Leading Indicators Update

Because of the shortened holiday week, today is the last day for institutions/private equity, etc. to place trades and have them settle for November (count as November, - there are several reasons this is important, window dressing, even though it's not quarter's end is among them), this is because of the "T+3 Rule" or "Trade + 3 days" for settlement.

In any case, here's a look at some leading indicators and it's a good thing I looked at breadth last night and decided to show some of the longer term indications because I discovered something I had missed previously.

 This is one of our sentiment indicators (pro sentiment, not retail), it has been very reliable, actually both have. It has seen an "inline" intraday movement right up until Friday's 2 p.m. pin release, then it started falling off and today that has just continued.

I thought it would be useful to remind you of what sentiment over the year has been, essentially how they have been allocating.

 This is 2013, when I looked at this chart it just reminded me of something else, take a close look as sentiment falls off through the year and is now near lows of the year.

Now look at the Percentage of NYSE stocks trading ABOVE their 200-day moving average, this doesn't make sense to some, how more stocks could be underperforming and crossing under their 200-day with a rising market, but look in to how the averages are weighted, the NASDAQ 100 doesn't split the stocks weight evenly among all 100 stocks (each 1%), in fact AAPL use to carry near 20% of the weight meaning if AAPL and the bottom 50 weighted NASDAQ stocks were put together and called the NASDAQ 51, all 50 stocks could have an average decline on the day of 1% and if AAPL was up 2% on the day, the NASDAQ 51 would be up for the day 1% even though 50 of 51 stocks closed in the red.

All the averages have some similar scheme, NASDAQ protects their proprietary formula, even the weight unless you buy a NSDAQ subscription for $10,000 a year. However at the same time, this is also a clear indication of the distribution that has been ongoing as the actual stocks have been sold and are trading lower than early in the year.

 The % of NYSE stocks trading above their 200-day average vs SPX in red, from 82% to 53 %, but looking very similar to the finding of the sentiment indicator above.

 This is the other sentiment asset we use because these are not part of any manipulation/lever scheme, clearly it is falling off as well

Here's the short term VIX futures (VXX) with the SPX in green inverted for today, they should be almost exactly the same, but the VIX has more support, is stronger on the day, a trend of some time and with recent signals, I couldn't pass up the positions Friday.

 Yields in red vs the SPX, yields act like a magnet and a leading magnet for equities, take a look at a larger view.

Yields are leading the SPX at the green arrows and the SPX makes a move up toward yields until the meet at "Reversion to the mean" (yellow), this is the first major Yields dislocation, but it has been going on since the Oct.9th cycle started.

Finally, HYG gets manipulated as it's market level, HY Credit does not, here you can see HY credit (one of the assets pro traders use to express a risk on sentiment) refusing to move with the SPX (green arrow) to higher highs, then it starts falling apart, the last 2-days have been particularly bad.

I'm going to look at some trades/management.

Market Update

I think I'm going to drive my web-designer crazy and ask him about a live video feed, he'll probably comeback and scare the death out of me with some crazy fee to do it (like texts), but sometimes there are so many things I want to show you and by the time I capture, annote, upload, explain and post, the market can really move quickly so I'm trying to keep updates to important ones, transitional so you don't just see one spectrum and the next update is on the other spectrum, I want you to understand developments as I've found members come up with some of their best trades on their own by understanding developments.

In any case, the Q's look better than the rest of the averages generally speaking and AAPL seems to be leading and I think the reason is pretty obvious, at $3998 on only a +0.16% gain, the NASDAQ Composite could join the Dow and SPX in hitting those target whole numbers mentioned last week acting like a magnet with averages so close, the COMP only needs 2 points, it's a fraction of a percent and its the only one that hasn't made that close, there's obviously retail mutual fund flow in it which is what happened at the top of 2007 when the SPX was making its all time new high (after a series of them of course) and I remember specifically an interview on CNBC with the author of Dow 20k, he was proposing that the 2002/3 to 2007 Bull market would hit $20k, that marked the top, but again for .05% more on the close, it has a lot of value as retail comes out of fixed income Mutual funds and in to equity Mutual funds. The words, "Mutual Funds" can't be emphasized enough, this is retail, hedge funds are for qualified investors.

Take that with the chart last week that one site called, "The scariest Chart for Stock Bulls Ever" from Investors Intelligence Survey (% Bears) WITH BEARISHNESS AT LOWS NOT SEEN SINCE LONG BEFORE 1990...

This chart speaks to so many concepts both old and recent from Jesse Livermore's "Sitting" to last night's quote from Don Worden about achieving truly superior gains by knowing when to be "Contrarian" to the flow of funds through domestic mutual funds to the VIX, our 3C charts, breadth charts, Leading Indicators, the manipulation levers not working so good if at all, and the list goes on, not to mention the F_E_D, this is a post that could be a5 or 6 part series alone so lets leave it at that.

