Daily Wrapv

There were several interesting events today, it's hard to know where to start as I've covered many of them in individual posts. I think the first thing to recognize if the flag in the major averages from June 25th, as I;ve said, in my opinion this is not a random flag, it is not a price-discounting mechanism, it is a specific flag, perhaps for the purposes of the last week of window dressing and as we often see, flags are head fakes as Technical traders expect them to break to the downside which they often due, but not before breaking to the upside.

The point in the excercise is that a failed price formation tends to see traders reverse positions, for instance the dogma of Technical Analysis says if a price pattern fails, reverse your position, thus a head faked flag looks like a failed flag and causes traders to reverse their positions.

The cleanest version of the flag is in the IWM

 Here's the flag formation started June 25th. I've often said, "Once Wall St. starts a cycle or a price pattern, they rarely let it fail", this one almost did with pre-market selling on 6/26 on F_E_D president James Bullard's comments that the "Market was wrong" and didn't understand how close the F_E_D was to its goals/hiking rates. In the SPX and Dow it is a clear bear flag, not quite the same in the IWM and SPX, but the IWM maintained the cleanest version without the distortion caused in the other averages by Bullard's comments.

Also note today the extreme volume in the IWM about 40 minutes after the Dow missed 17,000 intraday by a mere 1.3 points, IT'S VERY DIFFICULT TO IMAGINE THE DOW COULD NOT BE PUSHED AN EXTRA 1.3 POINTS so I think there's likely more to this part of the story to unravel.

The yellow area today would be the typical head fake move above a bear flag that we see almost always, what happened next is something a bit different, but it also leads me to question why this kind of move wasn't run yesterday at quarter's end, the only thing I can come up with was the opportunity was not there as we did see some unusually heavy volume selling and overnight the USD/JPY lifted the Index futures giving them a boost in to today's open.

This 2 min trend of the IWM shows the accumulation at the start of the flag, it's actually very small accumulation and the price pattern that has emerged since is further north than that amount of positive divegrence would normally provide, that may be why the move that appears to be a head fake was run today as the flag was running out of gas as you can see by the 3C trend in to higher prices, which would almost certainly mean the flag was put there for the sole purpose of selling (again this includes short selling) in to higher prices.

Again the 2 min chart shows deterioration and then much more extreme deterioration the higher price moves (distribution in to higher prices/demand which is a necessity for institutional positions given their size).

What was interesting was not simply the lack of confirmation on the move, but at the highs where the Dow failed by a mere 1.3 point, the amount of leading negative damage done after that taken with the unusual activity in the IWM and shortly thereafter the large green volume spikes in the inverse leveraged SRTY.

The unusual amount of leading negative damage which occurred after the Dow failed to make 17k was also just as the TICK had turned, a greater number of stocks were selling...

 TICK turns just as Dow fails, almost to the minute.

The unusual damage that occurred right after could be summed up with this ES chart posted in Leading Indicators update,...

This is a very extreme intraday move in 3C.

However ES alone doesn't give the real climate of the afternoon

 Take the IWM 5 min chart, being a 5 min intraday move of this size is fairly heavy.

The 10 min chart had already been leading negative but saw additional intraday downside.

 QQQ fails exactly at the top and then sees an unusual leading negative divergence

 The same happens with the SPY, past divergences on the same chart forecasted following moves well, today's leading negative however was much more extreme and right after the failure of the Dow at 17k which would be a major psychological level with orders sitting right at 17k, why it wasn't hit is a mystery.

 SPY 5 min, that positive is not the positive that started the flag, it's the stick save from Bullard's comments, the leading negative today can be seen to the far right.

And the DIA, again an unusual amount of damage for the average not to have followed (yet) intraday.

What is also interesting is the VIX and how it hasn't been working as of late in ramping the market.

The SPY (green) vs VIX (red) intraday, the typical 3 p.m. VIX hit is tried and VIX moves down, but the market fails to move up which is something new, although we've been seeing less and less effective VIX manipulation especially over the past week or so.

The VIX was just at lows not seen since February of 2007, since it has headed higher, today's specific relationship vs the SPX shows the VIX really barely moved down at all vs the SPX's normal correlation with it.

