Daily Wrap

Amazing, simply amazing. Yesterday in the Market Update-Futures post I drew what I thought today might look like on a daily chart of the SPX, this is the exact chart from the post linked above (from yesterday)...

From yesterday in the Market Update-Futures post, my rendition of my general expectations of today's closing daily candle in the SPX (in yellow- a Star loss of momentum/reversal candle)...

As of the open, I knew we wouldn't get that exact candle, but maybe close enough. Posted at 10:23 a.m. today in, Opening Indications

"The yellow candle is a representation of what I suspect we may see, remember this was drawn on the SPX daily chart yesterday so it represents the future or today. So far it's early and the market does not look like a Star or Doji star and ultimately it won't look exactly like this, but the prerequisites for the idea are there, the move up (although not quite the same gap), higher intraday highs which are needed to form the upper wick."


So we based on the open we are left with a few prerequisites that could end the day forming a similar candle with similar meaning, those were (as posted above) : "the move up (although not quite the same gap), higher intraday highs which are needed to form the upper wick."

And this is what we end the day with despite a funky last 30 seconds of the day ramp...

The SPX--500 with a 100-day moving average and a small bodied candle (it couldn't have the same gap as yesterday's drawing because of the open) with a higher upper wick representing higher prices being rejected and the overall size and nature of the candle being very close to a Star such as the one drawn yesterday, except in this case it was nearly a "Shooting Star" or what the Japanese call, "Trouble overhead". Either way the small body shows a lack of momentum and the longer upper wick showing higher prices rejected, not too different than yesterday's approximation of today's close. 

Had it not been for this "unusual" last 30 second ramp today...

(Last 30 second, unusual ramp above the white arrow...)

We would have had an even worse looking daily close with a true "Shooting Star" as the upper wick would have been the required 2x the size of the body...

Something more like the yellow candle drawn in next to today's closing candle. EITHER WAY, IT'S REALLY SEMANTICS, THE CLOSING CANDLE AS PREDICTED YESTERDAY WAS A WEAK REVERSAL CANDLE. In fact, wake than what I had imagined and drew yesterday.

I love to hear about all of the CNBC bond shorts, although I won't hear it first hand as I avoid the channel like the plague, but if today's move in Treasuries (-11 basis points in the 30-year yield, the biggest such 1-day move since April 2013) was enough to cause them significant pain, imagine a counter trend rally that breaks above the long term TLT trend line broken on May 6th and 11th. As for TLT and the counter trend trade, as stated earlier today , I believe near term price action today (up) will come back down as the base area looks to be developing quite a bit faster now than recent days. For more specifics on the big picture, check out today's TLT / 30 Year Treasury Futures Broad Update.

Also check this afternoon's, Leading Indicators Not Helpful For the Market's Bulls to see how yields are working as a leading indicator for the market, if they continue the -11 bps drop today should start pressuring the broad market averages lower as they have been being led by yields.

It seems the Retail Sales print, which allows the F_E_D more room for an earlier hike in rates, was the catalyst for the move in Treasuries (long end) as they flew at the 8:30 retail sales data and then a bit more on the news the IMF walked out of negotiations with Greece to find a solution to their impending default. Interestingly 2 weeks ago we suspected that a counter trend rally in the30 year bond/TLT would be as a result of a flight to safety from equities as well as Greece default concerns.

As for the Talking Heads, "Rate Hikes are good for financials", we'll look at Treasuries first and then below, one of my watch list/core short trade set-ups, Financials just below.

This post from June 5th, shows a lot of our concepts and our call for Treasuries to move lower when they were only 2-days removed from all-time highs. While I think it's an impressive call and with some hindsight, clearly part of the carry trade unwind, there are numerous concepts that you hear every day, in this case you can see them as they were posted 2-days off all time highs and see the result 4.5 months later as significant changes have occurred since then.

 3 min TLT chart with the two base areas separated by a negative divergence as prices climbed too far  above the accumulation zone.

