Daily Wrap

I'm going to keep this brief because really tomorrow is what really matters, at 8:30 a.m., the NFP. Beware the knee jerk reaction, they aren't as reliable as the F_E_D knee jerk, but this is an emotionally charged issue and the market is all perception.

For once we have a Dominant Price / Volume Relationship and it's huge, more than half the components of each average, so a very dominant relationship. Even though we saw above average volume today on the 5th day of losses in the market, the Dominant P/V across all the averages was Price Down/Volume Down, for example it was 333 of the SP-500, 71 of the NASDAQ 100, 21 of the Dow 30, so a VERY dominant P/V.

Price Down/Volume Down is the hallmark relationship of a bear market, what it means in this situation is that the market is not at an oversold point, it can keep going lower. 

As we saw earlier our Sentiment Indicators closed negatively, HYG they've been trying to hold in a range for 4 days while at the same time trying to constrain VXX for 3 days now.

One moderately bullish Leading Indicator is Yields as the are like a magnet for equities...

 Yields vs the SPX.

However, the normal relationship of rising yields is due to risk on and selling in bonds, if you look below, bonds have been selling off in a very QE-OFF or TAPER on way

30 year Treasury futures, 10-year look the same, they are acting as if QE is going to be pulled, not their normal market relationship right now.

A few other odds and ends...

 Spot VIX is looking more and more like it may just make that directional breakout without a pullback to the 20 day moving average.

Still NYSE A/D line can't break above October and is actually looking like it has topped.

My award winning Trend Channel has the entire 10/9 cycle in the channel, the stop is just a hair below.

The Dow has already been stopped out by the Trend Channel.

I've found price tends to bounce in the channel after a stop out, but I have always seen it is better to exit on the stop out, sometimes you'll see higher prices in that volatility just after, but you almost need dumb luck to hit them and then there's typically a move down like a 1-day gap that can take out a month or two of longs in one morning.

The point being, when the Trend Channel is stopped out, I've found it's better to stop out and move along to something else or risk the market's wrath.

 RSI as many of you have noted is divergent, this is still one of the traditional indicators I like for divergences. The volatility stop that introduced the 10/9 cycle just ended it as well.

 This is VXX with the SPX (green ) inverted to show they pounded the VIX futures late in the day so ES could make it back up to VWAP at the close.

We actually saw this in 3C.

Finally I was wondering what Don Worden's much respected TSV had to say, I reduce noise and use a longer period of 55, note the positive divergence  before 10/9 lows and leading negative recently? It looks a lot like 3C in many ways.

I did find this interesting, CONTEXT for ES has ES undervalued by about 10 points, sometimes they reset it in the a.m. as they try to incorporate the new correlations, for instance we saw the long correlated EUR/JPY vs ES go completely inverse today, CONTEXT isn't built to accommodate that, they have to do it manually.

For now, not too much happening, but 8:30 all heck will break lose, hopefully we find not only some answers there, but some neat trade set ups. Get some rest, tomorrow is going to be interesting.

MCP Charts

Sorry, trying to get this done...

 Base, breakout and consolidation...

Long term base, very positive 60 min

Intraday 1 min accumulation

2 min acc

3 min acc. that's migration.

The 60 min on the last or first breakout. I think it's ready to make another leg higher.

Trade Idea: MCP LONG

I'm adding 1/3 to the MCP long, it looks like it's ready to make a move really soon, tomorrow maybe.

I have an appointment just after the close so tonight's wrap will be a little later than usual.

Check out MCP long.

PCLN Trade Position (short) / Update

I'm really only following PCLN or started to because I've never seen so many people want to short a stock that I can recall, everyone seems to hate William Shatner.

In any case, it's taken some patience, but I have no problem with a PCLN equity short as a core / trend position in this area, a little bounce all the better, but the charts look good right here.

 60 min chart, one of the strongest. I love when we have nice clean 3C / price trend confirmation in green and then a divergence pops out, it just gives that much more credibility.

Here's a look at the 60 min a bit closer, I said I wouldn't start or add to (in my case) PCLN until it is above the $1100 area , there was a reason for that and the 3C chart above makes it clear. 1100 is a round number, whole number, centennial number and thus a psychological number and a new high, that's where distribution would be heaviest and it appears I was right.

