Daily Wrap

With Investor sentiment confirmed by AAII and INVI near all time ditzy highs; Margin Debt as a percentage of the SPX at record levels; Valuations of the SPX on a cyclically adjusted basis at levels that have only been higher at 1929, 2000 and 2007 (which happens to coincide with deep market corrections or worse) and much more (I could just keep going on), I'm reminded of the phrase, "When everyone agrees, no one is thinking".

We saw one of the worst global data days in a long time from Asia to Europe and the US, PMIs were horrible, yet bad news is still good news? It didn't seem like the minutes yesterday were a confirmation of the F_E_D Put, in fact it seemed distinctly like the F_E_D was telling the market that those days are over, which goes back to me post from earlier about the F_E_D playing both sides as long as retail is on the wrong side and smart money is set up in advance, but don't take my word for it, the chart with Bullard's hawkish, dovish and now hawkish statements that have coincided with pivot highs lows and now are quite clear in this post, The Plunge Protection and Market Correction Team and if there was any doubt the F_E_D is still in "Stealth bank bailout mode", all of the information is right here, Tin Foil Hats No More, Follow the Money as Goldman and the NY F_E_D Are Exposed

For the second time this week we've had the VERY strange VIX "Fat Finger" trade, 3x in a single day both times and at the close both times, here's today's... what in the heck?

 VIX Fat finger trades? I don't think so, not twice in a week (ES in purple).
I found something else just about as exciting as the VIX buy signal and ever shrinking Bollinger bands...

VIX sell and buy signal and VIX up since the buy signal with pinching Bollinger Bands, always a great signal for a highly directional move in VIX...

What did I find? Well take a look at the chart again as volatility dies down after the European close and the market flattens out...

That's 3C today...Interesting.

According to at least one site, the SPY's max pain for op-ex is $199.00, although I don't create or follow these calculators myself so I can't go to bat for them, I can say volatility is rising, I know that might sound strange after the SPX closes up only +.20% and the Dow +.19%, but intraday trade and small caps are but one sign of many. And some of the 3C closes today weren't exactly confidence inspiring...

 QQQ in to the close...

However that may be partly due to its patron saint, AAPL that didn't have the best looking close either, I'll be looking in to/Updating AAPL a lot closer tomorrow.

With the DIA looking very similar...

 DIA 5 min intraday as well as the Dow...

Transports... I'll also be looking a lot closer at them tomorrow, although we have a full position open.

The recent market proxy, Financials also not looking great today...

XLF-Financials, one of my favorite short plays.


Trade today after the European close was notably flat, not really worth hanging around a fade/day trade.

SPY after the European close this morning...

Unlike yesterday, the Russell/Small caps led, but the R2K and transports are STILL red on the week.

Treasury yields dropped after the European close likely had a lot to do with flat afternoon trade...

Yields provided early support but leaked off in to the afternoon, not helping the SPX.

but why were Treasuries heading higher/yields lower?

Perhaps this 3C chart of 30 year treasury futures had something to do with it?

And these might just be good confirmation...

 TLT (20+ year Bond Fund) seeing distribution on the opening gap sending yields and the market higher with strong accumulation in the afternoon and the inverse of TLT, TBT providing the exact same confirmation as TLT and 30 year treasury futures...

TBT confirmation

Although HYG's ending ramp didn't help the SPX or NDX, it did help yesterday's under performer, small caps/R2K at the close as HYG just closed green on the day.

HYG vs SPX (green)... Although I do believe HYG's short term positive divegrence of a day (likely leading to today after being under so much selling pressure, is resolving, I will keep a close eye on it, HYG Update

The USD/JPY did nothing for the market today, but the AUD/JPY stepped in for support, but I suspect that ends tonight as the AUD looks like this...

 AUD currency futures

And the USD/JPY, well it looks like it's troubles are not over yet...

On a 5 min chart the decline from overnight is starting again.

It doesn't appear that the USD/JPY is going to help the Nikkei 225...

