Tech Sector Update (XLK)

This is why I carry the SQQQ inverse 3x short QQQ position as the Q's have significant exposure to tech.

In any case, looking at Tech on its own, there looks to be some very big trouble brewing or brewed already there.

 This is the weekly 3C chart, note the "In line" or confirmation through much of the trend since 2009 (green arrows/ 3C moving with price), however something starts in 2013 and carries through in a much stronger way through 2014.

 The 2 hour chart with the last dip breaking a multi-year trendline and a Broadening top.

 XLK 30 min leading negative at the August cycle's Igloo top and Chimney and again through the latest October run.

 The October run on a 10 min chart leading negative

And the 5 min chart

Today is interesting as the last couple of days are nearly perfectly in line, today is diverging significantly

USD/JPY

The $USDX reversal is still holding pretty well, but holding is not quite enough which is nwhy I suspect the SPY Arbitrage was activated.

Right now the USD/JPY intraday is looking like this.

 USD/JPY 1 min with a positive divegrence in to the European open and a leading negative now at new lows.

This is the correlation between USD/JPY (candlesticks) vs ES (purple).

Also TLT continues to diverge positively in to today's lower prices as does VXX and HYG is diverging negatively in to it's slightly higher prices that are giving way.

In other words, the manipulation lever of the SPY Arbitrage used to levitate markets intraday, is failing and the flight to safety and away from risk in increasing.

UNG Update

After last Thursday's Breakout move in UNG, my preference as always is not to chase price, but let it come to you on your terms in which you can confirm the trade's strength, get a better entry and lower risk, it just requires patience and occasionally passing on some trades you are interested in.

I suppose it's little wonder UNG/UGAZ longs want to pullback after the breakout move and Wall St. will want to shakeout any confirmation longs who bought on the breakout as their stops will be just below the top of the range.

 I could probably get the gist of this post out with the first two charts. The longer term 4 hour Natural Gas futures, the highest probability is leading positive...

The 15 min natural gas 3C chart has a negative divegrence after last week's run, looks a lot like a pullback so we'll be watching for accumulation in to that pullback which will make a nice place for new longs or add to positions to be considered at lower prices and lower risk.

 This is a 2-day chart of UNG, it shows the loss of momentum which should lead to a pullback after the initial breakout.

 The Daily X-Over Screen just went long. Typically the first pullback after a new signal is to the 10-bar yellow price moving average.

This is the 60 min version, in this case we are likely to see a small swing to the downside as the pullback is already at the 22-bar.

The Daily Trend Channel still looks like a reasonable stop , just at $21 right now and moving up, I always use any stop signals on the close.

 And UNG longer term 60 min leading positive like NG 4 hour is the highest probability resolution, UP.

The shorter term 15 min shows the positive accumulation/base and the current pullback signal.

It looks like many of you who have been writing about UNG will get that second chance you were hoping for.

USD/JPY Fires, Losing Momentum Already

The only major change in Index futures from the open was the directionality of the $USD, which led to $USD/JPY strength which the market followed with the weak VIX being monkey hammered already.

However, it looks like there's already a problem...

 USD/JPY is already going negative and consolidating, losing upward momentum.

Apparently there's some problems in the Yen as well that seem to be contributing to the USD/JPY Stall...

 intraday Yen futures (/6J) with a leading positive position in to the Yen dump, interestingly as the VIX was hammered lower...

IWM intraday is already showing a negative divegrence as are..

The Q's

Intraday breadth has fallen off as well at the stall in USD/JPY.

VXX is seeing the first intraday signs of positive activity in to the monkey-hammered lows and...

HYG is seeing a negative divegrence in to it's support at "in line"

You might have guessed...

 TLT is also seemingly accumulating early weakness and of course the larger TLT chart...

Has a large positive divergence just as 30 year Treasury futures, Yields move opposite Treasuries/TLT and Yields pull stock prices toward them, a negative for the market.

With TLT, HYG and VIX involved, I suspected the lever/market manipulating SPY Arbitrage which uses TLT, HYG and VXX and this is what I found....

After the dull start, the SPY Arbitrage was activated, although it doesn't seem to have much in the way of legs under it.

Market Update

Often on the cash market open we see futures reverse direction suddenly, as I said in the a.m. update Index futures were pretty much net/net flat, but the $USDX had been seeing profit taking all night, that is the asset that flipped 180 degrees on the cash open and moved higher, taking gold, silver, oil and natural gas down with it while equities look, for the most part, flat.

$USDX reversal...

