Daily Wrap

Tonight's post is going to be a bit shorter for two reasons, 1) I've essentially covered all that is material to both near term trade and the larger perspective probabilities with the March resistance trendline being tested several times being an attractive head fake breakout area for a false breakout/failed move, which I'd pretty much welcome at this time just for timing and tactical entry purposes. The second reason is I need to finish updating and transferring programs, indicators, easy scans, etc to the new machine which should enable me to look at more faster which I'd desperately like to do right now.

I'll just say broadly that my gut feeling is that we see a SPX head fake move for reasons I have laid out for years and more recently, numerous times over the last several weeks as the March SPX trendline became more obvious and as the resistance at the trendline became more numerous.

I view this as a positive event for trades and for market timing and to get to the next swing as these occur just before major reversals both up and down, but down in this scenario. I don't have solid evidence, but I think the concept has proven so durable, it would be hard to imagine a primary trend change in the market without this concept having taken place and the numerous watchlist stocks that are "almost there" as shown with NFLX as a proxy for the watchlist, would suggest to get "there" they need an extra little push and I think they need the broad market to do that.

We have tagged this trendline's resistance so many times, it's a perfect set-up, it's free money for smart money, it's easy last minute dumping of a lot of shares without anyone questioning who's on the other side of the trade. My gut says, "It makes sense", if I were the crooks with the invisible hand, that's what I'd do.

SPX triangle-like top and much broader Broadening Top that we are well under.

Now for something beyond "Gut feeling", but pay attention to volatility, it's important.


Internals...
Yesterday's Dominant Price/Volume Relationship was the exact opposite of Friday's, while this would normally lead to a next day close in the red which 3 of the 5 major averages did with with the NDX outperforming and the Dow underperforming,  I also suggested that I believed there was a good chance that this was the developing internals trend in the market which would actually be a weak element to the market, not that we don't already have tons of confirmed weakness.

I've explained as best as I can the head fake scenario, the probabilities of it which in this case would normally be very high and the lack of Evidence to create the scenario, still we're not that far away from the trigger that would hit limits and get breakout buyers chasing the market, thus creating the head fake scenario without any investment from Wall St. In addition in the Leading Indicators update, I showed you how pros in HY Credit are going the other way, but I'm still leaving this scenario very much open as it would be a fantastic tactical entry and a great timing trigger for a downside pivot of this move that is essentially exhausted as it keeps crashing in to SPX March trendline resistance with just about everything we were looking for having turned already.

MY LAST POST, Quick NFLX/Market Overview GAVE THE PROBABILITIES BEST AS I CAN GAUGE THEM NOW WHICH IS TO SAY THAT INDIVIDUAL WATCHLIST ASSETS LOOK VERY CLOSE, BUT ARE MISSING THAT FINAL POP, WHICH IS PROBABLY THE BEST CASE THAT CAN BE MADE FOR A HEAD FAKE MOVE BEYOND THE HIGH PROBABILITIES OF THE CONCEPT ANY TIME IN ANY ASSET.

As for the Dominant Price Volume relationship tonight, THERE IS NONE, NOT EVEN CLOSE.

The S&P sector performance was very "BLAH" as well with only 3 of 9 closing green led by Health Care +.66% and lagging was...ENERGY @ -1.06% which is now red on the week. It seems crude does have quite a bit of influence and I think you know my opinion on the matter, if not, here's this afternoon's update, USO Update-Swing Position and I shall have more to say on the subject in a moment.

Of the 238 Morningstar groups, only a "BLAH" 137 of 238 were green, VERY middle of the road readings, not implying any strong next day bias, but more in line with price action since the gap up this week, which has been largely lateral in the reversal process area (the price trend for the April forecasted move has also turned largely lateral.

 The major averages intraday today, largely lateral with NDX leading and the Dow lagging.

