Daily Wrap

In the end, today was nothing to write home about, unless you are disturbed by blatant manipulation of the Italian Bond Auction, which was the catalyst for today's slight gains on significantly lower volume then yesterday. If you are one for creative thinking and want to give some thought to what unintended consequences may come from Germany's move to literally kick EU member states out of the Union, then today was interesting on that note. It seems like after the uncertainty as to whether Slovakia would pass the EFSF leveraging plan, which ultimately led to another government being pushed out of power by the EU, having nothing at all to do with the democratic process, just as we have seen in Greece and Italy this week as well; it would seem that the real power behind the EU (despite one country one vote) is fed up with that democratic process that was and for now, still is part of the EU charter, but apparently not for much longer as the CDU is drawing up plans as I write to reform the EU in the vision of its choosing.

As for the action today, as I posted yesterday to keep expectations realistic, it's very much in line with normal bear market (or a transitional move from a bull market top to a bear market decline) behavior.   Nothing technically changed, there were no surprises, just the process unfolding amidst what I would term an environment of growing distrust.

If you looked in the nooks and crannies that few eyes bother with, there were a few disturbing signs (as in disturbing for any one long the market).

One would be the total lack of performance from the NASDAQ 100 today.

With the S&P closing up +.86%, the Dow up +.96%, the Russell 2k up +.93%, the NASDAQ 100 stuck out like a sore thumb, closing down -.11% and about a full percent below the market on average in relative terms.

Look a little closer and Tech was completely left out of the rally.

XLK closed up a mere +.27%

And a little deeper, AAPL seems to be having problems and given its weight on the NASDAQ 100, it doesn't bode well for the NASDAQ moving forward.

 AAPL closes down -2.55% today on the fourth day of increasing volume.

 Here's AAPL vs the SPY on a 5 min chart with today highlighted in the red box, totally divergence.

Looking at AAPL's daily chart, the problems have been there for awhile and are manifesting now.

However, this is obvious stuff.

Commodities again, just like Tuesday, didn't participate in the rally either. This could just be weakness in market breadth and/or it could be indicative of the problems that are happening in China, no matter what data their opaque government releases.

 Here's today's relative performance between the CCI Index and the S&P, with the index closing down -.22%


And the S&P vs Dr. Copper which closed down .82%, but perhaps the most telling with regard to potential problems in China, KOL (coal) was down -.38%, so the market breadth was certainly not carrying commodities with it.

However that too is not too difficult to spot.

Maybe on of the more disturbing signs was that of credit markets which are generally where the professionals are making trades first in anticipation of problems in the market (Credit leads equities); here's a look a HYG.

 Looking back, you can see HYG (green) tracks the market (S&P-500 red) pretty well, except if you observe closely, it tends to lead it.

 For instance, in the 2008 model time period I have been using recently, credit tops in white while the S&P rallies on, credit diverges with S&P gains 3x before the market crashes 50+% lower.

 Recently at the bear flag retracement over the last week, credit doesn't follow the S&P in to the bear flag and good thing as it led to the biggest 1 day decline in about 3 months just yesterday.

 Here's a intraday look at that bear flag bounce and how credit sells off before the S&P and before the drop and if you look closely, it did the same thing today.

Here's a 1 min intraday basis of today, credit tops while the S&P moves higher, into the close, the S&P gets a modest lift while HYG continues to the lows of the day.

 As for the S&P itself, you an see the October rally rounding over (rounding top) and it stuck below the 50 ema on an hourly chart. While there will be volatility and bumps and dips, this rounding trend is leading to a more linear trend (down).


The 50 ema/hourly has held as support, we do have a small gap above in the yellow area, but I can't say whether it is filled or not, in either case,, it doesn't much matter, the trend is your friend.

So far in after hours, 3C is tracking ES well, here's an early look.

The negative divergence in ES is pretty clear, look at the almost instant drop and now 3C is leading negative.  We still have a long night, just like 3 am EDT shaped today, but the initial hints on such a modest day are not very bullish.