Daily Wrap

Today's gap up was right along the lines of expectations since leading indicators and 3C divergences started giving us objective evidence in the afternoon, but even before that, it was pretty much expected based on the head fake concept and the reversal process concept both detailed in yesterday's post, GLD, SQQQ & Head Fakes.

The IWM/R2K looked a lot more like a textbook head fake, although head fakes are meant to be more extreme and move emotion which causes traders to move positioning. The NASDAQ's move was a lot more in line with what I suggested a head fake should do in yesterday's DAILY WRAP

"... as the reversal process continues and perhaps we get a head fake move which sounds scary, it feels even scarier, but would be an absolute blessing to new positions getting ready for a downside pivot. "

The relative performance was a bit off today after the initial opening gap up...

 With the NDX by far showing the best relative performance and the Dow (which has some pretty ugly charts surprisingly relative to the others) and Transports looking the worst.

However the NDX also had the best head fake set-up by far on its daily chart, clear resistance at 3 points, that will get any technical trader's attention and that's EXACTLY what head fake moves are designed to do.

As mentioned earlier today, all short squeeze here which you can tell by the diagonal line up with little to no pullbacks.

However intraday breadth market wide was on the weak side, also indicative of a short squeeze.

Other than the open with a quick 1500+ reading, TICK spent most of the day in a fairly normal range barely touching +1000 levels which are far from extremes in breadth, you wouldn't think that looking at the NDX's price action alone.

As I said yesterday in the DAILY WRAP, 

"Futures didn't look good as I showed a sampling of, the charts saw a lot of deterioration today, there was an attempt to support the market after the Yellen decline with HYG so that kind of tells me the reversal process which is very narrow at this point is likely not over, especially with no head fake move and if I'm correct in my thinking that the next move down slices through the 200-day (SPX), then a head fake move would be an even higher probability with such an important move to come right after."

From the looks of this chart, it looks pretty clear that there's some Carry funded support in the form of USD/JPY...

USD/JPY (candlesticks) vs ES/SPX-E-mini Futures (purple) on a 5 min chart. However if you recall yesterday's Futures update as I run through 80+ futures charts in multiple timeframes each day, one of the things I mentioned was from the look of $USDX and Yen futures, it looks like the USD/JPY is about to come down. I went through the same charts today and came up with the same probability.

$USD looks a bit more stable, but as for Yen futures...

 Yen futures 5 min chart

Yen futures 15 min chart

Yen futures 30 min chart...

There are more timeframes in between that are positive in the Yen, but you get the idea. While the $USD looks a bit more stable, I didn't say it doesn't have negative divergence and if you understand the carry pair of USD/JPY. a move higher in the Yen/JPY means a move lower in the USD/JPY which as you saw above compared to ES, appears to be another mechanism (outside of HYG, VIX smack-downs etc.) that has provided support for this market bounce. Obviously a reversal in the FX pair would have market consequences and it's interesting how the timeframes in Yen futures fit with the negative divergence in most of the Index Futures. This is the thing I love about the market, there's a ton of correlation and confirmation or non-confirmation if you know where to look.

As you saw earlier in Leading Indicators, the TLT pullback I expected today was VERY short loved in in that short loved period sent Yields even lower which have been acting as a leading indicator as of late, which means they tend to pull the equity market toward them (yields) like a magnet, again, as posted in today's lI update, yields were even lower today diverging significantly with the SPX where as they led it to the upside earlier in the week and late last week. I think some financial commentators are having trouble understanding this relationship or strange relationship, but this is simply one of the reasons we have long used yields as a leading indicator because they do diverge and they tend to be one of my favorite leading indicators (so long as nothing funky os going on in treasuries as we saw earlier in the year).

There isn't much I haven't covered this week or especially the last 2-days, you've seen just about everything out there, everything I have expected and thus far those expectations being met. I decided to be patient today because tomorrow is a monthly options expiration and we "usually" see a max-pain op-ex pin somewhere near Thursday's close until about 2 p.m. and then the last 2 hours of the day, we tend to get some of the best data of the week. Strictly from a reversal process perspective, this is appealing if that's what we get, I think it would set up even stronger divergences, better timing on positions and more certainty as I really want to be as close as possible with option positions.

While not the strongest head fake move, I did like the IWM close very much as well as the higher volume in the SPY and QQQ, the reason is simple and best exemplified by the IWM.

The IWM put in a closing Daily Star with increased volume, which is a more reliable downside reversal candle, especially because of the volume.

As for the head fake move itself in the IWM, as I said , it wasn't the most impressive, but from a proportionality point of view (and there's more proportionality in these stages than most people realize), it is nearly a textbook example , with the exception of the psychological component which the QQQ/NDX was bay far the best example with the best setup as seen above with CLEAR resistance which traders will chase on break out confirmation.

