Broad Market Update

I'd say judging by the overall tone of the market today, last night's Daily Wrap Dominant Price/Volume relationship and the Sector indications, were right on...

"The Dominant Price/Volume Relationship was Close Up/Volume Up which is the most bullish of the 4 relationships, but ironically it also tends to lead to a 1-day overbought condition most often seeing the following day down....

Eight of nine S&P sectors closed green led by Financials at +2.47% with the safe haven Utilities lagging at -.43%.

We also had 227 of 238 Morningstar groups close green, overall not bad at all, but both imply the same thing as the Dominant P/V Relationship, a 1-day overbought condition."

As for the example charts mentioned in the Week Ahead post, here they are (the SPY is a good overall example).

 Since 3C charts most often pick up where they left off in the cash market (even over 3-day weekends), I'd say the intraday 1 min negative should see Monday open weak. However, right behind that is the 2 min chart...

This isn't weak and this is why I said I think by noon-time some strength will filter in to the market, but this is really small potatoes.

The same thing is apparent with the QQQ 1 min, negative

And while the 2 min is a little negative, it should lead to mid-day or late day strength.

The IWM is the same (2 min).

And while the 3 min is a bit negative, not enough to keep it from pulling it back together, especially given the IWM hasn't hit the minimum targets and for that reason (I believe) has better looking charts relative to the other averages.

Here's where we get in to the more important trend changes. The 3-5 min charts have been where the based formed and about as far out as the divergence (positive ) went... 

 You can already see damage on the SPY 5 min and just compare it to the last top areas and divergences in the SPY (5 min).

While we are not there yet, we are not far at all.

The same is apparent in the QQQ 5 min, deterioration on the most important chart for this bounce.

The IWM went a bit further out to 10 min, as I said it has better looking relative charts, there's some damage, but it still has a bit more to go to at least hit the minimum targets posted last week.

At the 10 min chart where the next trend is lining up (down), you can see clear and heavier damage, certainly in line with the divergences that sent the SPY lower from each of the previous pivot highs.

The QQQ 10 min needs no commentary.

And the IWM 15 min is again stronger relative to the other averages, the minimum target is the yellow trendline, After that I think we see heavier selling in the IWM and more deterioration along the lines of SPY and QQQ.

 SPY 15 min is already or still leading negative, this is the intermediate or sub-intermediate trend vs the current short term trend, we should return to this trend and lower highs/lows.

The equivalent for the IWM is the 30 min chart. Remember the range in the IWM and Crazy Ivan shakeout we were looking for above the range and the fact we expected it to be a head fake/failed breakout, there it is in the yellow box, since then ther has been even more damage done here.

Finally the HYG positive went out to the 5 min chart, you saw the HYG charts today so no need to post them again, but I did want to show how much damage has been done and how quickly. I suspect early next week HYG will be leading to the downside in actual price and at that point, the market shouldn't be far behind.

I may post some additional information after taking a quick look around, but I think this is a pretty fair summary of expectations in to next week, we've had a pretty good bead on this market so far with the bounce and what is now showing up as more aggressive than usual selling.

Have a GREAT weekend!

The Week Ahead

While I do not think we are done with our bounce we have been expecting and are really only a few days in to, I think we are seeing more aggressive than normal selling like we saw on the attempted 1/6 bounce that was prematurely but short on 1/8.

I suspect it probably won't take too much longer (in to next week) for the bounce to start to fail, leaving us some good opportunities to set up some nice short positions or add to.

I am still waiting on a few leading indicators to give clear signals , but this can happen very quickly.

As for early action next week, it looks like early weakness on Monday, although I think it will regain some strength in the later part of the day or some time afternoon-ish.

The important base-charts are seeing damage so I think we are getting very close, I'd still be patient.

The next trend in multiple timeframe analysis continues to deteriorate so it's already set up for a much nastier move to the downside.

Finally I think the IWM/Russell 2000 outperforms the other averages early in the week as it has not met minimum targets and has some better looking charts relative to the others.

I'll post some example charts just after this.

In addition, don't forget the damage already seen earlier today on Index Futures which is just additional confirmation.

