Daily Wrap

From Friday's Daily Wrap...the most important part for us this week tactically...

"Finally, as I said in the week ahead forecast, I think early Monday we'll see some weakness, perhaps in to a bounce later in the day and maybe in to Tuesday, I expect HYG to decline from there as it has already started falling apart. If the 3C charts don't put together an intraday positive after Monday morning, the market will be in big trouble fast, however based on breadth like the S&P and Morningstar sectors, I'd expect at least 1 day of correction to allow them to try to work off some of that oversold tension, but oversold can quickly turn in to bear material, that's how this market will end."

From last Friday's The Week Ahead post,


"You may recall I've brought up the subject of deciding how much weight to place on top-ticking position entries vs just getting in. As the big picture goes, a couple percent here or there will not make a lick of difference 6 months from now. While I think that was an important decision for each trader to make, I now think the market is giving us such a strong message, it shouldn't be ignored and in my view, it leans heavily toward, GWT YOUR POSITIONS IN PLACE,  leave some wider stops/take on fewer shares, but get them in place. "

" I suspect the Q's will try to break this flat resistance trendline before heading down, allowing a nice entry in SQQQ long."

And today the NASDAQ's relative strength brought us close to that area.


So Monday's divergence and yesterday's head fake move were both getting to a critical area which is why I posted the following in this morning's A.m. Update

"The bottom line is breadth is so bad right now, it's hard to believe this market is still standing, if it can't bounce here, I doubt it will be standing very long and I only mean corrective bounce to even our some of the breadth lopsidedness, although I expect it to continue to deteriorate as we move forward. However if this market can't get an oversold bounce or correction going (breadth based), then as I said Friday, it's big trouble for the market which is fine for us, it just doesn't allow us that extra time to enter a few choice short set-ups that need a little market cooperation, I've been highlighting them.

 it's so important the market make an upside attempt in my opinion, TODAY."

Between Monday's divergences and yesterday's head fake move, (again the concept holds as it occurred right before the upside reversal and showed confirmed 3C accumulation during it), if it didn't happen today, there was going to be big trouble, especially as bad as breadth has been which was over viewed in last night's Daily Wrap. I'm specifically talking about the number of S&P sectors in the red for two days in a row, the number of Morningstar groups and of course the Dominant P/V relationship along with actual breadth readings which are past the point of absurdity, it really is like a dead market walking.

I don't mean to take this a personal route, but I'm passionate about the market and I recall events that made a big impression on me. My father died of liver disease a number of years ago, but for a good 3 years every time I saw him, I couldn't believe the amount of punishment the human body could take, I couldn't believe someone who looked like he did could still be alive (God rest his soul), while it may sound strange, when I look at market breadth, I have that same feeling of amazement, which is why I call it a gingerbread house and the "Long and Strong" crowd to be whistling past the graveyard.

Whatever it took, the market got it done today. Sure there was some USD/JPY help...There was some VIX help, the Most Shorted Index followed along with stocks but didn't show relative strength above and beyond. This is an event we have been looking for since Friday's Week Ahead forecast so I don't buy the soundbite reasons the market was up today like F_E_D speakers or news out of the PBoC, we've followed this every day , all day for the last 4 days and this was our conclusion, long before any PBoC or F_E_D speakers today.

I posted one target from the Week Ahead post above for the QQQ, I had others as well. As you saw, we fell just short of the target today, this isn't why I posted today's EOD Update with my view that we have more to go on the upside, that was based on charts, but it fits the bill. I posted and SPX target today along the lines of 5 year yields in the Market Update  and specific to the Leading Indicator, "Yields" vs the SPX. That would put us north of 2000 which the SPX tried for today but fell short as it bounced off the 50-day moving average which we talked about as a sort of psychological conditioning of the "Buy the Dip " crowd.

 The SPX bounces nearly perfectly off the 50-day moving average, this has a lot more to do with Technical traders expectations than it does the old rules of Technical Analysis before it became mainstream with the advent of the Internet and cheap online brokers.

 As mentioned, even today our SPX/RUT Ratio Indicator didn't confirm the move which is exactly what we expect from a hollow move and that's why we want to and should be using it to short in to price strength as there's no underlying strength, in fact severe weakness.

