USD/JPY & ES Update

I know I mentioned SPX futures (ES) not keeping up with he USD/JPY correlation in to the afternoon and close, I "think" I mentioned that the carry currency pair looked stalled and likely to reverse as it broke above $103, right now we have both situations with this chart reflecting ES's inability to keep correlation with USD/JPY which is usually the other way around and the carry trade FX pair breaking down, it just passed below$103 and looks to have hit stops as downside picked up a bit.

 Es is in purple, you can see it hasn't kept pace with the carry currency / pair.

You can just see it breaking down, that's when I captured this chart about 5 minutes ago, since then with stops likely hit under $103, this is what we have (the second time I've captured this chart as it's moving pretty quick)...

USD/JPY at $102.954, the current price is $102.95

As the earlier post on the pair noted today, the bigger picture should resolve the pair to the downside being the JPY has a much larger 30 min divegrence.

I essentially thought the $USD would bounce intraday and later see downside because of the Yen's larger positive divegrence.

We'll see if this leads to anything.

Daily Wrap

We had a sort of strange close, the fab 5 of stocks and other momo names didn't perform very well, you saw the levers being used to ramp the market at the end of the day to get a mixed close with the SPX and Dow up +0.18% and +.41% respectively and the NDX-100 and R2K down -.14% and -12% respectively.

Despite the monkey hammering of the VIX at EOD, it closed up on the day, with momo stocks down it seemed like hedgers were nervous about tomorrow's NFP at 8:30, however there has also been a late day rumor circulating that Russia plans an overnight invasion of parts of the Ukraine while Crimea next. The acting Ukrainian president called the Crimean vote illegal and disbanded the local parliament, although I doubt they care, the question is, "What happens if this escalates beyond words as Kiev clearly sees this behavior in the south and east as illegal.

Perhaps the Russian invasion rumors had something to do with the EOD because I noticed ES is not keeping pace with USD/JPY as of the close. You saw TLT and spot VIX closed up, protection was clearly being sought, once again momo names were down, take the Fab 5, each one had a head fake of sorts... 

 NFLX with an opening head fake that failed, tried to test and failed on momentum which is basically a microcosm version of how a head fake move works in this case (upside head fake).

NFLX closed down -.64%

PCLN also threw an opening breakout that failed and closed down -.44%

 FB's head fake and failure was also clear,  closing down -1.01%

AMZN did the same  with a close down of -.06%

Only TSLA that also had a head fake type move closed green at +0.04%

XLF did exactly what we were hoping for...

 It even broke the intraday range by 1 cent, I'm not crying about it, but there was clear increased deterioration around that time and in to the close.

Here's another version showing closing weakness picking up and that carried right over to Goldman (GS)...

The red arrow is the XLF intraday 1 cent head fake if we can actually call it that and then additional weakness.

The 5 min chart really shows additional closing weakness

As does the 10-min chart so we may have hit GS right on the head.

Both our BIDU and IWM puts closed green as did our 3x short IWM SRTY, XLF puts weren't far from green at the close.

There weren't earth shaking changes in leading indicators, but a few that are more than worthy of noting...

 Even though they were working on HYG end of day for the SPT Arbitrage as a lever of market manipulation, it still closed even lower on the day vs the SPX extending the trend down in High Yield forms of credit traded as risk assets by smart money.

The longer trend in HYG vs the SPX with Monday in white as we saw accumulation there the day before Putin's peace overtures...

And just so you see how much HYG has been used to prop up the market and how it's dislocating now...

High Yield Credit also fell for another day, a change in character not seen in a while.

And other forms of High Yield Credit had no interest in playing along with stocks at all as they sold off on the day.

 Short term professional sentiment was also off on the day again.

While we figured out it takes about 3 hours to change retail sentiment in a fast moving market, the long term trend of retail sentiment shows bearishness at all time lows since records were kept, this is significant because of the break down in market structure I've talked about so often, however someone did a far better job articulating the same issues I often raise especially HFT and the liquidity trap, Universa's Mark Spitznagel.

