General Market Update

Other than the week ahead posts which have been pretty darn accurate as to building a base, bouncing, starting the reversal process, one of my best barometers which I posted in advance as a target expectation not only for the Industry group, but as a bellwether for the broader market (to know when we've reached the pinnacle of stage 2 and starting to move through stage 3/lateral/reversal process and then stage 4 decline) was a break out above XLF's range/upper resistance area.

You probably recall me closing FAZ (3x short financials) long right at the yellow arrow as it looked highly probable we'd build a sideways/lateral base and I'd be able to keep the gains and re-enter XLF short/FAZ long on a break ABOVE the range to the left. We reached that last week and I started the FAZ long position replacement.

Another indication/bellwether has been HYG as it was an early indication of a base as it led and now an indication of a reversal process as it leads again, but to the downside.

SPY 60 min green vs HYG red, the base is in white (8-1 through 8/8) and HYG continues to lead to the upside until there was reversion between the two last week and HYG now leading to the downside, similar to the base.

As for the averages themselves, there have been base/positive timeframes I've been looking out for, they confirmed the move up for a larger portion of it as faster charts showed distribution threw almost the entire bounce which is accruing on those base positive divergences now.

  QQQ intraday is seeing the same distribution that it has through the entire bounce. You'll note around the European close the averages just fail with deep intraday negative divergences.

 The QQQ 10 min chart has been the most tenacious , staying in line with price, however that has broken now.

 QQQ in about a week long relative divegrence now, leading negative.


 The IWM was one of the worst looking intraday charts today as it had gained the most, it's lost about half of today's gains from earlier today.

This is the trend through last week in which the forecast was for a couple more days of bounce before the reversal process (lateral or rounding top trade) begins with stronger negative divergences which you can see through all of last week from the 18th on. If this is a more rectangular reversal process I'd expect to see a head fake upside/failed breakout, it could even look like today. The more obvious resistance is, the higher the probability, but it tends to happen right before the actual stage 4 downside reversal in to decline. Rounding tops often do the same and that's why we often describe them as looking like an "Igloo with a right side chimney". We should see a lot of indications all building up at once as we are at the actual downside reversal point, but I suspect it is this week gauging the proportions of the entire move.

 IWM was positive to the 15 min, this chart shows the base and the 15 min going from a relative negative to a leading negative divergence.


SPY intraday also seeing that same distribution around the European close and losing upside momentum.

 The more recent trend on the 5 min chart showing the base and the increasing rate of deterioration/distribution.

SPY had the longest base divergence which has been in leading negative position, but getting worse.

Expect more volatility both up and down (gaps), however the reversal pivot should be very clear between all indications and watchlist components, otherwise this is dangerous short term trading environment.