Risk Assets-General Conditions

Again, most risk assets that should rally with the SPX are in line, when they diverge from the SPX we often see a trend become unstable and reverse. There are still a few trouble spots, not the least of which is the legacy arbitrage correlation between the Euro, Commodities and the Stock Market.

 Commodities vs the SPX (SPX is always the comparison symbol in green unless otherwise noted), commodities actually held better relative momentum today.

 When comparing Commodities to the Euro (green), we have a 3rd day of dislocation between the two that normally would move together. Based on this and several stock charts, I would think commodities are in for a significant correction, gold may be one that bucks the trend, depending on the economic reports.

 Commodities vs the Euro long term, you can see since late April this is the largest divergence between the two.

 High Yield credit didn't amaze today, but it stayed within the range in which it is not threatening to further upside in the market (of course we are looking for a pullback first).

 High Yield Corporate credit is much the same.

 Longer term the sub-intermediate trend does not look to be threatened by the credit markets which often lead the stock market.

 Yields are underperforming again and one of the few assets that do pose a question as to the viability of the sub-intermediate trend, however we have seen yields move very quickly in the past.

 Longer term the divergence between yields and the SPX is starting to become an issue that may have consequences should credit or some of the other risk assets fail to keep pace with the SPX.

 The $AUD as a leading indicator among currencies is in good position.

 The Euro underperformed the market again today.

 The divergence between the two (there's normally a fairly close correlation) is another troubling sign, but this may simply be leading the market pullback.

As for s Sector Rotation, Financials were the big loser today with relative momentum falling way off. The flight to safety sectors were out of rotation, except Staples. Energy, Basic Materials, Industrials, Tech and finally Discretionary were all moving fairly well today.

The divergence in yields and the Euro are becoming a concern, I'd like to see a pullback soon and see if they can reconnect, however in a short squeeze environment (which we have only seen glimpses of), many of these risk assets may diverge, making a short squeeze unstable and unpredictable.

SPY and Other Closing Charts

As you probably recall from today's market updates, the expectation (as the bullish consolidation/continuation triangle in the SPX developed) was for there to be an upside breakout from the triangle that would in effect serve as a head fake move (we often see head fake moves roughly 80% of the time before significant reversals or corrections) and give a downside reversal (the expected pullback some momentum.

Why? Simply go back to our sentiment or mass psychology post from today...

"Hi Brandt,

Wanted you to know everyone on blogs and twitter is expecting a pullback here. Most bulls are waiting to buy on the pullback and most bears are short and doubling up here."


"Purely from a psychological point of view and if in fact this sentiment is reflected on the order books, then a breakout from the intraday triangle to the upside would confound longs expecting a pullback and do the same to shorts who are doubling up here as a move higher would put them at a loss as well."

The charts...

 SPY uptrend with advancing volume-this is a healthy move unlike the rising prices and declining volume we have seen a majority of the time since the market moved off the 2009 lows, note when the volume started to decline, it's around the same time the divergences for a pullback started showing up. At the end of this run you can see today's symmetrical triangle which technical traders would interpret as a consolidation/up-trend continuation pattern.

 Today's triangle-Obviously traders were watching it as volume (always watch for even subtle changes in volume, seeing what everyone else sees offers no edge) increased twice as price started to move out of the triangle as technical traders would expect. Also note volume pick up as those buyers started realizing losses as price moved below the breakout point and then again as price moved below 30 minutes of intraday afternoon closing trade support.

 The SPY 2 min chart went leading negative at the breakout area today.

 That weakness should migrate to longer term charts if it is strong enough, here it also is leading negative on the 3 min chart.

 It continued to migrate to a leading negative position on the 5 min chart and right where the breakout from the triangle occurred, as suspected, there was selling in to price strength by institutional money.

 Even the 15 min SPY chart is leading negative at the breakout area.

Some other averages and timeframes...

 DIA 5 min has been in decline, the reason we expected a pullback to materialize, it ended the day leading negative in to the price highs.

 QQQ 2 min also leading negative in to the price highs today

 QQQ 5 min with a deep leading negative divergence.

 IWM 3 min leading negative in to the breakout area from the SPX.

Even the IWM 15 min moved down in a leading negative divergence today.

The Non-Farm Payrolls will be a big economic data point for the US tomorrow at 8:30 a.m.

I was considering looking at adding the GLD position back, but should the NFP miss, GLD should see some strength as bad news is considered good news for those looking for the F_E_D to engage in further QE, of which gold would likely be the primary beneficiary in a scenario that is all about Dollar debasement.

