The US unemployment rate may be around what the F_E_D's objectives were, but it didn't get there without the exclusion of over 9o million Americans from the Labor Force "Participation Rate", it's hard to be counted as unemployed when you are not counted at all because your unemployment benefits expired, that doesn't mean you still don't want or need a job, but it does mean you will no longer be considered part of the workforce or unemployed and as the participation rate drops (especially this year as Congress removed extended benefits from the budget, effecting some 3.1 million Americans this year alone) so does the unemployment rate, although nothing has been fixed.
Europe is looking at a triple dip recession and during the last 5+ years, China has gone from a growth dynamo story to a massive bubble and economy on the verge of the tipping point.
Japan, the 3rd largest economy in the world can't extricate itself from its decades of economic troubles with one of the most ambitious Central planning undertaking seen (considering the time period they have unleashed Abenomics in).
The only reason for the market's rise is the eighth wonder of the world, an enterprise that can literally create money out of thin air just as if you could create wind by waving your hands, the F_E_D and the F_E_D's expansion of their balance sheet from $858 billion 7 years ago almost to the day to more than $4.4 trillion dollars is set to stop growing, to actually decline with increasing interest raters, why traders who cheered POMO's ability to lift the market, don't get that in their "New Normal" in my view is nothing more than denial. If you live in a certain environment long enough, that starts to become a part of your reality, the problem is, this is a dynamic environment with very static views among traders.
As I have recently been comparing the market to a beautiful pier over the water...
It's breadth charts and 3C charts like this...
As for last Friday's, "The Week Ahead" post we were forecasting the following for this week...
-"HYG continues to see 3C distribution...I still expect HYG to break down first and lead the market."
From last Friday's "The Week Ahead"...
-"Yields as a leading indicator worked perfectly, price was drawn to them like a magnet, so looking forward, I suspect some declining yields... The daily TLT chart with out initial post calling for a TLT pullback on 8/26 , the pullback and recent posts calling for an upside reversal which we got today. This should send leading yields lower and the market is attracted to them like a magnet as we saw this week again."
While the shorter term 5 year yields have been working well for intraday and next day trade, the overall yield move for the benchmark 10-year and 30 year did in fact decline and assets prices with them.
From last Friday's, "The Week Ahead"-"I suspect the IWM might try to break the downtrend early in the week and head lower."
While not a perfect call as far as timing, it was right on as far as concept...
And from "The Week Ahead"...
"The macro or larger expected trend for a move lower next week as the head fake is wrapping up is the main forecast."
With more detail, last Friday's Daily Wrap including the additional commentary...
-"The $USD is doing amazingly well. Remember what the $USD did during QE or Dollar destruction via printing? Well it's signing a different song, a telling one at that as well"
This week the $USD closed up for the 11th consecutive week with a 1% gain making new highs not seen since June of 2010, this should tell you something about QE on and QE off as multiple assets reverse , the markets however are immune? Remember the 50+% of the NASDAQ Composite already in a technical bear market down over 20% and what must be near 50% of the Russell 2000 at the same.
-"Gold is down, although you know we are watching gold, GDX/NUGT for a possible reversal"
And gold for the week...
And from last Friday's Daily Wrap...
"Finally, as I said in the week ahead forecast, I think early Monday we'll see some weakness, perhaps in to a bounce later in the day and maybe in to Tuesday, I expect HYG to decline from there as it has already started falling apart. If the 3C charts don't put together an intraday positive after Monday morning, the market will be in nig trouble fast, however based on breadth like the S&P and Morningstar sectors, I'd expect at least 1 day of correction to allow them to try to work off some of that oversold tension, but oversold can quickly turn in to bear material, that's how this market will end."
The market was down on Monday, it's actually where our divergence started, but we didn't get our bounce until Wednesday, you may recall early Wednesday morning in the A.m. Update I ended the post with this important warning ...
"This market's character is clearly changing to the very bearish, it's just not clear if we have slipped over the edge and that's why it's so important the market make an upside attempt in my opinion, TODAY."
Wednesday was the biggest 1-day gain we have seen in 7 weeks!
As for today...
We started the day with a warning in the form of NYSE Margin debt which has seen its second consecutive rise from $460bn to $463 billion, only $3bn off the all time high from Feb 2014 at $466 bn.
