SPY Arbitrage-Second Verse Same as the First

This lever of market manipulation was tried yesterday, unsuccessfully, but with TLT flat (intraday distribution), HYG still moving up (intraday distribution also) and VXX just getting slammed...

 VXX short term VIX futures just slammed, this is not like a normal VIX slam that ramps the market like we see end of day, VXX is 1 of 3 specific assets in the SPY arbitrage and for it to work, VXX must move down, TLT down and HYG up, or the relative performance has to be in that direction (for example VXX down, TLT flat, but HYG moving up strongly). This has nothing to do with actual accumulation of VXX  which I'll be looking for in to lower prices as only 1-3 min charts are needed for a strong buy signal and a head fake move lower can do that, this has to do with actual price.

As of 15 minutes ago, BEFORE the VXX slam, the SPY Arbitrage lever was adding about $.20 cents to the SPY's price, with the VXX slam, it will be adding more as you can see SPY vs VXX...

Obviously the lever and VXX slam was needed as SPY couldn't break out of the A.M. Range until VXX was slammed and SPY Arb increased, that's SPY in green and VXX in red.

I'm pulling up Leading Indicators now, but I'd also be watching for a bullish VXX candlestick on intraday charts, the longer the better and with a spike in volume, that may be VXX's bottom and perhaps the final accumulation area it has needed since the weekend.

More in a moment.

Black Friday... Perhaps darker than imagined...

Since this morning's A.M. Update and futures action in which it looked like US Index futures, well ES / SPX futures specifically were set to make an opening upside reversal and move higher, in to a flop  as represented by the 5 min chart, I've found some additional data as I knew I had the charts in my head and just needed to pull them out as the familiarity was a bit annoying, so I did.

Looking at the NDX which was one of the Index Futures pre-market without any kind of positive divegrence and instead was nearly perfectly in line with the losses it had seen since just after the European open, I looked at the Q's after the open, remember too all of the 5 min charts for Index futures have a sharp drop off in 3C , they also have a relationship intraday most of the week that is inline, but a large relative negative divegrence from last Friday to now.

This hopefully will come together and make some sense for you...

 This is NQ/NASDAQ 100 futures before the open with a negative divegrence around the European open sending prices lower (1 min chart) and it remaining in line through the open, however it has seen some upside which remains unconfirmed, thus there's a higher probability that this intraday opening move higher will fail.

The current chart looks like this...

Again a large overnight divegrence in to the European open with some downside and before pre-market trade a sharper drop and then in line at pre-market. The cash open volatility higher (or lower) is about as dependable as the sun rising, the early games that are played running stops or gunning for limits which is why few professional traders are interested in early market action or in trading it unless they have a specific edge. I know several pro traders who won't get out of bed until after 10 a.m. and won't consider a trade before 1 a.m. (As an aside, look up the NYSE Specialists ability to influence stocks they make a market it, it's not the best ask/bid like NASDAQ, it's what the Specialist deems reasonable given the depth of orders  and NYSE stocks do NOT have to open at 9:30, again, that's up to the specialist. I had a very profitable SKF/2x short financials that couldn't be realized because the specialist didn't open the market for SKF until 10:30 and by that time the gains were all but gone).

Looking at the Q's, again, no confirmation on a 1 min chart. Considering the lack of NQ confirmation and this QQQ divergence, this is the reason I put out the intraday update about the QQQ fading the open.

Since Friday to the far left, this is what the QQQ trend has been this week. I noted the last two days sharper sell offs, not only here but in other assets and leading indicators as well.

 This is somewhat similar to the NQ 5 min chart that has been in a week long relative negative divegrence from last week to today...

 The NQ 5 min with a large relative negative at the red arrow while intraday had remained in line, there was some kind of support to keep the market from making any downside moves on the week of Black Friday, I think there's an obvious reason for that considering how bad consumer sentiment is going in to Black Friday and the Nor-easter likely to slam the east coast of the US on the busiest shopping day of the year. The Richmond F_E_D confirmed fewer hours, less employees, worse business conditions so there's an obvious reason consumers are feeling pinched. Additionally Initial Jobless Claims spiked above 300k at 313k this week, the biggest miss in almost a year, again the consumer has every reason to feel cynical toward the economy and their place in it. Chicago PMI saw the 4th biggest drop since Lehman this morning and the University of Michigan Confidence came in at the biggest miss in over a year.

