Quick Update

There are very small intraday 1 min positives in the averages and Index futures, but this is not anything that can lead to much more than an intraday bounce unless it builds a larger base, right now I'd consider it noise.

Market Update

Things are still looking bleak for the market this morning/noon as there was some pretty significant damage late yesterday as well as through all the week, I suspect there may be a change later in the afternoon, but I don't have solid evidence for that, other than the IWM's mid term charts which would suggest a bounce still in the IWM, which as of yesterday, I was only waiting for a move below support which already occurred on the open.

The tone is decisively risk off as the TICK Index is hitting lows of -1600 which os very close to the lowest I've seen.

 SPY / TICK Custom indicator has been bearish all morning.

This leads me to believe either we'll see a short term oversold event as I suspect because of the IWM or the market has just broken.

 SPY intraday has been in line with the downtrend this morning, which is pretty significant confirmation, it leads me to believe we'll hit an oversold status soon or a capitulation selling event, or as I have been saying, we are in the red zone, a broken market really could occur at anytime which is why I refuse to move any core shorts for trading reasons, it's time to stay with the macro trend unless an unbelievable opportunity pops up.

 3 min SPY, as has been the case all week has shown very strong distribution trends ever since the bounce started. Note the rounding look of the SPY since the bounce this week, this is VERY toppy behavior.

 SPY 10 min larger view, the toppy behavior on a larger basis.

Here's a closer look at the 10 min chart, there has been a lot of damage done, it's much worse on longer charts, but it is the intermediate and short term charts that are signaling timing indications for the macro trends.

QQQ 1 min intraday also in line with the drop of over -.80%

The 2 min chart's trend since the bounce this week, immediate selling on any strength, I doubt this was the original plan, but as the F_E_D gets more aggressive with its message and messengers, I suspect timelines for set-up cycles have been moved forward and we are very close to an AAPL like decline in which the hedge fund herd breaks up and moves to an "Every man for himself" attitude in which selling first and fast in the priority.

 QQQ 5 min really shows the extent of bounce damage which is to say the extent of distribution/short selling on any strength at all.

IWM intraday like the other averages is in line as well, I'm waiting to see if this changes since the support line I expected to see break yesterday before an upside move has done so.

This is the 1 min chart zoomed out so there is still a good case to be made for an IWM bounce, the yellow trendline is the head fake area I have been looking for, but I would not say we have strong accumulation of the move as of yet, although this chart pushes probabilities in that direction.

 IWM 5 min also hints at a decent move higher.

We even have a positive IWM out to 10 mins that has held up.

The 60 min is the direction of highest resolution, my SRTY position is at a decent profit already.

And the TICK thus far hitting -1600 and the trend clearly has sellers in control.

A Few of the Momos

I'm trying to wait for the most opportune moment to look at entering some of these assets I've included below, but most are already in a good long term position for an entry, I just don't want to get caught with a R2K bounce . This is one of the reasons I have maintained core short positions in SRTY , SQQQ and FAZ as they cover a pretty decent swath of industry groups.

However just to give you an idea of what some of these are looking like...

 FB 15 min

NFLX 15  min

TWTR 15 min

Z 30 min

BIDU 15 min

AAPL 30 min

AMZN 15 min.

They have all seen a lot of damage during this week's "bounce" period.

Macro Leading Indicators Fallen Apart

Note I said, "Fallen" rather than "Falling". Earlier in the week I posted Market Breadth charts which where a horrendouns mess, here's an update on Leading Indicators.one of the most notable signals is the decline in High Yield Credit as it is the Institutional equivilent of a momentum stocks. These kinds of signals are what we first started using the Leading Indicators layout for in the first place, not small day to day moves, but larger macro trends.

 High Yield Corp. Credit, the trend in this often used lever to ramp the market has clearly fallen out with the market, not on a short term dislocation, this is a massive unwind of Risk on/ High Yield institutional positions.

This is HYG intraday, I was surprised it didn't help ramp the market this week, but with my expectations for the IWM with a move below local support...

And with a short term volume event intraday in HYG, this may bounce to help lift the Russell 2000, but this is not a trend that HYG is likely to recover from, which tells us something, as the saying goes, "Credit leads, stocks follow".

The same is being seen in high Yielding Junk bonds/Credit intraday as well as...

A longer term massive dislocation from the SPX, this is telling us institutional money is moving out of the last of their risk exposure. If you look at the charts close, you'll notice the most serious part of the decline started July 1st, the first trading day after Q2 Window Dressing ended which should tell you something about the myth smart money creates for their clients about their positions and the reality that they move back to as soon as the quarter (reporting period) ends.

