Daily Wrap

I'm trying to think of the easiest way to  demonstrate a fairly simple concept that has a lot of moving pieces. First, nothing that happened today changes any of the analysis from late last week, Sunday, yesterday or today. 

Imagine being a weatherman/woman and you are forecasting a Hurricane that will make landfall in 12 hours in South Florida, that's the broad strokes, but a hurricane can make a slight wobble (not even a course change, just a wobble) and that wobble can make the difference between the storm making landfall in Miami or 70 miles north in Palm Beach. One year we had a storm that was coming across the state at a pretty decent clip and then just stalled and spent 13 hours on top of us. 

The point is the broad strokes, the trend is there, but until you get your hands dirty, you don't know what you're going to find.

Earlier in the week (before we came up with all of these volatility events converging on Friday), I wasn't sure if the chopped up, light volume, computer dominated week would stall the move to the downside or make it worse, I just knew that the signals were all calling for a move to the downside while other indications were showing and continue to show that the move started on the upside last week really barely even started and has (what continues to look like) a lot more upside to go after we finish this move.

So if the hurricane example of landfall were something akin to how a downside move proceeds this week or next, today's little end of day jog, while it became pretty predictable, would be like trying to tell your viewing audience (as a weatherman) where lightening strikes will fall within the hurricane.

As of yesterday I was thinking I might just sit this out and wait for the larger trend to develop, that would be like me packing up my family and leaving the area until the storm passed, come back once it's over, make an assessment as to what happened to your property and moving forward. Instead I picked up a couple of positions, UVXY calls were one, so the end of day lightening strike that caused my power to fail means I have to start my generator and that would be like me having to make the late day adjustment and decide to close the UVXY call at a nice profit for a day.

As far as I'm concerned this doesn't change much, for example...

This ES (SPX futures) 15 min chart and the leading negative divergence represents the potential for a strong downside move, obviously no upside attempts have been able to hold as the Dow lost 180 points intraday today- that's no where near bullish, unlike last week which we noticed a change Thursday and Friday and that change is evident on this chart.

I can't forecast how deep of a move this will be, I can only say that from the increased volatility, the size of the divergence and the reasons for such a move which is clearly orchestrated days or weeks (sometimes years ) in advance by Wall St. is there for a reason, I'd assume it's more than just to consolidate laterally as we have a holiday fractured week this week that really wouldn't do the upside move any real justice.

I can make a guess of where we're headed, but this is no more qualified than anyone else's guess. I know a there are a lot of Fibonacci fans and Elliot Wave fans and I've seen some pretty impressive predictions, but I've also seen the fact that a retracement usually has some proportion to the asset's character and thus the Fibonacci retracements are right in the middle of that character because they depend on the character of the preceding move to outline their targets. I'm not saying EW doesn't work and work well, I'm just saying in my experience there is a "Count" and then and "alternate count" so if one is wrong, the other is a second guess, again counting on the character of the stock and I was hard pressed to find two Elliot Wave gurus who agreed on the current count so in my view it seems a bit subjective and still relies on the character of the asset which may be the most important piece of data. My Trend Channel which is based on the Turtle Trend Traders counts on the character of each individual asset. However if I had to make a guess...

Why not use Volume at Price, therefore I have some clue of where the most opportunities might be found and if I use the white trendline, that's about where the 100-day moving average (price is between the 50 as resistance and the 100 as support in most cases) was found on June 21st when the market also put in "Hammer Support". On the way down we'd be running through some larger volume and opportunities. I don't offer this as a serious estimate, I rely on 3C to tell me where and when, but this is just one of many examples.

Above you saw the negative character of the 15 min ES chart, here's the difference seen on the ES 2 hour chart.

While the 15 min is pretty clear and well defined as well as being negative, the 2 hour which has migrated from a positive 30 min to 60 min to 2 hour is leading. This would certainly suggest to me that the 15 min move is more of a minor trend and the 2 hour chart above represents a larger trend.

While were at it...