 A crashing market on the news wouldn't be helpful to that already negative consumer sentiment, but more on that in a minute.

 That doesn't change the trend and where the macro economic indicators are pointing like this 10 min QQQ chart with accumulation at the October lows like we said when few believed it possible and now a HUGE divergence through the cycle as 3C plumbs new depths. This is bad and is not just reflected as a macro trend here, but...

 This 4 hour chart of NQ futures shows the divergence in to September, leading to the October lows (Dow loses 1200 points in 3 weeks) and the leading negative divegrence through the October rally.

Heck if we are talking macro...

 The 2 hour QQQ shows the same thing at the September highs which was the head fake move for the August rally cycle sending prices down to October lows if anyone remembers what sentiment was like then, as bearish as it has been over the last 5 years and now the October rally's 3C divergence is EXACTLY what we expected to see and predicted BEFORE the October rally even started, how can we have a bigger move down without an enormous divergence?

 I'll even go 1 further, the macro QQQ daily in to 2014 and the Broadening Top.

If you wonder when? Almost every top has looked similar in time scale, it takes time for institutional funds to sell holdings, Appaloosa had already been 15 months in to it as of last May, "Selling everything not nailed down", which is why 3C looks the way it does. The question of when I believe is "Any moment", I say this because these divergences are literally off the chart. We have no historical precedent for such large divergences, but we also have no historical precedent for what caused this move, $4trillion in F_E_D Balance sheet expansion from about 850 billion in 2008.

I'm getting way off track, I'm actually looking at the near term and probabilities, it's just these bigger picture charts can't be ignored, no matter how hard they are to believe, they will surpass the area of the first negative divegrence, I believe they easily surpass the 2009 lows in time.

Back to this morning...

 ES had a positive divegrence pre-market, strangely it hasn't moved much. Looking at SPY after the open...

This chart is nearly perfectly in line (1 min) save for a couple of smaller divergences. However think about the 5 min ES/SPX chart shown this morning...

On a similar timeframe, SPY's 5 min chart looks a lot like ES's 5 min chart, you might say worse as the gap up Friday on a surprise Chinese central bank rate cut gapped higher, but was sold in to as 3C shows and as price follows., since it hasn't been good and I think that's because the head fake move was already in place, no one knew about the PBoC rate cut, there was a knee jerk reaction to it until it was realized that it provided little to no liquidity to the market, thus a tempest in a tea-pot.

 The SPY 2 min trend shows the area I think was the head fake move at the yellow arrow with distribution in to it and prices destabilizing until the PBoC gap up Friday, also sold into.

The larger point though is the confirmation in the trend the last 3 days like the 5 min charts in SPY and ES.


Here's that same ES 5 min chart...

 Again a large relative negative and a deep leading negative.


Essentially it looks like price is about to see a sharp move lower ad it couldn't be at a better place, as I said, in the past we've had much smaller divergences carry us to new lower lows like the October lows, this divegrence now is way bigger and thus can collapse at any moment, which brings me to something I saw last week and said, "it bothers me".

I wasn't sure at first what it was for, why it was there, in retrospect I think it's obvious.

It was the HYG divegrence at the lows of the 19th, a single day's divegrence, but support for something? What?

After Black Friday all these sales figures will come out for the initial biggest shopping day of the year and it influences how people spend after that through the rest of the holiday season, if it feels like consumers are scared, people dial back spending as they feel scared as well. As I said above, there's already plenty of negative sentiment and good reason, a market crash the week of Black Friday would be about the worst macro economic indicator that the population as a whole could understand. This is why HYg, which is hugely negative vs the SPX since the October rally started, was enlisted to help support the market.

You can see above there has been distribution in HYG as they back out of the position now that it has held the market up for the week, tomorrow the market is closed, Friday it might as well be.

 The HYG positive at the 19th and distribution recently.

HYG has doen its job, support consumer sentiment in to Black Friday.

Looking at currencies there's another indication of a steep sell-off...

 This is the correlation this morning between USD/JPY (candlesticks) and ES/SPX futures (purple line), it's near exact intraday.

However...

