Daily Wrap

The big news today, other than continued macro-economic deterioration the world over, was Germany's Finance Minister, Schaeuble telling the Greeks they had an initial 10-days (Feb 27th) to ask for a loan extension, which was a deadline that has already come and gone with the Greeks having no intention of carrying on with the old program, something Greek PM, Tsipras called "Blackmail" today.

Around 12:30 news was out from another "Source" which is usually code for a baseless rumor or a trial balloon to see how the market or certain players (like Finance Ministers) react. This "source", supposedly close to the government said Greece intends to ask on Wednesday for an extension for up to six months of a loan agreement with the euro zone, on conditions to be negotiated. The source drew a distinction between a loan agreement and the full bailout programme which the government insists is dead.

If it was a trial balloon, it was popped pretty quickly as Germany's Finance Minister / Paymaster, Schaeuble said "Pull!" and shot it down saying, "It's not about extending a credit programme but about whether this bailout programme will be fulfilled, yes or no."

The mainstream financial media's narrative of the market reaction is that some compromise will be found before Greece's funding runs out in 10-days, that's the narrative for what seemed on the surface (price alone) to be a dismissive attitude of the increasing rancor and hostilities between Greece and the Euro-group/Troika/ECB/Germany (take your pick). I don't quite see it that way and I don't think this is about compromise, the two sides have very different goals they need to accomplish and they are completely at odds with each other. The point is, I'm not sure I believe the market took today in stride as the mainstream financial media claims based on price action alone, there's a lot more to the market than a day's price action which was dull otherwise.

Tsipras added in a session with Greek lawmakers that their elective mandate was to repeal the bailout, austerity measures imposed on Greece and to end cooperation with the Troika (EU/ ECB and IMF lenders). Additionally adding that Greece is treated like a pariah colony in Europe, Schaeuble has made degrading comments about Greece in "certain circles" and on all of the above, THERE WOULD BE NO COMPROMISE and reforms to labor laws enacted in the name of austerity required by the Troika would be repealed ASAP in legislative sessions.

Interestingly as the rumor of Greece asking for a 6 month extension came out, it was not the EUR/USD that you might expect that moved the market...

 Here the EUR/USD (candlesticks) vs ES (purple line) shows ES underperforming the FX pair earlier in the day, then moved about in sync when the "sourced" rumor was reported , the rest of the day, ES was being moved by something other than the EUR/USD.

As was posted several times today, it was the USD/JPY or more broadly JPY weakness that was moving the market the most, I suspect by coincidence only as the Bank of Japan was said to have intervened in their Bond market with a stick save which was the cause of the weak JPY and thus the stronger JPY crosses like USD/JPY which was in charge today...

 USD/JPY (candlesticks) vs ES (purple line) is a much better match, but  this apparently had nothing to do with Greece and everything to do with intervening in their bond market to save their JGB's (bonds) sending the Yen lower and yen crosses higher like the USD/JPY above; in other words, two very separate events confused and commingled as one having to do with the Greek rumor, NOT SO!

The USD/JPY has a negative divegrence, although looking at the USD and JPY individually, I don't see a high probability of a very near term deep pullback (as in the next several hours or overnight) but some downward drift is already apparent.

The SPX almost magically closed right at 2100, another psychological magnet in what otherwise looks like the head fake move that was forecasted over a week ago (remember I kept saying I have to be consistent about our concepts and the range in the SPX through most of 2015 was a very high probability head fake move magnet-just as 2100, an even/whole number is as well).

Here's the head fake move range and set-up as this is the 3rd bottom area or bounce/base we've called since 2015 started...

 The SPX daily range and clear resistance level, a head fake move occurs at such levels for a specific reason, short squeezes, new buyers entering the market, all demand available to absorb supply from larger sources such as smart money.

Note the head fake/stop run of Feb 2nd, the lowest intraday move of 2015, hitting stops and drawing in new shorts which creates a bear trap that acts as a  momentum ignition as last week we saw one of the strongest short squeezes in recent years leaving the AAII survey, Percentage bears extremely low, removing the short squeeze lever nearly entirely from the market. From this morning's post which is a good all around read, Global Update the AAII % Bears...

The sentiment indicator is at some of the lowest levels in 2 decades.

However the point was the range and the head fake probabilities, honestly, a close at $2100 almost on the nose, come on! The SPX, Dow and R2K almost all closed right at a minor +0.16% and the weaker looking NDX 1000 as mentioned earlier today closed at +0.03%, just barely in the green as AAPL drifted lower almost all day until the closing hour or so just barely rescuing the NDX from a  red close. See AAPL's update as well today, AAPL Update (the USO and MCP updates are also important).

This is the 30 min 3C chart showing the two previous bounce bases of 2015 forming the range and the last at 1/29-2/2 with a head fake move to intraday lows for 2015 at the yellow arrow (same as the SPX chart above) shows the base for this one with the extra help of a short squeeze and later in the week a VIX hammering as CFTC spec net long VIX positions were at a record high as well.

The head fake below the range to create upside momentum is interesting and part of the head fake concept, but the 3C chart once above the range strongly suggests (as we knew before the move even started) that it's a head fake move as there's not even confirmation, but instead strong distribution once price moves above the range where technical traders will buy in a breakout.

While not all Leading Indicators were sending signals that should be paid attention to, gor example, Treasuries / Bonds were lower sending yields higher and giving the market a nice boost of support which it did very little with, here are the 30 year Yields today (5 and 10 year are nearly identical)...

30 year yields today in red vs the SPX, these tend to act like a magnet so bonds being down was supportive of the market via yields up, however this is just an ordinary occurrence, these were less ordinary...

As pointed out in Leading Indicators Update earlier today, there were already some things of note taking place, the High Yield Corp. Credit (HYG) update was also an important post today to understand market action just below the surface of a rather dull day in price.

