Last night's Dominant Price/Volume Relationship was not only Dominant, but completely effective as an indicator.
"today's Dominant Price/Volume Relationship was not only dominant among each average, but the same among all averages and fits perfectly with expectations ...This relationship suggests that we have reached a short term oversold event, it's similar to a Morning Doji Star Candlestick on heavy volume (high probability short term bullish reversal)."
Or you might say, something like this chart in both yesterday's candle and today's move.
Today's move didn't seem at all coincidental, while being the best day for the SPX since December 18th, the start of the year performance is still the worst in 9 years. However the more random/coincidental moves have seen wide dispersion between the averages, some closing green and others closing red and often by wide margins. Also the up days recently have had some of the narrowest ranges on record, not today though.
The gains broke down like this (and I added the Dominant Price / Volume Relationship for today if there was one, however it was nothing like yesterday's as that was consistent in relationship and through all the averages).
SPX +.61% (Close Up and Volume Down 206 stocks)
Dow-30 +.63% (No dominant theme)
NDX +.87% (Close Up and Volume Down 55 stocks)
R2K +.87% (No dominant theme)
COMPQX +.94% (No Dominant theme).
As you can see, not only was there no dispersion, but similar indices closed with nearly identical gains. Only two had Dominant P/V themes and that theme is the most bearish of all 4 possibilities, often this creates the opposite of yesterday's relationship and causes a 1-day overbought condition with the next day closing down. However since the theme was not consistent across all of the averages like yesterday, I consider it a warning shot of weakness, but we're not quite there as far as the implications which fits perfectly with our analysis/trend expectations.
Considering the release of the F_O_M_C minutes from the last meeting (the Taper), I don't think any relationship would be valuable any way.
While today had an unique cloudy nature to the charts, it did do what we expected, but some things simply didn't fit, thus while there were some assets that caught my attention, without a clear path for the market, it's just not a high probability trade.
As expected last week when 10-year yields broke above 3%, I said I think Treasuries are going to rally, thus the 3+% yield would fall, we were spot on(due to the 3C charts), but remember what my near term expectations are for TLT and the TBT trade and then take a look at the 3C charts for the 10 and 30 year futures.
Tomorrow has the capacity to cause some incredible volatility in the very F_O_M_C sensitive minutes, so as always, beware of the F_O_M_C / F_E_D knee jerk reaction, it's strong, but often wrong which is another good reason to let the trade come to us as I suggested you consider in the trade idea linked above.
I'm pretty sure most of you understand how VWAP is used in grading the middlemen who fill or execute orders, it's their report card for lack of a better term.
What was interesting wasn't so much ES and its relationship to VWAP today, but the relationship vs the TICK data today.
As for Silver/SLV, it was one of the worst performers today, down -1.5% and that's after it retraced nearly half it's loss. We opened a SLV February put on Friday in anticipation of this move (which is correlated to the market move) and last night said,
" in the near term as they have been trading opposite the market, I chose to open a short term trading options position here with SLV February $20 Puts just Friday...The intraday charts look like this will be a successful trade as the 2 min is clearly negative at this island-type area..."
The position was at a profit right on the open today and well outperformed GLD, although I chose a gold based hedge for the Trading portfolio because it had 3x leverage.
Performance of both PMs vs the SPX...
Our early silver gains were in to the double digits on the trade... However, I explained my expectations for both PMs and therefore left the February put open as well as the DGLD position.
While SLV/Silver retraced a lot of the opening loss today, I feel ok with it as SLV and Silver Futures charts seem to indicate the probability of our expectation for the target is better than 50/50.
Carry trades had just about ZERO effect on the market today and they are not looking good, however in last night's post I had said,
"That being said about the carry pairs, they do look to be in a slightly oversold state so a bounce would not be surprising "
We didn't get so much of a bounce as a kind of consolidation, but the downside did stop bleeding for the moment, this I believe was partly because of the short term pullback/consolidation expected in the Yen, however overall, this really wasn't a factor.
I also said last night and many times recently that we want to pay attention to the carry trades, but...
"This may also be why it seems the carry cross is following the market rather than leading it. There seems to be a much greater correlation to the Yen, go straight to the source as I also said last night as the Yen (at least with 3C) will reflect underlying trade long before it shows up in the carry cross's price action."
As proof of this concept, we can take a simple look at FXY vs the SPY/SPX...
In any case, I think, as mentioned the last several days that the market may actually lead the carry pairs because of the huge leverage and how they can turn in to big losses very quickly at 100:1 leverage (or more in some cases). Therefore, the 3C signals for the Yen become very important and there are some short term positives developing in the Yen again. It's not to the point that I expect an imminent downside market reversal, I think there's still enough room to finish out the bounce of which you know I think is short duration, but I'd say at least two days.
