded and that's a lot of stocks).
Finally there were a number of bearish reversal candles in the averages or their ETFs like the IWM's Evening Star, the SPY's long-egged Doji Star, the DIA's Shooting Star, the long upper wick on the Dow, the NASDAQ Composite's Evening Star, etc. The thing missing was increasing volume, which is key for these reversal candles to be high probability.
From everything I see, I think we are right there in the reversal process and the only thing left other than some more extreme indications/readings are the watchlist component stocks offering up excellent short entries which are starting to come around, AAPL was shown as an example, but there are quite a few more. I've noticed when there are a lot (and you'll see "Trade IDeas" flying left and right), we are at the final area within about a day or so.
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