Daily Wrap

I'll make this quick and informal.

Once again, we saw an overnight ramp of Index futures higher and as 3C early timeframes signaled, exactly what we expected from the as posted yesterday, Daily Wrap,  market happened...

"Toward the end of the day there were some pretty solid positive divergences in the 1 min range mostly, yet not much behind them so I suspected that we'd likely see a move higher tomorrow morning , maybe longer...However, no movement or migration to the 2 min chart which would normally tell me to look for some early gains and then a failure of those early gains."

 SPY gaps up this a.m. on an overnight ramp, shows the early strength and then fades hard.

In fact, the Dow swung OVER 950 points today.

This isn't that much different from Monday, with Friday's Daily Wrap forecast for Monday,

"After seeing some late day action, I'm thinking Monday will see weak opening trade, that's based on how the charts ended the day. These are the 1 and 2 min charts..."

Yesterday's overnight ramp on ECB QE rumors and a fade and then some on the open...

And from Friday's Daily Wrap with regard to what 3C said about Friday's action on Thursday...

 "It was very clear yesterday that we'd have a week start to the day and was posted numerous times yesterday, all based on the concept that 3C divergences pick up where they left off and we left off Thursday with some very ugly ones".

Other than the concept of 3C charts picking up where they left off on the cash open NO MATTER WHAT HAPPENS OVERNIGHT, I think the take-away here is Thursday we saw the first signs of a strange "spook" in the market. Friday, although it was an op-ex max-pain (weekly) pin day, early trade was aggressively sold. Monday early trade was aggressively sold.

TODAY, EARLY TRADE WAS AGGRESSIVELY SOLD. I don't think we can ignore that, since the seemingly spooked market Thursday which I suspect was an early head's up of Obama's "Boots on the ground" in Iraq, the market hates uncertainty.

??Friday and yesterday we have been looking for follow through from Thursday's signals, Friday being an op-ex day we didn't see any, yesterday being down most of the day allowed no opportunity to sell in to higher prices, but today for a brief while, it was different, we were up and the 5 min charts that had started to infuriate me because of no movement, suddenly have moved.

 SPY 5 min, not totally there, but way more movement then we have seen since Thursday's odd underlying 3C signals.

The Q's also moved, not quite there, although you know what we are looking for near term.

And the IWM, just about there, just a little more and a few confirming indicators.

As for next morning signals, it's very difficult tonight as the averages are all over the place, SPY has a 1 min positive, the QQQ and IWM are roughly neutral.

As per today's post,  I think we do get that bounce in Crude/USO, just remember the caveats.

USO ended with a nice leading positive divegrence for the day.


As long as we continue heading in the direction we are, which I suspect a monkey wrench as everyone knows what I just said above about the market the last 3 days, whatever everyone knows, isn't worth knowing, however I'd suspect a short term monkey wrench to throw the pack of the trail and I think the decay of 5 min charts carries on, likely while the monkey wrench is being thrown in there. As I said, they need higher prices to unwind those positions so the two ideas are not at odds, they compliment each other and they give us exactly what we want in doing so.

While the 1 min charts are mixed, ther are some hints along the lines of what I just mentioned above, namely the Dominant Price/Volume Relationship among the component stocks that make up the major averages.

While the Russell 2000 had no Dominant Relationship today, the rest of the majors did, the Dow with 14, the NDX100 with 52 and the SPX wwith 220, the relationship was Close Down/Volume Up. This is EXACTLY the same next day concept as the parabolic drop today on big volume, it typically signals the end of that move and the start of a relief bounce which I suspect we see tomorrow with distribution in to it.

The S&P sectors had 7 losers, 1 gainer and 1 flat. Utilities outperformed at +0.28% and Materials underperformed at -1.12%.

Of the 238 Morningstar groups, 107 closed green, the rest red.

What I like about these internals is that they are not extreme, they do point at a bounce, but not an extreme one which would fit with the 5 min charts falling apart in to some higher prices.

Additionally our SPX:RUT ratio was positive at he lows today with a small VIX Term Structure buy signal as well, very small.

TLT also underperformed at the EOD, suggesting some help as they activate the levers (TLT/VXX/HYG). Speaking of which HYG outperformed at the EOD as well, VXX was in line so they also point to what we have been expecting today.

Yields are still very negative, but they can get worse while the market does it's thing, it would actually be a stronger signal for our timing purposes.

I'll continue to add more trade ideas that are on our terms such as today's, Tech Set-Up (XLK / TECS) along with the others, but remember, WE DON'T CHASE AND WHILE IT'S HARD, PATIENCE PAYS.

