Daily Wrap

Tonight I want to start with the macro rather than the micro of what happened today. I think first it's important to know we are in a multi-month top formation. The four stages of a market cycle that we often talk about, are like the 4 cardinal directions. Just like a map with North, East, South and West, with the market you have to know where you are to have a good idea of where you are going.

I'm using a 4 hour chart with the SPY because it shows the underlying trend with the least amount of noise and the choppy/top area has been in effect since the February cycle transitioned from stage 2 mark-up to stage 3 top and in some cases like the IWM, stage 4 decline and has already retraced the entire February short squeeze rally.

I am in no way saying that this area is easy to trade, most traders seem to only recognize two trends, up and down , but the third trend, lateral is one of the toughest, it requires patience, skill and nimbleness, it's more about surviving than making big gains, but the choppy lateral trend is just as much a part of a top as it is a bottom or an uptrend is stage 2 to a downtrend's stage 4.

Now on to expectations of the market, once again the "Turbo Tuesday" and POMO attitude of "this is going to ramp the market" was completely wrong again. Last week I showed how the last two Tuesday's were red and POMO is no longer the risk free upside ride that it use to be a couple of years ago. This is the same reason I came out against the charts that compared the market several months ago to the top of the 1929 market, even though I'm bearish, I think it's very dangerous to make assumptions about the market without evidence. Today's evidence included "Turbo Tuesday for the 3rd week in a row and a $2.5 Billion POMO on deck this morning, yet the major averages all closed red between -.44% and -1.50%. The point is not just Tuesdays and POMO, but all generalities that people have held to be truisms, things are different, they always are.

For instance, today ES/the market didn't track the USD/JPY as it held around its 200-day moving average, instead bond yields (one of our leading indicators) led the way for the market much of the day, as faithful as the carry trade correlation has been, it couldn't be counted on today.

Tomorrow we have the last F_O_M_C meeting's minutes coming out at 2 p.m., more often than not this creates a F_E_D knee jerk reaction which is usually wrong and typically reverses the initial knee jerk within a couple of hours to a few days, we'll be watching to see if there's any leaked information as we have found it in the past, not often, but there have been several times.

As far as what I felt where the most telling charts for the major averages today...

 The DIA 5 min chart lost ground yesterday and came in pretty close to in line of its 5 min chart which is where most of the upside probabilities/divergences formed late last week.

The 5 min IWM which went negative yesterday added some positive divergences today at the 5 min mark as it was the worst performing of the averages.

 The QQQ added to its leading negative divegrence as it was the best performing of the major averages today.

And the SPY was in line most of the day.

This wasn't the direction I had hoped we'd see today, there's a lot of rotation depending on how the major average performed, but it does look like a bit more time than what we ended with yesterday.

TF 5 min was leading negative and price fell toward what 3C was forecasting.

There were some interesting readings among leading indicators today, especially credit...

 HYG (High Yield Corp. Credit, an often used lever to manipulate the market short term) fell off today at the close rather than leading the market as it has been the last several days.

Looking at HYG's 3C chart..

There was some very strong 15 min deterioration today that we haven't seen in the asset recently.

High Yield Credit was seeing the SPX move more or less in line with it's less favorable view of the market.

 As for sentiment, it was positive last Friday and led the market, went negative yesterday and led the market, today it's in line.

 Yields have been negative on the short end and tend to pull the market toward them like a magnet, in red you can see where Yields dislocated negatively with the market and the market followed them lower.

Don't forget where the longer term picture is...

This is about where the multi-month range/top is and yields are disconnected to the downside fairly badly.

 Here you can see at the EOD they tried to hammer or did hammer the VXX to try to ramp the market, not a lot of success...

This is the same chart with the SPX prices inverted so you can see the underperformance of the VXX in trying to lift the market in to the close.

And Treasuries, as expected in yesterday's TLT update TLT / TBT (trade) Update were knocked lower vs the SPX.

I have a feeling we'll see a bit more resolution after the F_E_D minutes are released at 2 p.m. tomorrow, but just to remind you, the positives that we saw Friday for this week only reached out to about the 5 min chart and although each is dispersed, there has been quite a bit of damage to each of them whether yesterday or today.

For now, this is looking more like a stock picker's market until the averages line up (they've had a lot to jostle them today) or better yet, maintaining dry powder and patience and just waiting for the choice opportunities is probably the best course. You really don't want to be caught in the lateral chop that has dominated the market the last several months and we haven't had a lot of trades not because of the chop, but because of the 3C signals apparently forecasting a less than favorable environment in the chop.

I'll check futures tonight and bring you anything that stands out, but I have a feeling the market will be rather flat until the minutes are released at 32 p.m. tomorrow, it would be great to get some signals for trades before they are released.