Quick Futures Update

I wanted more time to see how a few charts would pan out before coming to any thesis, but after watching tonight's futures actions, I feel pretty confident that the bounce that seemed destined for today will occur tomorrow, perhaps even through the overnight session and in to tomorrow.

Again, nothing has changed about the bounce's importance, it's best used in my view without any hesitation or doubt to sell or sell short in to as the intermediate and long term/macro themes are defiantly bearish, thus it's an opportunity, I'd use it as such.

I'll update the charts in the morning, but this seems to be the clear near term direction, which takes nothing away from the damage and selling today which was quite intense, today was not a set up for a larger bounce, it was a failure of a bounce set up too weak to hold on its own so I fully expect levers to be employed tomorrow including USD/JPY, maybe a VIX slam, perhaps HYG support, but the big picture is still to the downside. This is in my view nothing more than distraction, the market doing what it can to keep traders on edge and in losing positions, shaken out or lulled in to false security.

Price is deceptive, but in this case, we have a pretty good idea of what it's going to do, use it to your advantage.

Interesting

From what I see, there are still short term divergences including the negative $USDX, positive Yen, positive USD/JPY, and some positive market averages and Index futures.

There are some very strong, long term charts that made extraordinary moves lower (3c charts) today showing VERY strong weakness in the market.

I'm not sure what to think of these yet. Perhaps an overnight bounce or perhaps it's an anomaly, but there seem to be enough that I'd guess there's something to it that has to do with a bounce.

The 7 min and longer term Index futures saw price move in their direction, they are the highest probability and they still look fantastic.

In other words, if there were to be a short term bounce, even a very strong looking one, I'd have almost no doubt that it would resolve to the downside, but again it would be extremely useful in entering short positions if you still need some. Otherwise, although I expect the market to shake the tree every which way to confuse the most number of traders, in my view there's no escaping the fact this market is headed SIGNIFICANTLY lower and I don't say that lightly or with any sense of hyperbole.

As these signals in the very short term are strangely positive in a number of assets and negative in others that confirm such as 1 min VIX futures, I have decided to wait for a little while and see what develops in futures before the daily wrap.

In case I haven't been clear, I suspect there's a high probability of upside volatility, whether overnight or perhaps in the next day or so, BUT IN NO WAY WOULD I CLOSE ANY OF MY SHORTS AS I HAVE NO DOUBT (IN MY MIND) THAT THIS MARKET IS HEADED SIGNIFICANTLY LOWER AND THAT'S WHERE HUGE OPPORTUNITY,  MORE THAN THE OCTOBER UPSIDE RALLY, LAYS.

So I'll try to figure out what these short term positives or at least lack of confirmation as they aren't the typical positives that are clear, they just haven';'t confirmed downside, whereas some very long and much stronger charts have made much stronger moves to confirm downside moves today, to an extent that is surprising so once again, any upside price movement in my view should be sold/sold short and positions should largely be in line with a significant move lower in the broad market and most equity assets.

I'll update as soon as I feel I have a useful insight on the short term, I think I've made abundantly clear my insight and thoughts about the bigger picture and where the opportunity is.

Leading Indicators....

This is why I have maintained my shorts, it's not anything more than the most outrageous, "Off the chart", "Uncharted waters", type divergences I have seen.

When I say, "Knowing what we know and seeing what we've seen, I couldn't be long this market and sleep at night" and that wasn't hyperboles, especially when you consider the market has effectively not moved at all in 2 weeks while everything screaming red flag is way beyond what I've seen and I've studied markets bull and bear through all of the 20th and 21st centuries as well as the psychology of every major bubble since the Dutch Tulip Craze.

Looking at some of these longer charts which you have seen dozens of times if not more, like I said, people will look back and wonder why they ignored these red flags staring them in the face, unless like the majority of traders, they don't know where to look beyond a moving average or some technical system like EW.

Looking at the shorter term Leading Indicators, I don't have too much doubt that the market did have an earlier plan which was along the lines of what we were expecting, I think something just broke as it often does when a market is this broken (perhaps you recall my analogy comparing the market to a pier over water and the signals we have seen like the pilings below that you can't see, but are eaten away and all it takes is a wave with a little impact to bring the whole thing down".