 This is today's NQ (NASDAQ 100 futures) intraday 1 min chart, it should be exceedingly cclear that there was a clear effort to move prices higher in to the close. I took that 1 step further (which I can't confirm until tomorrow) and guessed that Wednesday would close stronger than where we are now, it's only a half day so overnight trade could get us there or intraday or just the follow up from where the 1 min left off.

If retail was bearish Friday, quiet on Monday and bullish today, it's pretty easy to manipulate their sentiment. I'd have to confirm this, but one guess would be we close strong in to the 4th tomorrow and open weak Friday, it that is true, then we should see signs on that in 3C a couple of hours before the close. In that case I'd re-open the UVXY long and wait for Friday.

If we had an op-ex pin Friday, then maybe we wouldn't see anything negative tomorrow, perhaps it would develop in 3C late Friday to either start a negative price move after 3 p.m. (after most options are closed) or on Monday. The basics as of right now are that this move at the end of the day, is pretty darn hollow, but again I don't try to predict, I try to follow the message of the market through 3C signals.

 This is the Russell 2000 futures, 1 min intraday showing the same move as NQ above.

The very first place I noticed it was in the one stock I thought would have the best relative performance this week and so far, has, AAPL.

A quick discussion of AAPL's total relative weakness vs the market's best 3-day move for the entire year contrasted with AAPL's obvious relative strength this week to me is a very predictable matter of Window Dressing. If I'm a manager of a fund and my positions for Q2 are being released in a new prospectus, I don't want AAPL in my portfolio, it didn't do anything, even if I held it all of Q2, so long as it's sold by last Wednesday, it doesn't show up as a Q2 holding, this is why we call "Window Dressing" at quarter's end, "The Art of Looking Smart" as managers dump the non-performers and buy the performers for the quarter even if they only owned them the last day of the quarter!

As a manager seeing what AAPL has been up to lately, I'd want AAPL back so as soon as I'm through the T+3 settlement date, I can buy AAPL back on Thursday and it still doesn't show up as a Q2 holding and few are any wiser, I can take advantage of the strength developing in AAPL and still look smart for Q2.

As I was sating, today's closing ramp was first noticed in AAPL.

 The 1 min chart shows a positive divergence starting by 1 p.m. and price responding by 3 p.m. and the intraday divergence continues through the close. I might be concerned about market expectations if other longer charts for AAPL responded as well.

 The 2 min chart didn't see any migration of the divergence so as it sits right now, this looks like a very thin move meant to move AAPL and the market in to the close, perhaps in to tomorrow's close, but it doesn't look like a change of downside expectations, if this 2 min chart were strong, then I might be more concerned.

SPY 3 min still very negative and getting worse so I don't think the expectations have changed, just the short term games have. You have to remember, to most retail all they see is the move in price, they don't have any idea of whether there's real support or it's just a hollow move, they aren't seeing what we are.

As for some other indications and Leading Indications...

CONTEXT for ES is almost flat and by the EOD, the ES model is positive over ES by nearly 3 ES points, this isn't much, but considering EOD price action, it may be significant.

 For the first day of the last several, commodities are supportive of the SPX starting right around 1 p.m.

 It wasn't the $USD correlation, in fact the only time that came in to play was the last hour when commodities dropped a bit.


If I'm considering what comes next as we have been, then this 30 min leading positive divergence in commodities sure looks like support for a strong market move to the upside.

 HYG (High Yield Corp. Credit) is moving as it would need to because it's an arbitrage asset, if the market is going to see downside, HYG acting stronger than the market is going to interfere by way of arbitrage so HYG is moving down at the right places, but there's nothing close to a panic or the typical selling in Credit if they are expecting a big downside move in the market. Thus even the downside move that I expect and that I think could be very strong, seemingly is already known by smart money and they are expecting something bigger on the upside a s they seem to continually accumulate HYG.

 This is just an intraday 1 min chart, but it's positive and in all the right places.

Looking at the big picture, why would HYG have a 30 (and even 60) min positive divergence this big?

