Daily Wrap

So far , even with a bounce attempt, the SPX has now put in the worst 1st week of January performance since 2009. The first 3-days of January were the worst performance for that period ever in recorded history, so it seems that our Failed Santa rally spooking investors and making them think twice about  putting new money in to the market, "The January Effect" which was part of our December 12th forecast, is amazingly on track.

In some commentary I've heard, the Payrolls pop higher on better than expected data which was completely faded right from the open, was because of France... Another 30 second soundbite that the average Joe-CNN can understand, however it was very clear yesterday that we'd have a week start to the day and was posted numerous times yesterday, all based on the concept that 3C divergences pick up where they left off and we left off Thursday with some very ugly ones so once again the Financial media gives us a 30 second sound bite to make the market seem like it is easily understandable and not the complex organism that it truly is. Think about it, the market pops on the Payrolls data at 8:30 a.m. , but suddenly at 9:30 a.m. on the cash open, France suddenly becomes the concern sending the market lower, or our concept that has held up time after time, even over 3-day weekends.

Transports were the worst of the averages on the week, they also had some of the worst signals starting yesterday when they should have been off to a bounce.

You'd think with the 7th weekly drop in oil transports would be in hog-heaven.

Treasury Yields lost 5-12 bps on the week, not what you'd expect from a leading indicator and a market set up for a bounce.

 5 year yield (red) vs the SPX with the normal correlation and a distinct divergence on the week. We use yields as a Leading Indicator as they tend to have a magnetic pull on equity prices toward yields.

The 30 year yield demonstrates this better as it calls a couple of tops and is severely dislocated now, when you'd expect it to be leading to the upside for a market bounce.

Even intraday (SPX prices are inverted to show the normal correlation with TLT, the 20+ year bond fund), the end of day advance in TLT sent yields lower making it difficult to impossible for the market to bounce in to the close.

If you look at the 30 year Treasury futures (30 min chart), they go negative at the highs where the SPX is at the lows and look ready to support a market bounce, then something changes dramatically yesterday. Remember, Yields move opposite bonds and typically with stocks.

There are some longer term concerns I have with the 30 year bond and that's why I closed the 2x long position in TLT last week at a +9% gain, I think I understand what is happening, but before I make that case, I want to be sure. If it is what I think (as 3C signals over the last month have caused me some concern), then this may be an excellent longer term investment-type position.

The USD/JPY was in control today,

USD/JPY (candlesticks) and ES/SPX Futures (purple). You can see the fade overnight and the knee jerk reaction to Non-Farm Payrolls at 8:30 a.m. and the near instant fade of the knee jerk at 9:30 a.m. when the 3C divergences kick in.

I covered multiple timeframes in $USD and Yen charts in today's post, USD/JPY Charts, the gist of which is numerous timeframes show Yen positive and $USD negative divergences, suggesting a lower USD/JPY as a intermediate trend, thus likely a lower Index futures trend as well (based only on the $USD/Yen analysis). I did see afternoon divergences that looked like they'd try to lift USD/JPY in to the close, they didn't work. The 3C concept of picking up where it left if is on the cash market and signals, not on the futures market , a 1 min - several hour divergence in the futures is very unlikely to hold through overnight trade, the 5 min chart is the minimum that I consider able to hold with futures, but with the cash market, the 1 min charts almost always pick up where they left off. Thus I don't think the afternoon divergences to ramp USD/JPY will mean much if anything come Monday.

And yes, I do understand the strength in the $USD right now, we rarely understand why a divergence is present until the opportunity to profit from it has passed. I've seen $USD divergences before that made absolutely no sense whatsoever, then only after price moved in the direction of the divergence did the F_E_D come out with new policies that directly impacted the $USD, someone knew and was acting on it, but the masses only find out later.

I covered the broad futures today in Futures Update, it's worth a look as there's a theme that keeps popping up.

As I have maintained since yesterday, I'm not nearly convinced we are at a strong downside inflection point and I'm not convinced that the market is out of gas, in fact I think it just fueled up for the oversold bounce we have been looking for and even if, as I suspect, there was a change yesterday to the negative perhaps on some new data that's not yet out, it still will take some time (and I view today as a lost day because of the max-pain options expiration pin), to reverse the recent 5 min positive divergences. When I see compelling evidence that the market cannot back away from that the 5 min charts are shot, I'll start putting new short sale calls out there. I know a lot of you missed the last batch and the recent decline in to the New Year, but I would urge some patience and let these positions come to you as was posted this week with Financials, Trade Idea: (Longer Term) Financials Short / FAZ Long, biotechs, Trade Idea: (Longer Term) Financials Short / FAZ Long, CELG and the broad market.

