JUST SO WE HAVE IT

In case we need to look back since the chart lengths are so short, here's TF, NQ and ES . Even though these don't look great right now, I have a positive divegrence in $USDX and a negative in Yen which just picked up, so I'm looking for some USD/JPY upside, not sure if it's defense, but it would be interesting if the Index futures moved down, even though they'd be bucking the intraday correlation, they have a long way (60-70 points) on the downside to revert back to the USD/JPY correlation. Should be interesting, I just want to have the charts on record.

 ES 1 min

NQ 1 min

TF 1 min

Market Update

Early today my gut was the USD/JPY would be the intraday driver of most of today's intraday action, I have some proof that this is what's going on. $102 is a very important level and it seems the BOJ tried to defend it overnight, but their intervention over the last year has been pretty weak at best.

Here's a little more on the pair and a couple of leading indicators, I'll check the closing indicators.

SPX (ES) is not hanging at VWAP, it's flat range created or brought VWAP to the area and is reflecting ES's somewhat "pinned" trade.

 USD/JPY (candlesticks) is not following ES (purple) intraday, it's the other way around, this is an overlay of the two intraday and you can see ES is moving nearly tick for tick with USD/JPY.

What is interesting is the reconnection as it has been a correlation since November of 2011 that has been nearly unshakeable, it was only the last week or so that they completely disconnected, but I don't think this is a change in character in the correlation, usually they are more subtle starting off, furthermore it fits exactly where the head fake move started and the short squeeze in equities, the currency cross has no reason to follow ES/the market higher, it's not being squeezed. 

However if the reconnection to the correlation is there, then...

 This chart of USD/JPY (60 min) vs ES in which the correlation is near perfect until the equity short squeeze took place, might just mean that reversion to the mean (without USD/JPY even moving) is worth about 60-70 ES points on the downside, it may be a little more.

This is USD/JPY intraday today, flat, but drifting a little lower, I'd just call it flat and right above the $102 level.

 If you look at ES/SPX futures for the same time period, the same trend, flat or lateral, only the overnight knee jerk gained the SPX anything.

HY Credit finally broke Friday, it was leading the market in to the head fake  area, now it's leading negative, even though it gained a bit today, I don't think that's any reflection of any significant change.

 The most interesting leading indicator in my opinion (other than some of our proprietary ones) would be yields which lost more ground today, the market is attracted to Yields like a magnet and Yields almost always lead the market in any trend change.

 Here's a wider view, it's not scaled perfectly, but yields in red vs the SPX in green show Yields going positive at the second bottom of the "W" (white arrow) before equities and there's a significant negative dislocation there now that was added to today. A larger view...

Shows Yields breaking down first in January before the market and the market follows like a magnetic pull, you see the small "W" and positive Yield signal and in scale, you have a VERY dislocated Yields signal, which makes perfect sense as I had said before the market upside move started, it's not based on buying, it's based on covering, it's a hollow move and breadth is reflecting that.

So we have a pretty deep reversion just to Yields as well.

However for today specifically, I think it's pretty clear all eyes are on the USD/JPY.

Since it hasn't added a higher high since the BOJ came out with their expanded lending facilities overnight, I suspect as usual, the half life of BOJ intervention is very short, but it does seem to be calling the shots, this is why I said this morning I'd put the pair on your radar and in the rounds.

I'm going to update internals and take a closer look, but the immediate reaction as soon as the bell rang at 4 p.m. was for NQ and TF to start losing ground even though USD/JPY is still flat.

Although it's WAY too early to make any assumptions, I do have to wonder if this is the start to one of those moves (the reason I wouldn't dare be long financials right now) in which longs are obviously locked in to their positions, nice and comfy on the close and we get one of those nasty a.m. gaps that takes out a week or two of longs on the open.

I'm just wondering because of the AH action right after the bell, ideally I'd think something like that would be after AH closes, but AH is so thin in liquidity, it could actually make a scenario like that worse, PANIC.

XLF/ FAZ Follow Up...

