Daily Wrap

There's a simple view of the market, if you can look at the forest and not concern yourself with the trees, or there's a more complex view of the market if you are intent on looking at the trees to see the forest. I'm not saying one way is better than the other, for example an options trader is going to want to look at the trees for the best tactical entry, while longer term traders who want to catch a major trend and aren't easily swayed by emotions produced by intraday and day to day market action, will do well to stay focussed on the forest of the larger picture. My job is to show both, my preference however, at this stage of the market is to stick with the big picture view as I believe we have an opportunity in front of us that hasn't been seen by anyone alive, an opportunity much better than even the 2009-2014 market rally, perhaps a secular bear market in stocks which is something we haven't seen in a long time (commodities yes, but not equities, at least not for most who are alive ).

We talk about the increasing volatility which is a change in character and as always, changes in character lead to changes in trends. The volatility that I'm talking about has been almost non-existent the last week or so, but before that we had the strongest short squeeze in 3 years, the strongest 5-day move in 3 years and just the week before we had the worst weekly performance in 3 years, so volatility is swinging from very negative to very positive to very flat;  in fact so much so that today's -.50% drop in the market was the biggest drop in 2 weeks so the message of the market is volatility is picking back up.

While you may be familiar with the Four-Stages of a stock's cycle which can play out on a 1 min chart, a 15 min chart, a daily chart or a multi year trend, there's a simple concept that has to do with the reversal process and includes the Igloo top (or upside down bottom) with the head fake chimney, but it's essentially like throwing an object in the air and at some point the object loses momentum, stalls (often creates a Doji in the market at this point) and then arcs back down or vice versa.

While we were dead on right about the USD/JPY yesterday and last night in a multitude of posts such as market updates or more specifically the afternoon post, USD/JPY Lever About to Give Way . The 8:30 post, USD/JPY Follow Up which included the following...

"USD/JPY has now retraced all gains from the 9:p30 a.m. opening ramp, lifting the market from gap lows and a.m. lows.

I suspect we have more downside to go as the $USDX divergence is still very strong and the $USDX has barely given up any ground relative to the size of the divergence, not including the longer term, larger picture 30/60 min divergences."

At which point we retraced the opening USD/JPY ramp on Yen gains alone, but the larger $USDX negative divergence hadn't even kicked in which is what sent the USD/JPY down so much sharper overnight and took Index futures with it.

USD/JPY retracing the cash open ramp from yesterday on the Yen alone and then the $USDX negative divergence kicked in as mentioned above last night for these much heavier losses, over 200 basis points.

The main thing you have to know, just as I gave you an area for the upside head fake move on 12/12, is where the next move to fulfill our 12/12 forecast must move to, any moves to the downside, no matter how impressive won't start the next stage until this level is broken, then watch out below.

The Crazy Ivan shakeout below the 6 week IWM range and above the range are now complete, for the bull trap to trigger, price must move back in to the range and below $IWM $118, that's where the trap becomes effective.

As far as probabilities and near term probabilities, as I said, the shorter term are more complicated, the big picture are simple. Earlier today I posted this article to show how these longer charts act as the probabilities, it's a good post to review, Markets Update .

Here's how simple the big picture probabilities are.

 Despite ANY short term movement intraday or over the next day or so, this TF 5 min chart is part of a full house of time frames among the major Index futures that are clearly negative and whatever short term action may or may not materialize, the further out we go in time frames, the stronger the probabilities and the larger the trend.

7 min Russell 2000 futures (TF)

7 min NQ futures, just because of the earlier 1 min NQ positive divergence from this afternoon.

*Note a lot of things happen (negative) on the 26th.

 TF 15 min (and I'm adding a lot of TF charts because the entire theory was predicated on the IWM 6 week range and mass psychology related to that and how and why head fake moves are a necessity to the large positions of smart money, don't miss my two articles linked on the members site, Understanding the Head Fake Move (part 1 & 2).

 The 30 min ES which shows the move we forecast on 12/12 with evidence building the next trading day on 12/15 and 12/16 , the move above the range and distribution since which as you can see, is intense. This is the highest probability for this particular cycle, but it goes far beyond this particular cycle as it is only a means to an end.

ES 60 min, also showing the cycle, but also the extent of the distribution in to the move as we forecast 12/12 based initially almost exclusively on our concepts and mass psychology.

 At the TF 4 hour chart now we are getting in to a move much larger than just a bull trap move back below the IWM's range, we are talking about a move that should easily take out the October lows and in the process, break the already shaken out mega-phine/Broadening Tops in most of the averages.

 The NQ daily chart shows how much bigger this divegrence is and...

The TF weekly moving from upside confirmation to huge distribution, this is the big picture highest probability resolution, a monster move to the downside, perhaps one that no one alive has seen before and on the right side of the trade, an opportunity like we haven't seen before.

