Daily Wrap

What a day eh? Draghi finally grew some... credibility as his 2-years of jawboning since the "Whatever it takes " QE comments which remitted a half life on ECB/Draghi comments of about 2 hours. Today the ECB made good , at least on violating Article 123, but we'll see if that matters. After all , the F_E_D ultimately "didn't monetize the debt".

It seems though there's a whole new set of wild cards out there with the Yen and the Euro now competing for the most worthless currency, this naturally would imply $USD strengthening and it did, +1.5% on the day, the single biggest 1-day $USD move in 18 months, pegging fresh 11 year highs which does what to Obama's "We have to export more" comments from the State of the Union?

With Japan's QE-Zilla and now the ECB's 16 month 1.1 trn expansion of their asset purchasing program, F_E_D rate hikes hardly seem to be the cure to weak and or weaker US exports. In fact Jon Hilsenrath, a day after the latest Bullard comments from yesterday that that rate hikes and policy normalization should get under way now, that the F_E_D funds rate is 400 bps below where it ought to be; the WSJ's F_E_D whisperer, Jon Hilsenrath says a "source" told him the F_E_D will not be raising rates until later in the year. 

This is starting to get a bit messy. Does later in the year really matter with the ECB program out for 16 months, the Euro bound for destruction as it slipped almost 300 pips vs the $USD today to lows not seen since 2003 on the ECB QE statement? With everyone long the $USD now, there's some growing concern that perhaps a surprise F_E_D hold off on hikes might turn in to the next Swiss National Bank episode. 

The US export problem seems to be a bit tricky at the moment with looming F_E_D rate hikes which don't have the best effect on the economy and consumer spending, certainly won't help in terms of $USD strength and foreign exports. Back in 2007, in a 5-part video series, I thought that the US would not emerge from this mess until we took our medicine and just let things run their course. Whatever the F_E_D's real motivation, it "seems" more and more likely that we are about to take that medicine and suffer through letting it run its course, but I'm no economics expert.

Even Icahn was out today on CNBC essentially saying the Strong dollar is going to come home to roost at some point paired with his observation that the "Reason the stock market has gone up is because of the F_E_D"... really? (SARC)

So it seems there may be more than one issue coming home to roost, ironically the two are nearly symbiotic.

Ican also added that "Oil is a great opportunity, but I wouldn't rush in now". I just saw an article last night in which investors are storing oil in super tankers as long as the Empire state building is high, just sitting there waiting for higher oil prices.

I agree with Icahn, oil is going to likely make for a great opportunity, on Icahn timelines, I'd agree, "at some point". I still think in the near term oil is going to make an interesting little short squeeze higher despite todays' walloping on inventories (EIA).

 As long as USO stays around the range, I don't see days like today being a problem for USO making a strong short squeeze, counter trend move, by the way that's no longer a 5 min positive divergence, that's a 15 min. As always, the chances of a quick head fake below what is now becoming a qwell defined range of support, is rising, thus some price alerts make sense as an entry in to some calls on a shakeout move would make for fantastic positioning.

As for Icahn's timeline, just look at the 2 hour chart's top, there's a lot more base building to be done before oil is anywhere near a longer term long position.

Today's market ramp sponsor was the USD/JPY, with $USD strength and JPY weakness, the pair (one of the 4 most commonly used ramping levers) was in control of ES most of the day...

USD/JPY (candlesticks) vs ES (purple).

I am a bit anxious to see if the pair will dip overnight. It looks to me like the EUR/USD, yes the EUR/USD may be trying to put together a bounce, which should weaken the $USDX and thus the USD/JPY.

Here's why I suspect this may be the case...

 intraday 1m EUR/USD slight positive.
This alone is far from enough...

However the Euro futures have a positive divergence, not a huge one, but something and the $USDX...

$USDX has been in line all day, until the afternoon with a negative intraday divergence. Again, this isn't a major theme changing event, but a possible decline in the Index futures' sponsor with some additional evidence in the short term Index Futures...

ES 1 min negative

NQ 1m

And TF 1 min, which if nothing else, at least appears to confirm the "Sell in to strength" factor we were expecting on this move which is still below our minimum target levels.

As for GLD which was up +.80% today, I'm still sticking with the put position and still think we'll see a gold pullback that "might" be worth buying.

Gold Futures 5 min negative divegrence still intact...