I have an open FAZ long position from last week (3x short financials) and I actually still like that quite a bit. I was talking with another trader using some more conventional indicators which I use, but in unconventional ways, such as a 100 period Stochastics, whether the 60 min chart where it's making a clean bullish turn or shorter timeframes that are bullish in divergent or non confirmation signals.

The only thing I'm not crazy about in FAZ or XLF is the most current bottom area which I think is part of a much larger one and thus should be more proportional, this may be a longer term issue that could be resolved with some kind of head fake move below SPX 200 sma.

I'll show you and why I still like this 3x leveraged Financial short as a trading position.

 FAZ 4 hour long term chart with an in line status with price and then around December the first of what I think will be something like a double base, although distorted, I suppose that's not so far off considering the SPX H&S daily chart's distortion.

I'd normally look for a similar size second base to the right which isn't there, but it may be that's just how it's going to go, the leading positive divegrence at the second area is significant, note there was no distribution at the pivot high, this tells me this is under accumulation; they use just enough distribution to turn the asset, you don't want to lose any more shares than necessary when you are trying to accumulate.

 FAZ 30 min from a negative to in line wit the downtrend (I love these charts) to a leading positive divegrence, on a 30 min chart the leading positive is a strong signal because of the longer time frame.

This shows the first base area (if this were a true double bottom) and enormous accumulation, more than what was used in the run up. Note at the top of the run, there's no negative divegrence even on a 15 min chart at the pivot, accumulation picks up almost immediately as the downside move starts.

 A closer view of the FAZ 15 min with trend confirmation on the move down and a leading positive divegrence as FAZ loses downside momentum and starts a reversal/rounding process in price.

The 5 min chart has been leading almost the entire time which tells me the average accumulated price is likely in the $22 area so any move up should move significantly past $22.

The 1 min chart is the ONLY thing that would keep me from an entry right now and that's purely on a tactical basis, not strategic, even though it is leading positive, I'd like to see 3C moving to a new leading positive high, but as we know this can change before I finish writing this post.

 XLF (Financial Sector) 4 hour chart with a huge leading negative divegrence, this gives me plenty of comfort with the FAZ position, this is an extreme divergence, however that is because this is a unique market in what pushed it higher, trillions in liquidity from outside the market.

 The closer term 30 min has a very nasty leading negative in to the highs, this is what is really going on, the head fake move which at this stage we might as well call a counter trend rally, (you'll be seeing more of those and hearing about those more and more as we move forward) is leading negative, there's no confirmation so there's distribution in to that move and considering the primary underlying trends, I personally would not be long financials, the surprise risk is just too great.

XLF 15 min chart is showing the exact same theme as the 30 min above.

This is a closer look at the 15 min FAS which is 3x long Financials, if there's true confirmation in underlying trade, FAS should look like XLF, you can see it does, it may be even a bit more negative which is something I see often, either stronger or earlier divergences in leveraged ETFs, this is one reason I use multiple assets in the same group  for confirmation.

The FAS (3x long Financials) is leading negative too, it never saw much accumulation at the "W" bottom for the head fake move.

I have no problem holding FAZ, opening or adding to it, I'm usually myopic about entries, but I would like to see that 1 min chart making a new leading positive high, but this is really a small issue in the big picture, it's just every edge counts.

Quick Futures Update

USD/JPY is treading water around $102.25.

While the Q's and R2K have been doing their thing, ES (SPX futures) have been more or less treading water as well with a number of small intraday steering divergences, seemingly waiting for NQ (NASDAQ 100 futures) and TF (Russell 2000 futures) to finish up they're projects, which I'd say are just passing out more bags for retail to hold.

Take a look now...

 ES with a number of small intraday "steering" divergences as if it's being held right where it is which is right around its VWAP at $1836.37.

 I had written several times not to expect any accumulation or even in line trend confirmation on a head fake based move, expect distribution, the 15 min ES chart (I wish it were longer) shows that clearly, it's picking up even more so now. This of course represents a longer trend, what I'd call the next trend. Remember that the market is like a pendulum and at a transitional stage you always see volatility increase, as we've seen between stage 2 and stage 3 as well as stage 3 to stage 4.

