Looking at the market from yesterday's
perspective, I entered some partial positions based on the fact I
expected, “because
I think there can be some more work done in the area.”
Which
isn't far off from end of day price action, although intraday it may
not have seemed that way. For instance, although the SPX was down
-.81% (which is a far cry from recent volatility, after yesterday's
bullish star candle , today endd with a bullish Hammer reversal
candle on heavier volume which makes it that much more convincing as
a reversal candle.
Today's closing daily bullish SPX hammer wasn't far off from yesterday's range or "area".
The R2K ended the day with a bullish Engulfing Candle just a little bit after I had said I was considering going long some leveraged IWM ETFs, the Dow ended the day with a bullish hammer as well after yesterday's bullish star.
The VIX, after last night's "VIX futures were going negative on the 5 and 7 min charts very clearly and a bit further out" hit a new high at 331.06 intraday, the highest since December 2011, before closing lower at 24.92, creating a bearish Doji star with long legs or bearish "Shooting Star" (remember the VIX moves opposite the market). As for fear though which was obvious in the VIX intraday, not as much on the close, the Fear and Greed Index closed again at zero, the most fearful reading possible. Remember the VXX, short term VIX futures was also showing 3C distribution today as posted in a market update.
VIX bearish shooting star close after a bearish Harami Monday/Tuesday.
Yesterday's DOW Theory Transports Divergence carried through again, although likely because of the price of oil, it's still a Dow theory divergence.
Transports significantly outperformed the Industrials again today, not as much as yesterday, a bullish signal short term.
As for the outperforming Russell 2000, as of last night, " only the R2K was up 1.17%, but I suspect it comes down and finished building out the shorter timeframes like SPY / XLf were doing in to lower intraday prices." , it did come down, and I'm glad to hear several of you ran some intraday trades there and made money as the R2K bounced higher in to the close on an untrustworthy parabolic move, closing up +1.02% and creating a bullish engulfing candle on the daily.
Also from last night,
"I suspect we still have work to do, which is why I went with partial positions, but I believe I'll be adding to them and others in the next day or so, just as I thought I'd have some added today earlier in the day after waiting patiently for 4 days now."
I stuck with that same attitude in to the close with the note at the end of day in the post, Quick End of Day Update that the intraday charts were not confirming in to the close and the R2K had an untrustworthy parabolic move.
For example,
The QQQ was not confirming intraday in to the close, perhaps there was a WMT or NFLX leak, perhaps it was just more work to do, but after the close all of the major averages came down about 1%, which is why I decided to wait for stronger signals, being content with the level of risk in UPRO and FAS as it relates to the divergences in place, further positives will warrant more long exposure, but I'm glad I followed the intraday charts as they tend to pick up where they left off the next trading day suggesting a little more work in the area which would still be a very sharp upside reversal.
If we get the same kind of late day positives we saw today, we only need a couple of hours before I'd feel comfortable filling out existing longs and adding to them including Call option positions.
On the day today, lots of stats...
The Dow has lost nearly 1200 points in the last 3 weeks... remember I warned a while back that I wouldn't take the risk of being long as fear is stronger than greed and markets fall much faster than they rise.
The NASDAQ Composite is in official correction, down over 10% from recent highs. This Average also has one of the worst Advance /Decline lines I've seen.
The VIX's intraday high of 31.06 is the highest reading since December 2011.
The Dow Industrials are down -4% Year to Date, so much for long and strong. It's also down close to the official -10% correction levels.
The Russell 2000 is down -9.6% year to date and this is the average that should lead the market.. The SPX is now down -1.5% year to date.
The major averages YTD.
Today SPX Futures volume was the highest in 3 years, this kind of smells like short term capitulation or a mini selling climax which makes room for a bounce.
Gold is at a 1 month high, however I'm sticking with the near term forecast of a pullback in GLD and GDX...
5 min GLD leading negative.
It may be there's some asset rotation out of gold and in to stocks for a near term bounce. I suspect we may be seeing the same in treasuries, at least the long end/TLT.
TLT 60 min negative divegrence with a shooting star/blow-off type closing candle.
Oil is at the lowest close since June 2012 (WTI), however I opened a small , speculative USO call position Monday and I'm sticking with it, I may even add as the 3C charts look interesting...
CL/Brent Crude Futures with a 60 min downtrend confirmation followed by a positive divegrence.
Volatility, as I had repeated many times before we hit stage 4 decline, has risen as expected and with that the unpredictability factor, take a look at the SPX's ATR since late August...
Look at the volatility for the major averages for this week alone...
Agains, as mentioned yesterday from NANEX who pointed out orders/cancellations were at extreme highs which have in the past led to sharp "V" upside reversals. The Russell 2000 saw exactly those same order/cancellations at its lows today before making a parabolic move in to the close.
As for the market's cycle...
From early August accumulation to stage 2 mark-up to stage 3 decline, the head fake move that precedes a downside reversal and stage 4 decline making the anticipated new lower low is evidence of the concept of cycles in any timeframe, you have to know where you are to know where you are going, but as repeated often lately, we are seeing massive bearish sentiment and the market is a zero sum game, for someone to win, someone must lose and that's hard when everyone is on the same side of the trade, a good argument for a bounce in itself, but as also mentioned, these need to be believable to get traders involved which is why bear market counter trend bounces are some of the strongest rallies you';ll see, I direct you to the crash of 1929 and the first bounce following it, almost 6 months and nearly +50%, followed by lower lows and at least 4 more counter trend rallies before bottoming.
I won't post it again, but the SPX/RUT Ratio is hugely bullish as is the VIX Term Structure, now severely inverted which has been an excellent buy signal.
VIX Inversion term structure buy signals on the SPX.
Following the ES Volume highs for today, the Dominant Price/Volume Relationship for the component stocks in the major averages was a clear dominant except the R2K which had no clear relationship, the rest were Close Down and Volume Up, a short term oversold signal as I mentioned before that often leads to a bounce the next day and often beyond.
In this category, we saw 23 of the 30 Dow stocks, 59 of the NASDAQ 100 and 262 of the S&P-500 (of the 4 possible relationships), so I expect to be entering some additional longs tomorrow, we don't need much work to get there.
Of the 9 S&P sectors, 7 of 9 closed red, strangely with Energy leading at ++.76 (don't forget our USO call position) and lagging, were financials at -1.91%.
Of the 238 Morningstar Industry and Sub-Industry groups, 102 of 238 closed green. the last 2-days have been much more moderate as far as breadth goes, it has mellowed out despite the ugly intraday move down today.
Breadth charts didn't budge and considering the intraday move down, this is actually a positive , like yesterday.
I suspect we will see a sharp upside move taking out shorts and breaking above obvious resistance like 200-day moving averages and top trendlines as well as the August lows, remember these moves HAVE to be convincing, it doesn't mean there's a real change in character so if and when the time comes to start shorting in to that strength, it's a gift, although you can bookmark this post, I promise you , you will not feel it is safe to short in to strength as the market moves higher on a bounce like you do now, the moves are that convincing, which is all the better for entering new or adding to existing shorts.
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