Daily Wrap

I'll be quick and let you start your weekend as most everything that is important to cover has been covered well before today.

This week we found out that the market has very little go-go juice left or that it really just doesn't care anymore about surprise central bank stimulative measures now that the big player, the US is gone and the other big player up to now, Japan, is seeing its central bank openly question the wisdom of continuing with asset purchases. Just today BOJ board member, Takahide Kiuchi, who is one of 4 on the board who voted against Kuroda's additional easing from last year said today that the risks of  more QE now outweigh the benefits and that the easing steps are unsustainable. This is the second very public opposition of additional QE in Japan.

As usual, the half-life of anything Draghi done is now a day, even when launching QE, of course there are just about as many questions as answers as to how it is logistically possible with not enough net issuance for the ECB to even monetize.

Also weighing heavy, despite the Greek "Deal" reached last month, the Greek government struggled to make an IMF loan payment of #310 mn Euros today, raiding pension funds. The situation is so bad that the politicians are proposing hiring 2 month workers to pose as tourists with cameras and recording equipment to catch tax cheats or at least to scare everyone in to not knowing how might be listening or watching. However in the mean time after scraping under the sofa cushions to make this $310mn IMF payment, it has $350 mn due march 16th and again March 20th. The consequences of which Tspiras said were grave and the EU's responsibility, so the Greek Tragedy is far, far from over.

This morning's jobs report is the last one that will be issued before the F_O_M_C meets on March 17th and 18th and suddenly everyone who has been saying a rate hike won't occur this year has changed their tune to "It's likely the F_O_M_C removes language at the March meeting" allowing them to hike rates in June.

As for the market this week, the SPX saw it's worst day since January 5th and this simple indicator of percentage gains will show you why I'm not a fan of chasing assets and rather getting in at the emotionally "difficult" areas.

This simple percent change by the day for the S&P shows today to be the worst day for the average since January 5th, but also note the area where the first divergence in price performance is to be found in white, in line with where we identified the base of 1/29-2/2, that's the area it makes sense to go long if you are going to do that even though we saw this and now have proof, it was a head fake move. The diminishing returns are not worth chasing as you can see, they are near PURE RISK. Those chasing the NASDAQ's breakout are at a loss in a few days. 

Note the clear divergence in price percentage gains by the day, it's an interesting indication on its own, but really shows you  the diminishing returns and higher risk level taken by chasing.

The entire expected head fake move ABOVE the 2015 range has been completely retraced and you saw the charts like 60 min ES, it looks like we have barely started stage 4 (DECLINE), but I'd say we've definitely started it.

Remember a break below the range is typically what a failed breakout (head fake move) does and it creates extra momentum on the bull trap set above the range as amazingly from my sentiment reports, the bulls are still wildly bullish, EXACTLY what I was talking about last night and how this time is different than the September highs that led to the trendline break and the October lows.

On a weekly basis here's the performance of the major averages...hint, all were red on the week and month,

 All of the majors including transports closed red for the week.

In addition as mentioned, Transports have not confirmed for 2015 and Dr. Copper is already way out of sync with the market and the newer Dr.Lumber saw horrendous performance, down for almost 2 trading weeks now, again, not confirming or rather diverging just like HY Credit.

The averages' performance YTD isn't much better...

This also shows the diminishing returns with Transports red year to date, the Dow at just about unchanged and everything but the NASDAQ just a step from red year to date despite all time highs just a few days ago, that's a head fake move for you.

On the time axis you can see our base and divergence as well as the larger returns that could have been made, after a certain point though, we are not only seeing a change in character, we are seeing an increase in the risk:reward ratio.

Treasury yields flew this week, 20-25 bps except for 2 years which hit 11bps for the week and they were up 10-13 bps on the day after the good news is bad news jobs report. This was actually the worst week for bonds since September 2013, which is why I have said I am not so sure about the long term prospects for bonds now unlike last year when we had beautiful charts. I still expect that short term yields will start to dump.

