Market Update

Interestingly, once again today the charts have been forecasting near term action near perfectly, this time less so on end of day/closing divergences and more so on internals.

From last night's, Daily Wrap

"While the Russell 2000 had no Dominant Relationship today, the rest of the majors did, the Dow with 14, the NDX100 with 52 and the SPX wwith 220, the relationship was Close Down/Volume Up. This is EXACTLY the same next day concept as the parabolic drop today on big volume, it typically signals the end of that move and the start of a relief bounce which I suspect we see tomorrow with distribution in to it.

The S&P sectors had 7 losers, 1 gainer and 1 flat. Utilities outperformed at +0.28% and Materials underperformed at -1.12%.

Of the 238 Morningstar groups, 107 closed green, the rest red.

What I like about these internals is that they are not extreme, they do point at a bounce, but not an extreme one which would fit with the 5 min charts falling apart in to some higher prices.

Additionally our SPX:RUT ratio was positive at he lows today with a small VIX Term Structure buy signal as well, very small."

The first paragraph in red is pretty much in line with what we are seeing on the charts thus far today.

The second red paragraph is interesting because as I posted this morning, we had a second signal, they are small, not like the October lows, but they seem to be pretty darn effective looking back historically and just since we've been using the new custom indicators.

I also included the charts just after 5 mins so you can see in terms of multiple timeframe analysis, what the market is set to do next and how the current cycle that reaches out to 5 min charts, is a means to the next cycle on the 10-15 min charts.

Every chart below is in line with our short term price expectations and what happens during those and what happens next (bounce, distribution in to the bounce destroying the 5 min charts and moving to a new low, thus the reason I want to be patient, wait for a bounce to sell/short in to and look for the next move lower although we haven't really ended the current move lower as of yet.

Backing up this theory are the typical market ramping levers and their multiple timeframe charts. Remember, the expectation is for a near term market bounce that will not hold and be sold in to. Here are 3 of the 4 levers...

HYG

 The intraday 1 min chart is starting to put in a positive divergence and a leading positive, this is one of the most often used market ramping levers.

There's nothing on HYG from 2 to 5 mins that is supportive, at 10 mins the larger picture/trend emerges, I trust I don't need to comment on the current divergence.

Remember this is multiple timeframe analysis.

VXX-short term VIX futures...

 intraday 1 min negative today...

And nothing to support a move beyond that as the 2 min is in line and not negative.

The 5 min is in line off a larger positive from last Thursday when we first spotted the unusual underlying activity (bearish).

TLT-20+ year Treasury Fund, which means a move lower= yields higher, stocks tend to follow yields.

TLT 1 min negative

However at 5 mins it is perfectly in line with the uptrend.

The TICK remains pretty negative today, but still mostly laterally trending.

QQQ 1 min intraday building a positive

There's also a small 2 min positive and...

Whether coincidental or not, a very small 5 min positive

The QQQ 10 min speaks for itself.

IWM 1 min positive, which also looks the best by the way.

The 2 and 3 mi charts have nothing positive going on and look like the above 3 min chart.

The 5 min is in negative position, but the 5 min chart is not completely used up, this is why we need higher prices, they won't sell in to lower prices.

 IWM 10 min speaks for itself, hopefully you understand why we want to sell/short in to any near term market upside as I have posted numerous set-ups recently.

 SPY 1 min

The 2 & 3 min charts, like IWM have nothing positive, thus implying a weak or rather barely supported bounce, it doesn't mean it will look weak, but it shouldn't be able to hold out long.

Again, coincidental or not, there's a small 5 min SPY positive.

The 15 min speaks for itself.

That's a lot of confirmation, which was built on last night's internals, hopefully you understand both our short term tactical plans and longer term strategic positioning.

UNG UPDATE

While we're on Energy, I thought I'd update UNG which has its storage release tomorrow (EIA) morning.

So far, everything looks good....

 60 min shows the overall trend, which is why I've been patient with UNG, as long as it continued to show progress.

 The 15 min chart with what looks like a head fake move/stop run turned rounding bottom with a strong leading positive at yesterday's stop run just under the range I was willing to tolerate, so long as it didn't close below which it did not.

 The 3 min chart shows the confirmation of yesterday's head fake to hit stops and a positive divergence on that move.

And intraday on the fastest chart, we have confirmation with 3C making higher highs with price.

