I warned several times before last week's F_O_M_C announcement as I have been warning for years, beware of the policy statement "Knee Jerk effect", it is almost always wrong. Of course on Wednesday we saw the market make a run up on an announcement that was all in all, a dud, disappointing to the bulls with no hint of QE3 as I expected there would not be. The only thing that changed was the F_E_D extending ZIRP out another year, however that too was ambiguous at best. We didn't see follow through buying on Thursday which may have seemed to be the reversal I warned of, but I would say today we are really seeing the reversal of the knee jerk effect in full force. Wall Street positions aren't like speedboats that can change course in mere seconds, they are like Super Tankers that take some time to change course and it appears that is exactly what we saw in terms of the short term or sub-intermediate trade (trade along the length of weeks to several months, however I'm more inclined from evidence to say it was a short term course correction as the intermediate underlying action has been negative for some time now).
What changed so much overnight that has been out of line with market character, in the news cycle, not much as this market has been more then willing to spin bad news in to good and worse in to better. My assumption is the Knee jerk effect which has its roots in clear Wall Street manipulation of the market, s to blame in large part. Long term members have seen this many times, for newer members you just saw it if you have never noticed it before, I've noticed it for about 6 years now.
As for the market overnight...
The Baltic Dry Index, which I dare say we picked up on before it started making its way back in to the main stream press, has made ANOTHER new low. The normally exceptionally volatile index has been trading in a trend, which is rare, note when the trend gained downside momentum, the same area in which the market has been moving up in what have called a 'Very dangerous looking area" and also describing it as "walking out on a thin ledge, not knowing when the cracks would break" and "Picking up loose change in front of a steam roller".
The new low is now 720, I believe the last time we looked we were at 840 which was a 3 year low, the same time the US was in recession, now we are a bit longer then a 3 year low going back to December 10, 2008 to see a lower reading.
The BDI is the rate published every day that dry bulk shipping companies charge to move anything from commodities/raw material (as long as they are dry, not crude) to I-pads , textiles, etc.
Last night's post featured several market breadth indicators that have been deteriorating badly.
In last night's post I started it with a chart of Friday's ES (S&P E-mini futures) near the VWAP and showed what was clear cut selling. Overnight, not much changed, ES was lateral until hitting a leading negative divergence sending it lower and since then has seen 3C confirmation of the move down.
Sunday's FX open saw the Euro open to modest weakness, just like ES, this picked up substantially to the downside with the first important support zone broken (although the market tends to linger around broken support for a while), I expect we will see the next zones broken shortly.
Above you can see a minor support area coming up and then the $1.30 level, which psychologically is VERY important.
I'll cover the latest news in another post, the main event today is the EU summit in Brussels, in which Greece was to have finalized a debt restructuring so the next tranche of aide needed for the March debt payment could be met, that aide won't be on the agenda in Brussels today as Greece still hasn't been able to negotiate a deal with the IIF. I'm starting to feel like these summits are like the Senate meetings in Star Wars with a deceitful character working behind the scenes to cause havoc. The summits certainly produce nothing of substance themselves, however it is the actions outside of the summits that are most disturbing as I outlined this weekend with the German demand to take over Greece's budget with a shadowy EU figure head (or German puppet almost certainly having ties to Goldman Sachs) having the right to veto a sovereign nation's budgetary process and to have that enshrined in the Greek constitution.
The market has a significant gap to fill today, thus far only the NASDAQ 100 is making a real attempt to do so, should the gap be left open, it could possibly become a very bearish breakaway gap.
The Market Update is up next.
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