Daily Wrap

For the most part today was pretty much what we expected yesterday, for instance, yesterday's Dominant Price/Volume Relationship among the component stocks of the major averages was Price Up / Volume Down, as I said last night about this relationship...

"There was a Dominant Price/Volume Relationship in all of the majors except the Dow, it was Close Up/Volume Down, 61 of 100 NDX, 801 of the Russell 2000, SPX 213 of 500.

This relationship is the most bearish of the 4 possibilities and often results in a next day close lower."

All of the major averages closed marginally lower except the Russell 2000, -0.76% as there was a late day scramble to push SPX futures back toward VWAP which they had hit several times today.

The very late day 3C action showed significant short term improvement which is something I had posted in the last update, looking for a probable ramp in to the close.

It will be of great interest to me to see if these improvements (which needed price to pullback to take place) will stick and finally give us an actionable area to enter some short term speculative (perhaps even swing) trade longs.

For example, the most improvement was in the IWM and QQQ toward the close which is when the big boys tend to come out.

 IWM 1 min

IWM 2 min

IWM 3 min and the 5 min still needs work, but there was migration through the timeframes and rather fast.

The convincing part of these signals to me is that I may have dismissed them as a late day ramp to unchanged of VWAP for the SPX futures, but the IWM has no chance of either and it put in some of the strongest signals with migration to longer timeframes. I suspect if we have a solid signal and trade entry it will come tomorrow and I may still use weekly calls if the signal is early and strong enough, otherwise I have no reason I HAVE to trade.

The SPY which seems to be scrambling toward VWAP (SPX futures) actually had the least impressive end of day intraday charts.

Treasuries sold off modestly on the day and the 5 year yields as a leading indicator moved very close to short term reversion whereas yesterday they were pointing to more downside today.

ES/SPX Futures volume was 40% below average today, however as I showed later in the day TICK was showing some large selling with prints in the -1350 area which was about the same time these divergences picked up, something I had suggested may happen, supply being accumulated.

Today's Dominant Price/Volume Relationship was the most benign, Close Down/Volume down which has very little short term overbought/oversold effect, it's the most neutral of the 4 possibilities, but it is the dominant theme during a bear market ( as an aside). 

Of the 9 S&P sectors, only two closed green, Financials and Materials, however, other than Energy, the losses were moderate in the -.25% range.

Of the 239 Morningstar groups, a light 58 of 239 closed green.

Changes in market breadth today were minuscule, barely worth noting.

What is worth noting was the late day changes in 3C and the fact that HY Credit is still supportive of a bounce, other than that, just look at the daily charts, it was virtually a repeat of yesterday with few obvious changes and all in all, the base area is still holding together which still puts short term probabilities in the corner of an upside bounce just as it was laid out in last night's Daily Wrap.

 

Market Update

I'm not putting out too much today because I don't want to bombard you with the same charts with little actionable information.

As long as the 10-15 min positive divergences (even 60 min for the SPY) remain in place, I don't want to enter any short term short trades, the near term probabilities just don't favor a short term short trade.

However, until the intraday 1-5 min charts have done their work and put in clear divergences that look solid, I would not enter a short term long position either...The 3C charts have not put in a strong positive divergence in those timeframes and you can see the result, the market continues to pullback.

There are several changes,  none of which are emergencies, but I thought I should at least let you know where we stand.

 IWM 1 min has two areas of small positive divergences, this is nothing I'd even day trade from, but it looks to be the start of the process which we had none of yesterday.

 The IWM 5 min chart is still pretty far from any kind of positive divegrence I'd require to enter a trade, but it has put in a relative positive today which again is more than what we had yesterday. Again I can't stress enough how backwards people have it in thinking that the market moving down means large institutional selling, this is where and when they often accumulate as more supply becomes available at cheaper levels.

 This is my X-Over Screen to avoid false moving average signals or whipsaws, but in this case I'm using it on a 15 min chart to look for early signs of changes in character, whether the 10/22 bar price moving averages, my custom indicator (yellow) moving above or close to its 22 bar (blue) moving average or RSI.

With this chart I'm trying to give you an idea of what a reversal process would look like if the market just went up from here, it would be very "V" shaped and you don't see this often. If you look at enough charts you'll see there tends to be proportionality and symmetry in the reversal process.

 QQQ 1 min has moved more to a lateral "W" pattern which is interesting, it may try to make an afternoon run from here as there's also a relative positive divegrence (Weaker form), but I wouldn't buy this, the probabilities just aren't there.

 From where we are now in the pullback of yesterday and today, I'd expect a reversal process somewhere along the lines of what I drew in.

 Remember the QQQ 1 min intraday positive which is used mostly for intraday moves (above), here I'm just demonstrating that none of that 1 min strength has migrated to a 2 min chart, thus I don't see any reasonably strong probabilities for a long trade.

