Daily Wrap

For now this is going to be a little bit short, but we've been talking about changes in character in the market especially yesterday with the VIX and of course what I showed last night of something like a 0.23% gain in the SPX over the last 4 weeks, but what may have shocked me most today was the performance of the Core Short positions, I'd be happy to get this kind of performance out of 1 stock, but an entire tracking portfolio with all of those ideas?

I want to be careful not to be boastful because the market will knock you on your butt faster than you can reach around and pat yourself on the back, but at the same time, hopefully now you can see why we were building short positions at favorable areas and holding them, mostly because this market is so extreme and extremely damaged that a day worse than this could have come really at any time over the last couple of months easily.

The weekly and monthly performance for equity shorts and a few longs (no options at all) and almost no leverage...

 The fields are Rank which is #57 for weekly performance, gain for the week at +11.10% and the SPX's change for the week at -1.82%

This shows the ranks at 59 of 1474 portfolios  for the week of 8/10-8/16

The monthly rank is 141 with 9.79% vs the SPX's 2.74% loss

And a rank of 142 of 2313.

We obviously want to be careful about chasing shorts here, but today's overwhelming volume that was the highest in 7 weeks can often act as short term capitulation, in fact the hallmark of a bear market as far as volume is concerned is LOW volume. The only problem with short term capitulation is almost all of the averages finished right off their lows, nothing that looks much like a reversal candlestick.

On the other hand, we finally have a Dominant Price/Volume Relationship among the averages after weeks of NOTHING!

There's no need to break down every average, the Dow tells the story.

The Dominant Price/Volume Relationship among all 30 Dow component stocks was Price Down/Volume up.

In fact there was only 1 stock that was up today on rising volume, 8 others fell on declining volume and 1 was flat at 0%.

CAT was the Dow's big winner today, up +.05% and barely more volume today than yesterday so even the 1 winner was weak as can be.

All of the major averages has the same dominant relationship of Price Down/Volume Up, believe it or not, this is most often a 1-day oversold condition and typically the market closes up the next day, although that's hard to imagine with the candlesticks the way they are, maybe a "Tweezer Bottom"?

After yesterday's extreme change in character of VXX and related ETFs as well as VIX futures, it's little surprise the spot VIX which I have featured nearly every night the last week or so, did this....

Not only did we have a buy signal in our custom, DeMark inspired Buy/Sell indicator, but the pinching Bollinger Bands have suggested a highly directional move, 11.2% today isn't a bad start, but I think before this is over we see a much more meaningful move.

Silver was the big winner today, up 18% now over the last 7-days 

 SLV Daily

Biggest 7-day move in 5 years.

Our X-Over system is 1 indicator from firing a long and then it's a pullback to the yellow 10 bar (2-day or 20 day moving average) where SLV will or won't be a high probability, low risk long, that's how this system works and it works well.

The $USD saw the biggest drop in over a month, you may recall last night's post...

" $USD 15 min has a negative divergence, perhaps this is what I'm waiting on in USO(Dollar weakness creates commodity strength and Egypt isn't helping). It seems very unlikely that the USD/JPY cross will move the market up....Silver and gold still look like they should be coming down, the weaker $USD may cause some trouble."

There was talk of a European fund covering a large gold short, that would obviously trigger some short covering/squeeze and that might explain the quick move with no accumulation before it intraday today.

The $USD hit a high for the week on the Initial Claims this morning and then moved to the biggest loss in a month, you can see clear distribution on the early knee jerk move to the highs of the week as well as it being obvious last night.

As for Arbitrage assets, HYG had marginally better relative strength vs the SPX correlation, VERY marginal, VXX was in line with the expected correlation and TLT was significantly weaker than it's normal implied correlation.

The weakness in Treasuries was expected, in fact I was hoping to see it with 3C accumulation in the long end as it looks like something is going on there and I'd like to add to the current TLT long core position.

The 30 year Treasury futures on a 30 min chart show 3C accumulation in to the anticipated drop lower.

This is one of the few reasons I can think of as to why the CONTEXT model is so rich to ES, that and precious metals (commodities broadly).

CONTEXT model for ES is about 35 points rich to ES, implying a decent bounce in ES/the market.

One of our sentiment indicators did rise in to the close, notably so we do have some 3C starting divergences in place as you saw today, they were just no where near giving a reliable long signal, but they could build on that tomorrow, like I said, perhaps a Tweezer bottom candlestick formation or a Harami reversal?

