Different This Time...

Today was an interesting day with yesterday's deep leading negative divergence (most of all seen in the NASDAQ which took out $5k yesterday and losing it today...so much for follow through ) picking up right where they left off. Last night's Daily Wrap included the following chart and comments...

 "This is the QQQ placed in to scale so you can see today's movement alone.

In Friday's "Week Ahead" we did expect some early strength based on where the 3C charts left off, if this chart picks up where it left off as is the case much more often than not, I'd say we'll be on our way to the finishing of this cycle and the weakness for the week also in the Week Ahead forecast."


Sure enough, right from last night's Index futures divergence, seen below, again from yesterday's Daily Wrap, Index futures did nothing but decline all night.

 "ES/SPX Futures intraday, looking a lot worse since the close, but divergent through the day."

The following ES Index futures' chart was from about 7:30 last night. The overnight session saw a decline that swallowed the parabolic move to the upside the last hour and a half of trading Monday by the time the market's this morning's, A.M. Update.

It seems a couple of factors were in play, not the least of which was the psychological magnet of NASDAQ 5000, but as we always say about chasing, it's dangerous. One of the key components of Technical analysis is price confirmation which means a lot of traders would have BOUGHT the NASDAQ yesterday as it crossed above $5000, this morning or this afternoon, all would be at a loss. In fact, some of the major average took out a week's worth of longs in less than 3 hours this morning.

While the psychological magnet of $5000 is in play for a specific reason (these posts do not directly address the psychological pull, but do explain motivation and usefulness of moves like yesterday as head fakes or "Failed breakouts"... * Understanding the Head-Fake Move Part 1 and * Understanding the Head-Fake Move Part 2.), there were other extenuating circumstances that made hitting the psychological magnet easier which should be anticipated most of the time as there's a lot of free-bees up there and a lot of potential pain for retail traders.

As mentioned earlier today, Technical Analysis teaches to buy breakouts and short breakdowns on price confirmation. If you remember and understand the 3 places we'll short a Head and Shoulder's top and the 1 place I will NOT, then you can understand the psychological magnet breakouts as head fakes, it's the exact same concept just in reverse.

In any case, whether you believe this, whether it has been your experience or not, something was VERY ugly about yesterday's underlying trade as seen on the QQQ 1 min chart from last night posted above.

Today I mentioned the mental / psychological expectations we sometimes place on the market and the realities that often include from 2 to 3 changes in trend intraday (remember there are 3 trends: Up, Down and sideways). I mentioned that it's common to see the first change on the cash open, the second around mid-day or the European close and the 3rd in to the afternoon or closing trade. This morning's pre-market ugliness did not see a bounce to the upside as is normal in a market that's trending above its 10 day moving average on an overnight decline, rather it moved lower and by noon the SPY had taken out 6-days of longs, and every average other than the Dow was now red on the week (note this is just minutes from the European close.

ES /SPX futures fell since the divergences posted at last night's Daily Wrap and continued to fall in to the North American open, bounced just after the EU close and started to turn sour again after the Actavis issue had been priced and concluded.

While Actavis might not sound like a big deal, this was the second biggest debt placement ever only behind Verizon's in 2013, with $21 bn in 18 month floaters to 30 year fixed sold. The yield on 10-year Actavis debt was nearly 1.75% higher than a 10-year US Treasury and the auction went off with 4.5x more money willing to buy than what was available for sale. I have little doubt that our Feb. 24th TLT/TBT , TLT / TBT Spec Position, was a direct result of the Actavis offer and rate lock in place until the issue finished auction today.

I even said in the post linked above re: TLT/TBT,

"I still expect a very short term TLT pullback as I have maintained since yesterday, this is very short term. That should loosen up downside pressure on the market during any such move"

The reason is simple, with falling Treasury prices, bonds yields increase and we have been using yields as a Leading Indicator for years now both intraday and longer term.

Take a look at Yields since our post in to today's close and the close of the Activis issue.

