Daily Wrap

Today's Non Farm Payrolls were predicted to be some of the most significant data of not only the week, but of the month as they came in far stronger than anticipated  at a gain of 312k jobs added vs consensus of 239k executed and vs prior (revised) of 243k with the unemployment rate staying put at 5.8%.

The market , op-ex pin and all taken in to consideration, took this as "Good news is bad news" initially as the market knee jerked around pre-open.

ES after NFP data (white arrow)

The averages on the day don't tell the full story , likely as it was an option expiration Friday, but here's what the major averages looked like on the day...

The NDX was the only to close slightly red at -0.01%, with the Russell 2000 outperforming again as we predicted Monday, although it has been all week with the NASDAQ underperforming all week.

Note like Trannies below, the major averages were ramped in to the European close and then started to fall off in to the close.

Both the NASDAQ and the SPX were red post the Non-Farm payroll data.

Transports which were one of the positions I mentioned yesterday as a short, gave up significant early gains, still closing green at +0.36%, but giving up a lot of intraday gains.

 Transports dipped below their open (white) before a closing VIX ramp and not far off yesterday's close (red).

On the day, the Bearish Falling 3 Methods that I mentioned last night can have more than 3 candles as long as their real bodies are all inside the initial bearish down day, stayed intact.

Transports on the close with a small "shooting star-like Doji which had its real body within the larger real body, remaining an open bearish Falling 3 Methods candlestick formation.

Of the averages, the high beta Trannies ended the week as the biggest loser despite lower oil prices on the week,  something I'm happy to see for our Transports short.

As one of several levers to support the market after Monday's early parabolic crash on large volume creating a short term oversold event or selling climax which we expected to see a market bounce after as early as 10:30 Monday morning, Treasuries and yields were a lever seeing yields which move opposite the Treasury bond, rise on the week. 

There was DRAMATIC 2 year vs 30 year yield FLATTENING, in fact, flatter than they had been (the spread) since just before the Lehman collapse of 2008!

2 year yields rose 10-bps points on the day with 2-7 year yields rising from 10-17 bps on the week, although the 30 year yield rose as well only 7 bps on the week. The 2 year's 17 bps rise on the week was the most since Feb. 2011. 5 year yields rose the most in 9 months today.

The yield curve flattened dramatically from 2year to 30 year with a spread of 234 basis points between the two, again the flattest the yield curve has been since the Lehman Brothers 2008 failure.

This move in yields with out-performance on the short end which is most closely tied to F_E_D action was the market voicing its opinion that the strong payrolls data was likely to see the F_E_D start hiking rates sooner than later and the longer term action in the 30 year reflected an expectation of subdued inflation.

SO ACTUALLY ON THE DAY, THE CURVE FLATTENING WAS THE MARKET EXPRESSING AN OPINION THAT IS BEARISH FOR THE MARKET AS THE MARKET DOES NOT WANT TO SEE THE F_E_D RAISE RATES ANY TIME SOON, BUT THE YEILD CURVE'S DRAMATIC FLATTENING WAS THE MARKET TLLING US THAT IS WHAT IT EXPECTS SO, GOOD NEWS WAS INDEED BAD NEWS.

This may not have been reflected in the averages to the same extent, but I suspect that's largely because of options expiration which had their fare share of ramping lever help today, some actually QUITE extreme and strange.

As for a few of the levers...

USD/JPY which hit $121+ stops today as the $USD rallied on the 8:30 payrolls report, lent some strength, but far from what it has been in the past and the correlation broke down prompting the need for some other levers to be pulled to counter late day building weakness.

USD/JPY vs ES (purple) as $USD ramped the pair at the 8:30 NFP report coming in stronger than expected, note ES's afternoon weakness, necessitating some other levers to be pulled, some surprisingly hard.

 HYG sold off yesterday and in to the morning today, then gave almost exact support from 11 a.m. on as the market started losing ground shortly after the European close, look at the HYG RAMP in to the close which may have been to try to push the Dow to $18k, a psychological level.

However HYG's trend is still extremely bearish with leading positive support at the green arrow (leading the SPX  by 4-7 days) , then a negative divegrence at the September highs, by the way the same place we saw the last cluster of Hindenburg Omens and now an almost indescribable leading negative divegrence as pros are not buying equity's exuberance, but they were never expected to, that wasn't the reason for the move- a sentiment change for near record bearish levels mid-October was. The market is a zero sum game so Wall St. can't make money with everyone on the same side of the boat, someone has to lose for someone to win.

