Daily Wrap

This morning's A.M Update was a near mirror reversal of yesterday's in which positive divergences pre-market sent the market up as soon as the bell rang. Today negative divergences in everything but the $USD/JPY still saw the market flip on the open as usual, but only after having given back significant futures gain overnight and in to internal weakness today.

 ES giving back substantial overnight gains in to regular hours (green arrow)...

TF/Russell 2000 futures giving back very substantial gains from overngith in to the open...

However NQ/NASDAQ futures didn't accumulate much in the way of overnight gains so there wasn't much to give back. wonder why? Because AAPL doesn't trade overnight like Index futures.

That's right, AAPL, the heaviest weighted stock on the NASDAQ 100, we don't know exactly what unless we want to pay $10,000 a year for a NASDAQ subscription, but in the not so distant past, AAPL has accounted for over 20% of the NASDAQ 100's weight itself.

To put that in to context, that's about the same as the bottom 50 weighted NDX stocks so if you had the bottom 50 NDX stocks and AAPL and the bottom 50 averaged a -1% loss on the day and AAPL was up +2% on the day, the NASDAQ 51 (in this case) would close up +1% despite the fact that 50 of 51 stocks closed red.

As AAPL makes a second consecutive +1.41% gain today, look at the correlation between AAPL (blue) and the NDX (green) over the last 2-days.

And as I said yesterday, if any stock other than the IWM is putting in an Igloo with chimney head fake move, it's AAPL.

As for the Averages today...

Small Caps and the Russell 2000 were by far, the worst performers, R2K --.93% on the day with the biggest drop in small caps in 3 weeks, but the SPX almost closed red as it tested into the red for the week only to be rescued, perhaps by our mid to late day positive intraday 1 min divegrence I showed. 

Somehow the SPX and ES managed to close right at VWAP...

ES/SPX testing red for the week and closing at VWAP.

However, don't forget the sell signal in SPX in our DeMark inspired custom indicator...

 SPX buy and sell signals, the last sell signals were at the August rally's stage 3 top and specifically at the head fake move leading to stage 5 decline with a near perfect buy signal at the lows.

This might be dismissed if EVERY major average didn't have the exact same buy signal at the lows and sell signal now including transports and as of this week, the VIX which trades opposite the market so it has a sell and buy signal, the only two of the year.

VIX sell and buy signal confirming all of the major averages.

If you noticed above, the SPX has a Doji Star today, now 5 of the last 6 days. The RUR which closed down -.90% has a bearish Engulfing candle today, The Dow which was up a paltry +0.23% also has a star and transports closed lower, -0.20% despite the fact oil crashed.

WTI was down to $74.06 at its lows, the lowest since Sept 2010 and the fastest downward ROC since the Lehman collapse. Brent Crude was down as well, -3.47% while USO was down -2.92%.

Take a look at Transports vs Crude, what do you think? Have they been popping on lower oil or following the market cycle?

You can probably tell which is WTI crude and Brent, the SPX is white, Transports are green. There's no doubt the airline index has benefitted from lower crude.

In fact, seasonal gas is the lowest since 2010.

Note USO's break of the $29 area today and the large volume, I know some of you are interested and it may see a dead cat bounce, but for a sustainable rally it will need some work.

Treasury Yields are also getting interesting, I'm not so sure they led today as much as hit local lows for bonds to be accumulated... I suspect we are about to see a strong move in Treasuries/TLT which you might consider playing TBT (2x short TLT) SHORT, thus creating a 2x long TLT.

If 30 year yields were leading the market, then it's little wonder the market hit resistance early on in the a.m. as yields failed to make a higher high (red trendline), I already verified the spike in yields (white arrow) which would be a drop in 30 year bonds, was accumulated.

 long term 60 min 30 year Treasury bond futures have a huge leading positive divergence just as does TLT (20+ year bond fund).

The shorter term charts are now screaming as well like this TLT 3 min, it looks like they are just about ready to go,  A Flight to SAFETY trade which sends yields lower and stocks have been following yields on the long end.

As for TBT, the 2x inverse TLT, the 10 min chart (and others) saw a sharp distribution signal today. I really think Treasuries are close to a strong move up, that would suggest the market makes a strong move down, but you know that has been my opinion since early October before the rally even started.

As we saw today, TICK was not even close to confirming the morning rally, it was trending the opposite direction. I was VERY surprised we didn't have a Dominant Price Volume Relationship, I even reloaded me data feed twice to make sure. However that doesn't mean we didn't get information, the intraday breadth sold off as the market tried to rally before the SPX tested red for the week only to be saved at the close with a dash to VWAP, but during that dash and otherwise through the day...

 High Yield Corporate Credit (HYG- the market lifting lever) did what it did yesterday and got out of Dodge City, except today in a lot bigger of a hurry, NO HELP WHATSOEVER IN LIFTING SPX OUT OF THE RED.

HY Credit also sold off all day and in to the afternoon dash to VWAP and the green with an SPX close of +0.05%

And as has been the case, professional sentiment can't be much clearer than this, sold off in to the close, sold off all day, sold odd all week and then some.

