Daily Wrap

It seems that one of the wildcard events of tomorrow may have been defused for a short time as the Greek government has asked the IMF to bundle tomorrow's 300 million euro payment with the rest of June's payments, giving the government a few more weeks to try to find a solution. This would create a total debt of €1.5 billion due to the I MF by the end of June should they accept their request which is widely believe the IMF will accept the bundling request. Just for some perspective, considering the Greek government made their last IMF payment by using their last IMF reserves ( essentially paying the IMF with their own money)  and can't afford to pay the current €300 million due tomorrow, it's difficult to imagine them paying he €1.5 billion due in June much less the €274,340,000,000 debt scheduled to last through 2057. In any case, that seems to be one bullet at the market may have dodged for the moment. For more information see ...

Greece asks to bundle IMF payments to pay at end of June-Kathimerini

If indeed the IMF accepts the bundling request tomorrow's main event will be non-farm payrolls out at 8:30 AM. A print above 250,000 may cause some volatility in the market to the downside as a rate hike would be more likely. On the other hand if there is a print substantially below 250,000 we may see some upward volatility in the market. I am curious as to whether or not we see some stronger signals if indeed the Greek drama has been put off until the end of the month.

Otherwise volatility in China Will certainly be one of tonight's main events as well as the ongoing volatility in German Bunds and EUR/USD as the pair has seen a 400 pip move in the last 3-days alone. Interestingly, the US 10-year yield has been tracking the FX pair quite closely this week.

The EUR/USD (candlesticks) vs. the 10 year UST. Yields move opposite Treasuries so if the 10 year Treasury (purple) were inverted, the 10-year yield would be exceptionally close to the EUR/USD.

As I said earlier today, I expect the USD to put in a corrective bounce and judging by the 3C chart of the USD and the euro, I expect that's exactly what we will see.

USD 15 min positive divergence for a corrective bounce ...

EUR 15 min negative divergence suggesting the $USD see a bounce. Furthermore...

The daily chart of the USD with a bullish (reversal) hammer.

I would normally expect a bounce in the $USD to send $US Dollar denominated assets lower, however in this case, I think we made the right decision this morning in closing the $USO put position, Closing USO July 17th $20 Put Position which resulted in a nice 3-day gain of +45%, USO Follow Up. As shown before the close, I expect oil/USO to bounce, however it looks quite the opposite, USO / Oil Analysis short term any way.

For instance...

USO 3 min intraday not only turned lateral shortly after we closed the put position just after 10 a.m. this morning, indicating a small base to bounce from, but also put in several positive 3C divergences like the one above.
Crude Futures (5 min and longer) are also showing the same probability of a near term bounce, allowing us a new opportunity to let the trade come to us and set up a new short/put position as the longer term charts suggest oil has more downside to go.

For instance, this 60 min chart of Crude Futures showing a deep leading negative divergence. However on a longer term basis, I'm still expecting crude to come back down in to this year's base, finish up some remaining work and then put in an upside trend reversal. However, we do have the OPEC meeting tomorrow where production is expected to be left at current levels if not boosted which would be a selling catalyst for oil. With the 3C divergences in place though, I suspect the market already has a good idea of what OPEC will do, which I'd venture to guess will be to leave production at current levels. Nonetheless, we'll be looking for our next trade set up here very soon as one of the few assets showing enough volatility to be able to trade.

The same can't EXACTLY be said for equities despite today's downside volatility in which the Dow lost its psychological level of 18,000 and the SPX lost its psychological level of 2100. Perhaps tomorrow's NFP will introduce more volatility, as you know (despite already having core shorts set-up and wanting to see them profitable), one of my main concerns this week has been the market falling too soon before a decent upside move allowing us to enter a number of watch list shorts at better prices/less risk and good timing. I don't see anything in the charts at the moment that suggests the Non-Farm payrolls are leaked as we only had a slight 1 min positive divergence in the SPY today, it didn't go any further than that and that's not very impressive.

SPY 1 min intraday positive divergence which appeared right around the time we called an intraday bottom for the day at 2:21 p.m. this afternoon, Intraday Flameout-SPY/Market intraday Capitulation Likely

However note that the divergence was not strong enough to migrate even to the next intraday timeframe of 2 mins which remains in line with price action (3C price/trend confirmation).

