Market Update

There are still some very tight charts in the intraday region, mostly 1 min, for example...

 QQQ 1 min with a positive divergence, even though on a very short time frame.

At QQQ 2 min we have in line so the positive is very small, very weak, likely some steering divergence .

However there's confirmation in the 1 min Index Futures

 When volatility picks up, it's not uncommon for weak divergences to be run over. For instance there was a positive divergence in NASDAQ 100 futures around 3 a.m., that's around the same time it looked like USD/JPY had bottomed for the night, it went on to make a lower low just before the cash open and this divergence was run over, but right now there's a similar positive divergence in NQ 1 min just like QQQ 1 min.

These are the jots and tittles I would not get too carried away with, like I said, the market is never going to hand you anything on a plate, they'll cause doubt and try to shake you out, this is why it's important to have an edge, to have multiple time frame and multiple asset confirmation so you can stay the course rather than reacting emotionally to every market jiggle.

 The 1 min IWM is "close" to in line, but also has a slight positive divergence.

However TF/Russell 2000 futures 1 min is in line with price action, not confirming any positive divergence. When even talking about such small divergences, we elevate them way beyond meaning, I'm just trying to keep you informed, but don't mistake these as being anything along the lines of the charts and case we have built from objective evidence in much stronger time frames and in many more assets.

IWM 2 min looks just like TF, in line with the downside.

SPY 1 min looks to be close to in line.

As does the 2 min.

ES (SPX futures)...

 has the same 3 a.m. positive when the USD/JPY looked like it had maybe hit a low for the early morning session, that divergence, after about an hour and a half of upside bounce, gave way as well and right now is pretty darn close to in line or 3C/Price trend confirmation.

One of the indicators I was looking at earlier and thinking, "No wonder the market has been relatively flat since the open:, is our custom SPX:RUT Ratio, it had been confirming lateral trend price action and only recently broke below that range.

Likewise, the uptrend mentioned earlier in NYSE intraday TICK, which didn't move much beyond +750 broke its channel and saw a heavy spate of selling with a -1200 print.

The more important Index Futures are on the longer charts, which I've gone over numerous times, there's not much that is changing except the 5 min chart which I'd prefer to see lined up with negatives, but it has been much more fluid than normal while the longer/stronger 15, 30, 60 min charts and beyond have shown us the real weakness in the market.

As for those 5 min charts are now looking a lot more like I had expected them to look...

 ES 5min. I don't think I need to comment on the chart.

NQ 5 min

TF 5 min

These are pretty clear and very negative.

Even more important, especially for the Russell 2000 / IWM, the 7 min charts.

While NQ is giving the kind of divergence that supports the downside move, TF is giving the kind of divergence that is screaming that a downside move is coming and will be quite a bit stronger than we have seen,  ultimately to move to the next phase of the forecast and to justify the entire point of a head fake move like the one above the IWM's 6 week range, we have to move back in to or below the range, that's where the bulls are trapped and the momentum to the downside picks up, we are getting evidence that what we suspected on 12/12 , the means working toward the end, is within reach.

 NQ 7 min leading negative and price has moved to the leading negative divergence, now confirmation, but just as this leading negative pulled price toward it to the downside for the NASDAQ 100 futures, so does the Russell 2000 futures give us a hint that the exact same is on the verge of occurring and I don't mean this -.54% IWM move of today (note the Q's which were pulled to the negative leading divergence are down -.75% today thus far).

This is the TF/Russell 2000 FUTURES with a leading negative that should see price pulled right to the 3C divegrence like NQ above. THIS IS THE TRIGGER TO SET THE NEXT STAGE OF OUR FORECAST IN TO MOTION.

I think one of the few short term questions right now is USD/JPY (I'll double check on the other 3 lever assets as well, but again, it's short term subterfuge, distraction, misdirection.

 This USD/JPY 3C chart doesn't have an obvious divergence,  that's sort of the point, yesterday it did have an obvious negative divergence and while the pairs are the most difficult to get signals from, especially in any time frame longer than 1 min, I use the individual currency futures to make calls on the pairs like yesterday's $USDX deep negative divergence. The USD/JPY started dropping on Yen strength, but as I said last night in the 8:30 post, USD/JPY Follow Up

"USD/JPY has now retraced all gains from the 9:30 a.m. opening ramp, lifting the market from gap lows and a.m. lows.

I suspect we have more downside to go as the $USDX divegrence is still very strong and the $USDX has barely given up any ground relative to the size of the divegrence, not including the longer term, larger picture 30/60 min divergences."

