Since it looks like we'll be dealing with this situation for a bit longer, I thought it would be best to show you what I've been following all morning rather than describe itt as I did in the last post being there are so many moving pieces.
Let me reiterate, from what I see, I believe our market expectations of a bounce are still on track and valid, however we are still very much within the range we expected for this week. There's a chance of a pullback in the market which would likely remain in the range and ultimately should make the bounce we are expecting, even stronger so if that becomes the case, we'll need to hedge more or just out right trade around this "corrective move" because it is not a trend changer, but the larger the base grows, the more it's going to move to the upside unless we have an epic failure which would likely be caused by EM (Emerging Market) trouble as the F_E_D inflated these markets and now that they are tapering QE out of existence, that free F_E_D money that went to the banks and then went in to EM will all be pulled and not only will we see more EM markets fail and fall, we will see their central banks do everything in their power to stabilize their currencies such as the Turkish and South African moves yesterday with interest rate hikes that initially did what they were supposed to and sent their currencies higher until shortly after when it didn't and the currencies fell BELOW the pre-Central Bank intervention so there is a panic of sorts and I wonder if this has anything to do with the liquidity problems we saw in developed markets (at least hints) such as the UK's 2 major banks (4 in all effected) seemingly having liquidity problems and the biggest EM ever, China, definitely having liquidity problems.
For future reference, the trouble in EM will accelerate and possibly cause wider problems like a Ukrainian situation (possible civil war) as these economies are knocked around, but the point is, the natural hedge to EM crisis is the USD/JPY and it sends the pair lower (the pair was fighting off EM problems all night overnight ) so in the big picture, this falls in line with our bearish expectations.
This is why I think we'll be fine (part of the reason), 3 min SPY is looking as it should, leading positive inside the range we expected to develop which means it is likely a base and should hold together, but we do have a gap, it doesn't need to be filled now unless smart money wants to pick up more shares, as it can be filled on the way back down eventually.
This is the problem in regular hours that I had been watching in futures earlier before the open, I wanted to give it some time and see what regular hours had to say.
As you can see, the 1 min chart should have confirmed the gap up with a 3C move to new highs on this chart, it did not, suggesting a pullback or at least a consolidation. However as far as the resolution of the range, the chart above this one is more important unless this negative divergence migrates to longer timeframes and after looking at everything, I doubt it will. However, for now, it presents a delay at minimum.
QQQ 5 min and the expected range in yellow, 3C is leading so I think this is another example showing we will get the bounce we have been preparing for since Monday. However on a shorter term basis...
The Q's did not confirm the gap up either, in fact, even though it's a different average, a different version of 3C, it looks almost exactly the same as the SPY 1 min telling me there is a short term "disturbance" which had been seen earlier in futures this morning.
If we look at the same 1 min QQQ chart in scale you can see it is leading positive for this week's range so even this chart is ok for a bounce, it's just the very short term as in the gap up this morning that is causing some problems or delays.
I have said the IWM and QQQ look the best of the 4 averages and the IWM 5 min chart looks great in our range as it leads positive.
In fact the 1 min chart that we are having trouble with on the SPY and QQQ charts looks perfect here as it has moved in confirmation with price.
In my view this is just more proof of the stronger relative performance of the IWM among the major averages.
This is where the trouble started pre-market, in the Futures...
ES 1 min looks great to the left as it accumulates overnight, exactly what I expected in last night's "Daily Wrap",
however as this morning approached you can see the switch with 3C below price which normally doesn't matter and is an effect of zoom, but when it is above and below on the same chart, that's not a scaling/zoom problem, that's a relative performance problem.
NQ futures 1 min accumulated overnight as they should have and so far in early trade they are one of the few that are perfectly in line (at least as of this capture), so there's not a huge problem here.
ES 5 min shows the negative divegrence that kept prices from exiting the range too early yesterday, which was fine, but since , as we should be more positive coming off the lows, at best we are in line which isn't bad, but it could be stronger.
This, like the longer charts in the averages, is why I think this won't be a problem for too long, just a delay. The 15 min ES chart is strong and leading positive, this is where the highest probabilities of the 3 ES charts resides.
Beyond that, having a 60 min leading positive is almost indisputable proof that we will get the upside correction/bounce we expect.
Currencies and the part they play...
The 5 min USD/JPY is going what it should as far as price, you can see since 4:30 yesterday the $USD/JPY has moved higher out of yesterday's regular hours lateral consolidation (yellow box), however 3C is dragging a bit which fits the short term charts of most Index futures and market averages today.
The 5 min chart of the carry cross looks great up until the move up and 3C not confirming it.
So far, as shown last night, the Yen has moved down as expected, the 1 min chart presents no problem as it is perfectly in line on the reversal to the downside after yesterday's move
The 5 min Yen shows yesterday's regular hours range in the second yellow box and the 3C negative divegrence seen last night so once again this looks good for the USD/JPY to make higher highs and carry the market with it.
As far as probabilities, the 15 min Yen chart is clearly negative so the probabilities of a rising USD/JPY as we have predicted and a rising market out of this week's range are very high.
The white arrow is Tuesday night's divergence, you can see it in my Tuesday night post, predicting a pullback in both USD/JPY and the market which we saw, since then it has done what was expected.
This chart's behavior is not inconsistent with expectations since Friday/Sunday, in fact it's exactly consistent so again the probabilities remain with our analysis.
However, there are two currencies in USD/JPY and we need the $USD to rise. Like the short term market futures and market averages, we have a negative divegrence in the $USD which can and will effect (has effected) the carry cross and thereby the market.
Again this is a 1 min chart only so keep it in perspective.
The 5 min $USD shows yesterday's lateral range during regular market hours as seen yesterday and the expected positive divergence sending the $USD out of the range and to the upside starting around 4:30 yesterday. This chart is close to in line.
And again the longer term (highest probabilities) 30 min $USD shows a leading positive divegrence so even though this morning's short term charts are a bit problematic, they are no where near the probabilities seen on every chart that matters, all suggesting we still get the bounce higher that we expect out of this range.
For strategic positions it likely makes little difference, for tactical purposes, it makes a difference, fo instance I took gains out of GLD puts because of this. We may be able to enter some new long positions (TRADING ONLY) and we may have to as a hedge if you decide to hold shorts (Trading positions)
.
So this will have an effect on what we do, but only in the tactical sense, it shouldn't change any of our strategic goals.
I hope this makes sense. As far as what it may signify, as I said earlier, at best a delay, and again probably at best a pullback inside the range which makes the range / base more powerful and allows us to pick up trading positions at better prices with less risk, so it's a win win as far as I can tell, just not the move we are expecting as soon as we were expecting it.
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