Closing Market Update

I still think we have gas in the tank as of right now for more on the bounce, I would have expected more as of yesterday, but something happened today and the levers are pulling out. Look at the distribution in HYG, they can't get out fast enough.

 HYG had more in the tank, but that is changing very fast today.

Something changes and it looks like we'll likely open on a weak note tomorrow, I wouldn't say that the gas in the tank is fouled yet, but I wouldn't be surprised to see a negative open, remember though it is an op-ex Friday so look for the pin somewhere around today's close at least until 2 p.m.

 QQQ 3 min damage done today, it is migrating at a pretty fast clip considering.

However this 5 min chart like most others still has gas in the tank and is still in decent shape, I wouldn't call an end to the bounce without this deteriorating, but as the rate of deterioration today, something DID happen, we may be there tomorrow.

At the 10 min chart, we never went positive so once the 5 min charts go negative, this bounce is done.

CELG - BIS Alternative

Usually when a market is in a transitional stage, which I think it's pretty safe to say we are in...

Russell 2000 3-day chart.

Percentage of all NYSE Stocks Above their 200-Day Moving Average vs SPX (red)...

...however you want to look at it... I prefer more generic groups for my initial positions, I don't want to be right on the broad market, right on the Industry group and suddenly have some stock specific news push my position in the wrong direction. However, short selling, true short selling, not the inverse ETFs, does have some advantages when it comes to dry powder and margin over say an inverse (short) long position ETF. While I like to see the initial breaks and which groups acted in which manner, some of you may prefer more stock specific assets so I'm putting CELG out there as an alternative to IBB short or the leveraged Ultrashort, BIS. Biotechs are my least favorite to do this with, but CELG looks pretty good, in fact I think you can use the IBB updates as a proxy for CELG.

 Like IBB, I don't think CELG is quite there yet, this is the 1 min chart which is still in line. At this stage a 1 min chart really represents a timing timeframe so we want to see this negative.

However the 3 min chart has quite a bit of damage on it meaning I don't think it's long before price really sees damage on the downside.

The intermediate 15 min chart has obviously been trending toward a very negative outcome.

And the once "in line" or 3C price and trend confirmation  has turned solidly negative and leading on the 30 min chart.

Even the long term probabilities are similar to IBB on this leading negative 4 hour chart.

Just one you may want to keep on the radar, although I would not enter both unless they were treated as a single trade.

Charts

Normally, considering the base in place, the HYG support and the ridiculously oversold condition the market was in just a few days ago, I'd say we have plenty of gas in the tank for more upside and in fact I would still say that, but something seems to have changed and seems to be pushing toward a premature end to this bounce.

 SPY 1 min, note the change in character today vs the rest of the chart.

SPY 3 min

SPY 5 min  shows there's still more gas in the tank

IWM intraday change

IWM intraday change

And showing there's still more gas in the tank- 5 min

QQQ 1 min looks the worst, no confirmation at all.

The 3 min has started leading negative

And the 5 min again shows there's more gas in the tank, but if things keep moving at this pace, it may not be long before these charts are fouled as well.

Market Update

Looking at the events of the last 24 hours or less actually, it's very difficult to look at the minutes release yesterday which defined the word "Patience" as "flexibility". It's hard to believe the F_E_D can't find the correct term to more accurately articulate the ability to either act sooner or act later, based on incoming data. PAtience is not the right word according to what the F_O_M_C claims it represents. Patience by definition is, "the capacity to accept or tolerate delay", this hardly meets the definition the F_E_D gave of a sort of flexibility which could go one way or the other and the other being diametrically opposed to the very meaning of patience which raises the more articulate use of a word to describe what the F_E_D's policy statement was actually trying to achieve and that word is "Subterfuge" which means, "deceit used in order to achieve one's goal.".

The F_O_M_C knew the meeting minutes would not be out until 3 weeks after the policy statement, thus a whole 3 weeks to allow a misunderstanding of a single word, which was really nothing more than shifting the public's attention away from the "considerable time" phrase and giving it something new to obsess over that seemed to hold one meaning, but in F_E_D speak, actually holds an entirely different meaning.

The minutes also made clear the F_O_M_C was ready to hike rates at the current inflation of 1.4%, which is below the target range of 2%, so long as they felt reasonably certain that inflation would move toward that range. Oil's falling prices are considered by the F_E_D to be transient and even a good thing and Global Risks that may stay their hand are offset by US data like the 5% GDP print. Yellen said in her press conference words to the effect that a interest rate hike probably wouldn't come until a couple of meetings, when pressed on the definition of a couple she answered "TWO" which means the April meeting, however added the caveat that everything is data dependent and "could" happen sooner or, almost as a side note, "later".

