The Week Ahead

Today really skewed a lot of things, but just going from the trend prior to today, it wouldn't surprise me if we were very near the end of this bounce, maybe a day or two more, but I suspect we'll be seeing a lot more lateral (sideways) trade next week, a reversal process. which is where we'll find most of our short entries.

 SPY 60 min

IWM 60 min.

There normally would have been more mileage out of a base with this much gas in the tank, but the distribution trend this week has been relentless, Financials still haven''t recovered intraday. I suspect those yellow arrows will be heading sideways for a good part of next week with some volatility here and there creating short set up entries. I wouldn't add anything as far as market related longs at this point, I'd say we are right about at the apex or tipping point give or take a day or two.

Closed Z Weekly Call

Expiration was today, I got filled at $2.95 on a limit which ended up taking a -22% loss on the position,  I broke my own rules for options in buying too short of an expiration. This was a speculative position so not much damage done, but I'd rather salvage what I can while I can.

Market Update

As usual, after 2 p.m. (although I find it hard to believe the max pain pin was down where the Ukraine news took the market), we tend to see price move off in a different trend.

It seems our leading indicator, "Professional Sentiment" called this one out correctly, although the math on this is pretty easy, "You need higher prices and demand to distribute in to".

As for the Leading Indicator posted earlier...

Our Leading Pro Sentiment Indicator... (red) vs the SPY looked pretty clearly like there was a bit less fear about the weekend or at least the immediate future intraday.

 The IWM was reflecting that as well intraday.  I don't expect to see much in the way if distribution today as they need higher prices to carry that out which is the point of a bounce in this situation to begin with.

IWM leading 3 min with fast and strong intraday recovery.

QQQ 3 min with the same

And SPY leading price.

The TICK transformed from down to improvement to up , it took some lateral trade as usual.

One group that hasn't recovered very well (3c and price) is financials, so I may be closer to a FAZ entry than the broader market analysis would suggest.

I'm going to hold off on the weak ahead post until I see what trade looks like closer to the close. My gut feeling is that this bounce isn't over, but is pretty close to being over. Today was essentially a wasted day as far as the bounce/distribution goes, no higher prices, nothing to sell in to, but there wasn't a lot of panic either so I suspect we have some more upside ahead of us next week, but each move to the upside brings us that much closer to this bounce ending.

Z Should Continue Higher in to Next Week

The Z divergence is large, the base area looks right and there was really no damage done today, I see no reason this doesn't continue higher in to next week and maybe some.

 Z's 15 min positive is a beautiful chart and right where it turned lateral.

The 5 min chart has been ready to go for a move on the upside and...

There's been no damage to any of the charts for Z today, it's leading positive intraday and price is tagging right along with the divergence.

Leading Indicators and the 2 p.m. Pin

Typically around 2 p.m. the max pain pin is lifted as most contracts are cleaned up by then, today is a bit of a mystery though with the monkey wrench thrown in earlier today.

Intraday charts are holding their ground, not adding any really strong intraday divergences so far, but more or less halting any further serious decline for the moment. The overall trend since the bounce started hasn't changed much either.

For example...

 IWM intraday leading positive divegrence has halted downside and put a lateral consolidation in to place.

I believe the latest is there are high level talks between Ukraine and Russia scheduled for Sunday which may put investors minds at ease over weekend escalations.

The Custom SPY/TICK Indicator shows the immediate drop off on the Ukraine shelling news and a gradual improvement in TICK, there's a slight deterioration which shouldn't surprise me to see a pullback to intraday lows, that's where we'd get a good sense of whether they were accumulated for a continued move higher or whether they deteriorated.

 HYG is still leading the market, but apart from the Ukraine situation, the internals/3C charts here yesterday were already falling apart fast hinting the bounce is in the end stages.

HY Credit which has also been supportive and making higher highs/higher lows with the market this week saw a move lower this morning,  this was BEFORE the Ukraine news broke, so I suspect that this is another sign the bounce is losing it's legs, but likely not quite over.

What is interesting is our professional sentiment indicators just started flying intraday, it looks like pros are stepping back in the market and this may be due to the Ukraine/Russian meeting Sunday, taking some of the unknown off the table at least for the weekend.