LEading Indicators are not convincing me yet, although PIMCO's HY Fund that I have been using as a leading indicator posted some interesting results since yesterday.

 This may not seem that impressive on this 1 min chart vs the SPX, but considering the trend before hand that was one of the leading signals for a market bounce, it is a big change.

Above I'm specifically talking about area #3, but as you see, it has given numerous signals both long and short that have been exceptionally accurate.

VXX had slightly better relative performance today and VIX futures are getting interesting.

 Like 30 year treasuries, VIX futures put in the divergences that would suggest an oversold bounce is on the way, yet yesterday there was a noticeable change and that continued through today, again, as if the oversold bounce was or is being called off.

 VIX (spot) vs SPX (red) doesn't show any interesting signals on our custom buy/sell indicator on a daily timeframe, but with changes as recent as yesterday, I wouldn't expect it to. However move to a 360 min chart and the most recent VIX sell signals suggest the oversold bounce we forecasted for this week.

Interestingly, if you look at any chart from 1 min to 30 min, that signal has another just after it and specifically yesterday, a VIX buy signal. Remember VIX moves opposite the market as well. Between the new divergence in VIX futures starting yesterday and the two charts above, it does look a whole lot like a planned oversold bounce was or is in the process of being abandoned, ALTHOUGH ONCE AGAIN, UNTIL THOSE 5 MIN CHARTS SWING AROUND, I WILL NOT BE PUTTING OUT ANY TRADE IDEAS ON THER SHORT SIDE, at least not short term ones.

There was a Dominant Price/Volume Relationship today, Close Down/Volume Down, it has very little next day effect, in fact I describe it as, "Carry On" as in keep doing what you are doing as it doesn't say oversold or overbought. If we take it in the context of a market oversold bounce, then it would say "Look for a bounce next week", however since we had that unusual move yesterday (and this may have happened before, but I don't remember the last time a planned cycle was purposefully abandoned rather than run over) I would say we may have a unique set of conditions on our hands. Unfortunately the Friday options expiration max pain pin is the worst day to try to gather additional evidence, although some was found.

Nine of nine S&P sectors closed red today with Tech leading at -0.29% and Financials lagging at -1.19%.

Only 44 of 238 Morningstar groups closed green today. Both of these signal a near term oversold or 1-day oversold condition, although the Dominant Price/Volume Relationship does NOT confirm.

All of the 5 min charts have a broken look since yesterday in them, but are not divergent enough to say they are unrecoverable, which is what I'm waiting for. After seeing some late day action, I'm thinking Monday will see weak opening trade, that's based on how the charts ended the day. These are the 1 and 2 min charts...

 SPY 1 min with a late day severe 3C drop.

The 2 min chart isn't needed for this forecast, but backs it up.

QQQ which was positive until the very end of day which saw a quick negative turn.

The 2 min chart backs it up.

And the IWM saw a sharp EOD 3C move lower.

Again the 2 min chart backs it up.

If we see the same activity in the 3 min charts as we see above early next week, then I'd likely start making some calls. The 5 min charts wouldn't be far behind at that point and the 10 min are already negative as multiple timeframe analysis suggests that the market continue lower after the short term bounce that was set up.

Have a great weekend everyone.

Market Averages

*For the Week Ahead, scroll to the last paragraph.

Again, yesterday was a very clear change, like insiders became aware of something that abruptly changed their plans from what was already going to be a benign oversold bounce as the Santa Claus Rally failed and created a bull trap and the first 3-days of January were the worst start to the new trading year in the history of the market, we were in a short term oversold condition so a relief bounce was not only to be expected, but used to your advantage.

Yesterday the change was very clear, today there's not such a dramatic change and as was posted a couple of times yesterday, I don't think it's that surprising given an options expiration Friday and the need to maintain a max pain pin. There's a lot of money to be made in option contracts expiring worthless, so it's almost a day in which there's little useful data until about 2 p.m. or so as most contracts are closed by then and the pin is lifted. As I said in one of my last posts, I think it's clear that the "Max Pain"  pin was lower, thus it's not a problem to bounce in to the close or at least try to.

