Lets start with the NFP for September released by the BLS at 8:30, I showed a chart in the last post of ES this morning, it looks like ES, after seeing flat all night especially regarding 3c (doing virtually nothing) sees a tight range as if there was an order placed at a specific level that took 3 hours to fill right up to 7 a.m. with 3C showing accumulation and then the NFP comes out with a miss 32k, 148k vs consensus of 180k. We know for sure the BLS NFP data is leaked to Wall St because the BLS admitted i, that's why they are building a new media center because that's where the leaks come from, embargoed information reported use to file stories as soon as the data comes out, we suspected it long before the admission because of charts way more obvious than today's.
August was revised higher (that's a change) from 169k to 193k, but July went from a measly 104k to 89k!
The Labor participation rate was flat for September at 63.2% which is the lowest participation rate in 30 years. According to some research, the unemployment rate that dropped to 7.2% today despite the miss in the NFP, would actually be 11% if the, labor participation rate was accurate.
Private payrolls missed for the third month in a row, still the unemployment rate fell from 7.6% in June to 7.2% in September which is the same as November 2008 lows and very interesting as I'll cover in a moment.
Scotiabank released a piece today in which they said that traders have been programmed to believe that QE alone will send the market higher rather than economic growth, in fact, despite the lack of it. I think the biggest mistake anyone can make in this market is convincing themselves, "This time it's different".
In a great 5 part video series that I recorded in 2007 and predicted many things that have happened since (unfortunately 2 of the 5 parts are missing as I put them on "Revver" instead of YouTube back then as they paid money" I covered all the major bubbles since the Dutch Tulip mania that was around 1637. It's one thing to report on a bubble from hundreds of years ago, but since getting involved in the market I'm on my 3rd bubble in real life (that seems excessive, especially compared to the historical average over centuries).
The one identifying feature of a bubble is the sentence, "This time it's different" and in many of these bubbles, they had a lot better reason to believe this time was different, but it never is. The second feature is that it's widely held as if it were the Gospel itself. I recall in 2007 while we were seeing signs of the market topping in a bubble I recognized as a home buyer on 2003, I recall distinctly the mood and this one interview on CNBC with the author of "Dow 20,000", I feel bad for anyone who spent their time reading that book. In any case, I can easily get off track here so let me get back on.
The market and I mean the QE addicted retail market (because I'm sure smart money has seen the writing on the wall as early as September of last year) sees Employment bad news as good news because they believe it will stay the F_E_D's hand on the QE taper, but the F_E_D didn't let the cat out of the bag about the taper for no reason. I recall a time when all the F_O_M_C would say was "We have more tools at our disposal and are ready to do whatever it takes", there was NEVER a hint of QE ending and when specifically asked about the exit plan, they'd say it was way too premature to even contemplate so to go from that to a taper is coming and June minutes showing "Several" participants wanting to taper then and there and "Half of participants" seeing QE3 wrapped up by year's end, that's a landslide change.
What many may not recall is that QE was at one point tied to the unemployment rate, this was highly subjective and the market (smart money) didn't care for it because before that, F_O_M_C guidance was all objective date defined, QE will start and stop here and rates will stay as they are until at least (usually 2015) 20XX. However, many have forgotten that the F_E_D's second mandate, maximum employment and the tying the unemployment rate to a QE taper or end was removed and was placed on what the market (smart money) are far more worried about, "When the first interest rate hike will be".
However, if you want to standby the old yardstick (which is now completely up to the F_E_D, they can taper any time, it no longer has anything to do "strictly speaking" with the unemployment rate), then take this in, the end of QE was originally tied to an unemployment rate of 7%, WE HAVE MOVED FROM 7.6% IN JUNE TO 7.2% IN SEPTEMBER!
