Daily Wrap

So today we saw the SPX down -.65%, the NDX down -.82%, the Dow down -.57% and the R2K down 1.18%, although judging by some of the emails I received today, it felt a bit panicky, like, "Do I still have time to enter shorts? Should I chase lower prices today?"

My point being is that it's easy to be complacent and not look toward entering positions on price strength and underlying weakness when the market isn't doing much and as stage 3 goes, the market usually isn't doing much, however that's the time to be using price strength and underlying weakness to enter positions.

Several recent additions like BIS (long) which was added in full size yesterday was up 2.54% today.

On the other side of the spectrum, short term AAPL calls were closed out today with a P/L that looked like this...

came out at a 26.5% gain, you take what the market offers.

The recently filled out IYT looks to be in good shape. Our longer term HLF short was down -4.68% today bringing that position (which is just kind of hands off) to a +28% gain. UGAZ is looking interesting (long) with a current 10.2% gain and personally I'm watching the equity line on the portfolio I opted to keep short with a few piggy back long hedges, in an upward slope,  but none of this is even close to an actual stage 4 break/decline, which is sometimes a bit hard to pinpoint as to whether you are already in it.

One thing I know for sure is credit markets have led the market, they are some of the best leading indicators. I've posted the comparisons of HYG leading the market numerous times and as recently as last night in the Daily Wrap . On Sept. 2nd we called HYG as entering stage 4 decline and on its way to make a lower low, a significant trend classification...

HYG making a lower high and on its way to a lower low, however by the time HYG has made a lower low, the SPX should be well in to stage 4 decline and I don't think just for the August cycle.

Intraday volatility is picking up as we noted on Sept 5th, today it has exceeded that volatility...

The SPX has made a new intraday low for stage 3 as well as a new closing low, nearly a 12-day low all while still in stage 3 with deteriorating breadth.

The SPX also lost 2000 and this time by the largest margin since it crossed above 2000, forget the lack of follow through in the SPX or among the averages.

All of the averages are red on the month. These are just slight signs in price performance, when the dam breaks, I really think it's going to break hard.

The USD/JPY correlation is shot, if anything there seems to be a 10-year yield correlation with the USD/JPY. My point here is simply the changes in character that lead to changes in trends and this was a big one that first popped up in an overnight session last Thursday, a hint of things to come as a change in character and now the USD/JPY correlation trend has changed.

$AUD/JPY led a lot of market weakness today with another fairly strong correlation to AAPL, which by the way looks like it did exactly what we expected it to and one of the reasons for the options (call) trade, let the market makers get out of the inventory they had to take on at market prices during the sharp decline of Sept. 3rd.

Between loading up on inventory on the cheap and selling it at higher prices, today's prices allowed them to get out of inventory they had to absorb at lower prices on market orders as the undoubtedly had to, just look where AAPL topped today.

While we're on the subject, it seems the IPhone disappointed, Apple Pay was received well and AAPL watch was not judging by the market's reaction to each.

The very strong, hitting 15 month new highs earlier today, USD saw some weakness in to the close which is interesting considering the TLT post from earlier today and the Yields/USD/JPY correlation we saw. In any case, the Euro strengthened toward the EOD driving the $USD lower in to the close which gold and silver responded to by bumping up with a +.11% and +27% close respectively.

It sure seems like the old , historic, legacy arbitrage correlation is coming back as we have been speculating for weeks now.

Some other market hints of trouble ahead include copper weakness today, JJC down -2.64% today.

Doctor Copper has had a loose correlation with the SPX above, however it looks to be putting its red flag out as well.

Honestly between the HYG correlation charts, the USD/JPY correlation break, what looks to be a possible turn in long term treasuries and 10 year benchmarks when we are already seeing yield flattening (see TLT-20+ year Treasuries Update) , market breadth posts where all of this started and of course 3C signals and cycle stages,  I really don't think I can or need to make a stronger case as to how week this market is.

In fact I'll be spending the rest of my time this week on specific positions/trades, I've seen all I need to see, which is exactly as we expected in early August when we first saw breadth collapse and called for a base and bounce.

