From the linked post above...
"What is a triangle when it comes to volatility? It's like a Bollinger Band squeeze in which the ATR might be getting more volatile on an individual day, but the range in the market is squeezing like a Bollinger band pinch, which is THE PROMISE OF A HIGHLY DIRECTIONAL INCREASE IN VOLATILITY. "
Today's move was darn near exactly what we were looking for in the near term forecast. If you read the entire post and the Daily Wrap from Thursday, you may remember my leaning toward the whisper number with regard to Payrolls on Friday morning being correct and leaked. One of the stranger events Thursday was the selling of VIX protection rather than the buying of it as we were going in to an uncertain 3-day weekend with not only a possible Greek default looming, but the Payrolls data when the market was closed Friday, it made no sense that protection was not bid, but rather sold.
From the Daily Wrap
"STRANGELY CONSIDERING TOMORROW MORNING'S 8:30 A.M. NON-FARM PAYROLLS DATA (the most important payroll data of the month and closely watched by the F_E_D as discussed earlier today), VIX short term futures underperformed the SPX... I don't know if the market knows something, remember the whisper number is about 100,000 shy of consensus (mid 100k print) which would likely be taken as bullish by the market as it would tell the market (true or not) that the probability of a June F_E_D rate hike diminished."
I think you get a pretty clear picture and I think it pretty clearly looks at the Jobs "Whisper number" floating around all last week as some kind of leak. As I said earlier, I believe this is more about the $USD than anything else and whether we get some crazy F_E_D comments that are meant to talk the $USD down, the near term reaction to the horrible Non-Farm Payrolls on Friday most likely didn't need anyone to point out the obvious market perception... that the big miss in payrolls lowered the perception for a June Rate Hike among market participants, note I did not say among the F_E_D / F_O_M_C.
HOWEVER, whether needed or not, our prediction that some F_E_D mouthpiece would be out right after a dismal jobs number , and this was forecast BEFORE the jobs number came out, it seems I was wrong, IT WASN'T BULLARD (but maybe they're saving him for the truly ridiculous stuff), it was straight from the NY F_E_D's president, Bill Dudley.
Fed watching recent U.S. weakness; rate-hike timing unclear: Dudley
"The timing of the Federal Reserve's interest rate hike, which would be its first in nearly a decade, is unclear and for now policymakers must watch that the U.S. economy's surprising recent weakness does not signal a more substantial slowdown, a top Fed official said on Monday."
This article/statement from Dudley seems rather reasonable, it's not the QE4 trial balloon that some expected nor the overtly dovish comment I expected to talk the $USD down without actually having to do anything, ala Draghi who has done it so much he's lost all credibility. However even as a softer, less that expected dovish tone was struck, it seems it was already pretty clear to the market or market's perception that this would be a reason to throw rate hike timing i to question, thus I doubt a strong statement was needed right off the bat, although a statement from one of Yellen's closest allies in the F_O_M_C was forthcoming rather quickly on the first trading day after the NFP.
I suspect they may pull out Bullard or someone else with some wackier statements if this doesn't knock the $USD down a bit, which so far it hasn't made much of an impact, thus the need for the gentle reminder that timing is in the mix whether it truly is or not.
Note the $USD's 3C 1 min intraday divegrence after hours after running up today and after some very whacky FX trade including a last hour EUR/USD flash crash in the most liquid FX pair out there...
Despite this intraday 1 min negative divegrence, I suspect the $USD is going to see a near term bounce, approximately on the same timeframe as the overall broader market as the 15 min chart had already reflected and continues to and the $USD has already responded to (the positive 15 min divegrence in $USDX).
The I suspect lower prices in the $USD.
Wonder why the market and $USD have taken a ride up higher together despite the $USD legacy arbitrage correlation and why a break in the $USD will have severe consequences for the broad market? HINT: I have long maintained my belief that the Yen would rally as the market breaks to a primary bear market and the charts seem to agree...
Why?
