Taking UVXY (2x long VXX short Term VIX Futures) off the table for now

I'll post the exact details, I suspect I'll be re-opening it at a better price point early next week, but for now, I'm closing out the 10% gain.

Quick Update

As I'm trying to get the "Week Ahead" post together, I've stepped back just long enough to see an intraday positive divegrence and a bounce in to the close likely now that most options have been cleaned up.

I'll have more in a moment.

USO Update

I have to take a break from the broad market for a few minutes and this is good advice for anyone using 3C or really any other indicator. Toy have a strong edge when the signals of the indicator you are looking at jump off the chart. When you get to the point that you are examining them with a microscope and trying to divine what they are telling you, in my experience they aren't telling you anything but to back off and wait until they do.

Just like you and I are not making trades every moment of the day in the market, large underlying flows, moves that have an edge are not taking place every moment. There's always something or someone doing something, but that doesn't mean that this is where the bulk of money flow is moving. In other words, sometimes the market just isn't in a phase at that particular moment in which an underlying flow that contradicts price is giving you a huge edge. The worst thing you can do is torture a chart in to telling you something. We all have our biases even if they reside at a subconscious level;  so anytime the charts are ambiguous, you are naturally (even if you are not consciously aware) going to enter in to some type of cognitive bias and take ambiguous data that's not telling you anything in reality and try turn that in to justification for your/our biases which again, we might not even be consciously aware of.

This is like picking a stock and hoping the market cooperates which is what most people do. The better system is to understand what the market is likely to do and then find the best stock that fits with the broad market's pull. 

In nautical (surfer's) vernacular, you want to surf with the tide on your side, not against it and not trying to convince yourself that one small wave has anything to do with the direction of the tide if that makes any sense. As a surfer, especially in South Florida where nice waves are not all that common, it's easy to look at the waves and see 1 wave in a set that gets your hopes up that there might actually be something building when the rest of you knows that the tide charts and the swell data is completely at odds or even worse, not telling you anything.

Quite simply, time to take a break and cover something that we have an interest in and some better data at the moment.

While I've had more recent USO/Oil updates, I want to go back to this one from Tuesday, March 10th because our forecast was right on, thus it's likely that the rest of what we were looking at is probably pretty valuable as well.

These are charts and excerpts from Tuesday's update...

" I wasn't in such a rush yesterday to get out the USO post after I took a quick look at the charts because there wasn't anything that needed immediate attention and the only trade right now other than the current long (1/2 position) would be pretty speculative and from the risk:reward perspective, gets a little dicey.

 This was what a quick glance at the 1 min chart looked like, I could tell the highest probability near term was that this trend on this timeframe continue for now.

 It has been charts like this 15 min that show the positive divergence/base and a downside reversal which doesn't look like heavy selling/distribution, it looks like a base/range is being created and smart money simply isn't biting above a certain level.

There is this descending triangle that's becoming very noticeable which is one reason I don't mind holding the 1/2 size USO long right now, there's a decent chance for a head fake move above the range to ultimately get USO to move to the lower end of the range faster to be accumulated"

Since Tuesday, while we didn't get the upside head fake move which is fine because it was only meant to help USO move lower below the descending triangle above for the reasons laid out above this Tuesday.

At present...

 This is the decline BELOW the ascending triangle that was forecast Tuesday. The USO counter trend bounce theory as accumulation began in January, is now not the most probable outcome. The base is overkill for a counter trend rally, that leaves two scenarios likely; a consolidation continuation price pattern to new primary trend lows or a widening of the base to support a primary trend reversal.

Looking at a weekly chart of USO, you can see what looks like a "W" bottom in price forming which needed the break down this week to achieve, you can also see conspicuous volume not at all consistent with a consolidation (bearish) continuation pattern, it's much more consistent with capitulation, the end of stage 4 decline and the start of a stage 1 base.

