Market Update

INTERESTING, as you know on most op-ex Friday's (which is every Friday now with weeklies) we have a max pain pin that "typically" opens right about where we closed Thursday, that's apparently why we saw such strong divergences yesterday, but in such a small footprint,  which is why I said, "I'd rather miss the trade than take a sub-optimal trade", you have to watch out for fear and you have to watch out for greed, those two will take you out of the market feet first.

Yesterday I noted in this post XLF, HYG, Market Update that (beyond taking the gains on the XLF put being a good idea), that...

"HYG 2 min all of the sudden is leading positive, this wasn't there yesterday so there's some attempt to engage the Credit/Risk on following algos to drive asset prices up."

HYG (High Yield Corporate Credit) being the lever that it is, especially as part of the SPY Arbitrage with VXX down and TLT down- both of which are down today (remember yesterday I posted I was seeing distribution in 30 year treasury futures as well as TLT) was key to moving the market today as the algos chase what they interpret as institutional risk on as retail doesn't trade credit much. With the SPY Arb. going you also have the flight to safety (Treasuries) and the flight to protection (VXX-VIX Futures) down and algos interpreting that as a risk on posture, like I said several times, they aren't that smart, they are meant to do one thing, that's why they were all just shut down on the F_O_M_C as the USD/JPY carry trade flew on a strong dollar and ES flopped, the algos were shut down and the correlation was reprogrammed overnight.

In any case, this is what HYG looked like yesterday and what's happening today...

 This is a 2 min positive divegrence so it was pretty clear yesterday that we were going to move up (as I said though, probabilities are not the same as a high probability/low risk trade) as they were pushing or accumulating enough HYG to make it pop today, but it's really not much at all, beyond the pump, I'm not sure it will be able to do much more and it's already under distribution as has been the trend in HYG since the Feb rally petered out.

HYG intraday seeing distribution.

The market itself right now seems to be seeing some steering divergences because they are there in the SPY ands ES, but not in IWM or the Q's, I think this is probably max pain related...

 SPY's 1 min chart with yesterday's triangle (symmetrical which has no directional bias except that of the preceding trend, unlike the right angle triangles).

You can see some small negative in the SPY intraday, again I think they are just steering divergences .

 ES intraday, look at that small leading positive divegrence right before the pop on the open.

 At 2 min there's not much going on that's out of character, this is why I think the 1 min divergence is steering and max-pain op-ex pin related.

I think we will get some good data after 2 p.m., it seems most contracts are closed by then and the pin is lifted, as usual the market does what it wants with price action the last 2 hours, but the 3C signals are very useful as the market tends to pick up the next trading day (even over a weekend) right where the 3C signals left off so I'll be looking for those after 2 p.m. as the last 6 weeks we have predicted the next week's action with a lot of accuracy just on the last 2 hours of Friday.

As you know, I have been looking for a bounce in the market like this or better, but unlike past bounces that were head fakes to create demand or change sentiment, this one in my view was going to be about dropping the stubbornly high relative strength of VXX/VIX futures (remember yesterday I mentioned the forward month and May premiums were collapsing?) well today's move sent the VIX futures lower and the reason why I want to see them lower?

Because we already have the larger positive VIX divegrence in place, the smaller ones or that last bit of accumulation is like a timer telling us a trend change (major) is coming which as you know I have expected to be down.

There's only 1 asset that gets these leading "Flying" divergences and that would be the VIX assets, I suppose because fear is the strongest emotion, when people are accumulating VIX they have good motivation. In any case, it has been those flying divergences (positive) in a VIX/VXX pull back that I have been looking for for 3 weeks now, well take a look at VIX Futures today...

 Accumulation on the drop lower, not confirmation or a negative, but the accumulation I've been expecting and waiting for, we have a start.

Moreover, even more importantly...

 Look at that VXX 1 min leading divegrence, that's a flying divegrence and will likely only get bigger. Better yet...

The 3 min chart has it too now, so the VIX futures and the short term VIX futures are all not only seeing accumulation on lower prices which is exactly why we were looking for a move to the upside, not a strong move, just a move to lower VIX, but they are flying divergences! EXACTLY WHAT I'M LOOKING FOR.

So, thus far we have some really interesting developments that are what we need to have happen before we can get to a major primary trend change.

I have some looking around to do, but if we can get a bigger reversal process /  footprint on the VIX futures and keep building these leading positive divergences, it's going to likely tell us to the day when to expect a nasty decline, allowing us plenty of time to get inn to the right areas of the market, even though most of us are already set up.