Quick Futures Update

As somewhat expected after today's price action and the after hours futures, the Index futures have given much sharper negative divergences, it seems clear that today's move up was nothing but an opportunity to sell in to.

I'll post a comprehensive update of the charts in the morning, but for now, here's a look at how they are shaping up.

 ES 1 min

ES 5 min

ES 7 min

All very sharp, very negative.

Daily Wrap

At least today wasn't a wasted day like yesterday with the market having very little to tell us except that it wasn't done and still trying hard, but getting nowhere fast until this morning's Greek rumor that the EU/Troika would grant an extension rather than see Greece go to Russia which has been my prediction of their trump card as I know Russia would love a port right in the Mediterranean and the EU's back yard, but the second name mentioned was China which I didn't think about. Russia has already said there's funding there for Greece, all they have to do is ask.

On an unrelated subject, I remember the Orange Revolution in Ukraine, the Rose Revolution in Georgia (former Soviet Satellite) , the "Jeans Revolution" in Belarus and even the Velvet Revolution in Czechoslovakia as the US and NATO cut in to key former Soviet satellite states such as the Ukraine, Georgia, etc. Apparently the worm has turned starting with Ukraine's former peninsula, Crimea as Russia starts cutting in to NATO and NATO allys' back yards returning the favor. I wouldn't underestimate the risks involved in Greece turning to Russia or China for aid. 

I read a piece today by one of the most interesting fund managers (and influential), Dan Loeb of Third Point. If the name is not familiar, you may recall some very nasty negative divergences in AAPL in 2011/2012 in which we were calling for a move to the downside. You have to understand that at the time, this was blasphemy of the highest order as AAPL could do NO wrong, it was the market darling and hitting all time new record highs. However, the divergences were sharp they were clear and whether I understood them or not, we had opened short positions in AAPL (a lesson for me in making long term decisions based on short term data). Suddenly, AAPL plunged faster than anything at the time and the reason was Third Point's top 5 holdings no longer included AAPL. Dan Loeb had been selling AAPL and the hedge fund herd had stampeded until AAPL took a nearly -45% loss in 8 months as fund managers just kept trying to all fit out the same small door at the same time.

 Loeb said in his Q4 investors' letter  that he had pulled back on long market positions/leverage as we were in a ,"Haunted House Market" where "a new scary event lurks around each corner" and nothing was scarier than the outcome of the Greek scenario. If you thought Lehman was bad, the potential fall-out from a Greek-exit or even worse has overtones that we can't even imagine and those are the ones that get you if you're on the wrong side of the market. I wonder how long it will take the market to follow Loeb's latest moves if it hasn't already. I suspect some of those very nasty charts from Thursday and Friday were not run of the mill, normal distribution. 

In any case, one might ask with tomorrow's looming Emergency EU Finance Ministers' meeting to discuss Greece as well as a plethora of bad news from Chinese inflation data overnight (essentially deflation) to record lows in the Baltic Dry Index, , US macro data wetting the bed, earnings turning and today;s news that now Haliburton is cutting 5,000- to 65000 employees after Baker-Hughes and others, "Why would the market be in a risk on mode in front of all of these potentially devastating events?"

I think the answer is simply retail. There's almost always a give-away to a cycle whether a base that's about to rally or a top that's about to come crashing down.

Last night was my latest warning of the potential probabilities of a head fake move being the range in the market had just been defined after the descending triangle breakout that we expected and such a range is just too juicy to pass up, you may recall form the past several days and specifically last night this chart as trendlines are redrawn after the breakout above the descending triangle.

 Honestly this isn't even that convincing or juicy of a head fake move as it barely breaks the upside of the range, but for the NDX anyway, it's a 2015 high, the R2K was briefly green for the YTD on the day, but lost that and the volume is not exactly inspiring, but these are how cycles are created, how they are most easily identified. Take for instance the head fake lows of 2/2 below the range (lowest intraday print for the year) which was at the end of the 1/29 to 2/2 base (at the white arrow). If we look at that on an intraday basis this is what we have...