That's my guess, although we may find out in a little bit that there was an actual impact event, perhaps further tightening in China, who knows, but this is why I have Kept my positions aligned with the path of highest probabilities as I think this is the likely outcome and I have believed this since the first week of October when we were predicting a monstrous bounce that few will be able to imagine, BUT AN EVEN WORSE DECLINE AFTER THAT.

My Initial SPX Target and some areas of interest/congestion...

 Our Custom DeMark inspired Buy/Sell Indicator and Bollinger Bands you usually see on the VIX applied to the SPX. Note the last sell signal was a 1-day signal, at the exact top of the September head fake (Igloo with chimney-head fake high at the rounding top/igloo's chimney or head fake move).

Then a perfect buy signal at the exact bottom of the October decline on a large Hammer (green). Now, note just how large the current sell signal in the SPX has been .

 The SPX "Change of Character Leads to Changes in Trends", with a nearly perfect channel through 2013 and a very clear, volatile turn to the side/lateral.

Although the main stream financial media got people to focus on new highs rather than the actual large Broadening Top,  as EVERY BEAR MARKET over the last 20 years and some might say the important ones over the last Century, have started their decline at NEW HIGHS!

 A closer look at the SPX's Broadening Top, there are the typical 5 points of contact that are usual before a B.T. breaks down and the inital break was a head fake and a volatility shakeout of new shorts who would have entered on the break of the lower trendline. This is the EXACT same concept as the Head and Shoulders Top's initial break below the neckline and subsequent Shakeout back above the neckline, which is the 3rd and last place I'll short a H&S top, BUT NEVER at the break of the neckline where Technical Analysis teaches traders to go short as Wall St. is all too familiar with TA and knows EXACTLY how traders will react, where they'll put their stops (just above the neckline or the lower trendline in this case) and then they'll use the bear trap momentum to shakeout new shorts which causes upside short squeeze momentum to create a Crazy Ivan Shakeout which shakes out both the shorts (already done) and the longs (happening now) by using a bear trap and a bull trap and the associated momentum each causes.

The most recent head fake is ABOVE the upper trendline of the Broadening Top as this break ABOVE is a head fake move. Technical Analysis teaches that a break ABOVE the Broadening Top NULLIFIES the price pattern and traders should go long. 

WALL STREET KNOWS THIS, WHY DO YOU THINK THEY DO IT!

MY DOWNSIDE TARGET FOR THE INITIAL NEXT LEG/PIVOT IS BELOW THE LOWER BROADENING TOP TRENDLINE.

However the market never makes it easy and will try to shakeout as many traders as possible. Here are some of the KEY choke points...

The major moving averages (10, 22, 50, 100 and 200), expect volatility and head fake moves around these areas. While I may trade some of these area, I CAN'T IMAGINE ANY REASON FOR CLOSING THE CORE SHORTS I'VE HELD, NOT UNTIL WE ARE BELOW THE BROADENING TOP...THE NEXT LOWER LOW I HAVE BEEN ANTICIPATING.

As for Leading Indicators (and I do want to check Futures thoroughly as well, although it won't change my core positioning)...

 The short term SPX/RUT Ratio Indicator was supportive of a near term bounce today, however it has maintained a much larger negative signal for the top, not confirming higher prices.

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For instance, the SPX/RUT Ratio is showing  VERY clear negative signals with a short term positive that would be supportive of the bounce expected earnlier today, however this pales in comparison to the size and length of the much larger negative/non-confirmation signal.

High Yield Corp Credit leads the way lower today, apparently NO attempt to provide the market with support.

This is exactly what I said this morning, why buy HYG as a lever and be stuck with that position as the market comes down opening themselves up to a large loss when a short squeeze can be used, they can easily buy the covered shares and sell them right back to the "Buy the Dip crowd" and end the day flat any new long positions.

 HYG showing support the week of Black Friday as we expected with consumer sentiment already so negative. The masses don't understand PPI, CPI, NFP, etc, but they do understand the news on the radio on the way home from work saying, "The Dow lost 200 points today", that's not the kind of sentiment the politicians, the F_E_D or any retailer wanted for the week leading up to Black Friday. However since Friday itself as people are already out shopping, HYG failed early, leading to the following Monday's sharp decline leaving the market oversold short term by 10:30 a.m. Monday morning.