 The illiquid High Yield Credit is the first to panic because of the low liquidity, but it's not, in fact it's in line with the SPX as it IS NOT an arbitrage asset so it doesn't matter where it is relative to the SPY.

And the 10 min 3C chart for this form of credit, well it went from clearly negative sending it to discounted levels where it has seen positive divergences since.

I found FCT interesting too, this is a sentiment indicator we use, it is pointing toward a market move to the downside, but it's not at all panicked by it, it's really almost hitch-hiking the way we have been, HIO is even more in line with the SPX.

This all suggests to me a market move to the downside that the market is absolutely not concerned about and has spent more time preparing for a large move to the upside, this is what I keep referring to as "The prize", because while hitch-hiking or piggy-backing the moves can be profitable, it's after a move like that in which we will find the best core short entries

This explanation of market events is what I consider to be a simple concept, but if you're not familiar with the way the market works, the way it is either baiting traders in to positions or knocking them out, then it takes more explaining, but I think the end of day move should be pretty clearly viewed as noise. How it progresses, whether it gives all of that up tomorrow or closes strong in to the half day and sets Friday up for a continuation or reversal will just be things we have to confirm along the way and taking opportunities based on our findings, but it shouldn't change the basic principle held since last Thursday, a move lower (likely a strong one) and then a move higher, likely a very strong one. I wouldn't let the noise through you off.

UVXY P/L

Had I moved a bit quicker I'd have a 50+% 1-day gain, but you make the best decisions you can with what you know at the time.

At the fill of $9 the P/L came to a gain of +40 %

I've looked at a few more things in between and the theory I put forward seems likely. Retail is really so finicky that they won't know what hit them from one day to the next to the Friday open (I have to assume Friday at this point until I see tomorrow's 3C trade), there is the op-ex pin to consider. In any case from everything I've seen so far, this in no way has anything to do with the move down we have been expecting and is starting, this is noise, but it's still nose that can be profitably traded around.

WHY?

Here's my thinking and this is very quick to develop, it really has nothing to do with the expected move to the downside.

I showed earlier some positive divergences intraday 1 min developing and figured it's for the close, but wouldn't it be better if it were for the close of tomorrow's half day?

I'd likely re-open the UVXY call at the end of the day tomorrow to be in place for a continued move down Friday.

Nothing has changed at all that makes this move look like it's done, this just looks like a short term manipulation.

I'll have to confirm later, but from what I saw in the VXX, market averages and futures, it all made sense and really nothing has changed except perhaps a little mind-shake-up in to a half day and a full day holiday.

Closing UVXY Call

Market Update

I'd say there's a "likely" counter trend bounce coming toward the close, retail tends to chase the market and a move like this could shake out shorts who entered today.

I'll use the DIA as all of the averages show the same thing, but the DIA shows it the most clearly.

 1 min chart very negative for a move down and building a little intraday base that really has already been fulfilled, but it may just be part of a larger intraday base for an afternoon move.

2 min with a relative positive divergence which is very weak inside a very strong leading negative divergence.

At 5 min there's nothing so this isn't anything really more than noise as far as we are concerned, but it may knock out some new retail shorts.

I'll let you know if I find anything else of note, I don't intend on making any adjustments to current positions based on this.

Update

I'm happy to see our positions for this leg are doing so well (UVXY over 50% and XLF entered today around 25%), but I was truly flabbergasted (isn't that a fun word to use, I feel like I actually have some command of my native tongue) to see this...

I only took 2 positions UVXY calls and XLF puts, with retail being so overwhelmingly bearish, it made no sense. The last retail sentiment update I received yesterday was that all of the bears were basically very quiet yesterday. 

It just so happened after I saw this I opened my email for today's retail sentiment update from Sam who is really excellent at reading the crowd. "Eh Sam?" 

Remember what I said about how "Fickle" retail is? They chase the market, they don't have any insight in to the market other than what has already happened and whatever inferences they can draw from that from price patterns., etc - All of the same stuff Wall St. uses against them.

