A.M. Update

Interestingly in to the end of Q2/1H we didn't see a VIX smack down,  we didn't get much volume either, SPX had about half the volume of the last 1H trading period, the last trading day of 2013. We didn't get the normal end of day rally, but what we did see was a big rise in the premiums charged for low strike puts (out of the money) which you'd buy if you were perceiving an increased risk of a "Black Swan" event or better known as a market crash being these are increased premiums on low strike price puts options. That has also been mixed with the defensive utilities sector leading the 9 S&P sectors the entire month.

Overnight we had a mixed bag of economic data that seemed to contradict each other out of Asia, Chinese manufacturing PMI printed its best of the year at 51 (anything below 50 is contraction), the UK also had stronger manufacturing, the Japanese Tankan Manufacturing Index dropped to 12 from 17 on consensus of 15, so a miss there and weaker manufacturing data out of Europe.

This seemed to kick off a low volume overnight USD/JPY ramp that benefitted the Nikkei the most as Hong Kong is closed for July 1st, however on light volumes which makes this one of the first time in a couple of weeks there has been any real USD/JPY melt-up overnight like we use to see quite often, recently it has been reserved for end of day ramps.

When I started getting this post together, USD/JPY was still in a diagonal uptrend, but with a deeper 3C divergence than the overnight one that caused a correction, as I captured this chart USD/JPY had already started to make a turn to the downside.

Since we typically have about 3-4  different distinct trends in a trading day (pre-market, the opening action, late morning/ early afternoon afternoon and last hour closing) This makes me wonder if we are about to get something that I had been expecting in a few trade set ups, namely a bearish engulfing pattern, I suspected we might see one in SCTY as a part of a trade set up there, this is the Candlestick I drew in and was hoping to see in SCTY for a set up, SCTY Update , History and Market Dynamics as a Proxy

This is SCTY as of the 26th in a chart in which I drew in an example bearish engulfing candle to the far right, it has  to start with a gap up and finish with a lower closing low, some in the west call it an outside day. I'm only using SCTY as an example as I was in the post above as a proxy for the broad market considering all of the H&S pattern right shoulders we are sitting on top of.

Other carry trades include AUD/JPY which saw an overnight boost as the Australian central bank, RBA, maintained a neutral tone toward policy,

AUD/JPY overnight on the RBA's policy announcement with an initial knee jerk higher and then lateral trade. which has remained largely in line, but it has been USD/JPY leading the overnight averages, especially the Nikkei (+1.08%), as mentioned, volumes are light with Hong Kong closed for July 1st.

European averages were led mainly by Basic Materials and various financials.

The USD/JPY trade doesn't look like it's likely to improve ad is off the $102 level despite the overnight gains at $101.55 and 3C continuing to deteriorate as I type, now...

USD/JPY with more 3C deterioration, the reason I don't think it gets better is the normally sold off JPY during normal market hours looks set to make a move higher in to normal market hours...

The Yen single currency futures look set to rise on a 3C leading positive divegrence which pressures the USD/JPY to the downside depending on what the $USD does in relation to it.

Yesterday's $USD weakness which sent precious metals much higher (weakest in 2 months) also looks like it is going to end that low as I noted yesterday the initial signs of a positive divegrence starting to build there, since the $USD hasn't lost any more ground, but actually gained a little overnight, I suspect this may be a larger base set to move a bit later.

$USD 5 min chart and the area I first mentioned an intraday positive divegrence forming yesterday at the white trendline, $USD has managed to stem the downside leak since then, I do suspect this forms a larger base.

As for Gold, yesterday I suspected it made a head fake move through pretty clear resistance on the weak $USD, this morning it seems to have lost all momentum to the upside, but it's still quite early.

As for the Index futures, TF/Russell 2000 futures looks the worst of the lot as it started with an intraday negative divegrence late yesterday and that has only grown much worse overnight.

 1 min TF futures overnight, but where it really looks bad is out on the much more important 15 min chart...

This is the leading negative divegrence overnight in R2K futures on a 15 min chart since yesterday's 4 p.m. close.

As of right now, all of the averages are set to open with the gap up that would be needed to create the bearish engulfing pattern I had mentioned in regard to SCTY, but using SCTY as a broad market proxy in this particular post, in other words what the market does, most stocks will do, SCTY Update , History and Market Dynamics as a Proxy

So I'll be looking for early confirmation of a head fake gap opening, as that is where I'd want to enter any put positions as long as there's clear objective evidence that the gap up os seeing strong distribution in to it. There may be several assets as well, SCTY is not in the best place for a bearish engulfing pattern because of yesterday's weaker close, unless it gets bid up in pre-market.

See you on the open.