Daily Wrap

I hope everyone had a good day, it was an interesting day.

First, and this isn't to brag because we get them wrong too, it's just to show something specific, I rarely make a specific call like this one from late Friday on the EOD update...

"If the intraday charts hold up through the close, then I'd say Monday opens up or in the area, however because of the significant damage already in place, I'd think the most likely scenario would be that it closes down, perhaps that bearish engulfing pattern I was talking about in PCLN, it would fit well in any of the averages as well."

Last night in The Week Ahead I said,

"I'll start where we left off Friday which is the 3C chart action in to the late afternoon on an op-ex day, it's never price that tells me much as the op-ex pin releases because most contracts are cleaned up by then and the pin no longer matters, it's the underlying action because that is what I see most often, pick up right where it left off near the close on Friday.... Even though we don't have such an open so far in futures...The rule applies to the averages in regular market so the opening futures Sunday night wouldn't apply, it would be the early trade Monday."

So we got the open the charts were predicting late Friday for the next trading day (today) and then we got the move lower on the weakness apparent Friday, that gives us a bearish Engulfing pattern in 3 of the 4 major averages.

For a bearish Engulfing pattern like the daily IWM above, we need a gap up in the morning and a close lower, that's what we got, I don't think Icahn was hinting at this Friday.

HYG was a pretty bold statement, the post today was called, "Market Update: HYG Negative Divergences Taking it Lower" that was posted around 1:10 -1:15, well before Icahn's comments around 2:33, not to say they weren't a catalyst for something already broke, they probably were, but it could have been any of the parade of market mavens saying the same the last 3 weeks, Carl just said it on the right day and CNBC needs a 30 second soundbite to explain the market's weakness.

As of Friday's Daily Wrap, the tittle asked the Question, "Is QE Losing its Luster?"

I can't tell you how many emails I received in the last several days letting me know that Monday (today) was a DOUBLE POMO day with one of $1.25 to $1.75 Billion and the second for $3 billion to $4 Billion, THAT'S HUGE, but my analysis is based on evidence, not fear of QE or what happened in the past so again, I ask the question...

 "Is QE no longer enough to lift the market?"

In Friday's Wrap I showed how a number of assets that are QE sensitive went QE OFF or TAPER ON After Yellen's Senate testimony and she didn't come off as anything other than a dove.

We also saw Stealth Accumulation in VIX futures, someone was accumulating quietly late last week, so someone had a good idea of what was happening today, it showed up on our charts which is why I made that very specific forecast for today which is not like me.

There was the VXX holding up better than it should have and the spot VIX Bollinger Band Squeeze, this hasn't even made a real move yet.

The BB Squeeze portends a highly directional breakout, this hasn't even seen a move through the bands yet.

If you look at Friday's wrap you'll see the 30 min Index Futures leading negative divegrence as of Friday, massive distribution and this is why I felt the way I did about today when all is taken together.

Then there were the same signs in Industry groups like Financials and Tech, not to mention AAPL which I still think is going to be a trade set up.

As mentioned earlier, HYG Credit was telegraphing major weakness in the market... (please look at the first two charts at least from this post)

This was one of the charts showing massive weakness and it was in HY credit as well.

This shows how HYG was used for the head fake breakout of the previous 3 days and the head fake confirmation of the move in HYG.

However, you may recall toward the end of thew day I said...

"The TICK looks like it's forecasting a ramp in to the close to try and recover some of this downside, you may be able to use it or may want to exit trading positions (very short term ones) here."

In fact I posted some TICK charts toward the end showing the trend in TICK that wasn't represented in price so it's probably good I posted this chart MCP chart this morning

There was a very specific reason, because if you just look at MCP, you can easily say which way to trade it and you might think, "I would have tore that trend up!"

Just looking at this, you might think, "this would have been an easy short", that's exactly why I posted the following in the MCP update today... because the hardest thing I ever had to teach was to teach how to look back at historical charts and put them in emotional context, suddenly holding on to this trend is not as easy as you might think, BUT THERE'S NOTHING UNUSUAL ABOUT MCP OR THIS TREND, THIS IS NORMAL MARKET BEHAVIOR AND SOMETIMES PEOPLE NEED TO BE REMINDED OF THE FACT THE MARKET DOESN'T MOVE IN STRAIGHT LINES, IT DOESN'T MEAN THIIS ISN'T A BEARISH DOWNTREND, but it does give a dose of reality...(The following is the chart and what came after it which ties in to tonight given the TICK chart)...

