That's right, some of you were wondering "What happened to the market this afternoon?" Really with a n SPX gain of +0.54%, not a lot, but as to the specific question of the afternoon, the founder of the HFT/market tracking Nanex, tweeted this...
That's right, I'm not sure if the levers all failed, USD/JPY failed, HYG was there but failing and VIX failed to do much in to the close, closing down only 0.98% and pretty much a perfect Doji with the last 3-days all inside days.
That's 10,000 e-mini contracts in one second, who does that? Appaloosa's largest holding on their Q1 10Q was about a billion dollars and that's no small fund. Positions like those take a lot of time to build as to not drive price against your position. Whoever picked up a BILLION dollars in E-mini's at 2:36:20 in 1 second, was obviously not concerned with moving the market against them.
In fact, the transaction only resulted in a move of +.00078% over the full 1 minute bar which saw an additional 8.6k contracts in addition to the 10k. The SPY at the same time saw $64 million which boosted it +0.002%, not a lot of ground , especially for the E-mini contracts.
I've been looking at what was going on in the market at the time.
First the USD/JPY lever, as expected has failed and should be moving to make a lower low, if you're thinking EUR/JPY or AUD/JPY might take USD/JPY's place, they are in even worse shape.
ES's gains during regular hours (white) weren't matched by USD/JPY. The last two weeks we've seen at least a half dozen dislocations like this from the correlation, every time ES has returned to the correlation whether it was below or above.
Here's a 30 min chart of USD/JPY around the area of the bear flag that gave the market sling dshot momentum after a Crazy Ivan and short squeeze (as the most shorted names have seen 6 consecutive days of gains). ES dislocates and reverts to the correlation.
That might be a problem this time.
About a week of so ago I warned that this range in the SPX was too large, too obvious for it to move to the downside without a head fake move first, the same reason we exited MCP on a day when we had a +6% gain, probabilities said MCP couldn't have a solid breakout without having first put in a head fake move.
This daily chart, range and head fake move are essentially the same as MCP, but in reverse (we expect MCP to break out to the upside and the SPX to break down to the downside).
Here you can see the concept of "loitering", the 60 min chart of USD/JPY broke the psychological level of $102 support and then the 200-day moving average, often after that price will "loiter" near former support as USD/JPY did for several days giving the market a little boost, but this concept almost always sees a new low put in and I believe USD/JPY is now rolling over to make that new lower low so it too is another broken lever.
This is a 1 min chart of 30 year Treasury futures (candlesticks) vs ES (purple) for today, at the time the 10k contracts of ES went through in a single second, the 30 year rolled over, I had seen some negative divergences in TLT earlier in the day starting to form. As I said when I closed the TBT (TLT UltraShort) about a week and a half ago, I expect to be short TLT or long TBT again soon, but the new dynamics of TLT are still an unknown and will be until we see how it reacts to a pullback, it may be that the market and treasuries are forming a new correlation, one which I don't understand, but we'll sort that out as the data comes in.
At 2:36 when the 10k E-mini contracts were bought, 30 year treasury futures moved to the downside, I had mentioned this earlier in the day as Treasury yields supported the market intraday in a Leading Indicators post.
3 min TLT negative divegrence, so far the divergence is only to about 5 mins so I can't consider it very serious yet or worth a trade, but it is very much worth watching and figuring out what the dynamics or new dynamics of the market are.
I've always said that this move since 2009 would present one of the best trading opportunities of our lives, maybe of the last century, but IT WILL BE THOSE WHO FIGURE OUT THE NEW DYNAMICS FIRST THAT MAKE THE MONEY.
This is TLT vs the SPX intraday with support for the SPX earlier in the day and then again after the 10k transaction went through, but I'm not convinced that there's an inverse correlation, that remains to be seen, although 1-day hardly makes a trend.
As for credit,
HYG provided intraday support for the market, but as this chart shows, it was falling apart fast.
As for High Yield credit which usually rallies with the market, it fell apart in to the EOD, I can't help but wonder of that 10k transaction was to hold the market up as these other levers started to fail, whether op-ex or month end window dressing.
Yields provided some support from very early on today, well before the 10k transaction, but they are severely dislocated and they have been one of my favorite leading indicators because they are so consistent in reverting to the mean, this
is the exact situation from the summer of 2011 that led to a nearly -20% sell-off in little more than a week.
Right now ES, NQ and TF intraday charts are all going negative, FINALLY NQ 5 mins has joined ES and TF in a leading negative divergence, this makes a full house with all 3 Index Futures leading negative from 5 mins to 60 mins.
Tomorrow is an op-ex Friday, typically price will open near Thursday's close and stay in the area until the majority of contracts are closed by 2 p.m., then price moves, but it's the 3C signals after 2 pm on Friday that give us some of the best information for the week to come.
My gut feeling is the bear flag that saw a Crazy Ivan that gave sling shot momentum over the last week is seeing severe distribution now and that move as a mini cycle is wrapping up, this seems to be evidenced in more and more assets looking ready to trade as I've put out more Trade Ideas in the last 2 days than the last 2 weeks and certainly well above the 90% drop off of the last 2 months as the market remained in a +/- 3% range, a meat grinder.
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