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Friday, September 12, 2014

Major Stock Market Implications


This is an important post from our member's site, 


We usually reserve this for members, however the implications are so great we decided to share the rough outline.

*If you miss everything else, don't miss the breadth indications near the bottom of the post.

One of the more notable changes in character  this week was actually hinted at last Thursday in an overnight session which I wrote about  last week as an oddity, turns out it was one of those "Changes in character" that leads to a change in trend, in this case a long established trend/correlation.
The first hint was from an early a.m. session/overnight in which USD/JPY surged and ES flopped, this entire week has been characterized by the complete reversal of the long time correlation between the carry trade and Index futures.

Stocks had their worst week since July, the S&P missed 2000 again despite the reemergence of 1 share orders this afternoon and  was the worst performer on the week of the major averages. 
The SPX, Dow, NDX and R2K on the week...

This of course is right on line with the 3C signals for the August cycle...
The SPY has the strongest 3C chart out to 60 mins. as the stage 1 base/accumulation took place in early August (SPY was the only average to show accumulation out to 60 min), then 3C moving with price at stage 2 mark-up and seeing distribution at the stage 3 top. There are much worse looking charts than this.

While the Dow...
puts in the exact conceptual price movement from a bearish ascending wedge that we have come to expect, on top of that the Dow lost $17k today on the close.


You might think there would be some rotation in to bonds considering equity weakness, however...

Treasury yields had a horrible week as USD/JPY lost all correlation with Index Futures (a red flag) and rather took up with treasury yields, all significantly higher on the week.
 USD/JPY vs 10-year bond futures (bonds move opposite yields so yields moved with USD/JPY).

And Yields on the week, across the board higher, 5, 10 and 30 year.


The $USD, which we have been watching for a return to the historical legacy arbitrage correlation saw another weekly gain of +.05% on weakness in JPY, CAD and AUD. It would seem the $USD legacy correlation is returning amidst all kinds of other undercurrents such as the GBP strength/weakness on the Scottish referendum for independence next week, still the higher dollar saw commodities/$USD denominated assets lower including significant lows in gold, silver, copper and oil which regained some lost ground.
Commodities vs the SPX have been crushed. Some of you old timers may remember the last time we really saw commodities crushed, they led news of China's slowdown by about a month. I certainly would not be surprised, especially in light of the EIA's Oil downgrade for 2014/2015 based on European and Chinese weakness, if this was pointing at the very same issue of economic weakness above and beyond what the "Official" releases are from China, if not Europe.


This section is to show that not only does HY Credit's charts lead the market, but the actual flows in and out of High Yield Credit have a telling impact on the market. First from July 25th when the market looked like this...
I posted on that day (red arrow) in the Daily Wrap...

"High Yield ETFs and funds have seen huge outflows the last month, THIS WEEK SAW THE LARGEST OUTFLOW FROM HIGH YIELD FUNDS  IN MORE THAN A YEAR! Much of the flow has gone to low yielding, defensive Investment Grade Credit."

The following decline shaved -3.94% from the SPX , -4.49%from the Dow-30 and 4-8% from the Russell 2000, depending on when you account for the flow of HY Credit exiting the market.

From Monday, August 11th (the day the August cycle moved from stage 1 base to stage 2 mark-up, Intraday Update

"One of the reasons I think the upside sub-intermediate term bounce from the last week's base is still on track (other than the divergences) is that HYG is still leading the SPX higher (short term manipulation lever)- remember that small inflow of money in to HY credit last week? I suspected it was for a short term bounce off our week long base."

If we look at the relationship between HYG and the SPX (as we have more than a few times), we see exactly what I'm talking about above, HYG is leading the market, not only at the base, but through stage 2, followed by stage 3 and has already entered stage 4, while the market with it's downtrend this week may or may not have entered stage 4 decline (I personally don't think it has just yet), there's no denying that HYG credit which we have used for this very purpose, as a Leading Indicator, for years, is leading the market.
HYG is blue, the SPX is gren on this daily chart. HYG bottomed on August 1st, the SPX started it's base after being down -2% July 31st, on August 1st. You may recall the post from July 31st's Daily Wrap which was the first indication we had of a base/bounce coming and all based off deeply oversold market breadth, not indicators.