 This is the correlation on this week, first in line Sunday on the open and Monday and then USD/JPY has seen a sharp dislocation since. The SPX futures look like they owe downside, which is probably why the CONTEXT ES model is so much lower than ES.

 This is the normal correlation between the two that existed before last week.

Then ES failed to make a higher high with USD/JPY and the next day we have the PBoC spike in SPX as the purple line moves above after the yellow box.

This is what the relationship looks like in whole since ES first diverged with USD/JPY , failing to make a new high, then spiking on the PBoC and failing to hold those gains. Now there's a big flat area since the PBoC, no gains, no higher highs, but USD/JPY support falling out fast which is one of the long standing predictions of action for the pair as the market does come down.

This week seems to be special and complicated, but it makes sense and the signals otherwise, outside of the context of Black Friday and consumer sentiment are literally off the chart.

I don;t think things look very good for the market after Black Friday, I don't see the levers working, why would they even need the levers if the market was so strong and I see HYG being sold. Where is the support for a market running flat with ugly divergences in the timing timeframes right there at 5 mins?

Quick Update

Look for the Q's to fade to the downside, they are negative here and look ready to turn, perhaps a nice intraday trade for some of you. Check TICK

A.M. Update

Good morning,

As for futures pre-market...

 ES looks set for an early pop, but then...

The 5 min chart looks like a sharp drop is right on the cusp.

NQ is in line with the overnight losses and looks to retain that stance...

As well as the 5 min drop, in fact all Index futures have this sharp 5 min negative.

And TF looks like it will maybe see a little pop on the open, and likely a drop after.

This morning I'm a little baffled that on such a light volume day / night that the Index futures look the way they do, not horrible, but not good, certainly not EU hints of QE overnight for what? A third or fourth consecutive day (including the weekend)? Again we have the ECB's Constanacio pushing at the QE heart strings of the world with an overnight speech in London hinting at the possibility that the ECB will "consider buying other assets, including sovereign bonds in the secondary market," if the pace of balance sheet expansion is not in line with expectations, which would be what exactly as rumors and hints night after night are pretty far from quantitative or qualitative guidance, they are plausible deniability while trying to reap the benefits or a lower Euro which hasn't been working so well the tis week.

Is this why the ECB is out day after day since the weekend jaw-boning the Euro lower, oops, uh well it seems to be going higher since the weekend rumors/hints from the ECB...WAIT! THAT'S NOT SUPPOSE TO HAPPEN! 

Perhaps this is why the ECB is out there every day talking up the chances or "possibilities" of IMMINENT QE. The Euro has gained enough to send the dollar lower the last two days. This is after all what Draghi does...maybe not best, but what he does, jawbone the Euro lower.

Perhaps that's why the ECB has resorted to Constancio as the market is tired of Draghi's incessant hints and no action? He further added,  "In particular, during the first quarter of next year we will be able to gauge better” the impact of current stimulus. Further asset purchases “would be a pure monetary policy decision, buying accordingly to our capital key, within our mandate and our legal competence." 

Two problems, one for UBS who says ECB QE starts in December, that seems to have just been blown out of the water with the statement in bold and "within the legal mandate" is the other problem, the ECB is forbidden to finance any country's debt, look up their mandate, specifically article 123 and read Germany's and the Bundesbank's views on the subject as Germany's opinion is the only one that matters, Goldman doesn't have a foothold there yet.

So Constancio tells us more about the possible channels for QE including: “signaling and influencing inflation expectations, exploring spill-overs resulting from investors using the cash received to buy other assets, including foreign assets with influence on the exchange rate,” and “increasing credit to the real economy.”

Speaking of GERMANY, overnight Germany SELLS 10-YEAR BUNDS AT RECORD-LOW YIELD OF 0.74%! However nearly 18% of the auction was uncovered leaving the Bundesbank to retain that portion. Interesting.

As to OPEC meeting announcement tomorrow, fireworks...

 Russia yesterday failed to agree on a production cut, when Saudi Arabian Oil Minister Ali Al-Naimi tells reporters in Vienna, before tomorrow's OPEC meeting that "No one should cut and mkt will stabilize itself." What's worse, the Saudi turned the tables on the US itself: “Why Saudi Arabia should cut? The U.S. is a big producer too now. Should they cut?" 