This is the 30 year yield (a duration offered by Actavis) and our call on the 24th for lower TLT/higher yields which in turn support higher equity prices. You can see the first half and most of yesterday moved almost perfectly in line with the 30 year yield, as we use yields as a leading indicator as they tend to pul equity prices toward them.

However, while that may have contributed to yesterday's gains in the market, the 3C QQQ chart is undeniably ugly...
From yesterday's chart... The divergence was so strong I had trouble scaling it t the chart. Consider this as the Q's gave up a decent portion of their gains today and looked like PURE DISTRIBUTION yesterday, as a rate hike is expected sometime soon by the F_E_D (yesterday's WSJ/Hilsenrath article put a majority of F_O_M_C members seeing rates at the end of 2015 at 1.13%, well over the market's F_E_D Funds futures which are pricing in half that at .50% by the end of 2015) with the Actavis issue oversubscribed by 4.5x, meaning $4.5 offered for every dollar of debt available or over $90 billion offered on a $21 bn offering, does it maybe not make a little sense that investors were rotating out of risky equities and in to fixed income? $90 billion dollars doesn't just fall out of the sky (not to suggest that the Actavis issue is better quality than a US treasury, it isn't for sure, but yielding nearly double for a 10 year bond). Ironically, the rate lock and increasing yields would have likely made it possible for the NASDAQ to hit 5k.

As mentioned earlier today, once the Activis auction was complete, 3C signals didn't look quite as decent as they did earlier, there's a decent chance that yields are about to fall now that the rate lock due o Activas' offering is over.

The deterioration in intraday breadth can be seen in this late day Quick Market Update.

Additionally...

 While this is hardly the smoking gun we saw with the q's yesterday, today's mid-day bounce off the lows saw late day pressure in the form of negative divergences building and keep in mind, other than the Q's, most of these reversals were on a "V" price pattern event (just barely more reliable than a parabolic move).

SPY intraday

 QQQ intraday

IWM intraday

XLF/Financials intraday

VXX which trades opposite the market with a positive intraday after having made the decision to keep the UVXY position open after a 6+% gain since yesterday's Trade Idea: UVXY (VIX Short Term Futures).

Don't get me wrong, I'm not building any macro case here, we are talking about short term intraday movement after all of the averages closed red today after the big breakout that prompted CNBC to ask If it was "Different this time?" yesterday, the sure-fire sentence used at every bubble / top that I've researched since the 17th century Dutch Tulip Craze.


I believe the reasoning was that in 2000 there were companies like Pets.com...Did everyone forget how the market got here? It sure as heck wasn't on its own!?!?

In red we have F_E_D balance sheet expansion to over $4.4 TRILLION Dollars from somewhere around $800bn in 2008, in blue the S&P, notice any correlation before QE1? Notice any correlation after QE1? 

And our we still in QE or is the F_E_D unwinding its balance sheet? I couldn't believe they seriously asked the question is it different this time, but everyone always makes that case in a bubble, it's the number one way of knowing you're in a bubble.

Additionally the 19x trailing 12 month EPS that the talking heads say isn't far off the 14x trailing earnings average and thus "Not expensive", should be viewed as it is, with distortions and all such as the fact US companies have been operating in a zero interest rate policy environment for 6+ years now with the F_E_D expanding its balance sheet by roughly $4trillion dollars since 2008, certainly boosting corporate results and allowing them to borrow cheaply, but what have they been borrowing for? Cap-ex, equipment upgrades, modernization , hiring, expansion? No, they have been artificially boosting earnings with share buybacks. According to Bloomberg in 2014 S&P companies spent $565 bn on buybacks, that's 58% of corporate earnings on share buybacks to boost current earnings at the expense of futures earnings as that money didn't go in to the company to improve its effectiveness. Strangely, this is a phenomena that has been present in nearly in the last couple of bull market tops, share buybacks at the highs rather than the lows.

Is it different this time? Heck yeah it's different, but not in a good or sustainable way. It would almost seem like the talking heads still believe the F_E_D is pumping $85 bn a month in to the economy/market and has no interest in hiking interest rates, in other words, undoing everything that got the market to this ridiculous level.

