short-term futures ( ) were also out-performing today as they have been recently, but today was to an all new level. I don't think this is without meaning and it's certainly not bullish.
Wednesday, November 04, 2015
From our member's site,
Today's Daily Wrap
I almost had to laugh when I accidentally (as I try hard to ignore CNBC and other Financial media's subterfuge-trying to explain why the market did what it did for the day in a 30-second soundbite) heard the Bloomberg round-up on my local news/talk radio explaining that the market was down today on a more hawkish F_E_D tone from testimony in front of the House Financial Services committee today. Here's why...
The Financial media would have us believe that a more "Hawkish" F_O_M_C a week ago to the day, was responsible for the market rally since. However a more hawkish in front of Congress today was responsible for the exact opposite, market weakness.
I'm not going to make any case or give any opinions beyond what we had said in advance of BOTH events, then you decide.
The following excerpts are from the Daily Wrap Tuesday, October 27th, the day BEFORE the F_O_M_C last Wednesday:
"However as you know, I have suspected that the clear resistance range in the would be broken on a head fake move, specifically tomorrow’s F_O_M_C knee jerk reaction just after the policy statement...
Today I believe we saw a Crazy Ivan shakeout, a shakeout of both sides of the triangle making shorts and longs both wrong before heading lower, essentially clearing the deck. Note the break below the support trend line of the IWM’s ascending triangle today on this daily chart. This failure of the triangle would have pulled in new technical shorts who saw the break of support as a short opportunity, but if we are to see an upside move without Wall St. having to buy up a lot of the market to make it happen, the easiest way is to force a short squeeze of today’s new shorts.
And on a 5 min chart of the , the positive divergence built all day until this afternoon when I said it was at saturation as the divergence migrated out to a 5 min chart by the close. New shorts are caught in a bear trap and likely have stops just above the resistance trend line of the triangle. This is the same thing we are seeing on the shorter timeframes in Index futures above.
Remember, it’s a F_O_M_C day tomorrow so as always, beware the knee jerk move, they are almost immediate and they are almost always wrong. In this case as I have thoroughly explained, I believe it will be used for a Russell 2000 breakout above its range, a head fake move that will fail, but should offer us some nice entries in shorts as well as options like calls.I can’t put a timetable on the actual failure as we’ll have to let the market/3C charts tell us that, but the last one was within the 2 hours left before the close. Other times it’s a few days, sometimes a week or more.."
As most of you will remember, we were looking for this head fake breakout above 14 days of resistance well before the F_O_M_C. The F_O_M_C's typical knee-jerk reaction seemed like a PERFECT place and time to make the breakout, again a head fake or false move that will fail. Lets look at the daily chart...
Here's the daily chart with the break BELOW the triangle or the first step of a Crazy Ivan shakeout, the second step coming the very next day with a breakout above the triangle, squeezing all new shorts that entered the day before on a technical break of an Ascending Triangle just as was posted the day before the F_O_M_C above.
However as you might recall, the knee jerk reaction almost failed the market and had to be "Stick-Saved" at the last-minute on Wednesday just after the F_O_M_C had been released at 2 p.m.
In a Market Update from last Wednesday (F_O_M_C day) just after the 2 p.m. F_O_M_C, things didn't go as I believe the market had planned (an upside breakout) and the initial reaction to the F_O_M_C saw the market selling off, although you wouldn't know that by the daily close of the above on last Wednesday's F_O_M_C. Here are some charts and excerpts from that Market Update, again just AFTER the 2 p.m. F_O_M_C policy statement had been released...
"SPY 1 min, the lows of the post F_O_M_C period were accumulated, not a large accumulation period for something big, but apparently enough to stem the downside, I suspect, as mentioned earlier, no matter what the F_E_D says today, Wall St. already set up this move and they are likely going to see it through."
What you see above is the initial reaction to the F_O_M_C last Wednesday in the SPY, it was an immediate sell-off, like the September F_O_M_C. However as you can see, the initial downside move saw 3C support almost immediately. As I said above as it happened, it wasn't a lot of support, just enough to stem the downside move and get the market moving back in the direction the market had already been set-up for in the days leading up to the F_O_M_C, that would be up and specifically a breakout of the through 14 days of resistance as technical traders would chase prices higher allowing Wall St. to sell in to stronger prices and stronger demand which they need in the sizes they trade.
More from the post above just after the F_O_M_C...
"...it wasn’t the kind of accumulation of an institutional long position, just enough support to halt the intraday losses, I suspect to let their plan play out as yields are cooperative, USD/ and USO/Oil are all cooperative as expected the last 2-days, at least for now.
It looks like I don’t really even need to continue to make this case as since I started capturing charts for this post as…
In other words, the outcome that was set-up days in advance was in peril as the initial reaction to the F_O_M_C was not what Wall St. had planned advance as we tracked it as it happened. You might even recall another post that I have cited recently relating to and expectations there more than a week in advance, "Trade Set-Up: " from October 26th., 2-days in advance of the F_O_M_C:
"Energy was the sector that we identified in September as being the most crucial to any counter-trend rally that had a hope of holding gains for more than a couple of days. If the reason isn’t obvious on this chart as prices move toward the recent “W” shaped lows, then put all of the 9 major S&P sectors on a comparative chart over the last year and it should quickly become obvious. Energy was by far the worst performer and as such had the thickest short presence. If you put that comparative chart together, roll it back to October 1st and take a look over the next week.
