Quick Market Update

So far since Friday's The Week Ahead post, we really aren't far off track early a.m. / early week projections,

"As for early action next week, it looks like early weakness on Monday, although I think it will regain some strength in the later part of the day or some time afternoon-ish."

Of course this is just very short term intraday forecast/expectations,  going a bit further from the same post, 

"While I do not think we are done with our bounce we have been expecting and are really only a few days in to, I think we are seeing more aggressive than normal selling like we saw on the attempted 1/6 bounce that was prematurely but short on 1/8.

I suspect it probably won't take too much longer (in to next week) for the bounce to start to fail, leaving us some good opportunities to set up some nice short positions or add to.

I am still waiting on a few leading indicators to give clear signals , but this can happen very quickly."

And...

"Finally I think the IWM/Russell 2000 outperforms the other averages early in the week as it has not met minimum targets and has some better looking charts relative to the others."

So far we aren't too far off. I'll use the SPY as a broader look thus far although not too much will have changed this early on some of the longer charts, it still gives some feel for action.

 This is the intraday , late day weakness in 3C last Friday and that weakness picking up where it left off this morning, but based on the charts, I didn't expect it to hold too much past noon time. You can see an intraday, small positive divergence at the SPY lows this morning and pretty much in line since. We have been seeing negative divergences in to HIGHER PRICES, there's not much point in selling in to lower prices from a smart money point of view and as we had already known and as you'll see below, this bounce cycle was set up in advance, clearly suggesting (based on short and longer term charts) that it would be used to sell in to. Thus, with the SPY barely green or vacillating around the unchanged mark, there's not much to sell in to intraday.

 On a longer 3 min basis, you can see the failure of the bounce off the lows of the 6th, which started with some unexpected negative divergences on 1/8. The next small base area is a small "W" bottom on the 14th through the 16th and this is what we are currently tracking as I have suspected that these two bases are separate events with the second one forming because of the first one being cut short. SPY has not even made it to our minimum target on the upside posted over a week ago which would be the intraday highs around the 8th (minimum target projection).

The point being, you can see the small stage 1 base (white), in line (green) as the SPY has not crossed above the minimum target which is where I'd expect to see stronger negative divergences pick up and for the first time since this second small "W" base has formed, we are seeing a small negative divergence starting to unfold as we approach the minimum target area.

 This is a closer look at the same 3 min chart above and the first negative divergence starting to form since the "W" base's positive divergence.

On the slightly bigger picture (with a multiple timeframe analysis perspective), the 5 min chart shows the negatives off the first base/cycle from the 6th which went surprisingly negative prematurely on the 8th and our next base area from the 14-16th, yet look at the slightly longer term perspective with a much deeper negative divegrence on a 5 min chart, which also happens to be where I consider there to be a big difference between the 1-3 min charts and the stronger trend charts (starting at 5 min).

 The 10 min chart shows a bit more history with the negative divergence at the rounding top area from December, remember our forecast for a failed Santa Rally and a failure in the "January Effect".

The divergence on this chart is a much stronger one and is what I believe will be the next short term trend as soon as we go negative on the current cycle started from the 14-16th "W" base.

Of course I think we'll need to see the SPY at least take out the minimum target area before we see that happen.

Also remember last week the weakness we were seeing in some of the obvious ramping levers, HY Credit, there was some VIX futures strength, Treasuries and yields of course and don't forget about last week's very sharp and sudden elevation in the SKEW Index (or Black Swan Index). Other leading indicators have not given a clear negative signal yet which is not surprising given where we are at in this process (specifically the latest "W" base- 14th-16th).

As for the Q's

 On the 1 min intraday, they too saw early A.M. weakness and a similar intraday positive divergence like the SPY 1 min above and are in line as of this capture as they have not crossed in to the green on the day (above Friday's close).

The 3 min chart on the Q's like the SPY, which has been where the positive divergence for the small "W" base has largely been seen, is also starting to see the first negative divergence, but in this case the Q's have at least crossed above the minimum target that we were looking for over a week ago.

 IWM intraday is leading and showing a negative divergence in to higher prices above Friday's close, the relative outperformance in the IWM/ is what we expected to see from Friday's, The Week Ahead...

