Daily Wrap

I'm actually going to start in reverse order as the Japanese TOPIX 150 market opened down 3%, this is the crazy volatility I've been talking about, I showed it to you last night in the Nikkei 225. To get some idea of how volatile it is as I can't pull up TOPIX right now, just look at the USD/JPY which plunged on the Japanese market open, then look at the volatility after....

First a plunge with the stock market below the $101 support that has been holding, then a rip right back up above $101, this is similar to what the TOPIX is doing so it's rip-roaring volatility.

I said last week that we'd be using hit and run tactics this week because the volatility is so high, it's hard to hold any trade short term, today I even found that I had to close the NFLX call (at a profit) after being open less than 2 hours, that's volatility, that's fear, that's what leads to a water fall sell-off. I just hope the market can stay in control long enough for us to close calls/long trades and finish setting up core short positions.

The US Treasuries have been a source of a lot of this volatility over the last 36 hours or so, I said today, "Something doesn't make sense here, too many people on one side of the boat". Wouldn't you know it, yesterday's Treasury Auction of 2 year bonds was an utter failure, but today's 5 year auction was a success, it has a little to do with the issue/time, but more to do with sentiment changing as I believe TLT is going to surprise to the upside.

Now back to earlier data, Mortgage Applications are down over 8% this week and 23% over the last three weeks leaving a gulf between home sales and mortgage applications, see if you spot the problem...

Homes are becoming unaffordable for those who want to live in them, those who are buying them up (Hedge Funds) are part of the reason new homes aren't doing well or won't be as lumber doesn't lie.

These hedge funds buying 26,000 properties (in one alone) aren't interested in new homes, they're interested in picking up the cheap stuff and renting it, but here's the catch, some of the biggest hedgies in the real estate rental market have or are pulling out due to low margins, Och-Ziff pulled out already, Bruce Rose of Carrinton is doing the same and it will only be a matter of time before the grand-daddy of them, Black Rock is forced to do the same. 

All of the sudden, Home-Builders are looking like a VERY attractive short target with a bunch of inventory being dumped on the market and few normal people able to afford what's there now as you can see in mortgage apps and Lumber prices vs the SPX above.

Is it any wonder that home builders were the worst performing group today?

If that's not volatility, I don't think you've seen it before-but this is just a prelude, a red flag.

We'll take a look at XHB and some individual names and see if any set up without chasing them.

If the dam doesn't break, we'll have a chance...

 The 60 min chart doesn't need any of my scribbling, the 3C trend is clear.

The 5 min chart shows a range developing today as well as a 5 min positive, that's almost enough to get a bounce we can sell short in to so XHB and component stocks are on the radar as this trade just looks like a disaster waiting to happen-or actually starting to happen.

Transports are getting ugly too and why shouldn't they, FEDEX is worth a little time looking at. I recall not too long ago suggesting a replacement for Dow Theory, "Industrials/Transports" by modernizing it to FEDEX/ vs the R2K, we have 2000 companies of all sorts and a shipper that is more geared toward our economy and services rather than industrials which the US has clearly not been an industrial giant for decades, look at Detroit.

If I'm right about the market needing to put in that emotional upside move and my guess yesterday that we'd see a "W" base form today (which we have so far), then ES and VWAP as well as 3C action makes perfect sense and as long as the dam doesn't break, puts us way ahead of the curve in both short term option trades and longer term equity shorts.

EX...

 Here's a line chart of the SPY which is easier to see without all the gaps, this would be our "W" base and it would be large enough to support that emotional move-so long as the dam doesn't break first.

If my theory from yesterday about a "W" base was going to be correct,  then the first thing we'd need is a decline from the peak of the "W" put in on Tuesday, a decline today.

Now lets look at ES (SPX futures) both overnight and today.

 ES at midnight last night Tues/Wed. sells at the upper channel of VWAP, right where smart money or even market makers would want to sell or sell short for a short term trade. At 9:30 at the green arrow on the US open, we have a final sale at VWAP, which again is another target for selling. The buying would occur at the bottom channel of VWAP like we see at 11 a.m. today.

Remember these times.

Through normal market hours, ES sees a couple of possible accumulation spots to build the "W" base, 11 a.m. and 1 p.m. then around 2 p.m. moves up too high for accumulation and needs to be sent back down.

Now lets look at a basic 3C chart of the SPY today.

Look at that, 11 a.m. positive divergence and leading positive at 1 p.m. and then going negative at 2 p.m. on, not so negative as to be worrying, but enough to knock prices down to the accumulation zone at the bottom of  or at VWAP. Interesting huh?

As I said today, I saw a lot of single stock assets that looked like they were preparing for a move up, even XHB above seems to be starting to.

