Daily Wrap

Today's NFP disappointment didn't really look like a disappointment, but I think there's more to today's (lets call it for now a) knee jerk reaction.

We had another change in character for the week, this week broke 8 consecutive weeks of higher weekly closes, this week broke that streak. Again, we're interested in changes in character because they lead to changes in trend.

I'm going to show some charts and go back to posts earlier in the week before we knew what would happen, because I try hard to set expectations or lets say, let you know what is probable.

For instance and I think this is still one of the biggest near term catalyst/smoking guns out there, VIX Bollinger Band Squeeze.

On Wednesday December 4th as we were in a streak of the 4th consecutive daily loss for the averages (and a pullback in the VIX DID NOT look likely), I posted the following in Wednesday's Daily Wrap. (Chart and proceeding commentary)

" As mentioned with the VIX BB squeeze, price tends to loiter, none of the past squeezes are as big as this one, but every one pulled back to the 20 day before taking off after the initial breakout, as I said, price loiters." 

I had no way to know then with 4 losing market days in a row under our belt that the VIX would do what I said it usually does before blasting off, but today it did just that.

 Here's the pullback to the 20-day moving average seen so often after the initial break from a Bollinger Band squeeze and right before the VIX tales off on a tear to the upside, the market has an inverse relationship like the one below...

The VIX in white and directional breakouts to the upside mark tops for the SPX in green in which they pullback.

The VIX is called the "Fear Indicator", a low VIX means investors are complacent, a high VIX means investors are afraid, usually when we hit either extreme, we have a market top or bottom.

The point being, the VIX has now done everything it usually does just before taking off.

What about today's Non-Farm Payrolls? Why didn't the market react badly?

First one thing I said in trying to set expectations last night in the Daily Wrap

""Beware the knee jerk reaction, they aren't as reliable as the F_E_D knee jerk, but this is an emotionally charged issue and the market is all perception."

A "Knee-Jerk Reaction" is something we see almost all the time at F_O_M_C policy statements or F_E_D events, it's an initial burst of emotional energy and they are almost always wrong, when cooler heads prevail, they are faded and the market moves in another direction, but I don't think that's entirely what was going on today, I DO THINK THE MARKET IS GOING TO HAVE A BAD REACTION TO TODAY'S NFP.

Why do I think something else is/was going on? Remember that 2.5 day period of fogginess in the market? Remember these comments from past posts...

Thursday night's Daily Wrap:

" As we saw earlier our Sentiment Indicators closed negatively, HYG they've been trying to hold in a range for 4 days while at the same time trying to constrain VXX for 3 days now."

Thursday Market Hours, "Leading Indicators"...

"HYG which is 1 of 3 arbitrage assets used to goose the market (the other two are TLT and VXX), sometimes HYG is used alone, we call it the SPY Arbitrage because Capital Context has a model we can look at…In any case, HYG is almost perfectly in line with the SPX, so unless VXX is severely underperforming the SPY Arbitrage doesn't work, HYG needs to be up, VXX either performing worse on a relative basis or moving down and typically TLT down activates the SPY arbitrage, but for the last 2 months I've seen them use HYG alone."

The Point? As we were in the midst of our 5th consecutive down day for the market, I was commenting on how HYG Credit (a market manipulation lever) was being held up because it did not want to stay there on its own and VXX was being held down, both of these have a bullish effect on the market, if they can get HYG up , VXX and TLT down, the SPY Arbitrage is activated and the market gets a lot of buying support, IR'S SHORT TERM MANIPULATION OF THE MARKET, but it was apparently being set up days before in holding HYG together.

Take a look...

 How is it that HYG (High Yield Corporate Credit) which is often used for intraday or short term manipulation (HYG up, computers read it as institutional risk on and buy) can be so perfectly synced to the SPX today?

That's computerized, but furthermore, remember what I said, HYG needed to be up, VXX down and TLT down to be most effective manipulation of the market yo the upside.

HYG gapped up after 3 days of trailing along the SPX, VXX gapped down after 3 days of remaining basically stationary...

 Here's VXX gapping down in blue intraday vs the SPX in green, you can see the arbitrage relationship, it's tracking the SPX (inversely) just as close as HYG is tracking it today.

But what about the 3rd asset, TLT (Long term Treasury bonds), which help push the market up when they are down as the computers read that as money coming out of the "Flight to safety trade" to be put to work buying stocks...

 TLT was up initially and then fell around 11 a.m.

So we have HYG gapping up, VXX gapping down and TLT moving down at 11 a.m., that is the SPY Arbitrage that supports the market. Now look at Capital Context's model of the SPY Arbitrage for today....

Here we can see it is activated around 11 a.m. when TLT falls, HYG and VXX are already in place.

Now see how it effects the market/SPX...

The market gaps up as HYG did and inversely VXX did (with carry help overnight) and at 11 a.m. the sign of weakness sees the SPY Arb. activated.

