A Quick Look

There's not much that has changed since Tuesday night's first theory of what was going on, the only thing that has changed is the way in which things have developed such as rotation out of Financials and in to Tech today, some FX action and some deterioration in Credit and specifically the EUR/USD, but I suspect that may retrace a bit of the parabolic drop.

Again today, like yesterday, the broad risk asset model, CONTEXT shows that ES (S&P Futures) were  rich to fair value, the SPY was a bit closer today, but it also was out of rotation in a way.

 FCT has been a great leading indicator, ever since the head fake high in the SPX (yellow) FCT has been diverging to the downside, a leading signal hinting at the direction the SPX (green) will eventually take.

 Yields, as I often say, are like a magnet for equity prices so to the left we see confirmation of the downtrend and we see confirmation early in the bounce from November 16th, but since yields have been signaling a leading bearish indication for the SPX (green).

 The $AUD is my favorite leading currency, it did see some volatility this week with a rate cut from the Australian Central Bank, but it seems to be on track again, it gave a negative divergence vs the SPX (green) on the 3rd and the SPX fell from there, it gave a positive divergence on the 5th and the SPX bounced from there, it was leading earlier today, but has since lost that momentum and has almost met up with the SPX-Reversion to the mean.

 High Yield Credit showed a negative divergence on the 3rd also and sent the SPX (green) lower, then a positive divergence in to the 5th that sent the SPX higher, now both are close to reversion to the mean.

 Intraday HY Credit did initially show some positive momentum, but in to the close it went negative and was being sold vs the SPX, this may be the start of the negative divergence in credit I'd like to see.

 High Yield Corporate Credit also shows a number of positive divergences starting with Tuesday's, it is still leading and I think the market does have more upside as I mentioned earlier, but this could divergence very quickly, the longer term 3C charts for HYG are negative so I would expect that negative divergence to show up.

 As we saw earlier, finally the NASDAQ Futures 3C chart (1 min) is starting to see deterioration that is more than just intraday.

 The 5 min chart was strong and leading positive, it was one of the main red flags on Tuesday, that positive divergence is totally gone and it is now negative. It has been the very strong 15 min chart (that developed today as we suspected yesterday) that really will be telling.

This was the earlier first sign of some trouble with 3C making a lower high and low.

Here's the current view of the chart, what is encouraging from an analytical view is that the divergences from the 1 and 5 min charts are migrating in to the 15 min chart.

While the deterioration isn't significant or anything that would cause me to change the near term signals and expectations, it does continue to deteriorate.

Tomorrow we'll be looking for continuations of all of these trends, there is a chance we see some very fast moving developments as well as volatility.

This is not the time to be making big directional bets, but to be patient and let the big directional trade signals come to you, there's no reason to be in a trade if it isn't showing high probabilities and that includes the market showing the same probabilities.

All in all, I think we are still very much on track from the initial analysis on Tuesday which is kind of amazing considering how fast it all happened.

Check it out!

 This is just a start, but that's the SPY breaking above the triangle

 In green the SPX and orange the Euro on a 1 min intraday chart zoomed in, note how they both are moving at the same time-this is why I let go of SCO as it would follow the Euro, I can always open it again tomorrow or whenever this move ends.

It will be interesting to see how the futures play it overnight, they won't stay frozen here, but I did capture the FXE/UUP charts for the currency post, I didn't use them, but the point being they had the same signals as the charts i posted, the difference is with these ETFs, if the signal was set up today before the close, they almost always benefit from the move the next day no matter what happens overnight, that's some foreknowledge of the market!

 This is the 1 min NASDAQ Futures, remember we want to see 3C deteriorate across the 1, 5 and ultimately 15 min timeframes.

 The 5 min NQ chart was one of the charts that was so positive Tuesday we knew something was going on, look at it today, no hint of positive indications. This divergence needs to flow to the 15 min chart which had been leading positive al day today as Tech and Financials rotated and switched places from yesterday.

While the NQ 15 min chart is no where near a negative divergence, there is deterioration! It may be small, but that's how it always starts; toward the close 3C put in the first lower high and lower low in the entire leading positive divergence so that's good to see.

I'm going to look around and be back with any observations.

The Currency Connection

Now some things are making sense, this is why you have to look, look, look everywhere and compare, compare, compare="3C"

I don't know if the currencies had anything to do with the original move that started to be put together on Tuesday, but it looks like currencies will have some part in the end game.

By the way, that triangle I showed you in the SPY, if it is to break higher, don't be surprised to see a break below the triangle first followed by a move higher, it gives it more upside momentum on short covering.

Take a look at the EUR/USD which I have been saying at least all of this week, "This is under distribution".

 Here's the EUR/USD, I mentioned the initial break in a post last night, but that was nothing compared to the break down today, that's a parabolic decline.

