A.M. Update

Good Morning.

As suspected yesterday in the Daily Wrap, I believe we'll get the bounce today we were looking for yesterday after the initial sharp drop and volume created a short term oversold condition, I'm not talking about  RSI or Stochastics, but the condition of breadth , volume and to some degree price.

In yesterday's post I said,

"I suspect we get some kind of overnight ramp/support, however just so you understand how close the averages themselves (in addition to Index futures) are to the brink, after the probability of a bounce tomorrow


Although it probably doesn't matter what the levers are, I don't see much in HYG, it was run over and may just keep leading the market negative. I believe TLT and yields will be used so we'll keep an eye on them tomorrow for timing indications. I suspect a carry trade (yen based) will do a lot of the heavy lifting with SPY Arbitrage so expect VXX to be lower and likely TLT."


Sure enough, USD/JPY ramped overnight...

 USD/JPY ramping overnight...

I do expect VIX/VIX futures will also decline and help a bounce, not sure about HYG yet.

Our ES 5 min chart has this nice looking, but small positive 5 min divegrence, the bounce I have been looking for since yesterday at 10 a.m. when the oversold condition was obvious.

R2K futures look similar, but strangely NASDAQ 100 futures are near perfectly in line with no positive divegrence.

Also as suspected, I think this is nothing more than a short term bounce to be sold in to. For example at the 7 min chart for Es/SPX futures...

The only divergence visible is the one from Friday/Sunday that took the market lower Sunday and yesterday. In the overnight space it's no better than in line meaning the divergence hasn't grown any stronger and thus still looks like a bounce only that I want to sell in to or short in to. I do expect Russell 2000/IWM outperformance on a relative basis and NASDAQ/QQQ underperformance on a relative basis.

Also as expected, Silver, Gold and Crude(crude was down 1% overnight) have all come down off yesterday's highs. I'm really interested in Gold/GLD right now, but will wait until regular hours to make any assessments.

So for those short term traders, you may want to play a bounce, personally I think it's playing with fire, I'd much rather short in to one.

So after everything seen yesterday starting around 10 a.m. when the oversold flameout occurred, almost nothing has changed in our expectations for today, we'll see as we get in to regular hours where the opportunities are and just about how long they look to last. I'm guessing we will see signs of distribution of the bounce before the close.

I'll check back in after the open. Have a great day!