Daily Wrap

I'm not quite sure where to start as to what's most important. There's some big picture events that have taken place or are underway that would be most relevant to the big picture of the market which some might say is most important. Then there's near term stuff that applies to our near term expectations and trades and at the moment, that may be considered the most important so I'm just going to wing it and hope it all comes together.

First, the macro-data that has been released over across the globe over the last 15 hours or so has been one huge cluster-funk (What did you think I was going to say? I'm a polite guy!). I'm not sure I have all of it, in fact I'm quite sure I don't , but some of it includes: China PMI MISS, Japan's "All Activity Index" MISS, German Manufacturing and Services PMI MISS, French Services PMI MISS, Overall Euro-Zone Composite PMI MISS, US Manufacturing PMI MISS, US PPI MISS,    Chicago F_E_D National Activity Index MISS, Philly F_E_D Business Outlook MISS, Kansas City F_E_D Manufacturing Index LOWER, E.U. Consumer Confidence MISS, Bloomberg Consumer Comfort Index LOWER, Existing Home Sales MISS, and Initial Claims which actually showed some strength.

Initial Claims came in at 264k vs. consensus of 276k (Bloomberg) with a prior of 265k which marks the 3rd consecutive week in the low 260's range, which is one of the best 3-week runs on record, around a 15 year low indicating healthy labor market conditions which may be a harbinger of a better than expected May Non-Farm Payrolls print on June 5th, a couple of weeks before the June F_O_M_C meeting on June 16th and 17th with the policy statement out at 2 p.m. on the 17th followed by a presser by Yellen.

There can be little to really no doubt that the economic picture is quite ugly indeed and this is what I was trying to get to last night in the Daily Wrap... "Why does the F_E_D and their henchmen like the WSJ's Jon Hilsenrath (unofficial F_E_D mouthpiece) keep defending Q1 data and writing it off as a transitory blip?" It seems we might have gotten the obvious answer when Goldman Sachs ran their FRB/US Computer Model overnight and came to the conclusion that there's "little slack" in the economy, a key phrase Yellen has used over and over. On top of that the BEA (the government agency that puts out economic data like GDP) has identified anomalies in 1st quarter seasonal adjustments that make the first quarter unusually weak, which is something the F_E_D noted several times recently with the foot-note that the characteristically weaker than normal Q1 economic activity is a passing blip that is not seen in the other quarters of the year. Suddenly after the minutes are released yesterday, within an hour, the BEA says  they will apply a second seasonal adjustment to Q1's seasonal adjustment to make up for the weak Q1 GDP. This of course wreaks of a "goal seemed" print that the F_E_D doesn't have to explain when they hike rates which in my opinion will be in June with the presser after. In other words, the F_E_D has been defending Q1 GDP weakness as transitory, seasonally characteristic and then the BEA says the reason its seasonally characteristic is because there's faults with the seasonal adjustments and therefore it will be re-adjusted. Then Goldman just happens to run their FRB model overnight and finds there's little slack in the economy,  but the macro data trend would beg to differ.

(I had to borrow the chart from another site) This is the US Macro Data surprise index vs the SPX since the October lows and the end of QE3, not only the worst start to the year in something like 8 years, but the lowest macro data print in 6 years at 6 year lows.

It's hard to justify hiking rates with economic data like that so the F_E_D has introduced the ambiguity clause, so long as they "Feel" like the data will move toward their long run goals, they can justify a hike even if the data is at cycle lows. NOW THE NEW AMBIGUITY FACTOR BEING INTRODUCED IS, "DON'T MIND THE ECONOMIC DATA, IT'S SKEWED, PAY ATTENTION TO THE MODELS". I have documented this entire process since the introduction of QE 3 when it was plainly obvious the F_E_D was already planning for an exit from QE and accommodative policy and every meeting since then has added another piece that makes it easier to hike no matter what the economics say.