My point is, unless someone knew what the Payrolls were going to be 4 days ago and I doubt that, there was a series of events put in place starting 4-days ago to push the market up today, I don't know why, but it took quite a bit of doing because we haven't seen the full SPY arbitrage activated in months and we haven''t even got to the Carry Trades yet.

Just so you know what longs in HYG did when presented with a higher HYG today (and this is traded almost exclusively by smart money)...

They sold the heck out of it, the gap up was used to distribute, there was no seeing if it might go higher, they wanted out, so they certainly didn't push it up today and hold it together the last 4 days, but someone did.

We even saw the VIX being accumulated again today since the gap down had already ca,e and activated the arbitrage...

Here you can see VXX was held in place after a strong run in which we made over 90% on some calls, it was pegged in place for 3 days and when it tried to move higher they stopped it with some distribution (red arrow), but as soon as they were no longer controlling it as it already did what they needed and gapped down, look at the accumulation today and that's a 3 min chart leading positive.

The price action was perfect for algo manipulation, but the underlying action was saying the opposite, HYG Credit was being distributed, protection in VIX futures were being accumulated.

But that's not all.

Yesterday in the same post, Leading Indicators, I said 

""HY Credit, unlike HYG, is clearly up on the day, I don't know how it will close as it often has a way of changing on a dime, but I did find this odd."

That was odd for HY Credit to be up on a 5th consecutive market day down. Also...I talked about Yields being up and said, "One moderately bullish Leading Indicator is Yields as the are like a magnet for equities…"

So how did both of these fare today on an actual "Bullish" day?

 HY Credit fell today, actually closed in the red, so much for Credit leading and confirming.

And Yields that were up and bullish yesterday, that I said attract the SPX like a magnet until they reach reversion to the mean, well in that green box today the SPX (green) met Yields and reversion to the mean, there's no more magnet set up to pull the market up, interesting that there was one there yesterday for today.

Last night in the Daily Wrap I also talked about the Dow and my Trend Channel and how it tends to work...

"The Dow has already been stopped out by the Trend Channel.

I've found price tends to bounce in the channel after a stop out, but I have always seen it is better to exit on the stop out, sometimes you'll see higher prices in that volatility just after, but you almost need dumb luck to hit them and then there's typically a move down like a 1-day gap that can take out a month or two of longs in one morning."

And the Dow today...

The entire 10/9 cycle is held in the Trend Channel until it stops out at the red arrow, but I write things like the above to help anchor expectations so you know what to expect, what is normal.

So what else was used today? Well overnight there was a regurgitated headline out of Japan about changes to their pension system, this same headline was out in the summer and they never changed a thing, it seems that was used as cover to sell the Yen down so the carry pairs could lift the market.

This is ES in purple vs the USD/JPY today, they are near perfectly in sync, just like HYG, just like VXX and the SPY arbitrage.

However we did see a VERY STRANGE change in the carry trade character this week...EUR/JPY...

Again ES is purple vs EUR/JPY, but at the red arrow the correlation broke 180 degrees, I'm not sure why, but I haven't seen it since that carry pairs were activated over a year ago.

So what non-correlated stuff (non manipulated because it doesn't make a difference to the market) was going on today and recently?

 Again, Sentiment (PRO) wasn't buying this move in the market, this is indicator #1

And Sentiment Indicator #2, neither were buying, just like HYG was being distributed rather than held.

 Since the market already had it's credit, VIX, SPY Arbitrage, Carry trades all lined up, it really didn't need commodities to help it higher and commodities wanted nothing to do with this move.

Commodities (white) vs SPX (green) today.

Interestingly, there was a "Flight to safety" trade today, just not in the usual places, but the Krona, one of the safest currencies money flows to the world over, BUT WHY WOULD MONEY BE FLOWING IN TO A "FLIGHT TO SAFETY" ON SUCH A BIG MARKET DAY?

The Krona pair is CHY/USD, so it's the other way around, when it moves down as we see in candlesticks, the Krona is gaining and the USD is dropping vs the Krona.

Actually money has been flowing there a while, I just though it was interesting it was heading that way today vs ES above in purple.

Just like money has been heading there this year...

 Note money flowing to the safety of the Krona vs ES (purple) since about June.

At the same time, Credit which leads equities has been selling off since about the same time, the move in HYG today is strange given the trend in credit including HYG here.

Today another Hindenburg Omen was sighted... from Bloomberg

The red dashes are previous ones and their effect on the market, usually it is more pronounced, you can read more about in above where I linked to it.

As far as other odds and ends... We had another Dominant Price/Volume Relationship today, it was VERY Dominant and in all of the averages.

The Dominant P/V relationship today was Price Up and Volume Down, this is the  MOST BEARISH OF THE 4 POSSIBLE RELATIONSHIPS. This shows what is called "A market rising in agony"  To show you just how powerful this relationship was today of 4 possible ones in each average...

