Daily Wrap

What a strange day since last night, or was it? Perhaps it's just more unexpected than strange.

On a side note of both strange and unexpected, many of you know my wife returned from Hungary Friday (she's been gone since March for medical care), she's already in to trouble. While out looking for a job today, her Mitsubishi Eclipse got in an altercation with a Dodge Ram 2500 pickup and needless to say, the Eclipse lost. Anna is fine, just shaken up and of course adds a little spice to the day, especially since I just upped her auto policy limits to what they should be (I lowered them when she was gone as no one was driving the car), so my heart nearly stopped when the insurance company told me that we have no coverage for the collision, apparently it had not made it in to their system yet, but all is fine there too.


Last night in currencies (futures), only the AUD gapped up, all of the normal carry pairs were up, even though the AUD. USD and EUR all opened pretty close to flat, but that was because the JPY was down. The $AUD opened around the $.92 level, it made a high for the new week @ $.9238 and went 3C negative and headed back down to $.9221.

The 1 min chart is one thing as it's intraday, but when the 15 min chart looks like it does below, the $AUD doesn't look like a strong carry candidate.

AUD 15 min

The $USD opened pretty close to flat, lost some serious ground today, intraday it looks like it could gain some of that back, but it's not a strong carry candidate either as far as I can tell.

 $USD 5 min open Sunday night (futures)

$USD 15 min with a head fake move under distribution at the yellow arrow and then a deep leading negative divergence at a price pattern that is similar to a "Tower top", I don't see a whole lot of very near term hope for the $USD real soon, many however would say the lower $USD was part of the market's strength today, I'd agree to a point... "Part"

The Euro opened pretty close to flat as mentioned last night, but as mentioned today during regular hours, the EUR/JPY pair was the engine driving a lot of the market, not Asia as I've seen around in a number of places, in fact last night I showed you this Nikkei chart and said the following...

"Yet again as this 5 min chart shows as well as 1 min, there are negative divergences in place and therefore it doesn't look highly probable the Nikkei will hold on to gains."

The Nikkei is similar to the Dow in terms of points/size, after Japanese GDP missed and their trade balance came in at the 3rd worst ever since records have been kept, the divergence in 3C was seemingly reflecting that (China's Imports were a miss as well). The Nikkei AFTER the opening gains....

The Nikkei comes off those highs and spends the rest of the time (nearly 24 hours just trying to get back to where it started last night, the point is, Asia was not a catalyst for the market as several have reported. The weaker Yen was part of the reason though, more so however was a strengthening Euro.

The EUR/JPY cross compared to ES would look like this...

 This is a 1 min chart of the EUR/JPY in the candlesticks and ES (SPX futures) in purple, since 2 a.m. to 1 p.m. today they are nearly in lock-step, the pair was as I said earlier, essentially the market's sponsor or as I'd usually call it and called it last night, the market's engine. There were other influences though that were important and we touched on them early, HOWEVER, TO ENGAGE THOSE OTHER INFLUENCES, SOMETHING NEEDED TO SEND THE MARKET HIGHER AND THAT WAS THE EUR/JPY.

This is the rest of the day until present, after the early afternoon high in the currency pair, they started consolidating, ES consolidated too, not quite as bad, however the R2K did not. In fact if you look at EOD trade, the SPX, DOW and Q's to some extent, all consolidated or flagged away from the prevailing trend while the R2K carried higher, this was the result of a short squeeze, but this is the ends, not the means.

Whether the EUR/JPY can continue is hard to say, the Euro (15m) above has some 3C weakness, but not a lot. A slightly better case made be for JPY strength which would negative some of the EURO strength and send the pair either lower or at least it would lose momentum, still this wasn't about the Euro or Yen.

Today was about the main topic of most of the posts today, a move above significant levels that would force shorts to cover, longs would chase, however many retail longs are out there, I'm guessing as I did last week that it would take several days of gains before they flipped to the bullish side and we are probably in the area.

Today I featured numerous times the range in the SPX and what would happen on a failed breakout above the range. I also talked about the fact (since last week) that a ride to the lower end of the SPX range as demonstrated in on a chart as part of an afternoon post which had already been the early theme of the day (the chart/update's comments follow)

"The SPY has moved above the range described earlier today and in the last couple of posts, now's the time to watch for the signs of a head fake move."

