Daily Wrap

It's very difficult to add any color to today that wasn't already there yesterday or the day before.

I did expect to see a move below the SPX's (-0.56%) 100-day moving average and that came to pass, however the head fake move confirmation was weak at best, it's not the typical confirmation that I'd use to enter a position, but it also didn't fall apart.

Other major averages are at significant technical support levels, the DOW (-0.46%) tagged its 200 day on intraday lows and seems to have bounced off of it toward the close. The NDX (-0.44%) tagged its 50-day and closed above, the R2k (-0.53%) has been holding under its 200-day for the past week in what looks a lot like a bear flag, even these price patterns are head faked though with an initial break below the flag being most common before a shot above the flag, eventually returning to a new lows.

Intraday 3C action was a lot like yesterday, except it didn't end on a negative divergence for the day, but rather a positive divergence, as weak as it was.

I suspect part of 3C's the poor ability to hold a divergence intraday has a lot to do with the hedge fund herd (yes they herd as to not standout as an under-performer relative to the herd even if that means underperforming the market) finally breaking up and taking more of a fear-driven "Every man for himself" attitude. Rather than them all doing the same thing, I think while some are working on an oversold bounce, others are selling any strength they can find just as we saw during the last 2 bounce attempts, the first time ever really in the last 5 years.

This is the chaos and unpredictability/volatility I mentioned as we get closer to going over the cliff,  this is also why I want the bulk of my positions aligned with the highest 3C probability which is clearly to the downside and any other trades that run counter to that probability (on say an oversold bounce) to be speculative position size.

10 year yields closed at 2.42%, 14 month closing lows, or in other words, the "Flight to safety" trade is on. 30 year Y's closed just above recent lows at 3.24%, however this also means that while the SPX is over 3% lower, 30 year yields are holding a bit higher which looks to be a slight risk on(short term) posture. 5 year Y's closed at 1.60%, which typically leads the market lower near term. However this is an area that has been held as support since June.

The USD/JPY was in charge most of the day, near the close testing $102 and for now...holding..

USD/JPY v ES (purple) intraday as the carry cross touched the BOJ line in the sand, $102 and bounced off it near the close.

Very short term the Yen looks to be headed lower which would benefit the USD/JPY and by extension, likely the market.

As USD/JPY hit $102 the Yen saw 3C distribution which would send the pair higher.

THE LATE DAY BOUNCE SAVED THE S&P FUTURES AND CLOSED THEM ABOVE $1900.

Oil was up today as recently posted, USO looks set for a bounce, although it's not my favorite trade at this point.

After a volatile day in which I long ago decided just to stick with the long term chart probabilities and let the MCP long have space, it closed up over 15% on heavy volume with a nice move on volume in to the close. Remember there are some 60+ million shares short, near 12 days to cover.

Note today's higher volume as well as the gain.  The only part of today that looked like a short squeeze in MCP was after 3:30 in to the close so I suspect there's plenty more where that came from.

As for breadth, very little has changed all week, the % of NYSE stocks > their 40-day stands at 23.11% today vs 22.48% yesterday and most breadth indicators have very little change for the week as the range/base persists.

Of the 9 S&P sectors, only 2 closed green today, with Utilities being the leader, the exact opposite of yesterday. Of the 239 Morningstar Industry/Sub-industry groups I track, only 45 were green today, the market  remains deeply oversold on a breadth basis.

As for Dominant Price/Volume Relationships. it was Close Down/Volume Down which is the thematic relationship during a bear market, also the one relationship that has the least influence on the next day, it's basically telling us that there's no extreme conditions although breadth would disagree on the week, however nearly unchanged on the day.

HYG is still in leading position and supportive of a market bounce, even though underlying trade is falling apart fast. HY Credit also had a slight improvement today as a leading indicator (to the upside).

Professional sentiment increased a bit today as a leading indicator suggesting a bounce is still in the cards just as HY credit (nearby). 5 min (3C) VIX futures showed a little short term distribution today, also indicative of a near term bounce.

A number of our "Short" watchlist stocks were up today such as NFLX or the one we entered a partial position in today, FSLR, SCTY, and several others. There were about half the list that looks ready for a pop to the upside which is what I'm looking for in many of them for short entries.

For now this is a very sloppy consolidation, but one that has not moved to the downside like the 7/31-8/1 move and it has taken out numerous head fake areas. For the time being, I have to stick with the higher probability charts in the 10-15 and even 60 min range, that doesn't mean I have to trade an expected bounce, but if I see a good set-up long or short I'm going to take it. I suspect we still have a bounce coming, breadth can't get much more oversold than it is.

