Daily Wrap

Our bounce is here and as I said and displayed earlier today, it's looking a bit weaker than what we may have been use to in the past as a corrective type bounce rather than a head fake with a mission! This is the same bounce we have been looking at with a couple of divergences run over on the conflict in Yemen and this morning in which I suspected a minor pullback, however the Chinese central bank news and RUMORS sent Index futures higher, not that it changes the expectation that we'd be in a bounce today or just after a minor pullback from the divergences at Friday's close.

Again, this isn't anything I would be trying to trade on thelong side, but rather shorting in to any upside once we have strong probabilities and set ups, why introduce risk on less than ideal probabilities when we have positions that are aligned with high probabilities already in place?

I think the market is telling us a few things, one does anyone remember so much market volatility during the MENA Arab Spring or even events like Ukraine / Crimea? I sure don't, I remember thinking, "That's odd that the market or oil has barely moved on a regional uprising that kicked 40 year leaders out of power. However now, much smaller events, rumors and the like are having a far more profound effect on what I would call a "Nervous market".

There also seems to be a rotation from EUR/USD (formerly USD/JPY) back to USD/JPY, but I'm keeping an eye on both at present and the bigger issue seems to be the $USD which I'll get in to in some detail as we move forward, mostly on account of the Carry trade.

 60 min USD/JPY has been out of correlation with ES (purple) until just the past couple of days.

Whereas EUR/USD had been the main pair, again until just the last few days.

A little over a week ago I also mentioned that with our bounce which is likely more just coincidence of timing than anything, we should see an increase in market volatility as most of the time a stage 4 transition (DECLINE) will bounce around with a slight direction, but real direction and real downside moves don't appear and don't hold until the volatility that is not present in that early rambling period picks up which is why I have said more than even a bounce, watch for volatility to increase whether on the upside or downside, but eventually it will matter most to our stage 4 decline.

The weekend news that the PBoC is worried about the amount of fall off in Chinese growth and the hints that they may have to do something about that apparently caused a false or unsubstantiated rumor to be published by Shanghai Securities news, sending Index futures higher overnight with what they called an imminent (possibly today) RRR rate cut by the PBoC, of course that was mere speculation/rumor, but the market bought it and thus ran over the second small divergence (the first on Saudi/Yemen hostilities), but fulfilled the larger divegrence we have been tracking for a bounce which we expected to start today anyway.

There were a couple of short squeezes, right on the open and around 12:30, TICK shows them pretty well.

Between the opening Short Squeeze and the just afternoon squeeze, it was just about the biggest Most Shorted Squeeze in 2 months, although not much happened outside those areas.

Large caps/Dow was the best performer today, but just missed holding on to the psychological magnet of $18k. Talk about volatility, now the Dow and SPX are green for the year, however they and the NASDAQ are red for March. As I said Friday, I don't know how many times I have said the averages are red or green for the year (YTD).

Don't forget about Q1 2015 Window Dressing (The Art of Looking Smart) as the quarter ends tomorrow.

Earlier I posted that the Process of distribution in to the bounce seems to be well under way, which is pretty early compared to previous bounces, there's more on the topic right here, Process Has Begun...

Here are a few charts showing the close...

 SPY 3 min intraday leading negative

QQQ 2 min intraday leading negative.

IWM 5 min has seen migration today alone, in fact even the 10 min chart shows a negative divegrence.

I'd say our expectations of selling in to strength or shorting in to strength are being met, remember though this is a process, so be patient, lets let the trade and the set-up come to us. The point is, it appears we are well on our way to what we expected and should be moving back to the stage 4 decline sooner than later, perhaps even sooner than I expected.




Gold
I was looking at Gold (GLD/GDX/?DUSt ) which was a short idea just March 23rd, at a slight gain right now...TRADE Idea (SWING) Gold Short or GDX Short/ DUST Long


Here's what I suspect we are looking at in Gold on several different trend/timeframes and I'll use GLD and gold futures' charts...

