Daily Wrap

Of all of the many interesting things that happened today, of all of the charts I've gone over today, one thing sticks out in my mind like a flashing red light and it's from last night's Daily Wrap and I believe underscores the increasing importance of the lost art of volume analysis as factors such as the F_E_D's balance sheet expansion or QE no longer control the market.

From last night's Daily Wrap,

"Finally, internals...

The Dominant Price/Volume Relationship wasn't great and as usual didn't include the Russell 200, but it had 12 Dow stocks, 52 NDX 1000 and 231 SPX 500, they were all Close Down/Volume Down. Other than being the thematic relationship during a bear market, this is the relationship with the least next day influence, I have nick-named it, "Carry on" as in keep doing what you were doing as it doesn't have a strong oversold or overbought bias, allowing the market to carry on in the trend it is usually in, however that trend is just about flat right now so it's not of much use."

Although we closed higher in the major averages, take a look at price action compared to yesterday's price trend and daily range...

 SPX shows today's trade was largely inside yesterday's daily range.

The NASDAQ 100 is essentially the same with an inside day for the most part, at least from yesterday's daily range.

And the Russell 2000 is about the same.

Despite the percentage gain on the day, in terms of where the market has been the last 2 days, it's not very different at all, meaning last night's analysis of the Dominant Price/Volume Relationship which said that the relationship typically means "Carry on doing what the market was doing", which I thought was useless last night, actually held meaning.

The larger point is that volume analysis, whether the Dominant P/V relationship or that of intraday or Primary trends is taking on a new importance , one that it once had before central bank intervention and one that most traders have either long forgotten, don't care about or never learned.

Beyond that, the F_O_M_C minutes from the last meeting came in mixed with some believing they were slightly more dovish, some that they were slightly more hawkish. The minutes will say something like "A few members thought June rate hikes were the right time", but they will not identify who the F_O_M_C members are or the real count of how many a "Few" means. In any case, that was a mixed bag and I don't think the minutes revealed anything that wasn't already out there and with the added aft-knowledge of the horrible jobs report on Friday, I suspect most traders would have taken them much more bullishly than they seemed to which as I stated earlier I believe was because Bill Dudley (F_E_D member) came out pre-minutes release this morning and essentially said that the Friday NFP jobs report was short term noise and inferred that it would not influence the decision about rate hikes.

We did find out what had already been hinted at, that the F_E_D is more or less terrified of a strong dollar and for the exact reasons we surmised, that it would hurt US exports and thus the economy.

Although we knew that the global economy was a concern, I think a slightly finer point was put on that concern directly mentioning Greece and China which is in the midst of its own stock market bubble. There was additional concern about what foreign central banks might do, some may have been calmed with the Bank of Japan's 8:1 vote to leave QE as it is  and not increase it, but on the other hand they didn't decrease it either. From my perspective, this seems like a somewhat silly concern, one that they have no control over and the kind of concern that you generally have AFTER you've made a decision and are worrying about the consequences. I think the F_E_D for all of their Green-speak, have been rather transparent. The conclusion of QE3 was debated at each meeting, but ultimately came right on schedule as the market had expected at the end of last October. 

The F_O_M_C removed the "Patient" language at the last meeting for a reason, it was to give themselves the ability or elbow room to hike rates as soon as they want. This was not done because of soaring inflation or an extremely robust job market or economy so in my view it still feels like theoretically they shouldn't tighten policy right now (although I don't believe we should be sitting at ZIRP as long as we have and shouldn't be there at all right now) and they probably feel that, but I do believe there is something else that they are far more concerned about that may compel them to act and chose the lesser of two evils. 

I could speculate all day long as to what that was and maybe even hit it on the head, but with the conviction that I have with regard to this subject, I don't think jobs or inflation data are going to matter when it comes time to hike rates as economists give all of the reasons why the F_E_D will do this or that based on those realities. The F_E_D built in ambiguity, first by changing forward guidance which had always been Quantitatively based (time/dates) to Qualitative Guidance (incoming data) and then they lowered the bar for Qualitative guidance by saying they would hike rates even if their objectives had not been met, so long as they "FEEL REASONABLY CONFIDENT" that the objectives will be met. YOU DON'T REALLY GET ANYMORE AMBIGUOUS THAN THAT.

Even Dudley's comments this morning about the March jobs data and how he essentially chalked them up to statical noise argues for the above positioning of the F_E_D in which they can hike rates at any time as long as they use the very subjective and probably misleading and or untruthful, "We feel that ..." something will happen. In other words, even when moving to data that the market can clearly see and interpret , they've left themselves an escape clause to do whatever they want as long as they let us know that they "Feel" inflation will move toward their target, theoretically,  even if we are in a deflationary environment !

