Daily Wrap

It's 3D, 3 consecutive days down, while this isn't normally a big deal, the markets have been far from normal.


The key area though is still the head fake and that's where downside momentum will pick up as the 10/9 cycle enters stage 4 decline.

We have the Igloo w/ Chimney now, all we need is a break under former resistance, that's where the stops are piled up and that's why we see "Failed moves turn in to fast reversals".

The headline event of the day of course were the F_O_M_C minutes, more hawkish than typical and showing the F_E_D's fear in the wide open, I'm sure you remember me asking day after day, "What is the F_E_D so afraid of?" Today's minutes made it clear, it's this...

This is a weekly chart of the 10-year treasury futures, note the white box (May/June) when "Taper talk" was at a peak, the benchmark 10-year that sets rates for nearly everything plunged and yields popped 1%.

No matter what the F_E_D says, the market just won't believe them when it comes to, "Tapering QE doesn't mean raising rates", but the market feels that it means, "Raising rates is a lot closer". I'm sure the F_E_D is REALLY regretting the guidance that rates would rise about 6 months after QE was wound down, the market won't let it go. It seems the F_E_D is less worried about unwinding a nearly $4 trillion balance sheet, an unprecedented feat never tried before and more concerned with bond vigilantes driving up interest well before the F_E_D is ready and how do you lower rates when they've been near zero since 2008? The F_E_D lost control of this one and it seems they just can't strike a balance to find a way out.

Here's the 10 and 30 year T futures today, I'm sure you can tell when 2 p.m. was.

 10 year

30 year.

Gold was artificially slammed this morning when someone sold a truckload of contracts all at the same time taking out most of the bid stack and sending gold limit down and halted...I see no reason for this unless someone is accumulating at lower prices, the base area I talked about is a bit lower.

This afternoon the minutes slammed gold a second time and they were halted again as they went limit down.


Would I be a buyer or add-to with gold right now? No, not until the signals are there and there's some reversal process in place, however Gold miners are a bit more interesting which is why I split the 1 position between both assets.

It's likely GDX would need some more work before it would be a new position or add to, but it could be done tomorrow and I think gold would have to coming along by that point.

I think the $USD rounds out the QE sensitive assets...

Look at that spike in the $USD today vs the timeframe below.

There's no arguing that the market took the minutes as Taper on/QE off, sooner than later, but remember F_E_D based events almost always cause an initial knee jerk reaction (up or down).

I showed late in the day how the averages suddenly started to improve, they have some work, but perhaps some late night Yen slam or EUR/JPY carry lifts the market, who knows, it has happened recently and it has failed even more recently.

Even if they get the pair moving after I showed you a negative divegrence as the pair hit a 4-yeear high that sent prices to the lows of the week almost immediately, there's no telling if ES could even be budged because as with many other short term manipulation assets, the EUR/JPY didn't do anything for the market on what should have been a late day ramp.

EUR/JPY candlesticks and ES (purple), the ramp in the carry pair did nothing for ES. The USD/JPY was even worse as you might imagine after the $USD made that explosive move off the minutes.

I was thinking, "For sure today we will see a Dominant Price/Volume Relationship of Close Down/Volume up which is a 1-day oversold condition", but no, it was co-dominant between volume up and down with an edge to down which essentially in this analysis means the market can still go down without any real oversold pressures.

There are some 5 min positives in the Index futures, NQ (NASDAQ futures) look the best, and we saw late day improvement in the averages as I posted.

NQ 5 min

Don't get me wrong, I see massive destruction in the charts, but a bounce would be a gift for certain assets like PCLN which I mentioned tonight, a near perfect entry although not an easy entry. As a member sent me today from another site similar to ours (as it reminded him of what we do)...

"I feel terrible when I follow your advice," Darrin told me yesterday… 

I'd just gotten off the stage in Singapore after giving a speech at the S&A Alliance conference, when I was approached by a friendly-looking subscriber – Darrin. 

But Darrin didn't start off friendly… Darrin came right up to me and told me how terrible he feels every time he buys something I recommend… 
It turns out, he meant that as a compliment… I had made him a lot of money. He told me… 

Steve, when I bought your euro trade years ago, I couldn't believe I actually went through with it. It felt wrong in every way. I didn't know why I was even following your advice. But then I ended up making REAL money on it.

Over years of following my advice, Darrin came to a conclusion… "Hold your nose and buy" works. "

Sometimes that's what you have to do, hold your nose and jump in, BUT YOU ALWAYS HAVE TO HAVE OBJECTIVE DATA THAT SUGGESTS IT'S A HIGH PROBABILITY/LOW RISK POSITION AND ONE LIKE PCLN WOULD BE, BUT STILL DIFFICULT TO SELL SHORT NEAR ITS HIGHS.

As you can see, we are still no where near that highly directional move the VIX is portraying, so all of this recent downside is really just kind of noise, there's a directional move coming that will move the VIX and the market in the opposite direction, I think the evidence is overwhelming as to which way it breaks.

Spot VIX Bollinger Band Squeeze.

I'm glad I sold the VXX calls early for a small loss and didn't double down on the mistake by following the VX positive divergence, it was too small as I knew so it didn't amount to much, the size of a base's footprint really matters.

VXX intraday, I closed some calls and took about a 8% loss, but much better than what it would have been after 2 pm.

HYG has a little 3C support, but it will really need to build, somehow I doubt support will come from there, more likely the NY F_E_D's open market's desk.

Leading Indicators showed that HYG and Junk Credit followed the SPX nearly tick for tick, High Yield wasn't far off either. It's worth noting that credit has not been buying the equity exuberance for quite some time, probably about the same time 3C went extreme negative and market breadth fell apart.

Both sentiment indicators were also down so it's not looking great for tomorrow except the few divergences in 3C that have formed or are forming.

I noticed VIX futures saw a lot more downside early on before the minutes (complacency) and then later were still significantly underperforming-there are some logistical reasons for this, but it will be interesting if its because someone knows that the move today, at least for the very short term was in fact a knee jerk as they almost always are.

Finally I want to mention that the liquidity situation in China is getting really bad as the PBoC has skipped out on at least 4 reverse repos and has drained money from the system. Interbank liquidity is scarce and causing problems for small banks. For those who don't recall or weren't around, it was a freeze in interbank liquidity in the US that caused the market to crumble and firms like Lehman, etc. to go under, although this was for a different reason, no one trusted the counter party to conduct overnight lending because no one knew who had what exposure to subprime, still a liquidity crunch is a crunch and China is feeling it.

Tomorrow I'll feature FXI, it's looking pretty bad which would make FXP look pretty good as a long.


Right now futures are pretty quiet, maybe something will pop when no one's looking in the middle of the night. The only thing of some interest is the Nikkei 225 futures, perhaps they finally decided whether the bad news was bad or good?

A leading positive divergence earlier in the /NKD lifted it so this will be interesting as a potential leading indicator for futures.

If anything pops up while my eyes are still open I'll be sure to let you know.