Yesterday we started a reversal process for a BOUNE, nothing more. My main reasoning is the same reason I said a couple of weeks ago (thereabouts) that we are already on the right side of the hill, specifically I think I said something like, "Don't expect Wall St. to send up a flare and let you know the market has turned", but the evidence of what they are doing and the panic they are in can be found in the carry trades, this is why we have been watching them so intently and more so the Yen.
TODAY BAC'S TOP TECHNICAL ANALYST SAYS THEY ARE NO LONGER BULLISH ON THE MARKET, GUESS WHY? Because he's looking at ES doing its thing and then the carry trades (USD/JPY) doing there's and it doesn't match, the carry trades are saying something very bearish as the market churns along and hands off shares (short even) to the greater fool.
I'm just trying to determine what's happening right now, I've been pretty steadfast on what I think is coming and I think is already here.
Yesterday's divergences weren't run over so much as price just declined on what is really bad news. Our knee jerk pop higher earlier in the week on PBoC liquidity injection (Tuesday) of $255 bn sent retail in a knee jerk tizzy, but recall I said the more important question the pros are going to be looking at after this knee jerk is "Why?". We know that China has some major trusts close to default (as soon as next week), today the market was slammed on additional credit default warnings in the mining sector.
Still when a divergence gets run over, it disappears, that's not the case for the SPY, the Q's don't look as good, but they've managed to hold a ,lot of yesterday's work, the IWM was slammed, but it's starting to put itself back together (thus the closing of the IWM puts).
HYG is done as we know it as an arbitrage lever, it may still play a role, but not like it had. This afternoon it is in line with the SPX in a bit of a reversal/rounding process and there are some intraday positive divergences forming, I would NOT go long HYG like I chose to with BIDU, by the way, both the $155 and $160 calls in BIDU were finally filled and both are up +11 and +6% respectively already.
Remember the CRAZY IVAN head fake moves I suspected...
NOW 4 brings us under SPX $1806, this is BAC's technical break that turned them from bullish to neutral, but this is all just for your consumption, these guys plan 6 months and in some case as I have showed you, 3 years or more out.
The SPX futures already broke $1800. The mistake here is to expect that the market moves in a straight line, it doesn't so a bounce makes sense, it's just been difficult this morning to see the same signals that developed yesterday as ES, TF and NQ are all NEGATIVE intraday, on a 5 min chart ES has a small positive divegrence, NQ has a VERY slight positive and TF is negative or inline, this is exactly the same as their counterparts with SPY looking the best holding much of yesterday's divergences meaning they weren't run over, QQQ is second best or second worst and IWM is the worst, just as the futures are showing.
To me the rounding in HYG and recent positives, although small are a bounce indication. Sentiment intraday was negative and then spiked toward positive, not a lot, but enough to be meaningful short term.
VXX as mentioned earlier with intraday (ONLY) negative divergences is also underperforming its correlation.
Yields aren't pressuring either way as the SPX and Yields have reverted to the mean. HY credit was holding up better than expected until noon, then they just broke ranks and sold.
Perhaps the most important is the driver of all of this, the carry trades and the USD/JPY has been relatively flat from an overnight downtrend so that's a change in character or improvement, this isn't because of the Yen which is still positive and confirming, it's because of some $USD strength, but that doesn't look great intraday.
THE USD/JPY HAS A CLEAR, CONFIRMED DOWNTREND, LOWER LOWS/LOWER HIGHS, I SHOWED YOU THIS MORNING.
THE SPX DOES NOT, THIS IS WHAT THE BAC ANALYST FOUND TROUBLING FOR THE MARKET, THE CARRY TRADES ARE OUR WINDOW (OTHER THAN 3C) IN TO WHAT SMART MONEY IS DOING AND THEY ARE RUNNING FOR THE HILLS.
Still short term is what I'm looking at, there are some long trades I like such as MCP, but specifically for a bounce BIDU as you know, however I'm looking to short price strength in BIDU so the long there is just hitch hiking for some extra $.
My general plan is going to be to leave most short positions in place except where there were gains and time sensitive issues like the IWM Feb. puts, otherwise I'm sticking with the most probable underlying trend. As for longs, I DO NOT WANT TO GO LONG ANYTHING HIGHLY CORRELATED TO THE MARKET. So in essence, it's a stock pickers game on the long side for a short term retracement and it's a patience deal and waiting for opportunities on the short side.
I want to say the indications (especially VIX futures) are still short term on the side of a bounce, but when we get on the right side of the mountain and are coming down, the slopes are slippery and all it takes is something like the overnight Chinese banking regulators warning on credit defaults in mining, although the trusts and shadow banking system are the real problems.
THIS IS WHY I SAY THAT PRICE IS ABOVE ALL, DECEIVING. THE RALLY TUESDAY ON A $255BN CNY INJECTION FROM THE PBOC WAS FOOLISH TO CHASE, WHY TRADERS DON'T STOP AND THINK, "WHY?", I THINK THE ANSWER IS BECAUSE THEY HAD NO IDEA TO START WITH THAT THERE WERE LIQUIDITY PROBLEMS IN CHINA.
OK, I'm going to keep checking and seeing where there are some opportunities, typically this is where we find them, they are just in the wrong direction for the most part (trading against probabilities).
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