Market Update

This is more like it and right on command (essentially).

Eight of 10 Sectors are in the green...

Utilities and Energy are down on the day at -.28 and -.88 respectively, everything else is green, the kind of move expected after 2 straight days of the sectors being red.

The divergences look pretty good at this point as well...

 The DIA/DOw got a sudden and pretty strong boost as this 5 min divegrence shows today.

The IWM is lagging in my view, but I think the divegrence is enough to keep it moving and in to rotation as small caps are really where we are deeply oversold.

The QQQ is not only holding near or at the best levels of the day like the other averages , even making it past the European close, but is also showing the best relative strength thanks in part to the COMPQX, NASDAQ Biotechs, Tech and specifically semi-conductors.

IBB, one of the shorts I'm interested in via BIS and has been on the "wait for a bounce" watchlist is now up approx. +2.6% on the day.

The SPY's divegrence obviously caught on at the morning lows which we suspected would change after the initial a.m. shenanigans were over.

TLT which we have expected to see a minor pullback in over the last couple of days after completing a larger pullback from the August highs is down nearly -.40%, so far very much in line with the expected pullback. This is sending our leading indicators, Yields higher which tend to pull equities toward them so all in all, everything is fitting together rather well thus far.

The story of breadth from late yesterday's head fake divergences which as we suspected yesterday, were actually head fake moves, can be seen in the custom SPY/TICK indicator...

The trend from late yesterday was supporting the idea of a head fake move yesterday as was 3C in to the afternoon, you see the typical a.m. games and the trend re-emrgers.

Intraday breadth...

After pulling back in a modest downtrend channel only hiting -800 at the lows, took off to the upside with +1250 and +1300 tick counts showing a pretty decent overall breadth participation, whether enough to undo a lot of the massive damage to any significant degree, remains to be seen, but this is what we needed to see on a breadth based oversold condition, especially among the major industry groups.

I'm definitely bearish on the market, but seeing this bounce which needed to happen today, shows the market is still not at a level in which the unpredictability factor is too high, although its gaining which essentially means, we can still take on short term positions and entries as our forecasts are still reliable and not being overrun by fear and chaos, I gave the AAPL -45% decline as an example of what that looks like, so while my shorts aren't green today, I feel better about new entries and forecasts.

The short list is still being put together as far as the performance now, the alert levels and overall analysis, but this is the time we needed to do that while speculative trades like IWM and XLF calls make a little money on the upside.

The Most Shorted Index is in line, but not leading any particular squeezes above and beyond the market's relative performance.

While HYG is still doing what we expected and diverging from the market today, leading it lower, it was lateral intraday long enough to provide some support for the broad market.

A quick look at Leading Indicators shows our SPX/RUT ratio is not confirming the short term strength today which is good from a short entry in to price strength perspective.

 Short term there's no upside confirmation and as for the larger picture which should give you confidence shorting in to minor price strength...

The August cycle which had not only a VIX inversion buy signal, but also a SPX/RUT ratio buy signal, is leading negative to a huge degree, well below the August lows, which could be taken as saying, the market is artificially high and will likely break lower toward the red indicator below the August lows, so again shorting price strength should be easier emotionally as the indicators agree that this is what we were expecting for the earlier part of the week, while everything important on a larger scale continues to lead as they have even in bullish scenarios and lead much lower.

Both Leading Indicators, pro sentiment showed the probability of a move up today, they show weakness forming in the leading indicators, but aren't showing an end to this bounce yet.

 While the first is in line with the SPX suggesting more to come...

The second is already showing weakness, interpreted as a weak price move, again more confidence to short in to.

While yields as a leading indicator are calling for some more upside as I would expect...

 The SPX should revert to yields higher or thereabouts, meanwhile...

Underlying weakness or smart money not participating in the risk on move is clear in High Yield Credit.

Thus far this everything we expected Friday for the early part of the week and thus far it is everything we expected from an oversold breadth bounce, no real buying strength, just an oversold condition giving us yet another opportunity.

More to follow