Daily Wrap

Well today went almost exactly like we expected upon getting signals Thursday and Friday. As mentioned in last night's Daily Wrap, the initial weakness expected for the first half of Monday was expected to be replaced by price strength, I was off by 3 hours, instead of late Monday afternoon, it was on the open this morning.

Last night's Dominant Price/Volume Relationship was not only Dominant, but completely effective as an indicator.

"today's Dominant Price/Volume Relationship was not only dominant among each average, but the same among all averages and fits perfectly with expectations ...This relationship suggests that we have reached a short term oversold event, it's similar to a Morning Doji Star Candlestick on heavy volume (high probability short term bullish reversal)."

Or you might say, something like this chart in both yesterday's candle and today's move.

Just like I mentioned last night, " it's similar to a Morning Doji Star Candlestick on heavy volume (high probability short term bullish reversal." Then we got the reversal that a bullish hammer on heavier volume would indicate.

Today's move didn't seem at all coincidental, while being the best day for the SPX since December 18th, the start of the year performance is still the worst in 9 years. However the more random/coincidental moves have seen wide dispersion between the averages, some closing green and others closing red and often by wide margins. Also the up days recently have had some of the narrowest ranges on record, not today though.

The gains broke down like this (and I added the Dominant Price / Volume Relationship for today if there was one, however it was nothing like yesterday's as that was consistent in relationship and through all the averages).

SPX +.61% (Close Up and Volume Down 206 stocks)
Dow-30 +.63% (No dominant theme)
NDX +.87% (Close Up and Volume Down 55 stocks)
R2K +.87% (No dominant theme)
COMPQX +.94% (No Dominant theme).

As you can see, not only was there no dispersion, but similar indices closed with nearly identical gains. Only two had Dominant P/V themes and that theme is the most bearish of all 4 possibilities, often this creates the opposite of yesterday's relationship and causes a 1-day overbought condition with the next day closing down. However since the theme was not consistent across all of the averages like yesterday, I consider it a warning shot of weakness, but  we're not quite there as far as the implications which fits perfectly with our analysis/trend expectations. 

Considering the release of the F_O_M_C minutes from the last meeting (the Taper), I don't think any relationship would be valuable any way.

While today had an unique cloudy nature to the charts, it did do what we expected, but some things simply didn't fit, thus while there were some assets that caught my attention, without a clear path for the market, it's just not a high probability trade.

As expected last week when 10-year yields broke above 3%, I said I think Treasuries are going to rally, thus the 3+% yield would fall, we were spot on(due to the 3C charts), but remember what my near term expectations are for TLT and the TBT trade and then take a look at the 3C charts for the 10 and 30 year futures.

 15 min chart of 10 year Bond futures rallying since we mentioned it last week, however the 3C reading is in line with the expectations posted today and lined above (TLT/TBT trade).

More specifically to the TLT/TBT trade, this is the 15 min 30 year treasury futures, a similar 3C reading that should fit like a glove regarding TLT/TBT. The longer side of that trade is important, it's on the radar, but we'll cross that bridge when we get to it.

Tomorrow has the capacity to cause some incredible volatility in the very F_O_M_C sensitive minutes, so as always, beware of the F_O_M_C / F_E_D knee jerk reaction, it's strong, but often wrong which is another good reason to let the trade come to us as I suggested you consider in the trade idea linked above.

I'm pretty sure most of you understand how VWAP is used in grading the middlemen who fill or execute orders, it's their report card for lack of a better term.

What was interesting wasn't so much ES and its relationship to VWAP today, but the relationship vs the TICK data today.

 This would be the normal assumption of ES in and around VWAP, buying at VWAP and selling at the upper standard deviation, but something interesting happened at the first orange "?" today. Note the tone of the NYSE TICK data intraday and then specifically at that area...

