Daily Wrap

I think we have the broad strokes pretty well covered, however there are some interesting factoids and some charts I promised.

If you go back to our December 12th forecast, thus far everything has happened. As that forecast was fleshed out over the next several days, one of the events we anticipated was the taken for granted Santa Rally to lure in longs initially with good market performance in to the typical period for the Santa Rally and then for it to fail miserably setting a bull trap which it did, but there was a second part to that specific forecast which was the January effect which is also taken for granted by traders as if it was a birth right and that the failed Santa Rally would roll over in to the January effect. If you are thinking like a criminal, what better way to make the most number of people wrong at once with two seasonal events that are assumed to be a given.

TODAY MARKS THE 3RD DAY OF TRADE IN JANUARY AND THE WORST 3-DAY START TO THE MONTH EVER!  In addition, we have the worst 5-day performance in the SPX since Sept. 2013 with the Index finding support today at the 100-day moving average (recall the charts posted yesterday with moving averages and support areas) which also coincides with the psychological $2000 level on the SPX.

I think I have been clear about what I expect from a market bounce, an oversold bounce, not something that is supported and to that end, today put in the second Hindenburg Omen in a row. The last two clusters sent the market lower so this also fits with our near term and longer term analysis.

As for Leading Indicators, none of them are really screaming near term. The VIX short term futures (VXX) and spot VIX once again underperformed on a relative basis vs the SPX. TLT also underperformed on a relative basis, but I suspect we are seeing a very parabolic looking move in bonds and as such in yields as they sold off hard in to the noon time hour, taking the market along with them as they usually do. This could be a short term capitulation or exhaustion event which allow yields to give the market a little room for a near term bounce.

Take a look at the Treasury bond futures in 5, 10 and 30 years...

 This is the 5 year Treasury bond futures on a 5 min chart, in fact all are 5 min charts and all are negatively divergent with 3C.

10 year T-Bond Futures.

30 year.

Interestingly, the SPX caught down to the near term 5 year yields today, but not to the 30 year yields which are well below the lows of the 16th and have retraced all F_O_M_C gains, this I believe points to what comes after the bounce attempt we are expecting, the averages continue to feel the pull of the 30 year yields lower.

Remembering this is a 5 min chart and this is the minimum divergence that must be in effect for me to take even a short term trade, the negative divergences above confirm nearly perfectly the Index futures 5 min positive divergences.

 NQ/NASDAQ 100 futures 5 min positive like ES and TF (SPX and RUT futures). These are also confirmed by the 5 min VIX Futures (not VXX, but actual futures)...

VIX 5 min negative divergence.

However, this is part of the reason I'm expecting a short lived move on any bounce. At the 7 min Index futures charts they look like this...

 ES 7 min (SPX futures) are in line or confirming the downside, not positive and any move up in ES from here will create a leading negative 3D divergence.

Confirming this short term roof on a bounce, take a look at the same 7 min chart in VIX futures...

It too is in near perfect confirmation, thus any move down in VIX futures should leave a leading positive divergence in 3C, again confirming the shorter term nature of our expected bounce and what happens next.

These are confirmed in the major market averages as well.

The most often used ramping lever for the market is HYG, HY Corp. Credit and as such, we have positive divergences in the 1-3 min charts, short term...

 HYG short term 2 min positive to ramp the market and a bounce, but it doesn't move much beyond.

The 5 min HYG/3C chart is in line/ downtrend confirmation, thus another roof on our bounce.


as for other credit (HY) assets I've looked at, I've noticed most were positive on December 31st and January 2nd, after that at the 5th and 6th they gave up the positive divergence and fell back to in line. In fact our Professional sentiment indicators did the exact same thing.

 Only PIMCO's HY Fund is leading.

PHK vs SPX indicative of a near term bounce, but the lack of HY credit confirmation again puts a roof on a bounce.

HY Junk credit is perfectly in line with the SPX's downside with no divergence at all.

As for the rest of the Index futures, they are clearly showing where the probabilities lay...

*Remember the 5 min charts are positive, at the 7 min charts we move to confirmation, essentially losing any supportive indications which may be considered the line in the sand and after the 7 min charts...

