Daily Wrap

First of all let me apologize for the late start this morning, my internet was down which happens from time to time and I pack up all the computers and monitors and go to my back up location, that was down as well. I had to call in a favor to get to a 3rd location in another city with a different provider, get set up. catch up and get started. It's just one of those things you are subject to when working on line. Heck, I've done a whole dat before with a lap-top in the parking lot of a Panera Bread running off power inverters!

So far our "Week Ahead" forecast with initial/early week strength, turning to a reversal prices and moving to decline has been a pretty clean affair, the only difficulty in all of this is remaining patient and waiting for the forecasted signals to materialize, patience seems to always be the hardest part.

Tuesday's obvious deterioration in Index futures was telling us we ere in to the reversal process from not only Monday's gap up, but the entire mini cycle off the SPX's June 15th lows at support as represented by the second tag of the SPX 150-day moving average on an extreme in emotional sentiment to the bearish side, really a perfect set up. The charts on Tuesday showing what was essentially forecasting price action to the downside since then, can be found here, Index Futures Update.

Tuesday night's Daily Wrap made special mention of the deterioration with all of the Index futures' 5 min charts (the ones that are serious enough to hold overnight), this is one (NASDAQ futures) as an example of what things looked like going in to the overnight session and Wednesday morning.

NQ 5 min 3C chart. This was far from the only timeframe in futures that was showing trouble and a reversal process underway, just the most near term significant one.

This is what the same chart looks like as of just after the close today.

The reversal process which is a bit hard to see on this chart was nearing its end as the 3C chart was suggesting and moving closer to stage 4 decline.

If you remove the noise the cycle is pretty easy to see, stage 1 base off the 150sma-SPX support, stage 2, we even have the peeling away from the trend line that serves as warning of a change coming at the little red arrow, stage 3 as reversals are a process, not an event and stage 4 underway. The 3C divergence through this should also be clear if you ignore my "staging" scribble. In retrospect I'm a little surprised we didn't get an igloo/chimney head fake, but we didn't have signals to call for one either. 

As a concept, "Knowing where you are in a cycle to know where you are gong", I think this is an important one that any trader, trading any asset in any timeframe can use.

In the meantime, the shorter term charts like ES 3 min are showing solid confirmation. This is slightly longer than the 1 min intraday charts that produce some noise as price stalls or tries to get together an intraday bounce, this clears out a lot of that chatter an revealed the 3C trend which is perfect downside confirmation in to stage 4 DECLINE.

If you have followed the forecasts since June 2nd, or even just since last Monday, we are right on track.

SPX daily chart with a 150-day sma. At "A" sentiment was at a bearish extreme according to the "Fear and Greed" Index, you may recall the captures I posted of it and the excerpts from Monday the 15th of June:

"The one thing I don't like is the increased market perception and fear, that tilts the ship too far one way and it's very lucrative for Wall Street to rock the boat in the other direction quickly, stopping out or triggering trades, it''s short term maneuvering that has little to do with the bigger picture, but it makes them money." Monday, June 15th 

The excerpt above was from the same day as the arrow at "A". The reason I wasn't fond of this market sentiment extreme is because it sets up a situation in which a bounce is the highest probability as explained why above and delays the move lower below the 150-day, but it was expected as far back as the April 2nd forecast when calling off areas on a downside move where we'd see some short term support.

The yellow arrows mark daily candles with bearish closes via long upper wicks as higher prices were rejected, The orange arrow denotes a bearish  "Star" reversal candle and the red arrow denotes confirmation of the reversal that is inside the yellow box. The next significant move should be through and below the pink 150 day sma, assuming Greece doesn't get a rescue and a relief rally, which again would not change the under;lying assumptions any more than the bounce off June 15th lows, it's just noise within the bigger picture, but it can be useful just as this move was useful (NFLX short, BIS long, UVXY long, etc.-all positions at better entries, lower risk).

I'm not sure whether it is appropriate to use this as an example of the F_E_D-based knee jerk reaction which is usually wrong and retraced, there are two reasons...

