Leading Indicators

Leading Indicators look pretty much as I expected, although I was again a little surprised that to pull off a bounce (which is nothing unusual even for stage 4 decline as there are about as many up-days in a full-blown bear market as there are down days) they are pulling out all of the tricks to some small degree, the last one I just posted while I was going through Leading Indicators was the typical end of day Whack-a-VIX which we usually see when a market is borderline closing red/green, it gives that extra little boost to try to make it green.

I'll just put them in the usual order...

 This is the SPX:RUT ratio, which is based on the concept that the R2K should lead any rally. If you recall the days of the Great Bernanke's congressional testimony, when referencing the market he never used the household Dow Industrials or even the S&P-500 as a point of reference for his QE/Wealth effect which is some central bank distortion of "Tickle Down Economics". In any case, her correctly recognized that the R2K should lead any risk on event and that's why he always referenced the little known R2K (not a household name among non-traders) as his audience was the retail that were buying the bubble he was blowing.

In any case, the indicator is slightly positive as it should be wit the R2K outperforming relative to the other averages on the day.

Pro Sentiment predictably is not buying in to this as they sold in to the bounce off July 10th.

Here's a wider view of the same indication through the bounce.

And here's the same since the SPX's May head fake when the indicator first went negative and remained so until the base for the July 10th bounce.

 HYG is more or less in line, I showed the earlier 1 min positive divergence, but so far it's not leading the market.

 As for HYG through the bounce cycle until now, you can see where it fell off leading the market to the downside,

 This is the VIX slam I mentioned this afternoon, SPX prices are inverted so VIX should be at the same level, but it was apparently slammed lower which helps support the market.

 The same occurred in VXX as well for the same reason.

 As for 30 year yields, I addressed them earlier today, they are more or less in line intraday.

 On the scale of the recent bounce, this is what yields look like, again a much more negative longer term perspective.

 HY credit is in line intraday, but again putting the indication in context is important.

HY credit since this bounce began leading lower.

They are trying to hold the market together here for a bounce, whether gap fill or op-ex I don't know, but we saw this yesterday as well.

UVXY / VXX Follow Up

For a trade of a week or so, with no options leverage, UVXY has performed beautifully and I hope you were able to take advantage of the trade idea.

The P/L looks like this...

With a full size position inclusive of the first trade alert and second add-to alert 2-days later, the average cost is $44.70 for the short position, the fill on the just closed position is $31.69 for a P/L gain of +41%, I have to say, I think that's darn good for this particular play after already having taken the VXX puts off the table earlier this week for an additional gain of +49%, VIX / VXX /UVXY VIX Futures Update

 This is the UVXY 5 min chart and what is interesting to me about it is the upside negative divergence signals in red which is a big part of the reason we took on the UVXY short and VXX puts, however these are not exceptionally strong divergences/distribution, they are clear enough that we knew downside was coming, but they don't look like the wholesale distribution of totally exiting a position.

Quite often when we are seeing a double base form, the second half or low of what would be the second low of a "W" pattern, often has a stronger divergence than the first half. My point is, I don't believe the current base that is forming to the right is the entire base, I think it is merely the second half of a much larger "W" base and the distribution/negative divergence at the top would suggest the same, a pullback, but not a total wiping clean of the position.

In all of this you have to keep in mind that institutional position sizes are very different from our position sizes. Many of you may remember the charts of home builders being accumulated as the Tech bubble popped in 2000. It was not only interesting that after the Tech revolution and Internet that changed the entire world home builders would be accumulated, but that they would be accumulated a couple of years in advance of the housing boom that would support the next bull market. Who would have thought housing would lead the next bull market after such an amazing Tech revolution and how did smart money know years in advance of the actual inflation in housing prices which in my area were double and even triple over a 4 year period?

The larger point however being, those charts I showed you showed a year and a half of accumulation, I mention this to highlight the difference between a retail position that is filled in one order and an institutional position that can take quarters and even a year or more to fill out.

 This would be my proposed VXX/UVXY "W" bottom/double vase with the second low showing a much stronger leading positive divergence than the first and very little distribution in between at the top.

 From a daily chart perspective of UVXY, note the change in volume in the area as well as the ROC in the price trend from down to flat.