I appologize for the rant, but I have been paying attention to what the F_E_D has been saying and doing and so far they have done exactly what they've said, QE3 is GONE, tightening is on its way. I wouldn't offer these opinions if I didn't find there to be some value in the actions and comments the F_E_D has made that seem to make their true intentions fairly easy to predict, even if we don't exactly agree with it or understand what is truly motivating them.

Moving on...

As you know my triangle based/pinching volatility breakout/head fake move (false/failed breakout) forecast not only depends on the move which so far we have only really seen Monday, but depends on the 3C charts for the averages deteriorating...CHECK! The 3C charts for my watchlist of stocks deteriorating...(See NFLX as an example today)...CHECK... and both Index futures and Leading Indicators deteriorating... This is where we haven't seen that much movement yet, but the 3C charts of HYG which is a leading indicator has softened considerably in the short term for this week and is already very bearishly displaced from the market in terms of the primary trend or what we'd normally call a bull or bear market.

On a primary trend basis, High Yield Corporate Credit is pretty much already in a bear market. The Wall Street maxim is, "Credit leads, stocks follow" and this is one of the most liquid and also one of the most short term manipulated credit assets out there.

When I use to teach Dow Theory "Trend Classification", a hard subject, I had a system using moving averages that was always pretty close to the Dow classifications and a downward slopping 200-day moving average such as the one above with price under it was classified as a Primary downtrend or a bear market. We'll come back to Leading Indicators.

As for Index futures, last week their charts in the 7-15 minute timeframes were supportive of the move up expected this week, those are the charts I also want to see deteriorate and they will do that a lot faster than the market averages (SPY, QQQ, etc.), but as of right now, they haven't made that move which is why I still believe we have more upside to go this week which really hasn't moved very much at all.

 As I said, the ES 15 min chart which was positive last week and is closer to a timing chart which was part of this week's forward looking forecast can move very quickly. It's not there yet, but below you'll see on a 60 min chart how fast it moved to give us the positive signal used in last week's analysis for this week's forecast.

This is not a matter of, "I have faith", this is a matter of OBJECTIVE EVIDENCE.

 For instance the higher probability 30 min ES chart (SPX futures) has already turned negative, now the "timing" timeframes of 7-15 min in Index futures need to turn as well and we'll know we are very close or at the reversal point.

 The even higher probability 60 min charts which show past divergences sending the market both down and last week's positive sending it up (white) are visible, note the dates for last week's positive, right where we said they were, then note the current divegrence to the right side of the chart, these are the stronger probabilities showing up already telling us the 7-156 min charts will fall apart as expected and as the market averages have been telegraphing since Monday.

ES 60 min with last week's positive very clear by Wednesday/Thursday when the forecast was made.

 Just for multiple asset confirmation, here's NQ 60 min (NASDAQ 100 futures) which looks almost exactly the same.

And remember the weaker IWM 15 min chart that was not positive like the SPY, QQQ or DIA?

This is the Russell 2000 futures 60 min chart and note how it looks different, much weaker than the ES or NQ 60 min charts above and confirming what we are seeing in the averages... This is a leading negative divegrence, highest probability of all these Index future charts as far as the resolution of their move (head fake/false breakout) goes.

I also saw some initial evidence that the $USD which has been strong even this week is likely to make a move lower, at least initial signals are building in that direction...

$USD 7 min negative.

It looks like the Euro and Yen will both gain against the $USD, I wonder what the catalyst will be, but don't forget, this is the bigger picture, the carry trades, the F_E_D and rate hikes, keep your eye on the $USD and you have your eye on the ball.

As for the other set of indications, Leading Indicators... 

Today the Spot VIX which I mentioned last night as coiling up in a triangle below its 50-day moving average was in line with the market while VXX (Short term VIX futures was a bit weaker, I suspect VXX is being accumulated and buying low is buying best, see VXX charts that have been posted, they have had strong positive divergences this week and overall on a larger basis for the year. I suspect another reason VXX was weaker intraday, especially toward the close was the fact that the Dow and SPX almost didn't close green and needed a helping hand.

These are the averages for the day, the SPX (green) and Dow (white) nearly closed red and it's more likely than not that VIX was whacked (especially VXX as part of the SPY Arbitrage) to keep them in the green. Transports in salmon which have been very weak or recent closed at the highs of the day and at the release of the minutes, it looks like there was a shakeout move down and then up, but no knee jerk reaction.

HY credit short term which has supported the market and I'll show you how as it is one of our best early warning indicators, especially 3C divergences before price even moves, needs to fail and diverge short term for the longer term dislocation to pull the market lower.

