Oh, I forgot... SKEW

SKEW is the CBOE indicator that tries to put a probability on an improbable event, specifically a market crash or what is called a "Black Swan". $115 is the normal range for SKEW, right now it is elevated which increases the chances, past crashes have been in the $140-$145 area, but what is notable is not the reading, but the rate of change to the upside in SKEW and that it is moving up.

 This daily chart shows the Rate of Change which has been higher recently, more so than the rest of the year. Sometimes it's easier to see without the indicator.

SKEW at $126.73

Wrapping it up...

It's kind of difficult to take all of this information and organize it neatly with a nice bow, nonetheless I'll try to wrap it up.

We were very recently talking about how the macro-economic data is deteriorating and during the seasonal adjustment period when it's very easy to manipulate. I made mention that this was what changed the market in early 2012 from strong to a place where we built our core short positions at the very top only to see the market turn and drop as we moved OUT of the seasonal adjustment period (which is really to say, the period in which the government can come up with any number they want or need and then create the totally arbitrary seasonal adjustment to get to that number), however recently, whether seasonal adjustments are being used or not and "The Higher Power" help this economy if they are using seasonal adjustments to make things look better than they are come March, the fact remains that the macro economic data is slipping and bad.

Today we had the latest confirmation of this with the January Richmond F_E_D Manufacturing Index which plunged to the biggest miss of consensus since September of 2009!

How bad? In November it printed at 9, December the print fell to 5 and this report was expected to come in at 5, instead it came in at -12! As mentioned above, we haven't seen a miss like this since September of 2009.

The devil is always in the details, so here are a few: New Orders fell from 10 to -17, Capacity Utilization dropped from 3 to -18, and number of employes dropped for the 2nd month in a row, from 3 to -3 to -5.

If this was a one-off bad report, maybe we ignore it, but the Richmond F_E_D joined the Empire State F_E_D and Philly F_E_D, all of which are now in deep contraction.


The Citi US Macro index has turned negative for the first time since early September and this has had a correlation with the market in the past.

Over the years the Citi Macro Index turning negative has also been a turning point in the market and remember that many of these points have been during unprecedented F_E_D policy accommodation.

Here's the trend in Macro-data as recorded by Goldman Sachs. The point is not that it has turned, it is that it has turned this early in the seasonal adjustment period which is a free pass of sorts for data manipulation to the upside.

Last week we saw perhaps a one-off anomaly in rail traffic, but perhaps it wasn't a one-off event considering the manufacturing data.

That's a pretty big decline and fast, it's now below the December 2010 level. I'll have to take a much more in depth look at transports; if you know your Dow Theory, then you know why transports are important, not like they were when the Dow Industrials were true industrials, but still a measure of economic activity.

All of this comes when the market is at a very high net long position...

This appears to be the highest since 2007.

Looking at some more recent data, as in today, here's what we have among the leading indicators, which were a bit difficult to scale in some cases, but you'll get the point.

 Commodities tended to act pretty weel vs the SPX until just around that area I was so interested in around 12:30-1 pm today, the $USD can't be blamed, it was pretty flat on the day, it seems gold and silver were two of the late day under-performers.

 Yields have treated us well as a leading indicator, today they collapsed again vs the SPX...


 Here's a longer view of the overall dislocation which is just about as big as I can recall.

 The Euro is becoming further disconnected with the SPX, hence one of the reasons the SPY arbitrage from CONTEXT was so horrible looking today, but that's just one reason as it hasn't looked that bad recently and the Euro divergence isn't exactly new.

This is the large triangle that formed after the two parabolic runs I mentioned as looking good, but generally bad news for an asset, this triangle is getting tighter so it should resolve soon, the market has a positive correlation to the FX pair most of the time so even the move today is out of the normal legacy arbitrage correlation.

As for Credit, these were harder to scale...

 Even with the scaling issue, High Yield Credit which should rally with the market or lead it, was having none of it today, it went the opposite direction right about the time of interest today, 12:30-1 pm and in to the close, closing at exactly 0%, so HY credit was divergent with the SPX.

