Seems to be a Market top

First overnight it was the market was soft, especially the Russian stock market, on US sanctions, then it was  accusations that the apparent downing of a Ukrainian SU-25 Fighter jet was said to have been shot down by a Russian fighter jet. Not too much later Malaysian flight MH-17 with 280 passengers and 15 crew was brought down by a surface to air missile, not too shocking considering heightened tensions over the downing of a Ukrainian fighter jet. Then the IDF commenced Operations in Gaza and the White House was put on lockdown over an unattended package!

CNBC's take: "This is the teflon stock market... nothing has hurt it in the past... maybe this is a buying opportunity"

They are largely correct, past conflicts such as the Arab Spring had almost no effect on the US markets, but that was while the Bernanke Put was in place or QE.

In fact to follow up on the effects of interest rate hikes and the lack of QE which is set to end with $15 billion taper in October, this chart shows how the market reacted between QE programs, not well...

the two areas that had no F_E_D policy in place at the time are two of the larger pullbacks in the market, otherwise the F_E_D has been there the entire time with the Bernanke put, this is why I keep saying this is a Ginger Bread house built on F_E_D liquidity/Balance sheet expansion and that is ending and rate hikes are coming which I showed the effects of yesterday, instant bear markets.

The F_E_D's James Bullard (The markets are wrong) said today that the size of the F_E_D's balance sheet expansion poses Inflationary risks. So yes, they will hike rates sooner than later and inflation is already a problem.

As we saw last week, the market prepared for a bounce this week, since it started Monday it has been nothing but weakness every day, unusual weakness for a Wall St. sponsored bounce.

Leading Indicators have collapsed, Credit has collapsed, the 10-year yields vs the SPX look exactly like they did at the 2007 top and now market breadth as posted Tuesday night has collapsed, again not seen since the top of the market at 2007.

After 65 consecutive days of the SPX not making a move greater (up or down) than 1% ( which at 47 consecutive days was a record not seen since the early 1990's), today the SPX finally closed down more than 1% at -1.20% with the Russell 2000 leading down 1.58%.

All of the signs and signals including those from the F_E_D itself have been there, that's why I have refused to close any long term/core short positions even when there appeared to be a trading opportunity, my core/long term trades are aligned with the underlying long term 3C charts and they paid off well today with SRTY up +4.52% now at an overall double digit gain, SQQQ up 3.97% and FAZ up 3.55% on the day.

We also have nice gains in recent short positions SCTY, Z and HLF, almost all in the double digits already.

10-year yields were down 7 bps today to 2.45% which is almost a 13 month low. I had done a long term market comparison of yields at several major market tops, a bottom and a -20% correction, what I found was the 10 year yield (whether you believe in the yield curve inversion theory which worked 6 of 6 times in the US , but only 1 of 7 times in Japan) or not, has shown clear evidence of falling 10 year rates at major market tops and significant declines which I posted, look a lot like this...

 This is the SPX at the 2007 top and 10-year rates declining in to the top, whereas they usually move with the SPX. This also happened in to the 2011 -20% decline and in inverted fashion at the 2009 low.

The market and 10-year rates right now look a lot like 2007.

The SPX vs 10-year rates now diverging again on a large scale.

Gold moved up $20 today, which is something we expected in both gold and gold miners yesterday, but I'm sure market events intensified the move. I still anticipate a pullback in both as the base that was formed yesterday for today's move really isn't enough of a base to take the assets very far.

The VIX , which we saw accumulation in this week (VXX/Short term VIX futures) saw its largest range since August of 2011.

Finally shorter term fear catches up to the larger Black Swan market crash fear that has been evident in the SKEW Index since 6/18, the last F_O_M_C meeting. I don't have the current updated SKEW reading for today yet as I'm waiting on the CBOE update, but as you have seen, it hasn't only been the elevated level, but the rate of change and how long the SKEW has stayed elevated, something we pointed out nearly a month ago while mainstream financial media just picked up on it this week.

Several weeks ago I warned that numerous watchlist components and market averages were all sitting at the top of right shoulders such as the IWM/Russell 2000, for those who wanted shorting opportunities that didn't take them then or for other assets that weren't quite ready, we were looking for a decent bounce this week toward the top of the right shoulder, but unlike bounces of 2014 that have been extreme , sentiment changing events, it appears this one has been the start of a series of lower highs and lower lows as I pointed out this week with a chart of the right side of the IWM H&S.

 Russell 2000 recent top of the right shoulder of a major H&S top, confirmed by volume analysis.

Unlike past 2014 bounces, this week's seems to have been a simple lower high/lower low bounce much like the right side of the R2K head.

In other words, while there are still many excellent shorts and will continue to be many excellent opportunities, it does appear that the market top is in.

As pointed out numerous times recently, the Institutional Risk asset of High Yield Credit has been flashing long term warning signals on our leading indicators.

