Daily Wrap

I'm looking at 27 charts I've captured to show you different aspects of what's going on, how it's developing and where the probabilities are, but looking at those 27 charts, it feels like a waste of your time and mine because nothing has really changed, the expectation is the market lose some ground and still has a nice move to the upside (stronger than we have seen) that we are hitch-hikers on and that delivers us to the prize.

I'll just address some of the points that are developing.

First you saw the market today, the Dow was up as much as +174 points and closed up +63, meaning it gave up 111 points from intraday highs. The Dow, the SPX and the NDX all hit 50-day moving average resistance again (Thursday as well) which only emboldens retail short sellers.

Despite what AAPL did today (I'm wondering what AAPL's weight is now that it's around 42% off its highs, you can find out the exact proprietary weighting from NASDAQ for a $10,000 a year subscription, but in the past it's been around 20% of the NASDAQ 100 or about the same as the bottom 50 NDX stocks combined) the NDX still closed near the bottom of its daily range, but still closing better than the Dow and SPX, but at +.61% only about half of the Russell 2000. Oddly, even with AAPL's greater weight on the NDX, the NASDAQ Composite closed better on the day at +.92%.

With the larger averages like the R2K or the entire NASDAQ Composite closing stronger, I naturally wondered what some breadth indicators looked like, what I found was not as strong as I expected, but it was the higher momentum (assumption is higher beta stocks) did better today such as "Percentage of al1 NYSE stocks either 1 or 2 standard deviations above their 40 or 200  day moving averages" vs simply "Percentage of stocks above 40 day or 200 day moving averages". I haven't drawn any conclusions from this data.

The Dominant Price/Volume relationship among the component stocks of the 4 major averages was even more dominant than Friday, again with "Price Up / Volume Down", which is the most bearish of the 4 possible relationships and once again implies (normally) that the next day will see a close down (like a 1-day oversold indication).

As you know, late last week I liked the Precious metals, gold (GLD), silver (SLV) and Gold Miners (GDX or NUGT). Today NUGT was closed for a nice, quick gain. Gold and silver diverged (+1.70% vs -0.21%) giving Gold it's best 2-day gain in 4 years, with that gain and the fact we liked it last week it is hard to argue that this was coincidence. While I think Gold (GLD) and Gold Miners (GDX & NUGT) will see some near term weakness, I don't think they are close to done with their move to the upside and I think Silver has just as strong a move coming and may in fact rotate in within the next day of so (I'm thinking more like day).

There were some interesting moves in credit (this is imporotant because Credit tend to lead the market. Although there are several sites I respect who believe credit and the SPX are seeing a "Pairs" convergence trade, I haver to disagree with them and I'll show you why, but first, the only of the major S&P Industry groups to close red today and by a hefty margin compared to the other groups, was the "Flight to Safety" group, Utilities (down -1.25%). While this may not seem like anything significant, think about our expectations for the next move to be to the upside and pretty darn strong, money would naturally flow out of the safe haven trades and in to the more risk on positions such as HY credit.

 I can't explain TLT's relative strength today as a flight to safety trade (TYPICALLY), but as you know I have suspected there's something more going on there than we understand and outside its normal correlation. That being said, the nearly flat long dated treasury did seem like it was seeing some negative divergences in to the last week or so and while the 10 and 30 year Treasuries seem to be losing 3C support near term, they definitely have something going on longer term which is probably about the same trend as the market collapse trend or the "Prize". I suppose under normal correlations that would make perfect sense, but considering why the market (at least the near term catalyst) should collapse, it doesn't really make a lot of sense as the F_E_D is absorbing about 70% of all new issuance and when QW stops, so does the demand so I haven't figured that out, but judging by the long term TLT chart and the 10 and 30 year futures (long charts) it seems someone has figured it out and is bullish on both big picture.

There are some things that changed today among leading indicators, the $AUD and Euro became a bit more supportive after falling apart Friday, HYG, High Yield Credit and Junk credit showed better relative performance vs the SPX in to the closing hours today...

 HYG looking better in to the close, which is what is giving rise to speculation of a pairs trade (SPX short, HYG long) for simple convergence and nothing beyond that, which I think is wrong.

 Junk Credit acting better in to the afternoon hours

And High Yield Credit, the low liquidity, skittish credit acting much better in to the close.

