Futures Update

As promised, here's a look at your futures update.

The long and short of it so far as I can see, the IWM needs a bit more upside, the Crazy Ivan head fake has to be clear, it needs to be a clear breakout, that's the entire point of a head fake move around such a visible range such as the one we have in place. However, the charts showing the distribution in the levers which I expected to see first and today wasn't such a surprise as well as the charts showing distribution in the Index futures (are more of a surprise being the IWM hasn't made a clean head fake move yet) as well as distribution in the averages which also came as a surprise this early is a process well under way as well as accumulation in assets like the leveraged inverse market average ETFs which typically give signals first and more clearly, this I found somewhat surprising.

I think some people are surprised by the strength of the move, but I'm not sure why as IWM $118+ was the target from the first day this theory was mentioned before we had any objective evidence. The head fake move concept is the mass psychology reason behind the move, thus after a week like last week, it has to be strong, it has to be convincing, it has to pull the longs in frenzied fashion, that's how the head fake move works, much like the downside break which provided the biggest Small Cap/Russell 2000 short squeeze in 3 years, it's the same concept although in reverse.

 Russell 2000 makes a head fake move or failed break down which occurs the day after we notice some things and use mass psychology analysis to forecast a breakout above the 6-trading week range, but a breakout that ends as a head fake move or failed break-out creating a bear trap. Monday/Tuesday's break below the range was a bear trap, remember the market was continuing last week's worst weekly performance in 3 years for the Dow and worst weekly performance in 2.5 years for the SPX, so Monday's break below the IWM's clear range would have been shorted as the move below serves as confirmation for technical traders, one of the easiest bear traps and the reason we avoid shorting initial breaks of support like the initial break of a head and shoulders top's neck line.

The levers we saw being accumulated Friday, Monday and Tuesday started the initial move as you can clearly see in HYG as it made a higher low as the SPX made a lower low, leading the market higher until short stops were hit and the squeeze was on which is exactly what we forecasted would happen. So distribution in the levers is not surprising to see first.

However this does not look like a clear, clean and unquestionable breakout in the IWM as we forecasted even though it hit the $118 level, the move was to be > than or ABOVE the $118 level as that represents (roughly) the top of the range.

The higher this moves, the stronger the bull trap and the more opportunity for distribution which we are seeing tonight in some strange ways, well what appear to be strange, although it's something we see quite often.

 ES/SPX Futures 1 min chart tonight. Note the very flat range in the ES chart since the close, this looks odd compared to the cash market just before, however as we often say, when the market seems a little too quiet as it does tonight, "It's like the kids in the room next door being a little too quiet, you know they are up to something".

Beyond that, these flat, seemingly dull price ranges are where we see the strongest underlying trade, whether distribution at a top or accumulation at a bottom and 3C is showing a large negative divergence in to the overnight session, which doesn't mean the SPX is going to fall immediately, the divergence needs to migrate to longer timeframes, but that process too is underway which is a bit surprising being the IWM hasn't made the upside breakout move that will gain the attention of longs, although the percentage move certainly has, they love to buy "confirmation " or short it which is dangerous as shorts found out early this week under the Russell 2000's range, catching them in a bear trap.

 TF 1 min is also in a latter range with an equal negative divegrence.

NQ 1 min also in a flat range. This may be op-ex related as the max pain pin is most often right at Thursday's close, yet the distribution signal is clear, smart money is selling/shorting this price strength.

 NQ 5 min's accumulation earlier in the week and a negative divegrence growing stronger on a strong chart. I expect this will be a much sharped divergence tomorrow and close to the area where we would make a short call for a downside reversal.

 Ultimately the 7 min chart matters the most, it was the longest chart to go positive before the move thus it has to be torn down and so far we have moved from the weaker relative divegrence to the stronger leading negative divegrence as you can see, gaining strength on the chart that matters the most.

As for Treasury Futures, they should continue to see accumulation and I'm leaving the 2x long TLT position open (short TBT) as the 1 min chart is showing clear accumulation of 30 year treasury futures.

