Daily Wrap

This week had a lot of big changes, many unexpected, some expected such as last Friday's call for a bounce this week, we saw a bounce in 3 of 4 averages, but a very weak bounce. I'm not sure what was more important, the F_E_D making it clear that they are going to be making moves a lot sooner and a lot bigger than expected or the fact the market has actually started discounting which it hasn't done in at least 5 + years unless it was F_E_D related as shown in last night's QE chart.

We expected a pullback in GLD and GDX, they have a lot more to go in my view, but were down just over 2% and -1.54% on the week.

Breadth was destroyed this week (and the last few weeks), as I have said, in some 15 years or so of watching these indicators, I've only seen them move like this twice, the first time was the 2007 market top.

Here are some examples...

 In green "Percentage of NYSE Stocks trading 2 Standard Deviations ABOVE Their 40-day Moving Average",  not only has this dropped significantly while the market is near tear to date highs, the percentage of stocks trading 2 SD's above their 40-day are nearly at new lows for the year!

Stocks trading 1 standard deviation ABOVE their 40-day moving average are at new lows for the year.

And ALL NYSE stocks trading above their 40-day moving average are almost half of what they were a month ago.

The SKEW Index is Still in the same elevated red zone, I saw today some other financial media outlets are taking notice of the massive dislocation between credit markets and stock markets, a major red flag and volatility, A change in character, is finally picking up which is common just before a change from 1 stage like the stage 3 top we are in with most assets and stage 4 decline or bear market. There are numerous other leading indicators also flashing the same red light.

As far as a bounce as I have been talking about since yesterday on a short term volume capitulation event and a IWM chart that has stayed positive all week as well as the positive divegrence in the index futures after the close last night, it's not anything unusual in the IWM's case, it's also not guaranteed, with the increase in volatility (after 60+ consecutive days of the SPX not making a move up or down of 1%), the last two days have seen moves in excess of 1% up and down, just look at the VIX yesterday. With an increase in volatility, you get increased unpredictability, look at the market discounting yesterday's tragic events, it didn't move at all on the sequential collapse of governments during the Arab Spring, it didn't move when we were saber rattling with Syria and Russia, it hasn't cared at all about Ukraine or Iraq, suddenly it's discounting a tragic plane crash.

These breadth charts have so much damage, no bounce, no matter how strong is going to repair them and if you think about what they really mean, they mean more and more stocks are trading lower and lower.

I think we do get a bounce in at least the IWM, we'll know more Monday as I expect a pullback as 3C tends to pick up where it left off, that will tell us a lot about whether the IWM still has it in it.

However, I'd be sure you are pretty much prepared. This is the kind of market in which the hedge fund herd breaks up and it becomes every man for himself and there's only 1 small door as we saw with AAPL's nearly 50% decline in 8 months.

All things considered, breadth, credit, SKEW, the IWM, 3C charts, weak bounces, F_E_D panic, I'd say we have already topped for all intents and purposes. I don't think chasing a 2 or 3% gain at this point makes much sense considering what typically happens next, a large gap down on some unsuspecting, seemingly normal day that takes out months of gains on the open. This is why I'm not moving any core shorts and only hedging here and there where it makes sense.

Have a great weekend, I'll likely have more on the bank/F_E_D collateral problem and the repo markets.

SRTY Positon Management

SRTY is at a decent gain (3x short IWM/Russell 2000) ) and I've been toying with the idea of closing SRTY briefly for a long URTY position to trade an IWM bounce, however looking at the charts and reminding myself why SRTY was entered (not as a trading position, but as a macro position), I have to keep pulling myself back from that idea even though it seems like a pretty cut and dry trade, so did AAPL. Instead I have decided to use IWM calls instead.

The SRTY charts are incredibly strong...

 Surprisingly there's no negative divegrence on the 3 min chart, I would have expected something here.

This is the 5 min chart and base area, even though the IWM does have a 5 min divegrence..

