A.M. Update

Good morning. I hope everyone had a peaceful and enjoyable weekend, we all work pretty hard, just watching the market do its jiggy-dance is work enough, thus I prefer to take a step back and watch the movement of the tide rather than the movement of the waves. An old trick for those out on a boat and prone to sea sickness is to keep your eye on the horizon which reduces the number of confusing signals to the brain that play a major role in sea-sickness. The same is true of the market, keep your eye on the horizon and don't worry so much about what the a.m. trade, intraday or day to day volatility does and you'll be a lot better off emotionally and likely will have a much easier time looking at the market objectively rather than emotionally.

As of Friday's Week Ahead Update we expected some early strength this week, similar to last week followed by more weakness, similar to last week as well.

While the ECB began its bond buying today or QE with France, Germany and Italy sending yields lower, all was not green shoots and flowers as the semi-laughable Greek proposal to hire temporary non-professional armed with cameras and recording devices to act as tax collectors, the reasoning being, no one would know who might be the secret Santa so to speak. Te EU , which has a Euro-group meeting today, essentially laughed the proposal right out of the building and said in no uncertain terms that it falls short of the proposed and expected changes Greece must undertake to get the next disbursement of cash from the Troika as Greece barely made last week's $310mm Euro payment to the IMF, of which it has two more weekly payments this month that are just as large. The bottom line, Greece could and probably will run out of money before the month's end causing a default if the Eurogroup doesn't approve some kind of disbursement.

This has led to (actually pre-emptive I believe) the Greeks threatening a referendum or early elections if the Euro-group doesn't accept their list of proposed changes, meaning they are threatening a Greek exit from the Eurozone which  has put a bit of a damper on Draghi's QE plan which as mentioned, started today with each country's respective central bank buying their own sovereign bonds, apparently the way the ECB got around the prohibition on financing a country's debt.

I must admit, I had some hope for Greece when Syriza first came to power, it would be nice to see someone buck the system , a system that has essentially turned Greece in to a debtor's colony. However, their recent idea for tax collections which are a huge problem in Greece shows just how amateur hour this new government is and for the most part a young government, but I begin to wonder if this quote that has stuck with me may nit just be the ultimate truth in an age of complacency, not only in the world and our own governments, but in the stock market as well.

"In most cases, a man trying to change the world fails for one simple and unavoidable reason...everyone else"

It's too bad we didn't have a more adept government in Greece to really put this to the test.

In any case, some of the shine of the ECB's bond buying has been tarnished by rising Greek exit or default fears, either of which could come as early as this month.

As mentioned Friday, we expected some early strength in the week followed by weakness. The F_O_M_C is coming up next week and the previous market perception/sentiment was that rates would be at .50 bps by the end of 2015, that has shifted as the anticipated start of a rate hike has been pushed forward to June with guidance changes in F_O_M_C language to be made this month at the meeting next week allowing for a June rate hike. This is why the market responded so negatively to the Non-Farm Payrolls on Friday morning...Good news ( a beat in payrolls) is bad news as it's the last major payrolls data the F_O_M_C will have before the March meeting next week and it is seen as virtually guaranteeing a rate hike at the following meeting.

We expected the market to pick up this morning where it left off Friday, that's a little more complicated than just simply picking up where the 3C divergence left off Friday although that is what has happened  thus far this morning. Here's what I mean...

 This is the 1 min chart (positive) from Friday and why I suspected 3C trade would pick up where it left off with this positive divergence and we'd see early strength this week giving way to weakness after that similar to last week. However, I don't think this week is as clear cut as last week, but the same general concept.

At a 3 min SPY chart there's no strength for an early week bit of strength to do much with, least week this was evident on a 2 min chart so it was easier to say that any strength early last week would largely be contained to just Monday.

Here's what I think is slightly different and this may be the market showing some of its colors late last week in anticipation of today's AAPL watch unveiling.

 A closer look at the 1 min chart including today shows Friday's positive divergence suggesting early strength this week that fades, but today's early intraday trade shows a mild negative divergence. I believe this is to set up a slightly larger base area than just Friday alone which would be the main difference between last week's and this week's forecast, possibly slightly stronger or longer lasting "early strength" this week to be followed by additional and likely stronger downside weakness.

 The SPY 30 min just like the ES 60 min show the February cycle which started Jan 29th through Feb. 2nd with a stage 1 base/accumulation followed by stage 2 mark-up or rally which 3C confirmed on the way up followed by a stage 3 top/distribution where you see the leading negative divergence and we are now starting stage 4 decline (already in stage 4). The leading negative divergence is suggesting very strongly that additional weakness will be much stronger than last week and I suspect eventually this cycle's stage 4 decline will make a lower low than the October lows.

To put that in to some kind of visual context, I grabbed a chart of the August cycle which ended with an Igloo w/ Chimney rounding top and head fake move (the chimney) before starting stage 4 decline, which I believe is right about where we are now.

While I don't think it will happen exactly this way, this is a rough depiction of what I think this week will look like.

This is the August cycle which looks very similar to the February cycle we are in now (stage 4). You  can see the stage 1 base, stage 2 mark-up, stage 3 distribution and rounding top with a chimney or head fake to the far right just before the first red arrow which is the start of stage 4, I'd says that's approximately where we are now.

Note the small counter trend bounce in yellow (this is something we have talked a lot about over the last week, volatility increasing as a market changes from one stage to the next). I suspect this week's early strength looks something like that yellow area, I'm not saying the same number of days or the same percentage move, just the rough idea. I'll be looking for the particulars.

Looking at this cycle that led to the trendline breaking October lows, I don't want to buy anything here, I want to use any price strength to sell in to or short in to although most positions should already be in place, this is kind of a second chance opportunity and I want to trade with the path of highest probabilities which in a stage 4 decline with negative divergences this nasty, is down.

I'll be bringing you up to speed on any short term developments so you can use them as tactical positioning for your larger strategic goals and I'll of course be bringing you any assets/ideas that look ripe.

So lets get to it. Have a fantastic week, only you can do that for yourself, it's much better than the alternative.