Daily Wrap

As many of you have heard me say, "When Wall Street decides to run a cycle, they rarely abandon it".   This goes for bounces as well or pullbacks, virtually anything we can see set up in advance as we saw yesterday with positive divergences suggesting a near-term bounce. Today seems to be an interesting example of this as not only one but two F_E_D speakers, Yellen and Lockhart both came out with comments that would normally send the market reeling.

Janet Yellen said in an interview that equity valuations are quite high. Lockhart said that the markets' view of a September rate hike is, "Reasonable". He also said that they haven't seen deterioration in core numbers despite the fact that US macro data has hit a new six-year low. I believe this speaks to my opinion that the F_E_D decided the to tighten policy a long time ago and nearly everything they have done over the past 2 years has been to move in that direction. It seems they are a lot more afraid of something unknown to us then they are of the effects a rate hike would have on the economy/ housing.

As to the market and the bounce we suspect in the very near term represented by some small VXX Put positions opened as recently as yesterday, Trade Idea: Extremely Speculative (Options/Puts) VXX (May 15th $23 VXX Put) and Trade Idea: VXX Puts (speculative) (May 15th $21 VXX Put)... It seems like the market tried to counter the initial effects of Yellen's statement with the sale of VIX.

 VIX Futures with selling/distribution at the 3C divergences this morning (note some size in volume).

VXX also with intraday distribution in the same area.

This is the SPY and the intraday lows created at the same time asVIX intraday distribution above. Later in the day I wondered out loud in a post, whether the morning lows would need to be taking out before we could make a move higher.

This certainly isn't scientific, however we did expect (and still do) a bounce and the time frames that represent that bounce on 3C charts held up the entire day. These are the five minute charts that I posted several times today. It would seem that even a small or short term bounce is protected once the cycle is set up which was yesterday.

On the other hand as I reiterated several times today, I had no intention of adding anymore short term "Long" exposure unless the chart was absolutely screaming. While I believe VXX puts or QQQ/IWM calls/long positions could have been added at the end of the day when we saw intraday character change, I simply cannot justify the risk with the way the market looks.

In addition to surprise statements from F_E_D members, we have a Chinese bubble, we have Greece which just managed to make their €200 million interest payment to the IMF today with another €744 million payment coming do on May 12 and we have back-and-forth statements from the IMF yesterday threatening to withhold funds earmarked for Greece. The ECB is once again making noises about discounting Greek bank collateral which would reduce their ability to tap ELA (emergency liquidity assistance) from the ECB and virtually collapse the Greek banking sector overnight. To add more uncertainty, EU sources said today that there is no possibility of a Greek deal before the May 11 deadline in which the Troika was scheduled to release €7 billion, a day before the next IMF payment of €744 million is due.

These are just some of the events we know about. The danger is in the black swan events that we don't see coming. Thus, unless the chart is absolutely jumping off the screen, I would rather stick with the positions in place and use any price strength to open or add to short positions, let the trade come to us.

As mentioned above, US macro data hit a new six year low as the F_E_D/Lockhart see no deterioration in core numbers. ADP employment today hit 15 month lows which does not bode well for Friday's Non-Farm Payrolls (one of the most important employment data releases for the F_E_D), not to mention ADP's February and March employment data we're both revised lower. However as I have maintained and demonstrated, the F_E_D has created an ambiguous environment in which they can hike rates even with the data going against them so long as it is pre-faced with language expressing their confidence that data will turn toward their long run goals. 

I can't find the specific post right now, but it was just last week that I said I believe that the F_E_D will "sacrifice" the market (which I explained is no sacrifice but simply the business cycle/ wealth distribution based on the ideas in my post, The Plunge Protection and Market Correction Team) in order to drive the $USD lower as they do not want to hike with a strong dollar and today we have to F_E_D speakers coming off quite Hawkishly.