If such a base were under construction and nearly finished, then our forecast of the SPX/Market breaking down hard and the SPX slicing through its 200-day moving average the same way it sliced through its 150-day moving average when it bounced off it would seem to be very accurate.

As I have said, we have made a series of lower highs and lower lows since the April 2nd forecast of a head fake/false breakout leading to a move to the downside and that occurred in May as we have seen in numerous 3C charts and Leading Indicators.

This is the SPX daily chart with a large ascending (bullish LOOKING) triangle, our April ind forecast was that we would not see any significant market downside until the clear 2015 resistance areas were broken with a false breakout that would fail. We then got much clearer resistance levels and purposefully formed triangles as we showed at the time with 3C charts that would make traders think they were bullish consolidation./continuation price patterns on a break out above their resistance trend lines even though triangles this big are not consolidation triangles, but most often tops. Technical traders are just too lazy to understand the rules they follow ad break.

At #1 we have the May false or failed head fake breakout above the triangle as we saw in numerous averages and assets at the same time. At #2 we had support as forecast (speed bumps) at the 150-dma in purple with a bounce forming a lower high at #3 and a slice right through the 150-day at #4 with the head fake/stop run below the 200-day moving average in blue at #5 as expected and a bounce off that which would have to at least cross above the yellow 50-day moving average as it has done now at #6. We could see another lower high made with a downside reversal in the area, but even if we don't get that new lower high, I have little doubt that price fails and slices through the 200-day as it did the 150-day, but this time being the 200-day is one of the most watched moving averages and the SPX one of the most watched market averages in the world, I suspect the downtrend since May will take on a whole new character with fear taking over and larger downside moves. 

This would explain the larger VXX/UVXY base and volume in the area as well as price action itself and its ROC to a lateral stage 1-like base.

I'll be entering a VXX based position soon, as usual, I'll always post the idea before entering it in our tracking portfolio.

Daily Wrap

Other than having a great time fishing this weekend,

I think the most entertaining thing I heard all weekend was one of those local radio Financial shows in which the "Wealth Management" host went on and on about how Greece was already discounted by the market and shouldn't cause any adverse reaction. I almost wanted to call in and ask how he knew that, "Was it his vast experience with monetary unions falling apart?". Obviously Greece was not "fully" discounted. It's obvious that China's bubble is not "fully" discounted if at all. Then there's the F_E_D and rate hikes. I don't think we've ever had a Chinese stop bubble in which nearly anyone from a grandma to a farmer to a street corner fruits vendor has been so vastly involved in something they know nothing about.  The government controlled media suggested the PBoC's double rate cut overnight brought tears to investors eyes as the socialist government provides for all of your needs, that was until the PBoC knee jerk bounce on the rate cuts failed.

I don't think we've ever had a monetary union that is falling apart and could get much worse with Spanish elections and who knows what with a Greek default.

I know we've had one instance of QE in the 1920's, but that didn't end well with the Crash of 1929 and the following Great Depression, however we've never had a market this goosed by well over 500 individual central bank actions globally and unprecedented F_E_D intervention to this extent for this long so no one knows how any of these events are going to unwind, but if Lehman has taught us anything or nothing at all, it is always been the lack of imagination and the feeling that all is under control and at times, it has seemed to be until it wasn't.

Add to that inexperienced traders, whether illiterate  Chinese farmers or 1/3 rd of professional traders on Wall Street who have never seen rate hike and as such, have never seen a bear market. How is it possible that we can have 1/3rd of professional traders with so little experience? I think it's safe to say, you can pretty much ignore anything that comes out of these people's mouths like, "Greece is priced in" or "The F_E_D won't let rate hikes effect the market" or the People's Bank of China will provide for the socialist, government reliant, illiterate traders. If there's one thing the talking heads have proved to us over and over again it's that they have no imagination and when it's the most dangerous time in the market, they are whistling past the graveyard as if it's business as usual.

Today that wishful thinking was shattered when a double Rate cut from the PBoC failed to revive the Chinese stock markets, in fact failed to even get a respectable bounce or any bounce at all (that would hold). It was shattered when the "Greek-Exit" won't effect much meme, suddenly effected the market quite a bit and as the F_E_D reminded us again today (in case you were thinking the Greek situation would derail or delay their rate hikes), a September Rate Hike is very much in play.

