Daily Wrap

With Friday's The Week Ahead forecast for this week including some of the following excerpts:

"The market likes to throw traders off track by doing things like bouncing and getting longs to believe that buying the dip is still the right course of action, but beyond that, I can't give you a much stronger case than the above.

I still believe TLT moves higher.

VXX/UVXY should move higher through next week, but short term confirm the possibility if not probability of an early week bounce (Monday).
I have some other reasons for believing a bounce early in the week is a good possibility, but I still would not chase it or trade from the long side but sell or short in to it at the right time.

That's pretty much that, much like last week except we are not only in stage 4, we have completed it to some degree in a single day (taking out the head fake in several of the averages).

So not surprisingly...

 These are the major averages including transports on the day, the Dow was the out performer (white), the NASDAQ looked like it needed to be saved a couple of times.

Overnight bad Chinese data and German data sent Futures a bit lower. As you know, the market almost always picked up (cash market) where the 3C signals left off the previous trading day so this morning none other than the USD/JPY was what lifted the Index futures and guided them most of the day.

USD/JPY in candlesticks, ES in purple through the cash market.

Now back to the Week Ahead post...

Short term my custom SPX:RUT ratio is showing intraday support, meaning it looks possible for early upside next week like we forecasted last week, however this is 1 indicator and a very short timeframe.

Short term VIX futures (VXX) are lagging a bit, SPX prices are inverted and VXX should be up where the SPX inverted price is so that's another short term chance of early strength next week, but I would not trade long on that, if anything I'd use it to sell longs in to or to short in to.

Intraday TICK has been nasty and extreme as mentioned earlier, but since 12 pm it has let up quite a bit, the panic selling is not as strong.

(3C charts picking up where they left off the following trading day even over a long weekend)...Again, other than intraday, I would not trade this long, but sell or short in to a possible bounce."

Then in Friday's Daily Wrap that followed the post above from Friday afternoon, I added additionally (after looking at some other charts)...

"As for the Dominant Price/Volume Relationship...The Dow and S&P were a bit different and more in line with our early forecast for the week ahead, early strength as both came in at Close Down/Volume Up, which is sometimes seen at an initial sharp break, but more often than not, it's a 1-day oversold condition that sees the following day close green. There were 22 Dow 30 stocks and 275 SPX-500 stocks.

All  nine S&P Sectors were red on the day with financials seeing the best performance at a loss of -.86% and Utilities lagging at a loss of -3.02%.

As for the weekly performance, all S&P sectors are red on a 5 day and a 10-day basis, ALL.

This is certainly a short term oversold condition, but again, when a market is breaking down, it can sometimes be difficult to tell just how oversold is oversold.

As for the 238 Morningstar groups we track,  a mind numbingly low number, only 19 of 238 closed green today, the rest were red, again another short term oversold condition in line with the assumptions of the Week ahead post for early next week"

I think it's fair to say that the Week Ahead forecast was for early strength in the week, followed by additional and likely sharped downside as we have actually entered stage 4 decline. In one of the posts Friday, I made mention of something maybe along the lines of the September area that led to the October decline which looked like this...

This is the September high at stage 3 with a head fake move or Igloo/Chimney at the first yellow box before entering stage 4 which happened right after and a small counter trend bounce at the second yellow box as we were already in stage 4 decline.

While this could be a "rough example" of expectations for early this week and what comes next, neither are really appropriate as we have already entered stage 4 decline in the case of the first area and we are not that far in to stage 4 at the second area. Beyond that, things looked a lot weaker today. However, I don't think we are done with the early week price strength, but may be as soon as tomorrow.

I still feel the same as Friday in saying I would NOT try to trade it long, but rather use any price strength to sell in to if I had long positions that were highly market correlated or short in to if there were positions I wanted to add or add to.

Note both of the candlestick price patterns in the September example above, that's essentially what we have today all around...

 In the case of the Dow which was the strongest relative performer today, we have a sort of Tweezer bottom or lets just call it support off Friday's close.

In the other averages, we have something more like the following...

NDX-100 daily chart with a Harami reversal or "Inside Day". This could also be considered a "Tweezer bottom".

