Daily Wrap

First the NASDAQ is making headlines this week for 10 consecutive days up, today it is making headlines for the worst daily performance since January. Recall, as forecasted in December we did not only miss the Santa Rally, but the January effect as well.

While the NDX held green on the week, the Dow, SPX and Transports diverged to end the week in the red.

As to today's ugliness, which built more and more through the day in to the late afternoon, here's an example of the last "meningful" Igloo w/ a Chimney top, how long it goes on and how quickly it falls apart after the chimney or head fake portion is in place.

 This is the September highs in which we had identified the rounding top and forecast the head fake chimney. Ironically (or maybe not), it was at the very high that Bullard came out with hawkish comments, which is one of several reasons I believe the F_E_D is complicit with smart money as their cycle for a move down was set up to the day, the same day Bullard was out talking and if you know the history, you know he did the same except dovish at the October lows as well. Despite my overall opinion of the market which I think everyone understands, you can go back to this period and while we were expecting a move down, I did not expect that this was the final top and while we were at the October lows in which several sentiment indicators/surveys were at all time bearishness, we  were predicting a "Face-ripping rally". The reason? It was simply because EVERYONE was calling for a top at the same time and that's not how tops are formed, they are formed when everyone is bullish like now.

As Mark Twain said, History doesn't repeat, but it rhymes (paraphrased), this is the similar situation now vs the August cycle above...

February cycle...

On the week, Transports took it on the chin, so much for lower oil prices...

The averages on the week with Transports in salmon. I posted Transports (IYT) on Wednesday the 25th, I'd say the post was near perfect timing for a Transport short.

AAPL was big news and a big sponsor of the NDX, considering the way it started the week...

 It sure wasn't a glorious end and...

It doesn't look like it's going to get much better... 5 min AAPL. AAPL posts this week: AAPL Update, Market Slipping/AAPL down on volume and AAPL Position Management

Treasuries dropped 9-12 basis points on the week except for the short term 2 year which only dropped 1bp.

Remember the TLT rally/Treasury rally we were expecting to coincide with a market /cycle top?

30 year yields in line at the start of the cycle as they should be through stage 2 mark-up, then diverging and warning (yellow), then leading negative as a leading indicator (red) vs. the SPX.

Our leading indicator, "Pro Sentiment" was leading negative earlier in the week, but it didn't take long for the SPX to start catching down to it.

The $USD made decade+ highs yesterday on stronger than expected wage inflation and Core CPI inflation, most likely causing this week's volatility in oil as the $USD's legacy arbitrage likely triggered some arbitrage trades.

Also of note in the currency arena, EUR/USD broke below $1.12 ahead of next week's ECB QE, but most was due to the $USD rise after the inflation data Thursday. Considering a US rate hike in the same period as ECB QE, it may not be such a surprise to see the Euro trading at parity with the $USD.

EUR/USD, the big dip is on the US inflation data and the Dollar's move to 11+ year highs.

As for USO, it has broken its 7 consecutive month downtrend, the last time that happened is the week we called a top in oil while Cramer told viewers to buy USO on the next bad EIA report as a "Contrarian trade" back in 2008.

from a monthly chart's view, what does USO look like it is doing? I'd say it looks like it just went through capitulation and is working on a reversal base, but we've talked about that in more detail and will continue to.

From an internals perspective, there wasn't a truly Dominant Price/Volume Relationship as has been the case all week, but today was the closest with the relationship being Close Down/Volume Up, this is typically a 1-day oversold condition that usually sees the following day relieve it by closing green, it is a short term condition and as mentioned, it is barely dominant.

From a closing 3C basis, the only average to end with a positive divegrence (as far as picking up where we left off) was the Russell 2000, but even it was headed down and if we were open for another 30 minutes it would have likely failed. There's also not much behind it.

 The IWM 1 min overall leading negative on the week, leading negative on the day with a relative positive at the close that likely would have turned negative given another 30 minutes so I'm not sure how convinced I am on this one.

As far as any strength behind this "possible" divergence, there's ZERO migration to the next timeframe, in fact...

This is the 2 min chart leading at a new low, certainly nothing approaching a positive divegrence so even if we did see early strength Monday, I doubt it would last long at all.

The S&P sector performance also suggests a short term oversold condition with 8 of 9 sectors closing red, or perhaps it's just the market turning to the downside. Only Consumer Staples closed green of the 9 sectors at a gain of +.40, Healthcare was the laggard at -.48%, a pretty neutral day with obvious negative tone, not the extreme that creates a typical oversold condition.

Only 83 of 238 Morningstar groups closed green, this has also been weak all week. I suspect we are seeing more of a market roll than a 1-day oversold condition.

The percentage of stocks above their 40-day moving average has moved exactly 2% since the February cycle started, to give you some idea, the bounce from 12/16 to 12/29 saw a move of 25%, in other words, barely anything moved. Remember the 5 stocks responsible for all of the NASDAQ's gains posted earlier in the week. Even the failed bounce from 1/15 to 1/22 saw a 19% move.  TWO PERCENT ?

Momentum stocks had it worse, they fell almost 40% over the last 10-days to a mere 14% (Percentage of stocks 2 Standard Deviations Above their 40-day).

