Daily Wrap- Get Your Contrairian Hat...

I'd say about a week or so ago I said, "I don't like it when too many people are calling for a top at once", bear markets surprise, often they decline sharply on what is otherwise good news, a testament to how important market breadth is as even good news can't sop the rot that has set in from turning to an all out collapse.

I made mention of Elliot Wave International's Robert Prechter, even though I personally don't follow Elliot Wave Theory (as I notice many practitioners son't agree on the count and they always have the fall back "Alternate Count", like saying the day will be partly cloudy so if it rains you are right, it if doesn't you are right.

There were also two Hindenburg Omens which generate a lot of talk, but we've seen numerous clusters and while I don't doubt they are a condition that precedes a bear market, I do not believe that they are in and of themselves a harbinger of a bear market.

In other words, there are too many people bearish right now and that includes even retail. Since I've had an intense interest in the psychology of bear markets and how investors that made a killing on the way up so often lose it all on the way down, a member sent me an article that touched on some of this.

NASDAQ Market Timers represented by Halbert NASDAQ NewsletterSentiment Index is interesting as a contrairian indicator. Since the Sept. 19th high, HNNSI has declined 75.5 percentage points from a net long 68.8 to a slightly short positioning of negative -6.7% so the typical "Buy the Dip" crowd, is not in fact buying the dip and this on an approximate -2.85% decline.

What I found interesting was the same indicator back at the Tech Bubble top of March 10th saw a n 18% decline over the next 3 weeks and during that period HNNSI actually rose, even though the -18% was 2% away from a media's definition of a bear market, the longs saw it as a buying opportunity and from there, it's easy to see how small bear market counter trend rallies can keep their sentiment bullish as a new low is made which they then swear they'll exit the position once price reaches the area in which they entered long, of course it never does, but each bear market rally gives them hope that "this time the market will get to my entry", even though the market knows nothing about your entry and as easy as that, you can understand psychologically how people lose it all in a bear market. After 5+ years of one scenario, it can be difficult to adjust to a totally new scenario, in fact most don't believe it's possible, that's the "New Normal" crowd or the "F_E_D has our back" crowd, both are desperately wrong as history has proven over multiple centuries and all kinds of bubbles.

Last Friday I was thinking about the number of bear market calls and uneasy, but I wasn't thinking of that in regard to the post-window dressing/post Q3 bounce which it seems we are well on our way toward making a reality, although looking at the bigger picture, I believe that sentiment does have something to do with the fact the market looks ready for a bounce , yet this doesn't change any of the bearish realities of the market, just perceptions of when and where. Looking at year to date data, I think it's not hard to make a case for a bear market right now especially as the Russell 2000 leads and is negative on a year to date basis as well as a 2014 basis.

Now the specifics...

IT doesn't take a candlestick charting guru to see today's closing candles were all bullish reversal candles from the SPY's Hammer, the QQQ's long-legged Harami reversal, or the IWM's bullish Thrusting candle RIGHT AT THE COMPLEX H&S TOP'S NECKLINE!

Take the closes as well, after the initial decline the SPX managed to close perfectly at unchanged on the day. The NASDAQ 1000 pretty close at a +0.03% gain, the Dow just as close at a -0.02% loss and the IWM putting in an impressive, +1.01% gain on the day, bouncing off support that equals the break of a major year long top!

Today was the R2K's best day in 6 WEEKS! What's that tell you about the late day signals we saw yesterday prompting this post Position Management & Trade IDea : QQQ/IWM in which the long term SRTY long was closed as well as 3x short QQQ, SQQQ long and replaced with 3x long IWM, URTY and 3x long QQQ, TQQQ yesterday. For the IWM repositioning, the timing doesn't get much better than that so we were out of SRTY and in a 3x long IWM the same day it had its best day in 6 weeks.

Last night's Daily Wrap breadth analysis, Sector performance and Dominant Price/Volume Relationship, compared to yesterday's market performance, were spot on today.

