Daily Wrap

Not much has changed since last week, volatility still reigns supreme, even if it's not reflected immediately visible on charts, this is the danger of choppy markets.

Early today it looked probable the open was going to see downside as the A.M. Update showed with negative divergences in Index futures, but most clearly in NQ/NASDAQ 100 futures.

By late morning it became obvious the market was finding a toe-hold and would likely be putting in intraday lows with an attempt to move higher in to the afternoon, Quick Market Update.

All in all, the Dow lost some 242 points off opening highs to intraday lows , then rallied approximately 195 points in to the closing hour, putting in an approximate 437 point round trip to close up a mere +0.02% on the day, that's what I was talking about last week in saying that this is a day traders market.

 I was a bit surprised by the underlying signals in the selling, it seemed stronger than I'd anticipate, as I posted late in the day, it was the averages like the QQQ which moved up the most that had the worst looking intraday 3C charts, while those that were red like the IWM had more neutral looking charts, More Sell Strength? compare the IWM to the QQQ intraday charts for an example.

Or take the NASDAQ Biotechs / IBB which were up +1.70% on the day...

 IBB 1 min

IBB 3 min

IBB 5 min.

Again, compare to the IWM linked here, More Sell Strength? to something that moved.

I don't want to assume too much, there are several things that could be in play here including a possible scenario to line up with the ECB policy announcement Thursday. In my view, the bounce that has been building a base through the last week or so, is still very much a probability.

 SPY 3 min positive at the right side at bare minimum.

The typical levers we'd expect to see are largely there (still)...

 HYG 5 min leading positive, although it did underperform on the day, especially in to the second half of the day (recovery)...

HYG in blue vs SPX (green). I don't want to make any assumptions on an intraday chart, especially with HYG's 5 min chart above, but the earlier relationship as of the Leading Indicators update was nearly dead on, it lost correlation in to the later half of the day on the recovery off intraday lows. Basically it's a potential piece of evidence, depending on where it goes from here, but I'd still assign higher probabilities to HYG helping with a bounce , but we have to know where we are to know where what future movement means.

VXX 3 min leading negative

And TLT (20+ year bond fund) is a bit up in the air, but this wouldn't be anything new as bonds and stocks have rallied together quite frequently and it would likely build the Yields/SPX divergence expected to see in to any upside move.

As mentioned, Index futures reflect much the same (although the timeframes between the averages above and Index futures are not directly comparable...)

 NQ/NASDAQ 100 futures 1 min seem to show intraday action the best, although the same is seen on  the ES and TF Index futures. You can see the cash open and close at the green and red arrows (vertical) with a negative divergence just before the open as posted in the A.M. Update, a positive as posted around noon or so and a negative in to the close as shown on QQQ charts in More Sell Strength?.

 Even the 5 min charts which showed positive strength Friday as was posted Friday saw deterioration today. Many times in the past I'd use this 5 min chart's divergence as a gauge of which way to be positioned short term or what market expectations were short term. The fact that there's deterioration in to the close leaves the door open not only for selling in to strength on a broader/bounce basis, but for migration of the divergence to longer/stronger timeframes, possibly altering the bounce scenario or shortening it prematurely as it appears to have happened off the 1/6 lows and bounce in to 1/8.

 The 7 min charts are where things are mostly in line with Friday's positive divegrence and the larger positive in the area- at least from 1/14.

If this 7 min chart were to start seeing the same kind of deterioration seen on the 5 min chart, I think probabilities would go way up that we have a sell any strength scenario, causing a premature end to a bounce that hasn't begun yet.

 This 15 min ES chart shows the end of the last bounce attempt and the sell in to strength concept with quick parabolic moves failing just as quickly.

I showed yields earlier today in Leading Indicators . You may recall the 5 year being closer to inline with the SPX while the 30 year was leading negative, this is because there was more curve flattening today between the 2 and 30 year with the 2 year up approx. 1.19 bps and the 30 year down -6.793 bps which has moved the 2-30 year spread to a new 6 year flat. 

The SPX:RUT Ratio custom indicator also shown in Leading Indicators didn't see any positive activity, in fact worse since the earlier post linked above.

The VIX Term Structure buy signal is still there, still valid (they tend to be a little early) and the SPX:RUT ratio was positive in to the lows where the buy signal appears (same as the January 6th lows), however since, the SPX:RUT ratio (red) is not confirming price action and just worsened since today's earlier update. It's still not a smoking gun or enough to think about making short term forecast changes, but again, we need to know what the strengths and weaknesses are and where they move to next.