 This is the reason we created the Leading Indicator layout as High Yield Corporate Credit (An institutional risk asset) is giving and has been giving clear warning of a market decline as "Credit leads, stocks follow".

In the F_E_D created "reach for Yield", even High Yield Junk Credit has been bid up, it too has been warning as we have been posting often recently.

JNK vs the SPX.

Intraday, both of our sentiment indicators were in line with the SPX's downside move.

All nine of our S&P sectors closed red. Of the 239 Morning Star Industry and sub-industry groups I track, 229 of 239 closed red, only 8 closed green (two unchanged) and 2 of the 8 were gold and silver.

While we do have some intraday 1 min positives (relative divergences which are the weakest form) in SPY, QQQ and IWM...

 SPY 1 min relative positive divegrence which may be used for tomorrow's monthly options expiration pin.


 QQQ 1 min

However at 2 min, there's nothing better than in line with the losses today like this IWM 2 min

The SPY 15 min shows the amount of severe damage just since last week's bounce set-up/divergence

QQQ 15 min leading negative divegrence this week.

Only the IWM is still holding a fairly decent 5 min positive divegrence even though it saw some deterioration today.

IWM 5 min positive, this is why I have the calls in IWM, but refuse to go any further than that.


The USO bounce we were looking for in the post, USO Trade/s Set-up from Monday July 14th, has seen the initial move, which should be setting up the larger trade we are looking for in USO.

The 7/14 bounce/longer trade set up. It looks like the Hanging Man candlestick today may set up the larger part of our USO trade described in the link above from Monday.


The Dominant Price/Volume Relationship was Close Down/Volume up, this is a bearish P/V relationship, but short term often represents a 1-day oversold event and a bounce is not unusual the next day although tomorrow is an options expiration day for standard monthlies.

In after hours we have leading positive intraday (1 min) divergences to the upside in Index Futures, perhaps  an oversold bounce for options expiration pin, we get some of the best data for the week the last 2 hours of Friday.

I plan to hold core shorts, add to them when possible and remain patient.

GDX / DUST follow Up

GDX is starting to show signs that it's running out of steam, I would prefer to wait for stronger signals before considering a DUST long and see a gap fill in GDX, but for now, here's how things are shaping up.

 GDX 1 min showing some distribution on the bounce expected today, however there are stronger signals.

Like this 2 min and below at 5 min.

5 min GDX. I'd like to see the gap at the orange trendline filled and of course the indicators giving stronger confirmation before re-netering DUST.

GLD is still mostly in line and has a bit further to go to fill its gap.

Z Position Follow Up

Our recent Zillow Short entered at $140.11 in now in double digit gains. This is one of several shorts I'd like to add to, including SCTY which has been moving our way and possibly add to our HLF short.

For now, Z is a hold in my view, let it keep working as the X0Over Screen just essentially gave a confirmed sell/short signal, although we entered it earlier on 3C signals.

 This is one of the concepts I have espoused, the seemingly bullish upside rate of change at "B", this is a red flag and almost always leads to a trend reversal or top, in a downtrend a bottom.

This is one of many reasons we opened the Z short, but a concept that is useful on all timeframes and in any asset.

The 60 min chart of Z gives a very obvious reason for us to short it, but the timing was more important as we got in right near the top at $140.11

The 15 min chart and our entry at the red trendline.

Right now, although the market is deeply oversold on a "normal " basis, but if this is the break I expect, this is just the start of something much uglier, I would personally not chase Z and wait for a counter-trend bounce, otherwise if you are already in, I'd just let the position work for you.

Our X-Over Screen just gave a confirmed sell signal/short signal with the middle custom indicator likely to have crossed by the close.

I'd be interested in an add-to or new Z short position above $136 at this point, I don't know if we get there as broken as this market is (the most recent evidence was the Breadth charts posted Tuesday night which haven't looked like that since the exact 2007 top).

Israel Launches Ground Invasion of Gaza

This is partly what I mean by fundamental, non-discountable events occurring. Al Jazeera just reported Israel has launched a full-scale invasion of Gaza, this in addition to the Malaysian flight shot down over Ukraine.

And we have comments from the F_E_D's James "The market is wrong" Bullard. I haven't seen those yet.

Market Update, Intraday Bounce? IWM

The IWM is still the strongest. One of my last updates I expected a "W" like base this afternoon and we have that in a lot of areas.

Right now I'm inclined to stick with the SRTY longer term core short and the calls just opened, I considered adding to those calls if IWM made a break below support today, but there's just so much damage everywhere else, I just can't justify adding any more exposure without a much stronger reason when the SRTY position is fully hedged.

For example...

 IWM 1 min with a positive divegrence at the move below support I was looking for to potentially ad to the IWM call position already in place.

