Daily Wrap

Something is certainly amiss... Lets track this from yesterday.

As of Monday we had clear, but not very large, positive divergences in all of the averages, I wanred that because of increasing volatility, even a normal bounce could look quite impressive. Toward the end of the day price moved above the lows set on Friday in most of the averages, that's when we saw some 1 min negative divegrences acting as resistance to not allow prices to move above a level in which it was likely stop losses on shorts would be triggered, it almost seems like they were intentionally driven back down as to not allow those stops to be hit which would make sense as I posted last night, if you were trying to get more "Bang for your buck " on a short squeeze.

Thus the inverse H&S bottom like formation was held in to the close without hitting a technical level that would have likely caused some BTC stops to be hit.

Given this morning's news from Russia and Putin on the Ukraine, I'd say we'd have to be purposefully naive to think that this rumor (or more) wasn't what caused Monday's divergence, it's the right size in that a good chunk of change could be made off the news, but it's not of significant duration to represent much more than that.

Then overnight and this morning at Putin's press conference we saw one of the most surreal, bi-polar collection of statements from lambasting the Ukraine to supporting the Ukraine's democracy, it was as if two or more people with absolutely conflicting views wrote the statement on the day John Kerry landed in Kiev and the US State Department said sanctions against Russia were only "A matter of days".

Here are just a few excerpts from the Kremlin/Putin...

• PUTIN SAYS UKRAINE SUFFERED COUP
• PUTIN SAYS UKRAINE GOVT OVERTHROW UNCONSTITUTIONAL, ARMED COUP
• PUTIN SAYS YANUKOVICH AGREED WITH OPPOSITION TO SURRENDER POWER (so was there a coup or an unconstitutional overthrow of Yanukovych or did he agree to depart and surrender power?)
• PUTIN SAYS UKRAINE’S YANUKOVYCH DIDN’T GIVE ILLEGAL ORDER TO SHOOT
• PUTIN SAYS UKRAINE USED TO ONE SET OF CROOKS REPLACING ANOTHER
• PUTIN SAYS YANUKOVYCH IS UKRAINE'S LEGITIMATE PRESIDENT (How could he be the legitimate president if he agreed to step down?)
• PUTIN SAYS YANUKOVYCH ASKED RUSSIA TO SEND TROOPS TO PROTECT PEOPLE (Anyone familiar with the Ukrain post Soviet Union knows that there has been an attempt by the US and NATO to encircle Russia and to pick off former Soviet sattelite countries and bring them in to the western fold, the Ukraine is one of the most notable examples. Russia has played a heavy hand in Ukrainian politics trying to keep them from aligning with the west and the EU, no doubt he saw a chance to really shake up the balance of power there)
• PUTIN SAYS YANUKOVYCH HAS NO POLITICAL FUTURE
• PUTIN SAYS UKRAINE POLITICAL LIFE HAS BECOME FARCE
• PUTIN SAYS NO NEED TO SEND TROOPS TO UKRAINE YET (However according to the Ukrainian ambassador to the United Nations, there are some 16,000 Russian troops already inside the Ukraine, we know there are some first hand as we saw them firing toward un-armed Ukrainian soldiers today as they marched toward their own air force base that Russian troops had overrun and taken control of Friday using percussion grenades).
• PUTIN SAYS RUSSIA’S MILITARY EXERCISE HAD BEEN PLANNED LONG AGO (Obviously this is ridiculous, the Ukraine apparently was not notified of their joint military exercises with Russia and just today Turkey scrambled (8) F-16's to track a Russian military plane, one would think Russia would have notified the Turks of their presence in the area conducting drills to avoid any potential mishaps)
• PUTIN SAYS RUSSIA WOULD SEND TROOPS TO UKRAINE ONLY IN EXTREME CASE (What does that mean considering they are already there?)
• PUTIN SAYS NO BLOODSHED IN CRIMEA
• PUTIN SAYS RUSSIA TROOPS IN UKRAINE'S CRIMEA JUST REINFORCEMENT (And here Putin admits Russian troops are in the Ukraine!)
• PUTIN SAYS MARKETS REACTED NERVOUSLY TO EVENTS DUE TO U.S. POLICY
• PUTIN SAYS POLITICS HAD "TACTICAL", TEMPORARY IMPACT ON MKTS (Remember the Russian MICEX market was down -11% yesterday after the Russian Central Bank sent rates up 150 basis points to stem the outflow of capital and the destruction of the Ruble, something they have not done since 1998, 2 months before Russia defaulted on their debt)
• PUTIN SAYS SANCTIONS AGAINST RUSSIA WOULD CAUSE MUTUAL DAMAGE
• PUTIN SAYS CRIMEAN ADMINISTRATION IS FULLY LEGITIMATE
• PUTIN SAYS RUSSIA NOT CONSIDERING ADDING CRIMEA TO RUSSIA (Which sounds a lot more like Putin is adding Crimea to Russia, especially after today's events that were polar opposite of the attempt to calm nerves, say launching an ICBM when any scheduled launch could have clearly been put off to defuse tensions)
• PUTIN SAYS CRIMEA SELF-DEFENSE BLOCKED UKRAINE FORCES (That's not what we saw with our own eyes today as Russians fired in the air at unarmed Ukrainian soldiers marching toward the air base.)
• PUTIN SAYS WE DON’T PLAN TO FIGHT UKRAINIAN PEOPLE (Again, given what is said and what has been done since, it sounds he plans exactly that)
• PUTIN SAYS DOESN’T WANT TO RECALL AMBASSADOR FROM U.S. (Putin must be experiencing Cognizance of Dissonance)
• PUTIN ORDERED RUSSIAN GOVT TO RENEW CONTACTS WITH UKRAINE GOVT(The contracts with Gazprom were never the issue, the discount was which is not taken up)
• PUTIN SAYS WEST ASKED RUSSIA NOT TO BUY MORE UKRAINE BONDS
• PUTIN SAYS NO IDEA WHO UKRAINE WILL ELECT AS PRESIDENT
• PUTIN SAYS AGREES W/ UKRAINE PROTESTERS' DEMAND FOR NEW LEADERS(Again, Cognizance of Dissonance after all he just said about what happened to Yanukovych)
• PUTIN SAYS MET YANUKOVYCH 2 DAYS AGO, SAYS HE'S ALIVE