Here's a near perfect 50% retracement in the SPX off the August cycle's Head Fake move last week, the "Chimney" part of the "Igloo with Chimney" top concept or the head fake portion.

Ironically from all of the recent weakness, today's move was the strongest in 7 weeks, why do you think that is from a psychological point of view? These moves that are set up in advance are never random, they always have a purpose to fulfill.

As far as breadth repair... That isn't it...

 As you can see, our "Percentage of NYSE Stocks Trading ABOVE Their 40-Day Moving Average" above and the  "Percentage of NYSE Stocks Trading ABOVE Their 200-Day Moving Average"  below, barely budged.

 "Percentage of NYSE Stocks Trading ABOVE Their 200-Day Moving Average" barely moved vs the SPX, this is not the breadth repair that we might have expected on the best daily move in 7 weeks!

Also along our expectations, HYG is leading the market and just as importantly...

 High Yield Credit wanted nothing to do with today's move, the best move in 7 weeks!

In fact, since the August cycle began, HY Credit has led the market just as High Yield corporate Credit and they are both leading lower, both in stage 4 decline.

As you know, our professional sentiment indicator says the market should have some more upside in it, more importantly...

 Our 3C charts with 5 min positives on the week since Monday say there's more upside and this is what today's EOD Update   was tracking. However, very short term as in early tomorrow...

The 3C intraday charts are calling for a pullback in just about everything except the R2K, which is where we may see some rotation as that's the index hit the hardest with small and mid-caps followed by the NASDAQ Composite which was the relative out-performer today.

After that, well... Follow the clues (HYG)...

As for market breadth today, you already saw almost no movement in the big picture...

Even on an NYSE TICK basis, we didn't achieve that much which is why I think this is more psychological than breadth related.


As far as those internals though, a near mirror reversal in the S&P sectors over the last 2-days with 8 of 9 closing green with Health care (which is defensive) leading at +1.75% and Utilities of course in a risk off rotation lagging at -.36% on the day.

Of the 239 Morningstar Groups we track, again a near mirror reversal of the past 2 days with 206 of 239 in the green.

However there's a chink in the armor of internals, the Dominant Price/Volume Relationship for the component stocks of the major averages. 

The Dow had the most bullish of the 4 possible relationships with 16 of 30 in the Close Up / Volume Up category, this often leads to a 1-day overbought condition and we close lower the next day, although I'd be willing to give this one a pass. The other averages all closed with the  most bearish of the 4 possibilities, Close Up /Volume Down, the NDX with 58 of 100, the R2K with 998 of 2000 and the SPX with 197 of 500. Again, this is the most bearish of the 4 possibilities, although not the strongest next day indication which is why I'm willing to let the Dow slide as the 4 averages didn't share the same relationship and 3 of 4 didn't have a strong next day bias.

As far as I'm concerned, NOTHING has changed since last Friday's Week Ahead Post and everything we've expected this week and what we plan to do with it.

If anything, we just have excellent confirmation that the market is not in the AAPL 2012 panic stage as of yet.


The two Call positions in IWM and XLF will stay in place for the moment, some shorts are already starting to show cracks, AAPL was one today , although I'd give it a bit more time.

Again, we're still VERY much on track. Look for more of the same tomorrow...

EOD Update

Today was the move that I characterized as pretty much, make it or break it, the move had to happen today or else the character of the market would have had such a profound and incredible change in character that it would be difficult to forecast as pure fear would replace any kind of system that we can track and true to our forecast, the market rose to the occasion, we will see to just what degree after the close.

However, while there's some minor distribution right now intraday in the IWM, SPY and QQQ, I do not see this as the end of the move, it really just got a start today and was really only about a half day's upside move. The IWM has put in what looks like a small inverted H&S bottom that I think traders will key off and either buy on a dip from here or buy based on the relative performance as the IWM is the day's laggard with the SPX.

In other words, more to come, which is fine by me for all of our purposes.

There's still a major lack of confirmation in the SPX/RUT Ratio indicator, HYG is leading the market to the downside as forecasted for this week and HY Credit is not biting on the move.

Other than that, sentiment Leading Indicators have improved since the last charts earlier today suggesting more upside tomorrow just as they suggested upside today from yesterday's readings.

