Week Ahead charts. & Daily Wrap

There are more than a few ominous signs on the horizon and as you know, I'm not one to get all excited about Hindenburg Omens like the two from last Thursday and Friday... We don't need information like that or fractals of the market now vs. some viscous crash like 1929, as bearish as I am, I don't cling to these or point to these as evidence and rightfully so as we've had several years of both and their dire, imminent warnings we for nothing.  My opposition to such ideas are based in the idea that history doesn't repeat itself, although it may, as Mark Twain said, rhyme. I believe that we don't have the immagination to understand how this market will spider crack from one area to totally unexpected areas based on the simple fact that at no time in history have we had such a globally connected economy that has seen such a massive failure in monetary policy. 

The US unemployment rate may be around what the F_E_D's objectives were, but it didn't get there without the exclusion of over 9o million Americans from the Labor Force "Participation Rate", it's hard to be counted as unemployed when you are not counted at all because your unemployment benefits expired, that doesn't mean you still don't want or need a job, but it does mean you will no longer be considered part of the workforce or unemployed and as the participation rate drops (especially this year as Congress removed extended benefits from the budget, effecting some 3.1 million Americans this year alone) so does the unemployment rate, although nothing has been fixed. 

Europe is looking at a triple dip recession and during the last 5+ years, China has gone from a growth dynamo story to a massive bubble and economy on the verge of the tipping point. 

Japan, the 3rd largest economy in the world can't extricate itself from its decades of economic troubles with one of the most ambitious Central planning undertaking seen (considering the time period they have unleashed Abenomics in).

The only reason for the market's rise is the eighth wonder of the world, an enterprise that can literally create money out of thin air just as if you could create wind by waving your hands, the F_E_D and the F_E_D's expansion of their balance sheet from $858 billion 7 years ago almost to the day to more than $4.4 trillion dollars is set to stop growing, to actually decline with increasing interest raters, why traders who cheered POMO's ability to lift the market, don't get that in their "New Normal" in my view is nothing more than denial. If you live in a certain environment long enough, that starts to become a part of your reality, the problem is, this is a dynamic environment with very static views among traders.

As I have recently been comparing the market to a beautiful pier over the water...

It's breadth charts and 3C charts like this...

 The Percentage of NYSE Stocks Above Their 200-day Moving Average (green) vs. the SPX (red) and...

The long term 3C chart of any of the averages, SPY shown above... all add up to one thing, that beautiful pier traders are strolling on looks a bit like this just below and out of their site...

Unless of course you were to go through the trouble of looking at the structure you economic life relies on.

As for last Friday's, "The Week Ahead" post we were forecasting the following for this week...

-"HYG continues to see 3C distribution...I still expect HYG to break down first and lead the market."

 HYG with a -1.71% loss on the week 

Which pulled the market lower, which if not for the late day, after op-ex max pain pin release, would have been a lot uglier. The SPX down -1.39% on the week , the Dow-30 -0.97% on the week, Dow Transports down -2.20 on the week, the NDX down -1.16 on the week, but for some perspective, as much as -2.25% as of yesterday's close, the NASDAQ Composite down, the NASDAQ Composite down -1.50% and the Russell 2000 down -2.40% as the downtrend continues with small caps being hammered...

The Russell 2000 down -5.09% for September as it has been on solid downtrend and -4% on the year.

From last Friday's "The Week Ahead"...

-"Yields as a leading indicator worked perfectly, price was drawn to them like a magnet, so looking forward, I suspect some declining yields... The daily TLT chart with out initial post calling for a TLT pullback on 8/26 , the pullback and recent posts calling for an upside reversal which we got today. This should send leading yields lower and the market is attracted to them like a magnet as we saw this week again."

While the shorter term 5 year yields have been working well for intraday and next day trade, the overall yield move for the benchmark 10-year and 30 year did in fact decline and assets prices with them.

10 and 30 year yields on the week, overall the major averages followed them lower as we called the end of the September TLT pullback (from 8/28).

From last Friday's, "The Week Ahead"-"I suspect the IWM might try to break the downtrend early in the week and head lower."

While not a perfect call as far as timing, it was right on as far as concept...