Sorry for the rant, CNBC just drives me nuts ever since the 2007 top when they were pushing the book, "Dow 20,000".

Back to the objective data.

Also in last night's Daily Wrap I posted our DeMark inspired custom indicator showing the VIX with a new buy signal after the VIX saw net longs hit an all time record high in January  before being driven down to a current net short position and the indicator giving a buy signal yesterday.

Today VIX jumped to a 1-day 3 week high with an intraday print of $14.69, a day after our buy signal and the next day after our UVXY long.

 VIX daily chart and yesterday's buy signal.

Out custom SPX:RUT ratio did NOT confirm yesterday's late day parabolic ramp and you saw what happened on the open, it didn't confirm today either.

And after some horrendous HYG 3C charts over the last week or two and especially last Thursday, Things just got real interesting for HYG / HY Credit, I figured HYG would help out a little today like it did late yesterday even though it gapped down hard yesterday and closed red, but it didn't happen; HYG headed lower.

Speaking of our DeMark inspired custom buy/sell indicator, take a look at it applied to HYG (HY Corp. Credit)...

 That's a perfect buy signal in December and a large sell signal currently which HYG has thus far responded to both,  this being important because HYG 3C divergences have given us some of the earliest head's up indications of moves both to the upside and down.

I'm not going to pretend that today's intraday action was a smoking gun, I think the smoking guss have already appeared and today's price action is a result of such smoking guns  such as charts like this...

S&P E-mini Futures (ES) 60 min February cycle.

Today's interesting action was price in the overnight session and first half of the day, the rest of the day looked a lot like a typical intraday jiggle which you'll see on daily charts as well when we are in a primary downtrend, there's nothing exceptional about them,

While not quite as bad as last night's (which also was later at night than presently), Russell 2000 futures show the same late day deterioration in the 3C charts and the same after hours deterioration taking place as we saw last night (again, not quite as bad yet anyway, but I'll check on it again later)...

Russell 2000 intraday futures which looked the best as far as the intraday base and 3C trade intraday. There's obvious deterioration in to the close and after. I will check this again a bit later.

As for internals, today is the first day in about a week in which we have a Dominant Price/Volume relationship among the component stocks of each of the major averages. The Dow, SPX, Russell 200 and NASDAQ 100 were all Close Down/Volume Down. While we finally got a dominant relationship, it's the 1 of 4 with the least bias, I've take to giving it a knick-name which is, "Carry On", meaning there's nothing about this relationship that would cause a short term (1-day) bias to interfere with its trend. You could say it's the least influential relationship, but it is the most common relationship in a bear market (which is not making any statements or forecasts, just a factoid).

Breadth among the industry groups was HORRIBLE today. Only 2 of the 9 S&P sectors closed green, the defensive Utilities led at +0.61% and the laggard was Health Care at -.91%,

Of the 238 Morningstar groups we track, an almost unreal 37 of 238 closed green, the rest, 201 groups were RED! These two data points usually do point to a short term, 1-day oversold condition, but given the Dominant P/V relationship and volume, I don't see it as oversold, just a bad day breadth-wise.

Additionally today was what we'd call an inside day, in candlestick terms it's the same concept as a bearish Harami although yesterday's candle wasn't quite big enough to look like a strong/valid Harami, but the psychology of the price pattern remains, it's a typical reversal (bearish) configuration.

Just for those of you who like the early "Fade" trades, if we had a gap up tomorrow morning, this would be the start of one of the most common confirmation candles, a bearish engulfing which are commonly seen after inside days/Harami reversals. A Bearish Engulfing needs to gap above the open of today and close below the close of today, engulfing the entire body of today's candle so if we happen to get a gap up, you "Fade" traders might be interested in taking a close look (SHORT) as it's a common candle and I'd certainly put out an update as to confirmation or not. Beyond the candles being commonly seen as bearish confirmation, I have no objective evidence suggesting such an opening.

A quick run through Breadth indicators didn't show anything very different than several charts I shared last night, but the ABI (Absolute Breadth Index) did jump out and catch my eye...

Indicator in green positive at the October low, very negative now.