Here are a few excerpts as to why this market is more dangerous even without the divergences that are worse than the 1929 Dow.

-On HFT..."high-frequency traders are making markets more jumpy"
-As to the idea of HFT as a liquidity provider is a fallacy , that liquidity won't be there when they most need it," 
-As for  'cash on the sidelines', "the idea that corporate balance sheets are so strong right now is entirely wrong,"

Since HFTs have replaced market makers and specialists as the net providers of liquidity and have no legal mandate to provide it, they can shut it off instantly the minute the market goes against itself. 

When you add the fact that there are barely any bears left, it gets worse, a lot of managers won't buy a stock that doesn't have a healthy short interest and the reason is, shorts represent a future commitment to buy and when do they buy? When the market is falling they cover to take profits and provide demand to sellers, that's not there, as for the one way flow of HFT liquidity, we already got a sneak preview of what happens when that is shut off, remember the Flash Crash?

Maybe I'll go in to this further at some point, but the main point and I took this up when the chart of the market about a month ago was compared to the 1929 top, you'd think I'd have been onboard with that chart, but I wasn't.

It's dangerous to assume the market is the same and it will react the same way, globalism is here like it never was before, who would of thought the US crisis would effect Chinese growth years later? Who would have thought liquidity would actually be a problem until HFTs came around? Who would have thought candlestick charting's gaps that worked for nearly 400 years would become absolute?

My point was not that the market isn't dangerous, it was to not assume that this market is anything like we ever seen before because it's nothing like we've ever seen before.

In any case, the market is definitely nervous about something, here are a few of the IWM and QQQ charts as you saw the SPY...

 The Q's also saw a little head fake on the open then tested the level and failed falling off pretty fast at the red arrow above price, in the process setting a new leading low today.

Here's a closer look at what happened as this is a type of a head fake move or failed breakout, From failed moves come fast reversals"...meanwhile the 10 min made another new leading negative low.

The IWM intraday did the same on the downside...

As did the horribly positioned 3 min

And even worse 5 min, note that other than Tuesday's gap, the market hasn't done anything.

I'm not sure if the market is truly worried about a Russian invasion, supposedly the sinking of the Ukrainian Navy vessel last night to block the mouth of the harbor to a Ukrainian naval base was one of the pre-emptive actions taken before an overnight invasion to last in to the weekend according to Pravda. 

I do find the EOD ramp attempt interesting along with the flight to safety and protection with momentum stocks falling at the same time, but even more interesting to me is ES's inability to keep pace with the USD/JPY, although there are a few assets I'm still not willing to enter just yet, something feels a little out of place.

I'll be watching futures overnight (as long as I can keep my eyes open) and let you know if there is a sudden surge downward on a Russian invasion which I personally think is Kiev saber rattling believe it or not. On the other hand, the sinking of the Ukrainian naval vessel in the mouth of the harbor, blocking it is a little strange as well.

As of now, USD/JPY looks like it has lost momentum and may be ready to turn, this after breaking above $103. As expected, the disappointment that Draghi will not be cutting rates or printing money which sent the EUR/USD higher this morning has waned and the Euro is flat since 12 p.m., it always seems like the knee jerk reaction there is about as short as BOJ intervention.

SPY Market Update

On Monday I said that the SPY had the best looking underlying charts and since then I've said it's had the best looking 3C charts on a relative basis vs the other averages, what I can't figure out though right now is why with the support of USD/JPY, they still need to try to manipulate the market using HYG , TLT and VXX , the SPY Arbitrage lever which I don't think I've seen in a month or so? Earlier they moved TLT, but it is accumulating (in other words safety or the flight to safety trade is being accumulated),  they have slammed the VIX lower in to the afternoon much like yesterday and are fooling with HYG which together create the strongest market manipulation lever, the SPY Arbitrage. Why all the need for so many levers unless ... Well that's really a rhetorical question, but on the serious side, the Employment Situation tomorrow at 8:30 (Non-Farm Payrolls) or perhaps an op-ex max pain pin?