I mentioned this last night, the VIX daily candle price pattern called Rising 3 methods, a bullish consolidation (flag) continuation pattern in which the real bodies of the candles preceding the large up day (yellow arrow) all stay within the real body of that up day, this typically leads to a strong move up (in VIX) which would correlate to a strong market move down, perhaps stronger than the normal VIX/SPX correlation being the VIX is outperforming it so much recently, to the point in which an EOD whack-a-VIX didn't even work. *I'll remind you again of the strange volume in the IWM, highest in at least 2 weeks and then the strange large green volume about 20 minutes later in SRTY.

The selling in HYG on a day like today, especially if they wanted to push to Dow 17,000 was more than a little strange, it seems as if the institutional risk on asset that's often used for market manipulation intraday wanted nothing to do with today's "Risk on" tone in equities.

I was actually surprised when I saw this as I expected HYG was one of the culprits behind trying to push the Dow to 17k. Rather High Yield Credit went the other way and sold off.

Professional sentiment also saw strange selling as it was before the Dow failed.

Sentiment vs the SPX intraday.

Taking another look at HYG, it started selling off stronger as well early, when you'd think they'd want to stick around and take place in any limit order rally as 17k is hit.

High Yield Credit vs SPX intraday

commodities have had some correlation with the SPX since mid last month, that also went by the way side.

Commodities vs the SPX.

I still feel GLD, GDX, NUGT and likely SLV will still pullback and offer another opportunity to go long, however I can't impress enough that I BELIEVE THE ONLY REAL BULL MARKET IN TOWN WILL BE GOLD AND MINERS, MAYBE SILVER. The general retail crowd hasn't picked up on the large base in Gold and gold miners as of yet just as the market is forming numerous tops in the same area, in fact it seems retail missed the GDX +20% move which is huge as they are so focussed on the equity market.. I PLAN ON SAVING A DECENT PORTION OF RESOURCES FOR GOLD/GDX LONG OVER THE COMING YEAR OR SO AS I BELIEVE THIS WILL BE A MORE SECULAR TREND. The trend in gold and miners also tells us something about inflation expectations, which tells us something about the probability the F_E_D may have to surprise and hike rates faster than the market has presently discounted or at least the street has discounted, there's a clear reason there's so much accumulation in GDX and GLD, smart money isn't called that for nothing and we certainly didn't create it, but were lucky to latch on to it early. The exciting part is a 20% rally in GDX and it hasn't even moved out of the base yet, stage 2 mark-up is where 80% of the trend gains are made.

THE $USD WAS FLAT ALL DAY, BUT IT HAS A DECENT DIVERGENCE IN IT WHICH SHOULD HELP GOLD AND GDX PULLBACK AS THEY TEND TO TRADE OPPOSITE THE $USD AS WELL AS OIL.

$USDX 5 MIN ALSO POSITIVE ON 15 MIN SHOULD BE ABOUT THE RIGHT AMOUNT FOR A GLD PULLBACK AS WELL AS GDX/NUGT.

The daily close of numerous candles doesn't look good, for example...

 The IWM, SPY and DIA all have bearish candles with longer upper wicks today which is higher prices being rejected, but they also have heavier volume which suggests some level of churning, strong hands handing off shares to weak hands.

IWM

SPY

DIA

The SKEw Index also remains in dangerous territory, over 135 is the red zone, in the 140's is very high as we haven't been there many times.

 SKEW Index trend for 2014 in general...

SKEW's recent strong move higher.

Basically this means investors or smart money because retail would hardly think of this, are paying higher and higher premiums for deep out of the money puts meaning they are expecting a Black Swan or sudden market crash, that's why they are buying the low strikes, they believe price will be low, but it's not just that, it's the demand that those options are in causing the premiums to rise abnormally.


Otherwise, there are multiple tops in place, people don't want to call them tops based on the market action of the last 4-5 years, but that was held up entirely by the F_E_D's balance sheet expansion of nearly $trillion dollars, the F_E_D is getting out of the game and those who aren't quick to realize it may see the market gap against 3 months of trend in a single morning, it has happened plenty of times in the past.

PCLN is one of the assets I'm keyed in on now, it's a clear top, but few will realize it until after it's too late, then everyone will talk about how they saw the top. What's really giving it credibility other than the F_E_D removing their support from the market is how many stocks and averages look the same or are in the exact same place of a top.

See you in the a.m. unless something develops in futures overnight.