At the same time...Investor net worth plunged making its second consecutive new low of 183 bn or as summed up by BofA:
"Risk: NEW LOW for Net free credit at -$183b is major risk should the market drop
Net free credit is free credit balances in cash and margin accounts net of the debit balance in margin accounts. Net free credit dropped to -$183b and moved to a new low below the prior record of -$178b in February. This measure of cash to meet margin calls remains at an extreme low or negative reading below the February 2000 low of $-129b. The risk is if the market drops and triggers margin calls, investors do not have cash and would be forced to sell stocks or get cash from other sources to meet the margin calls. This would exacerbate an equity market sell-off."
Considering market breadth, this is a VERY real threat...
As mentioned, the move this afternoon after the Max-Pain pin (which the market remained in until 2 pm) expired, was helped not only by yesterday's accumulation of stocks at cheap prices, likely sold in to today for a quick buck before the week ends, but they needed the assistance of HYG to get that done which was unexpected given the divegrence for a move that size was already in place.
HYG is doing what we have forecasted since early August, leading the market...
In to this afternoon's seemingly desperate attempt to recoup some of the week's losses,
The MSI went along for the ride, but not much more help than that.
As for our newest indicators...
Our Custom SPY/TICK indicator also told the story from yesterday's lows to today's end of day rally diminishing in to the close...
Our custom indicator shows the changing story and I'm glad to have received several emails this week from members making money with the new custom VIX inversion and SPY/RUT Ratio Indicators , and that without any trade alerts, just from the data which is what I really love to see.
Other than all of the other divergences, we also saw them end of day in Index futures, here's the NASDAQ 100 Index Futures with two divergences, both negative...
The earlier or larger relative negative divegrence was telling us something on the distribution side was bound to happen in to higher prices and to the right we actually see the distribution in to higher prices as it happens.
As for tweaking the Week Ahead forecast, I think Monday will likely see an open close to today's close and start to deteriorate from there. Our Leading Pro Sentiment indicator which forecasted today's bounce is looking the other way for early next week...
Yesterday's leading positive signal for today and today's negative signal for early next week, which fits pretty well with our "Window Dressing" theme at least until Wednesday.
Short term leading 5 year yields are still calling for some near term upside so I might not be too surprised to see SPX 2000 sometime Monday before deterioration sets in.
Also fitting with some early Monday strength fading was today's Dominant Price/Volume Relationship among the component stocks of the major averages, today was extremely DOMINANT with 26 Dow stocks, 92 of the NASDAQ 100, 1132 of the Russell 2000 and 383 of the S&P-500, the relationship across the board was Close Up/Volume Down which is the most bearish of the 4 possible relationships and suggests a 1-day overbought condition which typically sees the next trading day close red.
In addition to that 1-day overbought indication, adding to it, ALL S&P sectors closed green with Energy leading at+1.37 and Utilities lagging at +.24%, however for the 5-day period, all 9 sectors are still in the red as you saw last night out to 21 days.
Of the 238 Morningstar Industry and Sub-Industry groups I track, 220 of 238 closed green, again adding to the 1-day overbought condition.
In Breadth Indicators, we have massive negative divergences in our New High/New Low Indicator as well as the 4 week, 13 week and 26 week versions, all right in the area of the head fake move from last week.
Among all other Breadth Indicators, none of them moved today, not the 1 or 2 standard deviation above the 40 or 2300 day moving average, not the percentage of stocks above their normal 40/200 day moving average, translation, no matter how much the market rallies, even a best day in 7 weeks, breadth is not being repaired at all. None of the Advance/Decline lines saw any improvement and the McClellan Summation Index is now hitting a new low of -1917, trend traders often go short below zero, this is near the extreme low end of the indicator.
As I said earlier today, come Wednesday after the quarter ends and Window Dressing is done, we may see some buying of deeply oversold small caps and perhaps a bounce, although I have no evidence for that yet, we will be watching, but as far as the big picture goes, any strength is to be sold in to in my view while we still can and in many instances, we can't (take our HLF short now well over a 30% gain-it's not one I'd want to enter here, although there are others, it's just a matter of how long. Things are not going well for this market and the new normal is the same old bubble market excuse, "It's different this time", it never is.
Enjoy your weekend and get ready for some more fast and furious gains, they'll just keep getting larger as volatility increases.
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