Daily Wrap

Wel here we go with that early week weakness. Friday I didn't think we were quite there yet and had a little more work to do today, but there were all kinds of warning signs from biotechs behavior last week, Transports all year failing to confirm, breadth, 3C signal, the fact that we only expected this to be a bounce and then continue with the February cycle's stage 4 decline and eventually challenge the October lows and I believe break them.

 Look at the volatility on this bounce and then suddenly it dies down Friday on huge volume with clear resistance the last 4 days. The red and white arrows are now 9 consecutive days of the market closing up and then closing down over and over.

While the daily candle didn't look like a big deal, you probably felt a bit different watching the last hour.

 SPY plummets the last hour.

This is what I was trying to get across with the Intermediate Market Update as you notice it's not an intraday market update, but dealing with the charts that are really telling us something, the same something we expected when we first identified the probabilities of a bounce on Tuesday March 11th upon closing AAPL and QQQ puts.

We've gone ahead and added some of these back and added some other stuff today, but core positions have stayed in place as I want to trade with the probabilities of the underlying trend which means the distribution, the breadth problems , the non confirmation problems, the F_E_D itself taking away the only thing that gave the market legs, the punch bowl.

 As I was trying to show in the post linked above from earlier today taking a broader perspective look, charts like this 30 min SPY are telling us the market is out of gas from the accumulation cycle for the bounce in white. This 30 min chart is leading negative so we know it's out of gas, but I also added in the bigger picture or what I believe we will be calling the intermediate trend soon and the primary trend soon after that.

The same 300 min SPY chart properly scaled shows it has been a problem all year just as we forecast in December for not only the Santa Rally which didn't occur, but the January effect which we also forecast to be a bust which it was.

Hopefully I've kept you up to date well enough that we don't have to recap everything and can look forward, but I really think it's important to learn what we can from the concepts.

Take biotechs for instance. While we can't really say until after the fact, I started covering them again last week because they were looking horrible on the 3C charts, what looks like it may have been a blow-off top was just a symptom of the underlying condition.

Remember the channel busters and how they "seemingly" bullishly pull away from a trend or a moving average, this is almost always a red flag warning and that's exactly what we were seeing and focussing on last week in covering biotechs,  NASDAQ BIOTECHS / IBB

 A lot of you saw this pulling away from the trend and knew it is a red flag and asked about IBB often, the answer you got almost every time was, "Be patient", and I'm really proud to see so many of you were. I believe letting the trade come to you and tell you when it's ready is one of the best practices you can employ in trading, but it takes patience which is in short supply among many traders. This doesn't mean there aren't other opportunities out there in the mean time, it just means we want to pick our fights at the place and time of our choosing based on objective data, not subjective opinion.

Daily chart of NDX Bios. That sure has the makings of a blow-off top, large volume, a churning day.

Here's the interesting part, Blow-off tops , although difficult to call as they occur and very easy in hindsight, often occur as the broader market is at an intermediate or primary top as well so even if you didn't or have no intention of getting involved with Biotechs, there's still a lot they can tell you that you can apply to your trading/investing.

As was last pointed out Friday, Transports have not confirmed the Industrials all year. We've been following and building positions in IYT/Transports (short) for some time as they did the same thing that bios are doing, they peeled away from the trend to the upside which was the red flag and then changed trend to lateral.

Earlier today in the Intermediate Market Update we noted volatility in daily candlesticks was falling off, but so was volume, this is a chart an excerpt from the linked post from earlier today...

 "The Daily QQQ chart and note the Star candle which is also an inside day (not quite a bullish harami, but same concept) and note the increasing volume making that base and reversal candle about 3-4 times more probable to work. At the last 3 days of indecision or loss of momentum candles, note volume as well."


Interestingly today was on track to run about 30% below recent S&P futures volume and the lightest volume day of the year until the close. "Changes in character lead to changes in trends".

The $?USD got clobbered again, 3 of the 4 last days, this sent commodities like oil higher , gold and look at copper...

That's one parabolic trend I would not trust (Copper Futures).

Interestingly, even at the end of the day, TICK didn't hit extreme readings.

Maybe -800 on the day. This might be interesting as the market may be a ways from oversold even intraday, we'll see when we get to internals.

Today was a tight and narrow range just as we have seen in the last couple of days' candles on the daily charts, but the last hour or so of trade and all the sectors were hit.

2 closed Green with Consumer Staples leading at +0.16, two closed at 0% and the other 5 closed red with Industrials lagging at -.84%.

Again, even on an intraday basis, we are not looking any where near oversold which means the Dominant P/V relationship from Friday that suggested we see a red close today, may have a significant role tomorrow.