Normally tomorrow is an op-ex Friday (even the weeklies) that tends to be pinned until 2 p.m. or so at Max-Pain. The pin is often close to Thursday's close. If we do get a pin then I wouldn't expect any bounce until next week, however there's an outside chance based on some of the EOD divergences and the breaks of important support that we do get the start of a move that in my view is overdue by about 2-days.

I'll hold the XLF call position, try to salvage the IWM call and maybe re-enter it if the signals are there, but they have to stand on their own two feet, not on any opinion of my own.

A.M. Action

I said I'd explain why I posted Should See A.M. Strength Tomorrow A.m. just before the close.

This is the same reason I had said in yesterday's Daily Wrap,

"Part of me wonders whether today's intraday negative 3C action is setting up an early morning, more aggressive stop run below the 100-day before reversing to the upside."

The reason is a simple concept that you hear a lot, "3C Divergences pick up where they left off, even over a 3-day weekend", this is the case much more often than not.

As mentioned above, the intraday action yesterday was negative, this chart of the Q's in to yesterday's close shows what I was talking about and why that was part of the reason I expected an early morning run below the SPX's 100-day m.a.

I was pointing out a few things on this chart of the Q's (1 min) last night, but the last thing was the negative divergence in to the close, leading negative actually.

This is why I was a little surprised this morning when we gapped up rather than broke below the 100-day on the open, but the gap up was a function of overnight futures,  as soon as regular hours opened, it didn't take long for that 3C concept to come to fruition.

At #1 is yesterday's closing negative divegrence which caused me to expect the market to be weak in the morning as 3C divergences pick up where they left off. Even though futures gapped us up, it didn't take long for the 3C forecast to send the Q's lower and the SPX below its 100-day moving average.

If you look to the far right at the close today, the Q's are in a positive divegrence which suggests that tomorrow morning they pick up where they left off on some strength based on the positive divegrence, this is why I didn't close the IWM $110.50 calls that expire tomorrow.

As for the other averages...

 The IWM 1 min has a positive relative divegrence and was quickly moving to a leading positive in to the close, index futures confirm the same.

 The SPY 1 min and the negative divegrence sending the overnight futures gap up down early as was expected yesterday. The SPY put in one of the strongest intraday divergence which was leading positive in to the close and actually, through the entire time the SPX was below the 100-day.

DIA intraday 1 min also sending prices lower this morning on a negative divegrence with a relative and leading positive through the rest of the day. These divergences weren't what I expected (I expected stronger on a true head fake move), however I have a guess as to what's going on that I'll post in the Daily Wrap.

 Without posting all of the charts again, there still remains significant positive divergences in the 10-15 and even 60 min timeframes in the area.

While Index futures that trade overnight do NOT have the same 3C concept of "Picking up where they left off the next day", they did show us that the end of day positive divegrence that was forming above was something seen in Index futures as well, thus I believe the late day 3C strength was real.

S&P E-mini Futures show the strongest leading positive divegrence of the day in to the close.

 NASDAQ 100 futures lso show by far the strongest divergence of the day (positive or negative) in to the close just as I had seen in the market averages which caused me to post, Should See A.M. Strength Tomorrow A.m. as well as hold out on closing the IWM calls to salvage whatever I could being they expire tomorrow.

Index futures and normal 3C charts trade differently, actually many assets trade differently, that's why we have 3 different variations of 3C, tech and small caps trade different than large caps, so on and so forth.

The timeframes between normal 3C charts and Index futures don't line up to be the same, I suspect it has to do with the longer trading cycle for Index futures,  however just as I posted 15-60 min positive divergences still in place for the major averages, Index futures show something similar just on 60 min charts...

ES/SPX E-minis

 We have a clear negative divegrence leading price lower followed by this range since last Friday and a positive divergence in the range. The positive is no where near as strong as the negative that preceded it, but I wouldn't expect it to be.  From a 3C perspective, we are already in a bear market.

 This is the NASDAQ (NQ) FUTURES 60 MIN ALSO SHOWING A FEW NEGATIVE DIVERGENCES ( A WEAKER RELATIVE TO THE LEFT, A STRONGER LEADING NEGATIVE IN THE MIDDLE AND A RELATIVE POSITIVE TO THE RIGHT.

This is a closer view of the NQ 60 min divergence.

The Russell 2000 Futures (60 min) also show a clear positive divegrence in the same area we are concentrating on.

From the closing divergences and even the intraday-daily, I suspect we will see early strength in the market tomorrow. I have a lot to look at as far as internals today that I will post in the wrap, but I do believe this is a probability.

