Daily Wrap

More Central bank jawboning today as Chinese markets were able to act on Friday's PBoC Deposit and Lending Rate cut (to 2.75 and 5.60 respectively) as they were announced after the close of Chinese markets sending Asian markets in to the green this morning and more ECB jawboning, this time not from Draghi, but one of his minions, it's ALL about inflation (low inflation) and the ECB's "willingness to act to bring inflation in to line, however that has not included the words "Sovereign bond buying", which again (as always) is against the ECB's charter, however the market is not about reality, it's not about value it's about perceptions and management of those perceptions so if algos buy on ECB jawboning regarding inflation, those algos have set the perception that it means sovereign bond buying, despite the fact that it's not legal for the ECB and the Bundesbank is highly unlikely to go along. That took care of Asia (on real monetary action, that the PBoC said was a "Neutral" action, not a liquidity inducing action,although it did have the effect of re-pricing of fixed income products this morning. The ECB jawboning and algos took care of Europe, but as we saw in to the open, the SPX futures and in retrospect the Dow futures were both already negative premarket while the Russell 200 and NDX futures were in line with their trend.

Interestingly Friday our Dominant Price/Volume relationship was Price Up/Volume up, the most bullish of the 4 possibilities, but the Russell 2000 was the only average that had no dominant theme and the SPX and Dow had the most component stocks in that relationship. The typical PU/VU next day reaction is lower because of a 1-day overbought effect as we also had 9 of 9 S&P sectors green and 197 of 238 Morningstar Industry/Sub-Industry groups green, creating a 1-day overbought effect that usually has the next day effect of a red close, THE DOW WAS ABOUT AS CLOSE AS YOU GET TO THAT AT +0.04% and the SPX wasn't far off at +0.29% vs the Russell 2000 at +1.24% 

The ES and Dow Futures stayed in line all day and essentially flat from pre-market divergences whereas the NDX and R2K were in line and kept moving that way, although the NQ/NDX futures did see a large intraday negative divegrence through the day.

 NQ/NDX futures were in line before the cash open, they did see quite a nasty 1 min negative divegrence intraday that leaked over to the 5 min chart, making it that much stronger, which may continue migrating to longer charts overnight.

 The 5 min /NQ has a deep leading negative divegrence through regular hours today as you can see, adding to the negative already in place from this morning and late last week.

 ES 1 min stayed in line with the negative from pre-market, thus had very little movement and the intraday negatives responded with moves lower. This too moved further in to the 5 in chart where it is a more serious divergence.

ES with a Thursday a.m. positive (our long fade trade) and leading negative in to Friday and through today.

TF 1 min is in line, but 5 min is negative.

As for the Nikkei 225 futures I'm expecting to continue a move lower started last Sunday night on GDP/Quadruple dip recession...

Nikkei 225 Futures with last Sunday's negative in to GDP and the continuation of a further negative after the expected dead cat bounce.

 The 5/7 min charts look like this is a pivotal point for NKD futures as for intraday overnight, they are in line...

1 min NKD futures.

There weren't a lot of smoking guns today, the divergence in relative performance between the averages was one of the biggest red flags, but that doesn't mean nothing happened. For starters you saw the TICK Index, very little market breadth today, almost completely contained between +/- 600 except the last 30 mins of trade when the first trend of the day showed up on a ramp higher in to the close.

HYG/High Yield Corporate Credit is one I'm still watching carefully after the 1-day positive divegrence last week sending it higher, but thus far it has seen intraday distribution chipping away at it. As for a market lever, not so much for the SPX...

HYG (red) vs SPX (green) saw in line support from HYG late Friday , but today HYG diverged more and more away from the SPX.

As for HY Credit,

It saw a late day sell off vs the SPX (red) in yellow.

Treasuries were bid as mentioned and the 2 year auction came off strong today...

 TLT vs SPX (red) intraday, not your normal correlation in a risk on equity move.


 The 30 year yield (which moves opposite the 30 year bond and tends to pull equity prices toward it) has seen the strongest move down in weeks, even though it is massively dislocated to the downside through the October rally.

Here's 30 year yields intraday vs the SPX (red), diverging to the downside which should put some pressure on equity prices.

 And again, the pick up to the downside in 30 year yields the last 3 days as out TLT long (via TBT short) is looking good for a move to the upside.


The 5 year yields we normally use as a leading indicator are both big picture dislocated from the SPX's October rally trend and locally again today as yields moved lower, once again the market tends to be attracted to yields like a magnet so this is not supportive of this shortened holiday week, although the ultra-low volume is, unless of course volatility picks up which we'll get to.

