Daily Wrap

So we are seeing increased volatility, this is one of the signs that we find between stages as they transition, , the break out from a base, the increased ROC to the upside at the end of stage 2 as the uptrend moves to a top and the increased choppiness and volatility shakeouts of stage 3 moving to stage 4 or early in stage 4 and the capitulation or selling climax at the end of stage 4 moving back to a stage 1 base.

The averages closed down pretty decently, SPX-.90%, NASDAQ COMP -1.38%, NDX-1.35%, R2K -1.62% and the Dow -0.78%.

Take a look at the similarities between the averages in many ways on daily charts.

 Dow 30, from the February cycle, stage 1 Base, stage 2 Mark Up, stage 3 Top, stage 4 Decline, I labelled "4a" as the Volatility shakeout and in this case, "tb" in yellow represents yesterday and today's candlestick pattern which is at or very close to being at a "Tweezer Bottom" for all of the averages. This is an upside reversal candle and even though we didn't have much to go on as far as hard , objective evidence during the late afternoon, my gut feeling based on some of our psychological concepts was that we'd get a bounce to set up shorts so no need to chase anything today.

The candlestick pattern has no implied target, just a change in trend, it can last a day, it "could" last 6 months, candlesticks don't offer targets, but depending on the timeframe you find them (for instance a 5-day chart would suggest at least a 5-day reversal) sometimes you can get a feel.

The NASDAQ Composite, all of the same stages, but stage 4 broke earlier in the NASDAQ than the other averages and it retraced the entire February cycle/rally which no others have done yet. "$a" or "vtso" is the volatility shakeout seen as important tops are broken, this is a shakeout of new shorts.

Again today and yesterday form a "Tweezer bottom" which fits well with my expectations near term and for short trade set ups as we haven't entered too many trades recently and I'll show you a better example of why, although I think you know.

 NASDAQ 100, I didn't label the stages, but they are the same as the COMPQX above, also a "Tweezer bottom" reversal pair of candles to the far right at the yellow trendline (support).

 The Russell 2000's 4 stages, it had its VTSO already at 4a and "4c" is the continuation of the downtrend or the decline stage.

Stage 1 to early stage 3 is where we want to trade and we had perfect signals for an entry at stage 1 right to the very low of the base, the stage 3 top's chop is a tough market to trade and easy to take substantial losses in, we really want the meat of trends, not the slop of chop.

The SPX, other than the 4 stages I want to point out a head fake move and what they do, it's at the yellow arrow where price breaks out above the range and then the breakout fails, price almost immediately heads lower to break to stage 4, this is the momentum head fake moves create, 4a is the shakeout of the new trend and TB again is the "tweezer Bottom".

As far as 3C signals...

 Some of the good, bad and ugly with the ugly of the DIA 15 min , the 22nd was when I said we'd want to be out of long trades with the 11-15th being the entries, if you look back to the archives on the far right side of the site, you can see we were entering longs around the 11-15th and exiting around the 22-24th, the lateral trend after that is choppy and messy, the 3C divergence just gets worse and worse.

Closed to home on a 5 min chart, the 22-24th are again highlighted as distribution and there's no point in staying long any longer, the signals in early May are quite negative, not enough on all of the timeframes to enter shorts and have good timing, but also no time to be long.

The recent activity of the 5 min chart is ugly, we can easily afford a bounce to short in to with charts looking like this and I'll say right now, the probabilities are about 95% that the charts look even worse in to a bounce making it easier to figure out which asset looks like it's offering the best entry with the best probabilities.

 As far as the early evidence for a bounce, I'd say the 2-4 p.m. area showed us we'd see positive divergences first with the TICK data, then the actual 3C divergences showing up, there still needs to likely be some lateral trade or reversal process and stronger positives, maybe out to 5 mins, but these should be used in my view to enter shorts in size, something we have luckily been waiting on as any entry earlier than now would have just been a chop-fest, open risk and opportunity cost.

 IWM 15 min is ugly as it confirms the downtrend in the IWM, but notice how 3C is always in a leading negative position under price.

The IWM saw a leading positive divegrence develop out to the 2 min chart, this was predicted before there were any divergences based on market behavior concepts and TICK data.

