The Daily Wrap and the Week Ahead

Yesterday I had mentioned that this morning's Non-Farm Payrolls would set the tone, but perception is everything and how price acts immediately after the report is released, is perception so as I was saying yesterday (as we expected more gains today), it's not hard in pre-market to move Index futures and create a perception, one of Cramer's best videos ever was on the Street.com talking about how he'd manipulate the market by manipulating perception when he was a hedge fund manager, yes t took some money, about $8 to $10 million in the morning, mostly in options, but it was well worth it.

There's now universe in which bulls will applaud or like a strong Non-Farm Payrolls print, it just gives the F_E_D an easier and faster exit from accommodative policy altogether and the only thing bulls care about is whether or not or how the F_E_D has their back. The F_E_D never had their back, they enjoyed the effects of policy, but it wasn't the F_E_D covering them, it was the F_E_D giving banks a stealth bailout.

In any case, the market did as we expected yesterday for today, as the internals and Price/Volume Dominant Relationship suggested, as 3C suggested and Leading Indicators.

The closure of SQQQ and SRTY (I closed these in the tracking portfolio and my own personal account) on Wednesday late in the day, Thursday they were already green and today just added to that. Other than the gains from SRTY and in my personal account, SQQQ, we made additional gains switching late Wednesday afternoon from new short with SRTY and SQQQ to net long with URTY and TQQQ.

Here are the gains for just the long positions held 2 days and also at half position sizes...

URTY made 5.85% for the two days and TQQQ made 3.25% for the two days.

As you know, these two positions were closed near the close as the pro come out and switched back to SRTY and SQQQ (net short), which is fine no matter how this plays out because I'm in line with the path of highest probabilities. Even if I had decided to ride out any bounce and hold SRTY/SQQQ, I'd be fine and not concerned, the ability to add a few percent gain to the portfolio in 2-days is just a cherry on top. While it's difficult to track gains in tracking portfolios as they are really meant to track each individual idea, my own portfolio added +5.66% for the week thanks to SRTY and switching to a more active trading stance.

Earlier in the afternoon I posted a quick update that there were some significant intraday IWM divergences and I expected some downside, interestingly the max-pain options expiration pin for weeklies is usually pulled around 2 p.m., but today almost seemed like it was held all day, those same divergences I posted about today around 1:15 p.m. in Quick Market Update, continued through the close and then started to take effect in to the close.

 While the end of day decline on those divergences doesn't look like much, given another half an hour, they'd be quite a lot more effective.

I didn't change positions back to net short in the late afternoon today, Changing positions , on a whim, there were good reasons which I'll cover.

However for the week, all of the averages closed lower except transports not seen above.

As for the stats on the week, the Russell closed lower for a 5th straight consecutive week.  Also as has been the norm, the $USD closed higher on the week, the most in 15 months today alone for the 12th consecutive week, but as I posted earlier today in the Energy post, there does seem to be some distribution starting in the $USD.

As for Gold and NUGT positions, I suggested a head fake move in GLD today and the volume was right as was the divergence, Gold also closed below 1200 so the psychological level was right too, I think we have an interesting position there.

I said yesterday and today that we have some strong positive / bounce divergences, but we don't have a very big base and the question of whether we'd see a wider base with a pullback was one of the things I was watching all day today.

As many of you know, despite what the market does, 3C divergences almost ALWAYS pick up where they left off the next trading day, even over 3-day weekends so a sample of these intraday divergences which would be near term trade, will give you a better feel for why I decided to get back on the short side, not only to try to make some extra $$$, but to align with the highest probabilities as that's my default position. I'd much rather let price pullback, let the base prove itself and re-enter the net long positions as I still feel we are in for more upside next week after an pullback Monday.

Pullback divergences...

 SPY 1 mi leading negative, this suggests weakness right off the bat Monday morning so SRTY and SQQQ should benefit.

Here the divergence reaches out to a 3 min chart suggesting more than just a simple intraday pullback.

 The QQQ 1 min leading negative confirms easily and suggests lower prices Monday morning.

And we have a divergence out to 5 mins which is in line with either making a larger overall base as the "V" shaped one now is not very broad, or resuming the downtrend so either way, the probabilities are on the side of SQQQ and SRTY over TQQQ and URTY, although I still believe in a decent bounce next week so I wouldn't have been to upset if I couldn't or didn't change the positions around.

 IWM 1 min leading negative implying immediate weakness next week on the open.

And a 5 min negative divegrence, implying a more serious pullback than just an intraday jiggle.

 HYG was also showing the same with a 2 min leading negative here and

all the way out to 5 mins.

Using the Ultimate Oscillator it too was suggesting a negative divegrence at afternoon trade,  which looks like a day long max pain op-ex pin.

Here it is in the IWM showing both our bottom and the afternoon trade and this is a 15 min chart so it's fairly substantial.

Additionally in Leading Indicators, we did have a mixed bag which isn't too surprising...

 My VIX Inversion and Custom SPX/RUT Ratio shows a current negative divergence, also the VIX inversion dropped to a low level, last seen was at a pullback area.

Here's a closer look...

 We have a positive divegrence at the low in the indicator and a negative in to today's afternoon,  this indicator has been 100% since we started using it!

 HYG on a longer term basis has led the market both lower and higher and still remains leading although you saw the 3C divergences above.

On an intraday basis, these two were glued yesterday, today HYG peeled away from the SPX in to the close, again I suspect a pullback is highest short term probability making it worthwhile to book the URTY and TQQQ 2-day gains.

 Our Pro Sentiment indicators are still calling for a bounce, here's the first vs the SPX...

And the second vs the SPX.

TLT was interesting in that it was moving up with the market, flight to safety or... I think perhaps this may be part of the risk off to risk on rotation mentioned earlier, they're always going to try to sell in to higher prices so we may be seeing TLT funds moved in to the market as it pulls back early in the week, so long As for the stats on the week as we can verify accumulation in to the pullback, we know we have a larger base and a larger move to the upside.

HY Credit is also calling for an overall bounce,

As for 3C signals still calling for a bounce and a stronger one...

 SPY with a 10 min positive now...

and QQQ reaching out to 15 min positive, if we just get a broader base, it can support quite a nice swing trade,

And don't forget about earlier Index futures and Leading indicator update, Futures and Leading Indicators which shows leading positive divergences in all Index Futures to 30 mins and one to 60 min charts.

So it should be pretty clear why I made the switch, but also had I not, I wouldn't have been too concerned, the probabilities favor a bounce and then of course a leg much lower.

As for internals...

We did have a Dominant Price/Volume Relationship in all 4 major averages with the Dow at 19 of 30, the NDX at 72 of 100, the R2K at 792 and the SPX at 275 of the 4 possible relationships, the dominant one was CLOSE UP/VOLUME DOWN,  WHICH IS THE MOST BEARISH OF THE 4 RELATIONSHIPS AND USUALLY SEES A CLOSE LOWER THE NEXT DAY ON A SORT OF STALL IN MOMENTUM.

Of the 9 S&P sectors 8 of 9 closed green! Healthcare led at +2.06 and Energy lagged at a mere
-0.16%

This too is another short term 1-day overbought signal. As for the MS groups, of the 238, a whopping 214 of 238 closed green, again another 1-day overbought condition, usually closing red the next day.

It looks like we're in good shape moving in to next week, if you didn't get positioned late today I wouldn't worry about it, you'll have time and I think there will be several opportunities connected to this area we are in now as well as the new position taken on today as I do believe gold made a solid head fake move today.

Enjoy your weekend.