The Nikkei has lost over 700 points since Friday's close ...

Daily chart of Nikkei 225 futures with a severe beat down since Friday.

As for China, Bloomberg may have summarized it best,

"The truth is that the plunge in Chinese stocks was long overdue. China’s longest-ever bull market was government-driven, fueled by central bank liquidity and a public-relations bonanza. The question now is whether Beijing's policy apparatus has lost its ability to impose its will on stock prices. And there's good reason to think it has."

Hmm... You could take out "Chinese" , "China" and "Beijing" and be equally convinced Bloomberg was talking about the US markets.

Despite the SNB Central Bank stick save this morning in European stocks, the DAX still closed down -3.56%, the CAC-40 down -3.41% and the FTSE 100 -1.97% and this AFTER the Swiss National Bank intervened on the open and send European stocks up from their gap down for the rest of the session.

However the greatest fear many believe the Trokia has is not a Greek default, but the leftist, "Syria-like" anti-austerity movements in countries that could sink the European Union such as recent elections in Denmark with the Anti-Immigration "Danish People's Party" finished second in just concluded general elections. The French far-right "National Front" is polling second place for upcoming elections with Marine Le Pen looking to take France out of the austerity driven European Union and Spain's leftist, anti-austerity "Podemos" party is at double digit support. The EU probably would have worked with Greece and done whatever was necessary to avoid the current situation if they were not afraid of any such compromises emboldening the above parties and destroying the EU from inside.

Perhaps that's why bond risk in European peripherals and core countries alike such as Spain, France, Italy, Belgium , Austria and Portugal hit 7 year highs today. It could be over contagion Greek fears, but a fair number of countries that saw risk explode in their bonds/yields today, were also countries that had strong separatist or anti-austerity/anti-EU movements.

Greek 10 year yields are over 15%with over a 400 basis point move today.


As posted earlier today, right now it's not looking so sure that the Swiss National Banks' earlier intervention is going to hold.

 Here's the Sunday night gap down in EUR/CHF and the SNB's intervention early this morning, buying Euros and selling the Francs and $USD, note the 3C divergence inEUR/CHF, but recall earlier I showed not only EUR/USD, but Euro futures and $USDX...

EUR/USD as per earlier divergences (negative in EUR futures and positive in $USDX) as well as EUR/USD itself, looks like the pair is about to fail to the downside. REMEMBER LAST WEEK THE 10-60 MIN CHARTS IN EUR AND USD WERE BOTH POINTING TO A LOWER EUR/USD AND AS SUCH, VERY NEGATIVE IMPLICATIONS FOR EVENTS SURROUNDING GREECE.

INTRADAY 1 MIN EURO FUTURES leading negative despite the SNB intervention putting a bid under the euro, it looks like the larger intermediate charts of all last week suggesting a lower EUR/USD specifically in response to negative Greek outcomes, is coming roaring back-central bank intervention or not.

In US markets we saw early Buy the Dip action, there were several smaller intraday 1 min positive divergences, but by the afternoon and in to the close, those were run over.

As we have shown many times, once fear sets in, it's the most powerful of market emotions.

Despite any intraday divergences, none were strong enough to migrate to longer timeframes and were run over on 1 min timeframes only as all of the major averages closed lower from Friday and ran over any intraday divergences o keep rolling lower in to the afternoon and close with the break we anticipated as the next major event in the market, the break BELOW the SPX's 150-day moving average/support for the 6/15 bounce.

SPX daily chart and initial/expected bounce off support around the 100-150 day sma and reversal process last week to SLICE right through the 150-day ma's support as we saw today.

Futures and 3C averages' charts were very clear last week, after Monday's anticipated price strength, the reversal process took over and stage 3 top transitioned top stage 4 decline.

 Averages since last Tuesday as Monday's initial opening strength stalled and the reversal process took over with a Doji Star Tuesday and stage 4 decline transitioning in.

Year to date Transports and the Dow are now red with the SPX sitting right at unchanged.

And all of that underlying strength in VIX last week saw a huge surge today...

