Daily Wrap

We didn't see the high volatility I expect, but we did see increasing volatility today vs. Friday with much of that coming on last night's futures open which carried over to today, keeping the concept of the end of day 3C signals picking up where they left off on the next trading day, even over a weekend as the signals were negative as posted Friday afternoon.


The market in most cases couldn't even manage to close above Friday's lows and the SPX was unable to hold on to a green YTD close with the SPX closing down -0.75% compared to Friday's +0.28%, the Dow down -0.95% which is 3x Friday's +.30% green close, the NDX -0.78% vs Friday's -.10% and the R2K down 0.58% vs Friday's -0.41%.

You saw what I saw today as I brought you all the events intraday as they occurred, one thing I did notice was the late day 3C negative 1 min divergences did fall right around the level of resistance from Friday's lows, for instance...

 Note the SPY's resistance from Friday's lows and where the SPY just broke above that level in the afternoon, that's the same time the intraday 1 min went negative...

Here's the SPY 1 min intraday going negative as I posted this afternoon. I mentioned two possibilities, one that the divergence was going to become a larger one with the 1 min sending it toward its lows to accumulate, the second possibility that the divergence that was being built most of the day but fairly weak in most averages was being run over. This introduces a third possibility, the divergences were used to hold the market in place, to stave off further decline or downside, but just didn't have the buying needed to cross resistance at Friday's lows and as such we saw distribution at the resistance level.

I'm afraid we won't know the answer until we get more data, but these are short term day to day moves which I warned about becoming too caught up in, what really matters is the gravitational pull on prices represented by the strongest divergences and the highest probabilities such as...

60 min SPY is where the probabilities or the magnetic pull is, down.

As far as leading indicators...

 High Yield Corp Credit which is a lever used to ramp the market has been seeing weakness over the last week, we see it failing to keep up with the SPX (green) today on an intraday basis.

 The 2 min chart shows there was some apparent accumulation along the same timeframes as the market averages, 2 min in HYG so we'll see if that continues, but the larger trend in which HYG has supported the market through the February rally is deteriorating badly.

The 10 min trend from accumulation to in line to distribution, this is why I can't see HYG being of much help other than on a very limited basis.

FCT is our professional sentiment indicator and it is clearly leading to the downside, this is not retail, but pros vs the SPX in green.

 Again the flight to safety in Bonds has sent Yields lower , one of my favorite Leading Indicators as they have called nearly every major reversal, this is leading negative as yields tend to pull prices toward them.

The bigger picture looks like this...

Yields in line at green arrows and leading the market just before the first downdraft and a significant dislocation now in the short squeeze area, this is one of the largest dislocations in Yields since we started using the LI layout.

 I inverted SPX prices (green) intraday so the VXX correlation could be seen, VIX outperformed the SPX today as you can see.

 We have a short term slight negative divegrence in VXX 5 min in the red box, however (and this is part of the reason I chose UVXY equity long over VXX calls)...

The longer term divergence on a 15 min chart is leading positive, why would they be collecting a large position of protection during such a strong rally the last several weeks if they didn't know something, the UVXY long position allows me to ride that trend out without worrying about options time decay.

 As you can see Spot VIX was bid today for protection as well as it gapped over recent resistance.

The long term TLT (20+ year Treasuries) vs. inverted SPX prices (green) on a 30 min chart also show a long pattern of accumulation of a flight to safety asset while the market was rallying in February.

Very short term the 1 min TLT has a negative divegrence in it much like the market averages we saw today (the two trade opposite of each other), however...

 The longer term TLT chart is in line on a strong trend of accumulation in the Flight to Safety trade, this WHILE the market was rallying, again, it seems very clear someone knew something just as we suspected before the move even began.

 5 min 30 year treasury futures are in line on the 5 min chart, I'd like to see them pullback to enter a long term primary bull position, but I want to do it on a pullback if it is still possible.

 Today we see USD/JPY being held back at resistance around $101.50, well below the former support last week of $102.

And the USD/JPY is acting as the leading asset for ES futures as seen in purple, they are nearly tick for tick trading with the carry pair.

I'll check futures indications later tonight and see what we have, there are clear changes again in character which leads to changes in trends. I do expect volatility to pick up, but that knife cuts both ways.

The Dominant Price/Volume Relationship among the major averages today was Close Down/Volume Down which is strange considering the higher volume day all around, but it was dominant, for example, 20 of the Dow 30, 70 of the NASDAQ 100, 819 of the R2K and 350 of the S&P-500.