Daily Wrap

Today's price action, full of closing candlestick Stars and Dojis (indecision/reversal candles), looked a lot more like the Dominant Price/Volume Relationship from yesterday which was Price Up/Volume down, the most bearish of the 4 possible outcomes and with a strong Morningstar performance, a97 of 238 closing green which may seem bullish, bit most often it leads to an overbought condition and next day correction.

Considering the SPX (-.12), the Dow (-0.2%) and the Russell 2000 (-0.05%) all closed red with only the NASDAQ 1000 +0.09% closing green, but for all intents and purposes we might as well call it a totally flat day, this is certainly a change in character.

Transports actually had the best day, at least until you look at it a bit closer (+40%). Transports short have been an open position and a favorite longer term core short position.

Here's what the averages in general looked like on the day...

Everything but the NASDAQ by a hair and Transports closed red, but nearly everything was almost unchanged, not the bullish story you want coming in to Black Friday on major media outlets.

For a closer look at transports...

 2 hour macro view was in line coming in to 2014 and then went negative in to 2014. We've looked at all of the charts and Transports looks like a good core short position in my view.

As for timing signals, the 5 min chart went sharply negative today and I don't think that was on  falling oil prices.

In fact, intraday look at the 1 min chart, insane.

The averages didn't fare much better. We've seen the longer term charts and trends, it's the short term timing chart especially since I think the head fake move already occurred, but is obscured by the "SURPRISE" PBoC rate Cut from Friday.

 IWM's 60 min macro trend showing accumulation through the first 2 weeks of October, although some didn't believe it, after this move I think nearly 2 weeks of accumulation is QUITE BELIEVABLE.

The distribution period has been larger, longer and more intense, but some of the other averages are even worse than this.

As far as the short term timing indication charts...

This is the IWM 1 min , remember what I said about those thin, quiet trading ranges, 3C is in decline all day through the IWM's flat range.

 The SPY with a sharp negative divegrence since the suspected head fake move (yellow arrow) and after the PBoC gap up, with a much stronger , faster divegrence to the downside, similar to the speed and timing of 30 year yields, or the Flight to Safety trade.

 And the SPY intraday, clearly negative right in to the suspected head fake move (yellow arrow) with a deeply leading negative divegrence since the gap up on the PBoC non-liquidity event, which the bank itself is warning that this is not the start of a loosening cycle.

And the Q's

Again, beware and don't fall asleep at the switch during flat, dull markets. The Q's intraday leading negative through today's range should be proof enough, but I suspect before long as this is a timing timeframe, we'll have more solid reasons to be diligent during boring, flat markets.

Cruse, which I posted on last week as a possible trend change here, Oil Trend Changing... will have to be watched closely oif we want to place a trade tomorrow before OPEC's Thursday meeting as the US markets are closed.

It seemed at first from the post above that USO will see a move higher on an OPEC production cut and I'm still watching for convincing evidence, but today intraday, oil was all over the place on OPEC rumors.

 Looking at Brent Crude futures intraday it seems as if someone knew what the first rumor/leak would be as they sold in to oil before the leak at #1 which was "No Cut", then at #2 the next rumor was an OPEC cut sending oil higher in to #3 rumor/leak which was "No cut, stricter compliance" obviously referring to Saudi Arabia adjusting production as they see fit or as the US sees fit in an effort to punish Putin.

However, overall the ending price action was similar to a rounding bottom and on a positive divegrence, perhaps all of that just to pick up crude shares/contracts at lower prices since everything today in oil was rumor/leak? This is one I'll be watching like a hawk tomorrow for a true potential leak.

USO's intraday chart today looks VERY similar to Crude Futures (Brent) above...

So were trannies following oil as they sold off in to the close while oil also moved lower? It seems illogical at best.

The $USD saw its second day of consecutive weakness on a stronger EUR (both macro trends), this "should" have sent Gold, Silver, copper and oil all higher, as well as stocks but...

Silver (white) moved higher, gold (green) slightly higher), copper (yellow) was slammed again and oil (blue) was slammed. We might give oil a pass on all of the OPEC rumors.

Dr. Copper is seeing an increasingly negative trend, however with a lot of the macro global growth data and opinions, it's not surprising, however for old-timers who have always believe copper leads the economy and the market, this is an ugly omen.

