NFP KNEE JERK WIPED CLEAN

Last week many of you who wrote me thought basically the same as I did, Dow 17K 4th of July? I simply added,

"I don't see why a move above 17k yesterday and further moves today and tomorrow wouldn't be just as if not more effective, it almost seems as if there may be limited firepower to accomplish this goal and that (if what many of you think is correct) it has to be preserved for the right moment like tomorrow's half day in which there will be a skeleton crew on Wall St. with EXTREMELY thin volumemaking the market a lot easier to move, that still tells you something about what firepower is left in the market if that's what needs to be resorted to."

It seems that this idea of the Dow 17K 4th of July? as well as the limited firepower that had to be used judiciously to achieve that goal were all correct.

Thursday's Non-Farm Payrolls data that sent stocks higher also had a bunch of odd behaviors in other assets that were pointed out last Thursday after market (and during) in the Daily Wrap.

Among these "odd" behaviors, Treasuries, the flight to safety trade, bid in a supposed risk on market.

High Yield Corporate Credit sells off

High Yield Credit (an institutional risk on asset) sold off in a supposed "risk on" market

Pro Sentiment Leading Indicators sell off and have been since July 1, the day after window dressing ends

Both the VIX and VXX not moving lower intraday as the market moved higher intraday.

USD/JPY faded and sent lower right after the regular hours close Thursday.*USD/JPY which hit $102.26 Thursday is back down below $102 at 101.84

The Russell 2000/IWM going DEAD in the water around 11 a.m. through the rest of the day. *See the negative divegrence in the Daily Wrap for the IWM at the close Thursday.

Including today, a 55th consecutive day of the SPX not making a move of at leas +/- 1%, * you have to go back to early 1990s since that happened last.

The SKEW Index hit another move higher to 142.28 (*well within the Black Swan zone)*Why would someone be bidding up out of the money/low strike puts on the same day of the break of Dow 17k, a pattern we have noted since June.






As mentioned Friday in Daily Wrap...

"Another oddity suggesting our post, Dow 17K 4th of July? from yesterday was right on is the fact that two different markets took the same information in two VERY different ways."

As of today, the Non-Farm payroll gains have been erased.

 The major averages since Thursdays "Jobs" report, the gains are lost.

 As for the major averages today... the outlier is the RUSSELL 2000 WHICH WAS DOWN -1.72% TODAY FOR THE WORST PERFORMANCE IN 3 MONTHS. Remember our post last week looking at Small Caps and the R2K (essentially exactly the same)? 

Treasuries which were bid right from the get go on Thursday (one of the strange events as they are a flight to safety during a supposed "risk on rally") have retraced all of the Jobs report and yields are at Thursday's lows.

The USD/JPY has retraced all of the Jobs gains and as mentioned, back under $102.

As seen intraday for the NDX Thursday, breadth (A/D line) gave out for the NYSE, NASDAQ Composite and NDX today as it was hinting Thursday.

The market moving (short squeeze Most Shorted Index saw some of the worst performance in almost 3 months today.

MSI (red) vs. SPX (green).

Of the 9 S&P sectors, only 3 closed green WITH THE LEADER ONCE AGAIN, THE DEFENSIVE UTILITIES AS HAS BEEN THE TREND SINCE JUNE.

As for the Dow as it is likely still the headline for many financial news websites, take a look at intraday action...

 The Dow tested $17k 9 times today, here's what the intraday 3C trends look like...

The 1 min is leading negative at a new low, the 25th through the 30th is the flag-like area where we suspected a head fake move above the channel which would see strong distribution, all indications are we were right on.

DIA 2 min confirming the same with a new leading negative low put in today.

Note how High Yield Corp. Credit has been selling off since window dressing ended on the first day of the new quarter, July 1.

The EXACT same is true of High Yield Credit, the EXACT same date.

 The same is true of our Leading Indicators for professional sentiment.

 As for VIX, this is my Custom DeMark inspired Buy/Sell indicator...

 I have 3 VIX longer term buy signals, you can see them at the yellow arrows and right now.

 Look at a 5-day chart of the VIX, despite having made lows not seen since Feb. 2007 recently, we have a Harami (bullish) upside reversal in the yellow box and a bullish (upside reversal) hammer on the longer term VIX trend as this is a weekly chart, interesting given the buy signal right now on a long term chart as well. The VIX bounced +9% today off recent Feb 2007 lows.

