What I have found in years of doing nothing but watching the market is there are certain times that correspond with certain events and you get a fleeting glimpse of something really important that you'd otherwise miss if you were to just come home at the end of the day and look the charts over, this happened on September 13th, 2012 at 2:24 p.m. during a Bernanke press conference after the F_O_M_C had started QE3 at a 12:15 announcement. Bernanke had been giving a press conference after that I was watching and for the first time ever (as far as I know), Bernanke had answered a question at that exact moment that had to do with asset purchases and inflation and it was the first time he made clear that this program was "conditional" which the market DID NOT like, the market topped for the day after a strong knee jerk reaction up at that very moment and that was it for the market upside for QE3, the highs were not passed until January of 2013 and the market had drifted down some -8% even though QE3 which it had been salivating for had just been announced, it was what Bernanke said at that very minute that changed the market's outlook and perception and that was the first time we started considering that the F_E_D was looking for a way out of accommodative policy.
In any case, today was easy to fall in to a sense of complacency, the expected or normal follow through from Tuesday's market action has been notably absent. Today was one of if not the smallest range day of 2014 and one of the lowest volume days of 2014, far from follow through buying confirmation.
The Dow's -0.19% day created a Harami (bearish candlestick) reversal, the NDX's +0.20% created a bearish star and the R2K's -0.19% created a bearish Harami or what we call an "inside day" in the west, the Japanese call it "Mother with baby".
As mentioned, it was also one of the lowest volume days of 2014. I'm not sure if "worry " is the right word, but I am concerned for Technical traders who came in to the market after 2008/2009 as they have missed and never learned the importance of certain principles that I will make sure I share with you to the best of my knowledge like "Price/Volume Analysis" which was already taking a back seat to new fancy indicators before 2008, however as I use to say (it still might be true if the market were devoid of the F_E_D's accommodative policy) that if I had only two indicators to chose from they'd be price and volume, you can learn a lot about the market when the F_E_D isn't [propping things up with QE or the Bernanke put which is ending and as it does, I'm noticing volume playing a more crucial role.
For example, take a look at the bull market from 2002/2003 to 2007 and look at volume for the SPX, it should advance with price, then look at the market since 2009, it didn't matter what volume did as long as Bernanke was a back stop, but that's changing ad as I said, I'll pass on everything I know so you can take advantage of this very telling set of indicators.
As you know, I track the Dominant Price/Volume Relationship for all of the major averages every day, this doesn't mean the volume for the average itself, but the dominant relationship of the 4 possibilities in each of the averages' component stocks.
For example, today there was a Dominant P/V relationship among all the majors and it was Close Down/Volume Down which is not surprising, but of the 4 relationships this is the one with the least bias, actually no bias, but during a bear market it is the defining relationship most often seen. Today the Dow had 14 stocks in the category, the SPX had 210, the NDX-100 had 54 and the Russell 2000 had 1332. Although this has no next day implications, it does show us just how dead the market was today, at least it seemed that way looking in from the outside at price and volume alone.
As far as Leading Indicators, most of what I showed you earlier today is still in place as of the close, with the exception of a few key indications. One key change today was in our shorter term professional sentiment indicator, it went quite negative today to join our longer term (intraday vs a week or so) version. There were several other indications such as High Yield Corporate Credit, HYG which is used as a market manipulating lever, it fell off badly and I showed the 3C charts as I have done the last week or so showing they are abandoning the position as they don't want to get caught without a chair when the music stops.
Here's what is different and why it matters....
The SPX needed a pump in to the close to get that 1 cent and close green, usually HYG (credit) would fool the algos in to buying and doing the lifting, today, not so.
(All indicators are compared to the SPX in green unless otherwise noted)
As te Wall Street maxim goes, "Credit leads and stocks follow" because the credit markets are much better informed, much more professional markets than equities so this was an important move in what seemed like an otherwise boring day.
Oil as we talked about today in the SCO posts saw its biggest 2-day drop of 2014, like I said earlier, I'm a bit concerned about some of the short term charts, but the intermediate picture is so juicy, I just don't have the objective evidence to warrant closing the position. Today SCO moved up +4.31% for us and over the last 2-days, +6.86% and I don't think this is even close to a breakout or counter trend run to the upside!