The Index futures are inconsistent or in line at best, none of them have enough confirmation that would give me the confidence to make any long trade at the moment, I say at the moment because the market is as dynamic as any living organism out there and things can change quickly, but for now, it is what it is. Certain assets I'm hoping to get us in to are showing some promise on the watch list such as the NFLX Trade Set-Up I posted yesterday or perhaps Transports, although they are struggling to do much with a divergence that would have sent them higher for a good 2-eweeks a year ago. The market has simply seen a lot of damage and although it's silly, overtime I look at internals, Leading Indicators or the charts, this image comes to mind...

I do believe we are close a strong counter trend rally in TLT (20+year Treasuries) as posted when it first broke and set up the Channel Buster Concept which can be seen in the original post here, Bond Rally / Swing

As for the charts...

TLT Daily chart with the stage 2 trend at #2, the stage 3 top at 3 and already in decline, stage 4 with a break below the long term trendily setting up a Channel Buster counter trend rally concept and by the size of the base, I suspect it will be a doozy.

Here's a closer look at TLT's daily chart. Note the head fake/stop runs on all of the charts at the yellow areas. Yesterday's stop run on high volume looks to have been accumulated in size.

And the 3C chart showing the base area as well as the recent stop run and 3C positive divergence showing the shares having been accumulated. I'm just looking for the short term timing charts to scream or jump off the chart. 30 Year Treasury futures are also showing positive divergence adding more credibility to what "should" be an exceptionally strong move. If we can make +40% on a short term pullback trade here, imagine the counter trend rally as they are some of the strongest rallies you'll see in any market.

As for internals tonight, yesterday we had no interesting internals at all. Tonight the Dominant Price/Volume Relationship is mixed. The NASDAQ didn't have one. The Dow and SPX were both Close Down/Volume Up,  with 22 and 249 stocks respectively. This is a 1-day oversold condition and usually sees a green close the following day. However the Russell 2000 was Close Down / Volume Down which is the least influential of the 4 possibilities with 1055 stocks. In addition to the NDX not having a Dominant P/V and the miix between the other averages, I would NOT call this a strong 1-day internal condition, but does lean toward a higher close overall.

Interestingly only 13 Dow stocks are above their 50-day moving averages, less than half of the R2K are above their 50-day at 842 and less than half of the SPX at 201 stocks.

Interestingly at the same time, 9 of 9 S&P sectors were in the red, Energy led to the downside. Among the Morningstar groups ONLY 14 OF 238 SOTCKS CLOSED GREEN. THIS IS AN EXTREMELY DEEP 1-DAY OVERSOLD CONDITION. ALL IN ALL, JUDGING BY INTERNALS ALONE, I'D EXPECT A 1-DAY BOUNCE OR A GREEN CLOSE TOMORROW.

However I'd be remiss not to remind you that tomorrow is an options expiration Friday and we most often see the max-pain options expiration pin right around Thursday's close. Although it's difficult to believe any pin would hold if the 8:30 Non-Farm Payrolls come out significantly off a 250k print.

Additional influences that are effecting the market would include our custom SPX:RUT ratio which is not confirming today's downside, but rather leading to the upside VERY near term. Pro sentiment indicators closed in line with the market and are overall negative regarding the larger picture as  a leading indicator. If indeed 30 year yields are still acting like a leading indicator as they have been for several week, but not for months before that, then they are pointing to a bounce in the market. However most telling in my view is the total and complete collapse in High Yield Credit. While I'd prefer all of these were pointing in the same direction and most are except 30 year yields, this is not the kind of slam-dunk immediate, "Hit the panic button" market decline expectations often shown by leading indicators,  but it is darn close, especially HY Credit.

For some time Yields which had been one of my favorite Leading Indicators, but had stopped working  (I suspect as the $USD carry trade unwind began) and I expect soon they will stop working again, but over the past few weeks they have been pretty accurate and right now point to the short term upside /head fake bounce I had been expecting to fill out the "Igloo/Chimney" top pattern

Perhaps more telling than any other Leading Indicator is High Yield Corporate Credit... Looking at HY Credit in blue, remember the phrase, "Credit leads, stocks follow". In that light, it's pretty hard to imagine this market holding up for very much longer as credit has completely dislocated from the SPX on a long term, intermediate term and now near term basis.

