Daily Wrap

Tonight is going to be short, the market was very dull today, that often means something surprising that catches people off guard is in the works, dull markets are a thing to be respected, that's what I've learned.

For whatever reason it seemed throughout the entire ,market that it was purposefully being held in a range, it seemed to want to move a bit more so the action seemed more like for some reason they wanted the market treading water.

HYG credit outperformed the SPX on a relative basis, even the illiquid High Yield Credit acted better than the SPX which closed up +.95%

Whatever happens in the interim, and you know what signals have been pointing to, it's my job to remind you (since we are watching every move of the market every day), what the big picture looks like, this is where out concentration really needs to be, any lift in the market is just a means to this end.

The Trend Channel shows the trend is CLEARLY broken, in fact the May 22nd 1-day Key Reversal was EXACTLY all that when I wrote about it being a very important day (red arrow). Volatility seen below is at its highest since 1 time in 2010 and 2011, then 2009 so the moves are going to be stomach churning, there it is at the bottom of the chart. In any case, the point is, the major focus should be aligning our portfolios with the major trend which is now down. Sub intermediate and short term trends can still have incredible power with this increased volatility, that's why we play them, but their real utility is being able to sell / short in to them and this is just a reminder to keep your eye on what's going on day to day, take the opportunities where they can be found, but don't take your eye off the prize which is sitting above very simply.

As for today, while it was rather hum-drum, sentiment (not retail) ramped up around 11 a.m. and like credit, outperformed the broader averages, again they all seemed to be in some kind of consolidation, no that's not the right word, "Pause" mode.

Strangle there was a former carry pair that seemed to be running tick for tick with the market, the AUD/JPY, why? I have no idea, but it has good correlation with the market today. The Euro did not have good correlation, it underperformed the market.

I mentioned Yields being a magnet pulling equities toward them, very short term they've reached reversion to the mean, longer term (probably along the lines of the 30 min positive divergences in the Index futures), they are still leading the market, right now they are suggesting a move just to make it to reversion to the mean of about $1645-$1650.

Commodities overall were what appeared to be "weak" vs the SPX for a second day, but again they had a fairly tight inverse correlation with the $USD, not as tight as yesterday's and as I mentioned today, the entire market ddid not have the tight $USD correlation we've seen since last week. My guess is the $USD was behaving a bit better due to today's better than expected macro-economic data and for whatever reason there was a sort of dichotomy , in one sense the market should have been lower with the stronger $USD, in another sense, even though it was acting stronger than its expected $USD correlation, it still had this "air" of being put on "pause". An interesting day for sure, I'd really like to find the one pice of data that explains it as I think that piece of data would be invaluable for near term trade over the next day.

Sector rotation today wasn't all that interesting, the safe haven groups like Utilities, Healthcare and Staples would be expected to dip, they all did except Utilities. The only interesting "Risk on" standout was financials.

One impressive area today, was the carry over from yesterday in Precious metals. SLV and GLD especially follow by GDX, look like they are ready to blast off for at least the kind of hit and run trade we have set up with options.

If I were a betting man (and I guess that's sort of what we are in a sense as long as we have an edge), I'd say these go tomorrow.

Here's what I mean even though I posted a more comprehensive update earlier.

 GDX or NUGT (3x leveraged long) gold miners looks incredible.

GLD is just flying.

And SLV. Two things, 1) look at price action itself, what does it look like? "DULL", exactly what I was warning of today, if we didn't know about this behavior and didn't have 3C, these would probably be the last assets we'd be interested in. 2) Is "I NEVER IGNORE CHARTS LIKE THIS" this is exactly the kind of edge I'm looking for with 3C, I'll take these positions every time with divergences like that.

I'm not convinced of their staying power, but for the option and 3x leveraged trades set up, these are perfect with this kind of market volatility. I'd set alerts if you have positions in any of these so you know when they move and are able to take out the largest slice of the pie. It was odd seeing this one group so different than everything else and I'm REALLY excited to see what kind of gains we can pull out of these. I'd take a good look at the price ranges, these are what you want to look for, this is where the institutional action is happening and it's the exact opposite of what most people would think.

I think USO has a good chance as well at another quick move and I was able to achieve the goal of taking USO profits earlier today at $1.70 and ended up reestablishing the position at $1.63 allowing me to hold on to a good chunk of the gain and still get back in to the position, this is real "Hit and run" trading, but with that volatility screaming like it is, the moves up and down can be sizable, even if the market essentially goes nowhere by the end of the week. Options trading is very different fro equities trading.

Beyond that, those 30 min charts are still looking very good, those are also the kind of charts I don't ignore.

However, right now, the Nikkei futures are looking pretty bad, we started out like this in Asia last night as well, not that it means anything, it just goes to show it's a long overnight session.

