Daily Wrap

Where to start today? Well I guess we could start with the IMF terms and conditions handed to a defeated Greek government who thought they had lost big when finally giving in to a Troika extension of the bailut terms they set out to defeat to only be further pushed to the brink when the IMF said, "All of your proposals such as corporate tax rate hikes are bunk, they are unenforceable, they won't return you to growth, CUT THE PENSIONS" which is the 3rd rail of politics in Greece, you don't mess with the pensions. One Greek lawmaker said receiving the IMF's new terms was like touching fire, it's that much of an unthinkable monstrosity. So wouldn't it be something if after nearly 5 months of intransigence, being called amateurs, time wasters, and worse, the Greeks finally rolled over just to be pushed even further right in to default with nothing but a recession and over $30 billion in outflows from their banking sector (which is for all intents and purposes now owned by the ECB) to show for it?

If you want a first hand look at the underbelly of the beast, just look at Icahn's or as some of you call him, "I-Con" tactics. Wait for a NFLX 7:1 split and at all time highs dump everything on unsuspecting dupes, better known as the "greater fools". Icahn sold at the all time highs, the dupes bought at the all time highs. Even day trading Chinese grandmothers seem to be more sophisticated investors that this "Buy the Dip/The F_E_D has our back" crowd. Then Icahn pumps AAPL, which I'd guess was part of the record large cap selling last week as recorded by Bank of America Client types. Apparently Icahn would like to pump AAPL and do the same. Seriously, the guy is smart enough to know that when the market goes down, they take all the ladies with them.

Speaking of which, for whatever reason it seems the F_E_D was not happy with the reaction to voting member Jerome's comments yesterday that her foresaw 2 interest rate hikes this year, putting the first at September so it seems the F_E_D came out today and let the market know that it's not waiting around for the market to accept reality. It doesn't want anyone tp get hurt (lol), but it has given the market ample notice.

Which Icahn sort of echoed in his "The HY Credit market is in a bubble and stocks too" tweets today.

If HY Credit market is a bubble, then what do we call stocks? HY credit in blue, already in a primary down trend and the SPX in green. Remember the Wall St. maxim, "Credit leads, stocks follow".

And on that front, remember last week HY Corp. credit was used as a lever to ramp the market as it usually is short term just so Institutions and hedge funds could sell $4.1 million in equities last week to set some new records in sales?

 Last week the SPX followed HY Corp. Credit tick for tick at the green areas, today it was pretty close as both turned down.

However the one High Yield Credit asset that's not used for short term manipulation and reacts quickly to short term, real risk on and off moves looks like this...

 HY Credit SOLD HARD Today.

And since our forecasted May head fake breakout/failed breakout in the SPY (yellow), HY Credit has been in nothing but a downtrend with the most recent market bounce off last Monday's sentiment extreme lows seeing noting but selling. As we saw all last week, Pros were not buying this move and yesterday we got the hard evidence of it from BofA/ML.

Intraday...

 You can see why I love Transports short as they were the worst performer.

In fact, once again for the Dow theory enthusiasts,

Here's the trend of the massive non-confirmation between industrials and transports.

Since last week, and remember in our The Week Ahead forecast we expected early week/Monday strength, which would fade to weakness...

As of Friday's close, the only upside was Monday's gap up, then the reversal process that I was looking for Monday night in to Tuesday and now most of the averages are below or near Friday's cash close.

This was laid out pretty extensively in yesterday's futures updates and especially at the end of last night's Daily Wrap which ended like this...

"I never use to trust the 1 min charts to hold up until the morning, so in that spirit  I'm going back to 5 min charts which have shown recent weakness as posted earlier today in,  Quick Index Futures Update and Index Futures Update with examples.

And Russell 2000 futures looking worse."

Which all led to some ugly trade today and what I'd say is the turning of the reversal process from the early week strength and the entire run since last Monday's lows...

The reversal process in yellow and the leading negative divergence from last Monday's run through this week's reversal process back to the downside.

Speaking of back to the downside, yesterday's parabolic move up in oil/USO, was settled today as was expected via yesterday's, USO Reacting to $USD and Perhaps the API / EIA Set-up

Despite the 8th consecutive week of draws, yesterday's move was a head fake with no support, I had hoped it might go the way of the last 2 weeks of API pump and EIA dump so we could enter or add to the USO short and put positions already in place. For now, I'll take a convincing break of the $20 range in USO, which will put out positions at a nice gain and start to unlock the next trade which should be much bigger and longer on a primary uptrend.

