Daily Wrap

Last Friday in the The Week Ahead post, when I said,

"My opinion is other than maybe some minor noise, the trend should move down, this will be reestablishing the preceding down trend in the Russell 2000 that has been in effect since just after July 1st as Window dressing for Q2 ended."

I meant minor noise as something like a gap fill from last Friday, today was true "minor noise" and not without repercussions for the market.

While we had a mixed close with the SPX + 0.03%, Dow + 0.13%, NDX +0.05% and R2K -0.46% with obvious weakness in the IWM, breadth saw more damage and the 3C charts themselves saw more damage than I'd expect for such minimal gains. For instance...

SPY 5 min after a positive divegrence at intraday lows this a.m. sees a deeper leading negative divegrence at the close.

QQQ 5 min intraday after a positive divegrence off the a.m. lows ends with a leading negative,  any bounce seems to be sold, even intraday.

IWM 5 min leading negative.

Transports are down for a 3rd consecutive day, -1.12% and close to the area I wanted and expected to see them break on an Ascending (bearish) Wedge.

The break above the wedge is my preferred shorting area on a head fake move, there is plenty of distribution in the area.

The VIX remains within its bullish Rising 3-Methods consolidation/continuation (bullish) candlestick pattern.

A textbook Rising 3 Methods has 3 candles inside, but it really doesn't matter how many as long as their real bodies remain inside the large bullish candle.

SKEW remains in the red zone and elevated for its 27th consecutive day.

 There was no MSI short squeeze on the open unlike last week, at least until Friday. The MSI has also been unable to hold any kind of short squeeze even when we have semi-decent signals for a bounce, they are just distributed almost immediately on any thing that resembles strength.

I showed you the AUD/JPY earlier which was in charge today and the negative divegrence in $AUD single currency futures, this is what the pair vs ES looked like...

AUD/JPY notmal hours (red) vs ES (purple). I saw a negative 5 min divegrence in $AUD today and thus far it has started to move to the pair...

AUD/JPY which had no negative divegrence to speak of earlier.

HYG was down as expected (remember when we expected a bounce HYG only had a 5 min positive so that can only take it so far.

High Yield Credit continues to diverge from the semi-exuberance (if we can really call it that) in stocks and is more grounded in reality...

HY Credit vs SPX.

As for our Leading Indicators, while there were no "jump off the chart smoking guns", they all deteriorated noticeably, much more than last week when most were at least in line, this includes Credit & professional Sentiment.

Of the 9 S&P sectors, 6 closed green, but the only one with a decent gain was perhaps not surprisingly...

The Defensive Utilities, way outperforming anything else.

Of the 239 Morning star Industry and sub-industry groups I track, only 97n of 239 closed green, this is a trend carrying over from last week of poor breadth.

Some breadth indicator examples...

 Percentage of NYSE stocks Trading 1 Standard Deviation Above their 40-day moving average is clearly negatively divegrence on the biggest tare of the year in a market that's not in correction.

 The NASDAQ Composite's A/D line which has fallen out since May, but has just gotten worse since July 1.

The Russell's are joining the Composite, the R2k A/D line above. The Comp., r2K and R3K have all ticked down the last 4-days consecutively.

Stocks 2 Standard Deviations BELOW their 40 and 200-day moving averages are near 2 month highs, Stocks  1 Standard Deviation BELOW their 200=day moving average are near 3 month highs & Stocks above their 200-day moving average are near 2 month lows, there are more, this is just an example.


There was no Dominant P/V relationship today. The only thing I see that might suggest a little noisier bounce are several of the major averages with "Hammer" candlesticks on a slight increase in volume which typically is a pretty decent indication of a close higher the next day, although the volume didn't stand out. A little more of a bounce would be welcomed as I said Friday in the "Week Ahead" as there are a number of assets that look like near perfect shorts, just too close to an obvious head fake area that needs to be taken out and can be used as the entry.

bRemember we have a ton of macro data, GDP, the F_O_M_C and Non-Farm Payrolls this week.

On another note...

 NYSE margin debt has recouped virtually all its losses and is now essentially back to all time highs,  investor net worth, defined as total Free Credit Cash and Credit Balances in Margin accounts less Margin Debt, has once again dropped to all time lows.

