Daily Wrap

So much for any hopes of ramping the market to the best possible close for the quarter as late day action  was anything but impressive with HYG initially appearing to try to ramp the market even though we saw distribution through the 1, 2 and 3 min timeframes today (3 min is the longest timeframe its positive divegrence hit), obviously it was an unsuccessful attempt...

 HYG (blue) vs SPX intraday ramped just before 2 p.m. and to no effect.

russell 

The major averages closed between the NDX's +0.06% and the Russell 2000's -1.45%.

For the quarter the R2K saw a loss of -7.95 and a loss of -5.2% on the year . The SPX saw a modest gain of +0.50% on the quarter, the worst quarterly SPX performance since Q4 2012 , the Dow +1.2% on the quarter and the NDX +4.7% on the quarter, an obvious huge divergence between the R2K and the NDX with the SPX and Dow somewhere in the middle close to unchanged.

As a reminder, this is the 15 min chart for all of 2014 and then some of HYG vs the SPX (green).

Treasuries 
The spread (as of yesterday's close) between the 30 year and 10 year is 69 bps, the lowest since the 2009 lows of March 6th which means the yield curve is at its flattest since the worst of the worst for the market.

The yield curve typically looks something like this...

 The shorter maturities like notes, 2, 5, year have a lower yield while the longer maturities like 10 and 30 pay higher yields. However the inversion or flattening of the yield curve is indicative of economic troubles ahead, inversion is a predictor of economic recession. We already know the spread between the 10 and 30 is at the flattest since the 2-009 market lows on MArch 6th, meanwhile for the quarter, the short end at 5 years dramatically underperformed sending 5 year yields higher, again, a flattening like behavior.

5 year yields (green) vs. 10 and 30 (white and blue respectively) for the quarter. There's approx. 30 basis points of flattening for the quarter between the 5 year yield and 30 year.

Not a great bit of news from the treasury complex.

Breadth for the quarter doesn't even need to be addressed, just look at any of the breadth posts and you'll see it dramatically declined starting July 1st, the end of Q2.

On the day, leading indicators had some interesting take-aways, for example, Professional sentiment was up on the day,  which fits with Friday's Week Ahead forecast of a post Q3/Window Dressing bounce as small and mid-caps have been hammered hard, they may be looking interesting as an oversold corrective move, at least that was the thinking Friday as we'd likely have to wait for the quarter and window dressing to end today.

 Our first indicator has been range bound with the market, but up on the day today.

Our second a little different, but accurate and up on the day today.

It's important however to take in the full picture and the very same indicator on a 30 min chart vs the SPX looks like this...

30 min pro sentiment, not far off HYG, 3C charts in the space and certainly breadth.

Also similar to our newer leading indicator, SPX/RUT Ratio, especially at the August cycle head fake highs.

 The indicator, like HYG and many others, led the market to stage 4 decline lows, especially the RUT.

Interestingly as this indicator has been 100% accurate so far, the positive signal it put in at the white trendline allowed the market to hold its ground in to the end of the quarter, but over the day a new leading low, not confirming where SPX price is, developed.  However it is much closer to the IWM and confirming its new low for the cycle.

Indicator (red) vs RUT (green)...

3C charts

In my view, unless the 3C charts were positive just to hold a consolidation pattern, which is usually only a short term e vent on a very short timeframe, I'd say the amount of selling underperforming assets with probably something near 50% of the NASDAQ Composite and 50% of the Russell 2000 stocks in a technical bear market, there certainly wouldn't be much accumulation during window dressing,  this is the reason in the Week Ahead post I suspected if we saw anything it would be post window dressing, Wednesday. I think there's enough room to work with to put in that post Window dressing bounce as a lot of small and mid caps are oversold or viewed as such as they were the worst performers on the quarter and thus sold the heaviest this past week or so. I do think we'll have a clear signal and be able to make a choice of whether to participate or not, at this point I would not because of the small size of any base, but again, I wouldn't expect any kind of accumulation that can move the market while net selling during window dressing is underway.

So window dressing is over, guess what also ends this month? POMO, QE ends Oct. 28th as the F_E_D released the last POMO schedule, after that, all of the retail crowd who believes the F_E_D has their back, will be on their own.

As for Dominant Price Volume Relationships    today, only the Russell and the SPX had one, it was Close Down/Volume Up which is typically a 1-day oversold event with the market closing green the next day, the Dow and NASDAQ had no dominant relationships.

S&P Sectors  Only 3 of 9 sectors closed green today with Tech leading at +.30% and Energy lagging at -1.25%.  The 5 day performance has 8 of 0 red, the 10-day has 9 of 9 red and the 21 day (close to a trading month) has 8 of 9 sectors red, there's certainly a notable change in character there as well.

Morningstar Industry/Sub-Industry Groups  Only 42 of 238 were green today, not as bad as we have seen over the past few weeks, but pretty bad.

On a near term basis, breadth from a S&P and Morningstar Sector perspective is oversold and would be due for a normal corrective bounce.

While breadth did deteriorate today, especially among the Advance / Decline lines, the glaring red flag in breadth indicators is in place already for example, the NASDAQ Composite's Advance / Decline Line...

 NASDAQ Composite A/D line green vs NASDAQ Composite...

 "The Percentage of NYSE 1 Standard Deviation ABOVE their 200-day Moving Average" vs the SPX. These are considered healthy stocks, they have fallen way off to just about 2014 lows.

However we don't even have to look at momentum stocks , just the standard 40 and 200 day moving average and it's clear that this market is not long for the world.

 The Percentage of NYSE stocks ABOVE their 40-day Moving Average (green) vs the SPX

The Percentage of NYSE stocks ABOVE their 200-day Moving Average

Houston, we have a problem....

And on that note, I'll see you in the morning. Have a great evening...