Daily Wrap

Another weak day.


Today , on an almost anything it takes to move the market as past rumors have had little to no effect, about 4 a.m. this morning (EDT) the rumor that there was a permanent cease-fire plan (put out by Ukraine's Poroshenko) sent Index futures to all time new highs as, but by the close they were at lows for the week.

Here futures run to new highs, Es in purple and NDX futures in green,  by the end of the day they were at the lows for the week.

Here's what the averages looked like today...

SPX closed above 2000, but down -0.08%, NDX- .61% on the back of AAPL having the worst day in 7 months, down -4.22%. The small caps were crushes with the R2K down -.62% and the only average closing green was the large cap dow at +0.06% , while transports lost ground at -0.25% with the Dow Theory divergence still in effect.

The SPX has crossed 2000 numerous times for the last 7 consecutive days...

I count at least 12 breaches of 2000 on the SPX, however the point is more the lack of follow through and the flat trend which is pretty much the same as "The reversal process".

HY Credit hit the lows of the week, despite what we saw starting to develop in HYG today, otherwise HYG looks like this..

 HYG (blue) vs. SPX (green) as credit moves down with the market intraday.

 However HYG which has been leading the market has taken a dip from stage 3 and looks to be moving to stage 4 decline and the market not likely far behind other than some wild card events the rest of the week like the ECB tomorrow and NFP Friday morning.

 HYG's leading status over the SPX, the reversal process of HYG in yellow and the reversal process of SPX in red as HYG starts moving to stage 4.

HY credit is at the lows of the week, much like HG as it has not rallied with the market this week +.

Treasuries essentially closed unchanged...

On this morning's ceasefire rumors, ES popped (purple) while yields dropped (green), but they rallied the rest of the day as the almost immediate denial came from Moscow (10 year yields).

As already mentioned this morning and yesterday, the USD/JPY has been of no help since breaking below $105, having the worst day today in 5 weeks...

ES (purple) vs USD/JPY (green) , the EUR/JPY was the same thing and AUD/JPY was of no help at all.

The $USD lost a bit on the day while the Euro gained a bit on the day ahead of the ECB as the potential for disappointment by the ECB could cause a massive short squeeze in EUR/USD. On the $USD weakness, GLD and SLV gained on the day, but USO had the biggest move at +2.21%, it's a little early to call it a legacy arbitrage trend, but it's kind of looking like what we expected to see last night on some $USD weakness, which makes all 3 trades major wild cards going in to the ECB/Draghi press conference tomorrow. GLD was showing strong 3C profit taking in to the EOD.

GLD profit taking toward the EOD and GDX with outright losses, again nervousness in front of the ECB tomorrow.

USO saw similar profit taking toward the EOD.

While SPX made $2000 on the close, it did not (for once recently) make VWAP...

Almost every day ES has scrambled back up to VWAP by the close, I suspect this is another strong hint of the market weakness as lever after lever continues to fail in a flight from risk.

Pro sentiment which was mildly positive yesterday (LEading Indicator) was in line with lower prices today, not quite the leading fall off the cliff signal, but definitely nervous.

As already shown, HY Credit declined further to lows of the week and in many cases, much worse as HYG struggles to put together a small divergence while moving to stage 4 decline after completing all 3 previous stages.

As for last night's Daily Wrap Dominant Price/Volume Relationships,

"The NDX was totally different with Close Up/Volume Up, which is the most bullish of the 4 relationships, but often creates a 1-day oversold event with a close lower the next day, this was 42 of the NDX 100. The R2K was the same relationship with 1084 and the SPX had no dominant relationship at all. "

They did exactly what they were expected to do with the NDX and R2K both down big on the day and the SPX pretty much near flat.

Tonight's Dominant Price/Volume Relationship was once again fractured which is rare, the NASDAQ and Russell didn't have a dominant relationship while the Dow and SPX were Close Up/Volume Down (12 and 152 stocks respectively). This is the most bearish P/V relationship, however it doesn't have as strong of a next day effect as last night's Russell and NASDAQ relationships. Essentially, for the most part the relationships weren't pointing to anything strong in the current other than a strong sign of weakness in the component stocks.

Of the S&P sectors, 5 of 9 closed green with the Flight to Safety sector, Utilities (like the Dow today-large cap outperformance)  coming in leading position with a +.49% gain, the recent safe haven acting 
Healthcare sector came in second with a +.45% gain followed by Energy and Materials (the commodity bounce) and in last place, none other than Technology.

