Futures Tonight Proving Afternoon 3C Charts Correct

I told you I'd give futures some time and check them, I also said it's rare that a 1 min chart holds up (divergence) through overnight trade, but why start a positive divergence so late in the day without an EOD ramp? The only reason would be if it continued through the night and thus far, NQ / NASDAQ 100 Futures are showing a great 1 min and even a 5 min positive divergence although not as impressive. TF / Russell 2000 Futures are also showing a 5 min divergence so 3C was correct this afternoon as tonight's futures bear it out.

This still doesn't change analysis, it doesn't change HY Credit dislocating from the SPX, it doesn't change the strong VIX future accumulation, it just means it's likely we see a bounce tomorrow, it might be the last day the market feels safe to bounce before Wednesday's F_O_M_C policy announcement when I think most would want to be rather flat.

 NQ 1 min positive divergence holding VERY well and a beautiful rounding bottom or "reversal process".

 You can see the 5 min chart is just starting to show this positive as well, the R2K futures 5 min chart is much more developed.

R2K Futures.

I looked at USD/JPY and while the $USD has a 15 min chart that looks strong, the 1 and 5 are not there yet so I'm guessing that the SPY Arbitrage will be what is used as we saw earlier today and in leading indicators.

Also of interest... Crude gapped down last night on the open, I said though that I thought it would chop around and guess what, there's a positive divergence there too so it should move up creating a choppy zone, down, up, down, up, etc.

Treasuries which dropped today also have some positive divergences.

Gold and Silver are more or less in line for now.

So, just what we thought at the end of the day is showing up in the overnight session, this is why patience is important, there will be a time to strike, but I didn't feel it was today yet and apparently for good reason.

Daily Wrap

I'm not sure there's much more to say except I think the lesson of today is similar to the lesson of September 13 2012, which was when the F_O_M_C announced QE3, I had more emails that day telling me "Don't fight the F_E_D", and if I were to right in my trading journal, I would have said,

"With QE3 announced today and the market's initial knee jerk reaction to the upside, I'll admit I was very tempted to close all shorts, go full long and call it a day, but those were my emotions and conventional wisdom talking, objective data said something very different, it said hold the shorts, stay where you are for now"

No, I'm not immune to emotions of a trade, but I've had enough experience to know that Wall St. often moves the market just to touch on emotions to get you to do something they want, this is why I always look for objective data. I had a lot of emails last night and this morning asking if I would bail on short positions given the gap up, my answer was, "I wouldn't do anything until I saw objective data, otherwise I'd just be acting out of highly subjective emotion and that's not good decision making in the market"

And what do you know, as soon as regular hours open at 9:30 we see the largest move down since futures opened for the week and things didn't get any better from there.

Just like when QE3 was announced and 3C was clearly negative, over the next 2 months the market drifted LOWER, not exactly what conventional wisdom would say and the market lost about 8% in to the November 16th market low when carry trades were fired up a week before and there was accumulation in to the low, so the shorts were the right move for the time and that was a hard decision because of emotions, but it was a good decision because it was based on something more objective than my fear.

So what can I add to today that I haven't already said? Not much, we say the damage and signs of it last night, this morning on the open it was immediate, it didn't get better no matter what metric you used.

HYG, VXX and TLT in the very short term along with 1 min charts are indicating a bounce higher, thus far seemingly based on SPY Arbitrage, since they are only 1 min charts I don't know if they can hold up through the night as they typically don't, there's no strength to the divergence beyond 1 min charts and in fact quite the opposite, the longer charts are very negative and not much longer, 2 min through 5 min and with confirmation in VXX as well as VIX futures and Index futures.

If I had to guess, I'd say the VIX accumulation is directly attributed to the F_O_M_C meeting starting tomorrow and the policy statement at 2 pm on Wednesday.

Some of the most damning information came from the charts (broadly speaking including futures), VIX futures as well as VXX, but the big one was High Yield Credit, as mentioned I wouldn't expect HYG to reflect the same as it is one of 3 assets that need to be manipulated to cause SPY arbitrage manipulation which is short term like the 1 min positive divergence forming in the late afternoon.

The CONTEXT ES model is simply stunning, if they don't adjust it and it's still -70 ES points negative tomorrow, I think we may have to rethink he timing of a major downside move. Still HY credit is standing out, there's no correlation with HY credit that can help the market so there's no manipulation there, that's the really disturbing part as far as the market and downside goes, the CONTEXT Es model's extreme reading of -76 points is just making that downside move scarier.

