I'm going to go ahead and call this a change in character of the markets, I can't remember the last time I saw so much noise on short term charts. Back on April 10th when the market hit its low and and I thought we'd see a very volatile move up from there, I also thought AAPL would underperform. The reason I thought AAPL would underperform the market, which it has, is that I think instead of the normal flocking of hedge funds, there's a realization this market is in real trouble and there's what I've been calling, "An every person for themselves" mentality.
In essence, I would describe this as FEAR, the hedge funds that normally would flock together are getting scared, scared that they may be holding on to some shares of some large positions like AAPL, scared that they won't be positioned for the crack in the market that every underlying and leading indicator is aggressively moving closer to. I'd compare it to being way out on a very thin ledge and not knowing if the next step is going to be the one that is the last.
With AAPL's earnings tonight, there's major event risk, even if they beat, it's all about perception. Perception is shaped by guidance and if you look at NFLX since after reporting last night, guidance gave the perception that no matter what NFLX reported, which was a revenue and earnings beat, second quarter guidance spooked the market.
I probably don't have to say it, but we've all seen stocks that beat and sometime beat huge and still get sold off hard or stocks that miss huge, but rally hard. Why? Guidance.
Earnings are not so much about what you did (except for retail-that's all they understand is the head line number), but what the perception is regarding what you will do moving forward. So even if AAPL posted it's biggest blowout quarter ever, the concern Wall Street has is, "Can they do better next quarter", which often makes blowout quarters a bearish event as the perception is, "This is as good as it gets, time to sell".
In any case, 3C is showing that trepidation, it is showing the hedge fund herd moving in all different directions in a sort of panic. We expected to see this at some point before the market cracked, but we still have tomorrow's F_O_M_C event, this is weighing on the market too. Should there be a dovish hint or even outright QE, the market will go nuts to the upside, should the policy statement be relatively unchanged, the market will kick and scream like a spoiled brat that they didn't get their QE candy.
Here's a look at the chaos in the market right now...
I need to do an analysis of small cap, mid cap and large cap, I have suspected large cap would be coming under more pressure than the other two, so far we have seen several examples of that.
The DIA 1 min shows selling in to strength early, although the Dow was a bit ahead of itself, presumably on the repatriation effect on the EUR/$USD. There's one leading positive spike in white, but this chart is really noisy, I wouldn't make any short term forecasts from here and I believe it is a reflection of the Fear and chaos among large funds.
Moving to a 2 min which should have less noise, there's a relative positive divergence, this in my view is what the market wants, one more chance to sell and short in to some strength, on the other side of the coin, fear is fighting with that possibility.
This 5 min chart in the Dow looks bad, it may be a reflection of large cap weakness/rotation out, there' a slight relative positive divergence that is being fed from the 2 min chart above.
Looking at the same 5 min chart, just zoomed out to see the trend this looks bad. The last negative divergence like this to the left sent the market lower.
The 15 min chart is barely positive, compare where 3C is now and where price is vs. the last white trendline, this is a slight leading positive divergence.
QQQ has seen a lot of volatility today intraday, all strength yesterday seems to have been sold short term, this "could " be an effort to keep the Q's low in an accumulation range as mentioned yesterday. There is a positive divergence developing now.
The 2 min chart shows the enthusiasm of the 23rd with a leading positive divergence early on in the day, some negative and now a relative positive. Overall the placement of 3C here is still in a leading positive position, despite the intraday jiggles. It really looked like tech wanted to rotate in and probably still does, NFLX didn't help though.
Q 5 min has been in line, a small negative sending it lower and as I kind of suspect, it appears to be under accumulation near those lows. Of course smart money wants to buy as low as possible to make as much as possible and to mitigate risk. This accumulation though is ONLY short term, as in bounce.
The QQQ 15 min is still holding up as the strongest 15 min chart.
SPY 1 min is very noisy , some small rounds of positive divergences and when the SPY moves up too high, distribution. Again, this would fall in line with the need to accumulate as low as possible, especially with all of the event risk today after market and tomorrow round noon.
The 2 min chart shows more or less the same thing, it's a bit less chaotic.
This 5 min is kind of out of nowhere, there was good confirmation here and since a leading negative bringing the SPY back down. Again, this could still very well be the attempt to buy as low as possible to get a bounce moving without taking significant risk.
The 15 min chart is slightly more positive than the DIA 15 min, again note the relative areas marked with white trendlines, price is lower than the 20th, 3C is a bit higher.
ES shows strength being sold at every opportunity, but 3C ES seems to work different than on the averages, we tend to see persistent negative divergences that ES can still climb in to, but this only happens when we have price strength that is being sold, this would make the 4th time we have seen this, the last 3 times were on legitimate bounces that failed.
The CONTEXT model is showing ES lagging behind the underlying fundamental risk assets that make up the model, translation: CONTEXT says ES has room and the conditions to move higher in the near term.
These changes in 3C are showing the chaos behind the scenes, the flock dispersing and that only happens when they are scared. It is my plan to use any strength, even if it comes on a dovish F_O_M_C statement that send the market 4% higher in a day, to short in to. The only way I would not short in to that strength is if the F_O_M_C makes a clear statement about additional easing. I don't expect that with gas and food inflation running high, but you never know what they will say or do.
As always, watch out for the initial knee jerk reaction to an F_O_M_C statement, it tends to reverse within 30 minutes to a day or so.
Bottom line: There are changes in character in 3C/the underlying trends, they look very fearful.
