Daily Wrap

I wasn't initially going to post a Wrap tonight because I've shown you everything that has led up to this day and today shouldn't be a surprise at all if anything it's surprising it didn't happen sooner. That being said, we are positioned for longer term (most of us), we are positioned for the very short term and we know which assets we still want and have excellent set-ups to get in to them with a little patience.

However after going through my nightly rounds, I just couldn't not let you in on what I'm seeing.

I've been posting breadth charts and credit charts as well as bonds for months and last night I showed you some breadth charts I've watched for 15 years and only seen them look like this twice, the last time was the 2007 top, well if you think last night's charts were scary, wait until you see today's.

3C has been telling us this market is hollow, smart money that supports the market and the F_E_D have left town and are leaving town, there's nothing else, look at volume since 2009 and that's with a F_E_D balance sheet over $4 trillion, probably a good $3.5 trillion added since the Financial Crisis and that's about to go bye bye according to some F_E_D officials who don't want to let assets mature and roll off the balance sheet, but rather sell them and shrink the balance sheet which may be a need considering how much the banks have had to borrow from the F_E_D for window dressing, Q2 set a new record for the F_E_D's 1-day repo from which we can extrapolate from the record setting use the last day of the quarter that banks are about 1/3rd of a trillion short in assets/collateral.

In case you are wondering, the Dow had its worst day in 6 months today breaking the 50 and 100-day moving average, we know what that means and we prepared for it late today. The Russell 2000 ended July down 7% from July 1st and -6.11% from June 30th. Remember, the Russell should always lead the market.

Transports and our timely short last week, Trade Idea: (Longer Term) IYT Short, are down -3.4% on the week, the worst week in 11 months.

I showed you how bad High Yield Credit was yesterday (well almost every night, but specifically yesterday in this post), High Yield Credit (HYG) Heavy Distribution, today stocks caught down to the red flag HY credit was flashing.

 SPX (green) catches down to HY Credit (blue), but if you think that's bad, look how much more it has to go "if" HY Credit stopped selling and stayed where it is...

Remember this? And most of that extreme selling has been since July 1st.

Here's another measure of HY Credit...

 The market has been warned....

Here are some of the VERY interesting breadth charts that I had to post, you recall last night's and how bad they were and my comparison to them as of yesterday vs the 2007 top in yesterday's Daily Wrap, well hold on...

 Percentage of NYSE Stocks Trading 1 Standard Deviation Below Their 40-Day Moving Average... This was at 38.8% yesterday and shot up over 42% today to more than 55% of NYSE stocks trading below that measure...

  Percentage of NYSE Stocks Trading 2 Standard Deviation Below Their 40-Day Moving Average...These are stocks that have already seen significant declines, they were at 19% of all NYSE stocks yesterday, they nearly doubled today to almost 37%.

  Percentage of NYSE Stocks Trading 1 Standard Deviation Above Their 200-Day Moving Average... These are stocks significantly above their 200-day and were at 41% yesterday, they declined to just over 30% today.

 Percentage of NYSE Stocks Trading 1 Standard Deviation Above Their 40-Day Moving Average... , these were 21% of NYSE stocks yesterday, just over 10% today, that's coming from 55% last month!

And the best for last,  Percentage of NYSE Stocks Trading Above Their 40-Day Moving Average... This is a pretty standard measure, yesterday less than half of the NYSE were above their 40-day at 40%, that was nearly cut in half today to a mere 24%of NYSE stocks above their 40-day, again THIS COMING FROM NERLY 75% LAST MONTH!

As for the VIX bullish candlestick pattern I've been showing every day for over a week...

The Rising 3 Methods Bullish consolidation/continuation pattern did exactly what it should and continued higher today.

All 9 S&P sectors closed red, the best performer was the Defensive Utilities, but they were even sold down to -1.57$, the worst was energy (Recall our USO short set up on July 22nd, Second Half of USO Trade Setting Up), Energy was the worst performing at -2.16%.

Of the 239 Industry and Sub-Industry groups I track (Morningstar), a mere 5 of 239 were green today!!!

The Dominant Price/Volume Relationship Among all the majors was Close Down/Volume Up which is a 1-day oiversold indication and we usually close up the next day, however who knows what tomorrow's NFP  and Options Expiration (weekly) max pain pin will bring.

