Daily Wrap

Well there it is, pretty much as was anticipated last week, "Sell Strength in Price" as well as the forecast looking for a pop higher this week from Friday's, "Week Ahead" post, The 2 P.M. Op-Ex Pin Expiration / Week Ahead

"Now a broader look at the week ahead using SPY...

This 10 min chart shows the F_O_M_C knee jerk move, the distribution in to it we expected and the complete retrace of the entire knee jerk move as I always warn, "Beware the F_E_D knee jerk move, 80% of the time it is wrong". To the far right a positive for a bounce, but no where near as large as the negative on the chart. As far as what happens after a bounce early next week, I want to use it to short in to or open puts as the bounce looks to end..." 

This wasn't too different than what was posted last night in, (The) Daily Wrap in several areas, including internals with out 1-day bias which kicked in exactly as internals suggested...

"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."

 However,  most specifically in the Futures Update area from last night's Daily Wrap which was really just a recap of what we had been seeing all day in numerous other posts during the day .

"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."

In any case, we want to look forward, but we can often learn a lot by looking back whether it's what worked or perhaps what didn't so we can correct whatever we have learned.

TODAY THE MARKET BROKE NUMEROUS TIMES. 

Apparently sometime just after the open (possibly around 9:31 a.m.) NASDAQ stopped quoting symbols A-Z for up to 6 to 8 minutes.

Here's an official BATS (BYX and BZX) "Self Help" declaration against NASDAQ this morning...

It seems NASDAQ started operating normally around 9:37 -9:43:01a.m. depending on the source, but it may be NASDAQ came back online in pieces and totally by 9:41.

Shortly after Chicago PMI missed consensus of 50.2, coming in at 46.3 (above the prior of 45.8), it appears it was the NYSE's turn to break as *BATS EDGX DECLARED SELF-HELP VS NYSE ARCA and BATS BYX EXCHANGE HAS DECLARED SELF-HELP VS NYSE.

It appears there were at least 3 breaks of the market today. Some think these breaks are intentional to alleviate selling or to pump the market higher. Although I have seen correlation between the breaks and market prices, I can't say for sure that correlation means causation or if causation is the same in all market environments, for instance if the market breaks who's to say we don't see downdraft instead, just depending on a number of factors which I don't think we quite understand.

What I do know is in the past we have seen the market break on very low volatility and volume and I have raised the issue of "What happens when the market breaks during a panic and sellers can't sell?" Imagine a circuit breaker is tripped during a fear based sell-off, it doesn't even have to be a true market break. Does that act as a cooling off period in which cooler heads prevail or does it just exacerbate the panic? Either way, I believe at some point I'll be writing about this issue and what the actual outcome was. 

As you have heard, a full 1/3rd of professional traders have NEVER seen a rate hike, being the last rate hike was before the last bear market, I dare say 1/3rd of professional traders and probably a lot more retail traders (this seems to be a big issue in Chinese markets in which illiterate traders are flooding the market in an end stage Greed-fest which is part of a normal market cycle, but to the point in which they are illiterate?!?!) have never seen or experienced the emotions of a bear market. 

In fact this morning one of my favorite Ex-F_E_D officials, Kevin Warsh (as he seems to be a straight shooter) warned of the danger the F_E_D has created in that traders "think" the F_E_D has their back in another typical bubble indication of "THIS TIME IT'S DIFFERENT".

WARSH: "The markets think they have Yellen's number," that she will never allow markets to go down, Warsh warns "that is a very dangerous development."

I don't mean to be indifferent to the criticism Warsh had for the F_E_D and their role in all of this, check out CNBC as that's where the interview was conducted.

The market's performance for the week thus far hasn't been pretty...

 The major averages since the cash market opened Monday with the Dow and NASDAQ lagging the worst.

Today's last hour or so was pretty ugly....

The major averages this afternoon in to the close with the Dow, SPX and NDX all taking it on the chin.

 On the month of March as Window Dressing comes to an end, it's really only small caps that escape the market's wrath. Transports look horrible and this only after they failed to confirm Industrials on the year.

