Daily Wrap

In many ways today was very much like what we were looking for in concept and in many ways there were some big surprises such as the GDP beat which will almost certainly be revised lower as the two components adding the most to the print were estimated for June. I'm not sure the market knew how to take the GDP print after the ADP print which has recently been more reliable. The ADP print was bad, but not bad enough to warrant any action from the F_E_D. The GDP print was initially ramped along with the USD and carry pairs like USD/JPY, but on the open as the Most shorted Index was squeezed, the market quickly lost ALL GDP gains and the squeeze amounted to little more than a +750 TICK reading, very moderate and nothing like a squeeze.

MSI (Most Shorted Index) was squeezed, but to little effect as a short squeeze hasn't held for weeks now.

Soon after GDP's exuberance, it seemed the market figured out this just allows the F_E_D to claim the incoming data is supportive of the normalization of policy...

I didn't think much of the 1 min negative Es divegrence at the time, but after the GDP ramp the divergence not only stayed negative but confirmed the downside loss of all GDP gains.

The $USD has a bumpy day as well, initially shooting higher on GDP and a positive divergence and then seeing a leading negative divegrence in to the highs of the day shortly followed by a decline and loss of most of the GDP ramp...

$USDX intraday and ending the day with a leading negative making a lower low.

Perhaps some of the most interesting movement was in treasuries which ended the day up just about 10 bps, the most in 9 months which looked something like this in TLT...

TLT 15 min negative divegrence on yesterday's head fake move/failed breakout.

5, 10 and 30 year yields on the day vs. the SPX (remember yields move opposite treasuries).

This however did not help the SPY Arbitrage as the VIX closed higher...

Although it did so with a longer upper wick, indicative of higher intraday prices being rejected.

And HYG was down on the day as I pointed out the horrendous 3C charts today, High Yield Credit (HYG) Heavy Distribution which just added to the massive red flag of HY Credit vs. Equities, a  strong leading indicator...

Junk and HY Credit didn't fare any better on the day or in the above trend.

Our professional sentiment indicators were horrible looking today and give you a feel for the very recent drop off a cliff and these are the signals/timeframes we actually started using the Leading Indicator layout for as they are so accurate.

Action after the F_O_M_C didn't see its typical volatile knee jerk reaction...

While short term intraday divergences pointed to an upward response after GDP, they weren't strong nor was the move and shortly after just about all of the majors except the Russell 2000 gave up their gains.

the SPX closed at a meaningless +0.01%, the Dow -0.19%, the NDX +0.42% and the R2K +0.42%


Performance on the day looked like this...

And now on the month, the Russell 2000 is down -4.2% for July, the worst monthly performance in 2 years.

Major averages for July...

Oil had a big day as well...

On 7/14 I posted a dual USO trade, the first half being long and the second half being short, USO Trade/s 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, of course there needs to be a reason to short USO. "

And on July 22nd, Second Half of USO Trade Setting Up

 Here are the two posts, the first with the long and short idea on July 14th and the second with the USO short setting up on July 22nd,

Brent Crude looks like this

With the bounce area and the 7/22 short area, Brent closed under $100 and near 3 month lows.

The "BEST" looking charts of the averages by the close were the following...

 DIA 2 min leading positive...

IWM 2 min leading positive

QQQ which is in line at best...

And a small relative positive divegrence on the SPY 5 min which was there this morning.

All in all it's not clear at all that a larger base is being built, we may very well just be seeing some consolidation just as easily.

Five of nine S&P sectors closed green on the day with Utilities being the worst performer at -1.69% and Consumer Discretionary the best at +0.55%.

Of the 239 Morningstar Industry and sub-industry groups I track 141 of 239 were green,  this alleviates the oversold breadth readings we had been seeing the last several days that could have led to a bounce on that alone.

There was no Dominant Price/Volume Relationship today.

While most Advance / Decline lines improved marginally today, major breadth indicators like the Percentage of NYSE stocks trading ABOVE their 40-day moving average continued to deteriorate badly today.

This indicator (mentioned above) is now near new lows for the year, it rarely sees large dips without large pullbacks and hasn't seen any such pullback.

Just as a reminder, I've been watching these breadth indicators for 15 years and have only seen them look like this twice, now and...

This is the same indicator just previous to the 2007 top, most of these same breadth indicators looked the worst at the 2007 top. The current reading is far worse in a much shorter period.

Just something to consider...

We'll continue to look for the entries like NFLX as well as any other trade opportunities, but I think by now it's pretty clear we should be focussing and preparing for the bigger picture. Don't forget we have the very important Non-Farm Payrolls Friday morning, tomorrow we have Initial Claims, Employment Cost Index and Chicago PMI, I'm sure all will be closely watched considering the F_O_M_C's comments about "Slack in the labor market".