"What is a triangle when it comes to volatility? It's like a Bollinger Band squeeze in which the ATR might be getting more volatile on an individual day, but the range in the market is squeezing like a Bollinger Band pinch, which is THE PROMISE OF A HIGHLY DIRECTIONAL INCREASE IN VOLATILITY. "
That upside move this week from those triangles were numerous enough throughout my watchlists that it started to make sense for this week's forecast.
While AAPL has not shown the best breakout move so far, it has broken out at the triangle's apex, pulled back to what most traders' would be expecting to be support and held before heading a bit higher today.
You can see last Thursday when the forecast post using AAPL as a market proxy was posted for this week's expected action, IMPORTANT: AAPL Set-up & Market Movement and you can see what has happened this week since that post in the white box: an initial breakout on Monday of +1.62% but with no increase in volume which is important to note when looking at the big picture forecast , then a pullback to the triangle's apex nearly perfectly on a Doji (loss of momentum/indecision) reversal candlestick followed by yesterday's more bullish "Hammer" reversal candlestick, but a lack of increasing volume (again an important, but subtle hint) and today's attempt to push higher which may have been hampered a bit by the visceral lack of demand at AAPL stores for the new AAPL Watch which started taking orders today. However because many orders were online or 15 min. appointment for the initial shipment on April 24th and because AAPL has not said how many watches would be shipped in the first batch, it's difficult to judge just what the initial demand is unlike past AAPL products that had people waiting in lines outside their stores.
"The 3C charts have been very clear as to what's going to happen with significant moves like this week's... I have no reason to doubt the positive on this 15 min chart.
This would suggest some kind of head fake move to the upside of the apex (point) of the triangle which is what we'd normally suspect anyway just on a conceptual basis and our observations of the market. "
Again, note the mention of the positive divergences last week on 15 min. charts of the averages, the same 15 minute charts I have been talking about all week and the line in the sand or the "gas in the tank" for this move above the triangle's apex (point).
" The SPY is far from a perfect triangle (descending vs AAPL's symmetrical) , but the breakout that is occurring is pretty clear and I think will be much more clear before this is over and our entries are ready.
As you can see above on today's price chart, the QQQ did make the breakout expected this week for all of the triangle-based patterns. Wall Street rarely does anything without an objective which is usually to create some kind of movement that can be used. To have a weak move to the upside that fails to even breakout of the triangle would make little sense as expectations were pointed out last night and as far back as last week.
The last couple of bounce attempts in the market have seen near instantaneous distribution and have failed to make any real impression. I suspect this is because the last couple of bounces were the basis for forming these triangles as was shown on the AAPL chart to be deliberate and not coincidental or naturally occurring. If you are wondering why this may be the case, it's a simple matter predictability and how Technical traders will respond to a price pattern like a triangle or its breakout.
As shown yesterday, intraday breadth was much stronger than earlier in the week (see yesterday's Daily Wrap and the TICK Index posted chart) as most of the averages sat right below the breakout level as of yesterday's close. Today intraday volatility was especially low, I'll give you 1 guess as to why? The chart itself contains the hint...
TICK was very low and as tight as the -250 to +500 range until the yellow box just after 2 p.m.
Today is an options expiration Friday, which means the max. pain pin is typically held in place allowing Wall St. who typically writes options to set the market's pin at the maximum pain level in which the greatest dollar amount of options will expire worthless allowing Wall St. to keep all of the premium for the options written. We usually see this max-pain pin break around 2 p.m. as most contracts seem to be wrapped up by then and the market releases from the price pin at the level that will cause the greatest dollar amount of open option contracts to expire worthless. After 2 p.m., intraday breadth/volatility increased as is visible in the yellow box to the +1150 / -500 level, clearly biased to the upside for the averages.
The IWM was the one major market averages that looked worse than the rest with no positive divegrence on its 15 min chart last week. It's also the only one that looks a lot more like a Bear Flag than a triangle. In fact the volume of the IWM above is exactly what you'd expect to see from a Bear Flag consolidation which is near textbook above.
Still, once again using a different measure, my custom TICK/SPY Indicator, overall breadth today was much more lopsided than yesterday, even if it was much lower in volatility on the day.
