DAILY WRAP

Today was one of those days I've spoke of recently in which objective evidence has to trump emotion or gut feeling and while it wasn't easy to understand right off the open as signals that didn't make a lot of sense had not had the time to mature, it called for an immediate decision which was to not close the IWM call position opened yesterday and added to today and not to re-open shorts/puts that had been closed the last 2-days in favor of preserving profits and re-opening them at better levels with more appropriate expiration dates. My concern is not so much with taking profits on the IWM calls at the open as no damage is done should they run more tomorrow, but more in entering new put positions too early and not getting the best risk:reward ratio and making all of that earlier navigating of the market this week an exercise in futility.

Nothing that happened within the EuroGroup's Finance Minister's teleconference today was news, in fact Merkel had set the tone of news flow and market rumors yesterday in saying that no decisions or negotiations with regard to Greece will take place before their July 5th referendum as to whether to support the bailout program or vote against it. Merkel and others have been consistent and clear on the matter, which is part of the reason an oversold bounce made sense this week as there would be little in the way of risk news flow that could go against a bounce position and the EuroGroup Fin-Min's teleconference did nothing to change that.

We had some pretty decent gains today, one could ask, "Isn't that the oversold bounce?". The fact is, Wall Street doesn't do anything without a reason and they rarely do it half-heartedly. An oversold bounce should create a sense of questioning one's positions, wondering if it's really a good idea to sell or short in to such a strong move. If the move doesn't move traders' emotions, it's not likely to move their positions and if there's no movement in their positions, there's very little for Wall Street to gain, thus these counter trend type moves tend to be extreme looking and emotionally convincing. Despite today's +.30 to +.90% gains, that wasn't the move.

The Chinese stock story is another event altogether with the Shanghai Composite giving back all of yesterday's gains overnight with a -5.2% loss. This has meaning as the Global stock market is more interconnected than ever and will certainly play a role in global markets when we look back on this period, but for now, the story is Greece.

The meme that stocks are rallying on hopes of a deal is absolutley ridiculous.  If anything, stocks are rallying so hedge funds and institutional money can exit positions at better prices and enter shorts at better prices. It's not about risk on, it's very much about risk off, but that's too complicated for the average CNBC viewer who needs a 30-second summary as to why the market did what it did so they feel there's some sense or logic to the market that they can understand. The truth is far beyond most people's capacity to understand or deal with. In my nearly 4 years of teaching Technical Trading and starting every class with the same video, the one of Cramer on the Street.com talking about how he and everyone else manipulated and manipulates the market sent students in to a near depression. I'm serious, you never saw someone's demeanor change so fast as it did when you put someone familiar in front of them telling the truth about the market. They had a look of hopeless despair, but we had to break the lie to find the truth and it can't be done in a 30-second sound-bite.

In my last post I said I'd show you how we ended the day, considerably better looking than the way we started it or at least the way it went after the open.

Despite whatever the intraday charts looked like earlier today, this is how they closed...SPY 1 min leading positive

SPY 3 min leading positive

Even the 5 min chart saw positive migration of the divergence

IWM 3 min at a new leading positive high for the last 2-days

QQQ 3 min leading positive

QQQ 5 min positive

And QQQ 10 min leading positive with strong migration all the way out to a 10 min timeframe. These charts don't look like they are finished, but just getting started.

And even though HYG saw distribution earlier today and by the looks of HYG vs the SPX, diverged away from the SPX's price, it closed like this showing the lever is still being used or ready to be used to push the market higher, at least short term.

HYG intraday 1 min

HYG 3 min leading positive.

As shown earlier today, if VIX futures were not confirming, it didn't seem likely that today was all the market had. While only a 3 min divergence, VXX was not confirming...

3 min leading negative, just as we saw in VIX Futures 3C charts and the early tip off that something wasn't right with the sell-off from the open.

While oil /USO didn't break the $19 support level I was hoping for today, it did hit 11-week lows.

And on volume as stops were run right at the $19 level

And where were the short squeeze levels set-up for a head fake/counter trend/oversold bounce set up?

At the psychological levels as usual such as the Dow's 200-day moving average and long term trend line.

Or right at the SPX's 150-day moving average

Or the psychological whole number and better than centennial number, millennial number in the NASDAQ of $5000.

As for Leading Indicators...

Our VIX Inversion Buy signal was triggered Monday and Tuesday

You can see it has been very effective in the past as a buy signal as each signal (white) has at least bounced.

