Daily Wrapv

There were several interesting events today, it's hard to know where to start as I've covered many of them in individual posts. I think the first thing to recognize if the flag in the major averages from June 25th, as I;ve said, in my opinion this is not a random flag, it is not a price-discounting mechanism, it is a specific flag, perhaps for the purposes of the last week of window dressing and as we often see, flags are head fakes as Technical traders expect them to break to the downside which they often due, but not before breaking to the upside.

The point in the excercise is that a failed price formation tends to see traders reverse positions, for instance the dogma of Technical Analysis says if a price pattern fails, reverse your position, thus a head faked flag looks like a failed flag and causes traders to reverse their positions.

The cleanest version of the flag is in the IWM

 Here's the flag formation started June 25th. I've often said, "Once Wall St. starts a cycle or a price pattern, they rarely let it fail", this one almost did with pre-market selling on 6/26 on F_E_D president James Bullard's comments that the "Market was wrong" and didn't understand how close the F_E_D was to its goals/hiking rates. In the SPX and Dow it is a clear bear flag, not quite the same in the IWM and SPX, but the IWM maintained the cleanest version without the distortion caused in the other averages by Bullard's comments.

Also note today the extreme volume in the IWM about 40 minutes after the Dow missed 17,000 intraday by a mere 1.3 points, IT'S VERY DIFFICULT TO IMAGINE THE DOW COULD NOT BE PUSHED AN EXTRA 1.3 POINTS so I think there's likely more to this part of the story to unravel.

The yellow area today would be the typical head fake move above a bear flag that we see almost always, what happened next is something a bit different, but it also leads me to question why this kind of move wasn't run yesterday at quarter's end, the only thing I can come up with was the opportunity was not there as we did see some unusually heavy volume selling and overnight the USD/JPY lifted the Index futures giving them a boost in to today's open.

This 2 min trend of the IWM shows the accumulation at the start of the flag, it's actually very small accumulation and the price pattern that has emerged since is further north than that amount of positive divegrence would normally provide, that may be why the move that appears to be a head fake was run today as the flag was running out of gas as you can see by the 3C trend in to higher prices, which would almost certainly mean the flag was put there for the sole purpose of selling (again this includes short selling) in to higher prices.

Again the 2 min chart shows deterioration and then much more extreme deterioration the higher price moves (distribution in to higher prices/demand which is a necessity for institutional positions given their size).

What was interesting was not simply the lack of confirmation on the move, but at the highs where the Dow failed by a mere 1.3 point, the amount of leading negative damage done after that taken with the unusual activity in the IWM and shortly thereafter the large green volume spikes in the inverse leveraged SRTY.

The unusual amount of leading negative damage which occurred after the Dow failed to make 17k was also just as the TICK had turned, a greater number of stocks were selling...

 TICK turns just as Dow fails, almost to the minute.

The unusual damage that occurred right after could be summed up with this ES chart posted in Leading Indicators update,...

This is a very extreme intraday move in 3C.

However ES alone doesn't give the real climate of the afternoon

 Take the IWM 5 min chart, being a 5 min intraday move of this size is fairly heavy.

The 10 min chart had already been leading negative but saw additional intraday downside.

 QQQ fails exactly at the top and then sees an unusual leading negative divergence

 The same happens with the SPY, past divergences on the same chart forecasted following moves well, today's leading negative however was much more extreme and right after the failure of the Dow at 17k which would be a major psychological level with orders sitting right at 17k, why it wasn't hit is a mystery.

 SPY 5 min, that positive is not the positive that started the flag, it's the stick save from Bullard's comments, the leading negative today can be seen to the far right.

And the DIA, again an unusual amount of damage for the average not to have followed (yet) intraday.

What is also interesting is the VIX and how it hasn't been working as of late in ramping the market.

The SPY (green) vs VIX (red) intraday, the typical 3 p.m. VIX hit is tried and VIX moves down, but the market fails to move up which is something new, although we've been seeing less and less effective VIX manipulation especially over the past week or so.

The VIX was just at lows not seen since February of 2007, since it has headed higher, today's specific relationship vs the SPX shows the VIX really barely moved down at all vs the SPX's normal correlation with it.

