Daily Wrap, SPX loses 2000

The question remains, how long. I put out numerous posts today that today's weakness in the market (the IWM the weakest at -0.58%, ironically the only average with a Dominant Price / Volume relationship for the last three days with yesterday's described last night as, "carry on" ) which is seemingly on Ukraine Russian Invasion/Incursion headlines which sent SPX futures to the lows of the week pre-market, are likely not going to hold and the concept of the head fake move amidst the reversal process we are clearly in now is still the highest probability.

From Tuesday's Daily Wrap after the R2K closed up +.85%, I said this about it's P/V Relationship,

"There was only 1 Dominant Price Volume Relationship today which was the Russell 2000 at Close Up/Volume Up, the most bullish of the 4 relationships, but also the one with the highest probability of creating a 1-day overbought condition typically sending the average closing lower the next day." 

The Russell closed down yesterday and again yesterday in the Daily Wrap the R2K was the only average with a dominant P/V relationship, this time different of which I said,

"There was only 1 Dominant Price/Volume relationship today, the same as yesterday, the Russell 2000, but this time it was Close Down/Volume Down which doesn't really have a next-day implication for short term overbought/oversold, I just kind of consider it, "Carry on doing what you were doing" which is ironic as the IWM was the only average not showing a positive divegrence intraday in to the close." Also ironic for it being the biggest laggard today -.58%, vs SPX @ -0.17%, Dow @ -.25% and the NDX @ -.17%.

In fact, interestingly as the US cash market (regular hours) closed, ES/SPX futures regained yesterday's close (after 4 p.m.).

 ES made quite a move just after the US close at 4 p.m., NQ followed along and TF to a lesser extent.

ES tags the lower VWAP standard deviation at lows of the week on the confusing "Russian Invasion", retracted and corrected to "Russian Incursion" headlines this morning.

In any case, a cycle is a cycle and there's very little that will keep Wall Street from running and completing that cycle. You may recall the chart of the SPX's reversal process earlier today with a virtually straight trendline up with the only dip being last Friday's Ukraine "Destroys Russian Armor column" which turned out to have no evidence. The point simple being, a head fake move is high probability and Wall St. runs them as part of the cycle started on August 1st, there's very little that will cause them to abandon it as they know where it's going and what the reasons are for it well in advance, these are not coincidental or random moves, they are set up and controlled by Wall St. for a specific reason. The most specific reason through 2014 has been to distribute in to higher prices.

I won't get in to all of the reasons this run looks to be the last, but breadth is a hint.

As we suspected Tuesday, Gold and GDX/NUGT would see a pullback yesterday after Gold miners very strong day (NUGT up +6.19%- one of our long trades), yesterday I suspected that the pullback would be over today and we continued higher, GLD + 0.56%, our preferred PM play, GDX + 1.38% and our actual PM play, NUGT up +4.17%.

Also USO which has been posted numerous times this week as a bounce to the upside gained +0.86%. A correction in USO as well as Gold, GDX and NUGT looks probable, but the trend in all of them look to be much higher in the week/s to come.

Copper had a horrible day, down -1.47% and as Dr. Copper goes, it's seriously divergent with the SPX.

Transports ( a current open Short which I'm looking to add to) were down -.27%, I consider IYT a strong short and would consider entering it on almost any bounce from here and I do think it sees 1 more bounce.

The divergence between the SPX and 30 year yields continues with a fresh low today in the 30 year yield at 3.07% (10 year at 2.33%). As mentioned rhetorically, someone is wrong and I'm not betting against the bond market.

SPX (green) vs 30 y. yield in salmon as it hits a new closing low.

There was no Short squeeze attempt today, although if the SPX regains 2000 after a test of 1991 today, there may be which could power our head fake move.

MSI (yellow) vs Russell 3000 (green) intraday.

I don't think there's a whole lot of thinking to be done at this point short term for the market, we either get confirmation of our projection, Broader Market Picture & Message of the Watchlists , or we don't although I doubt we don't unless there's some big fundamental news in geo-politics, specifically Ukraine/Russia. This sets up the end of the reversal process as shown earlier today as the first hints were visible Friday (some may have needed ROC to see it which is no big deal), today the process is very clear with HYG leading the market by almost a week just as it led the market while it was still forming a base for 4 days and then though 2/3rd of the rally.

