Daily Wrap

The headline today is the Dow has the worst day since January, a far cry from just 3 days ago.

Of particular interest to me was how the market would react today to the unexpected, surprise easing actions taken by 3 central banks overnight and before the cash open. While the Polish central bank meeting was expected, the rate cut was unexpected, at least twice consensus as well as China's PBoC easing further by making more money available to financial institutions and India's central bank making its second rate cut in 2 months. I recall in 2011 we had something like 3 central bank actions in one day and the market ripped higher, yet today it gets the headline of worst Dow performance since January (which was far from a banner month).

Additionally, on the week, every major index is in the red after early week (Monday) strength except the NASDAQ which is still holding green on the week and the SPX is the laggard on the week.

Intraday it was difficult to post much of anything as I have no desire to spam your inbox with information that hardly has an edge. Indeed, I spent a good portion of today (this afternoon) going through the averages and their derivative ETFs in just about every timeframe looking for a clue as the intraday action was completely on hold. I said it looks like the market is waiting for something, I think it's a pretty safe bet to say that would be the ECB's meeting tomorrow. Still, at any other time over the last 6 years, 3 unexpected central bank easing actions would have produced a pop through the roof so to speak, rather today everything closed red.

So I looked for signs on near term accumulation on today's market which was a near carbon copy of yesterday with initial weakness, a "V" shaped recovery around 10 a.m. and after the European close, it was "Watching paint dry".

Some might say that weaker than expected European PMIs and some weak US macro data was the reason, but honestly the market looks to be waiting on Draghi which is interesting because over the past years the market's reaction to Draghi has seen an unabated decline in the reactionary half-life to anything he says or does (meaning the market use to react for a couple of days to Draghi then a day, then a few hours, then an hour).

There was EUR/USD weakness in front of tomorrow's ECB meeting sending the pair to a low of $1.1075, the lowest level since 2003 (likely to reach parity in the not too distant future).

As for the averages, here's a run down of multiple timeframes in multiple averages...

 QQQ 1 min gave virtually no hint as to what the underlying action in the market was except perhaps to say, none.

The QQQ 2 min has deteriorated as we have seen and there was some more of that today, likely just not enough action in underlying trade to justify prices off the earlier a.m. lows.

SPY 3 min shows some early action at the a.m. lows, but that's about it and the divergence goes flat by turning negative in to the close.

The SPY 5 min shows last week's weakness and how that has effected this week's prices so far, which on a closing basis has pretty much taken out the last 10-days of closes. On an intraday basis, if any longs got panicked early, about 12 days of longs would have been at a loss.

This is what I mean when I say that the market can rip away a month or two of longs in a single gap down creating an extremely effective bear trap. To me,  the +1% SPX gain since mid-February that was underwater on this morning's price action simply is not a risk worth taking from a risk:reward perspective.

 QQQ 15 min showing the overall trend since the start of the year which should be clear from left to right and individual divergences marked in red and white. The current move which targeted the 2015/January  range as it was exceptionally obvious and thus predictable in how traders would react (see the gap at the orange arrow above the range) has seen exactly the divergence I expected to see once we identified the base from Jan 29th to Feb. 2nd and identified the obvious range that would be the subject of the move.

While I'm very anxious to see downside gains on such an ugly divergence, I can be patient so long as I have a strong objective edge for the forecast.

The SPY 30 min looking as expected and really not much different than ES Futures (60 min) as you may recall.

And QQQ 60 min.

This has turned in to more of a review of multiple timeframes, but what I was really looking for today was any near term bias in the market or front running inside information, but couldn't find much of anything as seen above on the intraday charts.

 I checked HYG because even in its current decline which was screamingly obvious last week in its 3C charts, it can still be used intraday as we saw Monday to support a move, so I took a look there as well.

 Other than the divergence last Thursday and Friday (26th and 27th) which is a text book divergence, the kind that jumps off the chart without having to pour over every jiggle, I found NOTHING but downside confirmation.

 As for the HYG trend since it has turned to a primary downtrend, this most recent support move in HYG has seen one of the strongest divergences of the downtrend out on a strong 30 min chart.

So I also checked Index futures to see if there was any hint there...

 I think you can probably tell me, ES/SPX futures intraday 1 min

NQ/NDX futures intraday 1 min

TF/Russell 2000 futures intraday 1 min.

While I'd expect any new divergence to show up on the earliest/fastest timeframe first (intraday 1 min), I checked the 5 min charts too as sometimes divergences will slip by...

 Again, ES 5 min

NQ 5 min

And TF 5 min.

They all look like near perfect, textbook confirmation of the divergences and the price decline expected after brief strength early in the week.

I did post TLT charts today which are important seeing that VXX/UVXY charts are already looking good and HYG is already in price divergence with the market, TLT/yields are the last real stand and I think you saw how that's turning out after our last two calls in the asset which were right on just about to the day.

