Daily Wrap

So today we saw the SPX down -.65%, the NDX down -.82%, the Dow down -.57% and the R2K down 1.18%, although judging by some of the emails I received today, it felt a bit panicky, like, "Do I still have time to enter shorts? Should I chase lower prices today?"

My point being is that it's easy to be complacent and not look toward entering positions on price strength and underlying weakness when the market isn't doing much and as stage 3 goes, the market usually isn't doing much, however that's the time to be using price strength and underlying weakness to enter positions.

Several recent additions like BIS (long) which was added in full size yesterday was up 2.54% today.

On the other side of the spectrum, short term AAPL calls were closed out today with a P/L that looked like this...

came out at a 26.5% gain, you take what the market offers.

The recently filled out IYT looks to be in good shape. Our longer term HLF short was down -4.68% today bringing that position (which is just kind of hands off) to a +28% gain. UGAZ is looking interesting (long) with a current 10.2% gain and personally I'm watching the equity line on the portfolio I opted to keep short with a few piggy back long hedges, in an upward slope,  but none of this is even close to an actual stage 4 break/decline, which is sometimes a bit hard to pinpoint as to whether you are already in it.

One thing I know for sure is credit markets have led the market, they are some of the best leading indicators. I've posted the comparisons of HYG leading the market numerous times and as recently as last night in the Daily Wrap . On Sept. 2nd we called HYG as entering stage 4 decline and on its way to make a lower low, a significant trend classification...

HYG making a lower high and on its way to a lower low, however by the time HYG has made a lower low, the SPX should be well in to stage 4 decline and I don't think just for the August cycle.

Intraday volatility is picking up as we noted on Sept 5th, today it has exceeded that volatility...

The SPX has made a new intraday low for stage 3 as well as a new closing low, nearly a 12-day low all while still in stage 3 with deteriorating breadth.

The SPX also lost 2000 and this time by the largest margin since it crossed above 2000, forget the lack of follow through in the SPX or among the averages.

All of the averages are red on the month. These are just slight signs in price performance, when the dam breaks, I really think it's going to break hard.

The USD/JPY correlation is shot, if anything there seems to be a 10-year yield correlation with the USD/JPY. My point here is simply the changes in character that lead to changes in trends and this was a big one that first popped up in an overnight session last Thursday, a hint of things to come as a change in character and now the USD/JPY correlation trend has changed.

$AUD/JPY led a lot of market weakness today with another fairly strong correlation to AAPL, which by the way looks like it did exactly what we expected it to and one of the reasons for the options (call) trade, let the market makers get out of the inventory they had to take on at market prices during the sharp decline of Sept. 3rd.

Between loading up on inventory on the cheap and selling it at higher prices, today's prices allowed them to get out of inventory they had to absorb at lower prices on market orders as the undoubtedly had to, just look where AAPL topped today.

While we're on the subject, it seems the IPhone disappointed, Apple Pay was received well and AAPL watch was not judging by the market's reaction to each.

The very strong, hitting 15 month new highs earlier today, USD saw some weakness in to the close which is interesting considering the TLT post from earlier today and the Yields/USD/JPY correlation we saw. In any case, the Euro strengthened toward the EOD driving the $USD lower in to the close which gold and silver responded to by bumping up with a +.11% and +27% close respectively.

It sure seems like the old , historic, legacy arbitrage correlation is coming back as we have been speculating for weeks now.

Some other market hints of trouble ahead include copper weakness today, JJC down -2.64% today.

Doctor Copper has had a loose correlation with the SPX above, however it looks to be putting its red flag out as well.

Honestly between the HYG correlation charts, the USD/JPY correlation break, what looks to be a possible turn in long term treasuries and 10 year benchmarks when we are already seeing yield flattening (see TLT-20+ year Treasuries Update) , market breadth posts where all of this started and of course 3C signals and cycle stages,  I really don't think I can or need to make a stronger case as to how week this market is.

In fact I'll be spending the rest of my time this week on specific positions/trades, I've seen all I need to see, which is exactly as we expected in early August when we first saw breadth collapse and called for a base and bounce.

In fact the XLF target from August 19th's XLF Update-Bellwether, looked like this as the XLF was a bellwether target for market upside.

