Daily Wrap

After yesterday's very opaque underlying trade conditions, today cleared up quite a bit and the market is trying to bounce as we first put out Tuesday morning with a few excerpts from an early market update that should give you some additional insight or reminder of things you already know and what's expected moving forward,:

"Remember why I wanted to close the puts before the market turned lateral today? Well it has turned lateral inviting a change of character.  I'm not worried about it and maybe it's strong enough that I can replace the AAPL and QQQ puts with the longer expiration which was the point of closing them earlier before this lateral trend developed."

Truth be told, I was expecting a closer, intraday bounce, but by yesterday I had revised that based on the scraps of data that could be found to "Finish the base today (Wednesday), rally tomorrow (today), lose some momentum Friday on an op-ex pin and finish up in to the F_O_M_C next week culminating with the MArch policy statement Wednesday at 2 p.m.

As for the psychology of a bounce, from the same post Tuesday...

 "Your emotions are the best reverse indicator when they reach extremes and you feel like all hope is lost, that's usually when you want to be taking action that directly contradicts everything you fear). The simple fact is, YOU GET PAID TO TAKE RISKS. Often those risks are going to be diametrically opposed to every emotional cell in your body screaming you don't believe it and this is not how it's suppose to be. If the market is moving in a comfortable way and you don't feel that conflict, you are on the side of the bag holders and enjoy the good feeling while it lasts because it will turn on you."

The reason I said above,  "today cleared up quite a bit and the market is trying to bounce as we first put out Tuesday morning ",  is because the Dow just slipped in to green on the week, joining the Russell 2000, however the SPX and NDX remain red on the week. It's rather amazing how we can sometimes focus so close on intraday or short term trade that we miss the big picture completely, for instance watching today with the Russell up +1.71%, the Dow up +1.47% , the SPX up +1.26% and the NDX up +.72%, it's easy to forget that half the market averages are RED on the week still with the DOW just barely managing green today.

It's even easier to forget that the same market dispersion that was worse yesterday with the Russell up and everything else red, which carried on today as most of the averages nearly doubled the NASDAQ's performance, is actually not a good sign, but as you can see above, I haven't really been too concerned with this bounce which is just part of the market. However if the market is going to bounce, it's going to do so convincingly and for a reason and that is usually to sell the deception. A market needs to look strong or weak to change market sentiment which is market perception which is one of the main drivers of market movement with the scholastic supply and demand being a function of greater market forces of greed and fear.

So today saw the WORST retail sales since the Lehman collapse, the F_E_D's GDP now is plummeting (real time GDP forecast), Jobless Claims remain above 300k for the second week in a row on the widely watched 24 week average of Claims, Intel cuts their guidance citing "Weak demand", there are all kinds of macro economic problems plaguing the world starting in ASia and making their way through Europe and to the US. In fact...

Not only are current and forward earnings collapsing, but as we have been talking about all of 2-0015, we are seeing a historically significant bad start to the year in macro economic data exactly at the time when seasonal adjustments usually make economic data a lot stronger than it actually is, which begs the question... How much weaker is the macro economic data when discounting seasonal adjustments that typically run through Q1?

Still I don't deprive the market of the gains today, I merely point out perception can be an emotional masquerade  as half the market is still red on the week despite today's gains and price action can be very deceptive.

On that note, while breadth indicators finally saw a  decent move today on the bounce (as they were dead flat for a month or so during the February cycle/bounce, the fact remains that less than half of the stocks in the largest market index , the NYSE, are above their 40-day simple moving average. To be exact, only 46% of all NYSE stocks are above their 40-day moving average.

While I expected a faster, smaller bounce, I probably shouldn't have knowing that the market doesn't do anything without a reason and in the case of a bounce, the reason is to be believable, to make traders forget that the entire SPX head fake move above the 2015 range was erased and then some as of yesterday.

