Daily Wrap

I kind of had to chuckle seeing the headline for today's market action from a sometimes over board website, but sometimes over board in an a very accurate way, like the "Take you tinfoil hats off post" I published about a week or so ago after hard evidence of NY F_E_D collusion with Goldman Sachs.

The headline was simple and right on target,

Stocks Close At Recordest Highs Ensuring 'Confident' Black Friday, Despite Macro Massacre"

Last week when I saw something in HYG that was bothersome, I wasn't quite sure why I was seeing what I was seeing, which is often the case with underlying trade, you can see the cash moving but you'll never know the reason until after it has happened. Clearly the reason HYG was accumulated late last week was to ensure that no headlines crossed over mainstream media outlets or on the ride home from work over the radio with something like "Dow Industrials down 200 points today". That's the last thing politicians or the F_E_D wants to see in front of Black Friday, the official open of the US retail holiday shopping season and a barometer of what retail should expect going in to December, before the holidays. In other words, the historically green week of Black Friday is green for a specific reason, it's just simple Mass Psychology.

That being said, there were still clear messages from the market. The carry trades and Index futures' correlations have broken down, the main lever in ramping the market overnight is now not only broken, but leading the Index futures lower and this is a multi-year correlation.

HYG, High Yield Corporate Credit which was accumulated at the lows of November 19th has not only been tasked with keeping the market either level or higher, but it has also been under distribution showing that its task is nearly or is complete as it sold off hard in to the close today, the first time since the 19th.

The rate of change in 30 year yields has been so sharp over the last week, it has been called "Unprecedented", having never happened to this extent in the market before, remember yields are a leading indicator and tend to pull equities to them, they have been right on at the last several big moves both up and down.

Yields closed near 18 month closing lows with the 30 year closing at 2.95%

The VIX is not only behaving strangely, but under accumulation  and in the timeframes I said Monday were the only timeframes it was missing, the short term 1 min charts, again VIX which has a buy signal (the 3rd in over a year with the last 2 being dead on) and pinching Bollinger bands and breaking its correlation toward volatility also trades opposite the market.

If I really start this post in this fashion, it will be hard to finish as there are so many ways in which we are quite literally off the chart, in situations that have no historical precedent and I'm not talking about how many days the SPX has closed above its 5 day moving average on low volume and 1/4 percent moves, actually the average is even lower at 0.15%

To prove the motives of this week (and just think about how many different aspects are effected from local government taxes to strip malls, small business, corporations, the treasury's tax collection, an unknown number of negative possibilities for the F_E_D, etc... ) all about doing the best they can to keep sentiment positive in to  Black Friday...I think everyone knows why we have used yields as a Leading Indicator for years now, they not only tend to tell us where the market is going intraday, but on a much larger scale.

Earlier in November we knew that 30 year bonds would be rising and 30 year yields would be falling, this has been one of our macro themes.  In fact on Friday November 14th, we played the trade, Trade Idea (Swing+) TLT long via TBT Short as the charts were quite clear that TLT and /ZB (30 year Treasury futures) were under accumulation. These charts are from that post...

 TBT 60 min leading positive divegrence on the pullback...

TBT (2x short TLT) confirmation with a leading negative divegrence, we ended up shorting TBT to create a 2x leveraged TLT position.

And the macro theme the case was being made for in 30 year Treasury Futures.

/ZB /30-year treasury futures leading positive divergence.

This has led to the massive 30 year yield dislocation/divergence from the SPX...

This 15 min chart that shows the October lows of SPX (green) with 30 year yields (red) trading tick for tick with the SPX as the rally started, has not only diverged, but of historic proportions. We have always used yields as a leading indicator as they tend to pull equity prices toward them like a magnet. However as recently noted...

 We have seen an increased rate of decline in yield as our TLT long makes further head way in to the green, thus suggesting a sharp and deep drop in the SPX (green). This move down in yields is being called the Treasury Yield "Flash Crash.

The last time yields diverged from the SPX was in late July before the dump to August lows and September which led to the October lows, but look at the size of the difference in divergences.

30 year yields (red) vs the SPX. Just compare where the SPX and yields are to the far left of the chart and where the SPX and yields are at the far right of the chart. A MONSTER divergence which has been described as the SPX at least 200 points rich to the yield dislocation and THAT'S ONLY COUNTING SINCE THE OCTOBER LOWS, NOT THE LARGER DIVERGENCE ACROSS THE CHART!