As for today's internals, the Dominant Price/Volume Relationship of the component stocks of the major averages was split, the Dow came in with 16 at Close Down/ Volume Down which I call, "Carry On" as there's no strong 1-day implication for the next trading day. However the NDX at 41, the R2K at 1245 and SPX at 205 all came in at Close Up/Volume Down, suggesting a 1-day overbought condition in which the next day usually closes down.

This could indeed be the widening of the base I have mentioned and would prefer to see as I don't think much will happen with tomorrow's Op-Ex max-pain pin, but we also have Non-Farm Payrolls at 8:30, so however they come in, HFT's can set the early tone and interpretation of the data series no matter what it actually is as they can move pre-market futures as the market is all about sentiment, not actual value or data.

As for the S&P Sectors, you saw in last night's post what the 5, 10 and 21 day averages were, not good at all, but also helpful for the oversold condition the market can bounce off even though on a price basis we are not even close to oversold, but on a breadth and sentiment basis, we are right there.

Three of 9 closed green today with Consumer Discretionary leading at a +.46% gain and Energy lagging at a -.52% loss.

As for the Morningstar Industry/Sub-Industry groups, 149 0f 238 closed GREEN, yes, GREEN, a huge change in recent character supporting the bounce concept from last Friday that we already took action on yesterday, there's still time at the right place to get involved.

Our main breadth indicators were essentially as flat as they could possibly be today, another significant short term change in character.

Leading Indicators looked like this...

 My VIX Inversion hasn't been higher since the August cycle base, meaning fear is running high, but not at a buy signal.

HYG led the SPX perfectly today and it ha been brought in to help out which is what we saw earlier in the week and with HYG divergences in 3C before that.

HYG vs SPX on a slightly longer basis leading the market again as usual.

 Our Pro Sentiment Indicators have been strong and today even stronger for a short term move/bounce.

And High Yield Credit which called the top is calling for a bounce here.

Most of all, 3C is giving the strongest signals.

For an overview...

Although we put in strong additional positive divergences today such as the SPY 5 min...

 Also note our theory of no accumulation until Q3 and Window Dressing were over is pretty much correct as yesterday is where accumulation started, Oct. 1 Q3. The 5 min leading positive divegrence is more than enough to hold a bounce trade, but it gets better.

However short term...

 The 2 min IWM is a perfect example of end of day trade suggesting a pullback and/or broadening of the base area which is good from a quick long trade perspective as well as tactical short entries.

However overall, look at the 15 min leading positive divegrence put in today alone in the QQQ.

We have significant divergences, time to build more on the basing area and are already set with trades as well as having preserved gains in SRTY and to some extent, SQQ.

We have Non-Farm Payrolls tomorrow, one of the biggest data points on the week, but early knee jerk responses could set the initial tone which may help establish a larger base. We also have the typical op-ex max pain pin that should last until about 2 p.m. As I said this morning, if we didn't lift off higher today which IWM did and how about MCP, but the rest of the market didn't, then I wouldn't expect anything to start Friday during the op-ex pin, maybe after 2 p.m. when the pin is released, but I rather suspect most of the action will come early next week and then we'll transition back to SRTY/SQQQ as well as any other shorts that allow us a nice tactical entry at lower risk and better prices while this bounce is under way.

I'm off for Georgia, but I'll be covering the market all day tomorrow. Have a great night.

Quick EOD Update

Tonight, after the close in fact, I'm driving from South Florida to Savannah Georgia so I can be there in time to cover tomorrow's market.

I will post an abbreviated Daily Wrap after the close. 

What I see right now is some intraday 3C weakness, I suspect it's either op-ex related or we are going to continue to build a larger base. An Op-Ex Friday is not an ideal day for a bounce to start with the normal max-pain pin in place, unless the max pain level is higher, but after 2 p.m. the market pin is released.

The longer term or intermediate 3C charts support a larger base and if we do get a bit of a pullback, I'm very likely going to add to the 50% URTY and TQQQ 3x long IWM and QQQ positions.

For now though, I'd expect some near term weakness that broadens out the base, which for a bounce, will give it a more stable platform, a base that's easier to trust and a stronger overall move.

