It Keeps Getting Better

I'll have to check the news and rumor flow today, but I've heard there may have been a second Chinese default, the first was Chaori, the first time the Chinese municipal government or some bank has not come to the rescue of a company that can't make their interest payments on their bonds and as a result, the taken for granted lack of perceived risk because China would not allow anyone to default has suddenly morphed in to an all out Credit Rout in China which depends on credit creation for growth, it's clear their exports are certainly no longer driving growth as the abysmal numbers came in at the start of the week.

This in turn (rumor of a second default) effected the carry trade with the Yen gaining and the other crosses falling, the reason you know it is something to do with China whether truth or rumor is because it's the AUD/JPY that got hit the hardest and the $AUD is the currency that is sensitive to the goings on in Asia and China most specifically.

In any case I showed you earlier the Yen gaining in to a negative divegrence (there was accumulation in size this morning and the 15, 30 and 60 min charts have huge positives which is a negative for the market), now I'm going to show you the actual AUD/JPY pair gaining with a rare (divergences in the pairs are more difficult to come by) positive divegrence, which means the market is likely to gain as we have been expecting and waiting for and that ultimately allows the VIX futures to put in the short term inflection point that will be so useful in entering positions at the best possible time and calling the pivot or move from stage 3 to stage 4 or market decline. The market is ready, for example taking the NASDAQ 100 and looking for changes in character, price ROC alone is very telling, the first week (8 days actually) gained 6.5%, the last nearly 3 trading weeks (2.5 actually) have gained +.76%and the last 2 trading weeks are down -.21%, that's a huge change in character and it's a clear reversal process, I'm using the short term VIX futures to pin point the actual turn, but we need a little market upside for the VXX to move down and allow for constructive accumulation and a reversal process, this is exactly the same concept as what I laid out Friday afternoon.

In any case, the good news in this... whatever spooked the carry trades and AUD/JPY specifically, there appears to be a change and this may have been a purposeful head fake move.

AUD/JPY showed no distribution so it is likely an event the market had not discounted (meaning the move down was likely not set up either)   whatever news or rumor that spooked it over China .

The AUD/JPY declines substantially, but before the close we already saw a negative divegrence in the Yen which would help this carry trade and the Index Futures.

In addition, the $AUD futures are positive as well so the $AUD/JPY along with other carry trades like the important USD/JPY should move up taking Index futures like SPX, NDX and R2K with them, which is EXACTLY what we need for the VXX divergence to mature and call the exact tipping point in the market.

That's where I'd add back BIDU puts or AAPL short or any number of trades.

Lets see what happens, lots of other good stuff has been occurring as well in a week that is as distinct in character as anything I've seen, obviously there's a reason for that.