Daily Wrap

I don't think today's market action which was a lot more bearish than prices reflect, should be any big surprise. Early this morning the first thing I posted was ,Overnight Futures Look Nervous and they did.

The Most Shorted Index I use (of Russell 3000 component stocks) tracked the R3K nearly perfectly,

The Most Shorted Index (red) vs. Russell 3000 Green.

One of several things I noticed and commented on was the failure of the short squeeze, which in the recent past would easily last through the day, today it was showing cracks by 11 a.m. and we were in a QQQ put by 11:30 which returned nearly 50% for 4.5 hours. Even our late day SLV put trade is in the green double digits now, although as you know, I think that's only a pullback and precious metals and miners are headed much higher which tells us something about what the market is really afraid of, being PM's are bought on inflationary fears.

Additionally the VIX which use to be a key lever in hammering the market higher (by pushing the VIX lower), barely moved, that goes for VXX, short term VIX futures and VIX futures.

Here the VIX outperforms the SPX (prices inverted) by a hefty margin.

I'd say, "Another lever breaks" and even though a short squeeze can move a market, it can't support one. Think about some of the past short squeezes which included the February rally/cycle, the move from the bear flag of mid-May to recent prices and the F_O_M_C knee jerk reaction which I think we can clearly call a knee jerk reaction now that the SPY, the IWM, IYT and DIA have retraced ALL of the knee jerk move, only the QQQ has failed to do so as of yet, but it did leave a shooting star like candle today on heavy volume and has moved all of -0.14% (loss) over the last nearly 3 trading weeks (2-days shy), leaving a wake of small bodied (bearish) candles over the same period. The Dow ended the day with the worst performance in 5 weeks.

While one average after another has taken the role of leader or laggard, the disconnect between them is so great, it's nothing resembling normal, healthy rotation, as an equity bull that would be throwing up red flags alone (take today's Dow and SPX nearly in line with the R2K performing worse at 1% down which is pretty close to normal, but the NDX down -.14%, even though it was the clear leader earlier today on the squeeze-that's not normal).

The lever of VIX hammering is not only not working, but as the market saw a short squeeze early today, it failed to budge the VIX, the same can largely be said about VIX futures and short term futures.

This almost makes you wonder how bad the market would be if Yellen hadn't said some of the things no one expected her to say, like there's more or less no bubble. With the VIX acting like this the market is either scared to death that she is behind the curve or really needed her to say that lest they have a drop on their hands they can't slow down from the NY F_E_D.

The point is, this is VERY unusual VIX behavior and we know what SKEW has been doing since the FOMC.

Transports have fell -1.5% the last 2-days and ETFs of the major averages are underperforming the underlying, which is interesting because while the ETF's try to mimic 1-day performance, it's 1-day performance. You can often get a feel for how traders feel by seeing the difference between the ETFs they trade vs the underlying which is of course the weighted average of all the component stocks.

Treasuries (the Flight to Safety Trade) were bid today sending the 10-year yield lower which is one of the biggest signals I have posted recently that has been consistent in calling market tops (and bottoms when yields are up) with the TBT short trade now working and in the green.

All but 2 S&P sectors closed in the red and the green ones were, Healthcare barely green at +0.07% and of course the flight to safety sector, Utilities up +.30%.

The Carry's saw USD/JPY pump and then dump, AUD/JPY (the recent leader for the market) just dumped and EUR/JPY was pretty flat as it has been pretty much all year.

There are quite a few nice looking trades setting up, I don't want to chase any of them, but a few include SCTY, PCLN, NFLX, AMZN (looking interesting), GS, HPQ, UVXY which I almost wish I had gotten involved in earlier today, but I don't think it's quite there for a swing trade.

I'll be adding more and more as well as Trade Ideas as the alerts for the candidates like the ones above, start to trigger.

EOD Market Update

I think we've just seen the fade of the F_O_M_C "knee-jerk " move, however the concept is not that the move is faded, the concept is that the initial knee-jerk is often the wrong direction and the charts/price bear that out in the coming days.

In any case, lots of damage done today, the 11:30 QQQ put position is double what I last posted, at +45% at last look,

Today's QQQ put trade, at +45% now.

This is ironic because yesterday I was looking at SQQQ long (3x short QQQ) and felt the only thing it needed was a head fake move which is what we got today.

 This is the 1 min QQQ oversold bounce signal I mentioned, but so far, it's just here.