The QQQ's stage 3 is not an area you want to be trading, however it gave good signals and we got off some good QQQ trades in leveraged ETFs and puts. The most current divergence is looking very ugly.

Essentially the Q's are already in a downtrend and just saw a counter trend bounce, that's it, it's as simple as that actually.

 The Q's from the 4/11-4/15 base and the 22nd exit, after that it's downhill in divergences and lateral chop, not a good trading environment. However with a bounce and signals as bad as they are, this will likely fill out the few charts left I mentioned Friday that need to jump to the negative side.

 QQQ 3 min and a leading negative, the orange stage 3 box is just a chop-fest, THIS IS EXACTLY WHY I HAVE PUT OUT SO FEW TRADE IDEAS, THE SIGNALS HAVEN'T BEEN THERE AND WE CAN SEE WHY.

 QQQ 1 min intraday positive, it's not enough to say there will be a bounce for sure, but it's a start on a strong gut feeling that I had before we had anything objective to point to.

 SPY 10 min is one of the uglies...

Recent 15 min deterioration has been pretty amazing as well

Earlier only the 1 min SPY was positive, by the close the 2 min was, this means there's some migration and the set up for assets like NFLX to short in to strength are likely to set up for us, Let the trade come to you on your terms", the timing factor is just about there now.

And the TICK data on my custom TICK indy, the last 2 hours see improving intraday breadth.

As for the VIX, it has been used yesterday to lift the market, today I suspect it's being accumulated as it was yesterday as well as the smart guys know what's coming, they'll want to pick it up as cheaply as possible as we would too.

 VXX intraday slam down on the gap up yesterday and on the move lower today someone is accumulating in size, which is already there.

 The same thing on the 3 min chart, the lows were scooped up as the leading positive divegrence is evidence.

And a nice clean 5 min trend of exactly the same.

The is the 5 min trend in context, this is the "flying" divergence I've been looking for in the VXX for months.

And on a 15 min chart, to the left there was no trade as we had no divergences, now it's a different story on a powerful timeframe with a strong divergence.

Leading Indicators...
We'll be seeing some very short term that go with this afternoon's gut feel of what to look for (trades coming to us on a bounce off today's lows) and some longer term stuff where the highest probabilities are, the two work together as the trades we enter are in line with the highest probabilities.

 HYG hasn't been an effective lever to manipulate stock prices recently, but today note the last two hours, it leads the SPX (green), just like the 1-2 min 3C divergences.

We also see High Yield Credit leading right at the close vs the SPX. another short term upside signal, but not a large one, at least not with what we have so far that all started from a TICK chart.

 Here I have inverted the SPX's price so you can see VXX's normal correlation with the SPX, you can see recently it has been monkey hammered to try to lift the market yesterday, I suspect today was more about accumulating on the cheap.

 TLT (20+ year treasuries ) that I just updated Treasuries Update & TLT / TBT Trade Update it looks like the last two hours there was a move out of safety and ;likely in to risk assets as we saw the positive divergences in the averages and a negative in TLT at the very same time, practically the same size.

 And TLT vs the SPX underperformed at the very EOD, the last hour in fact.

Sentiment puts in a VERY clear short term positive signal vs the SPX (green).

However the longer term trend in sentiment is screaming stage 4, new lower low coming...

Our other Sentiment (pro) indicator is also saying short term bounce that sets up shorts.

As are yields, they called a top right before this signal(red).


Even though futures are still taking it on the chin tonight, I see positive $USDX divergences and negative Yen, that should lift USD/JPY and thus index futures and I suppose that's how we'll arrive at our near /short term bounce which is only being used as a timing marker to enter short trades in some size, FINALLY.

 $USDX positive divergence.

Yen negative divegrence, this would send the $USD/JPY higher and index futures should follow.

I'll check futures later tonight.

NFLX Follow Up

As many of you probably remember I have liked NFLX most of April for a long trade, from the Monday, April 28th NFLX Trade Idea Update

This is a chart from that post with its commentary...

"This is NFLX taking out April 15th support today, this would be a probable head fake move, I'll show you why in a moment, but this is why the charts weren't looking quite right for a long entry. Short term charts weren't looking right, they were more than likely waiting to accumulate on a head fake move and that would be starting today or at least wouldn't start until stops were hit by breaching the April 15th support where stops would likely be lined up as well as shorts, that's a lot of supply."

