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An Overview of the Markets and Projections

While many are likely to have been turning their bearishness into bullishness over the last week or so, having confused bearishness and the potential for new lows in September where bullishness was warranted into November with of upward probability. Currently, we are sitting in a key timing window for the S&P500 as we have discussed recently and have high probabilities of a turn either being in as of the beginning of this timing window last week or possibly into this week (ideally early).

While we did expect back and fill earlier in the month of October from the 2140 area, the primary scenario expected strength into November. However, running corrections reduced the pullbacks that should have appeared early in the month to trivial events. Even though a correction/consolidation was registered on the charts, this correction period was classified as a running correction. A running correction is a pattern in which the impetus for market participants to interact with the market is so strong in one particular direction that what normally would be a price retracement pattern or consolidation becomes a consolidation with direction. Meaning, that instead of a consolidation pulling back it actually grinds upwards during the correction process when occurring in an upward market and then breaks out. These patterns are prone to very strong reactions in that many people attempt to short what looks like a breakdown that actually never occurs and immediately runs against them - thus trapping as many participants as possible. These patterns are powerful in up markets and in down markets and are occurring increasingly as greater intervention in markets occurs.

Given this, market structure projection indicated a pronounced period of upward bias throughout October and left translated MSP precisely indicated the previous turns. The market has been leading (which we refer to as left translation) the normal market structure projections. We represent this in the charts with the cyan plot showing the left translated projection which has coincided very well with activity in the markets over the last 2 1/2 to 3 months.

Moreover, market internals and other symptoms of ill health abound, regardless of hyperbole from analysts or the Fed - it appears things are not healthy. Preceding the August crash, the equal weighted S&P 500 index underperformed dramatically. This index has underperformed even more dramatically during this bounce. It is this analyst's interpretation that this is a sign of significant stress. The stress will need to be resolved, and if history is a guide, the resolution is likely to be stronger and quite likely more persistent than our August episode.

Note, the market structure projection for commodities and bond markets. These projections suggest equally interesting timing and also contradict the prevailing perception in the markets as to what are reasonable expectations near-term and even medium-term. It appears that there is a quite marked probability of a buy-the-news reaction in bonds combined with the sell-the-news reaction in equities and latent dollars strength to keep pressure overall on the risks markets. It also appears that the dollar may have a significant inflection point in December to early January, which may, in fact, be a larger sell-the-news type event.

Accumulation index components

Accumulation index components

S&P 500 Index - equal weight vs. capitalization weight performance

S&P 500 Index - equal weight vs. capitalization weight performance

S&P 500 market structure projection

S&P 500 market structure projection

US treasury market structure projection

US treasury market structure projection

Gold market structure projection

Gold market structure projection

US dollar market structure projection

US dollar market structure projection

Oil market structure projection

Oil market structure projection

MCM Indexes General Discussion

The MCM indexes are a proprietary product which indicates not only the emotional state of the markets (via the accumulation index), but also the most important components: the dollars added to the market, the stock share directionality and rich vs. cheap tickets. All these provide important information into the internals of the market and whether the action is healthy or there is reason for a more defensive stance. The basic way to use it is whether the AI and it’s components are confirming the price action or not. So in an up day, the AI should be cyan and going up, the cash added should be positive (the higher the better), directionality green and rising and also more rich tickets than cheap ones.
However there are also more subtle signals, which one can rely upon for short term direction. Below is a good example of such signals.

