Daily Wrap

Today went surprisingly about as close to our Friday The Week Ahead forecast as could be, in fact on such a minor morning forecast for the new week, I've already had several members tell me they made decent money as the forecast was correct, but not the biggest move by far.

The open of Index futures last night just didn't look right, despite there being ample reason, although one would have thought it would have been fully discounted which it appears it was, I'm referring to the widely predicted Syriza win in Greek elections Sunday which put Alex Tsipras in the PM's seat with Syriza, the anti-austerity (perhaps you might say anti-bailout party) at a near majority taking 149 of 300 seats and then later forming a coalition government with the right wing (also anti-austerity) Independent Greek party.

Syriza has campaigned on ending austerity programs in Greece which have been part of bailout deals Greece has received, but put the country through much pain and seeking a debt write down. In a few of Tsipras's first acts as new Prime Minister, he sent a message to the Euro-zone's largest Greek creditor, Germany, by visiting the Kaisariani rifle range where Nazis executed 200 Greeks in May of 1944.

He also had his first meeting with none other than the Russian Foreign Ambassador.

It seems the Troika (and those related) have been quick to send congratulations and maintain and over-concillatory tone from many of the statements I've read from people like Jean-Claude Juncker, the European Commission President; Christine Lagarde- the managing director of the IMF and various Finance Ministers from across Europe. In addition, it seems these creditors are quick to get the word out that they are "looking forward" to "working with" Tsipras on potential redrafting of terms, perhaps interest rates, etc., but the 19 nation Euro-Area has drawn the line at "Debt Write-downs" which is what Syriza campaigned on. Judging by his first day as PM of Greece, I suspect the story is going to be far more complicated than the market currently envisions which is either some sort of compromise or what most have already come out to clam would be a "manageable" Greek exit from the Euro if worse came to worse, but I only mention this because it seems in the market as in life it's always the lack of immagination that gets you, the things you didn't discount or imagine as being a probability and don't think other leftist break-away regions in neighboring countries around the periphery aren't going to be watching every move.

The overnight gap down when futures opened was essentially erased by the cash open, but we did see the early weakness we were expecting in the market today followed by some stability and most of all, the forecast from the Week Ahead,

"I think the IWM/Russell 2000 outperforms the other averages early in the week as it has not met minimum targets and has some better looking charts relative to the others."

With the SPX at +0.26%, the Dow at +0.03%, the NASDAQ 100 at -0.06%, the Russell blew them away on a relative (or any other) basis at a closing gain of +.99%!!! However, remember the conditions why I expected the R2K to lead, this was speculation based on the IWM charts which also look far better on a relative basis as well.

While we are briefly touching on news, the Dallas F_E_D came in at -4.4 , printing at the worst level in 20 months with every sub-index falling except inventories. In addition, 11% of companies reported lay-offs which brings us to IBM.

Forbes ran a story about the IBM plan, "Project Chrome" in which IBM was expected to lay-off 1/4 of its workforce, some 110,000 people globally, however shortly after the open IBM came out and essentially denied the rumors in a rebuking fashion and mentioned earnings reports that made it clear that their lay-offs were limited to several thousand employees.

Oil had popped earlier today on comments by Opec's General Secratary, El Bardri that oil "could" reach $200 a barrel if there's a lack of investment following this price slump and added that the market was currently over-supplied by 1.5 mn barrels a day. This move didn't last as USO/ Oil closed lower, however if you saw the USO / Oil Update post today, one of the probabilities mentioned was a head fake move below the recent range and support before an upside move higher, take a look at the linked post.

Charts still look favorable for a short squeeze bounce in oil/USO, again, see USO / Oil Update from today.

Speaking of Short Squeezes, today's intraday gains after early weakness were brought to you by the Most Shorted Index (MSI) which closed up 2% today, of course small caps led by the Russell 2000 were hot on the day. The non-sequitur (if I may use the phrase) was the day's leading Industry group,  Energy at +1.43%. Otherwise 6 of 0 S&P groups closed green and the laggard was tech at -.41%.

In another strange twist, Gold (GLD) was down as we have been expecting a pullback, -1% and Silver (SLV) was down an even sharper -2.17%, but copper was up roughly +1.88%!?!?

GLD looks like it could see a little bounce/gap fill very short term, but I'm still expecting more of a pullback, in fact we really just got started on the move we have been expecting.  As you probably read last week, I am interested in what GLD looks like on a pullback as a potential longer term move higher that we have also been making a case for.

GLD 10 min negative divegrence after having been in line (3C/price trend confirmation at the green arrow).

While we are at it, 195 of 238 Morningstar groups closed green today, which was a bit of a surprise.

I wouldn't say there was a Dominant Price/Volume theme today, but if there was a "close as it gets" it would be Close Up/Volume own which is the most bearish of the 4 possible relationships, but again, it wasn't really dominant.