As you know I am very interested in getting a Financial Put in place, but the trade has to come to us otherwise there's always another bus, Financials were the best performing of the 10 S&P sectors today, up +1.05%, I don't know that we'll have that same rotation tomorrow, but we're only about 4 cents away from an acceptable position, the higher it moves in one leg, the better as long as there's distribution which I'm nearly sure there would be, however as I said, that sector is likely to rotate out tomorrow.
However what may be more important for Financial shorts like FAZ is the fact that it was allowed some lateral time today which it desperately needed to form a reversal process. I talk a lot about the reversal process, it's not some abstract , made up concept. Imagine we are like jet skis, we can fill a 100 lot order and not move the market or worry about our order having any major slippage, but imagine you are an institutional firm that's more akin to an oil tanker than a jet ski, you are trading positions that may be the equivalent of the day's entire volume, you can't just pull in and out of positions like that without either driving price against your position or attracting institutional Iceberg hunting algos that front run your order and make you pay up and miss a good entry. As Cramer once said, "Never do anything remotely honest on Wall Street" and these firms don't, they break up the orders (that's why the HFT's are looking for "Icebergs" because only a small portion of the order is visible like an iceberg, the bulk is below the surface and out of sight) and route them through different facilities to hide what they are doing, BUT IT TAKES SOME TIME, THAT'S WHY THERE'S A PROCESS.
As far as FAZ's reversal process, I talked to a member earlier today and had said, "Imagine FAZ just taking off to the upside from here, you've seen enough charts that you know the market doesn't look like that", this is what FAZ looked like at the time on a 30 min chart...
However by the end of the day, that sideways motion we needed was probably enough, remember this is a 30 min chart as well.
Now (by the close) FAZ HASD A REVERSAL PROCESS IN PLACE, it may not be the end all of the process, but it's a lot more likely to make a move now than it was this morning.
However as far as the broad market remembering that the positive divergences of Monday only reached 2 and 3 minute charts except for the SPY where it reached 5 mins, might have been the move or migration of the divegrence intraday to 10 min charts, for example the SPY which had been the most stable 3C chart and the QQQ.
I placed a red arrow at Tuesday's 4 p.m. close so you can see just how much the divergence migrated along a 10 min chart intraday, again far more distribution than accumulation.
Once again (remembering that all in all the SPX futures are still about 70-80 points richer than their USD/JPY correlation), the USD/JPY v ES correlation was in effect again today even though it looks sloppy due to such a tight range, which makes me wonder what the market will look like when it reverts back to the natural correlation that was disrupted during the February short squeeze.
What's also interesting assuming that Wall St. was clued in as to what Putin would say Tuesday morning, is the fact the ES 5 and 15 min charts are so ugly now, they wouldn't go negative right away if a positive divegrence was being put together on Monday and not right away Tuesday, there's no point in selling in to a gain that's not there yet, but now...
I think the biggest changes in character today other than a flat market with no follow through on exceptionally low volume would be the pro sentiment short term going negative, HYG going in to an unrecoverable negative and High Yield Credit going negative, these are firsts for the last several weeks and are definitely denoting changes in character that we find very useful, that's why they are among out Leading Indicators.
I'll be keeping an eye on the Yen and $USD divergences as well that are now fairly well formed and mature being that Index futures are tied so closely to the carry trades.
As far as MACRO DATA... as I mentioned last night, 2014 has seen the worst start to the year according to the Macro economic data surprise index that it has seen since the start of 2008.
Today didn't help the cause, the noisey and otherwise unimpressive ADP jobs data which I usually ignore came in at a significant miss, however considering this Friday's Non-Farm Payrolls and considering this morning's Non-Manufacturing ISM data, it may mean something.
Services ISM came in at 51.6, a miss to consensus of 53.5, but the real trouble was in the employment index component, that came in at 47.5 (under 50 is contraction) on consensus of 56.4! This was the biggest drop from month to month SINCE LEHMAN BROTHERS! Also the lowest reading since 2010.
THIS DOES NOT BODE WELL FOR FRIDAY'S NFP.