As for Dominant Price/Volume Relationships which have been amusingly interesting , the only average NOT to have one today was the Russell 2000 (complete 180), the other major averages all had the same relationship with 14 of the Dow 30, 41 of the NASDAQ 100 and 183 of the SPX, it was Close Down/Volume Down. Other than being the thematic relationship of a bear market, it really doesn't have a 1-day overbought/oversold correlation like the other relationships do, I often call it "Carry on" as it's no sudden message that is likely to produce a short term change in direction, but it also won't hamper one and in the absence of anything to move the market such as the R2K not having an end of day positive divergence like the other averages, I call it "Carry on".

Of the 9 S&P sectors, 3 closed marginally green, one closed at respectable +.73%, that was the Defensive Utilities which were the worst performing sector yesterday.

Of the 239 Morningstar Industry/Sub-Industry groups, only 73 of 230 were green and of the 73, only 24 closed up more than a 1/4 of a percent.

As for breadth indicators, and you know why I think this is important, almost none have moved for the last 8 days, they moved at the start of the rally, but for 8 days, the same amount of time HYG has been moving laterally in a reversal process, there has been no gain. The only movement in breadth today were the Advance/Decline lines, all down including the Russell 2000, 3000 and NASDAQ Composite which is already by far the worst and has been for about 4 months.

As for geopolitical risk events, NATO released this to stir the pot today, From the Washington Post:

NATO: These new satellite images show Russian troops in and around Ukraine

As far as next week's risk event as German, Dutch , Italian and French sovereign yields hit fresh lows, the ECB could engage in QE next week, although Reuters said today that the probability is low unless inflation really slides, however the ECB did hire the world's largest money-manager, Black Rock (BLK) to advise them on buying ABS to compliment their LTRO. 

What is interesting are sovereign yields so ,ow as if traders have been front-running an expected ECB QE, however I'm not so sure unless they are simply that dumb as Draghi has said on several occasions, they'd be targeting ABS, "Asset Backed Securities", such as packaged mortgages, auto credit, consumer credit card debt, etc. VERY different from buying up bonds, like the F_E_D did with US treasuries, so unless they are just that ... "dumb", I'd have to assume there's some risk off tone or flight to safety. In any case, there are those who say the ECB moves this meting and those who say Draghi will never do anything but talk.

A lot will depend on the inflationary outlook and the probability of deflation, but if traders were trying to front run ECB QE by buying sovereign bonds, they're about to be crushed when they find out that's not what they are buying as their charter expressly forbids the ECB from financing any nations' debt.

An ECB ABS purchasing program would presumably be taken as an endorsement of consumer credit assets and encourage more lending.

It's difficult to gauge Draghi's comments as they seem to be Greenspeak, we'll just have to wait and see as the meeting is set for September 4th.

That will about do it for now as we have seen pretty much all we can to make forward looking forecasts, we'll have to see if there's follow through on them, but I think a test of SPX 1991 (earlier today) that recaptures 2000 (after the cash close today),could be the buy the dip move the market needs to get the head fake move over the top and there are a lot of great looking assets out there to enter trades in (you saw a half dozen or so today).

Message of the Watchlists

In an addendum to Broader Market Picture I often tell you about flipping through the watchlist as this will often give you a tone or trend that is clear enough that it is a high probability, and when it fits with your other market analysis it's just adding to that probability.

The case I've been making is that I think the head fake move that we see so often before a reversal, especially a major reversal, which provides some of the best, lowest risk entries we could ask for as well as exits from any piggy-back (long) trades, is still a likely probability and thus a gift that takes some patience as long as you have reasonable objective evidence that this is the most likely course.

We know from history that it's the most likely course, but each market is different. In the last post this was the case I was making.

I've gathered some charts from my watchlist and there are two things that are trends, our short-sale watchlist components have fallen apart and are looking great for new or add-to positions like SCTY mentioned earlier and the very short term charts don't look ready to give up the ghost without that head fake move and  once again if you don't understand the reasons it's so important to large funds trading large positions, please see my articles linked on the member's site, "Understanding the Head Fake Move".

Here are a few assets that we have been following and their message.

NFLX as recently posted...

 There has been a ton of distribution over a couple of days after a very strong move in NFLX, it's looking very close to ready. In my life pre-3C, I'd probably already be entering NFLX here.