 This red arrow is where the post for a GLD/GDX short or DUSt long idea went out on 3/23, TRADE Idea (SWING) Gold Short or GDX Short/ DUST Long.

 Gold pulled back from our call earlier in the year and we wanted to monitor the pullback as I suspected there would be a nice area to buy GLD on the pullback. We saw the positive divegrence in white after the pullback on this 30 min GLD chart, but since there's a clear negative divegrence. I believe gold's primary trend will be to the upside and likely around the same time the market is breaking to the downside on a primary trend basis, but it was signals like this recently that caused the call for the GLD short SWING TRADE, again the post, TRADE Idea (SWING) Gold Short or GDX Short/ DUST Long.

I believe on a swing trade basis, GLD has more downside to go, in fact it's likely just getting started.

On a 30 min chart of gold futures you can see a confirmed uptrend at the green arrow, this is coming off the accumulation/base you can see on the 30 min GLD chart above this and the negative divergence in red is the same as the 30 min GLD chart above.

 The 15 min chart shows the same thing, a positive divegrence after GLD's pullback, a bounce and a negative divegrence which is what the most current position, TRADE Idea (SWING) Gold Short or GDX Short/ DUST Long is based on.

Again on a daily GLD chart it looks like this...

From left to right... Our call for a pullback and eventual probability of a bounce buy as the pullback ends, the bounce higher and the most current negative divegrence, I suspect this pulls back toward the recent pullback lows in white and this is why this is not a bounce trade, but slightly longer swing trade.

 

30 min gold fuures shows the same negative divegrence that caused me to post the trade idea linked above.

 The 10 min GLD chart from the pullback positive divegrence (which looks a bit too small to me to be the extent of a base for a buy on the scale I was considering when calling for the pullback in January, so a move back down toward those lows and a double bottom of sorts or "W" base seems most likely on the Swing trade basis/target.

 The gold futures 7 min chart also sows the negative divegrence with more detail and how gold futures have pulled back since then.

 GLD 5 min chart shows the same negative divegrence like the gold futures 7 min above, although at today's gap down, the chart is at least in line very short term.

Looking at the 2 min trend of the same area, we can see the same positive divergence from the end of the January pullback and the same negative divegrence above that led to the gold short Swing trade idea.

While I suspect VERY near term we may get something like a gap fill, on a swing trade basis, I'd expect Gold to pullback likely at least to the former base lows around $109.50-110.

This 1 min Gold futures positive divegrence may pull off a gap fill from today's gap down, but on a swing trade basis, it shouldn't make any difference even if it fills the gap, otherwise I think the trade and the downside target are still in line on a swing trade basis. For anything larger than a swing trade, we'll have to see what Gold looks like if/when it reaches the area it last accumulated at. I personally think there's a probable primary gold uptrend trend trade that would be available, but I do think even if the wider base is in order, this most recent pullback base area needs to widen out a bit more to support a move through numerous resistance levels.


Leading Indicators...
Our leading indicators like the SPX:RUT ratio are still supportive of more to the bounce. However a few are starting to lose some of that support early on which is another indication that we may be dealing with a much shorter bounce than anticipated and I didn't anticipate a lot beyond a typical corrective counter trend bounce.

HYG gave up some support in to the close, although still broadly supportive, the decline that may be a divergence soon looks to have started. VXX and TLT didn't show much different from our earlier Leading Indicators post. Both Pro Sentiment indicators fell off hard in to the afternoon, another indication of perhaps a weakening or even weaker than expected move.

Yields barely moved at all, they were in a +1/-1 bps range today. which puts them pretty close to the SPX reverting to the mean short term so they shouldn't have much of a positive effect like they had just before the bounce started today.

Internals...

The Dominant Price/Volume Relationship was mixed somewhat today with 16 Dow stocks closing at the most bullish relationship, Close Up / Volume Up, however, ironically this also is most often a next day short term overbought condition.