 Closer to home on the timing front (even though these too are massively dislocated), professional sentiment is turning south on this week's bounce.

 This is our second institutional sentiment indicator, there's a clear transition from confirmation of the bounce early on this week to outright selling.

Again, the NASDAQ Composite (all NDX listed stocks) is not only seriously dislocated on the Advance / Decline line, but even more sharply recently, much like the breadth indicators I posted Tuesday night.

This should really have you thinking very seriously about the composition of your portfolio at this point.

A.M. Update

Conventional wisdom seems to be that Obama's new Russian sanctions caused a major risk-off sentiment overnight, the is certainly true for Russia where the market is hitting 6-week lows and the apparent Russian jet shooting down a Ukraine jet obviously aren't helping tensions. However I think yesterday's added F_E_D hawkishness was a  major shift in US markets as rate hikes are being pulled forward and much more aggressive.

Espirito Santo's dead cat bounce yesterday seems to be over already and contagion risks back on the European table.

MSFT's layoff of 18,000 employees ( 3 times more than expected) hasn't helped either.

This morning's Initial Claims came in at 6 month highs, but once seasonal adjustments were applied as I mentioned yesterday (the unemployment rate is the easiest to manipulate) the 47+k print, the worst in over 6 months ended up beating at 3k lower than last week!

As far as what the risk catalyst has been (I suspect I know as you know ...F_E_D_) the market has not been responding well.

Take the bounce for this week thus far, here's the tone in the SPY and QQQ

 SPY 3 min chart since the bounce started has seen pure distribution

 The SPY 5 min

Here's yesterday's weakness building in quickly in QQQ 3 min

And the overall QQQ 5 min chart since the bounce started this week.

The IWM continues to be a different story.

 Yesterday's intraday IWM 1 min chart with strong improvement.

The overall 10 min chart still in a reversal process base and ready to spring.

Yesterday I said a move below support was all that was needed, this morning...

It looks like we'll get that so I'll be looking for bounces on an IWM bounce to short in to as this market is falling apart at the seams.

AAPL is Another

In this case any kind of a bounce would be nice, but it looks like something just broke very suddenly, kind of like the last time too many people tried to fit out of the same small door all at once.

Another high on tomorrow's WL.

AMZN is Another That is Very Close

Again, depending on whether the IWM can get off its back and whether Wall St. just decided, "Better to end the cycle now than get caught", AMZN looks to be right in the area, it will be high on my list in the morning.

I believe BIDU is Going to be a Short right in this area

It may be give or take a day or so, depending on the IWM, but I wouldn't have a problem with BIDU short in this area.

Quick Update

Serious deterioration continues, if not accelerating, especially in the SPY and it looks like Financials may be the reason. I'm sticking with the IWM calls for now, but there has been deterioration there too.

I believe the number of F_E_D comments has shocked the market in to realizing rates will rise much sooner and faster than expected.

Ooops, the F_E_D Did it Again

We picked up on the changing F_E_D tone at 2:26 p.m. on September 13th of 2012, when Bernanke gave the first hint during a press conference on the day the F_E_D announced QE 3 of all days, that the F_E_D was changing metrics that would allow them to create an exit (although he didn't say it, it was clear) from accommodative policy which sent the market down for the rest of the year -8% from the F_O_M_C meeting's high at 2:26 p.m. September 13th, when Bernanke was asked a question about inflation and the market DID NOT like his new "tone".

If you didn't get the message when the F_E_D changed guidance from quantitative to the arbitrary and easy to manipulate, "Qualitative, you can be forgiven, although we did point this out at the time that the only reason to do such a thing was to allow the F_E_D to find an exit from their $4 trillion plus expansion of their balance sheet.

However, if you didn't get the message when St. Louis F_E_D president James Bullard said , "The Markets are Wrong, the market doesn't appreciate how close we are to our goals" which should be read as tightening rates, then you didn't want to get it.