HYG intraday did pause and move lateral, I suspect as some short term support or at least not adverse downside, but on the day it is doing what it has done since July and is leading the market  (well in the recent past, 4-7 days).

Prices are moving toward yields and while this is not a target I'd give any real serious consideration, right now the roughly implied SPX target is in the 2006 area.

Just be ready for new shorts as they are already showing the signals we are looking for in to higher prices.

Trade Idea/Trade Set-up (longer term-intermediate trend trade) AAPL

The last AAPL update had a lot more to do with market makers getting their butts handed to them and our prediction of AAPL price movement based akmost soley on the fact that market makers were not going to take the losses they had to accept as AAPL lost significant ground on heavy volume and the market makers' responsibility topost a bid/ask in the stocks they make markets no matter what is happening so long as the order comes in at market. AAPL did what we expected and retraced those losses allowing market makers to get out of the losing inventory they had to take on with such a heavy volume sell off (which they can also do by accumulating at lower prices, selling at higher prices while dumping inventory taken on during the decline, yet at higher prices.

That update was Sept. 10th, Full AAPL Update  and I've been keeping close tabs on AAPL since. From the last paragraph of the linked post from 9/10/2014...


"As of right now the 2 and 3 min charts are leading at stronger positive divergences and the intraday is in line so I'd expect higher prices. When I start to see these deteriorate, AAPL should be ready for the next trade  which I suspect will be a longer term position trade and on the short side."

You might have noticed AAPL's underperformance today while the NASDAQ COMP. and NDX lead the market, considering AAPL's significant weighting on the NDX, the outperformance probably has a lot to do with NASDAQ Biotechs.

In any case, this is a red flag on an asset I've been keeping tabs on. I suspect you could enter AAPL in this area and not be too far from a great entry or you could wait a bit longer as the market runs this corrective move and maybe get something a little better, maybe not or you could, which in my case and choice is the most appealing option, phase in to AAPL so long as your risk management reflects that plan BEFORE you enter the first share, this means leaving a wide enough stop and position size allowing for higher prices in a dollar cost averaging scheme, however not in the typical sense of the word in which you take on more risk than planned to try to get out of a losing position, this is very different and I'll enter a 50% AAPL equity short after this is posted.

 This is AAPL in red vs both the NASDAQ 100 and the NASDAQ Composite today, the red trendline is yesterday's close for all 3, clearly AAPL is underperforming the Index in which it has the most weight on, actually at a loss of -1.02%.

AAPL's Ultimate Oscillator, using 2x the standard length of the normal indicator settings with averages set at 14/28 and 56 shows the negative divegrence in to AAPL's very volatile top area, the area I spoke of in market makers getting burned. You can see shortly after, AAPL did as we predicted and retraced those losses allowing market makers to unload losing inventory they took on at higher prices as a function of their legal obligation to be the buyer of last resort for the numerous privileges that come with making a market in a stock.

 On a daily chart, yesterday's bullish engulfing pattern turned south today to a bearish Harami reversal, although I'd prefer to see volume increasing today by the close , but I doubt that happens.

 The daily 3C chart shows the AAPL hedge fund panic and -45% /  8 month AAPL decline mentioned several times recently, a lot of hedgies lost a lot of money as they tried to fit out the same small door, selling while there was no demand, all because of Dan Loeb's positioning. It wasn't a difficult guess that Icahn and others knew these numerous funds would be looking to get square on the position and that's exactly what happened as AAPL retraced the -45% losses to form a double top, still bearish. See the last update linked above and the AAPL and MSFT growth story ending that both stocks share.

Also note the 3C trend during the making of the double top, exactly what you would expect to see as hedgies that took losses on AAPL would be selling at higher prices where they got in and couldn't get out as Institutional money has a much larger presence than retail's dwindling presence as well as their absolute lack of dry powder as they are maxed out on leverage and negative investor net worth, in other words, they don't have the capacity to take on anything that would move the market, their dry powder is spent which becomes an increasingly large problem for institutional money that has put in some 800 billion odd dollars since 2009 and doesn't have the buyers available to absorb those sales.

 My Custom DeMark inspired Buy/Sell indicator gave a nice buy signal as well as some sell signals and a very large sell signal now in addition to...

My MACD Heat Map just fizzling out on the construction of the double top.