 This is the chart from the 8/19 post linked above as to what to expect in Financials and how a break above the range would be a bellwether for our general market target. The yellow arrow is the head fake move above the range and at the end of the process, XLF moves back down.

Here XLF has met the target. From a big picture perspective, it almost doesn't matter where you open a short here, as long as it was above the range which is something I've been waiting on since July. I've since added to FAZ and only have a small position left to fill it out.

In fact, on the first day of the break out from the 8/1-8/8 base on 8/11, in that day's Daily Wrap... (linked) these are the upside targets I posted for each of the averages for this move before a reversal process would start.

All of these charts are from the Daily Wrap... on August 11th...

 The SPX new high target at "B" was hit."C" was the expected first leg down after we enter stage 4 decline.


 The Dow hit it's target , just between "B" and "C" with "A" being the minimum target.

 The NDX target of "Greater than $4000 was hit.

 And ironically off a rough drawing showing where we want to take long action at the base and the second place on a slight pullback at #1 and then the next significant position would be at #2,  this is almost exactly where the IWM moved to.

In fact the official targets show the IWM crossed just above point "A", the minimum target for the IWM 

All of these were posted nearly a month ago based on the size of the divergences and length of the base as moves tend to be proportional, this allowed me and many other members to hold core shorts, yet still hedge the short exposure with piggy back longs.

The main point being, we've hit the target areas, we've been in the reversal process for 2 trading weeks.

As I said, I really can't make a much stronger case, actually the market is making the case, I'm just showing you the charts. I'll spend the rest of my time this week with some market updates as we do have a 1-day oversold status and mainly focussing on position entries.

To that end, as mentioned, we do have a 1-day oversold status in Dominant Price/Volume Relationships. All 4 major averages came in at Close Down/Volume Up which is a 1-day oversold condition with the market typically closing up the next day.

All 9 S&P sectors closed red, another typical 1-day oversold status.

And of the 239 Morningstar Industries and Sub-Industries, ONLY 17 OF 239 CLOSED GREEN!!!

IN ADDITION WE HAVE SOME SHORT TERM 3C DIVERGENCES THAT SUGGEST WE HAVE A NICE SHOT AT STOCKS LIKE NFLX, SCTY AT HIGHER PRICES, BIDU, XLF, ETC. ALTHOUGH I STRONGLY URGE YOU TO CONSIDER RISK MANAGEMENT AND HOW MUCH IT MEANS TO TOP TICK THE MARKET VS MAYBE MISS THE MOVE.

Finally as for breadth, the collapse yesterday was just exacerbated today. To demonstrate how bad of a position this market is in, just look at the NASDAQ Composite's Advance/Decline line...

The A/D line is in green and should keep pace with the NASDAQ Composite in red, there's serious deterioration from March to July, but worse from July to p[resent. This is a hollow market with no support ready for an ugly move to the downside.

All of the other breadth indicators I mentioned last night rolling over to 12-18 day lows, are just that much worse today.

The very simple "Percentage of NYSE Stocks Trading Above Their 200-Day Moving Average" has collapsed to 17-day lows...

This would be a problem just for the current cycle, it's  way worse considering how much the breadth indicator collapsed from July to present. This is the kind of damage I haven't seen in breadth since 2007's top and it's the kind that doesn't get repaired. Essentially, it's just a matter of time and not much at that.

The formar darling, "Momentum Stocks" have it even worse...

These are stocks that run 2 standard deviations above their 40-day moving average, momentum stocks and as you see, they did what they should have from January to May, then things fell apart at an increasingly rap[id pace. We are almost at the levels that caused me to call for an oversold bounce on July 31st and that was on a 4-8% market decline, we're still sitting on a plateau, VERY DANGEROUS.

That should do it for tonight, just keep all of the pieces of the puzzle in mind, they're all pointing in the same direction.

Quick EOD Update

I think there's a god chance for a bounce off a short term oversold condition,  but this is no time to be laying around waiting.

If you feel the ugliness of today, let me just say, today is nothing compared to a stage 4 decline. I'm ready, I've been ready. I wouldn't fall back and rest on any bounce, I'd use it.

