DAILY WRAP

I don't think it was a great week for bulls although they'd disagree as the AAI sentiment says they're at optimism not seen since December 2013, what short memories...And bearish sentiment is at lows not seen in NINE YEARS. What happened to all of those "Contrarian traders"?

My personal sources which I prefer are insanely bullish. In my view it wasn't such a great weekend a half as the F_E_D took away the punch bowl, the ECB didn't add anything and Draghi has a near mutiny on his hand while the 2 week old GPIF news that sent the market higher appears to have a caveat, the higher stock allocation (buying) may not be able to begin for a year while the laws governing the GPIF are changed, if they're changed and if the GPIF feels the same way about allocations a year from now.

However, that's just personal opinion, still along the lines of fundamentals and mass psychology, but not anything I'd trade on.

What I saw going in to the close just didn't look good moving forward for next week, Carry trades breaking, currencies getting volatile, things like VIX (protection) with huge divergences, safe haven buying in gold, seeing a huge bid today (as well as silver) and bonds, The NDX and RUT JUST barely closing the week green, the anti-goldilocks NFP print, not bad enough to have the F_E_D step in, not god enough to rally on an improving job market and the NDX, SPX and Dow all closing below the NFP print today.

Beyond this week's earlier USD/JPY/EUR analysis of forward looking forecasts for each currency and the pairs USD/JPY (which the SPX followed tick for tick Thursday) and EUR/USD plus this intercepted transmission, "Uh Kuroda... We have a problem"...

Not only with the USD/JPY via $USD and Yen analysis...

 As suggested earlier in the week, USD weakness is coming soon as this 60 min $USDX chart depicts and while the USD ended the week green, it closed today red, in line with the near term 15 min chart...

Which has clearly tuned on its divegrence.

However when talking currency pairs, it takes two to tango so the JPY/Yen...

 Earlier in the week analysis suggested the JPY would see some near term strength as this 60 min positive divegrence depicts in "/6J"

And like the $USD , it saw that strength start today (which was posted last night as short term intraday charts went divergent.

This may present a problem for the very volatile Nikkei 225...

 USD/JPY (candlesticks) and the Nikkei 225 futures (/NKD) already diverging.

If that were the only problem in the Nikkei...

This 60 min /NKD chart is also suggesting downside and as for the US Index futures which tracked USD/JPY perfectly yesterday...

 Es (purple) vs USD/JPY yesterday, nearly indistinguishable, but those pesky currency divergences sent US/JPY lower overnight today and this is what the exact same correlation looked like today as the market went for an op-ex pin...

ES in purple vs USD/JPY which was down most of the night as last night's Daily Wrap mentioned toward the end (current market status).

EUR/USD should see upside as well.

The other correlation supporting the market is of course the 30 year bond yields which I said Wednesday were the most important indication this week and I'd be putting out TLT and 30 year treasury futures analysis which I did, which both suggested higher 30 year bond prices and lower 30 year bond yields so the last LEading Indicator I was looking for this week which had looked like this Thursday vs the SPX...

 near perfect correlation between 30 year yields (red) and the SPX (green) with only a slight hint of what was to come with a negative dislocation in to the 3 pm bond market close...

All of the sudden saw this larger 60 min 30 year treasury bond futures with a huge positive divegrence and improving TLT positive divergences send Bonds higher off the Payrolls data, which means yields that the SPX tracked so well for the last week, now looked more like this today...

which might not be such a big concern if the inconvenient truth for the SPX was "Every time the SPX and 30 year rates disagree, 30 year rates prevail", just like our Yields indicator; as I often describe it, "A magnet for stock prices".

 Pont in case 30 year rates (blue) and SPX (green), doesn't matter, either way, up or down, rates lead.

PErhaps that wouldn't be such a concern as we all know 1-day does not a trend make, if it weren't for this chart below..

There's already a significant divergence between rates and the SPX, this is what I'd call an "Intensity" marker of what we can expect going forward.

I know many of you are use to our normal Leading Indicator 5 year yields, so just for kicks and giggles...

 Whoops, it seems they are just as dislocated and intraday...

Well like I always say, "Yields are like a magnet pulling prices toward them".

This is addition to already horrible leading negative divergences along the same macro size in Professional sentiment, High Yield Corporate Credit which was used as a lever today, but short term =, High Yield Credit itself, Financial credit, etc...

Some examples...

 Pro sentiment maybe wouldn't be such a serious indicator if it had not been so accurate like at #1 when the August cycle formed the Igloo with Chimney head fake and it went deeply negative at the head fake or right now, looking far worse than the divegrence that brought the market down last time to nearly 100% bearishness.

 And on the last few weeks, it looks like pros took early gains, used strength to sell in to the rest and are long ago out of Dodge City.

HYG may be a short term lever like today, but it's the larger implications I follow, take a look...
They led the August rally's lows, they led the August cycle's top, and they are leading the SPX right now, except far worse than the last negative dislocation that led to that sharp risk off move. Remember I said BEFORE any of these signals appeared, that I expected a lower low after this rally and that was before it started and before we had objective evidence pointing to a stronger move to the downside, that was based on Mass Psychology.

Or perhaps HY Credit's trend, in line for most of 2013 with a few small divergences that it led and a very strong and worsening leading negative at each of the 3 tops in this large SPX Broadening top.

We can go on and on, but you've seen most all of this already, it's just having the ability to get past emotions and use price strength to our advantage rather than chasing price half way through a move or further. As the market gets more volatile as it is, the broadening top is evidence of that, one morning you'll wake up to a gap that is essentially like the Coyote chasing the Roadrunner right over a cliff and weeks/months of gains are taken out in a single morning's gap, that's what increased volatility and unpredictability does.

Thumbing through tonight's breadth indicators, they have not moved an iota since Friday, you'd think ATH's would move stocks somewhat, but nothing, dead flat for a week.

I suspect this is about to change and as you already know, I suspect it changes this upcoming week as volatility has all but gone out the window, it's almost hard to remember how intense it was... "almost", I suspect we'll be reminded with a strong shot on the downside.

This move which was a theory during the last week of September during Window Dressing had some caveats, "If this happens then I think we'll get X move", those caveats came about, but from the start this move was never anything more than a VERY convincing shakeout off a -7% move.

Imagine the volatility back in 1929 after the initial crash and a REAL counter trend move or head fake that HAD to be convincing...

Dow-1929...

 Imagine that first bear market rally, nearly a 50% gain and nearly 6 months!

I know a lot has changed, but...

The concept is still the same, make them believe. This was a -10% move lower in the SPX in 2007 and a 11.26% rally to a new high, it had to be convincing, it was also the top, losing 5+ years of gains in 16 months, actually the entire previous bull market + -15%.

Similar to this ...

A -7.45 loss and a 9.06% gain,  the point is to MAKE THEM BELIEVE.

HAVE A GREAT WEEKEND