I don't think this week can pass without mention of last week's very odd Wall Street "Whisper Number" for the Friday Jobs Report (as the market was closed for Good Friday" and Futures only traded for 45 minutes after the release of Non-Farm Payrolls. You may also remember the lack of protection bought in VIX Thursday going in to a 3-day weekend which is usually reason enough, not to mention the most important Payrolls print of the month the next day as the market was closed and the wild card of whether Greece would make or default on their IMF payment. There were a lot of good reasons to buy VIX protection Thursday, but instead it was sold as a WILD whisper number of approx. 150k JOBS print made its way to main street while consensus was for almost 100,000 more at 245k and ironically and very strangely, the actual print came in at nearly HALF of consensus at 126,000 The Jobs print was even below the Whisper number. I don't know if you appreciate how strange that entire event was from the miss to the miss being that big which breaks a year long string of 200,00+ prints, to the whisper number being that far off consensus and so close to the actual print which was even lower. THIS ENTIRE EPISODE WREAKED OF A LEAK AND A PURPOSEFUL ONE. INCIDENTALLY, WITH THE PUSH HIGHER ON MONDAY, THE PROS WHO FAILED TO BUY PROTECTION FOR THE 3-DAY WEEKEND AND 2 WILD CARD EVENTS, DIDN'T NEED THE PROTECTION.
If we can see the probability of this week's price action as of Wednesday/Thursday of last week, then Wall St. knew what this week would hold and would know they didn't need VIX protection. I can't believe for a second that the NFP was NOT leaked.
Again, from Thursday's IMPORTANT: AAPL Set-up & Market Movement forecast,
"If tomorrow's Non-Farm Payrolls come in significantly below consensus and in the mid 100 thousand (150k) level, I think the chance of the F_E_D putting a rumor like QE4 or something else extremely dovish and extremely ridiculous, could be pretty high, it also gives us the move that we need to sell short in to strength and the volatility we need for the move down to break the 100-day moving averages and challenge the October lows"
Sure enough, it just so happens just 2 days in to the week, the F_E_D's Kocherlakota is out and mentioning QE4 on Tuesday, And There It Is, Less than 2-Market Days!, with, There's a "Theoretical argument to be made for asset purchases" if the economy faltered, which it clearly has.
The F_E_D's contradictory comments within the space of days seems to be its new favored method of recreating "Alan Greenspan's "Green-speak" in which he could talk for an hour and no one had any idea what he was saying. Just as Kocherlakota predictably mentioned QE, although not by the specific name, but "Asset Purchases" which is the same thing, interestingly today the Richmond F_E_D's Jeffrey Lacker was out sewing further confusion :
Fed’s Lacker favours June liftoff even as recent data weak...
The story line from Lacker seems much more in line with what the F_E_D has actually done in creating ambiguity and the ability to hike rates without economic data supporting rate hikes, for instance the so long as the F_E_D "Feels confident" that the data will move in the right direction, they can/will hike rates.
Lacker was in favor of June lift-off for rate hikes, once again taking the market in the opposite direction as it thought the Friday Jobs report took a June Rate-Hike off the table. Lacker argued that:
-Recent weak economic data was TRANSITORY
-Recent weak economic data was due to "Unseasonably adverse WEATHER"
-More PRUDENT to LOOK THROUGH "VERY SHORT TERM FLUCTUATIONS"
-"Several " F_O_M_C members wanted to hike rates in June, Lacker recalls "Several" as being a "Pretty substantial amount".
-"I expect that, unless incoming economic reports diverge substantially from projections, the case for raising rates will remain strong at the June meeting”
-Remember the F_E_D created room to hike without the actual data backing a rate hike by using the language, "As long as they were reasonably confident" that inflation would return to the F_E_D's long-run 2% goal. Despite 34 consecutive months of inflation below 2%, Lacker said he was "Confident inflation would return to the Fed’s target over time."
-Other comments included: the US economy continues to advance and do better; Central Banks SHOULDN'T prevent all market volatility and YES, LACKER is a voting member of the F_O_M_C.
Despite the back and forth, this language which flies in the face of the data is exactly what the F_E_D has been creating art each meeting, the room to hike rates irrespective of the data which is why I believe the F_E_D is much more afraid of something they aren't talking about then the damage a rate hike would do to the economy right now.
As a reminder, here's the Bloomberg MACRO Economic Data Surprise Index...
As to today's market action, today's close has left all of the major averages including transports in the green for April.