Only 110 of the 239 Morningstar Industry/Sub-Industry groups closed green, a good portion with less than a +0.20% gain while the remainder closed red.

Breadth indicators, again showed no movement of any consequence other than negative: The COMPQX, R2K, R1K, R3K Advance/Decline lines all declined. As shown with breadth last night...

Market breadth has barely moved at all the last 10-days as you can see by the "Percent of NYSE stocks trading ABOVE their 200 day moving average".


Again we have an 11th day of no breadth movement, at least no positive as most ticked down a bit.

Tomorrow is the ECB meeting with e possibilities or probabilities, they could take the conventional route and tinker with the Main Refi rate, the Lending Rate and the already negative Deposit Rate, although I  suspect that would disappoint the market and there would likely be a huge squeeze in the EUR/USD short, sending the EUR higher and $USD lower. The second possibility/probability would be  rate cuts to the TLTRO program's rates, the third is outright QE, buying of sovereign debt which is against the ECB's charter and is opposed by Germany. This would lead to lawsuits and ultimately there would have to be a treaty change.

The most likely outcome is ABS (asset backed securities) purchases, largely in the form of consumer credit which is bundled and sold as ABS such as mortgages, car loans, credit card debt, etc. and this seems to be what the market is expecting to compliment the TLTRO program, if this should not be implemented (even though the ECB already hired Black Rock to advise on ABS purchases), look for a massive short squeeze in EUR/USD and all kinds of chaos in dollar denominated assets like most commodities and precious metals (oil).  Also what Draghi has to say will be important as there's a press conference after the meeting. 

The ECB has missed their inflation targets for YEARS now and any move would be to reign in deflation.

This week's last wild card event and market moved is Non-Farm Payrolls at 8:30 a.m. EDT Friday morning.

The market is still in need of a head fake move or some support as a lot of stocks are right on the cusp of being excellent short entries, but like FSLR mentioned earlier, their ideal head fake zones are just a bit higher and it looks like short term 3C charts are still expecting such a move,  however don't forget how HYG has led the market and is now moving toward decline even though it leads the market by about a week, in other words, from here the timing is near perfect for a head fake move and turn to stage 4 decline.

We didn't quite get the across the board bearish engulfing pattern on higher volume which is a very effective reversal confirmation, but the Q's did put in a nearly perfect one so it will be interesting as volatility over news the next 2-days kicks up, while the market itself is showing all the signs of being prepared to move to stage 4 decline.

NOT a good sign for the market as the Q's gap up today, fail to hold gains and engulf the last 2-days' bodies on expanding volume, this would almost always be taken as a downside reversal signal starting tomorrow. While it may be delayed, I think the psychology, breadth, signals and the signal are all real, even if delayed for a couple of days.

I'll see you in the a.m. and we'll see what the ECB does...

EOD Update

There's VERY little support in the market, some of the best or only is the Q's and that's likely from AAPL, but the HYG move or accumulation (very small, short term), isn't coincidence. It looks like it's either to halt today's decline or to give that little bounce a lot of the assets we are looking at shorting like FSLR, need to make it over the hill.

Otherwise, things are really deteriorating and that one foot near a little bounce spring could easily slip off the edge of the cliff and if it doesn't, that little bounce spring is meant to send the market over the edge of the cliff, it's really just individual asset timing/entries at this point and probably getting past the ECB tomorrow.

 SPY is no better than in line intraday, however this isn't an edge either way, it's not a divegrence so it's just confirming the flopping around the market is doing, it's not pointing to even very small short term intraday strength, only HYG is doing that at this point.

This looks like an IWM divergence, it's not, it's in line, only the VERY small white area the last 15 minutes or so is even close to a positive divegrence.

On the other hand, right next door at the 2 min chart it is leading to a new negative low and very ugly.

The IWM 5 min is right there as far as timing for the reversal process, in fact with a chart like this I'm surprised we haven't already seen a head fake move as this is what 3C would look like, or perhaps we have seen something about as close to a head fake move as the averages will get with this morning's gap up unless there's some external stimulus like the ECB or HYG.

 The Q's have a small 1 min positive, I suspect it's because of AAPL

 With the same 1 min positive...

 QQQ 2 min is leading negative and confirming all price weakness today.

The 3 min is also leading negative, I didn't draw on the chart because I wanted you to see it for yourself as it's pretty obvious.

