Market Wrap

When you do something day in and day out, like I had a friend who was a bank teller and could count out cash really fast as they do, but as fast as she could do that, she could feel a counterfeit note as the paper feels different; in much the same way, for me today had this odd feeling, a bearish feeling and while I could point out specific instances easily, it just felt like something more than that. In a way, I'm almost expecting to see a signal I've never seen before as we are in a market the world has never seen before.

As it turns out there were some unique things about today. For instance, today's ES (SPX Futures) was the lowest of the year excluding holidays at about 40% of average ES volume. The NYSE saw its volume come in at second lowest of the year, this would make it VERY easy to manipulate the market with HYG, TLT or VXX or maybe a currency cross like last week, but even with such low volume, they couldn't get it done. Not only that, but what kind of follow through buying is that on the +$1700 break? 

You saw most of what I wanted to point out in the averages and certain sectors, but you haven't seen Leading Indicators yet which I was going through near the close.

You may recall as we got US Non-Manufacturing ISM this morning, the market, rather assets acted in a VERY "TAPER ON / QE3-OFF" way. For instance, the $USD shot up, Yields were up and gold knee jerked down.

Despite the $USD giving up that initial knee jerk and closing about a tenth of a percent lower...

This is the knee jerk at 10 a.m. which was so very clear in other assets as a QE event, but not so much stocks. It doesn't look like the $USD is going to hold that pullback too much longer, it looks like it wants to move north.

As I was saying, despite $USD minor weakness which typically drives commodities up like gold, silver and oil, we saw gold and silver close down in a "QE-OFF" kind of way and West Texas Intermediate (Oil / USO) was down as well, you may recall my bigger picture view of oil from last night which is bearish.

Take a look at one of the Leading Indicators (Remember all Leading Indicators are compared to the SPX in green unless otherwise noted), commodities (beyond the 3 named above).

 On a 15 min chart commodities have come undone from the SPX and you can see where (commodities use to rally just as much, if not more than equities during the earlier QE days, I speculated some time ago as they weakened that China was going to see growth stagnate long before it actually did and now that has happened).

However this is background and has nothing to do with $USD movement today...

The 5 min Commodities chart has broken quite clearly with the SPX since late last month and continues to make lower highs and lower lows.

Today, specifically with $USD weakness, commodities underperformed glaringly.

While we're on currencies, as the ISM came in better, clearly not good news for the QE junkies, whatever was left and apparently there was something left, of the JPY (Yen) carry trade crosses, it was unwound today. Last week we saw the USD/JPY ramp the market overnight, but it couldn't hold up for more than a day, that's when I said HYG would be the next lever, so I suppose there was a bit of Carry left (This is what hedge funds, private equity., etc. use to leverage their AUM). 

Looking at the Yen intraday futures you can see VERY clearly at 10 a.m. when the stronger economic data for the US came out, professionals cleared out whatever carry positions they still had open by buying the JPY to close the carry which means they are almost certainly out of any trade financed with the carry which would have been long, even though most carry trades dies quite a while ago.

Right at 10 a.m. the Yen is bid through the 4 p.m. NY close and beyond.

Other Leading Indicators...

We might as well jump right in to credit where it looks to me that HYG was used to prop the market to $1700, once that was achieved they were out of HYG. I mentioned the 3 big Private equity firms last week singing the same sing on the same day, Fortress's head of their $12.5 billion in Credit business, Pete Briger, was the one who was quoted as saying, "There's been too much uncertainty fed in to the market".

I always tell you how the market hates uncertainty, if it comes to uncertainty and analysis, they'll pack up every time and that's just what Fortress did with their credit exposure.

 I pointed out last week after the SPX hit $1700 that HYG was out of there as if it was, "Mission accomplished", but this has been going on a bit longer than that in the near term as you can see.

When credit isn't interested in following equities or leading them as should be the case, YOU HAVE TO BE VERY SUSPICIOUS OF EQUITIES. THE CREDIT MARKETS ARE HUGE AND SOME OF THE MOST WELL-INFORMED MANAGERS RESIDE IN THE SPACE.

HYG 1 MIN shows how there was an attempt to ramp the SPX in to the close, I noted HYG's positive divergence at 1 p.m. or so, but it looks like they didn't want to carry any long HYG exposure overnight as the SPX tried to ramp in to the close and HYG sold off. In fact, this was at 3:45 p.m., this is an updated look.

As you can see HYG moved to the afternoon lows by the close, which is was above 15 minutes before so it wasn't sticking around to help, as I said before, no one on the professional side wants to be caught without a seat when the music stops or holding the hot potato in this instance.

