Daily Wrap

I can't pretend today wasn't an odd day, but the further I step back from it, the more certain elements make sense.

There was very little in the way of 3C sponsored moves today in the averages, in fact the ones that were giving signals were net negative.

Oil / USO was very ugly today and initially I suspected it was because of yesterday's weak head fake move which I was cautious about, you can read more here from today and yesterday, USO Update.

However, it's hard to ignore 1 fact. After today's Initial Claims and CPI data which both missed, but the part that the headline print left out is both contained EXACTLY what the F_E_D needs to raise interest rates: 1) higher month on month hourly wages, up +1.3% over the last month and 2) CORE CPI inflation on the rise, it's only with Energy which as you know has been hammered and food which the F_E_D excludes as "volatile" from their projections, that CPI missed, otherwise, nearly across the board Americans are paying more for goods and services.

This data and the increased chance of a June rate hike (after removing "patient" at the March meeting as James Bullard suggested on CNBC this morning) was responsible for the $USD raging higher, in fact to a new high that hasn't been seen since September of 2003!

What does that tell you about how the FX markets took the data this morning? RATE HIKE sooner than later and treasuries dumped on the data, translation again, Rate Hike sooner than later.

You might recall Tuesday's Daily Wrap showing the 10 year yield crossing below 2% and triggering algos to sell equities around noon time. This likely had to do with inflation expectations and a more dovish Yellen testimony, today was the exact opposite and on the data so I can't take credit for that TLT pullback I was expecting, although that's what happened today.

The response in GLD and SLV was muted (+0.32% and +0.06% respectively), but the legacy arbitrage $USD/Oil with oil was right on (even though oil had lost some ground overnight, it didn't break local support until the $USD pop on the 8:30 data.

So I think we have some better idea of what caused the rout in oil today as the USD made 10+ year highs (dollar denominated assets like oil and the $USD move opposite each other). And all of this. largely on data that appeared bad for the economy and put off a rate hike, but was actually just the opposite, just what the F_E_D is looking for to hike rates!

The 10 year did the opposite of Tuesday (on Yellen's more dovish testimony when it broke below 2%) and broke above 2% today, also in part to an ugly 7 year Treasury auction this afternoon.

A lot of today's action in the market (not all evident by price alone), was a response to the data the F_E_D needs to hike interest rates. There were some other issues moving the market at different times that we'll get to, but this was probably one of the biggest factors in which there3 was a chain reaction, for instance the dollar soared , pushing crude lower which helped stocks. The Treasury complex sold off on the data sending yields higher and supporting stocks, but there wasn't anything in the intraday data that looked bullish, it was chain reaction stuff and some gimmicks.

This is the $USDX soaring on the 8:30 data release to highs not seen since September 2003!. The move may have been a bit overdone as there's a negative divergence so we'll see what becomes of that, but I wouldn't assume oil weakness fundamentally (within our expectations) based on this $USDX move alone.

The 10 year Treasury at highs for the week as the 8:30 data comes out, then watch what happens...

10 year Treasury futures CRSHED at the 8:30 data. Again, it may have been overdone as there's a small positive divergence forming.

Essentially this is what the knock-on effects were in the market today...

 This is TLT (blue) intraday 1m vs the SPX, although you can see some normal inversion here and there, the general trend of both was down.

This is the 30 year yield we have been watching recently since this cycle's start (1/29-2/2) and the normal in line or prices and yields moving together at stage 2 mark-up of the cycle and then the recent divergence indicating high probabilities we are at a fulcrum/pivot point to reverse to the downside as we use the yield's divergence with the SPX as a leading indication of an impending reversal (along with the Igloo/Chimney formations and other elements). However today because of the early sell-off in Treasuries on the 8:30 data dump, yields jumped a bit intraday providing some support for stocks, although I can't say that I believe they made much of it.

The entire yield curve bounced on the Treasury sell-off today on the 8:30 data. Here you see 5 year yield (also a leading indicator) diverging from the SPX ( a signal of a move lower for the market as yields tend to pull equity prices toward them like a magnet) and then today's pop higher in yields (remember the 10 year busting back above 2% today).

This move in yields is "mildly" supportive of the market intraday today, but the overall divergence is still much larger. As you can see, the SPX didn't make much of the opportunity.