I think tomorrow we're going to take a much closer look at TLT 20+ year treasuries, I have stated for at least 4 months that I think something big is happening there. I took a core long position in TLT become seeing negative divergence short term and closed it at a gain, but have been looking forward to starting another one, tomorrow may be the day I do that or at least start, this "should" be a core position that aligns with the major market trend which will be down, interestingly they haven't had the best correlation with the SPY whereas they use to have a very tight inverse correlation, this is part of why I think something is going on, beyond the strong positive signals.

The truth is, today I didn't feel like I pulled anything useful out of the market for near term trade as in tomorrow or tomorrow for the first half of the day, I would expect that to clear up, but this wasn't the same opaque non-existient signals before the F_O_M_C last week as the USD/JPY carry trade flipped 180 degrees, the signals were clear, they were just hovering right in line with the market and when I backed out to look at the larger intraday trend, I found the averages were scattered, at least on the intraday charts.

I hope something big appears in the futures tonight or pre-market tomorrow, right now as mentioned already, the Nikkei doesn't look great as of now. The $USD short term looks like the market did on intraday charts today, so not much help there and Index futures are scattered short term (1 min) with ES positive and leading, NQ about in line and TF negative! What they all do share in common is that 30 min divergence which I don't think is far off and I do think it will surprise a lot of people, even if only for a short time (with volatility this high, it doesn't need much time to create an emotional hurricane).

 ES 30

NQ 30

TF 30

There are a lot of reasons I trust these, they are all leading and confirming, they are leading at the same time and at the same place. In fact I drew a chart today showing where the ES divergence started around $1600 and showed the price pattern there with the start of a left shoulder of something like an inverted H&S base, if you look at NQ and TF, their divergences start at the exact same place, that's smart money making a move across several risk assets at the same time and it's fantastic confirmation for what will be a supper move.

In fact, these divergences are now on the 60 min. timeframe too, I have very little doubt this is going to set off a move that will surprise even me.

 ES 60 min

NQ 60 min

TF 60 min

AFTER NEARLY A DECADE OF USING 3C, I'VE LEARNED NEVER TO IGNORE SIGNALS THIS STRONG WITH THIS MUCH CONFIRMATION, WHENEVER I HAVE, I'VE REGRETTED IT.  This is why I can see a nasty day down like Monday and not sweat it, I know what's stored up, what's coming and that it will make the wait and any short term frustration worthwhile.

It always reminds me of what Jesse Livermore (considered to be one of the best traders of all time) said,

"It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I've known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine--that is, they made no real money out of it. Men who can both be right and sit tight are uncommon."

Every time I post that I get at least one, "Yeah, but..." Again, in my experience, if you have a real edge like those 6 charts above and you get run out of your positions because of emotion (not objective data, but market volatility that causes emotion and panic) you are doing yourself a great disservice, it would be better to take a 1/10th normal size position as to lower any emotional reactions and make the money that comes with signals like that than to have confidence looking at the chart and then folding at the first sign of market volatility, it's always going to be there because that's Wall St's job. 

Like they say in boxing, "Every fighter has a fight plan until the first punch lands", trading takes discipline and that means both discipline in your technique and management and discipline over your emotions. I guarantee you there are VERY few people who have the knowledge of those six charts above, except those that created them and they are the same ones creating emotional chaos because this is a zero sum game, for them to make it, you have to lose it.

I'll see you later if anything develops before midnight of interest, otherwise I'll see you pre-market.

Please take one more look at the very first chart posted at the top, even though we have these 6 charts above and this should be a fantastic trade, it is still just a means to an end, keep your eye on the real prize. And I'll help you do that by adding more core short set ups that you can prepare for and let the trade come to you.

FSLR Follow Up

FSLR is a position that is not only among call positions, but one that I have felt had legs of its own, I did say I think the market in general will need to act like a spark plug to get the engine cranked, but after that, FSLR has its own thing going on and it could either A) out perform the market on a relative basis over the same period or B) could possibly run longer than the market in the end. It is for these reasons I have also liked FSLR as an equity long position.

Today FSLR was up more than 8%

 At last check FSLR was just under +8% for the day on good volume.

This chart may not look that impressive, but it's a 60 min chart, very few positive divergences are hitting 60 min charts so the top was not only called very clearly with heavy distribution, but this recent bottom with heavy accumulation. For this reason I believe FS:LR has legs of its own and doesn't need to hitch a ride with the market.

30 min

10 min

Interestingly the 10 min has a negative that developed in the late afternoon, the divergence flowed or migrated from the 2 and 3 min charts...

Here's the 3 min.

Remember though, all new divergences start on the 1 min chart so the 1 min went negative , then the 2 and 3 min and then the 5 min, that seems to have been to cap FSLR from moving way higher on momentum, it could have been profit taking, but I get a different feel. The point is, whatever the reason for slowing FSLR down, the 1 min is now moving positive and should move across the various timeframes until it erases the 5 min chart's negative.

