So
today the biggest surprise for most would be the lack of follow
through.
Early
today we identified a range, I suggested 3 likely scenarios with the
most likely being a bull flag and the market formed that bull flag a
few hours later and I explained why a bull flag and what I thought
would happen. We didn't see if complete today and tomorrow is a
monthly op-ex Friday so I'm unsure how that will effect the market,
but there is a continued divergence moving toward that breakout move
I suspected we'd see if a bull flag formed as it did.
Toward
the end of the day it was more than clear that even thought the
market was trying to make the breakout move exactly as was posted
before the bull flag even formed, it was struggling significantly.
The
question I still have and the issue that I believe influences the
market the most going forward, thus making this Non-Taper event a
non-event regarding the bulk of our analysis an expectations is the
same as yesterday:
“What
is the F_E_D so afraid of?” and if the F_E_D is afraid of it, the
market should be terrified of it, because the F_E_D lost something
yesterday when they put the taper on the back burner and that's
namely trust. I have heard from so many of you and received email
links to articles and they all come down the same line as this which
was put out by Credit Agricole today,
"(The)
market is in a state of shock"
after the Fed's decision to postpone the taper, adding that "Fed
credibility and its communication strategy are in tatters."
In
other words, the F_E_D lost the market's trust which it will really
need when it comes to the date in which rates start to rise. They
also look to be flying be the seat of their pants and many major Wall
St. players may be asking, what's to stop them from doing something
similar on rate guidance? How can we trust their word?
Bernie
pointed out that he never said there would be a Sept. Taper, but lets
be honest, in June half the members saw QE3 ending before 2013 ends
and it's a 6 month process, “Several members” wanted to start at
the June meeting.
It's
similar to the time the F_O_M_C minutes came out and they were very
hawkish (meaning unfriendly to QE) and the market responded poorly,
Bernie used a speech engagement later that day to say that the F_E_D
will not be stepping back from “Policy accommodation” anytime
soon. I commented that day that he was using, “Plausible
Deniability” and being purposefully ambiguous to let the market
interpret that any way it wanted to and it took it as to mean that
they would not be as hawkish on QE as the minutes from the previous
meeting that were released earlier that day had made clearly stated.
Later Bernanke came out and said that when he said that, he meant
“When they raise interest rates because keeping interest rates low
was policy accommodation, so exactly what I said that day was 100%
correct, Bernie was purposefully ambiguous by using the term “Policy
accommodation” and given the market hated what the minutes said,
the market took what he said and interpreted it the way it wanted to,
thus Bernie was using “Plausible Deniability”, it's an old
political trick, to give people the impression you are doing one
thing and then being able to say, “But I never said that, you
inferred that, I just said...”
Here
are a few excerpts from Phoenix Capital, I don't agree with their
conclusions, but I think a lot of what they say is right on and is
what I said yesterday, my notes will be in red.
“The
Fed failed to announce a Taper yesterday of any kind.
It
is positively outrageous, but it does inform us of many things.
First and foremost, the Fed has made it clear that it cannot be
hawkish is any way.(I
believe this statement is their own bias, the June meeting minutes
showed clearly the FED could be hawkish with several members wanting
to end QE at the June meeting and half the members seeing it
completed by the end of 2013, I don't think the issue has anything to
do with what they can or can't do as far as hawkish/dovish as they
admit in the next sentence, I think it has to do with something VERY
dangerous on the horizon)
We had just two months of hinting at tapering QE from the Fed.
So
for all the talk of taper and shifting to a more hawkish tone, the
Fed’s actions speak louder than words: the Fed is totally and
completely incapable of being hawkish at this time. (Again
I think they are terrified by something and if they don't communicate
it to the market soon, the market will start discounting the
uncertainty with sharp sell-offs, as things stand, nothing makes
sense to anyone, let a nervous market come to its own conclusions
about what is scaring the FED and it may be worse than the reality)
Secondly,
the Fed knows that the US economy is a total disaster. (As
I said yesterday in the context of QE being completely ineffective)
If tapering even $10-15 billion per month from $85 billion month QE
programs would damage the economy, then we’re all up you know what
creek without a paddle.(Again,
exactly as I said yesterday with a much lower taper target of $3 bn
in treasuries and $6 billion in MBS, this would have kept the
market's trust, likely have no bad effects and serve as a test
balloon and serve as a statement that they will proceed moderately
and thoughtfully).