There was some $USD weakness on the macro trend of EUR strength we've identified (bigger picture) which didn't do much to precious metals with GLD closing at +.15, SLV closing -.40% ,  but DOCTOR COPPER (they call it that because it is suppose to be a leading indicator for market direction) GOT SLAMMED....

 COPPER selling off hard...

Many traders still follow copper as a global leading indicator and stock market indicator.

While we have been seeing strong charts in treasuries, don't forget VXX and spot VIX, both outperforming the SPX the last 3 days, here's VXX vs the SPX (normal prices) refusing to make a lower low this morning on the SPX move higher as VIX protection remains bid.

Yesterday I pointed out the near panic in the charts to accumulate protection, if Treasuries are the flight to safety, VIX is the flight to Protection.

the 60 min VIX chart making new leading highs,  this is a spectacular divergence, the kind I sometimes say, "I NEVER ignore".

Well we didn't have a dominant P/V relationship, but internals were still there to be seen.

4 of 9 S&P sectors closed green, but very weak, that's a range from +.02% to the best performer at +0.63%, Consumer Discretionary. Energy was the laggard at -1.33%,

Of the Morningstar groups, a weaker showing than yesterday with only 88 of 238 closing green.

While most breadth indicators haven't moved at all in about 10-days, certain ones did move, take for instance the Russell 2000 Advance / Decline line which deteriorated today as you might expect as did the NYSE A/D line and R3K A/D.

Momentum stocks represented by the "Percentage of NYSE Stocks Trading 2 Standard Deviations Above Their 40-Dayn Moving Average" which in normal times hovers around 35% has seen a rally peak of 25%,  but has fallen off to 16%, 9% points in just the last 3 days.

The New Hi / Lo Ratios from 1-day to 4, 13 and 26 week are falling like flies.


And some of the Breadth Indicators are coming apart fast...

 The Zweig Breadth Thrust is falling apart as it did at the past 2 pivot highs.

As is the McClellan Summation Index which has failed to even cross above zero in a large 5 month divergence.

And as can be expected, The McClellan Oscillator is also falling apart as it did at each of the past pivot highs.

As for the late day divegrence, I reiterate, this was an intraday 1 min divergence in most cases which may have been just to ramp the SPX out of the red and back to VWAP or it could be for tomorrow's op-ex max pain pin as the market typically pins around Thursday's close or as I warned, in increasing volatility, small divergences like that tend to get run over more frequently.

I may not have the exact time and date of a decline, but I can tell you I'm as sure we are going to get a massive decline as sure as I am I'm going grey.

If anything interesting pops up in Futures, I'll be sure to let you know.

Volatility Ahead Part 2

Earlier I showed you the first intraday positive divegrence that I suspected would become something more, volatility in price multi-directionality is not done, which is good news for those who are still looking to position, as far as anything looking like a head fake move, IWM or QQQ perhaps, that's good news for a move to stage 4. Tomorrow is an op-ex and they usually pin near Thursday's close, that's what I suspect this is about, but I may be wrong and when we get in to increased volatility the chances of short term divergences getting run over increase, although not common.

Here's the evidence I have that I think is objective pointing to at least 1 more move on the upside to get bulls cheering even louder which they are doing today in very arrogant style on stocktwits, the market always humbles you.

First the SPX and derivatives...

 SPY intraday 1 min with a second positive divegrence.

SPY 30 min, strongest probability outcome solidly down.

SPXU 3x short SPY...

1 min negative like the SPY 1 min positive and larger picture,  highest probability resolution...

SPXU 30 min strongly leading positive

Levers / SPY Arbitrage...

 TLT in line, as I suspected the move higher in rates/lower in TLT was accumulated, this is in line, no real market edge short term.

Larger picture 60 min TLT leading positive.

TBT 2x short TLT

 Short term 1 min in line, no market edge.

Larger picture leading negative confirming TLT

VXX short term 1 min slight negative

VXX larger picture (UVXY) leading positive in a huge way

HYG larger picture in line with the sell off.

Short term 2 1 min positive divegrences like SPY.

I suspect it's an op-ex pin, but it's not anything major.

Leading Indicators

I know you have seen many of these and they seem meaningless until they have meaning, well we've been using them for years and when they are screaming like this, they are far from meaningless and by the time they have "meaning", as in price has caught down to their warnings, well by then it's too late to have profited from their leading forecasts. We are not gamblers, we take on risks, but high probability and lowest risk possible like a card counter who has an edge,  but the fact remains, YOU GET PAID TO TAKE RISKS.

That's why right now, more than any other time when volatility was expected to increase suddenly just a little over a day ago (Tuesday)which would be a marker of a change in market trend and when head fake moves were mentioned just Tuesday night, many seem to have taken place in some form between today and yesterday, not as a Monday morning quarterback or rearview mirror analysis, but in front of the event, I offer this same post in the same spirit, not once the event has passed and it's no longer profitable and anyone can tell you what happened, but before hand, I would plead with you to take these charts more seriously now than ever.