On the quarter or year to date, the Dow dips in to RED , the SPX (green) just manages to hold green and Transports lag badly.

This is the worst performance since Q3 2012. Trannies are also one of our core shorts.

Financials also had a losing quarter, the first in 11, another one of our core shorts (FAZ long).

Interestingly the Bond performance continues (outperformance for FY 2014) as TLT (20+ year bond fund) books nearly a 4% gain for Q1, the 5th consecutive quarterly gain for TLT, THE FLIGHT TO SAFETY TRADE.

And what of the momo trade that never seemed like it would end, Biotechs (another core short and a recent asset of interest as we started covering it again the day it put in its intraday high)... I'm guessing we are going to see a number of funds in about 45 days when their Q1 S_E_C_ filing is released, all dumping biotechs in to the end of the quarter.

 It looks like few funds wanted to go in to Q2 with Bios on the books. Still others will likely have bought just for Window Dressing,  which means, it's likely they'll start selling as April begins now that they look smart.

Th Ultimate Oscillator is divergent daily and Volume looks a lot like a Blow-Off Top in the area.

The charts we picked up on a couple of weeks ago, with distribution in to the blow-off move in NASDAQ Biotechsa (IBB).

A quarter's end bounce for bios. This is informative and tells you just exactly what smart money does with a bounce...SELL IN TO IT!!!

XBI being held in the range while under distribution, look at that intraday volatility late in the day!

Another strong performer on the quarter that we'll be talking about more and more was the $USD, up 8.9% for Q1 2015 which is the most since Q3 2008, perhaps that change in character is like the peeling away from the trend late in stage 2 mark up just before stage 3 top?

I have mentioned the break in the $USDX's primary trend and my gut feeling that not only is the carry trade already being closed, but it will get a lot worse with the immense size of it.

 Yep, this 1-day chart of the $USDX shows the $USD peeling awway from the trend on the upside, a clear red flag/change of character  and note the 3C negative divegrence as it does so.

Here's the primary trend on a daily chart and the first notable pullback in $USD. I suspect we are going to see a lot more of this.

Remember what I wrote years ago about the USd/JPY carry trade and the Yen in general , I said the Yen should rise and the $USD fall around the same time the market is entering a primary bear market.

 The daily chart of USd/JPY is looking a lot like a double top, sort of the way the Yen looks like a double bottom below...

Is the Yen (Daily) finally basing? Well the trend has certainly bent which tends to happen toward the end. Note the 1-day positive divergence as well as the $USD shows a negative 1-day divegrence.

Although I'm sure I didn't need to draw it in for you, the 4 hour chart of the Yen futures not only has a base-like lateral range, but a positive divergence of some size as well. The 3C charts would indicate the USd/JPY carry trade unwind is already well established, however I believe there's about $9 trillion $USD's in carry out there.

While crude ended the quarter down 10.0%, making it the 3rd consecutive quarter of losses , something that hasn't happened since 2003, I (and many of you) obviously feel something is about to give.

 Crude Futures 1 day chart, note the most recent divegrence, looks a lot like USO's longer term as well...

USO 2 hour chart with distribution in to a H&S top, a confirmed trend lower and a recent positive divegrence that has thus far done just about everything we've forecasted.

I posted an USO update earlier today, USO Update, and while it looks to me like USO has more work to do before a new leg higher, Crude futures themselves, very choppy today as inventories came in at a massive build after market, look, otherwise, like they are getting ready for a move higher.

The EIA inventories are out tomorrow at 10:30 a.m. Tonight's API was expected at 4.2mn barrel build and came in about a million above that.

The news from Switzerland is that there was no deal with Iran, but apparently the deadline isn't here yet and they have until "dawn", were (when) exactly that is ...?

As for the averages, I'd like to see them hold out for another day or so, however they aren't looking great as you saw last night /yesterday...

 SPY 10 min negative

SPY 5 min negative

Almost perfect downside 3C confirmation today.

QQQ 5 min also turning to the downside..

QQQ intraday confirmation near perfect as well.