First TICK was EXCEPTIONALLY mellow, not even a +1000 on the open and a VERY tight range, but at the area where VWAP failed to hold ES as support, look at the TICK data, the first extreme of the day under -1000, then a knee-jerk like reaction or over-reaction (reminiscent of "oversteer") to +1000 and as of 2 p.m. through the close, the TICK data took a very different turn in the direction of character.

My custom SPX/TICK indicator shows the same with a massive negative on the histogram as intraday support was taken out briefly.

As for Silver/SLV, it was one of the worst performers today, down -1.5% and that's after it retraced nearly half it's loss. We opened a SLV February put on Friday in anticipation of this move (which is correlated to the market move) and last night said,

" in the near term as they have been trading opposite the market, I chose to open a short term trading options position here with SLV February $20 Puts just Friday...The intraday charts look like this will be a successful trade as the 2 min is clearly negative at this island-type area..."

The position was at a profit right on the open today and well outperformed GLD, although I chose a gold based hedge for the Trading portfolio because it had 3x leverage.

Performance of both PMs vs the SPX...

SLV in white and GLD in yellow vs the SPX...

Our early silver gains were in to the double digits on the trade... However, I explained my expectations for both PMs and therefore left the February put open as well as the DGLD position.

While SLV/Silver retraced a lot of the opening loss today, I feel ok with it as SLV and Silver Futures charts seem to indicate the probability of our expectation for the target is better than 50/50.

The 10 min 3C SLV chart with a more extreme leading negative divegrence the last week or so and intraday...

Silver futures show the clear accumulation intraday for the bounce off intraday lows, but check the signal in to the afternoon, very nice so while I don't hold it against anyone should they decide to take a double digit gain in a day and a half, you know what I'm looking for here and don't forget the correlation and the information this gives us about the market in general.

Carry trades had just about ZERO effect on the market today and they are not looking good, however in last night's post I had said, 

"That being said about the carry pairs, they do look to be in a slightly oversold state so a bounce would not be surprising "

We didn't get so much of a bounce as a kind of consolidation, but the downside did stop bleeding for the moment, this I believe was partly because of the short term pullback/consolidation expected in the Yen, however overall, this really wasn't a factor.

I also said last night and many times recently that we want to pay attention to the carry trades, but...

"This may also be why it seems the carry cross is following the market rather than leading it. There seems to be a much greater correlation to the Yen, go straight to the source as I also said last night as the Yen (at least with 3C) will reflect underlying trade long before it shows up in the carry cross's price action."

As proof of this concept, we can take a simple look at FXY vs the SPY/SPX...

 This is the SPX vs FXY (orange), there's an inverse relationship as you know, but if I invert the price of the SPX, the correlation becomes more clear.

The correlation is tight and I can't help but wonder if it was the Yen that caused ES to break VWAP today, if you look at the chart above this one, the timing is about right.

In any case, I think, as mentioned the last several days that the market may actually lead the carry pairs because of the huge leverage and how they can turn in to big losses very quickly at 100:1 leverage (or more in some cases). Therefore, the 3C signals for the Yen become very important and there are some short term positives developing in the Yen again. It's not to the point that I expect an imminent downside market reversal, I think there's still enough room to finish out the bounce of which you know I think is short duration, but I'd say at least two days.

The carry crosses don't have anywhere near the correlation they use to have just a few weeks ago which was nearly identical.

SPY vs EUR/JPY and USD/JPY.

This isn't an observation for observation's sake, this is a serious funding mechanism and way to leverage a fund's AUM, when this starts changing character like it is and we see the positive divergences in the Yen like we did and a few days later get confirmation that BAC covered their USD/JPY, we know things are changing for the worse, the fear may not be palpable in the VIX on any specific day, but it is in the carry crosses, these have the ability to destroy a fund, LIVE BY LEVERAGE, DIE BY LEVERAGE".

Speaking of the VIX, although the market was cloudy in many ways today, I'm not removing hedges (selected longs) until I have good reason, the VIX futures and short term VIX futures could provide that, they have information, but not that screaming signal that would send me moving quickly to realign trading positions.