Once again today there was no Dominant Price/Volume Relationship, like yesterday. I don't see anything of particular interest sticking out beyond what was covered yesterday in the decline of the charts in Index futures which was fairly timely, Index Futures Update.

With the exception of the late day intraday divergence that I believe will pop early tomorrow, this the late day IWM calls for a quick trade, most everything looks to be going the way the charts suggested in the futures post from yesterday linked above.

 Short term charts like ES above are in line, although the averages/cash market are showing an intraday positive divergence/normal corrective bounce.

However beyond that and hopefully the chance to get in to some additional VXX at decent prices and excellent divergences, I don't see much that tells me this is not the pivot I mentioned last night...

You may recall last night I showed the actionable pivot areas on an SPX chart...

Short, swing long, short. Outside of these areas, the risk increases and the profit probabilities decrease.

 The 5 min NASDAQ Futures leading negative so I'm not worried about a short term bounce / intraday bounce.

TF/Russell 2000 15 min 3C futures with an even deeper leading negative divergence than yesterday. In other words, I believe we've reached that actionable pivot with the least risk and the highest probabilities, as I said in the A.M. Update this morning,

"So now we hunt..."

Trade Idea: Just For Fun

I'm going to open a July 17th IWM $127 call, that I expect to close tomorrow based on the concept of 3C divergences picking up where they left off, our intraday bounce. This is obviously a very speculative size position with all that's going on in Greece, but I believe it will turn a little , quick profit.

Intraday Bounce Now Just About Assured

This could just be in to the close, but considering the time left and the 3C concept of picking up where the charts left off at the close, I'd expect some early bounce tomorrow as well.

There's now enough of an intraday base for a bounce and the TICK has moved enough to tell us this is high probability along with the 3C charts. However nothing has changed from the earlier post first smelling a bounce in which 1 and 5 min charts were compared, the 5 min charts and beyond are still confirming all of the damage and in a way act as a lid on a bounce and thus make it useful rather than worrisome.

The 3C charts are easy to see it, I want to show you with price and TICK action alone as there is a reversal process involved and it is proportionate to the preceding trend. You can literally spot these things just with price action alone.

 No moving averages needed, not even trendlines. The 1 min SPY now has the lateral movement that is large enough or proportional enough to support an intraday bounce so I'd expect it.

For further confirmation without any special tools just from intraday breadth alone...

The NYSE TICK chart broke a nice, clean, clear downtrend channel, this is early warning and often useful

Or we could just use the 3C chart...

IWM 2 min.

I purposefully tried to steer away from using the 3C charts as you can see the changes in character in price action and changes in character lead to changes in trend. I think it's worth the time to get use to looking at price action because this intraday chart shows the same characteristics that a weekly chart would show, just different timeframes and proportionality.

TLT Follow Up

The reason I decided to go with a slightly smaller position in TLT calls, which is a position we've been patiently waiting to fill out and a god thing as filling it out much sooner would have resulted in a lot of chop, is because day after day I'm hearing about bond funds and their very defensive positions including cash because of the lack of bond liquidity which will be great for the next envisioned trade if this one goes off well, short TLT. In fact, it will make up for any smaller trade size as any bond shorts will have a hard time covering due to liquidity problems and a counter trend trade is already a monster move without liquidity issues, but just incase things don't go as planned, TLT could fall fast and hard over Treasuries' liquid problems.

I posted the original trade idea of a counter trend rally in the TLT post just put out, but the general idea is as follows...

 Treasuries outperformed stocks through 2014 as part of the carry trade and other elements such as the F_E_D soaking up liquidity, etc.

Since, TLT peeled away from the long term trend line which is a warning flag that the trend is about to change and then it did, around the same time the $USD trend changed hinting that the carry trade was being closed in which one of the main symptoms is declining bond prices. TLT made a series of lower highs and lower lows and then broke its long term trend line.

This is where the other post in the TLT trade idea post goes in to detail, but just like the $USD and its downtrend, there was a counter trend rally and  these are some of the strongest rallies you'll see because they need to change sentiment and convince traders that the downturn is over, which it's not, but that's the essence of the CT rally and with TLT in such an obvious downtrend, it's bound to be thick with shorts so you have a strong short squeeze on top of that.