MCM Index Chart

MCM Index Chart

We can see that on the 8th of October, the market started with quite weak internals. AI was magenta (meaning negative), cash added was negative (although close to 0), directionality negative and rich vs. cheap tickets also negative. Right until point “A” the price action was choppy, cash added was also choppy and close to 0, however AI, directionality and rich vs cheap tickets were all trending up. At point “A” the price in the market tested the lows of the day, cash added tested 0 too, but AI was still trending up and nowhere close to the lows from the beginning of the day, while directionality was also positive putting in a higher low, rich tickets being more positive too. Market rebounded, but came again close to retesting the lows of the day at point “B”. At this point AI was already cyan (showing positive emotion) and with the uptrend quite clearly shown; cash added was positive, went a bit down, but never tested 0, directionality was also in clear uptrend, putting in a higher low; rich tickets had a minimum of the day. After this point, the market never looked back and proceeded to finish very strong. AI and its components confirmed the price action and the day became more of a trend day.
The next day, on the 9th, the market opened strong rallying from the open, however the AI and its components were showing that there is something amiss. Cash added was quite low, the AI itself didn’t turn up to follow the price action, being more flat than uptrending. When the decline happened around 10:00am, cash added went to 0 and slightly below, directionality took a nose dive and tested 0 also, and rich tickets were negative as well. After that the market tried to stage a rebound, AI started to trend up and had quite an impressive upward movement, however this was not confirmed by the AI components, especially cash added to the market which remained subdued and close to 0. Point “C” highlights the fact that although AI was cyan (positive) and trending up, the cash added to market turned negative and remained that way. This is a sign that market participants are optimistic and trying to buy the market, however overall money is being withdrawn which means big players are selling into the optimism. This battle finished on that day as undecided, and the effect was a very choppy market which was not able to move much up or down. It has to be mentioned though that when cash added to the market is negative, that usually trumps the AI, and it could have very well ended with a big down day, if cash would’ve started to accelerate in the negative territory.

Restrained Market Emotions Corroborate August Drop as Likely Downside Breakout

The VIX is a very dubious measure of emotion.

  • Firstly, it is subject to intense manipulation.
  • Secondly, it only reflects panic on drops.
  • Thirdly, euphoric behavior or panic at tops is not reflected or reliable in any form.

For these reasons, mcm eMotion and market fact analysis tools are much more insightful and reliable. What we can see from the chart below is that the markets are in frail shape and still bullish biased (via orange running cash inflow/outflow) - likely to the detriment of those bulls over the short to near-term. Signs of underlying bullishness will likely fight a good fight and remain as markets drop in the future. However, downside breakouts of emotion triggered hard well before the August weakness as can be seen below [4]. Ironically, emotional commitment on this bounce as well as commitment via funds being allocated to equities are mediocre to average at best...also, shown below [3 and 5]. While people may want to assume that the August drop was capitulatory, share directionality [2] and cash withdrawn from markets on daily basis [1] certainly reflect that illusion. These are in fact, more than likely breakouts and signs of much more to come. The reasons for this is the comparative low emotional fear and panic at the recent lows and the low eMotion and commitment to the current bounce. 

mcm Accumulation Index Components

mcm Accumulation Index Components

Note the nearing breakdown below 2009 lows of the mcm Smart-Money Index, the mcm Market Open Index and the mcm Market Close Index. Given the nature of these indexes, they suggest low balances in investor accounts and thus high leverage in the markets and a breakdown could cause dramatic stresses on the markets system as well as the financial system in general.

mcm Indexes and mcm Smart Money Index

mcm Indexes and mcm Smart Money Index

Market Flux Capacitor in Overdrive – Crash Potential and Techniques to Trade One

Last week we posted a definitive warning that something was aberrant and dangerous in this post: Market consciousnesses running through a flux capacitor. MSP is suggesting a bounce to an early September week one peak. While this remains the highest probability given that DAX and Eurostoxx both show reversal windows on weekly MSP starting this week, these are unprecedented times and as the example in the referenced post states: The market not following its metronome or market structure is very similar to hitting the brake in an automobile with the reaction of accelerating rather than slowing...things are clearly aberrant for what could be a variety of reasons - all of which need to be taken very seriously. A car should slow with a depression fo the brake and similarly the market should slow and react when it reaches its market structure metronome let alone support as in the 2044 area mentioned extensively last week. All reasonable expectations argued for, at the least, a short few day pause or test there, the overrunning of the infection forces, similarly to the eTickTools concept, suggests that the professionals professional was getting run over. Either way I am quite sure that there are a lot of people wishing they traded aggressively to sell a dangerous setup and there are quite a lot more people who are frantic about having bought all the way down. The approach for mcm is, was and continues to be since our post about taking a trading break as opposed to getting blindsided by low probability and risky setups, that the highest probability trades are yet to come and occur in September. That is still the case, a bounce in week 1 of September will likely be at the least a high probability reversal point and a second one towards September 21st. In all of the trading systems we have authored, a characteristic of any market turn is the highest opportunity is NOT when the turn occurs and the breakdown appears but after - and that is our calm and considered assessment presently too. These systems rarely trade the actual turn but rather focus on harvesting the subsequent larger move. We feel that if traders approach this market attempting to harvest this move aggressively - especially without the proper tools, funds are likely to be depleted by the time the real tradable market reveals. For these reasons, we emphasized the danger to all and still advise a high degree of caution.