"Finally I think the IWM/Russell 2000 outperforms the other averages early in the week as it has not met minimum targets and has some better looking charts relative to the others."

So far this morning, that has been the case. Note the small intraday negative divegrence in to higher prices which is what we had expected to see on this small cycle.

Intraday breadth is not exciting, pretty much contained to a very mellow +/- 750.

Until I see enough objective evidence to suggest otherwise, I think we still are in the bounce cycle and will try to make higher prices, but I also expect they will be sold in to and likely, as posted Friday and as has been the expectation since before the bounce even started from the "W" base, roll over to offer some new opportunities and set-ups that come to us, rather than chasing anything.

I'll be posting some broader analysis as the a.m. trade burns of and we get a better feel for Leading Indicators.

I'll also be covering AAPL considering earnings tomorrow after the bell. That's coming...

The 3C Next Day Concept Hold Up

Beyond the USD/JPY intraday negative divergence, right up until the cash open we didn't have anything other than "in line" or 3C price trend confirmation , however the concept of 3C charts picking up where they left off during the cash market, worked once again. For newer members, this is the link to Friday's The Week Ahead post and the early A.M. expectations based on how the 3C charts closed Friday,

"As for early action next week, it looks like early weakness on Monday, although I think it will regain some strength in the later part of the day or some time afternoon-ish."

Almost amazingly to me even though I've seen it so many times, price action picked up right where it left off on the intraday negative divergences in place at the close Friday.

 SPY and its closing intraday (Friday) negative divergence...

QQQ and its closing negative

And IWM and its closing intraday negative divegrence.

Amazingly they all picked up, literally right where they left off on Friday. For newer members, this is a "Cash market" concept, although we have seen it happen in futures activity, it is really seen most often in the cash market hours.

So once again, the concept pulls through and we start the A.M. session off with early weakness.

The rest of the The Week Ahead post from Friday afternoon can be found here. I did expect early weakness to give way later in the morning, however we are still watching for what I expect will be continued deterioration in to our bounce off the 1/15-1/16 lows.

A.M. Update

Good morning, 

I hope you had a great weekend.

Overnight futures sold off sharply, erasing all of the Draghi QE3 gains on an event that was probably just as widely anticipated if not more than the ECB's QE, the elections in Greece and the anti-austerity/anti-bailout party, Syriza, winning and going on to form a coalition government with another anti-bailout party setting the stage for a Greek exit from the Euro-zone.


How the market didn't discount this I have no idea, but the sharp drop in futures overnight was evidence of the concern about a clash between Syriza and the Troika and Germany which will likely not end well for European banks.

Since then, Index Futures have recovered just about all of the overnight losses with an in line 1 min intraday chart thus far, I've been trying to wait as long as possible to see if it turns negative as the intraday charts closed negative Friday, suggesting a negative or weak a.m. session this morning, followed by some later strength.

ES 1 min and all of the other intraday 1 min Index future charts are in line this far as they have regained the overnight losses. They appear to be staying in line for the moment, but as you have often seen, 3C charts pick up where they left off so I'm still anticipating some early weakness in the market during the early a.m. session even though we don't have the Index future divergences yet.

We do however have a negative divergence brewing in USD/JPY which as you know shares a tight correlation with the Index futures more often than not and has seemingly been futures' savior this morning, but we know how the market often pops a knee jerk surprise at the cash open, this may be it....

USD/JPY intraday negative divergence starting around 5 a.m.

Oil saw a jump when  OPEC's general secretary Abdalla El-Badri said oil prices could reach $200 a barrel if there's a lack of investment following this price slump.

Our larger picture is still calling for a decent bounce in oil that likely sets off a short squeeze, but I don't see this as a trend reversal, there just doesn't look to be enough base to support anything like that at this point.

I'm also still expecting a pullback in GLD, one which I think is tradable, but what has become more interesting recently is the possibility that gold is starting to look like a longer term long as we have been watching a base develop there for sometime that seemed to go quiet for a bit. Thus a pullback in Gold will be looked at very carefully.