Here's a closer look at TLT, the true momentum of a counter trend rally would pick up once above the long term trend line that was broken to the downside. Reduced liquidity will make it even more difficult for TLT shorts to cover, the a stronger counter trend move. At some point it should turn in to a nice short, but again, 1 bridge at a time.

The reason I decided on TLT now after having waited some time is all about the charts. Something changed in TLT's charts last week as equities were being sold en masse...

 TLT 2 min divergence, but note the dates, starting last week.

 There was already a positive divergence in TLT, we then expected a larger "W" and second base to form, that is what has happened since to the right, but again look at the ROC in 3C to the upside, it is unusually strong.

A closer look at the same chart reveals this strength came in to play at the same time the market was bouncing last week while equities were under massive distribution, perhaps this is a flight to some kind of safety, or just rotation to the next trade for Wall St., also envisioning a counter red rally knocking out the shorts and allowing room for their new short positions the same as I'd like to do AFTER a counter trend bounce that would purge the bulk of current shorts.

Again note the date of massive 3C improvement, last week.

Just so I don't have a ton of charts, it's rare to see a 6 hour chart move, the amount of underlying trade would have to be substantial, but here the 6 hour TLT chart moves to a leading positive divergence and does so from about the 15th (last Monday) on.

I'm not sure if it's rotation, Wall St. running out current shorts to get their own positioning or what, but it's what I've been waiting on in the charts and now that it's here, I think the trade is about ripe.

EDIT-TLT July 17th Calls will be a Strike of $117, NOT $116

Trade Idea: TLT Long

I'm hedging back the TLT long idea, actually a counter trend trade idea. I'll explain everything with charts, but it's going to take a little time to put it together and I want to get a TLT position in place now, even though I think we might get slightly better prices intraday, I don't think it's worth missing.

The TLT equity position was opened well over a month ago and it was an odd-ball, since TLT doesn't have any leveraged ETFs (at least not with liquidity), I shorted TBT which is the 2x short/inverse of TLT. Thus in shorting an inverse, I effectively created a 2x long TLT position with a bit better liquidity. This position has been in place since the counter trend bounce in TLT/20+ year Treasuries came to light and is down about -6% which is fine with me considering it's a 2x leveraged position.

The remainder of the position I always intended to open (having left room in the original position to add to)  with options/leverage. In this case, I'll be cutting back the initial size envisioned for reasons I'll go in to in the follow up after this post, but even as a speculative sized position, it will still bring the TBT short + plus the TLT call to a combined position size that would be close to a full size normal position.

I've decided to go with TLT July 17th Calls with a strike of $116 and I'm going to open them now.

 If this is a true counter trend move on the liquidity in bonds (low), then it should be a monster mover and I don't think the slightly reduced position size will have any meaningful effect.

The original explanation of the bond counter trend bounce/rally in TLT's case can be found here,  Bond Rally / Swing.

Charts o follow...

Intraday bounce looking more likely

I suspect that this is probably something that was already in the works, falling under the concept, "Once Wall St. sets up a cycle, they rarely abandon it", even intraday bounces.

The TICK is starting to improve intraday, apparent here...

 Intraday NYSE TICK

And on our custom TICK (cumulative) indicator

 TICK Custom indicator vs SPY.

Also you can see the ROC of price is starting to flatten out either by eye-balling it or applying ROC to price such as I did here. Those are just the obvious price based indications, I'm sure there are many more you could use, but for the most part price action alone will tell you enough.

As for the 3C charts, I don't think there's going to be a sharp intraday bounce, it would likely take a bit more time. I want to reiterate, there's strong downside confirmation so intraday noise which is what I'd call this no matter what it looks like as the underlying 3C charts are so bad, is actually helpful in assets like VXX that aren't going to see serious accumulation in to higher prices, thus a market intraday bounce would send prices lower and allow the accumulation of VXX and likely give me that chart that I'll know when I see it.

 SPY 2 min from negative to in line to a slight positive, but not quite a large enough lateral base for a decent bounce right now.

SPY 5 min trumps the 1 min chart by multiples and the divergence here is awesome, thus I have no concern about this being anything other than an intraday bounce or the "Jiggles", which is normal.