These leading positive divergences as seen today in the TLT 5 min chart are what I have been waiting for to open/add to the TLT long counter trend bounce trade idea, I'm still patient, but I think it's really getting some momentum now and should finish up the base area in a matter of days if not less.

TLT 30 min with the two breaks of the long term trendily at May 6th and 11th as well as the first accumulation area and now the second forming a sort of "W" base area, discussed in today's update, TLT / 30 Year Treasury Futures Broad Update.

As for 30 year Treasury futures, we have good confirmation.

 Short term on an intraday basis, today's move of over +2% in TLT net bond shorts scurrying, just imagine if our counter trend rally materializes and breaks well above the long term trend line that was broken. Note the intraday (1 min) negative divergence, not anything that will do damage to Treasuries/TLT, but should pull price back a bit, although we are still well within an excellent buy zone for a counter trend rally.

Again, counter trend rallies as we just saw in the $USD are some of the strongest rallies you'll see, they have to be to be convincing as they have to turn sentiment from bearish to bullish, to do that, they need to be convincing.

 The 15 min ZB/30 year Treasury futures chart with the same leading positive divergence as TLT.

The same divergence on the 30 min chart of /ZB

And the two base areas of /ZB since the break below the long term trend line with a negative divergence to send prices back to the accumulation zone. This looks to be a huge base that will support a significant move, I suspect much stronger than our $USD counter trend rally call which put in the biggest 7-day move in more than 7 years.

Financials, one watch list asset that has given us the entry I wanted...(XLF)

 Remember the April 2nd forecast of Triangles and head fake moved above the apex of those triangles such as was already completed in the SPX and most of the major averages and numerous assets? Well here it is in XLF with a large symmetrical triangle,  way too big to be a consolidation. Triangles this big are either tops or bottoms depending on the preceding trend and the preceding trend here would make this a top. 

We have the breakout above the triangle (yellow) and if you look close, we have an interesting pair of candles on the daily chart...

 Here's a closer look at the daily chart of XLF with a strong candle that breaks through local resistance (yellow trend line) and then forms a bearish daily candlestick very similar to a Hanging Man (bearish downside reversal candle), that in addition to the bearish candles in the major averages as seen above at the top of the post.

Today's large volume with no price movement as the open/close are nearly exactly the same is indicative of the type of churning we saw yesterday on an intraday basis in the market around 11:15, after that there was no further intraday highs made.

 The 1 min XLF chart off a sharp "V" base like the major averages and a leading negative divergence.

XLF 3 min leading negative

XLF 10 min leading negative divergence with extra weakness the last 2-days ,  just making a new leading negative low on the chart.

And the long term 60 min XLF chart makes you really have to wonder if the talking heads on TV with the "Rate Hikes are good for Financials" are buying or selling them,  my money would definitely be on selling them as this longer term 60 min underlying trend makes abundantly clear.



As for VIX futures and Short term VIX futures, a position added to today, Trade Idea: Adding a Little More to VXX Calls, although the VIX (spot and short term futures) have both been hammered to ramp the market the last two days (see this afternoon's Leading Indicators update, Leading Indicators Not Helpful For the Market's Bulls) they are looking better and better.

 VXX 5 min leading positive which should be hitting a new leading positive high for the chart shortly. It looks like the recent slamming of the VIX/VXX was not only useful in supporting the market, but useful to accumulate on the cheap and in size as stops were run.

 The 2x leveraged version of VXX, UVXY is also showing the same leading positive divergence...

And the inverse of VXX, XIV is showing a confirming leading negative divergence.

And VIX futures...