However one of the things that should be noted was the market's reaction to Evan's "Raising rates now could be catastrophic" and virtually the same statement by Kocherlakota last night (after we noted the change in character), this time no reaction, in fact the market moved lower. I thought about the most obvious Devil's Advocate reasoning, Kocherlakota is not an F_O_M_C voting member and Evans, the most dovish of all in the F_E_D, is rotating in this year. However as I pointed out earlier, the 3 biggest moves in the market which were already set up ahead of time and we had already been forecasting ahead of time, were catalyzed by Jim Bullard's remarks who was not an F_O_M_C voting member. In fact yesterday in the A.M. Update I pointed out how absurd they were in support of my The Plunge Protection and Market Correction Team post/theory.

As we had called a head fake move and showed evidence of it in to the Sept. 19th highs, Bullard's HAWKISH Comments, at the October lows and a more than a week after we called for a "Face Ripping" rally, Bullard's very dovish,

"A logical response at this juncture is to delay the end of QE"

...Which was only a MONTH after the former comment and only 1 month after the October lows comment, he pulls a 2nd 180 degree about face with, "Economy in good shape, no need for more QE right now".

Again the point is not Bullard's comments, but the fact the market reacted the way it did to a non-voting member and how it reacted to Evans the night before we noticed such changes in the market yesterday and how the market failed to respond at all to last night's Kocherlakota comments, again, as if something had changed during yesterday's cash session.

As for the charts...

 SPY 1 min is just noise, nothing there, at 2 min yesterday's negative and this morning's follow through of 3C signals with the gap up (yellow arrow) faded immediately off the stronger than expected Jobs report at 8:30 a.m.

I would barely call this a positive divegrence at today's intraday lows, but it was obviously used and the leading negative in to a flat range since then. Remember the SPY has had the best looking underlying chart, which would make me think it would be the relative out-performer on an oversold bounce, that may mean it also has the most to distribute of the accumulated position before the bounce.

 SPY 3 min with yesterday, this morning's carry over and no positive on a 3 min chart, it wasn't big on a 2 min chart so no surprise it didn't migrate over.

This suggests that any upside in to the close is really just noise for the most part as no real support was thrown behind it and structurally, it would have needed at least the "W" base intraday to have a decent chance of holding any gains. Again note the leading negative since about 2 p.m. as the op-ex pin would be removed.

 This is where the "bounce" divergence ended, at a 5 min chart which is respectable for a bounce, it's decent size for a bounce, our custom VIX Term structure indicator gave buy signal at the lows.

You can see a clear change though yesterday. This alone is not enough to foul this chart and make a call that it's time to move broadly in to short positions and/or sell longs some of you entered for this, but considering what today is, it's not surprising that 3C is pretty much on hold today, except as you see above, after the 2 p.m. hour we start to get movement again.

 Just as a reminder as we sometimes get too locked in to the myopic view of the market, we lose sight of the highest probability trend and how we maybe should consider this in our short term views and actions. This is a SPY 6 hour chart.

At the first large relative divegrence, this is the same period that breadth indicators fell apart beyond any reasonable excuse. The divergences at #1 and #2 that sent the market lower were very strong, however they are dwarfed by the current leading negative divegrence which is what we have been talking about in the December 12th forecast, our forecast of a failed Santa Rally and why and how that would work in to the start of the New Year and January effect.

 QQQ 1 min with yesterday's negatives leading to this morning's follow through and note the 1 min intraday positive apparently trying to push the Q's higher since approx. the European close.

 On a 3 min you see yesterday's change, today almost perfectly in line, again I believe because of the op-ex pin.

And some recent damage to the 5 min chart, mostly yesterday, but that's one day, the chart has more to go.

In context, the QQQ 5 min chart.

And keeping in mind that just on the next timeframe of 10 mins, the market again is very ugly. In multiple timeframe analysis the bounce would execute, conclude and we'd return to the 10 min chart's reality.

 IWM 2 min showing the same thing yesterday, almost nothing today.

The same with the 3 min, yesterday big action, today virtually nothing.

 And the 5 min chart so we have some more to go.

Again, at 10 min, this leading negative should take us lower and you can see how the current bounce, if it reacts that way, is really just part of the normal lower highs/lower lows.

