Time is on the Dow's Side Today, but Not For Long

Because there isn't much else. Yesterday's late day divergences were small and the larger trend is very ugly. I doubt the Dow could hold 17k through a full market day, so it has less than 2 hours, thus time is one of the only things on its side.

The TICK still hasn't pushed any higher than +750 which is a normal day's reading, not the reading of a breakout high above a millennial number. Treasuries are starting to pare their NFP losses, JPM pulled forward their guidance on rate hikes from Q4 2015 to Q3 2015 and sees the possibility of a Q2 rate hike (again, this is the stuff of bear markets, but the market doesn't wait for the rate hike, the market discounts 6 to 12 months in advance), this is still below Bullard's possibility of a rate hike in Q1 2015, from JPM...

We are pulling forward our projection for Fed tightening (the first time we have done so in recent memory); we now see lift-off occurring in 15Q3, rather than 15Q4. For year-end 2015 we see the funds rate at 1.0%, for 2016 2.5%, and for 2017 3.5%.

The inexorable decline in the unemployment rate, alongside firming core PCE inflation, is dramatically reducing the degree to which the Fed is missing on its mandate. It's true that the decline in unemployment is occurring alongside anemic GDP growth (we are also today lowering our tracking of Q2 GDP from 3.0% to 2.5%), but the Fed's mandate is not to ensure strong productivity growth, it's to get the economy back to full employment and price stability, and even broad measures of labor underutilization have been showing marked improvements in recent months. It's also true that wage inflation has not materially accelerated, but unit labor costs are picking up, and we believe the Committee has only limited appetite to wait on inflation until they can "see the whites of their eyes."

Indeed, after today's' report a Q2 tightening seems plausible. 

As mentioned, this is still later than Bullard's (St. Louis F_E_D President) warning that rate hikes may be as soon as Q1 2015.

This is why the SKEW has surged, which means smart money is buying out of the money puts at low strike prices in such quantity that it is causing prices to rise above the normal Black Schoals options pricing model, in other words, they fear a market crash.

Look at the dramatic climb in SKEW, especially since the F_O_M_C, now in crash territory above 135-140, this happened late last year, but the F_E_D talked the market down with promises of holding rates down for a long time, however, this time the market knows it's not up to the F_E_D anymore, it's the employment data improving and inflation rising, they have no choice but to act, just as the BIS warned over the weekend, "Leading Central banks should not make the mistake of raising rates too slowly or too late", this is all about inflation which is throwing a monkey wrench in the F_E_D's already hasty exit from accommodative policy.


However, it's not the above that I'm focussed on, that's the backdrop, it's what I can measure and see objectively.

Intraday DIA will be lucky to hold on to 1 p.m. at this rate of distribution intraday.

The larger DIA trend in the head fake period above the flag from 6/25 to 6/30 (convieneintly-end of quarter)  has seen the worst leading negative divergence in an already horrible longer term, underlying flow backdrop.

Not even the Most Shorted Index will budge higher, the shorts left (I suspect all pros at this point), aren't being scared out of their positions.

And yesterday I suspected High Yield Corp. Credit "may" try to help the market, but so far it wants nothing to do with any further upside risks.

And professional sentiment is NOT buying today's Dow 17k move, they continue to sell since the move above the bear flag-like price pattern, the head fake move where distribution has been high this week.