Daily Wrap.. Don't Want to Miss

Lots of interesting things going on today, whether it be the EU's Lehman moment with wildfire like contagion or Ms. Yellen's 180 reversal which as I suspected, she sent Bullard out on the "Market is Wrong" tour.

I showed you earlier the reasons I think we have a bounce coming or really it already started as we expected it this week as posted most of last week and on Friday in, THE WEEK AHEAD.

There are some VERY interesting signals I haven't seen since the 2007 top and that just adds to my suspicion that we are at the market top (bounce and all) and further reinforces my decision to let core shorts stand and not to get too fancy trying to trade around them,

First, yesterday we closed what was only a piggy back trade, not the real destination which is the pullback and re-entry of GDX/NUGT long, but we needed a pullback first. I suspected the breakout in GDX above the base was a head fake move as volume and 3C was totally off, yesterday I closed the DUST long, Closing Friday's DUST Long For Now for an 8% gain thinking (as we saw some positive divergences) that GDX would see a 1-day bounce off support of the base and GLD a 1-day bounce off support of the 100-day moving average and that's what 3C was showing, a short term bounce for maybe a day before these two continued the pullback we've been expecting. Some of you wondered what happened as DUST headed higher today and GDX and GLD, here's what happened...

 Note right around 11 a.m. GLD dropped hard, I showed you the tight correlation between GLD and GDX earlier today... GLD found short term support yesterday at the 100-day moving average, but after today, GLD saw the worst 2-day drop in 10-months, this is along the lines of the pullback we've been expecting.

GDX saw a similar break, the red trendline is the base support from the breakout which it found support at yesterday. Note the time of the GDX break, the same time (DUST moves opposite GDX).

That gave us a closing GDX candle that looks like this, a clear break back below the base's resistance, volume was up as the long chasers were stopped out as they predictably place their stops just below the trendline breakout area.

GLD ended the day like this, breaking right through yesterday's 100-day support/

Now there are differing opinions as to why this happened, but at the same time as the GDX and GLD break, someone sold 17,000 gold futures contracts at a notional value of $2.3 Billion dollars, that's what sent GDX down and DUST up, there's no way we could have known that yesterday as most institutional investors don't want you to see their cards, this one did, this was a purposeful trade as no one would trade that many contracts at once as it drives price against your position.

This was done for a different reason, whether to try to rescue the market from the Yellen decline or to break support of GLD and GDX and kick start the pullback we have had strong signals for, who knows, but it was intentional and the cause of the GLD/GDX and thus DUST moves today.

Remember, DUST was just a piggy back ride to make some extra cheese and we did okay with +8% for a day, but that's not the trade we are looking for.

The reason I went with IWM calls today and left the Core Short in IWM (SRTY) alone, is because of the incredible market weakness, not just since we called for a bounce and the weakness started right with the bounce yesterday, but because of many reasons I've been highlighting and I have a new one to show you in a bit.

For now, Yellen...

Unbelievably, Yellen, "Ms. The market valuations are fine" actually came out and spanked the momentum crew.

We were proven correct again... Remember when Jim Bullard of the St. Louis F_E_D came out on Fox Business News a few weeks back and said, "The market is wrong" and interest rates may rise as soon as Q1 2015, back then this was TOTALLY at odds with everything Yellen had said at the post F_O_M_C press conference. At the time I said, "There's no way a regional F_E_D president comes out and says things like that without Yellen's approval". Later we saw the F_O_M_C minutes and sure enough, they were more hawkish than Yellen's press conference, but there's more starting today at her Congressional testimony and this is what I've been saying the market has been reacting very negatively to since the F_O_M_C,  and in particular, SINCE THE END OF Q2 WINDOW DRESSING STARTING 7/1 AS I HAVE POINTED OUT NUMEROUS TIMES IN NUMEROUS ASSETS.

Did you catch it today? In Yellen's testimony (the very same woman who made the market feel like interest rates would not be hiked until LATE 2015 or 2016 if she had her way), is obviously feeling the pressure of inflation as she said today to Congress... This is exactly what we've been saying since CPT came out a day before the F_O_M_C.