In an extremely strange move mirroring the HYG ramp late day and throughout the day...

 VIX (blue) saw a horrendous SLAM near the close, again, although it had little effect, I suspect it was to try to move the Dow ti an $18k close.

Here's the move in VIX intraday today...

As for VIX and the BB's...

While it wasn't the bullish close outside and then close back inside the next day that is often a BB buy signal, it did move outside the bands and close back in them on a bullish "Hammer-like" day or at worst, a bullish star.


Also seemingly helpful, although perhaps not a lever and probably creating some tension for the averages, the 5 year yield like the 2 year yield also rose dramatically on the payrolls data, seemingly supporting the market as yields tend to pull the market to them...

 5 year yield bursts higher as the shorter end of Treasuries reflect more of the F_E_D's expected action, this expecting a rate hike sooner than later appears to have supported the SPX today, while the 30 year which was up on the week, but not nearly as much as 2-7 years, may have exerted some downward pressure on the market at the same time...

 30 year yield up on the week, but down today and no where near the move in the short end causing the rate flattening at levels , as mentioned, not seen since Lehman Brothers failed.

Overall, the 30 year yields trend is negative as it pulls the SPX (green) toward it and it is dislocated badly just as almost every other leading indicator (see HYG above on a trend scale-the same time, the same place, the same huge dislocation , all bearish for the market.

As for High Yield Credit, spreads widened dramatically- the oil sector's HY credit is about to be decimated. As such HY Credit fell even faster and harder.

Why does no one ask themselves why professionals (as retail doesn't trade HY credit) sell a risk asset as the SPX, a risk asset moves higher? This is ONE OF THE SCREAMING MESSAGES OF THE MARKET COMPLETELY IGNORED AS TRADERS WHISTLES PAST THE GRAVEYARD FOR A +0.38% SPX GAIN ON THE WEEK!?!?

 The accelerating SELL-OFF in High Yield Credit...

And the trend...

In white HY credit leads the market just as HYG did, at the first red arrow a large negative divegrence right at the stage 3 head fake move and a cluster of Hindenburg Omens and now, a much, much larger divergence.

Compare to HYG (HY Corp, Credit) or Yields or professional sentiment, it doesn't take a genius to figure out these are leading indicators sending a very powerful message that will be ignored until people ask, "Why the heck did I ignore that when it was staring me in the face for over a month?"

Speaking of Hindenburg Omens, today was the 3rd in 4 days, although I have had an email that would suggest this is the 4th in the cluster, a bearish signal either way.

The $USD was up +1.25% on the week because of Yen weakness and fading Euro strength after the ECB yesterday, however as mentioned, CITI believes it's time to abandon the USD/JPY trend and trade against it-I didn't read their reasoning, but it falls in line with out macro indications for each currency.


As for other leading indicators...

Pro sentiment traded down again, although not surprising as you can see the same in HY credit...

 Pro sentiment vs SPX...

And again the trend, compare to yields, HYG, HY Credit, take your pick, all screaming!

To the far left sentiment leads the market, at the red arrow a negative divegrence just as all the other leading indicators and 3C at the stage 3 head fake Sept. high and now, well it best speaks for itself.

Gold was up 2% on the week- best in 2 months, Silver up 5.14% on the week and the best performance in 6 months while oil was down -0.75% hitting the lowest levels since July of 2009 and 9 of 10 weeks in the red, yet trannies still underperformed.

Internals...

The Dominant Price/Volume Relationship was only seen in the Dow and the NASDAQ, the SPX and Russell 2000 had no dominant relationship. As for the Dow and NDX, it was Close Up / Volume Down which is the most bearish of the 4 possible relationships with 13 Dow stocks and 45 NASDAQ 100 stocks.

Of the 9 S&P Sectors, a moderate 5 of 9 closed green with Financials leading at _0.89% and Energy lagging at -1.19%.

Of the 238 Morningstar Industry/Sub-industry groups, 164 of 238 were green, roughly the same ratio as the S&P sectors and not showing any extreme movement , nor was the Dominant P/V relationship.

As for tonight's breadth charts... The McClellan Oscillator...

