Daily Wrap

As of Friday there was really only 1 chart that told me the market's likely direction early this week or rather the one direction the market was least tlikely to move in early this week, that was AAPL ansd we'll get to that.

The market charts themselves were and remain weak, looking at those alone, I'd never have guessed that the market would even hold its ground, but that seems to be what this is all about. Overnight Chinese fundamentals saw the USD/JPY and Index futures lower, then they were saved to essentially hold the market in place, which may sound like it serves no purpose, but that may not be the case.

In another example of "Holding the market in place", the carry pair, USD/JPY opened regular hours at $102.42 and closed regular hours at 4 p.m. at $102.43, one penny difference.

If you think it serves no purpose to pin the market in place, let me remind you of an observation from Friday's "Daily Wrap".....

"As for the EOD ramp FAIL, look at it vs VWAP which has been very steady which is what we see when there's large scale distribution.

A nice steady VWAP and EOD, FAIL all the way down through the lower standard deviation."

Now, note today's ES VWAP...

A very similar VWAP Pin early or overnight with a better fill during regular hours, but just like Friday, a dump at the EOD when the pros come out to trade. 

As for the market averages and Index futures, today looked like early confirmation to get the market up, but as soon as it was, distribution made itself very clear.

 ES in line overnight and through the first half of the day and then pure distribution after VWAP comes close to the upper standard deviation and a high volume sell-off below VWAP.

(2 min).

The IWM has a similar theme intraday  (2 min)

The same is seen on IWM 3 min

And IWM 5 min shows how quickly early confirmation was created and then sold in to, it seems like someone was trying to fill at VWAP or better again today like Friday, this can be selling or short selling, but considering events of the last few weeks I'd say short selling has the edge.

QQQ intraday shows nothing but distribution today

Q 2 min also showing pure distribution,

QQQ 5 min trend.

 SPY INTRADAY PURE DISTRIBUTION.

SPY 2 min distribution.

 The same with the 5 min scale after early confirmation.

As far as the most telling chart from Friday and today as well, AAPL...

AAPL's 15 min chart suggests as it did Friday that there's a bounce coming in AAPL, it was no where near enough for me to take the trade with such heavy probabilities stacked against  the broad market.                                                                                                                          

 AAPL's 5 min chart with more details makes it pretty obvious that AAPL's near term probabilities didn't include severe market weakness.

AAPL'S 2 MIN CHART SHOWS ITS MOST RECENT accumulation cycle, it's obviously not very big, but enough to suggest the market wouldn't see any severe downside today, considering AAPL still hasn't fulfilled the divergence, I don't think the overall market is ready to make a downside move quite yet, AAPL is essentially the proxy for the market right now.

Leading Indicators...

 Sentiment hasn't moved, it looks to me to lean toward a flat day tomorrow, at least for the first half of the day.

 YIELDS were perfectly in line intraday, remember these are a leading indicator so if we go with the signal as leading, it suggests a flat day tomorrow.

The larger picture for the entire rally out of the head fake move from the 2nd week of February is clearly negative and should resolve as such, these are the kind of leading signals that really make Yields shine as a leading indicator.

 VIX futures were seeing demand all day (especially as the market made its gain, then the market lost ground in to the close and the two reverted back to their correlation (note the SPX's price-green- has been inverted to show the correlation).

 TLT also saw better relative performance today.

High Yield Credit was flat all day, it didn't buy in to any SPX exuberance over a new all time high move.

We did have a Dominant Price / Volume Relationship among all the major averages today, that was Close Up / Volume Down which is the most bearish of the 4 possible relations and reflects the SPX's inability to hold on to new reduced highs which were set intraday, but failed to hold in to the close as major selling took price below VWAP.

