Janet Yellen said in an interview that equity valuations are quite high. Lockhart said that the markets' view of a September rate hike is, "Reasonable". He also said that they haven't seen deterioration in core numbers despite the fact that US macro data has hit a new six-year low. I believe this speaks to my opinion that the F_E_D decided the to tighten policy a long time ago and nearly everything they have done over the past 2 years has been to move in that direction. It seems they are a lot more afraid of something unknown to us then they are of the effects a rate hike would have on the economy/ housing.
As to the market and the bounce we suspect in the very near term represented by some small VXX Put positions opened as recently as yesterday, Trade Idea: Extremely Speculative (Options/Puts) VXX (May 15th $23 VXX Put) and Trade Idea: VXX Puts (speculative) (May 15th $21 VXX Put)... It seems like the market tried to counter the initial effects of Yellen's statement with the sale of VIX.
This certainly isn't scientific, however we did expect (and still do) a bounce and the time frames that represent that bounce on 3C charts held up the entire day. These are the five minute charts that I posted several times today. It would seem that even a small or short term bounce is protected once the cycle is set up which was yesterday.
On the other hand as I reiterated several times today, I had no intention of adding anymore short term "Long" exposure unless the chart was absolutely screaming. While I believe VXX puts or QQQ/IWM calls/long positions could have been added at the end of the day when we saw intraday character change, I simply cannot justify the risk with the way the market looks.
In addition to surprise statements from F_E_D members, we have a Chinese bubble, we have Greece which just managed to make their €200 million interest payment to the IMF today with another €744 million payment coming do on May 12 and we have back-and-forth statements from the IMF yesterday threatening to withhold funds earmarked for Greece. The ECB is once again making noises about discounting Greek bank collateral which would reduce their ability to tap ELA (emergency liquidity assistance) from the ECB and virtually collapse the Greek banking sector overnight. To add more uncertainty, EU sources said today that there is no possibility of a Greek deal before the May 11 deadline in which the Troika was scheduled to release €7 billion, a day before the next IMF payment of €744 million is due.
These are just some of the events we know about. The danger is in the black swan events that we don't see coming. Thus, unless the chart is absolutely jumping off the screen, I would rather stick with the positions in place and use any price strength to open or add to short positions, let the trade come to us.
As mentioned above, US macro data hit a new six year low as the F_E_D/Lockhart see no deterioration in core numbers. ADP employment today hit 15 month lows which does not bode well for Friday's Non-Farm Payrolls (one of the most important employment data releases for the F_E_D), not to mention ADP's February and March employment data we're both revised lower. However as I have maintained and demonstrated, the F_E_D has created an ambiguous environment in which they can hike rates even with the data going against them so long as it is pre-faced with language expressing their confidence that data will turn toward their long run goals.
I can't find the specific post right now, but it was just last week that I said I believe that the F_E_D will "sacrifice" the market (which I explained is no sacrifice but simply the business cycle/ wealth distribution based on the ideas in my post, The Plunge Protection and Market Correction Team) in order to drive the $USD lower as they do not want to hike with a strong dollar and today we have to F_E_D speakers coming off quite Hawkishly.
I know we have spent a lot of time on near term market action and have made some decent trades, but this is because of the, "Loitering-effect" of the market right now, creating a meat grinder for short-term traders. However I don't want you to lose sight of the big picture.
While we are on the April 2 forecast, the USD was also part of our bigger picture forecast.
Since then we saw the bounce higher at the green arrow, Followed by a much larger decline at the red arrows with two small countertrend bounces at the yellow arrows.
Initially I expected the $USD to bounce with the market. There's still a positive divergence in the $USD so it may tried to put in another countertrend bounce. Additional short-term evidence (as short-term probabilities favor a bounce in the market) includes an intraday positive divergence in the USD, a negative divergence in the Yen ...
Also...
It seems all of the currencies relevant to a USD and market bounce are in place.
While most don't realize it, the trend change in the $USD is going to cause an even greater carry trade unwind than what we have seen thus far which will create a snow ball effect and have dramatic effects on the equity and bond markets.
Notice that bonds have been selling off for 8 days in a row sending yields higher (only 1-day away from tying the 9-day consecutive day sell-off from March 2012). This sends yields significantly higher and we "usually" use yields as a leading indicator. Under normal circumstances with 8 days of rising yields, the market would likely be at a new high. However, as I have recently explained, bonds selling off are one of the symptoms of the Carry Trade unwind, so is weakness in the $USD and strength in the Yen and commodities broadly speaking- we have seen all of that.
This is why the $USD is so important right now to the broad market as a snow-balling, self-fulfilling momentum event to the downside with carry trade losses at leverage of 300:1 will have a dramatic impact on the market and numerous asset classes including bonds and equities.
As for the index futures, the short term one and five minute charts are giving positive signals in line with a near-term bounce (tomorrow).
However if you recall, I was looking for the 7, 10 and 15 minute charts to all go negative indicating that the April forecasted Head fake move had run its course ...
In other words, other than a near-term balance which is part of the"Loitering" discussed yesterday at important pivot areas and the meat grinding chop associated with it, the market has done exactly what we expected which was to make a break out above clear triangles in the major averages and for that breakout to see heavy distribution and fail as a head fake move.
The NDX was the best example of our forecast...
I've received a few emails today asking about the stocks on my trade set up watchlist and price levels that I have been setting alerts for in each of them, it's simply isn't that specific. For example transports have been a long time Core Short favorite and we've already had to excellent entries, but if I see another entry I will put out the trade idea. So my price alerts are really pretty simple and serve as a reminder to me to look at an asset once it gets to the approximate area where I am interested. I'm looking at so many things during the day that I cannot possibly Watch for a price move in hundreds of stocks.
Example...
As for a recent trade brought to full size in both an equity short as well as puts, USO did what I proposed last week given the very obvious resistance level.
As to Internals today, I'm pretty sure you can guess what the Dominant Price/Volume Relationship is (at least for the majority of the averages). Remember this is not the price/volume relationship of the average itself, but of the component stocks that make up the average.
While not as extreme as yesterday, both the Dow and the NDX had a Dominant Relationship, the same as yesterday...Close Down/Volume Up which represents a 1-day oversold condition and we usually see a free close the next day.
Of the 9 S&P sectors, only 2 closed green with Consumer Staples leading at +0.31% and Tech lagging at -0.85%.
Of the 238 Morningstar groups we track, only 82 closed green.
Again this is not as bad as yesterday's internals, but once again it is a short term (1-day) oversold condition 2-days in a row.
While I don't see much of anything positive in the market beyond a 5 min chart, I do still think the market bounces on this oversold breadth condition which is totally different than an oversold indicator, this is much more accurate.
There's really not much more to do as we have positions in place for a bounce and alerts set for new positions on a bounce as well as core positions set up already, many in the green.
I mentioned earlier I wanted to show you what the charts of some core short positions look like. Here are a few that you might find interesting...
Beyond what I've already posted above, there's not much to talk about as far as futures go tonight, but as always I'll take a look at them before turning in for the night and post anything unusual if it is there. Otherwise, I'm looking forward to a bounce, taking some profits on positions entered yesterday and opening new positions for a much larger trend trade.
Welcome to all of our new members from, "Trade With Joe". Lloyd has been unbelievably fantastic and once again I find myself thankful and blessed to have met such a quality individual. I look forward to getting to know the group from TWJ and I'm very happy to have you all with us.
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