Not being a F_E_D aficionado, just using common sense and looking through the various layers of Bull and not as in bullish, I'd say the F_E_D is pretty well set on raising rates much sooner than later and have given themselves plenty of phrases, even if they have to bend the actual definition, that allow them plenty of plausible deniability when making the market think one thing and then doing the opposite, there's enough confusion in there that anything can be explained or denied.

I think what is most interesting is Charles Evans' comments the day the minutes were released and failed to really do anything to the market, yet the positions were already in place for a bounce. Evans' wasn't speaking off the cuff, this was a planned speech, the description of which was, 

"Description
Chicago Reserve Bank President Charles Evans discussion on the impact of monetay policy in an uncertain economy, in Chicago."

While I didn't hear the entire context,I'm not so sure how much it matters as Evans is a F_O_M_C voting member this year, but considered the most dovish of all, his views are hardly the mainstream of the F_O_M_C or what they've been putting out even in their most dovish stances. I'm sure he could write a great dissent, but I don't think he'll stop the course the F_E_D is on.

What's perhaps more interesting is the unofficial mouthpiece of the F_E_D, Jon Hilsenrath of the WSJ with a piece this morning that is being called "Damage Control" over Evans' comments last night and some are saying he may have leaked the F_E_D's surprise plans for an earlier than expected rate hike. It's clear the F_E_D has set the stage to easily get away with it without being called misleading.

The F_O_M_C meets in on Jan. 27 and 28th. 

There was clearly a set up for a bounce in place this week and as early as late last week, I can't divine what Evans meant or what his intentions were, I do think the Hilsenrath reply this morning in the WSJ was oddly timed and not coincidental and not even really on topic re: Evans other than to counter what he said. Hilsenrath was going back to speeches made in December by Bill Dudley which suggested an earlier lift off for rate hikes, more or less based on events from 2000 in which the F_E_D had the wrong reaction which may have led to the housing boom and eventual bust, an odd theme after the minutes and Evans 12 hours earlier.

Whatever all of this means and where it's going, I don't think we are done with out bounce, but I do see more of the things I initially mentioned earlier today that I thought might be going on, specifically the levers for ramping the market can quietly be slid out of place, taking the funding off the table and out of risk's way and let the Evans comments act as the lever.

While still early, these indications continue to move in the direction proposed earlier...

TICK's strange action just got stranger with a -1100 print.

 The VIX Term Structure is nowhere near a buy signal, although the last one should still be in effect. However the SPX:RUT Ratio is not exactly confirming. Not a smoking gun, but a change in character.

5 year yields

10 year

30 year- none of which are supportive or helpful to the market near term, you might even say they are eroding.

Of course the market is off on an Evans bender having no correlation with the USD/JPY or any other carry pair.

 VIX futures are seeing intraday accumulation since the cash open.

 PIMCO's leading HY asset is moving lower for the first time in over a week.

And as expected, the leading lever (other than USd/JPY), HYG is seeing continued and very deep intraday distribution. The levers are being pulled back, it shouldn't be long before the market follows.

I'll have some charts of the averages as I just saw TICK put in another nasty print.

NASDAQ Biotechs Update

This is a follow up to a trade idea put out on Monday, January 5th, Letting the Trade Come to You- NASDAQ Biotechs. For the longer term / macro charts, refer to the post linked above.

This is a short trade idea, it followed the Crazy Ivan concept in the IWM nearly identically although on a different timeframe, which led me to post these yesterday, Look Familiar? and Look Familiar Part Two.

In any case, the idea was to let the trade come to you which gives you a better entry in IBB (NASDAQ Biotechs ) short or BIS (2x short NASDAQ Biotechs) long.

Here are the updated charts now that price has moved to the area which we were expecting. Remember IBB is NASDAQ Biotechs, BIB is 2x long NDX Bios and BIS is the leveraged inverse, 2x short NDX Biotechs.

 This is the range that inspired the trade idea/set-up and was behind the last two posts from yesterday linked above. There was a Crazy Ivan shakeout below the range and the move we were looking for above the range. At the yellow arrow we have big volume on the open and the asset's inability to hold the gains which smells a bit like bearish churning.

 The gap has been filled, the only other area of interest is the recent former high to the left, that doesn't have to be hit, but I would keep it in mind until all of the charts have lined up negative with confirmation and the broad market also is showing the same, especially the QQQ.

 Here's the 1 min chart with range resistance, the head fake and accumulation which creates upside momentum by setting a bear trap and the resulting short squeeze, the exact same thing that happened with the IWM on our 12/12 forecast for the market. Note the leading negative divegrence once prices cross above the range's resistance.

When we post trade set-ups, they are already based on the longer term charts and probabilities so we are expecting to see this kind of confirmation based on the probabilities so this isn't a lucky guess that went our way, it was specifically chosen for the probabilities already in place suggesting things would go our way.

