Daily Wrap

What a day eh? Draghi finally grew some... credibility as his 2-years of jawboning since the "Whatever it takes " QE comments which remitted a half life on ECB/Draghi comments of about 2 hours. Today the ECB made good , at least on violating Article 123, but we'll see if that matters. After all , the F_E_D ultimately "didn't monetize the debt".

It seems though there's a whole new set of wild cards out there with the Yen and the Euro now competing for the most worthless currency, this naturally would imply $USD strengthening and it did, +1.5% on the day, the single biggest 1-day $USD move in 18 months, pegging fresh 11 year highs which does what to Obama's "We have to export more" comments from the State of the Union?

With Japan's QE-Zilla and now the ECB's 16 month 1.1 trn expansion of their asset purchasing program, F_E_D rate hikes hardly seem to be the cure to weak and or weaker US exports. In fact Jon Hilsenrath, a day after the latest Bullard comments from yesterday that that rate hikes and policy normalization should get under way now, that the F_E_D funds rate is 400 bps below where it ought to be; the WSJ's F_E_D whisperer, Jon Hilsenrath says a "source" told him the F_E_D will not be raising rates until later in the year. 

This is starting to get a bit messy. Does later in the year really matter with the ECB program out for 16 months, the Euro bound for destruction as it slipped almost 300 pips vs the $USD today to lows not seen since 2003 on the ECB QE statement? With everyone long the $USD now, there's some growing concern that perhaps a surprise F_E_D hold off on hikes might turn in to the next Swiss National Bank episode. 

The US export problem seems to be a bit tricky at the moment with looming F_E_D rate hikes which don't have the best effect on the economy and consumer spending, certainly won't help in terms of $USD strength and foreign exports. Back in 2007, in a 5-part video series, I thought that the US would not emerge from this mess until we took our medicine and just let things run their course. Whatever the F_E_D's real motivation, it "seems" more and more likely that we are about to take that medicine and suffer through letting it run its course, but I'm no economics expert.

Even Icahn was out today on CNBC essentially saying the Strong dollar is going to come home to roost at some point paired with his observation that the "Reason the stock market has gone up is because of the F_E_D"... really? (SARC)

So it seems there may be more than one issue coming home to roost, ironically the two are nearly symbiotic.

Ican also added that "Oil is a great opportunity, but I wouldn't rush in now". I just saw an article last night in which investors are storing oil in super tankers as long as the Empire state building is high, just sitting there waiting for higher oil prices.

I agree with Icahn, oil is going to likely make for a great opportunity, on Icahn timelines, I'd agree, "at some point". I still think in the near term oil is going to make an interesting little short squeeze higher despite todays' walloping on inventories (EIA).

 As long as USO stays around the range, I don't see days like today being a problem for USO making a strong short squeeze, counter trend move, by the way that's no longer a 5 min positive divergence, that's a 15 min. As always, the chances of a quick head fake below what is now becoming a qwell defined range of support, is rising, thus some price alerts make sense as an entry in to some calls on a shakeout move would make for fantastic positioning.

As for Icahn's timeline, just look at the 2 hour chart's top, there's a lot more base building to be done before oil is anywhere near a longer term long position.

Today's market ramp sponsor was the USD/JPY, with $USD strength and JPY weakness, the pair (one of the 4 most commonly used ramping levers) was in control of ES most of the day...

USD/JPY (candlesticks) vs ES (purple).

I am a bit anxious to see if the pair will dip overnight. It looks to me like the EUR/USD, yes the EUR/USD may be trying to put together a bounce, which should weaken the $USDX and thus the USD/JPY.

Here's why I suspect this may be the case...

 intraday 1m EUR/USD slight positive.
This alone is far from enough...

However the Euro futures have a positive divergence, not a huge one, but something and the $USDX...

$USDX has been in line all day, until the afternoon with a negative intraday divergence. Again, this isn't a major theme changing event, but a possible decline in the Index futures' sponsor with some additional evidence in the short term Index Futures...