The two Sentiment Indicators we use put in their first negative reading since marking a positive divergence at recent lows. Again, it's not enough to call for any changes to expectations, but it "could"  be the start of a change in underlying conditions and or worsen in to a bounce exponentially and far faster than expected, in similar manner to the 1/6 bounce.

HY credit locally had been one of the Leading Indicators that was at least in line (I do watch several different assets), at least one has gone from positive to in line to negative today.

I didn't get a chance to cover it today, but I believe the USO bounce is still a high probability, here are just a couple of charts...

 USO 1 min after this morning's gap down with an intraday positive in to the close.

The 5 min chart looks great since turning lateral from its downtrend, note even today's gap down stayed within that range which is leading positive (5min).

The closest thing to a Dominant Price/Volume Relationship tonight was Close Up/Volume Down which is the most bearish of the 4 possible relationships, but I'm not posting that tonight as the Dominance just wasn't overwhelming or what I'd think is statistically significant to be of much use, but again it's another one of these scenarios where there's deterioration today, not enough to call off a bounce, but enough to make it interesting that it's spread so far and wide. This all could be wiped away tomorrow, but the other side of the coin is it intensifies and if that's the case, we want to know first and early.

5 of 9 S&P sectors closed green, kind of luke-warm, the only interesting thing is it's not like the recent trend of the last couple of weeks in which the market has been leaning more toward oversold,  this is not an oversold condition.  The leader was Tech at +0.84 and the laggard was Consumer Discretionary at -.57% with Financials right behind at -.43%.

Morningstar groups were luke warm as well,  107 of 238 green.

None of the above 3 indications we watch every day are very exciting in any way tonight which is in itself a change of character.

Breadth Indicators, like most everything else breadth concerned, were luke warm as well , slightly leaning toward deterioration, but not one interesting enough to capture and post.

Most futures have a slight negative as seen above on the 1 min NQ chart, I'll check these again after the State of the Union tonight, and of course if anything pops out, I'll let you know, but for the most part today there were just a lot of things looking like a thread hanging out that if pulled on could unravel, yet until that thread is pulled on, that's all they are at the moment.

For now, no changes to the near term expectations for a bounce. We'll have a BOJ rate decision overnight and Thursday the ECB, expectations very high that they'll launch some sort of QE, however I think some of the most interesting comments today were from the F_E_D, Bullard specifically who made almost the exact same comments last April... Comedy Central Bank
 

Comedy Central Bank

Friday I posted, Beyond Ridiculous! quite frankly because it was just insane what the F_E_D will do to move the market in any which way the banks need. 

By the way, does anyone remember the days of the Investment Banks during QE, reporting earnings and not having a single trading day's loss through an entire quarter? 

Has anyone paid attention to the Financial sector's earnings over the last week now that QE is gone? Without putting together a graph of Financials earnings and specifically trading earnings both during and after QE, I think for anyone paying a little attention to earnings, the trend is quite clear... the F_E_D cut off the intravenous drip and the banks' earnings are reflecting it.

I can only suppose this is why the F_E_D or at least certain members are willing to flip flop on an almost daily basis (Friday to the next market day/today),  but as I said in Friday's post, they always maintain plausible deniability.

Lets take the one F_E_D member who is probably most active, or at least most effective, the president of the F_E_D of St. Louis, James Bullard who told the F_E_D whisperer, the WSJ's Jon Hilsenrath, 

"I still think we should get off zero (interest rates). The kinds of things we’re observing now, it is not the constellation of data that would be consistent with a zero policy rate. I think it is important to get started and to start normalizing policy...

The thing about the funds rate is it is 400 basis points below normal. We’ve really got an emergency setting for the policy rate right now and we don’t have an emergency constellation of data anymore."

With the F_E_D Funds effectively at ZERO, Bullard sees the rate 400 bps too low, or 4%.

This just after his jibe on Friday,

"FED COULD RESUME UNCONVENTIONAL POLICY IF NEEDED... LESSON OF QE IS IT WORKS `FAIRLY WELL"

When you are a F_E_D president, you know EVERY word, even where a pause or coma is placed, is scrutinized by the market, you don't just go off with ambiguous statements like Friday's which many might argue if it were a normal citizen, "Well he really didn't say that", THIS ISN'T A NORMAL CITIZEN, THIS IS THE ST. LOUIS F_E_D PRESIDENT. They know better than anyone what their comments can mean to the market.

