Market Update

Despite a plethora or perhaps a cornucopia of bad news overnight, Germany in particular with confirmed slow down and likely a triple dip recession as Industrial Production from Germany was a horror-show as well as Japan's Misery Index and all of the recent talk about a weak Yen (look for this to be a big deal, back in April of 2013 (the posts are linked on the member's site to the right called, "A Currency Crisis"), it's ironic because my forecast back then as Japan was unleashing QE-Zilla, was that the Yen would appreciate at the same time the market moves to a bear market and that is all we have been hearing out of Japan recently, "Defending the Yen", Unacceptable levels in the USD/JPY", "Weak Yen hurting consumers and small business", etc. So I think that's an ironic sign of the times as sometimes long range forecasts, broadly speaking, are easier to make.

I digress... Even with all of the bad news swirling around today including an IMF global growth forecast cut, I still think there's a very specific cycle that is being formed as the market has been doing exactly as we forecasted Friday and the SRTY/SQQQ longs (3x short IWM and QQQ) continue to work well as they were entered Friday after closing URTY and TQQQ longs (3x long QQQ and IWM) which were opened Wednesday after closing SRTY and SQQQ that same day. In essence, we have hit every minor swing in the market, but I'm looking for the evidence of first a base and second what kind of base which will help tell me what we are looking at shorter term, as in week to weeks, I know what we are looking at longer term or continuing , especially if you use the Russell 2000 as your market barometer which I think is most accurate given all the other data.

So in perusing around this morning, here are some things I noticed and you'll see that not everything is as it appears, which is why we wait for strong confirmation rather than guesses.

 My Custom SPX/RUT Ratio shows a short term (week or so) divergence between it and the SPX as it has made lower lows where the SPX has not, although that is one of the basing scenarios, a pullback in price toward the lows of last week. This indicator has been VERY accurate, it's not a Holy Grail, but it has been very effective thus far so I think, unless or until we see a strong signal saying something otherwise from this indicator, it's pretty safe to say we remain in a bearish consolidation, perhaps worse, although I'm not making that case at this moment.

 On an intraday basis it's in line with the SPX with a little recent weakness as of the capture, interestingly, since then the SPX has moved lower as the indicator was forecasting. and now near the lows of the day.

HYG (HY Corp. Credit) is in line on the day almost perfectly with the SPX.

 Taking a slightly larger view, HYG was leading the SPX and then leading it negative and now has a slight positive bias very short term.

 Taking an even wider view (this is the multiple timeframe analysis I was talking about when I said things aren't what they seem if you view the entire picture) we see HYG leading the SPX at last week's lows, it did the same at the August lows on 8/1 and led the market higher and overall it's still leading for what I would call a short term move that may be around Swing+ (week to weeks if everything plays out perfectly and as expected).

 Here's the larger view or primary trend that is essentially telling us, no matter what happens from a bounce perspective, it's just a matter of time before the market is in a full blown bear market.

HYG's 3C charts are important as well as to where it's going, how much support it will give.The 1 min chart is similar to the market averages, leading negative

The 2 min chart shows the history with a negative sending HYG lower and a positive at last week's lows sending it higher and a current negative similar to the market averages.

I'd think this would have to firm up a bit before we could look at any "potential" bounce seriously, especially trading it.

The 10 min chart shows clear distribution areas sending HYG lower and our most recent positive with a slight relative negative right now. HYG leads the market so these charts and how they develop over the next day or so will be very telling.

 Pro-sentiment Leading Indicator is in line with price so no short term help there as of now.

Yields are also pointing lower so I continue to think a pullback or more of a pullback is still in store which could be an inverse H&S pattern or "W" bottom or perhaps these divergences just give way and we head lower, this is why,  we confirm.

 TICK improved modestly today, on the upside though there's no trend, it's all on the sell side.

Intraday QQQ 1 min had a small negative this morning and that resolved with a move lower

Taking a wider view of the same 1 min QQQ chart, you can see the negative divergence is bigger than thought from the chart above.

 There's a potential 5 min positive divergence, but it's hard to give it too much weight because a lot of it's formation is due to the heavy distribution at the QQQ's August cycle top.

I do think we bounce, but I think there's still work to do to get there.

IWM 1 min in an overall leading negative divegrence...

SPY 1 min was in line

A wider view of the same chart shows the dominant divergence is in leading negative position.

And the 2 min showing distribution at the chimney (igloo top) and the first positive divegrence, but much too sharp to be a sustainable base alone.

 ES 5 min is still in leading negative position so I'll stick with the SRTY/SQQQ long (IWM and QQQ 3x short) positions until I see something that moves me to take some other action.

The 15 min chart is reasonable, the positive divegrence and the negative divegrence because any bounce is in need of a larger base, this represents what I've been forecasting since last week.

The 30 min chart shows essentially the same with a little bigger positive at the lows of last week.

However, this ends one way, the same way the long term HYG chart predicts or long term 3C charts, ES 4 hour is leading negative so this is the highest long term probability. In other words, in the absence of a bounce, we should expect moves to new cycle lows, then counter trend bounces followed by a move to a new cycle low and so on.

TICK today is mushy like yesterday without much direction, but definitely on the negative side at -1500 and solid -1250 whereas on the buy side it has only hit +1000 once or so.

I'm still looking for either an inverse H&S price pattern, I doubt it will be a real Inverse H&S or carry the effectiveness of a real Inverse H&S, or perhaps some sort of "W" or double bottom. I'll stay in the shorts until I see something SCREAMING to switch trading positions, however if I'm not a trader, then I just sit patiently in my shorts and I believe I'll be very happy for having done so.