Low Volume

The summer doldrums? Not exactly, but nonetheless today was another day as of recent with some of the lowest volume of the year. Read in to that what you may, for me volume has been abysmal for 4 years now.

I'm not so interested in "Which way are we going", I'm more interested in when do certain assets I'm watching, take a nosedive?  And out of curiosity, "What happened right around July 8th?" Something happened that changed many things, most are not right out there in the open, but it led to the market having one plan and being forced to modify that plan to reduce the timetable, it ended a carry trade almost instantly, which means a lot of positions were closed out to close that carry trade, it's also where we see some of the most extreme 3C readings I've seen. I think we'll find out, just after the fact, but it's still great for learning.

So for now, it's assets and how they behave. I have spent a lot of time talking about the reversal process. I know it seems simple, stocks are up and when they need to reverse they'll be down, but look at price charts and look for those kinds of moves, out of symmetry, you won't find many. What we do have right now is a lot of charts that are in a very nice reversal process that is symmetrical, it's the right size compared to the bottom reversal, 3C looks right and on and on. An example...

NFLX - Just because it's timely and I'm finding out that a lot of you had some really great trades in NFLX that weren't my specific idea so I'm in the mood to celebrate your succes because if I can give you information and you can make that your own trade, I'm thrilled because you are learning or have the concepts down and you aren't dependant on others, you aren't locked in to the narrow view of the retail herd, I'm thrilled to hear of your success.

 NFLX has a symmetrical "reversal process",  and when I say that all I'm really saying is that a reversal is NOT an event, meaning it happens right away.

I like to say, "We're like Jet-skis, we can ,maneuver and get in and out of positions easily, Wall St. are more like oil tankers, they need to make larger, arcing turns."

While this is symmetrical and proportional (you'll see each stock has its own personality and proportionality) more often than not, the bottom reversal (to the upside) is typically a tighter "U" than the top - or they can be "W" or rectangles or even triangles, but they are a process. While we're talking about it, the right side of that process is typically sharper than the left and there's frequently some sort of head fake (a shakeout or false breakout).

This is the pattern we were looking at over the weekend on NFLX, the idea was there would be a head fake move out of this triangle, a breakout to the upside that failed, this was exactly what we expected, it just wasn't as large as they have been lately, but volatility was also down today.

Here's the 3C accumulation at the bottom reversal and distribution at the top reversal, the top is nearly leading down to the former lows as price is still just off the recent highs, that's a strong leading negative divergence.

I don't have the trendlines on this chart, but the triangle is in the yellow area, the false breakout or failed breakout at the red arrow and note 3C calling it a false breakout, although we could have predicted that with probably 90% accuracy based on the chart above, when they are that bad, it's very unlikely any breakout is going to stick.

As for what I'm looking for, one would be these processes and in bellwether assets, another is for credit to take a hit. HYG (High Yield Corporate) is an arbitrage asset, it is used as one of 3 that make up Capital Context's SPY arbitrage, while we get the delayed 15 min charts, don't assume this is just a toy, this is used by institutional investors.

The point is, after 2007/2008, banks sold their credit exposure so for an institutional trader to take a position in credit (and they love High Yield for long positions) they use to go to the bank, borrow or buy/sell credit for their position, they'd normally mix a few different kinds so they don't have all of their eggs in one basket and that was that, but since there's so little left after the banks sold it, HYG became a  popular alternative and because of its size/liquidity, it is tracked as an arbitrage asset of what smart money is doing, but price is one thing, what if the asset is simply being manipulated because everyone is already gone?

I said toward the end of the day I was happy to see HY Credit starting to go negative, this is the intraday short term because the longer term (large institutional positions), have long been abandoned.

 This is a 15 min chart of HYG, the worst distribution by far is through July, it's not just what's inside the red box (leading negative divergence), it's the relative price levels to the left and where 3C was then vs now, that's a big problem in credit.

So Friday we saw 1 min positives in the market toward the end of the day, but they didn't go past 3 min, as I said (specifically about HYG this weekend), "The support is skin deep". HYG shows that 1 min positive Friday, but what I liked today was the EOD negative in HYG, this is what I'm looking for as far as nailing down overall market timing.

Remember I said nothing made it so far as 5 mins? This is HYG, nothing made it so far as 5 mins, meaning it's all superficial, it can still move a market intraday, but there's no real change in attitudes, it's just simple short term manipulation, tactical, not strategic.

