QUICK MARKET UPDATE

I obviously have TONS of data to pour over, my first impression of Yellen as the F_E_D chair was, "Greenspeak", remember Alan Greenspan could go on for hours and at the end you had no clue as to what he was saying after 2 hours than you did at the start, she definitely has taken something from Greenspan in the form of "Greenspeak". I think the policy announcement was a clear reflection of that ambiguity and the market got its first taste of the new F_E_D chair and I think did not like the way hard data points like "6.5% unemployment threshold will lead to rate hikes" to a very ambiguous new forward guidance which essentially is almost none, kind of "See how it goes", but added just enough dovish tone to keep the market from falling off a cliff down 2% on the statement if it were only the change in rate guidance.

I saw a lot DURING the press conference the Bond market did NOT like, I'll have to put the words and prices together.

As for the market, yesterday we saw distribution in HYG which is important. Multiple times today I noted the increased pace of negative divergences leading in HYG and each time they were getting worse which is not good news for the market as HYG is the principal lever of manipulation that got the market as far as it has on the upside this week.

Taking a quick look around, I'd say the most notable 3C indication today was the increased leading negative divergences in HYG. This is important because as I mentioned when we saw them, algos are not the smartest things, but dominate the market , they are meant to do one or two things, for instance when they see HYG which is an institutional risk asset that expresses a smart money risk on position, they buy, when HYG sells off they see it as smart money selling, this is why HYG has been such a prominent market manipulation lever the last  year or so. Algos do not have the capability of doing a lot more than that in this scenario.

Thus when we see HYG being distributed it's telling us smart money is no longer willing to hold the risk that they used to lift the market, this is important because HYG "can" be an incredible leading indicator like all credit, also recall yesterday we saw High Yield Credit unwilling to hang with the market, it sold off.


Take a look at HYG today and the increasing leading negative divergences, remember the positive divegrence that launched the market only went out to the 10 min chart and as such, we needed to see the 10 min chart start to go negative, we saw a small relative negative divegrence earlier, this too grew worse as the day went on even BEFORE the F_O_M_C.

This relationship is not coincidental...

 This is HYG in blue vs the SPY/SPX in green on a 3 min chart that is backed up to 9:30 this morning, the almost tick for tick relationship is the result of algos following HYG, yet at the same time High Yield Credit was selling off yesterday and we got the first set of negative divergences in HYG yesterday implying this mini-cycle (this week) was coming to an end.

 This is today's 1 min chart of the same 2 assets, HYG led a little as it moved lower near the SPX's intraday highs (red arrow) after having traded in line or tick for tick earlier in the day, the increased leading negative divergences today lead me to wonder if there may have been a leak of F_O_M_C policy, it's nowhere near as obvious as the others we have found (about 3 or 4 in the past)...

This is the Jan/Feb cycle. At #1 you may recall the accumulation in the market starting Jan 27th , then a head fake move that was further accumulated in to a small "W" bottom. On February 4th I had issued a post saying that this was going to be one very strong move up, but it was being done to change what was extremely bearish sentiment at the time to bullish as institutional money's positions are so large (whether selling or shorting) that they NEED demand and higher prices to sell or short in to and that was the REAL reason for the move which was supported by HYG and more specifically a short squeeze.

My note you may recall warned of a move that had to be incredibly strong, it had to change sentiment for it to work as Wall St. never runs a cycle without a reason. If you follow that to it's logical conclusion and what we already had in great abundance, objective data showing a trend of massive institutional distribution, this move up in February was a large head fake move meant to set up bearish positions as we look at positioning through our own experience and filter, it's hard to imagine a situation in which your position can move the market against you, thus the Feb rally and we knew that long before it started, in fact it was the first trend expectation with a much worse downtrend to follow.

At #2 we have the short squeeze, but still HYG support, at #3 we have HYG breaking off as a leading negative indication for this larger cycle.

As for today, you know last Friday we anticipated a mini cycle up, we closed a number of puts, some at triple digit gains and opened a few long options like QQQ and IWM calls in preparation for the move expected this week which we have seen, at least part of it, maybe all of it at this point, I need to do the analysis.

 To the left at the red arrow we see the first distribution of the week in HYG, it was mentioned several times yesterday, now look at the leading negative divegrence/distribution in HYG as it is in a flat range (one of the places underlying trade is often heaviest), that leading negative divegrence led to a large decline in HYG.

As you may recall, several times today I noted the divergence is getting stronger and stronger.

 The HYG 2 min chart's leading negative divegrence today and yesterday's relative negative (at least compared to today's intense distribution).

