Daily Wrap

I can't decide if today was stranger or yesterday, of course much of today's strangeness in the market developed yesterday afternoon during what appears to have been a near textbook head fake move, we see head fake moves in every sort of reversal (up or down) in every asset and every timeframe about 80% of the time. Last night I reposted the "Understanding the Head Fake Moves articles.

Yesterday's strangeness started with GLD when I posted in the afternoon, Trade Idea (speculative) GLD / DGLD

"This is an interesting one, especially ahead of tomorrow's F_E_D minutes.

It looks like GLD is going to see a quick move to the downside, I suspect after that, it makes a move higher. I am opening a speculative half size DGLD (3x short GLD) trading position)"

This after a sharp, but small gold divergence (negative) formed. I don't think the above analysis could have been any closer to reality today than it was as our 3x short GLD position, DGLD quickly made +5% in an hour and a half, we closed it at the bottom or lows of the day and it did exactly as expected yesterday, rallied back up.

GLD's move this morning at the lows by 10:50 followed by the return right back to where it was, that was impressive even to me.

However, the strangeness yesterday was not only in GLD, in fact just after I posted F_O_M_C Minutes Shakeout in which additional assets were identified to make similar moves including:

"I'm seeing quite a few strange charts, the Futures are one...the averages intraday are another, Gold and it's very interesting divergence, now in treasuries."

Looking at futures, from 7 a.m. until just before the European close at 11 a.m., the same time as GLD, they too dislocated from the USD/JPY and headed lower...

For no apparent reason at all, Index futures (ES/SPX futures above) dislocated with USD/JPY (candlesticks) and headed lower just like gold in to the 11 a.m. lows as if on perfect timing and cue together.

The dislocation in USD/JPY now looks like this vs SPX futures.

In the first paragraph of yesterday's post above I mentioned treasuries too (remember yields move opposite treasuries) and this is what happened in 30-year yields today vs the SPX (green)

Yields first pumped as bonds dumped in to the open and seemed to hit their highs by 11 a.m. as well until the minutes release when they dumped and then pumped once again.

To make this easier to visualize, I mentioned "TBT, 2x short TLT looks like it is set for a small pop, perhaps pre-minutes release"

TBT (2x short 20+ year Treasury bonds) saw the same "small pop" pre minutes release on the gap up open and further volatility the rest of the day as the minutes were released.

As for the Averages I mentioned with the additional notation...

"Whatever it is, Leading Indicators and the charts today would imply VERY strongly that it doesn't end well for the market and several asset classes"

You already saw Index futures this morning and their failure to catch back to USD/JPY and to rally with it as it broke $118, but on the day as a whole, after also noting 

"TF (Russell 2000 futures) doesn't look good today either, nor do the charts of the averages."

This is how the averages and specifically the Russell 2000 ended the day...

 All of the major averages today (above) closed red, just like yesterday's Dominant Price/Volume RElationship and overbought S&P and Morningstar groups suggested. 

Small caps were hit the hardest again as the Russell 2000 in yellow sees the worst close at -1.09%, but that's not the extent of the damage...

As the Small Caps/Russell 2000 (typically the market leader) is now RED for the year!

The Nikkei 225 was also mentioned, "The Nikkei 225 futures have seen distribution through them intraday, but more importantly was the dead cat bounce off Sunday night's carnage."

The same dead cat bounce we were looking for around 11 p.m. on Sunday night, Abe and Kuroda'a QE-Zilla Sends Japan in to a Triple Dipp Recession,  when we called a low in the Nikkei on a parabolic move...

Sunday night's drop in the Nikkei 225 and the dead cat bounce expected in to more 3C weakness.

All of the above assets and their expected moves today, as strange as they were, were from one post and all of them played out which is what the 3C charts were suggesting, but it was a strange set of signals as I mentioned several times yesterday and upon seeing them come to fruition today (especially in our gold short).

These were small signals, that were dead on accurate...

Yesterday's 2 min GLD divergence from the Trade Idea (speculative) GLD / DGLD.

What are we to make of the large signals/macro trends in the Averages, Futures, Currencies, Credit, Leading Indicators, Volatility and Breadth, such as the Averages' macro QQQ update today, Market Update-NASDAQ Broad Upate ? I know what I make of them.

VIX short term futures decoupled with the market toward the afternoon and in to the close...

 SPX prices (green) inverted to show the relative performance, note VXX popping higher in to the close, very unlike yesterday's triple slam of the VIX.