However if you missed Yellen's 180 degree turn yesterday, chronicled last night in the Daily Wrap.. Don't Want to Miss post, you just weren't paying attention. The F_E_D is SCREAMING exactly what I thought the day before the last F_O_M_C meeting, 

"THEIR HANDS ARE TIED BECAUSE OF INFLATION AND REAL FALLING WAGES, THEY HAVE TO HIKE RATES WHETHER THEY WANT TO OR NOT. "

NOW, in addition to Bullard, Yellen, Kocherlakota and several others, Dallas F_E_D president, Richard Fisher said today,

• DALLAS FED PRESIDENT FISHER SAYS 'MARKETS ARE OVERSHOOTING'
• FISHER CONCERNED FED MAY 'BE STAYING TOO LOOSE TOO LONG'
• FISHER: I DON'T THINK YOU SHOULD 'POP' A BUBBLE, BUT SHOULD LET SOME SPECULATIVE STEAM OUT OF MARKETS

Lets just take out the "Greenspeak".... Markets are "Frothy and overvalued, the F_E_D's "Reach for Yield" has created a monster and if you think for one second that valuations as the talking heads are rampaging on about are not high enough to warrant a crash, just know that almost every previous crash did not have exceedingly high valuations except in 2000, but they certainly are high considering the economic situation in the US and world economy.

He's telling us that markets (like every other F_E_D president) are not accurately pricing in the F_E_D's "NEW" rate guidance which says, they'll hike sooner and faster than the market has ever considered, this is EXACTLY what the Bank for International Settlements (BIS) which is the central banks' bank,  said in their annual report urging "Leading" central banks not to hike rates too late or too slowly and also telling them that they opted for the short term sugar rush policy which has left them with nothing in the end, a clear reference to 6 years of accommodative policy that bought the F_E_D the worst quarterly GDP print of -2.9% in 5 years!

Finally, we have heard over and over from Yellen that the market is NOT a bubble, until yesterday when she singled out Social Media stocks and biotechs, the stocks that move the market.

If there's no bubble, why is Fisher saying what Yellen said about a week and a half ago, that it's not the F_E_D's job to "pop" bubbles? Fisher clearly alluded to a bubble.

Think about the SKEW, the 3C charts and most recently last night's breadth charts that I've only seen look like they did twice in probably 15+ years of using them. Smart money gets it, that's why SKEW is elevated, that's why market breadth has dropped in many cases by more than half in less than a month as more stocks are selling off despite the averages printing "record highs", remember the top of the 2007 market was a record high for the SPX.

THE F_E_D HAS GONE IN TO MASSIVE DAMAGE CONTROL, TRYING TO GET THE WORD OUT QUICKLY IN RECENT WEEKS THAT THEY WILL BE RAISING RATES MUCH SOONER THAN ANYONE ANTICIPATES AS THE MARKET AND ECONOMY ARE IN REAL TROUBLE, FACING STAG-FLATION.

IF YOU ARE NOT GETTING THE MESSAGE BY NOW, YOU SIMPLY DON'T WANT TO HEAR IT.

Here's typically what happens when THE F_E_D HIKES RATES WHICH WILL SLOW OUR ECONOMY MORE THAN IT ALREADY IS....Higher interest rates is the main effect.

 Some of these declines don't look very large so to give some perspective, at 1 to the far left when the F_E_D started hiking rates, the market fell -45%, at 2 when the first rate hikes hit, the market fell -45% at the more recognizable tech bubble in 2000, there was at least a -38% SPX decline, the NASDAQ was worse. And at B in 2007 after a series of hikes failed to cool the housing market , they finally took hold and there was at least a -56% decline. *Note the effect of ZERO Interest Rate Policy (ZIRP) on the market to the far right.

The effects of QE which will end for good in October...

Here are past QE episodes and their effect of the SPX.

Any questions where this rally really came from and what happens when QE stops and the F_E_D hikes?

Just from a 3C point of view...

 Dow Jones 30 at the market top of 1929, 1-day chart. 

Did you know the F_E_D had engaged in QE in the 1920's, but this time it worked for a while leading to the roaring 20's, a time of economic expansion, but it seems the market ultimately paid the price for QE even back then. Note the year long 3C negative divegrence. 


Now the same 1-day 3C chart on the Dow 30 now...

 A significant difference hugh? Any questions as to why I say that "Whoever figures out the new market dynamics first, will see an opportunity that no one alive has seen"?

Now, as usual, the longer 3C charts show heavier underlying flow, it seems in 1929 it wasn't as heavy and had not made it to the 4-day chart very much (3C migration)

 However there was a quick, but sharp 3C decline and negative divegrence as it made a lower low as price made a higher high in to the 1929 top just before the crash.

For reference, here's the same 4 day chart, notice it was similar in 2007 to 1929, but not quite as sharp, but did make a lower low in to a higher high. Now contrast that with the QE/ZIRP fueled Sugar rush rally even the BIS said was a band aide that has made no appreciable results.

 

I think we are well positioned to be among the first to understand and work out the new market dynamics.