While the averages are pretty much flat right now, I suspect they move to the upside intraday shortly, this doesn't look to be a strong trending move, just like someone is putting a lever under them via vix, everything else is flat.

For instance...

 NYSE TICK intraday has been in an extremely flat, narrow range of +/- 500 all morning.

This is the longer term 30 year yield vs SPX

This is last week's move in the 30 year down and...

 This is intraday, pretty much in line, fir now...


 HYG longer term

HYG intraday, again, flat or inline.

 This is what stands out, VXX pushed well below its correlation with SPX.

And Spot VIX as well, someone seems to be using a short term (intraday likely) lever, so lets see what happens. I'll have some other charts up s well in a few minutes.

A.M. Update

Good morning.

If you've been nwaching futures since the open for the new week, you probably have seen the dominant theme has been the $USD dipping on profit taking as the charts have been suggesting for well over a good week now. This has led to some strength in commodities, Nat. gas gapped higher only to fill in most of the gap, but after last week's run, I suspect that's not too strange of an event to occur...

 $USDX profit taking at the start of the new week overnight...

 Natural Gas gap up and pullback to retrace most of the gap...

As for equities, it has been a pretty dull session. There has been more bad macro economic news out of the Eurozone with Greek CPI coming in at -1.7 vs. 0.9% consensus, showing deflation setting in along with Industrial Production also missing at -5.56 vs consensus of -3.8% which spells "Stag-flation".

Italy's Industrial Production also missed at -0.9% vs consensus of -0.2%

Otherwise it's a slow start for US Macro data today although the F_E_D's Rosengren is due to speak today.

Equity Index futures are all over the place, in early timeframes, but net-net, I'd say neutral (just before the opening bell)

Es/SPX futures are about flat after a couple of divergences in overnight trade.

 TF/Russell 2000 futures look weaker than the others this morning.

NQ NASDAQ 100 Futures look a bit stronger than the others this morning.

As I said, net-net, FLAT.

There's a little more negative bias as the opening bell has wrung. LArger picture from the Week Ahead Friday, I expect we see some significant , volatile downside this week and likely the earlier part of the week.

DAILY WRAP

I don't think it was a great week for bulls although they'd disagree as the AAI sentiment says they're at optimism not seen since December 2013, what short memories...And bearish sentiment is at lows not seen in NINE YEARS. What happened to all of those "Contrarian traders"?

My personal sources which I prefer are insanely bullish. In my view it wasn't such a great weekend a half as the F_E_D took away the punch bowl, the ECB didn't add anything and Draghi has a near mutiny on his hand while the 2 week old GPIF news that sent the market higher appears to have a caveat, the higher stock allocation (buying) may not be able to begin for a year while the laws governing the GPIF are changed, if they're changed and if the GPIF feels the same way about allocations a year from now.

However, that's just personal opinion, still along the lines of fundamentals and mass psychology, but not anything I'd trade on.

What I saw going in to the close just didn't look good moving forward for next week, Carry trades breaking, currencies getting volatile, things like VIX (protection) with huge divergences, safe haven buying in gold, seeing a huge bid today (as well as silver) and bonds, The NDX and RUT JUST barely closing the week green, the anti-goldilocks NFP print, not bad enough to have the F_E_D step in, not god enough to rally on an improving job market and the NDX, SPX and Dow all closing below the NFP print today.

Beyond this week's earlier USD/JPY/EUR analysis of forward looking forecasts for each currency and the pairs USD/JPY (which the SPX followed tick for tick Thursday) and EUR/USD plus this intercepted transmission, "Uh Kuroda... We have a problem"...

Not only with the USD/JPY via $USD and Yen analysis...

 As suggested earlier in the week, USD weakness is coming soon as this 60 min $USDX chart depicts and while the USD ended the week green, it closed today red, in line with the near term 15 min chart...

Which has clearly tuned on its divegrence.

However when talking currency pairs, it takes two to tango so the JPY/Yen...

 Earlier in the week analysis suggested the JPY would see some near term strength as this 60 min positive divegrence depicts in "/6J"

And like the $USD , it saw that strength start today (which was posted last night as short term intraday charts went divergent.

This may present a problem for the very volatile Nikkei 225...

 USD/JPY (candlesticks) and the Nikkei 225 futures (/NKD) already diverging.

If that were the only problem in the Nikkei...

This 60 min /NKD chart is also suggesting downside and as for the US Index futures which tracked USD/JPY perfectly yesterday...