The white arrow above HYG shows it is still leading the SPX, the orange arrow above HYG shows where HYG lead the market in entering lateral stage 3 (top) and the red arrow shows where HYG led the market again entering stage 4 decline. The important thing is HYG LEADS the market.

I have included these same stages for the SPX wrapped around the dates at the bottom, stage 1 accumulation/base from 8/2 to 8/8 and stage 2 mark up the next trading day on 8-11. The SPX moves to lateral stage 3 top around 8/26 through present as it is marked in orange, although this week's clear downtrend could be looked at as the start of stage 4 decline as I posted in last Friday's  The Week Ahead...

"If I had to make a call, I'd say more of the same, more lateral chop which in the cycle is stage 3 top/reversal process... I feel pretty strongly the market will enter stage 4 decline sometime next week "

The above forward week forecast was probably about as close to right as we could have possibly been at the time. I don't think any one would argue that this week has been in essence, "More of the same lateral/sideways chop with the SPX-.73% on the week, the NASDAQ 100 -0.50% on the week , the Dow-30 -0.82% on the week and the Russell 2000 down -.81% on the week (if counted until yesterday, the Russell 2k is up +0.19% on the week (just to illustrate the chop).

As for the stage 4 decline... "I feel pretty strongly the market will enter stage 4 decline sometime next week "

 Looking at this trend of the SPX for the week vs HYG, it's not that much of a stretch to say the market has transitioned from lateral , choppy, stage 3 top to the stage 4 decline phase with a series of lower highs and lower lows.
The SPX is in green, HYG is in blue. HYG is already well in to stage 4 and looking at the trend for the week with the SPX's lower highs and lower lows, I think it's not that much of a stretch to say that we have transitioned to stage 4 decline.  However, the point I'm trying to get at here is the role High Yield Credit plays as a leading indicator. Look at the SPX's clear down trend and HYG which has turned lateral for the last 3 days as it has built a positive divegrence, you can also see the SPX has essentially flattened out as it barely made a mower low today.


From Thursday August 14th's Daily Wrap

" As we moved toward a base/bounce I noticed some inflow (small) in to HY credit which I figured was for a bounce and I noticed SKEW dropped below the elevated zone which I thought the same of"

From August 18th's Daily Wrap...

"Last week, there was a small inflow of funds ($0.71 bn) in to HY Credit, the measurement period aligns almost perfectly with the start of the bounce which is something I mentioned before as I believe smart money are making small "Piggy-Back" trades just as we like to do with solid bounces with decent signals."

That brings us to where we are currently in the cycle, you have seen already what High Yield corporate Credit has done and what stage it is in and it's leadership character...

According to Lipper Data, for the week ended Sept. 10 US High Yield bond funds saw an outflow of $765.8m , which is the second consecutive week of outflows as the previous week saw an outflow of  $198.1m. I think it's pretty clear to see that HY fund flow (much more coming out than what went in in late July/early August, is leading the market and pretty well synced with assets like High Yield Corporate Credit (HYG).

The primary buyer in the market has been corporate buybacks which for at least 2 years have seen record levels of buybacks which allow EPS and share prices to be artificially juiced higher, we know from Q2 data that the "Buyback Party" has now ended, it had to. As was posted here before, HY credit and equities are both arbitrage-able bets on the same capital structure. Simply put, "Credit leads, equities follow", the proof is on the charts above.

As for our HYG positive divegrence and the SPX chart for the week/downtrend, we know the market never makes it easy, but it is possible if you are paying attention.

I'm talking specifically about this chart...
 HYG vs SPX... What is the defining Technical feature of the SPX which may cause retail to buy on a breakout?

And specifically this chart as the averages don't have the kind of divergences to support a breakout
HYG 3-day 15 min leading positive divegrence. We've seen at least 2 HYG divergences, smaller, get run over already over the course of the last week or so, but this is the strongest of all of them which is why I posted what I did in this afternoon's, The Week AheadFrom my perspective, with the SPX chart having such an obvious channel, the F_O_M_C coming up and the scramble in some of our "Trade-Set-Up" assets to try to make it to their head fake zone seemingly before any serious market downside as we saw in FSLR and SCTY (up +1.62 and +3.84% respectively) in a down market and VERY close to the areas we marked as target areas, this just makes sense. The market rarely makes things easy or predictable.