As the ROC of the downside move in yields picked up...

yields red/ SPX green, known as the Flash Crash, the liquidity of the S&P futures picked up in huge size today according to NANEX as the "Invisible Hand" sought to keep the market from falling in to the red as yields are forecasting... 30 year yields closed at 2.95%, just a hair of the May 2013 lows.

From NANEX (Eric Hunsader tweet) today...

During the last hour of the market today, ES/SPX futures liquidity exploded as the Invisible hand sought to make sure that the market didn't close red in front of Black Friday.

As Eric points out, ES liquidity is the HIGHEST since the crash in yields which is approximately,  November 21st. someone was out buying in force (which I talked about earlier in the day) as all other levers failed to accomplish the guarantee of a green close. After all other levers were tried today, they had no choice but to buy ES to keep the market green.

What is the message of the market other than they don't want a red close before Black Friday? 

I'd say the message of the market is, despite all of the levers used today and over the last week, the market is so weak that the PPT likely had to step in to guarantee a green close the last hour of the day before Black Friday as the market is closed tomorrow!

As for the levers...

I mentioned HYG last week, the accumulation at the lows of the 19th and since then I have shown the HYG distribution as they seem eager to get out of the market supporting position at or around Friday or next Monday's open.

HYG (blue) intraday vs the SPX (green), note support all day as it has been all week until the close in which HYG sold off quickly.


VIX...

 Despite the VIX acting very strong in to the afternoon (blue) vs the SPX (green) prices are not inverted, you can see shortly after this capture at 3:49 p.m. today in which the VIX is heading higher WITH the SPX...


Even the VIS is slammed in to the close to ensure a green close even after all of the other levers and ES buying in to the last hour, this is how desperate they were to keep this green, and JUST HOW FEARFUL THEY WERE THAT IT MAY CRASH IN TO THE CLOSE.

VIX should be well below the red trendline compared to the normal SPX correlation, despite being whacked anyway, VIX acted that much better than it should have even $15 cents in to the green at one point  this afternoon!

 Again, pour DeMark-inspired custom "Buy/Sell" indicator with only 3 signals over the last year, the first two were dead on (sell, sell and now but) in addition to a Bollinger Band squeeze indicating a highly directional move is coming, it's obviously up and the VIX trades opposite the market.

 This is VXX, short term VIX futures, note they were slammed all day as part of the SPY Arbitrage lever which closed near its high of the day adding near $.70 cents to the SPY via slamming VXX, TLT and lifting HYG.

Note the SPY/SPX would have closed red today had it not been for the SPY Arbitrage Lever (HYG/TLT/VXX).

And as mentioned earlier, "Killing 2 birds with one stone", the same VXX slam that kept the market green in front of Black Friday also allowed VXX to drop in to the short term accumulation zone as we can see here, the only timeframe that had not gone positive, 1 min VIX Futures with a huge 3C positive divegrence today.

In addition to HYG (lever) distribution the last couple of days and selling off in to the close, HY Credit has sold off since the PBoC knee jerk ramp higher Friday.

HY Credit vs SPX and in a bigger trend way...

HY Credit vs the SPX. Note the last divegrence between HY Credit and the SPX was at the head fake high (yellow) of September that led to the October lows. LOOK AT THE SIZE OF THE DIVEGRENCE NOW!

If the September divegrence in HY Credit, which leads the market, produced that kind of sell-off, what do you suppose the next pivot move is likely to look like. Again, I have maintained since the time we predicted the October lows would lead to a face ripping rally that would be hard to imagine, I have also said that it would simply be a means to a much larger move lower, the "ends".

Strength in the NDX/QQQ today was as a result of AAPL's weight on the index and its strength today,  +1.18%, but you also saw today's AAPL analysis and divergences... AAPL Update

AAPL vs QQQ today...

AAPL (green) QQQ (white).

The Q's divergence was so large today it throws everything else out of scale.

 QQQ

And NASDAQ 100 futures...

They were also negatively divergent all day (selling in to strength) with  a huge leading negative divegrence at the close.

As for ES, nearly identical...

 ES negative almost all day, it really didn't move until the VXX slam and the SPY Arb lever was pulled, then near pure distribution in to the move.

 HYG's intraday negative finally caught up to it..

This is the negative on the week with a sharp sell off in to today's close, little wonder they had to step in and buy ES contracts at the close.