I'll get to the other averages, probably after the close.

Until the close, the USD/JPY support is there,  that should be enough...

 SPY 2 min intraday is not looking as good as it was, the other averages are worse.

You see the accumulation we saw Monday and now the distribution on the 3 min chart.

SPY 5 min, it was the only average to make it to 5 mins on Monday (accumulation-1 day).

Here's Monday and the 10 min leading negative and an obvious fall off in momentum.

And Monday as I said, the SPY made it to 5 min but not beyond, the 15 min is leading negative which is substantial, but still for the EOD, the USD.JPY should be enough.

Of course the larger problem for the SPY, 60 min

This is HYG, you can see they are trying to move it here, even though it has fallen out after months of support.

They slammed the VIX like yesterday

And earlier TLT activating the SPY arb. while TLT accumulates on the cheap.

Why all the effort using all of these manipulation levers?

GS Update

I have a GS April $165 Put and honestly if I didn't already have so much financial exposure, I might add to it as I did leave room to do so. I would certainly consider a non-leveraged equity short, I think you can have a stop not too far away and have a good risk/reward ratio given GS, Financials and the overall market.

Here are the charts...

 Longer term 2 hour you can see this is a soft patch for GS with a leading negative divegrence, I think it's probably at least worth a position trade and probably a longer trade, but again I think the risk of putting a stop a bit above (I prefer a wider stop and fewer shares on an initial position) is reasonable.

The hourly chart shows softness in the same area.

On an intraday basis that includes both this week and the Jan 27 through Feb 5th accumulation period, here's what we have, GS after following Financials to a breakout/head fake area is seeing the same kind of divergences - 1 min

The 2 min migration is pretty darn sharp.

The 5 min could be more impressive, but there are some other charts I think make up for it and this timeframe can move quickly.

For instance this 10 min makes up for the 5 min not being as negative as I'd like to see.

As far as the major cycle from the end of Jan to early February, you can see the end of that accumulation area and the very flat range of it and on a 30 min chart not only a strong relative/leading negative, but an additional leading negative the last day or so.

All in all, I do like GS in this area short.

Weather Warning...

I don't anticipate it, but if you should lose me, it is because we have a storm over us right now with 60 mph winds and a Tornado warning so everything is being blown all over the place, that's just in case you lose me you know to call the National Guard as me and my dog Emma will be floating down the street on my long board.

Update

You recall the USD/JPY post from earlier today...

And the excerpts...

" USD/JPY has stalled out from the earlier ramp on Initial Claims, it looks like it is teetering on a downside move intraday... the effect of a higher yen and continued move lower in the $USD would be USD/JPY down and ES or SPX futures have been tracking the USD/JPY VERY closely, that wouldn't be good for the market....However on an intraday 1 min basis, the Euro above looks as if it is going to lose upward momentum which "should" give the $USD a temporary lift ....

What does all of this mean? So far my interpretation is we may see a little downside in the USD/JPY, this 1 min $UDSD chart above may stem that temporarily, but ultimately the 5 min wins out and the USD/JPY sees downside on a larger basis, especially with the Yen divegrence growing by the day and with the $USD negative now having fired off.

Just remember the market index futures are tracking the USD/JPY very closely so downside in the carry cross is downside in the market which is interesting given some small head fake probabilities today."

And so far since this was posted at 12:26 pm today...

 The USD/JPY did see some downside and the $USD stemmed it intraday at 2 p.m.

Thus the SPY saw some downside and it was stemmed at exactly 2 p.m.

The point I'm trying to make is there's a lot we can learn about the market and what it is likely to do which enables us to make plans and tactical/strategic decisions, it's not just about moving averages or Elliot Waves, this has been very accurate information considering it was in advance.

If the rest of the analysis is correct in looking beyond the intraday, then the 30 min Yen positive mentioned that looks like this...

