Quick Market Update

Changes in Character, if you asked what was the most important thing to look for in trading, I'd say Changes in Character as they lead to changes in trends. In some instances like a channel buster, they may seem one way at first, but actually be a red flag of the complete opposite, that's the same for head fake moves.

In any case, I noticed it first in Index futures, considering how well the little intraday steering divergences had been handled today (I suspect we see an options max-pain op-ex pin somewhere near today's close as usual)  to see changes in character, especially in the Q's as mentioned earlier (re: AAPL), I thought it would be worth an update as we may see some other interesting changes with Leading Indicators already making some significant changes, some for the first time this year (2015).

 SPY 1 min

SPY 3 min

 QQQ 1 min is one of the more noticeable ones...

IWM 1 min not so much, but...

IWM 2 min more so.

AAPL Charts Follow Up

 AAPL Daily Doji star, it would be nice to see churning volume (higher) on the close.

The 1 min chart with a rather small, but positive divergence to help push price above the range, looks like pure distribution in to that range.

While Carl Icahn is saying the market is dangerous one week, the next week he's saying AAPL is going to $200. Remember Cramer's number one rule from his HONEST Street.com interview,

"What’s important when you are in that hedge fund mode is to not do anything remotely truthful, because the truth is so against your view, that it’s important to create a new truth, to develop a fiction.

 The stronger 2 min chart doesn't show the weaker accumulation signal, but does show the stronger distribution signal above the range.

 AAPL 3 min with a base to carry AAPL higher and in to higher prices, leading negative divergences.

The recent 5 min activity which is the earliest timeframe I consider to be able to show institutional activity intraday.

AAPL 10 min with what would be a typical 4 stage cycle, accumulation, mark-up, distribution, decline.

AAPL is not my favorite longer term short, I think they are transforming the company right in time for a bear market. Look at the S&P stocks' performance in 2007 and 2008 and then look at the blue chips' performance, while an outgoing tide lowers all boats, it lowers some more than others and long only funds still have to find the cleanest dirty shirt as they say.

I believe AAPl is in the transformation mode MSFT went through in the early 200's ironically after it declared its first dividends.

Trade Idea: Short Term Options) AAPL Puts

AAPL would be far from my first choice as a core short, but as a quick Put, I like AAPL here, it's going negative, it's going parabolic and I don't think it can stand, there's some near term weakness manifesting in the QQQ charts and AAPL would be the first place I would look and did.

Although I like this as a shorter term put position, I always like to buy about 3x more time than I think I'd need and slightly in the money.

This will be a spec position size, about half of a full position using March 20th AAPL Puts (monthly).

I'll update AAPL's charts in just a moment, but they have been deteriorating the past few days and that is manifesting in AAPL's price ROC already as well as some weakness in QQQ that's a bit stronger intraday than the other averages.

Intraday Update

So far, things are pretty slow except in the stronger timeframes beyond intraday steering, but not so far out that they are a ways a way, I'm talking about 3 min charts leading at new lows as posted the last several days and today, but intraday it's different.

 SPY intraday today... there's a series of small divergences, steering divergences, nothing very big, just jeeping things on track.

This is the intraday view of the 3 minute chart with the approximate location of the top of the SPX's range (yellow trendline).

Of course the 3 min chart in context is a different looking animal than intraday, I'm just assuming you recall it, but I won't assume, here it is.

From the last base at support ... SPY 3 min

 

 The Q's intraday looked similar, they look a bit worse as the afternoon l progresses.

IWM is nearly perfectly in line 1 min intraday

HYG however, like other leading indicators like Yields is lagging the SPX rather than leading or confirming, it's almost flat on the dat (red).

The intraday chart for HYG looks very different...

And the trend chart for HYG looks similar, but worse (5 min).

Leading Indicators Pointing to Trend Shift, Currency Pointing to Policy Shift

While most are transfixed on the market averages, the biggest markets in the world as volatile today, some is pretty easily understandable from our perspective, some may be bigger than we currently realize...

Currencies...

 I'm a bit surprised to see the EUR/USD up like this and it's not just on a weak $USDX, I assume this is on the Ukraine cease-fire which is more a "Cold War II cease-fire" between Russia and Europe, but with Greece in the wings, it's not what you might expect, especially after the strong statements (read between the lines) regarding yesterday's Emergency EU- Fin-Min meeting, TOTAL FAILURE, but keep a happy face on as Greece just needed an expansion of the ECB's Emergency Lending today (think Greek deposit withdraws).

