Daily Wrap

First of all let me apologize for the late start this morning, my internet was down which happens from time to time and I pack up all the computers and monitors and go to my back up location, that was down as well. I had to call in a favor to get to a 3rd location in another city with a different provider, get set up. catch up and get started. It's just one of those things you are subject to when working on line. Heck, I've done a whole dat before with a lap-top in the parking lot of a Panera Bread running off power inverters!

So far our "Week Ahead" forecast with initial/early week strength, turning to a reversal prices and moving to decline has been a pretty clean affair, the only difficulty in all of this is remaining patient and waiting for the forecasted signals to materialize, patience seems to always be the hardest part.

Tuesday's obvious deterioration in Index futures was telling us we ere in to the reversal process from not only Monday's gap up, but the entire mini cycle off the SPX's June 15th lows at support as represented by the second tag of the SPX 150-day moving average on an extreme in emotional sentiment to the bearish side, really a perfect set up. The charts on Tuesday showing what was essentially forecasting price action to the downside since then, can be found here, Index Futures Update.

Tuesday night's Daily Wrap made special mention of the deterioration with all of the Index futures' 5 min charts (the ones that are serious enough to hold overnight), this is one (NASDAQ futures) as an example of what things looked like going in to the overnight session and Wednesday morning.

NQ 5 min 3C chart. This was far from the only timeframe in futures that was showing trouble and a reversal process underway, just the most near term significant one.

This is what the same chart looks like as of just after the close today.

The reversal process which is a bit hard to see on this chart was nearing its end as the 3C chart was suggesting and moving closer to stage 4 decline.

If you remove the noise the cycle is pretty easy to see, stage 1 base off the 150sma-SPX support, stage 2, we even have the peeling away from the trend line that serves as warning of a change coming at the little red arrow, stage 3 as reversals are a process, not an event and stage 4 underway. The 3C divergence through this should also be clear if you ignore my "staging" scribble. In retrospect I'm a little surprised we didn't get an igloo/chimney head fake, but we didn't have signals to call for one either. 

As a concept, "Knowing where you are in a cycle to know where you are gong", I think this is an important one that any trader, trading any asset in any timeframe can use.

In the meantime, the shorter term charts like ES 3 min are showing solid confirmation. This is slightly longer than the 1 min intraday charts that produce some noise as price stalls or tries to get together an intraday bounce, this clears out a lot of that chatter an revealed the 3C trend which is perfect downside confirmation in to stage 4 DECLINE.

If you have followed the forecasts since June 2nd, or even just since last Monday, we are right on track.

SPX daily chart with a 150-day sma. At "A" sentiment was at a bearish extreme according to the "Fear and Greed" Index, you may recall the captures I posted of it and the excerpts from Monday the 15th of June:

"The one thing I don't like is the increased market perception and fear, that tilts the ship too far one way and it's very lucrative for Wall Street to rock the boat in the other direction quickly, stopping out or triggering trades, it''s short term maneuvering that has little to do with the bigger picture, but it makes them money." Monday, June 15th 

The excerpt above was from the same day as the arrow at "A". The reason I wasn't fond of this market sentiment extreme is because it sets up a situation in which a bounce is the highest probability as explained why above and delays the move lower below the 150-day, but it was expected as far back as the April 2nd forecast when calling off areas on a downside move where we'd see some short term support.

The yellow arrows mark daily candles with bearish closes via long upper wicks as higher prices were rejected, The orange arrow denotes a bearish  "Star" reversal candle and the red arrow denotes confirmation of the reversal that is inside the yellow box. The next significant move should be through and below the pink 150 day sma, assuming Greece doesn't get a rescue and a relief rally, which again would not change the under;lying assumptions any more than the bounce off June 15th lows, it's just noise within the bigger picture, but it can be useful just as this move was useful (NFLX short, BIS long, UVXY long, etc.-all positions at better entries, lower risk).

I'm not sure whether it is appropriate to use this as an example of the F_E_D-based knee jerk reaction which is usually wrong and retraced, there are two reasons...

These are the major averages since the F_O_M_C on June 17th, Transports have already retraced all gains, the Dow is just above, followed by the SPX, then the R2K and NDX. The first reason I'm not sure whether it's an appropriate example is because there was barely any knee jerk reaction on the 17th when the policy statement was released and the second more compelling reason is that we forecast this move on Monday May 15th, well before the F_O_M_C meeting even started, much less the policy statement was released.

In any case, this week's commentary by the F_E_D's Powell anticipating 2 interest rate hikes this year, meaning September would have to be the first (the next meeting) and the news yesterday that the F_E_D is NOT prepared to wait for the market, furthering the perception of a September rate hike and possibly 2 this year.

Leading Indicators look right as they have.

 Pro sentiment has fallen off ever since the May head fake move above the SPX large ascending Triangle that was the essence of the April 2nd forecast, the head fake move would fail and we needed that to happen before any meaningful downside would hold. We've seen some meaningful downside and Pro sentiment is not buying in to any short term pops, just selling and it's not just our indicators that have told us this, but the recent BofA/ML net buy/sales by client type with several all time records in distribution taking place last week ("all time" relative to B0fA/ML's data base).

Sentiment today took an even worse plunge if that's imaginable.

 I've already pointed out the primary downtrend in High Yield Corp. Credit and why it's important to market direction as well as my forecast that it will make a new primary trend lower low which its well on its way to doing.

HY Credit which has less short term manipulation than HYG shows an extreme fall off/distribution in HY Credit, recently like it has fallen off a cliff, but just to show how important the April/MAy SPX /market head fake move was...

Here it is on the SPX at the yellow box, the same area HY credit began selling in earnest with an ever increasing downside ROC in price, a near vertical drop off.

Again, it's not the forecasts or the charts that are difficult in trading any of this, it's patience in waiting for the pivots and the highest probability opportunities which we are moving through right now, thus the increase in trade ideas in the "Core short/trend " category.

Again today there was no Dominant Price/Volume relationship which is essentially just telling us that there's no build up of overbought/oversold conditions that may effect the trend of near term price action.

After having reviewed the normal rounds of futures I usually check everyday, there's nothing surprising in Index futures, there is some near term weakness on the $USD chart and some near term strength on the EUR chart, but the longer term $USD chart that has been showing strength and longer term EUR charts that have been showing weakness are still intact so I'm not sure if there's going to be a short term bounce in EUR/USD...

60 min EUR/USD/ The longer term charts I have mentioned several times this week point to a move lower in the pair. I'm not going to jump to any conclusions about the shorter term charts that showed some different behavior as it may just be a bounce or reflecting the flat/consolidation behavior recently, but I'll be keeping an eye on them as they do have implications for other assets.

Today's intraday charts of USO/Oil show some intraday positive behavior, while the intermediate charts are still calling for downside, but I have to be honest, as much as I preach patience  I'm starting to lose it with this range in USO.

As of now the USO equity/ETF short's gains have offset the USO July 17th's put losses (around -20%) and I don't have any serious reason to make changes as far as the charts go. Intraday charts today are far from reason enough to change positioning on this larger trend position, but if the charts start to change or the balance between the USO short 's gains and the USO puts' losses starts to start turning negative, I'll have to take another look at the position. This range bound behavior is not at all what the charts have been reflecting. We saw something similar in gold and it took a while, quite a while longer than expected, but gold did move in the direction the stronger charts forecast.

Other than that, I'll update VIX/VXX again tomorrow as well as TLT/30 year treasuries. If anything should change tonight before I turn in, I'll send out a head's up.

Have a great night.