"Of course things are heating up in the Ukraine where Russia is being accused of invading and masked gunmen now hold 2 airports, this should be an interesting weekend story (profit taking?)..."
I have said from the start (between Jan 27th and Feb 4th) that the run UP would be so strong it would have members emailing me (actually my inbox would be full) asking, "Are you sure, this market seems awfully bullish?" However for those who remember, this was all written BEFORE we had a single move up, we were still in a VERY bearish environment, in fact so much so it almost seemed impossible that the invisible hand of Wall Street could actually do what this run was meant to do, to change sentiment from bearish to bullish. However, THIS RUN UP WAS NOT THE END, IT WAS A MEANS AS WE HAD WRITTEN BEFORE IT EVEN STARTED. A means to what? The idea was that the head fake we were in was going to create this strong move up to change sentiment and we had some long "Hitchhiking positions", but it was a means to set a bull trap and ultimately set up the primary trend down which I later tweaked my initial first target to the SPX's 200-day moving average, that was the initial target, not the last. According to what we saw and wrote BEFORE February 5th/6th, we fully expected this strong move that would have members wondering if the market would ever go down and we fully (and still do) expect that this move has been in large part (almost fully) to set up the next and more powerful swing down, although markets will fall of their own weight as fear is much stronger than greed.
Why have I been able to stick with this outlook that was initially forecast weeks before the market moved up? Because what I expected to see, continues to be seen, for example...
The accumulation phase from January 27th's range through the head fake move from February 3rd to February 5th (also the "W" base) as seen on a 30 min chart...
It's for this reason, this divergence that I've felt very strongly that this move would fail if it couldn't even show confirmation on lesser timeframes, with a 60 min leading negative like this it's just a matter of time and with a short squeeze being the only thing lifting stocks (and a lot of tricks and levers late last week) we can see the demand is not organic.
ONE IMPORTANT THING WE SAW LAST WEEK AND SPECIFICALLY FRIDAY...
The retuen of volatility, we had big volatility in the market between 1/22 and 2/3 and then from 2/5 to 2/14, increasing volatility is a sign of the ending of a stage just like the breakout ends stage 1 and enters stage 2 with increased volatility or the parabolic move at the end of stage 2 as it moves to a stage 3 top, the same is true of stage 3 top/distribution to stage 4 decline, accept here the volatility seems to be even more pronounced...Friday we saw a return to volatility.
Secondly we saw a return to "normal" market volume dynamics, what we saw in the market was real and organic panic late Friday and as such we were seeing real price/volume action, that's why I posted, "SHORT TERM CAPITULATION VOLUME" at 3:32 p.m. on Friday saying, "I'm seeing volume shoot up and it will form numerous small bottoms for now, capitulation bottoms. I'm not concerned about these, but they may give you some opportunities."
I later explained in greater detail what I meant in, "Capitulation Volume".
I don't know if Friday's market had something to do with the weekly op-ex pin, but that panic was real and it wasn't because of something happening in the Ukraine that we didn't already know about. I'd say the Ukraine and an uncertain weekend (as the market hates uncertainty) played some role, but everything in the area was well known and that wasn't the kind of profit taking you see before an uncertain weekend, that was panic as we saw by the 3C charts near the EOD. The charts were clearly telegraphing the market weakness.
As for the close, that was not the kind of "Follow through" you expect to see on a break to a new SPX high with the SPX closing +.28%, the Dow +.30%, the NDX-100 -.10% and the R2K down -.41%. You saw the levers being employed after the USD/JPY failed and then HYG failed.
Beyond the charts of the SPY I showed already above as to why my confidence is so high in this market coming down hard, the VXX (Short term VIX Futures) is hard to ignore as well.
Friday there was no truly dominant Price/Volume Relationship, but the closest to a dominant one would have been Price Up/Volume Up which is the most bullish of the 4 relationships, but oddly often acts as a 1-day overbought indication and most of the time the next day closes lower, however as I said, I wouldn't consider Friday to have a truly dominant P/V relationship and dominance is what we are looking for, it's an extremes in the market.
As for the opening action for this week, as you probably know, it hasn't been pretty after Friday's market outburst, lack of follow through and what looks to be a second cold war starting, my own feeling on the matter is Russia will push further than they intend (I believe they intend to absorb Crimea) and then back off as a concession and take what they originally targeted. The last I hear, Russian troops had used shock or percussion grenades to take over the Belbek Air-force base and control virtually the entire base right now.
The trump card Russia holds over the Ukraine and all of Europe is the government owned Gazprom as Ukraine depends on Gazprom for virtually all of their gas and Europe imports roughly 1/3rd from Gazprom, Russia can always jack up prices or have an unexpected pipeline disruption should NATO oppose them too forcefully which I doubt is even a probability considering our leadership and the weak perception Syria left the "US's will to act" with.
USD/JPY has opened the new week solidly under $102 and the Index Futures are all below Friday's lows right now.
The 5 min charts for the Index futures have been leading negative for all of last week so far as I recall.
Treasury futures are all gaining on a flight to safety trade, but this is a very thin overnight market and the Treasury market isn't even open (just futures).
ES has quite a bit of catching down to the USD/JPY correlation, I think last time I figured it, I got somewhere around 70 ES points, I'm sure it's more than that now...
I expect we will start to see increasing volatility as it has died down the last week or so, in fact the last 3 weeks or so, I mean real volatility so I'll be on the look out for that as well as volume to start reacting much more like it did before 2009 and massive F_E_D intervention as we saw Friday afternoon.
As far as the overnight session, I'll just say what I said when mentioning the intraday volume capitulation, "Market's don't move in straight lines" and thankfully as it offers many opportunities, but I'd expect we'd se several different trends from now until 4 pm tomorrow, it's putting together the underlying dominant trend which I obviously have very clear expectations about with 60 min (and other) charts looking as badly as they do in to such a run (Feb.).
I'll see you in a few hours, I hope everyone had a fantastic weekend.
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