Remember that HY Credit and stocks are both risk assets, it's just smart money trades HY Credit whereas dumb money doesn't. Theoretically they should move together in a rally, when they don't, smart money is doing something different. Thus the saying, "Credit leads, stocks follow" as I'll demonstrate.

 Here HY Credit (HYG) in blue vs the SPX puts in a series of higher lows/highs at the green line while the SPX just keeps testing support (2x), HYG was leading the market, smart money was leading the market and look at the bounce that followed. To the right when HYG wasn't supportive of the market, the last bounce failed and right now the two are right in line or have reverted to the mean short term.

Even shorter term intraday, HYG had been leading the SPX earlier in the week, today it was almost perfectly in line on this intraday 1 min chart vs the SPX.

As of last week, for this week's forecast HYG was supportive which was another part of the analysis for this week, however note how the market turned sideways the last 2 days and reverted to HYG.

On a primary trend (6 hour chart) basis, HYG was in line at the green arrow and moving with the market, smart money was on board, then at the red area HYG makes a series of lower highs and lower lows which is also called a downtrend and in this case, a primary downtrend, just like the 200-day moving average of HYG I showed you above. Remember, "Credit leads, stocks follow", smart money has left town and is not buying risk, they are SELLING IT!

Our other Leading Indicators are starting to come around for the week like our Pro sentiment...

Note the indicator (blue) vs the SPX today is not only trending down, it was negative at the release of the minutes today and ended the day at the lows. These are the kinds of signals that are on the checklist we need to see not only occur, but show large divergences for timing of this move.

Although we had a strong 10-year auction today and saw significant yield curve flattening (bearish, has happened before just about every recession since WWII) right now they didn't have much of a leading indication today or for the week yet,  these are some other assets we need to see move.

Commodities fell off as one of our leading indicators today, this was obviously largely due to oil's increase at the 10:30 EIA petroleum report with another record 13 consecutive week, build as we posted earlier this week in believing oil was ready for its pullback.

 Commodities in brown vs SPX in green, this is the kind of divergence between leading indicators and the SPX we need to see and are moving toward. USO lost over 5% today on the inventory build, we posted the change in character Tuesday, someone obviously was getting out of the way, see Tuesday's USO update and today's as well.

USO in orange vs the major averages dwarfed them at a 5+% loss, but note where both saw declines, first at the 10:30 EIA oil inventories and then at the 2 pm Minutes. Note the market's correlation at these areas? Since Qe3 ended, commodities which are also a risk asset have been acting like the leading indicator they once were, disrupted by QE. 

Tuesday's analysis finally suggesting a pullback in oil as the last week or so it has seen strong confirmation can be found here, USO Update,  and today's updated analysis with a possible trade set up can be found here, USO Update and F_E_D Minutes.

Gold also pulled back today as we have been expecting on a swing trade lower, 

I suspect we get a little intraday bounce from the pullback that started at Tuesday's open , but should be much larger heading toward the lower end of this range on a swing basis. A little bounce intraday could be a nice opportunity for anyone looking to get involved in a swing trade with GLD, although remember our longer term analysis suggests we may be moving toward a Gold uptrend on an Intermediate or Primary trend.


In my opinion, we are not quite where we are suppose to go for the week and then resolve to the downside, even our very effective SPX:RUT Ratio indicator is pointing toward a better upside move...

Note the indicator in red led the market with a positive dislocation last week for this week's forecast of a breakout from pinching volatility. Then the last 2 days it has declined and the market has done literally nothing these past 2 days. Today it is leading positive again suggesting our move, which I expected to be quite a bit larger by now, should continue or at least do better than we have seen before resolving to the downside. However, this is not an especially strong signal today.

As for internals today...

The Dominant Price/Volume Relationship Finally includes the Russell 2k after over a month of it strangely missing.

The dominance today was strong, 15 Dow stocks, 55 NDX100 stocks, 817 Russell 2000 stocks and 204 SPX 500 (of the 4 possible relationships). All were Close Up / Volume Down. THIS IS THE MOST BEARISH RELATIONSHIP OF THE 4. Often this will lead to the end of a move and a move lower the next day, it's the market's upside running out of steam (via volume) and bearish any way you cut it, even if the averages are up 2% each tomorrow, this is EXACTLY what we want to see in the process of a bounce out of the triangle volatility pinch.

As for Sector Performance...

 Seven of nine closed green, approaching an overbought condition which would fit nicely with the Dominant Price/Volume Relationship, it's really exactly where I'd like to see it if we only had a little more upside in the actual price trend given the 3C charts in the averages, the developments in Index Futures starting on 30/60 min charts and some of the Leading Indicators starting to move.