While the NDX has been in the limelight, it's Advance Decline line has fallen the last 5 days, very much in line with a market reversal.

Again, when looking at the market as a market of stocks and removing the weighting tricks, more stocks are declining than advancing.

Everything is bearing the hallmark of a market ready to roll over.

However maybe some of the most interesting news and I was hoping we'd get some tidbits today...

The F_E_D is talking, they have been for a while. How do you think we forecast 2 years in advance the F_E_D was starting preparations for the end of QE the very same day they released QE3? You have to read between the lines a little, but not much especially given Bullard out yesterday right after Yellen.

Fist Bullard, now Yellen's #2, Stanley Fischer, the F_E_D's Vice-Chiar in a CNBC interview this afternoon...

Stanley Fischer, vice chair of the Federal Reserve's board of governors andvoting member on the Fed's policymaking committee, told CNBC Friday afternoon that there is a "higher probability" of a charge raise this year.

"We have gotten utilised to contemplating of a zero interest fee as normal—it's considerably from normal," Fischer claimed.

Additionally from his CNBC interview:

• *FISCHER: FED BALANCE SHEET TO EVENTUALLY SHRINK TO $1-$2 TLN (That's half to a quarter of the current balance sheet, actually a bit more)
• *FISCHER SEES 'NO GOOD REASON' TO TELEGRAPH EVERY POLICY ACTION (the market hates uncertainty, could this mean "Patience does not have to be removed before a rate hike?)
• *FISCHER SAYS JUNE, SEPT. GET MAIN WEIGHT OF PROBABILITY
• *FISCHER SAYS ASSUMPTIONS ON RATE TIMING COULD CHANGE
• *CONSTANCIO: ECB TO FIND OTHER STIMULUS IF BONDS IN SHORT SUPPLY (This is thus far being taken as the ECB's QE may be smaller than anticipated)

Q.  What will you look for?

A.  That inflation is moving in the direction of 2, its 1 1/2 now, and we'd like to see real wages rising. (They got both this week, yesterday in fact).

Q.  Is it problem for U.S. to raise when everyone else is weakening

A.  One country has to lead, it should be a good thing when one country that is doing better can lead the way ...

We'll just leave it there for now. Have a great weekend!

The Week Ahead

Earlier I warned that a lot of assets were all starting to give the same signal, Quick Asset Scan,  and of course the most important macro charts for next week, Broad (cycle) Futures Update.

I can't see how the week ahead doesn't make good on the very negative charts/price patterns in this area, the usual question though is where do we start the week. 3C charts typically pick up right where they left off, you've likely seen it again and again. While the closing divergence or lack of is the most important, I'm obviously on a dead line so I'll try to get as close as I can while still getting this out.

Since you've already seen the macro trend of Index futures (negative), let me use the SPY as an example and fill in the blanks.

As for a typical op-ex Friday, you can see it in intraday breadth.

 A pretty tight intraday range until after 2 p.m., then the NYSE TICK Index explodes with activity.

As for the SPY MAcro trend on a 6 hour chart which is beyond the scope of the current cycle since February 2nd, it does show what I had expected from this move (from early February),, distribution in to a head fake move. The October low is given as a reference point.

 This 30 min chart of SPY shows a lot of strong activity recently, this week in fact which is also when a bunch of the Igloo/Chimney patterns formed.

The chart backed out to scale for this cycle looks like this, making new leading negative lows so I'd say not only from a price proportionality (the reversal process), but from a 3C proportionality (how much gas in the tank vs. what was spent), we have a net negative or likely more short sellers at the highs than simply sellers of stock and I'm not talking about retail, they get to hold the bag.

 From a timing (timeframe) perspective, the 2 min chart as shown earlier almost tells you exactly where the 4 different cycles are in effect , this chart is what I'd call "Mature" and showing the right signals at the right places, especially this week.

From an intraday 1 min chart perspective and this is where the chart picks up where it left off, there's a slight positive divergence in the afternoon decline after being negative earlier.

How this closes will depend on what I'd expect for Monday morning, at present it looks like some early strength Monday morning or picking up in the area, but I'm going to review these again right now as they have changed since capturing them.

The DIA and QQQ are in line, that would mean I'd expect them to resume weakness Monday morning, through the week I'd expect strong weakness.

The SPY has a slight positive and the IWM has a positive so there may be some relative performance difference, but this would only be in the first part of the week, Monday morning/early afternoon, etc.

The most important signals are the deeply negative ones.

I'm going to get this out and I'll add additional analysis, but I'm glad to have opened the AAPL, NFLX short /add to positions, I think they do well in to next week and beyond, but that's another story for another post.

Broad (cycle) Futures Update

These are 60 min charts of the Index futures, while I wouldn't call them tactical, I would say that their broad signals, especially when all confirming each other in a price pattern like an Igloo/Chimney are where you'll find the most likely answer to the question, "Where are we, what comes next?".

Distribution(and accumulation for that matter) is not an event that occurs and it acts like an immediate signal such as what many of us have been taught through technical analysis in which events trigger trades like a crossover of the 50 and 200-day moving average, that's an event and it's a bias that caries over to a lot of our analysis. It would be incorrect to apply a divergence as an immediate trade signal.

