Daily Wrap

Something definitely feels different about this week and specifically today, you probably have noticed I've been getting more active in putting out position ideas and I suspect more are coming.

The GREAT Greek drama continues with today's emergency meeting of the Eurogroup to review the latest Greek proposal asking for a bridge loan, not new terms to the old bailout that they expressly don't want to continue in any way, shape or form. You also know what the Eurogroup/German position was... If the Finance Ministers of all of those countries gave me 1% of the gas, food and lodging they spent to go to Brussels to review the Greek submission, I would  have saved them 99% and be a rich man with the simple word, "Nein", not going to happen, why waste the time?

However once again, according to not 1, but 3,  "Sources" the Finance ministers or some portion of them and the Greeks have drafted a statement to serve as the basis of compromise which is to be reviewed by all Finance Ministers in Brussels tomorrow, the "Sources" sounded relatively optimistic, however how many of these sources have we heard of (never with a name) and how many times have they been right? ZERO (at least to the question of how many times they have been right).

In what I can only see as a further divide as the US today had our Treasury Secretary, Jack Lew call for the toning down of rhetoric between the two sides as apparently the US can't keep its nose out of anyone's business whether it be in the EU, your work-place, your Doctor's office or bedroom.

ZEEE Germans leaked a letter purposefully stating the 3 requirements Greece must agree to in order to reach a deal which included: 1) a CLEAR and CREDIBLE request by the Greeks to continue on with the current program which is a non-starter, 2) They will agree with the lenders as to any changes the lenders make 3) They will commit to fulfill the terms and conclude the program.

Additionally, any of the reforms Syriza campaigned on like labor reforms the Troika insisted on that have punished the working class in the name of austerity and social reforms all of which are to be voted on in Greek parliament this week will be rolled back, they will take no action that is at odds with the agreed upon austerity measures which is the basis of Syriza's entire campaign, basically Germany is saying, Alex Tsipras, you will renounce EVERYTHING you believe in and you will act like a good puppet / Goldman Sachs alumni/ Papademos.

If this ever gets resolved, I can't wait to hear what the terms are, I just can't see it though, I really cannot.

As for the averages today, a pretty lack-luster day except for the NDX which looks like it's forming the Igloo w/ Chimney top that is so often seen and Transports acted horribly today.

The Q's closed up almost half a percent while the R2K was flat, the SPX and Dow slightly in the red and transports slightly red, but look at transports intraday (salmon), they didn't act well at all after the a.m. session.

Crude bounced a little today, I think it makes another strong second leg higher, but I still think a slightly deeper pullback is probable. Gold and silver were down which is not a surprise, but they are also closing in on what looks like it will be an upside reversal in the not too distant future.

Treasuries also look close to rallying which means the market would almost certainly move down, see today's TLT update. We did successfully trade TLT long last year with some leverage and did pretty well, I'm not sure I trust the same trade now, maybe something shorter, but there are likely better assets/choices, depending ion your needs.

The afternoon and end of day trade saw sharper negative divergences, they seemed a little subtle at first, but they were indeed sharper and HYG saw a sharper negative divegrence short term, the longer term is negative and it also saw and EOD decline in to the close.

 Intraday HYG sharp negative divegrence.

HYG's larger trend (60 min) sharp negative divegrence

HYG's sell off in to the close from an already "red" position.

And HY Credit vs the SPX intraday today.

 This HY Credit divergence is EXACTLY the kind of divergence we look for in Leading Indicators to serve as a signal that the market is near a turn (down).

Additionally, pro sentiment is showing the same kind of divegrence we look for vs the SPX, also showing a negative signal for the market.

Yields were a non-factor today, but with the TLT charts looking as they do, I suspect they'll be headed lower soon, pressuring the market lower as well.

Commodities, if in fact they are acting as a leading indicator again as I suspect they are, diverged even more to the downside vs the SPX today.

As shown earlier, there's a lot of confirmation in leveraged market/sector ETFs and their inverse ETFs which is another thing I look for, multiple asset and timeframe confirmation.

As for the internals, the custom NYSE TICK indicator show internals getting weaker.

This is the entirety of the most recent cycle, note the TICK data falling off rather than increasing as it should in to higher prices or in the area of them.