Two things to remember about candlestick reversal set-ups, 1) they don't have a target. In the September example of similar candlestick reversals, they moved 3 days up in one case and 1-day up in the second. 2) Candlestick reversals are about 3-4 times more effective if they have increasing volume which NONE of the averages had today. This doesn't mean they can't and won't see further price strength tomorrow, they simply just aren't strong reversal signals whether that be 1-day or even part of a day. Check the volume on the major averages, both the Dow and NDX above have lighter volume.

As for the actual 3C charts, except for the NDX, every one of the averages saw significant weakening today.

DIA

 1 min intraday saw a positive divergence Friday (March 6th) in white, that bounced today (picked up where it left off as 3C normally does in the cash market) and then proceeded to weaken almost all day today. This migrated to longer timeframes intraday meaning the negative divergence or the weakness was getting stronger.

 2 min DIA with the same positive divergence late Friday and a leading negative divergence today in to the bounce from Friday's intraday , late afternoon accumulation.

DIA 3 min shows the same Friday accumulation or positive divergence and migration of today's negative divergence on this 3 min chart, all very sharp, very ugly intraday divergences today.

IWM

 IWM 2 min with several negatives in to stage 4 decline which is not just judged by price, but leading indicators like HY Credit, etc. You can see Friday's positive divergence, but only on a 2 min chart, not very strong.

The 1 min IWM chart is the first place Friday's divergence and today's price strength would weaken first as it did on this 1 min chart, it didn't migrate yet to the 2 min so this has a little better 3C relative strength than the Dow at this point which is probably because the Dow as the best price performer today, offered more to sell in to.

 As far as the probabilities of continuing the stage 4 decline and how bad it will be, this is an IWM 30 min chart, I posted the Index futures 60 min charts numerous times last week, all very very strong negative divergences, I have no doubt that we'll see stage 4 continue and not just a pullback as many of the averages retraced the entire head fake move by Friday.

SPY

 Again a 30  in chart with the start of the cycle at 1/29 to 2/2 and harsh leading negative divergences in place now.

The SPY is the one average with more relative weakness along the lines of the Dow that "I could" see flopping from here which would mean a big divergence in relative performance, but it does hve a bear flag that "could" fall right from here, usually we se a little head fake above the bear flag, but again, this is one that "could".

 SPY's 1 min chart with Friday's positive divergence which is only a 1 min chart, not very strong, but enough to pick up where we left off and today's clear negative divergence in to anything resembling price strength. Today's negative in the SPY wasn't just the 1 min timeframe, but the 2, 3 and part of the 5 min like the Dow and others above.

NASDAQ 100/QQQ

 QQQ 2 min positive Friday, now you see why I expected early strength this week based on the closing divergences. There wasn't a lot of weakness intraday in the Q's relative to the other averages, the next strongest was probably the IWM.

The Q's have something a little different looking than the SPY's bear flag and I'd expect just from a price perspective to see a bounce to the red box or somewhere inside it, then a stronger move to the downside continuing stage 4 decline as well as the Week Ahead forecast,  so as I said Friday, "I don't want to buy here, I want to sell or short in to any price strength".

I'm also not concerned in the least about the market here and would add to the QQQ put position on a bounce tomorrow as soon as I saw weakness like the SPY , DIA or IWM.

In addition, all day the VIX short term futures were strengthening and their inverse, the Short Short term VIX futures, XIV was seeing the same weakness as the averages as it moves with them so if I were wanting to, I'd have no problem adding to the UVXY position or VXX long.

Looking at some Leading Indicators, there's nothing surprising based on what I just said above and what we were expecting coming in to this week...

 Bonds were bid pretty much all day, this is the 30 year Treasury futures (ZB) today (1 min).

As for AAPL, a surprisingly weak performance and it didn't seem like the watch went over well. Did I hear $10k for an AAPL watch in gold? Seriously?

AAPL's 3C chart was in line so the price action seemed to be "What you see is what you get", no divergences of interest but some interesting volume after the watch was brought out as well as downside price action at "W".

 This is one of our Pro-Sentiment leading indicators, it has been negative and calling stage 4, as of late last week it went positive as in "strength early this week" so not surprising.

What I was really interested in was whether HYG would be used even intraday as a lever, apparently not. Credit wanted NOTHING to do with any risk today and did not follow stocks.

 A closer look shows you HY Corp Credit sold off vs the SPX in green intraday, so that tells me quite a bit about the nature of any further price strength from here, without even HYG intraday, I really don't have very high expectations for market strength.

