First, and this isn't to brag because we get them wrong too, it's just to show something specific, I rarely make a specific call like this one from late Friday on the EOD update...
"If the intraday charts hold up through the close, then I'd say Monday opens up or in the area, however because of the significant damage already in place, I'd think the most likely scenario would be that it closes down, perhaps that bearish engulfing pattern I was talking about in PCLN, it would fit well in any of the averages as well."
Last night in The Week Ahead I said,
"I'll start where we left off Friday which is the 3C chart action in to the late afternoon on an op-ex day, it's never price that tells me much as the op-ex pin releases because most contracts are cleaned up by then and the pin no longer matters, it's the underlying action because that is what I see most often, pick up right where it left off near the close on Friday.... Even though we don't have such an open so far in futures...The rule applies to the averages in regular market so the opening futures Sunday night wouldn't apply, it would be the early trade Monday."
So we got the open the charts were predicting late Friday for the next trading day (today) and then we got the move lower on the weakness apparent Friday, that gives us a bearish Engulfing pattern in 3 of the 4 major averages.
HYG was a pretty bold statement, the post today was called, "Market Update: HYG Negative Divergences Taking it Lower" that was posted around 1:10 -1:15, well before Icahn's comments around 2:33, not to say they weren't a catalyst for something already broke, they probably were, but it could have been any of the parade of market mavens saying the same the last 3 weeks, Carl just said it on the right day and CNBC needs a 30 second soundbite to explain the market's weakness.
As of Friday's Daily Wrap, the tittle asked the Question, "Is QE Losing its Luster?"
I can't tell you how many emails I received in the last several days letting me know that Monday (today) was a DOUBLE POMO day with one of $1.25 to $1.75 Billion and the second for $3 billion to $4 Billion, THAT'S HUGE, but my analysis is based on evidence, not fear of QE or what happened in the past so again, I ask the question...
"Is QE no longer enough to lift the market?"
In Friday's Wrap I showed how a number of assets that are QE sensitive went QE OFF or TAPER ON After Yellen's Senate testimony and she didn't come off as anything other than a dove.
We also saw Stealth Accumulation in VIX futures, someone was accumulating quietly late last week, so someone had a good idea of what was happening today, it showed up on our charts which is why I made that very specific forecast for today which is not like me.
There was the VXX holding up better than it should have and the spot VIX Bollinger Band Squeeze, this hasn't even made a real move yet.
If you look at Friday's wrap you'll see the 30 min Index Futures leading negative divegrence as of Friday, massive distribution and this is why I felt the way I did about today when all is taken together.
Then there were the same signs in Industry groups like Financials and Tech, not to mention AAPL which I still think is going to be a trade set up.
As mentioned earlier, HYG Credit was telegraphing major weakness in the market... (please look at the first two charts at least from this post)
This was one of the charts showing massive weakness and it was in HY credit as well.
However, you may recall toward the end of thew day I said...
"The TICK looks like it's forecasting a ramp in to the close to try and recover some of this downside, you may be able to use it or may want to exit trading positions (very short term ones) here."
In fact I posted some TICK charts toward the end showing the trend in TICK that wasn't represented in price so it's probably good I posted this chart MCP chart this morning
There was a very specific reason, because if you just look at MCP, you can easily say which way to trade it and you might think, "I would have tore that trend up!"
"In a way, this post is kind of for those who haven't paid attention to MCP until now and might want to consider it. For others, this is an update of where MCP is and finally even if you have no interest in MCP, there are some great concepts and examples of market behavior."
These are the stages and trends of MCP, PUTTING YOURSELF IN THE EMOTIONS OF THE MOMENT (WHETHER LONG OR SHORT) IS ONE OF THE HARDEST THINGS TO DO, BUT GIVES YOU A REAL NOISE FOR THE MARKET.
MCP started at stage 2 Mark-up (2) however as I have mentioned many times, changes in character are important as they precede changes in trend, I just mentioned this Friday re: MSFT (when it was a momo stock) and AAPL recently before the top. At "A" there's an uncharacteristic, nearly vertical price move, these are most often seen JUST BEFORE a stop tops so in actuality they are warnings or red flags, at least time to have a tight trailing stop. At "3" we have a large triangle stage 3 Top.
At "C" we have the break down from the top and then a 5 week bounce which was a +40% MOVE, try to put yourself in the emotional position of being short then.
At "D" we had a 5 month rally/consolidation, again just from a time perspective and after a 40% bounce, as a short this would be emotionally exhausting, but this is why it's important to know what is normal so you can anchor expectations and make fact based decisions rather than emotional ones.
At "4" we have a stage 4 Decline and at E and F we have "Dual Capitulation". People always think after the first capitulation it's time to go long when in fact there are usually at least 2 capitulation events and then months or years to form the next stage 1 base so those going long on the "Blood in the streets" capitulation event are often at a loss for a long time or at least at Opportunity Cost."
Now we are back to tonight. Take a look at HYG today vs the SPX...
So did commodities...
Then the NYSE $TICK Chart in to the close...
The market jiggles, it doesn't change the weakness and in fact it may help set up some nice positions, take PCLN for example, I highlighted it today (another that didn't post when it should have at 2:30) OR AAPL
The only problem with this scenario is the Dominant Price/Volume relationship among all the major averages was price down / volume down, so there's no 1-day oversold condition, however we do have more F_E_D speakers tomorrow that might offset some of Dudley's hawkishness today, but Bernie doesn't speak until 7 p.m.
My feel is that the "Buy the Dip Crowd" is still out there, in fact the Sentiment Tweet of the day was...
": I see a many of the few remaining bears not believing in the downside any longer. Towels thrown in all over the place."
That means the intraday charts I see, "can" be salvaged short term, the longer or intermediate charts are gone, especially the IWM which I'm very happy to have held DRTY and opened the IWM Put on Friday which is up +21% today.
This one is ugly in all timeframes...
When you consider Bernie uses the R2K as his benchmark for the market, this isn't good news.
So far overnight Index futures (1m) are in line, in fact most shorter term timeframes have room for some jiggling around in the area as we often see, but don't think that a day or a couple of days of jiggling around makes today a fluke, when you have a 30 min chart this broken at the head fake area of the previous 3-days, you have a major problem with a market that has a broken back.
My forward planning is to manage the bearish trading positions and core positions already in place, many on the recent head fake and then to use any opportunities to add new positions where they look strong, but right now it's more about management of positions we set up in anticipation of this weakness.
If there are any changes in the market we'll adjust to them, today was nasty, ugly and more so because it was telegraphing for several weeks and especially late last week, IT WASN'T A CARL ICAHN FLUKE.
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