Daily Wrap

Things went from bad to worse for Greek banks this afternoon, however there may be a silver lining somewhere in there in the form of the IMF.

The ECB (European Central Bank), which had been keeping the Greek financial sector afloat via the ELA (Emergency Lending Assistance) facility, with some $89 bn Euros of assistance, cut off further assistance after Greek PM, Tsipras announced the July 5th referendum, effectively freezing ELA assistance which was running somewhere around a billion plus euros a day as depositors took their money out of Greek banks, as of June 26th.

This necessitated last week's Bank Holiday in Greece as there simply aren't funds without the ECB's ELA. As bad as that is with Greeks unable to pull savings from banks, things just got worse this afternoon as the ECB not only left the freeze in ELA assistance at the June 26th level, but started haircutting the value of Greek collateral (mostly Greek bonds). There are plenty of details available for those interested, but effectively the ECB's haircut on Greek collateral essentially made it so there's no more Greek banking buffer or collateral available to pledge for ELA assistance, whatever collateral was left just saw an across the board haircut in the value of the collateral so as to effect an outcome in which no collateral exits to pledge for further ELA assistance.

This "could" lead to a Cyprus style banking "Bail-in". Remember that when Cyprus' bank depositors with more than $100k in deposits had their assets seized (mostly Russian depositors)?

So we all know by now that the Greek referendum roundly shot down the Troika deal, now the market is concerned with what comes next and this is to say NOTHING of China and our own economy/F_E_D rate hikes and the reason behind them. If you saw the last post, Financials Follow Up / Example, then it should be clear that any bounce is not a risk on bounce, but a risk off bounce used to bail on remaining assets and/or to open/expand short positions. This has been the trend anyway as we have seen since the head fake / false breakout forecasted on April 2nd and effects in May. For example, watch the trajectory of 3C's trend since the May head fake and watch what happens overtime there has been a market bounce since.

10 min 3C chart of SPY with every bounce attempt since the May head fake/false breakout failed, being shot down with 3C showing distribution in to every attempt. And why would this one be any different after you just saw the example XLF charts, Financials Follow Up / Example ?

You can probably guess why I want the bulk of core positions in line with the path of least resistance, but as to the UVXY short and IWM $125 calls (and a short term market bounce), I didn't fill out those positions for 1 simple reason... the SPX-200 day moving average which I'll elaborate on below.

As to the possible Greek silver lining, what's up with the IMF?
The IMF has seemed uncharecteristically friendly toward Greece since the "No" vote this weekend. My take on the situation is that the IMF-International Monetary Fund, is not a European based institution, in fact one of the disagreements between Germany's Chancellor, Angela Merkel and their Finance Minister, Schaeuble was her decision to include the IMF in the Greek bailout (the 3 institutions = the Troika, the EuroGroup or Euro Commission, the ECB and the IMF). Of the 3 organizations, the IMF is the one that is most decidedly NOT European and that's what Schaeuble's argument was, "European problems should be solved by European institutions".

You may recall that it was the IMF who essentially said "No" to a potential deal between Greece and the "Creditors" as the Greek government would like them to be called after expending so much energy to win the right to change the name "Troika" to "The Creditors or Institutions" on formal documents. It was the IMF who said that the deal which included hikes in corporate taxes was unsustainable and that Greece needed to encourage investment, not discourage it so the potential deal went out the window. The IMF also believes the only deal that will work will have to include "Creditor" write downs, meaning cutting a portion of the principal owed, which is abhorrent to Germany as the best that was offered was some savings through lower interest rates and the like, this is something Germany is absolutely loath to consider because it sets a bad precedent for the European Union. I suspect the IMF is less worried about the European Union than the ECB and EuroGroup, thus Schaeuble's irritation with Merkel for including the IMF.

Once the vote was in, European institutions seemed cold , essentially saying it was up to Greece to submit proposals to preserve their place in the Union, however the IMF which may seem a bit European as France's Christine LaGarde is the managing director, said:

"The IMF has taken note of yesterday's referendum held in Greece. We are monitoring the situation closely and stand ready to assist Greece if requested to do so." 