Today's close was the 3rd very ugly close in a row, which is interesting because it's in the area of the Santa Claus rally, something we also forecast would be used against traders as they expect it like a birth right. All Santa Claus rally gains have been erased today.

Here's the performance of the major averages today, all closing red (SPX-.49%, Dow -.31%, Transports -.21%, NDX100 -.70%, RUT -.50%, with the Yen/gold pair trade mentioned this morning in Markets Update and this afternoon in Gold / GLD Should Offer a Long Entry on Pullback seeing a +1.35% gain, however as mentioned, a Yen pullback near term which looks probable will give us an opportunity in GLD long for at least a swing trade.

Here's the correlation of the little known pairs trade and how near term weakness in the Yen can send this trade right in to our laps with little risk...

GLD (green) vs FXY (the Yen ETF in red), not the best example, but I'm sure you can see the correlation and you know what we saw in near term 1 min Yen charts today.

 All of the averages except the R2K which is close, have given a negative signal on our 60 min X-Over screen, the next is to a daily chart.

In addition, all 60 min charts of all the major averages have broken the Trend Channel. There can still be near term volatility, but the easy money or trend is over and an exit is usually the best course of action. Again, all of the averages have stopped out on the 60 min Trend Channel which has held the entire forecasted move.

This is not a candlestick chart, it's a daily Heiken Ashi chart of the Russell 2000 and the smaller size of the candles as the move advances is a bearish signal, but more so is today's red star-like candle.

Most of the short term action revolves around the USD/JPY and leading indicators.

 Unlike yesterday, there's no strong signal either way in USD/JPY right now which is why I look at the Yen and $USDX futures.

The USD/JPY (candlesticks) vs ES/SPX futures (purple) show the chart from last night in the tight yellow range I warned not to get complacent about as it followed USD/JPY shortly after posting that warning last night.

As a lever, the USD/JPY is negatively dislocated from ES as you can see with the F_O_M_C thrown in for reference. Other levers are very broken as well, but this has been the last one standing until last night.

To get an idea of what's likely and where the probabilities are for the important carry pair, we look at the Yen and $USDX futures.

 As of this capture, the Yen 1 min had a positive divegrence in it so the entire USD/JPY snap back bounce may be a moot issue soon if the futures keep developing, a higher Yen means a lower USD/JPY (theoretically) as well as Index futures. Since the capture, the chart has given up some of its positive appearance and back toward today's theme of a more negative looking yen.

 The 1 min $USDX, as I warned, just needed to turn lateral which it has done, from there it can and probably will put together a positive divegrence pretty fast, giving the USD/JPY an opportunity to bounce.

Nothing of consequence has happened since this capture.

 At the 5 min chart we have a negative yen so the near term probabilities favor more Yen weakness and USD/JPY bounce.

 Like he 1 min $USDX chart , the 5 min is close to neutral and therefore can turn positive quickly, I suspect it will, but there's a roof on how far this can go and how much it can support.

At the 7 min charts, everything pivots to neutral from the near term positive scenario building for USD/JPY, the opposite of last night's action.

at 15 min the Yen goes back to a strong positive divergence, thus any short term moves down in the Yen would be like a pullback or correction on this chart with higher probabilities favoring additional upside and downside for USD/JPY.

 The 15 min $USDX confirms with a negative divergence.

 The further out we go, the stronger the trend and this 30 min Yen is strongly leading positive.

The 30 min $USDX is strongly leading negative, CONFIRMATION, this means the highest probabilities are not only for the USD/JPY to see additional downside, but major downside after a short term reprieve nearby being more and more likely.

 If you look at the 30 min $USDX divergences and dates, they are exactly the same as the IWM's on a 15 min chart,  this is no coincidence, as I posted 12/12, the 4 levers to ramp the market would include the USD/JPY. However, right now the negative divergence is the next major signal to deal with.

And the 60 min Yen, strongly leading positive which is very negative for the USD/JPY and the market. This may be very bullish for a longer term gold trade, I'll post that tomorrow.

As for leading indicators, again, some near term possibilities of a bounce or correction on the upside, but the big picture is very bleak.

VXX and VIX have been leading strongly the last 3.5 days, although they were much closer to in line today rather than leading, but that leading position will come back around and push the market lower.

 As for probabilities, VXX's 1 min chart with a negative, which is a market ramping lever, so near term upside tomorrow wouldn't be a surprise, but what happens next  and this is why I encourage you to use this information to make tactical and strategic plans, not just to know what's going on, but to use it to your advantage.

 VXX 3 min leading positive with a near term negative, suggests a pullback ands a continued move higher/market lower and the highest probabilities...

A HUGE leading positive 30 min divegrence that has formed very quickly for such a strong chart. Again, this is in line with the USD/JPY expectations as well, although they are weak at the moment on evidence, they have the opportunity to build from here short term.