From Sam this afternoon:

Subject, "bears not so bearish anymore"

Body: "Funny how a day or two gap ups make bears less bearish."

And as simple as that, that's really even more fickle than I thought.

In any case, here are just some basic updates of where we expected to be and where we are...

 The broader view that turned us on to the concept of what to expect next and what to expect after that, this is part of that analysis on the SPY 15 min chart, which was clearly turning negative by last Thursday when I started talking about our move up being interrupted and  really at the perfect time as retail was losing their bearish slant.

 The 3 min SPY chart, this was really helpful yesterday as all of the charts in this timeframe were very negative, these really supplied timing and essentially the entire "Daily wrap" last night in which I said in the opening lines that "Nothing about our expectations had changed".

 VXX the unleveraged version of UVXY (the call trade put on yesterday now at a +50% gain) shows perfect intraday confirmation.

Back out the exact same chart above from intraday to trend and you can see how clearly assets were confirming each other.

The 5 min UVXY from showing last week's move up as UVXY went strongly negative (it moves opposite the market) to showing the expectations for a move down in the market this week.

This is why I named "3C" as I did, a constant reminder to "COmpare, compare, compare", that's where probabilities are found.

And a 10 min UVXY chart showing us basically about how far this divergence has gone. Remember it is much less about time with these signals and much more about percentage moves.

So far so good, but I'm going to make sure nothing is creeping up on us.

BEAV Update

Mostly I've been looking at different assets and seeing if there are any nice looking trades, not just short term leveraged trades, but the prize trades, CORE positions such as AMZN mentioned earlier. I'll be finishing this last watchlist and then transferring to more market analysis and setting alerts for a number of positions that are in perfect strategic areas, but are just shy of the tactical entries we want, which honestly, when looking at the big picture, matters a lot less.

BEAV is another core short position, one I've been building and we had a chance to add not to long ago, this is one that I don't see coming back to a great tactical entry, I think that passed, but it may offer a better entry.

 This trendline had been on the chart already, it's very clear what I was looking at and what the plan for opening or adding to a position in BEAV was.

There's clear resistance at the red arrows, that creates a range and an area technical traders can congregate their orders (mostly breakout trades and sentiment was different then as well). The yellow areas are EXACTLY what we are looking for as tactical entries, they have to be head fake moves above resistance, that's where we get the best entry, lowest risk, highest probability.

 Here's the area on a 60 min 3C chart, the two breakouts are clearly head fakes as the size of the distribution on a 60 min chart is immense.

Taking a look at the area on a longer 2 hour chart more generally, reveals it to be a top and of course the head fake move right before the reversal starts. That's why these are such good markers for timing in any timeframe you trade.

 The most recent bounce and failure on a 15 min chart, this is also why I don't expect another move much higher unless it develops really fast.

The X-Over system is 2 out of 3 short sale signals on a very long term trend.

And the Trend Channel also on a long term trend shows the increased upside volatility we see before a top at "A", the wider channel at the top as we often see (increased volatility) as well as the flattening out o the channel.

The trend (long term) breaks with a close under $60. The blue indicator at the bottom just shows us where the close was each day within the day's range, it's obviously showing deterioration, but if you didn't move out to a multi-day chart you'd just see noise rather than a trend.

If you have it, I really like it and will hold, if not, it's on the list for a possible entry.

Fundamentals- Did the Market Discount these Scenarios

More importantly, "Can it discount these scenarios?" What if the Suez is closed due to political upheaval? How does oil look then? The Russians (especially Vladimir) are very upset with the US, NATO and probably more effectively, the European Union for not only reaching in to their former backyard, but making countries that once fell under the Sickle and Hammer, EU members, NATO, etc.

