Daily Wrap

I tell you about the concept often, 3C charts pick up where they left off and as of Friday's The Week Ahead forecast, no matter how unlikely it seemed last week, we did in fact see the events described Friday today. Here's an excerpt from Friday's Week Ahead forecast:

" thus far I have not put out the VXX long call/add-to call, one of the reasons is this SPY chart (1 min), if we close like this then the concept of 3C charts picking up where they left off kicks in and the most probable outcome would be some early week/Monday market strength"

And so it was, that's not to negate the rest of the forecast for the week as quickly addressed in today's late day, Market Update.

Getting one's head around the events surrounding Greece is challenging. I just admit that when Syria came to power and vowed to beat back the Troika and austerity, I was SURE they had a plan "B" that would allow them to be as obstinate as they wanted to and have a back-up plan to fall back on if that didn't work, but these rank amateurs have just been obstinate with no plan "B", ready to let Greece fall in to the abyss of default. If you're going to run your mouth and tell your creditors the way it is going to be, you better have a plan "B" that wields a big stick.

I remember talking to my then best friend about 20 years ago as I was a huge political and economic junkie, always on top of whatever the latest news was (which has since become tedious and hopelessly depressing) and agreeing that we, as 20-something year-olds, we would see incredible, unimaginable changes in our lifetimes. Y-2k seemed to be one of those events, although it amounted to a tempest in a tea kettle, but who would have imagined the events of September 11th?

Since then, events may not be as dramatic as that day, but in the long run they are just as amazing, just as damaging, just as unbelievable when you understand a little about what is happening (even more so when you don't understand at all). I followed all of the Greek bailouts and each time said to myself and to readers, that the EU was seemingly incapable of doing anything right and was the most incompetent organization I had seen, although the US political system is a close second, especially with the latest out today that the Chairperson of the F_E_D, Janet Yellen has essentially told Congress the F_E_D is above the law in not submitting documents in the supposedly ongoing criminal probe in to F_E_D leaks. I suspect because as we all know, if the truth ever came out about the F_E_D's activities and leaks, there would be a strong case for a F_E_D-less US, decentralized bank. That's just the way of the world where the banksters are the real power, powerful enough to tell Congress , who has oversight over the F_E_D, to go shove it.

The Greek events over the weekend, covered earlier including making EU-Finance Ministers and staff wait 7 hours, until past midnight to submit a proposal and let them crunch numbers all night only to realize that they sent the wrong proposal AGAIN and didn't send the correct one until this morning leaving the Fin-mins no time to come to any conclusions and another totally wasted weekend for the Finance Ministers and staff of all EU countries because of either Greek ineptitude or just pure stalling tactics/games that will garner no sympathy from those meant to recommend direction to their various heads of state in the upcoming summit that Greece requested after talks broke down last Thursday with the head of the IMF saying there was no point in having dialogue with the Greeks because that would require that there were adults in the room. Today had numerous similar expressions from the EU finance ministers. This means at the earliest, the Finance Ministers may come together again Wednesday or Thursday with the heads' of state summit on Thursday/Friday, cutting it awfully close to the IMF pay,meant deadline of $1.6 bn Euros on June 30th, about 4 days after the summit ends- that's the D-day, no more deadline extensions, gimmicks to bide for more time, a final , hard date.

In any case, you've pretty much seen the charts as they developed today. The gap up/early week strength based on the SPY 3C closing charts Friday with apparent weakness building through them today. I can't really add much more to that other than to refer you to the EUR/USD charts that are not looking great for the Greeks, in today's post, EUR/USD, Greece and Goldman.

I did look at Leading Indicators in to the close and there were no surprises there either, just the same deterioration and strong leading signals that point to some nasty market downside.

Leading Indicators...

 VXX/Short term VIX futures outperformed most of last week, I suspect they are in the area of finishing the wider reversal process I was hoping to see from last week as well as being an overall good signal for the broad market which trades opposite VIX futures / VIX. VXX vs. the SPX in green shows early confirmation in the normal correlation vs the SPX (green), but then fails to move lower (red) as they normally would and then in to the close are a bit weaker than normally would be expected. We tend to look at the market and see increasing price as bullish, but that's not always how the market works. If you are smart money and are not consumed with each intraday or day to day tick of the market, but have a wider perspective on the probabilities, wouldn't you want to buy VXX as cheaply as possible?