And the HYG divegrence on a 3 min chart and that's about as far as it goes, but with the other levers like the carry trades failing, it seems there was little choice other than to go back to HYG, apparently the tickling the ask higher on 1 share trades was not enough with today's downdraft as soon as cash markets opened, remember overnight we hit an all time new high, as soon as the cash open, we sold off hard (not just price, but 3C distribution).

I'll have more as I update internals and take a look around.

AAPL Update

It looks like AAPL is going to make that short term move I mentioned, I'm not too interested yet until it breaks intraday lows. I don't see the market as so broken on intraday charts yet that I would be in a rush to jump in to shorts, it seems the market is going to wait for Draghi tomorrow and maybe the NFP Friday.

Here's AAPL...

Here's additional evidence it looks like the AAPL news was leaked yesterday as you can see to the left. The intraday positive divegrence built on the pullback I expected as there would have to be a wider base to make any upside gains.

I'd still like to see a move below $98/70 to take the risk, so I'll wait for that alert, but it looks like a high probability move for AAPL, which means NASDAQ should get a little support tomorrow.

PCLN TRADE SET-UP (LONG AND SHORT TERM)

Kind of like AAPL, PCLN may give us a call option position which is a piggy back ride to the head fake move area, this is a speculative position, way more so than AAPL which so far, is doing exactly what I posted (as it has already hit 3 of my alerts.The bigger and more sensible trade is PCLN short (I prefer an equity short for a position trade, but if a nice put set up arises I wouldn't turn my nose at that either).

*In fact, PCLN is even doing what I was expecting right now before I could even get these charts posted, but that's fine.

Here's what we have and if you are using the Trend Channel, this is a fantastic example of why it's usually best to get out once the Trend Channel stops you out.

 This is not a very impressive divegrence, AAPL's is better, but there's a small one there along the lines of what is being set up in HYG.

 This may be a little bigger of a divergence or "W" bottom as the 3 min chart shows.

The interesting divegrence is here on the 5 min chart as it has built i so quickly.

I'd consider a call trade here with the same criteria as AAPL, a move below today's intraday lows with strong intraday 3C signals confirming accumulation of the stopped out shares.

Longer term on a 60 min chart, pay attention to where PCLN goes negative after a beautiful uptrend confirmation at the green arrow, this will matter in a few charts...

 60 min 3C / PCLN.

The 4 hour chart shows a very strong distribution trend, again pay attention to when and where it started.

Now on a daily chart, we have a funky, but real top in PCLN, note where PCLN transitions from trending stage 2 to lateral stage 3 top, and just to drive the point home and show you what I mean about Trend Channel stops being worth taking when they show up...

 The Trend Channel held this entire move without a single false stop for at least a 110% gain and then stopped out at the red arrow, pretty well in to the top price pattern. If you had stayed in PCLN, you'd have gained an additional 4.56% over a 5 month period.

This is what I'm always trying to demonstrate, when the Trend Channel stops out, there's a serious change in character and even though a little more upside may be added, the easy money, the trending trade is over and something else is on its way, in this case a choppy top and you would have left 4.65% on the table for 5 months of risk exposure, you'd have been much better off taking the gains and putting them to work in a new set-up / asset.

Also, the TRend Channel is showing a change in character in price which 3C was showing a bit before, warning that you might start looking for your best exit as there's not much left in the trend.

From this longer term perspective, PCLN is a short in my book right here, but if we are trying to get the best price and timing (as we are), then we may have a little bounce worth looking at, but I personally would want some short exposure in PCLN right now.

I showed you the intraday 3C charts, if there's a strong divegrence on a stop run on those intraday charts, then a quick call position in some weeklies may pay off, but it's speculative, the larger position is entering the short or adding to/filling out the equity short in PCLN. While I doubt $1300 is on the table, it is a centennial number and psychological magnet, otherwise I'd be looking for a bounce somewhere between here and 1250-1275 and I'll be setting my alerts for all of those levels.

I'll let you know if I decide to take any of the shorter term trades.

AAPL Update & Trade Set-Up with NDX Implications

Today you get some sense of what AAPL's weight can do to the NASDAQ 100. While AAPL's weighting via NASDAQ in the NASDAQ 100 is a proprietary secret that can be had for a $10,000 a year membership to NASDAQ, in the past it has accounted for up to about 20% of the NDX's weight which at the time would have been the same as the bottom 50 weighted NASDAQ 100 stocks COMBINED. In other words, AAPL's movement and effect on the NASDAQ 100 was equal to the combined weight of 50 other NASDAQ stocks (lowest weighted) combined, so it has quite a bit of influence on the NASDAQ 100.

