Daily Wrap

I'm trying to think of the easiest way to  demonstrate a fairly simple concept that has a lot of moving pieces. First, nothing that happened today changes any of the analysis from late last week, Sunday, yesterday or today. 

Imagine being a weatherman/woman and you are forecasting a Hurricane that will make landfall in 12 hours in South Florida, that's the broad strokes, but a hurricane can make a slight wobble (not even a course change, just a wobble) and that wobble can make the difference between the storm making landfall in Miami or 70 miles north in Palm Beach. One year we had a storm that was coming across the state at a pretty decent clip and then just stalled and spent 13 hours on top of us. 

The point is the broad strokes, the trend is there, but until you get your hands dirty, you don't know what you're going to find.

Earlier in the week (before we came up with all of these volatility events converging on Friday), I wasn't sure if the chopped up, light volume, computer dominated week would stall the move to the downside or make it worse, I just knew that the signals were all calling for a move to the downside while other indications were showing and continue to show that the move started on the upside last week really barely even started and has (what continues to look like) a lot more upside to go after we finish this move.

So if the hurricane example of landfall were something akin to how a downside move proceeds this week or next, today's little end of day jog, while it became pretty predictable, would be like trying to tell your viewing audience (as a weatherman) where lightening strikes will fall within the hurricane.

As of yesterday I was thinking I might just sit this out and wait for the larger trend to develop, that would be like me packing up my family and leaving the area until the storm passed, come back once it's over, make an assessment as to what happened to your property and moving forward. Instead I picked up a couple of positions, UVXY calls were one, so the end of day lightening strike that caused my power to fail means I have to start my generator and that would be like me having to make the late day adjustment and decide to close the UVXY call at a nice profit for a day.

As far as I'm concerned this doesn't change much, for example...

This ES (SPX futures) 15 min chart and the leading negative divergence represents the potential for a strong downside move, obviously no upside attempts have been able to hold as the Dow lost 180 points intraday today- that's no where near bullish, unlike last week which we noticed a change Thursday and Friday and that change is evident on this chart.

I can't forecast how deep of a move this will be, I can only say that from the increased volatility, the size of the divergence and the reasons for such a move which is clearly orchestrated days or weeks (sometimes years ) in advance by Wall St. is there for a reason, I'd assume it's more than just to consolidate laterally as we have a holiday fractured week this week that really wouldn't do the upside move any real justice.

I can make a guess of where we're headed, but this is no more qualified than anyone else's guess. I know a there are a lot of Fibonacci fans and Elliot Wave fans and I've seen some pretty impressive predictions, but I've also seen the fact that a retracement usually has some proportion to the asset's character and thus the Fibonacci retracements are right in the middle of that character because they depend on the character of the preceding move to outline their targets. I'm not saying EW doesn't work and work well, I'm just saying in my experience there is a "Count" and then and "alternate count" so if one is wrong, the other is a second guess, again counting on the character of the stock and I was hard pressed to find two Elliot Wave gurus who agreed on the current count so in my view it seems a bit subjective and still relies on the character of the asset which may be the most important piece of data. My Trend Channel which is based on the Turtle Trend Traders counts on the character of each individual asset. However if I had to make a guess...

Why not use Volume at Price, therefore I have some clue of where the most opportunities might be found and if I use the white trendline, that's about where the 100-day moving average (price is between the 50 as resistance and the 100 as support in most cases) was found on June 21st when the market also put in "Hammer Support". On the way down we'd be running through some larger volume and opportunities. I don't offer this as a serious estimate, I rely on 3C to tell me where and when, but this is just one of many examples.

Above you saw the negative character of the 15 min ES chart, here's the difference seen on the ES 2 hour chart.

While the 15 min is pretty clear and well defined as well as being negative, the 2 hour which has migrated from a positive 30 min to 60 min to 2 hour is leading. This would certainly suggest to me that the 15 min move is more of a minor trend and the 2 hour chart above represents a larger trend.

While were at it...

 This is today's NQ (NASDAQ 100 futures) intraday 1 min chart, it should be exceedingly cclear that there was a clear effort to move prices higher in to the close. I took that 1 step further (which I can't confirm until tomorrow) and guessed that Wednesday would close stronger than where we are now, it's only a half day so overnight trade could get us there or intraday or just the follow up from where the 1 min left off.

If retail was bearish Friday, quiet on Monday and bullish today, it's pretty easy to manipulate their sentiment. I'd have to confirm this, but one guess would be we close strong in to the 4th tomorrow and open weak Friday, it that is true, then we should see signs on that in 3C a couple of hours before the close. In that case I'd re-open the UVXY long and wait for Friday.