The one thing I see for sure in breadth and the S&P/Morningstar performance is this market is now, very oversold on a breadth basis, so I think out position taken up today was the right thing to do and we did it based on the signals which just happen to fit the breadth oversold condition.

We'll piggy-back that trade and when we get to a little correction there are numerous shorts (some of which we have calls in now) that will be at beautiful set-ups if you need short exposure, I think most of us have been ready for this day.

GDX Call Follow Up

This is a follow up to yesterday's GDX call position, Trade Idea (Speculative Very Short Term) GDX Calls.

I think the position is still fine and can still work.

First without getting in to too many charts (although I've looked at all of them), I suspect GLD is going to bounce from thee levels, a weaker $USD should help in that scenario.

The $USDX just hit intraday highs on the week, but in to a leading negative divegrence, thus a weakening $USD should help precious metals in the near term and GLD and GDX have a very high correlation rate.

As for multiple timeframe confirmation and multiple asset confirmation, this is where I can get in to a lot of charts between GDX, GLD, SLV, NUGT, DUST, GDXJ, JNUG and JDST, I'm not going to post all of these charts in all of the timeframes I've looked at them, but enough to give you a sense of where they stand so in everything but DUSt and JDST we are looking for positive divergences, in DUST or JDST we need negative divergences to confirm.

 GDXJ 1 min leading positive

 GDXJ 2 min leading positive

 GDXJ 3 min leading positive

GDX 3 min leading positive

 NUGT 3 min leading positive

NUGT 5 min leading positive

 GDXJ 5 min leading positive

GDX 5 min leading positive

JDST 5 min leading negative

10 min GDX positive.

There's good multiple timeframe and multiple asset confirmation so I suspect as long as this gets moving fairly quickly, the GDX calls from yesterday will be fine.

Quick Market Update

Here are a few reasons I decided to go with the IWM calls when I did.

I was looking for the market to break intraday lows, that happened in the Q's and SPY, but not the IWM.

 The Q's did make the move I was looking for and maintained a positive leading divergence.

As did the SPY.

The IWM did not make that move to new lows, but with the others having done so I thought, "Close enough".

HYG which I showed yesterday as being negative in every timeframe or in line with the downtrend is showing a positive divergence out to 5 mins, this asset is commonly used to ramp the algos in to thinking the market has turned risk on as they interpret a move higher in HYG as an institutional risk on posture. Along the same lines...

VXX (Short term VIX Futures ) have a 5 min negative divegrence which suggests lower prices as you know, I was considering a VXX put rather than an IWM/QQQ call. In any case, lower prices in VIX futures are interpreted by algos as a risk on mode as protection is or looks to be sold.


The TICK chart also gave some signals, but unless you are use to looking at the intricacies of early changes in ROC, it's not as obvious as it will be later.

However my Custom TICK/SPY indicator is showing early changes in the ROC of its TICK indicator as it moves off the lows and to shallower readings, if all goes as expected this will move to an uptrend and in the green.

So far as I've been writing this there has been a small upside price move and the IWM calls are already in the green.

Trade IDea( Short Term Options Fade) IWM

I'm going to go ahead and enter the IWM Aug. 8th $110.50 calls now, the position needless to say is on the speculative size as far as risk management/position sizing.

Members' Question

I've had a few questions as to why I haven't entered one of the fade/Call (option) positions yet, the answer really is free will.

I'm not too concerned about premiums getting away from me, but what I am concerned about is making sure this is a strong looking trade set up and not just a, "the market has dropped a lot today, it should bounce". I need something objective that's not my opinion, but something I can see and something that moves me.

As far as free will, the best thing about being a trader and one of the most useful things is free will, we don't have to trade. If I miss a good trade, so what? Another will be along, I'd much rather hold on to my chips than try to make them back so if even a good trade isn't enough for an entry because it's not a great looking set up, I don't care if it does exactly what I expected and I missed the bus. If the set up isn't strong enough, I'd rather leave it to others and wait for the next one.

As far as my reasons based on charts...

 IWM 1 min looks good, but also has a slight negative right now suggesting the probability of a bit of a pullback intraday which is what I'd like to see any way.