Besides that, Goldman Sachs came out today and said, 

"We believe that the key force pushing commodity markets higher has been retail investor inflows into oil ETFs. Importantly, these strong inflows have emerged despite weak commodity fundamentals, and with arguably a more bullish outlook for equities than for commodities…"

While hardly scientific (although a case wouldn't be hard to make), when Goldman comes out with free advice, I usually want to be on the other side of the trade.

Look, I understand the storage issues and reaching near capacity, I understand there's not a whole lot of fundamental reason to believe oil is going to turn to the upside rather than significantly lower.

The fact is, I've been in this situation dozens of times on a large trend basis like this in which all form of rational though disagreed with the charts, but in the end from my experience, the charts were right and someone knew something way ahead of time that you couldn't even imagine at the time. There was a time when we were getting very strong $USD long signals in the middle of a nasty downtrend and we bought them only to find out AFTER the move up started, that the F_E_D changed all kinds of banking requirements that sent the $USD higher, I wouldn't have even guessed at that being a chance at the time, I just knew what the chart's showed.

So this week's decline below the triangle was not only forecasted in advance of it happening, but needed to happen if a wider/stronger base that can support a primary trend reversal is to take place.

Beyond the volume, you've seen this chart...

The 2 hour 3C negative divegrence wasn't wrong at the top even though the top (not the best drawn trendlines-sorry) continued on for months, I think you'll agree, you probably wanted to be on the short side of that trade. Well now like then, we have a screaming divegrence, it may not look that way, but this is a long term 2 hour chart so it's big ad the price pattern being traced out is moving toward a double bottom. Not that this matters at the moment, but remember the highest probability in a true double bottom is a break below support on a head fake move and in this case with all the stops and shorts on such a break, it's a near certainty, this would be the ideal area to go long USO so long as it is confirmed as a head fake move as it's the best price entry, the lowest risk and the best timing.

 This 30 min chart demonstrates a typical double bottom head fake move, ironically it's the exact opposite of what Technical Analysis teaches with regard to double bottoms in which the second lows should fall just short of the first (stronger), thus when the second low breaks below the first on what we call a head fake move (as long as there's confirmation), technical traders are taught that it's a failed pattern and they should, ready for this... go short!

What happens when traders go short on a head fake move that is going to move back above the support/resistance trendline? Ab ear trap is created and a short squeeze follows which is one of the reasons head fake moves are the last thing we see before a price reversal as they have built in momentum that cost smart money nothing, in fact smart money gets to accumulate more shares in size and on the cheap as short sellers sell.

I'm assuming the divergence isn't lost on you either.

On a 15 min chart in the area of the triangle and expected break below it, I mentioned that distribution at the top was not that strong, I wouldn't want to sell anymore than I had to in order to get rice to move lower if my goal was to accumulate as many shares as possible.

The white trendline would represent the double bottom area.

 As for short term charts, this is where we'll first see any new divergences on a move such as this one below support. Rather than confirmation of the downside, we are already seeing positive signals. As they strengthen, they migrate to longer term timeframes that show stronger accumulation, that process has begun as well.

At #1 distribution isn't very big, just enough to turn price down and at #2, a positive divegrence as price breaks support where shares will be stopped out and available to be accumulated.

 The 3 min chart shows the same

As does the 5 min chart

And I don't have to draw it, you can see it on the 10 min chart, presto, MIGRATION of the divegrence, it's getting stronger where supply is available in size and on the cheap.

As for our custom DeMark inspired buy/sell indicator on a daily chart, well it has some interesting signals too, the first positive at the area of the first low in a potential double bottom.

Rotation Still Possible

Last Friday our week ahead forecast was for early strength in the week which came on Monday to be followed by additional weakness, remember this is a short term forecast for the week ahead, not a stage 4 cycle forecast which is much different, we're more looking at the nitty-gritty and what we can use on a tactical basis, not a strategic one which should largely already be in place.

As you probably recall, by Tuesday I/ had a gut feeling we were going to see a bounce or I probably should have called it more appropriately, a consolidation/correction, however in a downtrend, a counter trend bounce is pretty usual, especially early on if you recall the charts from the September highs to the October lows and their bounce within that period.