So far, so good. It looks like the worm has turned for UNG/UGAZ.

USO Update

This morning's 10:30 EIA Petroleum inventories came in higher than expected at +5.39 mm barrels vs consensus of 1.75mm barrel build with the last a draw of 3.062 mm barrels.

This initially sent crude lower at 10:30 on the report's release, but from everything I can see, we should still be expecting a USO/oil bounce.

 USO 1 min with the EIA release and a positive intraday divergence holding USO together from further decline.

The 2 min chart has no damage and the 5 min...

Still looks great.

This is one of those common scenarios in which once Wall St. sets up positions for a move, they rarely call them off, which is what makes the current market's 5 min chart so interesting.

Market Update

There's still a lot to look at, but so far what I see is pretty much in line with last night's internals which were a weak short term oversold condition, ripe for a near term bounce, which as you saw yesterday, is pretty much the only way we'll see distribution..in to higher prices (as the 5 min chart moved quite a bit yesterday alone, the first day of some gains, despite the fact they didn't hold.

 TICK intraday rather ugly at -1250, but some +1000 and a flat trend.

There's improvement on my custom TICK indicator as yesterday would have represented short term capitulation or a short term selling event leading to a flameout of sellers near term which can give the market some room to bounce. Yesterday's short term oversold signals were not that strong, unlike what we saw going in to January 5th, which is the cycle we are still stuck in, the Jan. 5th accumulation for a bounce that hasn't really played out as last Thursday the market was spooked by something, which now appears to be Obama seeking approval to send boots on the ground in Iraq, as we have mentioned before, US forces have been building up on the Iraqi border.

As for intraday charts, they are not clean and clear, there's a lot of mixing between timeframes which is indicative of the apparent change of heart we suspected we saw last Thursday before the small oversold bounce cycle could do much.

 QQQ 1 min is not showing anything very exciting, very close to in line, even for an intraday chart.

The same applies to QQQ 2 min. The two main features are the original accumulation around the 5th/6th for an oversold bounce and the sudden deterioration that looked like Wall St. got some scary news last Thursday and was looking to reduce any long exposure, even very short term bounce exposure.

 And the 5 min chart which is as far as the oversold bounce positive divergences made it. Again, the main features are the positive and since, the negative. The chart is still in limbo so until it gives a strong 5 min negative divegrence, I'm inclined to be patient and keep things as they are unless an unreal opportunity crosses our path.

 SPY 1 min not looking so great so far today, but price is lateral, which is a big change compared to the last 3 days.

 2 min isn't telling us anything currently, but recently it has been negative since the small stage 1 bounce base was put together (white).

 SPY 5 min, which is not in good shape, it's not what you'd expect from an asset that was putting together a bounce base or actually did put one together, but it is not past the point of no return, which is what I'm looking for along with confirmation before making additional moves.

 IWM 1 min does look a bit more positive intraday. I would not be surprised to see an intraday bounce at some point before the close.

 A closer look at the same chart.

The 2 min tells us little right now, except any possible intraday bounce has no support on the 2 min chart, which again, as we saw earlier this week with the exact same set-up, it meant near term upside followed by downside as there's no support beyond the initial move on the 1 min chart.

 And IWM 5 min which is the closest to the point of no return, it just needs a little more confirmation/3C downside.

 I think concentrating on near term charts so much makes you lose track of why we are looking at them, what comes next? So I've put together some of the slightly longer charts, what to expect after this cycle resolves and wraps up.

 IWM 15 min leading negative since the strength of the October lows.

QQQ 15 min needs no commentary. This is why I would use price strength to sell/short in to.

SPY 30 min needs no commentary.

And the longer term, primary trend 6 hour SPY, shows you how bad things are, how close we are to that cliff if not already having stepped off it.

General Update

There's quite a bit that has transpired over the last several days, more specifically last night/early this morning and continues.

The commodity complex has been hit hard...

 Commodities vs the SPX- 60 min.

This time the overnight rout wasn't in crude as per usual, in fact as I said yesterday, I think crude is as good a place as any right now for a bounce...

 USO 5 min positive. The caveat of course being, this is no trend change, but could be a very sharp move to the upside on a massive short squeeze.

Natural Gas is also up...

I've been watching UNG carefully and recently added to the UGAZ long. So long as UNG stayed in the band in white, I was okay with it as stronger divergences were taking over and this morning it has gapped up (15 min leading positive).

