Overnight Indications

Our dominant Price/Volume relationship today was Close Down/Volume Up. Volume is not needed to confirm a bear market, in fact low volume is the hall mark of a bear market, but increased volume early on in a break is certainly more bearish, after a trend down it can be bullish for a bounce.

Most of the volatility we have seen recently has come overnight in the form of a gap, the intraday or daily ATR as I have shown you has collapsed in the averages, the same happened on the first bear market rally of the 2008 decline. The ATR for the major averages is down by about 50% even though prices are higher, so we still want to watch for overnight rumors, but we had several last night and as I pointed out, the half life of each passing rumor is decreasing.

 Since the 4 p.m. close, ES is down a solid 7 points with 3C confirmation as of 1 a.m. the 16th.

 The Euro started the week with a gap up, again on news that was later refuted and quite quickly, the Euro has moved close to the $1.30 level, which is what we expected (remember after the first break of $1.30 we expected a bounce back above, which we got and then a move back below $1.30 to make a new leg a down and a new low. The red arrow is the 4 p.m. close on Wednesday.

As I pointed out a few days ago, the Rate of Change in the SKEW was picking up again and now the SKEW Index is back near the recent highs. The Skew measures the probability of an improbable event such as a black swan or sudden market crash. $115 is the average, $131.78 is the high since being introduced, the higher SKEW moves, the greater the probability of a crash.

If you haven't really paid much attention to our Credit/Risk Asset layout, it may be a good time to look at the long term implications of it as the short term has been very predictive. Th layout is severely dislocated with the market and eventually the market reverts to the mean which is far, far lower then where we are now.

It feels like we are on the ledge that could break any moment, we've seen the Cats and Dogs come and go, just about every metric is breaking down, but those who just watch price are going to be in for a big surprise. I think if you look at the layout mentioned, you won't be among that crowd.

As I try to anchor expectations, just remember even in the worst bear markets, we typically see as many up days if not more then down days, the difference is the down days are much stronger, so keep your eye on the larger trend and don't worry too much about intraday and daily gyrations. The only thing that is moving the market right now has been hope based on false rumors and when you get to this level of dumb money bullish sentiment and a market that can only move on hope and can't even hold those gains, the market structure has broken down bad. I fully expect to still see days that will challenge your emotions and cause you doubt, that is what a bear market rally is supposed to do, that is why I say, keep your eye on the macro situation.

Tomorrow I'll have to cut out around 3:30 p.m. as I have a funeral at 4 .

See you in the a.m.