In fact the XLF target from August 19th's XLF Update-Bellwether, looked like this as the XLF was a bellwether target for market upside.

 This is the chart from the 8/19 post linked above as to what to expect in Financials and how a break above the range would be a bellwether for our general market target. The yellow arrow is the head fake move above the range and at the end of the process, XLF moves back down.

Here XLF has met the target. From a big picture perspective, it almost doesn't matter where you open a short here, as long as it was above the range which is something I've been waiting on since July. I've since added to FAZ and only have a small position left to fill it out.

In fact, on the first day of the break out from the 8/1-8/8 base on 8/11, in that day's Daily Wrap... (linked) these are the upside targets I posted for each of the averages for this move before a reversal process would start.

All of these charts are from the Daily Wrap... on August 11th...

 The SPX new high target at "B" was hit."C" was the expected first leg down after we enter stage 4 decline.


 The Dow hit it's target , just between "B" and "C" with "A" being the minimum target.

 The NDX target of "Greater than $4000 was hit.

 And ironically off a rough drawing showing where we want to take long action at the base and the second place on a slight pullback at #1 and then the next significant position would be at #2,  this is almost exactly where the IWM moved to.

In fact the official targets show the IWM crossed just above point "A", the minimum target for the IWM 

All of these were posted nearly a month ago based on the size of the divergences and length of the base as moves tend to be proportional, this allowed me and many other members to hold core shorts, yet still hedge the short exposure with piggy back longs.

The main point being, we've hit the target areas, we've been in the reversal process for 2 trading weeks.

As I said, I really can't make a much stronger case, actually the market is making the case, I'm just showing you the charts. I'll spend the rest of my time this week with some market updates as we do have a 1-day oversold status and mainly focussing on position entries.

To that end, as mentioned, we do have a 1-day oversold status in Dominant Price/Volume Relationships. All 4 major averages came in at Close Down/Volume Up which is a 1-day oversold condition with the market typically closing up the next day.

All 9 S&P sectors closed red, another typical 1-day oversold status.

And of the 239 Morningstar Industries and Sub-Industries, ONLY 17 OF 239 CLOSED GREEN!!!

IN ADDITION WE HAVE SOME SHORT TERM 3C DIVERGENCES THAT SUGGEST WE HAVE A NICE SHOT AT STOCKS LIKE NFLX, SCTY AT HIGHER PRICES, BIDU, XLF, ETC. ALTHOUGH I STRONGLY URGE YOU TO CONSIDER RISK MANAGEMENT AND HOW MUCH IT MEANS TO TOP TICK THE MARKET VS MAYBE MISS THE MOVE.

Finally as for breadth, the collapse yesterday was just exacerbated today. To demonstrate how bad of a position this market is in, just look at the NASDAQ Composite's Advance/Decline line...

The A/D line is in green and should keep pace with the NASDAQ Composite in red, there's serious deterioration from March to July, but worse from July to p[resent. This is a hollow market with no support ready for an ugly move to the downside.

All of the other breadth indicators I mentioned last night rolling over to 12-18 day lows, are just that much worse today.

The very simple "Percentage of NYSE Stocks Trading Above Their 200-Day Moving Average" has collapsed to 17-day lows...

This would be a problem just for the current cycle, it's  way worse considering how much the breadth indicator collapsed from July to present. This is the kind of damage I haven't seen in breadth since 2007's top and it's the kind that doesn't get repaired. Essentially, it's just a matter of time and not much at that.

The formar darling, "Momentum Stocks" have it even worse...

These are stocks that run 2 standard deviations above their 40-day moving average, momentum stocks and as you see, they did what they should have from January to May, then things fell apart at an increasingly rap[id pace. We are almost at the levels that caused me to call for an oversold bounce on July 31st and that was on a 4-8% market decline, we're still sitting on a plateau, VERY DANGEROUS.

That should do it for tonight, just keep all of the pieces of the puzzle in mind, they're all pointing in the same direction.