Daily Wrap

Well there it is, pretty much as was anticipated last week, "Sell Strength in Price" as well as the forecast looking for a pop higher this week from Friday's, "Week Ahead" post, The 2 P.M. Op-Ex Pin Expiration / Week Ahead

"Now a broader look at the week ahead using SPY...

This 10 min chart shows the F_O_M_C knee jerk move, the distribution in to it we expected and the complete retrace of the entire knee jerk move as I always warn, "Beware the F_E_D knee jerk move, 80% of the time it is wrong". To the far right a positive for a bounce, but no where near as large as the negative on the chart. As far as what happens after a bounce early next week, I want to use it to short in to or open puts as the bounce looks to end..." 

This wasn't too different than what was posted last night in, (The) Daily Wrap in several areas, including internals with out 1-day bias which kicked in exactly as internals suggested...

"Other internal measures also suggest a strong overbought condition is already developing with 9 of 9 S&P sectors green with Energy leading at +2.15% and Consumer Staples lagging at +1.01%.

An amazingly strong 218 of 238 Morningstar groups closed green. The market was obviously near term oversold as reported last week on a 2-day basis looking at internals and is running to the other side of extreme very quickly, while seeing distribution in to the move."

 However,  most specifically in the Futures Update area from last night's Daily Wrap which was really just a recap of what we had been seeing all day in numerous other posts during the day .

"Finally Futures...

USD/JPY looks like it's going to see some overnight downside, this should weigh on the averages if it carries through until tomorrow and being the divergences on the single currency futures are pointing that way both on the 1 min, 5 min and 7 min charts, I suspect that's a fair possibility (see the ES correlation with USD/JPY the last several days - above).

Index futures don't look good either. They saw distribution intraday and that has put them in a worse position as the day has gone on as we have seen in the averages as well."

In any case, we want to look forward, but we can often learn a lot by looking back whether it's what worked or perhaps what didn't so we can correct whatever we have learned.

TODAY THE MARKET BROKE NUMEROUS TIMES. 

Apparently sometime just after the open (possibly around 9:31 a.m.) NASDAQ stopped quoting symbols A-Z for up to 6 to 8 minutes.

Here's an official BATS (BYX and BZX) "Self Help" declaration against NASDAQ this morning...

It seems NASDAQ started operating normally around 9:37 -9:43:01a.m. depending on the source, but it may be NASDAQ came back online in pieces and totally by 9:41.

Shortly after Chicago PMI missed consensus of 50.2, coming in at 46.3 (above the prior of 45.8), it appears it was the NYSE's turn to break as *BATS EDGX DECLARED SELF-HELP VS NYSE ARCA and BATS BYX EXCHANGE HAS DECLARED SELF-HELP VS NYSE.

It appears there were at least 3 breaks of the market today. Some think these breaks are intentional to alleviate selling or to pump the market higher. Although I have seen correlation between the breaks and market prices, I can't say for sure that correlation means causation or if causation is the same in all market environments, for instance if the market breaks who's to say we don't see downdraft instead, just depending on a number of factors which I don't think we quite understand.

What I do know is in the past we have seen the market break on very low volatility and volume and I have raised the issue of "What happens when the market breaks during a panic and sellers can't sell?" Imagine a circuit breaker is tripped during a fear based sell-off, it doesn't even have to be a true market break. Does that act as a cooling off period in which cooler heads prevail or does it just exacerbate the panic? Either way, I believe at some point I'll be writing about this issue and what the actual outcome was. 

As you have heard, a full 1/3rd of professional traders have NEVER seen a rate hike, being the last rate hike was before the last bear market, I dare say 1/3rd of professional traders and probably a lot more retail traders (this seems to be a big issue in Chinese markets in which illiterate traders are flooding the market in an end stage Greed-fest which is part of a normal market cycle, but to the point in which they are illiterate?!?!) have never seen or experienced the emotions of a bear market. 

In fact this morning one of my favorite Ex-F_E_D officials, Kevin Warsh (as he seems to be a straight shooter) warned of the danger the F_E_D has created in that traders "think" the F_E_D has their back in another typical bubble indication of "THIS TIME IT'S DIFFERENT".

