Leading Indicators....

This is why I have maintained my shorts, it's not anything more than the most outrageous, "Off the chart", "Uncharted waters", type divergences I have seen.

When I say, "Knowing what we know and seeing what we've seen, I couldn't be long this market and sleep at night" and that wasn't hyperboles, especially when you consider the market has effectively not moved at all in 2 weeks while everything screaming red flag is way beyond what I've seen and I've studied markets bull and bear through all of the 20th and 21st centuries as well as the psychology of every major bubble since the Dutch Tulip Craze.

Looking at some of these longer charts which you have seen dozens of times if not more, like I said, people will look back and wonder why they ignored these red flags staring them in the face, unless like the majority of traders, they don't know where to look beyond a moving average or some technical system like EW.

Looking at the shorter term Leading Indicators, I don't have too much doubt that the market did have an earlier plan which was along the lines of what we were expecting, I think something just broke as it often does when a market is this broken (perhaps you recall my analogy comparing the market to a pier over water and the signals we have seen like the pilings below that you can't see, but are eaten away and all it takes is a wave with a little impact to bring the whole thing down".

That's my guess, although we may find out in a little bit that there was an actual impact event, perhaps further tightening in China, who knows, but this is why I have Kept my positions aligned with the path of highest probabilities as I think this is the likely outcome and I have believed this since the first week of October when we were predicting a monstrous bounce that few will be able to imagine, BUT AN EVEN WORSE DECLINE AFTER THAT.

My Initial SPX Target and some areas of interest/congestion...

 Our Custom DeMark inspired Buy/Sell Indicator and Bollinger Bands you usually see on the VIX applied to the SPX. Note the last sell signal was a 1-day signal, at the exact top of the September head fake (Igloo with chimney-head fake high at the rounding top/igloo's chimney or head fake move).

Then a perfect buy signal at the exact bottom of the October decline on a large Hammer (green). Now, note just how large the current sell signal in the SPX has been .

 The SPX "Change of Character Leads to Changes in Trends", with a nearly perfect channel through 2013 and a very clear, volatile turn to the side/lateral.

Although the main stream financial media got people to focus on new highs rather than the actual large Broadening Top,  as EVERY BEAR MARKET over the last 20 years and some might say the important ones over the last Century, have started their decline at NEW HIGHS!

 A closer look at the SPX's Broadening Top, there are the typical 5 points of contact that are usual before a B.T. breaks down and the inital break was a head fake and a volatility shakeout of new shorts who would have entered on the break of the lower trendline. This is the EXACT same concept as the Head and Shoulders Top's initial break below the neckline and subsequent Shakeout back above the neckline, which is the 3rd and last place I'll short a H&S top, BUT NEVER at the break of the neckline where Technical Analysis teaches traders to go short as Wall St. is all too familiar with TA and knows EXACTLY how traders will react, where they'll put their stops (just above the neckline or the lower trendline in this case) and then they'll use the bear trap momentum to shakeout new shorts which causes upside short squeeze momentum to create a Crazy Ivan Shakeout which shakes out both the shorts (already done) and the longs (happening now) by using a bear trap and a bull trap and the associated momentum each causes.

The most recent head fake is ABOVE the upper trendline of the Broadening Top as this break ABOVE is a head fake move. Technical Analysis teaches that a break ABOVE the Broadening Top NULLIFIES the price pattern and traders should go long. 

WALL STREET KNOWS THIS, WHY DO YOU THINK THEY DO IT!

MY DOWNSIDE TARGET FOR THE INITIAL NEXT LEG/PIVOT IS BELOW THE LOWER BROADENING TOP TRENDLINE.

However the market never makes it easy and will try to shakeout as many traders as possible. Here are some of the KEY choke points...

The major moving averages (10, 22, 50, 100 and 200), expect volatility and head fake moves around these areas. While I may trade some of these area, I CAN'T IMAGINE ANY REASON FOR CLOSING THE CORE SHORTS I'VE HELD, NOT UNTIL WE ARE BELOW THE BROADENING TOP...THE NEXT LOWER LOW I HAVE BEEN ANTICIPATING.

As for Leading Indicators (and I do want to check Futures thoroughly as well, although it won't change my core positioning)...

 The short term SPX/RUT Ratio Indicator was supportive of a near term bounce today, however it has maintained a much larger negative signal for the top, not confirming higher prices.

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For instance, the SPX/RUT Ratio is showing  VERY clear negative signals with a short term positive that would be supportive of the bounce expected earnlier today, however this pales in comparison to the size and length of the much larger negative/non-confirmation signal.

High Yield Corp Credit leads the way lower today, apparently NO attempt to provide the market with support.

This is exactly what I said this morning, why buy HYG as a lever and be stuck with that position as the market comes down opening themselves up to a large loss when a short squeeze can be used, they can easily buy the covered shares and sell them right back to the "Buy the Dip crowd" and end the day flat any new long positions.

 HYG showing support the week of Black Friday as we expected with consumer sentiment already so negative. The masses don't understand PPI, CPI, NFP, etc, but they do understand the news on the radio on the way home from work saying, "The Dow lost 200 points today", that's not the kind of sentiment the politicians, the F_E_D or any retailer wanted for the week leading up to Black Friday. However since Friday itself as people are already out shopping, HYG failed early, leading to the following Monday's sharp decline leaving the market oversold short term by 10:30 a.m. Monday morning.

Since the bounce off the oversold Monday lows, HYG has just created one negative divegrence after another and that's not even what would keep me awake at night, it's this...

 HYG divergent at the late July highs leading to the August decline and lows which HYG led the SPX by 4 to 7 days before collapsing in to another negative divegrence at the September head fake high leading to the October lows (lower lows)  and now a much worse, probably the worst dislocation and largest divegrence between HY Credit and the SPX. This is the kind of chart that would cause me to lose sleep if I were long the market. How anyone could ignore this screaming red flag is well beyond my comprehension, but it happens at every bull market top/bear market decline.

High Yield Credit was in line with the SPX today.

 Again, the last divegrence between HY Credit and the SPX was at the September highs and while clear, no where near as big as this one. How could people be long in a market that has experienced no gains in more than 2 trading weeks with unprecedented charts like this just waiting to break to what will likely prove to be  unprecedented lows?

This is the PIMCO HY Fund, it offered support and it looks like again today where the samll positive divgerence was, then something just ran it over, but it does appear that was the initial plan.

 Pro sentiment was in sell mode as it has been, in fact another Leading Indicator SCREAMING "Trouble Ahead!"

 This too showed a negative divegrence at the September highs and an unprecedented divergence vs the SPX since October.

 TLT picking up momentum -the flight to safety trade in to bonds sending yield crashing lower, but also sending the Treasury Yield Curve to its flattest since 2009.

5 year yields were more or less in line with the SPX, but the 30 year were worse.

Even though it looks like the 30 year was going to offer market support intraday at our positive divegrence around 12:30-1 p.m. before it all broke loose.

 And another Leading Indicator that's out of control and literally off the charts.

The VIX with a recent buy signal in our custom indicator as well as the pinching Bollinger Bands that have indicated a highly directional move was nearby, it looks like it started today in earnest.

More to come...