In addition, the market gave technical traders exactly what they expected, I posted this last night as the SPX retraced the entire head fake move and then some which in itself opens a door for a bounce as bullish traders start to get weary of the market as it broke support, but as I also pointed out last night, the much watched 100 and 50 day moving averages are exactly what traders expect to come in to play. When forecasting a bounce Tuesday, I should have thought a bit more like a crook and forecasted a bounce off the 100-day as that's what technical traders would expect. While we can say that Technical analysis is correct as the market did bounce off the 100-day, how do you account for the fact that we saw it a day in advance of that actually happening?

 S&P-500 first makes the head fake move above the range, then retraces all of it at the red arrow and then some, then bounces off the 100-day m.a. (purple) through the 50-day today which is what to many technical traders? A buy signal so the break of support just 2 days ago that would have market bulls starting to question the market after NASDAQ 5000 follow through is notably absent, they are thrown a bone at the 100-day just reassure them all is well as smart money continues to offload / set up shorts or buy puts like Icahn and Co. in to the price strength, the exact same thing we plan to do as posted Tuesday morning.

And the Dow? It too runs the head fake above the obvious 2015 range, retraces all of it and then some breaking support and then the next day thrown a bone (to technical traders) as they expect the market to bounce of the 100-day, with a break through the 50-day today,  but again, how could we have known this a day before?

Looking at the S&P sectors, at least things make some sense despite the horrible macro data today and if we even consider the additional two easing movements by Central banks in Thailand and Korea, we just need to think back to last week when we had 3 surprise easing movements in a single day of which the market cared NOTHING about.

Over the last 2 days, you can see the intense pick up in volatility among the 9 S&P sectors with Financials leading as the F_E_D gave all but 3 banks the all clear to go ahead with planned dividend and share buybacks, as such Financials led today at +2.17% with companies that passed like Goldman Sachs up +3.11%, but the one bank that passed conditionally (as they have to resubmit by September 30th, Bank of America), didn't do as well, down -.12 as the entire Financial sector led the S&P sectors with a +2.17% gain.

Eight of nine S&P sectors closed green today, a far cry from Tuesday's 9 of 9 red. AS mentioned Financials led, Energy lagged at -0.64%.

Of the 238 Morning star groups which only saw 5 close green as of Tuesday, a deeply oversold short term (usually 1-day) condition, today a  mind-numbing 223 of 238 closed green, again a LONG way away from Tuesday's 5 of 238 green, 233 red!  

So Tuesday we have 9 of 9 S&P sectors closing red and 233 of 238 Morningstar groups closing red, today a near flip flop only 2-days later on some of the worst economic data of the week, with 8 of nine S&P sectors closing green and 223 of 238 Morningstar sectors green.

What exactly changed? Nothing changed other than a deeply oversold condition on Tuesday, but before that was even evident, we had a good idea a bounce was coming. Is the bounce based on the merits of earnings or macro data? You can see the chart above, I think the answer is a solid no. What about Central bank easing? Again, with 3 SURPRISE easing actions in a single day and the market caring less, I don't think Korea and thailand's easing made any difference.

What did make a difference? Again, I'd point out Mass Psychology and the break of support, the averages going red on the year and the bulls starting to get nervous. The market needs someone to trade against, someone to hold the bag until there's a move significant enough that they'll just keep holding the bag out of pure hope that it comes back. And of course there's the squaring of positions in to the F_O_M_C next week in which perception on a rate hike's timing and size have nearly doubled in a single week on last week's Non-Farm Payrolls.

Price is indeed deceptive, but more than that, Wall Street is dead crooked and realizing that and using it to your advantage is the only distinction between the sheep and the wolves.

While I'll keep my eyes on the 3C charts as today's TF/Russell 2000 Futures showed indications of heavy distribution, being the only average that has given smart money anything to sell in to...

TF/Russell 2000 futures with the base/small accumulation starting Tuesday as we suspected when closing puts in to yesterday with distribution looking extremely strong as the R2K is the only average giving smart money price gains to sell/short (or buy puts) in to.