Interestingly the Trend Channel had a stop right at $98.12 (rounded to $98) on a closing basis, however the candle closest to the stop had a closing value of $98.12, which didn't break the Trend Channel, however there has been littl in the way of additional gains since and the Channel has only locked in another $.18 cents since.

If you want a more "Prove it first" entry, then you are looking for a close below $98.30, however I think we can bet a better short entry or blend the two concepts of forward forecasting and after the fact, objective proof.

 The 60 min 3C shows the distribution going in to the massive high volume sell-off event that would have trapped market makers buying inventory at higher levels as market orders to sell on the way down were not likely to have a corresponding bidder making the market maker the buyer of last resort legally. Then the accumulation expected as market makers tried to extricate themselves from inventory bought at higher levels in which they had no choice. The entire downside move was retraced allowing market makers to unload the long inventory accumulated at higher levels as a result of their legal obligation.

We also have a negative divegrence now, it's not as sharp as I'd require for a full size short entry, but moving in the right direction.

 The 15 min chart shows interesting divergences from accumulation and a near perfect trendline mark-up stage to distribution before the fall. The recent range which has been sloppy has seen overall distribution, it's just not as sharp on a 60 min chart as a 15 min chart... YET.

 The 10 min chart verifies and adds some more color.

However on today's move higher in addition to underperformance, there's no AAPL positive divergence, in fact  the opposite which should continue to migrate.

I believe AAPL is at a pretty decent area for a longer term trend short, I'll enter a half size position n hopes of maybe a little rotation (although today should be AAPL's day with the NASDAQ leading). In case there's not, at least I have some exposure to AAPL short.

Market Update

This is more like it and right on command (essentially).

Eight of 10 Sectors are in the green...

Utilities and Energy are down on the day at -.28 and -.88 respectively, everything else is green, the kind of move expected after 2 straight days of the sectors being red.

The divergences look pretty good at this point as well...

 The DIA/DOw got a sudden and pretty strong boost as this 5 min divegrence shows today.

The IWM is lagging in my view, but I think the divegrence is enough to keep it moving and in to rotation as small caps are really where we are deeply oversold.

The QQQ is not only holding near or at the best levels of the day like the other averages , even making it past the European close, but is also showing the best relative strength thanks in part to the COMPQX, NASDAQ Biotechs, Tech and specifically semi-conductors.

IBB, one of the shorts I'm interested in via BIS and has been on the "wait for a bounce" watchlist is now up approx. +2.6% on the day.

The SPY's divegrence obviously caught on at the morning lows which we suspected would change after the initial a.m. shenanigans were over.

TLT which we have expected to see a minor pullback in over the last couple of days after completing a larger pullback from the August highs is down nearly -.40%, so far very much in line with the expected pullback. This is sending our leading indicators, Yields higher which tend to pull equities toward them so all in all, everything is fitting together rather well thus far.

The story of breadth from late yesterday's head fake divergences which as we suspected yesterday, were actually head fake moves, can be seen in the custom SPY/TICK indicator...

The trend from late yesterday was supporting the idea of a head fake move yesterday as was 3C in to the afternoon, you see the typical a.m. games and the trend re-emrgers.

Intraday breadth...

After pulling back in a modest downtrend channel only hiting -800 at the lows, took off to the upside with +1250 and +1300 tick counts showing a pretty decent overall breadth participation, whether enough to undo a lot of the massive damage to any significant degree, remains to be seen, but this is what we needed to see on a breadth based oversold condition, especially among the major industry groups.

I'm definitely bearish on the market, but seeing this bounce which needed to happen today, shows the market is still not at a level in which the unpredictability factor is too high, although its gaining which essentially means, we can still take on short term positions and entries as our forecasts are still reliable and not being overrun by fear and chaos, I gave the AAPL -45% decline as an example of what that looks like, so while my shorts aren't green today, I feel better about new entries and forecasts.

The short list is still being put together as far as the performance now, the alert levels and overall analysis, but this is the time we needed to do that while speculative trades like IWM and XLF calls make a little money on the upside.

The Most Shorted Index is in line, but not leading any particular squeezes above and beyond the market's relative performance.

While HYG is still doing what we expected and diverging from the market today, leading it lower, it was lateral intraday long enough to provide some support for the broad market.