As for the ongoing bounce, nothing has changed since Friday's The Week Ahead post which can be summed up as,

"I suspect it probably won't take too much longer (in to next week) for the bounce to start to fail, leaving us some good opportunities to set up some nice short positions or add to.

I am still waiting on a few leading indicators to give clear signals , but this can happen very quickly.

As for early action next week, it looks like early weakness on Monday, although I think it will regain some strength in the later part of the day or some time afternoon-ish.

The important base-charts are seeing damage so I think we are getting very close, I'd still be patient.

The next trend in multiple timeframe analysis continues to deteriorate so it's already set up for a much nastier move to the downside.

Finally I think the IWM/Russell 2000 outperforms the other averages early in the week as it has not met minimum targets and has some better looking charts relative to the others."

I'll be checking on intraday charts in the futures right up to the open, if anything changes and suggests the weaker a.m. tone that I expected from late Friday, other than some evidence we are seeing of weakening in USD/JPY, I'll post it.

As far as the market bounce goes, nothing has changed since Friday's post excerpts from above.

I'll see you shortly.

Broad Market Update

I'd say judging by the overall tone of the market today, last night's Daily Wrap Dominant Price/Volume relationship and the Sector indications, were right on...

"The Dominant Price/Volume Relationship was Close Up/Volume Up which is the most bullish of the 4 relationships, but ironically it also tends to lead to a 1-day overbought condition most often seeing the following day down....

Eight of nine S&P sectors closed green led by Financials at +2.47% with the safe haven Utilities lagging at -.43%.

We also had 227 of 238 Morningstar groups close green, overall not bad at all, but both imply the same thing as the Dominant P/V Relationship, a 1-day overbought condition."

As for the example charts mentioned in the Week Ahead post, here they are (the SPY is a good overall example).

 Since 3C charts most often pick up where they left off in the cash market (even over 3-day weekends), I'd say the intraday 1 min negative should see Monday open weak. However, right behind that is the 2 min chart...

This isn't weak and this is why I said I think by noon-time some strength will filter in to the market, but this is really small potatoes.

The same thing is apparent with the QQQ 1 min, negative

And while the 2 min is a little negative, it should lead to mid-day or late day strength.

The IWM is the same (2 min).

And while the 3 min is a bit negative, not enough to keep it from pulling it back together, especially given the IWM hasn't hit the minimum targets and for that reason (I believe) has better looking charts relative to the other averages.

Here's where we get in to the more important trend changes. The 3-5 min charts have been where the based formed and about as far out as the divergence (positive ) went... 

 You can already see damage on the SPY 5 min and just compare it to the last top areas and divergences in the SPY (5 min).

While we are not there yet, we are not far at all.

The same is apparent in the QQQ 5 min, deterioration on the most important chart for this bounce.

The IWM went a bit further out to 10 min, as I said it has better looking relative charts, there's some damage, but it still has a bit more to go to at least hit the minimum targets posted last week.

At the 10 min chart where the next trend is lining up (down), you can see clear and heavier damage, certainly in line with the divergences that sent the SPY lower from each of the previous pivot highs.

The QQQ 10 min needs no commentary.

And the IWM 15 min is again stronger relative to the other averages, the minimum target is the yellow trendline, After that I think we see heavier selling in the IWM and more deterioration along the lines of SPY and QQQ.

 SPY 15 min is already or still leading negative, this is the intermediate or sub-intermediate trend vs the current short term trend, we should return to this trend and lower highs/lows.

The equivalent for the IWM is the 30 min chart. Remember the range in the IWM and Crazy Ivan shakeout we were looking for above the range and the fact we expected it to be a head fake/failed breakout, there it is in the yellow box, since then ther has been even more damage done here.

Finally the HYG positive went out to the 5 min chart, you saw the HYG charts today so no need to post them again, but I did want to show how much damage has been done and how quickly. I suspect early next week HYG will be leading to the downside in actual price and at that point, the market shouldn't be far behind.

I may post some additional information after taking a quick look around, but I think this is a pretty fair summary of expectations in to next week, we've had a pretty good bead on this market so far with the bounce and what is now showing up as more aggressive than usual selling.