 Taking a very close look at the intraday 5 year yield (red) vs the SPX, you can see they are roughly in line. The 3 p.m. lift-a-thon was related.

Here we see TLT (blue) which is inverted to give you an idea of what yields looked like during the last hour as the bond market closes at 3 p.m., it was obviously supportive of a move higher at 3 p.m. which came on no news whatsoever and no divergences at all.

In fact, it seemed the 3 p.m. ramp job had 1 purpose and that was to get the SPX green on the week, being that tomorrow is options expiration and being the move was toward the end of the day and being the options expiration max-pain pin usually opens right around Thursday's close and loiters in the area until about 2 p.m., I suspect this late day ramp job was to get the SPX green on the week for tomorrow's op-ex.

The SPX just makes it to green on the week because of the 3 p.m. pop.

Although the move was strange. Here are the averages intraday today, there was some obvious difference in relative performance...

 We see the major averages diverging through the day with the NASDAQ 100 and IWM leading and the SPX and Dow lagging. However, despite the differences through the day, the differences between the Tech heavy NASDAQ, the Energy and Financial heavy S&P, the small cap heavy R2K and the large cap Dow, at 3 p.m. it was as if they were all the same asset...

The major averages from 3 pm until the close.

 As mentioned, there was no positive divergence in to the 3 pm ramp as seen on the IWM chat which was getting ugly and seeing price move to the re3d right as the ramp began (the light blue trendline is yesterday's close and the IWM about to go red on an earlier negative divegrence).

The same is true of the SPY, in fact all of the averages, no news, no divergence, the only thing I can find to account for it is the move in bond futures and by extension, implied Yields, but only once the bond market was closed at 3 p.m. and wouldn't have the ability to react and spoil the ramp which still left the SPX and Dow in the red.

While the NASDAQ led the market today, it wasn't the case early in, in fact it didn't look so great earlier and it appeared that AAPL was the cause as we have covered AAPL and I don't think anything today changes our near term expectations for AAPL...

Early on, AAPL was not looking very good, AAPL Position Management

It's no secret as we saw yesterday, AAPL has almost been single handedly responsible for all NASDAQ gains through 2015, in fact 5 stocks have accounted for all gains as posted in Tuesday's Daily Wrap and that list includes NFLX which we took action on today:Trade Idea: NFLX Short & NFLX Follow Up. If the charts of NFLX and AAPL tell us anything, it's that our QQQ Mach puts should be just fine.

 AAPL's roll from what appears to be the end of the Chimney is supported by 3C negative divergences  as we have seen and it wasn't looking good this morning until just after the open and out of nowhere, AAPL declared "Media Day" in March! WT...!#$!@!##! "Media Day" Seriously?

You can see the effect that had on AAPL's price, although there's not a supportive 3C divergence.

Here are the Q's and their near term 3C negatives and red on the morning until AAPL's "Media Day" was pronounced, lifting the NASDAQ out of the red!

Again, no supportive 3C divergences so this looks like nothing more than a news driven knee jerk reaction.

This is AAPL's (red) divergence vs the QQQ (green), which has been one of the main sponsors of the Q's, the negative divergence between the two had an obvious effect on the Q's as AAPL's red close did yesterday, snapping the NDX's winning streak. Again, "Media Day" saved the index for the moment from what may have been a much uglier close.

Who knows how op-ex related this stuff is, there's certainly a lot of money to be made in seeing that options expire worthless.

So we have a good idea of what moved oil and in turn the market to some degree, what moved Treasuries and again the market to some degree, what moved the $USD to decade+ highs and what it effected (oil/USO) and we can take all of this and put it together and we come out with a market net negative regardless of what the NDX and R2K did price wise today, all other assets acted as if a June rate hike, which appeared to be off the table as of yesterday's close, now looks more likely. There's a lot more information in the market than just what the averages closed at.

As for leading indicators, you saw today what was happening with HYG, Things just got real interesting for HYG / HY Credit. In fact the first market update posted today was 2:13 as things started to get ugly and then the HYG post at 2:30 as it started to get real ugly. It's interesting that as soon as the bond market closed at 3 p.m., those very ugly signals were put off for the day on a 3 pm ramp.

As I suggested in the Things just got real interesting for HYG / HY Credit post, HYG was red shortly after the post and on the close, but more importantly are the 3C signals in to the close, they did not improve on the 3 pm ramp...