NFLX Trade Set-Up Follow Up

I'm aware there are quite a few of you either in NFLX or wanting to get in so as a follow up to the post earning's NFLX trade Set-Up and yesterday's NFLX Follow Up, here are today's charts.

This is one of the stronger moving divergences out there, but if you check the original Trade Idea, the position is not ready in my view until the 15 min chart is taken out, this is the one that was set up to send NFLX higher to fill a large gap, despite really crappy earnings and it's the one I'd be patient and wait for, I think if you do that, you'll have a really nice entry and longer term trending position.

 Remember this week's extensive comments about "Perception" being the driving force behind the market, NFLX is a good example of that as earnings really stunk, worse yet, guidance was off.

I don't see any reason for NFLX to have made the post earnings move it made other than the large gap that I'd think some middle men got caught off guard and had inventory at those higher levels.

As was also mentioned, specifically in shaping perception through price action, the 15 min chart looks like a perfect set up to move NFLX no matter what the earnings were, shaping the knee jerk reaction of perception and allowing those middlemen who were caught on that gap down with inventory at higher levels to alleviate that problem.

 NFLX intraday today so the pounding in the 3C charts continues, one of the strongest divergences out there.

This is a longer view of the same chart so you can see the extent of the leading negative divergence.

The 10 min chart is seeing movement to a new leading negative low so I'd think it won't be long before it migrates to the 15 min chart where the entire set up took place.

15 min "W" bottom, more than enough gas in the tank to fill that gap. We'll know things have changed once this chart goes from in line to negative and judging by the depth of the divergences, I don't think it will be too long.

Market Update Part 2

In taking a wider look at some things, honestly I didn't find what I was expecting, although I can't argue with the HYG divergences posted in the last update, Market Update or the Index Futures 3C charts.

I did find what I already knew I'd find in yields as they have been trashed today, not only in the US, but globally.

5 year yields suddenly and deeply dislocated on the day.

10 year yields as well

And 30 year yields.

Here's a longer term view of how yields tend to pull equities (SPX in green) too them.

 30 year vs SPX.

HY credit wasn't constructive, but I thought maybe it would look a bit worse.

What did change in the mean time is the market averages suddenly look a lot more like the Index futures' charts.

TICK is trending subtly down.

 SPY intraday leading negative

SPY 5 min leading negative

 QQQ 1 min

 QQQ 3 min  negative

And the next stage trend, QQQ 15 min continues to deteriorate.

IWM 3 min hasn't really even crossed the minimum upside target, so I would not expect to see a lot of selling as of yet, but the 3 min chart is showing something today.

The shorter 2 min is quite a bit sharper.

The way things are setting up now would be more in line with the breadth indications from yesterday for a 1-day overbought condition and a red close today.

While I didn't find everything I thought I might find, yields are certainly no joke, they are one of my favorite indicators and they are severely dislocated today.

Market Update

I can't get as much information out in this update as I'd like just because things move pretty quickly and I'd like a little more time to take a look at some other assets and indications which I'll post in a follow up.

Thus far today is acting like a normal options expiration max-pain pin day (open near Thursday's close, range bound price, no big divergences)...

 SPY intraday range today.

The Daily IWM chart with a Doji Star today, again a very tight range intraday.

Intraday TICK is rather range-bound too.

TICK isn't in an ultra-tight range, but is trending laterally and not seeing much in the way of extremes.

This is also in line with yesterday's Dominant Price/Volume Relationship and market breadth indications, both suggesting the market calm down and maybe even close red today.

Looking through the averages, I see several signals here and there that are starting to jump out, I don't think we are seeing any thing suggesting this bounce is at an imminent reversal, so I'd try to remain patient, I know it can be difficult.

The one thing I have found with the market averages is that a few have deeper negative signals, all in to higher prices as we have expected and waited for (smart money doesn't sell in to lower prices unless it's a Black Swan Event), but there's not very good confirmation between the averages where some of the stronger signals may be seen in one, they aren't in another which would normally just tell me that we are still in the bounce process and to continue to be patient and let it work through it,  the signals will show up.

However, it is not that simple and I am seeing some things that are at minimum showing selling in to price strength, distribution and perhaps something even more... perhaps that, "Aggressive" selling we saw in on the first bounce attempt the first half of January.