This looks very much to me like a normal market jiggle the same as any move to the downside whether it be last September's move to October lows or a full on bear market like 2008, nothing is unusual here.

 Remember the VXX positive divergence all day today? Vs the SPX in green which is inverted to show the "normal" correlation in which they move together, VXX's price underperformed, I suspect that's because it is busy finishing a base for a sharp move to the upside as the divergences were positive and smart money doesn't chase, they buy low and sell high and vice versa.

Spot VIX was a bit more in line on this 15 min chart with the SPX.

This is a 30 min chart of TLT (20+ year Bond Fund)showing the normal inverse relationship with the SPX over a broader period covering most of this year. Note the weakness overall to the right until the jobs data came out Friday which has sent expectations soaring for a F_E_D rate hike earlier than expected, June with the language being changed at next week's meeting.

TLT looks like it is under strong accumulation, but also looks like it will pullback tomorrow which would facilitate stronger accumulation. Being yields move opposite treasuries, the short term implication as in tomorrow would be yields supporting the market intraday, the bigger implications would be TLT heading significantly higher near term and yield plummeting and pulling the market lower which is all pretty much in line with the above expectations near term for early this week and the rest of the week and likely month.

 These are 5 year yields since the Feb. cycle began, in line meaning 5 year treasuries sold off early in the cycle and yields led the SPX, then they went negative at the stage 3 top and pressured the market lower in to last week's decline, note the slight positive to the far right for "early price strength this week" in the market as yields tend to pull equities toward them.

Again, nothing strange here or out of line with expectations for the week. As mentioned above, Treasuries were bid all day today which means yields moved lower as Treasuries moved up, setting up weakness for the broad market this week...what we already expected as of Friday's Week Ahead.

 This is TLT inverted is red intraday as the bond market closes at 3 pm so you can get an idea of what yields did intraday even after 3 p.m., note the weakness in yields which was exactly in line with the 3C weakness in the averages, in fact yields just moved lower in to the close, almost an exact image of the 3C charts.

Commodities are once again acting as a leading indicator (brown) as they led the market higher at the Feb start of the cycle and led it lower in to stage 4 decline.

Intraday, commodities were weak and as a risk asset, also having nothing to do with taking on risk as they diverged with the SPX.

So, I'm very comfortable with the "early strength " this week which may be over tomorrow at the rate the charts are moving, followed by stronger downside as stage 4 resumes, I'd call this a shakeout / corrective jiggle of no importance, but if it can be used, I'd have no problem using it (to buy VXX/UVXY, inverse ETF, etc. in to brief market price strength, not underlying strength.

The Dominant Price/Volume Relationship made absolute sense with today's weak underlying trade action. All 4 of the major averages for the first time in a while all came in at the same, Close Up/Volume Down which is the most BEARISH of the 4 relationships. The Dow's dominance was 19 stocks of the 4 possible relationships, the NDX saw 71, the R2K 774 and the SPX 287 so not only was it a Dominant Relationship and the most bearish, but a strong one at that. This is exactly what I would have guessed after seeing today's 3C charts and VXX, HYG, bonds, etc.

Also dominant and on the 1-day overbought side (as Friday we had a 1-day oversold which usually sees a green close the next day), today's sector performance and 1-day overbought usually sees a next day close red. We had 8 of 9 S&P sectors closing green with Industrials leading at +.94 and Energy lagging at -.72.

Of the 238 Morningstar groups, we had 166 of 238 green, not quite as overbought as the S&P readings, but there's room for tomorrow if it can hold through the day, if the market can hold green through the day, I'd expect to see the same overbought condition in the MS groups and the same Dominant P/V relationship, but I'm getting ahead of myself with today's weakness to even expect that the market can hold through tomorrow.

As for Breadth Indicators, the ones that revolve around moving averages (above and below with 1 and 2 standard deviations) didn't move at all today, meaning there was virtually no gain in market breadth at all. In addition to the numerous breadth indicators I mentioned last week (especially Friday) that have just fallen off the map, you can add New High/New Low ratio along with the 4 week, 13, and 26 week versions, all falling off the chart bearishly.

So that's about that, the only surprise at all for me was that we had some reversal candlesticks on the close in the major averages with underlying (3C) charts as weak as they were today, I wouldn't think they'd make it past noon tomorrow on the upside and I may be right about that, we'll see in the morning, but it is a very weak "Early week price strength" move.

