Again today there was more macro economic data coming in on the very poor side, NY ISM with a significant miss and a huge month over month swing to the downside. I really don't know how the F_O_M_C can reasonably upgrade the economy and if you saw the today's post by the CEO of Gallup polls, it went something like this,
"The Big Lie: 5.6% Unemployment
Here’s something that many Americans -- including some of the smartest and most educated among us -- don’t know: The official unemployment rate, as reported by the U.S. Department of Labor, is extremely misleading."
You can get the rest of the story here...
I probably don't need to go in to the F_O_M_C economic upgrades and the mainstream narrative of where unemployment is, I think we all know enough people to know 5.6 is not accurate, but it is what's needed to hike rates. again, I'm not going to go on another rant on the subject, I think I've been pretty clear.
One of the other major ordeals brewing is Greece. Yesterday's market strength was claimed to be because of some FT headlines about Greece and essentially making progress, in last night's Daily Wrap I refused to go in to any more detail as I knew it would be a complete waste of time and as of today, it's exactly that.
The initial combative Syriza one had the Troika nearly on their knees begging to work something out, whether the Greek Finmin was misunderstood or just tried to be too cooperative, away from the hard line they initially took, it didn't end well and the EU started strong-arming them immediately once they smelled weakness. As a result, today we had this from Greece and their FinMin...
"There has been no "U-turn" on the Greek debt position, adding that "Our promise is solid, debt will be rendered sustainable even if haircut replaced with euphemisms, swaps" Greece’s Finance Minister Yanis Varoufakis comments in Twitter post.
However, that 1-day of weakness may have been too much and too late as Germany calls the Greek plan "Half baked " and reflects it, shortly after the ECB rejects it out of hand as well, that''s what the Greeks get when they try to play ball with the Troika, they were in a much better position when they were combative and meeting with Russia, at that point all of Europe was falling all over themselves to find a solution that works for the Greeks, so this is obviously going to be a knock-down, drag-out brawl as Syriza learns in one day what happens when you try to tone things down and find a settlement in good faith, even if it isn't immediately acceptable on the first pass. Expect things to heat up and Striza to go back to what they know which could lead to...? Yeah, those three dots (...) are the great unknown and the real danger for Europe and the global economy.
The $USD has its worst 2-day decline in 16 months, this has a lot to do with oil-related currencies- see below.
Yields also popped higher as we saw yesterday in TLT as being highly probable, remember yields move opposite bond prices and tend to draw equity prices toward them like a magnet.
We also have all 3 levers in effect today accounting for up to $1.75 of the SPY's $2.92 move and additionally we had the AUD/JPY lever leading the market, also see below.
The 3-day move in oil is now the biggest 3-0day move in 6 years, I hope lots of you were able to make a play there, stay tuned for updates (again see below).
The market put in some solid gains today, but as I showed in this post, USO and Effects Part 2 while sentiment has been massively swayed, technically the move is nothing to write home about and the averages are all still red year to date.
MCP as you have probably seen is tearing it up, I would like to see a consolidation and keep this move healthy, I'll stay on top of updates there as well.
I'm sure you have a pretty good feel from yesterday and today what the levers moving the market and additional conditions like energy sector performance are, however one of the biggest smoking guns I noticed developing quickly today was among the Leading Indicators and the ramping levers, HYG (High Yield Corp. Credit) in specific as yesterday we saw the positive divegrence that we forecast would lead the market higher, today in addition to a very parabolic price move which I never trust (up or down), we had these charts develop quite fast.
HYG 1 min leading negative
HYG 2 min leading negative
HYG 3 min leading negative
HYG 5 min negative, very different than yesterday and giving some early hints as to market probabilities near term, perhaps closer than thought.
I posted the VXX and TLT divergences, relatively positive considering so this is a biggie.
As the last post just made clear,
USO and Effects Part 2, just about everything is connected to everything. In fact some of the most beaten down currencies in this world currency debasement war (with the US obviously the big loser) have seen a nice pop much to their disliking, take commodity linked currencies...
After a surprise rate cut overnight from the Australian Central Bank, the $AUD plunged only to be lifted back to unchanged on the back of the move in oil...
The $AUD rate cut ($AUD currency futures) almost looks as if someone knew about the rate cut or was just very nervous in advance as 3C shows a strong leading negative divegrence. On the cut, the $AUD plunged, on oil strength, it regained all CB related losses.
You may recall earlier today my contention that the AUD/JPY, which was a sponsor for today's market...
(AUD/JPY in candlesticks vs. ES in purple with the cash market between the green and red arrows)...
looked as if it may see some downside soon.
AUD/JPY...1 min intraday negative divegrence.
It's hard to say what the $AUD will do caught between a CB policy action and oil prices, for now the Yen looks a bit weak and that is helping the AUD/JPY move higher, at least through today.
Yen 10 min negative divegrence. I would think the Yen should be headed lower, lifting the AUD/JPY, unless we see a change in the $AUD with a change in oil (or less likely a change in the Yen).
The $USD has been beaten down pretty good on the move in oil, but that too looks to be ready to change, watch the USD/JPY for upside in the very near term with a negative Yen and positive $USDX divergence developing...
$USDX 5 min leading positive divergence.
As for the EUR/USD, which has got to have Draghi near a coronary between the Euro's gains and Greece, may give him a break, at least a brief repreive. You saw the $USDX positive divegrence building above, now the Euro negative...
Euro gains with a negative 7 min leading divegrence, thus between a leading positive $USDX and a leading negative Euro, all should be right again with the EUR/USD shortly, for a short period assuming oil does as expected and pulls back briefly before making another run higher.