If I see anything in futures before I turn in, I'll let you know. Around 4 a.m. tomorrow morning an adviser to the EU Court of Justice will say whether the European Central Bank’s Outright Monetary Transactions program overstepped the law in a non-binding opinion that may signal whether QE must also be reined in. This is going to be a big deal for the market before the US open, however, it's a non-binding opinion and as JPM and GDS have pointed out, ECB QE is fully priced in, at this point there's little it can do other than disappoint if it ever sees the light of day, but just so you know if you see anything strange in the early hours around 4 a.m. EDT.

Tech Set-Up (XLK / TECS)

Let the trade come to you...

Just browsing around and looking at different charts in different stages, I'm mostly looking for charts that already have substantial damage, near term damage since the 6th and the possibility to bounce a bit in to a divergence. After looking at several I really like including SPXU (long)- 3x short SPX, I really like Tech as a short set-up (XLK).

Lets start with the macro or longer term view which is the highest probability over a period that covers a Primary trend.

 Just to establish that Tech has enough damage to hold a longer term primary bear trend, we'll look at these long term charts like this 6 hour, you should be able to see the divergence.

Since the October cycle which has been defining for the market up until now and will be until its lows are surpassed, the 60 min chart shows the entire cycle, but the distribution side of it is much larger than the accumulation side at the stage 1 area at the October lows.

 In what you might call a small H&S type top, the 30 min chart is very clear about the trend in XLK

Now for more tactical timeframes...

 This 10 min chart represents the oversold bounce cycle lows to the right and some others to the left, both sold in to strength with a new leading negative 3C low. Today's action on this chart alone is very interesting.

 We've been waiting since first seeing something wrong on Thursday for some 5 min chart confirmation, Friday was op-ex and not likely to produce anything and yesterday was a down day, not able to produce anything other than to show us that any price gains were sold off aggressively both yesterday and today.

From a tactical perspective, we want the trade to come to us. All of the charts above suggest that any upside move will see distribution in to the move so we are really just looking to confirm that.

 The intraday 1 min found lows like the rest of the market after a parabolic sell off of today's gains. This sets up a short term bounce that we are looking for rather than chasing Tech lower, we let the trade come to us.

The 3 min chart shows no positive strength in to today, so it's another chart suggesting high probabilities of a negative divegrence in to any price strength, confirming what we already see as a high probability and making any move reasonably higher an attractive short entry, either via XLK short (or puts) or perhaps a 3x leveraged inverse ETF like TECS (3x short Tech).

Market Update

This is where the 5 min charts should be cleaned up.

As you saw today, the 1-3 min charts are no longer ambiguous, they used the earlier price gains to sell in to, just look at the intraday TICK all day today trending down. To finish up and clean up the 5 min charts (and this is just from our perspective, from the mechanics of it, it's just smart money unwinding bounce positions like a reversal process, they are large positions and take more time, there's nothing any more meaningful about a 5 min chart to Wall St. than a moving average, they are reflections of behavior).

So you saw the parabolic move stall out and appear as if it will try to put in some upside gains that can be sold in to or shorted in to. The gas in the tank (accumulated shares) at the 5 min charts basically need to be sold off or drained in which case, the 5 min charts will look worse than they already do.

As for Leading Indicators, other than the seriously bearish yields...

 5 year (red) vs SPX (green)

10 year (red) vs SPX (green)

30 year (red) vs SPX (green)

All of which are pressuring the market to the downside... There's not a lot of other movement. There's a bit of deterioration in pro sentiment, but perhaps the biggest change that is underway is HY Credit, it is starting to finally take on a more negative local tone (long term is very negative).

 HYG (blue) vs SPX gave up all gains today and moved to red on the day. The market doesn't follow the HYG 3C divergences, it doesn't even know about them, they just point to the direction of HYG and the market follows HYG's price. Note at the intraday parabolic flameout, HYG went positive in a small area and led the SPX.

There's nothing wrong with this, these 5 min charts need to be mopped up.

The SPX:RUT Ratio in the middle also diverged intraday to positive at the lows and the VIX Term Structure put in a 1 min buy signal, very small, nothing like the one on the 6th or past ones, but indicative of an intraday low probably being established and giving you a chance to get in to some positions without chasing them which would have hurt even intraday today.

As for the 5 min charts, I'd say the Q's and SPY are about the same, definite deterioration, the IWM is worse and just about where we want it so any upside in the IWM would likely open up some small cap short sales or IWM shorts like SRTY (3x short IWM),

 SPY 5 min

QQQ 5 min

IWM 5 min.

