Daily Wrap

More bad economic data today, while China cut their main rate 25 basis points (.25) to 5.35 and their 1 year deposit rate to 2.5%, data out of China says China's manufacturing factories are in recession.

We also learned Saudia Arabia has increased production of oil in February at 130,000 barrels per day to 9.85 million per day which is their highest level since Sept. of 2013. However, I'm sure you are aware of our analysis on USO / Crude as the charts improve in many ways, near term I still would expect some weakness as per today's update USO/Oil Follow Up.

Things didn't get much better for macro data from there with the gasoline discount being saved rather than spent as the cheap gas narrative has been blown out of the water by Consumer Spending this morning with the second consecutive decline for the first time since just after Lehman during January of 2009. January came in at -.2 and December -.3 and suddenly every investment bank's research department is working overtime tonight to cut their growth forecasts. This is very material as Consumer Spending accounts for about 2/3rds of US economic activity.

ISM National Factory Index also fell to 52.9 (still above contraction which is below 50), a miss of consensus with the lowest reading in 13 months and down from the previous of 53.5.

Early the market made a parabolic move, the early one we were talking about fading, I know a couple of you did. Interestingly this initial advance to NASDAQ 5000 which fell back, apparently had a lot to do with the fact that CBOE was not disseminating options information, essentially broken from about the open to 10:30 a.m., allowing the VIX to be slammed.

This is the period the Chicago Board Options Exchange was down which includes VIX . Although this was a fairly parabolic move and I said clearly I would not be surprised to see it retrace as most averages did with the Russell 2000 showing the biggest retrace, apparently it was not only parabolic activity that was responsible for the retrace (I almost never trust a parabolic move whether up or down as they tend to end in the same fashion they started just in the opposite direction), it seems some of the weakness after the initial tag of NASDAQ 500 was due to the CBOE coming back on line just after 10:30 a.m. The NASDAQ did close above $5000 which is a psychological magnet, but had some interesting charts to go along with that move.

 This is the QQQ placed in to scale so you can see today's movement alone.

In Friday's "Week Ahead" we did expect some early strength based on where the 3C charts left off, if this chart picks up where it left off as is the case much more often than not, I'd say we'll be on our way to the finishing of this cycle and the weakness for the week also in the Week Ahead forecast.

 The SPY had a negative divegrence through the day and in to the close as well...

 SPY with Friday's late day positive divegrence leading to expectations of picking up where it left off on the start of the new week.

 The Dow is also in the same boat...

Intraday to the right (red on the time axis).

Only the IWM maintained an inline status from its positive divegrence close on Friday as of today's close.

IWM intraday is inline, however intraday futures for the Russell don't look so good, Futures Update.

VIX was definitely slammed and I mentioned VIX earlier in the day as well as VIX futures as well as Trade Idea: UVXY (VIX Short Term Futures) and VXX / UVXY / XIV / VIX Follow Up..

 Interestingly at the end of January VIX had a RECORD NET LONG position, then came the move up in the market from the 1/29-2/2 base and this flipped the VIX net position to a net short so of everything goes as expected, traders in VIX were not only stopped out in to February, but should be stopped out again on the net short position. Why they's be net short here I don't know, if I didn't know any better I'd just stand out of the way being as VIX...

 Closed at the lowest level since December 5th (yellow line) vs SPX in red. In any case, that's how te market makes the most people wrong at anyone time as it can, which is interesting with the NASDAQ 5k psychological level as one of the tenants of Technical Analysis is to buy a new high or breakout on the actual breakout (not before, but wait for price confirmation or "Chase"). In other words 5000k is not just a new high, it's a psychological level that causes movement among traders, did you see some of the volume spikes this afternoon and the QQ intraday chart above?

Our DeMark inspired custom Buy/Sell Indicator gave a sell signal back at the market's October lows (VIX October highs) and then a but in early November and now (today) a new buy signal. We don't get a lot of these, but they have proven pretty reliable especially with the VIX.

I don't see VIX Futures move too often on 3C charts, but today they were definitely moving...

The white is during the cash market. If this doesn't look like a bid toward protection, I'm not sure what would be, especially with the charts of short term VIX futures posted earlier and linked above.

