Daily Wrap

What happens when you make a new record high in the SPX and the very next trading day, the SPX closes up 0.17% and SPX futures have the lightest volume day (excl. holidays) of the last SEVEN MONTHS? Can we call that follow through? No we can't there's no follow through because there's nothing to follow through except smoke and mirrors.

Talk about smoke and mirrors, the EOD action was just that as I already showed you on the SPY arbitrage chart, but what I didn't show you yet are the actual, mechanics that make that happen.

SPX futures closed the day almost exactly at VWAP...

 ES closes at 4 p.m. almost exactly at VWAP, but the question is, what was the action at the upper channel?

 As you'd expect, the 3C ES chart shows distribution, this is exactly what smart money wants, what I described last night and VWAP is the place these transactions take place, despite the lowest volume since last October!

Just checking on the SPY at the same time, with a 5 min chart zoomed in to intraday view, the same distribution signal at the same exact spot.

It seems they didn't want the party to end at VWAP and wanted to get the most they could out of the day, that much is obvious from the SPY arbitrage, but what are the actual mechanics? If you recall the assets used are HYG (high yield credit), TLT (treasuries) and VXX (volatility-VIX futures).

Just so the Arbitrage chart/times are handy...

After 3 p.m. is when the market was really goosed by this type of manipulation, that's about the same time ES started moving down to VWAP.

 HYG is one of the levers they use, it usually has an opposite relationship creating one of those butterfly artwork pieces we did as kids, but look at HYG at 3 p.m., it's ramped to try to save the SPY/SPX from potentially a negative close, the only thing that would look worse as a follow through day that 0.17%

 Just looking at TLT (Treasuries) you can see an obvious downward slant away from the normal correlation, that's positive market manipulation and the flight to safety the last hour of the day may be why they needed to ramp other assets like HYG.

Treasury Yields were in line with treasuries, you can't tell about the last hour because this closes at 3 p.m.

 VXX on a longer term basis WON'T be manipulated down any further, in fact the normal correlation doesn't even hold, VIX Futures show a flight to protection as VIX futures are bid keeping a floor under VXX rather than letting it make new lows with the SPX making new highs, TOTALLY the opposite of what we saw early in the year.

Intraday however, they squeezed what little room they could out of VXX, especially in the afternoon to support the market, the white areas are all areas of manipulation of VIX futures.

As for the assets of manipulation, Treasuries have been much stronger than they should be since about March which I showed you in today's earlier Leading Indicators Update. Do you remember a few weeks ago, even though Treasuries still looked good I said, "I think treasuries have to come down, the short term 3C chart shows short term distribution"? Well apparently that short term distribution was to push TLT lower, to help push the market to new highs conveniently on the last day of the month as well as a Friday before a weekend and the time before a Thursday in front of a 3-day weekend when they can get the most free advertising. Well if TLT was distributed short term to run the market down, what should we make of this?

 TLT seeing accumulation in to the pullback (which was actually a pre-planned push down as we saw it and called it days before it happened).

On a daily chart which is very serious, TLT has been seeing a stealth flight to safety almost all year, that doesn't make sense when you see new highs in the SPX, but when you look at breadth charts, things change. This shows a large base/accumulation in TLT and it moving up despite the SPX and DESPITE CNBC's great hype about the rotation out of bonds and in to stocks, where's that? Just on a candlestick chart you can see the fading downside momentum and one of those magnetic gaps just above.

When one wonders how can money be moving from stocks and in to a Flight to Safety trade like TLT when the SPX is at a new high, take the simplest measure of whether a stock is in a bull or bear market,  the position relative to the 200-day moving average and then take a look at this breadth chart, these are real, objective numbers.

In green is the PErcentage of ALL NYSE stocks Above their 200-day moving average. Wouldn't you think with this most simple definition of a market's health this indicator vs the SPX in red should easily be pegging new highs? But, NO, more stocks are trading below their 200 day moving average now than when SPX prices were over -10% lower? That's how money comes out of stocks and moves to Treasuries, EXACTLY the OPPOSITE of what CNBC said was/would happen, the Great Rotation Out of Bonds!

Or along the same lines, VXX which has the same positive effect on the market when it is pushed down, but it won't be pushed anymore, not even to its normal correlation as support has formed due to traders bidding protection in VIX futures, in addition, what are we to make of this?

The divergences in VXX were not that strong, they were strong enough to move it lower, but they weren't distribution on an institutional scale, in fact quite the opposite, but even that short term manipulation looks to be running in to its end, thus the long UVXY position today. Oh and by the way, that current leading positive divergence is at a new 3C high for the entire chart and then some.

