The major averages closed at SPX -0.23, Dow 0-0.28, NDX -0.15 and Russell 2000 00.45%, yet almost every stock listed Friday for a bounce, NFLX, Z, P, TWTR, PCLN, AAPL, SCTY, TSLA, other than one or two that I listed as "needing a pullback" were up today:
NFLX +1.76%, Z +2%, P +2.05%, TWTR +2.67%, PCLN +.26% (marked as needing a pullback), AAPL -0.52% (marked as "Needs to pullback"), SCTY +3.78% and TSLA +0.17% also marked as "needs pullback).
The point is the stock market is acting more like a market of stocks and the same could be true for the averages moving forward. A quick look at the charts for the averages...
Keep in mind the positive divegrence in the IWM has been there at least a week and we've been talking about it every day.
Even index futures are showing a similar trend...
This is definitely one of the stranger market cycles I've seen and this is why it has been such a difficult decision, whether to go with a long IWM bounce trade before returning to the highest probability SRTY (IWM short).
THERE'S NO DOUBT IN MY MIND IF YOU HOLD SRTY, SQQQ OR ANY OF THE INVERSE MARKET ETFs, YOU ARE GOING TO BE AT A SUBSTANTIAL GAIN AND SOON. In my view, the Russell is the bellwether and I'd say it topped definitively as of July 1 , the first trading day AFTER window dressing was complete and a rush of new retail money flooded all sorts of equity funds, it's the perfect hand off of strong hands to weak hands, but more than that, something big occurred on July 1 and we saw it the last week of Q2 and every day since July 1. It doesn't matter if it's 3C charts, breadth charts, SKEW Index, Credit (which leads the market), Leading Indicators, July 1 was the definitive change in the market.
I've shown numerous examples, but as we go through a few charts tonight you'll see even more.
I try to keep you up yo date on breadth charts as they are pure math, there's no interpretation, there's no bias. You've seen the % of stocks trading above or below moving averages at the worst level since 2007, perhaps worse in some ways. Tonight I'm showing you the Worden T2 breadth series "$ week New Highs/New Lows" which is usually an uneventful indicator. It is constructed by taking 4 week new highs and dividing them by 4 week new highs plus 4 week new lows, a high reading tends to be bullish, a low reading tends to be bearish. I don't think I've ever featured this indicator before because it has always been so non-descript, but the fact it is standing out now tells me something.
I've featured this before, but it fits so well with the decline in stocks trading above and 1 and 2 standard deviations above their 40 and 200 day moving averages which is what I've been talking about recently falling to lows I have only seen twice in 15 years or so of using these indicators, the last time was the absolute top at 2007. The Advance / Decline line for the NASDAQ Composite (not the NASDAQ 100, but the composite of all NASDAQ stocks excluding pink sheets), which is showing the same thing, more and more stocks falling than gaining which is the opposite of what should be happening, or at least they should be holding their ground.
The SKEW Index, or the Black Swan Index remains elevated in the red zone, I posted an article by Bloomberg who finally picked up on this bright red flag last week, we saw it before it hit the red zone as the upside rate of change increased. The SKEW has been in the CBOE's defined red zone since 6/18 which also happens to be the day the F_O_M_C last met.
Some other important indications of the health of the market include what credit has been doing. I showed earlier today HYG (High Yield Corporate Credit) looks like it wants to bounce, this is short term and used as a manipulation lever to help the market by fooling algos in to thinking smart money is in a risk on/buy mode and algos buy stocks in response, however there's a lot more to this story.
However, look at the bigger picture of High Yield Corporate Credit vs the SPX over a longer period, but specifically after Q2 ended and July started.
HYG fell off a cliff, we have seen this once before that preceded about a -20% correction, but the divergence was a relative divegrence, not the stronger and much more obvious leading divergence and institutional money seemed extraordinarily keen to exit the asset that they trade (not retail) as a risk on asset like retail might trade NFLX or TWTR. JHowever, the credit markets are much smarted than the equity markets, thus the moniker, "Credit leads, stocks follow", that's an ugly path for the SPX to follow.
Other forms of high yield credit look the same like high yielding Junk credit that Yellen expressed concern over in the "Reach for yield".
Other July 1 indicator fails include sentiment (professional) which was split intraday today between the two assets we use, but the bigger picture is what is really standing out.
Another interesting one has been our Most Shorted Index...
On the day the MSI underperformed the market slightly, I'd say there's enough short interest here to get a squeeze going, I understand people are having trouble finding AMZN shares available to short, this could be another lift for an IWM bounce, however I don't think there's any squeeze that can get this indicator back in line with the SPX, there's simply too much damage and this is just another reflection of the NASDAQ A/D line or the % of NYSE stocks trading above a particular moving average.
On the close I found the Dominant Price/Volume Relationship was the most benign, also the most common during a bear market, "Close down / Volume Down", this is the dominant theme in a bear market, it carries no 1-day implication like some of the others like Close Up/Volume down or Close Down/Volume Up (there are 4 possibilities), but this was the dominant theme today among the major averages' component stocks.
8 of the 9 S&P sectors closed in the red, only Energy closed green at +0.15%. Of the 239 Morningstar Industry and Sub-Industry groups I track, 176 of them closed red, 3 closed at 0%.
Speaking of USO/Energy... On July 14th I posted, USO Trade/s Set-up which was looking for a short term bounce higher which was a possible long trade and since then we've seen exactly that in to a short set up...
"Initially I was looking at USO as a long/bounce trade and I still think there's a decent long bounce trade there, but the bigger trade is shorting the bounce as you get a better entry at much lower risk"
So far...
The geopolitical situation alone between China/Vietnam/Japan/Russia and Russia/Ukraine vs US and Europe as well as the entire mid-east is more than enough uncertainty which is what the market hates the most, to send it lower on its own without the uncertainty of the aggressiveness of F_E_D action, but that's another subject and one I'm sure many of you are well on top of.
As for some of those stocks I expected to make moves higher I posted last week, NFLX, Z, P, TWTR, PCLN, AAPL, SCTY, TSLA, (and that was just a sample, but it's the big picture that is important as NFLX may have beat tonight, but they did the only thing Wall St. is really interested in and guided lower... it doesn't matter to Wall St. what you did, it matters what they think you'll do and guiding lower is why NFLX is not flying in AH), it's the big picture that counts...
I've been waiting and by the look of the moves since the post, rightfully so, for this IWM divergence to resolve, but make no mistake, I chose these stocks for a reason. Here are some examples...
*With most of these you should be able to see stage 3 or worse and understand why I chose these just from the difference in the Rate of Change of their price patterns alone or trends that were strong moving up and are now lateral, lots of tops in there. If that's not enough, the 3C trends and the large/long timeframes show the extent of the underlying damage.
I recall all of the Tech/Dot.com darlings and I can tell you maybe 5% of them were darlings during the next bull market, they are flashes in the pan that are quickly forgotten after they lose 80% of their value in a year, look at the iron clad AAPL losing nearly half of its value in 8 months off ALL TIME NEW HIGHS. Yes, these darlings are the stocks that tend to fall the fastest and they all have the price and 3C patterns I look for so a bounce is perfect for what I want to use them for which is really why I posted them...
So tomorrow we'll be looking like we were today, for the time being I'm leaving core shorts as that's the highest probability 3C trend unless there's a reason like IWM, which I'm still very uncomfortable with, but I think there's enough evidence to make the trade worthwhile, otherwise as Jesse Livermore said, "It's rare to find a trader who can be both right and sit tight".
We'll also be looking for answers to some other recent questions such as gold/silver, etc.
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