Larger Market Update

If tomorrow wasn't a weekly options expiration Friday, I might be more inclined to look for follow through on the downside, being that it is, it's a toss up, but I suspect nothing too impressive follows through tomorrow. This however is exactly why I won't let go of my core short positions, right now SRTY, SQQQ and FAZ with an MCP long and a few option trades. 

Market breadth has been deteriorating rapidly for a long time, most of 2014, but especially since July 1, this is what I ended last night's Daily Wrap with. Also yesterday it was very clear that HY Credit which has been in trouble hit a patch of bigger trouble...High Yield Credit (HYG) Heavy Distribution.  This is why we call these leading indicators.

In any case, I wanted to show you the market as I see it in several different timeframes...

 IWM 5 min chart actually does have confirmation of the move down, but most of the damage/distribution had already been done before the decline started which is how smart money operates and why we use indicators that have the ability to contradict price.

Intraday the Rate of Change in price is falling off, more lateral movement usually means a short term base/bounce is forming and the 3C chart is not confirming the downside right now.

As for the big picture, nothing has changed, at least not for the better as you can see by the IWM's 60 min leading negative divegrence, ultimately this is the path of highest probabilities, down despite what can be some very impressive counter trend bounces/rallies. I prefer to trade them if possible, but I'll also have the positions for longer trend traders as well as more aggressive traders. My motto and trading style is summed up as "Take what the market gives" and of course, patience.

 Back to intraday, this 2 min IWM divegrence is not impressive, I would not start a long/call fade trade based on this, but it looks like the start of a process, still very weak at this point, but a change in character.

The Q's intraday are more in line, but from what I see in AAPL, I expect that will change soon.

 QQQ 2 min is in line, but again most of the damage was done (distribution) well before today's decline.

The 5 min chart is still in line, it may or may not show a positive divegrence through migration of divergences via shorter timeframes, however the big picture isn't phased by any of this.

The 15 min chart's distribution during the last 2 week's bounce attempts, this week we were calling for a trend moving lower with some minor noise in the form of a gap fill from Friday.

The 60 min chart is a bit deceptive because the divergences to the left were rather large at the time, they are simply dwarfed by the size of distribution since. From left to right, #1 was the accumulation period from Jan 28th to Feb 5th/6th which launched the February short squeeze cycle. At #2 the Q's saw distribution and then retraced the entire Feb. rally (at the yellow trend line below. At #3 there was some more short term accumulation sending QQQ higher and the upper yellow trendline at #4 and that is about where the market broke above the SPX's 3 month range of about 3%, we had said several weeks before that the market is not going to make any significant moves lower until that range is taken out as it's a breakout that retail will chase creating demand and higher prices that smart money NEEDS to sell in to, shorting comes across the tape as a sale as well.

The distribution at 5 during the move above the range process what we suspected and just goes to show how Wall St. works. I think sometimes we watch the market so close we expect things to happen quickly, but go back and look at the size of the 200t top vs the IWM top now, we are really in a very normal mode considering all the F_E_D interference.

SPY

 SPY 1 min intraday with a positive divegrence building

SPY 2 min with the same

the 3 min chart is in line, so this should be viewed as its own "possible" move and really has nothing to do with the bigger picture except that it can be helpful to enter or exit positions on a more tactical basis.

The SPY's divergence since breaking above the 3 month range is quite clear and stunning and this is a 4 hour chart.