Daily Wrap

Overnight Chinese data was indicative of a hard landing with the worst Q1 GDP print since 2009 with numerous other economic data prints missing across the board, however that's just one of the two sides of the coin while their stock market has doubled over the last year.

As we have recently seen, the Shanghai Comp and Hang Seng have been losing momentum as posted in the A.M. Update/ FXI Update last Friday, 

Excerpts below from Friday's FXI Update:
"Looking at FXI- FTSE/Xinhua China 25, there are some charts that a re more than a bit concerning...

 FXI daily chart which is very parabolic  and has the look of a potential blow-off top...

And the 15 min 3C chart in which apparently smart money was ready for a parabolic climb, one it looks like they are selling in to fairly hard ion this 15 min FXI chart."

Overnight the Shanghai Comp closed down -1.24% and the Hang Seng barely closed green at +0.21%.

It looks like the Hang Seng's recent momentum burst may be about to burst.

And 3C may have very well been picking up something interesting in China recently. distribution...

FXI 15 min 3C chart.

It seems what the Chinese markets do (price only) have less in common than what the actual economy and smart money seem to be doing, although a rather EXTREME example.

The Nikkei also finished lower overnight on Yen strength.

Our recent forecast has been for $USD longer term weakness (more on that), EUR near term strength and Yen near term and long term strength.

Here are the Yen charts based on our forecasts for 1) near term Yen strength...

 There have been numerous near term , building signals for a move higher in the Yen such as you see here on a 30 min Yen futures positive divergence.

However the bigger picture which reaches out to US equity markets via the USD/JPY carry trade is the Yen Daily chart...

 Not only has the Yen's price trend gone from down to flat (base-like), but 3C has been leading positive on a strong signal daily chart, indicating the USD/JPY carry trade is likely being closed which has dramatic effects on US equities with $9 trillion in $USD carry out there and open.

Just for a little taste, this is the Nikkei 225 in candlesticks vs the Yen ETF FXY on a daily chart...

The relationship or inverse correlation should be plain to see and its effects on the Nikkei, but the same holds true via the carry trade for the US equity markets.

Here's the SPX vs the $USDX in red via the carry trade, this is opposite of the normal $USD legacy arbitrage in which equities, commodities and precious metals usually trade inverse/opposite the $USD...

 SPX (candlesticks) vs $USDX (red), both moving higher.

In fact, on a 60 min chart of SPY vs $USDX in red, you can see how the $USD tends to lead the SPX recently as it moves up ahead of the SPX and moves down ahead of the SPX, recently it has started what I believe is our larger $USD forecast for a bigger move down...more charts below.

On April 2nd, the same day I posted the market forecast for a break to the upside in IMPORTANT: AAPL Set-up & Market Movement, I also put out a $USD forecast.

Remember the $USD would fall in the closing of the USD/JPY carry trade and the Yen would rise, US equities would fall.

Here's an excerpt from the $USD analysis and forecast 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 which will come out at 8:30, but there won't be much the market can do about it as it will be closed except for about 45 minutes of futures trade.”

And here are the charts that are connected to the forecast...

 This is the 30 min $USDX Futures chart showing $USD weakness on 4/2 when the forecast was made which was seen as the following from the 4/2 except , "The $USD is seeing some weakness which is something I expected near term before a larger bounce "

Just after you can see a positive $USD divergence and bounce higher which I believe is closely correlated with the broad market, which is why it's important to the 4/2 market forecast.

 As for the rest of the forecast for the $USD from 4/2, "The $USD is seeing some weakness which is something I expected near term before a larger bounce and then an even larger decline,"

Note the 60 min $USDX futures leading negative divegrence currently, suggesting a larger decline than the bounce just after 4/2 that was forecast. the question is, how much larger as it is obviously VERY material to the carry trade and as such, $9 trillion is $USD liquidity/carry which effects the market as seen above...

This is the Daily $USDX futures 3C chart which shows confirmation on the $USD's strong move up, followed by a large negative divegrence just as the $USD makes its first significant pullback in this primary trend. The $USDX is now forming a small triangle and failed to make a new high on a stronger 3C negative divegrence.

Remember the Yen daily chart and that the USD would move down and Yen up on the closing of the carry trade.

$USD makes its first pullback and fails to make a higher high in to a significant daily 3C negative divegrence as a triangle-like price pattern forms, remind you of anything? Like the broad market?

It should be obvious by now that my interest in the Yen and $USD forecast is far beyond what the USD/JPY pair is likely to do, which looks like this...

