Daily Wrap

As we have had numerous signals of an impending base and bounce to come, it was the USD Andy yesterdays internals that drove it home for me.

From yesterday's Daily Wrap :

"As for internals today, I knew what the Dominant Price/Volume relationship was going to be before noon time. You may recall yesterday's which suggested additional downside today, but sector performance was moving toward a short-term or one day oversold condition.

Today was a definitive short term or one day oversold condition.

The Dominant P/V Relationship was Close Down/Volume Up, the most likely of the 4 possibilities to produce a bounce or next day close green (even though tomorrow is an op-ex day). There were 70 NASDAQ 100 stocks at Close Down/Volume Up, 1332 Russell 2000 and 264 SPX500, that's a DOMINANT relationship.

In addition, all 9 of 9 S&P sectors closed red with Energy leading at -0.31% and Health Care lagging again at -1.40%.

Incredibly, only 13 of 238 Morningstar groups closed in the green.

THIS IS A DEFINITIVE SHORT TERM OVERSOLD BREADTH CONDITION, WAY MORE RELIABLE THAN INDICATORS TRYING TO DETERMINE THE SAME.

That means these readings are also supportive of a near term bounce."

Clearly the dominant price volume relationship and sector performance showed a short-term oversold market which is much more accurate via breadth conditions then any indicator such as RSI. So in addition to all the other indications which ranged from leading indicators to currency indications  just plain old 3C charts, we started to see the bounce unfold today.

Macro data was horrible today sending the Bloomberg macro data surprise index to a new six year low. However macro data was horrible on Wednesday as well and did not have the"Bad News is good news" effect. I don't believe today's macro data had anything to do with the market's performance either. This was set up in advance as we saw earlier in the week when first calling for a bounce.

When we see purposefully constructed market moves such as this bounce, there's always a reason for them. One of the reasons that became obvious early today was in VIX related assets such as VXX. In addition to other indications today, this post More confirmation of our Near-term Price expectations shows short-termVIX futures as well as actual VIX futures being accumulated. Typically we don't see accumulation of VXX until we start seeing distribution of the bounce, however in this case accumulation was near instantaneous on lower prices indicating to me smart money is trying to load up on protection hand over fist as fast as possible with as much as possible.

One of the very obvious reasons for this move was recapturing SPX 2100, Dow 18,000, NASDAQ 5000 which was all achieved today. Although it was on half of yesterday's volume and approximately 30% less volume than the recent average for S&P e-mini futures. Obviously a lot of this can be explained away by the numerous closed markets observing May Day.

A typical, non-manipulated market bounce would look something like this...

SPY and a series of lower highs. However with a preplanned, constructed bounce, they always have an objective and part of that objective was clear on VXX accumulation today. To get traders to move and either stop out or enter positions, the market has to do more than the typical price action above, it needs to touch emotional extremes that causes traders to make emotional decisions. That being said, I don't have a target in mind other than something higher than today.

Here's the performance of the major averages in various time frames...

 The major averages today with Transports leading and the Russell 2000 lagging.

 The major averages since the F_O_M_C again with Transport leading and the Russell 2000 lagging

The major averages on the week once again with the Russell 2000 lagging. This was the worst week for small caps in six months which should tell you something about the nature of the trend change we are currently in.

While I could go on and on with different 3C charts, there are a select few currency futures, Carry trades and index futures that make the coming week's price action clear as well as what is to follow.

Into the end of the day, if you were paying attention to the NYSE TICK index, you would have had early warning, but I do not see it as significant into next week's early trend.

 NYSE TICK Index intraday falling out of the channel after hitting+1250 bullish extremes.

This gave you early warning as to what the close was going to look like...

SPY 1 min at the EOD... Nothing to worry about at all, just some profit taking in to the weekend.

You have to remember that few people see the underlying action that we see, therefore, a chance to book some gains or get out at breakeven is an attractive option.

 This is the USD/JPY (candlesticks) vs. ES in purple. Clearly our US dollar analysis is very important in multiple Time frames/ trends.

 Looking at the one minute intraday USD/JPY 3C chart, we can see a slight negative divergence which fits very well with the TICK Index readings. While many technical traders do not see it, the pros can see a change in one asset that will effects another.