The SPX had 281 stocks in its dominant relationship and the NDX had 68, both were the most bearish at Close Up /Volume Down. This isn't a strong next day bias relationship, but it is a strong indication of what kind of bounce this is.

Again, like we have seen so often over the past month or so, the Russell 2000 has a conspicuous lack of Dominant P/V relationship.

Other internal measures also suggest a strong overbought condition is already developing with 9 of 9 S&P sectors green with Energy leading at +2.15% and Consumer Staples lagging at +1.01%.

An amazingly strong 218 of 238 Morningstar groups closed green. The market was obviously near term oversold as reported last week on a 2-day basis looking at internals and is running to the other side of extreme very quickly, while seeing distribution in to the move.


Finally Futures...

USD/JPY looks like it's going to see some overnight downside, this should weigh on the averages if it carries through until tomorrow and being the divergences on the single currency futures are pointing that way both on the 1 min, 5 min and 7 min charts, I suspect that's a fair possibility (see the ES correlation with USD/JPY the last several days - above).

Index futures don't look good either. They saw distribution intraday and that has put them in a worse position as the day has gone on as we have seen in the averages as well.

 ES 1 min

TF 1 min

ES 5 min

NQ 5 min

TF 5 min

And these keep going through 7 min charts, and even on 10 min charts .

The bottom line is this looks like the kind of bounce I suspected and it sees to be falling apart rather quickly, perhaps because it didn't have that base, but again, this was expected to be more of a counter trend bounce, a normal corrective bounce rather than the other types we have seen earlier in the year which had specific targets and goals like to break the 2015 range and create a bull trap.

Have a great night, I'll likely be throwing some ideas out there sooner than later, sooner than maybe I even expected.

Additional Confirmation

I don't want these posts (last 3 including this one) to be taken the wrong way, there's almost always a process to a reversal or say distribution in to higher prices in this instance. Just because we see the process has started (and in this case earlier than normal for the year), it's not an immediate signal that says, "this is the moment", it's more telling us that what we expected is not only showing evidence of occurring, but in this case faster than usual which lends some credibility to the forecast that this was a normal counter trend bounce, albeit likely on higher volatility, it's not at all the same as the February cycle and head fake that was meant to take out a certain area.

The one advantage of Index futures is that we don't have to wait for the signals to catch up or reset during the cash market, these have been running since Futures opened yesterday and overnight, so they are already caught up and they are telling us the same thing as we saw in the last post.

 ES / SPX Futures intraday show 1 interesting divergence, it's positive and just before the cash open so we have an idea of why the market reacted the way it did on the cash open, they seemed to have decided they might as well run the bounce on the nice head start it got off PBoC and a rumored PBoC rate cut as early as today which was a bunk story, but got futures moving. Note the positive intraday divegrence right in to the cash open in ES.

More importantly, note the leading negative divergence as just shown in the last post intraday in to higher prices. There's no leading positive, not even confirmation of current price levels, but everything thus far is pointing to selling/short selling in to rice strength by smart money as expected before we had the bounce firmly on the radar and it was more of a gut feeling.

TF / Russell 2000 futures are showing the same intraday, just like the averages and as I said, in this case there's no need to wait for a re-set of the charts from Friday's anticipated cash market move on today's open to the new reality from the overnight session.

Market Update:Process

This is the follow up to the last post, Process Has Begun... with charts.

As I was trying to get across, the two bounces from this year both had a purpose, in fact the biggest one which was the February cycle, we called the purpose in advance of even having any charts suggesting a bounce. There was a range that was very obvious, it was in the most watched asset/market average and we were able to forecast the probability of such a bounce taking place before we had any proof it would based on the concepts and based on the fact that there was a reason for such a bounce.

