Daily Wrap...

I'm not sure what I can write about today that we didn't already expect Friday, as you may recall, a wider base at last week's lows was expected for this week and we are in that area now, which may be why the SPX/RUT Ratio (custom indicator) is softening up now.

The R2K is at 12 month lows and down -7% on the year, the Dow is almost red for the year. The TLT pullback we called on 8/28 and the end of the pullback to move to a new high for the year did so today.

The $USD has now put in the biggest 2-day decline in 13 months, gold apparently benefitting from the legacy arbitrage, but oil, silver and stocks, clearly not.

Transports (remember our recent short entry to fill out the position), were among te worst performers of the day, down -2.5% at 7 month lows and -3.6% on the week. Our full size, phased in IYT short is at a 4% gain and it hasn't even started its decline. HLF is at a 30% gain for us (short), NFLX at a +4% gain and it too has a lot more downside potential, we haven't even really started. FSLR, another recent entry/fill out is almost at a +12% gain, SRTY added back Friday is up 8% and SQQQ also added back Friday is up 5.33%. I don't even consider these to be in the starting phase of decline except for HLF, even SCTY has yet to break below its top.

HYG's negative divergence sent it lower, a shorter term as the short intermediate still aren't that bad and HYG moved almost tick for tick with the SPX today. However among leading indicators, we had some very interesting signals that make sense given the market internals and breadth, for instance both Professional sentiment indicators were up in a down market, expecting near term upside. Price caught down to yields or reversion to the mean and for the most part, price caught down to the Index futures' leading negative 5 min divergences. Also HY Credit was positively divergent vs the SPX today, taken with the intraday signal in the SPX/RUTm Ratio Indicator, I'd say we've arrived at the general location of our double base, HOWEVER THIS DOESN'T MEAN THERE'S AN INSTANTANEOUS POP TO THE UPSIDE, THERE SHOULD STILL BE A REVERSAL PROCESS AND 3C NEEDS TO SHOW US THAT THE MARKET IS PROVING TO US THAT THIS BASE IS BEING ACCUMULATED, otherwise, I'm content to keep collecting gains on shorts as my personal portfolio which I have more actively traded recently, is up +9.5% on the whole just since last Tuesday, not including today's gains (4-days),


Now we know that the SPX/RUT Indicator has mellowed out intraday as the lows it was pointing to this morning , Market Update, were met by this afternoon, Quick Market Update. This indicator has been right 100% since we introduced it as a new Leading Custom Indicator.

Add to it the other LEading Indicators and it sounds and smells like we will be seeing more lateral trade and a  probable base. 

Just to add to that, we need a short term oversold condition, the S&P sectors provide that with 9 of 9 closing red, Utilities were the best performer at a loss of -.14% and Industrials were the worst at -2.43%.

To make matters worse, of the 238 Morningstar groups we track, only 4 closed green today!

There was a Dominant Price/Volume Relationship yesterday, Close Down/Volume Down, which I referred to in last night's Daily Wrap

" I call it, "Carry on" as the market tends to do what it was doing so I would suppose moderate weakness? The market breadth definitely wasn't oversold today."


Tonight's Dominant Price/Volume Relationship is what I'd expect for a short term oversold condition, the Dominant theme was Price Down/Volume Up, 25 of the Dow 30, 74 of the NASDAQ 100 , 1025 of the Russell 2000 and 334 of the S&P 500.

This relationship suggests a 1-day oversold condition and most of the time the market closes green the next day, there's no doubt about it, we are oversold short term which is the perfect place to widen out the base as expected last Friday in the Week Ahead post and we are right at the area we expected to be at.

Between all of the above, all we need to look for now is confirmation, the 3C signals and we have a nice swing trade and another opportunity to enter the bigger trades that are really starting to pay off (shorts).

Tomorrow we should start to see whether or not we can trust a move to the upside for a long trade. One thing is for sure, volatility is picking up and that's typical in a topping market.

Quick Market Update

I can show you a bunch of 3C charts, almost all of them are confirming the downside move in the intraday timeframes of 1-3 mins, I can go on about HYG's negative divegrence from earlier today or the double bottom base with a probable head fake at last week's lows,  but the simplest way to look at the market requires 2 charts...

 Our Custom SPX/RUT Ratio Indicator showed a lower low below last week's lows which the market hadn't made, therefore the market was not confirmed, it was likely to move lower, I suspect if it can still put together a base, which it probably can, by the time it has a reversal process in place, we'll likely be in the area of last week's lows.

Also, intraday looking at the same indicator, it seems to suggest the downside momentum is going to fade a bit.

