Market Update

If you recall Monday night's internals on top of the 5 min positives in R2K and SPX futures, they were deeply oversold on a 1-day basis which was nearly complete by 10 a.m. Monday morning owing to last week's distribution in underlying trade, it just broke Monday.

Last night's internals as the 5 min charts are turning negative as seen yesterday or this morning's A.M. Update , were the exact opposite of Monday's deeply oversold with the P/V relationship strongly suggesting a bounce yesterday. Last night they were moving to deeply overbought with the Dominant P/V at Price Up/Volume down, the most bearish of the 4 relationships and in all 4 averages (this is a measure of the component stocks of each average, not the averages' own price/volume on the day). The S&P and Morningstar sectors were the exact opposite of Monday's internals suggesting a Tuesday bounce as well last night.

As you know from yesterday and again in this morning's A.M. Update I expect the USD/JPY carry pair to see downside, mostly because of these charts (from the A.M. Update)...

 USD/JPY intraday 1 min negative...

The stronger USD/JPY 5 min negative.

After 5 min it's hard to get clear signals on the FX pairs so we use the FX futures (single currencies) to put the rest of the puzzle together.

As posted in the A.M. Update this morning...

$USDX seeing a large negative divergence or distribution in to higher prices, someone is expecting the $USD to come down which pressures the USD/JPY lower. In addition...

The Yen (/6J) is showing a 5 min large leading positive divegrence, also having the effect (once it moves higher) of pressuring the USD/JPY down.

As was made clear this morning in the A.M. Update, there were no positive divergences in the 1 min timeframe pre-market that would ramp the market, in fact they were nearly dead neutral and ranging, but as is almost ALWAYS the case, the cash open always sees a big volatility move, whether up or down which is why a lot of traders won't trade the open as it's about Wall St/'s middle men/market makers and specialists taking advantage of limit orders , thus not a great indication as they are essentially just making money on those pre-market orders from people who typically have a 9 to 5.

Thus, the USD/JPY (candlesticks) which had NO CORRELATION whatsoever with ES/SPX futures (purple) overnight or at the European open (red box), was ramped higher right at the US cash open knowing algos would chase the correlation as they did. Note Es (purple) following USD/JPY nearly tick for tick after the 9:30 cash open.

However with the above knowledge of USD/JPY as well as the negative divegrence in $USD and positive in JPY, this pair will not stand for long and thus will not provide support for the Index Futures (market averages) for long either, thus my warning just a few minutes ago, Quick Market Update.

Since then...This is what the USD/JPY's 3C chart looks like intraday...

Absolutely no support on the opening (cash) ramp. However the ramp is not the only reason, USD/JPY is on a stop run as well before heading lower.

And as for ES that followed it higher...the last divergences pre-market which looked like steering divergences overnight (small divergences that largely kept the Index futures in a tight range, was a small positive, not large enough to move the averages on its own, but with USD/JPY support at the open, helpful. Again, see this morning's A.M. Update.

 TF/Russell 2000 which has had the best positive divegrence since Monday morning's short term selling climax (see volume around the a.m. lows Monday) which is the reason we expected IWM outperformance yesterday (while the NASDAQ had the worst and thus the reason for expecting QQQ underperformance yesterday as it was), has a decent positive on a 1 min chart in to the open. It has seen "some" damage since the opening ramp. However I'll further update this with the averages which are still receiving HYG support, however there are changes in the air including a building TLT/30 year Treasury bond positive divegrence.

 NQ/NASDAQ 100 1 min futures had a slight positive in to the open and look scrambled right now, I still doubt they do much without an AAPL ramp.

ES however is much more clear. On the USD/JPY opening ramp carrying the averages higher as you can see on the chart below, saw a clear leading negative divegrence or distribution in to price strength. The 9:30 open is at the green arrow, before that there was no 3C divergence at all overnight.

Again, USD/JPY (candlesticks) ramp at the cash US open (9:30 at the green arrow) and take ES/SPX futures (purple) with it, but ES sees distribution in to higher prices,  the exact same concept behind the AAPL trade set up and many others.

I'll update both the averages and the Leading indicators, especially the ramping levers next. While it is still very early to be making calls on the day, as far as last night's internals went, it looks very much like we can expect to see this selling climax, 1-day oversold condition from Monday morning and proceeding bounce, start to roll over and thus, likely some interesting trades at better entries and less risk.