ES 1 min negative

NQ 1m

And TF 1 min, which if nothing else, at least appears to confirm the "Sell in to strength" factor we were expecting on this move which is still below our minimum target levels.

As for GLD which was up +.80% today, I'm still sticking with the put position and still think we'll see a gold pullback that "might" be worth buying.

Gold Futures 5 min negative divegrence still intact...

Now that we have a bounce moving toward at least the minimum targets that were posted last week, it's time to pay attention to whether we see distribution in to higher prices, whether leading indicators start falling apart, whether safe haven assets are bid, market breadth and anything else that helps us piece together the next move's timing.

I took a quick look at Leading Indicators toward the close, some of these were captures just before the close, but I've double checked that there were no material changes in to the close.

 This is one of 4 levers that has been active ever since we saw a base to bounce off, HYG (High Yield Corp. Credit), note the mid afternoon divergence leading to the late afternoon ramp vs the SPX in green and then HYG's failure t confirm which we also saw in TICK data...

Today's NYSE TICK data falling out of the afternoon parabolic move's channel.

HYG's intraday chart doesn't look that interesting, which in itself says something, although again no smoking gun...

However the stronger charts like the 32 min continue to deteriorate...

As does the 3 min which was nearly perfectly in line with the 3C

And now the 5 min chart which is where all of the energy is stored up is seeing some damage. I wouldn't say this is about to turn at this point, but it's moving toward that process which is what was expected, it's a matter of how quickly.

The longer term primary 3C trend of HYG on a 2 hour chart is clearly negative so I fully expect HYG will make this counter trend move in support of the market and then head lower, taking the market with it.

 The overall SPX:RUT Ratio is still negative, although it saw slight improvement over yesterday, this will be interesting to see if it stays negative or moves in line.

As for the VIX Term Structure buy signal (white), as I've shown several times, they tend to be a bit early, but reliable.

The VXX (short term VIX futures) were essentially underperforming most of the day, but at the end of day moved to in line while the actual VIX futures did this...

 An intraday positive (1 min), but a positive with price action improving late day.

 TLT (20+ year Bond fund) also underperformed earlier in the day and outperformed at the close, although you couldn't see this on the 30 year Yields as they close at 3 p.m.

TLT's 2 min chart going positive today

The 3 min chart also going positive in the afternoon

And the 5 min chart still in line.

5 year yields lifted and by 3 p.m. had reverted to the mean with the SPX (green).

 30 year yields didn't act quite the same and overall on the day, we saw additional yield curve flattening.

 Our sentiment indicator lifted to a leading position on the open and the SPX caught up to it at the close, however it wouldn't budge any higher with the market in to the afternoon ramp.

 This is the same indicator showing a positive divegrence at our base and in line as of now, but starting to turn as higher highs are not being made.

 Interestingly HY Credit saw some additional downside and specifically in to the close. We are not at a screaming, jumping off the chart signal yet, but it took several days for HY credit to lead in to a base, I'd expect the same for it to lead in to a top, at least it appears to have a start, thus confirming expectations thus far.

Here's a closer look intraday, NOT willing to follow risk higher.

For that matter market breadth wasn't either as we saw in TICK.

And finally for the charts today, there's some additional evidence that a pullback of the afternoon's parabolic move (as seen is some FX charts, leading indicators, VIX futures, etc)_, are the averages themselves. While not at the point in which they are threatening a reversal , they do seem to be selling in to strength.

SPY in to the close 1 m

 QQQ 1 m

IWM 1m

IWM 2m

These are not enough to run out the gas in the tank of the base, but they are what we want to see in to higher prices.

Based on the closing disposition of these and perhaps of the after market signals, I wouldn't be too surprised to see some early morning weakness tomorrow.

The Dominant Price/Volume Relationship was Close Up/Volume Up which is the most bullish of the 4 relationships, but ironically it also tends to lead to a 1-day overbought condition most often seeing the following day down.