Note today specifically that the indicator (intraday) is not confirming the intraday lows... I suspect we have some more downside in the market generally, but should probably see the rate of decline start to soften.

GLD / GDX / NUGT UPDATE

GLD and GDX (gold and gold miners) have diverged today (+.41% vs -2.22%)  which is not normal for them. I can see how $USD weakness recently (since opening trade in futures for the new week, Sunday) played a big part in gold's advance yesterday, I also think a head fake move is in the mix.

I can't find what caused GDX to be knocked down today other than a 1 min negative divegrence that is in the GDX chart as well as the leveraged derivative ETF's, if I had to guess, I'd say it was for accumulation purposes so I wouldn't be opposed to owning or buying GDX or the 3x long ETF, NUGT  here. As for GLD, I suspect it may consolidate a little, but if you like it, I wouldn't fret about micro-management, I'd just take it. In fact the current UGLD and NUGT positions (long) will be left open, they are already at full size.

First, Gold Futures...

 The 60 min chart overall looks good and the dip to the far right looks like a stop-run/head fake move which we often see before an upside reversal (in this case).

 The 15 min chart has a white arrow marking the start of trade for the new week, there's a slight negative divegrence, this is why I said perhaps a consolidation, I'm not too worried about it.

 This is the $USDX and note the same white arrow marking the start of trade in futures for the week, as the $USD fell, gold jumped.

Intraday 1 min, gold futures look like they'll come down a bit, perhaps re-correlate or meet in the middle with GDX, but again, for a longer term position, I wouldn't be too concerned with it.

 This is GLD's downtrend and turn to lateral where support was formed and what I believe to be a stop run under support on volume which looks a lot like a reversal process that is just about complete.

The 60 min chart looks good, but even better, when zoomed out it is leading positive in a huge way like GDX's 30 and 60 min charts and DUST has the same except as the inverse, it's a huge leading negative divegrence so there's good confirmation among multiple assets in multiple timeframes.

 This is the GLD 5 min chart where the head fake move would be, volume was up, there's a strong positive divegrence.

 And 3 min intraday it looks fine...

Only on the 1 min, like gold futures , is there a slight negative divegrence, so again, I wouldn't be too concerned with it.

GDX's 30 and 60 min charts are like GLD's they are in a huge leading positive position, you'll see the opposite on the DUST chart below.

GDX 15 min looks good

GDX 10 min looks great...

 As does the 5 min, note there's no negative divegrence for today's move down, but there is a positive divegrence on today's price action which is why I think it is being accumulated.

 And the GDX 1 min chart looks great, but if you zoom in to intraday ...

You see a "steering" divergence, not serious distribution, just enough to steer price, usually to fill an order,  this is the only place I can find a reason for GDX's decline here.

 NUGT, the 3x long of GDX looks great here on the 1 mi and appears to hae accumulated today's pullback.

And JNUG (3x long Junior Gold miners) not only shows the steering divergence, but a strong leading positive divergence on today's pullback.

This is the 3x short GDX ETF, DUST, note the deep leading negative divegrence, this is the mirror opposite of GDX's 30 and 60 min charts as well as gold's.

 DUST 15 min is leading negative so it looks like GDX/NUGT are preparing for a move higher.

The 5 min DUST is negative

And the 1 min DUST is the mirror opposite of GDX and NUGT.

I think that's good correlation in multiple timeframes.

I'd take NUGT or GDX long here.

Closing October 18th MCP $1.50 Calls

The equity long position will stay open.

MCP Position Update

MCP is up +2.72%, after being quite a bit more earlier and +27.75% over the last 5-days.

I like MCP still, I think it has a lot more upside, it hasn't even seen a short squeeze yet and it's one of the most shorted stocks in our very own MSI (Most Shorted Index). However it is reaching a resistance area, ,momentum is falling off as you can see by today's daily candle which looks like a star and the 3C charts are showing the same. I'll show you what I think will happen next.

 On a daily chart, I suspected this well defined range was seeing a stop run under it which opens up a lot of supply at cheap prices, volume for the day suggests that's what happened as well as 3C charts, but there still needed to be a reversal process or that rounding bottom possibly with a head fake move which
Volume has looked good on the up days thus far, although today it's looking tired as it hits range resistance.

 My X-Over system gave a confirmed long signal at the 3 white boxes and as is typical, the first several pullbacks were to the 10-bar average, I think the next will be to the blue 22-bar average on a 60 min chart. On a daily chart, MCP is just about ready to put in a confirmed long signal as well which is even better,

The 60 min chart in the area of the head fake and reversal process looks fantastic and still does so I'm not too concerned with anything beyond a pullback in MCP.

The 30 min chart also looks great which also eases my mind about a pullback.