We also want to watch the indicators that gave us clear signals when things were a bit opaque yesterday, for instance our SPX:RUT Ratio custom indicator that called out a bounce Tuesday and yesterday as well.

Note our custom SPX:RUT ratio was diverging positively with the SPX on Tuesday and again yesterday, today it's in line (green).

Interestingly our one Pro Sentiment indicator that was leading in to Tuesday and Wednesday as well, suggesting a bounce (as I mentioned I had to go to a bunch of  our other sources like Leading Indicators as our main ones were opaque yesterday and all over the place) is now starting to lead negative, right on cue for a leading indicator.

Pro Sentiment vs the SPX (green) with it leading in to Tuesday as we closed puts and Wednesday as well, today as the R2K charts deteriorate badly on 3C Index futures, this leading indicator deteriorates as well, being one of the few we used to forecast a bounce since closing puts Tuesday.

This wasn't the only one of our leading indicators that were diverging again for the second time this week.

 While our VXX vs SPX has been lagging, the theory has been VXX is being held down and under accumulation at lower price levels, intraday you can see that today as I inverted SPX prices (green) to show the normal correlation or in this case relative weakness.

On a longer timeframe, you can clearly see what looks like VXX, short term VIX futures being held artificially low in to the bounce presumably either a lever to ramp the market or to accumulate or indeed, both.

As I've mentioned numerous times in the past, it's rare that we get a solid signal (positive) on actual VIX futures, we saw a 1 minute chart positive earlier this week which was a surprise, but today's chart is even more so as I believe this may be the first time I've seen a positive this far out on actual VIx futures.

 Actual VIX futures 5 mins with a sharp pullback, but a strong 3C positive divegrence.

 This I don't recall ever seeing, a VIX futures 7 min positive divergence.

Despite the sharp intraday pullback, our recent UVXY (2x long short term VIX futures) remains at a gain and the 15 min VXX chart which gave us short term notice of a pullback, has a strong 15 min leading positive divegrence while the inverse, XIV has a strong leading negative divegrence.

I suspect smart money and deep pockets have been accumulating on the cheap in the realm of protection while selling and shorting in to price strength,  this is the exact same thing we have done or plan to do (long UVXY already, looking for the QQQ/AAPL put entry).

Yields have also bee in line with a market bounce and failure of that bounce. As of yesterday this is what 30 year yields looked like vs the SPX which we said looked like the SPX would revert UP to the mean before heading down.

 On a macro basis, this is how much the SPX (green) needed to revert (UP) to the 30 year yield which draws equity prices toward it like a magnet...

As of today, that has been significantly narrowed... the exact same chart today...

 This is the entire February cycle from 1/29-2/2 (start).

Intraday, yields are lagging the SPX and market which should create negative pricing pressure over the next day or so.

Commodities are once again acting as a leading indicator, probably much more economic wise which probably tells us something about how the market is discounting since the end of 
QE 3 at the end of October...

 Commodities (brown) vs the SPX since before the February cycle with a negative signal just before, a positive signal where we found accumulation in just about every asset from Jan. 29 to Feb 2nd and the leading negative at the market's stage 3 top and in to stage 4 decline.

You've seen this chart more than once and commodities were all over the place today with silver up, gold flat, oil down and copper up, however we'l be looking closely at gold since it has fulfilled our pullback call and is showing strong signs of accumulation.

Intraday the SPX is negatively divergent vs commodities as you can see.

As for High Yield Credit and especially the market lever HYG,

 HYG vs the SPV 5 min chart with price divergences in which HY Credit leads the SPX until the recent small positive dislocation on Tuesday, that turned a bit sour today.

 3C has shown no accumulation in HYG which is rare if it actually moves up, in fact we have gone from in line yesterday to distribution today and the price moves vs the SPX were negative, I suspect we'll be seeing this leading indicator dislocating over the next day or so as well.

PIMCO's HY Fund has also dislocated.