I know we have spent a lot of time on near term market action and have made some decent trades, but this is because of the, "Loitering-effect" of the market right now, creating a meat grinder for short-term traders. However I don't want you to lose sight of the big picture.

Es / SPX E-mini Futures 1-day with the last significant accumulation area at the October lows and significant distribution building for some time, but much , much worse than anything we have previously seen in to the Market Triangle / April 2nd Forecast area.

While we are on the April 2 forecast, the USD was also part of our bigger picture forecast.

 This is the one day 3C chart of the $USDX with a negative divergence into its highs and a leading negative divergence since.

A closer look at the daily chart shows the $USDX failed to make a higher high at #1, then made a lower low at #2 and has since made a lower intraday low at #3, the area we expected to provide short-term support for a countertrend bounce.

The April 2nd forecast for the $USD said, "The $USD is seeing some weakness which is something I expected near term before a larger bounce and then an even larger decline."

Since then we saw the bounce higher at the green arrow, Followed by a much larger decline at the red arrows with two small countertrend bounces at the yellow arrows. 

Initially I expected the $USD to bounce with the market. There's still a positive divergence in the $USD so it may tried to put in another countertrend bounce. Additional short-term evidence (as short-term probabilities favor a bounce in the market) includes an intraday positive divergence in the USD, a negative divergence in the Yen ...

 Intraday yen negative divergence which would suggest USD/JPY support for a market bounce.

Also...

 A Euro intraday negative divergence, which would suggest a decline in the EUR/USD, boosting the $USD.

And the intraday EUR/USD with a negative divergence.

It seems all of the currencies relevant to a USD and market bounce are in place.

While most don't realize it, the trend change in the $USD is going to cause an even greater carry trade unwind than what we have seen thus far which will create a snow ball effect and have dramatic effects on the equity and bond markets.

Notice that bonds have been selling off for 8 days in a row sending yields higher (only 1-day away from tying the 9-day consecutive day sell-off from March 2012). This sends yields significantly higher and we "usually" use yields as a leading indicator. Under normal circumstances with 8 days of rising yields, the market would likely be at a new high. However, as I have recently explained, bonds selling off are one of the symptoms of the Carry Trade unwind, so is weakness in the $USD and strength in the Yen and commodities broadly speaking- we have seen all of that.

This is why the $USD is so important right now to the broad market as a snow-balling, self-fulfilling momentum event to the downside with carry trade losses at leverage of 300:1 will have a dramatic impact on the market and numerous asset classes including bonds and equities.

As for the index futures, the short term one and five minute charts are giving positive signals in line with a near-term bounce (tomorrow).

 ES 1 min positive

ES 5 min positive

NQ 1 min positive

NQ 5 min positive

TF 1 min positive

TF 5 min positive.

However if you recall, I was looking for the 7, 10 and 15 minute charts to all go negative indicating that the April forecasted Head fake move had run its course ...

 ES 7 min negative/in line

ES 10 min negative/in line

ES 15 min negative/in line.

In other words, other than a near-term balance which is part of the"Loitering" discussed yesterday at important pivot areas and the meat grinding chop associated with it, the market has done exactly what we expected which was to make a break out above clear triangles in the major averages and for that breakout to see heavy distribution and fail as a head fake move.

The NDX was the best example of our forecast...

Head fake/False breakout in yellow, the "Loitering" area near the apex/resistance of the triangle in orange. See last night's Daily Wrap for more in depth discussion of the concept.

I've received a few emails today asking about the stocks on my trade set up watchlist and price levels that I have been setting alerts for in each of them, it's simply isn't that specific. For example transports have been a long time Core Short favorite and we've already had to excellent entries, but if I see another entry I will put out the trade idea. So my price alerts are really pretty simple and serve as a reminder to me to look at an asset once it gets to the approximate area where I am interested. I'm looking at so many things during the day that I cannot possibly Watch for a price move in hundreds of stocks.

Example...

