Daily Wrap

For tonight,  while I recognize a military conflict is about as fundamentally fluid as it comes (meaning the market has to discount information as they get it, it doesn't mean you get the information at the same time as "Smart Money"), I'm going to try to stay away from saying "The market did "XYZ" because Senator "ABC" said, "MNOP"; that's the CNBC 30 second recap of the market that is dumbed down enough to keep viewers watching and believing without every looking at the "man behind the curtain" to see all of the moving parts that create a market. In other words, I don't know what the market knows about this fluid situation and when it knew it so I'm not going to pretend like I do.  People like to "Know" why the market did this or that and you'll never understand from a 30-second segment on CNBC, in fact most of the hosts on CNBC don't understand much more than what they read day to day on the teleprompter, but somehow "knowing after the fact" seems to keep a large majority of retail investors satisfied with information that is not correct and way too late to act on even if it was.

What I will do is show you what I pretty much showed you all day which culminated with the EOD Market Update and had strong root in last night's "Market thesis" moving forward. For those of you who may have missed some of this, the idea is pretty simple and based on the objective information gleaned from the market and would look something like this...

 While the cycle base would have started around 8/16, the later period of the base sees the nearest underlying trade and in this case that would be accumulation for a market move to the upside. Accumulation is at the lower end of the choppy range and smaller "steering" distribution takes place at the top of the range to get prices back in to the accumulation zone, this is really just a macro version of how market makers and specialists fill institutional orders every day based on VWAP.

Last night my opinion was that we had a strong area of accumulation from around 1 p.m. to 3 p.m. before it started to move price up, which isn't good when you're trying to accumulate, the idea last night was the market would be sent lower to the lower end of the recent range for what would probably be the last run into the accumulation zone before a broad and significant market move to the upside.

My EOD post as well as numerous market updates during today's market action showed distribution of higher prices, leading me to believe wwe'd see the market head lower in to tomorrow as put forth in the EOD post which is based on the market averages' position with 3C.

For instance and without getting in to a dozen charts...

 The 2 min intraday IWM shows a negative divergence that held the IWM from making any higher highs and is likely to push it lower tomorrow in the earlier half of the day.

 A 3 min QQQ intraday, but stronger, chart showing the same distribution/negative 3C divergence that held prices from moving higher and should send them lower tomorrow.

 The longest intraday timeframe of 5 min for the SPY leading negative also hinting at a move lower in to tomorrow.

However, looking at the larger picture of a market bounce, we have strong charts already in place and strong enough to lift this market, a final move to recent range lows and a probable head fake move would be high probability signals of the market move to the upside starting.

IWM 10 min from leading negative sending the IWM lower to a leading positive divergence on this important timeframe starting around 8/16

 The much stronger QQQ 60 min (I'm trying to show variety without 12 different charts) showing strong distribution causing a large gap down and a fairly strong positive divergence in the same area suggesting the market is building or has largely built a solid base to rally from, however this is still considered to be a minor rally compared to the expected downside move that should take place as the move higher starts to unwind.

And the SPY 2 hour (a very strong chart) showing a very clear trend of distribution in to higher prices ending with a move lower and a smaller, but still respectable accumulation area that would move to the upside, but still create something like a counter trend rally, not strong enough to change the market's very bearish underlying trade, but strong enough to change market sentiment from bearish to bullish allowing Wall St. to sell and sell short in to strength and leave retail holding the bag just before a move lower creating a new low.

CNBC doesn't get in to multiple timeframe analysis because most people want to hear, "Bullish" or "Bearish", they can't process the fact that there are trends within trends in the market depending on the timeframe and that if you understand these, you can use each one to your greatest advantage while retail simply chases moves that have already started.

So what I tried to show you above was the probability of lower prices in to tomorrow, but they should be accumulated for a move higher and a strong move, not more rangebound chop.

The TICK chart at the end of the day seemed to show the same thing.

NYSE 1 min TICK in green and SPY in white. The early uptrend in the market was confirmed by the TICK chart, although very moderate readings, barely breaking +1000, however as the SPY flattened out for the rest of the day, TICK readings were very mild until we started to see some downward jiggles and TICK registered -1250 near the close as stability of the range started to break up.

