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Tuesday, September 29, 2015

Market Daily Wrap from Wolf on Wall Street

From our members' site,
today's Daily Wrap. 
For more about Wolf on Wall Street, see the link.
Being close to quarters end and considering the fall in Nikkei 225 futures from Friday which at last check is now -825 points, but at this week's low over 1000 points at -1115, I thought these charts, while not directly correlated t ES, do have a rough correlation as Asia often follows the US's lead and sometimes vice versa.
1The Nikkei 225 Futures (NKD) in candlesticks vs SPX futures (ES) in purple since last Friday's highs to now.
Point made.
nkd 15As to the longer term 15 min NKD futures, we can see very clear trends in 3C with distribution divergences to the left, however more recently at this week's lows, note a more positive tone and keep in mind tomorrow's end of US Window Dressing, "The Art of Looking Smart".
nkd 5The 5 min NKD 3C chart offers more details with two distribution areas, the second at Friday's highs and a third/positive at this week's (overnight) lows.
nkd 3mThe even more detailed 3 min NKD chart shows the distribution off the highs and a leading positive divergence in to the lows.
I would think this more recent positive underlying NKD tone will have some correlation with US Index futures.
I also can't pretend that today's Daily close in the SPY/SPX, after 5 consecutive closes lower, is not relevant and at this point in the month/quarter/year with Q3 closing out tomorrow.
spy starThe SPX closes with a daily bullish candlestick reversal Doji Star, almost a Harami reversal or inside day.
While the Dow also closed green, it didn't have 5 consecutive losses prior to today. Volume could have been more impressive for a true reversal candle-I believe these reversal candles are several times more effective on increasing volume which a capitulation low could have provided intraday and may still.
You may recall that in addition to the charts I'm specifically looking for, I've also been paying close attention to how the Biotech sector acts as it would be needed for momentum on any upside move. There's little doubt in my mind that the NASDAQ Biotech Index, IBB looks better than the S&P XBI Biotech sector.
IBB did see positive intraday tone during the afternoon decline, but more importantly to me is the bigger picture of price's ROC falling off dramatically to look similar to a "W" bottom.
ibb 5mIBB's 5 min chart since the serious decline. Remember I closed the BIS (2x leveraged short Biotech) trading position Thursday  which was opened on July 13th, for a +23.3% gain as I suspected we were near the lows and wanted to reduce some trading-short exposure to lean a little more toward the VXX Put/Hedge positions, while maintaining core shorts.
The IBB (long NDX Biotech) 5 min chart not only looks to have lost all downside momentum and formed a "W" like base, there's also a clear positive 3C divergence which I consider to be necessary to any market bounce/counter-trend rally attempt.
I have also been of the opinion that the market would have a hard time bouncing or sustaining a counter-trend rally without the large Energy sector (not just oil, but the entire sector). 
xle 5mXLE 5 min 3C trend with a recent positive divergence, 
However it has also been my opinion that for the Energy sector (XLE) to rally, we'd have to see a move up in oil prices.
uso 5mThis is the USO 5 min chart in its range with a recent 5 min positive.
uso 10And here's a longer term trend with a 10 min positive currently.
This was also one of the most consistent divergences through multiple timeframes I've seen in my recent Futures Updates... I just haven't seen the actionable entry as of yet.
cl 5This is Crude Futures at the 5 min chart also positive and the positive divergences carry through 6 timeframes from there. Even though this is Brent Crude futures, USO above is WTIRemember the earlier correlation I posted between crude and ES Futures today...
cl 30This is the 30 min Crude (CL) futures chart, also leading positive.
And the chart comparing WTI crude vs. ES/SPX futures I posted earlier today (see the link above to this morning's post).
2Crude/USO in green vs the SPY in blue from this morning's post. We have seen recent leading behavior in crude, despite the $USD as we also had seen the $USD/JPY leading the market on the early parabolic move up this morning. As you probably know I never trust parabolic moves to hold.
It seems we have a number of recent catalyst assets and some important sectors lining up to support the move we have been expecting since last Friday's The Week Ahead forecast.
As for Leading Indicators, there's a lot of ugliness, but in certain scenarios, that ugliness is betrayed by the underlying 3C trend such as High Yield Corp. Credit as shown yesterday and earlier today in Market Update.
Leading Indicators...
spxrutOur SPX:RUT Ratio custom indicator (red) has been incredibly accurate all week as far as where the market would open and how , right down to intraday confirmation/non confirmation as seen above in yellow (non-confirmation). My interpretation based on the close is that tomorrow sees early opening weakness, but that doesn't mean it holds there and of course this is based on a single indicator.
vix inversionAs I posted in last night's Daily Wrap, our VIX Inversion custom Indicator has shown a bullish inversion of VIX the last two days consecutively and this most recent signal has been the most solid we have seen since the late-August lows with similar signals.
hyg 1HYG/HY Corp. Credit was in line (blue) with the SPX intraday.
hyg 2The longer term chart vs the SPX shows why we use it as a leading indicator, but also shows better relative positioning right now in the near term. Take this with the 3C charts of HYG, early warning which I posted again today...
hyg 3And the trend in 3C going from distribution to downside confirmation has recently changed. It's HYG's actual price movement that is used to move the market and it is one of the first levers of manipulation that is pulled to support an upside move. However price alone at this stage tells you nothing, the 3C positive divergence to the far right does on this 3 min chart's trend.
