Where to start?
I think we have to start with last night and the night before. Overnight trade in ES (SOX futures) and NQ (NASDQ futures) was horrendous, Tuesday was saved with a ramp right at the open in the EUR/USD, I showed you yesterday, there's no arguing that the ramp in the currency pair was timed exactly to move stocks off the open which was not going to be positive.
Last night the futures looked even worse except this time there wasn't any price decline, I have no doubt there was selling in to them, but they kept prices up which is what you want when trying to sell. ES and NQ futures, even after today's drop, still look just as bad as last night.
Then came the GDP this morning, which Bloomberg called, "Shockingly Low", although tonight I see the apologists are out in full force blaming Sandy and the Fiscal Cliff, but that's why consensus was for a +1% print down from the previous of +3.1%, Sandy and the Cliff were already discounted in to Q4 GDP which by the way is the same time that most retailers turn profitable for the year.
GDP missed huge at a -0.1% print, that's the first print of two consecutive needed to put the U.S. in to a recession, just like Germany last week! What happened to all these people saying the economy was getting better? Didn't anyone read the regional F_E_D surveys or any of the other economic data? It was there all along (maybe not the horrendous print, but certainly that the economy hadn't turned a corner).
If you had to guess what the market is about other than corruption and manipulation, would you say pricing an asset reasonably to its current value? The truth is the market typically tries to price assets to the predicted value 6 to 12 months out, that has all changed though and is only for middle school textbooks. The market is about sentiment, "FEELINGS" and the problem with the GDP print today is the forward looking aspect. Government spending is sure to be lower after the debt ceiling and budget, we already know that, tax rates are set to rise for 80% of Americans, we already know that, what is going to push GDP when government spending has been a huge part of it and its about to be scaled back lest we face another downgrade.
Then we had the F_O_M_C today which I found pretty boring, coupled with insanely low ATRs and volatility, maybe it shouldn't be a surprise we didn't get a knee jerk reaction. If I had to sum the F_O_M_C p, I'd say it was damage control from the hawkish sounding minutes from the last meting in which the efficacy of QE was openly questioned by a lot of members, not a single dissenter. The F_E_D basically said, "Well be there at least until unemployment breaks below 6.5%"
Here's the difference between QE1 / QE2 and QE3, the phrase, "Within the context of price stability". Anyone who remembers QE2 must certainly remember inflation and margin squeezes at manufacturing world-wide, the inflation exported to the BRICS and emerging markets, the blowback from China that changed the landscape of the balance of who owns and buys our debt.
QE3 is set to take inflation in to account and if it starts running hot, then they adjust the asset purchases, this is nothing like 1 or 2 where the dates were marked, the NY F_E_D completed POMOs on those days and there was no mechanism to consider "Price Stability". The problem with this and probably the reason QE3 hasn't done what 1 and 2 did is that huge funds dealing with billions in assets have to take positions based on what they know now, what they don't know is how inflation or even the unemployment rate are going to come in and either one could have an influence on the amount of $$$ the F_E_D pumps in to the system, that creates "Uncertainty" and there's nothing the market dislikes more than uncertainty, I think that's why the F_E_D was trying to smooth over some feathers in reassuring everyone asset purchases weren't going to disappear, but the yardstick is still there.
A for the market, we knew on Monday things were getting ugly (we've known a lot longer), but also knew through Treasuries short term charts that there was a little more time, it wasn't crashing Tuesday as you may recall from the TBT / Short Treasuries chart.
This was the chart that inspired the post about, "Don't rush, you have time" and the market was up, not down the next day, despite what had to be done to get it up after a nasty overnight session.
Today, this far it seems like the market was not pleased with Bernie, he didn't add anything to the party and the more bothersome news was GDP which again, Bernie didn't add anything to calm the fears there.
We had some near term records set today, for instance:
Would you believe the SPX saw its worst
day for all of 2013 today at a measly -0.39% loss! I told you last
night the ATR for the market has been dropping insanely and with
that, volatility, but as you'll see, the volatility side of things
seems to be taking on a new life.
HYG saw its largest 1-day drop in 4
months on heavier volume, taking out the last 17 trading days.
Today's drop alone took out nearly 2 weeks of trade.
The last time we saw such a low 1-day drop it was right after QE3 was announced and the market only rallied for about 1.25 days, volume was higher today as well.
Junk Credit saw an even bigger move
down -.87% for the biggest 1 day drop in almost 8 months. Junk Credit
made a new low for 2013 after making a new high only 3 days ago, this
was also the heaviest volume move for the year by far. The difference
between the move down in Junk credit today vs the last time it made a
lower low was the last time was a capitulation move at June 1, 2012
with the market posting it's yearly low on the 4th of
June.
You expect heavy volume and a big drop at capitulation, especially capitulation that big which started a new uptrend in the market, today's move was VERY different from that last move.
The VIX hit it's highest close since
1/3/2013 as it broke above the 14% mark today on a +6.31% move. A
couple of things notable about the VIX move is that there's a broad
move toward protection at the same time the SPX has been rallying
over the last 6 days or so and the VIX continued to see protection
bid after the F_O_M_C which is very different than bidding protection
before the uncertainty of the F_O_M_C.