The averages on the day were not as dispersed as yesterday, but there was clear underperformance in the Dow +0.07% and Trannies -0.08% vs the SPX at +.28, the NDX at +.69 and the R2K at +.36, a big difference from yesterday.

Without AAPL the Q's would have likely closed red, without the SPY arbitrage and the PPT buying Es contracts in to the close, the SPX would have been red of the day, Trannies were red and the Dow was a fraction from red at +0.07%. Overall on the week the Dow and trannies are near flat. 

 Again, considering how many levers were pulled, not an impressive day. Note how all of the end of day VIX slamming, SPY Arb leading, ES buying effected ES vs it's correlation with USD/JPY, the close is quite clear as having been all about monkey business and Black Friday.

ES (purple) vs USD/JPY today, note the change near the close as ES peels off from USD/JPY as ES liquidity surges on PPT buying. Not everything is as it seems, that's more true for the market than anything.

Oil which we'll hear about tomorrow as to O_PEC's decision closed at 4 year lows today on RUMORS again that there would be no production cut. As addressed earlier in Quick USO Update, I really think this one is no better than gambling.

MACRO ECONOMIC DATA today was a miss across the board, normally bad news would be enough to push the market without all of the levers today. Nine of nine misses including: Mortgage Applications, Durable Goods (ex trans), Initial Claims, Personal Income, Personal Spending, Chicago PMI, UMich Confidence, Pending Home Sales and New Home Sales.

Not exactly the kind of stuff record Black Friday's are made of which has to make you wonder about the possibility of a Black Monday.

As for Internals, there was a Dominant Price/Volume Relationship in all of the averages except the Russell 2000 and it was the same as yesterday's but stronger. Close Up and Volume Down, the most bearish of the 4 possibilities with 19 of the Dow, 56 of the NASDAQ 100, and 241 of the S&P 500.

Similar to yesterday, 6 of 9 S&P sectors closed green with Tech leading @+.91 and Energy lagging again at -1.26%.

Of the 238 Morningstar groups I track a similar and slight improvement of 161 of 238 closed green (130/238 yesterday).

Breadth Indicators didn't change much, there was a slight advance in the higher beta/momentum stocks, but the Percentage of NYSE Stocks > 200-day Moving Average has now spent its 18th day in a tight range of 50-54%, that's literally no movement for going on 4 trading weeks and barely above half the stocks above their 200-day moving average despite new market highs.

There's definitely an issue that the market is screaming about, it's yeilds vs the SPX (as well as credit and a number of other things), but yields seems to be what's going to crack this egg.

Remember the market (NYSE and NASDAQ are closed tomorrow and openuntil 1 p.m. Friday, which means a 4-5 day weekend for most traders in the Hamptons.

That may be why US Index futures look so ugly right now, perhaps closing out positions  before the long weekend, but I'd think that would have been handled much earlier before they headed to the Hamptons earlier today.

 ES with a sharp divergence after the close as well as in to the ramp.

NQ with another sharp post close divegrence

And TF on a relative negative all day with a leading negative in to the close.

Why now? Perhaps selling some of those contracts bought in to the close to guarantee a Green Black Friday?

Have a Very Happy Thanksgiving Holiday or day off from the markets. I'll be watching for any developments and will post anything of interest, even if I have to fight through the tryptophan and get off the couch!

HYG Starting to Fail, VIX 2 Cents From Green

HYG is starting to fail, the 2 birds with 1 stone theory. VXX, despite being whacked lower and sending SPY Arbitrage higher is seeing VIX futures at a positive divgernce and the VIX buy signal and Bollinger Band pinch should see VIX hitting new lows, instead its 2 cents from closing green. There's more than meets the eye.

More to follow.

AAPL Update

While probably not helpful to the QQQ's upside case for much longer, AAPL is not quite the trade set up that I think probabilities suggest it could be, but I wouldn't post it if I didn't see those probabilities as being very near term.

This would be letting the trade come to us, a better entry, lower risk and proof of the nature of the trade before it is entered.

Here are the charts, at this time I don't see the potential trade as more than a deep swing trade, but that can change quickly, especially with the Holiday shopping season upon us.

 near term intraday there's a negative divegrence through a bullish consolidation/continuation triangle, a very common price pattern in a very watched stock making a head fake move here high probability, the envisioned move is above the triangle's apex, verify a head fake move and distribution and enter short there with a move to the downside following. A stop can be set above the intraday highs of the entry day.

 I love charts like this 2 min trend as they show calibration of 3C as it correctly verifies the uptrend and then goes negative at the questionable price pattern/head fake area.