30y 1And 30 year yields (red) intraday show once again why we use them as a leading indicator as they lacked in relative performance in the afternoon, pulling the SPX (green) down toward their reality which as you may remember...
zn-14-1024x692Was one of the early Themes in this morning's 7:50 A.M. Update. This is the chart from that post with the following excerpt LONG before the market showed any weakness as it was set to gap up at this point this morning...
"You can see even Treasury futures overnight were pushing Index futures lower until the RBI cut to the right and since they went negative on the 3C chart and shortly after in price which is supportive of higher prices. However since then we have a positive divergence taking over short-term again,  I expect more downward pressure on the market, although slight from this divergence alone…perhaps in yesterday’s range."
That forecast based on Treasury Futures more than an hour and a half before the market opened, couldn't have been better which is a testament to their leading quality and 3C's ability to pick up changes BEFORE they occur.
Today's SPX/SPY range was right where the A.M. Update Treasury Futures' 3C divergence suggested price would be.
30y 2As for the 30 year yield's (red) bigger picture, again you can see why we use it as a Leading Indicator vs the SPX in green. Note the better relative performance since the Aug. 24th intraday market lows in 30 year Yields.
com 1Commodities are another Leading Indicator (brown vs the SPX in green). They led the market lower at the F_O_M_C and are now in a slight positive dislocation. Remember the SLV end of day posts. I suspect that's a short-term indication, maybe tradable, we'll see, but overall commodities gaining would certainly help market tone, especially the Lehman of commodities, Glencore
hy 1
And HY Credit has led the SPX (green) lower , but like several Leading Indicators is slightly positively dislocated right now indicating market support for an upside move as we have expected.
I updated the SPY's 3C charts in multiple timeframes in this afternoon's Market Update and the other averages are VERY similar.
As I mentioned earlier today, FB is one of MANY assets on the watch lists that looks like it could bounce, but the difference in the 3C charts between a bounce and a total FAIL, is not that far apart. This is why I want the strongest signals possible and even on the scariest upside move you can imagine, the strongest 3C FB chart below indicates no matter how strong a counter-trend rally may be on the upside, well before it has even started we already know what the outcome will be, thus we'll want to be using price strength to sell/short in to when the time is right, assuming we do get this move that I have suspected we will. Here are a few examples of FB, but you could apply these to almost any of the major watch list stocks.
fb 1FB 1 min trend from distribution to a more leading positive tone of accumulation of recent lows.
fb 5The stronger 5 min 3C chart of FB shows the same trends in underlying trade, suggesting something is brewing that looks a lot like  a short squeeze to the upside.
fb 15And the stronger 15 min 3C chart of FB shows upside 3C/price trend confirmation in green, distribution in red and accumulation in white. Again, this looks like it could be a massive upside move/short squeeze. I try to anchor expectations in advance. As I have recently said, right now it seems to make perfect sense to short in to market price strength. HOWEVER A COUNTER-TREND RALLY IS ONE OF THE STRONGEST RALLIES YOU'LL EVER SEE, EVEN IN A BULL MARKET. These rallies have to be extremely strong to convince traders that what happened on the downside was just a price anomaly and that the trend is still very bullish. This is how smart money sells in to strength with retail demand as they believe the rally and the only way to make them believe the rally is for it to be incredibly strong. The first portion will consist of short covering sending the market in a diagonal up-trend and then technical levels will be hit drawing in long breakout traders. While they are covering/buying (the same thing on the tape) institutional money will use higher prices and increased liquidity/demand to sell /short in to, ultimately leaving retail holding the bag.
However, bookmark this post. If we get the counter-trend rally that we have been getting signals for, THE LAST THING YOU'LL WANT TO DO IS SHORT THE MARKET AS IT WILL HAVE AN INCREDIBLY STRONG UPSIDE MOVE THAT YOU, YOURSELF WILL HAVE A HARD TIME NOT BELIEVING EVEN THOUGH YOU KNOW WHAT THE LONGER TERM/HIGHEST PROBABILITIES ARE. It's just an emotional extreme that Wall St. has used as long as there has been a market. Look at the first counter-trend rally after the initial 1929 Crash. Most people don't even notice it, but it was a 5 month move almost entirely up and with a gain of nearly 50%, That's not a hard move to believe and that's the job of a counter trend rally, that's why they are some of the most explosive moves you'll ever see and why I am all for trading it as long as we have excellent objective evidence confirming it.
Again, the point is, if this plays out like a normal counter trend bear market rally, the last thing you'll want to do is short in to it, even though right now that seems like the most obvious thing to do. If we get the move, book mark this post and what I said. Decisions MUST be based on objective evidence, not emotion or fear. In that spirit, here's FB's 60 min chart...
fb 60And that's about as bearish as you get, however if there's a short squeeze here, it should move at least to the area where the first 3C divergence was seen and most often well above that, in this case meaning an upside move of about $94 as a 3C minimum target. This of course depends on how aggressively the hedge fund herd sticks together or splits apart to an every man for himself position like we saw in AAPL's 2012 decline of -45% in 8 months. This chart already tells us what the resolution to any upside move would be well before it ever began, that is to a new primary trend low, but if it does do as I suspect and you can see why I want strong objective evidence before getting involved, you may not feel so great about shorting its price move. In fact you yourself may be convinced that the market has changed tone and trend. That's why I encourage you to book mark this post and if we get to that point, come back to my section above about "Anchoring Expectations" BEFORE anything happened!
As for Futures tonight going in to the overnight session, you already saw the Nikkei 225 futures and 3C indications. That may surprise a lot of people.
