Purposeful

I just got back in around 11 pm tonight from a much needed vacation, I'll get some of the pics up when I have some more time, caught a few things, black tip shark (baby), decent snook, etc.

However I've been just looking at trade since Wednesday and my first gut feeling was "nauseous", some pretty volatile days there, but then as I dug a little deeper it seemed purposeful, very purposeful, but what the actual reason is, I don't know. Part of me wants to say this is a gap fill to some degree from last Friday (over a week ago), I'll have a better feel tomorrow, I can't look at the entire market in an hour and a half, but here are some things that stood out.

First Thursday we have gaps down in the SPY and DIA, pretty close to even in the IWM, but a gap up in the Q's with everything closing near the highs from almost unchanged to the IWM +.92%. Friday everything sees a pretty gut wrenching gap down except for the IWM, but everything closes near the highs of the day, the DIA and SPY nearly flat, the IWM down almost half a percent and the Q's up half a percent, again everything closing near the highs of the day.

Looking at the 4 p.m. Closing price for ES (SPX futures ) they were around $1684, there's lots of movement during regular hours for the US markets from $1676 to $1687.245, but tonight they're nearly exactly where they left off Wednesday at 4 p.m., that struck me as a bit odd given the intraday volatility which must have been pretty emotional.

Here are just a few charts I pulled tonight that look interesting.

First the Nikkei 225 is truly gut wrenching, Wednesday at 4 p.m. (US EDT) Nikkei 225 futures were $14,795, now they're $13,775... DOWN OVER 1,000 POINTS and this is a pretty close proxy (in terms of points) to the DOW-30.

There's some interesting movement that may be developing, but something isn't right there, I'm very interested to see how short term moves play out vs the bigger picture.

There's a pretty clear 15min negative divergence earlier in the week (about mid-week), the longer term 3C charts are in line on the move down, there's what looks to be a probable positive divergence forming, but until 3C turns up we can't really call that, it could just as easily keep heading down to confirm price action.

Looking at some of the arbitrage assets and more important indications as well as leading indications, some interesting things appear there as well. For instance, High Yield Corp. Credit; TLT (long term treasuries which I have liked) and VXX (short term VIX futures).

 Credit gives way Tuesday vs the SPX through the afternoon, the SPX feels that move Wednesday, then the closing highs Thursday and Friday have no confirmation from Credit. To me this is one of the more interesting charts because this has a lot to do with a) Arbitrage and more importantly, B) what smart money is doing.

 On an important 5 min chart, the distribution in HYG is clear right in a range as usual, then Thursday and Friday we have some accumulation in another price range. However, the bigger picture is as expected...

 The more important 15 min chart is leading negative with only a slight relative positive divergence recently, the bigger picture is much uglier in credit than the short term reflects,  as has been expected.

VXX vs. the SPY (green)

 The VXX loks like it's being used almost perfectly for arbitrage to help move the market, at least in some areas where others just show deterioration in the structure of the market.. The highs in the SPX (green) Monday and even Tuesday look like VXX was used in SPY arbitrage to support the market, but some VXX strength Wednesday (or just the natural correlation brings the SPX lower, this is the same thing seen in HYG leading up to Wednesday, Thursday there appears to be some arbitrage to help the SPX close higher in to late day trade, the same happens Friday. This looks a lot like arbitrage activity.

 VXX 2 min, where you'd expect to see 3C confirming arbitrage activity actually does so, but Thursday and Friday look like the VXX is seeing real accumulation in to that late day market activity that VXX would have been used to help, it's almost as if the market action was secondary to buying protection in the VIX futures or rather "accumulating " it on Thursday/Friday.

 The very big picture 60 min VXX 3C chart shows not only a large relative positive divergence through July and the 8th of July comers up again as standing out as an area where something changed quickly in the market as we have seen in a number of assets including FX carry trades.

The most recent VXX 3C activity has been the strongest, leading positive (accumulation).

TLT (20+ YEAR TREASURIES)

VERY short term at SPX spikes last week, TLT almost looks like it's seeing quick arbitrage activity, but if I am right (and it looks like I am) about a pullback in TLT being accumulated, then arbitrage activity might be difficult to sustain.

In fact Thursday and Friday it looks like it was almost impossible to run any SPY arbitrage, this would be the case if the demand in TLT was overpowering any short term intraday manipulation attempts and the demand in TLT was expected on a pullback this week which looks to be what we saw, THIS IS WHAT I WANTED TO AND STILL WANT TO BUY IN TO.

 TLT 5 MIN (important, for institutional activity in detail) shows quick distribution and not very heavy, it looks like just enough to create the pullback I expected in TLT and wanted to buy in to "if there was accumulation", again Thursday and Friday are interesting in that TLT sees a strong relative positive divergence in 3C and then a stronger leading positive in to Friday. What's interesting is that the 3C signals (and even price action to some extent) are moving despite market action intraday Friday  as all of the averages close at or near their intraday highs.

The "BIG PICTURE" in TLT is EXACTLY why I wanted to add to or open TLT longs in to a price pullback, the long term chart suggested any pullback would see accumulation and you can see a huge accumulation zone in TLT, why would a flight to safety trade be accumulated in this size? I think I gave the answer in the question by telling what kind of trade TLT is and as far as the size, long only finds don't have too many options as to where they can put their assets in a market downturn.

I said back in April that I thought TLT was being taken down to facilitate new market highs to create a bullish change in sentiment and to accumulate TLT, but it although (for smart money the both go hand in hand), it seems like accumulating TLT in size seems to be the more important of the two concepts. REMEMBER, I WAS INTERESTED IN TLT FROM ACTION EARLY IN THE YEAR, THIS IS JUST MORE CONFIRMING/STRONGER REASONS.