The IWM does break above the trendline which is important as a head fake move, although a slight one and followed by a new low for the week.

And from "The Week Ahead"...

"The macro or larger expected trend for a move lower next week as the head fake is wrapping up is the main forecast."

I'd say the main theme for the week was right on, the white arrow is where the forecast was made last Friday.

With more detail, last Friday's Daily Wrap including the additional commentary...

-"The $USD is doing amazingly well. Remember what the $USD did during QE or Dollar destruction via printing? Well it's signing a different song, a telling one at that as well"

This week the $USD closed up for the 11th consecutive week with a 1% gain making new highs not seen since June of 2010, this should tell you something about QE on and QE off as multiple assets reverse , the markets however are immune? Remember the 50+% of the NASDAQ Composite already in a technical bear market down over 20% and what must be near 50% of the Russell 2000 at the same.

-"Gold is down, although you know we are watching gold, GDX/NUGT for a possible reversal"

And gold for the week...

It looks more and more like our reversal expectations are being fulfilled. Since that was posted, GLD is down a mere 0.02%, flat on the week as opposed to the preceding downtrend.

And from last Friday's Daily Wrap...

"Finally, as I said in the week ahead forecast, I think early Monday we'll see some weakness, perhaps in to a bounce later in the day and maybe in to Tuesday, I expect HYG to decline from there as it has already started falling apart. If the 3C charts don't put together an intraday positive after Monday morning, the market will be in nig trouble fast, however based on breadth like the S&P and Morningstar sectors, I'd expect at least 1 day of correction to allow them to try to work off some of that oversold tension, but oversold can quickly turn in to bear material, that's how this market will end."

The market was down on Monday, it's actually where our divergence started, but we didn't get our bounce until Wednesday, you may recall early Wednesday morning in the A.m. Update I ended the post with this important warning ...

"This market's character is clearly changing to the very bearish, it's just not clear if we have slipped over the edge and that's why it's so important the market make an upside attempt in my opinion, TODAY."

Wednesday was the biggest 1-day gain we have seen in 7 weeks!


As for today...

We started the day with a warning in the form of NYSE Margin debt which has seen its second consecutive rise from $460bn to $463 billion, only $3bn off the all time high from Feb 2014 at $466 bn.

At the same time...Investor net worth plunged making its second consecutive new low of 183 bn or as summed up by BofA:

"Risk: NEW LOW for Net free credit at -$183b is major risk should the market drop

Net free credit is free credit balances in cash and margin accounts net of the debit balance in margin accounts. Net free credit dropped to -$183b and moved to a new low below the prior record of -$178b in February. This measure of cash to meet margin calls remains at an extreme low or negative reading below the February 2000 low of $-129b. The risk is if the market drops and triggers margin calls, investors do not have cash and would be forced to sell stocks or get cash from other sources to meet the margin calls. This would exacerbate an equity market sell-off."

Considering market breadth, this is a VERY real threat...

As mentioned, the move this afternoon after the Max-Pain pin (which the market remained in until 2 pm) expired, was helped not only by yesterday's accumulation of stocks at cheap prices, likely sold in to today for a quick buck before the week ends, but they needed the assistance of HYG to get that done which was unexpected given the divegrence for a move that size was already in place.

 HYG running with the SPX intraday, however severely negatively dislocated on a stage 4 basis and leading the market lower as it was expected to and HYG lower as expected on the week.

HYG is doing what we have forecasted since early August, leading the market...

HYG 60 min vs SPX...

In to this afternoon's seemingly desperate attempt to recoup some of the week's losses,

The MSI went along for the ride, but not much more help than that.

Most Shorted Index...

As for our newest indicators...

 As the VIX inversion drops in to the move this afternoon post Op-Ex Max-Pain pin (typically ending at 2 p.m.) , the relative weakness of VIX and VIX futures jumped back in line as the market made it's afternoon move higher. Note the SPX/RUT indicator in the middle giving a positive signal yesterday for the bounce, but negative in to the bounce, essentially the divegrence had enough gas in the tank for a move of about this size while it also had to maintain the op-ex pin which was about .50% higher than yesterday's close. In the end, I think all of the gas in the tank from yesterday's accumulation was sucked dry between maintaining the pin and pushing the market in to the close, but it was nearly proportionally perfect compared to the size of the divergence.