Right now 3C and HYG are in line.

As you know divergences migrate to longer timeframes as they get stronger, here's today's 3 min leading negative, again in the same flat trading range intraday.

Yesterday I noted a negative in the 5 min HYG chart which is important because migration of the divegrence would lead it to the 10 min chart and that is where HYG's positive divegrence ends, it doesn't go any further than 10 min. When the 10 min is starting to go negative we know we are close to a pivot and we want to start taking on new positions, wrapping up older ones like calls or longs that were entered last Friday for this week's move which was NEVER (in my view) about the typical market price/head fake, but about pushing VIX futures lower to accumulate protection, which means smart money is expecting something nasty on the downside.

 Here we see the positive divegrence or accumulation in HYG to the left that launched it and the market, the 5 min negative I mentioned yesterday took on a stronger negative tone today which was a major change, but one we have been anticipating for market timing purposes. Now the 5 min is leading negative almost below the start of the accumulation area.

Ultimately it's about the 10 min chart turning as that is where the accumulation reached for this week's market move to the upside.

 This is what that accumulation looked like in HYG as of yesterday's close, still leading positive meaning we'd still expect the market is not ready to turn down quite yet, but I warned today, "These can change fast" and it did.

This is today's 10 min chart, at #1 we have a small (weaker) relative negative divergence that I mentioned earlier today, before the F_O_M_C, this had already turned to a leading negative divegrence and you see where it is now.

More importantly, it will be very interesting to see how the algos handle this as all correlations were smashed today, for instance the rise in USD/JPY did not lift the market, now HYG's price is sitting below the original accumulation area, algos should be reading that as risk off on an institutional level.

Like I said, I have a LOT of work to do in sorting things out, but this is how we closed in one of the most important assets for this particular cycle , at least from a timing/pivot point of view.

As for other indications in to the close...Sentiment (professional) which had been in line yesterday went negative today and did so before the policy announcement, treasuries underperformed the SPX correlation as a flight to safety, but this is not unusual given the policy statement and its impact on treasuries. Of course as a result, Yields which are one of my favorite leading indicators gained, however one thing I'll be busy doing is trying to figure out whether to take that as a leading near term positive or as an anomaly as part of the F_E_D statement, any other day it would be a market positive, but today I'd have to give it a pass considering the F_O_M_C, but I do want to double check.

Sentiment vs the SPX which was in line yesterday, no leading indication, but went negative today well before the policy statement, either this is a pivot/top for this week's mini cycle and/or there was a leak of the policy statement which is not hard considering financial news outlets have the statement and know the outcome hours before we do (it is embargoed), how else do you think they have instant analysis, charts and graphs, this isn't a guess, this is well known.

I do find it interesting as well that yesterday's Dominant Price/Volume Relationship  (which is an excellent very short term predictive indication) was overwhelmingly Dominant in all the major averages and as I put it in last night's post....

"As for Dominant Price Volume Relationships, we had one across the board and DOMINANT, Price Up/ Volume Down despite today having higher volume than yesterday's pathetic volume (remember these are the component stocks of an average being measured).

This is the most bearish of the 4 relations and it was over half in most of the averages, typically it acts as a 1 day overbought condition and we have a close lower the next day, it will be interesting with the F_O_M_C at 2 p.m. and the knee jerk reaction."
From a quick overview of the averages, I'm glad I took the gains from the IWM put opened yesterday.

The SPY handled itself better than the Q's or IWM and VXX continued to accumulate, I just think we have a minor oversold status which is nothing big, but I wouldn't be surprised to see it relieve, perhaps tomorrow's options expiration max pain pin will do that.

From VXX's point of view, this is the asset that is most important for me this week as far as signals, HYG is a means, VIX futures are the end.

Since the first day VXX moved down off the negative divegrence at the top which was small (I think they only needed enough distribution to get the move down and maybe get off some hitch-hiking trades, but the intent is to accumulate protection), there has been accumulation. This is the 5 min chart of VXX and you see the divergence is at a new leading positive high, this is exactly what we expected BEFORE the market move started so I'm always happy to see expectations which come from objective data, pan out.

I don't like the reversal process, this is the oversold/overbought condition from today, I'd think VXX would have to come down and form a more symmetrical rounding base or a "W" base, but they won't accumulate by chasing prices, that was the point in the first place.

OK, I have a LOT of analysis to do, I'll try to get to emails, but I first have to get a handle on how today effected the market both near term and long term.

Overall, especially because of HYG before the statement, this was a good day for our trend expectations and trade positioning.