The base for this most recent bounce in the range stretches from 1/29 to 2/2 and the head fake move which hit stops as the lowest intraday move of the year was the head fake which is almost always there before a reversal and one of the best reversal "timing" indications we have (yellow trendline and arrow). Since you can see the base's gas in the tank is running dry as negative leading divergences set in, it's the same concept as the bottom/base, just in reverse for a top.

The EU/Greek rumors which were promptly shot down and had nothing (intentionally) to do with this move, gave the market a head start via USD/JPY which later dislocated form the Index futures as the news that AAPL would be issuing debt (as you've already probably heard) in Switzerland (which you probably did not hear until today) took over from there.

According to the WSJ, the 3 reasons AAPL decided to issue debt in Switzerland included:

"One: the lure of cheap rates. Switzerland’s government debt yields below 0% all the way out to 11 years, meaning corporate bonds–the price of which is typically linked to government debt–is super cheap too.

Two: Apple can use proceeds from debt sales to fund buybacks and dividends, a less expensive option than using cash earned outside the U.S., which would be taxed if brought back from overseas.

And third: Selling bonds in Switzerland allows Apple to tap a new set of fixed-income investors."

In any case, like all market tops, the money is being used to buy back shares (keep the price as high as possible so Corporate officers can make as hefty a bonus as possible as their bonuses are tied to the stock price (ever wonder why buybacks are always at market tops when they are most expensive rather than market bottoms?) and the other purpose will be to pay dividends. While I won't get in to it now, look at MSFT from the 1990's in to early 2000's, it went from a massive growth story (bigger than AAPL) to a more or less range bound , blue chip which is what AAPL is transforming in to.

In pre-market on the early EU/Greek rumors USd/JPY led Index futures higher, but after the open and the denials you can see a correlation to the downside, I took the fat way out and used the cash market only, but as I said, that's what happened pre-market.

The SPX in green vs the USD/JPY during the cash market...

And then AAPL in white vs the SPX during the cash market after the EU/Greek rumors were shot down. 

AAPL was what you'd call the "Fulcrum" of the market today. While HY Credit languished and actually headed in the opposite direction, 30-year Treasury yields fell and the USD/JPY dare not tread where ES and NQ go, some might wonder, what do stocks know that the rest of the market seems not to? The answer is simply, "nothing".

After 6 or more consecutive days of mostly positive leading indicators, today was the first day many that had previously been supportive, broke ranks.

 High Yield Fund which has been up relentlessly fell sharply today.

 Yields which have been supportive for 6 consecutive days finally broke today (30 year, but also 5 and 10 year).

And as I showed earlier, our newer, but reliable SPX:RUT Ratio is not confirming.

The clear winner among the averages today was the NDX which is heavily weighted  by AAPL, at one point around 20% of the NDX's weight was AAPL, if you want the current weighting, you have to pay NASDAQ $10,000 a year for a subscription, but to give you some context, if you took the bottom 50 weighted stocks in the NASDAQ 100 and combined them, they'd have about the same weight as AAPL has had in the not too distant past on the NASDAQ 100.

The NDX in blue led the day at +1.54%, doubling what small caps/Russell 2000 did at +.79 and transports were third to last, the Dow second to last and the SPX second to first at +1.07%.

While AAPL is far from my favorite short, I'll be keeping close tabs on it in to the coming days, in fact if it hadn't had the job of lifting the market and all of the momentum monkeys chasing it, I'd be surprised it didn't break down today to lower levels.

 Very short term steering divergences in AAPL 1 min shows some small accumulation area, I say small because they didn't migrate to anything longer than a 1 min chat. You can see the afternoon divergence and then these...

 AAPL 2 min

AAPL 5 min

Gold and Oil thus far have done exactly what we've expected although I suspect oil makes a turn to the upside (unless inventories are way out of line) soon and before Gold, although I do expect gold to make a turn to the upside, it just has more work to do off a much larger negative/pullback divergence.