As far as the F_O_M_C, the consensus is they';; float a trial balloon and announce a gradual/minor tapering and gauge the market's reaction, I agree with that, but at the same time I think the F_E_D is in this position because they have some real balance sheet problems and need to wean Congress off infinite money printing. The further they go down the rabbit hole, the worse it is to try to come back up.

I don't have anything else to add beyond what we've already seen expect to say again, I'd be very concerned if I were long when you look at all of the market breakdowns recently, what happens when HFTs shut down and all liquidity does as well, I can see these markets breaking on a near daily basis, something is not right here and I see it as a major red flag for the market when true panic sets in.

Other than that, all I can do is watch futures tonight and see if the 1 min charts can actually hold up overnight to produce a short term positive divergence that does something tomorrow, I don't think it's much longer than that being VIX futures are being so heavily accumulated someone knows something is up beyond the 2 pm Wednesday policy statement.

We may very well get some last minute chances to jump in new or add to positions, but you can see why I wanted to wait today with the EOD positive 1 min divergences forming.

I'll update again later if the futures are acting in a way that suggests they are able to hold on to the EOD positive divergence, it's nothing to fear, it's more of a short term market gift if you know what it is, if you are just chasing price like so many in pre-market this morning, you're in trouble.

ES Futures

In similar fashion to the SPY as well as the VIX Futures wherein only 1 min charts are moving positive, obviously not enough for today, it's hard to say if they can maintain momentum with 1 min only overnight, the point still is that in addition to the market averages, the futures and VIX futures as you already saw, all confirm the same.

 Like the SPY 1 min positive, the SPX futures have a 1 min positive, the VIX futures 1 min negative is confirmation.

However like the SPY negative in every timeframe beyond 1 min as seen in the last post with 1 and 5 min charts, ES 5 min is leading negative and VIX futures are leading positive, again confirming the same.

SPY Update

Here's an example of what was seen earlier, I didn't put the SPY Arbitrage together until looking at Leading Indicators, I was more focussed on the USd/JPY as a possible engine.

 SPY 1 min intraday positive forming, as mentioned over an hour ago.

However nothing longer to support that divergence as seen on the 2 min and considering the size of the move last night, a 5 min chart "could " have easily confirmed it if it were not being sold in to, that's not the case.

Today is nothing but worse for the SPY 5 min.

I'm not adding more timeframes because I already updated the entire SPY timeframes earlier today

Quick Leading Indicators Update

In the last post I mentioned some 1 min / intraday charts turning negative, but there not being any timeframes for the msot part to support them, thus looking like the market would try for an End of day ramp. After looking at Leading Indicators and then Context, I feel fairly certain something along those lines is heppening as Treasuries, specifically TLT head lower in a positive SPY Arbitrage manner, while HYG is in line with the market rather than lagging it, which I wouldn't have made any issue of if it weren't for HY Credit and finally the 1 min charts in VXX also have the same 1 min negative as the SPY, however nothing negative behind or longer than 1 min.

In fact VIX Futures themselves have a small negative 1 min with a huge leading positive 5 min chart, all suggestive of a market looking for an EOD ramp via SPY arbitrage.

Finally the SPY Arbitrage model confirms all of the above.

SPY Arbitrage chart showing what I suspected, however this looks to be a short, hollow victory, look at the VIX Futures...

 If this minor VIX Futures 1 min intraday negative is the best they can do to ramp the market, then look out for downside trouble because like the other averages or VXX that I mentioned that have slight a1 min negatives, the comparison between short intraday and trend is stunning.

 5 min VIX futures leading positive.

The 15 min is even stronger, but I skipped right to the 30 min...

 And with a 30 min leading positive like this, I didn't even bother to look further because it would not matter.

So assuming the is a small hollow intraday victory, consider the longer term VIX futures strength and then look at the CONTEXT model for ES at the largest dislocation I've ever seen.

This has hit -100 ES points, that's a water fall sell-off, still at -76 points this is nearly twice as large as anything I've ever seen on the model.

While HYG is in line with the market because it must be for SPY arbitrage to work, therefore it has reason to be manipulated, High Yield Credit which has been spot on with the trend looks very different being it has no correlation for manipulation of the market.

For the first time in many weeks, HY credit is diverging in a big way with the SPX, a clear negative market signal.

In addition, Yields which pull on the market like a magnet hit a new intraday low for the month today.

Finally the Russell 3000 most shorted index that typically outperforms on a squeeze and has leading qualities is negative vs the R3K today.