Meantime, the markets are in an intense state of acceleration with the brake pedal fully depressed (not to mention parking brake on) that we felt it important to share some thoughts and setups to trade a crashing market. When the vehicle just will not stop it can be the ground that is moving, and we would be remiss to NOT further examine this subject. So, to make things easier we added some features to the eTickTools analytics toolset and want to take the time to discuss out methods regarding our cycle oscillation toolset. We feel that refocusing on these tools can help to do exactly what they were designed to do, assist in retaining clarity and consistency in all market conditions but especially in powerful momentum markets such as explosive up or down crashes. The objective is to locate risk and rewards inflection points that retain a reasonable and definable risk reward with an understanding of the market framework and psychology. Additionally, the goal is to retain a significantly higher than normal probability.

Below are charts of the additions to eTickTools. Among them, we have sped up the chart streaming, added the historical extreme background support and resistance lines in such a way as to require a minimum amount of cpu as possible. Additionally, we wanted to emphasize the use of Accumulation Index to help determine what market psychology is being conveyed during a consolidation market behavior or near inflection points. Examples are below.

eTickTools Additions

eTickTools Additions

eTickTools Additions Detail

eTickTools Additions Detail

The cycle oscillation toolset are not technically a part of eTickTools, however, a lot of learning has come from them and some similar concepts apply which is why we added the mcm moving average to the eTickTools charts. We wanted to share and discuss a few details regarding using these tools especially during non-cash hours to help identify impulsive moves. The interesting thing about cyclical oscillations, even on short term charts is that they do not act as high-speed signals that need to chop you up...but when used properly they provide insight into market structures that help orient the mindset of the market - for example impulsive and cyclic/counter-trend oscillations. Below are charts that go into more detail.

Identifying Impulses Down

Identifying Impulses Down

Identifying Impulses Up

Identifying Impulses Up

Identifying Impulses Down Overview Chart

Identifying Impulses Down Overview Chart

A Brick Wall & a Full Moon

Daily MSP played out nicely today - calling for a down AM session - a condition which was met. Tomorrow's market structure projection begins a phase of stronger weakness into what likely means a trip to from the Brick Wall, under the Full Moon and into the Last Moon - the only thing missing is the spoon? or is that not how it goes? Today's buy effort exerted and wasted a lot of energy getting nowhere. Accumulation Index was very strong after 11:00 AM into the close but was mostly wasted as net cash added to the market was flat to negative all day - which means that shorts were getting squeezed and being sold to with little new capital being reallocated into risky positions. NYSE remained below the 200-day moving average, Dow remained below the 200-day, RUT is not even bouncing, Nasdaq is weak and lethargic. The market can overcome these impediments. If it wishes to do so it has to do it fast because the downward tug of cycles is starting to go into overdrive. In addition to that, daily and Weekly MSP have not fulfilled their metronomic magnetism - we envision they will - much to the surprise AGAIN of most analysts who are wearing the popular YellenDragAmarni shaded glasses. (quite expensive BTW)

2015 Full Moons & the S&P500

2015 Full Moons & the S&P500

Up = Down. Down = Up. Welcome The New Paradigm

In addition to the overwhelming pressure on the markets downward as represented in the many structural and other effects noted on these pages...the market internals continue to be absolutely horrid. Currently, we are getting upward price movement on outflows and internals that rival that of 1% to 2% down day point declines...Everyone capiche now? It's a new paradigm!

Thought not!

Horrid Accumulation Index Internals = Bull Market?