I've suggested that the obvious outperformance in the Russell which is not a good sign with so much relative performance difference between the averages, may rotate out and at that point the SPY and QQQ rotate in as they have barely surpassed their base area for the week.

The charts below should give you a good feel for why I would not trade this "potential bounce" on the long side unless I had unbelievable evidence that supported the bounce. I think I've made the reasons pretty well known having to do with trading against the underlying trend, trading against the February cycle's staging (stage 4-decline) and the nature of counter trend bounces n a rising volatility, decline.

These charts just put a face on that reasoning...

 From the point we suspected a bounce on Tuesday, but had no strong charts to back up playing that bounce on the long side (rather I'd short in to any price strength as price comes to me), you can see the SPY not only barely broke above its base/range area yesterday at the red trendline, but as of today, is right back to where it was on Tuesday, that's a lot of volatility in a short period that has gone no where, in other words RISK without reward.

The QQQ didn't even make it out of the base area and is right back to where we were Tuesday, again, unless you're day trading, that's a chopping block of volatility and risk.

 The Dow which had a stronger day yesterday is only +.21% above where we were on Tuesday.

The only average to move and this is generally not thought of well when only one average moves with no confirmation, the IWM/Russell 2000, still only gained +1.45% as of now, I suppose with options at the right strike and taken off at the right time yes you can make money, the question you have to ask is what are the probabilities you would have and are they worth the risk?

I suppose a large part of that answer depends on what kind of trader you are, day trader, etc., but from a daily chart perspective as we see right now, this is stand down and hope the market comes to you giving risk free or at least much lower risk opportunities.

I'm still watching the underlying action, it is still all over the place as the relative performance between the IWM and the other averages is so not a big surprise.

 You can see on this QQQ 2 min chart the early strength in the week forecasted last Friday.

The last two hours on the week (Friday) often give us some of the best data of the entire week.

Right now I see the Q's have not been effected that badly from this morning's turn to the downside. This may change and this is what I'm watching, but as we stand right now...

This 5 min QQQ chart shows it still has gas in the tank. Unlike the Russell 2000/IWM that gave the market something to sell in to, the Q's haven't so the question is, "Do they rotate in?"

SPY 3 min also hasn't seen much damage from this morning's decline, this too may change, but for now...

Again on the 5 min chart there's still gas in the tank as the SPY never gave the market any price strength to sell in to.

As for the Russell 2000, the futures have had the cleanest signals..

 I've been mentioning this building leading negative signal and you can see the "W" base to the left, the R2K did give the market something to sell in to and the signals here make sense.

 This stronger 7 min R2K futures chart shows the same, the "W" base, the bounce and distribution in to higher prices.

As does this longer term 15 min chart that is now at a new leading negative low.

Just looking at the Russell in a vacuum which I'd normally never do because the averages usually confirm each other and usually move together with small deviations in relative performance, it looks like it is coming down.

Looking at the NASDAQ 100 futures on the same 15 min timeframe, I'd say they still have that gas in the tank mentioned above, which to me sounds like rotation which is perfectly normal among industry groups, usually they rotate in and out day to day causing slight variations in the relative performance of the major averages depending on how much of a certain industry group is represented on them, but this is unusual and unhealthy rotation/relative performance divergence in the averages.

ES 15 min may not look quite as good as NQ above, but ti too has gas in the tank.

So to rotate or not?

I suspect wre'll have much better data by the close, I do not think this changes how I'd play this which is to use price strength to sell/short in to. I'd be doing that right now if I saw deterioration in the shorter term charts of QQQ and SPY that suggested the IWM isn't coming back from this and I;d focus on IWM puts or inverse ETFs.

Otherwise, until our edge is clear, I wouldn't be trying to guess what the market will do near term, that's simply gambling.

