Daily Wrap

I was really surprised last week / Friday at the number of supportive emails and members doing well last week, I had a very hard time with 3C signals and as we saw earlier this year, when that happens, there's a reason and it usually becomes clear in retrospect. This is just one of many reasons I require substantial objective evidence before entering a trade.

Around last Tuesday when we correctly forecast a head fake move in the SPX below the 200 dma and a short squeeze back above it along with the typical accumulation of stops hit at/below the 200-day, everything went according to the forecast EXCEPT the accumulation of stopped out shares.

Since the May head fake move (yellow)  on the daily SPXC chart, we have seen lower highs and lower lows. At the white arrow we saw the head -fake stop run below the SPX's 200-day moving average and the resulting short squeeze to close higher as expected (white row) we just didn't get the accumulation/objective evidence that would normally have us entering new bounce/long positions and good thing.

 This is why we didn't enter a lot of new bounce positions because something wasn't right, something that we expected to happen and almost always happens didn't. The 3C signals were horrible almost all week and only started improving Thursday and by Friday were finally clear, but as mentioned earlier today and last week, when we don't have strong 3C signals as objective evidence there's usually a reason why. Looking back in retrospect, there was nothing wrong with the 3C signals, they were right on, they told us that beyond short term trades we were best off staying clear of new positions and here's the evidence in retrospect.

From Friday the 2nd of July's close to Friday the 10th of July's close, the SPX moved -0.01%, that's it. We had several nice short term trading signals, but for anything beyond that, it was simply a meat grinder that went literally nowhere and 3C wasn't missing anything, it was giving us the best warning we could possibly ask for if we stuck to the signals. It was frustrating at the time, but in retrospect, just as we saw earlier this year, it was dead on.

As of Friday, we expected a bounce this week, a bounce in which it's entire process would take up a majority of the week. From Friday's The Week Ahead :

"The 15 min charts are magnitudes stronger and their trends have improved significantly, they are showing large accumulation areas and a large base area. Their near term (next week) highest probability is a pretty darn strong bounce.

I'm looking for intraday charts early next week to exhibit some weakness and start to accumulate on a pullback, that pullback could be a gap fill or a new low stop run, after that the 5-15 min charts should take over and take us higher until they start to fail at which point we'll be looking at new or additional short positions in to price strength/underlying weakness/distribution.

Today is the clearest the charts have been since Tuesday, but that's typically the case the last 2 hours of Friday when we get the best 3C data of the week."

We didn't get the early week pullback, but at this point I'm not sure we need it. We did get an absolutely flat market after the initial "Greece is fixed" gap up and it wasn't until the VIX was whacked that we saw any price gains in the last hour of trade, again, the market needed to whack the VIX for some short term support.

As I said last week, these aren't oversold bounces, these are risk off bounces allowing pros to sell in to strength and to do that, they need to be convincing looking moves. The last 3-days have given us the biggest 3-day move this year and as we saw today, it was distribution right off the bat which is likely what held the market so flat after the opening gap up until the VIX was smacked down in the afternoon to give price some upside manipulation.

 beyond the gap up, most of the major averages were dead flat until the last hour or so of the day.

This of course was with a VIX Whack, SPX prices in green are inverted to show relative performance.

However as we saw last week, our VIX Inversion (BUY) signal, so far has been right on as it has in the past.

 Each of the white bars=VIX Inversion/Buy signal, although they don't have specific targets, they have led to a bounce overtime they have fired since we have started using this custom indicator.

 Our custom SPX:RUT Ratio has also been supportive of the market bouncing, but today as we saw some form of weakness everywhere we looked...

Even the SPX:RUT Ration was showing weakness in to the close which may be why they needed to whack the VIX (and VXX).

Even High Yield Corporate Credit which had the same 10-15 min positive divergence as the averages late last week suggesting a bounce through this week, saw some daily and late day weakness too as well as HYG distribution intraday.

HYG (blue) vs the SPX (green).