 However the short term 2 min chart that reflects action over the next day or so does not look ready to give up the ghost, it looks like it wants that upside move that we want to sell in to.

 However make no mistake about how close NFLX really is from breaking down so a move to the upside and shorting in to it may seem hard, but it's the highest probability in this situation and the best entry which should be followed by some nasty downside.

 VXX has a beautiful 30 min chart, a beautiful reversal process and looks like a beautiful long shaping up, although I'd want to pick it up on a pullback (market head fake as it moves opposite the market) would do it.

 The 5 min chart showing the very near term expected action shows distribution, but not that heavy in to the 8/1-8/8 market base, the positive divegrence here means this upside move is not far off, it can easily handle a pullback and that's where the entry is.

The same 5 min chart on an intraday basis is not leading or accumulating, it's in wait/stall mode.

AAPL is one I've been watching for some time, the 60 min chart is now leading negative which is something new for AAPL, it's pretty ripe for a downside move, but...

The 3 min intraday chart is not falling apart here as it normally would just before a reversal, I think it's waiting on that final bull trap pop.

Z is one we've been watching as longer term charts are falling apart, this 15 min is sharply leading negative on the market rally this month, distribution in to the price gains.

However very short term (much like yesterday afternoon, the intraday chart is pointing to an upside short term move consistient with a head fake/bull trap or "Failed breakout".

 FB has been interesting, there's a sharp leading negative 15 min divergence in to this month's rally, this looks like a short right here and over the course of a month or two, it probably doesn't matter if you enter here or a couple percent higher on a head fake move, but...

It's 2 min chart looks like it's ready for that last move.

Note that all of these positives are on 1, 2 and 3 min charts, they are small, they are not sustainable, but they are what we'd expect to see for a head fake move which is what my market analysis says to expect. Most all of the watchlist shorts look the same, longer term, intermediate and short (5 min) term charts are destroyed, they look to have that 1 last head fake move left in them which is consistent with the reversal process or the "Igloo with Chimney", the igloo being the rounding top/reversal process, and the chimney being a quick, sharp move up / head fake, that creates a bull trap and many other things institutional traders need like momentum on the downside reversal.

Broader Market Picture

Last Friday in the post, REVERSAL PROCESS WELL UNDERWAY I posted the reversal process as I'm use to seeing changes in character, but it was a little more difficult at the time as it was earlier in the process.

This is the chart of the QQQ's reversal process from the post linked above almost a week ago.

 The orange indicator is Rate of Change applied to price via a 10-day moving average, you can see the turn to the downside. ROC is very helpful in identifying changes in character before they've become very apparent.

We also knew from early August that HYG was one of the main market manipulation levers that was to support this move, as they say, "Credit leads, stocks follow".

HYG in red vs the SPY in green had a 4-day head start of leading the market while it was still in a lateral / slightly declining base. Then HYG went lateral itself in its own reversal process, again leading the market and in the reversal/lateral/process for 8 days now.

I doubt at this point it's difficult to see what the ROC chart from last Friday was already telling us...

The 30 min SPY chart of the move off the early August base, the only break in the trendline was that Friday in which the Ukraine first claimed to have destroyed most of a Russian military convoy inside Ukraine with two independent journalists tweeting that they witnessed the Russian convoy cross in to Ukraine, obviously upsetting the market until the weekend past with no evidence (photos, videos, etc.) of said Ukrainian destruction of the convoy.

At this point the lateral reversal process in the SPY should be clear to the naked eye, but it was underway last week. As I mentioned several times recently, the upside topping process is usually about twice as long as the bottom/base reversal process (as the base had just come out of a 4-8% downside move depending on the average.

So as I have been saying the last couple of nights in the daily wrap, from many perspectives, HYG/HY Credit, 3C, and most importantly market breadth and the lack of any follow through of SPX 2000 with 4 consecutive days of new record low volume on the upswing; this move looks to be in its dying days with only a head fake move missing (an upside move that creates retail excitement) buying pressure and sets a bull trap which creates the downside momentum early in the reversal as longs are trapped at a loss and begins selling.

Again Ukraine/Russia figure in to the market here as we looked set for the start of the head fake move late yesterday and even overnight futures hitting the lows of the week on escalation in Ukraine, didn't send the averages lower, they still saw early morning strength as we expected from yesterday afternoon despite the overnight risk off tone.

