Daily Wrap

Last Friday in the The Week Ahead post, when I said,

"My opinion is other than maybe some minor noise, the trend should move down, this will be reestablishing the preceding down trend in the Russell 2000 that has been in effect since just after July 1st as Window dressing for Q2 ended."

I meant minor noise as something like a gap fill from last Friday, today was true "minor noise" and not without repercussions for the market.

While we had a mixed close with the SPX + 0.03%, Dow + 0.13%, NDX +0.05% and R2K -0.46% with obvious weakness in the IWM, breadth saw more damage and the 3C charts themselves saw more damage than I'd expect for such minimal gains. For instance...

SPY 5 min after a positive divegrence at intraday lows this a.m. sees a deeper leading negative divegrence at the close.

QQQ 5 min intraday after a positive divegrence off the a.m. lows ends with a leading negative,  any bounce seems to be sold, even intraday.

IWM 5 min leading negative.

Transports are down for a 3rd consecutive day, -1.12% and close to the area I wanted and expected to see them break on an Ascending (bearish) Wedge.

The break above the wedge is my preferred shorting area on a head fake move, there is plenty of distribution in the area.

The VIX remains within its bullish Rising 3-Methods consolidation/continuation (bullish) candlestick pattern.

A textbook Rising 3 Methods has 3 candles inside, but it really doesn't matter how many as long as their real bodies remain inside the large bullish candle.

SKEW remains in the red zone and elevated for its 27th consecutive day.

 There was no MSI short squeeze on the open unlike last week, at least until Friday. The MSI has also been unable to hold any kind of short squeeze even when we have semi-decent signals for a bounce, they are just distributed almost immediately on any thing that resembles strength.

I showed you the AUD/JPY earlier which was in charge today and the negative divegrence in $AUD single currency futures, this is what the pair vs ES looked like...

AUD/JPY notmal hours (red) vs ES (purple). I saw a negative 5 min divegrence in $AUD today and thus far it has started to move to the pair...

AUD/JPY which had no negative divegrence to speak of earlier.

HYG was down as expected (remember when we expected a bounce HYG only had a 5 min positive so that can only take it so far.

High Yield Credit continues to diverge from the semi-exuberance (if we can really call it that) in stocks and is more grounded in reality...

HY Credit vs SPX.

As for our Leading Indicators, while there were no "jump off the chart smoking guns", they all deteriorated noticeably, much more than last week when most were at least in line, this includes Credit & professional Sentiment.

Of the 9 S&P sectors, 6 closed green, but the only one with a decent gain was perhaps not surprisingly...

The Defensive Utilities, way outperforming anything else.

Of the 239 Morning star Industry and sub-industry groups I track, only 97n of 239 closed green, this is a trend carrying over from last week of poor breadth.

Some breadth indicator examples...

 Percentage of NYSE stocks Trading 1 Standard Deviation Above their 40-day moving average is clearly negatively divegrence on the biggest tare of the year in a market that's not in correction.

 The NASDAQ Composite's A/D line which has fallen out since May, but has just gotten worse since July 1.

The Russell's are joining the Composite, the R2k A/D line above. The Comp., r2K and R3K have all ticked down the last 4-days consecutively.

Stocks 2 Standard Deviations BELOW their 40 and 200-day moving averages are near 2 month highs, Stocks  1 Standard Deviation BELOW their 200=day moving average are near 3 month highs & Stocks above their 200-day moving average are near 2 month lows, there are more, this is just an example.


There was no Dominant P/V relationship today. The only thing I see that might suggest a little noisier bounce are several of the major averages with "Hammer" candlesticks on a slight increase in volume which typically is a pretty decent indication of a close higher the next day, although the volume didn't stand out. A little more of a bounce would be welcomed as I said Friday in the "Week Ahead" as there are a number of assets that look like near perfect shorts, just too close to an obvious head fake area that needs to be taken out and can be used as the entry.

bRemember we have a ton of macro data, GDP, the F_O_M_C and Non-Farm Payrolls this week.

On another note...

 NYSE margin debt has recouped virtually all its losses and is now essentially back to all time highs,  investor net worth, defined as total Free Credit Cash and Credit Balances in Margin accounts less Margin Debt, has once again dropped to all time lows.

Lets hope al of these margin calls don't come at once, well depending on how your positioned you might hope that they do, I suppose I would hope that they do... BUY THAT DIP!