Kerry...

US Secretary of State John Kerry on Saturday warned that Russian military interventions in Ukraine, which have been justified by the Kremlin as protection for residents in heavily ethnic Russian-populated regions, could result in “serious repercussions” for Moscow.

"Unless immediate and concrete steps are taken by Russia to deescalate tensions, the effect on US-Russian relations and on Russia's international standing will be profound," Kerry said.

 Russian presidential advisor, Sergei Glazyev...
"We hold a decent amount of treasury bonds – more than $200 billion – and if the United States dares to freeze accounts of Russian businesses and citizens, we can no longer view America as a reliable partner,” he said. “We will encourage everybody to dump US Treasury bonds, get rid of dollars as an unreliable currency and leave the US market.”

“The Americans are threatening Russia with sanctions and pulling the EU into a trade and economic war with Russia,” Glazyev said. “Most of the sanctions against Russia will bring harm to the United States itself, because as far as trade relations with the United States go, we don’t depend on them in any way.”

PUTIN, XI DISCUSSED UKRAINE BY PHONE, KREMLIN SAYS... 

* In December, China dumped the second largest amount of US paper in history.
RUSSIA, CHINA SHARE SIMILAR POSITIONS ON UKRAINE, KREMLIN SAYS

Only hours after Putin's deescalation of events,  Russian navy ships blocked off the Kerch Strait which separates Ukraine's Crimea region and Russia.

Shortly after today...

Via Reuters,

"The Turkish Air Force scrambled eight F-16 fighter jets after a Russian surveillance plane flew parallel along its Black Sea coast, the military said on Tuesday, amid increased tensions between Russia and the West over Ukraine.

The incident occurred on Monday and the Russian plane remained in international airspace, according to a statement on the website of the military General Staff.

Ukraine's Crimea peninsula, which juts into the north of the Black Sea, is at the center of the current standoff between Russia and Ukraine's new pro-Western government. NATO member Turkey forms the southern coastline of the Black Sea"

Later in the day Russia's Foreign Minister, Lukashevich, addressed the possibility of sanctions...

"We will have to respond...if provoked by rash and irresponsible actions by Washington... and not necessarily symmetrically."

Early this afternoon we received the biggest provocation and rise in tensions...