Did you know that on average, there are just as many up days as down days in a bear market? Those are the jiggles (the up days), the down days are just much more serious.

Even at the fastest intraday chart the IWM is not showing much at all even for an intraday bounce, lots of damage done here today.

And the 10 min chart has seen an amazing leading negative divgerence on the whole, but look at all that downside 3C movement today alone.

The QQQ, bounce or not, are also locked in to a downside reversal, looking horrible here.

As far as confirmation beyond the averages, the 1 min VXX chart has an intraday negative divgerence so there's confirmation. It's amazing how all of these different market makers, FX, bond/credit traders all know the same thing at the same time. Perhaps that's why the most useful function of a Bloomberg terminal as we saw several months ago when they all went down was not actual quotes or analysis, but the chat feature among the pros that use them, just something to think about.

VXX - VIX Futures Follow Up

As mentioned previously, the UVXY equity/ETF long and the July 17th VXX $18 call positions remain open. I've been watching VXX for either a new entry for those interested or an add-to entry.

I still like this position a lot, even though my original intentions were to exit it last Tuesday morning, but I had made clear back then that even if I didn't get the exit I was hoping for, I still wasn't concerned about the position. I'm still not concerned about the position. I also mentioned in the last post that in looking for an entry in VXX, "The market is going down", is not what I'd call objective evidence. The objective evidence in the form of charts below is looking better and better, but there's still something I don't see yet and therefore haven't put ut any trade ideas as of yet, I suspect I'll know it when I see it.

As for where we stand right now...

 VXX daily chart and an obvious range, an easy set-up for a head fake/stop run move. Do you remember the enormous bid under protection (VIX) last week?

If you consider the information in last night's Daily Wrap from BofA/ML with the client types of net selling last week with some record setting selling and about $4.1 bn of equities sold last week alone to  the greater fool, where would it make sense for some of that money to rotate to? If you're an institutional client selling in what some cases were record amounts of equities last week alone, you probably don't have a very healthy outlook on the market, thus protection would make sense, I suspect that's the reason for the strong bid under VIX / VXX last week.

I'd call the yellow area a head fake move/stop run under a very defined range that usually would be where we'd expect to see accumulation (typical in flat ranges to see acc./dist.). I also noticed something interesting if you consider how orders are filled typically at an area or VWAP, that is the range in VXX compared to the SPX at the same time showing no such thing (considering the two usually move mirror opposite each other).

VXX daily chart in green and the SPX in red, note the SPX shows no similar flat range in the area and the only time the two sync up as they normally would is on the move up in the SPX which we already know was heavily sold and the move down, in to what would be the head fake area in VXX.

Remember that head fake moves have been some of the best price-based timing indications for a reversal (in VXX's case, up).

Charts...

 This is the 1 min current equity/ETF long UVXY with a nice leading divergence, especially in the area that would be considered a head fake/stop run area. What a great set-up for institutional money, sell in to a bounce and buy protection at a discount!

 This 2 min VXX chart is probably along the lines of that "thing" I'm expecting to see that I know when I see it. Although very impressive on this chart, it's still a 2 min chart and I'm still siting on my hands for the moment, at least for timing reasons for options. As for equity positions, timing is still very important with VXX, but not as important as with options and certainly not as important with options of VXX.

Last Monday is when we saw a bounce coming as the SPX put in a second tag of its 150-day moving average, I was looking for the market to pullback Tuesday morning and form a stronger "W" base which would have sent VXX up to the yellow trendily where I planned on exiting the position at a nice 50+% gain and then re-entering later (around now), but that move never came, which I had said the day before, I knew I was taking a risk of missing it, but I'd be fine with holding the July VXX options even if I had missed it.

Since, the 3 min chart has led to the upside, especially in our area of interest and is now at a new leading positive high.

The 5 min chart of XIV, which is the inverse of VXX and UVXY and moves with the market is showing a deep leading negative divergence through our time of interest, before that XIV was largely in line at the green arrow, so this acts as confirmation of the positive VXX/UVXY charts.

With 3C, I always want multiple timeframe confirmation and multiple asset confirmation. It doesn't matter that UVXY will move 2x VXX or XIV will move -1X VXX, 3C is also based on supply/demand or put another way, volume and while these ETF managers are tasked with matching price, there's no way they can match volume which is the measure of supply and demand dynamics, thus these are working confirmation assets for 3C.