Our pro sentiment indicator sold off in to the close and many Leading indicators including HY Credit were leading negative as well, both short term and big picture.

As for breadth, not too much has changed, but yet again for now the 17th day, breadth indicators like the Percentage of All NYSE Stocks Trading ABOVE Their 200-Day Moving Average remained flat, 17 DAYS NOW!

This indicator (green) vs the SPX 
(red) should move higher with the market showing improving breadth, as you can see it moved from approx. 72% to 74% and then fell apart hitting lows at the October lows of a mere 25% and currently with a new high at a mere53.5%, nearly half of NYSE stocks are trading BELOW their 200-day and there has been zero improvement for 17 days.

However one of the most interesting volatility inducing signals continues to be the VIX itself, closing at 2 month lows today.

 VIX with my custom buy/sell indicator based on DeMark principles with only 2 signals this year, a sell at the highs and a recent buy with Bollinger Bands continuing to tighten implying a highly directional move, I doubt very much that directional move is down, especially with the buy signal, but a close under the bands and back inside would be a very interesting signal for the VIX and a big move to the upside.

As far as probably the most interesting indication tonight, the SKEW Index has gained again today, that's now 16 percentage points in 3 days as it is solidly in the red zone above 140. A few other times it was above 140 this year was 1/17 at 139 and the Russell fell 7.5% from 1/22 to 2/16.
Again on 7/3 at 142 , the R2K fell nearly 8% from 7/3 to 8/1, then again on 9/19 at 146 in which the R2K fell from 9/2 to 10/13 (October lows) over 11%.

This is clearly a hedge, but it's deep out of the money puts that are only worth something if there's a sharp move down and it has had a pretty good correlation with T2K corrective moves this year, however it's not built (CBOE) for corrective move, that's why it's called the Black Swan Index.


As for internals, the Dominant Price/Volume Relationship was in all 4 major averages with 13 of the Dow, 860 of the Russell 2000, 252 of the SPX-500 and 69 of the NASDAQ 100, the relationship is CLOSE UP/VOLUME DOWN. This is the most bearish of the 4 possibilities.

In addition, 5 of 9 S&P sectors closed green with consumer discretionary (no surprise) leading at +0.93% and Utilities lagging at -.83%. Of the 238 Morningstar groups and sub-groups I track, 182 were green today, that's pretty overbought, although the S&P sectors not so much.

The Dominant P/V theme is not as strong of an oversold as Friday's, but it is the second strongest oversold, often with a next day close lower.

I'll be watching futures tonight, especially the Nikkei 225. The USD/JPY has already taken quite a hit on an intraday negative divegrence after the close.

USD/JPY negative divergence at this week's highs sends it lower.

I'll update you if I see anything of interest. Of course I opened the FXP position today so I am expecting some weakness to show up in ASia very soon, and as I laid out last Sunday, I think the Nikkei 225 was the first crack that ripples through the US futures.

Initial Closing Thoughts

Today looks on the outside to be a pretty typical Thanksgiving week Holiday market, as many retailers are in the red for most of the year until the holiday shopping season. As such traditionally or historically, this week has been a big out-performer on average, however I'm not one for tradition for tradition's sake alone. I've probably shot down more bearish fractal charts showing the market at a certain time in the recent past comparing it to major tops or crashes like 1987 or 1929 and made a case against thinking too much like this as the market may rhyme, but doesn't typically repeat and just as everyone is looking one way, the market moves another which I have also been an advocate , arguing against the October decline as the final bear market break  as you may recall I felt there were simply too many people all saying the same thing at the same time. Bear markets show up when no one expects them.

As I said,  it is not unusual for the lever pullers on the holiday week, wanting to provide as much positive sentiment as possible, especially with a probable nasty Nor-easter storm likely to hit the East coast US mainland on Thanksgiving with the biggest shopping day of the year (Black Friday) being the very next day. On the face of things with the above considered, the market doesn't seem that surprising. However with a slightly closer look, some oddities standout.

First there's much talk about the market making a 27-day record above the 5-day moving average which hasn't been seen since March 1928, for most market history buffs, that time period should stand out and ring some bells. What the financial media is telling us is that the last time such an event occurred, what followed was one of the greatest bear markets in financial market history and the Great Depression. While I don't buy fractals of Hindenburg Omen clusters and some of the other dooms-day fractals that have been put out the last 2 years, I do absolutely subscribe to differences in price ROC and changes in character/changes in trend, after all... the reason certain patterns repeat over and over through market history is because human nature is constant and thus, predictable. A micro version of this macro concept would be the recent BABA big upside price move/Channel Buster followed by a sharp, near -10% correction which we predicted with the actual target two weeks before and the pullback the very day before-THAT'S MASS PSYCHOLOGY WHICH IS QUITE DIFFERENT FROM FRACTALS.

