"Finally, as I said in the week ahead forecast, I think early Monday we'll see some weakness, perhaps in to a bounce later in the day and maybe in to Tuesday, I expect HYG to decline from there as it has already started falling apart. If the 3C charts don't put together an intraday positive after Monday morning, the market will be in big trouble fast, however based on breadth like the S&P and Morningstar sectors, I'd expect at least 1 day of correction to allow them to try to work off some of that oversold tension, but oversold can quickly turn in to bear material, that's how this market will end.
Have a great weekend."
As I said this morning, I don't like it when a bunch of people are calling for a top at the same time, the market always finds a way to make the greatest number of people at any one moment, WRONG.
So we had 2 Hindenburg Omens Thursday and Friday, the clusters tend to be more effective. As I said this morning, the H.O. alone doesn't impress me, we've seen many come and go with nothing following, however they do tend to almost always precede a bear market or major decline, which would suggest they are not a forecast of a decline, but rather a pre-requisite that is present before most major declines.
I also mentioned Prechter of Elliot Wave notoriety saying they are short the 3 majors averages, this was Friday.
In addition, UBS's Art Cashin has noted how Sept 22nd, especially after new all time highs, tends to lead to market crashes.
BofAML also came out ad noted the bearish seasonality of the week after triple/Quad Witching in September as being one of the worst weeks of the year (Quad Witching was Friday), with the SPX down 62% of the time over the last 32 years and down 10 of the last 12 years.
EVERYONE apparently knows about the Russell 2000's DEATH CROSS today,
The death cross is considered a bearish (although we've known that about the R2K for quite sometime, especially as this is the average that should lead risk on rallies) cross-over of the 50-day moving average below the 200-day moving average, we've been talking about it for about the last week, but now it's out there for everyone to see.
A long term member also pointed out that in the vicinity of out Igloo w/ Chimney top which was predicted over 3 weeks ago, are some interesting moving averages...
And the DIA on a 60 min chart with a 50-bar moving average sitting right there, all technical no-no's that can shift sentiment much more than it already is.
Keep in mind my last paragraph from Friday's Daily Wrap and specifically...
"If the 3C charts don't put together an intraday positive after Monday morning, the market will be in big trouble fast...
oversold can quickly turn in to bear material, that's how this market will end."
Keep these two sentences in mind throughout this post.
I digress... Compared to last week's F_O_M_C, Scotland's independence vote, the BABA IPO and AAPL's I-Phone 6 release, this week is pretty boring, although we do have some important macro economic data culminating with the 3rd revision of Q2 GDP on Friday, however, there's a distinctly different flavor and last week seems almost perfect in hindsight for the head fake chimney move we forecasted the previous Friday.
Trade was ugly from the overnight session as the "It's different this time" crowd quickly found out from the BOJ, the PBoC and the ECB that they'll not likely be substitutes for the F_E_D's lack of liquidity as QE ends and rate hikes start. The conspiracy theory that the F_E_D was passing the mantle off to these other central banks was blown to pieces over the weekend although Draghi did seem to try to walk back some of the weekend hawkishness from his comrades today during a speech, but what is clear and reflected in overnight trade as well as early trade, the punchbowl is finally being taken away, NO IT'S NOT DIFFERENT THIS TIME, IT NEVER IS!
The averages looked like this today, kind of an inverse European close effect...
All closed lower, but that right turn we wanted to see earlier this afternoon/late morning based on our forecast....If the 3C charts don't put together an intraday positive after Monday morning, the market will be in big trouble fast... actually was there right on time, which is really just about allowing certain watchlist assets complete their process and offer us the best entry and lowest risk mostly on the short side. The green arrow is the European close.
I always warn about the F_E_D / F_O_M_C knee jerk effect, but here's the evidence of those warnings...
All major averages have lost all gains since the F_O_M_C knee-jerk reaction last week except the Dow, still hanging on to a minor gain. The Russell 2000 is down about 2% since the F_O_M_C (yellow). The R2K saw its biggest 2-day drop in 5 months in addition to its Death Cross. The R2K is now down -2.5% for the year to date and -6.8% from July highs.
Of the 9 S&P sectors since the F_O_M_C, the defensive Healthcare is the only one still holding gains.
The VIX, which I have posted numerous times as a picture perfect reversal process...
An inverted Igloo with Chimney reversal process and head fake move, saw its biggest move up in 2 months.
As we are watching Gold and GDX and to a lesser extent, Silver (because of the manipulation), Dr. Copper was down 1.52% on China growth issues...
Copper vs the SPX (green)...
You saw today's important near term and longer term Leading indicators, an important post...Leading Indicators / TLT Update
Keep those in mind as you look over the next series of charts as well as what the two important sentences were from Friday's last paragraph of the Daily Wrap
"If the 3C charts don't put together an intraday positive after Monday morning, the market will be in big trouble fast...
oversold can quickly turn in to bear material, that's how this market will end."
On the divergences front we expected to see based on a very oversold breadth condition in the market that can quickly turn from simply oversold minor bounces to what I warned of in the same paragraph right above...
Along the lines of positioning, our HLF short was down -10.31% today, putting it at a -37.5% gain...
Our SCTY position (short) is at a +15% gain, FXP just entered is at a +14% gain, NFLX is at a +7% gain, FSLR short is green as well, but there are still a lot of great looking set-ups, almost there.
QQQ 30 min leading negative right at our head fake move...
However, this powerful 2 hour chart shows you how long IWM has been under distribution and just why it's acting so bad with 40+ % of its component stocks already in a bear market.
Now, given the divegrence, keep this in mind.
Our Dominant Price Volume Relationship saw a STRONG Dominant relation in every average, 25 of the Dow 30, 89 of the NASDAQ 100 , 1506 of the Russell 2000 and 415 of the S&P-500, the relationship was Close Down/Volume Down or what I call, "Carry on". The volume was bound to be down vs. Friday's Quad witching, but the sheer number of component stocks down on the day (and that's just 1 of the 2 down relationships) is overwhelmingly bearish and 1-day oversold.
Of the 9 S&P Sectors, EVERY ONE closed red. Of the 239 Morningstar groups, 227 of 239 were red on the day. This is one of the worst 1-day oversold conditions we have ever seen.
However, t doesn't stop there, take a look at a few of the breadth charts, I added many more last Friday and Thursday...
Can you see the destruction in breadth right at our head fake move?
And now...
THE YELLOW ARROW IS WHERE THIS INDICATOR OF DEEPLY OVERSOLD STOCKS WAS JUST 2 DAYS AGO.
Basically, the conversation I suggested you consider between the best entries and the big picture, as I said Friday, is pretty much no longer a dialogue, although we'll always try to get the best entries, it's a necessity now in my view, I'm prepared and very excited for an opportunity I think no one alive has seen.
However, one bridge at a time, the next thing is whether those divergences hold and what assets are giving the best entries and the lowest risk, you saw the Financials post today, FAZ Trade Follow Up/ Set-Up I think this is a great set-up, there are many more and if that bounce can hold and it should on a market this oversold, we hit the jackpot. If it doesn't hold as I mentioned in red from Friday, we still hit the jackpot. There's almost no downside, based on nothing but downside.
I suspect we get out early week bounce, HYG's chart seems to support that.
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