 Es (purple) vs USD/JPY yesterday, nearly indistinguishable, but those pesky currency divergences sent US/JPY lower overnight today and this is what the exact same correlation looked like today as the market went for an op-ex pin...

ES in purple vs USD/JPY which was down most of the night as last night's Daily Wrap mentioned toward the end (current market status).

EUR/USD should see upside as well.

The other correlation supporting the market is of course the 30 year bond yields which I said Wednesday were the most important indication this week and I'd be putting out TLT and 30 year treasury futures analysis which I did, which both suggested higher 30 year bond prices and lower 30 year bond yields so the last LEading Indicator I was looking for this week which had looked like this Thursday vs the SPX...

 near perfect correlation between 30 year yields (red) and the SPX (green) with only a slight hint of what was to come with a negative dislocation in to the 3 pm bond market close...

All of the sudden saw this larger 60 min 30 year treasury bond futures with a huge positive divegrence and improving TLT positive divergences send Bonds higher off the Payrolls data, which means yields that the SPX tracked so well for the last week, now looked more like this today...

which might not be such a big concern if the inconvenient truth for the SPX was "Every time the SPX and 30 year rates disagree, 30 year rates prevail", just like our Yields indicator; as I often describe it, "A magnet for stock prices".

 Pont in case 30 year rates (blue) and SPX (green), doesn't matter, either way, up or down, rates lead.

PErhaps that wouldn't be such a concern as we all know 1-day does not a trend make, if it weren't for this chart below..

There's already a significant divergence between rates and the SPX, this is what I'd call an "Intensity" marker of what we can expect going forward.

I know many of you are use to our normal Leading Indicator 5 year yields, so just for kicks and giggles...

 Whoops, it seems they are just as dislocated and intraday...

Well like I always say, "Yields are like a magnet pulling prices toward them".

This is addition to already horrible leading negative divergences along the same macro size in Professional sentiment, High Yield Corporate Credit which was used as a lever today, but short term =, High Yield Credit itself, Financial credit, etc...

Some examples...

 Pro sentiment maybe wouldn't be such a serious indicator if it had not been so accurate like at #1 when the August cycle formed the Igloo with Chimney head fake and it went deeply negative at the head fake or right now, looking far worse than the divegrence that brought the market down last time to nearly 100% bearishness.

 And on the last few weeks, it looks like pros took early gains, used strength to sell in to the rest and are long ago out of Dodge City.

HYG may be a short term lever like today, but it's the larger implications I follow, take a look...
They led the August rally's lows, they led the August cycle's top, and they are leading the SPX right now, except far worse than the last negative dislocation that led to that sharp risk off move. Remember I said BEFORE any of these signals appeared, that I expected a lower low after this rally and that was before it started and before we had objective evidence pointing to a stronger move to the downside, that was based on Mass Psychology.

Or perhaps HY Credit's trend, in line for most of 2013 with a few small divergences that it led and a very strong and worsening leading negative at each of the 3 tops in this large SPX Broadening top.

We can go on and on, but you've seen most all of this already, it's just having the ability to get past emotions and use price strength to our advantage rather than chasing price half way through a move or further. As the market gets more volatile as it is, the broadening top is evidence of that, one morning you'll wake up to a gap that is essentially like the Coyote chasing the Roadrunner right over a cliff and weeks/months of gains are taken out in a single morning's gap, that's what increased volatility and unpredictability does.

Thumbing through tonight's breadth indicators, they have not moved an iota since Friday, you'd think ATH's would move stocks somewhat, but nothing, dead flat for a week.

I suspect this is about to change and as you already know, I suspect it changes this upcoming week as volatility has all but gone out the window, it's almost hard to remember how intense it was... "almost", I suspect we'll be reminded with a strong shot on the downside.

This move which was a theory during the last week of September during Window Dressing had some caveats, "If this happens then I think we'll get X move", those caveats came about, but from the start this move was never anything more than a VERY convincing shakeout off a -7% move.

Imagine the volatility back in 1929 after the initial crash and a REAL counter trend move or head fake that HAD to be convincing...

Dow-1929...

 Imagine that first bear market rally, nearly a 50% gain and nearly 6 months!

I know a lot has changed, but...

The concept is still the same, make them believe. This was a -10% move lower in the SPX in 2007 and a 11.26% rally to a new high, it had to be convincing, it was also the top, losing 5+ years of gains in 16 months, actually the entire previous bull market + -15%.

Similar to this ...

A -7.45 loss and a 9.06% gain,  the point is to MAKE THEM BELIEVE.

HAVE A GREAT WEEKEND