Market Averages Update

There's still some levers being used as support, that was clear on the open with USD/JPY, HYG is still being used intraday, and while TLT is being used, it is quickly turning the tables as is USD/JPY and HYG is already in a position in which it can't recover from.

I'll update these levers, for when they fail completely we need to be ready for a quick pivot and I can't say that won't happen today (especially given internals yesterday), it only takes an hour or two from where we are for those signals to turn to unrepairable.

For the averages...

 Last wek's 3C data showed massive deterioration especially in to the end of the week (Wednesday/Friday surprisingly as I expected a quiet half day).

Since the Monday gap down (far left) on the 1 min chart, SPY has been largely in line with yesterday's bounce we anticipated as early as the first sign of the selling climax Monday morning. However on this morning's USD/JPY ramp, some obvious damage was done which was seen in ES/SPX futures as well (last update).

 SPY 2 min chart also largely in line for yesterday , but also showing a more negative change in character on this morning's ramp and yesterday afternoon as well.

SPY 3 min with negative deterioration in to Friday's close leading to Monday's gap down and accumulation of the large volume at the selling climax Monday morning, the fuel for the oversold bounce we are in.

As is clear, late yesterday and today have seen increasing damage as 3C is no longer in line with price (confirming the trend).

A close up of SPY 5 min is showing accumulation of Monday's volume on the selling climax/capitulation (short term), all of that volume is easily accumulated without anyone asking questions about "Who is taking the other side of the trade on all of that volume?".

The point is, confirmation from yesterday has given way to a strengthening negative divegrence on the 5 min chart which is now getting serious.

The 5 min chart in context beyond intraday...

SPY 5 min chart shows the underlying 3C weakness of last week mentioned above as they tried to keep the market from adding to the negative Consumer Sentiment going in to Black Friday. Note the ramp for the week and the huge distribution taking place that led to Monday's decline, which we saw Friday -see the last post Friday as we could already tell the defensive of Black Friday was over.


In addition, the current 5 min trend to the far right is going negative in to the bounce and now gap fill.

Of course the intraday charts above this one are short term trade action only, good for tactical timing, but the strategic outlook or the big picture outlook is on the longer charts such as the SPY 30 min.

Note distribution at the July (late) highs which we called , leading to the August lows and accumulation for a bounce. Then distribution in to the August rally's stage 3 top and the head fake move at the September highs, a false breakout creating a bull trap which quickly sent the Dow down 1200 points in 2 weeks to the October lows where everyone who has heard the word, "Stock market" was bearish, the exact reason I suspected a strong shakeout rally before we had the first sign of evidence, but again, a means, nit an end. When everyone is on the same side of the trade, Wall Street can't make money, it's a zero sum game, someone has to lose for someone to win, thus the rally, but again, look at the 3C leading negative divergence through it, clearly the rally was a means to an end as predicted before it started.

 QQQ 1 min intraday seeing distribution this morning on its gap and intraday highs , the red trendline is yesterday's close. Not much has changed since this capture.

 QQQ 3  min showing the strong distribution through last week's pump on a parabolic move, this is why I never trust them, they fail as impressively as they start and the distribution through it is just more evidence.

Otherwise the Q's have shown little, no positive divegrence and thus not much reason to sell in to strength as there has been none.

 The big picture for the Q's, again the July top negative leading to August lows and a rally with distribution in to the stage 3 top and head fake / False breakout bull trap (yellow) sending QQQ to stage 4 decline and a new lower low in to October.

The current leading negative divegrence from the October lows rally is something to behold, far larger than anything on the chart.

 IWM 1 min intraday with some accumulation at Monday's selling climax (yellow arrow) and some distribution in to higher prices yesterday as well as this morning.There are few changes since this chart's capture.

IWM 2 min shows something more interesting as there's clear accumulation of all of the volume/supply at the Monday morning selling climax, a short term event that needs to be worked off. Internals Monday night were extremely consistent with a selling climax, internals last night were almost 180 degrees opposite, warning of an overbought condition since the correction yesterday.

