Daily Wrap

It was a srtrange market since futures opened yesterday, you can look at yesterday's post and see that I felt very clearly that there wasn't a lot of near term visibility. This morning it seemed the market knew what it was going to do, after strength late Friday after the op-ex pin was no longer needed, we gapped up today, it looked very much like we'd fill that gap until strange and unexplainable 1-3 min positive divergences started to mess up that signal.


Well it didn't take long for that fairly large imbalance between the CONTEXT ES model and CONTEXT to catch down to each other, all it took was an article from the FT's Harding that Bernie would signal that the taper is near on Wednesday, as if we all didn't already know that, they've essentially already told us. However, this story hitting the wires sent futures down to the model.

The 18 or so pint negative differential was basically closed with an ES move from $1641 to $1624, 17 points, so the CONTEXT model was darn close, except it had been flashing this since last night, well in advance of the FT's article.

Then Harding posts doubt about his own piece on a blog, the market reaction?

The only useful information we got today was accumulation on the move down, but it was late during the move down which begs the question, were some market participants front running Hardings doubts of his own FT article published earlier, this after the WSJ's Hilsenrath's positive post last week?!?!?

Guess what? In the near term, the market is still pretty opaque. I hate to try to predict what the F_O_M_C may or may not do tomorrow, but it is still the Yen and $USD single currency charts that seem to suggest a very strong move this week, once again...

 Leading negative 15 min Yen and...

15 min positive leading positive $USD, both make for a rising USD/JPY which is the main risk driver in this market.

However, just like last night, the near term charts like 1 and 5 min are completely useless, just in line.

As you know, I closed two HYG calls for a loss on a 1-5 min negative divergence, this works against the market and I opened an HYG put position, however like most of the market, HYG saw some late day positive divergences, the question is whether they hold. For now, I'll keep the HYG put in place a I think it has a little more downside to go even with accumulation continuing.

Volatility is even opaque, I don't have much short term on VXX or UVXY, the only thing I find is a positive in XIV which would be a positive for the market if price follows the divergence.

5 min leading positive XIV, the opposite of VXX and moves with the market, I'd like to see more confirmation among the other volatility assets, but that's what we have to work with.

To make things even more confusing, the 3 min TLT chart that built all day today basically contradicts the XIV chart above, unless the correlation is about ready to break as big money flocks in to safe haven assets.

TLT 3 min isn't as strong as XIV, but it has grown from a 1 min divergence today so it has some momentum.

This is what I mean by the short term is opaque, it's usually best to just wait it out until signals become clear again.

Right now the Index futures aren't very useful.

Moving to Leading Indicators...

Our risk sentiment indicators are either in line or not telling us anything clear. HYG Credit is relatively underperforming the SPX, I have the put there, but I think HYG will NEED to shape up to some degree before the market can make any serious move higher. The AUD basically gave out any upside support near term today, the Euro however rallied a bit in to the close, still not earth shattering signs.

If I had to go by DHY alone, which is very illiquid High Yield Credit, I'd say this is a bearish reading near term.

DHY 1 min vs the SPX. fortunately this can move pretty fast, but it is what it is for now, cloudy.

Yields did rise a bit on weaker bond activity today, they tend to drag equity prices to them, but this is still no smoking gun.

Yields higher than the SPX, not by a whole lot though.

Commodities may be a hint, they showed excellent relative strength today...

 Commodities vs the SPX today.

This is commodities vs the $USD so you can clearly see it wasn't the normal inverse relationship between the two that drove commodities higher today.

I know it's not much, beyond that, the only probability I see based on market behavior is some repair work needs to be done with the SPY and IWM 5 min charts looking like this.

 SPY 5 min

IWM 5 min.

This generally means some pullbacks or consolidations allowing 3C to build.

We still have this pattern in the market...

 a larger Inverse H&S like pattern that did hold above resistance on the close and...

Shorter term the bull flag I mentioned last night that also held above resistance, technically 2 breakouts.

I don't have too much more, there is this VIX sell signal, which would mean the market moves the opposite, to the upside.

This VIX signal taken with the 15 min $USD and JPY charts may indeed be foretelling of the strength of a bounce move this week, for all I know it could be on the F_O_M_C Wednesday at 2 p.m., but it seems to me most people are more afraid of what Bernie will say, of course there's always that initial knee-jerk F_E_D reaction that can last hours or days before being reversed.

I'm afraid that for the very near term we have no better visibility tonight than we did last night in the very near term, that can change real fast, but until it does, I still urge patience until we get a clear signal from the market, the signals drop off every once in a while, but they always come back.

If anything pops up in futures tonight, I'll be sure to share it with you ASAP, for now, pretty quiet .

As for the Nikkei, if I HAD to guess, I'd say they see a little downside, they have a weaker 15 min chart and in line 1 and 5 min charts, but the night is still young.

Patience is a tool, it is a skill and it's a lesson most of us need to learn and re-learn. IF THERE'S NO EDGE, THERE'S NO POINT IN RISKING CAPITAL.