Daily Wrap

Other than this post that's pretty hard to ignore...If This Doesn't Tell You SOMETHING IS VERY WRONG...

There are several things that make me wonder if we haven't already seen the head fake high, take the Russell 2000 for instance as small caps get pounded for a 3rd day and in to the close no less.

 That's the Russell (yellow), Transports (Salmon) and the NASDAQ which didn't have the benefit of AAPL closing up +1.41% like the last 2 days so the NDX closed red, but transports as well? Yep and the worst slump for small caps since the October lows.

Interestingly the SPX/ES and Dow closed right at their futures close on Friday, for ES the close Friday was $2038.50 and today $2037.75, a difference of less than a point, the Dow the same.

 Last week I said if there were one index to make a head fake move it would be the Russell 2000 because of the obvious resistance area, since it is down -1.86% and looking a lot like a head fake move.


The R2K custom indicator buy/sell signal with a buy at the October lows and a huge sell now.

The SPX for that matter isn't performing much better, locked in a 3 point closing range the last 6 days.

Meanwhile as pointed out already in today's post and all last week, the VIX keeps moving higher, of course we saw the accumulation in VIX futures even before the bid under the VIX broke it's correlation with the SPX, also seen here, If This Doesn't Tell You SOMETHING IS VERY WRONG...

High Yield Credit is SCREAMING like I've never seen it before.

 HYG since it helped ramp the market

HYG today making a new low

HYG's October rally trend.

And look at High Yield credit today, absolute dumpfest.

 Professional sentiment intraday...

Pro sentiment through the trend, uh that's ugly!

As for breadth, the R2K A/D line is showing weakness...as is the NASDAQ Composite.

NASDAQ A/D line (green) vs NASDAQ Composite (red)...

The Percentage of NYSE stocks ABOVE their 200-day moving average (green) vs the SPX (red), note there has been no movement for 12 days, and only 3 points (closing ) movement in the SPX in 6 days.

One indicator that I remember well because it only moved at the very top was the Cumulative Volume Index, here it is now...

 in green vs the SPX in red and the same at the 2007 top...

Otherwise it tracks the SPX near perfectly.

There was no Dominant Price Volume Relationship again today, but not surprising given the SPX has had a 3 point closing range ($2038 to $2041) for the last 6 days, that makes for a large doji star. Otherwise there was barely any movement in the SPX and Dow -30, the only two averages to close green up +0.07%!!!

Only 3 of the 9 S&P sectors closed green with defensive Utilities leading at + 1.31% and Energy lagging at -0.52%.

Of the 238 Morningstar Industry/Sub-Industry groups, only 76 of 238 closed green.

If this doesn't look like a nasty top, I don't know what does. Unfortunately people like Carl Icahn are calling it exactly that,

"One Day You'll See A Break Like A Few Weeks Ago But The Market Won't Come Back"

I'd prefer there weren't people calling a top as I have stated before, but this is just getting too ugly.

Luckily it seems retail sentiment is increasing in bullishness, that I like and hope continues. You hopefully saw the FAZ post today, it's an excellent proxy for the market so I'll be watching assets like that closely, but I think at this point, Icahn is right, this is most likely to end up as a gap down that takes out several weeks of longs on an unassuming morning.

I'll be checking futures again tonight because I think last night was insightful, it seems last night's Nikkei move was the crack in tis weak market structure, how fast and hard it comes down I think is already foretold by leading indicators, credit, VIX, etc.

If you're watching one thing tonight, for me it would be the USD/JPY or the relative performance between the Nikkei 225 and USD/JPY. If I see anything above and beyond like last night, i'll have it up for you.

If This Doesn't Tell You SOMETHING IS VERY WRONG...

You've seen the VIX Futures accumulation on a strong and long 60 min chart, this is HUGE accumulation way beyond hedging.

 This tells you there's huge accumulation, but you don't even need this, just look at VIX vs the SPX...

This is SPX prices (green) inverted so you can see the normal correlation with VIX. To the far left is the normal correlation, they move mirror opposite each other, thus when I invert SPX prices they move almost exactly together, but look at the SPX trend which is nearly flat vs the VIX (light blue) trend which is moving higher every day for over a week, this  is telling us there's a large bid supporting VIX prices above and beyond the correlation.

The VIX today vs SPX (still inverted SPX prices)...

 look at the outperformance again today. Why is someone accumulating so much VIX they are changing the entire correlation? This is way beyond hedging.

I'm still going to try to get out that post that explains why "Credit leads and stocks follow", although we've seen it numerous times in leading indicators and top/bottoms.

High Yield Corp. Credit which has been used as a market ramping mechanism, but before the market take s a plunge, the rats leave the ship and HYG falls in front of the market, again, "Credit leads, stocks follow".