However our custom SPX:RUT Ratio Indicator is showing a divergence vs. the SPX so I have little doubt any bounce which we had suspected by Monday afternoon, which is the reason we started taking put gains off the table, will be short lived as the indicator is already negatively divergent vs the SPX.

You can see the market needed some help today as it was a Whack-a-VIX short term market manipulation day...

Both the VIX above was whacked (Note SPX prices are inverted as the two trade opposite each other so you can see the normal correlation-to the left) helping the market head higher and...

Short term VIX futures were also pounded lower, this to boost the market in to the afternoon. Why would traders be selling volatility in front of tomorrow's day in advance (because of Friday's closed market), extremely important Non-Farm Payrolls at 8:30 a.m.? The only reason I see for it is to facilitate a bounce, the NFP can be discounted on the way back down.

And what of our Pro-Sentiment Indicator that has been leading the SPX lower since its head fake/false or failed breakout we forecast?

Pro Sentiment vs the SPX on a 30 min chart leading the market lower since the SPX's head fake move (yellow) back in May, with extreme leading negative lows before this week's slice through SPX 150 sma support.

Very near term , for the first time since May, our Pro Sentiment indicator is positive, leading the SPX short term on this 1 min chart, indicating the bounce we have been calling for.

And High Yield Credit...

Which has also been leading the SPX lower ever since the failed head fake/false breakout in the SPX (yellow) with an exceptionally deep leading negative divergence just before this week's plunge lower on Monday.

It too is leading the market positive very short term on a 1 min chart indicating a bounce as well.

We can keep on going and going with 3C chart after 3C chart, all of the evidence points to a more extreme bounce and then a new lower low on a primary trend basis, with the next major event to occur at the October lows with the market eventually making a lower low. It's all about  following the signals right now, taking our long position off at the right time, re-entering our puts and some core shorts at the right time. We've managed to navigate the market extremely well with multiple positions closed this week at double digit gains and core shorts at nice gains as well. I have little doubt we'll have any problem navigating the next move and the end of the bounce where we'll set up new shorts and puts at the best price and lowest risk as has been the plan since we started closing them late Monday and Tuesday.

Remember, the major pay here is on the downside, I'd stay patient and just open new shorts/puts rather than enter longs if you are the least bit uncomfortable, they are meant for a VERY short term trade, will likely be closed on an intraday basis and are speculative. Our core shorts which were up 7% Monday alone and 14% over the last week with no options leverage at all, are the positions that are going to do the best over the longer haul and bigger picture.

Have a great night!

Trade Idea: Increasing IWM Call Position Size

After checking out the charts of the averages one more time and seeing them move positive as I had suspected something was fishy earlier today, I'm going to increase the size of yesterday's Entering VERY Speculative IWM July 17, $125 Call position and bring it up to about 2/3ds the size of a normal position, still reflecting the speculative nature of the position, but feeling better about it.

All core short positions remain intact and I'll be looking for an area (higher) to open new Put positions/shorts and some longs like VXX calls or UVXY long, but for now, I believe we'll see higher prices likely tomorrow.

Charts are coming...

TLT Update

Yesterday we closed TLT calls for a nice gain, today they would have been at a loss. For those of you (most) who are familiar with the larger counter trend rally trade in TLT, I'm pretty close to entering either a new set of calls or a TLT long or leveraged long position to add to the partial TLT 2x long 1/2 position (equity) in place, although I'm not quite ready at this moment, but sitting very uncomfortably on the fence.

 This is the TLT daily chart, the range just below the long term trend line is pretty obvious. The last two days (yellow) formed a Tweezer Top downside candlestick reversal in addition to a Doji Star yesterday. Today's star is tempting to open a long/call position, however there are still some charts I'm not completely comfortable with. Also if today's Star had been on increasing volume, I'd be much more likely to open a position here.

 TLT 2 min chart with the negative divergence yesterday that caused us to pull the plug on the TLT calls at a gain, but not much of an intraday positive divergence today.

 The 5 min chart has an overall nice trend that has been moving more and more positive to the right side of the chart.

As has been this stronger 10 min chart.

The 30 min chart looks exceptionally strong and if it weren't for a lack of short term divergences today, I'd probably be opening new positions here.

I can certainly understand partial positions here with space to add.

 The 30 year Treasury future don't look as good, but these charts move a lot faster and often will change in a day or so giving an excellent timing signal. Intraday the 1 min chart is already showing positive activity today.

As is the 3 min chart, but as you may recall yesterday, I look for at least a 5 min divergence here before any trades in the direction of that divergence and we haven't made it that far yet.