$9 TRILLION $USD'S IN $USD-BASED CARRY TRADE THAT HAVE TO BE UNWOUND!
Picking up where we left off Thursday...
The Futures market (Index Futures) were open for 45 minutes after payrolls came out Friday and the initial reaction was not good in futures...
In addition, as of our analysis Thursday we had 15 min positive divergences in the averages (although short in duration) as well as 7-15 min positives in Index futures. From there and after looking at a broad watchlist of assets and seeing similar patterns, it wasn't hard to come up with a working theory/forecast, IMPORTANT: AAPL Set-up & Market Movement which maybe isn't exactly as suspected, but it was darn close enough to the forecast for this week based on bad Jobs data Friday morning, something Wall St. apparently wanted us to know, so be careful as they don't let on anything they don't want you to know and they are not there to make YOU money!
As also noted in the Daily Wrap Thursday, we did have some Dominant P/V relationships that would normally indicate a near term overbought condition was brewing, but as I specifically said, "Normally I would call this a 1-day overbought condition, but because of the small daily gain, it doesn't feel that way"
As long as you understand the basic premise of our near term forecast as laid out in IMPORTANT: AAPL Set-up & Market Movement, then I don't think, "What already happened" is of much interest beyond what looks like clear inside information that made its way from Wall St. to main street last week.
Signals (3C and Leading Indicators) which were weak most of last week, especially around Tuesday/Wednesday sure picked up today as I had also suspected in the Daily Wrap. These periods of "Blah" signals don't last long, but looking back at the market action, I'm glad they were doing their job and not telling us anything beyond what we needed to know for the near term forecast as most positions that many of you are considering would have been horrible entries or at least ill-timed unless you wanted to go long a trade which some people may have, it certainly isn't my cup of tea right now all things considered (lack of strong signals last week for a long TRADE).
Moving forward, if you didn't get long Thursday for what I'd consider a trade that requires you be very nimble and probably will have a lot more risk than reward, then patience and letting the trade come to you is still as it has been during this triangle area, the best approach in my view. I don't see a great reason to introduce unnecessary risk at this point with what looks like fantastic openings now starting set ups. This was the very trend I noted Thursday as I went through many stocks in my watchlist and what was the final piece in putting together the IMPORTANT: AAPL Set-up & Market Movement post/forecast.
There were still a lot of strange events today beyond the Payrolls coming in less than half of consensus (Friday morning) with protection being sold rather than bid Thursday. There was a flash crash in the most liquid FX pair, EUR/USD toward the last hour of trade today...
However by the same token, USD/JPY nearly regained all of the post NFP losses from the Friday morning session and since the start of the new week's trade Sunday.
This was not a correlation to ES today, although it made a similar roundtrip from bad news is bad news on Friday with no one interested in protection Thursday to bad news and even more bad news is good news today with no reason to have bought protection Thursday, unless you maybe knew what the print was going to be and as I said Thursday, that the market would likely take it well as the perception is that it increases the probability of the F_O_M_C putting off a June Rate Hike. *Please note my use of the word, "Perception", it is important as it is what moves the market, but it's not necessarily reality. I think we got a strange dose of that today with the Philly F_E_D all but saying the BLS employment data is such garbage that they aren't even going to post it on their website, although there may have been ulterior motives if the rest of the market thinks like most of us and suspect the NFP was leaked in advance.
Come on! 245k gain was consensus, the Whisper number was around 150k and the print was some 25,000 less than the Whisper number and half consensus!!!!
Sector performance was pretty good all around today, 9 of 9 S&P sectors closed green with Energy leading at +1.80% and Health Care lagging at +.15%. Of the 238 Morningstar Groups, a strong 205 of 238 closed green.
Thursday it was very obvious that internals were not showing any strong 1-day bias, they weren't oversold or overbought. With today's sector performance, I would say that the daily candlesticks on the averages above showing a bullish engulfing confirmation candle are right on and while sector performance could be interpreted as being a bit on the overbought side near term, you can't look at it in a vacuum.