I also wouldn't forget that we are talking about the market NEAR TERM, not in terms of the February cycle and even the October cycle and the downside probabilities not to mention the F_E_D next week.

From my perspective, I think patience was the key to staying out of trouble this week, I think for the moment it remains the key.

Market/FX Update: Second Verse same as the First

After looking around quite a bit, I did find a divergence and I should have thought of this sooner.

Earlier in the week after having a very opaque day in intraday 3C signals (Wednesday), we got some upside movement, it's rare for 3C not to telegraph that with a divergence before hand on the intraday charts, but it seems the answer was more in the FX/Currency charts and specifically the EUR/USD.

Today, that's the same thing repeating as the pair once again broke the trendline support of $1.05 and heading toward parity ($1.00).

 This is the EUR/USD (candlesticks) vs ES (SPX futures purple line) on a 1 min chart covering the overnight session until now, note the correlation and I'd suggest causation as well.

Earlier in the week when things on short term charts were muddy, we got some sudden price movement, once again, or actually the first movement correlated to the market, once again a break of support at EUR/USD $1.05

Here's a 7 min chart showing the trade since Tuesday and the EUR/USD leading Es/SPX futures (purple).

So where are we now?

 This is the EUR/USD pair and 3C, note there's a negative divegrence about an hour after the European open . There's a VERY small positive right now, I suspect this may be groping for a bottom, but not quite there.

I looked at the individual currency futures that make up the pair, remember with EUR/USD moving down that means the Euro itself moved down and the $USD up.

 The Euro futures (/6E) with the same negative divgerence early morning just after the European oopen , the same as the EUR/USd divergence above and right now 3C is in line, no positive divegrence as we see hints of on the EUR/USD chart.

So where are the hints of a positive divegrence in the pair coming from? The other currency in the pair, the $USD.

Here on a 1 min $USDX chart we see a matching (oposite) positive divegrence just after the European open and in to its climb this morning (Euro and EUR/USD's fall), it is putting in a bit of a stronger negative divegrence which would mean there's some minor strength developing in the EUR/USD which has led the market this morning, but not due to the Euro, due to a bit of Dollar weakness.

Amazing, how many assets are connected to other assets, MACD on a price chart simply isn't enough any more.

Well That Was Interesting

I'm not sure what this morning's slap-down was all about, the only indications other than the IWM/Russell 2000 ones mentioned in the A.M. Update where one of the first assets I looked at on the open, High Yield Credit which has been up the last several days and thus leads the market, but hasn't had any divergence, in line at the best. However this morning it gapped down and was implying (strongly) risk off, no one wants to get caught long when the music stops which is one the of the reasons I don't trade against a stage 4 decline unless I have a darn good reason which I haven't had.

 HYG is in green on this 1 min chart showing the gap down this morning and on volume. In red is the SPY following it to the downside.

Remember there's no "Gas in the tank" with HYG, it has been in line at best, although it has moved up the last several days and its price movement is what draws the market or influences the market. It appears that the smartest of smart money is taking risk off the table.

The actual sell-off wasn't all bark and no bite, there was plenty of bite as you can see the NYSE intraday TICK trend from late yesterday and continuing in to this morning hit levels of extreme readings deeper than -1550, that's a lot of stocks selling off, not just weighted ones.

 The Q's and the SPY to some extent still have gas in the tank, but as I have said since first expecting a bounce Tuesday, be careful with volatility at a fear stage, divergences can be run over pretty quick although not that often, much more often than any other stage, again another reason I don't trade against the charts or the stage in the cycle.

 ES intraday gave no hint of a negative divegrence, but did confirm the move lower.

 TF 1 min does look to be leading a bit more, but overall that's downside confirmation, in other words as TICK shows some real selling and quite impressive, reminiscent of last Friday.

 As mentioned earlier, TF/Russell 2000 futures look like they are nearly spent, not just from a price chart perspective as shown in the A.M. Update this morning, but from a 3C chart perspective as well.

The 7 min ES has a small divergence, but otherwise has been in line.