IYT/Transports already has a broad topic in place and we have strong long-term negative divergences so this is an ideal candidate strategically. Tactically I want to enter the short on price strength, not chase it. So in this case I put my first price alert at the minimum level of $157.75 which is just above the recent rectangular range. I then continued adding price alerts at $160 and higher in one dollar increments up to $165. This gives me multiple alerts and reminds me to look at the asset and see if there is a high probability/ low risk entry.

As for a recent trade brought to full size in both an equity short as well as puts, USO did what I proposed last week given the very obvious resistance level.

 USO's Daily base and clear resistance tagged multiple times. This is why I suggested we would likely see a head fake move or false breakout with the concept being, "Failed moves lead to fast reversals" or simply said, a bull trap. Both yesterday and today are bearish candles on higher volume which tends to make them about 2 to 3 times more effective.

At the head fake move in yellow above resistance, note how strong distribution was as a 15 minute 3C chart leads to a new low. I love USO long-term as a primary trend trade, but we are not there yet. A pullback is most welcome in entering that longer-term trade.

As to Internals today, I'm pretty sure you can guess what the Dominant Price/Volume Relationship is (at least for the majority of the averages). Remember this is not the price/volume relationship of the average itself, but of the component stocks that make up the average.

While not as extreme as yesterday, both the Dow and the NDX had a Dominant Relationship, the same as yesterday...Close Down/Volume Up which represents a 1-day oversold condition and we usually see a free close the next day.

Of the 9 S&P sectors, only 2 closed green with Consumer Staples leading at +0.31% and Tech lagging at -0.85%.

Of the 238 Morningstar groups we track, only 82 closed green.

Again this is not as bad as yesterday's internals, but once again it is a short term (1-day) oversold condition 2-days in a row.

While I don't see much of anything positive in the market beyond a 5 min chart, I do still think the market bounces on this oversold breadth condition which is totally different than an oversold indicator, this is much more accurate.

There's really not much more to do as we have positions in place for a bounce and alerts set for new positions on a bounce as well as core positions set up already, many in the green.

I mentioned earlier I wanted to show you what the charts of some core short positions look like. Here are a few that you might find interesting...

 SPXU 3x Short SP-500 60 min leading positive divergence.

 FAZ 3x short Financials 1-Day Leading Positive divergence.

 SQQQ 3x Short NASDAQ 100/QQQ 1-day leading positive divergence.

SRTY 3x Short Russell 2000 60 min leading positive divergence.

IYT/Transports 1-day with in line or 3C price/trend confirmation at the green arrow (3C is confirming the strength of the uptrend at the green arrow), followed by a relative (weaker form of the 2 divergence types) negative divergence that transforms with more distribution in to a deep leading negative (stronger form of the 2 divergences) divergence. You can probably see why Transports are on my list. From a strategic perspective, this is about as ugly as you can ask for in an equity short. From a tactical perspective, a near term bounce would offer a fantastic opportunity to short IYT/Transports in to a better price with less risk and better timing.

Beyond what I've already posted above, there's not much to talk about as far as futures go tonight, but as always I'll take a look at them before turning in for the night and post anything unusual if it is there. Otherwise, I'm looking forward to a bounce, taking some profits on positions entered yesterday and opening new positions for a much larger trend trade.

Welcome to all of our new members from, "Trade With Joe".  Lloyd has been unbelievably fantastic and once again I find myself thankful and blessed to have met such a quality individual.  I look forward to getting to know the group from TWJ and I'm very happy to have you all with us.

QQQ & IWM Look to Outperform

We already knew about the IWM's better looking charts over the last week, Q's are a close second. If I were considering adding a long trade for the very short term and it probably would be speculative in size, I'd likely go with the IWM or QQQ.

Futures/Market Update- Bounce should still be on...

