Market Wrap

I'm getting started a little later than normal tonight, I'm just a bit concerned about my wife with her thousands of miles away and me here, it's just not ideal, especially when some scary results come in.  I needed to take some time to get a clear head. By the way, thanks AGAIN for all the kind messages, I think I'll print them all up and give them to her when she returns. As always, you all prove to me there's just something special about the WOWS membership that I'm so blessed to be a part of.

So I was browsing another site as I get a kick out of their perspective and way of expressing it from time to time, they started their analysis of today's trade saying,

"For anyone watching the last hour or two of today's market, there was plenty to entertain. VXX (the implied vol ETF) collapsed in a haze of glory dragging stocks to the highs of the day with financials seeing their best day in three months. "


 Which was ironic that they lead off with that as one of our late day market updates or confirmation updates was, "Volatility as Confirmation" in which I showed you the exact opposite of VXX, XIV and how the positive divergences there were not only confirming the market's end of day ramp from the earlier pullback, but also hinting at direction in After Hour and tomorrow. Out of all of the assets that one could look at, to both be looking in the same direction (the only difference is they can only see price whereas we can see underlying trade) struck me as ironic.

After hours trade hasn't been so bad either, another fraction of a percent or so; this is what ES (The S&P E-mini Futures) look like...

*I just wanted to add, so you had a feel for ES, there's an old saying on Wall St., "Are you man enough to trade the S&P e-minis", they are not the typical retail trader's asset.

Point "A" is a "relative negative divergence", the reason being is 3C is at the same level between the two 3C peak highs, but ES is higher at the second peak high "relative" to the first, there's a little less underlying money flow and that tells us we are losing momentum and likely to see an intraday pullback or consolidation soon. At point "B" I posted there weren't many, but there were a few negative divergences and an intraday consolidation or pullback was likely, but likely wouldn't hold or make much trouble on the downside. At point "C" I posted that the DIA and ES where both seeing some positive divergences  and point "D" we have a  move to new intraday highs in ES (also new highs for the new trading week started last night).

As of now, the negative divergence I'm seeing and leading negative divergence suggest ES will pullback soon and with it the After Hours market, but this is a short term move that means virtually nothing overnight and in to tomorrow's open.

Early today around 10 a.m. I commented how strong financials were out of the gate, in that post I showed you the Financial Sector and FAS 3C readings which were really amazingly strong, go back and look at the post linked just above. The end result, Financials saw their best day in 3 months with the Financial sector represented by XLF gaining +2.13% and adding another +0.43% in after hours with individual names seeing much larger gains such as BAC at nearly 4%.

I noticed today that the IWM was lagging in 3C signals compared to the other averages, at first I didn't think anything of it and then it came to me, the IWM was last week's short term flavor of the moment, remember? The IWM already hit the area where limit orders would be piled up so there's not so much profit left in IWM as far as Wall St. is concerned (hitting stops/limit orders, making the bid ask spread, making money on volume rebates, etc), even though the IWM was marginally the best performer today by 1/10th of a percent, the underlying flow wasn't as strong by far.

This is what I mean...

Last week I was predicting the IWM would take out resistance at the red trendline which it did, but the first hit of that level took out the majority of orders that accumulated there, like cleaning out the gutters, the first time there's a lot there, a few days later, not so much which explains in my view, the IWM's weaker underlying trade in 3C.

As for Financials, they had a strong positive divergence in place late last week hinting at the move to come...

Friday's leading positive divergence on a 5 min chart in to a very flat trading range (where we often see divergences). Remember on Friday I compared "dull' markets to, "The kids being a little too quiet in the other room, you just know something is going on" and Friday's dull market in Financials was unleashed today, but the divergence telling us something was up was there.

By contrast, today's Financial 3C signals aren't anything like Friday's, while they are still in line, I suspect we may see some rotation to another sector like perhaps Tech.

 Last week Tech saw distribution early to mid-week that sent it lower, Thursday and Friday it put together a solid divergence, but it wasn't until today...

That the 1 min divergence came alive, remember even on small additions to accumulation, any new move starts on the earliest timeframe and this 1 min chart flying in the Technology sector hints to me that we will see some relative performance rotation from Financials and in to Tech, I suspect that will be helpful not only to AAPL, but the QQQ as well. If we dubbed last week's short term trade, "The IWM head fake", this week might be called the "QQQ head fake", but don't forget there are more important charts that show much heavier underlying trade and money flow that are horrible looking so don't let short term strength fool you in to believing this market isn't going to see a vicious move down.

 QQQ 3 min chart took off late day today.

 Compare that to the Financial heavy SPY which was actually slightly negative in to the close as I'm sure profits were being booked in Financials.

The IWM as mentioned also didn't impress.

 However if Tech may be 1 rotational theme tomorrow, the other may be from Small Caps (IWM) to large caps as seen on the DIA5 min chart above which is leading positive

And DIA 1 min which also saw late day high intensity 3C momentum on a leading positive divergence.


Since I've laid out the trend table expectations so many times-from short term trend and how that dovetails in to the next longer trend to the downside and how that dovetails in to what looks like a longer term base for a stronger rally after that, I won't go over all of that again, I will let you know when I think we are coming to transitional points so you can use things like this to your advantage....