Other leading indicators...

 Our pro sentiment indicator shows again negative action around the 26th or on exactly, leading the market lower

Our second Pro Sentiment Indicator at 1 min also leading the market lower and in line today, opening the door for a consolidation or correction of today's move.

The longer term trend going in to our forecast cycle led the market lower, formed a positive base at the 15/15th and started to move up, then failed, this is the highest probability as no matter what happens near term, they refuse to follow risk any higher and are doing the opposite and getting out as the 3C charts depict through distribution.

 And the 60 min trend vs the SPX, in line at the green arrow and making a series of lower highs and lower lows, a downtrend, the market  has a lot of catching down to do.

TLT gapped up, but as I noted first thing this morning, there was a small negative divegrence in 30 year treasury futures which effected TLT the rest of the day as it lost ground.

 However at the 2 min chart (where we have few if any positive divegrence in the averages, TLT is positive which is negative for the market and reflects a risk off sentiment or flight to safety.

 5 year yields have led the market lower, again note the 26th, the first day of the Santa Rally and the last of Window Dressing. Also note the intraday positive movement suggesting some near term market support in the area. Yet I must remind you these are only 1 min charts, weak signals at best.

 The 30 year yield also leading the SPX lower, and note the 26th again. Also intraday it moved higher as Treasuries moved lower (see TLT above).

 The bigger 30 year yield picture, an excellent leading indicator, severely dislocated with the SPX, suggesting a strong move to the downside,  which I believe happens as IWM crosses BELOW $118.

 And the 30 year which has now retraces all gains to end up back at the F_O_M_C (this meant bonds moved lower initially which is consistent with stocks moving higher. As a leading indicator, the fact they have already retraced the knee jerk reaction suggests, as a leading indicator, the market averages follow suit soon.

 HYG/HY Credit is one of the 4 ramping levers, you can see how it diverged negatively vs the SPX and led it lower, but was positive intraday today.

This also suggests near term corrective behavior on the upside/positive USD/JPY short term.

 A closer look at HYG intraday vs the SPX.

And the long term view with HYG breaking the correlation on a 60 min chart after supporting the market for some time (green arrow), it is now in a severe downtrend making lower highs and lower lows,  again THE MARKET HAS SOME SEVERE CATCHING DOWN TO DO. As always, Credit tends to lead, stocks tend to follow.

Speaking of which...

 The 1 min HYG 3C chart with some minor positive divergences.

However at 5 min the initial positive that ramped the market higher has gone negative

At 10 min the trend from the 12th at our forecast and the 15/16th and what came next are all as we forecast and the distribution at this strength is also in line with the next stage in the market.

Longer term HY Junk credit shows how it leads and its severe dislocation on this move we forecast 12/12.

The intraday action leading the market lower in to today's action and a slight positive price trend intraday.

Here's a closer look of the leading properties of HY Credit, even on a short term 1 min chart. All of our concepts are fractal and will work on any asset in any timeframe.

Here's the longer term trend of yet a 3rd HY Credit ETF, severely dislocated from SPX prices.

Here's a closer look at to when it went negative, again the 26th plays a prominent role.

 And PIMCO's HY fund intraday which stayed pretty negative or at least in line with the SPX's move down.

Here's the longer term on a 60 min chart and the assets ability to lead the market which makes the current divegrence very dangerous for stock market bulls,

And specifically for the move up we forecast above the IWM's range at $118, look at the selling in the asset and absolute resolve , not following stocks higher, but rather getting out of Dodge, there's a reason. This is what we call the message of the market, it's screaming if you pay attention.

And the same PIMCO HY asset intraday leading the market lower in to today and mostly in line.

From a quick look at the Dominant Price/Volume Relationship, again there wasn't one today. I'd say that based on what I saw there, the market is not short term oversold, but all 9 of 9 S&P groups closed red, Financials led at a loss of -0.12% and Utilities which were yesterday's best performer, lagged today as usual rotation with a loss of -2.08%.

A mere 46 of 238 Morningstar Industry groups closed green.

Based on the S&P sectors and the MS Industry groups, we are in a 1-day oversold condition, so the movement in the USD/JPY or lack of it on the downside, is not surprising as this condition is usually relieved with a next day move, which can be lateral consolidation as well, it's hard to say with an HYG positive divegrence, at this point they may need that just to hold the market lateral.

In any case, you know where the probabilities stand and my post, QQQ Update & Trade Set-up shows you how to take advantage of this information and let the trade come to you, but I have no doubt in my mind we are heading for a much lower low, the October lows are the first stop with a lower low.

That will do it for now, I'll check futures before turning in, but I suspect some upside if it isn't run over which is entirely possible as we have seen already at least once the last couple of days. Otherwise, I'd be using this to your advantage as I posted here, QQQ Update & Trade Set-up