Even though the Russians outsmarted the EU when they tried to confiscate Russian accounts over $100k Euros from Cyprus (as Europe put a freeze on all Cypriot accounts, but FORGOT TO DO THE SAME FOR THEIR AFFILIATED BRANCHES IN OTHER NATIONS!!! HOW INEPT CAN A UNION ACTUALLY BE?)
If Greece were to really to fall to the dogs, I'm sure Russia would be more than happy to relocate or lease a Greek port for a Russian Naval Base right in the middle of the Mediterranean and on Israel's left Flank that has been protected all this time by the body of water. Can the market discount stuff like this? The unintended consequences?

Believe it or not, I'm just getting around to the news and not surprising at all (maybe I'll dig up the posts from the Arab Spring that laid out and predicted all of this), the Egyptian military had to wait a little while and bide their time, but once again they'll likely look like heros to the populace as they once again grab control and the next president, despite any elections, will come from the Army and/or without a doubt, be Army approved. Any thought that the Egyptian Army isn't completely in control of the country's leaders should be wiped clean away, it's been this way since Nasser, you see what happened when Mubarak tried to side-step them and install his son and now after letting the Egyptian political process "look" unadulterated, they will once again, brilliantly take back control of Egypt and Musi will simply be the latest president to find out who's really in control, amazing efficiency and discipline.

• ARMY ROADMAP WOULD BE IMPLEMENTED IF PRESIDENT MURSI, OPPOSITION FAIL TO AGREE - SOURCES
• ARMY ROADMAP WOULD PROVIDE FOR RULE BY INTERIM COUNCIL UNTIL CONSTITUTION CHANGED - SOURCES
• ARMY ROADMAP ENVISIONS CONSTITUTION CHANGE WITHIN MONTHS, FOLLOWED BY PRESIDENTIAL ELECTION -SOURCES
• ROADMAP SUBJECT TO AGREEMENT OF OPPOSITION SALVATION FRONT, OTHER FORCES ONCE DEADLINE EXPIRES -SOURCES

Also a good reason as to why I didn't want to get involved in oil, although it still looks great for a move down.

From Merkel in an interview, a bit of a contradiction, but I think we all know what the truth is or the correct interpretation in case of this just being a misunderstanding...

• *GREECE MAY NOT GET NEXT EU8.1B AS PLANNED, MERKEL TELLS SZ
• *GREECE MAY GET NEXT EU8.1B IN TRANCHES, MERKEL TELLS SZ
• *MERKEL SEES NO ADDITIONAL DEBT CUT FOR GREECE: SUEDDEUTSCHE Z

Consider the 3-day ultimatum has been set and no political machine on the planet except a dictatorship can get anything done in 3 days so this is a clear move to "Excommunicate" Greece. If the Troika/IMF 3 day deadline seems harsh or unexpected, just remember this post and you know that I'm rarely interested in the news unless I believe it will have a material effect on fundamentals and Greece failing is certainly a fundamnetal worth understanding well before it happens as I tried to lay out in the June 10th post...

The Week Ahead and the Micro to the Macro Picture

I think the entire post is worth going back and reading, but here are some highlights, this is why I featured this story, gave you the charts and let you know that this was the next big crisis coming down the road in Europe.

• the IMF says Greece needs another bailout, but this time refuses up front,  to participate in one unless funding for the next 12 months can be secured to fill a $4.6 billion Euro shortfall. Troika's Greek GDP forecasts have been overly optimistic and real GDP has missed the Troika's dreams for each of the last 5 years consecutively. 

• "The International Monetary Fund is set to admit to major missteps over the past three years in its handling of the bailout of Greece, the first spark in a debt crisis that spread across Europe."

• In an internal document marked "strictly confidential," the IMF said it badly underestimated the damage that its prescriptions of austerity would do to Greece's economy, which has been mired in recession for years....  

• If you recall, we knew the moment we heard the final deal that this would be yet another filed Trokia/IMF bailout, it doesn't matter which country, they are always wrong.

• The IMF said that it bent its own rules to make Greece's burgeoning debt seem sustainable and that, in retrospect, the country failed on three of the four IMF criteria to qualify for assistance.