Treasury Yields have been up on the week in a supportive move for the market as they tend to act like a magnet for equities near and long term. The gains across the curve are 8 to 15 basis points on the week in what is known as a "bear flattener".
The $USDX saw its best weekly performance since September of 2011 with a gain of 3%. This is pretty close to last week's $USD assessment such as this Market Update from Thursday, April 2nd
"The $USD is seeing some weakness which is something I expected near term before a larger bounce and then an even larger decline, but for now, I suspect part of the $USD weakness has to do with tomorrow's all important Non-Farm Payrolls"
It seems that bounce I was expecting near term played out this week, I would expect to see distribution in to it as the carry trade unwinds.
We have been tracking some interesting longer term $USDX negative divergences.
The Euro lost -3.5% against the $USD this week, however we have been tracking building EURO and YEN Futures divergences in the intermediate term charts, suggesting a EUR/USD bounce is coming and a USD/JPY drop is coming.
Both the Yen and Euro positive divergence have made it to the 60 min charts this week as they were on 10 min charts or thereabouts earlier in the week.
VIX...
I have pointed out the possible Crazy Ivan in the spot VIX, today BAC warns that today's 5 month low close in VIX and VIx's term structure indicates "SIGNIFICANT CONCERN" about stocks's recent advance. BAC warns that historically it has been difficult for the market to hold its gains when the Term Structure closes above 1.2, which it currently has.
Several times this week I have noted the coiling of tension in the VIX in a small triangle under its 50-day moving average and the possibility of a Crazy Ivan (head fake below the triangle's apex followed by a strong move above the triangle's apex and through the 50-day moving average , remember VIX trades opposite the market.
Leading Indicators are 1 of the 3 things I'm looking for to call a reversal/trade set-up area in the market and have been all week so lets take a look at Leading Indicators...
After last week's positive dislocation in our custom SPX:RUT Ratio that set the market up for a move higher this week...
However I'm interested in Leading Indicators negatively diverging on a longer term basis and clearly, thus looking at the week on the whole...
However HY Credit (not manipulated like HYG as HYG is a SPY arbitrage asset along with VXX and TLT) was less impressed today and not willing to bid up risk.
Our Professional sentiment indicators have taken a serious turn to the downside, this is the kind of divergence I'm looking for.
Despite the strength and support of yields for the market broadly over the week, today they started to diverge, again what I have been looking for in Leading Indicators.
And 30 year slipping as well vs the SPX.
Commodities, another Leading Indicator are also showing the kind of divegrence I'm looking for.
Index Futures which were positive last week in the 7-15 min range are 2 of the 3 things I'm looking for to deteriorate, the market averages are the other which are largely there and Leading Indicators.
NQ/NASDAQ Futures so far look the worst, but these can change pretty quickly so I suspect we'll see SPX and Russell futures follow early in the week next week.
Now the 10 min NQ charts are coming undone
However, I suspect they'll be coming apart in the next couple of days.
As for the averages, nearly every timeframe has gone negative and been indicating distribution in to the entire week's move.
It has been the 15 min charts that were the line in the sand and we've seen migration of their negative divergences from 1 min charts on Monday to closing 5 min charts, 10 min charts by Tuesday and Wednesday.
The intraday charts point to some early strength or about in line early in the week/Monday, with weakness right behind that as the 2-3 min charts look bad.
Finally Internals...
The Dominant P/V relationship is rather weak with no relationship in the Dow or Russell 2000, the SPX has 194 stocks and the NDX has 45, both in Price Up / Volume Down, the most bearish of the 4 relationships for the 3rd day in a row, which fits with the volume on the major averages as well during this week's gains.
S&P sectors are also approaching strongly overbought as the P/V conditions are also showing the last 3 days. 8 of 9 sectors closed green with Industrials leading at +1.41% and Financials lagging, almost green at -0.04%.
Of the 238 Morningstar groups, 178 closed green, also approaching an overbought condition on weak internals.
To put it simply, IO suspect we have another 2 days maybe of upside in the market as internals, Leading Indicators, Index Futures and the market averages continue this week's trend of falling apart in to higher prices which is what we expected of this move when it was first forecast on april 2nd.
I think we'll have some fantastic trade opportunities likely early in the week and a lot more somewhere around mid-week at the pace things are moving.
I wish everyone a fantastic weekend!
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