Goldman Sachs cut their NFP forecast today based on the ISM employment data from 145k to 125k, that's pretty pathetic.
Early today I said it was quiet overnight in the Ukraine and it was, however today a bevy of headlines hit and some may have some staggering repercussions. First the Ukraine notified Gaszprom, the Russian state controlled energy giant that they would not be able to pay for February's bill, they paid $10 million of an outstanding $1.529 BILLION in debt, this means their discount that puts their effective price for natural gas at $268 per 1000 cubic feet will be revoked come April 1 and they will pay the non-discounted price of $400 per 1000 cubic feet, see how long it takes the new government to go belly up with energy costs nearly doubling.
By April 1 they'll also have another $440 million in debt to the Russian state controlled energy giant bringing their debt to just about $2bn , I don't think their $10 million dollar payment plan is going to cut it.
The E Commission announced $15 billion in aide over the next two years that will be available for the Ukraine, what they didn't say was that number 1 they don't have the money, number two each EU country will have to ratify the bailout and #3 it is largely contingent on the IMF for most of the backing which you might as well say, the US as that is the reality.
However, Russia's Medvedev said they have an immediate $2-$3 billion rescue package for the Ukraine to pay their debt IMMEDIATELY... Remember when I mentioned the Mississippi land grab earlier today, well I think the Ukraine beholden to Russia for a bailout like that will achieve what Russia wants without a shot fired, to bring the Ukraine squarely back under the influence of Russia and out of NATO's prying hands, the Ukrainians might not like it much, but they'll like it a whole lot more than having no heating oil.
In addition the Russian Upper House put forth a proposal to seize EU and American company assets and property if sanctions are enacted, while Russian constitutional lawyers study whether this is legal, they were sure to remind everyone that the EU did the same thing to Russians in Cyprus, did I not say at some point this was going to come back to bite the EU in the butt?
There were a few other events like ethnic Russians overtaking a central bank, but one of the more interesting was a rumor spread by the Ukrainian Foreign Ministry that UN ambassador Robert Serry was kidnapped, however not too long after a companion tweeted they were together in a coffee shop but the door was blocked by armed local militia. In any case he wasn't kidnapped, but threatened and shortly after the UN ambassador went straight to the airport and said he was canceling his mission to the Crimea, hmm... wonder what they told him?
However, by far the most interesting development was a telephone call between the EU's Foreign Affairs Chief, Catherine Ashton and the Estonian Foreign Affairs Minister who had just returned from the Ukraine. In the released phone conversation the Estonian Minister said that he had seen evidence while there that the protestors and riot police that were shot by snipers who were supposedly acting on orders of Yanukovych were actually all the same snipers and apparently hired by the new Maidan Coalition government to usher them in to power by portraying these atrocities as being committed by Yanukovych which Putin specifically denied yesterday, now there's actual phone recording evidence of the two ministers talking about the affair and saying the people don't trust the new coalition government, ALL OF THE SUDDEN THE PLUTONIUM TEA WIELDING PUTIN DOESN'T LOOK LIKE SUCH A MAD MAN, THIS ALL COMING ABOUT A MONTH AFTER (actually 1-day before the Olympics) A CONVERSATION BETWEEN THE US Assistant Secretary of State, Victoria Nuland and the US envoy to the Ukraine talking about who will be in leadership positions in the Ukraine and who will not be, if the US is implicated in this terror in the Ukraine of mass sniping on both sides of the protest, Putin will look like an angel even though he still serves radio-active tea to his enemies.
Finally after 2 Russian Warships and a Ukrainian Warships passed through Turkey's Bophoruss Straits yesterday, an American Warship was granted passage to enter the Black Sea as well within the next two days, we're not sure which ship it is other than to say it is not the US Aircraft carrier George HW Bush. Well, that should be interesting, 3 different navies all prancing around the Black Sea during a period of heightened tensions.
I'll keep an eye on futures tonight and bring you anything that may arise, but I'd say it's pretty safe to say Putin had an agenda Tuesday that we don't fully understand and this thing is a long, long way from deescalation. why does that matter? Because the market HATES uncertainty, look how it reacted this week when it thought it had some certainty.
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