"In a way, this post is kind of for those who haven't paid attention to MCP until now and might want to consider it. For others, this is an update of where MCP is and finally even if you have no interest in MCP, there are some great concepts and examples of market behavior."

"Just looking at the MCP chart it looks like a simple long, short trade and the short side looks really easy , like a no brainer.

These are the stages and trends of MCP, PUTTING YOURSELF IN THE EMOTIONS OF THE MOMENT (WHETHER LONG OR SHORT) IS ONE OF THE HARDEST THINGS TO DO, BUT GIVES YOU A REAL NOISE FOR THE MARKET.

MCP started at stage 2 Mark-up (2) however as I have mentioned many times, changes in character are important as they precede changes in trend, I just mentioned this Friday re: MSFT (when it was a momo stock) and AAPL recently before the top. At "A"  there's an uncharacteristic, nearly vertical price move, these are most often seen JUST BEFORE a stop tops so in actuality they are warnings or red flags, at least time to have a tight trailing stop. At "3"  we have a large triangle stage 3 Top.

At "C"  we have the break down from the top and then a 5 week bounce which was a +40% MOVE, try to put yourself in the emotional position of being short then.

At "D" we had a 5 month rally/consolidation, again just from a time perspective and after a 40% bounce, as a short this would be emotionally exhausting, but this is why it's important to know what is normal so you can anchor expectations and make fact based decisions rather than emotional ones.

At "4" we have a stage 4 Decline and at E  and F we have "Dual Capitulation". People always think after the first capitulation it's time to go long when in fact there are usually at least 2 capitulation events and then months or years to form the next stage 1 base so those going long on the "Blood in the streets" capitulation event are often at a loss for a long time or at least at Opportunity Cost."

Now we are back to tonight. Take a look at HYG today vs the SPX...

The weakness in HYG was clear long before the market fell and if you look at the entire HYG post, you'll understand why this is important and why the close is important because by the close, the SPX reverted to the short term mean of credit.

So did commodities...

Commodities vs the SPX...

Then the NYSE $TICK Chart in to the close...

There's a clear trend in to the close, even though we hit an extreme of -1600, there's still a trend of stocks moving up or fewer moving down.

The market jiggles, it doesn't change the weakness and in fact it may help set up some nice positions, take PCLN for example, I highlighted it today (another that didn't post when it should have at 2:30) OR AAPL

 PCLN 60 min massive weakness and it has done everything we wanted it to with the breakout and the Star/Dojis after. I'd like to add to the core position and maybe even a put trading position.

The intraday 1 min chart at the EOD strengthened enough that we MIGHT get that chance.

 AAPL 10 min major distribution/weakness, if I could short this or buy puts in to a little price strength...

AAPL 1 min intraday, maybe it can build enough to bounce?

The only problem with this scenario is the Dominant Price/Volume relationship among all the major averages was price down / volume down, so there's no 1-day oversold condition, however we do have more F_E_D speakers tomorrow that might offset some of Dudley's hawkishness today, but Bernie doesn't speak until 7 p.m.

My feel is that the "Buy the Dip Crowd" is still out there, in fact the Sentiment Tweet of the day was...

": I see a many of the few remaining bears not believing in the downside any longer. Towels thrown in all over the place."

That means the intraday charts I see, "can" be salvaged short term, the longer or intermediate charts are gone, especially the IWM which I'm very happy to have held DRTY and opened the IWM Put on Friday which is up +21% today.

This one is ugly in all timeframes...

 2 min

5 min

15 min

Multi-day

When you consider Bernie uses the R2K as his benchmark for the market, this isn't good news.

So far overnight Index futures (1m) are in line, in fact most shorter term timeframes have room for some jiggling around in the area as we often see, but don't think that a day or a couple of days of jiggling around makes today a fluke, when you have a 30 min chart this broken at the head fake area of the previous 3-days, you have a major problem with a market that has a broken back.

ES 30 min leading negative at the head fake / breakout area.

My forward planning is to manage the bearish trading positions and core positions already in place, many on the recent head fake and then to use any opportunities to add new positions where they look strong, but right now it's more about management of positions we set up in anticipation of this weakness.

If there are any changes in the market we'll adjust to them, today was nasty, ugly and more so because it was telegraphing for several weeks and especially late last week, IT WASN'T A CARL ICAHN FLUKE.

Market Manipulation

I very rarely lift or direct you to an article from another site, there are several reasons, but if I think it's of benefit to you and understanding what we are trying to do, then I think it's worth it. The article I'm going to point you to is about manipulation of the markets, but before we go there, think about this.