• *RUSSIA TEST FIRES INTERCONTINENTAL BALLISTIC MISSILE: INTERFAX
• *RUSSIA TEST FIRED MISSILE FROM RANGE IN ASTRAKHAN REGION: IFX
• *RUSSIA MISSILE LAUNCHED AT 10:10PM IN SOUTHERN RUSSIA: INTERFAX
• *INTERFAX CITES RUSSIAN DEFENSE MINISTRY ON MISSILE TEST

Not an hour or so later, the Ukrainian Ministry of Defense released this statement,

"Ukraine’s Navy Slavutych crew prevented the capture attempt by armed persons.

“Armed persons in a boat came to the ship but the crew repelled their attack. There was even the attempt to board the ship, capture her, arms, and sailors,”informed Capt. 2nd Rank Vitaliy Zvyahintsev, Commander of Surface Ships Brigade, Ukraine’s Navy.

Now, the ships of the Russian Federation Black Sea Fleet continue blocking the Ukrainian Navy ships in Crimea.

All the military units and ships of the Ukrainian Armed forces deployed in Crimea follow the orders of the Ministry of Defense and the General Staff of the Ukrainian Armed Forces."

This is the large Intelligence gathering ship that was said to be under armed attack in the Ministry's statement...

I'd say if anyone was buying after taking a beating in the Russian markets, Putin and his cohorts were likely buyers of US assets before his grand gesture, however the words and statements did not match the actions on the ground, in fact it seemed tensions were escalated today.

You saw the negative divergences in the market today, the old "Buy the Rumor, Sell the news", except on Wall St. these days I doubt much is rumor. Very much in the same way it appears prices were held back from triggering BTC orders Monday so the market would get the most bang for the buck, it seems today there was a certain amount of support given to keep any stops from being hit to accomplish the same momentum goal, just in the opposite direction, I would not be surprised at all to see a volatile gap down tomorrow.

 The leading IWM seemed to stabilize just enough toward the close where some heavier sell-side volume was picking up to keep it above a natural stop loss area on an intraday basis.

QQQ seing larger sell side volume in to the late afternoon.

To make matters more interesting (considering we have Non-Farm Payrolls at 8:30 this Friday)...

The US macro surprise index has started the year with its biggest fall since 2008.

And to think this is the period of Seasonal Adjustments in which macro economic data always outperforms on goal sought numbers that are then justified using seasonal adjustments, to think that the year is starting out as bad as 2008 would not be a comforting thought if I were a bull.

ALTHOUGH NEGATIVE DIVERGENCES GREW ALL DAY AND MIGRATED TO LONGER TIMEFRAMES, THE CLOSE SAW SOME SPECIAL WEAKNESS AND SOME INTRADAY CHARTS SURPRISED IN HOW FAR THEY MIGRATED.

Like yesterday, the SPY looked like the best relative 3C performer, however near the close things went badly quickly.

 The SPY saw a clear late day Leading negative divegrence of some strength.

The DIA's late day action needs no words.

The overall DIA action is in horrible shape, I still expect volatility to rise and the fact it has says something about the changing nature of the market, it can't be good with 30 and 60 min (plus) negative divergences as the probabilities. 

The QQQ saw some extreme late day distribution as you can see above, I also noted the smaller distribution yesterday to keep the Q's from breaking out for reasons I mentioned above.

 Here's a closer look at the QQQ, that leading negative is about the time the news of the Russian ICBM launch hit the wires.


And the 5 min QQQ

However what was surprising for migration of a divergence was the QQQ 10 min chart toward the EOD.

QQQ 10 min negative intraday from migration suggesting the divegrence that started so small ended quite strong.

The IWM also saw the same late day distribution in much larger divergent size.

This was seen migrating through longer charts as well as the EOD decayed significantly in the strongest of the averages.

The IWM 5 min and like the Q's...

We even saw the migration of the divergence to a 10 min chart, much, much larger than yesterday's divergence (positive) in which only the SPY made it as far as a 5 min chart, everything else was 2-3 min. which would mean today's distribution was significantly more than yesterday's accumulation.

The usual suspects like HYG also saw late day distribution in increased size.

As we saw yesterday, but in reverse as market confirmation of the positive divergences, today's late day action confirmed the market's in VIX futures and VXX, with a flying divergence in VXX as it is typically only seen there, I suppose because of the strength of the emotion of fear.