Consistent with that, as we expected the IWM/Russell 2000 has been the leader, thus it has given smart money gains to sell in to and it's very clear they have been engaging in exactly that by the 3C negative leading divegrence, even in to this morning.

 However, since the start of the bounce, the 5 min chart has been my focus as this will need to go negative as it is the strongest IWM timeframe from the oversold bounce portion of the market. You can see the accumulation of large supply (stops being hit Monday a.m.) and so far it remains in line, thus this will have to go negative which is one of the reasons I didn't see the same divergences in SRTY yesterday as SPXU and FAZ as posted late in the day, at least not yet...  

Couple of Quick Trade Ideas.

 As for the macro trend, again numerous IWM pivot highs have seen distribution sending them lower in a large range somewhat similar to a Complex H&S top, it is surely a change in character from 2013.

Right now the most impressive and meaningful divergence is the October rally to the right and 3C's new leading negative low showing the heaviest distribution all year. Again, the rally was not an end, it was a means to an end, a distraction to change bearish sentiment as too many people were on the same side of the boat at the October lows. I even said I didn't like it and would not call that the stage 4 decline break as there were too many people calling it the start of a bear market. Bear markets creep up when sentiment is the most bullish, like now.

 NYSE internals/TICK today, an early impressive +1400 was lost as the trend broke and we are now in mediocre territory.

My custom TICK/SPY indicator, once again intraday breadth is starting to fail since Monday's capitulation (short term) lows.

Our SPX / RUT Ratio shows buy and sell signals (the red indicator) while the VIX Term Structure (not visible except on painted price candles) shows the last buy signals.

We have sell signals in the SPX/RUT ratio.

And the same on a longer term basis and even worse on a trend basis from July.

Before making any big moves, I just want to check on the levers which I'l also post. These are the assets we knew as of Monday at 1:30 p.m. after the intraday flame out on a short term selling climax in the morning, the market would need to mount any kind of short term oversold bounce as the market doesn't have the strength to do it by itself. So even before any bounce began, on Monday at 1:30 p.m. we already knew what the ramping levers would be in the post,

 Meet Your Levers

These are the usual suspects: USD/JPY (or other Yen based carry pairs), VXX (VIX Futures as well as VIX smack downs such as seen yesterday in to the close which was very ineffective), HYG (which is an integral part of the SPY Arbitrage , a lever in itself, although HYG can act as a lever on its own) and TLT/Yields (Treasuries-pullback sending yields higher).

VXX and TLT lower and HYG higher are necessary to activate the SPY Arbitrage lever as well.

This was so predictable that it was posted Monday early in the afternoon, before the short term oversold bounce started yesterday. I want to be sure these are significantly degraded enough to assure the best timing before new positions are added.

In addition we have probably one of the most important pieces of macro data for not only the week, but perhaps the month, Non-Farm Payrolls Friday at 8:30 a.m. I want to be sure Leading Indicators and the levers of market manipulation aren't going to try to stretch the market bounce or consolidation until the NFP on Friday before entering any substantial new positions.

This post will follow, then on to individual trade ideas/assets.

Market Update

If you recall Monday night's internals on top of the 5 min positives in R2K and SPX futures, they were deeply oversold on a 1-day basis which was nearly complete by 10 a.m. Monday morning owing to last week's distribution in underlying trade, it just broke Monday.

Last night's internals as the 5 min charts are turning negative as seen yesterday or this morning's A.M. Update , were the exact opposite of Monday's deeply oversold with the P/V relationship strongly suggesting a bounce yesterday. Last night they were moving to deeply overbought with the Dominant P/V at Price Up/Volume down, the most bearish of the 4 relationships and in all 4 averages (this is a measure of the component stocks of each average, not the averages' own price/volume on the day). The S&P and Morningstar sectors were the exact opposite of Monday's internals suggesting a Tuesday bounce as well last night.

As you know from yesterday and again in this morning's A.M. Update I expect the USD/JPY carry pair to see downside, mostly because of these charts (from the A.M. Update)...

 USD/JPY intraday 1 min negative...

The stronger USD/JPY 5 min negative.