Among other Leading Indicators, both of our Professional Sentiment Indicators ended the day right in line with the SPX, not a divergence suggesting higher prices in the near term. More importantly, these Leading Indicators have diverged notably from the SPX.
Our sentiment indicators have been in sync, confirming market action from the July decline to the August cycle, but at stage 3, much like our other leading indicator, HY Credit, they have diverged notably from the SPX.


Not surprisingly, HY Credit (other than HYG) was crumbling on the late week decline.

If our leading indication of Yields could be relied upon like it has been so often in the past (this has been a VERY weird week for bonds), then they'd suggest something I already brought up in today's post, The Week Ahead
Yields have been spot on during the August cycle until the last week or so, is HYG's signal enough to suggest this leading indicator might be correct as well? Note the channel mentioned in the SPX...

Also interesting given the Week Ahead, HYG and a few other indications ... There was a Dominant Price/Volume Relationship today which was Close Down/Volume Up,  with 18 of the Dow, 64 of the NASDAQ 100, 838 of the R2K and 241 of SPX.

This relationship most often signals a short term oversold or more precisely, a capitulation event with the market often closing green the next day which is quite interesting all things considered.

Adding to this, all 9 S&P sectors closed red today with Utilities performing the worst at -1.79 and Financials the best at -0.09. ALSO, all 9 S&P sectors closed red on the week, with Technology losing the least and Energy losing the most. AGAIN, THIS IS INDICATIVE OF THE SAME SHORT TERM OVERSOLD EVENT WE SAW TUESDAY.

Just to round it out, only 37 of the 239 Morningstar groups closed green, Tuesday this was 17 of 239, very similar and Wednesday we had a green close across the board, the best day of the week for 3 of the 4 major averages. Just to drive the point home even further, the same groups only had 56 of 239 close green on the week.  In other words, we not only have the same kind of 1-day oversold event (deeply) that we saw Tuesday, but one of the worst on the week , perhaps worse than the July 31st breadth post in which we suspected a base and bounce based on the horrid breadth readings.

Continuing along the breadth path as I knew from today's intraday breadth that today was going to be bad, we had some of the biggest moves of the week in breadth declines today.

Advance/Decline lines deteriorated badly, most breadth indicators posted the largest losses of the week on top of losses already seen which I have been talking about this week as leaving this market very exposed up here and very hollow or thin.

To illustrate HOW BAD a shape this market is in, here's the "Percentage of NYSE Stocks Above their 200-day Moving Average"...
Breadth indicator green/SPX red. The indicator has made a new low that is BELOW the 8/11 reading, 8/11 is the first day of stage 2 mark-up, so breadth at this level in the SPX is now LOWER/WORSE than it was as the stage 2 rally started!

The "Percentage of NYSE Stocks One Standard Deviation Above their 200-day Moving Average" is nearly at new lows!
Again, indicator green, SPX red. The horrible breadth DURING a DECLINE is the reason I posted the urgent July 31st update expecting a base to form and a bounce because the market was so oversold from a breadth perspective.

I am NOT making the same case now, although this does help the case I made in the The Week Ahead , however after that, I feel like the little boy who says, "I see ghosts", this is exceptional market breadth readings far surpassing the 2007 top.

The "Percentage of NYSE Stocks Above their 40-day Moving Average" lost 11 percentage points today alone which puts the breadth reading at a 66% retracement from the lows that created the August rally!

I can go on and on, but I think this gives the week ahead forecast some legs and it gives our longer term forecast or bigger picture I should say because we are right at our longer term forecast, some serious teeth.

I'd really be ready for next week, unless the F_E_D pulls a printing press out of their pocket and proceeds to print right there, I don't think there's much stopping this (actual momentum, just not visible in price, but it is in 3C and breadth as well as Leading Indicators and a number of other pieces of the puzzle we have put together.

If you got some positions together this week, you should have a great weekend, I feel great about next week.








Tuesday, September 09, 2014

Calling the rally, the targets and top....

From our member's site, 


here are some excerpts from important posts calling the bottom of the July decline, calling for a base and rally as well as targets...

From July 31st , 9:15 p.m. after a 2% decline in the SPX on that day alone...