A quick look at Leading Indicators shows our SPX/RUT ratio is not confirming the short term strength today which is good from a short entry in to price strength perspective.

 Short term there's no upside confirmation and as for the larger picture which should give you confidence shorting in to minor price strength...

The August cycle which had not only a VIX inversion buy signal, but also a SPX/RUT ratio buy signal, is leading negative to a huge degree, well below the August lows, which could be taken as saying, the market is artificially high and will likely break lower toward the red indicator below the August lows, so again shorting price strength should be easier emotionally as the indicators agree that this is what we were expecting for the earlier part of the week, while everything important on a larger scale continues to lead as they have even in bullish scenarios and lead much lower.

Both Leading Indicators, pro sentiment showed the probability of a move up today, they show weakness forming in the leading indicators, but aren't showing an end to this bounce yet.

 While the first is in line with the SPX suggesting more to come...

The second is already showing weakness, interpreted as a weak price move, again more confidence to short in to.

While yields as a leading indicator are calling for some more upside as I would expect...

 The SPX should revert to yields higher or thereabouts, meanwhile...

Underlying weakness or smart money not participating in the risk on move is clear in High Yield Credit.

Thus far this everything we expected Friday for the early part of the week and thus far it is everything we expected from an oversold breadth bounce, no real buying strength, just an oversold condition giving us yet another opportunity.

More to follow

UNG/UGAZ Update

We're still holding UGAZ (3x long Nat. Gas) and it still looks like an excellent trade to the upside, not even getting in to UNG's longer term trend which looks bullish as well.

I received an email from a member who saw Cramer predicting of all things, a head fake move believe it or not in UNG, a break below the July 28/29 tweezer bottom support before, HEADING HIGHER. Yes, I'm sure Cramer knows all about these head fake moves/stop runs (in this situation) as a Goldmanite.

UNG's range is so well defined, a head fake move below the range wouldn't surprise me, in fact I'd expect it, however it seems over the years of watching these they are much more prone to show up in equities than global commodities which are not so easily manipulated as a single stock, however, while it's a possibility, I don't have any current objective data that suggests it's a high probability at this time.

What we do have since it has been a while since the last UNG / UGAZ (long) update are the following...

 This is the daily range/base and the support that Cramer is talking about is late July near the start of the range, it's $20.59 to the penny, apparently the head fake move he predicted last night followed by a strong move up so I suppose it could happen, it would be a conceptual probability from our perspective, but I just don't have the data showing it to be a current probability although I'll set price alerts as any move lower in UNG in my view is worth accumulating long.

 The last divergence in the Ultimate Oscillator, like Wilder's RSI, just with fewer false signals based on 3 moving averages. The last divegrence was a bit bigger, not as sharp and not as much time in the lower price accumulation zone. The current divegrence is sharper, has spent more time in the lower end of the range or accumulation zone and I suspect the next move up in UNG may lead to the long term primary trend breakout which the last move failed to accomplish, in essence, on a primary trend it would be a large stage 2 mark-up trend so I do view this as a long term swing trade to start and if it proves itself, a long term trend trade.

 We expected UNG to fall from this range and had some DGAZ positions (3x short Nat Gas), however since it has put in a nice base with a large 60 min leading positive divegrence.

 The 5 min chart has a nice divgerence and no sign of the kind of negative divgerence

Market plans short term and XLF Follow Up...

FAZ (3x short Financials) remains one of my favorite core short positions and as posted earlier this week, a pullback to the $15.50 area would be an extremely enticing entry for a new position or an add-to an existing position that is not filled out.

I haven't given up on last Friday's Week Ahead forecast for a market correction based on the deeply oversold breadth conditions and have entered IWM calls and now XLF calls in anticipation of such a move which I think has to get moving today.

The plan for any such move is to set price alerts for the best looking short set-ups and to use any corrective bounce as a tactical entry. In the very short term, there's not much to do as far as trades beyond these kinds of speculative, leveraged positions (IWM/XLF calls) as far as actionable trades, however, my time is very well spent right now, marking price alerts on those watchlist shorts that still haven't given us the right entry, that's what I'll be doing most of the day as I keep an eye on the market as well so once this corrective move gets a little steam and starts triggering those alerts, these new larger core short positions can be entered at the best price and lowest risk, that's really the next major trade pivot, so preparing for that now is essential (price alerts for the watchlist components that have the best looking trade probabilities).

