As you know, yesterday there were numerous smaller indications that led me to close the AAPL and QQQ puts because something just didn't fell quite right, it looked like a bounce and if so, these options with only a week and a half would suffer even in a consolidation as the time decay ate in to them so it made a lot more sense to close them, look for a potential bounce and re-open them at a more appropriate strike and a longer expiration. As far as core short positions go, yesterday and today have no effect on my management of them, they are meant as rending trades and I'm not moving them all over the place to react to small 1-2% moves of a day or several days, had I done that at NASDAQ 5000, they would have been closed at exactly the wrong time when the Dow is 650 points lower just after the new high was set.
Yesterday as I explained, there weren't great 3C signals and most of my analysis of the market came from different aspects like price action, VIX divergences, etc . Today, especially after such an overwhelmingly 1-day oversold market (breadth) from last night, I expected either a bounce or the base to widen out and I expected divergences to show up and give that objective analysis that was somewhat missing yesterday.
Well it doesn't happen often, but when it does, after the fact I usually find out there was a good reason and avoiding the whole scenario was the correct move, so today as you might have noticed, there weren't too many market updates as I post them when I see a market edge, that usually means a strong divergence. Like we have seen in the past and only realized after, there was a noticeable lack of credible and confirmable 3C divergences today. What that has generally meant in the past is standing aside was the right choice although there's really no choice at all because if I don't see a strong edge, I'm not going to post trades.
Specifically I'm talking about the VERY short term 3C divergences for a potential bounce, not the intermediate and longer term that are securely locked in on the leading negative side. This doesn't really make a lot of difference to me practically speaking because I didn't have any intention of trying to trade the market from the long side, only to short in to any price strength, but it is still odd.
From a futures perspective. there weren't any divergences intraday, but rather near perfect confirmation of price action.
Yesterday I talked about an asset, it escapes me at the moment, but there was perfect 3C confirmation and I said this is telling you, "What you see is what you get", there's no underlying trade that is building accumulation or distribution, things are moving exactly as money flows would suggest which is a bit rare, that's exactly what we have above.
You may have noticed the lack of relative performance between the averages today with the Russell 32000 leading at +.61 while everything else was in the red with the NASDAQ 100 down -.55%, almost as much as the Russell was up. This is NOT a healthy sign even for a short term 1-day bounce. Yes the Russell should lead in a risk on move, but there was no followers. We can probably sum up the BASDAQ's weakness to AAPL's weakness today, down -1.82%, but the Dow and SPX, both down about the same at -.16 to -.19% were laggards big time.
I suspect you do know that Transports on a bigger picture perspective have NOT confirmed the Dow/market for those Dow theory fans.
In addition, the SPX and Dow are both down about 1% year to date with Transports down -2.7% year to date. In fact since QE3 ended on October 31st, the market is nearly flat which looks like this...
Yet! P/E ratios are 27.85x current earnings, a level which has marked just about every major top in the past with the pre-financial crisis top pegged at 27.65x then current earnings, now is worse than then and why, a big part has to do with stock buybacks which reduce the number of shares and lift the share price, all the while insiders (from the company's) are selling their shares! In fact stock buybacks are one of the more traditional indications of a top as they tend to occur, ironically when stocks are most expensive rather than at the end of a bear market when they could be bought on average for half the price, but insiders need to get out with as much loot as they can carry.
In any case, that doesn't change today's market which had me looking all over the place and trying to find something that made some sense.
The closest I came, would probably be the VIX short term futures which were positive yesterday and whether most of the market closed red today or not (despite a huge 1-day oversold condition yesterday), the relative performance today was much better than the past week+ so there seems to be something to the VXX divergences.
Lets start with Leading Indicators and work our way there.
*Note the SPX comparison on the charts below in green shows the SPX prices inverted , normally VIX which trades opposite the market would trade exactly the same as the SPX when prices are inverted, in this way you can see differences in the correlation/relative performance.
We have solid confirmation on the inverse, VXX 15 min chart...