Commodities as we have been watching as a leading indicator again also sold off on the week, our oil scenario is still the working theory and there are some reasons I have found for gold to rally even without a rise in inflation so we'll be watching those carefully.

As for the Dominant Price/Volume Relationship, the Russell 2000 didn't have one. The NASDAQ was alone with 64 stocks at Close Down/Volume Down, which is what I call, "Carry on" as in there's no near term bias to interfere with the current trend.

The Dow and S&P were a bit different and more in line with our early forecast for the week ahead, early strength as both came in at Close Down/Volume Up, which is sometimes seen at an initial sharp break, but more often than not, it's a 1-day oversold condition that sees the following day close green. There were 22 Dow 30 stocks and 275 SPX-500 stocks.

All  nine S&P Sectors were red on the day with financials seeing the best performance at a loss of -.86% and Utilities lagging at a loss of -3.02%.

As for the weekly performance, all S&P sectors are red on a 5 day and a 10-day basis, ALL.

This is certainly a short term oversold condition, but again, when a market is breaking down, it can sometimes be difficult to tell just how oversold is oversold.

As for the 238 Morningstar groups we track,  a mind numbingly low number, only 19 of 238 closed green today, the rest were red, again another short term oversold condition in line with the assumptions of the Week ahead post for early next week. Amazingly on a 5 day basis, only36 of 238 were green, IN OTHER WORDS TODAY DID SOME MAJOR DAMAGE.

AS FOR BREADTH INDICATORS, ALL THE ONES I MENTIONED, THE MCO, ABI, CVI, ZBT ALL DECLINED TODAY, BUT MOST SPECTACULARLY, THE PERCENTAGE OF NYSE STOCKS ABOVE THEIR 40-DAY MOVING AVERAGE THAT HASN'T MOVED FOR 22 DAYS, DROPPED FROM 64% TO 49% TODAY, LESS THAN HALF OF THE NYSE IS ABOVE ITS OWN 40-DAY MOVING AVERAGE.

Momentum stocks were hit even harder (the indicator in green vs the SPX in red).

That will do it for tonight, enjoy your weekend and check for a Sunday night update as I'll check futures as always.

Enjoy!

The Week Ahead

Here's a look at Leading Indicators first.

 HY credit is in line on the downside with the SPX today, it's not leading (at least this particular asset) like I'd like to see, but it is in line.

HYG as we showed well over a week ago was falling apart, now price has, this is a true leading indicator and price is now catching down to it, but remember that HYG is already in a primary downtrend, the market still owes a catch down to a primary down trend.

Short term my custom SPX:RUT ratio is showing intraday support, meaning it looks possible for early upside next week like we forecasted last week, however this is 1 indicator and a very short timeframe.

Short term VIX futures (VXX) are lagging a bit, SPX prices are inverted and VXX should be up where the SPX inverted price is so that's another short term chance of early strength next week, but I would not trade long on that, if anything I'd use it to sell longs in to or to short in to.

Spot VIX is right in line and fine.

Yields are leading a bit today, but this is because of the probability of a June rate hike increasing today, I wouldn't think this would act as the usual magnet for that reason.

Here's TLT vs inverted SPX in green, in white TLT is showing strength as we have recently come to expect after closing the TLT short this week, today it is weak, again on the possible early rate hike on today's payrolls data, the last payrolls data before the next F_O_M_C meeting.

And inverting TLT vs the SPX, gives you some idea of what the long end yields look like considering the bond market closes at 3 pm

Commodities as suspected, have returned to a leading indicator, big picture negative.

Intraday TICK has been nasty and extreme as mentioned earlier, but since 12 pm it has let up quite a bit, the panic selling is not as strong.

