Daily Wrap...

I'm not sure what I can write about today that we didn't already expect Friday, as you may recall, a wider base at last week's lows was expected for this week and we are in that area now, which may be why the SPX/RUT Ratio (custom indicator) is softening up now.

The R2K is at 12 month lows and down -7% on the year, the Dow is almost red for the year. The TLT pullback we called on 8/28 and the end of the pullback to move to a new high for the year did so today.

The $USD has now put in the biggest 2-day decline in 13 months, gold apparently benefitting from the legacy arbitrage, but oil, silver and stocks, clearly not.

Transports (remember our recent short entry to fill out the position), were among te worst performers of the day, down -2.5% at 7 month lows and -3.6% on the week. Our full size, phased in IYT short is at a 4% gain and it hasn't even started its decline. HLF is at a 30% gain for us (short), NFLX at a +4% gain and it too has a lot more downside potential, we haven't even really started. FSLR, another recent entry/fill out is almost at a +12% gain, SRTY added back Friday is up 8% and SQQQ also added back Friday is up 5.33%. I don't even consider these to be in the starting phase of decline except for HLF, even SCTY has yet to break below its top.

HYG's negative divergence sent it lower, a shorter term as the short intermediate still aren't that bad and HYG moved almost tick for tick with the SPX today. However among leading indicators, we had some very interesting signals that make sense given the market internals and breadth, for instance both Professional sentiment indicators were up in a down market, expecting near term upside. Price caught down to yields or reversion to the mean and for the most part, price caught down to the Index futures' leading negative 5 min divergences. Also HY Credit was positively divergent vs the SPX today, taken with the intraday signal in the SPX/RUTm Ratio Indicator, I'd say we've arrived at the general location of our double base, HOWEVER THIS DOESN'T MEAN THERE'S AN INSTANTANEOUS POP TO THE UPSIDE, THERE SHOULD STILL BE A REVERSAL PROCESS AND 3C NEEDS TO SHOW US THAT THE MARKET IS PROVING TO US THAT THIS BASE IS BEING ACCUMULATED, otherwise, I'm content to keep collecting gains on shorts as my personal portfolio which I have more actively traded recently, is up +9.5% on the whole just since last Tuesday, not including today's gains (4-days),


Now we know that the SPX/RUT Indicator has mellowed out intraday as the lows it was pointing to this morning , Market Update, were met by this afternoon, Quick Market Update. This indicator has been right 100% since we introduced it as a new Leading Custom Indicator.

Add to it the other LEading Indicators and it sounds and smells like we will be seeing more lateral trade and a  probable base. 

Just to add to that, we need a short term oversold condition, the S&P sectors provide that with 9 of 9 closing red, Utilities were the best performer at a loss of -.14% and Industrials were the worst at -2.43%.

To make matters worse, of the 238 Morningstar groups we track, only 4 closed green today!

There was a Dominant Price/Volume Relationship yesterday, Close Down/Volume Down, which I referred to in last night's Daily Wrap

" I call it, "Carry on" as the market tends to do what it was doing so I would suppose moderate weakness? The market breadth definitely wasn't oversold today."


Tonight's Dominant Price/Volume Relationship is what I'd expect for a short term oversold condition, the Dominant theme was Price Down/Volume Up, 25 of the Dow 30, 74 of the NASDAQ 100 , 1025 of the Russell 2000 and 334 of the S&P 500.

This relationship suggests a 1-day oversold condition and most of the time the market closes green the next day, there's no doubt about it, we are oversold short term which is the perfect place to widen out the base as expected last Friday in the Week Ahead post and we are right at the area we expected to be at.

Between all of the above, all we need to look for now is confirmation, the 3C signals and we have a nice swing trade and another opportunity to enter the bigger trades that are really starting to pay off (shorts).

Tomorrow we should start to see whether or not we can trust a move to the upside for a long trade. One thing is for sure, volatility is picking up and that's typical in a topping market.