Looking at AAPL's charts and reading what I have, I don't think there was insider knowledge about yesterday's hacking disclosure, except for part of the day.

 This 60 min negative divegrence that finally formed in AAPL seems to be on its own and not a part of the hacking story.

 The 30 min chart would seem to verify that, EXCEPT, the area at the red arrow at the flat range in price, looks a lot like someone knew something was coming out.

Here's where it gets a little interesting for the NASDAQ and AAPL. AAPL saw significant volume on the decline...

The decline has the largest volume we can see on this chart going back months. This means, there were undoubtedly quite a few orders that went through at market and a market maker has certain advantages for making a market in a stock, but one of the disadvantages is they must post a bid and ask so if there's no order to match up, the market maker has to take the other side of the order and with a decline that sharp and with that much volume, I'm willing to bet AAPL market makers are sitting on some hefty losses that can onlt be corrected with an AAPL upside move so they can balance things out, 1) by buying AAPL shares on the cheap down here and 2) by running AAPL up, trying to sell the inventory taken on at lower prices and blend that with gains from cheap shares picked up in this area, they can likely get back to break even, maybe better, but  in my view, they need to run AAPL back up to get out of this little hole that is part of being a market maker or specialist (these are for at market trades only, not limits).

The 5 min chart has a small leading positive divegrence, this would serve 2 functions, buying AAPL on the cheap and trying to unload shares taken on during the decline as well as shares at the lows to try to get out at an average level that is either break even or better. The second reason would be to absorb enough supply to push AAPL higher, like a typical cycle the market runs, just in compressed form.

The 3 min chart shows accumulation at lows and it looks like AAPL may come down again for another round, that was a lot of volume and but may need a stronger base. This may be what the HYG divegrence was about or someone has basically just done the same math. In any case,  one thing you might do (that I'll do) is put some price alerts around the $99-$98.50 area.

If AAPL makes a little momentum head fake move below support at $98.58 and there's good short term accumulation of a stop run at that area, that would make for an interesting short term AAPL Call trade with maybe something like some weekly options, either this or next week, but I'd definitely want to see a run on stops to lower premiums and make that trade worthwhile.

Of course this would likely have NDX implications short term and thus market implications as I doubt the SPX is going to move significantly away from a NDX bump. This would also likely have AAPL implications for the longer term positions. That was a LOT of volume and I think that handicaps AAPL from making too strong of a head fake move, so I'd be looking to have a long call position if it sets up and about the time I close that, I'd be looking to open an AAPL equity short position trade.

Of course each step needs to be confirmed, but that's why I set price alerts.

Market Update and Some Candidates (More Coming)

I'm still interested to see how the daily candles end today and their volume, but there are some really decent looking short set up candidates that are the kind of "Come to us" trades that we use these situations for. I'm thinking SCTY is going to make an upside move and it's in horrible shape so it's a nice looking candidate. FSLR is already making the move, the volume is there, if it were at a new breakout high, I'd probably be taking a a partial short in it now, but it has some clean/clear resistance at the $72.50 level in the form of a large triangle (usually tops when they're this large) as well as resistance zones) so it's looking like a near term set up. Transports, DJ-20 / IYT are still looking real good, I don't mind the partial position or add to yesterday at all, if I didn't do it yesterday I'd be doing it today, but I think it may have a bit more in the tank and a little better entry, but at least I have good exposure in case things go south like they did this morning and there's no more levers to recover. XLF is another I like a lot, just give me a little more on the upside and the trade for me there is FAZ long. Of course NFLX is in the area, a little more convincing pop would do wonders. AAPL is a tough call, it looks like it wants to retrace some of the lost ground from today, but not quite ready.

As I'm gathering these candidates that I like the most, I'm setting price alerts around the areas I think they look most interesting or probable. The market itself is not in good shape, but the ECB tomorrow provides the kind of potential volatility to get some of these moves done as does Friday's Non-Farm Payrolls.

What I've found today that's interesting is HYG, now this isn't going to recover and move to a new high, in fact I dare say it's in the process of lower highs and the next significant leg will be a lower low, but it has been leading this market by the nose so this is what I'm finding interesting and I'll look around a bit more to see if anything else might be cooking.