Have a GREAT weekend!

The Week Ahead

While I do not think we are done with our bounce we have been expecting and are really only a few days in to, I think we are seeing more aggressive than normal selling like we saw on the attempted 1/6 bounce that was prematurely but short on 1/8.

I suspect it probably won't take too much longer (in to next week) for the bounce to start to fail, leaving us some good opportunities to set up some nice short positions or add to.

I am still waiting on a few leading indicators to give clear signals , but this can happen very quickly.

As for early action next week, it looks like early weakness on Monday, although I think it will regain some strength in the later part of the day or some time afternoon-ish.

The important base-charts are seeing damage so I think we are getting very close, I'd still be patient.

The next trend in multiple timeframe analysis continues to deteriorate so it's already set up for a much nastier move to the downside.

Finally I think the IWM/Russell 2000 outperforms the other averages early in the week as it has not met minimum targets and has some better looking charts relative to the others.

I'll post some example charts just after this.

In addition, don't forget the damage already seen earlier today on Index Futures which is just additional confirmation.

NFLX Trade Set-Up Follow Up

I'm aware there are quite a few of you either in NFLX or wanting to get in so as a follow up to the post earning's NFLX trade Set-Up and yesterday's NFLX Follow Up, here are today's charts.

This is one of the stronger moving divergences out there, but if you check the original Trade Idea, the position is not ready in my view until the 15 min chart is taken out, this is the one that was set up to send NFLX higher to fill a large gap, despite really crappy earnings and it's the one I'd be patient and wait for, I think if you do that, you'll have a really nice entry and longer term trending position.

 Remember this week's extensive comments about "Perception" being the driving force behind the market, NFLX is a good example of that as earnings really stunk, worse yet, guidance was off.

I don't see any reason for NFLX to have made the post earnings move it made other than the large gap that I'd think some middle men got caught off guard and had inventory at those higher levels.

As was also mentioned, specifically in shaping perception through price action, the 15 min chart looks like a perfect set up to move NFLX no matter what the earnings were, shaping the knee jerk reaction of perception and allowing those middlemen who were caught on that gap down with inventory at higher levels to alleviate that problem.

 NFLX intraday today so the pounding in the 3C charts continues, one of the strongest divergences out there.

This is a longer view of the same chart so you can see the extent of the leading negative divergence.

The 10 min chart is seeing movement to a new leading negative low so I'd think it won't be long before it migrates to the 15 min chart where the entire set up took place.

15 min "W" bottom, more than enough gas in the tank to fill that gap. We'll know things have changed once this chart goes from in line to negative and judging by the depth of the divergences, I don't think it will be too long.

Market Update Part 2

In taking a wider look at some things, honestly I didn't find what I was expecting, although I can't argue with the HYG divergences posted in the last update, Market Update or the Index Futures 3C charts.

I did find what I already knew I'd find in yields as they have been trashed today, not only in the US, but globally.

5 year yields suddenly and deeply dislocated on the day.

10 year yields as well

And 30 year yields.

Here's a longer term view of how yields tend to pull equities (SPX in green) too them.

 30 year vs SPX.

HY credit wasn't constructive, but I thought maybe it would look a bit worse.

What did change in the mean time is the market averages suddenly look a lot more like the Index futures' charts.

TICK is trending subtly down.

 SPY intraday leading negative

SPY 5 min leading negative

 QQQ 1 min

 QQQ 3 min  negative

And the next stage trend, QQQ 15 min continues to deteriorate.

IWM 3 min hasn't really even crossed the minimum upside target, so I would not expect to see a lot of selling as of yet, but the 3 min chart is showing something today.

The shorter 2 min is quite a bit sharper.

The way things are setting up now would be more in line with the breadth indications from yesterday for a 1-day overbought condition and a red close today.

While I didn't find everything I thought I might find, yields are certainly no joke, they are one of my favorite indicators and they are severely dislocated today.

Market Update

I can't get as much information out in this update as I'd like just because things move pretty quickly and I'd like a little more time to take a look at some other assets and indications which I'll post in a follow up.

Thus far today is acting like a normal options expiration max-pain pin day (open near Thursday's close, range bound price, no big divergences)...