I thought we'd see stage 4 decline start this week and I still do, but everything bounces and the market never makes it easy. This is why I think taking a longer term approach or the longest term you trade, is pretty wise right now.

Today was nothing, just look at HYG's lead heading for a new lower low.

BIDU Follow Up

I could have picked XLF/FAZ, IB/BIS which we just filled out, Transports which we just filled out, PCLN, FSLR, NFLX, SCTY, etc... there's nothing that special about BIDU that's much worse than any of these other assets so while I update it, keep in mind there's not much on the trade ideas that look much better, everything is falling apart as we suspected it would this week (move to stage 4).

 This is a candlestick reversal pattern in BIDU, it's not at the extreme, convincing head fake move , it seems the market just doesn't have the strength for it as breadth has been peeling away , however even if it could pull it off here, I think 6 months from now you wouldn't give a second thought to the entry other than pride or ego for having top-ticked the exact day, which isn't something I think is important at this stage of the market.

 Intraday you see the large volume to the far right? That usually will produce a short term oversold condition followed by a bounce that can be used to enter on strength, however BIDU is in the general area of "It doesn't get much better than this" as far as entries if you look at the daily chart.

If that volume fails to hold as short term oversold, the market is in big, big trouble.

 BIDU's daily divegrence is big.

This 30 min is very sharp and right at the reversal candlestick area from above, that's a lot of distribution fast.

The 15 min chart confirms the same

As does the 10 min chart...

This 1 min chart isn't anything I'd make firm plans on trading or thinking it's going to lead to a bounce on a short term basis, but again with the volume, it's entirely possible.

Again, if the volume doesn't see the Buy the Dip crowd come in, this market is probably done.

Trade Idea: FXP (Swing to Position Trade) Long

I'm going to go ahead and enter FXP long, 2x short FTSE China 25, it's at the rough area where I wanted to enter it and the charts are just deteriorating.

I list it as a swing/Position trade because it does have fairly good swings, but my longer term outlook as a position trade is short FXI or long FXP.

Update

Considering the breadth and other indications like HYG, 3C signals, where we are in the cycle (late stage 3 top), etc. I would want to have a pretty filled out short presence right now.

A lot of the stocks that are trade set ups just aren't looking good, they aren't behaving well.

At this point, I'd much rather have a little wider stop and be looking at the bigger picture than the minute to minute minutia, I think we are just that close that I wouldn't want to cut it much closer.

I'll be looking at filling out a few positions, NFLX is high on my list, FAZ long , SCTY , the top 5 I mentioned earlier are all high on my list. I think we are getting to that point where the market volatility which as we have seen (as recent as last night) is picking up to the point of unpredictability and on the whole, things don't look good.

We are not at the first week of August in which a base was forming and a positive divegrence was saying we are going to run a cycle and move to stage 2. We are not at stage 2 where distribution was evident, but not screaming. I wouldn't even say we are at stage 3 top in which the only thing really left is a hea fake move. I'd say in this situation, a head fake move doesn't really matter much, if we catch it at the exact right spot that's great,  but I wouldn't want to miss out on the next stage trying to top-tick the market, it is acting very badly and I'm not talking about today, I'm talking about the last several weeks of this stage 3 area.

Closing Out AAPL $96 Calls

I'm not crazy about the way AAPL is acting right now and further more, I don't like the way the market is acting right now.

TLT-20+ year Treasuries Update

This is typically a flight to safety trade, however on August 26th in TLT / Treasuries I posted the following...

"Here's TLT, it looks like it's going to pullback"

And this was based only on these two charts on Aug. 26th, although the pullback was forward looking.

 The Aug. 26th post linked above featured these two charts, a 3 min negative divegrence and a ...

1 min intraday trend and from that, we could tell a pullback was a probability, even though we had not hit any longer timeframes to speak of and the longer term 60 min , etc. were still and are still very much in line suggesting  this was to be a pullback/correction, not a reversal in trend.

 This is the daily chart with a stage 1 base and so far stage 2 mark-up with the most recent pullback.

This is exactly where I posted the above article on Aug. 26th, you can see that price has already surpassed the area where we first saw the divegrence which  is a 3C concept that holds well, price will almost always surpass the area in which you first spot the divegrence which has some seriously negative implications for the market and a lot of stocks.