Intraday on a 2 min chart, XIV (just consider this to be the SPY for all intents and purposes as they trade roughly the same), does show a small 2 min positive divegrence suggesting VXX pullback a bit and the market beyond just IWM sees the bounce we were talking about yesterday. This chart is nearly perfectly confirmed on the VXX 2 min negative divegrence above.
However finding the same divergences among all of the averages in multiple timeframes is futile, as I said, they're all over the place very short term. Remember what I said about volatility at this stage of a cycle and the outside influences like margin debt and fear, it's not hard for the market to run over weak divergences once fear sets in and the margin calls come pouring in. I can't say if that may be what we are looking at, in fact I'm not going to make any assumptions over 1-day of sloppy intraday charts (other than the Index futures which were unbelievably in line).
As for other Leading Indicators...
For more meaningful divergences check out RSI on a daily chart between the November/December timeframe and now in all of the major averages, DIVERGENT and not positively.
Likewise, the leading negative divergent signal given around the market highs has not only led HYG lower, but the market (SPX in green) as well.
Considering the credit markets are more sophisticated than the equity markets, you can probably understand why they say, "Credit leads and stocks follow". That has been our experience and right now, Credit has a big negative head start on equities which owe a lot of downside.
However I've seen this numerous times before and know it's a passing event that is usually understandable after it has passed. If there's no edge (in this case for a long bounce trade), you don't take it.
Otherwise, we saw the EUR/USD dump hard today. It was just under a week ago I suggested the EUR/USD might hit parity, it's closer than ever right now as there's talk or complaining that the ECB hasn't loosened policy (rates) as their QE looks to be a failure out of the box with both not enough net issuance to buy, but a bunch of negative rate yields (bonds) that they don't know how to treat.
This in turn sent the $USDX over $100 to highs not seen since March of 2003 and the fastest rate of change to the upside in the $USDX in 34 years!
As for the Dominant Price/Volume Relationship, you may recall that last night the Russell was the only one that didn't have a Dominant P/V relationship, interestingly it was the only one to rally today.
Tonight we don't have a Dominant Relationship in anything except the NASDAQ 100 with 48 stocks at Close Down/Volume Down which has the least bias of the 4 relationships, I call it, "carry on" as in keep doing what you're doing because there's no next-day bias.
As for the S&P sector performance which was insanely oversold yesterday, absolutely amazing there was noi bounce based on that which may be just a sign of how weak this market is, tonight there's a similar situation, although not as extreme. Only 2 of the 9 groups closed green led by Financials at +0.63% and lagging with Consumer Staples at -0.71%.
Of the 238 Morningstar industry groups which only had 5 of 238 green yesterday (again, amazing that there was no bounce outside the R2K), saw a mediocre 150 of 238 green today, not an extreme at all unlike yesterday.
These relationships which were so dominant last night toward the 1-day oversold condition are lukewarm today. I have to wonder if this may be the best the market can do on a bounce, we are after all in stage 4 decline.
I wish I had better answers for you tonight, but it may be that the market just gave it its best shot and that's all the bounce were going to get or perhaps tomorrow it builds a bit more and gives some signals, otherwise I have to say that the market remains in a bearish position, in a bearish trend (stage 4 decline) and hasn't given much reason to believe it can do much more than it has done today.
While there's no special surprises in breadth indicators tonight, many are nearing new lows for 2015. Take the New High/New Low Ratio on a 1-day, 4 week, 13 week and 26 week basis, it's just off new lows for 2015 made yesterday.
The percentage of stocks trading above their 40-day moving average is not only approaching new lows for 2015, but at a mere 40%, this is normally at 80+% in a bull market.
There are definite breadth problems and there have been through this entire February cycle, they are just getting a lot worse.
Index futures look nearly exactly the same as posted earlier so there's nothing exciting to see there, but I will check in on them later and let you know if there's anything standing out, otherwise, they are in line to the downside on multiple timeframes, most importantly the 60 min.
Have a great night, I'm sure we'll have some better data tomorrow, it may be that this is just the best the market can do.
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