The second was much less of a good reason, more a conceptual effect that was a lot of the F_E_D knee jerk concept. I would say the first had a mission, the second was a reaction to something we have noticed over the years.

I'd call this bounce something different and did early on in the initial stages of a gut feeling something was coming again before we even had evidence, but in this case it's not a bounce on a mission to accomplish a goal, but in my view a more "NORMAL" counter trend bounce that we would see in any chart of nearly any asset over the last 100 years of charting. The volatility increase I expect to see in not caused by the bounce, it's not even an effect of the bounce, the bounce and whatever move it makes is an effect of the increasing volatility which is part of stage transition (in to DECLINE which has already started).

The point simply being, this in my view (and I'm consistent about this because I held this belief on March 10th when I first had a gut feeling and closed the March AAPL/QQQ puts) is a normal market correction enhanced a bit by increasing volatility, but it's very different than the last bounce or the first one of the year which had a very specific mission  that we could call well before it even started.

One of the things I have had to wait for today are the intraday 3C charts to reset and stoop reflecting data from Friday's close and reset to where we are now which takes some time, but it looks like that has not only begun, but is already showing us the process in action which is what we need to call an area of where we might be most interested in particular assets at the best timing we can get.

Looking at the afternoon NYSE TICK Index with SPY in red, you can see they were roughly in line until about 1 p.m. or so intraday, then TICK fell off and wasn't /isn't making the sronger intraday breadth readings that should be seen following the red SPY.

 This is the 1 min SPY somewhat in context from Friday's scale. You may recall earlier today I said there's no upside confirmation of price which is obvious here as the fastest chart (1 min intraday) "could" confirm higher prices by making a higher high, which it does not, but this is background information, the specific intraday information is below when I zoom today's 3C chart in to price on an intraday basis.

 Note on an intraday basis 3C moving with SPY in green until just after 1 p.m. like TICK which deteriorates at that time and suddenly the 3C chart is leading negative intraday.

This would be an early implication of distribution in to higher prices, the very theme we have been calling for since the first gut feeling of a bounce to come. This would also be very early in the process compared to past bounces that were on a particular mission with a goal , this looks much more like a corrective bounce of a short term oversold condition which we confirmed last week in market breadth.

The QQQ2 min

 This chart shows support for the base that was created in support of a bounce and as of Friday, the very short term signals were for price to make a stronger "W" base that could sustain a bounce longer, that didn't happen today, but again it's what the chart has shown since the reset as we are seeing a deeper leading negative divegrence to the far right suggesting higher prices are being sold/sold short as anticipated and again, very early in to the bounce which fits with a correctional bounce rather than a bull trap, head fake bounce.

 A closer look at the QQQ chart intraday, I don't think I even need to point it out, but to the right side of the chart, 3C is falling hard on higher QQQ prices.

 The 2 min chart is likely seeing some migration, although not leading like the 1 min chart yet as it takes a stronger divegrence to migrate to longer timeframes,  there's no hint of any support at all.

 IWM 1 min with support for a bounce/base at the white area, a small negative Friday suggesting early weakness to finish the base area with a "W" base which can hold up longer.

 If you didn't already see it on the chart above, here's the intraday view of IWM 1 min, a clear falling off of 3C intraday in to higher prices as expected.

The 2 min chart intraday may not be as obvious, but there is migration coming across to the longer timeframe meaning a stronger developing negative divegrence.

More to follow...

Process Has Begun...

As I was just saying in some earlier posts and as I always maintain, the market and its bases, bounces, tops, etc are more often than not (much more often) a process as opposed to an event.

Take the 2007 market top or any H&S major top, the building of that top and the H&S price pattern is a process, there are different events we look for in that process to confirm that we are looking at either a valid top or random price movement, but the point is , it's a process. The same would apply for a base or bottom. Some of you may recall the charts I showed of Home Builders in 2000 while the Tech Bubble was imploding on itself, yet Home Builders were quietly and inconspicuously floating along around lows. There was nothing interesting about the price action of Home Builders itself until you looked at a 3C chart and at that point, it became obvious that someone knew something as they were accumulating Home Builders which would lead the next bull market (many with gains of 2500%) and they were doing so a good 2+ years in advance of the housing boom, again,  a process of building a base.