These are by far, some of the largest dislocations and divergences seen not only this year, but over the past several years and if you think my warning to be careful, that this rally was going to a face ripper was perhaps less than you expected, let me tell you that the signs, signals and charts right now are far and away long beyond what I saw in mid-October when I tried to anchor expectations and let you know this would be a rally that would scare you, even though you knew what it was for and had advance notice.

Short term 3C divergences can be overrun in situations like this, these charts are solid. Compare them to Tuesday's Futures Indications post .

 The Custom SPX/RUT Ratio Indicator not only predicted this move in advance, but called the top as well at the red line and is showing the SPX should have made a lower low, below the first white hash to the far left to be confirmed.

I'd expect that move is coming.

VXX and VIX in blue vs SPX in green move opposite the market so often I have inverted the SPX's price (green) so you can see what the normal correlation is and where the VXX Short term VIX futures and spot VIX either outperform (higher than SPX) or under perform (,lower than SPX).  This chart is not inverted because the relationship is easy to see.

Today the VXX was bid and that kept it from making the new low it should have this morning as the SPY moved above the red line, the VXX should have moved by an equal amount below the red line.

 This is spot VIX and the relationship does show the SPX (green ) as inverted, note the VIX's strength moving higher in to higher SPX prices over the last few days, it even leads as the SPX makes local lows today.

This chart posted in the Daily Wrap shows the two strongest buy/sell signals of the year using my custom DeMark inspired buy sell indicator, it calls the VIX top and market bottom in October perfectly with a sell signal and just recently put in a VIX (market top) buy signal, these are the only signals this year so they are strong.

Sell at orange and buy at green, remember the VIX moves opposite the market so a buy signal meaning VIX up means market down.

 The ABSOLUTE CRASH in HYG High Yield Corporate Credit. As usual they'll use HYG as a lever to move the market until it's too risky to do so and then move out at break neck speed. Look at the recent HYG support of SPX and the last two days (especially today) utter selling in HYG.

 This is a closer view showing HYG's ramp Tuesday that ended with a lift of the Dow from red to green by a measly +0.007%, all of that ramping and a VIX slam for less that 1/100th of a percent.

 Long term HYG divergences and tops, the current dislocation is by far the largest.

 HY Credit 's longer term trend vs the SPX and signals and again, by far the largest dislocation.


These are the signals and charts that are calling for not only what I have expected since BEFORE the October rally, that we'd see a strong rally and a stronger decline making a new low, but these are even larger than that, especially compared to the same signals that told me in mid-October the rally would be a scorcher, we are well beyond that.

 Professional sentiment selling off today in to the rally, but not just today, this is a trend If this is what the pros are doing...?

 Pro sentiment since the October rally begun

 Pro sentiment's trend of divergences at major market pivot/tops.

Look how bad this one is compared to the rest that had EVERYONE calling a bottom, ONE OF THE REASONS I FELT WE WERE NOT AT A BOTTOM OR A BEAR MARKET BREAK YET...too many people calling for the same thing at once.

 30 year rates vs the SPX, but I don't think they are supporting the SPX, although it may have had that effect, I think they are accumulating in 30 year treasuries and TLTs at the lows, remember rates move opposite the bond.

And the 30 year rate trend and its massive dislocation from the SPX.

Volatility is not over yet

I expect this market will keep  getting more volatile and directional, but for now I don't think intraday volatility is over yet. There are some interesting signs such as the USD/JPY no longer looks blah,, but weakening as opposed to this morning when it looked more pegged. I was going through some of our core shorts that are doing well trying to figure out if this is a good add to area, I like pyramiding up short positions that are working and margin allows certain benefits for actual shorts that it doesn't for longs, those included HLF at a +41% gain, SCTY at a +27.5% gain, NFLX at a near 20% gain (a second position is around +7%) and FSLR at +30%,  that's when I noticed a likely move toward more intraday volatility.

 USD/JPY is going negative here, it wasn't at pre-market/open.

$USDX is in line, but...

 The Yen is showing a stronger positive divegrence.

I doubt EUR/USD moves too much intraday as the Euro looks like this...

 pretty much in line so if it moves, it's likely on $USD movement.

 VIX futures which saw the 60 min chart shoot up to a new leading positive high today are in confirmation.

 The TICK, even on the parabolic move or a countertrend intraday swing still can't pierce the +750 level. Tick is the number of all advancing NYSE stocks less declining ones so a downtrend while the market is moving up means more stocks are selling off consistently while the market is moving up, I have a lot of breadth/internals work to do tonight. HOWEVER THE PUNCH TO -1650 LEVELS IS NOT GOOD, IN FACT IT IS ADDING TO THE PROBLEMS WITH TICK FOR THE MARKET TODAY.

 This  is why I suspect more intraday volatility, the SPY with a positive divegrence intraday, it's still a small one and may just be the bounce right now, but I suspect it is something else.

The Q's with the same 1 min positive

IWM is closer to in line

And DIA has a small positive.

I meant it earlier about volatility, today has been and looks like it will continue to be quite crazy, but volatility at stage 3 is almost always a transition to stage 4 decline