I mentioned this last night, the VIX daily candle price pattern called Rising 3 methods, a bullish consolidation (flag) continuation pattern in which the real bodies of the candles preceding the large up day (yellow arrow) all stay within the real body of that up day, this typically leads to a strong move up (in VIX) which would correlate to a strong market move down, perhaps stronger than the normal VIX/SPX correlation being the VIX is outperforming it so much recently, to the point in which an EOD whack-a-VIX didn't even work. *I'll remind you again of the strange volume in the IWM, highest in at least 2 weeks and then the strange large green volume about 20 minutes later in SRTY.

The selling in HYG on a day like today, especially if they wanted to push to Dow 17,000 was more than a little strange, it seems as if the institutional risk on asset that's often used for market manipulation intraday wanted nothing to do with today's "Risk on" tone in equities.

I was actually surprised when I saw this as I expected HYG was one of the culprits behind trying to push the Dow to 17k. Rather High Yield Credit went the other way and sold off.

Professional sentiment also saw strange selling as it was before the Dow failed.

Sentiment vs the SPX intraday.

Taking another look at HYG, it started selling off stronger as well early, when you'd think they'd want to stick around and take place in any limit order rally as 17k is hit.

High Yield Credit vs SPX intraday

commodities have had some correlation with the SPX since mid last month, that also went by the way side.

Commodities vs the SPX.

I still feel GLD, GDX, NUGT and likely SLV will still pullback and offer another opportunity to go long, however I can't impress enough that I BELIEVE THE ONLY REAL BULL MARKET IN TOWN WILL BE GOLD AND MINERS, MAYBE SILVER. The general retail crowd hasn't picked up on the large base in Gold and gold miners as of yet just as the market is forming numerous tops in the same area, in fact it seems retail missed the GDX +20% move which is huge as they are so focussed on the equity market.. I PLAN ON SAVING A DECENT PORTION OF RESOURCES FOR GOLD/GDX LONG OVER THE COMING YEAR OR SO AS I BELIEVE THIS WILL BE A MORE SECULAR TREND. The trend in gold and miners also tells us something about inflation expectations, which tells us something about the probability the F_E_D may have to surprise and hike rates faster than the market has presently discounted or at least the street has discounted, there's a clear reason there's so much accumulation in GDX and GLD, smart money isn't called that for nothing and we certainly didn't create it, but were lucky to latch on to it early. The exciting part is a 20% rally in GDX and it hasn't even moved out of the base yet, stage 2 mark-up is where 80% of the trend gains are made.

THE $USD WAS FLAT ALL DAY, BUT IT HAS A DECENT DIVERGENCE IN IT WHICH SHOULD HELP GOLD AND GDX PULLBACK AS THEY TEND TO TRADE OPPOSITE THE $USD AS WELL AS OIL.

$USDX 5 MIN ALSO POSITIVE ON 15 MIN SHOULD BE ABOUT THE RIGHT AMOUNT FOR A GLD PULLBACK AS WELL AS GDX/NUGT.

The daily close of numerous candles doesn't look good, for example...

 The IWM, SPY and DIA all have bearish candles with longer upper wicks today which is higher prices being rejected, but they also have heavier volume which suggests some level of churning, strong hands handing off shares to weak hands.

IWM

SPY

DIA

The SKEw Index also remains in dangerous territory, over 135 is the red zone, in the 140's is very high as we haven't been there many times.

 SKEW Index trend for 2014 in general...

SKEW's recent strong move higher.

Basically this means investors or smart money because retail would hardly think of this, are paying higher and higher premiums for deep out of the money puts meaning they are expecting a Black Swan or sudden market crash, that's why they are buying the low strikes, they believe price will be low, but it's not just that, it's the demand that those options are in causing the premiums to rise abnormally.


Otherwise, there are multiple tops in place, people don't want to call them tops based on the market action of the last 4-5 years, but that was held up entirely by the F_E_D's balance sheet expansion of nearly $trillion dollars, the F_E_D is getting out of the game and those who aren't quick to realize it may see the market gap against 3 months of trend in a single morning, it has happened plenty of times in the past.

PCLN is one of the assets I'm keyed in on now, it's a clear top, but few will realize it until after it's too late, then everyone will talk about how they saw the top. What's really giving it credibility other than the F_E_D removing their support from the market is how many stocks and averages look the same or are in the exact same place of a top.

See you in the a.m. unless something develops in futures overnight.