Daily Wrap

Today was a dichotomy, in some ways very interesting, in other ways very dull and in many cases, one event was both at once.

I think two of the most exciting things about today were conceptual, if you look at Friday's Daily Wrap, we had very clear 3C deterioration in to the close on 1 and 2 minute charts all around, the concept of 3C picking up where it left off almost seemed like it might fail this morning after I looked at futures and they were up on ECB QE chatter, then comes the cash open (which is when the concept works by the way), and exactly as 3C had ended Friday, in a nasty decline, the market made the same nasty decline with USD/JPY being the mechanism to bring prices lower, yet the concept of 3C picking up where it left off, even over a weekend or long weekend and even when futures are ramped higher just an hour before the open from ECB/QE chatter earlier in the morning, THE CONCEPT HELD AMAZINGLY.

5 min chart of USD/JPY (candlesticks) vs ES (purple), note how they linked up just before the US open and tok the market down in parabolic fashion, in line with 3C's closing 3C stance late Friday.

Also the parabolic move and how I never trust them, whether up or down, they always seem to give back a fair portion if not all.

The opening decline was the worst opening first minutes for the SPX in more than 2 years. All of the F_E_D's Charles Evans' "Catastrophe" gains from last week were wiped out this morning and then some. 

Toward the end of the day there were some pretty solid positive divergences in the 1 min range mostly, yet not much behind them so I suspected that we'd likely see a move higher tomorrow morning , maybe longer. Here's a few examples of what appeared to me to be a weak move getting ready to start (one of the reasons I threw out the transports and Financials trade ideas) ...

 SPY 1 min positive today...

However, no movement or migration to the 2 min chart which would normally tell me to look for some early gains and then a failure of those early gains.

There has been virtually no movement whatsoever on the 5 min chart, it's almost as if today didn't happen with respect to that chart, one of the strange, "Dull" items contrasted against the open.

The QQQ 1 min with a positive, but remember what it looks like in context, not so positive.

 Yet again, at 2 mins there's a negative divegrence, which again would suggest some early price strength that fades.

 And the QQQ 5 min chart, again, almost as if today didn't happen.

The IWM 1 min chart (not pictured) is negative, the 2 min chart above is negative, the 3 min chart below is negative.

IWM 3 min.

And while the 5 min chart is not negative, it's not in good shape and again, almost as if today didn't happen. 

These 5 min charts "can" move in an hour or so, after a full day, I really thought we'd see some movement whether more positive or negative so that was strange, a dichotomy as it was dull, yet the opening trade was far from it.

So toward the close I was thinking we may see some upside early tomorrow or through part of tomorrow followed by weakness, VXX and TLT also had similar confirmation, however I may have to revisit that thought on how futures look tonight.

Just before the close, 2015 F_O_M_C voting member and noted dove, John Williams of the San Francisco F_E_D said that a "June" rate hike is "reasonable" on job gains and that the labor market continued displaying "strong momentum". It's not so much the June rate hike, it's the dove that delivered the message, which if you recall last week after Evans made his dovish comments that a rate hike too early could be "Catastrophic", the same day the unofficial mouthpiece of the F_E_D, the Wall Street Journal's Jon Hilsenrath, came out with a piece that seemed to totally ignore the Evans comments and make the case for rate hikes as if it was damage control to the Evans' comments.

In any case, one of a few reasons I'll want to revisist futures and anything else I can find is the reaction to the late day comments from Williams...

In afternoon trade (all of the major averages), you may recall the signals in which I thought the SPY and QQQ would try to ramp in to the close as posted this afternoon in Splitting the Difference- SPX vs RUT

Whether that last run was going to be the ramp in to the close or not, it is when Williams' hawkish comments , delivered by a dove, came out and the market reaction "seems" to have not been favorable.

I'll admit, this is not much in the way of evidence to go on, the chart above and these 1 min Index futures just after...

 ES 1 min futures with deterioration after the close. It's not popping off the chart, but this is why I want to revisit it later as the Williams comments are rather new for the market.

And NASDAQ 100 futures with similar behavior.

There are other leading indicators suggesting a near term bounce (tomorrow) like our Leading Indicators, both Pro Sentiment, HYG is also leading the SPX although there is that distribution/3C negative divergences in HYG as shown later this afternoon. High Yield Credit assets are either in line or in one case leading by a small amount (basically the later half of the afternoon).

Arguing against a bounce or at least calling a bounce "weak" are yields. I showed them to you about an hour before the bind market closed and they are leading the SPX lower, especially the 30 year yield.

Speaking of which, I don't want to be too myopic about the market and not pay attention to the larger signals that are really more important.

This is the SPX (green) and the 30 year yield (white) since QE3 ended on 10/31, the 30 year has lost about 60 bps  since, leaving the SPX pretty dislocated to the upside, or as I might say, "Owing some downside."

Either way, it seems like we are back to where we started in an almost no lose scenario, if the market gives us a weak bounce to short in to or add short positions, great. If the market continues lower, our shorts keep working and that's great too, although I'd like to have as much advance notice as possible and I know you would too.

The Dominant P/V Relationship is all over the place tonight, the Dow and NDX are the same as Friday, Close Down/Volume Down with 14 and 48 stocks respectively. The Russell 2000 has no Dominant relationship at all and the SPX is 203 stocks at Close Down/Volume Up which is often a 1-day oversold condition with the next day bouncing.

Eight of nine S&P sectors closed red. Healthcare led at +0.04% and Energy lagged at -2.88%.

Of the 238 Morningstar groups, only 57 closed green.

Overall this isn't a VERY strong oversold condition , but it is an oversold condition. Considering Leading indicators (mostly Pro sentiment and HY Credit) and the 1 min 3C charts in the averages, I'll assume for now that the most probable course is some price strength tomorrow, but as it sits now it doesn't look like it will have much support and that may be what they're waiting for on the 5 min charts, some upside to unwind positions that were accumulated last week in to higher prices.

I will check on futures later tonight and post anything out of the ordinary. I just don't know whether the Williams comment will have an immediate impact, especially if smart money is trying to get out of the bounce they set up last week, they'll need higher prices to do it.

So we'll go from there, as you saw today and last week, there are plenty of positions that are very weak right under the surface like transports, so some upside would be great to short in to and I know many of you have been looking for that since the decline from late December highs. Again, patience pays.