VIX by FAR THE BIGGEST MOVE YTD.

Interestingly as I said we'd hit a 1-day oversold condition today within internals, our custom VIX inversion buy signal was flashing today.

We haven't had a VIX inverted term structure buy signal since January, but the white bar today tells us the Term Structure in VIX is inverted, a near term buy signal. The Fear and Greed Index has collapsed again to similar lows we saw at the June 15th Fear and Greed sentiment which was extremely bearish and led to the June bounce off the SPX 150-day sma.

However our SPX:RUT Ratio was in line with the downside. In fact, it was negatively divergent at the yellow area and in line or even leading to the downside today.

Our TLT long from Wednesday, Trade Idea: TLT Long and EDIT-TLT July 17th Calls will be a Strike of $117, NOT $116 with charts, TLT Follow Up saw a nice gain today of nearly +40%

TLT calls from Wednesday last week.

This was largely short squeeze, if we can get to the trendily break as initially planned in the trade set-up, we'll see an insane counter trend rally.

TLT and the trendily around the $124 area.

High Yield Corporate Credit was leading to the downside with the SPX today.

 HYG (blue) vs. the SX (green) intraday

More importantly the negative HYG divergence vs the SPX...

Although the overall Pro sentiment has been leading the market lower since May as we have seen every day (almost) since then,

 Our secondary Pro Sentiment indicator leading the market lower.

However intraday, we have a positive dislocation for the first time in I can't remember how long.

Yields collapsed lower as you saw with TLT's gains today, it's hard to say whether they are still working as a leading indicator, I tend to doubt it as today looked more like rotation in to perceived safe harbor assets.

High Yield Credit has been leading the market lower since May-last week was especially horrible for the leading indicator...

 HY Credit vs the SPX (green), leading the market much lower. Keep this chart in mind when looking at the next.

Intraday , again for the first time in I can't remember how long, HY Credit led the SPX today (positive), along with a VIX inversion, pro sentiment inversion (positive) and 1-day oversold conditions, only missing positive divergences, it looks like (technically speaking) the market wants to try to bounce here from a 1-day oversold condition, but it's hard to tell once fear takes over a market as it is the strongest emotion in the market, thus all of the intraday divergences being run over today.

Otherwise though, it would be very difficult for me to say, "Don't expect a 1-day oversold condition", everything suggests there is EXCEPT 3C divergences.

Everything is pointing to a 1-day oversold condition in which a bounce or next day green close is highly probable, however in the current situation, it  would seem some small 1-day reversal process such as a Doji or Star candlestick would be in order and perhaps with that, a positive divergence.

I have no plans on changing any trend/core positions, but if we can get a bounce as planned earlier today when closing QQQ puts and VXX calls on momentum, I'd gladly take it as the market is entering primary trend stage 4.

However we are in uncharted waters and there's no historical precedent to look to to gain some knowledge of what the market or psychological reaction is likely to be. We saw the PBoC try to rate cuts last night, there's no reason to think they won't try again even though last night's failed and we saw the SNB in Europe intervene so it would not be out of character to see more central bank intervention to halt the landslide or at least slow it down. There's also no telling how the Greek/EU situation will develop from here. There are simply a lot of short term unknowns  thus I'll be looking for objective evidence to base any decisions off rather than probabilities or even concepts at this point because we are off the edge of the map. Bigger picture I believe we have already gone over the falls and any near term price action should be carefully considered with the larger context which is solidly bearish.

As for Futures tonight...
Without more central (European) bank intervention like the SNB's in the early hours of the morning (European open), I don't see how the EUR/USD avoids a collapse as the 3C charts were calling for all last week...

 3C $USDX and Euro futures all last week pointed to a EUR/USD collapse which we saw part of the week and the rest was avoided today with a bounce at the white arrow only because the Swiss National Bank went in to the market and bought Euros, sold Francs and $USD, without that intervention, the EUR/USD was set for decimation.

The Euro 3C chart even with SNB intervention looks ready to fail without more central bank intervention, just as the 3C charts accurately forecasted last week.

Index Futures...

 TF 1 min in line

NQ 1 min in line

ES 3 min small positive divergence, not enough to bounce on its own.