 While the actual VIX futures (5 min) are showing some signs of accumulation...

The 30 min chart shows we are CLEARLY not there yet.

You know what a VXX divergence that makes us move looks like...

 Again, VXX intraday has some interesting activity, but nothing that makes us move, thus this was "part" of today's analysis to let hedges and select longs stand.

I won't pretend though that the rounding process underway isn't important, that's one of the most important aspects to have in place, the actual divergences as you have seen can fly and be there by noon tomorrow, but as of now, they aren't, the point is, this isn't to say that progress, important progress isn't being made.

The 5 min chart shows the progress, but you know what's missing.

As for Leading Indicators...

First, do you recall the SEVERE underperformance in VXX last night that to me, was a clear warning that the market was going to move higher today as we expected? In case you don't...

VXX vs the SPX as of yesterday's close with the SPX price inverted to see the correlation. This was massive underperformace and although the SPY arbitrage was no where near activated today, I think this underperformance was taken by the algos overnight as a buy signal because the 30-second reason the markets were up overnight was EU data and Ireland with a successful auction of treasuries, but Index futures were up well before the EU open. I think algos took this as a buy signal as they would in an arbitrage scheme.

 This is HYG (HY Corp. Credit) today and as you can see, although it didn't move enough intraday to activate the arbitrage scheme, it has been leading recently and the SPX should "catch up" to credit, so again another leading reason for algos to buy overnight.

 I pointed out last night that although HY Credit is not part of any arbitrage correlation, the fact it is up, suggests we were and are right about the first trend in our multiple timeframe/trend analysis. Although today didn't see the kind of leading that this Leading Indicator is so useful for, what it did do was go from leading yesterday which led to higher prices today and essentially went flat today, this isn't leading the market down, but it is showing some evidence that we are correct on the duration of the first trend. As it starts leading the market negative, then we'll have a different situation and this is another reason I left longs/long hedges open today.

 When we consider the next trend and multiple timeframe analysis, this larger view of High Yield Credit makes clear that the market is in a worse place than a month ago so the next significant trend we expect has objective leading evidence right here.

 As for sentiment, it's been touchy lately, one as you see above is not buying this move and if I had a large fund, I wouldn't either just because of the logistics, we have a huge advantage as individual investors, our speed, we don't realize what an advantage that is, but these larger funds can't just jump in a sizable long like we can and exit it the next day, I think this is a reflection of that, again it only makes sense if you consider expectations for our multiple trends and specifically the first one that we prepared for Friday and expected to start yesterday afternoon, instead our analysis was 3 hours off and it started today.

 This is VXX's underperformance vs the SPX, again price is inverted so the correlation and relative performance is obvious. HYG didn't move up enough TODAY, VXX didn't move down enough TODAY and TLT was up TODAY, thus the arbitrage mechanism couldn't have possibly been activated, but since all of these were leading, I think that's what we saw overnight.

 This is TLT vs the inverted price of the SPX, the normal correlation is at the green arrow, you can see that TLT not only didn't underperform to activate arbitrage, but it outperformed.

Last night I addressed the magnetism of Yields VERY specifically...

"Yields are an excellent leading indicator, however what I found was they offer no direction as they are in line with the SPX, they (both assets) have reverted to the mean, this means Yields won't help or drag the SPX lower as they stand, however if thy keep moving lower as they have been and the SPX does bounce, then they would be exerting bearish pressure on the market once it bounces."

The above statement from last night's Daily Wrap is nearly prophetic, but this is just because we had a very good idea of what was going to happen and it did happen, the in line status changed dramatically today as yields are now in a leading negative position, this doesn't mean they won't go deeper negative, in fact they need to, but as the next trend is ready to make its appearance, this Leading Indicator will be ready to help that trend as Yields pull price (SPX) toward them and after nearly a week or more of being in line, they are now negatively dislocated just as was predicted last night.