It may seem like a small thing, but the fact HYG couldn't hang around for 15 more minutes to ramp the SPX to a green close is actually quite telling.

Remember out High Yield friend of HYG, Junk Credit? Here's the 15 min chart in JNK that use to trade spot on, just like HYG. I did mention at the time that JNK was trading lower without HYG and in my view the reason was, HYG served an arbitrage purpose to help the market WHICH IS ONLY RELEVANT SO SMART MONEY CAN SELL TO DUMB MONEY AT THE HIGHEST PRICES.

I noted JNK was NOT an arbitrage asset like HYG and as such, it took off to the downside, leaving town before HYG as HYG had an arbitrage purpose.

This is Junk credit as of 3:45 vs the SPX, again not following the SPX in to the close, but running the other way, which should ALWAYS be a red flag. The closing chart of JNK also moved lower, below the 1 p.m. low.

And trusty High Yield Credit has been loathe to follow the SPX any where on the upside for several days and since Friday's close, has run in the opposite direction.

Earlier in the year I showed you how HY Credit took out the entire year's gains in about 3 days! This is the real danger of being long right now & not having some quality short exposure set up in my view.

Yields move opposite Treasuries and therefore are a magnet for equities, so the drop in yields recently acts as a magnet on the SPX to pull it lower, if you were to see just how disconnected yields are from the market long term, you'd dismiss it as hyperbole, but I doubt it is.

Heck, lets give it a shot, I'd say that this would be a VERY conservative downside target over the longer haul...

Note the dates on this daily chart, the SPX and yields close together at 2007, even at the 2009 lows, but during QE, NOPE! I'd say that's probably a minimum target for the SPX.

In treasuries, you know I like TLT (20+ year) for some reason, I don't know what the logic is, I'm just following the signals of people a lot smarter than me, but I did make the distinction between the action of 10 year treasuries and the longer TLT-like 30 year treasuries, they are both T's and you'd probably expect them to act the same,. but here are some 3C charts showing they don't look the same and the longer term (like TLT) looks better.

 This is the 10 year TreasURY FUTURES on a 30 min chart, they are pretty much in line.


The 30 year 30 min chart looks quite different doesn't it, leading positive.

This is the 10-year 4 hour chart which looks clearly negative on 3C, but...

The 30 year 4 hour looks completely different.

I didn't say I like treasuries, I said I like TLT and continue to.

This is a 4 hour chart of TLT...

TLT 4 hour leading positive.

As for sectors...

Today saw some changes, Financials out, Energy flat, Basic Materials moving out, Industrials out, Tech looking better, Utes out, but the safe haven Staples (especially) and Healthcare looking better.

Sentiment...

 a 15 min chart of our institutional sentiment shows it didn't buy in to the second leg of this attempted rally, same as 3C and numerous other indicators, this is where I said today, "This area looks extremely fragile".

Closer term sentiment isn't any better, it's gone from negative to very negative.

This is another we use, longer term (30 min) it is way dislocated from the SPX...

Recently the same as the other, it has been moving more and more to the downside and away from risk assets.

As for our arbitrage assets...

 This is TLT with the SPX inverted, they should travel almost exactly together, where TLT is above the SPX, it is showing better relative strength than the correlation would suggest.

 This is the VXX, today it saw a little weaker performance on the day, but it had some great 3C signals and apparently there was a real attempt to pound the VIX in to the close to ramp the SPX, look at the spot VIX's closing print.

 5 min CBOE spot VIX in to the close, but...

VXX was the opposite in to the close and on some volume.

 These are the actual VIX Futures on a 5 min chart with a positive divegrence that has been there since last week.

Look at the divergence on the same chart, but 30 min, that's serious and beautiful, even the price pattern has a reversal shape to it with that "U" rather than a "V". It looks like something is coming soon here and don't forget our recent VIX buy signal.

Just as I pointed out the intraday only action in the averages, I'll do the same for VXX in the same timeframe...

Forget about the longer trned and the head fake on a bearish descending triangle, just look at that 5 min chart's gains in to today with a leading positive divergence, UVXY shows the same and XIV lost in similar fashion for good confirmation.


Finally, I don't know if you subscribe to it or not, but today was another one of those ominous Hindenburg Omens... A Hindenburg Omen is suppose to predict a crash in the stock market. If you want to know more about the Omen, read here...

I'm going to get some food and look around at internals and breadth a bit more and maybe see if there's anything exciting in Futures later. Until then... I really likes the feel of today, very interesting.