Daily Wrap

Since we already have so much on the table and you've seen all of the important charts numerous times, I'm going to try to keep this short as I'm going on 13 hours now without so much as a break for food.

The Index futures are a bit surprising in how ugly they look, much like last night or last Friday/Sunday leading to Sunday/Monday's sharp decline creating a short term oversold condition or selling climax that was worked off the rest of the week on a flag-like bounce that got ugly again in to the end of last week.

The market averages all look like they are turning, negative in the 1-2 min timeframes, maybe about inline at 3 minutes and positive at 5 min from this mornings divegrence, in other words the process of migration of negative divergences has started and it is moving, however it has not had enough time to reach the more important 5 min charts which is why I suspected some more upside or at least a lateral reversal process (or "M" "n" shaped- a rounding top or range top). I will say without hesitation the IWM/Russell 2000 looks to be the most advanced in this reversal back toward the negative which isn;'t surprising, especially if market makers and specialists were the reason for the gap fill so they could unload inventory from higher levels to prevent a loss as the Chinese overnight action would have likely been a surprise fundamental even that they could not prepare for in advance, thus needing a gap fill to unload those positions.

In addition, HYG was clearly used early today and even through out the rest of the day to support the intraday market trend , then the short squeeze picked up steam among the small caps which is easily spotted as the market moves straight line fashion with no pullbacks. This is why I'm a bit surprised the 1 min index futures look this bad tonight, the 5 or 7 min charts I could understand, however the short term would seemingly need to finish the reversal process of distribution and migration of the 3C divegrence to the 5 min charts.

XLK/Tech and XLF/Financials are also showing the same kind of negative, advancing trend, but not quite there to the 5 min charts yet.

VXX is also improving, but not quite there yet as they didn't have that much time after the gap fills.


Intraday breadth via TICK held up with the market trend today, no big surprises there, it was a bit more positive than I would have expected given the negative divergences starting.

After the European close, it "appears" as if the BOJ may have intervened in the FX market, ramping the USD/JPY off the sub-118 lows, which also lifted risk / equities until a short squeeze among the most shorted index kicked in, mostly small caps. I say the Bank of Japan may have intervened because the USD/JPY move off the a.m. lows was an impressive 170 pips. This was also a "V" shaped bottom, meaning it didn't have the time to put in a strong enough 3C positive divegrence to lift stocks on their own, THAT'S THE POINT OF THE REVERSAL PROCESS, RATHER THAN A REVERSAL EVENT.

YOU CAN ALMOST ALWAYS SPOT A SHORT SQUEEZE AS THERE'S ALMOST NO PULLBACKS OR CORRECTIONS AND VOLUME DIMINISHES ON THE MOVE UP.



I will say, even though I think there were other reasons, last night's Dominant Price Volume Relationship along with Industry group performance was short term oversold with the highest probability of a close higher today, while I doubt that was the reason most of the averages closed well, the R2K + 1.79% with a Bullish Engulfing Candlestick today, the SPX only off by -0.02% and a bullish hammer, the NDX +.38%, almost a bullish engulfing candle and the Dow -0.29% on a bullish hammer.

All of the candlesticks suggest the same thing the 3C charts do, that this move is not quite done, except for maybe the Russell 2000 or at least it looks probable to rotate out to the under-performer rather than the leader.

Today's Dominant Price/Volume Relationship would likely mean more if there were no fundamental surprises overnight, however there isn't a dominant theme among the averages. The Dow has 15 stocks (dominant) at Close Down/Volume Up , combined with the bullish hammer, this highly suggests the Dow-30 see additional upside tomorrow. 

The NDX-100 had no dominant relationship, the Russell 2000's Dominant Relationship was 1044 stocks (dominant) and Close Up/Volume Up, the most bullish of the 4 relationships, but ironically the one that is most likely to produce a red close the next day on a short term overbought condition, which fits with IWM charts.

The SPX also had no Dominant theme, but did have a bullish Hammer and on volume making it 3-4x more likely to be an effective candlestick. The same is true of the Dow and the Russell 2000, each with bullish closing candlesticks on an increase in volume making them 3-4 times more likely to be effective short term reversal candles (to the upside), which is why the index futures look / charts tonight is so strange.

Of the 9 S&P sectors, 4 of 9 closed green with Energy leading and Healthcare lagging, this is not a dominant relationship or indication of short term oversold/overbought.

Of the 238 Morningstar groups we track we had a similar 158 of 238 closing green, yet again not an indication of a short term oversold/overbought condition.

Based on the charts less the index futures, my best would be additional upside tomorrow which starts to turn and offers some nice short entries, one of the reasons I held off on AAPL today which closed on a very bullish candle as well and increasing volume making it more probable to be effective as a candlestick signal, which I'd love.

The SPX/RUT Ratio indicator was supportive intraday today, not surprising given the RUT's performance on a short squeeze in small caps. The indicator on a wider basis is still significantly negative (shown in last night's Daily Wrap).

While VIX was basically in line, VXX did show better relative performance in to the close (Short term VIX futures).

While the VIX closed above the Bollinger Bands, it also closed near the lows of the day.

As mentioned earlier in the day, HYG was used to help ramp the market and was perfectly in lock step until about 1 p.m. when the short squeeze was firmly in place, HYG continued to add support, but it's relative performance vs the earlier morning correlation suffered a bit. I'd think that if a short squeeze would get the job done, why buy HYG and be in a position of having to take losses?

Pro sentiment indicators were split with one in line with the market and the second failing to make as much as a higher high the entire day. Again, this kind of split makes me feel there's likely more upside, but it is likely to fade and turn to a reversal process, offering some nice short sale entries, that is if Index futures don't dump overnight as they oddly look like they may.

5 year yields were in line with the market and supportive intraday, thus gaining, while the 30 year yields were negatively divergent on the day, but down 9 bps points on the week, The Treasury Yield curve is now at its flattest since 2009.

Gold as we saw with positive Futures divergences Sunday night continue to add gains today with +2.08% in GLD and SLV up +3.88%, I'll post updates on these tomorrow as the daily closing candles were not only gapped up, but had long upper wicks (higher intraday prices rejected) and on volume, making both look like they saw some short term churning today and may be ready for a move lower.

USO also gained +1.21% on the day, we'll continue to monitor that one for a possible trade, whether a short squeeze or a wider, healthier base or even an opportunity to trade it short, we'll see what the market is offering and go from there.

SKEW is still elevated, about $137 and in the red zone.

Finally today added the 4th Hindenburg Omen of 5 days, a substantial cluster (some are calling it 5 days now), in an case, while it's not an indicator I put a lot of faith in as a Black Swan indicator, it was showing a cluster like now at the September highs leading to the October lows so I suspect tomorrow, if we have any price strength which I suspect we will, despite what futures look like, it will likely be best used shorting in to strength, such as AAPL which I updated today.

I'll bring you anything else that develops so long as my eyes are open. Time for some food!