Daily Wrap

Last night I noticed some strange behavior in Index futures, specifically ES (as it has the most liquidity), however I decided that since it was only the one Index future and really one chart at that point, I'd take a look later in the night and see if anything had changed, in fact we had some significant changes, enough for me to post them at 1:15 a.m. when I should have been having sweet dreams...

However they were so odd, I had to at least get them out there and did so at 1:15 a.m. EDT in Odd ES (SPX E-Mini Futures) Action.  It turns out those signals were in fact something of significance as you can see by the A.M. Update this morning with the market sliding deeply overnight.

The Friday The Week Ahead forecast has been right on bout the Russell 200's relative out performance, whether it be yesterday's near +1% gain vs the other averages ranging from the SPX's +.25% to the NDX's -.06% or today's relative out performance at a loss of -.52% vs the NASDAQ 100's loss of -2.56%. Whether at a gain or a loss, the Russell 2000 has outperformed the market significantly for 2 days in a row as per our The Week Ahead forecast from Friday.

Here's what the averages (including Transports) looked like on the day,

 The R2K led, the NDX 1000 lagged, the Dow lost 286 points today!

That puts the major averages red for the Year to date...

The major averages YTD. So much for the January effect which was one of our forecasts back in mid-December!

In fact, Bloomberg's Macro Surprise Index is posting the worst start so far for January 2015 in at least 10 YEARS! You have to wonder how seriously the F_E_D is about "Data dependency", I think tomorrow will be very enlightening as to whether they are truly data dependent or as I suspect, have laid out the course some time ago and are moving steadily toward policy normalization and I can't see how that's going to be good for the economy or the stock market, but stretched as thin as the F_E_D is, even according to the Central Banks' bank, the BIS, who said they doubt they have the capacity to deal with a garden variety recession, it may be an absolute need to create some elbow room by normalizing policy sooner than later.

The USD/JPY was one of the levers today to help out, which brought the IWM right up to the gap, as the USD/JPY took charge just after the European close.

USD/JPY in candlesticks and ES/SPX futures in purple. Shortly after the European close (as per usual), the market heads higher intraday toward the gap, but USD/JPY hits $118 and that's about all we get out of the day.

I made MULTIPLE references today not only to last night's strange 3C activity, but today's as well, I'm not exactly sure what it all means yet as some charts are not giving the typical multiple timeframe migration which is ok, it's just not typical and then there's the relative performance differences among the averages that is visible in the 3C charts which is how we projected the IWM would out-perform the other averages at least early in the week.

The $USD which was posted its second daily loss in a row is down -1.4% on the week, the 3C charts there caught my attention, you can get more details via today's post, Perhaps Another Surprise, $USD.

I'm still expecting a move in oil/USO to the upside, again that was updated today with a nice set up if it becomes available, USO Update.

In last night's Daily Wrap I said, "GLD looks like it could see a little bounce/gap fill very short term, but I'm still expecting more of a pullback, in fact we really just got started on the move we have been expecting."

GLD bounced +1.15% and SLV +1.17% on the day, but as I said, I do expect more downside on a pullback that may very well open up a nice longer term long trade.

GLD 10 min chart still has a decent negative divergence for a decent pullback, however some of the longer term charts are shaping up, so this pullback could be a gift for a nice longer term long position (trending trade).

While GLD, SLV and USO gained on the day, yesterday's very odd Copper gains were retraced today, given all back. Dr. copper is not projecting a very bright future for the global economy.

As to some of the Leading Indicators I took a look at today, near term things are not making much of a move, but longer term I think you see where the probabilities lay when looking at these, 3C charts, market breadth, mass psychology, macro data, etc.

 As we saw yesterday, pointed out in the Daily Wrap, HYG was used toward the end of the day, presumably to keep the averages that were close to unchanged that way rather than red, either way it was used as a ramming lever in to the close as you can see on yesterday's intraday chart above.

As for today...

 The SPX in green dips, but HYG remains fairly constant in a leading position, able to ramp the market.

As you can see above on this HYG 5 min chart, it was accumulated for the market base at 1/14-1/16 as there's pretty much only 1 reason HYG is accumulated anymore as you'll see below, it still has gas in the tank as it had a decent size base, but you can also see damage being done, especially today.