 The MCO is turning down as it has at the last 2 pivot highs along with several other similar breadth indicators (see last night's)

 The 4 week New Hi/New Lo Ratio is also turning sharply negative as it has at the last 2 pivot highs,

And like last night's % of NYSE Stocks Trading ABOVE Their 200-Day Moving Average (at 50%) which I showed with a 5 -day moving average to be rolling over, here's the same, except trading 1 Standard Deviation Above the 200-day Moving Average, from in line and moving up as it should at the green arrow to making lower highs consecutively and also near a roll.

As for Index futures, I showed quite a few last night and this morning, in addition, a weak 3C close for Index Futures intraday.

 Es weakening after a 3C negative divegrence this afternoon and a deep divegrence in to the close.

 NQ shows why the NDX closed just in the red, poor performance all day and significantly lower than the Non-Farm Payrolls at 8:30 (white hash mark)

TF R2K futures also with an afternoon strong negative sending prices lower, needing the levers to ramp it and a strong leading negative in to the close.

And the rest of the full house as seen Sunday...

 ES 5 min negative

TF 7 min negative

NQ 30 min negative

ES 60 min negative

And TF 4 hour negative.

Surprisingly one of the main events of the week was the Treasury curve flattening and to the extent (2y-30y yield spread) that it occurred, as mentioned, the worst since Lehman Brothers failed in 2008, which is a reflection of the market's anticipation of the F_E_D to hike rates sooner than later, sop all in all, it turns out this morning's Non-Farm Payrolls' good news was actually bad news if you follow the logic as the last thing the market wants is a rate hike. I'll continue to follow this development as it unfolds.

As usual, if anything pops up Sunday night or in the news before then, I'll bring it to you, otherwise have a great weekend.

30-year - 2 year Yield Curve Flatter than when Lehman Failed

I'm updating internals and will have a lot more for you shortly, interestingly today was the fight between the 5 year Treasury yield (and the 2 year more so) and the 30 year as they essentially went separate ways, but both seemed to have some impact on today's intraday trade.

The reason for this divergence is called a Flattening Yield Curve, which just hit levels today that haven't been seen since just before Lehman Brothers failed in 2008.

There's a lot more including our macro trend, USD/JPY down as CITI warns that it's time to fight the crowded trade and fade USD/JPY strength. Whatever the reasons for the movement and their opinion, this has been a recent macro trend, $USD weaker, $JPY stronger. Also a stronger Euro which we got a taste of (as well as a weaker $USD) yesterday as Draghi and the ECB failed to pull QE out of their hat as was widely expected at the December meeting.

This and more coming....

VIX Slam

Check out the 3:48 p.m. VIX slam, to keep the SPX green by less than a tenth of a percent on the day? If that's not a message in itself...

Index Futures Like Last Week

Again the negative divergences in Index futures, especially the ones I require to be divergence for a trade, the 5 min at least and the 7 min, are pressingly negative and in some very real ways, deeply leading negative just as they were in to Sunday night's open and drop as well as Monday morning's cash open and severe drop to an oversold status in about 30 minutes that the market has barely worked off the rest of the week, the IWM, Transports & the NDX 100 still below Friday's close, with the SPX bare above, just about dead even, after Monday's downside, it has taken all week to repair and in some cases not even repair the damage done in 30 minutes or so.

Again those same divergences are in place. With the larger picture divergences shown again last night, I don't know how anyone could possibly ignore them unless they haven't seen the ability of Leading Indicators to give signals, in this case they are literally off the charts, larger than seen previously.

I'll remain short, remain patient and add where possible when possible.

More to come...

AAPL Trade Set-Up Update

I'm still watching AAPL, still surprised it has not come to the rescue of the QQQ this week which are still lagging badly today.

 This 60 min chart of AAPL shows the 4 stages of a trend, that can be found in multiple timeframes, it''s a map, know where you are and know where you are most likely to go next. In this case we are at a stage 3 top with some distribution, however it is not so heavy I'd consider this a core short which is why I've wanted a concession for a short sale entry, a bounce giving better profit potential and lower risk as well as giving us a look at the 3C chart during the bounce telling us whether it is under distribution or not. We still haven't seen that move, but there has been some worsening of the charts.

 30 min in line perfectly with a negative divegrence, but not a screaming divegrence jumping off the chart, again my reason for wanting a concession in the way of a bounce/

 The 10 min chart shows some additional weakness building in AAPL.

As does the 5 min after showing near perfect trend confirmation to the left, however the price concession I've wanted it a gap fill or above the triangle area, which is a better risk/reward ratio.