Finally as to Futures indications tonight, NASDAQ futures are showing a pretty negative intraday / 1 min negative divergence since the lose in which it looked like the market was trying to ramp back up to VWAP. The SPX futures (ES) don't look quite as bad since the close, but they are in line with the downside all day and do also show some deterioration since the closing ramp to try to make it to VWAP before the close. I can't really spin the tea leaves here in to a coherent strategy for the broad market and there are too many short term wild cards such as Greece and Non-Farm Payrolls, but I do have a feeling we will be seeing better signals if indeed Greece receives the bundling request by the IMF to avoid all out default on tomorrow's $300 mn Euro payment.

ES/SPX futures late day closing attempt to hit VWAP above.

The NASDAQ 100 futures closing ramp toward VWAP 

And the deterioration in ES/SPX futures in 3C since the 4 p.m. close (red arrow) since VWAP was no longer important with the cash market closed. You probably get the drift... VWAP is used as a measure of a market maker's or Specialist's fill for institutional orders. Typically in a market that is trending down, they are looking for the middle man in that particular asset to sell/fill their orders at VWAP or better. It seems after the cash close, it didn't matter much anymore and that shows in ES's 3C chart above, but more so in NQ's below...

NQ 1 min 3C chart since the 4 pm close (red arrow)...

As always I'll check futures before I turn in and if there's anything standing out, I'll let you know. I suspect we'll see more volatility in Asian markets, they are starting to trade like a penny stock. Have a great night and let the trade come to you.

Quick Asset Update

As I just posted what I'm looking for in oil/USO for a new trade, I also see TLT as pulling back a little to finish up work in its base area, I'll be looking for a long entry there.

Gold I also see as pulling back a little tomorrow and they should both make for probable long entries at some point tomorrow.

I'll post the charts after the close.

The 1 min intraday SPY chart is still positive which would normally tell me to expect a gap up in the morning, but there's nothing after the 1 min chart so it's not a strong divergence by any means, more than likely just the market getting oversold intraday. We have too many wild card risk events from the NFP at 8:30 am EDT to the Greek/IMF loan repayment/default debacle.

This is a time to be patient (overnight).

As for some of our trade set ups, I'm hoping transports can do more on the upside than they have so far as they look like they'll make an excellent 3rd entry for our long term trend short or core position already open in transports.

If you saw my Trade Set-Up for NFLX yesterday, than you know it's headed in the right direction, but it's not there yet. Once again, some patience and let the trade come to you.

NFLX is  a proxy for a number of our watch list trades, so I suspect most will set up around the same time.

The $USD which has seen the counter trend rally, strongest 7-day move since 2008, fail. However short term we should see a slight correction before it returns to making new primary trend lower lows.

There's not only evidence on the big picture charts you have already seen for the Index futures (ES, TF, NQ) SPX, Russell 2000 and NDX too all fail (big picture), but as I wrote over 2 years ago, "When the market fails, look for the Yen to rise. There's also evidence of the Yen building a longer term solid base from which to rally from as the $USD sinks lower, F_E_D rate hike or not.

More to come after the close. Patience... let the trade come to you.

USO / Oil Analysis

Thankfully we still have good volatility here. Even if you're not interested in trading USO/Crude, there are some good concepts here that are worth looking over.

First we closed out the USO put position today on concerns I had earlier about a counter trend bounce,  Closing USO July 17th $20 Put Position . The trade yielded a decent gain of +45% for 3-days, USO Follow Up.

Now the question is where we go from here.

My view has been that USO is building a large base for a primary trend reversal. It has also been that USO/oil needs to pullback further to finish that base before it can sustain a breakout to a true stage 2 uptrend that will hold unlike the earlier breakout which we called in advance to not only happen, but to fail as a head fake move.

I am looking for a near term bounce that we can re-open a new crude short (options / put) position and when the time comes, to enter a long term oil long position for a reversal of the downtrend that started last summer. As for the USO equity short, that was left in place as a trend trade which I don;t concern myself with small counter trend corrective moves, options are different because of the leverage and time decay.

 The 1m intraday USO chart shows recent negative/distributoon and the call to close USO puts this morning as shortly after USO turned sideways , creating a small base it can bounce off-likely in to fill today's gap. We have positive short term (weak) 3C divergences to support such a bounce.  It is there that 'll look for a new put position opening on higher prices and a turn to distribution short term in the 3C chats.