 ZB 1 min 30 year treasury futures. Remember that yields which tend to pull price toward them trade opposite the Treasury itself so a move up in the 30 year Treasury is a move down in 30 year yields, thus exerting downward pressure on equities so this positive divergence is important , especially as this was one of the 4 ramping levers.

 ZB's 7 min chart which is also its most important timeframe is seeing migration of the divegrence from the shorter timeframes and has thus far put in a relative positive divegrence. "Relative divergences" are the weaker form, but being the divegrence is just migrating to a much stronger 7 min chart, it will start as relative and start to lead just as the NQ 7 min chart above began with a relative negative and is now in a leading negative divergence.

Another of the 4 ramping levers, USD/JPY...

 There's a 1 min negative divegrence in USD/JPY which doesn't mean a lot overnight on a 1 min chart so we look at the single currency futures for more guidance.

USD/JPY is already losing its ramping ability which is strange so fast as yesterday or rather Wednesday it was nearly perfectly in line and leading the SPX/ES.

USD/JPY 60 min candlesticks vs ES (purple line), note the relative performance as ES and USD/JPY have dislocated, they typically revert back to the mean which leaves ES over-extended without the support of the carry pair.

 $USDX 1 min showing a negative divegrence which it wasn't earlier today.

The divegrence is now showing up on the 5 min $USDX chart as well which it also wasn't early Thursday. Downward pressure on the $USD puts downward pressure on USD/JPY and the index futures which are already dislocated from its support.

 Additionally the Yen 5 min is leading positive, indicating a move up coming which also pressures the USD/JPY lower.

 And now the $USDX is showing a 7 min negative divegrence in to a lot of parabolic price activity, which as you know, I never trust parabolic moves up or down to hold.

The Nikkei 225 Futures.

 I had forecasted a move higher in the Nikkei Tuesday as well, the Nikkei remains strong for the moment, in my opinion the US markets will break down first and the Nikkei will follow so to see it also seeing distribution is good confirmation of the broader concept or theory which has already proved itself to be more than half correct, the other half is the days ahead and the initial signs are that the entire concept/theory which is based on the 3rd type of market analysis, Mass Psychology (with Technical and Fundamental being the other two). This entire concept and forecast started as a Mass Psychology on Friday of last week during a VERY ugly market, the worst weekly performance in 3 years, the call was followed by technical confirmation Friday, Sunday night, Monday and Tuesday with price confirmation Wednesday and Thursday right to the day as we predicted the F_O_M_C knee jerk reaction, which is almost always the wrong move and is almost always reversed within a matter of days (like the last two F_O_M_C meetings were) would serve as the "front" for the move. Anyone who listened to the policy statement and Yellen would not have called that a dovish or bullish meeting, however, as also predicted, price tone would set the initial interpretation of the F_O_M_C. Reality will reverse it.

Also of note as we have a long speculative call position in USO, it seems to have put in a solid base, the thing the market was missing on a "V" reversal which is why I decided not to trade it, not because I didn't believe it would make the strong move, but because I don't believe the move can be trusted in that I believe without the strength of a solid base, it could fail suddenly and quickly, maybe too quick to get out of the way, especially on a gap down and I'm not going to jeopardize my core short positions which are the highest probability.

As is often said, do not make long term decisions based on short term events.

 The 15 min USO positive divegrence, but more importantly as I believe it will be a short squeeze, it has a solid base or such a move which can support an extended move higher.

The typical and solid "W" bottom. Watch for a head fake move below support, this would be an area in which I would consider raising the call position from speculative to a full size position as that would be an excellent entry. Also note on this more detailed 2 min chart the increasingly positive divegrence at the same price level (the second bottom in the "W") indicating a stronger base that's likely very close to lift off.

I do NOT see this as a trend reversal, but a short squeeze, thus the use of leverage via options (calls).

Tomorrow (Friday) is an options expiration day, so watch for the max pain pin, but it is also Quadruple Witching  we could see some crazy volatility as Quad witching is the expiration of stock index futures, stock index options, stock options and single stock futures. 

See you in a few hours.