Daily Wrap

When is an all-time new closing high not bullish? We can make a lot of different arguments, but I'm looking specifically at the hard numbers today.

Earlier this morning around 3:30 a.m. (EDT) Mario Draghi, who must be well aware now that he has talked so much and did so little that the half life of the market's reaction to the head of one of the most important Central Bank's comments is now virtually between an hour and NOTHING (as well as the market understanding the fact that the things he is hinting at doing like QE are blatantly against the European Central Bank's charter which forbids the financing of any country's debt such as the F_E_D engaged in during QE, yes, they were monetizing the United States' debt, that's what Treasury Bonds are, debt issuance. The ECB's charter or mandate forbids it from doing the same and the leader of the EU, Germany, is not supportive of any such moves with the inflation of the Weimar Republic still haunting Germany), decided to up the ante in speech delivered in none other than Frankfurt Germany in which he hinted, but never actually says, the ECB would engage in QE.

Of course there's so much data in the market, when a Central Banker like Draghi or the king of talking in circles, Alan Greenspan, give themselves plausible deniability, they can say virtually anything to make the market "think" they will do one thing and get away with doing nothing because of their "Plausible deniability" via non-specific statements such as the following...

“It is essential to bring back inflation to target and without delay”, Mario Draghi in Frankfurt today.

One of the early effects of QE in the US was to cause inflationary pressures; manufacturing input costs soared as commodities rose and you might remember gold was on a tear, a natural hedge against inflation so by extension, Draghi hinted at the urgency or immanency of EU QE without ever having said anything along those lines. However, the market is all about perceptions and the market chooses its perceptions and Central bankers are happy to lead the market through the desired perceptions via jawboning without having to engage in actual policy which has its costs. In fact just today,  the recent topic of the F_E_D's James Bullard and his statements and the perceptions they created which have been considered market manipulative, had to come out and do damage control today after the Goldman Sachs/ New York F_E_D debacle yesterday (however that's a different topic entirely although Bullard tried to make a case that he meant the opposite of what he actually said at the October lows- a difficult case to make with any credibility).

Then in what is being termed a "Big Surprise" move, the People's Bank of China (Central Bank) actually acted and cut interest rates for the first time since July 2012. The 1 year Lending rate was cut 0.4% to 5.6% and the 1-year deposit rate was cut .25% to 2.75%, but the cap on what interest banks can pay depositors was raised from 110% to 120% of the benchmark, essentially leaving the interest rates paid to depositors exactly unchanged . The central bank said the move in interest rates was “a neutral operation and doesn’t mean any change in monetary policy direction.” As China is still able to keep medium to high growth rates, it “has no need to take strong stimulus measures, and the direction of prudent monetary policy won’t change,” the central bank said in a statement."

So was the Surprise cut much-ado about nothing? Well you can be the judge, however, the rate cut was purposeful and apparently reflects the government's concern about near-term growth outlook, and the desperate efforts to lower the funding cost for the corporate sector as full year growth is on target to be the slowest since 2000 as the PBoC has undertaken unconventional policy measures recently that are specifically targeted, but it apparently was not enough as Corporate bankruptcies/defaults are set to rise, especially in the Iron Ore mining sector.

Back to the question above, "When is an all-time new closing high not bullish? "

 This chart of Dow, S&P and NASDAQ futures overnight made no move whatsoever on Draghi's "seeming" promise to deliver on QE (or at least that's the way the market "had" been interpreting his endless jawboning). However you can see quite clearly in yellow the Eur (EUR/USD) plunge on the comments. It wasn't until the PBoC "Surprise" rate cut that futures actually moved and knee jerked higher like equities typically react initially on Central Bank news, yet it seems the market too saw this as "market neutral" in terms of the liquidity it is so desperate to see replaced since the F_E_D ended their QE buying program in October.

The market apparently doesn't believe Draghi anymore and realized that the PBoC's move was essentially liquidity neutral. By the 4 p.m. cash close, Index futures had retraced almost all of the PBoC overnight gains.

This is what the cash market averages actually looked like themselves...

