Daily Wrap

All in all, I could go on for hours about the F_O_M_C statement alone, but one of the best descriptions I've heard was "Double Faced". The market has been worried and discounting whether the "Considerable time" language would be removed which it wasn't, but in the press conference, Yellen essentially mad it irrelevant, explaining that everything is data dependent, so why not remove the date dependent language that was described as 6 months by Yellen at the last meeting, between the time QE ends and the time the first interest rake hikes begin which the market had anticipated to be Q3, now it's looking like the market believes January, but going with Yelen's definition and with it still not removed, it's April.

The market expected the language to be removed, at least until unofficial WSJ F_E_D mouthpiece Jon Hilsenrath predicted yesterday it wouldn't be before backing off his prediction today in saying, only the people in the rom know, yet as usual, he seems to be ahead of the curve as a completely meaningless bit of language that has the market up in arms is left in place, but explained away as irrelevant, unless it's really not.


While the central tendency of the forecasts were slightly lower growth and employment, "But still advancing", the rate out look continued to advance to higher levels, those blasted dots! Actually the dots were not that much of a news item as the number of participants seeing rising rates sooner which is mentioned above.

One thing is for sure, data dependent or not, the F_E_D isn't going to get more accommodative, they haven't even missed 1 target taper, they are moving toward policy normalization despite the double talk and mincing of words. There were a big fat two dissensions, both looking for earlier rate guidance to be put out.

If anything, the F_E_D is getting more hawkish. 14 members now see rate hikes in 2015 vs 12 in June. The median F_E_D Funds Rate is now 1.375% at the end of 2015 vs 1.1125 last meeting. While employment is "still gaining", yet has slowed and economic factors are still gaining, but have slowed, median F_E_D funds rate nearly across the board have risen, that was in fact, the only question that seemed to generate a market response through the entire press conference and a negative one at that. "Why, if employment and economic factors have slowed, have rate forecasts risen?" A more hawkish F_E_D!

In any case, if you back away from the semantics, the double talk, the meaningless (or so it seems) policy wording that is not meaningless enough to remove,  one fact is clear, this is a more hawkish F_E_D and they are not on any accommodative policy trip, they are returning to normalization which is anything but good for the market.

As for the charts, when Yellen first started speaking it seems the F_E_D's NY trading desk sent Citadel an order, Slam the VIX, it went from 13.27 before the F_O_M_C to under 12, but , as I had suspected  by the HYG divergence, the attempt to tamp the market on a knee jerk reaction backfired.

 While our minimum upside target from last Friday's "Week Ahead" post was met, the break above the SPX's downtrend which isa technical breakout/buy signal, intraday the SPX nearly saw new highs and then walked back all F_O_M_C gains despite HYG support tick for tick and a coordinated VIX slam the moment Yellen started talking.

The averages on the day since the F_O_M_C looked like this...

To the far left are all 4 major averages at the 2 p.m. policy announcement, first dumped, then pumped and then dumped again giving back all post F_O_M_C gains.

Here the SPX takes a slightly different, albeit weak read on the minutes while bonds (blue) have a more hawkish interpretation.

As seen above with TLT, yields across the curve (5, 10 and 30) all gained post F_O_M_C and managed to hold a good bit of it, a different interpretation than the knee jerk up in stocks that was one of the weakest knee jerks despite HYG and VIX support, which ended losing the gains.

The $USDX reacted as you might expect. Do you recall the drop yesterday in the $USDX and me showing that happening in to a positive divegrence in last night's Daily Wrap? Well apparently there was something to that as the $USDX hit 4 year highs today.

 Yesterday's shellacking in the $USD is barely evident vs today's gain and a strong 15 min positive divegrence yesterday, perhaps there was some inside information floating about?

And this sent the USD/JPY to > $108, too bad about that Index future/ USD/JPY correlation failure, we'd be sitting on SPX $2500 right now.

As the $USD gained, we saw more evidence of the historical $USD Legacy Arbitrage relationship, gone missing for 5 years, start to re-emrge (remember, those who figure out the new dynamics of these changes of character win)...

While retail and the financial media go on about the "New Normal", another way of saying "It's different this time" during a bubble, I see the old correlations roaring back. Commodities dumped on the $USD strength today just like you'd have expected 5+ years ago before the F_E_D's experiment.

All in all the SPX gained +0.13%, the Dow and NASDAQ 100 gained +0.15% and the Russell 2000 gained a paltry +0.25%, one of the most pathetic market days, much less F_E_D knee jerk days I've ever seen.

As for Leading Indicators, you saw how HYG led tick for tick, the SPX...

 HYG (blue) vs the SPX (green).

And the longer term, as I said during the divegrence, "Nothing is going to save HYG from making a lower low.

High Yield Credit is making lower highs/lows while the SPx made the move above the channel we were anticipating. HY credit isn't manipulated like HYG short term, but be sure HYG will follow HY Credit as they can only hold these levers so long before facing massive losses.

In fact, end of day it looked like they may be giving up on the HYG divegrence long before it's due...

While realistically it's too early to say, this is the first negative divegrence in HYG and about the same time the VIX slam failed as well as TICK made lower lows. Tomorrow should be enlightening about short and long term trade direction.

 Our pro sentiment leading indicator was up yesterday in advance of today's action, but in to today, all downhill.

I speculated earlier in the week that the SPX would make a move toward our leading indication using yields, it looks like we were right on as it reverted exactly to the mean.

Now for some interesting stuff... Breadth... 

As far as a Dominant Price/Volume Relationship, the Dow has 13 in Close Up/Volume up, the most bullish of the 4 relationships, but also a 1-day overbought signal. The NDX had 45 in Close Up/Volume Down, the most bearish of the 4 relationships. The R2K and SPX had no dominant relationship at all and there wwas obviously none between the 4 major averages making it virtually a moot point.

Of the 9 S&P sectors, 4 of 9 closed green with Materials leading at +.605 and Energy (probably due to the strong $USD) lagging at -.55%.

Of the 239 Morningstar Industry/sub-industry groups, only 110 closed green.

Here's where it gets interesting... "The Percentage of All NYSE Stocks Trading 2 Standard Deviations Above their 40-day Moving Average" (momentum stocks) went up from 4.6% yesterday to 5.55% today, down from 33% in June.

"The Percentage of All NYSE Stocks Trading 1 Standard Deviation Above their 40-day Moving Average" saw a meager gain from 15.5% yesterday to 19.6% today, down from the average of 56% in July.

It just gets worse from here... "The Percentage of All NYSE Stocks Trading Above their 40-day Moving Average" made a meaningless move from 335 yesterday to 33.33% today, down from the average of 75%

"The Percentage of All NYSE Stocks Trading 2 Standard Deviations Above their 40-day Moving Average"  went from 27.72% to 27.56%, down from the June average of 60%

And the "The Percentage of All NYSE Stocks Trading  Above their 200-day Moving Average"
went from 56.65% yesterday down to 56.03% today, down from the July average of 74% and the "The Percentage of All NYSE Stocks Trading 1 Standard Deviation Above their 200-day Moving Average",  again down from 27.72% yesterday to 27.56% today.

Unbelievable moves or failure to move in breadth, despite the paltry gains in the market.

The HYG divergence is really one of the only things to watch as it has been the only real support as you have seen for the market, if that divergence has ended, we don't have much of anything to keep this facade of a market up.

Remember tomorrow we have the Scottish independence referendum and Friday we have Quadruple witching, wouldn't it be odd if either of those events created more volatility than the F_E_D today.