I'd say there's still gas in the tank overall in QQQ and SPY with what I've expected, a Russell 2000 transition or rotation to the downside.

I have a feeling this is morning madness, the typical games in the morning, I'm not ready to jump to conclusions based on a strong sell off this early, but I'm also not blowing it off.

More as soon as I have it. The bottom line though remains, I still expect us to continue significantly lower as we are in a stage 4 decline area with tons of confirmation, it's just a matter of when and where. For core short positions, it shouldn't make too much of a difference.

A.M. Update

Overall the futures' overnight session has been rather flat until a little after 7 a.m. when they lost some ground. Interestingly our last forecast was for the base to finish up Wednesday, bounce Thursday and a dead day today on weekly options expiration at least until around 2 p.m. when it gets a bit more interesting and then for the bounce to carry over and end early next week, however I'll be watching closely today for signs that the bounce that was and almost is depending on the index, may end sooner than that.

Thus far...

 On a 60 min chart IWM looks a little burnt out with those taller upper wicks yesterday and large volume at the end of the day, almost like churning, but it has at least moved.

SPY on the other hand has barely made it outside its base and an odd base at that, which looks like it was cut short right in the middle. This is not the strongest looking base and I suspect there's a reason for that and a reason the market was so opaque and scattered the last day of forming that strange looking base. I suspect smart money or at least deep pockets only have so much time until the F_O_M_C and whatever they need to get done, which by the looks of the Russell 2000 is more distribution in to price strength, perhaps , they may have been running out of time to get that done considering the size of their positions and the time it takes to establish or close them.

 ES 1 min overnight trading flat with a decline after 7 a.m.

TF/R2K 5 min with an ugly 5 min and longer futures chart, I suspect this rolls over sooner than later, but will update you.

And ES 10 min, there's a base, it just hasn't done much with it. Whether that negative divergence to the right is consolidation or just weakness overall, that's what we'll be looking for.

Either way, stage 4 decline has a very high probability of continuing, I'd 3estimate at least 90%.


I'll be digging for the answers and opportunities.

Have a great day.

Daily Wrap

After yesterday's very opaque underlying trade conditions, today cleared up quite a bit and the market is trying to bounce as we first put out Tuesday morning with a few excerpts from an early market update that should give you some additional insight or reminder of things you already know and what's expected moving forward,:

"Remember why I wanted to close the puts before the market turned lateral today? Well it has turned lateral inviting a change of character.  I'm not worried about it and maybe it's strong enough that I can replace the AAPL and QQQ puts with the longer expiration which was the point of closing them earlier before this lateral trend developed."

Truth be told, I was expecting a closer, intraday bounce, but by yesterday I had revised that based on the scraps of data that could be found to "Finish the base today (Wednesday), rally tomorrow (today), lose some momentum Friday on an op-ex pin and finish up in to the F_O_M_C next week culminating with the MArch policy statement Wednesday at 2 p.m.

As for the psychology of a bounce, from the same post Tuesday...

 "Your emotions are the best reverse indicator when they reach extremes and you feel like all hope is lost, that's usually when you want to be taking action that directly contradicts everything you fear). The simple fact is, YOU GET PAID TO TAKE RISKS. Often those risks are going to be diametrically opposed to every emotional cell in your body screaming you don't believe it and this is not how it's suppose to be. If the market is moving in a comfortable way and you don't feel that conflict, you are on the side of the bag holders and enjoy the good feeling while it lasts because it will turn on you."

The reason I said above,  "today cleared up quite a bit and the market is trying to bounce as we first put out Tuesday morning ",  is because the Dow just slipped in to green on the week, joining the Russell 2000, however the SPX and NDX remain red on the week. It's rather amazing how we can sometimes focus so close on intraday or short term trade that we miss the big picture completely, for instance watching today with the Russell up +1.71%, the Dow up +1.47% , the SPX up +1.26% and the NDX up +.72%, it's easy to forget that half the market averages are RED on the week still with the DOW just barely managing green today.