If both of these head lower we may be in for some real trouble and that $199 SPY max pain op-ex pin might not be far off.

After all...

3C is perfectly confirming our Sunday night projection of a parabolic low, a dead cat bounce and a move back to a new Nikkei 225 low as futures above show 3C very weak on the dead cat bounce this week. Again, this is shaping up to be a very interesting night for Nikkei, USD/JPY and Index futures on the whole.

HY Credit diverged from stocks after the European close, the trend is off the chart bad, we've never had such a large divergence in HY Credit vs the SPX.

As for market breadth, While the Dow didn't have one, the SPX, NDX and Russell 2000 had Dominant Price/Volume Relationships, this time Close Up and Volume Down, the most bearish of the 4 relationships with 45 NDX stocks, 918 R2K and 179 SPX.

Of the 9 S&P sectors, 5 of 9 closed green with Energy leading at +1.755 and Consumer Staples lagging at -.43%. Of the 238 Morningstar sectors, a fairly hefty 182 of 238 closed green, approaching the Overbought levels.

There was nothing especially interesting about Breadth Indicators that wasn't posted last night except many are now on their 3rd trading week of absolutely no movement despite the market making a new SPX high (+0.20%).

However the one interesting thing as I posted about a week ago, I'm getting pretty good at seeing changes in character well before they register, I posted one in the SKEW index or the Black Swan (Market Crash) Index, tonight it has hit elevated levels on a strong move upward as deep out of the money puts are now being bought, I wonder why?

SKEW in the red zone at 136, up 12 percentage points today alone!

Tin Foil Hats No More, Follow the Money as Goldman and the NY F_E_D Are Exposed

I've always been a strong believer in the fact fundamental analysis is flawed, Technical Analysis is used against traders and Mass Psychology is poorly understood, and all of this in one way or another comes back to illegal information sharing at the highest levels.

We've seen the 3C hints on F_O_M_C days that there was a leak, not often, but when we saw it , it was clear as day and we traded it immediately.

So it was little surprise when in 2013 we found out the F_E_D had leaked the F_O_M_C minutes about a day and a half early to approximately 154 Institutional and Private Equity Funds via email...

Minutes Leaked From the F_E_D... As Always, Beware the F_E_D Knee Jerk Reaction

I can't count how many times we have featured Goldman Sachs trade recommendations that are ALWAYS wrong, of course they are on the other side of the trade.

Then came the leak of Goldman's ties to the NY F_E_D...

And Secret Recording Inside the NY F_E_D

And my article just over a week ago, after Bullard's comments had an eery market moving effect, but only once Wall St. was positioned...Going both ways, up and down....

The Plunge Protection and Market Correction Team

And now we can talk about the issue without tinfoil hats, but it seems, "Follow the money" is still the best source of analysis...

Today from Bloomberg...

Goldman Fires Bankers After Getting Confidential F_E_D Info

We can safely take off the tinfoil hats. Corruption? Yes. However, money moves the market, so we keep following the money....

Enjoy

Intraday Fade Trade

This morning I posted Fade Trades for those of you who are in to intraday/day trading.

"I'd like to see this morning's opening indications as some of the gaps have taken out the last 2 days trade, but if I were to engage in fading the opening gap, it would be in the SPY and maybe the IWM, not so much the QQQ at this point until we see something. ES and TF at least have small intraday divergences on the open"

"and I wouldn't be attached to it too long.... (to the trades).

As you can tell from the above excerpts, on a fade of the gap down (remember market makers and specialists as well as HFT taking over those roles had a lot of inventory from yesterday's closing levels and the gap down that took out the intraday lows of the last 2-days) the SPY and IWM were my favorites, the IWM turned out to be the best performer by far.

However by 11 a.m. I was already posting distribution in Fade Trade Update

"The gap fill in the averages (which in 3 of 4 took out the lows of the last 2 days on the open) is coming along with intraday negatives as the averages pass the gap area, they seem to be getting worse so I figured a warning is appropriate ...The SPY divergence especially has been moving the fastest."