An event would be something like the overnight ramp in Index futures on a bum story from  Shanghai Securities News that the market wanted to believe anyway after a PBoC governor came out over the weekend and hinted that more easing would be necessary because of the faster than anticipated demise in the Chinese economy. This, on a short term basis was more of an event that a process. However what occurs on a 1 min chart will typically occur on any other timeframe  as the market in most ways is fractal, meaning concepts that work on one timeframe in one asset will work on nearly any timeframe and any asset, like the micro and the macro and their concepts working just as well on a 1 min chart as a daily chart. I believe this is because Humans trade all of these assets and traders transverse a wide variety of trading styles from intraday to investors and even the HFT algos were programmed by HUMANS, thus human nature which is one of the most consistent themes throughout history, finds its way in to the market in multiple assets and multiple timeframes making these concepts fractal in nature.

 In any case, once the bounce starts, higher prices are to be sold in to or shorted in to, this has been our tactical plan since first identifying the bounce. For smart money or lets say "BIG Money", the process is important because unlike you and I , they can't just enter or exit a position with a single trade and go unnoticed. The size of their positions attracts unwanted attention and if they aren't careful, they'll get an AAPL 2012 like decline in which positions that were way to big were being sold as every hedge fund rushed out of AAPL and all out of the same small door, after finding out about Dan Loeb's sale of his AAPL position, leaving AAPL from a period of all time new highs to nearly halving its gains with a -45% decline in 8 months.

In any case as you'll see in a few minutes, it looks like the expected process and reaction in to higher prices has already begun, the distribution or selling/shorting price strength (our game plan) .

I'd still remain patient, just like I was trying to demonstrate with the concept of price targets based on where a 3C divergence is first seen, there's still a process, I think one of our greatest mistake (myself included) is not to respect that process and to push things too early rather than to show patience and let the market tell you when it's ready. The market will do that as we saw Friday with daily candlesticks calling a bounce, leading indicators, 3C charts, etc. All converged on Monday/early this week for a bounce. While we see the process unfolding, it doesn't mean it's time to jump in both feet, but it does seem pretty early in the process to already seeing it unfold which speaks to my original assessment that this is not a bounce with a mission like the February cycle that was meant to break the obvious 2015 range with a head fake move or the F_O_M_C related knee jerk move , but rather a more natural counter trend bounce/correction.

Charts on their way as it seems enough time has passed t clear Friday's signals and give us fresh ones from today intraday.

Market Update / Leading Indicators

Details in the market can be dangerous, for instance you might have read my often repeated warning, "Don't get lost in the lines", meaning you can miss the forest for the trees, especially when you trade and/or watch the market all day.

In the same spirit, as of Friday's "Week Ahead" forecast,, I was expecting some early morning/Monday weakness, but only minor from 1-3 min intraday charts which was meant to actually strengthen the base and let this bounce finally get on as we have been tracking it for over a week now.

Much in the same way I'd say "Don't get lost in the minor details, wether the base is finished as expected and I think it clearly would have been had it not been for over the weekend statements by a PBoC governor hinting to the possibility the PBoC may have to ease as  Chinese growth has tumbled further than they are comfortable with. Then overnight,  that being followed by a fictitious rumor from Shanghai Securities that the PBoC may pull out a surprise rate cut as early as today, that's what really sent futures up overnight.

From my perspective with the Yemen news last week sending futures lower or pinning them in place and not allowing a bounce to get started, I'd say this entire bounce process or event is running more than a few days behind.

Looking around all morning, I realized we were already expecting the bounce to start today after a little base finishing up, why get lost in the lines of fine details when a fundamental news event overruns them?

