Rather than beating a dead horse over the SNB action, lets look at something useful. Swiss Franc futures from before the SNB action in last night's overnight trade shows a huge positive divegrence. I'd guess that there was a leak of the SNB action, it crushed a lot of macro hedge funds, I'm sure someone made out like a bandit.
There's additional evidence that Bonds may have been accumulated overnight as well before the SNB action, they popped higher and have not turned back.
There were some other signs to similar to last Thursday's unexpected ugliness in the market when an upside bounce was expected to continue. While not as overt today, there is more evidence like the TLT chart in to the close where and when I expected a bounce to get some legs under it.
While HYG's 5 min chart still holds a small positive divergence suggesting the bounce we have been expecting (which would not be effected with a short term change in the last hour or so of the day- meaning the 5 min. chart would not be effected i that short of a time period)...
This is what I mean about the market pieces of the puzzle starting to get a bit ridiculous. Obviously this "seems" like it's not a planned reaction, but the SNB move came as a surprise to almost everyone, maybe everyone, it's just the couple of charts above that suggest someone knew about the event before hand and was trading that insider information. The point being... The market has to adjust to the situation on the ground. Some of the only times we see divergences run over is when a fundamental piece of data surprises the market and it must react and re-discount the new information, take a September 11th type event for example or anything the market had not anticipated and this move was not anticipated by more than a handful of people.
One of the things traders are really talking about is the "Surprise" nature of the central bank's move. You may recall earlier today I posted an excerpt from a email with a member from yesterday in which I said I expected a lot of volatility and surprises.
Well, I can think of one good reason to keep such a move totally quiet, those on the wrong side of the trade and there were a lot, were crushed, those on the right side of the trade just had a huge pay day.
I enjoy the challenge of trying to put the pieces together and figure out where we need to be and when, but this is getting a bit ridiculous.
I've had a lot of emails today, one of the popular themes was, "Doesn't this mean ECB QE?" There's an obvious case to be made as the Swiss National Bank was the biggest daily buyer of Euros, under a QE printing regime they likely wouldn't be able to buy them as quick as they can print them, but there are plenty of alternative scenarios as well, this just happens to be exactly a week before the ECB policy announcement next Thursday. However, as I pointed out in numerous emails, QE doesn't mean the conventional wisdom will prevail, in fact the conventional wisdom can be very dangerous. When QE3 was launched, the conventional wisdom was that stocks were going to sky-rocket, I almost bought it myself out of pure emotional fear, but that's not what the 3C charts said, they were negative and other than the first 2 hours after QE3 was announced, the market didn't hit that level again for months and drifted -8% lower after the launch of QE so the charts were right, my emotional mini-panic would have been wrong. It's dangerous to assume too much, like Japanese QE_Zilla is going to combat Japanese deflation, it didn't. You can't take the same scenario and put it in two different environments and expect everything to be the same. With the F_E_D seemingly closer to tightening (especially with all the vocal non-voting doves who seem to want their voice heard as their vote won't be) and with some Yellen comments like the F_E_D DOES NOT have traders' backs, they need to be responsible for their own trades, that's not dovish talk from Madame Chairwoman and really comes off sounding more like a warning, much like the "I keep telling the market what we are going to do, I wash my hands of the market if they won't listen".
The point? Simply that assuming is dangerous in the market; there's no indicator that can replace due diligence which includes reassessing a situation when something on the ground changes. We c an make assumptions as to why the SNB did what it did, but they are assumptions, they certainly aren't the official party line which changed 180 degrees in 48 hours as posted earlier today.
Here's a repost of the SNB's stance 48 hours before this shocking move and then today...
From January 12th,
Today,
"Recently, divergences between the monetary policies of the major currency areas have increased significantly – a trend that is likely to become even more pronounced. The euro has depreciated considerably against the US dollar and this, in turn, has caused the Swiss franc to weaken against the US dollar. In these circumstances, the SNB concluded that enforcing and maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified."
So... Apparently in the bank's view, a LOT changed over 2-days.
So, real change in forward expectations or not? This is what I continue to investigate and the last hour or so of trade didn't make my job an easier.
From a macro point of view...
Playing devil's advocate, it could be op-ex influenced. This is why we gather objective data and see if there's a pattern/confirmation. Also playing devil's advocate, most reversals are going to see a head fake move first so the SPX's close below the psychological level of 2000 (as well as the 100-day m.a.), could easily serve as that head fake move we see so often before a reversal (the bounce to the upside).
Here's the Averages price action on the day...
I suppose a case for a head fake move could be made, although it's likely to early to confirm any accumulation on such a move that would need to trip up local stops. A case for the max-pain op-ex could be made as it is generally right at the area of Thursday's close. Or the SNB action could have introduced a new element. I'll keep digging.
While the SPY still has positive divergences that will work for a bounce as we have been looking for, I can't say that I can get any kind of confirmation of a head fake move based on the close. I wouldn't expect it with just the last hour or so seeing a change in character (Treasuries, HYG, etc.), but I think I should point out the SPY's 1 min chart at the close, it looks a lot like the closing changes in TLT and HYG.
