Daily Wrap

More Noise, but continued Russell 2000 outperformance, however it has been hit the hardest which tells you something in itself as the Russell should always lead rallies.

 Overnight started with a USD/JPY ramp which broke the $102 level by about 8 a.m. this morning gapping US averages higher. The AUD/JPY has been in control recently, but as we saw yesterday there were already negative divergences in the single currency $AUD futures leading me to believe the pair wouldn't hold up much longer, apparently rumors abound again that the RBA will have to cut rates before the end of the year pressuring the $SUD.

So USD/JPY was in control, but not without its own issues as you can see a clear negative divegrence, we saw an intraday negative divegrence in $USDX and a 5 min positive in the Yen, I suspect BOJ intervention as the $102 level is their line in the sand. Since capturing this chart, the divergence is even worse, leading negative with 3C at the lows seen around 4 a.m. to the far left.

 Es/SPX E-mini Futures had a hard time keeping up with the USD/JPY sponsored ramp (ES in purple), however as I posted in the A.M. Update, the Russell 2000 futures had and still have the strongest 5 min chart which is a significant timeframe for swing or near term trades.

Here's the USD/JPY vs TF (purple) today, a lot closer than ES.

As far as intraday performance...

At both of these areas we saw significant selling as shown by the NYSE TICK Index with both hitting readings deeper than -1250, the first seems to have been around the time Portugal's Banco Espirito Santo called off their investor meeting, remember when they first popped up on the radar as a possible default, soveriegn yields had been hit on the PIIGS nations in Europe within an hour so thee's definitely contagion fears over BES. The second event was sanctions, another -1250 TICK reading, a lot worse than what price action alone depicts.

Our short in Transports seems to be working out and entered at the right place, this of course doesn't rule out a bounce, we actually need one to add the rest of the position. Here's some recent relative performance among the averages which saw all of the majors close red today except the Russell 2000 which was predictable this morning looking at the 5 min Index Futures.

 These are the major averages and Transports (salmon) for today with the Russell 2000 (yellow) leading with a +0.21% gain, transports down -1.37% today and down around -3.4% since last Thursday when prices broke above the Ascending (bearish) Wedge, one of my favorite spots to short a wedge and with distribution like this...

This was almost a no brainer. This is a 60 min chart, this is very unusually distribution as it's normally a process, this is as close as you get to an event and on a very strong timeframe and a very deep leading negative divegrence.


 This is the performance of the majors since July 1, that's the Russell 2000 lagging in yellow and of course Transports quickly falling (salmon) over the last several days.

This is performance of the majors and transports since the last F_O_M_C meeting on 6/18.

As far as other indications, it wasn't a smoking gun day, but it was more along the lines of what you'd expect, for instance, High Yield Credit vs the SPX intraday...

 HYG (High Yield Corp. Credit) vs the SPX intraday

This is HYG vs the SPX with a huge decline since July 1 at the red arrow.

 Here's High Yield Credit intraday.

And High Yield Credit vs the SPX, obviously not buying what the equity market is willing to.

Treasuries also weren't buying it today either...

10 year yield (blue) vs the SPX intraday (normally this would move with the SPX, the 10 year was clearly moving the opposite direction on the gap up open.

The VIX's Rising 3 Methods (bullish continuation consolidation pattern) is still intact and appears to be moving toward its resolution.

VIX Daily Rising 3 Methods Price pattern.

As for breadth we are hitting some of the worst of the year and well beyond.

The Russell 2000 has now seen 5 consecutive days of decline in its Advance/Decline line, by far the worst of the year for the month of July.

The exact same is true of the Russell 3000.

  This is the worst breadth reading of the year , Percentage of NYSE stocks Trading ABOVE their 40-day moving average. We haven't seen a decline like this in a non-corrective period (SPX in red) since 2007's top.

 Percentage of NYSE stocks 2 standard deviations ABOVE their 200-day moving average have seen the largest non-pullback decline f not the largest decline period, back to mid-April percentages even though price (red) is no where near the same levels.

The Percentage of NYSE stocks trading 1 standard deviation above their 40-day moving average nearly at the lows of the year, despite price being just off the highs, a major crush to market breadth.


Today 8 of 9 S&P sectors closed red, only Healthcare was green at +0.08%. Of the 239 Morningstar Industry and Sub-Industry groups, only 68 of 239 closed green.