Of course this is just 1 chart, but it's the timing hart, the rest of the charts and negative tone for HYG can be seen in this afternoon's post linked above.

As for Leading Indicators...

 Our Pro Sentiment Indi is in its second day of leading lower , this is an indicator that has bewen in ine with the market and moving up since 2/2, these past 2-days are the first time it has moved down in any meaningful way, totally ignoring the 3 pm ramp.

Here the VIX and its inverse relationship to the SPX can be seen clearly...

However intraday although you see some inverse areas, what is the trend of the VIX vs the SPX? Up, which is not the normal correlation which can even be seen on some of the smaller intraday moves, it appears protection is being bid in anticipation, well lets just say protection from a downside move is being bid as the VIX would not normally trend up with the SPX over the time period.

 VXX is inverted (yellow) vs the SPX, toward the end of day, VXX (Short Term VIX Futures) was also being bid as it showed relative strength vs the SPX. Here's the same chart without the inversion...

Note where the SPX is and where VXX is relative to readings to the left, if the normal correlation had held, VXX would have been at a new low on this chart, it obviously was seeing a bid as well.

In fact, I'd say the 3C charts are having no difficulty confirming either. If I were to be looking at a VXX long trade or UVXY, I;'d probably wait until tomorrow's op-ex is over or perhaps look at it after the pin, however I'll cover both and see if there are any interesting opportunities.

 VXX 2m

VXX 5m

VXX 10 min since the cycle started.

XIV (inverse-short Short Term VIX Futures), 30 min also since the cycle started...

 XIV 10 min

XIV 2 min.

I've notices as I'm sure many of you have, to make money on VIX short term futures, timing has to be dead one. So far, the charts above not only confirm, but look to be pretty darn close to dead on, I might not go all the way there with op-ex tomorrow, but I think for the most part we are VERY close.

In addition to the risk front and center stage today of a F_E_D rate hike and interestingly, the appearance of Bullard who has been at every major pivot up or down since September with statements and he just appears today to deliver a hawkish statement as the data confirms a more hawkish possibility for the F_E_D if they should so choose to take advantage of it, I am not going to lie, I'm very interested to see if Bullard's appearance marks what would be a 5th pivot in the market giving more credibility to my article, The Plunge Protection and Market Correction Team.

Additional risk factors include the +30% jump in Spain's Credit Risk since the Greek elections as the anti-EU/Austerity Podemos Party in Spain expands its lead in Spanish elections. This is the risk we posted several times that the EU may just be most afraid of and specifically Spain as they were the ones asking for the toughest measures against Syriza in negotiations to deter their own extreme leftist party Podemos; an anti-EU/Anti austerity movement across the periphery of the EU as posted in the second paragraph of Monday's Daily Wrap.

Corporate Debt has hit record levels going back to the 2007 peaks as well as Stock Buybacks which have been shown to always occur at the top of a bull market rather than at the more sensible bottom where prices are much cheaper, but that has to do a ot with CEO bonuses and the ability to sell among company insiders which is also at levels not seen since the 2007 peak as well as Bullish sentiment, Margin Debt, and record lows in complacency, all amidst the background (as mentioned) of peak levels of insider selling, some say at the same as the 2007 peak, some say going as far back as the Dot-Com Bubble peaks in 2000.

As for internals, I'm showing 326 of the S&P 500 closing down today; 2460 of NYSE stocks closing down vs 1780 closing up.

As for the Dominant Price/Volume Relationship, all averages are lacking a dominant relationship AGAIN except for the NDX's dominant relationship which is close down/volume down, 41 stocks (the least biased , but the most common relationship during a bear market).

Of the 9 S&P sectors, only 3 closed green with Tech leading at +.63% and Energy lagging at -1.85%.

Of the 238 Morningstar groups, again a very luke warm 106 of 238 closed green. These have been very mellow readings all week and quite frankly odd.

As for Breadth Indicators, the 8 different measures of socks above or below their 40/200 day moving averages and 1 or 2 standard deviations above or below, they have barely moved or declined in breadth in most cases for 17 days now, these should all be making healthier or higher breadth moves with the market, instead they are dead flat which just goes to show when viewed as a market of stocks without the weighting, more stocks are falling apart than rallying and this is a year and a half long trend that has just grown worse.

I don't have the new SKEW reading yet, when CBOE releases it, I'll let you know, but it has been in the red zone.