"I've been posting breadth charts and credit charts as well as bonds for months and last night I showed you some breadth charts I've watched for 15 years and only seen them look like this twice, the last time was the 2007 top, well if you think last night's charts were scary, wait until you see today's.... In case you are wondering, the Dow had its worst day in 6 months today breaking the 50 and 100-day moving average, we know what that means and we prepared for it late today. The Russell 2000 ended July down 7% from July 1st and -6.11% from June 30th. Remember, the Russell should always lead the market.

Transports and our timely short last week, Trade Idea: (Longer Term) IYT Shortare down -3.4% on the week, the worst week in 11 months.

I showed you how bad High Yield Credit was yesterday (well almost every night, but specifically yesterday in this post), High Yield Credit (HYG) Heavy Distributiontoday stocks caught down to the red flag HY credit was flashing."

However, despite all of this...

"The one thing I see for sure in breadth and the S&P/Morningstar performance is this market is now, very oversold on a breadth basis, so I think out position taken up today was the right thing to do and we did it based on the signals which just happen to fit the breadth oversold condition.

We'll piggy-back that trade and when we get to a little correction there are numerous shorts (some of which we have calls in now) that will be at beautiful set-ups if you need short exposure, I think most of us have been ready for this day."


After a week long base, here were our upside targets posted on 8/11...

From tonight's "Daily Wrap"....

In fact the XLF target from August 19th's XLF Update-Bellwether, looked like this as the XLF was a bellwether target for market upside.
 This is the chart from the 8/19 post linked above as to what to expect in Financials and how a break above the range would be a bellwether for our general market target. The yellow arrow is the head fake move above the range and at the end of the process, XLF moves back down.

Here XLF has met the target. From a big picture perspective, it almost doesn't matter where you open a short here, as long as it was above the range which is something I've been waiting on since July. I've since added to FAZ and only have a small position left to fill it out.

In fact, on the first day of the break out from the 8/1-8/8 base on 8/11, in that day's Daily Wrap... (linked) these are the upside targets I posted for each of the averages for this move before a reversal process would start.

All of these charts are from the Daily Wrap... on August 11th...

 The SPX new high target at "B" was hit."C" was the expected first leg down after we enter stage 4 decline.

 The Dow hit it's target , just between "B" and "C" with "A" being the minimum target.

 The NDX target of "Greater than $4000 was hit.

 And ironically off a rough drawing showing where we want to take long action at the base and the second place on a slight pullback at #1 and then the next significant position would be at #2,  this is almost exactly where the IWM moved to.

In fact the official targets show the IWM crossed just above point "A", the minimum target for the IWM 

All of these were posted nearly a month ago based on the size of the divergences and length of the base as moves tend to be proportional, this allowed me and many other members to hold core shorts, yet still hedge the short exposure with piggy back longs.

Monday, September 08, 2014

Stock Market Analysis

From our members site,


Daily Wrap


I love the poignant comments of John Hussman in his weekly market commentary because it's something I've talked about a lot recently in saying that all of the red flags are there, the latest Investors Intelligence survey (a contradictory indicator at extremes) shows the Bull/Bear ratio out of control with the fewest bears since 1987! Usually my comments that have followed have been along the line of the red flags everywhere and how in retrospect, everyone will say they saw it coming, people just have a short memory, a lack of experience or imagination to understand what it's like when the damn breaks.

So in Hussman's commentary for the week, this just stood out, 

"There’s no question that the absence of consequences – to date – has led investors to believe that those consequences simply will not emerge. Once the consequences arrive, the preceding bubble seems obvious, but it’s a regularity of history that speculative episodes are only completely clear in 
hindsight."

He carries on...

