Intraday Update

Since the last intraday update, Quick Market Update, I wrote:

" In any case, I don't think this divegrence alone is enough to do much with so watch for something like an intraday "W", I'll expand on that below."

Ironically that's exactly what the IWM (strongest intrady divegrence) did , the others didn't, but the NYSE TICK did. We haven't seen any serious migration to the 2 min chart, in fact I don't think anything beyond in line intraday, still leading negative other wise.

 IWM 1 min went on to make that "W" base intraday, although not much has happened off it yet, I'd say it's still in intraday positive consolidation.


Here's the 3C divergence intraday IWM with the trendline making the "W".

QQQ did not make a "W", but is still leading on the 1 min chart

The 2 min chart is no better than in line right now, so no migration meaning it's not that strong of an intraday divegrence as of right now.

 QQQ 2min in context, it certainly isn't showing up here as anything.

 SPY 1 min intraday didn't make the "W" either, although I'd say it is possible.

These 1 min charts move fast, since capturing this one and uploading them ll, this is what the SPY 1 min looks like now...

This "could" pullback to make that "W". All we know as of this moment is the initial divegrence ran about as far as it can go intraday before turning negative. "If" we see a decline and no intraday positive in to the decline toward the white trendline, the move is over. "If" there's some accumulation in to the decline toward the white trendline, then we have a larger "W" base, still 1 min, still intraday, but capable of more than just this small run .

This doesn't change anything regarding how I'd use higher prices at this stage of the game considering the Broader market perspective and the amount of damage done.

 Intraday the 2 min SPY is no better than in line, but within context it's still massively leading negative, so again this isn't any kind of move setting up that's of any serious interest and may in fact already be over.

 The TICK custom indicator doesn't show anything special.

While the IWM did make the "W" and the SPY/QQQ did not, the intraday NYSE TICk did make the "W" in market breadth.

Here's the first and second low putting in the same "W" pattern as the IWM.

Index futures aren't giving us anything solid to stand on above what we have above.

I just want to reiterate, with the shape the charts and leading indicators are in, I can't see any other use for this potential move than using it to short in to price strength, that's it.

Broad Market Update

This doesn't include everything that we have uncovered, in fact it's just scratching the surface, but there was a reason we suspected a strong move that would be hard to believe and even harder emotionally to short in to. In all the years of watching Wall Street set up rallies and declines, I have come to the belief that there's no "Random Walk" in the market and the efficient market's theory is just about as baseless, from what I've seen, Wall St. sets up nearly every cycle and they have a reason for them. As such, terms like overbought and oversold and indicators that display them like Stochastics, have little meaning for me. What I do find meaningful are overbought/oversold breadth situations because there's opportunity there. 

You may recall the near emergency post of July 31st showing the market was so deeply oversold on a breadth basis, any further and we'd virtually have just about every NYSE stock trading in a bear market, that couldn't be allowed to go on and it was based on that, that I suspected we'd see a base for a rally build. The next day, the first evidence of the base came in and kept coming for a week which led to the August rally, b however it did virtually nothing beyond the first 8 days for breadth and by the time we were in the rounding top, breadth was dropping to new lows.

Much in the same way, before we had any hint of a rally, I suspected Q3 Window dressing would see the worst of the worst, largely in small caps, sold of leaving them at a big discount, heavy short interest and ripe for a short squeeze rally, but by the time we got to a bottom sentiment was so bearish, everyone was on the same side of the trade and in a zero sum game you can't make money...someone has to lose for someone to win, thus the October rally became all about changing sentiment and it would require a monster move to do that and we posted that well before we had the evidence of such a monster move, HYG accumulation as a lever, Leading Indicators, etc and I even challenged members to book mark the post warning what was coming. If the move is hard to believe even with the advance warning, then it did its job which brings us full circle, "Wall st. rarely does anything without  reason.

To change sentiment, think about what it would take for you to cover shorts and what it would take for you to believe this market could make new highs and keep on going. Think about what it would take the financial media and the scores of market analysts and newsletters to change their tune from ultra-bearish to, "This time really is different, this market really can keep on going". What would it take?

We knew via the VIX term structure that this was going to be a stronger rally than the August cycle, we suspected it wouldn't be as long, but it would make up for that in volatility which has been correct.