 High Yield Corporate Credit closed up 0.06% and was flat all day as the SPX moved higher, another divergent High Yield form.

 And Junk Credit didn't rally with the market at all with a paltry +0.07% gain on the day.

Luckily I was able to steal this graphic that scales the relationship much better.

This is after the European close, the SPY is blue, High Yield Corp. credit is orange and 20+ year treasuries are dark green, interestingly we are seeing the reemergence of the volatility ramp as VXX is inverted here (note the price scale in red), you can see the SPX's relationship with falling volatility, nearly tick for tick. Last week we saw some of this, then they went to credit, now back to the VIX. This should explain why 3C is negative and why risk assets aren't following the SPX as it's simply being manipulated by manipulating the VIX which we talked about last week. I sure wouldn't want to be short volatility when this turns.

Lets look at CONTEXT throughout the day...

 This is CONTEXT for SPY arbitrage on the left and S&P futures on the right (ES), again note the time when the CONTEXT model and ES diverge to the right, 12 to 1 pm-ish!  This is how the divergence started...

 By the close ES was WAY out of line with the fair value CONTEXT model based on other risk assets.

At the last look, they continued to diverge in probably one of the biggest divergences in ES I have seen .

As for 3C and ES...

 This is the negative leading 3C divergence this afternoon, note the scale around 17:00 hours because it's hard to replicate on the current chart below...

If ES was that leading negative at 17:00 (as it the limited bar history distorts the scale), look at it now, this is an incredibly deep leading negative divergence and the same persistent negative divergence we have only seen a few times, market tops and we saw it last Friday too.

As for the TICK data, it was good, but it wasn't what it should have been...

 Early on in the move up in the SPY we hit +1216, as the SPY made higher highs through the day so should the TICK, but it didn't. It's not unusual to see +1500 or higher readings, but nothing higher than 1216 which is an intraday breadth problem.


 On one of my new TICK indicators, look at the linear regression line on the SPX and on the TICK data, they are divergent again with TICK failing to make the higher highs needed to establish breadth.

Here I doubled the chart to 2 mins so you can see more of the intraday trend, again, TICK is nearly flat, negatively diverging with the market. This has been a key indicator in short term intraday reversals, it is now acting as a larger signal.

Here are some other indications...

 The overall Oscillator screen and momo indicator..., note MACD is negatively diverging with the price trend and Stochastics looks to be coming out of the intraday embed.

 A closer look at the momo indicator at the top on the SPY and RSI, note the momo has a large leading negative divergence and RSI is also going negative.

 The QQQ however look a bit different, the momo is in line as is RSI.

As for the intraday trend indicators, it looks like the Q's are just coming in to rotation, likely a day or part of a day as they enter the trend channel and see an increase in volume above the much watched 50-bar 5 min moving average.

As for NASDAQ futures tonight, they stumbled a little, but all in all look much better than ES.

Unlike ES which was moving to leading negative divergences, the NASDAQ futures were seeing leading positive this afternoon (around noon) and remained that way, there's a small negative divergence and thus far 3C is mostly in line with price right now, vastly different from the leading negative divergence in ES right now.

I'm still thinking the NASDAQ is the last of the averages to run stops/orders above the range, perhaps this is what this is about as it looks like rotation, who's to say what happens after hours when AAPL reports?

THE NDX IS ONLY ABOUT 10 POINTS AWAY FROM THE RANGE, THAT WOULD BE ABOUT $.30 ON THE QQQ.

I'll try to get up one more post, but I'm starving.

QQQ and AAPL

First off, just like last week, the Q's are still the only average not to burst through the nearly 2.5 week old range (13 trading days).

In the second post of the day and the first during market hours today, I pointed out the seemingly no brainer trade of fading AAPL opening gaps as it was sold first thing on the gap, but also pointed out around 10:40 in the same post that AAPL,

" too looks as if it may have or is finding intraday support for a reversal."