So far this is what we have...

 SPY 1 min - after the Friday Op-ex the negative divergence was plain to see (at the lower low of 3C, not where the arrow first starts at the far left). This morning there was a negative on the open as well, again picking up from where Friday left off sending the SPX in to the red briefly.

Otherwise today continues to deteriorate with a leading negative position.

 2 min chart : At #1 I didn't want to draw the far left arrow all the way across the chart to the current 3C reading, but this would be both a large relative negative divegrence as well as a leading negative. At #2 3C was in line intraday on the op-ex pin, it went leading negative right around the time op-ex pins are lifted on Friday (2 pm-ish).

 This is the 5 min chart, note the ranges that are so magnetic, but also underlying trade in to breaks above those ranges. When prices come back under those ranges a head fake is complete, that's when they tend to move very fast.

 QQQ 1 min in line as I said before it looks the best and I think the reason is obvious, but it's still an intraday chart, kind of like intraday "steering" of the average.

The 2 min chart has a lot on it, from the negative at #1 sending the Q's lower with a head fake move just before (they happen on all timeframes) in the yellow box, #3 is inline on the downside move and #4 is the accumulation seen on Tuesday most of the day and the last hour or so of Wednesday, at #5 you'll also note a head fake move before that trend reversal (yellow) and #6 a clear failure to confirm and there's less money supporting the current trend right now vs the previous one to the left, indicative of distribution in to higher prices.

 This is the entire QQQ Oct 9th Cycle - 30 min

IWM intraday positive in to op-ex, and in line through most of op-ex, again negative after the pin is released around 2 pm and leading negative, although a close in zoom intraday shows IWM in line (green arrow)

 IWM 3 min shows the build up for the channel buster, some energy need to be stored up to break the channel (#1) and #2 in line for a brief time before going leading negative at the Channel Buster. These Channel Busters are reliable head fakes, they tend to fall quickly (or rise quickly if it breaks the bottom channel)  and the fall typically goes through the bottom channel, #4 is the leading negative we have known about since shortly after the IWM made this move.

 5 min Oct 9 IWM complete cycle, accumulation at 1 for about 2 weeks in to the Oct. 9 low which was also a head fake stop run move. At #2 IWM is in line in a clear channel downtrend and #3 the channel buster you saw above was specifically planned with accumulation at the bottom of the channel. #4 shows the leading negative divegrence which is lower than the accumulation as the IWM was at lower prices, this is a really nice looking (bearish) chart and I really look forward to covering it with a special on Channel Busters after it has resolved.

 VXX with a negative divegrence sending VXX lower in to what has been some very strong, unusually strong positive signals, today a possible stop-run head fake.

VXX 2 min showing all the same including the unusual 3C strength, very suddenly, very sharp,

 VXX 5 min with another unusually strong signal.

 Spot VIX, at #1 this is the last time the VIX moved as it should compared to the SPY in red, although the SPY has made higher highs, VIX, while remaining in the complacency zone, hasn't made similar lower lows, it seems a constant bid has been under VIX, at #2 in the Bollinger Band Squeeze indicating a highly directional move to come, when first seeing this I warned that we usually see a head fake move before the directional move such as #3, but so far nothing.

 Actual VIX futures which pulled back and the 5 / 15 min chart showing this was part of our analysis last week , but now that's changing, it can be seen on this 30 min chart already, but more clearly as it migrated from the 15 min.

 VIX Futures 15 min

HYG was used to ramp the market at the EOD Friday@#1, however it has been looking very weak here.

The Yen 5 min chart and the divergence noticed late last week, this is the entire divegrence.

A closer look at the 5 min Yen.

And the EUR/JPY...

 Since the Yen slam last night that sent the carry pair to its highs of the night, but didn't move index futures, there has been a lot of deterioration in the pair, mostly due to Euro weakness, but if the Yen pops to the upside, this will get worse and initial indications this morning showed the SPX following the pair broadly in to the open.

I have a couple more charts to look at and post and I'm going to start looking at position management as well as new positions, I'm actually quite happy with Friday's UVXY long and VXX calls the way they are looking, they are the chart/signals that I don't ignore.

URRE Update

The last time we looked at URRE ( a long term long position), it was up +17% at the time of the update last Wednesday, I gave several stops with the 60 min and daily Trend Channel as well as tighter trading stops if that's what you'd like to use, I prefer this as a longer term position though because of this simple chart.

 Daily chart seems to show a large double base.

Even the 60 min chart suggests that a consolidation/pullback should have little problem making a new leg higher.