As for Leading Indicators...

Most are what I'd call non-indicative today, meaning I think there's still a chance we get some better prices or maintain in the area, although there are signs that this will not last long as we already expected, but perhaps in to a long weekend? 

Our custom SPX:RUT ratio shows intraday leading support for the market near term and has been a great leading indicator, especially for smaller moves.

Yields might be a good example of what I mean as there's deterioration, but a little market upside and some more deterioration would give leading indicators the kind of divergences that makes them so useful.

 10 year yields blew right through the last bounce highs as they continued on a straight line move to the downside, equities tend to be drawn to them.

Most recently you can see a smaller divergence and prices have moved toward them, but they could and I would hope, "should" be more divergent within a day or 2.

 Intraday, this is how yields work as a leading indicator. Note the move lower in yields and not long after the market falls off in to the closing hour and reverts right down to the short term/intraday lead that yields provided.

 Commodities (brown) vs the SPX (green) are another interesting example. To the left commodities led the market / SPX and confirmed at stage 2 of the cycle (mark -up), then went negative at stage 3 top of the cycle pulling equities lower in to stage 4, The most recent bounce is also negatively divergent, but again, this could be a much better looking divergence as that's what we use leading indicators for. Just like a 3C chart, we don't want to try to torture something out of the chart, it should scream and jump off the chart.

Commodities intraday pulled the SPX lower from Monday's intraday highs and then again this afternoon. This isn't anything specific to commodities, but to the cross asset correlation , which is kind of like that song, "Dem Bones" "Your  knee bone is connected to your thigh bone, Thigh bone connected to the hip bone".

For example, simple legacy arbitrage, you might say that the Dollar is connected to the USD/JPY, the $USD/JPY is connected to gold, gold is connected to treasuries and yield are connected to equities...etc. Now you know why I quit the band.

In any case, additional indications can be found in HYG, High Yield Corp. Credit with the simple moniker, "Credit leads, stocks follow".

In that case, while HYG still leads near term, intraday...

 You can see the SPX has been in motion with HYG and most importantly for our purposes is the early warning of HYG divergences since it's the actual HYG price that leads equities as algos interpret HY Credit, a professional risk asset and as leading equities as risk assets, thus it tends to be used for short term manipulation.

 HYG's support for a bounce (white) and the 3C 1 min chart leading negative, early warning for HYG's next move.

 You can see the divergences that have moved HYG on this 5 min chart including the positive that has supported the market's expected bounce, however look at today's 3C action,  that's seriously leading negative.

And the longer term 15 min chart leading negative through the entire area of sub-intermediate leading of the SPX.

IOn other words, 3C is warning us HYG is about to come down and as such, lead equities lower as a leading indicator, but it looks like it's not quite there yet.

In addition, despite today's crazy VXX volatility, the longer term trend is very strong...

VXX 15 min ;leading positive divegrence.

We only need the intraday charts to fall in line which should be an excellent signal to start taking more aggressive action and it looks like we have a good start on that...

intraday 1 min VXX with a leading divergence through the last 2 days, this week or the end of the quarter's window dressing!

Index Futures had a clear negative to them last night,. right now, they are a bit closer to in line, thus with leading indicators and everything else, I have not felt like it was necessary to rush any positions, but as usual, let the market tell us when being that we re already in line with the highest probability outcome with core shorts.

 ES 1 min in line unlike last night's VERY clear negative across all the Index futures.

ES 5 min negative then more toward confirmation, again this is closer to in line than yesterday or last night's.

ES 7 min negative right in to reversion to 3C or confirmation.

My initial take is that it's time to really start looking at asserts to enter positions, but we should have some time and need not be rushed.

We'll see how that opinion holds up tomorrow, but that's my call for now.

If anything changes with futures before I turn in, I'll let you know.

Have a great night!

Index Futures Broad Update

Looking at charts, I find two mistakes people generally make, the first is they look at the asset they are interested in first rather than the broad market. It's a pretty well established concept and truth that about 2/3rds of any individual stock's movement will be determined by the broad market. The second most powerful force acting on any individual stocks' movement is the Industry group; Biotechs would be a great example and before that Transports. If the Biotech Sector is hot, the probabilities that just about any stock in the biotech sector will outperform just about any other asset is very high. 