Who knows what "Assist" means, but the one thing that strikes me is the fact that the IMF has less vested in the European project (European Union) and being Washington-based, probably has a bit less concern for the "Creditors" receiving their full payment due and most likely is a bit more worried about Russia and /or China gaining a foot-hold in Greece, smack dab in Europe, which would present the possibility of a Russian naval base right in the Mediterranean, something I'm sure both the Europeans and Washington are concerned about, but at this point Washington is probably a bit more concerned with that potential than Europe who has other interests such as holding the Union together. Interestingly guess who Greek PM, Tsipreas was on the phone with today? Putin.

As for the market today...

The market needed help today just to hold in the area. VIX versus the SPX...

Remember SPX prices in green are inverted to show the natural correlation between the VIX and the SPX. At the end of the day today the VIX was whacked (underperformed) to support the SPX in to the close.

HYG , HY Corporate Credit is in the area rather than leading to the downside. Remember it's HYG's price movement that leads the market and long term it's in a nasty position, but near term...

HYG in blue vs the SPX. You can see HYG leading the SPX lower to the left, but in this area of consolidation HYG is right in the neighborhood as we saw last week...

We have some HYG support, it's not a lot as it's at the 3 min chart and not much further, but along the lines of a bounce.

 HYG 3 min leading positive as High Yield Corp. Credit always seems to be the first lever they reach for to support a bounce. This may look impressive and very short term it is, but remember it's a 3 min chart so I wouldn't expect anything more than a bounce.

Pro sentiment is also pointing toward a bounce as shown last week...

 Pro sentiment near term leading the SPX.

However again don't forget to keep things in perspective...

 Pro sentiment on a 30 min chart leading the market lower since the SPX's head fake/failed breakout in May.

High Yield Credit is also leading the SPX near term for a bounce.

Again, don't forget the bigger picture on this 30 min chart in which the trend has been leading the SPX lower.

Other supportive evidence...

Our SPX:RUT Ratio custom indicator was negative in to Thursday's close which made sense as a leading indicator with today's early price action, but it improved quite a bit the rest of the day, once again along the lines of the Week Ahead forecast.

And our VIX Inversion buy signal posted another print today (white).

This is the 3rd in the last 5 days and it has had an excellent track record.

Beyond that there are the 3C charts we have seen last week and today in the major averages...

 The SPY, as I have shown in several posts today has a positive out to about the 10 min chart as seen above.

Again we need to keep this in context...

 The IWM 5 min positive divergence pointing to a near term bounce ...

And the same IWM 5 min chart put in to context of its trend, meaning I'd expect a bounce, but not much more and after a resumption of a trend lower with the SPX breaking below the 200-day as it broke below the 150-day on

I have a very specific opinion as to how this goes down which is why I didn't fill out the IWM calls or the UVXY short today.

Last time the SPX hit support at the pink 150-day moving average, it didn't pull off a decent bounce until the next time it hit support, but if you look closely at that yellow arrow it actually pulled off a head fake move triggering stops lined up below the 150-day as well as new shorts entering the market on the break below what was anticipated support. That cleared all the weak hands, pulled in new shorts and once price moved back above the 150-ma that day, shorts were squeezed and forced to cover giving the market some upward momentum and causing retail traders to chase what they now saw as a successful test of the 150-day moving average. You may recall, we saw sentiment that day via the Fear and Greed index at extreme bearishness and a few days later everyone was a bull again, but make no mistake, as we always point out a head fake move is one of the last things you'll see just before a trend reversal (in this case a bounce).

My trading plan would be to fill out the positions and perhaps add a few in case there was a test below the 200-day which is even more popular than the 150 sma, and would create significant momentum if it could pull off the same head fake, thus I'll wait and see if it happens, confirm a head fake and if all falls in to place, add.

As to the reasons for a bounce here, I doubt it's about an oversold condition and more about a risk off condition, Wall Street always tries to sell in to strength (or short), just look at those XLF charts, Financials Follow Up / Example, they look no different than any of the averages.

As I went through my daily ritual of looking at numerous futures in 8 to 10 different timeframes each, I noticed the $USDX looks like it may get a brief stay before falling lower, my guestimation is that this would be a reflection of a short term bounce with a $USD carry trade unwind in to it.

 The $USDX is generally in line to about the 7 min chart, in other words short term.

At the 10 min+ charts like this 15 minute, there are very clear, large negative divergences, I'm thinking this is clear carry trade unwind and soon these longer term charts will send the $USD lower reflecting that unwind and a market bounce would make it easier or less painful to unwind a carry trade position, at least one that financed equities with the proceeds.