The point being we had given back all of the cash market gains in USD/JPY by 8:30 on the Yen moving up alone, but the big divegrence was the $USDX negative, I suspected it would kick in and we'd see an even sharper decline in the FX pair and we did.

At "A" was the 8:30 post above in which we had retraced all of the cash ramp open gains in USD/JPY by the Yen alone, there was still a VERY negative $USDX that still hadn't kicked in, that happened overnight at "B" and in to today, you can see the $USD's negative divergence was quite strong and it did as expected pushing the pair much lower to lows we haven't seen since mid December.

 This is the correlation between USD/JPY (red/green candlesticks) vs ES (purple), note the sharp decline as ES finally gave up the gains it was holding in a negative divergence in a very flat range later in the night, posted here, Futures Update which was actually pretty late, 1 a.m. EDT.

Looking at the single currency futures...

 The $USDX is nearly perfectly in line, but all it needs to do is turn sideways and it can develop a divegrence strong enough to bounce it. The intraday strength that has recently built in the USD/JPY is not because of the $USDX, it's the Yen.

Note how the Yen has given up some ground, pushing USD/JPY a bit higher since the lows around 10 a.m. today, the same time the Yen started losing ground although $USD hasn't gained any yet, but there's a decent chance it does near term.

This is the USDX 5 min chart, nearly perfectly in line like the 1 min, but again the short term problem for more USD/JPY downside rests with the Yen...

Note the positive (white) pushing the Yen higher (USD/JPY lower) and the more recent negative which should help push the USD/JPY higher.

At 7 mins, everything is as it should be and the USD/JPY should continue its downside.

Just like last night, the USD/JPY really didn't kick in to the downside until the $USDX's negative divegrence was fulfilled, the real downside in the pair won't kick in until the 30/60 min positive Yen/negative $USD kicks in, which is the highest probability, but between now and then, I expect a little USD/JPY strength, thus likely some market bounce with it.

I'm trying to anchor expectations so that you don't get lost in the lines or spend too much energy looking at the trees rather than the forest.

I hope it helps.

Quick Market Update

This is another one of those days that by the time I capture the charts I intend to upload and post, there's a slight change that makes them irrelevant which is not hard today with everything so flat right now.

However, this does look very much like the start of the Santa Rally reversal. There are numerous definitions of the Santa Rally from the month of December to the day after Christmas until New Years to the day before Christmas to the second day of New Years.

In any case, I have spotted substantial changes in character in all leading indicators on the 26th, which was also the last day of Window Dressing for Q4 and full year 2014, I suspect the Santa Rally that is seemingly a given in most technical traders minds will be used against them as I have laid out in the past, I think it's the perfect storm or in this case, Bull trap.

The SPX, NDX and Dow officially have all taken out all Santa Rally gains with the definition being the week of Christmas starting the day after through New Years, if you use the 23rd as a starting date, then the SPX and Dow have taken out all Santa Rally gains, this is what I suspect will be the ignition to a downside move.

 NDX has taken out all gains since the 26th.

SPX has taken out all gains since just about the 23rd.

And the Dow has taken out all gains since the 23rd.

Whatever the details, and my theory of using the Santa Claus Rally against traders is based on Mass Psychology, I don't think there's any escaping the reality below no matter what the details in getting there.

SPY with our forecasted cycle from 12/12 with a deep leading negative divegrence, 10 min.

The same divergences can be seen in ES/SPX futures on the 30 min chart with the same accumulation area and same distribution and leading negative divegrence, so again, whatever the details of how we get there, I don't think there's much of an argument as to whether we get there.

This is one of those times I think it's best to look at the bigger picture and not worry so much about the intraday or day to day myopic view of the market, you'll miss the forest for the trees as I did in chasing a small bounce in AAPL hoping to get better short positioning as AAPL broke down and lost -45% in 8 months.

The USD/JPY is still in line with the downside. In fact the $USDX closed the gap on the leading negative divegrence overnight and is in line or confirming the downside, but from that place, it's not hard to put in a small positive divergence and as I said before, Wall St. will never make this obvious or easy, which is why I think one of the greatest traders of all time, Jesse Livermore said, "Give me time, not timing", meaning focus on the big picture and sit still on it, rather than reacting to every "Jot and title" in the market.

Since hitting a low of -1150 this morning in the NYSE TICK,

there has been a subtle uptrend in TICK, although barely crossing +500, it's still holding the market in place and causing rather dull trade, however again, it's the bigger picture I think we need to focus on.