The NYSE TICK also gave early warning as it broke the uptrend channel with the Op-Ex pin channel to the left, completely lateral.

Our Custom SPY/TICK indicator also told the story from yesterday's lows to today's end of day rally diminishing in to the close...

Our custom indicator shows the changing story and I'm glad to have received several emails this week from members making money with the new custom VIX inversion and SPY/RUT Ratio Indicators , and that without any trade alerts, just from the data which is what I really love to see.

Other than all of the other divergences, we also saw them end of day in Index futures, here's the NASDAQ 100 Index Futures with two divergences, both negative...

The earlier  or larger relative negative divegrence was telling us something on the distribution side was bound to happen in to higher prices and to the right we actually see the distribution in to higher prices as it happens.

As for tweaking the Week Ahead forecast, I think Monday will likely see an open close to today's close and start to deteriorate from there. Our Leading Pro Sentiment indicator which forecasted today's bounce is looking the other way for early next week...

Yesterday's leading positive signal for today and today's negative signal for early next week,  which fits pretty well with our "Window Dressing" theme at least until Wednesday.

Short term leading 5 year yields are still calling for some near term upside so I might not be too surprised to see SPX 2000 sometime Monday before deterioration sets in.

Also fitting with some early Monday strength fading was today's Dominant Price/Volume Relationship among the component stocks of the major averages, today was extremely DOMINANT with 26 Dow stocks, 92 of the NASDAQ 100, 1132 of the Russell 2000 and 383 of the S&P-500, the relationship across the board was Close Up/Volume Down which is the most bearish of the 4 possible relationships and suggests a 1-day overbought condition which typically sees the next trading day close red.

In addition to that 1-day overbought indication, adding to it, ALL S&P sectors closed green with Energy leading at+1.37 and Utilities lagging at +.24%, however for the 5-day period, all 9 sectors are still in the red as you saw last night out to 21 days.

Of the 238 Morningstar Industry and Sub-Industry groups I track, 220 of 238 closed green, again adding to the 1-day overbought condition.

In Breadth Indicators,  we have massive negative divergences in our New High/New Low Indicator as well as the 4 week, 13 week and 26 week versions, all right in the area of the head fake move from last week.

Among all other Breadth Indicators, none of them moved today, not the 1 or 2 standard deviation above the 40 or 2300 day moving average, not the percentage of stocks above their normal 40/200 day moving average, translation, no matter how much the market rallies, even a best day in 7 weeks, breadth is not being repaired at all. None of the Advance/Decline lines saw any improvement and the McClellan Summation Index is now hitting a new low of -1917, trend traders often go short below zero, this is near the extreme low end of the indicator.

As I said earlier today, come Wednesday after the quarter ends and Window Dressing is done, we may see some buying of deeply oversold small caps and perhaps a bounce, although I have no evidence for that yet, we will be watching, but as far as the big picture goes, any strength is to be sold in to in my view while we still can and in many instances, we can't (take our HLF short now well over a 30% gain-it's not one I'd want to enter here, although there are others, it's just a matter of how long. Things are not going well for this market and the new normal is the same old bubble market excuse, "It's different this time", it never is.

Enjoy your weekend and get ready for some more fast and furious gains, they'll just keep getting larger as volatility increases.

The Week Ahead

I suspect the week ahead is going to be characterized by Window Dressing and the end of Window Dressing on Wednesday, If there's any substantial corrective bounce, I'd expect it to come AFTER Wednesday with the signs of accumulation of sold small caps and mid caps during window dressing, potentially being bought back on an oversold/short squeeze basis, yet still a trade, not a shift in positioning.

The 3C charts haven't added anything new to what we've already seen and I think they are likely to continue in line, I'm thinking some more short term downside early in the week, perhaps a lower low than yesterday's before they build a base large enough to really bounce from. Yesterday's divegrence and today's bounce are pretty much percent and TICK shows where the bounce ran out of gas. There are divergences to build from, but I consider them to stop at about 3 mins for now meaning a pullback or lower low would likely be needed for a base large enough to give us anything more than what we saw today.

