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.

Model Portfolio Action

Divergences in the QQQ, IWM and DIA pretty much reach out to the 10 min time frame, so it's enough for me to think that we'll get at least a pullback as some of the longer term charts are still strong. This is why I wish we had seen a modest pullback to keep the market from getting to an overbought point in which corrections can be over exaggerated.

For the time being, I'll probably only put out about 25% or so, buying some inverse ETFs such as SQQQ, SPXU, SDOW, SRTY,  and FAZ. I don't want to much open risk here.

Model Portfolio Action

I'm going to go ahead and take the sell most of the rest of my longs.

I'll let you know if I decide to short anything, but as always, make the trade you own.

SPY Update

I wanted to get this out quick so I just used the SPY, although I'll let you know if there's anything different about the other averages ETFs.

 The negative divergence in the 1 min saw a positive around 1 pm and right now is mostly in line...

 However the 5 min doesn't look so hot.

 The formerly in line 10 min is starting a slight leading negative

 So is the 15 min.

 The negative action hasn't made it to the 30 min yet, but the leading positive divergence is showing in line action today.

The 60 min is more or less in line, still with a hint of that leading positive divergence.

RIMM Chart Request

 RIMM 5 min has gone in to a leading negative divergence in a rather flat area of trade, often this is indicative of distribution (not just the divergence, but the flat trade.)

 Even worse, the 10 min and it's making new lows today.

 The 15 min as well with new lows today-all through a trading range.

 The 30 min has just started leading negative

The 60 min should catch up as the 30 min gets stronger. Right now it's a little better then in line.

I would think there's some pretty decent distribution going on, the question is whether it leads to a deep pullback or a downtrend-the 60 min chart is the reason for my indecision.

AAPL Chart Request.

First I'd like so say welcome to new members, I'll give you some explanations on the 3C charts below.

 AAPL 1 min (each timeframe effects a different trend in the equity, there are links "Understanding 3C on the right side of the site) a 1 min time frame usually effects short term intraday moves, where signals on longer timeframes are more important and effect longer trend moves. When you see a red arrow, it is a negative divergence and you can see what happened to AAPL's price after that negative divergence, it fell. When you see a white arrow, it is a positive divergence and AAPL's price went up on this 1 min intraday chart. When you see a green arrow, that means price and 3C are in line and the trend is confirmed and expected to continue until there's a new divergence. When you see a white box, that is a more powerful leading positive divergence and a red box is a leading negative divergence. It takes some time to get use to and there are many more subtleties, please read the links about 3C. This looks like a little bit of a bounce from the decline, it is close to resistance so it may have some trouble moving through resistance.

 The longer 5 min chart which is slightly more important shows 2 negative divergences, the first led to a price decline, the second casts some doubt on whether AAPL can make it through resistance in the area.

 AAPL 10 min chart which is more important, shows the start of a positive leading divergence at the white box and prices moved up quickly from the start of the divergence. Since then, 3C has declined and is no longer leading positive, the green square indicates that 3C is now in line with prices, which is a slight weakening of the former leading divergence.

 This is an important 15 min timeframe, many reversals are found at divergences here, the longer they last, the more important. The positive divergence started the uptrend, it was in line and has since started to lead negative a little bit, AAPL is not as strong in underlying conditions as it was.

 The 30 min chart is more important, but takes longer to move, here we see a positive divergence starting the AAPL move up and a slightly leading divergence.

 The 60 min chart shows a green arrow, meaning the downtrend was confirmed, then a white positive divergence sending AAPL higher, and a leading positive divergence, these charts take a longer time to move. AAPL may simply be experiencing a pullback as reflected by the earlier time frames, but f the longer timeframes deteriorate, we'd expect trouble. Steve Jobs died yesterday and it may have some influence on the stock, even though he was only serving on the board.

This is my trend channel for stops, the bottom channel line is a stop out level.

COMEX and Copper

COMEX hiked margins on copper, they are the master manipulators and somebody's puppet. The new margin increase goes in to effect after the close today.

Model Portfolio Action

I'm selling partial long positions , probably 50% at this point and will watch for a deeper stop to be hit for any more selling.

Consolidation

I just wanted to show you this chart of the SPY

Last night when I talked about the many charts and breadth charts being a reason I suspected a correction as well as short term 3C charts, look at the market's trajectory since taking off and to the right, a lateral zone. As mentioned, overbought conditions can be worked off through a decline in prices or through time.

Updated Stops or Areas of Interest.

 Obviously this 50 bar 5 min moving average is getting tight, this would be for anyone who wants a tight stop, but you do risk being stopped out of a lateral consolidation through time. If you are even considering this, you may think about considering it as a partial position stop.

 The longer term 50 bar 10 min as I mentioned, held the last down trend and this uptrend, it has a better chance of absorbing a consolidation.

 As for the TC 10 min. , it's very tight with volatility contracting. Again I view this as more of a partial position stop.

 Even the 15 min is tight and may not absorb a lateral correction, this 30 min should. If you are trying to trade the market in a nimble fashion, you could consider this as the larger stop area.

 The hourly should give pretty ample space for even a pullback.

A 15 min 50 bar average is about the same as the chart above as of now.