The 2 min chart is strong....

The 5 min chart is now seeing migration and strength. Now look at the Q's...

The 2 min QQQ is similar to the IWM, but the 1 min chart...

Zoomed in there's a clear, obvious intraday negative that suggests intraday prices move down a bit from here, this is why I haven't entered.

Intraday breadth via the NYSE TICK confirms...

Here you can see the trends for today, note TICK falling out of the bottom of the channel to the right, just as 3C forecasted intraday.

When this resolves and if the charts turn positive and look even better, I'll make a decision on an entry at that point. It's not always just about premiums and timing, sometimes you have to take a pass if the overall position doesn't inspire you enough to risk your funds and it doesn't matter what happens after, you make decisions with what you know at the time.

Trade Set-Up: (Longer Term) BIDU

BIDU is one that quite a few of you are interested in, I've been watching it looking for the right area and I suspect we are very close if not already at an excellent risk:reward entry area for a BIDU short, of course with the possibility of a market bounce (from today's divergences), it seems likely BIDU can be had a slightly better prices, but it's almost semantics a this point.

 I always start my analysis with a 5-day chart, I want to see what the big picture is and what the character of the stock is. The bearish Evening Doji Star was one of the first things I noticed as well as the price ROC change in character.

 On a daily chart I'd think we can get an entry above $222.

The longer term 2 hour chart speaks for itself.

As for the multiple timeframes used to try to better pinpoint an entry, this 30 min chart goes leading negative at the gap up which is what I'd like to see for a possible short.

The 10 min chart moves from in line to a leading negative divegrence at the same place.

So far the 5 min chart has been leading price lower and I expect it won't change. The intraday charts don't look as good as the market averages, but a rising tide usually lifts all boats so the weakness on intraday charts works for me as well if it is just moving with the market and no strength of its own, that's actually an ideal short.

I'd set some upside price alerts to remind you if you are interested, of course before any entry I'll double check the short and mid-term charts and make sure they look worse as they should see selling in to any price strength.

$222 is about the minimum and anything above is a bonus.

IWM Fade

Here are some of the charts, to me it's a toss up between the Q's in which case I'd still take the Aug. 8th expiration and a strike of $95 and the $IWM (Aug 8th, $$110.50).

The SPY and DIA don't look as impressive, they also haven't lost as much.

 TF 1 min (Russell 2000 futures), the NASDAQ futures look nearly identical, both leading intraday positive divergences.

 IWM 1 min leading positive

A closer look intraday shows the probability of a pullback which has already started.

Here's the 2 min chart leading positive as well.

I'd "like" to see price pullback to intraday lows, maybe even below them a bit and the 3C chart make a higher high, but I'll make my decision on what the market does whether or not it's what I want to see.

I suspect there will be very little difference between the Q's or IWM calls. I'm fairly certain I'll take on the position, but I'd like to see a little more improvement first.

Trade Idea: (Short Term Options)

I'm going to go ahead and set up a fade trade, I suspect it will last a day or so, perhaps in to tomorrow.

The assets I have been looking at include IWM, QQQ and VXX (long/calls for the first two and puts for VXX). I'm leaning toward the IWM, likely August 8th expiration with a $110.50 strike.

I'll post some charts next. I believe we will get a pullback intraday from current levels and that's where I'll likely be looking to open the position.  This is a speculative position.

Basically I'd like to take advantage of the opportunity, but more importantly is a bounce in assets like NFLX and right now I like XLF a lot so until we get there I expect I'll open a piggy back trade which will be closed when we get to a better entry for longer term trend positions like XLF (short).

Charts will be up shortly.

FSLR P/L & Update

The FSLR Aug. $65 put was entered this Tuesday, Trade Idea (Short Term-leveraged) FSLR and initially meant to be a short term trade along the lines of a gap fill, we just had very strong leading negative signals that were hard to ignore. I almost always use about 3x more time on a contract than I expect to need, this has saved my butt so many times it's unreal. I view options as a tool when you have a strong signal and trade, but the profit potential isn't there otherwise to take advantage of it without leverage. I DO NOT view options as a way to boost a small portfolio overnight like a lotto ticket so I'm not looking for triple digit gains, I'm looking for a tool that allows me to take advantage of a strong trade set up that may not be workable with more standard tools.