 The USD/JPY heading sharply lower, this is obviously in reaction to overnight statements from the BOJ that additional stimulus may be counter-productive.

The preeminent Carry trade, often leveraged at 100:1 may be about to go VERY wrong for FX traders. hedge funds and anyone else in the carry.

 Yen futures this morning...

$USD is getting smacked hard

Treasuries...

Despite the strong auctions, this rise in treasuries may cause some concern when looking at market averages alone, however as a Leading Indicator (remember Treasuries move opposite yields), this isn't surprising at all as a leading indicator and considering we needed T's to pull back to be accumulated on the cheap, it seems that this part of the process is done and now we are getting the leading signals (see below)...

 30 year Treasury futures (again, remember yields move opposite Treasury prices above).

10 year Treasury Futures, also up on the bad macro economic data this morning.

 However when we look at Yields as a Leading Indicator, this plunge in 30 year yields may seem unsightly to those just looking at the market averages' price today vs. Yields, however for us , using this as a leading indicator as usual there's a different message...

Here 30 year yields (red)  lead the SPX (green)  to the left and are leading the SPX again to the far right as shown earlier and starting yesterday.

10 year yields (red) intraday vs the SPX/SPY (green) plunging...

However for our purposes as a leading indicator, again they led the market higher in a small divergence to the left ad are leading it lower now.

While Euro action is a bit off and I can only surmise that it's relief at the Putin statement of a Ukraine cease-fire in effect Sunday, ramping down European/Russian tensions (although the last cease-fire never ceased firing), it's a bit surprising considering Greece and the EU, both of which are not moving off their talking points a bit, despite pleasantries likely aimed at stemming Greek bank outflows.

The big question and potential game changer in the Yen and BOJ policy. Years ago I wrote that the market would be seeing a major move lower at the same time as the Yen strengthened and gave a lot of reasons, but it's not that hard to figure out why (from QE ending or toned down to the Carry Traders being annihilated if the BOJ pulls an amateur move like the SNB, even if they don't and give ample warning as it seems they are doing, it's a crowded trade...

Things could be getting interesting not only very short term (as is the current /3rd cycle/bounce of 2015 reversing), but on a much larger sense as the world's central banks seem to be in a race to debase while the biggest serial debaser is suddenly changing their tune and nearly running side by side with the F_E_D as far as policy or perhaps "intended policy"...

I believe the BOJ just put the market on notice today.

Market Update

We have certain concepts because they are so common, they can be used with any asset I can imagine in any timeframe and they have high probabilities. This particular one is that of a head fake move, whether a stop run, false breakout/failed breakout, Crazy Ivan, etc.; they come in all different forms and there's a reason it is such a strong concept and why they are so often seen at just prior to a reversal.

The main theme regarding their probability is how obvious a technical level is, how large it is and how visible the asset is. If you haven't already read the two articles I posted which are always linked on the member's site at the top right, try to find some time as you'll understand a lot more about market probabilities and how these moves that may seem to be counter to your position are almost always the biggest freebie gift the market will give you. Here are the articles, but you can always find them on the site:

* Understanding the Head-Fake Move Part 1

* Understanding the Head-Fake Move Part 2

The concept is so strong, that even without any evidence of such a move last Friday Feb. 6th, it was included in the Broad Market Update and at least in 3 Daily Wraps as well. This is from the linked Broad Market Update from last Friday...

"I have to include the head fake concept as I preach it all of the time, it would be disingenuous for me not to include that possibility as I think many of you probably had already figured out on your own being we use the concept so often."

What was I reffering to?

This range, since the descending triangle target (up) was a breakout above the bearish triangle's resistance (a head fake move in itself as traders view descending triangles as bearish consolidation/continuation patterns), we had to redraw the trendlines which gives you a very obvious, 2015 range. This is just too juicy of a target as it is an east way to trigger buy orders, buy to cover orders and in general produce demand that can be sold in to.

In fact it fit with additional views that VXX and TLT needed to come down and since they are inversely correlated with the market/SPX, that meant the market needed to move higher. Here are some specific recent examples of this analysis...