The 7 min chart is still reflecting yesterday's negative and the in line status since then.

As is the 10 min chart. However these can change quickly and tomorrow might be a different set of signals with the TLT charts already looking pretty good so I'm going to be patient for another day, although I couldn't blame anyone for opening a partial position, leaving some room to add at better prices or timing.

A counter trend run above the long term daily chart trend line would be an insanely strong trade as thick as the shorts are in Treasuries.

What's Been Bugging Me In Short

First of all, Monday when we saw the slice right through the 150-day moving average as we forecast in Friday's The Week Ahead post:

"I see nothing that would interfere with continues downside and breaking support until the next support level and we'll likely know before we get there whether it holds as short term like the 150-day or we slice right through."

Which was spectacular and definitive, looking like this...

The daily SPX chart showing the April 2nd forecast of a head fake/failed breakout leading to stage 4 decline with first support around the 100-day causing a short term bounce and slicing through moving toward the October lows eventually... This has perhaps been our best advance forecast for that major market averages.

However as you know, we took a lot of gains off the table as it looked like a 1-day oversold event, Closing QQQ July 17th $110 Puts For Now at an +83% gain, Closing VXX July $17th $18 Calls for the Same Reason as QQQ for a 31% gain, Closing Out USO July 17, $20 Put for a +26% gain and Closing TLT July 17th $117 Calls - Looking to Re-open at better price for a +46% gain.

All of these positions were closed to protect gains and to re-open them at better prices with longer expiration dates as almost all expired 7.15 which is getting too close for comfort.

However this also created a 1-day oversold event and likely bounce scenario, Market Update-Near Term Support/Bounce Probability Growing.

Everything I said we'd be looking for in Monday's Daily Wrap, showed up perfectly as expected  Tuesday.

COUNTER TREND MOVES ARE NOT JUST TO RELIEVE AN OVERSOLD CONDIITON... They are psychological warfare and meant to cause traders to question their positioning and create movement.

Instead of emails today asking why I didn't close yesterday's IWM calls entered at the end of the day on the open this morning for a decent gain, which some of you did in different assets you chose late yesterday, in some cases making 6 weeks of normal people's (People I know) paychecks in a trade that was opened near the close yesterday and closed at the open today, which I can't argue with... THESE MOVES ARE MEANT TO BE PSYCHOLOGICAL WARFARE CAUSING MOVEMENT AND MOST EMAILS I'D EXPECT TO RECEIVE WOULD BE ALONG THE LINES OF...

"This move looks very strong, are you sure we should be entering new short/put positions?"

That's what these kinds of moves are designed to do. So based on my knowledge of the market, my knowledge of Wall Street's psychological persuasion, and the extremes of counter trend moves, today's open just didn't seem to be the move I was looking for and I don't want to enter new put positions prematurely at less than optimal conditions if there's some objective evidence that something doesn't look right.

Without getting in to all of the charts, here's an example of what didn't look right...

 5 min VIX Futures chart showing a negative divergence. When VIX Futures are ready to break to a new high with the market breaking to a new low, they should be showing unmistakable accumulation, not this leading negative divergence suggesting they have more downside to goo, implying the market has more near term upside to go.

 The 15 min VIX futures shows the kind of positive divergence that results in big moves like this week's as seen in white.  However the leading negative divergence is not what I'd expect to see for a market that has spent all of its upside fuel and a VIX chart that has run out of downside momentum.

As for the IWM call position opened late yesterday on clear leading positive TF 10 min chart positive divergences, although there's some damage today, it's still leading and doesn't fit at all with the VXX charts above.

There are a lot of other charts from currencies to other timeframes, other assets that also don't fit, but these two stuck out the most and should give you some idea of why I have been suspicious of today's price action, which seems to be putting in some changes of character recently.

 SPY intraday building 1 min positive divergence.

 SPY improving 3 min positive divergence (intraday).

 IWM 2 min improving positive divergence.

 NQ 1 min NASDAQ Futures improving chart.

 VXX intraday deteriorating 1 min chart.

UVXY intraday deteriorating chart.

Sometimes patience is very difficult, but as long as there's objective evidence, that should over-rule emotional reactions to price action alone as nothing is so deceiving as price action.

