A.M. Update

I've read in a few places that overnight the USD/JPY tried to stage a rally or "Overnight" ramp and failed. I'm not sure exactly what the USD/JPY was doing, it may have been reacting to an analyst who came out overnight and said the BOJ would buy ETFs if the Nikkei 225 fell under $14000 as early as this month. I have said, "If the USD/JPY breaches the Maginot line of $100, expect the BOJ to step in and try to knock the Yen down".

In any case, if you asked me if I thought an overnight ramp would complete a week long base and head fake move, my answer would have been a resounding no. My main apprehension last night as far as yesterday being a head fake move that will break out to the upside was that the "U" shaped parabolic move of yesterday was a bit too tight and it needed a little more room to widen it our, even for a parabolic move and that would likely come today during regular hours so, No, I would not expect or even want to see an overnight ramp take the market higher, it needs to be done where there's serious accumulation on serious volume, not thin overnight volume.

The Nikkei 225 futures were a big bit of news last night as they lost 400 points, but as of 9:15 this morning they were up 1.80%, while some see rampant and random volatility, I see the same basing / reversal process in the Nikkei 225 futures as the U.S. Index Futures and market. This doesn't mean we are in the clear yet and will get the expected upside move which I expect to be strong, but ultimately a FAIL, we still need to be vigilant and make sure the positive divergences keep building.

This is partly why I said that I think the gap up in the market would be filled as the Russell 2000 and Dow have already done, it's the lateral time that we need, not much, but that's what we need as posted yesterday.

 Nikkei 225 overnight when the doom and gloom crowd came out, -400 points, but give it a minute before judging too quickly. Support was found near $14,000 and as I said, at 9:15 NKD was up +1.80% which is green, something the NKD hasn't seen in a while.

This was also a subject in last night's post, while I think the NKD will bounce too, I think U.S. markets have to lead the move.

Here's a 5 min chart of the NKD, note the clear downtrend and at the yellow arrow a lateral trend, this is not hugely bullish looking at price only, it is however, a change in character and most accumulation is done in to lower or flat prices.

The 5 min NKD 3C chart (see last night's for a wider view, it is leading positive), shows us accumulation on that -400 point drop late last night and a leading positive divegrence in the flat range of the a.m. hours today.

My analysis isn't meant specifically for the Nikkei, it does follow the USD/JPY though and that's ultimately what's going to move the market either way.

This is ES 1 min this morning just before the open, nearly perfectly in line, even with the post I put out saying, "Expect a gap fill", ES has managed to stay in line this morning which is a good start.

 ES 5 min with a couple of neasty negative divegrences, one leading right in to yesterday's plunge, but that doesn't mean yesterday wasn't a head fake move, everything we've seen so far and everything we projected before it happened suggested it would be and is. Right now we have a positive divegrence and lateral movement, this sideways movement would be at the bottom of the "U" shape I showed last night and that's where the price pattern or reversal process needed to be a bot wider as posted in last night's Daily Wrap. This is also why I didn't open more long positions yesterday. 

To be clear, these are long positions that either hedge longer term core shorts or are hitch-hiking trades to make some extra $, they are not a change in attitude or a reflection of my opinion changing to a more bullish one, my opinion is the same, BEARISH, but the reality of the market is it chops around (volatility is especially high just before a major FAIL in the market, it's one of the hallmarks of a market turning from a primary bull to a primary bear trend), there are head fake moves and there are rallies that confuse  market participants, that's what they're suppose to do!

 This is ES 15 min with a positive divegrence at yesterday's lows. When I said we expected a head fake move in my Friday post, "Come Monday", it was a head fake move to the downside, they need to be real, they need to be convincing, just as a bounce to the upside, I wouldn't expect a 1 or 2% move, I'd expect something that will fill my inbox with emails asking, "Are you sure the market is still bearish Brandt, this looks awfully bullish".

 This is the Yen 1 min overnight with a lot of chop, but generally trending lower which is what we need to see for the USD/JPY to make an upside move and take the market with it.

This is the larger 5 min Yen trend which is clearly sitting in a negative divegrence suggesting more downside, again, what we need to establish yesterday as a head fake move and an upside move to follow, that's the point of a head fake move, check out the articles I posted on Friday if you haven't... "Understanding the Head Fake Move".

 Now we have a fairly strong 15 min Yen negative divegrence, this is what I'm looking for on a move like yesterday's in the market to help me verify it's a head fake move. Today's data should seal the deal whether it is or not, but I'm leaning 80% that it is and as such, that opens up some nice positions for quick trades and ultimately opens nice positions for core shorts.

The $USD fell on a negative divegrence causing market weakness, this isn't the legacy correlation with the market, usually it''s the opposite, but this is the Carry correlation and we are still in carry mode.

The recent positive divegrence confirms what we are seeing in the Yen.

This is the $USD/JPY (candlesticks) vs ES (purple), they track each other so USD strength and Yen weakness moves the USD/JPY up and takes the market with it.

This is the USD/JPY (candlesticks) and the Nikkei 225 futures (purple), like we've seen at least 4 times in the last week, the USD/JPY leading the Index tends to see the Index revert to the carry cross.

Gold has been another dent indication of what's going on in the market, I almost opened a GLD put yesterday, I posted it as a trade idea and it would have made money this morning. Gold has been moving opposite the market, look at the correlation this morning.

 Here the 1 min chart of gold futures looks like a little bounce, that would produce a gap fill in the market averages, maybe something a bit more.

Remember, head fake moves are fractal too so we could have one just below yesterday's lows before the "U" shape or perhaps a larger "W" shape head fake move is complete. The real definition of a head fake move can't be understood until the process is complete and you see how it fits in to the bigger picture.

 Gold 5 min is choppy, but largely negative. This is what kept me out of GLD puts yesterday, it wasn't as clean and clear of a signal as I'd prefer. It looked like the market had more lateral chop and that doesn't make for a great directional trade, although it can set a great directional trade up.

This is what I'm really interested in, a 15 min negative in gold futures, when the 1 and 5 min charts are negative like this, that's a clean and clear signal to buy GLD puts and expect a market bounce and a strong one.

I'm not hedging my analysis, you know what I think, my opinion is little changed in more than a week and thus far every bit of it has come true, the timing has been off a few days, but it has come true.

However, if anything changes in the market, I'm not married to my analysis, BUT I WILL LET YOU KNOW AT THE FIRST SIGN OF ANYTHING GOING DIFFERENTLY THAN WHAT I EXPECT.