As for TLT...

 Just as in the post linked above from Aug. 26th, the longer term chart is still in line confirming the uptrend which suggests that the move down in treasuries and TLT of recent has been a pullback.

A few days after the 8/26 post, we had a negative divegrence out to 10 mins which you can see actually started around the 26th in to Aug. 29th and Sept. 2nd highs.. There's a slight 3C relative positive divegrence now.

 The 15 min chart shows an inline status and a negative signal around the same area as the 10 min and here too we have a current leading positive divegrence, not huge,.  but this is a lot more than we had to go on at the time of the Aug. 26th post calling for a TLT pullback.

 As for the 5 min chart, it should have a sharper divegrence and it does, leading positive, you can also see the timing negative divegrence at the top on 8/29-9/2.

 The very short 1-3 min intraday timeframes aren't really impressive yet, so I suspect TLT is not done putting its divegrence together which "should", if these charts continue on this course,  end the TLT pullback and the flight to safety trade (amongst a lot of other reasons listed in the post linked above) is back on.

The reason I mention this is if we take the last post and do have short term pops to the upside, but not much more, finally completing the head fake move in a reversal process that is proportional with breadth already deteriorating, then the finish of that head fake move would approximately align with the start of a TLT reversal which would make a lot of sense... As the market starts stage 4 decline, the flight to safety trade in TLT/Treasuries resumes.

There's some other evidence as well on the treasury futures charts, both 10 and 30 year. Here are the 30 year.

 30 y. 30 min positive in the same area as TLT...

30 y 15 min

30 year 5 min.

This is going out on a limb and based on AAPL and some very short term signals, but it seems to fit based on what we have now so I'll be watching the Trade set-ups for their entries.

In any case, even if this is not falling together as easy as that, TLT needs to be watched as it looks like there's going to be a reversal in trend which would mean it saw a simple pullback and would be ready to continue higher in a strong uptrend.

Market / AAPL Update

Since these intraday charts move so fast, some of the charts have already made their move, but it's still important to putting the pieces together.

Since AAPL is the fulcrum of the market today with no real tier 1 data, obviously what it does matters to the rest of the market.

There are 3 things I want to address because they seem to fit together nicely. First AAPL's volatility has obviously been a bit crazy since 1 p.m., however, with this 5 min chart adding as it has yesterday and today..

AAPL obviously has the ability to move the market on a short term basis.

If you recall the top 5 I posted just about 45 mins. ago, almost all are beautiful right where they are, but have local resistance which is the perfect area for a head fake move. If AAPL can be a catalyst, a lot of signals would make a lot of sense.

There are short term positive divergences finally intraday in all of the averages, but they are no longer than 3 min and the next longest timeframe is not positive in any of them, whether there's migration to that next longest timeframe or not I can't say,  but as it stands, these short term 1, 2, and 3 min positives would serve as an excellent move to a head fake above local resistance in many of the watchlist stocks characterized by the top 5 and with the next longest timeframe being negative, that would work perfectly for the move to fail and thus be considered a head fake move.

Lastly and I'll post this, there are some interesting signals in TLT and 10-30 year treasury futures. We called for a pullback late last month, the 26th I believe and now it looks like things are pulling back together so a TLT reversal to the upside would look a lot like a flight to safety and all of these events and signals seem to converging at the same time.

I'll post TLT just as soon as I get this out.

 Remember these are some of the first intraday positives since last week, SPY 1 min so far, but even as I type I see the divergence getting stronger and SPY moving higher.

 Nothing on the 2 min would mean there's not that much support for higher prices, it doesn't look like any more support will be added if in fact this move just left the station.


IWM 2 min positive and this has improved since the capture and IWM is starting to move.

IWM 3 min has no divergence and therefore has limited upside support,  perhaps the kind we need for these head fake moves above local week long resistance in most assets.

 QQQ 3 min positive.

And the Q's are now moving off this divegrence, it didn't improve much.

And the 5 min QQQ is in a lot of trouble.

It looks like the theory I had when I started this post just before the moves started about short term moves above those local resistance areas in stocks like the top 5, has some merit with the next longest charts providing no support and therefore a roof.

