Yesterday as the minutes came out, the initial market reaction was a dip and then a knee jerk move higher in to distribution and declining TICK easily showing us it was a knee jerk reaction as they almost always are, in addition they are almost always wrong. However, one of the "fleeting glimpses" that you often catch while watching the market during important events was the uptick in accumulation of Treasuries, specifically the 20+ year TLT, 30 year treasury futures and 10 year treasury futures.
This is the specific glimpse I'm talking about in TLT (20+ year bond ETF). The initial dump at 2 pm on the minutes release was accumulated, but this is part of a wider ranging trend.
As we go out in timeframes to say the 3 min chart, the positive divegrence becomes more clear, this continues as you'll see below and when we have a stack of divergences in multiple timeframes, often we come back to some of the fastest ones for timing indications which just so happen to be at the very same moment the minutes were released.
TLT 5 min positive and by now you should be noticing the rounding reversal process from TLT's recent pullback.
TLT 10 min leading positive, the recent pullback and bottoming reversal process. Just remember that treasuries are often a "Flight to Safety", but in this market with scarce collateral and changing F_E_D intensions of what they'll do with assets on their balance sheet (first it was hold until maturity, now it's leaning toward shrinking the balance sheet), there are more dynamics at play than just flight to safety.
The 30 year Treasury futures (15 min) are also positive like TLT which is very similar.
The 30 min 30 year T Futures is leading positive (also note the pullback and reversal process).
At the red arrow the 10-year Treasury futures dropped on this 5 min chart, they were accumulated as well leading to some upside this morning.
The 15 min 10 year chart's leading positive divegrence... I'm sure the picture is emerging.
In addition, VIX futures which have been seeing a positive 3C trend as we get further in to the bounce and toward the end, also gave a unique signal on the knee jerk reaction.
The initial spike higher matches the initial spike lower in stocks, the knee jerk after that sent stocks higher and VIX futures lower, but in to a positive divegrence, again a flight to protection also another hint we were witnessing a transitory knee jerk reaction.
The $USD which has been on a tear this week also had a strong knee jerk reaction,
This is a longer 5 min $USDX chart with a relative negative divegrence working t a certain pace which was increased as the knee jerk reaction made a move higher in the $USD with stocks. *Note the overnight deterioration in $USDX.
And I pointed out the same thing this morning as the knee jerk in $USD fades and takes pairs like USD/JPY down with it.
The Russell 2000's reaction is also worth noting, it not only lagged badly yesterday as it too saw distribution in to its own knee jerk higher even though it closed nearly half a percent lower, but is underperforming today as well and the 15 min (formerly positive) base divergence that I've been watching as a barometer for the end of the bounce phase and the start of the reversal process and decline phase, is now clearly negative.
IWM in to yesterday's post minutes knee jerk reaction with the broader market seeing distribution like the broader market.
And the 15 min (formerly) leading positive IWM base divergence is clearly turned to a leading negative divegrence after being nearly perfectly in line with price for the entire bounce except this week.
Taken with the divergence in High Yield credit yesterday at the knee jerk move, the knee jerk move is a sure thing, meaning its failure is a sure thing as well.
This morning another sign can be found in the MSI which you might think would be squeezed to pop the market higher on the knee jerk, not so.
Yesterday's opening decline in the Most Shorted Index and then moving in line with price, this morning it has fallen out with the SPX again and is trending lower, it looks a lot like the split between HY credit and the SPX.
As such, while I have been waiting for an XLF move above it's range, which was only pennies away, these types of moves (even though it didn't end up creating much of a daily gain) are often useful to short in to and FAZ at this point seems like one of the core positions I want to have nailed down before we get a nasty downside turn.
I'll cover XLF/FAZ in greater detail,
what's important for now is this knee jerk move has holes all through it and quite poor performance for a knee jerk move. The initial move at 2 p.m. was the market's opinion as it looks like Yields are set to fall once again and stocks likely not far behind.
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