Today was another interesting day from a F_E_D perspective, although it was interesting for other reasons as well like it was a near carbon copy of yesterday.
Like yesterday early action and upside was created via the SPY Arbitrage, a Whack -the -VIX move to allow the market some upside in to a flat area in the afternoon, nearly the same intraday highs and a decline in to the close.
From a Reversal process perspective, the price action in general looks right on: a tight range, overall lateral price trend and what would be a difficult market for anyone to trade on a short term basis, pretty much everything said about the expected reversal process in Tuesday's post with multiple examples, IMPORTANT Market Update,
From a F_E_D perspective, it is interesting because the Vice-Chair, Stanley Fischer (Yellen's #2) more or less confirmed everything we have been saying about forward looking F_E_D expectations and more so, motivation (although the exact reasons are unsure, the motivations aspect seems very consistent in the outcome). Today's comments from Fischer were during a CNBC interview.
Here are a few highlights:
-The U.S. economy had a weak start to 2015 but growth should rebound going forward
-“There’s definitely a rebound on the way already, and we’ll see at what speed it proceeds,”
- “The first quarter was poor. That seems to be a new seasonal pattern. It’s been that way for about four of the last five years.” (Actually seasonal adjustments have usually created a stronger 1st quarter with data starting to fall off around March-April as we exit the seasonal adjustment period).
-If you look at last year, we had negative growth in the first quarter and then spectacular growth which made up for that. We don’t know what’s going to happen in the second quarter here yet.”
-Fischer expects a recovery and that there's already a rebound from the weak First quarter, but “whether it will be spectacular or just moderate is hard to say now.”
- “There are more signs every day, and lots of papers come through my computer explaining that this is the turning point, right now,” in reference to when to hike, a rate hike which the F_E_D "feels" both are going to be headed in the right direction before they actually do so.
-He also said that the new (only several week old) QE program by the ECB has in part, improved the Euro-zone's growth prospects, adding that, "they’ve got some wind in their sails.” one of the concerns highlighted in the last F_E_D minutes.
In addition Fischer made note of "Rising Inflation" and "Wage Pressures", the two dominant themes for a rate hike.
Just yesterday the Richmond F_E_D's Lacker said, (a) “strong case” can be made to raise rates at the Fed’s June policy meeting and the economy's poor performance in Q1 was due to temporary factors.
With the F_E_D, they have been pretty transparent over the last year or two if you read between the lines and listen closely. While I would not call Fischer's comments outright hawkish, the theme of Quantitative analysis of the economy which is rather new replacing qualitative date-based guidance, allows a certain ambiguity, such as "We feel that XYZ is going to happen" without the actual economic data to support that, which is one of the interesting aspects the F_E_D has created over the last 2 years or so and I believe shows a willingness to hike, in setting up these ambiguous conditions that are based on not the data, but rather their "interpretation or feeling" about the data, allowing for a rate hike even if the data is no where close to their "stated" qualifications.
The comments about Q1 having been weak over (I believe he said something like the last 4 of 5 years) and the rest of the year being spectacular, is just not true. Seasonal adjustments during Q1 have tended to create stronger data during Q! and it tends to fall off as soon as the seasonal adjustment period ends. I believe the overall interpretation of his comments were that the F_E_D is ready and willing to hike rates sooner than later, which is in line with the view that I've held for some time that the F_E_D is more concerned with something that they see as probable and much worse if they don't create some elbow room, than hiking soon as the economy is still unstable as rate hikes will do nothing to improve the economy. Generally speaking, perhaps definitively speaking, rate hikes are usually used to either normalize policy in a healthy economic environment or cool off an overheated economic environment, not typically to hike in an uncertain economic environment. However the F_E_D's ZIRP policy is unprecedented in it being nearly 6 years old, holding rates near zero which allows very little room for maneuver if something should go south in the economy. Again, I don't know what the specifics are, I doubt many do, but something seems to be motivating them to move to tighten policy as they already have in ending QE3, as there seems to be a larger concern that they are yet to identify.
