That said, it wouldn't surprise me if this move below key technical indicators that traders watch as if they were the only thing that mattered, may have its roots in the potential post Window Dressing bounce theory that couldn't begin until...Today.
Today the market is really showing you a sign of its weakness with the SPX down 1.32%, the NDX down -1.60%, the Russell 2000 at an official 10% correction and down -1.48% with the Dow almost neutral on the year with today's -1.40%, which puts it only up +1.34% on the YEAR! As we know the Russell is already down more than 5% on the year.
And Dow theory confirmation, the Transports were down -2.51% on the day, the biggest 1-day drop for them in 8 months. It looks like our timing on that entry was near perfect, but we haven't seen anything yet. This is EXACTLY why patience pays and letting the trade come to you gives you significant advantage.
I said I thought we needed to come down to the lower end of this week's range if any accumulation was going to occur for a bounce, but today's move was 1000% better as it created huge supply that could be absorbed on the cheap. Although I did switch some positions around at the end of the day, it's not because I've changed my thinking on the market, not even close. I do think it's likely that we'll have some more time for the market to put in some stronger signals before any potential bounce, however my half size positions are well covered by the gains they already brought in so I have some wiggle room, but if the 3C charts don't continue to show positive divergences as they did today, I'll be out of those positions faster than I got in them.
All of the major averages (except the R2K which has already broken all), broke significant moving averages that traders would pay attention to and take action on. As I was suggesting, this creates huge supply at cheap levels, very easy to accumulate and no one ever asks "Who's on the other-side of the trade?", as if their shares just disappeared in to thin air. Watch the volume around the time of the break of those 50 and 100-day moving averages. If the market bounces from this area, all you'll hear about is the support of the averages, but you'll know why it really bounced, it won't be because of some magical moving average or smart money finding value at those averages and deciding to get bullish.
The post-Window Dressing bounce theme from last Friday's week ahead post is still on the table.
While stocks were selling off, the safe haven treasuries were rallying. In fact, the 10 year's yield closed at 2.403% (interestingly as a sign of the European economy, for the first time ever Germany issued new 10 year paper at a <1 i="" yield="">which is interesting because it illustrates the flight to safety today in to treasuries with the 10-year's move being the biggest 1-day decline (yields) in 13 months.
I did see some evidence of some distribution in to the 10 and 30 year Treasury futures today, which may be indicative of some rotation toward equities for a bounce and it happened end of day, the same time I noticed some stronger 3C market signals and weaker inverse ETF signals.
For instance..
Some interesting quarter end data was out today as well. The quarter saw a huge plunge in High Yield Junk Bonds, the biggest quarterly loss since 2011 -1.7% and yields at 1 year highs. Because of the F_E_D's ZIRP Interest rate policies, the "reach for Yield extended to CCC and worse rated bonds being hit the hardest as people were willing to take on virtually any risk for yield as they believed the "F_E_D had their back", but there's a more ominous effect.... These cheap garbage bonds/credit saw new issuance fall to the lowest in 22 months, WHAT DO YOU THINK COMPANIES HAVE BEEN CONDUCTING STOCK-BUY-BACKS WITH? DEBT!
We already know the buyback party ended the previous quarter, but this just nails the coffin so the only marginal buyer of stocks left, corporate buybacks are effectively out of here which has additional market ramifications as we approach the end of POMO later this month.
Also of some interest today was how the system performed with a bit of pressure on it, the CBOE Futures like VIX shut down at 3:42 this afternoon (EDT), we've seen several other , actually quite a few market cracks, declarations of self-help and the such, meaning, once the real nasty stuff hits the tape, you have to wonder how robust the market actually is and the panic it will create when traders can't get out of losing positions due to a broken exchange, just the latest example today for those trying to buy (or sell) VIX Futures on the CBOE (or any other futures).
I caught another mainstream financial media source talking about market breadth today, they were focussed on the NYSE New Lows at 14 month highs, I really wonder how ignorant the vast majority is to what's really going on under the hood or the pier as it might be?
Speaking of which, breadth declined today as you'd expect. On an intraday basis, TICK and my custom TICK indicator show some interesting things...
However, the breadth damage is done. Among other things, the New High/New Low Ratio hit lows not seen since 4 years ago.
The NASDAQ Composite's Advance/Decline line is almost unreal when you look at the NDX still where it is, it won't be for long...
As for our daily tracking, the Dominant Price/Volume Relationship was Dominant in Everything but the Russell 2000 which had co dominance of Close Down and Volume Up and Close Down and Volume Down.
All of the other averages had a dominant relationship of Close Down/Volume Up, 21 of the Dow 30, 73 of the NASDAQ 100 and 307 of the S&P-500. This relationship represents a short term oversold or mini-capitulation event and most often the market closes higher the next day.
Taken with the other indications, it's probably not too far off from such a bounce (either this week or in to next week-obviously depending on ongoing divergences). The 9 S&P groups had 1 close green, the Flight to Safety Utilities at a +.57% gain with Materials lagging at a -2.36% loss.
Looking at the history, we see a major negative shift...
As for the Morningstar Industry/Sub-Industry groups, only 12 of 238 closed green today. On a 5-day basis that's 15 of 238, on a 10-day basis 10 of 238 and on a 21-day basis, 16 of 238 closed green.
As for Leading Indicators, HYG was pretty much in line with the SPX which is better than a stick in the eye looking for a bounce.
Well that's what I have for you tonight, the divergences end of day that were enough for me to close some core shorts and open some smaller leveraged long IWM/QQQ, breadth significantly oversold as well as the next day Price/Volume Relationship along with the S&P and Morningstar sectors with several leading indicators leading positive.
It's up to 3C at this point to confirm, if I see that, I'll likely bring the short term long positions up to full size before returning back to a full short positioning other than a few small longs like MCP.
It's starting to get exciting and even better, profitable.
Have a great night!
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