While the intraday 1 min charts are responding in the averages and they have managed to hold on to the 5 min positive divergences (along the lines of enough gas in the tank for a decent 1 to 1+ day bounce) I won't add anymore long risk beyond the spec. positions opened yesterday without stronger than normal probabilities as the chances of a divergence being run-over, especially with events like Yellen's comments earlier today (which I just wrote about less than a week ago "The F_E_D will sacrifice the market for a weaker $USD" on the carry trade closeout) are far too great.

When you see some of the charts of core short positions, you'll understand without a second thought.

It appears to me that a $USDX counter trend bounce attempt is still in the cards as signals for EUR/USD are failing and Euro/$USD futures back that up near term. This should have some effect on oil as well to the downside near term.

 IWM 1 min responding in a positive

 IWM 5 min maintained its positive with a broader lateral base.

 QQQ 1 min responding with a leading positive divergence, excellent timing indication which has been lagging all day.

 QQQ 5 min positive for a bounce still in place.

SPY 1 min positive responding

SPY 5 min positive still in place.

 The EUR/USD has a negative divergence here.

The Yen futures also look like they'll fall so expect a USD/JPY bounce as well.

 And intraday $USD futures have stayed positive, along the lines of the small counter-trend $USD bounce also expected...

Crude futures negative.

The stronger $USD should also pressure oil lower.

At this point, I've put in a lot of upside price targets for trades I'm interested in entering if they come to us, I've spent most of the day putting these in.

I'll post a bigger picture view as we have been too concentrated on the myopic intraday or day to day view while the market is turning right now.

Quick market update

The intraday 1 min timing charts I've been watching since the a.m. lows were taken out are responding, at least in SPY, IWM and QQQ.

There's also a large volume spike, likely downside flameout in the SPY and DIA.

SPY 1 min volume looks like an intraday capitulation flameout.

Yesterday's VXX put position, Trade Idea: VXX Puts (speculative),  was entered as Speculative, half size. Being the move is so parabolic in VXX, "IF" 3C INTRADAY 1 MIN CHARTS STARTED RESPONDING THERE AS WELL...I'd consider bringing that put position up to full size.

I'll let you know if I see it and of course I'll post any trade ideas here first.

Don't get me wrong, as I said earlier the market looks horrible, this TICK chart looks horrible, but it has improved since the downtrend channel.

We aren't expecting the market to rescue itself here, just wait until you see the core position (leveraged ETF) charts, horrible, but we are only looking for a near term, quick move.

Market Update

I've been using the quiet time to set price alerts for positions I want to put out , mostly on a bounce. I'll try to show you some of the core positions that I've held and believe in if we get time, but I suspect things may get a bit busier soon.

In the last Quick Market Update I wondered...

"If you could see what I see, you'd know why I'm loathe to add any more short term long exposure. However as we wait with baited breadth, considering if this morning's intraday lows must be hit first, I suspect perhaps not"

So far it looks like I was half right/half wrong on my guess...

The SPY and a couple other major averages hit this morning's intraday lows, the Russell 2000 did not, at least not yet. However the bigger picture is a larger lateral reversal process in place.

Furthermore...

NYSE intraday breadth is improving since after hitting extremes of more than -1250.

What I'm watching very specifically now (as it seems Yellen's comments this morning caused some trepidation that took some VIX selling to counter or trying to counter)... is the 1 min charts which have been in line for the averages, while positive for the Index futures.

 While the 5 min SPY has stayed positive and the more lateral reversal process has built out, typically the last thing we see before a reversal on any timeframe is a head fake whether a bull trap or a stop run bear trap.

Almost all day the timing 1 min charts have been nearly perfectly in line with price, so they are what I'm watching carefully since the break below the a.m. lows...

 And so far , as early on as it is, they seem to be responding (SPY 1 min).

IWM 1 min.

I'll want to see the same in VXX/UVXY/XIV, although like SPY they're 5 min negatives and positive for XIV have also held.

Keep an eye on TICK as well, it's your early warning.

Until then, I'm going to keep setting price alerts as positions that need to be in place for the next anticipated move are in place, so it's just a matter of management until the next pivot which recently has been a daily occurence.