 Today's divegrence in HYG vs the SPX (green) is interesting because whatever short term move I might have expected in Friday's the "Week Ahead" post, HYG is not even interested in helping out intraday, it's full evacuation mode.

 And while this just shows the most recent HYG lever boosting equity/SPX prices and then running for the hills, as you have seen, the dislocation/negative HYG divegrence is much, much bigger than this as a new low is hit today.

Speaking of new lows, HY Credit is not manipulated the way HYG is, thus this trend should be very disturbing to anyone long this market especially after the taste of what increased volatility on the downside looks like last night in the Nikkei 225.

HY Credit not only divergent during the October rally/cycle, bt hugely so. Remember this is a risk asset just like stocks, except smart money is going the other direction. Most importantly as far as this week, look at today's divergence alone!

Market Update Charts...

Here are the charts to go with the last market update.

 USD/JPY last night on the USD/JPY / Nikkei 225 Decline and the lows called in both the Nikkei 225 and USD/JPy as positive divergences were already in place, see last night's post, Abe and Kuroda'a QE-Zilla Sends Japan in to a Triple Dipp Recession. I think this post is important in understanding the timing of the rest of the week as well as the MAcro dynamics (size of move and amount of confirmation). Posted @ 11:01 p.m. EDT Sunday night and the lows were just a bit before the post showing small positive divergences expected to lift the market in to the cash open this morning.

 USD/JPY now 1 min, same as the last.

As usual the $USDX and Yen (/6J) are part of any currency pair analysis, a big part.

The $USDX intraday today falling apart, just as it was positive at last night's lows.

And the 5 min Yen chart (now migrated to 5 min), positive just as it was negative at last night's highs, also a reversal process in place.

All of the above suggests lower USD/JPY prices.

And ES intraday in line and negative. This is confusing looking as the SPY is only up +0.05% and the trend looks like a lot more, remember, ES/SPX Futures last night hit lows that wiped out all of last week's trade until Monday, in other words, ES Futures were below Tuesday-Friday's lows, so it had a long way to come up to open near unchanged which was the 3C signal from Friday, again showing the concept that 3C picks up where it left off, even over 3-day weekends and huge overnight moves.

USD/JPY looks very ripe for declie

This is also effecting Index futures, it looks like ES wants to catch down to Russell 2000/IWM.

I'll have charts out in a moment.

Remember the USD/JPY positive and price gains were off the lows from the Japanese GDP slam last night, they weren't expected to hold very long.

Financials/ FAZ MICRO/MACRO Market Proxy

This is not only along the lines of last Friday's "Week Ahead", but more specifically as new data allows for new updates, since last night's Japanese GDP, the very strong move down in the Nikkei, nearly -3%, largest 1-day move since August and last night's forecast of a "dead cat bounce", which is actually fitting together with Friday's Week Ahead charts....

Looking at the long FAZ (3x short Financials), this is one of the assets mentioned on Friday that I didn't want to enter Friday afternoon because it looked like it had a small pullback in it, thus I'd wait another day or so (early this week). Here's a look at FAZ, a minimum upside target and perhaps the dead cat bounce timing from last night's post.

As I said, I wanted to look at some of the assets that went in to Friday's Week Ahead Forecast.

First from the Macro as that is VERY well established in almost every asset calling for a strong move lower.

 The 60 min charts across the board are calling for a large move, upside for FAZ, downside for the broad market, Financials specifically.

This is a personal position I have been holding and will continue to hold as the larger than expected (but glad to see it), rounding base is capable of supporting a large move up in FAZ, 3x short Financials.

The leading positive divegrence is well beyond the divergences (some of which I posted in Friday's post The Plunge Protection and Market Correction Team) that we saw at the October lows leading to the advanced warning of a VERY strong "Face ripping" move higher ; suggesting a much larger downside move than the October move up.


Note also the near perfect rounding bottom. Usually we'd expect to see a "Chimney"- imagine this as an upside down Igloo with a chimney on the right side; that's the typical head fake/stop run/timing move.

 From where I see strong divergences in FAZ, the concept of 3C surpassing the price area where divergences were first seen would suggest a move well above he white trend line, we have seen this concept many times before work and the moves are significantly higher, this tends to be a minimum target.

This is the divegrence late Friday I saw in many assets which formed the basis of the early part of the "Week Ahead" post from Friday.

 Intraday the 3 min FAZ chart has seen some weakness from the divegrence late Friday, but not much as of yet.

Corrective moves can come in the way of price contraction or in the way of time (consolidation).

 This is FAZ's intraday 1 min chart,  this is where I'll be watching for the first signs of this turning positive and it would be the last place I'd probably buy FAZ as I don't like chasing price.