For retail money none of this matters, they just see bad employment news is good market news, they only read the head line "MISS" though, they didn't catch the falling unemployment rate. I personally think the F_E_D used unemployment because of the dual mandate and because employment data is so easy to fudge and goal seek which for the market that hates uncertainty, is much, much more subjective than a hard calendar date of say April of 2015. When all of this was changing in late 2012, I was pointing it out at every step, I called it the F_E_D changing the yardstick from objective to subjective or arbitrary. Interesting that retail missed all of that aspect, but smart money didn't as the U.E rate is tied to the first interest rate hikes and they fear that much more than they fear a QE taper.
In any case, it seems to me that perhaps algos were loading up to sell in to the NFP, leaked or not. What is most interesting today is the momentum or market darlings got crushed this morning, look at AAPL, FB, TSLA over the last 2 days, PCLN and NFLX.
In the case of NFLX, none other than the Icahnator himself tweeted he sold 2.99 million shares of NFLX...
Perhaps scariest of all is that the 3 million share sale collapsed NFLX's market cap by -20%
Also of note today was Stevie Cohen's SAC capital downsizing, closing the London office and said to have cleared out 5 U.S. managers and will be downsizing, these are Stevie's playground stocks, one has to wonder if SAC was behind some of these collapses.
To me what was the most credible and significant news of the day among funds is the $14 bn in Assets under management, Third Point fund run by Dan Loeb, he doesn't seem to have the same calculating, club wielding mentality as Icahn and certainly doesn't have the trouble of Stevie Cohen.
Third Point's Flagship fund has returned to investors an annualized gain of 24% since Jan 1 2009 and the leveraged Ultra Fund has returned +29%. Dan is the man who didn't have to say a word, he just sold AAPL and moved on and it crushed the stock as all the other hedge funds followed Loeb, except Loeb sold in to strength, they took a beating. I showed you what happened, it's a painful memory to me because I had a core short in AAPL days before that I closed to ride a small bounce higher and re-open the core short maybe 4 or 5 % higher when Loeb's holdings came out, that's what you get for trying to be too fancy in trading.
Unfortunately my charts can't go back that far anymore, but we had strong signals of distribution at the time, thus the core short, they were much more accurate timing wise than this chart, but just so you can see there was major distribution in to the top, here's the AAPL daily chart.
Back on point... Loeb said that he's concerned with the Global economy and they had already lowered their exposure to equities significantly. He also said that he'd be returning 10% of client's money to them (this is money that is actually gains that have accrued in his AUM), but no matter where they come from, lets assume Loeb has a typical hedge fund payment structure of 2 and 20 (which I'd guess is actually much higher because of his performance), that's a 2% management fee per year and a 20% incentive fee on gains.
So with some rough math, in returning 10% of capital Loeb is losing $28 million a year in management fees assuming he's at the typical 2% (many are higher, like 3 or 3.5% a year) and $1,736,000,000 in incentive fees a year based on the lower 24% return and the unlikely, but bare minimum of 20% incentive fee and I used the NET investor return so in all reality, that's after the 2/20 fees!!!
I don't have all the details of the money being returned, what it counts and doesn't count, but as you can see, even if my understanding of what he's returning is flawed, he is giving up SIGNIFICANT profits and for the reason that he os concerned about global growth.
I've heard of hedge funds returning clients money if they think it's going to be a bad year, but this is a pretty big one.
As for the market, if there was a carry trade running the market today, the closest to that would have been the EUR/JPY.
Protection was definitely bid as the spot VIX closed up +1.29% vs the SPX at +0.57% with the NDX closing at the lowest gain of +0.19%, in any case the VIX shouldn't be green with the averages green, this behavior started early Friday morning with VXX outperforming the SPX correlation and has just grown from there to the point where we now have a large leading positive VIX futures 15 min divergence, the first divergence there since just before Oct. 9th.
Forget about the closing ramp, the VXX was all over the close.
Sentiment intraday looked much better...
As you know Yields were pounded lower (they are already negatively divergence as a leading indicator and significantly worse than last night, imagine them acting as a magnet toward equities.
All other leading indicators looked basically the same as the intraday update.