The Dominant Price Volume Relationship today was in everything but the Russell 2000 as usual. The Dow had 18 stocks, the NDX had 76 and the SPX had 276. Confirming there was no oversold condition even on an intraday basis, the Dominant Price/Volume Relationship was Close Down/Volume Down, the least biased of the 4 relationships which has earned it the nick-name, "Carry on" as in keep doing what you were doing which was selling off at the close.

This is also the dominant relationship you'll find during a bear market as an aside.

Of the Morningstar groups, 120 of 238 closed green. These are very middle of the road readings, but what it tells us is that even on that last hour's sell off, the market didn't approach even short term oversold so theoretically from an internals point of view, the market could pick up right where it left off and continue selling off tomorrow.

It looks like someone tried to use HYG to counter the selling late in the day, it totally flopped as HYG is under distribution.

 High Yield Corp Credit, the ramping lever of choice, even intraday as we know it's in a primary downtrend. Total fail as distribution intraday overwhelmed it.

Speaking of picking up where we left off, as you know that's a 3C concept that has held true probably 90% of the time, this is how the SPY left off intraday

The QQQ

And the IWM, I don't know how we could call this anything less than the end of the bounce.

As for Leading Indicators, they were pointing at a sell-off toward the end of the week. You may recall our custom SPX:RUT ratio that called the bottom and bounce and then went negative , refusing to confirm anymore upside late last week.

On an intraday basis yields weren't that far out of line although looking a little dislocated...

 In fact after the bond market closed at 3 p.m. yields pumped up a little like HYG, in a seeming attempt to peg the market in place through the close.

However you can easily get lost in the lines looking this close and miss the bigger picture.

Yields on a slightly longer basis than intraday. The white arrow is where they peeled away on the Non-Farm Payrolls data, the green arrow is where they reverted back to the mean with the SPX, but notice their trend since the 6th (NFP), straight down and now the two are pretty severely dislocated with the SPX needing to catch down to yieelds' reality (red).

Commodities were up intraday, but again they are severely dislocated to the downside like yields above when you step back.

HY Credit was flat most of the day, but again stepping back, severely dislocated to the downside.

I would normally end with futures' indications, but things look sloppy right now. Honestly I'm surprised EUR/USD didn't come down, but if the Gold/GDX/DUST and USO indications (as well as copper) suggest anything, it's that the $USD bounces here shortly pulling the pair down, but in the mean time, remember that big dislocation ES has from the EUR/USD correlation I showed this morning?

 The EUR/USD (candlesticks) intraday seems to be trying to catch up to the correlation while ES (purple) SPX futures seem to be trying to catch down to the correlation, although really nothing moved.

On the 60 min chart you can see they are still far from their recent/normal correlation with ES overvalued vs EUR/USD by 15 ES points.

Remember the early A.M. Update futures chart?

At the red arrow is Friday's close, at the yellow arrow is the downdraft around the European open and at the white arrow is the pop at the US open followed by the late day sell off, in other words the market hasn't gone anywhere, it's just seeing that volatility start to increase again.

While I'll check futures before I turn in, I think the answers are already in place and in posts like Intermediate Market Update, but what I'd like to see is maybe some kind of gap up in the A.m. perhaps on some Greek trial balloon rumor and see a nice bearish engulfing candle to end the day, something like this...

Something like the red candle I drew in, a gap up and close below one of up day candle's open. While I have no objective evidence for this set up whatsoever, just looking at intraday resistance levels, t would make some sense to hit the stops there before taking it lower and would be an ideal set up for puts of which there are still a few I'd like to get in place.

We'll leave it there for now unless I see something in futures before I turn in. Just remember the market makes its living by making the most number of people wrong at any one time, both intraday and on a longer term trend. While I'm focussed on the longer term trend and won't be run out by intraday volatility, it sure would be nice as a tactical set up.

Have a great night!

Replacing UVXY long position

I've just been waiting for the right time to replace UVXY, I believe we are close enough. This is the 2x leveraged long of VXX so if you don't want the leverage, VXX long might be worth looking in to.

Quick USO Update

All things considered between storage room running out, Saudi output up to 10 mn barrels a day and no plans to cut production unless non-OPEC countries cut production, it's pretty impressive USO is up at all.

However, despite all of that, longer term I think we are still on track.

When the USO base became so large that it was obvious it was too large for a simple counter trend rally, we started thinking bigger, but that meant a bigger base would be needed for a primary trend reversal to the upside so we were looking for not only a pullback to form a "W" or double bottom base, but...

