A.M. Update

Last Friday afternoon we expected the start of the unwind of the move above the 3 month range, a move we expected to be a head fake move. Yesterday the Dow-30 saw it's largest loss in 3 weeks while also putting in a bearish reversal confirmation candle, although I'd prefer to see more volume. I also believe that there's a proportionality which I explained early yesterday in two charts, here's the post...Opening Indications 

With the exception of 1 of the major averages, the rest have largely seen reversal-like candles all week, in other words, the increased rate of change to the upside we saw last week when we called that a "Seemingly Bullish change in character, that often leads to a change in trend" actually did lead to a change in trend, thus far it has been lateral with a bias to the downside, which goes back to yesterday morning's post regarding the reversal process's proportionality, Opening Indications.

 Being the Dow saw the largest loss in 3 weeks, what that means to us is that the Dow saw the largest loss and largest change in character since the anticipated head fake move above the range and various resistance levels began (yellow arrow). Note the Dow's daily candlesticks for this week, a bearish Star, bearish Hanging Man and a large bearish down candle closing near the lows of the day with very little lower wick.

I heard all kinds of reasons for the market being down yesterday as I had to make a long drive last night and just happen to be listening to several news stations, everything from China's failed bond auction in the overnight session Tuesday a.m. to Iraq, to the Budget Deficit, HOWEVER, AFTER 2+ WEEKS OF SHORT SQUEEZE, HOW COULD WE FORECAST LATE FRIDAY THE START OF THE UNWIND OF THIS MOVE?

Granted, few other people have this chart, the QQQ seeing almost immediate distribution as soon as resistance is broken, the same place retail demand picks up and gets bullish after 3 months of chopping sideways, it's pretty clear as was expected that Institutional money used that demand (as is the case with most upside head fake moves) to distribute in to, in to both higher prices and the volume that comes along with that demand. After a chart like that, you have a pretty good idea of where the probabilities are going to take you, but we already knew that before this started around the first and second week of May. The probabilities being solidly in place...

Remember, if you haven't seen the chart already, the 3C daily of the Dow 1929 pre-crash and the Dow now shows a much worse chart now than 1929, this is why I believe we have a historic opportunity in front of us and one that no one alive has ever seen. The market is actually ripe for it being this entire rally since 2009 lows is the equivalent of a gingerbread house built on the sweet sugar of the F_E_D, not on the rock of solid economic recovery and via a mechanism that was used before the 1929 crash, QE! At least in the 1920's QE produced a nearly decade long recovery, this is a jobless recovery if it can even be called a recovery.

Speaking of the F_E_D...next Wednesday at 2 p.m. the F_O_M_C makes their policy announcement. If you have been listening to the multiple F_E_D speeches of late, they have a single theme, "Concern for the market,concern for the lack of volatility" or you might saw complacency with the VIX just having touched a 7+ year low. The F_E_D can't come right out and say, "Stop buying stocks, the market is at a worrisome area", but they can hint at it and they have been. However it "seems" the market is ignoring them, so the F_E_D unofficial leak, mouthpiece, Hilsenrath from the WSJ made the point a little more bluntly than the F_E_D can in the WSJ. I'm not convinced that the market isn't listening by the looks of charts like the QQQ above, but I'm convinced retail isn't listening which is perfect because they always are left holding the bag at the top.

I wouldn't be surprised if the F_E_D pulled a hawk out of their hat Wednesday. Rumors are already circulating that they will increase the taper from $10 billion to $15 billion, it may be something other than that which they say or it may be something they don't say. Smart money redlines the policy announcement and will react to even the change of a placement of a "comma" as it can change the meaning or outlook.

As far as yesterday, there was a dual Dominant Price/Volume relationship, Close Down / Volume Up and Close Down / Volume Down. This has no next day implication for the close unlike a single dominant relationship as these two actually contradict each other for next day close probabilities, but remember the reversal process I drew out yesterday morning, again right here....Opening Indications

Several Leading Indicators have small positive intraday divergences, these are typically a small blip in a much larger bearish leading indicator, but it is one reason I decided to close IWM puts and look for a better entry and move them out to July.

SPY closed largely inline on intraday charts except the 3 min which it left a relative positive divergence (weaker form of divergence) at the lows from around 2:30 yesterday, there's nothing on the 5 min chart so it's not anything I'm too concerned about, but would (if it fired), look pretty much exactly as I drew the proportionality of the reversal yesterday morning, linked 3x above. At 5 min and beyond, we are deeply leading negative. I suppose this falls in to the category of, "While we know the probabilities and which way to be aligned, WALL STREET WON'T MAKE THIS A CLEAN, CLEAR REVERSAL, they'll continue to condition retail to buy the dip and seemingly reward them for it right until the moment the market crashes through the multi-month range support. This also "could" give certain assets like PCLN, the time they need to finish their set ups as they will fall staggered on different days.

The QQQ and IWM intraday (charts) are very similar to the SPY, the DIA is still working on the divergence it started yesterday after falling in line with short term leading negative divergences on 1-2 min charts.

Falling in line with the above, the Index futures are nearly perfectly in line this morning on the 1 min charts, they are close to in line on the 5 min charts with a negative bias, however the 15, 30 and 60 min charts have a sharper leading negative divegrence so again this fits right in line with yesterday's drawing of the reversal process as found in yesterday morning's post, Opening Indications.

The USD/JPY, as expected, seems to be getting help from the BOJ as they don't want to see the Yen rise much and will likely draw the line (as noted yesterday morning) right around $102, where the pair has been lingering all night and this morning.

A couple of assets that do look ready for a move are Treasuries, the 5 year Treasury futures especially which means yields would fall and pressure the market negatively, the 10 year also has positive divergences, not as defined as the 5 year and 30 year and the 20+ year Treasury ETF, TLT also has positive divergences which should help out the short TBT position. This will be interesting to see what the correlation is and if it continues to be a flight to safety as the VIX Futures are now showing clearly with positives out to 60 min charts.

Japan's Central Bank begins its 2-day policy meeting today, with tomorrow's announcement, as Abenomics has been a dismal failure, there has been talk of an early retreat from their monstrous QE program, not the stuff the market is looking for which is "MORE QE", not less from Japan and certainly not a sharper taper from the F_E_D. 

After a quick sweep through Breadth Indicators, the weak NASDAQ Composite's Advance/Decline line is falling off and out of sync with the Composite, this is the same thing that happened right toward the top of 2007. The Absolute Breadth Index is also making a worse reading, which is already worse right now than the 2007 top and the 2000 Dot.com bubble bust. The McClellan Summation Index's divergence is also at the worst reading I can see going back to 1988. While not a breadth indicator, Investor's Intelligence released their updated survey last week with the lowest bearishness among investors EVER, past lows lined up with the 200 top and the 2007 top. I'd like to look at intraday breadth on charts in the 60 min timeframe which I have a template for, if things quiet down enough today, I'll do that, otherwise I'll do it after market.

Right now the USD/JPY just took a sharp dive and took index futures with it as jobless claims printed at 317k, a miss of 309k consensus. However the 4-week moving average is down at a new recovery low, that puts us a bit closer to an interest rate hike. Continuing Claims 4-week moving average also printed a new recovery low.

 USD/JPY dropped below $102 before stabilizing, thank you BOJ...

And Index futures drooped on volume.

I'll likely spend a good portion of the day thumbing through several watchlists and re-scanning for the newest signals, as I said last week when I ran the scan, I had 10 times more sell candidates than buy candidates and of the buy candidates, a fair portion were inverse ETFs, which is essentially the same as being a sell signal.