From the open, the Dow, NASDAQ , Russell 2000 and SPX gave up a good portion of their gap up, some even briefly moving to unchanged/red on the day before ramping higher at the close on some VIX smashing. You have to admit, for all time new highs, this is an ugly set of charts and close, The small cap Russell 2000 closed red on the week. In fact, strangely the last 4 weekly closings for the Russell 2000 have been in a $.50 cent range, all 4 weeks from $1173.50 to $1173.80, that's essentially NO MOVEMENT in the index that is suppose to lead risk on rallies.

As for Dr. Copper...

 It has been telegraphing a global slow down which has now obviously hit with Chinese full year growth on target to be the slowest since 2000 and an across the board PMI/Manufacturing (and Composite) miss from China to Europe to the US, with Japan just having entered a Quadruple Dip Recession.

As for Copper's reaction to the PBoC's move , it (yellow) bounced on the news in knee jerk fashion and then lost a lot of those gains to close red on the week.

The USD (yellow) closed up +.90% for the week, the 4th of 5 weeks closing up, but had it not been for Euro weakness today on Draghi comments, it doesn't look so sure that the $USD would have closed green at all. In fact the higher $USD didn't stop precious metals from closing higher on the week and Oil broke its 8 week losing streak, another asset that has been on our radar for a move up recently...

This is Thursday's post, Oil Trend Changing...

Some charts from the post...

 The weekly USO Double top has essentially reached it's price pattern implied downside target and the large weekly volume is a definitive change in character. Beyond that, more specifically...

The 30 min 3C trend has gone from distribution to down trend confirmation to the start of accumulation in what I suspect will be a larger base and a trade I suspect we'll be long shortly.

Yen based carry trades uncoupled in a strange and ugly way on the week which I pointed out several times this week.

The normal correlation to the left (green arrow) broke first when the market put in the suspected head fake move on Tuesday, however from there SPX futures (green) refused to follow USD/JPY (yellow) higher and in fact SPX futures wouldn't have looked so hot had it not been for the PBoC's surprise rate cut which the market has now come to terms with as being essentially a non-factor as it provides no market liquidity and doesn't drive savers to higher yielding risk assets as the F_E_D has done with their ZIRP policy (Zero Interest Rate Policy- forcing people to enter the market in search of yield as it can't be found in a savings account or most fixed income products). A Tempest in a Tea-Pot?

Treasury yields looked horrible on the day and were certainly having some effect on the market (we use them as a leading indicator as they are like a magnet for stock prices)...

 5 year yields were obviously pressuring the SPX (green) intraday and 30 year yields...


Looked just as bad if not worse, closing at 3.01%, the second lowest weekly close since May 2013.

On the week they looked a bit more like this....

With today being one of the sharpest declines this week, remember, yields move opposite bonds so the Flight to Safety is being bid up in Treasuries just as the SKEW entered the red zone with a 12+% point gain yesterday alone, meaning there are a large number of deep out of the money puts being bought which will only have value if there's a deep move down in the averages, that's why the SKEW Index rises and why they call it "The Black Swan Indicator".

You may recall recent accumulation in TLT I've been showing and in fact last Friday I posted this trade idea, Trade Idea (Swing+) TLT long via TBT Short essentially creating a 2x leveraged TLT long with this chart as one of several reasons...

 TLT 60 min leading positive from the post above and...

The confirmation in TBT (2x short TLT).

And TLT's move since?

Although uncommon, TLT (20+ year Treasury bond fund) is rising with the SPX (green), that's the Flight to Safety Trade. Our TBT short trade is at a gain, but it's the flight the safety that is the message of the market.

Despite the market, TLT had a super close, especially compared to the market with the first several charts above.

TLT in blue vs SPX in green, not the close... no rotation out of safety and in to risk...

Speaking of the close, it's amazing how hard they had to slam the VIX to get what amounts to a lousy T-Shirt.

 Above is the spot VIX in blue and inverted SPX prices in green, because they trade opposite of each other, I inverted the SPX's prices (green) so you can see the normal correlation and areas of differing relative performance as well as a late day VIX slam that essentially did nothing.

From the left you can see the "normal" correlation, with inverted SPX prices they should move in lock step. This morning as the SPX was falling after the gap up, VIX was outperforming the SPX, a clear indication of not only a "Flight to Safety " (the TLT trade above), but a flight to protection in the VIX (don't forget last night's elevated SKEW Index).

