Broad Market Update

So far today's price action is almost EXACTLY what the Week Ahead post forecast, early strength in the morning morphing in to weakness later in the day, this was seen on 3C charts as 1 min positives in to the close and 2 and 3 min negatives after that. I already mentioned the two reasons I suspected we saw those, 1) Mutual Funds Fiscal year end and 2) the psychological greed factor over a weekend.

Continuing where Leading Indicators left off, here are the 3C charts. For one thing you'll see things look a whole lot different when you are looking at underlying trade (flow of institutional funds) and leading indicators then they do just looking at price alone, although price alone's lack of follow through on the BOJ QE is telling in and of itself, if you can suppress the emotions of fear or greed and how the market personally related to you (which it doesn't, it doesn't know or care about your positions) long enough to listen to the message of the market in objective fashion. 

While a 0% move in the averages may not seem like a big deal, put it in context of a bearish monthly hanging man, a bearish daily hanging man, the BOJ's decision which "should" (presumably) not have just went from all out risk on to risk off and those are just the price movement messages without anything else.

For instance, last week the divergence between the Dow Industrials and Dow transports despite what Crude was doing, was a tell that I'd certainly have been paying attention to if I didn't have other resources.

 Dow Theory confirmation/non-confirmation between Industrials and Transports, sort of the same as our newer indicator, the SPX/RUT Ratio.

There are many different ways to note the discrepancy in the high beta/momentum transports (especially considering oil) vs the Dow Industrials, I'm using one of the most over-looked and useful child indicators you can add to just about any indicator and enhance its performance, Rate of Change as the concept is simple, "Changes in character lead to changes in trends", thus a Evening Doji Star or Hanging man's intraday lack of price movement is a negative change in character and both candlesticks are considered bearish probable changes in trend.

 Note how much deeper the divegrence in Transports Price ROC is vs the Industrials.

Furthermore, this intraday chart of Transports (1 min) is a common theme today along the lines of "A quiet market is a dangerous market). 

Note the flat range in price today, often we see these and they are quite boring, but other than divergences against a trend, divergences in a flat range are some of the strongest and most common divergences. I think the Japanese identified this hundreds of years ago with patterns like Stars and Dojis; 3C just puts a face on what they discovered using candlesticks.

Intraday Transports 3 min in line as the price trend is moving, but as it goes flat, intraday distribution picks up significantly, the same applies for accumulation in flat ranges as well, thus the morning Doji and Doji Star's bullish bias.

As for the averages, again take note of the flat intraday price ranges and changes near or at it as well as what 3C looked like in many of the averages and Industry groups going in to the HYG positive divegrence on October 30th and you get some idea of why HYG was called up and why the divergence only reached as far as the 2 minute chart.

 HYG's positive in to the 30th and a strange upside print then a negative divegrence building as of Friday leading to a gap down this morning.

 SPY 2 min, just looking at this chart alone since Friday, it seems to me that smart money knows Japanese QE is not going to replace F_E_D QE and it's more than likely there to absorb the GPIF Pension fund's liquidation of JGB/Bond holdings in to a completely illiquid market, something that would have triple effects not only for the GPIF, but every holder of JGBs from retirees, those who are building a retirement portfolio, institutional domestic and foreign funds, etc. not to even consider the shadow banking and rehypothecation scenarios.

 SPY 3 min leading negative in to this afternoon's pump, around the area VIX was smacked this afternoon.

The 5 min chart's trend in SPY

And of course the larger picture, 30 min SPY trend and much larger flow.

As for this being a toppy area and expectations (BEFORE the move started) that we'd see a lower low after this move, that was all in place long before any thought of a move higher.

SPY 4 hour 3C chart's trend, it's very similar to the breadth trend which makes perfect sense as something has to be sold for 3C to move like this, as of late last week there were barely 50% of stocks above their 40 and 200 day moving averages despite nearly being at a new high. Immediately the Pier and rotten pilings analogy pops in to my mind, except I don't think it manifests as a dilapidated foundation slowly giving way and crumbling in to the ocean, it seems to me to be more likely that a storm slams in to it and it's just gone.

 QQQ 1 min intraday and the flat range / distribution.

QQQ 5 min trend from the lows/ V-base to the highs and 3C leading negative at a new low.

The 5 min chart is important to me because of it being the fastest timeframe to show institutional size activity intraday, thus the leading negative at the flat range today tells us a lot about underlying trade way beyond what price alone shows.

 QQQ 15 min trend from a relative negative divegrence to the stronger leading form, this is where divergences get ugly very fast.

And the QQQ 60 min chart with the August stage 1 base, the rally/Top and retrace of the entire August cycle to a new lower low as we were looking for with an even worse divergence on this move which is much more parabolic for a reason,  the reason hasn't changed since before the move started, The Psychology of Swinging Sentiment.

As far as making a lower low, the 2 hour QQQ chart and the very serious deterioration from the August cycle and even worse in to the October cycle.

Again, I DON'T trust parabolic moves  ever and this entire rally has been a parabolic move.

They tend to end as spectacularly as they rise (or fall depending on the trend of the move).

IWM intraday during a flat price range today.

IWM 3 min during the same flat price range as well as Friday's buying, I suspected a bull trap in the week ahead.

This is the same chart zoomed out and with the HYG divegrence added, note how 3C falls apart around the area, it seems HYG was brought in to finish the trend as the distribution was getting so heavy it was likely not going to go much further without a lever... HYG.

 And the institutional 5 min chart intraday in to a flat range.

 The larger 15 min trend and a deep leading negative divegrence. The longer the timeframe, the less detail, but the more clearly the trend is displayed and the more important the signals as they represent much larger flows of funds.

 And why I think the R2K will make a lower low, this is the trend throughout the year and the reason I think the Russell 2000 has essentially already topped.

XLF for the FAZ longs intraday , Friday was bad, today was worse and I'm not using any data that was missing from Thursday.

 XLK/Tech 5 min , again note the change in 3C around the time the HYG divegrence was able to support the market.

XLK 10 min

And XLK 60 minwith distribution in to the August cycle's rounding top at "!" and the Chimney in most averages at "B" and how 3C has fallen drastically short of any type of confirmation on the last move at "C"

On a 2 hour chart, this move wasn't even showing up as accumulation because it didn't need that much as sentiment did most of the work(short squeeze), however this tells me something about the primary trend/big picture and why I'm confident in lower lows and comfortable holding shorts here.