Our Dominant Price/Volume Relationship tonight was the same for all of the averages except for the Russell 200 which was the most bullish of the 4 relationships at Close Up/Volume Up with 838 stocks, ironically though, this often acts as a 1-day overbought condition and with the breadth readings in the S&P and Morningstar sectors, that wouldn't surprise me at all with a close lower the next day most common.

As for the Dow at 16, the NDX at 63 and SPX at 241, they were in the most bearish of the 4 relationships with Close Up/Volume Down.

Considering the breadth of the sectors/groups, the market looks a bit overbought and that's a problem for a market bounce ( a rally would be a different story).

So we'll be looking for our entries, the SPX and NDX are yet to really break out of their base areas or even go green on the week so I still expect some rotation out of the R2K and in to those 2 averages, I suspect by Monday we'll probably be winding this whole bounce up and getting ready to continue stage 4 decline which is solidly in place. Both averages are in line and have the short term divergences needed to get their bounce moving, at least enough strength to sell in to. The IWM on the other hand is already starting to look dangerous, semi-parabolic and loosing its 3C support, I may be looking at IWM puts as early as tomorrow if the Options Expiration max pain pin doesn't get in the way. The Dow looks like it has some more upside so we may very well see a reversal like yesterday to a multi-directional market that's not confirming as the IWM was the only average green while the rest were at a loss, that rotation is a strong possibility.

As far as Index futures go tonight, there's nothing that I would deem that strong to overrun near term expectations as listed just above, although the R2K futures are looking a bit weak, which is in line with rotation.

After being in line (3C price confirmation) all day short term, after hours we are seeing some weakness build in that is in line with the longer TF charts. I'll check as usual before turning in and update anything unusual going on, but as we suspected Tuesday, this looks like a normal, typical market bounce meant to change sentiment or hold it up while most of the averages have already entered stage 4 decline and should resume, I suspect this is all about position squaring in front of the F_O_M_C next Wednesday.


Have a great night.

Intraday Update and Watching for the Volatility Steam Roller

I'm not one at all to brag or take victory laps or claim to be a guru, but considering there were only marginal divergences Tuesday when we closed down the QQQ and AAPL puts and those decisions were largely based on the way price was behaving, volume and volatility, I think it is a testament to how strong our concepts are which have all been revealed through 3C charts over the years to the point in which something is seen so often, that it becomes a probability and then one of our concepts.

Whatever kind of trader or investor you are, if you get nothing else from the analysis here, I hope it is that you learn how to apply these concepts to your own trading (which to become a concept must be fractal meaning working in any timeframe and for any asset).

I posted quite a lot about volatility recently and what it looks like, what it means at different areas of the market. In our particular stage, volatility is extreme, it's typically fast moving and it can run-over otherwise solid signals, but this is a concept beyond simple volatility and gets more in to mass psychology and the two forces that move all markets, Fear and Greed. Fear is the stronger of the two as evidenced by how much faster a bear market erases a bull market's gains, at least 3:1 and in some instances much higher like 5:1.

Additionally market structure and breadth such as the percentage of stocks above their 40-day moving average as we are barely removed from a recent all time new high being almost half of what is normal for a bull market and less than 50% in hard number terms, makes the market exceptionally weak and like an immune system that is severely compromised. Small events like the common cold that would normally not cause any significant changes could be life threatening. The fact that the market is trading at Current P/E's that are associated with tops and that these were reached not by productivity, but by issuing debt to buy back stocks and the fact that there's nearly $ trillion dollars in accommodative policy that got us here that needs to be unwound or something as simple as margin debt being at record highs meaning a small decline forces margin calls and selling that quickly turns in to something much larger than the fundamentals of the market would otherwise create.

My point is simply this, I have to watch the market very closely for any signs that a steam roller is heading our way, which is fine with me from a positioning standpoint, but for additional positions or trade management, it's crucial information. As of now I expect a bounce to continue as it has barely moved in anything other than the IWM, as such there's usually not a lot to do from an analytical point of view other than to wait for it to run its course, but in the place we are right now, there's an increased danger of volatility over-running otherwise solid analysis, it really doesn't take much.