Among other oddities, while I expect lighter volume during a holiday week, especially the day leading up to the holiday and the day after (especially on Thanksgiving when it falls in to a possible 4-5 day weekend), I was surprised just how low volume was on the first day of the week.

One of the stranger events was Index futures behavior on the night and day. The A.M. update shows clearly that the NASDAQ and Russell were in line going in to the open, but the SPX futures were not. In addition, the Dow E-mini futures also were not (negative in to the open)...

 ES/SPX futures were negative going in to the cash open...

 YM/ DOW Industrials E-mini futures were also negative in to the open and remained in line all day much like ES above.

It was the Russell and NASDAQ futures that were in line (confirmation) in to the cash open on upside gains, they remained constant while the SPX and Dow peeled away  even though...

The NQ/NDX 100 futures developed a sharp divegrence during the cash market and TF/R2K developed a much smaller divegrence and then fell back in to line.

The reason I find this odd is the VERY ODD market dislocation today, a little rotation is quite normal, but this....

The Russell 2000 performed 20 times better than the Dow (R2K @ +1.21%) as the Dow came in almost red at +0.04% on the day, that's a huge discrepancy, while the SPX came in at a mellow +.30% vs the Russell's 1.21%, 400% better performance with the NASDAQ 100 in the middle at +0.78 which is not that surprising vs the RUT, but with all of the averages, something is fishy.

Even if you didn't find the Dow's +0.04% performance vs the RUT's +1.21% performance strange, it would be more understandable if it were large caps that were up over 1% like the Dow Industrials or even the SPX-500 as treasuries were up today as well acting defensive, thus I would expect the large caps to be the big gainers in a defensive rotation as the large caps tend to be the defensive plays (just saying because of the move in treasuries and the strong 2 year auction today).


Additionally, almost all of the averages stayed exactly inside Friday's range...

 SPX today inside Friday's range forming a daily "inside" candlestick like this...

Dow Daily with a somewhat similar last two days as the October Bottom. A bullish Hammer with a long lower wick at the October bottom and a small Doji inside the range the next day before the upside move started with a "shooting star Friday with a longer upper wick and a Doji star candle in side Friday's range today.

This in and of itself is not very telling or strange, but when considering the vast difference in performance of the averages from +0.04% to +1.21%, it's odd that they all stay within Friday's range except for the Russell 2000 that just poked out above Friday's range by the smallest bit, while the Russell's ETF, the IWM stayed within the range.

 The Dow the last 2 days within Friday's range at +0.04%, nearly a flat day.

While the much better performing NASDAQ 100 @ +.78% also stays within Friday's range

Only the R2K just peeked out above at the close, however...

The IWM stays right within the range. I didn't note it at the time, but Friday there were some pretty large discrepancies between the averages and their ETFs (at least in one of the averages) of at least a 5th of a percent intraday which I found to be strange, but had no reason to mention it.

I'm starting to get more and more emails mentioning Wilder RSI or Ultimate Oscillator divergences between the averages or Industry Groups such as the IWM above which shows a positive, bullish  Ultimate Oscillator divergence at the October lows and a negative (bearish) U.O. divergence at the recent highs. While I do think this is a useful discovery, you should know that this is part of the change of character that occurs through a reversal process, much like a MACD trend divergence is a change of character of price in a reversal process and often small , seeming breaks to the rules at areas like a Channel Buster are also red flags that traditional Technical Analysis fails to recognize.

 The same Ultimate Oscillator divergences , both bullish and bearish are seen on the SPY/SPX, the Dow Industrials, Dow Transports, the NASDAQ 100/QQQ and the NASDAQ Composite, as well as the RUT/IWM shown above. Changes in character are always important, it's just helpful to understand why as it often helps place you within the stages and thus knowing where you are on the market's map. I'll likely see some myself as I run through the updated data after this.

As mentioned earlier,  defensive Treasuries acted strong today just as the 2 year Treasury auction came off well.

The $USD was weak on Euro strength, two of our macro trends, yet the precious metals complex failed to take advantage with Gold and Silver both down and another big down day for Dr. Copper, -1.20%.

Niether Brent or WTI crude found any relief either from the weakened dollar, both down well over 1% with Thursday and trade in to Thursday being Key for possible oil trades.

Also weak in currencies was the Yen overall, CAD and AUD (AUD part of our macro trend) and EUR strength (also part of our macro trend).