This week charts like this 2 min have seen additional deterioration making AAPL more interesting without the bounce, but considering other opportunities, I'd still like to see the bounce or worsening charts.

The 1 min which confirmed the uptrend and is now worsening to the downside/distribution.

I'll continue to wait, but perhaps this gives some of you some extra information to go off

Still Like FAZ (3x short Financials) as XLF looks to give up gains

I've been talking with a few members today specifically about financials and my general thought has been, "Lets see if XLF can hold its gains today, I don't think it can". This would make a FAZ entry or add to or even a current position very interesting.

As I suspected from early charts, it doesn't look like XLF / Financials will hold gains, in fact it appears they have been distributed in to today's price strength which may be part of an op-ex max pain pin.

The charts...

 XLF / Financials 60 min chart with a deep leading negative divegrence, far worse than the September high negative.

Intraday it doesn't look like XLF is holding gains well, much less momentum with distribution obvious, I suspect today's move was largely op-ex max pain related.

 2 min chart with negatives in to last Friday and in line on the Black Friday week (last), with a close to in line oversold bounce this week with weakness and today's increasing WEAKNESS

 3 min chart migration , in line on the week of Black Friday with the same negative market wide last Friday-actual Black Friday with Monday carnage and in line this week on Monday's oversold/selling climax with a leading negative divegrence in to today's move that never reached confirmation.

 3 min intraday

5 min negative hitting a new low on the divegrence

And the larger 10 min trend since the October lows.

I still like FAZ-3x short Financials quite a bit.

High Yield Corporate Credit-Pressing Advantage

The most simple way I can describe High Yield credit is as an institutional (long) risk asset , similar perhaps to the way we might consider UPRO (3x long SPY) a long biased risk asset when we are bullish the market.

Institutional money obviously has the edge in every way from inside information directly from the F_E_D to speed, experience and money. It would be crazy to trade against institutional money, but how do we know what institutional money is doing ? 3C is an attempt to answer that question, but one far more readily available , yet little known is High Yield Credit whereas Investment Grade Credit is akin to the flight to safety trade or moving from long stocks to long bonds.

What happens when the stock market and HY Credit disagree? Who do you think is smarter? Better informed? Has the assets to move the market?

And now you know why High Yield Credit has been among our Leading Indicators since we introduced the layout. It would be foolish to trade against smart money, but that's what happens and HY Credit as a leading indicator has warned us many times in advance, thus giving rise to the market maxim, "Credit leads, stocks follow".

A quick look at HY vs the SPX...

 This is HY Credit in red vs the SPX in green since the lows of 2009.

Typically in a risk on move that is legitimate, HY Credit and the market (SPX green) should move up together as they do here as both are risk assets.

If we look closed at the 2009 low...

Note that both the SPX and HY Credit both sold off together in to the 2007-2008 decline, but HY credit bottomed first and was already making a higher low (positive divegrence) by the time the SPX (green) bottomed, thus HY Credit was leading the market as it typically does when they are not trading together.

After...

HY Credit (red) moved up together with SPX (green) as both are risk assets.

However recently something big has changed, HY Credit is making a series of lower lows and lower highs, a downtrend as opposed to the SPX's "apparent" uptrend (I say that because I believe it's truly a Broadening megaphone top).

In any case, Institutional traders are essentially running scared, no longer interested in trying to top tick the market, but moving quickly to get out of the way of what they clearly expect to be a large move to the downside as there has never been a divegrence this large in Credit vs the market.

Who do you think has the better information? It's like the parable of the Army Captain and the minefield. Just because the captain closed his eyes , walked across the minefield and survived, doesn't mean that this is the proper course of action and it's a lesson that will eventually end with the captain's demise.

Of more recent interest is the HY Credit divergence between stocks and itself at the October rally, one of the biggest ever.

In yellow is the last divegrence that we saw and called for a top, it's barely noticeable now because of the size of this one.

 Intraday HYG gave some support, but has faded since without ever going green.

This 3C chart shows today's intraday HYG support, but more importantly...

 The larger 2 hour 3C chart's trend tells us to look for lower HYG lows.

As for the recent bounce to help the market, which remains below yesterday's close, note the 10 min leading negative divegrence, beyond the 5 min chart I was using as a barometer.

Know when the market supports your position and when it does not and I would not ignore this rare glimpse in to what institutional money is really doing, it's a red flag that few know to look for and it's screaming the message of the market right now.