It's even easier to forget that the same market dispersion that was worse yesterday with the Russell up and everything else red, which carried on today as most of the averages nearly doubled the NASDAQ's performance, is actually not a good sign, but as you can see above, I haven't really been too concerned with this bounce which is just part of the market. However if the market is going to bounce, it's going to do so convincingly and for a reason and that is usually to sell the deception. A market needs to look strong or weak to change market sentiment which is market perception which is one of the main drivers of market movement with the scholastic supply and demand being a function of greater market forces of greed and fear.

So today saw the WORST retail sales since the Lehman collapse, the F_E_D's GDP now is plummeting (real time GDP forecast), Jobless Claims remain above 300k for the second week in a row on the widely watched 24 week average of Claims, Intel cuts their guidance citing "Weak demand", there are all kinds of macro economic problems plaguing the world starting in ASia and making their way through Europe and to the US. In fact...

Not only are current and forward earnings collapsing, but as we have been talking about all of 2-0015, we are seeing a historically significant bad start to the year in macro economic data exactly at the time when seasonal adjustments usually make economic data a lot stronger than it actually is, which begs the question... How much weaker is the macro economic data when discounting seasonal adjustments that typically run through Q1?

Still I don't deprive the market of the gains today, I merely point out perception can be an emotional masquerade  as half the market is still red on the week despite today's gains and price action can be very deceptive.

On that note, while breadth indicators finally saw a  decent move today on the bounce (as they were dead flat for a month or so during the February cycle/bounce, the fact remains that less than half of the stocks in the largest market index , the NYSE, are above their 40-day simple moving average. To be exact, only 46% of all NYSE stocks are above their 40-day moving average.

While I expected a faster, smaller bounce, I probably shouldn't have knowing that the market doesn't do anything without a reason and in the case of a bounce, the reason is to be believable, to make traders forget that the entire SPX head fake move above the 2015 range was erased and then some as of yesterday.

In addition, the market gave technical traders exactly what they expected, I posted this last night as the SPX retraced the entire head fake move and then some which in itself opens a door for a bounce as bullish traders start to get weary of the market as it broke support, but as I also pointed out last night, the much watched 100 and 50 day moving averages are exactly what traders expect to come in to play. When forecasting a bounce Tuesday, I should have thought a bit more like a crook and forecasted a bounce off the 100-day as that's what technical traders would expect. While we can say that Technical analysis is correct as the market did bounce off the 100-day, how do you account for the fact that we saw it a day in advance of that actually happening?

 S&P-500 first makes the head fake move above the range, then retraces all of it at the red arrow and then some, then bounces off the 100-day m.a. (purple) through the 50-day today which is what to many technical traders? A buy signal so the break of support just 2 days ago that would have market bulls starting to question the market after NASDAQ 5000 follow through is notably absent, they are thrown a bone at the 100-day just reassure them all is well as smart money continues to offload / set up shorts or buy puts like Icahn and Co. in to the price strength, the exact same thing we plan to do as posted Tuesday morning.

And the Dow? It too runs the head fake above the obvious 2015 range, retraces all of it and then some breaking support and then the next day thrown a bone (to technical traders) as they expect the market to bounce of the 100-day, with a break through the 50-day today,  but again, how could we have known this a day before?

Looking at the S&P sectors, at least things make some sense despite the horrible macro data today and if we even consider the additional two easing movements by Central banks in Thailand and Korea, we just need to think back to last week when we had 3 surprise easing movements in a single day of which the market cared NOTHING about.

Over the last 2 days, you can see the intense pick up in volatility among the 9 S&P sectors with Financials leading as the F_E_D gave all but 3 banks the all clear to go ahead with planned dividend and share buybacks, as such Financials led today at +2.17% with companies that passed like Goldman Sachs up +3.11%, but the one bank that passed conditionally (as they have to resubmit by September 30th, Bank of America), didn't do as well, down -.12 as the entire Financial sector led the S&P sectors with a +2.17% gain.