HYG was used to push the market today at 2 p.m. The VIX relative weakness has fallen back in line, leading indicators look like the next move near term early next week will be down a bit as does HY credit.

The overall position of the market I would easily classify as stage 4 st this point so bounces should be countertrend and used in such manner to align your larger positions with the most probable outcome represented not only by the 60 min+ 3C charts, but the actual stage, stage 4 DECLINE.

As I said, as of Wednesday, things may develop in a different direction short term, but we don't have the gas in the tank or the size base to do much more than what we just saw,

I'm going to get this out quickly and follow up with the charts I'd like to include if I had time before the bell.

MCP Update

There were a lot of stocks I wanted to get to today, fortunately none were an immediate necessity, but I wanted to cover MCP as I have quietly been following the trading character all week and found it quite interesting.

First the daily chart.

 First we have a range, a break of that range with high volume which is one of the ket elements in a head fake move and we have a rounding bottom price formation with several bullish hammers which mean lower prices were tested and rejected through the day, often seen at accumulation areas, thus their bullish reversal nature.

Intraday I have seen this pattern that looks horrible in the early part of the day with sharp moves down, yet being patient, they recover in to the afternoon/close, this is a character anomaly that has been a fairly consistent pattern. Again you can trade out a rough rounding bottom as well.

The 3C charts in this area are very interesting, for example a 5 min leading positive, which if this is a stop run head fake move, the shares in the area would be accumulated, it's what we look for to confirm a head fake move.

The 15 min chart leading positive in the area...

And a very sharp leading positive on the 30 min chart, all in the same area.

I'm glad I went with a longer expiration on calls and the equity position is still open, this is still a major short squeeze candidate with somewhere around 10-11 days to cover.

Market Update

For the Week Ahead, it may be a bit too early.

The theme I see today is yesterday's accumulation is making good right now, but only after the options expiration pin which we always say lasts until about 2 p.m., let go exactly at 2 p.m.

In the 2-3 min area there are some interesting positive divergences. On several charts there are 10-15 min positive divergences, but they lack the migration and consistiency of migration , such as the 5 min charts before then or 10 min charts before them have no connection so for now, I have to look at it as a possibility, but until/unless there's migration from 2-3 min charts and bridging the gap at 5 and some 10 min charts, I can't take them too seriously, especially as most accumulation for a Window Dressing based bounce would start in earnest on the first day of the new quarter which is next wednesday. Furthermore, the "potential" base area, yesterday in most cases, is far too narrow to support a move that would be giving signals on a 15 min chart, so it's interesting, but I'm not counting that in my analysis . The 30-60 min and 2-4 hour charts are very clear, they have a nasty downside warnings which again is why we use short term price strength to set up tactical entries in to the best looking set ups, HLF was a perfect example as it was the most difficult trade to enter emotionally as it had its biggest 1-day move ever which we shorted in to, but for the right reasons and that position, entered at the right time with the right tactical set up is at a gain of +32% (short) with no leverage of any kind.

First my custom SPY/TICK Indicator, which has been telling the same story since yesterday with the same expectations for today's price movement as we had yesterday and particularly last night based on breadth and especially the Dominant Price/Volume Relationship which has been deadly accurate which should tell you something about the role volume is going to increasingly play in analysis as the Bernanke Put is nearly completely out of the market.

 The DIA like almost every other average shows the 1 min which is for intraday movement and before QE., was VERY useful to track market maker/specialist movements which it's starting to do again as the influence of POMO is felt less and less.

 The 2 min chart, like most shows the accumulation at yesterday's lows and the afternoon and that has just been added to today.

 The 3 min chart showing the same accumulation from yesterday and then a price pin from the open to 2 p.m. exactly before price takes of as we suspected and as is the norm, however,  the 3C data the last 2 hours is the most important and can contradict price movement.

 DIA 15 min with a pretty clean chart, more so than most, but the 5 and 10 min charts have no bridge to this chart whatsoever, still it shows last week's upside head fake move distribution and the decline from that so there may be something there. The distribution signals that we got for yesterday late Wednesday were mostly on 2-3 and some 5 min charts allowing us to predict downside for yesterday with the expectation of some upside to come back in to the market after that move was donee. The point is, while I suspect those signals were market makers and specialists adjusting inventory getting ready to liquidate the 4 trader's accounts that the European hedge fund BlueCrest initiated, those signals were not long enough to make it to the longer charts before the actual decline the next day which is why I suspect there's some strangeness in the 10-15 min chart space.

