Daily Wrap

So we are seeing increased volatility, this is one of the signs that we find between stages as they transition, , the break out from a base, the increased ROC to the upside at the end of stage 2 as the uptrend moves to a top and the increased choppiness and volatility shakeouts of stage 3 moving to stage 4 or early in stage 4 and the capitulation or selling climax at the end of stage 4 moving back to a stage 1 base.

The averages closed down pretty decently, SPX-.90%, NASDAQ COMP -1.38%, NDX-1.35%, R2K -1.62% and the Dow -0.78%.

Take a look at the similarities between the averages in many ways on daily charts.

 Dow 30, from the February cycle, stage 1 Base, stage 2 Mark Up, stage 3 Top, stage 4 Decline, I labelled "4a" as the Volatility shakeout and in this case, "tb" in yellow represents yesterday and today's candlestick pattern which is at or very close to being at a "Tweezer Bottom" for all of the averages. This is an upside reversal candle and even though we didn't have much to go on as far as hard , objective evidence during the late afternoon, my gut feeling based on some of our psychological concepts was that we'd get a bounce to set up shorts so no need to chase anything today.

The candlestick pattern has no implied target, just a change in trend, it can last a day, it "could" last 6 months, candlesticks don't offer targets, but depending on the timeframe you find them (for instance a 5-day chart would suggest at least a 5-day reversal) sometimes you can get a feel.

The NASDAQ Composite, all of the same stages, but stage 4 broke earlier in the NASDAQ than the other averages and it retraced the entire February cycle/rally which no others have done yet. "$a" or "vtso" is the volatility shakeout seen as important tops are broken, this is a shakeout of new shorts.

Again today and yesterday form a "Tweezer bottom" which fits well with my expectations near term and for short trade set ups as we haven't entered too many trades recently and I'll show you a better example of why, although I think you know.

 NASDAQ 100, I didn't label the stages, but they are the same as the COMPQX above, also a "Tweezer bottom" reversal pair of candles to the far right at the yellow trendline (support).

 The Russell 2000's 4 stages, it had its VTSO already at 4a and "4c" is the continuation of the downtrend or the decline stage.

Stage 1 to early stage 3 is where we want to trade and we had perfect signals for an entry at stage 1 right to the very low of the base, the stage 3 top's chop is a tough market to trade and easy to take substantial losses in, we really want the meat of trends, not the slop of chop.

The SPX, other than the 4 stages I want to point out a head fake move and what they do, it's at the yellow arrow where price breaks out above the range and then the breakout fails, price almost immediately heads lower to break to stage 4, this is the momentum head fake moves create, 4a is the shakeout of the new trend and TB again is the "tweezer Bottom".

As far as 3C signals...

 Some of the good, bad and ugly with the ugly of the DIA 15 min , the 22nd was when I said we'd want to be out of long trades with the 11-15th being the entries, if you look back to the archives on the far right side of the site, you can see we were entering longs around the 11-15th and exiting around the 22-24th, the lateral trend after that is choppy and messy, the 3C divergence just gets worse and worse.

Closed to home on a 5 min chart, the 22-24th are again highlighted as distribution and there's no point in staying long any longer, the signals in early May are quite negative, not enough on all of the timeframes to enter shorts and have good timing, but also no time to be long.

The recent activity of the 5 min chart is ugly, we can easily afford a bounce to short in to with charts looking like this and I'll say right now, the probabilities are about 95% that the charts look even worse in to a bounce making it easier to figure out which asset looks like it's offering the best entry with the best probabilities.

 As far as the early evidence for a bounce, I'd say the 2-4 p.m. area showed us we'd see positive divergences first with the TICK data, then the actual 3C divergences showing up, there still needs to likely be some lateral trade or reversal process and stronger positives, maybe out to 5 mins, but these should be used in my view to enter shorts in size, something we have luckily been waiting on as any entry earlier than now would have just been a chop-fest, open risk and opportunity cost.

 IWM 15 min is ugly as it confirms the downtrend in the IWM, but notice how 3C is always in a leading negative position under price.