Speaking of the Carry trade unwind, remember when I use to watch currencies extremely close looking for signs of it? Well this daily chart of the $USDX makes it pretty clear with a huge leading negative divergence right at the top of the $USDX move and carry trade, since then, things have been getting uglier, although it's not snowballing yet.

Obviously I suspect we are in for a bounce, I posted that in the first paragraph of last Thursday's The Week Ahead forecast and there have been a fair number of charts reflecting that today.

As to the VERY specific scenario of breaking below the SPX 200-day sma as a propellant for the market via short squeeze and futures both tonight and beyond, it makes sense from a head fake conceptual point of view and it seems to fit with the 3C Index futures' charts. You likely already saw the intraday/overnight 1 min charts I posted just a bit ago, Quick Index Futures Update, not looking great very short term and if the rest of the Index futures timeframes looked like that, I'd say look out below immediately, but as seen earlier today when I went through futures they didn't which is part of the reason for today's Trade Idea: Opening UVXY (Short) Position post.

For example:

 ES /SPX futures 7 min chart which is a stronger chart than the 1 min intraday charts posted just a bit ago. Note the leading positive divergence today.

 This is a stronger 10 min chart of NQ/NASDAQ 100 futures with a negative divergence to the left bringing price down and a current positive leading divergence to the far right.

This is about as far as we go, but it's still pretty far with the TF / Russell 2000 futures in a 30 min chart. Note the "in line" status at the green arrow, the leading negative divergence in to the highs followed by a move to the downside and the recent (including part of last week which was reflected in the Week Ahead post) positive/leading positive divergence.

The only thing that is missing is the 3/5 min timing charts which can develop extremely fast. In my view, so long as the intraday/overnight charts remain looking bad, the only and best reason for all of these charts where they are would be the market's need for a head fake move below the SPX's 200-day moving average to create a short squeeze which would fuel the bounce.

Either way, whether we get a SPX 200 sma head fake to provide fuel for a bounce or not, I believe we'll get an upside bounce, I just happen to think a move below the SPX 200-day moving average is conceptually the stronger scenario and the one in which I'd be more aggressively adding short term trades.

Lets see if the overnight action is a head fake to take us below the SPX 200-day and if we can confirm a head fake, that would make for an excellent short term options entry, such as SPY, IWM or QQQ calls (VXX puts, etc).

Have a great night! 

Quick Index Futures Update

I'm writing the Daily Wrap right now and was just explaining why I didn't fill out the UVXY short and the IWM calls, it has everything to do with the SPX's 200-day moving average as you'll see when the Daily Wrap is posted, but until then, along the lines of my reasoning, the intraday Index futures are getting pretty ugly going in to the overnight session.

 ES 1 min

NQ 1 min/NASDA 100 futures

And Russell 2000 futures which have been in line pretty much all day, now diverging.

Financials Follow Up / Example

Watch the difference between XLF's (Financial Sector) short term charts and longer term charts then tell me, what do you think a bounce would be used for?

 You might remember our longer term analysis dealing with Financials and the trend which saw a large change in character from the October lows to the December highs...Changes in character lead to changes in trends, which in this case led to the triangles we saw market wide in April and May and forecast in early April, "Before there will be any significant downside in the market, there will have to be a false breakout/head fake above triangle/resistance levels" which occurred in most averages in May which have already started trending lower, but Financials have held at the head fake area longer, at least until recently breaking below the 40-day moving average as we expected with recent post such as: XLF Position Follow Up , XLF/Financials Broad Update  and Trade Idea: XLF Trend (short)

 Very short term as in the same short term I'm looking at for a market bounce, XLF 3 min has a positive divergence, not very big, not very strong, but there.

In some context, there's a small positive divergence at the far right of the stronger 10 min chart's trend, but you can probably guess by this chart's 3C trend alone how the story ends...

 When it comes to charts that matter, strong underlying flow and 3C trends, a 60 min chart like this tells us a lot about recent head fake activity in XLF.

And an even stronger 6 hour chart loses a lot of detail, but replaces it with clean, clear underlying trend.

Now take a look at the small, short term 3 min positive divergence above and the longer, much stronger 6 hour chart's negative divergence above. What do you think the reason for a near term bounce is and how would you play it?

Remember, this is just 1 asset used as a proxy/example for the broad market. 