ANR Chart Request

ANR I believe is a coal mining stock. I've been meaning to get to this analysis and when I saw it I thought it looked quite interesting and decided to post it here.

 Volume alone shows a change in character (like UNG) that ANR has been undergoing on this 5 day chart. *Note-I always start my analysis with the longer timeframes.

 This is a former support level, not very strong, now resistance in the $15 area.

 ANR recently put in a higher volume day on a small candle, many might be inclined to think this was capitulation and support forming, with many technical patterns (bases), it is not unusual to see a shakeout of that support level, it triggers stops (volume rebates $$$) and also allows smart money to pick up shares on the cheap with a lot of supply available, this way they can mask their activities.

 This is not a primary downtrend marked with my proprietary Trend Channel, but at least a sub-intermediate trend, the Trend Channel held the trend perfectly until there was a recent change in price character that stopped out the short at the red arrow and the TC is now turning up.

 The long term 1 min trend from a leading positive divergence to a negative divergence.

 A closer view of the 1 min chart... This negative divergence looks to be setting up a decent reversal to the downside.

 The 2 min chart from downtrend confirmation to uptrend confirmation to a pretty deep leading negative divergence.

 The 3 min chart went from a positive divergence at the reversal in price to a leading negative divergence,quite deep as well.

The 5 min is also quite negative. You might be wondering why I'm mentioning ANR. As you know, we like the trade to come to us rather than chasing it, it looks like ANR is going to see a decent pullback which makes the following charts interesting...

 An hourly positive divergence from about mid-may through present in leading positive position.

As well as a 4 hour leading positive.

This suggests ANR has formed a pretty significant base, undergone some heavy accumulation and looks to be pulling back right in to our hands. We want to watch for positive divergences form on the pullback as far as timing, but this one looks like it could make a significant move up and on top of that it looks like it will come right to us.

If you have additional questions, just email me, otherwise we'll just keep it on the radar and watch for a long position opening.

UVXY options model portfolio new position

I went ahead with a July $8 Call on UVXY, position size is about 50% normal which I feel may even be a bit bigger than I would like.

VXX / UVXY

I get a lot of emails about VXX and UVXY, I'm not a huge fan of either for the simple reason that they tend to be difficult to get decent signals from and they are very volatile.

I do kind of like what I'm seeing in VXX / UVXY and if the market analysis is correct, then both should move. Note UVXY is the Ultra VIX short term and VXX is the short term VIX, both move inversely to the market.

Also keep in mind, the current market analysis is for a pullback in the market and then the sub-intermediate uptrend to continue, being both of these trade the mirror opposite of the market, it's a rather short term trade, so being able to watch the trade and execute positions quickly is necessary.

 VXX 1 min looking pretty good in to the afternoon pullback with a new leading positive high.

 A closer view of the same chart.

 VXX 3 min in leading positive position after having put in a relative positive divergence (this is often the order of divergences).

 Even the 15 min has seen some strong movement to the upside today as this timeframe takes longer to move.

 UVXY's 2 min trend in leading positive position on the move down.

UVXY's 15 min chart also seeing a lot of movement today.

Opened USO Put position in Options Model Portfolio

I went ahead with USO August $33 Puts. The position size id about 3/4 of a normal position size for my risk management which reflects the speculative nature of the trade with the event risk still out there, I just feel USO is overvalued compared to the FX correlation and the EIA is out of the way, which it hasn't done much with today.

USO Charts

The event risk is still there for UO, but so is the FX legacy arbitrage divergence, so I figure they even each other out, but now we have some negative divergences, that tips the scale for me toward a bearish position or a put.

 USO 3 min trend has weakened a lot today.

 A closer view including a positive from Tuesday

 This negative divergence is migrating to the 5 min chart as it should, it appears to be distribution of USO.

 The 15 min chart is leading negative

Finally the white line representing the Euro should be tracking USO, or rather USO tracking the Euro, this suggests a reversion to the FX mean, or a move down in USO. I'm going to look at some puts.

Very Tempted to start a put position in USO

I'll get some charts up, this obviously would be a position requiring you to be nimble.

It's not just the SPY

As I showed you in the last update what I thought about the near term action in the market today, I used the SPY as an example to get the update out, but here's a look at the other averages.

 SPY breakout from the triangle

 DIA 1 min intraday negative at the breakout above the a.m. range.

 DIA 5 min is now leading negative

 IWM 3 min leading negative

 IWM 5 min leading negative

 QQQ 2 min leading negative-pretty bad too.

QQQ 3 min leading negative, also bad.