At the close in red, they SLAMMED the VIX in an attempt to ramp the market in to the close, the ramp worked, but it was like a ramp for a toddler's bicycle. The fact they even needed a VIX slam tells you something. This slam is so obvious, I don't even have to invert the SPX.

 This is the normal pricing for VIx (blue) and SPX during the same period, they should look like mirror opposites, note how strong the VIX slam is at the close and how weak the SPX ramp is for such a strong and obvious VIX Whack-a-mole.

Don't forget our custom Buy/Sell indicator on the VIX which recently gave a buy signal as the VIX has trended up nearly every day since, however I'm looking for a much bigger move in VIX as the Bollinger Bands pinch which implies a highly directional move is coming as volatility tightens up in the VIX.

Pro sentiment sold off in to the close...

 today...

And the trend shows the last divergence between pro sentiment and the SPX was at the August cycle's stage 3 top head fake highs to the left, it has been in line with the SPX since until the October rally where it initially followed and has been trending down for quite some time, nearly back at the October lows.

High Yield Credit also saw a late day sell-off, as mentioned my concerns yesterday about HYG's divergence were probably rooted in some kind of PBoC leak, I can see it for sure in currencies, thus with the F_E_D/Goldman Sachs link, I'll be giving HYG a lot more attention.

HY in to the close...

And the PIMCO HY Fund's trend...

 Note a clean trend with the SPX until June 2014, since it has moved virtually opposite the market making lower lows and lower highs, better known as  a downtrend, at this point it is at least a sub-intermediate downtrend, moving to Intermediate.

Again, Credit leads, stocks follow" and I will get that article out.


Despite the short term manipulation of HYG to ramp the market, High Yield Corporate Credit has virtually the exact same trend, lower lows/lower highs.

I'll try to get a bench mark of BAC's Master II HY Fund up for comparison,

As for Index futures, we have short, intermediate and macro trends all negative.

 NQ with strong distribution through the week and especially through today.

 ES 15 min intermediate with a negative trend and on a macro scale at 4 hours...

TF/Russell 2000 futures which actually show the accumulation at the October lows, but clear distribution through 2014 as it keeps popping red for the year just about every week.

As for the Nikkei which I believe the same thing today as I did Sunday night when I posted, Abe and Kuroda'a QE-Zilla Sends Japan in to a Triple Dipp Recession

The charts...

 Today's PBoC surprise announcement kind of delayed my expectations by bouncing today, but saw distribution in to the bounce.

Here we have the move down Sunday night, the expected Dead Cat Bounce in to distribution and the turn lower  before it was interrupted by the PBoC which now seems to be a non-event.

The 4 hour macro trend is far worse, but the 60 min chart has gone from confirmation to a leading negative divegrence, it looks like it's the Nikkei's time.

The Nikkei as well as US Index futures have dislocated with the USD/JPY, their tractor beam, which may have its own trouble.

Much like ES's dislocation from the USD/JPY, the Nikkei 225 futures (yellow) also did the same, only the surprise PBoC announcement changes the otherwise deteriorating trend and correlation.

As for the averages, we had some horribly sharp, large leading negative divergences today on strong 5, 10 and 15 min charts INTRADAY...

 SPY 5 min and a lot of 5 min charts looked like this in multiple assets.

SPY 15 min with a huge move for a chart this long in a single day.

QQQ 10 min with a similar large move as part of a larger move since the suspected head fake area.

QQQ 15 min with a big move today in red and below the October lows now.

IWM 10 min

And the interesting IWM 2 min trend that has been in line lower with each attempt to pop seeing a failure.

Tech as mentioned wasn't looking good, this is a 15 min chart move in a single day along with the larger divergence.

XLF 5 min like SPY

And XLF 15 min, VERY sharp for a day, again, I love FAZ long.

Quickly the internals...

The Dominant Price/Volume Relationship was present in every average except the Russell 2000, it was highly overbought with 20 Dow stocks, 63 NDX100 and 303 SPX-500, the relationship was Close Up/Volume Up which is the one relationship most likely to cause a 1-day overbought event and a close lower the next trading day. Making this an even higher probability...

Of the 9 S&P sectors, all 9 closed green with Energy leading at +1.30 and Tech ironically lagging at +0.14. Again, massively 1-day overbought and this too leads to a next day close lower.

