Many of the topics and red flags raised last week, especially on a Friday that was much busier with signals and underlying trade than I ever expected, materialized today , but we are going to stay consistent with our concepts and probably have a pretty darn accurate forecast that is actually useful to our advantage.
Going through a few of these, last Monday's HYG CONTINUED DISTRIBUTION may have been the biggest sign of what was to come or take the Dow's end of day ramp Friday to just get it to close in the green, but as you can see from the second chart on Friday's Daily Wrap, CHANGES IN CHARACTER LEAD TO CHANGES IN TRENDS, there were absolutely no divergences to support that move and as a matter of concept, 3C signals pick up where they left off on the next trading day, even over a long weekend. So with negatives going in to Friday's close in the major averages, it's no wonder the market acted as it did today.
Or take last night's Sunday Night Index Futures, which showed a "Full House in 3C negative divergences as trade in Index futures opened last night leading to today's sell-off. In fact we still have that full house except the 1 and some 5 min timeframes which is one of a couple reasons I suspect we bounce tomorrow which is helpful for us, again I'll tie this to a micro/macro concept that we saw just today. ALL LEADING INDICATORS ARE POINTING TO A MOVE MUCH LOWER , you can see this in the post linked above or even today's post, Leading Indicators / Market Update
This in part (along with Market Breadth, 3C charts, Mass Sentiment, etc.) caused an ugly day in which the SPX DID break the 5-day moving average after a record 29 days, this actually occurred Friday as I pointed out, but put an exclamation mark on it today.
Another simple, but easy to miss signal was intraday breadth was HORRIBLE on Friday...
I also mentioned Friday's close of our SPX/RUT Ratio indicator which suggested the market owed near term downside and this afternoon in Leading Indicators you can see how much it owes in context of the larger picture, what I have believed since this all began to be a move stronger to the downside than the October rally which was nothing more than a sentiment changer, locking the "Buy the Dip" crowd in to believing that a -10% sell off should be bought, unlike the October lows when everyone was historically bearish. This rally was a means to an end, not an end in itself.
Friday I pointed out how Transports couldn't hold their gains. In fact I posted several times not only on transports, but airlines specifically...Be Careful with Airlines which were nearly as bad as trannies today, down -2.45%!!!
Transports folded today which were covered several times last week as showing weakness in 3C charts...
Wednesday our AAPL Update with AAPL down -3.25% today, more importantly giving up NDX support, but again the closing candle and volume are telling (AAPL). Maybe we will gat that AAPL short set up mentioned earlier today...AAPL Update
As for the averages performance, all closed red on the day...
However from last week's Black Friday cheerleading effort in the market or at least to keep it from spilling negative headlines in front of the biggest shopping day of the year, here's the performance since the BF ramp...
Small caps down 1.63% today and Trannies over -2.7% as volatility starts to return...don't forget the VIX buy signal and the pinching Bollinger Bands around VIX indicating a highly directional upside breakout in VIX (down in the market averages).
However I have covered just about everything that really matters from leading indicators, 3C signals, changes in character, etc.
Lets look at moving forward. You saw last night's post on the Index Futures, Sunday Night Index Futures. Nothing has changed where it's important, but leading in to tomorrow this is what the Index futures look like...
2 of 3 have 5 min positive divergences that migrated from the 1 min charts today , this is why I think the probabilities are we get a bounce tomorrow, whether it lasts all day or starts the day off and fades later will have to be on an "as it comes" basis.
To be consistient as our concepts must be across asset classes, timeframers and trading styles, one of my earliest forecasts today was the market flaming out early on a strong down move, but more importantly...
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...
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.
Gold and Silver which had huge days are going to be of special interest as some surprising negative divergences developed later today and believe it or not, USO acted well intraday so it will be on the radar too.
Silver futures are negative as well so I suspect more volatility before the whole story is known here, but tis is part of the reason I held the GLD short.
It's too early to say, but there may be something big brewing in oil.
I'll check on futures later tonight, but as of now I say we'll get the bounce we have been expecting since the high volume flameout around 10 a.m. as the market broke hard and sharp with HY credit leading it lower. As for a bounce, this is a gift with no doubt in my mind, rather than chasing prices lower, we should get the kind of set-up I said would make me consider shorting AAPL, but in numerous , even better looking positions.
Have a great night and I suspect we'll be quite busy at some point tomorrow, unless everything gets run over, but I think we have enough evidence that we will get the 1-day oversold bounce.
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