As for the Morningstar Industry groups,

There were 182 of 238 groups in the green, again along the lines of the S&P sectors and not quite at an overbought level on weak internals, but very close and moving that way. I suspect that we'll finish this cycle out by the end of the week and have the timing signals to enter various positions including assets like NFLX, GPRO, AAPL, Transports, and many others at better entry points, lower risk and strong timing signals, to the point they should even be well set up for option trades which I always look for the very best timing possible.

The VIX continues to coil and build energy under its 50-day while VXX shows a strong leading positive divergence and a bottoming like formation. 

Overall I'd say the market is a bit weaker so far than expected for the week's forecast from last Thursday, the distribution is much heavier than expected at this point and the other indicators are starting to turn right on cue, it's really up to the market to give us a decent pop we can use to enter positions at a better area, take GPRO for example or Transports, they have great looking longer term charts, but in the near term, tactically we want to enter at the best price and lowest risk as well as best timing.

Finally, as for Index futures tonight...

The EUR/USd looks like it's getting ready to make an attempt to move higher, partly on $USD weakness that is developing mentioned earlier.

 EUR/USD 1 min leading positive divegrence.

$USD 1 min leading negative divegrence.

There are also some weaker signals that USDJPY may be headed for some downside. There are some stronger signals that also back this up in the $USD , Euro and Yen futures, although I'd call it either a short term move or perhaps early indications of a stronger move, we'll obviously know more as the charts continue to develop, but right now my money would be in some overnight EUR/USD upside and $USD weakness.

I already touched on the broad strokes of gold as ongoing analysis and expected swing trade trend, I'll likely put out a more comprehensive Gold/Miners update tomorrow if we get some of the intraday strength I suspect that can be used to enter a position if you would like to and haven't already.

I've already gone over Oil expectations starting with the posts linked above from earlier in the week before the fall as well as this morning's A.M. Update with futures charts showing the probable USO/oil decline and this afternoon's follow up in which a position may still be had on an intraday bounce for USO short Swing trade...USO Update and F_E_D Minutes

The Oil (Brent) Futures chart looks like this (an update since the same chart was posted this morning before the EIA inventory build sending oil lower as anticipated...

CL / Brent Crude futures 30 min updated chart.

As for Index futures, I did post an intraday chart above, although that was a bit ago as it usually take me a couple of hours to get this post together, since...there hasn't been any improvement, in fact they look worse going in to the overnight session.

 ES leading negative since the cash close, perhaps on Alcoa's earnings as they kick off the earning's season and Wall St. is in a dour mood over earnings' expectations?

 NQ 1 min (NASDAQ 100 futures) also looking worse since the cash market close at 16:00

And TF (Russell 2000 futures) leading negative since the close.


I'm hoping the 5 minute charts don't go too negative overnight or else our 7-15 min charts will fall quickly as the 30/60 min Index futures above are already telegraphing that this won't end well, but we knew that as of last week when forecasting the volatility-pinched induced bounce.

I suspect this is likely a reflection of the mood toward the US earning's season as Alcoa (AA) did beat EPS consensus, but missed on revenues and saw annual sales declines across 3 of its 4 revenue streams, not a good sign despite the head line EPS beat. Additionally, while it's beyond the scope of this post, Alcoa resorted to some accounting gimmicks to even get where they did on earnings, if this is a harbinger of things to come, well you can see what the market's reaction was...

Alcoa (AA) regular hours and after hours as they report earnings.

The market is going to see all kinds of accounting gimmicks, share buybacks one of the popular ones, but Wall St. is a bit smarter and is not about what you did or what you manipulated your books to look like you did, it's about what you'll do next quarter or over the next year, PERCEPTIONS and the perception towards Alcoa is not a healthy one judging by the AH earnings reaction.

And AA is a bellwether for the global economy as aluminum is used in just about everything the world economy generates, not a good sign for the global economy and not for the market.

That will do it for now, as always I'll check futures before turning in for the night and let you know if anything has changed materially that we need to prepare for, otherwise, it's just a little patience and I do mean a LITTLE and we'll have the best shot at trade set ups we can get other than what we've already entered like NFLX at post-earning's highs, exact highs to the day.

Have a GREAT night!

Volatility Increase

If you look at a broad enough chart of the market, the SPX is a good example, you'll see we are in an ugly range and I know a lot of short term traders who haven't adjusted or had not adjusted to the changing nature of the market which has happened fairly quickly, have had some difficult days which is to be expected and easily understood looking at the charts, the range, our trading essentially in the middle of it.

