A.M. Market Update

First off,  overnight markets have looked horrible following the US's lead, but there's more to what's going on than what price lets on as you saw in last night's oversold breadth condition and our large base with clear support that must be broken in a confirmed head fake move. That's what I've been doing for the last hour and a half, setting a number of alerts this morning, many were triggering as I was setting them, but what I was looking for is a head fake move below the clear support level.

In overnight market's Asia, the Nikkei closed down -1.15%, the Hang Seng -1.90%, the Shanghai Composite - .62%, at last look the Dax -1.94%, the FTSE 100 -1% and CAC-40 -.98%.

Yields are falling as would be expected.

One of the things I was hoping I'd find was the High Yield Credit flows for the week ending Oct. 8th, the previous week saw$2.3 bn in outflows and the 4-week moving average sits at an outflow of $1.1bn, but for the week ending October 8th, we had our first small inflow in a while of $137 million which is only about 0.05% of AUM, but this is the same thing that happened before we had our last bounce, a small HY credit position (long) was taken up, the same way we'd trade a small counter trend bounce.

In Europe this isn't the case, there were $4.3m in outflows for the second week of outflows which represents 1.1% of AUM with the 4 week moving average at $269 m in outflows from HY Credit. The European economy is clearly either on the verge or in a triple dip recession, the German Economic Minister downgraded growth for 2014 and 2015 to 1.25% from 1.8 and 2% respectively.

The $USD as predicted, even though it saw one of the sharpest sell offs in recent memory on the minutes, did exactly what 3C said it would on Wednesday and bounced, however this bounce which hurts stocks and other dollar denominated assets, won't last forever. Take a look.

 The 1 min $USDX...

The 15 min positive divergence from earlier in the week, but the larger theme is the recent stretch of $USD weekly gains is about to break...

The highest probability 60 min chart with a nasty negative divegrence we have seen building for the last couple of weeks.

As for stocks, we needed a head fake move, we predicted a head fake move on the forming of a base from about mid-week, this morning we have it, although it likely still has some time to accumulate, this is an excellent timing indication for a bounce as soon as we can confirm it.

 The QQQ "W" base is seeing the head fake/stop run move we anticipated as early as last Friday...Today was the perfect day for it as I said yesterday.

Here it is in the SPY this morning and on volume, perfect.

As for the important divergences in Index futures, guess what, we have a good start...

 ES 5 min reached reversion to the mean yesterday and is now leading positive, it's a good start.

 NQ is doing the same at 5 min

As is TF.

The 7 min charts are important and we need to see them go next, then we are probably pretty darn safe with a strong base to run a counter trend long trade and even some long option call trades at a great discount.

The 7 min ES chart isn't there yet, but that's why we needed the head fake move opening up supply on the cheap to be accumulated.

The same for NQ

And TF 7 min.

However as pointed out, the overall base looks like it's already in place and I doubt it is abandoned...

The ES 60 min chart shows accumulation at each of the 3 lows.

Finally for now, our VIX Inversion and SPX/RUT Ratio custom indicators...

 The SPX/RUT Ratio indicator has been showing us all week that the market needs to break below the lows of last week where there's clear support and a lot of stops lined up as well as short sellers chasing price, all this = SUPPLY and cheap supply.

Near term we are seeing some easing in the indicator meaning we can start to look for some lateral movement and look for the positive divergences showing the accumulation of stops, if we don't see it,  we simply don't enter a long here, confirmation first.

And with the VIX Inversion which we got a buy signal from yesterday, you can see the last buy signals in red, they run a little early, but the bigger the stronger the move and they are very accurate.

So for now, it's looking for those key divergences on key timeframes and we will likely see some quick entries should they appear as I suspect and as we are already seeing on 5 min charts.

This should be a counter trend swing trade that is well worth the effort.