Daily Warp

Make no mistake, today's minutes were not good in any sense for the market, it revealed a much more hawkish F_E_D than the last F_O_M_C and Yellen made us believe.

However we are talking about the gyrations in the market that have nothing to do with demand and everything to do with positioning.

I tend to think the market comes down and builds a larger base and bounces which will be an excellent opportunity to short in to, maybe even open puts. If the market comes down to build that larger base it gives us a chance to piggy back the bounce with positions like the IWM calls which I opened in a spec position yesterday, but if there's no pullback/larger base, we're not missing out on much as the real trade is shorting in to the bounce which I think is very high probability with the market coming down just after as we have already broken most of the right shoulder tops (started the decline to stage 4).

So we can't really lose. Leading Indicators from this afternoon suggest we see a larger base which really only serves as a piggy-back long trade/calls.

 The 5 min charts like this QQQ are still in good shape (the bounce divegrence).

However charts as far out as 3 min (QQQ) are showing a negative divegrence suggesting a pullback to create a bigger base which would look something like this...

A pullback and a "W" like base, probably a stop run under support and the bounce. If this happens, the head fake/stop run area is perfect for opening or adding to piggy back trades like the IWM calls, if not, no big deal.

There are a number of charts which include the market averages (5 min) that still suggest a bounce, there are other momo stocks that suggest the probabilities for a bounce are high as well, here are a few examples...

 NFLX 5 min ready for a bounce

However, only a bounce as the longer term charts as shown last night are in shambles,  this is why I want to short any price strength.

TWTR suggests a pullback first on this 3 min chart, as long as the 5 min stays positive and doesn't deteriorate, a wider base and bounce is the probability for near term trade and of course it gets ugly from there  because none of this is real demand, it's Wall Street built cycles, that's all those positive divergences from yesterday were.

 FB 2 min suggests a pullback and wider base as well

As does the 2 min AMZN.

As long as these negative divergences don't ruin the 5 min charts, we should get the wider base and the bounce we can short in to, if the 5 min charts start falling apart or there's no accumulation in to a pullback, the market is in bigger trouble a lot sooner than most think, IT ALREADY IS NO MATTER WHAT HAPPENS SHORT TERM.

Momo stocks I quickly looked at had bullish inside days on the daily candle, SCTY, NFLX (tweezer bottom), PCLN and TWTR inside days. Market breadth suggests the momo stocks see the best bounce and also the deepest decline after.

However the normal correlations are far from normal, look at the USD/JPY vs ES after the minutes as the $USD took a beating on the minutes and the Yen popped.

That's far from normal, as I said,  any upside from here is a Wall Street driven illusion so they can get out or in to their bigger positions.

As for internals beyond what you saw in Leading indicators, of the 9 S7P sectors, the market was acting risk on with 8 sectors in the green and the absolute opposite of yesterday with Utilities being the only one in the red.

The Dominant Price/Volume Relationship was SUPER Dominant in all of the major averages, it was Close Up/Volume Down, this is the most bearish of the 4 possible combinations and usually results in the next day being down, which would fit with the pullback scenario.

As for miners and GLD, I expect we will finally get that pullback off a failed breakout which started today, the Junior miners suggest that it fails likely as soon as tomorrow so I'm looking forward to the pullback and accumulation on the pullback and buying NUGT again at lower prices, this is a long term trend trade that I think will be a huge winner.

Market dispersion continues with the NDX up +0.75 and the R2K only 0.14% with the Dow missing 17k this afternoon.

I think we are in good shape, we either get a pullback and get some short duration leveraged longs (piggy-back trades) in or we don't and we likely get to short price strength in to already broken right shoulders (H&S tops) getting a better entry and lower risk with good timing or at worst, the market just heads down from here in which case our current shorts take care of themselves, but I think that is the lowest probability near term, the highest probability resolution after a bounce.