 However in context, the same chart has a more ominous tone.

The 5 min chart shows the same, confirmation, divergence.

As well as the longer trend in context, very similar to the 2 min trend.

I'll be setting price alerts, looking for a triangle breakout and confirmation of a head fake move which is a probability right now based on the negative signals through the triangle.

Trade Idea (options/SPECULATIVE) QQQ puts

I believe if there's any downside reversal before Friday/Black Friday, we are about as close to it as you get, perhaps the charts get worse, but they are in bad shape, the Q's especially.

I am looking to take a VERY speculative, short term QQQ Put, December Monthly $105 puts, but VERY speculative.

Quick USO Update

In front of tomorrow's OPEC announcement which has been swirling with rumors, stories and everything you can imagine in such a scandalous organization with so many different competing agendas, the initial charts we saw that showed a change in character, certainly never shoed enough base formation and being a wild card event, our only real edge is finding a leak. Beyond the candlestick daily chart which ran stops under local resistance, I can't find anything that looks like a slam dunk leak, it looks a lot more like lagging response to rumors and actual events that have occurred over the last week, in other words trailing, not leading as a leak would be.

Again, the best looking chart arguing for an upside reversal in USO is the candlestick chart ALONE, no 3C charts have shown anything resembling a leak of the decision to cut production or not.

The daily USO candlestick chart shows what is as of now, "close" to a Harami reversal, although not a true inside day, volume did increase as stops under local resistance were taken out.

In my view, if this were candlesticks alone without a wildcard fundamental event, I may be tempted to go long USO, but being it is a wildcard fundamental event with numerous parties all seeking to serve their own agendas, I doubt very much they even know what they'll do so in my view,  at best USO is a coin toss and that's just gambling, not trading on an edge.

I personally would remain neutral oil.

Leading Indicators / SPY Arb...

Again, why are levers needed if there's so much strength in the market. Even more interestingly, with such low liquidity, why not by some Index futures contracts unless you don't feel good about holding them, it would have the same effect in such low liquidity.

In any case, there's a slam in all of the JPY pairs as well, USD/JPY and AUD/JPY both showing distribution in to the move, EUR/JPY is in line as the Euro looks for a 3rd day of strength which has weakened the $USD the last 2 days, thus it would stand likely the USD/JPY as well which is probably why there's a negative divegrence in the pair which were launched with the VXX slam. Even more interesting, there's VIX futures accumulation in to the slam. I'll cover VXX separately as this is fast moving.

After looking at leading indicators, it looks like a ramp not only in the SPY Arb, but JPY carry pairs as well, however it may be a last Hurrah as HY credit is selling off in to the move and the negative divergences in Index futures are worse, I'll update the averages as well after this post. It almost looks like "Push the market , but use a stock, don't touch it" meaning don't commit funds , use indirect methods. For example, a VXX slam can be accumulated killing 2 birds with one stone. The HYG divergence (positive) from last week can be sold in to further strength, killing 2 birds with one stone, but NOT touching anything like an SPX future that might carry risk on the downside where as VXX accumulation , well it moves opposite the averages.

This is the IWM chart right now, you'll see it looks amazingly like the Russell 2000/TF Futures...

 IWM intraday

And the Q's...

QQQ intraday 1 min

2 min, which looks very similar to the NQ/NASDAQ futures chart.

In fact, if I can confirm this looks to be a set up, I'm going to be forced to decide if I can create some extra liquidity and add to SQQQ today, or perhaps a similar asset, depending on what looks best, right now, QQQ seems to look best.

That's my gut feel of the look of all of this.

 VXX (blue) vs SPX, with SPX price inverted to see the correlation, the slam in VXX short term futures has been all morning, but that wasn't moving the SPY, thus that last vertical drop whack in VXX.

VIX itself vs SPX (SPX not inverted, just normal) shows the VIX is actually moving up when it should be moving down. Don't forget about the VIX buy signal and the pinching Bollinger bands.

With the averages up on the whole, Dow is red), why would VIX be moving up?

 And for SPY Arbitrage HYG needs to move higher and look at the week's support, again in my opinion Consumer Sentiment support / Black Friday, the barometer of the holiday shopping season. While most Americans don't understand economic data like the Richmond F_E_D , ISM, PMI or even GDP, THEY DO UNDERSTAND "DOW DOWN 200 POINTS TODAY", WHICH IS THE LAST THING I THINK THE INVISIBLE HAND AT THE F_E_D AND WHITE HOUSE WANT TO BE HEARD. Americans can put 2 and 2 together in already bearish sentiment among consumers and understand that headline or even misunderstand it, but all the same it won't help shopping on Black Friday.

