The bearishness represented by the Fear and Greed Index was apparent in yesterday's internals (see last night's Daily Wrap). Here's a quick excerpt from last night's post on internals:
"All but the Dow had a Dominant Price/Volume Relationship, it was Close Down/Volume Up, a 1-day oversold condition...In this case, this is a 1-day oversold condition and makes sense given the SPX's support at the 150-moving average and "hammer-like" price closing candle...Of the S&P sectors, only 1 of 9 closed green, again a 1-day oversold breadth condition...Of the Morningstar groups, only 23 of 238 closed green, AGAIN A MASSIVE 1-DAY OVERSOLD condition. I see no reason the market shouldn't correct from here..."
Wait until you see today's internals.
Yesterday I posted several times how I thought they (Wall Street) would create support at the 150-day moving average in the SPX as it was already being watched by technical traders.
Some have said it was the Plunge Protection Team today that held the market up. If that were the case, how could we have seen so many flags for an oversold bounce condition with a technical trader set-up as well? How could we have predicted the most likely scenario today would be a green close last night?
However there was a lot of signs today that serious money didn't participate at all today. The price action alone looked very much like a short squeeze which would make sense with yesterday's Fear and Greed index being so bearish, Wall St. is going to knock those guys out of position, it's just too easy for them not to. From yesterday,
"The one thing I don't like is the increased market perception and fear, that tilts the ship too far one way and it's very lucrative for Wall Street to rock the boat in the other direction quickly, stopping out or triggering trades, it''s short term maneuvering that has little to do with the bigger picture, but it makes them money."
There was evidence everywhere that Wall St. was not participating, at least not in the major averages, I wouldn't say they weren't participating at all, but in places most wouldn't expect. Here are some of the posts today that gave evidence of the above: The serious dislocation between professional risk assets and the stock market as modeled by CONTEXT. The Leading Indicators failing to confirm as posted in Pre-F_O_M_C Market Update. The internals that I'll get to are additional red flags.
Some of the Leading Indicators as signs of no Wall St. participation and otherwise a hollow short squeeze...
Some of the Leading Indicators as seen earlier with some interesting areas I think Wall St. WAS participating, just not in risk on, but protection which makes a lot more sense given the Greek situation and tomorrow's F_O_M_C at 2 pm with a press conference to follow.
Both VIX and short term VIX futures (vs inverted SPX prices in green should normally be in line with SPX prices) carried a strong bid today.
Even last night I had said, "...a corrective bounce off the 150 (sma), remember there's a roof on it with the VXX 5 , 10 and 15 min charts...."
I think the performance of VIX above is evidence of that unwillingness to take on risk, but to move toward protection which was even seen late this afternoon, Sentiment Flip-Flop, with VIX futures seeing positive intraday divergences as the Index futures saw negative intraday divergences in to the close and closed off the highs the last 30 mins and dead flat since 2 pm.
This is no smoking gun, but it's putting the pieces of the puzzle together.
I still think the EUR/USD sees more downside as it did today (forecast yesterday)...
I think it sees more downside because of the divergences in the $USDX and the Euro futures, these are both 30 min charts so they have decent strength...
The question is why? The $USD "should" strength on any hawkish tone from the F_E_D tomorrow or a rate hike while the Euro should see downside over the Greek situation so which is being reflected, one? If so which? Or maybe both?
We have found F_O_M_C leaks in the past, they were on the same day as the policy announcement and they stood out like a sore thumb, that being said, it is extremely rare unless we are staring at a large one in the face above, but the ones I'm talking about were on the F_O_M_C Wednesday and VERY clear in front of the announcement, so clear we traded them which is something I usually wouldn't do in front of a wildcard, total unknown as I want to retain as much control as I can and that's pretty hard with an event that could go either way.
That being said, I'd be a LOT less surprised if there were a rate hike tomorrow than most. I think this is a path the F_E_D has laid out in advance and not a spur of the moment decision, just look at the way they talk around the economic data, dismiss it or create scenarios in which they can hike even with bad data so long as they "Feel" a reasonable chance it will get better.
