On the week so far...
This is more or less, exactly what was forecasted in the Week Ahead post last Friday as well as the A.M. Update this morning and several other posts forecasting...
The reversal process-rangey trade...
"This shows the roughly lateral trend starting to develop, I expect to see a bit more of this, sideways chop in the area, maybe a head fake move of this little range if it becomes very defined."
What would otherwise be known as a tight range creating a reversal process as we expected about mid-week this week. I went in to additional details today regarding the range, the possibilities of a Head fake or Crazy Ivan shakeout, what would be needed to create either, etc.
The overall data was pretty ugly as well, Retail Sales in the US missed. We saw an opening dump until once again like I just mentioned, "Watch for a spike in volume/flameout on a bullish candle" early lows saw positive divergence and the higher volume flameout, although not quite an intraday breadth oversold condition that I'd call significant.
Crude entered our forecasted range for a trade, also from the A.M. Update
"Crude looks to be moving closer to our target range and it has the divergences we want to see."
As the divergence that formed intraday as our target of the gap, which was filled today, created a window for a trade opportunity this afternoon, TRADE IDEA: USO SHORT (PUTS)
Tonight after the market closed the API oil inventory data came out with a build of 2.6mn barrels which was below consensus of 3.5 mn, but still was the 14th weekly build (if the D.O.E.'s EIA inventories confirm tomorrow morning at 10:30), which is a new record of 14 consecutive builds with 18 weeks of builds at the Cushing facility which is said to now be 90% full. Our trade set-up wasn't based on any inventory data, but the 3C charts and the gap fill, which both looked great this afternoon.
Earlier we closed out the GLD put position even though copper, silver and gold were all down today despite overall $USD weakness, this was a short term trade management move for options specifically, I'm still looking for an overall swing decline in GLD so I expect we'll have another opportunity shortly to re-entter the puts, but possibly giving away a near +30% gain on little more than a day of market exposure just didn't seem reasonable given the GLD short term positive divergences as seen earlier (see related posts).
Macro data was horrible again from China which finally is seeing a pullback in Shanghai and the Hang Seng, FXI seemed to give us a clue this was likely. From Friday's A.M. Update
These are excerpt charts and comments from the Friday A.M. Update regarding FXI and a blow-off looking top.
"Looking at FXI- FTSE/Xinhua China 25, there are some charts that a re more than a bit concerning...
I think there's likely a bit of a reversal process that needs to finish up there as well, but I think we may have a position short FXI or long FXP in the next day or so for those interested. I'll update FXI tomorrow.
In sectors today, XLE led while Tech lagged, little wonder the NDX lagged.
As for the averages themselves, most 1 min charts were pretty close to inline, so another day in the reversal process would put us right at Wednesday which is right about where I had suspected we might find a pivot to the downside from this move forecasted April 2nd (bounce from triangles).
Nearly every other timeframe is showing HEAVY negative divergences, except the SPY 15 min is still not where it should be. Thus I believe as I wrote numerous times earlier today, we are still not quite there, but exceptionally close.
The daily closing candlesticks for all of the major averages were close or actual bullish "Hammer" reversal candlesticks so the idea of some more fooling around in the area to complete the reversal process makes a lot of sense from where I'm standing, even though some of my earlier examples may have been a bit on the longer side of a reversal process, but they were drawn as examples of a concept only, not as a price/date forecast.
VIX was in a tight range today, appropriate for a reversal process near term,
Yet within striking range of the coiled triangle and 50-day breakout area...
Leading Indicators were our 3rd area I'm watching (in addition to the averages which are severely damaged since the move based on the triangles started last Monday, and of course the Index futures' 7-15 min charts which you know the story on)...
I've largely been showing near term/intraday Leading Indicators as I was watching for our forecast to be fulfilled, but the main signal is that of Leading Indicators on a larger basis.
For example, our SPX:RUT ratio which was part of the puzzle in creating the April 2nd forecast as it led positive in to the 4/2 area. Now take a look at its signal now that the move has occurred...
Professional Sentiment Indicators...
The second of the 2 we use...
However, in line with the listless market, the weak hammers in the daily charts, the VIX holding right under a place where its volatility will increase significantly and the overall reversal process in line with 1 min charts of the averages, but beyond that, tons of ugliness...
The reversal process is needed so this is good, but the larger Leading negative signals in Leading Indicators are the most important and they are coming along nicely in the right places.
As for yields,, they sold off early in the day and tried to rally back in the afternoon, what does that tell you about our near term reversal process forecast and our larger April 2nd forecast move coming to an end? Remember yields move opposite the flight to safety trade, treasuries and they are a great leading indicator as they act like a magnet for equity prices.
However intraday, just like the longer term Pro Sentiment indicators and the intraday...
Commodities as a leading indicator showing the EXACT same thing.
Intraday I bet you can guess what they looked like...
As I address, the intraday 1 min averages look like some near term upside or at least range bound, after that it gets ugly so we'll be watching also the proportionality of the move (reversal process) as posted earlier today as well. I suspect that intraday Leading Indicators will head south now that the larger basis indications already are when we are at our EXACT pivot.
As mentioned yesterday, the HY Credit (HYG) charts are falling apart (3C) badly.
As for the 4th , and one of the most important indications, volatility picking up...
A look at the Dow futures shows something you don't easily see in the cash market, but exactly what I'm looking for as a transitional marker...
The Dominant Price/Volume Relationship between the component stocks of the major averages was COMPLETELY NON-EXISTIENT TODAY, not just the Russell 2000 as has been the case, but not 1 major average had anything even approaching a Dominant theme. Again, indicative of a listless theme in the market.
Sector performance...
As for the 9 S&P sectors, 6 of 9 closed green with Energy leading at +1% as mentioned earlier and Tech lagging -0.31%, but not any big moves, again consistent with a listless market in a reversal process.
Morningstar Groups...
Once again, a middle of the road 128 of 238 groups were green, another listless reading and suggestive of the kind of near term price action depicted in numerous charts today within a reversal process.
As for Index futures tonight, the 1 min charts aren't telling us much. If I had to rely on the charts of the averages as noted above, I'd say we have another small reversal process bounce based on intraday 1min charts, but it gets really ugly after that. As mentioned for the Index futures 7-15 min charts, each is a bit different and they are mixed, but I think they will be an excellent timing signal and right now they are in agreement with the broad consensus from this afternoon's IMPORTANT Market Update post as well as the near term forecast posted this morning in the A.M. Update, essentially the reversal process to continue to unfold, perhaps some additional gains which would be very helpful for our position entries, but other than that, things are ugly as I'd expect them to be based on our April 2nd forecast.
I'd say we are right where we need to be, but I don't think we'll have too much longer in the area and opportunities for a head fake move if possible should be used, I'll be watching for them, I also think in addition to some smaller option trades we have been in and out of, it's getting high time we look pretty much exclusively at trade ideas, although I always have to keep an eye on the broader market as it is what moves everything else we are looking at.
Look for the reversal process to finish up. Whether we can get some upside volatility or not remains to be seen, it looks very weak here, but if we can, then we have some great put option entries, otherwise we'll just be looking at the best, timeliest entries in assorted watchlist stocks and ETFs.
I feel great about where we are as well as pour forecast which for this week was about "mid week" or specifically 2 days of strength left. We do have monthly options expiration this Friday which could come in to play, that will be on the watchlist , but overall, I think we have the market's number here.
Patience pays.
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