The charts were telling us an oversold bounce was due, ironically that oversold condition was created in about 30 minutes of cash market trade as well as Futures from the open Sunday.
The SPX bounced +0.64% to reach its 5-day moving average, something people are still enamored with, but is nothing to pay attention to. The fact the SPX was green on the week and lost it despite an expected (posted earlier) late day VIX slam, was notable, but so far as I can tell the bounce is not over yet, but heading that way and in some assets faster than others.
The daily closing SPX failed to fill the gap from yesterday's open (white arrow), it did break back above the 5-day moving average (yellow arrow), but remains red on the week despite a VIX slam at the close a being in the green briefly (red arrow and small upper wick).
In today's 3 p.m. Market Update I said, "I would NOT be surprised to see a VIX smack down at the close."
As they tried to close SPX green for the week, that's exactly what happened.
VIX was behaving pretty much as one might expect today when it was slammed at the close. Remember VIX trades inverse to the SPX (green) and as the SPX made a new high intraday (yellow trendline), that "should " have been the lowest point of the VIX for the day, but the closing slam of the VIX sent it to the same level which would normally have been higher. No matter, the SPX failed to fill the gap even with all of today's levers and the VIX slam at the end of the day. This is not just fact, this is a message of the market, when a market needs so much help via levers and a VIX slam on top of that and still can't accomplish the gap fill we have been expecting since yesterday around 10 a.m. as short term capitulation/selling climax was reached.
In fact, they pumped HYG in to the close as well to try to accomplish the same, another failed lever.
HYG which was one of the obvious levers we called out yesterday for today's bounce had near perfect correlation/support for the SPX (green) from the open until just after the European close when HYG went flat and failed to make any higher highs until of course the close as it became obvious the SPX was backing off "green for the week", thus the VIX/HYG levers to try to fill that little gap that was left.
FOR HEAVEN'S SAKE, THEY EVEN WHACKED TLT (FALLING BONDS / BOND FUTURES MEAN HIGHER RATES AND RATES ARE A MAGNET FOR THE MARKET SO THEY EVERN TRIED TLT WITH HYG AND VIX!
and THEY STILL FAILED. AGAIN, THIS IS A MESSAGE OF THE MARKET! (SPX in green and TLT in red with a TLT smack down/yields rise ).
Treasury Yields on the new week are up from 11-13 basis points!!!
As mentioned earlier, I'm not sure if this is a simple effect of TLT being slammed and Treasuries as a market lever to support a bounce, or if there's perhaps a reversion to the mean pairs trade short SPX and short treasuries as they meet each other in the middle.
The other possibility is that crude producing countries (especially Russia with a crashing Rubble) are seeing their currencies decimated since the OPEC decision to leave output where it is, thus they could be cashing in Treasuries, taking the $USD's and selling them in an effort to prop up their own currency. This is why I'm yet to put out a TLT update until I see how yields behave after the bounce has faded and there's no more reason to use T's as a lever to prop up the market. This could be a big trade.
The
BIG WINNERS on the day were Small Caps and Transports, but looking at their daily charts, you wouldn't think so at a glance, they were yesterday's WORST performers.
Russell 2000 (Small Caps) failing to close yesterday's gap and remaining red on the week despite being the leader today with a
+1.25% gain.
And Transports, the other BIG winner today...
Transports saw a "Tweezer Bottom" ironically (at the white trendline) on the same day HYG was accumulated, the 19th (and 20th) which is a bullish reversal sending Trannies higher in to a bearish
Shooting Star (
What the Japanese refer to as "Trouble overhead"). This Shotting Star bearish reversal candle sent the Dow-20 down -2.71% yesterday so even today's +1.23% gain, outperforming the NASDAQ 100 by a 3:1 margin, still looks EXCEPTIONALLY weak. Perhaps now the 1-day oversold condition makes some sense in hindsight.
All of this action created a real Hindenburg Omen today. While I've never seen anything (EVER) that requires a Hindenburg Omen as a prerequisite to a market crash/correction, they often do precede such corrections/crashes,
but again, are not a pre-requisite.
Oil dropped by at least 1% overnight as expected after yesterday's short squeeze (both Brent and WTI), however there are some interesting 5 min charts looking as if it might make another short squeeze move higher, perhaps tomorrow.
I meant to post this earlier with Leading Indicators, something just doesn't look right here with commodities (brown) selling off hard vs the SPX (green).
Gold as expected yesterday fell today by -1.24%, so a pretty big move, which is why I didn't panic yesterday and cover the GLD short, but followed the objective evidence suggesting GLD was heading lower after yesterday. SLV barely moved, down -0.19% and Copper wasn't that bad at -0.59%, but oil which I suspected would fall overnight and did saw USO down -2.81% today.
The message above is clear, Global Economic Weakness (although I suspect there are more subtle messages within each asset class).
Our professional sentiment indicator closed lower in to the close, the one that sold off in to today's bounce as seen in
Leading Indicators. Also HY Credit closed lower in to the close which is important because the pros trade the close.
Speaking of the pros... I had to borrow this chart, but I think it illustrates my argument which was made BEFORE the October rally when we were confident we'd have a VERY strong, "FACE RIPPING" rally, but it was being used as a means to change the ultra-bearish sentiment few probably remember that was everywhere at the time. I made the argument that not only would we have a move that would scare you despite knowing about it ahead of time (and challenged you to bookmark the page to look back on after the rally), but the larger point was that the rally was a means to an end which was a larger drop to the downside.