 I expected the most common head fake of a double bottom or double top, the break below support or above resistance respectively which tells technical traders that the base/top pattern is invalidated, but that's how they set the bull/bear traps as technical traders have been playing from the same chart patterns playbook for nearly a century. What technical traders will do and how they'll react to a head fake move that goes against everything in their textbooks, is so predictable, it's easy money, it's an easy set up, in this case it's easy to pick up a bunch of shares form bottom callers on the cheap as they are stopped out and many reverse positions to shorts selling more (the supply/demand dynamic lowers price even more) which is just scooped up on the cheap and in size and when they are ready to move USO back up, all they have to do is cross back above former support or in a double top below former resistance and hit the stops of the newly established longs, starting the move with a short squeeze and nice momentum. . Technical traders are so predictable, they do all the work and heavy lifting and at the end of the day are left holding the bag whether on a daily chart or intraday or in a primary trend market. Just give it enough time and you'll see it over and over again.

 This 15 min chart shows the first base area which grew too large and never put in a sharp counter trend rally and then started going negative in which we suspected a wider double base or bottom that could support a primary trend change, but we also forecast before the move down even started, that there would be a head fake break below support because the concept is just that strong and happens that often and that's what we have in yellow with a positive divegrence.

I don't think this little area of the head fake reversal is done putting itself together yet.
In fact as a dollar denominated asset like Gold, it shows the same positive divegrence right before the F_O_M_C and a sharp, fast reversal to the negative.

So I suspect USO has a little more work to do, which is still potentially an amazing entry.

I just think it's not ready yet, whether it's related to the F_O_M_C and gold or just hasn't finished up with the head fake which is a mini base in itself and as you can see, it could use a second low or 'w' bottom.

GLD / GDX / DUST Charts

Like I said before, the high degree of correlation recently is amazing to me, to the point I just admire some of the charts , to see the market working like this is just fascinating.

You saw the near term expectations for EUR/USD which expects $USD to gain, the market and EUR/USD to drop and gold to drop on Dollar strength, but as a swing trade, not much longer.

 SPY in green and GLD in red.

 This is a longer term 30 min GLD chart and from my perspective, GLD looks like it is still working on a base, this is not a new theme, we've been watching this , calling pullbacks, etc. based on the primary trend base theory.

Thus, I don't see the trade of GLD short as much more than a swing trade and prefer some leverage on it.

Something seems to have changed very quickly near term for Gold from being rather positive to suddenly very negative and you'll see this in multiple assets including gold miners and through multiple timeframes.

For example GLD 15 min had a nice positive divegrence it had been working on the base we expected after we called for a pullback earlier in the year, expecting it to become a pullback long. However after the F_O_M_C, something changed quickly whether it be in their forecast, assumptions about inflation, whatever it was, it was fast. I doubt this has any effect on the primary trend base as far as the big picture, but for now it looks like an interruption.

 GLD 10 min also showing a strong and fast negative divergence right after the F_O_M_C.

 The faster, more detailed intraday charts like this 3 min GLD really show the depth of the change and how quickly.

As I said, I suspect the $USD bounces and EUR/USD fades.

GDX 60 min has a nice local positive divegrence thus I don't view a GDX short as much more than a swing trade, but we'll keep an eye on it and try to take whatever the market gives.

The 30 min chart of GDX (Gold miners) shows that same positive divergence in to the pullback area we had forecasted earlier in the year, then a sudden and sharp change right after the F_O_M_C.

 The GDX 5 min chart has more detail and shows how violently and quickly things swung around.

And the trend of the GDX 1 min chart shows the same thing, but more detail with the change exactly at the F_O_M_C.

DUST , since it is the inverse should have the opposite signals (DUST long) as this 5 min chart does, from negative to suddenly positive.

The 3 min chart shows the same trend.

As does the 1 min chart.

That's numerous timeframes across 3 different assets all showing the same thing.

TRADE Idea (SWING) Gold Short or GDX Short/ DUST Long

I do like Gold on a longer term basis, more of a primary trend in which I believe it is still working out its base.

However as shown earlier on a fading EUR/USD (as well as market), the $USD should gain and there are charts in the right place for a swing trade that would suggest that as also seen earlier, but here's an example...

There's such a high degree of correlation in the market right now it's like a chapter/example from a textbook. Just overlay GLD on SPY since the 10th and you'll see

I believe the $USD which has done a lot of work the last day or two straightening itself out and looking ready to make a move higher,EUR/USD lower, I believe Gold and Gold miners will move lower for at least a swing trade.

I prefer Gold Puts and will open a tracking portfolio position in April 17th GLD $115 puts, however, GLD short or the leveraged inverse DGLD long should work.

Additionally, this is the first really decent signal I've seen in GDX (Gold miners) and particularly in the 3x short gold miners, DUST (long). So I think you could also go with GDX short or DUST long.

I'll post charts in just a few minutes.

Intermediate Market Update

After years and years of looking at charts every single day, all day, you kind of get a feel for how big a base has to be to support how big of a move and how long a reversal process should be or how much it takes because there's VERY, VERY rarely just a "V" shaped u-turn in stocks. I was looking at some of the Asian investment banks and the Assets Under Management (AUM) and you'd think it would take them nearly a year just to move out of one position considering their size and the volume that even liquid assets trade at.