 SPY intraday range today.

The Daily IWM chart with a Doji Star today, again a very tight range intraday.

Intraday TICK is rather range-bound too.

TICK isn't in an ultra-tight range, but is trending laterally and not seeing much in the way of extremes.

This is also in line with yesterday's Dominant Price/Volume Relationship and market breadth indications, both suggesting the market calm down and maybe even close red today.

Looking through the averages, I see several signals here and there that are starting to jump out, I don't think we are seeing any thing suggesting this bounce is at an imminent reversal, so I'd try to remain patient, I know it can be difficult.

The one thing I have found with the market averages is that a few have deeper negative signals, all in to higher prices as we have expected and waited for (smart money doesn't sell in to lower prices unless it's a Black Swan Event), but there's not very good confirmation between the averages where some of the stronger signals may be seen in one, they aren't in another which would normally just tell me that we are still in the bounce process and to continue to be patient and let it work through it,  the signals will show up.

However, it is not that simple and I am seeing some things that are at minimum showing selling in to price strength, distribution and perhaps something even more... perhaps that, "Aggressive" selling we saw in on the first bounce attempt the first half of January.

I'm seeing this more so in Index Futures and some early signs in Leading Indicators which is the area I want to look at more closely.

 ES 1 min is nearly perfectly in line with 3C, this looks like the typical max-pain options expiration pin. The only time (on TF or NQ charts), I see any divergence, has pretty much been a "steering" divergence to keep price in the peg range or in the NDX futures' case, some distribution signals, but otherwise, nothing too exciting here and really more in line with what I'd theoretically expect to see on an op-ex pin than we usually see.

 It's the longer charts where things are showing real movement like this ES 5 min which was negative yesterday and continues today . This is a clear indication of distribution/selling inn to higher prices. 

As to the question, "When is the reversal to the downside?" the answer really would mostly be, "When we see deep enough divergences that we know all of the gas in the tank form the accumulation stage is long gone" in addition of course to other indications that tell us the market is setting up for a new trend change like HY Credit, etc.

 The 15 min ES chart shows the base area (white trend line marks the approximate breakout level from the base area) and negative 3C divergences in to higher prices. Interestingly, even today when prices haven't moved much higher, but are still elevated above the accumulation range, we see a leading negative divergence which may be the evidence I was talking about in regard to the same "Aggressive" selling that caused the early January bounce to fail on the 8th.

 The 30 min chart gives you a view of part of the accumulation zone/base as well as 3C distribution in to higher prices. This is a pretty serious timeframe and the moves that occur on this timeframe are fairly large.

Just like yesterday, I see an intraday positive in VIX Futures.

On a 5 mi chart of short term VIX futures (VXX) there's a leading 5 min divergence in place and building. This is one of the leading indicators I need to do some more analysis of.

 TLT (20+ year bond fund) shows a positive divegrence at yesterday's lows and a gap up today, sending yields lower.

And what really grabbed my attention... HYG, High Yield Corporate Credit, which is one of the mainstay ramping levers used, it's such an effective giveaway that it has been a big part of makoing every major call through the entire year from the September highs to the October lows and rally, to even this most recent move's base.

 This intraday (1m) HYG 3C chart is more aggressive than I'd expect given the kind of day it is and the other 3C charts on other assets which are much closer to inline intraday.

This looks to be migrating since the ECB statement to longer charts, this would be early in the process, but it can happen quickly.

Even the 5 min chart is showing the migration of the much sharper 1 min negative.

This is a dead give-away when we have a strong signal. I'll be the first to admit that 1 or 2 days does not make a trend and it's dangerous to make assumptions based on the limited information, that's why I need some more time to look closer at these assets , but so far it looks like we are in the process already of seeing these levers getting ready to pack up and leave the market's bounce as they move back to their longer term bearish trends.

I wanted to get this post out, but at the same time I do have more to look at and I will update you.

For now, just like earlier in the week when I said we are still expecting a move higher, I'd say be patient, we are still in the process. However, we might just be seeing the very early, initial signs that this may not be as long lived as the base's gas tank might suggest.