These are the major averages since the F_O_M_C on June 17th, Transports have already retraced all gains, the Dow is just above, followed by the SPX, then the R2K and NDX. The first reason I'm not sure whether it's an appropriate example is because there was barely any knee jerk reaction on the 17th when the policy statement was released and the second more compelling reason is that we forecast this move on Monday May 15th, well before the F_O_M_C meeting even started, much less the policy statement was released.

In any case, this week's commentary by the F_E_D's Powell anticipating 2 interest rate hikes this year, meaning September would have to be the first (the next meeting) and the news yesterday that the F_E_D is NOT prepared to wait for the market, furthering the perception of a September rate hike and possibly 2 this year.

Leading Indicators look right as they have.

 Pro sentiment has fallen off ever since the May head fake move above the SPX large ascending Triangle that was the essence of the April 2nd forecast, the head fake move would fail and we needed that to happen before any meaningful downside would hold. We've seen some meaningful downside and Pro sentiment is not buying in to any short term pops, just selling and it's not just our indicators that have told us this, but the recent BofA/ML net buy/sales by client type with several all time records in distribution taking place last week ("all time" relative to B0fA/ML's data base).

Sentiment today took an even worse plunge if that's imaginable.

 I've already pointed out the primary downtrend in High Yield Corp. Credit and why it's important to market direction as well as my forecast that it will make a new primary trend lower low which its well on its way to doing.

HY Credit which has less short term manipulation than HYG shows an extreme fall off/distribution in HY Credit, recently like it has fallen off a cliff, but just to show how important the April/MAy SPX /market head fake move was...

Here it is on the SPX at the yellow box, the same area HY credit began selling in earnest with an ever increasing downside ROC in price, a near vertical drop off.

Again, it's not the forecasts or the charts that are difficult in trading any of this, it's patience in waiting for the pivots and the highest probability opportunities which we are moving through right now, thus the increase in trade ideas in the "Core short/trend " category.

Again today there was no Dominant Price/Volume relationship which is essentially just telling us that there's no build up of overbought/oversold conditions that may effect the trend of near term price action.

After having reviewed the normal rounds of futures I usually check everyday, there's nothing surprising in Index futures, there is some near term weakness on the $USD chart and some near term strength on the EUR chart, but the longer term $USD chart that has been showing strength and longer term EUR charts that have been showing weakness are still intact so I'm not sure if there's going to be a short term bounce in EUR/USD...

60 min EUR/USD/ The longer term charts I have mentioned several times this week point to a move lower in the pair. I'm not going to jump to any conclusions about the shorter term charts that showed some different behavior as it may just be a bounce or reflecting the flat/consolidation behavior recently, but I'll be keeping an eye on them as they do have implications for other assets.

Today's intraday charts of USO/Oil show some intraday positive behavior, while the intermediate charts are still calling for downside, but I have to be honest, as much as I preach patience  I'm starting to lose it with this range in USO.

As of now the USO equity/ETF short's gains have offset the USO July 17th's put losses (around -20%) and I don't have any serious reason to make changes as far as the charts go. Intraday charts today are far from reason enough to change positioning on this larger trend position, but if the charts start to change or the balance between the USO short 's gains and the USO puts' losses starts to start turning negative, I'll have to take another look at the position. This range bound behavior is not at all what the charts have been reflecting. We saw something similar in gold and it took a while, quite a while longer than expected, but gold did move in the direction the stronger charts forecast.

Other than that, I'll update VIX/VXX again tomorrow as well as TLT/30 year treasuries. If anything should change tonight before I turn in, I'll send out a head's up.

Have a great night.

Closing Indications

There has been very slight improvement in the NYSE TICK intraday the last hour...

 Intraday TICK

 Our custom TICK indicator.

This is very slight improvement, nothing like yesterday's "Just for fun" IWM calls for an overnight trade.

 The 1 min intraday SPY which lost yesterday's divergence or it just ran its course as we did exit the IWM calls at a slight +7% gain, has a very small relative intraday 1 min positive divergence. This is nothing like the one seen at the end of the day yesterday that was worth a shot at IWM calls, this is much less significant.

To avoid tunnel vision and tell us where we really are...

 The 5 min SPY trend with the mini cycle starting from last Monday (the 15th) lows at stage , 2, 3 and now a clear stage 4 decline. That's where we are, we expected a downside reversal this week, we are in stage 4 decline.