However a few weeks ago and several other times I've given real world examples of volatility increases just before an asset changes stages from one to the next, the next in this case in my view is not only a February cycle stage 4 completion to lower lows, but a test and break of 2014 (October) lower lows and a primary trend stage 4 decline. Volatility, even more than bounces or set-ups is what I'm most interested in.

While the market has been all over the place within the daily range today (and in some cases still within yesterday's daily range like the SPY, volatility has increased in breadth indicators since the F_O_M_C which I suspect with the addition of Bill Dudley's comments this morning made the minutes a bit more confusing then they may have otherwise been taken with Friday's horrible jobs report.

Where's the real knee jerk reaction?

 So far looking at the SPY intraday 5 min chart, it's not there. Yes there's volatility on the release of the minutes and despite the fact I still think we get a stronger move up on the week's forecast (unless character of the market has changed again as we have not seen many recent bounce attempts go very far) this is not a knee jerk move, it's simply confusion , HFT's, etc. There's no coherence there.

While not truly at extremes, volatility in breadth intraday has picked up, surprisingly though it has barely broken the 1000 level either plus or minus.

I suspect there's more going on with perception regarding these minutes than the headlines suggest and I think Dudley this morning created that.

This isn't to say we haven't seen some assets move like NFLX and a handful of other momentum stocks and sectors like biotechs, which I'll try to get to as well, but even the move there seemed to be more of an attempt to kick start the market in to a bigger upside move as we expected last night. Bios performance around the minutes is what I'd call, "Unremarkable", almost as if they didn't notice.

After seeing the SPY charts today, I'd normally be VERY close to calling the market a short entry here although we haven't reached the forecast goal of at least a breakout of the triangles in a lot of assets, the SPX included. I'm not sure whether to take this as a weaker market than what most suspect, I've been talking about the Pier over the ocean that looks stable from the boardwalk while the pilings that hold it up just under the water's surface are rotted away ad all it will take is one decent blow to take it down.

I have some other assets like Index futures and leading indicators to go through, but as we started to see yesterday with HYG negative divergences, they've increased today and HYG's leading support is lagging compared to yesterday. This week's forecast is not complete in my view, but I believe the deterioration we have seen so early and so strongly is the market telling us something, when and how to best use that message are the things I'm looking at right now as I think we are not far off (maybe a day or a few) from something much uglier and this is why I wanted you to have a larger picture view of a market Broadening top, 3C charts in longer timeframes and a comparison between the Dow now and the Dow 1929, that's how strongly I feel and I don't know if I'm doing a good job of driving home the point, giving you the evidence in the way I see it.

Last night in the daily wrap I talked about the cascading/snow ball effect of the carry trade and its effect on the market and for the first time laid out in plain English the basics of how I se this transpiring.

I'll do my best to fill in the details and point out the opportunities along the way.

More on the way...

NFLX Update

I figured I'd kill two birds with one stone. You may recall last week a big part of what led to the forecast for this week with market upside was the time I took to go through numerous watchlists, single stocks and see if there was a pattern among them. I said that there was and as you know, AAPL was used as a market proxy , but I could have used just about any of the stocks, I just had seen enough by the time I hit AAPL and it's a stock of interest to a lot of members.

NFLX was part of that watchlist as well and had very similar signals to AAPL suggesting we see a breakout of what in many cases were triangles, NFLX is not one because of preceding events, but it has been a short position and one entered not too long ago.

In updating some of the movers today, now that we are also getting the anticipated market movement on the upside on what is widely being considered "Slightly more hawkish minutes", but that is being offset by the horrible jobs numbers from Friday even though Dudley this morning essentially said they were an anomaly that should essentially be chalked up to noise.

Still, NFLX should do just as nicely for an update as to where we are as well as a trade set-up if you also remember the forecasted ending of this move which is well inside a large trading range that some would and have described as "Churning", that's distribution, I think the 3C charts would agree with that assessment, thus the patient, "Let the trade come to us" as our NFLX short is still at a nice profit even with today's near 4% move.

 This is where we last shorted NFLX at the red square and arrow at the top of the price trend, on the highest closing day since the NFLX-joke-like earnings gap up. We waited patiently for the signal and entered when we had strong objective evidence that NFLX was going to do what we suspected based on longer term charts and luckily shorted it at the very highs, which is not necessarily a realistic everyday goal to try to attain, but being close enough to lower risk and maximize the entry is the goal.

Since you can see a small 60 min relative positive, it's not the kind of divergence that would have me concerned about the short entry as the size of the leading (stronger form) negative vs the size of the relative (weaker form)  positive is immense.