Eight of nine S&P sectors closed green today, a far cry from Tuesday's 9 of 9 red. AS mentioned Financials led, Energy lagged at -0.64%.

Of the 238 Morning star groups which only saw 5 close green as of Tuesday, a deeply oversold short term (usually 1-day) condition, today a  mind-numbing 223 of 238 closed green, again a LONG way away from Tuesday's 5 of 238 green, 233 red!  

So Tuesday we have 9 of 9 S&P sectors closing red and 233 of 238 Morningstar groups closing red, today a near flip flop only 2-days later on some of the worst economic data of the week, with 8 of nine S&P sectors closing green and 223 of 238 Morningstar sectors green.

What exactly changed? Nothing changed other than a deeply oversold condition on Tuesday, but before that was even evident, we had a good idea a bounce was coming. Is the bounce based on the merits of earnings or macro data? You can see the chart above, I think the answer is a solid no. What about Central bank easing? Again, with 3 SURPRISE easing actions in a single day and the market caring less, I don't think Korea and thailand's easing made any difference.

What did make a difference? Again, I'd point out Mass Psychology and the break of support, the averages going red on the year and the bulls starting to get nervous. The market needs someone to trade against, someone to hold the bag until there's a move significant enough that they'll just keep holding the bag out of pure hope that it comes back. And of course there's the squaring of positions in to the F_O_M_C next week in which perception on a rate hike's timing and size have nearly doubled in a single week on last week's Non-Farm Payrolls.

Price is indeed deceptive, but more than that, Wall Street is dead crooked and realizing that and using it to your advantage is the only distinction between the sheep and the wolves.

While I'll keep my eyes on the 3C charts as today's TF/Russell 2000 Futures showed indications of heavy distribution, being the only average that has given smart money anything to sell in to...

TF/Russell 2000 futures with the base/small accumulation starting Tuesday as we suspected when closing puts in to yesterday with distribution looking extremely strong as the R2K is the only average giving smart money price gains to sell/short (or buy puts) in to.

We also want to watch the indicators that gave us clear signals when things were a bit opaque yesterday, for instance our SPX:RUT Ratio custom indicator that called out a bounce Tuesday and yesterday as well.

Note our custom SPX:RUT ratio was diverging positively with the SPX on Tuesday and again yesterday, today it's in line (green).

Interestingly our one Pro Sentiment indicator that was leading in to Tuesday and Wednesday as well, suggesting a bounce (as I mentioned I had to go to a bunch of  our other sources like Leading Indicators as our main ones were opaque yesterday and all over the place) is now starting to lead negative, right on cue for a leading indicator.

Pro Sentiment vs the SPX (green) with it leading in to Tuesday as we closed puts and Wednesday as well, today as the R2K charts deteriorate badly on 3C Index futures, this leading indicator deteriorates as well, being one of the few we used to forecast a bounce since closing puts Tuesday.

This wasn't the only one of our leading indicators that were diverging again for the second time this week.

 While our VXX vs SPX has been lagging, the theory has been VXX is being held down and under accumulation at lower price levels, intraday you can see that today as I inverted SPX prices (green) to show the normal correlation or in this case relative weakness.

On a longer timeframe, you can clearly see what looks like VXX, short term VIX futures being held artificially low in to the bounce presumably either a lever to ramp the market or to accumulate or indeed, both.

As I've mentioned numerous times in the past, it's rare that we get a solid signal (positive) on actual VIX futures, we saw a 1 minute chart positive earlier this week which was a surprise, but today's chart is even more so as I believe this may be the first time I've seen a positive this far out on actual VIx futures.

 Actual VIX futures 5 mins with a sharp pullback, but a strong 3C positive divegrence.

 This I don't recall ever seeing, a VIX futures 7 min positive divergence.

Despite the sharp intraday pullback, our recent UVXY (2x long short term VIX futures) remains at a gain and the 15 min VXX chart which gave us short term notice of a pullback, has a strong 15 min leading positive divegrence while the inverse, XIV has a strong leading negative divegrence.