I can see why some would look at this, especially HYG and suspect a pairs trade, but...

 "IF" that were true, then HYG wouldn't have seen short term accumulation until today, it started Friday.

As far as the longer term expectations for the market, HYG wouldn't have a 30 min leading positive of this size if the Pros thought the market was simply headed down, this is institutional money's risk on trade like we might use UPRO or QLD. 

Junk credit improved today, the market can still pullback while credit improves, that is usually how and why Credit is considered a "Leading Indicator", "Credit leads, equities follow".

 It's not just HYG with the longer term, strong 30 min leading positive divergence, it's Junk Credit as well.

 And High Yield Credit (10 mins)

High Yield 30 mins.

The bottom line is, if credit and the smartest of smart money were truly concerned about the near term trade, credit would be the first to be sold, not with strong leading divergences already in place which means most of the transactions have already occurred, they are already committed to an upside move in the market. This is also part of the reason I disagree with some smart cookies out there who believe this is simply a "Pairs" trade, but when you only have price and OBV to go on, you don't have the same edge we have.

Some other indications today were sentiment indicators such as HIO and FCT showed better relative performance in to the close, normally if they were worried about the near future (this isn't to discount a pullback move, but speaks more to what comes after the pullback or perhaps even consolidation-although I suspect pullback)  they'd be negatively diverging and heading lower, not higher in to the close against the market trend.

Yields longer term are still well above the SPX and as such, speak to a move higher in the SPX to come. Very short term Yields intraday have lost some more ground so that would again suggest we do see a pullback move before an upside move.

Commodities acted better today and the blame can't be placed on the legacy arbitrage correlation they have been showing with the $USD the last several days.

Perhaps most important to the idea of a near term pullback in the market is the VIX futures, VXX and UVXY (also XIV).

 VXX 3 min leading positive like the SPY's 3 min leading negative, both suggest the market pullsback near term.

 Even the UVXY 10 min chart is leading positive, this suggests it's more than just a simple pullback as I argued for last week, I would think it would be strong enough to make a lot of people, even some of us to doubt if the market can indeed put in that upside move I'm expecting.There's no point in the market doing something in half measures, either it is going to create the intended effect or why bother?

When we look at the opposite of both VXX and UVXY, XIV which moves with the market, we see a leading positive 60 min chart arguing for that upside move after a decline- so indeed nothing has changed since last week.

As far as the averages, Index futures and their divergences...

 SPY 3 min leading negative divergence, almost the exact opposite of VXX and UVXY, in other words, confirmation.

This points to the near term pullback.

 However looking at the IWM 30 min, it's leading positive, this points to the larger upside move. I could show you every average and every timeframe and the effect wouldn't be any different.

TF (R2K futures) 5 min point to near term downside.

ES 15 min also points to the same, so this does look like it will be a respectable move and cause some fear among any one thinking the market has an upside move to go, but as far as the overly bearish retail crowd, they'll be quite happy.

And NQ (NASDAQ 100 futures) 60 min chart with the leading positive divergence I expect to lead the upside move. Again I could post all of the timeframes for each Index future, but the effect would be the same.

So you see, NOTHING as far as expectations has changed, thus some of my moves in taking upside gains today and entering positions like UVXY that will benefit from a near term downside move.

The only thing that today really added as far as I'm concerned was further confirmation in things like Credit, averages, yields, etc.

Early Evening Futures

There's some interesting activity in futures, keep in mind these are only 1 min charts and they very likely will change several times overnight before pre-market, but for now, they do look interesting.

Context for ES is near flat, about a negative 1 point differential.

 CONTEXT's ES model vs ES almost dead flat.

 However there's a 1 min positive divergence in ES apparently leading it higher, again I don't read much in to these futures at 1 min this early in the night.

NQ (NASDAQ 100 futures) look similar

GDX / NUGT Update and P/L

As you know NUGT (3x leveraged long Gold miners) is one of 3 PM positions, I felt the short term leveraged long (NUGT) was in a better place to be taking profits than to ride out short term pullbacks which seem more likely.

At the fill of $6.31 for a NUGT long equity position, the P/L came to +11.1% which isn't bad for a quick ETF trade.

This is why I feel that the short term probabilities are on the side of a pullback and thus took gains here. There are no "sure things" in the market ever. 

