Daily Wrap

All time highs in the NASDAQ and S&P on+0.38% & +.24% respectively. I'm not really impressed, but I am happy to see that we are making progress. This as the macro economic surprise index hit fresh six year lows today.

 The major averages intraday today with transports leading and the Dow lagging...

The major averages on the week with transports leading as well as the NASDAQ 100. It wasn't too long ago we were looking for a bounce in transports to set up a short trade entry.

I think the worst part of expecting a head fake move is waiting for it, there's that natural concern that it will not be a head fake move and rather a true breakout. As most of you know, we confirm whether or not the longer term charts' probabilities that reflect a probable head fake move are correct upon the actual 3C/ price action as the move occurs. In a normal state, 3C should follow price, it's when it significantly diverges with price that we have a divergence and an edge such as happened today.

I can't count how many times I've presented the evidence for a head fake move over the last week+ ever since the SPX's March resistance trend line became such a visual element in the most watched index in the world, all things that contribute to the probabilities of a head fake move (or in this case specifically an "Igloo with Chimney " price pattern) which are normally around 80% to start with. The more visible the resistance/support level (or other price pattern, moving average, etc,) and the more visible the asset, the higher the probability which put today's breakout statistically probably somewhere around 95%.

I can't stress enough, if you haven't already read the two posts that are always link on the member site at the top right, please try to find time for them:

Understanding the Head-Fake Move... How Technical Analysis Went From an Asset to a Trap

Understanding the Head-Fake Move... Motivation

I'll be adding a third soon.

As I said, I can't count how many times I have posted the probabilities of a head fake move, but I can refer to the most recent and significant post which would be last night's Daily Wrap...

" It would seem to me that the gut feeling of a head fake move above a well known average and a VERY visible resistance trendline (SPX) based on numerous examples of the concept taking place approx. 80% of the time, that a head fake move was and is the most likely course of action as I said last night (Tuesday), although unlike past head fake moves, there have been no divergences to support the theory beyond the probabilities of the concept...thus the strange action in 3C charts today (Wednesday) (in conjunction with ES spoofing as confirmed byNANEX) off no significant divergences at all, just as we have thought the last several days...It would take some other lever."

The strange 3C action I mentioned above can be found in yesterday's tongue in cheek/ sarcastic post, Unusual Market Activity-I Wonder Why...

Today we obviously found out why, although not a surprise.

While some would claim it is the "Bad news is good news" meme, I think we can prove this incorrect quite easily...

After the Bank of Japan came out overnight saying that they're likely to miss there 2% inflation target this year and likely will not hit it until April 2016, which diminishes the probability of further stimulus at the April 30 meeting; we then saw futures dip on EU in China PMI misses (red). Shortly thereafter, US PMI(Flash) messed followed by new home sales also missing and the very strange 11:51 a.m. ramp job. Thank you for all the responses to my question, "Did Bullard speak", however once again it was tongue-in-cheek and slightly sarcastic. The market has not been able to get it done, thus they left it to the Algo's. For such a parabolic move, it's surprising the percentage games are so small. The job of a head fake move is to swing emotion which swings perception which creates opportunity… for Smart Money. After all in the size of a trade, they need demand and higher prices to sell and/or short in to.

As you probably saw in numerous posts today there were plenty of indications showing distribution in to today's limited gains but headline highs.

As to last night comments regarding leading indicators in the Daily Wrap post, here's an excerpt:

"Leading Indicators like HY Corp. Credit which have been the last to diverge are doing so now, if there were to be a head fake breakout and HYG continued to diverge, that would be the typical strong Leading Indicator signal that we have in so many other indicators, Yield need to turn as well in my view. Until then, I think patience is still the best policy lest you get chopped up in a wave of large swinging volatility. Let the trade come to you, let it be on your terms at the time of your choosing with the confirmation that gives you a real edge. BELIEVE ME, I'M MORE ANXIOUS THAN ANYONE FOR THE NEXT PIVOT AND POSITIONING, BUT KNOWING WHEN AND WHERE TO PICK YOUR BATTLES IS MANY TIMES THE BIGGEST EDGE YOU HAVE."

As to high-yield corporate credit specifically here's an additional excerpt from last night:

" HYG (blue) vs the SPX intraday, it seems the lever of choice wanted nothing to do with following or leading the SPX any longer and I suspect the late day weakness in the averages that likely prevented them from a breakout (SPX head fake) may have had roots in the collapse of HY Corp. Credit as a short term ramping lever as it gave out."

The recent weakness in HYG charts did exactly what I was hoping for today in creating a larger divergence...

