I was expecting the market to either pin roughly in place or to see some slight gains as posted in last night's, Daily Wrap...
"Note the second squeeze took place just after we closed the VXX puts, but had waited before entering any assets that would count on market downside as the charts simply were not confirming in enough timeframes to justify such a trade "
and perhaps more telling were yesterday's internals...
"The Dominant Price/Volume Relationship saw 17 Dow stocks, 55 NASDAQ 100, 899 Russell 2000 and 271 SPX 500, a strong Dominant reading and all in Close Up / Volume Down, THE MOST BEARISH OF THE 4 POSSIBLE READINGS.
Also in a polar opposite to yesterday's internals, 8 of 9 S&P sectors closed green with Tech leading at +1.89% and Energy lagging at -0.18.
Even more so, of the 238 Morningstar groups I track, a full 222 of 238 closed green.
As much as yesterday's internals were at a 1-day oversold condition that as I said last night, "This CLEARLY suggests a next day close in the green on a very strong 1-day oversold condition.", today's internals are the strongest form of the EXACT opposite, typically seeing a next day close in the red."
Traders simply don't give enough (if any) credibility to all that volume can tell you.
The averages today stayed fairly well correlated except for weakness in Transports again...
Although it seemed like the internals and the gut feeling I had about the market's price action today was based in some objective evidence such as Internals or scattered short term 3C signals, certain other indications seem to show that today's close in the red for all of the averages was not due to the lack of trying...
However on the other hand, there's serious signs of deterioration that are not every day occurrences and in most cases are worse than the 200 or 2007 tops.
For one, the Dow Theory confirmation signal between Industrials and Transports has fallen off a cliff.
In any case, the charts do the talking and as you may recall in recent years, Transports were a high beta momentum group so the fall-off there alone is noteworthy. By the way, our longer term Transports core short is nicely in the green.
As for Breadth Indications which have been steadily sliding for over a year now, in many cases much worse than the 2000 and 2007 tops...
This is the first time this has happened since this 6 year trend-line has been in effect.
AS ALWAYS, "CHANGES IN CHARACTER LEAD TO CHANGES IN TRENDS"
I like to update breadth charts every now and then because they aren't open to interpretation, they are math, they are as honest as you get in the market. There's no interpretation, there's no special circumstances, just pure, hard and sometimes cold facts...
*I display the breadth indicator in green vs the comparison symbol (usually the S&P-500) in red unless otherwise noted. The basics of breadth are the same as volume, a rising market should see rising breath indications to match, when there's a divergence between the hard number count of breadth and the market, there's something not right.
This just shows us again if we are looking at the obscure weighting schedules of the market averages, we aren't too far off the highs, but when looking at the stock market as a market of stocks, you might say we are already in a bear trend as more traders are experiencing losses in individual stocks as they fall below their 40-day moving average.
You may recall my nearly 4 years teaching Technical Analysis for the Palm Beach County School System's Adult Education program where I inadvertently had been slamming Motorola only to find out after class that one of my students was a former CEO of Motorola in the 1980's, thankfully he agreed with me. The point actually being, Dow Theory was a complicated concept to teach to neophyte traders and I had found that the 200-day moving average was "close enough" to represent the Primary trend (bull or bear market) , the 50-day was close enough to the Intermediate trend and the 22 day was close enough to the Dow Theory Short term trend classification so I used these moving averages, whether the asset was above or below the average and whether the average was pointing up or down as a proxy for Dow Trend classification.
Here the Percentage of ALL NYSE Stocks Trading ABOVE Their 200-Day Moving Average fell from a normal average in a bull market of 80+% to the current 50%. Again, half of the NYSE stocks are in a bear market trend despite the market and its obscure weighting (unique to each average and proprietary to NASDAQ 100 which will cost you a $10,000 a year membership to find out the weighting schedule). Take away the weighting schemes and just look at the percentage of stocks above or below and half of the stocks are in a Dow bear market.
The Percentage of ALL NYSE Stocks Trading One Standard Deviation ABOVE Their 200-Day Moving Average, generally stronger momentum stocks. The average percentage in a healthy market was about 60%, although that has fallen to about half that number to a current 31.26%. There's a clear trend of deterioration through 2015 in which it never recovered from the 2014 lows.
However if we look specifically at 2015 alone...
Like yesterday when Yields dislocated with the SPX, they have remained as such today, suggesting that perhaps our analysis of a major market shock next week may be reflected here.