Finally, I thought this was an interesting article and you might find it interesting as well, "The Difference Between A Good and Bad Trader: What Brain Imaging Reveals

GDX / NUGT

Earlier today in the a.m. update a thought came to me regarding the minutes and a false GDX breakout before a pullback and the real breakout,

The Minutes are released at 2 p.m. if they weren't already leaked, judging by yesterday's trade activity, I'd guess they were leaked, which may have me reconsidering some positions I was considering such as NUGT, I'm thinking it may see a head fake move through resistance and then a pullback, but I'll wait to see if that happens and what underlying trade looks like if it does."

Then there was the afternoon update, GDX/NUGT Update which gave good reason to doubt the "breakout" of GDX/NUGT.

I've been watching both ever since for a hint the scenario described above may be on track, GDX and NUGT haven't had great signals and I don't think they'll turn on a dime, but Junior gold miners seem to be providing the answer and it looks like as I suspected above...

Just so you can see they are closely correlated...

 GDX (green) vs. GDXJ (red)- as you can see they are tightly correlated.

However, while GDX and NUGT are giving good intermediate signals suggesting a pullback and a failed breakout attempt here, this time any way, the shorter term intraday charts used for timing were less clear, however in Junior miners, the signals are very clear and are a perfect proxy for GDX.

 1 min leading negative in GDXJ

This has migrated to the 2 min chart as well as

The 3 min chart.

It's just now making its way to the 5 min chart, when we have a good divergence here GDX should be ready for a pullback and we'll take a look and see if a DUST long is worthwhile.

Leading Indicators Bearish

We already know that the macro picture is bearish, what I'm trying to determine is whether Wall St. can put together a bounce as imagined yesterday with a larger "W" base which would require stocks to pull back.

The early data we are getting in says it is likely they'll come down, whether that's a pullback for a larger base or the market coming down, I don't think we'll know until they start coming down and we can see if there's accumulation (in which case we likely bounce and sell short in to the bounce) or there's none, in which case we likely make a lower low.

Looking quickly at Leading Indicators, a number of them suggest we are coming down, it's too early to say which way though, for a bounce or in bigger trouble than the market realizes.

Treasuries have rallies with stocks which is unusual, a risk off trade with a risk on trade, that has caused some bearish signals.

 10 year rates vs the SPX, you can see what happened to the SPX last time they diverged, they are doing so again right now.

 5 year rates did the same and are doing the same right now.

Pro sentiment is negative on the day and in fact...

On the quarter, as soon as window dressing ended, July 1 they are sellers.

HY credit has been stable the last couple of days, it just sold off hard, "Credit leads, stocks follow".

I'm just waiting to see if what signals the market gives us, but at this point, I would just be patient until we know, I suspect we will know soon judging by leading indicators above.

Lots of Noise

As is usually the case, the initial knee-jerk (immediate, even sooner than the typical knee jerk trend) has just been a bunch of noise, the TICK chart illustrates this very well.

 NYSE TICK @ +/- 1450 extremes within minutes.

Now...to see where this is going...until then, I'll be patient.

 Intraday DIA is not confirming, this could lead to a pullback and the larger "W" base or this could migrate through longer timeframes and essentially destroy the chart below, sending us lower with no bounce.

The DIA 5 min chart is still in leading positive position, the benefit of the doubt I think has to go to a pullback and larger base, but we'll let the charts tell us, it shouldn't take long.

IWM 1 min went negative just before the mins. actually almost every average did the same.

IWM 5 min still in leading positive position, unless a trend of negative migration develops, I'd still stick with the bounce potential, but I would not buy in to it until/unless we get a pullback to make a larger base with accumulation, otherwise the risk is too great vs the reward.

 QQQ 1 min

QQQ 5 min essentially the same story.

 SPY 1 min

SPY 5 min, again, the same story.

More Hawkish Than Expected

After a quick glance, the takeaway is the F_E_D giveth, the F_E_D taketh away, even if they want to say they are not in the business of bursting bubbles, that's the net effect just like driving rates to Zero created the monster in the first place. Stocks are not up on valuations or on expectations for the future, they are up because they are the only game in town with interest rates at essentially zero.

