Daily Wrap

If the market is standing on the ledge,Friday was that sharp cracking sound and today was the  puff of dust tumbling below and despite the fact I think the market does what it does best and try to make as many people wrong at any one time and bounces us tomorrow (the same bounce we were looking for today as the market flamed out early on a sharp move lower) the bigger picture is here... It's just that the market will never make it easy or obvious and in a way we should be thankful for that.

Many of the topics and red flags raised last week, especially on a Friday that was much busier with signals and underlying trade than I ever expected, materialized today , but we are going to stay consistent with our concepts and probably have a pretty darn accurate forecast that is actually useful to our advantage.

Going through a few of these, last Monday's HYG CONTINUED DISTRIBUTION may have been the biggest sign of what was to come or take the Dow's end of day ramp Friday to just get it to close in the green, but as you can see from the second chart on Friday's Daily Wrap, CHANGES IN CHARACTER LEAD TO CHANGES IN TRENDS, there were absolutely no divergences to support that move and as a matter of concept, 3C signals pick up where they left off on the next trading day, even over a long weekend. So with negatives going in to Friday's close in the major averages, it's no wonder the market acted as it did today. 

Or take last night's Sunday Night Index Futures, which showed a "Full House in 3C negative divergences as trade in Index futures opened last night leading to today's sell-off. In fact we still have that full house except the 1 and some 5 min timeframes which is one of a couple reasons I suspect we bounce tomorrow which is helpful for us, again I'll tie this to a micro/macro concept that we saw just today. ALL LEADING INDICATORS ARE POINTING TO A MOVE MUCH LOWER , you can see this in the post linked above or even today's post, Leading Indicators / Market Update

This in part (along with Market Breadth, 3C charts, Mass Sentiment, etc.) caused an ugly day in which the SPX DID break the 5-day moving average after a record 29 days, this actually occurred Friday as I pointed out, but put an exclamation mark on it today.

SPX close today. Forget about the 5-day m.a. being broken, it's just another sign of the changes in character which lead to changes in trends. The Ultimate Oscillator (like Wilder's RSI) has been negatively divergent and today's close -.68% lower in the SPX was on increasing volume which we'll touch on.

Another simple, but easy to miss signal was intraday breadth was HORRIBLE on Friday...

While I prefer 3C signals that scream and jump off the chart, with these types of indications, you have to see what the crowd missed to make money and often the changes are subtle.

I also mentioned Friday's close of our SPX/RUT Ratio indicator which suggested the market owed near term downside and this afternoon in Leading Indicators you can see how much it owes in context of the larger picture, what I have believed since this all began to be a move stronger to the downside than the October rally which was nothing more than a sentiment changer, locking the "Buy the Dip" crowd in to believing that a -10% sell off should be bought, unlike the October lows when everyone was historically bearish. This rally was a means to an end, not an end in itself.

Friday I pointed out how Transports couldn't hold their gains. In fact I posted several times not only on transports, but airlines specifically...Be Careful with Airlines which were nearly as bad as trannies today, down -2.45%!!!

 Transports folded today which were covered several times last week as showing weakness in 3C charts...

Transports down around -2.73% on the day and on volume which is a short term indication which may give us a nice set up in trannies short for those who don't have the position or want to add.

Wednesday our AAPL Update with AAPL down -3.25% today, more importantly giving up NDX support, but again the closing candle and volume are telling (AAPL). Maybe we will gat that AAPL short set up mentioned earlier today...AAPL Update

As for the averages performance, all closed red on the day...

 That's all of the major averages and transports in Salmon at the bottom from Friday's close.

However from last week's Black Friday cheerleading effort in the market or at least to keep it from spilling negative headlines in front of the biggest shopping day of the year, here's the performance since the BF ramp...

All of the averages are red and note Small Caps and Transports are leading the way down.

Small caps down 1.63% today and Trannies over -2.7% as volatility starts to return...don't forget the VIX buy signal and the pinching Bollinger Bands around VIX indicating a highly directional upside breakout in VIX (down in the market averages).

