Daily Wrap

We had a sort of strange close, the fab 5 of stocks and other momo names didn't perform very well, you saw the levers being used to ramp the market at the end of the day to get a mixed close with the SPX and Dow up +0.18% and +.41% respectively and the NDX-100 and R2K down -.14% and -12% respectively.

Despite the monkey hammering of the VIX at EOD, it closed up on the day, with momo stocks down it seemed like hedgers were nervous about tomorrow's NFP at 8:30, however there has also been a late day rumor circulating that Russia plans an overnight invasion of parts of the Ukraine while Crimea next. The acting Ukrainian president called the Crimean vote illegal and disbanded the local parliament, although I doubt they care, the question is, "What happens if this escalates beyond words as Kiev clearly sees this behavior in the south and east as illegal.

Perhaps the Russian invasion rumors had something to do with the EOD because I noticed ES is not keeping pace with USD/JPY as of the close. You saw TLT and spot VIX closed up, protection was clearly being sought, once again momo names were down, take the Fab 5, each one had a head fake of sorts... 

 NFLX with an opening head fake that failed, tried to test and failed on momentum which is basically a microcosm version of how a head fake move works in this case (upside head fake).

NFLX closed down -.64%

PCLN also threw an opening breakout that failed and closed down -.44%

 FB's head fake and failure was also clear,  closing down -1.01%

AMZN did the same  with a close down of -.06%

Only TSLA that also had a head fake type move closed green at +0.04%

XLF did exactly what we were hoping for...

 It even broke the intraday range by 1 cent, I'm not crying about it, but there was clear increased deterioration around that time and in to the close.

Here's another version showing closing weakness picking up and that carried right over to Goldman (GS)...

The red arrow is the XLF intraday 1 cent head fake if we can actually call it that and then additional weakness.

The 5 min chart really shows additional closing weakness

As does the 10-min chart so we may have hit GS right on the head.

Both our BIDU and IWM puts closed green as did our 3x short IWM SRTY, XLF puts weren't far from green at the close.

There weren't earth shaking changes in leading indicators, but a few that are more than worthy of noting...

 Even though they were working on HYG end of day for the SPT Arbitrage as a lever of market manipulation, it still closed even lower on the day vs the SPX extending the trend down in High Yield forms of credit traded as risk assets by smart money.

The longer trend in HYG vs the SPX with Monday in white as we saw accumulation there the day before Putin's peace overtures...

And just so you see how much HYG has been used to prop up the market and how it's dislocating now...

High Yield Credit also fell for another day, a change in character not seen in a while.

And other forms of High Yield Credit had no interest in playing along with stocks at all as they sold off on the day.

 Short term professional sentiment was also off on the day again.

While we figured out it takes about 3 hours to change retail sentiment in a fast moving market, the long term trend of retail sentiment shows bearishness at all time lows since records were kept, this is significant because of the break down in market structure I've talked about so often, however someone did a far better job articulating the same issues I often raise especially HFT and the liquidity trap, Universa's Mark Spitznagel.

Here are a few excerpts as to why this market is more dangerous even without the divergences that are worse than the 1929 Dow.

-On HFT..."high-frequency traders are making markets more jumpy"
-As to the idea of HFT as a liquidity provider is a fallacy , that liquidity won't be there when they most need it," 
-As for  'cash on the sidelines', "the idea that corporate balance sheets are so strong right now is entirely wrong,"

Since HFTs have replaced market makers and specialists as the net providers of liquidity and have no legal mandate to provide it, they can shut it off instantly the minute the market goes against itself. 

When you add the fact that there are barely any bears left, it gets worse, a lot of managers won't buy a stock that doesn't have a healthy short interest and the reason is, shorts represent a future commitment to buy and when do they buy? When the market is falling they cover to take profits and provide demand to sellers, that's not there, as for the one way flow of HFT liquidity, we already got a sneak preview of what happens when that is shut off, remember the Flash Crash?

Maybe I'll go in to this further at some point, but the main point and I took this up when the chart of the market about a month ago was compared to the 1929 top, you'd think I'd have been onboard with that chart, but I wasn't.

It's dangerous to assume the market is the same and it will react the same way, globalism is here like it never was before, who would of thought the US crisis would effect Chinese growth years later? Who would have thought liquidity would actually be a problem until HFTs came around? Who would have thought candlestick charting's gaps that worked for nearly 400 years would become absolute?

My point was not that the market isn't dangerous, it was to not assume that this market is anything like we ever seen before because it's nothing like we've ever seen before.

In any case, the market is definitely nervous about something, here are a few of the IWM and QQQ charts as you saw the SPY...

 The Q's also saw a little head fake on the open then tested the level and failed falling off pretty fast at the red arrow above price, in the process setting a new leading low today.

Here's a closer look at what happened as this is a type of a head fake move or failed breakout, From failed moves come fast reversals"...meanwhile the 10 min made another new leading negative low.

The IWM intraday did the same on the downside...

As did the horribly positioned 3 min

And even worse 5 min, note that other than Tuesday's gap, the market hasn't done anything.

I'm not sure if the market is truly worried about a Russian invasion, supposedly the sinking of the Ukrainian Navy vessel last night to block the mouth of the harbor to a Ukrainian naval base was one of the pre-emptive actions taken before an overnight invasion to last in to the weekend according to Pravda. 

I do find the EOD ramp attempt interesting along with the flight to safety and protection with momentum stocks falling at the same time, but even more interesting to me is ES's inability to keep pace with the USD/JPY, although there are a few assets I'm still not willing to enter just yet, something feels a little out of place.

I'll be watching futures overnight (as long as I can keep my eyes open) and let you know if there is a sudden surge downward on a Russian invasion which I personally think is Kiev saber rattling believe it or not. On the other hand, the sinking of the Ukrainian naval vessel in the mouth of the harbor, blocking it is a little strange as well.

As of now, USD/JPY looks like it has lost momentum and may be ready to turn, this after breaking above $103. As expected, the disappointment that Draghi will not be cutting rates or printing money which sent the EUR/USD higher this morning has waned and the Euro is flat since 12 p.m., it always seems like the knee jerk reaction there is about as short as BOJ intervention.