VIX hit 2 month lows at 12.66, yet was stronger on the close interestingly.

I have updated my data/scans so I'm going to take a closer look around at a day that wasn't a screaming oddity, but certainly had its quirks, the most obvious of course being the large divegrence in relative performance between the 4 major averages.

Again, historically this is a strong week for the market, the reason is blatantly political and business oriented as most retailers will either make or break their year from this week until Christmas so you'd think if there were anytime the market would be goosed, now would be it, still the relative performance is odd indeed.

FXI / FXP / NKD-Asia Charts

FXI and FXP are two assets I have been watching because they tend to move with the US markets, yet provide some diversification/rotation.

As you know I think the Nikkei 225 is due for a pretty significant correction, the market's behavior on last Sunday's GDP/recession, was not bullish and it has not been bullish since.

 This is one of several bearish Nikkei 225 futures macro trends- 4 hour...

This is the 30 min, on the GDP Sunday night on the Nikkei 225 -3% move, we called for a dead cat bounce as even the move down was too parabolic, that dead cat bounce is exactly what we got last week in to negative divergences, only the PBoC news rescued the Nikkei 225 futures from a decline that was already under way, but as I said last week, with the Chine rate cut being liquidity neutral, even according to the PBoC, it was a headline scanning algos dream, but otherwise a tempest in a tea pot. Chinese central planning is not short term like US, it tends to be a decade or more out.

The point is the charts as the dead cat wrapped up and since the PBoC

 The 15 min chart as well, I'll try to cover currencies in an additional post.

And the 7 min trend...

FXI shows a positive like the US averages at the October lows (white and a similar negative recently on this long/strong 60 min chart.

The same is true of the 30 min FXI (China FTSE 25 long) as well as today specifically as Chinese markets are having their first chance to react to PBoC as it came after their close Friday, a large negative on the gap.


15 min FXI

10 min FXI

2 min (timing timeframe) FXI. I would usually go short FXI Chine FTSE 25, however the inverse ETF, FXP-has 2x leverage, short FTSE 25, thus I like FXP long (which gives me 2x leverage short FXI).

And FXP's timing-2 min chart leading positive vs FXI's timing 2 min chart leading negative.

Trade Idea (Swing to Position) FXI short / FXP Long

FXI is the FTSE China 25 (long), I suspect Asia (Nikkei included) is going to be seeing downside just as they saw upside during the October rally in the US off the lows.

I prefer FXP, 2x short FXI (2x short China 25). This is also along the lines of the Nikkei 225 Futures macro trend as well, essentially short asia via China specifically. I'm going to open this as a full size swing trade, FXP long which is 2x short FXI/China FTSE 25).

I'll have charts including the Nikkei 225 futures up right after this.

SPY Underperformance/ NASDAQ Divergences & AAPL

The SPY has had a negative (relative) divergence since before the open, thus it's not surprising to see its underperformance vs the other averages, save the Dow.

 SPY intraday in line on the gap up/fade down Friday, a very small positive divegrence Friday pre-op-ex pin removal and a leading negative intraday, thus the underperformance is not surprising.

 SPY 3 min leading negative at Friday's gap up, which it already was in overnight futures, again not a surprise and a nice fade trade. However yet again leading negative as futures were negative in to the cash open again today in ES/SPX/SPY.

 And the 5 min chart.


 NQ was in line pre-market (as per A.M. Update), but went negative after the cash open.

As have the Q's intraday 1 min

QQQ 5 min

 AAPL has quite a bit of influence, easily the most heavily weighted stock on the NASDAQ 100;  that my be about to cause a change in QQQ relative performance if not right out performance as a Friday positive divegrence is migrating through multiple timeframes of distribution today.

 AAPL flat range Friday with a positive 1 min divegrence that has gone negative today and is migrating through longer timeframes.

The 2 min chart shows the gap up distribution Friday and the same positive divegrence through the flat range Friday and again negative through today.

Again as we get to longer timeframes the more serious the divergence, but less detail. The leading positive in AAPL's Friday range is not as sharp as this is a longer timeframe, but again migration today on to this longer chart.

And AAPL 5 min distribution in to Friday's gap up, a positive in to the afternoon-that's simply because the stronger timeframe shows the divegrence as being smaller as it is smaller on this stronger timeframe, yet the leading negative is still very impressive.

I believe this is what the QQQ /NQ charts are reflecting today as well as Tech, XLK.

 The same distribution on the gap open Friday, positive in to the afternoon and leading negative today-3 min

XLK 5 min same trend as AAPL and QQQ.

If I was looking for the underperformed tomorrow, it would be Tech/NDX.