We had another change in character for the week, this week broke 8 consecutive weeks of higher weekly closes, this week broke that streak. Again, we're interested in changes in character because they lead to changes in trend.
I'm going to show some charts and go back to posts earlier in the week before we knew what would happen, because I try hard to set expectations or lets say, let you know what is probable.
For instance and I think this is still one of the biggest near term catalyst/smoking guns out there, VIX Bollinger Band Squeeze.
On Wednesday December 4th as we were in a streak of the 4th consecutive daily loss for the averages (and a pullback in the VIX DID NOT look likely), I posted the following in Wednesday's Daily Wrap. (Chart and proceeding commentary)
I had no way to know then with 4 losing market days in a row under our belt that the VIX would do what I said it usually does before blasting off, but today it did just that.
The VIX is called the "Fear Indicator", a low VIX means investors are complacent, a high VIX means investors are afraid, usually when we hit either extreme, we have a market top or bottom.
The point being, the VIX has now done everything it usually does just before taking off.
What about today's Non-Farm Payrolls? Why didn't the market react badly?
First one thing I said in trying to set expectations last night in the Daily Wrap
""Beware the knee jerk reaction, they aren't as reliable as the F_E_D knee jerk, but this is an emotionally charged issue and the market is all perception."
A "Knee-Jerk Reaction" is something we see almost all the time at F_O_M_C policy statements or F_E_D events, it's an initial burst of emotional energy and they are almost always wrong, when cooler heads prevail, they are faded and the market moves in another direction, but I don't think that's entirely what was going on today, I DO THINK THE MARKET IS GOING TO HAVE A BAD REACTION TO TODAY'S NFP.
Why do I think something else is/was going on? Remember that 2.5 day period of fogginess in the market? Remember these comments from past posts...
Thursday night's Daily Wrap:
" As we saw earlier our Sentiment Indicators closed negatively, HYG they've been trying to hold in a range for 4 days while at the same time trying to constrain VXX for 3 days now."
Thursday Market Hours, "Leading Indicators"...
"HYG which is 1 of 3 arbitrage assets used to goose the market (the other two are TLT and VXX), sometimes HYG is used alone, we call it the SPY Arbitrage because Capital Context has a model we can look at…In any case, HYG is almost perfectly in line with the SPX, so unless VXX is severely underperforming the SPY Arbitrage doesn't work, HYG needs to be up, VXX either performing worse on a relative basis or moving down and typically TLT down activates the SPY arbitrage, but for the last 2 months I've seen them use HYG alone."
The Point? As we were in the midst of our 5th consecutive down day for the market, I was commenting on how HYG Credit (a market manipulation lever) was being held up because it did not want to stay there on its own and VXX was being held down, both of these have a bullish effect on the market, if they can get HYG up , VXX and TLT down, the SPY Arbitrage is activated and the market gets a lot of buying support, IR'S SHORT TERM MANIPULATION OF THE MARKET, but it was apparently being set up days before in holding HYG together.
Take a look...
That's computerized, but furthermore, remember what I said, HYG needed to be up, VXX down and TLT down to be most effective manipulation of the market yo the upside.
HYG gapped up after 3 days of trailing along the SPX, VXX gapped down after 3 days of remaining basically stationary...
But what about the 3rd asset, TLT (Long term Treasury bonds), which help push the market up when they are down as the computers read that as money coming out of the "Flight to safety trade" to be put to work buying stocks...
So we have HYG gapping up, VXX gapping down and TLT moving down at 11 a.m., that is the SPY Arbitrage that supports the market. Now look at Capital Context's model of the SPY Arbitrage for today....
Now see how it effects the market/SPX...
My point is, unless someone knew what the Payrolls were going to be 4 days ago and I doubt that, there was a series of events put in place starting 4-days ago to push the market up today, I don't know why, but it took quite a bit of doing because we haven't seen the full SPY arbitrage activated in months and we haven''t even got to the Carry Trades yet.
Just so you know what longs in HYG did when presented with a higher HYG today (and this is traded almost exclusively by smart money)...
We even saw the VIX being accumulated again today since the gap down had already ca,e and activated the arbitrage...
The price action was perfect for algo manipulation, but the underlying action was saying the opposite, HYG Credit was being distributed, protection in VIX futures were being accumulated.
But that's not all.
Yesterday in the same post, Leading Indicators, I said
""HY Credit, unlike HYG, is clearly up on the day, I don't know how it will close as it often has a way of changing on a dime, but I did find this odd."
That was odd for HY Credit to be up on a 5th consecutive market day down. Also...I talked about Yields being up and said, "One moderately bullish Leading Indicator is Yields as the are like a magnet for equities…"
So how did both of these fare today on an actual "Bullish" day?
Last night in the Daily Wrap I also talked about the Dow and my Trend Channel and how it tends to work...
"The Dow has already been stopped out by the Trend Channel.
I've found price tends to bounce in the channel after a stop out, but I have always seen it is better to exit on the stop out, sometimes you'll see higher prices in that volatility just after, but you almost need dumb luck to hit them and then there's typically a move down like a 1-day gap that can take out a month or two of longs in one morning."
And the Dow today...
So what else was used today? Well overnight there was a regurgitated headline out of Japan about changes to their pension system, this same headline was out in the summer and they never changed a thing, it seems that was used as cover to sell the Yen down so the carry pairs could lift the market.
However we did see a VERY STRANGE change in the carry trade character this week...EUR/JPY...
So what non-correlated stuff (non manipulated because it doesn't make a difference to the market) was going on today and recently?
Commodities (white) vs SPX (green) today.
The Krona pair is CHY/USD, so it's the other way around, when it moves down as we see in candlesticks, the Krona is gaining and the USD is dropping vs the Krona.
Actually money has been flowing there a while, I just though it was interesting it was heading that way today vs ES above in purple.
Just like money has been heading there this year...
Today another Hindenburg Omen was sighted... from Bloomberg
As far as other odds and ends... We had another Dominant Price/Volume Relationship today, it was VERY Dominant and in all of the averages.
The Dominant P/V relationship today was Price Up and Volume Down, this is the MOST BEARISH OF THE 4 POSSIBLE RELATIONSHIPS. This shows what is called "A market rising in agony" To show you just how powerful this relationship was today of 4 possible ones in each average...
Dow=26 of 30
NASDAQ 100 = 70 of 100
R2K= 720 of 2000
SPX = 334 of 500
This is a meaningful sign taken with everything else, it's very meaningful. In other words, there was some pre-ordained monkey business going on today, seemingly separate from the NFP, but who knows.
A few bonus charts...
Have a great weekend
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