We know Appaloosa run by David Tepper who made his fortune by correctly going all in just before the market bottom in 2009, sold the following positions in Q$ which he held as of September 30th 2014, and I mean sold ALL of the positions: AAPL, FB, BABA, CBS, HAL, AAL and DAL. In a single quarter he brought down Appaloosa's exposure to equities, an approximate $16 bn under management, by 60% in Q4 alone and had been quoted as having been "Selling everything not nailed down" as early as Spring 2013. While this doesn't mean I'm going to change my opinions and analysis because of what Tepper has done, this guy is no joke, he made $4bn (his own income) in 2009 and in 2012 and 2013 he was the top paid fund manager and likely will be in 2014 as well once tax statements come out. Whether what he did has any immediate bearing on assets or not, it's a strong hand that is no longer supporting AAPL's price of RB's or any of the above and institutional sponsorship is one of the most important things a stock cvan have as we have calculated it takes exactly 2 days for retail to switch from bearish to bullish sentiment or vice versa, in other words they go whichever way the wind is blowing with no reason or rhyme unlike institutional sponsors.

In addition, the point should be made that while moving that much equity in a single quarter is pretty amazing, the distribution process is exactly that, I can darn near guarantee he didn't sell his 1.16 mn shares of AAPL in a single transaction, a single day or a single week, likely not even a single month.

That being said, there is proportionality to a divergence and the timeframe it is found on has a big influence, for instance a 5 min divergence is nowhere near a 60 min divergence, imagine the amount of stock that can be bought or sold in 5 mins vs 60 mins and extrapolate that out in to the large trend of a divergence.

Without further...whatever...

 This is the entire cycle from start to present. Dow Futures 60 min and the yellow area represents the "Chimney" which is typically the last thing seen just before a reversal as I showed earlier in the week at the September rounding top with a head fake (chimney) and price just about falling off a cliff just after.

Not that the market usually wants a red close on a Friday, it's just not helpful for limit orders in to Monday that can be sold in to unless you're trying to create a downside panic.


 ES/SPX E-mini Futures 60 min

NQ/ NASDAQ E-mini futures 60 min

TF/Russell 2000 Futures 60 min.

In other words, the chart here is just about as ugly as I could reasonably ask for and the reversal process is mature.

Quick Asset Scan

I hope to bring you as many of these assets as I can as I have been doing my daily rounds through the watchlists. Overall, there has been a bearish bias that has run through numerous assets we have recently talked about, had trade set-upss in or actually entered.

The 2- 4 p.m. timeframe on Friday tends to give some of the best 3C information of the week, I pay close attention to what happens as the op-ex pin is typically lifted around this time.

Some of the assets that I'd like to try to bring you (I won't get to all of them) include on the bullish side:

FAZ, SPXU, SQQQ, SRTY, TECS and on the bearish side...

HYG, TQQQ, TECL, XLK, AAPL, NFLX (which I'm glad we added to a position in yesterday (tracking), and several others.

The last two hours starting now are pretty busy and I may have to put up some shortened posts for anything I see moving in underlying trade as it tends to occur quickly, but the overall bias to the watchlist charts I've been going through has been definitely to the bearish side, which isn't surprising with the Igloo/Chimney formations this week and the trade ideas/positions being entered this week as with past weeks we have entered virtually none.

I encourage you to take a look around at some of the assets you are interested in, maybe run through a watchlist and see if you are noticing a trend among the components.

Gold Update

Typically Gold is bought on inflation expectations, meaning even before inflation actually rears its head.

The F_E_D has been dead wrong on inflation expectations and each F_O_M_C meeting they walk back their "transitory" deflationary effect of low oil prices a little bit more, from almost a negligible occurrence to "Well maybe it will be with us a little longer than expected" over the last several meetings.

For my part, I blasted the F_E_D's Bullard for suggesting inflation expectations had changed over 1 month (his early October statements vs. November, saying that you cannot possibly predict the inflationary trend or changes in it on a month's worth of data. So to be consistent, I won't claim that yesterday's Initial Claims with hourly earnings increasing 1.3% month o. month and yesterday's Consumer Price Index and its CORE CPI advance in inflation in every day goods and services when excluding Energy and Food as the F_E_D excludes them as "volatile" represents a change in the inflationary outlook.

While this may sound tin-foil hat conspiracy theory, you probably know my general opinion that the F_E_D has been on track to remove accommodation since the press conference that unleashed QE3 ironically, they made the first steps away from "Whatever it takes, we have more tools" to talking about changing guidance from quantitative to qualitative, at which time I theorized that this was the first step in removing accommodation. Here we are a couple of years later and the F_E_D has removed policy accommodation, QE is gone and while the F_E_D maintains a facade of impartiality and data dependency based on the word, "Patient", it is my opinion (with no fact to back it up beyond what has already happened since the theory had first arisen in September of 2012) that the F_E_D has an alternative reason for NEEDING to move off ZIRP. I can't claim any knowledge as to why I believe this to be true, I just do and I believe macro data be damned, they'll twist, use subterfuge and plausible deniability to get to their goal which I believe is rate hikes, but not because the economy is strong enough as the current narrative goes despite all data.

As for Gold, again, perception is everything in the market, value counts for next to nothing if not actually inversely correlated. Thus in January we had called for a pullback in GLD, we had a put position on, I can't find the exact date we first called for this pullback, but I found a post in roughly the area from Friday January 23rd, Gold Update. from which GLD has moved over 7% lower (pullback we expected".