By 11 a.m. the move was for all intents and purposes done. You could have made a little more through the close, but the market exposure risk at that point in my view wasn't worth an extra +.005% in the IWM and almost nothing as the SPY and Q's were essentially flat from there.

Another post was put out at 12:14 p.m. Fade Divergences are Worse, by this time there was no edge in staying in the trade.

 SPY early positive and chop through the rest of the day.

When in doubt, go to the longer timeframes as the 1 min above is choppy, the 3 min has a cleaner divergence.

The QQQ 3 min has a very clean divergence and worse yet...

The 5 min again is showing what looks like distribution in to any strength.

HYG Update

I'm trying to gather as much data as I can for market timing purposes, I honestly can't say that I would bet against the probability of a sharp drop, stronger than this rally. I personally will NOT try to trade around even a 1- day upside move that I feel as certain about as I did the GLD drop yesterday morning. Personally, I'm all in, if I had any more dry powder, I'd be using it now regardless of timing as the macro trends are overwhelming. It's sort of like losing that AAPL -45% decline I had been making a painful case for as everyone loved AAPL at the time as it hit new highs, simply because I decided to chase a small bounce rather than just stay in the short position, a painful lesson to this day.

However I want to provide the best information I can for you as I know we have all kinds of traders, investors, managers.

I was concerned with some HYG charts, however they may already be resolving themselves. 

I wanted to do a macro update with as much information as possible, but things are NOW moving exceptionally fast so charts I captured 5 minutes ago may look different and I'll try to give you the most updated information I can, thus I have to break up these updates.

*The caveat is, while short term charts are moving quickly as I perceive a near term exponential increase in volatility, the MACRO charts are not changing, they are the highest probability, they are far beyond historical norms in uncharted waters, thus at this amount of destruction in them, they could literally break any minute- again because they are well past any historical precedent which also means they are likely to produce a move beyond historical precedents.

HYG was causing some concern, even though HYG didn't close green the last 6 days, intraday it has supported the market.

 HYG intraday again today below yesterday's close and red here at the capture, but moving in support of the SPX (green). It is currently at dead flat 0% which is an improvement from this capture which shows yesterday's close as a red hash mark.

The charts of concern...

 This 10 min chart in to a rounding bottom, not a big base, not a base that can support much of a move, but a base all the same and positive at that.

Since my concerns, the 10 min chart has been moving leading negative intraday which is a large move for a 10 min chart intraday,  thus the issue may be resolving a;ready and no longer a cause for concern.

Intraday note the positive divegrence as support for the gap fade trade and through the day the intraday chart has been declining, it hasn't migrated to a 2 min chart, but the 10 min chart speaks volumes.

I'll be updating as much as I can as fast as I can and in a comprehensible and useful way, but likely independent updates, at least through normal market hours.

IWM Charts

I'm trying to complie data as fast as possible, but as always, intraday charts are subject to fast moves and they are often important moves.

One cause of concern I have is HYG charts, they look stronger (3c) than I'd expect, yet at the same time they are seeing distribution through early timeframes suggesting the possibility of HYG being there, intraday to support the market this week including the head fake move, yet still not putting HY credit traders in danger as HYG has closed lower the last 6 days, yet it's something I always want to keep an eye on.

None of this changes any macro or highest probability expectations, this is shorter term in nature.

In any case, these are the IWM charts that I mentioned along with some others.

 Ear;y this morning I mentioned some positive divergences and the possibility of fading the gap as an intraday trade, you can see the positive divegrence in IWM which is more a function of the gap down, it's probably easier to explain in market maker/specialists terms, as of the close last yesterday they had inventory near the closing levels, as of this morning that inventory was at a large loss, thus the gap fill to unload yesterday's inventory near closing levels. This likely explains the VIX smash and dash early today, some of the TLT and certainly HYG action.

This leading 1 min chart is quite deep and fast developing.

