Daily Wrap

For now this is going to be a little bit short, but we've been talking about changes in character in the market especially yesterday with the VIX and of course what I showed last night of something like a 0.23% gain in the SPX over the last 4 weeks, but what may have shocked me most today was the performance of the Core Short positions, I'd be happy to get this kind of performance out of 1 stock, but an entire tracking portfolio with all of those ideas?

I want to be careful not to be boastful because the market will knock you on your butt faster than you can reach around and pat yourself on the back, but at the same time, hopefully now you can see why we were building short positions at favorable areas and holding them, mostly because this market is so extreme and extremely damaged that a day worse than this could have come really at any time over the last couple of months easily.

The weekly and monthly performance for equity shorts and a few longs (no options at all) and almost no leverage...

 The fields are Rank which is #57 for weekly performance, gain for the week at +11.10% and the SPX's change for the week at -1.82%

This shows the ranks at 59 of 1474 portfolios  for the week of 8/10-8/16

The monthly rank is 141 with 9.79% vs the SPX's 2.74% loss

And a rank of 142 of 2313.

We obviously want to be careful about chasing shorts here, but today's overwhelming volume that was the highest in 7 weeks can often act as short term capitulation, in fact the hallmark of a bear market as far as volume is concerned is LOW volume. The only problem with short term capitulation is almost all of the averages finished right off their lows, nothing that looks much like a reversal candlestick.

On the other hand, we finally have a Dominant Price/Volume Relationship among the averages after weeks of NOTHING!

There's no need to break down every average, the Dow tells the story.

The Dominant Price/Volume Relationship among all 30 Dow component stocks was Price Down/Volume up.

In fact there was only 1 stock that was up today on rising volume, 8 others fell on declining volume and 1 was flat at 0%.

CAT was the Dow's big winner today, up +.05% and barely more volume today than yesterday so even the 1 winner was weak as can be.

All of the major averages has the same dominant relationship of Price Down/Volume Up, believe it or not, this is most often a 1-day oversold condition and typically the market closes up the next day, although that's hard to imagine with the candlesticks the way they are, maybe a "Tweezer Bottom"?

After yesterday's extreme change in character of VXX and related ETFs as well as VIX futures, it's little surprise the spot VIX which I have featured nearly every night the last week or so, did this....

Not only did we have a buy signal in our custom, DeMark inspired Buy/Sell indicator, but the pinching Bollinger Bands have suggested a highly directional move, 11.2% today isn't a bad start, but I think before this is over we see a much more meaningful move.

Silver was the big winner today, up 18% now over the last 7-days 

 SLV Daily

Biggest 7-day move in 5 years.

Our X-Over system is 1 indicator from firing a long and then it's a pullback to the yellow 10 bar (2-day or 20 day moving average) where SLV will or won't be a high probability, low risk long, that's how this system works and it works well.

The $USD saw the biggest drop in over a month, you may recall last night's post...

" $USD 15 min has a negative divergence, perhaps this is what I'm waiting on in USO(Dollar weakness creates commodity strength and Egypt isn't helping). It seems very unlikely that the USD/JPY cross will move the market up....Silver and gold still look like they should be coming down, the weaker $USD may cause some trouble."

There was talk of a European fund covering a large gold short, that would obviously trigger some short covering/squeeze and that might explain the quick move with no accumulation before it intraday today.

The $USD hit a high for the week on the Initial Claims this morning and then moved to the biggest loss in a month, you can see clear distribution on the early knee jerk move to the highs of the week as well as it being obvious last night.

As for Arbitrage assets, HYG had marginally better relative strength vs the SPX correlation, VERY marginal, VXX was in line with the expected correlation and TLT was significantly weaker than it's normal implied correlation.

The weakness in Treasuries was expected, in fact I was hoping to see it with 3C accumulation in the long end as it looks like something is going on there and I'd like to add to the current TLT long core position.

The 30 year Treasury futures on a 30 min chart show 3C accumulation in to the anticipated drop lower.

This is one of the few reasons I can think of as to why the CONTEXT model is so rich to ES, that and precious metals (commodities broadly).

CONTEXT model for ES is about 35 points rich to ES, implying a decent bounce in ES/the market.

One of our sentiment indicators did rise in to the close, notably so we do have some 3C starting divergences in place as you saw today, they were just no where near giving a reliable long signal, but they could build on that tomorrow, like I said, perhaps a Tweezer bottom candlestick formation or a Harami reversal?

Yields added to the disconnect today so they'll exert some upside magnetic pull on equities as well. High Yield Credit didn't make a big move, but it did break the day long range to the upside near the close. Commodities of course were up again on PM strength and certainly $USD weakness didn't hurt at all.

I'm going to check futures later before I turn in, especially the FX carry pair components.

From a 3C perspective we are only slightly better off than yesterday's mixed market with the SPY and Financials looking better than the NASDAQ and Tech and the SPY/Financials showed better relative strength today, but that was a short, small divergence that wasn't confirmed among the major averages as I just demonstrated, today we had confirmation between averages, but hardly any move, they'll need more range bound trade or lower prices to accumulate to the point in which there's a reliable signal.

Until then, if you have core shorts in place and they performed well today, I personally am leaving them in place, that's why they were put there before this happened. I would be VERY careful about chasing any longs as this is definitely a "Chasing nickels ion front of a steam roller" scenario, the signals would have to be outstanding. Otherwise it would be nice to get a bump to lower risk and open up some decent entries, there's a time to really move (sell short) and it's generally the time you feel like you shouldn't be (shorting market strength) doing anything and then there's a time to be patient and that's generally the time we are most restless (looking for a big dead cat move).

i'll be checking futures as well as some more individual assets as there were VERY few signals today, that's as it should be though, as I generally say, most people have stock picking backwards, you start with the market as it is responsible for about 2/3rds of any given stock's movement on any given day.