As for the market, it gapped down, filled the gap and then faded and maintained the tighter, more lateral (sideways) range forecasted for this week as the move tops and moves to the reversal process phase as a "V" shaped reversal is very rare as explained earlier in the week in the Tuesday, IMPORTANT Market Update which is full of examples of the potential outcomes including a head fake move created by a clearly identifiable range/resistance zone via the reversal process's tight range. However in this case, it may be the clear and increasingly watched March trendline. The SPX found resistance at the same trendline again today like yesterday.
Daily SPX intraday highs at the March resistance trendline creating not only a "Tweezer Top" bearish reversal pair of daily candles (yellow), but also a Harami Bearish Candlestick reversal pattern, known in western vernacular as an "Inside day". As to the head fake move posted in IMPORTANT Market Update and its probability, the larger daily March resistance trendline is much more obvious to technical traders than any range that would be created during the reversal process.
For numerous reasons, the head fake move is one of our best timing signals and best entries for a downside reversal (or upside if we were in that scenario). As recommended earlier, if you haven't already read the two posts, "Understanding the Head Fake Move" which are always linked at the top right of the members site, I would recommend that you are familiar with the posts and the concepts with in them.Both posts can be found here:
Understanding the Head-Fake Move... How Technical Analysis Went From an Asset to a Trap
and
Understanding the Head-Fake Move... Motivation
It turns out that last night's internals (Dominant Price/Volume Relationship, S&P sector and Morningstar group performance) were right on track as the overall interpretation of all 3 was,
" the most bullish relationship of the 4, however, ironically this relationship also tends to represent a 1-day overbought condition and we most often have a next day close in the red for the averages."
As things are, all 4 majors closed in the red, although not by much and kept in character with the tighter lateral range consistent with a reversal process, while at the same time adding several bearish downside reversal candlestick formations (Tweezer Top and Bearish Harami). Only Transports closed green at a minor gain of +0.04%, but still remain red on the week with Small caps the best performer.
Overall tighter range since the Tuesday forecast and examples of the reversal process linked above...
After the overall weak, but general uptrend since the April 2nd forecast, the major averages have moved in a tighter, lateral range.
As for the S&P Sectors
Only 3 of 9 closed green led by Consumer Staples at +0.36% and lagging with Utilities at -0.65%. While not one of the 9 S&P sectors, the Home Builders (grey) were knocked down -1.77% on weak Permits and Starts data earlier.
Of the 238 Morningstar groups, only 96 closed green.
The Dominant Price/Volume Relationship was in all 4 averages and Close Down/Volume Down, which is the least influential next day bias, I nicknamed this relationship "carry on" as in keep doing what you were doing among the averages and often it will, which wouldn't be surprising as we have April monthly options expiration tomorrow which tends to open and see a maximum pain pin around Thursday's close to cause the largest dollar amount of options to expire worthless.
After about 2 p.m., most contracts are closed and the market tends to move away from the pin, however the 3C data during the last 2 hours often contradicts price action and is some of the best data of the week leading to our Friday "Week Ahead" forecast, based on the last 2 hours of 3C data.
It seems our $USD, Yen and Euro forecasts were right on as EUR/USD moved up to the $1.08 level (we have seen recent strength building in the Euro and Yen with $USD weakness forecast), see the USD forecast last night's Daily Wrap and today's Leading Indicators. USD/JPY lost ground right in to the European close and $USD lost ground overall as our forecast for $USD was a bounce which has occurred followed by a larger move lower, which as you know, I suspect may create the first primary trend lower high/lower low in the $USD.
$USD intraday and on what I suspect is the start of the larger downside move forecast April 2nd after a bounce as well.
The $USD, as posted again in a recap last night,
Daily Wrap and to a lesser degree again today in,
Leading Indicators, but enough to understand the forecast, expectations and
what they mean to the market both near term and the big picture...
As both posts show from the 4/2 post, I expected a bounce and then a larger pullback, this $USD 5 min chart shows the start of what I believe to be the larger pullback under way. We should see some noise and likely a bounce or two within the trend, nothing goes straight up or down, but the overall returned looks solid here, which has HUGE consequences for the market not only as a leading indicator as the $USD has led the market as shown in both posts linked above, but in the larger closing of the carry trade.