Typically this relationship results in a 1-day overbought condition and the market closes lower the next day, but I don't think we are in a normal market right now. This is the same relationship we saw Friday. Despite SPX setting new intraday highs and then losing them...preventing the SPX from closing green for the first time on the year; I don't think this had anything to do with strength and had a lot more to do with exiting or selling short near VWAP, the charts are in such horrible shape, this is why I said Friday in the Daily Wrap, "All I can say moving forward is, "I hope we have at least a day to add core shorts, PCLN and NFLX are high on my list with many others."

BofA did make a bullish call on AUD/JPY (another carry pair), ES did correlate with it for a while, but I have a feeling that they are stuck in a position and are seeing the carry trade that can be leveraged more than 100:1 failing all around and AUD/JPY is the weakest of the carry pairs. AUD/JPY failed back in April, the USD/JPY just started failing Jan 1st.

Also pour position in DGAZ (+14.59%)  is looking good today as UNG took nearly a -6% hit.

I'll have more on specific stocks and futures later.

Quick EOD Update

I'll follow this up with charts, but I basically have the same thing guiding me that I had Friday afternoon, there is VERY little signal in the market, it's just not there, the only thing I have is AAPL really and I correctly theorized AAPL is not likely to make gains in to a sharp downturn in the market. With the divergences in AAPL, I thought the market would loiter in the area, I expect it will continue to do so for another day or maybe 2 but based on AAPL, not based on market strength.

I would expect those days to be similar to today, gains and then a retrace of those gains to leave us roughly at neutral before we head lower.

I don't see anything right now implying any significant market gains or any gain at all that will hold.

Trade Ideas: PCLN (Core Short Position).

I like PCLN in the area as a core or trend short position, actually we've waited for quite a while for a large PCLN short, with thw way distribution and price action was going, it looked obvious that PCLN wouldn't be a great short set up until it was above $1100 (not at $100, but above at least $1100).

There may be a little more upside, right now (as was Friday afternoon, my main market upside indicator is AAPL and AAPL alone, everything else looks pretty bad). I think AAPL probably has a couple more days and I imagine the market is not going to fall with AAPL still making upside moves. However PCLN is also right above a significant gap and there are very few gaps left open since the rise of HFT so I doubt PCLN can move too much further. So I'd either take PCLN here understanding that it's better than 50/50 that I'll have to wait at least a day or perhaps more and maybe see a little more upside or take the chance of missing PCLN and try to time the entry better with AAPL's charts.

Here's what we have so far...

First compare these two charts and the change in character in their price action (These are both 5-day charts)...

 Note the natural flow of price action, a couple of significant pullbacks and then price getting more and parabolic until it's "straight line vertical", remember we often see these ROC price change in character right before a top or decline.

 Now compare to this one...



The first one is AAPL at it's final top, the second one is PCLN as of right now, they are very similar and again, this parabolic price action is very similar to what we see at the end of the trend.

 At the break above $1100 we have a range with 5 points of contact, this is normal for a consolidation and then a breakout. The breakout is very similar to the market move based around the head fake move.

 The 4- hour chart shows distribution as we approached $1100 and continue above $1100.

The 60 min chart shows thew same

 The 15 min chart has more detail, A is the $1100 mark and the distribution in to that area, "B" is the distribution at $100, "C" is the accumulation that started in the broader market on Jan. 27th through Feb. 6th, "D" is the relative negative divegrence between pre-$1100 and accumulation/pre-bounce with the broader market and "E" is the distribution specific to the asset since the 1/27 through 2-6 accumulation and price rally.

The 10 min chart shows distribution, even more above $1200 which is almost exactly on par with the broader market accumulation from Jan 27th. and the resulting price move.

 PCLN 5 miin shows distribution at the current gap, I have a feeling this may be an exhaustion gap.

And the trend of the 3 min chart shows the 1/27-2/6 accumulation and resulting move up in to distribution. I think this is in pretty good shape short term to start or add to a PCLN core or trend short position.

I'll post AAPL shortly as well/.