The 2 min chart shows the concept of 3C migration. As a divergence (this time positive from the 1 min intraday) gets stronger, it migrates to stronger/longer timeframes such as this 2 min chart. Also note the flat price trade since this morning's closure of USO puts. I always want to close the option position BEFORE prices lose momentum.

 Even the 3 min chart is now leading positive. This is not a strong enough divergence that I would risk going long USO/Oil for a short term trade, but it tells me that we can let the trade come to us while maintaining out gains and open a new position at better prices and less risk.

The 5 min USO chart is starting to show the same positive /accumulation activity short term.

Even Crude (Brent)  futures are showing the same thing on intraday timeframes...

 CL / Brent Crude Futures 1 min intraday positive with a rounding bottom for a bounce, as I said earlier today, likely enough to fill this morning's gap and maybe some offering us a new position opening for a put/short.

I mentioned the head fake moves, very slight, like a channel buster that give an asset momentum, the yellow area is one of those head fake moves with distribution in to the move higher setting up a fast downside reversal which is  why we added to Monday's USO put on Tuesday. Today we have a 5 min positive just like USO and thus decent confirmation between Brent and WTI crude.

 This is the 60 min chart of USO and the channel/trend with a head fake below the channel for a strong upside reversal and then a second head fake above the channel for a strong downside reversal.

these can be seen on the 3C charts as false moves and why we added to the position upon confirmation.

This 10 min chart/3C of  USO shows the same trend at the same place with a positive/accumulated stop run below the channel (yellow to the left)  and the distribution ion to the head fake or false break above the channel (yellow to the right).  Note the distribution as new traders would have bought the apparent breakout of the channel as smart money sold to them, built in demand at higher prices,  this is why we want to do the same thing.

 The 15 min Crude futures show the same features, a move below the channel after downside confirmation at the green arrow and distribution telling us the break above the channel was a head fake or false move, which again is why we added to the USO put position. Now you can see accumulation (white) to the far right (today)  for a short term bounce . Let the trade come to you, don't chase.

 Here's a larger version of the same concept. The USO base's support line was broken on March 18th (yellow box) as stops were run and accumulated providing good power for the upside move. However you may recall, we not only predicted the move above the base's resistance range, but that it would be a false move/head fake and turn back down in to the range as it has (second yellow box to the right above base resistance).

 On a 3C chart (15 min), this is what the above looks like, the stops that were hit in mid-March were accumulated and like most false moves, there's a fast reversal (to the upside). 

In like manner, the false breakout above the base's range showed 3C distribution telling us USO was headed lower (second yellow box to the right).

3C is still leading negative so I believe we still have more downside to go before Oil finishes its longer term base sen at the bottom of this post.

The 60 min Oil futures chart shows the same divergences at the same areas, positive on the stop run below support and negative on the false breakout above resistance and to course we still have a leading negative divergence  which tells me I want to use any short term price strength to short in to for now.

On a longer term basis, last summer we had a clear negative divergence at a H&S top and a trend lower in which 3C moved lower with (confirmation). Since then, we have seen a large, strong base forming with a leading positive divergence, but the small red arrow in the white box represents the current pullback that needs to complete allowing lower prices and smart money to finish accumulating at cheap prices. Then I suspect we'll have a strong, primary trend upside reversal that WILL breakout and hold the breakout for a move higher.

Intraday Flameout-SPY/Market intraday Capitulation Likely

Most of you know by now what intraday capitulation looks like, a short term selling event that marks a short term bottom, typically on an intraday 1 day basis.

I suspect we are coming up on the heels of such an event now. This doesn't seem to reflect anything other than an intraday short term oversold condition. Using the SPY as a proxy for the market...

 The 2 min SPY 3C chart is nearly perfectly in line so I don't see any short term accumulation of any importance.

The one thing I've said several times the last 2-days is my greatest fear (which is not actually a fear as I've built my core /trend short positions and any downside will just put them in the green), is the market collapsing BEFORE we can add additional short set ups such as the few I've put out Trade set-ups for like NFLX and Transports specifically. If possible, I want to give those who'd like it, the best opportunity to set up core /trend positions (mostly short) before the market breaks which I'm certain of.