Otherwise... 3 of 4 major averages closed similar to the QQQ 1 min intraday below...
q 1
If we follow the 3C concept of charts picking up where they left off, then we should expect an upside start to the day tomorrow. That doesn't mean that will be how the day ends and we do have the SPX:RUT Ratio Custom Indicator suggesting a lower opening. However, there's still some work to be done before we are at high probability/low risk/excellent timing.
So looking at futures...
es 1
Interestingly as I'm not trying to give a partly cloudy forecast, the ES futures are somewhat negative going in to the overnight while the TF futures are positive, NQ and YM are in line. That sort of reflects the way the 3C charts ended the day if you recall the SPY 1 min.
I'd say the probabilities are for USD/JPY to see overnight downside, at least early on or stay relatively in the same area as Yen futures are in line...
yen 13C chart of 1 min Yen futures in line.
dx 1The $USD is seeing 3C confirmation of a trend lower right now so I suspect it would take several hours for them to change the trajectory of their current trend to a more supportive one and we have no evidence for that so I'm going to call it flat for now, although I may revise that later tonight if I see the charts changing.
Euro futures are in line as well so that doesn't have any impact on the $USD or $USD/JPY as of now.
zb 30Treasury futures across the curve are almost all exactly in line as well as you can see above on the 1 min overnight 30-year Treasury futures, so there's not much indicating a change in trend during the overnight session except that building Nikkei positive divergence which may just keep building in a flat price trend.
The Index futures' 3 min charts are also in line like the 1 min above.
es 3ES 3 min in line. 
The only difference is the $USDX 3 min is leading positive while Yen futures are leading negative. This may be in anticipation of a strengthening divergence for a move to the upside to come soon, remember tomorrow is the last day of Q3 window dressing. In addition, Treasury futures are leading negative.
zb 330 year Treasury futures and others on the 3 min charts suggest they fall which means yields are supportive of market upside as they gain. The USD/JPY would suggest the same. I suspect this is not so much overnight as nearing the pivot and signals we have been looking for to get more involved.
The 5 min chart as you know has been the guiding light throughout without a single divergence since 8/24, it looks like it could put in the positive we'd need to take management actions as well as add to positions like VXX puts and/or long trading positions. Core shorts would either have to be managed or hedged, if you have the courage of your convictions, I see no problem holding them if you are not an active trader. I'll decide what I'm going to do only once we have the objective evidence we've been looking for. However on that front, as shown earlier, since the afternoon downside, the 5 min Es/SPX futures chart has strengthened and is not far from the signal that I look for as a prerequisite for any large trades.
es 5mES 5 min isn't quite at the "Alligator Jaws" divergence, but as I said earlier, today's 3C deterioration ended this afternoon in to price weakness and increased volume as expected in an earlier market update/forecast for today.
As I posted in last night's Daily Wrap the example below of what we'd be looking for on the ES 5 min chart (and other Index futures) would look like this...
132-1024x640This chart example of a 5 min NQ chart depicting 3C moving up and price moving down in a wide divergence was posted the Thursday in the Daily Wrap as an example. the ES 5 min chart is about a half a day to a day away from that kind of signal if accumulation were fairly constant from here,  this would be the first time we had this strong of a divergence since the 8/24 market lows. This would also be the objective evidence we'd be looking for to enter any additional positions or any full size positions as we do have a July 16 VXX Put partial position as a hedge for core shorts in place.
Should we get a similar divergence in ES tomorrow, which I estimated on Friday would take about 2 days, then we'll have a lot of management decisions, hedges and trades to put on and pretty quickly. Without that objective evidence I have no intention of moving any positions. 
However Gartman, the best reverse indicator out there has come out saying he believes theSPX will move to $1420-$1550. his guy has flip-flopped from bullish to bearish so often the last month, I can't even count the times. this is why we have followed the 3C signals which suggested a range bound market and didn't get caught in the meat grinder. However he's a perfect example of someone who chases the market and is often as wrong as you can be. I'm almost convinced of a rally based on his latest call for this move lower in the SPX. All kidding aside, you know what we have seen, what we have put out as the objective evidence we need to act and how the market has moved toward that while still maintaining our core short positions which are making money with a negligible (cost) hedge in place. Should we get the signals I expect we will get, then we should have some pretty fun trades with some big moves and set up for an even larger downside move.
Lets hope we get a strong signal. I don't care which way we make money, as long as we make it and you know what my big picture outlook is if you don't want to trade around the market. I can't say I'd blame you if we are looking at the big picture.
Have a great night. I'll update additional charts if there's movement before I turn in.

Tuesday, September 22, 2015

Futures Update from Wolf on Wall Street

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Futures Updates/charts are getting VERY interesting. This upside head fake move I have expected this week since posting 'The Week Ahead" on Friday now looks like one of the best confirmed head fake (weak underlying 3C signals) moves that we often can tell ahead of time or it's going to be one of the most spectacular failures we have seen. This is why I kept the VXX Put positioning in the most recent "TRADE IDEA"  at a very speculative size. It's enough to hedge or at least last time I did this it was a PERFECT size hedge that even made money, yet it's not a position that will cause me any trouble or ANY lost sleep should it completely FAIL, which I don't see as a high probability, otherwise I would not have put it out or entered it.