However that is some clues that the same 15 min positives that I have been referring to market wide as well as individual assets (as most stocks will move directionally with the market as it exerts about 66% of the directional influence on any given stock)  as a sort of line in the sand for this move or the extent of what's in the "gas tank". As you can see, just as forecasted last Thursday, the move began Monday (as the forecast was for this week's market action) on the 6th as we returned from a 3-day weekend.

Like most of the averages, this 15 min chart is still intact although we are now seeing deterioration broadly speaking as the process of migration or a stronger divergence building continues and is now making its way to 15 min charts as seen in updates earlier today.

 As I said and showed you on Tuesday, the 10 min charts of the averages saw deterioration much faster than I had anticipated, the same is now true for NFLX, next up, as with the market averages' example from earlier today will be the 15 min chart, which is when/where we want to look at adding to NFLX short or for anyone who missed the original entry, the market is giving you a second chance , not at the same price level, but at a much reduced risk, better entry than just yesterday.

The point being, the 10 min chart is now deteriorating in NFLX. This is not a signal in my view to jump in NFLX short right now and here, but one that the best entry for this move is closing in.

 I had to check the shorter term charts just to be sure we are really looking at migration of the divegrence (building a stronger distribution process in to higher prices of which today is NFLX's first opportunity). The 5 min chart above puts any concerns about that aside, but even more telling...

This 1 min NFLX chart is wildly negative and in to stronger prices for the first time in the week's process for NFLX. Remember, smart money needs higher prices to sell in to and by the looks of the chart, they are doing so and in a big way. This is probably the most interesting chart as to our forecast and its progression.

The deterioration of the 15 min chart will be the most important as far as timing, but we are well on the right track and I suspect when we look back at this perhaps with conventional indicators, I would not be surprised to find those who entered NFLX long on traditional indicators may find themselves at a significant loss much faster than anticipated or able to act on, which is one of the main reasons I have maintained through these choppy minor bounces that I would not introduce risk by trying to piggy back them on the long side unless you are very comfortable with that kind of trade and risk.

USO Update and F_E_D Minutes

Interestingly this morning we had the F_E_D's Dudley out seemingly trying to manage expectations for the soon to be released F_E_D minutes from the last F_O_M_C meeting. The comments about essentially not reading too much in to the weak March Payrolls and it being weather related are interesting because once again, the F_E_D in addition to having created a yard stick by which they can conduct policy according to what they "Feel" or "Think" will happen rather than actual data, pairs well with his comments and reinforces my view that the F_E_D is indeed desperate to tighten as soon as possible or practical, why else be apologetic for the March Payrolls massive miss?

I'm sure there's way more beyond coincidence that's going on that we'll never understand, but once again just before the minutes, a F_E_D member is managing expectations and telling us to essentially ignore the weak payrolls data just as they have ignored the deteriorating macro data for so long that they could no longer retain credibility in any form without making the "SLIGHTEST" of adjustments to the policy statement at the last meeting acknowledging some of the recent "softness" in the economy. I'll have more to say on this later, but the important take away is that I don't believe any organnization/corporation or even small business makes a move that is as large as the F_E_D's rate hike (relative to their respective businesses) without a lot of planning. I don't think it's a spur of the moment, "We'll decide at some meeting", I think the decision has been made long ago and I've offered the proof since 2013 that they were moving in this direction, now QE3, which was open  ended is over. There's much more than meets the eye here and things that seem trivial or coincidental rarely are in the market, especially in central banking.

*As usual I'll be in radio silence during the Minutes to watch the market reaction, some of the best data we get.

As for USO/Crude, the DOE's EIA inventories saw a build not too far off API's estimate last night at 10.95 mn barrels. This is the 13th consecutive weekly build which is a new record, it is the largest build since March of  2001, Goldman estimates that there's only about 10% of storage capacity left at the Cushing facility and oil production ticked up on top of this morning's Saudi news that they'll increase production!

It's little wonder someone knew something and thus the reason the 3C charts which were confirming near term USO price action suddenly failed this week leading to USO updates as there was finally something new to report. This is yesterday's noon-ish update, USO Update the first update since March 31st as 3C had been confirming price action and thus there was no edge.

Yesterday's update argued for the expected pullback to move lower in to the base area we are still technically in and finish it up, although we'll confirm on a pullback that accumulation has started again in to lower prices suggesting a primary trend reversal to the upside on a longer trend basis.

 USO 5 min, note the gap, I have a feeling we will head to that before moving lower in which case, I may close the partial long USO position at a slight gain.

