There Goes the VIX- This might not be coming back

Remember the Spot VIX Bollinger Band Squeeze? Well we will see where that ends up, but VIX futures are rocketing up and with a never before seen 4 hour positive divergence in VIX futures, I have a feeling that this isn't coming back.

The market dispersion I talked about yesterday that is masquerading as rotation is there today, take IWM -.48% while financials are down twice that.

VIX Futures...

 Remember that nice rounding pattern in VXX, this is the right side of that moving to stage 2.

This was an early head fake, but I think that is because this was initially going to be a smaller rounding bottom, the larger size accommodates a larger move. Note the positive divegrence and the nice bowl shape of the reversal PROCESS.

And a never before seen 4 hour VIX futures positive divergence and a very fast developing one.

I don't know about you, but my trading shorts are lit up green.

USO Trade Management- I hope you got in!

Like I said yesterday, USO has just been one of those trades we've been patient with because it's been setting up to be a worthwhile position, everything I'd want to see is there.

In last night's Daily Wrap I said,

"While I think it's possible, even probable for a correction in USO/crude, I also think it's on the edge of a transition to stage 2 mark up."

Yesterday I also mentioned the momentum that would come as the head fake move is completed, overnight and regular hours today we are or have seen both.

 This is the 5 min chart of Crude futures (Brent) and the red arrow on the timeline is the 4 pm EDT close yesterday, there was a slight pullback early this morning in to a positive divegrence and a nearly vertical liftoff as the head fake was complete.

This is one of several primary reasons head fake moves are so important and why we see them so often.

IF YOU HAVEN'T READ MY TWO ARTICLES, UNDERSTANDING THE HEAD FAKE MOVE (linked on the members' site) YOU ARE MISSING A HUGE PART OF THE PSYCHOLOGY OF THE MARKET AND HOW TO MAKE IT WORK FOR YOU.

 This is the head fake move, I've rarely seen oil overreact or barely react at all to events like Tunisia, Egypt or even Syria, but all of the sudden when there's a perfect bottom in , but no head fake, Iranians arresting two Saudi Fishing vessels creates a big gap down, I think it's clear the Iran/Saudi affair was cover for a shakeout, which are often good timing flags for a move to start, just look for yourself.

This is the 15 min chart, you can see the head fake to the right.

Here you can see the momentum off the head fake move and as $32.50 is crossed as warned yesterday, that was a good entry as well.

USO is very close to breaking out to stage 2 Mark-up, this is where we find what I call the "Easy money" or the trending aspect of the cycle.

I have thought for some time that we'd see at least $38.50, but I think I might be a bit conservative in that target.

Market Update

It looks like we are going to get a bounce, I started to see this (and mentioned) first yesterday in the IWM, this looks to be an intraday bounce and honestly I'd rather see it sooner than later. Typically there's about enough time in the day for 3 trends, a.m. trade, early afternoon trade and closing trade, I'd rather the bounce be done by closing trade and the market be heading back down by then.

I'll show you in the Q and IWM as they are the most well developed, the SPY is positive for a bounce in the 1 min, it's neutral or inline at 2 min and in line at 3m. So as you can see thus far, this isn't bounce as in days (at least with what we can see right now.This also is not the reason for closing part of the VXX position, as much as I love that position and I do, I went to big on it when we got a dip/discount as the signal was so strong I just couldn't pass it by and I'm glad because it's a 30+% position. If we were to get a pullback there and another signal that strong, I'd probably do it again, but I wouldn't want to carry that kind of risk very long.

 QQQ 2 min positive.

 QQQ 3 min negative, thus far it is very delineated, no migration to the 3 min chart and right there firmly planted in intraday timeframes.

 The IWM is the one that actually looks the best, not because of the 1 min positive, but the rounding process.

This gives you some idea of scale, if it were fully rounded from here, I'd guess the move might bounce to the yellow hash mark.

Of course thuis is early, this could grow, or quite honestly this could be run over.

Taking Half of VXX Dec. $45 Call off the table- position is too large

Only because the position is about double what it should be

A.M. Observations

Last night we looked at several charts of the single currency Euro futures vs the Yen futures and I explained that it wasn't one had to go up and one down, the first is long and the second is short, it's a matter of relative performance between the two.

We also saw how tightly correlated the market was to EUR/JPY and the 5 min and 15 min negative divergences in all of the Index averages.

 ES 1 min...

Here's what happened last night to bring ES futures from a  4 pm print of 1799.75 to this morning's low of 1792.

 Yen single currency rises since midnight....

EUR/JPY starts to fall around the European open

As does the tightly correlates EUR/JPY vs ES relationship (ES in purple).

It's about as simple as that. For more color, see last night's daily wrap.