As for other internals, of the 9 S&P sectors, 5 of 9 were green. Tech led at +0.35% and as I mentioned earlier with regard to financials and tech and leadership or rotation, yesterday's leader, Utilities was today's biggest laggard at -1.13%, this is a fairly common theme.

Of the 238 Morningstar groups we track, only 107 closed green. There was NO Dominant Price/Volume relationship today.

I think you can probably sense it through my tone, but I feel we are very close to a pivot and downside reversal in the market so i'll be looking at many more assets, like NFLX and AAPL mentioned today.

I'll check on futures in a bit and see if there's anything starting to standout there.

Tomorrow is a monthly options expiration so look for the max pain pin somewhere around today's close until at least 2 p.m., after that we should have some good data, but I suspect things are going to head south and very soon.

Leveraged ETFs Cont.

Here are some quick examples of leveraged ETFs giving not only some strong signals, but giving very nice timing signals as well.

 Sharp intraday leading signal in SRTY/ 3x short Russell 2000.

URTY is the opposite of SRTY, 3x long Russell 2000, for a 1 min chart it wouldn't be my first choice because of the volume, but intraday you can see the equal/opposite leading negative at the close.

 Here's another sharp signal in the timing chart of SRTY 3x short Russell 2000. Note the negative divegrence,  IT'S TOP/PIVOT IS STILL THE EXACT SAME DAYS, 1/29 THROUGH 2/2 and in between the 2 divergences is an inline signal with the trend.

This is SRTY's longer term 30 min cha, it's in a large leading positive position.

URTY's 30 min long term chart is virtually equally the opposite...

3x long Russell 2000 (URTY) 30 min.

While I can post these charts all day as they are all confirming, it's some of the near term charts that are most interesting. Before I was using 3C or understood it well enough to use it effectively, I use to spend hours every night going through hundreds of stocks, usually spending less than 2 seconds on each, I was watching my indicators and getting a feel for whether there was an overwhelming theme among a watchlist and that would give me an idea of what the market was about to do, using multiple timeframes and multiple assets with 3C as well as other indicators has more or less replaced that lengthy process, but the idea is the same, since the inverse ETF has its own volume (demand) even though price moves directly inversely, the signals will only confirm if there's something really to the charts.

Here are a few more examples...

 SPXU (3x short SPX-500) and its intraday timing chart , again with a top right at 1/29-2/2 and a strong leading timing positive signal now.

Contrast to it's opposite ETF, UPRO 3x long SPX-500

 The same intraday chart is giving the exact opposite leading negative signal, that's confirmation between multiple assets, not just the S&P ETFs, but the IWM ones as well as what's below...

 The long term 30 min trend or the stronger depiction of money flow, negative at the same top at 1/29-2.2 and leading positive now and a large divergence for a longer timeframe like 30m.

 UPRO- 3x long SPX-500 on the same timeframe with a base at 1/29-2/2 and a leading negative divegrence similar in size and scope to SPXU's positive.

 SQQQ 3x short QQQ/NASDAQ 100 1 min with a strong leading positive intraday timing divergence.

TQQQ, the opposite- 3x long QQQ 1 min with the confirmation signal of a similar leading negative timing divergence.

SQQQ's long term underlying flow on a 30 min chart with a huge relative and leading positive.

TQQQ in the same timeframe with the same large relative and leading negative.

I mentioned FAZ and my belief that Financials bounce tomorrow with FAZ pulling back in what I think will be an excellent buy area or add to. This may be a rotational set up as Tech clearly led with small caps unchanged, the SPX basically unchanged and large caps down a bit. Tech led about the same amount as Financials lagged. If you have paid attention to our S&P sector performance, more often than not, today's leader is tomorrow's laggard and vice versa. 

Here's a potential play beyond just a long which I think is about as close to ready as I'd be willing to cut it.

I'm going to show you FAZ 3x short Financials and FAS 3x long financials and make the case that FAZ looks ready to move to the upside, a small pullback tomorrow would make for an excellent entry so we'll start from the long term charts and highest probabilities and work to the intraday timing with confirmation via FAS, the signals should be nearly exactly opposite for confirmation.

 FAZ 3x short Financials 2 hour, just follow the divergences from left to right.

FAZ 30 min which is more of a timeframe for this cycle. Note the dates of distribution.

FAZ 15 min which is again a built up area of 3C accumulation telling me that FAZ looks ready from a strategic view to move to the upside, it has gas in the tank.