 30 min chart with confirmation and look at 3C once price crosses the yellow $1100 trend line.

Heck, look at the trend of this 3 MINUTE CHART!!! I can't zoom out enough to properly scale it because 3C should be lower around price at the green arrows where it is confirming the trend, the minute we are above $1100 though, look at 3C.

This is a closer look at the intraday, as you can see, things recently have just gotten worse.

I like this one, I think it may be a bumpy ride, but probably well worth it.

UNG Update

We've watched this stock probably longer than anyone as the first changes of character took place. Over the long time it has taken to build a base, I've said over and over that this is one of my favorite Primary bull trend stocks out there, but it will require patience. I call it a "Buy it and set it aside" stock.

I can't say for sure if our day is finally here, but it sure looks good.

 Look at today's Daily candle and volume!!!

More importantly, look at the daily 3C leading divegrence, that's a real beauty.

***If you feel like you might have been left behind, this one hasn't even made it to stage 2 yet, I figure $45 is the minimum target and probably a whole lot more, so a pullback would be nice and it will come.

Perspective

Not that this doesn't happen from time to time, when the market loses clarity, it does and as I said, it usually lasts a day or two and then suddenly things are very clear again as if they never had gotten muddy.

However in the moment, it's darn frustrating trying to make sense of seriously conflicting signals so I'm going to take some of my own advice, "Don't get lost in the lines" which means that those of us who watch the market every day see a day like yesterday when only one of the major averages was marginally positive and the rest down and we look at the bounce off the 1:30 lows and we say, "This is bullish", that's getting lost in the lines, looking at something so close for so long that you miss the big picture that's glaringly obvious if you just step back and let your eyes refocus.

I would maybe take some profits or add a position or a  hedge, if I had good reason. With the USO closure of the call position this afternoon, I had good, objective reason. Taking action based on a foggy market is like panicking in the fog, it's not going to get us anywhere. Sometimes the market requires you just be still instead of always trying to make something happen.

So after looking at everything from every angle the last two days, I can sum things up by taking a step back and remembering what the market looks like. I have no control over the NFP (or the likely knee-jerk reaction that gets faded-watchout for that tomorrow) but I do have objective evidence and I'm sticking with that until the next trade presents itself.

 The last cycle in the SPX/SPY started with accumulation and a prediction we'd see it because there were so many (hundreds) of shorts that were just close enough to a head fake move that they had to make it, but just far enough that they couldn't make it without the market's help, that's when I started talking about a market move up to facilitate that, a week later we started getting 3C evidence of it. The leading negative divegrence is more than enough for me, even if price squiggles like I drew in yellow at "A", "B" and "C".

That's about 2 weeks of pure accumulation by the way on a 30/60 min chart.

The Es / SPX Futures, I drew in the divergences and what they did to price, a relative divergence halted the uptrend and a leading negative started a downtrend, it's at a new leading negative low-60 min.

 Industry groups like the powerful Financials, just read the chart left to right, the areas of pure distribution I have been talking about are like the $21 area (whole number) at the yellow trendline, look at the difference in the divergence from that point on. Another new 3C leading negative low.

 And when the VIX shoots up, the market typically drops hard, this is one of the largest VIX BB squeezes and if you want to know what will power it (even though it seems to already be on its way)...

A never seen before VIX FUTURES (the real VIX that is traded) with a 4 hour leading positive divegrence right in the same area, that should send the ole VIX higher.

Looking at these charts is the first time today my heart beat slowed down and I got some perspective.

Leading Indicators

I'm really trying to find something that makes sense in this market whether currencies, commodities, bonds, industry groups, index futures and now Leading Indicators.

This was all I could find.

Like yesterday, HYG which is 1 of 3 arbitrage assets used to goose the market (the other two are TLT and VXX), sometimes HYG is used alone, we call it the SPY Arbitrage because Capital Context has a model we can look at, although the correlation of Treasuries (TLT) is off from the normal correlation of "Flight to safety" as the F_E_D owns a third of the bond market, these high quality collateral assets banks need are in or will be in more demand, especially the longer QE goes on. Remember I've said for the last 6 months that there's something that smart money likes about TLT, although I wasn't sure what. Well when you strip away supply and you have demand, the natural outcome is higher prices.