Yellen today:

"If the labor market continues to improve more quickly than anticipated by the Committee, resulting in faster convergence toward our dual objectives, then increases in the federal funds rate target likely would occur sooner and be more rapid than currently envisioned," 

Well of course the labor market is going to continue to improve, the F_E_D and BLS found the secret to lowering the unemployment rate, here's how simple it is...

from Zero Hedge

All you do is reduce the number of Americans counted in the Labor Force Participation Rate which as you can see, has crashed. With less unemployed people counted, of course the unemployment rate drops, in fact from 10.1% to the current 6.1%. That's easy, so yes, rate hikes are coming sooner than later just as we have been saying since just before the F_O_M_C when we saw the trend in Core Inflation/CPI. As I said back then, this is the one metric that ties the F_E_D's hands and makes them hike, Yellen is just finally getting around to slow-boiling the frog and letting the market know a little at a time, but when the hikes come, they won't be so easy to hide and Wall St. has known this, look at the size/length of the base in gold and gold miners which are bought on INFLATION EXPECTATIONS.

Lets see... According to Yellen's testimony, the economic outlook has "considerable uncertainty", the housing market has been disappointing, showing "little progress" as interest rates have "edged" higher. So what's the prescription for a weak economy and a weak housing market being hurt by slightly higher interest rates?

A RATE HIKE, sooner and bigger than expected. Nothing will send mortgage rates higher than rate hikes from Zero to 4% and what does that do for the economy, Cap-Ex and consumer spending? Well as bad as it has been, guess what? It will get worse! However, not as bad in the F_E_D's view anyway as rising and out of control inflation.

In fact, Yellen actually managed to turn the whole thing around 180 degrees and said...

"If economic performance is disappointing, then the future path of interest rates likely would be more accommodative than currently anticipated," 

According to Yellen's F_O_M_C press conference, she gave the market the impression that rates were likely to be held "LOWER" for longer and raised in small increments, that was the market's anticipation listening to Yellen who they obviously didn't believe as the SKEW jumped right after. However, now "Current Anticipation" is for larger rate hikes sooner!!!

She didn't even use coconut shells (the shell game)!

 Asked about the timing of the first rate hike, Yellen noted that "almost all" participants expected the first rate hike at some time in 2015, and that the median projection for the fed funds rate at the end of 2015 was "around 1%." At the May Joint Economic Committee testimony, she said "most members believe that in 2015 or 2016 normalization would begin under their baseline outlook." 

Lets assume 4 rate hikes of 25 basis points each through 2015 and the expectation is for a 1% F_E_D Funds rate at the end of 2015, that puts the first rate hike SIGNIFICANTLY before the market expects, likely Q1 of 2015! That's pretty far from the May statement of beginning normalization in 2015 or 2016!

It seems  we may have only been half right about inflation as she noted concerns regarding wage growth failing  which would  significantly outpace inflation.

In another development, someone in the mainstream financial media has finally pointed out that major red flag I've been highlighting nearly every day since late June...SKEW!!!

Bloomberg: More Costly Protection Seen in S&P 500 Options

"Investors are paying up for protection against a drop in U.S. stocks as they never have before, judging by the performance of an option-based indicator."

The SKEW “is flashing a big warning signal for equity markets right now,” Kevin Cook, a senior stock strategist at Zacks Investment Research Inc.

Speaking of which...

Note SKEW advanced right after the F_O_M_C . It's not just the reading is elevated in the red zone for a market crash,  it's how fast the rate of change took place and how long it has been elevated.

Our Leading indicators as recently shown are flashing bright red signals, among them, High Yield Corporate Credit and Junk Credit, "Credit leads, stocks follow.

 I thought HYG would help lead a bounce this week, instead it has sold off.

And look at the divergence vs the SPX since... You might have guessed it, July 1, the first day after Q2 Window Dressing ended.

Junk Credit also sold off today, but more importantly...

The bigger picture , again since 7/1

We also suspected our Most shorted Index would be squeezed...

 MSI intraday vs the SPX (yellow)

MSI since, you guessed it...

The Dominant Price/Volume Relationship of the major Averages' component stocks today was one that fits with a bounce as envisioned in the IWM today, that is Close Down/Volume Up, this usually is a 1-day oversold signal with the next day closing higher.

However as I was going through my Breadth Indicators, I saw a strange pattern I haven't seen in some time, not like this, take a look.

 These are Breadth indicators, pure numbers. This particular kind compares the indicator which in this case is the Percentage of NYSE stocks trading 1 standard deviation ABOVE their 200 day moving average. As you can see, there's an odd, almost straight down move, in this time the percentage has gone from 59% to 48%, meaning fewer stocks are 1 standard deviation ABOVE their 200-day moving average  or more stocks are trading under it. Again, it's the rate of change that is really surprising and noteworthy.

 This is the percentage of NYSE stocks trading 2 standard deviations above their 200-day, it has fallen from 27% to 17% very quickly.