I posted the NYSE TICK chart as well as 3C, both showed the SPY losing strength after this milestone had been reached, they didn't improve at all in to the close, but what was set out to be accomplished was, a short squeeze was initiated.

In fact just to make sure all Technical Traders were moved in case they weren't watching the range, the 50-day moving average would surely be on their screens, the SPX captured the 50-day today, again, short squeeze fodder.

 SPX captures the 50-day as well

The Dow couldn't make the trip to the 50-day, but took $15,000 which is a nice centennial/psychological number, the falling volume in to "breakout levels" is more often than not a sign of a short squeeze.

The IWM took the 50-that probably wasn't that big of a deal, it did take the top of the range and filled an older gap, that was a bigger deal, the performance at 1.5+% was the biggest deal and this is where most of the short squeeze action would have been, but it's not the IWM that concerns me as far as range plans and a strong upside move go because the IWM is still well within the ability to do that.

 IWM clears the range and fills the small gap in yellow, again volume is lower for the day.

It's the NASDAQ 100 that concerns me more as the range is so narrow and it's already at the top of the range. I suppose I'd be ok with it "if" the moves today were all head fakes as discussed most of the day and did what a FAILED BREAKOUT (a type of head fake move) USUALLY DOES AND THAT IS TO REVERSE FAST, AND STRONG. That may put the NDX low enough that the "strong upside move" can still work.

***If you haven't read my two articles linked on the member's site, "Understanding the head-fake move", then I'll explain why a false breakout or failed breakout is one of the more dangerous head fake moves.

Imagine you are a recent short, today prices break moving averages, multi-week ranges, centennial and psychological levels and do it rather convincing, most traders are going to cover their shorts, this causes a short squeeze and the kind of performance we saw in the IWWM today which I'm sure saw the largest SS today. In fact...

This 5 min intraday IWM chart is a near perfect example of what a short squeeze looks like, a nearly diagonal line with very few and very shallow pullbacks and low volume.

On a short squeeze the snowball effect is created, the more shorts that cover, the higher prices go forcing stronger shorts to cover. The kicker is Technical Analysis teaches in numerous books, "If your trade is stopped out and the market goes against you, switch positions", meaning stopped shorts go long, this creates even more demand than just the covering shorts which enhances the snowball effect so now longs are piling in which of course brings us to, "Momentum begets momentum"

So you can see how the IWM can have such a strong day even on weak volume and internals, however this is where the head fake move on a failed breakout becomes so dangerous. If the IWM's move above resistance of its range fails, then we have a lot of longs losing money, a lot of shorts wanting to get back in because "They knew they were right" and we see a downside snowball effect with failed long trades switching over to the short side, THIS IS A LARGE PART OF THE REASON THAT MARKETS FALL MUCH FASTER ON A BEAR MOVE THAN THEY DO ON A BULL MOVE , THAT AND FEAR IS A STRONGER EMOTION THAT GREED.

I often tell you that all of these concepts will work for any style of trading and on any timeframe. I wanted to show you an example of a failed breakout and the results, I flipped 4 charts to look for an example before finding one and it's great because it's on a 2-day (or any daily-multi-day chart), so I didn't cherry pick and it took me 10 seconds to find an example, JPM.

This is a 2-day chart of JPM, I could have used 1 or 3 day, this just looked cleaner and right away you can see that the example or "CONEPT" is scaleable, meaning a day trader can use it, a swing trader, a position or trend trader, or a long term investor and in any market you wish to trade, it's about human emotions, that's why the market acts in a fractal manner.

If you thought today's IWM move was strong, the JPM breakout from the triangle is a +2.47% move, on a daily chart it's a 2% move, the breakout failed within about a week (these concepts must be scaled and proportionate to the length chart you are looking at) and then the apparent JPM new high breakout move failed quite quickly, giving up every bit of gain from the late July/early August rally, what took 27 bars to accomplish took 19 bars to destroy and this isn't even a great example.