Why? It could have been "Over-Steer", they put a little too much supply on the market and were correcting it, it could have been the task of capping FSLR at 8% was completed, FSLR was paused and now they are ready to get it warmed back up or it could have been profit taking, but I don't really understand why there would be a 1 min turning positive as we are not at lower prices where a pullback would be accumulated.

For whatever the reason, this just seems to be another book mark or maybe we should call it a "Book-Market". There seems to have been a very clear effort to hold the market in place, perhaps they were looking for shorts to jump in as it seems retail did today and that wouldn't have happened if the market made a 3 +% 1 day move today.

Shorts in a scenario like this are basically fuel, Wall St. doesn't have to invest any money to push the market to the next cluster of BTC stops or buy orders, they simply let a short squeeze do the work.

Closing Pullback?

You've probably seen a lot of charts that are nearly perfectly in line today, that means 3C is moving with price, there's no divergences and that is most often seen on intraday/ short term charts like this. Some times we see it on  longer charts which simply tells us that the trend is stable for now and to expect it to continue, on short term charts they can change so fast that it doesn't have the same meaning.


Here are a few Index Futures and the $USD, there's not much out there that is moving outside of the "in line" status, the $USD 1 min is though and this is the only reason at this point I would even suggest an EOD pullback.

 ES 1 min is almost perfectly in line, it's also wedging  intraday which usually means the trend is not as strong (keep in mind we are talking intraday).

TF 1 min-Russell 2000 Futures, very similar to ES.

Here's the $USDX, note the 1 min chart moving more positive, if the correlation holds and with the ES chart wedging like that, I think it will, then the $USD should pop in to the close which would send the market lower in to the close.

Still all in all, I don't think any of this means much, today seems to have been carefully orchestrated across multiple asset classes to act like a page holder, nothing happened in the market today beyond the opening and whatever the close is, so it seems this was a way to freeze the market and buy some time, for what purpose? I have no idea.

Adding AAPL July $400 Calls to Yesterday's AAPL Equity Long

These are just to give the equity long a little boost that I obviously can't at 2 or 3 x leverage.

I like what happened when AAPL crossed below yesterday's close today and below $400. I like the fact that the divergence is now showing up on 15 and 30 min charts, I noted yesterday and I think last night that Institutional money didn't get the volume I think they were hoping (and the volume they'd need to enter a long position undetected) on the break of the two triangles (large one and small one), but the break of the psychological $400 level did it, since that break, the 15 + 30 min charts have gone positive so if you ever wonder who took the other side of the trade because someone has to, I think the 15/30 min charts answer that and I like where AAPL is sitting.

 AAPL 1 min

5 min-I think the divergences are obvious.

The overall 10 min since we first saw that suspicious triangle. By the way, I think AAPL easily moves above that triangle before it is all said and done.

The 15 min chart as AAPL took out stops and orders <$400

And it's quickly spreading to the 30 min chart.

Underlying action has to be strong enough to show up on these charts, this would mean the move under $400 was likely very heavily accumulated between all of the supply from sellers and short sellers-it's all supply and that's all Wall St. needs to enter.

Adding Back USO Calls- July $32.50

Hopefully I get a better fill, that was the idea.

The reason for adding them back now...

This 3 min USO chart shows the reason you have to pay attention in these markets, there's strong accumulation going on right now, the market will not be range bound much longer, at least not USO and I suspect the entire market.

IOC Update

IOC was an equity core short position, I closed half of the position yesterday for about a +22% gain at nearly perfect timing and I'm closing the other half today. I will re-enter IOC as an equity short, but like many market signals, it too looks like it has upside ahead of it and I'd rather take the gains now and re-establish the short at higher prices.

 The gain in IOC once covered will be just about +17.5%, I could have covered the entire position yesterday, but I though I'd see how it responds and ride out half and add back the other half. However from the chart below, I think it is better to take all the gains now and re-establish a short equity position at higher prices which seem to be clearly coming.

IOC 15 min has had time to build a decent positive divergence, I think it will make a great short on a move higher, for now though, it has been a great short and I'll wait patiently for the next opportunity.

VIX Futures / Market Update

As mentioned last night, yesterday the European markets were torn to shreds hitting multi month-almost year (multi) lows in some cases, but there was no flight to safety yesterday as the Swiss 2 year yields hit 22 month highs, Yields move opposite bond prices. I found that very interesting.

VXX / UVXY and XIV are short term VIX Futures and they also show another kind of flight to safety trade.

VXX is the VIX short term Futures, if they are moving up, then traders are bidding up safety or rather protection, if they look to be coming down, traders are moving more to a risk on posture (for a market bounce).

UVXY is the leveraged version of VXX, both move opposite the market.

XIV is the inverse of XVV, it moves with the market.

