Daily Wrap: NOT Looking Good

While the strange looking overnight "management" of futures was captivating, essentially ensuring they didn't break down before the bare minimum sentiment changing mark of SPX > its 50-day dma was met, something nearly slipped under the radar in this day and age of economic data falling well short of expectations, yet we are told by the F_E_D that the weakness is transitory, that it needs to be doubly seasonally adjusted and other random excuses to hide the real reason the F_E_D needs to hike which I believe is because they see the next recession coming and at ZIRP they are effectively going to have to battle it with both arms tied behind their back unless they create some breathing room.

We had an exceptionally tight overnight range, flat really until Retail sales hit at 8:30, then it seemed like bad news was good news as ES futures lifted the market on less than half the average volume today.

Speaking to both ideas of something the F_E_D is more afraid of than what rate hikes will do to the economy and that something possibly being the next economic recession, I leave you with Bloomberg's take on Retail Sales this morning which came in at the worst level since the Lehman crisis.

Retail Sales

Released On 7/14/2015 8:30:00 AM For Jun, 2015 Prior Prior Revised Consensus Consensus Range Actual Retail Sales - M/M change 1.2 % 1.0 % 0.3 % 0.2 % to 0.6 % -0.3 % Retail Sales less autos - M/M change 1.0 % 0.8 % 0.6 % 0.1 % to 0.8 % -0.1 % Less Autos & Gas - M/M Change 0.7 % 0.5 % 0.6 % 0.2 % to 0.6 % -0.2 %