Here are a few of our expectations at that time when GLD was 1-day off it's 2015 highs...

"It's no secret that we have been expecting a decent pullback in gold with a recently added GLD put position, Feb 20th 121.... However, if you've been following our analysis of gold and gold miners over the last year or so, we've also been seeing hints of a larger primary trend developing, a new trend since the 2011 top we called. Price action and 3C charts seemed to take a break for a bit and things cooled off, but it looks like those same longer term expectations that we had been seeing develop, are on the grid again... First though, we are looking at a pullback, we may find a good buying opportunity in a pullback, but we'll let the charts tell us whether a pullback looks constructive or not (whether there's accumulation of the pullback)."

I think that explains the analysis as of January, pullback and a probability of that pullback offering a new long position for a larger Gold trend higher. The recent GLD updates have been along the same idea posted in January.

Here's an overview of where we stand...

 This is an overview of the Gold trend that we have broadly called nearly to a "T" or a "Tee".

The 2009-2011 trend was the gold-bug phase, input costs were rising due to commodities being bid up because of QE (as commodities are traditionally a risk asset), this is something the F_E_D has to do something about as manufacturers were paying increasingly higher input costs and they did do something. At the time it was sacrilege to say anything other than "Gold is awesome". This was pretty much a bubble move as my neighborhood barometer was off the scale with friends who had no investment experience were buying up gold and silver coins on the internet. You may recall my experience of having to break the bad news to a friend (not an investor who caught the gold bug) that the coins he bought off the internet were in fact not real as coins are struck in whole, there's no seam on the edge where a front and back had been fused together. You may also recall my experience with a well known money manager who I had been in touch with, a solid gold bug who had summarily dismissed my bearish gold analysis in late 2011 as essentially being bunk (cantankerous fellow) .

By late 2011 as the rate of change in gold has risen and broken away from the steady trend at #1 (seemingly bullish, but as we have seen so many times, it's a red flag that the trend is about to change), we not only refused the gold long trade, but forecast Gold to move down in either an intermediate or primary downtrend, both very serious and that's exactly what Gold did off the 2011 highs at #2.  At #3, GLD classified as a downtrend.

However at #4 we saw some unusual activity and speculated that gold may be putting in a bottom and then things went quiet for a while, it wasn't until recently that signs of a positive longer term gold trend had emerged, thus the January analysis,

"It's no secret that we have been expecting a decent pullback in gold with a recently added GLD put position, Feb 20th 121.... However, if you've been following our analysis of gold and gold miners over the last year or so, we've also been seeing hints of a larger primary trend developing, a new trend since the 2011 top we called. Price action and 3C charts seemed to take a break for a bit and things cooled off, but it looks like those same longer term expectations that we had been seeing develop, are on the grid again... "

 If you look at the longer term chart above this one, you'll recognize this area as looking like a bearish descending triangle, however the actual consolidation of a descending triangle is no where this large, so it's something else.

Out custom DeMark inspired buy/sell indicator has given several long and short signals that have been essentially, right on cue including the last pullback.

 Over a longer period, a 9-day chart (each bar represent 9-days) we have numerous signals with pullback areas called as well as two but areas that curiously didn't show up in Gold's uptrend, one, the most recent just happens to be a break of support that saw 3C accumulation, otherwise known as a head fake/stop run which led to the bounce higher that we eventually called as a pullback in January.

 On a daily chart the red rectangle is the area of our last pullback call along with a GLD put position and a bullish hammer candlestick at the lows on increased volume, making it about 3x more effective as a reversal candle, although they give no target other than to say, "The current trend is about to change"{ as it did. However in t the recent bounce, volume has been FAR from ideal and today we have a Doji Star or indecision candle that "may" end up being a short term pullback which would suit me just fine if it ended up building a larger local base like a "W" base along with the hammer (white arrow), this would be a more stable platform to rally from.

 Interestingly recently GLD's trend has been called by 3C with a pretty high degree of accuracy (30 min), the first positive divergence is at the stop-run/head fake below support at the yellow arrow and more interesting to me is the sharp leading positive divergence since.

 This 15 min chart shows good reason for us to call a pullback in January at the highs and also now shows good reason to suggest our forecast of the pullback potentially offering a nice long entry is correct.

The top trendline (white) shows the approximate location of the first identification of the positive divergence and out 3C concept is that price will almost always surpass the first area a divergence is noticed, so an upside move should easily take out at least the $120 area.

 The 10 min chart shows the same confirmation of both the pullback call and the probability of accumulation in to the pullback, creating a higher probability long entry at a discount and lower risk.

However as we get more in to detail, the 5 min chart which doesn't contradict anything above, just adds to it, seems to suggest that the near term pop in GLD over the last several days should pullback, along the lines of the wider "W" base I suggested above which would gvie us a stronger foundation to rally from and a higher probability trade.

I've confirmed the same in Gold futures (/YG), this is a 5 min chart suggesting a very near term pullback, but does not damage the positive divergence in to the pullback lows.

I'll be setting some alerts for a small pullback, likely in the area of $114, I'll be watching otherwise, but I;d like to see that occur in to a stronger positive divergence and this may give us a fantastic trade that comes to us at a discount and of course lower risk with a stronger base for a stronger upside move.