Now looks very close to slipping back down to resume the longer term seen on the chart above this one. The intraday 1 min 3C chart shows recent negative activity, but also some positive 3C signals at the local lows and they seem to be building. This could also be an obvious support mechanism especially with today’s price action down over 2% and breaking local support. That would likely drag in some new shorts and provide a little upside short squeeze momentum.
I don’t expect any high move here, but it’s getting a lot closer to an upside move as these charts continue to develop.
I’d like to see break ABOVE at least $69.50 and much better would be above the $70 area. I’ll be setting price alerts for any such move. They started this entire October counter-trend rally with the Energy sector, why not end it with the same?"
The point? This was a Trade-Set-up, meaning we were looking for something specific to happen to set up the trade. In this case we had breaking below support on October 26th when the post above was published. The post clearly says that "I don’t expect any high move here, but it’s getting a lot closer to an upside move as these charts continue to develop." and very specifically that the trade set-up is predicated on a break of support, setting a bear trap with new shorts entering who will be squeezed sending ABOVE its resistance zone around $70, this was 2-days before the F_O_M_C.
The post was written on October 26th as started to break support, an area where technical traders would short the hugely underperforming sector over the last year. While didn't look quite ready as accumulation of the sellers and short seller's was taking place, the next day we had enough accumulation to force an upside short squeeze just as had been envisioned in the trade set-up with the breakout level likely being where most shorts placed stops, forcing a short squeeze at the trigger area of $69.50 to $70, making and excellent short in the local area now. Very little happens in the market that's not telegraphed in advance. Looking back, we had no way of knowing whether a short squeeze would be a 1-day event that happened on the F_O_M_C or several days later as was the case, but interestingly the "F_O_M_C typical knee jerk event" which can last a week or more has been supported by in a trade that was set up on 3C charts more than a week in advance.
MY POINT IS SIMPLY THAT THE FINANCIAL MEDIA'S REASON FOR PRICE ACTION OVER THE LAST WEEK IS ATTRIBUTED TO A HAWKISH F_O_M_C, YET TODAY'S WEAKNESS IS ALSO ATTRIBUTED TO THE VERY SAME HAWKISH TONE FROM .
As for today, well before testimony I had posted the A.M. Update this morning with the following excerpts just after having explained what was likely to move the market today and how it was likely to stay within the range of the reversal process...
"This may actually work out well as stable or slightly higher prices or even slightly lower still keep us within the reversal range and allow more distribution to continue."
The Index futures looked like this BEFORE the cash open and BEFORE today...
ES 1 min BEFORE the US cash open as of 9:20 a.m. this morning. Note there's a very clear intraday negative divergence hinting at those "slightly lower" prices I had alluded to in the A.M. Update, but somehow we'd remain "Within the range" of the reversal process of the last 2-days.
This is what happened on the US open as the 3C chart above had forecasted...
The green arrow at the top above price represents the 9:30 US open. Note the ES 1 min intraday negative divergence forecasted the early market weakness as you can see above as S&P futures fell almost immediately on the open.
So after seeing the evidence posted in ADVANCE of both events, I ask if you buy the Financial Media's 30-second soundbite/market reasoning that the market's strength over the last week was because of the F_E_D's hawkishness, the very same that they attribute today's price weakness to?
I know my answer. The market, the pros in the market know exactly where this market is going. One of the few hedge fund managers I respect as he's one of the leaders of the hedge fund herd is Third Pointe's Dan Loeb who has revealed that he's net short right now. The price action of the last week or today, has nothing to do with the of the F_E_D, it has everything to do with a counter-trend rally which is by definition a bear market rally and the distribution in to that rally which is the reason they exist. Again from my September 29th Daily Wrap's "Anchoring Expectations" portion of the post...
"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.
...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"
This is a perfect time for me to post the Futures charts which are the strongest timeframes with the stronger underlying trend (3C flow of funds)...Then, look at everything above and see if these charts make sense, I think you'll find they do.
ES/S&P Futures on an extremely strong 2 hour chart, one of the highest probability indications of market resolution. Above there's a very clear and very strong leading negative divergence in 3C right at the October rally and through its entirety. This is smart money selling in to price strength,m initially selling/shorting as shorts BUY to cover and after that as retail longs take the bait and chase prices higher. This 3C distribution signal is even stronger than the one preceding the August decline.
We see the exact same thing on the 2 hour NASDAQ 100 Futures with distribution before the August decline and at the October rally.
And a closer look at the entire October rally on a 60 min chart of Russell 2000 futures with fairly strong accumulation in to the end of September and early October, enough to lift prices off a low that either sat at the lowest lows since the August lows or in the case of the Russell 2000, at a new lower low than the August decline lows. There's initial confirmation to make sure the move sticks and they don't sell too much too early and knock the rally down and pure 3C distribution through the entirety of the rest of the move which continues right through this week.
This post of the 60 min 3C chart shows the distribution since the June highs in the and the largest negative divergence by far is through the October rally, the very same thing we see above on all of the Index futures charts, that's multiple timeframe/multiple asset confirmation.