The 2 min chart is hitting new leading negative lows with no positive divegrence

As is the 3 min chart.

The SPY shows the same thing on a 1 min chart, however...

 It shows the same thing on a 2 min chart at a new leading negative low.

As does the 3 min chart with the FOMC in yellow on the 18th, all, but totally retraced now.

And while not showing the true scale of damage, it's the near term I'm interested in as far as timing and this 10 min chart shows a clear break in to the FOMC as was suspected with no 3C confirmation of the knee jerk and distribution signals since along with numerous other signals.

The 1 min IWM is in line, no positive divegrence.

However vs. the FOMC knee jerk, which is interesting because I showed these charts of TF 15 min and IWM 15 min last night, distribution really started heavy here yesterday as can be seen above or in last night's post, What Has Happened Since the F_O_M_C

Right now it's just a matter of finding the right stocks in the right place as many are on top of right shoulders of larger H&S patterns.

More to come after the close...

MCP Trade Set-Up

In yesterday's MCP update, MCP Update, Looks To Be Getting ready Again I had said,

"I'm looking at the near term charts that have led to some decent trades in MCP including a call trade on a head fake move which is what I'd like to see again to set up another call, as for the MCP equity long trading position, it's already at full-size from the last head fake move that broke under the psychological level of $2.50....Before each of the last two decent price moves there has been a shakeout of stops, the $2.50 level being the bigger and more important, so I may set some price alerts for a break below local support as a possible entry for a new call position....I'll be setting price alerts under local support in the areas of $2.73, $2.65, $2.63 and probably down to $2.50 and  $2.44 just in case, these are areas where I'd be interested in opening a new call position, if I weren't already fully loaded with an MCP equity long position, I'd consider using any move in those areas (as we have had a head fake before each of the last two moves, the last one not as significant as the first) to start or fill one out."

It looks like we weren't far off at all, I had some triggers earlier today and this is what we are looking at, which I think will set up a decent call position while the long equity position is still intact, but this may offer nice positioning for those who may be interested in MCP long or want to fill out a partial equity long position in addition to another call position that seems to be setting up.

Charts...

 As far as longer term MCP, here's the stage 1 base area.

This is today's 1 min chart, it did break local support as expected yesterday, this helps set up a decent call position at a discount as soon as the 1 min chart migrates to the 2 and 3 min charts so I assume we will be seeing a "Call trade" as well as equity long for those interested, within the next couple of days.

As for the 5 min chart, still incredibly strong which is one of the reasons I think MCP is close to a major move to the upside well beyond the trades of 6 and 12% on 1-day moves.

And the 15 min positive at the last head fake areas.

Just one to keep on the radar.

QQQ Put Trade Management

Decision time, you should have at least a +20% gain from the earlier QQQ puts entered today on the short squeeze move, Trade Idea: Short Term Options (QQQ July 19th $94 Puts)

Today's gain on the 11:30 trade idea...

You can take the gains and look to reposition or just sit still, I think this is the moment of choice though as far as near term/intraday goes.

The TICK Index has been hiotting -1400 readings, lots of selling indicated by intraday breadth. This also brings up short term oversold conditions and I'm seeing some evidence of that.

My custom SPY/TICK indicator is improving slightly.

However this is the main evidence, the 1 min QQQ, although severe damage was done here today, there's a small relative positive divegrence building, likely for an oversold bounce from the TICK readings above, thus the Puts are probably worth as much as they will be for the rest of today, but longer term (they are only July expiration so not that long term), I feel they have a decent bit to add to that gain, especially considering where we got in to them.

 More intraday damage, which is important for timing reasons as we already have the bigger picture damage and timing is found on these shorter term charts.

For instance a 15 min QQQ chart showing the bigger picture damage, I believe the put position can add to the gains as we see a move to the downside resolving the larger 3-month range head fake as well as the FOMC knee jerk moves.

And compare the QQQ 30 min with the last relative negative divegrence retracing the entire February short squeeze rally and then compare to the current price level and stronger leading negative divegrence.

I'll hold the QQQ puts for the time being, but if you are looking for a quick 1-day double digit gain, now's the time to think about exiting.

Trade Idea: (Short Term Spec. Options) SLV Puts

I suppose you could run the same spec. put options trade with GLD, I just kind of liked the way SLV looked a bit better, this will be a 1/2 size position with a July (standard) expiration with a strike of $20, essentially a pullback trade, which is why it's speculative and using options (thus the max risk is known up front).