The SPY 2 min is still in leading negative position, however the rate of change in 3C since today (right of the vertical line) has improved. A leading positive move above the red trendline would start to show some more serious underlying trade.

 The SPY 5 min is very similar.

As for Index futures...

 The NQ and TF 1 min charts are showing some recent positives that may be a cluster of buying, it's not a trend, but it does make some sense when looking at the TICK chart.

 I usually align my trades with at least a 5 min futures chart, these tell me that we aren't done on the downside and reversal process as they are in leading negative position, but intraday there is improvement which is the first step in changing the leading negative position.

 R2K 5 min Futures also tell me the probabilities are for more pullback, remember Friday I had even thought a move below the week-plus long base (head fake) was reasonable, although not highly probable.

And the NASDAQ futures 5 min chart.

With all of these looking the way they do, I would not enter a long position in market averages or most any stock as they mostly move directionally with the averages.

The TICK intraday is showing some heavier selling with -1000 and -1250 readings pretty common in the afternoon which makes supply available to be accumulated.

Thus far there's really not a lot to do, the core short positions are in place and are working, they are aligned with the trend of highest probabilities (primary trend). As I said, while there are 10-15 min positives over that week-plus base area, a "trading" short doesn't make a lot of sense here, you'd be chasing. If the market just falls apart from where we are, that's why the core shorts are in place. beyond that, the near term probabilities are for this pullback to finish up giving us a chance to enter some smaller/speculative longs and in to a larger position trade short entry on a bounce.

Until there are strong signals for any of the above trades, I'd just stay patient and for now at least, let the core/position shorts work.

Market Update-Continuing Progress

Since so many of our entries are near lows and highs (not because we are trying to catch a falling knife, but because that's typically where we find the best signals for tactical reasons that make sense if you put yourself in the position of a fund manager with large positions that are difficult to fill without moving price against yourself or attracting unwanted attention) I have to be very careful in what I put out as to not give anyone the wrong impression that progress is our destination.

This morning we've had progress in the turn to the downside which is what we've been looking for since the gap up yesterday a.m., the next thing we are looking for is the start of the reversal process of that pullback/decline, this is where 3C positive divergences "should" start to appear as smart money fills large positions in smaller blocks. The turn in price from down to lateral is one of the first signs we are starting the reversal process which is generally where we tend to enter positions.

We have some more progress on this update, although I want to stress that it is progress, it is not the final destination and  if it was, it is not one I would trade at this point, there just isn't enough evidence and confirmation of the strong divergences needed to enter a high probability/low risk trade, but it does appear to be progress.

 The 1 min NYSE TICK Index (today starts at the vertical yellow line). As I said earlier, the TICK breaking the channel would be an early "Head's up" warning that a change in character is underway.

The IWM 1 min chart did today what the averages couldn't do yesterday, that is to lock in a positive divegrence by pivoting to a higher high (from the white trendline off the initial positive divegrence. Thus we already have some stronger underlying positive action which makes sense as they typically won't chase prices, but rather let them come to them which often results in more supply as well which they need.

This is just 1 divegrence and on a 1 min chart so this is a very early signal, not the destination I'm looking for.

 A closer look at the same divergence in the IWM with no annotations.

 The IWM 2 min is also putting in a relative (weaker form) positive divegrence and you can start to see price is turning more sideways now, this doesn't mean the lows of the day are in as a reversal process is typically "U" shaped.

Even the IWM 3 min chart is putting in a relative positive divegrence vs yesterday's readings at 2 p.m. on both charts above.

The SPY 1 min is also putting in the start of a positive divegrence on the 1 min chart which is where we would expect to see any new divergence start and as it gains strength it should migrate out to longer timeframes.

 The 2 min chart is still leading negative and for now that is the dominant signal , but there's a change in character to a more positive nature.

The Q's are still pretty much in line and haven't impressed me much yet, there seems to be an intraday bear flag forming and a move lower would still be probable for all of the averages.

QQQ 3 min has no change in character.

As mentioned yesterday as part of the probability of a continued pullback today, 5 year yields which we use as a leading indicator tend to pull prices toward them and as you can see they are below the SPY on a relative basis as compared to last week as they were more in line with price. Typically there's some short term reversion to the mean.

10 year yields also suggested lower prices today for the market/SPY, however they are starting to turn up a bit toward short term reversion to the mean which is another change in character.

As mentioned the last several days, HY Credit saw some small inflows last week which I believe are essentially the same kind of small, speculative piggy back trades we are looking at. HY credit leads price as you can see to the left as it negatively diverged with the SPX and resulted in the SPX falling out of the Ascending Wedge. Right now HY Credit is positively diverging not only on a daily basis, but essentially through the entire base area which is supportive for a market bounce to our second area of interest, the reversal process that takes place after a bounce from the base that has been built over the last week+.

I'd stay patient, but be aware that there are some significant changes starting already.