As for our bounce, we did see some deterioration in it today as I expect to see this week, but I do NOT believe it's over yet. Most of the averages have barely taken out the minimum upside target posted over a week ago as the base was being put together, others haven't even hit the minimum downside target.

One of the things I saw today when looking at Leading Indicators and market ramping levers was many of them looked like they were ready to be use or were already in use. For example,

 Note the ramp in HYG near the end of the day, one of the most popular market ramping assets.

And as far as 3C support, while it may not have been a big positive divergence in HYG, it was supported intraday...

 HYG in line with 3C.

Here I've inverted the SPX prices (green) so you can see the normal correlation between the SPX and VXX, you can see weakness in VXX beyond the normal correlation at the end of the day as well.

I looked at some other leading indicators ad whether they show specific evidence of a late day ramp or not, many still are in line and need to go negative (which can happen quickly) before I'd consider making any big moves.

For instance...

 Our Pro Sentiment Indicators are still in line with the SPX rather than diverging , you can see to the far left where they actually led the SPX at the bottom, I'd expect them to lead in similar manner at the top.

 PIMCO's HY Fund is nearly perfectly in line with the SPX, another I'd expect to go negative with High Yield Corporate Credit and HY Credit in general.

 Here's one HY Credit asset that's not following the SPX higher, but it's not a typical ramping asset either, which often makes it good for signals, but as long as HYG is offering support, we aren't at a top in my view, thus I'd still urge patience and let this trade come to you, we waited long enough for the bounce!

 TLT (20+ year Treasuries Fund) was in a wide range today, I've mentioned several times there are some charts bothering me here, so they haven't cleared up, I think I';ll probably update TLT in full tomorrow before the F_O_M_C Wednesday.

As for yields which move the opposite of bond prices and often act as a magnet, pulling equities toward them, we have some interesting signals forming.

 I suspected we'd see yields diverge from the SPX (green), here the 5 year yields did diverge Friday and was in line with our call for early morning weakness today in the major averages, but otherwise it's pretty close to in line, perhaps this is the start of a larger dislocation/divergence.

 Taking a longer look at the 10 year yield which is behaving more as I'd expect right now, you can see how it has led the SPX lower at critical areas in not confirming or outright leading. The leading negative divegrence here is pretty steep.

And the 30 year yield is also at a significant dislocation, this is obviously part of the curve flattening we have been seeing (look at the difference between the 5 year and 30 year yields). In any case, we'll take a close look at TLT and 30 year Treasury Futures as this troublesome area on TLT's 3C intermediate charts hasn't cleared up.

However, right now this is the kind of divergence I expected to see before the bounce got started when we were still basing, so I suspect this is a solid signal, just some of the other Leading indicators that can move fast when they need to, are not there yet.

This is a very close intraday look at 30 year yields vs the SPX, again they were leading negative late last week, likely leading to some of this morning's weakness.

I've been looking at the SPX:RUT Ratio custom Indicator (red) maybe a bit too closely, standing back a bit it is NOT confirming this bounce which shouldn't be a surprise as we have expected to see distribution in to the bounce. Additionally the custom VIX Term Structure that gave 2 buy signals (white), the first was the failed bounce off the 1/6 lows and failed with nasty negatives on 1/8 and the second was the "W" base from 1/14 to 1/16, is not going "negative", IO have no negative signal for it (just the white buy signal), but it is moving pretty far away from that buy signal's strength.

The main indication is the lack of confirmation between the SPX:RUT Ratio indicator (red) and the SPX (green). This is good to see, but again, while I feel pretty darn good about the bounce scenario and how it will end, even as of last Friday I expected it to go on a bit longer through this week.

It will be interesting to see if we pick up any strange signals going in to the F_O_M_C on Wednesday, it has been a couple of years since we have picked something up, but we have picked up some undeniably strong signals at least 3 times that were right on so while I doubt we see a rate hike this week, especially with the way macro data is going and lay-offs (deflation from oil), You never know and it's often that passing glimpse that gives you more information than you can collect in a couple of weeks so I'll be busier and busier looking for anything out of place in to Wednesday.

Finally for the moment, SKEW is still elevated at 135, not as high as last week's 139, which was a 15 point move in 2 days. I suspect the SKEW, also known as the Black Swan Index which is telling us there's a lot of buying of deep out of the money puts, may be hedging in to the F_O_M_C, but since there's so little consensus on a rate hike at this meeting, it doesn't really make a lot of sense, unless here's something out there we haven't quite seen yet. This is what I'll be looking for.

If I see anything that looks interesting in Futures tonight, I'll let you know, but I don't anticipate it as you know I feel we still have more upside to go on the market bounce which was essentially dead today outside of the IWM.