FXP Trade Set-Up

FXI is an ETF that tracks the FTSE China 25, which is similar to the Dow -30, the FTSE 25 tracks 25 of China's large Caps stocks that trade on the Hong Kong exchange, FXI is the long China 25 ETF. FXP is the inverse of FXI with 2x leverage (Ultrashort). I prefer FXP for the leverage, but FXI has tons more volume, in fact FXP's volume is actually quite light, trading around 75,000 shares a day which is on the light side for me usually, but I have traded FXP and had a lot of success with it. Both ETFs are optionable, but I'd really watch the volume there and the spreads.

In any case, FXP looks like it is setting up for a long trade with FXI setting up for a short trade. Tine in FXI today was not that hot even though China had relatively better than expected manufacturing data overnight, printing at 51 which is the highest print of the year.

My personal feeling is that Emerging Markets, especially China are exposed to a lot of danger with the broad market. In addition the housing market in China has not been good, several firms have defaulted in recent months, and the PBoC's policy actions are VERY MUCH UNLIKE the F_E_D's, the People's Bank of China (PBoC) takes a much broader, longer term view of policy action whereas the F_E_D takes  avery narrow, short term view which was recently confirmed over the weekend as the Bank for International Settlements (BIS) which is known as the Central Banks' bank, issued a rather scathing annual report essentially saying that "Leading Central Banks", have opted to take the easy path even if in the end that path returns ZERO results which is essentially exactly what the F_E_D has done with nearly $4 Trillion in balance sheet expansion since the Credit/Housing crisis began and what did they get for all of that money? The worst quarterly GDP print in 5 years (Q1 2014). Obviously if you've read this site you know it is my personal feeling that nearly everything the F_E_D has done has been what I call a "Stealth Bank Bailout". I say this because as you may remember, the voting public was exceptionally angry as multiple company's were bailed out including AIG and General Motors and then many of these CEOs and top executives saw fit to give themselves cushy bonuses and golden parachutes. Thus the F_E_D's POMO has been an easy way to infuse the banking system with near risk free profits. However, even with 3 Quantitative Easing episodes plus Twist, Twist Light and ZIRP, the banks still just used a record setting third of a trillion dollars yesterday for window dressing, keep in mind this is a new record amount for the F_E_D's 1-day reverse repo. When you have a record setting amount on loan from the F_E_D, the "regulator" of these banks, for a single day which happens to be the last day of the quarter, well it's pretty clear what's going on and how ineffective the F_E_D has been even in their stealth bailout of the banks.

The point was, the PBoC takes a much broader view of economic policy, in terms of decades.

In any case, here are the charts for FXP and some of FXI as the volume in FXP gets so low in some of the intraday timeframes it's hard to get a clean signal.

*Remember, FXI is the unleveraged long China 25 ETF and FXP is the 2x leveraged (Ultrashort) inverse of FXI or essentially 2x short the China 25.

FXP

 FXP has given some very good trading signals in the past, while I do think there will be a trend that emerges that is negatively biased for the China 25, for now this is really being treated as more of a long swing trade and if it develops in to something more, we'll cross that bridge when we get there.

It appears there may be a potential base setting up between the late 2013 lows and the recent 2014 lows at the white trendline.

 This is FXP's 60 min chart, I can go further out, but I already have a lot of charts. This chart is nice and clean if you follow each of the past divergences as they forecast the moves in FXP to come (accumulation in white/distribution in red). As you can see the most recent base area mentioned above has a leading positive divegrence. The 2 and 4 hour charts show a large positive divegrence for most of 2H 2013 which is the first area of the potential base on the daily chart above with this current area leading positive in a much stronger way.

 The 30 min chart shows a negative at the April highs that turned down and in to a positive through most of June, it's also leading well above the former 3C highs from April although price is lower.

The 15 min chart shows the same clearly enough that I felt notating the chart would be distracting.

FXI (Long China 25))

 As you can see, FXI which is the opposite price action of FXP gives a confirming 3C trend at the green arrow and then confirmation of FXP with a negative divegrence at its June highs which confirms FXP's positive divegrence at its June lows. There's also a small bear flag apparent to the far right, similar to the broad US markets.

 Looking at FXI's 15 min chart (remember volume is much, much larger in FXI) we see the same thing, a clean confirmation of the uptrend preceding the June top in which we have a leading negative 3C divegrence forecasting lower prices ahead, even at the current bear flag 3C continues to lead negatively to new lows since the transition.

 The intraday charts are where the charts start to get a bit sticky and apparently ther are a lot less head fakes on the Chinese exchange than the US ones so we have to adjust for that and give head fakes a lower probability.