That's what all of this is about as we laid it out late September BEFORE this strong counter trend rally even started as we already had signs of the rally to come. You can see for yourself it was described in very accurate detail on September 29th, that's at the very low of the decline, below the August lows and 3-days before the rally started!
In any case, now you know why I don't listen to Financial Media who try to describe a crooked and complex market in 30-second soundbites as to not scare away their viewers who don't want to consider how crooked the market is and want to believe that it behaves predictably. The truth is it does, but only if you watch the how the money flows.
As for the rest of today, you saw the intraday divergences which are necessary for the reversal process which is distribution, to complete. That was apparent when looking at Futures today. The long-term charts above tell us what the highest probability resolution is and that's down, the shorter term tactical charts for timing require that we keep our thumb on the pulse of the market and watch for very specific signals that are already pretty well in place in some of the index futures like NASDAQ 100 futures, it won't be long before the rest join as most have already started to.
The Global economy is in worse shape than we knew yesterday as China's container freight has hot a new record low.
What was likely a direct result of testimony before Congress is the F_E_D Funds futures discounting a 60% chance of a rate hike in December, that's a jump of 10 percentage point since yesterday. Treasuries are reacting with the short end underperforming, rising 5 basis points on the day in 2 year treasuries, however as mentioned earlier today, we might want to take a look at as the Index futures for 30 year treasuries look significantly better, they also closed the day flat, not selling off at all while the short end of the curve was up 5 basis points as it was sold off. Again, a direct effect of comments today.
Our :RUT Ratio was a bit stronger than the today which reflects the intraday positive divergence I posted earlier in Market Chart Updates
As usual I have inverted the prices in green to show the normal correlation between the and . As we have seen the last several days, is outperforming the normal correlation and this was taken to a new level today. Looking at the chart alone with the recent signal of our custom indicator,
It's hard not to believe the market can last even another day without a severe turn to the downside. As I said earlier, while I expect some market bounce as I have most of today from the intraday positive divergence building, I wouldn't be surprised if they were to turn in the middle of the day. That's not a forecast, just a thought as the looks read to explode higher.
short-term futures ( ) were also out-performing today as they have been recently, but today was to an all new level. I don't think this is without meaning and it's certainly not bullish.
Both our long position and Calls are in the green on the , however this is not the move I'm looking for, obviously I'm looking for a much move on a downside break in the market.
High Yield Credit diverged further away from the /Market today as the correlation and support of Credit early in the October CT rally is pretty much obliterated. This is a big picture Leading Indication that we have used for some time. When there's a divergence this large, we have typically seen some pretty nasty moves lower.
Our Pro Sentiment Indications have also continued to diverge away from the in a way we haven't seen in so,e time, another leading indication on a primary trend scale pointing to a new lower low coming in the market.
Commodities underperformed today, part of that was on oil weakness which makes me thankful we closed the USO Call yesterday, even though we have a positive divergence today. I'd very much like to use any upside price strength in to open a put position. I don't see the utility in waiting much longer as has hit our target zone. I would like to see higher prices from today's close to enter the puts at a discount and Oil may help in that early tomorrow. The strong $USD on comments likely didn't help either. However longer term or on a primary trend basis, I expect the $USD to break lower. Here's another one of the long-term Futures charts for $ .
This is the 3C chart for $ on a 60 min timeframe, the highest probability resolution is lower. It may sound counter-intuitive, however I've seen these divergences in the $USD before with a seemingly impossible scenario for the dollar to move in their direction and they have every time. Perhaps on Carry trade closures?
And the longer term commodity chart vs the . Remember commodities are a risk asset so they should follow the market in a true risk on scenario. Commodities actually led the to the upside at the start of the October rally (at the white arrow), they even played along for a bit as the Energy sector shorts were hammered, however just like before the August decline, they have diverged significantly to the downside.
As for futures going in to the overnight and generally...
ES/ Futures on the 1 min chart look to have based very short-term in line with today's intraday divergences. Other index futures don't look ...well I want to say as strong, but this is not strong-looking. Lets just say other index futures look worse.
For example / futures on the same timeframe are more negative. There's a tight triangle forming and I suspect this causes a directional breakout, whether a Crazy Ivan or not remains to be seen. The bottom line is I still expect the positive divergences from today to play out in the cash market. The 3 min ES chart looks a bit stronger for very near-term trade.
I have been waiting on a few trades, mostly options for the best pricing and timing. I suspect tomorrow we get it and are able to open those trades at a discount, I fully expect to see distribution in to any positive price action from today's close.
As for USD/, it may be able to hang on through tomorrow, however I'm not sure it matters.
This is ES/ futures in purple overlaid on Crude futures (candlesticks), you can see that crude is clearly in control of the correlation which is why we entered the crude options position in the first place, although today I'm certainly glad we closed the position yesterday. There is a positive divergence in USO as posted in the last post.
As for USD/, there are some interesting things going on.
While the $USD is not immediately divergent, it is very parabolic and my bigger picture expectations are for a move lower in $USD, but it may not matter what $USD does as the Yen accumulation I've told you about the last 2 days looks to be coming to a head, I suspect because of carry traders realizing the end is near and covering/closing the USD/ carry trade.