Yields added to the disconnect today so they'll exert some upside magnetic pull on equities as well. High Yield Credit didn't make a big move, but it did break the day long range to the upside near the close. Commodities of course were up again on PM strength and certainly $USD weakness didn't hurt at all.

I'm going to check futures later before I turn in, especially the FX carry pair components.

From a 3C perspective we are only slightly better off than yesterday's mixed market with the SPY and Financials looking better than the NASDAQ and Tech and the SPY/Financials showed better relative strength today, but that was a short, small divergence that wasn't confirmed among the major averages as I just demonstrated, today we had confirmation between averages, but hardly any move, they'll need more range bound trade or lower prices to accumulate to the point in which there's a reliable signal.

Until then, if you have core shorts in place and they performed well today, I personally am leaving them in place, that's why they were put there before this happened. I would be VERY careful about chasing any longs as this is definitely a "Chasing nickels ion front of a steam roller" scenario, the signals would have to be outstanding. Otherwise it would be nice to get a bump to lower risk and open up some decent entries, there's a time to really move (sell short) and it's generally the time you feel like you shouldn't be (shorting market strength) doing anything and then there's a time to be patient and that's generally the time we are most restless (looking for a big dead cat move).

i'll be checking futures as well as some more individual assets as there were VERY few signals today, that's as it should be though, as I generally say, most people have stock picking backwards, you start with the market as it is responsible for about 2/3rds of any given stock's movement on any given day.

GLD and Gold Futures Update

Back in 2011 we called a top in gold, one of the defining features that you may have heard me talk about or you may have seen on your own or on some of the posts here is that of a large triangle, this one was about 5 months long, that's no consolidation triangle. Back then and I'll dig up the post one of these days, the charts showed not only was gold topping, but that it would either enter a Dow Theory Intermediate or Primary Bear Market.

I'm not taking any position on the longer term outlook for gold right now, but I'd say that it's closer right now or in a better place to put together a meaningful bottom that can support a trend of a year or more than it has been at any time since the top in September 2011.

Word is (although it would be difficult to confirm, but not hard to believe) that JPM has received so many demands for physical delivery of gold that it cannot get enough through the normal channels and is actively buying in the open market.

I don't know if that's true, I don't know how long that would be true for if it was and quite honestly after watching Blythe Masters of JPM so skillfully suppress the Silver market for years, it's hard to believe JPM would be chasing gold higher. In any case, that's the word, not that it matters because whatever may be important in that scenario will be long over with before we find out anything useful. It's kind of like traders who try to trade from fund managers' 13F reports filed quarterly, but they can have a 45 day delay so whatever was filed as positions 45 days ago may be long gone or being sold to the 13F chasers. 

Which reminds me, just because it annoys me, a reader from my free site Trade-Guild has sent several emails trying to pick an intellectual fight with me and I have been politely leading him to water, but he choses not to drink. So when I posted about the strange behavior in AAPL we noticed way back in February and I suggested Icahn's large AAPL position may have been the cause or part of the cause. I promptly received an email telling me that 13F's are filed once a quarter and if there was activity in February by Icahn that it would have shown up on the first quarter 13F.

I usually have a lot of patience especially with anyone truly interested in the market, in any case the email wasn't very polite and he thought he had me in some iron box and the only thing I could do was admit ignorance. The thing is, with people like this it doesn't matter what you tell them they just want to argue, but I pointed out that the SEC has a provision in 13F called "Confidential Treatment" and it is often used in cases of accumulation especially if the manager has a "plan" and disclosing the purchase would jeopardize that plan.

In fact Warren Buffet used 13F Confidential Treatment to accumulate 5.5% of IBM ($10 Billion) which he announced overnight like Icahn, but the position took him 8 MONTHS to accumulate so Buffet had 2 quarters (Two 13F reports) of IBM accumulation treated confidentially before announcing and reporting it, the SEC website has a section that's pretty easy to read and understand how to apply for "Confidential Treatment", I'm sure Icahn is well aware of it. You don't even want to hear this guy's response, "BLOCKED".

I'm not sure how I got from there to here, but lets go back to gold.

As far as shorter term action, here's the charts for GLD and gold futures.

 This is the 1 min intraday chart, that looks bad enough, but...

Put the chart in context and it looks far worse.

The thing about GLD in which I saw in VERY few places in the market today was that it showed migration of a divergence through timeframes and it was a clear, strong divergence.

This is the 2 min chart which is like the 1 min in that when it is put in context, it looks far worse.

 The same divergence that was working on the flat range at afternoon highs migrated all the way to the 5 min chart in a short period of time and with a strong signal.

