Daily Wrap

More Noise, but continued Russell 2000 outperformance, however it has been hit the hardest which tells you something in itself as the Russell should always lead rallies.

 Overnight started with a USD/JPY ramp which broke the $102 level by about 8 a.m. this morning gapping US averages higher. The AUD/JPY has been in control recently, but as we saw yesterday there were already negative divergences in the single currency $AUD futures leading me to believe the pair wouldn't hold up much longer, apparently rumors abound again that the RBA will have to cut rates before the end of the year pressuring the $SUD.

So USD/JPY was in control, but not without its own issues as you can see a clear negative divegrence, we saw an intraday negative divegrence in $USDX and a 5 min positive in the Yen, I suspect BOJ intervention as the $102 level is their line in the sand. Since capturing this chart, the divergence is even worse, leading negative with 3C at the lows seen around 4 a.m. to the far left.

 Es/SPX E-mini Futures had a hard time keeping up with the USD/JPY sponsored ramp (ES in purple), however as I posted in the A.M. Update, the Russell 2000 futures had and still have the strongest 5 min chart which is a significant timeframe for swing or near term trades.

Here's the USD/JPY vs TF (purple) today, a lot closer than ES.

As far as intraday performance...

At both of these areas we saw significant selling as shown by the NYSE TICK Index with both hitting readings deeper than -1250, the first seems to have been around the time Portugal's Banco Espirito Santo called off their investor meeting, remember when they first popped up on the radar as a possible default, soveriegn yields had been hit on the PIIGS nations in Europe within an hour so thee's definitely contagion fears over BES. The second event was sanctions, another -1250 TICK reading, a lot worse than what price action alone depicts.

Our short in Transports seems to be working out and entered at the right place, this of course doesn't rule out a bounce, we actually need one to add the rest of the position. Here's some recent relative performance among the averages which saw all of the majors close red today except the Russell 2000 which was predictable this morning looking at the 5 min Index Futures.

 These are the major averages and Transports (salmon) for today with the Russell 2000 (yellow) leading with a +0.21% gain, transports down -1.37% today and down around -3.4% since last Thursday when prices broke above the Ascending (bearish) Wedge, one of my favorite spots to short a wedge and with distribution like this...

This was almost a no brainer. This is a 60 min chart, this is very unusually distribution as it's normally a process, this is as close as you get to an event and on a very strong timeframe and a very deep leading negative divegrence.


 This is the performance of the majors since July 1, that's the Russell 2000 lagging in yellow and of course Transports quickly falling (salmon) over the last several days.

This is performance of the majors and transports since the last F_O_M_C meeting on 6/18.

As far as other indications, it wasn't a smoking gun day, but it was more along the lines of what you'd expect, for instance, High Yield Credit vs the SPX intraday...

 HYG (High Yield Corp. Credit) vs the SPX intraday

This is HYG vs the SPX with a huge decline since July 1 at the red arrow.

 Here's High Yield Credit intraday.

And High Yield Credit vs the SPX, obviously not buying what the equity market is willing to.

Treasuries also weren't buying it today either...

10 year yield (blue) vs the SPX intraday (normally this would move with the SPX, the 10 year was clearly moving the opposite direction on the gap up open.

The VIX's Rising 3 Methods (bullish continuation consolidation pattern) is still intact and appears to be moving toward its resolution.

VIX Daily Rising 3 Methods Price pattern.

As for breadth we are hitting some of the worst of the year and well beyond.

The Russell 2000 has now seen 5 consecutive days of decline in its Advance/Decline line, by far the worst of the year for the month of July.

The exact same is true of the Russell 3000.

  This is the worst breadth reading of the year , Percentage of NYSE stocks Trading ABOVE their 40-day moving average. We haven't seen a decline like this in a non-corrective period (SPX in red) since 2007's top.

 Percentage of NYSE stocks 2 standard deviations ABOVE their 200-day moving average have seen the largest non-pullback decline f not the largest decline period, back to mid-April percentages even though price (red) is no where near the same levels.

The Percentage of NYSE stocks trading 1 standard deviation above their 40-day moving average nearly at the lows of the year, despite price being just off the highs, a major crush to market breadth.


Today 8 of 9 S&P sectors closed red, only Healthcare was green at +0.08%. Of the 239 Morningstar Industry and Sub-Industry groups, only 68 of 239 closed green.

The Dominant Price/Volume Relationship among the Major Averages (components) was Close Down/Volume Up in the Dow, NDX and the SPX. The typical reaction to this relationship is a close higher the next day as Close Down/Volume up typically represents a 1-day oversold condition. Looking at breadth and the S&P and Morningstar sectors, they look oversold as well. The Price/Volume Relationship wasn't dominant through all averages, the SPX was left out.

The thing that kind of makes this a wild-card and not the predictive indication it would usually be is GDP tomorrow morning at 8:30 and the F_O_M_C at 2 p.m.

We have found what appear to be F_O_M_C leaks 3 times in the past, very clearly so I always watch for them as rare as they are, but I suspect as we have seen the last couple of weeks, the market will be in discounting mode, I'D JUST REMIND YOU TO BE MINDFUL OF THE KNEE JERK REACTIONS TO BOTH.

In addition, Argentina may be in default this time tomorrow and the US "may" be in recession.