HYG as of now doesn't look like it's going to give the helping hand, at least not in front of a 3-day weekend with escalation tensions rising so for now it seems the market is on its own as to whether it can pull this move off, however from some of my watchlist assets I've reviewed, it looks like they'll give it a shot (SCTY was one just added as it looks great for a short set up in to a head fake move).

Here's where we seem to be at present as far as the long pivot/buy for this move and the second pivot, the larger trade which is the short entry on strength as posted on 8/11with targets for the market averages, this is the IWM chart from 8/11 which is nearly 3 trading weeks ago (14 trading days)...

This rough estimation of the upside IWM move and reversal process was only off by half a percent at least thus far in to the reversal process.

So far there's no help from any of the carry trades, HYG looked as if it would try, but so far that's a scratch.

For the last 2 hours, the NYSE TICK has been maintaining a tight range of +/- 500 which is virtually no movement on the bullish/bearish side, just limbo.

I would think a test of SPY 1991 would need to be shown as holding, whether SPX 2000 holds on the close or not, it would have to regain it by Friday or early next week to keep a head fake move possibility alive.

While these intraday charts can move quickly and often do by the time they are posted, there seems to be a trend developing here.

 The SPY intraday is collapsing, I doubt that SPX 2000 will be recaptured today.

SPY 3 min which was the strongest of the intraday charts is also falling apart, not massively, but enough to send it a bit lower.

And SPY 5 min isn't showing any heavy distribution today as there's really not much to sell in to without risking collapsing the market, the main point though is that it's holding ground, not leaking lower and certainly not going positive.

The Q's are also giving up 3C ground intraday

As is the DIA which had a nice positive divegrence.

My best guess is that the attempt for a head fake move to the upside as we have expected is still on barring any sudden escalation beyond what we've seen today in Ukraine.

I think the market's best chance to pull off such a head fake from where it is is to let prices drop, maybe even test SPX 1991 which is being watched and let the "BUY THE DIP" crew come in and buy the dip, but first they need to give them a dip as they are not likely to buy a red, rolling over market (intraday).

With SPX 2000 recaptured, I think that's the best chance of running the head fake move which is not just out of tradition, there are real strategic and tactical reasons they almost need to run a head fake move which you can read more about on the member's site, "Understanding the Head Fake Move" parts 1  & 2 always linked on the member's site.

From a bigger picture perspective, I am glad to have added back the partial FAZ position, I'm glad to have my core shorts in place. On a tactical note, I'd like to add to those on an upside pop which is one of the best entries we'll get for a reversal to the downside which usually comes right after that upside pop or head fake move.

SCTY Trade Set-Up

SCTY is a longer term short position we have been interested in and even opened with a little room to add to. Since SCTY hasn't done much lately, although I look at it often on my watchlist, I haven't posted much on it lately as there have been few actionable areas to consider so I'll have to include a broader view of the trade idea (more charts than usual).

 Here's the current SCTY position already opened...

SCTY with 300 shares at an opening price of $71.27, a current price of 69.17 (as of this capture), down -.72 on the day (as of the capture) with a position value of $20,750.97 as well as the $629.03 gain in the position and +2.94% gain.

There's a tiny bit of room left for me to add to this position at this size, but not much.

As for the reason I like SCTY as a position trade (core short) are illustrated in the charts below.

Weekly chart... Keep in mind that through my watchlists, there are a lot of H&S-type pattern stocks, even the IWM is very similar and after years of looking at them I'll tell you that they rarely look like the textbook in real life which is why volume confirmation of H&S tops and even more so, H&S inverse bottoms is so crucial. A lot of traders were fooled by a H&S top in the market around 2010 which was NOT volume confirmed and caused a lot of pain.

 This is the daily 3C chart, large negative divergences are found at all the right places, the left shoulder, the head and the right shoulder.

 This is a daily chart showing the head and right shoulder which as you can see, has done virtually nothing through this market bounce.

The price-pattern implied downside target would be approx. in the very low teens. This isn't a guarantee, but it's the best we have for price-pattern based targets.

 I like confirmation in as many important timeframes as I can get, this is a very important timeframe for me, the 4 hour chart and it too is leading negative and at all the right places. In other words it looks like SCTY has been sitting in this large price pattern for almost a year just seeing distribution/short selling.