Even the 15 min chart is confirming the uptrend so I'm really not concerned with this being anything more than a corrective pullback to gather some strength before pushing through resistance as this one has already put in more than a +25% gain in 5 days, it needs to shake out some of the weak hands.

 The 5 min chart is where we see the probability of a pullback and that's about as long as the negative divegrence goes out.

The intraday 1-3 min charts look like this 2 min so there's profit taking and this really looks like it will visit the 22-bar 60-min moving average.

I'm holding.

Market Update

Just like the last two trades, closing the core shorts for a quick long trade on 10/1 with 3x leveraged longs and closing those out on Oct. 3rd and re-entering the 3x long shorts which are at a gain since, I'm looking in some odd spots including the 2 and 3x leveraged long and short ETFs of the averages as they often give signals earlier and stronger.

I'm seeing a little bit of accumulation in certain areas today, at intraday lows in fact, but it's not nearly enough to cause me to take any action or close our shorts even on a trading basis, but it is something. I think market breadth will tell us something more about what's happening at this level.

Here are some charts and examples, I'll have some updates on some other assets like Gold and MCP shortly.

 There were two base patterns mentioned last night, a "W" or double bottom (mini) where price comes down to last week's lows, likely hits stops below it and that's the base or an Inverse H&S -looking base, although it will NOT be as effective as a real Inverse H&S bottom.

The most important thing when dealing with H&S tops and even more so, bases, is volume confirmation. A large H&S top developed in 2010 and had traders going short, but they didn't bother to verify it being a real H&S rather than a random pattern. Volume did not confirm the H&S top and a lot of shorts were squeezed as price moved higher. A real Inverse H&S bottom needs volume confirmation even more so than a H&S top, it may be one of the most important volume confirmation price patterns.

If confirmed, they can be a real strong bottom.

This is a custom cumulative volume indicator I create to quickly judge the volume pattern. We should see increasing volume on the advances and decreasing volume on the declines and especially at the head and to the right as it gets more and more important. This is the EXACT OPPOSITE, it's decreased volume on the advances and increased volume on the declines, BUT, it looks like an inverse H&S base and as most traders don't bother to confirm, they can probably get away with it.

What's the difference if both will bounce? The quality of the bounce as one is created from human psychology and real market demand and supply, the other is a ginger bread house created by short term market manipulation.

 Intraday breadth at least saw an uptrend today and hit above +1000.

The longer term TICK shows the trend changing slightly, still early.

As for what I've seen today thus far...

 SPY isn't doing a whole lot intraday

The 3x long, UPRO doesn't look all that good either, perhaps we are moving to last week's lows...

The 3X short SPY, SPXU on the other hand still looks strong intraday so I have no reason at all to close any short positions.

The QQQ do show a little something at or near intraday lows.

 The 3x leveraged QQQ long, TQQQ also shows some action at intraday lows so something appears to be going on, although very early in the process.

The IWM also shows an afternoon positive divegrence at a pivot low...

However if you go out to 3 mins, you can see there's no migration of the divergence, there's still a lot of work that needs to be done before we can call this a base. If anything, the chart above confirms I should continue to hold the 3x short IWM, SRTY even if I were only using it on a trading basis and not as a longer term position.

URTY, 3x long IWM just confirms the same thing.

And SRTY, the 3x short IWM, also confirms the same with a strong intraday chart.

So there's some movement, but nowhere near enough to take action other than manage the current open short positions.

As for the bigger picture, even if we do get a decent bounce off the ground, look at this SRTY 15 min chart, you'd be well justified in just sitting through the bounce and holding the 3x leveraged short, it has a very strong chart and the probabilities favor that the IWM moves lower, no matter how much we may bounce.

Market Update

Despite a plethora or perhaps a cornucopia of bad news overnight, Germany in particular with confirmed slow down and likely a triple dip recession as Industrial Production from Germany was a horror-show as well as Japan's Misery Index and all of the recent talk about a weak Yen (look for this to be a big deal, back in April of 2013 (the posts are linked on the member's site to the right called, "A Currency Crisis"), it's ironic because my forecast back then as Japan was unleashing QE-Zilla, was that the Yen would appreciate at the same time the market moves to a bear market and that is all we have been hearing out of Japan recently, "Defending the Yen", Unacceptable levels in the USD/JPY", "Weak Yen hurting consumers and small business", etc. So I think that's an ironic sign of the times as sometimes long range forecasts, broadly speaking, are easier to make.