THIS HAS LED ME TO BELIEVE FOR SOME TIME THAT THE F_E_D IS BACKED IN TO A CORNER SITTING ON ZIRP RATES FOR NEARLY 7 YEARS WITH NO ELBOW ROOM. Further more I believe they are afraid of something that they wouldn't dare tell the market, something so scary that they will hike rates despite the ridiculously weak macro-economic environment and will put out all forms of silliness to justify or not have to justify the rate hike. That means the economic damage that a rate hike will do to consumer credit, cap-ex spending, housing, the economy as a whole is less worrisome to the F_E_D than whatever it is that they are truly worried about enough that they'll hike rates in such a terrible economic environment and whatever that is, it's coming.

As to more recent activity, the AAII Investor Sentiment was at the second highest Neutral reading in 12 years! This means that both bulls and bears are near range lows. In other words, traders couldn't be more confused about the market, according to the survey they are essentially the most confused in 26 YEARS!

Gee, I wonder why?

 ADX daily has just moved off of a reading of 9, a reading that tells us the market has the weakest trend historically. To give you some idea of how rare this is, out of 16,380 trading days since 1950, readings this low have only been seen 42 times, or approximately 0.00256% of the time and in almost every measure from 1 week to 1 month, 6 months, 1 year, the market has almost always been lower after such a reading. Is it any wonder with the SPX looking like this through 2015?

An extremely tight triangular range that is not actually naturally occurring, but constructed, I believe for the head fake set-up value.

However as you'll see below and as discussed in last night's Daily Wrap, our Week Ahead forecast saw two opposing possibilities that "seemed " impossible to reconcile, either one or the other, but the head fake breakout has been made and at the same time the reversal process expected to finish developing this week has...

Once again, the major averages on the week, with the exception of Transports which have been exceptionally weak, the averages have been dead flat across this entire week indicative of the reversal process and the distribution that comes with it, thus satisfying booth conditions seen as likely to occur as of Friday's The Week Ahead forecast. Again see last night's Daily Wrap for complete details.


Today's move in the market was ridiculous. Not only do we have a huge Dow theory divergence between Industrials that are just off all time highs and Transports which just moved off 6+ month lows, absolute NON-CONFIRMATION, we also saw the R2K diverge from the rest of the market significantly today considering the percentage moves and all of this  ON THE LOWEST VOLUME DAY OF THE YEAR (excluding holiday/half days).

Oil moved toward our target range as we have expected for a second chance short entry on a $USD correction. Interestingly as I suspected and had initially written in last night's post and then took out (or did I? I'm not actually sure)the expected move higher in crude on a corrective move lower in the $USD led the market today, at least ES/SPX futures...

 Crude in redgreen candlesticks led the SPX Futures (ES) in purple during the cash market today. As I suspected last night and had originally written, the move in crude would likely pull up the Energy sector (XLE) and the size and strength in the Energy sector would lead the market.

This is XLE in light blue vs the SPX in green today.

However as the NYMEX closed at 2:30, something strange happened that I wrote about today in this post, VIX Smack Down

As NYMEX closed at 2:30, the crude strength was no longer there to lead the market, then we suddenly got VIX Smashes/Smack-downs as we see initially just after the NYMEX close and when that failed to send the market higher, the VIX was smashed lower again. We saw this in real time and that is what this post was all about this afternoon, VIX Smack Down. PURE MANIPULATION.

USO has moved within the range I expected and hoped to see today on a $USDX corrective move...

 The USDX (futures) 5 min chart with a reversal process for a corrective move lower which...

As we expected, sent Crude oil futures (and USO ) higher as you can see the $USD (green) correlation (inverse) to Crude futures (purple). As I said today, "I think we are in the range, but I'd like to see some more evidence).

 This is the $USD 60 min chart with the downtrend and our expected "LARGER" counter trend bounce that has a lot to do with the carry trade wind down (again see last night's Daily Wrap for full details). Even though we had a pullback in the $USD today, we are still up 2.2% on the week as the $USD put in the strongest 2-day move earlier this week since October 2011!!! THIS IS AN EXCELLENT EXAMPLE OF WHAT I ALWAYS SAY ABOUT HOW POWERFUL COUNTER TREND BOUCES/RALLIES ARE, THEY NEED TO BE TO BE CONVINCING.