Last week we saw a day in  which the QQQ had a much better looking 3C chart, it was also the furthest from the resistance zone that some averages (like the IWM) had already passed through and thus had the most work to do. While the Q's ultimately didn't make it, they did manage a +.41% gain while the SPX, Dow and Russell 2k all closed red for the day.

Today, while the Q's were hit harder from their open, around 12 pm (remember the last post and what was a recurring theme around 12:30-12:45) I posted that the averages,

" look like they are losing intraday momentum and seeing negative divergences of varying sizes and timeframes (but the theme is more negative) and looking very much like they may become range bound, the Q's is not among them. The Q's are looking like they are going to take off to the upside intraday shortly, they do have some catch up to do." 

So both the Q's and AAPL had a very different look, while the other averages looked to be losing something and later in the day their 3C charts also seemed to suggest the same, the Q's and AAPL were just the opposite. This would not be the first time this has happened recently, I believe it was last week that I said the IWM will be strong the next day and the IWM was by far the strongest and then that night I said the IWM will be weaker the following day, but the Q's would be stronger and that's the way it went down; those calls were based on charts just like today's, not on price action, the 3C charts were ahead of short term, 1-day price action by a day.

So without too much more chatter, other than to say the Feb AAPL $505's went green today, here's what was going on in the Q's and AAPL with the emphasis not only being on the open AAPL calls and earnings tomorrow, but the difference in character between the Q's and the rest of the market today.

 AAPL 3 min first sees a relative positive and then a leading positive as is most often the case.

 On the 5 min there are several relative positives, I'd guess they were purchases at support and then the relative negative on the gap opening today followed by a leading positive, by this time AAPL was already in th green for the day.

 Finally the 10 min chart to me looks like the cycle set up for AAPL, accumulation right at the 1/15 Crazy Ivan shakeout lows and a leading positive divergence late Friday and today.

Before this pattern even saw the first upside head fake move, it was so large that the probability of a Crazy Ivan shakeout was discussed. As you can see we saw the upside false breakout and then the downside false break down, that completes the Crazy Ivan, the baffles are clear.

I can go out further in AAPL analysis, but I don't think it's wise just yet without seeing how it performs and how it reacts to earnings (underlying trade). The calls can always be left in place for any continuing upside move and the trade can be switched over to an equity position at the first consolidation if need be so there's really nothing to lose by being patient with AAPL here.

As for the Q's

 The 3 min chart is calling moves that are about right, they are bigger than intraday, but not anything like a swing move. The positive and then leading positive divergence in the 3 min looks solid.

The 10 min chart shows the negative divergence and drop, which tells me that this was likely a pretty big dump of shares for the size move we are looking at in favor of picking up shares on the cheap as the cycle is set in advance, the 10 min positive is even stronger as nearly the entire divergence is leading.

I don't want to go beyond the 10 min here either, but for different reasons, while the 15 min has a slight leading positive posture in this zoom/timefame, it's in a large leading negative divergence in the trend. I don't think we need anything beyond what we have here for our analysis and as you see, the EOD was good to the Q's.

What is probably more important as far as today's action alone is the 1 min chart, in this case it's a bit unique...

While I could draw a number of intraday divergences on the chart, it would just make it hard to see another trend that was in play, the swings on the upside of 3C all led positive, there was a large leading positive at the arrow and it stayed leading positive all day right until it started moving at which point it was in line.

I don't know how this plays out moving forward, I'd expect the Q's rotate in at least on a relative strength basis for at least part of tomorrow, but the other thing that appears to have happened was accumulation right to the point of price starting to take off as smart money is almost never going to chase prices, they do their buying at the lows and that's what this chart seems to show, in any case it's a vastly different theme from the other market averages.

We'll be watching AAPL tomorrow closely as I have a high tolerance personally for risk, but a very low tolerance for sitting in options when there appears to be any reasonable signal that tells me price or volatility are going to slow down-with options you can actually have higher prices in the underlying asset, yet declining value of the option, thus I have little tolerance for consolidations, etc-thus a close eye on AAPL tomorrow.

