I didn't realize how much of a change of character the SPX breaking its 5-day moving average on Friday really was, although it's far from the only change in character and surely not solely or even p\reasonably proportionately responsible for the market's weakness, it was a change of character well over a month in trend that is nothing more than a symptom of a change in character which leads to changes in trends.
I didn't want to jump to early conclusions this afternoon about the weakening of intraday divergences unless they took out all intraday strength complied on 2 and 3 min charts as well and I think for good reason. The SPY 1 min has at least regained confirmation status and its 3 min chart remains intact. The Q's are similar and the IWM holds on to positive 2nd 3 minute charts,
however I cannot see any accumulation of the pullback that was starting to get ugly as I anticipated might be the reason we were seeing that intraday move until/unless the 2-3 minute charts were destroyed and run over as well. As of now, it just looks like the wider footprint I mentioned earlier which is necessary for even a gap fill bounce as "V"or "Event" bottoms, rather than a process, tends to fail. TF (Russell 2000 futures) does show a little improvement as price started to decline to new intraday/weekly lows.
This is all really semantics in the larger picture, the break this morning after what we saw last week and specifically Friday when it should have been a quiet day are really the main messages of the market, but any bounce in to price strength can be used for better positioning and lower risk so we track it.
As for the market, take the SPX or even Russell in a similar position,
this is an exceptionally dangerous area to break below...
SPX's daily Broadening top. It's amazing how much these price patterns have been manipulated and have changed since the old textbooks, but in this case the top has its 5 points of contact , it has a shakeout move already that teaches the "Buy the dip " crowd who faltered for the first time since the phrase was coined and went bearish, to buy the dip as the proceeding rally essentially taught them "If a 10% decline is good, don't be afraid, a 10% decline is better...Buy the dip", which I suppose is one reason traders who make a lot of money in bull markets tend to lose it all in bear markets,
they can't fathom that something has changed and this time is in fact no different.
The head fake move ABOVE the Broadening Top is what's really dangerous, a bull trap and a supreme one at that. Today's SPX support / Volume which we saw as an intraday oversold event, was right at that trendline. A break below the trendline usually sees fear overwhelm greed and these tops fall exceptionally fast, especially since the October lows already took care of the top's shakeout.
The larger context and change in character...
A clear trend to a clear top.
As for leading indicators, there's not much that argues with both the decline today on Friday/last week's very weak market action below the surface, nor does it argue against the oversold condition from this morning and a bounce/gap fill.
Our Leading Indicator SPX/RUT ratio was leading the market negative as of Friday's close, it's in Friday's last post which means it was suggesting the market owe some downside as it had made a new low on the chart, but the SPX above had not.
This morning the market paid up that downside it owed, but that is only the near term trade. Like I said in the last post, I don't want to be myopic about intraday bounces when the market is standing on the edge of a cliff and we just not only heard, but saw a major fault line break in the cliff's face.
So in context of what the indicator has to say outside of intraday trade...
Here t is showing a negative dislocation ad the stage 3 "Rounding Igloo top with a chimney", the chimney being the head fake move up at the August cycle's stage 3 top. The indicator was clearly dislocated and moving down which lead the SPX to stage 4 decline and the Dow to a loss of 1200 points in to the October lows.
Then at the October lows the indicator diverged positively like many others forecasting a strong rally, but since, look at the size of the dislocation this time compared to the last that forced the Dow to give up 1200 points in 2 weeks!
The most recent negative signal is from mid-november to Friday, although on the whole, this is the worst dislocation well before the rally reached stage 3 top.
VIX was actually pretty tame today all things considered. However that does not negative the buy signal in VIX (1 of 3 signals in our custom DeMark inspired indicator), the previous two were spot on and VIX has been trending higher since the signal was given on 11/10 except for last week's lever of bashing VIX, but it's still higher than 11/10 and the Bollinger Band squeeze is indicating a highly directional move which is obviously up (VIX and the market trade opposite each other).
One of what I called the bigger events of the last week was HYG (High Yield Corp. Credit) distribution and the crack lower which broke lower again today.
"Credit leads, stocks follow" and HY credit specifically.
Point in case...
HYG (blue) vs SPX (green) showing the exact same area where we got a lot of other leading indicator sell signals at the September "Chimney" head fake high to the far left leading to October lows, but that was a large, but relative negative HYG divergence.
Look at the size of the HYG divegrence now vs the SPX!
Look at the recent leading nearly vertically down!
HY Credit has done the same , especially clear Friday and on a larger scale as
this is what the market is about right now...
A severely dislocated divegrence from SPX vs the last negative at the September highs to the left, can you imagine the downside HY credit is projecting relative to the September divergence/highs?
This is PIMCO's HY Fund, the same divegrence in to Friday with some intraday support (bounce) today.
However again...
In context, the last divegrence was the August cycle's top in September, then a positive at the October lows. Look at the size of the divergence now.
And pro sentiment last diverging at the same September highs and another HUGE divegrence relative to the last one that caused the Dow to lose 1200 points in 2 weeks.
5 year yields as well with some intraday help today on Treasuries pulling back a bit, but again this says bounce within a larger overall landslide lower.
The 30 year yield also leading the market lower on Friday's close and before, in line today as bonds lost some ground, like TLT (20+ year bond fund) being used as a lever for a bounce, this caused yields to rise and support the market intraday, one of the levers.
However,
once again I don't want to steer you in the wrong direction by focussing on a spot rather than the whole picture.
The last time 30 year yields diverged with the SPX also at the same September high, leading to October lows and the same HUGE divergence now picking up incredible downside momentum.
I can only imagine what this is telling us about the size of the move down which I have believed would be stronger than the October rally which you know I said would be a face ripping rally.
As for those yields helping out today on falling bonds and TLT, this is TLT's intraday divergences...negative on the open sending it lower and building a large positive all day, in other words, getting ready for a move lower in the market.
While I have to cover the near term trade for tactical purposes, now more than ever you need to keep the big picture in site as it is not something that's coming, it's here.
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