That means the accumulation on this 3 min chart seen at the lows, created the bear flag correction which is now seeing distribution in to it as we saw out bear flag in US markets with an apparent head fake move as we'd normally expect to see being a bear flag is a common technical price pattern.

For instance...

The IWM flag is probably one of the best defined, I believe because of some accumulation patterns at the base of the flag, this is a manufactured flag that was meant to be head fakes, not a naturally occurring flag, one of the reasons is the market's resiliency after St. Louis F_E_D president, James Bullard came out pre-market on 6/26 and told Fox Business News that the "Market was wrong" and it didn't appreciate how close the F_E_D was to hiking rates and also gave the earliest to date estimate of when rates may rise, being early 2015, about half a year before the market's consensus and F_E_D guidance which I believe is not going to be a matter of choice, but something the F_E_D is forced to do because of inflationary trends running hot , which is something the BIS also covered in their annual report, warning "Leading Central Banks" not to "Hike rates too slowly or wait too long", clearly concerned about inflation as well.

As far as any head fake move of FXI's bear flag go, if it comes we'd likely see it tomorrow as it would be following US markets, but I was surprised FXI didn't act better considering the manufacturing print overnight being the best China has seen all of 2014.

FXI-China 25 long ETF

 The intraday 2 min chart shows a negative divegrence in to today's price action, which would mean a positive divegrence in FXP's pullback today. In other words, it looks like the bear flag is getting ready to fail and send FXI lower/FXP higher, the trade I'd be interested in is FXP long (2x short the China 25).

FXP(UltraShort China 25)

 The daily chart for FXP shows an area of support at the red trendline, if there were to be a head fake, it would likely be under this area, there's a larger support area from last year around the $56.70 level, about a dollar lower.

In all honesty, I might just open a partial position and add to it if there were a head fake move or open a full position, but leave a stop wide enough to account for a possible head fake move.

One other reason there may be a head fake move for FXP is the gap in FXI's daily chart...

Here you see the trend line for FXI's daily chart clearly broken, but there's a gap just above today's intraday high, even with a bearish daily candle with a small body and longer upper wick (higher prices were rejected intraday), that gap may be filled as FXI trades significantly more volume.

If you are interested, you might set some alerts and feel free to email me if there are any head fake moves and we can check them out and see what they look like, but once again, there seem to be less of these moves in the Chinese equities market than the US. Otherwise, I really like FXP for swing trades and then some.

Futures still Selling

Looking at some Fib Retracements since the 9:30 open in the Index futures, we're still seeing selling primarily in TF/Russell 2000 futures followed by Es, SPX E-minis and last NQ, NASDAQ 100 futures.

Thus far TF has retraced about 2/3rds of today's move since the 9:30 regular hours open. ES is just behind, having rretraced just about half of today's move from the 9:30 open to intraday highs. NQ is holding up best thus far with just about 25% of today's move retraced, however it is the market leading Russell that's of particular interest given that large volume in the IWM this afternoon as the afternoon decline started (I noticed many of you wrote me about the same thing).

What is also of interest is that despite some VIX hammering right around 3 p.m. as per usual, it didn't do much of anything for the market except bought a little time, it didn't buy the normal afternoon melt-up.

I've been working on a trade idea so I haven't pulled up the updated charts yet, but I will.

PCLN Looking Interesting, Going to Be A Little More Patient

This is one I've liked and have been looking for a decent place to enter, we might be very close to that.

First the macro picture...

 The weekly chart, note the increased rate of change to the upside in price before PCLN goes sideways in to what we have already confirmed via volume to be a H&S top.

This is the daily chart, the first entry and the best is at #1 if you have patience for it and the second at #2 at the top of the right shoulder where many assets are sitting now. Currently there's a bear flag, since this is a closely watched stock it would be a high probability that there would be a head fake move on the bear flag, leading previously bearish traders to reverse their positions and go long, today makes for a perfect head fake which makes for a great timing indication.

If I have to, I'd be more than willing to take a position as price moves back below the bear flag as this is still an excellent entry in the big picture .

The 60 min chart confirms the previous uptrend to the left and goes increasingly negative at the H&S price pattern, this gives us a high probability downside resolution, but that's a lot of dry powder to put in to a single position and I'd rather have the best timing possible here.

 On the 10 minute chart you can see the distribution at the right shoulder as well as the preceding accumulation that created the right shoulder. To the right the bear flag area which is similar to the overall market, there's a leading negative divegrence here, so overall if I'm looking at this as more of an investor and longer timeframe, this would be a fine place for an entry.

