Daily Wrap

So far , even with a bounce attempt, the SPX has now put in the worst 1st week of January performance since 2009. The first 3-days of January were the worst performance for that period ever in recorded history, so it seems that our Failed Santa rally spooking investors and making them think twice about  putting new money in to the market, "The January Effect" which was part of our December 12th forecast, is amazingly on track.

In some commentary I've heard, the Payrolls pop higher on better than expected data which was completely faded right from the open, was because of France... Another 30 second soundbite that the average Joe-CNN can understand, however 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 so once again the Financial media gives us a 30 second sound bite to make the market seem like it is easily understandable and not the complex organism that it truly is. Think about it, the market pops on the Payrolls data at 8:30 a.m. , but suddenly at 9:30 a.m. on the cash open, France suddenly becomes the concern sending the market lower, or our concept that has held up time after time, even over 3-day weekends.

Transports were the worst of the averages on the week, they also had some of the worst signals starting yesterday when they should have been off to a bounce.

You'd think with the 7th weekly drop in oil transports would be in hog-heaven.

Treasury Yields lost 5-12 bps on the week, not what you'd expect from a leading indicator and a market set up for a bounce.

 5 year yield (red) vs the SPX with the normal correlation and a distinct divergence on the week. We use yields as a Leading Indicator as they tend to have a magnetic pull on equity prices toward yields.

The 30 year yield demonstrates this better as it calls a couple of tops and is severely dislocated now, when you'd expect it to be leading to the upside for a market bounce.

Even intraday (SPX prices are inverted to show the normal correlation with TLT, the 20+ year bond fund), the end of day advance in TLT sent yields lower making it difficult to impossible for the market to bounce in to the close.

If you look at the 30 year Treasury futures (30 min chart), they go negative at the highs where the SPX is at the lows and look ready to support a market bounce, then something changes dramatically yesterday. Remember, Yields move opposite bonds and typically with stocks.

There are some longer term concerns I have with the 30 year bond and that's why I closed the 2x long position in TLT last week at a +9% gain, I think I understand what is happening, but before I make that case, I want to be sure. If it is what I think (as 3C signals over the last month have caused me some concern), then this may be an excellent longer term investment-type position.

The USD/JPY was in control today,

USD/JPY (candlesticks) and ES/SPX Futures (purple). You can see the fade overnight and the knee jerk reaction to Non-Farm Payrolls at 8:30 a.m. and the near instant fade of the knee jerk at 9:30 a.m. when the 3C divergences kick in.

I covered multiple timeframes in $USD and Yen charts in today's post, USD/JPY Charts, the gist of which is numerous timeframes show Yen positive and $USD negative divergences, suggesting a lower USD/JPY as a intermediate trend, thus likely a lower Index futures trend as well (based only on the $USD/Yen analysis). I did see afternoon divergences that looked like they'd try to lift USD/JPY in to the close, they didn't work. The 3C concept of picking up where it left if is on the cash market and signals, not on the futures market , a 1 min - several hour divergence in the futures is very unlikely to hold through overnight trade, the 5 min chart is the minimum that I consider able to hold with futures, but with the cash market, the 1 min charts almost always pick up where they left off. Thus I don't think the afternoon divergences to ramp USD/JPY will mean much if anything come Monday.

And yes, I do understand the strength in the $USD right now, we rarely understand why a divergence is present until the opportunity to profit from it has passed. I've seen $USD divergences before that made absolutely no sense whatsoever, then only after price moved in the direction of the divergence did the F_E_D come out with new policies that directly impacted the $USD, someone knew and was acting on it, but the masses only find out later.

I covered the broad futures today in Futures Update, it's worth a look as there's a theme that keeps popping up.

As I have maintained since yesterday, I'm not nearly convinced we are at a strong downside inflection point and I'm not convinced that the market is out of gas, in fact I think it just fueled up for the oversold bounce we have been looking for and even if, as I suspect, there was a change yesterday to the negative perhaps on some new data that's not yet out, it still will take some time (and I view today as a lost day because of the max-pain options expiration pin), to reverse the recent 5 min positive divergences. When I see compelling evidence that the market cannot back away from that the 5 min charts are shot, I'll start putting new short sale calls out there. I know a lot of you missed the last batch and the recent decline in to the New Year, but I would urge some patience and let these positions come to you as was posted this week with Financials, Trade Idea: (Longer Term) Financials Short / FAZ Long, biotechs, Trade Idea: (Longer Term) Financials Short / FAZ Long, CELG and the broad market.

LEading Indicators are not convincing me yet, although PIMCO's HY Fund that I have been using as a leading indicator posted some interesting results since yesterday.

 This may not seem that impressive on this 1 min chart vs the SPX, but considering the trend before hand that was one of the leading signals for a market bounce, it is a big change.

Above I'm specifically talking about area #3, but as you see, it has given numerous signals both long and short that have been exceptionally accurate.

VXX had slightly better relative performance today and VIX futures are getting interesting.

 Like 30 year treasuries, VIX futures put in the divergences that would suggest an oversold bounce is on the way, yet yesterday there was a noticeable change and that continued through today, again, as if the oversold bounce was or is being called off.

 VIX (spot) vs SPX (red) doesn't show any interesting signals on our custom buy/sell indicator on a daily timeframe, but with changes as recent as yesterday, I wouldn't expect it to. However move to a 360 min chart and the most recent VIX sell signals suggest the oversold bounce we forecasted for this week.

Interestingly, if you look at any chart from 1 min to 30 min, that signal has another just after it and specifically yesterday, a VIX buy signal. Remember VIX moves opposite the market as well. Between the new divergence in VIX futures starting yesterday and the two charts above, it does look a whole lot like a planned oversold bounce was or is in the process of being abandoned, ALTHOUGH ONCE AGAIN, UNTIL THOSE 5 MIN CHARTS SWING AROUND, I WILL NOT BE PUTTING OUT ANY TRADE IDEAS ON THER SHORT SIDE, at least not short term ones.

There was a Dominant Price/Volume Relationship today, Close Down/Volume Down, it has very little next day effect, in fact I describe it as, "Carry On" as in keep doing what you are doing as it doesn't say oversold or overbought. If we take it in the context of a market oversold bounce, then it would say "Look for a bounce next week", however since we had that unusual move yesterday (and this may have happened before, but I don't remember the last time a planned cycle was purposefully abandoned rather than run over) I would say we may have a unique set of conditions on our hands. Unfortunately the Friday options expiration max pain pin is the worst day to try to gather additional evidence, although some was found.

Nine of nine S&P sectors closed red today with Tech leading at -0.29% and Financials lagging at -1.19%.

Only 44 of 238 Morningstar groups closed green today. Both of these signal a near term oversold or 1-day oversold condition, although the Dominant Price/Volume Relationship does NOT confirm.

All of the 5 min charts have a broken look since yesterday in them, but are not divergent enough to say they are unrecoverable, which is what I'm waiting for. 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...

 SPY 1 min with a late day severe 3C drop.

The 2 min chart isn't needed for this forecast, but backs it up.

QQQ which was positive until the very end of day which saw a quick negative turn.

The 2 min chart backs it up.

And the IWM saw a sharp EOD 3C move lower.

Again the 2 min chart backs it up.

If we see the same activity in the 3 min charts as we see above early next week, then I'd likely start making some calls. The 5 min charts wouldn't be far behind at that point and the 10 min are already negative as multiple timeframe analysis suggests that the market continue lower after the short term bounce that was set up.

Have a great weekend everyone.