ES 5 min in line

 NQ 5 min in line

 TF 5 min in line

TF 10 min June cycle and stages and in line.

A LOT OF THE OTHER COMPONENTS NECESSARY FOR AN OVERSOLD BOUNCE ARE IN PLACE, I THINK IT'S THE DIVERGENCES THAT ARE MISSING AND THE REVERSAL PROCESS FROM SUCH A 1-DAY OVERSOLD CONDITION, TOMORROW "COULD" SET UP THOSE DIVERGENCES AND THEY COULD BE USED TO OUR POSITIONING BENEFIT, BUT I WOULD NOT EXPECT ANYMORE THAN THAT NO MATTER WHAT THE INTERVENTION, EVEN ECB Q/E.

THUS THE CHARTS ARE IN PLACE TO PUT IN A SOLID SIGNAL FOR A BOUNCE, I WOULD NOT TRY TO TRADE IT UNLESS THE CHARTS WERE STELLAR, BUT I WOULD USE IT TO ENTER POSITIONS LIKE A NEW QQQ PUT POSITION OR VXX CALL POSITION.

UNTIL THEN, PATIENCE WINS OUT AS WE SAW WITH VXX TODAY, LET THE TRADE COME TO YOU, OTHERWISE, I'D STICK WITH THE PREVAILING TRENDS WHICH ARE SERIOUSLY BEARISH.

AAPL Update

From the emails I receive, the two stocks that seem to have the biggest hate club or short (actual) interest are NFLX, which I suspect we may have hit right on target this week and AAPL.

I haven't had a lot of AAPL updates this year because I don't like the way it has traded and I haven't seen that high probability, low risk set of charts that jumps off the monitor, the kind of charts I just can't ignore. However people are still interested so I'll update AAPL and show you what I'd like to see as I do believe it is close,  especially after Icahn's scam he pulled in NFLX this week with an almost immediate tweet right after that AAPL was the next big mover meaning he has a position he needs to unwind and needs retail demand to do it as AAPL hasn't broken above the February 23rd highs (2015) since.

 This is a quarterly AAPL chart, each price bar represents 1 quarter of a year. Note volume as AAPL moved up from the 1990's to 2007 with a gain of approx. +1165%. Volume moved up with price, this is healthy and what you want to see.

We have an entire generation of retail and pro traders that learned to trade during the F_E_D's QE/Loose monetary policy period, which badly skewed the market and made volume analysis irrelevant in most trader's view as the only thing that mattered was the F_E_D's balance sheet expansion so in that respect, volume was meaningless, but the F_E_D is backing out of accommodative policy (already ended QE and looking at a Sept. rate hike). This means that volume analysis will once again be exceptionally important and we have an entire generation (a full 1/3rd of Professional traders), who have never seen a rate hike, never seen a bear market and have no idea how to use volume which will be more and more important as the F_E_D's effect on the market diminishes.

I've seen 3 bull markets, 2 bear markets and numerous rate hikes as well as unprecedented accommodative monetary policy that's approaching nearly 600 accommodative actions taken by central banks world wide since late 2008. Just as an aside, THIS IS NOT THE FIRST TIME ASSET PURCHASES / QE HAVE BEEN TRIED. Remember, Bernanke was a scholar, not from a real world economic background and one of his favorite periods by admission and clearly by policy action was that of the 1920's or the "Roaring 20's". Benjamin Strong who was the equivalent of the New York F_E_D President back then was the first to engage in wide, asset purchases and used the roaring 20's bullish economy to justify his new experiment in asset purchases and accommodative policy to legitimize QE as a main stream policy tool for the F_E_D. It's clear that Bernanke was a huge Strong fan from that era, however QE back then worked in pulling the economy out of early 1920's recession after WWI. THE THING BERNANKE AND ULTIMATELY STRONG MISSED (as Benjamin Strong died in 1928) WAS THE CONSEQUENCE OF ECONOMIC TAMPERING. AS MENTIONED, STRONG DIES IN 1928 AND THEREFORE DID NOT WITNESS WHAT CAME NEXT WHICH WAS THE 1929 CRASH AND THE GREAT DEPRESSION.