Put
it this way… here we are, five years after 2008, and the Fed is
stating point blank that the economy would absolutely collapse if it
spent any less than $85 billion per month. This admission has proven
just how long ago we crossed the Rubicon. We’re already in the End
Game. Period.(As you know, I've been
saying virtually the same, “We are not close to the big picture, we
are in the big picture” and this is based on charts, not the F_E_D
or my view point).
In
plain terms, the Fed has proven beyond even a hint of a doubt that it
is simply flying by the seat of its pants, with no clear game plan or
eventual outcome in mind. The Fed is simply going to keep doing what
it’s done for five years until something breaks.(Again
I think this is just their personal filter, I have said for over a
year after listening to former FED governor, Kevin Warsh, that
“Entering monetary policy is simple, it's exiting it that is very
difficult” so perhaps there's some of that and I think when the FED
talked about weighing the cost and benefits, the “costs” they
were talking about were not balance sheet expansion, they were
exiting policy and the costs are so high that this is a large part of
the reason they were looking for an exit).
That
something will be the entire financial system. We will have a crisis
that is substantially worse than 2008. It is coming. In fact it is
now coming much sooner than it would have had the Fed announced a
taper yesterday.”(Agreed,
but this isn't a recent revelation; I did a 5 part video in 2007
before Lehman that essentially said that at some point we'll have to
take our medicine and when we do, I could easily see the Dow at
5000)”
So
again, the F_E_D really lost something and from the number of
articles I've seen since yesterday from many of you, it's clear that
almost all of Wall St. feels the same way as Credit Agricole. For the
purpose of analysis and not just conversation, the first question I
asked yesterday and the one I imagine the market will be reflecting
very shortly is, “What is so bad that they'd lose that kind of
credibility when the taper was a small amount, almost meaningless”?
That alone may be more damaging to the market than just coming out
and saying what it is, you leave the imagination to its own devices
and you can get some pretty spooky stuff.
OK,
so you know that yesterday I closed Gold and Gold miners because I
felt that yesterday's momentum would likely not see follow through
today which was objectively based on the charts, I even considered the IWM short, but decided it would be best
to see futures overnight, which were as I expected, horrible. Then I
wanted to see regular hours, now futures look like this which started
yesterday at 3 p.m. on a 1 min chart, by last night they were clear
on 5 min charts and today after regular hours...
All of the Index Futures have negative 60 min charts, but they were already negative which would mean that distribution started as soon as prices started moving up.
To understand this you have to differentiate between how we trade with a single order to fill our position to the way they do, they have large orders that would be crushed if they put the entire order out at once, predatory HFTs would target them, other Wall St. firms would try to corner them, it's an art to get in and out undetected and they need, Demand and volume and this is one of the big reasons head fake moves are so common, they serve a purpose, it's not just so "Evil Wall St. can get your money".
I told you last night that among assets seeing distribution, much to Bill Gross's disappointment after his victory lap yesterday (PIMCO), 10 year $UST retraced 1/3 of their gain and 30 year's retraced 50% of their gain and thus there went some of Bill's profits.
The 10 and 30 year at the 60 min timeframe don't look that different, the 10 year UST futures retraced about 33% of yesterday's gains and the divergence clear on a 5 min chart last night is now clear on a 60 min chart after having been perfectly in line with the uptrend.
It may be a little premature to use a 60 min chart here, but you can at least see migration in the $USDX as it fell hard on no taper and is seeing accumulation as well as price gains.