 The IWM in my opinion is the average that most accurately reflects the breadth conditions in the market of all of the averages (not to say it accurately reflects breadth as it was just trading with nearly half of all component stocks in a technical bear market decline of 20% or more just 3 weeks ago, thus the large top should look worse), not only on a time basis as to when and where the market internals broke badly, but in the type and size of top.

If you have heard me talk about H&S tops (or complex H&S tops in the IWM's case which is confirmed by volume analysis), then you've heard of the 3 places I'll short a H&S and the 1 place I won't which is almost the exact opposite of what Technical analysis teaches. 

I'll short the top of the head, T/A does not support such a move as the top of the head represents a new breakout high with no downside confirmation. I'll short the top of the right shoulder, T/A doesn't usually endorse this strategy because the neckline hasn't been broken yet and the top hasn't been proven to be a top. The one place I WILL NOT short a H&S is at the break below the neckline, which is EXACTLY where T/A teaches us to short a H&S top on confirmation of the downside break which leaves you chasing price, way extended from any reasonable stop other than the neckline itself which T/A teaches to use as a stop which is why I won't short a H&S there as the result 80% of the time is a move back ABOVE the neckline, hitting all of the BTC stops of the new shorts (as they expect neckline resistance to hold- which is another flawed technical concept). The last place I'll short a H&S top is after the neckline has been broken and after there has been a rally back above the neckline, just like HLF shown last night, this is where we shorted HLF and this is the last place I'll enter a new H&S top short which is RIGHT WHERE WE ARE NOW (THE RED ARROW IS THE BREAK OF THE NECKLINE, THE YELLOW ARROW IS THE SHAKEOUT I'LL SHORT ABOVE THE NECKLINE). Again, see the HLF post from last night and where we shorted HLF on a strong +25% 1-day move, the biggest 1-day move in HLF ever...

HLF Reports, Not Even Stock Buybacks Can Save It... We may ride this to zero

 For the SPX, you can draw several different formations, but looking at volume and price patterns, I suspect this is a large megaphone or more commonly called a "Broadening Top. All H&S tops first start as a right angle broadening top. In this case the typical 5 points of contact to define the top were made and on the 5th price broke the top's support. While I'll ride that short lower, I won't short the break of the support line itself because like a H&S top, the shakeout of new shorts is coming.

So what does it take? A break above the 50, 100 or 200-day moving average? A parabolic move nearly straight up, which we know are unstable and almost always fail just as spectacularly as the start? A certain number of days, which is an easy emotional barrier to break and turn when you watch the market closely every day. As my girlfriend flies news helicopters, I've learned a new ad interesting saying that applies to the market as well,  "When in doubt...zoom out."

Perhaps a new higher high is what it takes? I'm often surprised how even the most seasoned professional traders can have their otherwise unflappable emotional indifference to the market really manipulated against everything they know as objective evidence to the contrary once the market hits extremes that they didn't expect. I'm constantly surprised how extreme the market is vs. what would seem to be reasonably extreme, however I try to still maintain my composure based on objective evidence and if that evidence dries up, I'll be the first to flip sides.

As for some of the charts I want to share with you, they are more extreme in many ways than most I have seen or at least far more extreme than the market use to be before the F_E_D got involved. However at this point it's not just the long term charts and /or the intermediate charts, it's the short term timing charts and quite a bit more extreme than I'd have imagined, but then again, look at the volatility and moves we are getting from these extremes. Right now I'd say we are as close to a full house with regard to multiple timeframe analysis than we have been.

 IWM 2 min... Remember, the HYG positive divegrence I was concerned with last week was in place and looked like it not only supported the market through the roughly week long positive, but more specifically, the market right around October 30th, the day after the F_O_M_C, the day of the NYSE breakdown and the day before the GPIF announcement sending stocks higher. There are a lot of charts with strong distribution right in to the 30th that may not have made higher prices without the support of HYG's lever and other levers.

 IWM 3 min with the base and the divergence in to the 30th, then price supported by a market lever like HYG, news, etc, but not 3C as we get worse leading divergences. Sell price strength, but price weakness is Wall St's thing.

IWM 5 min with 2 of the cleanest examples of divergences you can ask for.

 IWM 10 min from an extreme leading positive at the lows to an extreme leading negative at the highs.