Market Update

Now we are getting somewhere. As posted last Friday, yesterday, last night and this morning, the area in which I expect us to be able to take reasonable, low risk action on a swing worth trading rather than messy chop, is a bit below and as such we've needed a pullback which is what 3C was indicating late Friday for the early part of the week with a bounce following. It's probably already clear, but I want to use the pullback and what I expect to be positive divergences as the pullback nears its end to enter positions for the first of 2 trade set ups, we've just needed the pullback for the 3C charts to start to go positive assuming everything is still on track and I have no reason to suspect it's not.

The JOLTS Job openings came in at a record pace not seen since 200 which means the F_E_D can proceed on course with their "hawkish" exit from accommodative policy even though it was just yesterday that the F_E_D's Fischer rang a more cautious (Dovish) tone about the state of the economy. Regardless of what the data says, I think the F_E_D wants out, NEEDS out and not just from an inflationary point of view or the fact that a $4 trillion balance sheet has yet to create a recovery, I think it has something to do with the fact that the F_E_D has shareholders and can only take things so far before they start making noise.

In any case, this is what we need to take any short term bullish action.

 QQQ 1 min still leading negative which is what we need to see at least until we have a pullback that fills the gap and then some, in fact last week I suspected a possible move below $93.85, a real head fake move.

This is the 3 min chart which along with 5 min charts have suggested there's more downside to go since there has been no start to accumulation on the 1 min charts, that's because there not going to accumulate until they're at the target area which usually means they need to take price down to a level where sellers will step up and create cheap and plentiful supply.

The danger (which really isn't a danger if you are positioned net short in your core/main positions) is that the larger base positive divegrence in the 10/15 min range starts to fall apart, in that case a bounce starts to look less likely and an all out decline more likely which is why we wait for the right entry on the long side with the right signals and otherwise keep the bulk of our portfolio in lockstep with the highest probabilities which are solidly to the downside.

 So far the QQQ base/divergence is holding up just fine so this keeps the plan of action laid out last night and reposted this morning, still in play, that looks something like this (this is conceptual, not  specific time-tables and price levels)...

This was the chart from last night's post and the expectations from yesterday's close, first a decline to point #1 where we should be able to enter smaller/speculative piggy-back long positions like the calls I've been talking about or leveraged ETFs and then #2 which is the actual bounce off the base in which we can enter core/long term position shorts and some select longs.

So far we're on track this morning.

IWM 1 min intraday on track

And the 15 min positive divegrence is still in place so our action plan is still viable.

The SPY's 5 min chart which will have to see some repair before considering taking on any serious long/bounce plays...

However the base divegrence is still in place on this 10 min chart and even all the way out to 60 min (see below).

 SPY 60 min positive divegrence.

Here's the TICK since this morning, you can watch the channel and any break for an early head's up of a changing trend which should move to lateral to create a reversal process and positive divergences. We have hit some lows of -1350 this morning so there's a good deal of selling.

And my custom SPY/TICK indicator's trend.

It's still just a matter of patience.

I noticed HY credit is still holding up and supportive of a bounce.

Opening Indications

As I mentioned last night in my Daily Wrap... or "Patience" post, there's essentially two areas of action in which I'm looking for, the first being the shorter term piggy back trade which is long and speculative, really if you are a longer term trader/investor, you can take it or leave it and of course the second action area which I view as an essential opportunity...

Here's the chart from last night's Daily Wrap...

The first area is a very short term pullback/consolidation at area #1, that may be in play today. Because this is a shorter term position I prefer to use a tool with more leverage so long as the trade looks solid which it should.

#2 is a bounce off a week-plus long base, we still don't know how this is going to go because no bounces since July 1st have held.

Overnight futures were up (ES) about 6.5 points and of course we can't have that considering where 3C was...

ES negative divergence in to the overnight / early a.m. highs. This may have been when the German ZEW Survey printed, I haven't checked the time it was released, but it was a disaster and combining that with IP and other Industrial surveys, it seems all but assured that the rest of Europe will soon enter a triple dip recession with Italy. 

As far as opening indications...

 The SPY has a small 1 min positive, but it still needs work before I'd look at any trades there.

The 2 min chart needs a lot of work

As does the 5 min so I doubt we are going anywhere soon (intraday).

The IWM picked up where it left off yesterday and still needs quite q bit of work, I suspect more of a pullback and then a reversal process, it could be done today, but it will need to get cracking.

IWM 5 min

And the QQQ 3 min looks like it's about to see some downside as expected/pullback where it can finally get things together and we can look at taking some action, until then, this is just a bunch of chop/noise that I don't want to get too involved in unless there's very good reason.

Z, entered yesterday as a spec call position is pulling back this a.m. but on a positive divegrence and otherwise looks ready to go so I'm not too concerned with that one.

 Z 1 min intraday

Z 5 min in good shape.