While it's still early in the evening, Index futures are showing some pronounced intraday weakness since the close, I'll check on them again later tonight and let you know what I see, but for an idea...

ES/SPX futures...

Remember tomorrow is an op-ex Friday as usual, typically dull days through the afternoon until about 2 p.m. when the max-pain op-ex pin is released as most contracts are settled by then, that's also when we get some of the best 3C data of the week, the last 2 hours so we'll be looking at that carefully as well as additional opportunities and probabilities in the market.

Have a great night!

NFLX Follow Up

Other than being a long term core short which was up well over 30%, we first started following the next set-up and let NFLX do it's thing, let it come to us on what were a joke of earnings. I wouldn't be surprised if we see Q1 2014 disclosures with numerous funds dropping NFLX completely, ala AAPL/Appaloosa Fund.

In any case, after following it for over a month, I think I'm about ready to say, ?YES, I like NFLX short here, but I do want to show some charts and the way I look at a NFLX position which is simply my own view of things.

 This primary trend with the 4 stages of NFLX is the way I view the NFLX position, not a swing trade, not a 2 month trade, but looking for stage 4 decline. You can see the characteristic rounding bottom of a stage 1 base and the 3C daily chart accumulation with it. Then 3C confirmation at stage 2 mark up or where public participation starts to grow, then stage 3 top which like many of the other averages, appears to be a Broadening/Megaphone top.

You can go back to the Jan. 21st post and see why I think the earnings were bunk, why I thought NFLX was set up in advance to rally no matter what earnings were and especially if they were bad and how that had a lot to do with inventory held at higher levels that had to be cleared out from an earlier gap down.

The move since the earnings gap up has grown more and more parabolic, but still within the Broadening top and the 3C trend would suggest that it is a top. So I'm looking for the stage 4 trend that retraces all of the gains since the 2012 base and likely then some.

 60 min chart's overall negative or distributive trend...

The faster charts are going to have more detail and sharper divergences, but a 30 min chart is still a very respectable timeframe and the divergence here has been unrelenting, suggesting to me that the same thing that happened to AAPL in Q4 in which some large funds like Appaloosa dumped their entire position in a quarter, is most probably what is going on here, funds that size need demand and higher prices to sell large positions in to otherwise they just collapse price on their position at a loss, basic supply/demand dynamics.

 I suppose you could call this range and the subsequent move above it, akin to the Igloo/Chimney price patterns in the major averages, most assets will behave in similar fashion although relative performance will differ.

This 2 min chart tells me the same, this was likely the head fake move of this entire run and as such, would be the best timing signal.

And the intraday chart which is not all that meaningful compared to what's above.

I'm glad to see the range and break above in the same area as the markets' Igloo w/ Chimney price patterns and the negative divergence in to it. With all of these timeframes and a head fake event, this is what I'd call a full house and whenever possible, I want to use head fake events to enter trades as they have better entries and less risk.

Trade Idea: NFLX Short

We've had two separate entries in NFLX short, both were at nice gains until the earnings shenanigans, one of the two is right at break-even. I have a little room to add to the position in the tracking portfolio without violating risk management position size rules I keep for myself, even in a tracking portfolio, good habits are to be practiced all of the time.

I'll be posting the charts momentarily, you may want to wait for the charts and the links as NFLX has been an asset that we have been watching since earnings for the right time to enter, I feel we are at just as good a time as any, but I also have a longer term perspective/outlook on NFLX, less a trade, more a core trend short position.

I'll have that post out in the next few minutes, but I wanted to give you a head's up so you can do your own homework while I get the post out.

USO Update

Yesterday we had a move in USO below the range/support and the whole number/psychological magnet for stops , of $18. Today USO is down over 4%, this is why I decided on a half size position yesterday for now to be cautious.

While this is exactly what we were looking for in spirit, in yesterday's follow up, USO Follow Up... I had also said,

"I don't mind saying that this is a bit of a head scratcher for me and I don't have all the answers, I wish I did, but looking at options for different trades and risk management should help clear things up and present some scenarios that may fit your goals or perhaps you'll find they are not in line with your goals.