As for the VIX...

It continues to trend higher vs the SPX (not inverted) ever since our Custom Demark inspired Buy/Sell Indicator gave the first buy signal of the year on 11/10/2014, only the second VIX signal of the year. I find it interesting that VIX has trended higher ever since that day...

And now in addition to the buy signal...

VIX Bollinger Bands are pinching indicating a highly directional move is about to take place, remember that VIX trades opposite the market, this is the "Volatility" mentioned in the F_E_D minutes today, synonymous with "Market Decline".

 HYG was used intraday to help the market so if the market or small caps were weak today, imagine how much weaker they'd be without the HYG lever even though HYG closed red and continues to trend lower.

In addition, as mentioned in yesterday's list of assets (TBT-3x short TLT), TLT was expected to lose ground today...

 As you can see, oddly TLT has been trading with the SPX (what appears to be a flight to safety trade) the last two days, but closed lower as anticipated yesterday, thus the TBT long note.

Add HYG and TLT together (all you are missing is VXX) and you've activated the additional market lever, SPY Arbitrage...

As you can see, Capital Context's SPY Arbitrage was active today adding about $.60 to the SPY's price.

Otherwise High Yield Credit continues to run the other way as the macro trend has shown.

Pro sentiment was rather muted today, but still in line with its downtrend.

Although some intraday movement similar to SPY, it closed red.

Just in time for Asian trade, there are $USDX negative divergences and Yen positive divergences, it looks as if USD/JPY is going to back off current levels and I don't think that will be helpful to the Nikkei 225 which also has a negative divegrence, you saw the larger one above on the "dead cat bounce" chart.

At the moment US Index futures are INCREDIBLY in line, similar to what a Bollinger Band squeeze might do as they won't stay that way long, I suspect they'll look very different in the morning, especially if the Nikkei and USD/JPY take a dive from here.

There are also some strong timing or short term signals for the 30-year treasury futures macro trend, they are very positive at the moment even though these are futures as the bond market closed as usual at 3 p.m.

I mentioned today that UPRO-3x long SPY looked very ugly today and that the leveraged ETFs often show signals earlier and sharper than others, I suppose because of the urgency of the leverage, but I wanted to make sure to get the post out so I'll include it here.

 60 min showing the August base's accumulation (7-days), the distribution in to the head fake move at the yellow arrow to the left and a new lower low followed by a weak 3C trend as it was expected to be before it started. Tell me the 3C trend doesn't look very similar to nearly EVERY leading indicator at the same time and same place? And to the right in yellow, what I suspect was the head fake move for this top.

 15 min chart with distribution at the August cycle's stage 3 top and head fake move in September at the yellow arrow, a lower low as expected before the August rally started (when we saw the 6 days of accumulation) and accumulation in to the October lows for the move as well as a leading negative divegrence similar in time and area as the 60 min.

The 5 min chart with a sharp leading negative yesterday at the suspected head fake move and an additional leading negative move today.

The trend of the 5 min chart looks like this...

The green arrows represent 3C confirmation of the price trend, after that to the right it is leading negative with a very sharp move lower in 3C at yesterday's suspected head fake move.

And the recent 1 min trend, also a sharp leading negative in to and at the suspected head fake move and beyond through today.

And as I like FAZ-3x short Financials so much, here's a look at Financials and 3x long Financials, FAS (not FAZ-3x short Financials which is what I like long and have been holding).

 It's amazing how similar XLF and FAS look , this is a 60 min chart. Remember they trade totally different volume which 3C uses to come up with calculations, it has nothing to do with the ETF's being similar other than if there's something happening on one, the other should confirm, but there's no mechanism other than actual confirmation that would do that as volume is 100% different.

FAS 3x long XLF 60 min

OR XLF 30 min

And FAS 30 min, even FAZ, 3x short XLF ...

 FAZ 30 min positive.

FAS 10 min

XLF 5 min

FAS 3 min.

Thus I really like FAZ long.

As for internals tonight...

There's no Dominant Price/Volume Relationship like last night's, none at all, but last night's...

"Today for the first time in about a week we had a Dominant Price/Volume Relationship in all of the averages except the Russell 2000, it was Close Up/Volume Up. This is the most bullish P/V relationship, but ironically it is also the most likely to cause a short term overbought condition in which the market closes lower the next day.

This is why I follow some of these more obscure breadth indications which I have to write custom scans for.

