I hope everyone had a great weekend, I get to add, "Home care nurse" to my resume, but I'd rather do this for my family myself honestly.
In any case, Thursday I warned it looked like we'd see a "mini cycle" up, this was largely based on Leading Indicators, 3C indications and various other observations.
I don't believe Wall Street does anything without a reason, but I really have no idea what the reason for this move (Friday) was.
I can say the mini cycle was set up Thursday and Friday I gave you a "Gist" of Thursday's post, these are actual excerpts and I hope you were able to take a look at them in case you missed the posts Thursday.
One reason I know this cycle was set up Thursday is just how the market reacted to Friday morning's NFP (Non-Farm Payrolls or "Employment Situation"). As has been the case recently, the pundits couldn't have been more wrong, the actual print came in twice what Goldman and JPM forecast, this was suppose to be a non-event and instead it was a huge beat. This was also the "Good news that the market takes as bad news", so the very fact the market didn't fall apart, but rather had a very strong day just goes to confirm the assumption Thursday that a mini cycle had been set up.
As of Friday, there were signs abound that this mini-cycle was losing steam and was giving almost opposite signals vs. Friday's.
My gut feeling is this mini cycle is not over, but weakening quickly.
As for reasons, the simplest would be a weekly op-ex pin as Thursday was a big day down and likely would have moved stocks pretty far away from the "Max Pain" pin.
The only other two reasons I can think of would be...
The top/rounding process that saw market chop as we predicted, is starting to create a very defined resistance range and there's no significant head fake move looking at this cycle off the Oct. 9th lows,
we see an obvious head fake move (bull trap in this case or false breakout) in at least 80% of reversals and this is a pretty significant cycle/reversal. The other reason would simply be to continue the meat grinder with increasing volatility, knocking retail out of trades left and right.
However, as I said, "I don't believe Wall St. does anything without a reason and they saved this cycle when the NFP Friday morning threatened to send the market lower as the good employment report makes F_E_D tapering more likely, at least that's the market's (retail's) take. To me it seems setting up and seeing through this mini cycle through the NFP'd (Friday morning volatility) shows some commitment to the cycle, even though all indications are that it's a "Mini" cycle.
This is one of the reason I said on Friday that I like PCLN as a core short, but I wouldn't be interested to add to the position unless it made a move above $1100 and to do that, the market would have to make a head fake move above the range above, the more defined and obvious the range, the more likely it is to be hit and shaken out, there's too much money, too many orders, too many volume rebates to leave all that money on the table.
However, that's just my speculation.
Since one of the areas where the mini-cycle being set up Thursday (for Friday's move) was in Leading Indicators, that's where I want to start.
However, I think it is really important to look at Leading Indicators in more than just a mico-intraday or day to day view and that's why I posted this showing short term, "Cycle" from 10/9 lows to now and longer. This gives you a real composite picture and shows where the probabilities really are. You can find all of those charts in "Thursday's Wrap".
It's also important to remember that all QE sensitive assets traded in a "Taper On" manner AFTER the jobs report, only stocks did not, Gold, Treasuries and the $USD all traded like QE would be tapered imminently, stocks of course did not. Looking at the bigger picture, I think the way the QE sensitive assets traded is much more telling about what the market felt and fears after the job report.
Leading Indicators... *All leading indicators are compared to the SPX in green unless otherwise noted*
This is one of our two sentiment indicators, Thursday you can see sentiment went positive vs the SPX hinting at a move up Friday for the SPX, however Friday sentiment failed to move up with the SPX hinting at weakness in this mini-cycle already in effect.
The longer trend from the cycle lows of 10/9 (where the larger cycle started) show our same sentiment indicator leading the SPX at the lows, but falling off in a very negative fashion in this toppy/choppy range.
This is our second sentiment (pro-not retail) indicator and it too was stronger than the SPX Thursday hinting at a move higher Friday, however Friday it not only did not confirm the SPX, but made a lower closing level.
This is the long cycle version of the second sentiment indicator, it too led the SPX in to the 10/9 lows and now leads the SPX very negatively, in fact around the lows for the entire chart.
High Yield Corp. Credit being one of the few forms of credit used for short term manipulation was also moving positive in to Thursday's SPX weakness, Friday the opposite happened and HYG showed weakness in to SPX strength Friday
This is the long version of the trend, HYG was used to great effect to support the market, but fell off badly recently just as it was trying to put together a short term bounce (small bottom).
Junk credit also traded stronger in to Thursday vs the SPX, however the opposite Friday and much weaker.
This is what High Yield Credit looked like Thursday, also hinting Friday would see upside, thus the reason we called for it, but Friday...
HY Credit was weak and actually closed lower rather than higher.
Yields recently have been what I call, "Short term reversion to the mean", but...