Look for TLT to pullback tomorrow and likely offer a nice long entry if you are interested in bonds long, also I think just about anywhere in the area VXX/UVXY/VIX futures are going to be a decent long entry. On the other side of that, other than specific stocks like NFLX which we hit at the very top with a short entry, I'd suspect inverse ETFs will be excellent long entries or add to positions like FAZ, SPXU, SQQQ, SRTY, QID, TWM, TECS, etc. I'll look at those and verify tomorrow for anyone interested as we are in stage 4 so it may be one of the last decent places to get in before you are chasing as I showed the diminishing returns and added risk on Friday in the Daily Wrap.

Index Futures look horrible right now. The way they look, I'd be surprised if they didn't see some significant downside before the cash open tomorrow and while we are talking about that, most of the averages ended the day on a sour note with 3C so if 3C picks up where it left off, all the averages would be weak on the open and likely through the rest of the day and at that point, why not the week (the QQQ being the only exception).

For an idea of what Index futures look like right now...

 ES intraday 1 min right now since the close.

TF intraday  1 min since the close at a new leading negative low. They not only looked horrible through the day, but continue to look worse after hours.

As usual I'll check them for any unusual activity before turning in and post it if I see it, right now everything makes perfect sense with the "Week Ahead" forecast from Friday with early price strength in the week, not market strength , followed by a resumption of the Stage 4 DECLINE.

Have a nice night.

Futures and VIX

VIX short term futures (VXX / UVXY) which trade opposite the market had shown clear negative divergences late last week along the lines of our Week Ahead forecast of strength early in the week followed by additional weakness, nearly a carbon copy of last week.

However as we have seen the day progress, VIX short term futures have seen near continual improvement, I may not be willing to go so far as to say they are at a pivot right now short term and this week's early strength is finished, but I am a little surprised at how quickly they have improved today.

You've seen VXX  in numerous posts today showing that improvement, in addition to Index futures which look horrible intraday and do look like there's better relative strength in the Q's than the SPY (not saying it's strong strength, just better relatively speaking), I'll also show the actual VIX futures which had been positive several tmes last week on a 1 min intraday which is kind of rare, now they are positive on a 5 min which is more rare and XIV which is the inverse of VXX, it's short short term VIX futures meaning it moves with the market and negative divergences there confirm the VXX positive as well as any negative divergences in the averages/Index futures.

 ES intraday (SPX futures)

NQ intraday (NDX futures), not good looking, but better than ES relatively.

YM / DOW futures intraday

TF / Russell 2000 futures intraday.

5 min VIX futures positive in to a pullback

And XIV confirming VXX intraday, 1 min with a positive from Friday going negative today.

2 min doing the same

3 and 5 min doing the same.

This looks like deterioration a bit faster than I would have anticipated it based on Friday's divergence for strength early this week.

Quick Market Update

I'm not making any particular market moves at the moment, more or less still observing, the Q's still have respectable short term relative 3C strength and that's probably the main reasons, but other indications are getting more and more interesting. I really didn't think the reaction to AAPL's display today was all that impressive.

As for AAPL...

 AAPL 30 min looked like there was something wrong before today, a big part of the reason the put position was opened. Considering 3C's relative position a the two red arrows and AAPL's price relative to 3C at the two red arrows, something still doesn't look right.

 This is the 5 min AAPL chart, again a stronger 3C leading divergence than the slightly sloping AAPL downtrend here.

The 15 min chart with a base area and this looks like a pretty clear stage 3 area vs the base area.

Intraday there has been virtually no divergence in AAPL, it's as if what you see is what you get and there's significant volume, especially as Friday's close is taken out.

SPY 1 min which has been ugly all day has moved more strongly to the 2 min chart.

At first there seemed to be some strength in the chart, but it looks to be dissipating rapidly.

 IWM 2 min positive late Friday and in line today for the most part.

However the newest divergence will occur on the fastest chart, the 1 min and there you can see Friday's closing positive as well as much stronger negative action developing here.

 HYG tried to go positive earlier on and was shot down with 3C in line or leading lower.

VIX improvement continues - 1 min

2 min

3 min

I'm not sure we are at a transition from today's relative price strength, but things are certainly getting more interesting.

Adding AAPL March 20 $130 Puts Back

Remember the 1/2 position of AAPL puts taken off the table last week at a gain, CLOSING HALF OF AAPL MARCH 20TH $130 PUTS ? I'll be adding that 1/2 size position back.