The FAS (3x long) 15 min chart is nearly the exact opposite, also note the Igloo/Chimney(upside down) at the base from 1/29-2/2, it's more just about a head fake move and how they can be excellent timing. If you think about the psychology of how traders react, you can understand why they are so prevalent.

 FAZ's timing chart at 2 min going all the way back to the market's last base.

And FAZ's 1 min negative in the afternoon today, since this isn't on a 2 min chart, it shouldn't be that strong of a divergence or move, but enough for a small pullback which should be able to be used for either a long position or what I'd prefer, a call position in to very short term price weakness with good timing.

FAS 1 min should confirm...

And it has a positive afternoon divergence as well.

XLF 1 min doesn't show any divergence (positive) like FAS although it should, but as I said, often leveraged ETFs show divergences that the underlying doesn't when it comes to finer details.

XLF 1 min.

FAZ 1 min. What I'd like to do is use the weak negative signal that should rotate financials tomorrow and pull FAZ back a little to enter a call position, whether FAZ or more likely XLF, this is because it's a very small, short term signal being it's not on XLF and it's not even on a 2 min chart. It should provide a discount on the call and an edge.

Overall though, between all of these ETFs both leveraged and inverse leveraged, there's a ton of confirmation from long term right down to very near term timing charts.

Leveraged ETFs / FAZ

There are some pretty strong signals coming in on some of the leveraged ETFs, for whatever reason, these often give earlier or stronger signals than their non-leveraged counter parts.

SRTY for example, the 3x short IWM / Russell 2000 is giving a very sharp leading positive divegrence on intraday charts and in good shape on others.

One I noticed was FAZ/FAS. FAZ looks to have bottomed on the 17th, it has a 1 min short term negative and FAS (3x long financials) has a 1 min positive. I think Financials see some upside tomorrow, it will likely be an excellent FAZ entry, although we want to confirm that , but more and more of these are showing the kind of signals that are jumping off the charts.

If you're interested, FAZ may be at a pullback/discount tomorrow.

I'll try to get some of the other examples up soon.

TLT 20+ Year Bond Fund / Leading Indicator...

We look at a number of different assets because they are connected, bonds, equities, credit, yields, FX, etc.

For example, on EVERY 3C chart you can see this las t bounce's base in every asset we look at from 1/29 to 2/2, pay attention to TLT and it's 2x inverse ETF, TBT and those dates... Remember TLT is a longer term 20+ year bond fund and it moves opposite the market typically and it's yields tend to pull the market toward them as yields move opposite the bond, this is why it's one of our Leading Indicators.

*Let me say I'm still not sure of how I feel about the longer term TLT charts, they were strong through December as bonds outperformed stocks last year, but they have definitely seen their longer term signals deteriorate badly which has to do with a rate hike, but we are looking at this as a leading indicator and shorter term so we need not worry too much about it, it's just not the long that it was last year.

Note the dates 1/29-2/2, TLT was topping, negative and then rolled over as the market was basing there and then bouncing. The current leading positive divergence in TLT suggests it's ready for another turn, this time up which means long term yields should move down pressuring the broad market as well.

 This is the actual 30 year Treasury futures, also with a similar leading positive divergence as the ETF for 20+ year bonds above. I like to get multiple timeframe and multiple asset confirmation whenever possible, it's a stronger case.

TLT's 2 min trend with the distribution signal right at the market base of 1/29-2/2 and a "W" like base here, usually I'd look for a head fake/stop run just below support at the white trendline, that's where I'd consider something like TLT for a call position.

TBT-2x short 20+ year ETF), this is the inverse of TLT, TBT the 2x short, if it confirms, its signals should be positive at the late Jan. / ear.y Feb. base and negative now.

 TBT 15 min, note the base area, the exact same as the market averages and a leading negative divegrence in place now.

TBT 5 min positive at 1/29-2/2 and in line on the uptrend, negative now.

And the 2 min trend, positive at the same base area, negative at the same place now.

There's good confirmation.

I'm not a huge fan of TLT right now because of the problems with the longer term charts that weren't there when we were long TLT last year, they are now, but near term, this is acting well as a leading indicator. I suppose with some leverage it may make for a decent long (TLT) or 30 year bonds, but that's not the reason for the post.

