Wrapping it up-Futures

Yesterday was a strange day in the market (Monday), almost an ineffable strangeness; it was very much like the invisible hand was trying with all of its might to lift the averages, not to a mind numbing huge day up, but some modest target and being the SPX closed only 9 points away from a new high (about half a point), it would seem that this may have been what the market was striving for.

The market use to draft a lot better, if one average was up, the rest would draft off that one, don't get me wrong, there was still differences in relative performance, but green was green and red was red.

Yesterday it seemed like the SPX was the main index of interest for the invisible hand and there's nearly zero doubt in my mind that the movement in the VIX, some attempts to influence market moving currencies and even the rumor on Bloomberg about AAPL's cash/dividend possibility (although specifically targeting the NASDAQ 100 where AAPL carries nearly 20% of the average's weight and as the NDX was struggling badly to break out of the red) were all desperate attempts to achieve whatever upside goal those who pull the levers behind the red velvet curtain, had set-as if the market needed that same drafting.

I said during market hours yesterday that I would be very interested to see the daily closing stats and once I saw them, I felt like I understood a little more about why the market was so difficult to move, why the VIX had to be sent down to seven year lows, why the rumors about AAPL came out when they did, the market simply isn't in good shape and as already mentioned, even with 3 of the 4 large averages closing in the green, many metrics went downhill, most notably market breadth.

Today the market seemed like it had already spent a lot of the manipulative currency (not meant as a pun) trying to move the market yesterday and today there wasn't much left in that particular piggy bank.

The market was weak all around today, but it seemed particularly weak in the same two averages it struggled with yesterday, the NASDAQ 100 and the Russell 2000 (both closing red today), breadth suffered again today on a day when the volume was only modestly higher than yesterday's which was the lowest volume of the year. Today however in at least a couple of averages, the dominant price/volume relationship was "Close Down/Volume Up", which often acts as a short term 1-day oversold condition. Considering what I saw in GOOG and AAPL today, it wouldn't surprise me if that were true, but considering what I saw in the 3C charts of the averages, it wouldn't surprise me if that were only true for a short period of time, possibly even ending intraday tomorrow.

As for closing leading indicators, nothing really jumped off the charts, however they still weren't good. Today was a day for algo driven correlations and what seemed like more of arbitrage trading than anything else as I had pointed out in this post "Quick Market Update" with the comment, "The market looks a little overdone on the downside intraday when comparing to currencies, some 3C signals, etc."

If you want to see something you don't see every day, take a look at CONTEXT and what I believe you'll see is an arbitrage algo driven market.

Rarely do we see ES and the ES model track so incredibly close and during market hours no less.

As far as Leading Indicators, it's hard for them to diverge significantly when CONTEXT is so close, but they didn't need to (although many did) as they already have on a longer term basis.

Lets take a look at the specifics.

 HIO going negative, especially in to the now famous closing ramp

 HIO on a longer term chart over months, already having diverged significantly away from the SPX.

 HYG pulling away from the SPX yesterday and continuing today, again specifically in to the closing ramp, HYG is already dislocated on a longer term basis.

 FCT diverged intraday as well since yesterday, again another leading indicator moves down against the SPX closing ramp.

Yields also moving away from the SPX intraday.

So we'l see what the market, AAPL and GOOG have to offer in the very near term tomorrow, but for now the futures seem to be giving away more of the market's secrets just as the did last night.

 ES leading negative 1 min in after hours, perhaps the reason why they were so in line with 3C today during regular hours was because of the apparent arbitrage trading seen above on the CONTEXT chart, however after the algos have gone to bed, it appears the distribution is back on.

 ES 5 min chart in a deep leading negative divergence

 TF/Russell 2k futures 1-min are also leading negative ever since regular hours trade ended.

 The R2K 5 min futures are also leading negative just as the 5 min ES/SPX futures.

 NQ/NDX futures 1 min are also leading negative, seemingly since regular hours trade ended.

And would you be surprised if I told you the NDX 5 min futures are also leading negative since regular hours trade ended?

None of the Currency pairs are doing anything spectacularly interesting at the moment, but are all in an area in which it wouldn't take much of a move for the FX pairs to have a very meaningful effect on the direction of trade.

Some of the most important information is located in the intraday updates, be sure to try to catch up with them.