However I have covered just about everything that really matters from leading indicators, 3C signals, changes in character, etc.

Lets look at moving forward. You saw last night's post on the Index Futures, Sunday Night Index Futures. Nothing has changed where it's important, but leading in to tomorrow this is what the Index futures look like...

 ES 5 min

NQ 5 min

TF 5 min

2 of 3 have 5 min positive divergences that migrated from the 1 min charts today , this is why I think the probabilities are we get a bounce tomorrow, whether it lasts all day or starts the day off and fades later will have to be on an "as it comes" basis.

To be consistient as our concepts must be across asset classes, timeframers and trading styles, one of my earliest forecasts today was the market flaming out early on a strong down move, but more importantly...

This morning at 10:02 a.m., A.M. Bounce Attempt

"...if there's to be a bounce in the area, this is probably a good place for it, first...Volume is increasing on the downside, this is no different than macro capitulation, the concept holds true intraday, it can cause a short term flame out to downside momentum and a bounce, whether a gap fill or not I can't say, it doesn't look good right now."

That's the same concept intraday as on the close or on a weekly chart.

In fact although I usually save this for the end, today's Dominant Price / Volume relationship among the components stocks in the major averages was exceedingly dominant in every major average:

20 of the Dow 30, 94 of the NASDAQ 100, 1469 of the Russell 2000 and 375 of the S&P-500. The relationship was, Price Down/Volume Up.

This is a 1-day, very strong oversold signal of the 4 possible relations, it's essentially a little bigger version of what I said at 10 a.m. today about volume and AAPL's intraday trade finding their lows at a large volume spike (largest on the day by far).

This suggests a 1-day bounce or a short term oversold condition, which fits with the Index futures 5 min charts above and the 3C readings as we have expected the market to build toward a bounce/gap fill all day. This gives us some great opportunities to short in to strength, AAPL as mentioned above has a specific plan of action and area I would short it, transports too, but literally hundreds of assets look fantastic. Earlier today I called this a "GIFT HORSE".

Adding to the 1-day oversold condition is the 9 S&P sectors with a big 7 of 9 closing green with the leader, Energy only up +.35% while Industrials lagged at -1.28%.

Further adding to that is the 238 Morningstar groups we track. A MERE 20 OF 238 CLOSED GREEN!!! That's DEEPLY 1-day oversold so a bounce tomorrow is exceptionally high probability, WE NEED TO USE IT AS THE GIFT IT IS, if you need convincing, just look at Leading Indicators or last night's MACRO Futures.

The averages themselves didn't have very impressive divegrences at the close so I suspect we get some kind of overnight ramp/support, however just so you understand how close the averages themselves (in addition to Index futures) are to the brink, after the probability of a bounce tomorrow, this si what they are looking like beyond...

 SPY 5 min near term-I don't think a bounce will do anything but make this leading negative worse.

SPY 15 min leading negative

SPY 30 min trend leading negative and one of the worst divegrences, long overdue and off the charts as far as the implications, but the worst...

The 2 hour leading negative. Thus I want to use any short term 1-day oversold bounce or gap fill to sell short in to as this is a huge divegrence , note the positive at the October lows doesn't even show up here giving you some idea of how much money flow has moved out.

Although it probably doesn't matter what the levers are, I don't see much in HYG, it was run over and may just keep leading the market negative. I believe TLT and yields will be used so we'll keep an eye on them tomorrow for timing indications. I suspect a carry trade (yen based) will do a lot of the heavy lifting with SPY Arbitrage so expect VXX to be lower and likely TLT.

 Yen 1 min is negative today and now so it will likely be used in a JPY carry pair, but as more evidence of a short term bounce/gap fill, the Yen charts in between here and 30 min are mostly in line, at 30 min...

A VERY positive Yen chart, suggesting any Yen carry trade support will be short lived.

short term VIX futures have a negative confirming the Index futures positive as well as the Yen above, but again showing the short term nature of the bounce expected today, the macro VIX futures trend is stunning...

 Major VIX futures accumulation 30 min and even stronger...

