The Week Ahead

Usually we'd have some very strong short term signals and we've been able to call the week ahead action pretty accurately, at least the trend, the timing may be off by a day or two.

I don't see anything that's standing out in the averages either way so if I had to make a call, I'd say more of the same, more lateral chop which in the cycle is stage 3 top/reversal process, the size of it vs. the size of the base is what we've observed numerous times in the past so nothing is out of the ordinary there. I saw a carry trade shoot up like a rocket last night and Index futures that would normally follow it tick for tick, completely ignore it. I've seen the second attempt at an HYG positive divegrence (short term) completely fail today and I've seen HYG lead the market consistently by 4 to 7 days, it's solidly in stage 4 decline.

A head fake move whether  a stop run or false breakout is very useful in timing for a downside or upside move, if you look at the averages and their early August base, almost all had a head fake/stop run just before entering stage 2 the next trading day. In this way a head fake move is very useful in timing entries in equities, however we already have very useful equities giving signals while stocks like PCLN, a market leader, completely ignore the market through this August move and instead move down and crack through its 200-day moving average today, the same kind of breadth deterioration I posted in last night's daily wrap (10 days of breadth improving off incredible lows, 11 days of no movement at all and yesterday a reversal back down just as PCLN is showing us today.

The ECB was a bust. For all intents and purposes, while the headline NFP print seems bullish, the components that Yellen is watching for came in strong so it's not going to derail what the F_E_D is doing.


HYG Credit is diverging negatively with the market this afternoon as are most other leading indicators.

I think we'll get our opening to the shorts, SCTY just hit another alert. I don't think it matters really whether the market can pull off a head fake or not, the assets we are looking at as trades, are doing what we need them to do.

Based on breadth, HYG and multiple other things noticed this week (no follow through, ECB flop, etc), I feel pretty strongly the market will enter stage 4 decline sometime next week and I think we'll be glad to have entered and filled out the shorts that we are looking at.