While we have been expecting HYG to move lower based on recent ad trend 3C charts, for instance from Thursday, Things just got real interesting for HYG / HY Credit, you can see the long term primary trend in HYG, the Intermediate, sub-intermediate and cycle as well as VERY strong recent deterioration in the timing timeframes (1-3 mins), from the linked post from Thursday above, this is one of the charts and the commentary...
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Need I say anything? HYG intraday, that's some serious underlying action and not bullish by any means..."
So although I was expecting HYG to start coming down, I didn't think it would take out a week's worth of gains/longs in one day or one morning as the a.m. gap was the worst of it, HY Corp. Credit (HYG).

This also broke a seious trendline that has been in effect fro all of 2015, HYG of course being one of the easiest ways to see a ramp coming or in cases like this, a negative tone to the market.

 HYG's primary trend is already spelling big trouble as it is in a bear primary trend (lower lows/lower highs).

However this most recent counter trend bounce in HYG, supportive of the market) broke that trendline today easily and on volume.

 This is what HYG looked like from last week (blue) vs the SPX (green) as it went flat and then dumped. This is probably one of the least understood indications and one of the most important considering where everything is right now.

Intraday at #1 is the CBOE break and #2 NASDAQ 5000 stall until CBOE came back on line with some pulling back just after. There was a minor move in HYG to try to help ramp the market in to the close,  this included all 3 SPY Arbitrage assets (TLT, VXX, HYG).

Treasuries as shown earlier in the Futures Update pulled back today sending yields higher (supportive to stocks). However while I wouldn't bet too much on one day's data, the fact the short end looked worse on the Index futures charts and the fact the F_E_D's unofficial spokesman, Hilsenrath of the WSJ upped the F_E_D funds rate by more than double according to his sources at a level which would make it almost necessary to start hiking by no later than early summer, I suspect the move there was all about that article.

In the meantime, it certainly helped the market a bit as yields move opposite treasuries and they tend to pull equity prices toward them For example...

 5-year Yields in red vs the SPX in green today.

Here's TLT inverted so you get an idea of what the long end of yields did in to the close as the bond market (not bond futures) closes at 3 p.m., TLT is in perfect sync (inverted) with the SPX on the closing ramp, thus long end yields were almost perfectly in sync, helping the market in to the close.

 Our Leading Indicator "Pro Sentiment" had been moving down with the SPX (in green) , today it diverged by continuing to move down and this hasn't been a choppy or finicky indicator, it has been supportive of the market until last week.

Also commodities have been acting as a leading indicator recently, to the left they are leading the market up, t the right they have been leading down and today specifically they broke with the market in a move lower.

As for market breadth, it is seemingly impossible to get a Dominant Price/Volume Relationship which usually we have nearly every day, we haven't had a solid reading in a week and today is no different. Among the 4 major averages, the only one even close was the Dow with 15 stocks at Close Up/Volume Down which is the most bearish of the 4 possibilities and suggests the move is on fumes.

The other averages were pretty evenly split with nothing dominant.

Among the 9 S&P sectors, 7 of 9 closed green, this is closer to a short term or 1-day overbought condition. Ironically Consumer Discretionary led at +1.20% and Utilities lagged at -1.92%.

The Morningstar groups saw 189 of 238 close green, also much closer to a 1-day overbought event, had the Dominant P{/V been there as well, we'd have 3 of 3 and a strong next day implication, although the 3C charts picking up where they left off looks to be a fairly strong next day implication which is why I wanted to get some positions that looked interesting out there, specifically UVXY.

From a breadth perspective, the market has some very strange breadth readings that have been near motionless.

The Percentage of NYSE Stocks Trading Above Their 40-Day Moving Average (green vs the SPX in red) has NOT moved since February 5th, no higher highs, no anything.

The Percentage of NYSE Stocks Trading Above Their 200-Day Moving Average (green vs the SPX in red) Also hasn't moved, but in this case since Thanksgiving!

These are broadly divergent over a large area stretching quite a ways, but usually there's some movement on a bounce or rally , certainly you'd expect it on a new high, NADA.

And our celebrated NASDAQ 5k's Advance/Decline line leaves something to be desired...

This too has broad deterioration as it led through 2013 and then flipped and lagged worse and worse around mid-2014, but at the two relative points marked by white arrows on price (red) and the A/D line (green), note there's no higher high.

Again, near motionless as far as market breadth goes. especially when you are talking about a new high.

Tomorrow I intend to cover some of our older core positions that I've just let be because they've been doing great, but there may be some opportunities to leverage up true short positions like out HLF a;ready at a 53% gain or SCTY at a +29% gain (a market of stocks). As a true short you can pyramid up the position with the gains.