From this morning's
USO Update,
"Oil is now on track for its 4th consecutive daily gain and it appears, as usual, the bottom callers are in, just in time for what should be a little consolidation which will likely kick them out of the trade and turn them bearish again just as USO makes another leg higher.
Other than the Mass Psychology of calling the obvious long after it has occurred and taking it to an extreme of a "Bottom", which this clearly is not, the market is finally noticing what we have been forecasting for weeks, but it does look like we are at an area of natural consolidation, one I'm sure will be interpreted as "Oil is not at a bottom, it was a false start".
To the 5 min chart that looks more serious and the 7 min chart, by the 10 min chart price and 3C are in line, thus I don't see this as much more than a consolidation setting up, unless things were to materially deteriorate from here"
Taking a look after the close as this was a VERY early look at Brent Crude and WTI (USO) futures and the ETF,
The 7 min Cl/Brent Futures looks like it will see a consolidation/pullback with this negative divegrence in place, but...
The CL 10 min chart is still in line so from what I can see now, I'd think, as mentioned early this morning, Oil is headed for a little consolidation and charts like the USO 60 min below, make me think USO has plenty of upside left in it...
USO 60 min leading positive,
but a bottom?
I don't think so, this is just one of numerous charts I could post that argue against a bottom in oil being in place.
USO 4hr still in line with the primary downtrend.
Now, since I did post the USO and Effects Part 2 as well as the effect it has had on Energy stocks which has seen the Energy Sector lead the market the last 3-days in a row, I'm going to borrow some research from Zero Hedge because credit where credit is due, although this is the other side of the coin I've been thinking about this, but haven't felt we were close enough to address it. What I'm talking about is Energy stock valuations since the bounce in oil and what the end game may look like if (and most likely when) the bounce ends...
Borrowed from Zero Hedge because as we've already seen, the move in oil is connected to the move in the Energy Sector which is connected to the move in the broad market and currencies, so the other side of the coin...
Several days ago the forward P/E for Energy stocks either had to come down by 40% or oil had to move to $88 a barrel to justify valuations based on forward Energy Sector multiple which stood at 24x (forward) P/E. Since the bounce in oil, here's the new valuation...
That would be back at levels last seen in 2000 during the Dot.Com bubble.
At a forward P/E of 26 with the historical average at 13x, apparently Energy companies are expected to "DOUBLE" forward earnings. Thus, one of the unintended consequences of the Oil bounce may just be some amazing short set ups in the Energy sector which I'll be looking in to very closely as we start to get the hints and signals that the oil short squeeze and counter trend rally (which can be much stronger than what we've already seen), looks to be coming to an end.
I think this goes without saying , if the Energy sector can support and bounce the market based on the expected oil bounce, what exactly do you imagine happens to the market once the pil bounce and revaluation of the energy sector takes place?
OOPS... I should have said, "Spoiler alert"
Amazing where the market can lead you when you pull on one string.
As for the GLD outlook, I don't even want to consider the long possibility which is there, until we see what GLD looks like on a pullback. Gold has been fooling around it's reversal process, but I haven't changed my expectations for a deeper pullback in the yellow metal.
GLD 5 min negative
GLD 15 min negative
Gold futures 60 min negative.
As to why it's been loitering in the area and a possible downside target...
The 200-day moving average is in blue where price has been loitering, but I think it breaks and the 100-day is in purple which allows for a gap fill and is a reasonable downside target, typically we see a break just below the average as a head fake move and to put together a new base to make a move higher, but first we want to see how it acts on the way down. That's my best guess as for a downside target as of now and I think we still see that move take place.
As for near term market expectations, I made clear before the move started I expected a Crazy Ivan shakeout which is in place and I expected a head fake move above the triangle, we are above the triangle, while the averages' short term 3C charts are not there yet, HYG is giving a leading indication and the longer or even 5 min 3C charts of the averages skew the probabilities heavily to the downside, ad in some other things like CGreece, what happens to the Energy sector when the oil bounce is over, the break of numerous moving average acting as support in the area and things get ugly real quick.
As already mentioned, 9 of 9 S&P sectors closed green again, this would be moving toward an overbought condition (1-day overbought) with Energy leading for the 3rd day in a row at +2.74% vs yesterday's +3.06% and like yesterday the laggard is Utilities at a gain of +.37%.
Of the 238 Morningstar industry and sub-industry groups I track, an overwhelming 223 of 238 closed green vs. yesterday's 215 of 238, also another short term overbought condition developing.
As for the Dominant Price / Volume Relationship which was squarely bearish yesterday and in a big way, today we have a mixed or co-dominant relationship with almost all of the averages having a Close Up/Volume Down and Close Up/Volume Up dual relationship. Ironically although Close Up/ Volume Down is the most bearish of the 4 possibilities, Close Up /Volume Up which is the most bullish relationship, most often (leads to a 1-day overbought condition with the next day closing red.
For now, I'm not going to read in to the Dominant P/V, but the sector performance is getting very close to an overbought condition and if the 3C charts of the averages follow HYG, we may be heading down sooner than thought.
Finally for tonight, Index Futures are not looking great on the intraday 1 min chart which has bled over to the 5 min chart, a lot of the damage was done after the close, but not in all cases.
ES1 min
TF 1 min deeply leading negative
NQ 1 min.
While I don't usually pay 1 min charts in futures too much attention on an overnight basis, they are seeping over to the 5 min charts...
TF 5 min.
If these move to the 7 min charts, things will start to look much different and I suspect the averages during the cash market will turn sour quickly. Just as I said last Thursday not to forget what HYG (short term positive) looked like as well as yesterday, don't forget what the HYG negatives look like tonight.
