MARKET UPDATE

As global stock markets continue to feel rising volatility after China's clearing agency for the nation's exchanges eliminated the availability of about $80 billion in liquidity (more on that later) causing investors to de-leverage, many markets are down in the 2% range, Athens around -11% (but that's on some political issues on the table in Greece as well).

It looks like they're (the invisible hand or PPT) trying to stop some of the bleeding, as I wrote 3 weeks or so ago, the nefarious Plunge Protection Team is in my opinion should be called The Plunge Protection and Market Correction Team as the fall of assets like stocks happens, just as did the fall of housing is a wealth transference mechanism. In the post above my argument was not that they (The PPT-which is real, not tin foil hat conspiracy and it resides at the NY F_E_D) were just there to support the market infinitely, if they were we wouldn't have bear markets, but to control and manage the sell-offs as there has to be a sell-off for the transference of assets from one class to another as always happens. What many might call the business cycle in my opinion is a mass transfer of assets from the middle class to the wealthiest few and it does not just occur in bull markets, but does need bull markets and bear markets to complete the cycle.

However, at the same time, I believe they manage sell offs the best they can so things don't get too out of their hands which eventually they always do (see the linked article above). In early 2009, myself and David DT who many of you know where trading together and were able to call F_E_D / PPT intervention within about 10 minutes, it was just that obvious as they tried and succeeded in supporting the 2009 lows, rather than let them break to new lows which they threatened to do many times and that's how we'd know when the PPT was ready to step in the market, it was that obvious!

In any case, whoever's hand it is, it's clear they are trying to stop some of the bleeding as HYG has seemingly been activated intraday again...

 SPY in green, HYG in red.

Although HYG may not be specifically or directly implicated in the overnight move by China which ends up taking collateral/bonds rated below AAA or sold by issuers graded
In any case, above, although HYG is down about a half percent this morning, you can see it is moving perfectly with the SPY, a little too well to be coincidence.

 However HYG and HY Credit in general is far more dislocated on a larger basis as you can see above and as I show nearly every day as it gets worse.

 While this 1 min SPY chart is a bit old , collected about 30 mins ago, the divergence is the same. Yesterday's divergence at higher levels was as I warned yesterday in volatile markets, was run over so there's a seeming effort to get a toe hold in this area. As far as a bounce, well things have changed on a massive fundamental basis which we would assume the market could not discount and thus the fall overnight, but the truth is, there are plenty of leaks and the very ugly action seen Friday and Monday may have indeed been discounting as they aren't going to sell or sell assets short in to a steep sell off, but trey to maintain the best prices for as long as possible before the actual news hits, again this may or may not be why the markets have looked so ugly in underlying trade, breadth and leading indicators (including SKEW) the last couple of days and broadly the last several weeks which have seen a very ugly turn, what I have been calling, "Off the charts" as there are few historical precedents I can find over a 100 years of trade showing conditions (underlying) as bad as they are right now.

 This is the recent ugliness in the SPY on a short , but still strong 5 min chart I mentioned above as it has shown strong distribution in to this very flat area of trade with very little in the way of market gains over the period, something we commonly see (flat, dull ranges) during strong distribution and accumulation.

 And the larger, bugger picture and trouble in SPY with a divergence that is 10 times larger than any of the last pivot highs and by far one of the largest I've seen, but we always expected strong distribution in to the October rally, even when we were calling it before it began.

The QQQ intraday also trying to find a toe hold, and having some success in stemming the bleeding, although it will start back up again, but for now it seems they are working out a toe hold. Remember, my argument in the The Plunge Protection and Market Correction Team article was not that they prevent bear markets, but manage them and form time to time, fail badly, but you can imagine what the economy would look like if the 6 p.m. news tonight announced that the Dow or S&P lost 5.4% like the Shanghai Composite, a bleak Christmas it would be and it's already off to a hobble.

 QQQ 3 min shows the recent weakness (I often use yellow to represent head fake areas like the one to the left from last Friday). The severe distribution is clear in to the head fake move and after with a small positive divegrence this morning (the toe hold) . This doesn't look much different, it has matured a bit more, but I wouldn't say it has anything beyond an attempt to support the markets here, maybe get back some of the opening gap.

 The QQQ 10 min shows the very rapid deterioration of 3C in an environment that was already very ugly and our QQQ short Friday (SQQQ long) at the white box which was as near perfect timing as we could possibly ask for, just minutes off Friday's intraday QQQ highs.

 And the longer term 60 min or strongest underlying trend  with distribution at the September high, accumulation at the October low and a monster negative divegrence right now, thus the QQQ looking like its about to fall off a cliff.

The IWM intraday built this divegrence this morning and has moved toward a gap fill since.

Remember there's likely a lot of middle men, market makers/specialist caught with inventory from yesterday's levels who need to get flat on that inventory (close the gap in a broad sense).

 And the IWM's long term underlying trend at new leading negative lows . I didn't draw in the divegrences because I didn't want to mess the chart up, but I drew in the divergence areas, you should be able to see the 3C divegrence vs price at those area and how bad it is right now.

 NYSE TICK hit an astounding -1850 on the open this morning (to get the TICK, take all NYSE advancing issues and subtract declining issues), this was showing massive ugliness in intraday breadth as a lot of stops were likely tagged on the open. TICK has hit +1000 since in the IWM gap fill, the rest of the averages aren't even close.

I wouldn't be surprised if TICK started getting ugly again, draw a channel around it and watch for a break below the channel as early warning for a move down in intraday prices.

My custom TICK/SPY indicator shows TICK breadth failing in a flat range- common distribution in a flat range as mentioned above.

I'll be posting shorter updates as the market is moving fast. I don't like chasing any assets, but overall, we are still in an excellent short selling area, although I'd much prefer to sell short in to price strength rather than weakness.