Here are the charts between SLV and the 2x leveraged AGQ.

 4 hour AGQ very strong leading positive divegrence with a head fake move just before the upside reversal. This is very similar to GLD in terms of strength, which is why this is a speculative play.

I believe this also tells us what the market is really reacting to and concerned about, inflation and F_E_D rate hikes as inflation forces them in to a corner in which they really have no choice but to hike rates which has been a far bigger concern to the market than the end of QE. I of course can't say for sure, but since there's been so much deterioration after the FOMC, I have a feeling Yellen's dismissiveness of inflationary trends as noise may have the market very concerned, which is seems it already was judging by the strength of the bases in Gold and Silver, natural inflation hedges.

 SLV's 60 min positive.

However, like GDX/NUGT, I believe the PM's will pullback and this intraday 1 min SLV chart seems to paint the same picture.

As does this 2 min AGQ which I'm using as confirmation between two different ETFs in the same asset.

The 3 min SLV is in line until the recent flat range which looks a lot like a reversal process.

And we see it here on a 10-min chart of AGQ (the leveraged ETFs often show signals first or stronger).

And even out to 15 mins. on the SLV chart after near perfect upside confirmation of the trend.

I'll enter this one now, again at half size as a shorter term pullback trade.

Trade Idea (Longer Term) SPXU Long

With the pace the SPY is deteriorating, it's hard not to throw SPXU (3x short SPX) out there as a potential long candidate to play SPY downside, there's other options such as shorting the SPY without leverage or using SDS (2x short SPX) which gives you short exposure even though you go long, just like SPXU (SPY would be the only true short and has no leverage).

Here's specifically what I'm talking about, many of these charts are closer views to show the recent deterioration, much of it since last week's F_O_M_C (6/18)
, so they don't give you the true longer term picture, however I did post a complete set of SPY chart updates yesterday that give you the longer term , "Big Picture"...SPY Multiple Timeframes

SQQQ (3x short QQQ ) which is one of the trade ideas I brought up yesterday would be very similar to SPXU (3x leveraged short of a major average), the difference being the component stocks in each average, QQQ leaning more toward tech.

 This is the 4 hour, big picture view, I know it seems hard to understand, but this is a market like no other except maybe the 1920's pre-crash, except then QE was used to positive economic effect, this time it wasn't, the story ended badly back then despite the economy going from recessionary to the "Roaring 20's", I suspect this time will be no different, other than the fact the Dow 3C charts from now vs. 1929, are much worse now.

As far as the actual distribution, as you know it is my opinion that QE was a stealth bailout for the banks and large Wall St. firms who could not have exited all of their positions when 2007/2008 hit like a hurricane, for 5 years we had a bull market that went up the stairs, for 18 months we had a bear market that was more like an elevator erasing all of the bull market gains and then some, most of it in 8 months. So this chart would not be surprising as the F_E_D gave the banks a stealth bailout with QE acting as the Bernanke put, allowing large firms that commonly carry $1 billion dollar positions (single) to exit them and get short (selling and short selling both come across the tape as selling) in to market strength-STEALTH BAILOUT, the BAC net seller/buyer charts released would confirm the 3C chart above...

Note "Institutional" net selling and dates, it never stopped from 2007-2008, but accelerated around 2011/2012, the buyers? Retail in green, picking up buying activity just as Institutional clients were picking up selling activity.

However we are looking for timing, this is why I posted the Gold post, the 10-year benchmark rates post showing 2014 looking the same as 2007 and the 2011 crash as well as the logic behind inflationary fears and why the last FOMC last week would exacerbate that which is seen in the SKEW posts from yesterday.

 The 3 month range was so obvious, it had to be taken out with a proportional head fake move, we were expecting this early May and had even looked at "Hitch-hiking longs" until we got to this area where we could sell short in to price strength, that was followed by what we assumed would be the mechanism to start the move, the mid-May bear flag with accumulation (an oxy-moron that told us something was going on and it was likely a kick start to a head fake above the range).

Look at the 3C trend form A to B, but more importantly, at the expected proportional head fake range, this is a huge increase in 3C's downside Rate of Change (ROC).

 15 min chart showing how little the SPY/SPX has really moved, however there's been a lot of movement in 3C which we know is very common in "Ranges".

