Market Update

It's funny how the last 2.5 days there has been this fog over the charts, but a few things have stood out, one was the CONTEXT model I put at the end of last night's daily wrap showing ES as being undervalued, but it only popped up in the last day or so, while everything was foggy.

Then if you recall, I showed a chart of yields vs the SPX yesterday and said that yields (which were above the SPX) act like a magnet and pull the SPX toward them until regression to the mean is achieved. Then there was the comments last night that they have (the invisible hand) have gone through some trouble to pin short term VIX futures right where they are for the last 3 days and have struggled to keep the market ramping HYG Credit stable (from it's previous decline) for the last 4-days, but most of all, the comments made BEFORE WE EVEN HAD A BREAKOUT in the VIX, that the Bollinger Band Squeeze in the spot VIX will lead to a highly directional move (I believe up because the actual VIX futures have a never before seen, large 4 hour positive divegrence in 3C),  but most importantly and I said this BEFORE we had anything more than a Bollinger Band pinch, was that...

"After the initial breakout with a VIX Bollinger Band Squeeze, price tends to loiter (hang around) the area for several days before pulling back to the 20-day moving average and then the directional move takes off" 

I even posted a chart of all the smaller BB VIX squeezes this year and EVERY ONE of them did the same thing, well.... These are some interesting charts given today's NFP and remember my warning of the last two days about the NFP...

"Beware the knee-jerk initial reaction, it's not as bad as F_E_D events, but it's an emotional data point and the knee jerk is often seen".

The knee jerk move means the initial move is the wrong direction and gets faded, a VIX run to the upside correlates almost identically mirror opposite and the market drops to the downside.

NOW THAT WE HAVE SOME CLARITY IN THE CHARTS AND WE HAVE A NICE PRICE MOVE, I'LL LIKELY BE ENTERING MORE THAN JUST THE VXX CALL TODAY.

HYG Credit (used to ramp the market on its own or with VXX down through SPY Arbitrage).

 I noted they were trying to keep HYG flat and from its previous downtrend as HYG moving up fools algos in to thinking smart money is risk on.

However, even though HYG made the move needed as a market lever of manipulation, look at the 3C signal, the clearest of the week in HYG, distribution in to the higher price. If HYG had more BETA, I'd probably short it here.

 And just for comparison, HYG (blue) vs the SPX (green) is far from leading institutional risk, it gets much worse than this the further out you go, but I wanted to show the last several days and today.

Remember Professional Sentiment was sinking this week and wanted nothing to do with any move higher in the market? This is sentiment for today and recently, no move at all with SPX in green.

 Our second Leading Sentiment indicator is giving the same signal, wants nothing to do with this move.

 This is the real VIX futures and while I don't normally put much faith in 1 min charts for anything other than intraday purposes, I think the 3-day pin of the VIX/VXX is ending as accumulation is seen here as well as VXX and UVXY, the reason I opened a half position VXX call earlier today and will likely fill it out later if we get a little better prices.

 Remember High Yield (the illiquid kind) Credit was leading positive vs the SPX yesterday and I said, this too is strange... Well today it's red and selling off in to this move (vs SPX in green).

 And my SMOKING GUN, the spot VIX Bollinger Band Squeeze which indicated a highly directional move (I don't think traders could be much more complacent so down is not likely and we have other evidence), but as I said BEFORE we ever had a first sign of a breakout, "These tend to breakout and then hang around the area, pullback to the 20-day moving average and then take off. Today spot VIX, after having started the breakout, pulled back to the 20-day moving average as you can see above.

 And why do I think VIX sees a highly directional move to the upside other than bulls couldn't be much more complacent?

This VIX Futures 4 hour leading positive divegrence, not only is it one of the largest / strongest VIX divergences I've seen, but it is also on the longest/strongest chart I've ever seen.

And if that's not enough...

The daily VIX 3C leading positive divegrence in the area with confirmation from long term TSV, a cousin indicator, but often different signals, not this time though, positive all the way.

Remember, the market trades opposite the VIX so a directional VIX move higher means a market move lower.

 As you know for Index futures, 1 min charts are useful for intraday trade, but as far as a trend or trend change, I look to the 5 min chart. ES (SPX E-mini Futures) is showing a transition from what was earlier a slightly positive divegrence to a negative divegrence today.

TF (Russell 2000 Futures) 5 min is clearly moving toward a nice clean, not foggy, negative divegrence.

So, I will be entering additional positions today I'm quite certain, we need movement to get good entries and we have that, we also have an unemployment rate that Bernanke testified would be "around 7% " when QE would end or taper.

I think the F_E_D wants this, I think the balance sheet unwind is dangerous and they know it and the larger it gets, the more dangerous, especially when you have a market bubble that is all liquidity induced, when you take away the liquidity...