The point of the head fake which was posted and made clear before we had our first move up is to convince market participants, to change their sentiment, I wonder how many of us remember how bearish sentiment was before this move started, I even wondered what they'd have to do to change it, but as usual, retail is fickle and it doesn't ever take as much as you might expect.

A move down doesn't need any of that at this point, the market will fall of its own weight and the most powerful emotion that moves the market is fear so all that needs to be done is to get a little roll over to take place and fear will do the rest, it's not at all like the most recent move in which sentiment HAS to be shaped.


 This is NQ (NDX futures) today, the initial leading negative is deeper as it too seemed to be in a holding pattern  at the intraday highs waiting on TF (R2K futures).

This is TF intraday, it has clearly transitioned to a sharp leading negative divegrence.

With that, breadth is falling apart as well.

This is the NYSE TICK Index for today and...

My Custom SPY vs. TICK indicator, you see the highs are rolling over and the lows are getting deeper so intraday breadth is falling apart, this is a very useful signal in a flat trading range that looks as if it might roll over, the TICK will give you advance notice.

Now that t seems we have a clearer intraday picture, I'm going to see what's out there in both trading and trend positions.

GDX, NUGT & DUST

Last Friday I was cleaning up some core positions, this one a long NUGT position that I closed out and replaced it with DUST. I'm not sure that I'll leave this as a core position, but I definitely did not want NUGT any longer. Chances are pretty good that as a core position for the long run I will come back to GDX/NUGT long, but for now, well you know.

Here's today's update, I'll try to get gold in there as well as it did flip its correlation with the SPX 180 degrees, I suspected that this was a temporary interruption based on the market's head fake/short squeeze, but this is one I want to get right.

 GDX (Gold Miners) Daily with stage 4 Decline, Stage 1 Base/accumulation with a very defined base so naturally a Head Fake (@ "HF") in the form of a run on stops is to be expected and the daily divegrence is leading, but only after that head fake run on stops. This is the easiest, quietest way to accumulate in bulk for the pros, no one ever seems to ask, "Who's on the other side of the trade" and they get the shares at a deep discount with plenty of supply so it doesn't raise any alarms, the leading divegrence in the area shows how aggressively they accumulated that stop fishing expedition.

I will almost certainly be back in GDX long, I just don't want to be there right now.

 GDX daily chart with the red trendline representing the stage 1 range and of course the head fake move below. The last couple of days we have an evening star candlestick (bearish reversal pattern) and something very close to a bearish "Hanging Man" reversal today, I'd love to see the volume shoot up today, but it's not essential.

 It's the 60 min chart on a longer term Core position basis that bothers me, otherwise I'd probably have put DUST as a trading position. You can see the large accumulation area at the break below support, but 3C should be in line right now and it's not, it's negative. I don't think this changes GDX as a long term bullish position, but sub-intermediate trend... it raises some concerns.

Near term (this would be under a trading position rather than a core position), GDX's 5 min chart is leading negative so it seems whatever downside move is coming, it's very close.

If you look at the 3x leveraged version of GDX, NUGT, the 5 min chart is exactly the same, this is why I closed the long here Friday and entered DUST. I didn't post them, but the 60 min charts and others in NUGT also match GDX so there's good confirmation.

 DUST, the 3x inverse GDX or opposite of NUGT shows a confirming signal with distribution where GDX/NUGT are leading positive at the stop run, what's concerning immediately is the positive divegrence on this 60 min chart that also confirms both GDX and NUGT in the same timeframe.

 The 30 min chart has very clean signals, in line on the move up to the far left, a negative divegrence/distribution at the red arrow and in line or trend confirmation at the green arrow on the way down, this is the next significant divegrence, positive in white, thus the changes.

DUST 10 min is also positive and especially at the last two days where GDX has two bearish reversal daily candles.