This is the percentage trading one standard deviation above their 40-day moving average, this has fallen from 57% to a mere 28%! Look at that ROC!

 This is the percentage of NYSE stocks trading 2 SD's above their 40-day moving average, momentum stocks and they have fallen from 31% to 29% and now to 9%!!!

 And the percentage of all NYSE stocks trading above their 40-day moving average, down from 74% on July 1, remember that Window Dressing ended as of 7/1, and fallen to 54%, only 54% on NYSE stocks are above their 40-day moving average.

I knew I recognized this pattern so I looked back...

This is the percentage of NYSE stocks trading 2 standard deviations above their 40 day moving average at the EXACT 2007 top, notice anything about the pattern in the Rate of Change? That's a move of about 22.5% to 4.5%, not too much unlike our current move from  28% to 9%.

Hmmm...

Market Update

Lots of damage, but the IWM wants to bounce, likely needs to bounce after a 4% loss last week, there are probably more than a few market makers underwater. Yellen's comments today for all intents and purposes took the legs out from the market, but the initial reactions you see aren't how Wall Street works, they're too big, positions are too large, like the 117k Gold contracts dumped today all at once ($2.3 billion), that's not how Wall St. does business, they are quiet about what they are doing. Make no mistake, that dump of gold was intentional and was made to be seen, no firm would ever make a dump like that all at once unless they were trying to accomplish something and I'll show you after the close what that was.


I considered closing (briefly) my SRTY long (3x short IWM) and taking out a piggy back long in URTY (3x long IWM), but there's so much damage that the market gets unpredictable, like AAPL when it broke down so a call with a defined risk to act as a hedge works perfectly and leaves my big picture positions alone, I suspect I'll be very glad I did so very soon.

As for the IWM, like I said since last week, it has looked the strongest of the averages, it also took the worst beating and more today on Yellen (4% down last week wiping out all of 2014 gains), there are likely some market makers and specialists caught with inventory they need to dump at higher levels and that's likely what this is all about, but a rising tide lifts all boats as they say , just not equally. All of the ETFs of the major averages (except the  IWM, but close) put in short term "bounce" reversal candles today, most in the shape of a hammer, what is important is that all were on increasing volume, short term oversold from this afternoon.

As far as the IWM...

 IWM 1 min, this isn't a heavy accumulation signal as it's only 1 min, but it's right at and after the volume surge which despite what technical analysis tells you, is more often than not a short term reversal signal.

The real strength in the IWM is out here on 5 min charts which today only added to its divergence.

Even at the 10 min chart we have something akin to a short term or small double bottom.

This is why I was considering temporarily closing the SRTY which is one of my core short positions along with SQQQ and FAZ and opening a URTY, basically to trade, but I don't think this is the time to trade. Yellen's testimony was pretty much about as shocking as you can expect from her and was a lot more than anyone expected, most thought she'd carry on with her dovish drone, but she actually went for the legs of the market. Without the momentum stocks, there's not much left and they've already been sold off pretty hard this year which is why I have been saying it would be the momentum stocks like NFLX, FB, TWTR, P and AMZN along with IBB (NASDAQ Biotechs) which is exactly what she went after today, social media and biotechs, AMAZING.

 The 15 min IWM is not that impressive, in fact it's not bullishly impressive at all, if it had been I may have gone with URTY long, but being there's not a 15 min divergence (positive)of any significance and being the market is so torn up as you'll see below, not to mention the SKEW which remains in the red zone meaning traders and these are not retail traders, are buying deep out of the money puts and you don't do that unless you perceive a high risk of the market suddenly dropping and making those deep out of the money strikes worth something. Thus I'd be pretty remiss to be gathering the data for a market decline that I believe will be historic and then missing the trade.

 As for the 60 min IWM, well the chart tells the story, but it gets a lot worse than this even as price is nearly at the same level as March or recently was, while 3C is at a new low for the year, that might be acceptable and not a red flag if the IM was trading at $100 like last September, but not here.

The other averages got a little coat-tail ride from the IWM and from the intraday min-selling climax, but I wouldn't even open calls in those on spec terms, the 5 min charts are damaged and significantly so for 2-days. It use to be a Wall St. sponsored bounce ( and we know it's Wall Street sponsored because we could see them building it last week) would move up for 3-5 days after hitting a short squeeze before you'd see the first signs of distribution, this was on the first day, actually right off the open.