"History teaches clear lessons about how this episode will end – namely with a decline that wipes out years and years of prior market returns. The fact that few investors – in aggregate – will get out is simply a matter of arithmetic and equilibrium. "

He goes on a bit more about the history of Corporate buybacks which have been the biggest buyer in the market recently and how historically corporate buybacks are always at the top of a bubble on borrowed money, whereas the place that it makes the most sense to buy them from a corporate value perspective is near market bottoms, but just like the herd above, they do the exact opposite with some nice charts proving it. In any case, it struck a chord, from the "greater fool" aspect, from the "MArket bubble" aspect, which I sent a lot of timing studying going back over 400 years and they're always the same, although their defining feature is that each one claims, "It's different this time". I also identify with it from the bear market/fear perspective and how quickly fear wipes out years of gains in months and while you might think, "OK, well take the gains and get out before or at the decline". The other comments he made were that, "

"The fact that few investors – in aggregate – will get out is simply a matter of arithmetic and equilibrium."

which is something you just have to see and live through to understand it's true. I suppose it's sort of like the attitude of taking an initial loss and saying, "Well I get out on the next bounce as close to my entry as possible", but that bounce never comes, something much worse follows and the trap is set. I know it doesn't seem logical, but it's just like the corporate buybacks at all time highs at the top of a bubble on borrowed money rather than with cash at much cheaper prices at the lows of a decline, who knows why people do what they do, but they ALWAYS do it. In any case, just something I identified with having been through several of these episodes and having studies dozens more.

The one thing that I can't relate to, but just imagine on probably a very hollow scale are the consequences as this is a ginger bread house that we have never seen on a global scale never seen before. As Howard Marks recently observed,

"I don’t think it’s too early to take today’s carefree market conditions into consideration. What I do know is that those conditions are creating a degree of risk for which there is no commensurate risk premium.”

Although I try to imagine all of the ways this market is unique and all of the ways it has no historical precedent and how all of these things coming together create a perfect storm, the fact is, once things start  a chain reaction, I don't think there's anyone (as Janet Yellen admitted in saying she didn't see the Credit Crisis coming) who has the immagination to understand what the true risks are, but I do think they are beyond historic and our comprehension and in that we find opportunity and after that stage completes, we find new opportunity, not that it will be easy to see or seize, but that's the market. Just an interesting aside I thought I'd share since this topic has come up frequently.

As for today...

I feel 100% vindicated in Friday's The Week Ahead post, in which for months we have called the next week with uncanny accuracy so it's not that I'm afraid to make a call, it just wasn't there which led me to post the following...


"Usually we'd have some very strong short term signals and we've been able to call the week ahead action pretty accurately, at least the trend, the timing may be off by a day or two.

I don't see anything that's standing out in the averages either way so if I had to make a call, I'd say more of the same, more lateral chop which in the cycle is stage 3 top/reversal process, the size of it vs. the size of the base is what we've observed numerous times in the past so nothing is out of the ordinary there."

Considering the closes in the averages, SPX -0.31%, NDX +0.14%,  R2K +0.19% and Dow-30 -0.15%, the market did exactly what the "Week Ahead" post was looking for, at least early on for the week, MORE OF THE SAME. While this isn't the action I'd like to tell you to get ready for (a lack of action), this was what 3C was giving us. The post continued...


 "I saw a carry trade shoot up like a rocket last night and Index futures that would normally follow it tick for tick, completely ignore it."

And what happened today? The USD/JPY carry trade shot up like a rocket to 5 year highs hitting stops at $106 and THE MARKET COMPLETELY IGNORED IT, IN FACT WENT THE OPPOSITE DIRECTION, charts can be found in today's post, $USD Causing Havoc. There's more to this than a glitchy day. The post continued...

 "I've seen the second attempt at an HYG positive divegrence (short term) completely fail today and I've seen HYG lead the market consistently by 4 to 7 days, it's solidly in stage 4 decline."

Of course I've covered this more than once, but for the latest on the HYG situation, I updated that here today, EOD Market Update and I firmly believe this will have been a very obvious signal, however when you watch the market tick by tick all day like most of us, you expect things to happen faster which is just a cognitive bias. When you look back on a daily chart, timing and signals make perfect sense, sometimes it's just too easy to get lost in the lines. And finally...

"I think we'll get our opening to the shorts, SCTY just hit another alert. I don't think it matters really whether the market can pull off a head fake or not, the assets we are looking at as trades, are doing what we need them to do.

Based on breadth, HYG and multiple other things noticed this week (no follow through, ECB flop, etc), I feel pretty strongly the market will enter stage 4 decline sometime next week and I think we'll be glad to have entered and filled out the shorts that we are looking at."


Today at least 7 of the "Trade-Set-ups" triggered alerts on the upside, the direction we need to see them move for our set-ups, even as the market was weak intraday. As for stage 4 this week, we'll just have to wait and see if that pans out to be correct, but I have no problem updating forecasts when new information is presented as long as it's unbiased, objective data.