As far as some of the assets we have calls in or longs in that haven't moved yet, which was disappointing today, I think we'll get the move we are looking for.

AAPL...

 As you know there have been some significant recent changes and they have allowed us to enter a position in AAPL after waiting patiently for what must be over a month, but the bigger picture is in trend #2. The 15 min chart had been reflecting it, but I didn't dare trade against the 30 min which was in line, this is the 30 min now so it's just a matter of a bounce to set up the position, let it come to us.

 Shorter term though, the intraday 3 min shows some interesting activity today, is it enough for me? No, but...

The 5 min chart is enough, the leading positive and the probable head fake move is an excellent timing marker, I believe this position will be fine both in calls and long equity positions.

In addition,we have a 15 min chart to boot. While this is short term only as the deep negatives that drove price lower are still in play, the recent leading above the head fake move looks promising.

MCP... You know what my long term opinion is, you know what I expect to happen before that long term trend can activate, but even before that, we had signals for a quick leveraged options trade (calls)...

The 10 min chart represents the pullback I expect, I don't want to trade the pullback because MCP is too strong, but...

 The short term (so short I decided to use leverage/options) is looking stronger as we are positive on the 5 min chart now.

As for timing, the 3 min chart remains leading, I think we are fine here too.

I covered UNG/DGAZ earlier today, as I said, because of the price pattern, some choppy noise is likely, but there's a decent set of signals for at least a swing trade.

URRE closed as I hoped it would, no long upper wick, higher volume. While it's difficult to see intraday charts on this one, price action looks good, please review the post on URRE as this is a special trade that I think can be very successful IF managed properly and that starts with understanding what kind of trade it is.

As far as futures tonight, yesterday we had a clear 5 min leading divergence in the Index futures, today what we have is in line for the most part so the "short duration" of the expected trend that started today is seemingly giving us objective evidence that we are right on. The 5 min is not leading negative, but I suspect we'll start to see a small reversal process that accompanies such a divergence, I don't think we are quite there yet, but obviously moving in the right direction.

While there are a lot of charts that are muddy today, I think the SPY is the best example of current and futures (as in next) trends. The market usually doesn't stay opaque for long so I'd expect tomorrow (barring wild card events on the minutes), we'll have a clear window again.

 To me it looks like the open is going to see some downside, either that or this is the start of a negative divegrence that will migrate across longer timeframes while the market moves higher (as they sell in to strength) and leads to the next trend.

This 3 min leading positive tells me this move isn't done, however if that 1 min chart, as new divergences always start on the earliest timeframe, migrate to the 3 min and turn it negative, we'll be closing hedges and select longs pretty quickly. In any case, my idea of short duration is still longer than a day so there is some clarity as far as this chart goes.

The Oct. 9 cycle, stage 1 accumulation (white), stage 2 mark up (green), stage 3 top (red) and late in stage 3 is a 30 min (and 15) leading negative divegrence (red box), the largest seen in a long time and as I demonstrated Sunday, one that made a huge leading negative move in a single day.

This sets up what I think will be the second trend or the one to follow today's (start of trend 1).

The QQQ and the IWM ( a little muddy in certain areas) agree, so that's some of the better confirmation from today, the problem was more in multiple asset confirmation. For instance, you can see the Q's are very much in line with multiple trend/timeframe divergences.

 Again, intraday 1 min shows a negative divergence. Usually I'd take this as to mean that the divergence will pick up where it left off just as we saw from Friday's close Monday morning, but the other side is all new divergences start on the fastest timeframe and migrate to longer/stronger timeframes, this could be the start of that process being we only expected a short duration move. Some of the things though that need to clear up would be for instance the trend expectations in precious metals, the VIX futures, etc.