I can't necessarily argue with the idea of phasing in to or building a position if it's a trade idea you like, although I'd do it with the above forecast in mind, especially if you might be looking for a larger trending trade which I believe there's some decent evidence to support the idea. 

The bottom line is the F_E_D needs either inflation or the perception of inflation, gold should benefit from that.

Market Update (Intraday)

Thus far it's pretty quiet, not too different than a normal options expiration Friday with a pin in place (typically around Thursday's closing range). However the last 30 minutes or so are getting a bit more interesting, after 2 pm there should be some excellent data.

I added a couple of extra charts to the intraday update, just because I think they are an excellent visual of market character and 3C character through the 4 stage cycle beginning 1/29-2/2 (stage 1 base).

 This orange indicator is not 3C, it's one of the most overlooked and useful indicators that you can apply to price or other indicators to get more detailed and advance notice of where the indicator is likely to go before the indicator itself actually shows it, kind of like turbo charging an indicator, it is Rate of Change in this case applied to price.

The 1/29-2/2 base is highlighted in white on the time axis, note the positive divergence in ROC in early February as price itself is telling you almost nothing with price levels at almost exactly the same spot. This is the visual proof of the concept, "Changes in character lead to changes in trend" and to the right, we obviously have another divergence or change in character, but the one you might overlook is volume which I don't think you need any moving averages or ROC applied to in order to see the change in character there. Although volume analysis is a lost art, one of the most fundamental concepts is rising price should see rising volume.

Before we had the F_E_D intervening in the market in late 2008, volume analysis would have probably been my second favorite indicator, then it really didn't matter much as the F_E_D quadrupled the size of their balance sheet, but since that has ended, volume analysis once again is taking on new meaning and at a time when an entire new generation of traders have no idea what it means, just as 1/3rd of professionals haven't seen a rate hike (the last one was 2006), how many more including retail have no idea of what volume can tell you?

Just as an example of what a healthy market looks like and when volume analysis was important as it is becoming again, note the volume from the last bull market
(2002/2003 - 2007)...

 S&P

Or further back... The yellow larger spikes in volume are typically change in character events like capitulation or churning.

Here's the Q's , the same timeframe as the SPY above.

Intraday SPY , a little interesting so far...

 As mentioned, the same intraday chart as a trend, this is why they are used for timing purposes. If you can identify the stage 1 base you'll see a positive divergence, stage 2 mark-up is pretty easy to identify as 3C will usually confirm in that area and stage 3 top/distribution should also be easy to identify.

The point in understanding the 4 stages of a stock's cycle is knowing where you are to know where you are most likely going, this applies to a 1 min chart or a weekly chart.

 QQQ 1 min looks dangerously like it could drop here.

IWM is in line

Again, the same chart's (IWM) trend.

I'll have some additional market updates as well as asset updates.

More Bad, Bad, Bad Economic Data...

Add these to the Economic Surprise Index which has been trending down with numerous misses in macro data essentially since the end of QE3 and picking up through 2015.

So the March meeting of the F_O_M_C and whether they give some guidance that loosens their flexibility allowing for a possible June rate hike will be very interesting to me any way as I believe the F_E_D is moving to normalize policy for reasons "Other" than the economy is able to stand on its own two feet. While I agree that the economy is not that bad that it justifies extreme emergency measures like ZIRP, I do have my suspicions as to why the F_E_D is moving toward policy or more policy normalization, something we first noticed the very day they launched QE3 as they began to lay the ground work for an exit from QE.

This morning's data...

	Prior	Consensus	Consensus Range	Actual
Business Barometer Index - Level	59.4	58.7	55.5  to 59.6	45.8

The Chicago PMI for February plunged 13.6 points to a sub-50 level of 45.8, the lowest level since July 2009. The report attributes the plunge to bad weather and effects tied to the West Coast port slowdown. New orders, production and employment all posted double-digit declines. New Orders saw the largest monthly decline ever recorded!

There's not much in the way of silver lining in the Sub-indices either...

• Prices Paid rose compared to last month
• New Orders fell compared to last month
• Employment fell compared to last month
• Inventory rose compared to last month
• Supplier Deliveries rose compared to last month
• Production fell compared to last month
• Order Backlogs fell compared to last month
• Business activity has been positive for 11 months over the past year.

The bottom line thus far on why this report came in so bad is tentatively the weather/snow and the West Coast Port log-jam, although I say tentatively as we'll have to wait until March to see if that's truly the case. January's brief respite of economic improvement following 3 consecutive months of declines may just be a seasonally adjusted blip.

Next Consumer Sentiment came in...

Released On 2/27/2015 10:00:00 AM For Feb, 2015

Prior Consensus Consensus Range Actual Sentiment Index - Level 93.6  94.0  89.5  to 95.0  95.4

Consumer Sentiment from the U of M can be spun either way, the month on month print is down from 98.1 in January (final), but from the mid-month print of 93.6, sentiment is up 1.8 points, suggesting the last 2 weeks of February were quite different than the first two weeks. However on a month to month basis, this would be the biggest drop in nearly a year and a half, does 2 weeks really account for much more than statistical noise? That's not a rhetorical question, I'm not an economist thankfully, I like to be correct once in a while.