This to me looks like a bounce underway, the bounce we have been expecting and I see no reason for the gap to be filled right now as it will be filled on the way back down.

On  daily SPY chart we had the two reversal candles last week for the bounce early this week in yellow and you can see today, just normal gut feeling from being in the market for sometime would tell me it would be very unlikely to come back down just to finish a small part of a base and give up a catalyst that got a bounce started without having to do anything other than let the headline scanning algos chase the false rumor, it just wouldn't make a lot of sense from here.

The market has to be one of the most dynamic (I would say) living organisms in the world which requires you adapt or you fall by the wayside, I think it's pretty safe to adapt to a few 1-3 min charts getting run over as is more common here any way as warned numerous times and specifically in this instance well over a week ago with one example of that already having taken place, YEMEN.

As for Leading Indicators, as posted Friday, they were mostly all set up for a bounce an way as of Friday, despite very early morning action expecting some backing and filling around the base area, the bigger picture was the expectation of the bounce to begin today , thus why get lost in lines of minor expectations that were run over?

In Leading Indicators there are pretty much 3 or 4 distinct phases, for the purposes of a bounce there's support in building the base which is a larger trend in the space of this base , but not talking about anything beyond this specific bounce. 2) There's a very minor backing and filling, mostly from Friday that fit well with the Averages' 1-3 min divergences suggesting an early pullback, finish the base, maybe a quick head fake stop run to squeeze some shorts as a way to start the bounce and then the 3rd signal which is that of the bounce itself.

If we include a 4th indication, that would be the bigger picture and eventual failure of the bounce.

Within the last week or so I posted some charts on  the concept of price reversing to at least the area of where we first saw the 3C divegrence start.

In a nutshell I've explained and showed evidence of this concept numerous times which essentially states that if (in this case) price is moving down as it was, the first area in which we see a POSITIVE 3C divegrence suggesting the very start of a possible base to form is the area that upon the actual bounce reversal would be the minimum upside bounce target.

The example I have given and shown to worked in the past has been, "If we first saw the 3C positive divergence (not strong, but the first sign of a change) around the SPY $209 area, no matter how much further SPY drops (in this case to $204.12) the expected reversal or bounce on the continuing 3C divergences should carry price at least to and most often above the area where it was first noticed (in this case around $209 SPY). Thus, conceptually, if you bought the SPY on that first day and held, by the time the bounce came and went, that position of SPY long at $209 should at least break-even or more commonly be at a gain as the $209 level would be the minimum target".

Leading Indicators

This is our custom SPX:RUT Ratio in red vs the SPY in green. We have been tracking a positive divergence in the indicator (red) moving up as SPY has moved sideways, one of the pieces of the puzzle of evidence suggesting the bounce theory was correct.

Today that indicator is more or less in line with price. Had the indicator been pointing down today, then I'd say a pullback to finish the base has some evidence, but that's not the case.

Our pro sentiment indicator shows a positive divergence (blue) vs the SPY (green) on Monday, thus the start of the bounce early this week and likely Monday looked high probability and today they have reverted to each others' mean, SPY up to the leading signal of Pro Sentiment.

 HYG, High Yield Corp. Credit, being one of the most liquid HY Credit assets and one of the most over-used for short term market manipulation was leading the SPY as of Friday and other days during the base area (white) and today, the two are nearly perfectly in line (green) or reversion of SPY up to HYG's leading position, this of course is an intraday basis and you should remember the intermediate and primary HYG trends which are in a primary downtrend and severely dislocated to the downside. Bigger picture, the market should revert down to those deeper primary trend lows the same way the short term price action reverted up to HYG's leading high position from Friday.

So once again, despite the finer details of finishing a base early Monday, the larger picture for this bounce section was that it would start early this week, likely Monday as well so there's really nothing that's contradicting that other than the fact some intraday divergences that really only had  minor weight early today, are run over after the surprise PBoC news and false rumor from Shanghai Securities News of an impending PBoC rate cut as early as today.