This has migrated over to the 3 min chart as well so it's a strengthening divergence. Remember a higher Yen=lower USD/ unless the $USD moves significantly higher. In any case a higher Yen hasn't historically been good for the market, this may be partly the reason the Nikkei 225 futures have been giving building negative 3C divergences, it the US markets too.
Remember my baseline scenario for Crude is lower so even if it pops near term (overnight or tomorrow), it will likely be an excellent short entry along with the Energy sector (). With both USD/ and Crude looking to make a move lower, there's not much in the way of support for the market but I don't need to make a weak market theory argument based on crude or USD/, I think they are symptomatic of the market's underlying condition as we are obviously very near a downside break.
To that extent, it's also interesting to see the accumulation in 30 year Treasury futures. The short end is underperforming and doesn't look nearly as good. You may recall that after looking at Futures today, I said we might need to take a look at (20+ year Treasuries) long.
Here's 30 year Treasury futures...
3 min 30 year Treasury Futures building a strong positive divergence. Remember higher Treasury prices=lower yields. I wouldn't be surprised if the Yields correlation starts fading with increased F_E_D rate hike expectations, but I don't think a move higher in 30 year Treasuries will be good for the market and that's what they look like they are preparing to do.
Finally the NASDAQ Futures are starting to scream on the 5 min timing chart.
This is essentially the "Alligator Jaw" divergence I look for as for timing on Index futures. I'd like to see this on all Index futures and by tomorrow, if we get some upside to sell in to, we may have it. However I don't think this divergence can be ignored much longer.
Our AAPL short entered this week is at a gain, I'd like to fill out the rest of the position at better prices or open a put position as initially envisioned in the AAPL trade idea. I suspect we get a bounce in AAPL tomorrow as with the , I'll be looking to fill out the rest of the short/puts in AAPL in to any bounce.
As I said earlier, a bounce is sounds counter-intuitive to the market falling apart, but it's actually what we need to finish the charts and get Index futures all looking like the futures above and I think we get it tomorrow. Smart money doesn't sell in to weakness, they can't at the sizes they trade in-just look at the October rally on the 2 hour Index future charts above, they have clearly been selling in to the move which is what we said would happen on September 29th well before anyone even expected a move. This is what today was all about. They'll sell in to strength and I don't see this market holding much more distribution.
That will do it for tonight. If anything changes dramatically in futures before I turn in, I'll get a post out. Have a great night.
Wednesday, October 28, 2015
From our member's site,
Daily Wrap, October 28, 2015
I was just thinking back to last Friday and last night's charts of the averages since the rate cut and s post in Friday's Futures Update that said, "I don't think the changed anything for the market" or for the overall October counter-trend rally. Interestingly last night I posted the averages and the rate cut didn't have any effect beyond a single day. It was the F_E_D's potential knee jerk reaction which was to be piggy backed on and when that failed to materialize today, the invisible hand was there with enough support to create the same effect which a you know, I believe has a lot more to do with technical buying and specifically the 14-days of resistance. This is the same concept as the April 2nd post this year with a forward-looking forecast in which I said that there would be no significant downside, no break of the 200-day until the very clear resistance level from 2015 was taken out which it was in May on a head fake move that ended up being the top.
Monday in Broad Market Update the following excerpts were posted as the same concept became very clear.
"The daily chart is still looking very much like it “should” see a breakout above its range that has lasted 2 trading weeks...
Looking at the since it topped in June, there has been a steady of lower highs and lower lows which is still in place. The range area of the last 2 weeks (resistance) still hasn’t been broken which means there’s still a trend of lower highs/lower lows, although I’d expect this range to be broken before a downside reversal takes place as it provides the momentum for a downside reversal. A failed breakout leads to a fast and strong reversal (same as the Channel Buster concept).
This is the 60 min chart since the September/October base lows and counter-trend rally area. Note the resistance area of over 2 trading weeks and the “Ascending Triangle” which is taken as a bullish price pattern (consolidation/continuation patter”, this alone is a near perfect head fake set-up and I’d strongly consider an short or Put position on any such breakout. We’d want to check 3C for negative signals, which I have little to no doubt, would be there, but it’s more for timing although I don’t think we have long.
It’s possible that this won’t breakout before a reversal, but it would be highly irregular as this is one of the best head fake set-ups we have seen in a very long time...
I will be setting price alerts for an breakout as I see that as the only thing left remaining before a downside move and I see it as the best entry for options/puts as such a well set up head fake scenario would provide an excellent head fake move and these head fake moves tend to be the last thing we see just before a reversal. In fact we look for the head fake moves such as the IWM’s set up as they are one of the best “Price-based” timing signals as reversals tend to follow such moves almost immediately. Again, the two articles in the Resources section explain why in detail."
While I'd say the specific got a LOT more specific over the next day, the concept is the same as the concept back in early April.
Also on Monday I posted Trade Set-Up: . Likewise from a larger concept came this excerpt from the post.
"Energy was the sector that we identified in September as being the most crucial to any counter-trend rally that had a hope of holding gains for more than a couple of days. "
As for the near-term trade idea/concept:
"...with today’s price action down over 2% and breaking local support. That would likely drag in some new shorts and provide a little upside short squeeze momentum."
Like the October rally which supported ahead of time, on a smaller scale we saw the same thing Monday,
"We see evidence of the same on a 5 min chart which is the first intraday timeframe I consider to be showing significant institutional activity on a single intraday basis....They started this entire October counter-trend rally with the Energy sector, why not end it with the same?"