And the averages on the week after Monday morning's gap up. Transports which were in need of a bounce for a decent entry ( and are leading on the week since Friday as the Dow is lagging)were up yesterday on higher oil prices and up today on lower oil prices,  in other words this had nothing to do with oil prices, but the oversold condition in Transports which is why we don't chase them at lower prices, but wait for them to come to us just as we are with numerous other sectors and individual stock assets. If you saw the AAPL and NFLX updates, you can see we are VERY close, but looks like a day or so of patience will be well worth it, at least from a tactical entry and timing point of view. From a large picture point of view, I think there are a lot of assets that may make slightly higher moves, but in the past I would have had no problem, in fact I would have been quite happy to get trend entries in the area we are in when considering the larger perspective.

In any case, not much help from internals tonight.

VIX volatility is increasing and as mentioned earlier today, we saw some unusual strength in VIX futures on their 3C charts which rarely move out that far with divergences.

This VIX triangle and what I believe was a head fake move-possibly a sort of Crazy Ivan shakeout below the triangle's apex and just below the 50-day , seems to be building tension like a coiled spring, remember VIX trades largely opposite the market so a move up here means a move down in the market and this is starting to look like a lot of pent up energy. VXX and UVXY are on the watchlist.

As shown in Leading Indicators today and even worse by the close and bad on a larger term Leading Indication, our SPX:RUT ratio deteriorated even more intraday or non-confirmation of the market intraday and now through the reversal process as well.

Both Pro sentiment indicators saw a slight boost (positive intraday for the market) at the 2:00 p.m. breadth lows mentioned earlier today as the NYSE TICK hit an extreme of -1325, this was not the normal increased volume flameout, but an extreme in the TICK reading on an otherwise somewhat dull day. If anything, I suspect those 2 p.m. lows are the place the market can try to build off the toe hold it gained at the intraday lows.

HYG is slightly supportive and otherwise mostly in line, however the 3C charts for HYG are atrocious and it looks ready to fall at any moment, although I suspect it's still supportive for a reason VERY near term.

I believe I also mentioned in the Leading Indicators update that VXX (Short term VIX futures) were lagging the SPX at the 2 p.m. lows, almost a sort of SPY Arbitrage, but a hint that the market is trying to make a short term or near term stand off those lows.

This is the 1 min intraday VXX chart vs the SPX (green) and I have inverted the SPX prices-the "apparent" 2 p.m. SPX high is actually a 2 p.m. SPX low, I do this so the correlation and relative performance of the Leading Indicator can better be seen.

In addition Yields were supportive today with the 30 year leading at +6 bps since Friday.

Again, intraday 30 year yields are higher especially at the 2 pm SPX lows, this gives the market near term support, but don't forget to check the recent Leading Indicators posted including today's, Market Update and Leading Indicators,  for the larger picture as these yields are severely negatively dislocated. Translation: near term support for the market in to a larger decline. It's more important now than ever to know what the near term intraday signals are, but more importantly what the larger signals/implications are so you can use them strategically and tactically.

Here's an example that I think distinguishes the probable short term from the highly probable bigger picture...

 DIA 1 min intraday and a positive at the 2 pm lows, the "toe hold" I suspect the market will try to work form.

And the bigger picture, but not so far away that it's irrelevant, it's very relevant.

DIA 15 min chart, remember the 15 min timeframes were all positive (except the IWM) in early April, now look at the DIA's 15 min leading negative divegrence, it JUMPS OFF THE CHART, THIS IS THE KIND OF CHART I DON'T IGNORE.


Commodities I suspect are going to fall off, however GLD near term has been very choppy with few short term edges as it trades in a tighter and tighter triangle. I will continue to look for an edge, but it makes sense that there have been few near term edges as the price trend itself has been choppy and pinching, not an ideal trading environment, but it should break and we should have a good signal before the break.

When 3C isn't giving a strong signal, it can be frustrating as it happens, but upon reflection and looking back, you can see why and appreciate the fact that it didn't get you involved in a triangle range like this that is choppy and narrower each day.

I thought I'd add a quick peak at breadth charts, a little update.

I found this chart of US Economic Macro Surprise Data hitting a 6 year low pretty interesting and thought I'd post some breadth charts to show you how hollow the market truly is.

 Macro Economic Surprise Index hits a new 6 YEAR LOW!

And the F_E_D is moving to hike? they are a lot more worried about something they are not saying than what rate hikes will do to the economy, at first either real or perceived.