I think we have a good speculative counter-probability or trend as the IWM goes, trade in place or still have time to put it in place before re-entering short positions like SRTY. The vast majority of long term core shorts I'm leaving in place, just the easier to trade 3x leveraged ETFs like SRTY, SQQQ and FAZ.

I'll have more shortly.

FXP Follow Up

After closing FXP, the P/L looks like this...

 We have over a +23.5% gain as we closed out at $56.53 rather than $56.18.

Here's where we entered FXP long (white) and today's exit (red). I do look forward to re-entering FXP as the longer term trend in 3C supports a lot more upside, but for the time being, I'd rather take the gains  and wait this out as it is screaming pullback.

FXP (long) Position Management

We first looked at an FXP (2x Short China 25) trade set up in August, Trade Set-Up FXI / FXP, we let the trade come to us on our terms and entered on Sept. 9th, Trade Idea: FXP (Swing to Position Trade) Long.

Since, we have gathered a 23.4% gain since Sept. 9th. All of the near term evidence suggests we see a U.S. market bounce as we expected in last Friday's week Ahead, after the quarter and Window Dressing ended, so far we are on track. China is likely to follow, although I think it's a short term move, you still may want to take action in positions like FXP in which we have a nice gain in a short period to protect the gain and re-enter the trade when the bounce looks to be over.

 First the daily FXP hanging man bearish reversal candle and on volume, is not a good near term sign for this China 25 2x short ETF.

The X-Over system applied to FXP gives a long signal and a pullback target to the area of the 22-bar moving average around $50.

The 1 day trend channel has a stop a bit higher, I think a wider 2-day is more appropriate...

And that puts the stop somewhere around $50 as well

FXI, China 25 long is showing a 15 m positive divegrence meaning FXP should pullback as FXI bounces.

 FXP's 10 min chart has a negative divegrence suggesting a pullback as well and giving multiple asset and timeframe confirmation.

 The 5 min FXP is a better timing signal and it's negative right here where we expect the post Q3 bounce to start to be put together, which makes sense as this is a 2x short on the China 25.

And FXI's short term 3 min chart has a positive divgerence, again confirmation.

As well as FXP's 2 min negative

Overall, I think FXP remains a longer term long, as this hourly chart shows, but in the mean time I expect a pullback and will be closing FXP for the time being to protect those gains until the pullback is over / market bounce over.

MCP (long) up Over +18% Today

While I'm very happy to see MCP gain some ground, it's a loner term move that I'm ultimately looking for, but since our last update on 9/26 , MCP Update, in which the rounding bottom/base was identified, it certainly looks like today is the move out of that base and with the short interest as high as it is in MCP, this could be a rocket that doesn't look back for a bit.

 The daily chart and rounding bottom just after a break below a defined range. head fake/stop run?

The 4 hour chart is still very positive so I'm ultimately looking for a move a lot bigger than +20%, but this is nice as well.

Today is one of the first days in a long time that I am net long with yesterday's addition of URTY and TQQQ , everything is green, so it looks like the SRTY and SQQQ closure yesterday, after outstanding performance,, was right in time.

MCP's 30 min chart suggests the move below the support range was accumulated.

And the short term timing chart of 5 min is giving an obvious signal.

So far the intraday charts are confirming price. I'd like to see the short squeeze begin in earnest, that would be something to see.

GDX Follow Up

This is a follow up to yesterday's Trade Idea (Swing+) GLD / UGLD & GDX Update which had the punchline of a half size GLD entry, actually UGLD (3x long Gold), hopefully looking forward being able to fill out the other half with NUGT (3x long Gold Miners) and treat the two as 1 position because they are so closely correlated.

Today's update is specifically GDX (Gold Miners) as they are "getting there", although I'm not convinced on the timing as of yet, the truth is if I didn't already have some exposure via UGLD I'd consider opening NUGT at a half size position with the same caveats as far as adding to them. I really don't think this is a question of whether GDX and GLD bounce,  I think they do bounce. It's a question of when is the best timing for a full size entry and how big is the final base? Will it support a breakout from the over year long GDX base or is it just a corrective bounce?