While there was no Dominant P/V in the major averages, one thing I did notice is the Russell 2000 has less than half its stocks trading above the 200-day moving average, 956 to be exact. You may recall that when I taught Technical Analysis for our Public School System's Adult Education Program, Dow Theory and the multiple classifications were one of the more difficult lessons to teach new students to trading/Technical Analysis, but I found that the 50-day and 200-day matched exceptionally well with Dow theory's Intermediate and Primary trend classifications. A Primary trend is a bull or bear market, then you have Intermediate and short term , but many technicians have added a 4th category, "Sub-Intermdieate".

In any case, using the moving averages, this would mean a majority of Russell 2000 stocks are in a Primary bear market.

Unlike last night's S&P Sector overbought status with 9 of 9 sectors closing green, tonight only 3 of 9 closed green with Energy leading at +.52% and Tech lagging at -.65%.

As for the 238 Morningstar Industry/Sub-Industry groups I track everyday, again unlike yesterday's strong number of groups closing green, today was weak at only 80 of 238.

Breadth Indicators are finally starting to show some movement, except where they should be showing movement, for example the % of All NYSE Stocks Trading Above Their 200-day Moving Average...

 While the percentage of NYSE stocks above their 200-day moving average is about half, meaning the other half are essentially in a bear market (52% above), this indicator hasn't moved in 13 days now!

 The McClellan Summation Index, which many traders use as a trending indicator hasn't been able to cross above the zero line despite this unreal rally and is starting to roll over now.

 The Cumulative 4-Week New Hi / New Lo Index is divergent big time on a macro basis and also starting to roll over.

The Cumulative Volume Index, one of the only breadth indicators that only went negative once before the top in 2007 and 2000 is negative again now.

The NYSE A/D line is also divergent and rolling over and perhaps most telling for Tech...

The NASDAQ Composite's Advance/Decline line has not only been torn to tatters, but it's also starting down and in to one of the strongest days in weeks (yesterday).

The SPX put in a bearish reversal Harami Candlestick pattern the last 2 days on volume. The Dow has a bearish Doji star and the NDX also has a bearish Harami Reversal candlestick pattern, also called an inside day.

I'll check on futures later and update if necessary, tomorrow I hope to update some of the core shorts we are in and whether they are worth an add to as I like pyramiding up positions that are working and margin for shorts is unique allowing some of the gains to be used without having to close the position like longs.

Some of these include: FSLR +29%; UGAZ +26% (UNG as well); NFLX @ +12.75% and +23.75% (two entries); HLF +40%, SCTY +24.25%, FB +7%, DE +3% (but I like this one) and update MCP , GLD and URRE.

 

 

Seemingly Dull Minutes Drop Bombshell

Actually to be honest, considering the hawkish (bearish) nature of the last F_O_M_C meeting, I expected that today's minutes would likely contain more hawkish commentary than it actually did. 

What surprised me is that we didn't get a knee jerk reaction 1) because we almost always get one on any F_E_D based release and 2) more specifically as a relief bounce that the minutes "WEREN'T" more hawkish.

However comb over the minutes and you might have a good reason for the SPX Futures failing to follow USD/JPY higher post minutes where the USD/JPY took out the $118 level.

 USD/JPY initial move at the 2 p.m. release of the minutes of the last F_O_M_C meeting.

Note USD/JPY easily takes out $118 whereas $117 was suspected resistance for the near future.

Below you'll see USD/JPY in red/green candlesticks vs. ES / SPX futures in purple on a longer 7 min chart just to show 2 things...

 First to the left you can see the tight correlation algos keep between SPX futures and the USD/JPY. Second you can see ES / SPX futures break that correlation to the upside yesterday,  this is what I suspect was our head fake as it's a textbook "Igloo/Chimney" pattern with the igloo being the rounding top, the chimney being a move above local resistance of the top as traders start to get suspicious as the SPX barely moved in 5 days, as mentioned last night the closing range over the last 5 days for the SPX was the smallest in history going back to the 1920's!

You can see how traders might start selling longs and moving to shorts, thus head fake moves lock them in, keep them happy that the market is fine and creates demand on their part via limit /breakout buy orders which are easy to sell/distribute in to which we saw clearly yesterday and today.

However today, ES could have easily followed the USD/JPY north on a "Thank goodness the minutes weren't more hawkish" relief bounce, but...

As you can see, they didn't, not even close.