Just Pointing it Out

As the No Budget, No Pay House plan is laid out, I though I'd just point out this chart of ES, NQ doesn't look anything like this, NQ looks much better.

We'll see what it leads to, but this isn't a normal chart...

ES with a wicked divergence- as they say, "No budget, no pay"...

Where to Start

There are so many different areas to cover  think I'll do it in bits and pieces, but try to recall these posts as they kind of fit together.

As for the 1 min veneer today, the DIA as mentioned several times had worse looking charts than the rest of the market and the DIA is not the best example of the 1 min strength, the SPY is, but pay attention to the 12:30-12:45 area on the charts of the two, the QQQ is a different story altogether.

 DIA didn't really look good from the start, but just as a reminder of the utility of the 1 min chart, it's intraday moves that it's calling like the negative at the far left sending prices lower, the positive in the middle sending them higher and the negative at the right (red arrow) sending prices lower. When we get in to leading negative divergences like you see in the red box to the far right, these are much stronger signals than the relative divergences to the left.

From this 1 min DIA chart, you can tell where the signals go from intraday to something stronger, uglier and more important.

 If a divergence is strong enough, then it will move to the next longest timeframe which is the 2 min chart here which starts to lead negative at the 12:30 area today.

 If the 2 min divergence is strong enough it moves to the 3 min chart and the first sign of that is at 12:30 on the 3 min chart, then leading negative the rest of the day.

 The 5 min chart is where signals go from intraday to more about heavier flows, but this chart is still (in most cases) being fed from the earlier /above charts). From Friday we see a relative negative divergence at 12:30 today, intraday alone up to that point, the 5 min chart was making higher highs in price and 3C (green arrow). Since the 5 min chart takes a lot more pressure to move, a relative negative divergence at 12:30 today makes sense, it wouldn't be leading negative from a situation like this because it takes a lot more to move this chart.

 The DIa 10 min chart also went to a relative negative divergence at the same time, around 12:30 and was in leading negative position through the close.

Now the SPY, this is more of the veneer concept mentioned in the last post.

 A little confusing, but a 1 min chart that initially goes negative until about 12:30, I doubt it's a coincidence this time keeps popping up, then it starts making higher intraday highs, not strong enough to pass the 11 a.m. 3C high, but apparently getting some support and as mentioned toward the end of the day that chart started to go leading negative around the same time as S&P futures (1 min)...

By 3 pm they could be identified as leading negative, but there was a failure to make higher highs around the 12:30 to 1:30 area and this was in an already established larger relative negative divergence from the time the European markets opened.

 SPY 2 min is negative on the open with a relative divergence and price drops a bit, then a deeper negative at, you might have guessed it, the 12:30 area. The rest of the day it stays in a leading negative position.

 This 5 min chart has more history so I could show the larger moves it calls, rather than the intraday, like the negative at the highs of 1/17, of course we want to use as many timeframes to nail down specifics and as many assets as well. There was NO positive in the entire yellow area, although 3C was roughly following price, but again went negative today around 12:45 and stayed in a leading negative position.

More or less as I was trying to convey in the last post, the only chart that seemed to be lending any support or moving up is the 1 min and that even stopped late in the afternoon along with the ES chart nearly the same time. It seems like something happened at 12:30-12:45 today, exactly what, I'm not sure yet.

As for ES...(S&P futures)

 This chart is backed up about 2 hours and shows an overnight, large relative negative divergence from the time of the European open to somewhere around the 1 pm area.

 This is the same chart, but current at least to the capture, the point was to show some kind of scale so you'd realize that the leading negative at the afternoon today was more than just an intraday divergence, it's quite a bit lower than 3C at the European open at the far left of the red arrow.

I will get in to Leading Indicators, but the quick and dirty way is to look at Context and it is picture perfect considering the charts above.

On the left is the SPY model in green and the SPY in red, it's an arbitrage model showing what the normal price would be based on the correlations that drive the SPY, if the SPY (red) and the model )green) are moving together, there's nothing strange or out of place, it's a healthy trend and nothing to be suspicious of, however that wasn't the case today, the model was significantly lower than the SPY, the Histogram below shows how far they dislocated from each other.

