Market Updateq

As of yesterday we could already see the probable pullback to come today, we would have no way of knowing what the catalyst was (a Portuguese bank defaulting on a bond payment) or even if that was what the catalyst was for the signals yesterday afternoon for a pullback, but they were there nonetheless, such as this 3 min intraday QQQ chart...

 The initial positive divegrence at the 7/8 lows started turning negative and by the close yesterday looked like this on the QQQ which is why I laid out several scenarios, the one I thought to be most likely was a larger/wider base, but Wall Street isn't even going to do short term accumulation to ignite a bounce by chasing prices higher, they'll bring them back down and likely below the recent lows/support as it will run stops and create an abundance of supply at lower prices (which is better and also gives them the supply they need at the size they trade in).

Thus thus was the "seemingly" most likely scenario, it's not a target forecast, just a model showing prices heading lower and below recent lows/support where stops will be placed, the yellow arrows represent the head fake move/stop run where accumulation would pick up again and  this is where we'd want to get involved in any piggy-back longs for a bounce, but ONLY for a bounce. 

The larger trade (if you are not able or prefer not to be involved in such short duration trades like a bounce or are uncomfortable with the leverage needed to play it) is of course the chance to short in to price strength and underlying weakness as I have already pointed out, numerous H&S tops in momentum stocks and throughout my watchlists have already broken from the top of the right shoulder which is my second favorite place to short a H&S, so any bounce back toward that area is a market gift and that's the real trade, the piggy back long is just extra cream on top.

So thus far we still have a good deal of a lack of downside confirmation, in certain assets, mostly the momentum stocks that I listed as potential longer term trade set ups in the Daily Wrap of Tuesday July 8th (this week) as these have been beat up the most and just looking at our Most Shorted UIndex, you can tell this is where the slack is, any accumulation for a bounce is just for a fuse/primer, the momentum stock short squeeze will do the rest, thus  we may have a very strong looking upside move, but you can't be scared to short in to it. With the market turning as ugly as it has the last few days, Wall Street needs to make an upside move look believable, look like the market is as strong as it ever was. They run these moves for a reason, to create demand so they can sell single positions that are often a billion dollars in size and that's not even a big one. That means they need demand, they need higher prices, they NEED RETAIL TO BELIEVE THE MARKET IS FINE SO THE MOVE HAS TO BE CONVINCING. 

The easiest way to achieve this without spending a lot of money buying up the most heavily weighted stocks in an index like AAPL for the Q's to the point it moves enough to drag the index up is to wait for short interest to rise in the momentum/Most Shorted stocks and accumulate just enough to start a move until it hits short's stops and creates a short squeeze, that part,  costs them nothing and achieves their goal so they can sell/short in to demand/higher prices.

Here's the my Most Shorted Index vs. the Russell 3000...

MSI in red, R3K green... note the fall in MSI since the new quarter started, the window dressers were buying the best performing assets of the quarter so they "look smart" even though they may have only owned them for a few days, their quarterly report to clients will reflect them as Q2 holdings, they are free to sell them the very next day on July 1 and no one will be the wiser for another quarter, note that's when the MSI really starts to fall and falls out of sync with the R3K.

This also means these stocks are heavily shorted again and primed for a squeeze.

As for the averages and other assets (momo stocks)...

 SPY 1 min intraday/fastest chart,  note there's no downside confirmation which would have 3C below where it is at point "A", instead it's still in leading positive position.

This looks like the scenario I thought was most likely out of the 3 likely scenarios from yesterday.


 QQQ 1 min also not confirming the gap lower in which 3C would be around the same levels now at "B" as it was at "A" as price is a similar level, but note as drawn in last night's example, we not only moved to recent lows/support, but below them, the stop run which we can easily confirm, just look at volume on the break of support.

Note the spike in volume as the Q's gap through the stops as technical traders are so predictable as to where they'll put their stops and worse yet, they put them in with their brokers for the whole world to see, would you show your cards like that playing poker?

 QQQ 3 min which was calling for a pullback today is already seeing a positive divegrence this morning, guess where? Right at the stop run where volume/supply is plentiful, cheap and no one ever wonders, "Who's on the other side of the trade?"

 IWM also holding up with a leading positive divegrence today as well.

Looking at the larger trend 5 min chart, you can see the recent IWM highs/distribution sending it lower and the last couple of days of this accumulation with the IWM also making the stop run.

I really wanted to point out though the piggy back/bounce long vs the overall distribution short, this is why I want to use price strength9(even if it looks extremely strong) to short in to.

 IWM 15 min leading negative and look at the size of the positive in comparison. Also note where all the distribution really picked up, right at the end of window dressing as the new quarter started on 7/1.

As for some of the momo stocks seeing accumulation which were featured in Tuesday's Daily Wrap as trade set ups, they are giving better confirmation then the market in many cases.

Momentum Stocks- these are giving even better signals as they are likely what this is all going to be about, momentum stocks (retail's favorite) and a Short Squeeze.

 PCLN was one of the candidates on my list from 7/8, note the 2 min chart accumulation on 7/8, it falling off yesterday and picking up today as we move back down to the accumulation area giving us the double  bottom or "W" like short term base I expected with the exception of a deeper move as stops would likely be hit in most assets.

To give you the longer term perspective and why I want to short in to price strength, the 60 min chart is where the huge money-flow trend is, also a H&S top and distribution through the entire top. The right shoulder has already started to break, so any bounce near the top of the right shoulder is an excellent entry and much lower risk.

The highest probability chart shows clear distribution through the entire top.

 NFLX intraday 1 min showing strong accumulation as stops were hit on the gap down, that means cheap supply, that means stronger accumulation.

As for the far right shoulder of NFLX in its H&S like top, look at how strong the 15 min chart's distribution is as well as the action on July 1 after window dressing no longer matters. You can see the current positive divegrence to the far right just for perspective, which trend would you rather play? Or where do you see the highest probabilities?

This is what people forget so often during the heat of the moment during a short squeeze and why they miss some of the best entries.

 TWTR 1 min the last couple of days has remained leading positive as it continues to do today as stops are run.

The bigger trend (10 min) in TWTR shows strong distribution at the recent high and you can see our current positive and the stop run (yellow trendline), again which probability would you rather play?

 AMZN? intraday didn't pull much of a stop run, just real tight local stuff, that may be why it was only in line at the time of the chart capture.

You can see the clear negative divegrence yesterday calling for a move lower today, we'll see if AMZN's short term accumulation builds, I'm sure it will.

Longer term, this is a large H&S top, Head, Right shoulders 1 and 2 and the 3C trend of distribution leading lower through the entire pattern, We are near the top of the right shoulder, an excellent, low risk entry.

I suspect we'll need to come down intraday before there's enough accumulation or data to decide whether a long trade for a piggy-back move on a bounce is worthwhile and to make sure that this area holds. The real trade is selling/shorting any bounce/short squeeze, but 1 bridge at a time. I still have the partial IWM call position opened Tuesday which I will add to if I see strong evidence that this move looks like it can get off the ground.