I suspect in to next week, we will pick up where yesterday left off. I don't have a Monday morning forecast at this moment, there's just not enough to go on, but the suspension for op-ex today makes sense, yesterday's changes were quite dramatic. I suspect we'll see more choppy lateral trade as the reversal process is widened out, which should be areas we can confirm the continued action from yesterday and start to move in to positions once timing looks relatively certain.

Quick Market Update

I'll still continue with the rest of the charts, but from what I see in a few key close, it looks like there's a lot of effort to ramp the market in to the close. I see it in HYG, TLT, VXX and some of the averages, QQQ especially. This doesn't give us any data on early next week yet, that's what I'm still working through as the last 2 hours of the day (both) contain the best information.

Futures Update

As we hit the 2 p.m. hour when we have noticed the max pain op-ex pin is usually removed, although a max pain range was less obvious today, this tends to be when price will do random things that are or can be disconnected from underlying realities, thus the last 2 hours of the week is when we get some of the best 3C data for the entire week as it pertains to the week ahead.

 I suspect the apparent lack of a max pain pin range today was really simply lower and the market had a bit to give back after the Evan's comments sent the market higher yesterday which kept SPX futures disconnected from support of USD/JPY because of that air pocket I showed earlier today.

I have to do these updates in separate posts because short term charts move so fast, but we'll look at the composite picture once I get everything that matters to you.

First futures...

 The last update, I suspected something like this, price had made a low and bounced off it close to the European close. I suspected we'd need to see a test of that level or maybe a bit lower creating a small intraday "W" which the market could bounce off intraday, again "The Jiggles" as one thing that I suspected and still do is the size of the SPY / market base (while not huge) is bigger than what we have seen on the upside and if indeed there is a change of character which we witnessed yesterday to the negative as if Wall St. became aware of something that suddenly turned them risk off, still the size of their positions would still require a larger top/reversal process than what we have in place now. I'll give an example below, but remember this pattern intraday to the far right (yellow) for the chart after.

The SPY 5 min with something like an inverse H&S base, this was part of our oversold (late December/early January) deeply oversold bounce we were looking for. Yesterday we saw a dramatic change in character, to the negative side, but even with a complete 180 reversal and wanting to move from risk on to risk off, the size of the "top" in place is so small and tight, I don't think logistically positions could be moved that quickly without taking losses,  this is why we see the reversal process rather than tighter "V" shaped reversal such as the one above would be, which would be a reversal event which are usually based on new fundamental information that has not been discounted, not typically part of a cycle that was pre-planned like this.

Thus, I still suspect that this needs to widen out whether it's in to higher prices, lateral prices, , etc.

 The USD/JPY is what the SPX futures have been tightly correlated to and if you recall the first chart and the "W" scenario I mentioned to keep in mind, you can see the same thing in USD/JPY to the far right at the white trendline.

I borrowed this from today's earlier USD/JPY Charts post, the USD/JPY in candlesticks and ES/SPX futures in purple, but it shows how tightly the FX carry pair and SPX futures have been.

 As for intraday charts, yesterday in the Closing Market Update and several other posts, I made the following quite clear...

"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.

Something changed 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"

The "bold" comments were based on the simple concept of price action picks up the next day where the 3C charts left off, even over a 3-day weekend and the charts left off yesterday leading negative which is why I said I'd expect to see weakness on the open. We saw weakness overnight, but a pop on the NFP (Jobs) data this morning, however as the 1 min charts show clearly, the 3C concept kicked right in on the cash open and despite the knee jerk higher in pre-market, we saw early/opening weakness as yesterday's closing 3C charts forecast.

Here's the Index futures 1 min charts, note the action after the NFP payrolls at 8:30 and the cash open at the green arrow.

 ES 1 min with a clear negative divergence in to the cash open, giving back all of the NFP bounce and then some.

In fact, the Dow gave up well over 200 points since the NFP highs,

 RUT 1 min negative at the open and overnight before the NFP. However note to the far right the in line status, no divergence here, just drifting along as price has been doing since hitting intraday lows.

It's the same for NDX and SPX futures on the 1 min.

As for the USD/JPY carry pair that Index futures are pegged to, remember I showed they look almost exactly the same right now.

 The 1 min $USDX has a positive divegrence suggesting USD/JPY make a short term (probably closing) bounce.

The Yen 1 min futures have a negative divegrence on the 1 min chart recently suggesting the same thing, USD/JPY bounces very short term, likely in to the close.