SO NOW YOU KNOW WHY I WAS LOOKING FOR THE SIGNS OF A FAILED BREAKOUT WHICH IS DISTRIBUTION, BUT WE DIDN'T HAVE A LOT OF TIME AT THE END OF THE DAY WHEN A LOT OF THESE MARKERS WERE CROSSED.

So, up to this point, "If" our scenario is still in play and the bottom of the range with a head fake move below it is still in play (being it was a long way down for a normal market), today's move would actually facilitate a strong downward response and get the market to those levels, but as always, I want confirmation before acting.

The market opening flat for the most part last night would need an initial engine to move it toward the trap doors, that was the EUR/JPY, once we crossed the trap doors (ranges, moving averages, $15k), short covering and the snow ball effect takes over.

So tonight, it's all about confirmation, if we are still on track, distribution will be present as we move in to tomorrow, but not extreme. If we are in fact at or in the "Strong move" or second phase, then distribution will be large, extreme and take a longer time up here. Because they didn't want to slow down the market and hold it up from crossing those psychological points, they wouldn't have distributed much in to the move because they'd be defeating the purpose of the move or working against it and putting it in jeopardy, so until that process starts we have to look in other places.

Moving forward... today did strike me as strange in a few ways, first I did not expect a breakout move, but after considering where the ranges where, where DOW 15,000 was, where the SPX range and 50-day moving average was, IF I WAS RUNNING WALL STREET, I'D DEFINITELY TAKE THAT MOVE AS THERE'S SO LITTLE INVESTMENT INVOLVED AS THE SHORT SQUEEZE AND THE TECHNICAL TRADER'S MARKERS DID ALL THE WORK, PLUS IF I'M PLANNING FOR AN UGLY DECLINE THAT MAKES TRADERS TERRIFIED, THIS IS THE EASIEST AND INDEED THE FASTEST WAY TO DO IT.

On to the indications that Wall St. doesn't know that we know about (the places where they don't expect anyone to look so they don't have to put on a show there)-typically called "Leading Indicators" and more.

The first piece of evidence is that there was no catalyst for the move, although some are saying it was Asia, nothing good came out of Asia between Japan's GDP missing as well as a HORRIBLE trade balance and a Chinese miss in imports. One of the first places I look for any manipulation in overnight markets and through regular hours as you saw last night is in the former FX carry trades and while they didn't show up last night at post time, the EUR/JPY did show up, it had no real reason to as it wasn't really JPY weakness as much as EUR strength and based on what?

I wouldn't say it was based on Syria, at least not on the face of it. There hasn't been any resolution and things are starting to get more uncertain than the simple 2-day strike that when initially announced sent the market in to a panic. I'd think if the market was going to panic over Syria, this Naval map of mostly US and Russian war sips operating in such close proximity in the Med. would be more of a scare, it doesn't take much of a mistake or misunderstanding with tensions elevated and this many ships in theater.

The Russians actually have more war ships in the area right now than we do, not to say more is more effective, just a bigger chance for an error. Besides, Gold was flat since the open last night, it would be moving around if this was somehow Syrian based as far as the immediate  action (I'm not ruling out that it's part of a more elaborate plan based on Syria).

Even more importantly, take a look at crude...

Not that the 15 min 3C chart wasn't saying watchout below, but crude wouldn't be spiking down unless the uncertainty was being resolved. It's said that less than 10% of House members are publicly supporting Obama, but I heard Obama say he was going to go to Congress for a vote, I never heard him say he was going to abide by it and point in fact, he prefaced all of that with his belief that he has the authority to do this WITHOUT congressional approval, I just don't see how more Russian Warships makes the scenario more certain.

The VIX short term futures were kind of interesting today as was the VIX.

 The daily VIX since the last Custom "Buy/sell" indicator flashed a buy, not a huge move, but a move up. The support i the VIX that has been holding at the 20 bar m.a. is interesting as the VIX looked bid, especially in to the later part of the day, meaning someone seemed to be looking for protection from a downside move.

This is the divergence in the 3 min UVXY

 It looks the same in VXX, which is why I show it as confirmation...

And this is XIV, the inverse or opposite of the two above, it gives an opposite signal so all 3 are different ETFs/ETNs, they are either different leverage or different correlations and all 3 are managed by 3 different companies, the point being, there wouldn't be confirmation unless something was going on here.