The Dominant Price/Volume Relationship among the Major Averages (components) was Close Down/Volume Up in the Dow, NDX and the SPX. The typical reaction to this relationship is a close higher the next day as Close Down/Volume up typically represents a 1-day oversold condition. Looking at breadth and the S&P and Morningstar sectors, they look oversold as well. The Price/Volume Relationship wasn't dominant through all averages, the SPX was left out.

The thing that kind of makes this a wild-card and not the predictive indication it would usually be is GDP tomorrow morning at 8:30 and the F_O_M_C at 2 p.m.

We have found what appear to be F_O_M_C leaks 3 times in the past, very clearly so I always watch for them as rare as they are, but I suspect as we have seen the last couple of weeks, the market will be in discounting mode, I'D JUST REMIND YOU TO BE MINDFUL OF THE KNEE JERK REACTIONS TO BOTH.

In addition, Argentina may be in default this time tomorrow and the US "may" be in recession.

UNG Swing Trade Long Near Ready

I think the reversal process is just about large enough and the divergences look good in UNG, the final thing I'd personally be looking for as far as timing goes (and this is a scaleable concept) and as far as the best entry with the least risk would be a head fake move which would need to break below $20.59 intraday, we'd want to see volume increase so I'm guessing it could be $20.50 which would be more of a psychological magnet, $20 would be ideal, but I don't know if a head fake move would cover that much ground. In any case, that and confirmation of accumulation during the head fake move which I'd say is a very high probability right now, would do it for me as far as some kind of UNG long or UGAZ.

 This is the 15 min chart going from negative to in line with the downtrend to a leading positive divegrence, the size of the reversal process is just about proportional to the preceding trend which is what I was waiting for last week when the positive divergences first started popping up here.

 This is the 10 min chart leading positive and the reversal process, a head fake move is typical before a reversal, I'd say 4 of 5 times we see it and it's an excellent timing marker as well as lower risk entry and better priced entry.

 Looking at a 5 min chart, note all of the positive divergences or accumulation have been at range lows, a head fake would have to hit stops below, I think $20.50 would be the minimum and I'll be setting alerts in the area and a bit below.

This is a sloppy looking range, but taken within the context of the preceding downtrend, this reversal process is just about right as far as the typical proportionality of an upside reversal which tend to be a bit tighter than the reversal process of a downside reversal.

Trade Idea (Short Term-leveraged) FSLR

This is not my favorite short position or core short and I wouldn't even consider it for that, but for a short term move using some leverage (I would consider it speculative) like puts, it looks like FSLR is going to make a break lower, at least a gap fill.

It's the deterioration of the charts and the speed of that deterioration that jumps off the chart. I'm looking at August (standard) $65 puts just in case this turns in to something bigger.

 1 min chart leading negative

2 min chart leading negative ever since the gap up.

And the 3 min chart deeply leading negative. For me this is worth at least a speculative put position. For an equity short I'd like to see the 5 min follow suit and it may as fast as these charts are moving.

Market Update

I've maintained my SRTY position and at a decent gain, I'd consider other positions, but I want to make sure the IWM is actually falling apart as it has been the best looking 3C chart since overnight/early a.m. Index futures as seen in the A.M. Update.

There's more damage being done to breadth at -1250 again today so what you see in price alone is not representative of what is actually going on with 1250 more stocks selling off than gaining on the NYSE TICK, this is the second time this has happened today.

As mentioned earlier the USD/JPY looks to be experiencing some brewing trouble it has increased since the last update.

 USD/JPY is seeing a stronger negative divegrence forming

The $USDX continues to see a negative divegrence and the Yen...

On a stronger 5 min chart continues to see a  strengthening positive divegrence, now leading positive.

 The SPY 1 min shows significant damage at the 10-11 a.m. period when TICK hit -1250, this most recent divergence has also hit an extreme TICK reading of more than (or less than) -1250

 The 2 and 3 min charts that weren't showing much are trending more negative rather than just noise or in line as you see above on the SPY 2 min, likely migration.

 QQQ 1 min as it seems in line right now, but on larger timeframes or underlying flow...

It's clear there's been significant damage just several minutes ago.

The 3 min chart is catching up as well.

This is also appearing as it did yesterday in numerous stocks on the watchlist. While AAPL as not there yet as far as signals and the reversal process.

 AAPL 3 min from in line to a leading negative divegrence, most from late yesterday and today.

The IWM has seen the same divergences in the same area, but overall is still in line intraday.

 This last divergence may change things, this is the 2 min and this area around 2:15 p.m. saw a lot of distribution intraday among all the averages.