 GDX is giving us clear evidence that the lows in price are being accumulated and today saw sharp accumulation with a stunning leading positive divegrence, nearly a rocket.

 While you may think, "Yeah, but that's just a 1 min chart" and I'd be inclined to agree, at this time of day for a 3 min chart to do nearly the same in such a short period tells me there's some aggressive underlying trade that is not at all obvious by looking at price alone or using price based indicators.

The best case for a GDX/NUGT long is this 10 min chart's leading positive divegrence. Considering I already have a 50% UGLD position and I'm trying to be patient and figure out the best timing, I must say it is very difficult to maintain calm and pateince and not just jump in to GDX/NUGT long right here and now.

Market Update-Generic Trade

I suspect the post-Window Dressing / post-Q3 bounce is very much still on. The question at this point is how much longer does it add to its base area, tomorrow is an op-ex Friday so we are on a very thin line between a very short, but likely very strong 1-day pop or something a bit more impressive.

I'm not quite at the add-to position yet considering these are counter-probability trades, 3x long IWM and QQQ, I'll make that determination as we move forward. I do see some opportunity in FAS long, 3x long Financials, still URTY is probably my favorite trade in this instance.

As for the charts we are seeing stronger long ETF accumulation now,  but it was and still is the inverse ETF distribution that gave the first signals and strongest signals, which makes a good case for my "3C" motto, "Compare, Compare, Compare".

I'm just going to label the charts, the divergences and the divergences in to today specifically, should be clear.

 TICK making some of the highest trend highs of recent trade.

DIA 3 min

SPY 3 min

SPY 5 min- that divergence resolved with a pivot to the upside.

 QQQ 1 min

QQQ 3 min

QQQ 5 min

IWM 2 min

IWM 3 min

SRTY 2 min

SRTY 5 min

SQQQ 1 min

SQQQ 5 min

TQQQ 1 min

TQQQ 5 min

URTY 2 min

URTY 3 min

Looking in the same place as yesterday

Since the leveraged ETFs tend to react faster with deeper signals, I looked in the same place I was watching yesterday which caused me to make some short term portfolio changes. I'm not worried about TQQQ or URTY long risk, the two closed inverse ETFs, especially SRTY, worked very well for me and my equity curve,  if anything I'm more concerned about giving up gains in the two that I closed yesterday (SQQQ/SRTY).

Here's what I found, again, interesting, especially in the Inverse ETF's.

 SRTY 1 min which was showing some strong distribution late yesterday has continued today, since I have suspected the shorts in SRTY (long) are strong hands, it is likely they are institutional traders, thus large positions. Let me be clear though, this isn't the kind of distribution that suggests a primary trend change or a change in thinking, it looks like a short term move some are preparing for.

The additional distribution today is in the red block.

 The same is seen on SRTY 2 min, while the 2 min charts in the averages weren't effected, here they are in the 3x short IWM ETF (SRTY).

And the strongest divergence at 5 min is still ugly .

 As for SQQQ, the 3x short QQQ ETF, its 1 min chart is negative as well through today.

It's 3 min chart is as well.

And the 5 min chart. I definitely like the URTY long more at this point than the TQQQ for a bounce.

As for TQQQ, it's 1 min is adding today in to the weakness with a leading positive divergence continues from yesterday.

The 5 min chart is doing the same so it does look like there's some heavier accumulation/distribution activity than what the averages themselves showed us.

URTY, the 3x long IWM is showing a 1 min chart that looks exactly like the IWM, in line.

While the larger underlying flow at 3 mins is still leading positive.

I suspect we are building a bigger base as I mentioned regarding this trade. I had said if we don't see more base building today and rather we see a move to the upside, I'd likely get out of the TQQQ and URTY long before the weekend because there isn't a base strong enough there for me to feel it's reliable enough to go through the weekend.

However if the base building were to continue in to today and even tomorrow, I'd likely hold the positions so long as nothing jumps out unexpectedly and look for a bounce in to early next week, I may add to the position if this looks to be the case.