Euro getting hit

ES, not so much...

 EUR/USD close up...

 It looks like stops/order were hit @ $1.31 setting up a nice reversal, we've been seeing distribution in the pair for several days now so this isn't much of a surprise.

ES isn't moving so much, the correlation is usually pretty tight, however if ES is not quite ready to make a move lower, then it wouldn't be surprising to see these two diverge, however they rarely hold that divergence very long. It's a bot early to come to any conclusions, but this may be a nice indication to keep our eyes on.

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.

Waste of Time

The Phlebotomist has left the building, and I only missed him by 2 minutes or so!!! So guess what I get to try to do again tomorrow? See the thing is, I'm a needle-phobic so that means another night of anxiety about something I know doesn't hurt, but scares the heck out of me nonetheless.


As for the close, I really like the 12:45-3:15 highs which are close to the same price, that's an excellent area to make relative comparisons on 3C. I'll be going over the closing charts, leading indicators and anything I can find that might suggest F_E_D POMO dollars are moving in to the market on these whacky days.

I'll have an update out in about 35 minutes and then get to any unanswered emails.

One Last Market Update

I have to cut out about 20 mins early for a blood test, but some interesting things are happening, I wouldn't go so far as to say SPY upside is done, but I will say that earlier we had the 1 and 2 min charts starting to go negative, now we can add the 3, 5 and 10 min-all showing early signs of negative divergences which really helps out the theory from last night.

As for the other averages, I might look at a partial position in a 2-3x leveraged short Dow ETF like SDOW, the 1,2, 3, 5, 10 and 15 min charts are all showing signs of distribution in to the last move up, heavier than the SPY in most cases so you might check out a partial position there short the DOW.

You saw the QQQ update, nothing significant has changed there and the QQ Puts will remain open as well as the SQQQ long.

I might also take a partial short on the IWM, the 5 and 10 min look pretty bad right here, the IWM put stays open as well, I would like to exchange that at some point for SRTY.

I'll be back shortly with a wrap up and any new ideas.

AAPL For Dead Cat Bounce

I've had quite a few emails on this today, my answer is "NO", I don't see any high probability charts to indicate a bounce is a worthwhile trade, this is about as positive as it gets...

 1 min intraday positive, this is just enough to hold AAPL in a sideways consolidation.

 The 2 min had that initial move too, I believe to hold AAPL sideways, then it deteriorated so there's nothing past 1 min that is positive and that won't support a move.

3 min is in line.

Now, down the road a bit we do have a 30 min positive in AAPL and the thought for the last months has been AAPL falls and then the 30 min positive will lift AAPL on a bigger , longer rally.

Obviously we are no where near that yet, but if the signal holds, that's the AAPL trade that would be very interesting at this point. I think ultimately AAPL has more downside, but I wouldn't chase it here unless we had some kind of bounce, be patient, maybe we do get one, the probabilities are just saying, "Not yet".

Remember why AAPL is down, margin was doubled, that's forced selling, not an oversold move.

Leading Indicators

I'm actually going to have to head out about 3:40 to get a blood draw (FUN) as the lab closes at 4 and I'll be back right after 4 pm to pick up from there.

I am looking at leading indicators and we are still seeing movement along the lines of the theory put forth last night, if you haven't read it, here it is.

We want to see credit deteriorate and any other indications are a bonus.

High Yield Corporate which was positive yesterday continues to deteriorate today, as I mentioned, think of Credit like a road map for the market a bit in advance. In fact HYG is at a 0.01% gain, nearly flat on the day so that's what we are looking for and it's a good start.

Junk Credit is holding up a bit better, but not moving up as it was yesterday, for the most part, since its gap up this a.m. it has been in a consolidation triangle, it would be interesting if that broke to the downside as it would throw some credit traders out of the trade.

High Yield Credit is also in that same triangle, but down pretty hard on the day.

Yields remain supportive of our theory as well. Currencies are a bit tougher, especially the $AUD as they just took rate action, I believe a cut from their Central bank as well as digesting Chinese Services PMI, so $AUD is pretty volatile and probably not too trustworthy for our needs right now.

We'll see how they look after the close.

I see the Q's are making that move to the upside we just saw on the intraday charts.

GLD Long

I already chose a non-leveraged long position in GLD, but looking at it again today, it doesn't look bad in this area for at least a swing trade, maybe longer.

 GLD 2 min is putting in a leading positive divergence, there are a lot of gaps that could be filled on the upside here.

 The 3 min chart is leading positive as well so it seems like the move may be soon, within a day or two...

This is really where the probabilities of the trade are on a 15 min chart, leading positive right here, the 15 min is an excellent swing trade timeframe. When we get in to 30/60 min charts I could make some guesses, but this is where the probabilities are for now so I'll keep GLD long open and perhaps add to it if I have time.

QQQ Update

I have to update some of the market individually instead of a regular "Market Update", as I said late yesterday, the QQQ looked weak, Financials and the SPY looked stronger for today so positions were taken or closed along those lines which include a QQQ put that is still in the money, I've decided to leave the position open, but if I were building a new position in the QQQ (short) I would prefer to use less leverage and use a 2x or 3x leveraged short ETF, I prefer SQQQ and already have that as a long equity position. Once the QQQ put is closed, any additional exposure to the Q's short will be with less leverage like SQQQ as I think the volatility in a move down may be too much to reasonably handle with puts and that amount of leverage.