If I invert the SPX (green), you can see the normal correlation (in which VXX should move with the SPX) vs. the relative performance on the day. Last week showed VXX protection if almost all week.

 This morning was about in line as the chart above this one showed with a failure to move lower at the red triangle and then holding a bit lower than normal in to the afternoon.

Meanwhile VIX futures showed better looking intraday charts suggesting those lower prices were being accumulated, that's the way of the market despite what most people think.

 VIX futures intraday with a leading positive divergence in to afternoon price weakness.

UVXY (2x leveraged VXX) intraday trend leading positive and...

The inverse XIV with a confirming leading negative divergence.

Pro sentiment indicators refuse to improve...

Pro Sentiment has been negative since the forecast Ma head fake/false breakout above the SPX large ascending triangle with price deteriorating since then and Pro sentiment refusing to chase risk(SPX in green).

 High Yield corp. Credit was seen deteriorating last week even though its price managed to support the market by staying nearly perfectly in line or rather the SPX staying in line with HYG, however that changed today in to early week price strength, not where you want to see this happen if you are a market bull.

Note the end of day weakness which was sharper than the rest of the day's failure to confirm as it has for 3-4 days last week.

The intermediate picture of HY Corp. Credit vs the SPX in green with a leading negative divergence and slight correction at the green arrow to act as short term market (manipulation) strength for last week. The bigger picture is quite ugly as you see above, but it's worse.

 HYG leading the market at "a" and then in line at "b", at "c" we have a primary downtrend with a correction which is now a sub-intermediate downtrend at the yellow lower highs/lower lows which isn't far from a new primary trend (red) lower low.

This is important because of the basic concept of Credit leading, stocks following", which is why we use it as a leading indicator both short term and long term/big picture.

HYG's intraday 3C chart has been negative, but saw extra damage done today at a new leading negative low so I doubt it has much if any support left and should start moving toward that new primary trend lower low soon.

These Leading Indicator charts should all look familiar, they are just worsening each day.

 30 year yields which have been working as a leading indicator and tend to pull equities toward them show a buy area where yields lead the SPX (green) up at the white "U" and down at the red "D" with an overall negative placement today, but higher than Friday's close, likely allowing for the early week price strength from the Week Ahead forecast from Friday.

 The 5 year Yields in red (the normal yield I use) shows the same leading with yields pulling the SPX up at the white arrow and down at the red arrows with recent SPX price action above yields as they are a LEADING indicator, and as such should see the SPX/Averages move down toward their reality.

 Commodities as a risk asset work in similar manner, the white arrow is where commodities are leading the SPX higher, the red arrows where we have signals for commodities to lead the SPX lower.

 And High Yield Credit, but not the HY Corp. that is often used for short term manipulation, again falling to new leading lows below the SPX (green) and longer term or bigger picture...

Once again lie other leading indicators, they break and head lower at the May head fake or failed break out attempt above the SPX's large ascending triangle.

Of course for the Dow Theory fans, the divergence between Transports (blue) and Industrials (green) and the red histogram showing transports going from a momentum group to lacking in leadership to outright diverging with the Industrials (non-confirmation in Dow theory), and quite bad which is why transports are one of my favorite longer term core shorts ands why I have price alerts set for any upside move we can use for a 3rd entry.

That's pretty much where we stand as I have been updating these nearly daily.

I can't help but come back to Greece as it seems that too many have become accustomed for too long to these prolonged "bailouts" , specifically relating to Greece in which in the end, no matter how ridiculous or unsustainable the deal has been, they were saved near the last minute and I think the assumption among traders by looking at risk assets and the EUR/USD is that this will happen for ...what, a 4th time now? I think that's very dangerous and one of the reasons I posted the EUR/USD, Greece and Goldman post today because it seems someone with deeper pockets is betting that this is not going to end well and honestly I wouldn't be surprised as I have never seen such an inept, 3rd world government in the heart of Europe.

I wondered outlaid Friday why the ECB would continue lending Greek banks through the ELA (Emergency Lending Assistance Facility) when the prospects of a Greek deal look so grim. There may be a reason and while I hate to say it, it may just be true that the ECB would like to see Greece fail.