This COT/SPX chart demonstrates exactly what I was talking about.
If the rally off the October lows wasn't being used not only to change bearish sentiment and get the "Buy the Dip " crowd back on board while teaching them a deadly lesson for the near future, but also as a means to sell in to strength as well as short in to it, then why is the COT going in the opposite direction ?
There are so many hint, clues, red flags, etc. that I simply keep building the case post by post, they certainly can't fit in one post.
However I try to add something new when I discover it and tonight I want to impress upon you that to truly make money, you have to see what the crowd has missed. If everyone is thinking the same thing, then no one is thinking.
The market averages are heavily skewed by their weighting, as you probably know the Dow is not the sum of the percentage gain for each of the 30 stocks added together and divided by 30. Each stock has a different weighting, for example Visa is 9.33% of the Dow's weight while GE is a mere 0.94% of the Dow's weight.
The NASDAQ has a proprietary formula and it costs $120,000 a year (membership) to find out what their weighting schedule is, but in the past AAPL has carried somewhere around 20% weight of the average (NASDAQ 100 or QQQ), which is about the same at the time as the bottom 50 weighted stocks COMBINED. Yes, AAPL alone had more weight than the majority of 50 NASDAQ 100 components combined!
For example, the Russell 2000 Equal Weight Index is below it's 200-day moving average while the Russell 2000 is above.
The Equal Weighted R2K in green is below its 200-day moving average while the Russell 2000 is above its 200-day moving average and more to the point, the recent divergence between the two as market breadth breaks down even more so than earlier in the year (click on the picture for an enlarged image).
Or take the world's largest Stock Index, the NYSE, it looks a lot different than the much smaller Russell 2000 or the S&P-500 or the 30 Dow stocks doesn't it? No new highs or higher highs very much unlike the "popular averages".
Take the NASDAQ Composite, all NASDAQ stocks, not just 100 of the NASDAQ 100/NDX (what the QQQ is based on). This looks very impressive until you look at the Advance / Decline line for the NASDAQ Composite.
In red is the Composite, in green is its Advance / Decline line. That's a HUGE discrepancy. The A/D line is all advancing stock less declining stocks so what we are seeing is a hollow market that has gained, but has more and more stocks declining to the point that it's at the worst pivot high since the 2009 rally started. This is a Ginger bread house.
That's why charts like this breadth chart that is hard figures and facts, no interpretation that shows us the Percentage of NYSE Stocks Trading ABOVE Their 200-Day Moving Average are especially important.
We've hit a new swing low and a new pivot high divergence as more and more stocks quietly slip below their 200-day moving averages while the bulls celebrate the market hitting new highs on a +0.15% gain and no volume.
You may have heard me talk about my time teaching the Palm Bach County (Florida State Public School System's) Adult Education Class, Technical Analysis and Trading which I did for nearly 4 years. Let me reach around and pat myself on the back as my class for the entire time I was teaching it of some 70 classes was always in the top 2 most attended, only falling in second place to the ESOL, learn English class for immigrants. Numerous times we had to close enrollment because we didn't have an area big enough for everyone.
Of course I'm being facetious in bragging about that, who cares!
The point is, teaching Dow Theory is very difficult in the time allotted, thus I used the 200-day moving average to represent the Primary or what we call a bull or bear market, trend as more often than not the trend classification was exactly the same as stocks below their 200-day ma. The point being, under this informal Dow theory replacement, we have just as many stocks in a bear market as a bull market as it's split right at 50!
As far as some of the charts for SPXU and XLF (FAZ) that I mentioned late today,
Couple of Quick Trade Ideas here's the XLF charts, thus the reason I mentioned them, SPXU is also looking very interesting (to play XLF short I prefer FAZ long, 3x short Financials)
XLF 1 min seeing intraday bounce distribution
XLF 2 min far worse...
3 min
The 15 min chart
And 60 min.
There's FAZ and FAS confirmation as well.
Finally, the internals today...
If yesterday's Dominant Price/Volume Relationship (among the component stocks of the major averages) was as Dominant as could be in the oversold condition highly implying a next day close green, then tonight's is the exact opposite, Close Up/Volume Down which is the MOST bearish of the 4 possible relationships and it is most often followed by a red close the next day as it is the opposite of yesterday's 1-day oversold and is a 1-day overbought condition.
Along the same lines showing a deeply overbought condition (the opposite of yesterday's 1-day deeply oversold), we have an even stronger 9 of 9 S&P sectors closing green with Healthcare leading at +1.10% and Tech (the weak NDX today) lagging at +0.02%, nearly red. I bet Tech/AAPL rallies tomorrow!
As for the 238 Morningstar groups we track, an equally impressive 185 of 238 closed green, again the opposite of yesterday's internals.
for this reason as well as the other indications, I believe
there's a VERY high probability our bounce ends tomorrow and we'll need to act quickly to slip in to some appealing shorts, maybe AAPL on rotation to Tech tomorrow. In any case, market volatility is insane and the internals are showing it, even if the NASDAQ's close today didn't.
I'll check futures before turning in and update if I see anything exciting, but I'm expecting some JPY or USD/JPY overnight weakness, again the opposite of the overnight session last night.
Have a great night!