Other than the ongoing story in China with some PIG virus, which could become a big inflationary story, Japan's ongoing efforts to try to talk the Yen lower until the new BOJ governors take control and whatever adventures of the European PIG or PIIGS rather, we'll just have to see what the overnight holds and how tomorrow fares. My guess is we do see some short lived upside, as I already showed you today, there are larger structural problems in the market that are far beyond the movement of a single day, at least any single day's upside.

If anything develops before I turn in, I'll bring it to you.

Look for MBA Purchase Applications, Retail Sales and Import/Export prices tomorrow pre-market, during market hours we have Business Inventories, the Wednesday EIA Petroleum report, a 10-year Treasury auction (which the F_E_D will end up monetizing despite swearing under oath not to do such things that allow our government to spend at will knowing the F_E_D will make sure there's enough money created, whether via printing or digital 1's and zero's) and lastly the Treasury Budget.

AAPL Update

This is an update of the earlier AAPL long idea (short-term/intraday trade)...

 The 1 min intraday AAPL chart looks like many of the averages, eve the SPY where the positive divergences are only on the later intraday timeframes/

 3 min has a decent relative positive divergence, at 5 mins AAPL is back in line (3C/price confirmation).

I show this AAPL 15 min chart which is mostly in line to illustrate why there are no longer term trades in AAPL, there's no edge.

GOOG Charts

Since none of the longer term charts have changed (the reason I want to either add to or consider an additional GOOG put/short position on a little price strength), I'll just update the short term charts that are behind the call position in GOOG which is a weekly call that is meant to be very short term, I suspect it will be closed tomorrow in the morning.

 5 min chart saw some strengthening late in the day with a leading positive divergence

 This is the extent of the divergence and why the GOOG call/long is considered to be a VERY short term trade, it wouldn't be worth it to go long the equity as the trade is envisioned to be so short so the leverage of weekly options is used. While this 10 min chart may appear to be in line with price action (which is true on an intraday basis), the real situation is partially hidden from view. When zoomed out a bit...

The exact same timeframe is leading negative, the longer charts just get worse from here.

GOOG Update

I'm leaving the Call position open overnight.

Market Update-SPY / IWM

I think you could if you were really aggressive, play the SPY long for a run to the new highs which I pointed out earlier are only 9 points or half of 1% away from yesterday's close, but I personally would not, in fact I have no intention of closing the weekly IWM puts, when a market fails, it does so hard and when a market moves to the downside, it does do approximately 4 times faster than it rises and typically at least 25% further down than the market went up.

Here's a look at the SPY divergence that is a very weak one, but could get the job done and a look at some other averages and how things look there as well as the IWM Put and why I'm inclined to leave it as is.

 This is the same 2 min relative positive divergence I showed you earlier, it's still active.

 This is a 5 min relative positive divergence, but these were created out of weakness, these aren't the kind I'd be going long.

 SPY 10 min is the end of anything remotely positive and is leading negative instead.

 DIA at even 3 mins is leading negative

The 10 min chart is leading negative

 QQQ 15 min deeply leading negative and look how quickly, at the same time breadth was even worse in to market price strength.

 QQQ 2 min leading negative-sorry this should have been before the longer chart.

 QQQ 60 min, this says something, especially as it comes right after the area I consider to be the area where the trend's back was broken.

 IWM 30 min has been in line, these are the charts I love, they move with price and then diverge sharply, these are among the most reliable.

 IWM 15 min-remember the QQQ 15 min in the same area with the same sharp neg. divergence

 IWM 10 min

IWM 60 min, again remember the QQQ 60 min and where this divergence falls.

Leading Indicators 2

OK, here they are and they show how the market was a bit overdone earlier before we got some upside at 2:15...
*Leading indicators are always compared to the SPX (green) unless otherwise noted.

 Here commodities  are holding up better than the SPX, this is a short term bullish signal for the SPX, bur very short term and you need to know why, the first thing you want to check with commodities is the movement in the $USD.

 Here's commodities vs. the $USD (green), note there's a nearly perfect inverse relationship, typically stocks follow this inverse correlation as well, but today the SPX was even more negative than the $USD correlation would suggest, this is a 180 degree change from recent market behavior related to currencies and especially the $USD.