 VXX-Short Term VIX Futures in blue with the SPX (green) with its price inverted so you can see the normal correlation between the two that have an inverse relationship, shows VXX leading lower or on the weak side Friday, suggesting the bounce in the market we have been tracking was on its way as VXX positions were closed out, the same as I wanted to close the UVXY position before the bounce (2x long VXX).

Today, they've reverted to the mean and are in line. I see no evidence anywhere above to suggest any gap fill or further base building is likely.

 The Spot VIX shows the same thing as VIX futures above.

Yields (5 year) also show a leading position as yields tend to pull price (SPX in green) toward them as a LEADING INDICATOR, and they did that as the bounce base was being formed (white). There's some slight deterioration in Yields Friday which is in line with the original assumption of a minor pullback to finish up a sturdier "W" base early today before bouncing higher, that didn't happen and the two have reverted to the mean (green), however already suggesting that there's some sell in to strength occurring.

Just remember this as almost everything in the market is a process, not an event, just as the base formation was a process rather than a 1-day "V" shaped reversal  event.

The longer term view of the same 5 year yield shows it leading the SPX lower to the left at the F_O_M_C knee jerk and at the highs just after (red boxes) which pull prices lower before entering the base/bounce area (white) and of course reversion to the mean in green,  essentially telling us price is where it should be, right where yields are as they act like a magnet.

 The 10 year yields larger picture for 2015 shows the two in line in green, the market losing Yields' support at yellow as we enter stage 3 top and distribution and then the market following yields lower from stage 3 in to early stage 4 decline,

However even on a shorter term chart of just the last few months Yields are still severely dislocated lower, the larger the picture we look at, the worse we can see how badly this divergence really is.

Again, just as price reverted up to yields short term today, price will revert down to yields as has already happened on the chart above and to the larger, longer term dislocation. This is Multiple timeframe analysis.

 Commodities shows the same, positive at the base building (white) , a short term pullback early this week on Friday (yellow) and thus far no confirmation on the upside suggesting early on that the bounce will fail as expected, but this is very early probable evidence of that already building.

 A larger trend of commodities and how they diverge or lead the SPX lower in red squares as you can see the divergence and then the SPX catching down to yields.

Note the divergence today specifically with the SPX green up and commodities (brown) down.

Finally HY Credit (Credit leads, stocks follow), again showing support at the SPX bounce base building area only AFTER the significant divergence of HY Credit at the lows as the SPX tried to bounce on the F_O_M_C knee jerk reaction, While it didn't happen immediately (it''s a process), SPX reverted back down to HY Credit's lead. Tot he right in white is Credit minor support for the bounce we have been looking for.

Again Credit is significantly dislocated to the downside big picture. Just like short term the market reverted up to short term leading indicators and slightly longer term it reverted down to leading indicators as ween above in the red area and following credit at the green confirmation area, the big picture will also see the market revert down significantly to the deep dislocations lower of leading indicators.

For now I see no evidence or need for the market to pullback to the base for anything.

The main thing was we would be looking for the bounce to start early this week, it's here.

Now we watch for our opportunities to enter short positions and or sell longs. 

Market Update

VOLATILITY!

It doesn't matter where it came from. I'm sure many of you remember the Arab Spring, maybe what it did to the cost of crude and the market in general when countries as big as Egypt were having their leadership toppled one after another.

What happened to oil and the market for the most part was absolutely nothing! Now we have an overwhelming Saudi led coalition that has 10 countries behind it all giving military aid and the market is jumping around left and right. Crude is seeing volatility, this is nothing like we saw during the Arab Spring and this increase in volatility is typical for the place in the cycle we currently sit, at the start of stage 4 decline where fear rules as the strongest emotion in the market which is the reason I said up front when we first suspected a bounce and every day since, "I would not trade this from the long side, but rather use any bounce to sell in to or short in to".