Lets hope al of these margin calls don't come at once, well depending on how your positioned you might hope that they do, I suppose I would hope that they do... BUY THAT DIP!

HLF Short Position Follow Up /Earnings

I don't care to get caught up in a spitting match between Carl Icahn and Ackerman, I don't care what Ackerman's knock-out presentation said about HLF, I kind of care that Icahn only added 1% to his HLF long according to his last filing, but other than that, HLF is a stock that I'm interested in for one reason and one reason openly...

It's the chart and underlying trade activity...

We recently added a little to HLF, Adding 25% to HLF Short Position ... I almost added the final 25% or so today, but I hate doing anything in front of earnings unless I can see there's a very clear probability of a leak.

In any case, HLF is down 11.4% in after hours after reporting...

AH is light blue to the right.

HLF is a poster child for the way companies have been keeping their share price up, instead of cap-ex spending they've been buying back shares, many on debt/leverage to create a sugar high rush or keep prices elevated a little longer, having nothing to do with the company's performance. I'm really not even interested in that so much, but it is a trend and HLF is a model. HLF spent about $1 bn in net debt for 2014, all cash creation and debt for 2014 has been used to buy back shares, $1.3 billon dollars so far for 2014 vs. $166 mn for the same time period during 2013. Simply said, HLF doesn't have the cash creation or the ability to absorb much more debt to keep share prices up by buying back shares and that's that.
 

 HLF daily negative divegrence in a H&S top and the 3 places I'll short a H&S top.

At "A" we have distribution and at "B" some 5 min accumulation the day before Ackman delivers his HLF knock-out blow presentation, I suspect Icahn sought to humiliate Ackman on his big day as HLF was up the most ever I believe on the day Ackman presented his evidence they were a fraud, still this was only a 5 min positive divegrence and can only go so far which has already shown distribution.

I'll be looking to add the last 25% or so to the position, otherwise I'm fine with where we are at. As of right now the HLF short is up for a  gain of +7.2%.

By the way, there are a lot of companies engaging in this sugar rush share buyback that adds no long term value to the company, no Cap-ex spending, just a gimmick to boost share prices.

AAPL / MARKET UPDATE

As mentioned before, the divegrence seen in the market averages is just about everywhere I look on the watchlist, starting the same time and around the same charts (timeframes). Take a look at AAPL, up over 1.4% today...

 AAPL intraday 1 min

The 3 min chart for AAPL, much like the averages, SMH and many other assets.

AAPL 3 min closer view

 Compare to the QQQ 3 min chart.

And while most of the averages did not have a positive divegrence, although AAPL did have a small one of this 5 min chart that is also now going negative, this is the exact same tone we saw during the last 2 bounces, immediate distribution on any price strength. The difference between today and the last 2 bounces were the last 2 bounces at least had positive divergences to justify the bounce and support it, this has not other than what was gained from the a.m. lows.

The main point is how consistent the divergences look market wide.

UNG Still Moving Toward Counter-Trend Bounce/Rally

This was the post from last Thursday that laid out the specifics of the reversal process and roughly about what I expected to see as UNG moves laterally to widen out its reversal process which is typically proportional with the preceding trend, UNG / UGAZ / DGAZ Update and here's one of the charts from the post with a guesstimate of about what we should expect before UNG make a move higher.

 This 60 min chart gives a rough idea of what I'd expect to see as far as size of the reversal process, there are other charts in the post linked above that are more detailed.

This is Friday's update as the reversal process clearly was continuing...UNG / UGAZ / DGAZ Update

and here are today's charts, so far so good.

 UNG is broadening out the reversal process, a "V" shape is unusual unless there was a very steep, parabolic move preceding the reversal which is not the case here so we'd look for a wider U shape.

 This is the lateral range forming that is the actual reversal process.

On today's dip off opening highs we have a positive intraday divegrence which is what we want to see, the reversal process should so good accumulation before a launch to the upside.

The accrued divegrence on a 10 min chart looks like this from the downside negative divegrence to the current leading positive. I'd say we have a few more days to go, possibly Thursday's Natural Gas Inventories could be a catalyst or cover for a move higher.

Adding to Z Aug $155 Put

This was entered as a spec. size position, I do like what I see in several charts so I'm going to add about 50% to the position size.