 What I do know for sure is the longest trends have the least noise and are the highest probability so this DIA 60 min is telling me which way I want to align the bulk of my longer term or core positions.

As for the Q's the same thing intraday, confirmation almost all day, not much else.

On a trend basis on the same chart, yesterday's accumulation is clear, it seems it just waited for the op-ex pin to end today before making good on that gas in the tank.

Note the rounding reversal process, proportional, yet still not very large, especially not large enough to support a 15 min positive divegrence.

 QQQ 5 min with distribution through stage 3 and at the head fake move last week with an interesting leading position divegrence.

The longer term chart of course is an easy interpretation and I just marked on the bottom where breadth turned uglier than normal at July 1 and then really bad forcing what I considered an oversold breadth bounce late July, which was the August cycle and of course as you have seen, breadth is even worse now than it was at the end of July in to the base that created the August bounce/cycle.

 If you build something higher yet have less structure to support it, what do you think the effect will be once some winds start blowing and stressing the structure? Breadth is the same concept.

 SPY 1 min in line like everything else intraday...

2 min chart's accumulation of yesterday's lows...

 The 3 min chart which despite some of the interesting 15 min charts, is probably what I consider to be the strongest chart at the moment that is confirmed.

Here at 10 mins. things look positive, but also a little funny, again I have a feeling it had something to do with the speed of yesterday's decline and not making it out to the further timeframes.

And of course the 60 min chart once again telling me how I want to be positioned strategically as this is the strongest, cleanest trend with the least noise.

 I saved the IWM for the last because it has the most strangeness in its charts. ! min intraday is in line like everything else, not surprising.

The 1 min trend is not surprising with accumulation yesterday like everything else.

The migration to a 2 min chart is not surprising...

Nor to a 3 min chart, this all makes sense and is in line with the SPY.

At 10 min, this is the closest I get to trusting longer term intermediate charts like 10-15 min, it does have a positive divegrence and the timeframe alone means it's pretty serious short term.

 It's this 15 min chart I have a problem trusting, although it may be reflecting the proper bias, the divegrence itself looks to be an anomaly.

 As I said below, it's the bridge between the 1-3 min positives and these 10-15 min charts that don't look right in the first place. This 5 min IWM chart fits fine with the 1, 2 and 3 min charts, it hasn't seen migration of the divegrence and I wouldn't expect it to on 1 day of accumulation, this is believable, however it has no migration or link to the 10-15 min charts which is why, for now I have to consider them an anomaly.

The 60 min chart is completely trustworthy as it reflects the same as every other averages.

I'll see if I can find anything else as well as a look in to futures.

Quick Market Update / Op-Ex Pin Removal

Is it not a little amazing how well the Dominant Price/Volume Relationship works? Calling for a green close today of yesterday's horrendous dominant relationship as well as the dominance in S&P and Monringstar sectors/groups being completely 1-day oversold, but in a much larger way going back well over a trading month (see last night's and Wednesday's Daily Wrap).

In any case, everything about today has screamed op-ex pin, yes even the weeklies unfortunately, but as the 2 p.m. hour approaches, most contracts have been wrapped up and the market starts doing whatever it wants or they want, however the 3C signals the last two hours are some of the best information of the week. I suspect as the max-pain op-ex pin (causing the most "dollar" amount of options to expire worthless-there are calculators that can calculate max pain for various assets based on dollar value rather than open interest-not that I am endorsing their accuracy).

So I'm looking for some more movement in to the last two hours. We know what leading indicators look like to a large extent so I'll be updating 3C charts for a slightly longer period than just intraday. There really hasn't been much to do today other than tag the prospects on the watchlist, set price alerts and keep an eye on the market, I don't want to chase anything at these levels.

MCP is of interest, for a number of reasons I'll put in a follow up post. Hint...intraday action and daily candles, you can get both from the daily candles.

