Daily Wrap

I'm not going to keep you long tonight, when I have interesting, useful or information that can be added to your tool box I try to share as much as I can.

I'll be honest, since Window Dressing ended in late December and ESPECIALLY since the start of the new year, character in the market has changed and continues to do so at a faster rate, but I'm not exactly sure what it is except a few things I suspect 1) the Carry Trades are becoming an issue and 2) when there's this kind of dispersion and we have seen it in many ways, from as simple as price performance for the average on a closing basis to yesterday and today's very strange market in which there seems to be no correlations, as I posted near the close, a market that seems like every fund manager is going in their own direction and not because of opportunities, it seems more out of panic because it is highly irregular for the herding mentality of Wall St. to break up, that's typically only seen when a fund feels threatened and is in survival mode doing whatever it is they think they need to do to get in to a safer position.

It's noteworthy that EU countries, PIIGS that weren't expected to be able to go to market for years to offer bonds are not only doing it, they are seeing over-subscriptions to their issues, Ireland yesterday, Portugal offering debt today, Greece's PM says they're preparing to offer which is just surreal. US bonds are catching a bid as well, I really can't think of a reason why except a flight to safety. After yesterday's minutes in which the F_E_D all but said the bang for the buck in QE just isn't there and they are now in real fear for their own capital losses, I think some attitudes on Wall St. that were already looking at QE tapering as policy tightening rather than simply ending a program like QE1/2 Twist and Twist light have probably hardened even more since the minutes.

I'm exceptionally interested in the reaction to tomorrow's NFP released at 8:30.

THE MARKET IS STILL AT THE WORST JANUARY / NEW YEAR OPEN IN 9 YEARS.

In a ton of assets and quite a few 3C signals, there's been barely any movement, for instance, the SPX...

With another paltry gain of only +0.03% today, it's also interesting to note that the "short duration bounce" that we first saw signals from late last week and expected to see a weak open on Monday (which we did) with that small bounce into the afternoon (which actually came 3 hours after expectations on the open Tuesday) did take place as the charts were clear about, but since then, the SPX has moved exactly 0.01% from Tuesday's close.

The NDX which closed today down -.42% (there's that dispersion again) has moved -.14% since Tuesday's close to today's. The R2K which was up +0.07% today has seen a move of a mere +0.05% since Tuesday's close and the Dow which was down -.10% today is the only one with any movement from Tuesday's close at -0.51% as of today.

Other assets have been in a range for 2-3 days like HYG or VXX, sentiment indicators, although the 20+ year bond ETF, TLT did show noticeable outperformance today as the market lost ground, almost as if there was a direct flow out of stocks and in to bonds. The NYSE TICK Index has shown 3 distinctly different changes in character over the same number of days.

Standing back and looking at this, I'm reminded that what we have is a tight range and what generally happens in tight ranges? So I looked around a little and came up with some interesting ES/SPX futures charts.

 This 15 min ES chart (as the 5 min charts are negative) is marked, at "A" we saw the indications of a short duration bounce on Friday, it was expected to develop late Monday because Friday's closing 3C action was negative. Instead Monday "B" stayed negative all day, not just the first half of the day and our move appeared on Tuesday at "C". However, look at the 3C readings, we can see the positive divegrence late last week which gave the expectation for a short duration move (short duration because the divergence was short in duration), the lows of "B" were positive and the next morning we are up "C". 

I always say, "If the 3C picture isn't clear, go out to longer timeframes" actually I'd say that with any indicator. So doing that what do we see in to today's ECB highs? Distribution and they look like a head fake move whether intentional or not. The Draghi press conference put a quick end to that Euro move which lifted the carry pairs (EUR/JPY especially).

So looking at the above chart, we have a cycle represented in 3C and pretty much in price: 1) accumulation 2) Mark-up 3) Distribution/Top and of course we were looking for a decline after the short duration bounce, which is why the trading portfolio is leaning short with hedges removed.

By the way, the performance there is +22.5% which is just over a month.

I had mentioned that a 60 min divergence (negative or positive) is rare on Index Futures, but we have had a negative divergence in Index futures and still do (longer than can be seen on this chart). What I find interesting is the state of the divergence and how it gets worse right as Window Dressing ends which I believe was the 27th of December.

ES went through a little trouble again today for the 3rd day in a row to end the day at VWAP, I'm not saying anything more than that, it's a bit strange that it's seemingly so important to end the day at VWAP, yet gains are essentially ZERO.

The one asset that has been very important to me to keep an eye on as it helps to determine when to take action and what kind of action (you have to understand how little information there has been here) is one of the first to really start establishing some kind of trend, it seems to be a bid for protection, but there's no gains in the market to protect as January is still red on the year.

Short term VIX futures

 1 min

3 min was just reaching toward a new high in to the close

10 min which saw a large 1 day move this week

The overall 15 min.

This is confirmed in the actual VIX futures as well, which were diverging quite positively in to the close.

There was no real or insightful Dominant Price/Volume Relationship today among all the averages, the Dow and NASDAQ 100 both had Close Down/Volume Down which is the most meaningless of the 4 relationships, but is the thematic relationship in a bear market. The R2K and SPX had no dominant relationship at all.

That's really about all I have for you as of now except futures are a little interesting. I would never pay much attention to 1 min charts at this time of day with a long overnight session (you saw what can happen today with the ECB's policy statement followed by Draghi's press conference...

EUR/JPY at the 4 a.m. (EDT) ECB policy statement and the 8:30 a.m. Draghi press conference. Interestingly ES followed the Euro up right on cue, but waited until regular hours opened for the decline seen here at 8:30 a.m., but in ES at 10 a.m. (just enough time to run overnight and pre-market limit orders).

In any case, it may be nothing, but with the 5 min and as you saw the 15 min and 60 min charts already negative, this would normally be the timing flag we'd look for in that chart/timeframe configuration for a move to start so in that spirit...

 ES intraday 1 min (this is the deepest divergence I can find on the chart for as long as it will let me scroll back, about 2.3 days)

NQ, the exact same including scrolling back.

Remember that QE and rate hikes are now tied to the unemployment rate which is why I found it so interesting that the first QE taper was right as Employment data starts its seasonal adjustment which always ramps it for the first quarter.

For example...

 Over a 10-year period, the averaged Non Farm Payroll data with a seasonal adjustment applied looks like this, heavily ramped in Q1 and especially January and then fades in to April as the adjustment period passes.

Since Extended Unemployment benefits were not part of the most recent budget deal, they are over and that means everyone who falls off the unemployment benefits  cliff which is now significantly shorter, is no longer counted as part of the labor force which means the unemployment rate will drop even if there's an increase in unemployment because fewer unemployed people are counter.  This will likely have little to no effect for the January NFP, but come February, I believe well over a million people will just disappear from the labor force, lowering the unemployment rate significantly based on nothing but accounting gimmicks.

This is why I thought it was so interesting that the F_O_M_C decided to start the taper when they did when it is seemingly so obvious they want to extract them,selves from accommodative policy, even admitting for the first time I've ever heard that "Capital Losses" for the F_E_D are now part of the equation.

As usual, if anything of significance occurs in futures, I'll let you know.