So what might be responsible for a risk off posture? The market clearly not willing to chase risk which it has been connected to at the hip via the USD/JPY? Because my personal portfolio that is almost completely short except for an MCP long was up in totality +1.7%, that's a pretty stiff move considering it's total portfolio and not a single position and considering today's market with the Russell 2000 the worst performer  @ -1.10% and the Dow nearly unchanged at -0.03%, the SPX close to unchanged as -0.17% and the NASDAQ squarely in the middle @ -.47%

I mention the above not out of pride or anything like that, I mention it because considering today's market performance which I'd call mediocre between all of the averages , averaged together, that's a fairly large amount to move an entire portfolio on such a day.

Off the cuff the minutes sounded a lot like some near term inflation expectations running below consensus and wiggling around trying to figure out how to communicate rate hikes and consolidate individual opinion (the DOTS-individual interest rate expectations os committee members at various time intervals) and some mention of the volatility policy normalization (which has already started) will cause in the stock market.

Remember my recent post, The Plunge Protection and Market Correction Team ? In a nutshell, the point was that as we had strong data showing the market was likely to decline (smart money has to be in place as that is a large part of our signals, their actions), Bullard put out a hawkish comment that appeared at least to be the catalyst for the move down. Then as we had charts and data suggesting a strong move up BEFORE the last F_O_M_C meeting at the October lows, Bullard makes a very dovish comment about "Not ending QE" BEFORE the F_O_M_C meeting , seemingly the catalyst for the move up, if only we hadn't already had the proof in hand that such a move was coming. Finally as the market has made this face ripping rally as projected in mid October, Bullard once again becomes the Hawk in an apparent attempt t send the market down as we once again have overwhelming chart evidence that smart money is positioned for a substantial fall.

In other words, while it seems that Bullard himself is causing these moves, we know better just from a strategic point of view as institutional money can't put a position together in a day , the positions were already in place, but perhaps Bullard is giving these positions and moves a kick start of momentum or at least cover to "explain why the market did what it did", something people must know in a 30 second soundbite.

Considering the F_O_M_C was AFTER not one, but TWO Bullard "seeming" market moving comments, the F_O_M_C adds this to their conversation contained within today's minutes...

"(F_O_M_C) members considered the advantages and disadvantages of adding language to the statement to acknowledge recent developments in financial markets. On the one hand, including a reference would show that the Committee was monitoring financial developments while also providing an opportunity to note that financial conditions remained highly supportive of growth. On the other hand, including a reference risked the possibility of suggesting greater concern on the part of the Committee than was actually the case, perhaps leading to the misimpression that monetary policy was likely to respond to increases in volatility. In the end, the Committee decided not to include such a reference."

The bold section suggests that market "volatility" (remember the VIX, thus volatility rise on a market decline) will NOT be met by F_E_D actions to interfere in the market  which is in the bold sentence,

" including a reference (to stock market action)  risked the possibility of suggesting greater concern on the part of the Committee than was actually the case, perhaps leading to the misimpression that monetary policy was likely to respond to increases in volatility."

Also with regard to stock valuations and underwriting standards, the F_O_M_C expressed "CONCERN"...

 "The staff report also pointed to asset valuation pressures that were broadening, as well as a loosening of underwriting standards in the speculative  corporate debt and CRE markets; it noted the need to closely monitor these developments going forward."

Had these statements appeared without any verbal market moving words by Bullard (you can see them in a chart in this post, The Plunge Protection and Market Correction Team) before the F_O_M_C, they likely would have slid under the radar or caused some questions, but since Bullard's comments and the "apparent" market response (I say apparent because we know smart money was already positioned before the comments were made and the comments came as a sort of spark to the move smart money had already prepared for) were BEFORE the F_O_M_C meeting, it seems highly likely that this was an attempt to directly address the issue and warn the market THAT THE F_E_D WOULD NOT CHANGE POLICY RELATIVE TO ANY DOWNTURNS (INCREASING VOLATILITY) IN THE MARKET , as well as noting that policy normalization would cause market volatility!

As The WSJ's Jon Hilsenrath (unofficial F_E_D spokesman) printed, "Some participants pointed out that, despite the market volatility, financial conditions remained highly accommodative and that further pockets of turbulence were likely to arise as the start of policy normalization approached,”

"Volatility" is synonymous with market declines.