In the case of Transports, they were very hot as a momentum play and therefore any asset in the Transport Sector would likely outperform the majority of the broad market. Likewise, since transports have become one of the worst performing sectors on the year (YTD),  it stands to reason that any transport stock , generally speaking can be expected to underperform. *There are exceptions to every rule or concept, but the market isn't about absolutes, it's about probabilities. Card counting , while frowned upon in Vegas to put it mildly is establishing probabilities rather than blindly accepting the hand you were dealt and letting fate do the rest, that's gambling.

I like to think we have much better tools and many more than simply card-counting to establish probabilities as anything less is simply gambling and lucky or not, over a period of timer, just like Vegas your luck runs out, thus we look for an edge in the market and that includes the way we look at the market, sectors and individual stocks.

Much in the same way I'd look at the broad market first and determine the most likely course which helps me establish the most probable outcome for any individual stock, imagine I was in a new area of land that is unfamiliar and I wish to set up a temporary residence like a tent as I'm passing through. I want to start at the longest charts or the widest view and see what the landscape tells me, then I may narrow things down to a specific area in which I want to pitch my tent whether that be on high ground to have a good vantage point or near a watering hole to have access to life giving water. Say after surveying the broad landscape, I've determined that there's a watering hole about mid way between the highest plateau that offers me a wide viewing vantage point and the canyon floor which I may wish to avoid because I don't want to be caught in an area in which perhaps a flash flood may put me in jeopardy. So after deciding what the larger prospects look like, I've narrowed things down to an area or the intermediate term in relation to the market (or perhaps sector relative performance). Now I want to take a closer look at the area and make sure wherever I decided to pitch my tent, I'm in a safe place, perhaps partially elevated to stay dry in case of rains and off beaten trails that may be animal/predator trails to the watering hole where predators may lurk , waiting for their prey. It's just rational decision making and the same applies for the market. The last thing I want to do is nail down my exact spot which is akin to picking the stock that best suites all of the prior observations I've made.

While the example may be a bit esoteric, it's survival the same as the market. You would not believe how many people do nothing but look at a stock with little observation of the broader market that we already know has the most influence on an individual stock's performance. I don't know if it is laziness or just not knowing better. 

In any case, in looking at Index Futures, I want to start with a broad overview, determine the most likely outcome or what I often call the 'strategic outlook", then I want to narrow things down to the "tactical perspective". In the context of out example, I may choose a location to camp at when in survival mode that takes the strategic outlook which is traversing the area safely and even better, using its resources to increase my chances of a successful journey. In doing that, I may have decided that the watering hole midway between the highs of the Plateaus and the lows of the canyon made the most sense from a safety, outlook or vantage point and survival perspective. Tactically I may even set some traps on the animal trails that are close to my camp, but not in the middle of it and thus I let the natural resources come to me rather than expend energy chasing or stalking prey. I know what the probabilities are and I simply set up my tactical trap to enhance my strategic goals.

Starting with the longer term Index Futures (I can't cover EVERY chart in every timeframe, but I did my best to pick the best chart representative of all of the avergaes') to gain a broad perspective (which we have done long ago)...

Starting from the broader view with the ES/SPX E-mini 1-day futures (*ES-SPX Futures, NQ=NDX futures and TF=Russell 200 Futures*)....

 The longer term strategic outlook is worse than this, we just don't have the history on these charts to show it, but this is more than enough.

Note the negative divergences or distribution in to the September highs to the left that led to the October lows which broke an important longer term trendline and set up some potential megaphone or Broadening Tops in several of the averages.