And Pending Home Sales...

Prior	Consensus	Consensus Range	Actual
Pending Home Sales Index - Level	100.7			104.2
Pending Home Sales Index - M/M	-3.7 %	2.0 %	0.0 % to 6.0 %	1.7 %

This is a modest rise at 1.7 compared to December's -3.7% print, but a miss of consensus making this the 5th consecutive miss for Pending Home Sales.

Monday's existing home sales report was weak in contrast to price reports from Case-Shiller and FHFA which showed strength, so a bit of mixed data. NAR blames, believe it or not, a LACK of inventory!

In normal times, one would expect the market to be shooting up over a 1% move today just because in this case, bad news is good news for the fans of accommodative policy, but somehow I suspect that no matter what the data is, the F_E_D is going to do what they are going to do. This is the most powerful organization in the worked. For you small business owners, if you were making a change in your business, would you prepare for it well ahead of time or wait month to month to decide when to make such a change, like say expanding your business or maybe even consolidating it? How much more do you suppose the most powerful organization in the world pre-plan?

On a final note, NY D_E_D president William Dudley, Cleveland F_E_D Pres. Lorreta Mester and F_E_D Vice Chair Stanley Fischer join the BOJ's Deputy Governor, Hiroshi Nakaso and the ECB's Victor Constancio in a Monetary Policy forum in NY today.

Quick USO Update

The $USDX lost some ground since yesterday's highs, then it bounced right back to the same area, a tinge higher, but more or less stabilized in that area.

Incidentally USO has stabilized in this area for the time being.

There's still no question as to the gas in the tank on long term charts and oil is up to something, but right now I'm happy to stay patient with the half-size position which would allow me to take advantage of either outcome I suspect. There's enough room that I can wait out a base, not have too severe of drawdown and be able to add at better prices or there's enough of a position that on a true counter trend rally, which are very strong, the trade would be worthwhile.

This consolidation is USO since the first leg off the lows is bigger than I'd expect so from my perspective we are sitting right in-between a large consolidation for a countertrend rally and a smaller base that's still under construction for a trend reversal. I suspect USO will give us more to go on, which could happen in the next 30 minutes or it could be days, but until it gives me something more to go on, I'm happy straddling the line and being able to take advantage of either scenario.

Daily Wrap

I can't pretend today wasn't an odd day, but the further I step back from it, the more certain elements make sense.

There was very little in the way of 3C sponsored moves today in the averages, in fact the ones that were giving signals were net negative.

Oil / USO was very ugly today and initially I suspected it was because of yesterday's weak head fake move which I was cautious about, you can read more here from today and yesterday, USO Update.

However, it's hard to ignore 1 fact. After today's Initial Claims and CPI data which both missed, but the part that the headline print left out is both contained EXACTLY what the F_E_D needs to raise interest rates: 1) higher month on month hourly wages, up +1.3% over the last month and 2) CORE CPI inflation on the rise, it's only with Energy which as you know has been hammered and food which the F_E_D excludes as "volatile" from their projections, that CPI missed, otherwise, nearly across the board Americans are paying more for goods and services.

This data and the increased chance of a June rate hike (after removing "patient" at the March meeting as James Bullard suggested on CNBC this morning) was responsible for the $USD raging higher, in fact to a new high that hasn't been seen since September of 2003!

What does that tell you about how the FX markets took the data this morning? RATE HIKE sooner than later and treasuries dumped on the data, translation again, Rate Hike sooner than later.

You might recall Tuesday's Daily Wrap showing the 10 year yield crossing below 2% and triggering algos to sell equities around noon time. This likely had to do with inflation expectations and a more dovish Yellen testimony, today was the exact opposite and on the data so I can't take credit for that TLT pullback I was expecting, although that's what happened today.

The response in GLD and SLV was muted (+0.32% and +0.06% respectively), but the legacy arbitrage $USD/Oil with oil was right on (even though oil had lost some ground overnight, it didn't break local support until the $USD pop on the 8:30 data.

So I think we have some better idea of what caused the rout in oil today as the USD made 10+ year highs (dollar denominated assets like oil and the $USD move opposite each other). And all of this. largely on data that appeared bad for the economy and put off a rate hike, but was actually just the opposite, just what the F_E_D is looking for to hike rates!

The 10 year did the opposite of Tuesday (on Yellen's more dovish testimony when it broke below 2%) and broke above 2% today, also in part to an ugly 7 year Treasury auction this afternoon.

A lot of today's action in the market (not all evident by price alone), was a response to the data the F_E_D needs to hike interest rates. There were some other issues moving the market at different times that we'll get to, but this was probably one of the biggest factors in which there3 was a chain reaction, for instance the dollar soared , pushing crude lower which helped stocks. The Treasury complex sold off on the data sending yields higher and supporting stocks, but there wasn't anything in the intraday data that looked bullish, it was chain reaction stuff and some gimmicks.

This is the $USDX soaring on the 8:30 data release to highs not seen since September 2003!. The move may have been a bit overdone as there's a negative divergence so we'll see what becomes of that, but I wouldn't assume oil weakness fundamentally (within our expectations) based on this $USDX move alone.

The 10 year Treasury at highs for the week as the 8:30 data comes out, then watch what happens...

