Since this morning's A.M. Update and futures action in which it looked like US Index futures, well ES / SPX futures specifically were set to make an opening upside reversal and move higher, in to a flop as represented by the 5 min chart, I've found some additional data as I knew I had the charts in my head and just needed to pull them out as the familiarity was a bit annoying, so I did.
Looking at the NDX which was one of the Index Futures pre-market without any kind of positive divegrence and instead was nearly perfectly in line with the losses it had seen since just after the European open, I looked at the Q's after the open, remember too all of the 5 min charts for Index futures have a sharp drop off in 3C , they also have a relationship intraday most of the week that is inline, but a large relative negative divegrence from last Friday to now.
This hopefully will come together and make some sense for you...
This is NQ/NASDAQ 100 futures before the open with a negative divegrence around the European open sending prices lower (1 min chart) and it remaining in line through the open, however it has seen some upside which remains unconfirmed, thus there's a higher probability that this intraday opening move higher will fail.
The current chart looks like this...
Again a large overnight divegrence in to the European open with some downside and before pre-market trade a sharper drop and then in line at pre-market. The cash open volatility higher (or lower) is about as dependable as the sun rising, the early games that are played running stops or gunning for limits which is why few professional traders are interested in early market action or in trading it unless they have a specific edge. I know several pro traders who won't get out of bed until after 10 a.m. and won't consider a trade before 1 a.m. (As an aside, look up the NYSE Specialists ability to influence stocks they make a market it, it's not the best ask/bid like NASDAQ, it's what the Specialist deems reasonable given the depth of orders
and NYSE stocks do NOT have to open at 9:30, again, that's up to the specialist. I had a very profitable SKF/2x short financials that couldn't be realized because the specialist didn't open the market for SKF until 10:30 and by that time the gains were all but gone).
Looking at the Q's, again, no confirmation on a 1 min chart. Considering the lack of NQ confirmation and this QQQ divergence, this is the reason I put out the intraday update about the QQQ fading the open.
Since Friday to the far left, this is what the QQQ trend has been this week. I noted the last two days sharper sell offs, not only here but in other assets and leading indicators as well.
This is somewhat similar to the NQ 5 min chart that has been in a week long relative negative divegrence from last week to today...
The NQ 5 min with a large relative negative at the red arrow while intraday had remained in line, there was some kind of support to keep the market from making any downside moves on the week of Black Friday, I think there's an obvious reason for that considering how bad consumer sentiment is going in to Black Friday and the Nor-easter likely to slam the east coast of the US on the busiest shopping day of the year. The Richmond F_E_D confirmed fewer hours, less employees, worse business conditions so there's an obvious reason consumers are feeling pinched. Additionally Initial Jobless Claims spiked above 300k at 313k this week, the biggest miss in almost a year, again the consumer has every reason to feel cynical toward the economy and their place in it. Chicago PMI saw the 4th biggest drop since Lehman this morning and the University of Michigan Confidence came in at the biggest miss in over a year.
A crashing market on the news wouldn't be helpful to that already negative consumer sentiment, but more on that in a minute.
That doesn't change the trend and where the macro economic indicators are pointing like this 10 min QQQ chart with accumulation at the October lows like we said when few believed it possible and now a HUGE divergence through the cycle as 3C plumbs new depths. This is bad and is not just reflected as a macro trend here, but...
This 4 hour chart of NQ futures shows the divergence in to September, leading to the October lows (Dow loses 1200 points in 3 weeks) and the leading negative divegrence through the October rally.
Heck if we are talking macro...
The 2 hour QQQ shows the same thing at the September highs which was the head fake move for the August rally cycle sending prices down to October lows if anyone remembers what sentiment was like then, as bearish as it has been over the last 5 years and now the October rally's 3C divergence is EXACTLY what we expected to see and predicted BEFORE the October rally even started, how can we have a bigger move down without an enormous divergence?
I'll even go 1 further, the macro QQQ daily in to 2014 and the Broadening Top.