SRTY is in line surprisingly again. This is why I like to ise multiple assets as they will often give you additional information about the same underlying. It seems demand in SRTY has been high.

 There's a small relative negative on the 10 min chart.

However the 15 min chart is not only holding up, but in the strongest divergence of the year, leading positive.

As is the hourly chart.

This is the IWM 60 min which is what the SRTY position is really for, longer term macro trend.

And the IWM daily chart.

With the way the market acted this week, very weak on the bounce, a very weak bounce and discounting events that it hasn't since 2009, I wouldn't want to have been patient this long to miss that one morning in which the market gaps down and takes months of gains out on a single gap as most of us have seen at some point.

Z Position Management

I'm taking gains in Z short off the table, it's one I want to add to, but I figure I might as well add the entire position on a bounce and keep the current gains.

Market Update / NEXT WEEK

As I have thought all week, I think the IWM has to bounce before anything else on the downside happens. The IWM is down -6.28% for the month and almost a straight line decline, a bounce here would not be anything out of the norm.

The SPT Arbitrage indicators seem to be on board, a lot of 33C charts including a lot of momentum stocks and crowd favorite as I just posted seem to be on board and the market is simply oversold with yesterday's volume event/short term capitulation. someone on the Wall St. side had to absorb a lot of supply at horrible prices and they'll want to get out of that inventory. Almost all of this was obvious yesterday and in last night's post. The increasing volatility is typical of a market getting ready to move from one stage to the next, consider the upside rate of change in an uptrend just before it turns to a stage 3 top.

The one thing that I think you have to be very careful with if you decide to trade anything on a long bounce is the fact the market is for the first time since 2009 (other than a few brief months when there was no QE or TWIST in effect), actually discounting news , fundamental and economic events, it's the fundamental/news events that are the most dangerous as Wall st. often has no way of gathering an inside track in advance such as the downing of yesterday's passenger plane,  this is another very significant change in character.

 The IWM 2 min chart would be where we'd pick up next week as that's what we see most often with 3C, thus a pullback early next week which would create a wider base than today's "V" shaped base,  the key will be accumulation in to a pullback.

Look how long the IWM has been in a downtrend, since the end of Q2 window dressing, if that's not ironic, certainly not a coincidence which gives you information about the market's health on its own.

As soon as no one is able to see anymore, they are selling. Which is what we've seen all this week in to the weak bounce culminating in yesterday's sell-off.

The IWM 5 min also pointing to a pullback,  I have considered that this is doing damage to the base that has been in place and perhaps we don't get the bounce scenario laid out above, but I think there are too many other watchlist stocks to make that theory plausible.

 QQQ 3 min leading negative so again 3C tends to pick up where it left off, even over 3-day weekends so Monday should see the pullback and that's really the first and most important data point for the rest of the bounce theory.

I don't have very good charts in SPY and QQQ so just like IWM showed weak relative performance as they bounced (as weak as it was), we may see the opposite with IWM bouncing and SPY/QQQ acting very weak.

And SPY intraday/

I'll get some breadth charts up as that gives a very different perspective, but again, a bounce here is very normal...

 The right shoulder of the IWM since July 1st with over a 6% loss and a loss of all YTD gains. This is the pullback/base I have in mind to the right and yellow arrows as price action.

It wouldn't be any different than the decline from the right side of the head. Sometimes we watch the market too closely, that trend is obviously a downtrend, but the 2 bounces at the yellow arrows are both 5-day / week long bounces which don't look like much on a daily chart as they should be viewed, but intraday it seems like the end of the world.

NFLX, Z, P, TWTR, PCLN, AAPL, SCTY, TSLA

There's a reason I have been loathe to call out any short trade ideas without seeing that IWM chart resolve and I think it will based on the last post and what I've been seeing throughout the day. The breadth charts give a VERY different impression so I will get those up.

Some of these are tradable right now for short term long swing trades, most could really benefit from a pullback and I'd want to double check whether it was accumulated, if it was in the IWM then chances are it would be in the rest of these. It's actually the breadth charts that represent stocks like these that look the worst which also is part of why the MSI looks so bad.