That's about to change and the F_E_D obviously is more involved and will be more involved in bursting the bubble than Yellen wants to admit...

• SOME FED OFFICIALS SAW INVESTORS AS TOO COMPLACENT ON RISKS
• *FED SAW INSUFFICIENT INVESTOR UNCERTAINTY ON ECONOMY, RATES

If the F_E_D has nothing to do with administering the market or popping bubbles, why are they even talking about it being too frothy, too complacent, not paying enough attention or discounting the fact that rates are likely to rise sooner than expected as James Bullard of the St. Louis F_E_D said (remember at the time I said "No F_E_D president would come out and say what he said without Yellen's blessing", well there it is in the minutes).

 

For now I'm leaving the shorts that are in place alone and I'm not adding to the IWM call. If there's a more sustained pullback that sees accumulation I may add to the calls at that point, but for now if the market bounces we are in good shape to open or add to short positions, if it doesn't bounce, we are in good shape with short positions that are already open.

Everything else is pretty much the cherry on top.

Market / IWM Call Position Update

I'm going to look for an initial knee jerk move lower after the minutes are released, I may (if there's accumulation) add to yesterday's July IWM $115 calls that were entered as a spec. position at 1/3rd normal size, here's why in a nutshell.

 IWM 1 min-IWM has been trading at more reasonable prices than the Q's, easier to accumulate for a short term bounce as you'd be chasing the Q's and higher premiums, unless they came down right after the minutes on a knee jerk that is accumulated.

The IWM looks decent here.

At 2 mins the IWM looks good, again at the lower gains, it's easier to accumulate than the Q's.

IWM 3 min

IWM 5 min, now  compare to QQQ charts as they have been trading at higher gains meaning accumulating would be chasing increased premiums.

 1 min nothing

 2 min actually looks like someone has a quick trade for a downside fade, maybe the knee jerk move on the release of the minutes?

Tha same at 3 mins.

I'm going to wait for confirmation, but I suspect a quick initial drop is being set up, I'm going to look for accumulation in that drop if it comes and if it's there, add to the IWM calls, at least until we get to an area where shorting the positions mentioned last night and others makes sense and is confirmed with negative divegrences.

GDX/NUGT Update

You may recall yesterday's post showing short to intermediate term charts in GDX and NUGT improving and some very drastically in a very short period of time, as in a day or two, some longer. There's no doubt that this is a long term primary uptrend I want to take place in, but where to enter has become very challenging.


Yesterday I posted the charts I am talking about in Trade Idea: GDX / NUGT and said I'd let you know when I was considering an entry, then by the end of the day, I was still uncomfortable and posted, No long Entry for NUGT/GDX yet.

In this morning's A.M. Update I wrote,

"The Minutes are released at 2 p.m. if they weren't already leaked, judging by yesterday's trade activity, I'd guess they were leaked, which may have me reconsidering some positions I was considering such as NUGT, I'm thinking it may see a head fake move through resistance and then a pullback, but I'll wait to see if that happens and what underlying trade looks like if it does."

Depending on what the minutes say, gold and gold miners could have a severe reaction, if the minutes seem unconcerned about inflation, then gold and miners are likely to drop quickly even though they should recover fine because wee know despite what Yellen wants us to think, there is a strong inflationary trend building, thus the reason gold and miners came alive in the first place, but again, it's about the headline knee jerk reaction at first.

 Here's the long term inverse H&S base, very strong and you can see GDX/NUGT are sitting right below resistance. Either way, whether a real move or not, we are very low in the trend for GDX which should make a long term primary uptrend lasting at least a year based on the size of the base.

 As suspected in the pre-market A.M. Update, GDX/NUGT are above resistance of the base, but look at the volume. Volume which is confirmed for the base, is very important for an Inverse H&S confirmation, but the breakout volume is the most important, it should be the highest by far.