 Again, along the lines of avoiding intraday tunnel vision, the QQQ 3 min has also put in the same strong distribution and has also moved in to stage 4 decline from the Tuesday /Wednesday reversal process.

And the IWM which has had a longer cycle running is clearly ending that cycle, look at the leading negative divgerence to the far right hitting new leading negative lows vs. where price is now compared to the cycle lows at the white hash mark to the far left.

This market is moving as we anticipated in the April 2nd forecast, the bounce off support which was expected and normal and the move which I believe will lead us right through support levels, especially the SPX 150-day moving average.

Only surprise news that no one can predict at this point can change the trajectory of price.

When the Missles Fly, It's Time to Buy

You may have heard that Wall Street market maxim, "When the missiles fly, it's time to buy", which is often misinterpreted as the spoils of war being good for the economy.

It's actually about the market's hatred of uncertainty and whether a war is a good or bad thing for the economy/market, it's the prelude to war in which the market is uncertain of what's going to happen and therefore cannot discount events, typically resulting in the taking off of risk. Once the war begins though, uncertainty over the situation has been removed, thus the saying above.

The Greek situation has been about as uncertain as you get, but today it seems to have been ramped up even more. First yesterday's EuroGroup Finance-Ministers' meeting ended early and today once again the Greek negotiating delegation left the meeting early.

This was followed by an ultimatum from German Chancellor Angela Merkel who has been at odds with the very influential German Finance Minister, Wolfgang Schaeuble who joined Parliament as Merkel was graduating University and was leading the CDU party and bringing Merkel on as a his Secretary general before being caught up in some political trouble at which time Merkel took over. In this way, Wolfgang isn't just a Finance Minister, but a much respected member of the old guard who could lecture Merkel about what he was doing in German politick as she tried her first cigarette in high school. Thus Merkal's CDSU party has a lot of respect for Schaueble, like him or not, he's no ordinary finance minister. The rift between him and Merkel over Greece has gown recently, but has been in place since the first bailout talks and now the rift between Merkel and her own CDU party seems to be exerting pressure on her as she probably was the best friend Greece had during all of this.

Today Merkel said that the Greeks would need to come to an arrangement/deal before the market opens Monday.

Since then, Eurogrpup president,  Dijsselbloem has upped the ante by canceling the head's of state summit scheduled fro today and tomorrow, citing insufficient progress made on the Greek deal and gave the Greeks/Eurogroup until Saturday to come up with a final resolution/deal.

Today hasn't been a good day for Greece and pressure continues to be watched up. The ECB has been bailing out Greek banks on a daily basis since last week when the Greek Central bank's weekly request for ELA (Emergency Lending Assistance) funds which is money the ECB alots to usually sound banks to avoid a crisis bank run/capital controls situation, went from weekly requests to day to day requests with a lot of pressure from ECB governing members to either severely curtail or completely halt all ELA assistance as they see it as making Greek banks look stronger than they are, but it's really a political ploy to increase pressure on the Greek government to give in to Troika/IMF demands. The ECB/Draghi has been reluctant to halt ELA assistance, although severely curtailing requested amounts as the ECB doesn't want (or Draghi doesn't want) the ECB to be tagged as a political entity, which is FAR outside their mandate, but at the same time there's a good case to be made for cutting funds and there are few rules and a lot of wiggle room to essentially do whatever they want. Most pressure is coming from the German Central bank as well as the Irish Finance Minister, both calling for an and to ELA assistance which would=game over for Greece.

If that weren't enough,  the ECB has come out and made the threat today of halting ELA assistance, effectively crushing the Greek financial sector/banks as the ECB has more money lent to the Greek financial system than they have deposits or collateral.

And now the word is Donald Tusk, the President of the European Council that sets direction to political matters, etc. told Greek PM that the "Game is over", to which Tsipras replied, "This isn't a game".