For example...

 The US dollar was seeing some end of day distribution on a small scale which naturally would have an effect on USD/JPY which is correlated to index futures. So some profit taking on perceived $USD weakness that would translate into USD/JPY weakness which would have an effect on index futures, is natural.

Speaking of the US dollar, considering our longer-term analysis and the effects that it will have as laid out in this post yesterday, $USD Update & Market Repercussions, the fact that the US dollar had it's fourth worst week in two years this week should not be lost on you.

 This is the one minute chart of Yen futures which are in line however the USD weakness had small effect on the USD/JPY carry pair.

As to longer-term, more important charts..

 The USD five minute is still positive, giving evidence to more upside early next week.

 The five minute chart of NASDAQ 100 futures is also leading positive short-term. This also indicates the probability of upside early next week. However take note that the base/ divergence is not so big as to cause a change in trend. However as I was getting to above, Wall Street set this move up for a purpose and I can almost guarantee you that it will look extremely strong even though there's no "gas in the tank" to support the move beyond a very short-term scale, but that is the nature of emotions, they can take over rationale extremely quickly and that is the end goal.

 With strength in the USD andUSD/JPY, yesterday we forecast strength near-term in the Nikkei 225. This seven minute chart of Nikkei 225 futures shows a positive divergence in line with our forecast. I'm looking for an impressive move early next week, not one that will hold as you will see below.

 This is the ES/ SPX futures on a 10 minute chart also showing the recent positive divergence behind this move.

 The USD futures were one of the earliest signals for a market bounce as you can see on this 10 minute chart with a reversal process in place and a leading to positive divergence.

The basic arithmetic goes: USD bounce, USD JPY bounce, index futures bounce, broad market averages bounce.

 The 15 minute Yen futures are in-line, that's a stronger USD should lift the USD/JPY.

 With USD/JPY strength comes yen weakness and Nikkei 225 strength as this 30 minute Nikkei futures chart depicts with a 3C  positive divergence after distribution earlier in the week.

Today's Nikkei 225 close which was near flat, represents a loss of downside momentum and opens the door to this bounce.

However looking at the longer-term charts, The probabilities of any short-term bounce are already set.

 This is a chart of the one day Nikkei 225 futures which were in line on the uptrend and led to a relative negative divergence, followed by a current leading negative divergence. I fully expect the Nikkei 225 to be in a topping process.

In addition, the one day ES/ SPX futures chart shows a much more developed leading negative divergence or distribution on a very large scale.

 The USD one day chart has also gone negative and leading negative at that. This is not just about the USD, it is about F_E_D interest-rate hikes and more importantly the carry trade unwind which is at nearly $9 trillion  $USD.

You can read more in any of this week's posts on the USD or specifically $USD Update & Market Repercussions

 Two years ago I wrote an article that is still linked on the member site which forecast a rising yen at the same time the market entered a primary bear market trend. As you can see, The yen futures on this one-day chart were in line with the downtrend and have sense moved to a leading positive divergence as the yen's trend has shifted from down to lateral which is indicative of a base.

All of these one-day charts taken together are extremely damning for the broad market.

This is a close-up of the one day USD chart posted above. As already mentioned the USD has seen the 4th worst weekly performance in two years.

Earlier in the week I showed how the USD failed to make a higher high and went on to make a lower low which was exactly the forecast that was made on April 2. I also suggested that the intraday lows at the yellow dotted trendline would be an ideal area for the USD to put in a countertrend bounce.

Looking at all of the charts above, whether intermediate term USD positive divergence occurring just as it makes a tweezer bottom at intraday lows, or the USD/JPY charts, ES charts, Nikkei 225 charts, they all come together perfectly.

I expect we will see the additional strength early in the week which will turn into a reversal process in which we will want to be shorting into price strength/ underlying 3C weakness and closing positions such as VXX Puts or NFLX calls (which I entered as a hedge to the NFLX equity short).

This is one of the rare moments in the market that I described last weekend in the two posts from Saturday and Sunday which I would recommend just so you can see how everything comes together like a ballet at the right moment in the market. This is what I consider the closest thing to beauty in the market.

The weekend is beauty and I hope you all enjoy it very much.