From Tuesday, Feb 10th's Market Update:

"...as I said yesterday, although most people have a hard time viewing the market in this manner, I believe as I did yesterday before any (down-side) move, that the upside move is the means to an end and that is accumulation of the Flight to protection and the flight to safety (VXX/TLT) as both were too high for Wall St. to chase them and they come at just about the right time considering the Russell 200 charts posted earlier today...."

From Monday February 9th's Daily Wrap

"Looking at leading indicators, just remember I suspect both TLT and VXX want to accumulate at lower prices to be ready for the market roll over and the end to the 1/29 to 2/2 base/bounce cycle, so them pulling back , although not making a lot of sense in the normal order of leading indicators, it would make sense in the case of accumulation, smart money will very rarely chase an asset higher, instead they knock it down to accumulate or ramp it up to distribute, the opposite of what many technical traders think "

A head fake move in this scenario would create a bull trap which creates reversal/downside momentum. If you look at the SPY chart and the base from 1/29 to 2/2, on 2/2 there was a head fake move intraday hitting stops, pulling in shorts and creating a bear trap that was a head fake move directly preceding an upside reversal, again, the same SPY chart...

Although the downside head fake in yellow to the left doesn't look very impressive, those are the lowest intraday lows of 2015, bound to hit stops and create a bear trap, it was also the reversal momentum needed to start the upside move. The current move above the range mentioned several times this week as a probability just as a concept alone, even without evidence supporting it, has the same effect on the downside  as long as it is confirmed as a head fake move.

Since that move, as far as VXX and TLT which were sitting a bit too high to think they'd be accumulated in any size without a move lower, here's what they are looking like now as both stocks and bonds are bid today...

 TLT needed to come down to be accumulated, it now has a respectable positive divegrence, the flight to safety and the bottoming/rounding process is evident as TLT moves higher today with bonds and stocks bid.

 Here's a stronger 15 min chart of TLT, as was posted earlier, "TLT needed to pull back as smart money doesn't chase assets higher".

 As for the larger picture in VXX (short term VIX futures) with net spec VIX positions at an all time high (via CFTC futures data for the week) this probably shouldn't be that surprising, but it has been the near term charts for timing that I have been watching.

A closer look...
There have been 3 base and bounce/breakout attempts in 2015, Jan 6th, Jan 14-16th and Jan 29-Feb. 2nd, the last two are visible and at those market bases, note the VXX tops as they trade opposite each other. Also note the most recent and larger positive divegrence to the far right.

Honestly I can't even say that this was an intentional head fake move or one that would have been possible without the help of outside events, such as the incorrect CNBC Greek/EU rumors late yesterday that were subsequently shot down, the Minsk Ukraine cease-fire (not to be pessimistic, but we've seen this tried, it didn't work, but it did move the market) and  the surprise/overnight Swiss Central Bank rate cut and $10bn SEK in QE. No matter...

Almost all of this analysis is based on concepts alone, however we still have to be able to determine whether a move is likely a real, supported break out or a head fake, other than the highest probability/longer term charts which give us an idea before a move even starts, I always like to confirm at the present time.

Here is some of the evidence thus far, although it's still early...

 The SPX:RUT Ratio still refuses to confirm price going on a 3rd consecutive day, somewhat ironically the SPY has been above the resistance/range trendline for 3 consecutive days.

 This HY Fund (PIMCO) and HY Credit in general diverging from the SPX (in green), in this assets case, it has been up since the first trading day of January so this divergence vs SPX is notable as the first of the year, although HY Credit has been dislocated for a longer period.

 In red this is 30 year yields, remember they act like a magnet and pull equity prices toward them, unfortunately they aren't well scaled, they should be lower in relation to the SPX (green), for instance, this is what the two looked like near the close yesterday, so you can see the red 30 year yields should be scaled even lower, a larger dislocation/divergence.

30 year yields vs the SPX yesterday, note how they are together around noon, if you look at the chart above this one and pull yields down so they are together around noon, you see how dislocated yields are from the SPX, also the first strong divergence which pressures the market lower suggesting a head fake move.

However some of the best data has been there, it started Thursday and Friday...

 The yellow trendline is the top of the range, the previous breach was intraday only. The base area is the same for all of the major average- the 29th of Jan. to Feb 2nd and the strong negative divergence started last Friday and has worsened above the range, that should tell you something about how and why the head fake concept works and why it exists.

QQQ, again the same base area, it had the first strong neg. divergence on Thursday and then Friday more broadly and you can see how it has gone since .

