I don't want to get too far ahead of myself, but so far it looks like what we've been expecting and especially recently in looking for a FAIL appears to be taking shape.
If you recall Friday and some slight positive signals developing and us just not wanting to have anything to do with it as a different perspective gave a different view of the market in which I felt like this is an "AAPL Environment", which is to say, divergences get run over and that happens when the herd breaks up, the Wall St. herd and they start going in to survival mode, "Every man for himself" and "He who sells first, sells best".
The longer term indications we've been watching for such as the carry trades are now in play, those red flags are up and last night's initial break has thus far held, changing the USD/JPY trend, in fact I believe Bank of America/ML just released some commentary on the USD/JPY carry having broken its trend. This is why we've been so keen on the carry trades because they are the leverage institutional money uses and they are also a double edged sword. While they are extremely useful in leveraging up their assets under management (AUM), these trades generally run at 100:1 leverage or at minimum 10:1 so once they get to a point in which the trade is losing money, every pip the currency moves against them is like a full 100 pips, so you can see why it becomes a very dangerous situation very quickly.
Here are some of the charts inferring a panic has broken out just as we suspected last week, especially Friday.
However, I'd urge you to stay calm, not to chase things, most of you have positions set up and there will be chances to add more, it's important that you don't get pulled in to this market hysteria and let greed enter the emotional mix. Volatility in both directions will pick up and it's important you be able to look at the market objectively and pick and chose your battles.
This is what I pointed out last night, the May highs in USD/JPY (one of the 3 carry trades and an important one) were taken out last night, I wasn't sure if it was going to hold, but the message had been sent, the trend (UP) just changed.
Remember what I said about the right side of a formation like this and all the examples from late Friday, it tends to fall much faster than it rises, BUT the counter trend rallies in a move on the downside can be monstrous, luckily I think we'll be able to spot them fairly easily and even trade them as they too will produce superior gains in a short period of time.
These are the 3 big drops since Friday, one Sunday and one this morning, but the punchline is the May high is taken out.
EUR/JPY has a different chart structure so a trend change here will take a different form, it will be in lower highs/lower lows, but it appears that Jan. 2 was a pivot.
The pair on a 5 min chart, these are the lower highs/lower lows on a shorter term basis, but this is a start. Don't be surprised to see volatile reactions in the other direction, I think we'll be able to spot them more easily than over the last year, but we'll see as we get to that bridge, if so, then it should be very exciting.
The 30 min Yen chart which was positive off the NY lows and continues to look strong.
The 5 min is a little messy, we could get a short term change here, it's not in yet, but the fall from clean confirmation is there now.
ES reacting
NQ reaction... Note the divergence FAIL, this is what I was , well not afraid of, but what I suspected would be the case at an increased probability and therefore wasn't willing to take the same hedge risks that were taken just a week ago.
VIX futures are a very important timing key, the fact they were so aggressively knocking them down on Friday and pumping HYG seemed to be evidence that there was an attempt to create a bounce, but when you have to resort to all tricks as this market has been doing for nearly every move, you know there's no underlying strength and there's trouble below the surface, that's why it's important to monitor these things and most traders are too busy watching moving averages and Fib levels to even know about these leading assets.
VXX is already in good position, it was the short term flag I was looking for and...
Multiple timeframes are seeing these vertical divergences building in the last few hours.
Whether we get more of a broad base or not (even though it would still be small considering the preceding trend) will tell us a lot about how deep we are in to the panic.
As we saw all day today, the charts just kept getting worse in the averages until we got a FAIL.
IWM 5 min turns really negative after Window dressing as we were noticing at the time (changes in character).
Intraday, the leading negative divegrence is a fail, but we still want to be judicious in positions and continuing analysis, there can be a lot of volatility that will make you doubt what you believe, that's the market's job, that's why patience and objectivity are key right now.
QQQ 1 min total fail of the bounce attempt
QQQ 5 min also fail
SPY 5 min (and other timeframes) just a strong leading negative forming quickly.
Motion here is our friend, both directions, it gives us information, it gives us timing, probabilities and trade opportunities.
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