Daily chart of USD/JPY and large 3C negative divegrence in to a lateral top-like area in the pair.

Obviously the broad equity market analysis has a lot more to do with just 3C divergences.

Carrying on with the day...

The Chinese Q1 GDP wasn't just bad, it was at 6 year lows, MArch Industrial Production (China) also missed, also at 6 year lows and Retail Sales missed at multi-year lows.

The ECB also met today, they left rates unchanged, however only a few weeks in to their QE, their are clear questions if there are even enough assets to monetize and the ECB's problem of not buying wasting assets or losing assets as German bunds are only 14 basis points away from trading at a negative yield! Meanwhile the Periphery is seeing sovereign default risk soar as their yields soar. Greek Yields hit 2 year highs overnight on an impending sense that Greece will default on its debt and unlike what the EU has been saying about a manageable Greek exit if it comes to that, they certainly seem to be concerned.

If Greece defaults and negotiations are going no where so it looks increasingly likely, the ECB will cut off ELA funding to Greek banks which will cause capital flights, capital controls, likely closed banks , Pensions unfunded as well as government workers salaries. I don't know about you, but that sounds like a recipe for revolt and it seems the Germans think so too as a recent article from Die Zeit says that Germany is preparing plans to STABILIZE GREEK BANKS in case of default (as several large IMF payments are coming due with no agreement with the Trokia or whatever the Greeks insist they are called and no more money in between the couch cushions in Greece.

The German plan, which sounds very different than the "could care less" attitude Germany has been projecting, would call for Germany to finance Greek banks and keep Greece in the Euro despite a default! As well as plans to ALLOW the ECB to finance Greece with Euros, but this would be contingent on the Greeks agreeing to something that they have not agreed to this entire time which has raised the very specter of default to high probability as the S&P ratings agency that just last September Upgraded Greece to "B" saying, "The upgrade reflects our view that risks to fiscal consolidation in Greece have abated." 

Today the S&P downgraded Greece to the much dreaded CCC+ rating as a default looms. If the Greeks don't become more agreeable after default under the new German plan, than Plan B is to facilitate the Greek transition back to the Drachma. At this point the entire EU Financial system would be in disarray and Greece may be the least of Germany's concerns.

The IMF said overnight they are increasingly concerned that the Greek crisis will "Unsettle Financial Markets", while the ECB has increased Greece's access to the ELA Emergency lending facility by another $800 mn to $74 billion to capitalize Greek banks despite NO PROGRESS being made with talks and the Greek Finance Minister having set a meeting with Lee Buchheit on Friday of top US law firm, Cleary Gottlieb. This is the same man who is a debt restructuring attorney who handled the 2012 Greek debt restructuring, so it looks like the end game in near.

Meanwhile, German Finance Minister and Gollum stand-in, Shaeuble says today that he sees no contagion from a Greek exit. Again, two sides of a very different coin, while minimizing and downplaying and Greek exit by Germany, they are scrambling behind the scene with emergency Plan "A" and plan "B".

Of course this is to say little to nothing of the ECB's QE program that has only been active a few weeks and scheduled for 18 months, yet German Bunds are something like a mere 14 basis points away from trading at a negative yield while the periphery of Europe sees yields rise as sovereign default concerns extend beyond Greece. Just how much will the ECB be able to monetize without buying trash or negative yields? Just another issue on the side-burner as Mario Draghi was attacked by a young, attractive , non-Greek European woman today during his prepared remarks as she shouted "End ECB Dictatorship!".

In the US, the April Empire F_E_D missed with higher prices paid, a collapse in New Orders to Jan. 2013 levels, Employment down, number of hours worked down and a final print of -1.2 vs consensus of a +7.17 print with the previous coming in at 6.9, this was obviously a HORRIBLE read.

Mortgage Apps were also down this morning in US eco-data and Industrial Production dropped to the lowest since Aug. 2012. Utility output was the WORST in 9 years  (2004) despite the radically cold winter. The print came in at -.6 m.o.m. vs consensus of -.3. This was almost the worst print since June of 2009 and the 4th consecutive miss. 

As you know already the EIA oil inventories beat consensus at a build of 1.3 mn barrels vs expected 3.5 mn, this is the best print over the last 14 consecutive builds, but still a record at 14 consecutive builds with last week seeing the BIGGEST BUILD IN 30 YEARS! Perhaps today's better than expected print should be considered in that light as the EIA's monthly report said they expect Saudi Arabia to INCREASE output next month!