On that note, here's a look at intraday trade...

Since this morning's short squeeze in EUR/USD, we forecasted that the sort squeeze was done and the probabilities favored the pair heading back down, they have been lateral since the A.M. update and toppy looking so it would not surprise to see the [pair move lower.

Intraday ...

 QQQ 1 min has barely moved, it has not left the base area as of yet and is underperforming the SPX by about 50% on the day.

The early negative divergence this morning has held the Q's at levels below the intraday a.m. highs, but recently there has been a small positive divergence, remember despite the +.64% gain on the day, the Q's really have not even left the base area as of yet as you'll see.

 The IWM continues with upside gains and can be considered a bellwether for the market overall as it has seen distribution in to stronger prices as was expected Tuesday morning on a bounce and as would be expected just from a staging point of view. Unless a significant base has taken shape which it has not, we are in stage 4 decline which means the probabilities of any bounce are skewed heavily toward distribution and failure as the dominant stage/theme are set to continue.

 The SPY saw some early 3C inrtraday weakness that has kept it too in a range with no further gains on the day after the a.m. session highs, but like the Q's, it too has seen a late day positive divergence on a 1 min chart.

 Interestingly, the Custom TICK/SPY indicator which shows market breadth as you'd expect (stronger in to stage 1 after capitulation, weaker in to stage 3 and stage 4 with recent and small strengthening in to our bounce area.

Taking a closer look intraday...

 Through this range of SPY intraday after the a.m. negative divergence, intraday breadth has declined substantially, not a lot on the scale of a bounce, but something that could be the tinder that starts a larger flame and must be watched over.

 Intraday NQ futures saw a head fake move, check the volume and the 3C accumulation as they hit a low. Otherwise, nothing special here other than in line.

 ES/SPX futures 1 min show in line early with a negative and a little weakness, but again, nothing I'd really be too interested in.

TF/Russell 2000 futures are showing a bit more negative action,  that's likely because this is the only average that has given the market something to sell in to as you'll see.

 On a 5 min ES chart, we already know we have a divergence at this "W" or lateral base/bounce low, you can also see that despite a +1.2% gain today, the SPX hasn't even left the base area yet.

The same goes for the Q's as this is the 5 min NASDAQ futures.

Here's where it gets interesting...

 TF/Russell 2000 5 min futures look very different and are negative, but as you can see, they are the only one that has clearly moved out of their base area and given the market price strength to sell in to, that's what this is all about, selling//shorting in to price strength, the exact same thing we were /are looking to do as we closed Put positions Tuesday expecting a bounce.

 The 10 min charts offer additional information and perspective, again ES 10 min has barely left the base area so you can't expect selling in to an asset that for all intents and purposes is yet to make its move.

The same is true of NASDAQ 100 futures on a 10 min chart.

Again however, TF/Russell 2000 fuures have a wickedly nasty negative divegrence bas they are the only average that has given the market / pros something to sell in to.

Again, if I feel that the IWM is in an area in which it won't just move higher or stay put waiting on the other averages and rather looks to diverge to the downside, I'll put out trade ideas, Puts, inverse ETFs, TECS, etc.

AAPL Trade Set-up

I've mentioned a few times that at this point I'm more interested in AAPL as a trading stock than a trend position and that's because it should have the choppy volatility that makes for nice , quick option trades, it certainly has the liquidity (what good is a theoretical gain if there's no offer to make it real ?) and at the present, it's in excellent position for a trade set-up and a nice swing move that I'd prefer to take advantage of using some leverage which means options or more specifically, PUTS.