60 min so I think we have a good idea of the short term levers and what comes after they are spent. Like I said, THE MARKET WILL NEVER MAKE IT EASY OR OBVIOUS, WE HAVE TO FIGHT FOR IT.

Gold and Silver which had huge days are going to be of special interest as some surprising negative divergences developed later today and believe it or not, USO acted well intraday so it will be on the radar too.

 GOLD FUTURES LOOK LIKE THEY MAY BE GOING NEGATIVE ENOUGH INTRADAY TO COME DOWN OVERNIGHT, YOU SAW THE GLD UPDATE.


 Silver futures are negative as well so I suspect more volatility before the whole story is known here, but tis is part of the reason I held the GLD short.

As for Crude futures, they acted well, but are seeing short term distribution.

It's too early to say, but there may be something big brewing in oil.

30 min chart with a huge positive, not enough for a base, but maybe the start of a large, strong base.

I'll check on futures later tonight, but as of now I say we'll get the bounce we have been expecting since the high volume flameout around 10 a.m. as the market broke hard and sharp with HY credit leading it lower. As for a bounce, this is a gift with no doubt in my mind, rather than chasing prices lower, we should get the kind of set-up I said would make me consider shorting AAPL, but in numerous , even better looking positions.

Have a great night and I suspect we'll be quite busy at some point tomorrow, unless everything gets run over, but I think we have enough evidence that we will get the 1-day oversold bounce.

Leading Indicators / Market Update

I didn't realize how much of a change of character the SPX breaking its 5-day moving average on Friday really was, although it's far from the only change in character and surely not solely or even p\reasonably proportionately responsible for the market's weakness, it was a change of character well over a month in trend that is nothing more than a symptom of a change in character which leads to changes in trends.

I didn't want to jump to early conclusions this afternoon about the weakening of intraday divergences unless they took out all intraday strength complied on 2 and 3 min charts as well and I think for good reason. The SPY 1 min has at least regained confirmation status and its 3 min chart remains intact. The Q's are similar and the IWM holds on to positive 2nd 3 minute charts, however I cannot see any accumulation of the pullback that was starting to get ugly as I anticipated might be the reason we were seeing that intraday move until/unless the 2-3 minute charts were destroyed and run over as well. As of now, it just looks like the wider footprint I mentioned earlier which is necessary for even a gap fill bounce as "V"or "Event" bottoms, rather than a process,  tends to fail. TF (Russell 2000 futures) does show a little improvement as price started to decline to new intraday/weekly lows.

This is all really semantics in the larger picture, the break this morning after what we saw last week and specifically Friday when it should have been a quiet day are really the main messages of the market, but any bounce in to price strength can be used for better positioning and lower risk so we track it.


As for the market, take the SPX or even Russell in a similar position, this is an exceptionally dangerous area to break below...

 SPX's daily Broadening top. It's amazing how much these price patterns have been manipulated and have changed since the old textbooks, but in this case the top has its 5 points of contact , it has a shakeout move already that teaches the "Buy the dip " crowd who faltered for the first time since the phrase was coined and went bearish, to buy the dip as the proceeding rally essentially taught them "If a 10% decline is good, don't be afraid, a 10% decline is better...Buy the dip", which I suppose is one reason traders who make a lot of money in bull markets tend to lose it all in bear markets, they can't fathom that something has changed and this time is in fact no different.

The head fake move ABOVE the Broadening Top is what's really dangerous, a bull trap and a supreme one at that. Today's SPX support / Volume which we saw as an intraday oversold event, was right at that trendline. A break below the trendline usually sees fear overwhelm greed and these tops fall exceptionally fast, especially since the October lows already took care of the top's shakeout.

The larger context and change in character...

A clear trend to a clear top.

As for leading indicators, there's not much that argues with both the decline today on Friday/last week's very weak market action below the surface, nor does it argue against the oversold condition from this morning and a bounce/gap fill.

 Our Leading Indicator SPX/RUT ratio was leading the market negative as of Friday's close, it's in Friday's last post which means it was suggesting the market owe some downside as it had made a new low on the chart, but the SPX above had not.