 The Percentage of ALL NYSE Stocks Closing 1 Standard Deviation Above Their 200-Day Moving Average... which were hovering around the +60% level of all NYSE stocks last year around this time and are now in a tight range between 30% and just under 40% at best while the SPX in red is near ATH's, Problem? You bet, this is cold hard math, not an indicator, not an interpretation of an indicator, pure statistics.

Less and less stocks are participating in the market's moves, although they have been few and flat this year. As I have said, when looking at the market as a market of stocks and stripping away the weighting component, you might say we are already in a bear market.

 The Percentage of ALL NYSE Stocks Closing Above Their 200-Day Moving Average, which use to hang around the +80% level, then last year the +70% level, now between 30 and 55% !

The indicator in green vs the SPX in red shows clearly what's happened to stocks above their 200-day, there are fewer and fewer which is easily compared to being in a primary bear market.

 The Percentage of ALL NYSE Stocks Closing 2 Standard Deviations Above Their 40-Day Moving Average, I probably don't need to comment other than to say to the left it was about +40-+45% of all NYSE stocks, now around 11%!

 And the momo stocks, The Percentage of ALL NYSE Stocks Closing 1 Standard Deviation Above Their 40-Day Moving Average formerly around +60%, now half that at 30 -/+%

The deterioration for 2015 alone is notable and stands out.

 This is the NASDAQ COMPOSITE (not the NASDAQ 100) ADVANCE/DECLINE LINE. Note that it use to lead the COMP (red) and then the A/D line (green) tumbled below the COMP and is now leading the Comp to the downside. This is the broad index of NASDAQ traded stocks.

And the McClellan Oscillator. The MCO shows several smaller divergences that send the SPx (red) lower at swing moves and in to the October lows, those were specific moves in specific areas, note the broad negative dislocation for all of 2015.

Futures

Crude
In after hours, crude was slammed lower on the API inventories report coming in at 5.5 mn bbl vs consensus of 2.5 mn bbl. As I also mentioned yesterday and last week, Saudi Oil output is at record highs and the Southern fields of Iraq are increasing their output due to better weather, but it's really the Saudi record highs for output that are most interesting as I decided to not only stay with the first USO swing May Put, but to add to it last week, I suspect both will be at gains tomorrow.

 These are Brent Crude Futures ( a bit different than USO's WTI crude, but still..) you can see the API data after the market in to a negative divegrence earlier in the day and another right at the API release...LEAK? We've seen it in EIA which will be released tomorrow morning at 10:30 a.m.

This is the 15th consecutive build in crude for a new record.

The 30 min /CL chart leading negative badly, see the earlier USO update/Follow up linked above from today, I think we'll have a nice position there and when it's time, an even nicer long position for a primary trend trade.


Index futures have a slightly positive look to them going in to the overnight session...

 ES / SPX futures 1 min with a positive divegrence at 2 pm as mentioned numerous times in numerous indications above.

TF/Russell 2000 1 mi Index Futures also positive at 2 pm.

However if this leads to a head fake move, it may be VERY short lived.

Look at these 5 min charts. I use to use the signals of these alone for near term trade direction.

ES 5 min with a positive for this week's Monday oversold bounce and a deep leading negative condition since.

And the same for NQ/NASDAQ 100 futures, this is a huge negative divergence.

If these get higher prices to sell in to, they will migrate and the already horrible looking and accurate 7 min charts will fall apart more so like this TF/R2K 7 min Futures.

They need price strength to sell in to, but as you see from last week, price strength doesn't mean market strength and this week is already looking worse on the oversold bounce condition from Friday in to Monday.

With these 10 min Index Futures' charts, it's hard to get behind a head fake move higher, but they need something to sell in to. This was the 3rd condition, the 7-15 min Index futures go negative.

 ES 10 min compare last week to this week.

 NQ 10 min'

TF 10 min

And the leading (recently) $USDX bounce looks like it's about to roll back over and make a lower primary trend low soon.

And finally the important and final 15 min charts...

