Daily Wrap

This is going to be a busy week, we have a lot of month end data, ISM numbers from around the world, we have the F_O_M_C on Wednesday (Remember, as I ALWAYS WARN, "BEWARE THE F_E_D KNEE-JERK REACTION. We almost always see it and it's almost always wrong or reversed shortly thereafter), Thursday we have the ECB rate decision in which the market has priced in a .50 (50 basis point) cut in the refi-rate, however the deposit rate is expected to remain unchanged. We have the US Labour data on Friday, Services ISM... lets just suffice it to say, it's a busy week.

Today some of the highlights were the Euro-area savings rate dropping  to a record low (I wonder how much of that is due to people pulling their money out of banks since the Cyprus Bank Robbery by the Troika?) and the biggest drop ever in disposable income.

The Dallas F_E_D reported General Business Activity for April this morning which came in at the largest miss to consensus on record as well as the largest 1 month drop ever, from last of 7.4 to negative -15.6 on consensus of 5.0.

Just after this was reported, we saw our first lever pulling to push the market higher as seen here in Capital Context's SPY Arbitrage...

 Right around the report time (red arrow), SPY arbitrage stops declining and starts ascending.

About the same time one of the 3 levers, HYG is cranked on.

HYG makes a higher high intraday vs the SPX and is at a leading positive position, again the same time.

If you remember the expectations of a move up, setting up a larger move down which we have been able to trade fairly well, as always, there's only one reason for a move up in this kind of market and that is so smart money can sell and sell short in to price strength, but to be able to do that, they need demand and to get demand you need to get traders feeling bullish and to do that, we often see extreme moves so they are never surprising and they always target an area that the most traders out there will be watching-in this case, the SPX all-time highs.

Today's intraday high was $1596.65 and closing @ $1593.38 A ONE PENNY NEW HIGH, however as we could tell pretty early on in the day, this was mainly accomplished by pulling the short term market manipulation levers as today's NYSE and S&P Futures saw one of the lowest non-holiday volume days in months and particularly as of 3 p.m. as average volume for that time of day was way down as the SPX tried to make new highs..

Beyond the implications of a 1 hour chart 3C negative divergence in ES, just take a look at today's volume.

The VXX (Short Term VIX Futures) held up very well today considering, much better than the correlation and I mentioned this last week, the last time we saw it happen was the Thursday and Friday before the following Monday's 2.3+% drop in 1-day.

I don't mention this in a "Not-forNothing" kind of way, I mention it for the same reasons I first noticed it on the 11th in VXX and the 12th in both VXX and UVXY. Here's the post from April 12th...

"TLT and VXX-Real Organic Demand, Real Supply and Demand, Greed and Fear"

Most of us know that the VIX and futures "Typically" move opposite the market so with the SPX making a move higher today, it was notable that VIX Futures were not making new lows.

The point of all of this is the correlation be damned, traders are bidding up VIX futures for protection and they were right to do so on the 11th and 12th as the next day looked like this...

As I mentioned at the time, that 1-day move took out nearly a month of long positions and put them in the red in a day, it's no coincidence that the two assets, VXX a "Flight to Protection" and TLT, "A Flight to Safety" traded against their natural correlation and help their ground as real demand kept them from slipping with their correlation.

Toward the end of the day, perhaps as market participants noticed that not even the specter of a new SPX high was getting traders excited (look at the low volume), it looks like VIX Futures saw a burst of activity.

The one asset other than key currencies that saw clear manipulation was one of the 3, TLT.

 Early today when I first looked at Leading Indicators I knew something was going on and looked at the SPY Arbitrage expecting to see exactly what I saw, no it wasn't demand (driven by volume), it was levers and algorithmic arbitrage programs lifting the market.

TLT by the end of day...

 Clearly used all day even when at certain points you'd expect it to trade mirror opposite the market. However perhaps I should have seen this coming (although I don't know any way of predicting manipulation days in advance), when I mentioned that despite the flight to safety, TLT looked like in the short term all support had been cut from beneath it and I even said the following on Wednesday April 24th (last week) about TLT...

"Perhaps as a hint of what we can expect from the market short term, I do believe TLT will fall due to this negative short term divergence, the market would need to rally for that to happen so we may indeed have more time left than the charts appear to suggest right now."

At the time in that very same "Leading Indicators" post, TLT looked like this...

Short term (5 min) distribution was so apparent that there was no way I couldn't conclude exactly what I did which is just above.

