Leading Indicators & Market Update

So far our short term 3C signals and Leading Indicators have been right on allowing for some decent small trades in both directions that probably wouldn't be worth taking if they were only in one direction, for instance, in addition to the 5.66% total portfolio gain (personal portfolio) for last week, since adding NUGT Friday and switching back from URTY and TQQQ to SRTY and SQQQ, the additional TOTAL portfolio gains for today alone are +3.18%, that's a larger gain than 80% of hedge funds make on the year. For me it's not boredom because overtrading is very dangerous, it's good signals that have good confirmation and the ability to create additional gains that keep compounding.

Our intermediate or sub-intermaditae analysis has also been right on, lets call that the August cycle and both 3C and Leading Indicators (as well as breadth) have been very accurate there as well.

The SPY August cycle with accumulation 8/1-8/8 led to the deeply oversold breadth bounce we expected, but also expected to see distribution and a failure of the bounce, even the head fake move just before the stage 4 decline, these are not only the 3C charts, but the Leading indicators as well as other analysis all coming together and of course you know what our long term primary trend expectations look like (hint, not good for the market).

In any case, looking at the market's divergences and Leading Indicators Friday, I expected something like the chart below.

This is last week's lows in which we moved out of market shorts like SRTY and SQQQ and went long for a short term trade in the 3x leveraged long, TQQQ and URTY at base #1, these were 50% normal full size positions because the base was too "V" shaped and not able to support a broad move. As I said last week when switching positions, "IF" the base broadens out and creates a more stable, predictable and reliable platform, I'd go in with full size 3x long positions rather than the 50% full size. 

The move below support in yellow, representing price, is a head fake move which we see typically about 80% of the time at visible support/resistance levels, these are excellent reversal timing indications.

The pullback signals from Friday created another sharp "V" shaped reversal, we can look at this one of two ways, a small counter trend bounce that failed and the market sees lower lows for the move off July highs, for example...

For the IWM's August Cycle, the anticipated base from July 28th's deeply oversold breadth condition formed between 8/1 and 8/8, a fairly sizable Stage 1 base,  followed by Stage 2 Mark-Up, which was followed by a Stage 3 top (more evident in the SPX), followed by Stage 4 decline, a textbook cycle. 

The current bounce from last week and now pullback is in the orange box. This could very easily be viewed as a simple counter trend bounce within the Stage 4 decline phase... 

Or it can be viewed as I suspect, a short term base/bounce, probably still a countertrend move within the downtrend, but larger as shown on the second chart of this post, above.

Some of these charts, because they are such fast timeframes, likely have already changed considering the time it takes to capture, upload, write and publish the post, but you should still get the idea.

As for the 3C charts, they are doing what we expected Friday afternoon and price is doing as expected as well. *Actually at this very moment we are seeing some intraday strength causing a bit of a consolidation intraday.

 The SPY 1 min chart may be consolidating a little intraday, but overall the 3C signal is still leading negative, suggesting price move lower. The base's accumulation can be seen to the left at the white arrow.

 The 3 min chart is in overall good shape for a continued bounce which is why I said that if I didn't switch back to shorts on Friday, I wouldn't be too concerned as I suspect higher prices will prevail in the short term.

The QQQ 1 min intraday is nearly PERFECTLY in line with 3C and remains so even right now.

The QQQ 5 min is leading negative, leading price and suggesting a lower low be made. This could give us a base in the area of last week's lows and a larger overall base that can support a larger move. Without that larger base, I doubt I'd get too involved in any long positions of any size as they just wouldn't have the strength to be reliable.

And the IWM 1 min leading negative.

On the chart above (2nd from the top), I drew in some "rough" expectations of market action and what to expect. At the point this chart was captured, there were NO positive divergences and we expect to see them in to a pullback, but usually only around the area where the base will be created so I wouldn't expect to see positive divergences starting quite yet because we aren't close enough to last week's lows, they want to buy low and sell high just like us even in a short term bounce and sell short high and cover low.

What I found interesting even before some of the intraday consolidation stuff started, was Leading Indicators suggesting our expectations are right on track.

Remember these are leading indicators so the first sign of a divergence is not a signal, but the start of a signal.

 HYG - High Yield Corp. Credit, which is used for short term market manipulation is an excellent leading indicator, it led the entire August cycle and here you can see it leads the base see in SPX (green) by several days.

Intraday it has been almost perfectly in line with the SPX, but is still in a short term leading position and longer term negative position suggesting a short term bounce followed by lower lows.

HY Credit which is not as manipulated is making higher highs while the SPX was soft, this is a positive leading signal for the market as we expected to see.

Pro sentiment is not moving up, but it is holding and not moving down today.

 Our second version is actually moving up as a leading indicator.

While TLT diverges from SPX, I suspect there's short term rotation out of TLT (being sold at higher prices) and in to the market (being bought in to lower prices), again I see this as short term.

Yields tend to lead and as you can see from Friday they were leading the market lower which is why this morning's gap up failed (among other indications).

NOW look at our leading indicator, SPX/RUT Ratio, it was pulling for a lower low which the SPX made, now it is starting to lead positively and thus far the market has reacted with some backing and filling, I suspect this continues to lead positively, even if the market makes some lower lows and this indicator will once again have called market movement correctly.

And the TICK trend moving down intraday in breadth since Friday.

My suspicion is the market could be ready for a bounce in to Wednesday's earning's season with A reporting WEdnesday, however that doesn't give much time to form the base I envisioned and drew in above. In this case I'll likely be very careful, if there's not a strong base to sustain a decent swing move, I may just sit this one out until it's time to short in to price gains, the market and market breadth is too unstable to trust it without a strong base so that's what we are going to be looking for.

However as you can see, Leading Indicators are now confirming what we suspected Friday, price weakness would be accumulated to form a stronger base. We just need to see the quality of that accumulation/base.