Thursday's Wrap

Looking at the market today I'm seeing a few things, first our call for a meat grinding, portfolio shredding choppy market was right on and these are actually the hardest to call (for those of you using 3C, it is basically done by seeing at least 3 different timeframes that all have different signals like a near term bounce, an intermediate term negative that caps a bounce and a longer term negative that makes it very hard for the market to break free of a zone, but you also have to have leading indicators, the fact that the market was making new highs on +0.05% with the help of manipulative assets like HYG and carry trades while there was no volume or organic demand). 

whenever a market looks similar to a child's scribble, it's a tough market to trade unless the range is very wide, this is why we've been careful and not trading as actively recently.

Second the bounce cycle from the 10/9 lows which was preceded by positive divergences in 3C and numerous leading indicators including HYG credit was called as extremely damaged and likely to resolve lower, THIS IS EXACTLY WHY I WOULDN'T GIVE UP ON 3X LEVERAGED TRADING SHORTS LIKE: SRTY, SPXU, FAZ, TECS, etc.

Third, the amount of manipulation needed to move this market even a tiny bit to claim the title of "New High" got to the point in which it was just disgusting as I wrote in a rare outburst, "A Sad Day For the Market"

It's hard to believe that this late night ramp of the EUR/JPY and ES as a result on practically no volume and ABSOLUTELY NO NEWS...

 (This week's ramp job to hold the market together that didn't even break it out of the chop)

Actually looks like this in retrospect...

That's the ramp in green and it looks almost like a non-event compared to how much the carry pair has lost since then....

 The EUR/JPY carry cross vs SPX futures (ES) in purple...

If the correlation holds (as carry traders can really lose a lot of money on a small move because of the huge leverage they can use) then should we expect...

The EUR/JPY scaled out vs ES, the correlation was as tight as can be on the way up...

This was one of the first sentences of last night's "Wrap"...

"If we look at the averages, what I see is a market near the top end of the chop range with significant intermediate and long term damage done."

To give you some CONTEXT as to today's move...

 The NASDAQ 100 took out almost 3 weeks of gains (1-day short) in a single day, this is why I have said,

"Going long with this much damage, a shiny hollow shell of a market, just isn't worth it as I have seen over a month of gains taken out on a single gap down"

This is the bounce cycle off the 10/9 lows (white) and almost all of the downside damage which is over 50% of the entire cycle was essentially done in only 2-days.

Intraday the  CONTEXT model was actually shy (ES model price based on institutional risk assets vs the actual ES)...

CONTEXT this morning had the model negative about 20 points lower than ES (S&P E-mini futures)...

This is more than a 32 point ES drop from just before 8 a.m. this morning to 3:50 this afternoon,  which is the biggest intraday plunge since June. CONTEXT was actually shy about 12 points and it happened in a single day on the best volume in a month.

I think it was pretty clear this morning after a very quiet overnight session that volatility was going to be the name of the game today with the ECB, Initial Claims and GDP.

As of last night's post and actually several days ago with the TBT short (essentially 2x long TLT) that TLT and the 30 year treasuries were ready to make a move...

"TLT looks ready to bounce, our TBT short should do well"

1 min chart of 30 year Treasury futures today, however earlier in the day I had posted that the 10-year didn't look as good...

"I thought the 30 year was going to head higher and before I could even get this out it did, but I was going to also say 10 year Treasury futures DID NOT look good and they DID not move higher with the 30 year."

The question to answer in the next day or as soon as we get the signals is whether TLT has finished its pullback because you may recall I have expected a longer term pullback to $100-$102 where I'd like to open a core TLT long position, however in the near term a bounce was expected and that's why we recently closed TBT long and shorted it to get leverage on TLT long. While it is clear that there's at least short term strength that started to manifest today, it's not clear whether it is just a bounce in the pullback as suspected earlier in the week (the post is linked just under the chart above).

You may also recall the post today about stealth accumulation in VIX futures, the Spot VIX closed at 3 trading week highs today, apparently the "Stealth" part of the accumulation in VIX futures (protection) is catching on.

The post from today linked above shows the extent of the stealth accumulation in VIX futures, but this 15 min leading positive divegrence really looks like we'll be seeing more upside soon which means downside for the market.