 The SPY 3 min chart is also in line , confirming the downside trend with a negative divergence/distribution at recent highs in this horribly tight, low volatility range.

 SPY 15 min which is a much stronger timeframe is now at a new leading negative low after distribution at the highs on this chart.

The 60 min is leading negative and worst of all for the market on a big picture basis...

The Daily SPY chart (strongest divergence) is leading negative in a huge way.

I'm not a fool and I don't expect the market won't try to shakeout shorts before any major break as it has already done once very poorly, I'm just not sure the market has anything left with even the turn to lever of short term manipulation, HYG, breaking down.

The VIX futures intraday chart however show an intraday negative divergence suggesting the market is looking for an intraday bottom/short term oversold condition.

The 1 min (weakest) SPY chart is as well...

From leading negative at yesterday afternoon leading to the concept of 3C picking up where it left off with a gap down today to a slight positive intraday divergence on the 1 min chart only.

The TICK/intraday breadth data suggests the same.

The NYSE TICK trends, note the lower range extreme hit just about 1:15 pm EDT.

My custom TICK indicator is also showing a deep extreme in TICK that is starting to improve.

As you know, we look for an intraday candle with high volume and a positive candle, such as this in SPY 15 min...

See the candle with the longer lower wick on the highest volume of the day, I believe that was our intraday low just in case anyone is day trading, but remember we don't have anything even approaching a positive divgerence after the 1 min chart- 2 min above is in line with the downside today.

Greek Drama

Looking back since last Friday's The Week Ahead post in which rather than the usual "best data of the week" we receive the last 2 hours of Friday, there was little to nothing and we had to instead look to the highest probability conceptual outcome.

This week we have looked for solid signals and had few, however yesterday we looked to sharpen the analysis a bit based on what I would call evidence of the unobservable, like astronomers who are able to tell there's a planet orbiting a far away star because of not visual confirmation of the planet itself, but the effects the planet has on other forces such as light refraction and orbital changes due to gravity, those posts from yesterday were here, Message of the Market and here, Market Update and Leading Indicator Update.

However as the Greek drama unfolds, this unprecedented week of weak to no signals (which we see from time to time for a day or two, but not a week), is in fact because of the Greek/IMF payment tomorrow and the possibility of a Greek default. The ideal situation is still the one proposed in Friday's The Week Ahead, even if it comes from some sort of Greek relief rally, however from the looks of Credit and VIX futures (see both here from earlier today, Volatility / VXX which will show you both VIX action and HY Credit risk off posture) it may not be just Greece the market is worried about, but the Non-Farm Payrolls due out at 8:30 tomorrow morning as we approach the much speculated, June 15/16th F_O_M_C. This is the last major employment data before the June meeting.

I'm a bit quiet on posts today, that's not because I'm sitting back waiting, it's because I'm much busier than normal going through charts looking for what the crowd might have missed. However for now, it seems the market is quite concerned not only by HY Credit implications, but VIX futures about not only Greece, but Non-Farm Payroll data and the effect they mat have on a June Rate Hike, something the IMF virtually begged the F_E_D to put off until the first half of 2016 today.

As for Greece, the Troika submitted it's best and final proposal yesterday, it "seems" the Greeks consider it a red line they won't cross, I don't know how that beats default, but Syria has shown themselves to be incompetent amateurs since elected. You don't bluff the Troika without a plan B, which I always assumed they'd have, apparently they don't.

There's some talk of a new proposals Syriza is looking over today and a technicality that may allow them to avoid default by requesting the IMF bundle June payments rather than have tomorrow's payment due, all June payments would come due in a few weeks buying the Greeks some more time, while the IMF seems to feel confident that Greece will make their payment on time.

These are wold card events and I suspect the market has been on the sidelines which is the reason we've had so few decent signals in the very low volatility equity markets, notice we have been trading more in Energy and other markets that are much higher on volatility recently.

An example of Cross-asset volatility...

Compared to oil/USO, I think it would be foolish to try to trade the averages right now without strong signals, we wouldn't have achieved yesterday's 40% gains and today's +45% gain in equities/the averages, the volatility is imply not there.

Cross asset volatility.

In any case, I just wanted to check in with you, let you know I am here, I'm just not willing to post to take up space and your time unless I have something that has an edge you can use. Until then, I continue to look for whatever the crowd might have missed as well as any other opportunities no matter where they are.

