A.M. Update

I have to laugh when I see things like this, although I do respect Jim Reid from Deutsche Bank, here he is this morning telling us why the market bounced yesterday...

"All in all yesterday turned out to be a rather positive day for risk assets despite the retracement of Monday’s rally in Oil. Risk sentiment was supported by the better-than-expected auto sales for November along with what was also viewed to be a reasonably decent day for US economic releases. "

I suspect this is a case of those who know don't say and those who say don't know and I suspect Jim knows , but won't say.

The above statement pertaining to yesterday's market performance is a result of the public's need to understand and try to make sense out of a chaotic market that is impossible to understand in a 30 second CNBC soundbite, it's just too compllicated, but it can be understood, just not in a sound bite.

However this does satisfy the public's need to feel like they have some control, even if it's just understanding why they took the loss they did on the day.

The reason I laugh is because yesterday's market performance was known to us by 10 a.m. on Monday morning, we knew an oversold (1-day oversold) bounce was coming. For instance, from Monday night's Daily Wrap after having made the case through the entire post...

"This morning at 10:02 a.m., A.M. Bounce Attempt

"...if there's to be a bounce in the area, this is probably a good place for it, first...Volume is increasing on the downside, this is no different than macro capitulation, the concept holds true intraday, it can cause a short term flame out to downside momentum and a bounce, whether a gap fill or not I can't say, it doesn't look good right now."

That's the same concept intraday as on the close or on a weekly chart.

In fact although I usually save this for the end, today's Dominant Price / Volume relationship among the components stocks in the major averages was exceedingly dominant in every major average:

20 of the Dow 30, 94 of the NASDAQ 100, 1469 of the Russell 2000 and 375 of the S&P-500. The relationship was, Price Down/Volume Up.

This is a 1-day, very strong oversold signal of the 4 possible relations, it's essentially a little bigger version of what I said at 10 a.m. today about volume and AAPL's intraday trade finding their lows at a large volume spike (largest on the day by far).

This suggests a 1-day bounce or a short term oversold condition, which fits with the Index futures 5 min charts above and the 3C readings as we have expected the market to build toward a bounce/gap fill all day. This gives us some great opportunities to short in to strength, AAPL as mentioned above has a specific plan of action and area I would short it, transports too, but literally hundreds of assets look fantastic. Earlier today I called this a "GIFT HORSE".

Adding to the 1-day oversold condition is the 9 S&P sectors with a big 7 of 9 closing green with the leader, Energy only up +.35% while Industrials lagged at -1.28%.

Further adding to that is the 238 Morningstar groups we track. A MERE 20 OF 238 CLOSED GREEN!!! That's DEEPLY 1-day oversold so a bounce tomorrow is exceptionally high probability, WE NEED TO USE IT AS THE GIFT IT IS, if you need convincing, just look at Leading Indicators or last night's MACRO Futures.

The averages themselves didn't have very impressive divegrences at the close so 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, this si what they are looking like beyond..."

In short, just that small section of the Daily Wrap showed we had predicted the bounce much earlier and gave several very solid reasons out of many why we would see a bounce yesterday right down to the IWM outperforming and the NASDAQ 100 underperforming.

I hope the point is well taken about the media and human nature.

As for what we are looking at in coming trade, nothing has changed, I expect the bounce to start to die off today, here's why.

 5 min Es / SPX futures 3C chart. This is the positive divegrence as of Monday, this is why we knew a bounce was a near certainty for Tuesday (yesterday).

And moving to today...

 That divergence is seeing distribution and should turn more negative taking futures and the averages down with it.

The NQ/NASDQ 100 futures 5 min chart had no positive divegrence,  this is how we knew that it would be the laggard of the averages yesterday.

Today the NQ 5 min chart looks worse, leading negative so perhaps Tech and AAPL don't bounce as I thought they may rotate in today before the bounce ends.

As for TF/Russell 2000 futures, this is why we predicted out-performance in the IWM/Russell 2000, it had the strongest divergence which has now started going negative.

As far as opening action, there's not much in the way of divergences, ES 1 min is in a VERY tight range here of about 4 points, no divergence in to the open.

NQ in a 1 point range and no divergence other than the small steering divergences causing the lateral range.

And the same with Russell 2k futures.

When in doubt, go with the longer chart which is clearly turning negative.

As for USD/JPY, I still expect it to make a break to the downside, it's negative on the 1 min and...

On the 5 min.

In addition...

The $USDX is very leading negative on the 5 min and the yen...

Is leading positive, both suggest the USD/JPY fall shortly taking index futures with it.

Gold looks like it will remain largely flat, but Silver futures are clearly seeing distribution and likely to fall, gold may be pulled down with them on a draft.

 Oil is building a positive divegrence and base, but it still needs work, I suspect it pulls back to recent lows to strengthen a short term bounce base.

And 30 year Treasuries are doing the same, not quite ready, but building a base to bounce off, pulling yields and the market down with those yields on a rising Treasury complex.

I don't expect much in to the open, but the day should develop negative as it continues and we should see short trades setting up.