Futures have shown remarkably clear 3C signals. You may recall in August we had very few (sometimes almost none) clear 3C signals. This has happened numerous times in the past and while it may seem like a failure of the indicator at first, following the "Objective evidence" rules and the strong Probability/Low risk/Well timed trade rules kept us out of a very dangerous, portfolio grinding position which looked like this at the time.
1This triangle looks much more volatile and tradable than the recent past on the left side of the SPY chart, but at that point there were only a time or two that a trade would have lasted more than 1 day. We had similar 3C situations in which it 3C seemed frustratingly quiet as far as signals, but as I have shown in the not too distant past, those times were similar (yellow boxes) when the market offered no real edge in trading, just a meat grinder. SO 3C'S LACK OF SIGNALS , WHILE FRUSTRATING AT THE TIME (as I have conveyed in past experiences) ACTUALLY KEPT US OUT OF SUB-PAR OR WORSE (meat-grinding market conditions that offered no edge). In this way, 3C has been remarkably accurate and while frustrating at the time with few signals, it was doing an excellent job that we could only see in retrospect (as I have relayed previously to you, similar situations in the past ).
However right now, the signals are as clear as can be and just keep getting more and more clear, allowing us to forecast days and even weeks (in some circumstances months) in ADVANCE.
What I've seen the past weeks and especially days and today, has been nothing short of remarkable with the market's most likely near term, intermediate (meaning the next trend after the near term which in recent incidence has been the downside head fake below the triangle or ES channel with the intermediate trend being the next expected move back above the triangle or channel and the longer term or bigger picture being the most likely resolution -head fake- and move back to the downside to create a new market low below August 24th's intraday low) and long-term probabilities laid out plainly with numerous timeframe and multiple asset confirmation.
I'll follow-up in today's Daily Wrap, but what I'm seeing is a pretty plain and high probability head fake move back to the levels we have identified in the past with the long-term or big picture charts showing clearer and clearer signals for actionable trades beyond the highest probability daily or multi-day divergences.
VIX Futures are confirming Index futures. The shorter term currency signals getting a bit mushier than usual as they had been what I'd call a shadow indication or shadow analysis in which we might not have been able to see the specific assets we were looking to analyze such as Index futures, but we could see by correlated assets such as USD/JPY or more specifically $USDX and Yen futures, what the FX carry trade was most likely to do and be able to gauge what Index futures would do according to their correlation to FX and the signals in FX. We also did the same using Treasury Futures.
Near term the USD/JPY is getting murkier, however the expected longer term trends are becoming more clear. This is one of the reasons in the very near term that I want to be careful chasing any upside move we anticipate as the confirmation in correlated assets is not strong. Using any near term market /Index future strength to short in to is BY FAR, the smartest use and the most profitable use of short-term indications that we have been on top of with each week's Friday post, "The Week Ahead's" forecast.
The VERY clear increasingly strong signals in Treasury Futures remains very visible on the underlying 3C charts, yet it is developing, not staying the same.  the short-term signals are consistent with a head fake move in the market to the upside, while intermediate signals in the 15-30 min timeframes are transitioning and the 60 min to 2 hour signals are confirming what we have expected in Treasuries long-term, which is they appear to be putting in a base that will see an upside move-which is market negative as yields move in the opposite direction and exert downside pressure on the market averages and Index futures.
The Silver and Gold futures match EXACTLY our longer term or bigger picture forecast for both gold or rather GLD and silver/SLV. Near term they both look to see additional downside which is something I have been looking for in independent SLV/GLD analysis which has been separate from the market. However this longer term basing condition that requires downside in both precious metals fits perfectly with our "Flight to Safety" expectations in precious metals related very closely to market/Index futures' expectations. While I'll cover SLV and GLD specifically, I have not only left open Friday's trade in SLV (short/puts) "TRADE IDEA: Speculative- SLV /GLD Put" which is now at a decent gain of some +26% in the green over the last 2-days with more expected, but as you'll see in the GLD/SLV update, I'll be looking for any near term strength in either asset as a short entry (again we'll look for confirmation if and when price gets there- otherwise we'll continue to manage open positions in the precious metals)There's also an increasingly high probability that any moves in oil/USO will also open short-term trade positions while the longer term expectations in all 3 assets (Oil, Gold and Silver) look closer and closer to meeting our longer term analysis that has been in place for well over a month (in some cases almost since the start of 2015) and is by far the largest trend trade available in these assets available to us longer term.
The same is developing with our longer term Treasury expectations across the curve from 5 to 10 and 20+/30 year Treasury futures/treasuries/TLT.
VIX futures are also giving stronger and stronger longer term signals if you recall what our 15 min VXX/UVXY signals looked like as of about  since September 1st  highs (just after window dressing finished up). It appears we'll have some nice long-term trade positions setting up there. 
Most importantly... the utility of a head fake move should open up incredible longer term core short (and some long) trend positions for the long-term. Many of us are already set for the long-term, some of us are still looking to round out our trend positions and some of us still need the opportunity to open positions or fill out partial positions that will represent core/trend positions , mostly on the short side.
I'll be covering most of these assets in individual "Asset Updates" which is a category you can choose as a specific category for email delivery if you prefer only certain types of emails be delivered in real-time or whether you just prefer to receive every new post/update as they come out. You can adjust these settings as well as designate email addresses for email delivery once you are logged in the members area by simply going to the "Member's Portal" and then choosing to "Update your Profile" which is just below the Tabs bar and looks like this:
I'll also have additional charts covering the Futures Update as well as Leading Indicators, most likely in tonight's Daily Wrap. See yesterday's Daily Wrap for all of the short-term signals that have developed today. The futures update that I usually have at the end of the post covering the charts/signals going in to the overnight session (and in this case, today's cash market) were particularly interesting last night given today's developments since the overnight session.
