Daily Wrap

SPX-$2000.02! I'm not sure I'd be celebrating the SPX making a new high above the massive psychological magnet of $2000 by a mere $.02 with no follow through, no short squeeze, dispersion in the averages and transports (SPX +0.11%, Dow +0.17%, Dow Transports - 0.39%, NDX +0.10% and the saving grace, the laggard R2K comes alive on a short squeeze finishing at +0.85%) which is a bit interesting given all of the averages had dominant P/V relationships that were "blah", except the R2K yesterday.

The Dow, SPX and NASDAQ are all clustered in the middle, just over yesterday's close (a range in the three averages from +.10% to +.17%). The R2K is in yellow flying on a short squeeze which is somewhat evident in the MSI, but more so in the R2K A/D line readings for today. Dow Transports are the laggard at the bottom on a -0.39% loss and now red on the week.

The Dow Transports/IYT is a short position I left in place and posted on 8/20, IYT/ Transports Trade Set-up ,

"I'm very close to pulling the trigger here to fill out the IYT partial position which has room for about another 1/3rd addition."

As you'll see, that was a timely post and they are just about as ready as they'll be for a new or add-to position.

This SPX $2000 and 2 cents came on the third consecutive day in which volume has made a new low for the year (excluding holidays).

The SPX/SPY had to fight for it today as the European close definitely has something going on that translates in to distribution in the US.

 Intraday as suspected this morning before the European close, the SPX made its high right in to the European close and fell from there, it struggled the rest of the day to hold 2000.

 The 2 min chart's trend shows the same European close change in character intraday and puts us at a new leading negative divegrence as the SPX gained a little (they usually don't distribute in to lower prices).

 And speaking of new leading negative divergences since the base for the move formed 8/1-8/8...

The Q's were in line all day, but did virtually nothing,

The positive/base divergence for the Q's at 15 min has fallen apart.

And while the IWM put in a strong performance today, underlying trade shows distribution through the day starting at... The Europpean close!

 Last time we entered transports (still holding the short) was the day after the channel buster above the Ascending (bearish) wedge, the 3C divergence developed extremely quickly. As you can see above, transports already have a good reversal process underway, but there's a pretty clear line of resistance so I'll likely look for a head fake move to add the rest of the position, otherwise I'll add it at slightly lower prices with broad market confirmation of the pivot, you can't really get much better positioning than our original short position.

And the Transports 60 min chart, as I said, last time distribution was fast on the Channel Buster, this time it's just much sharper/deeper as we'd expect for a double top pattern.

The Most Shorted Index looks like it was trying to help the SPX toward the end of the day, but I suspect this was more about the R2K considering the intraday distribution there ad well as the A/D line for the R2K today.

MSI (yellow) vs the SP-500 intraday. I believe the move in MSI was part of the Russell 2000 short squeeze more than anything.

I posted earlier today, TLT / Treasuries, that it looks like Treasuries (which lost -.32%-TLT with a bearish engulfing candle) will pullback, but it looks like a longer term buying opportunity, if you're interested you might put some price alerts, I'll be following the progression.

Yesterday on the CITI news in this post , $USD / GLD / GDX Macro Trend, (which they'd normally keep quiet unless it serves a purpose) in which they closed their $USD longs ass it looks overbought (making a 13 month high today) I said,

"I think what is going on here is a bit larger then the knee jerk moves on CITI's news this morning, and smart money doesn't disclose their positioning unless there's something to gain form it, whether long gold already or looking to pick up $USD at cheaper prices, whatever the case, CITI was out of the $USD before making that known to the world this morning"

Gold was up+.50%, but our choice as we saw all 3 looking good last Wednesday, GDX , NUGT & GLD Charts was miners (GDX) and more specifically the 3x long Gold miners, NUGT which was up +6.19% today and it looks like other than some very short term jiggles, it has a lot more upside to come.

The market still seems a bit confused as to whether it's risk on or Flight to Safety, but when you move from one you want to do it at the best prices and demand and move in to the other. In any case, despite our short term view for TLT/Treasuries, there's a clear dysfunctional divergence as there's a risk on equities move (or has been) at the same time there's a Flight to Safety Treasuries move...

Since the base for the market's leg up, 30 year Treasury yields have fallen (they move opposite the treasury). At any other time in the market this would be taken as the red flag that it is, but in what traders have convinced themselves is "The new normal", they ignore everything and whistle past the graveyard such as the SPX making an all time high at $2000 by 2 cents and barely hanging on at that on a +.11% gain on the day. Again, at any other point when the market had sanity, the lack of volume alone would send people running for the hills, but lowest volume of the year for 3 consecutive days, that's a record they ignore. THERE IS NO NEW NORMAL, there was F_E_D printing, that's has ended. I suppose they think interest rate hikes will send the market higher as well, it is F_E_D action after all (sarc.)

Of the 9 S&P sectors, barely 6 closed green, Energy led at +.51% and Utilities lagged at -1.19%.

There was only 1 Dominant Price Volume Relationship today which was the Russell 2000 at Close Up/Volume Up, the most bullish of the 4 relationships, but also the one with the highest probability of creating a 1-day overbought condition typically sending the average closing lower the next day.

As for breadth, the A/D R2K line was up nicely on a short squeeze. In my estimation after watching breadth all year, the Percentage of NYSE Stocks trading Above their 40-day moving average is over half at +.59%. The entire bounce idea came after a close of -2% in the SPX on July 31st in the Daily Wrap.

I had said,

"I've been posting breadth charts and credit charts as well as bonds for months and last night I showed you some breadth charts I've watched for 15 years and only seen them look like this twice, the last time was the 2007 top, well if you think last night's charts were scary, wait until you see today's."

"And the best for last,  Percentage of NYSE Stocks Trading Above Their 40-Day Moving Average... This is a pretty standard measure, yesterday less than half of the NYSE were above their 40-day at 40%, that was nearly cut in half today to a mere 24%of NYSE stocks above their 40-day, again THIS COMING FROM NERLY 75% LAST MONTH!"

"The one thing I see for sure in breadth and the S&P/Morningstar performance is this market is now, very oversold on a breadth basis, so I think out position taken up today was the right thing to do and we did it based on the signals which just happen to fit the breadth oversold condition.

We'll piggy-back that trade and when we get to a little correction there are numerous shorts (some of which we have calls in now) that will be at beautiful set-ups if you need short exposure, I think most of us have been ready for this day."
The point being, this entire post was about a market bounce due not to an oversold price or indicator condition, but breadth and the very next day we started building a base, a reference was made to moving in to a position that was consistent with an oversold bounce on July 31st. 

We're now no longer near that record oversold breadth condition which apparently was the cause of the base/bounce. However we have an all new set of weak conditions like the average volume being half of normal all last week and 3 consecutive new lows in volume the last 3 days with very weak market tone and right around the area of a reversal process.

The rest should be pretty evident just based on objective evidence.