Eight of nine S&P sectors closed green led by Financials at +2.47% with the safe haven Utilities lagging at -.43%.

We also had 227 of 238 Morningstar groups close green, overall not bad at all, but both imply the same thing as the Dominant P/V Relationship, a 1-day overbought condition.

Everything I see thus far looks pretty normal for an expected bounce of the "W" base created with support from the market ramping levers. The process seems to be underway as we haven't even hit the minimum upside targets yet and we are already seeing selling in to price strength, however if there was one thing that I found surprising today, it would be the SKEW Index or the Black Swan Index...

The SKEW Index moved in to the red zone and over 15 points from below 124 two days ago to over 139 today. This means someone is buying deep out of the money puts, while it could be hedging, it seems a bit strange so early on, including yesterday. The only way those puts are worth money is if there's a significant decline as they are deep out of the money. Someone maybe know something we don't yet?

General Market Update

I didn't call out a fade trade on the afternoon parabolic move not because I think this parabolic move is any different than others, none of which I trust, even if we are to make additional gains which according to our minimum forecast target we are, it should see some kind of retracement. It was the time of day, the closing print and the psychological process of that closing print... in essence we got what we've been looking for in this "bounce" set-up... movement  which is where we find good information.

Ten minutes after our first head's up, Parabolic Moves-Quick Market Update early warning signal from the intraday NYSE TICK, Like This...,

 ...the market hit the intraday highs.

 This is what the TICK looked like in to the close and the SPY...

From parabolic up to flat, with a good 10 minutes of early warning. In some cases, this one of the fastest heads up signals you can get to a good fade trade off.

As for the SPY, last week our minimum upside target was the January intraday highs (white trend line). Let me remind you that this was offered as a minimum target and this week with the "Descending Triangle" (bearish price pattern), the upside breakout was the highest probability as it serves as a head fake move.

Earlier today and every so often I mention that the lesson I have had to learn and re-learn is that market moves are extreme by design, they need to be to move sentiment/emotion which is the driving force behind most price moves. I think my example posted earlier today was "Whatever may seem reasonable as a target or timeframe, you can usually safely double or triple that" because the market doesn't get positional movement (buying, stopping out, shorting, covering, etc.) without touching an emotional nerve in traders that drives them to make decisions based on emotion. I'm not saying that every decision based on emotion turns out to be the wrong decision; however I would  say that over the long haul and numerous decisions, you are far better served by making decisions based on objective evidence as I see no real value to emotional responses anywhere in the market beyond blind luck.

So we saw a late day parabolic ramp, which looks to have been set up earlier in the afternoon. This move looked like an ECB QE knee jerk reaction, even though we saw no such thing or when we did it was for a very grief time in pre-market. I believe the reason is, the ECB's action was 100% discounted with 2 years advance notice, there's not much left other than "Sell the news" without an announcement that blows market consensus out of the water which this did not do.

However along the same lines, as discussed at length in numerous posts specifically related to Central Bank actions, the price movement is what creates perception and in almost all cases such as this one, the set-up for that price movement is in place a week ahead of the actual event. This was discussed at length yesterday in the NFLX trade Set-Up post...

"THE MARKET IS ABOUT PERCEPTIONS" 

 "...at the speed of trading these days, the reaction is out far before the entirety of the information is out and as such, it's the reaction (price movement) that dictates the initial "perception" of the information."

The post is a good overview of some good information that's not specific to NFLX.

That's it for this post, although I've already collected most of the charts for the Daily Wrap which I'll have out ASAP.

While intraday moves like today's afternoon move are always "emotionally moving", nothing happened today that we haven't expected for the better part of a week.

Like This...

NYSE TICK, early head's up as it breaks the channel.

Parabolic Moves-Quick Market Update

The recent afternoon short squeeze looking move is the definition of parabolic and in my view, they are never to be trusted.

We don't have any confirmation from index futures intraday...