More on the way...

Wednesday, September 16, 2015

Stock Market Daily Wrap from Wolf on Wall Street

This is tonight's Daily Wrap from our members site,
For more information, click here. Enjoy.

Isn't it strange that sometimes exactly what you are looking for is right in plain sight?
Just Friday I had posted that I rarely change my views because they are based on a lot of objective evidence and confirmation, but I'll be the first to change my views if the objective evidence points to a different conclusion. Specifically in reference to The Week Ahead forecast posted just before, I posted the following in Friday's Daily Wrap:
"Most of you know that I have the courage of my convictions, not based on stubbornness, but based on overwhelming objective evidence I gather so I rarely flip-flop back and forth once I commit to a position or probability. However I do want to make sure you understand that tonight’s post is very much within the speculative realm, but based on STRONG concepts that we have used successfully and witnessed over and over again in the market. Human nature never changes, especially the emotional side..."
The one thing I have been steadfast about this week since last Friday's The Week Ahead forecast has been an upside move, specifically a head fake / false breakout above triangles, most clearly in the SPX. I offered up 2 scenarios that I thought most probable, but really they weren't very far apart and ended with the same catalyst and end with the same big picture resolution. I am pulling several excerpts from Friday's posts because I think for one they are strong concepts that have held up even in the face of weak evidence at first (the scenarios were largely based on concepts that we use everyday and the evidence built from there-these are concepts that can be used with any asset and in any timeframe no matter what kind of trader you are or what you trade).
From Friday September 11th's The Week Ahead forecast:
After laying out a number of conditions in Friday's Futures analysis, I ended with...
"All of this taken together with the charts we have in place right now lead me to one very familiar probability. This reduction in volatility recently tells me what I should be looking for and it’s exactly what I find-TRIANGLES."
"The two probabilities I see assuming the market isn’t knocked off its perch before then and I think this has to play out before or by the F_O_M_C on Thursday."
Scenario 1)
scen 1"This is the SPY triangle, most traders see a triangle like this with the preceding downtrend and expect a break to the downside so I suspect the highest probability is the market gives that to them at the first yellow arrow followed by a move to the upside in which initial shorts are squeezed, this too is a head fake or false move, a CRAZY IVAN shakeout. We’d want to short the upside move as it will almost certainly fail unless the F_E_D comes up with a MASSIVE surprise."
scen 2
And Scenario 2
"The  second most likely outcome because of the lack of time is simply a break to the upside at the yellow arrow, a head fake or false breakout which again we’ll want to use to short in to. We’ll confirm that it’s a head fake move, but unless the F_E_D surprises with a new round of QE, the probabilities are excellent for a move to a new low.
That’s what I see as the highest probability in to next week. There’s a chance this is TRUE indecision in front of the F_O_M_C as that’s what a triangle is supposed to represent, they are just too east to game though and we have seen it a hundred times because they are the most recognizable technical price pattern and all technical traders know what they are supposed to represent, Wall St. in my opinion, will use that against them and to our advantage....
We’ll have to be very sharp-looking for signals that a break is coming wither way, right now I see indecision leaning toward an upside break, but a quick 1- day or half a day downside break will put the Crazy Ivan and short squeeze in to effect making the upside head fake that much more believable and effective, also that much better to short in to....
That’s what the probabilities are pointing to even though it’s hard to imagine in this market’s volatility, but look, the market’s volatility has fallen way off, that’s why there’s a triangle"
Both are largely the same, the only difference is whether a downside, Crazy Ivan shakeout of the triangles occurs first to trap shorts, but this week we found out that Small Spec Shorts are carrying the largest short position EVER!
I then go in to much more detail in Friday's Daily Wrap, you can check it out by clicking the link, but there are a few things I want to touch on.
In reference to the late week calming of volatility:
"I get very nervous when the market gets quiet as I remarked earlier today, quoting my oft used analogy, “It’s like the kids in the room next door just a little too quiet”, you know they are up to no good.
The calming of volatility in the SPY looks like a triangle as I posted in The Week Ahead this afternoon. When we have seen these in the past, they have been used for head fakes before a real and serious move to the upside or downside...

These triangles are some of the first technical price patterns new technical traders learn so they are well-known, thus they are easily manipulated"
On a head fake move above the triangle...
"...the shorts covering, most of which who would have put their stops just inside the triangle or just above its apex creating a momentum building short squeeze with almost no institutional investment required to get the move moving. THIS MAY BE THE REASON WE ARE SEEING SO FEW NEAR TERM SIGNALS, FEWER THAN I CAN RECALL SEEING IN A LONG TIME."
On Flight to safety trades in place at the time looking like broad bases to get ready for the next significant downside move AFTER A HEAD FAKE MOVE TO THE UPSIDE...
"What does seem to fit are some of the assets that I suspect would be “flight to safety” trades and “should” gain on any market downside. These assets are in a position I would call a “base-like” and therefore in good purchasing position on a head fake move (for timing) before a drop in the market...
The other asset would be Treasuries, specifically I’m looking at the 30 year and TLT(20+ year Treasury fund)  as it’s the most liquid among equities.