 USO 15 min has seen a deeper divegrence today since yesterday

 The 5 min chart is not that bad right now, you did see the earlier CL Futures chart this morning, I have little doubt we head down, but a gap fill sounds reasonable first, which opens the door to a couple different trade opportunities.

 And the 1 min chart is already showing an intraday positive divegrence, this argues for the probability of a gap fill.

The 2 min chart is starting to show migration.

The gap fill is where we would want to take a look at positions.

Trouble Ahead...

This morning's update is slightly different than normal, a slightly different perspective based on the charts I've seen this morning. I mentioned right away on Monday as the market had a strong push to the upside, that distribution signals started coming in almost immediately, they continued through the day and had moved much further than I had anticipated last Thursday when prosing this volatility squeeze/triangle breakout, which is not an exact replica in each of the averages or stocks, for instance I used AAPL as a proxy for the broad market as it had the cleanest or a cleaner drawn triangle than most of the averages, but that was to simply illustrate the point of the pinching volatility associated with a triangle coming to its apex.

I don't know where, but I was looking for Kocherlakota's full comments yesterday on Google and ran across a site I've never seen as I don't ever like to look at other people's analysis (other than members as they know how our indicators and concepts work), I certainly NEVER listen to Cramer or CNBC unless it's a F_O_M_C day, I simply don't want their subjective and questionably motivated opinions effecting even my subconscious.

However, in this particular article, it was the first time I've seen someone refer to the markets as being in a Broadening Top or a Mega-Phone Top, something I've maintained since mid to late 2014. I may be out of touch with mainstream opinion and perhaps my lack of looking at other people's views means that there are a number of people who see a Broadening Top, but from my more limited perspective, it was the first person I had seen mention it which I found interesting because it's not the Technical Analysis textbook version of a broadening top,  however there are very few price patterns that look like the textbook examples given which is why so many people miss them when they occur.

 This is the SPX is a FAR from perfect or textbook triangle, but what people miss in looking for the textbook triangles and throwing everything else out is that the triangle forms (in its authentic form) as a result of psychological factors, the price pattern itself is no more than a representation of a set of psychological factors so... So what if the triangle's trendlines aren't perfect, the fact you can make out a triangle is the representation of those psychological factors or market perception (one and the same to a large degree). While this triangle isn't as clean as AAPL's and hasn't officially broken out as AAPL did Monday, doesn't change the fact that volatility has pinched from the left arrow to the right arrow.

A larger view...

 The near perfect 2013 trendline has an obvious change of character in to 2014, this is the broadening top drawn in, i will grant you right off the bat that it does not look like a traditional, textbook broadening top, but what has been traditional or textbook about this market over the past decade with unprecedented Central Bank intervention worldwide, approaching something like 500 independent easing actions taken?

A closer look reveals the typical characteristics of a Broadening top, 5 points of contact with the two trendlines and most often a failure for the final move to reach the top of the upper trendline which if I could extend out to where it should be, you'd see we are well below it, another change in character and price trend within the Broadening Top itself.

The pattern is certainly of the appropriate size given the preceding trend as tops tend to be symmetrical or have a certain proportionality with the preceding trend and often base.

In our normal analysis, it's starting from the macro or strategic view to understand what the highest big picture probabilities are, to make sure that they continue to meet the expectations or to change our view when the market changes. From a Broadening top perspective, the market is essentially living on borrowed time and has been since the start of 2015, ironically when a whole host of things changed including the end of QE, the impending threat of rate hikes, the macro economic data slump in the US and across the globe, ridiculous valuations, major fund managers taking EXTREME action (I'd say reducing your already reduced equity exposure by -40% when the higher AUM puts more money in your pocket and doing so in a single quarter qualifies as extreme, especially among Wall St.'s greedy standards).

It is within this context that I find this week's charts most disturbing, not that I'm rooting for the market to do anything, I'm simply rooting for us to be on the right side of the most profitable move and as you know I feel we have the opportunity not even of a lifetime, but of multiple generations, perhaps even the greatest opportunity the market has seen if you are on the right side of the trade.

It's within this larger macro tend framework that this most recent forecast is surprisingly shocking to me.

*I didn't intend to add any more charts than the SPY 1m-15m charts so you can see the deterioration of this latest move, however as usual I got a little carried away being the market is so dull pre minutes release at 2 p.m.*

 SPY intraday 1 min, as I said, very dull today so far in advance of the minutes at 2 pm

 SPY 2 min since last Thursday's forecast for this week and the immediate negative signals upon higher prices starting Monday and continuing.

This is where I started getting a bit carried away, this is the same 2 min chart showing the trend, it's clearly not good for the market and at a new leading negative low. You may be able to see more if you ignore my scribblings on the chart, but I wanted to point out divergences for those not use to seeing them.

