Market Update

VOLATILITY!

It doesn't matter where it came from. I'm sure many of you remember the Arab Spring, maybe what it did to the cost of crude and the market in general when countries as big as Egypt were having their leadership toppled one after another.

What happened to oil and the market for the most part was absolutely nothing! Now we have an overwhelming Saudi led coalition that has 10 countries behind it all giving military aid and the market is jumping around left and right. Crude is seeing volatility, this is nothing like we saw during the Arab Spring and this increase in volatility is typical for the place in the cycle we currently sit, at the start of stage 4 decline where fear rules as the strongest emotion in the market which is the reason I said up front when we first suspected a bounce and every day since, "I would not trade this from the long side, but rather use any bounce to sell in to or short in to".

The reason was simple, divergences don't often get run over, even at this stage of a cycle, but it's far more likely that they will get run over at this stage of a cycle than any other time and that's because of volatility and the emotion of fear that drives this stage of a market cycle.

In any case, after last week's surprise news on Yemen with the Saudi coalition invading and knocking out some key rebel leaders, we've seen divergences, if not run over, then at least delayed or needing to be reformed.

With the Asian news rumor that the PBoC would engage in QE, we have a new surprise event, this time in the opposite direction. I'd normally think Wall St. would through their hands up in the air and say, "A bounce is not worth all of this", but for whatever reason, once we see them start a cycle (the accumulation phase even for a minor bounce), it's very rare to see them abandon it.

I could probably use a thousand words right now and nor accurately convey all of the craziness on the charts between a negative surprise in the market last week and a positive surprise (even though a made up rumor) this week, but I think the charts will probably show it best.

Here's a look so far this morning and what probabilities look like... Remember short timeframes equate with near term probabilities, intermediate timeframes with intermediate probabilities and longer timeframes with the most likely course of the market's direction in the big picture.

 This is the SPY since coming down and starting stage 4 in red, then the bounce/basing area in white which is already longer than it normally would have been had the Saudi news last week not held the market down from this short term eventuality (Bounce) that was pretty much built.

 Intraday this morning the market popped higher on the overnight futures move, as the cash market opened they lost momentum.

This can be seen clearly in the NYSE intraday TICK data.

 This is today's TICK data (number of advancing issues less number of declining NYSE issues).

As you can see on the open there was a positive +1250 TICK reading that quickly fell off in a downtrend in TICK as well as moves to -750. Right now it looks like TICK trend is about to see a break above the channel as I look at it, it is a very new signal though and not well formed.

I could use any of the intraday charts mostly from 1-5 mins, but all from 1-3 minutes like this 1 min SPY and they are negative which was what was reflecting early weakness Monday to probably finish the bounce base that has been interrupted last week by news that was an unknown or not discounted. This was why I suspected early weakness Monday to finish up the base followed by the bounce finally, but the PBoC Central Bank rumor and comments over the weekend trumped all of that on another news item that was unexpected and not discounted.

 IWM 3 min as an example of what I just said below, there's no short term positive, no confirmation of today's open at all in these 1-3 min intraday trends which makes me wonder if they still have the power to pull the market back to do what it was originally looking to do early today or do they just let the bounce run now that it has a good head start?

 Around the 5 min charts the re's more of a reflection of the bounce, less of the very short term intraday weakness expected early today/this week to pullback and finish the base.

 At intermediate charts like SPY 15 min you can see a divergence that is big enough to say the probabilities still rest with a bounce, it's the shorter term details on the 1-3 min charts that are foggy, this shouldn't matter too much for our purposes unless you are trying to trade a bounce, which I don't think is a great idea here for the reasons we have seen the last week, which we haven't seen over the past several years on much bigger news events with further reaching consequences,

And the longer term SPY 30 min tells us even with the probability of a bounce, the market's highest and strongest chance/probability is to resolve to the downside at a new lower low.

This does not preclude a bounce, in fact technically we already have it in place. I think the only thing is the very near term 1-3 min charts and what all of these surprise, non-dsicounted events may mean to a bounce.

Again, I think it has us in a pretty good spot because of where the highest probabilities are (to the downside) and because a bounce is only helpful for us, not harmful and only helps to establish additional positions in assets like financials, biotechs, transports, etc.

I think the charts are clear enough that we should expect a bounce, we have already started on. I don';t think the fine details matter much, but I will track them as best as we can as far as intraday trade. I? think it's more important that we look at the assets mentioned and others and find the right area to get involved in new or add to positions there and other wise let our positions already established just work for us.

I'll have more on specific assets.