Market Update

Thus far the 3C concept of 3C/ price action picking up where they left off (the next trading day) which forecast yesterday that we'd see early market weakness and the Internals that we track posted in the Daily Wrap yesterday suggested that the morning weakness would morph in to afternoon strength and likely close green on a deep 1-day oversold condition, have been right on. Even the projection of this transpiring after the European close (which is just something we observe often) was correct.

I do see some distribution in to higher prices, perhaps these may be "steering" divergences for tomorrow's max-pain options expiration pin. Typically the max-pain op-ex pin of Friday (weeklies) is somewhere very close to Thursday's close, thus these negative divergences that are seen since we've turned green on the day, may very well be related to max-pain op-ex pin positioning, although the other possibility is the "selling in to any price strength". I tend to lean toward the former over the latter, the simple reasoning is we haven't really sen any price moves that would be significant gains worth selling in to yet.

In any case, here are the charts showing what we've been expecting to happen and what is happening...

 IWM 5 min intraday positive divegrence

IWM 2 min intraday positive divegrence, this is exactly what we forecast yesterday for post-A.M. market action today.

However, as you probably know, ANY new trend starts on the fastest charts which is the 1 min chart, thus the afternoon move higher is seeing some light distribution. I mentioned a couple of possibilities above, although I suspect this is more likely a "steering divergence", essentially not letting price move too far away from what will likely be tomorrow's options expiration maximum pain pin of prices, which causes the most number (dollar amount) of options to expire worthless.

 QQQ 5 min intraday positive as expected on an oversold basis as of yesterday's closing internals.

 At the white arrow, price action becoming more positive after the European close and the same intraday 1 min negative divergence right now, you know what I suspect it is.

 We even have it on a QQQ 2 min chart.

If this negative were to get a lot worse, then I'd be looking at a different scenario of a FAIL of this oversold bounce condition, but we're not that deep in to it yet.

SPY 5 min hasn't posted any divegrence, it's just in line, thus it's not a strong move , really it can't be too strong on a half a day's base, but it shows weaker relative underlying performance than the Q's and IWM, perhaps the SPY will lag.

But we are seeing the same 1 min negative, the green arrow is the European close.

As for TICK...

 You can see the up channel on the averages' move higher and the break below that channel where the negative divergences are forming on intraday charts, so far they are pretty mellow around -500 to -750.

This is my custom TICK/SPX indicator, you can see in yellow yesterday's 1-day oversold condition in the capitulation event and today's positive movement in intraday breadth via the tICK reading.

This is just showing the nature of a capitulation event which is a fractal concept, we see these on intraday charts like this or daily, even monthly, it's good to know what they look like as you'll know what the near term probabilities favor next. Typically volume increases on these oversold events as well.

 HYG 1 min remains in line, it seems it is helping with some support here, but the charts that I showed earlier are still in effect...

HYG 3 min leading negative.

The point here being that the ramping lever is seeing what appears to be money backing out, no longer willing to take on risk as they likely don't want to get caught long when the music stops and can't find a chair, this acts as a fantastic leading indicator, especially when HYG's price itself starts diverging with the averages.

Right now I think we have a fairly decent handle on the short term action and even the short term cycle that started 1/14-1/16, but there's something more important I'm using some of this downtime as the market is doing what we expected, to look in to.

This is the hawkish F_O_M_C statement and the divergence between that and traders' perceptions as they are pricing the first rate hike out further, for instance the F_E_D Funds Futures are pricing in a 14% chance of a June rate hike where as it was 25% last month. Many "experts" are saying there won't be one this year, however I think the bond market may have insight in the apparent divergence between what the F_E_D has said, is saying and what certain individuals are perceiving.

I don't want to just post opinion, I want to post objective, unbiased evidence, this is what I'm looking in to with Treasuries most specifically.

We had 2 auctions today, a 5 year with $35 bn worth of T's up for auction, the high yield was 1.288%, below the When Issued of 1.295% and below last month's 1.739%. Indirects (foreign bidders) took down 63% vs the 4 auction average of 55%, this was the lowest 5 year auction yield since May 2013 and another strong auction on top of yesterday's 2 year.

The second auction 90 minutes later (today) was $29bn in 7 years, they were a bit different with the high yield at 1.59%, above the when issued of 1.586%, the high yield of 1.59% was lower vs last months at 2.13%. Indirects took down 56% vs the 4 auction average of 50.4%, not as strong as the earlier auction and yesterday's.

It really has been the TLT signals though that have been bothering me the most, I knew I should give them some time and I'm glad I did, but now we should be able to get some information that is truly useful as to what the market is really pricing is vs the talking heads.




The second was a 7 year auction with $29 bn in T's