This morning the market paid up that downside it owed, but that is only the near term trade. Like I said in the last post, I don't want to be myopic about intraday bounces when the market is standing on the edge of a cliff and we just not only heard, but saw a major fault line break in the cliff's face.

So in context of what the indicator has to say outside of intraday trade...

 Here t is showing a negative dislocation ad the stage 3 "Rounding Igloo top with a chimney", the chimney being the head fake move up at the August cycle's stage 3 top. The indicator was clearly dislocated and moving down which lead the SPX to stage 4 decline and the Dow to a loss of 1200 points in to the October lows.

Then at the October lows the indicator diverged positively like many others forecasting a strong rally, but since, look at the size of the dislocation this time compared to the last that forced the Dow to give up 1200 points in 2 weeks!

The most recent negative signal is from mid-november to Friday, although on the whole, this is the worst dislocation well before the rally reached stage 3 top.

 VIX was actually pretty tame today all things considered. However that does not negative the buy signal in VIX (1 of 3 signals in our custom DeMark inspired indicator), the previous two were spot on and VIX has been trending higher since the signal was given on 11/10 except for last week's lever of bashing VIX, but it's still higher than 11/10 and the Bollinger Band squeeze is indicating a highly directional move which is obviously up (VIX and the market trade opposite each other).

 One of  what I called the bigger events of the last week was HYG (High Yield Corp. Credit) distribution and the crack lower which broke lower again today. "Credit leads, stocks follow" and HY credit specifically. 

Point in case...
 HYG (blue) vs SPX (green) showing the exact same area where we got a lot of other leading indicator sell signals at the September "Chimney" head fake high to the far left leading to October lows, but that was a large, but relative negative HYG divergence. Look at the size of the HYG divegrence now vs the SPX!

Look at the recent leading nearly vertically down!

HY Credit has done the same , especially clear Friday and on a larger scale as this is what the market is about right now...

A severely dislocated divegrence from SPX vs the last negative at the September highs to the left, can you imagine the downside HY credit is projecting relative to the September divergence/highs?

 This is PIMCO's HY Fund, the same divegrence in to Friday with some intraday support (bounce) today.

However again...

In context, the last divegrence was the August cycle's top in September, then a positive at the October lows. Look at the size of the divergence now.

 And pro sentiment last diverging at the same September highs and another HUGE divegrence relative to the last one that caused the Dow to lose 1200 points in 2 weeks.

 5 year yields as well with some intraday help today on Treasuries pulling back a bit, but again this says bounce within a larger overall landslide lower.

The 30 year yield also leading the market lower on Friday's close and before, in line today as bonds lost some ground, like TLT (20+ year bond fund) being used as a lever for a bounce, this caused yields to rise and support the market intraday, one of the levers.

However, once again I don't want to steer you in the wrong direction by focussing on a spot rather than the whole picture.

The last time 30 year yields diverged with the SPX also at the same September high, leading to October lows and the same HUGE divergence now picking up incredible downside momentum. I can only imagine what this is telling us about the size of the move down which I have believed would be stronger than the October rally which you know I said would be a face ripping rally.

 As for those yields helping out today on falling bonds and TLT, this is TLT's intraday divergences...negative on the open sending it lower and building a large positive all day, in other words, getting ready for a move lower in the market.

While I have to cover the near term trade for tactical purposes, now more than ever you need to keep the big picture in site as it is not something that's coming, it's here.

Quick Update

I'll be putting up charts of course, but it looks to me the probability of the bounce we are looking for is still on, however it is not one I would play, it's just way too dangerous, not nearly enough reward vs risk. In fact I'd only be shorting in to strength, but as you know, I'm already loaded with my shorts.

Everything from last night's Futures update still holds, I'm making a lot bigger deal of a bounce than is really reasonable next to those charts and the big picture which for all intents and purposes is here now.

Charts to follow.

