Daily Wrap

I'm looking at 27 charts I've captured to show you different aspects of what's going on, how it's developing and where the probabilities are, but looking at those 27 charts, it feels like a waste of your time and mine because nothing has really changed, the expectation is the market lose some ground and still has a nice move to the upside (stronger than we have seen) that we are hitch-hikers on and that delivers us to the prize.

I'll just address some of the points that are developing.

First you saw the market today, the Dow was up as much as +174 points and closed up +63, meaning it gave up 111 points from intraday highs. The Dow, the SPX and the NDX all hit 50-day moving average resistance again (Thursday as well) which only emboldens retail short sellers.

Despite what AAPL did today (I'm wondering what AAPL's weight is now that it's around 42% off its highs, you can find out the exact proprietary weighting from NASDAQ for a $10,000 a year subscription, but in the past it's been around 20% of the NASDAQ 100 or about the same as the bottom 50 NDX stocks combined) the NDX still closed near the bottom of its daily range, but still closing better than the Dow and SPX, but at +.61% only about half of the Russell 2000. Oddly, even with AAPL's greater weight on the NDX, the NASDAQ Composite closed better on the day at +.92%.

With the larger averages like the R2K or the entire NASDAQ Composite closing stronger, I naturally wondered what some breadth indicators looked like, what I found was not as strong as I expected, but it was the higher momentum (assumption is higher beta stocks) did better today such as "Percentage of al1 NYSE stocks either 1 or 2 standard deviations above their 40 or 200  day moving averages" vs simply "Percentage of stocks above 40 day or 200 day moving averages". I haven't drawn any conclusions from this data.

The Dominant Price/Volume relationship among the component stocks of the 4 major averages was even more dominant than Friday, again with "Price Up / Volume Down", which is the most bearish of the 4 possible relationships and once again implies (normally) that the next day will see a close down (like a 1-day oversold indication).

As you know, late last week I liked the Precious metals, gold (GLD), silver (SLV) and Gold Miners (GDX or NUGT). Today NUGT was closed for a nice, quick gain. Gold and silver diverged (+1.70% vs -0.21%) giving Gold it's best 2-day gain in 4 years, with that gain and the fact we liked it last week it is hard to argue that this was coincidence. While I think Gold (GLD) and Gold Miners (GDX & NUGT) will see some near term weakness, I don't think they are close to done with their move to the upside and I think Silver has just as strong a move coming and may in fact rotate in within the next day of so (I'm thinking more like day).

There were some interesting moves in credit (this is imporotant because Credit tend to lead the market. Although there are several sites I respect who believe credit and the SPX are seeing a "Pairs" convergence trade, I haver to disagree with them and I'll show you why, but first, the only of the major S&P Industry groups to close red today and by a hefty margin compared to the other groups, was the "Flight to Safety" group, Utilities (down -1.25%). While this may not seem like anything significant, think about our expectations for the next move to be to the upside and pretty darn strong, money would naturally flow out of the safe haven trades and in to the more risk on positions such as HY credit.

 I can't explain TLT's relative strength today as a flight to safety trade (TYPICALLY), but as you know I have suspected there's something more going on there than we understand and outside its normal correlation. That being said, the nearly flat long dated treasury did seem like it was seeing some negative divergences in to the last week or so and while the 10 and 30 year Treasuries seem to be losing 3C support near term, they definitely have something going on longer term which is probably about the same trend as the market collapse trend or the "Prize". I suppose under normal correlations that would make perfect sense, but considering why the market (at least the near term catalyst) should collapse, it doesn't really make a lot of sense as the F_E_D is absorbing about 70% of all new issuance and when QW stops, so does the demand so I haven't figured that out, but judging by the long term TLT chart and the 10 and 30 year futures (long charts) it seems someone has figured it out and is bullish on both big picture.

There are some things that changed today among leading indicators, the $AUD and Euro became a bit more supportive after falling apart Friday, HYG, High Yield Credit and Junk credit showed better relative performance vs the SPX in to the closing hours today...

 HYG looking better in to the close, which is what is giving rise to speculation of a pairs trade (SPX short, HYG long) for simple convergence and nothing beyond that, which I think is wrong.

 Junk Credit acting better in to the afternoon hours

And High Yield Credit, the low liquidity, skittish credit acting much better in to the close.

I can see why some would look at this, especially HYG and suspect a pairs trade, but...

 "IF" that were true, then HYG wouldn't have seen short term accumulation until today, it started Friday.

As far as the longer term expectations for the market, HYG wouldn't have a 30 min leading positive of this size if the Pros thought the market was simply headed down, this is institutional money's risk on trade like we might use UPRO or QLD. 

Junk credit improved today, the market can still pullback while credit improves, that is usually how and why Credit is considered a "Leading Indicator", "Credit leads, equities follow".

 It's not just HYG with the longer term, strong 30 min leading positive divergence, it's Junk Credit as well.

 And High Yield Credit (10 mins)

High Yield 30 mins.

The bottom line is, if credit and the smartest of smart money were truly concerned about the near term trade, credit would be the first to be sold, not with strong leading divergences already in place which means most of the transactions have already occurred, they are already committed to an upside move in the market. This is also part of the reason I disagree with some smart cookies out there who believe this is simply a "Pairs" trade, but when you only have price and OBV to go on, you don't have the same edge we have.

Some other indications today were sentiment indicators such as HIO and FCT showed better relative performance in to the close, normally if they were worried about the near future (this isn't to discount a pullback move, but speaks more to what comes after the pullback or perhaps even consolidation-although I suspect pullback)  they'd be negatively diverging and heading lower, not higher in to the close against the market trend.

Yields longer term are still well above the SPX and as such, speak to a move higher in the SPX to come. Very short term Yields intraday have lost some more ground so that would again suggest we do see a pullback move before an upside move.

Commodities acted better today and the blame can't be placed on the legacy arbitrage correlation they have been showing with the $USD the last several days.

Perhaps most important to the idea of a near term pullback in the market is the VIX futures, VXX and UVXY (also XIV).

 VXX 3 min leading positive like the SPY's 3 min leading negative, both suggest the market pullsback near term.

 Even the UVXY 10 min chart is leading positive, this suggests it's more than just a simple pullback as I argued for last week, I would think it would be strong enough to make a lot of people, even some of us to doubt if the market can indeed put in that upside move I'm expecting.There's no point in the market doing something in half measures, either it is going to create the intended effect or why bother?

When we look at the opposite of both VXX and UVXY, XIV which moves with the market, we see a leading positive 60 min chart arguing for that upside move after a decline- so indeed nothing has changed since last week.

As far as the averages, Index futures and their divergences...

 SPY 3 min leading negative divergence, almost the exact opposite of VXX and UVXY, in other words, confirmation.

This points to the near term pullback.

 However looking at the IWM 30 min, it's leading positive, this points to the larger upside move. I could show you every average and every timeframe and the effect wouldn't be any different.

TF (R2K futures) 5 min point to near term downside.

ES 15 min also points to the same, so this does look like it will be a respectable move and cause some fear among any one thinking the market has an upside move to go, but as far as the overly bearish retail crowd, they'll be quite happy.

And NQ (NASDAQ 100 futures) 60 min chart with the leading positive divergence I expect to lead the upside move. Again I could post all of the timeframes for each Index future, but the effect would be the same.

So you see, NOTHING as far as expectations has changed, thus some of my moves in taking upside gains today and entering positions like UVXY that will benefit from a near term downside move.

The only thing that today really added as far as I'm concerned was further confirmation in things like Credit, averages, yields, etc.