At the same time, unrelated (largely) to Ukraine as this is a trend in place before, yields are leading the market lower and sooner or later stocks tend to revert to yields so while some new lows were hit on the Ukraine news, the trend has been in place, also suggesting we are getting close to the end of the bounce.

I would not consider this an end point as of yet, but I think the trend that has been in place all week is starting to take on a more serious posture.

As for the 10-15 min positives, not much has changed there. Remember the idea is to sell/short in to higher prices and today didn't offer that opportunity so right now I think we are close to the end of the bounce, but I don't think we are at the pivot just yet.

Gold/Gold Miners

Yesterday I posted a GDX update (Gold miners) in which it looked like we had our best signals for a pullback in GDX that we've seen in a while (which is what I'd like ti see to confirm and complete a long term long entry in GDX/NUGT).

GDX and GLD track pretty closely to each other and both gapped down this morning before the Ukraine shelling of Russian military vehicles news broke.

 GDX vs GLD on a daily chart, you can see they have a pretty tight correlation.

This morning Gold ran up off its lows, but didn't close the gap surprising some with the geo-political tensions rising. It seems the F_E_D's Kocherlakota gave a speech today in which he expects inflation to be subdued in to 2018, I don't think I agree with that and I sometimes wonder, considering the divergences yesterday, how much foot work the F_E_D does for Wall St. in BLATANT fashion, like creating a pullback in gold/GDX, both of which look great longer term which would be a gift fo deep pockets that want to accumulate it on the cheap.

In any case, it seems that speech held gold back from what some expected to be a bigger rise on the Ukraine developments.

In any case, as the intraday charts of the averages, industry groups and some stocks improve, gold seems to be losing its intraday shine and I think GDX likely with it.

 GLD's near term divegrence on a 5 min chart from accumulation to the left to a negative divegrence on the right, similar to GDX's. This isn't the kind of divergence that would hurt the longer term base that's in place, especially apparent in GDX, but enough to create a pullback.

This is GLD's 1 min intraday which also shows a similar recent negative divegrence like the one pointed out yesterday in GDX as I expected a pullback to start soon.

If you look closely at the intraday chart to the right, GLD is starting to go from in line to a leading negative divergence intraday, again as the averages improve.

 The 5 min Gold Futures have the same negative divegrence that GLD does which offers decent confirmation, at least on a short term pullback.

And intraday Gold futures are seeing a negative divergence as well.

I suspect both Gold and GDX will pullback as we have been looking for ever since the breakout above the GDX base. I'm looking for positive divergences to show up during the pullback which would give us confirmation that GDX/Gold are being accumulated on the cheap and give us a new long entry in to either, although I prefer GDX (NUGT long).

Trade IDea (Intraday/Day trade) FEYE

This one is not anything I'd be interested in any more than a short term intraday/day trade, maybe a bit longer if there were significant improvement, but all of the other charts are in line with the larger negative price action.

Very short term however...

There is a sharp intraday positive leading divegrence suggesting this one is going to see a decent intraday bounce for those interested in these types of trades, VERY SPECULATIVE.

XLF / Financials Update

As I posted yesterday, XLF Trade Set-up & Update, there's an area I'd like to see XLF to re-enter a FAZ (3x short Financials) position. The last position was closed Aug. 1st to maintain profits and re-enter at a better level so even with today's move, that was the right thing to do.

I think for the time being, emotional over-reaction is not the best idea, caution and making some preparations are, but that's different than an all out emotional panic.

Looking at XLF right now (as even I considered a FAZ long earlier on the news based on emotions rather than charts), here's what I see. There's some intense multiple timeframe analysis here so I'll try to be as clear as possible.

 This 15 min chart (the longest timeframe of all the charts in this post) still is leading positive which tells me whatever Wall St. is up to (selling/short selling), they are not done with the process.


Charts in the 1-5 min timeframes have shown steady deterioration in to higher prices which would represent larger positions either being sold or short positions being accumulated, both acts are selling. However the divergence is not strong enough yet to effect the 15 min chart above, this tells me that based on what I can observe as I'm not a fortune teller as far as what will happen in Ukraine over the next few days, patience is still the most reasonable path based on objective data.