Since the bounce off the oversold Monday lows, HYG has just created one negative divegrence after another and that's not even what would keep me awake at night, it's this...

 HYG divergent at the late July highs leading to the August decline and lows which HYG led the SPX by 4 to 7 days before collapsing in to another negative divegrence at the September head fake high leading to the October lows (lower lows)  and now a much worse, probably the worst dislocation and largest divegrence between HY Credit and the SPX. This is the kind of chart that would cause me to lose sleep if I were long the market. How anyone could ignore this screaming red flag is well beyond my comprehension, but it happens at every bull market top/bear market decline.

High Yield Credit was in line with the SPX today.

 Again, the last divegrence between HY Credit and the SPX was at the September highs and while clear, no where near as big as this one. How could people be long in a market that has experienced no gains in more than 2 trading weeks with unprecedented charts like this just waiting to break to what will likely prove to be  unprecedented lows?

This is the PIMCO HY Fund, it offered support and it looks like again today where the samll positive divgerence was, then something just ran it over, but it does appear that was the initial plan.

 Pro sentiment was in sell mode as it has been, in fact another Leading Indicator SCREAMING "Trouble Ahead!"

 This too showed a negative divegrence at the September highs and an unprecedented divergence vs the SPX since October.

 TLT picking up momentum -the flight to safety trade in to bonds sending yield crashing lower, but also sending the Treasury Yield Curve to its flattest since 2009.

5 year yields were more or less in line with the SPX, but the 30 year were worse.

Even though it looks like the 30 year was going to offer market support intraday at our positive divegrence around 12:30-1 p.m. before it all broke loose.

 And another Leading Indicator that's out of control and literally off the charts.

The VIX with a recent buy signal in our custom indicator as well as the pinching Bollinger Bands that have indicated a highly directional move was nearby, it looks like it started today in earnest.

More to come...

Perhaps a USD/JPY led Bounce In To the Close

Looking at TICK and 15-60 min 3C charts, that was real selling, no doubt. However the $USDX has a positive divegrence, the Yen has a negative divegrence and the USD/JPY, as it should with those two in that condition, has a positive divegrence.

The Index futures have been virtually glued to the USD/JPY, so I suspect it tries to bounce in to the close.

$USDX positive intraday, still holding up.

Yen with a sharp, recent negative divegrence.

And USD/JPY with a positive, all 3 confirm.

I'm checking on Leading Indicators right now.

This Looks like the real deal

As I often warn, with small divergences in an increasingly volatile market, they are more commonly run over.

I don't have the confirmation through all timeframes, but the ones that are, are some VERY significant ones. The USD/JPY has fallen wand taken ES with it, Yields are crumbling, TICK is looking horrible on a sustained basis and as for the averages...

 SPY 1 min is in line with the decline, I see NO short term accumulation of the lows, this looks like the real deal and it should given everything we know about the market.

The SPY 3 min which shows the smaller positive divegrence of today, run over.

It seems the theory that yesterday's move was just a move to get market makers and specialists out of losing inventory is probably exactly what happened.

 SPY 5 min is moving down, not quite at confirmation, but there are heavier or stronger signals showing stronger distribution.

This 30 min chart has been where the probabilities have been the whole time and as I said Monday morning, we are likely to be breaking the Broadening top as we already had a head fake move, my expectation would be a move toward the bottom of the top's trendlines.

 QQQ 1 min is VERY close to confirmation

The 5 min chart is right at confirmation

More impressively, the 15 min chart which would be showing LARGE transactions is deeply leading negative, I suspect this is very strong selling that is the real deal, at least as far as we can see.

And the QQQ hourly chart, where the highest probability resolution lay, shows a strong intraday move today which is uncommon except in very heavy selling.

IWM 1 min is about in line and leading as expected.

The 3 min chart is leading negative

 Again another sharp move lower intraday by a 15 minute chart, again, a very strong and unusual move.

