Mon, Feb 8, 16
08:45 ET Update: [Stockboardasset] S&P futures -1.53%
08:45 ET Update: [Stockboardasset] Nikkei FLAT Hang Seng Closed
08:45 ET Update: [Stockboardasset]FTSE100 -2.14% DAX -2.51%
Today’s the 304th day of a sustained global equity rout. The 103nd day of a descending contracting wedge, that is notable for a bullish reversal with an APEX in early 2H16, there is still more downside to come. Global equities tend to lead-in to the supply line of the geometrical formation (wedge) for 2-3 weeks, and then step down. Our descriptive model of global equities depicts the temporary bottom continues in the 19th day. So, as we know, time is borrowed at this point. China’s Lunar New Year starts this week, Hong Kong Mon-Wed, and Singapore is closed Mon-Tues.
Global Equities Correlation Coefficient (Daily)
(ALERT-> Dramatic decrease in correlation from prior session.)
- CL .38
SPX500 Correlation Coefficient (300min)
(ALERT-> Dramatic decrease in correlation from prior session.)
- CL .53
- USDJPY .19
- HKG33 0
- JPN225 .37
- DX .0032
- GC .-.49
Overnight, our Asian Counterparts in Japan recovered minor ground from pre-session lows of NIRP. JPN225 is marginally up +74bps and USDJPY -7bps. JP Morgan with interesting comments says BOJ could see further easing in March if expected inflation falls further, and YEN appreciates. JPN225 continues on high alert for downside imbalance testing LVA 11670, which is roughly -250bps from POC 17130.
Over to the laughing stock of the World—China. The Lunar New Year is finally here, as the dragon is put to sleep for the week. The fall in Chinese FX reserves leaves us with 2 questions:
- How far will china go?
- Where does it end?
USDJPY Deserves a watch due to the correlation coefficient to SPX of .38 on a 300min scale. 6th session bulls are under pressure after NIRP rocket blasted this FX vehicle +280bps. Rollercoaster round trip prints well below pre-NIRP lows. 300min scale 32d balance w/ POC117.695 as current price prints LVA 116.648. Risk of downside imbalance remains high. Intermediate downside PT 116, if 116 is violated major imbalance will occur.
EURUSD Deserves a watch due to the inverse nature of the USD. On a 300min, dating back to Dec’15 Start. Price has rotated 1.08712POC in a tight bracket. Major Break underway. This could have a beneficial bull thesis for dollar-linked commodities.
CADUSD vs. USDCAD Crossovers of these 2 FX vehicles depict unfair levels were touched on 2-4-16 with reversion. This leads to a risk off in /CL.
US ECON DATA Release
-No Major Releases.
(High Timeframe Playing Field)
We are on the 758th day of the balance. Parameters: SPX500- VAH-2060, VAL-1873, & POC 1935. The balance area has generated a bi modal distribution where price sits on the lower distribution hovering on the point of control. If there is a strong imbalance to the upside, expect a migration to the upper distribution 2050-2010 range. If a weak imbalance, price will remain rotating lower distribution until market generated information generates a new thesis of market imbalancing. (US Recession)
This balance area is a structured sell zone of 1.618 extension from the start of the bull cycle. Over the 758 days, price has rotated violently producing not just the balance area, but 2 major primary wave functions. First, 5-20-15 primary 3 wave ended giving way to 8-24-15 crash in wave count 4. Now, we wait for wave count 5 up-thrust or thwarted 5th wave.
Interesting to note, as the 758 days of rotations of the current balance area, we start to visualize an ascending triangle start date 1-8-14 and end date 1Q’17 (APEX). Supply line of the ascending triangle 2090 where the 1.618ext from start of bull cycle resides around. This is a structured sell zone where funds have met targets to sell. I.e., why we see the rotations of the balance area. When price migrates to the upper distribution of the bi modal, selling is very abundant and rotates price to the lower distribution. This action develops the internals of the ascending triangle. The demand line of the ascending triangle started 1-8-14 and has a 22-degree slope. Price has migrated to the demand line on 4 separate occasions. 2 of the occasions were the notable treasury flash crash, and 8-24-15. Current Price sits below the demand line which is concerning. The Geometrical Structure has a high probable of an upside break, and our PT on upside 250 using measured rule. The upside break would generate the 5th primary wave count. We do have to account for downside imbalances, which is why we watch the LVA . Current price resides in LVA, so downside imbalances are still on alert. Our PT on downside is 1700-1750. Best guide to gain the highest probability of an imbalance is to monitor Balance area.
SPY’s 36d -1290bps run has found a single print TPO 181.02 hammering out a bottom marginally under 8-24-15. From the single print TPO, the market has rebounded +700bps to rotate 189.58 point of control now in the 28d session. No windows are open below the POC, meanwhile 3 windows are open in the 198-204 range. Alert->price is on LVA of 28d balance and -250bps from 189.50POC. Downside imbalance is at high risk, as well as 1.272ext of bull cycle is a tail risk 182. If market holds the 1.272 level a reversion to 189.50 will be seen.
Another rush in DAX/FTSE100 to exit the doors as sharp decreases are seen. China’s New Year has markets closed in Asia, with Japan still operating JPN225+110bps as IB chatter of easing by BOJ is possible in March. No major economic nor option expire in US session. We note the high correlation of WTI to global markets as WTI sinks to 29handle. Overnight, Western Australian region was downgraded by Moody’s. North Korea cries out again by launching a missile. Turkey is prepared to join the war in Syria. Yellen will be speaking on the 10th. Rate Hikes /FF are diminishing as well as the FED credibility. Oil Chiefs in Saudi Arabia and Venezuela overnight could not come to a happy medium of production cuts, as well as oil demand in China plummets in Jan’16. WTI is the main driver in global equities.
- Tail Risk outliers today- 182 (1.272ext) & 189.50POC
- Downside risk 185.52, 184.77, & 183.58 (Imbalance downside)
- Upside Risk- 185.67, 187.17LVA, 188.48HVN (Re-entering into Balance)
- Typical Market Auctions in this bracket are Open Drives, Open Drive Test, and or Open Rejection Reverse.
For intra-session price action, we suggest using a coefficient correlation of WTI paired with US-Equities. As WTI maneuvers equities should have parallel action. This means use the projections provided above. We do note, of the coefficient correlations we mention have had a drastic decrease over the past week. This is the market changing thesis to imbalance ie perhaps a recession.