XLF, Financials which FAZ is based on is the long version of Financials, the 2 min chart can be seen offering some strength this morning from the gap from overnight Nikkei Weakness and USD/JPY.

This is why I mentioned the 3C divergences picking up where they left off (Friday to Monday) despite the large move in futures/Nikkei/USD/JPY last night and the forecast of a dead cat bounce and price to recover which was called just minutes after the lows were put in last night.

 XLF 3 min is not positive, it has gone negative and stayed in line with the price decline from the pivot.

Looking at the same chart in context of the entire October rally, this is the 3 min chart and how deep it is negative.

Now you have some idea of the macro vs the micro market wide, what I'm looking for, and the size of this divegrence and what it portends, a move larger than the October rally.

Market Update

I'm not sure if you finished reading the last market update as it contained some macro perspectives that are important this week, but it showed the positive divergences I mentioned in Quick Market Update and how those were fading intraday, they have now faded significantly more.I don't think this is the end of the volatility, although I do have a few more assets to look at, I think Nikkei 225 is likely to bounce not just through futures, but in the cash market overnight so I think volatility and chop are still part of what we should expect over the next 12-24 hours, but as we saw in the last update, the intraday positives that lifted the market are fading.

 TICK trend has broken the up-channel as I said it was thin and weak and moving down, as intraday breadth declines.

 $USDX going negative on the day from the overnight move that was forecasted.

The $USD/JPY is key here as this was part of last night's forecast, it finally looks like it's near weak enough to start to collapse.

 ES going negative intraday

30 year Treasuries which have supported the market with weakness today are going more positive.

TLT which confirms 30 year T's above is also going positive

SPY going negative since the last move.

QQQ as well

And IWM

With DIA showing a sharper leading negative intraday

And VXX which is STILL outperforming the SPX intraday as it did all last week is still outperforming along with spot VIX. VXX is going positive here.

INTRADAY AND MACRO MARKET UPDATE

A lot of what is here should be read in the context of having already seen at least last night's Abe and Kuroda'a QE-Zilla Sends Japan in to a Triple Dipp Recession  (the spelling should actually be "Dip" and it should be "Quadruple" rather than triple) at least for the near term macro update (all of the charts of the past several weeks should also be considered as well as you can remember them in a macro trend context-such as VIX outperformance, VIX futures with a huge positive divegrence, Leading Indicators huge divergences, etc.)  and the previous Quick Market Update for intraday update material as well as last Friday's "week Ahead" forecast expecting "Early /Monday" strength.

If you were watching futures last night as many of you were judging by my inbox, then the concept of "3C divergences picking up where they left off on the next cash open trading day, even over a weekend" should be rather amazing because they were right on when you consider last night's break in Nikkei 225 futures, USD/JPY and thus US Index futures didn't look like it was coming back, which would have negated Friday's "Week Ahead" forecast for early week strength. You have to admit, Nikkei futures as well as US Index and USD/JPY coming back from that abyss has to be considered, "Strength" and with half the market trading green, it's a further testament to the concept.

As for intraday, I showed the TICK changing and mentioned some sharp divergences and Yields leading positive intraday.

Intraday... this is exactly along the expectations and forecasts from last night's Abe and Kuroda'a QE-Zilla Sends Japan in to a Triple Dipp Recession price action and expectations in to the cash market today from last night's lows which we actually nailed within minutes.

 The TICK trend which was mellow and contained between +/- 750 kept trending lower to make an extreme of -1500 before breaking the channel which I posted in today's Quick Market Update  which was much less defined, but this goes to show you how far in advance TICK can often lead an intraday reversal and is useful as a tool for that purpose.

The upside move has hit+1250, but a much smaller, narrower channel.

30 year yields (red) had been in line intraday with the SPX (green) until the SPX dipped a bit too much while yields held establishing a positive intraday divergence. Remember though, this is in the context of last night's forecast of this strength coming in to morning/cash market trade which we had not seen as of the forecast last night (we were still at the lows) and that strength today fading and the macro trends (negative) reasserting themselves; so we'll see the macro trend below as well.

The 3C chart from Friday and Friday's 1/2 position trade and the reason why from, Trade Idea (Swing+) TLT long via TBT Short was also part of the reason taken with yields...

 Friday I opened a TBT short (which equates to a TLT2x leveraged long or 2x long 20+ year treasury bond ETF).

I left the other half in case of a pullback toward the range lows as the charts Friday showed that as high probability, which can be seen above with a 5 min negative TLT, suggesting the pullback, essentially allowing me to fill out the full size position at better prices while still having exposure.

That divergences is starting to neutralize intraday and don't forget about the macro trend below.

Other divergences implying a quick upside move...