Also the Cumulative Volume Index, the Zweig Breath Index and the McClellan Oscillator are all divergent as well along with the other breadth indicators shared last night.

I'll check in on futures in a bit and send out a note if anything is standing out. 

Have a great night.

Quick Market Update

Believe it or not, since the Actavis placement of $21bn in 18 month to 30 year fixed junk bonds, completed today, the intraday breadth of the market has seen some declines and the intraday signals have seen some deterioration, it's not screaming, but as we saw something was going on in bond land last week, the reason for the TLT short/TBT long call, I see something changing since the issue above prices out (
4.5x oversubscribed).

The point being, you know our leading indicators and how Treasuries move opposite yields, yields move with the market, so even our trade idea in TLT/TBT was telling us as you'll see in the post that it should help the market short term.

In any case, now that issue is over and priced out, Treasuries I believe are going to start to return to a more normal state which I think is what is causing some of the intraday changes and breadth changes toward deterioration.

Remember Yields tend to pull the market toward them and they have been up almost since we put out our TLT short idea (TLT moves opposite yields, thus opposite the market).

That strange $21 bn dollar placement seems to have effected the equity market maybe indirectly, but also directly through bonds/yields, when I show you Leading Indicators it will make more sense.

However for now let me just post the intraday TICK and our custom TICK indicator and you'll see the change in character, however slight right now , since the Actavis issue priced, with the assumption the bond market
(Treasuries) should be returning to normal without the Actavis overhang.

 This is the intraday NYSE TICK Index or intraday breadth, remember I always say to draw a channel and look for a break of that channel as an early head's up warning? Well in yellow while not screaming, there's certainly a reduced upside ROC and in fact more of a downside bias since Actavis priced.

Here's our custom TICK vs SPX indicator, you can see TICK declining this morning with more stocks selling of and then it improving and then declining again after the Actavis issue has been finally prices.

The result or effect that had on yields and Treasuries is the reason our TLT/TBT trade worked, but likely had an unintended consequence of being supportive to the market, even though it was totally unrelated, except for any investors that are tired or concerned about the reach for yield in equities and would rather own Actavis debt, it's certainly plausible as the $21 bn dollar issue was 4.5 times oversubscribed.

 Passively the 5 year yield has gained ground since the 25th, the day after our post for the TLT short/TBT long. Here in white you can see 5 year yields leading the SPX, this is one of our leading indicators that has been very reliable. While humans may have been able to make the connection and discount the Actavis offering, algos certainly would not have unless they were taken off line and reprogrammed just for the Actavis issue.

Remember Actavis' offering went from 18 month floaters out to 30 year fixed? This is the 30 year yield also advancing and the 30 year treasury is declining , the reason our TLT short made money and TBT long made money. This also had the effect of sending 30 year yields higher and we use yields as a leading indicator as they tend to attract equity prices toward them

However in this particular situation, I guess you could call Actavis a short term anomaly that likely lent more support to the market than many parts of the market even realized and why.

The point is, it's done and over and since the ICK has been deteriorating along with 3C signals. Again, not screaming, but there seems to definitely be a correlation. The foot bone is connected to the leg bone and so on...

Taking TBT Long Off the Table

February 24h I posted, TLT / TBT Spec Position which was a short TLT (pullback) or long TBT (2x short TLT) long scalp position.

From the linked post above...

"I still expect a very short term TLT pullback as I have maintained since yesterday, this is very short term. That should loosen up downside pressure on the market during any such move. I think it is a tradable move for those who are very nimble, but rather than using any of the averages, I chose TBT, 2x leveraged short 20 year bonds, or 2x short TLT, the reason being is it has the 1 min positive divergence that confirms TLT's 1 min negative, the averages don't have positive divergences and I don't like trading something that isn't showing an edge. Again, this would be a quick trade/scalp and speculative..."

The position (TBT long) is at a 4.5 - 5% gain since posted remember it was always meant to be a short term scalp, although nothing precludes you from using more leverage than TBT's 2x inverse.

Since the post,

 This is the TBT (2x short TLT-20+ year bond fund) which was the trade idea...