One thing that stood out in my after market update was my scan for Dominant Price/Volume relationships. Yesterday there was a co-dominance, they were both volume down and split between price up and price down with price down just edging out price up. This on its own wouldn't have any real bias toward the market, Price down/Volume down is the thematic relationship of a bear market (that's not saying we are in a bear, just making the note), however today we did have a dominant relationship between all of the major averages except for the Russell 2000. In the other averages (Dow, NDX, SPX) the theme was at least half of the component stocks were Price Up/Volume up which is the most bullish relationship of the 4 possibilities, ironically though it often stands as a 1-day overbought condition and very often the market closes lower the next day.
I saw a lot of interesting candlesticks on the daily close today, the increased volume tends to make any meaningful candlestick about twice as probable to do what it is expected to do, that's right, the key to high probability candlesticks is volume, in fact look at a 5 or 10 min chart of AAPL this morning and you should see a bullish hammer at the morning's lows with heavy volume and that hammer reversed AAPL to the upside and held as support all day. NFLX may have been among the most interesting of them...
Just thumbing through some others, AAPL was very close to a bearish Hanging Man with volume up, FSLR was almost a "bearish hHanging Man top, but it combined with yesterday's candle to form a "Tweezer Top" on increased volume, the SPY is a nearish reversal "Star" on increased volume, the R2K or IWM looks like a series of spinning tops, the Dow-20/Transports are very close to a text book bearish shooting star, IYT is a TEXTBOOK bearish "Shooting Star", DIA is a bearish "Evening Star" on volume, QQQ is very close to a nice bearish "Hanging man" on increased volume.
SRTY and SPXU have gone from real downside momentum to 3 small stars/dojis or what would be nearly the opposite of a bearish spinning top. FFIV is not perfect, but good enough for the criteria or psychology of a bearish "Hanging Man" and on volume. XLK/Tech has a Evening Doji star (bearish) yesterday and what would be a "Hanging Man" on significant volume, XLF/Financials is something like a "Hanging Man" with a couple of spinning tops, GLD and SLV both have longer upper wichs (higher prices rejected) in an area of resistance, JPM has a perfect DOJI and bearish confirmation, "Engulfing candle today, in fact, this is a pretty chart...
FAZ has a small, but correct bullish hammer on large volume, looking like a bottom reversal candle while FAS has something very close to a bearish "Shooting Star. ERY, the 3x Energy Bear looks like a star bottom on large capitulation or exhaustion volume. FDX is a picture perfect bearish "Shooting Star" or as the Japanese call it, "Trouble overhead , with increased volume.
*I say "near perfect" because I don't want a bunch of emails with the actual textbook definition, I know what they are, what people miss however when looking for the textbook pattern that is so rare to find and always cherry picked for the book, is the basic psychology of the candlestick pattern, it doesn't matter if there's a gap or almost a gap with a shooting star, the point is higher prices were rejected and the candle closed with a very small body, both bearish, add rising volume to that and you have a strong signal that shouldn't be disregarded because it doesn't look exactly like Steve Nison's book.
And the TICK Custom indicator looks like more stocks are falling behind as my histogram falls for this leg.
As of the 18th, the TICK started falling meaning fewer stocks closing higher and more closing lower in an uptrend, just like a lot of the charts we saw last night.
I'll say that between the internals, the dominant Price/Volume relationships, and most of all the candles on volume, I think we're likely headed for a lower close tomorrow. That's not what's really importnat, however it could be the start of something really important because as I was looking for last night and yesterday in Financials and the market in general was a head fake move, that Igloo with a chimney" and we saw a lot of those today.
I'll check futures tonight before I hit the sack and see if anything stands out, but from hedge fund activity and other signals we have been seeing since the 18th (I dare say some very strange) it feels like we're at a toppy area and with some of the distribution already in place, that could quickly turn very dangerous.
When I say, "Distribution already in place" and "Dangerous", this would be a good example of what I mean and this is not cherry picked, it was the first index/average open on my charts...
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