Here's the 4/2 date of the forecast for a $USD bounce followed by a larger drop, I believe this 60 min chart shows the completed (forecasted ) bounce and now the start of the larger move to the downside.
The daily chart shows how the $USD missed making a new high in the daily primary trend for the first time, if it moves to a lower low, we'll have a significant trend change that will have major bearish consequences on the broad market averages and I'd say at least 2/3rds of stocks will feel the directional pull to the downside on a primary trend basis.
Last week I posted the positive divergences building in the Yen and Euro, this is a 30 min chart of Yen futures bouncing as the charts were predicting as the positive divergence which you can see, built.
While I also saw Euro futures positive divegrences and posted them last week, and we have the move to the upside expected, I suspect the Yen is a bigger deal and may be moving up toward a new primary trend high as a large daily base (again see last night's Daily Wrap for more details) is in place.
This is the USD/JPY (candlesticks) vs ES (purple) intraday, they diverged from each other just shortly after the European close.
However on a larger basis and perhaps indicative of what's going on with the $9 trillion $USD carry trades...
This larger 30 mi chart of USD/JPY (candlesticks) vs Es (purple line) is diverguing badly, indicative of our longer term forecast of the Yen upside and $USD downside which was posted over 2 years ago to be expected as the market turned to a primary downtrend as the carry trade is covered as a 1 basis point loss in the trade can equal a 100-300 basis point loss because of the extreme leverage.
This will have an extraordinary effect on stocks and likely bonds, but as you can see above and on the daily charts of USD and Yen, I think the closing of the carry trade is already going on, but remember there's at least $9 Trillion $USd in carry outstanding.
As for the averages...
The SPY intraday chart was not very exciting, but everything beyond the 1 min charts looks horrible. For example...
When in perspective, the 2 min chart is significantly leading negative, but intraday it seems to be giving good signals
The 5 min chart within scale showing the expected distribution when forecast of April 2nd at a leading negative divegrence.
Of the 3 indications I was looking for, the 15 min charts represented the gas in the tank and the SPY 15 min was the last hold out until going negative this week and holding it.
The QQQ 2min also leading negative when in scale is also acting better as an intraday indication, showing positive divergences at the a.m. lows, at the early afternoon lateral trend and negative in to resistance at yesterday''s close.
IWM and DIA are acting similar.
HYG has also been showing negative divergences as it starts to diverge in price from the SPX (Leading Indicators)...
2 min leading negative in HYG after pretty good confirmation. However the primary price trend in HYG is significantly dislocated (negative) from the SPX, as they say,
"Credit leads, stocks follow".
HYG 10 min leading negative
HYG 30 min leading negative
As for Leading Indicators...
VIX was slammed again today like yesterday, as seen earlier in the Leading Indicators post, which activated the SPY Arbitrage (short term intraday manipulation via the VIX slam) in to the early afternoon.
As for other indications, they continue to move as expected and form larger leading negative divergences, the second of 3 major indications I've been monitoring.
Our custom SPX:RUT Indicator was negative vs the market today.
The overall trend since the forecast of April 2nd has deteriorated badly.
HYG / HY Credit intraday iis also showing the deteriortion expected considering the HYG 3C divergences above.
Here you can see HYG is mostly in line since the forecast of 4/2, but it is now turning as a leading indicator.
At the time I said that the signals would be VERY clear as to when to look for the pivot, enter trades or close out trades. You can see why I've waited as the signals are clear when they are there, otherwise they have been confirming price action until recently which has been in line with all of our longer term and near term forecasts for this trend.
Pro Sentiment is turning down significantly after confirming, again you can see why I have waited before putting out any trades from our watchlist or calling an end/pivot to the trend as once again, the signals will be very clear without any need of torturing them to tell you what the market is doing.
The 30 year yield as with most yields were supportive earlier as the market bounced off intraday lows and then went negative in to the afternoon/close.
Here the 10 year yield shows the same.
Overall, the longer term 5 year yield once again, shows the clear signal developing, which is why I've waited on putting out trade ideas for the pivot where we have the best entry and the least risk, hopefully the best timing as well.
A head fake move would give us the best timing for options positions. I usually don't enter option positions without a confirmed head fake move as it lowers the premium and risk as well as gives some of the best timing we could ask for.