This wasn't just seen in a few of the averages and a few of the levers, treasuries, HYG, etc... this was seen nearly market wide. Remember the Tech and Financial trade set-ups,m let them bounce to you?
Again, patience pays.
Speaking of Financials, you've seen the earnings for Financials this week, JPM, Wells Fargo, BAC, not good at all, which is something 3C has been reflecting which is why I have been featuring Financials as a trade set up. Isn't it interesting that 3C was showing us this weeks and even months ago and now earnings are confirming some of the worst?
In yet another odd end of day bit of action, you may recall our custom SPX:RUT Ratio and VIX Term Structure, both of which were positive coming in to the recent lows (yesterday) which caused me some concern about the possibility of a broader base or a "W" base in the SPX. Well on an intraday basis, look at the close...
VXX and VIX (spot) were pretty much in line with the SPX correlation, HYG was in line which means it was leading lower with the market in to the close. I'll be watching HYG like a hawk tomorrow for signs of a continued negative divergence based on what we saw at the end of the day (see if that grows which would be a very useful signal).
Yields on a short term basis were leading the market lower, even earlier this week. On that same short term basis, the averages have reverted to the mean, meaning yields have done what they tend to do and act like a magnet pulling equity prices toward them.
This isn't the smoking gun, but it could be the start of something that changed in to the close. I don't want to well on this too much as you can drive yourself nuts with minutia, but I do want to mention it just in case there is something to it, it won't have just popped up out of no where for you.
In describing HY Credit (other than HYG), I'd say there's really no move of interest other than to say they aren't especially strong as you might expect before a bounce. They are stronger than the correlation, but not like what we saw about a week ago as HY Credit was leading the market in to the January lows.
Currencies are a week of study at this point with everything changing so suddenly, but here's how USD/JPY and ES reacted today...
I'm going to finish up for now with internals, although I'm not sure how influential they'll be with op-ex and with everything that has happened today.
Again the Dominant Price/Volume Relationship was split. Interestingly for the most part yesterday's Dominant P/V relationship was "Close Down/Volume Down", which is the least influential (it is the hallmark of a bear market just as an aside) and you might remember that I often call or describe this relationship as "Cary On...Keep doing what you were doing". This is because it isn't a strong overbought or oversold condition. I find it a little interesting that this is what the market essentially did today, the 5th day down, it basically carried on and kept doing what it was doing.
Tonight we have a split again, actually all of the averages except the Russell 2000 are Close Down/Volume Down, the same as yesterday. Also like yesterday the dominance of the relationship was there, but not a really strong reading , the same today with 15 of the Dow 30, 239 of the SPX 500, 56 of the NASDAQ 100 and the Russell's Dominant P/V relationship which makes sense with it's lagging performance was Close Down/Volume Up with 1049 stocks. This is interesting because this P/V relationship is a short term oversold condition that usually sees the average close green the next day, a 2-day oversold condition and with an almost 2% loss, it makes some sense here.
Of the 9 S&P sectors, 2 closed Green. The leader was the Defensive Utilities at +.79% and the laggard which was not surprising given retail sales and some other macro data (jobs) was Consumer Discretionary at -1.29%.
This is a slightly oversold condition.
Of the 238 Morningstar groups, only 35 of 238 closed green, this is worse than yesterday and much closer to a solid oversold condition.
Finally I wanted to mention the SKEW Index (The Black Swan Index), I noticed as I often do, a sharper rate of change to the upside and in the red zone from yesterday at 132 from 122. This was a bit odd because you sometimes see SKEW elevated when we have sharp upside gains in the market as an effect of hedging, but we didn't have those gains yesterday or anywhere near yesterday. This may be a moot point because it's back down, but we'll see after tomorrow's op-ex passes and in to next week. We have quite a few Hindenburg Omens over the last month or so, SKEW is definitely worth keeping an eye on.
Tomorrow is an op-ex (monthly) Friday, so look for the max pain pin somewhere around today's close and it should be in effect until about 2 p.m., then we'll see what good 3C data the market has the last 2 hours. I don't expect the end of day strangeness to pick up on the open or early tomorrow because of the op-ex max-pain pin, but I will be looking nonetheless for anything that continues what started during the closing hour or so of today. I would just warn in advance that if we don't see anything especially interesting tomorrow, it doesn't mean it's not there, often things are almost put in to suspended animation on an Op-Ex Friday because of the max-pain pin (an effort to cause the largest dollar amount of options to expire worthless, letting the writers' (typically smart money) keep all of the premium.
Of course I'll check futures later tonight and if there's anything you should know about, I'll post it.
Remember though, today saw the lowest liquidity in ES . SPX E-mini futures in 3 YEARS! This means what-out above and BELOW for extreme volatility. We may get some fade trade opportunities, who knows what else, but every day we keep setting some new record, this one can be especially dangerous.
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