 Just like the SPY, we still have a 3 min leading positive, this can take the market higher, however as I said, if the 1 min negative migrates and 3 min goes negative, we'll know it's time to make some quick positioning changes or just leave the positions we hedged in place and let them take over.

As for the following trend, the negative is right there, the 3 min needs to go negative and then the 5 min connects the 10 min and we are on our way.

That's going to do it for tonight unless later there's something significant in the futures.

PLEASE KEEP IN MIND AS ALWAYS, TOMORROW WHEN THE F_O_M_C MINUTES COME OUT FROM THE LAST MEETING, WE ALMOST ALWAYS (90%) GET A KNEE JERK REACTION AND IT'S WRONG ABOUT 80& OF THE TIME.

I SAY THIS BEFORE EVERY F_E_D EVENT TO ANCHOR EXPECTATIONS, SO YOU KNOW WHAT TO EXPECT AND THAT IT'S NOT UNUSUAL, IT'S A PATTERN SO COMMON THAT I WANR ABOUT IT EVERY TIME WE HAVE A F_E_D EVENT.
 If we get lucky, we can use such knee jerk moves to our advantage, but those are typically the tough trades to take emotionally, but actually the lowest risk.

Don't forget we have another huge F_E_D event Friday in Non-Farm Payrolls. 

I don't have real strong data to suggest this would be the case, but it would be interesting if a knee jerk on the minutes completed the move started today on the upside and the Non-Farm Payrolls reversed it to our next trend, the timing seems about right, the fact knee jerk reactions take about a day or 2 to sort out is also just about perfect timing, but that's 100% speculation.

See you soon.

Quick EOD Market Impressions

It seems to me that there's nervousness in front of the minutes tomorrow, but as I'll show after the close, I say it "seems" that way for a particular reason, one which may be a little more deceptive than what things first appear to be.

I haven't changed any positions that were entered on Friday and this week. I'm not a fortune teller as far as what the minutes will say and more so, how the market will perceive them so I'm not going to take wild guesses and I'm not going to change positions that were entered for a reason without sufficient evidence that the reason no longer exists.

This isn't an easy or a decision come to lightly, but my thing has always been, "Make the best decision you can with the evidence you have at the time", otherwise you're just guessing.

I'm making the best decision I can with the objective evidence I have, even if I don't feel like it's great evidence today, there has been some very good signals the last couple of days and they were there for a reason.

I'm sticking it out as positioned.

TLT / TBT (Long)

I have mentioned since Sunday (at minimum) that I like TBT long as a shorter term trading position on a TLT pullback. There's an open TBT long right now and I must say as cloudy as many areas of the market are, TBT right here, right now looks really interesting as a long position or even an add to, but remember that TLT is the ultimate price after a pullback, TBT long is a way to play the TLT pullback and it looks pretty darn good here. I'm not making a case for TBT (long) beyond a trade at this point.

 30-year Treasury futures 3o min leading positive divergence, this is essentially the same as TLT, so there's a solid base and longer term positive divegrence in the futures.

The 4 hour TLT chart shows the same, there's a solid longer term run of accumulation, this is more about tactical timing and an entry than anything else.

30 year Treasury futures, 15 min leading negative suggesting that there's a solid base in place, but like the GLD or SLV analysis, the shorter or less significant trend looks like a pullback before the 30 year and TLT are ready to move to the upside and those of you who have been here for at least a year know that I've been watching this develop in TLT, but have luckily been patient with the asset, we are closer to action now.

 TLT 10 year is in similar fashion showing an intermediate negative divergence suggesting a pullback, but nothing damaging to the long term base

Very short term on a 3 min chart, TLT looks like it's ready to pullback at any time. TBT is the inverse of TLT and it is also 2x leveraged. I already have a long TBT position open for this exact reason.

 TLT 1 min intraday is also negative so from a trade entry point of view, TLT looks ready to start a pullback that should lead to a nice long entry for a trend type trade long, but until then, TBT is a way to play a pullback in TLT and with 2x leverage.