As for futures, given the parabolic stretch to make NASDAQ 5k, HYG, the 3C charts, etc., I'll be looking in on futures later tonight, as of right now, they aren't looking very good.

 Es/SPX Futures intraday, looking a lot worse since the close, but divergent through the day.

TF/Russell 2000 futures also looking pretty extreme here.

Futures Update

Futures are sliding just after the cash close, after the NASDAQ was able to hold 5k, with lots of struggle.

Interestingly in bond land, it looks like perhaps the WSJ article by Hilsenrath in which 9 of 17 F_E_D members saw rates at 1.13% at the end of 2005 vs consensus of .50% at the end of 2015 as of the close Friday.

This seems like the market (bond market) is taking this seriously because to get to that assuming 25 basis point hikes, the rate hikes would have to begin very soon.

First Index futures which I suspect will look a bit different in a few hours...

 ES, to the left there's a positive divergence before the cash open, in line with "Where we would pick up" from the Week Ahead". but also not looking good intraday and losing some ground just after the close.

Dow futures with the same divergence earlier in the morning and the white vertical arrow is the cash open, from there, the divegrence is pretty much downhill with 2 parabolic moves today.

 Russell 2000 futures also with a similar divergence pre-market or early morning and a parabolic pop right on the open, but far from confirmation through the cash market.

And NASDAQ 100 futures, also far from confirmation and losing some ground right after the cash close.

 VIX futures however remained positive and even more so right in to the close, the bid for protection is stronger than usual, otherwise I don't think I would have put out, Trade Idea: UVXY (VIX Short Term Futures)  as these can really move, but are not one of my favorite assets to trade unless the discount and timing look excellent. I think the only asset I like less is Silver, but when VXX hits, it hits.

Interesting the 30 year Treasury futures have a new high on the weak overnight (as short as it is from Sunday night's open) and a negative in to the cash market sending yields higher which helps the market, but a easily seen positive divegrence in to the cash market.

The 10 year also has an easy to see positive divergence, but the 2 short term treasuries that no one is going to want with a rate hike coming sooner than later (and these had been doing well when it was assumed a rate hike was further off)...

 5 year Treasury futures have no discernible divergence...

And honestly nor does the 2 year Treasury futures, the two t's that are probably least desirable in a near term rate hike, just happen to look like this after Hilsenrath's piece on where the F_E_D Funds will be, about 2x higher than the market expects for 32015, which wouldn't leave much time to get there, perhaps a hike sooner than expected.

In any case, that's what futures look like right now, I'll check on them again as I suspect they will look different in a few hours now that the psychological magnet of NASDAQ 5k close was hit.

Also of note, although we were expecting the market ramping HYG to come down (see HYG's price action in to the close), it came down a lot more for a single day or faster than I'd have expected, looks like risk off in HY land.

More to come, I'm also going to touch on some position management.

NASDAQ Desperate to Close >$5000

There's a pretty obvious reason for that, but don't assume nothing is happening below the surface, in fact it's likely accelerating because of NASDAQ >$5000.

For example the Q's today, aside form everything so parabolic it looks stretched...

 QQQ intraday is worse than ever here, selling on breakout confirmation>$5k while the VIX futures keep accumulating...

VIX Futures intraday.

NFLX Follow Up

I posted the following last Thursday, Trade Idea: NFLX Short and right after, NFLX Follow Up.

Since then, the position which was moving up pretty consistently is flat (since the entry.

The long term charts are deteriorating more (30-60 min) and today you can see the 3 min chart is nearly perfectly in line. Two thirds of stocks will normally move directionally exactly the same as the market although there will be differences in relative performance, which is why NFLX is interesting here, not only the longer term charts deteriorating more in 2 days, but the in line 3 min chart as NFLX moves directionally with the broad market, is seeing that come to an end.

 The longer term 60 min chart has deteriorated more since Thursday's post, remember this is a long term timeframe and they usually don't move very fast.


This is the 30 min and it too has deteriorated.

Intermediate timeframes are just more confirmation of the longer term so I haven't included them because of redundancy, however as shown last Thursday, the reasoning for the NFLX trade concept after well over a month of watching and waiting was on the short term timing charts, that's also of interest today.

 You can see the negative last week for the short term timing and why NFLX was posted, late Friday like several other averages and the Week Ahead forecast fir early price strength in the week (Mon.), you can see a small hour long positive divegrence on a 3 min chart, nothing very big, but exactly what is needed to move NFLX directionally with the market today.

as with all divergences, any new divergence, even effecting this 3 min chart will start on the fastest timeframe, 1 min so today's "IN LINE " 3C signal (green arrow), is actually already deteriorating...