As 2014 transitioned to 2015, note the bad start to the year in this 1-day chart which is some of the strongest underlying flow of funds (accumulation/distribution concepts) as the 2015 Macro-Economic data is the worst start to the year in something like more than a decade despite the advantage of seasonal adjustments during the 1st quarter.
Just after that divegrence is a range that as well established and VERY visible, so much so in fact that I had said well before it occurred, that the market would have to run a head fake shakeout and set a bull trap ABOVE the range before we see any significant new lows that stick, it was just that obvious and just that easy to set up smart money's larger positions so they could sell in to strength and/or short in to strength just as tAppaloosa did reducing their equity exposure by 60% in Q4 2014 or Soros' SPY put position, expanded by 600% to levels not seen since Lehaman for Soros during the same period.

These are "STRONG HANDS", they don't run at the first sign of a bounce, their positions are large, they take time to set up and they have what you'd call conviction.

In to the move above the range, note the leading negative divegrence at new leading negative lows on a very strong signal 1-day chart, right where we expected that to occur as it was a head fake/bull trap allowing smart money to unload on retail who they knew would chase the breakout and the "all time new highs" title even if the market would then be at a loss YTD only weeks later.

The divergence to the right of the chart is the most important above as it shows the level of distribution in to what we forecasted would be a head fake move BEFORE it even started, it was just that obvious.

 The VERY strong 4 hour chart of NQ (NASDAQ 100 Futures) shows the same range area in yellow and the same HEAVY DISTRIBUTION at the head fake move above. This is the kind of resistance/range breakout that retail/dumb money has been conditioned to chase over nearly a century of Technical Analysis dogma which became mainstream analysis as the Internet allowed for the management of one's own account with cheap online discount brokers. In my view this was the biggest change of the last century to the market's and Technical Analysis as it was once an obscure asset in trading and is now a mainstream liability as Wall St. knows EXACTLY how retail will react to certain price patterns / price movement and that can be used against them. NOW MORE THAN EVER, PRICE IS TRULY DECEPTIVE.

Again, the leading negative divegrence to the far right is huge.

 The 60 min Index futures' chart are important, not as strong as the Daily and 4 hour, but important nonetheless. This is the 60 min NQ or NASDAQ 100 futures chart.

To the left there's an accumulation zone where we first closed QQQ/AAPL puts that expired as MArch monthlies, a good thing as well as the market bounced from there which would have eaten up all profits in both. It was also a base that we couldn't be sure if it was alone or part of a wider base as I initially suspected as we saw the negative divegrence sending it lower (red box) and a second base area formed in the area, making it look like 1 larger "W" base. However, I see no 3C indication that this is 1 larger base, rather it looks like 2 distinct bases, each has shown signs of failing or having failed.

As the newest low was just put in place and ready to bounce Friday as the Week Ahead post indicated Friday afternoon, we haven't quite seen yesterday's negative divergences move this far out through the process of 3C divergence migration (when stronger divergences moves to longer timeframes).

 I should have posted this chart before the one above, but it too is a 60 min Index futures' chart of ES/SPX E-mini futures.

Note the first base area from MArch 11th on , the F_O_M_C on Wednesday the 18th of MArch which we warned ahead of time would likely be  a F_O_M_C knee jerk event which are most often wrong and retraced as this one was completely.

This led to the second base area from last week which was posted as most probably moving up early this week (Monday) as it did, yesterday as you'll see there was strong distribution in to the move, oe of the fastest distribution events on a bounce. To be fair, past bounces have been larger and have had specific missions like to break above the 2015 early year range and set a bull trap.

As I have said numerous times, I view this bounce as PART of a stage 4 decline as a counter trend , corrective bounce to keep the market from becoming oversold.

 And the 60 min TF/Russell 2000 Futures chart.

The same initial March 11th base (start) is seen, the F_O_M_C knee jerk reaction and the retrace of all F_O_M_C knee jerk gains sending the market to the second base area, initially suspected to be part of a larger "W" base, but I see no evidence of that now as it has formed.

Note the distribution in to the F_O_M_C knee jerk gains and the total obliteration of all gains for any longs who chased the move, they are sitting on nice losses.

 Note how I've started with the longest timeframe and have been working my way down. Each chart slightly faster than the last, each chart with slightly more detail and each chart confirming what the big picture strategic charts have shown, this is multiple timeframe analysis and confirmation as well as multiple asset confirmation.