As for internals tonight, they aren't surprising given that the Options Expiration max-pain pin is usually around Thursday's close at least until around 2 p.m.
Unlike the extremes of Tuesday and its 1-day oversold condition leading to Wednesday's sharp reversal to the upside and last night's 1-day overbought condition, almost as extreme leading to a red close today...Internals are not nearly as Dominant as the last 2 days which makes sense. However both the NDX (48 stocks) and the SPX (196 stocks) both fell in to the Dominant P/V relationship of Close Down / Volume Down which is the least influential relationship of the 4. In fact I've given it a nick-name, "Carry On" as in "Keep doing what you were doing" which would mean little movement in to tomorrow's op-ex pin which tends to be what we have noticed anyway with the pin typically close to Thursday's close. The S&P sectors saw 3 of 9 close green and the Morningstar groups saw 97 of 238 close green, mediocre at best. For future reference I will mention that the most common Price/Volume relationship during a bear market is Price Down / Volume Down, it is the thematic relationship, not that it means anything today in that respect.
The 3C signals will be very important the next few days and any additional price strength should be a gift for any short positions we may find looking appealing as we can enter at better prices with less risk, if only we had a 3rd decent shot at transports!
The $USD trend and whether the counter trend bounce is over or failing as I suspect will have dramatic ramifications for the market. As mentioned earlier, the assets bought with carry proceeds tend to be sold off, those are typically bonds and in the reach for yield in this market, a lot of stocks, but bonds have already reversed trend to the downside whereas stocks are yet to make that move...yet.
Finally as to futures tonight... It may be more appropriate to look at them in multiple timeframes with the $USD once again acting as the hub of the wheel.
Starting with the $USDX, From the looks of the Euro charts (which tend to move opposite the $USD), there are short term negative divergence in the Euro like...
I suspect the $USD will make a last gasp push higher before failing and ending its counter trend bounce and resuming its downtrend, making a new cycle lower low.
This will have an effect on oil as the two tend to trade opposite each other. We already saw today that USO weakness is being accumulated, but I expect more near term weakness which is why the USO equity short is still open.
The longer term 15 and 30 min Oil Futures are positive. Remember as posted earlier today, we are already seeing signs of oil being accumulated in to lower prices which is what I have expected and will be a prerequisite to any longer term core long position in oil, but it needs to pullback to be accumulated at lower prices. The 15 and 30 min Oil futures seems to tell us that is what is happening.
As for gold... It too tends to move opposite the $USD so near term strength in the $USD on a last gasp push, should hold gold back for a short period. However the 5, 7, 10, 15 and 30 min Gold futures are all positive, this may reflect a flight to safety because of Greece as well as inflation expectations related to what I believe will be a much earlier than expected F_E_D rate hike. Whether the projections of higher inflation by the F_E_D are genuine or not, they'll have to make the case to hike rates and as such, gold should appreciate on inflation expectations, real or imagined.
Treasuries (TLT), I have expected a move lower in treasuries and that would be the case on a falling $USD and carry trade unwind. Very near term Treasury charts are negative and I suspect we see the move lower I have anticipated (June TLT puts), here are a few key timeframes...
We'll have to reassess Treasuries/TLT for a counter trend rally upon seeing lower prices. If like Crude we see accumulation in to a decline, then it is likely we get a counter trend rally in Treasuries as I have also expected on a longer term basis, although not a reversal basis. If we don't see accumulation in to lower prices, we just stay away from the trade.
Lastly Index Futures... I can't imagine the $USD making a new lower low, the carry trade turning negative at losses magnified by 100:1 to 300:1 leverage and equities which were financed with carry profits not falling.
Very near term there's not much in the way of guidance which makes me think this is more related to an op-ex max-pain pin than anything else. There are some slight positive intraday divergences in the averages, but nothing I''d consider trading when considering the risk:reward ratio.
Remember the VXX charts today and then the 30/60 min $USDX. This is where the real ugly charts appear in Index futures, shorter term charts are all over the place...
And as a reminder of what I believe is the hub of the wheel...
Once the counter trend bounce fails and $USD starts trending lower, the carry trade losses will be magnified, I suspect this will coincide around the time of the Greek June 5th IMF payment which it seems all but assured they'll miss and be in default as well as other event risk such as the mid month F_O_M_C meeting. I know it's not mainstream thought, but I truly suspect that they'll hike at the June meeting.
Have a great night... Sweet dreams of a lot of great opportunities out there...
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