As many of you know, I believe the F_E_D is hiking rates prematurely from an economic and inflationary standpoint, although rates never should have been at ZIRP and certainly not for 6+ years. Thus it has been my opinion that there's something the F_E_D is more worried about than the damage rate hikes will do to an economy that is already flat-lined (see recent Q1 GDP revisions this week) and is showing NO signs of inflation beyond an asset bubble. 

It's my opinion that the "something worse" than the consequences of premature set of rate hikes which the F_E_D is obviously more worried about, may just be the risk of having let QE go on too long and being backed in a corner with little elbow room when the next recession hits. As the Bank for International Settlements (BIS) also known as the Central Banks' bank, said in its yearly 2015 report, "Leading Central Banks's balance sheets are spread so thin, they don't have the ability to respond to even a garden variety recession" (paraphrased).

In any case, volume will once again be important and those who know how to navigate a market decline and policy tightening, will be the winners. Those who believe the last 7+ years is the new normal are in for a rude awakening, the evidence of a massive bubble is the crowd's insistence that, "This time it's different". Over hundreds of years and dozens of major asset bubbles, the one thing they all shared was it was never different, only thought to be.

 This is AAPL's 2014 trend line, still in effect and the significant fall off in upside Rate of Change (the indicator in the price window in white).

As mentioned above, AAPL hasn't made a higher high since February 23rd, which also sets AAPL up for a nice head fake move as it is showing a clear resistance level at $133 on the close. Note the middle arrow and the massive churning event with a bearish engulfing candle that failed above resistance on Huge volume.

The daily 3C chart shows strong distribution in AAPL and we already know some major institutional and hedge fund players have sold ALL AAPL. It does look like AAPL is in the middle of a reversal process (yellow), but the rounding igloo top usually comes with a Chimney/head fake,

The 60 min chart shows several positive and negative divergences, but also a lot of "in line" confirmation at the green arrows, not the strong divergences that I'd like to see for a position right here.

Remember the accumulation throughout the market on May 6th and 7th, I covered it about 100 times, there it is in AAPL as well.

The 10  min. chart shows the same accumulation at the 6th and 7th of May, like a lot/majority of assets then. There's also some recent negative activity, but it's not jumping off the chart for me.

Interestingly, the 3 min chart which also shows the accumulation at June 15th lows (as this is the day we forecast a bounce and numerous assets hit support while retail sentiment was hugely bearish) is showing VERY recent short term accumulation to the far right as if the Icahn tweet that AAPL is the next big mover is going to see some evidence so he can sell out of the position the same way he used NFLX's split and gap up this week to close his entire NFLX position. Remember, Wall St. only tells you what is useful to them, it's rarely useful to you. Watch that Cramer / Street video for the low down, it's one of the best videos and bits of reality that Cramer ever shared, probably regrets it now.

 The 2 min AAPL chart shows the same. If this led to a bounce, I might be willing to look at a short or some puts so long as I see distribution in to the bounce.

There's one thing I saw intraday on the fastest chart...

The 1 min chart started falling apart a bit, this is where we'd first see it as this is the most sensitive chart. There has been some recovery since this capture so my guess is AAPL will see some upside very soon, if not today, perhaps Monday morning.

As far as a few other charts...

 I have set our X-OVer trading system to a longer term 3-day chart. The long signal was given at the three white boxes (one in each window) in 2014, since then even with some moving average whipsaws (which is the reason I created this system, so you'd not be misled by whipsaws in moving average systems) the custom indicator in the middle hasn't wavered once and remains in a long signal position. If the price moving averages cross down (yellow below blue) and RSI which is just crossing below 50 hold, then we'll need the custom indicator in the middle window (yellow) to cross below its 22-bar moving average (blue), then we'll have a confirmed sell/short signal in AAPL.

In addition, other than a break of the 2014 trendily around the $125 area, my custom Trend Channel has a current stop out at the $123 area, if those levels are broken, AAPL will have put in a significant enough change of character that I'd be more comfortable looking for a downside change in trend. Until then, I'd rather be patient and wait on the sidelines with AAPL. I don't feel there's good evidence beyond a very short term positive divergence to trade AAPL long, it runs counter to everything we have seen in the market, but perhaps a short term long develops. Other than that, like I said, patience pays.