Market Update

This morning things are a little interesting from the perspective of what was anticipated last week for the The Week Ahead. This is just a reminder of that post because the context of where the market is now is what is interesting and the underlying trade, so the expectations for this week from Friday's post (the more interesting parts in bold),

"While I can't pinpoint the exact moment, my guess is HYG is used to boost the market, maybe even our head fake move because the market itself just doesn't have the positive short term divergences to do it alone. However after that, I'll say HYG will be headed straight back down and I'm guessing this happens before the policy announcement on Wednesday. Judging by the scramble toward our set-up targets in several of our short set up plays today, despite a red market, it looks like they are in a hurry to get that move in place and I suspect HYG is going to help early in the week and then retreat before the market.

So rather than last week's "More of the same" sideways chop, I think the SPX's downtrend of lower highs and lower lows I have posted several times this week is a target for technical traders and HYG will likely sponsor the move"

Not only did HYG sponsor the move, but later that night (Friday) I wrote from a breadth perspective and showed the market to be in a 1-day oversold BREADTH condition, not percentage price move, although Tuesday was down and the following day, Wednesday we saw a bounce. I thought we'd see something like that, although slightly bigger because of HYG and as we saw in to Monday and early yesterday morning, because of a day long positive divegrence in the averages that las week didn't have, so this morning's charts are interesting from that perspective of what was expected and about when and how as well as to where (the head fake move still being on the table and we aren't far from it, but the SPX's downtrend being the essential technical target which was hit).

This morning HYG is still leading the SPX,

 HYG in red vs SPY in green, yesterday and today. There was some debate about AUD/JPY leading yesterday, I suspect it has some influence, but at the end of the day ES stuck with HYG a lot closer than AUD/JPY. This morning...

AUD/JPY (candlesticks) has virtually no correlation with SPX futures (purple).

From a 3C perspective, in yesterday's first market update the positive divegrence from Monday and early Tuesday morning was shown as well as some very early distribution. As of this morning, considering the context of the "Week Ahead post" linked and quoted above, here's what we have in the averages.

 SPY  5 min chart which is where the positive divegrence Monday and Tuesday morning reached,. We see 3C in line with the downtrend from last week and putting in a positive divegrence Monday and early Tuesday as we expected on Friday for there to be early strength in the market this week at least breaking above the SPX's established downtrend and maybe even the head fake move (Igloo with Chimney) we have been looking for going on weeks now as it is an excellent entry for shorts and timing indication as you'll see below.

Yesterday there was some negative divergences forming in the earliest charts as they always do, but hadn't reached the 5 min. chart which they are starting to this morning.

 The faster intraday charts show the damage first and if it is strong enough it moves to the next longest timeframe (the concept of migration of a divergence in multiple timeframe analysis). This 1 min chart is looking pretty bad, especially in to yesterday afternoon where we lost momentum and this morning with a new leading negative low.

This divergence was strong enough and migrated to the 2 min chart with a leading negative divegrence.

 As well as the 3 min chart and as seen above, is now moving to the 5 min chart where it ultimately need to go negative for a downside reversal (taking the F_E_D out of the analysis for concept).

 The IWM 5 min (IWM lagged yesterday) is still in line...

The 1 and 2 min chart above are starting to see migration of the distribution process from Monday's accumulation or mini base for this week's expected move before the F_E_D.

 And here it is on a 3 min chart so it's not far from hitting the 5 min IWM chart.

The QQQ 5 min is also still in line.

However intraday charts are seeing distribution of the move and migrating, the 1 min above and...

The 2 min chart.

It looks like the Most Shorted Index was squeezed on the open, although it didn't last long, I'm guessing this is mostly Russell 2000 names as there are so many that would be deeply oversold with 40% down by 20% or more.

 The most impressive divegrence has been  HYG's ,  note the head fake stop run just before the upside move in HYG.  There's also some damage reaching this chart, but not all out so I think a F_E_D inspired knee jerk move to the upside with HYG could still create the stage 3 head fake move we have been looking for for at least 2 weeks now which as you see above, is an excellent timing signal for a reversal, except this time to the downside, especially since F_E_D knee jerk moves (whether up or down) are almost always wrong and retraced.

 TICK is very quiet at +700/-500 today from yesterday's late afternoon breadth decline.

On a trend basis, it's also declining for this specific move forecasted for this week on Friday. Today is in the white box to the far right.

My custom SPX/R2K ratio indicator still isn't confirming any upside form this move (on the week).

Otherwise it's probably a bit early for other leading indicators.

If it weren't for the F_E_D wild card (and who knows which way it goes short term, but we all know which way it's going on a big picture basis), this move would just continue doing what we forecast, maybe hit the head fake area as HYG is still in the game and then fall.

I'm going to spend about an hour looking for any signs of a F_E_D leak as the news embargoed F_E_D policy statement comes to them soon. Otherwise, the intraday action in to the policy announcement will be important and there may be a number of trade ideas called out quickly so I may be a bit slow on email responses today.

I'll try to get to as many updates and position set ups as possible as I come across them as several have hit alerts this morning, FSLR, IYT, AAPL, MCP (that's a different trade, but looking better and better), XLF and FAZ as well as COF all triggered this morning so far.

More to come as it pops up.