It was Dr. Copper who was pummeled in the overnight session on a collapse in Chinese demand which accelerated a bout of margin calls and stop-loss selling.

 Copper vs SPX 2 min chart with copper's fall on opening trade in yellow.

Copper is now at 5.5 year lows (red) vs the SPX.

The larger message here is Global growth concerns which brings us to another overnight event, the World Bank downgraded Global Growth for 2015 from 3.4% to 3%, the US being one of the few countries not downgraded. Copper is called "Dr. Copper" because of its forecasting features for global growth, the action in copper has not been supportive of growth or the market.

As already mentioned, we saw crazy 900 point round trip volatility in the Dow yesterday, nearly -600 points off yesterday's highs to this morning's lows.  The larger story here is volatility picking up which is not bullish where we are with the charts we have. However it's not a one way street, it just doesn't tend to end well for the market. Watch for increasingly more unpredictable market moves, especially to the downside and on gaps as volatility increases.

Overnight the main event scheduled was the top European court, The European Court of Justice (ECJ), expected ruling on whether the ECB's OMT program was legal as the Germans charged it was not, which has more to do with ECB QE and whether it would be legal than anything. The court ruled that OMT is legal under conditions, so there's a legality and a conditionality, this sent the EUR/USD lower pretty sharply after the 4 a.m. announcement...

EUR/USD spikes lower on ECJ ruling, setting the path for QE. Shortly after that Draghi announced that the ECB is ready to buy government bonds, however the anticipated sell-off in the EUR/USD didn't amount to much of a reaction , a mere -15 pip move in the pair, it seems ECB QE is fully priced in.

This hasn't done much for European markets either with the FTSE 100 down over 2%, the Dax -.75, the CAC-40 -.73%.

Kocherlakota, a non-voting F_E_D dove also was out again telling Reuters he does not favor a US Interest rate hike in 2015.

Then this morning at 8:30 US Retail Sales missed big, down .9% month on month vs a -.1% expectations. 

All of this bad news, would normally be taken as good news. The World Bank growth downgrade, the badly missed retail sales, all point to the F_E_D's inflation target of 2% not being hit, in fact just the opposite, which would presumably stay the F_O_M_C's hand longer before raising rates as they want to be reasonably sure inflation will move to 2% before hiking rates, so all of this bad news would almost always be taken as good news and it may still be, which is why until those 5 min charts are destroyed, I'm careful not to call anything or load up the truck on new trades, but rather stay patient as I see the current position of holding current shorts an almost no lose proposition, they either keep working as they have been or we get a bounce to short in to as charts beyond 5 minutes are destroyed.

These charts are form earlier this morning, but still they show some interesting things, although I don't usually look at them this early in the day.

 The pro sentiment indicators which have been a few I've been waiting to see decline as confirmation of the 5 min charts going south made a sharp move lower this morning and recovered quite a bit, but it was the first really sharp downside move since the bounce/accumulation was put together around the 6th of this month.

HY Credit is also looking troublesome, HYG is not looking good this morning and this is one of the first go-to levers for ramping the market.

HYG gaps down, 3C negative as well (1 min intraday).

 The 5 year yields have seen price this morning roughly revert to their short term mean, however the 30 year yield continues to lead lower...

30 year with today's drop lower in red (5 min chart).

I have a lot of charts to look at, but I'm still looking for those 5 min charts to fall apart.

SPX;RUT and VIX Term Structure Buy Signal

As you know from the last couple of days and pretty plainly yesterday and last night, I expect to see a bounce here and I expect to see the 5 min charts fall apart through it.

A LOT has happened overnight with some strange reactions, but the fact is this 5 min chart we have been watching is on a short term oversold basis, the Dow is off some 900 points from yesterday's highs, that's a short term oversold condition.

In any case, my two custom indicators, SPX:RUT Ratio and VIX Term Structure are both flashing a bounce here and where we are, it's actually not a bad little head fake move to set it up.

Very short term signals on a 1min chart this morning, but they are there and there is the catalyst for a bounce and it is what's needed to see the 5 min charts definitively deteriorate and give a strong sell signal.

I am sticking to my plan which is to sit tight in the shorts I have open and add to on price strength and confirmed 3C weakness.

I have a lot more for you, things are just happening at a pretty fast clip.