After 5 min it's hard to get clear signals on the FX pairs so we use the FX futures (single currencies) to put the rest of the puzzle together.

As posted in the A.M. Update this morning...

$USDX seeing a large negative divergence or distribution in to higher prices, someone is expecting the $USD to come down which pressures the USD/JPY lower. In addition...

The Yen (/6J) is showing a 5 min large leading positive divegrence, also having the effect (once it moves higher) of pressuring the USD/JPY down.

As was made clear this morning in the A.M. Update, there were no positive divergences in the 1 min timeframe pre-market that would ramp the market, in fact they were nearly dead neutral and ranging, but as is almost ALWAYS the case, the cash open always sees a big volatility move, whether up or down which is why a lot of traders won't trade the open as it's about Wall St/'s middle men/market makers and specialists taking advantage of limit orders , thus not a great indication as they are essentially just making money on those pre-market orders from people who typically have a 9 to 5.

Thus, the USD/JPY (candlesticks) which had NO CORRELATION whatsoever with ES/SPX futures (purple) overnight or at the European open (red box), was ramped higher right at the US cash open knowing algos would chase the correlation as they did. Note Es (purple) following USD/JPY nearly tick for tick after the 9:30 cash open.

However with the above knowledge of USD/JPY as well as the negative divegrence in $USD and positive in JPY, this pair will not stand for long and thus will not provide support for the Index Futures (market averages) for long either, thus my warning just a few minutes ago, Quick Market Update.

Since then...This is what the USD/JPY's 3C chart looks like intraday...

Absolutely no support on the opening (cash) ramp. However the ramp is not the only reason, USD/JPY is on a stop run as well before heading lower.

And as for ES that followed it higher...the last divergences pre-market which looked like steering divergences overnight (small divergences that largely kept the Index futures in a tight range, was a small positive, not large enough to move the averages on its own, but with USD/JPY support at the open, helpful. Again, see this morning's A.M. Update.

 TF/Russell 2000 which has had the best positive divegrence since Monday morning's short term selling climax (see volume around the a.m. lows Monday) which is the reason we expected IWM outperformance yesterday (while the NASDAQ had the worst and thus the reason for expecting QQQ underperformance yesterday as it was), has a decent positive on a 1 min chart in to the open. It has seen "some" damage since the opening ramp. However I'll further update this with the averages which are still receiving HYG support, however there are changes in the air including a building TLT/30 year Treasury bond positive divegrence.

 NQ/NASDAQ 100 1 min futures had a slight positive in to the open and look scrambled right now, I still doubt they do much without an AAPL ramp.

ES however is much more clear. On the USD/JPY opening ramp carrying the averages higher as you can see on the chart below, saw a clear leading negative divegrence or distribution in to price strength. The 9:30 open is at the green arrow, before that there was no 3C divergence at all overnight.

Again, USD/JPY (candlesticks) ramp at the cash US open (9:30 at the green arrow) and take ES/SPX futures (purple) with it, but ES sees distribution in to higher prices,  the exact same concept behind the AAPL trade set up and many others.

I'll update both the averages and the Leading indicators, especially the ramping levers next. While it is still very early to be making calls on the day, as far as last night's internals went, it looks very much like we can expect to see this selling climax, 1-day oversold condition from Monday morning and proceeding bounce, start to roll over and thus, likely some interesting trades at better entries and less risk.

Quick Market Update

There's not much intraday support for the IWM and SPY's move higher, the IWM continues to outperform and the NASDAQ 100 underperform, however this morning there were no positives that would lift the averages like this, instead they hitched a ride with the USD/JPY carry.

However, the $USD has a large negative divergence in it and the Yen has a large positive divegrence in it. The USD/JPY coming down near term has been one of the themes for this week and I suspect we are very close to that happening so be careful if you are day trading here.

I'll post the charts for the assets mentioned above, I just needed to get this out quickly.

AAPL Trade Idea Follow Up

Lots of posts for AAPL this week thus far.

