Market Update

I've never tried to pass myself off as a market guru, although people love it and they'll buy it everytime no matter what their performance is and the reason for this is very simple, in a very unsure and often illogical market, epople love to hear certainty and to be a market guru means nothing more than saying everything with conviction, certainty and if it doesn't work out, people are very forgiving because what they really crave is someone giving them a sense of certainty in about the least certain environment you can imagine.

I'm honest with you, if I don't know the answer I'll tell you I don't know, but be darn sure I'm doing my best to find out. This has a lot to do with the kind of people a site like this attracts, those who can tolerate underrtainty and think forthemselves vs those who can't tolerate it and want to be told what to do every step of the way which serves no useful purpose either during the trade or when people move on, at least here I think you can take something away with you that you can apply, whether concepts or the bravery to think for yourself.

That being said, last night I said that there's this ineffable character to the market, I can't show you on a few simple charts because it's much wider than that, but it's a change of character since the new year and one I don't understand, but suspect it may have to do with carry trades. Even though most of us don't trade currency, it's an important part of understanding the market.

Earlier today I put out another piece on the Yen and why I think it's so important to watch.

As for the market, there's a very strange disconnect that changes nearly daily, take the NYSE TICK data, Tuesday it was as thin as could be on the move up we were expecting, yesterday it was wide and wild on an otherwise flat day and today it seems to be working as it normally would. I'm not seeing the normal migration that I'm use to, in fact I'm not even seeing the kind of confirmation I'm use to.

Even Leading Indicators are all over the place. The net effect seems to be a market pinned in a range the last 3 days, but I think the reality is something much deeper  and to be honest, by best "GUESS" at this point is it's carry trade related.

The reason why is because the market usually has excellent confirmation and excellent correlation, meaning funds on Wall St. herd much like retail does, but when a panic sets in, it's every man/woman for themselves, everything else goes out the window in a chaotic way. I've seen it a few times, AAPL was the most recent memory when it fell from all time highs.

I can't be sure and seeing market internals after the close when they update will help I think.

For now though here are some charts...

 ES intraday has been following 3C signals, so has NQ, TF has been a little more off on its own.

Here's the SPY intraday, but the migration I expect to see has not been there in ANY asset the last 2-days, instead as you'll see in VXX below, there has been these strange trends of an intraday and maybe an intermediate chart.

Migration of a divergence is an orderly process, it's a planned cycle, a 10 or 15 min chart showing a divergence almost out of nowhere is heavy underlying activity that is not part of that process, it's more chaotic, but in those timeframes, they are large underlying movements.

 QQQ intraday

IWM intraday-again this is not as bad off just like TF.

 DIA intraday

Now I'd use GLD as ONE of my confirmation assets, but...

Gold's confirmation isn't there.

Here's another intraday chart, it isn't there, but at 5 mins...

Perfectly in line.

This however is where you can get the best feel of the overall character I'm talking about (which is difficult to define because it's so different between assets that are normally highly correlated).

 VXX intraday is ONE of the assets I've been watching for confirmation so I know what is likely in the near and intermediate term. This was not moving much yesterday, but suddenly today comes alive.

What was moving though...

The 10 and 15 min charts. This is highly unusual, yet suggests large trades have been going through at the time for protection.

The only thing I have suspected would be a problem and we have seen an actual transition are the carry trades themselves which we can't underestimate their ability to wreck a market very quickly when dealing with leverage on that level.

This is the USD/JPY and ES in purple, again it seems that ES is leading the carry, maybe because it's following the more leading Yen, maybe because the assets have to be sold before the carry can be covered, I'm not sure, but so fart this to me is the most probable culprit.

I'm not assigning responsibility to the carry situation, but as I said, it's the most sensible thing at the moment.

I'm still looking hard, I'm still leaning bearish in all positions as I want to be in line with the highest probability underlying action, especially when there's any uncertainty.

Something is very different since Jan started. I personally think the wisest course is to be careful, to reduce risk or any new positioning and be patient, look for anything that seems to fit. I ALWAYS expected that the market's character would change when QE is taken away and the market has to justify these prices based on fundamentals and not fundamental flows and I have always thought, "Whoever figures out how to trade this market first, is going to do very well".

I'm not sure if that is what we are looking at, but there's something much different and this is more than just the occasional couple of days of market opacity.