$USDX 60 min
In addition, the AUD and Euro that gained on yesterday's no taper, both have continued, 30 min negative divergences as well, the Yen is about in line so these also saw larger negative divergences.
As far as sentiment, they were split, HIO was leading the SPY which for the short term move I expected to start today and we saw plenty of signs, that would make sense and FCT was in line with the market so I think the assumption I had made about a bull flag and there's only 1 reason to have a bull flag (remember we started the morning with a rectangle) and that reason would be for the upside breakout I said I thought the market would go for as a part of multiple timeframes doing different things, but all moving toward the same goal, which I'll try to show you what I mean.
As you saw earlier, yields in the magnetic 5 year dropped below the SPX so again as I said today, that will be exerting downward market pressure, as well as accumulation in the $USD and a move higher.
Both GLD and SLV look like they are closing in on a strong short signal, both are kind of in a range so the same market head fake higher above today's range, would likely benefit them as shorts as well.
SLV on a 3 min isn't quite as far developed, but I think it will get there.
So as far as the NUGT position and how I described it in this post....and in particular, this chart...
I would say the charts above make the red line scenario more likely, in fact a probability, so NUGT can still be sold at additional gains, maybe even strong ones, but I do think the probabilities are that it will have to be sold as I feel 3C will follow the red line example.
As far as VIX Futures today, the months of October and November were in the green column almost all day and closed that way, yet the VXX was red, can you guess why? Remember what I said about today's expected process or at least the start of it which I'll try to clarify more, if we need the SPY arbitrage to push the market up because there was no follow through at all today, then the VXX needs to be down relative to HYG, but that doesn't stop protection from being bid up in the Oct. and Nov. futures.
Other features of the day included High Yield Credit underperforming the market again, HYG saw distribution on 3C which is something new since the start of the accumulation phase. Crude did exactly as expected, which was a move higher in to a chop zone as it was up (USO) +2.49% yesterday and down -1.55% today.
Perhaps the most surprising element to the day was a complete lack of follow through, strength usually begets strength, orders rack up overnight and we get follow through, but we didn't today with all the majors closing red except for the NDX closing up 1/5th of a percent.
This is not to say we won't get another move higher, I don't think it will be anything substantial or sustainable, if you read my market analysis today, it would bee (unless charts change which I doubt), exactly what I described today and we saw all of that start, the rectangle turn in to a bull flag, the intraday accumulation of the averages for the move higher I was forecasting, but again, this in my view is just part of a larger process and not a bullish trend forming.
Most of the averages looked like this by the close...
The more important chart, 5 min is clearly negative and any upside (I know this sounds counter-intuitive), will simply help the downside move.
And there's the SPY arbitrage painstakingly maintained all day to help the market, where would we have closed without this and short term cycle support?
If it's the move I think, I don't really care how strong it is because there were certain stocks on the short list today that need a stronger market move to get in to prime position. There are others that are in position and anything else is a bonus.
So these stocks will be on the radar and closely watched.
Tomorrow is a monthly Options Expiration that will likely be pinned, I'd think that may interfere with the market cycle, but if accumulation was started in intraday charts as you saw on the SPY above, it's either to make the move tomorrow or to perhaps keep building and trying to go for it Monday / early next week. I still have more charts to collect and se how they develop, but they have been moving in a clear direction so I really don't think the Non-Taper Event was as helpful of an event as most people think and I do think it is highly likely that Wednesday was the Knee-Jerk move we often see, which means it's a short term anomaly that should be reversed soon and where we go from there, well I think we still have to stick with highest probabilities and I think the question of "What the F_E_D was scared of?" will start causing more and more worry among market participants unless they already know and that's the reason we have charts like this which is where the probabilities are.
SPX since the 2007 top, a virtual house of cards made of liquidity that has to be yanked.
In this video I'll try to just briefly explain what I suspect as far as multiple timeframe analysis, but reading and understanding my two articles, "Understanding the head fake move", I think is essential to understand why these moves are necessary, why they are seen so often and how we can predict them and know what they mean.
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