Intraday this is what I was looking for, possible a move below this "W" base before anything on the upside develops, but this 5 min positive tends to confirm what I expected, a slightly larger, wider base area here.

 This is really the real reason for having ANY long exposure to IWM, a 10 min positive divegrence that has held up for a week. This is what justifies the call positions that are acting more as a hedge for the SRTY core position that I will not let go of.

 Right now, there's just too much damage in the market like this SPY 10 min, the entire bounce area has been distributed heavily, it's hard to trust a market that has a single average that looks like it can bounce, especially with fundamental events changing so fast (i.e. Portugal bank defaults and increasingly hawkish F_E_D tone in a VERY short space).

 QQQ 1 min has also formed the kind of divegrence I was looking for intraday, but again...

There's just too much damage to take any more long exposure which is a known quantity as they are calls. I WOULD NOT let go of my current short exposure, I'm also not thrilled about entering new short exposure with a possible IWM bounce right on the edge.

For now, unless/until something really jumps off the charts, I think patience, maintaining short exposure is the most prudent strategy.

UNG Update

UNG / Nat Gas saw a gap down this morning, I'm not sure if that "could" be related to Obama sanctions, but the 10:30 EIA report didn't help as it came in at 107bcf injection vs prior of 93 at 10:30 a.m.

This looks a lot like a head fake move that wouldn't be unusual in the type of rounding bottom UNG has put in, but I suspect it is not a head fake move.

I'm not too concerned yet, as long as the intraday action keeps moving in the right direction.

 This is the move below the long term range at the top trend line and then this morning's gap on the open, but most of the damage came at the 10:30 EIA Nat Gas inventories.

 Here are the inventories

So far the accumulation today looks pretty good.

The 2 min chart is seeing migration already as well

And the biggest thing UNG still has going for it is the long charts like 30 min above, this is still the highest probability near term resolution.

As long as this stays flat and accumulating, UNG should be fine.

The last 1 min chart capture.

Since capturing these, I just saw UNG making a move on volume.

That's much larger volume than any downside volume, someone is obviously attracted to prices down here as they were at higher levels before today

Market Update

Everything is a bit noisy right now, but as I mentioned earlier, the upside intraday move didn't have much chance of going far unless it can create a larger base which would likely involve a head fake move making a lower low intraday.

Here's what we have so far, it's not a lot, but it would be the first chance the IWM has to put together its bounce as the head fake/support level we were looking for to be taken out as of yesterday has been taken out.

SPY intraday volume build up at the low and in line thus far, a pullback at least to the white trendline would give it a chance to forma base that it can get a better bounce off, more importantly the IWM. There's a very high probability even with a successful base area, that a lower intraday low would be created on a stop run move.

 IWM 2 min inraday doesn't look that bad all things considered so there's  a decent probability this base can hold water.

QQQ with the same short term volume capitulation leading to a bounce, but it will need more than that, essentially the same concept as the SPY.

And the IWM 1 min, not that impressive here, at least not yet.

The 2 min chart looks better.

Like yesterday and all week, sellers are firmly in control, I suspect the little upside break from the down channel will resolve with a move lower.

GLD / GDX Update

In yesterday's update, GDX / NUGT / GLD Update...

"GDX (Gold Miners) 5 min saw a larger volume event at the lows yesterday, often a short term reversal signal just like our Dominant Price/Volume relationship's, Close Down/Volume Up, tends to lead to a short term bounce the next day....I suspect GDX will break out above the base neckline again and possibly create another head fake move or bull trap.

This is the GDX 60 min chart with the important base neckline, I suspect a head fake/false breakout there, but just looking at the size of the reversal process, I DO NOT THINK THERE IS ANYTHING APPROACHING A REASONABLY SIZED REVERSAL PROCESS TO CREATE A REAL BREAKOUT, IT'S TOO SMALL, NOT ENOUGH TIME FOR ACCUMULATION."

As you can see from yesterday's post, a short term bounce was expected since yesterday in GLD and GDX.

Basically, yesterday's expectations for GLD and GDX are on track.

 GLD 2 min positives mentioned yesterday

GLD 3 min showing some weakness in to the advance, not a lot, but along the lines of expectations from yesterday's post.

The 5 min chart/base and likely gap fill target.

The 30 min GLD chart is still dominant as far as a pullback continuing.

GDX

 GDX was expected to pop back above the base resistance level as of yesterday, today it has.

So far the intraday 1 min is in line

As is the 3 min chart so no major weakness building in here yet.

The 5 min chart is a different story and shows the probabilities for resolution of this move.

The 10 min GDX chart also shows the same intermediate term pullback resolution probabilities.

The next trade as long as charts like this hold up will be DUST long, but still the larger trade idea is a pullback in GDX that we can buy at a deep discount.

So far, nothing much that wasn't expected