Once again, we saw an overnight ramp of Index futures higher and as 3C early timeframes signaled, exactly what we expected from the as posted yesterday, Daily Wrap, market happened...
"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...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."
In fact, the Dow swung OVER 950 points today.
This isn't that much different from Monday, with Friday's Daily Wrap forecast for Monday,
"After seeing some late day action, I'm thinking Monday will see weak opening trade, that's based on how the charts ended the day. These are the 1 and 2 min charts..."
And from Friday's Daily Wrap with regard to what 3C said about Friday's action on Thursday...
"It was very clear yesterday that we'd have a week start to the day and was posted numerous times yesterday, all based on the concept that 3C divergences pick up where they left off and we left off Thursday with some very ugly ones".
Other than the concept of 3C charts picking up where they left off on the cash open NO MATTER WHAT HAPPENS OVERNIGHT, I think the take-away here is Thursday we saw the first signs of a strange "spook" in the market. Friday, although it was an op-ex max-pain (weekly) pin day, early trade was aggressively sold. Monday early trade was aggressively sold.
TODAY, EARLY TRADE WAS AGGRESSIVELY SOLD. I don't think we can ignore that, since the seemingly spooked market Thursday which I suspect was an early head's up of Obama's "Boots on the ground" in Iraq, the market hates uncertainty.
??Friday and yesterday we have been looking for follow through from Thursday's signals, Friday being an op-ex day we didn't see any, yesterday being down most of the day allowed no opportunity to sell in to higher prices, but today for a brief while, it was different, we were up and the 5 min charts that had started to infuriate me because of no movement, suddenly have moved.
As for next morning signals, it's very difficult tonight as the averages are all over the place, SPY has a 1 min positive, the QQQ and IWM are roughly neutral.
As per today's post, I think we do get that bounce in Crude/USO, just remember the caveats.
As long as we continue heading in the direction we are, which I suspect a monkey wrench as everyone knows what I just said above about the market the last 3 days, whatever everyone knows, isn't worth knowing, however I'd suspect a short term monkey wrench to throw the pack of the trail and I think the decay of 5 min charts carries on, likely while the monkey wrench is being thrown in there. As I said, they need higher prices to unwind those positions so the two ideas are not at odds, they compliment each other and they give us exactly what we want in doing so.
While the 1 min charts are mixed, ther are some hints along the lines of what I just mentioned above, namely the Dominant Price/Volume Relationship among the component stocks that make up the major averages.
While the Russell 2000 had no Dominant Relationship today, the rest of the majors did, the Dow with 14, the NDX100 with 52 and the SPX wwith 220, the relationship was Close Down/Volume Up. This is EXACTLY the same next day concept as the parabolic drop today on big volume, it typically signals the end of that move and the start of a relief bounce which I suspect we see tomorrow with distribution in to it.
The S&P sectors had 7 losers, 1 gainer and 1 flat. Utilities outperformed at +0.28% and Materials underperformed at -1.12%.
Of the 238 Morningstar groups, 107 closed green, the rest red.
What I like about these internals is that they are not extreme, they do point at a bounce, but not an extreme one which would fit with the 5 min charts falling apart in to some higher prices.
Additionally our SPX:RUT ratio was positive at he lows today with a small VIX Term Structure buy signal as well, very small.
TLT also underperformed at the EOD, suggesting some help as they activate the levers (TLT/VXX/HYG). Speaking of which HYG outperformed at the EOD as well, VXX was in line so they also point to what we have been expecting today.
Yields are still very negative, but they can get worse while the market does it's thing, it would actually be a stronger signal for our timing purposes.
I'll continue to add more trade ideas that are on our terms such as today's, Tech Set-Up (XLK / TECS) along with the others, but remember, WE DON'T CHASE AND WHILE IT'S HARD, PATIENCE PAYS.
If I see anything in futures before I turn in, I'll let you know. Around 4 a.m. tomorrow morning an adviser to the EU Court of Justice will say whether the European Central Bank’s Outright Monetary Transactions program overstepped the law in a non-binding opinion that may signal whether QE must also be reined in. This is going to be a big deal for the market before the US open, however, it's a non-binding opinion and as JPM and GDS have pointed out, ECB QE is fully priced in, at this point there's little it can do other than disappoint if it ever sees the light of day, but just so you know if you see anything strange in the early hours around 4 a.m. EDT.
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