The question Friday was whether the best looking head fake scenario I've seen in some time would be hit or not, today it was hit and there was an accompanying short squeeze with it, but in my opinion, this was weak since before the event even occurred today. Normally we'd have fairly clear signals that a head fake move was coming, even if it was only to last the briefest of moments, but this time nothing. The only thing we had to guide us toward that probability was the concept itself and the high probabilities of the concept which were insanely high given the assets' popularity, the size of the trigger (resistance) area and the familiarity of the price pattern (triangles-both ascending and symmetrical.
From Friday's The Week Ahead
"I don't think the bounce is quite complete or its reversal process is not quite complete which means that my first assumption would be that the market would be rangebound and choppy in the area finishing the reversal process, but we also have some very easily recognizable resistance areas that are a hot bed for a head fake move, I have not doubt any head fake move or false breakout would be exactly that.
It's hard to say which scenario is more likely, but the Index futures have turned definitively and unambiguously negative."
These are two examples of two of the most clearly laid out head fake set ups we have seen in a long time...
Also from Friday's The Week Ahead:
"As for early trade next week, we don't have any strong signals"
If you caught this morning's first post we didn't have much to go on, a bit later when it looked certain that we'd gap down, the Index futures on intraday 1 min charts firmed up suggesting the gap down wouldn't hold...
The afternoon showed us clear deterioration in to the (I hesitate to call it a head fake move, but technically that's what it is, just without the extreme momentum that accompanies them to sway emotions) suspected move above the clear triangle's resistance.
I also said on Friday as well as today that the gas in the tank for any bounce was from the previous week and reached out to about 10 min charts, therefore,
"The same is true using QQQ as an example-the 10 min bounce chart needs to fall apart more before the next trend/DOWN"
While I can't say that the 10 min charts were taken out today, remember it's a process (also from Friday's "Week Ahead" post...)
"Looking at VXX it looks to be half way through (or more) its reversal process, but not completely there yet."
However, here is some of the deterioration today that needed a lot of help from a VIX smack down to HYG ramping attempts with TLT down...
Remember the VXX chart and my estimation Friday that the reversal process was about "Half over"...
However when dealing with a price pattern as large as the SPX's...
It's probably much more appropriate to use a VIX chart of similar magnitude. This is XIV, the inverse of VXX which trades with the market...
A smaler version of the same concept occurred in the SPY/market just before the October lows at the September head fake move which we called in advance as the rounding top was almost finished...
The same concept works as a bottom as well. In the VXX it would look like this...
These would be much more appropriate as far as scaling vs the SPX's triangle.
The weakness before today was in that there was no additional divergence other than the 10 min chart from the week before last week's, nothing was added to it. Then additionally the intraday deterioration today and 10 min deterioration to the "gas in the tank charts". Again, QQQ 10 min...
QQQ 10 min deterioration, it just needs to go a bit further as posted Friday.
I don''t think there's any coincidence between Friday's op-ex pin price action and today's move above a triangle that has lasted nearly the entire year (2015) on the same day the $USD made the breakout from a "W" base that we had been expecting for a counter trend move to the upside (which should fail and make a new lower low). I'm also a little more than "suspicious" that it occurred just 2 days before the F_O_M_C minutes are released Wednesday.
Here's the trend...
The correlations are what interest me the most both short term and after the bounce is done as I explained using Gold, Crude, Treasuries and the market as examples...
Other correlations that should have some meaning to short term positions such as Gold puts, USO short and longer term trade set ups such as Gold long and USO long after a pullback...
Closer, on an intraday basis...
In fact, the $USD put in the strongest daily performance in TWO months!
However I like both gold and oil for longer term trend trades so when the $USD counter trend move is over and it starts moving back down, USO and Gold should have pulled back and be in decent position for a long trade, although we will confirm accumulation of a pullback before entertaining with position.
As for the SPX futures... You have to remember a lot of correlations are new and I think that has everything to do with Carry unwind...
