We started the week with the concept of the head fake move, this is from a Market Update, Monday February 2nd...
Today's daily price candle is like a hammer, a bullish reversal (short term), it''s at support with a small shakeout below support, so in fact we do have the set up for a Crazy Ivan as the intraday low was the break or run on stops, it's the lowest intraday low of the triangle .
So the next move/head fake would be above the triangle like the last, when that is done, fails and leading indicators are giving strong signals with 3C, the next move should be to the downside below the triangle. The charts already assign high probabilities to this outcome before a move even gets started as you've already seen today and will see below."
Actually there were quite a few posts suggesting that the market move above the descending triangle that was in place. From a purely Technical point of view, a descending triangle (although this was not a textbook descending triangle) carries with it a bearish expectation of a break below the triangle. The little dip below the triangle on Monday (the lowest intraday lows for the SPY of 2015) at the white arrow on the chart above, would normally trigger one of two technical responses: either a stop run or a short entry, in either case both actions are sales (selling on a hit stop or selling on a short sale), this is why head fake moves are so common before a reversal, the reversal being this week's move above the descending triangle. In either case, even a small move like that can cause a big gain in reversal (upside) momentum as new shorts are typically going to put their stop inside the triangle, usually right above the triangle's lower support trendline which causes a stop out or "Buy to cover" which is of course buying.
It was noted several times this week by several members who keep track of sentiment on some of the trading sites like Stocktwits or Twitter, just how fast sentiment changed from bearish to bullish, two days! Which brings an additional source of support in to play which are the traders (long) who were stopped out below the triangles' support, anxious to get back in long. Proof of the first concept was obvious as this week saw the Most Shorted Index saw it's largest 4-day gain in since Sept. 2013.
These head fake moves are real, they are common and they are useful. For a review of the concept, I have these two posts always linked on the members' site: * Understanding the Head-Fake Move Part 1 and * Understanding the Head-Fake Move Part 2
We also saw, much like yesterday, but to a much stronger extreme and a much larger group of assets, some VERY extreme 3C signals, Market Update-Something Strange Edition . While I'd have absolutely no proof of a leak, these very strong 3C signals preceded the Greek downgrade around 12:30 and the Greek Ultimatum around 2:35 today.
And again while it's impossible to prove, we see 1-day oversold and overbought conditions effect the close of the market the next day, yesterday's Daily Wrap said this about the internals and the 1-day overbought event apparent in internals and sector performance...
"the Dominant Price/Volume Relationship was across all 4 major averages and it was Close Up/Volume Down, the most bearish of the 4 possibilities with 26 Dow stocks, 67 NDX-100, 871 Russell 2000 and 311 S&P 500 component stocks.
In addition 9 of 9 S&P sectors closed green with materials leading at +2.42 and Consumer Staples lagging at +.51.
In addition to that, a very overbought reading in the Morningstar Industry/Sub-Industry groups with 215 of 238 closing green, all in all a very overbought (1-day) condition that would usually see the next day close red."
All 4 averages closed red on the day with the NDX, the first to see those strange deep leading negative signals yesterday in Technology/ XLK, leading the way down today.
Unlike yesterday's weakest of the 4 possible Dominant Price / Volume Relationships (Close Up/ Volume Down), today has absolutely no Dominant P/V relationship. Also unlike the 1-day overbought 9 of 9 S&P sectors closing green and 215 of 238 Morningstar groups closing green, today only 2 of 9 S&P sectors closed green with Financials leading at +.79% and Utilities lagging at a massive -4.12% on higher yields./rates.
Likewise the Morningstar groups only saw 80 of 238 close green, a far cry from yesterday's 215 of 238.
VXX charts were interesting with positive divergences today as I would have expected a hedge yesterday in front of the non-farm payrolls this morning, but today on an overall weak market, that smells like something else entirely. The TLT divergences were also of note, although so was the decline on the payroll data. In addition to the TLT divergences, the 30 year Treasury Futures also put in positive 3C divergences today.
While the jobs data seemed as if it would be the key pivotal macro data and probably was from an economic data point of view (it didn't take the market long to figure out good news is not good news concerning the Jobs print and the market, that it did nothing but give the F_E_D more reason to hike rates sooner), as I think we all expected, Greece is quickly becoming the pivot and although I said earlier this week that I don't see it ending well, it is moving much quicker toward an ending that I think any one would have expected.
It's hard to look at today's divergences, Market Update-Something Strange Edition, and think that they had nothing to do with events in the EU/Greece, they were just too sharp, too fast and right before major news... The EU essentially gives Greece a 10-day ultimatum or face a Greek exit from the Eurozone, More from Reuters.
Watch for an even stronger pivot toward Russia over the weekend.
I suspect Futures Sunday night will be a lot more telling than usual at the speed events are moving in the EU, I'll have a thorough look at them and of course post anything that is of note.
I wish everyone a great weekend!
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