As for XLF...

 Intraday (1 min), you might get a slightly better entry,  but I cannot emphasize enough that this is a speculative position size, the market is simply too dangerous to go with anything beyond a speculative position here.

 The late day improvement from yesterday carried over this morning, these shorter term charts being like a fuse to light the larger divergence.

Trade Idea: (Short term options) XLF Calls

I'm going to pick up a speculative (as any long with market correlation at this point should be) position in XLF calls, October 3rd expiration with a strike of $23.

As you may recall, I want to pick up more FAZ shares on a pullback, I think we will get that pullback, but in the meantime to do so, XLF needs to rise and this looks like a decent speculative short term play. I almost always use about 3x more time than I think I'll need when choosing an expiration so keep that in mind and don't read too much in to the expiration as I believe this is a short term position like the IWM calls.

I'll post charts next.

Market Update

Considering the DIA is about -1.3% off its recent highs, not a big move, but compared to the first and second quarter, a huge move as volatility was completely dead with +0.10% moves being celebrated back then as victories for the bulls. The SPY is about 1.85% off recent highs, the Q's about 1.39% and the IWM a leading -5+% off September highs, for the most part, it's easier to understand the breadth destruction off the July highs with the SPX down -4% and the Russell about -8%, however this time around, even last week as we made SPX and Dow all time new highs, breadth was deteriorating in to the move higher, the head fake area last week as compared to July and early August as the market was moving lower meaning right now there's a divergence in breadth, it is deteriorating at a more rapid pace even when the market is up.

As for the oversold P/V relationships, the S&P sectors all red two days in a row, 90+% of all of the Morningstar groups red two or more days in a row, we'd normally be well in to an oversold bounce, even on a 1-day basis.

This is hardly scientific, but it shows the clear changes in the market by S&P sector over different periods of time, the obvious take-away is massive deterioration...

 The S&P sectors by percent change over each time period which are labelled above as 1 day, 5%(5-days), 10% (10-days) and so on, 21 days all the way out to 250 days. As you move from right to left (the most recent), you can see the building deterioration in multiple sectors, and this as the market was making new highs.

As for the intraday charts, it's a bit tough to collect and post them as they are pretty quick, but these still represent the themes that are still in play or current.

The DIA which I have been saying looks the worst has been confirming the move down until just recently on this 1 min chart, largely late yesterday and today.

The IWM is starting to show some more life in its divegrence, but it has been a sloppy affair as I see continued small and mid-cap destruction in the nightly breadth charts, this would usually create some bargain hunting or knife catching and a short term bounce, that's what we are looking for , both for our own purposes and to understand how dramatic the shift in character in the market has been as I am definitely seeing signs I last saw early 2009 or 2008 and it's remarkable to recall how bad things get in a bear market, but these breadth charts are already worse than the last bear market which should be terrifying for long, bulls, large institutional funds who have no one to sell to as the retail investor has been either exiting the market or has been tapped out on margin for quite a while. The closest circumstance I can compare it to is the AAPL decline from all time new highs in 2012 as hedge funds rushed to sell to a public that wasn't buying,  AAPL's lost -45% in 8 months after years of being the market darling that could do no wrong.

 The IWM 2 min chart, sloppy, but still positive.

The QQQ 1 min has been leading as it was yesterday

As is the QQQ 2 min

And even an accrual o these divergences on a 10 min chart.

 SPY 1 min is leading this morning...

The 2 min trend is in good shape and

 the 3 min trend is in good shape.

Even the 5 min is in good shape. I see no reason why these should not bounce or correct.

You have to pay attention, but the TICK has improved as well, most notably not making lower lows and of course the trend higher. Intraday tick...

has broken this morning slight weakness early on.

It appears that after the a.m. shenanigans have run their course, the market is looking a bit more serious about making this corrective bounce off Monday's accumulation, yesterday's head fake move that was confirmed late in the day and after running the usual stops and limits in the morning, it looks like this is one of the best chances for this market to get its act together, but don't expect it to hold long.

In addition, as the only liquidity game in town continues cutting liquidity, (The F_E_D), expect to see some wild volatility in the days, weeks and months ahead.