While we didn't get the typical base or rounding process of a head fake move, we did get the head fake move as price broke $300 even with an intraday low of $299.50.

Also from the same post, "I will tell you now that I'll be one of the first to short NFLX on a bounce or add to a core short, but I also think the bounce trade in NFLX will be well worthwhile and likely have much better relative performance than the market as well as most sectors."

As much as I might have liked the long trade in NFLX, the real prize is the short and I'll show some charts.

The next day, April 29th I posted, NFLX Follow Up... with this chart and commentary...

"10 min leading positive, this looks a lot like NFLX is getting ready to make an upside move and the charts above may be giving us near exact timing for that move."

The only thing I had expected that we didn't get was a wider foot print off the 4/28 lows, as far as the definition of a head fake though, the $299.50 low took out stops / orders at $300 and they put them right at the exact centennial number as we saw with AAPL yesterday at $600.

Now, looking forward...

This 30 min chart is probably as strong as the NFLX long trade got as far as timeframes. 

Lets see where it's moving to now as there are some interesting areas that could provide low risk, high probability entries and at better prices. I don't see anything right now that makes me want to take a NFLX long trade so I'm looking for the short set up.

 This 15 min chart shows the first accumulation area and run and the second which was the one that hit $300 stops in a single day with an intraday low of $299.50, but as mentioned before, we just saw all the volume exactly at $600 on AAPL, that's how powerful these whole numbers or centennial numbers are, the mind just gravitates to them.

There's an obvious negative divergence that's in place right now on this chart.

 The 10 min chart showing an in line uptrend to the far left, distribution at the February top and accumulation in to the April lows. This appears to be still leading positive and in position it is, but a closer look reveals...

A relative negative divergence and at the highest point on the open today, we move to a new leading negative low (there were earlier ones on the 1st and 2nd).

 There are a few interesting price patterns that traders will pick up on and that is how head fake moves are set up, one could be a rectangle range in the white horizontal trendlines, another could be a bullish Ascending Triangle which has the proper preceding price trend, the proper size and shape and the proper volume.

Either way you choose to draw the trendlines the break below both the bullish consolidation/continuation triangle or the bullish consolidation/continuation rectangle (rectangles, like symmetrical triangles have no directional bias like an Ascending bullish triangle, rather they depend on the preceding trend to define their bias ) which is bullish because the preceding trend in to the triangle was up.


I drew in a couple of scenarios, we'd need to see intraday charts like 1-3 min, maybe even 5 min go positive and a small reversal process at minimum although there was no reversal process on the break of $300, just formed a head for an inverse H&S bottom.

One scenario is a reversal pattern in which case 3C should tell us that there are positive divergences and that the reversal is probable and a move either back above the support line of the rectangle where shorts would put their stops, or above back in to the area of the Ascending Triangle.

The second scenario would be more extreme and thus more likely as the market tends to make more extreme moves, but that would be a false breakout (head fake move) above the resistance of the rectangle and triangle which is the same spot, about $346, but today's intraday high at $347.75 would also be an obvious and easy target.

These are the areas that we'd want to enter short positions, they let the trade come to us, reduce risk and while they move up to those areas, 3C should confirm strengthening distribution the entire time so probabilities would be higher and in the case of the scenario in which price breaks above the two resistance area, the head fake move would be a fantastic timing flag.

I'll tell you ahead of time, eve though it sounds like a reasonable plan, when price starts moving above those levels and to new highs for this trend off the lows of the 28th, suddenly it becomes emotionally difficult to pull the trigger on a short position as you are doing it in to higher and strong looking price action,  but that's why I try to anchor expectations ahead of time and let you know what some possibilities/probabilities are so when you see them you aren't put off and make an emotional decision rather than an evidence based one...

"Every fighter has a fight plan until the first punch is thrown".

 The 5 min chart showed a clear leading negative divergence at the opening highs today and just previous to that, then this leading negative divergence which is below the accumulation level of the 28th now.

 This was the 1 min chart of NFLX around 3 p.m., we see the clear leading negative at intraday highs today and a leading negative trend in 3C, however, near the close...