 ES 1m

NQ 1m

TF 1m

And the NYSE intraday TICK Index, I'd be watching this carefully if you intend to try to fade this parabolic ramp, look for a move below the channel to the right.

A Bigger Picture Look at Financials

As many of you know, i is my belief that "one" of the reasons the F_E_D engaged in QE and kept coming back to it (because theoretically, the first round should have achieved what the F_E_D set out to do) has more to do with a political bank bailout than anything.

When Bullard said (Tuesday if I recall- the days seem to melt together with Bullard) QE worked reasonably well and they could go back to QE, blah, blah, blah, before coming out the very next day (yesterday) with his personal view that rate hikes and policy normalization should get under way now, that the F_E_D funds rate is 400 bps below where it ought to be, which just so happens to match up exactly with a little known Bloomberg radio interview he gave over 9 months ago in which he said the exact same thing, "Policy normalization/rate hikes should start Q1 of 2015 and by the time he takes up his role as a voting member of the F_O_M_C in 2016 he expects the F_E_D funds rate to be somewhere between 4 and 4.25%.

This was notable because Bullard has said a LOT over the last 9 months, he's said a lot that has been market moving once we already had cycles set and every comment moved the market in the direction the cycle was set (whether from distribution at September highs or accumulation at October lows) or in other words, the direction Wall Street had already positioned themselves for.

The fact that the timing of the rate hikes and the target rate at 2016 were exactly the same a day ago as his interview on Bloomberg radio April 1st (or second) of 2014, 9 months ago, suggests that this was not based on data dependency, otherwise there would likely be some difference in conditions over the last 9 months that would have at least a minor effect on policy normalization targets that exact.

However, I digress... What I was getting at was the 1008 bailouts and the golden parachutes, the bonuses for firms that were being bailed out by the government, were politically, highly unpopular. How do you bailout a bank without bailing out a bank in the voting public's view? Subterfuge! You use a mechanism that few can understand that has another reason for being used, but the net results were the same, there were earnings reports from the banks that saw quarter after quarter report entire quarters without 1 single day of trading losses, in other words, a stealth bailout.

On October 31st QE was ended, this was the first month of Q4, then suddenly Jefferies reports as a harbinger of Financials earnings and it wasn't good, JPM reports, again not good, Wells Fargo reports, not good and Bank of America is the last I remember specifically that reported Q4 earnings that saw their sales and trading down -50% from the previous quarter (Q3 when QE was still in effect to some degree). In just about all of these, FICC income dropped dramatically (fixed income instruments, currencies, and commodities). This alone is darn near all the proof you need to show one of the functions of QE was a stealth bailout for financial institutions. While the F_E_D / government couldn't directly hand money to the banks in a bailout (as it was deeply unpopular with the voting public ), they could and did through QE and it worked.

Thus for this reason, the fact that banks really have no business model left once trading revenues are taken away with QE (loans/mortgage/Cap-ex, etc. are all dead), Financials short has been one of my favorite longer term themes.

To make things even worse, recently there has been a rash of counter-party risk, liquidity hoarding which is exactly what froze up and nearly collapsed the financial and credit markets of 2008 as no one knew who had what exposure to sub-prime as every quarter banks said they had no more exposure only to report the following quarter they still had massive exposure which caused interbank lending to completely freeze over counter-party risk concerns. No one wanted to lend to the next Lehman and that is reemerging.

I'll leave the research of financial earnings for you if you want to check it out in greater depth, just be sure to check out Fixed income and trading revenues on a Q over Q basis and YoY basis as well.

What I want to show you is the Financial sector itself with multiple timeframe analysis and multiple asset confirmation.

 This is a daily chart of XLF with a 50-day moving average (yellow), but looking at the red trendline and the yellow arrow, does this price pattern look familiar?

Especially if you take the 50-day moving average as an upside target?

It should, this is the concept of the "3 areas of a H&S top I'll short and the one I WILL NOT" (I need to put this up as a permanent link, but it will be in the Resources and Concepts area of the new site which is actually just about 2 weeks from being launched finally, I'll get in to that later as I do need some input).

