"Finally, as I said in the week ahead forecast, I think early Monday we'll see some weakness, perhaps in to a bounce later in the day and maybe in to Tuesday, I expect HYG to decline from there as it has already started falling apart. If the 3C charts don't put together an intraday positive after Monday morning, the market will be in big trouble fast, however based on breadth like the S&P and Morningstar sectors, I'd expect at least 1 day of correction to allow them to try to work off some of that oversold tension, but oversold can quickly turn in to bear material, that's how this market will end."
From last Friday's The Week Ahead post,
"You may recall I've brought up the subject of deciding how much weight to place on top-ticking position entries vs just getting in. As the big picture goes, a couple percent here or there will not make a lick of difference 6 months from now. While I think that was an important decision for each trader to make, I now think the market is giving us such a strong message, it shouldn't be ignored and in my view, it leans heavily toward, GWT YOUR POSITIONS IN PLACE, leave some wider stops/take on fewer shares, but get them in place. "
" I suspect the Q's will try to break this flat resistance trendline before heading down, allowing a nice entry in SQQQ long."
So Monday's divergence and yesterday's head fake move were both getting to a critical area which is why I posted the following in this morning's A.m. Update
"The bottom line is breadth is so bad right now, it's hard to believe this market is still standing, if it can't bounce here, I doubt it will be standing very long and I only mean corrective bounce to even our some of the breadth lopsidedness, although I expect it to continue to deteriorate as we move forward. However if this market can't get an oversold bounce or correction going (breadth based), then as I said Friday, it's big trouble for the market which is fine for us, it just doesn't allow us that extra time to enter a few choice short set-ups that need a little market cooperation, I've been highlighting them.
it's so important the market make an upside attempt in my opinion, TODAY."
Between Monday's divergences and yesterday's head fake move, (again the concept holds as it occurred right before the upside reversal and showed confirmed 3C accumulation during it), if it didn't happen today, there was going to be big trouble, especially as bad as breadth has been which was over viewed in last night's Daily Wrap. I'm specifically talking about the number of S&P sectors in the red for two days in a row, the number of Morningstar groups and of course the Dominant P/V relationship along with actual breadth readings which are past the point of absurdity, it really is like a dead market walking.
I don't mean to take this a personal route, but I'm passionate about the market and I recall events that made a big impression on me. My father died of liver disease a number of years ago, but for a good 3 years every time I saw him, I couldn't believe the amount of punishment the human body could take, I couldn't believe someone who looked like he did could still be alive (God rest his soul), while it may sound strange, when I look at market breadth, I have that same feeling of amazement, which is why I call it a gingerbread house and the "Long and Strong" crowd to be whistling past the graveyard.
Whatever it took, the market got it done today. Sure there was some USD/JPY help...There was some VIX help, the Most Shorted Index followed along with stocks but didn't show relative strength above and beyond. This is an event we have been looking for since Friday's Week Ahead forecast so I don't buy the soundbite reasons the market was up today like F_E_D speakers or news out of the PBoC, we've followed this every day , all day for the last 4 days and this was our conclusion, long before any PBoC or F_E_D speakers today.
I posted one target from the Week Ahead post above for the QQQ, I had others as well. As you saw, we fell just short of the target today, this isn't why I posted today's EOD Update with my view that we have more to go on the upside, that was based on charts, but it fits the bill. I posted and SPX target today along the lines of 5 year yields in the Market Update and specific to the Leading Indicator, "Yields" vs the SPX. That would put us north of 2000 which the SPX tried for today but fell short as it bounced off the 50-day moving average which we talked about as a sort of psychological conditioning of the "Buy the Dip " crowd.
Ironically from all of the recent weakness, today's move was the strongest in 7 weeks, why do you think that is from a psychological point of view? These moves that are set up in advance are never random, they always have a purpose to fulfill.
As far as breadth repair... That isn't it...
Also along our expectations, HYG is leading the market and just as importantly...
As you know, our professional sentiment indicator says the market should have some more upside in it, more importantly...
After that, well... Follow the clues (HYG)...
As for market breadth today, you already saw almost no movement in the big picture...
As far as those internals though, a near mirror reversal in the S&P sectors over the last 2-days with 8 of 9 closing green with Health care (which is defensive) leading at +1.75% and Utilities of course in a risk off rotation lagging at -.36% on the day.
Of the 239 Morningstar Groups we track, again a near mirror reversal of the past 2 days with 206 of 239 in the green.
However there's a chink in the armor of internals, the Dominant Price/Volume Relationship for the component stocks of the major averages.
The Dow had the most bullish of the 4 possible relationships with 16 of 30 in the Close Up / Volume Up category, this often leads to a 1-day overbought condition and we close lower the next day, although I'd be willing to give this one a pass. The other averages all closed with the most bearish of the 4 possibilities, Close Up /Volume Down, the NDX with 58 of 100, the R2K with 998 of 2000 and the SPX with 197 of 500. Again, this is the most bearish of the 4 possibilities, although not the strongest next day indication which is why I'm willing to let the Dow slide as the 4 averages didn't share the same relationship and 3 of 4 didn't have a strong next day bias.
As far as I'm concerned, NOTHING has changed since last Friday's Week Ahead Post and everything we've expected this week and what we plan to do with it.
If anything, we just have excellent confirmation that the market is not in the AAPL 2012 panic stage as of yet.
The two Call positions in IWM and XLF will stay in place for the moment, some shorts are already starting to show cracks, AAPL was one today , although I'd give it a bit more time.
Again, we're still VERY much on track. Look for more of the same tomorrow...
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