NFLX Set-Up Follow Up

Here's the initial NFLX Trade Set-up right after they posted some bum earnings and the gap target we expected would be filled which was.

With The Q's looking like they are putting in a Chimney right now and several other assets, like AAPL also deteriorating, it's not surprising to find NFLX deteriorating on the charts as well, typically the broad market is going to be the biggest directional factor influencing any individual stock followed by their Industry group's performance next.

As for NFLX charts...

 This is NFLX's last cycle on a daily chart: Stage 1 base/accumulation, Stage 2 Mark-up/Participation, Stage 3 Top/Distribution (with a Broadening Top) and then we had the gap down, likely leaving some middle men holding inventory at higher levels and then the gap up which as was discussed in the original idea linked above, "Perception is all that matters", in other words, NFLX's not so spectacular earnings and price's reaction had almost nothing to do with actual earnings and everything to do with the perception of earnings that NFLX's price action dictated, which in my view (as the set-up was already there before earnings) likely had more to do with allowing the middle men trapped with inventory at higher levels from the gap down, to get out, this is why we were looking for at least a gap fill.

To the far right is a "P" for a parabolic move, as you probably are well aware, I never trust them in either direction, they tend to fails as spectacularly as they start (in either direction) and they are often changes of character that are red flags like a Channel Buster.

 Here's a closer look and today's daily candle is not looking great, I'd like to see that hold in to the close and volume to rise above yesterday which looks like it will no problem.

This is the 2 hour chart that shows a positive divegrence before earnings, there was a set up here to move NFLX higher and I think it was going off no matter what earnings were, but before you can even read the earnings report, price flying to the upside sets the perception of earnings, even if you had time to read the full report which was not impressive.

I said in the original Trade Set-up that I'd like to see this 2 hour chart go negative, I wasn't sure if it would, but it has.

As for the longer term 30 min trend since the gap, this is the kind of 3C chart I look for. You can squeeze information out of any chart, but it's the ones that are jumping off the page that have the greatest edge, the ones I don't ignore and it should take less than a second to see it on the chart, that's how obvious the edge should be.

On a 15 min chart since NFLX went parabolic at the yellow arrow, you can see what the 3C reaction has been, not one of support, but distribution, I don't think NFLX was in a good place to begin with as there's a large Broadening Top, but you still want the best tactical entry even if you understand the strategic probabilities are strongly skewed in favor of one direction or another.

It's just a bonus to see the stages playing out as they should and have these charts confirming.

 Part of multiple timeframe analysis is having signals line up in multiple timeframes, what I call, "A full house", often these shorter charts that aren't particularly strong, are the most important at the end as they are the best indication of tactical timing.

Intraday NFLX doesn't have much support here either which is what I want to see in to a parabolic move.

The probability that QQQ is making a "chimney" on the Igloo/chimney" top formation is a bonus and the fact NFLX's relative performance on the day is off, is another bonus.

I'm going to bring the NFLX equity short tracking position from half to full size, which I view as a longer term trend trade.

NFLX About There

For those who have been interested in the NFLX (bum) earnings based trade set-up from late January, waiting for NFLX to come to us, along with the broad market most importantly, I think we are just about there and I'll be increasing the size of the 1/2 size NFLX tracking position (equity short).

I'll have charts out in just a few minutes, but it's looking a lot more like what I was hoping to see.

AAPL Management

I'm going to bring the formerly spec. AAPL Put position in the tracking portfolio up from speculative to full size in March 20th / $130 puts Trade Idea: Short Term Options) AAPL Puts from earlier in the month.

Here's why.

I think the Q's are making an igloo w/ chimney top here...

 This is the rounding portion of the Q's cycle of the 2/2 lows, the yellow would represent the "Chimney" in the commonly seen Igloo/Chimney top as posted earlier (both in bottoms and tops).

The Q's also have no support, even on a short term 1 min intraday chart, the easiest chart to confirm which it is not.

The same is happening in AAPL as well, but it's price performance is not even getting off its belly.

 Here's the bigger picture in the same chart, the rounding reversal process.


And a slightly longer , bigger picture...

And the intermediate term chart's bigger picture.

AAPL is far from my favorite short, but for a leveraged position with liquidity, I do like this set-up, especially if the Q's fail from here in the next day or so (tomorrow is op-ex). This is exactly the kind of discount (of pouts) and timing indications I prefer for option positions.