In any case, whether you chose to piggy back swing trade these or not is a risk you'll have to determine, I'll try to give you as much information as possible, but this is exactly why I haven't called out short trade ideas this week on what has been a bounce in most averages until yesterday, a very weak one.

P 5 min much like the IWM timeframe, I'd much prefer a pullback here before considering a piggy back long and I think with any of these you have to be right on top of them.

 NFLX 10 min, again a pullback here would be very useful as most of the divergence developed today.

Z 10 min is probably tradable right here long, maybe a call. In any case, if there's going to be a pullback, Z would likely feel it as well.

TWTR is not my favorite, I wouldn't be involved, but it needs a bounce before it's really in a reasonable short sale area.

 PCLN, again a pullback would make this much more attractive.

AAPL which needs and probably will get a pullback.

AAPL 3 min looking like a pullback, as I said before maybe in to the close, maybe Monday.

 SCTY is a nice short that has been working well for us, I'd definitely want a pullback for a piggy back long before looking at a short add to.

TSLA 10 min, again a pullback would set up a nice swing trade along the lines of an IWM move.

I'll keep these on the WL for any near term trades, but the overall feel of these popular momentum stocks just seems to add to the probability of an IWM led bounce.

2 P.M. OP-EX PIN SHOULD START FADING

And I'd really like to see it do so as there are short term trades that are on the edge in several assets, the core positions I think need to be left in place and look at the market in terms of the trade rather than in terms of a longer term trade, but making decisions based on intraday moves and signals, it doesn't match up.

In any case, there seems to be enough of the right kind of divergences in the 3 SPY arbitrage assets (HYG, TLT and VXX) on the right chart, 5 min, to allow the IWM 5 min positive divegrence to finally fire, however an intraday pullback that showed accumulation rather than just in line would go a long way toward confirming that probability and would let me know if short term piggy back trades are worthwhile, in my case, specifically the IWM call addition, however any number of leveraged ETFs would do the trick.

Looking at leveraged ETFs, inverse and just leveraged, I see a decent probability of the IWM bouncing, strangely though there's no confirmation for TQQQ/SQQQ therefore QQQ. I'm having the same kind of trouble with 3x leveraged SPY, DIA and XLF as well. What seems clear is at least a short term pullback as mentioned in the last post. The 10 min charts are solid for continued downside, it's the 5 min charts that are the near term bounce and thus far the only one that has a decent signal is the IWM.

 Again, it's the 5 min charts and not much beyond that. I took a quick look (there are too many charts to post intraday) at breadth indicators again which have seen a dramatic decline which I've only seen twice since I've been watching these which is at least once a week for probably close to 15 years, that was the 2007 top and right now. I'll get some example charts up at some point, so the 10 min negatives after a 5 min positive like this make perfect sense for a normal lower high/lower low trend which requires a bounce and it absolutely normal.


 QQQ 3 min intraday with a sharp negative divegrence, thus these should come down and that's where the useful information is, to see whether 3C accumulates the move down or confirms it or if it does both in different averages which is a possibility.

 QQQ 5 min has a positive divegrence at yesterday's lows/capitulation selling or volume event.  As I said yesterday, technical traders almost always take this as a bearish short term sign and expect the market to be down more the next day, but I've found it's almost always a short term reversal and by short term I mean often a day or so.

In this case, the QQQ 5 min divergence is very weak. After this comes the 10 min which is horrendous.

 IWM 1 min intraday shows distribution in to higher prices today, the question is whether there's accumulation in to lower prices, that's the game.

And the IWM 5 min has maintained a strong chart through the week despite it has made no bounce.

Here's an HYG 5 min chart with a positive, for the SPY Arbitrage (short term market manipulation lever), HYG needs to move up, TLT and VXX need to move down. However there's a lot going on with bond shortages and "fail to delivers" so the charts in bond related issues may be very complicated beyond what we'd normally expect.