In any case, HYG is almost perfectly in line with the SPX, so unless VXX is severely underperforming the SPY Arbitrage doesn't work, HYG needs to be up, VXX either performing worse on a relative basis or moving down and typically TLT down activates the SPY arbitrage, but for the last 2 months I've seen them use HYG alone.

Both Sentiment indicators (professional, not retail) are negative, to get a feel for both intraday and longer term (which matches 3C, market breadth, etc), I grabbed 2 timeframes.

 This is FCT intraday, it's definitely moving risk off, maybe because of the unsure situation with the NFP tomorrow, but this is also the primary trend in FCT and our other Sentiment indicator.

Here FCT in blue vs the SPX in green is seen slowly falling off just like breadth did early in the year, then the first crash is near the May 22nd 1-day Key Reversal. The charts I've been trying to highlight that show increased leading negative divergence or distribution as the averages break above areas like Sept/Oct. Highs also sees an increased rate of decline in our sentiment indicator.

I didn't find much else of interest except the thinly trade High Yield Credit.

HY Credit, unlike HYG, is clearly up on the day, I don't know how it will close as it often has a way of changing on a dime, but I did find this odd.

USO Update and Trade Opportunity

As always I want to take options profits while there's momentum, when the momentum fades so do the profits and a lot faster than you'd think if you are use to trading only equities. We don't play the options game the way Wall St. set it upp, like Las Vegas, it''s a tool to be used at the right spot and we don't play the game with their rules, but our own so we're not looking for a 700% gain that we can tell a story about the rest of our lives and blow up the account after that, we use the leverage when there's no other good alternative and get out as soon as the momentum starts to fade.

The other side of this trade is, we don't chase trades, let them come to you and if you like USO like I do, then you may just be in luck.

First the P/L from the USO Dec. $35 calls.

The fill was at $.54 so the profit is nearly 71%.

There's a lot more to come in my opinion.

 This is a perfect example of a reversal process rather than an event as most people expect of stocks, this is what we want to look for. These tight ranges like this is where we most often see accumulation and distribution so while everyone else thinks it's a dull market, this is actually where the most action is going on.

The head fake concept is seen here in yellow, we see these on all timeframes as the market is fractal and in about 80% of all reversals (you just have to look), there are  a number of different versions, maybe that will be part 3 of "Understanding the Head-Fake Move". However, when you see a head fake, probabilities are very high that we are at the transition point from a base to mark up.

Note volume jumped, that's the longs getting stopped out as they place stops at an obvious place just at or below defined support, it's an excellent buying opportunity with low risk.

Another reason for the head fake just before a reversal, the momentum they create, "From a failed move comes a fast move".

This is the big picture 60 min chart from distribution and decline to accumulation and the start of mark up so USO is still early in the process and still in a good buying position, but I think we can get better with a LITTLE patience.

Note the 15 min chart confirms the downtrend perfectly and then shifts to accumulation, but more importantly, we can identify a head fake move from a real breakdown by seeing if it is accumulated, what does this chart tell you about the head fake in yellow?

Here it is again on a faster 5 min chart so we can confirm the same day, often the same hour, bit we also have another issue, this is why I closed the calls, we have a small negative divegrence on a 5 min chart, we've had a strong run, but candles are getting smaller and volume is falling off, a pullback (constructive) is high probability and I don't want to burn theta with a December call, I'll just close it and re-open it at a better price.

I like calls if the situation is right, but otherwise I have no problem with a 2x leveraged long Oil/USO ETF. We are looking at the daily X-Over Screen, initially developed to weed out false crossovers or whiplashes, but it's turned in to a system itself.

From the first breakout in a new trend (white-we have 2 of 3 and the 3rd signal will confirm soon), the first pullback is almost always to the yellow 10-day price moving average and that's where we want to look at buying USO again if you didn't just hold or adding to it. Subsequent pullbacks are usually deeper to the 22 -day blue price moving average, but for now, we look for a pullback to the 10-day and then we confirm that the pullback has been accumulated, then price and the trade comes to you, a stop can be placed under the 22 moving average initially and off we go.

I'd set some price alerts because I REALLY like this one and have been patiently waiting as the base was being built, now's the time to take advantage of that patience.