I suspect smart money and deep pockets have been accumulating on the cheap in the realm of protection while selling and shorting in to price strength,  this is the exact same thing we have done or plan to do (long UVXY already, looking for the QQQ/AAPL put entry).

Yields have also bee in line with a market bounce and failure of that bounce. As of yesterday this is what 30 year yields looked like vs the SPX which we said looked like the SPX would revert UP to the mean before heading down.

 On a macro basis, this is how much the SPX (green) needed to revert (UP) to the 30 year yield which draws equity prices toward it like a magnet...

As of today, that has been significantly narrowed... the exact same chart today...

 This is the entire February cycle from 1/29-2/2 (start).

Intraday, yields are lagging the SPX and market which should create negative pricing pressure over the next day or so.

Commodities are once again acting as a leading indicator, probably much more economic wise which probably tells us something about how the market is discounting since the end of 
QE 3 at the end of October...

 Commodities (brown) vs the SPX since before the February cycle with a negative signal just before, a positive signal where we found accumulation in just about every asset from Jan. 29 to Feb 2nd and the leading negative at the market's stage 3 top and in to stage 4 decline.

You've seen this chart more than once and commodities were all over the place today with silver up, gold flat, oil down and copper up, however we'l be looking closely at gold since it has fulfilled our pullback call and is showing strong signs of accumulation.

Intraday the SPX is negatively divergent vs commodities as you can see.

As for High Yield Credit and especially the market lever HYG,

 HYG vs the SPV 5 min chart with price divergences in which HY Credit leads the SPX until the recent small positive dislocation on Tuesday, that turned a bit sour today.

 3C has shown no accumulation in HYG which is rare if it actually moves up, in fact we have gone from in line yesterday to distribution today and the price moves vs the SPX were negative, I suspect we'll be seeing this leading indicator dislocating over the next day or so as well.

PIMCO's HY Fund has also dislocated.

Our Dominant Price/Volume Relationship tonight was the same for all of the averages except for the Russell 200 which was the most bullish of the 4 relationships at Close Up/Volume Up with 838 stocks, ironically though, this often acts as a 1-day overbought condition and with the breadth readings in the S&P and Morningstar sectors, that wouldn't surprise me at all with a close lower the next day most common.

As for the Dow at 16, the NDX at 63 and SPX at 241, they were in the most bearish of the 4 relationships with Close Up/Volume Down.

Considering the breadth of the sectors/groups, the market looks a bit overbought and that's a problem for a market bounce ( a rally would be a different story).

So we'll be looking for our entries, the SPX and NDX are yet to really break out of their base areas or even go green on the week so I still expect some rotation out of the R2K and in to those 2 averages, I suspect by Monday we'll probably be winding this whole bounce up and getting ready to continue stage 4 decline which is solidly in place. Both averages are in line and have the short term divergences needed to get their bounce moving, at least enough strength to sell in to. The IWM on the other hand is already starting to look dangerous, semi-parabolic and loosing its 3C support, I may be looking at IWM puts as early as tomorrow if the Options Expiration max pain pin doesn't get in the way. The Dow looks like it has some more upside so we may very well see a reversal like yesterday to a multi-directional market that's not confirming as the IWM was the only average green while the rest were at a loss, that rotation is a strong possibility.

As far as Index futures go tonight, there's nothing that I would deem that strong to overrun near term expectations as listed just above, although the R2K futures are looking a bit weak, which is in line with rotation.

After being in line (3C price confirmation) all day short term, after hours we are seeing some weakness build in that is in line with the longer TF charts. I'll check as usual before turning in and update anything unusual going on, but as we suspected Tuesday, this looks like a normal, typical market bounce meant to change sentiment or hold it up while most of the averages have already entered stage 4 decline and should resume, I suspect this is all about position squaring in front of the F_O_M_C next Wednesday.


Have a great night.