When you hear all of the newly christened bulls who were raging bears 3 weeks ago talk about how the market can make all of these insane upside targets, other than looking at a chart like this, ask them where they were 3-4 weeks ago and what they were predicting for the market.

It's amazing how market sentiment changes what people find in the market to support their views and how fickle those views can be based on sentiment moves over a small period of time.

IWM 15 min

QQQ 1 min and the rough area where it was already very negative, but got extra help from things like the NYSE breakdown, 2 week old news, USD/JPY,, HYG, etc.

QQQ 2 min trend leading deeply negative

QQQ 5 min

This QQQ 15 min is impressive in how deep and how fast it has lead negative.

And the longer term or highest probabilities at a 2 hour QQQ chart, this is one of the simple reasons I have strong conviction we make new lows and continue doing so. I always wonder during a strong move whether it is strong enough to make a change here where highest probabilities are, instead it's a reflection of how much distribution actually occurred in the move, not how strong it was.

SPY 2 min with the NUYSE break now becoming less and less of an anomaly of concern. The worst damage above occurred after the tainted data.

 SPY 5 min leading negative at a new lows and a VERY sharp move the last 2 days.

 SPY 15 min and the declining 3C highs right in to a leading divegrence.

 SPY 30 min,  I can't think of too many times in the past in which I'd ignore a chart like this and not be set up short by the time there's this much damage in place.

 XLF intraday 1 min trend really turning negative on a timing timeframe the last several days, a very impressive divegrence despite the sorter timeframe.

 XLF 5 min with the positive sending the market to the extreme highs, still not as extreme as a similar move at the 2007 highs. Tis nearly new leading low with price where it is should tell you how much damage can be done in a blink of an eye. Breadth charts as I tried to show Friday are in the same situation. This is what we would cal a gingerbread house, it looks good on the outside because of a new coat of paint, but that paint hides all sorts of structural problems just waiting to break down.

 XLF 10 min shows clearly the current divergence, but more than that, the more subtle signs on the chart include where price was at #1 and where 3C was at #1 vs where both are at #2, even without the leading divergence to the downside, there's strong information there if you just compare.

 XLF 4 hour is a nearly impossible divergence to overcome, this is the primary trend type divegrence seen in AAPL at all time new highs shortly before it lost nearly half of its value in 8 months.

XLK/Tech 5 min

XLK 10 min and another relative comparison telling us just as much as the leading negative divegrence.

 XLK 60 min tells us a lot, especially vs price action.

And XLK 2 hour is picture perfect with trend confirmation and distribution in to the first top and even worse in to the second, it pretty much tells you what Wall St. is up to, they aren't just buying and selling ranges and swings, otherwise the 3C reading at the far right wouldn't be where it is on such a long chart.

This is a pretty clear reason as to why I'd use any price strength available to back up the truck.

Quick Market Update

I was just in the middle of putting out a broad market update, hint: Things aren't looking very good, but what would you expect with the bank's point man, Bullard, out in front letting institutional money set the pins up via divergences and underlying trade and Bullard coming in to knock them over. This is a new depth of market manipulation that I  haven't seen before, but given QE has ended and with it the stealth bailout of banks, I suppose they've gone to plan "B" to try to keep filling those balance sheet holes the banks have which appear to be close to a half a trillion dollars, at least judging by the last window dressing / F_E_D 1-day reverse repo facility usage.

It's no wonder that the Bank for International Settlements (the Central banks' bank) warned just over 2 months ago that the "Leading Central Bank's" (read as F_E_D) balance sheet is so extended (nearly 4 trillion in expansion since 2008 when it was under a trillion, I believe around 850 billion without looking up the exact number) that the BIS in it's yearly report says that it doubts this "Leading Central Bank" has the capacity to deal with even a "Garden Variety " recession which may be one of several reasons the F_E_D not only ended QE, but why they shifted from holding all assets until maturity to actually shrinking the size of their balance sheet (that's just one reason, if it were that simple!). In any case, the point being I have a broader update coming out that I'm working on, but very near term and only on a 1 min chart and thus far not all that impressive, we may get a bounce. If you could see what I'm about to post in the broader market update, this is the time I'd use ANY market strength to enter any remaining short positions you are interest4ed in. For my part, beyond the core shorts like HLF that I plan on leaving alone and letting them work over the course of a year or so, I'm more interested in trading around these large volatility sewings using leveraged ETFs, or at least ETFs as they don't have stock specific nes that might cause them to deviate from the broader market, thus something a bt more generic like SPY, QQQ, IWM, XLF, XLK (all short) or the inverse leveraged ETFs that give you short exposure by buying them such as SQQQ (3x short QQQ/NASDAQ 1000), SRTY (3x short IWM/ Russell 2000), SPXU (3x short SPY/S&P-500); FAZ (3x short XLf/Financials), TECS (3x short Technology/XLK), transports which I've decided to just short IYT and perhaps the NASDAQ Bio-tech Index, IBB short or the 2x leveraged BIS (2x short NASDAQ Biotech Index).