Quick Market Update

We still have that fog across the market, but in the intraday timeframes that have been going negative, mostly 1 min and a few 2 min charts, they are now getting worse, perhaps this will clean this mess up as this usually does not last long.

Trade: Closing USO December $35 Calls

If I'm long USO or a derivative leveraged ETF, I stay in the position, but for calls, / options in
December especially, I think now is the time to consider taking some off the table. I'll follow up with charts, but I expect a shallow pullback.

GLD Update

I don't see anything wrong with the little knee jerk in gold today on the eco data this morning, in fact the market has been ruthless about filling gaps the last 5 years and it did so today, the rounding reversal process is still in place, I think GLD is still at a very reasonable risk:reward area.

 Gold futures overnight and at 8:30 (red) with a 3C positive in to the entire a.m. trade.

The gap (yellow) from yesterday was filled and the reversal process remains intact and looking good.

Yesterday we didn't quite get confirmation, but not a bad signal either, today the gap was filled, it seems like no big deal to me honestly.

The move today was apparently accumulated so that's what we want to see.

On a longer intraday 3 min, again the move has a positive divegrence

The longer or bigger picture with accumulation of the stop run area is very clean and clear, I'd take this long trade all over again right here if I was not already in.

The longer term base structure is a "W" base, they often have a head fake on the second bottom which we have here, it often acts as a timing marker so we know we are close. The second base also has larger divergences as they normally do.

The idea since we called the top in 2011 while everyone else was a die hard gold bug was that we'd see at least an intermediate downtrend which we did. I believe now we will see an intermediate uptrend, whether counter trend or not, I'm not sure, it looks too big to be counter trend so that opens the possibility that a primary bull market opens up again in Gold, obviously someone has some inflation expectations they are preparing for, it's quite obviously smart money at this point.

Market Update

There is still something VERY strange about this market, it's literally like the twighlight zone, I know it's not your job to put together the pieces I'm finding, but I'm trying to keep you up to date, yesterday was the first day in a while (actually Tuesday I described as "Mushy" too) in which the market looked like a fog bank and many averages, , Index futures, multiple timeframes, confirmation assets, Industry grouops and individual stocks just made no sense, typically they all move in a direction that confirms the big picture, however tomorrow morning's 8:30 BLS Non-Farm Payrolls (The Employment Situation) is arguably the most important since QE started in 2008 and was expanded on early 2009 to include treasuries where it made a difference. A good NFP print and it makes tapoering "more" likely, especially with GDP coming in better than expected, but I'm not going to make guesses there. I strive to find objective data, look at it all and come up with a composite. Two days of fogginess isn't going to mean a lot to the big picture, unless there's something we don't know like a NFP leak, which would be huge, we know the F_E_D has leaked minuted a day early and even went through the trouble of emailing them to the largest trading desks and private equity firms, 154 in total and not one called and said, "Hey, you sent this out a day too early". I just want to know how I get on that email list and why if everyone gets the data at the same time, there';s even need for an email list?

Let me just get to the charts before they change, I obviously have my work cut out for me (oh and if I'm quiet, not answering emails or posting much, it's not because I'm on break, it means I'm busier than ever-I don't take breaks, not even 5 mins during the trading day).

FX Carry Trade and Market/ES correlation turned topsy-turvy 

 This is ES in purple vs the EUR/JPY, a week ago they were nearly inseparable and for about a year before that, now they are trading mirror opposite each other.

 The EUR/USD use to wear that crown of correlation above, I could tell you where the market would open just by looking at the EUR/USD, but another pair trading mirror opposite.


After the US data came out this morning and the USD got hammered, it seems the USD/JPY is trading with ES, I don't know if by correlation or just coincidence.

It seems there's a reach for protection again...

 Yesterday VIX futures seemed to unwind a bit, I figure as longs sold some in to the early afternoon lows, they also lifted their VIX hedges and that was likely why VIX was in place yesterday, however today there's some action as you can see in 3C 5 min for VIX futures, VXX late day yesterday started to show this as I showed 1 min late day market average distribution and VIX accumulation (confirmation).

However while all the intraday 1 min charts for the Index Futures are in line, the 5 min ES has a small positive divegrence, I take them more seriously on the 5 min chart, yet NQ/TF (NASDA and Russell 2000 futures) both are either inline with a negative bias or negative on the same timeframe.