GLD Update

In my last Gold post, GLD Update, I believed despite the strong confirmation in gold futures, it would come back down and I wasn't making any decisions on the GLD short that's open at a 2.25% loss.

"60 min YG with another reason I liked GLD short which was working out pretty well until this truly parabolic move higher and you know what I think of parabolic moves... thy tend to end in the same fashion as they started, just the opposite direction."

First it was the Swiss referendum, now it's re-hypothecation and shortages in gold swaps, I really have no idea and I don't think my information is going to be better than Goldman's so I'm just interested in which way the money is flowing. I didn't panic on today's Gold move because price is deceptive and there's often much more to the story, but few will get there as their emotions knee jerk them from one position to another.

I do wish there were better confirmation between gold mini futures and GLD, but the position is in GLD, not gold minis (YG). With that in mind, here's what I'm looking at and thinking about as far as the GLD short position goes.

*This analysis is outside our longer term charts that suggest there's up to a year long base that has formed in Gold and gold miners, which is a long term secular position, I'm not dealing with that right now (I'd expect that to be more of an issue as the F_E_D raises rates and inflation starts to heat up).

 Daily GLD chart with a lengthening upper candlestick wick showing higher prices are being rejected, but not only that, look at the area GLD has passed today, right where there's a resistance area full of limit buys and stops, an easy target. We'll see what the daily closing candle and volume look like which will tell us a lot, but I suspect GLD is going to come down soon so I'm not taking any drastic steps with the GLD short position.

 GLD 30 min with two negative/distribution areas and one of the reasons the GLD short was opened. Note today is not seeing confirmation, although that's a tall order for a 1-day move on a 30 min chart, but it can be done,

 More to the point, the 15 min chart is not confirming and in fact is showing a negative divegrence which is more realistic as far as confirmation, this makes me wonder if today's move in gold is real or a head fake and I'm thinking more and more it's some kind of shakeout/head fake move.

 A 5 min chart should have NO problem confirming on a move like today, it's not only not confirming, but also clearly negative implying distribution of the move higher in GLD today.

The same is true intraday on the 1 min chart.

For now the charts are telling me to expect GLD to come down which has started already, I'll have to see how it acts if that happens and then we'll have a better idea of what's going on here.

Market Update

Things aren't looking so good for the market, just earlier I mentioned that as volatility picks up, so do the chances of short term (weak) divergences failing.

HYG looks to have failed completely as institutional traders move out of risk assets...

 It has been a while since we have seen a divergence run over like HYG's which was building positive earlier today and just run over sending it lower and destroying the SPY Arbitrage lever, but this is exactly what I warned of earlier and why I'm fully short and have been.

TLT's drawdown is showing a positive divegrence which only makes things worse once it reverses to the upside, further destroying anything left of the SPY Arbitrager and sending Yields lower and stocks following them, which are already at a huge negative dislocation.

 SPY 1 min is where the intraday damage is seen first on the negative side, this divergence is near run over, but not yet. The divergence (positive from earlier) did migrate out to stronger / longer timeframes...

Like this 3 min so I probably won't call this a dead divergence until I see this 3 min taken down as well as 1 min negatives increase and migrate to the 3 min chart, otherwise I can't be sure we aren't just seeing a pullback intraday to create a wider footprint for the bounce's base.

 The same with QQQ 1 min, which is showing negative activity recently as the fastest timeframes show the newest divergence first.

QQQ in context...

And the 2 min chart still in line or positive so I'll want to se that negative before I'm convinced this is a failed bounce attempt which at this area sitting on top of a Broadening top in a head fake move, would be VERY bad for the market on the downside. Broadening tops fall apart incredibly fast and this one has already had its downside shakeout.

The IWM 2 min is the timeframe I'll be watching as that's as far as its positive divegrence migrated intraday for a bounce.

All in all this is an excellent area in the bigger picture for shorts that have market correlation, like SRTY, SQQQ, SPXU, FAZ, etc. So I wouldn't be too worried about intraday chasing, I'd just want to be sure we are not going to get a better entry as I suspected we might this morning on a gap fill bounce.