Last Thursday's USO update gives a pretty good overview of some of the forward looking expectations for crude/USO and possible trade set ups, with a half size position already in place in the tracking portfolio.

Thus USO's moves today were a bit strange given the ISIS attack on oil pipelines was already out before the 10:30 EIA petroleum reserves report, which was totally at odds with yesterday's lower than expected API build data as the DOE's EIA report showed the 8th consecutive weekly build with the biggest weekly build in 14 years coming in at 10.30 mn barrels vs consensus of 3.95 mn. This is also the fastest inventory build on record.

The initial price action after EIA sent WTI below $50 after some strength on yesterday's API report, then suddenly something changed and USO rallied, like I said, the ISIS news was already out previously.

 This is USO intraday after inventories this morning and then what almost looked like an intraday counter trend move higher.

On the daily, as you know, we have a divergence well big enough to run a strong counter trend rally, in fact bigger which is why I'm starting to lean toward a base for a true trend reversal, this is why I chose a half size position until this all clears up, I can still add if we continue to form a base and I still have exposure on a counter trend rally which I can add to if it looks worthwhile.

 While the positive divergence may not look large, this is a 2 hour chart, it is large, more than enough for a counter trend rally and probably at least half or more than half of what would be required for a viable base and tend reversal.

It's charts like this 10 min that pulled USO back off a resistance area where they are apparently not willing to accumulate, that makes me think a base accumulated toward the lower end of the range is looking more and more probable. This chart still has not resolved so I still think it's probably the highest probability.

The 10 min chart is showing some 3C accumulation since the pullback from the resistance area around $20, not enough to resolve the 15 min chart as of yet.

Intraday, the 1 min chart shows the 3C accumulation after the EIA lows were in, thus it looks like a quick counter trend move on the EIA news or a contrarian trade as a lot of shares on the cheap would have been available for accumulation and a quick move on EIA headlines like that.

I'll update USO tomorrow when we get more data, but I'm still thinking we are going to see some more basing activity.

While Leading Indicators weren't jumping off the screen, there were a couple of slightly more positive readings and one more negative. Pro Sentiment indicators closed a bit stronger than usual or than the flat correlation and VXX closed a bit weaker, although not looking like a slam. Spot VIX was right on with the correlation and HYG was leading it lower.

 Yields were roughly in line with the SPX intraday, but you saw the TLT charts so I expect we'll be seeing yields putting pressure on stocks over the next several days as the TLT divergence builds and it moves.

Commodities which have been acting as a useful leading indicator this year (since QE ended) once again are definitely leading negative vs the SPX here.

Everything else mentioned above was on an intraday basis and there were numerous indicators telling me nothing at all like the averages above. As mentioned, the first place I'd look if I suspected a bounce would be HYG, but again nothing except it continuing to move lower.

Short term, I think we can chalk this up to the market in a holding pattern waiting on the ECB tomorrow. However beyond that, I think this chart chalks it up without words.

This is another textbook divergence, the kind you want to look for that jumps off the chart (SPX futures/ES 60 min). Note not only is the divergence in the right place and worsening, but price has begun to respond as well.

After looking at my usual internals after the close, I found little in the Dominant Price/Volume Relationship except the NDX at 62 stocks and the R2K at 718, both Close Down/Volume Down which is the least biased P/V relationship, the same as yesterday. I nicknamed the relationship, "Carry on" as in keep doing what you were doing (to the market) as the relationship has no bias that effects short term oversold/overbought bias. As mentioned, this is the same P/V relationship as last night.

On a slightly more aggressive 1-day bias, only 1 of 9 S&P sectors closed green, Healthcare at +.48% with the laggard being Industrials at 0-.78%.

Of the 238 Morningstar groups, only 41 closed green. These two data points taken together suggest a slightly 1-day oversold condition exists, although we're not seeing it in the component stocks' of the major averages (Dominant Price/Volume Relationship). It may simply be the market is turning down and seeing the negative tone you'd expect on a sell-off.

Other than that, some of you mentioned the Hammer formed in some of the averages. This isn't a true textbook hammer by a stretch as there has to be a decent preceding downtrend to reverse (as a hammer is a bullish reversal signal) and the volume wasn't increasing today which tends to be one of the most important factors as to whether a candlestick reversal pattern is effective or not.

So the bottom line all around is today looked and acted like a market treading water, although in the red. I have little doubt this is related to the ECB tomorrow, but I don't expect anything to come out of this that changes the position of the market in late stage 3 top/early stage 4 decline, even if there was a positive reaction to the ECB tomorrow, which as I said above, surprisingly there wasn't to 3 surprise easing actions taken overnight and before the open.

There's a slightly growing more negative tone to the intraday Index futures, which I'll check in on later, but as of now as a baseline, this is what it's looking like...

NQ 1 min deterioration.

I hope you have a relaxing night and I'll keep my eye on things and let you know if anything of interest pops up, otherwise as the Dominant P/V relationship suggests, I'd expect the market to keep doing what it is doing which is losing ground red on the week except for a single average.