Sure enough, this morning's EIA Petroleum report came in at a build of 8.43mm barrels for the week above consensus of 8mm on the nose, yet crude is higher right now. Our stop run/head fake level was hit, although not hit as I expected, but my expectations really don't matter much beyond the fact that the expectation of a head fake move occurred as expected, how it happened are details that are just my opinion, not based on objective evidence.

As proposed in last night's Daily Wrap, the EIA report this morning may come in at a miss and give us our cash market head fake move below $18, the area I suggested you set price alerts at. While this doesn't look like the typical head fake, which tend to be stronger looking moves as different traders have different risk tolerances and they generally want to run them all out before a reversal, which means the head fake moves are extreme and believable, it is a head fake move in the form of a stop run and right at the psychological level of $18 as proposed 

My opinion has been this is a counter trend rally setting up, but we are now seeing signals that are approaching large enough to be a viable bottom in USO for a primary or Intermediate uprtrend, to be precise, we are not there yet in my view and would likely have to come down a bit to recent lows to build out the base, but that doesn't mean we can't have a counter trend rally and then a pullback and finish building a broader base that can move higher as a trend change.

So if I were considering Crude and I think I will put USO long in the tracking portfolio today, I'd decide on which trend I'm looking to trade and if it's the larger one, I might be a little more patient or phase in to a position, if it's a counter trend rally then I'd just have some stops below today's intraday low.

For now, I'm putting a half size position in USO long in the tracking portfolio as a trade on the counter trend rally. If you are thinking of a longer term trend trade and a real bottom, I'd urge some patience, while bottoms are almost always tighter than tops, I still don't see this as large enough to support an intermediate or primary uptrend.".

I'm more than willing to add to USO and bring it up to a full size position, but looking at the charts for USO, whatever is going on, whether that larger true base  is being built or this is just a blip that passes, I'm not ready to add that second half, I'm also not concerned about holding the first half. When I see something that looks like an answer as this head fake move/stop run clearly bothered me yesterday as it was in my opinion, too small, I'll have it out immediately.

The important charts in the 2+ hour range still look fantastic,

Things just got real interesting for HYG / HY Credit

This is one of the primary ramping levers, in fact I'm working on a semi-automated trade system based on HYG.

The primary trend in HYG has been some of the best data that the market is in more than serious trouble here, but on a sub-intermediate basis, it has been used to ramp the market on this latest run. The timing timeframes just got incredibly interesting and I'm guessing HYG's is red before I finish this post.

 The primary downtrend in HYG leaves no doubt in my mind that it resolves to the downside and as a risk asset and a much smarted market than equities, it tends to lead, stocks follow. The primary downtrend has seen consistent distribution and even this most recent counter trend ramping move is in trouble...2 hour

The 30 min chart shows more local detail and the parabolic move in HYG, although the market has not responded in kind as it would have a year ago, this is about to fail as the chart is leading negative and the parabolic move, well...

Here's more recent damage to this swing that has been supportive of the market, a 15 min chart so the outcome here leaves little doubt it fails , but when?

The 10 min chart with more confirmation of heavy damage.

And a trend of the 1 min chart which on a closer perspective, acts as a timing indication.

Considering the information the market received this morning and what it may mean as it relates to a June hike, I find the intraday HYG chart VERY interesting, especially as the averages start to get more interesting...

Need I say anything? HYG intraday, that's some serious underlying action and not bullish by any means...

Market Update

I haven't put out too much today in the way of market updates because I don't want to pollute your inbox with information that's not really of any interest, thus far today, there hasn't been anything of very significant interest other than the reaction to the CORE CPI data and the Hourly wages increase, both of which the market took as a renewed probability or increasing probability that the F_E_D could indeed hike in June, something that yesterday had been written off by Yellen's testimony,. In addition, right on cue we have none other than Bullard out on CNBC this morning making very hawkish statements about a summer hike (June).

I keep coming back to this because I think it's interesting and at some point we'll likely understand why.

If I were the F_E_D and I held the same views that their policy has shown them to hold I'd have a different view of things.  I do not share their views/policy, I believe their actions amount to corruption , free money for banks via stealth bailouts in the wide open through QE and the total debasement of the value of savings that the responsible people of the US have responsibly built up, they have been punished while wild, irresponsible speculators have been rewarded. However, I do believe that everything reverts back to the mean eventually.