10 year Treasury futures CRSHED at the 8:30 data. Again, it may have been overdone as there's a small positive divergence forming.

Essentially this is what the knock-on effects were in the market today...

 This is TLT (blue) intraday 1m vs the SPX, although you can see some normal inversion here and there, the general trend of both was down.

This is the 30 year yield we have been watching recently since this cycle's start (1/29-2/2) and the normal in line or prices and yields moving together at stage 2 mark-up of the cycle and then the recent divergence indicating high probabilities we are at a fulcrum/pivot point to reverse to the downside as we use the yield's divergence with the SPX as a leading indication of an impending reversal (along with the Igloo/Chimney formations and other elements). However today because of the early sell-off in Treasuries on the 8:30 data dump, yields jumped a bit intraday providing some support for stocks, although I can't say that I believe they made much of it.

The entire yield curve bounced on the Treasury sell-off today on the 8:30 data. Here you see 5 year yield (also a leading indicator) diverging from the SPX ( a signal of a move lower for the market as yields tend to pull equity prices toward them like a magnet) and then today's pop higher in yields (remember the 10 year busting back above 2% today).

This move in yields is "mildly" supportive of the market intraday today, but the overall divergence is still much larger. As you can see, the SPX didn't make much of the opportunity.


 Taking a very close look at the intraday 5 year yield (red) vs the SPX, you can see they are roughly in line. The 3 p.m. lift-a-thon was related.

Here we see TLT (blue) which is inverted to give you an idea of what yields looked like during the last hour as the bond market closes at 3 p.m., it was obviously supportive of a move higher at 3 p.m. which came on no news whatsoever and no divergences at all.

In fact, it seemed the 3 p.m. ramp job had 1 purpose and that was to get the SPX green on the week, being that tomorrow is options expiration and being the move was toward the end of the day and being the options expiration max-pain pin usually opens right around Thursday's close and loiters in the area until about 2 p.m., I suspect this late day ramp job was to get the SPX green on the week for tomorrow's op-ex.

The SPX just makes it to green on the week because of the 3 p.m. pop.

Although the move was strange. Here are the averages intraday today, there was some obvious difference in relative performance...

 We see the major averages diverging through the day with the NASDAQ 100 and IWM leading and the SPX and Dow lagging. However, despite the differences through the day, the differences between the Tech heavy NASDAQ, the Energy and Financial heavy S&P, the small cap heavy R2K and the large cap Dow, at 3 p.m. it was as if they were all the same asset...

The major averages from 3 pm until the close.

 As mentioned, there was no positive divergence in to the 3 pm ramp as seen on the IWM chat which was getting ugly and seeing price move to the re3d right as the ramp began (the light blue trendline is yesterday's close and the IWM about to go red on an earlier negative divegrence).

The same is true of the SPY, in fact all of the averages, no news, no divergence, the only thing I can find to account for it is the move in bond futures and by extension, implied Yields, but only once the bond market was closed at 3 p.m. and wouldn't have the ability to react and spoil the ramp which still left the SPX and Dow in the red.

While the NASDAQ led the market today, it wasn't the case early in, in fact it didn't look so great earlier and it appeared that AAPL was the cause as we have covered AAPL and I don't think anything today changes our near term expectations for AAPL...

Early on, AAPL was not looking very good, AAPL Position Management

It's no secret as we saw yesterday, AAPL has almost been single handedly responsible for all NASDAQ gains through 2015, in fact 5 stocks have accounted for all gains as posted in Tuesday's Daily Wrap and that list includes NFLX which we took action on today:Trade Idea: NFLX Short & NFLX Follow Up. If the charts of NFLX and AAPL tell us anything, it's that our QQQ Mach puts should be just fine.

 AAPL's roll from what appears to be the end of the Chimney is supported by 3C negative divergences  as we have seen and it wasn't looking good this morning until just after the open and out of nowhere, AAPL declared "Media Day" in March! WT...!#$!@!##! "Media Day" Seriously?

You can see the effect that had on AAPL's price, although there's not a supportive 3C divergence.

Here are the Q's and their near term 3C negatives and red on the morning until AAPL's "Media Day" was pronounced, lifting the NASDAQ out of the red!

Again, no supportive 3C divergences so this looks like nothing more than a news driven knee jerk reaction.

This is AAPL's (red) divergence vs the QQQ (green), which has been one of the main sponsors of the Q's, the negative divergence between the two had an obvious effect on the Q's as AAPL's red close did yesterday, snapping the NDX's winning streak. Again, "Media Day" saved the index for the moment from what may have been a much uglier close.

Who knows how op-ex related this stuff is, there's certainly a lot of money to be made in seeing that options expire worthless.

So we have a good idea of what moved oil and in turn the market to some degree, what moved Treasuries and again the market to some degree, what moved the $USD to decade+ highs and what it effected (oil/USO) and we can take all of this and put it together and we come out with a market net negative regardless of what the NDX and R2K did price wise today, all other assets acted as if a June rate hike, which appeared to be off the table as of yesterday's close, now looks more likely. There's a lot more information in the market than just what the averages closed at.