 Here's a look at VXX (Short term VIX futures) on a 5 min chart

Also TLT which I recently closed as a long as I said, "I'm closing this until I have a better grasp of what's going on with TLT", that closed position was right in time as you see the leading negative divegrence forecasting a fall which we saw, but as recent as Thursday we have bullish activity, we already know treasuries have retraced all jobs losses, another flight to safety trade.

And the recent TLT activity in 3C, positive at Thursday's lows.

As for the 3C activity today, as I said, it wasn't strong, certainly not strong enough to act on unless price moves, then it may open some fantastic opportunities on a market bounce which we could see as the Dominant Price Volume Relationship among the component stocks of all the major averages was CLEARLY the most bearish, PRICE DOWN/VOLUME UP, however this often leads to a 1-day short term oversold condition and the next day the market closes higher. The Russell 2000 did get HAMMERED today. Our recent SRTY long was up nearly 5% today.

 There was no discernible trend in the SPY until the 3 min chart, even here it's pretty bland with a negative divergence last Thursday in to the Job data rally. This is a perfect time to point out the concept of 3C picking up where it left off, even over a 3-day weekend.

 The clearer trends are on the longer charts where noise is reduced, this 10 min SPY chart makes clear what I suspected, the channel up that we expected a move above has strong distribution signals.

Of course the 4 hour macro trend would have told us that this would have been the highest probability before we even looked at the charts.

Intraday...

 QQQ had nothing even remotely close to a positive divegrence, I suspect the IWM did simply because of the massive loss and the Buy the Dip" crowd.

 This is about as good as we get intraday for the IWM, a negative divegrence in to the move above the flag/channel and price lower, a [positive divegrence at the white arrow that was used up by the red "X" as you can only go so far on a small divergence and today's action in the white box, still a 1 min chart, but it could be enough for a bounce or it could be the start of a larger positive divergence for a bounce, but the end result should be the same, the trend has been "Sell strength" and volume has clearly been heavier on sell days such as today.

 At IWM 2 min, it's hard to say that's a positive divegrence so what's in place now has a 50/50 chance of being a lateral consolidation or a bounce correction, but it also faces increased chances of being run over being it's so weak , unable to make it to the 2 min chart.

And the trend on the IWM 15 min chart after 3C confirmation of the downtrend to the left, a small positive and as we finish window dressing we see the worst leading negative divegrence on the chart.

As I was trying to imply Thursday in the Daily Wrap, the equity markets took the jobs data one way, the bond and credit markets (which I trust far more than the equity market) took the jobs data as meaning the job gains taken with an increasing inflationary trend likely means the F_E_D's hands are ties as far as keeping rates low for an extended period, therefore good jobs data is bad news as it increases the chance of ate hikes earlier and more aggressively, especially if the inflationary trends continue while real wages fall and we perhaps print a negative Q2 GDP which puts us in a recession which the Bank of International Settlements (the Central Banks' bank) said that "Leading" central banks are stretched so thin they may not even have the resources to deal with a common recession as well as encouraging (Leading" central banks to not hike rates "too slowly" or "Too late".

Being the F_E_D's dual mandate is maximum employment  (F_E_D employment guidance for rate hikes was initially 6.5% as we are now at 6.1% unemployment) and price stability (as inflationary trends in CPI approach the F_E_D's 2% target, well above in food and energy), we are well within the range Bernanke envisioned rate hikes which are essentially bear markets in a bottle as it will not only effect the market, but the broad economy as interest rates rise and investment that is stagnant at ZIRP will be non-existient as the F_E_D nears the target rate of 4%.

It seems either the market was VERY wrong about Thursday's jobs number and bonds and credit were right or more likely, it didn't care about anything other than Dow 17k, smart money needs someone to hold the bag and it takes demand to create that, a move above Dow 17 is a psychological magnet that should create that bag-holder demand. I assume the loss of 17k would not be taken well by the market, thus 9 tests of 17k today all held, but why was it tested 9 times to start rather than see follow through to the upside?

