Daily Wrap

While a lot may have seemingly stood still today right from the start as USD/JPY launched higher around 5 a.m., but as we suspected in Friday's "Week Ahead " post, we'd see early buying from weekend warriors seeing price action and feeling the emotion of greed and getting in on early action either before work or on orders placed before work, ironically right around 8 a.m. as pre-market opened, SPX futures quickly caught up with USD/JPY which was on a stop run hunt today with stops hit around 10:11 a.m. at the psychological level of $114 and then intraday / multi-year highs around 11 a.m., although ES/SPX futures failed to follow along as they had other things on their mind.

As the House of Saud cut US oil prices (some say to hold down the US shale industry) the market seemed a lot more interested in what was going on there, interestingly this is the move below support in USO we had talked about last week as a potential entry, whether that's a trade or not remains to be seen, but the divergence suggesting we see the move was tight on,

USO in light blue, SPX in green

USO 5 min divegrence seen last week suggesting a break under support.

There's a small positive divegrence starting which may be knife catchers, but we'll keep an eye on it. After a decline like that it will need to form some sort of a lateral base to accumulate enough to push back through resistance.

Stocks also seemed to react negatively to misses in both PMI and Construction Spending, so much for bad news is good news and good news is bad.

Just about everything seemed to decouple with the market from 3C as shown in several posts to HY Credit, Bonds, Leading Indicators and 30 year Treasury yields. Today's 2 part broader market update covered both Leading Indicators in Leading Indicators and the 3C charts in Broad Market Update.

HYG which has been leading negative for well over a week , but was also supporting intraday trade last week broke away as last week's negative HYG divergences would suggest and HYG gapped lower against the SPX correlation.

Note the intraday correlation Friday and the break today as well as in to the close Friday.

The longer term view shows HYG which was under accumulation mid-October when I wrote, "There's only 1 reason to accumulate HYG" in making the case for a strong move higher, now severely dislocated on a cyclical basis and a much longer primary trend basis.

I expect the SPX to start moving toward HYG and HYG to move lower, in fact new primary trend lows are likely on the table in the coming weeks.

We also saw the SPX reacting to 30 year yields , each time the SPX got a little too far ahead of yields, yields won with the SPX reverting down to their reality.

On a cycle basis from the October lows, Yields have just dislocated pretty seriously starting last week.

On an even longer term basis, again each time the SPX tries to move without 30 year yields, it loses and as you can see in this cycle there's a severe dislocation like most Leading Indicators.

Here I have inverted SPX prices (green) vs VXX to show the normal correlation and VXX's outperformance as VIX futures are clearly bid, but we already knew that from a strong 60 min positive divergence in actual VIX futures.

At the October lows we saw VIX futures under distribution, this accumulation signal is much bigger.

The spot VIX is way out-performing the SPX as well (prices inverted again).

And on a 2-day basis since Friday, spot VIX is showing strong performance vs the SPX which put in a Star Doji Candle today at the close, a common downside reversal signal.

Pro sentiment took another hit and deeper than shown earlier today vs the SPX (green) and this is just today, there's a much larger dislocation trend like the 30 year yields.

Our second pro sentiment indicator confirmed, this is also not it's first time diverging and has a much larger divergence in place.

HY Credit wasn't playing along today either as you saw in the Leading Indicators update.

The 3C charts saw a lot of damage today, especially in the flat range areas, although they have a small 1 min positive divegrence in to the close so I might expect prices to open in the area tomorrow, although I don't expect it to last long, it may be useful.

 SPY 1 min in to the close...

However right after the 2 min is deeply leading negative, a good timing indication with longer charts already negative.

 Take this 5 min which was clearly negative and added a deep leading negative divegrence today.

Or the 30 min chart already in a stronger leading negative divegrence than what was seen at the base to send prices higher this month.

As for breadth, there's nothing too exciting, almost every breadth indicator was absolutely flat (no hidden strength anywhere today) or made a turn to the negative, no smoking guns today intraday, but as you saw in Friday's Now and Then post, there are breadth divergences there that haven't been seen since the 2007 top and many worse than that going back well before the 200 top/bubble.

The Dominant Price Volume Relationship was mostly Close Up and Volume Down despite the fact that most of the averages closed in the red of near unchanged, these are the component stocks and this relationship is the most bearish of all 4 possibilities. The Dow had 15 stocks, the NDX had 63, the SPX had 217 and only the Russell 2000 had a different relationship, Close Down/Volume down, the least influential, but also the thematic relationship during a bear market.

As for the S&P and Morning star groups, there was no over sold/bought relationship, 5 of 9 closed red and 111 of 238 closed green, not an extreme, but more like a stall, just like the SPX's daily candle while Transports had a more bearish hanging man.

In addition to Friday's Now and Then post, here's what else the market shares in common with the 2007 top...

1.     Corporate debt is back to 2007 PEAK levels.

2.     Stock buybacks are back to 2007 PEAK levels.

3.     Investor bullishness is back to 2007 PEAK levels.

4.     Margin debt (money borrowed to buy stocks) is at 2007 PEAK levels.

5.     The leveraged loan market is flashing major warnings.

6.     Corporate insiders are dumping shares at a pace not seen since the TECH BUBBLE TOP

7.     Numerous investment legends have warned of a coming crash.

8.     Investor complacency is at a record LOW.

9.     The Fed has confirmed QE is ending this week, so the juice is cut off for now.

Have a great night, I'm still staying with all short positions and puts, we may even have a nice looking add to or new entry area if charts keep moving as fast as they are, already at extreme divergences, but that's what we had to kick off this move too so I suspect volatility on the next pivot down will mirror volatility of this move if not higher, that's the same thing that happened in 2007, although I want to be careful not to compare these markets too closely, they are just flashing a lot of the same bright red lights and they are hard to ignore.