The IWM saw a leading positive divegrence develop out to the 2 min chart, this was predicted before there were any divergences based on market behavior concepts and TICK data.

The QQQ's stage 3 is not an area you want to be trading, however it gave good signals and we got off some good QQQ trades in leveraged ETFs and puts. The most current divergence is looking very ugly.

Essentially the Q's are already in a downtrend and just saw a counter trend bounce, that's it, it's as simple as that actually.

 The Q's from the 4/11-4/15 base and the 22nd exit, after that it's downhill in divergences and lateral chop, not a good trading environment. However with a bounce and signals as bad as they are, this will likely fill out the few charts left I mentioned Friday that need to jump to the negative side.

 QQQ 3 min and a leading negative, the orange stage 3 box is just a chop-fest, THIS IS EXACTLY WHY I HAVE PUT OUT SO FEW TRADE IDEAS, THE SIGNALS HAVEN'T BEEN THERE AND WE CAN SEE WHY.

 QQQ 1 min intraday positive, it's not enough to say there will be a bounce for sure, but it's a start on a strong gut feeling that I had before we had anything objective to point to.

 SPY 10 min is one of the uglies...

Recent 15 min deterioration has been pretty amazing as well

Earlier only the 1 min SPY was positive, by the close the 2 min was, this means there's some migration and the set up for assets like NFLX to short in to strength are likely to set up for us, Let the trade come to you on your terms", the timing factor is just about there now.

And the TICK data on my custom TICK indy, the last 2 hours see improving intraday breadth.

As for the VIX, it has been used yesterday to lift the market, today I suspect it's being accumulated as it was yesterday as well as the smart guys know what's coming, they'll want to pick it up as cheaply as possible as we would too.

 VXX intraday slam down on the gap up yesterday and on the move lower today someone is accumulating in size, which is already there.

 The same thing on the 3 min chart, the lows were scooped up as the leading positive divegrence is evidence.

And a nice clean 5 min trend of exactly the same.

The is the 5 min trend in context, this is the "flying" divergence I've been looking for in the VXX for months.

And on a 15 min chart, to the left there was no trade as we had no divergences, now it's a different story on a powerful timeframe with a strong divergence.

Leading Indicators...
We'll be seeing some very short term that go with this afternoon's gut feel of what to look for (trades coming to us on a bounce off today's lows) and some longer term stuff where the highest probabilities are, the two work together as the trades we enter are in line with the highest probabilities.

 HYG hasn't been an effective lever to manipulate stock prices recently, but today note the last two hours, it leads the SPX (green), just like the 1-2 min 3C divergences.

We also see High Yield Credit leading right at the close vs the SPX. another short term upside signal, but not a large one, at least not with what we have so far that all started from a TICK chart.

 Here I have inverted the SPX's price so you can see VXX's normal correlation with the SPX, you can see recently it has been monkey hammered to try to lift the market yesterday, I suspect today was more about accumulating on the cheap.

 TLT (20+ year treasuries ) that I just updated Treasuries Update & TLT / TBT Trade Update it looks like the last two hours there was a move out of safety and ;likely in to risk assets as we saw the positive divergences in the averages and a negative in TLT at the very same time, practically the same size.

 And TLT vs the SPX underperformed at the very EOD, the last hour in fact.

Sentiment puts in a VERY clear short term positive signal vs the SPX (green).

However the longer term trend in sentiment is screaming stage 4, new lower low coming...

Our other Sentiment (pro) indicator is also saying short term bounce that sets up shorts.

As are yields, they called a top right before this signal(red).


Even though futures are still taking it on the chin tonight, I see positive $USDX divergences and negative Yen, that should lift USD/JPY and thus index futures and I suppose that's how we'll arrive at our near /short term bounce which is only being used as a timing marker to enter short trades in some size, FINALLY.

 $USDX positive divergence.

Yen negative divegrence, this would send the $USD/JPY higher and index futures should follow.

I'll check futures later tonight.