TICK confirms as breadth has been consistently below -1000 to -1600

And my custom TICK//SPY indicator seems to confirm

I don't chase assets so right now is about managing positions already entered, I have been fully short and ready for this and I believe many of you have.

So for now, I'll be looking for additional opportunities, but this is largely management of positions we already set up as they are working for us and watching for anything that may pop out as a surprise, but this does LOOK LIKE THE REAL DEAL.

Near Term Expectations...

While I think the concept of near term expectations with a bounce intraday to create a rounding top or other pattern that is part of reversal process which includes the 1-3 min charts going more negative and migrating to the 5 min chart as mentioned last night and turning it negative (the area where we should have the best short entries at the best price/least risk and best timing as well as excellent confirmation) is probably pretty well understood by now with indications like the $USD short term strength , Yen short term weakness, USD/JPY short term strength allowing the reversal process to play out  (all of which I have covered today and yesterday) which is about distribution in to higher or at least prices in the area from yesterday's intraday highs as it's very rare for smart money to sell in to weakness. By the time the market is showing weakness, smart money is already well positioned. This is one of the biggest Technical trading misconceptions, that large volume on a move down is smart money selling, that's smart money causing a selling panic, as you have seen over weeks, months and many of you even years, smart money is quiet about what they do , accumulating in to weakness and flat ranges that look dull or selling in to strength or top/ranges that look dull, but are actually extremely busy areas for underlying trade.

This is what we do, follow the footsteps of smart money, thus the reason we are in trades earlier, in position earlier and often selling or selling short in to price strength, but underlying equity weakness (smart money distribution) or vice versa, buying weakness, stop runs , etc. as smart money is accumulating in to that same weakness / stop runs, etc. They do it for several reasons, but not the least of which is the size they trade in.

If smart money sells in to strength in the size they trade in, they'd flood the market with supply sending prices deeply against their positions. If they were to buy in to price strength with the size they trade in, the supply demand structure would be severely tilted toward low supply and high demand causing them to pay up at very high prices, once again... against their position. They do the opposite which is what we are looking for today.

Hopefully these charts of the SPY will give you an expectation of "roughly" what to expect near term.

For a review of probabilities based on near term, intermediate term and macro trends, see this morning's A.M. Update gives a view of short term/intraday 1 min charts, intermediate 7 min charts and a brief review of the macro themes that are already in effect and are the highest probability outcome as well as being in line with other high probability outcomes such as leading indicators, divergences in credit, yields, market breadth, SKEW Index, etc.

 The SPY 1 min chart leading negative last week in to this week with a price decline of the near term distribution from late last week (this is more of a timing chart/timeframe for moves to occur).

You can see the positive divegrence at yesterday's opening and a.m. intraday lows (white arrow) and the negative divegrence in to price strength yesterday afternoon on a short squeeze which tells you something in itself, smart money is not going to pay up to buy stocks up 3+% on the day because of a short squeeze. The SS was used as a lever as market makers and specialists would have been at a loss with inventory near Friday's closing levels with the Chinese based tightening actions sending prices gapping lower yesterday, leaving the middle men who work for the larger forms like Goldman Sachs, Morgan Stanley, etc, at a loss. Thus the Short Squeeze allowed them to sell that inventory at similar price levels as Friday's close, not to accumulate those equities.

The 1 min chart is negative and has migrated already to longer charts.

 Here a closer view of the 2 min chart shows the early week weakness/negative divegrence leading to yesterday's gap down and early accumulation at the lows to support the market and keep it from falling further, then distribution in to the afternoon highs which was accomplished with some levers like HYG, but mostly via squeezing the Most Shorted Stocks. Today's smaller intraday positive is what I was talking about last night allowing smart money to finish the reversal process as we should see any price strength from here toward yesterday's closing highs distributed.

The stronger these short term 1-2 min divergences become, the further they migrate out to longer timeframes and since yesterday's early accumulation of the lows stretched out to a 5 min chart, that's the timeframe that must seen a negative divegrence through the process of 3C migration (distribution which is stronger) showing up on those 5 min charts.

