Daily Wrap

Friday later in the afternoon we had some clear signals that the start of this week would see some weakness. Today we saw that weakness very clearly when Secretary of State, John Kerry spoke out today saying that Syria's use of chemical weapons against civilians was, "Undeniable" and is shocked the Moral Conscience of the world, further adding that the Obama Administration would hold the Syrian government accountable.

I've told and showed you many times how the ending 3C indications (if there are decent divergences) almost always pick up the next trading day, that would have been today according to this Friday afternoon post saying to expect weakness early in the new week. I can see making the argument, well it was John Kerry's speech that moved the market and indeed it was, but this is the nature of smart money, the attacks had already occurred by Friday afternoon, when we see a divergence we rarely know what it's about until the chance to make money on it has past.

This is where I miss the $99 a year membership to STRATFOR, (Strategic Forecasting) and I'd highly recommend a book by George Friedman of Stratfor called "America's Secret War". Stratfor doesn't have a political slant at all, they are there to serve big business and are in the intelligence gathering business. However, the things you could learn ahead of time even with their basic individual $99 membership over 10 years ago were incredible, they could tell you that there were no WMD's in Iraq before there was even an invasion because Saddam had taken them in to the desert and destroyed them as an American Satellite watched,  they describe how SHOCKED he was that America came in to Bagdad because he had shown the US he had destroyed them, but the reason he did it like this was because he didn't want his neighbors like Iran who he was locked in a bloody war with for about a decade, to know that he was a tiger with no teeth. There are dozens of things they had predicted in advance because of their connections throughout the intelligence community, for instance, it would not surprise me if Stratfor or another company like that had already known what the White House's reaction was going to be and when, planes are already landing in Cyprus today so this wasn't a decision made after Kerry's speech today, this was made well before.

The expensive memberships (in the tens of thousands) would certainly be able to alert Wall St. to these probabilities, look how oil gapped up last night, well in advance of Kerry's speech, the point simply is, "Don't underestimate how smart smart money is". I've had my own experience with it and was quite shocked.

As for market response, the Dow lost $15k, the SPX lost the 50-day m.a.,  neither USO or Brent's response seemed unusual compared to some other assets, just watching them you might not know that anything was said, although both were climbing intraday at the time.

There was very little move in a lot of currencies like $AUD or EUR, but the $USD and it's carry partner caused some pain to any open carry trades with the $USD slumping and the Yen jumping.

 The intraday 1 min $USDX has already gone negative intraday and was heading down by the time Kerry spoke.

The Yen saw a strong move higher pressuring any carry trades.

Commodities saw EOD strength, partly because of the PM complex as well as oil which was as I said, heading up at the time, this could have had something to do with the drop in the USD, that's what we'd normally expect.

 Commodities vs the SPX

Commodities vs the $USD, lower $USD prices make for higher commodity prices as a general rule.

As for Gold, it broke the $1400 barrier like it did on the opening of futures last night, it couldn't hold it last night as I showed in last night's post, will it hold tonight?

 1 min Gold Futures with Sunday night's $1406.80 high for the week faded and today we saw just above $1404, we'll have to see if it too is faded.

The 5 min Gold futures 3C chart suggests it will not hold, the longer term gold charts don't get much better either.

Looking at some of the Leading Indicators...

 VXX vs an inverted SPX (for relative performance) shows the VIX futures bid and outperforming the normal correlation, but we knew something was going on with the VIX Friday and today, we saw even stronger examples leading to an add-to position.

 In fact this is the actual VIX 1 min futures and 3C is going nuts in a VERY flat range (which is very common at accumulation/distribution areas) , but as the move progressed from flat to parabolic, 3C didn't confirm all that well, one of the factors that made me decide to close out the short term VXX long call positions. It will be interesting to see if the VIX futures build a stronger divergence overnight or in to tomorrow, and telling, for now I'm just looking as war premium adjustment.

TLT's strange relationship with equities continues, although while the SPX dropped, TLT popped at the EOD today.

 One of our sentiment indicators, HIO acted better than the other, in fact it showed much better relative performance than the SPX.

FCT, our other sentiment indicator has been headed down since 8/22, that's 1 day after the 8/21 Syrian Chemical Attack, although it did have a strange little jiggle with the SPX at the EOD today.

Also as posted last night, Yields were below the SPX and they act as a magnet for equities, that's what we saw today so I assume the two will revert to the mean tomorrow.

Now to credit...

 HYG showed better relative strength than the SPX today so that's somewhat positive for the market near term. JUNK credit performed the same way.

HY credit, because of it's thin liquidity will often panic from a scenario, it didn't hold up great today, but didn't panic either.

HY Credit intraday

HY managed to stay in about a week old range rather than panic through the bottom of it.

As far as looking at risk assets and the averages, one thing I've noticed a lot of in 3C is rotation between different averages, most of last week the SPY looked great and QQQ looked horrible, but as you can see by price alone the IWM (which didn't look that great last week) and the NDX outperformed the SPX and Dow handily and they are showing that in 3C as well.

To me it looks like we are in the middle of a downside move (from late today) that's losing steam and the averages are separating as far as relative performance goes. I'd think even in a best case scenario if all downside ended, there's still need to be at least half a day of lateral movement (or thereabouts) to create an upside reversal process "IF" the charts can hold and do some damage control .

Certain averages saw more damage today than others, take the formerly leading SPY, it looks as I showed at the EOD, like it has more downside to go. If you look at the SPY, DIA, IWM and QQQ charts in this post from this afternoon, you'll see what I mean, the SPY looks like it has a clear, clean signal for more downside, the other averages, less so and some even have some positives starting, which is not to say they are ready for an upside reversal, but they have started.

For the moment (tomorrow), I'm leaning toward more downside, it might be constructive, meaning building a base/accumulation. I'd think we can at least pick up a couple of trades similar to VXX long today or SPX short (something along those lines) while we see what the market is going to do.

There are still some longer term positives in effect that still call for a bounce to the upside, tomorrow will tell us (probably by noon) whether those are being built back up or torn down and we'll have to adjust accordingly. 

If anything exciting happens in futures tonight I'll follow up.