This morning VIX underperformance was clear as I had said earlier in the day that I was sure SPY Arbitrage ( a short term way of pushing VIX lower, HYG higher and typically TLT lower in order to push the market higher, like a VIX Slam), as it turned out as I checked later, Market Update, the SPY Arb was indeed active and worse yet, the ES CONTEXT Model was negative close to 50 SPX (futures) points.

 SPY Arbitrage alone added about half of the SPX's +.51% gain.

While Contest shows S&P futures overvalued today by about 50 points.

The day got started on a VIX slam, part of the SPY Arbitrage sending stocks higher...

The VIX was SLAMMED right on the open after yesterday's tight range, however this shouldn't have been a surprise as everything we saw yesterday pointed t a higher close today.

VIX volatility has been picking up since the triangle and likely Crazy Ivan shakeout...

Also note the 3C negative divegrence at the VIX slam this morning and the positive divergence the rest of the day. Remember VIX trades opposite the market.

The averages looked like this intraday which was interesting as Transports barely closed green at +0.08% and they haven't been tracking oil as you might expect.

After the initial short squeeze open in transports as they looked the best on the day, they weakened and barely made it green by the close in salmon (Major averages today).

Checkout the volume in transports too today on the move lower in to the afternoon/close.

Transports (IYT) 1 min chart intraday with heavy volume in to the afternoon decline and ugly close.

I know you might expect oil's strength today to be the cause of Transports relative weakness, but there hasn't been much of a correlation between the two recently.

Transports (green) vs. USO (red), not the inverse correlation you might expect.

I mentioned earlier as well that there was a near flash crash in the German Dax, interestingly after that, the DAX futures and US market traded nearly opposite of each other.

DAX sees a near flash crash at the European close, then DAX futures and the SPX trade nearly opposite each other the rest of the day.

The averages themselves today held mostly the same 3C signals as yesterday at the close, positive or in line 1 min, everything after that horribly negative, here are some examples...

 DIA 1 min in line today

SPY 1 min slight positive then in line today

QQQ 1 min in line then a slight negative at the close.

IWM 1 min in line.

These are the near exact same 1 min signals from yesterday, along with short term Leading Indicators, projecting a bounce off the Hammer candlestick (bullish reversal) closing candles from yesterday.

However after 1 min, like yesterday, it gets ugly, implying the short term bounce in a reversal process and much needed as most triangles have barely seen a breakout and larger picture pointing to significant weakness. The SPY Arbitrage wouldn't need to be activated if there were market strength on a hammer close the previous day in ALL of the averages. CONTEXT argues for the same interpretation which has also been our near exact forecast.

 DIA 2 min leading negative in to the close, much more in line than the 1 min.

 SPY 2 min also leading negative and leading intraday in to the close.

IWM 2 min leading negative, like yesterday.

DIA 15 min leading negative and at the line in the sand or gas in the tank from the 4/2 15 min positive divegrences.

 SPY 5 min leading negative through the entire projected move.

IWM 15 min leading negative

And finally the 15 min SPY closes with a negative divergence.

As for Index futures, they still have scattered charts in the 7-15 min range, but once again, this is why they are one of the 3 main indications being watched to pin-point a pivot.

As I said earlier in the week and today, I suspect we may not get that pivot until the monthly options expiration this Friday.

Although commodities overall were supportive of the market today and up on a weaker dollar (see $USDX analysis above), Crude looks to be at the base's resistance area. I do expect Crude to make a strong trend reversal, but as I have suspected recently, I think it pulls back first and being we just hit the resistance area from late December, I suspect this is it.

Brent Crude 10 min futures, see the oil /gold update from earlier today, GLD's signals yesterday were flawless as it closed up +.87%, likely would have taken all gains from the +30% GLD puts closed yesterday in anticipation of today's move higher in gold.

As for Leading Indicators today, VXX showed the early weakness relative to the SPX (inverted to show the correlation)...

 VIX short term futures see underperformance as the VIX (spot) and SPY Arbitrage suggest, but see a little better relative performance toward the close.

Last night I started showing some of the larger signals in Leading Indicators, the ones that matter beyond a next day or intraday signal. For example, our custom SPX:RUT Ratio which led positive in to the lows that we pushed off from in the April 2nd forecast...

Positive going in to the April 2nd forecast and at a "W" base area in SPX, however in a near opposite position since, a larger leading negative signal . I'm starting to show these more as they are developing or in this case developed as I have set over a week ago as 1 of 3 indications I'm monitoring for the reversal/pivot point.

Our Professional Sentiment Leading Indicators...