The TLT possible upside reversal would fit nicely with an equity decline as a flight to safety trade.

Top 5

AAPL is obviously a pivot stock for the market today, it's difficult to say what the reaction will be, and how powerful or weak the reaction is, how long it lasts and this is most important because of the set-ups that are near or at resistance/head fake  areas.

I'll just quickly list a few that I like the most as present, outside of inverse market ETFs like SRTY.

NFLX is one of my favorites.

SCTY looks like it should have some more gas to the upside, but I don't see this as being too much more than a head fake and it probably has the best cance of pulling it off making it an attractive short , especially if it can pull off a run just above local resistance/congestion.

IYT / Transports short which I already filled out are looking good as well.

BIDU I'd like to see take out lcal resistance, but otherwise things aren't looking too good for BIDU moving forward and XLF / Financials are one I'm looking to fill out very soon, again a pop above local resistance would be very welcomed, but if things start going south (The TLT UPDATE is IMPORTANT)..., these are some of the first I'd be looking at.

PCLN really should bounce, but it has been very weak. The only reason it's not on my list is the poor entry without a bounce.

Market Update 2

This post has some more relevant information for the bigger picture, changes in character, correlation, etc.

 This is ES / SPX Futures (purple) tracking the AUD/JPY ($AUD was just down the most in 9 months causing a lot of weakness in AUD/JPY and pushing the $USD higher).

Note the correlation between the two, this use to be the correlation with USD/JPY which has flipped on its back interestingly as we are seeing some huge moves like the $106 run yesterday and a move to $106.46 just moments ago.

 This is a 30 min chart of the ES / SPX Futures (purple) vs USD/JPY and while it's difficult to scale with the limited settings I have on this platform, the first real break came last week in red to the left when USD/JPY surged and ES went in the opposite direction, something I was surprised by and wondering about the correlation there, or more accurately the correlation with the USD.

It's a little confusing because the $USD use to have a historical correlation in which most commodities, precious metals, oil and even stocks would move opposite the $USD until the carry trades were opened to leverage up a fund's AUM and gains. At that point and over the last few years, the market has been following the USD/JPY which means it has been showing the mirror opposite correlation to the $USD, a strong $USD has lifted risk assets, at least stocks.  Now it seems as if the old legacy correlation is coming back in to play as the F_E_D exits accommodative policy  and as the carry trades are unwound, even though a surging USD/JPY doesn't feel that way, but the $US Dollar Index is receiving a lot of strength from multiple currencies that are very weak including JPY, AUD and with the Scottish referendum, GBP recently.

 There's some question whether the algos have been reprogrammed to set up a USD/JPY correlation with bond Yields. Although I don't have yields up here, I have the bond futures which move exactly opposite yields. So in purple we have the USD/JPY and in candlesticks the 30 year bond, if you look at the recent correlation and remember yields trade opposite bonds, then yields would be moving nearly tick for tick with USD/JPY rather than stocks.

 The same is true of 10-year yields as the 1`0-year bond is nearly the inverse of USD/JPY.

 To a lesser extent and more recently, the 5 year bond / yield is showing the same correlation.

I do have an update on TLT as we called for a pullback on 8/26, that may be changing and it was only a pullback, not a change in trend. We'll look at that later and see if there's any future or forward looking correlations to FX.

 This is the 5 year bond future vs the $USD so you can see where the movement is coming from.

This is ES (again not scaled well) in purple vs the USD/JPY which it had a strong correlation with right through August , but something changed recently and the $USD and thus USD/JPY have blasted higher , yet it seems Index futures are nearly inversely correlated at times, so there's a good view of a major change in character.

 Again VWAP heading either lateral or down, but the market always struggling to reach VWAP after a decline, this is often indicative of selling/distribution/weakness behavior considering where price is in the cycle.

 Again, HYG (red) as a leading indicator vs SPY (green) is telling the story days in advance and has been right on with 3 of the 4 stages so far.

And once more, the deterioration of market breadth while the market is still high, not on a decline like last time and it looks worse now.  I'll remind you that at the lows of early August as the base was being formed, the % of NYSE stocks trading above their 40-day moving average hit a low of 20% which is worse than most bear markets.