 This is the IBB 2 min chart, also confirming distribution in to the breakout.

 The 3 min is also  confirming.

This is BIS, the actual asset that I'd chose as a long, it is a 2x or Ultrashort NASDAQ Biotechs, it is also confirming on all of the above timeframes as well as this 5 min with a positive divegrence, remember because it is the inverse of IBB above, it should give the exact opposite signal.

At this point, there's only 1 chart left I'd be looking for confirmation on...

 The 5 min IBB chart which is where this assets positive divegrence reached to, after 5 min the longer term probabilities are negative at the 10 min chart so while BIS is already confirming as is BIB (2x long) with a negative 5 min chart. I'd like to see this chart turn negative as well and the broad market look ready to turn back down before entering a full size position in BIS long or IBB short.

This is the 10 min IBB mentioned above that is already negative and everything longer than this is already negative, so with one more chart we have a full house across 3 different assets in multiple timeframes.

The Evan's Effect

So far it's too early to see a pronounced effect that jumps off the chart, but it's not too early to see the initial stages of an effect that's building and will likely soon jump off the chart.

After a quick glance at short term intraday charts, many assets were in line, nothing to really do other than manage current positions, especially if you are one of the shorter term traders who decided to play this bounce long, for others taking an approach like me and waiting for the signal to be given to enter new short positions near the end of this move, there's not too much to do other than keep an eye on the market and the assets that look most interesting when the time comes.

However on closer inspection of some indicators I don't usually look at this early, I found many that look as you might expect this morning on the comments and the move thus far, but I found a few that were a little different. While there have been clear enough divergences to tell us a bounce was coming, it has not had the same level of support as previous bounces including the most recent from the 12/15-16 lows.

Here are a few things I found which make me suspect that we will see support for the levers that are used to ramp the market, start to erode as holding them starts to become more risky. The  one thing the Evan's comments did was to assume the position of ramping lever, allowing the others that have actual currency at risk to back out while the Evans comment has nothing at risk other than his credibility.

I found this morning's NYSE TICK chart a bit strange...

 Today's TICK range is very narrow in the red trendlines, but it's not the narrow range, but the lack of the upside extremes seen just yesterday over +1250, this morning we haven't crossed much above +1000 and since this capture...

TICK is starting to fall out of the channel.

I looked at Leading indicators where there was slight outperformance on a relative basis between spot VIX and SPX, but more interesting there was some underperformance in HYG vs the SPX,  this is one of the main and most obvious ramping levers.

Additionally, although this is not screaming, there's a clear difference in 3C's ROC and watching intraday closely, you can see the deterioration already setting in HYG.

 HYG's positive which is almost always a dead giveaway that a bounce or some sort of move to the upside is building, at least over the last year or so, whereas before that it was more balanced between up and down moves, yet still effective. This is also showing up in the relative performance vs SPX, although still a small difference, it is one that is much different than the past couple of days and building.

 Of the different HY assets, PIMCO's has stood out the most as a leading indicator (other than HYG), which is why it's interesting that today, perhaps for the first time since it started posting a positive dislocation suggesting an upside move was coming, it has clearly diverged to the downside rather than follow SPX higher as it had been doing before the today.

On a longer term basis, these are several of the leading signals the PIMCO HY fund has shown us, leading negative, leading positive and today starting a new dislocation and unexpected if we were to believe Evan's comments.

There's no Carry trade support in any of the pairs, especially USD/JPY which seems to already have been effected by the 5 min Yen positive and $USDX negative.

 USD/JPY (candlesticks) vs ES (purple), obviously there's no correlation on the 1 min chart.

This is the USD/JPY since midnight last night losing ground, I suspect from the $USDX negative divergences we have seen recently and the Yen positives as well.

The 5 min $USDX and Yen still look like this...

 $USDX 5 min neg. div.


Yen 5 min positive div.

Thus it would seem the dislocation of Index futures from support of carry trades is going to weaken the base's (base for the bounce) foundation and likely to continue to do so according to the above charts.

Yields haven't been that surprising, although I wouldn't say totally without surprise...

 While the 10 and 30 year intraday are more in line with price, the 5 year is diverging. I would guess this is probably more a result of Evans' comments, however this is the start of some surprising signals, who knows what they look like in a few more hours.

 The 10 year leading the market higher and in line now.

And the same with the 30 year yield.


There are also some intraday 3C charts not confirming this morning.

None of these are smoking guns yet and none are actionable yet, although there is a change in character which is the important part. 

I suspect the Evans' comments were sort of slipped under the market as the lever while the traditional levers that have actual currency at risk can quietly back out, we'll see if I'm right soon enough, which will give us a more actionable scenario now that at least the minimum upside targets have been hit.