Quick Update

This is some fact based observation mixed with some conjecture.  The end of day "ramp" in stocks was achieved apparently through the use of... you might have guessed it, volatility just like we've been seeing through most of the early part of the year, except price in many cases is at the level seen the last several days, but volatility is far from the lows seen on those days, in other words, while volatility is moving down, it's not moving down nearly as much, the VIX is still in a huge volatility squeeze from some of the largest volatility to some of the narrowest in a very short time, as I said yesterday the VIX probably has a little more time to bounce back and forth around the median of the 20 bar average on a 20/20 Bollinger Band setting and that's exactly what it did today, but again, it's not breaking as low as it was and judging from the size of the volatility squeeze in volatility, there's about to be a huge directional move and I just don't see that to the downside.

The NYSE TICK Index shows a clear trend from about 1:15 on to the upside, in fact hitting extremes of nearly +1500, while the recent volatility uptick that we expected is forming more of a tighter triangle like the Dow I showed you near the close with both the SPX and Dow closing at +0.04 and 0.05% and the NASDAQ down 0.32% (made some money in the NASDAQ puts from yesterday-yeah!) and the R2K nearly the mirror opposite up +0.33%, however even with the TICK at such extreme levels 3C moderated through the afternoon and didn't look anything like the market was ramping (back to unchanged in the Dow and SPX and down in the NDX, up in the R2K). I figure the TICK is probably up and trending like that as the Russell 2000 went green as we're talking 2000 stocks, not 500, 100 or 30. Still 3C was very much like it was being hedged or moderated, earlier strength turned negative or dropped to in line.

Tomorrow is the ECB's rate decision policy and while I have no business making these kinds of guesses, I'm just thinking out loud.

The lack of any stocks, averages or ETFs clearly standing out as a long buy seems odd considering HYG is positive and looks like it will move up, but credit traders are also the smartest of smart money and no matter what, HYG isn't going to go too far, but excellent choice as far as a beaten down asset on the cheap. Thinking about that triangle in the Dow, you know what I'm thinking. The 3C charts are clearly negative on timeframes like 10, 15, 30, 60, and pretty neutral on 1, 2,3 and 5 almost as if there's nothing going on there or whatever may have gone on yesterday, they aren't putting much more in to it.

So here's my guess, the ECB lowers rates tomorrow which will initially be met with cheer, "Germany is saved!", the French are upset about the Euro's strength, I'm sure everyone other than vacationers out of the Union are upset. A member of the ECB went out of his way today to say that they aren't targeting the currency value as if to try to inoculate himself before the deed is done.

So everyone is happy, the European markets rally on the news, the US pre-market is strong and the open is, we get a move above the triangle in the Dow and wherever else they're found, but there's one crowd that's not happy, guess who?

Anyone with a carry trade on, just about all hedge funds, large institutions, etc. I already saw evidence today that it looks like some where trying to close the trade, they'll be at a huge loss on huge leverage (up to 200 to 1). Soon the initial enthusiasm and jubilation gives way to the reality of funds selling equities to close their carry trades as fast as possible as the pace and size losses they are taking, the yen soars and that's probably the reason VXX looked so good on 3C charts today and volatility didn't sell off to similar lows when price in the averages was at this level, you have tour triangle's broken to the upside and sent back down lower and if it happens like this, remember my gut feeling that the reversal comes quick-intraday even, that would do it.

So the real event, the pivot tomorrow is the ECB rate decision, this could explain the huge volatility squeeze in the VIX as well as 1000 other things.