Daily Wrap

I'm a little excited today, a little disappointed, a little on my toes and quite surprised.

I can't possibly make the case I made yesterday (again) which is summed up in yesterday's Daily Wrap , but as most of you know we had an idea of what we were looking for yesterday which is why I left room to add to yesterday's Trade Idea: Opening UVXY (Short) Position .

The gist was a head fake move below the S&P 500's 200 dma, with a move higher from there creating a short squeeze. This was essentially the same model we saw (as described yesterday) with the S&P 150-day moving average before its last bounce before failing and slicing through the average to a lower low.

The daily S&P-500 with the 150 dam (pink) and 200 dam (blue). We were looking for a break of the $2050 level as a head fake move before an upside reversal. It wasn't the previous head fake just below support at the 150-day that led to the last decent bounce that was the model, it was the charts all pointing to this probability and of course our concepts. If our forecast of a move BELOW the 200 dma and squeeze higher hasn't convinced you that these two articles I wrote a while ago dealing with head fake moves, why , how, where, how to use them aren't worth the time to read, then I just can't give you a better understanding or edge in the market.

So once again (and they are always linked near the top right of the member's site)...

Understanding the Head-Fake Move... How Technical Analysis Went From an Asset to a Trap

and...

Understanding the Head-Fake Move... Motivation

Here's what today's move looked like intraday...

The major averages intraday (1 min). You can virtually be assured that there's going to be some trend change around the European close, but the real target seems to have been , as we expected a break under the 200 dam in the SPX and that goes back to how technical traders are so predictable that Wall street uses technical analysis against them which makes Wall Street so predictable that we can call a move like this a day in advance.

I didn't add to the IWM 7/17 $125 calls and I didn't add to yesterday's, Trade Idea: Opening UVXY (Short) Position, both of which I had anticipated adding to, but as I always say, "I'll always check a head fake move for the proper divergences before entering a position". I'd say 99% of the time this isn't necessary, we can see the divergence before hand as was well documented last week and throughly yesterday and in last night's, Daily Wrap , in fact I usually only do it as a means to find the best timing. However in today's case, this was one of the few times that I'm glad I always check.

There's a darn good case for a bounce as we've seen late last week and all put together yesterday,  but this is one of the few times that a head fake stop run that pulls in new shorts as the SPX's 200 dam is broken did not show the kind of accumulation that supports these little bounces that are ultimately sold in to hard. I don't know if there's some new information out there, but as I had suspected late last week and yesterday when looking at the 3C charts for HYG, it looked like Wall Street was investing very little to almost nothing in this bounce, instead they are letting the short squeeze potential move the market rather than absorb stopped out shares as is usually the case. 

The bottom line, I want to do what they do and if I don't see them accumulating the stops hit under the 200 dma, I'm not adding to my positions either.

Here's what things looked like in to the close...

 This is the intraday 1 min 3C chart. Note the positive divergence at the lows/around the European close. The problem here is this divergence is about the size of a simple intraday steering divergence. This is not the kind of accumulation of stopped out shares and of retail short sellers we see at head fake/stop runs like this.

Note that through the day 3C confirmed price action as volume increased with price moving back above yesterday's close, but didn't lead to the upside. However in to the close there was a negative divergence, not huge, but it was there. I was hoping intraday trade would send price lower and we'd get a larger reversal process and stronger positive divergence rather than a reversal event which is what a "V" shaped bottom is.

There's still a chance that price pulls back and puts in a stronger divergence, if that were the case, I would add to the UVXY short, add to the IWM calls and/or enter additional positions depending on how strong the divergence looked and what assets were offering low risk/high probability entries. However, that's just one possibility of several we discussed earlier and we'll only know if it's realistic with a decline in price and strong positive divergence which were missing today oddly.

 Bigger picture leading indicators as well as this stronger 10 min SPY 3C chart are supportive of a bounce from here and the head fake move is one of the very last things we see before a change in trend (like a bounce) so I find it very odd we didn't see stronger 3C accumulation signals at the lows today and below the SPX 200 dma intraday.

 As I said earlier, overall, the SPY's charts look the best, but there's information on the Q's and IWM as well.

 Once again the intraday (1 min) QQQ chart showed a small positive divergence at intraday lows, but this is akin to a normal intraday steering divergence, not the accumulation of a head fake move.

 Our expectations on a head fake move and today's expected price action would have included migration or strengthening of the positive divergence such as the QQQ 2 min chart which should also be showing a strong positive divergence,  instead it's actually showing a negative divergence and distribution in to the close just like the SPY and the 1 min QQQ above this chart.

 The 3 min QQQ chart also should have easily been leading to the upside in a positive divergence, it started to fail to even confirm in to the afternoon and was showing some distribution in to the close as if there were some new information smart money ran in to. We usually don't see distribution , even intraday this early in a move.

 Again the intraday 1 min IWM looks just like the intraday SPY or QQQ with a small positive divergence at the intraday lows ad small distribution in to the close.

 Like the IWM, the slightly longer charts that should have been showing stronger positive divergence were actually weaker like this 2 min leading negative slightly in to the close as it saw some distribution.