 HYG (blue) vs SPX (green) intraday, HYG sold off into the close and red on the day. I don't care about the percentage move it's the divergence as HYG is the go to leaver for the market.

HYG on a slightly longer term with a larger leading negative divergence. For those who want more she last nights daily wrap for additional charts including 3C distribution and HYG is well as HYG's primary downtrend. As the saying goes, "Credit leads, stocks follow".

I also specifically mentioned yields above in last nights post, additionally there was this excerpt:

"Yields for example have been supportive locally, but dislocated negatively on a big picture basis. They still seem to be offering support, thus I still suspect a head fake move is in the cards"

 This is five-year yields(red) versus the SPX intraday, note that is exactly what I was looking for last night occurred today. Yields diverged from the market rather than in line and supporting. Remember yields trade opposite Bond prices. So a risk on move in equities and safe-haven bond complex? Or perhaps are leading indicators for doing exactly as expected on a head fake move.

As also shown last night and numerous times recently, ten-year yields in red diverging with the SPX in green, But on a significant trend changing basis. This is why we use yields as a leading indicator whether 5, 10 or 30, they're all doing the same thing. Generally you can think of yields as a magnet pulling equity prices toward them. This is why today's intraday change in trend in yields versus the SPX at a head fake breakout point is so important as was mentioned last night well before any breakout.

As for other leading indicators, it was quite a bit of analysis regarding USD/ JPY which is a carry trade. Here's USD/JPY versus ES yesterday providing support...

 USD/JPY (candlesticks) vs. ES (purple). Note yesterdays correlation between the FX pair and ES.

From last night's post,

"As for futures as always I'll check them again later tonight, but the US DJP why more listed what was expected on a negative divergence and pull back a bit then added some additional gains and still negative or showing distributive signals signals"

 This is the correlation between the two today.

It seems our  $USD analysis from April 2 is also on track. The analysis called for a bounce in the USD followed by a larger decline which likely will affect the primary trend as the $USDX failed to make a new higher high and I suspect it's moving toward a lower low. It is interesting as the $USDX has lead the market recently. Not to mention the fact there is $9 trillion in USD based carry trade open as well as the influence a lower dollar will have on the F_E_D which is very concerned about a strong dollar before hiking rates.

 $USD intraday today losing ground

 Since the April 2 forecast we were looking for a bounce higher followed by a larger move lower which I believe we are ready have the pivot in place with a minor corrective move recently which likely has had something to do with the overall market head fake move.

 This chart shows the pivot to the downside as well as the recent corrective move and what looks like a new divergence that should take the $USD lower.

 On a daily chart of the USD you can see the strong trend in the dollar which was confirmed at the green arrow as well as the strong 3C negative divergence more recently. At the two yellow trendlines you can see the UST failed to make a higher high end is in a triangle like much of the market. A lower low here would be significant to the USD as well as the carry trade and F_E_D policy, both having an enormous impacts on the market.

Wow this may not be of much interest unless you are trading USD/JPY, the trend change from down to lateral which also saw 3C confirmation on the downtrend and a leading positive divergence at the lateral trend suggests that USD/JPY is about to see a significant change. With carry traders using leverage of 100 or even 300 to 1, losses can snowball quickly. The effect on the equity market should be obvious. I have maintained for two years that Yen will be in an uptrend at the same time the US equity market is in a bear market. While today's Bank of Japan inflation data may not be significant to the larger trend the recent move away from accommodative policy it is interesting (see comments on Bank of Japan inflation targets and the probability of no stimulus at the April 30 meeting).

To finish off leading indicators...

 The SPX:RUT Ratio intraday which showed some support into the close. I suspect our move is not done just yet.

 However, Looking on a longer basis the same indicator in red shows a positive divergence going into the April lows or "W" base, which was part of the analysis included in the April 2 market forecast. You can see since then the indicator that should be confirming SPX prices by moving together with it is diverging significantly. This has been one of our most reliable leading indicators.

And professional sentiment, obviously not willing to chase risk today.

As for crude oil or the USO trade, last night I had the following to say in the daily wrap:

"As for USO, you may recall yesterday's update, USO Update-Swing Position,  looking for a near term bounce as a second chance position for those interested, I think that's still in play."

Looking at crude oil futures, I believe we are still on track for a swing down although as you know I like oil on a longer-term primary trying basis.

 The daily crude oil futures chart with 3C confirming the downtrend at the green arrow and as prices turn lateral forming a base, 3C is leading positive which is why I like oil on a longer term basis.