I think the larger point here is not just the short squeeze momentum provided by the Energy Sector which had broken recent support which would have drawn in new shorts, but because of its size.
Of all the S&P sectors today, Energy/ (white ) was neck and neck for the lead with Financials. It's no coincidence that the worst performing sector of the year has led the market when the market most needed short squeeze momentum to make the move and if you don't think short squeeze momentum was crucial not only to the October rally which I've already proven with S&P sector charts the first week of the SS, just take a look at intraday trade today.
If you can see the red trend lines on the SPY's 1 min intraday chart, you can see the diagonal early ramp with no which is characteristic of a short squeeze and after the initial flop in the market on the F_O_M_C, the second move this afternoon which likely gained more short after the initial flop and ugliness, is as classic short squeeze as you get. Beyond that the "Most Shorted Stocks" as an index far outperformed the market averages today.
All things considered, why yesterday's sudden change of character in Oil/USO took on a new , much stronger tone even with a miss in the API data last night and a miss in today's EIA data. At 10 a.m. Oil led the entire market higher.
Looking at USO (green), SPY (white), (light blue), (yellow) and 10-year yields (red) over the last 2-days on a 1 minute chart, you can see what got the ball rolling this morning as Crude spiked at 10 a.m., 30 minutes before the EIA data even came out dragging every major average as well as sectors and yields higher. There was a clear set-up earlier in the week to support certain assets, /Energy being one as it's a large sector with a lot of short squeeze fuel and Oil to help get that squeeze going.
Even after the initial $USD surge that sent Gold, silver and most $US Dollar denominated commodities instantly and seriously lower, it was clear that Crude, the most sensitive typically to the $USD Legacy Arbitrage, was doing its own thing as pointed out in the 2:23 p.m. post, Oil Holding Remarkably Well as the November 20th $15 USO speculative Call position we entered on the very notion that Oil would lead the market higher, gained +158% today.
This is the USD/ in red/green candlesticks vs ES/ futures in purple intraday today with 10 a.m. and the F_O_M_C release at 2 p.m. marked. While USD/ meteoric intraday rise on the back of $USD strength and short-term Euro/Yen weakness was certainly helpful as we suspected it would be in yesterday's futures update...
Crude futures in candlesticks vs ES in purple intraday (1 min) today showed a lot stronger correlation at 10 a.m. when crude ramped after showing unusual strength yesterday and stayed elevated through the initial market decline on a more hawkish F_E_D and pulled futures back to crude's reality in the afternoon on a short squeeze.
The point to both and Crude, not to mention numerous other futures posted yesterday and intraday trade today, was that someone had set these up in advance. I suspect they intended to take advantage of the common F_O_M_C knee jerk reaction to help prices higher, specially to the breakout above nearly 3 weeks of resistance and a clear ascending triangle. I honestly didn't expect an upside move until 2 p.m., but I was specific in saying last night in the Daily Wrap that,
"I have suspected that the clear resistance range in the would be broken on a head fake move, specifically tomorrow’s F_O_M_C knee jerk reaction just after the policy statement, but we’ll still let the market fill in the smaller details. Today I believe we saw a Crazy Ivan shakeout, a shakeout of both sides of the triangle making shorts and longs both wrong before heading lower, essentially clearing the deck. Note the break below the support trend line of the IWM’s ascending triangle today on this daily chart. This failure of the triangle would have pulled in new technical shorts who saw the break of support as a short opportunity, but if we are to see an upside move without Wall St. having to buy up a lot of the market to make it happen, the easiest way is to force a short squeeze of today’s new shorts."
There's some speculation based on early market activity that there was a F_O_M_C leak, if there was, then the early activity was clearly to strengthen the market enough so that the could clearly take out the resistance range which it had failed to do convincingly at that point, but just imagine had the market remained flat before the F_O_M_C and then had the immediate aftermath weakness, the would have never made its target...
And with that between yesterday and today, the Russell 2000/ completed a Crazy Ivan shakeout, first of the downside yesterday pulling in new shorts to be squeezed today and then on the upside as a larger head fake concept as mentioned above with regard to the market's primary trend and the taking out 2015 resistance before it made any downside moves that would hold. I was very specific about what would have to take place so institutional money didn't have to spend too much to move the market as their intention is to sell the market/distribution, any purchases to support the market just cause that action to take longer at less than ideal levels. We VERY clearly saw them at work today as I did NOT the initial, but strong and convincing looking post F_O_M_C downside.
With regard to the post-F_O_M_C downside in the market which was convincing looking, but failed to force our hand to chase prices lower, the post F_O_M_C Market Update:
"On an intraday basis, something still not sitting quite right with me. The TICK Index is not as I would expect it. Many intraday divergences are either in line now or slightly positive or in position to suggest an attempt at some additional upside here..near term we did expect some knee jerk gains today and I can’t say that they are ruled out as of yet."
Just after that the Market Update Charts post looked back at an SPY divergence as the pre-F_O_M_C activity started losing upside momentum. This was the first, clear hint that Wall Street was ready for F_O_M_C market downside and had already started moving to counter it...