 The 1 min XLF chart shows what I have been saying all week, that since the base broke out, there has been distribution (in the form of selling or short selling) in to higher prices the entire time, yet it doesn't seem to be over based on charts like the 15 min above.

However if we look at this same 1 min chart on an intraday basis...

We see the start of a small positive divegrence, suggesting there's an attempt to send XLF back up. This divergence and possible reversal to the upside are subject to a reversal process just like any others, although these parabolic-type moves often have a shorter reversal process.

The bottom line, I'll wait and remain patient, monitor the progress of this intraday chart and asses the probability of a move back higher, if it looks likely, I'll stick with my original plan laid out yesterday, if not then we should see the deterioration or failure of this early divergence in Financials which is also being seen in some of the major averages.

Market Update

I don't see anything that we haven;t seen developing through the week or that I wouldn't expect to see on the recent Ukrainian news.

The latest is from the Ukrainian government website , it seems Ukraine had coordinated "the attack" on the Russian armed forces that entered Ukraine, obviously trying to show Putin to think twice before reacting as there's NATO support for the action...

"President of Ukraine and Prime Minister of Great Britain discussed international efforts on the settlement of the conflict in the Donbas

President of Ukraine Petro Poroshenko had a phone conversation with Prime Minister of Great Britain David Cameron.

The parties coordinated their actions on the response to the information regarding the entry of Russian military machines to the territory of Ukraine that has been clearly witnessed by international journalists, particularly of "Guardian" newspaper. The President informed that the given information was trustworthy and confirmed because the majority of that machines had been eliminated by the Ukrainian artillery at night."

As for charts, deterioration continues and has stepped up a bit since the news, but seems to be pretty close to the rate of deterioration since the bounce started. The main divergences in the 10-15 min range that are key to a reversal other than one caused by a geo-political crisis erupting more than it has, are still intact, but it takes a little longer for them to respond so we'll see if that happens. Also note Treasury yields continuing to diverge from stocks.

 10 year yield vs the SPY

Ten year yield vs SPY over the week, now at 2.327%

Of course the TICK data was a reaction to the news.

 SPY deterioration on the 1 min chart, note that it doesn't seem there was any increased ROC on the Ukraine news.

 That has migrated to the 2 min chart

And the 5 min chart

The one I'm most interested in for a real pivot to the downside is this longer 10 min, with the 5 min getting worse, the 10 min should start to deteriorate soon.

 QQQ 1 min

QQQ 2 min

QQQ 5 min

There's still a relative negative divegrence in the QQQ 10 min, the potential start of a divergence here.

IWM 1 min looked bad overnight in TF / Futures so this 1 min chart is not surprising, the one thing that is, it looks like an intraday positive divegrence is forming so we may see an intraday consolidation, maybe even an upside reversal.

 IWM 3 min. I'll note that IWM has seen the least deterioration, but also has had the worst relative performance as seen last night, still at resistance areas the other averages already broke.


For example, I noted yesterday that it looked like there was some actual improvement likely to try to break out above local resistance levels.

There is a relative negative divegrence in the chart I'm most focussed on, 10 min base's positive.

Ukraine Situation Pretty Cloudy

It's increasingly difficult to sort out what is actually what in Ukraine right now as initial reports that sent stocks to intraday lows were that part of the Russian Aide convoy was destroyed by Ukrainian forces, but don't forget the overnight reports of Russian armor advancing inside Ukraine overnight. It seems as if it was that was the area of conflict.

CNBC is reporting the following:

A Ukrainian military spokesman said Friday that Ukraine forces have engaged a Russian armored column on Ukrainian soil and "part of it no longer exists."

Russia's foreign ministry, meanwhile, said Ukrainian forces are engaging in intense fighting in Eastern Ukraine to stop humanitarian aid to the region.

It is unclear whether the fighting is focused on an armored vehicle convoy or the aid shipments.

