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!