HYG in blue vs the SPX (green), note it doesn't follow the market higher in to the afternoon.

 There was an obvious attempt to ramp the market in the afternoon as the 1 min HYG 3C chart improves in to the afternoon, but...

The 3 min HYG chart shows damage had already been done by then.

I wouldn't call this a dead end to the bounce, but it clearly had trouble on its own without na lot of manipulation/help.

It wasn't just HYG though...

 Pro Sentiment which was supportive last week just fell off a cliff today.

Here's a closer look intraday, as I said and as we saw nearly everywhere, pros were selling in to price strength.

And our confirmation (secondary version), showing the same intraday, especially at the last hour of trade.

Yields which were leading the market higher last week, also fell today.

 30 year yields (red) vs the SPX fall short today

Here's a closer look-not so great intraday.

And what was up with the EUR/USD?

Suddenly EUR/USD (purple) doesn't look at convinced that Greece is fixed vs ES, or perhaps the bounce was never about that.

 Commodities (brown) weren't exactly risk on on the day...

Nor where they intraday vs the SPX.

 And High Yield Credit with the first positive divergence since May seemed to give us notice of the bounce this week, but once it started, they lagged badly.

Here they are intraday vs the SPX in green not buying the late day ramp which seems to have been VIX whacked inspired.


Although prices did move out of the flat range, especially for the QQQ with the best move on the day...

 The Q's did see heavier 3C distribution in to higher prices out of the earlier flat range.

The IWM tried to improve, but also closed worse on the late day ramp.

Remember this is a process, distribution doesn't mean an immediate reversal.

This SPY 10 min chart like the QQQ and IWM is essentially the gas in the tank. Until this goes negative, this market has the gas in the tank to move higher as was initially expected of this week.

As I said, I don't know that a gap fill is necessary at this point, I don't think we are talking about a 3 week bounce here, the gap will be filled on the way back down, but the tome today everywhere I looked was selling in to price strength which is exactly how the expected bounce was described well over a week ago (initially expected some time last week), that means selling in to price strength which is what we have seen.

As to futures, I don't think this move is over on the first day, but remember, all new divergences start on the earliest timeframe and work their way out as they get stronger. The strong timeframe as of last week suggesting a bounce this week was the 10 min charts like this one of ES.

 This is the 10 min ES chart that suggested clearly that we bounce this week in addition to the market averages.

However intraday, the 1 min ES chart just keeps getting worse going in to the overnight session and it's not just ES.

This is the NQ 1 min chart

And the TF 1 min chart.

As the divergence gets stronger it migrates to longer timeframes.

Like this 3 min NQ chart...

Or this TF 5 min chart and thus far today...

The negative divergence has made it all the way out to the 7 min chart (ES).

There's definitely distribution in to higher prices which is what we expected in a bounce, we also expected that the bounce be impressive, in a downtrend it has to be to change sentiment and we are in a downtrend since May.

The daily SPX with lower highs and lower lows on the daily since the May head fake/failed breakout. Prices are right at resistance in the area of the 50 and 100-day moving averages, I'd think that they'd need to break above at least the 50-day here to be convincing, it would also give more ground and demand to sell in to, but make no mistake, I don't see this as anything more than a counter trend bounce, they can be and usually must be impressive, but the phrase, "counter trend" should tell you all you need to know.

For now it's about position management, UVXY short and looking for the pivot to the downside and the best looking assets to use that price strength and pivot to short into whether with options or just equity shorts.

This is what we expected, I can't complain about the way the market looked the first day in to it.

I'll check the overnight charts as they look pretty bad on the intraday Index futures above, if it looks like we may have some sort of surprise in the a.m., I'll let you know, but as I said, there's still gas in the tank, there's still an obvious resistance level that readers will want to see broken before they jump in with both feet (SPX 50-day) and there's still a process like most everything else in the market.

Just a word to the wise, Greece is getting all of the attention, but the market is going to be focussing more on the F_E_D and soon China's luck is going to run its course.