Precious Metals and Gold Miners

I have a strong opinion for the close trade of the PM market , I'm VERY happy to have closed the 3x long Gold Miner position, NUGT, yesterday.

As far as I'm concerned now, I'm willing to sit on any gold or silver long positions so long as they have sufficient time, I'm especially liking silver/SLV.

As for the miners, yesterday when we closed NUGT would have been the time to take up a DUST (3x short miners) position, but I really don't have a stomach for that volatility this week.

 GLD 10 min, remember that in this volatility the time or normal implied length of a signal is not what we are use to, the percentage move though or the seriousness of the signal remains even if in condensed time.

I wouldn't start any new GLD positions here, but I'm willing to be patient. The charts from 1-5 min are very choppy, I'm not sure if that's a reflection of what we can expect or just an anomaly.

The GLD daily chart has a large relative positive divergence, this can certainly fuel a counter trend rally to the upside over a longer time period.

 SLV 1 min was negative yesterday, somwhat in line today at least intraday.

I think this 5 min chart is probably a good representation of near term (next couple of days) expectations.

The 30 min leading (and beyond) are why I'm willing to sit tight with long gold/silver positions, this 30 min chart is not as far away as you might be use to and the move it represents would be quite strong.

 GDX (Gold Miners) are surprisingly sensitive to a great many things you might not expect, in fact I think most would think of Gold as a primary catalyst, but it actually is the non-fixed costs and prices that are represented by Energy (crude) prices and more interestingly, currency fluctuations. Everything from the price of non-fixed costs like fuel to the price they get for gold they pull and what that is worth in real terms in the country of their origin are huge fluctuations that can make the difference between a profit and an actual loss when nothing else in operations has changed week to week.

The 1 min GDX chart- as I said, I'm glad to have closed NUGT (3x long GDX essentially) yesterday.

 GDX 5 min does look like there's a lot more fuel in the tank over the coming weeks, so it's just something to keep an eye on as far as entries and whether the environment is suitable to take on a position.

 NUGT 2 min will of course look similar to GDX above.

NUGT 5 min as well.

This 30 min chart looks stronger than GDX and is part of the analysis for movement here over coming weeks, I'd prefer to trade with probabilities and only go long NUGT at the right time rather than try to play DUST as well.

 DUST, 3x short miners or GDX, the opposite of NUGT showing a 5 min positive, again though I'd rather not trade against probabilities, especially during a week like this.

Essentially there's not much to be done other than show patience.

USO Looks Interesting, but...

 USO 5 min

USO 15 min

I was very tempted to consider an oil short, I was thinking SCO long (2x short crude). My hesitation...

That's simple, Egypt. Back when Mubarak was in control I made my position clear that he would be tossed out, but not by the people, by the military and in the end that's exactly what happened. Every President of Egypt since Nasser has been chosen by the military, from the military and backed by the military, Mubarak made the mistake of thinking he could groom his son to take over, thereby effectively by-passing the military's control of the process. The Egyptian military came off brilliantly, they looked impartial, doing the will of the people, but they were only serving their own interests.

At the time I also made many notations of the Muslim Brotherhood and other extremist groups sneaking across the Sinai during this chaos and putting together an effective strategy, this was VERY much like the second Iraq war when US combat troops would roll in to a town and have a local government in tow and ready to take over, but to their surprise, town after town had already been organized by Shi'ite factions and everything was running smoothly.

The lesson though of Iraq and Afghanistan (in the later's case, more than a decade later), it is very difficult to put together effective leadership that can project power outside of the capital with out some kind of "distasteful" ruler with an iron fist or in Egypt's case, without the implicit backing of the military.

It's quite obvious the Muslim brotherhood does not have the military's backing and they have lost any backing they may have had with the people as 1 million plus flood the streets of Cairo and Tahir square.

A military face-off with what many would (I believe correctly) identify as an extremist group, could have repercussions throughout the area and even if there aren't, the market's perception is ALL that matters.

That's enough to keep me away from oil for now, you may feel differently or have a better grasp of the situation there.