 Here's FCT going negative yesterday in advance of the SPX, today the SPX turns negative, this is why we call them "Leading indicators".

 HYG also turned negative in advance of the SPX, longer term credit is way more negatively dislocated from the equity trend, since credit markets are much smarter and larger, they tend to lead equities, equities tend to follow credit.

 I mentioned I thought HYG was seeing a short squeeze bounce recently, this 15 min chart is showing the end of that move, the yellow area is a head fake move.

 Intraday before the SPX moved at all at 2:15, HYG's 1 min chart was slightly positive, suggesting the SPX would see some upside intraday.

 Junk Credit trades a lot like High Yield, it too went negative and broke down to the left and saw what I believe to be a short squeeze bounce to the right that saw distribution and is ending as price starts to roll back over.

 Looking at currencies intraday, the Euro which has a pretty tight correlation with the SPX was showing support well before the SPX (as it was making a new low), this suggested the SPX see some intraday upside as well, this is a much stronger signal with the $USD also signaling the same.

 Longer term, to the left the SPX and Euro are moving together as this is their typical correlation, the break down in the Euro and EUR/USD is quite sharp, this leaves the SPX largely unsupported, it can move higher as it has done, this is the essence of a divergence and what makes it such a powerful signal.

 Intraday since yesterday we can see the Yen moving up  while the SPX moves down at the same time, this is one reason I have been watching the Yen so closely. I do believe some of the upside in the Yen is due to China, but I think some is due to carry trades being closed out, which is a red flag warning for the stock market as carry trades typically finance equity positions, so equity positions would be closed out first. If you don't believe 3C is showing that, then look at market breadth, it was down yesterday in to a market that was largely up-how can you argue with that?

 The Yen on a 5 min chart also showed earlier at 1:15 the SPX was lower than the Yen correlation, also suggesting some upside intraday for the SPX.

 Treasuries are the flight to safety trade, look at the 30 min leading positive divergence , with the market's price pattern looking so strange, 3C signals and breadth, I'd be taking this chart seriously as well.

Near term the 5 min TLT chart continues to see positive divergences

Bigger Picture Update

*I accidentally published the Leading Indicators post before it was done so there will be a follow up, there are some good tools and concepts so I don't want to skip it.


We have very slight positive divergences in the futures and most of the averages, but they are very limited. The TICK is also signaling higher prices.

GOOG looks like it will be ok, but I really don't anticipating holding it very long at all.

I'll use the SPY as it one of the best looking, which is not to say much.

 SPY 1 min is not positive, but rather in line, most positives that you will see are relative divergences.

 SPY 2 min went negative in to the highs of this morning, the only divergence here is a relative divergence which is the weaker between relative and leading.

 The 3 min chart is the same story as the 2 min above, negative in a bigger way in to the highs of this morning with a relative positive as prices fell.

 The first timeframe outside of intraday where we see institutional activity is the 5 min chart, here you can see it also was clearly negative in to yesterday's move and today's highs, I suspect 3C will make a lower low shortly which will not be good for the SPY, especially if it is bouncing as it is presently.

 This is a wider view of the 5 min chart or "trend", again since the 5th (which looks very strange just looking at price alone) we have a very deep leading negative divergence. Last night I showed you breadth charts that were negative or getting worse yesterday even as 3 of the 4 major averages were green, this is a major red flag, especially on top of the earlier breadth post this week.

 The 15 min SPY chart still shows that area that looks like a "W", this is where I suspect the back of the trend was broken, even though we have higher prices, it's no different that what I said the day I first posted, "The back of the trend is broken". Even on the first day I acknowledged that moves to the upside were not only possible, but almost certain and the analogy I used was "the snake's back is broken". A snake is usually  very elegant moving creature, smooth, flowing movements, however when a snake's back is broken it whips around wildly, like the market volatility I was trying to convey as well as it being the most dangerous at that point. If you were to assume a snake is no longer dangerous because its back was broken, you'd be very mistaken and in this case, I believe it's very dangerous either way-to the upside or downside so I want to be on the side of probabilities.

The daily chart is one of the longest, cleanest trends, we need other charts to tell us when timing is right, but there's a major problem in the market with a divergence like this.

In addition, as I posted yesterday...the monthly Demark inspired indicator is giving a sell signal, the last major one in the SPX was November of 2007.