Now it's true that the two emotions that move a market are fear and greed and of the two, Fear is stronger, that's why markets fall faster than they rise, but this move down is pure parabolic, it's an emotional over-reaction and they tend to be retraced, meaning expect a strong move right back up. In fact the turn to the upside is already starting; this would help commodities and stocks and nearly every other risk asset, at least for the short term while it moves up.

 This is the Euro Futures-no pairing, just the Euro futures on a 4 hour chart, the big picture! Note that the last run up was in to not only a negative 3C divergence, but a stronger leading negative divergence, this may reflect part of the reason the drop was so intense.

 On a 30 min chart we can see a relative negative divergence at the red arrow and a leading negative divergence (stronger) in the red box, this is what I was telling you about all week except on different charts and timeframes. In yellow you get a feel for just how parabolic the move down was.

 This is the Euro Futures 1 min chart, basically it's today and there's a 1 min positive divergence as the Euro flattens out from the drop, this is where we see accumulation and this is a 1 min chart so it can move the Euro short term, but it's not strong accumulation or a large amount, if it stays that way, it will only support a quick move to the upside which will likely be sold in to giving us a negative divergence and setting the Euro up for another fall and the market with it-THAT MAY BE OUR END GAME.

 This is the other half of the pair, the $US Dollar index futures, this is a bit different from just the $USD, but close enough. The longer term 60 min chart is exactly the opposite of the Euro longer term chart, it's positive suggesting the $USD move higher, that puts downward pressure on commodities, oil, and stocks. This is a strong leading positive divergence so today's move makes sense even though it is too parabolic for me to believe it will hold without seeing a downside correction (an upside correction in the Euro and a market positive move).

 The 1 min chart for the $USD shows a negative divergence as it flattens out and loses upside momentum, again this isn't huge distribution, but enough to move the currency for the day assuming it doesn't spend several more days accumulating in a base which I don't think it will.

 This shows the EUR/USD and the negative divergence as it went higher, it also shows how parabolic the drop was, I NEVER trust parabolic moves whether up or down, they are almost always tested in the other direction with a move nearly as strong.

Here's the EUR/USD pair on a 1 min 3C chart, notice distribution before the fall? Also notice accumulation right now?

This is essentially a perfect set up to lift the market to the new highs above the range, but as it stands, it's not enough to hold it there for very long, which is exactly what I said last night, I wouldn't be surprised at all if we saw an initial very strong move to the upside that fails quickly and is followed by a very strong move to the downside which essentially cracks out top here.

We'll see how it develops, but if currency traders are making the move right now as 3C shows, then bond traders who are better informed will certainly know and that's why they'd flood out of
TLT to take advantage of a quick risk on move.

Market Update

I often tell you that Wall Street doesn't do anything without a reason, if they are running a shakeout play (which is my gut on this one), the they will move the market enough that it sways emotions, that hasn't happened even with slight new highs in the Dow yesterday and recent highs in Financials.

Look at this coiled tension in the SPY and volume is correct for the price pattern...

OK, there's no shakeout move here unless the SPY moves above the opening 12/3 highs, otherwise what's the point o moving so much around this week? That would also make for a nice place for the market to take a cliff dive and the NFP may provide the catalyst, at least for the majoirtity of retail that needs a reason.

The real catalyst would likely be the Euro/USD and as I just told you with closing SCO, I anticipate the commodity weakness/oil will see a quick (if not short lived) reversal, that's why I closed SCO for now.

The same would apply for the market.

I'll post what I mean with the currencies and you'll get my drift a little clearer.

Closing SCO Long

This is the leveraged ETF that gives you short exposure to oil. I see some things in the Euro and $USD futures as well as the move in both is too parabolic, I believe it's short term, but why not take the profit and re-enter when the condition are better and maybe at a lower price with less risk?

Not a bad quick gain.

Patience-Money Flowing out of TLT

I'm going to be patient here, this isn't the time to try to force something to happen in the market, it never is, let the trade come to you. Patience is your biggest advantage over smart money as you can decide when to be in the market and when to pull out-they can't; you can pick and chose your battles, they have to commit their large ship to a course and hope their right.

So something interesting in TLT which is the long Treasuries (20+ years), it's also where the F_E_D is active this month. Money is flowing out of TLT, the 3C charts are VERY clear about this, it may be a short term effect, maybe a longer term, maybe it's in line with the theory I suggested that we see a very strong move on a day like tomorrow on the NFP (that part a member added) and then toward the middle or end of the day, a bloodbath.

In any case, TLT is the "Flight to Safety " Trade, when smart money expects the market to go down, they park money over there, when they want to use that money to buy stocks, they exit TLT, right now there's an exit of TLT, that alone suggests a move higher which is still in line with our theory.

The reason I want to be patient is I can add at better prices on a strong, unambiguous signal.