A part of me wants to go out to April monthly expiration, but I think I'll stick with this half at the same March 20th expiration.

NFLX Short Position Follow Up

Our patience in the NFLX Trade-Set-up paid off.

On January 21st, after NFLX earnings I posted, NFLX trade Set-Up which was not a NFLX short call, but rather a set-up and looking for the entry for a NFLX short as the earnings in NFLX were headline garbage if anyone had bothered to read, would have known, but as we were talking about a lot that month, the cycle for NFLX to move higher to fill a massive gap was already in place and NFLX was going up no matter what earnings were, but that's only short term manipulation, the earnings (if you looked beyond the headline print) were horrible and that's what smart money is looking at, not what they did, but what they'll do.

So this is what the daily chart and our moves have looked like.

The trade set-up was the day after earning on the gap up,  but the actual entry which we were VERY patient with just so happened to be at the very top of NFLX's run posted on Thursday Feb. 26th at the red area, Trade Idea: NFLX Short

Since, NFLX has lost over 8% and our short has some nice breathing room to work on a longer term basis as we already have 2 previous NFLX core/trend shorts, one of which is back at a +7% gain after the massive earnings bounce and the other not too bad at a -7% loss, but moving back toward profitability each day. The last entry was as good as you can ask for at the very top of the post-earnings move.

Today's word that HBO is using AAPL as their exclusive stand-alone partner for their launch leaves NFLX out in the cold, so it looks like our latest trade set-up in NFLX was worth the patience.

As for the charts...

 On the daily 3C NFLX chart we could clearly see the staging of the primary trend cycle with a rounding bottom and 3C accumulation in 2012, Stage 1 BASE/Accumulation leading to stage 2 Mark-Up/Participation through 2013 , but by 2014 distribution on a large scale (to show up on a daily chart) made it clear we were seeing stage 3 Top/Distribution with new leading negative 3C divergences. In 2014 you can see a large gap down at the first yellow arrow. Our entire premise for the latest trade was that middle man (specialist/market maker as well as fund managers) were stuck with inventory at much higher levels and significant losses which they'd try to get out of, thus as we see the pre-earnings 3C charts, you can see NFLX was going up No matter what the earnings as price reacts faster than you can read an earnings report and sets the tone or perception of how earnings were received even if as usual, price is exceptionally deceptive. The second yellow arrow was the gap fill and chance for pros holding inventory at those levels to exit it without taking huge losses, but all the while the 3C charts never saw any improvement, just more deterioration suggesting what we initially though post earnings, that they'd be looking to get out as soon as they feasibly could without taking heavy losses as price filled the gap and then some creating the demand and volume large institutional traders need to exit positions without crashing price.

 This 2 hour 3C chart shows the accumulation pre-earnings that was going to set the perception or tone of earnings no matter what they were, tradrs chase price, they don't seem to care about anything else so even if surprised by NFLX's poor earnings past the headline print, they assume price is telling them the market took earnings differently (positive) when the entire time NFLX was set to ramp no matter what the earnings, this was key to our initial trade set up and look out for the right area. You can also see the huge leading negative divegrence and as we expected, the pros who had been trapped at huge lossed were not getting out at break even or better,  but they were getting out as we anticipated the first day of the gap up.

The 60min chart showed us the area where distribution was the strongest, from here it was just looking for the tactical timing which we got to the very day (highest intraday and closing move in which we entered the NFLX short.

3C has made a series of lower lows and highs to new leading negative lows since the top-looking lateral area had built in.

 The 30 min chart shows the pre-earning's set up for a move higher at stage 1 base/accumulation which was a tell-tale and common "W" price pattern. At #3 we were in a top/distribution stage already with an intense 3C leading divergence in to the highs which we patiently waited on for all of the charts to align.

 As for timing periods, the 3 min chart shows a clear deterioration in to the lateral top area, that was our cue along with numerous other multiple timeframe analysis/charts. We hit this one PERFECTLY.

As for our custom buy/sell indicator, you can see the multiple sell signals and one buy, the size of the last signal was part of our analysis, but just one of many pieces.

I suspect now that the middle men have exited losing positions, NFLX will continue along the trend of the daily 3C chart as well as others and soon be hitting new lows.

This has been and continues to be a core short for us.