 This is the longer term HYG trend vs the SPX on a 6 hour chart, note the lower lows and lower highs in High Yield Corporate Credit. Don't forget the Wall St. maxim, "Credit leads, stocks follow", on a primary trend or longer term basis, the market has some serious catching down to do to credit's reality.

 The VXX (blue) vs the SPX (green with prices inverted to show the correlation/relative performance) was spot on today, no ramping lever in VXX, just what you'd expect to see vs the SPX.

 Our Pro sentiment indicators however are one of several I'm looking for a negative turn in, they were negative going in to yesterday afternoon on a short term basis, but look at the positive leading in to today's close.

On a longer term 60 min chart you can see why I use this  as a Leading Indicator as it called two top areas and is massively dislocated right now, again the SPX has some serious catching down to do.

 The second version used for confirmation also shows weakness in to yesterday afternoon and the same ramp in to today's close.
These can turn fast, but until they do, I'm not real comfortable saying, "The bounce is over", especially because we've barely passed and in some cases have not passed the minimum target forecast well over a week ago.

 Again, the same indicator on a longer term basis, you can see why it's leading as it called several pivots.

I mentioned the very choppy action in TLT yesterday, I'll have to update it, I didn't have time today , but there are some interesting short and longer term leading signals among Treasury yields which move opposite bond prices.

This is the 5 year yield on an intraday basis over the last couple of days (red) vs the SPX, you can see where yields were either leading the market negative or reverted to the mean, but they tend to act like a magnet, pulling equity prices toward them.

The 10 year yield intraday also showed weakness the last couple of days and was nearly perfectly in line today.

And the same with the 30 year yields intraday.

On a longer term basis and why we use them as leading indicators...

 This is the 5 year yields' signals since the October lows,  note how severely dislocated it is from the SPX right now to the downside.

 Here's the same for 10 year yields, again they called several pivots and are deeply dislocated to the downside, again the SPX has some catching down to do.

 And 30 year yields, again the dominant feature as far as probabilities go is a severe negative , downside dislocation.

As for the less manipulated forms of HY credit, we are not getting screaming signals there yet, but we do have some weakness in a few assets.

 This is one in gold vs the SPX intraday, nearly perfectly in line, but step back a bit...

And here you can see where Credit was giving wither negative, positive signals or where the SPX and credit had reverted to the mean and were in line briefly. The larger term picture right now is to the downside, even though I'm really looking for the intraday charts to give a clear signal as well.

And PIMCO's HY bond Fund, again, areas where it exerted negative pull, positive pull or reverted to the mean with the SPX.

As for internals today  they may be the most significant short term signal we have.

 The Dominant Price/Volume Relationship was DOMINANT is all but the Russell 2000, which is not surprising as it has been off on its own, doing its own thing, otherwise the Dow saw 22 stocks in the relationship, the NDX100 saw 60 and the SPX 500 saw 239; the Dominant Price/Volume Relationship was Close Down/Volume Up. This is the most bullish of the 4 possible relationships in terms of an oversold condition and a next day move that usually end up green, of course we have the F_O_M_C tomorrow, but perhaps this was part of that, it was hard to glean information one way or the other that supported that kind of hypothesis.

As for the 9 S&P sectors, ONLY ONE closed green, the Defensive Utilities and only up +0.14% at that! The other 8 sectors closed red, another strong 1-day oversold condition that usually results in a close higher the next day.

Finally, of the 238 Morningstar groups and sub-industry groups, only 39 of 238 closed green, again, another short term oversold condition.

Of the 3 intraday breadth measures we use, all 3 are significantly oversold except the Russell 2000, 9 times out of 10, I'd say this results in a next day close higher in the green.

Again, tomorrow we have the F_O_M_C policy statement at 2 p.m., so I suppose it's a wild card, although I don't think anyone is widely anticipating much from it, well that may not be true. Some people seem to think that because of the strong $USD and weak macro data, the F_E_D may come out with something more dovish.

I'd just remind you to beware of the F_E_D knee jerk reaction, it's almost always wrong and retraced.

I'll obviously be busy watching for any hints of any strange behavior pre-F_O_M_C, we haven't seen it a lot, but at least on 3 occasions the market has made incredible 3C moves that we traded right before the F_O_M_C that were right on, I'd say there's no other way we'd have seen that if it were not a leak. I'll also be watching the 3C reactions during the statement, when QE3 was released, the 3C charts went negative on the statement and instead of closing all shorts and going long on new QE, we held pat and saw a several month decline with the highs of that new QE at 2:24 p.m. that very same day.