In fact I was going to mention it last night, but decided not to for whatever reason, the Dominant Price/Volume Relationship  among the component stocks of all 4 major averages were ALL, Price Up / Volume Up, which is the most bullish relationship of the 4 possibilities, but almost always leads to a 1-day overbought condition with the next day closing down.

Today's relationship isn't dominant in all 4 majors, but 3 of 4, it is Price down./ Volume down which is the relationship with the least meaning and also the hallmark of a bear market (not saying we are there yet, just saying when we are, that's the most often seen relationship).

To me this doesn't create any problems for the market to finish its base and move so it's actually a good reading, remember these are the component stocks of each major average, not the averages' close and volume.

As for a few Leading Indicators (always compared to the SPX in green unless otherwise noted)...

 HYG (High Yield Corp. Credit) wasn't in free-fall today, in fact it was somewhat supportive of the market. However, if we do  get a bounce from this "W" base that is almost done and it gets emotional and feels like the market will never fall, book mark this page and look at the next few charts below.

HYG longer term-CREDIT IS DESTROYED AND CREDIT LEADS EQUITIES.

High Yield Credit ,ade a move to the previous lows of the year which in fact are the lowest lows of the entire year, they are reaching back to 2012 lows, so credit is screaming "This market is trashed!"

However again, near term/intraday Yields which are like a magnet for equities remain supportive of the SPX rising at least to reversion to the mean, but the market is like a pendulum and always swings to extremes.

Remember emotional responses are what the market is looking for, they are hard to deal with, but they are one of your best reverse indicators.

If the market plays out the way it looks to be setting up, it's a gift to us because we can make good $$$ on short term call positions and a few puts on corrections while having more time and the best entries to finalize our core short positions. Don't fear an emotional move higher, it's a gift, it won't last, but this is the market's job.

The $USD stayed flat today so it didn't pressure the SPX much at all.

And the Yen correlation is there, although the market was a bit stronger off accumulation points and moving higher, that's why the 2 p.m. negative divergence that started was needed.

VXX is trading almost perfectly according to its normal correlation

And the VIX, this is really interesting because it just barely closed outside the Bollinger Bands today, a close inside the bands tomorrow sets up a VIX sell as we can see in the past, which would make sense with the pop higher in the market off the "W" base, but this is such an ambiguous signal in the VIX, I read it as being enough short term for the bounce, but not enough to halt the downside slide.

I'm not saying the market will hold up long enough to see this "W" base play out, at least not all the way according to the measured move, but so far it looks like it wants to.

The accumulation in the averages is there, but it's VERY weak, this is nothing like short term bases in the past that we have bounced off, this is very delicate so we need to stay nimble, I don't mind taking some shorts knowing that I may have more draw down if the market can play out this "W" base, I'd rather have them with some draw down than be left without them when the dam breaks and with this volatility, that can be any moment.

To make matters worse, SAC capital (one of the largest Funds) is losing clients left and right, I believe they just lost BlackRock today, so they'll be selling a lot of assets (stocks) to meet the redemptions, that means any chance they get to sell in to strength, they will.

I have a list of their top 30 holdings, I'll have them all in a watch list tomorrow and we'll see if we can't find the edge that others are going to miss, just going short their holdings isn't going to work, Stevie Cohen is a lot smarter than that, but at the same time, he needs to raise the cash and 3C should be the edge to get us in at the right time.

I got out of AAPL today, I think VERY short term (maybe a partial day) it pulls back, but I think there's still good promise there, but why take a loss in the call when I can open a new one for less? This is what I mean by "Hit and run" and increased volatility.

I can't blame anyone who doesn't have the time, risk tolerance or the stomach to be taking these trades, but I'll offer them for those of you who do.

The real trade and set up (beyond these hit and run trades) is to fill out core short positions in to price strength so if you feel like sitting out the volatility, I'd just wait for the core shorts to set up. We have a number of plays identified and more every day.

As for futures tonight... most of the 1 min charts are pretty tame, there's nothing screaming, but all of the major averages have interesting 5 min charts, right at the timeframe this "W" base would be found...

Here's ES (SPX Futures)

Actually, forgive me, this is NQ, NASDAQ 100 futures, but they all look almost the same. At "A" we have the middle or top of the "W" and at "B" we have the second or last base of the "W" with a leading positive divergence right where it should be.

That's about the extent of it so I'll keep you up to date on entries for core positions which would be my main focus as these are the trades set up for taking advantage of the next MAJOR move (perhaps one like we've never seen before) and whenever it looks like there are some option trades we can take based on this extreme volatility and make some extra $ on the side, I'll throw those out too. I'd keep the speculative trades, speculative and the core positions I'd give a wide stop until we get through this volatility.

USO Calls

I decided to stick with the existing call position in USO from yesterday and add a bit to it today, here's why.