 The 2 hour chart which is more than sufficient for me to enter a primary trend position (primary trend as in Dow Theory which would be the equivalent of a bear or bull market),  again showing leading negative divergences at all the right places.

 The 30 min chart to give an intermediate trend view (In Dow theory there are 3 trends, Primary, Intermediate and short, however most people acknowledge "Sub-Intermediate as a bridge between short and Intermediate). For example, while there are divisions among Dow Theorists as to what constitutes what trend, I'd consider GLD's 2009-2011 trend a primary uptrend and the 2011 high through 2013 an Intermediate downtrend which is exactly what we forecast when we called the Gold trend reversal in 2011.

Here the right shoulder is in a rather flat range, remember this is where traders often get complacent and bored, but it's also where we most often see the heaviest underlying activity which is appropriate as smart money are doing their thing and virtually no one is paying attention.

 The 10 min chart shows the accumulation for the construction / rally to create the right shoulder and then a distribution trend in to the highs and lateral trade. In other words, SCTY is at my second favorite point to short a H&S top with only 1 more following this, but still a ways off.

It looks to me as if SCTY is just about ready to break down, I'd expect it to do so with the broad market (that's a lot of right shoulders in larger H&S tops all breaking down or breaking to new lower lows for the right shoulder.

On an intraday basis , 3 min chart, SCTY did see some accumulation around the base-building period for the broad market where I'd say about 75% of stocks, Averages and industry groups all built a base at the same time, virtually identical from 8/1 through 8/8 with lift off on 8/11.

This is a different divegrence, it's a horrible relative performer for the move off the base and has seen distribution t each of the pivot highs.

However...Just as I've been expecting a head fake move to end the reversal process of the cycle started on 8/1 and move us from stage 3 top to stage 4 decline, it looks like SCTY wants to do the same.

 This 3 min chart leading positive developed late yesterday and in to today, just like the broad market averages.

I'm not sure what the upside target would be, but I'd think the near term downtrend trendline would be an obvious target to spark some breakout demand. The 10, 22 and 50-day moving averages are also all clumped together between $70 and $71.30 which may illicit some technical interest as well.

The sym. triangle drawn in above is considered by Technical traders to be a consolidation/continuation pattern and the preceding trend was down so they'll expect a move below the triangle which just occurred as I'm typing, this can give SCTY a little boost by creating a bear trap, causing shorts to cover and getting its upside move started.

I like SCTY in this general area for a longer term position, but if we can get a better, more timely entry with less risk, why not?

The bottom line is I'd be setting some price alerts on the upside if you are interested in SCTY short or adding to an existing position, I gave a target or two, you may find some others you like. Also keep an eye on the broad market as this will likely turn at the same time as the broad market.

Market Update-Intention

I don't want to repeat too often, but for the sake of this post, the highest probability in any reversal up or down once it is through the reversal process which can be a base for an upside move or a top for a downside move, is for a head fake move in the opposite direction just before the actual reversal and we see this in every asset, every timeframe, although the more obvious a support/resistance area is and the more watched the asset is, the higher probability, but it's still probably around 80%, that's why I drew the rounding reversal (top) process yesterday, the "Igloo with a chimney" as an illustration.

There's been some question with the long weekend and the Ukraine issues flaring up, whether this process that I suspected was being prepared for today as there were intraday positive divergences at the close yesterday, until overnight news sent ES futures lower to lows of the week... with the question being, "Will they fight for the head fake move?" or perhaps delay it until we get through the weekend or what I have felt is the lowest probability and just let it go, which means letting the market go.

There may be some intension showing up in the charts although this is really pushing it.

First the divergences that have been deteriorating...

 SPY 1 min intraday positive from yesterday afternoon has essentially stalled, but this had a stronger divergence out to 3 mins.

This one has also essentially stalled and from a point of no momentum, it's easy for things to fall apart, especially with a little geo-political nudge or even the concern of holding anything over a 3-day weekend.

 This is what's waiting just on the other side of those intraday positive divergences, a 5 min chart that is leading negative which is essentially pulling on prices, however note today it has almost stalled as well, in fact it has stalled at about the same time the intraday positives showed up yesterday afternoon, which seems to me shows some intention of running the head fake move which would look something like the yellow/red arrows drawn in above.
.