Thus HYG's increased ROC today, which is also the red flag of a change of character, while supporting SPY Arb.

TLT is the 3rd and last asset in the SPY Arb, it needs to be flat or move down...

 We went long TLT via short TBT (which gave us a 2x leveraged TLT long as there's no viable TLT leveraged ETF). Since you can see TLT (blue) vs the SPX just take off. This is a non-sequitor. 

A move to the safety of bonds is a flight to safety in the middle  of a risk on move, but just as we saw the opposite happen at the October lows, as I said then, I believe this is the handing off or rotation from 1 asset to another. Broken down in simple English, moving to bonds while the transitional equity period takes place.

I'll have to update TLT specifically, but with the 60 min large positive divegrence, I doubt any corrective or downside move in TLT will last long. 30 year Treasury futures moving up/yields down was one of our macro themes, that has already been underway so it's not a theme anymore but reality.

However as sharp as the TLT move up has been , putting our short TBT position at a gain, today's rate of change and flat trade looks a lot like either the relative under-performance needed to activate SPY arbitrage or it's a flat range with near term distribution which I do see today. TLT moving down would increase the effectiveness of the SPy Arbitrage lever.

 As for High Yield Credit (not HYG which is manipulated, but also in a large trend dislocation vs the SPX like HY credit above), there's a very obvious large dislocation which is bearish for the market outlook and when I say, "Off the chart" or "Off the map", LOOK AT THE LAST NEGATIVE HY CREDIT DIVERGENCE VS SPX AT THE SEPTEMBER HEAD FAKE HIGH (yellow), that caused one of the largest moves down this year and the most bearish sentiment in multiple years.

Imagine the size of the move with a dislocation this much bigger than in September!

Intraday, HY Credit, a risk asset that usually follows equities, is NOT, it is instead heading the opposite direction. It is not useful in the SPY arbitrage so there's no reason to push it higher.

 5 year yields have long been one of our most useful leading indicators as they tend to pull equity prices toward them so this long trend dislocation in yields and especially the recent increased downside ROC is very strong, negative pressure on the market which may be why the SPX couldn't move without at least 3 levers being pulled, HYG, FX and SPY Arb.

 However intraday, note the virtual stop in the trend, it is lower than yesterday's close at the top of the yellow box, but not at all the same other wise.

This is no more than a short term lever if it works, the larger trend above far outweighs this.

 And 30 year yields,. again the last time they diverged from the SPX in green was at the September Igloo/Chimney head fake highs leading to stage 2, but no where near as large as this dislocation which has picked up incredible downside recently, another macro trend forecast that has taken place.

 However intraday, again like 5 year yields, essentially flat.

This is ES's 1 min chart, the pre-market positive divergence failed utterly and the ramp on VXX slamming and FX pumping hasn't seen 3C confirm, in fact the exact opposite.

 TF/R2K futures intraday are at best, in line.

And NASDAQ / NQ futures remain leading negative, see the QQQ charts above.

 USD/JPY, NO positive divergence at the lows and in fact a negative divegrence in to the move higher. This has something to do with EUR, however it lifts ES which is in purple in all of the charts below.

USD/JPY vs ES, you can se the clear correlation in addition to a VXX slam and SPY Arb.

However as shown earlier, the divergence between this long correlated pair is growing, USD/JPY trending lower while ES struggles higher.

The AUD/JPY was slammed up as well, all JPY pairs were, however again the AUD has weakness near term and as a macro trend.

AUD/JPY v ES on a longer term also diverging.

EUR/JPY leading ES, this is one I believe is strong (EUR), which weakens the USd, thus probably the USD/JPY which is probably why there's a deep negative divegrence in USD/JPY intraday.

 While VIX futures were slammed, apparently someone is using that to their advantage as I laid out above, "Killing 2 birds with 1 stone".

And VIX futures longer term weekly trend as well.

I'll update other assets as well as potential trades in individual posts as we should start moving faster.

If there's any doubt the SPY Arbitrage works, at the last posting before the VXX slam it was adding about $.20 cents to SPY price, now after the VXX slam...

Now 3x that at +.60 cents.

While the CONTEXT ES model shows ES overvalued right now by at least 40 points!