Daily Wrap

Today seemed like a "Mushy Market", but in reality I think the larger picture is where the damage is coming from and a day of intraday mushiness means nothing.

Today, Dow 16k and SPX 1800 (Dow @ $16007.77 down -$78.64 and the SPX $1800.73 down -5.08) were just saved and there was no doubt at all what the algos were keyed in to, the EUR/JPY.

 This is the Dow-30 vs the EUR/JPY, I had to double check to make sure I had not put in the same symbols for comparison they were that tight.

It was only a slight EOD surge that saved 16k by a mere $7.77.

As for the SPX... even closer or just as close with $.73 to spare.

 Again a late day surge or really bounce, was all that saved the SPX from a sub 1800 close.

Can you imagine the stop orders under $16k and $1800? This is why these psychological numbers are so important, they can create intense downside momentum when those stops are hit which creates a snowball effect.

As for VIX futures in purple, here's what they looked like vs ES, note that nearly mirror opposite relationship.

I thought they may try to whack-a-mole the VIX, but apparently it was a FX based correlation.

It was just last week that I was saying a.m. trade is full of games and the data there isn't to be taken too seriously, amateurs trade the open, many with limit orders as they head off to work and it's pros that trade the close, this is why I try to honor stops on a closing basis rather than intraday.

That being the case, just about the last week has seen selling in to the close rather than the typical ramp job in to the close like I thought we might get today.

 Other than the 27th when I thought it was important that we not have a red close going in to Black Friday, every other day on the chart saw selling in to the close.

As I said above, intraday mushiness doesn't mean a lot for 1-day, it's the trend that means something and considering what we see above, look at these intermediate 10/15 min charts...

DIA 15 min shows a clear negative and especially where the pros have been selling hard.

Same with the 15 min IWM

And the 10 min NDX

And the 15 min SPY is all too clear. These are just the signals for this timeframe of late day selling.

Other than the late day selling, I think an important fact is the change of character the market is undergoing from late day ramps to late day selling. "Changes in character lead to changes in trends."

The Spot VIX officially broke out of the Bollinger Band Squeeze, although there's often loitering around the initial breakout, sometimes even a Crazy Ivan shakeout, we'll have to see if this sees the follow through tomorrow, but I have little doubt this will make a highly directional upside breakout whether tomorrow or a week from now.

 Spot VIX Bollinger Band breakout.

However as far as timing, I'm guessing sooner than later and more significant than we've seen since the 2009 rally started.

 First the daily 3C on spot VIX using the Trend 3C to eliminate noise, this is by far the largest leading positive on the chart at new highs while VIX is still low in the price range.

As for actual VIX futures, this is why I say probably the most significant VIX move since the 2009 rally started.

 This has every year since 2010 on the 3C VIX futures, obviously the largest leading positive divegrence while VIX is low in the range, stealth accumulation was certainly in play as we saw it day by day with intensely strong signals. 

Despite the difficulties trading VIX, I'M VERY HAPPY TO HAVE THE VIX CALLS AND THE UVXY LONG.

Look at the size of this 4 hour VIX futures divergence, I've never seen one on a 4 hour chart, not in VIX futures.

Remember, we use multiple timeframes with 3C and having confirmation in as many timeframes as possible is the best signal, especially when they are in the same place with the same type of divergence.

VXX / UVXY Judging by the confirmation here, I'd say the VIX Bollinger Band breakout is going to hold and make a strong move very shortly. Remember the market moves opposite the VIX.

 60 min

30 min

15 min

5 min

2 min

1 min

If I were to see this today, I'd be all over this with Trade Ideas long, however we've already entered a lot of these as we have seen this coming and all of the recent longs (call and UVXY ) are in the green.

Transports have been one of the best relative performers since the 10/9 cycle, I won't repost all of the charts, but I think today's post on transports is important in the overall broader market signal.

USO is another important position that I think is ready to move, in case you missed it...

As for the Carry Trades, it's always hard to say what the BOJ may or may not do, but...

 The JPY crosses were all activated just before the November 2012 lows, at the May 22nd Key Reversal day, the AUD/JPY fell out (white), recently the USD.JPY has fallen out (yellow), only the EUR/JPY (blue) remains, but the relative performance is much worse if you look back and see how much higher the pair was vs the SPX compared to now.

As for the EUR/JPY, it's a matter of relative performance because the Euro is not doing as well as you might think. EUR/USD is losing ground.

Remember the EUR/JPY is Euro long/Yen Short so any downside in the Euro and upside in the Yen sends the pair lower.

EUR/USD

 EURO losing ground vs USD.

As for the all important EUR/JPY, all we can do is look at the individual single currency futures, here''s the Euro.

4 hour negative divegrence

30 min negative in the same area.