 More material to our trade is the 60 minute chart showing several areas of minor accumulation and the proceeding move higher into strong distribution and a lateral trend indicative of a topping or reversal process which I believe will lead to a swing low toward the base lows. USO puts are still in play.

The oil futures 30 minute chart shows a larger leading negative divergence with a short term bounce or corrective move within it, however the larger leading negative divergence is the dominant signal.

Finally as to internals, the daily rock last night had this to say:

"The Dominant Price/Volume Relationship among the component stocks of the major averages were all dominant today unlike yesterday, the Dow had 14, the NDX 51, the SPX 198 and the R2K didn't have a relationship.

Once again it was Close Up /Volume Down, the most bearish of the 4 relationships and as a 1-day bias event, usually the next day closes lower, but in this case it could be as I said Monday, reflecting the weakening market as it tries to break resistance.

S&P Sectors saw 9 of 9 green which argues for a 1-day overbought event, similar to the Dominant P/V relationship. The leader was Tech at +1.02 and Consumer Staples at +0.06%.

As for the 238 Morningstar groups, they too are near a 1-day overbought event, but not quite there with 174 of 238 closing green. The market still feels like it's not done and in looking at watchlist trade set-ups, many of them feel like they are not done so I think my overall feeling is the same as yesterday, even though there's not strong 3C evidence for the set up of a head fake breakout move and there's very strong evidence for the failure of one, I believe the probabilities of the concept are very high and this situation makes them even higher with such defined resistance that traders will chase in such a well known index as the SPX."

As for tonight internal's… there's nothing too exciting. Only two of four of the averages had a dominant price volume relationship; they were the Dow with 12 and the NASDAQ with 60.  Both closed at Close Up/Volume Up which is the most bullish of the four relationships on one day breadth basis. However, ironically this typically leads to a red close the following day. I wouldn't hold my breath on this one being the relationship was not very dominant with only two of the four averages. Seven of the nine S&P sectors closed green with energy leading and consumer staples lagging. As for the MorningStar groups 175 of 238 close green. Again nothing that really stands out

.

Tomorrow is an options expiration maximum pain pain even though it is a weekly so we typically see Price open somewhere around Thursday's clothes and hang around that area until about 2 PM which time we get some of the best three C data of the week during the last two hours..

As far as head fake moves go, I am not impressed as of yet; I believe we have a little more to go but I also believe that trades will be setting up now and in the days ahead.

I'll have a comprehensive futures update for you in the morning. The bottom line… so far so great.

INDEX FUTURES SEEING VERY EXTREME NEGATIVE INTRADAY ACTION

Does someone know if James Bullard came out within the last hour? The reason being, Intraday index futures are showing extremely negative trade. I would not overreact as this is still a process that needs to migrate to longer charts but something is very different than earlier today is at work.

The index futures...

 ES 1 min into the clothes and just after. The earlier negative divergence at the red arrow made sense ,this is rather extreme.

 The same goes for NQ/NASDAQ futures

And TF/Russell 2000 futures

I know I said I didn't think this market would be able to hold a head fake move for very long but this would be uncharacteristically short.

Quick Leading Indicators Update

Of the three different indications I have been tracking since the April 2 forecast are leading indicators. After taking a quick look at them I see that professional sentiment has diverged negatively. VIX both spot and short term futures are in line and have not been monkey hammered as you might expect. Yields have diverged significantly to the downside,  over the last week they have been supportive of the market,  today that changed and as you know they act like a magnet for equity prices. More importantly high-yield credit broadly and high-yield corporate credit specifically have turned down. I mentioned high-yield corporate credit and the terrible 3C charts that were pointing toward a turn down in HY Credit rather than the support that it has shown the market over recent weeks and even months.

Last night I said one of the things that I would be looking for in an upside move in prices is a deeper downside move in leading indicators. I will post them in the Daily Wrap, but they too are perfectly on track.

Market Update

Usually a head fake move has some proportionality with the preceding price pattern it is breaking out or down from, in this case triangles for the most part, symmetrical and/or 90 degree.

I have expressed in recent days some doubt as to how long a head fake move could hold out given the nature of the very weak internals, 3C charts, Leading Indicators, etc. I still believe that when we are at the pivot, the charts will be exceptionally clear and there won't be guessing like, "Is this close enough?".

However, considering today's move and yesterday's VERY odd movement in the underlying flow of funds, which looked like the towel was just thrown in and rather than using the typical ramping levers, the "invisible hand" essentially just put actual money to work to try to push the market around which is exceptionally rare...from yesterday's post and the motivations on the subject...