 NQ intraday (NASDAQ 100 futures) which were in line on the decline and posted a sharp,, but small positive divegrence.

SPY intraday mostly in line, so it wouldn't take much to create a small intraday divergence.

 QQQ like NASDAQ 100 futures intraday also showed a positive forming after having been negative this morning and in line on the downtrend. This divergence too is resolving as it moves from positive to in line and is only intraday.

IWM intraday has been in line, but the yields were still pulling on it to the upside intraday as well as TICK. This move, much smaller is also resolving to neutral and negative.

 USD/JPY (candlesticks) were at the time leading ES / SPX futures 1 min) at the red arrow and leading higher. USD/JPY looked like it had some more intraday strength, but this only came after last night, something we forecast before it was even close to evident. It appears this too is fading.

This was the 1 min $USDX at the time, it looks worse now, implying the support for the market of USD/JPY probably is not going to hold out much longer, which is exactly last night's forecast of a bounce in these assets and then the macro trend reasserting itself which I'll show (the macro trend).

The Yen at the time in line as it weakened overnight to allow USD/JPY higher with NKD futures as well as US Index futures, now the Yen is showing intraday accumulation, this was taken at the time of forecast from the "Quick market update", now the divergence (+) is building.

Macro trends...

The Nikkei 225 futures were a clear negative macro trend, see last night's post and 4 hour chart, the break down started last week and was sharply negative (distribution). What's interesting is that a negative GDP is bad news and bad news is good news for central bank actions, it appears the market interpreted this the opposite, which may reflect Abe being thrown out of office by the Japanese people tired of suffering under his monetary experiment gone very wrong. The implication is that someone knew would replace possibly Abe, the cabinet and new BOJ positions or pressure to end the QE experiment which is huge.

The 4 hour shows a much worse macro trend, the 60 min shows a sharp divegrence and large changing quickly through last week and especially from mid-week.

I showed more charts last night of how swift the divegrence was, see last night's post as well.

 30 year Treasury futures 5 min charts showed a high probability pullback, just as seen in TLT's Friday charts in Trade Idea (Swing+) TLT long via TBT Short , but these were still short term, looking for a pullback to add the second half of the TLT long or 30 year treasury long position from Friday's half size position.

 Intraday 30 year Treasuries decline was in line, meaning higher yields attracting the market higher intraday, that is starting to resolve.

The macro trend for 30 year Treasury bonds and thus lower yields pulling the market lower ,  just as predictable as today's intraday bounce higher if not more so...

 60 min leading positive 30 year Treasury futures, yields move opposite Treasuries (down is implied) and attract equity prices to the  like a magnet (down is implied).

TLT (20+ year Treasury Bond Fund)'s 60 min chart confirms the above.

 SPY 30 min from in line or price confirmation to deeply leading negative below anything on the chart, a macro trend.

The yellow arrow is a possible head fake move.

 QQQ 60 min macro trend leading negative larger and more acute than the August cycle leading to October lows.

IWM 2 hour macro leading lower and lower with clear range tops .

 Macro Sentiment trend since July with "-" negative and "=" in line. Note how deep the dislocation of pro sentiment is compared with the August cycle (September) highs leading to October lows.

 HYG with just about  the same timeframe showing the leading "+" positive HYG divegrence at the August lows/base for the August cycle, the leading negative at the head fake high in September at the August cycle's stage 3 top and chimney head fake, the in line at October lows, as I showed Friday there was accumulation at the October lows in this post...The Plunge Protection and Market Correction Team

And the intense leading negative , not only of the entire trend, but last week specifically...

 Last week's HYG deterioration in addition to the trend above, specifically zoomed in to context.

Yellow is a possible head fake high.

High Yield Credit's trend since the August cycle's stage 3 highs in September with a negative "-" at the head fake high and "=" or in line at the October lows, I also showed the positive divegrence at the October lows in Friday's post, The Plunge Protection and Market Correction Team.

The dislocation is massive, but today's negative move is even worse, like HYG last week.

And near term for the rest of the week as part of the "Week Ahead" forecast, the SPX/RUT indicator...

The Indicator in red vs the SPy shows price is not confirmed, it should make a move well below the SPY's white trend line.

This is part of the reason last night I thought the Nikkei 225 move was too parabolic and would see a dead cat bounce that would move in to today's market which fits with Friday's "Week Ahead" divergences for early this week which just happened to be correct even after such a massive break last night.

The forecast from last night was for a dead cat bounce and a return to the macro trends.

As I have been saying, the market has no support here and it like walking on an eggshell, I THINK THE NKD MOVE LAST NIGHT WAS THE FIRST CRACK IN THAT.

I'm checking the specific assets I was looking at Friday that led me to believe we see some strength today.