How well do you think 3C would work if smart money didn't move in packs? How do you think smart money knows which way the pack is moving? Of course there are a lot of legal ways and there are other ways that aren't outright intentional corruption, but two traders having lunch and one mentioning to another they're working on a huge IPO or something like that, some information that shouldn't be out in that manner. There's corruption and then there's just the culture of "In the Biz".

Honestly, how often do I make a forecast as specific as Friday's. "That we'd gap up (even though it didn't look like that at all last night in the futures market) and that we'd end lower creating a VERY specific daily candle called a bearish engulfing candle? Honestly, how often do I make that kind of detailed forecast over a weekend in which anything can happen.

Today Carl Icahn is getting the credit for sending the market lower, however these bearish "doom" prognostications have been coming from every corner and people a lot bigger than Icahn like Gross, there's been a steady stream of these, so many I don't even mention them, but today it was Icahn who sent the market lower even though we had a head fake move and expectation of a lower close-look at the charts from Friday. 

Think about all of those nasty divergences and credit, the stealth accumulation in VIX futures and if nothing else, the Bollinger Band squeeze in spot VIX.

Even beyond all of that, think about the cycles like the one from 10/9 predicted more than a week in advance, the mini cycle predicted and the head fake move of the last 3-days.

Specifically today, the HYG post (which I just discovered didn't publish when it should have which might have been confusing when I referred to that post in later market updates today) showed the market was going down hill long before Icahn.

The name of the post alone was "Market Update: HYG Taking it Lower"

Take a look at the HYG post and you can see not only didi HYG take the market higher the 3 previous days in our head fake move above the range, but broke down hard leading me to predict that HYG was going to drag the market lower.

The point is, Icahn is just one in a long line of dozens, maybe 40-50 market mavens all warning the same, I even said I didn't like it and I don't.

Just tonight Jeremy Grantham says "

 "The S&P Is Approximately 75% Overvalued; Its Fair Value Is 1100"

And... "The Current Credit Bubble is More Risky then 2008"!!! I could point you to 6 of these a day from CITI, or BlackRock, Pimco, former F_E_D officials etc, but it's Icahn.

In any case, the point is, we wouldn't be able to see a lot of what we see if there weren't smart money herding and a lot of that is caused by market manipulation which we talk about everyday, READ THE HYG POST FROM TODAY!

So here's the link to the "Market Manipulation" post on ZH...

Here are a few notes from the article that we talk about nearly EVERY DAY!

"Regulators are looking into whether currency traders have conspired through instant messages to manipulate foreign exchange rates. The currency rates are used to calculate the value of stock and bond indexes."

In part what they are talking about are the carry trades that manipulate the market higher overnight, do you remember my article about a week ago, "A Sad Day For the Market". I was sick to my stomach after they knocked the Euro down on no news in the middle of the night on no volume and used the carry trades to ramp the market.

This was the crazy, no news manipulation of the Yen to send all the carry pairs higher and to ramp Indexs Futures overnight.

The interesting thing is they tried it again last week and it didn't work at all, this is why I have been asking if there are any real ramp levers left, even Central Bank jawboning isn't working.

Also from the article...

"And in the latest news on manipulation, according to the FT, "The UK’s financial regulator is probing the use of private accounts by foreign exchange traders amid allegations they traded their own money ahead of clients orders,"

No matter how it's done, it's called "Front Running" the market or a client's order, they call GS the "Vampire squid" as it is said GS puts out rec'd and then trades the opposite side of their clients, WE KNOW THEY DO IT WITH PUBLIC REC'D THEY MAKE, WHAT IS IT NOW, 9 IN A ROW THAT HAVE ALL STOPPED OUT?

GS isn't that stupid, it''s just a different form of front running that's not exactly illegal, just GREY.

Enjoy the article,  this is why with 3C, "If you can't beat them, follow them"

Last Two Posts Didn't Publish

The HYG post was put together around 1:04 p.m. as far as I can see from the time on the chart and the PCLN post was at 2:30, I was getting ready to link to the HYG post for the daily wrap and noticed irt was still unpublished for some reason. On some of the charts you can see the time/

In any case, HYG was leading the market which will be covered in the wrap, PCLN is still in play and didn't set up as I hoped , at least not yet so we'll take a new look at that.

