Wrapping it up...

It's kind of difficult to take all of this information and organize it neatly with a nice bow, nonetheless I'll try to wrap it up.

We were very recently talking about how the macro-economic data is deteriorating and during the seasonal adjustment period when it's very easy to manipulate. I made mention that this was what changed the market in early 2012 from strong to a place where we built our core short positions at the very top only to see the market turn and drop as we moved OUT of the seasonal adjustment period (which is really to say, the period in which the government can come up with any number they want or need and then create the totally arbitrary seasonal adjustment to get to that number), however recently, whether seasonal adjustments are being used or not and "The Higher Power" help this economy if they are using seasonal adjustments to make things look better than they are come March, the fact remains that the macro economic data is slipping and bad.

Today we had the latest confirmation of this with the January Richmond F_E_D Manufacturing Index which plunged to the biggest miss of consensus since September of 2009!

How bad? In November it printed at 9, December the print fell to 5 and this report was expected to come in at 5, instead it came in at -12! As mentioned above, we haven't seen a miss like this since September of 2009.

The devil is always in the details, so here are a few: New Orders fell from 10 to -17, Capacity Utilization dropped from 3 to -18, and number of employes dropped for the 2nd month in a row, from 3 to -3 to -5.

If this was a one-off bad report, maybe we ignore it, but the Richmond F_E_D joined the Empire State F_E_D and Philly F_E_D, all of which are now in deep contraction.


The Citi US Macro index has turned negative for the first time since early September and this has had a correlation with the market in the past.

Over the years the Citi Macro Index turning negative has also been a turning point in the market and remember that many of these points have been during unprecedented F_E_D policy accommodation.

Here's the trend in Macro-data as recorded by Goldman Sachs. The point is not that it has turned, it is that it has turned this early in the seasonal adjustment period which is a free pass of sorts for data manipulation to the upside.

Last week we saw perhaps a one-off anomaly in rail traffic, but perhaps it wasn't a one-off event considering the manufacturing data.

That's a pretty big decline and fast, it's now below the December 2010 level. I'll have to take a much more in depth look at transports; if you know your Dow Theory, then you know why transports are important, not like they were when the Dow Industrials were true industrials, but still a measure of economic activity.

All of this comes when the market is at a very high net long position...

This appears to be the highest since 2007.

Looking at some more recent data, as in today, here's what we have among the leading indicators, which were a bit difficult to scale in some cases, but you'll get the point.

 Commodities tended to act pretty weel vs the SPX until just around that area I was so interested in around 12:30-1 pm today, the $USD can't be blamed, it was pretty flat on the day, it seems gold and silver were two of the late day under-performers.

 Yields have treated us well as a leading indicator, today they collapsed again vs the SPX...


 Here's a longer view of the overall dislocation which is just about as big as I can recall.

 The Euro is becoming further disconnected with the SPX, hence one of the reasons the SPY arbitrage from CONTEXT was so horrible looking today, but that's just one reason as it hasn't looked that bad recently and the Euro divergence isn't exactly new.

This is the large triangle that formed after the two parabolic runs I mentioned as looking good, but generally bad news for an asset, this triangle is getting tighter so it should resolve soon, the market has a positive correlation to the FX pair most of the time so even the move today is out of the normal legacy arbitrage correlation.

As for Credit, these were harder to scale...

 Even with the scaling issue, High Yield Credit which should rally with the market or lead it, was having none of it today, it went the opposite direction right about the time of interest today, 12:30-1 pm and in to the close, closing at exactly 0%, so HY credit was divergent with the SPX.

 High Yield Corporate Credit closed up 0.06% and was flat all day as the SPX moved higher, another divergent High Yield form.

 And Junk Credit didn't rally with the market at all with a paltry +0.07% gain on the day.

Luckily I was able to steal this graphic that scales the relationship much better.

This is after the European close, the SPY is blue, High Yield Corp. credit is orange and 20+ year treasuries are dark green, interestingly we are seeing the reemergence of the volatility ramp as VXX is inverted here (note the price scale in red), you can see the SPX's relationship with falling volatility, nearly tick for tick. Last week we saw some of this, then they went to credit, now back to the VIX. This should explain why 3C is negative and why risk assets aren't following the SPX as it's simply being manipulated by manipulating the VIX which we talked about last week. I sure wouldn't want to be short volatility when this turns.

Lets look at CONTEXT throughout the day...

 This is CONTEXT for SPY arbitrage on the left and S&P futures on the right (ES), again note the time when the CONTEXT model and ES diverge to the right, 12 to 1 pm-ish!  This is how the divergence started...

 By the close ES was WAY out of line with the fair value CONTEXT model based on other risk assets.

At the last look, they continued to diverge in probably one of the biggest divergences in ES I have seen .

As for 3C and ES...

 This is the negative leading 3C divergence this afternoon, note the scale around 17:00 hours because it's hard to replicate on the current chart below...

If ES was that leading negative at 17:00 (as it the limited bar history distorts the scale), look at it now, this is an incredibly deep leading negative divergence and the same persistent negative divergence we have only seen a few times, market tops and we saw it last Friday too.

As for the TICK data, it was good, but it wasn't what it should have been...

 Early on in the move up in the SPY we hit +1216, as the SPY made higher highs through the day so should the TICK, but it didn't. It's not unusual to see +1500 or higher readings, but nothing higher than 1216 which is an intraday breadth problem.


 On one of my new TICK indicators, look at the linear regression line on the SPX and on the TICK data, they are divergent again with TICK failing to make the higher highs needed to establish breadth.

Here I doubled the chart to 2 mins so you can see more of the intraday trend, again, TICK is nearly flat, negatively diverging with the market. This has been a key indicator in short term intraday reversals, it is now acting as a larger signal.

Here are some other indications...

 The overall Oscillator screen and momo indicator..., note MACD is negatively diverging with the price trend and Stochastics looks to be coming out of the intraday embed.

 A closer look at the momo indicator at the top on the SPY and RSI, note the momo has a large leading negative divergence and RSI is also going negative.

 The QQQ however look a bit different, the momo is in line as is RSI.

As for the intraday trend indicators, it looks like the Q's are just coming in to rotation, likely a day or part of a day as they enter the trend channel and see an increase in volume above the much watched 50-bar 5 min moving average.

As for NASDAQ futures tonight, they stumbled a little, but all in all look much better than ES.

Unlike ES which was moving to leading negative divergences, the NASDAQ futures were seeing leading positive this afternoon (around noon) and remained that way, there's a small negative divergence and thus far 3C is mostly in line with price right now, vastly different from the leading negative divergence in ES right now.

I'm still thinking the NASDAQ is the last of the averages to run stops/orders above the range, perhaps this is what this is about as it looks like rotation, who's to say what happens after hours when AAPL reports?

THE NDX IS ONLY ABOUT 10 POINTS AWAY FROM THE RANGE, THAT WOULD BE ABOUT $.30 ON THE QQQ.

I'll try to get up one more post, but I'm starving.