When adding in the Dominant Price/Volume Relationship for the component stocks of each of the major averages, they all (except the Russell 2000 AGAIN!) show the same Dominant relationship. There were 16 Dow stocks, 58 NDX100 and 233 SPX500 stocks all Dominant in the Close Up / Volume Up relationship, this is dominant as there are 4 possible relationships and it also is the most bullish (near term) of the 4 relationships, so the daily candlesticks' engulfing (bullish) close today makes sense.
Sometimes we do get an ironic pullback the next day off this relationship, but all in all it looks like we are early in the move anticipated in the forecast post linked above from last week. This does not change the fact that the 3C charts intraday started with negative signals almost immediately and kept it up all day.
The poorest performer (surprise, surprise) on the day among the averages was transports...
Bio-Techs were also a bit of a laggard today with XBI coming in at -.30% on the day. Gold was up on the day, but that seems to be because of the Goldman Sachs research note conducted on the F_E_D's own FRB/US Reality Simulator in which they not only argued for lower rates for longer, but that it's hard to be "Reasonably confident" in the inflation outlook, which is one of the F_E_d's ambiguity statements in which they'll hike before inflation moves toward their long run 2% target as long as they are "Reasonably confident" that it will.
As such, inflation sensitive Gold popped likely on the Goldman note regarding inflation. Significant divergences in gold suggesting a swing lower are still alive and well.
Among our Leading Indicators, one of the things I was going to be looking for this week on a breakout from the triangles (which I believe and gave solid evidence to my opinion, that they'll be head fake/false or failed breakouts) was deteriorating Leading Indicators.
My very first Leading Indicator on my screen, the SPX:RUT Ratio which started showing a tiny bit of weakness late Thursday, was nearly inverted from the SPX today, showing that the anticipated Leading Indicator decline and signals seems to be taking place early on just like the 3C distribution charts intraday that saw some make it as far as 10-min negatives in a single day.
Additional Leading Indicators...
Giving additional evidence to early Leading Indicator deterioration are the VIX futures and related VIX assets.
However the real clincher was the initial signs during the cash market in actual VIX Futures below...
Here are the intraday and important trend signals in VXX.
As for the longer term strategic view, the 30 min VXX leading positive divegrence which would be similar in confirmation to on the SPY 30 min (strategic) chart...
I think what will likely happen is that we'll see the 15 min 3C charts start to deteriorate and Leading Indicators should be giving strong, unambiguous signals by then, that's when I want to take advantage of the "come to us" trade, rather than getting greedy and either chasing risk or entering too early afraid to miss the trade. We haven't had strong signals until Thursday for a reason looking back at market performance, we'll have the signals we need, so again I urge patience.
The process looks to already be under way, I doubt we'll be surprised by missing a downside move, the signals should all be there and strong, that has been how this market has been operating more and more since QE ended.
As for Index futures tonight, they look to be reasonably in line, there are some slight divergences that I'll check on later, but I think this triangle based bounce plays out as was our forecast for the week from last Thursday. I'll be watching for HYG to continue to deteriorate, VIX futures to continue to gain and the averages to deteriorate to the 15 min chart which is their "Gas in the tank" level.
The same is essentially true of Index futures (7-15 min positive charts last week in to this week).
Just let the process play out, we got a much bigger than anticipated start today in the averages and even confirming assets (HYG, VXX, VIX Futures, AAPL, etc.).
I know the market has been tough in this triangle-shaped lateral zone as mentioned last week in IMPORTANT: AAPL Set-up & Market Movement, the move in AAPL over almost 7 trading weeks has been +0.03%, a pretty tough environment, but also not the one you want to get caught on the wrong side of considering the potential gains and potential risk or even from an open risk or opportunity cost basis, from the linked post above on last Thursday, AAPL...
I'll check on futures before turning in, but I expect our near term forecast to hold and the process to unfold, although it may be faster than normal, we still need to let the market tell us.
Have a great night!
