Monday's Wrap

As I said near the close, I wanted to give futures a little time before writing the daily wrap, something wasn't feeling right, sort of like Friday December 12th when a theory was presented and the following days when the evidence that supported that theory mounted until the actual theory became reality.

Well today and especially toward the close, that feeling was there, even though I have already laid out the theory in whole, the first part of the Crazy Ivan played out, the second part above the range played out and then multiple averages and levers were giving signals and signs that we are getting close to the next event in this series of events in this forecast, the move to the downside.

I think I made it pretty clear that the 5 min Index futures charts were the ones that really were the last link as HYG, even though it was used today to lift stocks off their lows, is still showing overall negative divergences, very much unlike this time last week when it was under accumulation.

The QQQ charts across all the important timeframes are very ugly, the IWM charts have the best underlying trend in 3C, but are deteriorating too.

The 30 year yield id dislocating from the SPX which is a tell-tale sign that things are close to changing and amidst incredible volatility.

This post from today is the best overview of the charts that matter among the averages with pretty much most of the QQQ charts and certainly the ones that matter, MARKET UPDATE AND GLD P/L. It also goes over credit, yields, how they effect the market, the they've effected the market and which way they are heading now very much in line with expectations.

The market is coming out of a very low volatility environment in to a very high volatility environment, look at this massive change in character among the SPX alone...

From very low volatility to the worst week for the Dow in 3 years and the worst week for the SPX in 2 and a half years to the best 4-day streak in 3 years, it's insane volatility and that in itself is a message of the market, a message that a change of character leads to changes in trends.

The Most Shorted Indes which was ripped by short squeezes Wednesday after HYG gave the initial spark along with TLT , VXX and USD/JPY, was a very weak under-performer today showing shorts are jumping right back in the names.

As showed earlier today VXX- short term VIX futures and spot VIX have been outperforming their correlation with the SPX, showing a bid for protection remains stronger than usual. HYG distribution was expected and is in place.

More importantly than the HYG divegrence which is a forecast of future price movement is the actual price movement in HYG as a leading indicator for the market, it is diverging with the SPX in actual price, not just 3C charts, the last time it did was at the recent bottom and rally on Wednesday and before that leading to the worst week in 3 years. HY Credit also underperformed today and sold off in to the close as well.

 Perhaps most noteworthy is the disconnection between bonds and stocks, again exactly as it happened after the last 2 F_O_M_C knee jerk moves higher and in and around the same time (same number of days), one of which, the September meeting ended badly with the October lows.

TLT's almost immediate dislocation with the SPX right after the F_O_M_C (SPX prices in green are inverted to show the normal relationship). This again is a flight to safety trade.

This is not just TLT, which was one of the first to warn of an upside move coming, but it is confirmed in Treasury futures as well. Take a look at what the leading 30 year yield is doing, again, it did the exact same after the last 2 F_O_M_C knee jerks higher proving what I often say, "BEWARE THE KNEE JERK REACTION TO THE FED, IT'S ALMOST ALWAYS WRONG AND RETRACED".

Yields which have been exceptionally accurate is forecasting price are calling for a drop in prices, but I don't think the corrective kind of drop with a near full house in the averages and Index futures 3C charts as well as numerous other indications.

Remember our Pro Sentiment indicators that have been in a downtrend almost every day until last week and then for the first time in who knows how long they trended up with the market,

 Pro sentiment leading indicator uncharacteristically heads higher with the market after first turning sideways which was a strange change.

Remember I said I had a strange feeling about today and wanted to wait until later tonight to look at futures, well I didn't see this chart until after the close, the same Pro sentiment indicator, except to today's close below (so I didn't see this until after the close although the feeling I had was right in line with this type of action).

A parabolic sell-off in to today's close vs the SPX, I can't understate how big this is as these indicators have been right on with leading indications.

As for market internals, pretty darn close to overbought with 7 of 9 S&P sectors green, Tech leading and Energy lagging and of the 238 Morningstar groups, 194 closed green.

Among the Dominant Price/Volume Relationship, every average had one today. The Dow had Price Up / Volume Up which is the most bullish, but ironically also the most likely to create a 1-day overbought situation with the next day closing red, that was 27 stocks, very dominant.