Gold was also expected to move higher setting up a second chance entry (short), that didn't happen until we started to get divergences (positive) in GLD today...

 GLD 2 MIN POSITIVE DIVEGRENCE...

Upon the first signs of a positive divergence I closed the June 19th GLD puts at a +15% gain, Taking GLD June 19th $117 Put Off the Table

Shortly after on additional positive divergence I posted a new GLD Call position for the GLD bounce expected, Trade Idea-SPECULATIVE GLD Long

In addition to the +15% gain of the puts closed today, by the close the new GLD calls had a +16.6% gain by the close.

This is the GLD 15 min chart with an initial divergence sending it higher, a negative divergence which is the basis of the larger swing short trade and the bounce expected on $USD weakness which we are playing long with today's new position Trade Idea-SPECULATIVE GLD Long.

I'm looking for GLD to hit the $116.50-$117.50 area before closing today's new call position that is at a +16% gain in addition to the 15+% gain when we closed the earlier GLD puts, then open a new short/Put position to capture the trend lower represented by the larger red negative divergence in place on the chart above.

We also entered a QQQ June 5th $111 put position which is at dead breakeven on some intraday negative divergence in the Q's and the market at large...

 SPY 4 min negative intraday divergence showing stronger near term distribution which seems to be on ANY price strength observed.

The larger 10 min SPY chart with the cyclical/Wall St. set up/positive divergence at May 6th and 7th which you will see repeated over and over through numerous assets and asset classes. This is a positive divergence at a sharp "V" base which was the reason last Friday's "Week Ahead was looking for initial weakness early in the week May 11th in to early May 12th followed by a bounce higher which we are seeing distribution throughout. These 10 min charts are my barometer on when I expect a larger downside move in the market. I'd like to see the 3C leading negative divergence to put in a new leading negative low as I have drawn in above in red at the end of the current 3C line in orange.

 QQQ 5 min intraday leading negative today. Despite the late day strength that was made possible only by a VIX SMASH as seen above to manipulate the market in to a slightly higher high, the QQQ put entered today is flat, I expect it will show significant gains in the week ahead.

Don't forget, tomorrow is an op-ex Friday (even weeklies) and we tend to see a max-pain pin around Thursday's close making most of the day pretty dull until just after 2 pm when the max pain pin is removed as most option contracts are settled by then. These last 2 hours of the day are some of the best 3C data of the week.

The IWM 1 min showing an attempted end of day bounce in to the green for a positive close seeing 3C distribution and sending IWM back below yesterday's close right at the close.

To the left in red is yesterday's F_O_M_C minutes.

And the IWM 5 min chart and cycle since May 6th/7th at a small "W" base unlike most of the averages with a less stable "V" base. Friday May 15th in the "Week Ahead" I said to look for a flat range and the reversal process this week, as you can see by the yellow arrows above, we are in the reversal process as last Friday's forecast predicted. There's also a significant 3C negative divergence through the area.

Leading Indicators are falling apart, I'll post those in an update tomorrow.

As to internals, again tonight we have no Dominant Price/Volume Relationship, nor do we have any short term biases in Sector performance of Morningstar industry groups.

As to futures, the 1 min 30 year Treasury futures chart shows a 3C divergence so I'm hoping for a TLT pullback so we can enter the second half of the trade (long) for a counter trend bounce before entering the next trade which will be a trend short.

The $USD also looks like it is wrapping up the small corrective move we saw today and we should see it resume its counter trend bounce higher soon. All of the Index futures are more or less in line except the NASDAQ 100 futures look a bit weaker intraday...

That will do it for now unless I see some strange futures activity which I'll check on before turning in.