I suspect that AAPL is in a topping process, this may be a smaller top that forms part of a larger top or it may be the top. Either way, it looks like a H&S top. Many of you know my rules of shorting a H&S top and the 3 places I will, the one I will not. The head which we may have just past, is the first place, it's the hardest to identify and it also takes the longest time to see a decent return, but it does offer the advantage of the best entry and the lowest risk. I'm not saying the head is the wrong place to short a stock, it's all relative to what kind of trader you are. For instance, if you don't mind waiting a bit longer for the maximum potential and value the better or best entry and lower/lowest risk over time, then this may be something you are interested in. If you want something almost as good, but with a little better timing and not as long of a wait for the maximum potential gains, then the right shoulder would be for you. If you value timing over all else, but still want a decent overall entry with reasonable risk, then the shakeout after the initial break of the H&S's neckline is the third and last place to enter. It all depends on what your time horizon for trades is, how much time you have to watch the market or perhaps how little time you have (and would rather something more on auto-pilot), etc. There's no wrong way to trade, it's finding what is right for you.

 This is the 6 hour long term AAPL divergence which appears to show a left shoulder and coming off the head right now, which is one of the nicest swing trades in a H&S top. We entered our last AAPL put position 5 days off the absolute high, other than the add-to replacing half the position closed down which was put back on 3/9 before closing it this Tuesday.

If you are more interested in a longer term trend position and entering near the head, than this post should provide the set up that will get you as close as possible, otherwise I'm looking at this from an options trade P.O.V.

 This is my custom cumulative volume in blue that I use just to make it easier to see the volume trend which is essential to identifying a real H&S top rather than a random price pattern which at this point is very important as the right shoulder or lower high has not giving you a strong probability of a H&S top.

In any case, volume should decline at rallies and increase at sell offs which is what you see above so whether you are looking at the options trade or the longer term trend trade, the volume suggests this is going down to the neckline (red trendline) and if we can enter on a slightly better price position (bounce), all the better.

 This 5 min chart is what I'm using because for our purposes, it's the divergence that matters, but I did want to show you the longer/stronger negative divegrence in to the head which you can't see when I zoom in on what's important to us right now (below).

Also at this point, you should be able to see the tell-tale "W" price pattern to the right at the white trendline.

 This is the 5 min chart zoomed in a bit coming off the top of the presumed head in the H&S top with 3C price/trend confirmation of the downtrend to this point.

At the white area you can see a 3C positive divegrence, again, it's very small compared to the large leading negative 5 min chart above, but that doesn't mean it won't work, it just means the probabilities highly favor the bounce failing which is the set-up for the options or really either trade.

At the yellow arrow I point out a head fake move that is in scale for the "W" base, just to make the point that the head fake concept is fractal and occurs in all timeframes and is one of the last things to happen before a price reversal making it an excellent entry area and timing indication.

The 3 min chart is a bit more detailed and I've identified the area in which the divergence first started. One of our 3C concepts is that price will surpass the area where the divergence first started so according to the concept which is based on real experience, "If" I entered AAPL long around the $124.80-$125 area when I first saw a positive divegrence, even if I knew it wasn't complete or ready to go, I could expect the eventual reversal and move to the upside to surpass this area and put my long position at a gain, the same applies for negative divergences.

We can also see the "W" price pattern and head fake/stop run move clearly here.

From a measured move perspective, the measured move would imply an AAPL bounce to the  $128+ area.

We'll be watching for intraday charts to go negative telling us there's good distribution in to the move and look for an entry somewhere in that area, I'd set price alerts as a reminder just in case if you're interested.

This should set up an entry around $128 with a target for the immediate trade down to close to $105, that's 20 points and with options with enough time, that's a nice trade set-up.

Market Update, Still Just a Bounce

Yesterday as you probably know, the 3C charts were all over the place, not much at all in the way of confirmation so I had to pick up bits and pieces of information where I could find them which included leading indicators like our SPX:RUT Ratio, HYG's price action, but not 3C action, and especially on VXX and the VIX derivative ETFs both leveraged and inverse which gave some of the best confirmation along with Yields.

I said last night that we get these blackouts in which underlying activity simply isn't there or is mixed as the markets were yesterday and that these rarely last longer than a day or so. Today we have much better clarity.