 If there's a chance for the charts to pick up where they left off, this 1 min 3C SPY chart is about it, early Monday/early week (Monday) strength or bounce, but that's very dangerous right now with the margin debt as high as it is as a downside follow through day is increasingly high probability as record levels of margin debt will cause traders to have to liquidate positions, but that's where the best chance resides, it's about the same as last week, but not in such a weak position as last week.

Again, other than intraday, I would not trade this long, but sell or short in to a possible bounce.

 SPY 2 min has nothing, so there's no strong divergence built up that can power through the early part of the week right now.

3 min is in line and even worse.

10 min ..Do I need to even say it?

And the 30 min chart shows where it was safe to start taking action on the short side, I wouldn't trade against this chart.

The market likes to throw traders off track by doing things like bouncing and getting longs to believe that buying the dip is still the right course of action, but beyond that, I can't give you a much stronger case than the above.

I still believe TLT moves higher.

VXX/UVXY should move higher through next week, but short term confirm the possibility if not probability of an early week bounce (Monday).

I have some other reasons for believing a bounce early in the week is a good possibility, but I still would not chase it or trade from the long side but sell or short in to it at the right time.

That's pretty much that, much like last week except we are not only in stage 4, we have completed it to some degree in a single day (taking out the head fake in several of the averages).

Broad Update

As I said earlier, even holding positions that are underwater, or adding positions the last 2 weeks, it's signals like this along with many other indications (no one chart or indicator should ever be the basis of your analysis) that make it easy for me to sleep at night, I don't give a single thought to whether my positions will be okay, I know they will.

Hopefully by the time this is over with, we can look back and get a valuable lesson if it's still needed. There's a time and place to set up your positions, it's not after the fact, it's when you have strong objective evidence before the fact and some of this is recent and some of it is a case that has been built for 2 years.

ES 60 min again, the indications and probabilities were in place 2 weeks ago.

So does NASDAQ 5000 bother me? Just in terms of patience (as I'd like to start collecting on my work  and moving to new trades) , otherwise it's just another number.

This is the kind of market action I have warned again and again about when volatility picks up making this week's volatility post, EXTREMELY timely.

 The SPX daily and you may recall the head fake area we expected to see hit, Above the 2015 range. As of today, nearly the entire head fake move has been erased.

As for the Dow, here was the head fake expected move, above the triangle's apes and again, as of today, this week, it's all erased.

Remember I said bear moves are about 3x as fast as bull moves on average?

And the largest stock Index in the world, the NYSE has ERASED ALL GAINS SINCE QE ENDED ON OCTOBER 31ST, ALLL GAINS SINCE OCTBER 31ST!

It's not emotionally easy to trade with smart money, it goes against price action, it takes some emotional fortitude, but you want to trade with those who move the market don't you?

I have one thing left to do, the Week Ahead.

Other than continued stage 4 (DECLINE) weakness, I need to look at the early part of the week which I'd use only to sell or short in to "if" there's a probability of strength, I don't want to trade against this market on the long side without a VERY good reason.

Now Does This Divergence Look Credible

I've had years of experience with 3C, I know that sometimes things don't happen right away, but I have very high confidence in my indicator based on my experience with it.

I've shown you the ES/SPX E-mini Futures 60 min chart several times as a warning of what's to come.

Now, does it look more credible?

IYT (Transports) Trade Set-up / Follow Up

Earlier I showed you how transports despite these unbelievably low prices in energy, have not confirmed on the upside , this from a group that use to be an upside momentum leader.

Back in late 2014 (Q4) we identified the tell-tale price action of a change in trend coming, a tracking short position at full size was opened in IYT and it remains on as one of the core short positions, with about a 5% loss in it right now which is not a problem from my standpoint, especially given all of the volatility and chop in the asset.

However failure to confirm and failure to rally on lower input (energy ) costs, is a big red flag.

Since I haven't covered it beyond an update for a while, I'll give you a broader picture so you know what you're looking at as well as a set up, although if you are considering it as a trend position, I would consider any where in the area to be an overall excellent entry.

Starting from the macro chart to the near term charts and with the set-up at the end...