Remember it's an op-ex Friday so there will likely be a max pain pin near today's close that won't release until about 2 pm so it may be a bit slow in the early part of the day which I'll be using to set hundreds of alerts for positions on the watch list that are near entries.

Have a great night.

VIX Smack Down

When it absolutely, positively must close higher/green...

VIX Smash-a-thon...

The VIX (green) vs SPY (red) today. Pay attention to the trendiness. At #1 everything is "pretty close" to "normal". It appears the usual lever of HYG wasn't up for taking on risk today, at leas not what was needed to get the job done. At #2, everything looks pretty normal and then what the heck happened at #3? Seeing as that didn't get a new high, "Second verse same as the first " at #4!

All of that for a 1/4% gain?

Market Update

I just went through Leading Indicators and the kind of large divergence we have been looking for and that has been taking shape is becoming extremely plain to see (negative).

As to the intraday signals today, they are still horrible (A VIX clubbing intraday gave them a temporary repreive) and the rate of deterioration has picked up. Although this was expected, I'd have to say that something changed today as far as the ROC in the indicators, I assume it's the F_E_D's willingness to ignore economic facts and rely on models to get the rate hikes done.

Here are some example charts of the averages, just a few...

 SPY 1 min

 SPY 2 min trend., but the focus should be on today to the right.

SPY 3 min

SPY 3 min trend since the accumulation of May 6th and 7th now at a new leading negative low.

SPY 5 min intraday saw movement

SPY 10 min chart, what I'd like to see is this chart hit a new leading negative low as it is the gas in the tank timeframe. That new leading negative low would render it dead.

IWM 2 min with relative performance issues today like the Dow Industrials/transports.

IWM 3 min since the accumulation range of early May

IWM 5 min

QQQ 2 min still looking as bad as earlier.

QQQ 5 min also looking bad on the day...

As well as on the trend with another new leading negative low put in.

GLD Follow Up

Since deciding to close the GLD Puts because of improving GLD charts which at the time of closing my position was...

"The put position was around a +15% gain at the time I started to expect a $USDX corrective move down from it's current (larger) counter trend bounce (with the trend being the largest which is down as well).

I decided at the time to leave open the USO equity short and the GLD Put because both were meant to capture larger moves to the downside. I said at the time that I would consider closing them if it looked like there might be a move that took longer than a day or so (the USO/GLD bounce for new short entries(. Since USO has bounced. The GLD put lost the approx. +15% gain yesterday which I was expecting and prepared for, which it gained back today, but it still hasn't made the bounce. At this point several days have now past and I don't see any reason to give up that gain again and be at a disadvantage as Theta decay builds the longer this takes.

Again, if I'm wrong on the GLD bounce, no harm , no foul, we've booked a +15% gain which isn't anything I'd turn my nose up at. If I'm correct, than we have a new position at a better price and get to add to that gain again, with more appropriate pricing considering the theta decay."

Since then the charts have gone from pretty strong for a bounce, to very strong for a bounce.

First here's the P/L from the closing of the GLD 6/19 $117 Puts.

That's a +15% gain.

Since then, the charts have improved significantly short term...

 This is the intraday 1 min GLD chart. First of all, the first thing I would notice before even looking at 3C is the flat nature of price today,  this tends to be a tell-tale sign of accumulation or distribution depending on what the preceding trend was. As the preceding trend was down in to a lateral/flat range, the assumption would be we'd see 3C accumulation and the 1 min chart shows that as it leads to a new intraday high today.

The 2 min chart has good confirmation and is also just a few 3C ticks from a new leading positive high on the day.

The 5 min chart which is essentially the minimum timeframe I'd have to see divergent for a trade  beyond a quick intraday trade is also leading positive.

And even the near term action of the 10 min chart is showing a rapidly improving leading 10 min divergence.

The leading negative divergence which covers a lot more real-estate is still in place and I'd still expect a bounce in gold to set up a nice longer term GLD short/Put position.

However for now, we take what the market gives and it looks like it's giving a pop to the upside worth trading.