The late Friday positive on a 1 min chart, remember the concept that 3C charts pick up where they left off so Monday it picks up on Friday's late positive and moves up, however that is already changing and going negative on the intraday chart which should be hitting that in line 3 min any time.

Thus I still like NFLX broadly and still like it in this area specifically.

VXX / UVXY / XIV / VIX Follow Up.

It always interests me, as many times as I have seen it, when confirmation confirms throughout so many asset classes and timeframes. I think over the last month we have established almost every day where the accumulation or stage 1 area for the current cycle was on just about every chart we look at, from 1/29 to 2/2, you'll see it again here in not just 1, but 3 confirming assets, but that's really not the point of this follow up to the last post.

In addition to the end of January cycle, I think you'll understand how the market makes its living by making the most amount of people wrong at one time, ending January the VIX was at a record long position, now it is back to net short, in other words, the move since Feb 2nd in the markets kicked record new longs out of their positions, also helping the market as the two trade opposite each other and now that we are looking at a stage 3 top, traders are once again set up to be wrong with net short VIX positioning since then (assuming VXX rises which I obviously believe it does as it's one of my least favorite assets to trade, yet I just posted, Trade Idea: UVXY (VIX Short Term Futures) (long)...

As for the charts (XXX=Short Term VIX Futures ETF, UVXY=2x long Short term VIX Futures, XIV=Inverse VIX short term Futures ETN and /VX = Actual VIX futures). In other words, VXX, UVXY and VX trade opposite the market or SPX, XIV is the opposite of those 3 assets so it trades with the SPX. I'm using all of them for confirmation through multiple timeframes.

 VXX 1 min. Remember Friday's "Week Ahead" expecting early week strength (Monday/Monday A.M.), this late Friday 1 min negative divergence would confirm the Week Ahead early Monday strength as it is a small negative that would send VXX lower (remember VXX, UVXY and VX/VIX futures trade opposite the market).

Thus today's positive divergence here is confirming SPY negatives or other averages.

XIV which is the inverse of VXX/UVXY/VIX futures and trades WITH the SPX shows the exact same accumulation area as all of the averages and most stocks we look at ...Jan 29-Feb 2nd, it also shows a leading negative divergence here like all of the averages we look at, which is the opposite of VXX, etc. and thus confirmation.

Tis is the 3 min VXX chart positive...REMEMBER IT TRADES OPPOSITE OF THE MARKET (AND XIV)...

 SPY 3 MIN IN THE SAME TIMEFRAME/SCALE, LEADING NEGATIVE=CONFIRMATION.

 UVXY (2x long VXX) shows a negative divegrence to the left, again it trades opposite the market, that negative divergence is from Jan 19 to Feb 2nd, the exact inverse of the market's base at the same time. You can see the large leading positive divergence to the far right.

 In the same timeframe and scale, this is XIV which trades opposite UVXY above and with the market, note it's base/positive divergence again at 1/29-2/2 and a leading negative divergence confirming the UVXY chart above.


 UVXY 30 min with the second negative divergence from the left at Feb 2nd and a leading positive position now.

XIV is the exact opposite with it's positive/base at Feb 2nd and a current leading negative divergence.

That would be in line with the SPY 30 min as well...

30 min SPY positive at Feb 2nd and leading negative now.

Trade Idea: UVXY (VIX Short Term Futures)

I'm not usually a huge fan of trading VXX/Short term VIX futures, your timing on them needs to be impeccable, but I'm looking at VXX, UXVY, XIV and actual VIX futures, I like what I see for a VXX long, although I'm going to open a UVXY long  (tracking portfolio) here. I'll get together as many charts as I can with confirmation, for now this is /VX, VIX futures (not the ETF), you rarely see strong accumulation moves in them.

VXX intraday , that positive is throughout today's cash market hours.

I've chosen the 2x leveraged long short term VIX futures, UVXY, full size position, although I can see phasing in as well.

Market Update

Friday's "Week Ahead" post was looking for early strength Monday/Monday morning, but there wasn't much behind it (recall the IWM 2 min chart) which is why I was talking about fading the parabolic move this morning. If you had some leverage on the IWM, it worked out good for a intraday trade.