Currencies were all over the place today, the $USD surged and then flopped, the Euro flopped on the ECB and then gained back quite a bit in the afternoon, this underlying volatility in the assets few people look at is where a lot of information can be found regarding stocks.

The $USD looks like it will see more chop before defining its trend, which had been negative, but it lost ground on that divergence. 

As usual the economists and pundits were wrong again about the ECB just like they have been wrong about the F_O_M_C the last several times and as wrong as they could be.

As for momentum stocks, last night I said, "Speaking of momentum, Transports see the largest decline in a month, but don't count them out yet, although I think you can very soon"

The IYT/Transports chart, I think we'll get a bounce we can use to short in to, price alerts for a bounce should be set, the 3C trend is quite clear.

In Financials, our FAZ (3x leveraged short financials) is in the green, these are the short trading positions I didn't want to let go of. I do think you'll get a chance to grab a position here on a pullback, I wouldn't chase, but I REALLY LIKE FAZ LONG...

 Long term trend, 60 min leading positive in FAZ, this is a lot of accumulation and should support a monster move on the upside.

The shorter term shows that as the market has been rotting from the inside out even with a thin shiny veneer of "New Highs" and FAZ has been indicating this. I'll hold FAZ and I hope you got some if you like these 3x ETFs, but if you didn't, be patient and I think you'll have an opportunity.

I DON'T WANT TO BE TOO QUICK ABOUT CALLING A FINAL TOP, A LOT CAN HAPPEN FAST, BUT I HAVE NO PROBLEM CALLING OUT SEVERE WEAKNESS IN THE MARKET.

HERE ARE SOME OTHER CHARTS I'VE WANTED TO SHARE WITH YOU...

These are Leading Indicators vs the SPX in green (unless otherwise noted) and there are some great insights and some of the most severe signals I've ever seen since we made these a regular part of our analysis.

 HYG was positive (price) vs the SPX in to the 10/9 low, calling a short term bottom and HYG stayed with the SPX through the upside of the cycle, but look how HYG leads to the downside too.

 A closer look reveals the rounding bottom that I addressed in greater detail today with 3C / HYG charts. This tells us something about the weakness in the market as HYG was being prepped to lead a small bounce, however 3C shows distribution set in days ago and HYG failed.

Here's a closer loon at the rounding bottom and where the SPX failed  as HYG distribution took hold, as I said earlier, whoever was running the manipulation seems to have caught cold feet, not wanting to be left holding the bag.

 Intraday HYG was a bit stronger at the close, there's a lot of momentum/weakness today, but the funny thing about downtrends and bear markets even is that they tend to have more up days than down days, the down days are just a lot bigger.

So we may get a bounce here as op-ex comes in to play tomorrow, perhaps a higher max pain pin, if so it would be useful in positions like FAZ long on a pullback.

 Junk Credit is NOT used as a manipulative asset like HYG, but is High Yield, it also had a stronger close hinting to me we'll see a bounce, not to dither on calls, but with this kind of weakness we have the AAPL scenario where short term positive signals can easily be overrun, but for now I'd say this looks good for a move to the upside allowing some new positions to be entered at better prices and less risk.

Even the illiquid High Yield Credit shows the same thing intraday.

I've been wanting to show you more than just the intraday Leading Indications, I want to show you the cycle and some of the longer term, because they are significant and they are a bright red flag giving us a VERY CLEAR SIGNAL.

Again, Leading Indicators are vs the SPX in green unless otherwise noted.

 Here VXX sees what looks to have been a head fake move below a range it has held for weeks, then it's off to the upside, again it seems the head fake before a reversal is a concept you really have to take seriously.

 This is one of our two sentiment (pro) indicators. Intraday today it wasn't STRONG for an upside bounce tomorrow, but it was stronger in to the close hinting at some near term upside, which may not move above today's range, but may be useful as a tactical entry/exit.

This is the same indicator clearly going negative on the last up cycle off 10/9 lows.

And longer term, this is a REALLY SERIOUS SIGNAL AND VERY BEARISH FOR THE MARKET.

This is our second sentiment indicator showing similar strength (not very strong) in to today's close suggesting at some likely upside tomorrow or very soon.

 Here it calls the cycle and bottoms before the SPX ands calls the top before the SPX.