In any case, you get kind of a third sense, which is what I was picking up on Tuesday the 10th when we closed Put positions expiring on the 20th in AAPL and QQQ and this was BEFORE we had solid charts to give evidence which came the next day or later that day.

In any case, beyond non-confirmation in transports this entire year and the total destruction of them today as we have been on to them for quite some time now...

 The long term trend in Transports has been strong distribution, they have not confirmed this year as pointed out Friday and they are among my favorite core short/trend positions.

 This is the daily chart, not good considering the indecision candles across the rest of the averages. Note the indecision candles Thursday/Friday for transports in what I would and did consider a natural, normal counter trend bounce or as I said earlier with the EUR/USd which has had very high correlation with the market, a "DEAD CAT BOUNCE".

This is a horrible looking chart, we have entered a couple of times in Transports as we phased in a position. I still think they are in a great longer term trend position or area for a short, but I wouldn't want to chase them on a day like today.

I'll run through some timeframes and you should be able to see in some of the shorter ones the 4 stage process of base/accumulation, mark up with 3C confirmation, top/distribution and decline.

Also pay attention to the size of previous tops/bottoms and the shape (rounding or "W") and what the market looks like here. I can look at the price action alone and have a good idea of what I'm going to see in 3C.

This 1 min SPY shows distribution in to the F_O_M_C knee jerk move and since which has gotten worse.

 This SPY 2 min shows the confirmation of stage 2 mark up of the bounce and then stage 3 distribution/top starting strongly at the F_O_M_C and continuing.

The Daily SPY has an obvious resistance zone where the upper wicks of the candles keep getting pushed back while the real body of the candles get smaller everyday despite enormous volatility of a day up and a day down for 8 consecutive days. That change in volatility isn't a meaningless occurrence, there's value in identifying that change in character.

 At 15 min we have less detail, more trend and this is coming off the February cycle at stage 4 to the left as the SPX retraced all of the head fake move above the range and then some inside the range, a natural and reasonable area to expect a bounce.

Since, you can see a clear divergence and it sees the bulk of the strength on a strong timeframe at the F_O_M_C knee jerk reaction and since. Don't forget about the warnings about F_E_D knee jerk reactions, you'll see over a period of years this is more spot on than off to a degree that skews probabilities and teaches you something about the deceptive nature of short term price moves, sometimes even longer ones.

The white area is the base/accumulation, the same days as EUR/USd and a number of other assets that are loosely correlated.

 This was the bottom of the 2015 range (white), and the top and our prediction that the market would not ignore such an obvious range and the top would have to be broken before any significant move lower.

More importantly is how the top was broken and what the signals look like as it happened so you can see what the price move or head fake move was used for and how much worse off things have progressed right in to this bounce from the 11th.

 QQQ 1 min with a small accumulation area on the 18th before the F_O_M_C and clear distribution in to and after the F_O_M_C.

The 5 min chart shows the 4 cycles and the 3C signals that you'd expect to see at the base (accumulation), MArk-Up (confirmation) top (distribution) and shortly confirmation or leading negative at DECLINE.

 The Daily QQQ chart and note the Star candle which is also an inside day (not quite a bullish harami, but same concept) and note the increasing volume making that base and reversal candle about 3-4 times more probable to work. At the last 3 days of indecision or loss of momentum candles, note volume as well.

While easier to see on a 60 min chart, you can see the rhythm of the market or proportionality as if they were waves forming in the distance. After a while you just get use to seeing the ones that are going to be big and the ones that aren't worth the effort (for a surfer or an old surfer like me)

 QQQ 15 min which is a trend timeframe and a strong one with the accumulation areas (2) and the clear distribution area in to the F_O_M_C which is becoming a theme and there's a reason for that.

 The more important longer term trend at 30 mins is not about tactics, it's strategic, but it's telling us something about tactics. This isn't an area I'm VERY interested in short term trading, this is an area I want to have my trend trades set up so they can work and not have to be managed every day. The chart is screaming in this instance.

IWM 2 min also shows stage 1 accumulation of the bounce, stage 2 confirmation, stage 3 distribution again in to the F_O_M_C and the leading negative divegrence that continues as the candles get smaller and the upper wicks taller.

 The 10 min chart had some of the clearest signals early for the accumulation/base phase and in to the F_O_M_C with distribution, but it hasn't slowed down which lends credibility to the F_E_D based Knee jerk reaction warnings.

 The 15 min IWM has less detail, but it cuts the noise and reveals more trend.

And the longer term picture of what this move above the 2015 range was used for. Once again, from a strategic point of view, I want to be largely all set up and ready to let my positions work.

I'll have an intraday update out in a few minutes.