Highlights The second-quarter suddenly doesn't look very strong as retail sales for June, showing broad weakness, came in way below expectations, at minus 0.3 percent. Motor vehicles were part of the reason, excluding which sales came in at only minus 0.1 percent. But excluding both autos and gasoline, core sales fell 0.2 percent. The bounce back for gasoline prices has given gas station sales a lift the last couple of months, up 0.8 percent in June following May's 3.7 percent surge. And there's also two strong gains for the key general merchandise category which is up 0.7 percent and 1.4 percent the last two months. Electronic & appliance stores also show a solid gain, up 1.0 percent in June. But that's where the good news stops. Auto sales, though still at strong levels, fell 1.1 percent against an unusually strong May. Furniture sales fell 1.6 percent, apparel fell 1.5 percent, building materials fell 1.3 percent, and restaurants fell 0.2 percent. The fall in restaurant sales doesn't speak to the strong levels of consumer confidence that are being reported, readings that the Fed has been pointing to as a future indicator of strength for consumer spending. A look at year-on-year sales underscores the complete lack of consumer punch, at only plus 1.4 percent for total retail sales and only plus 2.7 percent for the core. This is a very disappointing report that will cut second-quarter GDP estimates and that will likely push back the outlook for the Fed's rate hike from September to December, at least for now." It's easy to say the market took bad news as good news, especially given Bloomberg's last paragraph about the F_E_D being forced to put rate hikes on hold, unless of course rate hikes are their way of creating elbow room to deal with the next recession. Either way, today's price action was not out of character with the base in place for this bounce as I have posted numerous times over the last 4-5 trading days. However with E-mini (SPX) futures at half their average volume, I'll tell you the same way I'd tell a close friend, I feel nothing but relief that I didn't get involved in sharp "V" bases like AAPL, AAPL Update, that I took the IWM calls off the table at a minor loss rather than what could be a large loss, Closing July 17th IWM $125 Calls and that I understand a bounce on volume like today's is reason for concern. Honestly if I had done different, while probabilities are not usually very high to see an extreme gap against a move like the one in AAPL on such a weak base, I think I'd have trouble going to bed without watching the computer all night. While the VIX Inversion buy signal from our custom indicator was/has been right on with 3C support at a base to support it, Remember there's no target or implied move, just a bounce/buy signal. Meanwhile, once again the VIX had to be whacked lower to support the market again for the second consecutive day,  this was true of the VIX and VXX for the second day in a row, however... Intraday the VXX showed late day strength vs its correlation with the SPX (SPX prices are inverted to show the normal correlation). So weak volume in the E-mini's, a managed overnight market and still the need to Whack-a-VIX to support the market with end of day improvement in VXX vs the SPX correlation. Meanwhile among other Leading Indicators, I showed you the High Yield Corp. Credit accumulation as early warning of a move to pull a lever of support for the market before the bounce got started and earlier today I mentioned something not sitting right suddenly after yesterday's HYG distribution.  This is HYG's trend vs the SPC on a 5 min chart over a period of months, you can see what happens to SPX bounces without HYG support and you can see what has happened in HYG over the last day or so as the SPX bounces. I pointed this out intraday earlier today, but this larger chart shows the true extent of the problem when relying on manipulative levers to ramp the market. Intraday HYG is supportive and leading the SPX in the white box, but after yesterday's HYG distribution, all of that changed today with HYG closing in the red. Last week I showed you the first positive divergence in our Pro sentiment indicators, the first since May indicating a bounce this week was likely, but...  The last couple of days have seen dramatic deterioration in those indicators such as our primary Pro Sentiment above and... Our secondary confirmation version. This is NOT normal behavior for leading indicators so early in to a bounce that "should" have more support and that "should" need less lever/manipulative support. As a reminder, the divergence in Pro sentiment indicators since the head fake move in May is not a small one as it appears on the intraday charts above... Pro sentiment vs the SPX since February with the head fake move in the SPX (yellow) in May, that's where the Leading Indicator went divergent and has only gotten worse since with a positive divergence last week that has already failed leaving the indicator sitting at a deep leading negative divergence. Yields which has been leading as a Leading Indicator... lost their leading edge yesterday and added to the negative dislocation today.  Commodities which had also been leading as a risk on indicator lost steam yesterday and compounded that today except our long in USO which gained in after hours tonight.  Also HY Credit with its first leading positive indication since the May head fake sent it lower has also turned on the SPX with its second day out of sync and lower (worsening). HY Credit since the SPX's head fake in May (yellow) and the bigger picture deep leading negative divergence. Suddenly it's not so hard to see how the SPX could slice right through its 200-day moving average as has been forecast the same way it did with the bounce off its 150 day moving average. Afternoon 3C action in the averages saw some pretty ugly signals on some pretty strong timeframes like intraday 45 min charts.  SPY leading negative intraday in to the afternoon on a 5 min chart!   Nearly the same thing happened in the Q's, also a 5 min chart intraday which is a very strong intraday move. As fr the 10-15 min charts, non confirmation just as the last bounce failed with a leading negative divgerence this one is well in to the same kind of divergence. As you know, I'm a believer in the reversal process a good 80% of the time rather than reversal events like AAPL's bottom from last week, I'm hoping we get that reversal process and the time to set up new positions for the downside pivot. I feel like I'm jumping the gun a bit in saying that on Tuesday with a bounce I expected to last through the week, at least bounce and reversal process started through this week, but I can't interpret leading indicators, HY Credit, this 3C deterioration and Index futures volume in a much better light and I don't have any reason to root for one side or the other, I wanted to see a bounce to re-establish positions like VXX long/calls, various shorts in to price strength and I still think we get that opportunity  but things are a lot uglier than they initially looked making me glad to have taken VXX put gains, taken that small IWM call loss and being ready to enter new positions at a moment's notice. This is exactly what I'd say to a friend (as many of you are). If the data changes, I'm more than willing to change with it, you do know what my forecast was for the week, I just can't get over the amount of widespread deterioration nearly everywhere we look in one form or another both days this week. As for USO, there was a knee jerk move lower on the Iranian deal before the open, as I said in the A.N. update, it will take a good 6 to 12 months before their oil supply hits the market so the knee jerk down was sort of foolish and it was retraced. Tonight we had the API inventory dat (tomorrow morning the EIA inventory data)... both Brent Crude futures (above) and WTI (USO) jumped on the API data as there was an inventory draw of 7.3 mn bbl.! That on consensus of a 1.2 mn bbl draw, so the USO calls that are already near a double digit gain (entered yesterday, Trade Idea: USO SPECULATIVE (Long) Bounce) should see a nicer move tomorrow, although we do have the EIA data released at 10:30 a.m. If you missed this trade and are interested, we still have the next set up that should be available for an even larger trend soon. If overnight futures look like I suspect they'll look, then I suspect we'll be busy adding short positions and new trades tomorrow, of course I'm only going on what I've seen the last 2-days, but I'm not seeing anything that looks normal for a bounce here, it looks like accelerated deterioration in a process that's normally pretty predictable. When the SPX's 200-day moving average is broken, I view that as the break of the market and would say watch out below. We've had a fairly predictable set of lower highs and lower lows right at the May head fake/false breakout, but a break od the 200-day changes sentiment and if you've never seen fear at work in a market, let me just say it's much stronger than greed. For now, that's the data the way it sits, I'll update you on any changes, but I'm to say the least, NOT IMPRESSED. Have a great night,  oh and the last thing I heard, the IMF may pull out of the Greek "Troika" bailout, the IMF puts the "T" in Troika.