This would suggest Index futures do the same which would not be at odds with creating a wider topping reversal pattern.

Please remember though, despite everything we have seen, until those 5 min charts are dead, I'm not calling this market's oversold bounce chances dead.

 Just as we saw in an earlier update, the 5 min Index futures (ES/SPX above) have a negative divergence and an impressive one. These same charts at 5 min went positive before the market bottomed from the late December /early January ugliness, so the signals here are important and despite whatever may occur in to the close, these have deteriorated significantly. I don't need to add NQ and TF, they look just as bad and they were posted earlier today so nothing has changed here.

As for the slightly longer term USD/JPY action, beyond intraday 1 min charts above...

 We have the same strong Yen positive 5 min divergence and the same strong $USDX negative 5 min divergence, thus still suggesting that after any intraday/closing bounce, the next move will be back toward the downside in the pair, thus Index futures are likely to follow as they also confirm on the same timeframe.

 The stronger charts that connect through the 15 min to daily are all in negative position, so this 15 min SPX/ES chart going negative, is in line with the "trend" outside of any oversold bounce that we expected.

 Here you can see the small positive divegrence for the bounce, it is smaller looking here because this is a stronger timeframe (15 min), however compare the current and developing negative and it's size and strength to the positive to the left. Something is clearly going on that should not be this early in to the oversold bounce.

And again, the longer term trend for $USDX at 15 min is negative like the 5 min confirming that the path of highest probabilities after an intraday move will be back to the downside. The Yen 15 min confirms with an impressive positive divegrence as it should and these continue out to the 60 min timeframe, not positive for the USD/JPY or the Market Index Futures that track it.

Thus far it looks to me like an end of the day bounce intraday and the observations from yesterday that something has changed for the worse/negative in the market is true.

More to come.

Intraday Market Update- looking for a toe hold

Looking at Leading Indicators and the averages, I suspect the market is looking for a toe hold here, I think it will need to make a second intraday bottom before it can do much. This could be about an op-ex max pain pin or more likely, just the larger reversal process I mentioned earlier.

 The SPY and other averages were pretty much destined for weakness this morning as 3C charts pick up where they left off and yesterday they left off very ugly meaning this morning we'd see weakness which was what was posted in the Closing Market Update

"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"

So I think that is where we are at. The divergences from yesterday's intraday charts have made good on their implications, now something new is developing as you can see on the 1 min SPY chart above. I suspect a pullback to intraday lows at the white trendline would be necessary for any move beyond lateral / consolidation.

 The SPY 5min chart has seen damage as 3C makes a lower low, however...

It's still not there yet as was talked about in yesterday's closing market update.

The QQQ 1 min also making good on yesterday's divergence in to the close.

However the 5 min chart still not broken yet.

And the IWM chart still not broken yet so I would not assume anything is a straight shot down as we have seen this morning, there's still work to do and it looks like an intraday jiggle is coming soon.

USD/JPY Charts

This is just one piece of many in the puzzle of the market, but one we have had our eye on recently, USD/JPY which SPX futures are tightly correlated to today.

 1 min chart of USD/JPY vs. ES / SPX futures (purple) nearly perfectly correlated.

The issue I mentioned earlier in the week was the air bubble between ES's price and USD/JPY's reality, I suspected that the lack of support (air bubble) would revert back down to the correlation which can be seen on longer charts like this15 min.

 The issue we have been watching develop is the 5 min charts which were only slightly separated from the longer term 15, 30 and 60 min charts, all suggesting a longer term move down for USD/JPY, but still the near term timing charts needed to turn more negative and make their move. This is the 5 min $USDX leading negative

And the large Yen leading positive, both would suggest the $USD moves down, the Yen up and that sends the USD/JPY lower, which Index futures are correlated to, meaning Index futures lower as well.

 This is where the longer term forecast for USD/JPY starts, around the 15 min charts as this $USDX 15 min is also leading negative.

And the 15 min Yen is leading positive, again suggesting the same thing.

 And the 60 min $USDX chart has turned from in line to negative, it was already negative on 30 min charts which have now migrated to the 60 min chart, meaning the divergence was strong enough to do so.

And the Yen 60 min was already positive.

This means not only is the USD/JPY heading down near term, but it's longer term implications are not good either, which has a similar effect on the market.

I wouldn't say anything is a straight line decline, but I would say this is the dominant trend.