I'm seeing this more so in Index Futures and some early signs in Leading Indicators which is the area I want to look at more closely.

 ES 1 min is nearly perfectly in line with 3C, this looks like the typical max-pain options expiration pin. The only time (on TF or NQ charts), I see any divergence, has pretty much been a "steering" divergence to keep price in the peg range or in the NDX futures' case, some distribution signals, but otherwise, nothing too exciting here and really more in line with what I'd theoretically expect to see on an op-ex pin than we usually see.

 It's the longer charts where things are showing real movement like this ES 5 min which was negative yesterday and continues today . This is a clear indication of distribution/selling inn to higher prices. 

As to the question, "When is the reversal to the downside?" the answer really would mostly be, "When we see deep enough divergences that we know all of the gas in the tank form the accumulation stage is long gone" in addition of course to other indications that tell us the market is setting up for a new trend change like HY Credit, etc.

 The 15 min ES chart shows the base area (white trend line marks the approximate breakout level from the base area) and negative 3C divergences in to higher prices. Interestingly, even today when prices haven't moved much higher, but are still elevated above the accumulation range, we see a leading negative divergence which may be the evidence I was talking about in regard to the same "Aggressive" selling that caused the early January bounce to fail on the 8th.

 The 30 min chart gives you a view of part of the accumulation zone/base as well as 3C distribution in to higher prices. This is a pretty serious timeframe and the moves that occur on this timeframe are fairly large.

Just like yesterday, I see an intraday positive in VIX Futures.

On a 5 mi chart of short term VIX futures (VXX) there's a leading 5 min divergence in place and building. This is one of the leading indicators I need to do some more analysis of.

 TLT (20+ year bond fund) shows a positive divegrence at yesterday's lows and a gap up today, sending yields lower.

And what really grabbed my attention... HYG, High Yield Corporate Credit, which is one of the mainstay ramping levers used, it's such an effective giveaway that it has been a big part of makoing every major call through the entire year from the September highs to the October lows and rally, to even this most recent move's base.

 This intraday (1m) HYG 3C chart is more aggressive than I'd expect given the kind of day it is and the other 3C charts on other assets which are much closer to inline intraday.

This looks to be migrating since the ECB statement to longer charts, this would be early in the process, but it can happen quickly.

Even the 5 min chart is showing the migration of the much sharper 1 min negative.

This is a dead give-away when we have a strong signal. I'll be the first to admit that 1 or 2 days does not make a trend and it's dangerous to make assumptions based on the limited information, that's why I need some more time to look closer at these assets , but so far it looks like we are in the process already of seeing these levers getting ready to pack up and leave the market's bounce as they move back to their longer term bearish trends.

I wanted to get this post out, but at the same time I do have more to look at and I will update you.

For now, just like earlier in the week when I said we are still expecting a move higher, I'd say be patient, we are still in the process. However, we might just be seeing the very early, initial signs that this may not be as long lived as the base's gas tank might suggest.

Quick Silver Follow Up

Just as we expected a gold/GLD pullback, earlier this week on Wednesday, Precious Metals: Silver was posted which also made the case for a gold pullback as well.

SLV is down nearly 1% this morning. I thought I'd update the charts as there are a few really nice ones showing among other things, a clear change in character in 3C as well as the 4 stages of a trend (mini).

 This 10 min chart may not be as detailed as some of the shorter timefranes, but these longer trend charts are often very useful for spotting a basic change in character which usually leads to a change in trend. In this case I'm talking about a shorter term, swing trade-plus like trend, but the concepts are all the same.

Again, I didn't draw on the chart because I think the divergence from in line to negative is fairly clear.


 As for the 4 cycles or stages of a trend, again I haven't drawn the normal divergences on this more detailed 5 min chart, but the first (white) is stage 1 accumulation, the second (green) is stage 2 mark-up and red is stage 3 distribution. With a pullback, we'd technically be in stage 4 decline, but just like GLD, SLV also looks interesting on a longer term basis, although silver has been so manipulated over the last several years, it's not my favorite asset, but we'll see what it looks like on a pullback.