Now if we just take a step back, I believe what we are hearing today is the real Bullard opinion and possibly the Real F_E_D Message to the market. Back in April of 2014, Bullard told Bloomberg Radio,

-He expects the Federal Open Market Committee will need to begin hiking rates in the first quarter of 2015.

-He also told Bloomberg Radio that asset price bubbles may become a "big concern,"

Also from the same interview early April 2014, when he becomes a F_O_M_C voting member in 2016, he says the federal funds rate will be at 4% or 4.25%. ...Exactly what he just said today, just separated by  9 months.

I believe the F_E_D has known their path for quite some time and they have been letting out bits and pieces here and there so there's not a SNB reaction like we saw last week with the Swiss National Bank.

This is probably as close as we get to the actual truth with Bullard being he's said the exact same thing ago in a radio interview, ironic though that after 9 months of data and developments that his target expectations and for the F_E_D to get going with rates sooner than later, is exactly the same... data dependency and all!

More Sell Strength?

Earlier today we called for a reversal as the market found intraday lows and a toehold to climb higher, however as I pointed out earlier in the day as well, there was some interesting damage done,  not enough to stop the bounce that is expected, that should still be on track, but I have to wonder based on what I'm seeing now, how far a bounce can get and if today was just a [preview or re-run of the last bounce attempt in which any price strength was aggressively sold?

 SPY 2 min is in leading negative position, not horribly so, but there was definite weakness apparent that really shouldn't have been there.

Right now I have the SPY +.14%

The IWM shows the least damage, right now I have the IWM at -0.53%, in other words, no strength to sell in to.

 And the QQQ has the clearest intraday negative divergence and also leads at +0.81%, in other words, there was something to sell in to and it shows the most obvious damage.

The intraday NYSE TICK's trend, yet lots of forays into the -1250 area.

Index futures show the same.

I don't think this stops the market from the bounce we have expected, but I do wonder if it gets sold so aggressively, that it hardly resembles a bounce.

Don't forget, the State of the Union tonight, tomorrow wwe'll have the BOJ rate decision and Thursday possible ECB QE which is the main event of the week, however, I'd be careful about following the conventional wisdom too closely.

MCP Update

MCP is getting a bit harder to update because of the lack of price movement in many bars and the low volume of many of those bars, at least in very short term timeframes.

I'm looking at other ways to look at MCP through the Sub-Industry group as well.

In any case, here's what I have thus far as the $.50 level (psychological) level was broken (and normally we would not be looking at a $.50 stocks, but this is a follow.

 Normally about 65% of a stock's directional influence is directly correlated to the broad overall market, however with commodity oriented stocks, that hasn't been true for a while, really ever since the F_E_D noticed QE was driving input costs through the roof for manufacturers several years ago.

The second most influential / directional influence is from the Industry group and then the Su-Industry group, however since the Industry group is Metals/Mining, it's not really a very good proxy for a more specific stock like MCP, so the Sub-Industry group is likely the best proxy as mining has major components like iron ore, copper producers,m etc. all of which have been hit hard due to lack of demand which is a reflection of a global slowdown.

The Sub-Industry group above that MCP belongs to is Industrial metals and minerals, a more specific type of commodities with more specific applications than say iron ore or copper.

It looks like the Sub-Ind. group has a "W" bottom in place with the second bottom having a bullish hammer/reversal candle and on large volume which tends to make these reversal candles several times more effective.

 Compared to MCP's daily chart, it's not the same, however MCP's 2015 trade looks a lot more like a rounding bottom, which is the same effect.

The 3 white hash marks over the 3 previous days' close are candles depicting a loss of momentum which is the same thing a rounding bottom is telegraphing; a Star, a Doji Star, another star and today, although it's not the same candle as the others, volume is higher and if it closes off the lows and forms a hammer as I've drawn right above today's candle in green, it will have a strong reversal candle set up.

 This is an example of a 1 min chart, they aren't very specific signals because many bars as you can see have no price change, many others have no price change or no trades or very few. To get more reliable signals in a circumstance like this you have to aggregate as much as you can in to a trend, meaning using longer timeframes.

 The red trendline is a psychological area, $.50 a whole number. Since that area was hit, we have a 2 min positive right at that level. I can't make a strong case for a stop run as volume on the first move below 4.50 isn't indicative of any such stop move.

 The 3 min chart has the same signal as the 2 min and has a former negative that was correct, although these do have confirmation and the former signal (red) was correct, this isn't the aggregation of a trend that I meant with "longer timeframes".