 VIX futures confirming the market's late day increased distribution and...

VXX with a huge leading positive divegrence in to the close.

The $USD/JPY is also looking a bit shaky up here, the Yen is showing a positive divegrence forming as well.

5 min Yen positive has just about the right amount of time overnight to put in a nice rounding bottom or reversal process as the $USDX is nearly its polar opposite.

A rising Yen and falling $USD mean a falling USD/JPY and ES has been tracking the pair very closely.

 USD/JPY vs ES (purple)... In fact if anything it looks like ES is falling below the carry trade's correlation..

A closer look reveals that afternoon trade has seen ES fall below the USD/JPY correlation.

I posted leading indicators before I left for the doctors so they haven't changed much.

There's no one dominant P/V relationship today, as you might suspect there's a co-dominance between Close Up and Volume up and Close Up and Volume Down which is interesting because overall volume today was about 25% less than yesterday.

There's quite a bit there I'll let you chew over, of course if I see anything interesting in the futures I'll post them, but I'd say the risk premia of the Russian / Ukrainian situation that the market celebrated today is usually only a headline event that quickly passes, but in this case, it seems it may have been a bit early if you watch what Russia does rather than what Putin says.

Did Putin Buy a Ton of Calls Yesterday

If so, he might just be buying a ton of puts today.

This morning the US woke up to what looked like a Putin with his tail between his legs, this is not very characteristic of the Russian leader (even when he's not- as in the Medved presidency), something about that didn't sit right with me, but it had no analysis value, just opinion. I figured Russia must be in VERY bad financial condition to have Putin go out and do an about face that was misleading at best as he talked of taking troops out of Western Russia after training ended Friday and sent them with orders to return to their barracks, but no mention was made of the troops inside the Ukraine. 

How about the video of Russian military firing in the air at unarmed Ukrainian soldiers in the very air force base they seized using percussion grenades last Friday, this doesn't seem much like military exercises, at least not joint ones with Ukrainian consent.

Then later this morning Russian Warships entered the Black sea headed toward you know where. What Putin said and what he has done since then do not seem to mesh.

Now the latest provocation, according to Bloomberg, Russia just test fired an Inter-Continental Ballistic missile, not the scuds, but the long range nuclear warhead carrying type, from Bloomberg...

"Topol missile launched from firing range in Astrakhan region at 10:10pm Moscow time, news service reports, citing Russia’s Defense Ministry.

Launch carried out by Russia’s Strategic Rocket Forces

Missile hit target in Kazakhstan: IFX"

From Reuters...

"Russia said it had successfully test-fired an Intercontinental Ballistic Missile (ICBM) on Tuesday, with tensions high over its seizure of control in the Crimea and its threat to send more forces to its neighbour Ukraine.

The Strategic Rocket Forces launched an RS-12M Topol missile from the southerly Astrakhan region near the Caspian Sea and the dummy warhead hit its target at a proving ground in Kazakhstan, the state-run news agency RIA cited Defence Ministry spokesman Igor Yegorov as saying"

If there's one truism on Wall Street it is, THE MARKET HATES UNCERTAINTY and Putin has gone from an odd certainty this morning to what would seem to be an escalation of tensions above and beyond anything we saw up until yesterday.

On top of all of that we have Non-Farm Payrolls coming out Friday at 8:30. According to Goldman Sachs, 2014 has seen the WORST start to Macro-Economic data since the start of 2008!!!

I have a doctor's appointment at 4 p.m., that is the latest I could get, it's for a check up of the area where I had skin cancer removed from my face last month so if I could put it off I would, unfortunately that is the latest appointment I can get.

So I want to leave you with some of the market signs and signals I'm seeing as of now...

USD/JPY

 At "A" we see the earlier deep leading negative divegrence in the pair, since then you can see it has only seen a worsening divergence in the ES lifting carry cross.

Volatility is picking up too, again as the market is fractal, changes in character lead to changes in trend whether over a 2 month period or a 2 hour period.

The 5 min chart is in leading negative position with a leading negative divegrence that I suspect grows worse as the 1 min should migrate over.