 ES 15 min

TF 15 min

NQ 15 min

IF I'VE DONE MY JOB IN EXPLAINING WHAT WE ARE LOOKING FOR AND HOW THINGS HAVE PROGRESSED, THEN YOU KNOW WHAT THE IMPLICATIONS OF THESE CHARTS ARE AND WHY IT'S DIFFICULT TO CALL FOR A HEAD FAKE MOVE, BUT THIS IS MY GUT AND THE CHARTS, IT DOESN'T END WELL FOR THE MARKET.

Quick NFLX/Market Overview

Just like the beginning of April as there were some conflicting signals, I went through my watchlist of assets until I saw a repeating pattern over and over again and that gave a new clarity to the averages, thus I used AAPL as the proxy example for the broad market.

I think if you read the earlier Market Update and Leading Indicators post, you'd probably pick up on the VERY short term positive intraday support the market desperately needed and received and the big picture of this move since early April, which is to say the market is in VERY poor condition since with just about EVERY one of the 3 major indications I was looking for to turn, already having done so.

This is nearly perfectly in line with the Internals from last night and what they not only said about the tone of the market. Again, there's a very near term bit of strength or at least enough to hold on and I suspect it's just there hoping to trigger a stock of limit orders above the March SPX trendline resistance and let retail do the work, allowing pros to sell and sell into that move, I think I've covered and shown it enough that you know exactly what I'm talking about as we tagged resistance there once again in the SPX.

All of this seems to fit well. Now lets add the averages and a representative asset on our watchlist like NFLX(or transports , APPL, Energy, Financials , etc. could be used, that's why NFLX is representative of the watchlist trend).

Then I look at the SPY for example, while each average is slightly different, I'd say we can use this as an overall proxy for the market in multiple timeframe analysis because I think it's important to know what is worth while, which battles are worth fighting, which aren't; where patience should be shown, where action should be taken or already taken.

 The near term intraday 1 min chart is darn near motionless. There are a few positive divergences that see price move a bit and then distributed as in yesterday afternoon ion to this morning's open or this afternoon at 2 p.m. lows in to the close. On the whole the near term trend is not telling us much and this tends to scream as a timing indication when it's ready and there.

 The 5 min SPY trend since the accumulation in to early April and the leading negative divergence at the reversal process right now tells us a lot about what has transpired in to higher prices since early April, it doesn't answer the question of whether there will be a head fake move above the SPX's resistance trendline from March because there's not enough accumulation in SPY to suggest a move like that is a probability, yet we keep tagging the resistance trendline of the area. We have a reversal process, typically a head fake would come next, it would be the best price based timing signal for a downside reversal and the best entry area for shorts/puts and some longs.

The strongest probability we have for a head fake move is the concept itself which I generally estimate as occurring 80% of the time before a significant reversal in any asset and any timeframe, the more watched the asset, the more significant the head fake trigger, the more probable the move occurs which would tell us it should be a near certainty, there's just no divergences to support it so it's almost as if the pros are just hoping price triggers limit/breakout orders and let retail carry the ball as you saw in the Leading Indicators post, Pros in HY credit aren't hanging around.


 The 15 min chart was the line in the sand, it was in line or confirming price since the early April move as it was positive in every average except the IWM, so looking for this chart to turn negative was one of 3 significant signals, it has done that and the price trend has turned lateral in a reversal process as that occurred.

This would tell us that the April trend/move/forecast is at the end of its rope, it's just "How is it going to finish? Head fake or not?

As we knew before the April trend even started, it would see distribution and eventually fail, those probabilities are all over the long term charts, whether futures with long term charts and highest probabilities...

 Like this extremely strong ES/SPX futures 1 day super leading negative divegrence or the confirmation of the probabilities this chart represents in any bounce like the April bounce on a 60 min chart...


ES 60 min showing the probability (positive divegrence) of a bounce and the 1-day chart telling us the probability that it fails and sees heavy distribution which the 60 min chart now confirms ...


Or whether using the averages themselves like SPY...

 SPY 6 hour leading negative divergence similar to the ES 1-day chart.


So in looking at watch list assets just like early April to try to gain a new perspective by seeing if a trend repeats on various different charts, I se the same thing today and NFLX works just fine as a proxy for the watchlist...