 Should be the longer term trump card that send the USD/JPY lower over a larger period.

While I'm mentioning the abundance of assets that most traders will never even hear about as they follow lagging indicators like moving averages, take a look at the HYG/SPY relationship I mentioned several times over the past week and recently several times, it is the algo lever to ramp the market, but it has been failing, beyond that Credit is a much smarter , more well informed market than equities, thus Credit leads, stocks follow...

SPY in green on a 15 min. chart and HYG in red, not only is it divergence and negatively dislocated at the SPY highs, it is so on the week since Monday and intraday, this is an important leading indicator.

XLF FINANCIALS UPDATE

This is the post yesterday for XLF in which we were looking for the trade to come to us...

Here are the charts for XLF, I didn't wait for the intraday head fake that I thought possible because of a clear resistance zone all day (head fake moves are usually right before a reversal, it doesn't matter what timeframe, we can get a daily one like today and then an intraday one that is a fine tuned trigger for the broader daily head fake).

As usual with a head fake move we want to confirm it's a head fake, in this case we want to see distribution instead of confirmation or even accumulation on the move, however when we already have longer charts like 60 min or even 15 min that are significantly negative, the probabilities are very high that the move would be a head fake move, I just like to double check as long as I have the time, why not?

Here are the charts for XLF, FAS which is the 3x long leveraged version of XLF and FAZ which is the 3x short version of XLF.

 XLF 4 hour's leading negative is not only a long term negative, but the fact it's leading at a new low makes it time sensitive.

 XLF 1 min intraday, note that I marked Monday because this is where we saw accumulation and the day before Putin made his "Peace overture" that the market ran with. The leading negative divegrence is a very good indication that today was indeed a head fake move as suspected yesterday.

The 2 min chart seeing migration of the negative divegrence only strengthens that case.

The 5 min chart strengthens the case for the entire week.

I can keep going, but we already saw these charts yesterday, the point was the yellow trendline was where the trade comes to us, being even the 15 min is leading negative at a new low for price at a higher high was evidence enough that the probabilities of today's move would be confirmed as a head fake move and again if you haven't read my two articles, you are missing a lot of market psychology and the numerous reasons these are so prevalent and so useful to us.

FAS 3x long Financials... I like using these to confirm, especially if there are numerous versions by different management companies (Pro Shares, Direxion, etc.). MANY TIMES YOU'LL SEE DIVERGENCES APPEAR FIRST IN LEVERAGED PRODUCTS, I SUPPOSE THAT'S BECAUSE OF THE LEVERAGE.

 Again the 1 min confirms negative today on the gap up

The 2 min confirms...This is why I said earlier today, "We have time", it takes time for these divergences to migrate, also a flat range is usually pretty indicative of underlying activity even though by price alone it seems like nothing is going on, it is actually one of the busier areas in underlying trade.

 FAS 3 min with the divegrence we saw market wide on Monday, I still love Tina making 4x her investment in a matter of hours as she acted on this divergence with weekly calls, awesome trade and one of the reasons I provide these updates.

 FAs 5 min leading negative on the week, not a surprise considering, I'm betting Putin made some nice money too this week on calls.

And again we don't need to go this far to confirm a head fake move over a day, but the fact a 15 min chart is leading negative intraday tells us something about the strength of underlying trade.

 FAZ 3x short Financials

 Note Monday and look at that flying positive divegrence, this is confirmation since FAZ trades opposite XLF and FAS.

 2 min confirmation

Awesome 5 min confirmation and this is the level I marked yesterday and said to watch out for today in FAZ on an XLF head fake run, intraday you see the same flat support (resistance in XLF), this is what I was hoping to hold out for.

Again we don't need to go this far to confirm a head fake, but since I did with the others, the 15 min leading positive intraday, great looking charts, this IS THE KIND OF TRADE I LIKE TO SET UP, LET IT COME TO US AND I JUST CAN'T IGNORE THESE KINDS OF SIGNALS.