 IWM 1 min positive divegrence, intraday only, you'll see after the next update how bad things have fallen apart, to an extreme similar to the extreme at the October lows that led to the warning or "Anchoring expectations post" that this would be a face ripping, sentiment changing rally and apparently it has been.

My sentiment update pro has told me not only are retail in the "Buy the dip" mode, the entire point of this move, to change the ultra-bearish sentiment to bullish, but also he's getting bombarded with news letters and the like telling him they'll tell him what stocks to buy in a pullback..

Can you imagine something like that 3-4 weeks ago? Anyone sending anything out talking about buying stocks? Remember the Fear and Greed Index that runs from 0 to 100 and rarely is ever at zero, was pinned there for consecutive days, as bearish as it gets.

In any case, I don't think this divegrence alone is enough to do much with so watch for something like an intraday "W", I'll expand on that below.

 The Q's are in line thus far intraday, beyond that they are a lot worse. Actually since this capture about 10 mins ago there has been a slight positive divegrence, not as big as the IWM above, but remember these are still only 1-min intraday charts.

 The SPY 1 min has a relative positive divegrence above. Since capturing and uploading this chart, the right side of the divergence has begun to lead a bit, again not as much as the IWM above, but it looks like there's a buy the dip, toe-hold being sought out  and I'd use that to short in to and essentially, "LOAD UP THE TRUCK".

 The Custom SPY/NYSE TICK indicator shows some intraday breadth improvement to the far right and the NYSE TICK itself...

While not looking anything like a tradable upside move, not even day trade as of yet, it does look like it may try to put in a "W" base intraday and that looks like the gift that is probably as good as it gets as far as opening or adding to any short positions which was the fight plan before the first punch was thrown back in mid-October. Remember the post in which I said, "Bookmark this post because as easy as it is now to imagine shorting the market in to strength (because of the rampant bearish sentiment and market decline), you won't feel the same by the time this move is over, even with me warning you in advance" and... "This move is going to be a face ripping rally that will go to extremes to flip sentiment and that's what it's all about", thus when the time comes, as hard as it may be to short in to, this is what this move was meant for.

My custom SPX/RUT ratio went negative intraday yesterday, on anything longer than a 10 or 15 min chart you can see how terribly negative the larger picture is, but this works great intraday too. As you can see, negative in to yesterday's afternoon highs sending prices lower and the first of what I suspect will be at least two lows creating a "W" bottom before trying to move higher intraday and I don't mean anything exceptional on the upside, but any strength is useful at this point.

More to come...

A.M. Update: Bullard's Back At It, You Know We Are Heading Down

About a week ago I proposed a tinfoil hat theory. We see cycles of accumulation building like we did for the October lows turn to the October rally and since distribution in to the October rally. We all know (hopefully) that the infamous PPt (Plunge Protection Team) is in fact a real entity established by Ronal Reagan in the wake of the 1987 market crash, however what if this PPT was not only there to stop plunge's in the market, but to in essence, bail out banks in a stealth and more sinister manner?

More on that in a minute.

After a somewhat confusing Nikkei 225 move last night for those unaware that the cash market was closed Monday while Nikkei futures remained trading (see last night's 2 a.m. post, Nikkei chaos) with futures seeing a steep drop while the cash market closed up, the market tried some slight levitation on low volume until shortly after the European open, the European Commission's Juncker came out with just months until the end of the year and slashed Eurozone growth for 2014 from 1.2% to 0.8%, more evidence Europe is heading for or in a triple dip recession and he also cut 2015 forecasts from 1.7% just this spring to 1.1%.