Still, for now the 5 min TLT shows a negative which is in line with activating the SPY arbitrage.

VXX 1 min is leading positive intraday which is in line with a market decline very short term, as in the next tradable move, but...

The 5 min looks like it saw distribution in to yesterday's highs and is also in line with activating the SPY arbitrage which really just fools algos in to thinking the market is risk on as the defensive assets retreat and the risk on HY credit asset (HYG) moves up and the algos follow the signal, simple as that.

 Intraday the Most Shorted Index (yellow) vs the SPY tried to move higher on a squeeze one more time , it looks like the market is getting a little traction from that now, so our decline may have to wait until the close or perhaps Monday, we'll see what 3C charts look like at the close as they almost always pick up where they left off on the next trading day.

The bigger picture of Most Shorted Stocks is very much in line with the larger macro trends, the 10 min plus 3C charts, the market breadth charts falling apart dramatically, the 10-year rates nose-diving and the SKEW remaining very elevated while the F_E_D seems to be in an increasingly contradictory mood, almost panicked, actually panicked as they seem to have several problems on their hands from inflation mixed with REAL falling wages, not inflation adjusted, their balance sheet being inflationary and the whole lack of bonds for collateral as we saw at the end of April and Q2 with the F_E_D's reverse repo facility setting all-time record 1-day borrow highs as banks have no collateral to leverage up their assets which the F_E_D is increasingly concerned about as they sent out a letter asking dealers why there's such a large "fail to Deliver" in bonds, the answer is simple, the F_E_D owns most of them.

I Would Consider Day Trading / Fading this

 QQQ intraday

 IWM intraday

SPY intraday and...

All of the index futures are looking the same or worse.

Market to come down intraday

The intraday charts are falling apart pretty bad now as well as the TICK, we should see some market downside shortly, that should have some good information for us about what comes next and whether filling out those IWM calls makes sense.

Market Update

Here are the charts so far, you'll notice intraday a lot of distribution in to higher prices, but I still think the IWM has a strong enough chart that it can bounce and all of the volume yesterday that was picked up by market makers/specialists (as they are required by law to provide a bid and ask and accept any market order at that bid/ask) at lower prices will likely be off-loaded at higher prices/bounce.

Keeping this in mind, "if" the IWM comes down in price a bit today and "if" there's an intraday positive on that pullback, I may go ahead and add the rest of the call position in IWM that I was considering adding until yesterday's market just fell apart.

 SPY 1 min in line yesterday and negative on today's bounce.

The 5 min SPY has a relative positive divegrence from yesterday's lows/short term volume/capitulation event. This is more in line with the IWM, not nearly the same quality of divergence though.

 The larger trend when you take the noise out on a 10 min chart

QQQ also seeing negative divergences in to today's bounce.

 The same is seen out on a 3 min chart today.

 on a 5 min there's a minor relative positive divegrence so again these are not very good quality divergences, but they are the first time this week that they have had anything positive like the IWM has held all week.

 The larger picture since last week's positive divegrence that warned us that we'd see a bounce this week and its leading negative status overall right now.

 IWM intraday also in line with the move down yesterday or confirming it and a negative divegrence on today's bounce.

The same on a 2 min chart

The 5 min chart divergence has been in place all week, it just hasn't launched. I was going to add to calls on a move below support as long as it was accumulated,  it was not accumulated yesterday, thus the reason I did not add.

I have a feeling we will see some intraday downside, if it is accumulated, I'll likely add the rest of the calls for IWM.

 The larger trend on a 15 min chart...

This is the macro trend of the IWM H&S top so if you look to the far right, you can imagine a bounce from where we are now and it would look very much like the downtrend from the right said of the head in March/April, so the macro trend is very bearish, but it is normal to see bounces within a downtrend just like pullbacks within an uptrend. At this point, these bounces are very useful for entering or adding to short positions as well a short term swing trading, you have to remember, this is a top pattern, it hasn't begun a real stage 4 decline yet.