Some of the market averages are looking downright ugly AND I HAVE NO PROBLEM, IN FACT I'M GLAD I ENTERED THE IWM PUTS AND THE SRTY LONG POSITION, WITH VOLATILITY PICKING UP AND UNCERTAINTY CLIMBING, I THINK THESE WILL DO VERY WELL.

 QQQ INTRADAY 

QQQ 3 min, pay attention to the relative 3C placement vs price at points "A, B and C".

The 3 min positive divegrence yesterday and the leading negative today.

And QQQ 5 min, again note the relative 3C placement at similar prices.

The sky-rocketting IWM... 

 The 5 min chart says all I need to know to enter the IWM puts and SRTY long position.

The same 5 min intraday, that's quite a leading negative for a day, we've seen stronger, but considering there was about a day's worth of accumulation to off load without dumping the market, it is reasonable.

The IWM 15 min is showing something very similar to the last move to the downside, the difference this time is the instability of the parabolic price move.

As for the VIX...

 Real VIX futures are seeing a continued leading positive divegrence today and the 5 min chart...

Is leading positive and adding to it so protection is being bid.

Earlier the VXX charts were positive at 1 and 2 mins and moving forward, now it has migrated to the 5 min. 

 Yields are showing a larger negative dislocation, the kind that gets us to SPX 200-day and maybe then some, especially compared to its last dislocation, this one is huge, but on a closer basis...

Pro sentiment continues to deteriorate, there's something here they are not willing to buy/ chase or even take a quick trade in.

I'll have more for you when I return, but it seems like Putin just took us out of the frying pan this morning and threw us in to the fire this afternoon.

MCP Update

MCP is a longer term long position that I like a lot, I think it has the potential of trending in a primary uptrend despite what the market may be doing, but it is still in a stage 1 base which is just about as volatile as a stage 3 top, they do often make for good trading positions because of the volatility.

I have left a core MCP long position open and it's doing well considering, up around +10%, but last Thursday I closed the trading position at a small loss of just over 1%, my mistake was not closing it sooner. This is the post from the last MCP update Thursday Feb. 27th when the trading position was closed, Closing MCP Trading Position, Leaving Core Long position in place

It looks like there's a decent chance MCP's short term (trading) charts may be coming back to a place where it makes sense to watch it carefully for a chance to enter a new long trading position at a lower cost basis and thus less risk.

I think you've seen the numerous longer term , very positive MCP charts so instead of posting all of those again as nothing has changed, I'll just let this daily  chart (one of the strongest divergences we use) speak to MCP's longer term bullish tone.

 Daily chart with an exceptionally large base, the more gas there is in the tank, the further the base can support price, this is why I think MCP will enter a primary (bull market) uptrend, however it is still in the base area.

The 60 min chart shows a large positive ROC in 3C, this happened not too long after GS made some comments that sent MCP lower, I suspect they are one of the main buyers.
We see this kind of increased intraday action as we near the end of stage 1 bases.

The intraday charts are coming back on the positive side, just like yesterday, new divergences (since we were in a pullback a positive divegrence signifying the end of the pullback would be a new divergence) start on the fastest timeframes and if they are strong enough as we have seen today with the negatives, they migrate to longer/stronger timeframes.

The 2 min chart is seeing that migration as well.

There is still the reversal process since we have very few reversal events, a "U" shaped base or "W" shaped base vs. a "V" shape reversal, fundamental news that the market had no way to discount such as Putin doing an about face with no warning is the kind of fundamental event that causes "V" shaped reversals, even though we did have a day of accumulation yesterday so it was not quite as tight as a "V".

What I'd expect to see from here and what we want to watch for is price starting to move more sideways than down, perhaps a "U" base as I've drawn in or a "W" base, remember right before a reversal there's typically a head fake move which you'll understand if you read my two articles dealing with head fake moves that are always linked on the members' site.

While a base or reversal process forms, we want to see 3C make continued upside leading positive divergences and for those to move to longer timeframes such as this 5 min chart, this is where we'll find the best entry at the lowest risk and with a head fake move, perhaps the very best entry.

MCP has plenty of charts showing the probabilities are very high that it makes a large (likely year or more) uptrend, so the probabilities of a reversal starting here are pretty high.

Also remember that bottom reversal s such as MCP seems to be starting are often much more narrow than the preceding and proceeding top reversals so it may happen much faster than we'd normally anticipate, you can look to the last top reversal on the chart above to get a feel, often the bottom reversals are about half the size.