We started with Monday's, AAPL Update which showed AAPL and a potential set up, it was and still is far from my favorite trade because it is transitioning like MFT did from a growth stock to more of an old blue chip dividend type stock, just look back at the last 20 years of MSFT history and you'll see the same story being played out in AAPL, from a monster growth story to a Blue Chip, more defensive type of asset.

The trade set-up was based in Wednesday, November 26th's triangle which looked like this as of Monday's post.

Given the profit potential for AAPL as it transitions, I wanted a better entry for a short above the triangle, which is or was probably the NDX's best hope for some better relative performance as you could see from the A.M update this morning, the NASDAQ 100 futures did NOT have the same or any positive divegrence which is why I said I expected them to be the laggard yesterday and why I continued to feel like their best hope was an AAPL bounce which would also set up a better AAPL short entry with lower risk, this has been talked about at length (Index weighting and AAPL's weight on the NDX).

However AAPL itself never developed much of a divergence either. Then came yesterday's early AAPL update, AAPL Trade Set-up and by the end of the day in the Market Update AAPL was already seeing negative divergences in the 2 and 3 minute timeframes migrating or gaining strength and moving through longer intraday timeframes which could meet up with the intermediate which would be the only reason I'd consider an AAPL short. With Tech being the laggard among the S&P sectors yesterday, last night I mentioned the possibility of it rotating in today, maybe helping the QQQ, but since late yesterday...

As of this morning, things are not looking any better for AAPL despite its price gain/gap up...

 It is the 10-15 min AAPL charts that would cause me to even consider an AAPL short, but on short term price strength that can be shorted in to with deteriorating 3C charts.

This is the 2 min chart that went negative yesterday. At #1 we have last week's late weakness in 3C causing the Monday morning decline and a very early (10-a.m. or so) 1-day short term oversold event at the large volume spike (#2). There's a very slight, weak positive divergence there and that's about it. Since at #3 and #4 AAPL has seen deterioration in the short term timing 3C charts, but not the price gain ABOVE the triangle on the first chart above this one.

However "IF" AAPL's charts keep falling apart at this pace, then a swing short may be justified even without the move above the triangle which I still hope we see, but don't have much reason to believe in other than Tech's poor performance yesterday and the often seen rotation the next day.

AAPL's 3 min chart also saw a building negative divgernece yesterday as the 2 min grew stronger and migrated to a 3 min chart.

This morning...

AAPL's 5 min chart is now starting to lead negative. This will make it quite hard for AAPL to make much upside headway unless it is specifically ramped as other levers fail , to goose the Q's higher.

 It is the intermediate 10 min chart above and 15 min chart below that would even cause me to consider an AAPL short. They go from in line or price/trend confirmation at the green arrow to negative divergences late last week leading to Monday morning's decline and since, an even deeper leading negative divegrence so the 2, 3, and 5 min charts are now migrating to the stronger 10 and as you'll see below, 15 min charts.


 While not a screaming short, there's a clear change in character from in line (green) to a couple of negatives on a pretty strong 15 min chart, given the 30 min below...

Also showing a change in character, AAPL may become a short even without the head fake move above the triangle where I think it offers the best short entry. The simple fact is AAPL simply may not make that move. Alternatively, if these charts which were not as weak Monday, which is why I required the better entry higher with less risk, continue to degrade at the pace they are currently, we may have a new reason to short AAPL , a reason that wasn't present Monday and that's the longer charts showing heavier distribution.

I still have upside price alerts set and would still not rule out AAPL being used to ramp the Q's and rotate to Tech, but this is also an interesting development worth keeping our eye on.

Even if you are not interested in trading AAPL short, it is a bellwether so what it does is important.

A.M. Update

I have to laugh when I see things like this, although I do respect Jim Reid from Deutsche Bank, here he is this morning telling us why the market bounced yesterday...

"All in all yesterday turned out to be a rather positive day for risk assets despite the retracement of Monday’s rally in Oil. Risk sentiment was supported by the better-than-expected auto sales for November along with what was also viewed to be a reasonably decent day for US economic releases. "

I suspect this is a case of those who know don't say and those who say don't know and I suspect Jim knows , but won't say.