Gold futures confirm most of the timeframes above to a reasonable degree that is strong enough for me to consider this a speculative and short term position, but a high probability position.

Trade Idea-SPECULATIVE GLD Long

I do think GLD is going to bounce, so this would be a shorter term trade idea. I'm going to enter the trade in to the tracking portfolio as GLD June 19th $115 calls a little under normal size to account for the speculative nature. Charts are on the way.

Taking GLD June 19th $117 Put Off the Table

I'm going to go ahead and book the gains in this position in the tracking portfolio on some signals that look like the GLD bounce I expected with USO. If I'm wrong about it, well I've booked a +15% gain, if I'm correct, then there's a new entry and a larger percentage gain available. I see it as a win / win at this point...

Intraday Market Update:SPY

In addition to the QQQ negative intraday signals posted earlier, the SPY has joined the QQQ charts. The IWM has been the under-performer while the Industrials and transports are about as far from Dow Theory confirmation as is possible...

 SPY 1 min

 SPY 2 min

SPY 3 min and with that, intraday migration to perfection. The 5 min chart is starting to feel the leakage as well...

SPY 5 min intraday is slipping in a flat range which is where we most often see accumulation/distribution

$USO / $USD Update

Since there is a strong correlation between $USO and $USDX I'm looking at both as well as Crude futures. Again, the parabolic move in USO today is not something I trust even whether up or down, but they can last longer than a day and there's nothing to say that the corrective move in the $USD is done either so I'm trying to keep an eye on all of those and determine what the best strategy is and the best timing.

To give you an idea of what things look like...

USO 1 min mostly in line since the bounce signal, there's a very slight intraday negative that has formed over the past 30 mins. or so.

 USO 3 min is still largely in line from this week's bounce signal (white) which was independent of the $USD pullback signals even though they have a near perfect inverse correlation. This is the degree of confirmation I look for before I call something a "High probability trade".

$USO 5 min bounce signal. I would think that a reversal/short signal would also hit at least the 5 min chart as well.

 This is the 15 min chart's leading negative signal which occurred right at the break above the base's upper trendily, it is still the highest probability near term outcome, a move lower inside the base and some serious work to be done before a decent upside breakout will hold.

As for Crude futures...

 intraday the 1 min chart is seeing stronger 3C deterioration.

 Crude futures 3 min with some deterioration to the 3C chart today, but still a larger accumulation area. The downside signal intraday doesn't seem to be proportional to the positive signals just yet which makes me think a second day of upside can't be ruled out.

 The Cl/crude futures 5 min chart isn't far from "in line" status. Again, I'd anticipate a clear negative signal here before crude was ready for an entry (short/puts).

 And Crude futures 7 min chart is in line.

 As for the $USDX, continued downside would likely send crude higher. Once the corrective move in the $USD ends, crude should be ready for an entry.

Intraday 1 min it looks like we are just seeing typical bouncing around intraday that is part of the trend, but on a chart too short to see it.

The 3 min $USDX chart shows the reversal process I have been talking about for a $USD downside corrective move that was part of the backbone of the $USO bounce and second chance entry. It doesn't look like the $USD is quite ready to make a turn back to its counter true d bounce.

 This ONE $USDX 5 min chart grabbed my attention as it has gone from the downside corrective signal to a leading positive divergence. This "could" be the sign that the $USD is near to a continuation of its counter trend bounce, I just don't want to make a call on all of these charts based on 1 chart.

And while the $USDX 7 min chart reflects both the end tail of the positive divergence for the counter trend bounce as well as the downside corrective move, it is not as ugly as it appears.

Looking at the same chart intraday there appears to be a positive divergence starting which may be leaking/migrating over from the 5 min chart.

In any case, I think USO will give us a clear and unambiguous signal when its time. I know the feeling of impatience and wanting to jump on this parabolic move, but as I said, there's typically some sort of reversal process and although the gains for today may be exhausted, a second day higher can't be ruled out yet based on these charts.