 3 min SPY with the same weakness late last week in to Monday, the gap down and small accumulation to support the market, which also allows market makers, specialists, HFT's that might have been caught off guard to buy at the lows on the cheap and sell in to higher prices near Friday's close, sort of averaging down to get out of the higher priced inventory they were stuck with as of Monday morning's open, which can be a substantial loss.

Then distribution in to the intraday highs and today's smaller accumulation intraday to send prices higher to create or finish the reversal process/distribution.

This SPY 5 min chart shows the positive divergence at yesterday morning's gap down and in line on the short squeeze, this chart has already seen some deterioration, but as the 1-3 min  charts get worse, this 5 min chart should get worse and follow along the lines of the orange arrow, to a deep leading negative divegrence.

While I can't say exactly what the finished process will look like, I'd imagine it would look something along the lines of the SPX chart below...

The orange being price to come from where we are (thus higher prices in some assets to short into so long as there's clear signs of distribution in to higher prices, giving us an excellent entry, lower risk and ultimately better timing. While I'd expect a move that creates a broader "rounding top" between yesterday's highs and today's, there may be a head fake move to trap bulls above yesterday's highs as they will buy confirmation of a breakout above yesterday's highs, allowing smart money better short sale or sale points, then we should see price start to roll over and move to a lower low.

This is what the near term, intermediate and longer term charts are indicating as well as the charts we expected to move earlier this morning, long before they moved like USD/JPY which is finding a toe hold after last night's losses.

I'll let you know if I see anything that looks like a change in this thesis or anything telling us we are close and of course any assets that look like excellent set ups, as you know AAPL has been one I've been closely following as well as numerous others.

I hope this helps to lay out the concept of what I have been talking about since last night and clearly through today. Being forewarned is being able to take advantage of the situation and use it to your benefit.

USD/JPY / Market Update

As explained this morning in the A.M. Update , specifically the Yen & $USD and USD/JPY as well as how that effects the Index futures,I expected some short term Yen weakness, some short term $USDX strength, thus USD/JPY short term strength that helps the index futures as we still should see the averages' 5 min charts go negative, as explained in the last post, Early Indications.

I'm seeing the ingredients now that are needed for this scenario to play out with some short term strength or at least price in the area to create the reversal process as the 1, 2, and 3 min charts get progressively more negative and turn the 5 min chart which went positive yesterday , back to negative, which is where we want to short in to price strength and be ready for the market to continue lower.

The charts I'm talking about as recent evidence and the way they influence the market short term via USD/JPY...

 Yen Currency futures now showing a negative divegrence intraday on the 1 min chart, remember it was Yen strength overnight and USD/JPY weakness sending the Nikkei 225 lower by -2.25%. Also the USD/JPY sent the Index futures lower both pre-market and in morning trade. Although , as I said I do expect some short term strength (even in last night's posts) , the highest near term probabilities are for the market to continue lower as represented on the 7 minute charts from this morning's A.M. Update not to mention the even stronger probabilities of the MACRO TRENDS expected (weak $USD, strong Yen, Weak USD/JPY, weak SPX, Russell 2000 and NASDAQ 100 futures).

In addition, the $USDX is showing a 1 min positive divegrence as expected. Between a weaker Yen (short term) and a stronger $USD (short term), they should send the USD/JPY higher (short term) and pull index futures with it (again... short term). These are all expectations not only from last night, but more specifically this morning's A.M. Update

 The $USD/JPY 1 min overnight seeing downside with 3C confirmation (green arrow), which has now turned to a small positive divegrence as would be expected with the Yen and $USDX divergences above.

How the USD/JPY carry cross effects Index Futures (ES/SPX E-mini futures)...

 This is the market close yesterday with USD/JPY as red/green candlesticks and ES (purple line).

Note the tight range in ES last night, that's when I posted, Index Futures last night as they were getting ugly. The USD/JPY broke down first, but it didn't tale ES / Index futures long to follow...

And here's the rest of the night and pre-market to the present with USD/JPY and ES correlating beautifully since around 7 a.m. EDT.

So I do expect a bounce intraday as I have said since last night and I expect the charts to continue to deteriorate which makes for a good area to sell short in to strength before the next move to the downside begins which is the highest probability as we have close to a full house across multiple timeframes and multiple assets, all negative, we just need some short term positives from yesterday mostly on 5 min charts to turn negative and they are most likely to do that in to some intraday strength which I believe is about to start, which also gives us a great opportunity with short trades as they come to us at better prices, lower risk and we have confirmation of the charts turning negative which also gives us better timing in our entries.