Still the IWM 3 min chart, despite intraday averages is in line, I would like to see this flip before making any decisions, especially with GDP tomorrow before the open and the F_O_M_C.

Here's the NYSE TICK intraday again hitting -1250 on the decline from the 2:15 highs.

Market Update

This morning the Index futures kind of told the story with 5 min TF/Russell 2000 futures in a small, but still leading positive divegrence, the NASDAQ 100 futures in a weaker leading positive divegrence (this less than a day old and the SPX E-mini's leading negative.

This is more along the lines of what I was referring to last week when I said I expected the major trend for the week to be down with some noise here and there to the upside, mostly along the lines of a gap full which one of the majors has put in, but not been able to hold.

First the USD/JPY which has been leading the Index futures since early morning looks like its about to run in to some trouble, ES is already having trouble holding the correlation as USD/JPY stops at $102 (the BOJ line in the sand) were hit earlier today.

 USD/JPY 1 min since 10 p.m. last night with positive divergences from around 10 p.m. (see A.M. Update) and again around 4 a.m. , but recently the 3C charts have been falling off as the inline status is turning toward a negative divegrence as higher 3C highs are not being made and we have a lower 3C high currently.

 ES (purple) vs the USD/JPY shows pretty good correlation until just after 10 a.m. which is notable for another reason in intraday breadth I'll show you.

As for the individual components that make up the carry cross, we often get early signals there first.

 The $USDX intraday 1 min is going negative so a decline in the $USD will pressure the USD/JPY lower, but it also depends on what the Yen is doing. I suspect with the pair over $102, the BOJ is likely intervening in the FX market as that seems to be their line in the sand.

The stronger 5 min 3C chart of Yen single currency futures went from in line on its move down (good for USD/JPY moving up) to a positive divegrence on a stronger timeframe suggesting to me BOJ intervention is likely underway right now, this is important because the USD/JPY is more or less the market's sponsor today (AUD/JPY yesterday, but likely RBA cuts have weakened the $AUD which is something posted here yesterday).

As for the averages...

 IWM 1 min looks the best of the major averages, not surprising given the 5 min Index futures charts where it looked the best by far there too, but this is also a very small divegrence in the scheme of things and along the lines of the "Noise" I described last Friday for this week. The IWM HAS NOT filled Friday's gap which is the minimum I expected within the "Noise" description.

The intraday charts from 2 to 3 mins for the averages aren't showing any actionable divergences and are either in line or just noise, in this case negative from last week's IWM bounce at its highs and pretty much in line now, no divegrence like the 1 min chart above, again limiting the divegrence.

 The 5 min charts are still representing the trend from last Friday that caused me to say I believe market downside is in store for this week with no positive divergences to fuel anything on the upside and even with them the two previous weeks, the moves have been exceptionally weak.

 QQQ 1 min with yesterday/s a.m. / intraday lows with accumulation on the 1 min chart seeing distribution at any price highs intraday, much like yesterday.

 QQQ 5 min still in leading negative position, but it did fill the gap intraday, just didn't hold.

 SPY 1 min is one of the worst looking and 5 min Index futures 3C charts reflected that before the open today.

The decline from 10-11 a.m. was significantly stronger than it appears.

And the 5 min SPY still leading negative and actually adding to that divergence, still no gap fill although it came close. The 10 a.m. to 11 a.m. intraday decline was stronger than the price charts reveal.

 Looking at intraday NYSE TICK we were in a +/- 750 range until that decline where we hit bearish extremes of more than -1250, but little on the upside above the moderate, normal range of 750.

And the TICK trend, still not impressive in any way.

The MSI has not been able to offer any support thus far.

Although it's a bit earlier than I prefer to look at them, Leading indicators are not showing anything surprising or sneaking up on us.

 HYG / High Yield Corporate Credit is adding to tehe downside rather than leading the market higher as it often does as a short term manipulation lever, this is massively dislocated for the month. There looks to be a little lateral movement in HYG (blue), this may allow a short term base intraday to form so I'll be watching that as well.

As for Yields, the 30 year is showing more oif a flight to safety as Yields are out of line with the SPX, showing the normal correlation is lost and favoring a flight toward the safety of yields, of course this "could" be F_O_M_C related, but for now it's something standing out.

The benchmark 10-year yields are doing the same.

The 5 year are similar, but less extreme.

As far as watchlist components and alert areas I have set, there are a number of assets either moving closer to the levels set for possible trade alerts or they are seeing deterioration in 3C charts, AAPL would be one example of deterioration, I would not short it here, but it is moving closer to that eventuality.