 The VIX (vs SPX in green which is inverted to show the normal correlation between the two which is usually exactly the same as they trade opposite each other) Showing very notable relative strength vs the SPX today, in fact stronger than when it was first posted and the daily VIX...

also shows a 2015 range, although it is inverse to the SPX , but the VIX "should" be trading much lower vs the SPX correlation and beyond that, the VIX closed UP today when it "should" have closed down with the market up +0.15% + 0.16%.

 Here's the VIX over the last week, it was whacked in the red area Friday, but bottomed with a "W" base and lead the SPX today as you saw above with a close higher rather than lower as it would normally do being the two trade nearly perfectly opposite each other.

I also checked VIx futures and short term VIX futures...

Earlier in the day VIX short term futures (VXX) were in line, but by the afternoon and the market's approximate 1:30 intraday highs,  VXX started outperforming as well, although the 3C charts with positive divergences today posted in the Leading Indicator update, suggested the VXX was under accumulation and furthermore...

Actual VIX futures were showing a strong positive divegrence at the time, which were even stronger by the close (VIX Futures intraday).

This would have been strange enough or at least contradicted the mainstream financial media's narrative that the market isn't worried about Greece as the VIX is a flight to PROTECTION, but it didn't stop there...

 Pro Sentiment went the opposite direction of the SPX today, refusing to move higher, but rather lower.

Our custom SPX:RUT ratio didn't confirm earlier and right at the intraday highs at the first major divergence on the chart, it ended the market's upside gains for the day as it deteriorated more in to the close. Only a late day ramp to 2100 exactly, which is ridiculous (I've seen some other choice descriptions of the last few minutes of trade that I won't repeat) stood out after the intraday highs were put in and the market drifted lower.

 More important, the HYG signals on 3C we have been getting over the past week+ have been forecasting a move lower in HY Credit which is a fantastic leading indicator for us. As you see above, HYG also puts in a top intraday and limits the SPX intraday at that point for the rest of the day. The change in character in HYG though, is the most notable aspect and it wasn't just in HY Corp. Credit...

HY CDX was almost perfectly lower on the day with HYG.

High Yield Credit was lower on the day and last several days and...

PIMCO's HY fund has been moving up consistently since the first trading day of January 2015 until recently that is, being one of the first to flash a warning light.

On a slightly different note, the expected gap fill in oil from Friday's update, even though expected, was borderline ridiculous, thus my near term thoughts about a trade set up, but watching this happen in real time almost looked like the invisible hand...

That is the intraday gap fill in Brent Futures that I mentioned in the USO Update, but even expecting to see it, this was borderline psychotic.

One summary of the day was quite appropriate if you consider more than just price action and you look at the underlying conditions like Leading Indicators, Credit, etc, that summary went as follows:

"Earnings expectations continue to plunge to 10-month lows... US Macro data is a disaster (worst in world since start of year) at 11-month lows... Ukraine's cease-fire is not working... The Greek-EU drama has NOT changed as Greece's request to extend loan with no commitments will be screamed at by Schaeuble "nein nein nein"... Energy stocks are trading at a 28x dot-com-esque multiple... and stocks are at record highs..." with this chart as demonstration...

Since QE3 ended, US macro data has dumped as well as Forward S&P earnings, hmmm wonder why. How about the chart posted earlier showing the F_E_D's balance sheet ROC vs the SPX's ROC...

That's about the easiest chart in the world to understand, as long as the F_E_D was giving away money to the banks and the banks had no place to make money on it with the F_E_D setting short term rates at ZERO, it was going to chase yield, once you take away the artificial prop of F_E_D liquidity masquerading as a strong market, this is what happens. Wait until you see what happens when the F_E_D starts hiking short term interest rates, especially in this macro data environment with stocks with ridiculous forward P/E's. Is it any wonder big funds like Appaloosa are getting their money out of the market, at least out of long positions (40% reduction in a single quarter!)

If you are just looking at price, yes it's incredulous, but if you are looking at the entire picture and the very strong concept of a head fake move and understand what head fake moves are for, then things make a lot more sense unless again you are going by price only and measure the market in terms of 24 hour intervals. Otherwise what we are seeing, makes perfect sense.

A quick and dirty view of market breadth...

Remember we have been absolutely consistent in where and when the 3 bases occurred before any upside move started, breadth is doing exactly what it should do for a head fake move or just the end of this cycle from 2/2, but we'll look closer at breadth.

As for our Dominant Price/Volume Relationship, oddly there was none tonight, not even close, everything was nearly evenly split between the 4 possibilities: Close Up/Volume Up, Close Up/Volume Down, Close Down/Volume Up and Close Down/Volume Down.

Although there was a more dominant S&P sector performance with 7 of 9 sectors closing green, the price action (gains and losses were minimal). The leader was Healthcare at +.72% which was a big move considering the second place Financials came in at +.33%. The laggard was Consumer Discretionary at -0.23%, again a small move.

Of the 239 Morningstar groups I track were more in line with internals at 131 of 238 closing green.

Essentially just as I said earlier, dull market action.

Speaking of breadth, even with this move to ATH's, the NYSE's Percentage of Stocks Trading ABOVE Their 200-day Moving Average, which normally stands at 70+%, is still under 50%, meaning less than half the market (NYSE stocks) are trading above their 200-day moving average, which was a quick way to gauge a market's primary trend as it was incredibly close to Dow Theory classifications, under the 200=bear primary trend, above the 200= bull primary trend.

NYSE's Percentage of Stocks Trading ABOVE Their 40-day Moving Average, has fallen 10% since February 5th as of today, not exactly what you expect in a breakout to market highs.

I'll add a overview of Index futures in the next post coming right up.