MCP's consolidation divergence (positive) continues...

And MCP added +5.5% today.

HYG was used as a lever today, but its general divergence and trend remain as I'd expect and as I was looking for yesterday and today.

 HYG 3m

HYG 10m

As I was saying earlier, HYG is often the first give-away, take the January 14-16th base and bounce, HYG gave early warning and confirmation of that base on the bottom just as it's doing above on the top...

HYG positive at the base the market saw in mid-Janauary and negative at its top.

In fact it has been so reliable, I'm testing some long and short term trading systems using HYG and some custom indicators.

While I didn't se as much action as I'd like to have seen in VXX today, there was some, I suspect it needs a little more downside.

 1 min intraday, it's a start, but I expect we'll need to see a little more downside/rounding.

TLT on the other hand put in a lot of work for the day.

 1 min and out to 5 min...

TLT 5 min. These are the flight to protection and flight to safety trades, they are nearly as telling as HYG.

As for internals, I wouldn't consider the averages as having a Dominant Price/Volume Relationship today except for the NASDAQ 100 at 61 stocks at Close Up/Volume Up, which is the most bullish of the 4 possibilities, but ironically also the most likely short term overbought condition causing a next day close lower, we'll have to keep an eye on AAPL and see if that plays out. All of the other averages were mixed.

Both the S&P sectors and the Morningstar Industry/Sub-Industry groups are flashing overbought with 8 of 9 S&P sectors green, but surprisingly the leader was the defensive Utilities at a gain of +2.06% with the laggard being Energy, but just barely red at -0.05%.

Of the 238 Morningstar groups, 195 of 238 were green, these are the kind of numbers we see in an overbought market that lead to a decline, although the Dominant P/V relationship is usually the 3rd factor in a probable move and that was missing today.

As for futures, tomorrow is a big day for the EU and likely the market. USD/JPY has been sloppy looking all day, but that's because the carry pair has been range bound, however there is a clear negative signal developing right now.

My guess is this is the start of a "Risk off" signal and will take several more hours to develop, probably in time for tomorrow's EU Fin-Min emergency meeting in which hopes are far from high.

I have to run out for a "prior engagement" for a few hours, but I'll check on futures upon my return, I wouldn't be surprised to see USD/JPY showing a more risk off position and despite AAPL today which discounted the Swiss news, I really don't think the market can hold off too far removed from USD/JPY, especially if it moves to risk off as I suspect it is starting to flash right now.

NQ/NDX futures can't hold up long looking like this with no support.

 NQ intraday

ES intraday...

I'll be checking in and reporting on (if warranted) futures in a few hours.

USO charts

To best understand the USO set-up and positioning, see yesterday's USO Update.

What we always want to see in to a pullback trade is a constructive pullback, meaning that we see some positive divergences in to the pull back. We also want to see a proportional reversal process. USO has spent most of its consolidation, consolidating through time which is fine, but we also expected a pullback to run along our 10/22 day moving average X-Over screen. Had you followed Cramer, you'd likely have bought on the exact day USO topped and started its consolidation. I personally think Cramer is a lot smarter than that.

Remember the EIA Petroleum report is due out at 10:30 a.m. tomorrow.

 The Daily USO chart and it's pullback not only toward our target area of the two moving averages, but the break below the triangle forecasted yesterday.

Ideally tomorrow's closing candle would be a Doji star or bullish hammer on increasing volume, ideally...

 Here's the pullback//distribution in to today from yesterday's intraday highs which also put in a small head fake move, as usual, just before the downside reversal.

Note the positive intraday divergence since the pullback today. If the divergence is strong enough it will migrate to longer timeframes.

The 2 min chart also shows the distribution for today's pullback at yesterday's intraday highs or a mini head fake move which was a perfect timing marker for the downside reversal as head fake moves almost always are.