The TLT (20+ year Treasuries) 15 min chart with distribution or rotation on 8/24 in the red box and a near exact same divergence (positive) as seen on the 60 min chart above. I drew in the head fake-stop run in the yellow box, but there’s nothing to say that this is actually it. Say for instance we were to see an upside breakout above the triangle in the SPX, that would likely create a similar, if not lower stop run allowing large funds to enter TLT as stops are hit with lots of supply at cheap prices and no one asking any questions as the supply from all the stops has to be absorbed."
Remember this chart of TLT and the opinion that the head fake move or upside down Igloo/Chimney price pattern was not necessarily in yet.
As for our head fake to the upside, I'm not saying this is all there is to it, but the technical level that needed to be hit has been hit in all of the averages. Take the SPY for example...
spxEven using the most generous trend lines, the technical breakout is there. We've seen a short squeeze in the market the last 2-days and today we have retail sentiment reports that they already have gone long on the breakout above the triangle as I mentioned, technical traders often take support and resistance levels too seriously or rather too exact. The argument made for a head fake move to the upside was that first it would be powered by a short squeeze until enough momentum caused a breakout above the triangle as we have today and yesterday in some of the averages at which point, the higher the market moves, the more longs will be drawn in to chasing prices, eventually setting themselves up in a bull trap or, a head fake / false breakout.
I documented a lot of leading negative divergence in the market averages today, but I was really surprised by how many there were in Index futures from this afternoon's Quick Futures Update. However it only took a few minutes after I had published the post to realize why I was seeing so many negative divergence in the averages, it was the EXACT SAME REASON FOR RUNNING AN UPSIDE HEAD FAKE MOVE IN THE FIRST PLACE...TO SELL/SHORT IN TO WITH RETAIL HOLDING THE BAG. OVER THE LAST TWO DAYS, THAT'S ONE THING WE HAVE SEEN CLEARLY, INCREASING AMOUNTS OF DISTRIBUTION.
As for the TLT chart, one of the things I had made mention of last Friday were negative divergence in Treasury futures. Being that Yields move opposite Treasuries and we use Yields as a Leading Indicator because they tend to attract equities to them like a magnet so a move down in Treasuries meant a move up in yields and support for an upside move in the market. Remember the TLT chart above from last Friday and my comment,  "I drew in the head fake-stop run in the yellow box, but there’s nothing to say that this is actually it. Say for instance we were to see an upside breakout above the triangle in the SPX, that would likely create a similar, if not lower stop run allowing large funds to enter TLT as stops are hit with lots of supply at cheap prices and no one asking any questions as the supply from all the stops has to be absorbed."
tlt 15This is the exact same 15 min TLT chart that I posted last Friday with the same yellow box for reference. Remember the head fake/downside move in TLT suggested like an inverse Igloo/Chimney top/head fake? The chart sure looks like one now doesn't it?
Here's what happened to those Treasury Futures' negative divergences I had seen as of last Friday, although I'm sure you can guess by the TLT (20+ year Treasury Fund) above...
zb 30
30 year Treasury Futures chart with a 3C leading negative divergence as of last Friday, the distribution led to a sharp move lower.
As for yields, here's what Yields did as a result of those negative divergences in Treasury futures...
yields since Friday5, 10 and 30 year yields since last Friday. Remember we use Yields as a Leading Indicator as they attract equity prices like a magnet. To further illustrate that this triangle in the market was no coincidence...
30y 130 year yields (red) vs. the SPX (green) since July. You can clearly see how Yields led the SPX lower. Now look to the right at our triangle area in the SPX since the 8/24 intraday lows, note how they were and are leading the market to the upside.
30y 2Taking a closer look intraday today at 30 year yields in red vs the SPX in green, you can see price weakens as yields lose upside momentum , then yields lead the SPX positive and they reconnect through the rest of the day.
Overnight we had a bunch of FX market craziness due to selling of the Yen and Euro (safety currencies) after the Chinese rally that sent the Shanghai Composite surging to its largest 1-day surge in 6 years and the ChiNext to its largest 1-day percentage gain ever. I covered the FX chaos that was created in the overnight session in this morning's, A.M. UPDATE
Strangely however, Index futures didn't gain on the overnight strength in the USD/JPY...
usdjpy v es 2From about 4 a.m. to about 11 a.m. Index futures didn't benefit at all from the USD/JPY move ( $USD/JPY in candlesticks vs ES/SPX futures in purple). I didn't think much of it at first, but after noticing the pick up around the European close during regular US cash hours, I realized what would be the benefit of higher prices if there's no liquidity to sell in to overnight? There's a reason the triangle was put there, there's a reason a head fake move is run, to sell in to and that's pretty hard during the middle of the night.
usdjpy v es 1
Here's another view of the $USD/JPY in candlesticks vs ES/SPX futures in purple with some time markers.
At first the weakness that was developing in the $USD...
usd 1mLooked like the USD/JPY would suffer and not lead the market to the upside, in fact it traded pretty ugly throughout the day, however...
yen 1The Yen's initial positive divergence in pre-market didn't last long and the Yen was simply uglier, thus USD/JPY gained along with Yields lifting the market higher and get this...
I remarked how commodities had negatively diverged yesterday...
com 1As a leading Indicator they are still divergent from the SPX in green above  as for the big picture, but another strange event was the strength in copper +1.09%, Gold +1.33% (GLD), and Silver +3.27%. What is even more strange is that precious metals lift on inflation expectations, this morning's CPI, the last inflation reading before tomorrow's F_O_M_C missed, this would normally send precious metals down. However with the aid of oil as well +5.42%! Look what happens to commodities intraday vs the SPX today...
com 2Commodities in brown vs the SPX green intraday providing additional support, very different from yesterday's intraday decline.