"About an hour and a half ago I posted Market Update which showed the intraday charts from 1-3 min and some 5 min charts breaking down, however one of the last charts I posted was a 1 min SPY chart which is below with the following excerpt from the chart/post."
“The most sensitive 1 min chart, which responds fastest is putting in first signs of a very small 1 min intraday positive which seems to fit with the TICK chart above, if so this seemingly would be clearly for a knee jerk move to the upside.”
A quote frrom the earlier Market Update post BEFORE the F_O_M_C today with the chart above from the same post.
This was the first small sign of some intraday improvement rather than continuing with the negative trend of distribution through couple of hours or so leading up to the F_O_M_C."
From the same afternoon Market Update Charts post from which all of the above came, this was what the same SPY chart looked like after the F_O_M_C about 90 minutes after the first capture above...
The point of this chart is to show that while not spending a lot of money to support the market and gain additional upside, squeezing post F_O_M_C shorts who chased the 2 p.m. downside lower was exactly what was being set up. I suspect smart money already knew that the F_O_M_C would be the EXACT opposite of the September F_O_M_C.
Think about that for a moment, the September F_O_M_C was too , traders were too scared about the economy and that sent prices lower. Today the F_E_D was much more hawkish, removed a lot of the global economic downturn language and hinted at rate hikes enough that the chances for a December rate hike went from 35% just before 2 p.m. to 48% just after 2 p.m. Why in the world would the market sell off on a F_E_D in September and then turn around and sell off on a hawkish F_E_D in October? The answer is that all is not what it seems and today's intraday action leading to higher prices had almost nothing to do with the F_O_M_C and had everything to do with the 3 resistance range.
To save some time I'll summarize Yesterday's "Quick Futures Update" and the Market Update that immediately followed the previous post and laid out what had been noticed , what it likely meant and what expectations were for today.
From the Quick Futures Update:
-"Not much has changed. I’ve suspected that we would see a head fake upside breakout on a traditional F_O_M_C knee jerk tomorrow at 2 p.m. in which the would be the most obvious head fake / knee jerk breakout, but as posted earlier today and mentioned last night, the range created in the over the last 3 days also would qualify for the same technical breakout/retail buying set-up on a strong knee jerk, but ultimately on what would be a failed knee jerk move."
-" Broadly speaking, I believe the $USD is in for a downside move, although F_O_M_C policy can have dramatic effects on the USD, this really isn’t the most important aspect of my interest in the USD, it’s the USD/ carry trade that not only denotes an institutional risk on/risk off stance, but has led Index futures nearly tick for tick more often than not. It’s the failure of the USD/ to the downside that I expect and despite what the $USD may do( Wednesday), the other half of the carry trade, Yen futures look like they are putting in a base to rally from which we saw overnight, but I’m looking for a much larger base that should send USD/ lower despite what the $USD does (edit-Wednesday). Any USD downside is extra downside momentum taking one of the main crutches holding the market up out from underneath it."
-"Very near term I suspect the Euro and the Yen which are both building bases from recent downside ( comments) to weaken short-term tomorrow which is fine as they need a pullback anyway to construct a more stable base. This should facilitate USD/ strength tomorrow to assist in head fake moves in the averages (Russell 2000 and NASDAQ 100 being the most obvious, but all averages should move) "
-"Additional indications include Treasuries which are a flight to safety trade and have been seeing accumulation as money rotates out of equities and in to protection like futures, and flight to safety Treasuries. I expect all of them to weaken tomorrow allowing yields to move higher in support of the market near-term for the head fake breakouts. Like the Yen and Euro, they too can use a pullback in strengthening their base area which I believe moves to the upside and sends stocks lower as the false breakout’s momentum fails,..."
-"Very short-term as in since yesterday, Index futures have seen small accumulation as pointed out in several of the market averages, I believe that’s directly related to tomorrow’s expected knee jerk/false breakout."
-"I’ll try to post a review of the charts that led me to this belief of the above scenario, but honestly this scenario took shape last week and by Friday’s late day posts for the week ahead expectations and thus far we have had all of the moves expected."
-"I expect the $USD to see a significant primary trend lower, but if the F_E_D surprises and hints toward a December rate hike being high probability, I’d expect the $USD to maintain strength"
-"Basically everything we have been looking for and expecting for this week looks to be on track and everything I mentioned above is not born out of opinion or speculation...but rather based exclusively on the charts reviewed in futures as well as the broad market."
Reviewing the expectations posted yesterday (Tuesday) looking forward to today's action in these assets I expected the $USD to move higher on any hint of a rate hike. As F_E_D Funds futures indicated a rise in the perception of a rate hike in December from 35% before 2 pm to 48% after 2 p.m., I'd say that qualifies and as such, the $USD did as expected.
$ slams higher on F_O_M_C today at 2 p.m. as expected, but also as expected, $USD sees distribution toward the longer run expectation of the $USD moving back toward a primary as has been our analysis all year(remember the recent Death Cross in the $).
The bigger picture (stronger underlying 3C distribution trend) on a 60 min chart of $ shows the heavy distribution in to today's highs as well as an S/RSI divergence.
This was expected to lift USD/ intraday (as you've already seen above) with additional intraday weakness in Yen and Euro futures helping lift USD/ today as well as $USD.