This is my custom TICK indicator vs the SPX, note the change in the upside TICK as the move progresses and how shallow the upside TICK is the further we move to the right since the 12th.

The USD/JPY is really the last tractor beam left, but I did notice some Leading Indicators that were more neutral today than yesterday, HYG is a bit neutral, TLT although leading is losing some intraday ground. VXX is leading, but also looks to be in danger of losing some ground.

I don't think any of this changes the two SPY/ES charts above, it's the psychological games and jiggles meant to make you question your positions. This is why I think it is essential to focus on the forecast, the big picture and use the jiggles to your advantage.

I'll have to put out some very specific updates to keep up with the market as it is so flat here that it can quickly shift in either direction, but again the highest probability resolution is right above on the SPY and ES chart.

I'll also try to add some additional asset/trade ideas.

Markets Update

I want to get this post out not as a victory lap, but because there are important concepts here that we use every day and this is one of the best illustrations of those concepts, I hope you can sear them in to your mind not only for the current market and forecast, but every asset we analyze.

So far we have quite an open and overnight session, all based on the USD/JPY pair that as of this morning has not only definitively broken the $120 area, but all the way as low as $119 this morning around 9:20 a.m. (EDT). I'm pretty sure you heard the USD/JPY was going down HERE FIRST, whether in Market Updates throughout the day or the very specific post yesterday, USD/JPY Lever About to Give Way.

The $USD/JPY is essentially the key to everything that's happening right now. Whether it be our longer term forecast from December 12th, that so far has been spot on or from the short term USD/JPY expectations of the next several hours ahead of the post or our longer term or rather big picture divergences in $USD and JPY, both suggesting we are just getting started and just as the FX pair ramped the market on the open yesterday, it's important as one of the last levers to give out and doing the exact opposite today, again right on time in the 2nd day of the Santa Claus rally, also part of our forecast for the markets.

This has wreaked havoc all over the world's major indices with the Nikkei 225 down -1.57% overnight and our larger forecast for the Nikkei via our 3C futures chart of /NKD, posted again yesterday...

Not only did we catch the accumulation of the Nikkei on the 12th and 15th, but also knew the move we expected to lift higher off the accumulation would fail, this is where one of our 3C concepts comes in, the divergence of highest probability. With the 4 hour NKD chart so negatively divergent, it didn't matter what the Nikkei did on the upside, its highest probability resolution was for a move back to the downside and a strong move.

 The NKD 30 min chart with accumulation at December 12th-16th , move higher and distribution in to the move leaving a leading negative divergence the Nikkei 225 needs to catch down to.

However, the important part is the concept of the highest probability resolution and with the 4 hour chart below leading negative, it was only a matter of time before the Nikkei gave up the gains which it is starting to do now.

4 hour 3C chart of the NKD leading negative and in big trouble. This was the highest probability resolution and still is, much like our market averages and Index futures.

Don't forget the match that lit this fire, USD/JPY downside and our macro trends for the Yen and USD both supporting this 4 hour chart.

So while some are saying that the USD/JPY's decline has something to do with several billion in options pinned at $120, the two events are inseparable, the movement of smart money in underlying trends makes this clear as I pointed this out time after time yesterday in leading indicators with the phrase, "Obviously they knew this was going to be a head fake move" as indicator after leading indicator all showed the same negative disposition.

Other Asian markets fared little better with the Hang Seng -1.14%, the Kopsi -0.60%, the Shanghai Composite -.10% the ASX -1. At last look the European markets had the FTSE down -1.43%, the DAX down -1.22% which makes you wonder about the flight to safety yesterday in 2 year bonds, my larger point is, just as leading indicators showed us yesterday, all of these markets are connected. In addition the CAC-40 is down -1.06%

After yesterday's 2 year German Bund hit a new record low yield of -10 bps, overnight thus far we have seen Italy issue a 10 year Bond below a 2% yield for the first time ever. Spanish and French 10 year yields are falling as well as the flight to safety trade continues, perhaps given away yesterday pre-market with German 2 year Bunds hitting new record low yields.

While the Greek situation isn't helpful at all, I've seen much worse in Greece, much more imminently and the market totally ignore it. I'm not saying that Greece isn't having an impact, but after all we have seen and how far in advance we were able to forecast it, I'd say it's silly to believe this is all about Greece or commodities.


Also as a result of the USD/JPY move lower, gold jumped overnight with GLD up 1.85%, you may recall about a week and a half ago I closed a GLD short for a minor gain as there was no longer an edge in the trade. It seems a not well known pairs trade has taken over, the Yen/Gold trade.