As for leading indicators, you saw today what was happening with HYG, Things just got real interesting for HYG / HY Credit. In fact the first market update posted today was 2:13 as things started to get ugly and then the HYG post at 2:30 as it started to get real ugly. It's interesting that as soon as the bond market closed at 3 p.m., those very ugly signals were put off for the day on a 3 pm ramp.

As I suggested in the Things just got real interesting for HYG / HY Credit post, HYG was red shortly after the post and on the close, but more importantly are the 3C signals in to the close, they did not improve on the 3 pm ramp...

Of course this is just 1 chart, but it's the timing hart, the rest of the charts and negative tone for HYG can be seen in this afternoon's post linked above.

As for Leading Indicators...

 Our Pro Sentiment Indi is in its second day of leading lower , this is an indicator that has bewen in ine with the market and moving up since 2/2, these past 2-days are the first time it has moved down in any meaningful way, totally ignoring the 3 pm ramp.

Here the VIX and its inverse relationship to the SPX can be seen clearly...

However intraday although you see some inverse areas, what is the trend of the VIX vs the SPX? Up, which is not the normal correlation which can even be seen on some of the smaller intraday moves, it appears protection is being bid in anticipation, well lets just say protection from a downside move is being bid as the VIX would not normally trend up with the SPX over the time period.

 VXX is inverted (yellow) vs the SPX, toward the end of day, VXX (Short Term VIX Futures) was also being bid as it showed relative strength vs the SPX. Here's the same chart without the inversion...

Note where the SPX is and where VXX is relative to readings to the left, if the normal correlation had held, VXX would have been at a new low on this chart, it obviously was seeing a bid as well.

In fact, I'd say the 3C charts are having no difficulty confirming either. If I were to be looking at a VXX long trade or UVXY, I;'d probably wait until tomorrow's op-ex is over or perhaps look at it after the pin, however I'll cover both and see if there are any interesting opportunities.

 VXX 2m

VXX 5m

VXX 10 min since the cycle started.

XIV (inverse-short Short Term VIX Futures), 30 min also since the cycle started...

 XIV 10 min

XIV 2 min.

I've notices as I'm sure many of you have, to make money on VIX short term futures, timing has to be dead one. So far, the charts above not only confirm, but look to be pretty darn close to dead on, I might not go all the way there with op-ex tomorrow, but I think for the most part we are VERY close.

In addition to the risk front and center stage today of a F_E_D rate hike and interestingly, the appearance of Bullard who has been at every major pivot up or down since September with statements and he just appears today to deliver a hawkish statement as the data confirms a more hawkish possibility for the F_E_D if they should so choose to take advantage of it, I am not going to lie, I'm very interested to see if Bullard's appearance marks what would be a 5th pivot in the market giving more credibility to my article, The Plunge Protection and Market Correction Team.

Additional risk factors include the +30% jump in Spain's Credit Risk since the Greek elections as the anti-EU/Austerity Podemos Party in Spain expands its lead in Spanish elections. This is the risk we posted several times that the EU may just be most afraid of and specifically Spain as they were the ones asking for the toughest measures against Syriza in negotiations to deter their own extreme leftist party Podemos; an anti-EU/Anti austerity movement across the periphery of the EU as posted in the second paragraph of Monday's Daily Wrap.

Corporate Debt has hit record levels going back to the 2007 peaks as well as Stock Buybacks which have been shown to always occur at the top of a bull market rather than at the more sensible bottom where prices are much cheaper, but that has to do a ot with CEO bonuses and the ability to sell among company insiders which is also at levels not seen since the 2007 peak as well as Bullish sentiment, Margin Debt, and record lows in complacency, all amidst the background (as mentioned) of peak levels of insider selling, some say at the same as the 2007 peak, some say going as far back as the Dot-Com Bubble peaks in 2000.

As for internals, I'm showing 326 of the S&P 500 closing down today; 2460 of NYSE stocks closing down vs 1780 closing up.

As for the Dominant Price/Volume Relationship, all averages are lacking a dominant relationship AGAIN except for the NDX's dominant relationship which is close down/volume down, 41 stocks (the least biased , but the most common relationship during a bear market).

Of the 9 S&P sectors, only 3 closed green with Tech leading at +.63% and Energy lagging at -1.85%.

Of the 238 Morningstar groups, again a very luke warm 106 of 238 closed green. These have been very mellow readings all week and quite frankly odd.

As for Breadth Indicators, the 8 different measures of socks above or below their 40/200 day moving averages and 1 or 2 standard deviations above or below, they have barely moved or declined in breadth in most cases for 17 days now, these should all be making healthier or higher breadth moves with the market, instead they are dead flat which just goes to show when viewed as a market of stocks without the weighting, more stocks are falling apart than rallying and this is a year and a half long trend that has just grown worse.

I don't have the new SKEW reading yet, when CBOE releases it, I'll let you know, but it has been in the red zone.

While it's still early in the evening, Index futures are showing some pronounced intraday weakness since the close, I'll check on them again later tonight and let you know what I see, but for an idea...

ES/SPX futures...

Remember tomorrow is an op-ex Friday as usual, typically dull days through the afternoon until about 2 p.m. when the max-pain op-ex pin is released as most contracts are settled by then, that's also when we get some of the best 3C data of the week, the last 2 hours so we'll be looking at that carefully as well as additional opportunities and probabilities in the market.

Have a great night!