This is opportunity. If we can get some price gains and keep these 5 min charts turning down/deteriorating, we have EXACTLY the edge you only get once in a while, this is why patience pays.

Patience Pays

OK, we don't chase emotional parabolic moves, not a good idea.

So just waiting a bit we have a parabolic move and we know what the probabilities of that holding up from here on out are, but as another one of our concepts suggests, large volume on a ROC change or candlestick reversal candle, is a good marker for a change in character, even if only short term.

 Just like yesterday's parabolic opening sell-off, it hit large volume which instead of "Smart money selling " as most technical traders thing, it's short term capitulation, a short term exhaustion event. Check multiple timefrmaes, the longer the better for a reversal. The same happened today, this is exactly the same concept as a daily/weekly Primary trend that flames out with capitulation and ends its downtrend, except this is short term.

 The TICK trend today was clear so a break of the channel is an early head's up.

While the intraday 3C can give you information about this kind of area, you don't need to get fancy.

Apply ROC (Rate of Change) to price and look for the divergence.

Now we are getting somewhere in which selling short in to weakening signals and underlying trade, but higher prices makes a lot of sense. I'll try to keep feeding ideas out, but I think you get the gist. Just make sure to check the slightly longer timeframes and make sure we are still headed in the same direction as we anticipate, although probabilities suggested that before the oversold bounce even moved a point to the upside.

Biotech (NASDAQ) and CELG Follow Up

These are two recent trade ideas, "Let the trade come to you" and short in to strength.

What you'll notice is the rapid deterioration since last Thursday, the day we observed the market spooked over something and as always, we see it in price action/3C long before we ever find out what it is really about.

The 5 min charts haven't had time here in the last hour to make aggressive moves, but if you look at the charts up until and the charts just after, I think anyone can figure out the probabilities pretty quickly. I don't like chasing anything and just because the market is extreme and moving right now, doesn't mean you need to get caught up in the emotional heat of the moment, there are lots of jiggles and jives, although I will say overall both are still in excellent longer term position, about as good as you get for short entries.

IBB/NASDAQ Biotech Index (BIS is the 3x inverse short).

 The 5 min chart is still in line, but again this is recent changes that haven't hit it yet in the last hour.

The 1 min chart showing the market spook we saw last Thursday.

The 2 min chart falling apart.

The 3 min chart falling apart. It won't be long before the 5 min chart shares the same fate.

As for the inverse leveraged NASDAQ Biotech short, BIS (long)...

The 3 min, like IBB the 5min is in-between and hasn't had time to react yet, but just on the other-side of the 5 min...

 The BIS 10 min which is the strongest probability of all of the above timeframes and that is up, meaning NASDAQ biotechs index down.

 CELG was offered as an equity short rather than ETF, the 3 min chart falling apart.

The 5 min which actually put in a positive divegrence earlier than the broad market hasn't had a chance to react yet, but just on the other-side...

The 30 min chart tells us very clearly that the longer term , highest probability resolution is to the downside. All of the 1-5 min charts are more or less just tactical timing, this is the strategic view of where CELG should be heading...DOWN.

I Think We May Have Just Found What Spooked the Market Last Thursday

I have been looking at confirming indicators, which I didn't expect to see much today, although a start.

I haven't had an opportunity to go back and check Leading Indicators since, but at the last check about 30 minutes ago, pretty much everything was in line except Treasury yields with the shorter end falling more relative to the SPX, but the 30 year also not supportive of today's move.

Credit and Pro sentiment remained in line, but not anything more than that, not positive.

As for the averages...the lack of support beyond the 1 min charts from yesterday was taking a toll on price.

 The 1 min charts like this SPY were still being used as intraday "steering" instruments, but not anything of any consequence. The important changes today that have picked up from Thursday's spook, are in the longer charts.

 QQQ 2 min, no support whatsoever, thus as I said yesterday, "Morning Strength which fades" as there's nothing to support the market beyond the 1 min positives from yesterday.

What is more important is we can see the trend of what's going on with those 5 min charts...

QQQ 5 min. I tried not to draw on it too much, but to the right you should be able to make out the movement and it is negative.

Then after capturing these charts which were already looking bad intraday, this...

The SPY has given up ALL gains on the day, something changed and spooked the market around 1 p.m. , just what it is is something I suggested in the recent past in asking "Why is President Obama who is committed to "no boots on the ground" in Iraq" suddenly amassing US forces on the border inside Kuwait?"