With the EU leaders summit cancelled last minute, deadlines set for Monday before the market open and now moved up to Saturday and the ECB threatening to cut off the only source of funds that fills ATM's and cash drawers as money continues to flow out of Greece at the rate of around a billion Euros a day,  it seems the EU is counting on the Greek political inexperience to give in under  crushing last minute pressure , however even if that happens, there's no guarantee, in fact it's highly unlikely that any accepted measure by Tsipras would pass Greek parliament and with the June 30th IMF payment deadline fast approaching, I suspect it's probably too late to call for snap elections or a referendum in Greece to get the political actors in place that would accept a deal. Then the same deal would have to be ratified through all of the relevant EU member countries' parliaments as well and Germany in particular, despite Merkel, seems to be quite unwilling to pass any measures as made clear earlier this week with a hint when saying they would not vote on the accepted deal that lasted a few hours before the IMF chimed in and refused it, until Greece passes it.

And with that, the market is facing major uncertainty and thus not in a risk on mood whatsoever which just so happens to align with out Week Ahead forecast of early week price strength reversing and moving to a stage 4 downtrend.

That's a quick gathering of where things stand.

As I said, the Market Looks Very Dangerous

If you took yesterday's IWM, Trade Idea: Just For Fun, aren't you glad you tok your gains earlier today at the warning, Closing the IWM Call with a decent +7% gain rather than the current -18% loss. After all it was a short term trade and the market was looking dangerous.

 IWM 2 min chart's positive divergence and then...

This morning's warning that thing were turning south quickly.

Since earlier today, the divergence has fallen apart. I think in this case rather than finishing what they started (which you could say they did in a sense as they much likely has better positioning than us and we came out of it with a profit) , things just went to survival mode.

So far the move lower that has triggered numerous alerts I've set, has near perfect intraday confirmation.

 The intraday NYSE TICK shows things just went south, 3C gave us enough notice to come out of yesterday's IWM calls with a gain.

The custom TICK indicator shows the same, internals went south.

However this was already the highest probability outcome as the reversal process finished up after Monday's initial price strength.

 The ES/SPX futures 30 min chart as well as the mini cycle since last Monday with the now, 4 stages.

ES 3 min chart confirming the reversal process, moving to stage 4 decline.

Again, reversals are more a process than an event and they are proportional most of the time to the preceding trend. It just takes practice and experience looking at enough charts, labelling the different stages and getting a feel for proportionality.

IBB / NASDAQ BioTech Follow Up

Last Thursday I put out an alert and Trade Set-Up: IBB NASDAQ Biotech Index (short) followed just after by the charts, IBB follow up.

The main concepts with regard to IBB was the very clear head fake set-up area in effect and the move above it almost certainly going to be confirmed as a head fake. This is one of the best head fake set-ups in the market, along with NFLX which was interesting as you saw the actual head fake (Icahn using the 7:1 split to exit on a gap up and then announce it to the world, meaning he likely went short after closing his longs).

This is a chart and an excerpt from Thursday's post above showing the head fake set-up, for all of the what, where and why's, see the linked post above.

However in this dead flat trend which IBB hasn't broken higher since March and that failed at that, it also created a clean, clear, very obvious area of resistance with the last 3 trading weeks not seeing more than 0.11% movement up until yesterday, a very clear resistance range and a very popular asset.

So now we check the charts since. The first thing that stands out is the lack of follow through for a breakout such as this.

 Daily IBB chart with the clear resistance zone with absolutely 0% movement from 3/20 to 6/16, that's setting up a very obvious resistance level which will attract attention when broken, thus an excellent head fake set-up. Since you can see (in yellow)  there has been no follow through.

In fact to impress upon you the concept of the Market being the number one directional influence to any given stock or industry group on any given day, responsible for about 2/3rds of an individual asset's movement, I give you the comparison chart below.

This is IBB 5 min since its break above resistance and the SPY of all things in red , note the near perfect correlation. This is because the overall market is the greatest influence followed by sectors/industry groups. The basic lesson from this is that even regular, ordinary market updates can tell you a lot about a particular asset you might be looking at. If the market isn't looking good or if the market looks ready for a bounce, probabilities are extremely high that whichever asset you are looking at, it's likely t do the same thing. The markets have become extremely overcorrected and to a large degree, are no longer a stock pickers market which is why I often prefer a simple ETF or leveraged ETF for a trade rather than a stock specific asset as the risk with a stock specific asset is news, especially among biotech. The ETF is not effected by news so I can remove one wildcard or some uncertainty with general ETFs that aren't effected by stock specific news.