That may not totally register, but with oil on a rampage, what Industry group have I recently said they'd need to juice to support market upside? Here's a hint...
S&P sectorsThese are the S&P sectors intraday today, at a gain of +2.84%, the large energy complex/industry group just about tripled the second best performing S&P sector!
And recently you may recall what has happened on days they have been trying to lift the market without USD/JPY help...
crude vs esStrangely the altos and HFTs have turned to tracking crude instead as you see today with the SPX E-mini futures (ES) in purple and Crude futures in candlesticks, yeah, that's the two on an intraday basis along with the massive Energy complex, yields, commodities, FX, etc.
However not everything in Leading Indicators was as positive as commodities intraday. You may recall what I said yesterday in the Quick Leading Indicators Update. I had been talking about a number of Leading Indicators going south yesterday which was the first time in a long time:
Interestingly Leading Indicators have barely moved since before September [sic], since the August 24th lows, they have been pretty much in line with the ever pinching triangle that has formed, no real leading signals which is actually good because they were doing their job and not calling out a move that wasn’t going to and didn’t happen.
However especially on a near term/intraday basis along the lines of a move down tomorrow as Index futures suggest, or perhaps in an early clear out before any head fake move as Leading Indicators would lead by at least several days on big moves, we are seeing the following.
 HY Credit for the first time since this triangle started actually moved down today, I take that as a short-term intraday negative for near term trade, again likely our Crazy Ivan shakeout. However the larger signal going negative and just having started can’t be ruled out and I expect it will continue to diverge . All of these continuing to diverge through any head fake move would be EXCELLENT short sale signals, like the ones before the August drop in the market, perhaps stronger.
We may have the answer I suggested we'd probably need a few more days to answer in last night's post. Today's look at Leading Indicators broadly showed even more weakness, so yesterday's newly hatched decline in Leading Indicators (negative for the market), wasn't about near term trading signals as they usually are 95% of the time, but it seems instead they are about the large, big picture dislocation they put in only about once every year or two showing real trouble brewing in the market. Most did the same thing again today.
Leading Indicators:
inv 1Our custom SPX:RUT Ratio which "should" move with the SPX (green) above, diverged negatively for a second day in a row, normally this indicator diverges and the next day we have a move in the direction of the divergence (down yesterday like today), but as I suggested yesterday, it's hard to tell whether this is a short-term move or a larger, bigger picture move developing.
inv 2The same indicator vs the SPX over the last 2-days diverging negative for a second consecutive day.
inv 3If we look over a longer time period (still within this recent triangle) we see negative dislocations and positive dislocations in the indicator and a next day move with the divergence. However you probably don't need me to point out the strong change in character over the last 3+ weeks in the yellow box and on the 2-days we finally see volatility pick up from the tight Bollinger Band Squeeze I posted in Monday's Daily Wrap. I'm sure the fact this indicator, which has been rock solid, is negatively diverging as we get the anticipated move through the triangle's resistance from last Friday's The Week Ahead forecast is not lost on you.
inv 4This is the last time this indicator severely diverged from the SPX.
inv 5As for our VIX Inversion which usually posts a buy signal at inversion (white bar/candle signal) , it's probably not lost on you either that this happens to show up right as our triangles are being formed .
inv 6We did have 2 smaller 60 min signals just as we were about to break out and on the breakout. The 1.0 ratio signal line is displayed on the indicator below with a red trend line.
vix 1The VIX actually acted better today than you'd normally expect vs the SPX (green and with price inverted so you can see the normal correlation). I suspect the late day relative out performance of VIX is likely hedges being put on in front of tomorrow's F_O_M_C, but again with all of the other signals, it's hard to be sure.
vix 2Here's the VIX vs. the SPX without the SPX inverted, still you can see the late day out-performance as VIX "should" have been below the red arrow at the close based on the normal correlation. This could also be the building of a larger hedge for what I suspect will be a bad end to the upside breakout which I have maintained ever since first mentioning it, that it will be a head fake or false/failed breakout before big picture probabilities pick up where they left off and take the market lower.
vxx 1VXX had been holding up very well intraday, refusing to make lower lows until the close and probably ended right about where it should have been as the market melted up on another low volume short squeeze through resistance/triangle.
hyg 1HYG / High Yield Corp. Credit which is usually the first lever of manipulation pulled to support short-term moves in the market is also diverging from the SPX for a second day in a row and don't forget my post today showing distribution in HYG charts, Broad Market Update. HY Credit is one of the best leading indicators as it diverges from the market.
hio 1As mentioned yesterday our Pro Sentiment Indicators are also diverging negatively from the market after staying in line all month.
hio 2Here's a closer look at our first version on a tighter basis, the first series divergence since before the August sell-off.
fct 1And the second version of our Pro Sentiment Indicator for confirmation.
hy credit 1Additionally, since the August 24th lows, HY credit hasn't moved at all except in line with the market. The last several days are the FIRST time it has moved since before the August sell-off and you may recall it gave ann excellent signal.
So it seems that the signals yesterday were not short-term and the distribution we have been seeing in to the last two days' short squeeze is also not short-term.
