Quick Marke Update

Yesterday I obviously made the call that we're pretty close to a bounce area, that assets with time decay like QQQ/AAPL puts are going to be more dangerous the closer we get to an expiration which isn't too far off and that we should otherwise see a bounce soon in the area.

Last night's internals seemed to add additional evidence to what was more of an experience call than a strong objective evidence call, that seems to be starting to fill in today.

A bounce in this area makes perfect sense, especially before the F_O_M_C next week where it's widely expected or suspected that the F_E_D will remove the term "Patient" and pave the way for a June rate hike being the Non-Farm payrolls were the last payroll data before the meeting and they were strong , at least on the face of it when you don't look at the U6 number or don't account for the shrinking work force.

SPX500 1-day chart which broke below 2015 range resistance/support and now resistance again as well as the popular 50-day m.a. and the Dow is in the exact same situation. This is a perfect area to create some cash flow by running stops and limits as there are two areas traders are watching closely, the range trendline and the moving average.

The Q's and IWM perhaps finding support at the 50-day would just bolster the case for a bounce in the mind of technical traders and since that's what everyone is these days and they are so easy to predict, it's kind of like picking change up off the street for the market.

In any case, this morning it looks like we are seeing a bit more of a rounding bottom, which means it may be a bit of a bigger, more supportive area to bounce from, possibly in to the F_O_M_C next week, although I don't have what I would call objective evidence at this point that would support that possibility, it's just an experienced guess as it looks more and more like "Patient" will be removed from the March meeting's policy statement as per none other than the Richmond F_E_D's, Lacker (voting member) who gave an interview on Sirius satellite radio network yesterday looking for exactly that, removing patient in March, clearing the way for a June rate hike (both his words, not mine, but this is what we have expected recently).

Last night in the Daily Wrap I made a case for a short term oversold condition. I want to be clear, this is not the same "Oversold" condition that many of you are use to seeing on charts with indicators like RSI or Stochastics as they peg the lower bounds of their range (below 20 or 25), this is a shorter oversold condition and not based on indicators that can stay oversold for a long time. In fact, one of my best performing (back-tested) trading systems only bought overbought stocks and only shorted oversold stocks as they can stay that way for a long time and it worked very well out of hundreds of systems tested.

This oversold is based on the Dominant Price/Volume relationship and sector/Industry group performance, it's based on breadth and as such is shorter term in nature.

As for additional evidence building, you probably know which asset I usually look at first for an early head's up warning, HY Credit which I'll get to.

 QQQ 3 min is showing more improvement than what we had yesterday morning to go off of.

And while it's small, it still is a 5 min QQQ pos. divergence.

IWM 3 min which really wasn't looking great yesterday is showing improvement.

As is SPY ... 1 min.

And even SPY 10 min when compared on a relative basis to the former divegrence which is still the main divergence for this cycle and still in effect, that's multiple timeframe analysis, a small box wrapped inside a larger box put in to a shipping crate and they all have their roles to play.

 VXX/UVXY trade opposite the market and therefore give additional evidence as this negative confirms the charts above, however, this is short term at 5 mins and small, the bigger box is below...

But first, HYG...

There's not much of a 3C divergence , but for HYG, it's the price divergence that matters or support, this is the first positive move since the break to the downside.

Note the change in the ROC of price as it ends with a near parabolic dump, short term capitulation as almost every cycle or transition point will have, thus ROC is a great indicator to watch on price or to make your other indicators more sensitive.

In other words, we have more evidence of a bounce coming, short term, it's still nothing I want to buy, but rather use it to short/sell in to.

As mentioned above, the larger VXX 15 min chart is leading positive in a big way, great for VIX, bad for the market, but it's still in a base and has a gap below to fill, this is one of many reasons I'm not concerned about a bounce and want to use it to sell / short in to, but on a short term basis, I want to gather as much data as I can to have a better feeling for when a bounce starts and how far it goes so I have an idea of where and when I want to re-enter puts and/or additional short positions.

That's the information we're gathering now.

Typically, a counter trend bounce has one objective, it is to sway sentiment.

If you are a bull (hypothetically) and you've just seen NASDAQ 5000 fail and the Dow 600 points lower since, you aren't feeling as confident, maybe you are even thinking about becoming a bear, this is what Wall St. is trying to head off, thus a bounce usually has to be convincing enough to get the bulls feeling good again about their positions, lock them in place and continue the dump. However there area lot of dynamics in play, especially with the F_O_M_C next week.

My gut feel is that they'll try to bounce the market in to the F_O_M_C which means maybe today to finish up a base, tomorrow to get a bounce underway , Friday is a wasted day for the most part with op-ex pins although last Friday wasn't and the meeting starts Tuesday and ends Wednesday with the policy statement at 2 pm.

I could be wrong about the size and timing, we're still gathering information that is just now coming in, but that is what I'd normally expect. Again, I don't have the objective data yet to back up such suggestions and if it doesn't materialize or if it is something different, then we'll make projections based on that, I'm just speaking from a hypothetical, "What would I do if I'm thinking like a crook?"

I'll have additional asset updates and it's probably a good time to look at trade set up ideas.

In no way whatsoever am I concerned with core short positions and the resumption of stage 4 breaking below the 2015 range and challenging the October lows for a new lower low, at which point, the entire technical / trend classification has changed and the market is officially and unambiguously in a very bearish Dow theory trend classification  that historically doesn't end well for the market.