And of the 238 Morningstar Industry and Sub-Industry groups, a whopping 197 of 238 were green, again massively overbought suggesting high probabilities we close lower Monday which is interesting given everything above.

Additionally tonight the SKEW Index has moved up again to 138, 140 is the level that it has caused market crashes in the past according to CBOE data or major declines so a 14 percentage point advance in SKEw in 2 days. Remember this is telling us that there's a large number of deep out of the money PUTs being bought, I doubt it is wildly bullish retail and the only way they are worth anything is with a deep market move lower.

Next week is shaping up to be very interesting if not record setting in some ways as deeply negative as we are.


 I look forward to getting the HY Credit post up, I think it's a fascinating topic that you'll enjoy and have a much better understanding.

I hope everyone has a fantastic weekend.

I have a ton of information for you

Plus a BABA update on the potential trade there, it's going to take me sometime to get all of the charts together, but I think you'll want to see this.


After all, when are new highs in the market not bullish? I'd say on the closing action, it certainly was a "Soft note" to end the week and especially the day, but there's much more behind all of this.

Be sure to catch the posts, whether tonight or over the weekend.

End of day action.

I'm not sure what the value of the intraday afternoon bounce was about, but Vix was hammered in to intraday lows to get it, averages are giving up the entire gap-if that is not bearish enough, but VIX has been otherwise outperforming right up until intraday lows, the SKEW Index should be interesting tonight given protection bid in VIX.

I think HYG is finishing its distribution process and that's about it.

The Q's , IWM,  and SPY easily have some of the sharpest 1-day and trend negative divergences through the entire period starting at October lows.

Pro Sentiment is SHARPLY off in to the closing hours.

Both 5 and 30 year yields are SHARPLY lower, especially in to their close, they tend to pull the market toward them.

HYG is in line almost perfectly with the SPX, however the intraday and 10 min charts are sharply negative.

Financials are SHAPLY negative, I would absolutely add or start a Financials short here, whether XLF short or FAZ long, my preference.

Tech is sharply divergent.

Nikkei Futures are also divergent and should continue lower.


I'll post as many charts as possible, but this looks like a disaster

HYG Update

This is the High Yield Corporate Credit Bond ETF that I was worried about yesterday, it's one of the most liquid HY assets available and thus is most often used for short term market manipulation, as I said this morning, I'm going to be paying a lot more attention to things that "Bother me" like HYG did yesterday as it's clear the Central Banks are in the game with Wall Street, thus following the money and taking even a 1-day divergence in HYG seriously is of great importance, even if I wouldn't trade it, just to know now that there's that much inside information flowing from central banks, again, making watching the money most important as that's what moves the market.

HYG however is not the best overall indication of where credit is, that belongs To BofA/Merrill Lynch's US High Yield Master II Index- a bit harder to come by for 3C analysis, but not short term manipulated like HYG.

 This is the SPY vs HYG, look at the correlation intraday the past few days, it's not always like this, in fact it's quite the opposite macro trend and right on top of us.

HYG vs SPX trend, note the pivot stage 3 tops vs HYG and for confirmation...

PIMCO's HY Index...

SPY vs PIMCO's HY Index.

HYG intraday distribution 1 min'

The area/accumulation I was worried about 1 min and an obvious large relative divergence

On a 10 min, the positive in to the dip area bothered me a lot yesterday, but it started distributing yesterday, keep in mind these are very big positions as it is a VERY fluid asset, I suspect they started taking gains yesterday as they already had a profit from the 19th's lows, today on a 10 min chart leading negative like that, I'm pretty sure HYG is done.

Index Futures Update as the "Normal" 2 P.M. Op-Ex Max Pain Pin is "Usually" Released

By now we all know about the "Max pain options expiration pin", which 90% of the time opens on Friday near Thursday's close or right at it. Then for the next 4.5 hours the market stays in that range until about 2 pm or 3 pm when the pin is released as most brokerages have pestered you to death about any options that are in the money and try to get you to clear them out as early as possible.

Then the market tends to do whatever it wants price wise for the last 2 hours, but the 3C data is often divergent and is some of the most important data of the week, often allowing us to make very accurate forecasts for the week ahead.

As the QQQ has completely retraced all of the PBoC gap up, the SPX is only 4 points off/SPY $.40  cents, The IWM a mere $.19 cents from doing so and the Dow 30 a ,ere 2 points from doing so, this is what intraday Index futures look like.