I'd put MCP on your watchlist radar if you like the trade idea, we don't need to see upside moves yet, what is more constructive are lateral / sideways moves which allow the reversal process to build a sufficiently strong base to launch the next leg up.

Two of my Favorite IWM Charts

You may recall yesterday the IWM did NOT reach a 5 min positive divegrence, only the SPY did.

The 5 min charts in the IWM are not only interesting intraday, but in the larger picture as well, this is one of the main reasons I chose to move forward with a SRTY (3x short IWM) position.

 IWM 5 min on an intraday basis incl. yesterday, this is migration to the 5 min chart, but here it appears as if it confirmed which it did not, also as you'll see on the next chart, the parabolic move alone is something I'd consider as a reason for an IWM short as I never trust these and they almost always tend to end as badly or worse than how they started.

This is the same IWM 5 min chart just scaled out a bit to reveal 3C'
s position vs. the past, IWM did not confirm the gap up, far from it and on top of that it is seeing a 5 min intraday leading negative divegrence, I didn't even have to look beyond the 5 min chart in this case.

Trade Idea: SRTY Long / IWM short

I'm going to add SRTY (3x short IWM/Russell 2000) to the trading portfolio, the volatility increase that I expected to see this week is clearly alive and well and returning to the markets after several or a couple of weeks of much lower volatility, a change in character which leads of course to...

However what I'm most interested in with this position is taking advantage of the volatility as it cuts both ways as I said yesterday, like a pendulum swinging too far one way and then too far the other. I think the IWM put was entered at the right time, right now I like the 3x short IWM,  SRTY (long) if for nothing else than to take advantage of the increased volatility as the signs and signals as well as yesterday's positive divegrence alone all suggest that there's not much more gas in the tank.

Protection Bid

VXX is different than spot VIX and different than actual VIX futures (UVXY is just the 2x leveraged version of VXX). VXX is Short Term VIX Futures, but offers exposure to the first two or forward months whereas VIX futures are for the current month.

In any case, VIX, sometimes known as the fear index moves opposite of the market and is considered a flight to protection which is slightly different than a Flight to Safety asset.

This morning protection has been bid since the open in VIX futures...

 These are VIX futures which do not run continuously overnight like ES or Index futures, you can see since the open there has been a steady bid or positive divegrence in actual VIX futures, the 5 min chart saw very little damage from yesterday and today...

 VIX futures 5 min chart which I prefer for the stronger signals saw a dip as it should with the market up on a gap, but the 3C signal again did not confirm the gap down here and instead stayed in a leading positive position.

Since the VXX is the first 2 forward months it can act a bit different from the VIX futures even though it is a representation of VIX futures, just 2 months instead of 1.

 We are seeing sudden and very sharp divergences in VXX and UVXY as protection is being sought after, seemingly there's not as much faith in this move as price implies.

The 2 min chart is also seeing a fast developing positive divegrence, you can see the 2 min negative yesterday which is confirmation of the market averages' intraday positive divegrence.

I would not be entering a new VXX position although I will hold the UVXY trading position (long) that is in place, however if the divergence continues to build this quickly, I may consider some other possibilities (long VXX or UVXY).

This is one of the few assets that tends to see very sharp divergences as fear is the strongest emotion in the market thus it is reflected on the 3C charts like the 1 min above and shortly the 2 min should look similar.

The point is, protection is being sought after and that has been all morning in the actual VIX futures.

USD/JPY Update

The USD/JPY is now showing signs of deterioration which effects ES directly as the correlation there has been tight again for the last week or so.

Here's what we have...

 ES (S&P E mini Futures) got a bump that was above the USD/JPY correlation as the carry pair has been lateral since about 11:15, here's why...

 USD/JPY 3C 1 min leading negative divegrence is now significantly lower than this chart, in fact...

Just to show you how fast it is deteriorating, there's about 4 minutes between these 2 captures.

The more important 5 min chart is already in leading negative position and with the 1 min chart acting as it is, I wouldn't be surprised to see this one start to deteriorate more.

As a result...

All of the major averages that looked to run stops and limits above a well defined range from this morning are now all range bound as their upward momentum has stopped.

We'll see how much more damage the USD/JPY sees, but it looks like things are all falling in to place as a sell the news event.