Market Averages Update

There's still some levers being used as support, that was clear on the open with USD/JPY, HYG is still being used intraday, and while TLT is being used, it is quickly turning the tables as is USD/JPY and HYG is already in a position in which it can't recover from.

I'll update these levers, for when they fail completely we need to be ready for a quick pivot and I can't say that won't happen today (especially given internals yesterday), it only takes an hour or two from where we are for those signals to turn to unrepairable.

For the averages...

 Last wek's 3C data showed massive deterioration especially in to the end of the week (Wednesday/Friday surprisingly as I expected a quiet half day).

Since the Monday gap down (far left) on the 1 min chart, SPY has been largely in line with yesterday's bounce we anticipated as early as the first sign of the selling climax Monday morning. However on this morning's USD/JPY ramp, some obvious damage was done which was seen in ES/SPX futures as well (last update).

 SPY 2 min chart also largely in line for yesterday , but also showing a more negative change in character on this morning's ramp and yesterday afternoon as well.

SPY 3 min with negative deterioration in to Friday's close leading to Monday's gap down and accumulation of the large volume at the selling climax Monday morning, the fuel for the oversold bounce we are in.

As is clear, late yesterday and today have seen increasing damage as 3C is no longer in line with price (confirming the trend).

A close up of SPY 5 min is showing accumulation of Monday's volume on the selling climax/capitulation (short term), all of that volume is easily accumulated without anyone asking questions about "Who is taking the other side of the trade on all of that volume?".

The point is, confirmation from yesterday has given way to a strengthening negative divegrence on the 5 min chart which is now getting serious.

The 5 min chart in context beyond intraday...

SPY 5 min chart shows the underlying 3C weakness of last week mentioned above as they tried to keep the market from adding to the negative Consumer Sentiment going in to Black Friday. Note the ramp for the week and the huge distribution taking place that led to Monday's decline, which we saw Friday -see the last post Friday as we could already tell the defensive of Black Friday was over.


In addition, the current 5 min trend to the far right is going negative in to the bounce and now gap fill.

Of course the intraday charts above this one are short term trade action only, good for tactical timing, but the strategic outlook or the big picture outlook is on the longer charts such as the SPY 30 min.

Note distribution at the July (late) highs which we called , leading to the August lows and accumulation for a bounce. Then distribution in to the August rally's stage 3 top and the head fake move at the September highs, a false breakout creating a bull trap which quickly sent the Dow down 1200 points in 2 weeks to the October lows where everyone who has heard the word, "Stock market" was bearish, the exact reason I suspected a strong shakeout rally before we had the first sign of evidence, but again, a means, nit an end. When everyone is on the same side of the trade, Wall Street can't make money, it's a zero sum game, someone has to lose for someone to win, thus the rally, but again, look at the 3C leading negative divergence through it, clearly the rally was a means to an end as predicted before it started.

 QQQ 1 min intraday seeing distribution this morning on its gap and intraday highs , the red trendline is yesterday's close. Not much has changed since this capture.

 QQQ 3  min showing the strong distribution through last week's pump on a parabolic move, this is why I never trust them, they fail as impressively as they start and the distribution through it is just more evidence.

Otherwise the Q's have shown little, no positive divegrence and thus not much reason to sell in to strength as there has been none.

 The big picture for the Q's, again the July top negative leading to August lows and a rally with distribution in to the stage 3 top and head fake / False breakout bull trap (yellow) sending QQQ to stage 4 decline and a new lower low in to October.

The current leading negative divegrence from the October lows rally is something to behold, far larger than anything on the chart.

 IWM 1 min intraday with some accumulation at Monday's selling climax (yellow arrow) and some distribution in to higher prices yesterday as well as this morning.There are few changes since this chart's capture.

IWM 2 min shows something more interesting as there's clear accumulation of all of the volume/supply at the Monday morning selling climax, a short term event that needs to be worked off. Internals Monday night were extremely consistent with a selling climax, internals last night were almost 180 degrees opposite, warning of an overbought condition since the correction yesterday.

Consistent with that, as we expected the IWM/Russell 2000 has been the leader, thus it has given smart money gains to sell in to and it's very clear they have been engaging in exactly that by the 3C negative leading divegrence, even in to this morning.

 However, since the start of the bounce, the 5 min chart has been my focus as this will need to go negative as it is the strongest IWM timeframe from the oversold bounce portion of the market. You can see the accumulation of large supply (stops being hit Monday a.m.) and so far it remains in line, thus this will have to go negative which is one of the reasons I didn't see the same divergences in SRTY yesterday as SPXU and FAZ as posted late in the day, at least not yet...  

Couple of Quick Trade Ideas.

 As for the macro trend, again numerous IWM pivot highs have seen distribution sending them lower in a large range somewhat similar to a Complex H&S top, it is surely a change in character from 2013.

Right now the most impressive and meaningful divergence is the October rally to the right and 3C's new leading negative low showing the heaviest distribution all year. Again, the rally was not an end, it was a means to an end, a distraction to change bearish sentiment as too many people were on the same side of the boat at the October lows. I even said I didn't like it and would not call that the stage 4 decline break as there were too many people calling it the start of a bear market. Bear markets creep up when sentiment is the most bullish, like now.

 NYSE internals/TICK today, an early impressive +1400 was lost as the trend broke and we are now in mediocre territory.

My custom TICK/SPY indicator, once again intraday breadth is starting to fail since Monday's capitulation (short term) lows.

Our SPX / RUT Ratio shows buy and sell signals (the red indicator) while the VIX Term Structure (not visible except on painted price candles) shows the last buy signals.

We have sell signals in the SPX/RUT ratio.

And the same on a longer term basis and even worse on a trend basis from July.

Before making any big moves, I just want to check on the levers which I'l also post. These are the assets we knew as of Monday at 1:30 p.m. after the intraday flame out on a short term selling climax in the morning, the market would need to mount any kind of short term oversold bounce as the market doesn't have the strength to do it by itself. So even before any bounce began, on Monday at 1:30 p.m. we already knew what the ramping levers would be in the post,

 Meet Your Levers

These are the usual suspects: USD/JPY (or other Yen based carry pairs), VXX (VIX Futures as well as VIX smack downs such as seen yesterday in to the close which was very ineffective), HYG (which is an integral part of the SPY Arbitrage , a lever in itself, although HYG can act as a lever on its own) and TLT/Yields (Treasuries-pullback sending yields higher).

VXX and TLT lower and HYG higher are necessary to activate the SPY Arbitrage lever as well.

This was so predictable that it was posted Monday early in the afternoon, before the short term oversold bounce started yesterday. I want to be sure these are significantly degraded enough to assure the best timing before new positions are added.

In addition we have probably one of the most important pieces of macro data for not only the week, but perhaps the month, Non-Farm Payrolls Friday at 8:30 a.m. I want to be sure Leading Indicators and the levers of market manipulation aren't going to try to stretch the market bounce or consolidation until the NFP on Friday before entering any substantial new positions.

This post will follow, then on to individual trade ideas/assets.