There are many more futures charts that need to be posted, this is just intraday

Intraday bounce likely...

 ES distribution in to Cash open and decline with a positive divergence at recent lows. This is intraday only and subject to fast changes.

TF/ Russell 2000 futures remain in line to the downside

NQ/NASDAQ 100 futures see distribution in to the cash open and a decline with a small positive divegrence now.

One thing that makes me feel a bounce is probable intraday and this is not to be construed beyond intraday, is the 30 year Treasury futures with a negative divergence in to their climb, remember if they head down intraday, yields move up and yields, just like the uptrend in which they were lower, attract the market toward them so a downside bond reversal sends yields higher intraday attracting the averages toward them.

Again, there's much more to this story, but for intraday FADE TRADERS, this is important information.

Market Averages Update

If the FADE TRADE and a near total retracement of today's gap wasn't bearish enough confirmation for you, I'll try to add whatever color I can, being as fair as I can.

I would rather give you all of the pieces at once so the big picture and all of the puzzle can be put together, but multiple assets are moving so fast, by the time I capture all of the charts, they have changed before I can upload them so you'll have to keep each update in mind and put the pieces of the puzzle together.

This update  will deal with intraday moves. Because of the gap, it's hard to scale 3C with price correctly, in almost every occasion it should be lower and closer to price itself, not higher as it appear, although that doesn't change any of the divergences.

In a few cases I show the longer term trend of a chart to put that divergence (intraday) in to perspective, but this is not a trend update, intraday only.

 The "A" and "B" are part of my scaling problem, but if there was any 3C confirmation on this SPY 1 min chart, 3C would be significantly higher with price, which it's not even higher than point A,  so this is an example of total non-confirmation of the move which we saw on the open, thus the support of a fade trade for members interested and THE 3C NON CONFIRMATION HAS ALREADY PROVEN ITSELF VIA THE INTRADAY TRADE AND RETRACEMENT OF THE GAP.

The specific intraday divergence as you can see is not only perfectly in line with the price move lower, but  in leading negative placement, a new leading negative low for this chart and actually beyond.

The white is yesterday's opening gap down and positive divegrence mentioned in the early morning for a FADE gap down long trade. This is not a divergence preparing for today's it's a matter of the gap down and again scaling as well as market makers/specialists caught with inventory at the previous day's close they need to unload by filling the gap which is EXACTLY what happened.

 SPY 3 min showing the suspected head fake move at yellow, which I still suspect is real, the leak (if indeed there was as I suspect from yesterday's HYG) was very recent and for a gap up like this, a lot more would have been accumulated. I suspect this was a fundamental surprise that was leaked only at the last minute making the intention of the head fake move days before still the factual intention of the move, the PBoC gap up was just a knee jerk and fundamental unknown at the time and surprise after the head fake move was in place.

 SPY 5 min as an institutional intraday timeframe is showing a very sharp leading negative intraday divergence showing a lot of distribution today alone.

 Even worse, smaller divergences on this 10 min chart are virtually scaled out as the size of this negative leading divegrence overwhelms them,

The size of today''s intraday divergence itself is monstrous.

 QQQ with no confirmation, it could have confirmed in the first hour on this chart easily.

3 min QQQ with the head fake area (yellow) and distribution in to it with a much stronger leading negative intraday.

This  10 min QQQ needs no commentary, just look at the damage today alone.

And to put the chart above in perspective, AUG S! is the August base, s2 is the mark up/rally cycle , s3 is the top/distribution and s$ is decline to a new lower low. I'll address this is a longer term post.

The same cycle at the October lows with S1 (stage 1) base/accumulation, s2, s3 top and the 10 min chart is now in context, still today's move is huge at a new cycle leading low for 3C.

Amazingly there's 15 min intraday leading negative signals as well, huge and moving to a new cycle low.

I can't begin to explain how big of a deal these divergences are on an intraday basis , much less on a macro basis/trend basis.

 IWM intraday distribution

 2 min distribution and the 2 min trend...

has remained in line with a downtrend with any attempt to bounce seeing a negative divergence

The IWM 10 min too has an intraday leading negative divegrence. This is usually VERY impressive to see on a 5 min chart, but on 10 and 15 min charts, it's nearly unheard of to this extent.