This relationship has the least influence, almost none, but it is interesting given the overall higher volume today. This is the hallmark relationship of a bear market, but otherwise it rarely has a next day implication like some of the others do.

Important Update

We have seen a positive intraday divergence growing most of the day in the 4 major averages, some pretty weak, the SPY probably the most respectable. You are familiar with the concept of migration, when a divergence moves from a shorter duration timeframe like 2 minutes to appearing on a longer duration timeframe like 3 and then maybe 5 minutes,  this is telling us that the divergence is gaining in strength, we haven't seen a lot of that today.

The other concept is all new divergences will start on the shortest duration timeframes first like 1 min. For example, if there was a 3 min positive built up on say the QQQ intraday and then suddenly the 1 min chart started going negative, that would be the first hint we have of distribution of that divergence that had been built most of the day. What we don't know immediately is "Why?". In many cases it is the divegrence failing and those who built it removing their money from the market as new information they have learned is discounted. A second possibility is just like with GLD but on a much shorter timeframe, the longer term charts (say GLD 60 and SPY 5 min today) are in need of a pullback to create a larger base (as in the GLD 30 min negative to pull it back to increase the size of the 60 min positive or perhaps a 1 min negative SPY to pull it back to increase the size of the 5 min positive).

We simply don't know what is behind the distribution, but it always shows up as a new divegrence on the earliest timeframes first. If that divergence migrates and destroys the 2 min positive that was in effect and replaces it with a negative, we have a better idea that the positive divegrence that was being built today is being run over, it would likely not trigger. However if we start seeing accumulation among intraday charts as price pulls back due to the 1 min negative steering divegrence, then we know it is likely that a larger "W" like base is being formed.

All we know right now is that there are a couple of fairly severe 1 min negatives that have just really made their mark on the charts.

 SPY 1 min leading negative, it has caused some damage on the 2 min chart already, the 5 min chart remains intact as it was seen just 30 minutes or so ago.

 1 min QQQ is even worse now since this capture, but it has not effected the QQQ 2 min chart at all yet.

The IWM 1 min has also seen more deterioration with the 1 min leading to a new low on the day, the 2 and 3 min charts haven't moved much, but they were never impressive to start with.

DIA 1 min leading negative has done some damage to the 2 min chart, the 3 min chart remains as it was.

I was looking at Leading Indicators when I saw this so I'll update them as well.

Market Update

There's not a whole lot to do right now unless you want to go long, I have a large tolerance for risk and I wouldn't dream of it, however as this move rolls over, then there's lots to do so until then it's monitor things., look for set ups, manage open trades, etc, but I really try to be patient and wait for odds and probabilities to realign.

Earlier I said there were quite a few differences between relative performance or the divergences put in place today. First I think we can probably rule out a larger "W" divergence, it doesn't look very likely.

Next I want to show you the strongest timeframe for each of the averages so you get an idea of the relative performance for this jiggle/bounce.

First I'll use the Q's as an example showing the strongest timeframe and then the very next longest timeframe and you'll see the one after the strongest is not a contender, it doesn't have the strength so if 3 min is the strongest, that will be it, the 5 min won't be much of an influence.

 QQQ 2 min is the strongest timeframe, the divegrence here looks very strong, but consider it's part of a day and it's only a 2 min chart, in reality it's not very strong at all.

Now the next timeframe after 2 min ...

 QQQ 3 min is in line more or less, there's no positive divegrence here at all, so you can see where the strongest timeframe is and when divergences stop dead in their tracks and get a feel for the relative performance moving forward the next several hours.

IWM 3 min is the strongest, still not as clear as the QQQ 2 min, but a slightly longer timeframe so I'd put these two on par with each other.

The SPY (as mentioned earlier) has the best looking intraday divergence and this is a 5 min chart for the SPY that is leading positive, it should see the best relative performance.

Now the DIA which was one of the weaker earlier...

 This is a 2 min positive, not that strong and not that big of a divergence, what I thought I'd also show you is the roof on this move, for instance take the stronger 5 min DIA chart below...

I don't know how far the DIA 2 min positive can travel with a leading negative 5 min chart that is a much stronger divergence and much stronger timeframe as well as a much larger duration divergence.

I hope that gives some perspective.

Gold and Gold Miners

I have short positions in both gold DZZ (2x leveraged Gold short) long and Gold Miners via DUST (3x leveraged short Gold miners), as you probably noticed today both GLD/gold and GDX/gold miners popped to the upside putting the DZZ long position at a -4% loss (which is a partial position that has room to add if I found a better entry that still had strong 3C signals) and the DUST long is at a -3.13% loss, both very acceptable for 2 and 3x leveraged positions for me.