As far as 3C and market averages go, I think there's good evidence in place, lets look elsewhere.

High Yield credit which gapped down Tuesday morning has been building or accumulating in to lower prices since, this is overall a bullish event for the market.

 This is good for the bigger picture of a market bounce, as far as the closer term action expected tomorrow or thereabouts, the VIX futures which move opposite the market showed some 3C activity suggesting they make a move higher tomorrow which would confirm market averages with signals suggesting a move lower in the averages.

VIX futures gapped down Tuesday as the market gapped up, however in a relative range since, the 5 min 3C chart is leading positive, not huge, but enough to signal a VIX Futures move to the upside which would mean the market moves to the downside toward our expected target of the lower end of the recent range.

As far as what was likely driving the market to the upside today (one influence among many, but a major one), the strength in the former carry pair of AUD/JPY, last night I suggested USD/JPY might do the same job, but it turned out to the the AUD/JPY, take a look at the FX pair in candlesticks vs ES in purple today.

 The movement of AUD/JPY higher is nearly a perfect match for SPX futures at least until the 4 pm US market close at 16:00, after that you can see the FX pair looking weaker than ES, if the pair isn't strong or falls tomorrow, that will eliminate a large source of today's market strength.

Looking at the 30 min chart of the $AUD, there's a clear positive divergence so the $AUD moving up is not a surprise, it's also in line right now, but looking closer.

 The 5 min chart is starting to go negative, divergences start on earlier timeframes and work toward longer ones if they are strong enough, this could just be a 1-day pullback in the AUD and we could see strength after that which helps the market move higher.

The JPY is the other half of that currency cross...

The 30 min chart of the JPY is now starting to show the same positive divegrence that sent the $AUD higher, so if the JPY follows suit, it stands to reason that the AUD/JPY sees near term weakness, allowing the market to pullback.

The 5 min chart of the yen shows additional near term strength, what we get is the likely reversal of strength in the carry pair which helps the market pullback. If the pair regains strength after a pullback, that just helps the market on a move higher. If you are looking for some for the causes of market strength today, this carry pair is an obvious candidate as you can see when compared to SPX futures intraday.

As far as Leading Indicators go, we have good signals there as well both for a short term pullback and a larger bounce or counter trend rally.

First I want to go over the most important, Credit. Smart money trades credit and this is where some of the most well informed traders are, as I said today, "How many retail traders do you know who trade credit?" Thus there's a saying, "Credit leads, stocks follow".

Lets take a look at High Yield credit which is the risk on version whereas Investment grade is the flight to safety.

 I already showed you HYG (High Yield Corp. Credit's) 3C chart and the positive developments there since gapping down Tuesday. Intraday Credit vs the SPX (green-the SPX in green is always the comparison symbol vs. Leading Indicators unless otherwise noted) shows that HYG held up intraday, this is good for the longer term "Bounce scenario" considering the gap down, but...

 Considering the shorter term analysis of "Market down toward the bottom of the range", credit as you can see is still dislocated and leading the market toward the bottom of the recent range.

High Yield JUNK Credit acts very much like HYG and it too is leading the market to a pullback as expected and written about last night.

 I track the much less liquid High Yield Credit because of the lower liquidity, it means it's generally the first to panic as no one wants to be caught in a risk asset with no liquidity and a falling market, so the fact HY credit held up intraday is a good signal for a market bounce.

If we look at the longer term trend, as the market gains more accumulation at the end of the base, HY credit has been making higher highs and showing better relative performance vs the SPX, this is excellent for a market bounce.

VXX vs the SPX is showing better relative performance today, as I mentioned earlier, I think VXX and VIX futures move higher tomorrow as the market moves lower, it's their natural correlation.

Treasuries also (TLT), although they've been all over the place, seem to have better relative strength and look like they could see a safe haven flight short term on a market pullback.
 

HIO, our sentiment indicator is PERFECT for a market bounce as it leads to the upside, but intraday...

It;s making some lower highs vs the SPX suggesting again a market pullback

A market pullback would actually be constructive as it would allow for more accumulation and a stronger base, all price declines are not bad.