As for HY Credit, as seen yesterday in the Daily Wrap (HYCDX), HY credit is coming apart as well which is one of the bigger leading indications.
HY Credit intraday falling apart again...
And overall.
All leading indicators like SPX:RUT Ratio and others have either both called the bottom/lows for this move and been in line and are now diverging or they have confirmed the move to the upside and again are falling apart now, the SECOND of THREE major signals I have been looking for. The 15 min divergences among the Averages were one of the others and the 7-15 min Index futures going leading negative is the third.
Index Futures are moving closer and closer to a clear signal. The highest probability resolution charts have already given the signal for this move to fail.
ES 30 min leading negative.
ES 60 min positive at the start of the move, leading negative currently. These are the highest probability resolution signals for this move. However,
the third component has been the 7, 10 and 15 min charts for timing the end of the move as these were the same charts that were positive at the start of the move.
All of the Index futures are getting there and approaching a clear, Full House such as this Es/SPX futures 7 min leading negative
The 10 min chart is another example of why I
have NOT put out trade ideas in size as it has been confirming the move, but is now leading negative.
This is exactly what I was looking for to happen , both confirming and giving a negative signal near the pivot to the downside move.
The TF/Russell 2000 chart 10 min is showing the exact same signals.
And ES 15 min is starting to give a clear leading negative signal.
TF's 15 min chart is already giving a stronger leading negative signal.
THIS IS WHAT I SAID I'D BE LOOKING FOR AS OF THE APRIL 2ND FORECAST BEFORE WE EVEN HAD AN UPSIDE MOVE, YOU CAN SEE WHY I HAVE WAITED FOR THESE SIGNALS TO PUT OUT TRADES.
The 30 and 60 min
The bottom line is that the averages, the internals, futures, etc. all point to a Max-Pain options expiration pin in this area as that is most common , to see the max pain pin (whether weekly or monthly) options expiration around Thursday's close which I suspected earlier in the week as the reversal process formed. There's nothing that contradicts that.
However on a larger scale, looking for the pivot of the actual trend forecasted for this move, Leading Indicators, the averages, etc. have given clear signals that are pretty darn far along, you usually don't have any question about them as they are just that obvious. I think the options expiration may go by and lead us to the ending, although I suspect the actual end of the trend or highs, have already been put in,
the only question is that of a head fake move as the March SPX trendline is quite visible and I know a lot of retail traders are watching that for a breakout. While they could be fooled with no breakout or rather a failed breakout/head fake move, in our experience the head fake move precedes reversals about 80% of the time so I'd think it's pretty high probability.
I HOPE I'VE DONE A GOOD JOB DISPLAYING THE $USD AND YEN DIVERGENCES AND PROBABILITIES AS WELL AS EXPLAINING HOW VITAL THIS IS TO THE MARKET AND HOW MUCH OF AN EFFECT THIS WILL HAVE ABOVE AND BEYOND F_E_D TIGHTENING OF POLICY. IF YOU FEEL YOU DON'T HAVE A GRIP AS TO HOW IMPORTANT THIS IS (this is not about your average , normal market swing or even 10 or 20% correction)
PLEASE EMAIL ME AND LET ME KNOW WHERE I DAN DO A BETTER JPOB AND I'LL PUT OUT ANOTHER POST. THIS IS THAT VITAL!
As for futures tonight...
The $USDX looks like it may see a correction and a little upside noise as you saw the trend it has started on the downside. This is only on a 1 min chart at the moment.
$USD looks to see some overnight noise in a small correction to the upside.
Both Gold and crude look like they are near pulling back which would keep the crude positions open and GLD put positions would be re-opened.
ES and NQ Index futures both have mild negative divergences, like last night which ended up pushing Index futures lower after an initial push higher.
NQ 1 min
ES 1 min
While these could create some movement, they are not that strong that I'm too concerned about anything they may do. I think the Crude and gold and USD divergences are more important at present.
I will check on futures as always before turning in and let you know if I see anything standing out.
Keep an eye on Greece, things are finally coming to a head with them asking the IMF for loan payment term changes and being denied.
Have a great night.
