Daily Wrap: Bounce Still On

Overnight we had some data out of China, Export/Imports that came in at a +10.9% y.o.y rise vs. consensus of 1%, so a total blow-away of consensus by 5.5 standard deviations, this got ES and US Index futures in risk on mode and that's basically what gave us our overnight levitation/gap up open, even though China itself closed red as did the Nikkei (Down another 200 points). Also ramping risk was Chinese copper demand which is up 52% over the last two months, although GS says it has nothing to do with demand and more to do with tight liquidity issues, but it gave the world the impression that the global economy was on a healthier footing. The Chinese trade balance however, missed at $17.82bn vs consensus at $26.9bn, the most in 4 months and the second month in a row. Again, despite the seemingly blow-away print, the GDP contribution was only $17.8bn, a far miss of consensus of $27.1 bn which has led pretty much everyone other than the headline scanning algos thinking that China's data is "less than reliable" or one firm threw around the term, "Cooking the books", which isn't a concept anyone has trouble believing when it comes to China's state released data.


The Bank of Japan kept policy as is which will continue to add $60-$70 trillion JPY to the monetary base annually in their QE-Zilla. 

In the US Initial Claims came in at 333k vs consensus of 335k, 5k more than last week's upwardly revised print of 328k (from 326k). The 4 week  average fell to the lowest since November of 2007. Continuing Claims missed as they were up 3018k from 2951k and vs consensus of 2950k. There wasn't much of a reaction from initial claims other than a pop in gold, a small pop in the USD and Treasuries gained.

Today we saw some green closes snapping the worst multi-day decline of the entire year, amazing that bit and right on cue with our bounce speculation as well as candlestick analysis and just about everything else. The only thing was yesterday's closing intraday 3C suggested weakness in the a.m. to be followed by strength which is the same pattern as the last 2 previous days, if not for the gap up, it would have been a perfect call as we did close the gap to a.m. weakness, hit an a.m. intraday low and bounced off of that.

Just so you know, we have the same 3C pattern as of today's close, which might be good because I see some signs that we will continue with a bounce so that pullback will allow us to set up new or re-set positions that may have been closed today out of an abundance of caution. The actual 3C afternoon negative divergence (that should run right in to tomorrow's trade) is actually worse than the previous two days so we may get a real nice pullback, which is a "mini-gift" for all of you hitch-hikers.

This is the SPY showing how bad it is, but all of the averages look similar.

To the left you see yesterday's afternoon negative intraday divergence sending the SPY lower off the gap up open and today the divergence is deeper/leading negative so I'm thinking this may set up some decent positions as I have uncovered some things that look like we will definitely be bouncing.

As far as what's driving the market, can you guess? It's the carry trade and the reason I still think USD/JPY long is a good trade or FXY short.

 This is FXY, the Yen ETF and I inverted the scale of the SPX, you can see the Yen's strength or weakness drove the market all day long.

As far as that strength/weakness and what to expect in the day/s ahead...

 This is the 15 min Yen chart with the carry trade being seriously covered, but there's a clear 3C divergence as there was yesterday suggesting the Yen turns down which it did today, allowing the market to bounce.

This is the $USDX, it would have to do the opposite for the USD/JPY to rise and support the market and as you can see, it has a positive divegrence that has already helped turn it, so this is 1 factor that argues strongly for the bounce I expected initially late Tuesday as the data started to come in suggesting one.

Don't forget tomorrow is a typical options expiration peg, so trade may be a little pinned for most of the day.

As to other assets and information...

 HYG/Credit looked to follow the SPX fairly closely, there was that bout of strength in to the close that is somewhat telling, it was obvious in Junk Credit and far more obvious in the thin, High Yield Credit so I think that argues for credit or at least HYG/arbitrage supporting a market bounce.

If you back off HYG a bit you can see it is not overly excited, I have a feeling they are doing as little as possible as they don't want to get caught holding a risk asset as things come apart.

 You can see clearly that the SPY Arbitrage WAS not in effect today at all really other than a little lift off the intraday low.

CONTEXT is negative, but it has a lot more room, I'm sure it will look worse on any market price strength.

VXX was basically tight on the correlation intraday with the SPX, TLT was still stronger which makes ,me happy to see even though I expect it to pullback and support the SPY arbitrage, but as far as holding the longer term core position (long), I like to see that relative strength.

Commodities are still acting better as they have been the last couple of days, Gold and silver both had good days today and they look to continue that move for at least a bit longer, although I suspect from 3C signals on the futures that each will pullback and Gold will likely lead silver this time.

Finally on the "Bounce" side of the ledger, professional sentiment, in our leading indicators, both were up vs the SPX, here's FCT...

That's unambiguous strength in sentiment and HIO was the same, I think a bounce is inevitable even though today things started looking very fragmented.

If 3C is correct as it has been on the intraday signals at the close, we should look for a.m. weakness again, I have no idea if we get a gap or not, the Yen is not as strong so it's hard to say, but I do think we pullback/

So long as signals are good, we'll do the same thing as yesterday and add longs and calls, equities or options, whatever you like or you can wait it out as these are speculative, we should get a deep discount and a nice move out of these, but again it's just hitch-hiking.

One night I'm going to do nothing but the big picture and how much trouble this market is really in, I don't want you to forget that because in my view, we need to really be thinking about and trying to get our shorts in place at the most advantageous area, that's where the real trade is.