GDX Interesting Close

I'm really not sure what this was... An exercise of an option contract perhaps? Something to do with the COT? In any case, as you'll see GDX bears very little resemblance to its 3x leveraged cousin NUGT, but NUGT looks a lot like its cousin the 3x long Junior Gold Miners, GDXJ. In other words, GDXJ and JNUG are perfectly in tandem, GDX and NUGT aren't even close and then this at the close...

 1 min GDX in to the close WITH A +3.70% MOVE TO $27.52 AT 3:56 AND THEN RIGHT BACK DOWN ON HEAVY VOLUME BOTH WAYS.

 Here it is on a 5 min chart...

And the 3C chart suggests its about ready to make a move- 3 min

 As well as longer term 10 min, but the 3 min is closer for timing.

This is NUGT in green and GDX in red, they should be nearly identical.

This is NUGT vs JNUG, they are much closer even though one is tied to Gold Miners and the other to Junior Gold Miners.

UNG Should Lift Off Next Week

This post is from over a week ago spelling out what we were still looking for in UNG before it made for a good long candidate, the gist was a reversal process... UNG / UGAZ / DGAZ Update There are several charts in this post from last week drawing in what we expected to see and thus far it has happened exactly as spelled out over a week ago, the only thing we haven't seen is a head fake move.

 We have a large 10 min leading positive divegrence in UNG, I don't think this is going to lead to a primary uptrend, but it has a big enough base to easily test the former range in the $25 area, thus leverage whether it be UGAZ or Calls is preferable to me.

The daily Trend Chanel that held the entire downtrend is VERY close to breaking and being in a long/uptrend, $21.50 or so is just about the area.

If you look at the chart, I don't even have to draw it in, the reversal process (a rounding bottom) is very clear.

If there's no head fake move (which should have happened by now) I suspect the rounding bottom will just keep moving toward a break to the upside and that looks to be rady early next week. I have a UGAZ position (3x long UNG) already in place.

The Week Ahead

This is a bit early for the "Week Ahead" post as the best information on the next week is usually the last two hours of Friday, but I think I can see what's shaping up, if I need to revise anything I will as it comes up.

We had some pretty negative TICK breadth today hitting -1500 and -1000 several times, but since about 11:45 TICK extremes we've been trending up (TICK data) and even hit a couple of +1000's.

I think the current charts show a building divergence so I may decide to move some more positions around next week, but not right now.

I suspect Monday we are likely to see something along these lines.

 If you look at where we are now, any upside move would be off a "V" bottom and these are just not common, especially in a situation like this in which market breadth is so massively oversold. At minimum I think Monday we need to test today's lows,  there's a good chance stops are run on a head fake move just below today's intraday lows, but all in all we should have at least a "W" type base which is still fairly narrow, but these deep parabolic moves often have a more narrow reversal process. From the charts I see, I think a bounce is probably likely.

 This is the SPY 5 min chart leading positive, but it needs to build out a larger footprint.

We even have a 10-min positive in the SPY.

As for the daily chart, the bearish Ascending Wedge we have been drawing has broken, the initial break will often pull in new shorts and right after they'll be run out and their stops hit which should be inside the wedge, just above former support/now resistance.

Also notice the Doji Star candle on the day, this is an indecision candle and often a reversal candle, the increasing volume makes the probability of this candle working about twice as likely. Three of the 4 major averages all have this Doji-Star and the VIX has it as well so I think that's a pretty good amount of evidence for a bounce, a bounce though.

IWM / SRTY Update

SRTY is one of my main core short positions and it has done excellent for me, a +9% gain when I closed it early last week and swapped URTY for 1-day as I suspected a stronger IWM bounce, however after seeing the first day of the move, I closed URTY for a 3.5% gain and re-entered SRTY which is just off a +13% gain since re-opening it last week.

Although this is an asset I'd usually use to swing trade, I want broad coverage during the first leg down in the market (a larger leg down than this) and then decide which assets look the best. Thus it's not often that I will close SRTY even if I suspect drawdown because as you saw today, the market is discounting events with a lot of fear which is something it never did on an intraday basis over the last 5 years which means the market is growing increasingly unpredictable to the downside which is the direction I want my core positions aligned with, the direction of highest probabilities (based on the charts).

If there was a solid 5 min divegrence in the IWM and of decent size (not just 2 or 3-days-we've already seen 10 min positive IWM divergences that were well over a week long lead to a small bounce of +2.12%) then I'd consider taking SRTY off the table to preserve gains more than anything, but at this stage in the game I really don't want to overtrade chasing oversold bounces with core positions.

Here's what IWM and SRTY look like and this is why I decided it's better just to hedge with IWM calls for now.

 IWM 1 min looks good intraday and I doubt it's a coincidence that this is happening just before the 2 p.m. op-ex pin is taken off and the market tends to move in different directions through the close.

 The 2 min chart looks good, but again, it's still only a 2 min chart and still only 2-days max of divergence.