Position Management : IOC Trading Long

We have been in IOC as a long trading position for a while, based on capitulation and a base forming after. I don't know how far IOC can go, but I still like it as a long and a long that hs little market correlation. Right now IOC looks like it is VERY close to a stage 2 cycle (mark up of price)/

 IOC Daily chart with the end of a decline via capitulation;  a stage 1 base and it looks probable we are entering stage 2 mark-up as volume has been increasing above the base.

 Our X-Over system has also confirmed a buy, you can see the last price cross over was a false signal as the other 2 indicators didn't agree.

 The Trend Channel has also began a trend on a daily chart, the current stop is at < $52.75 on a closing basis.

30 min Leading positive divergence, you'll notice most divergences start or become more extreme as of a head fake move to the downside which is also an excellent timing marker.

15 min chart leading positive divergence.

IOC 5 min leading positive with a slight negative, I assume there's some profit taking at what many view as resistance.

1 min shows there is a slight negative intraday, but very slight, again I think it is resistance based.

Market Update

As hoped for Friday and as expected all last week, the market is up a bit, the SPY/SPX has broken our above the very obvious and defined resistance range, although that isn't something I expect to last long, it is welcome for now as it allows time to put on core shorts which seems to be exactly what smart money is doing with the moves (a head fake move).

 SPY/SPX above 2014 resistance (in yellow box), this was expected as it's loose change on the ground, very easy way to pick up some extra gains, but I'm personally not interested in chasing change with the environment so deteriorated (recall AAPL from last week).

The charts (intraday) started out "in line" or intraday confirmation, which is fine, they are starting to deteriorate, but it should be enough time to find the best set ups.

The USD/JPY sold off overnight to the far left (1 min chart) on Chinese / Asian data and took Index futures lower, you can see the 3C positive divegrence at the lows around  midnight lifting the pair and the Index futures, this has been a theme the last several days. However the USD/JPY (even intraday) did not make a new or higher high so that's the SPY/SPX making a head fake move on its own as that is such an obvious level.

 ES 1 min overnight (SPX Futures), you can see the "in line status, but there's some recent deterioration as regular hours sets in.

The same is true of 1 min NQ/NASDAQ 100 futures, a positive divegrence around midnight (the same as USD/JPY) and some recent deterioration.

You'll see the same theme in the market averages,,,

 IWM 1 min is one of the few averages that did have a positive divergence at the close Friday, it was in line earlier and is in line out to about 5 min charts, but there's distribution taking hold and migrating to longer charts.

IWM 2 min has a negative intraday signal, it's just starting to make its way over to the 3 min chart.

 QQQ from Friday's negative to inline on the down trend Friday afternoon and distribution this morning.

 QQQ 2 min also seeing migration of an already bad negative divergence

SPY 1 min was in line only at the very open and then went negative, this tells me smart money is thinking the same thing I was thinking Friday, or rather I was thinking the same thing smart money was thinking.

SPY 3 min to give you some idea of the pace it's progressing... you can see it's not terribly fast and that's likely because of the breakout which is some of the best positioning for shorts so I imagine there's not a huge rush to send it lower quite yet.

I'm going through watchlists looking for the best ideas that are in place NOW.

A.M. Observations

Good morning, I hope you had a pleasant weekend.

Friday I was hoping that we'd see a bounce or at least the market linger in this area for a bit longer to set up core short positions, I didn't have much evidence to suggest the market would do that except a nice positive divergence for a short term long trade in AAPL and it was difficult imagining AAPL up in a down market.

In any case, a familiar pattern is repeating, sell off USD/JPY overnight on real news like housing trouble in China and then ramp the pair and Index futures in to the US open, that suits me fine for now.

The Index futures intraday charts are in line right now. The USD/JPY which tested as low as 102.15 overnight has an intraday negative divergence, it may just stay as an intraday move or build in to a larger divergence , the difference is we'd be running out of time to establish core shorts.

I'm going to let a.m. trade burn off and get a feel for the open of the new week, but most of my focus will be on looking for setups for longer term trending trades, while we still have time.