Today while we have evidence of the base building for a short term oversold bounce expected for this week in our The Week Ahead Friday forecast for this week as well as Friday's Important Market Update. Today high beta or momentum stocks took the NASDAQ and R2K down, Energy was the leader.
The major averages today...
The MSI saw a modest attempt at a short squeeze as momos were hit hard
One of our favorites, NFLX was down nearly 4% (I already filled out the core short here), FSLR got hit, bio-techs were hit with our BIS long (or Biotech short) and PCLN which I think is pretty close to a bounce finally as it put in a hammer candlestick on the close.
NFLX...
This is a Sept. 4th post, NFLX Looking Very Ugly Here
"I think NFLX is probably pretty close to as good as it gets in this area as a short set up, I've been watching all day and it just keeps looking worse and worse...I'd consider NFLX a short here as a position trade, I'd want a pretty standard stop on it, like I said at the top, one of the sharpest head fake moves it has put in was about 7%, but again there have been multiple pivots with no head fake at all. I can live with a 7 or 8% stop here, it's actually pretty tame for a stock like this."
This is a follow up after the initial Trade Set-Up, NFLX Trade Set-Up Follow Up
"NFLX is one of the trade set-ups we've been waiting for, specifically a head fake move. I t appears there was one attempt, today looks clearly to be the second and today looks a whole lot closer. I feel pretty certain that the NFLX short (position trade) entry is going to be right in this area, the timing is the only issue now....NFLX (as a short) IS ALREADY THERE ON A STRATEGIC BASIS... the odds are VERY skewed in our favor for a very ugly move to the downside and a beautiful short trade...Remember, I'm going to be looking for the 5 min chart at this point, but I think we are pretty much in the location as we have been for the past several weeks."
FSLR, another short position and Trade-Set-up,
We still have a lot of stocks on the Set-Up list and if this oversold bounce gets off, we'll have a lot more great entries, but most all of these, even FSLR and NFLX are still in excellent shorting position, although I would NOT chase them.
Earlier AUD/JPY correlations broke down...
It seems all JPY based carry correlations are breaking down, although it's just the first day of the CME's rule 575 for HFT abuses, I have to wonder how much of an effect it may already be having. I don't want to blame the small cap and high beta / momentum meltdown on it, but I'd think those would be obvious victims of the loss of manipulative practices such as quote stuffing.
I wrote about TLT looking as if it's going to make an upside reversal soon, we'll update it tomorrow, but we saw a little ground gained in T's and divergences there looking better.
As for a Dominant Price/Volume Relationship today, there was none, Close Down/Volume Down was the closest with Close Down and Volume Up the second place, Close Down Volume Down I call "Carry on", it doesn't have any strong implications for next day trade, but Close Down/Volume Up is a 1-day oversold condition and usually closes higher the next day, the problem was it wasn't dominant, it was co-dominant today.
Of the 9 S&P sectors, today was better than Friday with 4 of 9 green with Energy leading and Tech lagging. On a 5-day basis, 8 of 9 S&P sectors are red, another oversold indication.
Of the 239 Morningstar Industry/Sub-Industry groups I track, only 50 closed green today vs 37 of 239 on a 5-day basis, again another deeply oversold breadth reading like we saw Friday, although not as bad.
Finally as I mentioned I'd follow up earlier, with all of the charts of breadth posted this year and especially recently, it may seem strange that the SPX hit a new all time high recently, but you've seen the NASDAQ Composite's Advance/Decline line and how horrible it looks...
To give some perspective to the NASDAQ Composite and this horrible A/D line, a full 47% of NASDAQ Composite stocks are down at least 20% or more from highs, the media's definition of a bear market and of those that are down, the average loss is -24%, NEARLY HALF OF THE NASDAQ COMPOSITE IS IN A TECHNICAL BEAR MARKET.
I've shown you the same deterioration in the Russell 2000's Advance /Decline line and for context, 40% of Russell 2000 stocks are down by 20% or more, a technical bear market with the average loss being -22%.
THIS IS WHAT I MEAN BY A HOLLOW MARKET OR A PIER THAT HAS HAD ITS PILINGS EATEN AWAY. Everything may look fine standing on top of the pier, but just below, a catastrophe of major importance is just waiting to happen, is happening.
The McClellan Summation Index is not only back below zero, but at a huge divegrence.
Stocks ABOVE their 200-day moving average took another hit today, not as bad as Friday, but just more deterioration as the market crumbles from under the averages.
The % of NYSE Stocks ABOVE Their 40-day Moving Average took another hit today moving down to a slight 34%, only 34% of stocks in the NYSE are above their 40-day!
It was the momentum stocks hit hard today and in general. The % of NYSE Stocks Trading 1 Standard Deviation ABOVE Their 40-day Moving Average are now...
The higher Beta/Momentum stocks, The % of NYSE Stocks Trading 2 Standard Deviation ABOVE Their 40-day Moving Average,,,
While I stand by the "Week Ahead" forecast for an oversold bounce somewhere along the lines of last Wednesday after seeing deep deterioration in Tuesday's breadth, but slightly longer, I do NOT see anything like the August cycle.
This market is ready to crumble which is why I have been saying recently that it's time to really consider taking positions and getting your short position coverage and weigh that with the best entry or top-ticking the market. Look at NFLX today, while we hoped to get a head fake move, I filled out that position for this very reason and this is why I have brought the issue up so many times recently, there's a trade-off between top-ticking / getting the best entry which I'll always look for and a stock that has been a long time favorite short like NFLX which is already in the zone and deciding between a possible entry several percent better or missing the trade, I chose to fill it out at full size while others I'll remain patient with as they move in the right direction like COF today.
While I think it's important with stocks like NFLX that look horrible on our charts to try to get the best position within reason; when you see the walls of the market coming down all around you there's a cost to not acting or trying to top tick the market.
Just remember, all of these stocks on our watchlist or open positions are in a great area no matter what, even NFLX down 4% is still in a great area. Also remember, there's a bus every 15 minutes, don't chase.
I'll have more Watchlist set-ups and updates tomorrow as we also keep an eye on a potential bounce that I talked about Friday for this week, I'm thinking somewhere in to or around the F_O_M_C. Otherwise, I'm already loaded for bear, if I can add a few choice positions here or there, I will and of course I'll continue to call them out as I see them for you.
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