The 3 min chart is leading so there has been quite a bit of repair in a short period today, but not of significant size.

And the 5 min chart, while more positive, it is not anything I'd base a swing trade or longer off.

These intraday charts of SRTY has me considering booking gains there before they were lost, but again I have to consider the bigger picture.

SRTY 2 min

There is no SRTY 3 min divegrence and...

SRTY 5 min is still nearly perfectly in line with the trend.  Bottom line is there's no objective evidence to take off the position even though I suspect a bounce is on its way. We have to remember how fast this market has sold any price strength the last 2 weeks and how quickly things can turn south, especially with escalating situations across the globe.

Trade Add-To: IWM Calls

Instead of closing the SRTY long which I love , I'm going to add a little to yesterday's IWM calls (Aug 8th $110.50) as a hedge being the 5 min charts are not calling for a large move.

Closing FAZ Long

This is just for now to lock in gains, I'll decide later if I'm going to add a long like FAS for a bounce.

I'm considering taking SRTY off the table as well, but I think I'll take a little more time before deciding as it is my core short.

 FAZ 1 min

FAZ 2 min

FAZ 3 min

Closing UVXY Long

Market Update

It's likely we are close to or at intraday lows, there's usually still some lateral slop, but it looks to me that we may have just hit them including HY Credit.

 SPY intraday

QQQ intraday

IWM intraday

IWM since yesterday, typically a bounce will exceed the area where a positive divgerence first started as seen in white on this chart.

And HYG looks like it hit intraday lows as well

Banco Espirito Santo & HY Credit

Before Europe closed Banco Espirito Santo, Portugal's Megabank which Goldman bought in to recently I believe around $.24 crashed -40% today before being halted "Pending Information", now at $.12.

You may remember about a month ago when this first started on a default how quickly (within the hour) this spread to sovereign bonds in the PIIGS European periphery (Portugal, Ireland, Italy, Greece, Spain, etc.) and then to the US index futures within another hour.

We saw something REALLY scare HY Credit right around the time of the European close...

 HYG (High Yield Corporate Credit) today, right around 11:30 something sent it down hard. I suspect it is a combination of things, one being Banco Espirito Santo in which Goldman , the Muppet master was slayed.

HYG vs ES today

We also have the weekly outflow for HY credit for this week at $1.69 billion dollars after last week's $2,4 billion and all of this right after window dressing and the quarter ended on July 1st in which numerous unrelated indicators and assets all saw similar declines on the same day.

Credit does lead, this is one of the best examples of it and I recently posted why the market cannot maintain these levels with HY Credit falling.

In addition, this morning the ISDA confirmed Argentina did trigger a CDS event July 30th when they failed to negotiate a deal with hold out hedge funds (something like the Greek bond restructuring, except this went down a bit differently).

 HY Credit on the year vs the SPX, bounce or not, it won't be long before the market follow HY Credit lower, much lower. Based on HY credits' current position, the SPX should be at 1775.

Also as forecasted a day ago, the $USDX has taken a hit as well.

Also as forecasted, partly because of the $USD divergence, gold is up 1% on the day, GDX up nearly +.70%. Treasuries are up on the day thus far.

As far as the breadth of selling, the NYSE TICK has made several trips to levels below -1500.

Multiple Asset View

While there are a lot of charts still in line with the downside and nearly all have intermediate and long term divergences that won't be turned around, there are quite a few that are working on what looks like accumulation of lows and a broader base, I'll show you a cross section of the market (mostly the ones working toward some sort of base). I'd be very tempted to take gains in assets such as SRTY +12.65% since re-entering it last week if indeed a bounce looks probable. I'd likely put most on the sidelines and play a few select longs with either 3x leveraged ETFs or calls and then re-enter the shorts like SRTY.

However we are very early in the process, that can change very quickly though, even today. I would need a lot of strong evidence to trade against probabilities or even take gains in trades that are with probabilities such as SRTY, but counter trend or oversold bounces can be quite lucrative to trade, they tend to be some of the strongest moves because they need to be convincing to change sentiment which is clearly bearish at the moment.

First the averages and then I'll show you some different assets...

 SPY 2 min

QQQ 3 min

IWM 2 min

XLF 2 min

FAS (3x long Financials) 2 min

FAZ (3x short Financials) 2 min

SMH (semis) 5 min

HYG which would be needed for any bounce, 3 min

SRTY (3x short IWM) 3 min

URTY (3x long IWM) 3 min

SPXU (3x short SPY) 2 min

UPRO (3x long SPY) 2 min

IYT (Transports) 3 min

FSLR 1 min

Z 5 min

VXX 3 min

GDX 3 min

NUGT 3 min

AAPL 2 min

This is not a market wide trend, there are still quite a few very ugly charts and a 2 or 3 min divergence isn't going to change my positions, but a quick migration to a 5 min chart, I'd be tempted.