This 2 hour (very strong underlying trend) of VXX is pretty hard to explain away, especially when Treasuries were running higher at the same time and market Breadth was falling out of bed...

If 3C hadn't confirmed the trend down so well, I might have some doubts, but considering it did and considering where it went leading positive and considering lower prices are bought, this run to protection seems pretty real and it's not just the forward futures, it's the 4, 5, 6 and 7th month out as well.

And what about the risk on asset of HY Credit, specifically HYG? Was it too pushed around early in the year and what does it look like now?

That's accumulation on a 15 min chart, not a huge underlying timeframe, but a great one to move assets for swings or longer. HYG saw accumulation at the April lows and since has seen distribution in to just about every high since.

What about HYG's last hour manipulation on the SPY arbitrage today? Here's what it looked like again...

 HYG vs the SPX (green) over the last 2+ days shows HYG breaking down from the SPX, exactly what we want to see for the shorter term leading indicators for the tactical move toward long term core short positioning, yet that last hour HYG was needed to lift the market or keep it from falling too fast and HYG up (unlike TLT and VXX down) accomplishes that, ironic isn't it that right as the SPY Arbitrage chart sees the biggest lever pulling intraday manipulation shortly after 3 p.m., HYG is heading higher the last hour?

But what was the underlying trade? If they were buying HYG I'd be a little nervous for trade over the next day as it would represent a short term move to risk...

I don't even have to draw on this chart, you know what it means when an asset moves up and 3C falls off a cliff like that, strong distribution.

Beyond that, commodities weren't risk on, they were moving pretty much in sync with the $USD correlation, even as oil was trying to dig higher, I think a short will be setting up there soon.

As for currencies, last night I said I thought $AUD had a negative divergence and would be heading lower, after some Chinese economic releases as well as Aussie, $AUD got pounded overnight, giving no support to the market at all today.

 The normal correlation with the SPX (green) which has been tight between the two recently, fell out of bed today as well.

 However if you zoom in on intraday trade that doesn't mean they won't still try as we saw FX trade almost exclusively dominate market movements last week to my surprise. Even this little bit of closing $AUD strength relative to the rest of the day was needed to keep the market in the green.

 The Euro also fell overnight and lost its correlation which has been shaky, see Leading Indicators post from earlier for the long term which is horrifying. However, even the Euro was pumped the few hours of the day.

Remember I said the Yen has an increasingly strong pull on the market and the intraday reversal in the market and the Yen would be the same place? Take a look, the Yen ornage, the SPX green. Once the Yen gained intraday strength it was downhill for the SPX, nearly closing red if it weren't for all the extraordinary efforts (0.17% away).

As for risk sentiment, we use HIO as one measure because it has no correlation with the market, just shows risk sentiment.

 That's risk off if you ask me. The green areas are agreement, the white is more risk on sentiment and the red is more risk off sentiment.

This is the TICK chart at the EOD or last hour, note the downtrend interrupted by a move to the upside when all the levers from Treasuries to volatility to FX were pulled all at once, this is what you get and this is a great way to use the TICK chart intraday to see changes in the market intraday right before they occur.

 However, considering the RElative Sector Performance below, the TICK chart (All advancing issues minus declining issues) is remarkably calm, most of the day it was within +/- 750 and a lot of the day in the +/- 250 range which is insanely low movement, typically with any rally we get +1000 or +1250, often +1500, but 250? There was barely any movement in the market.

 Looking at the Sector rotation, there's no doubt it's reflecting a move from safety to risk and the Russell 2000's most shorted list was squeezed again today, so why such mediocre performance and for the second or 3rd day in a row, the need to pull just about every level to get the market to make mediocre moves?

One last set of charts, there are several assets that are in bear market rallies. A Bear market rally is one of the strongest rallies you'll ever see, yes even during a bear market. In fact, especially in a bear market and can you guess why? How long would a bear market rally last if it weren't impressive? Would you buy it if it weren't impressive? But what if it made you wonder if maybe the bear market was over and you were missing out on some big gains?

We've seen this in GLD and may see some more...

 Between the big volume dump that looks like capitulation (an event that signifies the end of stage 4 -decline), this is without a doubt the best rally in GLD since October, even though we all know it's little more than a gap fill, but maybe still has some more upside surprises in the tank-we did great on our last trade (long April 4th sold April 9th).

Take a look at a different perspective.