Should See A.M. Strength Tomorrow A.m.

I'll explain in a minute

Intraday Breadth

The TICK chart looks like they'll try to ramp the close, but note the -1500 reading the TICK reversal came off of.

Market Update

Today's market reminds me a lot of yesterday's, divergences just are not holding, but that's not the extent of the weirdness.

For example...

 This earlier IWM leading positive divegrence should have made a new 3C high on a lower low in price, instead it's in line or price/trend confirmation. Yet there's no significant distribution signals like there were early this morning on the gap up.

 QQQ intraday was leading positive earlier and technically is still at a positive divegrence with the lower intraday low, but we should see a higher 3C leading positive divegrence and yet again there are no distribution signals as 3C on this last move down is closer to confirmation than a divergence.

 The SPY as well saw a clear intraday negative on the gap up sending it lower and then a leading positive divegrence in to the noon-ish lows, there's no significant distribution signal that sent SPY lower from the 1:45 highs unlike this morning and technically it's still at a small positive divergence as a lower intraday low is made, however it should be seeing a higher 3C reading at that lower low.

This is very similar to the very strange intraday behavior in the market yesterday which I commented on in the first sentence of last night's "Daily Wrap".

However, where all of the divergences accrue, on longer timeframes...

 They are still positive and have solid chart signals as this one (15 min IWM) went clearly negative at the left sending it lower with near perfect price/3C trend confirmation of the downtrend and a very clear positive divegrence.

 The QQQ 15 min shows a building positive 15 min divegrence

And the clearest (simple with no noise) on the SPY 60 min is still there.

It's unusual for the intraday trends not to give clear positive trends that migrate out to these longer term charts.

I'm going to try to exit IWM $110.50 calls that expire tomorrow on any strength I can get and make a decision later, luckily this is a speculative position size, but I'm more concerned with re-establishing some short positions or finishing them up (add-to).

The XLF call expiring next week I'll hold for now because these larger/longer chart divergences are still very clear. Tomorrow is the typical weekly op-ex pin, so I'd doubt much would happen tomorrow, but who knows with the market acting the way it is.

What I do know is this is why I left the bulk of core shorts in place, even expecting a bounce with only 25% of NYSE stocks above their 40 day ma.a. 

On a day to day basis this market is very odd and difficult right now, but the larger trend or higher probabilities I have no doubt about and that's how I want the bulk of my positions aligned and anything that is counter those probabilities must be speculative in nature.

 30 min XLF

15 min XLF

FSLR Charts

Our last trade in FSLR was a 2-day put, Closing FSLR Aug.16th $65 Put which made +36% on the July 31st exit. I've just been waiting for FSLR and other stocks like NFLX to make a move higher to short in to.

This is the big picture 5-day 3C chart, note how it has been in line for years, this is the first major divergence (2014).

 The 4 hour chart is also giving a strong signal and giving us a better idea of timing.

I should have just kept working down from the 4 hour chart, but had to get this together quickly. Intraday off a parabolic move which I never trust as they tend to fail spectacularly, the charts are going negative.

Here's the 3 min chart with the accumulation for this move up and the distribution in to the move as almost all bounces now are just used to sell/short in to.

The 5 min chart never was even able to confirm so this move has been used for heavy distribution as retail chases momentum higher, providing the demand smart money needs to sell in to.

This is the 30 min chart, also showing a weaker relative positive divegrence to move FSLR up and a much stronger leading negative divegrence since June.

It looks like the timeframes (for timing) are all coming together, I chose to leave a little room in case a bounce "lifts all boats".

Trade Idea: (Longer Term) FSLR

FSLR is one of the stocks we've had on the short list just waiting for the right entry. Because of the possibility of a bounce off the range/base of this week, I'm going to open a 3/4 size position and leave some room to add the final 25%, but I'm going to open that equity short now. The intraday charts for FSLR are diving way, although I suspect it could and would move higher on a broad market bounce, but this is definitely close enough for at least a partial position.

Charts to follow.

Market Update, More Progress Toward a Bounce

In last night's Daily Wrap I posted the following

"SPX with what is about an appropriate size (proportional) reversal process with a Star and a 2-day "Tweezer Bottom) right at the 100-day moving average. Part of me wonders whether today's intraday negative 3C action is setting up an early morning, more aggressive stop run below the 100-day before reversing to the upside. Again, we need to show some patience and see if this may be the case or if the negatives on mostly 1 and 2 min charts (perfect for an a.m. stop run below the 100-day, creating upside reversal momentum as new shorts entered and are squeezed) are going to start migrating (showing a stronger negative divergence) to more important timeframes like the 3 and 5 min charts.