These were leading positive yesterday leading to the initial, Trade Idea: VXX VERY SPECULATIVE and today's add-to, Trade Idea: Adding a Little More to VXX Calls

As for the USO position added to yesterday, Trade Idea: Filling out USO Short/Put, I still have the same 2 trade position expectations. First a Swing-style move lower and then finishing up a large primary trend base and seeing USO reverse its primary trend to the upside. Note that the base has been in place for some time as you'll see below just as the last 2 weeks have seen consecutive draws in crude. We'll take a look at crude in a few weeks and see how smart money moves prices lower rather than chasing them higher. Normally going by the prevailing logic, you'd think crude would be significantly higher after two consecutive weeks of draws and this week's significantly larger than consensus, but smart money isn't chasing prices higher, something that I showed very clearly as Home Builders were under accumulation as the Tech bubble imploded in 2000, a couple of years before the housing sector entered bubble territory. Who would have thought boring housing would lead the next bull market after the Tech revolution? Someone knew and knew at least a year or two in advance, see So You Still Have Doubts About Wall Street Being Rigged? which shows home builders under accumulation before a +3000% run. There's lots of other interesting stuff in there as well.

Crude...

 USO intraday 1 min negative divergence.

The 1 min USO 3C trend leading negative

USO 3 min leading negative and where we filled out the position...

And the chart that has been the anchor for USO, 10-15 min with a leading positive divergence at a head fake/stop run on March 18th (white) leading to a break above the long term base and a trend lower with plenty of momentum channel breaks around the flag.

Crude futures (Brent) 1-day with a 3C negative divergence last summer sending crude lower with 3C confirmation until a positive divergence and a lateral trend from down developed in crude futures. Also note the move above the base area. Once USO/Crude comes back in to the base area and finishes it up, we'll be looking at a significantly longer trend trade for a primary trend reversal.

In FX land I'm still expecting the $USD to return to the downtrend it has been locked in since topping on 3/13 and creating a series of lower highs and lower lows...

$USDX 1 day chart, top and primary trend lower.

However in the near term, I expect a bounce again in USD and a decline in the Euro and EUR/USD.

 $USD 7 min positive

 Confirming Euro 7 min negative

 $USD 10 min positive

Confirming10 min. Euro (Futures) negative

$USD 15m. 3C positive divergence

And confirming Euro 15 min leading negative divergence.

 Finally 30 min $USD leading positive 3C divergence..

And a clear confirming 30 min Euro futures leading negative divergence.

Thus, the EUR/USD 30 min chart below...

Should see a move down from recent highs.

As for the market averages...

 The SPY intraday leading negative divergence over the last 2-days. It looks pretty clear that yesterday's short squeeze as the SPX moved above its 100-day moving average that had been broken, provided the demand (as shorts bought to cover) to allow smart money to all in to that demand as well as any bull trap demand being created because nothing says "Reality of the market" like bulls buying the dip so pros can hand off their shares to unsuspecting dupes, whether here in the US or in China where the unsuspecting dupes are illiterate, grandmothers, street corner food cart vendors and anyone else who is in the minority and has't yet run to the local broker with their life savings to be a part of the Chinese Stock market miracle-soon to be slaughter.

 The SPY 3 min put in a new leading negative low today and more interestingly...

The 5 min charts which are the line in the sand or the "Gas in the tank", not only saw migration of the divergence from 3 min charts, but put in an impressive afternoon leading negative divergence.

As shown earlier, this has made it to the 10 min charts of all of the major averages as well.

 As mentioned above about 10 min charts going negative, this is the 10 min QQQ with the accumulation zone we have seen everywhere from May 5th to May 7th,

Only the IWM intraday looks a bit curious with a small positive divergence this afternoon, I suspect if anything, it's for the max-pain options expiration pin tomorrow.

 This divergence does NOT extend any further than the 1 min IWM chart as the 2 min above is leading negative and about to make a new cycle low.

You may have heard, if not I'm sure you will as people love to talk about these, today's mixed internals created a Hindenburg Omen, known for calling bear markets. In actuality a Hindenburg Omen doesn't specifically mean there will be a bear market, but they have been seen before the last 2 bear markets and 3 of the last 4 H.O.'s have pushed the market lower (1) September highs to the October lows, (2) December 5th to December 16th and (3) a smaller early January correction. One of the 4 failed in March (2015).


While internals were more or less "crossed" as evidenced by the Hindenburg Omen, we did have some internals worth mentioning.