And on a 2 min chart, you can see not only the divergence, but the price change in character from a smooth mark-up to a more parabolic increased upside ROC in price to the trend starting to roll over.

Gold Update

It's no secret that we have been expecting a decent pullback in gold with a recently added GLD put position, Feb 20th 121.

However, if you've been following our analysis of gold and gold miners over the last year or so, we've also been seeing hints of a larger primary trend developing, a new trend since the 2011 top we called. Price action and 3C charts seemed to take a break for a bit and things cooled off, but it looks like those same longer term expectations that we had been seeing develop, are on the grid again.

First though, we are looking at a pullback, we may find a good buying opportunity in a pullback, but we'll let the charts tell us whether a pullback looks constructive or not (whether there's accumulation of the pullback).

 GLD's weekly chart showing a clean "Mark-Up" trend at the green arrow and a stage of excess or a change in character in which the price action sees an increased ROC to the upside at the orange arrow, peeling away from the trendline, which was one of our first clues in 2011 that gold may be topping. The large Descending Triangle on this weekly chart is NOT a consolidation pattern, triangles of this size are generally tops or bottoms depending on the preceding trend. Also note the head fake move in yellow to the left before GLD really started to break down, losing about -40% from its highs as gold sentiment in 2011 was feverish, as if it could only go one way which was up. Dow Theory describes trend stages and the different sentiment/perceptions at each, we use the same in our 4 stages of a trend.

The white arrow and the flat or lateral trend in GLD is where we first saw evidence in both gold and gold miners that something might be up, as in a large base for a new primary uptrend. We haven't broken out of the triangle yet, but note the head fake or shakeout in yellow )to the right) just before the most recent move up got underway. This is our head fake concept directly preceding a change in trend and useful as a timing indication as well as an excellent entry point for long or short positions (depending on the trend).

We probably see these head fake moves in one form or another at least 80% of the time just before a reversal  and this concept is fractal, meaning it works on a weekly chart like this just as well as with shorter timeframe trends such as a 5 min chart or a swing trade as well as working in just about every asset I've seen. The one thing these head fake moves all have in common , however they appear, whatever timeframe they are in or whatever asset they are in, they all contradict what Technical traders have been taught or brainwashed about how price action "should" behave over nearly a century.

 On a daily chart of GLD, this is the far right side of the descending triangle I suspect is a large base, in yellow is a shakeout/head fake move which was accumulated and a move higher which started to see the same excessive move as we saw on the weekly chart in 2011 just before a top was reached (the increased ROC of price to the upside). In this case it looks parabolic (orange) with tall upper wicks on the daily candles on heavy volume, indicative of churning and closing off the highs each day. Then a Doji Star (common reversal candle) yesterday followed by oday's move lower thus far of about -1.2%

 On an hourly chart, this is the head fake area or shakeout, the way we differentiate between a true break down and a probable head fake move is checking to see whether the move is confirmed or as in this case, is accumulated suggesting a head fake move or shakeout, essentially grabbing shares on the cheap as long term support is broken while also creating a bear trap that will eventually lead to a short squeeze and the kind of parabolic rise in price.

This is looking much more interesting as a long candidate, but again, we'll see if there's a decent pullback as I believe and if it is accumulated which I think is a high probability.

The 10 min chart shows an in line status, a pullback that was accumulated and the first real negative divegrence of this trend.

 The more detailed 5 min chart shows the same thing, although I'm trying to avoid drawing on the chart too much because I want you to get use to seeing divergences on your own as they are some of the most powerful signals in almost any indicator you use and this is a good example of both positive and negative divergences.

 On an intraday basis, we have been looking for a move down and near term 3C action has suggested we are in the area.

As for Gold futures (e-mini)...

 The timeframes differ a bit, but this 60 min /YG chart show the same divergence and expectation for a DECENT pullback, one that may be worth buying.

The 30 min chart shows the same

 And the 10 min chart shows the same with a rounding top obvious as well.

And near term, the 5 min chart has been negative.

So for now, it's just about management of the short position / puts, but at some point we should see accumulation of a pullback, a reversal process start to take shape and at that time we'll look at gold and make a decision as to whether this is the right time for a longer term long position.