Or TLT pullback (short), although I didn't think this had enough leverage on its own.

I will cover treasuries more extensively, but the divergences seen on the 24th that led to this call I suspect were entirely over the  Actavis offering which sold $21 billion of almost-junk 'BBB-' rated debt (at a minsicule yield of only 3.5%) in the 2nd largest bond issuance ever  The issue was oversubscribed 4.5x (around $90bn in the order book)  which means for every $1 offered, there was $4.5 in bids. This was a ten-part offering varying from 18-month floaters to 30Y fixeds and I suspect has been behind the recent havoc in the treasury market, now that it's over, I suspect things will be getting back to normal.

Remember the original idea linked above called this a quick trade or a "Scalp", so even a +4.5% gain on 2x leverage is not bad considering.

I've seen a few things pointed out last night, especially in the longer end of the curve that I suspect will see improvement, and ironically as everything is somehow connected to everything else, the Actavis issue likely had some role in yesterday's market ramp with Treasuries down and yields up.

Market Update

Generally speaking, we usually have 2 to 3 intraday trends. The first is typically a near reversal of pre-market on the cash open, then typically somewhere around the European close there's another trend change (assuming futures were headed down pre-market and then ramped in to the open, that's your first trend change, the change from early strength to afternoon drift is your 2nd and typically we'll have a 3rd one in to the late afternoon depending on where we are in a cycle).

Today we've had 1 trend change, the entire overnight session saw losses in Index futures since the ugly negative charts from yesterday and after the cash close , this didn't change on the cash open, just accelerated down with the SPY taking out a week's worth of gains in 3 hours. The second trend change intraday as posted earlier, IWM / SRTY Update in which the IWM looked best with the additional thought in the post, 

"If you chased the IWM or the other averages which could draft off an IWM move if it can hold together, you'd likely be put at a loss quickly which is why I don't chase, but let the trade come to us."

The point being the other averages missed something the IWM had which was a lateral consolidation intraday, the SPY/QQQ just drafted the IWM thus far on more "V" shaped reversals. The idea of the post linked above is an SRTY set-up or other assets.

Honestly I don't know why we as traders expect the market to move one way all day long, it never happens, even on strong days like yesterday after the CBOE came back on line most of the averages lost ground or moved laterally. Maybe it's because we have hopes or expectations that we expect the market to move in one direction all day, but history has shown, that's rarely the case except in extreme markets just like "V" reversals or parabolic move rarely hold as we have seen since yesterday's close and intraday today.

In any case, the IWM still looks like the leader (on the 3C charts) and everything else is just drafting it. I'm very curious as to whether we get a 2nd or 3rd trend today.

Here's what we have so far...

 This is the IWM 1 min, similar to the earlier update with the defining feature that turned me on to IWM without even having to look at 3C was the "W" base intraday as the other averages are "V" shaped.

I considered earlier taking the +6% gains in the UVXY position from yesterday, but I didn't want to send the wrong message , like I don't believe in the position or that you have to be a day trader.

However I did want to point out something regarding "W" bases, you see the IWM's intraday today above, now for UVXY/VXX...

There are a lot of moving parts in the market and most contain some information. Just as I said in this update and the previous one that IWM caught my attention without even needing to look at 3C because of the "W" base intraday, I'd point out the larger "W" base in UVXY/VXX and it's not intraday.

This is part of multiple timeframe analysis, the concept is exactly the same, however the trend and probabilities between the two charts are very different. The same way the IWM lifted of the "W" intraday, I fully expect VXX/UVXY to lift off this "W" on a longer trend basis. Taking that thought 1 step further, without any other analysis , we know that VIX moves opposite the market. So I can afford to hold UVXY, although you are welcome to trade it on updates like the last one in which you have a 6% gain in 4 hours and know that you can probably take profits of 6% and re-enter at a slightly better position than today's +6% area.

It's amazing how fractal these concepts are on one hand, on the other, it's just human nature.

 The IWM 2 min doesn't look too much better than earlier, still a relative divergence today, still dwarfed by the negatives of not only yesterday, but the past two weeks, especially last week.