However, on a daily chart basis, this looks very much like an upside bounce is more than ready to go."

Thus far today, that's exactly what we have seen despite a gap up from overnight futures levitation which had me a bit flummoxed at first as the intraday charts from yesterday suggested a break of the SPX 100 and accumulation below the 100 were the higher probability, it didn't take long to sort that out.

As I said last night and today, we can only verify a move below the 100 m.a. is a head fake via positive 3C signals as a small reversal process unfolds, thus far that has been on track as well.  As many of you know, a head fake move is one of the last things we see about 80% of the time no matter what timeframe reversal you are looking at because it provides a kick start to the reversal's momentum (see "Understanding the Head Fake Move" posts which are linked on the members' site).

Here's what we have as of the last capture (keep in mind these intraday charts move fast so many are already looking better by the time I capture, upload and post them.

 IWM 1 min, the first thing we need is a lateral turn from down to start a reversal process and accumulation which we see here.

The next thing we need is to see that the divergence is growing stronger by migrating to longer timeframes.

IWM 2 min is positive as well

As is the 3 min. I'll usually consider a trade by the time we have a 5 min positive divegrence so I may consider some sort of IWM position or hope the weekly I have takes off in time.

Just remember what the big picture is and that any long positions should be speculative as this 60 min IWM chart shows massive long term distribution that has picked up significantly since July 1st.

 The IWM 15 min positive divegrence/base puts the short term probabilities of seeing the intraday positive divergences we are looking for, fairly high, just as the 60 min chart puts the longer term resolution after any bounce to the downside.

 SPY 1 min

SPY 2 min

SPY 3 min is starting to lead now.

The Q's are leading positive out to 3 mins already and since capturing these charts, the Q's are now seeing migration to the 5 min chart with a small leading positive divegrence already in place.

I'll let you know if I decide to take any action on short term positions.

There are some core shorts like NFLX that are stating to look appealing for a new short entry or add to position on a longer term basis, however I'm inclined to wait as any bounce will likely lift positions like NFLX higher giving us a better entry/position.

UNG Follow Up and Trade Set-Up

UNG is down -1.98% today on the 10:30 EIA Nat. Gas Inventories which printed at a build of 82 bcf from the prior of 88 bcf, you can see the reaction right at the report release at 10:30.

Reaction to the 10:30 report.

I had closed a small call position yesterday in front of the EIA report, mainly because of the short duration expiration and the EIA wildcard, but kept the UGAZ (3x long Nat Gas) 7/31 position open, Trade Idea: (Swing Trade +) UNG / UGAZ , which is still at a +9% gain even with today's pullback.

 The large daily chart's base is still very much intact...

And intraday we just saw a large volume spike which may be a short term selling climax/capitulation.

The intraday chart went negative right in to the report and has been in line with price since.

However the larger underlying trend on the 60 min chart which is leading positive is still the highest probability resolution to this base.

As such, I'll keep UGAZ long in place and be looking for a reversal process from today's decline which should make for a nice entry either in to UGAZ long or perhaps another call position, we just need a little time for today's decline to form a small reversal process and put in the positive divergences which are high probability based on the 60 min chart's strength.

If you are interested, I'd put this one on the watchlist. I still expect UNG to move to the $25+ area off this base.

USO Bounce Follow Up

I posted the probability of a USO Bounce yesterday, it's still not my favorite trade and probably not one I'll be entering, but it is looking even better.

 The 1 min chart's leading positive divegrence makes it look like USO will bounce sooner than later.

The 2 min chart is very clean with a nice positive divegrence and reversal process.

As is the 3 and 5 min

The 15 min is also positive

And at 30 mins we have a very clean positive divegrence right at a range/reversal process.

If I do decide to enter this one I'll let you know in advance as always, but I feel there may be better alternatives, it depends a bit on how you might want to allocate assets.

MARKET UPDATE

As we were looking for, the SPX broke the 100 day moving average just a bit ago, the next thing we are looking for is the signs it's a head fake move and getting ready to move out of a base and to the bounce we have forecasted to start this week.

It takes a little time for signals to show the accumulation we need, but the initial signals are encouraging.

 DIA 1 min

 IWM 1 min leading positive

QQQ 1 min

SPY 1 min.

There will need to be a little bit of a reversal process just like any, likely in terms of hours rather than days and that is where we should see stronger confirmation.

If we do get some, I may enter some long / call positions to replace some of the long exposure I already took off.