 This is what URRE looked like as of Friday coming out of a symmetrical triangle.

Wednesday it was up +9.75 on the close, then +5.26 and Friday 6.56, but if you look at the daily chart above, Friday's candle is a short term exhaustion candle and known reversal called a "Hanging man", it looks like a hammer, but it's at the wrong end of a trend. Today's candle thus far is the confirmation candle for that reversal candle, a "Bearish Engulfing candle".

It's important to remember that the candles by themselves don't give time or targets, they just say "This trend ha run out of fuel" so sometimes they can be 1-day reversals, sometimes major reversals, it really depends on the rest of the charts and URRE looks to be in good shape.

In fact, I'd set price alerts if you are interested in URRE long as a new position or add to (long) as a pullback will give you a better price and lower risk, the other charts already show a high probability of it making a new leg higher after a consolidation. There's nothing really interesting about this scenario, it's typical (except the percentage move, but that's a function of the lower priced volatility/cap).

 The 10 min chart positive before the breakout and negative in to the highs, but nothing terrible, not a deep leading negative.

 This is my X-Over Screen to weed out false crossovers or whiplashes which includes a custom indicator (yellow) in the middle with a moving average (blue), when all 3 fire the same buy or sell signal, you have a signal which recently went long.

After years of using this I've found that it's highly probable that the first and often second pullback in a new trend is to the yellow 10-day price moving average, which should be a bit higher by the time price gets there. Often it's a quick tag of the 10-day and back to the trend (up), sometimes they consolidate along the 10-day. Subsequent pullbacks are deeper to the blue 22-day moving average.

To the left you can see a sell/short signal confirmed.

 The 60 min trend Channel would stop out at $3.23, I usually like to use the close, but it's a matter of common sense and probabilities and they are high that after 3 strong days like that, URRE consolidates the gains, which is also healthy for the longer term trend. so the stock doesn't get frothy and too far removed from its support.

The daily Stop Channel was at $2.52 on Wednesday, now $2.72 on a closing basis so far today, but it should keep moving up to lock in more gains, this is the beauty of my channel which won an award, it tracks each stock's individual character and has a margin in which behavior is considered, "Out of character" and that's when stops pop up like the downtrend to the left stopping out at the yellow arrow.

The channel also does a FANTASTIC job at allowing stocks enough room to consolidate without stopping them out, unless the consolidation is way out of character for the stock, this is nothing like a pre-set envelope channel that has no relation to a stock's character or Bollinger Bands that can deviate in wild swings, this is specifically for long term trends.

I feel comfortable with URRE and will hold, I'll set price alerts for where I think the 10-day will be in a couple of days and we'll look at it again, if there's accumulation in to the pullback, then it's a healthy/constructive pullback, but I can tell you from what we already know, the probabilities are VERY high that it will be a constructive pullback. This allows you to pick up the position on the cheap and a stop can be placed under the 22 or at the Trend Channel, depending on how it acts and the market, but I'd put it on your radar if you like trending positions and set some price alerts.

ES Update

The ES 5 min chart just turned a lot uglier pretty quick while the Yen keeps recovering.

It's like two markets, the overnight and the regular hours, of course volumes are very different.

 The ES 5 min chart that was so useful last week going negative, but look at the leading negative since the open alone.

And what I suspected was a rounding bottom in the Yen, perhaps not a primary bottom, but sub-intermediate or even swing....

As is normally the case, the SPY picked up right where it left off Friday.

SPY Friday/Monday intraday from confirmation during the Op-Ex pin to a negative in the afternoon/close and so far this morning.

I'm not putting too much weight on these charts alone as it is morning trade and a Monday after a big headline (market) weekend, but you'll probably remember the tone and my feelings about the market later Friday as several new bearish positions were entered.

ES-Catch Down to EUR/JPY

As seen in a.m. observations, the continual spal down of the Yen is having a shorter and shorter half life, this time overnight it came from the BOJ, however as I showed earlier, loss of downside in the Yen and increasing downside in the Euro brought the EUR/JPY off the overnight highs.

Here's the FX pair vs ES on the open.

EUR/JPY in red/green candlesticks and ES in purple.

The only index that hasn't made it's even Centennial pit stop is the NASDAQ Composite at $4k, which is only about 5 points from doing so on a 0.08% move so far, it was near 9 points before the open.

I'd think they'd want to close it there as it makes for a great headline for all the new retail Mutual Fund flows.

October saw levels the largest monthly inflow in to Domestic US Equity funds (retail chasing headlines), the last time the monthly flow was higher was 2007, the market top.

A.M. Observations

Good morning.

The overnight futures didn't move much since last night's futures post. As usual (lately) the Yen beat down's half-life keeps getting shorter.

The 1 min Yen overnight...

