However, I am a huge believer in understanding the economic fundamentals. For example, understanding what banks are doing with their money via the ECB deposit facility or through short term debt auctions. There's information there that is useful, for example, when you see a trend such as we have seen over the last 3-4 weeks of banks willing to take a 0% return or even pay a premium just to get their money out of the financial system, that is a powerful piece of information. Hundreds of billions of dollars are out of the financial system earning negative yields rather then being put to work in investments and in this case, investments guaranteed to make money such as the LTRO carry trade that never materialized. Instead of making 6% or so banks are willing to pay out money just to keep it safe. That is something one should understand. Banks seemingly view chasing returns as being akin to picking up pennies in front of a steam-roller.
So on a smaller scale, understanding the dynamics in the market on suspect days are important as well.
I have used dominant price/volume relationships of the major averages for 5-6 years with good success to understand whether the day's action is something that needs to be examined further or whether it is a day in which there was likely market manipulation and the day is more of an outlier then the start of a strong trend.
The four price volume relationships are Price Down with either volume up or volume down and Price Up with volume either up or down, that gives you the 4 possible combinations. The key to using this kind of analysis is looking for a "Dominant Price Volume Relationship". Every day we have P/V's but very few days to we have truly dominant P/Vs and when we do have a dominant P/V it's usually smart to listen to the message of the market. This is a type of analysis that few look at, there are variations such as the Advance Decline line and A/D volume, but this is a bit more unique. Lets just take a look at the major averages.
This is a custom screen I have created on TeleChart for each of the major averages. It looks at each component stock in the average and tallies them into 1 of the 4 categories. Remember, we are looking for dominance in one category and confirmation among the various major market averages.
The Dow-30
Today's dominant P/V relationship in the Dow-30 is Price Up and Volume Down, it is 3x greater then the second place relationship and almost 4x larger then the relationship that would make today a truly bullish day; therefore it is heavily dominant.
NASDAQ 100
We see the same dominant relationship among the 100 NASDAQ stocks, Price Up and Volume Down. The relationship accounts for nearly half of the NASDAQ and is therefore extremely dominant.
Russell 2000
Here again, the dominant P/V relationship is Price Up and Volume Down. There are about 4 times more stocks in the dominant relationship then in the second place position, which would also have been the bullish relationship. This is a VERY DOMINANT RELATIONSHIP, with more then half of the components falling into it.
S&P-500
Again, we have dominance in Price Up and Volume Down, more then half the stocks and more then double the second place relationship.
All Stocks in the database (There are no pink sheets, penny stocks or OTCs)
Here we have the same dominant P/V relationship, Price Up and Volume Down and by a wide margin, approximately 50% of the total.
So we have a common theme among all the major averages, we have extreme dominance now what is the relationship's meaning?
Close Down and Volume Down has the least meaning, it is very common during a bear market as low volume is the hallmark of a bear market. It can be slightly positive to neutral on a pullback in a strong uptrend, it is valid on a major break in prices to the downside, but generally it has the least meaning.
Close Down and Volume Up needs to be interpreted within the market's trend or structure. A break away gap to the downside with heavy volume can be a sign of a very strong move down, thus very bearish. The relationship can also be bullish after a prolonged down trend when the market gaps down on heavy volume as it may be capitulation effectively ending the down trend.
The next two relationships have a bias and need not be interpreted within a trend.
Close Up and Volume Up is the most bullish relationship, stocks should see increasing volume on higher prices.
Close Up and Volume Down is the most bearish relationship and also our dominant relationship today. When we see this relationship, it suggests the market is being manipulated higher by using heavily weighted stocks within an index to move the index higher, however, the majority of stocks are rising on falling volume meaning that traders are not willing to chase prices higher enthusiastically. This relationship is often seen near or at a reversal and in my experience many times the market closes lower the next day. A string of these relationships within an uptrend is very bearish as well.
ES was negative all day today, usually the 3C ES moves quite well on divergences, I suspect what we saw today was a ramp in prices with heavy underlying distribution, it remainS leading negative in After Hours.
Early today I posted the ES chart with several negative divergence that were pre-premarket and they responded well, today's ES action vs 3C is one of the worst ES divergences I have seen since we started using ES.
As to possible catalysts to today's move, yesterday a hedge fund manager from Marathon and also at one point a member of the bond holder committee said that a Greek Private Sector deal in the ongoing debt restructuring debate that is holding up Greece's next tranche of Troika money desperately needed to avoid a real default, by March 20th, was essentially a done deal as Bloomberg reported yesterday. Some believe that Mr. Richards of Marathon who gave the Bloomberg interview may have used today to trade to his fund's benefit. He was and may still be a member fund involved in the negotiations (that is unknown, if he is not, then he probably would not have direct knowledge of the negotiations), which up until the Bloomberg story yesterday, were all but dead in the water. The Financial Times has reported late today that the deal, is far from done.
"Several hedge fund managers that hold Greek debt have said they have not been involved in the talks and will not be agreeing with the “private sector involvement” (PSI) deal – which centres on a 50 per cent loss on bondholders’ capital and a reduction in the interest they receive... Even members of the committee concede the process is unlikely to succeed in time for the crunch date: a €14.5bn bond repayment falling due on March 20."
So yesterday's late day rumor which was likely the catalyst to today's move or had some part in it, is now back to where it was before the Bloomberg interview late yesterday, the is to say, not looking good.
Why does this matter? If a restructuring deal can't be reached or looks coercive, it may lead to the end game that Greece has been moving toward for well over a year, outright default, which will have effects that will reverberate across the world as well as likely hasten the end of the EU as the dominoes start falling for real, not just in rates.
MORE AS I UNCOVER IT
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