I think DUST or GDX short is probably still a decent , viable position here, for now though I'd consider it more of a trading position until these 60 min divergences clear up and tell us a bit more about what's being planned here, maybe a return to the lows?

Market Update

The USD/JPY is just meandering lower in waves. I see TF intraday is getting like the NQ chart I posted so I think that's significant on an intraday basis and intraday at this point is getting to be significant on the next trend.

The Q's for example intraday (please pay attention to the 3C signals in the flat areas of intraday trade today, where we usually see the most underlying activity)...

 QQQ 1 min- this is further deterioration from last week, Friday's post specifically , note the leading negative in the flattish range.

The 2 min

 And the 3 min specifically today.the long term trend for this chart is worse than what you see here, I'm just trying to scale last Friday with today so you see the continued deterioration.

As for the NYSE TICK, I was going to try to draw the trends for today, but I think it's more effective just to define the borders and let you see them yourself.

The initial thought about the (mostly) 30 min charts that held a positive divegrence, was that they'd last long enough to break through the 200-day SPX on the downside and stage another head fake, but these are even worse, this is it, this was the move and they are falling apart even more.

 I show the 30 min SPY in it's truer scale to show that even though the 30 min chart did have a strong positive divegrence which was a for this head fake based move, it still was weak in the Primary picture of things so I think the next stop is...

I think there's very little doubt our next stop is the 200-day, but I think to be effective initially there will have to be a break below as sentiment will be bearish before we get there and a break under the 200 is what retail will chase, we'll have to see what short term signals show at the time, I suspect some kind of game will be played as you know.

The overall pattern is interesting too, it's a cleaved H&S that's already run a volatility shakeout before a right shoulder/s were formed, that's why I was talking about the Dow 1929 parallel chart floating around and making the point, these two markets aren't the same, I am not saying they won't be similar, I'm saying go with the data we have as we get it rather than assume it will look like 1929.

I'm just getting a feel for trade as we are in a new week and the BOJ action "had" the potential to mix things up a bit, even though their intervention and policy has had a very limited effect on the market in the recent past. I think the bigger fear that will be taken away from their action after the initial knee jerk which looks to be done in the carry cross, is a liquidity fear, this is a lot more like 2008 than I think many notice, there are liquidity problems popping up everywhere like pipes springing small, but constant leaks.

I'm not sure what the PBoC is doing, maybe fine tuning after 8 months of suspending liquidity soaking up operations they are at it again just after they had to put liquidity out there with Trust failures looming. Perhaps they are fine tuning policy or testing the market's reaction, but ultimately they don't want the liquidity out there, they needed it to save some banks/trusts from failing. Perhaps mission accomplished and they resume soaking up yuan, we'l see at Thursday's regularly scheduled operation (Tuesdays and Thursdays).

As for the market right now, intraday is deteriorating, I want to make sure and as I said Friday, at this point I'm a bit more interested in longer term trend positions than trading positions, when we are in chop than trading, but I think soon we will be moving or already are moving in to stage 4 so that would mean this is probably one of the last, best chances we get for short positions at excellent entries and lower risk, I don't want to chase anything down.

Oh, one last thing, I just want to point out the excerpt in Friday's EOD post from Tuesday February 4th trying to anchor expectations for what was coming based on a head fake move, the market was still ugly as of Tuesday Feb 4th, but we had been tracking a head fake move (up) for almost 2 weeks at that point.

This is Tuesday Feb 4th on a SPY daily chart, I had been writing about this for several days in to late January as far as what to expect from a head fake move, remember they have to be convincing, but the pendulum swings both ways, that's how moving sentiment works.


*Note the last sentence or so especially.

"Tuesday February 4th

" When I said we expected a head fake move in my Friday post, "Come Monday", it was a head fake move to the downside, they need to be real, they need to be convincing, just as a bounce to the upside, I wouldn't expect a 1 or 2% move, I'd expect something that will fill my inbox with emails asking, "Are you sure the market is still bearish Brandt, this looks awfully bullish"."