And the IWM 3 min probably puts this multiple timeframe analysis in best perspective, the major signal being a large leading negative, the minor signal being a small intraday positive.

As for the SPY...

I meant for the 1 min chart to load fist, but the 3 min did instead, in any case, the in line status on the decline from last week is obvious and the leading negative divergence yesterday is obvious as is a relative positive today.

The intraday NYSE TICk can often give you an early head's up, if you can confirm that with volume, you have a pretty reliable signal for a reversal whether intraday using TICK or daily using a daily chart (hourly, etc.).

This is a simple intraday NYSE TICK Index, if you draw simple trendlines and see any break of them that trendlines on the averages have not broken yet, you have an early head's up and volume just adds to that. 

Looking at the SPY price/volume intraday, Technical Analysis misunderstands or over the years has been misrepresented as far as volume analysis goes. Most traders believe that increased volume on a move down is evidence of institutional selling,  these guys never show their cards, unless they want them seen. We've seen this time and time again in which a cycle is set up days or weeks , even years with home builders in 2000, before the move, the volume is not them selling, they have already been in place before the move started (like yesterday in to the highs). More often than not, that increased volume means exactly the opposite of what most technical traders think it is, it's more often than not, capitulation (in this case intraday and would give you extra confidence in an intraday trend reversal.

There are exceptions to everything, but this is one of the biggest misconceptions I've seen. Of the traditional Technical Indicators, I think you can do more with candlesticks and volume (with a basic understanding) than you can with some of the more complex systems and indicators, this is why I keep pointing out these anomalies, they are market hints.

 This is the SPY intraday 1 min in line thus far.

The Q's

 You can see the VERY negative 3C action in to yesterday's price action with the market picking up today right where yesterday's closing negative divegrence left off, we see this so often, I'd say it's close to 90%.

This is a relative positive divegrence and a "V" bottom, this is one reason the IWM looks much better and I believe the other averages are simple drafting it.

And QQQ 2 min intraday confirming downside earlier and then the upside with a slight negative.

All in all, you can't compare today to yesterday at all, I hope you also get what I'm trying to show with multiple timeframe analysis and probabilities and the market's "Jiggles".

If the IWM gets to an area in which SRTY looks good as well, I'll put that post =out as that was the idea of the original post preceding this one.

I'll also have some other updates coming out, some possible pyramiding positions that many of you are in already that have been working great as well as anything else I dig up. We'll see if we get trend change #2 today, the fact we have only had one thus far and the fact the SPX took out a week of longs in 3 hours should tell you something about how bad those negative signals yesterday actually were.

IWM / SRTY Update

The IWM looks the best to me of all of the averages for a bounce which in turn may set up a nice SRTY entry (3x short IWM).

As for the psychology of bear and bull markets, I haven't received a sentiment update from some of my sentiment monitors, hopefully I will soon, but take the SPY for instance, it has just taken out 6.5 days of longs in 3 hours, this is because bear markets move on average about 3x faster than bull markets. The 5 year bull market from 2002/2003 to 2007 was erased completely in 18 months, most of the damage in 8 months after a 60 month rally, that's at least 3.3 times faster on the downside and the basic psychological reason is that fear is a stronger emotion than greed, of course there were a ton of extenuating circumstances, but in studying markets, a ratio of about 3:1 is about the norm. 

While I don't have today's specific sentiment update, just think back to yesterday and last night's Daily Wrap showing the VIX at all time record net long position and then that position being tore apart and recent net short in the VIX and as I pointed out last night, it looks as if it's about to be torn apart, these aren't coincidences. When everyone and their neighbor was bearish at the October low and sentiment indicators were hitting record bearish sentiment (as traders seem to have no conviction on the market other than which way it moved over the last 24 hours), despite my feelings re: the market, I said it can't be a top, too many people are calling a top. Essentially the same thing happened in VIX at a record setting long position.

As for the IWM,  SRTY would be the asset I'd be most interested in if it can bounce. Remember from earlier, I don't chase assets or markets, be patient and they'll come to you or offer you an opportunity; there's a bus every 30 minutes so to speak.

