Futures Update

Hopefully everyone is on the same page as to what this entire head fake move in the form of a Crazy Ivan shakeout, is all about and doesn't fall in to the trap of thinking yesterday's strength which we needed to see and still need some additional strength on the upside in IWM, was NOT a ends to a mean, but rather is a means to an end.

The levers should fall first, they have accomplished their intended task which was to light the spark of price movement higher until the short squeeze could take over, here's theoretically where the short squeeze would have taken over.

 IWM's range, the bear trap after a 6 week range is finally broken at #1 while the entire market was in a downward spiral getting ugly, trapping new shorts, just as our "# areas we will short a H&S" with the one area we will not being the initial break of the neckline, the area most technical traders fgo short and are wiped out soon after by a head fake move back above the neck line tripping their stops, creating a short squeeze and offering us the last/3rd final entry for a H&S short entry at much better prices and less risk. This concept is the same, just in a different price pattern. Initial new shorts from Monday entered at high risk, horrible prices as they chased and were easily shaken out as they placed stops either just inside the range or just above Monday and Tuesday's intraday highs (#2). The levers, HYG, VIX, TLT and USD/JPY needed only to carry the market that far before the squeeze would do the rest, thus we'll be watching for them to fall first as HYG distribution was already pronounced last night.


So far, we are early in the process , but what we expected to see is showing up and even more so in the averages where the IWM has the best 3C relative performance and the SPY/QQQ are falling behind, but you may recall what I said before the move started, "It's irrelevant what SPY and QQQ do, only the IWM matters", thus relative performance in the other averages was likely to be weaker as it was yesterday.

Futures this morning are already moving in the anticipated direction, while I would caution they are not there yet.

 TF/Russell 2000 1 min negative relative divegrence, we are already seeing the start of distribution above the $118 level, which is the means to the end of the entire forecast, not just yesterday's move up.

 NQ/NASDAQ 100 futures are seing the same negative divegrence in the 1 min chart. Wall Street will always try to sell or sell short in to strength, the same thing we want to do rather than chase prices like retail does.

 And 1 min ES also seeing an intraday negative divegrence. This is the start to the process, we need to see these divergences migrate to stronger timeframes and ultimately to the 7 min futures timeframe as that's where their positive divegrence reached.

 While the lever of the USD/JPY does not look like it is ready to see an imminent move down, mostly due to continued $USD strength, the 5 min chart of the Yen futures is already showing a positive divegrence, once it builds strong enough to push the Yen higher, the USD/JPY lever will fail and you may recall how tight yesterday's UYSD/JPY vs ES correlation was in last night's post.

The intraday USD/JPY is starting to show a negative divergence, however until I see weakness in the $USDX's chart, I'm not expecting a break to the downside, yet the Yen divegrence seems to be causing this negative USD/JPY 1 min negative that is gaining in strength.

 The next place the divegrence will move to in Index futures is the 5 min chart if the distribution seen on the 1 min charts keeps up and it should so long as price holds above the $118 level or higher. The higher it moves, the more retail longs that will buy providing much needed demand and higher prices for smart money to sell/short in to, ultimately creating a new trap, this time a bull trap.

ES 5 min is already showing signs of distribution, if it keeps growing, it will move to the 7 min chart and become a sharper divergence.

NQ 5 min shows the positive divegrence that helped push it higher yesterday and the negative now forming in to price strength.

 Most importantly, TF /Russell 2000 futures which by far have the strongest positive divegrence among the 5 min charts, is starting to see a relative negative divergence migrate from the 1 min charts to the 5 min chart, but it will likely need more upside to attract more longs and allow smart money to use their demand to sell in to.

For every buyer there's a seller, it's just understanding who is doing the buying and who the selling and which one to follow.

 At the 7 min $USDX chart there is weakness in 3C, it needs to move to the shorter timing charts of 5 and 1 min, but it should get there soon, although not yet. Combined with a positive Yen divergence, this is what will take USD/JPY and index futures lower.

The Index futures 7 min charts, ultimately their final destination , shows NQ with the divegrence started last Friday and carried through this week, now seeing distribution in to yesterday's move and this morning.

TF, again by far has the strongest 7 min 3C chart and distribution is much smaller here, but it will increase on higher IWM prices.

ES 7 min with its positive divergence starting last Friday , carrying in to Sunday night's futures as posted and is still in line so the divergence, like TF above, has not migrated this far yet so we still have some time before any significant downside move, unless the market slips which is why I chose not to trade it log as a "V" shaped base offers no safety when it comes to sudden gaps down or sudden fragility in price. A V base lacks the strength of a wider foot print, just like trying to build a sky scraper ever higher, you need the most solid foundation and a "V" shaped one is the weakest.

ES 15 min shows a negative divergence, but this is weakness from before the move, it's not migration, it's the longer term probabilities as you'll see.

 15 min TF also shows the same weakness, it's not specifically related to yestrday's move higher, it's part of the larger piccture or highest probabilities.

Here it's more obvious on TF's 30 min chart, note the positive divegrence is very weak relative to the big picture negative and TF, while above the range we sought, 3C refuses to confirm the move, thus it is the distribution or bull trap we expected, these are the highest probabilities of all the charts thus far.

 And TF 60 min and even stronger big picture chart yet shows very little that looks positive, this is why yesterday's move must be understood for what it was,  a means to an end.This is why I chose to keep my shorts in place and stay on the side of highest probabilities, even knowing we needed to move to this level, I just don't trust this market enough to risk a long with such a weak base (V-shaped).

NQ 60 mins...

and ES 60 mins. You can easily see which divegrence is dominant on this chart.

As for the lever of VIX futures, they are already recovering.

 VIX futures 1 min chart leading positive.

VIX 5 min relative positive, migration of the divegrence should occur so we want to keep watching the 5 min chart for continued improvement.

VX 7 min is where we ultimately need to see a positive divegrence for the lever to turn.

So far so good, the process is in motion and should continue to see charts deteriorate on higher prices.