My sarcastic, "I wonder why" was definitively answered today.

Now as to the underlying price action in what is otherwise even from a basic technical analysis (dogma) perspective is a flawed move at best....

This is the NYSE E TICK index

You can see the earlier uptrend and the extreme reading of +1750 on absolutely no news, but this was expected and then the deterioration as there was a lack of follow-through and right now a very mild range of-250/+750

What is unique about the charts below is not that they are longer-term charts that show the strong underlying trend, what is unique is that they are the short term charts that respond very quickly and don't take a lot of accumulation or distribution to move. It would follow that if there were a breakout move with institutional support of some kind we would see confirmation in the very fastest of our 3C charts as they moved up with price.

 SPY 2 min leading negative. Not even close to confirmation in fact the opposite.

This was the strange timeframe yesterday that I have noted several times since it was posted yesterday and it is moving toward a relative negative divergence. Remember that to flame outs at 2 PM on Tuesday and 10 AM yesterday morning which were expected to be the two areas that the market would get a toehold for an attempted breakout .

 The larger Institute I'll time frame at five minutes shows a complete lack of confirmation, This chart could easily confirm within an hour. The price pattern we are left with as we have been forecasting for a week as an example and probable price pattern…

Since the "W" base going into early April and the April 2 forecast as well as the previous weeks forecast of a reversal process/Lateral price trend, it's starting to look a lot like an igloo with a chimney price pattern. See the September 2014 highs going into the October lows, it is the exact same price pattern and one that we see most often.

The actual head fake or chimney is one of the best price based timing and indications we have for a reversal, in this case to the downside.

 The QQQ two minute chart could have easily confirmed within minutes, instead it has diverged extremely today.

And the odd three minute time frame from yesterday in QQQ which inspired this post, Unusual Market Activity-I Wonder Why... It is starting to deteriorate.

 IWM one minute leading negative in a lateral area which is most common to see a accumulation or distribution, think of VWAP.

 The two-minute IW and chart showing yesterday's 10 AM flameout, a mini capitulation event based on breadth and a deep leading negative divergence into today's move.

Again the point being these are the fastest time frames that could and should easily confirm.

And I WM three minute which was also one of the strange timeframe just today showing confirmation in the early move and deterioration now. This is the concept of migration of a divergent as it gets stronger it moves to longer-term time frames with more extreme divergences. into a head fake event

The initial information looks to confirm our forecast of distribution into a head fake event over the last week plus. This does not mean we are at the exact pivot, it just means our expectations are moving in the correct direction and positions can be taken as they come available.

Quick Futures Update

Volume-wise and so far 3C indications show this as a shameful breakout, obviously they used a lever, which I haven't got to yet, but based on yesterday's odd behavior, Unusual Market Activity-I Wonder Why... I could probably take several guesses that would be very close.

Looking at the NYSE  TICK chart, it's already plain to see that intraday breadth is a very poor.

 The NYSE intraday TICK Data shows and uptrend earlier with An extreme Reading at +1750 and then everything falls off to essentially flat just as many stocks are declining as advancing. This is not the kind of breakout can new all-time highs-type breadth you'd expect to see if there were actual institutional support.

 When the April 2 forecast for the market was made, it was based on numerous indications but the broad concept was the pinching daily volatility as represented by various forms of triangles whether symmetrical or 90 degree. Apple is a good example which is why I picked it as a proxy for the broad market for the April 2 forecast. This is really no different than pinching Bollinger bands which is essentially the promise of a highly directional move. However if you look at this daily chart of ES/SPX futures you can see the distribution into the September Head fake highs which is an actual Igloo/Chimney top, Leading to the October lows where we forecast a" Face ripping rally" as too many people were calling for a top. The leading negative divergence into 2015 should be very clear which gave us the highest probability resolution of any upside move including a major head fake move such as we are finally seeing today.

While still exceptionally strong at the four hour ES/SPX futures, this is not as high of a probability as the daily chart although it is giving us the same signals with just more detail, Including a leading negative divergence into the triangle area of the SPX. While no one chart can give us probabilities, putting all the pieces together with multiple time frame analysis and multiple asset analysis gives us high probabilities which are all pointing to strong distribution which is why the April 2 second forecast for a breakout above the triangles was also forecast on that day before there was any breakout to result in an eventual failed move and new lower low.

 The hourly chart shows us hey W type bottom with accumulation going into the 4/2 forecast and distribution into that move since.

This is just further confirmation of what the probabilities already showed.