NASDAQ Futures

Over the last approx. hour, the NASDAQ 100 futures, NQ, have been creating a stronger and stronger intraday leading negative divegrence, it looks pretty close to critical mass.

The intraday chart for NQ has been very clean, a negative divergence around 2 a.m. sending it lower in to a relative positive which is one of the weakest forms and in to what is currently a leading negative which is one of the strongest divergences.

Don't forget what the Q's looked like on Friday's close, here's there post.

$USD/JPY & $102

I think this is going to be a key influence on intraday trade today, the Bank of Japan's doubling of their lending facilities definitely moved the pair overnight, even if it didn't do much for Europe or futures, however after the initial knee jerk reaction to what seems like monetary loosening, there are two factors, the first as Goldman was quick to get out this morning, "this move was already discounted", meaning expected and baked in to the price.

The second which may have longer lasting ramifications is the global liquidity semi-panic you can feel bubbling under the surface, or in other words, bracing for troubled waters.

I think a failure of $102 (and the pair almost made $103 on the BOJ announcement ) will not sit well with the market especially given the move was born of BOJ policy which in the not so distant past has had a VERY short half-life or effectiveness.

I think this pair will have a lot more to do with intraday trade in the averages today than most would think, if we slip under $102, I'm sure we'll know for sure if I'm correct.

This is what the 1 min USD/JPY looked like this morning, it is a fractal of last night's parabolic move that failed, just larger as it's based on Central bank policy. My first thought upon seeing it is, "Why has it lost momentum?" which is more of a rhetorical question given the BOJ's policy actions have had a very short effect on the market and with GS confirming that this "news" was already priced in, it makes sense that the pair lost momentum, now the question is, does it lose $102?

 To the left around 10:30 last night you see the parabolic move on the expansion of the lending facilities, but this morning the intraday chart for the pair didn't look so good and price itself didn't make a higher high, rather a lower one.

The 5 min USD/JPY shows the $102 level at the yellow trend-line, there's a pretty clear negative going in to that move which would make sense if smart money already discounted it as Goldman came out with this a.m.. The yellow arrows are the first smaller parabolic move and failure last night and this looks to be a larger one, the failures are typically just as spectacular as the initial move. That makes $102 very interesting for the broader market, I'd keep an eye on this as you make your rounds today.

For the Dow Theorists...

Transports vs Industrials (Dow 20 vs Dow 30) or Dow Theory (at least a part of it) is at work this morning with non-confirmation between the two, Transports are seeing weakness, I'm guessing this has something to do with the Empire Manufacturing Index and the New Orders component dropping off from 10.98 to -0.21, not a good print.

In any case, we have been talking about apparent weakness showing up in transports a good portion of this year and recently.

Here's what we have today, I don't see this as a trade entry, but if you took one of the past trade entry ideas for Transports (IYT) then I certainly wouldn't be closing the position today.

 This is the Dow -20 in green vs the Dow 30 in red, you can see areas of non-confirmation and trend changes.

This looks like a right shoulder of a H&S top, there was a bear flag/pennant that looks to have broken, but I'd still expect volatility around it, that may offer an entry, but be aware that there may still be a volatility shakeout run AFTER the neck line is broken, usually the top of the right shoulder is a decent enough entry to protect you from draw down on that move, that's the final area I'll short a H&S top, this is the second of 3 areas.

The main point is the non-confirmation as there has been a lot of Beta and momentum chasing in transports.

Here's this morning's gap up and FAIL on a 60 min chart at the apex of a bear-flag/pennant.

This is the daily 3C transports chart, you can see the stages of the major cycle pretty clearly.

This 2 hour chart's negative leading divegrence covers the entire H&S area.

 As does the 60 min

This is the 30-min leading negative in the flag-like consolidation.

and more detail with a 10-min

And more detail with a 3 min from the "W" bottom at the broader market's head fake move area to the current area.

Like I said, I'd prefer not chase transports, but we have featured them several times recently so some of you may have short positions already. Again the most important concept here is the non confirmation as in Dow Theory.