During the last hour or so the negative intraday divergences have been in the major market averages and a number of individual equities, I mentioned SMH earlier before the last market update. So far most of the divergences have migrated to the 3 min chart over the last hour which is what we are looking at above in Z.

Market Update

The attempt at some strength today seems to be fading the last hour or so, it is not anything special on the day as I have been looking at possible trading positions and haven't seen anything that would be worth taking the risk (like last week's 1-day URTY long from SRTY and back to SRTY, still at a gain since flipping back).

I suspect some carry trade and individual FX futures may have something to do with it.

 DIA intraday 1 min positive this morning has turned negative, much like the SMH intraday chart just shown in the last post.

 2 min chart really never much positive this morning, more in line and negative right now

And the same on the 3 min chart, but that's pretty sturdy migration of a 1 hour old negative divegrence.

The 1 min IWM shows the same right now, nothing on the positive divegrence side this morning.

The 2 min chart shows last week's negative and in line today.

As does the 3 min with a minor negative divegrence

The 5 min shows a little more serious negative divegrence intraday.

Still there's nothing here to do much with other than be patient.

 QQQ 1 min intraday positive this morning turned to a leading negative

3 min QQQ in line

And like the IWM, the 5 min chart is leading negative.

SPY 1 min positive this morning, not a big divergence and that is seeing a leading negative since filling the gap.

2 min is in line

And a reminder of what the last 2 weeks and two bounce moves have looked like

This morning there was no MSI pop in Most Shorted stocks, it's showing some relative weakness vs the SPX.

The USD/JPY's negative signal may have something to do with market action, although the AUD/JPY seems like the leader today...

Right now it is still in line, but the single currency futures will go first before a divergence on the pair so looking at the AUD...

AUD 5 min positive overnight turning leading negative which may flow over to the AUD/JPY, traders know what's going on as far as FX tape and how it effects stocks.

Semi-Conducctor / SMH Follow Up

The original post was, Semi Conductors Look to Bounce from July 24th (last Thursday).

I suspect SMH will bounce here shortly, I personally would prefer not to play anything other than call options on a speculative basis seeing how fast things change in this market and all of the macro data coming this week. If I did play an SMH/Semi-Conductor bounce, needless to say, it would be on a speculative position size basis.

Since last Thursday SMH has lost more ground, but also built a larger divergence in to lower prices...

 SMH 2 min trend since the 24th which is leading positive.

The 5 min is also leading positive with emphasis on today's intraday lows which also saw increasing volume, something I look for in short term reversals (short term oversold).

The 10 min chart is the most impressive with a leading positive divgerence that started today, at 15 min there isn't anything of interest.

As to the larger picture...

 The 60 min chart shows good confirmation of the uptrend and then goes deeply leading negative showing strong distribution,  the highest probability play for those with some patience is to sell short in to the bounce, however a hitch-hiking long can also be played in to higher prices until the short is ready to enter. If I decide to take on any hitch-hiking longs I'll let you know, otherwise I see the larger trade/set up a short in to better prices lowering risk.

The intraday 1 min chart suggests some intraday pullback before anything happens on the upside so if you are interested in a hitch-hiking long, you'll likely get a better entry on a pullback from here very short term/intraday.

GLD / GDX / SLV Update

GLD and GDX have pretty good correlation, directionally SLV is pretty close as well, although it still has the feel of manipulation such as we have seen led by Blythe Masters ever since JPM took over part of Lehman in 2008 and inherited a huge silver short which they defended for years, JPM was even brought up on charges of Silver manipulation, but beat the case. I just say this because unless I see something change significantly, of the 3 assets I'd prefer GDX/NUGT long first, then GLD/gold and last SLV. Since I don't ever want that much correlation to an industry group, any combination of positions would be treated as 1 position for risk management purposes (i.e.-long NUGT (3x long Gold Miners) and long GLD (gold ETF), rather than have these represent 2 individual positions in the portfolio, for risk management purposes the positions sizes would reflect adding both positions together to get the average risk position size of a single position.

We have been following a year long base in GDX (gold miners) which seems to be reverting to the pre-F_E_D easy money policies since 2008 of gold miners leading gold, after the F_E_D "accommodative policy" that correlation was flipped on its head and gold rallied leaving miners in the dust, that seems to be changing.