As far as what to look for, traders are still focused on whether they take out the "Considerable time" language which they tried to replace somewhat last meeting with "Patience" when it comes time to hike rates, but did not remove the "considerable time", it will likely be seen as dovish if they leave the phrase, "Considerable time" in place.

Also traders will be watching to see if the F_E_D has changed their inflation outlook due to weak oil prices which they previously saw as transitory and the strong dollar and a bit further out, whether they address the divergence in policy between the F_E_D and the ECB/BOJ which I suspect is doubtful in the policy statement. The $USD issue is seemingly a big deal with numerous companies warning in their earnings about the negative effect on sales because of the stronger dollar including MCD, JNJ, UTX and MSFT.

As for the timeline, we may get additional guidance, the last meeting Yellen said a "couple" of meetings, then defined a couple as "Two", meaning the first rate hike would not be likely until at least the April meeting, obviously traders will be very interested in any additional guidance, especially with the weak macro data, earnings and the strong $USD with divergent ECB and BOJ policies in effect. It should be interesting.

As far as futures go, thus far I see nothing like last night although the 5 min and some 7-10 min charts weakened significantly today so it will be interesting to see if that sticks, if so, then we may have a second bounce prematurely ended via aggressive selling.

 ES 5  min damage done today

 NQ 7 min damage done

And maybe most surprisingly, TF (Russell 2000 ) 10 min damage done today.

All told, considering leading indicators, the HYG 3C charts , the major averages and the Index futures, I think we still have gas in the tank, other than the Russell 2000 yesterday, the market has gone no where this week except red Year to date. So I do think we have more "bounce" or gas in the tank, with the internals from above (Dominant P/V relationship, sectors, etc), I think that can also contribute, especially if the F_O_M_C comes off as dovish or neutral.

However don't think damage to this cycle is not being done, it is.

 SPY 5 min

QQQ 10 min trend

IWM 30 min...

As I said last night, if I see anything shady looking in futures, I'll post it ASAP.

Have a great night!

AAPL On Deck

We covered AAPL yesterday in AAPL Update in which the gist of the analysis was,

"Taking a closer look, you have a pretty clear resistance "area" around the psychological magnet (whole number) of $115 which just adds to the case for a head fake move.  If we went no further than this chart and didn't have any idea where the probabilities were as far as AAPL perhaps being accumulated for a much larger run higher or distributed and an expected move lower, the fact would still remain that Technical Traders are predictable in their actions when faced with certain situations like a clearly defined range and the more popular the stock, the higher the probability that some kind of head fake move will take place based on the range and using the predictability of Technical traders' reactions against them.

This is a longer term look using multiple timeframe analysis, however if you look within the leading negative divegrence, you have a weaker, but still important relative positive divegrence at an area that also forms a "W" base and is in the range which draws a lot of attention and is ripe for a head fake move. Overall it would seem to me that there's a definitive change in these very long term charts toward the negative, however that head fake move above the range would be very enticing to me if I were pushing the buttons on short term price action. This "could" also set up a nice short trade that comes to you, of course we'd want to see evidence that there's distribution in to a move above the range, but that range sitting there is such a popular stock looks like a very high probability set up."

While we saw some short term charts move around a little today, the gist of today's post, AAPL Update-Earnings, was...

"There have been some changes in some of the charts since yesterday. I still would prefer to sit back, let AAPL do what it's going to do on earnings and if there's a head fake move above the range, use that to our advantage to get good positioning on AAPL.

Otherwise here are the charts that have some interesting information today, mostly negative, but not within the timeframe (6 hours) that my head fake theory was based on, no movement there....The 15 min chart and range with positives at the l;last 2 bases, the current negative is not huge and as I said yesterday, I suspect it's there to prevent a premature head fake over the psychological $115 level....I still like AAPL as a long term core short, but in this case, I'd rather let the dust clear and plan the trade based on whether we get a head fake move which should be able to be confirmed."

And on AAPL's top and bottom line beat in After-hours, I bet you can guess exactly what happened (even though the conference call is yet to take place)...

Those two blue hash marks are the bid/ask for AAPL in after-hours, you should be able to see the red trendline defining the range and AAPL's price sitting right above the range.

