Market Update

I have written this post approximately 4 times now since the open.

First, here's a look at the price-chasing herd mentality, it's no wonder most traders are on the losing side of the trade as they chase price at the worst possible points.

 On the cash open the NYSE TICK Index saw a massive extreme of -1530, that's a ton of sellers all based on the futures, just chasing price or reacting to short term price swings.

The overall TICK data for the day is on the weak side, the opposite of yesterday with quite a few forays below the -1000 level and not much above the +500 level (TICK= the number of advancing NYSE issues minus the declining issues for each bar).

I've been trying to put together this morning, how much gas is in the tank for each of the averages and at what rate they are burning it, but I keep getting some unexpected surprises before I can get a post complete.

 As near as I can tell, this 30 min ES chart is the "gas in the tank", it's still pretty substantial, but so was TF (Russell 200) and it burned off quickly.

The NASDAQ 1000 futures show what they have on this 15 min chart.

And the decline in TF/Russell 2000 as there was selling in to strength all of last week is seen on this 30 min chart.

There are some potential movers and game changers, but thus far since the open, EU?R/USD has been weak, I'll put out a post more specific to that FX pair to help with guidance. This weakness has in turn been pushing on the averages and without higher prices in the SPY and QQQ, there's not much to sell in to, although there is some as we are at least out of the base.

HYG gapped down so from a price point of view, it is leading the market lower, but look at it intraday and see if you notice what I do...

That's another ugly gap down on this 10 min HYG chart this morning, but remember the importance f volume analysis and what higher volume in a situation like this typically means, typically it is not selling that takes the asset lower as Technical analysis would have you believe, but rather short term capitulation. This being on a 10 min chart would be very short term, but enough to bounce HYG and maybe the market, that may be the goal since EUR/USD is not cooperating to a large extent, at least not right now.

As for VIX futures, they have one of the cleanest, clearest charts that tells me that our forecast of stage 4 decline continuing after this "NORMAL" bounce is the highest probability.

 This is VXX 30 min leading positive, a strong chart suggesting the market move as strongly in the opposite direction.

A more detailed view is available on this 15 min chart, a nice flat base area ad a nice leading positive divegrence through it, although this really has nothing to do with the market bounce, this is a bigger picture of what comes next.

Remember Friday I closed the 2x long leveraged version of VXX, UUVXY on what I saw as a pullback. This 2 min chart shows the area where it was closed at the yellow arrow and while this chart doesn't show the timing reason why, there is /was one as well as a bigger reason as far as near term trade.

So do I want to add UVXY back? Yes, but with this being the extent of the accumulation since the pullback on a 1 min chart, even though it's part of a much larger base, I don't think we are there yet.

HYG has a decent probability of bouncing intraday on a "V" shaped move which is not a strong move or a lasting one, but if you need the market higher in the next day or before tomorrow, that would be of assistance, it is just the cross asset correlation has been so strong, you saw what happened to futures overnight as they ran above their E?UR/USD correlation, they were snapped right back down to it so can HYG do it on its own if it even does it? I'm guessing they need higher or at least stabilized prices or they may risk a panic sell-off with that much gas still in the tank and so little time before tomorrow's F_O_M_C unless as I mentioned earlier this week, that the divergence is a tool for creating perception, which I said I'd look for evidence of that, I haven't found that as of now, what I've found is the cross asset correlations working over the averages thus far.

As far as how deep we've dug in to the distribution phase or burned gas in the tank, that's been the difficult part.

I see some signals that look a bit like some panic selling is going on and I don't mean the ridiculous TICK reading at the open, that was retail scared out of positions because of the overnight futures.

Using the SPY as an example...

 Yesterday the intraday chart of SPY showed distribution in to higher prices, it was the first time in a week the SPY had made higher prices to sell in to, I believe at the end of the day there was an effort to support the SPY kind of like a vampire drinking the blood of its victim, but stopping short of killing them so they'd be able to do it again, you'll see below. Sorry for the horrible analogy.

You can see the 3 min SPY base easily and the mark up phase as well as a distribution phase and later in the day some lighter support , laying off the distribution a bit to try to get the SPY higher to sell in to again today, but that didn't seem to work, partly because of the correlation with EUR/USD which it over ran yesterday as pointed out and while I haven't connected all of the dots, I'm sure it's not the only cross asset correlation that was divergent.

The 5 min SPY shows the same, early distribution, later attempts to send it higher to do it all over again and we even saw this in a few of the leading indicators at the close like Spot VIX. However again, it doesn't seem to have worked.

That leaves this 10 min SPY chart as the picture of "Gas in the tank". This is why I say, with that much still there, if they need to get out before the F_O_M_C tomorrow, we may see some professional panic selling. The other possibility mentioned earlier (yesterday or Friday I believe) is that the divergence is there as a NFLX pre-earning's divegrence to set perception via market reaction, although I don't think this is what's going on just because of the attempts and failures with cross asset correlation being as perfect as I've ever seen last week and that being the culprit this morning.

There appear to be some signs of this in the Q's, the IWM makes this much more difficult because of the rotation from yesterday, it's not a great confirming asset being it has blown through its tank of gas.

 The QQQ hasn't shown the same kind of intraday distribution yesterday as the SPY did, that wouldn't be a surprise with the market obviously not caring or not able to control the dispersion between the averages and their relative performance issues. I suspect they were waiting on the Q's for today, expecting the AAPL TV business would lift the Q's higher, but it seems the cross asset correlation is even stronger.

This is a 10 min chart with QQQ distribution and the gas in the tank for the bounce, but note what looks like a panic sell today, I'll show you closer.

This is the same QQQ 10 min chart just zoomed in, it seems to have a large distribution chunk showing up on a 10 min chart which means it would not be a process that runs through the 1min and then 2 min timeframe, etc., but rather a large chunk all at once, more of a panic than a distribution process.

If I am correct, "if", then we may just see a lot more of this if they can't get the market higher using some of the levers.

This is what I've been looking at this morning and it all started late yesterday when the averages ran past their correlation with EUR/USd which has numerous correlations with numerous other assets, as you saw, they nearly reverted down to the mean with overnight futures action.

This seems to be the driving force, this could get interesting in a hurry, but I have to keep an open mind and consider other possibilities too. For now I'd just say there's a good deal of gas in the tank to potentially take the market higher, it may be that asset correlations prevent that and if that's the case, then I'd suspect there's going to be some large chunk panic selling rather than a distribution process.