If we're wearing our tinfoil hats which has so many times in the past proved to be a reasonable and correct theory, one has to wonder if the F_E_D minutes were leaked, if they are not routinely leaked as they were blatantly in 2013 and if that may be the reason why yesterday's apparent head fake move was run after 5-days days of a 3 point SPX closing range,  the narrowest closing range in the history of the market. It just seems a little convenient that what looks like a picture perfect head fake move yesterday on NO CATALYST and NOT EVEN a USD/JPY move, which tends to be the very last thing to occur before a market decline or rally, was put in to action the day before such statements were made and the market absolutely , utterly failed to respond to a USD/JPY ramp in to the close today; considering the market volatility before yesterday....

You be the judge, but more often than not, you are best served by "Thinking like a criminal" when trying to understand Wall St.

XLF, SKF, FAZ Reiteration

Other than market coverage via 3x inverse ETFs like SRTY, SQQQ, SPXU, SKF or FAZ (2x and 3x leveraged Financial Short ETFs respectively), continue to be one of my favorite positions here.

This looks like a big rounding top with a potential head fake move put in yesterday as by now the distribution through yesterday is quite obvious.

Outside of the market exposure short ETF's FAZ remains one of my favorite positions.

USD/JPY Disconnect

I'll probably show the charts in the Wrap, however USD/JPY moved to the $118 level, took out stops (this is a very high level and Index futures as well as Nikkei 225 futures are usually glued to it).

Other than some blah looking indications among intraday leading indicators and a very blah response to the minutes, the fact Index futures DID NOT hitch a ride higher with USD/JPY nor did Nikkei 225 futures may be the market telling us something.

I'll get  the charts up soon, but I have more to uncover before the close.

Market Update-NASDAQ Broad Upate

There are so many assets I'm trying to look at at one time as quickly as possible, however I have to take a moment at least beyond the intraday updates and remind you of the 3C macro picture as we have clearly seen the Leading Indicators macro themes, Futures Macro themes (I'll be covering Euro & EUR/USD shortly) and Market Breadth Macro themes, I'd be remiss if I didn't cover market macro themes as well so I'll try to do that with the QQQ before moving on to specific assets and trade opportunities, although I'm fully short SQQQ, SRTY and FAZ and will remain that way unless I see something that convinces me otherwise, but these macro themes individually or certainly together, argue for a very big downside opportunity beyond the October rally as I have maintained since before the October rally started when we were predicting it.

General intraday market update...

 1 min intraday was going negative before the minutes, that continues.

 The 2 min chart that would not confirm prices yesterday and judging by today, rightly so , instead calling the move distribution, is also deteriorating, thus it looks like the concept of migration is taking place since the minutes.

And the 3 min chart which also called distribution yesterday is also showing an overall negative divegrence and additional deterioration since the minutes.

I'll try to cover UPRO as the leveraged ETFs often show earlier and stronger signals than the averages.

 IWM 1 min with continued intraday deterioration

2 min with migration and deterioration and the trend...

IWM since turning down has been either in line or negative, but it has kept a beautiful 3C trend.

The Daily Trend Channel for the last several swings shows the trends and stop levels on the close, it's rather wide, especially for this particular trend so I've adjusted it to a more appropriate level below.

On a 60 min chart I've widened the channel's standard deviation by increasing width from 10 to 20, 2 SD's and the periods as this is a shorter timeframe to AVGC20 rather than 10 and channel width replaced the 11 bars with 21, Thus the Trend Channel has held the entire IWM uptrend without a single violation, the hash mark (red) to the left was the current stop which was not hit. The hash to the right is the current stop that was taken out on the close already, Friday, Monday and Tuesday all on a closing basis.

 This is the intraday TICK which after initial minutes volatility has moved to a downtrend and is below -1500. There's some minor volatility in it since this capture minutes ago.

QQQ

 The intraday 1 min like the others seeing deterioration which started before the minutes.

 migration to the 2 min chart which called distribution yesterday as well

And now migration to the 3 min chart (,these are in the context of a new divergence starting at the positive at this morning's lows.

The bigger picture 15 min chart is pretty plain to see.

As is the 30 min chart and a similar 60 min chart.

The macro picture is below...

The 2 hour chart showing #1 the late July divergence ; #2 the early August divergence/base, #3 the August stage 3 top and distribution in to the head fake move in September at #4 with a decline to the October lows, this put in the lower low we were expecting when first calling for the August rally days before it started.

And of course #6 speaks for itself, this is the kind of divergence I expected to see being the rally itself was a face ripping move meant to drastically change sentiment which at the time was about as negative as it gets with everyone calling a top.