"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).
So not surprisingly...
Overnight bad Chinese data and German data sent Futures a bit lower. As you know, the market almost always picked up (cash market) where the 3C signals left off the previous trading day so this morning none other than the USD/JPY was what lifted the Index futures and guided them most of the day.
Now back to the Week Ahead post...
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.
(3C charts picking up where they left off the following trading day even over a long weekend)...Again, other than intraday, I would not trade this long, but sell or short in to a possible bounce."
Then in Friday's Daily Wrap that followed the post above from Friday afternoon, I added additionally (after looking at some other charts)...
"As for the Dominant Price/Volume Relationship...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"
I think it's fair to say that the Week Ahead forecast was for early strength in the week, followed by additional and likely sharped downside as we have actually entered stage 4 decline. In one of the posts Friday, I made mention of something maybe along the lines of the September area that led to the October decline which looked like this...
While this could be a "rough example" of expectations for early this week and what comes next, neither are really appropriate as we have already entered stage 4 decline in the case of the first area and we are not that far in to stage 4 at the second area. Beyond that, things looked a lot weaker today. However, I don't think we are done with the early week price strength, but may be as soon as tomorrow.
I still feel the same as Friday in saying I would NOT try to trade it long, but rather use any price strength to sell in to if I had long positions that were highly market correlated or short in to if there were positions I wanted to add or add to.
Note both of the candlestick price patterns in the September example above, that's essentially what we have today all around...
In the other averages, we have something more like the following...
Two things to remember about candlestick reversal set-ups, 1) they don't have a target. In the September example of similar candlestick reversals, they moved 3 days up in one case and 1-day up in the second. 2) Candlestick reversals are about 3-4 times more effective if they have increasing volume which NONE of the averages had today. This doesn't mean they can't and won't see further price strength tomorrow, they simply just aren't strong reversal signals whether that be 1-day or even part of a day. Check the volume on the major averages, both the Dow and NDX above have lighter volume.
As for the actual 3C charts, except for the NDX, every one of the averages saw significant weakening today.
DIA
IWM
SPY
The SPY is the one average with more relative weakness along the lines of the Dow that "I could" see flopping from here which would mean a big divergence in relative performance, but it does hve a bear flag that "could" fall right from here, usually we se a little head fake above the bear flag, but again, this is one that "could".
NASDAQ 100/QQQ
I'm also not concerned in the least about the market here and would add to the QQQ put position on a bounce tomorrow as soon as I saw weakness like the SPY , DIA or IWM.
In addition, all day the VIX short term futures were strengthening and their inverse, the Short Short term VIX futures, XIV was seeing the same weakness as the averages as it moves with them so if I were wanting to, I'd have no problem adding to the UVXY position or VXX long.
Looking at some Leading Indicators, there's nothing surprising based on what I just said above and what we were expecting coming in to this week...
As for AAPL, a surprisingly weak performance and it didn't seem like the watch went over well. Did I hear $10k for an AAPL watch in gold? Seriously?
This looks very much to me like a normal market jiggle the same as any move to the downside whether it be last September's move to October lows or a full on bear market like 2008, nothing is unusual here.
TLT looks like it is under strong accumulation, but also looks like it will pullback tomorrow which would facilitate stronger accumulation. Being yields move opposite treasuries, the short term implication as in tomorrow would be yields supporting the market intraday, the bigger implications would be TLT heading significantly higher near term and yield plummeting and pulling the market lower which is all pretty much in line with the above expectations near term for early this week and the rest of the week and likely month.
Again, nothing strange here or out of line with expectations for the week. As mentioned above, Treasuries were bid all day today which means yields moved lower as Treasuries moved up, setting up weakness for the broad market this week...what we already expected as of Friday's Week Ahead.
So, I'm very comfortable with the "early strength " this week which may be over tomorrow at the rate the charts are moving, followed by stronger downside as stage 4 resumes, I'd call this a shakeout / corrective jiggle of no importance, but if it can be used, I'd have no problem using it (to buy VXX/UVXY, inverse ETF, etc. in to brief market price strength, not underlying strength.
The Dominant Price/Volume Relationship made absolute sense with today's weak underlying trade action. All 4 of the major averages for the first time in a while all came in at the same, Close Up/Volume Down which is the most BEARISH of the 4 relationships. The Dow's dominance was 19 stocks of the 4 possible relationships, the NDX saw 71, the R2K 774 and the SPX 287 so not only was it a Dominant Relationship and the most bearish, but a strong one at that. This is exactly what I would have guessed after seeing today's 3C charts and VXX, HYG, bonds, etc.
Also dominant and on the 1-day overbought side (as Friday we had a 1-day oversold which usually sees a green close the next day), today's sector performance and 1-day overbought usually sees a next day close red. We had 8 of 9 S&P sectors closing green with Industrials leading at +.94 and Energy lagging at -.72.
Of the 238 Morningstar groups, we had 166 of 238 green, not quite as overbought as the S&P readings, but there's room for tomorrow if it can hold through the day, if the market can hold green through the day, I'd expect to see the same overbought condition in the MS groups and the same Dominant P/V relationship, but I'm getting ahead of myself with today's weakness to even expect that the market can hold through tomorrow.
As for Breadth Indicators, the ones that revolve around moving averages (above and below with 1 and 2 standard deviations) didn't move at all today, meaning there was virtually no gain in market breadth at all. In addition to the numerous breadth indicators I mentioned last week (especially Friday) that have just fallen off the map, you can add New High/New Low ratio along with the 4 week, 13, and 26 week versions, all falling off the chart bearishly.
So that's about that, the only surprise at all for me was that we had some reversal candlesticks on the close in the major averages with underlying (3C) charts as weak as they were today, I wouldn't think they'd make it past noon tomorrow on the upside and I may be right about that, we'll see in the morning, but it is a very weak "Early week price strength" move.
Look for TLT to pullback tomorrow and likely offer a nice long entry if you are interested in bonds long, also I think just about anywhere in the area VXX/UVXY/VIX futures are going to be a decent long entry. On the other side of that, other than specific stocks like NFLX which we hit at the very top with a short entry, I'd suspect inverse ETFs will be excellent long entries or add to positions like FAZ, SPXU, SQQQ, SRTY, QID, TWM, TECS, etc. I'll look at those and verify tomorrow for anyone interested as we are in stage 4 so it may be one of the last decent places to get in before you are chasing as I showed the diminishing returns and added risk on Friday in the Daily Wrap.
Index Futures look horrible right now. The way they look, I'd be surprised if they didn't see some significant downside before the cash open tomorrow and while we are talking about that, most of the averages ended the day on a sour note with 3C so if 3C picks up where it left off, all the averages would be weak on the open and likely through the rest of the day and at that point, why not the week (the QQQ being the only exception).
For an idea of what Index futures look like right now...
As usual I'll check them for any unusual activity before turning in and post it if I see it, right now everything makes perfect sense with the "Week Ahead" forecast from Friday with early price strength in the week, not market strength , followed by a resumption of the Stage 4 DECLINE.
Have a nice night.