Dow=26 of 30
NASDAQ 100 = 70 of 100
R2K= 720 of 2000
SPX = 334 of 500

This is a meaningful sign taken with everything else, it's very meaningful. In other words, there was some pre-ordained monkey business going on today, seemingly separate from the NFP, but who knows.

A few bonus charts...

 DIA 2 min

DIA 60 min.

FAS 15 min

FAZ 60 min

GS 30 min

HYG 15 min

IWM 60 min

MCP 60 min

MCP 3 min

PCLN 3 min

PCLN 60 min

QQQ 3 min

TECS 10 min

USO 60 min

UVXY 3 min

UVXY 30 min

XLF 30 min

XLK 15 min

Have a great weekend

Daily Wrap Coming

For those of you off to a normal life and weekend, try to check back in to see the Daily Wrap, I have some really neat charts that are not only educational, but useful for where we are.

For the rest of you glues to your computer like me, I'll have it out ASAP, but I want to be thorough.

Otherwise, everyone have a great weekend.

Trade Idea: Reiterating PCLN SHORT

Still liking this one very much here.

Trade Idea: MCP Long

I'm going to add what I can there, I really like this one, I think we are seeing a stop-run head fake.

Adding to SPXU Long

SPXU is a 3x leveraged short SP-500 ETF. This will bring it up to about 3/4s of a full size position from half.

This is basically used as broad market exposure or market directional.

 Intraday today, a strong leading positive divegrence.

Also intraday 3 min strong leading positive divegrence

The mid term timeframes are there like this 15 min leading positive

And the long term timeframes are there, 30 min leading positive

60 min leading positive and I didn't do a great graphics job, but I'd says that's one heck of a large reversal process.

Trade: VXX, Market Update and Positions

The averages are all going negative, and or the Index futures, the SPY and QQQ are two I'd consider some 2-3x leveraged short ETFs on a trading basis.

I like VXX and UVXY long, may add to VXX calls/

XLK tech (Short) I like, the play there for me would be TECS long, I may add.

XLF (short) or FAZ long looks interesting as well, even JPM (short), but I might prefer the leverage of FAZ.

I'm still liking MCP as well.

I'm still going through my lists, but there are quite a few, these are some of the standouts that I'd look at taking a position in, most I already have opened a position in.

I will be adding to the VXX January $45 Calls.

MCP Update

Yesterday I added to MCP, check out the charts. Today, understandably I'm getting a lot of emails about it, but I think it's fine and if it lifts to $4.87, I'll look at adding some more to it.

The thing about the charts yesterday was not 3C, it looked great and today it has added to the positive divegrence, the thing is price was so linear and flat, stops would be very easy to pick out so a stop-run head fake move would not be surprising. Plus you'll see a few other things.

 Until today, you see how defined support was, that's an obvious target for a stop run and a head fake/stop run is something you see right before a reversal, market makers (specialists in this case) load up on inventory as about half the volume (use to before HFTs) be them trading their own accounts.

 The daily X-over screen, remember what I said about the first pullback to the 10-day, even though we don't have a mature signal yet, we are at the 10-day, if MCP lifts off this a little today I may add to it.

This is an additional positive divegrence today in to the move down so it's being accumulated like a market maker would, check yesterday's charts and imagine this positive on top of those.

Here's a longer 3 min chat, again, even today it's being accumulated so I'm not concerned at all. If I didn't have a position here, I'd be VERY tempted to open one here and now.

Market Update

I may be opening some of those new positions sooner than later. We didn't talk about it, but today is an op-ex Friday (weeklies) and the pin usually holds until about 2 p.m., what price does after that tens to be random, but the 3C signals almost always (as you have seen every week) pick up on Monday right where they left off, so it's time to pay attention.

Since we didn't even get confirmation on the fastest 1 min charts this morning, the market is in a fragile place that can move very quickly because there was no confirmation to unwind, we started from a leading negative position.

A few charts already showing some red flags...

 IWM zoomed in to intraday is showing some leading negative properties and its close to 2 pm

The Q's (as I said, no confirmation, so this leading negative starting can get out of control fast.

QQQ 3 min is already leading negative.

I think with clear intraday resistance like that, it will be broken on the upside, that's where I'd reallt be watching for distribution to pick up.

ES intraday is going negative

As are R2K futures

As we saw earlier, VIX futures are seeing accumulation, but now the signal is 2x as strong

 VXX/UVXY are also seeing accumulation and the signal is leading positive and even stronger.

HYG, a manipulation lever is seeing even stronger intraday distribution

And some of the industry groups like Tech above are not in great position, well it's great if you want to short them or buy TECS long, but the point is, we are likely to see deterioration accelerate after the 2 p.m. pin is lifted.