Friday I closed out the week with some longer term charts of what the market looked like in several different markets across nearly a century, right at the top, they don't look much different than the market does now, but that's not proof of anything.
However, what seemed like an opaque market for an unusual amount of time last week, may indeed be the change of character that I have always thought would accompany a real trend chamge in the market, along the lines of a secular bear market which is something that I don't think anyone alive has traded, at least not in equities, there was one on commodities. I have maintained my opinion that, "Whoever figures out how to trade this market first, essentially wins" and with fear at the helm, the ferocity of a downside move can be one of the fastest ways to make money as I demonstrated with long term charts Friday linked above. Take the 2002/3-2007 Bull market, 5 years of building this bull and most of it was taken apart in 8 months, all of it was taken apart in a year and a half and then some.
I have long suspected this coming decline would be historic.I won't go in to all of the reasons, but if you consider what created this bull alone and how quickly (in terms of a primary trend) that situation (F_E_D liquidity) can and is ending, you have a recipe for a market that has never had any business up here and once the singular reason is gone or the perception is that it will be gone which is the market front running the F_E_D, things can get out of hand pretty quick as, once again I demonstrated with Friday's closing charts.
There was even a hint of a bounce building that I had no interest in either trying to trade or hedge against because the environment is just that dangerous. We will see what turns up early this week and make some decisions, but this is a time more than any for caution.
The flags I have been adamant about keeping an eye on including treasuries and most importantly, the carry trades are now getting to critical levels and tonight's futures are just a glimpse of that.
For now, I'm going to try to pick up on Friday's post with what we have in futures, especially the bellwethers that I have said over and over, "Watch these" as few others know to watch them and they are the alarm, the red flags. For 3C's part, the unique character that has been a dominant feature on the charts since the last week or so of December (actually much longer, but in more acute fashion) has been the speed and depth of leading negative divergences whether on 15, 30 or 60 min charts, they are some of the most vertical I can see going back historically and the deepest as well as the fastest forming, something certainly changes just as December/2013 window dressing finished and that's obvious in the start of January's trade.
The Yen has been a key asset as it is now the earliest signal in the all important carry trades which are a barometer of Institutional risk.
The Yen's daily 3C chart has an enormous leading positive divegrence, most of it was formed through 2013, especially around the time the BOJ embarked on their own QE.
Recently the Yen has started flashing shorter term like 30 min positives suggesting it was getting ready to break higher and higher it went causing carry traders losses.
Right now it is in line (confirmation) in most timeframes (5, 15, 30 min.) While it's very vertical and could pullback (which according to what I saw later Friday a pullback in the Yen would make sense), it seems to be doing its damage.
For instance the EUR/JPY and USD/JPY were pretty normal through 2013 (at least relatively speaking), but that high Rate of Change in price just before a top became apparent in November.
Both carry pairs were clearly negative as of the New Year (remember the changes noticed as soon as December Window dressing ended).
This first break may not hold, they usually don't and considering it's Sunday night futures, I wouldn't be surprised if it didn't, but it has made a move that is very important.
However it has left a bit of a mark on Index futures.
1 min Russell 2000 futures look much the same.
As you know, I don't trust a 1 min chart's signal to hold overnight, but it is interesting that they seemed to pick up on trouble as the USD/JPY broke a level that would create a short to intermediate trend change which is something new for the pair that it hasn't seen in at least a year.
As we have seen, gold and silver have traded opposite the market and as you know I've been expecting a base in both and a move much higher, take a look at gold future's daily chart.
The flight to safety trade in Treasuries or at least select ones like 20+ year (TLT) has been a trend I've been following for months looking for the right entry, take a look at the 30 year which is different than the benchmark 10 year, we've noticed that from the start at least 6 months ago which is interesting in itself as Wall St. plans out much further than you'd ever expect.
However the difference between a 30 year and a 10 year is important, the 10 year is a benchmark that sets all kinds of rates like mortgages. A 10 year that is not looking as good as a 30 year suggests that rates may be ready to rise and we have already seen them criss cross above the 3% level and down and back up, which is not good from an economic standpoint as most every interest rate including mortgages rises.
However it seems to be the bond traders that are moving it, they seem to be giving an authoritative vote of no confidence in the economy. The last time this happened with yields above 3% was when the QE taper was first mentioned last summer in such hawkish tone and you saw how the F_E_D backed right off as rates popped. The time before was July of 2011, just before the market dropped about 20% in a very short period.
I'm not much more concerned about overnight futures, I am interested to see what tomorrow brings and whether there's any position management or new trades to be entered. However will have a much, much higher standard for any hedges and even higher for any longs, the environment is just getting to dangerous for my comfort and I have a very high tolerance for risk, just not for irresponsible acts.
Here's the schedule of economic events for the week, again chock full of F_E_D speakers.
Like I said Friday, it seems like VIX futures are being pushed and HYG pumped, but not everyone is on board as Sentiment falls sharply on the close, HYG divergences are deep and Yields are negative relative to the SPX which has always been a great leading indicator.
I'll see you in a few hours...