MARKET UPDATE: HYG Negative Divergences Taking it Lower

This isn't an asset many of us trade, but it's a very important asset with regard to supporting or inflating the market, in fact, take a look at these two charts and see if you notice anything that might help the market make a head fake move-perhaps partly op-ex related (I'm guessing the pin HAD to be UNDER Dow 16k and SPX 1800).

Notice anything? In case you couldn't see it, HYG is the first chart above and the SPX is the second chart above. The SPX/market being up is not removed from HYG being up, in fact it's a "Chicken or the egg issue", however from our long experience tracking Arbitrage assets that are used to manipulate the market, HYG came first, maybe it's not driving the market by itself, but it is driving.

So then what should we expect from the following?

Friday there were some sudden and deep negative divergences, there are others setting in and another reason this is important is pretty much related to the first reason, "Credit leads, equities follow", it's just which way is it leading?

 This is the 1 min chart with accumulation right before the market made the (likely ) head fake move of the previous 3-days.

Look at the leading negative divegrence from Friday and in to today. Note the dates I have highlighted.

 The 3 min HYG chart is horrible looking, leading negative right after the 3rd day is completed in to OP-EX.

The HYG 5 min chart

And the 10 min HYG chart is seeing migration of the divergence so this looks to be a fairly strong round of distribution, so if that takes HYG lower, you saw how HYG leads the market.

PCLN Update

I hold a PCLN core short equity position  that is pretty much there, but could be filled out, but I'm not focussing on that, I'm more looking at PCLN  from a trading or Put option perspective (especially the later.)

This is the last PCLN update...

You may recall I liked the breakout on Wednesday, but couldn't add to the core short or open a trading position because I don't believe in "V" reversal events, but more of a process so  I said I was hoping to see something like a few Dojis or Star candlesticks to give PCLN a reversal (rounding) process, so far so good.

 And there they are, with today thus far, I have 3 Star/Dojis and a wider. rounding reversal process in place.

THIS HAS CREATED A NEW PROBLEM, actually maybe it's really not a problem, but a great timing indicator.

The 3 Star/Dojis have created a VERY obvious line of resistance on an intraday chart.

 There it is on a 60 min chart. So I have alerts set for a move above that range around $1145 and I'll be looking immediately because a majority of all reversals have a head fake move, no matter the timeframe.

In this case, that could be used to set up a Put position because I want to buy the put in to price strength and underlying weakness.

THIS ALSO TELLS ME THAT THE TRIANGLES IN THE MARKET ARE LIKELY TO SEE A HEAD FAKE MOVE TO THE UPSIDE BECAUSE PCLN WILL LIKELY NEED THE HELP AND IS IN A WAY, A REFLECTION OF THE BROADER MARKET.

 30 min PCLN leading negative in the range area so that's good, I'd need to see a move above $1145 and charts like 1, 2, 3 and 5 min get real ugly on that move and I'd enter a put position or add to the core short or both (1 as a core trend position, one as a trading position).

 This 3 min chart in the range of Dojis and the same area as the market head fake is perfect, this is the kind of intraday 1 min move I'd like to see not only in PCLN, but market wide.

THIS IS THE KEY, THIS 1 MIN CHART LOOKS LIKE IT WILL MAKE THAT INTRADAY HEAD FAKE MOVE ABOVE THE 3-DAY DOJI RANGE, THIS SHOULD BE SIMILAR TO THE OVERALL MARKET.

SET THOSE ALERTS

XLK (short) / TECS (long)

As mentioned TECS is already a long trading position in place which is doing fine, I mentioned again I do like TECS (short technology and I made specific mention to AAPL's weakness). I think you might get a chance to look at a position in one of these if you are interested just based on the TICK data at the EOD today.

Note how XLK's daily doesn't look that different than SPY or even IWM below...

 Friday the charts suggested a gap up with a close below Friday's open, a bearish engulfing pattern.

However that doesn't mean there won't or can't be bouncing around this move, although it was a serious move. I have to take a closer look at internals, but the TICK data seemed to indicate the market trying to bounce a bit

 Today was REALLY mellow and TICK was about +/- 750 until later when it hit an extreme of almost -1600.

In to the last hour or so, you can see the TICK trend changing, this is good early warning, so we might just get some opportunities to enter some additional positions on price strength/underlying weakness.

 Here's XLK 10 min, it hasn't confirmed for quite a while. There are reasons I'll hold a position like TECS that may be down (only 5% for a 3X leveragedETF so it's not bad), but the decision I made is based on more than just price, price is one of the most deceptive indications in the market.