All things considered, I'll be keeping a very close eye on events as things are looking like they are simply out of control now.

TICK Data

Is going from bad to worse. The NYSE TICK data is all advancing issues per bar (1 min) less all declining issues, thus above zero there are more advancing NYSE issues, below zero there are more declining issues. It's the extremes and the way the data is developing that is eye catching.

 The opening TICK was as high as nearly +1800, an extremly high reading, but that gave way quickly and the NYSE has struggled to poke above the VERY mediocre +500 which is nearly neutral, while as the day has advanced, data is in the -1000 area and hitting extremes of -1500, there's an obvious correlation to the moment options went dark, but that doesn't explain the rest of the day both before and after.

My custom TICK indicator shows the trend fairly well.

The bars at the bottom show the data really going south this afternoon.

We do have some 1 min positive divergences in the market averages, the problem though is timeframes beyond 1 min are not following in most instances, so perhaps there's an attempt at an afternoon/closing ramp, but internals thus far don't make any attempted ramp very believable.

*If this keeps up, not only will I continue to hold short positions/puts entered Friday, but may finally feel comfortable in having a handle to the point where I feel there's little risk in adding new positions or adding to current positions.

Don't forget, the F_O_M_C meeting starts tomorrow and culminates Wednesday with a 2 p.m. policy announcement which many have felt would include a September taper statement, at least until sentiment changed last night with Summers withdrawing his name from consideration.

Are The Options Exchange Breakages Responsible for Today's Dismal Performance and Why do They Keep Breaking

I'm sure you already hear this and I've been doing a lot of analysis to see if there's any truth to the market losing ground from last night's futures open because of exchange issues which are now a weekly occurrence with the CBOE and C2 options exchanges going down earlier today causing BATS to go down because of the OPRA problem at CBOE and following with the NASDAQ halting all options trading.

I don't think the question is so much about how this effected today's market performance, but more so, "What happens when all heck really breaks loose?"

I've read that some are saying the dark out in options sent the market down and this certainly must be a factor, but there were issues with the market long before this event occurred as you can see in earlier updates and even last night.

The Index futures that were split with a bias to the negative with ES and TF looking bad (TF the worst) and NASDAQ looking pretty good has now been resolved for the time being in that all look horrible, but the NASDAQ had filled last night's gap up long before the exchanges went down for options trade.

Here's the current 5 min charts for the Index Futures.

 ES since yesterday's open of futures, remember the large decline right at 9:30 on volume in all of the Index futures. The Options systems didn't go down until after 1 p.m.

NQ 5 min leading negative, ES is worse however.

And TF leading negative almost completely filling the gap up.

Still, the larger issue looms, if the exchanges are breaking down nearly on a weekly basis with a market not in panic mode, what happens when it does go in to panic mode and this is to say nothing of other issues like HFTs and leverage.

Market Update Charts

To be thorough and to save time, I'll use the SPY as a full example and then give a few different timeframes among the other averages. At this point all I keep thinking is that I'm glad I don't make emotional decisions and rather wait for the objective data to come in.

 SPY intraday has gone even more negative, 1 min

This is a closer look at what has happened since Friday on the same chart.

Right now or as of this capture, the SPY Vs. TICK doesn't look very good, TICK is falling off badly.

SPY 3 min didn't skip a beat and continues leading negative as if nothing ever happened except more distribution.

Same with the already ugly 5 min chart

The 10 min chart leading negative

The 30 min chart leading negative at two equal highs.

DIA 1 min

DIA 5 min

DIA 60 min

IWM 2 min

IWM 5 min

QQQ 1 min

QQQ 2 min

QQQ 5 min.

All in all, it doesn't look good at all for the market and the positions that we  had good reason to enter Friday still look good, in fact better.

Quick Update

I'll be posting the charts which will take a few minutes, but I've allowed enough time for trade and signals to catch up, the result is DEEPLY unimpressive considering the opening action last night in futures, it looks like smart money came in and just sold in to the gap up on the opening of futures trade.

In other words, the shorts accumulated last Friday still look like good positions judging by the market averages, I'll have them out shortly, but they continue to deteriorate (I'm talking about underlying trade).

I'll re-check Friday's new positions, but so far it looks like all of them are still going to be winners and all of them are still relatively close to the same area they were entered Friday.

This is a prime example of why I don't make any decisions based on price/emotion without having data to back that up.