Other Leading Indications...

 Yields typically act as a magnet for equity prices, (yields in red, SPX in green)...Thursday Yields seem to help pull the SPX off a.m. lows, Friday they seem to do the same, but Friday afternoon, yields are NOT supportive of the late day market move.

 A 1 min chart of High Yield Credit vs the SPX shows some intraday accumulation in HY credit in white and negative divergences in red, I put the effected area of the SPX in either a white box or a red box. Again, HY credit is NOT supportive of the SPX's late Friday move (or rather the move off the 11 a.m. lows), nor Thursday's.

 The bigger picture of HY credit vs the SPX (green) shows confirmation earlier in the year, a leading negative in credit pulling the market down and this most recent move (as 3C has also shown in numerous assets) to have NO support at all from HY credit.

Commodities vs the SPX (green)

 Commods are in line Wednesday, they fail to support the SPX late Thursday and TOTALLY fail in to Friday's afternoon move.

Look at Sector relative performance since Wednesday, risk sectors like Tech, Industrials, Basic Materials and certainly Financials are all out of rotation vs the "Safe Haven Assets" like Utilities, Healthcare and Staples.

As for a quick look at the market averages...

SPY...(as an example)

 Intraday 1 min SPY/3C charts show no confirmation Friday, even on the 5 min chart. This isn't heavy intraday distribution, but it's not confirmation of price action either.

The 3 min chart shows WHAT I'D CALL A VERY "PURPOSEFUL" SET OF MOVES. 

Gap up openings on the 23rd/24th saw immediate distribution. The lows of the 25th and to a greater degree (intraday) see intraday accumulation, both the opening gap up distribution and the intraday low accumulation on this intraday timeframe are very clear and seemingly VERY DELIBERATE.

Even at the 10 min chart, the distribution and then accumulation look VERY purposeful. 

The 10 min chart is still positive, there's some deterioration of the divergence as seen above in the 1 min chart, it hasn't quite reached the 3 min chart yet.

All new divergences (even intraday) will start on the shortest timeframes.

SPY 15 min though, during what I'd call the "Reversal Process" is also very deliberate as far as strong distribution goes, only late in the week do we see some 3C positive activity, but in context it's very light.

 The 5 min QQQ chart shows heavy distribution at the range mid July, we get the gap down and a relative positive divergenceS which is much weaker than the prior distribution, we also see this DURING A RANGE (as is common) and some confirming activity at the green arrow, but still very much leading negative in context.

IT ALMOST SEEMS THE PURPOSEFUL OR DELIBERATE ACTION IN THE MARKET (QQQ) WAS TO CLOSE THE GAP FROM THE PREVIOUS FRIDAY'S DISTRIBUTION.

As we have seen almost every time this year (and talked about last week), all gaps get filled. While we do have a small relative positive divergence this past week, it is so incredibly small compared to the much stronger leading negative divergence as well as the size of that divergence.

THIS CHART ALONE IS WHY I SAY THIS WEEK'S TRADE SEEMS "PURPOSEFUL AND VERY DELIBERATE. I'd also say it looks MUCH more tactical than strategic.

Futures tonight...I haven't had time to look at everything I'd like (I'll get there tomorrow), but there are some interesting charts.

 ES (SPX futures) 1 min see 3C distribution through Friday and in to the new week, price reacts.

 ES 5 min shows clear distribution in a range Wednesday night and VERY clearly Thursday night/Friday early a.m. There's also a smaller, but clear positive divergence at the 11 am lows and distribution in to higher prices off both of those lows, DISTRIBUTION IN TO PRICE STRENGTH, even when it's not especially strong on a closing basis.

 NQ (NASDAQ 100 futures) also seeing the axact same distribution (1 min) in to Friday afternoon and continuing in to the open of futures trade this week until price follows, this is still just intraday signals over a long night.

NQ 5 min is a much stronger divergence, again at the important areas where there's either a range or price strength (used in a relative context), the 3C distribution signals are VERY CLEAR.

TF (Russell 2k Futures) 1 min

 There wasn't even 1 min accumulation ion to Friday's 11 am lows, but there's distribution signals in to any chance at higher prices.

TF 5 min shows very clear positive divergences at R2K lows, but again the distribution signals are even stronger in to any price strength.

I obviously want to get caught up some more, but the last several days of last week seem VERY deliberate, for exactly what reason, I'm not sure, but it seems much more bearish than bullish and my closest guess as of now is a gap fill, but I wouldn't bet the farm on that, it just seems like the obvious move thus far.

I'll see what a.m. futures look like, but the most important signals will be whether or not distribution in to higher prices or moves off lows, continues. Distribution in HYG Credit and HY Credit, Accumulation in Treasuries and VIX futures, these will be the most telling.

Hopefully there's still an opportunity to add to or open new positions in TLT (Treasury ) longs, I think VIX futures (VXX) as well. HYG will be important for the overall tone of the market and timing.

AS I SAID LAST WEEK BEFORE I LEFT FOR VACATION, "NOTHING TACTICALLY HAS CHANGED, I'D STILL BE LOOKING TO USE PRICE STRENGTH TO SELL OR MORE IMPORTANTLY TO SHORT IN TO. 

I don't see that anything has changed EXCEPT THE LOW VOLATILITY EARLY IN THE WEEK WHICH WAS OUT OF PLACE, IS STARTING TO PICK UP AS IT SHOULD, which should make for some good option/short term leveraged trades as well as setting up longer (strategic position) tactical entries.

I'll see you in a few hours.