 USO 2 min accumulation as soon as USO's ROC on the downside let up and it started moving laterally,

 Interestingly on the 5 min timeframe which is not intraday, in Crude Futures we see a strong positive divergence as well

 Even the 15 min Crude Futures (CL) have a leading positive divergence. What the actual mechanics are, a falling $USD or something else, I have no idea, I do know that this won't last long though so SCO long positions are staying open and I'd gladly add to them or buy USO puts as soon as this small divergence has run its course.

USO 60 min distribution.

NFLX and AAPL P/L for Closed Positions

With the fill which wasn't great, I should have made the decision earlier while there was still some momentum left, left the AAPL call position with a lousy 3% gain.

NFLX on the other hand was only in the market for 2 hours with a gain of 5.8%.

These aren't great gains, but this is how difficult Wall St. is making it to stay in a trade.

Quick Market Update

There are still several Bellwether stocks that look like they have some more on the upside to go. AAPL is one, but I'd going to look for a better, stronger 3C signal entry rather than hold it as you know it was closed.

Several averages look like they have more to go as well, the QQQ has a 5 min positive, but the 1-3 min don't looks as good, early pullback tomorrow in the QQQ and AAPL? That's my interpretation.

The IWM (which looks the worst of the 4 major averages on the 3C charts) looks like the QQQ, except with a negative 5 min, that is to say 1-3 min intraday charts are salvageable, but don't look greaT AND THERE'S NO 5 MIN CHART WITH SOME STABILITY LIKE THE Q'S.

The DIA 1-3 min is nothing special, it's not anything I would trade from, however there is a 5 & 10 min positive.

Perhaps the best example is the SPY itself...

 The SPY 1 min chart with the "W" in yellow, note the accumulation at today's lows, this is what I expected yesterday when I posted this as far as my expectations for today, "Working Thesis" 

The 1 min chart is in leading positive position, but intraday is going negative. This suggests an early pullback perhaps or maybe the EOD was it and a little more upside "gas in the tank".

The 15 min chart's trend is much clearer, we had no divergences out this far earlier today, now we have a leading positive 15 min SPY so it does look like volatility/chop, but still some more gas in the tank.

This is why I'm trying to trade around what I see as potential chop or drawdown for already short term option (call) positions.

I'll post more on the market in a bit, but it is really looking bad overall.

Went with USO June monthly $32.50 calls

Adding a SMALL USO Additional Call position

Closing Both NFLX and AAPL Calls

GOOG Charts

 1 min intraday looks like GOOG is ready to make its move.

The 3 min shows about the extent of the positive divergence, it's a bounce in an otherwise very troubled stock which I want to sell short in to (again)

At 5 mins you can see there's big trouble, it just gets worse from there so again, speculative, short term trade. Hit and Run

GOOG

GOOG looks ready to make a run higher. I don't want to take on any more calls at this point, but I suppose if you were looking for a speculative, quick pop to the upside, GOOG would be a good candidate right here.

I'll post charts next.

If You Have an Intraday GLD Call...

That you are looking to sell today rather than try to wait it out (I sold half today-the $130's and hold half-the $133's), this may be a good time, it looks like a GLD pullback intraday or at least loss of momentum is coming.

 1 min leading negative...

However not so bad that it has touched the 2 min chart so I think longer term (swing still), GLD has more to go, but it looks like it will correct soon intraday

Market Update

So far we have seen a little slow down in the intraday 3C charts, but this is normal behavior, the hard part is differentiating between normal behavior and the start of abnormal bearish behavior like a stampede.

So far I think we are fine, the DIa was the first to show an intraday pullback signal and it's the first to come out of that signal to return to a positive 3C posture.

Watching AMZN

The short term positive divergences in AMZN, which is a core short position that is at a profit and needs to still be filled out, are not strong at all; this is one that is crafting the market.

Right now AMZN is fighting to break through first resistance at yesterday's close.

I'm hoping AMZN can make it higher even though I have no calls, but it will give an even better add-to entry.

For those with no exposure to AMZN short, if you like the position, I think haggling over a few dollars here and there is really kind of silly when looking at the big picture. I'd have no problem at least opening a partial position here and if AMZN moves a bit higher today or maybe tomorrow, then I'd fill out the rest.

The bigger picture...

 3-day chart-incredible accumulation in AMZN at the lows, note how flat the price range is or rather I should say, "Stable" which is what they want when filling an order, not higher prices. This is huge accumulation in 2005-2009, we see distribution starting around late 2011 and leading negative at 2013.

I was hoping to add to AMZN at least above one of these resistance areas, I think the red trendline will be lucky, the yellow would be a gift.

Market Update & Market Concept

So far everything is going as expected yesterday. I need to keep an eye on 3C which is mostly confirming the intraday move higher, we should see prices above yesterday's highs before this move is done, but I expect as we move in to yesterday's close (the gap fill) we'll see some intraday resistance/ short term negative divergences.This is where we want to be looking at selling our calls in to strength as we did yesterday from Thursday and Friday's calls we opened.

