Daily Wrap

We didn't see the high volatility I expect, but we did see increasing volatility today vs. Friday with much of that coming on last night's futures open which carried over to today, keeping the concept of the end of day 3C signals picking up where they left off on the next trading day, even over a weekend as the signals were negative as posted Friday afternoon.


The market in most cases couldn't even manage to close above Friday's lows and the SPX was unable to hold on to a green YTD close with the SPX closing down -0.75% compared to Friday's +0.28%, the Dow down -0.95% which is 3x Friday's +.30% green close, the NDX -0.78% vs Friday's -.10% and the R2K down 0.58% vs Friday's -0.41%.

You saw what I saw today as I brought you all the events intraday as they occurred, one thing I did notice was the late day 3C negative 1 min divergences did fall right around the level of resistance from Friday's lows, for instance...

 Note the SPY's resistance from Friday's lows and where the SPY just broke above that level in the afternoon, that's the same time the intraday 1 min went negative...

Here's the SPY 1 min intraday going negative as I posted this afternoon. I mentioned two possibilities, one that the divergence was going to become a larger one with the 1 min sending it toward its lows to accumulate, the second possibility that the divergence that was being built most of the day but fairly weak in most averages was being run over. This introduces a third possibility, the divergences were used to hold the market in place, to stave off further decline or downside, but just didn't have the buying needed to cross resistance at Friday's lows and as such we saw distribution at the resistance level.

I'm afraid we won't know the answer until we get more data, but these are short term day to day moves which I warned about becoming too caught up in, what really matters is the gravitational pull on prices represented by the strongest divergences and the highest probabilities such as...

60 min SPY is where the probabilities or the magnetic pull is, down.

As far as leading indicators...

 High Yield Corp Credit which is a lever used to ramp the market has been seeing weakness over the last week, we see it failing to keep up with the SPX (green) today on an intraday basis.

 The 2 min chart shows there was some apparent accumulation along the same timeframes as the market averages, 2 min in HYG so we'll see if that continues, but the larger trend in which HYG has supported the market through the February rally is deteriorating badly.

The 10 min trend from accumulation to in line to distribution, this is why I can't see HYG being of much help other than on a very limited basis.

FCT is our professional sentiment indicator and it is clearly leading to the downside, this is not retail, but pros vs the SPX in green.

 Again the flight to safety in Bonds has sent Yields lower , one of my favorite Leading Indicators as they have called nearly every major reversal, this is leading negative as yields tend to pull prices toward them.

The bigger picture looks like this...

Yields in line at green arrows and leading the market just before the first downdraft and a significant dislocation now in the short squeeze area, this is one of the largest dislocations in Yields since we started using the LI layout.

 I inverted SPX prices (green) intraday so the VXX correlation could be seen, VIX outperformed the SPX today as you can see.

 We have a short term slight negative divegrence in VXX 5 min in the red box, however (and this is part of the reason I chose UVXY equity long over VXX calls)...

The longer term divergence on a 15 min chart is leading positive, why would they be collecting a large position of protection during such a strong rally the last several weeks if they didn't know something, the UVXY long position allows me to ride that trend out without worrying about options time decay.

 As you can see Spot VIX was bid today for protection as well as it gapped over recent resistance.

The long term TLT (20+ year Treasuries) vs. inverted SPX prices (green) on a 30 min chart also show a long pattern of accumulation of a flight to safety asset while the market was rallying in February.

Very short term the 1 min TLT has a negative divegrence in it much like the market averages we saw today (the two trade opposite of each other), however...

 The longer term TLT chart is in line on a strong trend of accumulation in the Flight to Safety trade, this WHILE the market was rallying, again, it seems very clear someone knew something just as we suspected before the move even began.

 5 min 30 year treasury futures are in line on the 5 min chart, I'd like to see them pullback to enter a long term primary bull position, but I want to do it on a pullback if it is still possible.

 Today we see USD/JPY being held back at resistance around $101.50, well below the former support last week of $102.

And the USD/JPY is acting as the leading asset for ES futures as seen in purple, they are nearly tick for tick trading with the carry pair.

I'll check futures indications later tonight and see what we have, there are clear changes again in character which leads to changes in trends. I do expect volatility to pick up, but that knife cuts both ways.

The Dominant Price/Volume Relationship among the major averages today was Close Down/Volume Down which is strange considering the higher volume day all around, but it was dominant, for example, 20 of the Dow 30, 70 of the NASDAQ 100, 819 of the R2K and 350 of the S&P-500.

This relationship has the least influence, almost none, but it is interesting given the overall higher volume today. This is the hallmark relationship of a bear market, but otherwise it rarely has a next day implication like some of the others do.