Taking a closer look on a 60 min chart, the white line on volume is the level of volume on the breakout move, it's negligible where it should be roaring. This makes me a little nervous and makes me think twice about what the charts I showed yesterday improved so fast, perhaps for a pre-Minutes breakout because after the minutes...?

And we still have this to deal with...

 No matter the improvement, the NUGT 15 min chart is still negative here where it should be leading positive and...

The GDX 10 min is worse, it's not even trying to confirm today.

Anything below 5 mins is a mess, there's no confirmation between timeframes or NUGT/GDX/DUST, I suspect there will be shortly after the minutes are out and taken in a bit.

Market Update

The market never makes it easy, that's for sure.

I'm starting to think that either there's a change in sentiment since yesterday or the market is stalling, waiting on the knee jerk reaction from the minutes to make any remaining moves because there's very little going on today compared to yesterday (remember one of the other scenarios I thought possible although less likely was yesterday's intraday positive divergences were just enough to hold off the downside that had set in early yesterday, almost like the NY F_E_D's trading desk activated the "Plunge Protection Team", or the "President's Working Group on Financial Markets " as they are officially known, signed in to law by Ronald Reagan by executive order 12631 March of 1998, yes the PPT is real... Read more here.

Here are the charts which are no where near as clean as yesterday and not doing what I suspected they would yesterday, but a knee jerk reaction to the F_O_M_C minutes might be what gets us there, as always, we'll let the market tell us.

So far here's what we have... 

From 10 a.m. to 11 a.m. the NYSE TICK was swinging wildly between + and - 1000, then mellowed to a +/- 750 range and now has mellowed even more to a tight +/- 250/500 range. In other words, the market or market of stocks is moving a whole lot less as we get closer to the release of the minutes at 2 p.m.

The USd/JPY and AUD/JPY are choppy, but trendless, EUR/JPY got a boost, maybe something Draghi said? In any case, it didn't translate over to Index futures which seem to be in a holding pattern, waiting on the 2 p.m. release of the minutes from 6/18 F_O_M_C.

 QQQ intraday, the red box in today, this is only a 1 min chart, but it seems almost as if higher prices are being shut down by market makers or specialists.

The 2 min QQQ positive from yesterday and the same trend mentioned above today thus far.

The 5 min chart is overall in a good place, not seeing the smaller negative divegrences, they aren't large enough to show up here yet, this is one of the few reasons I think the initial idea of a bounce is still on track.

And at 15 min, the negatives that have been taking the Q's down, nothing has changed here, thus the reason I suspect a bounce would be all that we could expect and if that's so, I'd want to use it as I showed yesterday and last night.

IWM 1 min seeing similar behavior, stronger yesterday, today almost as if higher price moves are being intentionally suppressed, but not much in the way of intraday accumulation, it reminds me a lot of the TICK chart.

IWM 15 min as a reminder of why I would short in to higher prices if we got that bounce.

Note the dramatic change in character as soon as Q2 was over/Window dressing.

And the larger IWM picture through the suspected top area, 3C is at the worst leading negative divegrence of the entire pattern.

SPY 1 min almost the same trend as the other two above intraday

A closer look shows there's almost nothing going on.

The 2 min chart is more of an accrual of all activity since yesterday, still in leading positive position so I'd guess a bounce is still on track, but I also suspect initial knee jerk volatility on the release of the minutes is going to look very confusing.

SPY 15 min, again why I would use any bounce to short in to and the dramatic change in character as soon as Window Dressing and the QTR was complete.

SPY long term 4 hour through what I suspect is a broadening top, again, like the IWM, 3C is at new leading negative lows.

Intraday DIA actually looks the worst, this is part of the reason I wonder if we don't see an initial knee jerk lower ad perhaps that is accumulated rather than the "W" shape base, it's hard to make such assumptions though based on 1 intraday chart.

The DIA 5 min overall, still in decent enough position for a bounce.

And 60 min , look at the 3 tries for 17k and 3C at each, again, another major market average at a new leading negative low, this is why I think we really don't have much time left along with other signals like yields, treasuries, SKEW, utilities out-performance, etc.