This 30 min chart would be what I mean, there are no bars without trade data and there's much more movement, right now there are several signals that have been on track above.

The daily Sub-Industry Group's chart also has an interesting and recent daily divergence which is no small thing, especially where it falls within a "W" bottom.

We'll see where MCP closes, a hammer on higher volume would be a good sign for it, especially with the previous several days' candles and the rounding bottom in price. The Industry group looks supportive as well. Hopefully it will get a move that increases volume and makes it a bit easier to see in intraday timeframes.

GLD Update

I just saw this on GLD's holding's from late last week after the Swiss National Bank's surprise move that put FX several brokerages out of business overnight,

"Total Gold ETF physical holdings rose 0.85% on Friday (following Thursday's 0.78% rise) combining for the biggest 2-day rise since Nov 2011 (adding 843,000 ounces of gold in 2 days). Of course these moves came right after the SNB decision ands are the largest since the peg was announced in 2011. "

As for the charts, the Daily chart looks not only parabolic, but slightly bearish candles closing off the highs on heavy volume, indicative of bearish churning.

 GLD Daily, note the long upper wicks of the last 3-days, as price has closed well off the intraday highs on heavy volume in a breakout area.

While the intraday 1 min shows a positive divegrence at the end of day Friday, the intraday today has gone negative.

As has the 2 min which is leading in a stronger way.

And the 3 min, but these are all intraday charts. The more important charts are ...

The 5 min which shows a cycle, but also a clear negative divegrence

The 10 min

And a very clear 15 min, ironically right in the area of the last 3-days daily candles and volume.

While I didn't include them, the 1-60 min charts with the exception of 1 timeframes (of 7) are all in agreement with the above- all negative, agree. I'm going to give the charts the benefit of the doubt and give them time, it looks like solid confirmation, perhaps just interrupted by the recent rise in physical holding's during the exact same 2- days last week and today of course.

Leading Indicators

Again, like the last update, I don't think this changes anything, at least not as of what we know right now.

What we know right now as the highest probability in both near term market action, what comes next and highest probability market action would be as follows...

Despite the damage intraday described in an earlier market update as seen on the SPY 2 min chart, right now it's a non-trending event or noise, what I'd basically call a waste of time in understanding and getting to larger, more lucrative objectives, but does show there's something that's not right with the market, something the market is not happy with. This "could" continue to develop from here, but as of now it's more or less noise from my perspective, although it may be an sign of things to come.

What we know from last week's analysis is the positive divergence at area "A" was based on a truly oversold condition in the market. The divergence did not reach its full potential as something changed on January 8th in intraday charts and not long after in price itself. It would appear to me from last week's analysis that the divergence at area "B" is essentially a "do-over", it doesn't appear to be connected with area "A" and it is still intact, strong enough to bounce and we've already covered some basic minimum target areas for a base/bounce of this size.

In multiple timeframe analysis, the longer charts are showing the stronger trend and as you are probably well aware, there can be and always are multiple trends all at the same time depending on your perspective and which timeframe you are trading in, this is essentially what Dow Theory is all about, classifying short term, Intermediate and Primary trends as all 3 (or 4 if you count sub-intermediate trends) can and often are different, such as a primary trend with a short term counter trend move (bounce or decline.

Those longer term trends at 10-15 minutes and longer have deteriorated badly which is why in my view, the safest, most effective trade is letting a bounce come to you and shorting in to the price strength as the larger underlying strength to support such a move is simply not there. This is essentially where we are now in looking for an upside bounce to use as a tactical entry/exit to set up the larger strategic view which you can see above on 10-15 min charts, but really...

It's  charts like this SPY 6 hour showing the very intense deterioration of the market and especially in to the Broadening Top price area.

I'd say that's what we know right now as far as probabilities.

Looking at Leading Indicators, there aren't to many surprises, but even if it's not a surprise, I think it helps to better understand and give more evidence to the charts above.

 These are fairly new indicators in our Leading Indicator layout. Above is the SPY (or SPX- it doesn't matter much) and below is the VIX Term structure. When the VIX Term Structure has inverted enough that it has usually resulted in a move higher or a buy signal, I've painted those bars white on the indicator and on price above. There's a correlation between how long the signal is and how far the move can travel as you can see , not one has been a misfire yet, although sometimes they run a little early.

I combine that with the SPX:RUT ratio which is essentially a confirmation/non-confirmation signal of price movement, often lining up with the VIX Term structure signals above.