Market Update / Window Dressing

Being the last week of the quarter (Q4 starting Wednesday), we know that we are seeing some of the effects of Window Dressing at quarter's end, "The Art of Looking Smart" where funds drop underperforming assets and pick up the out-performers, typically the last week of the month, more so the quarter and end of year. Keep in mind the T+3 (Trade plus 3 days) settlement rule as well, which would have made yesterday one of the heaviest days for Window Dressing.

What is Window Dressing? It's how funds appear to look smart by selling the worst performing assets in their portfolios for the quarter and replace them with the best performing assets for the quarter, so when a new perspective client looks at their "last reported" holdings, they are amazed that the fund had all of the hot stocks for the quarter, even though they may have only owned then for the last few days of the quarter. Once the quarter ends (Tuesday September 30th, they can go back to whatever stocks they like which may include deeply oversold dogs that they may like for a short squeeze or an oversold bounce. It's pretty clear small caps and mid caps have been the under-performer so it's not surprising that they'd be dumped in to the last week of the quarter which shows up in breadth types as well as the relative underperformance of the Russell 2000.

Another reason they may window dress is for regulatory reasons. On April 30th, the end of the month (still window dress, usually not to the extent of quarter's end or year end), the F_E_D's 1-Day Reverse Repo facility saw the second highest usage ever as banks tried to shore up their collateral position for the end of the month reporting, making them look stronger to their regulators who happen to be the same people they borrowed the collateral from.

On June 30th, the end of Q2, the same 1-Day Reverse Repo facility saw the highest usage ever with 94 banks using nearly 1/3rd of a trillion, which of course is returned the very next day, it's just a shadow game, a farce and the F_E_D likely permits it as their regulator because the F_E_D has absorbed most quality collateral through Q/E purchases, leaving the banks with very little left over, which is one of the reasons I suspect the F_E_D changed its tune from "Holding assets until maturity" to "Shrinking the size of their balance sheet".

It's hard to look at the market and not consider all of this so I've taken a quick look based on Window Dressing and what I might see that seems out of place.  One of the first things I thought of, although this is just off the top of my head , is the T+3 rule which was yesterday, with the worst market performance in 8 weeks and the European hedge fund shutting down 4 of their portfolios in the US, it kind of makes me wonder about the timing and the reasoning for doing so.


From a breadth point of view, the market has been selling assets which we can see by the percentage of stocks above moving averages having fallen to new lows on the year, some of this is recent, a lot of it has been a trend since Q3 opened on July 1st, it is that clear,  you can see July 1st as a clear demarkation zone of severe deterioration. So I suspect there's a little of both going on, overall asset reduction and window dressing making some of the more recent indications really bad like last night's chart of the Percentage of NYSE Stocks ABOVE Their 200-day Moving Average, which hit a new low for the year while the percentage of stocks above their 40 day moving average is a mere 21.5%

The  Percentage of NYSE Stocks ABOVE Their 200-day Moving Average at less than half of all NYSE stocks and a lot of deterioration since July 1st (Q3), nearly at new low and with price (SPX in red) where it is, this is the worst breadth divergence since before 2007's top. Advance Decline lines are showing the same, the NASDAQ Composite being one of the worst, with a recent report that nearly 50% of the Composite's stocks are in a technical bear market, down OVER -20% with the Russell at 40% and probably much worse given the last week or so.

From a Leading Indicator point of view which I just finished looking at...

 My two newer custom indicators with the SPY on top, the SPX/RUT Ratio in the middle and the VIX Inversion at the bottom.

The VIX Inversion is "close" to a short term buy signal, I'll show you this in greater detail. The SPX/RUT ratio is showing near by positive confirmation as the market runs flat here which  is where we see the heaviest underlying activity whether it be distribution (usually after an up-trend) or accumulation (usually after a down-trend).

 On a longer term basis using the same indicators going back to mid July, the SPX/RUT calls the July decline in to early August and then gives a much larger positive signal during the week of stage 1 3C accumulation from 8/1 to 8/8. Also just before, the VIX Inversion gives a buy signal at the red bars, this is a pretty large one, you can see a smaller one to the left and the difference between the trends that came after the signals, they are proportional to the size of the signals given.

We do not have a current VIX Inversion buy signal right now, but we do have the highest VIX inversion since mid-August.