For example, we had an amazingly strong $USD positive divergence and the main correlation with risk in the market was the last carry trade standing, the $USD/JPY, that means unlike the historical Legacy Arbitrage correlation between the $USD and risk assets which is historically exactly the opposite, since November 16th 2012 the $USD moving up meant the Yen moving down and this was THE "Risk on" signal for the market.

While the other two carry trades, the AUD/JPY and EUR/JPY took weeks/month to unwind, the $USD/JPY unwound and flipped correlations 180 degrees in one day on June 19th. 

The bottom line is we had a VERY strong signal telling us the market was headed in one direction as the correlation was nearly perfect for 6 months (and increasingly so), then it flipped to its polar opposite in 1 day (It was unusual for the correlation to flip and certainly unusual for it to flip that fast whereas others had taken weeks to slowly flip). The lesson is simply, "There are NO "Sure Things" in the market, just objective evidence and probabilities.

 Looking at the intraday 1 min GDX (Gold Miners) chart above, what does the highest  path or probability of direction look like?

 NUGT is a 3x leveraged version of GDX, but it trades its own volume, has its own supply/demand dynamics and is even managed by a totally different company, yet its intrraday chart is nearly identical to GDX's.

GDX 2 min tells us the divergence wasn't just a paper thin 1 min chart, it migrated to a longer timeframe making the probability of a pullback more than 50/50.

The NUGT 2 min chart loos exactly the same.

 GDX 5 min which is a fairly strong chart beyond intraday obvious;y has a negative bias to it. The NUGT 5 min is almost exact;y the same, the signal sure is.

GDX 10 min suggests that the move to the upside is just getting started, of course that doesn't preclude short term corrections as the charts above hint at.

The NUGT 10 min looks almost identical.

GDX hourly may not be telling us that gold miners are about to shift in to a primary bull market, but it does suggest higher prices well above and beyond the current position.

NUGT 60 min  is almost indistinguishable. There's no special correlation in 3C between these two, it's no different than comparing Financials to AAPL, if there's a correlation this high between the charts it means they are both seeing the same action, that's what we see here.

Short term, I think it's worth taking profits and waiting for a better, lower risk entry. Longer term I think we have pretty significant upside in NUGT and GDX.

AAPL Update

I think if you are trading AAPL options short term this is probably your last chance to get out with a decent gain.

I still have not touched the AAPL equity long position which is at  a nearly 3% gain, meaning  with AAPL's +3.39% gain, we entered AAPL long (equity) less than a half a percent off the lows, that' pretty darn good  and I'm not a believer at all in top or bottom picking, I'm just a believer in taking a position when the signals are the most favorable.

The point really is that the timing for an option position was right, but at the same time, I believe in a longer term trend in AAPL that an equity position is better suited for.

As far as the charts.... AAPL is an EXCELLENT example of what I mean when I say certain stocks like AAL, FSLR, MCP, etc, are going to show better relative performance as the SPY is up +0.54% vs AAPL at +3.35 %.

 AAPL 1 min intraday has gone south

2 min intraday doesn't show much reason to hold on to short term positions.

The 3 min is very clear as to what the intraday underlying trend has been.

Even the 5 min shows the same to a lesser degree.

Of course I fully expect to be in AAPL calls again based on this 30 min chart and the equity long is more based on this chart than the short term ones.

UNG Update

I've been looking at this one and trying to make a decision, I think I've found a good compromise.

 As far as a reversal process goes, UNG is pretty close to proportionate, but it needs to be established that this is an upside reversal process- as many of you know, I consider UNG and likely some individual stocks in the NG area to be looking at a long term secular bull market, UNG is still well within its base that is considerable in size.

We will look at some other individual stocks as well as I talked about over the last week or so.

 I looked at the normal 3C charts for UNG and they were pretty much in line with the idea of a reversal, very , very short term I had some doubts about, but that is actually where the compromise is.

This is a version of 3C I don't use often, it's really trend only and lacks the detail of the other versions, but is designed to be that way, to uncover the trend and remove the details that can also make up noise.

I probably could have stopped at the 60 min char, the trends here are pretty clear and would be behind the idea of a reversal process currently.

Although the version is not designed for detail, the 15 min chart is very clear in the area of the reversal.

The 10 and 5 min charts are as well.