SPY 3 min with a couple of smaller accumulation areas for the small volatile bounces we have seen, I have previously shown how these have formed the actual triangles and they are not a naturally occurring phenomena.

 SPY 5 min deterioration specifically in this most recent move. You may recall on Monday that I said at the pace these divergences were forming, by "Tomorrow" which would have been Tuesday, I'll likely be posting 10 min negative divergences which was the case yesterday.

 And the deterioration/negative divegrence in the SPY 10 min chart as suspected on Monday.

Now even the 15 min chart which is strongest in SPY is seeing movement to the downside, others are in worse shape.

*This was to be the extent of the charts for this post and my thought is, "How is the market possibly going to push higher without some sort of outside help such as a F_E_D comment (conveniently the minutes are out soon) or some other manipulation?*

 I then added this 4 hour SPY chart so you could see when David Tepper, the highest paid fund manager the last 3 consecutive years (of Appaloosa) said at a Financial conference in May of 2013 that the market was "Priced to perfection" and that they were selling,  "EVERYTHING not nailed down" which has been proven to be the case from their SEC filings.

Note the deterioration in 3C around the time, but even more so from last summer to present and consider where the Broadening Top is.

This is really where I intended to stop...

Instead I posted the 1 min Q's intraday, same as SPY, showing little action in front of the "Minutes" release at 2 p.m. which is why I took the time to put this together now.

QQQ 2 min with some slight intraday deterioration.

And like SPY 2 min, I decided to show the 2 min trend, I marked a head fake move/stop run at the yellow arrow as a way of pointing out the concept that these head fake moves up or down are generally one of the best price-based timing indications we have so long as the 3C charts confirm it's a head fake or false move such as this run on stops that broke support just before sending the Q's higher.

 I think the trend is interesting, but more so where 3C is ow in relationship to this large, volatile sideways price movement most of 2015 which has fallen short of the upper trendline of the larger Broadening Tops on Daily Charts.

 QQQ 3 min with the small "W" base from last week in advance of the expected upside this week largely based on the AAPL/Triangles as well as distribution areas in red and a new leading negative low.

 The QQQ 10 min chart's trend, but more specifically the damage to the most recent move to the far right and the new leading negative low

QQQ 15 min now seeing damage as expected, this was the "gas in the tank" chart.

 The longer term QQ 4 hour chart with some confirmation going in to the distribution causing the October lows and a much worse picture since in to 2015 and at present.

This is where I said the post is getting too long, I abbreviated some of the charts to get this out.

 I wanted to point out the IWM 15 min chart never went positive with the rest of the averages and looks even worse right now.

I purposefully did not draw the divegrence to the far right so you could better see it for yourself.

IWM 30 min since the forecasted October low's "Face ripping rally" and massive deterioration.

And the 2 hour chart in to the 2013 "Priced to Perfection" Tepper coomment and "selling everything not nailed down". There's a discernible change in 3C character around that area.

Remember how big these funds are and how they need demand to sell to retail who buys in much smaller size.

 VXX's 30 min chart and the most recent positive divegrence much larger than the previous which had a decent run, this is something entirely different.

And for longer term historical perspective, unfortunately these charts aren't as well scaled as some in the past as time has moved on and some left edge data has fallen off.

 The Dow during the roaring 20's when the market seemed like it would never go down, everyone owned stocks and the F_E_D under Benjamin Strong's leadership (the equivalent of the NY F_E_D President) first engaged in "asset purchases" or the precursor to QE, which Bernanke was a fond student of in this era. Strong dies in 1928 before he could see what the result of F_E_D tampering in the market ultimately would be.

Note that the crash was not a sudden as many would have you believe, there was very smart money, people like Jesse Livermore (considered to be the greatest trade ever) who were VERY short the market before the crash and 3C reflects that smart money had been moving out about a year in advance.

I though it would be interesting to compare the 1929 3C signals to the current ones for a larger perspective and why I think this is the opportunity of multiple generations if you are on the right side of the market.

This is the 2007 distribution in the Dow in to the Housing Bubble and Financial Crisis, note the confirmation from 2009's lows through 2011.

Again confirmation around 2009 and starting to go south in early 2012, but just starting.

Unfortunately I don't have the history on the left side of the chart to properly scale 3C to price, 3C should be much lower. Imagine shifting 3C down to be in line with price at 2011 as we saw above it was, that means everything to the right would be shifted that much lower as well.

This may not be the best representation of the current situation, but I wanted to give you an apples to apples comparison to 1929, this is a far larger, longer and deeper divergence than at any other time in the Dow's history.