Unfortunately I don't have a wide array of the different types of credit I can check like Financial credit vs financials, but HYG is the most important. So I was thrilled today when another site that has much more access to different types of credit said that credit fell off badly in to afternoon trade because it confirmed what 3C was showing on HYG in the afternoon, and their chart that I lifted...

 This was their depiction of credit falling off vs stocks (ES), they didn't label them, but from what I've seen in the past red is HY credit and brown is IG credit, either way, all 3 are doing the same thing which is one of the important signs I'm watching for.

This is High Yield Credit in green on a daily chart with 3C...

 As you can see, HY credit was dumped hard earlier in the year, it made new lows for the year in 2 days from near highs and now it's at multi-year lows, note the distribution and how it gets worse in to higher prices right before the fall.

This is HY Credit in green vs the SPX in red, note how it has NOT kept up, this is why models like CONTEXT are negative because a n institutional risk asset like HY credit should be tracking with the SPX, it's not and look at what happened to Credit on July 8th! Whatever happened, retail didn't pick up on it, all the movement was in smart money assets, but something spooked them good.

Otherwise, sentiment was down again today...

 HIO was negative Friday, but you can't even see that vs. today.

FCT went even worse today.

At the same time, retail sentiment is BULLISH, the highest of the last couple of months, this is exactly the scenario we want and this is exactly why I said the move to the upside would be very strong, it needed to convince retail it's safe to buy, but institutional doesn't feel the same way, so what do you think they are doing with retail's bullish sentiment?

The gist of how we ended the day (and this is among all 4 major averages) is we saw 1 min charts move in line of price confirmation, not positive. The same 3 min charts that were positive Friday are negative today.

Instead of posting 12 (4 averages, 3 timeframes) charts to show you the exact same thing, I'll use the SPY as an example.

 The positive divergences from Friday bought the SPX +.19%, pretty pathetic and reminds me of the action early in the year, but we aren't there, the drop in volatility makes me nervous because it won't last long.

1) is distribution at the highs, price never reached there agin today (sell strength), 2) this is not a positive divergence really, 3C is in leading negative position when it makes it and 3) that just brings 1 min 3C back in line with price, not positive.

 The 2 min chart looks worse, leading negative and not in line at the close.

And the 3 min chart that was positive Friday goes leading negative right after the a.m. highs and never recovers.

Right now intraday Index futures are leading negative, but  we have a long night and they can flip back and forth.

The Nikkei futures are difficult to make out anything, when that happens, I assume there is no strong underlying trend that is taking place at the moment so I may check it later.

Crude did lose some ground today, I expect that trend to continue, at least in USO.

Treasuries (30 year) are stronger than I think most people even dare to assume, I'd like to see them pullback a bit more and offer and entry, but when they pullback they create a positive SPY arbitrage unless HYG pulls back which could balance the Arb.

Other than that (today was kind of quiet), the VIX did give a buy signal on my DeMark inspired indicator(still no name).

The last buy signal that it gave was the bottom of the VIX back in January and before that the previous buy signal hit the August bottom to the day. The last sell signal was June 4th, the top of the VIX to the day.

The only other thing of interest was the Dominant Price / Volume Relationship with emphasis on Dominant. The indicator isn't of much use unless there's a dominant relationship among the 4 averages, it's not the averages themselves, but each and every component stock within the averages. Since today was so light on volume and small on gains, I assumed there would just be a lot of nothing, instead I found 4 dominant P/V relationships, all the same in all 4 averages.

Out of the 4 possible combinations, today's Dominant P/V relationship was the most bearish of them all, Price up / Volume down. In normal market circumstances this indication use to be about 90% accurate, since all of the manipulation the accuracy fell, but it will be interesting to see if its back, the relationship would imply a sort of 1-day overbought condition and the next day would CLOSE down so we'll see.

Other than that, I'll check futures later and I'm going to work on finishing up (or trying) to define the parameters for positive and negative divergences for a scan as I'd like to be able to run it while I'm gone on vacation this Thursday and Friday and let you know if there's anything that's really sticking out as far as trades go.

Today's only interesting thing was AAPL's 1 min positive that just shot up out of nowhere ahead of earnings (don't read too much in to that).