One might think futures would fly on the back of that news, however they did the opposite. Crude, both Brent and WTI saw lower prices on the revised forecasts from Europe.

And I've been looking a lot at currencies, of course it's way too early to figure out how the Japanese Pension fund re-allocation of assets, largely in to stocks and away from bonds, will play out as I have read dozens of articles overnight and this morning, many dating back to the start of 2014. It seems Japanese PM Shinzo Abe knew the GPIF had not been legally established to re-allocate assets, yet he asked for the new projections of the GPIF's make-up in a non-deflationary environment, again as Abe and Kuroda perhaps are high fiving a bit early on their "breaking the back of Japanese deflation", a multi-decade phenomena. In any case, there are all kinds of opinions both before and after (most before the GPIF announced a new allocation) as to the legalities which is what sent Nikkei futures lower overnight when a GPIF panel member said it may take a year to change the laws to allow the GPIF to start buying stocks at the new allocations.

In any case, in all of my reading and posting, one thing is very clear, the GPIF story is not new, the exact same thing announced last week sending the market higher was posted here 2 weeks ago as it was announced back then and you can go all the way back to early Spring and get official and analyst forecasts on what the GPIF's allocations would be and many are spot on as early as early spring so the market has well discounted this story long before last week and certainly 2 weeks ago when first officially put out as well on an analyst and GPIF rumor basis, back to early spring. It's disengenious and naive to believe the 2 week old news last week was the true reason for the market's strength and rather a paper catalyst for a ramp that was definitely supported by assets in the short term like HYG which was under accumulation in to the story on a short term basis.

Conveniently this story comes out overnight essentially saying, "Whoa...not so fast, we still have a year's worth of law-changing to do before the GPIF can change allocations and sell treasuries and buy stocks at their new allocations:.

Back to the F_E_D PPT (Plunge Protection Team). As I have maintained throughout QE, "It's nothing more than a nearly 4 trillion dollar F_E_D balance sheet expansion that is in actuality a stealth bank bailout". You probably recall the multiple quarters during QE in which banks reported not having a single day of trading losses, well that's money to the banks that they would not have received without QE and we know what the public / voter's opinion of the early bailouts like AIG and GM were, NOT GOOD, so QE is the perfectly un-understandable transmission mechanism to transfer wealth to the elite and banks as has been proven over and over and it seems the banks actually need the money judging by quarter end window dressing and their use of the F_E_D's newer 1-day reverse repo facility in which banks have set new record high usage above and beyond caps set by the F_E_D for usage , but only on the very last day of the quarter so their books and balance sheet look a lot stronger than they are, the next day all of that goes back to the F_E_D, IT'S ESSENTIALLY RENT A STRONG BALANCE SHEET FOR A DAY, THE ONLY DAY THAT MATTERS IN QUARTER END REPORTING.

The point being, the banks apparently still need the bailout as the capital shortfall is at least $400 billion (nearly half a trillion) at the end of Q3.

As to my proposition that the F_E_D is doing a whole lot more than just protecting against plunge's, look at St. Luois F_E_D President,  Bullard's comments relative to where the market was and how we know institutional money was positioned at the time,  with the latest coming this morning...

"no need for more QE for now, the economy is in good shape" 

This, after a 1400 point Dow Rally, but before this Bullard said QE should be delayed after a 1200 point Dow decline and just before that decline, Bullard said the F_E_D should Be willing to remove accommodation! So long as you are positioned short, long and short at the right times, James Bullard is your new best friend and who needs QE to keep the banks flush with money with help like this... Here's a visual representation...

Perhaps we should call this JB Wave Analysis?

In any case, if history is a judge and taking our forward looking analysis in to account both before this rally started and right now, the latest comments are right on time for a move to a lower low.

Beyond the tinfoil hat theory, which seem to always be proven right months or years after the proponents of such theories have been thoroughly chastised and eventually proven dead right; I've spent some time looking around at Currencies this morning and this is what I've found which is really just the maturing of signals seen over the last week and in some cases longer, like the $USD decline from its 12 week winning stretch in which we saw distribution in to the last two weeks and were looking for the winning streak to be broken.