 On a 4 hour chart going back to November you can see the obvious VIX buy signals in white, but what gives them more credibility is the SPX:RUT Ratio putting in a divergence in to the buy signals, rather than confirming the downside price move in to those Term Structure buy signals, note the red indicator contradicts price in to those areas, giving a stronger, more reliable signal. The last VIX Term Structure buy signal to the far right is missing that additional confirmation.

A closer look at the area shows the SPX:RUT Ratio initially giving a positive signal in to the start of the white "buy" signal, but quickly fails to a small negative reading.

Again I don't think this is enough evidence to change any trend expectations, even very short term, but it does seem there's some change in character to the weaker side as seen this morning in some of the 3C charts and intraday breadth (TICK).

 While short term VIX futures are in line with the SPX (green and price is inverted to show the normal correlation), the Spot VIX above (light blue) is underperforming on an intraday basis, which is in line with the latest findings that the market is or has put in intraday lows, at least as far as we have gone today, meaning the morning decline looks to have put on the brakes and got itself back together. Looking at intraday price since around noon time looks o confirm that observation from earlier.

 Many other indicators like HYG are nearly perfectly in line with the SPX (prices not inverted here). The degree of algo correlation between assets like HYG and the SPX is actually quite impressive, if not nearly totally computer driven, that's what makes divergences between the two such excellent leading indicators.

 Some HY Credit is not looking great, but it's not screaming, "SELL , SHORT", I wouldn't expect it to until a bounce/higher prices are achieved.

We also can't ignore the fact that higher prices thus far this year have been met with aggressive selling so only time and movement will tell.

 The intraday 5 year Treasury yield has not only seen the SPX (green) revert down to yield's lower levels, but is now showing some intraday upside support, as small as this is.

The 30 year yield however is a bit different as SPX prices did catch down to Yield's gravitational [pull on stock prices, but rather than stay in line or leading like the 5 year, I'd say this is a negative dislocation. As I said last week, I would not be surprised to see a bounce and yields continue to diverge negatively from SPX price, this would be what Leading Indicators do.

So while you may or may have not learned something new, at least you can hopefully see why there's confirmation of more than 1 trend, whether very short term, sub-intermediate and although I didn't get in to primary trends, the evidence is easily there supporting the 3C charts above that represent the long term primary trend.

There's also the same evidence of something the market  is not happy about, although at this time it doesn't appear to be enough to change any of the trend projections, it does seem to be a warning signal and confirmation of the plan to use higher prices to our advantage-selling/shorting in to them.

Quick Market Update

It looks like the early NQ (NASDAQ 100) pre-market negative divegrence that has seen the open look pretty ugly, which was in all of the Index futures, but most visible in NQ, is trying to gain a toehold and stem the bleeding.

 NQ 1 min premarket and right now (negative, trying to go positive).

ES is a bit more developed on the current attempt to find an intraday low.

This doesn't look like it was just a normal pullback, although the price percentage moves do look like a fairly normal pullback considering recent volatility rising. When looking at the intraday breadth data via the NYSE TICK, there was some damage done this morning.

 Those are not "Off the chart" extremes, but some solid hits below -1250 and...

deterioration like this on SPY 2 min chart. This isn't enough to really change anything as far as the bounce divergence in place shown earlier this morning in the A.M. Update, but the market seems to be not so happy about something, whether that be the apparent coup in Yemen this morning (which will be interesting to see if that makes it in to the State of the Union- although I highly doubt it), or perhaps Hilsenrath's article about the F_E_D no being deterred from moving forward with interest rate hikes which despite all of the F_E_D speakers coming out with contradictory statements and Bullard (who I use to like) contradicting himself almost on a weekly basis now. 

Of course oil is getting the blame and I can't say it's not without merit, with Baker Hughes laying off 7,000 (apparently each Baker Hughes job is about the equivalent of 10 waitress/bartender jobs) and this after Schlumberger saying last week it would fire 9,000 this week (today I believe).

In any case, whatever it is, it seems to be causing some genuine concern, I don't think enough at this point to alter any near term expectations.

As I also mentioned, it looks like a toehold is being established for early intraday lows in any case. 

IWM intraday 1m in line on the early decline and putting in a positive on something looking like a small inverse H&S intraday base.

Really, unless downside moves like this threaten the base divergence, the real information is on an upside move so this is pretty much a waste of time (data-wise) or a delay.

I'm going to look around a bit more and see if there's anything I missed, but from what I see now this is just a delay and hasn't changed anything.