The QQQ daily chart-other than all of the posts late last week expecting the Q's to move up, the Market Update posts from Friday showed everything, all of the reasons I thought the Q's would be higher today, it may be worth a quick browse just so you can see the concepts used to determine the path of highest probabilities as well as a classic head fake move on the bearish QQQ triangle, it broke down just as traders were expecting, drew in shorts and today took them to the cleaners.

When I release part 2 of the article from this weekend on "Understanding Head-fakes", Friday's trade will make a lot of sense, but for now you can go back and probably piece together why that head fake move was so obvious and why it was such a high probability reversal to the upside today.

In any case, the move (if we can get it which I think we can) above the red trend line n the QQQ does the same thing as last week's identical move in the IWM, it generates a bundle of profits for Wall Street from the bid-ask spread on increased volume, triggering orders, volume rebates and lets not forget creating a lot of demand that Wall Street can sell in to or short in to to help send the market's lower (a head fake move) just a Friday's small head fake move contributed to today's upside momentum as shorts who entered on the break below the market triangles late Friday had to buy to cover at a loss today sending demand and prices higher on a mini squeeze.

The point is, I'll let you know when/if we cross the Q's resistance level when 3C goes negative and it is time to close any associated longs and start getting short or adding to existing shorts.

As for Leading Indicators on the close today, I found them to be very encouraging in falling in line with our trend table, short term up and the next longer term down, but in a much bigger way. This is the earlier Leading Indicators post from today so you can compare if you like...

I'll explain as we go along... *As always, the comparison symbol is the S&P-500 in green unless otherwise noted.

The $AUD, a great leading indicator among the currencies, but one that also goes in to divergences before most others is already in a negative divergence, this points to the longer term downtrend expected after a QQQ head fake move, I did expect this move earlier, then Tuesday came up with accumulation and I didn't understand why, but it was short term and ended up being support to take out the IWM resistance, while that happened an obvious zone formed in the Q's so that needs to be hit if possible as it's money on the table for Wall St., but the important chart to remember are the longer term market averages like this...

QQQ 15 min and there are longer and more negative charts than this. The point being is the Q's were negative and seeing distribution at the head fake in yellow, the recent leading negative divergence at lower lows with price where it is or higher, is like skating on VERY thin ice, while we have a pretty good clue, you really never know when it's just going to totally give way and that's why i keep some 3x leveraged shorts open.

 Don't forget the negative divergence in the $UD, it will let the market move up short term, but as it continues to build negative, we have a stronger and stronger sign post to tell us when the shift to the downside is coming.

Above is the Euro, it did not follow the market higher today. Friday when the Euro was higher and the market lower, I said I suspected the market was being manipulated short term with a downside head fake move that would lead to the reversal today to the upside. In similar manner, except the opposite, today the Euro is the one that is weaker and it is the market that looks like it is being manipulated higher in the short term to take out the QQQ resistance zone.

Remember this chart...

 This is why I want you to remember, commodities on Friday were all risk on as the market was risk off, commodities knew there was going to be a move higher and they were running in front of it with the Euro, today they did virtually nothing as the market ran higher, both are risk assets, in a risk on mood, both should mov together, this is just another signal to me that the market's move to the upside is short term, short lived and sets up a nice short trade.

 FCT is another one that will go negative for days, sometimes even weeks before the market follows it so it going negative on today's strength is yet another sign that this move up is worth trading, but won't last. Those traders who see a breakout in the QQQ and go all in buying that breakout are going to be the ones left holding the bag when the market reverses to the down side, this is why head fake moves exist and there are many important components to that as you will see soon in the next installment of our Head fake article. Once you understand why they are there, what to look for, how to confirm them, you'll have a great asset that lets you enter trades at the best prices while the sheep go off the cliff.


 Yields today closed an hour earlier than the market so we couldn't see the end of day move, but they appear to have been strong up until then, there's more influencing these right now such as the record low indirect bidder take down on today's US 2 year Treasury Auction, telling us that what we saw last week with foreign governments like China and Japan stepping away from the table and not willing to hold US debt was not  one-off event, it's becoming a trend. Wonder why the F_E_D is willing to add treasuries to their buy list at the last F_O_M_C meeting? Apparently there isn't much interest from the rest of the world and someone needs to keep buying our debt so Congress can spend it.

 High Yield Corporate Credit ran late today with the SPX, this tells me the chances are very good for another move higher tomorrow, this is a very liquid/large market so traders can get out of large positions fairly quick, but keep watching...

 Junk Credit also ran at the end of the day, again a risk on attitude among the huge credit markets suggesting they think there's some more near term upside, but...

The less liquid High Yield Credit is seeing selling as it WILL NOT follow the SPX higher, no one wants to be trapped with a large position in a less liquid market when the music stops playing.

I'm going to try to update a stock or two tonight before I wrap it up, I'll also let you know if I see anything strange in futures. Within the next day or so I need to check breadth indicators again, I like to keep up with them at least a few times a month comprehensively, I think I know what we'll see, but it's important to be sure and I think it can be useful for you.