 As pointed out last night, our indicator was supportive of upside today, however intraday today it went negative suggesting near term downside likely tomorrow which would fit well with the "Reversal process" which is often a range-bound (although small) area.

 The larger signal has been volatile, not supportive of additional upside trend and making a couple of leading negative signals including today in to the afternoon, just about since the open in fact. although there was that opening support that was forecasted from yesterday's intraday signal as posted in last night's DAILY WRAP.

Our second (confirming) Pro sentiment indicator...

 Also started showing the bigger, longer term signals which it added to today as has the one above.

Yields as mentioned yesterday that were trying to support the market as they lifted in the afternoon on low volume saw the long end slightly outperform on the day and the short end slightly underperform on the day. This is 10 year with yesterday's intraday support as well as today's, but the larger picture is in a leading negative divergence seen between points "A" and "B".

 On a longer term chart the divergence and dislocation (negative) is much clearer, this is what I'm looking for generally in all leading indicators.

You can see the same dislocation (negative) on a 15 min chart of the 5 year yield, which acts like a magnet for equity prices and pulls the Indices lower to revert down to Yields.

 Commodities as mentioned yesterday were supportive near term which was additional evidence of today's likely upside move (3C charts as well in the 1 min range, the closing Daily Hammers-upside reversal, numerous leading indicators intraday, etc.).

However the larger signal is negative in commodities which have started working again as a leading indicator/risk asset since the end of QE3.

Credit also wasn't buying what stocks were drinking today.

HY Credit dislocated with the SPX today as you can see again in HYCDX.

As for internals, yesterday we had no Dominant Price/Volume Relationship at all, today we have a dominant relationship, 13 Dow stocks, 53 NASDAQ 100, 853 Russell 2000 and 207 SPX 500 of the 4 possibilities. The relationship was Close Up/Volume Up which is the most bullish relationship of the 4, however, ironically this relationship also tends to represent a 1-day overbought condition and we most often have a next day close in the red for the averages.

As to the S&P sectors, again a slight overbought condition exists with 8 of 9 closing green. Energy led at +2.39% and Consumer Staples were the laggard at -.28%.

Of the 238 Morningstar groups, a strong 169 closed green.

Again, all of these conditions in internals point to a 1-day overbought condition, not in RSI or other typical indicators used for overbought/oversold, but in internals themselves which tend to be much more accuruate as the indicators can stay pegged at either condition for an extended period of time, but these internals tend to be much more accurate, which would also fit with the Reversal process's typical rounding chop.

As for Futures, Crude has flattened out in line with the 10-min's negative divegrence. I wouldn't call the Index futures "telling" as far as intraday overnight signals right now. Es is virtually flat and not telling us anything short term...

 ES 1 min is virtually in line.

However there are some slightly stronger signals, although not screaming in NQ and more so in TF-Russell 2000 futures which is interesting given it was the best performer on a relative basis today.

 NQ in line as expected from the 1 min 3C charts of the averages pointing to this yesterday as of the close. However some weakness building in since the close.

TF/R2K futures also in line as expected intraday, but building in some weakness since.

I wouldn't call these screaming, but I am anxious to look at them in a few hours and will post an update if I think there's anything of significance. The overall indications short term are not screaming for a downside move tomorrow, but they are leaning toward it, while the bigger picture leans strongly toward market weakness evident in numerous leading indicators, market averages, etc and especially the SPY Arbitrage which I guessed at this morning based on price action and was right on. The larger CONTEXT model showing a 50 point over-valuation in the SPX today is also telling.

The one thing I'm considering is that Thursday's close is usually very close to Friday's op-ex max-pain pin, being this week we have a monthly op-ex max pain pin, I wonder how much influence that will exert on the overall close. Otherwise internals point to a close lower tomorrow, again in line with the choppiness of a reversal process, more on that here from yesterday...IMPORTANT Market Update

I'll check futures before turning in and let you know if anything is standing out. OVerall I still think we are right where we should be and progressing toward the anticipated forecast of weakness as the reversal process leads to the pivot.

However I'd consider the important implications few are considering or have the tools to consider, the $USDX and Yen signals, what that means to $9 trillion dollars in $USD carry trade and what that means to the markets given our Yen and USD forecast confiirm each other like no other divegrence I've seen in FX EVER!.

There are a lot of diverging elements such as Chinese macro data from Chinese markets, which FXI has recently warned about (3C) as we are seeing now as well as the Yen and Nikkei and the strange DAX futures vs the SPX today.

Have a great night. Time for some dinner FINALLY!