Everything is moving just about as perfectly as I could hope for and nothing ever goes perfectly as you'd hope for in the market, but it seems that our theory is coming all the way around to fruition.
After this I see little reason not to be looking at individual assets for positions.
First,
Our SPX/RUT Ratio indicator in red had been leading the market all of this week and part of last week, giving a bullish signal in tandem with our VIX Term Structure indicator below with buy signals in white, on the whole these signals were no where near the size of the August lows or October lows when we last saw any such signal, but they were more evidence of the theory first put forward a week ago today as to the market's direction, first up above the IWM's/Russell 2000's 6 week trading range and then to be followed by a sharper move down continuing the week before's action which was the worst weekly action in 2.5 and 3 years for the SPX and Dow respectively. It's little wonder that the market needed an immensely strong move to counter that bearishness, much like the rally off the very bearish sentiment of the October lows which was called up to two weeks in advance with evidence a week in advance, calling it a monster move up a week before the market even bottomed, again based on mass psychology followed up by technical evidence, this is the same, but on a smaller scale.
To change sentiment after last week's extreme losing streak, you need something that will make traders forget that bearish move just as they have all forgotten the near 100% bearishness of the October lows, it's simple mass psychology analysis combined with technical evidence and the head fake concept which the IWM was the onlyAVERAGE THAT HAD NOT MADE A HEAD FAKE MOVE (OFTEN SEEN RIGHT BEFORE A REVERSAL).
In any case, the same indicators above, after nearly a week of posting positive signals before the market took off, are now not confirming and posting negative signals as I'd hope to see during a head fake move.
High Yield Corporate Credit, HYG which is one of the easiest ways to know what Wall St. has in mind via either accumulation or distribution, but especially accumulation as it is in a solid downtrend is also fading fast from leading the market in to Wednesday's open and most of the first half of the day until the short squeeze took over, it's now showing signs of failing and is no longer leading, at least not positively leading.
TLT as expected has turned, actually it was more yields expected to turn as they trade opposite TLT and Treasuries, but they exert a magnetic force on equities, pulling them toward yields so with TLT/Bonds moving higher this is what has happened to yields since 3 p.m. yesterday when the bond market closed, yet we could still get an idea of what yields were doing from TLT and Treasury futures, they were reversing.
One of the 4 levers we expected to help ramp the market, yields , did so as you can see with the 5 year yield pulling the SPX higher with it, but since yesterday's last hour of trade, it has reversed and is not negatively dislocated from the SPX and will exert a downward gravitational pull on equities.
The same is true of 10-year yields, but the most important and the strongest leading yield has been the 30 year, which we saw under distribution in 30 year bonds just days before Wednesday's move up making it obvious they'd be a lever as well.
Ironically the last 2 F_O_M_C meeting's knee jerk moves higher lasted only days as yields disconnected from stocks exuberance and shortly after that dislocation between yields/bonds and the market, the knee jerk moves not only reversed, but took back more than they gave, moving the market lower in the wake of the meetings, the same is happening now as seen below.
30 year yields no longer leading to the upside, but leading to the downside.
Then finally there's yesterday's very odd SPY trade 4 seconds before the close, a $200 million dollar trade according to NANEX that was broken up in to 1147 individual trades in the span of a single second, there are few High Frequency traders of that size and caliber who can pull that off, one is Citadel, the NY F_E_D's choice executioner of their positions, whether you want to call them Plunge Protection or consider my theory that they work in both directions, so long as the stealth bank bailout continues and banks are on the right side of the trade, preventing the kind of very politically unpopular bailouts of the 2008/Lehman/AIG era. In fact my opinion is that QE was never meant to fix the economy, if it was such a powerful tool to do so I suspect we would never have had need beyond QE1, but the banks had need beyond QE 1 and many posted entire quarters without a single day's trading losses, an interesting way to transfer money to the banks who were and are still in need of capital in a form that no one outside the market and few inside the market can understand, Quantitative easing.
If you look back to the F_E_D's initial fooling around with QE concepts in the form of Open Market Operations led by Benjamin Strong in the 1920's after World War 1 had destabilized the US economy, which Bernanke was a ardent student and apparent supporter of, you'll know that despite their initial success leading to the "Roaring 20's", Benjamin Strong dies in 1928 before he could see the full effect of his "Open MArket Operations " revolution when in 1929 the stock market crashed and the Great Depression followed.
I have written about this at length, if you'd like the link just let me know. However the point as I got a little off track, was about yesterday's odd trades in the SPY within a second, 4 seconds before the close. 1147 trades in a second for $200 million, lifting the SPX to $2130, currently at $2065 making this trade a massive loss.
The NASDAQ swiftly put out notices of a potential fat finger / erroneous trade which they'd investigate.
From NASDAQ yesterday re: the SPY trade at the EOD...
First at the bottom NASDAQ says Direct Edge is investigating potentially erroneous transactions involving the SPY between 15:50 and 16:00 (as I said, over 1 second, 4 seconds before the close). Then A Note that these are potentially "Clearly Erroneous Trades" and that traders should review their trades for any possible fat finger trades.
