Market Update Series

I just went through my daily ritual of going through 10+ different Futures from Index to currency to Treasury, gold, oil, VIX futures, etc and I do this in at least 8 multiple timeframes for each, about 80+ charts which obviously I can't post all of them here, but I keep track of what is doing what and then look for the correlations. Today is a bit more complicated than usual and the market can move fast so I'm going to break these down in to smaller pieces, perhaps individual assets, etc.

The market put in a strong 1-day oversold condition Monday, it put in the reversal process and bounce divergences yesterday with HYG support to do that and then our first hint that something was amiss even in a short term oversold bounce that is used to sell in to or short in to (so we should expect to see distribution signals) , was this morning in the A.M. Update when I posted the ES / SPX Futures chart with the excerpt,

"One thing though on the chart above, that's the 3 min version that was positive yesterday, note it's negative today in to the gains overnight, so is the 1 min intraday and the 5 min that was also positive yesterday, it appears there has been quite a bit of selling in to this oversold bounce."

Yes, there was little doubt that the overnight Futures bounce had already been seeing distribution in to higher prices and that's also what we have seen in the cash market of the major averages most of the morning. This runs counter to the concept that once Wall Street sets up a bounce as they did yesterday, they rarely abandon it before running it through the entire cycle and using price to their advantage which would be to sell in to and short in to in this case. It's just they were at it extremely early overnight and this morning.

One of the more interesting hints is High Yield corporate Credit as it is the first lever they turn to when needing to bounce or support a market that otherwise isn't strong enough to do it on its own and while not a huge positive divergence in HYG, they did set it up yesterday. Today we have seen some pretty drastic changes considering the perspective in HYG, it seems to me that whatever they may have seen as the potential in the bounce (which is significant), they have since come across some information that increases risk to the downside SUBSTANTIALLY.  They are smart money, we don't know what they know, we can however see what they are doing.

In any case, putting together all of the different futures charts and their correlations is a bit of a puzzle that I';ll put together, but in the meantime, the reason I have not closed the IWM calls opened at the close yesterday which I could have done at the open for a decent double digit gain, is because there's still a pretty large reversal process in place for the kind of bounce we were looking for, the price percent change thus far has not fulfilled the opportunity of this bounce and I'm not sure whether this is intraday Tom-foolery or the real deal as it's fairly rare for a cycle that has been set up like this to be run over unless they know something extremely significant, which we would not hear about until it has happened.

There are inconsistencies in some of the charts like VIX futures which are not behaving the way I'd expect to confirm plain old bounce failure, thus I'm looking for the best objective evidence before jumping to conclusions and I'll have to do that in pieces as the task is pretty large.

From a reversal process (for an oversold bounce) perspective, here's the SPY...

Remember the bounce off the June 15th lows/support at the SPX 150 sma, stage 3 top can be seen to the left, then stage 4 decline and at #5 the typical volume surge or flameout of an oversold/short term capitulation event with an expected lateral base after which formed and is still in place despite this morning's intraday moves. This is still very capable of posting that move that should at least make a convincing move ABOVE the SPX's 150 sma, not just a move, but a convincing one that traders will chase, that's the only way this entire set-up is of any use to smart money.

For the moment, here's HYG intraday again...

 HYG 1 min intraday is in line with the downside.

The 2 min chart which was in line at the green arrow saw a negative divergence this morning sending it lower, but larger, possible short term capitulation volume is building in.

While in perspective, the 3 min chart still has a positive divergence that hasn't been over-run yet, thus HYG is still potentially dangerous as a market lever until that 3 min chart is broken. Beyond a very short term oversold bounce, you can see the divergence is no where near the downside previous divergences/trend, so this is not anything above or beyond a potential oversold bounce, even if that were to look extremely impressive.

This is a closer view of the 3 min chart, it may turn negative, but this positive divergence built yesterday is still in effect meaning the distribution intraday in HYG has not been so heavy as to migrate to that timeframe yet.

This is far from the only reasons I'm still investigating this area, VXX/VIX futures have signals near term that don't confirm a market break to the downside immediately, they should confirm if that was the fact, but they aren't yet. As I said, I just went through 80 different timeframes of multiple futures that all have correlations to each other, so I'm sorting through them and finding the most probable outcome before just giving in to price action which is often deceiving.

However, word to the wise, NOTHING we have seen would cause me to take off our core/trend shorts. There's no bounce that would see me close those positions as they are aligned with the path of least resistance for the kind of trades they are, trend positions. So no matter what happens very short term, I would not consider taking off those positions , which as I said Monday saw a simple core short portfolio of 4 positions at a 7% 1-day gain and a 14% 1 week gain and we have barely gotten started on primary trend downside.

More to come... We'll have to put this together like a puzzle.