VXX's 10 mi chart is also clearly leading and compared to the exact same timeframe and length (zoom)...

XIV's 10 min chart is confirming with its negative divergence after a clean confirmation trend to the far left. It's divergences like this and not confirmation to the left that offer us our greatest opportunities as most traders only see price and price aded indicators, not underlying flows and problems with them.

As for VIX futures, they've always been a bit touchy on the 3C charts, but there are some interesting ones that are catching my attention.

The 15 min VIX futures chart from in line to leading positive and...

The 30 min VIX futures chart which shows the last VIX futures move on a 30 min positive divergence to the left with another right now.

All in all, I like what I see, but I'm still missing a chart or two that makes me quickly jump on the website and put out a trade idea as fart as I can.

Quick Futures/Market Update

Yesterday we looked to be near the end of the reversal process, the transition from the Week Ahead's forecast of early price strength in the week, transitioning to weakness. Monday night in the Daily Wrap we were even looking for a second Doji Star to complete that reversal process as reversals are usually a process, not an event,  and we got that yesterday across the board.

Yesterday I also put out initial warning about the deteriorating nature of the charts toward the rest of the week's forecast in this quick update, Quick Index Futures Update and then followed up with the charts later in the day here, Index Futures Update

So far we look to be in pretty good shape, both intraday and from a reversal process perspective.

 Today's 1 min intraday ES chart which saw an earlier negative divergence on an upside attempt and is in line since.

The 5 min charts shown yesterday and more specifically at the end of last night's Daily Wrap, showed us a seriously, fast deteriorating situation in Index Futures.

This may not look like much of a reversal process because it doesn't show what was being reversed.

This 10 min ES chart shows the expected bounce off last Monday's lows when sentiment was at extreme fear, making it easy for Wall Street to take advantage of that fear and flip the lopsided boat, creating a new bullish sentiment that they sold record amounts of stock in to last week, now in yellow the reversal process looks a bit more clear and you can see, proportionate to the preceding trend.

So far intraday the rest of the majors look pretty good on the downside...

 R2K futures, there may be a small positive divergence intraday developing there, if so we can use it to our advantage.

The NASDAQ futures pumped on Icahn's APPL comments was not confirmed by 3C which continued lower and the NASDAQ finally broke and met up with 3C's downside.

I'm still watching VXX for new or add-to positions, I don't like chasing anything and I do demand that the charts show strong objective evidence for any trade idea, not just that the market is going down so VXX should go up, that's not a good reason.

So far things look good and the July 17th VXX $18 call position is still open as well as a UVXY (2x long VXX) long is still open as I expect both to be profitable.

USO Update

USO's parabolic move up yesterday turned out to be exactly that as you'll see momentarily. I'm not reposting all of the charts that I just posted yesterday in, USO Reacting to $USD and Perhaps the API / EIA Set-up, but enough to see the [parabolic move and the apparent set-yp of the API/EIA scam, this time before hand rather than Wednesday morning, well ... I suppose it still worked out Wednesday morning.

My opinion of USO near term is the same as it has been, as reiterated yesterday and the USO equity short as well as the July 17 $20 puts are still open positions.

 Oil ran up yesterday in a parabolic type move,  I never trust these moves as they tend to end as dramatically as they started, just in the opposite direction. It seems this time rather than the Pump on the API data and dump on the EIA data, they pumped before both and dumped on the EIA this morning at 10:30.

 Here's a look at the mini parabolic move complete to the far right on a 15 min USO chart, it looks like it may finally crack below the $20 level which is where I have expected it to go.

 Here's the dump on this morning's EIA data (it has been a busy morning).

The inventories came in at a draw (8th consecutive draw down) of 4.93 mm bbl v consensus of 2 mm bbl, so why is crude heading down rather than up (other than the fact smart money wants to accumulate at lower prices)?

Because production rose again and this time it's near a new record cycle high, so crude sold off and when it's below $20, maybe as low as $16, I fully expect it will be accumulated hand over fist, as I said yesterday, but that's another trade and we aren't there yet.

The 2 min USO chart shows no confirmation of yesterday's move, thus it wasn't much of a concern.

As I mentioned above,  the USO equity short and July 17th puts remain in place.