 The 3 min NFLX has a small, short term positive divegrence mostly built in to today's pullback of 1.22%, suggesting a near term bounce.

This may also suggest the SPX makes a strong enough near term bounce to effect the head fake move, all it has to do is trip the limit/breakout buy orders, retail will chase it and do the rest.

 The 15 min NFLX chart shows the deterioration since the earnings gap up and is nearly there for a decent looking short entry, but not yet SCREAMING, perhaps on an upside move we'd see the distribution that would qualify the divegrence on charts like this as "Screaming" or jumping off the chart.

The 60 min NFLX chart NEVER confirmed the earnings gap up move by 3C making a similar higher high with price, instead it's telling us that this move has been used by smart money to sell / short NFLX in to price strength .

So we know the probabilities for just about all of the timeframes, what needs to happen and what looks likely to happen in the shortest timeframes, what looks sure to happen in the big picture.

In my view, it comes back around to placing the right emphasis on fighting the right battles at the right time using the right tools. I'm not interested in try to day trade a probable head fake move, I'm interested in using the highest probabilities to short in to such a move. That's just an example of how I view the information and put it together for my own risk tolerance, time, trading style, etc. However I suspect that once the pieces of the puzzle above all start fitting together in multiple timeframe analysis and multiple asset analysis, we're all likely looking in the same direction.

USO Update-Swing Position

I believe the turn I have been looking for in USO as it has been sitting at it's base's upper resistance level for the past several days is finally taking shape. Don't forget to check out recent USO posts, at least yesterday's, USO Update.

I decided not only to keep the initial put position, but to add to it last week, that second put is moving a lot closer to a gain (only single digits away with May monthly expiration for both).

The larger overall picture as I said yesterday is in my view, at least a significant pullback to gather a head of steam and try to break out of the longer term trend base which I believe will lead to a primary trend reversal (up) in oil, I'd like to be long USO at that point so I'm looking either for a pullback that is under accumulation while these swing-trade puts work or the original suspicion of a larger pullback toward the base lows, I don't think we'll know that until we see what the 3C charts look like in to a pullback.

However there was enough damage on the charts sitting right at resistance to make it hard to believe we'd be seeing a breakout THAT WOULD HOLD without further work being done.

This is recent volatility in USO, #1 is just the US open, #2 is the Saudi announcement today that the aerial bombardment campaign in Yemen is coming to a close, it's difficult to say that correlation at #2 is the same as causation considering the volatility any way in USO otherwise.

The ultimate simple chart for crude futures (Brent-I know they are not the same as USO's WTI) are pretty simple.

 /CL Crude futures 30 min positive leading to upside and 30 min negative leading to the expectation of a downside move.

There may be a near term bounce entry for anyone interested in USO short for a swing trade based on the intraday candlestick/volume which looks to have found an intraday support level.

 The intraday surge of volume on a bullish looking candlestick may provide a decent enough bounce that an entry is worthwhile for a swing short.

USO had been sitting at the resistance area of it's 2015 base with strong accumulation through the base, it was unsure whether a head fake move may occur above resistance before a downside move fulfilling the intermediate charts calling for a swing move lower. Note volume in the area and the higher upper candlestick wicks rejecting higher prices intraday on the daily candles.

 The 60 min chart shows good price/3C trend confirmation which is the reason I had not updates it for over a week after March 31st, there was too much confirmation of the trend, nothing that suggested a pivot/edge.

This 60 min chart though has enough of a negative divergence that I can't see a successful breakout of USO at this point without pulling back and doing some work on this chart.

The 30 min chart has the same divergence.

 As does the 15 min chart in a near carbon copy, all suggesting USO would not have been able to hold breakout gains and it would have almost certainly been a head fake/failed breakout.

Agai the 10 min chart is a carbon copy so I think the swing short/put should work over the coming days/week, however there may be a near term chance to get involved on a small intraday bounce on the afternoon volume/candlestick.

Otherwise, for now I'm just leaving the two put positions as they are until the next trade (long) sets up.

