Quick Wrap

One of the things that struck me today was last night's summary of the averages in which the IWM was highlighted as the strongest of them all (among rather weak charts) and how the Q's in the same timeframe were quite weak. I wouldn't say today was a mirror reversal because the Q' don't look as strong in underlying trade as the IWM did last night, but they did improve with AAPL's improvement and the IWM sure looked pretty bad as it performed pretty well as far as price goes. It almost seems they switched and it almost seems we are very close to some top. The EUR/USD seems it has finally been shut down, the market as predicted is now focussed on the EU again and for good reason as the core is feeling contagion-Germany, as core as you get.

Also just as the negative divergences started slowly after we moved above the 1/4 highs on 1/10 and then picked up steam, the credit divergences started slowly yesterday and today started picking up more steam. When Credit and 3C (which is really already there) are both negative, it's an easy call. I don't feel any sense of pride that our market call and AAPL call are almost identical to DeMark's, but I do respect his work and find it very interesting as I almost never hear him come out and make calls, both almost identical to what we are looking for.

 The IWM had good strength yesterday, but as it moved up today as yesterday's short term positive charts would indicate, there were plenty of negative divergences suggesting selling in to the move higher, the IWM lost its positive posture really quick.

 The IWM 5 min chart that was positive yesterday as mentioned in last night's Market Wrap, totally in a negative divergence today in to higher prices, this is how it happens.

 The Q's on the other hand built in a little strength, no doubt because of the order flow seen in AAPL, when yo have the depth of the order book, there's a lot of information you might as well call inside information, but that's what being a market maker is all about.

 The 3x leveraged IWM short, SRTY is in a huge leading positive 30 min divergence so this appears to be the set up accumulated for trend #2.

 URTY, the 3x leveraged IWM long is the exact opposite in a deep leading negative divergence, the red arrow is 11/16-the start of this cycle, trend 2 would be the end of the cycle and likely the start of a new down cycle even lower than 11/16 lows.

 Also interesting was the end of day leading positive divergence in SRTY (IWM short ETF).

 Take a look at the unusual 1 min volume in SRTY at the same time as that positive divergence. Interesting.

 URTY (the 3x long version) on the other hand saw a leading negative divergence in to the EOD trade.

Take a look at the volume there, again... interesting.

I'm not saying the IWM can't move higher intraday or very, very short term, I'm just pointing out the relative performance of the IWM vs the Q's within the context of last night's wrap talking about the divergences and positions of both. The IWM closed green +.43% and the QQQ closed red -.49%, but I'm willing to bet they flip sides tomorrow, which is also interesting that the market is not moving together, especially in light of the fact the EUR/USD now seems to be done and that parabolic move up is a pretty dangerous pattern on the chart that can still see violent downside resolution.

In addition to that, EUR/USD is one of our leading indicators we have been looking for to go negative, it looks like it will be. Here's what the start of that looks like...

1 min chart, SPY =green, Euro=red. Instead of the Euro leading, it's not lagging and this is one of the indications we were looking for to occur.

I also found volatility interesting. The longer term positive divergence is expected, that's part of forecasting trend #2, but when the faster charts start getting really positive intraday, we're usually close to an event. Take a look at UVXY...

 The big picture on a 60 min chart, leading positive

 Note the strength though at the intraday lows-1 min

 2 min

 3 min

5 min-perfect migration through the timeframes in to a slightly down to flat area, an almost perfect accumulation environment.

There was no dominant Price/Volume relationship today so there's no short term bias as far as short term oversold/overbought and a few other clues from the P/V relationship.

As for Leading Indicators...

I've been hesitant to call a top and jump headlong in to a bunch of positions because my experience is that 3C is great, but 3C with Leading indicators, is almost infallible.

Just as the 3C divergences started out slow on the 10th and11th and built pretty quickly, we are seeing something similar play out in L.I.s.

 First commodities as a risk asset acted more in line with the EUR/USD correlation, which means something about the short term market movement, I'll show you next

 The EURO has finally broken and Germany is BIG trouble, people don't realize how big today's news was, but when the market starts discounting it, then people will realize, this was a milestone in the European saga and a very negative one. The point here though is the SPX in green is taking off without the backing of the Euro or $USD, that's typical of short term manipulation. It also starts our divergence.

 Here the SPX in green has a nearly mirror opposite relationship with the $USD as it should, but today it rallied with the $USD, again indicative of short term manipulation because it IS NOT a natural correlation.

 The $AUD doesn't appear to be that striking vs the SPX here, but I can't tell you how many divergences I have drawn on the $AUD that started just like this, they usually have a day or two more with serious downside, but it's that divergence right there that is where it started and was important.

 Just remember, Yields are like a magnet for equities, they almost always revert to yields and yields have a major negative divergence going which it added to today.


 Just so you can see better, this is High Yield Credit (risk on credit) from yesterday. I said this is the start of the negative divergence in HY credit and it would probably be the leader that would bring the other two around.

Look at today's negative divergence in HY credit, even worse than yesterday and sold off as the SPX rallied in to the close, this is what we are looking for.

 Yesterday I said High Yield Corp. Credit traded nearly tick for tick with the SPX, which is pretty rare, but today it got hammered in to the second afternoon low, diverging with the SPX and lagging in to the close, like HY above and how it started small yesterday and grew today, I think this is the start for HY Corp. Credit.

Junk credit has been acting the exact same, it also was hit hard in the afternoon and failed to keep up in to the close. Credit is so very important to what the market is doing, few realize it, but the credit markets are much larger and they are much smarter, they move first because of their size, thus they make an excellent leading indicator.

As for futures right now, there's a slightly negative bias to them, but it's a long night ahead. I'd still love to see futures prices run up really high pre-market with a huge leading negative 3C divergence, that would be a bust morning for us, but a great set up.

See ya in a few hours.