To determine whether an asset's move qualifies as a head fake or in this case a false breakout, which we usually have some idea where the probabilities are before the event occurs, we check the asset during the head fake process and look for confirmation or divergences in either direction.

 The 4 and 6 hour charts show a negative divergence on a very strong timeframe during the range (yellow trend line) from which there was 0% movement from 3/20/2015 to 6/16/2015. This tells us before the move above the range even began, that any move above such an obvious range which is a high probability move, is likely to be a false move or a failed move (head fake).

Although I don't have enough price history on this 1 min intraday chart to properly scale 3C to price as the moves have been so large in 3C recently, the main point survives my scaling difficulties; from the first parabolic push higher through the range, the fastest reacting 3C timeframe (1 minute chart) was already showing distribution in to higher prices. You may remember from the BofA/ML net selling/buying by client type that "Health Care" saw some of the heaviest distribution last week, guess what sector bio techs fall under? Health care. The chart since then has not improved, has not moved toward confirmation, but rather a new leading negative divergence.

 This is the 10 min chart from last Thursday's post, IBB follow up. There was good trend confirmation and the start of a negative divergence on the breakout as seen above.

The same chart as of just a few minutes ago looks like this...

 This is the exact same timeframe for IBB, the exact same zoom factor. I'm sure you can make out the differences in 3C since then which should have moved higher and confirmed price if it wasn't being sold in to like everything else last week.

 For an IBB short trade, this is about as great an entry as you can ask for, the risk is extremely low here relative too the profit potential as a stop can be placed above recent highs, although I prefer something a bit less obvious and with a little more room at least initially.

If you went the leveraged inverse (short) ETF, BIS 2x short NDX Biotechs...

Then the same would apply, as far as a long, you couldn't ask for much of a better discount and you are very close to a natural stop, although once again, I would not put it at obvious areas and for an initial entry, I'd prefer to take a few less shares and have a wider stop as you can always add to the trade, but you can't kA e back that stop that was just a little too tight to give the trade room to work on a reversal from all time highs.

Trade Idea: BIS (long)

I'll have charts out in a few minutes, but I believe as posted last Thursday that the breakout move was indeed a planned out head fake, which I'll address in more detail in the upcoming post in just a few minutes. For a BIS long (2x short NASDAQ Biotechs), the $26.50 area could easily be used as a stop, it's a great entry, low risk and appears to be well timed. However I don't like obvious stop levels such as $26.50 or whole numbers like $26, so I'd rather take fewer shares (position size) and have a wider stop or at least a less obvious one).

IBB Short/ NDX Biotechs Looks Very Interesting

Charts are on the way... I like the BIS- 2x short NDX biotech ETF as well (long)

Trade Idea: UVXY (long)

Really with a VXX long, the implication is the market is moving down so there are a number of ways that could be played, whether long short term VIX futures like UVXY or short the SPY, QQQ, IWM with whichever vehicle you prefer, whether a straight equity short, an inverse leveraged ETF like SPXU (3x short S&P), SRTY (3x Short IWM) or SQQQ (3x short QQQ).

We've already opened a lot of those core short positions. For now I'm going to add to the UVXY position, which is still at speculative size. I may look at calls in a bit.

Market Update

So the IWM call from yesterday, Trade Idea: Just For Fun is cute as a trade idea for fun, assuming you are playing it VERY speculative, kind of lie the 25 cent one arm bandits, they're fun with a $20 bill in your pocket, you didn't lose much, maybe you made something, there's quite a bit of adrenaline watching the trade,  these are all the wrong reasons to trade and this market is way too dangerous to be playing games. That's the kind of hubris that gets you carried out feet first so even though it was a speculative position, I decided that it's really a bad example to set.

As for the actual P/L, the 3C concept of the charts picking up where they left off, despite a Greek walkout on negotiation talks earlier today, played out, I think most traders went to the close yesterday expecting a gap down this morning.