Looking at the Short term VIX Futures, VXX with the SPX's price inverted (over the last day or so), there's weakness in VIX futures relative to their normal correlation with the SPX.

The same is true of Spot VIX.

HYG (High Yield Corporate Credit) was forecasted to lead the market to lower lows and it has done so this week which is going to be a problem for the market, but I'm looking at the very near future rather than the big picture which is already pretty much set in stone, it's hard to make a stronger case than what we already have,  that being said, nothing goes straight up or straight down. After the initial break in 1929 of the market from approximately October 14th to November 14th,  few realize that the 1929 crash saw a 5-month rally for a 50% gain just after the first break of the market and then 5 more significant counter trend rallies until the 1932 lows.
 

 The longer term HYG/SPX relationship shows the July decline being called by HYG and it has led the entire August cycle by 4-7 days on average, doing everything before the market with the market flowing. The negative HYG divergences in red, the slight support for last week's head fake move (Chimney) in white, although it failed as HYG's position would suggest and now HYG leading at a new negative low below the August market lows, all in all a very dangerous situation for the market, but still in between here and there, we have some interesting signals.

 HY Credit has been flat, earlier in the week this was a leading negative signal, now it's a neutral signal, although there was a little negative reaction today which I suspect is connected to Bill Gross/PIMCO. While this is not a positive signal, it is neutral and considering market tone, that's somewhat positive, yet also a very short term indication.

 The pro-sentiment indicators didn't say much beyond yesterday's signal of a higher market this morning / today, I'll check them later again.

TLT however has been on a tear to the upside since we called the reversal in the August pullback, this also fits with equities moving down. While I think a lot of this is safe haven flow from one asset class to another, we can't forget the shortage of collateral at US banks so buying up treasuries before the end of the quarter, judging by past utilization and a new record high for the F_E_D's 1-day reverse repo facility specifically on April 30th and the last day of June (Q2), this would make some sense, however I suspect it's a blend of both.

Although this could mean as the quarter ends and the new quarter starts Wednesday, there "could" be a flow out of treasuries and back in to stocks having "fooled" (wink wink) the regulators and investors.


 Short term yield action is also somewhat neutral here after leading the market...

 On a longer term basis the dislocation would suggest the SPX move to approx. the $2000 area "if " it reverts to yields as we have seen so many times in the past (which is why we include this as a leading indicator).

 The Intraday TICK is wild, but about even between about +1000 and -1000, no trend except flat.

When I looked at this, I immediately jumped to the SPY chart thinking I'd see a Doji star on the daily...

  and there it is, it's also a Harami or inside day, which is a short term upside reversal signal. We'll see how it holds in to the close as well as volume.

 My Custom TICK chart shows the same, a kind of pinching neutrality in breadth.

Finally the Most Shorted Stocks which have been getting pounded are now moving lateral all of the sudden, an interesting change of character when taken with everything else above.

I didn't include 3C charts because I knew this post would take some time and they wouldn't look the same by the time it was posted, but I will take a look and post anything of significance that I can confirm.

What I'm essentially saying is that there's something going on around window dressing and I suspect there could be a change in character as of the 1st of October on a short term basis as small caps and mid caps have been dumped, they may be bought back on an oversold bounce or short squeeze attempt. I don't have much more evidence at present than what's above, but it is a start and the start of the Week Ahead analysis.

I don't want to short in to this weakness which is why I have been waiting for a bounce. So far this week, the dominant theme forecasted was down, although we forecasted an early week bit of weakness and a short term bounce which we saw Wednesday and then this week we had charts Wednesday afternoon saying weakness Thursday, but there were still 5 min positives that looked like we might see some more upside attempts. Those are largely gone, but who knows what will develop in the next day or so or even today. Right now, the best I have toward this line of thought is this 3 min SPY chart...

This is very strong, very accurate confirmation of distribution of last week's head fake move higher as we expected to see for at least 3 weeks and now shows a decent positive divergence still in effect, not a huge signal, but perhaps enough to shake things up as Q3 starts. We need a higher low at bare minimum in the current stage 4 downtrend so that alone suggests some bounce, which is important for the same reasons as this week, tactical entries.