All that being said, even as the day on the whole came in pretty close to flat with two averages up a little and two averages down a little and in a choppy range, nearly all asset classes saw significant intraday weakness, from Treasuries gapping up and ripping down (although on a daily chart they're practically unchanged from Friday), oil gapped down and pressed back up to nearly unchanged, gold and silver were down about 1% on the day and seem to be answering the question, "Is the $USD legacy arbitrage back after years of F_E_D carry trade inspired disappearance?"Just based on GLD, SLV and GDX alone, it seems that's the scenario I've been questioning for a week or so,  however today's action in stocks almost seemed to verify it, although 1-day does not make a trend, however last Friday in the early a.m. hours the same thing happened with USD/JPY and Index futures.

The close was absolutely predictable, from this afternoon, EOD Market Update ... The SPX recapturing 2000 now crossing over and below $2000 lord knows how many times the last 2 trading weeks and as usual, the EOD ramp to VWAP...
ES moves to VWAP by the close as usual and SPX recapture $2000 on the close.

All of these things seem like drudgery, they're predictable, they're rather boring, it's hard to see anything but small moves and chop with an overall lateral trend, but if you are paying attention to the details, the market will almost always speak to you.

Take the NYSE TICK for example, last week I saw one of the lowest readings I can recall at nearly -2000, today we were near -1400, then -1600 and then -1650 on top of last week's (Thursday's) nearly -2000 reading, this is not boring drudgery, this is a message from the market. 

Of course the biggie may be the $USDX Legacy Arbitrage which you may not be familiar with if you've grown up in the markets since 2009 or so, but just about every dollar denominated risk asset from oil to gold to treasuries, commodities, stocks, typically move opposite the $USD, that has not been the case with the carry trades open, it has been the opposite as risk assets follow the $USD in pairs like USD/JPY, however that went out the window today and we suspected that may be happening at least a week ago after seeing some things with gold/GDX and a few other assets as well as the USD/JPY overnight ramp on Thursday early a.m. that saw Index futures go the opposite direction.

5, 10 and 30 year yields were moving with the $USD, however this is something we anticipated over a week ago with this post from, August 26th , TLT / Treasuries, when we predicted (via 3C) a decline in treasuries which are now well below the Aug. 26the level in which we said to look for a pullback in TLT and Treasuries so there are a few forces at work , some from almost 2 trading weeks ago, some from today.

You saw with your own eyes today these breakdown in correlations from $USD Causing Havoc...
 This USD/JPY vs. ES/SPX futures (purple) was probably the most visually shocking.

However we saw the same in Crude suggesting the historical arbitrage is working its way back in and...

Of course gold which is not new as this was posted last Thursday Sept. 4th in ECB Actions / Daily Wrap

"If you want to know why gold , silver or oil were lower, look no further than the $USD strength off Euro weakness"

And while the closing prints seem like nothing is happening (except the fact that this is exactly the kind of price action of a stage 3 market and a clear departure away from the former 10-days of stage 2 mark-up), if you are paying attention, volatility is picking up. As mentioned today, half the market made a 1 week intraday low Friday and the other half made a 2-week intraday low Friday. 

The point being, just like a transition from stage 1 to stage 2 or stage 2 to stage 3, all transitions are marked by volatility right before the transition,  you may recall the late stage 2 charts I've posted in which price peels away from the trend on the upside in a seemingly bullish move just to move in to a stage 3 top, it's almost always a dead giveaway so long as you view it within proportion. It's really not any different than the "Channel Buster" concept.

Volatility intraday is definitely picking up.

While I believe firmly HYG is going to lead the way (is leading the way as it already has and has so many times in the past)...
 This chart shows HYG (blue) vs SPX (green) since the start of the August cycle with HYG's stages on the bottom and SPX's right above them, HYG  has clearly led which is why it's one of our most used Leading Indicators.

However as predicted in the EOD update and through the day as HYG 2 min positive divergences were building, HYG looks like it was the lever that led the SPX over $2000 on the day and led ES/SPX futures PERFECTLY to VWAP at the cash close... once again as it's just too silly to think anything other than "manipulated"...
After busting through a downtrending VWAP as well as its lower standard deviation intraday, the close magically lifted right to VWAP and HYG moved exactly in line with the SPX after building an intraday positive divegrence all day. If HYG is the only lever they have, they've got trouble because that divegrence wasn't past 2 mins.