 This is the entire cycle from the 10/9 lows, there was accumulation and even a head fake (stop run) move in to those lows. Distribution was heavy in the range area and the head fake move here is the same 3-days as the rest of the market, the previous 3-days and 3C looks worse there.

 This is the 5 min chart, there's clear deterioration where the head fake move is.

And this 3 min trend chart I trust needs no explanation as that is the clearest divergence you can ask for.

 As for TECS, short term charts are difficult because trade is spotty, but it's very clear here on this 3 min chart.

Ot take the 10 min chart's extreme positive divegrence the last 3 days, but especially today.

I don't want to chase anything, but on any strength I think XLK short or TECS long would make for nice trading positions or even ad to's.

In to the close

The TICK looks like it's forecasting a ramp in to the close to try and recover some of this downside, you may be able to use it or may want to exit trading positions (very short term ones) here.

AAPL Put Set up

First, I DON'T want to chase ANYTHING

I'd like to see AAPL move above $522.60 or higher to set up a put position, I mentioned AAPL Friday and showed charts of it over the weekend / late Friday.

I think this initial market meltdown will see the "But the Dip" crowd come in and set up some more opportunities, one I'm looking toward is AAPL.

 This is the AAPL 15 min chart, it has gone from in line to leading negative and AAPL is still close to being within a range , actually it is, so it works.

 This 10 min leading negative divegrence caught my attention, since Icahn is getting all of the credit (do you know how many banks, Investment fund managers and Ex-F_E_D officials have said the same thing in the last 3 weeks, but they give Icahn credit!!!!) perhaps Icahn is the one selling here.

And the 5 min so AAPL is REALLY close, it could probably be taken now, but I'd rather not chase and rather enter a put on price strength and a lower premium.

GLD / GDX

So far not only are GLD and GDX holding up well on a relative basis, but they are making the kind of lateral trend intraday that is needed for the reversal process so it looks like this one is going to pan out too.

Even though USO took a little hit, it's still well within the reversal process so it looks ok too.

I'm actually impressed with both GLD and especially GDX thus far.

There She Blows

I want to keep tabs on this market, there certainly can be head fake moves in a Crazy Ivan this sharp, but when there are, it's a pretty broken market.

So far it looks like those last 3-days were a head fake judging by the speed of the decline and the number of issues declining.

Last week one of the things we noticed was stealth accumulation of protection in VIX Futures which is why I opened the a lot of the short positions like IWM puts which are green double digits right now, but I want to keep an eye on this and where other opportunities are, but in general, head fake moves (the last 3-days) are the opportunity.

 UVXY intraday 1 min

However this is where the position started when the character changed on the 14th, I'm pretty confident this position will do very well.

This is the 1 min actual VIX futures...

And the 60 min which is much stronger, the stealth accumulation of protection I talked about last week is particularly strong during the market's breakout above the range.

FAZ / TECS (LONG)

I'm just reiterating I still love both of these positions to play weakness in Financials and Tech, both are 3x leveraged inverse or shorts.

XLF Just Went VERY Negative

Some have been asking about FAZ long which I'm holding, XLF-Financials just went VERY negative, I'd say FAZ is a good choice and you can always through a tight stop under intraday lows.

Market Update

Here's a quick look at the averages, pretty much for the most part they are loitering around the Psychological whole numbers, however there's damage as there was and shown in Friday's EOD posts.

 SPY 1 min just loitering around a triangle, it's not even clear what will happen with the triangle, I'm certainly leaning toward a break under the triangle and maybe a closing candle like a bearish engulfing, but there may be a Crazy Ivan shakeout first or a head fake move first.

Intraday charts are really bland, especially considering these highs. Volume too has been VERY bland.

 Looking at the SPY from the range and the previous 3-days above the range this leading negative 10 min doesn't bode well for the market.

The Q's 1 min intraday is loitering with no 3C or price direction.

However...

 at 2 min it is pretty clear what's going on with the QQQ, THIS IS WHY I SAID THE QQQ WAS MY SECOND CHOICE WHEN OPENING THE IWM PUT ON FRIDAY.

The 15 min chart is pretty clear as well and makes perfect sense with the HYG signals from the last post.

 IWM 1 min again, listless

At the 2 min chart, HUGE difference. You can see where there was accumulation for the "Channel Buster" breakout and you can even tell that a Channel Buster like this is unlikely to hold just on the small accumulation zone.

The 5 min IWM and Channel Buster, that Channel Buster is EXACTLY where the previous 3-days that broke above the market range are.