The averages...

 This is one of the SPY positive divergences, it seems to have the most in the 2-5 min timeframes, there's only a little added to today, however...

the intraday 1 min is perfectly in line, it's hard to imagine where any 2 min or longer positives are coming from unless it's just transitional signals that aren't finished.

QQQ1 min (read left to right) is in line, it has a couple of positives and negatives knocking it back down both times, it's a little less than in line.

I teach, "Whenever your indicators are mixed up, go to the longer timeframes, they have less noise and more trend, plus they are the more important, stronger and higher probability trends", so that's what we did with this QQQ 10 min chart and it makes perfect sense and fits perfectly with EVERYTHING we were seeing up until things got mushy Tuesday and certainly yesterday and today.

I'd still have to place probabilities with this chart showing clear distribution at the transition point of stage 3 and 4.

I did the same with the IWM, again, this is a clear signal that makes perfect sense with the channel buster, also the relative weakness in the IWM this week.

As shown yesterday, VXX short term VIX futures 2 min shows a negative divegrence, but as I reminded toward the close, ALL NEW DIVERGENCES START ON THE 1 MIN CHART, if they are strong enough they migrate to the next timeframe and so on.

 The 1 min VXX is showing that positive divergence and suggesting there's some change underway.

VIX futures are also showing something similar on today's 5 min chart (see above).

Back to the concept of going to the longer term charts for clarity, the 30 min VXX is unmistakably one of the strongest charts I've seen with a near vertical leading divergence and a near perfect reversal process, don't forget the spot VIX BB squeeze, this chart makes perfect sense with that and also the VIX futures 4 hour positive divegrence which has never been seen before and is exceptionally strong.

The VIX prices move opposite the market so VIX up, market down.

As for Credit...

 Long term or even intermediate, Credit is out of the game, it's not chasing stocks, but HYG is used as an algo manipulating lever, it makes the algos believe smart money is "Risk on", this 3 min chart shows the distribution and then gap down, but recently a smaller positive has formed.

 Again intraday like the SPY, perfectly in line, so where any positives are coming from is hard to tell unless there's accrual of occasional spikes.

 Longer term 15 min, in line going up, then negative at the top and HYG falls, it's leading negative where it counts.

And a Real Monkey Wrench... The Industry groups like Financials...

 They don't reflect anything that's going on in the averages and Financials make up almost 25% of the SPX. XLF 1 min is negative

XLF 5 min is negative and clearly

XLF 15 min is negative.

This is what I mean, there are so many assets going in so many different directions, but this XLF set of charts is what we have been seeing, it makes sense.

TICK

If anything bullish were going on, where is it in TICK, not a since +1000 today, but some -1000.

However, the bigger take-away is how flat TICK is, if I just looked at this, I'd say, "No one is doing anything in front of the NFP, dead in the water"

The VIX Bollinger Band Squeeze

 I wanred of this, first that we'd see a highly directional (strong ) break out of the pinch, almost certainly to the upside. I also said a week before we had the first hint of a breakout, that these are "Known for initially breaking out and then loitering in the area for a bit, then taking off", that's exactly what has happened so far. Yesterday I showed past BB squeezes, none as strong as this one and every one broke to the upside for a few days, then corrected and came down to the 20 bar moving average seen on the chart, then took off parabolic up (market down), SO IF THIS HOLDS TRUE HERE, EITHER THE MARKET NEEDS TO BOUNCE A LITTLE AND BRING VIX DOWN TO THE MOVING AVERAGE, OR THINGS NEED TO STAY THE SAME AND LET THE MOVING AVERAGE COME TO PRICE.

That's from past experience, but that doesn't mean it has to happen like that again, especially with the NFP being the real market moving event.

Finally the ES VWAP so far today, it was trading just above VWAP before the US data came out, this is the area a market maker would be trying to sell to complete a customers order, it's strange that it popped up there before the 8:30 data, almost as if they knew the data would send the market lower so they were either selling or shorting up there before the data hit (theoretically).

Then the break of VWAP on the data and we have stayed in the bottom band. I'm not sure what to make of it with everything else so screwy, the relation between ES and EUR/JPY alone is headline worthy.

I'll keep digging.