The above statement pertaining to yesterday's market performance is a result of the public's need to understand and try to make sense out of a chaotic market that is impossible to understand in a 30 second CNBC soundbite, it's just too compllicated, but it can be understood, just not in a sound bite.

However this does satisfy the public's need to feel like they have some control, even if it's just understanding why they took the loss they did on the day.

The reason I laugh is because yesterday's market performance was known to us by 10 a.m. on Monday morning, we knew an oversold (1-day oversold) bounce was coming. For instance, from Monday night's Daily Wrap after having made the case through the entire post...

"This morning at 10:02 a.m., A.M. Bounce Attempt

"...if there's to be a bounce in the area, this is probably a good place for it, first...Volume is increasing on the downside, this is no different than macro capitulation, the concept holds true intraday, it can cause a short term flame out to downside momentum and a bounce, whether a gap fill or not I can't say, it doesn't look good right now."

That's the same concept intraday as on the close or on a weekly chart.

In fact although I usually save this for the end, today's Dominant Price / Volume relationship among the components stocks in the major averages was exceedingly dominant in every major average:

20 of the Dow 30, 94 of the NASDAQ 100, 1469 of the Russell 2000 and 375 of the S&P-500. The relationship was, Price Down/Volume Up.

This is a 1-day, very strong oversold signal of the 4 possible relations, it's essentially a little bigger version of what I said at 10 a.m. today about volume and AAPL's intraday trade finding their lows at a large volume spike (largest on the day by far).

This suggests a 1-day bounce or a short term oversold condition, which fits with the Index futures 5 min charts above and the 3C readings as we have expected the market to build toward a bounce/gap fill all day. This gives us some great opportunities to short in to strength, AAPL as mentioned above has a specific plan of action and area I would short it, transports too, but literally hundreds of assets look fantastic. Earlier today I called this a "GIFT HORSE".

Adding to the 1-day oversold condition is the 9 S&P sectors with a big 7 of 9 closing green with the leader, Energy only up +.35% while Industrials lagged at -1.28%.

Further adding to that is the 238 Morningstar groups we track. A MERE 20 OF 238 CLOSED GREEN!!! That's DEEPLY 1-day oversold so a bounce tomorrow is exceptionally high probability, WE NEED TO USE IT AS THE GIFT IT IS, if you need convincing, just look at Leading Indicators or last night's MACRO Futures.

The averages themselves didn't have very impressive divegrences at the close so I suspect we get some kind of overnight ramp/support, however just so you understand how close the averages themselves (in addition to Index futures) are to the brink, after the probability of a bounce tomorrow, this si what they are looking like beyond..."

In short, just that small section of the Daily Wrap showed we had predicted the bounce much earlier and gave several very solid reasons out of many why we would see a bounce yesterday right down to the IWM outperforming and the NASDAQ 100 underperforming.

I hope the point is well taken about the media and human nature.

As for what we are looking at in coming trade, nothing has changed, I expect the bounce to start to die off today, here's why.

 5 min Es / SPX futures 3C chart. This is the positive divegrence as of Monday, this is why we knew a bounce was a near certainty for Tuesday (yesterday).

And moving to today...

 That divergence is seeing distribution and should turn more negative taking futures and the averages down with it.

The NQ/NASDQ 100 futures 5 min chart had no positive divegrence,  this is how we knew that it would be the laggard of the averages yesterday.

Today the NQ 5 min chart looks worse, leading negative so perhaps Tech and AAPL don't bounce as I thought they may rotate in today before the bounce ends.

As for TF/Russell 2000 futures, this is why we predicted out-performance in the IWM/Russell 2000, it had the strongest divergence which has now started going negative.

As far as opening action, there's not much in the way of divergences, ES 1 min is in a VERY tight range here of about 4 points, no divergence in to the open.

NQ in a 1 point range and no divergence other than the small steering divergences causing the lateral range.

And the same with Russell 2k futures.

When in doubt, go with the longer chart which is clearly turning negative.

As for USD/JPY, I still expect it to make a break to the downside, it's negative on the 1 min and...

On the 5 min.

In addition...

The $USDX is very leading negative on the 5 min and the yen...

