First Market Update of Two (?)

Early indications suggested that the initial momentum this morning would not hold and last night's post regarding a head fake move BELOW the daily Tweezer bottom or "W" formation I showed in the last post is still on track and likely.

Before I could even get the initial evidence out, we are already pulling back significantly from early action.

I'll also note that yesterday's GLD / GDX / NUGT /DUST post seemed to be right on track as GLD is down over 2% this morning, we'll take a closer look at the PMs later to see if there's a better looking set up forming there or not.

I was going to present the evidence for the market to pullback off early upside momentum, I didn't think it would happen so quickly, but this is all part of last night's market update.

The early pullbacks this morning...

 SPY from yesterday's close...

QQQ this morning from yesterday's close

IWM this morning

DIA this morning.

The 3C indications in the averages...

 3C was pointing to such a pullback, not really non-confirmation on the open, but a loss of momentum in 3C very early, however this is not the cause, it's a sign of the effect...

SPY 1 min-BEFORE the pullback started as these were captured for the original post that was going to suggest the early momentum would NOT hold.

 IWM leading intraday negative

QQQ leading intraday negative...

However the cause can be found in the USD/JPY as discussed last night as well as the Index futures, likely one in the same as Index traders can see what's going on with the carry trade.

The early ramp was USD/JPY inspired, but even ES/SPX E-mini futures were showing a negative divegrence this morning shortly after the open.

Now to the real culprit as the USD/JPY has done exactly what we expected over the last week, it is gaining or regaining control over the market as the Carry Trade correlated algos are being switched back on after the horrendous fall as USD/JPY broke below the psychological level of $103 last week and ran a large cornucopia of stops.

USD/JPY Influence...

 This is a 1 min chart of the USD/JPY (red/green price bars) vs. ES (purple), note the tight correlation  since about 6 a.m. to the far left as correlation algos are running the short term show again or at least starting to...making the USD/JPY as well as the $USD and Yen very interesting as we covered recently and more specifically in last night's Broad Market Update

Looking at a 30 min chart of the same 2 assets we can see where the Carry Trade broke $103 and correlation with ES was lost as the algos were shut down, we mentioned this last week as it was happening in real time, the green arrow represents an area where correlation algos were running the show, the red arrow represents areas where the correlation algos were shut down and the yellow arrow shows them coming back online leading to some of this morning's early opening strength.

So what do we do if we want early indications of probabilities? Look at the USD/JPY and the $USD Yen.

This is a 1 min chart of the USD/JPY, 3C is showing a negative divegrence suggesting a pullback in the pair, although it likely stays in the larger base region, it too "may" see a downside head fake move BEFORE an upside move off the base begins. As I was explaining last night I though this same concept would be a high probability for the broader market.

Since we don't get very good pairs signals beyond 1 min I check the single currency futures of the currencies that make up the pair, USD and Yen.

The 5 min $USDX chart shows a clear negative divegrence after a period of upside confirmation, if the $USDX drops it is likely the USD/JPY will drop, even more so if there's a positive divegrence in the Yen...

 The 5 min Yen chart was in line at the time of capture so I checked more important charts, 15 min...

Again, even though we have a strong positive forming the $USD base that should eventually send the USD/JPY and the market higher on a bounce or something a bit stronger, for now the signal went negative and a $USD pullback, thus market pullback (likely our head fake) becomes high probability.

Again the 15 min Yen doesn't have much in the way of a strong signal, but it only takes one of the currencies moving enough to change the dynamic in the pair.

THE CHARTS ABOVE WERE ALL CAPTURED RIGHT AFTER THE OPEN AND BEFORE EARLY MOMENTUM TO THE UPSIDE FADED.

I'll show you what we have right now in the next post as the market is moving too fast to put everything in one post, it's old news by the time you get it.

I'd consider setting the downside market alerts I mentioned as that is probably the choice area to look at entering new trades.