Daily Wrap

Today's most important Macro-Economic data point (actually the most important US data point for the week), Non-Farm Payrolls came in at a huge miss, breaking the 6 consecutive month streak of 200+ gains and at the worst of 2014 at 144k down from the previous (revised) 212k and on consensus of  230k! The NFP print was at below the lowest estimate at 190k in the range of 190-279k.

However, while bad news would normally be taken as good news, it's the "Slack" in the labor market Yellen is concerned with and just like all economic releases, the devil is in the details. The average hourly earnings gained 2.3% YTD and the average work week was strong at 34.5 hours, this is what Yellen is paying attention to and for the F_E_D's backdoor exit, the Labor Force Participation Rate Dropped to a Record low not seen since 1978 with 92.3 million people not counted in the employment rate which magically dropped from 6.2% to 6.1%.  As long as the number of unemployed keep growing, but are officially not counted, the unemployment rate will fall and the F_E_D has "officially" met their mandate allowing them to exit stage left as they are doing.

While one may here the talking heads saying the bad news was good news and pumped the SPX to a new record close, the truth in the matter is the SPX trend as well as the rest of the market is range bound which is the typical look of a topping reversal process. Here's the AVG's for the week...

 All just managed to close green for the week except the Russell 2000 (yellow), thanks to a late day USD/JPY & AUD/JPY ignition ramp.

However look at the SPX this week relative to $2000

 SPX this week relative to $2000 and now... look at the SPX for the last 2 weeks relative to 2000...

SPX last 2 weeks relative to $2000.

The Index futures completely ignored a 6 year high in USD/JPY last night, instead moving the opposite direction, down, but when they needed to close green on the week and recapture 2000, the carry trades lit up.

 USD/JPY ramping ES today...

And AUD/JPY doing the same.

The $USDX closed at 14 month highs on the week, largely due to Euro weakness after the ECB/Draghi policy announcement, but even before which is the opposite of what happened to the $USD under QE.

The one lever that tried to help the market the last two days for a small intraday run/support, HYG, failed as it is on its way to a lower low.

 High Yield Corporate Credit ultimately wanted nothing to do with anything that wasn't moving lower.

This is important because HYG leads the market as we know through various schemes including the SPY arbitrage with TLT and VXX.

 If you look at the las couple of weeks, HYG went from stage 22 rally to stage 3 top 4 days before the SPX and then spent 9 days in the range, then the SPX moved in to the range 4 days after HYG and has now spent 9 days in the range. HYG is leading the SPX by 4 days in stage 4 decline.

Interestingly, HYG bottomed and started up 5 days before the SPX at the early August base and spent 11-days in stage 2 rally as the SPX spent the same amount of time in stage 2 rally.  It would seem to me the Leading Indicator, HYG we've been using for years as such, probably should not be ignored.

HY Credit overall plunged this week and today as well, also wanting nothing to do with anything but down.

I mentioned TLT, 20+ year Bond ETF, well 30 year treasuries had their worst weak year to date.

Recall last week this post on 8/26, TLT / Treasuries

"Here's TLT, it looks like it's going to pullback"

In fact I asked somewhat rhetorically whether we might see a reversion to the mean between Treasury yields and the SPX...

It wouldn't take much except maybe the SPX making an effort to meet yields half way and judging by a number of factors, for the sake of this post lets just say HYG's lead, it seems highly plausible.

As far as other action today, I think I covered most of what I saw intraday today which was relatively boring. The SPX recaptured 2000 and a new ATH for the weekend, however all was not well with the market, even though quite a few of our trade set-ups are moving in the right direction just after they were posted so it looks like some timely entries. However I mentioned decaying breadth once again and PCLN was a fine example of why breadth indicators like "Percentage of NYSE Stocks Trading Above Their 200-day Moving Average" are falling again as PCLN slipped below its 200-day ma today on volume.

As far as internals, not much of note except 9 of 9 S&P sectors closed green with the defensive Utilities leading with a +1.25% gain and the risk on financials lagging with a +0.13% gain. The Morningstar sectors were close as well with 190 of 239 green,  however the Dominant Price/Volume Relationship among the component stocks of the major averages came in at Price Up / Volume Down which is the most bearish of the 4 relationships with 15 of the Dow 30, 52 of the NDX100 and 240 of the SPX.

Otherwise, breadth barely moved again, yesterday it turned down, today it stayed almost exactly in place, that's not a good sign when a small decline sends breadth significantly lower (new lows on the week) while a new ATH barely budges breadth.

As I said earlier, a head fake move in the averages is a high probability (a false breakout or failed breakout) and lord knows we have the range to attract one, however with the watchlist stocks giving strong strategic and tactical signals of their own, they've said more about near term market direction than the market.
 The point being, while a head fake move serves as an excellent timing marker as they typically occur just before a move to a new stage like 4 (decline) just as they did the day before the first day of rally for August, unless you are looking at inverse market ETFs, the watchlist stocks themselves are giving excellent signals.

I suspect we have a little more sideways chop and maybe that head fake move we anticipated for this week, however I strongly suspect we'll be in stage 4 decline sometime next week, if we use HYG's leading example, it should be sooner than later in the week.


Have a great weekend, I'm looking forward to setting up the rest of some good looking positions and letting them work.