We have NOT had good signals in GLD or GDX; these are great assets for confirmation as there are so many combinations from GDX to the leveraged long/short ETFs to Junior Gold miners and its long/short leveraged ETFs, GLD/gold futures since they move so similar and even SLV to an extent, but we haven't had good signals in a while and the last trade we had in the group was our NUGT long that did +40% & +50% (long NUGT equity only). Since there just have not been good signals and I'm thankful for that as 3C seems to have been forecasting the price action which is to say there virtually has been none.

 GDX's large year+ inverse H&S base. I have had several theories about what's going on here, the first and strongest was we'd see a head fake move just above GDX's neckline (red) which would fail sending GDX on  a pullback that would likely be accumulated offering us a new NUGT long position for a real breakout.

Since this didn't happen, I started wondering if the F_E_D's recently more hawkish tone was creating a perception among investors in the space that inflation was the F_E_D's #q fear and they'd go to great lengths (rate hikes) to kill it (along with the market). Gold is typically bought on "Inflation expectations". Thus the new, more hawkish tone may have given the original accumulators reason to start unwinding their long position which would take some time considering how big the base is.

Either way, the 3C signals have been near impossible to get anything from, the last time we saw that our trade ideas went down by 90% as the market averages offered few signals after the February rally and good thing as the SPX turned in to a chop-fest which is not useful for trading, it's an easy way to lose a lot of money fast whether long or short.

This is the last time we had such horrible signals in advance and looking back it was a good thing.

Since our last long NUGT position on a head fake below a descending triangle and the closure of the position for up to a +50% gain, there hasn't been any trend worth trading so it seems the lack of 3C signals has kept us out of trouble, sometimes it's easier to keep your chips than it is to try to win them back.

Looking at all of the assets, while still not a VERY clear set of signals, I have a new theory which won't cost us anything and we won't enter a trade unless it is confirmed (although I have a small DUST position that I'll leave open for now until I see whether this is on track).

I'll use Gold futures as it seems to be easiest to see there, remember the shorter term charts are going to reflect near term trade while the longer term charts reflect the highest probability end game.

 Intraday futures look like they'll see some downside soon (1 min)...

The 15 min chart shows a small accumulation area that should have driven gold futures higher, but like the IWM, distribution set in.  I suspect the near term trade/trend is down in GLD/Gold and GDX (probably silver too).

The 60 min chart is still very strong and reflecting a high probability upside resolution for gold futures meaning any near term pullback/correction has a high probability of showing 3C accumulation in to the correction which is hat we'd want to see before entering a Gold or GDX/NUGT long.

The 4 hour gold futures is an even stronger timeframe and higher probabilities and it shows the same so any pullback would very likely be a positive divegrence and thus a decent long entry.


Judging by some of the shorter term signals among the various confirmation assets, I suspect the pullback may not be as deep as initially expected and that makes sense being a large deal of the consolidation has probably taken place in the lateral trend.

 GLD's 15 min chart showing the initial accumulation and the consolidation (red) at the lateral area of the trend, the overall signal recently looks strong even though I suspect a short term (smaller ) pullback.

GLD's daily base also suggests a resolution to the upside as highest big picture probabilities.

GDX's near term 2 min chart is leading negative suggesting a pullback, but it's not a huge divegrence so I suspect the pullback won't be as big as the initial one we expected.

 GDX 3 min is similar.

 And GDX 15 min shows a leading positive divegrence suggesting any short term pullback is likely accumulated and thus a good long entry.

 GDXJ (Junior Miners) 3 min also suggest a near term pullback...

However at 30 mins the probabilities are in favor of higher prices bigger picture meaning any pullback is likely constructive and a buy area.

DUST is the 3x inverse/bear GDX ETF, its short term signals like this3 min suggest a short term bounce confirming the short term charts above (pullback)

The same on the 5 min DUST chart

However the long term probabilities 4-hour) suggest DUST continues lower and GDX/NUGT/Gold higher.

Junior miners DUST (JDST) show the same.

I'm setting alerts for a closer pullback and will look for confirmation, hopefully this leads to a new NUGT long that has some upside trend, something we haven't seen since we exited our last trade.