Along those lines, I want to spend the least amount of time possible in an option position, I want to be out before momentum fades and starts seeing profits dissipate.

Earlier today FSLR looked great, but the market is dynamic and this chart convinced me that maybe (as well as the other market signals), it was time to take the gain and thus far I haven't left anything on the table.

 The 1 min chart was perfectly in line with the downtrend earlier, this leading positive intraday divegrence popped up quickly and it looks quite strong, it's just starting to migrate to longer timeframes so I suspect that's probably about it for this leg of the move before a correction at which time I may decide to re-enter the FSLR put.

2 min chart is now moving to a positive divergence and price is starting to move laterally.

The cost basis for FSLR puts was $3.13 and the fill was $4.26 for a gain 2-day gain of +36%.

Larger Market Update

If tomorrow wasn't a weekly options expiration Friday, I might be more inclined to look for follow through on the downside, being that it is, it's a toss up, but I suspect nothing too impressive follows through tomorrow. This however is exactly why I won't let go of my core short positions, right now SRTY, SQQQ and FAZ with an MCP long and a few option trades. 

Market breadth has been deteriorating rapidly for a long time, most of 2014, but especially since July 1, this is what I ended last night's Daily Wrap with. Also yesterday it was very clear that HY Credit which has been in trouble hit a patch of bigger trouble...High Yield Credit (HYG) Heavy Distribution.  This is why we call these leading indicators.

In any case, I wanted to show you the market as I see it in several different timeframes...

 IWM 5 min chart actually does have confirmation of the move down, but most of the damage/distribution had already been done before the decline started which is how smart money operates and why we use indicators that have the ability to contradict price.

Intraday the Rate of Change in price is falling off, more lateral movement usually means a short term base/bounce is forming and the 3C chart is not confirming the downside right now.

As for the big picture, nothing has changed, at least not for the better as you can see by the IWM's 60 min leading negative divegrence, ultimately this is the path of highest probabilities, down despite what can be some very impressive counter trend bounces/rallies. I prefer to trade them if possible, but I'll also have the positions for longer trend traders as well as more aggressive traders. My motto and trading style is summed up as "Take what the market gives" and of course, patience.

 Back to intraday, this 2 min IWM divegrence is not impressive, I would not start a long/call fade trade based on this, but it looks like the start of a process, still very weak at this point, but a change in character.

The Q's intraday are more in line, but from what I see in AAPL, I expect that will change soon.

 QQQ 2 min is in line, but again most of the damage was done (distribution) well before today's decline.

The 5 min chart is still in line, it may or may not show a positive divegrence through migration of divergences via shorter timeframes, however the big picture isn't phased by any of this.

The 15 min chart's distribution during the last 2 week's bounce attempts, this week we were calling for a trend moving lower with some minor noise in the form of a gap fill from Friday.

The 60 min chart is a bit deceptive because the divergences to the left were rather large at the time, they are simply dwarfed by the size of distribution since. From left to right, #1 was the accumulation period from Jan 28th to Feb 5th/6th which launched the February short squeeze cycle. At #2 the Q's saw distribution and then retraced the entire Feb. rally (at the yellow trend line below. At #3 there was some more short term accumulation sending QQQ higher and the upper yellow trendline at #4 and that is about where the market broke above the SPX's 3 month range of about 3%, we had said several weeks before that the market is not going to make any significant moves lower until that range is taken out as it's a breakout that retail will chase creating demand and higher prices that smart money NEEDS to sell in to, shorting comes across the tape as a sale as well.

The distribution at 5 during the move above the range process what we suspected and just goes to show how Wall St. works. I think sometimes we watch the market so close we expect things to happen quickly, but go back and look at the size of the 200t top vs the IWM top now, we are really in a very normal mode considering all the F_E_D interference.

SPY

 SPY 1 min intraday with a positive divegrence building

SPY 2 min with the same

the 3 min chart is in line, so this should be viewed as its own "possible" move and really has nothing to do with the bigger picture except that it can be helpful to enter or exit positions on a more tactical basis.

The SPY's divergence since breaking above the 3 month range is quite clear and stunning and this is a 4 hour chart.