The market at last check is still pricing in a 28% chance of a rate hike tomorrow and I suspect perception is even lower now with the bad inflation print this morning and overall favorable economic indications for holding off on a hike. This week I proposed the scenario that the typical F_E_D / F_O_M_C knee jerk reaction that immediately accompanies an event, may in fact be the real set up for a true head fake move as this has barely made a breakout. Head fake moves are strong, they are convincing, convincing enough to make people forget about the August decline and chalk it up as an anomaly. That's the job of a head fake move, to change perception to create movement. You've seen the price action since August 24th's intraday low which has been pinching in volatility and worse yet has seen a huge decrease in volume-two things that make it nearly impossible for large institutional traders to transact as the size of their positions would move the market against them.
aaThe dying volatility and lower and lower volume is one of the main reasons the head fake move exists if you have read the two articles in the Resources section, "Understanding the Head-Fake Move". A true head fake move will see strong movement that creates an emotional response, forcing shorts to cover which creates more upside and longs to chase, this is what smart money sells in to.
Honestly I have no idea what the F_O_M_C intends to do, I went in to this a bit last night in the Daily Wrap and specifically how the initial knee jerk reaction could be used to create a more effective head fake. The failure to hike rates could be an upside catalyst, even a rate hike could be a catalyst as a sort of "When the missiles fly, it's time to buy" as uncertainty over the rate hike is removed. It's the uncertainty the market hates the most.
Either way, all of the incoming data and big picture charts tell us the probabilities are extremely high that this move fails and as such, should be used to short in to.
If this weren't the case, I doubt we'd be seeing charts like this today...
spy 1SPY intraday distribution 1 min
qqq 3QQQ leading negative 3 min
iwm 5IWM leading negative 5 min.
Even Index futures or especially Index futures have been seeing stronger and stronger distribution over the last 3-days.
nq 10NASDAQ 100 (NQ) Futures 10 min
tf 15Russell 2000 (TF) Futures 15 min
es 30SPX (ES) Futures 30 min
ym 60
Dow (YM) Futures 60 min.
I know what I'm looking for, very specifically, the "gas in the tank" SPY, QQQ, IWM 10-15 min charts to go negative and the sharp "Alligator Jaw" divergence on the 5 min Index futures charts. With the distribution in to just about anything resembling a price gain, I have little doubt (taken with the big picture charts or highest probability resolution) that this move will go down as a head fake move we want to short in to. Leading Indicators falling in line, HY Credit and the following chart are all just an added bonus on top of a scenario that is such a strong concept we were able to forecast it last Friday.
skewThe SKEW Index (by the CBOE) also known as the "Black Swan Index" has moved through the market red/danger zone around the mid $130's and up to an extreme of 142. I've only seen it higher once and that was just before the October 2014 sell-off.
I hope you can see why I want to leave all of my core and trading shorts open. Even the VXX calls I'm not too concerned about with October expiration, I have a feeling will be long past where we need to be by that point. I'd say we are definitely back looking at the big picture again, we haven't been there in a while. Even chart's like AAPL's, AAPL Interesting,  are looking indicative of watch list stocks.
Going in to the overnight session, I wouldn't expect much movement based on the last few meetings/minutes releases, however this is what we have, although I suspect tomorrow will either be ruled by a wild card, or as I suspect, a knee jerk reaction that gets our head fake move closer to done and us closer to the next level down in the market.
There's a slight negative in USD/JPY with the 3 min $USD still pretty ugly from some heavy distribution at a.m. highs.
dx 3m$USDX 3 min
yen 3

However it may be the Yen 3 min positive divergence that's the real trouble for USD/JPY going in to the overnight session as it looks to be strengthening.
Index futures...
es 1mES 1 min has a negative divergence from 1 pm today, right about the time Yields went positive and lifted the market and a worse leading negative divergence since the close.
nq 1m
NQ 1 min has the same theme, a slightly different look.
tf 1mAnd TF 1 min needs no commentary. Russell 2000 futures continue to have some of the worst underlying 3C charts.
tf 3 minThis TF 3 min chart is almost the size divergence I look for on the 5 min charts for entry timing (short in this case), it looks like a gaping wide-open alligator jaw.
tf 5 minThe 5 min Index futures (TF) isn't far from that and from here, I've seen it put in overnight, not that I suspect that's a probability with the F_O_M_C tomorrow.
We also want to see the 10-15 min SPY, QQQ, IWM "Gas in the tank" charts go negative, but if all of the Index futures put in a 5 min chart like the TF 3 min above, I'd dare say that's close enough.
spy 10The SPY 10 min moved to a leading negative divergence (start) today and...
iwm 15
The IWM 15 min hasn't looked very good since the run started, so this may not be far away considering how much the SPY moved on a 10 min chart in a single day.
Not having anything to do with a head fake move or my suspicion that they may use the F_O_M_C knee jerk reaction to complete it, I always warn before any F_E_D event to BEWARE THE KNEE JERK REACTION. It's almost always immediate, it's almost always wrong; sometimes retraced the same day, sometimes days or weeks later. I don't think we'll be looking at weeks unless we get a major dovish surprise, but in any case, this is a typical, normal volatile knee jerk that almost always happens with a F_E_D release, just beware of it and know that it's almost always wrong if it looks like a true knee jerk reaction.
That SKEW chart has me a little concerned about the market and making sure we get in on time, I may consider some phasing in with charts that stand on their own. There's always the chance the F_E_D surprises and the market truly has no idea, then I suspect it's every man for himself with rate hike probabilities or market perception as low as 28%.
If anything interesting pops up before I turn in, I'll post it for you.
Have a good night.

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