While I believe Silver has a move to the downside,which is a whole different post (my last major update of SLV laid all of it out)...

 SLV 10 min chart suggests the sub-intermediate trend is down, but the point is...

Silver and gold were quite hard to read today, they only showed notable improvement toward the end of the day after all the important levels had been hit in the market averages.

 For example a 1 min chart of SLV didn't reveal much until later in the day, there were hints, but nothing that was solid until later in the afternoon as the SPX, Dow and Q's started consolidating.

GLD was very similar, yet GDX was probably not a place most would be looking for signs of PM movements, it was much more clear as you saw in this post. While I recognize them as two different assets, they do share an obvious link and correlation. Nothing changes in GDX/NUGT/DUST analysis since the last post today.

While I'm not shooting down credit within a larger context, I am showing that it was totally not on board with the market today and if the market were just moving on an empty short squeeze meant to set up a fast move to the downside, why would credit follow the SPX, in fact, what do you think credit would do considering credit leads and stocks follow?

 Although the scaling is off, HYG hasn't budged to a higher high and through today, it was 100% flat, not following the SPX at all.

 JUNK traded exactly the same, but a closer view even reveals more selling in credit in to the r2K's move higher in to the close

 The skittish High Yield credit thus far has been right on track longer term, but...

All of the moves leading the market higher of past weeks or thereabouts are now gone as HY credit leads the market lower, not an HY panic as we sometimes see, but the smart operators in credit are not willing to chase anything here and in fact have been busy moving in the other direction, credit is a much better informed market than equities, thus "Credit leads, stocks follow.

As far as the magnetic pull of yields, they aren't in a helpful position either, not an extreme one, but one that smells more like expectations of downside.

 The last day or two of movement, remember yields pull on equities like a magnet, so the SPX looks like it should be experiencing pull of gravity.

Look on a longer term scale and did I say Yields pull the market or lead it or what? They signaled the downturn from the highs to the left, they were first to make higher lows in white and now they are making lower highs again, but NOT UNTIL THE MAGIC RESISTANCE ZONES IN EACH OF THE AVERAGES WERE HIT TODAY ON LOW VOLUME.

COMMODITIES DON'T LOOK ENTHUSIASTIC HERE EITHER.

Commodities vs the SPX.


I'm not going to pretend like I have all the answers right now, I have patience to wait for the signals that give us a forward leaning edge, however I will say that breaking above the various levels that attract longs and squeeze shorts, all on the same day, all needing a carry cross to make the move work and all on volume way lighter than it should be suggesting mostly short squeezes once the carry pairs got the first stage off the ground, LOOKS VERY SENSIBLE TO ME.

Like I said, if I was running the show from behind the curtain (thinking like a crook), why would I pass up the chance to create a head fake and even iof that wasn't my motivation, why not take the bid/ask spread on a short squeeze or the more favorable pricing that comes with such a move?

In other words, this move today was just TOO tactical to be believable, however I'll keep watching for the evidence based charts that decisions are made from.

Thus far tonight, here's what we have in some select futures...

 ES 1 min,  I rarely trust a 1 min futures chart overnight, there's too much going on, but this is a pretty deep divergence so it's something worth noting.

The 5 min EUR/JPY shows a positive divergence in to Sunday's open, it also shows a relative negative in to the present, I'm not making a big deal of it, but this is the pair that got the move started as proven above when overlaid vs ES.

While the 15 min chart of Crude didn't look good, there is something on the 5 min, it may be a passing move or may be leading to a new move, or it may lead to a nice trade set up, either way, I couldn't ignore it considering Syria, the 5 min chart would react to any new information before the 15 min.

This positive divergence is significant for a 5 min chart, it is recent and it is in crude oil futures, at the very least it's worth tracking for a trade set up, but it may be willing to tell us more than that.

As far as PMs and the Nikkei, I'm going to hang back, the charts have some initial impressions, but nothing I'd trade off alone so I'm not going to make them in to something they aren't yet.

YOU CAN BE SURE I'LL BE CHECKING FUTURES LATER TONIGHT.

Otherwise, I don't think this short squeeze and all of these technical levels today are coincidental and that means that I don't think price can be taken at face value.