Morning Update-Reuters At It Again...

Last week Reuters (who has leaked rumors for the ECB in the past that were entirely unfounded and false, but achieved a short term goal of ramping the market or moving the Euro, to the point that many think Reuters is in the ECB's and others' back pocket) have done it again after claiming the ECB would be buying Corporate Bonds last week which was promptly refuted by the Financial times and then by Reuters itself, saying their "Source was wrong" have done it again this morning in a Europe that has seen a struggling Financial sector (specifically Italy) right in to the European close.

Reuters:

"

"The European Central Bank's plan to buy private sector assets may fall short of its goal and pressure is likely to build for bolder action early next year, with government bond purchases an option, ECB sources said.

The euro zone's central bank started buying covered bonds last week and plans to buy asset-backed securities (ABS), or bundled loans, later this year -- both with a view to fostering lending to businesses and thereby supporting the bloc's economy.

ECB President Mario Draghi has said he wants the purchase plans, together with the provision of new cheap loans to banks, to increase the ECB's balance sheet towards its levels of early 2012 -- up to 1 trillion euros higher than today.

But the illiquid nature of the ABS market and the scarcity of quality paper available to buy means the ECB may struggle to achieve the stimulus effect it wants with the current programme.

The ECB's offer to banks in December of a second round of long-term loans, or TLTROs, may help it make progress towards the balance sheet target, but the paltry take-up of the first offer -- just 82.6 billion euros -- does not bode well.

"Some people know that this (the current purchase plan) will not work. It's too small and the problem is much, much bigger," said one source familiar with the matter.

The second source added: "We're perfectly aware these two markets are not that simple and certainly on their own will not be sufficient to expand our balance sheet as we intend."

Asked to comment for this story, an ECB spokesman said: "The targeted long term refinancing operations (TLTRO) and the purchases of ABS and covered bonds have to be seen as a package. The overall impact of these three measures on the balance sheet size of the Eurosystem will be sizeable."

In any case, that seems to be the impetus behind an a.m. gap fill which is not all that strange so I'm not entirely convinced the "Story" did anything.

As for the market this morning, the IWM specifically is looking very interesting.

 This looks like a perfectly normal gap fill on the SPY 1 min chart, a little accumulation at the a.m. lows and distribution in to the gap fill.

The bigger question in my mind is whether the larger positive divergences like this SPY15 min positive which has turned negative will hold up and accumulate on a pullback which would suggest a wider base or if that was the first counter-trend "looking" bear bounce or what looks like a bear market rally, a sharp and very strong move as bear market rallies HAVE to look convincing to do their job. Again, the first bear market rally after the initial break in the Dow in 1929 was quite an impressive 5 month rally with a 50% gain, at least another 4 followed before the Dow bottomed.

As mentioned last week, if there's no sign of accumulation in to lower prices, we'll be headed for a new lower low, in which case being short here is almost a no lose scenario, either as a swing trade or as a longer trend / position trade.

 The IWM is trying to fill its gap, it's already seeing some slippage in intraday trade, but just after these 1-2 min charts things get ugly.

At a 3 min chart you can see the initial base which was different than the other 3 averages as it was a process as the other 3 were a "V" shaped event which is something we expected if you saw Friday's post looking back at Oct. 13th, 14th and 15th when we predicted such a move although they are very uncommon except in bear markets (the "Anchoring Expectations" post).

 QQQ intraday 2 min also with some early morning accumulation on an intraday timeframe and a gap fill that is starting t turn negative now that the gap has been filled.

 Back in mid-October when it seemed VERY unlikely we'd see any upside bounce and much less likely to most that it would be a screaming sentiment changing rally, we noted there was only 1 reason for HYG accumulation which is to support a bounce/rally and now there's only 1 reason to see this kind of distribution in HYG (HY Credit)...

The Custom SPY/TICK Screen shows market breadth fall off in to the move which was largely a lot of small and mid-cap short covering as we predicted the last week of Q3 Window Dressing in late September, long before we had the first sign of any accumulation, the concept just made sense as the boat was too heavy with everyone reaching for the short side and Window Dressing creating some deeply oversold small and mid-caps as they were the worst performers on the quarter, making a squeeze there a no brainer.

As for the SPX/RUT Ration and VIX Term Structure indicators...

 Longer term looking at the last buy signal (which run a bit early) in early August, we noted how much bigger this VIX inversion was, but suspected it would not manifest in the long cycle that we saw in August and beyond, but rather a shorter, sharper, stronger move which is exactly what it did as volatility increases. The SPX/RUT ratio in the middle has been spot on with its calls for bounces, declines and new cycle lower lows.

 Mid term, looking at this rally specifically, note the VIX Term Structure Inversion (bottom/white) signaled around the same time the SPX/RUT Ratio indicator (middle) did and went negative as well.

Closer the last few days have seen strong non-confirmation of price, again suggesting a move lower as I expect for the week.

I'm already set up with shorts : FAZ, SRTY, SQQQ as well as an XLF Put and gold Put as well as a USO (speculative) call.

I'll be holding these in place as this looks like the next inflection/trade point.

I'll be updating some specific assets today, UNg, probably gold, oil, and some stocks.