For longer term members, looking at this 5-day chart you probably recall when I said in 2011 that I think we just saw the end of the trend in Gold and we'd either be making an intermediate or Primary top , it looks a lot like GLD is entering a primary bear market.

Along those lines, AAPL has been in a bear market rally, I bet you never thought you'd hear "AAPL" and :Bear market" in the same sentence!

 Remember when I was warning AAPL was seeing heavy distribution and it was hard to believe as AAPL was making all time new highs at $700? Well AAPL lost over -315 points and some 45% since the 2012 highs, I think that qualifies for a bear market, whether intermediate or primary.

Then you might recall I kept seeing something in AAPL, but wasn't sure what it was, accumulation and then new lows, accumulation and just wondering what the heck was going on.










Well in another fantastic example of a head fake move, AAPL broke support on heavy volume knocking out cautiously optimistic longs and then reversing to the upside for a bear market rally that has thus far put in +18%

Despite the decently strong accumulation that kept popping up and really went nuts on the head fake move lower...

AAPL 30 min chart heavy distribution to a flatter range, accumulation, a break below support (yellow) and a huge leading positive divergence as support was broken as all of those sellers had to sell to someone on the other side of the trade, this is one of the easiest ways for Wall St. to accumulate in size and everyone thinks that big volume on a break like that is bearish so they never even question who bought it all, it was Wall St., they had huge supply which they need and they had fantastic prices and have been selling to retail all this time ever since!

However there's some signs of trouble building in if you look to the red arrow at the far right.

 How do we confirm divergences? We look for migration of the divergence. In this case we expect to see the charts faster than 30 minutes like the 15, 5, etc, to be negative, this shows the negative divergence is migrating to more serious timeframes like to 30 min above.

This 15 min chart shows the head fake break below support at the yellow trendline around $420 and the absolutely huge accumulation of those price lows by smart money, however once again to the far right we have a slightly bigger negative divergence as we'd expect from a faster, more detailed chart.

 The 10 min chart is even faster so we should have a sharper, more defined negative divergence is this is real, and we go from confirmation to a leading negative divergence, worse than the 30 min and the 15 min, exactly as it should be for confirmation.

A lot of you want to know why I prefer StockFinder to TC2000- although for most peoples' purposes, TC2000 is a fantastic platform, it's the 5000 bar history that allows me to see the trend of a 2 min chart like this. Although individual divergences on a 2 min chart are no where near as strong as the longer timeframes, the trend does hold some weight.


There's the head fake break below support triggering huge selling and volume and smart money scooping up all of those shares. Remember that Japanese game that was mistranslated, "ALL OF YOUR SHARES ARE BELONG TO US HA HA HA HA!!!" However, what the trend shows is there has been distribution and they did pretty well.

I'm guessing that AAPL takes a dip with the rest of the market, draws in some shorts and makes another push, that's where I think the core shorts will be in the best position to add or start new positions, I think by then, AAPL will be a pretty decent short set up.

Other than that, the dominant Price/Volume relationship among the component stocks of the major averages was dominant across the board, that was Price up/Volume down which is the most bearish of the 4 relations and normally would represent a 1-day overbought condition and the next day almost always closes lower, that hasn't been as accurate with all of the recent manipulation, but it's still the direction I'd lean toward.

I'll update futures tonight if I see anything special there, as of now, they are moving in confirmation to the downside off the 3 p.m. negative divergence, this is a 1 min intraday chart so a lot can still happen overnight.

 ES went negative at 3 pm and has been moving lower with 3C confirmation since.

NASDAQ 100 (NQ) futures are doing the exact same.

Ironically TF (Russell 2000 Futures) looked the worst today, but took the longest to break down, they just broke so I'd expect lower prices there as well.

As for currencies...none of the carry pairs look very good especially AUD/JPY, then EUR/JPY, even EUR/USD doesn't look so hot, so the general tome in currencies for the market right now is negative.

As for single currency futures,  the Euro doesn't have a strong signal, but more toward the negative, the AUD actually looks like it will see a bounce shortly, the $USD is in line with a slight positive and the Yen is popping higher, but it seems to be seeing short term distribution in to the move, so signle currency futures look a little better than the pairs.

The longer term Yen charts are downright scary for the market, I wrote about this about a month ago when the BOJ put out QE on Steroids and since then all indications are they are losing control, they went to far.

Here's a scary example...

 a leading positive 15 min chart which is scary for the market and pretty close.

Even worse is the longer term, maybe even primary trend, a 4 hour leading positive divergence, the market tends to move opposite the Yen right now.

I'll bring you any changes as I see them