For those following UNG/DGAZ, The United States Natural Gas Fund (UNG) fell over 3% today, breaking down through short-term support at the March-April-May price lows.

At this point, if we can get a bounce in the averages, I'd be moving to make sure the back of the truck is loaded up. If anything interesting develops in Futures overnight I'll check back in.

Quick Market Update

Since I have too many charts to get out before the close, here's a quick update with futures, THERE IS NOT A STRONG CASE TO BE MADE FOR A BOUNCE, if we get one there's a strong case for selling/shorting in to it, but there's not any case I can make for closing shorts or puts in anticipation of a bounce and certainly not at this stage of the game. Just remember what happened after following AAPL for all those months, knowing it was about to see a serious crash, being positioned short and then giving that up to try to get a few percent better position on a anticipated bounce.... end result, no short, AAPL loses -45% over the next 8 months. This is not the time to try to get fancy.

 ES/SPX e-mini futures, like most show some kind of intraday 1 min positive, but these rarely hold up overnight, the 5 min chart is where it's more important as far as next day.

ES 5 min is little better than in line, there's really nothing here to suggest an imminent bounce, although nothing in the market moves in straight lines (at least not for very long and not without nearly a 4 trillion dollar balance sheet expansion which is OVER)

 NQ/NASDAQ 100 1 min intraday futures and a small "W" like small base, about the size for a bounce or the start of building a base for a bounce.

The 5 min here went clearly negative last week, price responded to the 3C forecast, this is about as close as we get to a 5 min positive divegrence, although it's hard to call it that as it may just not have made the next move as 3C lags a bit and could simply be in line (confirmation).

 Russell 2000 futures 1 min positive intraday, but...

The 5 min chart is nearly perfectly in line confirming downside price action.

The market averages for the most part are even worse than this as you'll see.

3 p.m., keep your eye on the VIX

Last Wednesday there was an odd lot algo running, placing thousands of 1 share trades in TVIX, this was allowing them to gum up the system and hammer the VIX, it was not running Thursday.

I do see some negative intraday divegrences in TVIX and VXX so keep an eye out for the typical 3 p.m. VIX Whack-a-mole.

I'll have an update out shortly, the market has some short term divergences, they'd need help from a VIX hammering and likely HYG as well (up), they are quite weak, but I'll try to get those out for you to see.

NFLX Update

The NFLX July (standard) $465 Puts opened last Tuesday July 1st, Opening NFLX July $645 Puts Now, are in the green.

Although intraday the IWM divergence is falling apart a bit (remember, the R2K futures were only positive intraday, the 5 min chart never went positive and remains in line with price) and that makes a NFLX bounce less likely, there is a 2 min positive in NFLX, this IS NOT a trade I would take, but if it led to a bounce, IT IS A BOUNCE I'D USE TO ENTER OR ADD TO NFLX (SHORT).

NFLX is one of several stocks expected to bounce a little over a week ago, AAPL was also on the list.

The bounce has kind of ruined the nice H&S price pattern it had in place, which isn't a big deal, it's the psychology that creates the pattern. Note how similar NFLX (now looking more like  a right angle Broadening Top) is to the IWM.

 IWM in green, NFLX in red. As I often say, the market is the strongest directional force on any given stock on any given day, probably around 2/3rds of a stocks's movement is due to the broad market, therefore you should start with market analysis and then pick your stock, not the other way around as is commonly the case.

Whatever kind of top formation you want to interpret NFLX as, this 4 hour chart shows the primary underlying money flow trend which has been distribution through the area as it was confirmation just prior to the top/lateral formation.

 This is the suspected head fake move as there was a clear resistance area (therefore stops and limits on the books are easy and profitable for Wall St. to hit as well as head fake moves creating momentum, "From a failed move comes a fast move").

Obviously the candlestick pattern in yellow where the head fake move would be is not looking good for NFLX as we are seeing a bearish engulfing candle today on rising volume.

This is really the only positive divegrence I have in NFLX, a 2 min chart and a small "W" base area, as you know, unless the divergence reaches at least the 5 min chart, I rarely trade something like this, but rather try to find a way to use a bounce to my advantage such as adding a put position on any bounce as the bounce has very weak 3C support.

 The trend of the 1 min chart in the area of the head fake move is part of what tells us it is a head fake move under distribution rather than confirmation.