However I want to keep an eye on these positions as I still don't know what the correlation between gold and the market is going to be as it has changed twice and this could be a thrid 180 degree change, but 1 day does not make a trend.

Here's what I have on both GDX (Gold Miners) and the related DUST (3x short Gold Miners) position as well as GLD (Gold) and the related DZZ (2x short gold) position.

 I'VE TALKED AT LENGTH ABOUT HOW I FEEL ABOUT GOLD LONG TERM, I LIKE IT A LOT, BUT I THINK IT IS STILL WITHIN THE BORDERS OF A LONG TERM BASE.

The bull flag of the last several days is very apparent, technical traders would see that if they were trading GLD, the pop today is an Evening Star, a bearish reversal star as there has been no ground gained between the gap open and the current price, it's a sort of loss of momentum and that is why the candle formation is considered a bearish reversal candle. Also note the increasing volume which in my experience makes these reversal candles about 2x more likely to work.

This would be an ideal head fake set up, just because of the very obvious bull flag which traders expect to break to the upside, leaving them holding the bag works as a bull trap head fake for downside price momentum.

The long term 60 min chart shows the large base I mentioned above and its range, there has been significant accumulation recently and we see that toward the end of a base, but my view is that GLD is going to pullback to the bottom of the base and maybe even run stops on a head fake move before making a breakout to stage 2 mark up so I'm short to sub-intermediate bearish and intermediate term to long term bullish gold.

 The 30 min GLD chart shows the negative divegrence that I think is part of pulling GLD back to the lower end of it's longer term base.

The 15 min GLD chart (as well as others) all confirm the same signals, in any case, I can't see GLD moving much further north with 15 and 30 min negative divergences, it has to in my view, at least pullback to build new strength, I just happen to look at the big picture and think that this happens at the bottom of the range near $114.

 The 5 min chart as far as timing shows the recent bull flag as being in a negative divegrence and today's gap up did not see any 5 min confirmation so it doesn't appear to be that strong, this makes the head fake scenario more likely.

The 3 min chart shows a positive divegrence Friday afternoon, however at 3 min vs 15 and 30 min negatives it didn't appear to be much of a threat, you can see it moved to confirmation of the gap, this is where we look for any new divegrences forming intraday.

 Both the 1 and 2 min (migration) are negative intraday, I'd think that the 3 min will be next to see an intraday negative, if that happens I may add to the DZZ long or a GLD short/put as this would be excellent positioning, but I want to see higher intraday probabilities first.

As for GDX (Gold Miners), they are somewhat similar to Gold overall.

The long term 2 hour chart also shows a base with recent increasing positive divergences, but still within the range of the overall base area.

 Like GLD, the 30 min chart is calling for a substantial pullback, again I suspect toward the bottom of the range which would be around $20.40 and then there may even be a head fake move in the area consisting of a run on stops below the $20.00 area as support is so long and well defined and $20 is a whole number where stops would likely be accumulated.

The 3 min GDX chart didn't have the same Friday afternoon positive, but it does have a negative in to the gap up as you can see above.


DZZ 2X SHORT GOLD

 DZZ's 60 min chart is leading positive after a negative divegrence and downtrend (opposite GLD) , the positive is impressive, I can't see today's gap down nullifying such a strong positive, although it is not a huge divergence in duration which makes me think it is along the lines of a swing trade plus, or sub-intermediate uptrend as GLD pulls back to it's lower support.

 The 15 min chart confirms not only the negative and the downtrend, but the leading positive divegrence.

 Intraday on a 2 min chart there's no confirmation of the gap down.

For these reasons I chose to hold DZZ long and may even add to it if I see charts that just can't be ignored, the larger picture looks very solid, the short term charts from this point are more about timing for me than anything else.

DUST 3X SHORT GOLD MINERS...

 Like DZZ, DUST has an impressive 30 min cycle from distribution to downtrend confirmation to a leading positive divegrence and there's confirmation between all 4 assets as they are all correlated (GLD, GDX, DZZ and DUST).

The 5 min DUST chart looks like it is ready to make its move, this is why I closed the former NUGT long and replaced it with DUST, again no damage at all from today's gap down.

The intraday chart actually looks pretty good as it is seeing a new leading positive high on the gap down, I'll be watching this, I'm not sure I have room to add, but I suspect that both DZZ and DUST will be ready at the same time, for now I'll hold both longs open.