The original idea from Tuesday when AAPL and QQQ puts were closed was for a near term bounce that would allow us to re-open the March expiration puts at a better price, a more appropriate strike and better timing while taking the gains off the table in the puts we had closed Tuesday as time decay and any bounce or even consolidation would start hurting more and more with time decay.

It seems nothing has changed since Tuesday looking at the charts today, this still looks like a bounce that is quite normal and an opportunity as we saw it Tuesday. This is a post from Tuesday showing some of the divergences that we had , they weren't the best or fully developed, but they were a lot more than anything that was added yesterday, Quick Marke Update. This update shows the charts we have now for the bounce we on their way to where they are now, we did have confirmation of that, just through alternative means such as using VIX short term futures (and derivative ETFs) as mentioned above. So far we are even below our anticipated target zone of Tuesday's gap down, except in the IWM, which as mentioned, looks like it may rotate out as far as relative strength between the averages goes as we saw yesterday (quite mixed).

Here's where we stand...

 The IWM closed the gap which was the minimum bounce target as the market has just been utterly ruthless about filling gaps since about 2007-2009 (that's when I really started noticing a shoift as gaps were some of the best support/resistance tools we had so it's unfortunate that they are filled so often).

You may recall, I tried to give an example of what this might be akin to in showing the SPX at the September head fake highs and the move to the October lows , the chart below...

You may recall, I said that the current bounce situation isn't quite like the first as that was a head fake move or the Chimney on top of the Igloo (rounding top ) and we were already past that stage which is the late portion of stage 3 that usually directly precedes a transition to a stage 4 decline.

I also showed the second area which is not quite appropriate as it is a little different, but it's the same general concept, a small counter trend bounce in the midst of a stage 4 decline and we know we have hit a stage 4 decline area for numerous reasons, but one of the easiest is the complete retracement of the entire head fake in a couple of the averages like the SPX, as well as several averages going red on the year, below their 50-day m.a.'s and approaching red since the end of QE3 on October 31st which I posted a chart of last night.

Daily SPX 500 chart with the 2015 range, as it became more clear and before the bounce and head fake move above the range started, I had said the market isn't going to make any serious downside moves until this very obvious range is taken out on the upside.

Since the head fake move , the entire move was retraced and then some. At #1 we have our theoretical target, the shakeout concept so any new shorts are taken out and the "Buy the Dip / Perma-Bull" crowd is locked in place holding the bag.

At #2, this is the anticipated return to stage 4 decline and on the break below the range which I'd call, "TROUBLE" and trouble that likely challenges the October lows , although there will be areas of congestion and support, I fully expect that these lows will be taken out. At that point, we'll have a full blown panic as the October lows were the first primary trend lower low and break of a serious trendline, a second lower low in the context of a primary trend will cause panic and this is where I have expected the market to move to for some time now.

The positive/bounce divergences have largely been around the 10 min. timeframe with some bleed through here and there as a matter of relative performance.

 SPY 10 min after a nasty leading negative divergence which is still in effect.

 And QQQ 10 min, this is with confirmation from VXX/UVXY/XIV, TLT, HYG, etc.

However the same chart in context...

QQQ 10 min which is why when we were first taking action because of an expected bounce this Tuesday in the post linked above showing many of the charts, Quick Marke Update, I said,

"And even SPY 10 min when compared on a relative basis to the former divegrence which is still the main divergence for this cycle and still in effect, that's multiple timeframe analysis, a small box wrapped inside a larger box put in to a shipping crate and they all have their roles to play."

VXX/UVXY which trade opposite the market as short term VIX futures (and 2x leveraged) as well as XIV which is the inverse of VXX and trades with the market, have strong confirmation and have been very helpful in situations like yesterday in which intraday data is all over the place.

 VXX 10 min, in the same timeframe as the averages above with a negative divegrence in the same place they have their 10 min positive in other words, confirmation.