The 50-bar 5 min chart/price crossover is a nice day trade or intraday trade, especially on a parabolic move.

SPY 50-bar 5 min. chart. Ideally there's a gap or a parabolic move (in either direction if you have additional evidence giving you the probability of a fade trade working...just some quick extra $). To the left there's a cross of price and the 5 min 50-bar that lasted the rest of the day, not a bad trade with some leverage on it, although I prefer to catch the cross below the average (or above if you are playing a long fade) up higher which usually means there's more of a reversal process allowing the moving average to catch up and be higher on the move I'm looking to fade. The yellow arrow show a higher m.a. cross, but it's not exactly the kind of move that is appealing as a fade trade given there wasn't much of a move up to fade, still it worked out ok. This is just a general intraday trade concept and the 50-bar 5 min is usually pretty good at identifying the moment the price move has not only stopped, but has a sufficiently large reversal process in place, with the cross under being the trigger that the reversal process or stage 3 in this case, is moving to stage 4 decline (the actual fade trade).

As for the averages, some of these are going to be a little old considering (like a 1 min chart) how long it takes to capture all of the charts and post them (I've purchased some software to cut down that time ...Dragon), but generally there's no practical difference in the signals since capture and if there is, I'll update the chart and make a note of it below. There are some EXCELLENT examples in which 3C depicts the 4 stage cycle. I've said this many times, these cycles work in just about any asset, any type of trading, and any timeframe from an intraday chart which we could show a cycle starting Friday afternoon as stage 1, this morning's parabolic move as stage 2, the lateral or rounding over as stage 3 and the retracement as stage 4. The same applies to a swing trade or even a primary bull market. If you know where you are, you have a good idea of where you are going next.

The NYSE TICK is also helpful in giving early warning when TICK breaks a trend that price hasn't yet as well as telling you good information on whether a move that hits extremes is a real move, a churning event or capitulation event, although you need to have some candlestick and volume analysis experience which I think most of you have and understand the relationship between reversal candles and increased volume.

NYSE TICK

The flat trend in any price environment that is rising and not flat is a giveaway or early warning. A break of a trend like you see to the right before price breaks the same trend is another. The extreme nearly -1300 TICK just after 12 pm happens to be where the SPY/IWM broke their 50-bar 5 min moving averages, big selling not at a capitulation bottom event, but at a break of a technical level as watched by traders-5 min 50-bar ma.


The Q's as a general example...

 Remember Friday, this is a minor late day divergence, but the bigger point is what happened today in to the NASDAQ 5000 move, a psychological magnet and a meaningful area for Wall St. to hit, this chart should give you an idea why.

Q's 2 min ...Friday in orange

Q's 3 min. 3C is telling a very different story than price at the intraday highs.

 The 5 min chart, even this small portion of last week's trade, already was giving the probabilities for this week as well as any early strength.

The QQQ 60 min chart is going the same, giving the probabilities of any upside move, thus they can become useful as tactical entries like AAPL or NFLX from last week.

IWM 1 min is still hanging in there, it had the strongest closing chart Friday of the averages.

 The 2 min chart you probably recall, again probabilities are set by the stronger chart, 2 min here.

 The trend of the IWM 3 min chart is showing the transition of the cycles from stage 2 mark-up to stage 3 top, this is for the smaller Jan29-2/2 cycle-stage 1).

 This is the IWM 5 min chart since the start of 2015, it shows this cycle in white (1/29-2/2 base or stage 1) and already is giving the probabilities of how this ends before the move even starts.

 The longer charts are also giving the probabilities, but not only for short term cycle resolution, but larger cycles such as the October lows (white) and the trend's increased pace since the start of the new year.

SPY 1 min intraday with Friday in yellow, not much has changed. The chart is still in leading negative position, in fact worse at this moment as price approaches $211.70.

 This 2 min SPY trend is a near picture perfect textbook example of the underlying trade confirming a cycle which is normally depicted through price and it's rate of change , volume, etc. So this chart gives an inside look that few people would have ever seen of the underlying trade during the 4 stages of a cycle.

Stage 1 accumulation/base, stage 2 Mark-up/participation, stage 3 distribution, stage 4 decline.

 Remember flat areas or quiet areas often have the strongest underlying trade. Think about VWAP and a specialist or market maker's need to fill at VWAP or better, that's likely a reason for these ranges more often than not.

 SPY 10 min again depicting a cycle in a way few people will ever see.

And longer term probabilities which influence nearly how every minor cycle will resolve.