It's not much improvement, but for an hour it's a relative positive divergence which is what we'd expect to see as a start.

The 2 and 3 min charts didn't see the same kind of downside in 3C that the 1 min chart saw and they are left with relative positive divergences which increase the probabilities of the reversal move (starting at the 1 min and migrating out to longer ttimeframes as a reversal process in price forms) we would be looking for to enter this trade.

 2 min relative positive

3 min relative positive.

The idea here is if we get the set up that we anticipate, we enter the trade on our terms with probabilities and minimum risk, best pricing all on our side, if we don't get the set up or something is different, we just move on to the next trade or we adjust to new information as it comes in.

I don't like chasing assets and on a day like today many people are feeling that second most powerful market moving force, the emotion of greed, that's not a trade based on objective analysis, that's a trade based on emotion and there's rarely an edge there.

As the market maxim goes, "Bulls make money, bears make money, Pigs GET SLAUGHTERED".

THERE ARE MANY OTHER TRADES SO JUST LOOK FOR THE SET UP, I LIKE NFLX A LOT MORE AS A SHORT THAN I EVER DID AS A LONG, BUT THE SET UP HAS TO BE THERE.

Market Update

We have a "potential" opportunity for the "Come to us" trade, excellent entry, high probabilities, good timing and low risk.

Right now we don't have a lot to point to and say, "this set up is high probability", what we do have is the fact that we are at late stage 3 (or stage 4 with a volatility shakeout that will resume to stage 4 decline trend) in 3 different trends, perhaps more and we have market psychology concepts that have worked for these set ups numerous times. 

A lot of us already have short positions on, some of us don't, some like me do and want to add, this is what we are staring in the face right now, that potential opportunity and the set up is fantastic, but it's emotionally grueling as many of you know.

As for the update, first I'll start with what first gave away a potential trend change or at least a halt to the market downside, the NYSE TICK data which I encourage you to use with trendlines as we get some great early signals there before price even thinks about showing us anything.

This was the downtrend in the TICK data and the early warning of the first higher low and higher high above the channel, now we have a channel that's rising and hitting extremes at +1000, about what we hit on the downside, -1000.

Now I'll give you a look at probabilities using the QQQ...

 This is the intraday QQQ, which with AAPL, was one of the first to put in an intraday positive divegrence.

We are getting some migration of that divergence now to the 2 min chart (this is a process, the stronger the divergence, the further it will move out in to longer timeframes with stronger divergences).

As far as the probabilities, like I said earlier, we had good information that the market was headed up April 11th, we closed shorts and puts and opened longs that day and the following days to the 15th. The 22nd area to about the 24th, depending on the asset was the time (in my view) to exit those positions if you hadn't already, what was to follow is chop and we had a lot of it, it's a portfolio killer, very difficult to make money in narrow bands of chop, VERY easy to lose it, THIS IS WHY THERE HAVE BEEN SO FEW TRADE IDEAS RECENTLY, THE ENVIRONMENT IS JUST TOXIC, but indicative of  stage 3 / distribution.

The divergence grew worse to a current leading negative worse than before. To think we were recently at new Dow highs while this is what the underlying trade action looked like.

This is the QQQ 30 min chart, the February cycle was ended first in the Q's, it entered stage 4 first and retraced just about all of the Feb. cycle, and as to the bounce from mid April, look at the 3C divergence, leading negative.

The probabilities are firmly planted to the downside, the short term charts may give us enough of a lift to have the short entries come to us rather than chasing them and getting shaken out of the trade.

As for the other averages...

 The DIA with the late day distribution we talked about and an in line trend intraday which is now starting a positive divegrence.

I don't have anything positive on the IWM right now, just in line. Really the signals we have right now are no more than consolidation at best. However, it's the market concepts and psychology that give me some faith that these divergences will mature and the probabilities will be with excellent trade entries in assets like AAPL, a new NFLX position, all of those charts I saw on Friday and said, "Almost, but not quite".

The SPY 1 min from negative late yesterday afternoon as the VIX smash couldn't lift the market any further and in line on the way down to a positive developing now.

As for Index futures, NQ (NDX) is leading positive, ES and TF are in line which is better than the leading negative they were flashing earlier.