On the above, 30 min ES chart, the distribution in to the F_O_M_C knee jerrk gains is clear as it was on all the preceding charts as is the second base area from late last week.

However note that the more detailed 30 min chart, which is still a strong timeframe shows something the others don't yet, distribution in to yesterday's gains and today's broader prices in the same area.

 The 15 min NASDAQ 100 futures/NQ also show the accumulation of base #2 and the distribution in to higher prices as foretold or forecasted in advance last week.

 This is the more detailed Russell 2000 10 min futures chart, the base area is visible as is  the strong negative 3C divergence in to yesterday's gains as posted numerous times yesterday and in to the Daily Wrap as well as post cash market futures last night.


Coming back around from the shortest timeframes which will migrate to longer ones if they are strong enough, I want to start looking at those and see how the migration period or concept has progressed being we can see the 10 min chart above is showing CLEAR distribution in to yesterday's and today's gains or relative price stability in the area.

 This is the 1 min Es/SPX futures before the afternoon stop run. Note the positive divgerence pre-cash market open which was posted in this mornig's A.M. UPDATE  which was an extension of last night's FUTURES' forecast in the Daily Wrap from last night (see the first several paragraphs from this morning's post which are the last several paragraphs from last night's Daily Wrap in which this price action was forecasted based on the ugly charts last night).

The green arrow is the North American Cash open, the positive divegrence was after overnight losses which were (again) forecasted last night in the Daily Wrap.

The A.M. UPDATE post showed this positive divergence and the probabilities of higher prices in to the cash open, but we didn't have any evidence that the market would do anything different than what it did today, such as make a new closing high.

 The ES 5 min chart was used as an example (5 min futures) that there was strong distribution in to yesterday's gains and that this bounce, as put last night in the Daily Wrap,

"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.

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."

I purposely show the 5 min Nq/NASDAQ 100 futures to show the same negative divegrence was present here as well and this as of this afternoon BEFORE the closing sell-off that broke near term support...

ALL OF THE INDEX FUTURES CHARTS IN THIS POST WERE CAPTURED BEFORE THIS AFTERNOON SELL-OFF THAT BORKE SUPPORT AND HIT STOPS (see the rising volume in the yellow box as price broke below recent support levels on large volume). This just goes to show how bad the condition of the charts were even before the afternoon decay, in fact the charts were forecasting the afternoon decay.

 Note how the TF 5 min (Russell 2000) 5 min chart looks better than the others on a relative basis? Look at today's closing action and you'll see the R2K, the only average last night with no Dominant Price/Volume relationship, outperformed on a relative basis. 

Still, there are numerous charts above showing weakness in the Russell despite the better looking chart (5 min) of the R2K ON A RELATIVE BASIS! (Approximately 1/3rd of the losses of the other averages on the day).

 Es 7 min sees migration from the 5 min chart to the 7 min chart, again this is BEFORE the closing ugliness.

And back to where we left off as we came back around to the short term charts, the Russell 2000 10 min trend showing the accumulation area of what has been called out "Second base" and the distribution from yesterday and today as well as overnight in to the gains and relative flat price range since yesterday's gains.

In retrospect you can see now why I said well before any bounce started, "I would NOT try to trade this from the long side, but rather let the market come to you on your terms and at a time of your choosing and open or add to short positions or sell in to price strength".

That's what the best tactical plan was considering the probabilities were already laid out on the longer term strategic charts. As such, we were in a win/win scenario as any of our core shorts would perform on downside and any price gains would allow us to open new short positions, sell longs or add to existing shorts at better prices and less risk.

Even if we did nothing and just sat through it, we had a better tactical plan considering the strategic outlook.

I'll have more on today's update and what assets we might be considering and what the near term probabilities look like now that the charts from yesterday's Daily Wrap have been vindicated as having been accurate with all of the averages closing in the red as the Dominant Price/Volume relationship as well as S&P and Morning star internals suggested as well as the 3C charts of the cash averages and the 3C charts of the Index futures.