It's worth looking at the SPY Arbitrage again to see where the pressure was really being exerted on the Levers and specifically TLT, if not some key currencies as well: Just after the shockingly horrible Dallas Fed around 10:30 this morning which is where TLT first starts to diverge and then around 2 p.m. this afternoon just as the SPX/SPY was struggling with resistance from the previous high (note how sharply TLT falls off at 2 p.m. and note the resistance they just couldn't push the market past with levers alone.

So not only do we see resistance at the area, we see some of the lowest volume of the day and at the same time the levers are pulled to try to manipulate price to a new high as seen on the SPY Arbitrage chart around 2 p.m. and the sharp fall in TLT at the same time.

That's not the only market manipulation though, the most shorted Russell 2000 names also saw an early a.m. short squeeze, many of these high beta stocks are found in the Basic Materials Sector, take a look at relative sector performance today...

While the "Risk On" Industry groups like Financials and Discretionary languished, we see more activity than usual in the Safe Haven, Utilities sector, although I suspect this has a lot to do with the recent hunt for dividend paying stocks.

Notably, the rich in high beta momentum stock sector of Basic Materials saw some of the most impressive relative sector performance today. Industrials barely did anything, considering the market was shooting for a new SPX all-time high, Energy was up most of the day, but not with the same relative performance as BM, Tech was also up, but the best performer here is the momentum rich Basic Materials group where a lot of the heaviest short interest (R2K stocks experiencing a short squeeze today, would be found.

With all of that, plus the $USD out of commission, the market still couldn't pull it off...

The $USD intraday in red vs the SPY offered no resistance to the market whatsoever.

However Commodities (as well as Energy) did take advantage of the $USD's relative weakness today, far outperforming equities and showing better relative strength in to the close.

Commods vs the SPX (green) held better in to the close.

AAPL helped Tech with its best 1-day performance in 3 months, We were in the right spot with the AAPL calls, but cashed in to early, perhaps I should have used the Trend Channel...

The 60 min Trend Channel (One of my custom indicators that adjusts to each stock's own volatility and character)  for AAPL held the trend easily, however the Channel Buster at the end of the day in yellow would have had me considering taking profits as these Channel Busters are often a prelude to something ugly, not only that, but most of the candles in that area have long upper wicks, a sign of resistance as well as the second and third to last candles forming stars and a closing bearish confirmation candle.

As mentioned earlier, the Japanese Yen rallying in to the close didn't seem to help the market either, this goes back to my Currency Crisis post which has thus far played out exactly as expected.

 Yields which are like a magnet for equities were a lot more helpful last week than today...

Yields today completely flat and on a daily candle basis.

However, quite interesting was our risk sentiment indicators, FCT moved higher in to the close, it seems the market has decided, a new SPX high is the goal and perhaps as I suggested earlier today we are not going to see that short term interruption pullback before we finish this leg higher leading to the next leg lower, perhaps we are going to finish it right now.

FCT showing a general risk on sentiment near term.

As far as other measures or models of risk, lets take a look at CONTEXT...

We have a slightly positive ES model, less than 1 ES point, but not negative right now, this would seem to further indicate the mission is, "New High" and see if anyone bites to sell in to.

As far as the averages themselves...

 The intraday chart looks as I would expect and this reaches or has migrated out to the 5 min chart.

It's this 10 min chart that needs to go negative, with the 5 min already negative, we aren't far.

The 30 is already significantly negative, so the short end has to catch up to the long end and just about the only thing standing in the way is 1 timeframe.

Almost EVERY AVERAGE IS EXACTLY THE SAME, there are only some minor differences.

The Dominant Price/Volume Relationship among the component stocks of each of the major averages are all the same, There is a dominant relationship and it is the most bearish of the 4, Price Up/Volume Down.

As for futures, I'm going to look at them later and see if they move much, what I do know is that toward the end of the move to the upside and getting ready to reverse positions and short in to that move, this is exactly what I'd be looking for...

This tells us that there's been pure distribution in to all price gains starting with the opening of futures trade Sunday night.

As I said several times, I didn't back up the truck today and load up on shorts, but I think we are so very close, it could be intraday at this point, we have to see that 10 min link the long and short 3C charts and then we have migration all the way through and excellent timing.

There will be individual opportunities that will be ready before others, we'll be looking at those now that the tone of this week's trade is more clear, the only question mark is whether the F_O_M_C knee-jerk reaction is used to create a sharp head fake, that would be my play if I were manipulating the playing board.