The bigger trade is to set up the shorts, the calls should go first, then we should set up new and fill out existing short positions.

Here are the charts and as I said earlier and always say, The market's are Fractal in Nature, that which you see on a 5-day chart you'll see on a 5 min chart and they'll act the same because of human nature/emotion.

Check it out...

 So far the DIA 1 min is the only intraday chart starting to lag and go a bit negative, it may be because of the gap coming up, but this has not effected some longer intraday timeframes so I expect the DIa will keep moving, but it was not one of my favorites for a trade like this.

IWM 2 min is leading positive so it should have more to go and it's not seeing any short term problems yet.

IWM 1 min showing no short term distribution yet, which tells me they intend to take this higher before distributing.

 QQQ 5 min positive at both "W" bases , this is the fractal nature, a larger 5 min "W" pattern as a base...

And intraday the QQQ 1 min showing the same "W" base today alone as a bottom for today's intraday lows and where accumulation for this move was finished off.

That's the fractal nature of the market.

SPY is in line/positive thus far, but coming up on resistance at yesterday's close.

So far so good.

NFLX Calls Were June 20 / $210

I intend to close these as soon as I see a fall in momentum or negative divergences building.

I'd like to short NFLX longer term.

NFLX Calls

Again, this is a short term trade idea, VERUY speculative. However if I can get them in time, I'm going to try for some NFLX Calls.

VXX / UVXY

Both of these are going to make good swing type trades, probably longer. They are pulling back now which helps the SPY along with TLT down and HYG starting to move up.

VXX or UVXY long on a pullback will make for a good position for the bigger picture, for the market downside so while they are long positions, they are like being short the market in a way via VIX futures.

Keep these on your radar, as short term ETFs I'd prefer not hold them too long, and a new entry is not there yet, but may come up on us very fast.

 VXX 2 min leading positive even though it's pulling back intraday.

The chart that really matters, the 15 min, but we have even stronger positives out to 2-4 hours, the 15 is just a better tactical timeframe.

I'll let you know when I make a move.

BEAV

I'm not sure BEAV can make it much higher, at least not on its own, the divergences just aren't there. BEAV could draft the market of course as most stocks tend to do, but on its own it doesn't look good.

If I didn't have a short equity position already open in BEAV, I'd consider this area for a partial position, maybe 50% of the intended position size and hope it will draft the market and add the rest on some price strength.

As it is, I'll probably add to BEAV short if we get a solid set up.

This may not look like a sharp negative divergence, but consider the 4 hour timeframe, it is one of the strongest negative divergences out there now.

$USD is Starting the Run Higher - Yen Lower - Market Will move up

This is the USD/JPY, with $USD moving higher and the Yen set to move lower, this will send the market higher.

HYG

Even though Credit got SLAMMED, HYG looks GREAT right here for a call, I'd keep it small.

AAPL-

If you were considering a call option in AAPL for a very fast trade, this may be your last decent chance to get onboard.

If you are Trading GLD short term-Calls- I'd consider taking profits now

I'm holding what I have left for longer term plays

Market Update Charts

The SPY on the second bottom of a "W" base- This still is a VERY weak base

 SPY 1 min leading positive today, I'd like to see a head fake move below the SPY's intraday lows with continued intraday accumulation, I might be tempted to open a Call option trade in that case, but this is very short term, very speculative.

 The divergence stops at 5 min where you can see the entire "W" pattern and a positive divergence in to today's lows as a "W" should show. Typically we also see a run of the stops, the head-fake move I mentioned above, that would be excellent timing to look at a long for a quick trade, if you don't like options there always 2-3x leveraged ETFs, in that case I'd prefer UPRO (SPX 3x long).

 DIA 1 min with a nice intraday positive divergence, the market has used today's price action to create the "W" that was my "Working Thesis" yesterday for near term trade.

 The DIA doesn't go positive much beyond the 2 min chart and when going up against an hourly chart (night and day difference between the smart money flows-longer charts are heavier flows)...

The truly PRUDENT thing to do would to just be patient, don't even fool around with trading the upside move and just use upside price strength to sell short in to. That is my primary goal even if I do open some shorter term trades here and there on good signals.

IWM 2 min is about as far as it goes, the R2K often leads the market so I'm not surprised it looks the worst right now, 2 min is intraday not institutional.

Even at the 5 min, the IWM looks really bad.

QQQ 1 min intraday accumulation today as suspected yesterday...

However the divergence doesn't move past 5 min which can still cause a multi day run, but even at 5 mins, the divergences themselves are very weak.

I showed the $USD with a leading positive divergence, when it takes off to the upside then the USD/JPY above does the same and the pair just put in its own leading positive divergence so this tells me the market's intraday bounce is close at hand.

We have to see how fast they sell in to price strength, I expect pretty fast.