Daily Wrap

Yesterday's knee-jerk move saw very little to no actual confirmation or follow through today with the averages split as they have been to either a very wide extent or a smaller extent over the last wee, but in either case, this isn't sector rotation which is bullish, the divergences in the averages are a problem that they should not see in a healthy move.

Today we saw half the averages green led by the Russell 2000 at a paltry gain of +0.22% and lagged with a more substantial loss of -0.62% in the Dow which now has the advantage or disadvantage of AAPL's weight as the NASDAQ has had all of these years, it just didn't work out well today, perhaps because of Tag and Google's foray in to the smart watch arena giving the Apple watch a run for its money at $10,000 on the high end.

The Dow lost the psychologically important $18k level and ended up giving back half of its gains to end at 17962. The NASDAQ as hard as it tried, made it above $5k today, but closed under at 4992, another psychological defeat.

The SPX also gave back about half of its gains.

All in all the averages today were split as you can see with the SPX and Dow closing in the red, Transports right at ZERO, the NDX at +0.10% and the R2K at +.22%. I have to say, all things considered, this isn't too far off last night's expectations based on the Dominant Price/Volume Relationship, the only average that didn't close as would be expected is the NDX and it was only up +0.10% ( as well as the overbought condition in the S&P sectors and Morningstar groups.

As pointed out earlier, all in all today felt like either an op-ex pin or a reversal process of a parabolic move as it would be within the reasonable bounds of symmetry or perhaps both, but the one thing there wasn't was follow through and that's not surprising for a knee jerk reaction.

USO which had rallied above the area we expected it to spend some time building a larger base yesterday, gave that back today and is back where we expect.

 USO 60 min chart and the first half of a "W" base with a descending (looking) triangle which broke lower as we expected and moved to the low end of the range at this year's lows as we expected to start to put together the second half of a larger base that can support a primary trend upside reversal.

This shows USO's pop yesterday with a negative divergence in to the close and price making good on that today and it looks like a little more to go on the downside as of the closing signal.

UGLD long (Gold) was held and at a +5% gain since opening the position Wednesday, Trade Idea- UGLD (3x long Gold/GLD).

While I may close it, broadly I like Gold here, I'm just not sure if the base area is finished after the pullback we called, but for today, we had solid confirmation so I left it in place.

 Intraday confirmation in GLD as we bought this just minutes before it took off to the upside yesterday.

However on the longer 60 min chart, the pullback we expected from a negative divegrence looks to be done, I'm just not sure the base is complete, but until UGLD gives me a good reason not to hold it, I see no reason not to keep it open.

treasury yields retraced about half of yesterday's decline, this was mildly supportive of the market broadly speaking, but I have to wonder if this isn't more options expiration MAX Pain pin related as the pin is usually close to Thursday's close and typically remains in force until about 2 p.m. at which time the market can do whatever it likes, but the underlying 3C signals are some of the best data of the week allowing us to forecast the "Week Ahead".

Financials underperformed again. You may recall in last night's, Daily Wrap...F_E_D Fear I posted a chart of the S&P Sectors' relative performance after the 2 p.m. F_O_M_C, Financials lagged badly and once again today they were a laggard, giving back all gains from yesterday.

The $USD round-tripped as the EURO gave back its gains. However the changed in the longer term $USD chart which I have been following such as Tuesday's post, Leading Indicators and Perhaps a Surprising Change in Dollar Direction , could be indicative of a lot of things, the slowing US economy could be one. The US allies signing up to be part of the new Chinese development bank to rival the U.S. based World Bank and as such $USD dominance and/or it could have something to do with the carry trade unwind which I have expected to be an event as the market makes good on real moves to the downside. For at least 2 years I've maintained my belief the Yen would rally and $USD likely sell off as the bear market became real. Last night I showed you the longer term Yen positive divegrence and the longer term $USD negative divegrence suggestive of perhaps the carry trade unwind which will have a dramatic effect on stocks financed by the trade.

Although the $USD retraced today, I don't suspect it will hold. Here's the $USDX intraday...