Our Professional Sentiment Leading Indicators, they have been in decline at least since 11 a.m. Thursday and they have been very useful for short term moves, although like HYG, they will call large divergences that are market moving.

Spot VIX has quietly been creeping up making lower highs and on a 5-day chart has a bullish reversal candlestick in place. I have mentioned numerous times how VIX has one of the cleanest reversal processes in the market, of course with the exception of HYG.

High Yield Credit seems to have topped on 8/27 and continues to post wider divergences vs the SPX.

There was no dominant Price/Volume Relationship today which isn't surprising considering the continued divergence (no matter how small) between the major averages.

Only 3 of 9 S&P sectors closed green with Tech leading at a +0.15% gain, Financials and Healthcare barely closed green at +0.04 and +0.02 respectively.

On a 2 trading week basis, the Defensive Utilities and Healthcare lead with +2.14 and 1.89% respectively,  the loser is Energy at -1.48%.

 On a 4 trading week basis, the Defensive Utilities and what has become a defensive Healthcare sector lead the market by a wide margin at +7.29 and +6.72%, in last place in Energy at +0.52%

Of the 239 Morningstar Industry/Sub-Industry groups, only 81 of 239 closed green today, with only 49 posting a gain of +0.25% or more.

Our Most shorted Index hasn't led a short squeeze for quite some time, that may have something to do with the results of the Investors Intelligence Survey with bearish sentiment coming in at 27 year lows, not seen since 1987 and you may recall that was an interesting year for the market. In fact, the MSI if anything, has shown more steep drop-offs than steep short squeeze moves over the last 12 days.

As for breadth indicators, I showed you how they came off the oversold lows that convinced me to put out a call for a base and bounce on July 31st after the close which started the next day on Aug.1.

Then after 10-days of rally, breadth got out of the oversold zone, but still very poor as it has been getting worse all year. We had been nearly flat for almost 2 weeks with no breadth movement at all, seemingly the market gave as much as it was going to give back. Last week,  I said these breadth indicators are now rolling over (bearish) again, despite the market essentially treading water, this is exactly what we saw at the 2007 top and are already amore extreme now than at 2007.

Today several of these breadth indicators which are not interpreted, they are hard numbers, like "The Percentage of NYSE Stocks Trading One Standard Deviation ABOVE Their 200-day Moving Averages'" has rolled over today to a new 15 day low.

"The Percentage of NYSE Stocks Trading Two Standard Deviations ABOVE Their 40-day Moving Averages'" (Momentum stocks) has also rolled over today to a new 15 day low.

"The Percentage of NYSE Stocks Trading One Standard Deviations BELOW Their 40-day Moving Averages'" (weak stocks) have hit a 12-day high."

"The Percentage of NYSE Stocks Trading Two Standard Deviations BELOW Their 40-day Moving Averages'" (very weak stocks) have hit a 15-day high.

The NASDAQ Composite Advance/Decline line which has been deteriorating all year, but in really bad shape since late June, has now hit all time wides between the Index and the A/D line (the A/D line diverging negatively).

The bottom line, even as the averages (for the most part) are ranging in stage 3, market breadth not only stalled, but is back on the decline which if left in this trend with the major averages holding the area with declining breadth, we'll have an exceptionally shallow/hollow market primed for a fast, sudden decline as there are fewer and fewer stocks to support it, which is a trend throughout 2014, but especially bad since late June and especially bad since July 31st.

For instance,


"The Percentage of NYSE Stocks Trading Two Standard Deviations ABOVE Their 200-day Moving Averages", as you can see, the support they gave the market (although not making higher highs) back in late June is VERY different than the lack of support for the market now,  THIS IS EXACTLY WHAT HAPPENED AT THE 2007 TOP, EXCEPT WE PASSED THAT THRESHOLD ABOUT A MONTH AGO.

AAPL is the event tomorrow, the divergences it ended with today are not much different than the ones posted today in, AAPL ChartsBecause of this, I'm sticking with the same short term and longer term trade set-ups.



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