 HYG 1 min today, the divegrence is mostly today, mostly in the flat area of trade which is very common.

 As far as anything even significant on an intraday chart, like this 3 min, it's all today right at the flat range in HYG.

There's nothing of consequence on the 5 min chart and it's best, most useful signal is the following which has led HYG and in turn HYG has led the market so as you can see with 3C at a new leading negative low, even below the Aug. 1 accumulation/base, it's in trouble. However these intraday divergences aren't random noise,  that doesn't mean they'll be able to hold or be effective, but the point is, someone's trying as they are running out of levers.

 And if you were a longer term investor , an HYG short and the probability of the next leg which we are just starting, making a new lower low (pattern of lower highs and lower lows = downtrend and also leads the market) would be very high. The beta in HYG is what makes it a little boring for me.

However, keep your eyes on the SPY, QQQ and IWM daily charts, the possible closing bearish engulfing candle and especially if volume peaks above yesterday's, that's a very high probability downside reversal.

Market Update

Last week we saw the gradual progression of a reversal process off what I'll just call the August oversold base,  we also saw all of the averages stop out on the Trend Channel, which usually means there's just a head fake move to come before a downside reversal.

Last night I showed you some of the very creative, somewhat silly ways they were trying to support the market as there's no actual strength left which is apparent just from the lack of follow through and fragmentation of the averages/transports, but this 1-share and odd lot new record was obviously an attempt to get the cycle done without expending much in the way of funds/energy. It seems the False rumors of a permanent cease-fire did the trick this morning and even held after they were refuted, until the open that is , in this case we didn't even have to wait for the European close.

How quickly we fall from ATNH's...

5 min Russell 2000 futures  3C chart from new highs on the week and SPX ATNH's to a nasty leading negative divegrence right in to those new highs.

Right now there's not much in the way of LEVER support,  for instance...

 This is the USD/JPY falling about 1 a.m. EDT after the nomination of the former Japanese Pension fund manager too Health which sent the Yen higher and USD/JPY lower, but look closer intraday...

 ES has been tracking USD/JPY lower intraday so no support at that carry trade.

 EUR/JPY also tracking with ES lower since the open (green), no support there. It seems Citadel didn't reprogram their algosto track AUD/JPY as it is the only carry trade support and ES is ignoring it.

 ES vs AUD/JPY 1 min

HYG,  as I have been saying since early August, leads the market, it was the upside lever, it was the first to lea the market in to the reversal process by about a week and as you saw yesterday, it fell and seems to now be leading the market to the downside, I don't see much chance here for HYG to pull anything serious together.

ES broke through VWAP, note it waited for the US cash open.

Almost all of the averages have a very nasty bearish reversal candle and while it's too early in the day to say this holds, it doesn't look good, this is the IWM, but it's in the SPY and QQQ as well.

A bearish Engulfing Candle which is an effective reversal because it opens at new highs, a kind of head fake move and then eats its way lower. The thing to watch for here is rising volume, if volume rises above yesterday's this is almost certainly a downside reversal pivot signal and the August cycle moves from stage 3 top/reversal process to stage 4 decline which as I have shown several nights including last night, BREADTH has stalled, it looks like the market has run completely out of gas which is why levers like the carry trades and HYG were so important to any head fake upside move which we technically have, it's just was not as convincing as they usually are.

As for the averages...

 These shorter term timeframes at this point are good for timing, as you see, the IWM never had a chance from the open, there was pure distribution on the open.

The 3 min chart looks a lot like this is the pivot as the longer strategic charts are already in trouble or as I discussed last night, already set for probabilities to the downside.

The QQQ 1 min also never had a chance on the open with distribution, but there's a small relative positive that "could" form here, that doesn't mean much in the bigger picture unless it does and adds to it, otherwise it would just be some intraday consolidation/correction.

And the longer QQQ timing looks near perfect as it moved from short term confirmation to a very clear leading negative divegrence at the highs.

The SPY with some short term 1 min accumulation at yesterday's lows where other means were used as well as detailed last night, this could also put in an intraday consolidation.

TICK looks bad with some very deep >-1250 hits.

In the trend of the reversal process(lateral trade), this has been one of the worst intraday breadth/TICK days ...

SPY Custom TICK Indicator.

I'll probably spend about 1/3rd of my day with an eye on the market, we do have the ECB tomorrow, and the rest on the watchlist candidates.