 For a quick trade in this environment using July monthlies, it made nearly 7%, not spectacular by far, but for this mess this morning, I'm actually surprised it made anything.

 This is the IWM 3 min chart, this is about how far the positive divergence migrated yesterday/today.

When I decided to close the IWM call, which was always meant to be an intraday trade that I expected to close this morning, this is what started happening on the intraday 1 min charts of IWM...

 The white on the time axis is yesterday, the yellow is today, the leading negative divergence that quickly formed was the cue that it was time to pack up that IWM trade as this market is looking very dangerous and we already expect downside.

 The point of posting the 3 min chart at the top and this 2 min chart is the 1 min chart just above this is starting to fall apart, if it starts to get more serious and this divergence looks like it will be run over, this 2 min chart will go negative next and then the 3 min.

This is the QQQ 3 min, which is really no better than in line intraday and starting to deteriorate at the far right side.

This is why perspective and multiple timeframes, multiple views (not getting stuck in tunnel vision) are so important. This is the very same chart on a trend basis, meaning step back from the intraday view above and this is what you have...

Remember the bounce started off the June 15th lows which are highlighted in white and stage 1, with stage 2 mark-up in this mini-cycle and stage 3 top, obviously the divergence on this chart is far more dangerous than if you simply look at the intraday chart.

For another perspective, the SPY 2 min ...

 After yesterday's intraday negatives and downside, the late day positive started forming and its out to the 2 min mark.

Looking at the 3 min chart there's no positive divergence in the area, it didn't migrate out that far.

However like the QQQ chart above, the in line nature of intraday trade on the 3 min chart is deceiving, this is the danger of watching the market too closely.

Back out once again with the exact same chart and timeframe and the trend has not only been overall negative, but as you can see I labelled this mini cycle that started on the 15th of June with the multiple stages : 1=base, 2=mark-up/rally, 3= top/distribution and 4= decline which the SPY is already in.

The depth of the negative divergence through this mini cycle is a lot worse than previous divergences on the chart and this is only looking at very near term action/trends.

As I said above, this is a very dangerous market.

Closing the IWM Call

While there's still a slight gain, this is a dangerous market.

NFLX as a Market Proxy

I think the market is easier to explain here through charts. Yesterday I had expected a bounce and opened a last minute IWM speculative call for fun, that call is just in the money, just barely.

In the Opening Indications, it's like a fight between the concept that "Once the market starts a cycle (no matter how small-even intraday bounce) it rarely abandons it". The market looks like it's caught between that concept and all hope for a Greece surprise is gone, which it likely is with the EuroGroup meeting ending earlier this morning with no result.

However NFLX which we opened a core short (or an add-to position) yesterday, seems to embody what the market is going through, thus looks like a good proxy for the market.

 NFLX 1 min is trying or is putting in an intraday positive divergence after losing more ground this morning, however that is a very weak divergence as it's in a very narrow, tight "V".

 The 2 min chart is in line since yesterday's open and through today's, but is seeing a bit of migration of that divergence from the 1 min chart. This looks like it wants to bounce intraday from here, but it's almost out of commitment to get it over with.

The 5 min chart, which is as far as I need to go as this is a proxy of the market, not a NFLX update (which hasn't improved in anyway beyond the 1-2 min charts anyway) and it looks horrible. No bounce is going to withstand divergences and distribution this strong for very long.

The market looks like it just wants to get over what it started yesterday and then continue down and as I suspect, slice through the support levels like SPX 150 day ma.

OPENING INDICATIONS

I've never seen a market in this much pain before, hanging on by a thread, but I think it makes the move we were looking for yesterday, an intraday bounce.

IWM intraday positive is still there, the volume flameout is there as stops have been hit.

The problem is...

 Divergences in other averages fell apart, the Q's didn't carry on,

The SPY that made it to the 2 mi chart yesterday still looks good, but..

The faster 1 min has fallen apart a bit this morning.

Still they've all mostly hit a ton of stops and have pulled off a short term arrest of the decline with a mini capitulation event.

Whatever happens, bounce or not, this market does not look strong, and I mean not even intraday bounce strong so I'd be careful about playing anything too counter trend from yesterday's prevailing downtrend through most of the day for the moment.