 In this 2 min chart's IWM trend which went negative at the IWM's exact high and has stayed PERFECTLY in line with a downtrend since, has seen negative divergences at the head fake (suspected) move of Tuesday and again today there's no support as 3C continues toward a lower low, keeping the trend/price confirmation neatly intact.

However with op-ex (monthly) tomorrow (I'd like to see where some of the calculators are calling max pain, I'd suspect that pin would be lower as bullish sentiment would most likely see more call buying by retail)  and increased volatility since the Nikkei's Sunday night plunge and just after its dead cat bounce (today's open), there's the rising probability of that VIX Bollinger Band Squeeze and buy signal sending volatility soaring higher, of course the market trades in the opposite direction of VIX.

 The 3 min IWM chart also seems to be taking any opportunity at higher prices to distribute (which includes selling short as it is a sale across the tape).

And this is the institutional timeframe of 5 min, the fastest timeframe in which we typically see larger institutional transactions intraday, clearly negative as well.

This is the intraday TICK just as the IWM was starting to see some downside with TICK falling out of the channel and hitting a -1100 low, that's a serious batch of selling quickly in the afternoon when institutional traders are most active.

I see there's a bit of upside volatility since this capture right now around +750.

 Interestingly and I've been watching this closely, you may recall breadth indicators for the most part have not moved at all in about 12 days, over 2 trading weeks, thus I wouldn't expect to see a lot of movement on the custom TICK trend indicator, however, today we see the early positive trend movement and later negative trend movement throughout the day.

Remember with multiple timeframe analysis the shorter charts are going to reflect short term activity while the longer charts are reflecting highest probabilities and larger moves.

Thus the recent rash of deep negative TICK readings just before and in to the (suspected) head fake area and after, are the first significant reading showing a strong change in breadth for the entire trend.

Intraday Update-IWM sharply NEGATIVE

I'm preparing a more comprehensive, important near term update, but meanwhile IWM intraday chart just went VERY negative very quickly. Look for downside

UNG Follow Up

Yesterday this UNG Update was posted. After a move +3.86% higher, many were interested if a pullback was still in the cards to either enter long UNG/UGAZ positions or to add to them.

I covered most of the macro-dynamics of UNG in yesterday's post so I won't repeat that today, but we were also looking at the 3C charts and came to the probability,

"The charts now suggest a resistance area has been hit, remember tomorrow morning the EIA releases Natural Gas inventories...So we are looking for a pullback in UNG once again...

Right now the last pivot high saw minor distribution on a 15 min chart, but as we approach the same resistance level, 3C is not confirming, suggesting all of the gaps recently made below, are likely to be filled in a pullback from here."

Today UNG has started that pullback, down -2.33% and showing positive signals which is what we want to see in to a pullback (institutional accumulation).

The current UGAZ long is still at a 19+% gain, I'm not interested in trying to trade around this one so unless something dramatic changes, I'll just leave it open and treat it as an early trend position.

 Yesterday's daily chart demonstrates the principle of candlestick reversals on higher volume just discussed in the USO update, a concept that is universal through assets and timeframes.

Note the Doji Star at resistance yesterday on increasing volume (churning) which is an indication on its own of a reversal even without the candlestick reversal, but with the candlestick and volume, the reversal's probabilities rise by multiples.

The gaps seen yesterday as potential targets are obvious, there is support (Tweezer bottom) at the top of the orange range, the bottom being a gap fill.

The very same ROC on price principle I talked about yesterday worked just as well for this pullback and is showing positive action in to the pullback as we want to see, but no reversal process yet which should be roughly proportional to the preceding trend (pullback) which is yet to be determined.

Since we have already seen an impressive breakout and consolidation, I suspect we are just about ready to see UNG/UGAZ move up in a much stronger trend and break above the the failed range of January-Jue 2014, thus I'm using a 2-day version of the X-Over Screen which has just given all 3 signals for a new long/buy signal. The first pullback after a new signal is almost always the 10-bar moving average in yellow, thus a 20-day moving average as this is a 2-day chart, this is around our other target areas as well.