 The $USDX 1 min negative suggesting it moves down while both the Euro and Yen look like they'll move up near term.

5 min $USDX negative with the Euro and Yen both positive on the same timeframe.

However I think this is less about the Euro / Yen near term any way, you did see last night's 4 hour chart of the Yen with support and a huge positive divergence which is why I think the carry unwind may be on, but as I was saying out at 15 min the $USDX is still negative calling for downside while the Euro/Yen are more in line here.

In other words, this is about the $USD right now and the Carry cross unwind is another subject that's of course related, for more on the longer term, check...Leading Indicators and Perhaps a Surprising Change in Dollar Direction or last night's Daily Wrap.

Yesterday quite a few Leading Indicators were indicating that the move up yesterday was as we suspected, was a knee jerk move.

As you know I always warn, "Beware the F_E_D knee jerk reaction. It's almost always wrong and almost always retraced or worse in either direction".

I warned at least a half dozen times  and off the top of my head for sure in Tuesday's Daily Wrap- Just Couldn't Pull the Rabbit Out of the Hat, as well as Monday's Leading Indicators and Perspective.

This is just something seen so often and not just since Bernanke, but for well over a decade, that it has just become boilerplate with anything F_E_D related (and the move can go in either direction). You may recall the September 2012 introduction of QE3, every bone in my body said, cover any and all shorts, but every chart said the exact opposite. After the initial knee jerk reaction that lasted until a very enlightening question to Bernanke that gave me my first clue the F_E_D was already starting to consider its exit, at 2:24 p.m. on September 19th 2012, the intraday high for the day, the market moved lower from there by some 8% with most shorts doubling or tripling that loss over the next 2 months.

The 2:24 p.m. September 19th intraday highs weren't seen again until mid January 2013.

In any case, taking a look at Leading Indicators today should give us some additional color on some negative slides from yesterday and in general.

 Our custom SPX:RUT ratio was leading the market as we've seen before in to the "W" base area, but since it has NOT confirmed yesterday or anything near the area, thus based on the reading, I wouldn't expect much and likely a turn to the downside.

I highlighted the 10th as that was the day we saw something coming although most of it was gut feel until the charts started coming in the next day.

 As for Pro Sentiment, it hardly bought the move bs the SPX at all, in fact today it continued its stage 4 decline, just off a new lower low.

The Broader overall view looks something like this, that's a lot of catching down when we get to a primary downtrend.

As for the VIX short term futures (VXX), as you know I'm waiting there to replace a UVXY position closed last week at a +10% gain, but on the day (VXX price inverted) we saw better relative performance from VXX after 1 p.m.

 This is the head fake move we had expected or wondered about in VXX, I'm just waiting on strong leading positive divergences as the reversal area would be sturdier widened out just a bit more maybe a day.

 As mentioned earlier, this is generally what I'm expecting, a full "W" base, a break below intraday support and likely an entry right there.

As for Yields, this is the broader picture of the 30 year.

 At the Jan 29-Feb 2nd February cycle stage 1 base, 30 year yields are moving up in support of stage 2 mark -up of the cycle, but go negative at #3 at stage 3 top of the cycle, At #5 yields in red jump on the strong Non-Farm payrolls data on March 6th and finally revert back to the mean at #6, since they have negatively diverged and are in stage 4 as yields act like a magnet for equities so the SOPX in green should head down to yields' lower reality at #7

 Since the NFP data and the pop in yields, it has been a solid downtrend, even after the reversion to the SPX (green box).

 And on an intraday basis since reversion to the mean on the NFP data, look at that divergence, this is why we use yields as a leading indicator, they should tractor beam prices down to revert to yields reality (30 y).

This is the same for the 10 year which closed at 1.977 today, still under 2%.

Intraday 10 year yields were helpful in short term intraday support of the market as you see above on a 1 min basis, but you can see the bigger picture above, trouble lies ahead for the market.

 Funny how our leading indicator, Yields looks so similar to our Leading Indicator High Yield Corporate Credit which was in line to the left with the stage 4 decline, then was positive briefly while the SPX formed a small "W" base for a bouncer as we expected , but even yesterday HY credit was not as enthusiastic and still diverged negatively and today even worse.