Commodities which have been roughly in line vs the SPC saw weaker performance today as Oil, Copper, Gold and Silver, (all of the War assets) pulled back. I don't know if we get some news tomorrow that spooks the market a bit thinking war/Syrian uncertainty is rising, but it would be perfect cover for a market pullback as well as  a precious metals short term bounce, which is something I wouldn't be surprised to see tomorrow as I did open a GDX (Gold miners) call position today in anticipation of a quick upside move.

If I had to sum up multiple timeframe trend analysis using 3 charts, I'd use Es (SPX Futures) 5 min, 60 min and 1-day.

 ES 5 min chart is strong, but has a small negative in place, this would represent the strength built up for a move to the upside and very short term a pullback in the red negative.

ES 60 min chart would represent a leading positive divergence for the same move to the upside

ES 1-day, however the 1 day is much stronger than anything else above, any short term 1-2 week move to the upside would be capped by the leading negative distribution already in place in Es futures.

In Dow Theory if we could adjust short term to mean 1-2 days, intermediate to mean 1-2 weeks and primary to mean the next year, I'd say short term down, intermediate up and primary down.

Really other than that, nothing has changed since last night's analysis at all, the market hasn't broken out, it's still in the range, nothing technically significant has happened, I'd like to see a pullback to the bottom of the range, a head fake move below it and I hear some EW guys talking about $1622, on a head fake move I wouldn't argue with that, the head fake move would be the timing reversal flag we see about 80 % of the time so it would look something like this in a "perfect world" or in the world of highest conceptual probabilities.

SPX 15 min chart, a pullback at the red arrow to the lower end of the range with accumulation, a head fake move to hit stops and draw in shorts at the yellow arrow to the $1622 area and then a strong move to the upside at the green arrow.

As far as some individual names, I've heard from members that our long fave, MCP has no shares available to short at some decent size brokers, that would be effective for a short squeeze in MCP, it just needs a push to the upside which can come from the market.

This is a 15 min leading positive divergence, we have even longer timeframes, also note the triangle. "IF" we get a market pullback, look for a move in MCP below support of the triangle, that's likely the head fake move and the best long entry, MCO should have no trouble hitting $7.25+ in fact that's probably conservative.

Transports have been a long position I've talked about for a bounce, on a pullback I might just look at calls there.

 The open on Tuesday saw distribution and fell hard, we also see that right now so a piullback looks highly probable and would make for an interesting buy set up as long as we have confirmation of accumulation in to a pullback.

The 60 min chart looks primed for a move higher and all tech traders will want to see transports move higher with a market bounce, they'd especially like it with this Syrian problem and wobbly oil prices.

I had a lot of emails about FSLR today... In my view FSLR saw a head fake stop run that was accumulated so it may be very close to an upside move, if it hangs in this area tomorrow I might even consider it, although I have quite a bit of exposure, but if anyone is interested, I'll update it.

 Daily chart, there's a clear support zone so where do you think all the stops and short limits are stacked up or where?

Also a nice bullish Hammer candle on the close.

 Here's the intraday, 60 min, note the volume surge on the break of support, that's stops being hit.

What happens when stops are hit? Supply is created, cheap supply.

The intraday 3C chart looks like that supply was clearly sucked up by Wall St.

The longer term 10 min has already been positive and we see head fake moves 8-% of the time just before a reversal just like the one in yellow to the left before a downside move, this is looking a lot like a bullish head fake/stop run so I'd be taking a look at FSLR tomorrow to see if there's a long entry.

That's about it for now, R2K and NASDAQ Futures are seeing some intraday distribution right now, I really don't care if a pullback comes on a gap down from overnight futures falling apart or from regular hours, although for timing sake, a gap down would get us under way faster.

If anything interesting pops up in futures tonight I'll post it if my eyes are open, otherwise I really don't see much of a change since last night's expectations moving forward, we have a shot at hitch-hiking on a strong bounce and then using that strength to sell short whatever remaining position shorts you might want, most of mine are in place I just need to add back a few on price strength like XOM which is a long call for the moment, but I look forward to adding it back. Even PCLN is pulling together for the big picture.

Have a great night.