WARSH: "The markets think they have Yellen's number," that she will never allow markets to go down, Warsh warns "that is a very dangerous development."

I don't mean to be indifferent to the criticism Warsh had for the F_E_D and their role in all of this, check out CNBC as that's where the interview was conducted.

The market's performance for the week thus far hasn't been pretty...

 The major averages since the cash market opened Monday with the Dow and NASDAQ lagging the worst.

Today's last hour or so was pretty ugly....

The major averages this afternoon in to the close with the Dow, SPX and NDX all taking it on the chin.

 On the month of March as Window Dressing comes to an end, it's really only small caps that escape the market's wrath. Transports look horrible and this only after they failed to confirm Industrials on the year.

On the quarter or year to date, the Dow dips in to RED , the SPX (green) just manages to hold green and Transports lag badly.

This is the worst performance since Q3 2012. Trannies are also one of our core shorts.

Financials also had a losing quarter, the first in 11, another one of our core shorts (FAZ long).

Interestingly the Bond performance continues (outperformance for FY 2014) as TLT (20+ year bond fund) books nearly a 4% gain for Q1, the 5th consecutive quarterly gain for TLT, THE FLIGHT TO SAFETY TRADE.

And what of the momo trade that never seemed like it would end, Biotechs (another core short and a recent asset of interest as we started covering it again the day it put in its intraday high)... I'm guessing we are going to see a number of funds in about 45 days when their Q1 S_E_C_ filing is released, all dumping biotechs in to the end of the quarter.

 It looks like few funds wanted to go in to Q2 with Bios on the books. Still others will likely have bought just for Window Dressing,  which means, it's likely they'll start selling as April begins now that they look smart.

Th Ultimate Oscillator is divergent daily and Volume looks a lot like a Blow-Off Top in the area.

The charts we picked up on a couple of weeks ago, with distribution in to the blow-off move in NASDAQ Biotechsa (IBB).

A quarter's end bounce for bios. This is informative and tells you just exactly what smart money does with a bounce...SELL IN TO IT!!!

XBI being held in the range while under distribution, look at that intraday volatility late in the day!

Another strong performer on the quarter that we'll be talking about more and more was the $USD, up 8.9% for Q1 2015 which is the most since Q3 2008, perhaps that change in character is like the peeling away from the trend late in stage 2 mark up just before stage 3 top?

I have mentioned the break in the $USDX's primary trend and my gut feeling that not only is the carry trade already being closed, but it will get a lot worse with the immense size of it.

 Yep, this 1-day chart of the $USDX shows the $USD peeling awway from the trend on the upside, a clear red flag/change of character  and note the 3C negative divegrence as it does so.

Here's the primary trend on a daily chart and the first notable pullback in $USD. I suspect we are going to see a lot more of this.

Remember what I wrote years ago about the USd/JPY carry trade and the Yen in general , I said the Yen should rise and the $USD fall around the same time the market is entering a primary bear market.

 The daily chart of USd/JPY is looking a lot like a double top, sort of the way the Yen looks like a double bottom below...

Is the Yen (Daily) finally basing? Well the trend has certainly bent which tends to happen toward the end. Note the 1-day positive divergence as well as the $USD shows a negative 1-day divegrence.

Although I'm sure I didn't need to draw it in for you, the 4 hour chart of the Yen futures not only has a base-like lateral range, but a positive divergence of some size as well. The 3C charts would indicate the USd/JPY carry trade unwind is already well established, however I believe there's about $9 trillion $USD's in carry out there.

While crude ended the quarter down 10.0%, making it the 3rd consecutive quarter of losses , something that hasn't happened since 2003, I (and many of you) obviously feel something is about to give.

 Crude Futures 1 day chart, note the most recent divegrence, looks a lot like USO's longer term as well...

USO 2 hour chart with distribution in to a H&S top, a confirmed trend lower and a recent positive divegrence that has thus far done just about everything we've forecasted.

I posted an USO update earlier today, USO Update, and while it looks to me like USO has more work to do before a new leg higher, Crude futures themselves, very choppy today as inventories came in at a massive build after market, look, otherwise, like they are getting ready for a move higher.

The EIA inventories are out tomorrow at 10:30 a.m. Tonight's API was expected at 4.2mn barrel build and came in about a million above that.