If you wonder when? Almost every top has looked similar in time scale, it takes time for institutional funds to sell holdings, Appaloosa had already been 15 months in to it as of last May, "Selling everything not nailed down", which is why 3C looks the way it does. The question of when I believe is "Any moment", I say this because these divergences are literally off the chart. We have no historical precedent for such large divergences, but we also have no historical precedent for what caused this move, $4trillion in F_E_D Balance sheet expansion from about 850 billion in 2008.
I'm getting way off track, I'm actually looking at the near term and probabilities, it's just these bigger picture charts can't be ignored, no matter how hard they are to believe, they will surpass the area of the first negative divegrence, I believe they easily surpass the 2009 lows in time.
Back to this morning...
ES had a positive divegrence pre-market, strangely it hasn't moved much. Looking at SPY after the open...
This chart is nearly perfectly in line (1 min) save for a couple of smaller divergences. However think about the 5 min ES/SPX chart shown this morning...
On a similar timeframe, SPY's 5 min chart looks a lot like ES's 5 min chart, you might say worse
as the gap up Friday on a surprise Chinese central bank rate cut gapped higher, but was sold in to as 3C shows and as price follows., since it hasn't been good and I think that's because the head fake move was already in place, no one knew about the PBoC rate cut, there was a knee jerk reaction to it until it was realized that it provided little to no liquidity to the market, thus a tempest in a tea-pot.
The SPY 2 min trend shows the area I think was the head fake move at the yellow arrow with distribution in to it and prices destabilizing until the PBoC gap up Friday, also sold into.
The larger point though is the confirmation in the trend the last 3 days like the 5 min charts in SPY and ES.
Here's that same ES 5 min chart...
Again a large relative negative and a deep leading negative.
Essentially it looks like price is about to see a sharp move lower ad it couldn't be at a better place, as I said, in the past we've had much smaller divergences carry us to new lower lows like the October lows, this divegrence now is way bigger and thus can collapse at any moment,
which brings me to something I saw last week and said, "it bothers me".
I wasn't sure at first what it was for, why it was there, in retrospect I think it's obvious.
It was the HYG divegrence at the lows of the 19th, a single day's divegrence, but support for something? What?
After Black Friday all these sales figures will come out for the initial biggest shopping day of the year and it influences how people spend after that through the rest of the holiday season, if it feels like consumers are scared, people dial back spending as they feel scared as well. As I said above, there's already plenty of negative sentiment and good reason, a market crash the week of Black Friday would be about the worst macro economic indicator that the population as a whole could understand.
This is why HYg, which is hugely negative vs the SPX since the October rally started, was enlisted to help support the market.
You can see above there has been distribution in HYG as they back out of the position now that it has held the market up for the week, tomorrow the market is closed, Friday it might as well be.
The HYG positive at the 19th and distribution recently.
HYG has doen its job, support consumer sentiment in to Black Friday.
Looking at currencies there's another indication of a steep sell-off...
This is the correlation this morning between USD/JPY (candlesticks) and ES/SPX futures (purple line), it's near exact intraday.
However...
This is the correlation on this week, first in line Sunday on the open and Monday and then USD/JPY has seen a sharp dislocation since. The SPX futures look like they owe downside, which is probably why the CONTEXT ES model is so much lower than ES.
This is the normal correlation between the two that existed before last week.
Then ES failed to make a higher high with USD/JPY and the next day we have the PBoC spike in SPX as the purple line moves above after the yellow box.
This is what the relationship looks like in whole since ES first diverged with USD/JPY , failing to make a new high, then spiking on the PBoC and failing to hold those gains. Now there's a big flat area since the PBoC, no gains, no higher highs,
but USD/JPY support falling out fast which is one of the long standing predictions of action for the pair as the market does come down.
This week seems to be special and complicated, but it makes sense and the signals otherwise, outside of the context of Black Friday and consumer sentiment are literally off the chart.
I don;t think things look very good for the market after Black Friday, I don't see the levers working, why would they even need the levers if the market was so strong and I see HYG being sold. Where is the support for a market running flat with ugly divergences in the timing timeframes right there at 5 mins?
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