 Since the Feb. cycle's stage 3 top, HYG has led the market lower in to stage 4 decline and at this Counter Trend Bounce, it's leading the market lower again as you see the big picture.

This is the primary trend in HYG vs the SPX which has a LOT of catching down to do. Note the lower highs and lower lows in HYG (blue) vs the SPX. "Credit leads, stocks follow" and right now Credit is in a primary downtrend.

 HYG intraday, the orange area is where it closed yesterday so it was in the red all day and diverging lower intraday as well.

High Yield credit which is not manipulated like HYG is for small moves here and there is clearly leading lower as well.

The numbers are the 4 stages of a cycle for the Feb, cycle and other than the market counter trend bounce which is totally normal, HY Credit is leading and has never left stage 4 decline. Again, the SPX has some catching down to do with the rest of the market.

 HY Credit vs SPX and a clear stage 4 decline, no ambiguity.

 As for commodities which have recently been leading again (brown) vs the SPX, you can see where they led positive in white and where they led negative in red and how badly.

Despite the moves in gold and oil yesterday sending commods higher, that was really not a game changed in any way.

Commodities were decidedly less enthusiastic about this knee jerk as you can see and barely moved out of their stage 4 decline.

On a long term basis and this is probably not a great leading indication of anything other than the global economy, you can see, Houston we have a problem!

As for internals, today once again the SPX (298 stocks), the Dow (24 stocks) and the NDX 100 (64 stocks) all had a Dominant Price/Volume Relationship and just like yesterday, the Russell 2000 was the only one that didn't with the component stocks evenly split between the 4 possible relations. As for the others, the Dominant Price/Volume Relationship (unlike yesterday's 1-day overbought) was Close Down/Volume Down) which I call, "carry on doing what you were doing" as it is the least influential 1-day bias relationship with no real bias, however it is the dominant theme during a full fledged bear market.

I might however chose to interpret it a bit differently given these candlestick closes:

 Remember the Dominant Price/Volume Relationship has nothing to do with how the Index and volume closed, it has to do with how the component stocks in the index and their respective volume closed/ So while I normally wouldn't assign much value to this particular relationship, with the SPX/SPY having an inside day or Harami reversal which is at best an indecision pair of candles and at worst a reversal set up, the indecisive volume fits the candlestick pattern, although I like to see heavy volume on reversal candles, on pair patterns like this, yesterday's heavy volume and today's indecision is just what I'd look for.

 The NASDAQ 100 closed the same way

 The DIA joined in as well

As did Transports (Dow -20) and the COMPOSITE wasn't far off

The S&P sectors had a mirror reversal of yesterday with only 1 of 9 closing green today which was Healthcare as bios are still tearing it up with a +0.58% gain in HC.

The laggard was Materials at -1.72%

Among the 238 Morningstar groups that closed super bullish yesterday, only 62 of 238 closed green today, yesterday I believe it was around 212 of 238.

I'm going to give Breadth indicators a night off and check them tomorrow, let them get some movement in as I mentioned yesterday, most were remarkably flat all things considered.

Finally you got a good look at Futures and the averages before the close in,  Broad Market Update.

I'm pretty sure you can put the pieces of the picture together, things obviously haven't looked good since I mentioned the divergence in NQ/NASDAQ futures last night that just got worse after midnight until it pulled futures lower overnight.

Tonight they are broadly in line. Don't forget what my expectations are with the IWM/Russell 2000 intraday triangle, that looks like the trade set up and probably where most positions will look good like VXY, SRTY, , puts and many others. I have a feeling that's going to be what we look for and futures in line tonight just makes that closer to a reality although the op-ex pin could be responsible for that as well.

Just be patient, we'll have some great trades if we just let them come to us and tell us when they are ready.

As of my earlier posts today, this is EXACTLY what I was looking for given technical traders are so predictable so watch for the bite (volume) and I'll watch for the divergences on that bite, that should be our timing indication.

Have a great night!