As for today… while each average is in a different position, SPX breaking out of a triangle, NASDAQ breaking out toward all time highs around the 2000 area, but the Dow and IWM, despite relative performance, are not at similar breakouts. As a common technical trader, which would you choose?

 As such, the intraday one minute ES chart is already showing a lack of confirmation with a negative divergence. This does not mean that it is a short or sell signal, It's telling us what's going on in underlying trade. In other words smart money is leaving the bag in retail's hands.

NQ/NASDAQ 100 futures are showing similar lack of confirmation or distribution in to higher prices

 At the same time VIX futures are showing a bid towards protection with a positive divergence for the third or fourth day in a row.

From here we look for confirmation and strengthening of the divergence. As laid out shortly after the April 2 forecast, there were three things I would be looking for as far as a pivot to the downside. One included the 7, 10 and 15 minute index futures charts to lead negative as a timing indication.

Although each chart is a little different the five minute ES is not confirming either and in a leading negative divergence so the next time frame would be seven minutes for a strengthening signal.

 We have a very clear 5 minute leading negative NQ divergence, note the one day oversold (breadth conditions)accumulation last Friday in which we forecast a bounce starting Monday.

 TF/Russell 2000 futures look a little different at five minutes. Remember they have not made the same kind of breakout that the SPX and NASDAQ have.

 ES seven minute showing the same positive divergence at the oversold breath condition last Friday leading to the forecast for an oversold bounce on Monday. However the most important thing is the lack of confirmation in today's move and the migration of the divergence in to longer time frames.

 ES 10 minute it is also showing distribution as today's move looks very parabolic which I never trust, no matter whether it is a move up or down.

And ES 15 minutes. We do have some negative divergences as well as the positive from last Friday on an oversold breadth condition, but we will want to see this chart leading negative like the 10 minute above it for a strong timing signal and the same for all index futures.

And There It Is!

I find the timing absolutely ironic given Tuesday's Daily Wrap comments which were reposted yesterday here, Pre-Daily Wrap and yesterday's very strange behavior as chronicled in this post, Unusual Market Activity-I Wonder Why...

I've speculated on this concept which we see at least 80% of the time in any asset in any time frame before a significant reversal in an average market, the head fake concept. I cannot stress enough how important it is to read the two posts / articles, "Understanding the Head Fake Move" which are always linked at the top right corner of the members site. Once you understand this concept, you understand how Wall Street uses technical analysis against traders and how you can use it to your advantage.

The more obvious the technical level or obstacle such as SPX resistance at the March trendline or NASDAQ March 10, 2000 closing highs and the more visible the asset, the higher probability of a head fake move before a significant reversal whether up or down (USO recently pulled a head fake move on the downside of its 2015 base, a stop run, before its most recent leg up). As you know I typically approximate this concept to be in force 80% of the time before a significant reversal which is the basis of the "Igloo/Chimney" price pattern and that is on an average, ordinary vanilla asset in any timeframe. In this particular situation, how much more so should the concept hold true?

In any case, the goal is to move in emotion which moves price. It's what smart money is doing with that price move that we are most interested in. I think we've made the case, especially through 2015, as to how this resolves. Which also means I am about to be extremely busy so please have some patience with emails,  I will get to them ASAP,  but I have to consider the broader group of members first. Now the work begins.

 The NASDAQ composite on a daily chart surpassing the February 10,  2000 closing highs. The intraday highs we're made on the same date at $5132.52. This is obviously the kind of trigger that retail traders will chase which is what we have been talking about as far as expectations for the last week.

 The SPX daily chart with the March trendline acting as resistance, Which is also become very visible within the last week and it's move above that trendline is expected on a head fake move.

 I pointed out the Dow Bear flag-like price pattern, I don't know that it matters very much but you can see two levels that would be of interest.

 This is the NYSE intraday TICK chart (the number of advancing issues minus the number of declining issues). Note the extreme reading of +1750 and then falling back into the trend around a very mediocre 250, this on no news whatsoever. 

What looked like was going to be the sponsor of a head fake breakout, The USD/ JPY has given up more.

I'm going to check leading indicators as well as futures and update you as I believe to be useful, otherwise we are looking for the hallmark of a head fake move which is distribution,. This also means a number of watchlist assets and trade set ups, so I will be very busy. As I've said the last few days, I'd rather just get on with it and get to our pivot point rather than watch this market just bounce off resistance when we know what the probabilities were. Remember this is an exercise in emotional extremes. You've probably seen more than once that your emotions are one of the best reverse indicators. However I will try to give you the evidence as I find it that confirms this very common manipulation of technical traders, beyond what we've already established.