Daily Wrap

As we had expected based on some very nasty diveregnces at the close on Friday, today and specifically the open was weak with 3C picking up where it left off.

The early gaps up on the open like the Dow above, were immediately sold off in line with Friday's closing 3C divergences. The weakness helped Friday's SQQQ long +.55, but more so the SRTY at +2.52%.

The averages saw an early positive divegrence, it looks like it was used to sell in to VWAP intraday (SPX Futures 1 min), more on that shortly.


One divergence in particular that was noted was the $USDX, after having its best day in 15 months on Friday it saw it's biggest loss in a year today as we had mentioned the $?USD distribution in Friday's Energy post and the Daily Wrap/Week ahead post.

$USD negative divergence and worst daily loss in a year on Euro strength.

Our positions in gold and miners were up today as were broad based commodities on $USD weakness with UGLD up +3.98% and Friday's NUGT long up +7.98%.

Commodities vs. SPX (green) intraday, up on $USD weakness.

As I posted Friday, I believe we have some early week weakness that can build a bigger base as last week's base was too thin and "V" shaped to do much so we may get a bounce from that. I posted Index futures which should give you some idea, but here's another look...

 The big picture is definitely not looking good, interestingly this 60 min 3C chart of the IWM looks a lot like breadth indicators.

 The QQQ 60 min is showing the same big trouble, however from this general area, a bounce creating something like a right shoulder in the Q's and SPY/SPX below wouldn't be out of the question with a strong enough base which is what I've been talking about and why I moved back in to core shorts until/unless the market proves it to me.

SPX 4 hour leading negative divegrence.

 Locally , other than a double bottom, an Inverse H&S base is possible too, although I doubt it would be a real base with appropriate volume, rather a cardboard man as most traders don't know how to verify an Inverse H&S base.

I have marked a left shoulder a head and the current negative divegrence (this is how IWM closed on the 1 min leading negative), could create a right shoulder or a double bottom.

 As you can see, there's still a lot of weakness in the IWM chart especially so I'll hold the shorts re-entered Friday, specifically SQQQ and SRTY.

Looking at a 30 min ES/SPX Futures 3C chart, you can also imagine an Inverse H&S forming, it has the divergence for the head, it needs a right shoulder/pullback.

The 5 min ES chart suggests that's exactly what's going to happen, at least the pullback or move down part.

Russell 2000 Futures have the same deep leading negative divergence.

The QQQ Futures do too, but they look the best on a relative basis,  so we'll let the market prove it to us, otherwise, I'm content to stick with the shorts and add where we can. If we can play a H&S top, right shoulder bounce after a stronger base is created, I'll take that too, but we are not there yet, just something to consider.

As for Leading Indicators, HYG stayed with price today, but remains in short term leading position and long term leading negative position.

Pro-Sentiment indicators are biased slightly toward leading positive, but not by much. Yields did what they were expected to and pulled the market lower toward them as they most often do.

HY Credit remained "supportive " today, not leading, but still in good position overall to be supportive if the market can put together a small base,  again, we'll let the market prove it and decide if it's worth the risk, so far the trades and signals have been spot on.

The SPY/RUT Ratio Indicator is quickly becoming one of my favorite leading indicators and here's what it has to say about near term price action...

On a short term basis it is saying what 3C is saying, it is not confirming price in the area, but rather suggesting a pullback toward last week's lows which is what I initially was thinking, if we see that, we can verify accumulation with 3C and tell whether it's a base for a bounce or likely to just slide to the downside more.

Our MCP long today was also of interest, putting in a +8.09% gain on volume as we have recently covered its rounding bottom behavior.

As for internals... Among breadth indicators there was virtually NO movement today, almost a wash and I saw quite a bit of that in TICK as well with very wide swings, +/-1250 not uncommon.

The Dominant Price/Volume Relationship was Close Down/Volume Down with 15 of the Dow, 48 of the NASDAQ 100, 729 of the Russell 2000 and 241 of the S&P-500.

There's no strong next day relationship with this one, I call it, "Carry on" as the market tends to do what it was doing so I would suppose moderate weakness? The market breadth definitely wasn't oversold today.

Of the 9 S&P sectors, 3 closed green with Energy leading @ +.11%, barely a move and Consumer Discretionary lagging at -.59%, again, barely a move. Of the 238 Morningstar Industry/Sub-Industry groups, 56 of 238 were green, a bit on the oversold side, but nothing like last week's extremes.

My opinion of the market going forward this week hasn't changed at all from Friday's The Daily Wrap and the Week Ahead or anything that I posted today.

On an interesting side-note, I've created a new scanning indicator for the major averages, based on their 50-day and 200-day moving averages for their component stocks that make up each average. Here are some interesting findings...

57.1% of the Dow component stocks are above their 50-day moving average leaving approximately 43% under. About half of the NASDAQ 100 are under their 50-day moving average and Only 23% of Russell 2000 stocks are above their 50-day moving average! Less than half of the SPX's component stocks are above their 50-day moving average...