Quick Market Update

Remember, volatility, a quick rumor and denial sent the market up on a spike, but no follow through, I expect that is because the intraday reversal process is still taking or was taking shape. I'd say it's probably about mature right now and while I hate trying to give targets, I'm guessing a target somewhere around Friday's close is not unreasonable. There's no accumulation behind this intraday base beyond what I've told you about so it's not the start of anything new, it looks to be the typical (more normal) market bounce or jiggles, but volatility as I said before can make things look larger than they really are in the mirror.

In any case the reversal pattern looks a little like an inverse H&S bottom, you could pull a price based target from that, for the SPY that would be about $186.50.

IF WE GET SOMETHING ALONG THOSE LINES, I'D BE CONSIDERING POSITIONS SUCH AS VIX CALLS, MARKET AVERAGE LEVERAGED INVERSE ETFS LIKE SPXU, SQQQ, SRTY, SDOW AND OTHERS LIKE FAZ, TECS, ETC. I'LL LOOK AT THESE IF AND WHEN WE CROSS THAT BRIDGE.

VXX / UVXY

I wanted to show you a few charts for the Short Term VIX Futures, VXX and the 2x leveraged UVXY; a few of you with different positions inquired about them today.

 This is the 1 min intraday UVXY, I have a long equity position in the trading tracking portfolio in UVXY that I chose over a long call option in VXX which would have more leverage.

As you can see we not only have a longer term large positive divegrence (as seen earlier) in VXX and UVXY, but also a positive divegrence Friday afternoon which has run in to this morning and sent price nearly vertical in to what I'd call a parabolic-type price move. You can also see the slight negative divegrence which makes sense with what we are seeing intraday in the market averages considering the two trade opposite of each other.

With a move like this in UVXY of 14 points or more since Friday, I'd be hard pressed not to take near term expiring calls off the table, there's good momentum to sell in to and it should be a fairly nice profit, if the expiration is close at hand, even March monthlies. The way I see it, with a parabolic price move, they are almost always going to fail or see a significant pullback so why not take the gains and look for the next entry and do the trade all over again and double your profits? Options aren't like an equity long, they lose value the longer you hold them due to time decay of the premium so just expecting higher prices in the future (before expiration) doesn't always mean you'll end up with a better gain so I often will take these quickly and just look for a new area to open a new position.

I purposefully chose a long (2x leveraged) equity position in UVXY because of the large positive divegrence, I wanted to be able to take advantage of that (the position is up about +10% right now) without having to worry about trading in and out of an options position. Generally the longer the trade or more profit potential, the less leverage I want to use, one reason is just so I don't burn myself out trying to trade around an otherwise trending position.

 This VXX (same as UVXY except no leverage) 15 min chart shows a long term positive divergence as the market was rallying, usually you wouldn't expect to see that but it seems someone has been building a lot of protection against a downside move as they too didn't expect the Feb. rally to last. Because of this, I feel comfortable that VXX/UVXY are going to trend for a longer period, even though they'll have pullbacks and corrections along the way, I don't need to worry about time decay like I do with options and I can let this trade work and trend without too much hassle.

This 30 min chart is another reason why. If I see a great set up for an options trade I may take that, but in this case where it looks like there's a significant base with a lot of accumulation, I think the position has a lot of upside and I'd rather just let the position trend.

So as you can see, I';d treat two different positions very differently, the giveaway for near term expiration call options for me today is price, it's very vertical and that usually gets corrected so I'd likely have taken some or all of the call position off the table, wash, rinse and repeat for another gain.

Quick Update

There's an increased ROC of 3C on the upside of intraday charts, it's most noticeable on the SPY 1 min, but I thought I'd point it out on ES (SPX e mini futures) 1 min chart...

ES 1 min with an increased ROC of 3C (positive). From the looks of price or the "reversal process" as just about every trend has one (even an intraday bounce), there are two possibilities, the market calms down and comes down toward intraday lows and makes a larger "W" like base or this "U" shaped base is complete and ready to go. In the first case that would make for a stronger bounce, still nothing of concern, but perhaps something that can be used for tactical entries or perhaps something that might make you consider taking some positions like VXX calls off the table or maybe market average puts like QQQ puts that have a near term expiration off the table.

If it is the second and this is ready to go, then we should simply see the move start, with this much time left in the day we'd likely see the end of the move as well, this may provide some entries in to new positions like market average puts or long inverse ETFs, the size of the base really does have some proportionality with the proceeding move.

More as it develops, I'm concentrating on positions that look viable or may be soon that offer good entries and low risk.