USO Update-Close to Out Breaking Point

Our long term and intermediate term USO analysis has been held up by short term chop, today since the EIA data confirmed last night's API data, we are getting very close to the break in support hat needs to happen for out intermediate term situation of a pullback in to accumulation to play out and our longer term primary trend upside reversal in oil in which instead of being short, we'll want to be looking at core/trend long positions, but first we need that decisive break back in to the base's range which has been stymied by a lot of range-bound chop.

 While the charts were too fuzzy to warrant keeping time sensitive July 17th puts in place with a decent double digit gain, I did decide to keep the USO equity short in place which is now at a near 9% gain for us, not bad for no leverage.

USO's daily chart shows price already back inside the base's range, but the range-bound chop has to be decisively broken to the downside around the $19 level which we just keep moving closer and closer to today.

Once that happens, we could move as low as $16, but we'll watch the 3C charts and let the market tell us what to expect, which at some point should be accumulation of the break lower setting up our next trade which is the larger trade by far, a long term/trend long for an upside primary trend reversal in oil.

 The intraday chart is in line with the downside and yesterday's late day divergence before the API miss at 4:30 caused me to question whether or not the oil inventory data was being leaked again as it was about a year ago.

The 3 min chart is the actual chart posted last night in the Daily Wrap in which I wondered whether there were data leaks again as you see the sharp distribution in to the close before the 4:30 API inventory data was due out yesterday.

As for the intermediate charts that have been pointing to a break lower until recent action turned more positive, leaving me to question whether it was a change in character or just noise, looks like it could be noise or a change in heart should 3C break lower and take out that flag-like range in 3C.

For now, I'm VERY happy to see that $19 area being challenged, this is what we have been looking for.

Update EuroGroup Teleconference Ends-First Hint

OK, theEuroGroup teleconference has ended, the result, no deal or talks until after the Greek Sunday July 5th referendum, this isn't news, Merkel made this clear first thing yesterday morning and has kept a consistent message since even in the face of news that Tsipras was ready to accept the bailout terms with "minor" adjustments, it looks like the EU is looking for a Yes vote and different leadership after the referendum before wasting anymore time with Tsipras, but again this is not news.

This morning's strangeness which has all outward appearances of a failing bounce set-up, which is rare once Wall Street sets up a cycle, even a 1-day oversold bounce cycle, they rarely abandon it unless there was incredibly good reason.

When looking at the charts more closely, VIX/VXX and VIX futures are not behaving the way their charts should if indeed the market bounce set-up was failing as it has appeared to be all this morning, that's the one piece of the puzzle that just doesn't fir and why I've been a bit patient in looking for the objective evidence rather than just being swayed by price action.

It appears we have one of the first signs that maybe all is not as it appears, I wouldn't say there hasn't been distribution in to higher prices overnight and through the day today, that's granted and to be expected, although heavier than expected this early.

However we may have the first chart divergence that is pointing to the dichotomy between VIX futures and the market, the first sign that all is not as it appears.

*There may be additional signs , actually there are additional signs which is what I was talking about in the last post, but these are the first to see a change intraday that weren't already there at the open. As for other charts, I haven't had time to go through all of them, but I'd think there are additional signs of intraday changes in character.

 The 1 min SPY should look familiar by now, the opening negative divergence which was a probability based on the overnight and early a.m. Index futures as seen in this morning's A.M. Update.

However since the EuroGroup call ended and the apparent bad news which is really no news at all, that there will be no negotiations until after the Greek referendum, we have seen the SPY intraday 1 min put in a positive divergence.

And one of the charts not making sense is the SPY 3 min which does have some intraday damage at the red arrow, but otherwise is till in a leading positive divergence. I'd think if distribution were really heavy, this 3 min chart would look a lot worse by now.

 Remember the VIX divergences that don't fit, well intraday 1 min they have looked like they should vs the SPY intraday 1 min, but are now putting in a negative divergence intraday as well confirming the SPY 1 min positive divergence as the two trade opposite each other.

And as far as the VXX 3 min chart goes, it is still in a deep leading negative divgernece that "should " look a lot better just as the SPY 3 min should look a lot worse. These are signs of the larger deviations between the assets from the open which have had me suspicious of the intraday activity thus far.

While the Custom TICK indicator shows the short term oversold event at #1 and the reversal process improvement at #2 with today's deterioration at #3, it's not reflecting the most recent TICK data, for that we go right to the NYSE TICK.

Note the trend all this morning has confirmed price action, but just recently broke above the channel at the SPY 1 min positive divergence.

It looks like there may be an intraday change, it could be some short term noise, but that doesn't resolve the differences between VXX/VIX futures and the market averages not confirming.