NASDAQ Futures

Since these are the ones that went in to rotation today, I'm really watching that 15 min chart. Otherwise on an intraday basis, the QQQ is negative intraday at the 11:45 and 2 pm reaction high areas. The 1 min NQ futures are showing this as well as the QQQ, it's not such a huge signal that I'd go short the NASDAQ based on just that, but it may be interesting to you if you are phasing in to other positions.

The 5 min NQ has continued to deteriorate as I said I'd like to see and the 15 min is right on a tipping point in which it could put in the first negative signal, although it would still ned some work from there, but it was built in a day, it can be taken sown in a day or less.


The IWM is also getting interesting, there's a VERY clear resistance area, I bet there's a ton of stops and orders right at that resistance area, if the IWM takes a shot at those orders to knock them out, that may be an interesting opportunity, I'm thinking SRTY.

Leading Indicators

Again it's always better to see the closing stats, but these are helpful now as well. I usually don't like spending this much time on market analysis through trading hours, I'd rather be looking at stocks and set ups, but this was a very strange move, one we luckily caught in time to make some adjustments and get out of the way, but I want to be SURE this is an anomaly, a ploy or a tactical move rather than the start of a new strategic change. We don't want to be stuck on the wrong side of a large strategic move so it's absolutely necessary to follow this, make sure nothing happens that would undermine our probability factors and nothing is going to catch us by surprise in a big way. I'll try to give you ideas and opportunities as we go as well.

Credit-(HYG) High Yield Corporate 

 As I said in my first opinion of what we saw develop Tuesday afternoon in Tuesday night's "Initial Impressions", even if we left all the 3C charts out of the picture, the way Leading Indicators were acting, especially credit, would have raised red flags for me.

At "A" on Tuesday HYG is in a positive divergence with the SPX (green) warning of something not right as Credit typically leads stocks. At The lows we see credit is at a larger positive divergence. Yesterday at "B" it seemed Credit was rolling over and putting in a negative divergence with the SPX, but in last night's Market Wrap I showed you specifically how HYG rallied toward the end of the day and had 3C support, telling me we'd likely see more upside in this move. At point "C" we see Credit moving with the SPX in confirmation, what we need to see is credit at a negative divergence with the SPX as well as a lot of other signals, but that needs to happen and it hasn't...YET.

 This is HYG with 3C 2 min on it, this is the exact accumulation late yesterday in HYG I showed you last night and HYG is higher today, but look at the leading negative divergence as HYG is near a test of the highs, this is good because it may lead to the negative divergence in credit I'd like to see.

 Since the move up started on 11/16, you can see the 10 min 3C chart of HYG has gone in to a leading negative divergence, this too tells me 1 of 2 things, either the positive activity is a VERY early change in the strategic sentiment in the market or more likely the positive divergence which doesn't show up here is more of a short term local event to trip up traders, hit stops, who knows what or why, just as long as we are on the right side of the market.

Junk Credit

 Junk did essentially the same thing as HYG above, it went negative yesterday at the highs, but continued up and in line with the market today, this may be good because it is in line rather than leading positive so that would be some deterioration from where it was Tuesday, we need a clear negative divergence between Junk Credit and the SPX (green).

High Yield Credit

 Here's HY Credit vs the SPX, it has a negative divergence early on the 3rd and send the SPX lower, THAT IS WHAT WE WANT, then Tuesday afternoon comes the positive divergence vs the SPX, yesterday it remained positive suggesting more upside today and today it remains in the same area, this need to deteriorate to a negative divergence like the red arrow to the left.

If the 3C chart of HYG is any indication of Credit, than I suspect we will see that negative divergence/deterioration soon.

 Yields since the move started, these are like a magnet for stock prices and this is a large negative divergence, it's much like the 3C 60 min charts of the averages, both suggest high probability of a nasty move down in the market.

 Yields specifically today, you see they are moving down, they may have put some pressure on the market and that may be part of what helped bring the market down just recently.

Euro

 The Euro isn't a great leading indicator, but a good confirmation indicator, here it is vs the SPX (green), for part of this week the Euro was lending support to the market (white) as they typically move together, now the Euro is off from the SPX and negative, it should at some point soon (usually a day or so) start to exert downward pressure on the market, we are already seeing it in commodities.

 The Euro in orange and SPX in green and today's trade, the Euro is much weaker, this is NOT supportive of the market and will eventually be a head wind against further gains if the Euro keeps on this path.

 Here's the EURO/USD and as I said most of this week, there was distribution in the Euro, it made a head fake move above $1.31 and spilled last night, but a lot worse today.

This is commodities vs the SPX (green) and they usually move together, but because commodities are sensitive to currency fluctuations, they are trading down on the weaker Euro/stronger $USD, stocks have the same relationship so it will be interesting to see how long stocks can hold out against the Euro's decline and the $USD's advance.