All of the others had the MOST BEARISH P/V relationship, the SPX, the NDX and the RUT all were Close Up /Volume Down. The SPX with a very dominant 2369 stocks, the RUT with 1182 and the NDX also very dominant at 82, this is not good news for market internals and near term overbought readings.

Overall market breadth is not good. Take the Percentage of All NYSE Stocks Trading Above Their 200-day Moving Average...

 The indicator in green is right now siting at 48.68%, less than half of NYSE stocks are trading above their 200-day moving average, this is what I use to use in teaching Dow Theory to quickly gauge a stock in a bull market vs bear market, more than half the NYSE stocks would be considered (a quick proxy for Dow Theory as it is very close anyway) to be in a bear market.

Even with this best 4-day move in 3 years, the Percentage of All NYSE Stocks Trading Above Their 40-day Moving Average is just over half, 50.58%, that's insanely low as this number was floating in the mid 80% during most of 2010-2013. That's nearly half of NYSE stocks trading below their 40-day even with this strong 4-day move.

THESE ARE HARD NUMBERS LIKE AN ACTUARY MIGHT USE, THEY ARE NOT OPEN TO INTERPRETATION LIKE MANY INDICATORS, THE STOCKS ARE EITHER ABOVE OR BELOW THEIR MOVING AVERAGES AND THIS IS A VERY WEAK MARKET IN TERMS OF DEPTH OR BREADTH.

Just to drive the point home and show it's not just NYSE stocks, here's the NASDAQ Composite (all NASDAQ listed stocks) and its Advance/Decline line.

Not only is there a trend of deterioration most of the year, but at the area where the indicator (green) should be leading or making new highs, it;s making a lower high for the 3rd time and I expect it to make another lower low (the NASDAQ Composite is in red).

And the SKEW Index tonight has popped nearly 11 points in 2 trading days from 126 to nearly 137 since Thursday, also known as the Black Swan indicator, it is solidly in the red zone again after being in the red zone just prior to the worst week in 3 years.

However as interesting and telling as all of this is and it is telling, it was the futures I wanted to see tonight and my suspicions are being corroborated.

The longer term as I already mentioned is pretty much inescapable, with breadth as bad as it is, it's no wonder these charts are as bad as they are.

 I showed a full house out to about 60 mins earlier today, but they go out to a month. Here's a Russell 2000 futures (TF) 4 hour chart, there's no coming back from this,  this is the highest probability resolution to the downside, too much damage has been done and it's getting far worse, far more hollow.

 The ES 60 min, remember what this upside move was theorized as being used for, a head fake move so why would we expect to see accumulation or even in line readings? We wouldn't and we don't. This is by far the worst divegrence on the chart, far worse than the one that led to the worst week in 3 years the week prior.

However as I noted earlier, the timeframes that are important strategically are already in place, it's the tactical short term timeframes for timing that I am looking for, mostly 5 min and since the close, things have only gotten worse and I suspect they continue to do so overnight , if so, I don't see any reason we won't be entering positions tomorrow.

 TF/Russell futures 1 min with a positive intraday during the cash market, the same time HYG saw a positive 1 min to help lift the market off its lows, interesting how they work together and far from coincidence.

However since the cash close (red) we have sen TF just keep deteriorating and this has been the strongest underlying 3C chart up until now.

NQ, NASDAQ 100 futures. You already saw the QQQ charts and how bad they looked, I believe the NQ futures in numerous timeframes as well. The 1 mi chart after the cash close has fallen apart from being almost perfectly in line pre-market and through the cash market today.

Here's the ES 5 min chart, this is where I want to see movement and it is starting. Also note the tight range in ES right now as 3C deteriorates on the last and most important chart for timing this move. I suspect we are at actionable divergences tomorrow and probably early on.

 The green box is today's cash market, above is NQ/NASDAQ 100 futures 5 min chart, note  the extreme 5 min deterioration since the cash close, this is what I suspected we'd see and why I waited until later tonight to do this post as this gives a very different outlook for tomorrow and moving forward than it did at the close.

 AND LOOK AT THE TF 5 MIN CHART, IT FELL OFF THE FACE OF THE EARTH !

NQ 7 min. As I said, the 7 min charts are already there, it's the 5 min that I need to move in to trades, if they look like this or worse tomorrow, I see no reason not to move in to positions immediately.

TF 7 min


I'll see you in a few hours, things are about to get really interesting again and our complete forecast looks like it will complete.