However if I did share their views, the last thing I'd be considering right now is a rate hike. Macro economic data for the US has fallen off dramatically since Q3 2014 and especially through 2015, the perceived improvements in the economy which are ridiculous, just see Yellen's answer this week to the U6 unemployment rate question in the Senate in which she essentially says unemployment is a lot worse than the headline number, but the U6 metric (there are 6 metrics from U1 to U6) is not used as a headline print, it is however the most comprehensive version of reality and it's horrible.

The F_E_D hasn't been even close on their inflation forecasts which they need to see rise toward their long term comfort zone of 2%. This all leads me to believe that policy normalization has nothing to do with the economy and in fact will hurt it.

If there's no home borrowing and no Cap-Ex spending by corporations at ZIRP, why in the world would we imagine that home loans or Cap-Ex spending would pick up at higher rates of interest? The only spending that seems to be consistent is share buybacks to lift share prices and allow CEO's to collect bonuses while those same CEO's are engaged in a trend of insider sales.

If you don't get what I'm trying to point out, it is that there's very little good reason according to F_E_D values, policy and metrics to raise rates anytime in the foreseeable future, however I believe there's something else beyond "We have sat on ZIRP too long". I believe there's something they are more afraid of than damaging the economy. Perhaps they see the next recession coming and realize they are at max measures and need to create some ability to respond. Maybe this is a self-preservation thing, as many of you may or may not know, the F_E_D is not a Federal organization any more than "First Federal Bank of Texas", they are a quasi-corp/government oversight to a minimal degree with share-holders and all. The easiest way to put it in today's terms (because how the F_E_D got their powers is a very interesting history lesson and one that is shady beyond belief) might be that the US Congress who by the constitution is the only body meant to print money, has delegated the task and exclusive rights to print money to Bank of America. In return, there's minimal oversight by the government, thus all of the political bills like "Audit the F_E_D" because our own Congress who delegated this task doesn't have the legal authority to audit them which is amazing as everyone in America can be audited including the government, but not the F_E_D. There's some quid-pro-quo as the F_E_D remits money back to the Treasury, I believe Yellen said $500bn since the economic crisis started, but of course for the most powerful, unsupervised organization in the world, the potential for ill-gotten gains is astounding. For gosh sakes, the F_E_D gave banks inside information they traded on in 2012 and the investigation being carried out by the F_E_D, not an impartial party, has still punished no one and Congress can't even get an update on the investigation years later!

In any case the point simply being, they have some reason for needing to hike rates that I do not believe for a minute has anything to do with the economy having sufficiently recovered (in terms of F_E_D policy, not my own beliefs) and this morning's data conveniently gave the F_E_D 2 things they need to hike rates by their own definition, that's what has happened today.

Intraday though, it has been a bit dull for signals, although some are starting to pop up.

Other than damage that has already been done recently such as...

 SPY 2 min

SPY 5 min

SPY 10 min

Today's intraday action hasn't been that exciting...

 The DIA intraday has been perfectly in line, nothing to report there intraday...


The Q's, while making some price gains, haven't had an especially interesting intraday charts as they approach intraday resistance.

However, that may be starting to change. The SPY would be the least exciting of those changes, but it is a change...

SPY intraday has been nearly perfectly in line. I could point out several "steering" divergences intraday, but nothing of consequence, although recently a leading negative signal has started to develop that is of "some" interest.

As for the IWM, this is where it gets interesting...

 Earlier the intraday activity wasn't worth a post, however this negative divergence is interesting intraday, but beyond that when you look at the damage already done and you add this move later in the day, here's what you get on the very same chart...

A new IWM leading negative low and a very sharp, clean, crisp divergence in the head fake area. Thus, things just started getting more interesting.

I've been going through potential asset/trade set-ups, but I think I'm going to need to pay a bit more attention to the broader market over the next couple of hours.

Leveraged ETFs: SPXU

One of the things I've noticed over the years is the phenomena of leveraged ETFs (inverse or otherwise) giving cleaner, earlier signals than the averages. In a way I think it would be fair to say that I use them as leading indicators to an extent. I can only guess at why this may be and my guess would be that the extra leverage means that more timely action has to be taken with them and I suspect there may be less manipulation in their underlying trade. For example small divergences to ramp the market in the averages, say near the close. The leveraged ETF will follow the underlying asset/average's lead as that's what they are designed to do (most on a 1-day basis, so be aware of that), however the actual underlying trade in these leveraged products I believe has more to do with actual risk on/risk off dynamics.