As of Friday the ECB lent Greece another $2.8  bn Euros as Wednesday's regularly scheduled ECB meeting increased the ELA, but the flow of funds out of Greek banks swallowed Wednesday's Emergency lending uptick so Friday in an unscheduled ECB meeting, they lent Greek banks less than they requested, but another $1.8 bn Euros to a new record of $85.9 bn Euros lent to Greek banks via the ECB (European Central Bank). Since Friday's newest allotment from the ECB, Greece has seen withdraws of an additional $3.2 bn Euros, to which the ECB allowed another $1.9 bn Euros in ELA assistance today to a new record high of $87.8 bn EUR, supposedly enough (according to the ECB) to last the day while negotiations were underway, but you've already heard what a mess that turned out to be.

This now puts Greek deposits and collateral that were used to borrow against (via the ELA and EFSF)  generously at $120 bn euros with ECB funding (through various facilities) now at $126 bn, meaning the ECB could pull a bail-in that wipes out all Greek collateral and deposits as the ECB has lent more than combined Greek collateral and deposits. In other words, if you remember the bail-in from Cyprus in which depositors of $100k or more (I believe) took a massive haircut (most Russian), the exact same could happen in Greece, except it would wipe out ALL Greek depositors. Is that the ECB's end game? The nuclear option?Of course likely by tomorrow the Greek banking system will need to borrow more from the ECB or risk capital controls, perhaps closed banks, etc. What if the ECB pulls the plug? Schaueble and Noonan (German and Irish Finance ministers) were asking for something pretty close to that today.

As for the market, I showed the daily SPY and the star daily candle looks bad, but I'd think it would be more reliable on some real volume...

A gap fill, Doji star, but volume isn't high which tends to make these reversal candles very effective. We expected early week/Monday price strength, however that doesn't preclude tomorrow from putting in the daily candle/volume reversal I expect to lead to weakness through the rest of the week after the initial early price strength materialized (bounce from Friday), which was today.

While we did see the concept of 3C charts/price action picking up where they left off on Friday's closing 1 min positive divergence, after the open there was very little the market could do and especially once Europe closed (red arrow) as has been the trend.

Internals...

Where completely lopsided/overbought in the weakest of the 4 possible Price/Volume Relationships among the major averages. The Dow had 25 stocks in the dominant P/V relationship, the NDX with 78, the R2K with 1120 and the SPX with 350 of the 4 possible relationships. All were in the same Dominant Price/Volume Relationship, Price Up/Volume Down, the most bearish of the 4 relationships and absolutely dominant.

Of the 9 S&P sectors, 8 of 9 closed green with only Utilities in the red,  another 1-day overbought signal and of the 238 Morningstar groups, 198 of 238 closed green.

Take all 3 internal measures and we have a massively 1-day overbought condition, most often ending with a red close the following day with the P/V relationship showing internal weakness beyond the 1-day bias.

As for futures, we have some possible game changing events near term, although it's hard to believe a lot of the Greek news/headlines. Apparently, as I was wondering when this might come,
European Central Bank President Mario Draghi told Greek Prime Minister Alexis Tsipras in a meeting on Monday in Brussels that the ECB will help secure the country’s banking system as long Greece is in an aid program, Greek government official tells reporters on the condition of anonymity. Again, this is an unsourced rumor, but one has to wonder just how far in the ECB would go with nothing to secure additional ELA funds, so it sounds reasonable.

A bit later from the AFP, although again unsourced, 

"Greece has accepted the principle of extending its current bailout programme which expires at the end of the month so as to keep it afloat while a long-term debt solution is worked out, Greek government sources said Monday.

"For the first time, we accept the extension of the programme as the only way forward," one source said as eurozone leaders discussed Greece's future in the single currency ahead of the June 30 end of its current aid program."

Before I get in to too many details, we've already seen one detail from none other than Merkel herself, "MERKEL SAYS THERE WAS NO DISCUSSION OF EXTENSION SCENARIOS ON GREEK BAILOUT " 

As for futures right now,

ES doesn't appear to be reflecting a game changer, but I'll check it again later tonight and report back if anything looks unusual.

Remember the entire premise of last week was an extraordinarily bearish sentiment starting the week, one which would be easy for Wall Street to use to tip the boat by creating a perceived support zone at the SPX 150 sma.

It seems that sentiment flip-flop or flipping of the sentiment boat has been handles with the last 3 daily candles showing either bearish long upper wicks or a bearish day below the open like Friday.