Looking at SPY 5 min just for context, 3C is already lower than the accumulation area from last week. Price was recently (this morning) near the highs from the start of the month, however compare where 3C is (between points A and B...compare both price and 3C's location at the relative same area).

 This is the Russell 2000 Futures, "TF" intraday 1 min, they show the same 1 min accumulation as IWM right after the Yellen inspired, "Don't fight the F_E_D sell off", but to overcome that little hiccup, price just needs to be pushed higher a the Buy the Dip mentality is deeply ingrained in retail traders' minds, but they don't even understand why buying the dip worked and why what caused it to work is no longer there.

It amazes me that traders just think the market will keep rising because that's what it has done, that they don't recognize it was the F_E_D who pushed the reach for yield and it's the F_E_D who is now exiting the market, obviously aware of the bubble they've blown , but trying to be careful not to blow it up too badly.


As for those 5 min leading negative Index Future charts like Russell 2000 futures...

 Today the Russell 200 caught DOWN to the divergence, short term anyway.

Here's the real problem and why we are past the narrow rocky outcrop...

 4 hour Russell 2000 futures with 3C at the lowest low o the chart, but the R2K isn't alone even though it has been the weakest performed recently...

This is SPX futures, note where 3C is.

And NASDAQ futures, not where 3C is.

So for now, I think the IWM call position is a smarter bet than dumping a core short to try to make some extra trading profits.

I'll have more in the daily wrap in just a bit.

Trade Idea / Set-up (Intermediate term Position/Longer Term Trend) SLW

Here are some charts of SLW, this is a trade I suspect you could enter right now short and be fine, but I don't like chasing anything, I'd rather let the trade come to us to give us a much better entry and risk profile.

Intermediate term the silver miner should be a nice short, at some point when that ends and a reversal process sets in which may be around the same time as precious metals and Gold miners in general, SLW should make for a nice longer term trend trade LONG position, but one bridge at a time.

 SLW's daily chart has a confirmed Candlestick Reversal (bearish) which is a Star with a Bearish Engulfing candle the next day a confirmation, today's higher volume sell-off creates a probability of a short term oversold event starting to play out and that's where this becomes a high probability/low risk position.

 The daily 3C chart shows the last distribution cycle and stage 4 decline coming in to a rectangular base that is roughly the size of several of the gold/ gold miner bases. As you can see on this very strong daily chart, the further to the right in the stage 1 base, the stronger the positive divegrence as it should be, but it just hit the top/resistance area of the base and should come down, I suspect along the lines of GLD and GDX at which time it may make a great long entry.

Intraday after what looks like a possible short term selling climax (volume), the ROC of price died down and it's nearly moving sideways in which it can form a short term base to bounce from which  is what we need for a short sale entry, a bounce.

 The 4 hour chart is very strong like the daily so I suspect the next pullback may be the last before this breaks out to the upside, but in the mean time, it looks like a decent short.

 Here are the last two accumulation areas in the rectangle on a 60 min chart and you can see negative divergences as they approach resistance of the base.

 The 30 min chart shows the last accumulation area (stage 1), then the run-up (stage 2) and the negative divegrence (stage 3) / distribution, this looks like a solid downside reversal and that's the short play we'd be looking to ride.

 The 10 min chart with trend confirmation until resistance is hit and a leading negative divegrence, just along the same timeframes as GGDX/GLD's divergences.

 The 3 min "timing" trend should be clear without any notations.

It's the 1 and 2 min intraday charts that look like a small base for a bounce is building which we can use to short in to, otherwise I prefer not chase this .

My X-Over system has a confirmed long, the price moving averages had a whiplash, but the other two indicators kept SLW a long until recently when all 3 went sell/short. Typically after a new signal on this screen we see an initial correction to the 10 (yellow) or 22 (blue) bar moving averages, this is where I'd set price alerts, $26-$26.50 and up, that's where a bounce would reduce the risk of a short entry substantially as well as give us much better positioning.

My daily trend channel held the last short trend until the white arrow where it stopped out and held the long trend until today's red arrow , this would be on a closing basis. However, as is often the case, reversals aren't clean like this and after the Trend Channel gives a buy/sell signal, price often bounces around in the channel before moving in the direction indicated (down here). It's this bounce that gives us an edge in SLW short, it would likely also give similar entries in SLV, maybe GLD and GDX as well for short/pullback trades, but we'd have to check that.

I'm setting price alerts, if you like this as I do because of the clean signals and the base that makes sense, I'd set price alerts as well.

Trade Idea (Options/Short term) IWM Call

This is a dangerous trade in my view because of all the damage to the other averages, while the IWM still looks very good for a bounce.

