A.M. Action

I said I'd explain why I posted Should See A.M. Strength Tomorrow A.m. just before the close.

This is the same reason I had said in yesterday's Daily Wrap,

"Part of me wonders whether today's intraday negative 3C action is setting up an early morning, more aggressive stop run below the 100-day before reversing to the upside."

The reason is a simple concept that you hear a lot, "3C Divergences pick up where they left off, even over a 3-day weekend", this is the case much more often than not.

As mentioned above, the intraday action yesterday was negative, this chart of the Q's in to yesterday's close shows what I was talking about and why that was part of the reason I expected an early morning run below the SPX's 100-day m.a.

I was pointing out a few things on this chart of the Q's (1 min) last night, but the last thing was the negative divergence in to the close, leading negative actually.

This is why I was a little surprised this morning when we gapped up rather than broke below the 100-day on the open, but the gap up was a function of overnight futures,  as soon as regular hours opened, it didn't take long for that 3C concept to come to fruition.

At #1 is yesterday's closing negative divegrence which caused me to expect the market to be weak in the morning as 3C divergences pick up where they left off. Even though futures gapped us up, it didn't take long for the 3C forecast to send the Q's lower and the SPX below its 100-day moving average.

If you look to the far right at the close today, the Q's are in a positive divegrence which suggests that tomorrow morning they pick up where they left off on some strength based on the positive divegrence, this is why I didn't close the IWM $110.50 calls that expire tomorrow.

As for the other averages...

 The IWM 1 min has a positive relative divegrence and was quickly moving to a leading positive in to the close, index futures confirm the same.

 The SPY 1 min and the negative divegrence sending the overnight futures gap up down early as was expected yesterday. The SPY put in one of the strongest intraday divergence which was leading positive in to the close and actually, through the entire time the SPX was below the 100-day.

DIA intraday 1 min also sending prices lower this morning on a negative divegrence with a relative and leading positive through the rest of the day. These divergences weren't what I expected (I expected stronger on a true head fake move), however I have a guess as to what's going on that I'll post in the Daily Wrap.

 Without posting all of the charts again, there still remains significant positive divergences in the 10-15 and even 60 min timeframes in the area.

While Index futures that trade overnight do NOT have the same 3C concept of "Picking up where they left off the next day", they did show us that the end of day positive divegrence that was forming above was something seen in Index futures as well, thus I believe the late day 3C strength was real.

S&P E-mini Futures show the strongest leading positive divegrence of the day in to the close.

 NASDAQ 100 futures lso show by far the strongest divergence of the day (positive or negative) in to the close just as I had seen in the market averages which caused me to post, Should See A.M. Strength Tomorrow A.m. as well as hold out on closing the IWM calls to salvage whatever I could being they expire tomorrow.

Index futures and normal 3C charts trade differently, actually many assets trade differently, that's why we have 3 different variations of 3C, tech and small caps trade different than large caps, so on and so forth.

The timeframes between normal 3C charts and Index futures don't line up to be the same, I suspect it has to do with the longer trading cycle for Index futures,  however just as I posted 15-60 min positive divergences still in place for the major averages, Index futures show something similar just on 60 min charts...

ES/SPX E-minis

 We have a clear negative divegrence leading price lower followed by this range since last Friday and a positive divergence in the range. The positive is no where near as strong as the negative that preceded it, but I wouldn't expect it to be.  From a 3C perspective, we are already in a bear market.

 This is the NASDAQ (NQ) FUTURES 60 MIN ALSO SHOWING A FEW NEGATIVE DIVERGENCES ( A WEAKER RELATIVE TO THE LEFT, A STRONGER LEADING NEGATIVE IN THE MIDDLE AND A RELATIVE POSITIVE TO THE RIGHT.

This is a closer view of the NQ 60 min divergence.

The Russell 2000 Futures (60 min) also show a clear positive divegrence in the same area we are concentrating on.

From the closing divergences and even the intraday-daily, I suspect we will see early strength in the market tomorrow. I have a lot to look at as far as internals today that I will post in the wrap, but I do believe this is a probability.