Overnight

Not surprisingly, based on the afternoon activity (yesterday's as well), futures are drifting lower; ES is off by -2.5 points, but down 10 points from the intraday regular hours high.

There are some positive intraday/night divergences in the Index futures, but based on regular hours 3C charts, I'd expect some draw-down, thus the afternoon short positions. Currency futures are split, the $USD looks like it will head lower (market supportive), while the $AUD also looks to head lower (market negative), the Euro isn't giving very strong signals, but hasn't been performing well, presumably because of the upcoming ECB policy meeting with rates expected to be cut by 25 basis points. The Yen really looks like it could make a serious move higher, which if you recall in my weekend articles (2 weeks ago), "Currency Crisis" has been looking for a Yen move higher, very negative for the market and carry pairs, this could be what the negative market signals are about.

Take a look at the Yen futures...

Since the BOJ QE policy seen at the far left (negative divergence and crash in the Yen), there has been a strong, building 60 minute positive divergence, this is the base I'm worried about in the Yen, essentially this would be the BOJ policies failing and would have significant effects on the carry trades and the market. What is being termed, "Abenomics" (after Japanese Prime Minister, Abe and his very aggressive moves along with the BOJ to end two decades of deflation in Japan, have just seen an unexpected rise in deflation, the exact opposite of what they are trying to accomplish. The deflationary economic miss is the biggest in nearly 3 years so what they are doing is not only not working, it's making things worse!

Here are some examples of the short term negatives building largely since yesterday...I had expected some more upside on this move before we get a real tradable downswing, a serious downswing.

IWM negative

QQQ negative

SPY negative, but these are largely on timeframes in the 5-15 min ranges.

This 4 hour SPY chart shows a lot stringer accumulation stage at the previous bottom that should support a larger upside move so I expect any near term downside (whether it's a day or several), will be followed by the continuation of this move to the upside which has essentially (at least from the look of the 3C charts), seen a temporary set back. We'll know a lot more if we do get some downside as we can see how 3C reacts, any positive divergences in to downside and we know the move to the upside isn't done, which is actually good because it gives us more trading opportunities and gives us more time to set up our core positions as well as get better positioning and less risk. I can't really complain, I'm just surprised to see it, although no trend id a a straight line. I'm just a bit concerned that the Yen may change things market wide with very little warning as this is a true fundamental event that hasn't been discounted by the market yet as far as I can tell and I do think it will happen, it would just be good if it happens at the time we have all of our core shorts in place, it would actually be like adding a turbo charger to the downside move.

As for CONTEXT, the negative differential is only about 4 points, this has a lot to do with ES actually reverting toward the CONTEXT model (ES moving down, at least since the afternoon highs).

As for Leading Indicators, they are pretty much in line on a shorter timeframe, they are not negative enough in my opinion to be warning of the top I'm looking for after this move up (which seems like it's seeing a short term detour/correction). In other words, Leading Indicators as well as CONTEXT support the view of the 3C charts of the averages above, a downside interruption to our move higher, that move higher continuing (I'd say before the signals yesterday and today, it was probably half way or more completed) and finally a crushing move lower, but following the market signals has served us very well as can be seen by our trades and ranking, so we'll continue to listen to the message of the market and trade with that message.

We'll see what we have in several hours, but I'd expect an op-ex pin, which may be why we are seeing these negative divergences right now (Max pain may be lower for the op-ex pin).

See you soon.