Market Update-No Real Movement Pre-F_O_M_C

First I want to express one thought beyond the F_O_M_C, Yellen is a wild card that we will have to learn as we go, I doubt she'll make any serious moves to QE except possibly to continue cutting back at the $10 billion rate per meeting. I do think she'll provide guidance on the rate hike/6.5% unemployment rate, I think Bernie purposefully left that open for her to introduce herself.

However what I think is different about this weekend than last (as you recall we closed most puts for substantial profits last Friday expecting the market to rally this week or bounce), the reason was, the referendum was a done deal, Ukraine wasn't going to do anything, it had all been discounted, however with Russia looking to take the real prize, the Eastern portion of Ukraine east of  the Dnijpro river may be a stretch (that entire region), but certainly the Donetsk region where there's a higher concentration of ethnic Russians / Compatriots as Putin calls them and that's where a lot of protests and taking over or storming government buildings by pro-Moscow protestors have taken place, it's also where a protestor died and Putin threatened he'd protect Russians after the event, even though the protestor (unknown at the time) was anti-Moscow, this is clearly the prize and the unscheduled Air force drills on the eastern border heighten tensions with over 60,000 Russian troops 15 km off the eastern border.

The market may not feel as calm about the weekend as last weekend which was a fait accompli and I don't think any resistance was expected.

Right now the Ukrainian government is making plans to evacuate citizens out of Crimea, the press seems to think this is because the area has been ceded to Russia, however NO MENTION was made of Ukrainian military being evacuated out of the area, although I will say appearances are they have given up Crimea and probably wisely to concentrate forces on the eastern border as this is what Putin is really looking to do, chip away at the east and make inroads, I'd think right up to the Dnijpro river that Kiev borders.

The point is, be careful about F_E_D knee jerk reactions, Yellen has to make an impression, however events in Ukraine this weekend are far less certain than last.

As for a snapshot of the market pre-F_O_M_C, quiet and mostly in line. The main assets we are concerned about are VIX futures being accumulated and the manipulation lever that hiked the market, HYG being distributed, there hasn't been much change since yesterday's distribution in the averages, accumulation in the VIX futures and distribution in HYG.

On a side note, I don't feel so bad today having closed the hedging calls in QQQ and IWM that were opened last Friday as well as the IWM put entered yesterday which is already green, however until we have a pivot, I don't want to get too aggressive, the pivots are where we take action, not chasing the market.

 SPY 1 min intraday is nearly perfectly in line, there was some slight intraday accumulation near the open on some downdraft, it seems they have the market pinned for the F_O_M_C.

This is some of the 2 min SPY distribution taking place yesterday for more context.

And of course the 5 min which never joined, we usually don't get a bounce without at least a 5 min positive, but that issue was settled last week as we knew as they used HYG which is much cheaper to do to bounce the market, especially if you intend to distribute the averages, why put money in to them to bounce them if it can be done with HYG? 

 QQQ this morning mostly in line, the same positive early on, but very small just to stop the downdraft of early trade.

The larger view of the same chart w/ yesterday's distribution which is why I went ahead with 1 position, the IWM April put which I see as a win win whatever happens near term.

 The Q's 5 min was the only one with a positive divegrence at the lows, but it gave it up quickly, there does seem to be a proportionate reversal process forming, my problem with this is the HYG 10 min chart, if it were breaking down, then I'd feel better about being near a pivot, but that can happen fast.

IWM this morning in line intraday 1 min

The IWM 1 min distribution from yesterday using a longer zoom.

This is interesting, a leading negative 5 min divergence in the IWM, this is why I picked the IWM puts over the Q's or any others.

Remember there were no positives except the Q's past the 5 min mark, so this wasn't a strong set up on the bounce, all the strength came from HYG.

VXX intraday is also in line.

But look at this 5 min leading positive, this is what we are looking for, it's not quite there, but accumulated much faster than anticipated.

This is the key to our short term pivot to move in to new positions, it's the key to the primary trend in my opinion as well moving to the downside on real volatility, we've only had two real volatile moves, Feb rally was the second, before that it was a move down and volatility continues to increase so a downside move would likely be significantly stronger than the Feb rally.

 HYG 1 min kept in line with a small negative this morning.

The 2 min distribution is impressive, but it's not enough, it's a start though that has moved all the way to 5 min now.

 5 min now seeing migration of the negative divegrence with a relative negative, that's how it starts, this is key to watch over the next day or two (Friday).

And the accumulation (white) of HYG was seen long before the market was ready to bounce, this is how we knew it was coming, once the 5 min goes seriously negative this chart should finally cave, then we should be near a pivot.

The F_O_M_C can change a lot very short term unless Yellen pulls a real surprise to introduce herself with a bang, I think she'll be looking to come off as moderate though, we did have that largest ever foreign treasury sale last week in the F_E_D's custodial account, I do wonder if the nF_E_D will pick up the slack by holding on a QE reduction this meeting?