Looking at several of the last larger trends on a longer chart, Yields have called the bottoms and tops well in advance of the SPX, they are now at the worst reading for the entire chart on the last cycle from 10/9 lows.
Commodities didn't show much of interest intraday, but the longer term trend from the 10/9 cycle start shows they were positive in to the lows of the SPX and are leading negatively very badly.
This is why we use leading indicators, they lead, short term and longer term and the longer term indications are horrible for the market. The short term indications that called Friday's market strength are showing weakness, I wouldn't say as weak as they were strong on Thursday, but very close.
The VIX
I inverted the VXX/UVXY short term VIX futures so you can see how they should and did perform, Friday they were banged lower helping the market as you can see.
Intraday SPOT VIX was smashed lower in to the afternoon after an initial launch higher after the jobs report on the open, it appears the VIX was used as an arbitrage asset to ramp the market Friday afternoon, but...
Friday I showed the "Stealth Accumulation" in actual VIX futures as you see above on this 1 min chart,
as VIX was smashed lower in price, it appears 3C shows accumulation of the lower prices and this has been going on as VIX has stayed flat when it should have been dropping the last several weeks.
This is the longer 60 min and much stronger signal, not only is 3C leading positive, but at the smash lower, we have what looks like a head fake or shakeout of some sort with even stronger accumulation at lower prices and almost a "W" base.
Index Futures Thursday night I said we had positive divergences in 5 min Index futures which is another reason I thought we'd see higher prices Friday...
My exact words...
"I also have 5 min positives in the Index futures so I'm thinking SOME UPSIDE FROM HERE IS HIGHER PROBABILITY, BUT THE LEVEL OF DAMAGE IN THE MARKET CANNOT BE OVERSTATED. "
ES (SPX E-mini futures) with a positive Thursday that went progressively more negative Friday in to a negative divergence, apparently higher prices Friday were being distributed.
The same is true of NASDAQ Index Futures...
And Russell 2000 Futures, Friday saw a leading negative divegrence on the same 5 min chart that only the day before was positive and part of my reasoning the market would be up Friday.
Short Squeeze...
This is my Russell 3000 "Most Shorted Index" vs the Russell 3000, you can see over 3 days the MSI underperforms, moves neutral and then outperforms on a short squeeze Friday.
These are just some of my unique oscillators, just settings are unique, but the signals are the same and this is for the entire 10/9 to present cycle, you can see momentum is negative, RSI is negative, MACD and Stochastics.
Here's a 60 min 50-bar and my Trend Channel, my Trend Channel has given a stop out signal, we usually see volatility after a stop out,
but what this tells us is that the character of the trend has changed significantly and changes in character precede changes in trend.
This is a type of breadth indication, my custom NYSE TICK trend, you can see the positive tick at the start of the 10/9 bounce and how it has faded to negative.
Currencies... Here's where it gets interesting...
This is the single currency Yen Futures, they were smashed on the jobs report as the USD was pushed higher
(Again this is a TAPER ON Signal for the USD). The JPY being sent lower helped all of the FX carry trades which helps the market on Friday, but now we see a positive divegrence on a 5-min Yen chart, if the Yen follows this higher, all of the Yen based carry trades move lower and the market loses that support.
The $USD went higher on the jobs report, not what traders would want to see, but again trading in a "Taper On" way because of the strong report that makes the F_E_D probabilities of tapering QE higher and the $USD is reflecting that.
However this is also supportive of the carry trade, which way this ultimately goes is a mystery and a bit of a dichotomy, but to me early indications look like the carry trades are in trouble, REMOVING POSITIVE SUPPORT FROM STOCKS.
THIS IS THE EUR/JPY carry in green/red candlesticks and ES futures in purple, note the market moved right with the carry trade Friday, but now the carry is failing leaving ES unsupported and exposed here.
This is the AUD/JPY carry trade also falling apart vs ES.
And the $USD/JPY vs ES also falling apart.
I know it's early in opening futures/currency trade, but these are negative signals along the lines of the signals from Friday.
Finally, I've been expecting a pop higher in gold and even added some GLD calls Friday, this is the 30 min chart of gold futures with a very positive 3C divergence, I saw it in GLD as well so I'm expecting a pop higher in GLD, although I chose options because I don't feel there's a strong probability of this move lasting too long before a larger pullback continues.
As of now, ES, TF and NQ all have negative 1 min intraday divergences, I don't expect these to hold all night, but they also have 5 min negative as you saw above setting in so I'm very curious as to why Friday's cycle was put in to motion.. Just to hit the max pain op-ex level? Or something else?
Whatever it was, it was purposeful, but also fairly small which is
why I called it a "Mini cycle".
I'll check in on futures in the a.m. and look forward to a great week!!!