The IWM Igloo/Chimney top just as I had shown several examples of yesterday well before we knew we were getting such a move beyond the high probability of the concept...

From yesterday's GLD, SQQQ & Head Fakes when the IWM was still very ugly on the downside...

Examples of past Igloo/Chimney head fake moves and yesterday's notable absence of any such move, which as I pointed out above would be even more important with a downside move taking out the 200-day as sentiment makes a big change at that point just as this bounce has changed sentiment to wildly bullish with traders chasing price-otherwise known as bull traps that have the same or equal, but opposite effect as a short squeeze on a downside move. Also note there's a proportionality between the reversal process and the preceding trend and/or the former reversal process. This has been a pretty parabolic move so my expectations weren't for a huge reversal process, but as of this chart from yesterday, it was still way too skinny.

While I'm most interested (right now) in what Index futures look like in the morning as yesterday I anticipated the 3-5 min charts would fall out of sync today on a head fake move and remember,  this was before we had a head fake move , as posted yesterday in the DAILY WRAP:

"While the 3 min charts are still ugly, these could move toward positive if we are going to get a head fake move and it wouldn't be a bother, In fact the 5 min charts could as well and I wouldn't be too concerned about it as long as they are clearly negative by the time we are loading up the truck which is a PREREQUISITE "

As of this time, we are getting some odd signals in the intraday and 3 min charts, however as I said above, it's what they look like in the morning and most importantly during the cash market tomorrow, in this case I think patience today will pay off as well.

 ES intraday suggesting distribution through the head fake today, actually that's the way we confirm a head fake and as for the stellar performing NDX...

NQ futures have taken a sharp downturn really since about 12:30 today, but really in to the After hours so it will be interesting and informative to me what they end up looking like in the morning as they can easily hit the 5 min timeframe overnight.

We have some interesting signals on the table from Leading Indicators to the averages, to Futures. Tonight's is no different thus far and we "seem" to be right on track with last Friday's week Ahead forecast that this bounce process would take up the week, which it has thus far.

Bonus charts... 
I like to check in on Breadth charts every now and then. We've seen it declining for a good year+ now, but it is especially notable now, here are a few examples and remember this uses the largest US stock Index, ALL NYSE stocks. If you think the trouble "might" be imaginary, think again.

 The Breadth Indicator is Green, the comparison symbol is the SPX in red unless otherwise noted...

The Percentage of ALL NYSE Stocks Trading ABOVE Their 40-Day Moving Average. In a normal, fairly healthy market this average runs around 80% , it hasn't moved above 60% this year and has been as low as 20% with a current reading of just over 40%, so despite a head fake move, a short squeeze, a week long bounce that has been the best bounce of the year, the Percentage of ALL NYSE Stocks Trading ABOVE Their 40-Day Moving Average has refused to make a higher high (green).

The Percentage of ALL NYSE Stocks Trading ABOVE Their 200-Day Moving Average vs the SPX (red) which usually runs around +70% in a normal market. Not only is the indicator making a series of lower highs and lows, but is at the lowest high pivot of the year.

The Percentage of ALL NYSE Stocks Trading 1 Standard Deviation ABOVE Their 40-Day Moving Average, or momentum stocks which are usually around +70% on a rally/bounce and now right around a mere 30% again with a clear trend lower.

The Percentage of ALL NYSE Stocks Trading 2 Standard deviations ABOVE Their 200-Day Moving Average which usually runs around +40%, now barely able to break 10% and another clear trend of lower highs and lower lows.

The NASDAQ COMPOSITE's A/D line which is much worse than it looks here over a longer period, but as you can see, despite the new NDX breakout today, breadth in the NASDAQ has fallen way off and didnn't even make a new high for the year which is already significantly depressed.

Remember these are hard math percentages of stocks within the NYSE, there's no interpretation, no tricks, no gimmicks, no quirks about the indications, it's pure, cold, hard math and it's very bad breadth!

I'll check in on futures before turning in, as usual if there's something that looks out of place and needs to be aired out, I'll post it, otherwise we'll let the market which has been well managed through the overnight session all week ( but now Yellen is done speaking before Congress)  tell us what it has to say in the morning before the open. I'm expecting a max-pain join with signals deteriorating through the day, that would be ideal in my view.

It seems many of you have already logged on to the new website, take a look around, there are ways to manage the content type that is delivered to you by email or you can get everything by default as it is now. I'll give you advance notice and we'll send out test posts/emails so you can verify your settings are as you want them. Don't be afraid to update your password if you like or your email address for email delivery. 

Have  a great night!