That leaves the Yen divergence we were looking at late last week looking like this, it starts at the left side of the arrow.

Overnight the Euro dropped leaving the EUR/JPY looking like this...

To the left was the overnight ramp in the carry pair, then the drift lower.

This kept Index futures pretty flat, but once again note the EUR/JPY above went on to make higher highs to just before the European open, it still didn't move ES beyond the initial opening ramp.

ES 1 min overnight

Gold saw the almost now customary a.m. smack down and then retraced most of that.

As for Treasury futures, the 30 year Futures look ready for a downside correction.

30 year Treasuries 5 min

That's about it early on, I'll have more for you shortly.

Interesting Futures Activity or lack of...

Earlier tonight I mentioned the 5 min positive I saw last week in the Index Futures that made me think we'd see a lift from that point, not anything more specific than that, not a new trend, just a move up the next day after a bad reaction Wednesday to the F_O_M_C minutes (the knee-jerk effect strikes again)...

This is EXACTLY how I started my post last Thursday, November 21st in the Daily Wrap...

"I want to start kind of where we left off last night, there were several signals including some improved 3C signals in to the closing hour and 5 min positive Index Futures, we had a F_E_D inspired knee jerk reaction so I really expected the market to open higher this morning, but I didn't think we had enough improvement to do it without some help so my exact words in last night's daily wrap were..."

And then I went on to show you the middle of the night slam down in the single currency Yen futures and how that got the market moving- just for context.

The point however was the 5 min positives along with late day 3C improvement Wednesday were what first had me thinking the market would try for the $16000 Dow, $1800 SPX and $4000 NASDAQ Comp which is still short about 9 points.

The second point is that the 5 min positive worked well, it was right on, however that has changed and now is a 5 min negative.

Here's the open of futures tonight...

 This is the 1 min Yen futures tonight on the open, what is interesting is comparing them to ES on the open, Yen futures were fairly strong or at least better than neutral out of the gate, that's not great for the market, but it's not a big deal.

On the other hand Index futures like ES (SPX e mini futures) came roaring out of the gate, it wasn't until the divergence left over from Friday's close kicked in and the Index futures lost upside momentum did they revert to their new favorite trick of slamming the Yen down in the middle of the night when volumes are low, thereby driving up the carry pairs and thus the market. Note where Yen futures were slammed twice tonight.

This is the 30 min chart of the Yen with the slow down in downside momentum we saw last week  and the slam tonight, I have to wonder if this may be some sort of Yen short term bottom, it was looking that way last week.

 Here's the 1 min chart of ES futures, ripping out of the gate presumably on the Iran deal as oil was down, however the 3C divergence from Friday kept going and ES lost all momentum to the upside, right around that area is when and where the Yen was slammed, it was like, "Houston, we have a problem, Index futures have stalled, slam the Yen!"

What is interesting thus far though...

 Is although the carry pairs were driven higher despite a floundering Euro and AUD and a semi decent looking $USD, the EUR/JPY was able to make an all-time new high, but did it help futures?

 Here they are again, this time Russell 2000 futures and the answer thus far has been "NO".

 The paragraph I started Thursday's post with talked about a 5 min positive in the Index futures, here it is in ES 5 min chart, that told me it was likely we'd see an up-day Thursday if the market could get a little extra help and I went so far as to predict they'd slam the Yen in the middle of the night and they did. That Daily Wrap is worth reading again I think.

My point tonight is now the 5 min is negative and thus far, the market will not respond to an all-time record EUR/JPY, it won't respond to not one, but two Yen slams in the middle of the night.

Furthermore...

The 15 min ES is negative as I felt the market on Friday (you may recall I opened a bevy of new positions Friday afternoon).

I don't read too much in to opening futures this early on, but there does seem to be a pattern forming of the tools that use to work like a charm not having much effect or a very short half-life and this includes Central Bank speakers, Draghi, Bernie and now Yellen.

Just something to keep an eye on and my reasoning is very straight forward, expectations are now for a December F_E_D taper, look, I'm not predicting when a taper starts, I think I have some insight to what the F_E_D has been doing because it has been so obvious, but the point here is every time QE ended in the past, the market front-ran the F_E_D, meaning they sold off the market before QE ended in anticipation, of course they would, they're not going to try to put on huge shorts or sell in to a falling market once the music stops, they are going to sell in to and short in to a rising market while the music is still playing. Unlike others, this is an open ended QE which leaves a large measure of uncertainty which the market doesn't like. 

What we may be seeing is the front running already in full swing, except this time no one expects another round of QE like they have in the past, everyone knows this is pretty much the swan song, so how much further in advance do you front run? I think these little hints were are seeing like the Yen are important pieces of the puzzle.