Daily Wrap- Continuing Thoughts

*If you like, you can skim to the bottom and go right to "My Take".*

The gist of yesterday's afternoon analysis (when we saw some VERY odd behavior from the market) and the post last night, Initial Thoughts, can be summed up with the last paragraphs from last night's post:

"These two charts are the most concerning for the very near term (like tomorrow). While I may not have all of the information yet, I can't in good conscience withhold information like this from my members because I can't completely explain or understand it. The signal is there and that's enough for me to warn.

There were some other indications I didn't like today such as credit, yields, a few currencies even though there were reasons, I thin leading indicators on their own would have caused me some concern, throw in the above, it looks like something is shifting quickly, maybe this is just a bounce to fill some gaps and we see a very bad move down , but I want to have those signals in hand. We can always re-enter a position, we can't always undo damage that we didn't move on."

Tonight after looking around a bit and watching the market all day, I have to say I think last night's post was pretty spot on, I wouldn't change anything in it based on today's action so I suppose we saw conformation of our theory.

The main point was a strong move higher starting TODAY, how that happened, whether it lasted a day, a half day or a couple of days was not the point. The point was take action, be ready for this because it's coming and for at least the DIA, we saw new highs today for this move from the 16th.

I don't like overwhelming you with charts, but each one I post I think shows something important. Lets start with the averages.

SPY

 SPY 1 min shows the head fake move in yellow, this "may" be another head fake move, it qualified in the Dow today. The point here is not just that between 12:45 and 3:15 highs we had a negative divergence at the 3:15 highs, the point is the 1 min chart's trend is leading to a new low that is below anything seen since the move up started on 11/16! The DIA 1 min also saw the same thing as well as the IWM and QQQ.

 Intraday today, the 3 min chart above and the 2 min both show a clean divergence and migration through the longer timeframes, a common theme and one that adds to confirmation of distribution today.

The question this chart poses is how much accumulation was put in place vs how much distribution in to higher prices have we seen? That essentially tells us if we are likely to see another move higher and how much longer this can go. Last night I figured maybe 2 days, I'm still pretty comfortable with that with today being 1.

 The 5 min chart, no matter how impressive the positive divergence is (white), it still only lasted a day, you can only accumulate so much in a day.

 On a 10 min chart, there's very little sign of accumulation so again it maxes out at about the 5 min and a day.

 The hourly chart is the highest probabilities as to direction, it's clearly leading negative/distribution. Part of me almost wanted to make it very simple today and just say, "Sell short, hang on, probabilities will play out", but we have too diverse a group for that.

 This is the DIA 1 min, during the leading negative divergence at the close, volume was picking up on the way down, this isn't the crazy kind of volume that you ignore, this is a steady build and it means something and not good for the market overall.

 DIA 5 min still has a strong leading negative divergence in place, even with all of this weirdness, it wasn't enough to move the 5 min chart and look at that end of day distribution, it makes me glad I mentioned a short like SDOW before I had to head out.

 The 10 min DIA has what looks like a new shakeout/head fake move, very little in the way of accumulation so thus far I see this as a tactical maneuver leading to a downside bloodbath more than a change in sentiment toward the bullish side.

 DIA 15 min acts like it never skipped a beat in making lower 3C signals.

 Look how sharp the 1 min IWM distribution is today, this was noticed yesterday, the IWM and the QQQ which both led to put positions in both as they easily looked far worse than the SPY/DIA and Financials.

 IWM 30 min since September or so, look at that divergence in place now and tell me if you would ignore that? This again is why I almost wanted to say, "Make it simple, go short and hang in there".

 QQQ 1 min hitting a new leading low for the entire move since 11/16 and a very sharp negative divergence at the close today.

 Look at the 3 min chart's trend, it's as if the iWM was never part of this move set up yesterday.

 The QQQ 5 min, just because it's impressive and as I mentioned to stay short the Q's yesterday, there's no sign of any accumulation.

Finally the common sense trend, the 60 min. QQQ leading negative divergence, this is one of the longest, most serious timeframes we use, three's big trouble here.

S&P E-Mini Futures

I can't leave these out because they were one of the brightest red flags...

 ES 5 min, while the divergence may be larger here, much of the overnight trade is very low volume. There's no doubt there was distribution in to the move higher, especially because today's lows were accumulated so they made money, the question still remains how much accumulation vs distribution.


I added the ES 15 min chart because I think it gives a little different perspective on the balance of the divergences, almost equal, except we know part of today was accumulation at the lows.

Sectors...

Yesterday I closed the FAZ Calls because of what I saw and expected today, that's an ultra-leveraged short on Financials. Financials closed up 1.21% and made a new high for the move so that FAZ (3x leveraged Financial short) with a call on it would have been annihilated today.

The 1 min chart's trend in XLF also hit a new leading negative low today. However there are a few charts in XLF that make me think it's not quite done yet, the 60 min chart is as negative as you need so I think we know where it ends up, but it adding some more on the upside would be my concern before jumping in there, even on a partial position basis.

Tech as you can imagine looks pretty bad, I would say it's probably safe to add to shorts on any strength, however the fact it is looking so bad makes me wonder if it will get a little attention like Financials received yesterday to help them out today. This is one we'll have to go on a case by case, minute by minute basis.

In TECS (The leveraged Tech Short ETF),  I wasn't seeing accumulation today, it seemed more like confirmation or in line trade, the accumulation there was on a head fake move to a new low on the 3rd. Overall the long term charts look great there, but I would not add yet unless we had a good signal to do so. 

Credit
For the most part, the worrisome divergences in credit yesterday that had me worried about today disappeared or remained pretty flat, only High Yield Corp. Credit tried to rally toward the close today with a small amount of accumulation...

 On the 2 min chart the accumulation is the clearest.

Still on a 60 min chart, HYG has seen major distribution as prices have moved up.


As far as broad Risk Assets go measured by CONTEXT...

In both the SPY on the left and the S&P Futures (ES) on the right, price of the assets exceeded the model significantly until the end of the day which is when we see those 1 min chart trends hitting all new lows since 11/16, it seems there was clear selling toward the end of the day. The SPY and ES are both higher than the implied model correlation, which would make sense if another head fake/stop run was being played out as was the basic theory last night and hasn't changed much tonight.


My Take...
I think there will probably be some opportunities based on rotation (for instance perhaps Tech and Financials flip at some point in the day), but broadly speaking I would expect a little more upside, whether it comes in the form of this insane volatility or a smooth cruise, I think there's enough accumulation to make at least one more move, which I'd like to continue adding to select short positions as some were opened in partial positions today.

I don't think this changes anything as far as the market ultimately seeing a sharp move down.


One thing I will say and this is gut feeling based on experience, you know how I say reversals are usually a process, not an event; well in this case we have had more than enough process. I would not be surprised AT ALL if we saw a day start out fairly strong and then suddenly turn down in a move some might expect to bounce back, I don't think it will. Obviously we'd be very likely to see this in 3C first as well as in TICK.

For this reason, I do want to prepare ahed of time in the assets that are primed for a position, whether that be a partial, add to or a new position.

Any overnight changes in the Futures I see I will bring to you, oddly the futures were what warned us yesterday, today as they start to lose their momentum, I think they will again be a part of the identification process of pivotal moments.