Daily Wrap

Another weak day.


Today , on an almost anything it takes to move the market as past rumors have had little to no effect, about 4 a.m. this morning (EDT) the rumor that there was a permanent cease-fire plan (put out by Ukraine's Poroshenko) sent Index futures to all time new highs as, but by the close they were at lows for the week.

Here futures run to new highs, Es in purple and NDX futures in green,  by the end of the day they were at the lows for the week.

Here's what the averages looked like today...

SPX closed above 2000, but down -0.08%, NDX- .61% on the back of AAPL having the worst day in 7 months, down -4.22%. The small caps were crushes with the R2K down -.62% and the only average closing green was the large cap dow at +0.06% , while transports lost ground at -0.25% with the Dow Theory divergence still in effect.

The SPX has crossed 2000 numerous times for the last 7 consecutive days...

I count at least 12 breaches of 2000 on the SPX, however the point is more the lack of follow through and the flat trend which is pretty much the same as "The reversal process".

HY Credit hit the lows of the week, despite what we saw starting to develop in HYG today, otherwise HYG looks like this..

 HYG (blue) vs. SPX (green) as credit moves down with the market intraday.

 However HYG which has been leading the market has taken a dip from stage 3 and looks to be moving to stage 4 decline and the market not likely far behind other than some wild card events the rest of the week like the ECB tomorrow and NFP Friday morning.

 HYG's leading status over the SPX, the reversal process of HYG in yellow and the reversal process of SPX in red as HYG starts moving to stage 4.

HY credit is at the lows of the week, much like HG as it has not rallied with the market this week +.

Treasuries essentially closed unchanged...

On this morning's ceasefire rumors, ES popped (purple) while yields dropped (green), but they rallied the rest of the day as the almost immediate denial came from Moscow (10 year yields).

As already mentioned this morning and yesterday, the USD/JPY has been of no help since breaking below $105, having the worst day today in 5 weeks...

ES (purple) vs USD/JPY (green) , the EUR/JPY was the same thing and AUD/JPY was of no help at all.

The $USD lost a bit on the day while the Euro gained a bit on the day ahead of the ECB as the potential for disappointment by the ECB could cause a massive short squeeze in EUR/USD. On the $USD weakness, GLD and SLV gained on the day, but USO had the biggest move at +2.21%, it's a little early to call it a legacy arbitrage trend, but it's kind of looking like what we expected to see last night on some $USD weakness, which makes all 3 trades major wild cards going in to the ECB/Draghi press conference tomorrow. GLD was showing strong 3C profit taking in to the EOD.

GLD profit taking toward the EOD and GDX with outright losses, again nervousness in front of the ECB tomorrow.

USO saw similar profit taking toward the EOD.

While SPX made $2000 on the close, it did not (for once recently) make VWAP...

Almost every day ES has scrambled back up to VWAP by the close, I suspect this is another strong hint of the market weakness as lever after lever continues to fail in a flight from risk.

Pro sentiment which was mildly positive yesterday (LEading Indicator) was in line with lower prices today, not quite the leading fall off the cliff signal, but definitely nervous.

As already shown, HY Credit declined further to lows of the week and in many cases, much worse as HYG struggles to put together a small divergence while moving to stage 4 decline after completing all 3 previous stages.

As for last night's Daily Wrap Dominant Price/Volume Relationships,

"The NDX was totally different with Close Up/Volume Up, which is the most bullish of the 4 relationships, but often creates a 1-day oversold event with a close lower the next day, this was 42 of the NDX 100. The R2K was the same relationship with 1084 and the SPX had no dominant relationship at all. "

They did exactly what they were expected to do with the NDX and R2K both down big on the day and the SPX pretty much near flat.

Tonight's Dominant Price/Volume Relationship was once again fractured which is rare, the NASDAQ and Russell didn't have a dominant relationship while the Dow and SPX were Close Up/Volume Down (12 and 152 stocks respectively). This is the most bearish P/V relationship, however it doesn't have as strong of a next day effect as last night's Russell and NASDAQ relationships. Essentially, for the most part the relationships weren't pointing to anything strong in the current other than a strong sign of weakness in the component stocks.

Of the S&P sectors, 5 of 9 closed green with the Flight to Safety sector, Utilities (like the Dow today-large cap outperformance)  coming in leading position with a +.49% gain, the recent safe haven acting 
Healthcare sector came in second with a +.45% gain followed by Energy and Materials (the commodity bounce) and in last place, none other than Technology.

Only 110 of the 239 Morningstar Industry/Sub-Industry groups closed green, a good portion with less than a +0.20% gain while the remainder closed red.

Breadth indicators, again showed no movement of any consequence other than negative: The COMPQX, R2K, R1K, R3K Advance/Decline lines all declined. As shown with breadth last night...

Market breadth has barely moved at all the last 10-days as you can see by the "Percent of NYSE stocks trading ABOVE their 200 day moving average".


Again we have an 11th day of no breadth movement, at least no positive as most ticked down a bit.

Tomorrow is the ECB meeting with e possibilities or probabilities, they could take the conventional route and tinker with the Main Refi rate, the Lending Rate and the already negative Deposit Rate, although I  suspect that would disappoint the market and there would likely be a huge squeeze in the EUR/USD short, sending the EUR higher and $USD lower. The second possibility/probability would be  rate cuts to the TLTRO program's rates, the third is outright QE, buying of sovereign debt which is against the ECB's charter and is opposed by Germany. This would lead to lawsuits and ultimately there would have to be a treaty change.

The most likely outcome is ABS (asset backed securities) purchases, largely in the form of consumer credit which is bundled and sold as ABS such as mortgages, car loans, credit card debt, etc. and this seems to be what the market is expecting to compliment the TLTRO program, if this should not be implemented (even though the ECB already hired Black Rock to advise on ABS purchases), look for a massive short squeeze in EUR/USD and all kinds of chaos in dollar denominated assets like most commodities and precious metals (oil).  Also what Draghi has to say will be important as there's a press conference after the meeting. 

The ECB has missed their inflation targets for YEARS now and any move would be to reign in deflation.

This week's last wild card event and market moved is Non-Farm Payrolls at 8:30 a.m. EDT Friday morning.

The market is still in need of a head fake move or some support as a lot of stocks are right on the cusp of being excellent short entries, but like FSLR mentioned earlier, their ideal head fake zones are just a bit higher and it looks like short term 3C charts are still expecting such a move,  however don't forget how HYG has led the market and is now moving toward decline even though it leads the market by about a week, in other words, from here the timing is near perfect for a head fake move and turn to stage 4 decline.

We didn't quite get the across the board bearish engulfing pattern on higher volume which is a very effective reversal confirmation, but the Q's did put in a nearly perfect one so it will be interesting as volatility over news the next 2-days kicks up, while the market itself is showing all the signs of being prepared to move to stage 4 decline.

NOT a good sign for the market as the Q's gap up today, fail to hold gains and engulf the last 2-days' bodies on expanding volume, this would almost always be taken as a downside reversal signal starting tomorrow. While it may be delayed, I think the psychology, breadth, signals and the signal are all real, even if delayed for a couple of days.

I'll see you in the a.m. and we'll see what the ECB does...