TBT intraday 2 min is leading positive confirming TLT and looks ready to head higher on the TLT pullback.

TBT 3 min is also leading positive, it's in a little base area and in good position, a stop can be placed a little below recent lows and the risk ends up being very low, just don't put the stop in an obvious place.

TBT 5 min chart is in line, it may go positive, but this is why I said I'm not making a case beyond a short term trade (TBT long).

Actually taking a close look at the 5 min, there appears to be some positive migration of the 2, 3 min charts.

Closer look at TBT 5 min. It wouldn't take long for the 5 min chart to lead positive from where it is.

What I mioght do since I already have a small position started in TBT long is see if it will pullback toward or below the $77.40-$77.50 area, that's near the bottom or just under the bottom of this range.

If it does that, then I'll probably add to the position. You may want to use such a move as the deciding factor of whether you go with the trade or not. Such a move gives you a better entry, it puts you closer to your stop and lowers your risk and of course if it moves below $77.40 and there's a positive divegrence on that move, then we have a successful or highly probable head fake move which is a great timing flag.

So to demand a little more from the trade and that it comes to you is probably a good way to decide whether you want to take it or not. If it doesn't make that move, nothing lost, if it does, it's an even better looking position.

Or you might enter a half size position or partial here and add to it if it makes the move described above., that's pretty much what I'm looking at doing unless this 5 min chart starts flying.

URRE Update

URRE has been a long time favorite as a large stage 1 base that should enter a primary uptrend (despite the market) and although we've been following it for well over a year, it has done a lot of work through 2013 and I suspect it's moving toward a stage 2 breakout and thus a bull market or primary uptrend.

I'm not sure if I just have some bad data intraday or there was just an odd print, but I'm not concerned about it. This is a long term position, not a trading position.

URRE is up around 8% today which puts the core long up as well, in my case about 8% as well.

While intraday trade is very spotty and doesn't give good 3C signals, other indications look excellent and I'm talking about a lot more than just today.

 This is the odd intraday print.

On a daily chart, as I mentioned to several of you who emailed me about it today, watch the closing candle. I warned to watch out for a long upper wick, that's resistance in the area which you can see above. The volume on today's move looks good, it's not through the roof, but volume is a subtle art, it's not just looking for those spikes than any amateur can see.

The daily 3C chart shows it has been doing a lot of work for almost 2 years with a lot of strong accumulation through 2013. Compared to similar past assets with a similar divergence, I've seen about a 5 year run of 2500%, I'm not predicting that here, but almost identical assets have performed in that manner.

On a 60 min chart you can see the failure at the parabolic move, remember our recent TWTR short based on the parabolic concept, well here it is again, this is why I don't trust those moves.

Once again, accumulation looks good so it's not surprising it's making a move that may not breakout through resistance today, but I think it's not far from doing so.

I had to modify the Trend Channel a bit, it needs to fit the character of the stock and now it does, the stop out on a closing basis would be pretty darn close to the $3.15 area, but even here, so long as the 3C charts hold up, I'm inclined to take a much larger view, one of the few assets I'd consider to be more of an investment than a trade.

I think URRE is fine, that's coming from the long term investment p.o.v. If you are more concerned with locking in an 8% gain in a day, then by all means, but I can't say that this will pullback to an area that would make it worthwhile. I'm content to just let URRE do its thing and as noted above, the nearly 2 year process in URRE looks like it's ready to start making it's move to the next stage which would be mark up or in this case a primary uptrend which is also known as a bull market.

I'd encourage you to manage URRE more like an investment than a trade which may mean cutting down the number of shares to allow for a wider stop, you can always add them back. This is not the kind of asset in which I'd keep a tight stop on.

Other than that, I don't see anything that concerns me, but once again that's from a long term point of view. URRE, because of spotty intraday trade on 1-5 min charts is not a good choice for a trading asset.