 TF 15 min leading negative

ES 30 min negative

NQ 60 negative

TF 4 hour showing how bad I really expect the downside to be once our bounce is finished.

As for the averages... If you didn't get in when we were putting out Trade ideas like the December 23rd's I like QQQ Short Here or December 30th's Trade Idea: (Trend) Transports (IYT) Short (and many others), I have encouraged a lot of you to NOT CHASE the trade, but be patient and let it come to you, such as the December 30th, QQQ Update & Trade Set-up or today's trade set-up, Trade Idea: (Longer Term) Financials Short / FAZ Long. Al of these are showing the same thing as Index futures, Treasuries/Yields/Leading Indicators, 3C charts, etc just like the averages below...

 SPY 1 min showing accumulation in to today's intraday lows which is interesting because our custom VIX Term Structure Indicator that has had a remarkable track record flashed this today...

 After the red SPX:RUT custom Ratio Indicator started showing a positive base forming and then gave out just like several Leading Indicators mentioned above, the VIX Term Structure below flashed a buy signal at the intraday lows. There have only been a handful of these signals and each one has been accurate, although the size of the signal is proportionate with the expected move it is flagging, for instance on a longer term basis...

Note the small signal to the far left and the proceeding small bounce following it and then the larger signal at the August lows where we forecast an oversold bounce and its size and of course the largest, "Face Ripping" rally at the October lows we forecast over a week in advance and the size of that signal. Today's to the far right was intraday and fits with the short term intraday charts like the 1 min above or...

The QQQ 5 min which has a much larger negative divergence as the main theme and a smaller positive divergence now as a kind of corrective theme.

 However there's no larger divergences like at the October lows, this 10 min IWM shows numerous small divergences along the 6 week range, they are dwarfed by the leading negative divergence we forecast on a break above the range, which is still very much in effect, thus the shorter term charts represent smaller, near term moves and these intermediate or longer term charts represent the highest probabilities and what comes after the short term chart divergences a usual in Multiple timeframe analysis with multiple asset confirmation.

And the QQQ60 min chart which has deteriorated badly, but just a expected.

Thus far, EXCELLENT confirmation, the F_O_M_C minutes are really the only wild card and why I've chosen to approach trade set ups the way I have, it's a no lose proposition or as close as you get to it in the market.

Finally, our breadth indications...

The Dominant Price/Volume Relationship among the component stocks of the major averages was almost identical, all saw Close Down/Volume Up like yesterday which is a short term oversold indication, almost always resulting in a next day close higher. The only average that didn't have a dominant theme was the Dow. Of the averages in the theme, 67 of the NDX 100, 1011 of the RUT and 273 of the SPX 500.

Additionally only 9 of the Dow stocks are > than their 50-day, only 41 of the NDX 100 are > 50-day and 174 (less than half) of the SPX-500 > than their 50-day. Of the Russell 2000, less than half (027) are > 50-day and 1011 are > 200-day so very poor breadth. If you look at this as a market of stocks, we are in a bear market, it's only the magic of Index weighting that makes things look better than they are.

Of the 9 S&P sectors, only 1 closed green, the Defensive Utilities sector (watch it be the laggard tomorrow) at +0.06% and the laggard today was Financials at -1.53%, interestingly featured today, watch them lead tomorrow!

Morningstar Industry groups were worse today than yesterday with only32 of 238 closing green.

The Percentage of NYSE Stocks > Their 200-day Moving Average is less than 44% at 43.96%

The Percentage of NYSE Stocks > Their 40-day Moving Average is worse at 33.96%.That will do it for tonight, you know what we are looking for and what looks to be the best use of a bounce, I'll put out the best looking assets for trades as we see how much we get, the Minutes at 2 p.m. tomorrow could be a wild card, but just as with the F_O_M_C, I suspect the market price action will initially determine the sentiment of the market despite what they say, people get the minutes like the F_O_MC and see the market react well and assume all is well, it clearly was not at the F_O_M_C and as I showed earlier today, we already retraced almost all of the F_O_M_C gains since their release at 2 p.m. on 12/17, we retraced ALL of the 17th's closing print.

If anything should change in futures tonight, I'll update you.