At the first sign of a trend, I would continue to use the 2-day X-Over Screen and we'll establish the appropriate Trend Channel stop once a trend is clear.

 As shown yesterday, the 15 min chart was positive at the previous pullback I had warned was coming and would be a good buy area, we also see the divegrence at the resistance area. I fully suspect this 15 min chart will be repaired and positive before a move higher which means some sort of "U" or "W" shaped reversal process, so I suspect we have some time before an upside move, but this may be a good candidate for considering phasing in, not the same as averaging down a losing trade as your risk management reflects the averaging in approach before you enter the first order.

 The 3 min chart shows similar things on a smaller scale, the point being is I expect this will be clearly positive as well by the time UNG is ready for a pullback purchase which is one of my favorite kinds as we get to verify the constructive pullback first, before any entry.

Finally the intraday 1 min is showing a positive divegrence, this is the small process of divergences that accrue and eventually migrate to the longer timeframes above,  so thus far this looks like a constructive pullback being accumulated by deep pockets on the discounted pullback.

Oil Trend Changing...

This is one longer term trade that may very well be worthwhile. Personally I think there's a pretty good chance of a smaller swing trade to the upside, but I believe it is part of a larger range forming or stage 1 base. I personally wouldn't quite be interested in a long unless we had a head fake move below very recent support, however the trend is clearly changing, I can't give you the fundamental reason why it should change, especially in light of Global PMIs today, but something is clearly changing and with a little leverage, this may make for a very nice position trade.

 USO Weekly chart. "To make money you must see what the crowd missed"

What I see is a near textbook, classic Double Top, the measured price pattern implied target is nearby, roughly $27. The large volume recently is a concept we see over and over again on just about any timeframe chart. Look at our exit from DGLD yesterday, it was at the exact bottom and the reason why was increasing volume. This is a clear change in character and changes in character lead to changes in trends.

Even the weekly candlestick pattern is a bullish reversal pair called a Harami or "Inside Day" with a Doji star.

The only thing missing to make this candlestick reversal pattern super high probability is a rise in volume on the 2 bars, however,  I believe that reflects the fact that the base area is not complete or "in the works".

 

 Using a large 2-day Trend Channel that holds the entire downtrend, the downtrend stops out at $30, it may be even lower than that in a few more days as the Trend Channel continues to lock in downtrend gains.

 Look at the down trend line and the recent support clashing together, a few more days and the down trend could be broken here as well.

This is the 2 hour 3C chart clearly showing a top of a H&S type nature, although the neckline could be drawn several ways, the distribution through it is unmistakeable as is the down trend confirmation and recent positive change in character of 3C.

 The exact same is seen on a 30 min chart.

S3= a stage 3 top, S4 = stage 4 decline and the next stage in the cycle is stage 1 base, which it appears is taking hold.

 The 10 min chart has a rounding bottom and a positive divegrence, this is the reason I said I thought there's a good chance of an upside swing trade, but I think it has a roof as it in effect, carves out a larger base range.

 The 3 min chart shows the same so it does look probable that a swing move up starts soon, to even consider this I'd want a head fake move below support for a better price, but mostly to reduce risk. This really isn't the position I'm envisioning though, it's a much larger one as the base looks more complete.

The 2 min USO chart is negative and suggests a pullback and possible head fake is a probability, thus I did not put this out as a trade idea (even as a swing trade) yet.

There's also confirmation in Crude (Brent) futures)..

 The daily Crude futures chart shows 3C negative at the very highs of the last trend, the positive divegrence isn't big enough to show up here yet, but remember the concept of "Migration", so the next longest timeframe for futures I use is the 4 hour chart.

This not only shows perfect 3C confirmation of the down trend, but a positive divegrence which is likely to migrate to the 1-day chart above with a little more base work.

If you are interested in a possible swing trade, let me know. I'll be setting price alerts for a head fake move below local support (60 min chart).