The reason was simple, divergences don't often get run over, even at this stage of a cycle, but it's far more likely that they will get run over at this stage of a cycle than any other time and that's because of volatility and the emotion of fear that drives this stage of a market cycle.

In any case, after last week's surprise news on Yemen with the Saudi coalition invading and knocking out some key rebel leaders, we've seen divergences, if not run over, then at least delayed or needing to be reformed.

With the Asian news rumor that the PBoC would engage in QE, we have a new surprise event, this time in the opposite direction. I'd normally think Wall St. would through their hands up in the air and say, "A bounce is not worth all of this", but for whatever reason, once we see them start a cycle (the accumulation phase even for a minor bounce), it's very rare to see them abandon it.

I could probably use a thousand words right now and nor accurately convey all of the craziness on the charts between a negative surprise in the market last week and a positive surprise (even though a made up rumor) this week, but I think the charts will probably show it best.

Here's a look so far this morning and what probabilities look like... Remember short timeframes equate with near term probabilities, intermediate timeframes with intermediate probabilities and longer timeframes with the most likely course of the market's direction in the big picture.

 This is the SPY since coming down and starting stage 4 in red, then the bounce/basing area in white which is already longer than it normally would have been had the Saudi news last week not held the market down from this short term eventuality (Bounce) that was pretty much built.

 Intraday this morning the market popped higher on the overnight futures move, as the cash market opened they lost momentum.

This can be seen clearly in the NYSE intraday TICK data.

 This is today's TICK data (number of advancing issues less number of declining NYSE issues).

As you can see on the open there was a positive +1250 TICK reading that quickly fell off in a downtrend in TICK as well as moves to -750. Right now it looks like TICK trend is about to see a break above the channel as I look at it, it is a very new signal though and not well formed.

I could use any of the intraday charts mostly from 1-5 mins, but all from 1-3 minutes like this 1 min SPY and they are negative which was what was reflecting early weakness Monday to probably finish the bounce base that has been interrupted last week by news that was an unknown or not discounted. This was why I suspected early weakness Monday to finish up the base followed by the bounce finally, but the PBoC Central Bank rumor and comments over the weekend trumped all of that on another news item that was unexpected and not discounted.

 IWM 3 min as an example of what I just said below, there's no short term positive, no confirmation of today's open at all in these 1-3 min intraday trends which makes me wonder if they still have the power to pull the market back to do what it was originally looking to do early today or do they just let the bounce run now that it has a good head start?

 Around the 5 min charts the re's more of a reflection of the bounce, less of the very short term intraday weakness expected early today/this week to pullback and finish the base.

 At intermediate charts like SPY 15 min you can see a divergence that is big enough to say the probabilities still rest with a bounce, it's the shorter term details on the 1-3 min charts that are foggy, this shouldn't matter too much for our purposes unless you are trying to trade a bounce, which I don't think is a great idea here for the reasons we have seen the last week, which we haven't seen over the past several years on much bigger news events with further reaching consequences,

And the longer term SPY 30 min tells us even with the probability of a bounce, the market's highest and strongest chance/probability is to resolve to the downside at a new lower low.

This does not preclude a bounce, in fact technically we already have it in place. I think the only thing is the very near term 1-3 min charts and what all of these surprise, non-dsicounted events may mean to a bounce.

Again, I think it has us in a pretty good spot because of where the highest probabilities are (to the downside) and because a bounce is only helpful for us, not harmful and only helps to establish additional positions in assets like financials, biotechs, transports, etc.

I think the charts are clear enough that we should expect a bounce, we have already started on. I don';t think the fine details matter much, but I will track them as best as we can as far as intraday trade. I? think it's more important that we look at the assets mentioned and others and find the right area to get involved in new or add to positions there and other wise let our positions already established just work for us.

I'll have more on specific assets.