If we had an op-ex pin Friday, then maybe we wouldn't see anything negative tomorrow, perhaps it would develop in 3C late Friday to either start a negative price move after 3 p.m. (after most options are closed) or on Monday. The basics as of right now are that this move at the end of the day, is pretty darn hollow, but again I don't try to predict, I try to follow the message of the market through 3C signals.

 This is the Russell 2000 futures, 1 min intraday showing the same move as NQ above.

The very first place I noticed it was in the one stock I thought would have the best relative performance this week and so far, has, AAPL.

A quick discussion of AAPL's total relative weakness vs the market's best 3-day move for the entire year contrasted with AAPL's obvious relative strength this week to me is a very predictable matter of Window Dressing. If I'm a manager of a fund and my positions for Q2 are being released in a new prospectus, I don't want AAPL in my portfolio, it didn't do anything, even if I held it all of Q2, so long as it's sold by last Wednesday, it doesn't show up as a Q2 holding, this is why we call "Window Dressing" at quarter's end, "The Art of Looking Smart" as managers dump the non-performers and buy the performers for the quarter even if they only owned them the last day of the quarter!

As a manager seeing what AAPL has been up to lately, I'd want AAPL back so as soon as I'm through the T+3 settlement date, I can buy AAPL back on Thursday and it still doesn't show up as a Q2 holding and few are any wiser, I can take advantage of the strength developing in AAPL and still look smart for Q2.

As I was sating, today's closing ramp was first noticed in AAPL.

 The 1 min chart shows a positive divergence starting by 1 p.m. and price responding by 3 p.m. and the intraday divergence continues through the close. I might be concerned about market expectations if other longer charts for AAPL responded as well.

 The 2 min chart didn't see any migration of the divergence so as it sits right now, this looks like a very thin move meant to move AAPL and the market in to the close, perhaps in to tomorrow's close, but it doesn't look like a change of downside expectations, if this 2 min chart were strong, then I might be more concerned.

SPY 3 min still very negative and getting worse so I don't think the expectations have changed, just the short term games have. You have to remember, to most retail all they see is the move in price, they don't have any idea of whether there's real support or it's just a hollow move, they aren't seeing what we are.

As for some other indications and Leading Indications...

CONTEXT for ES is almost flat and by the EOD, the ES model is positive over ES by nearly 3 ES points, this isn't much, but considering EOD price action, it may be significant.

 For the first day of the last several, commodities are supportive of the SPX starting right around 1 p.m.

 It wasn't the $USD correlation, in fact the only time that came in to play was the last hour when commodities dropped a bit.


If I'm considering what comes next as we have been, then this 30 min leading positive divergence in commodities sure looks like support for a strong market move to the upside.

 HYG (High Yield Corp. Credit) is moving as it would need to because it's an arbitrage asset, if the market is going to see downside, HYG acting stronger than the market is going to interfere by way of arbitrage so HYG is moving down at the right places, but there's nothing close to a panic or the typical selling in Credit if they are expecting a big downside move in the market. Thus even the downside move that I expect and that I think could be very strong, seemingly is already known by smart money and they are expecting something bigger on the upside a s they seem to continually accumulate HYG.

 This is just an intraday 1 min chart, but it's positive and in all the right places.

Looking at the big picture, why would HYG have a 30 (and even 60) min positive divergence this big?

 The illiquid High Yield Credit is the first to panic because of the low liquidity, but it's not, in fact it's in line with the SPX as it IS NOT an arbitrage asset so it doesn't matter where it is relative to the SPY.

And the 10 min 3C chart for this form of credit, well it went from clearly negative sending it to discounted levels where it has seen positive divergences since.

I found FCT interesting too, this is a sentiment indicator we use, it is pointing toward a market move to the downside, but it's not at all panicked by it, it's really almost hitch-hiking the way we have been, HIO is even more in line with the SPX.

This all suggests to me a market move to the downside that the market is absolutely not concerned about and has spent more time preparing for a large move to the upside, this is what I keep referring to as "The prize", because while hitch-hiking or piggy-backing the moves can be profitable, it's after a move like that in which we will find the best core short entries

This explanation of market events is what I consider to be a simple concept, but if you're not familiar with the way the market works, the way it is either baiting traders in to positions or knocking them out, then it takes more explaining, but I think the end of day move should be pretty clearly viewed as noise. How it progresses, whether it gives all of that up tomorrow or closes strong in to the half day and sets Friday up for a continuation or reversal will just be things we have to confirm along the way and taking opportunities based on our findings, but it shouldn't change the basic principle held since last Thursday, a move lower (likely a strong one) and then a move higher, likely a very strong one. I wouldn't let the noise through you off.