Market Update

As a quick aside, I've been looking at GLD as well as GDX and both are coming down, GLD should head toward the $155.50 area, perhaps a bit below, that should take the form of some more base building so I anticipate we'll have another long NUGT/GDX as well as GLD long position in the next couple of days, the $USD should be helpful there as well. These are not the kind of pullbacks I'd try to trade as a short on the pullback, the risk/reward just isn't there, it's a "Let the trade come to you" moment.

As for the broader market averages, they've come down as expected on an intraday basis, they have some work to do still. I'm a bit surprised they don't look better than they do at this point, but I think they'll get there,  thus patience is still paramount right now.

It's a bit easier for me to update the market using the Index futures as well as show you what's important, what is causing probabilities, etc.

While some Leading Indicators are screaming buy, others aren't there yet. Bear market or bear trend counter trend rallies are some of the most impressive rallies you'll see because they have to overcome the presumption of guilt and change sentiment to the bullish after a very bearish episode, thus they can be very impressive. This one is starting to take on the proportions of the August base/Cycle, and while I doubt very much that volatility allows for a cycle as long as the August cycle which we are still in, STAGE 4 decline), I do think there could be a rip your face off upside move, but again I don't think we are there yet and that's why I've held off on long positions for the moment, but went to cash Thursday from the SRTY/SQQQ longs (short 3x IWM/QQQ).

The charts...

 The 60 min ES /SPX Futures is representing the higher probabilities of a strong bounce with a strong positive divegrence and most of it is on the head fake move expected below both last week's lows and the August cycle lows, both of which have been taken out, supply on the cheap is what Wall Street needs to accumulate which means they need to hit stops and get short sellers out creating supply.

This is the TF/Russell 2000 Futures 15 min chart, I'm just using the different Index Futures to show confirmation between timeframes and multiple assets, like killing 2 birds with one stone.

Again, the intermediate chart's probabilities are highly skewed toward a sharp upside move, likely when least expected.

The important 7 min chart is leading positive, but the divegrence is not quite as wide as I'd expect at this point considering we have 60 min positives in the Index Futures, thus new intraday lows like the ones just put in on our afternoon intraday negative divegrence are the moves that smart money will accumulate, but as always, we want verification of that before we follow in those foot-steps.

Even though the larger signal is the white leading positive divegrence, you can see at the red to the right, the intraday negative divegrence I warned of earlier.

The 5 min chart which is usually the timeframe I use for trades is obviously not enough, this tells me this is likely to be more than just an oversold bounce, but a sentiment changer and this is why,  once again I try to anchor expectations before anything happens. Right now it's difficult to believe we'll see a sharp upside move and that move we can use to short select assets in to, but once a move starts, sentiment changes fast so I want you to see all of this before hand so when you see it in reality, you knew what to expect, you aren't caught up in the emotions that these type of moves are designed to stir and you can make the trades that are otherwise, emotionally very difficult.

As for Leading Indicators, again, I'm surprised they don't look better, but that can change in hours.

 Yields were leading the SPX lower in the red box, now, even though the bond market is closed today for the holiday, you can see from Friday's close at the red arrow, the SPX has more or less reverted back to the mean of yields, a neutral situation that allows room for an upside reversal.

 Commodities were also showing a leading negative divegrence with the SPX, largely I think this had to do with the $USD's bout of strength that effects both under the historical legacy arbitrage correlation, I also suspect that's why commodities are flattening out, think about the USO trade/post as well as GLD/GDX making a larger base and my expectations for $USD weakness as the 5 min negative spreads to longer charts.


High Yield Credit diverged at the August cycle's stage 3 top, a leading indication that downside was coming. In yellow is the "Igloo with Chimney" head fake move we expected and a sharped leading negative divegrence in credit pulling or telling us in advance the market was headed lower, now it's doing the opposite as HY fund flows are positive from last week, just as we saw at the base of the August cycle during the first week of August.

 However, some of the strongest evidence in leading indicators remains in the SPX/RUT ration (middle) and VIX Inversion (bottom) with the SPX/RUT indicator showing a positive divegrence at the August cycle lows as well as a VIX Inversion buy signal in red, as I have mentioned, the signals tend to run a bit early, then the indicator told us the cycle would fail. We have a new Vix Inversion buy signal, larger than the last at this point and...

As we expected the SPX to make a low below the August lows as the indicator told us, now it's starting to soften up and go positive over the last couple of days.

I'm still not ready to make a move, but when I do, I'll have to consider what trade management steps I might want to take as this is starting to take on the signs of a stronger move than first anticipated.