Horrid Accumulation Index Internals = Bull Market?

eMotion Index & Accumulation Index at Unsustainable Extremes

Below, for reference, is a historical chart of our proprietary mcm eMotion Index and Accumulation Index plotted for history during of the last years. These indexes offer an unprecedented look into the mind of the markets. The interesting thing about eMotion Index is that is can register very high eMotions near or highs, vastly differently than VIS or other sentiment tools and Accumulation index can show untenable commitment/energy and inefficiency regarding trade quality and executions. The picture is not resolved, but clearly the die is being cast and eMotions are at levels that will likely influence trade for months to come.

The chart below is VERY large please zoom in to see it at full resolution:

eMotion Index & Accumulation Index History

eMotion Index & Accumulation Index History

Market Showing Dramatic Divergence Between Price, Actions & Emotions

Why should we expect the markets to make sense. They clearly rarely do. But that is what both makes them predictable and perplexing. The chart below is showing the mcm Accumulation indexes. Accumulation Index has been unusually strong (top cyan line) while prices have dropped 20 ES points. Additionally only $2.9 billion has been cashed out of US equities which is comparatively little considering the drop. Normally this number should be something like $12 to 15 billion by now. Not only that Trade tickets executing on the Ask or above are 45% greater than trade tickets executing on the bid or below. While the market is down 20 points!!!

Can someone please tell me the name of the central bank panic-buying?

July 2nd, 2015 Intraday Accumulation Index Components Update

July 2nd, 2015 Intraday Accumulation Index Components Update

Reminds me of IMAGINARY NUMBERS!

Pushing Towards a Cliff Around 12th/14th – Daily & Weekly MSP

Lots of cross currents and chop. Increasingly poor/aberrant behavior in markets seems to be pushing us into the 12th to 14th cliff discussed in the longer-term market structure projections. All outcomes point to a combustible situation. One of the things to look for is when markets disconnect from structured behavior as this usually indicates a forced changes to market participant behaviors that later turns into a larger market impact. Recently we have had a few days in which daily directional  probabilities were contradicted, they very likely point to this exact type of situation.

One note, if one wished to take the time to review posts and articles here, you can see that even on the day's where daily probabilities were contradicted in MOST everycase, intraday probabilities gave that clue very early and clearly. (The Grid View is great for this and has fast search tools keys at the top of the page) Additionally, e-Tick-Tools emotion analysis made even the most difficult days to understand much clearer. Yesterday, for instance, there was an X-Tick on the opening bar indicating buy capitulation. And at the lows there were a cluster of sell extremes and a capitulatory X-Tick at around  2051 and 12:00 PM...and Accumulation Index (also a form of efficiency and emotion analysis) closed at the high of the day...which have so far led nicely to today's follow on upward movement.

So far this week, market structure has reverted somewhat as discussed below. Looks like a lot of volatility is on deck into next week with a potentially large move up into the week of the 12th to 14th. Additionally, generally, July 4th weekend puts a pause in things. Both this week and next week - momentum peaks on Wed and turns down into the end of the week. This Friday is not projected to be a high volatility day in terms or downside. We will see.

Good luck out there and be careful...longer-term timing approaching. Though this is a dangerous market, it's very easy to get overly bearish (or bullish even) and get chopped up.

July 1st, 2015 Daily & Weekly Market Structure Projections

July 1st, 2015 Daily & Weekly Market Structure Projections

A Look Inside this Market Move

A look inside the markets is in order. This is a tool called the MCM Market Ledger. It's comprised of some of the key component elements that creates the Accumulation Index. So, when one hears a mention of "Accumulation Index" this chart shows some color on the implications of that. We calculate very precise real-time cash flows and trade ticket analysis. This is an unprecedented view into the markets activity. Additionally, the Green line over price is the accumulated ledger cash flow into the market plotted for comparison to price. This line is showing a slightly higher swing high...and within a hair's breadth of making new all-time highs.

Always sensitive to capitulatory behavior. It pays to be on the look out for TOO much money going into the market in too short a time. The recent days have NOT shown a tendency towards this and instead would indicate that something is afoot...somebody is putting cash into the markets with some foresight and commitment would be my interpretation. These are certainly influences as to why, to this analyst, the markets have what seems to be a bit more work to do before starting their three months down cycle.

June 12th, 2015 MCM Market Ledger

June 12th, 2015 MCM Market Ledger