 Here's the 5 min chart in context, 3C is virtually flat, any moves significantly above or below the range were very short lived.

This is the 10 min chart that saw some migration of the divergence, which is amazing considering it was only 3 hours.

This is the 5 min Gold Futures chart

 This is the 15 min gold futures chart pointed out several times the last several days.

And the 60 min gold futures chart.

If I were JPM, I'd be looking to find a way to knock gold down quick, one of the fastest ways to do that is to get people to chase it in a head fake move, drop prices below the breakout where they would have bought putting them at a loss and the concept of "A Failed move leads to a fast move in the opposite direction" takes over and allows JPM to accumulate what they need at favorable prices- if indeed JPM is still or ever was a relevant issue. 

GDX Put Position Follow Up

GDX made a pretty impressive move intraday today, but it has to accumulation for the move which makes it look a whole lot like a head fake or blow-off type move.

If I did not have a position in GDX from yesterday, I would enter GDX (PUTS) today, so I have no problem holding the September puts (or if I was long DUST).

 GDX 1 min intraday had no positive even on this short timeframe to run up, that makes it look like a move that won't stick.

If we look at the 1 min chart in scale, notice 3C didn't make a higher high today with price so there's no confirmation either.

The 2 min chart intraday which is also like the 1 min in not making a 3C higher high with price today.
 

The 5 min in Context and an intraday negative as well today on the run up.

And the longer charts show the cycle and this is part of why I really like GDX Sept. Puts or DUST long.

If I'd enter the same position today, then I'd certainly hold the position opened yesterday

Market / IWM Update

Right now, as I said earlier, most averages have done what I thought (really know, I don't mean to be egotistical, it's just you see something happen 1000 times and of those 1000 times it happens 1 way 990 times, you have a pretty good idea of what's suppose to happen) they needed to do and that is buy more time near the lows to build out a bigger toe hold. THIS IS EXACTLY WHAT WAS MISSING FROM THE MARKET AT THE EOD YESTERDAY, the SPY and Financials looked one way, but just starting and the Q's and I believe the Dow and Tech looked the opposite. 

There was no solid confirmation between SPY timeframes and no confirmation between averages.

So they need to pull both of those things together and most look like the SPY.

It's positive on short term charts and it bought more time lateral and made a larger "W" base-like formation, but confirmation on the SPY's own timeframes is just not there yet and it certainly isn't screaming and next to the downside signals, it needs to be.

The IWM actually looks like one of the better averages, but I think you'll see what I mean...

 2 min IWM shows late afternoon weakness yesterday on the 2 min, but not as bad as the previous week. Today it has built on to the positive divergence, but this is a 2 min chart

 The 3 min shows the afternoon weakness we have been seeing and the 3 min chart, but the scale of today's positive divergence isn't close to yesterday's.


Now the 5 min chart is going positive which is significant improvement, but it's still not standing out.

Then you compare those signals to...

 The distribution of the 15 min chart because we are in the big picture now.

Or the leading negative new low of the 60 min chart.

For me I think it's going to take something screaming "Long" to compete with these negative.

I also don't see much I want to chase short down here, this is why we set these positions up ahead of time and try to do it when smart money is doing it, when we have strong signals.

Our core short position (mostly short) tracking portfolio added +11% today only thus far so we are in the right areas and very few of these have ANY leverage at all.

GOOG & Update

We needed more time for the market to build anything that would hold any kind of move and now in most averages except the IWM, we have a wider "W" bottom which looks better, I'm not sure I'm sold on it, but one stock that looked pretty interesting for a long bounce using calls is GOOG.

 GOOG 2 min

5 min

10 min

And it already has done some work as the 30 min chart shows.

I'm still not sure I want to take the chance until things look really steady, but this is one I'd certainly be considering.

UNG Update

Last week UNG started coming around, I still like UNG as a longer term position, I do NOT view UNG as a trading position although we have traded in an out of it several times to avoid drops like the last one, I believe we moved out of the UNG long in 2 parts around mid and late April.

Recently UNG started looking good again as a longer term long position, here are the charts today, there's some loose intraday short term charts, but the recent bottom looks solid and there's nothing that would pull me out of UNG right now (as I said, I don't think it's a great trading position.

 Our DeMark-Inspired "Buy/Sell" indicator with a recent buy signal at the bottom.

 Intraday charts are largely in line, there are a few that are a little sloppy, but I don't think they'll start a trend.

The 5 min chart with a question market because the current 3C reading "would " be a slight negative if 3C had turned down and locked in a pivot which it hasn't yet. Even with that, the accumulation phase is much larger.