The news from Switzerland is that there was no deal with Iran, but apparently the deadline isn't here yet and they have until "dawn", were (when) exactly that is ...?

As for the averages, I'd like to see them hold out for another day or so, however they aren't looking great as you saw last night /yesterday...

 SPY 10 min negative

SPY 5 min negative

Almost perfect downside 3C confirmation today.

QQQ 5 min also turning to the downside..

QQQ intraday confirmation near perfect as well.

As for Leading Indicators...

Most are what I'd call non-indicative today, meaning I think there's still a chance we get some better prices or maintain in the area, although there are signs that this will not last long as we already expected, but perhaps in to a long weekend? 

Our custom SPX:RUT ratio shows intraday leading support for the market near term and has been a great leading indicator, especially for smaller moves.

Yields might be a good example of what I mean as there's deterioration, but a little market upside and some more deterioration would give leading indicators the kind of divergences that makes them so useful.

 10 year yields blew right through the last bounce highs as they continued on a straight line move to the downside, equities tend to be drawn to them.

Most recently you can see a smaller divergence and prices have moved toward them, but they could and I would hope, "should" be more divergent within a day or 2.

 Intraday, this is how yields work as a leading indicator. Note the move lower in yields and not long after the market falls off in to the closing hour and reverts right down to the short term/intraday lead that yields provided.

 Commodities (brown) vs the SPX (green) are another interesting example. To the left commodities led the market / SPX and confirmed at stage 2 of the cycle (mark -up), then went negative at stage 3 top of the cycle pulling equities lower in to stage 4, The most recent bounce is also negatively divergent, but again, this could be a much better looking divergence as that's what we use leading indicators for. Just like a 3C chart, we don't want to try to torture something out of the chart, it should scream and jump off the chart.

Commodities intraday pulled the SPX lower from Monday's intraday highs and then again this afternoon. This isn't anything specific to commodities, but to the cross asset correlation , which is kind of like that song, "Dem Bones" "Your  knee bone is connected to your thigh bone, Thigh bone connected to the hip bone".

For example, simple legacy arbitrage, you might say that the Dollar is connected to the USD/JPY, the $USD/JPY is connected to gold, gold is connected to treasuries and yield are connected to equities...etc. Now you know why I quit the band.

In any case, additional indications can be found in HYG, High Yield Corp. Credit with the simple moniker, "Credit leads, stocks follow".

In that case, while HYG still leads near term, intraday...

 You can see the SPX has been in motion with HYG and most importantly for our purposes is the early warning of HYG divergences since it's the actual HYG price that leads equities as algos interpret HY Credit, a professional risk asset and as leading equities as risk assets, thus it tends to be used for short term manipulation.

 HYG's support for a bounce (white) and the 3C 1 min chart leading negative, early warning for HYG's next move.

 You can see the divergences that have moved HYG on this 5 min chart including the positive that has supported the market's expected bounce, however look at today's 3C action,  that's seriously leading negative.

And the longer term 15 min chart leading negative through the entire area of sub-intermediate leading of the SPX.

IOn other words, 3C is warning us HYG is about to come down and as such, lead equities lower as a leading indicator, but it looks like it's not quite there yet.

In addition, despite today's crazy VXX volatility, the longer term trend is very strong...

VXX 15 min ;leading positive divegrence.

We only need the intraday charts to fall in line which should be an excellent signal to start taking more aggressive action and it looks like we have a good start on that...

intraday 1 min VXX with a leading divergence through the last 2 days, this week or the end of the quarter's window dressing!

Index Futures had a clear negative to them last night,. right now, they are a bit closer to in line, thus with leading indicators and everything else, I have not felt like it was necessary to rush any positions, but as usual, let the market tell us when being that we re already in line with the highest probability outcome with core shorts.

 ES 1 min in line unlike last night's VERY clear negative across all the Index futures.

ES 5 min negative then more toward confirmation, again this is closer to in line than yesterday or last night's.

ES 7 min negative right in to reversion to 3C or confirmation.

My initial take is that it's time to really start looking at asserts to enter positions, but we should have some time and need not be rushed.

We'll see how that opinion holds up tomorrow, but that's my call for now.

If anything changes with futures before I turn in, I'll let you know.

Have a great night!