For those who haven't heard of this concept or need a refresher, the first two areas of a H&S top I'll short if there are signals to do so are the head, the top of the right shoulder, NEVER the break below the neckline which is what happened at the yellow arrow and after new shorts show entered on the break of the neckline (yellow area) are shaken out on a move ABOVE the neckline, that's the third and last place I'll short a H&S top BECAUSE THIS KIND OF SHAKEOUT WORKS AGAINST EVERYTHING TECHNICAL TRADERS ARE TAUGHT AND IT HAS WORKED TIME AFTER TIME.

One of our best examples is HLF which we entered on a +25% day up, the largest day up in HLF's history, also a shakeout exactly as seen above and the HLF short which has been hands off/auto-pilot since is at a gain of over +52% with no leverage.

I suspect based on the exact same concept playing out in XLF/Financials right now, that the head fake move below the neckline (yellow arrow) which would draw in new shorts and hit stops, is on a short squeeze shakeout and will probably move to the 50-day moving average (yellow) or thereabouts, at which time XLF short or SKF/FAZ long looks like a fantastic entry short financials.

On a VERY long term basis, the 6 hour chart shows there have been several very large negative divergences with moves of -8+%, but they pale in comparison to the divergence since QE ended and with it, the banks' free meal-ticket to virtually risk free and absurd profits. Just look at this quarter's financials earnings, it's all right there.

 The 2 hour chart shows the last major accumulation area, the October lows which we forecast a week or more ahead of time would lead to a "Face Ripping Rally", but one that wouldn't hold. The September highs are seen to the far left leading to the October lows, in addition to the negative divergence there, that was also a "Bullard" comment day, "We should be willing to remove accommodative policy".

The negative divergence since then dwarfs the October lows positive. With the very big picture already very negative, this is almost more of a tactical timeframe, although a very long term version.

XLF's hourly chart shows the same distribution signals as the free meal ends on Oct. 31st. If bank earnings and trading revenues weren't so bad, I might have to rethink the entire "stealth bailout for banks", but as it stands, they bolster the case, especially when Bank of America sees a 50% drop from the previous quarter/report!

 FAZ, which is one of my long positions [personally is a 3X inverse or Financial Short ETF. Thus this 30 min divergence after near perfect confirmation is a very clear/clean signal suggesting FAZ is one of the longer term positions I want to hold.

UYG is the 2x LONG Financial ETFs, these will have price moves that are in line with their leverage, but volume / demand is totally different which means if 3C is confirming, it's not because they are a linked asset, it's because there's something there.

The 15 min 2x long Financials is leading negative, right along the lines of the major market averages right now.

XLF 10 min shows a positive divergence right now after numerous divergences that were right on with their calls.

This is a bit longer than most of the averages (10 min), but at the same exact area.

 The 5 min 2x long Financials (UYG) confirms and is in line with the major market averages with both recent divergences, the first week of January that failed on the 8th and the most recent one, before that the negatives are in line with the major averages as well, which is what led to a short term oversold condition the first week of January.

Speaking of which... We forecast that the Santa Rally would be used against traders just because they expect it as if it were a birth right, that happened and as a result our forecast was the January effect (new money flowing in to the market) would also fail , so much for the first month of the year or the January effect, had it been positive you'd be hearing everywhere the old adage, "As January goes, so goes the year". There's not a lot of talk about that is there?

 XLF 3 min is in line with many of the market averages, positive with similar negative signals prior to...

 FAZ (3x short/bear Financials) has a 2 min negative that has been in line, but just as we expect to see distribution in to higher prices for the averages, we expect to see accumulation in to lower prices for the inverse ETFs.


FAZ 1 min on a move lower today, leading positive.
Just for confirmation...

FAS (3x long/Bull Financial ETF) with a negative signal in to higher prices as expected.

I don't know if you agree, maybe you want to check out the earnings reports, but I think FAZ (long) is one of my favorite longer term positions.