 That mens we should take it just as serious with this long term negative signal.

Yields...

 Intraday yields also pulled up after reverting to the mean short term, this suggests some upside near term, but not very strong.

 Here are yields calling the last cycle bottom before the SPX (which was VERY clear at the time and showing the entire cycle was like a ginger bread house, just a hollow move.

 This is a bit longer view in which it leads the market in several trends, the long term version of this is incredibly negative and dislocated to the downside.

 Commodities have been calling downside, they were in line today intraday...

Here they call the start of the bounce cycle and also show us just how weak this move really was, this is another reason why I would not let go of leveraged trading shorts, all of which except one are in the green.

 And look at what commodities have to say about the market and global economy when looking at the full year. This is another red flag that shouldn't be ignored.

 My Custom NYSE TICK Histogram shows the breadth intraday in cumulative form and shows the cycle where it was strong and where it was falling apart. This helped with the "Chop" call.

 Today we saw extremes in the TICK, -1500, much different tone today than the last several weeks.

And momentum stocks, in Green the indicator "Percentage of all NYSE stocks trading 1 standard deviation over their 40-day price moving average" vs the SPX in red.

In a very short time out of all NYSE stocks above their 40 ma by 1 SD, the percentage went from 66% on 10/22 to a mere 28% today. That tells you what has happened to momentum stocks during the market cycle up.

As for MCP earning after hours and PCLN...

You know how I feel about MCP and you know how I feel about AH trade, few pros are going to trade in the thin liquidity of AH so I don't worry too much.

 3C was developed on the TOS platform originally for AH readings, in this version MCP makes AH lows in to a 3C positive divergence and ends the session at $4.76, right where it closed during regular hours.

Apparently someone was TRYING to hold it down as I understand there was a 35k share offer in AH.

I'm actually not concerned at all with MCP.


PCLN beat on top and bottom (Revenue and Earnings), but failed in the most important aspect of earnings, Guidance and guided lower, that will probably do it for PCLN, a stock we've waited a long time for to add to the core short list.

PCLN AH hit some deep lows on a 3C positive divergence, apparently someone accumulated those lows and is sitting on a nice little profit as PCLN closed AH ay $1012, about 10 points below regular hours, but well off the $945 AH print.

When you have 3C confirmation on a trend like this and a strong 60 min chart and then it suddenly goes very negative above the ultimate psychological level of $1000, I think you pay attention, the guidance is a problem because traders look at  what you'll do moving forward, not what you did and if it looks like earnings maxed out, there's not much reason to hold the position any longer.

Although a lot of us have core short positions started in PCLN, we'll be looking for any slight strength to start or add to the core short as PCLN's3C chart has changed character for the worse.

The Dominant Price/Volume Reading tonight among all of the major averages (the components of the averages) was a very dominant (about 50-75% in 1 relationship of 4 possibilities) CLOSE DOWN/VOLUME UP, this is a VERY bearish relationship, BUT SHORT TERM OVER THE COURSE OF A DAY OR SO, IT OFTEN ACTS AS AN OVERSOLD SIGNAL SO A BOUNCE FROM THAT SIGNAL WOULDN'T BE SURPRISING.

3C...

I have positive in the IWM from 1 to 3 mins. While not as consistent among short timeframes, I have intraday positives in the Q's as well and a couple weak ones in the DIA, not so much the SPY so that would be consistent with some of the intraday leading indicators like credit and sentiment, also with the Dominant Price/Volume Relationship and a few other indications.

A bounce here would be a gift, I'll set price alerts for some of the positions that have the most damage, like FAZ as mentioned earlier. HOWEVER I WILL NOT BE CLOSING ANY OF THE TRADING SHORT POSITIONS, I LEARNED MY LESSON CLOSING AN AAPL SHORT TO TRY TO GET BACK IN 20 POINTS HIGHER AND SAW THOSE DIVERGENCES WIPED OUT FOR A -45% DECLINE.

I also have 5 min positives in the Index futures so I'm thinking  SOME UPSIDE FROM HERE IS HIGHER PROBABILITY, BUT THE LEVEL OF DAMAGE IN THE MARKET CANNOT BE OVERSTATED. I'll be looking for the EUR/JPY to be the method used to move the market on any upside move.

I'll see you in a few short hours