 The psychology of candlesticks is very useful when paired with volume analysis. This is a daily chart of the IWM; to the far left we have a candlestick that is far from a text book Hammer "Bullish reversal" candlestick, but we do have a longer lower wick meaning lower prices were tested and rejected and it occurred on volume, I've found the increasing volume (it doesn't have to be huge, just increasing noticeably) makes a candlestick about 3x more effective or probable as you see support at the white arrow to the left that held from January through February.

The green arrow shows some pretty normal candlesticks for stage 2 mark-up, the two just above the white line are hammer-like, not reversals, but their psychology is that lower prices were tested and rejected, but in yellow the trend loses momentum and this is where it gets dangerous for this stage of the cycle. The next several candles over the orange line show a higher rate of volatility, but not a bigger upside move, this is often associated with churning. The candlestick from yesterday on heavier volume has a higher upper wick meaning higher prices were tested and rejected and the higher volume would make that move indicative of bearish churning. Had the candle closed at the highs, it would be a totally different interpretation.

 Here's the IWM 60 min chart and what you might consider a Channel Buster, if so, then the highest probability would be a move just back in to the channel. Any new shorts chasing today's price action would likely be stopped out and the longs would regain their confidence, but Channel Busters are a type of head fake move. There's also a gap from this morning that would be an ideal area for IWM to target.

 Note the IWM, unlike the SPY did not break this support line, had it done so it would have put the last week's longs at a loss like the SPY in a mere 3 hours. This is the congestion in this area I have mentioned several times.

There's little doubt yesterday's underlying action was very bearish, this is the Russell 2000 Futures 5 min chart, you saw how ugly the 1 min chart was yesterday and last night, it has reached longer charts and there's nothing approaching confirmation.

 The TF 7 min chart makes it as clear as can be

And the 10 min chart which is from last week as well was a part of this week's forecast, weakness.

Intraday the IWM's price pattern alone got me looking as it's more lateral than the other averages which had been just trending down and the "V" shaped bounces have not held and they rarely do. We have a small intraday positive on the IWM 1 min

The 2 min which was weak from last Friday, which is why I said we'd probably see early strength in the week, but there's nothing behind it, it grew weaker on yesterday's actions. This is what I mean by "Price is deceptive",

In any case, at 2 mins there's a relative positive, it's the weaker form of the two.

I can't say these won't be run over and the IWM breaks support and trends lower, but it wouldn't surprise me if it were to target that gap or the Channel of the Channel buster, that's where I'd consider a position like SRTY.

If you chased the IWM or the other averages which could draft off an IWM move if it can hold together, you'd likely be put at a loss quickly which is why I don't chase, but let the trade come to us.

I'll update SRTY and others that may look interesting if the IWM can get this together, I don't see it as any kind of threat to the larger week forecast of weakness.

If all of this is run over and it's not hard for that to happen and the IWM also breaks support here, fear levels will be on the rise and things may get ugly a lot faster.

Market Update

I'm watching for a couple of things, one would be an intraday bounce as there's congestion in the area, I've had several emails this morning that people are disappointed they missed this morning's move, I'd say "think bigger", your going to miss a lot of moves, you're going to get positions wrong, but there's always opportunity in the market. I believe chasing price is very dangerous, let the trade come to you.

We do have congestion in the area so there are some areas that the market will likely find some temporary support and even go for a gap fill, but also keep your eye on the prize. I like to think of the market in tactical terms as in what is the highest probability primary trend and then tactical terms which is more intraday, entries, exits, etc. and these are almost always going to be like yesterday when the market is going against a position like UVXY which is up nice today considering, but we had a reason to enter it, it wasn't just because it was low. Granted, this is not an easy way to enter a trade, but chasing it which may be more emotionally appealing, can be disastrous even if you were right, what matters is can you hang in there.

As you've probably heard many times here, Jesse Livermore considered one of the greatest traders of all time made this point in saying "Give me time, not timing", which is synonymous with the "Sit tight" theme.