15 min in the same area, note the divergence sent the Euro lower

as did the 5 min Euro 3C divergence

And the Yen?

 a 1 min positive may be the start or continuation of something already started.

30 min Yen.

Remember the Euro needs to stay stronger relative to the Yen, these charts of the SPX vs the Euro also have some insight.

 Near term FXE vs the SPX (green)

Longer term, FXE is dropping below the SPX, we already saw that in the Euro single currency futures and EUR/JPY.


I'm not claiming a high probability move lower in the EUR/JPY, I'm just showing there is a probability, perhaps a channel break or Buster...

As daily candlesticks move toward the top of the channel we see increasingly larger upper wicks until we see three consecutive Doji Stars, a loss of momentum which often leads to a reversal.

All 4 major averages had a dominant Price/Volume Relationship, very dominant, it was Close Down/Volume Up. This is typically a 1-day oversold condition and the next day often closes up, however in rare circumstances this can be the initial break of a market, kind of a 1-day dump in which that market has broken. Either way, there was a huge dominance in stocks closing down on increased volume, we do however have to keep in mind that there was no other secondary relationship (Volume Up) possible as Friday was a half day.

It really doesn't take much to get the head fake downside momentum going, for instance, take the IWM.

 Once the IWM breaks under this level, stops will start triggering downside momentum as shorts start coming back in to the market which the market is desperately in need of to prevent a complete melt down on a move lower with no built in future demand in place as shorts are at multi-year lows.

After that level, the real momentum is below the top of the channel, the Channel Buster momentum should take the IWM below the lower channel in a very short time.

TICK today shows the disparity between advancing and declining issues...

We nearly hit extremes of -1500 today and lots below -1000 and -1250.

Many fund manager WILL NOT BUY STOCKS THAT DO NOT HAVE A "HEALTHY" SHORT INTEREST.

The reason why is shorts represent future demand, they can not take profits without covering and to cover that means they must buy so when a stock is falling shorts are a healthy part of the system that provides demand at a time when there otherwise would be none. That is why the chart above showing the percentage of bears at 14 or 15+ year lows is very dangerous structurally for this market, that built in future demand isn't there, who's going to buy in a falling market except for shorts taking profits?

As for some other breadth readings...

 The NYSE Advance/Decline line still hasn't broken above the October highs.

 The NASDAQ 100 A/D line still hasn't made a new high

Assuming this is a reactionary high, this would be the lowest percentage of stocks trading 1 SD above their 40-day moving average at 41% from a recent high of 66%

When looking at the same, except 2 SDs above the 40 day moving average, this is also the lowest at 15% and only 11% of stocks right now are trading 2 SDs above their 40 day moving average .

Bonus charts...

 HY Credit is much more negatively displaced than this chart, I showed that last week, but just looking at more local action, it is certainly displacing again.

 HYG Credit took a big hit today, note the end of day ramp attempt, I guess every little bit counts when you are at fractions of a percent to hold on to Dow 16k and SPX 1800.

 This is Spot VIX vs inverted SOX so you can see the normal price correlation (they'd move almost exactly the same) vs the VIX outperformance.

This chart is slightly longer, I post it because the Bollinger Band squeeze of spot VIX implies a highly directional move (breakout), I thought the recent momentum looks a bit indicative of such a move in the VIX.

In Futures, gold may be starting to get a toehold, it's early to say, but it's got a start. While I think it's possible, even probable for a correction in USO/crude, I also think it's on the edge of a transition to stage 2 mark up. EUR/JPY is basically flat since Friday after hours, AUD/JPY is starting to correct a bit and USD/JPY is hitting new highs  at $103.15.

Nikkei futures don't look too good to me, there are negative divergences in several timeframes.

As for the Index futures, it's the same story I mentioned earlier. For years the averages have moved almost percent for percent (as point for point would not be relevant), they almost always moved together in the same direction until recently when the gains of losses where +.10 or -.10%, so that's understandable, but today when the R2K is down -1.20% and the NDX is down 0.19%, there's a kind of dispersion in the averages that is far from normal, not even in a healthy bull market with healthy rotation do we see differences this large.

It's the same with futures, there are some very odd charts, few of which are bullish, the dispersion is really the main change in character though even beyond the divergences in longer and stronger timeframes.

 ES 5 min looks like it could bounce (corrective).

However the 15 min chart is in deep trouble

The 60 min chart is as well

NQ 5 min futures are looking like the R2K futures just before they dropped today.

 The 15 min doesn't look good either. For sometime we have been able to call downside just off 5 min charts.

This is the TF 5 min , like I said, the NQ 5 min is looking similar.

The TF 60 min is not only negative, but what I've been trying to point out is the pure distribution on breakouts above certain levels.

I'll check back in later if futures change.