This is the more recent deterioration since the FOMC, but also specifically today on a weak head fake move (short squeeze), each of the last several short squeezes have been weaker and weaker by almost any measure, TICK data, price movement, etc.

Today's deterioration is extreme.

 To highlight the above statement, look at the migration/trend of the 2 min chart for the SPY today, leading negative in a big way in a single day.

And the 3 min chart's recent trend since the FOMC at the yellow arrow, this is what we suspected was a typical F_E_D knee jerk reaction, 3C seems to do a very good job confirming the knee jerk reaction and how bad it actually is as well as what it was used for. Today's deterioration only is quite impressive as well.

I'd say SPXU is at an excellent price point entry, furthermore, you can put a stop really just below so it's also at a very low risk area with quite a bit of upside (reward) potential.

GDX / NUGT Constructive Pullback

Yesterday when I exited half the long NUGT position, Trade Management: GDX / NUGT essentially booking almost all of the gains of 46.5% NUGT Follow Up, I was taking the gains off the table and leaving the initial long position open (as half the position was left in place). The idea was/is that a GDX/NUGT pullback is what I call a "constructive pullback", not distribution, but rather accumulation in to the pullback which makes for an excellent long entry or add to when the pullback looks to have ended as we have confirmation that there was accumulation of the pullback rather than distribution or "in line" which shows no divergence.

Already this morning on a pullback of only 1.22 and 3.60% (GDX/NUGT respectively), we are already seeing signs of accumulation of the pullback which is unusual as the accumulation portion usually starts as price nears the lows of the pullback target area, which tells me either there's a lot of interest in Gold miners (not seeing the same in GLD yet, in fact it has divergences suggesting a pullback as it still has not made the move NUGT/GDX have- which is interesting because miners use to lead gold and it seems as QE is phased out, that pre-QE relationship is coming back with a vengeance).

OR...perhaps the pullback is not going to be as long as initially anticipated as underlying trade and fear in the market seems to have risen dramatically in strange places, but as they say, "To make money, you have to see what the crowd missed".

THE FINAL THING IT TELLS ME IS THAT WE ARE PROBABLY RIGHT ON TRACK THAT THE MARKET'S TRUE FEAR IS THAT INFLATION GETS OUT OF HAND (if it isn't already), CATCHING THE FED FLAT-FOOTED LIKE 2007/2008 AGAIN FORCING THEIR HAND TO HIKE RATES, THE LAST THING THE MARKET WANTS TO SEE AND AS I HAVE SAID NUMEROUS TIMES, THE MARKET WILL FRONT-RUN THE F_E_D, ESPECIALLY IF YELLEN'S COMMENTS ABOUT INFLATIONARY TRENDS BEING "NOISE" CAUSE FEAR THAT THE F_E_D IS NOT TAKING INFLATION SERIOUSLY.

As for the charts thus far today...

 1 min NUGT with a head fake move this morning on the open and accumulation in to the pullback already.

We are seeing this migrate to a leading positive out to 3 min charts already.

We even have migration showing up on the 5 min chart this quickly.

I believe the pullback is still on target, at least until there's positive migration toward this 15 min relative negative divegrence which is one of the reasons I decided to take the gains in NUGT off the table yesterday.

NUGT 15 min.

Market Deterioration on this morning's head fake

At last look TICK had not moved above +500 since 11 a.m., now we are moving to -1300 readings, this morning's short squeeze was a head fake move without any doubt.

TICK Index, many, many more stocks are selling off. I'm still interested in finding the right one at the right place, SQQQ and FAZ long are still high on the list, the long volatility trade is still high on the list.

Quick Market Update

The intraday charts for the averages continue to decline on intraday 3C charts, price is following in many instances, the intraday TICK remains very weak, it hasn't moved above +600 since 11 a.m. this morning, my custom SPY/TICK indicator tells the story....

Custom SPY/TICK falling off, again TICK hasn't crossed above +600 since 11 a.m.

There are the same signals in index futures as the averages...

 Es intraday (SPX futures).

TF intraday (Russell 2000 futures)

There are signs of VIX accumulation, however if you understood the gist of the SKEW post, The Black Swan Indicator Going Parabolic and the follow up post from last night, What Has Happened Since the F_O_M_C...