The 10 min from in line to leading positive

The 15 min leading positive as well

The 30 min leading positive

And the area of distribution where we got out in a phased exit, the first day was at the highs. Then an in line reading and a recent positive reading.

All in all I like UNG here, I like to have a little long exposure and this seems like a nice long term position to get that in.

Leading Indicators...

Last night in the "Daily Wrap: NOT THE SUMMER DOLDRUMS" which was a continuation of Tuesday's "Daily Wrap: The Summer Doldrums?" the first two paragraphs read like this...

"Last night's "Daily Wrap" somewhat rhetorically asked if we were in the "Summer Doldrums" a period of very dull trade during the summer, but I haven't seen it in years. The Doldrums literally feel like you're on a sailing ship at sea in the hot, humid summer sun with ZERO wind, just sitting there...waiting for something to happen.

However as I said last night, "... the market looks like it's in true summer doldrums, but I'm not sure I believe that is what we are seeing.... I suspect it's something a bit more serious."

One of the concepts that is true in so many scenarios is that of, "Changes in character lead to changes in trend"."

Obviously the changes in character were not the Summer Doldrums as so many have speculated the last week.

This still leaves us with the possibility/probabilities of a bounce (which as explained last night becomes more and more unpredictable the further we get in to the big picture because just like AAPL's 300+ point/ -45% decline, at some point someone in the hedge fund herd decides "He who sells first, sells best" and like AAPL, we have a stampede of panic with everyone trying to fit out the same small door". However making things worse this time is the amount of leverage in the market and we haven't truly seen what a market decline looks like with the dominance of HFTs providing market liquidity as they are not obligated by law to do so like market makers and specialists. In rallies HFTs provide a very narrow bid/ask spread, but in a decline, they can shut off liquidity in an instant, making that much harder for longs to sell their positions and as I have said, "Who are they going to sell to? Smart money has been selling to them all year, they aren't taking the shares back up here and volume has dropped off  to what is only a level in which I think it will be looked back on as one of the main culprits of a decline. LIQUIDITY AND VOLUME ARE NOT THE SAME THING. Sure, market makers and Specialist have to make a market even in a decline and take the other side of the trade if it's at market and there's no willing participant to take the other side, but this doesn't mean they have to offer anything approaching a reasonable spread.

In any case, along with the F_E_D's 45 page report released this week about how leveraged ETFs and their re-balancing in a decline are likely to exacerbate it to unknown, but terrible proportions, this is just something else to consider.

Until we get to that bridge though, which I'm happy to see our core shorts performing at approx. a beta of 9 (9% gain today) I know that's not the correct term, but I think you understand, for now it's about where we are going and how we want to play it. As I said yesterday during market hours, "Until we have solid confirmation, I'm on the sideline"

So lets look at Leading Indicators to see if there's any clue and then again at the close.

 The SPY Arbitrage is moving to the positive side, now near +$.40 SPY, this is sort of significant because as you might recall from our analysis of the carry crosses, the opinion was the following...

"as for an engine, it's hard to imagine a carry cross doing the work, especially the $USD/JPY, maybe the AUD/JPY, but as you'll see, the JPY has some 3C strength that would make any carry cross driver difficult."

The fact that the AUD didn't look like it could overcome strength in the JPY as of last night and the $USD looked even worse, the carry crosses like USD/JPY that had been carrying the market until two days ago when the AUD/JPY took over, all looked like they'd be shut out due to Carry trades being closed as was evident in JPY performance and 3C charts, that leaves one other probable mechanism which is the SPY Arbitrage (maybe AAPL for the Q's) and we see the SPY Arb. moving up.

HYG, one of 3 parts of the Arb is outperforming today which is likely part of the reason the Arb is positive.

And TLT is weak today so that's helpful to the SPY arbitrage.

 (VIX intraday vs an inverted SPX) As shown earlier, even though VXX is higher on the day, its 3C charts look like near term weakness is most likely so if VXX falls that improves the SPY Arbitrage.

 Junk Credit tends to trade very similar to HYG, the leading in JNK vs the SPX today is interesting, I'd like to see it at the close.

Yields are like a magnet, the scaling here isn't great because Yields were leading on the move up on the 13th so they'd be even higher now, considering they have a magnetic-like pull on the SPX, their positioning looks bullish for the VERY short term market.

 Commodities have also made quite a turn-around with excellent relative performance today, largely due to PMs.

A little $USD weakness has also helped intraday.

I'd say this is far from definitive, but the short term character is starting to take on more and more confirmation since the first charts this morning of 1 min positives only.