However, if it starts to look like the market is just going to run over those divergences and move down I'll let you know, although I suspect most of you are already positioned as I have been.

Early Indications

It looks like as I said in the A.M. Update, that both pieces of analysis last night that seemed contradictory with the day time charts still needing to see the 5 min charts go negative before we continue to a lower low, would need to happen, but at the same time last night's very negative Index Futures were also correct, something last night I viewed as one or the other, but it looks like both could be correct. Remember last night's very ugly index future charts were short term 1 min charts, thus the intraday ugly action this morning and overnight. However what I failed to take in to account was the 1 min charts for the averages which were negative, I was thinking about them needing to migrate through the 2, 3 and 5 min timeframes before this bounce would end and we'd see a lower low, WHAT I FAILED TOI CONSIDER WAS THE 1 MIN NEGATIVE AT THE CLOSE YESTERDAY AS 3C CHARTS ALMOST ALWAYS PICK UP WHERE THEY LEFT OFF AT THE CLOSE ON THE NEXT OPEN, EVEN OVER A 3-DAY WEEKEND.

And the 1 min charts ended the day yesterday negative, thus the negative action this morning would be right in line, instead I was too focussed on the migration process from the negative 1 min charts needing to migrate through the 2, 3, and 45 min timeframes and the very sharp, very ugly index futures and seeing them as competing signals , in fact they were exactly the same, the short term was very negative, but the migration does need to continue and to that end I believe we are near intraday lows for the morning session and likely to see an intraday bounce to allow those 5 min charts to go negative and create our next lower low.

The 1 and 5 min 3C charts for the major averages

 As you can see, as I said last night the 1 min and many 2 min and some 3 min charts are already negative and need to move to the 5 min chart. Thus the negative 1 min chart was reflecting a lower open, but right now it looks like it's starting to go positive on an intraday basis which will let the process of migration through the 5 min charts to continue as they'll distribute in to higher prices, not lower, the same as we want to short in to higher prices or buy in to lower prices, not the other way around and in their size, it's essential unless they want to send the market against their position.

SPY 1 min is starting to see an intraday positive after yesterday's afternoon closing leading negative.

The SPY 5 min chart from earlier in the week negative and yesterday's bounce off intraday lows -this is the chart that still needs the migration process of the 3C divergences to continue until this chart is leading negative again, then we should be looking at a lower low being made.

The same with the 1 min IWM which is now going positive 1 min intraday

However this 5 min IWM chart which was negative in to this week saw a positive divegrence at yesterday's lows and this chart is still in line and thus needs to see negative 3C divegrence migration across the 2, AND 3 MINUTE TIMEFRAMES ACCELERATE AND TURN THE 5 MIN CHARTS NEGATIVE, THEN WE'LL BE READY FOR A LOWER LOW AND IT WILL GIVE US AN OPPORTUNITY TO SELL SHORT IN TO SOME PRICE STRENGTH.

 DIA 1 MIN NEGATIVE AT YESTERDAY'S CLOSE, THUS THIS MORNING'S GAP DOWN, IN LINE WITH LAST NIGHT'S VERY NEGATIVE 1 MIN INDEX FUTURES POSTED, BUT NOW AT A POSITIVE INTRADAY DIVEGRENCE WHICH IS NEEDED AS I SAID ABOVE, DISTRIBUTION OCCURS IN TO PRICE STRENGTH, NOT THE OTHER WAY AROUND AS MOST RETAIL TECHNICAL TRADERS BELIEVE.

 DIA 5 min with a negative in to this week and a positive at yesterday's low on a 5 min, which is the last timeframe we need to turn negative to enter shorts and look for the next lower low.

 And QQQ 1 min positive in to this morning's lows, although on a relative basis, the underlying trade in QQQ right now is the worst looking with IWM a close second.

And QQQ 5 min, clear negative in to this week and a positive at yesterday's lows, the chart is in line right now, it needs to go leading negative.