Now that we have a bounce moving toward at least the minimum targets that were posted last week, it's time to pay attention to whether we see distribution in to higher prices, whether leading indicators start falling apart, whether safe haven assets are bid, market breadth and anything else that helps us piece together the next move's timing.

I took a quick look at Leading Indicators toward the close, some of these were captures just before the close, but I've double checked that there were no material changes in to the close.

 This is one of 4 levers that has been active ever since we saw a base to bounce off, HYG (High Yield Corp. Credit), note the mid afternoon divergence leading to the late afternoon ramp vs the SPX in green and then HYG's failure t confirm which we also saw in TICK data...

Today's NYSE TICK data falling out of the afternoon parabolic move's channel.

HYG's intraday chart doesn't look that interesting, which in itself says something, although again no smoking gun...

However the stronger charts like the 32 min continue to deteriorate...

As does the 3 min which was nearly perfectly in line with the 3C

And now the 5 min chart which is where all of the energy is stored up is seeing some damage. I wouldn't say this is about to turn at this point, but it's moving toward that process which is what was expected, it's a matter of how quickly.

The longer term primary 3C trend of HYG on a 2 hour chart is clearly negative so I fully expect HYG will make this counter trend move in support of the market and then head lower, taking the market with it.

 The overall SPX:RUT Ratio is still negative, although it saw slight improvement over yesterday, this will be interesting to see if it stays negative or moves in line.

As for the VIX Term Structure buy signal (white), as I've shown several times, they tend to be a bit early, but reliable.

The VXX (short term VIX futures) were essentially underperforming most of the day, but at the end of day moved to in line while the actual VIX futures did this...

 An intraday positive (1 min), but a positive with price action improving late day.

 TLT (20+ year Bond fund) also underperformed earlier in the day and outperformed at the close, although you couldn't see this on the 30 year Yields as they close at 3 p.m.

TLT's 2 min chart going positive today

The 3 min chart also going positive in the afternoon

And the 5 min chart still in line.

5 year yields lifted and by 3 p.m. had reverted to the mean with the SPX (green).

 30 year yields didn't act quite the same and overall on the day, we saw additional yield curve flattening.

 Our sentiment indicator lifted to a leading position on the open and the SPX caught up to it at the close, however it wouldn't budge any higher with the market in to the afternoon ramp.

 This is the same indicator showing a positive divegrence at our base and in line as of now, but starting to turn as higher highs are not being made.

 Interestingly HY Credit saw some additional downside and specifically in to the close. We are not at a screaming, jumping off the chart signal yet, but it took several days for HY credit to lead in to a base, I'd expect the same for it to lead in to a top, at least it appears to have a start, thus confirming expectations thus far.

Here's a closer look intraday, NOT willing to follow risk higher.

For that matter market breadth wasn't either as we saw in TICK.

And finally for the charts today, there's some additional evidence that a pullback of the afternoon's parabolic move (as seen is some FX charts, leading indicators, VIX futures, etc)_, are the averages themselves. While not at the point in which they are threatening a reversal , they do seem to be selling in to strength.

SPY in to the close 1 m

 QQQ 1 m

IWM 1m

IWM 2m

These are not enough to run out the gas in the tank of the base, but they are what we want to see in to higher prices.

Based on the closing disposition of these and perhaps of the after market signals, I wouldn't be too surprised to see some early morning weakness tomorrow.

The Dominant Price/Volume Relationship was Close Up/Volume Up which is the most bullish of the 4 relationships, but ironically it also tends to lead to a 1-day overbought condition most often seeing the following day down.

Eight of nine S&P sectors closed green led by Financials at +2.47% with the safe haven Utilities lagging at -.43%.

We also had 227 of 238 Morningstar groups close green, overall not bad at all, but both imply the same thing as the Dominant P/V Relationship, a 1-day overbought condition.

Everything I see thus far looks pretty normal for an expected bounce of the "W" base created with support from the market ramping levers. The process seems to be underway as we haven't even hit the minimum upside targets yet and we are already seeing selling in to price strength, however if there was one thing that I found surprising today, it would be the SKEW Index or the Black Swan Index...

The SKEW Index moved in to the red zone and over 15 points from below 124 two days ago to over 139 today. This means someone is buying deep out of the money puts, while it could be hedging, it seems a bit strange so early on, including yesterday. The only way those puts are worth money is if there's a significant decline as they are deep out of the money. Someone maybe know something we don't yet?