The indices traded lower today, gapping down at the open, bouncing from the lows to a lower high, and then hiccupping to close just above their lows of the day. There was some dramatic action in the treasury markets as the effects of this week's record note action were felt, with five year notes getting sold off aggressively while tens and thirties were bought.
The fed added a moderate 2.75B net in overnight repurchase agreements, ignoring the routine 28 day repo that we've come to expect every Thursday.
Volatility was slightly higher, with the VIX dropping 0.02 to close at 23.69, QQV +.23 to 27.86 and VXN +1.29 to 33.29. The put to call ratio saw its widest swings in the morning, but persisted in the mid .90s through the afternoon to close at .98. Overall volume was lighter than yesterday but respectable, with 1.66B NYSE shares and 1.58B COMPX shares traded.
The US Dollar Index was extremely weak throughout the day on news of the absence of a rate cut from either the BOE or the ECB this morning, followed by the improved but dismal initial claims data for the week. The USD Index broke to new bear market lows below 95.00, propelling gold to the 350/oz level.
On to the charts:
Daily chart of the INDU
I am not marking up the chart to allow you a clear view of the moving averages. We all can see the ascending wedge and the potential for a downside break starting now. First off, there's a clear sell signal on the stochastics, rolling from deep in overbought. The slow MacD has flatlined at the top of its range, also in overbought, and it will take little downside from here to print a big sell signal on that oscillator as well. The daily candle is the longest we've see in 3 days, and it's to the downside, and it follows a spinning top. Any more selling today and I'd be calling it a bearish engulfing with confidence, but there wasn't, so I won't. On the other hand, the 5 dma has not crossed the 13 dma, which latter moving average provided clear support on today's decline. Lastly, the volume was light, showing a lack of commitment on the part of sellers. As you know, I believe that low volume is bearish, but if this is a genuine bear wedge breakout to the downside, I'll expect to see a pickup in volume as sellers jump onto the move.
Daily Chart of the SPX
The same applies to the SPX. Note that the volume was relatively higher on the SPX than on the narrower INDU, which shows a broader commitment to the sell side in the broader market. The oscillators are in the same configuration here. The low VIX close today tells me that the options market is expecting a bounce at this level, and respect for the 13 dma and the lower ascending trendline. If they're right, we'll see a move higher tomorrow. If not, the bear wedge projects potentially to the March lows, although I expect a great deal of attempts to "buy the dips" on the way down.
Daily chart of the OEX
There's nothing to add on the OEX, except that the day's candle did the most damage to the 13 dma. The S&P 100 should "lead" the broader SPX, and with the volume relatively higher than the SPX and INDU, and the deepest penetration of the 13 dma, it looks like the OEX wants to lead its peers downward.
Daily chart of the COMPX
The COMPX printed a gravestone doji, closing the day near the bottom of its range, with the rest of the day's action forming a "blowoff" top or candle shadow. The COMPX has been stronger than the INDU/OEX/SPX throughout the rally, and we see this reflected in the relatively higher close above the 13 dma and the absence of a kiss on the MacD. However, the gravestone doji, as the name implies, is anything but bullish.
Chart of the QQQ
The QQQ is the most bearish of the bunch, printing a "deeper" gravestone doji and closing at its low of the day, right on the 13 dma and with volume actually exceeding yesterday's volume. This is the one chart that appears to have decisively violated its lower ascending trendline on a closing basis, and did so on expanding volume. The stochastic oscillator has given a sell signal with a bearish cross from overbought, while the slower MacD has yet to kiss. Strong support should appear at 27.30.
The leading weakness in the QQQ should have bullish traders tightening their stops and getting ready to hit the exits if the 13 dma's depicted by the red moving average lines on each chart get taken out with authority tomorrow. For those who have been watching and following the trendlines setting out the ascending wedge on these charts for the past month, the 13 dmas represent levels that, if breached, represent a downside breakout as implied by the bearish ascending wedge formation. If you've been patiently waiting to get short, that would be a respectable trigger to use both for the entry, and as a reference point from which to set your stops. The indices are at critical levels with the volatily indices (VIX/VXN/QQV) at levels commensurate with a swing top, and any further downside in the indices will imply that the last significant wave up has terminated.