Daily Wrap

After looking at just about everything I need to look at (except futures, as you know I like to give them a little time), I feel pretty good about today's decision and the reason why.

Here we can clearly see what I was talking about as far as a "larger footprint" in the reversal process.

 Intraday (1 min) ES/SPX Futures shows the intraday negative divegrence from 2 p.m. to 4 p.m., this is very much in line with the kind of pullback that gives us more of a "U" shaped bottom and should give us stronger positive divergences on the upside as pullbacks are expected to be accumulated.

Almost every asset I looked at had this same intraday behavior including the market averages.

Also interesting was the same behavior being confirmed in an asset that trades opposite the market, the VIX or in this case the VXX's 2x leveraged version, UVXY.

Earlier there was a negative divegrence which I used to open a VXX put which is already at a double digit gain today, but I think we get another chance tomorrow as short term trade would suggest some upside here (downside in the market), however...

The longer 5 min chart has so much damage that I doubt any intraday upside can sustain itself, leaving the VXX / UVXY open to being shorted again and the market putting in that larger rounding reversal process.

Also suggesting the VIX has had it, my Custom DeMark inspired buy/sell indicator gave a rare signal today.

You can see the last buy signal to the left and today with a long upper wick candle, a sell signal on the VIX which trades opposite the market.

The NYSE TICK suggests the same probability, at least the first part of it...

 There was a lot of volatility in the TICK today from about +1250/-1250, The EOD or last 2 hours show a clear downtrend. However if we look at my Custom TICK Indicator vs the SPX...

The overall trend for the day is positive suggesting short term down turn which should do something like I suspected in this last post and this larger trend signal should bring us back up just as the longer UVXY chart suggests as well as the longer 3C charts in most assets and averages, it's almost universal in every asset I looked at.

We can even look at the VIX futures and get the same feel...

 the short term futures suggest intraday upside, but this is not a strong signal like the 15 min below...

This is in a leading negative divergence and has much higher probabilities for the longer term, so taking both in multiple timeframe analysis along with other assets, the implication is the market pulls back a bit, but in a healthy way and finishes strong.

This is what the same pair of  signals look like in the SPY.

 SPY 1 min intraday strong all day, with a relative negative in the late afternoon. I would suspect price would move as I drew with the green arrows, there's always the probability of a shakeout/ stop run below today's intraday low just before an upside reversal .

However the probability of that upside turn went way up as the 30 min SPY chart locked in a positive divergence today, this is a very meaningful signal.

Every single asset or indicator above all suggest the exact same thing and I could give you 50 more right off the top of my head.

There was no Dominant Price Volume Relationship today like there was yesterday, yesterday's being a reversal relationship and extremely dominant, price down, / volume up, of the 4 possibilities, this one suggests a selling climax occurred yesterday. Today's closing daily candlesticks suggest the same...

***On all 3 charts below I've drawn in an example candle for tomorrow's closing candle, it is just an example***

 Daily SPX closing candlestick pattern is a bullish Harami reversal with today's candle being a Doji which increases the probabilities. I drew in (#3) an example candle which would be a confirmation candle, a bullish engulfing candle, however I should have drawn the open (lower end of the candle)
 below today's intraday low, that would give us not only the wider foot print, but the head fake move as well.

The Dow-30 is also a text book bullish  Harami reversal pair (as long as today's candle is inside yesterday's real body which it is). The Japanese call the Harami "Mother with Baby" as the two candles resemble a pregnant woman. #3 I drew in as a confirmation candle, but I should have though more about it as it shows a gap up and that gives us more of a "V" shaped reversal which is possible, just not the highest probability. Today's Star alone is bullish after yesterday's candle, it shows a loss of momentum and conviction to the preceding trend.

The R2K daily chart doesn't have a known reversal candlestick pair, but the longer lower wick with the higher close is reminiscent of a bullish Hammer, however the lower wick would need to be at least 2x the size of the real body which is placed perfectly. However today's candle does tell us lower prices were tested and rejected. #3 is what I drew in, this would give us the move lower, the head fake move and a bullish engulfing confirmation candle for an upside reversal.

As for leading indicators, not much changed since today's update...

Credit is still well above the SPX locally including High Yield Corporate, Junk, and HY Credit. Sentiment  shows one of our indicators lost a little in to the close which fits with the scenario I'm laying out for tomorrow while the second has a much stronger move that started yesterday after weeks of negative readings and it closed up much higher in to the close, so I think we are just seeing the opinion of two different timeframes short and longer just as I'm presenting them above although I believe both should fulfill tomorrow. VXX as you probably figured from the price chart above, underperformed its natural correlation in to the afternoon so it looks like there just isn't a strong bid there, it wasn't to activate the SPY arbitrage so again I suspect the fear is fading as today's VIX candlestick hints at with that large upper wick. Yields which attract price to them, made a consecutive 3rd day higher high and the SPX is dislocated from them, it should move to revert to the mean. Dow transports saw much better 3C underlying trade, I suspect as usual the old school Dow Theory guys want to see transports confirm even though it's ridiculous as we are no longer an industrial nation, however when Wall St. is trying to sell a weak rally, they often push transports.

There are a lot of short duration longs (most need some leverage) setting up and many will set up long duration shorts that need no leverage, I have them tagged in my watchlist, but a good example is IBM...

*For newer members, short term 3C signals like the 1-3 minute usually dictate intraday trade, as they become stronger (either accumulation or distribution) they migrate to longer timeframes. Signals at 5 mins are about where we see the first real institutional activity, a 15 min signals is quite strong, in normal circumstances it will signal a swing trade. 60 min signals are very strong and often can signal trend trades, daily & multi-day are the strongest. However they also suggest a timing component as I'll demonstrate below with IBM.*

 The 2 min chart is intraday; it was positive yesterday afternoon and in to the open sending IBM higher today, but later we have a pretty strong negative divergence suggesting IBM see some downside, likely toward yesterday's lows and we almost always see that signal take shape at the start of the next day's trade.

You can think of this the exact same way as the examples at the top of this post regarding market direction, both very short term intraday and longer term for a strong reversal.

The 10 min chart from left to right shows a negative divergence or distribution at the mid-September highs and price is confirmed by 3C on the way down or rather the downtrend in until we get this amazingly strong 10 min leading positive divegrence, this is serious institutional activity.

Looking at the two charts, the way I want to play this is to wait for an intraday pullback tomorrow and buy on that price weakness, I'll likely chose an option for some leverage being IBM isn't much of a momentum stock. The leading 10 min chart suggests a strong move and the target is likely above the mid-September highs.

Looking at the strongest of the 3 charts, the daily IBM, this daily chart shows a strong leading negative divegrence in red, but it has been seeing distribution for some time, this is quite common for smart money to feed out a small amount of shares at a time in to rising prices as to not effect the trend, get a better sale price and be able to move a large position over time without moving the market against them. However the leading negative in the red box should not be underestimated, IBM's strongest trade is to the downside.

Now note the range in yellow. The 10 min chart's positive divegrence above is capable of sending price above this range (yellow arrow); this is where longs will consider IBM a breakout buy and shorts are forced to cover, both actions provide demand which Wall St. can use to sell short in to in some size without sending price against them. Ultimately, that is the trade we want, although I already have an IBM equity short started, this would be a trending trade of long duration and doesn't need leverage.

So the play is to ride the upside, I call it "Hitch-hiking" until we get in to the upper end of the range or above it and look to close out the leveraged long and look to enter or add to the core short position.

This could serve as a model for almost any index in the market as well as many industry groups.

That's it for now, I'll take a look at futures later tonight.