 Here's a closer view of the same 5 min SPY chart , it's not making lower lows (distribution) , but on hold for the moment.

The IWM positive divegrence didn't develop until this morning, although it was already in place in TF/Russell 2000 futures intraday pre-market.

 And the QQQ 1 min which was positive at the lows this morning and then started to lose momentum, this is the last chart I captured and note momentum on the upside divergence is picking up which leads to some more possible intensions showing through.

 TICK intraday was rising with the divergences and as they started falling apart, so did intraday breadth as you can see the channel wedge and then TICK fall out, that's about the time I noticed something else that seems like intention.

 HYG's longer term chart was leading the market well before it ever moved up while it was basing early August,  HYG is almost always used to ramp the market on moves like this, but as pointed out the last week or so, it is also leading the market in the reversal process as all upside faded and a lateral reversal process trend established with deep leading negative divergences.

However this morning take a look at short intraday charts for HYG...

 These are not going to change the reversal process narrative for HYG or the market, but on an intraday basis, it looks like they are trying to pull HYG back in the game intraday to help support the market as they apparently are looking for whatever edge they have to coax this higher, likely to our head fake (although op-ex max pain pin levels can't be ruled out either).

HYG's 2 min positive divergence this morning as well.

Although SPY and QQQ continue to deteriorate, they might get HYG to lift in time to catch them before any serious downside can gain momentum. This seems to show intension, the details are the difficult part.

I'm going to spend a bit more time now on actual individual assets as a few have triggered in zones I've been looking for.

Quick Market Update

A lot of the intraday positive divergences from yesterday are starting to slip. The Index futures for now are holding in line except the R2K which was the only of the major averages without intraday positive divergences at the close yesterday.

There are still several scenarios such as waiting for the uncertain (Ukraine) 3-day weekend to pass, there's still uncertainty on the ECB later next week, but that's all over the place, up yesterday, down today.

We also have op-ex Friday (weekly) tomorrow interfering.

I think observation right now is probably the best course of action, although I'll say that I do feel much better having already added back at least part of the intended FAZ short while maintaining the others. I'm in no hurry at the present moment to fill out the FAZ short position, but if things start to take a turn for the worse, I'll go ahead with that.

I still feel the most likely scenario is a head fake pop to the upside before the actual, true downside pivot. One thing is for sure (in my opinion of course), We've reached a major market inflection point and really in the big picture of things you may be talking about a few percent or a few days, but the major theme is as I showed earlier, major deterioration, a cycle that we knew was coming and knew what it would be used for and that cycle is pretty well through the reversal process.

MCP Update

For the past 3 days I've considered putting out an MCP update, each day I've been seeing some change in character and improvement, but I don't want to put out an update for signals that may break up because they aren't yet strong enough to hold their ground so each day I've passed on the update in favor of seeing what the next day looked like, however with as many people interested in MCP and with the charts now where they are, I think it's pretty safe and not a waste of anyone's time to put out the update.


From my own personal perspective, this represents my largest long exposure and many times I've looked at closing it in favor of using the capital in more immediate places, however I've refrained from doing so because there's something about the MCP story as it has developed on the charts that seems to hold a lot of promise.

In any case, earlier in the week intraday charts were going positive on what looked like a run of stops as volume increases (yellow box), hitting stops is an easy way to accumulate a lot of shares on the cheap without anyone really ever wondering, "Who's on the other-side of that trade with all of that volume?" This is one of the key functions of a head fake trade (generically speaking in its many forms).

When prices started to move up and away from the range created I was actually a bit disappointed as the larger the base, the larger the move it can support, I was glad to see it come back down on a very small negative divegrence and resume the positive divegrence through the area.

The 5 min chart shows a lot of improvement this week, also note the higher volume.

 From a larger perspective, the 30 min chart off the last low and a negative at the last pivot high have led to the current 30 min leading positive divegrence.

 I was interested to see what the longer charts were doing in this area and was a bit surprised to see a 60 min leading positive divegrence on the week as well as...

A sharp 2 hour.

As a holder of MCP long, I like what I see here a lot and it was definitely time to share it.

As far as any new or add to position, I don't see a distinct entry set-up, but it does look much better here moving forward since the decline after their financing deal came through.