I also just want to remind you, Beware of the F_E_D knee jerk reaction. There hasn't been a single meeting in 4 years I haven't warned of that in advance. We usually see a knee jerk move and it's usually the wrong move. One of the best examples was the announcement of QE 4 on September 13, 2012 with a knee jerk move higher until the press conference and why wouldn't you expect the market to move higher on the announcement of QE3? We had negative signals and held some shorts rather than close them on the news,, the market topped the next day and lost -8% over the next couple of months and didn't return t the Sept 13th level until Jan 2013.
This is just one of numerous examples of a knee jerk move, they can last days, sometimes a bit longer, but they are almost always retraced and you'll know them when you see them.
As for Internals today, THE COMPLETE OPPOSITE OF YESTERDAY'S 1-DAY OVERSOLD CONDITION.
OF THE 4 POSSIBLE DOMINANT PRICE/VOLUME RELATIONSHIPS OF THE MAJOR AVERAGES (This is the number of component stocks that make up each of the averages were counting, not the price/volume f the average itself), THE DOMINANT RELATIONSHIP WAS CLOSE UP/VOLUME DOWN... THE MOST BEARISH OF THE 4 RELATIONSHIPS and additional evidence there was no institutional participation today.
There were 21 Dow stocks , 56 NDX 100 stocks, 769 Russell 2000 and 278 S&P 500 stocks all in the Close Up/Volume Down. Just like any market, you want to see volume up on higher prices, not down, that makes this the most bearish of the 4 relationships and often sees a next day close in the red as a 1-day overbought condition, the opposite of yesterday's Dominant P/V relationship.
Adding to the weak relationship and 1-day overbought condition, again the opposite of yesterday, 9 of 9 S&P sectors closed green and a whopping 201 of the 238 Morningstar sectors.
I said I'd show you some Breadth charts, which I have done every week or two showing deterioration in the market, but this time I'm going to show you vs. a previous top, 2007. The 2000 top was very different than the 2007 top and I suspect the current top is very different than the 2007 top, but there's one constant, breadth failures.
On the charts below, the breadth indicator is green, the comparison symbol is the SPX in red. In normal , healthy market breadth should advance with price much like volume should advance with price. The indicators are made up of all NYSE component stocks as the largest market average.
Looking at the same indicator at the 2007 top (remember each top is different)...
The point is not to compare apples to apples, but to note the deterioration in breadth at a major market top.
Finally as for oil, I posted the API update after the close, API Oil Inventories, however in addition to expected $USD strength (usually bringing commodity weakness), we have this Brent Crude futures chart among many others seen here, Crude Futures.
I'm not going to speculate beyond what I've already said over a period of years with regard to the F_E_D, they have been slowly introducing measures that would allow them to tighten on an arbitrary basis, which tells me they are more afraid of something they haven't voiced than they are of damaging the economy with a rate hike as it is in terrible shape currently. I know a lot of you have theories as to what it is, I suspect we'll find out soon enough. Other than that and what I've already posted on the subject, we'll just have to wait and see like everyone else unless we get lucky and find what stands out as a leak, which hasn't happened in a while with the F_E_D, but I'll be looking as always and I'll be watching the press conference and how 3C reacts as that was the first inclination I got in 2012 that they were already looking for an exit or preparing one on the same day they introduced QE3 believe it or not, that's what stopped the knee jerk reaction dead in its tracks the same day at 2:26, the answer Bernanke gave to a question about the exit strategy and those highs weren't seen again until 2013.
As to Index futures right now, ES has an interesting divergence in a very flat range, this is where we most often see divergences.
R2K futures don't look great either going in to the overnight session...
These have already started migrating to longer charts.
I'll be very interested to see what they look like in the morning.
Have a great night, tomorrow should be very interesting and hopefully some fun.
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