If NASDAQ found these to be erroneous trades, they have the option and probably would have busted up the trades, letting the fat finger off the hook as they did for Goldman Sachs a couple of years ago under similar circumstances. A later update from NASDAQ said,
"All Trades Will Stand".
It would seem under normal circumstances that someone made a trade that lost a significant amount of money in a second,
however no one came forward complaining of such. Thus all is not what it seems and while a large trade for sure, in the world of institutional money, it's a drop in the bucket.
While no one knows exactly what happened here yet, this is what it looked like.
That's the trade at yesterday's close in the SPY, the one not busted up and with no one coming forward to complain of massive losses on a trade they'd like to be busted up.
This reminds me of something I was watching last night, the series finale of Spartacus which is a portrayal of the 3rd Servile War in Rome when some 120,000 freed slaves, led by escaped Gladiators from Capua led a revolt, the most serious slave rebellion Rome had seen of the 3, one which threatened the very city of Rome itself. After defeating numerous Roman legions, the Roman Senate dispatched Marcus Crassus to lead an army of EIGHT Roman legions to deal with the slave rebellion that had defeated and killed some 40 to 50 THOUSAND Roman soldiers (including militia and non-regular troops, but also regular legions).
After forcing Spartacus' forces in to a mountain valley pass, they found themselves trapped by a large wall spanning the narrow pass with a deep moat which was impassable on its own in front of the wall which had Roman soldiers on top of the wall, In the series at least
(there's little contemporary evidence from the losing side, Spartacus's forces as all were killed) the Slave Army was caught in a narrow mountain pass with this wall and "apparent" Roman legions on the other side and the rest of Crassus's army on the other- caught between a rock and a hard place so to speak. However Spartacus who is said to have served in the Roman Auxiliary before being forced in to slavery and becoming a gladiator, was well versed in Roman tactics and figured that the Wall was not there to conceal the troops that were behind it, but rather the troops that were not, a facade or deception giving the image that his forces were trapped between two Roman armies. Again, in the series at least, the breached the wall to find only a small contingent of Roman forces who were easily overwhelmed allowing the Slave army to escape.
The market is not that much different from the deceptions of Marcus Crassus, for example if you have not seen this video yet, you should watch it as this is the most honest and informative interview with Jim Cramer you will ever see in which he talks about how the market is made to look one way to force a particular result, for instance maybe buying $8 million in AAPL puts in a morning to give the impression someone knows something about the impending original I-Phone release and it's not good news, when in fact no such news existed, but the number of puts bought, which Cramers says could be done with 8 to 10 million, create that image and its used against traders and he goes on to say he did this often when he managed his fund, that it is "Fun" and if you're not willing to do it, "You shouldn't be in the game", CREATING DECEPTION.
Check out the video and remember this is from just before the original Iphone was released.
Here's the LINK
In any case, after watching the video, you'll understand why I often say, "Price is deceptive".
Like Crassus' facade wall spanning the mountain pass, this trade which comes with very strange circumstances, has the effect of standing as a wall against shorts, implying someone knows something that is worth buying the SPY in such size that it caused a move like this...
This is not how any normal large trade would be filled, smart money goes to extraordinary lengths to hide their transactions and doesn't put them out there for all to see UNLESS THEY WANT IT SEEN FOR SOME REASON.
In this case, it serves to bolster the bulls thinking whoever was willing to pay this much and not ask for the trades to be busted up, must know something that would send the market significantly higher than their entry cost which is obviously excessive and at a huge loss right now.
HOWEVER FOR EVERY BUYER, THERE IS A SELLER OR SHORT SELLER, IT DOESN'T MATTER WHICH AS BOTH ARE SELLING SHARES SO SOMEONE ALSO MADE A LOT OF MONEY IN THIS TRANSACTION AS OF NOW.
The popular view is that this is the work of the New York F_E_D through their conduit, Citadel.
In any case, what we know is that someone wanted this seen and right now. It stands as a wall as short sellers are nervous someone knows something and longs are bolstered in the same thought.
However you can never forget , as Cramer's interview will make plain, that this kind of activity happens every day creating false facades to move the market in one direction or the other.. I don't see the confirming indications one would expect to see if this were the case and someone were actually dumb enough to put out such a large trade all at once, driving prices insanely against their position, starting off at a massive loss and letting the predatory algos know where they are and how to corner them. Again, don't forget that for every buyer there is a seller which is the one thing few seem to be considering in looking at this "construct".
This also reminded me of a very similar pattern, on a different scale, but the concept is EXACTLY the same, it's the very concept that led us to forecast this move since Wednesday and what comes next, the head fake.
Looking at the SPY with yesterday's late day trade, we have a common sight at tops/reversal points, the rounding top and head fake that take on the shape of an Igloo with a chimney, the chimney being to the right as the head fake move.
This is the market right now. The last time we saw a similar event was at the August rally's stage 3 top, also a rounding top that had a head fake move in to the September highs where it promptly failed and led to the sell-off to the October lows, a new, lower low as we had predicted ,in early August before the rally had even started.
This is the August cycle's rally and rounding top, the "Igloo with a Chimney " or head fake move. After that last candle you see, the market fell straight to the October lows, the most bearish sentiment in years and in some cases, on record.
Be careful with taking price at face value, it's often not what it appears.