Quick Market Update

If you could see what I see, you'd know why I'm loathe to add any more short term long exposure. However as we wait with baited breadth, considering if theis morning's intraday lows must be hit first, I suspect perhaps not. No doubt Yellen's comments about the market being overvalued weren't of any help today to the long exposure we picked up yesterday, but as I recently wrote, the F_E_D will be more than willing to sacrifice the market for the carry trade unwind (weaker $USD).

In any case, both Index futures and TICK suggest we are close to the upside move anticipated for today. I'm not sure I'd be bullish much beyond that.

 ES 1 min intraday positive

NQ 1 min intraday positive

TF 1 min intraday positive and...

The NYSE intraday TICK just broke the downtrend, early warning. I suspect we are much closer to the anticipated move for today...

USO / Crude Update

Yesterday I reminded you of the scenario that was thrown out there as USO kept bumping in to its large base's resistance, that was a head fake move above resistance and a failure sending it lower as these failed head fake moves typically produce fast moving reversals, that can be found in this post from yesterday USO Update.

 The scenario discussed last week with a false breakout above the range leading to the swing/near term pullback expected. Yesterday's candle and volume were indicative of bearish churning.

After going over the shorter term charts again (as I do like USO longer term with that strong base in place) I decided to fill out the USO equity short as well as the put position yesterday just after the update linked above, Trade Idea: USO

As mentioned above, longer term I love crude/USO long as 3C confirms the daily crude futures' downtrend (green arrow) and then leads positive (white) as price turns lateral. You may recall when we first saw this I suspected it was going to be a strong counter trend bounce, but then the base grew too large for a simple counter trend bounce. So longer term I love crude for a long trend position, just not quite yet.

Even though the API Inventories came out last night with the first draw since the first week of January at -1.5 mn barrels, I still wasn't concerned after looking at the 3C charts for Crude futures last night.

Amazingly (you'd think if you hadn't seen the 3C charts), this morning's 10:30 EIA crude inventories confirmed the API data with a -3.88 mn barrel draw in total crude inventories on consensus of 1.5 mn.

Oil/USO knee jerked as you'd normally expect and made a move to the upside which was quickly faded.

USO 5 min chart today and what do you see? It looks like another strong bout of bearish Churning on a candlestick with a large upper wick and extremely high volume (strong hands handing off shares to weak hands).

Here are the updated charts since, but I really don't think much has changed in the charts or our near term expectations...

 USO 1 min which is the fastest chart and could confirm the upside move in minutes if there were confirmation, instead it looks like distribution of the price highs. I suspect we see intraday noise, but I also suspect the trend will emerge to the downside.

The 2 min chart which is good for timing showing a very clear negative divergence since the breakout above the base's resistance area as suggested last week.

USO 3 min showing the same thing and so far good multiple timeframe confirmation.

The 10 min chart that was at a large relative negative divergence has moved to a stronger leading negative divergence and right at the breakout above resistance area (yellow).

 Since, the 15 min chart, exceptionally strong signal for a swing trade has seen a sharp negative leading divergence at the breakout area.

It seems the idea thrown out last week of a false breakout/failed breakout being the catalyst for oil's downside turn as expected has gained traction with the objective evidence of these charts.

Remember though it was this 60 min chart that had previously been nearly in perfect confirmation of price that gave us the highest probability evidence for a downside move as it has been leading negative in the approach to the base's resistance area.

As for Crude Futures (Brent)...They too are confirming.

 CL (Brent futures) 5 min leading negative

7 min leading negative.

As for the bigger picture trade and the one I like even more, I'll be looking for a constructive pullback since we are under former resistance (support). We should see accumulation of lower prices and USO building a head of steam for a stage 2 breakout to mark up. I'll be looking for a long trend trade entry on a primary trend basis as that happens. For now, I plan to simply be patient and let crude follow the path of highest probabilities as we see in the charts above.