Market / XLF Update

I've run through the watchlist of interesting stocks lighting up green today just to see if there's anything that's looking interesting as well as checking some of the under performers and the averages which you've already seen several updates.

Considering Friday's Week Ahead and Daily Wrap, I guess I shouldn't be surprised, we were looking for early weakness Monday likely making a new low since the head fake move of 9/15-9/19.

The anticipation was for a probable post Q3 Window Dressing bounce, the theory behind that is all of the under-performers which are significant if you recall the number of NASDAQ Composite and Russell 2000 stocks that are already in technical bear markets,  a lot of small and mid-caps, will likely be picked up on a post window dressing oversold condition as those are the stocks managers want to get out of their portfolio before the end of the quarter as what they hold as of the end of today is what goes in to their filings, prospectus, etc, the Art of Looking Smart.

Since yesterday, it seems to me that a best attempt for the best close of the quarter has been likely, but you have to consider that and what can and can't be bought in order not to mess up window dressing which is typically about the last week of the quarter or so.

This sideways chop from yesterday and today is just like being stuck in mud, however, stick ing with the original theme for the week, a post Q3 (today) bounce on that oversold stock basis because of Window Dressing, I am seeing a couple of interesting things in a lot of stocks and XLF is as good an example as any for what that is, HYG is also playing an important role here as this is used, as you know on short term moves to help the market and it leads the market as it has been doing for years, but exceptionally well since July.

As posted yesterday, HYG's divegrence is interesting that it shows up here given expectations in the week ahead post...

 HYG's 3 min positive, the first hint was the turn lateral and the leading positive divegrence, although this is only a 3 min divergence, it's enough for a short term bounce like I proposed Friday for post Q3 which ends today, I suspected tomorrow perhaps we'd get a bounce.

HYG is not only showing a 3C divergence which the market cares nothing about as it knows nothing about it, but the push higher in HYG is the key to it being used as a lever as it is a leading indicator because it's used so often as a lever and because of it's longer term repercussions on the market, so today's move and the divegrence there are interesting.

Yet the market is like being caught in mud the last 2 days, again post Q3 corrective bounce?

It's important to note that the HYG divegrence stops at the 3 min chart, a 5 min divegrence would be significantly stronger, but it's not there, it's in line at best, so the degree of support HYG is aligned to give is along the lines of the kind of corrective bounce which as you know in my opinion is based largely on the number of stocks sold off in Window Dressing to get those ugly performers out of the portfolio holdings, at least it will appear that way, as the reported holdings are as of the close today.

XLF as a broad market proxy (Financials)...

Like the averages, there's a lot of damage since the August cycle which is what we are looking at on a 60 min chart, that leading negative divegrence on such a strong chart is not a good sign for the market, especially as it shows up strongest at the head fake move anticipated as the August cycle was rolling over in to a stage 3 top.

The point simply being, the broad weakness across HYG's longer chart, 3C charts, market breadth, etc. is the dominant theme.

 However looking at XLF on a 5 min chart we have a decent positive divegrence after the distribution at the head fake area for the major averages. This is what I suspect is the post Q3 divergence which could use a drop in price back toward this week's lows and allow for 1 more round of accumulation, at which point there might be signals of high enough quality, that some swing trades can be established, right now I'm loathe to let go of short positions that are making money every day to try to trade around this with a so-so divegrence,  but I desperately would like to get a decent swing trade going and get out of this lateral muck.

 XLS's 3 min chart is just posted as verification of the migration of the divergence, confirmation. There's enough here to bounce, the question is, "Is there enough to make the bounce worthwhile and trustworthy enough to hold without seeing immediate distribution and collapsing early?"

This is all about the Risk vs. the Reward.

 Intraday, this is the kind of muck I'm talking about over the last two days, in line or on either side of that with slight positives or slight negative, almost  like steering divergences meant to keep an asset in a range, although I'd think they'd want the best close out on the quarter.

The 1 min intraday chart is the same and this is a proxy for just about everything I'm seeing.
These intraday charts aren't good signals to trade and luckily so as this is a sand trap with all of the lateral chop, but once we get to 5, 10 and 15 min charts, we have decent positive divergences, you saw what the last 15 min positive in the QQQ did, it was a lower high in the Q'd downtrend since the head fake move.

Again, same as yesterday, this is not about the probable direction by tomorrow or in to tomorrow, it's about quality.  I will enter a swing position if I feel the reward is worth the risk. Right now, I don't see that and would rather just keep shorts like SRTY, SQQQ, FAZ in place and let them work.