Market Update

There is still something VERY strange about this market, it's literally like the twighlight zone, I know it's not your job to put together the pieces I'm finding, but I'm trying to keep you up to date, yesterday was the first day in a while (actually Tuesday I described as "Mushy" too) in which the market looked like a fog bank and many averages, , Index futures, multiple timeframes, confirmation assets, Industry grouops and individual stocks just made no sense, typically they all move in a direction that confirms the big picture, however tomorrow morning's 8:30 BLS Non-Farm Payrolls (The Employment Situation) is arguably the most important since QE started in 2008 and was expanded on early 2009 to include treasuries where it made a difference. A good NFP print and it makes tapoering "more" likely, especially with GDP coming in better than expected, but I'm not going to make guesses there. I strive to find objective data, look at it all and come up with a composite. Two days of fogginess isn't going to mean a lot to the big picture, unless there's something we don't know like a NFP leak, which would be huge, we know the F_E_D has leaked minuted a day early and even went through the trouble of emailing them to the largest trading desks and private equity firms, 154 in total and not one called and said, "Hey, you sent this out a day too early". I just want to know how I get on that email list and why if everyone gets the data at the same time, there';s even need for an email list?

Let me just get to the charts before they change, I obviously have my work cut out for me (oh and if I'm quiet, not answering emails or posting much, it's not because I'm on break, it means I'm busier than ever-I don't take breaks, not even 5 mins during the trading day).

FX Carry Trade and Market/ES correlation turned topsy-turvy 

 This is ES in purple vs the EUR/JPY, a week ago they were nearly inseparable and for about a year before that, now they are trading mirror opposite each other.

 The EUR/USD use to wear that crown of correlation above, I could tell you where the market would open just by looking at the EUR/USD, but another pair trading mirror opposite.


After the US data came out this morning and the USD got hammered, it seems the USD/JPY is trading with ES, I don't know if by correlation or just coincidence.

It seems there's a reach for protection again...

 Yesterday VIX futures seemed to unwind a bit, I figure as longs sold some in to the early afternoon lows, they also lifted their VIX hedges and that was likely why VIX was in place yesterday, however today there's some action as you can see in 3C 5 min for VIX futures, VXX late day yesterday started to show this as I showed 1 min late day market average distribution and VIX accumulation (confirmation).

However while all the intraday 1 min charts for the Index Futures are in line, the 5 min ES has a small positive divegrence, I take them more seriously on the 5 min chart, yet NQ/TF (NASDA and Russell 2000 futures) both are either inline with a negative bias or negative on the same timeframe.

The averages...

 This is one of the SPY positive divergences, it seems to have the most in the 2-5 min timeframes, there's only a little added to today, however...

the intraday 1 min is perfectly in line, it's hard to imagine where any 2 min or longer positives are coming from unless it's just transitional signals that aren't finished.

QQQ1 min (read left to right) is in line, it has a couple of positives and negatives knocking it back down both times, it's a little less than in line.

I teach, "Whenever your indicators are mixed up, go to the longer timeframes, they have less noise and more trend, plus they are the more important, stronger and higher probability trends", so that's what we did with this QQQ 10 min chart and it makes perfect sense and fits perfectly with EVERYTHING we were seeing up until things got mushy Tuesday and certainly yesterday and today.

I'd still have to place probabilities with this chart showing clear distribution at the transition point of stage 3 and 4.

I did the same with the IWM, again, this is a clear signal that makes perfect sense with the channel buster, also the relative weakness in the IWM this week.

As shown yesterday, VXX short term VIX futures 2 min shows a negative divegrence, but as I reminded toward the close, ALL NEW DIVERGENCES START ON THE 1 MIN CHART, if they are strong enough they migrate to the next timeframe and so on.

 The 1 min VXX is showing that positive divergence and suggesting there's some change underway.

VIX futures are also showing something similar on today's 5 min chart (see above).

Back to the concept of going to the longer term charts for clarity, the 30 min VXX is unmistakably one of the strongest charts I've seen with a near vertical leading divergence and a near perfect reversal process, don't forget the spot VIX BB squeeze, this chart makes perfect sense with that and also the VIX futures 4 hour positive divegrence which has never been seen before and is exceptionally strong.

The VIX prices move opposite the market so VIX up, market down.

As for Credit...

 Long term or even intermediate, Credit is out of the game, it's not chasing stocks, but HYG is used as an algo manipulating lever, it makes the algos believe smart money is "Risk on", this 3 min chart shows the distribution and then gap down, but recently a smaller positive has formed.

 Again intraday like the SPY, perfectly in line, so where any positives are coming from is hard to tell unless there's accrual of occasional spikes.

 Longer term 15 min, in line going up, then negative at the top and HYG falls, it's leading negative where it counts.

And a Real Monkey Wrench... The Industry groups like Financials...

 They don't reflect anything that's going on in the averages and Financials make up almost 25% of the SPX. XLF 1 min is negative

XLF 5 min is negative and clearly

XLF 15 min is negative.

This is what I mean, there are so many assets going in so many different directions, but this XLF set of charts is what we have been seeing, it makes sense.

TICK

If anything bullish were going on, where is it in TICK, not a since +1000 today, but some -1000.

However, the bigger take-away is how flat TICK is, if I just looked at this, I'd say, "No one is doing anything in front of the NFP, dead in the water"

The VIX Bollinger Band Squeeze

 I wanred of this, first that we'd see a highly directional (strong ) break out of the pinch, almost certainly to the upside. I also said a week before we had the first hint of a breakout, that these are "Known for initially breaking out and then loitering in the area for a bit, then taking off", that's exactly what has happened so far. Yesterday I showed past BB squeezes, none as strong as this one and every one broke to the upside for a few days, then corrected and came down to the 20 bar moving average seen on the chart, then took off parabolic up (market down), SO IF THIS HOLDS TRUE HERE, EITHER THE MARKET NEEDS TO BOUNCE A LITTLE AND BRING VIX DOWN TO THE MOVING AVERAGE, OR THINGS NEED TO STAY THE SAME AND LET THE MOVING AVERAGE COME TO PRICE.

That's from past experience, but that doesn't mean it has to happen like that again, especially with the NFP being the real market moving event.

Finally the ES VWAP so far today, it was trading just above VWAP before the US data came out, this is the area a market maker would be trying to sell to complete a customers order, it's strange that it popped up there before the 8:30 data, almost as if they knew the data would send the market lower so they were either selling or shorting up there before the data hit (theoretically).

Then the break of VWAP on the data and we have stayed in the bottom band. I'm not sure what to make of it with everything else so screwy, the relation between ES and EUR/JPY alone is headline worthy.

I'll keep digging.