I digress... Even with all of the bad news swirling around today including an IMF global growth forecast cut, I still think there's a very specific cycle that is being formed as the market has been doing exactly as we forecasted Friday and the SRTY/SQQQ longs (3x short IWM and QQQ) continue to work well as they were entered Friday after closing URTY and TQQQ longs (3x long QQQ and IWM) which were opened Wednesday after closing SRTY and SQQQ that same day. In essence, we have hit every minor swing in the market, but I'm looking for the evidence of first a base and second what kind of base which will help tell me what we are looking at shorter term, as in week to weeks, I know what we are looking at longer term or continuing , especially if you use the Russell 2000 as your market barometer which I think is most accurate given all the other data.

So in perusing around this morning, here are some things I noticed and you'll see that not everything is as it appears, which is why we wait for strong confirmation rather than guesses.

 My Custom SPX/RUT Ratio shows a short term (week or so) divergence between it and the SPX as it has made lower lows where the SPX has not, although that is one of the basing scenarios, a pullback in price toward the lows of last week. This indicator has been VERY accurate, it's not a Holy Grail, but it has been very effective thus far so I think, unless or until we see a strong signal saying something otherwise from this indicator, it's pretty safe to say we remain in a bearish consolidation, perhaps worse, although I'm not making that case at this moment.

 On an intraday basis it's in line with the SPX with a little recent weakness as of the capture, interestingly, since then the SPX has moved lower as the indicator was forecasting. and now near the lows of the day.

HYG (HY Corp. Credit) is in line on the day almost perfectly with the SPX.

 Taking a slightly larger view, HYG was leading the SPX and then leading it negative and now has a slight positive bias very short term.

 Taking an even wider view (this is the multiple timeframe analysis I was talking about when I said things aren't what they seem if you view the entire picture) we see HYG leading the SPX at last week's lows, it did the same at the August lows on 8/1 and led the market higher and overall it's still leading for what I would call a short term move that may be around Swing+ (week to weeks if everything plays out perfectly and as expected).

 Here's the larger view or primary trend that is essentially telling us, no matter what happens from a bounce perspective, it's just a matter of time before the market is in a full blown bear market.

HYG's 3C charts are important as well as to where it's going, how much support it will give.The 1 min chart is similar to the market averages, leading negative

The 2 min chart shows the history with a negative sending HYG lower and a positive at last week's lows sending it higher and a current negative similar to the market averages.

I'd think this would have to firm up a bit before we could look at any "potential" bounce seriously, especially trading it.

The 10 min chart shows clear distribution areas sending HYG lower and our most recent positive with a slight relative negative right now. HYG leads the market so these charts and how they develop over the next day or so will be very telling.

 Pro-sentiment Leading Indicator is in line with price so no short term help there as of now.

Yields are also pointing lower so I continue to think a pullback or more of a pullback is still in store which could be an inverse H&S pattern or "W" bottom or perhaps these divergences just give way and we head lower, this is why,  we confirm.

 TICK improved modestly today, on the upside though there's no trend, it's all on the sell side.

Intraday QQQ 1 min had a small negative this morning and that resolved with a move lower

Taking a wider view of the same 1 min QQQ chart, you can see the negative divergence is bigger than thought from the chart above.

 There's a potential 5 min positive divergence, but it's hard to give it too much weight because a lot of it's formation is due to the heavy distribution at the QQQ's August cycle top.

I do think we bounce, but I think there's still work to do to get there.

IWM 1 min in an overall leading negative divegrence...

SPY 1 min was in line

A wider view of the same chart shows the dominant divergence is in leading negative position.

And the 2 min showing distribution at the chimney (igloo top) and the first positive divegrence, but much too sharp to be a sustainable base alone.

 ES 5 min is still in leading negative position so I'll stick with the SRTY/SQQQ long (IWM and QQQ 3x short) positions until I see something that moves me to take some other action.

The 15 min chart is reasonable, the positive divegrence and the negative divegrence because any bounce is in need of a larger base, this represents what I've been forecasting since last week.

The 30 min chart shows essentially the same with a little bigger positive at the lows of last week.

However, this ends one way, the same way the long term HYG chart predicts or long term 3C charts, ES 4 hour is leading negative so this is the highest long term probability. In other words, in the absence of a bounce, we should expect moves to new cycle lows, then counter trend bounces followed by a move to a new cycle low and so on.

TICK today is mushy like yesterday without much direction, but definitely on the negative side at -1500 and solid -1250 whereas on the buy side it has only hit +1000 once or so.

I'm still looking for either an inverse H&S price pattern, I doubt it will be a real Inverse H&S or carry the effectiveness of a real Inverse H&S, or perhaps some sort of "W" or double bottom. I'll stay in the shorts until I see something SCREAMING to switch trading positions, however if I'm not a trader, then I just sit patiently in my shorts and I believe I'll be very happy for having done so.