On the right we have the ES (SPX futures) model in green and ES in red, during normal market hours today they did the exact same thing, the model was significantly lower than ES, this means risk assets were not playing along with the SPX, Credit, rates, etc. There was something wrong or manipulated in the market which is what 3C was showing above.

The size of the divergences between the models and SPY/ES today are huge.

I'll deal with the NASDAQ and AAPL in another post as they were a different story today.

GOOG Earnings

I believe GOOG reports after the bell, we have GOOG short positions in place. I wouldn't say this is a leak, at least I haven't seem enough that would suggest it, but I would say the reaction within a day is negative in GOOG.

I'll get charts up ASAP. The longer charts are horrible, there was some intermediate strength, but I think that was sold in to as can be seen on short timeframes.

ES

ES's 3C chart is ramping down bad, this is indicative of what I explained about the 1 min chart's being behind today's price movement, but they are not strong charts, not strong signals and they are falling apart.

ES 1 min

NASDAQ isn't perfect, but better looking than ES, wonder why huh?

Market Update

I'm trying to look at as much as possible to include in this update, but there's also a time sensitive component.

To summarize today, the intraday charts like 2, 3, 5, min etc and the intermediate charts have been deteriorating all day, the longer term charts are pretty much there and longer than the initial negatives were when trend #2 was forecasted, meaning a worse downside reaction than expected.

Back to the theme today, while this was going on, the market derived support from 1 min intraday charts, they have very little influence, but they are intraday and moving the market intraday is what they are designed to do, I'd call it a veneer of underlying strength under a foundation of corrosion.

Whether this is in to the close or in to tomorrow or what, the market's underlying trade is deteriorating badly now as even the 1 min intraday charts are starting to blow.

The QQQ is kind of in a short term confirmation area as AAPL looks like it can add more. I'm going to look at leading indicators and then try to get up enough charts that this al makes sense visually.

To put it another way, I don't have any problem with short positions added Friday

ERY / Energy / USO / IOC

There's a definitive change in character in Energy, but energy is a much more diverse asset than oil, oil is a part of the Energy sector, but Energy is an entire sector so there's not a lot of comparison to a single asset, that said, right now, right here, I like USO (short) better than Energy, but there is a change in character in the energy complex.

Energy's change of character...

This is ERY, 3X Leveraged Energy Short so a positive divergence her is obviously a negative for Energy, the price action is getting very parabolic so I think it's probably nearing a reversal, but if I have to choose right now (as I don't want 2 highly correlated positions unless they are treated as 1 with regard to risk management and position sizing) I'd go with USO. Now there's something to be said for Energy as well, with a break in the energy complex it becomes very difficult for several of the averages to hold up as they have some serious exposure to energy so the argument could be made, "I want to wait for the Energy sector to look like a high probability short" as it also weakens the market more.

Another option I like is the IOC core short position that we have been in an out of a few times, it's currently an active short position (equities) at a nearly +23% gain with no leverage. This one looks to be in a pretty high probability area, there's a chance you get a little better entry as well, although I wouldn't get too hung up on that, maybe leave a little room to add just in case.

The charts...

 This is the area of our last short entry, I don't recall the date, but that's the price. There's a counter trend correction, not very big considering the market and Energy's available support.

 Big picture, the 2 hour chart negative at the high (just above our entry), note the head fake move as well right at the top. The moves since then have been in line, meaning the counter-trend bounce saw no accumulation out this far.

 The 60 min chart does show some accumulation for the bounce as well as a sharper leading negative divergence in red.

 The 15 min chart moved sharply to a leading negative position so it looks like there was quick/strong distribution.

And the 5 min chart showing recent action. It would be nice to enter or add to this one a bit higher, but I think it's still well within a reasonable risk area to consider it as a new position or add to. If this is the one I'm interested in over USO or ERY, I'd have no problem opening a short here.