Market Update

I'm working on putting together a more comprehensive market update. Two things I see right now as influencing factors, one perhaps more immediate than the other and the second perhaps more important than the other, the first and more immediate is the USO and Effects Part 2 or Part 1, basically the effect higher oil prices would have on the Energy Sector and thus on the broad market, so an oil pullback is having an immediate effect on the Energy sector which has led the market the last 3-days.

Perhaps the more important factor is the change in HYG charts as posted in the Daily Wrap... yesterday. The actual divergences are already moving HYG, it's not the divergences that move the market in HYG, they are the "tell" it is HYG's movement that influences the market so with these charts falling apart, it can have a profound effect on the overall market. Many of you know how many times we have called tops and bottoms based on HYG divergences alone before price in HYG even led the market, this is "part" of the more comprehensive market update I'm putting together.

Near term, here's what we have and it seems to be a common trend in the averages...

 intraday action is not screaming anything, it's not all that impressive to me in either direction, although SPY intraday 1 min is in a leading negative position.

Even most 2 min charts aren't that telling in my view, however what is would be the timeframe in which almost all of the averages put in their positive divegrence on a head fake move (many of the averages made a new intraday low for the year on the head fake), this is at the 3 min charts so any deterioration there, where the positive divergences built out to is important near term.

 SPY 3 min with the head fake move (below the yellow trendline) with positive divergences there confirming the head fake/stop run , however the recent dislocation to a leading negative position is deterioration on an important chart for this leg.

 Perhaps more importantly is the stronger, higher probability (stronger underlying trend) of the 5 min charts which have been deteriorating through out the move off the head fake lows, suggesting aggressive distribution in to higher prices as seen throughout January and a lot of December, especially where the Santa rally was expected by most traders.

 Yesterday I showed a 5 min chart of the SPY and tried to express the concept of a reversal process, that we don't usually just get a sudden stop and reversal, but rather a process and I showed a chart similar to this.

Generally speaking bottoms are a bit more narrow than tops, but as you can see, none are "V" shaped reversal events, rather a process and right now the market is looking a lot like it's in a reversal process in the area of our minimum upside target (the breakout above the descending triangle).

 The QQQ1 min isn't screaming anything, although more positive than the SPY.

Again, it's the 3 min chart and the negative divegrence building there and the possibility if not probability of a reversal process in the making.

 Again, the stronger QQQ 5 min chart has been doing nothing but leading negative, suggesting the stronger underlying trend in this small bounce has been aggressive distribution/selling.

 This can even be seen on longer charts, for example the QQQ 10 min. Note the second base in January after the first failed, it is larger (14th-16th) with a nice positive divegrence, but it too failed before it should have as aggressive selling has been ending these bounce attempts prematurely. The current 10 min chart is at a new leading negative low so again, this suggests that selling has been strong, it has been aggressive.

 IWM 1 min looks better than the other averages, but nothing hat I'd be too excited about.

The 3 min chart however is deteriorating, since this is where the positive divegrence made it out to (3 min), the chart /timeframe falling apart is part o the process of a reversal.

Again, the stronger underlying trend at 5 min is no different than any of the other averages, thus we have multiple asset confirmation and even multiple timeframe.

Beyond that, it appears that a reversal process is working itself out, but I am working on a more comprehensive update. As for that reversal process, you'd be surprised how symmetrical and proportional they tend to be vs. the preceding top or base and trend.