 We have the same distribution yesterday, pullback and leading positive today on a 3 min chart so the process of migration of the divergence shows the USO divergence (positive) is gaining strength.

 We are even out to the 5 min chart on today's pullback, once again yesterday's negative at the intraday highs is clearly visible,  but this pullback was entirely based on the concepts of using technical price patterns against traders or head fake moves.

 The Brent Crude futures are also positive intraday 1 m

As well as their 5 min charts and...

The 10 min chart showing the same distribution in to yesterday's small head fake highs and the same stronger/migrating positive divegrence through today.

Ideally the base would be a little wider, that's why I'd like to see a Doji star or a bullish hammer at the 10/22 day moving averages on tomorrow's close, but we have to take what the market gives us and so far, it is what we had forecasted days ago and more specifically yesterday.

USO positive divergences in to pullback

I'll have charts out in a few minutes, remember the EIA petroleum report is at 10:30, but thus far we are seeing a constructive pullback with positive divergences in to today's USO decline as well as Brent Futures.

Leading Indicators Update...

Unlike yesterday where watching the market was literally painful as it was "trying" to put in a positive divergence for a bounce, but was just shut down at every turn, yet Leading Indicators refused to give in, apparently at least until that bounce got some wind under its wings, today is much more exciting and enlightening.

Yesterday, last night, the Monday and Friday I said that I won't be hypocritical and say that a head fake move isn't a probability after preaching how common they are and in what environment we most often see them which would include this environment for at least the SPX, see last night's Daily Wrap for a more comprehensive explanation of the concept in current circumstances, but visually it's easy to show with a simple chart.

After our upside target of the descending triangle's upside breakout was hit, we have to redraw the trendlines giving us a range above in the daily SPY/SPX that is a very enticing trap, there's a more extensive discussion in last night's Daily Wrap of the concept in this particular circumstance.

As you can see, the market is moving toward that area as if it is trying to get a head fake move off, there are mitigating factors which again are covered in the Daily Wrap from last night, but the drop in volume and the internals are certainly not broadly supportive of a true breakout, but a head fake move which I often estimate at 80% probability no matter the timeframe, no matter the asset as long as there's an obvious range, technical level, moving average, etc. that will cause traders to take action.

This morning's EU / Greek rumor gave the market a head start via USD/JPY which is yet to come down, but as we have seen all day, there's little to no confirmation in today's move which is exactly what defined a true head fake move or "false move".

For instance, just looking at Index futures...

 As mentioned earlier today, it looks like someone front ran the trial balloon of the Greek 6 month extension rumor that was not sourced and even denied by some official sources, but it got the market giddy thinking there may be an end to the Greek /Troika stand-off. The retraction from Germany sent the Futures lower, but they seemed to have capitalized on their breakout which they couldn't pull off yesterday,  however nearly every where I've looked today from Index futures to averages to individual stocks, there's no support for the move which looks to be desperately trying to hit some target before it is rejected lower, I'm guessing that's the SPX range, but it could be just a move higher and the sentiment shift that comes with it.

 Here's NQ Futures, the most important part of the chart is to the right, the lack of any intraday confirmation of the move, it doesn't have long with no confirmation and it's getting parabolically desperate.

The IWm or TF futures looked the worst well before today and still do.

As for Leading Indicators, they are not yet "screaming", but they are improving i the direction expected which is toward negative dislocations.

 The red custom indicator is our SPX:RUT Ratio and it was not confirming yesterday, but today is far worse.

I showed the Pro Sentiment leading indicator during the cash market yesterday which was leading positive, by the close which was in last night's Daily Wrap, it deteriorated in to the close which is not so visible now, but you can see the chart in last night's post.

This looked like a clear effort to get something going yesterday at the SPX afternoon lows and then fading in to the close, it's certainly fading in to today's price action which is finally some movement in Leading Indicators that I have been waiting on.

 In addition, HYG is lagging the SPX today, this is more Leading Indicator confirmation or at least a good start to it that we have not had the last several days, now in place.