This is a concept so strong and so common, you could almost bet on it without any other chart confirmation. Now it's a matter of looking for the confirmation of a head fake move. Why might we have one with AAPL beating so handily... Well there's a lot of concern about their new mega market, China and foreign currencies vs. the $USD, not helpful.

Remember, Wall St. is not about what you did, it's about the PERCEPTION of what you'll do and if that perception is not "They'll do even better the next quarter" with $USD acting as a head wind, then there's no reasons not to sell AAPL in to price strength which is facilitated by the technical concepts that are so predictable among technical traders.

 

Quick Look @ Leading Indicators...

After a quick peak at Leading indicators, there's not much of a story to tell there, which means they haven't given the clear negative signal that they almost always do when it's time.

Perhaps this is F_O_M_C related and the mass sentiment that there will be no rate hike tomorrow and with all of the recent bad earnings, bad economic reports and bad geo-political situations (Ukraine, Greece and shortly Spain, China broadly speaking, ECB, etc.) added to the $USD problems, perhaps there's some sentiment that the F_E_D will throw the market some kind of bone.

that's strictly hypothesis, but unless there's a leak and I'm not sure (unlike the past when we have seen them) that there is, I suspect this is perceptions and anything that's not a rate hike is probably a pretty decent perception and then throw in all of the above.

For the record, I believe the F_E_D has set a course long ago and their actions and plans are a lot less data dependent than they would lead you to believe. They want out, they may NEED out. This is not to say I expect a rate hike tomorrow, it's just opinion.

AAPL Update-Earnings

I updated AAPL yesterday, AAPL Update, the gist of it was there's a very enticing range that is prime for a popular stock like AAPL to set up a head fake move. There are divergences, relative on the longer term charts that are within larger leading negatives (see the 6 hour chart from yesterday) that suggest a head fake move around the range (assuming above) was a pretty decent probability.

There have been some changes in some of the charts since yesterday. I still would prefer to sit back, let AAPL do what it's going to do on earnings and if there's a head fake move above the range, use that to our advantage to get good positioning on AAPL.

Otherwise here are the charts that have some interesting information today, mostly negative, but not within the timeframe (6 hours) that my head fake theory was based on, no movement there.

 The 15 min chart and range with positives at the l;last 2 bases, the current negative is not huge and as I said yesterday, I suspect it's there to prevent a premature head fake over the psychological $115 level.

 The 10 min chart looks a bit worse, although it has more detail, it is not as strong as the 15 min.

The 5 min chart looks a bit worse as well.

Interestingly intraday where you might expect last minute accumulation, the 3 min does not show it.

Nor does the intraday 1 min. I'm guessing if smart money is in for a head fake move, they entered at the bottom of the range and would sell above the range.

I still like AAPL as a long term core short, but in this case, I'd rather let the dust clear and plan the trade based on whether we get a head fake move which should be able to be confirmed.

Otherwise, AAPL is still plenty high to make an entry somewhere else if earnings have a bad reaction.

I think that's the best use of the information we have. I would not have a problem holding a partial long term short position as I believe we have on record.

Market Update

I'm hoping to get several more updates out on the broad market as well as some specific assets like NFLX and AAPL, doing my best.

As to the strange activity, charts, lack of confirmation, volatility extremes, in essence, it's just a VERY strange day starting with a very strange set of charts late last night (or very early this morning).

I'll try to get this market update out ASAP and get to other things...

I have to consider a few things and there are still a couple of assets/indicators I need to look at before I can make the most informed forecast. The two major things I have to consider is whether this is a true, real fall in equities, rising volatility, the same aggressive selling seen earlier in the month on a bounce attempt that only lasted 2 days or if this is a "knock prices lower to accumulate using the thing overnight markets".

Right now the Intraday Index futures are either in line or have a slight positive bias to them. The TICK Index has a positive bias to it as you'll see, which is something that bothered me from the open/early this morning. However not everything is looking like this is the obvious probability. A compromise "could" be some accumulation of lower prices today just for a F_E_D knee jerk move. As we have recently discussed at some length, the market moves so fast that often things like NFLX's crappy earnings are defined not by the evidence as price has moved before you can read the first word in their earnings, but rather defined in the very short term by price action. NFLX was a good example of this, it was set up in advance of earnings and I suspect no matter how bad they were, it was going to fill that gap and that is why the set up for NFLX to rally on earnings was put in place, it certainly isn't for the earnings/guidance, which is a short term perspective, sometimes even a useful edge.