Speaking of Omens, not that I personally subscribe to them, but there was a near spot on a Hindenburg Omen today. Again, while I don't think they are a prerequisite, they do often accompany bearish turns down, however they are not a necessity for bearish turns down. The last H.O. was around the September high leading to the October lows.

As for leading Indicators, as I posted and predicted here, VERY BAD Market NEWS...Richmond F_E_D, CONTEXT, SPY Arbitrage and TLT-30 year Treasuries... the SPY arbitrage was likely to be levered up in to the close.  VIX as expected, was slammed a bit in to the close and HYG pushed higher as posted, but it had no effect other than to perhaps keep the one average in the green and the rest from slipping, as I showed earlier today, they were approaching a "Slippery Slope".

 VIX slam in to the close sends SPX lower or about in place.

HYG was ramped in to the close to no effect, however...

HYG distribution in to that ramp was carried out.

The failure of the SPY arbitrage was in the fact they couldn't push TLT lower, in fact it looks like there was a large block trade buying or covering TLT and selling TBT (at the exact same time), our trade, Short TBT giving us a TLT 2x long position.

 Note the volume in TLT this afternoon and the jump higher which is why I suspect a block trade and at the exact same time in the inverse TBT...

TBT was sold in a large block trade causing it to fall. You don't see these often, but when you do, apparently someone is in a hurry to get out of the position to take that kind of fill.

Both trades would be exactly in line with what we've seen during the TLt pullback/accumulation which is why we entered the trade.

On a 60 min chart TLT has a large positive divegrence and is already moving up sending yields down, which has already pressured the market as posted in last night's Daily Wrap.

The 30 min chart shows a sharp move higher, apparently the result of recent strong accumulation and likely the catalyst behind the block trade.


As for yields which are a leading indicator and act as a magnet pulling equity prices toward them...

 The higher TLT and 30 year bonds go, the lower 30 year yields go. Toy can see for yourself the last time there was a divergence between 30 year yields (blue) vs the SPX and you can see how big this divergence is now.

 I mentioned the ROC in yields to the downside last night, but this is even sharper.

Even our 5 year yields made a sharp move lower and these have been one of our favorite Leading Indicators for some time.

Today also had an immensely strong 5 year treasury auction on top of yesterday's very strong 2 year auction.

There seems to be a clear Flight to Safety  trade in the works.

Pro sentiment stayed almost exactly in line with the SPX, however on a trend basis like the 30 year yield chart 3 charts up, both look almost identical trend-wise, in other words, not good.

HY Credit sold off in to the close for a second day in a row.

As for AAPL, it looked like it was heading toward a trade at the last update (not quite there)...SPY Underperformance/ NASDAQ Divergences & AAPL.

Today AAPL's timing timeframes moved a lot closer and this too will be high ion the watchlist.

 AAPL positive 5 min divergence to a leading negative.

And the intraday chart looks horrible.

This is interesting both as a trade and as the heaviest weighted stock in the NASDAQ 100, you can find out the exact weight for a $10,000 a year NASDAQ subscription, but in the past it has carried about 20% of the weight of the index, that's about the same as the bottom 50 weighted NASDAQ 100 stocks combined!

Also interesting as we saw the break up start last week, the ES vs.USD/JPY correlation failed even worse after the EU close, it had been in line until then intraday. When even the ramping levers break!

As for internals today...There was absolutely no Dominant Price/Volume Theme among the component stocks of the major averages.

Everything else was luke-warm. Five of 9 S&P groups closed green, but the leader, Consumer Discretionary (again) was a mere +0.31%, Energy was the laggard at -1.63.


Of the 238 Morningstar groups, a very luke-warm 130 of 238 closed green, it was as if  the whole market were one big Doji indecision candle today.


Breadth was along the same lines, luke-warm with the % of NYSE stocks > 200-day moving average stuck right at the 50% area now for the 18th day in a row, but just thumbing through them quickly, whether breadth indications or breadth indicators, nearly all have a look as if they are about to roll over. We'll see, but I'm use to seeing Rates of change, just like I saw a week or so before SKEW shot up and this has the same look.

I'll take a look at futures and post anything interesting before I hit the sack.

Gold has had some interesting volatility tonight, but it is volatility, not trend so we'll see how that pans out (no pun intended).

I'll catch up with you in a bit if there's anything else to report.