HYG's 3C trend is and always has been one of the most telling indications we have, whether to call bottoms like the October lows almost a week in advance while everyone was as bearish (in some cases new record levels of bearishness in some measures) as you could get or whether to warn of impending HYG/SPX divergences calling tops.

The intraday noise is here and there, but the trend is clear, remember the base for this cycle started 1/29-2/2...

The base for this chop/bounce cycle is to the left in white on the time axis, the 10 min chart is a clear, clean trend with little noise telling us what HYG's most probable intentions are, LOWER.

 Here TLT outperforms the SPX intraday, normally it "should" be making lower lows as the SPX makes new intraday highs, but it refuses to which effects yields, one of my favorite leading indicators as they act like a magnet for equities. The last several days, yields have been leading the market, supporting an upside move toward them, today that changed.

This is what I meant about yields leading to the upside (in red vs SPX in green) and the SPX followed, which is why I like them so much for their dependability, but here's the change today...

 The SPX (green) reverted to the 30 year yield's upside on the Greek rumors and early strength, but then because of TLT's relative strength, yields fell and are now for the first time in several days leading the market to the downside, not just the 30 year either.

 The 5 year is doing the same, now the pressure on the market is to the downside, taken with no 3C support intraday, it starts to become very dangerous, especially if a head fake move is achieved.

And one of the most stubborn indications, PIMCO's HY Fund which has been leading to the upside for the last nearly 2 weeks shows its first major break with the SPX, not only not leading and not in line, but leading to the downside. It's about time we get some movement.

More on the way.

NFLX Trade Set-Up/Follow Up...

This post from Jan. 28th shows the trade set up we put in place for NFLX to come to us on our terms, the trade set up and related posts are linked in this post, NFLX Follow Up.

From where we first started looking at NFLX for a trade set up, it has hardly moved, we are about +2.5% higher today than we were at the first mention of the idea and that idea was a set up, looking for some future events to occur including letting the trade come to us a bit more, but was also more or less the area that I expected we'd likely be looking at a NFLX short new or add to position, probably the most important part of being patient and waiting for the set up on the gap up on NFLX's cruddy earnings, was timing for the trade.

 The gap up was on earnings that were defined by price action long before anyone would have time to read the full earnings report and see the grey lining of the report. The gap up looked to me at the time and still does as if it were planned in advance because of the gap down and inventory held by professionals at that level that needed to be relieved (the gap in yellow), but as I had discussed in the linked NFLX posts and even before the earnings came out, often it's price action that determines the perception of an event and that is why I think NFLX was set up in advance and was going to gap up no matter how good or bad the earnings, perception rules the market at least with knee jerk reactions.


 This 2 hour chart shows the positive divegrence set up in advance of earnings. One of the things I wanted to see was for this 2 hour chart which was in line at the time, to go negative and it is starting to lead negative which can take some time for such a long term timeframe, but it is doing what I hoped to see.

 The 30 min chart also shows the advance accumulation/ set up and the distribution of NFLX which has been choppy, but range bound.

From the short term charts like intraday, today's action looks like NFLXX could roll over intraday from today's gains shortly, similar to the rest of the market and no support for any upside moves.

Here's the 3 min chart in the gap up range and it is deteriorating on a larger relative basis as well as intraday today.

As is the 5 min chart and through the range. We often see the strongest 3C activity in the seemingly most unlikely places like flat ranges with little movement otherwise.

This 10 min chart of NFLS is broadly negative, I'd like to see it hit a new leading negative low, but honestly at this point, I think NFLX is probably just about as good a position (short) as you'll likely get, it's the timing issue and that means the broad market updates, the Leading Indicator updates and the market ramping lever updates.

As soon as the broad market looks like it's done and it looks very close to that point now, I don't see anything that would hold me back from taking a good long look at NFLX as a short. Make sure you see the past posts that are linked in the post above, especially about their earnings.