And the IWM showing the end of the previous base/bounce attempt from 1/14-1/16 failing to the left in to the 3rd try for 2015 at the same area, also the same strong divergence on Friday like the other averages and of course the tone since.

And HYG's underlying trade trend for this most recent bounce cycle.

This is one of my favorite Put Option set-ups as premiums are reduced and head fakes tend to be excellent timing markers as they more often than not, directly precede a reversal (down in this case).

It's now just a matter of looking at intraday timing charts.

MCP Follow Up

MCP is at it again.

Recently we had expected a move up, which hit +200% from low to high. On Feb 5th, MCP Update was posted, we already had positive divergences and got the exact closing candle we were looking for as it was "almost there".

On Feb 9th, MCP Update the gist of the post was,

"... it looks like it's getting ready to make another move to the upside."

Since then, that's what it has done with yesterday's MCP on the Radar and +7.79% gain.

Thus far this morning MCP is at a 10.84% gain and about 15% higher since the highs of 2/3 when we were looking for a pullback/consolidation to commence, this is about 225% off the 1/23 lows.

Here's what we have thus far...

 MCP's Daily chart starting the next leg up.

I'd feel a lot better if/when MCP breaks the psychological barrier of $1.00

This is the positive divegrence through MCP's consolidation we had been tracking and once we got the bullish hammer on Feb 5th, it looked like the lows of the consolidation were in.

My only concern right now is the 5 min chart which also shows the positive divergence, but it is not leading, which may simply be because MCP is moving too fast for 3C to catch up that quickly, but I either want to see the 5 min chart lead as I drew in with a blue arrow or MCP break above $1.00, where it will trigger orders.

Our Daily X-Over Screen has given a long signal, typically the first pullback after a new long signal is to the yellow 10-day moving average with subsequent pullbacks being deeper to the blue 22 bar moving average.

As for the wider daily Trend Channel, the current stop on a CLOSING basis is $.660, but this should move up pretty quick and lock in additional gains so I may update this later today.

The tighter 60 min Trend Channel which has been tracking the momentum moves specifically...

has a current stop at $.80, but it too will continue to lock in gains.

It would also be helpful if we could clear intraday resistance at $.96 , but $1.00 is much more of a mass psychological level and would mean a lot more to MCP's continued gains.

Best of luck to all in this one. I'll do my best to keep you updated.

Index Futures Look to Come Down

Until we can get some early indications from the cash market, it looks like Index futures have a negative enough divergence that they'll come down, partly building overnight and partly since the Initial Claims miss this morning...

 TF/Russell 2000 futures with a larger relative divegrence overnight and a rounding top looking pattern.

And ES more specifically negative in pre-market at Initial Claims and since...

I'll have opening Indications out ASAP.

A.M. Update

The market seems to have gone psycho since CNBC's false rumor yesterday of a Greek agreement...

 First sending the market ripping higher, by last night it had dropped and erased the gains, then overnight a bevy of events took place, not the least of which included the Swiss Riksbank (Central Bank) hitting the market with a surprise rate cut of 10 bps to NIRP and announcing $10bn SEK in QE (Government bonds) to offset a deflationary spiral.

Asia and Europe are strongly green, part of European strength coming on the heels of Putin's statement that there will be a Ukraine cease-fire starting Sunday Feb. 15th.

FX markets have been volatile and all over the place with the SEK weakening aggressively on the Swiss QE, JPY strengthened on comments from the BOJ that additional easing may be counter-productive. GBP/USD was up while EUR/GBP hit 7 year lows  on comments from the BOE's Mark Carney that the market should expect rates to rise faster than currently anticipated.

The BOE also revised down their quarterly inflation report saying short term CPI will remain weak on weak oil, but should move to 2% within 2 years.

Of course as mentioned, USD/JPY broke below $1.20 on the BOJ thoughts that any more stimulus is counter productive.

Recently US Initial Claims missed at a gain of 24k to 304k as shale states like TX and PA report heavy lay-offs, this brought Index futures down a bit at 8:30 a.m. above.

And for today's volatility we have the EU leaders gathering in Brussels today, it's Tspiras' turn, expect more volatility on comments out of Brussels.

Oil as we expected has bounced higher off yesterday's reversal/doji low. Gold is up a bit, but still near 5 week pullback lows.

More to come...