Gold Long Follow Up

The GLD calls from last Friday also look interesting, however it's difficult to know for what reason, a flight to safety position as they looked like last week or a QE-TAPER OFF position as they looked like last night. I suppose it doesn't matter for the gold position itself, but it would be useful information for the rest of the market.

Here's a chart of the correlation between gold (green) and GDX (red).

 GLD vs GDX daily.

Again the GLD intraday charts are more interesting just for immediate character, it's still the longer term charts that were behind the decision to enter some GLD calls last week. 2 min

5 min GLD

This leading positive at a similar base like area as GDX is interesting.

And again, while it's not of the same quality as GDX, GLD has a 30 min leading positive divergence as well.

Like GDX, I see no reason to abandon GLD long and it may be an add to or new trade in the very near future.

GDX (Gold Miners) / NUGT Update

I was just going over the GDX charts and confirming with NUGT and DUST, while I want to be a little cautious about the timing of committing to new positions until the dust clears a little, I see absolutely no reason to abandon GDX calls and NUGT longs, in fact taken by themselves, I'd be keen to add to them here or start new positions if I didn't already have one (or a couple as it were).

 The shorter term charts aren't that important in the analysis, they are more just to see what the tone of early trade looks like after last night's open, 2 min GDX leading positive.

3 min GDX leading positive and a nice bottom-like range.

5 min chart leading positive.

This is where the case is really held together for me in staying long gold miners.

 GDX 15 min ;leading positive divergence. This is of sufficient size that I'd say there has been significant investment in accumulating GDX and I doubt very much those shares are going to be sold at anything less than a profit.

In this market to have a 30 min positive is sort of rare, there are only a handful of longs that reach out this far and most of those are pulling back, so in conclusion I have no problem holding GDX calls or NUGT longs, if a few small signals came together, I'd likely post a GDX Trade, even though last week I said I would not be putting out any more GDX long calls as if you don't like the charts above by now, I don't see what would cause you to like them in the future.

Early Futures Update

I say early because for Futures it still is early and considering the action was significantly different at the open of regular hours, something I talked about last night (low volume weekend open in futures is nothing like regular hours when volume increases substantially) vs overnight futures, there's obviously something to what I was saying which means that in essence, the useful data for futures really started around 9:30 this morning so as I said yesterday it will likely take at least the entire day today (if there's a strong trend) for us to see what's really going on.

Almost amazingly though, certain elements have just been pounded, like the NASDAQ 100 which fell all the way down to Friday's close this morning, closing the gap yes, but still, it's quite a fall considering where futures were pre-9:30 this morning.

 ES 5 min looks similar to last night (3C), however as pointed out earlier, lost significant ground at the 9:30 US open on volume.

The NASDAQ which gapped up so easily this morning lost that gap just as easily as morning trade took it to Friday's close, there's a small positive divergence intraday (1 min) at the lows this morning.

The 5 min R2K futures looked to be some of the worst (3C)  and saw significant losses at the 9:30 open.

Gold and silver

 Gold and silver both pulled back as expected last night, gold pulled back closer to the base area I expected (white trendline), however I doubt this would be the extent of a base so we'll have to see if we get a signal one way or the other as there isn't much right now.

Silver 5 min has held up a bit better, but Silver is NOT the QE asset that gold is.

The 30 year and 10-year Treasuries made new highs around the 9 a.m. time, I'm guessing on the poor Industrial production report that looked better for the QE crowd, but have remain largely range bound since last night's opening gap.

 $USD 15 min, I still like the $USD better than the AUD or Euro as a potential carry cross with the Yen, to me it looks better as I said last night.

$AUD 15 min had its moment, but I don't think it can hold

Euro 15 min I feel the same about the Euro as well.

The Yen is the wild card, it's looking a bit weak here so if the $USD does strengthen then the USD/JPY cross could support the market.

Yen 15 min. However you have to understand that this is short term, the Yen has built a substantial base all year, this is something I've been convinced since April will be part of the undoing of the market as the Yen makes a large upside move and the market to the downside at the same time, which I wrote about back in April as what I thought was likely to happen long before the Yen had carved out the base it has now.

As for crude, I mentioned it being down last night and why and also mentioned I thought it would see near term chop, the data so far this morning supports that opinion.

Crude gapped down last night, but a small positive last night has grown so I think crude chops around and ,may make for a short term trade, but it's not my favorite, chop never is.

Thus far there's no smoking gun, it's too early, but I am surprised at price action in the Index Futures.

I'll be checking on some other assets now that we are exiting a.m. trade.