USD/JPY, the currency running through numerous stops the last couple of days and trying to lift the market in the process on news that may not be actionable in any way for up to a year(another interesting Central Bank related disclosure the same morning Bullard comes out with his hawkish/bearish take).

 This is very basic, but the 30 min USD/JPY gives us a simple and clear negative divegrence on a strong timeframe which we usually don't see divergences on the pair past 1 min., rather we have to dig through the individual currencies and come to a conclusion.

And on that note...

 The 30 min $USDX is in a negative divegrence as we have seen recently (actually out to 60 min charts) which would send the $USD/JPY lower rather than the recent stop running rally higher.

However that might require some Yen strength so...

 The 30 min Yen futures, (/6J), while not as developed as the #USDX, it is developing and now all the way out to a 30 min chart.

In the median charts like 15 min, the USDX...

 H??as a clear leading negative divegrence that could send the pair lower on its own, but a stronger Yen again would make it a stronger move lower for the pair (USD/JPY).

And at 15 min we have a Yen Futures 15 min positive divegrence which is respectable in its own right if not a bit young as far as a reversal process goes.

The closer timing timeframes like 7 min show the $USDX also in a sharp negative divegrence.

 While the Yen is building a positive divergence in to lower and flatter prices, just as we saw yesterday (strong divergences in ranges).

As for the EUR/USD which some of you are very interested in, I don't have to go through all of the $USD charts as they are above, weakness is the forward looking projection so in this case in which the EUR/USD has been weak...

 On a 30 min chart we can see the EUR/USD's negative divegrence sending it lower and while these long charts aren't great for the pairs, there does look to be the start of something going on that may lead to an upside reversal. Interestingly that's right in front of the ECB decision this Thursday November 6th.

The one chart (other than the $USD negatives above ) is this 30 min Euro futures (/6E)

 With an impressive looking positive divegrence forming in to a reduced ROC decline.

IT may be a little premature, but after looking at the above charts I'd expect a USD/JPY reversal to the downside not too far off and the GPIF overnight news "might" be the catalyst as last week's 2 week old news that should have been a non-event, will be a non-event.

As for the EUR/USD, I have no idea what the ECB is going to say, many think they'll wait to hint about QE in December, while we can't forget that QE is against the ECB's chart, at least thesovereign bond buying type we normally associate with QE, so that's an interesting one. Otherwise it seems expectations are for lip-service and a dovish tone, but nothing on QE yet.

This may be the catalyst for a EUR/USD reversal to the upside, there are definitely hints on the radar.


As for ES futures, that flat range I mentioned yesterday and have mentioned numerous times in the past as being an area where price action "seems" dull, but it's a lot more like"The kids in the room next door being a bit too quiet, you just know their up to something" and often an area of strong divergences, is seeing a strong 60 min negative right through the range...JUST IN TIME FOR BULLARD'S COMMENTS THIS MORNING, SUDDENLY BACK TO HAWKISH and perhaps the well timed, "GPIF HAS NO TEETH"  story, at least for a year.

Something to ponder...

Nikkei chaos

If you look at the Nikkei (cash) right now as of 1:02 a.m. the close is up 3+31% or 540 points, yet, if you look at Nikkei futures you get a VERY different impression of what sentiment is in Japan's Nikkei 225...

The biggest intraday move down in 10-days as Nikkei Futures are back below 17,000 with a  loss of 705 points from futures highs (currently).

So how can the Nikkei (cash) close up 540 points / +3.31%, but be down on the chart above 705 points? Just as with the US markets we have Index futures like ES, the S&P E-mini and we have the cash S&P-500 which trades from 9:30 a.m. to 4 p.m. Monday through Friday.

The cash market close since Friday is up 540 points or 3.31%, but the futures which gained about 1000 points between Friday and the intraday high yesterday while the cash market was on holiday have lost about 705 points from the week's futures' highs. This is causing a lot of misunderstanding and it's for one simple reason, the Nikkei was closed Monday for a holiday so the cash market close since Friday is at a gain, but the futures that traded while the cash market was closed yesterday have lost a significant portion of their advance to intraday highs of $17,480, currently trading at $16760 (currently), well under 17000 have lost 720 points from their futures highs yesterday while the cash market was closed.