So far nothing that conflicts with our theory and now you know what we are looking for and what is influencing the market.

Market Update-Tech and Financials

*I see the NASDAQ/QQQ dropped since the last update, I hope the information was helpful.*

In last night's Market Wrap, I ended the presentation with the following,

"My Take...
I think there will probably be some opportunities based on rotation (for instance perhaps Tech and Financials flip at some point in the day), but broadly speaking I would expect a little more upside, whether it comes in the form of this insane volatility or a smooth cruise, I think there's enough accumulation to make at least one more move, which I'd like to continue adding to select short positions as some were opened in partial positions today."

This is EXACTLY what we are seeing today so I want to start with the SPY which is more Financial heavy and the QQQ which is more Tech heavy as these are 2 of the 3 most important industry groups (Energy being the 3rd); we'll also take a quick look at the 2 groups.

QQQ

 This is more analysis than a market update (intraday) so the timeframes I chose were to illustrate a point. Above is the QQQ 2 min, pretty fast timeframe, not huge on importance, but this is where new moves start so if there's a transition, it will start on these faster charts first. While the QQQ makes higher highs today, the 2 min is not keeping pace, suggesting there's some distribution as we move higher,if that continues to build and show up on longer timeframes then we have some good signals.

 On the 15 min timeframe this is where we do see heavier accumulation/distribution signals, for the most part there's VERY little here showing QQQ accumulation, I have no doubt there was accumulation to s end the Q's higher, but it wasn't so strong that it showed up on the 15 min chart which by the way is still in a leading negative divergence overall, that's where highest probabilities are right now moving forward.

 SPY (5 min)-I believe the S&P showed more initial accumulation a I mentioned Tuesday to close Financial shorts and I only wanted short exposure yesterday in Tech, the QQQ, etc and that turned out to be the right call. Today's rotation turned out to be the right call so far. The point here is the initial accumulation on the 5 min chart is pretty big, but now we are seeing that start to fade away a bit in to higher prices. This isn't all the evidence we need or that i'd like, but it's a good start and good confirmation so far.

 The SPY 10 min chart shows less accumulation than the 5 min, that probably is because it was not as strong and didn't show up on the stronger chart the same way, that is what we expect to see. In the orange box on today's intraday action we see 3C is failing to confirm the most recent high, so again it looks like the initial accumulation is being distributed in to higher prices.

Financials

 XLF 5 min shows accumulation Tuesday and yesterday we see some signs of distribution.

 On the longer 15 min chart, the accumulation didn't make it that far, it wasn't strong enough, this is why I initially thought this may be about a 2 day move, we do however see this chart showing stronger negative divergences to the far right at the recent new high as 3C is lower.

So thus far, the original theory seems to be holding water.

Tech

 The Tech 30 min chart shows an overall ugly chart with distribution on it, bit recently a very small signal of accumulation at the white arrow, it pales next to the negative divergence across most of the chart, but that is enough to move Tech for a day or so.

 Longer term on the 60 min chart there's very little sign of anything other than a large negative divergence or distribution suggesting the ultimate direction from this signal is down.

Futures-ES (S&P futures)

 Starting with a 15 in chart we can see yesterday's negative divergence or distribution in to the ES/S&P highs, this morning in to the lows there was a smaller positive divergence to hold the futures in place, but it isn't large like the initial divergence or like the NADAQ futures today.

 Now shifting to a 1 min ES chart (remember any new trends will start on the fastest charts and migrate to the longer term charts) we do see a negative divergence in to this morning's move up, call it distribution.

Did it migrate though?

 Here's the 5 min chart with the original accumulation on Tuesday, the selling in to yesterday's highs and the positive divergence this morning, we also see a negative divergence to the far right (red arrow) at a higher high in price, so yes, there's migration.

NASDAQ Futures (NQ)

 I didn't have the benefit of this strong leading positive divergence in the NASDAQ Futures last night when I suggested that they rotate in to strength today, but it did develop and they did rotate in to strength today vs Financials or the S&P (almost the same thing).

 Now to the 1 min NQ chart, we do see some distribution in to the highs today.

Also on the 5 min chart we see the same as 3C failed to make a new high with price. The 15 min chart still needs to go negative before we are ready to expect a serious move down, but with the 1 min and 5 min going negative, at least on this platform, the 15 min is the next timeframe for migration to occur so I'll be watching for the 15 min chart to show signs of weakness.

So far my theory and best guess from Tuesday still holds, this looks to be a volatility move to shake out shorts, longs, different sectors and do what Wall St. does best, make the most people wrong at any one time .

Next up are leading indicators as we try to put the highest probabilities on our side in what has otherwie been one of the strangest weeks I've seen in a while.