Daily Wrap

I hope today wasn't too confusing, there are many trends and signs of trends that all operate at the same time. I've been bullish on the market in the near term the last week and still believe we have some very strong signals that point to more upside in the market, in the short run however, and we have found out that being nimble in this market is the only way to make money, I've seen some disturbing short term signs that point to an overbought market. I have literally been hoping we'd see an orderly pullback the last 2 days as the more overbought the market becomes,the more volatile the correction-bottom line, pullbacks are healthy for a rally.

Today I closed my long positions out of an abundance of caution, anticipating that I'll have an opportunity to buy them back at better levels. I started a small short position based on some charts that didn't look too good in the near future, but this position is more of an exploratory position.

Here's what I saw that caused me some short term concern.

 The DA 5 min leading negative, I had concerns Wednesday night, but today looks a whole lot worse in the short term.

 DIA 10 min also went leading negative today.

 The IWM 5 min did the same

 As did the IWM 10 min

 While most 1 min charts at least managed to stay in line today, not the QQQ

 And the 10 min has lost significant ground today.

 The SPY 5 min, again with most damage being done today

And the SPY 10 min.

Dominant Price/Volume relationships are disturbing for a second day, again the dominant theme was Price Up/Volume down, a bearish relationship and shows traders reluctance to chase prices higher. The day before this recent move kicked off we had a severely oversold market with only 2 MorningStar industry groups of 239 posting gains. Today we have the exact opposite with 237 of 239 posting gains, another sign of a frothy overbought market.

Is it short covering? I think we have had some, but with short interest at 2 year highs, not much and this next chart illustrates the point.

The 15 min, 250 bar new highs/new lows for the NASDAQ 100 looks dismal. The last decent rally we had the % of NASDAQ 100 stocks hitting new 15 min 250 bar new highs was over 40%, right now, around 8%-this certainly doesn't argue for the start of a meaningful short squeeze and shorts are out there and active, just look at the recent lows, it hit 80% of NDX components.

Here are some more NASDAQ 100 breadth charts.

 The 2 min Advance/Decline ratio has been steadily declining.

 As has the 15 min

 15 min intraday momentum has also been on the decline, although we can easily see that in price trajectory.

The 15 min McClellan Oscillator shows the positive divergence at the lows, but has since fallen off badly as well. These charts more or less argue for a thin market that is not being driven by short covering as of yet, so I'll give you a guess who's behind it.

As for currencies, a strong Euro and weak dollar have been market supportive, the long term charts still look very good and market supportive, but shorter term chart, not so much.

 FXE/Euro 5 min

 FXE 10 min-the Euro may be in for a short term decline. For the last 9 hours the Euro has been flat.

 The $USD is showing some short term strength on the 1 min hart the last 2 days

 and today the 5 min above and 10 min below put in a substantial 1 day change of character.

Volatility

 The VXX which trade inversely to the market is also showing some short term positive signs, but like everything else, the longer term harts remain consistently bullish for the market, as least as of now.

 VXX 5 min

VXX 10 min. The fact this only reaches the 10 min chart, like the market averages, suggests a correction from an overbought level.

 Treasuries are a safe haven trade against a decline in equities, TLT the 20+ year shows positive signs on the 1 min

 TLT 5 min

 And where all the harts seem to stop with counter trend signals-the 10 min.

 Also disturbing is my proprietary Demark-based (still nameless) indicator which is giving a sell signal on the 30 min chart where several past rallies have been turned around. This signal is on all the major averages, but not on the 60 min, which still bodes well for more market upside.

As for the longer term of a continued rally, as all of the above so far only points to a pullback, but a pullback that could be volatile as we are overextended, I have just one chart that I believe makes the case for more upside room.

 The strongest 15 min positive divergence seen in months.

So that's where we stand with some possible market moving data tomorrow including the 8:30 NFP number as well as the "FAD's"Lockhart speaking at 10:30, lately speeches since the last meeting have been very dovish so the catalysts for volatility are certainly there. Based on the 1 min charts,

As most of you know, I prefer to phase in and out of positions, leaving room to add if the situation supports that view. Interestingly today, the late day push just cleared the start of gap resistance at 9/26 (the bottom of the white box) and 2 further areas of resistance converge at the top of the white box-both the top of the gap (9/27) and the bottom resistance of the bear flag (red trendline). In my opinion, late day trade will be the most telling tomorrow-from 3 pm on.

I'm exhausted-going to bed early tonight.