In other words, Nikkei 225 futures gained a lot yesterday from Friday's cash close and even though a portion of that gain remains closing the cash market higher, a large chunk of it has been retraced as you can see above.

What caused this? The market rallied on the GPIF's (Pension Fund) increased allocation of stocks and decreased allocation of JGB's/Bonds, however in a scenario that has been in the news at least since May, their was an announcement this evening from a GPIF panel member that a "Governance law reform" that would allow changes to the pension funds allocation to be made, "may take a year". In other words, all of that allocation to stocks that juiced the market Friday may not be even on the table for another year until the LAWS are changed to allow for the reallocation of assets. Apparently Shinzo Abe has long knew about this, but asked for the new allocation scenarios to be worked up anyway which were announced two weeks ago and then again as old news Friday, this time catching headline scanning algos attention and sending the market higher.

There's a lot of back and forth as to whether the laws need to be changed before allocations can be changed as well as other issues revolving around salaries and governance of the fund, however it was the statement above tonight that the laws may take a year to change that sent Nikkei 225 futures crashing to the biggest intraday plunge in at least 10 days and that was when futures were down around 500 points.

Is this an event or non-event? Some looking at the cash market and not understanding the cash market was closed while futures continued to trade yesterday just don't understand how futures could be down while cash is higher, you have to remember futures gained about 1000 points since Friday's cash close, but as you can see from the chart above, they are clearly giving back a huge portion of that. 

In addition, the hint that tells us this is maybe a bigger deal than what the futures and cash market are telling us is the fact that the 20 year yields dropped earlier to 1.21%, the lowest since 2013, remember yields move opposite the bonds' price, so there's a flight to safety trade in bond buying sending yields lower while futures sell off as well. Also the 30 year yield has lost at least 20 basis points, the second BIGGEST DROP ON RECORD... Again another flight to safety in bond buying.

Japanese rate volatility has exploded to the upside as the intraday stock move is essentially in a small crash (considering recent volatility), this of course being confusing given the cash market's positive close, but remember the cash market was closed Monday for a holiday. Japanese VIX gas exploded testing new highs > $30

VIX moves opposite the market...

So is the cash market or the futures depicting reality and what is that reality? Given the flight to safety bond trade is so strong with yields plummeting and the VIX is shooting higher as Nikkei 225 futures essentially see a mini crash...

Now at 16820, off recent lows of 16755 and down from intraday highs of 17480, I think the headline was not taken well, although there's a lot of debate around this particular aspect of the legalities of asset allocation changes in the GPIF without first changing the laws which have not been done yet, remember the GPIF panel member saying that the laws could take a year to change (essentially delaying any GPIF stock buying along the lines of the new higher allocations until the laws are changed) is what started this decline.

Es futures are off a little bit since the 4 p.m. cash close, remember the 1 min intraday charts looked like a higher open early tomorrow, but that's about it (3C signals most often pick up where they left off and that's with a small 1 min positive in to the close and deeper leading negative 2, 3 and 5 min charts.)

 ES 1 min overnight as of 1:45 a.m.

And the USD/JPY has lost some ground since the 4 p.m. cash close (red arrow) and broken back below $114 (red trendline). Remember our analysis showing $USD negative divergences and some Yen positives just starting to build, either or both could send the USD/JPY lower.

We'll see how the market interprets all of this tomorrow, but nothing is ever as simple as it seems, this is why I stick with objective data and try not to get caught up in speculation and the objective data today in the form of 3C charts was quite ugly.

 I'd expect a rumor or two and a few counter rumors to pop up between now and the morning regarding the GPIF's legal status to change asset allocations. After the F_E_D's warning to the ECB not to take things too far as the Euro plummeted on the F_O_M_C last Wednesday sending the $USD higher, one almost has to wonder if the F_E_D had anything to do with this latest headline out of Japan as a stronger dollar on Yen weakness is not something I suspect they're too happy about. In that case, the news from last week was perfectly timed to juice mutual fund returns in to their fiscal year end Friday without actually doing any lasting damage to the $USD on the upside or levitating stocks for very long if stock buying by the GPIF is a moot point for another year until the legalities are worked out. Sometimes you have to think like a crook.

I'll see you in a few hours, hopefully we'll have a better handle on what's going on