This is just one of the scenarios I have to consider, I'm not assigning a higher probability to it, just mentioning it. PERCEPTION is what moves markets and if you can define a fundamental event by price movement, you have defined the perception of that event at least in the short term.

 IWM 1 min intraday "looks" like it's going to rollover soon as the divergence is leading negative.

 It has largely been the 2 and 3 min charts where there have been "anomalies" that have been strange and out of place, this is largely what I'm trying to understand. The 2 min IWM is rather weak though as well in this instance, but as we saw yesterday, Friday and today, even the 3C charts of the averages, not to mention the averages themselves, are all over the place in shorter term timeframes which is why I called for R2K relative out-operformance this week vs the rest of the averages, its charts. These charts are obviously not a mistake when you look at relative performance the last 2 days.

*I just had to put out a quick market update as the short term signals above are starting to turn price to the downside intraday.

 IWM 3 min from a positive at the base area (16th) to in line as expected to a leading negative divegrence, not a huge one, but a definitive change of character. The yellow trendline is yesterday's close so the IWM filled the gap and looks to be rolling over presently.

 The strongest IWM chart, well above and beyond the other averages is the 15 min chart, in this case it is in slight leading negative position , but has a relative positive divegrence. This divergence looks like one large positive, last week my best guess after looking at everything was that these two base areas, the first of which failed, are two separate events rather than 1 larger base.

 R2K Futures 5 min shows last night's divergence that I posted and the current position which is leading negative. I'd think if there were a lot of accumulation of the market on weakness, the IWM would not have filled the gap and this would show a clean, clear positive divegrence on weakness, instead it's about what you'd expect on weakness.

 The R2K 7 min chart is like the 15 min IWM, it's still pretty strong, although damage was done to it since last night's divergence in ES and it is starting to take up a leading negative position.

 SPY 1 min started to look like it was getting ready to pullback intraday, of course these captures are before a small pullback just started, I was hoping to have this out before then.

 This is one of the strange charts, SPY 2 min, it looks like a positive divegrence on the gap lower today.

However when looking at the stronger and more important 5 min SPY chart, which is where it had a solid positive divegrence for the base out to, it's clearly seeing deterioration with a leading negative divergence.

This chart appears to show what I suspected we might see, which is what we saw on the early January bounce attempt, "Aggressive selling".

 The 15 min, longer term and next trend or bigger trend chart is clear and leading negative since the rounding December top. You can see the base from the 14-16th and 3C at the lows, near a new leading negative low while price is extended off the base.

 The 5 min Es/SPX futures chart also shows the weakness not only from last night and in to today with the faintest of positive divergences to the far right (small relative positive, likely for the intraday "V" bounce), but also the deterioration from last week (Friday).

 The ES 7 min is leading negative, this was in line as of the close yesterday so that's some significant deterioration on a 7 min chart in such a short period.

 QQQ 1 min which has obvious negatives, price was in line at the green box.

QQQ 3 min went from in line off the base which is stage 2 mark-up in to stage 3 distribution, again today it's close to in line with the 3C leading negative divergence.

 The QQQ 5 min chart with the stage 1 base (Jan. 14-16th) and a pretty clear (not the cleanest) negative divegrence which price has obviously responded to.

 QQQ 15 min with the larger 3C trend just leading negative to lower lows even in the face of this bounce, clearly suggesting what we expected as soon as we saw the base or even the first early January oversold base, distribution in to higher prices.

 I think the 30 min chart makes the higher probabilities very obvious,

As for the 5 min NQ/NASDAQ 100 futures, in line at the best, this is not the kind of divergence I'd expect if this move lower were being accumulated ahead of the F_O_M_C tomorrow.

 The 7 min chart which has been in line since the bounce started showing weakness Friday and 3C and price are in line- price//trend confirmation.

 This is what has bothered me a bit, the NYSE TICK for today, it hot a low of about -1300 on the open, extreme, but not that extreme and the rest of the day trending higher at levels > 1250.

Here it is on my custom TICK indicator.

Since capturing these charts, this is the updated...

One of the best early warning intraday trend changes, TICK breaking the nearly day long channel.