The carry crosses don't have anywhere near the correlation they use to have just a few weeks ago which was nearly identical.
This isn't an observation for observation's sake, this is a serious funding mechanism and way to leverage a fund's AUM, when this starts changing character like it is and we see the positive divergences in the Yen like we did and a few days later get confirmation that BAC covered their USD/JPY, we know things are changing for the worse, the fear may not be palpable in the VIX on any specific day, but it is in the carry crosses, these have the ability to destroy a fund, LIVE BY LEVERAGE, DIE BY LEVERAGE".
Speaking of the VIX, although the market was cloudy in many ways today, I'm not removing hedges (selected longs) until I have good reason, the VIX futures and short term VIX futures could provide that, they have information, but not that screaming signal that would send me moving quickly to realign trading positions.
You know what a VXX divergence that makes us move looks like...
I won't pretend though that the rounding process underway isn't important, that's one of the most important aspects to have in place, the actual divergences as you have seen can fly and be there by noon tomorrow, but as of now, they aren't, the point is, this isn't to say that progress, important progress isn't being made.
As for Leading Indicators...
First, do you recall the SEVERE underperformance in VXX last night that to me, was a clear warning that the market was going to move higher today as we expected? In case you don't...
"Yields are an excellent leading indicator, however what I found was they offer no direction as they are in line with the SPX, they (both assets) have reverted to the mean, this means Yields won't help or drag the SPX lower as they stand, however if thy keep moving lower as they have been and the SPX does bounce, then they would be exerting bearish pressure on the market once it bounces."
The above statement from last night's Daily Wrap is nearly prophetic, but this is just because we had a very good idea of what was going to happen and it did happen, the in line status changed dramatically today as yields are now in a leading negative position, this doesn't mean they won't go deeper negative, in fact they need to, but as the next trend is ready to make its appearance, this Leading Indicator will be ready to help that trend as Yields pull price (SPX) toward them and after nearly a week or more of being in line, they are now negatively dislocated just as was predicted last night.
As far as some of the assets we have calls in or longs in that haven't moved yet, which was disappointing today, I think we'll get the move we are looking for.
AAPL...
MCP... You know what my long term opinion is, you know what I expect to happen before that long term trend can activate, but even before that, we had signals for a quick leveraged options trade (calls)...
I covered UNG/DGAZ earlier today, as I said, because of the price pattern, some choppy noise is likely, but there's a decent set of signals for at least a swing trade.
URRE closed as I hoped it would, no long upper wick, higher volume. While it's difficult to see intraday charts on this one, price action looks good, please review the post on URRE as this is a special trade that I think can be very successful IF managed properly and that starts with understanding what kind of trade it is.
As far as futures tonight, yesterday we had a clear 5 min leading divergence in the Index futures, today what we have is in line for the most part so the "short duration" of the expected trend that started today is seemingly giving us objective evidence that we are right on. The 5 min is not leading negative, but I suspect we'll start to see a small reversal process that accompanies such a divergence, I don't think we are quite there yet, but obviously moving in the right direction.
While there are a lot of charts that are muddy today, I think the SPY is the best example of current and futures (as in next) trends. The market usually doesn't stay opaque for long so I'd expect tomorrow (barring wild card events on the minutes), we'll have a clear window again.
This sets up what I think will be the second trend or the one to follow today's (start of trend 1).
The QQQ and the IWM ( a little muddy in certain areas) agree, so that's some of the better confirmation from today, the problem was more in multiple asset confirmation. For instance, you can see the Q's are very much in line with multiple trend/timeframe divergences.
That's going to do it for tonight unless later there's something significant in the futures.
PLEASE KEEP IN MIND AS ALWAYS, TOMORROW WHEN THE F_O_M_C MINUTES COME OUT FROM THE LAST MEETING, WE ALMOST ALWAYS (90%) GET A KNEE JERK REACTION AND IT'S WRONG ABOUT 80& OF THE TIME.
I SAY THIS BEFORE EVERY F_E_D EVENT TO ANCHOR EXPECTATIONS, SO YOU KNOW WHAT TO EXPECT AND THAT IT'S NOT UNUSUAL, IT'S A PATTERN SO COMMON THAT I WANR ABOUT IT EVERY TIME WE HAVE A F_E_D EVENT.
If we get lucky, we can use such knee jerk moves to our advantage, but those are typically the tough trades to take emotionally, but actually the lowest risk.
Don't forget we have another huge F_E_D event Friday in Non-Farm Payrolls.
I don't have real strong data to suggest this would be the case, but it would be interesting if a knee jerk on the minutes completed the move started today on the upside and the Non-Farm Payrolls reversed it to our next trend, the timing seems about right, the fact knee jerk reactions take about a day or 2 to sort out is also just about perfect timing, but that's 100% speculation.
See you soon.
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