 However once again, take the same chart and put it in perspective and the 10 min VXX negative divegrence is just a hiccup in an otherwise much more important trend, a leading positive position which also confirms the leading negative of the averages on the same chart.

 The 15 min VXX (or UVXY) has a beautiful leading positive divegrence, there's no negative here even on a short term basis as the market bounce simply isn't strong enough to reach the charts out this far which show much heavier underlying flows (accumulation/distribution).

As confirmation, as you've probably already seen...

 The inverse of VXX, XIV which trades WITH the market, shows the exact same stage 1 base and start to the February cycle at Jan 29th through February 2nd, this shows a remarkable degree of market planning and I suppose you could say, "manipulation" as multiple assets across numerous classes, some only having a connection through loose correlations, all show the exact same start date to the day and the same confirmation since.  The leading negative 15 min is confirming the VXX/UVXY leading positive 15 min and for market confirmation, just look at SPY...

This is all of 2015 for perspective and the head fake move, I probably don't need to point out the leading negative divegrence or the degree of confirmation just between these 3 assets.

On a closer intraday basis and what we can expect and what we'll be looking for to confirm those expectations, first it may be worth remembering what my gut feel forecast was which was finish up the base yesterday, bounce today, likely have a wasted day for the most part tomorrow on an op-ex pin and bounce in to next week or more specifically the F_O_M_C.

That was a gut feel based on what was available at the time and considering events. However things change fast and the primary idea to consider is what I want to do, sell/short in to price strength which was the entire point of closing the AAPL/QQQ puts Tuesday to re-open them at better levels with better positioning/expirations/strikes.

 SPY intraday 2 min is already showing 3C weakness in to higher prices,  this is not a divergence that I'd act on, but it is confirming expectations of selling/shorting in to higher prices as I reminded yesterday, whatever repositioning smart money wants to do, they only have a few days to do it before the F_O_M_C in which whether wrongly or rightly, it seems perception is that they remove "Patient" from the policy statement opening the door to a June rate hike. At that point, if "Patient" is removed, the market won't wait for the rate hike, they'll front run the F_E_D just like everyone front ran the ECB in buying bonds and now the ECB is confronted with buying negative yielding bonds.

The key thing to remember is smart money positions, whether selling, shorting or building a put position, they need higher prices and they need more time than we do, so it's the process and the continuation of the deterioration of the process that we are looking for. Note the SPY intraday divergence above...

 On the EXACT same intraday timeframe and scale as the SPY above, the QQQ divergence isn't nearly as bad, why? The market needs something to sell in to, RIGHT NOW I'M TRACKING THE SPY TRADING 2X HIGHER THAN THE QQQ, IF THERE AREN'T HIGHER PRICES TO SELL IN TO , THEY CAN'T SELL IN TO THEM. This is just a common sense reason I expect some rotation from the IWM.

 The QQQ 5 min is still in a positive position as are the 10 min charts, it still hasn't broken free of the base/bounce area.


The IWM on the other hand looks a lot worse than the QQQ doesn't it.

However since yesterday was so sloppy in these timeframes, I've found the Index futures to be a bit cleaner.

This is the 5 min TF/Russell 2000 chart, it looks significantly different than  the ES chart below...

ES/SPX 5 min futures.

Here's the ES 10 min chart, somewhat close to the SPY 10 min chart although there are some slight differences between the two timeframes.

You can see last week;s negative divegrence sending it lower and of course the closest thing to a positive divegrence.

The very same timeframe in TF , 10 min which is the Russell 2000 futures looks a LOT different.

What's the difference? The Russell has provided higher prices to sell in to whereas the SPY and especially the Q's have not yet or not to the same degree.

We'll be watching for continued deterioration, if we have a strong set-up for the IWM in which it doesn't look like it could consolidate until SPY and QQ are done, than some IWM puts may be worthwhile.

Otherwise, this is as good a time as any to get some trade set-ups out so we can let the market come to us and do the same thing smart money is doing, selling/shorting in to price strength on what is otherwise, an uneventful and expected market bounce.