Market Update

This local intraday action is not that important from a call / long position with the Sept 26, $112 IWM call from yesterday which I would add to as a SPECULATIVE trade only. The real importance here is first and foremost an oversold corrective move opens up a lot of positions that are looking really good to great entries, I've been combing through them all day.

Perhaps even more important, the market's inability to hold a divegrence or to form one with this much of an oversold breadth condition, marks a new stage in which you'll quickly understand why the SKEW Index is so elevated so quickly, all out panic decline which is ok with me as my 3x leveraged shorts, especially SRTY are making money by the day and creating a nice overall equity trend line.

This is why the two sentences from the last paragraph of Friday's Daily Wrap were in red last night in last night's daily wrap and repeated at least 3 times, while it's really a pretty myopic event from a short term trade point of view like an IWM speculative call, it is important in telling us what condition this market is in and whether we can still count on some additional positions at better entries with less risk. The divegrence itself is very small and not anything that could do more than light a spark, most of the heavy lifting would have to be done by the numerous small and mid caps that have been hammered in to oblivion.

As for the actual decline it self, it would be expected as we often see a head fake move just like last week, 80% of the time before a reversal so even in this small corrective move's case, the concept still holds and we'd expect to see something like what we are seeing, for example...

First there's a higher draft of volume which usually denotes a short term breaking point in a trend and a reversal, however we have to keep in mind that large volume also came from Friday's Quad witching. The break below local support or in this case a stop-run head fake move would be expected just before an upside turn, the Igloo with Chimney, just upside down.

Just like the August cycle's Chimney last week, just inverted, same concept, any timeframe, any asset.

Note there's some damage done to the IWM's 5 min chart...

There's only one way to verify a head fake move based on why they are there in the first place, last week it was easily verified with distribution in to the move higher. In this case, we want to see stops hit (rising volume) and positive divergences in to those stops being hit telling us they are being accumulated. At the last update the IWM was perfectly in line as 3C confirmed the price trend, in other words, no confirmation of a head fake move, now...

We are seeing a slight positive develop in the area and there are several volume spikes in the area of minor support levels.

While this is a small start, I would not add any more risk (IWM long/Call) until the chart is looking very strong, right now it's not at very strong, it's at the possible beginning of confirming a head fake move.

In any case the latest thus far... DIA, large caps which have held better than small and mid caps, finally seems they are starting to feel the pressure too as Utilities are, a defensive play mentioned this morning in the Morning Update.

This is by far the uglies of the underlying charts, not a hint of a positive divegrence on a 1 min chart, 3C is confirming the lower lows the DIA has made, thus I mentioned large caps as I notice several breaking trendlines as well.

The SPY and Q's are showing at best right now, they are holding up and not giving ground.

 SPY 2 min holding up...

QQQ 1 min holding up, these would be some of the first timeframes to go so the fact they are holding is better than a stick in the eye.

As for the TICK which will usually give us some early trend change warning, ...

The clear downtrend has been broken and replaced by a wide ranging range, there are some pretty deep sell -offs under -1300, this is one you'll want to watch if very short term trade means something to you.

Just don't forget the dominant theme for the week and that is down.

*If you see a post in which I add to the IWM call from yesterday, you'll know the charts have improved significantly.

For now I'm going back to the watchlist looking for nice opportunities that don't require chasing an asset that's already down or an asset that's not ready to move down yet, that's why a small corrective bounce is always helpful with short entries.