Dominant Price/Volume Relationship...

All of the major averages fell in to the same category with a Dominant P/V relationship (among the component stocks that make up each of the averages). While the relationship was just barely dominant with 18 Dow stocks, 39 NDX 100, 697 Russell 2000 and 207 SPX-500 all at Close Up / Volume Down which is the most bearish of the 4 possible relationships, there was a second place runner up that was extremely close, Close Down/Volume Down. Between the two, they are hugely dominant and there's little space for either of the other two relationships that start with "Close up", it's amazing we had a green close. However if you recall yesterday's Dominant P/V, it suggested a 1-day overbought condition that usually sees a red close the next day. While we may not have gotten than in the major averages, among their component stocks it was an overwhelmingly red day, the averages only saved by their weighting schemes and if it weren't for the last 30 second ramp, several of them would have closed red.

Sector Performance...
 All of the S&P sectors are seeing more and more declining issues vs advancing issues, something that's showing up in the breadth posts/charts. Charts like this (I posted several last night in the Daily Wrap)...

Despite the normal , healthy market reading of about 80% of All NYSE Stocks Trading Above Their 40-day Moving Average being halved, look at the deterioration recently in the indicator (green) vs the SPX (red).

As for today's performance, 7 of 9 S&P sectors closed green with the Safe Haven Utilities leading at +.80% and Energy lagging at -.45%.

As for the 238 Morningstar groups I track, 170 of 238 were green. While this isn't as dominant or 1-day overbought as yesterday's extreme readings, taken with the Dominant Price/Volume Relationship, it looks like stocks are rising in agony, with very unhealthy internals. 

My hope that we might have some additional core short set-ups looked better today with Transports, the best performing of the major averages at +1.05%, covered earlier in this post, Transports Long Shot Trade Set-Up. Hopefully we'll get a shot that's at better prices, reducing risk. We'll be taking a very close look at Financials , VXX, and Treasuries tomorrow, if you're in to trading forex, I'd look in to the EUR/USD (see above).

Tomorrow is Options Expiration, which typically means an open and maximum pain pin around today's close at least until around 2 p.m. so these are not usually very exciting days, however the last 2 hours tend to see the max pain pin released, stocks move as they will and the strongest 3C signals of the week during those last 2 hours which provides guidance for the "Week Ahead" post.

As I said yesterday, I doubt we see too much movement on the downside in the market until we're past tomorrow's options expiration as there has been nearly 3 weeks of down trending since the head fake move in the SPX gave out,

 2+ weeks of downside including a break below the triangle's resistance/apex and a break below the triangle's support as well as the 50-day and 100-day moving averages, that's a recipe for shorts and puts. I suspect most of the shorts were squeezed by 11:15 a.m. yesterday, Intraday Capitulation and I suspect what's left of the puts will expire worthless tomorrow for weeklies.

The daily SPX above the 100-day after breaking below creating a Crazy Ivan shakeout with resistance right at the 22-day which is part of the "X-Over Screen" trading system posted about in some detail today. You can catch that within today's Transports Long Shot Trade Set-Up post.

Otherwise, it looks as we initially expected, we have the break above the 100-day as technical traders are pretty simple and would have put their stops at the 100-day and shorts would have put their stops just above the 100-day. The next moving average that will be key for the SPX will be the 150-day which was support for the "V" shaped bottom and "Star" reversal candlestick of June 9th. I suspect we break that next week. We'll likely have to deal with similar action (as this week) when hitting the 200-day below and then at the October lows before breaking to a new lower low as forecast on April 2nd when we were looking for a head fake move up, above the triangles that weren't fully formed at that point along with their failure and a move to the 100-day where we'd have some temporary support.

Futures don't look particularly exciting right now, but I do see some evidence of the turn to the downside we expect in the 30 year Treasury futures short term (perhaps a gap fill), that should put that trade on the map very soon, as you know, I'm just looking for some additional leading positive divergences which are clearly running as you can see above.

Have a great night.