Daily Wrap

While I certainly can't say for sure with a possible lack of follow through, a possible knee-jerk reaction or  possible pin for Quad-Witching tomorrow, the Dominant Price/Volume Relationship yesterday did suggest today would be a down day or at least halt the advance. Three of four of the major averages were down today, only the Dow made an all time new high with a +0.07% gain. The SPX was down -.06%, the NDX down -.31% and the R2K lost half of yesterday's gains (and then some) at a loss of -.73% Besides the incredible amount of market dispersion which never use to happen, the R2K failing to lead or even worse, leading to the downside was not a good sign, nor was ANOTHER Hindenburg Omen, that's a nice cluster and the last two led to significant corrections, things are different now so what might this cluster lead to? The market crash they typically are a warning of?

Again this could be for several reasons, but any of those reasons were much stronger than the willingness to take on risk and this on a F_E_D double POMO today for almost $7 billion . In the past, as soon as the POMO was complete, the money was almost instantly in the market, what happened on today's rather massive POMO?

Again, as I've been saying for the past week whether up or down, the VIX short term futures have led the market and today they were doing their thing with stronger signals today than we've seen in more than a week.

HYG was a severe under performer today, virtually the opposite of the SPX, but we saw the distribution there yesterday, it's just not enough Beta for me to trade. With the VXX doing its thing, there was no SPY arb, even as they tried to ramp assets including carry trades and even HYG in to the close.

FCT was flat with the market, but our other sentiment indicator that has worked well, HIO was very clear in the professional sentiment there.

HIO vs SPX, what may be even more damning than the dislocation to the downside is the time of day it occurred, the same time the pros come out to trade.

VXX outperformed the SPX's correlation all day, it was quite clear that whatever money may have been taken from the safety trade for the 1-day risk trade, it's now flowing back in to a reach for safety.

Yields, one of the strongest leading indicators were at reversion to the mean today as the 5, 10 and 30 year all saw selling, this is the kind of action we see when the market is nervous about QE. In addition the typical correlation to QE, gold sunk to multi-year closing lows, even though on a day to day basis, the correlation is gone. The third asset, the $USD has a 5 min leading negative divegrence in the futures so that may fall as well, then we have 3 for 3 assets essentially reacting negatively to the taper yesterday.

HY credit was also totally flat on the day, over the last several weeks it's in a very negative posture. The more I look at these assets, the more I'm convinced the F_E_D pulled another private email to private equity firms and others or whatever mechanism of transmission, I'm sure they didn't want to get caught red-handed with the email evidence again, you'd think they'd be a little more sophisticated in passing on such market moving information.

As for the 3C signals, you know what I know, you saw the IWM post and despite the IWM's losses, it was no different in divergences than any of the other averages, as I said, it was a perfect proxy. You also saw the VXX / UVXY information, what you may not have seen was the VIX futures finally on the move again after they had been so blatantly held back (we commented on this earlier in the week, one Daily Wrap before the F_O_M_C was almost entirely devoted to the action that was clearly manipulating VIX futures and trying to prop up HYG credit.

 VIX futures finally see a 3C positive divegrence after a week of nothing.

It was strong enough to move to the 15 min charts, in fact right after the market topped.

The 4 hour, massive positive divegrence is still there with no damage done at all.

All of the carry trades (JPY-based) stalled out today as well, and most are sitting in near perfect symmetrical triangles, we know what that generally means so watch the EUR/JPY especially for a possible head fake move, after that if it is a head fake move, that would have severe implications for the carry trades and thus for the Yen as an unwind would be highly likely.

In the Spot Vix...

Our Bollinger Band Squeeze is still in play. I warned about the candle at the yellow arrow looking like a pullback, I warned numerous times about the F_E_D knee-jerk and other volatility this week (red arrow), but otherwise, that BB pinch didn't just end up there coincidentally, I believe it will continue to play out and you know the correlation with the market. This isn't just academic as today only two partial positions were opened with the probability of full size positions, you know which the first one was and why it was partial which was justified later in the day.

The Dominant Price/Volume Relationship today was Close Down/Volume Down which is the most benign of the 4, generally taken as "Carry on", but carry on what exactly? Perhaps an op-ex pin tomorrow?

You saw last night's SKEW Index, it just moved to a new high for the year today as if last night's signal wasn't scary enough for market bulls, that puts the SKEW Index right at the $138 level, entering the red zone.

As for market breadth, no good news there either. The NYSE Advance/Decline moved lower and still hasn't taken out the October A/D high, also in the same boat is the Russell 1000, Russell 2000 and 3000. The NASDAQ 100 and Composite both moved lower, both are still not able to take put November's A/D high.

All measures of " % of NYSE Stocks Trading Above, 1 Standard Deviation Above, 2 SD's Above either the 40-day or 200 day moving average" are all down, all of them have made lower highs and lower lows since October, for example,...
Percentage of NYSE Stocks Trading Above their 40-Day Moving Average"

Indicator (green vs SPX red) is making lower highs and lower lows, better known as a downtrend since October, EVERY Measure of this indicator, whether 40-day or 200 day, whether at the average or 1 or 2 Standard deviations above are ALL in a downtrend since October. Can anyone seriously wonder why we have a cluster of Hindenburg Omens just from a breadth point of view? This is something I've been pointing out all year.

Beyond that and what was already covered today, we just have futures to look forward to for any additional information, don't forget about the typical way op-ex Friday's trade, even a Quad Witching Friday like tomorrow, it's the 3C signal that is important from 2 pm to 4 pm.

As for futures, one of the most interesting to watch is going to be the Yen, it may signal a total unwind of the carry pairs. Today alone the 5, 15 and 30 min 3C charts were all leading positive, this is the 15 min.

There may not be a large enough divergence to make a move in the Yen yet, but as soon as the Knee-Jerk on the F_O_M_C was completed, these divergences FLEW, it kind of smells like the carry trades are about to be closed out.

While the Nikkei has a sloppy in line 1-5 min 3C chart, where it really counts and accrues, the 15  min chart, also seems to agree with the Yen or at least be aware of it.

You know the process has to take place and the divergence build so if we don't have an immediate reaction overnight as we head in to Quad witching, at least know that it's there and it's likely going to build, this is where I remind you, DON'T GET LOST IN THE LINES.

THAT'S GOING TO DO IT FOR NOW, I think I already mentioned the NQ and TF divergences building (negative) while ES is still in line for the moment.

We had some nearly perfectly timed shorts, then longs and then out yesterday near the highs and I'm happy for that considering today's activity. I'd urge you to stay patient, those same signals that have been leading us are already back in play after being out for more than a week, things are moving again, just don't jump the gun and don't let "New DOW Record High" headlines discourage you, after all it was 0.07% that made that new headline high.

If I see it tonight, you know I'll let you know.