So considering the 60 min and the 15 min which brings us closer to an actionable trade, I decided that in order to add anything to UNG I'd need to see a head fake move first. The range for accumulation is there and the range is clear enough that it should be able to draw a head fake move or a stop run, even though it seems that a large nest of stops were hit recently.

The other possibility is to wait for a move above the range, I'm not as comfortable with that and either way there needs to be confirmation so I'll be setting alerts for both sides of the range, but it does look like the trend is favorable here.

Taking Short Term Profits Out of NUGT

I'll post charts next, I'm sure I'll be back in this in a matter of a couple of days. For now the short term probabilities are with taking the profit.

If you are treating this as more of a swing trade or transaction costs are high relative to the gain, I might just sit it out in that case, I feel good about more upside.

MCP Update

It's exceptionally difficult for any stock to escape the gravitational pull of the market, it's really the sentiment pull, but MCP (although not immune) apparently has some true institutional believers and they'll let MCP float with the market because it opens opportunities for them, but on days when the market is up +.75%, I'd say MCP will be up 2% (as an example of relative performance), on days when the market is split with half the averages up and half down by a quarter percent, MCP should be up.

In other words, MCP is one of the few stocks that has legs of its own not based on general market sentiment, but something we're likely not aware of yet.

In any case, here's the update.

 The 1 and 2 min charts are useless, but the 3 min above and 5 min below are quite clear as to the near term trend to expect from MCP.

5 min

The 15 min chart is very clear as to what to expect after this next wave finishes.

And as to how much gas is in the tank, how much support is behind this, this is the daily chart.

 Here's the X-over chart, 60 mins. Normally I'd say the pullback would be to the blue 22-bar, but we're too volatile now and that would leave a gap open around $5.60-ish, I'd expect for that to be filled so you might set some price alerts to remind you as MCP is almost sure to be an add-to or a new long position, I'd prefer equity long, but I think both can be used on the initial reversal.

ES / Futures

ES, like FSLR seems to give us the same kind of trend expectations.

I've been noticing and pointing out recently that signals like a 15 min negative divergence that in a much less volatile time may have led to a -2% decline over a week or so is now leading to similar size declines of advances based on the divergence, but the time period itself is much more condensed, what might have normally taken 5+ days can now happen in 1 or 2 The reversal process between moves is still largely in effect, but even they are getting shorter because even at a shorter length they are still proportionate to the character of the market because of increased volatility.

In any case, ES or the SPX E-mini futures

 Intraday 1 min chart

ES 15 min chart, this looks to me like a pretty strong correction, but it still seems like a correction with some cap on it because...

Even at a faster 30 min chart, the size and strength of the positive is just screaming more upside.

I'm not EXACTLY sure why I'm not as excited to trade this move in the market, I've felt like this since first identifying the probability Thursday which made perfect sense from a Window Dressing P.O.V. considering that any trades for the end of quarter had to be in by Wednesday, so it's not surprising character changed Wednesday, it's not surprising AAPL's price action flipped late last week because as I said, if I were a fund manager I'm thinking about two things, 1) I don't want AAPL on my books for Q2 as it has not been a stellar performer, but 2) I know AAOL is about to turn its trend and I want to be onboard so as soon as Wednesday has passed, I can move right back in to AAPL and take care of both concerns.

In any case, my reluctance to trade this move in any size has something to do with concentrating more on higher probability moves and staying focussed on the prize, but there was also something in my gut that I can't explain, perhaps from looking at a number of charts and having a slightly unsteady feeling.

However now that I think about this week with a half day Wednesday, the market closed Thursday, no one from Wall St. (other than essential personnel) is likely to cut a 5 day weekend short to come in Friday, it tells me algos will largely be in charge of a thin market, that's just unpredictable volatility I don't want a part of, whether they are head line scanners (even though Economic Data is rather light for the US this week) or they are correlation/arbitrage or who knows what.

I think this is the reason I felt in my gut (and perhaps just from looking at a lot of charts), that this isn't the time or place I want to be making any big moves.

In any case, the point is that with this week as chopped up as it is, it makes it REALLY difficult to say when those divergences complete. I'd guess the downside move won't see the upside reversal until humans are back in the office, but that doesn't mean the entire week is down, there can be a lot of chop when algos that are programmed to follow one thing and don't have any discretion are running a low liquidity market.

I'd say if there were a time to lay a bit low, this is it unless something is screaming "Buy" or "Short me!"