Daily Wrap

I don't think today's market action which was a lot more bearish than prices reflect, should be any big surprise. Early this morning the first thing I posted was ,Overnight Futures Look Nervous and they did.

The Most Shorted Index I use (of Russell 3000 component stocks) tracked the R3K nearly perfectly,

The Most Shorted Index (red) vs. Russell 3000 Green.

One of several things I noticed and commented on was the failure of the short squeeze, which in the recent past would easily last through the day, today it was showing cracks by 11 a.m. and we were in a QQQ put by 11:30 which returned nearly 50% for 4.5 hours. Even our late day SLV put trade is in the green double digits now, although as you know, I think that's only a pullback and precious metals and miners are headed much higher which tells us something about what the market is really afraid of, being PM's are bought on inflationary fears.

Additionally the VIX which use to be a key lever in hammering the market higher (by pushing the VIX lower), barely moved, that goes for VXX, short term VIX futures and VIX futures.

Here the VIX outperforms the SPX (prices inverted) by a hefty margin.

I'd say, "Another lever breaks" and even though a short squeeze can move a market, it can't support one. Think about some of the past short squeezes which included the February rally/cycle, the move from the bear flag of mid-May to recent prices and the F_O_M_C knee jerk reaction which I think we can clearly call a knee jerk reaction now that the SPY, the IWM, IYT and DIA have retraced ALL of the knee jerk move, only the QQQ has failed to do so as of yet, but it did leave a shooting star like candle today on heavy volume and has moved all of -0.14% (loss) over the last nearly 3 trading weeks (2-days shy), leaving a wake of small bodied (bearish) candles over the same period. The Dow ended the day with the worst performance in 5 weeks.

While one average after another has taken the role of leader or laggard, the disconnect between them is so great, it's nothing resembling normal, healthy rotation, as an equity bull that would be throwing up red flags alone (take today's Dow and SPX nearly in line with the R2K performing worse at 1% down which is pretty close to normal, but the NDX down -.14%, even though it was the clear leader earlier today on the squeeze-that's not normal).

The lever of VIX hammering is not only not working, but as the market saw a short squeeze early today, it failed to budge the VIX, the same can largely be said about VIX futures and short term futures.

This almost makes you wonder how bad the market would be if Yellen hadn't said some of the things no one expected her to say, like there's more or less no bubble. With the VIX acting like this the market is either scared to death that she is behind the curve or really needed her to say that lest they have a drop on their hands they can't slow down from the NY F_E_D.

The point is, this is VERY unusual VIX behavior and we know what SKEW has been doing since the FOMC.

Transports have fell -1.5% the last 2-days and ETFs of the major averages are underperforming the underlying, which is interesting because while the ETF's try to mimic 1-day performance, it's 1-day performance. You can often get a feel for how traders feel by seeing the difference between the ETFs they trade vs the underlying which is of course the weighted average of all the component stocks.

Treasuries (the Flight to Safety Trade) were bid today sending the 10-year yield lower which is one of the biggest signals I have posted recently that has been consistent in calling market tops (and bottoms when yields are up) with the TBT short trade now working and in the green.

All but 2 S&P sectors closed in the red and the green ones were, Healthcare barely green at +0.07% and of course the flight to safety sector, Utilities up +.30%.

The Carry's saw USD/JPY pump and then dump, AUD/JPY (the recent leader for the market) just dumped and EUR/JPY was pretty flat as it has been pretty much all year.

There are quite a few nice looking trades setting up, I don't want to chase any of them, but a few include SCTY, PCLN, NFLX, AMZN (looking interesting), GS, HPQ, UVXY which I almost wish I had gotten involved in earlier today, but I don't think it's quite there for a swing trade.

I'll be adding more and more as well as Trade Ideas as the alerts for the candidates like the ones above, start to trigger.