Opening Action....

This price decline is much more in line with what was expected for the early part of the week (Monday) in Friday's The Week Ahead forecast...

Since Friday's close, yesterday was not the kind of move I'd den worthy of a VXX call position such as the one opened Friday, Trade Idea-EXCEPTIONALLY SPECULATIVE...VXX Short Term Calls which was shortly after closing the both VXX puts around 12:30 on Friday at a gain, Taking Both VIX Puts off the Table. Again the difference between a high probability move and a high probability, low risk trade are two entirely different things so I'm happy to see this more extreme move this morning.

As we have been seeing lately, the bond and equity markets are moving together which is not usual, I suspect it's because of a carry trade unwind, but the HFTs seem to have created a correlation trade. It seems to me that equities are catching down to treasuries today...

Since Friday, Treasuries (TLT red) have led, today equities (SPY green) seem to be catching down to that correlation.

We expected both to pullback as of late last week and both to form a larger base as the "V" base in place from last week was bound to fail. Don't forget the larger part of the Week Ahead forecast which is for a bounce/bounce attempt and the even larger big picture which is a lot worse and to the downside after the bounce attempt.

For now though we are looking for the end of this move which "may" end with a flameout, a mini oversold/capitulation event intraday. Look for a large volume spike with extremes in TICK and then a positive divergence in TICK vs the market such as TICK starts moving off extreme lows while the market hovers near them.

I find one of the easiest ways to do this is to draw parallel trend lines around TICK and price and watch for TICK to miss the bottom trendily or break above the channel while the market remains within it. Note TICK has hit an extreme reading of -1431 this morning.

Obviously we also want to watch for the capitulation event or flameout. This will typically occur on a bullish candle, it can be on any of the intraday timeframes, but the stronger the candle like a large hammer and the higher the volume at that candle, the more likely you've found an intraday capitulation point. As an example with just what we have so far today...

This 30 min SPY chart isn't the best looking hammer, but it does have a longer tail and large volume.

Look at TICK now since that has been put in and since the first TICK capture above...

Note TICK did not reach the lower trendily and is now moving above the channel.

Also just because we have an intraday flameout/capitulation event, it doesn't mean that's a reversal point just like with primary capitulations in a primary downtrend (bear market). Often a reversal process that is more lateral in nature will take place while short term 3C charts post positive divergences as the base is carved out that price will rally from.

I'd like to be out of VXX before that process gets too far down the road.