VXX 1 min is in line intraday, no positive or negative, just nearly perfectly in line, treading water more or less very much like the market.

UVXY 2 min the 2 min signal hasn't seen any kind of strength at all from the 1 min and is still leading negative, this suggests VXX / UVXY move down near term and the market moves up.

UVXY 3 min shows the same, the VIX futures aren't looking good.

VXX 5 min is a very strong near term signal, bad for VXX and UVXY, but good for the market. I do wonder if it makes a move toward yesterday's close before the end of the day, that would send the market on a dip toward its close yesterday, then a stronger move down in volatility and up for the market as you see following the longer timeframes from 1-10 min. reflecting

UVXY 10 min is a strong timeframe and makes the trend pretty clear.

This is the inverse of all the charts above, XIV, if you wanted to be short the VIX futures or short VXX, you'd buy XIV long which is similar to buying SPY long as far as market direction.

XIV 1 min again the 1 min is almost perfectly in line just like today was a book holder for the market. There's no deterioration, just an almost perfectly flat 3c/price trend which fits the market's rangebound trend today.

XIV 5 min is clearly confirming the negative charts above in VXX/UVXY.

XIV 10 min and just as they were 10 min leading negative, this is 10 min leading positive, this is CONFIRMATION and all in all, is a good signal for market upside 

GLD, SLV and Miners (GDX & NUGT)

I covered these yesterday and entered a few positions, as soon as I'm done position this, I'm going to review open positions and almost certainly add to or initiate new longs here.

 GLD 1 min has added quite a bit to the leading positive today

GLD 3 min in good shape despite a little pullback.

GLD 5 min with a larger relative positive divergence at this morning's lows.

 And the 15 min chart making head way.

SLV 1 min adding to yesterday's nice signal through a correction today.

2 min chart flying...

10 min chart is building more

And to have a positive signal on a 30 min chart is always a good thing.

 GDX (Gold miners)  2 min-notice all of the PM's are seeing VERY strong 2 min leading positives today, those should filter or migrate through the longer timeframes.

GDX 30 min leading positive

NUGT is the 3x leveraged long gold miners. 2 min

NUGT 5 min- keep in mind the correction today.

NUGT 30 min, this is one reason I like a NUGT long position, although call options in GDX are nice as well, I think this allows you to ride out the trend better and with 30 min leading positives, it looks like they will see some tradable trend.

GLD, SLV and GDX/NUGT

I'm going to have the charts out shortly, I'm capturing them now, but I wanted to let you know GLD, SLV and NUGT which looked good yesterday, look even better today.

Charts are coming.

Charts

* I'm glad I took USO profits-at least for leveraged positions like Calls, they are already at a better price point which means that the position would just be losing its gains right now, instead I could re-open the position now and have a better price point and pocketed the difference in profits. I'm not saying I think USO is ready for a new entry yet.

These are just some charts giving you a visual of what I've been talking about today.

 This is the SPY/$USD correlation as of yesterday's close, it's quite clear, an arbitrage (legacy) correlation.

Here you can see the correlation acting as it should through yesterday's close and then today's difference which I already explained why I suspect it is there and that I believe it to be temporary.

 The $USDX 1 min futures showing them starting to drop after an initial -pre-market/ early morning spike higher.

This is the 15 min $USDX chart which is becoming more defined in its negative divergence and below...

 The 30 min $USDX that went from a leading positive divergence at the $USDX lows, the divergence showed the accumulation of the $USD in to the lows and then a move to the highs for the period. Ever since we have seen a leading negative divergence, this is the simple concept of selling in to strength which is different for smart money than it is for us because of position size, they have to get started earlier.

 This is the confirming 30 min ES chart with a leading positive divergence (confirms with many things, but in this instance with the leading negative 30 min $USDX above).

I've mentioned this from time to time, it's worth mentioning again. In my years of experience with 3C, I've seen this to be the case far more often than not. As mentioned above, institutional money needs to start building positions in to weakness and selling in to strength long before we do because of the sheer size of their positions. You'll notice the ES 30 min positive divergence really started around $1600, it continues in to lower prices because they need the time (the concept of the process) to accumulate or distribute positions the size theirs are. Even though common sense would tell you, "If they started accumulating at $1600 and continued through $1550, their average position cost would be somewhere in between". That's common sense. The reality I have seen over and  over through the years is that price (on the reversal) will often move significantly higher than the initial area of accumulation ($1600). 

I just say this because you might think if their average cost were something like $1560, they only need to move the market above that level to make it a profitable position, but in reality the moves tend to be far above that level even when there's a huge discrepancy between the start and end of accumulation (A VERY wide range of accumulation).

Looking at the SPX intraday chart and the $1600 area (which is interesting that accumulation would start there as it's a whole number/ psychological magnet which would likely see a lot of supply become available), it almost looks like a larger Inverse H&S.