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!