The implications are crafty, you really have to think like a criminal, but very shrewd. In essence, Smart money is able to make complacency and low volatility look like the dominant theme or the norm, meanwhile they are buying protection WAY BEYOND what is available via VIX as the SKEW is deep out of the money options, thus the "Black Swan" Indicator, allowing them to continue to monkey hammer VIX to sell or short in to higher prices as the market responds to the VIX smashing which is now even tapering off.

If smart money sees a major sell-off event coming, they can go beyond protection afforded by VIX to even further out of the money puts, basically expecting a massive move, this is the Wall Street I know who NEVER show you anything they don't want you to see. There seems to be further confirmation of that today with Credit Suisse's proprietary "Fear Gauge"which is defined at the bottom of this post, but it just hit 37 which is the highest fear reading EVER while the VIX remains near lows that haven't been seen in over 7 years.

Intraday VIX Futures are showing a positive divegrence and...

As mentioned earlier, VIX, VXX and UVXY BARELY moved on this morning's short squeeze, that wreaks of demand, as can be seen above, it looks like VXX/UVXY are under accumulation, not only today, but going back a bit.

I've been burnt too many times to enter VXX/UVXY without spectacularly good reason so while the volatility LONG trade is one I am VERY interested in and if timed right could pay off huge, I'm going to sit on my hands on that one until I feel certain, but I'm also retaining some dry powder just for that trade.


Credit Suisse's "Fear Barometer" explained...

EXPLANATION:

The CSFB is an indicator specifically designed to measure investor sentiment, and the number represented by the index prices zero-premium collars that expire in three months.

The collar is implemented by the selling of a three-month, 10 percent out-of-the-money SPX call option and using the proceeds to buy a three-month out-of-the-money SPX put option.  The premium on both sides will be equal, resulting in a term commonly known as a zero cost collar.

The CSFB level represents how far out-of-the-money that SPX put option is, or in insurance terms it represents the deductible one would have to pay before the put kicks in.

So, for example, if the CSFB is at 20, then that means an investor would have to go 20% out of the money to be able to buy a put with the proceeds from selling a call that's only 10% out of the money.  That means there is more demand for put protection - a sign of fear in the marketplace.

The index would rise when there is excess investor demand for portfolio insurance or lack of demand for call options.

It differs from the Chicago Board Options Exchange Volatility Index or VIX. The VIX, calculated from S&P 500 option prices, measures the market's expectation of future volatility over the next 30-day period and often moves inversely to the S&P benchmark.

The VIX is a fear gauge by interpretation, not by definition. It was designed to quantify the expectations for market volatility -- a property that is associated with, but not always correlated to fear."

Trade Idea/Set Up: (Longer Term) SCTY

As I'm going through my watchlist, I'm finding a lot of ideas that I know many of you have asked about in the recent past, I don't know that I'll get everything out, but as I am finding them in good looking areas, I want to at least bring them to your attention and perhaps what set-up would interest me as far as starting a position.

SCTY... This is actually, a larger H&S stage 3 top and guess where? Right at the top of a right shoulder, the dominant theme among the watchlist.

 Here's the daily chart with a large H&S top at the top of the right shoulder, but wait until you see how close to the top it really is.

 Candlesticks are great for a quick look at momentum and reversal signals, look at the momentum die off with smaller bodied candles until today's Doji Star which is a reversal candle, also note volume on this run up to form the shoulder, it should be advancing in a healthy move, it's declining.

 As for the 15 min chart which went positive to form the right shoulder as price was sitting on the neckline, it is now leading negative and I suspect it will get a lot worse.

Note the head fake move hitting stops before the upside reversal, I WAS LOOKING FOR THIS HEAD FAKE MOVVE IN SQQQ FOR A LONG ENTRY (mentioned in yesterday's SQQQ idea), look at volume this morning in SQQQ as the head fake move started on the short squeeze, that's exactly what I was looking for in SQQQ for a potential long trade.

SCTY 5 min also turning on a timeframe closer to timing.

The Trend Channel has held the entire right shoulder since 6/10, the trend is broken on a closing basis below $68.70.

Typically with a Doji/Star as a reversal candle, the confirmation candle of a downside reversal in about 50% of the cases over the next day or two, will gap up and then close down forming a bearish engulfing candle, confirming the downside reversal, that gap up with the 1-5 min charts going negative is an ideal entry and the lowest risk entry for a SCTY short position which I'd view as a longer term trending trade because of the size of the top.

I'll be setting alerts for a move/gap above $71.20 to look at a short in SCTY.