Market Averages

*For the Week Ahead, scroll to the last paragraph.

Again, yesterday was a very clear change, like insiders became aware of something that abruptly changed their plans from what was already going to be a benign oversold bounce as the Santa Claus Rally failed and created a bull trap and the first 3-days of January were the worst start to the new trading year in the history of the market, we were in a short term oversold condition so a relief bounce was not only to be expected, but used to your advantage.

Yesterday the change was very clear, today there's not such a dramatic change and as was posted a couple of times yesterday, I don't think it's that surprising given an options expiration Friday and the need to maintain a max pain pin. There's a lot of money to be made in option contracts expiring worthless, so it's almost a day in which there's little useful data until about 2 p.m. or so as most contracts are closed by then and the pin is lifted. As I said in one of my last posts, I think it's clear that the "Max Pain"  pin was lower, thus it's not a problem to bounce in to the close or at least try to.

However one of the things that should be noted was the market's reaction to Evan's "Raising rates now could be catastrophic" and virtually the same statement by Kocherlakota last night (after we noted the change in character), this time no reaction, in fact the market moved lower. I thought about the most obvious Devil's Advocate reasoning, Kocherlakota is not an F_O_M_C voting member and Evans, the most dovish of all in the F_E_D, is rotating in this year. However as I pointed out earlier, the 3 biggest moves in the market which were already set up ahead of time and we had already been forecasting ahead of time, were catalyzed by Jim Bullard's remarks who was not an F_O_M_C voting member. In fact yesterday in the A.M. Update I pointed out how absurd they were in support of my The Plunge Protection and Market Correction Team post/theory.

As we had called a head fake move and showed evidence of it in to the Sept. 19th highs, Bullard's HAWKISH Comments, at the October lows and a more than a week after we called for a "Face Ripping" rally, Bullard's very dovish,

"A logical response at this juncture is to delay the end of QE"

...Which was only a MONTH after the former comment and only 1 month after the October lows comment, he pulls a 2nd 180 degree about face with, "Economy in good shape, no need for more QE right now".

Again the point is not Bullard's comments, but the fact the market reacted the way it did to a non-voting member and how it reacted to Evans the night before we noticed such changes in the market yesterday and how the market failed to respond at all to last night's Kocherlakota comments, again, as if something had changed during yesterday's cash session.

As for the charts...

 SPY 1 min is just noise, nothing there, at 2 min yesterday's negative and this morning's follow through of 3C signals with the gap up (yellow arrow) faded immediately off the stronger than expected Jobs report at 8:30 a.m.

I would barely call this a positive divegrence at today's intraday lows, but it was obviously used and the leading negative in to a flat range since then. Remember the SPY has had the best looking underlying chart, which would make me think it would be the relative out-performer on an oversold bounce, that may mean it also has the most to distribute of the accumulated position before the bounce.

 SPY 3 min with yesterday, this morning's carry over and no positive on a 3 min chart, it wasn't big on a 2 min chart so no surprise it didn't migrate over.

This suggests that any upside in to the close is really just noise for the most part as no real support was thrown behind it and structurally, it would have needed at least the "W" base intraday to have a decent chance of holding any gains. Again note the leading negative since about 2 p.m. as the op-ex pin would be removed.

 This is where the "bounce" divergence ended, at a 5 min chart which is respectable for a bounce, it's decent size for a bounce, our custom VIX Term structure indicator gave buy signal at the lows.

You can see a clear change though yesterday. This alone is not enough to foul this chart and make a call that it's time to move broadly in to short positions and/or sell longs some of you entered for this, but considering what today is, it's not surprising that 3C is pretty much on hold today, except as you see above, after the 2 p.m. hour we start to get movement again.

 Just as a reminder as we sometimes get too locked in to the myopic view of the market, we lose sight of the highest probability trend and how we maybe should consider this in our short term views and actions. This is a SPY 6 hour chart.

At the first large relative divegrence, this is the same period that breadth indicators fell apart beyond any reasonable excuse. The divergences at #1 and #2 that sent the market lower were very strong, however they are dwarfed by the current leading negative divegrence which is what we have been talking about in the December 12th forecast, our forecast of a failed Santa Rally and why and how that would work in to the start of the New Year and January effect.

 QQQ 1 min with yesterday's negatives leading to this morning's follow through and note the 1 min intraday positive apparently trying to push the Q's higher since approx. the European close.

 On a 3 min you see yesterday's change, today almost perfectly in line, again I believe because of the op-ex pin.

And some recent damage to the 5 min chart, mostly yesterday, but that's one day, the chart has more to go.

In context, the QQQ 5 min chart.

And keeping in mind that just on the next timeframe of 10 mins, the market again is very ugly. In multiple timeframe analysis the bounce would execute, conclude and we'd return to the 10 min chart's reality.

 IWM 2 min showing the same thing yesterday, almost nothing today.

The same with the 3 min, yesterday big action, today virtually nothing.

 And the 5 min chart so we have some more to go.

Again, at 10 min, this leading negative should take us lower and you can see how the current bounce, if it reacts that way, is really just part of the normal lower highs/lower lows.

I suspect in to next week, we will pick up where yesterday left off. I don't have a Monday morning forecast at this moment, there's just not enough to go on, but the suspension for op-ex today makes sense, yesterday's changes were quite dramatic. I suspect we'll see more choppy lateral trade as the reversal process is widened out, which should be areas we can confirm the continued action from yesterday and start to move in to positions once timing looks relatively certain.