 However looking closely for the best timing, the 5 min chart shows several divergences in the bear flag including confirmation of the move up today on a 5 min chart, before I enter PCLN short, I'd want to see migration from the 1-3 minute charts turn this 5 min chart negative, but as I said, if I had to, I wouldn't be too upset entering just below the bear flag as the head fake move is confirmed.

 The 1 min chart moving in line with price and showing distribution in to today's move, this will always start on the fastest chart and migrate out if the distribution is strong enough.

It has moved to the 2 min chart today as well

And there are signs that it has moved to the 3 min chart as well as there having been late day accumulation yesterday which we have seen in a few other places today.

I'd still prefer to wait for a clear negative in the 5 min chart, but big picture, this is pretty much an excellent entry here.

IWM Strange Volume

Not sure where this came from, but...

 The IWM saw some strange, large volume as it started down from intraday highs at 2:05...

To give you an idea of how strange...

 Easily the largest 1 min volume spike of the last TWO TRADING WEEKS!

Just after at 2:20 and 2:55, SRTY, the 3X short IWM ETF that I just added to yesterday saw this volume...

 Note the two large green volume spikes to the right, this also during a leading positive divegrence in SRTY.

I look forward to looking at internals after the close, but that was certainly worth noting as the market has recently seen much higher volume on declines than any rallies, to the point it has become a noticeable event.

Leading Indicators/Market Update

Yesterday we had a brief piece on end of month window dressing by Financials, the same as we saw the last day of April when the F_E_D's 1-day reverse repo facility saw the second highest usage ever, those assets are returned to the FG_E_D at the next day as the month is over and it's only a 1-day operation, yesterday on quarter's end window dressing I believe it was 94 financial institutions participated to take the F_E_D's 1-day reverse repo facility to a record usage of $339 billion dollars, sure enough, today as the end of the quarter is passed, that 1-day reverse repo fell to $151 billion, meaning $189 billion dollars in collateral was borrowed from the F_E_D for a single day, the same single day which happens to be the last day of the quarter so the banks can dress their windows and look like they are in better shape then they are, the most ridiculous thing is that their regulator who monitors their health is the same entity that lent them the assets to "fool" the regulator, the F_E_D!!!

The financial system is not in such good shape being they just borrowed a record amount from the F_E_D for a single day to dress their windows. UNREAL!

Now you know why I like FAZ, Short Financials.

As far as the market and some leading indicators,

 High Yield Corporate Credit is an institutional risk asset much like perhaps an AAPL or PCLN would be for retail traders, it should rise in a risk on mode, often it rises under manipulation of the SPY arbitrage with VXX and TLT being the other two assets involved. 

Last night/yesterday afternoon I said I saw some weakness in it, it was not willing to move with the market near the close, but rather moved down.

Today there's a VERY clear dislocation/divergence vs the SPX in green as HY Credit is sold ( which is something that was seen in the underlying trade / 3C charts).

 The VIX, while down here, is not anywhere near where it should be vs the SPX and the normal correlation, VIX should be in single digits today, but as you can see it keeps making a series of higher lows and on the day is outperforming its correlation vs SPX (to the right of the vertical white trendline).

 TLT/20+ year treasuries should also be making a new low here and instead it is outperforming its correlation as well, it is a flight to safety trade.

This is the intraday TICK which went from a trend which was in line with market prices to breaking the trend which has sent the averages off their best levels of the day.

There was quite an extreme move in ES/SPX futures as it hit its high of the day, quickly moving to the low of the day (3C).

R2K futures look just plain bad all around vs the normal intraday confirmation we'd expect to see and look worse since this capture.

The DIa intraday, nothing close to confirmation suggests all of the price strength has been sold in to.

The IWM also no confirmation, suggesting the same.

The Q's , the same

SPY 1 min never moved even in the direction of confirmation

The 2 min chart didn't either, it should move with price if there's price/ underlying trend confirmation.

And like ES futures, the 3 min chart deteriorated rapidly.

The 3 min chart on a longer scale shows distribution and accumulation, each point being a reversal point to the downside or upside, but this is by far the deepest negative divegrence on the chart.

Perhaps some kind of blow-off?

I know it's hard to pull the trigger on a short or a put on a strong day, but this is where you have the best price entry and the lowest risk as you can set a stop just above rather than wait for price to come down and have a stop much further away.