Morning Market Update

Again as a reminder, there were two things about Friday I had connected with the charts and expectations for Monday's open, strange as it was being algos DID NOT ramp Index futures with USD/JPY, but only around 8 a.m. in to pre-market trading, which is one thing I had mentioned Friday in the Week Ahead and the end of day posts as well as the end of the Fiscal year for Mutual Funds at the close of October 31st, this is important to show performance for prospective new clients (prospectus).

After the close Friday in the "Now and Then" post, as most of you know I don't believe in markets looking exactly the same and often shoot down charts showing these kinds of correlations as they have popped up over the year, even when I agree with the general statement they are making. However there are broad generalities about topping action and those can be seen between 2007 and now, one thing is the increased amount of volatility and unpredictability which was evident in to the 2007 top. Now like then, it was nearly impossible for people to imagine the market rallying in mid-October, probably much less so that it would make any kind of move to this extent, but as with all bear market rallies (even though this is not technically a bear market rally, I think the sentiment was and now is exactly the same) and this is why I warned about it in the "Anchoring expectations" posts so many times BEFORE the market moved up even a single day, they MUST be convincing, that means they must be extreme and this can be seen back in 1929 after the initial sharp break down in the market followed by what then was not a bear market then either, but a bear market-like rally that lasted 5 months with a +50% gain, a lot less than the current 8+% gain of the October move. The other is the break down of market breadth or rather than the stock market, "The market of stocks", which isn't repaired to any significant degree even with a monster rally or all time new highs.

I'm not claiming any smoking guns this early in the day, but there are some moves that are expected and seeing them is not surprising which we'll get to.

 Often with Hanging Man candlesticks (also remember Friday's post of the major averages with Monthly Hanging men and bearish Evening Doji Stars), the confirmation candle on the following day is often a bearish engulfing pattern, which  necessitates a gap higher on the open, that's the bull trap talked about Friday as it related to late n the day trade and that sentiment carrying over the weekend to limit orders and orders placed by those who can't watch the market during the day due to regular jobs).

The completion of a bearish engulfing pattern would be a close lower than Friday's close in the SPY's case.

 In the DIA's case, because the Evening Doji Star opened lower and closed higher, a bearish engulfing candle would need to close below Friday's open.

 This is the Custom NYSE TICK indicator vs the SPY, the "X" represents the NYSE blackout last week, the TICK data in between that and the yellow trendlines is Friday and the yellow lines is today, TICK is much less volatile today thus far.

 The late day divergence Friday in the SPY looked like a close higher, not only for the weekend warrior's orders, but probably more so for the closing of Mutual Funds' year on Oct. 31.

 However the 5 min trend which is long enough that the NYSE blackout isn't going to significantly alter any of the signals is still quite ugly here.

The QQQ 1 min trend is similar and I can use the 1 min here as there was no blackout in QQQ, unlike SPY, DIA and IWM.

 And the QQQ 5 min trend like the SPY 5 min above. Rather than draw the divegrence which should be easily seen, I drew kind of a divergence meter, or roughly how much influence the divergence is carrying as it strengthens in to Friday.

 IWM 2 min has an odd chart as well, a very sharp leading negative through Friday which I can use even as a short term timeframe with the blackout because the divegrence is after the blackout and the blackout has no effect at all on it.

The IWM 3 min is very similar, very sharp in to Friday.

Transports which have been mosterously strong show the same kind of activity (also a 5 min chart) with the divergence strength below.

And Bio-techs which have been strong, you might see why I didn't ignore the signals and took action in bios last week (Thursday).

 HYG, about a week ago was showing a positive 1 and 2 mi divergence, not to 3 min charts though, at the time I said that this "concerned me" a little, that divergence started falling apart last week,  HYG is used quite often as a lever to ramp the market, but typically for brief moments as the trend in HY Credit is very ugly.

This is HYG in red during its divergence vs the SPY, it did lend support, even if that is just keeping HYG from causing trouble by leading lower as it has had an excellent track record of leading stocks/the market.

However it wasn't just that, HYG was with the market intraday, even if not on a larger week long basis.

HYG red vs the SPY intraday, that's why last week's negative divegrence or end of the positive was interesting and why this morning's move down in HYG is also interesting, it has a very strong ability to lead, which is partly in the short term and largely in the longer run due to arbitrage factors as both assets are arbitrageable. Credit is also considered a much better informed market, hence the Wall St. maxim "Credit leads, stocks follow."

I'm still gathering information to see what the market's reaction to the BOJ's decision is, the initial knee jerk is an emotional response, the days after is when the smoke clears and a clear response or front running is often found.