 1 min Yen is still in line with its move higher, looking a little frothy short term, but not outright negative in any way.

Gold Futures put in a positive divergence overnight, around 11 p.m. to 1 a.m. as you can see and have been in line since, only recently with a small negative divergence as it too may be getting a little frothy.

There are some short to intermediate term GLD positive divergences, the longer term charts around 30 and 60 min haven't fallen in line yet, but you probably know my long term thoughts on gold and gold miners, I'm just not convinced we've put in the final base for a move to the upside yet.

I'll continue to update the market and add additional position ideas as they come up, but I think you know roughly where I believe we are on the map according to our forecast,  but remember, Wall St. will never make it obvious or easy and will try to shake you out, this is part of the reason I wanted you to see the aftermath of our USD/JPY call, the same charts that were telling us yesterday this was coming are very active and stronger on many more assets as the last of the levers gives out.

Trade Idea: (Trend) Transports (IYT) Short

As mentioned yesterday in the Daily Wrap with 4 charts, Transports are and have been looking like an excellent short play up here; a great entry, lower risk and the timing looks to be about spot on.

If I had room to add to the Transports short we already built, I would, but I don't have room to add anymore without violating risk management position size rules.

The charts...

 4 hour long term is even worse than this, but this gives you an idea of what has been happening during the short squeeze recently in small caps and transports which is part of the December 12th forecast, not separate.

 The 60 min chart showing the same negative divegrence through the last move...

And the 15 min chart as well

as the 10 min chart.

As for timing, the faster 5 min has broken free from confirmation and is leading negative. With a rounding top like this a head fake move in the form of an Igloo (the rounding top) with a chimney (the short head fake move above the rounding top) is possible, although an argument could be made it has already happened. In any case, I view this as a long term trending position and I'd set up my risk management to be able to absorb a few impacts or counter trend moves here and there.

The short term 2 min chart for timing also looks excellent.

A.M. Update

Good morning,

It looks like our overnight divergences played out and looking around this morning, I don't see the ramping lever other than short term Index futures are now in line and confirming price action rather than divergent.

 NASDAQ 100 futures from last night's tight range negative divegrence and down to in line or 3C price/trend confirmation.

 The USD/JPY made new lows and bottomed briefly around the European open, but just made a new low for the week moments ago.

The Yen continues to lead the USD/JPY lower and finally as I suspected...

The $USDX finally moved lower off its negative divegrence.

If there's to be a ramp, the only place I see the possibility is in the 1 min 30 year bond futures, they look as if they could pullback, but nothing glaring.

Gold also looks like it could head higher off the overnight work it has started.

More in a moment

Futures Update

Well the USD/JPY keeps losing ground since our earlier posts today suspecting it would and specifically the 4:39 post, USD/JPY Lever About to Give Way which wasn't only accurate, but timely.

Here's the pair now...

 As you can see, the USD/JPY has retraced all of the 9:30 cash open ramp and then some, really about 2/3rds of all gains since Sunday's open of futures.

 This is USD/JPY with ES in purple at the 9:30 open this morning and the ramp off the lows, ES was not well correlated to USD/JPY before the cash open, so they were obviously being run by algos.

However right now, ES is in a flat holding pattern despite the losses in USD/JPY, I don't expect this to hold out forever with no HYG, TLT or VXX support.

The USD/JPY is putting in a 1 min positive divergence so I'd expect some overnight bounce.

Interestingly, as bad as the $USDX looks and has looked all day which is why I thought a negative divergence in USD/JPY 1 min was showing up earlier, in fact it has been Yen strength sending the pair lower...

 This is the Yen 1 min chart moving up which is responsible for USD/JPY moving down, however it does have a negative divgerence which may be the reason the USD/JPY 1 min is now showing a 1 min positive divgerence, but this is not where the real potential weakness short term is in the pair, it's in the $USDX

The $USDX has had this wicked leading negative divegrence since pre-market.

The 7 min Yen is going positive again so even though the 1 min may go negative, this is the higher probability resolution, that the Yen continues higher, if that happens with the $USDX divegrence kicking in and moving lower, the USD/JPY will just fall that much faster.

The 15 min Yen has a strong leading positive divegrence, even stronger than the 7 min.

And the 60 min is just about finished with a rounding bottom and a large positive divegrence, this is what I suspect will be a part of the market's downside along with the USD/JPY.
The $USDX in the longer timeframe is negative as well with positive Yen, this means USD/JPY lower.

USDX with a small positive sending it higher and a leading negative divegrence on a 60 min chart.