In any case, as I'm watching intraday trade, I'm also very cognizant of the highest probabilities trade that stretches beyond a morning or beyond a day or a week.

From the Week Ahead post Friday (excerpts)..."I can't see how the week ahead doesn't make good on the very negative charts/price patterns in this area, the usual question though is where do we start the week. 3C charts typically pick up right where they left off, you've likely seen it again and again. ... From an intraday 1 min chart perspective and this is where the chart picks up where it left off...How this closes will depend on what I'd expect for Monday morning, at present it looks like some early strength Monday morning or picking up in the area."

Here's what we have thus far using SPY as an example...

 This is Friday's late divergence
(positive and the market picked up on Monday where it left off (positive), but closed yesterday and throughout the day with negatives, thus this morning picking up where the divergence left off, negative. In addition there was a parabolic move which I don't trust, this morning you see why.

Right now the SPY is in line, but it's coming to one of those areas of congestion, actually breaking below it right now, but that would be normal Technical Analysis that expects support levels to hold and if they don't , then the market must go down, this isn't our experience as Technical concepts are used against trades.

This is several support levels broken, but the one to the far left is my focus right now, it too was just broken.

A "V" reversal or bounce as you can see from earlier hasn't worked out well and they rarely do, if the market were going to try an intraday counter trend bounce, I'd expect to see volume rise significantly (stops taken out) and a wider non "V" shaped pattern.

However this is only a very short term intraday perspective.

 You saw Market Breadth last night, it has been for lack of a better word, "Horrendous", for the % Stocks > their 40/200 day moving averages not to move through this entire period of February and the other as far back as November is not good news for market bulls.

The intraday breadth on the NYSE TICK has been around +500 and -1000 with -1400 hit. Have you ever heard, "Stocks need volume (or QE) to advance, but they fall of their own weight"?

This was very true before QE, now that QE is done, it should become true again, but in this case I'm substituting Volume for breadth, the same concept applies.

 On the break that just happened as I started this post, the intraday charts are still in line.

SPY intraday and ES...

ES in line since yesterday's and last night's negative divergences sending it lower and confirming.

I'M NOT SAYING THE MARKET HAS TO BOUNCE INTRADAY HERE AT ALL, I'M SAYING I'M WATCHING FOR IT. 

As you know, I expected weakness strong weakness this week after some initial price strength Monday.

 The thing not to lose track of are the different timeframes and what each is telling us. This 10 min chart is telling us major damage was done the last 2 weeks and a lot of it in a flat range where we often see strong (positive and negative) divergences.

This chart was and is telling us that stage 4 is likely upon us now, which you can probably tell with the increased number of trade ideas and positions opened recently.


 As for the cycle, this 30 min chart is telling us it's very hollow, Remember the phrase, "Stocks can fall of their own weight".

This is almost exactly what we see in the SPX futures...

S&P E-Mini futures 60 min for this February cycle leading negative like SPY above.

I don't think this is coincidental at all, especially after last week's Things just got real interesting for HYG / HY Credit and yesterday's price move in HYG which is what really matters, the divergences on the HYG chart just tell us price is likely to move as the post linked above from last week was acutely pointing out.

As for the longer term, the October cycle is still in effect until a lower low is made, incidentally October was the first primary trend lower low in the market so an additional lower low below October will likely signal the Primary bull market is shifting to a primary bear market of stage 4 decline for the primary bull market. The charts here are supportive as well.

This of course is also backed up in S&P Futures on a primary trend...

 ES daily. to the right you can see that price is above all "Deceiving" as the indicator shows essentially pure distribution in to the February rally, but also makes a new leading negative low (3C from the left side of the chart to right).

To give you a better idea, here's the same chart without any drawing on it, hopefully you'll see what I mean...

ES

So any intraday updates I "may" give for a bounce, although I believe we are moving to stage 4 decline, bounces always happen, has nothing to do with the sub-intermediate, intermediate or primary trend, all very ugly.

As you may have heard here before, there's nearly as many up days in a bear market as down days, even though it drops at least 3 times faster than a bull market rises.