Daily Wrap

Today seemed like a "Mushy Market", but in reality I think the larger picture is where the damage is coming from and a day of intraday mushiness means nothing.

Today, Dow 16k and SPX 1800 (Dow @ $16007.77 down -$78.64 and the SPX $1800.73 down -5.08) were just saved and there was no doubt at all what the algos were keyed in to, the EUR/JPY.

 This is the Dow-30 vs the EUR/JPY, I had to double check to make sure I had not put in the same symbols for comparison they were that tight.

It was only a slight EOD surge that saved 16k by a mere $7.77.

As for the SPX... even closer or just as close with $.73 to spare.

 Again a late day surge or really bounce, was all that saved the SPX from a sub 1800 close.

Can you imagine the stop orders under $16k and $1800? This is why these psychological numbers are so important, they can create intense downside momentum when those stops are hit which creates a snowball effect.

As for VIX futures in purple, here's what they looked like vs ES, note that nearly mirror opposite relationship.

I thought they may try to whack-a-mole the VIX, but apparently it was a FX based correlation.

It was just last week that I was saying a.m. trade is full of games and the data there isn't to be taken too seriously, amateurs trade the open, many with limit orders as they head off to work and it's pros that trade the close, this is why I try to honor stops on a closing basis rather than intraday.

That being the case, just about the last week has seen selling in to the close rather than the typical ramp job in to the close like I thought we might get today.

 Other than the 27th when I thought it was important that we not have a red close going in to Black Friday, every other day on the chart saw selling in to the close.

As I said above, intraday mushiness doesn't mean a lot for 1-day, it's the trend that means something and considering what we see above, look at these intermediate 10/15 min charts...

DIA 15 min shows a clear negative and especially where the pros have been selling hard.

Same with the 15 min IWM

And the 10 min NDX

And the 15 min SPY is all too clear. These are just the signals for this timeframe of late day selling.

Other than the late day selling, I think an important fact is the change of character the market is undergoing from late day ramps to late day selling. "Changes in character lead to changes in trends."

The Spot VIX officially broke out of the Bollinger Band Squeeze, although there's often loitering around the initial breakout, sometimes even a Crazy Ivan shakeout, we'll have to see if this sees the follow through tomorrow, but I have little doubt this will make a highly directional upside breakout whether tomorrow or a week from now.

 Spot VIX Bollinger Band breakout.

However as far as timing, I'm guessing sooner than later and more significant than we've seen since the 2009 rally started.

 First the daily 3C on spot VIX using the Trend 3C to eliminate noise, this is by far the largest leading positive on the chart at new highs while VIX is still low in the price range.

As for actual VIX futures, this is why I say probably the most significant VIX move since the 2009 rally started.

 This has every year since 2010 on the 3C VIX futures, obviously the largest leading positive divegrence while VIX is low in the range, stealth accumulation was certainly in play as we saw it day by day with intensely strong signals. 

Despite the difficulties trading VIX, I'M VERY HAPPY TO HAVE THE VIX CALLS AND THE UVXY LONG.

Look at the size of this 4 hour VIX futures divergence, I've never seen one on a 4 hour chart, not in VIX futures.

Remember, we use multiple timeframes with 3C and having confirmation in as many timeframes as possible is the best signal, especially when they are in the same place with the same type of divergence.

VXX / UVXY Judging by the confirmation here, I'd say the VIX Bollinger Band breakout is going to hold and make a strong move very shortly. Remember the market moves opposite the VIX.

 60 min

30 min

15 min

5 min

2 min

1 min

If I were to see this today, I'd be all over this with Trade Ideas long, however we've already entered a lot of these as we have seen this coming and all of the recent longs (call and UVXY ) are in the green.

Transports have been one of the best relative performers since the 10/9 cycle, I won't repost all of the charts, but I think today's post on transports is important in the overall broader market signal.

USO is another important position that I think is ready to move, in case you missed it...

As for the Carry Trades, it's always hard to say what the BOJ may or may not do, but...

 The JPY crosses were all activated just before the November 2012 lows, at the May 22nd Key Reversal day, the AUD/JPY fell out (white), recently the USD.JPY has fallen out (yellow), only the EUR/JPY (blue) remains, but the relative performance is much worse if you look back and see how much higher the pair was vs the SPX compared to now.

As for the EUR/JPY, it's a matter of relative performance because the Euro is not doing as well as you might think. EUR/USD is losing ground.

Remember the EUR/JPY is Euro long/Yen Short so any downside in the Euro and upside in the Yen sends the pair lower.

EUR/USD

 EURO losing ground vs USD.

As for the all important EUR/JPY, all we can do is look at the individual single currency futures, here''s the Euro.

4 hour negative divegrence

30 min negative in the same area.

15 min in the same area, note the divergence sent the Euro lower

as did the 5 min Euro 3C divergence

And the Yen?

 a 1 min positive may be the start or continuation of something already started.

30 min Yen.

Remember the Euro needs to stay stronger relative to the Yen, these charts of the SPX vs the Euro also have some insight.

 Near term FXE vs the SPX (green)

Longer term, FXE is dropping below the SPX, we already saw that in the Euro single currency futures and EUR/JPY.


I'm not claiming a high probability move lower in the EUR/JPY, I'm just showing there is a probability, perhaps a channel break or Buster...

As daily candlesticks move toward the top of the channel we see increasingly larger upper wicks until we see three consecutive Doji Stars, a loss of momentum which often leads to a reversal.