 This is the daily 3C chart, the uptrend to the left was a confirmed stage 2 move and even the daily chart shows that, however at the top of it is where we started noticing some trouble with the price trend and the 3C trend which can even be seen on this daily chart. Since, transports have been in a flag-like downtrend except the area is way too big to be a flag and 3C has gone negative from in line just several months earlier in late 2014.

 On a 2 hour chart the trend becomes more clear, I don't know if you can see what we saw at the time, but the stage 2 mark-up trend followed a trendline near perfectly and then peeled away to the upside at the second red mark, "t" from the left, that's where trouble began and transports caught my attention, since I think you can see that the 3C trend has been extremely text book divergent, one of the easiest and strongest divergences you can find.

 This 60 min chart can't go back any further, but if it could, the uptrend confirmation in 3C would sit flush with the price trend as it did when it was happening and the current leading negative position on a strong 60 min chart would be even lower if I had enough history to properly scale this trend, but all that's really important is to know that 3C did what it was supposed to in confirming the uptrend and since it hasn't, things have changed significantly for the IYT price trend which has turned choppy lateral like a top.

 This 15 min chart shows not only the lack of confirmation in transports as they have failed to break the range and make a new high, but specifically the 3C trend during this large flat range.

At this point I think we have the strategic out-look for Transports down as clearly as we can ask.

This is the 5 min chart, you can probably make things out for yourself since it has started trending down.

This is the VERY short term 1 min chart which was in downside confirmation and has a small positive now like a lot of the market today.

At the 2 min chart you can see it's not an especially strong divergence

At the 3 min chart there is no divergence so it hasn't even been able to migrate to the 3 min chart.

This tells me all te long term trend signals are very weak and we have a very weak bounce signal, that's exactly what I want to short in to, price strength on a very weak underlying trend.

As we saw a lot of Igloo/Chimney formations in the last week or two, this is the best IYT could do in breaking above its trend which would be notable for IYT longs, but it wasn't enough to confirm the Dow, the break back below should lead to the lower trendline and a continued lower trend.

So on a short term intraday positive divegrence, I want to set price alerts for a break above this trendline around the $162 area and then look for the tactical entry, but as I said before, anywhere in the area is a nice looking entry if you are looking at this as a trend trade as I would be. I'll be setting those alerts and I'll follow up if they trigger, otherwise, I'm perfectly content with the position and I think it's going to be one of the more interesting ones.

Quick Market Update

Here comes the oversold (intraday) bounce)...

 SPY 1 min

QQQ 2 min

The divergences stop at about 3 min, there's a big difference between 1-3 minute and 5 min, note the volume also a key giveaway.

IWM 5 min is really doing nothing, but the volume is very noticeable on this chart.

Seven years ago or so when I was placing well over a hundred trades a week, this is the kind of day trade I'd take one.

MARKET UPDATE & VOLUME ANALYSIS

I'm going to try to cover as many bases as I can here with regard to multiple timeframe analysis, but a large portion of that was just covered with the Index futures. I've added volume analysis because I see more and more it's making a comeback now that the artificial market that was buoyed by QE is fading and real issues which will include valuations are starting to make a come back. It turns out, HFT trading didn't change the market as much as we may have thought. It also turns out that roughly a 1/3rd of traders know nothing about volume analysis and probably 50-75% of the rest have the wrong ideas about volume analysis which have been put forward by Technical Analysis gurus who have misunderstood what they were actually seeing , being able to see underlying trade gives you a different perspective.

For example, large volume is assumed to be smart money selling and it's generally on declines, we have seen smart money is in long before a stock moves up and they are out long before it moves down, these guys don't show they hand they are playing unless it benefits them to do so, T.A. oversimplified everything which has always been the attraction of Technical Analysis, laziness.