My theory... This is one of the only ways for the US to increase the price of oil, get an armed conflict going in the Middle East and Iraq has always been special as a strategic area, it sits right in the middle of all of the trouble makers.

The drop in price, which I suspect is the news the market or parts of it got last wek and we are just hearing now is,

"Bloomberg reports Senator John Cornyn said President Obama told congressional leaders during meeting today at White House he would seek authorization for military force on Islamic State. Boehner’s office, in separate statement after meeting, said Republicans would work with him to build support."

These decisions aren't made over coffee or overnight, I suspect this is what the market got wind of last week,  the one thing that would cause them to abandon a bounce cycle they set up in advance, UNCERTAINTY.

They say, "When the missiles fly, it's time to buy", this isn't so much about buying or war being bullish, it's about the market's reaction in the run-up to a potential conflict, THE MARKET HATES UNCERTAINTY,  so even the certainty of a war starting is certainty enough for the market to stabilize from the uncertainty.

In any case, I'll look again at Leading Indicators, they are probably going to look different by the end of the day.

The move that just took place was on heavy selling and it's parabolic, but in this case for good reason.

 Not much above +1000, but plenty below -1250/-1500. That's real selling.

The 5 min charts are quickly moving toward the point of no return in which they cannot recover, the IWM may already be there.

IWM 5 min, by the end of the day, I suspect it will have crossed the Rubicon.

I'll see what else we have as things are now going to start changing overtly over the uncertainty just introduced in to the market.

I'm not big in to conspiracy theories, but did you hear about the Turkish President who was just in Paris participating in the Unity rally, well as soon as he got back today he claims the French are behind the ISIS/Charlie Hebdo massacre which whether true or not, does have odd timing with this latest announcement of the US President seeking congressional authority for boots on the ground to combat ISIS.

I'll have more for you on oil as well.

Starting to Get Some Answers

Compared to yesterday, it looks like today we are seeing a lot more underlying action which I suspected would be the case, they need upside/demand to sell in to.

The Splitting the Difference- SPX vs RUT post from yesterday seems to be right on as the SPY are outperforming the IWM handily today and I think from yesterday's, Daily Wrap,

"Toward the end of the day there were some pretty solid positive divergences in the 1 min range mostly, yet not much behind them so I suspected that we'd likely see a move higher tomorrow morning , maybe longer. Here's a few examples of what appeared to me to be a weak move getting ready to start... However, no movement or migration to the 2 min chart which would normally tell me to look for some early gains and then a failure of those early gains."

And that's where we are thus far.

Now about those 5 min charts, they are not smoking gun yet, they are not jumping off the chart yet, but they are moving which they weren't yesterday and they are giving us a feel for what underlying trade is doing as they are moving more negatively.

 IWM 5 min

QQQ 5 min

SPY 5 min

All are showing signs of relative negative divergences since yesterday, so the movement I was looking for is taking place. I suspect we keep seeing this deterioration, but that does not mean we are right at a turning point.

I'm going to try to confirm in as many places as I quickly can and then go from there and decide whether it's time to start looking at those short position entries.

Market Update

I'd say that yesterday's afternoon positive divergences and "Picking up where 3C left off" has worked again.

There's already signs of weakness and while it's too early to expect the 5 min charts to have made any definitive moves, there are some hints sprouting up.

First the typical levers and some of the late day moves that suggested a bounce today... VXX, TLT which was losing ground near the bond market close yesterday and HYG which is up and acting as a ramping mechanism, but still in to distribution like yesterday.

 TLT's late day divergence yesterday which sends TLT lower and yields in support of the market (higher) today, still not a big divegrence and the 5 min TLT is still in line on the upside trend.

VXX negative 1 min

HYG neg. 1 min, but it's price that matters as a ramping mechanism which is up today.

As for the averages...

 SPY 1 min is in line.

 like yesterday, the 2 min chart still has not turned in support of the 1 min chart and this may be the undoing of the 5 min charts, but...

As of yet, that hasn't happened in SPY.

 QQQ 1 min late day positive and losing a little steam intraday today on the gap up.

 Again, the 2 min chart has no support, this is why I suspected a move higher early today that may start to fail not so long after.

The 5 min chart isn't telling us anything yet.

However...

 The IWM 1 min never went positive yesterday and is leading negative intraday.

Again the 2 min chart here looks horrible.

The one difference...

There are early signs of the 5 min chart possibly coming apart so we will keep looking for this in the other averages and see what assets are maybe coming in to a target zone for a decent trade set-up.