I suspect (from the underlying weakness in the averages today), that the $USD should bounce up a bit, the averages may or may not continue their bounce/head fake, although it looks like they are swimming against the tide, but this should bring them closer to reversion to the mean. I suspect the market wi=ill have its head fake move in or have tried and failed and by the time the $USD is ready to make a lower low, they'll be back in correlation and the $USD will have some catching down to do. This would fit with the fast and sharp reversals that are born of failed moves.
I suspect that Treasuries will also put in a counter trend bounce, but then will continue lower to a new low along with the $USD and I suspect the market, the carry unwind. I don't know how much more evidence we need, it seems plainly evident that the $USD carry unwind is well underway.
Intraday, here's the performance of the major averages... For a "breakout" day, the percentage gains ranging from +0.14% to +1.09% are not only all over the place, but there wasn't a solid breakout on volume in any of the averages, again suggesting a false move that will fail and from failed moves come fast reversals.
It looks pretty obvious the VXX/VIX futures were slammed hard (short term manipulation to lift the market)...
Remember today they were trying to get the 2nd asset of the SPY arbitrage going as well, HYG and TLT was already down, which makes me wonder if the entire TLT 2% Friday gain wasn't a set-up for a SPY Arbitrage melt-up to break above resistance in the Dow/SPX? The $USD waited until today, the move in TLT on Friday was extreme for that asset and VXX was obviously knocked hard today not to mention the attempt to get HYG in the game (the 3 assets of the SPY Arbitrage scheme).
Yields were obviously up on Treasuries pullback today, but not enough to be helpful if the former Leading indication of yields were still working...
In addition to an apparent aversion to risk on in institutional land via HYG, Pro sentiment was lagging again...
As for internals, you saw TICK today, there was definitely a short squeeze again, but internals were very poor on the day.
There was no Dominant Price / Volume Relationship today. There were 7 of 9 S&P sectors in the green and 176 of 238 Morningstar sectors in the green. I don't see any near term overbought or oversold tensions at the moment.
As for futures, the Index futures are pretty close to in line on 1 min charts as is the $USDX, but I suspect the $USD may see some overnight weakness as the Euro and Yen both look like they have small positive divergences. I don't think it's anything much beyond that as the $USD's base and positives are on such long and strong timeframes.
The gold divergences haven't changed since this morning, TLT/treasuries I think gave the best read on the TLT charts during the cash market.
HERE'S WHAT DOES STANDOUT, DAMAGE FROM TODAY IN ALL OF THE INDEX FUTURES ON TOP OF THE LONGER TERM CHART DAMAGE FROM FRIDAY/THIS MORNING... (and this timeframe with this damage continues to suggest that we are in a reversal process)...
I still think that it's a reversal process, we have a potential head fake move in there as well. As I said in my last sentence on Friday, I think patience and letting the signals develop, letting them jump off the chart and not jumping the gun here are going to lead to the best results with the least amount of risk.
Remember we have the F_O_M_C minutes and now according to the FT, apparently there's even a chorus of Financial titans/executives from some of the biggest banks and Institutional investment firms petitioning central banks to get themselves in stable condition (hike rates) to be ready for the next financial crisis. I don't think they are saying this suddenly out of the blue as an opinion over a casual conversation. As I have believed for some time, the F_E_D is more afraid of not hiking rates and getting off ZIRP so they have some room to maneuver than they are of the damage rate hikes will do to an already weak economy (macro data at 6 year lows)...
And everything seems to be lining up for one last hurrah (bonds, possibly stocks the $USD where itthe carry can be closed out at better prices).
I'm not going to pretend like I understand the end game at this moment and how the averages/correlation and potential continued head fake move will play out, but I have very little doubt as to how it ends, that was the third trend forecast of April 2nd after a small pullback (last Mon/Tues) followed by a larger bounce (now) and a decline that will make the bounce look as important as Monday/Tuesday's small decline (actual verbiage from the April 2nd forecast).