 And the 3 min chart seeing no accumulation in to intraday lows, meaning it wasn't strong enough to show up on a 3 min chart,  this is what I mean when I say today's divergences on a head fake move were more like intraday steering divergences than accumulation of supply for a decent bounce.

As you know VXX and UVXY trade opposite the market so if there's confirmation in their charts it should be the opposite of the charts of the averages above...

 We see UVXY with a negative divergence at intraday highs as we'd expect, just not very big like all of the averages above and we see a positive intraday divergence in to the close, the exact opposite of SPY, QQQ and IWM, thus confirmation.

Like the 10 min SPY, the larger 10 min UVXY chart is still leading negative and that's why I decided to hold it, but  based on today's action, I didn't trust this market enough to add to those speculative positions.

This just doesn't feel right.

As for Index Futures, they too should have been positive intraday and at least out to the 3 and 5 min charts which are the bare minimum standard for a trade in the direction of the divergence on the 5 min chart. Lets take a look.

 The ES/SPX Futures 1 min chart which went negative overnight right around the European open, which is what we expected for a move lower in to the cash open and below the SPX 200 dma. Again like the SPY, QQ, IWM, etc there's a small intraday steering divergence at intraday lows around the time of the European close and in the right place, just not the right size and just like the SPY, QQQ and IWM there's late day distribution in to the cash close.

As you know, I don't take any trades unless the 3 and 5 min charts are divergent in the direction of the trade. These charts should have gone leading positive today...

 The Es 3 min chart goes negative overnight around the European open and there's barely a positive divergence at cash market intraday lows, also there's a negative divergence in to the cash close/afternoon just like confirmation in the SPY, QQQ, IWM , VXX, UVXY, etc. This is also seen in NASDAQ and Russell 200 futures.

The 5 min chart, much like the longer intraday charts of SPY, QQQ, IWM above shows no positive divergence at all at the intraday lows meaning it wasn't strong enough to print on a 5 min chart, but the early morning distribution and late day/afternoon distribution was.

While our call on what price action would do today was spot on, this is one of the first times I seen a head fake move not post a strong divergence worth using as a pivot for new trade entries, I would have broken all of my own rules had I added any additional long/bounce positions today.

The problem right now is not whether there may be an additional bounce form here or a pullback and the divergences that are missing will appear, we can deal with that if and as it comes; the problem is that without institutional money's support in absorbing the supply created by today's move lower  (especially under the extremely close watched SPX 200 dma) they have nothing vested in the short term bounce which means rather than see the typical distribution in to a bounce and knowing it's time to exit and enter shorts, this is the dangerous kind of position in which you could wake up one morning this week with a 2-3% gap down with no warning and that's why I chose to leave my core/trend short positions in place along the lines of highest probability and not to add to bounce longs as I had hoped to today. We may be able to add to them tomorrow, we may not. The closing 3C divergence suggests a next day (pick up where we left off) bit of softness in early price, but it's hard to say whether that was middle men setting up for tomorrow morning or simply institutional money selling in to ANY price strength.

Thus, Sitting Tight, was by far the best choice today. Unless you like gambling in the market, it simply didn't give us an edge beyond what we expected of the head fake move and even there it failed to deliver the normal accumulation of supply that would be created with such a move for a short term bounce.

As for some of our Leading Indicators...

 Our SPX:RUT Ratio Custom Indicator was supportive of a head fake move and recovery in to the green for today as of yesterday, however look at the indicator this morning in line with the SPX and then this afternoon as it fails to confirm, just like the ES, NQ, TF, SPY, IWM, QQQ, VXX and UVXY charts in to the close.

High Yield Corporate Credit is the first lever of market manipulation they pull for support and you saw over the last few days how little they accumulation they put in to it, but I almost doubt whether the market would have closed green without HYG's support today. So far it's intraday chart is holding so I'm not too concerned with a sudden drop come the a.m., otherwise I would have closed out the UVXY short and speculative IWM calls.

 If you see last night's post or any over the last week, our pPro Sentiment Leading Indicators had been supportive of a decent market bounce,  what happened in to the close today vs the SPX? Just like all of the other assets I just listed.

 And High Yield Credit had been supportive recently of a bounce...

Again, what happened today as it failed to even confirm the upside in the SPX late in the day?

Greece is not the only fluid situation out there, a lot of people are missing China for Greece and while we may not know what smart money knows, we can often see what they are doing.

Can you look at today's charts and tell me it doesn't feel like they came across some new inside information today?

For now, I'm not panicking, I'm not making any calls without objective evidence, that means we'll watch the market, we'll look in the places others don't and we'll figure out what may have changed. Whatever the message if the market is, that's where we go, I'm no fortune teller and I'm no gambler, so we'll look for the message of the market.

I'd just remind you, the charts are already in on the big picture. Remember the bounce off the SPX-150 ma we projected the same day?

The SPX's 150 dma (pink) and our call for a bounce at the white arrow, then our call for a downside move that slices through the 150 dma at the yellow reversal process.  i have very little doubt that we'll see the same thing happen to the 200 dma in the days and weeks to come, timing depends on the message of the market.

Have a great night!