The 5 min chart tells us the same.

And the 10 min chart is more trend, less detail, this tells us there's a leading negative divegrence at the head fake area, that's how we confirm a head fake move, although the higher probability charts will give us a good idea before we even have confirmation.

Such as the 15 min chart as it builds the area of what wa a right shoulder, it goes from confirmation to a divergence to a leading negative divergence at a new 3C low at the head fake area and this keeps going through 60 min and 4 hour charts. Thus if there's any bounce in NFLX, I'd be looking to start/add a position in to price strength/underlying weakness. I'll be setting price alerts just in case.

I'll also have a market update as that will likely be the determining factor as to what happens with any of these ideas. I'm keeping the full size NFLX equity short in place and for now, the NFLX July $465 puts we opened last week.

Trade Set-Up: Z

Z, from earlier today (as well as last week-partial short position) may just give us an opportunity to fill out the short or start a new position for those interested. I showed the charts of Z earlier today, nothing significant has changed except the very short term intraday charts that may give us the bounce mentioned in today's Z Position Update

Here are the updated charts, I already set price alerts t let me know if I need to be paying attention to this one as mentioned in the linked post above from earlier today.

 1 min intraday, similar to IWM action.

 There's some positive migration to the 2 min chart.

The 3 min chart is in line so this isn't a very strong positive divergence and it may have spent a lot of energy already, we'll see if it pulls back to form a "W" , larger positive divegrence.

Above the trend line is where the orders and stops will be so that would be the ideal area to look for any new entries.

 Again as far as the probabilities go, while any bounce widens out the reversal process, even the 10 min chart shows the probabilities are firmly planted to the downside .

And of course the much higher probability (underlying flow of funds) 60 min chart shows a clear resolution to the downside, thus any short term price strength is of interest for new or add to positions which is something I'd consider with a half size position which was entered initially as a speculative position only because the reversal process was so small at the time.

Gold and Gold Miners Walking the Line of Consolidationy

We have two types of consolidation, through price as in a pullback which is why I took NUGT +40 and +50% gains a bit over a week ago on Friday with full intensions of adding the position back on  a pullback so long as accumulation during the pullback could be verified which I'd say would be a 90-95% positive probability,  or  we can consolidate through time. You may remember I wrestled with the NUGT position and when to take some off the table, as to what was taken off, since then we only gave up 6% of additional gains which considering the time and market exposure is more than acceptable.

However, the issue now is whether GLD and miners (GDX/NUGT) are consolidating through time or still awaiting a pullback which I anticipated to move to the 22-day moving average which is about where the gaps were at the time. What makes the issue critical is both assets are right at stage 2 resistance/breakout levels and any negative divegrence in either seems to be met with improving positive divergences shortly after.

 Gold futures 60 min had a clear negative divegrence suggesting a pullback and there's a high degree of correlation between gold and miners, except with miners in more of a leading position like they use to be many years ago before F_E_D accommodative policies.

Since, you can see improvement to the far right, I wouldn't say the divergence is negated, but it does raise questions about correcting through time rather than price.

The faster 30 min chart shows more detail for gold futures.

As does the 15 min chart.

 Gold had a range, a head fake below the range that was accumulated, a breakout above the range and the diagonal trendline is GLD's base/resistance that marks stage 2.

 GDX is in virtually the same situation.

This is a 5 day chart, note the Stars that denote a correction right at resistance of the base.

 After GLD's long signal, I suspected a pullback to the blue 22-day, but it's now above the gap.

GDX 1-day sitting right at base resistance. A pullback here would actually make me feel a lot better about buying either.

The 60 min GDX chart only has a small negative divegrence for a pullback, the larger base (not seen) is huge.

The 30 min showing a clear leading negative divegrence that has since seen repair.

For now I'm going to wait on adding the NUGT long back, but if I had the ability to hold it and wasn't worried about the draw down and opportunity cost, I'd hold NUGT long as there's a monster base here and I suspect stage 2 mark-up will lead to at least an Intermediate uptrend, maybe a primary bull market trend.

Other than the base, this one has been very tough to manage as far as stops, so I suppose I shouldn't expect anything different, I'm just waiting for that signal that I can't ignore.