As for 30 year Treasury futures, they have been moving up, yields down which pressures the market lower, the same process around the same time happened at the two previous F_O_M_C meetings after their knee jerk move higher on the policy announcement, once the 30 year Treasury started rising with the knee jerk move in equities and yields started leading to the downside, it was 2 and 3 days after each meeting that the entire knee jerk move higher was retraced and as mentioned earlier, in the case of the September meeting, this led to a sharp sell-off which landed us at the October lows. Few probably remember how bearish sentiment was, but that was the mass psychology analysis that led us to call for a very strong move higher, a sentiment changer and days after we received 3C confirmation as well as HYG accumulation, TLT distribution and VXX distribution, the exact same way the rally we called on December 12th that started on the 17th unfolded.

Right now the 30 year Treasury futures are in line in the overnight session, confirming the continued upside move which is not normal for the market to be both risk on with equities, although that is generous given today's closes and risk off or flight to safety with a rising 30 year bond as well as a flight to safety in German Bunds and Japanese JGBs.

As for the overnight 1 min 3C chart for ES, note the very tight range, this is the type of quiet market that we often see the heaviest underlying action, which is why I always warn not to become complacent in a seemingly boring market. My analogy as you probably know is , "It's like the kids in the room next door being a little too quiet, you know they are up to something".

NQ 1 min has the same tight range since the close at the vertical red arrow and a leading negative divegrence as well.

TF 1 min is in line with price action thus far. I was looking for this earlier, but perhaps we see it soon, a Key 1-Day reversal with a gap up above the intraday highs (perhaps in Russell 2000/IWM) and a close below Monday's intraday lows, this would be an exceptionally strong reversal signal appropriate for such a large downside reversal so if we do see a gap up in the morning in the IWM, don't make premature assumptions without confirmation.

5 min ES with the cash open and close marked with a clear negative divergence setting in post cash close like the 1 min.

The same is true for TF/Russell 2000 futures, a strong leading negative, much of it during today's cash session as we saw in 3C charts, but also after the close in to the overnight session.

And NQ / NASDAQ 100 futures 5 min is also showing a couple of leading negative divergence, one as the futures opened Sunday night for the new week, another at the cash market highs today and post close in the overnight session, especially at the flat range.

The ES 30 min chart (even though we have stronger negatives in 4 hour, daily, weekly and monthly) shows the entire process, except when we first had the theory of a head fake move above the IWM's range on December 12th. The Crazy Ivan shakeout/bear trap of the 15th and 16th shows the accumulation that was the evidence of our theory or forecast from the previous Friday, then the inline status as the levers like HYG, TLT, VXX and USD/JPY gave the initial upside ignition until the bear trap kicked in with a short squeeze, powering the rest of the rally above the IWM's range. Since completing the objective, the distribution signal is VERY clear and at a new leading negative low.

With a chart this accurate thus far and in this bad a shape currently, I don't see this market as having much time which is why for the first time this month I have been actively putting out short calls, had I done it earlier this month it would have been too early and there would have been drawdown, I didn't know that at the time, I just knew the signals for such calls were not there, now I know why.

3C will always show us what smart money is doing, but by the time you understand why, it's too late to profit form the information. However the fact 3C did not give short sale signals in retrospect was the indicator doing what it should do. Sometimes saving money is just as good than making it as losses are difficult to make up. For example a 50% loss requires a 100% gain to get back to break-even, so I'm happy with 3C performance as well as leading indicators, I just feel that right now we have those strong signals like the ones above that we didn't have earlier in the month and ironically, it''s right where we suspected they'd be, right as the Santa rally draws in more longs creating a stronger, larger bull trap.

I suspect if these 1 min negatives in the Index futures keep up within such a flat range, we'll be seeing overnight downside in the Index futures. I don't see any levers left to hold the market up and the reason they were needed in the first place is because the Russell 2000 didn't have enough strength on its own to break out of its range for 6 trading weeks.

That's it for now.

USD/JPY Follow Up

Since the 4:39 p.m. (EDT) post, USD/JPY Lever About to Give Way in which $USDX's negative divegrence looked like it would cause USD/JPY to lose ground (as well as the larger 30/60 min divergences suggesting a larger move to the downside for the JPY pair),

USD/JPY has now retraced all gains from the 9:p30 a.m. opening ramp, lifting the market from gap lows and a.m. lows.

I suspect we have more downside to go as the $USDX divegrence is still very strong and the $USDX has barely given up any ground relative to the size of the divegrence, not including the longer term, larger picture 30/60 min divergences.

I'll let you know if I see anything standing out in futures tonight.