For now, Greece is a wild card out of our hands. The NFP tomorrow morning may not be the same, that may be leaked and that may be "part" of the reason the VIX short term futures have put in decent gains today with strong signals otherwise.

Volatility / VXX

The one thing that makes me nervous in the market and I don''t get nervous very often is a quiet market. I've often compared a quiet market to being like having children in the room next door and they're just a bit too quiet, that usually means they are up to something and this market has seen volatility very low all year, but the last couple of weeks have been insane, which is the reason we've been using a lot of leveraged (options) trades and in and out.

Forgive the number of charts below, but I want you to see what I'm seeing. Some of this such as the VXX 15 min+ charts I've known about for sometime just like the negatives in assets like Transports, however it is the shorter term miming charts I have been looking for with good confirmation.

 This is the flag-like pattern that I suspected would give us a false break that would fulfill the head fake/false price move in to the Igloo/Chimney Top once it broke $212.50, thus far, hasn't held. I also thought this would need to happen and be complete BEFORE Greece and the IMF payment come due, unless Tsipras is going to go against his party and accept the Troika's final best offer, which they have called a red line that they would not cross, but I guess default could make you do some things you didn't expect. In any case, we have to wait and see. A relief rally if Greece accepts the Troika demands would have the same effect, stronger even and would help us out with additional positions enormously, but until then we have what we have and no way to divine what Greece will do at the 11th hour.

 Volatility has been low all this year as you see in the SPX daily chart above and getting worse. We've had 1 failed head fake/false breakout already and these large triangles are almost always tops.

 However the pinch in volatility the last couple of weeks has been unreal. Again, these dull markets I consider to be the most dangerous. It's easy to let your guard down and expect today will be just like the rest of the year until it isn't. If anything, this is the time to be paying extra attention.

As for the Leading Indicator that is causing me the most, well I shouldn't say concern as I've already set up core shorts and am ready for a decline, but in the case of wanting to enter some additional positions in to some price strength, this has caused me the most worry that the market will drop quickly before we get a chance to enter those set-ups, one of which I featured yesterday, NFLX Trade Set-Up

HYG

 HYG (High Yield Corporate Credit) is leading negative in a big way recently, this in addition to already deep dislocations on longer term charts.

It looks like smarter money is heading for cover.

 HYG daily leading negative vs the SPX. On a longer term chart, the dislocation is much worse with HYG already in a primary downtrend.

 Very short term, this is the 1 min HYG chart, it has been in line on the downside, maybe a bit oversold right now, remember this is only a 1 min positive divergence through yesterday afternoon and this morning.

 The 5 min HYG chart is leading negative and has full 3C downside confirmation.

 As does the HYG 15 min 3C chart, actually it's worse as it is leading negative.

And the HYG daily 3C chart, you can see why it's in a primary downtrend. Note the price action/3C signal since the red arrow.

As for VXX, I'm also using UVXY and the inverse XIV for confirmation as each has different volume so there wouldn't be confirmation based on price movement.

 VXX 1 min has shown accumulation at recent lows, any move higher was sent lower and accumulated.

 Looking at UVXY's 2 min trend, you can see the same trend through this entire period.

 UVXY 2 min leading positive with a clear accumulation area.

 The 3 min XIV (inverse of VXX) shows confirmation at the green arrow and then a large leading negative divergence confirming the VXX/UVXY positive divergences above.

VXX 10 min leading positive and 15 min charts I have been aware of as someone seems to be building a large position/protection, it's the shorter timing charts that have grown more active.

 VXX 15 leading positive as well. The divergence (positive) to the left is interesting, I wasn't quite sure what to make of it, however...

 The VXX 60 min shows the same positive divergence at the same area and the current leading positive. Most often we see divergences in flat range areas like this one to the right.

The very inverse XIV chart confirms VXX's 60 min chart with a leading negative divergence. Thus we have good confirmation through multiple timeframes and multiple assets.

Even in VIX futures we are seeing recent local activity...

 VIX futures 5 min 3C chart leading positive...

VIX 7 min futures 3C chart positive

And impressively, the 60 min VIX futures chart positive as well.

I chose UVXY for a little extra leverage without having to worry about time decay of options at the moment, but I may fill out the remaining position with VXX calls if I feel there's a good set up and signals for such a trade.