The 5 min Yen futures chart dropped as expected yesterday at the release of the F_O_M_C today (red arrow), however note the leading positive divergence in Yen futures on the expected pullback as it was accumulated. Whether pointing to a Yen base and lower USD/ or the closure of the Yen carry trade, neither outcome is good for the market.
Euro futures were expected to do the same on the F_O_M_C today and did at the 7 min chart's red arrow, again in to a leading positive 3C divergence as lower prices were accumulated.
The larger trend in the stronger 60 min Yen futures/3C chart is clearly leading positive and leaning toward our longer term primary trend view.
While the 60 min Euro futures do the same, leading positive at today's F_O_M_C pullback.
We also expected Treasuries to drop and Yields to support the market to the upside.
The 7 min 10 year Treasury futures fell today just as expected , but in to a strong (7 m) positive 3C divergence, the drop was accumulated.
Intraday that sent 10 year yields higher (red) in support of the market ( in green) just as expected, however...
The big picture, long-term 60 min chart of 10-year Treasury futures has a huge leading positive divergence at a base-like structure, again meeting yesterday's expectations of not only lower Treasuries and higher yields in support of a head fake/false breakout, but accumulation of Treasuries during today's weakness looking toward a large-scale move higher, sending Yields lower and pulling the market lower with them as the Flight to Safety trade is clearly engaged.
Futures were expected to give some ground...
5 min Futures initially popped on the weak market response and then dropped as the market lifted, but did it in to a positive divergence and held rather well all things considered.
Finally intraday we saw as it happened, just enough accumulation to soak up supply and force the afternoon short squeeze. In the interim, I had posted my doubts several times that the initial market weakness on the F_O_M_C would hold intraday and expected to see some market strength as there were numerous signals, even though I FULLY expect today's market strength to fail, just after the resistance was clearly taken out which it had not been as of 2 p.m. today.
Additionally yesterday's Market Update post which followed the Futures update above, as to what we were looking for today as of yesterday when it was posted.
-"All of the preparation today including the Russell 2000’s downside which I believe is part of a Crazy Ivan shakeout to give the additional upside momentum by squeezing recent shorts who entered today, looks to be in place. The intraday charts in the averages, especially the are positive and leading to the point in which it’s hard not to imagine a move higher before tomorrow at 2 p.m."
-"I’ll go in to the knee jerk reaction more later, but don’t be surprised to see a very strong parabolic /vertical move higher, that’s what a knee jerk move looks like it’s also what a head fake move looks"
Interestingly I had made another comment last night along the lines of the one above in red that short-term 3C intraday divergences had reached the point of saturation and I wouldn't be surprised to see them move first thing on the open rather than at 2 pm on an F_O_M_C knee jerk. That's exactly what we saw today, but didn't clearly break above the / resistance level until the second short squeeze after initial F_O_M_C based market weakness.
I have little doubt yesterday's break below the ascending triangle in the was a Crazy Ivan shakeout as was posted yesterday.
As explained yesterday, the clear ascending triangle on the /Russell 2000's daily chart was broken to the downside yesterday which is a bear trap, catching new shorts who will likely place their stops above the top of the triangle, thus providing extra upside momentum as those stops are hit forcing a short squeeze, as mentioned above, it's about reversal momentum so I don't think the move yesterday was coincidental as we look at today's daily candle's momentum.
Additionally intraday after the F_O_M_C weakness, note volume as stops are triggered on a break above the range/resistance and the diagonal price trend so indicative of a short squeeze. Again, exactly as we expected as can be seen from yesterday afternoon's posts.
Moving forward, here's a look at Leading Indicators. In last night's Daily Wrap I posted the big picture Leading Indications of numerous indicators all showing the tell-tale signs of a serious downside market reversal.
Our custom :RUT Ratio was more or less in line with early price action before the F_O_M_C, note at the F_O_M_C initial market weakness, the indicator held up well and posted a positive signal from which the market headed higher in to the close. However the short squeeze in to the afternoon didn't see upside confirmation from the indicator and you know what the big picture looks like.
The intraday vs the (in green with prices inverted to show the correlation), shows a 4th day of out-performance on a relative basis, especially in to the close.
Our Pro Sentiment Indicator also failed to follow the market intraday and is severely dislocated on a larger scale as seen above.
Commodities for the first time in a while more or less kept pace with the as Oil was leading today. However once again you know what the big picture looks like, suggesting we are at a serious downside pivot for the market.
And Credit failed to follow the end of day short squeeze in the , instead selling off.
This is the move we were looking for. As I posted last night, a knee jerk reaction and/or a head fake can resolve in a matter of yours as the September F_O_M_C did, it can be a day or days and as long as a week or so, however I expect distribution to be sharp now that the WM has met the upside target it has missed for the better part of a month, this is important with regard to how head fake moves work and why. Again, if you haven't already I encourage you to read, "Understanding the Head-Fake Move" parts 1 & 2 in the "Resources" section of the website. There are so many reasons why this is important and how it can be used to your advantage, you are really missing out if you have a head fake and haven't read the articles.
Intraday we saw distribution through the earlier part of the market and overall in to the close. As you probably know, there are very specific charts I look for and multiple timeframe as well a multiple asset confirmation so there's no one indication that says, "This is the pivot", it's a series of events and confirmations which many have been in line such as Leading Indicators or the big picture 3C charts such as the 2 hour Es Futures (or any futures), which is the highest probability chart in intraday timeframes because it denotes the strongest accumulation/distribution.
