Daily Wrap

The theme today was the same as we first suspected early in the day and were proven right later in the day. We expected a bounce this week from last week's accumulation which was really on 2 days, Tuesday and Thursday, thus the post from Friday, THE WEEK AHEAD.

After having looked at all the averages (the IWM has the strongest base, but it has been hit the hardest recently and on the year) and looking at inverse ETFs as well as my watchlists, this theme was prevalent through the entire market, sell price strength.

 SPY's bigger picture outside of a bounce on the 10 min chart, not good for the SPY.

This 5 min SPY shows the accumulation from last week, but also how fast we saw an intraday leading negative divegrence today as the market couldn't gain any ground after the initial Most Shorted ramp.

Even the 10 min SPY intraday lost ground which is unusual for a single day, sellers were most definitely in control.

As the market was looking like it may lose more ground or perhaps a late day ramp by market makers and specialists/HFTs, as 3C almost always picks up where it left off, we did see minor late day 1 min and 2 min chart accumulation.

This is one reason I don't think the bounce is over, but I suspected it would be longer than a single day, just seeing the charts today now makes me wonder how long it can hold out.

Here are some inverse ETFs that confirm the SPY action, UPRO is a 3x long SPY ETF

 It saw the same intraday 3 min negative divegrence as the SPY.

SPXU is a 3x short SPY ETF and it saw 5 min positive divergences , all confirming what we saw on the SPY and other averages. It was almost as if the proceeds from sold longs went in to short ETFs immediately.

Here's the QQQ 1 min with the same afternoon positive divegrence, but on the charts that really matter...

5 min leading negative today, you can see last week's positive divegrence that led to today's bounce.

In the 3x short ETF for QQQ, SQQQ...

 We see 5 min positive divegrences today, confirming what we saw in QQQ 5 min negatives.

We even saw 15 min positives in SQQQ in what is already a well formed positive divegrence in the 3x short QQQ ETF.

 TQQQ is the 3x long QQQ ETF and it saw the same negative divgerences on the 5 min chart as the QQQ did today as well as the other averages which is quite a bit of movement intraday on a 5 min chart.

 Here TQQQ with a similar positive divegrence from last week sees a 15 min negative intraday today, that's a lot of underlying flow and a chart that's already looking good for a drop.

AAPL saw the same kind of action as the Q's, 5 min negative.

 3 min negatives as well and...

That late day 1 min positive which should gap the market up tomorrow or at least give it some early strength in price, underlying trade is quite different.

 IWM 3 min with last week's positive seeing intraday distribution.

The IWM 5 min chart is still intact and one of the strongest 3C charts.

However, like the SPY and other averages, this area has already seen a lot of damage, thus I think the bounce as the IWM was down 4% last week and has lost all gains for 2014.

Gold and GDX were both expected to pullback, GLD was down -2.38%, the biggest move down in GLD for 2014. GDX was down 2.64%, you may recall I closed the DUST position at a nice gain for a single day trade, I suspect that is short term and we may be re-emntering. GLD found support intraday around its 100-day moving average, GDX found support right at its breakout area from last week. I suspect a short term bounce, thus I closed DUST, I'm thinking maybe a day or so, but I do suspect both gold and GDX have more downside to go, but we'll let the market tell us that and when to get back in.

Before the close I said I thought we'd have a continuation of the bounce, this was largely based on leading indicators, but they also tell two stories, short term and longer term which is quite extreme.

For example..

 I suspected last week HYG /SPY arbitrage would play a big part in a bounce, HYG barely moved today, it still may, but it was unusual seeing VXX accumulation.

Longer term HYG is severely dislocated from the SPX, this is why we use leading indicators, these are the charts that tell us the most about the market and it's telling us credit is not buying any of this, in fact it's selling it.

High Yield Junk Credit barely moved when normally it would lead to the upside intraday and longer term...

It too has sold off aggressively, these again are the signals we look for in Leading Indicators, they are rare, but have been very useful.

Pro sentiment intraday is right with the SPX so I suspect there's more to go on the upside, but take a step back and...

Not only have they been selling, but specifically since Q2 ended right at July 1.

Our second pro sentiment indicator looks the same intraday, but again take a wider view...

And it has been selling off, it got much more extreme July 1st, the end of Q2 Window dressing.

Volume for SPX futures was 30% below its average. The Dow briefly hit an all time intraday high, but lost it. VIX had a bit of a strange close.

First VIX outperformed the SPX intraday, but look at the pop near the close, that's the opposite of what we have seen the last several years.

And the SKEW index rose again and remains in the red zone.

SKEW Index.

Initially I was considering whether a piggy back long for a bounce would be safe and worthwhile, from today's action I don't think it's safe or worthwhile so I'd rather stick to the bigger plan which is to short stocks on our watchlist when the signals have turned enough that they look to be right at the cusp of a turn to the downside.

I cannot emphasize enough how prevalent the trend today was throughout all of the major averages as well as our watchlist stocks, many look like they are in excellent position right now, but being in sync with the market as well is where the highest probabilities are.

Other than that, we had some nice gains taken off the table today and hopefully some nice ones on the way (UNG, etc.)

Overall the tone of the market is exceptionally weak.