Is leading positive, both suggest the USD/JPY fall shortly taking index futures with it.

Gold looks like it will remain largely flat, but Silver futures are clearly seeing distribution and likely to fall, gold may be pulled down with them on a draft.

 Oil is building a positive divegrence and base, but it still needs work, I suspect it pulls back to recent lows to strengthen a short term bounce base.

And 30 year Treasuries are doing the same, not quite ready, but building a base to bounce off, pulling yields and the market down with those yields on a rising Treasury complex.

I don't expect much in to the open, but the day should develop negative as it continues and we should see short trades setting up.

Futures Follow Up

As I said, if I see anything interesting.

In tonight's /Daily Wrap , if you had time to read it yet, I ended with,

"I'll check futures before turning in and update if I see anything exciting, but I'm expecting some JPY  or USD/JPY overnight weakness, again the opposite of the overnight session last night."

This is one of obvious levers for ramping the market in overnight trade which it did last night, but I suspect from the looks of $USD and the Yen futures (/6J) that we'd see some USD/JPY weakness, which looks to have been building all day.

Well just as I published and looked at futures, USD/JPY started getting volatile on the downside.

 The USD/JPY which stalled out through the cash market right around the European close is now starting to make some moves to the downside (far right) on this 1 min chart.

The reason I suspected USD/JPY weakness are the individual currencies (futures)... for example...

 Yen positive 1 min divegrence building all day, so much so that it migrated over to the next longest chart at 5 min.

Yen 5 min leading positive divegrence. Since the JPY is second in the pair, that's essentially long USD and short the Yen which causes USD/JPY to rise and most Index futures tag along although over the last 2 weeks the carry trade correlation has been badly damaged, another message of the market as I suspect carry trades are being wrapped up. If the Yen strengthens and believe me, I've seen stranger things, the carry cross starts to become a very big loss at the leverage they trade FX pairs at.

Of course it takes two to tango so looking at the $USDX...

The 5 min chart is in a huge leading negative divergence with no 3C support whatsoever for the last parabolic ramp to the right, meaning it's free to "free-fall" which would send the USd/JPY lower and have ripple effects through the commodity complex, but more specifically to Index futures which I suspect are going to end their 1-day selling climax from yesterday morning or the 1-day oversold condition, especially in light of tonight's internals (Dominant Price/Volume Relationship, The S&P and MorningStar sector performance, all exactly the opposite of last night's deeply oversold suggesting a 1-day (today ) bounce.

As for the Index futures themselves, recent 3C volatility has picked up in certain areas...

 ES intraday 1 min which is not a great chart for the entire overnight session, but as of now it's getting ugly just as the USD/JPY is seeing volatility rise and downside in price.

Also the winner today, Russell 2000 futures (/TF) is also showing a sharp leading negative divegrence in after hours that's moving very fast, there's no doubt these are connected to the FX market action mentioned above.

NQ/NASDAQ 100 futures are still in line, but I suspect tomorrow the bounce ends and volatility on the downside picks up, but as today goes the NDX was the worst performer and of the 9 S&P sectors that all closed green (the opposite of last night), XLK//Tech was the worst performing at a mere +0.02% gain, thus it's likely to see rotation in tomorrow and perhaps that AAPL trade will fire off. I suspect everything starts falling aapart after that and relative performance see's the QQQ outperform tomorrow, although its divegrence is very poor from the start.

Not much has changed in the Index Futures 5 min space, which you can see here in today''s Futures update, Index Futures Update

While not leading negative, you can see the 5 min charts all saw negative divergences/distribution in to today's cash market gains, that is the same, but may deteriorate further as the night goes on.

The Nikkei 225 futures should be effected as well and they look as if they are...

Nikkei 225 futures in line on the uptrend or 3C confirmation (5 min chart), but recent sharp negative 3C action right as the USD/JPY as well as $USD and Yen all signal USd/JPY overnight weakness as suspected today and tonight.

I'll post anything else that pops up. So far it looks like an interesting opportunity to use price strength in the averages on the bounce to short in to, although I and many of you are already set up and just being patient.