I'm going to open an August Standard IWM $114 CALL for a bounce in IWM. I have even considered temporarily closing SRTY and buying URTY, but that in my view is very dangerous as I'm using that as a core position, I'll need a lot more evidence before I'm willing to mess around with core positions.

For now, I'm going with the IWM Calls.

Market Update

There are hundreds of data points to check between assets and multiple timeframes, confirmation, non-confirmation, etc. so in some cases I'll be feeding this stuff out as I get it, but in my view it's all important as we have to know where we are, where we are likely to go next and where the highest probability resolution is so we know how to use each one of these moves. In my view, all of the market updates can be traded from, they are not just information.


Since you've already seen the IWM which has looked the best because it has lost the most,, I haven't included it. However, with a fundamental surprise (assuming that's what it is) like Yellen's slamming of momo stocks, Wall St. is assumed to react instantly as sellers, but more often than not they'll bounce the market like small caps, momos, the IWM and that's where they do their selling, that is what we have wanted to use this bounce for this week since we first identified the first probability of it on Tuesday and as it added to that probability through Friday, essentially doing what smart money is doing, that's why I have been holding off on short entries.

If Yellen's comments caught Wall Street off guard, then they'll accelerate the process, if not, then they'll stay on track, we always suspected a bounce would be led by momos and biotechs interestingly, this post from July 8th went through all of the set ups for the momentum stocks on a bounce including Biotechs, but even before that at the mid-May bear flag/head fake.

 SPY intraday 1 min, again not a strong timeframe, this isn't accumulation to start or add to long positions, this is intraday steering performed by market makers, specialists and HFT/algos.

In a fast market when a market maker has no choice but to take dropping shares at market price, they will want to unload them at better prices.


 The underlying damage that was seen yesterday starting on 3 min charts and moving to 5 min charts (3 min above) continues today as you can see,  it's almost as if yesterday's damage was on inside information of Yellen's prepared comments or her, "The market valuations are fine, EXCEPT in these stocks".

 SPY 5 min shows yesterday's damage and off the open, today's has grown much worse.

The importance of a 5 min chart is it's really the first timeframe where we see institutional movement on an intraday basis.

The divegrence from last week that helped us forecast a bounce for this week is now nearly destroyed, this is much faster than past bounces that were Wall St. sponsored.

 DIA 1 min showing distribution off the attempts at new highs and a small positive divgerence at the lows like the other averages.

The 2 min chart has no confirmation in the DIA

Nor does the 3 min chart and these are fast enough charts that they can confirm in an hour or so.

The 10 min DIA is already showing much heavier damage over the last 2 days, especially at this morning's gap up.

And look at the damage on a 15 min chart to the far right, the last 2 days only.

This is the longer term picture of the same 15 min chart with some SPX reference points. The leading negative divegrence is the same as the other averages at the area where we suspected the SPX would pop above the 3 month range, in fact in May my exact comments were that there would be no significant move lower before the obvious range is taken out on the upside with a head fake move and the leading negative divergences in the averages during this time period looks exactly like what we have heard from BAC and others dealing with institutional and retail clients, the first are net sellers, the second are net buyers, typical leaving retail holding the bag. You may recall the BAC chart of client types.

Institutional net sellers picking up activity, who are the buyers? Retail. This is in line with Apollo Group's CEO comments from last May, "We've been selling everything not nailed down for 15 months now".

I just recently posted the video of him at a Financial conference making those remarks which fit perfectly with 3C and Bank of America's client types.

 QQQ 2 min intraday accumulation of the lows.

Yesterday's 3 min QQQ damage

Yesterday's 5 min QQQ damage and today's additional distribution.

QQQ 5 min chart in perspective with last week's positive divegrence, it's nearly run out.

 QQQ now seeing leading negative 15 min intraday action

The MSI intraday

MSI over the last week plus shows these have been sold and shorted heavily, this is a macro trend, but also sets up a short term short squeeze.

And another view of a short term H&S top in the Russell 3000 and the MSI at the right shoulder dislocating negatively.

I mentioned strange accumulation in VIX short term futures, here's a wider look at a 10 min chart, note the accumulation is at the typical lows and leading positive,  this is one of many reasons I think this could be our last chance to get in to shorts while still in tops, another is the right shoulders of many H&S tops are already broken.

Intraday TICK data shows a massive selling reading of -1600 and on the upside mostly at +750 with a spike at +1000

My custom SPY/TICK indicator showing the intraday trend.