All 4 major averages had a dominant Price/Volume Relationship, very dominant, it was Close Down/Volume Up. This is typically a 1-day oversold condition and the next day often closes up, however in rare circumstances this can be the initial break of a market, kind of a 1-day dump in which that market has broken. Either way, there was a huge dominance in stocks closing down on increased volume, we do however have to keep in mind that there was no other secondary relationship (Volume Up) possible as Friday was a half day.

It really doesn't take much to get the head fake downside momentum going, for instance, take the IWM.

 Once the IWM breaks under this level, stops will start triggering downside momentum as shorts start coming back in to the market which the market is desperately in need of to prevent a complete melt down on a move lower with no built in future demand in place as shorts are at multi-year lows.

After that level, the real momentum is below the top of the channel, the Channel Buster momentum should take the IWM below the lower channel in a very short time.

TICK today shows the disparity between advancing and declining issues...

We nearly hit extremes of -1500 today and lots below -1000 and -1250.

Many fund manager WILL NOT BUY STOCKS THAT DO NOT HAVE A "HEALTHY" SHORT INTEREST.

The reason why is shorts represent future demand, they can not take profits without covering and to cover that means they must buy so when a stock is falling shorts are a healthy part of the system that provides demand at a time when there otherwise would be none. That is why the chart above showing the percentage of bears at 14 or 15+ year lows is very dangerous structurally for this market, that built in future demand isn't there, who's going to buy in a falling market except for shorts taking profits?

As for some other breadth readings...

 The NYSE Advance/Decline line still hasn't broken above the October highs.

 The NASDAQ 100 A/D line still hasn't made a new high

Assuming this is a reactionary high, this would be the lowest percentage of stocks trading 1 SD above their 40-day moving average at 41% from a recent high of 66%

When looking at the same, except 2 SDs above the 40 day moving average, this is also the lowest at 15% and only 11% of stocks right now are trading 2 SDs above their 40 day moving average .

Bonus charts...

 HY Credit is much more negatively displaced than this chart, I showed that last week, but just looking at more local action, it is certainly displacing again.

 HYG Credit took a big hit today, note the end of day ramp attempt, I guess every little bit counts when you are at fractions of a percent to hold on to Dow 16k and SPX 1800.

 This is Spot VIX vs inverted SOX so you can see the normal price correlation (they'd move almost exactly the same) vs the VIX outperformance.

This chart is slightly longer, I post it because the Bollinger Band squeeze of spot VIX implies a highly directional move (breakout), I thought the recent momentum looks a bit indicative of such a move in the VIX.

In Futures, gold may be starting to get a toehold, it's early to say, but it's got a start. While I think it's possible, even probable for a correction in USO/crude, I also think it's on the edge of a transition to stage 2 mark up. EUR/JPY is basically flat since Friday after hours, AUD/JPY is starting to correct a bit and USD/JPY is hitting new highs  at $103.15.

Nikkei futures don't look too good to me, there are negative divergences in several timeframes.

As for the Index futures, it's the same story I mentioned earlier. For years the averages have moved almost percent for percent (as point for point would not be relevant), they almost always moved together in the same direction until recently when the gains of losses where +.10 or -.10%, so that's understandable, but today when the R2K is down -1.20% and the NDX is down 0.19%, there's a kind of dispersion in the averages that is far from normal, not even in a healthy bull market with healthy rotation do we see differences this large.

It's the same with futures, there are some very odd charts, few of which are bullish, the dispersion is really the main change in character though even beyond the divergences in longer and stronger timeframes.

 ES 5 min looks like it could bounce (corrective).

However the 15 min chart is in deep trouble

The 60 min chart is as well

NQ 5 min futures are looking like the R2K futures just before they dropped today.

 The 15 min doesn't look good either. For sometime we have been able to call downside just off 5 min charts.

This is the TF 5 min , like I said, the NQ 5 min is looking similar.

The TF 60 min is not only negative, but what I've been trying to point out is the pure distribution on breakouts above certain levels.

I'll check back in later if futures change.

USO

This is the trade set up in USO which we have been patient with because I think it's a worthwhile trade, everything we'd want to see happen has happened.

This is the trade set up, first there was a USO short as you can see at the top of the channel, but then we started to see a bottoming process play out and one large enough to shakeout a lot of shorts and create a momentum squeeze.


On Friday I said...

"As posted last week, the Iran/Saudi conflict/capture of two Saudi fishing vessels in Iranian waters right after the nuclear deal over last weekend, sent crude below the basing range and I thought that this would be short lived as a knee jerk reaction.

In any case, I was looking for momentum to pick up at $33.50 and even suggested a limit order there which I never use."

Here's what happened next as the move did prove to be a knee jerk move and possibly the news was used to also create a head fake/shakeout below a well defined range of support (the base).

Note the shakeout/knee jerk created the same psychological candlestick as a hammer on increased volume making it highly probable as a reversal candle which it was, the move above $33.50 (small red trendline) did see momentum pick up on the upside.

One of the ways we determine whether it's a head fake or the real thing is whether there's accumulation or confirmation, this is the 2 min chart the very next day.

This tells us even before the gap up that probabilities are for a reversal as the lows are accumulated and there's plenty of volume or supply to do so.

 In fact, loook at the leading positive divegrence in Crude Futures on the shakeout move, we had not had a head fake move previous to this and judging by the positive leading divergence, I think the Iran/Saudi dust-up was used as cover for a shakeout judging by the amount of accumulation on the move.

I think we are not only on track, but now with a head fake move in place which is something we typically see just before a reversal (to the upside) , we are probably right on the edge of a move higher. I'd consider anywhere within the white box to be an excellent entry and I think we head toward the $38.50 level for starters on the first leg.