More than once recently I have described the market and being long in the following terms...
Friday, December 5th's Daily Wrap...
"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!?!?"
December 10th's Leading Indicators....
"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."
It didn't take long before our Macro themes on long term 3C charts and signals such as this SPY long term chart,
OR...
This is why it's hard for me to believe people could be long and sleep at night, however I have to remind myself that they are largely using the same tools Wall Street uses against them every day and they don't have privy to the same information we have although I post the occasional warning as part of my civic duty.
The result... As I have often said, when things are this bad you are likely to wake up on some unassuming morning and see weeks of market gains erased in a single gap down.
As for this week, I'm sure you've already heard, the SPX had its worst week in 2.5 years and while each charting system starts their week off on a different day, I think the point below is well taken...
You may have even heard that the last time this happened was just after the 2007 SPX October high that led to a massive decline in to the 2009 lows, wiping out 5 years of bull market and an additional -15% in less than 18 months.
The Dow Industrials were at the worst weekly loss since 2011, 3 years!
The media's 30-second sound bite is that this is all because of oil which saw WTI crude have its second worst week in 3 years, however...
In fact even Transports that should sky-rocket on falling oil prices declined.
Taking it a step further, if we look at the correlation between ES/SPX futures and SPX itself...
However the market's correlation to oil...
sits at .607 for the week and that's only that high because both were falling.
When oil prices were up, the media blamed market weakness on them, when they are down, the media blames the exact opposite cause on weak market prices. The fact is oil is only one of dozens, maybe 100 or more indications that have all been telling us the global macro economy is slowing, oil isn't presenting any new fundamental data!
As for our macro themes in addition to the worst weekly market performance in 3 years, one of our macro themes...
-Financials had their worst week in 2 months while it was just this past Monday XLF (Financials ) short and FAZ (3x short Financials ) long was put out as a trade idea, XLF (short) / FAZ (long)
-Materials had their worst showing in 38 months.
-The VIX buy signal and pinching Bollinger Bands that indicated a highly directional move up sent VIX to its best weekly performance in 38 months!
HY Credit which we have been screaming about (see the chart above) saw its worst week since May of 2012.
Even the safe haven of Investment Grade Credit saw its worst week in 2 months.
Yields have been a macro trend and leading indicator seeing the 10 years worst decline in yields since June of 2012.
The $USDX which has been a macro theme of weakness saw its worst week since July of 2013 and Yen strength a macro trend helped with the $USD weakness to send the USD/JPY (another macro trend) to its worst weekly performance since July 2013.
The Greek stock market is seeing its worst performance since 1987!
Yet the traditional Santa Claus rally through December and especially the last week as Window Dressing takes place should be upon us.
If this isn't a change in character, what would it take?
Yet, I suspect there to be a short term game afoot, I've been struggling with its analysis all week among a declining market, and it might just be initially tied to hopes of a Santa Claus rally, it's the range in the RUT which I mentioned numerous times later this week as a perfect head fake spot to act as a timing mechanisms to a real fall that's beyond "Worst week since...".
In just over 6 trading weeks the Russell 2000 has moved a total of 0.29%, a tight and obvious range primed for a head fake and fantastic additional short entries if I've ever seen one.
What better way to ensure a bull trap than using the IWM.
While this has been a rather new theory for me, there's some recent evidence that suggests such a scenario probable or growing in probability.
First the daily VIX close.
While accumulation very short term in HYG late this week...
W/hat would be so different this time other than the market is in much worse case.
I figure the worst that can happen is our short positions continue to gain on a downside move if such a head fake move doesn't present itself in the Russell 2000, but better case scenario is offering fantastic entries, lower risk and the best timing you could ask for before a move of even greater downside momentum than this week's occurs.
So far it's a working thesis that I've already presented Friday, but I'll stay on top of it, don't shy away from any such move, this is the gift that few know to take advantage of.
I'll keep you up to date as best I can with the best entries possible (as I called very few this week for obvious reasons now looking back in hindsight as the 3C signals for short entries in to price strength weren't there, no wonder after we see the week's closing performance-We Don't Chase OPrices, we let them come to us and this looks like a fantastic potential set up.