Market Update and Leading Indicators

*I'll have a USO update/Oil out next...

It seems yesterday's Breadth/Internals post was right on 2 counts, we weren't at a strong overbought condition, but the most typical outcome of such a dominant P/V relationship such as yesterday's is a red close the following day, the exact opposite of Friday's P/V relationship leading to a green close Monday. I also think it was correct in the interpretation that any additional upside from this area is treading on thin ice.

The concept of a head fake move 80% of the time before a reversal in price (whether to the upside or downside) has been a very strong concept. The more popular the asset and more widely watched, the higher the probability and the asset in this case is the S&P-500. Also the more obvious the price trend like a resistance area, the more probable a head fake move is. Finally the head fake move is our best price-based timing indication of a trend reversal as they occur just before a trend reversal.

For the SPX's part... We did have a breadth flameout around 2 p.m., it's not at all obvious in volume, a bit more obvious in candlesticks and TICK and quite obvious in intraday Leading Indicators, thus the SPX head fake can't be taken off the table nor should it be, it would be one of the strongest entry positions we have.

 SPX daily chart and the March Trendline tagged numerous times making this a VERY obvious level trades would chase on a breakout, perfect for a head fake move.

Intraday the NYSE TICK shows the breadth flush at -1325 readings (extreme), although volume wasn't the normal flameout , but candlesticks are positive at the lows in intraday breadth.

Leading Indicators.

 Our SPX:RUT Ratio intraday shows a positive positioning early on leading to a flat range in both the SPT and the indicator in red.

Beyond short term day t day trade which is important for the pivot, the most important signal is the leading trend on a larger basis since the 4/2 forecast, we have been looking for LEading Indicators to give a clear signal which they are doing.

 

The same indicator on a 15 min chart from the 4/2 forecast with a positive signal going in to 4/2 at the reversal process in yellow to the left an the indicator peels away from upside confirmation as we go as we were looking for as the reversal process is traced out in the PSX. I did draw the more typical reversal head fake move in yellow , "Igloo with a Chimney" or a rounding top with a head fake above the rounding top, followed by the decline to stage 4 as I said above, head fake moves are the best price-based timing reversal signal we have.

 Intraday 1 min our Pro-Sentiment indicator goes positive at the 4/2 breadth flameout lows, indicating what I suspected last night, we aren't quite done, but we are seeing very negative trade in to any upside from here.

 HYG (HY Corp. Credit) shows the same intraday positive divegrence at the same SPX 2 pm lows.

I have inverted the SPX (green) price so you can see the normal correlation between VXX (VIX short term futures) and the SPX, you can see at the 2 p.m. SPX intraday lows, the VIX short term futures underperformed their correlation, supporting an intraday low in the market at 2 p.m.

 30 year yields intraday also went positive in to the afternoon low, remember they act like a magnet for equity prices (SPX in green), however this is only an intraday chart, not that it's signals are any less real, but the ones we are most interested in are the larger trend ones.


Since the February cycle started and led to a range in the market, you can see 30 year yields have negative;y dislocated to the downside even more than this view shows, especially recently.

5 year yields also show a positive dislocation intraday at the 2 pm SPX lows, and on a larger view which is the most important...

The 15 min chart of 5 y yields vs the SPX shows initial confirmation at the green arrow followed by the first negative dislocation taking the market lower and a new leading negative low in yields as the 4/2 forecast plays out.

 Finally HY Credit has been selling off most of the day, it seems Credit doesn't share the same neutrality the market does.

On a larger term basis...

Since the 4/2 forecast, HY credit supported the market in stage 2 mark up as it should and started going negative at stage 3/reversal process and continues to hit new leading negative lows.

Again, I don't see an immediate rush to enter positions, in fact it doesn't make so at sub par pricing and risk profiles if we suspect it's probable that we get a better entry, which I believe is probable, however just the same as last night's internals, I don't see any market improvement and continue to expect continued deterioration in to any gains in price IF WE CAN GET THE HEAD FAKE MOVE WHICH WOULD BE A FIRST AT THIS POINT AS OBVIOUS AS THIS IS AND AT AS BIG POF A TREND REVERSAL.