Daily Wrap

As per usual when volatility picks up, the charts are moving faster than I can capture and post them, but you'll see that our initial forecast looks to be right and the more specific to today, The Thin Facade of Price is Giving Way to Reality post, looks especially to be right which is just building on top of the Mass Psychology concepts that were first put forward and every step along the way the market has done as we expected and giving us confirmation before hand, during and clearly after.

I think the A.M. UPDATE from this morning taken with the The Thin Facade of Price is Giving Way to Reality both put a fine point and perhaps an exclamation mark on our forecast that started based entirely on Mass Psychology Friday December 12th which was added to on Saturday December 13th, with evidence showing up as futures opened Sunday December 14th and price action on December 15th and 16th.

This is ES, this is what I'd call a facade or a veneer as explained earlier today in The Thin Facade of Price is Giving Way to Reality.

The divergence for the misdirection in price or the "appearance" of something more substantial than what is actually there, was set up this morning pre-market as you can see with the positive divergence before the cash market open and then distribution through the end of the day, but more importantly on stronger charts.

In other words, this was nothing more than illusion hiding something a lot more dangerous and much more ugly. Take a look at TICK data for today (NYSE)...

I don't think this is because of a light volume day considering price percentage moves, however at +750 max range highs, this was a VERY THIN MARKET WITH THE CLOSING ACTION MOVING WAY OUT OF THE DAILY RANGE AND IN TO THE -1100. Unlike volume, the TICK (advancers minus decliners) has NOTHING to do with the poor liquidity.volume of the holiday season.

As mentioned, TF/Russell 2000 futures have been showing distribution all day, so the price action to the upside is only more useful in selling/short selling in to price strength which was CLEARLY the theme today.

NQ/NASDAQ 100 futures which earlier I had "billed" as the tie breaker between the early positive ES charts and early very negative TF charts, however NQ came in almost perfectly in line, so it was a strange day early on. However in to the close, look at this accumulation and move higher, a purposeful move. This is NOT the strong accumulation of a move meant to be held, this is the "Steering" divergence type of move. Enough intraday accumulation to get NQ/NASDAQ 100 to make a move higher in to the close, but look at how those higher prices were handled as far as underlying/institutional trade...

QQQ's short term 1 min "FACADE" or "Veneer" with CLEAR distribution once the Q's moved ABOVE $105.

As far as what's beyond that "veneer" or Facade, it has been very clear on charts as early as the very next timeframe, 2 min.

I know you probably don't relate to the wood-working analogy, but as I mentioned, the actual wood veneer which is paper backed and very thin, sometimes 1/40th of an inch, is VERY easy to sand through revealing the paper behind in what we call a "burn" mark as you have sanded or burned through the "veneer" leaving an ugly mark.

Today's 1 min chart action is very reminiscent of that analogy, the facade or veneer was thin enough that it actually burned through and revealed distribution on even the shortest timeframe meant to conceal the uglier mess that the market is below the veneer.

If we look at the slightly longer charts that will no longer conceal the ugliness behind the facade, the 2 min IWM is VERY clear as to exactly what is happening, this is pure distribution.

The SPY 1 min nearly perfectly in line, however...

Once again just dig a little deeper and the 2 mi chart reveals what is really going on.

The DOW which is of little interest to me as far as trading, it has had a better looking 3C chart as long only fund managers are going to move to the Dow as they did in 2007. The Dow was one of the last to decline and the decline wasn't nearly as sharp as the other averages, however as is plainly visible, the 2 min chart shows VERY clear distribution and specifically in to the last 2-days.

As for Leading Indicators...

 VXX/Short term VIX futures, way outperformed the SPX today (SPX prices in green are inverted to show the normal correlation). Obviously the protection of VIX futures is being sought out which is interesting given this is the last day (with the T+3 rule) for Window Dressing and the first day of the Santa Rally.

 Spot VIX also absolutely outperformed the correlation vs the SPX (green).

Considering all of the major averages close up today, the fact that Spot did also shows the depths of hedging or protection being sought in VIX/Puts.

Recent Dojis and stars in Spot VIX with the addition of a green close today shows the bearish nature of price although the thing facade of price is likely obscuring the true state of the market for most.

 TLT, as expected as a market lever and exhausted market lever, also outperformed the SPX correlation (again SPX prices (green are inverted to better show the correlation) vs the normal correlation to the far left.

As I said on F_O_M_C Wednesday, this is the exact same type of action in yields seen as the last two meetings both saw initial bullish knee jerk reactions completely retraces (with the September meeting leading to the October lows).

30-year yields are leading the SPX lower, the same as the last two F_O_M_C knee jerk reactions.

 This is TLT's near term intraday action today vs the SPX (inverted SPX prices).

Credit signaling a fall in the market...

 This is the most often used lever among credit products to ramp the market. As I said the week of December 12th when we first put forward the theory of a market bounce the following week, "There's only 1 reason to accumulate HYG, to ramp the market".

Today HYG fell sharply at the close and should continue to lead the SPX lower.

High Yield Credit also has been refusing to participate in moving any further with the SPX.

 High Yield Junk credit also selling off vs the SPX.

And PIMCO's HY fund, also selling off vs the SPX (green).

And the longer term view of the same...

As for the short term, EVERYTHING IS FLASHING OVERBOUGHT.

Of the 9 S&P sectors, all nine closed green with the DEFENSIVE Utilities leading at +1.23% and the Industrials lagging at +.21%.

Of the 238 Morningstar groups we track, a huge 226 of 238 closed green today, BOTH INDICATIVE OF A SHORT TERM OVERBOUGHT CONDITION POINTING TO A CLOSE LOWER ON MONDAY,  which fits with our Santa Claus rally SCENARIO.

There was a Dominant Price/Volume Relationship Among all 4 major Averages, it was Price Up/Volume Down WHICH IS THE MOST BEARISH OF THE 4 RELATIONSHIP.

The Dow finished with a stout 25 of 30 stocks, the NDX-100 with 83, the Russell 2000 with a dominant 1371 and the SPX with a whopping 403 or the 4 possibilities. Between the S&P sectors, the Morningstar groups and Our Dominant Price/Volume Relationship of the component stocks in the major averages, EVERY SINGLE ONE IS POINTING TO SHORT TERM OVERBOUGHT OR REVERSAL  just as the candlesticks are, the leading indicators and 3C signals.

Have a GREAT weekend, I wish you plenty of happiness and peace, but come next week, I think our Crazy Ivan theory that has thus far fulfilled 2 of 3 expectations, fills the third and final expectation first forecast on December 12th and having been exactly dead on ever since.

Again, have a great weekend.