For the most part, I don't want to enter anything short here because I don't want to chase. We added a lot of positions last week and the week before, those are for now, but if we do get a short term oversold condition and bounce, that's when I want to enter any additional positions. Chasing here just puts the position at a lot more risk in case there's a bounce which there will almost always be, that's just the nature of the market so I certainly wouldn't want to be run out shortly after entering because of chasing. That doesn't mean there aren't opportunities available still.

 This is the SPY 1 min, I had to roll it forward enough to cut out the big opening volume spike which was dwarfing everything else because I want to see volume in the area and if it picks up, you'll see why below. So far, we are pretty much in line. Since the capture the chart is slightly stronger, there's slightly more volume as well.

The 2 min SPY had already been divergent so it's just making good and catching down to 3C here.

There's not much improvement since the capture, just kind of flat. For the most part, these shorter timeframe charts are really only of use to me for tactical additions, AAPL is one I closed half of the put position on a move that was a bit to parabolic, good thing this morning with the addition to the Dow news, but I had every intention of adding back the half taken off the table on a bounce so these shorter term charts are what I'll be looking at to make the decision of when and where with regard to AAPL as well as the broad market and other assets.

 The SPY 10 min chart is seeing a worsening leading negative divergence and the SPY is stating to catch down to that reality, however I added volume and I think you'll see what I am hoping, that heavy volume is not smart money capitulating, in fact the opposite, it's more often than not a transition point as it was to the left at the market's 2015 range lows. Note what has happened to volume since the February rally, it has fallen completely off, does that wreak of demand?

 This 30 min 3C chart is showing what I expected from before the moment prices even started to move up in early February, that the move we be used as a distribution area.

However, once again, check the volume trends. Do you see the spikes in volume in to the lows as well as the falling off in to the highs? Although we can and do see churning events at market highs in which volume is huge, usually on a candlestick with a long upper wick, higher prices being rejected, that's a bearish sign.

 SPY 2 hour and the relative positive at the October low, also note the price lows and volume surges in white. Finally on a leading basis but via relative analysis, check the SPY's price at the red arrows vs 3C's position relative to the former 3C position to the left.

 The Q's intraday have seen volume increase, once again I had to roll the chart forward a bit to get away from the opening volume spike so I can clearly see volume now as it was badly skewed.

This 1 min QQQ chart has improved quite a bit intraday so I'd expect it bounced intraday, that's when I want to start considering any positions on the short side , not down here once the risk is too large and the pricing is at its worst.

Volume just adds to the case on intraday lows if it increases substantially, but you can see the volume trend in to the lows.

 On a 5 min QQQ, note volume builds at lows, this holds true for intraday , daily, weekly, monthly charts, otherwise, the Q's are in line with 3C.

Again another 10 min chart leading lower, eventually the q's will catch down to that reality (I don't mean eventually as in one day, I mean very soon, we are just at a level that's a bit oversold on an intraday basis and that's useful to pro traders, notice I said "traders", not investors.

 QQQ 30 min, I think you can draw your own conclusions, however the 3C chart is not scaled as low as it should be, the first divergence to the far left was right along the same area as price when it occurred so the actual reading would be significantly lower right now.

Once again, note the volume tends to the left and the unhealthy volume trend in to the advance. This didn't matter during QE, only balance sheet expansion mattered, it's starting to matter again, do yourself a favor and pick up the basics, it will serve you well.

 QQQ 4 hour

IWM 1 min intraday. The current 3C chart isn't much better than what you see intraday, but volume has picked up so that's a warning of an intraday trend change.

 The 10 min chart again has been right on since late last week and price has been catching down to it.

This 30 min chart should be pretty clear, this is another one of those charts that gives me peace of mind, the ability to sleep at night and know my positions will be fine.

And the longer 2 hour, the same effect.

I'll be looking for assets that are trade-set-up worthy. Other than that, I'd say probably by 2 p.m. the market will try to bounce off the lows, I'll be keeping tabs and update you on any changes, but that's what I suspect for what would be trend change #1 of the day.