The ES 2 hour chart doesn't even show the late September /early October accumulation we tracked as this timeframe is too strong for it to show up on, however the distribution in the form of a leading negative divergence is clearly visible meaning on balance the counter-trend rally was all about distribution as we already knew as of September Daily Wrap and the Anchoring Expectations" section.
/ML's recent net positioning by client type which was posted last night shows the 3 consecutive weeks of hedge fund net selling, just as we had said the first week of the rally, "They aren't going to sell too soon and risk suffocating the baby in the cradle". As I showed last night, it was after the first week, exactly where 3C showed that Hedge Funds have been selling, selling, selling. Institutional traders have been net sellers for 8 weeks straight, only picking up a little early at the August lows.The 60 min TF/Russell 2000 Futures is still an exceptionally strong timeframe, but more detailed as it is not as strong as the 2 hour chart above. Here you can see the late September/early October accumulation we had been tracking when we forecast a Counter-trend rally, stronger than anything you have seen in a bull or bear market, which is why I asked you to bookmark the September 29th Daily Wrap so you could come back and look at what had been said days in advance of the market even starting its move, in fact at the lowest level since the August lows when everyone was bearish, we were forecasting one of the strongest rallies you'd be likely to see.
The distribution of that rally is clear above at a new leading negative low on the chart.
Whether this is a true F_O_M_C knee jerk move or not doesn't really matter as no one sees what we do so the way price action ended tells traders it is a knee jerk move at best and at worst it tells them this is a real upside move that will hold rather than the head fake we know it to be. As such, we're still doing the same thing , looking for the signals for the downside pivot. I didn't see a strong set of confirmed signals or rather I saw a few things that made me suspicious as most people were bearish the market this afternoon which is exactly why I didn't put out any new shorts or put positions as I suspected the move to the downside right after the F_O_M_C was not going to hold.
One of the charts I'm most interested in as always is the 5 min Index futures chart. We haven't had a solid short signal there since before the August sell-off. There was one that was "Close" on the futures only which was followed by a sharp downside move in the followed by a short squeeze, but other than that, we have not had the confirming timing signal since before the August decline which is why I have not been aggressive in putting out short positions as I will be once those signals are in place. Although I am back to full strength in core short positions.
As we move in to the overnight session, we have negative 3C signals in Index futures, the worst of which is on the NASDAQ 100 futures below...
1 min leading negative which never regained the earlier pre-market 3C position indicating distribution through all of today.
The $ 1 min chart is being a leading negative divergence. However both Euro and Yen futures look like they'll base laterally overnight so I'm not convinced on overnight USD/ (additional) weakness. However...
You know why I believe crude futures were accumulated Tuesday and how they supported the market today. Going in to the overnight session, they have a nasty negative divergence. Once Crude and USD/ legs break, there's not much to support Index futures. The crude futures divergence is migrating to the stronger 3 min chart as I type. As all expectations from today's short-term moves are making their way back toward the big picture including Treasury futures, Yen and Euro futures, and even Nikkei 225 futures which are looking as if they are topping, although I don't se the same kind of signal that allowed us to correctly forecast the overnight tone in Nikkei 225 the past 2 nights. Bigger picture it's deteriorating as well.
Treasury futures look like they'll do some more basing from today's decline, but they are building and should send yields and the market lower.
The 5 min charts have a good start to the divergence I look for as far as timing, I suspect it will be very clear as it has been in the past. Otherwise, I'll be checking on them in the morning and through tomorrow's cash market. I have to wonder if there may be some sort of op-ex play on the week, while we are still 2 days away from it, it would make some sense. The SKEw has started to elevate again, I note this because my best signals in SKEw have not just ben extremes, but rather the Rate of change which just eyeballing it, looks pretty intense (remember the SKEW is known as the Black Swan Index).
We also have a signal in our custom inspired Buy/Sell indicator.
with the stronger of signals in the indicator.
Additionally a I have been posting market breadth, the Percentage of NYSE stocks Trading ABOVE their 40-day moving average has not made a higher high since October 8th, showing market breadth is falling apart in to higher prices with more and more stocks refusing to make higher highs off the October lows.
Also the NYSE Advance Decline Line has not made a higher high since October 8th. Last night I posted the NASDAQ Composite's Advance/Decline line which is leading negative and also has not made a higher high since October 8th, the Russell 2000's A/D line also hasn't made a higher high since 10/8 which is bad news on a day like today, it has joined the others for all intents and purposes.
The Cumulative Vol. Index has also gone divergent, the last time that happened was at the July 20th highs in the giving a negative signal that was followed by the August sell-off.
Absolute Breadth has fallen sharply, again the last time was just before the August sell off.
I'm not going to give away all the charts in one night, but I'll add that the New Hi/New Low Ratio over every time period we measure it in (5) is leading negative as well.
We'll simply be looking for the best entries from here. Now that the Second half of the Crazy Ivan and more importantly the break of 3 resistance is done, there's not much upside in hanging around for smart money. This is when the panic among the hedge fund herd is most dangerous, when all short squeeze momentum is used up.
Have a great night, I'll see you in the a.m.
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