Their price has to follow the underlying asset/market average or industry group, but their actual demand can and often does diverge. 3C is measuring the buying and selling in an asset, these ETFs are obliged to follow the underlying, but that doesn't mean it's because of actual demand.

While the ETF's will follow price, they don't set price for a close , say for instance the run we just saw in the NASDAQ over the past couple of weeks. Numerous days there were late day ramps to get the NDX green so its unbroken win streak would remain unbroken, even if the gain was less than a 10th of a percent, but leveraged ETFs don't have that responsibility they just need to mimic the price performance. However the underlying 3C signals of risk on/risk off in these assets can and often will contradict the averages themselves. While someone out there has need for a green close, it doesn't mean traders with deep pockets are willing to chase that move, especially with the leveraged ETFs as they would have more to lose if that move turned sideways on them.

The simple point being, I have found that leveraged ETFs are often an earlier, clearer picture of true risk appetite.

I posted a bit about this last week as I have been following them, Leveraged ETFs / FAZ

This is SPXU, the 3x leveraged Inverse ETF for the SPX, it moves opposite the S&P-500 with 3x leverage. The long 3x leveraged version is UPRO, I'll often compare the underlying against the 2 and 3x long and inverse ETFs and see if there's confirmation or a similar trend among them. To that end as I go through my watchlist today, you already know I like FAZ, SPXU is also getting very interesting here and I'll be covering others as well.

I'm going to post multiple assets (SPY, UPRO (3x long SPY) & SPXU (3x short SPY) and in multiple timeframes. I'm not posting every chart for every timeframe otherwise we end up with nearly 20 charts, but I think it's more than enough for you to get the idea and why I am starting to like SPXU long more and more.

I'm not going to comment on every chart, I think the divergences and confirmation are pretty easy to spot and if they are not, this is an excellent opportunity to get use to seeing divergences as they are the most effective use of just about any indicator you can imagine, whether MACD, RSI,Stochastics, etc.

Also, remember UPRO is the 3x long, SPXU is the 3x short.

 UPRO 60 min with the 4 stages of a trend/cycle with stage 1 base which we have clearly established ran from 1/29 through 2/2, this is accumulation. Stage 2 is mark up and generally doesn't see too much distribution until prices are closer to their target zone which can roughly be surmised by the size and intensity of the stage 1 base's size and its divergences size. Although in a scenario in which you want to primarily distribute in to higher prices, you aren't going to take on a lot of extra inventory that would just need to be sold as well, you're generally going to take on enough to get the move on its way until a short squeeze and retail demand take over, then you're going to be selling in to that and short selling is also selling as it comes across the tape.

Stage 3 is the top area, after that there's only stage 4 which is decline. These cycles play out over and over again and on just about every timeframe from intraday to a multi-year primary market. If you know where you are in the cycle, you have a pretty good idea where you are heading.

 SPXU 60 min is the inverse so at the 1/29-2/2 market base, it is at a stage 3 top and moving to stage 4 decline and now back to stage 1 base as the cycle starts all over again. I think the divergences on both charts make this clear and confirm each other. Remember that 3C is largely based on volume so the price action being inverse or nearly identical doesn't account for the divergence, it plays a role, but it can and will contradict a similar asset, but what we are looking for is confirmation.

 SPY 30 min and the 3 stages so far.

UPRO 30 min looking similar, maybe a bit deeper leading negative divergence.

SPXU 30 min

UPRO 10 min

SPXU 10 min

UPRO 5 min leading deeply negative in the4 area I'd consider the "Chimney or head fake"

SPXU 5 min leading positive in a big way. These are the kinds of divergences I don't ignore, there's no searching the chart, they jump out at you and that's where the greatest edge is with the use of the indicator. The simple truth is not every moment of a trend is engaged in institutional buying and selling in size, so it's the areas where the indicator pops off the chart we are interested in.

 SPY 2 min

UPRO 2 min

SPXU 2 min.

Now you can see why I am liking SPXU more and more, not only from a cycle standpoint and price's confirmation in the way it acts confirming the cycle, but the indicator's signals also confirming the cycle. SPXU looks to be forming a strong base for a move higher , being it's the inverse of SPY/UPRO and their divergences confirm, they'd be expected to make a similarly strong move to the downside.

I'll have more assets for you...