So far the intraday 3C charts look as you'd expect on this initial news, the issue is initial reports are always pretty far from the actual situation, so I'll be looking for any advance market knowledge as they tend to get it first, I suspect that's why the overnight futures had some nasty negative divergences, the story of Russian APC's entering Ukraine overnight.

Bloomberg on Ukraine...

Bloomberg:

U.S. stocks erased gains after Ukraine said it had destroyed part of a Russian military convoy, stoking concern that the crisis is worsening.

Ukrainian military spokesman Andriy Lysenko told reporters that troops had destroyed part of an armed Russian convoy after the government earlier said Russia is still supplying rebels in the eastern part of the country with equipment. NATO said it sees a continuous flow of Russian weapons into the region.

Never Saw So Many Lows At Once-WW3?

Seeing all of my quotes hit the lows of the day at the same time, I knew something was up. I looked at and grabbed a bunch of charts, but all that really matters is that Ukraine Military just attacked and destroyed part of the Russian Convoy, I'm sure it wasn't for "Nothing", but this should escalate tensions out of control. I'd probably not want to be long much of anything over the weekend.

Z Trade Follow Up

Z was entered as a Call play earlier this week (short term trade), Trade Idea: (Short Term Option) Z.

Just yesterday I posted an update as things were looking close to popping to the upside, Quick Z Update,  here are the two things I was looking for first...

 First a break above the 50-bar, 5 min moving average and then...

A break above the 50-bar 60 min moving average , both of which we have this morning.

So far the sharp positive divergence/accumulation we saw is still in line with price, confirming this gap up.

The 5 min chart shows Z as having a pretty substantial divergence that I'd think (unless we see severe deterioration) should continue this move in to next week.

In fact there's a strong divergence right out to the 15 min charts so in my view (even though we must consider the overall market), Z looks like it's just starting a move that should continue well in to next week.

Just don't go thinking this is a game changer for Z. This is the 4 hour chart and it has seen strong distribution. I like Z for a decent swing move, but it's not changing the overall tone and longer term probabilities which are to the downside. Just enjoy the ride.

A.M. Update

Things are a bit out of rumor control again in Ukraine. Just a day after the US announces it will send military equipment to US allies bordering Russia to "calm nerves", and just as the Russian "Aide" convoy enters Ukraine, overnight and several times this morning Russia is said to have sent their own military equipment in to Ukraine including APCs and military trucks. Meanwhile the inspection of the convoy carries on at the border as NATO warns Russia to pull back its forces near the border and those who crossed in to it, but this rally/bounce clearly seems to be unaffected by the news of escalation when the entire move is attributed to "de-escalation".

There is another possibility that may emerge quickly today, that is those who have been buying protection in low strike puts may have been squeezed this week, we saw it in SKEW dropping and if we see very fast moves in 3C today, we may just have confirmation. This bounce has not acted like the others except the last two, it has been on abysmal volume and supported by assets that are now falling apart, HY credit being one of the main ones.

Nevertheless, overnight futures looked like this marching higher (which is also unlike an op-ex Friday as they have tended to open close to Thursday's close)...

Russell 2000 futures with a deep negative 3C trend which is taking hold...

This morning, just after yesterday's GDX warning of a pullback (which is what I have wanted to see), gold and silver were dumped on fairly heavy volume.

 Gold dump around 8 a.m.

Silver dump around 8 a.m.

This coming before the Empire Manufacturing miss, the biggest miss in 4 months falling from 25.6 to 14.69, the most since June of 2012. New Employees, New Orders and Inventories all fell sharply, the one thing that did rise was the 6 month outlook which can be expected with inventories having fell so hard.

The dump was also before PPI which came in below consensus almost entirely due to a .6% drop in Energy, the biggest drop in a little over a year. Food inflation was up .4% after having been down -.2% the last two prints, Core excluding food and energy came in at the highest since March.

While the 10/15 min positive divergences have more room traditionally speaking to lift the market, volume has been horrible and after seeing what SKEW did the last week and a half or so, I suspect those who have been piling in to low strike puts were just squeezed out, if so, we should see some very strong signals today which have been mediocre all week.

We'll know soon enough.