Volatility Increase

If you look at a broad enough chart of the market, the SPX is a good example, you'll see we are in an ugly range and I know a lot of short term traders who haven't adjusted or had not adjusted to the changing nature of the market which has happened fairly quickly, have had some difficult days which is to be expected and easily understood looking at the charts, the range, our trading essentially in the middle of it.

However a few weeks ago and several other times I've given real world examples of volatility increases just before an asset changes stages from one to the next, the next in this case in my view is not only a February cycle stage 4 completion to lower lows, but a test and break of 2014 (October) lower lows and a primary trend stage 4 decline. Volatility, even more than bounces or set-ups is what I'm most interested in.

While the market has been all over the place within the daily range today (and in some cases still within yesterday's daily range like the SPY, volatility has increased in breadth indicators since the F_O_M_C which I suspect with the addition of Bill Dudley's comments this morning made the minutes a bit more confusing then they may have otherwise been taken with Friday's horrible jobs report.

Where's the real knee jerk reaction?

 So far looking at the SPY intraday 5 min chart, it's not there. Yes there's volatility on the release of the minutes and despite the fact I still think we get a stronger move up on the week's forecast (unless character of the market has changed again as we have not seen many recent bounce attempts go very far) this is not a knee jerk move, it's simply confusion , HFT's, etc. There's no coherence there.

While not truly at extremes, volatility in breadth intraday has picked up, surprisingly though it has barely broken the 1000 level either plus or minus.

I suspect there's more going on with perception regarding these minutes than the headlines suggest and I think Dudley this morning created that.

This isn't to say we haven't seen some assets move like NFLX and a handful of other momentum stocks and sectors like biotechs, which I'll try to get to as well, but even the move there seemed to be more of an attempt to kick start the market in to a bigger upside move as we expected last night. Bios performance around the minutes is what I'd call, "Unremarkable", almost as if they didn't notice.

After seeing the SPY charts today, I'd normally be VERY close to calling the market a short entry here although we haven't reached the forecast goal of at least a breakout of the triangles in a lot of assets, the SPX included. I'm not sure whether to take this as a weaker market than what most suspect, I've been talking about the Pier over the ocean that looks stable from the boardwalk while the pilings that hold it up just under the water's surface are rotted away ad all it will take is one decent blow to take it down.

I have some other assets like Index futures and leading indicators to go through, but as we started to see yesterday with HYG negative divergences, they've increased today and HYG's leading support is lagging compared to yesterday. This week's forecast is not complete in my view, but I believe the deterioration we have seen so early and so strongly is the market telling us something, when and how to best use that message are the things I'm looking at right now as I think we are not far off (maybe a day or a few) from something much uglier and this is why I wanted you to have a larger picture view of a market Broadening top, 3C charts in longer timeframes and a comparison between the Dow now and the Dow 1929, that's how strongly I feel and I don't know if I'm doing a good job of driving home the point, giving you the evidence in the way I see it.

Last night in the daily wrap I talked about the cascading/snow ball effect of the carry trade and its effect on the market and for the first time laid out in plain English the basics of how I se this transpiring.

I'll do my best to fill in the details and point out the opportunities along the way.

More on the way...