Here's the Q's, they do look like they'll see an intraday move higher, but it doesn't look too serious.

 On an intraday 2 min chart it does look like the Q' will see a little more upside as there is a leading positive divergence right now, but...

 Nothing on the next timeframe, 3 min. So I'm thinking the move up doesn't have that much support and thus I'll leave the put position open.

The 15 min QQQ is where the probabilities are (and longer timeframes) and we still have a clean leading negative divergence suggesting the ultimate direction will be lower, much lower at this point.

 Here's a QQQ 60 min chart that looks even worse.

As for the long in SQQQ (for QQQ short exposure), here's the 60 min chart with a leading positive divergence, this is the exact opposite of the QQQ 60 min so we have good confirmation here.

Building SPXU

Earlier today I posted that I lied the idea of starting a partial long position in the SPX 3X leveraged Short ETF (SPXU), it can also be used like the SPY (except the opposite 3C signal since it is a short of the SPY/SPX) for confirmation. I'd like to add to SPXU on any moves lower (which is a move higher in the SPY) and more or less average the cost (this is not dollar cost averaging because the phased entry was part of your risk management before you ever owned 1 share).

Here are the charts...

 1 min SPXU leading positive divergence on the pullback as the SPY rallied today.

 2 min leading positive so we have the start of migration of the divergence through multiple timeframes.


 Even the 3 min is leading positive here and by the way, SPXU still looks good here for a partial entry (1/3 of the intended full size).

The highest probabilities are on the longer charts, the 60 min has been in perfect confirmation of the trend up, I was surprised to see a leading positive divergence on the pullback from the highs. Ultimately this is still confirming our thoughts about the bigger trend being down, although we have this new volatility to deal with.

Market Update-A Look at the Inner Workings

After I laid out my market theory last night, I told you what I'd need to be on the look out for to help confirm it, so far we have the evidence I hoped we would see for the theory to hold water.

I want to show you so you understand because it can be of tactical use and it can just be useful in understanding what is likely happening.

Again since the SPY had some of the stronger signals yesterday and ES, we'll use those.

 The 1 min ES chart is seeing some intraday deterioration, this s good, but just a very small start to the wider theory and signals needed.

 The 5 min chart is more important because it was really the giveaway, the fact we see a negative divergence today in to a move higher implies that there was distribution in to the move higher, that doesn't mean it can't go higher from here because the accumulation period (white) before hand was much larger than the negative divergence, but on any strength in the SPX futures, it would be good to see these continued negative divergences, this would help our theory that they will send the market lower after this shakeout or bull trap, whatever it is.

 The 15 min ES chart is even showing a negative divergence in to price strength, so far the ES signals are on the right track.

SPY

 The 1 min SPY is quite negative here intraday, this is why I said day traders may make some money short in a previous post. Again, it's a start.

 The 2 min is also showing a negative divergence, what is important here is that the divergence migrate through the short and then longer timeframes. So far, so good, but still early.

 Here's the 3 min SPY, this is the one we want to see move to a negative divergence next along the route of migration of the divergence, this will help give us higher probabilities on out theory and how we use it.

Ultimately this 5 min will have to turn negative, right now it's leading positive, yesterday it hinted at this, today it fulfilled it.

The longer charts in the SPY like 30/60 min are already solidly negative, it's this near term trade (strangeness) that we are really dealing with.

Leading Indicators

Closing information with these indicators is always best, but they did give us some early clues yesterday before the close as to what was going to come, specifically a move higher in the SPY which has started, strangely we were able to see that the QQQ and IWM didn't look to be as strong, it's rare that the averages don't move together.

Tonight I'll update these again, but so far what I hoped to see in the theory I laid out last night has started to materialize.

Yields...

 This is a really nasty longer term divergence between yields and the SPX, typically yields will pull the SPX toward them when they are divergent like this, so for now I'm still supporting the bigger move and the point of focus is still to the downside despite this volatility and strangeness in the market.

 HY Credit was moving up yesterday hinting the SPX would follow today, it moved up more today which hints that the SPX is NOT done with an upside move (at this point I think a shakeout), but there is deterioration in Credit as the day wears on, they will almost always flee from Credit before the market follows as Credit positions are much larger.


 High Yield Corp. Credit gave the same indication yesterday and is also starting to break down today, think of this as an advance look or road map for the market, it's not entirely that simple, but that's the gist of the idea.

 Junk Credit is also looking as if it has topped here.

 Shorter term today Treasuries saw distribution as the market moved today to its lows earlier, the money presumably went back in to risk assets as the SPX headed higher.

The longer term picture in Treasuries-the safe haven trade against a market decline is still positive, but needs to be watched carefully. This implies that the larger move in the market is still a move down.

So far we are seeing early hints that the theory from yesterday is pretty close to on track, so we'll keep watching for more clues and opportunities.

I will say, this is one of the stranger 24 hour periods I've seen in the market.