Here's the broad trend that is disconnected from the SPX, remember our buy signal in the VIX ?
Here's the buy signal and we have one of the largest volatility moves in a long, long time as seen in the Bollinger Bands.
We've been seeing signs of this in the
intraday VIX futures (VXX/UVXY) as mentioned in a follow up post yesterday and today right at the F_O_M_C we saw accumulation and confirmation.
Recent strong positive divergences on a 30 min chart and price responding to them.
A 1 min intraday positive divergence right at 2:15 and confirmation of the move up.
Transports had their worst day since
November 14 2012, but on a lot worse volume and once again, the
previous low was again a capitulation day.
Big volume on a capitulation day is bullish, big volume on a day like today unless you can show me the charts of it being accumulated, is not a good thing, but as Dow $14k was being targeted, having the transports confirm is about as old a theory and well known as Technical Analysis. We all saw the drop in rail traffic about a week or so ago and I asked the question, "How long until this hits transports?".
The IWM had its biggest 1 day drop
since 11/14/2012, another capitulation move exactly 2 days before the
November 16th bottom that started the current cycle. In
the process the IWM took out the last 6-days of trade in a type of
bull-trap. This is one reason I prefer to phase in to positions and
have partial positions until I feel its time to load up the truck.
Most days in the market are simple noise and there's only a handful
of days that really contribute to the trend.
Why did the R2K perform the worst on the day? That's a good question, I'll tell you most traders don't trust a move up that isn't ld by the IWM and Bernie himself used the Russell as an example when he was testifying before Congress regarding the wealth effect, I'd thin the S&P would have been a more appropriate average to mention, but I have a feeling he slipped on old habit as he too probably understands very well the IWM is watched as a measure of the quality and breadth of a rally.
A fair portion of the damage in the R2k/IWM was already done by the time the F_O_M_C came out so I have to assume it was more GDP related. The IWM was one of the averages that has seen more recent strong downside leading negative 3C momentum, but I'm not sure it was worse than the other averages, except the Dow. That being the case, I suppose you could explain it as more of a small cap/ large cap flight to quality or the more speculative stocks comprising the IWM as compared to the Dow's blue chips and lastly the difference in moves between traders (The Russell) and investors (primarily the Dow), but that's just some thinking out loud.
IWM 10 min leading negative and a really nice rounding top, actually it's picture perfect so technical traders may have been a bit spooked by it, I doubt it holds this symmetry though, I'd expect some volatility both up and down to chop up that textbook rounding top.
The 15 min chart's recent "Even deeper" leading negative divergence. We as independent and small traders sometimes forget that for institutional money to move millions of shares and not take a loss doing so, they have to do it a little at a time and they need to do it in to demand. This is one of the more extreme charts I've seen, but I keep going back to the comments before the up move of trend #1 even started, "It's likely to be stronger than anything we can reasonably imagine" and so far it has fit the bill.
The really scary part is trend 2 gave indications that it was and is much bigger in size and scope than trend 1.
In the more immediate future...
One scenario I might watch for would look something like this although there are several variations of a channel buster.
First how many trends have you seen this clean on such incredibly low ATR and volatility? If that's not engineered to suck dumb money back in the market, I don't know what is: a clean trend, stable, low volatility, no pullbacks or corrections and of course CNBC trumpeting every half hour, "DOW 14,000" as if it were a movie trailer for a Tom Cruise Spy movie.
In any case, one scenario is a break below the channel that looks pretty strong, followed by a kiss of the channel which more often than not creep back in to the channel, followed by something rally ugly. That's just a scenario I've seen many times, it's a great scenario for setting up positions.
As for futures,
I tracked ES around its VWAP, obviously the GDP sent it to the lower channel, but after the F_E_D today it was hugging the lower standard deviation, that kind of momentum is hard to hold.
ES has started to cool its heels tonight...
ES 1 min
The 5 and 15 min charts over the last 2 days have been very extreme like many of the market averages I commented on as well, I'm not sure what to make of this 5 min chart until I see overnight trade, but I can tell that the 15 and now 30 min charts and the shift in momentum isn't a good sign for the market.
5 min... possible positive divergence?
ES 15 min leading badly to the downside, for the first time in a long time the 30 min is involved as well.
And the signals of underlying trade are pretty darn clear there, that's cause and effect.
The only other issue would be currencies so tomorrow will be of interest to see how the carry pairs react or act overnight. My main interest right now is in the following two pairs which is more or less like saying the $USD, however Europe does have its own issues as we saw with Italy's market seeing the biggest drop in 6 months and well before the F_E_D.
Credit in the US as you saw above is getting, scratch that, is ugly. You think credit doesn't matter?
Here's the European example; as they say, "Credit leads, stocks follow".
As for the FX pairs, keep an eye on these two, movement to the downside will be telling...
The longer term chart of the USD/JPY.
The longer term of the EUR/USD
And the EUR/USd intraday, you can probably see where I marked the F_O_M_C.
I'll post anything new that comes up if it happens while my eyes are still open.