Position Management, IWM Calls

The IWM July 17th $125 calls from last week look enticing to add to here as this was opened as a speculative size position, it was added to and still kept at speculative size. I still have room to add, but like the UVXY, I want to leave just a little bit of room, other than that, I'd have little problem opening a speculative size position here in IWM, QQQ or SPY / leveraged long ETFs.

Trade Idea: Opening UVXY (Short) Position

This is a short term trade idea, along the lines of a market bounce. There are some decent looking VXX and UVXY charts, but the inverse XIV is the one that closed the deal. Ideally I don't mind a full size equity short position here, but I'll probably leave just a little room to add to the UVXY short just in case we get a slightly better entry.

USO P/L and Follow Up

The USO P/L came out to be about +15% which is not bad for a regular old USO short; that's on top of another +26% from last week's puts which were closed Tuesday, USO Follow Up and Update.

At a fill of $17.70 the P/L came out to a gain of +15.02%

 On this 15 min chart of USO you can see the parabolic nature of the decline and as you probably know, I don't trust parabolic moves either up or down to hold for long before some equally parabolic reversal.

Volume was also very high and a large gap so it's likely a lot of stops were taken out and we are close to a short term oversold event in which case there's not much reason to fight for a couple of extra percent or risk losing 1.3rd of the gains.

Intraday, there's a sharp positive divergence starting which "may" end the day with something like a bullish "Hammer" reversal candlestick and with volume like that it would be very effective so it just wasn't worth the risk to try to squeak out a few extra percent at this point, not to say additional positions might not be opened shortly, but for now I think this was a good choice.

Closing USO Equity Short

I decided after looking at the gap, the large volume and some intraday positive signals building that I might as well book the +15% gain in USO equity short (no leverage).

I may look in to a new trade, but for now, I see no reason to let go of those gains with such a large gap and volume surge, in other words, it's looking like a short term flameout or short term capitulation event and there's no reason not to take the gains off the table.

Patience Pays: USO Breaks

We have been waiting since aproximately early May  for USO to break back down inside the base, thus starting the process of the next long term trending trade. This break took much longer than anticipated, but we never lifted the USO equity short position because the charts didn't give us any reason; this wouldn't be the first time it has taken an asset a lot longer than anticipated to do what the charts have been pointing at, but I don't jump all over the place because price is not doing what I expect at the moment as long as the charts still point to the position being in line with the highest probabilities and today that's paying off in USO. There's still work to be done so this is not a call to jump to any action other than let the USO equity short, which is now at a +15.5% gain with NO LEVERAGE at all, work.

This is the long term daily Oil futures 3C chart showing the distribution at a H&S top last summer, then the 3C price/trend confirmation of the downtrend at the green arrow and then a positive divergence in to early 2015 in what I believe will be a stage 1 base that will reverse oil's trend back to an up trend as the base area is finished, but first USO needed to come back down inside the base to lower prices where smart money will accumulate the asset and where we can confirm that is underway before entering the next trade which should be even better than the current one.

 The daily USO 3C chart showing the same distribution last summer in to a H&S-type top with downside price/trend confirmation and a positive divergence with USO moving above the base and putting in a relative negative divergence suggesting it come back down inside the base. This is what we have been patiently waiting for.

 On this USO daily chart we have from left to right, stage 4 decline, stage 1 base starting between apron. $16.25 and $20.25, then a head fake move below $16.25 stops creating a Crazy Ivan shakeout with a strong move above the base's range at the second Head fake in yellow and the eventual decline back inside the base as we have expected based on the 3C charts since May.

 Remember we did break back in to the range below $20.25, but wanted to see a decisive break below $19 as there has been a range bound area from May forward. Today we got that decisive move lower and down toward the area expected before work resumes on accumulating and building a base that can hold a stage 2 breakout unlike the head fake in early May. If the charts don't confirm accumulation as prices drop lower, perhaps even below $16, then we simply don't enter the primary trend long position, but I suspect USO will finish the work inside the base and present a beautiful long term trend opportunity along the lines of the decline since last summer.

 Here's the upper end of the range in yellow around $20.25 and a triangle congestion zone since May in the red trendiness, this is why we needed a decisive break below $19 and away from all of that range-bound congestion. At "a" we have that break below $19.

 You can see the 6 hour USO chart with the stop run head fake below the range to the left and the false breakout at the "HF" to the right with a clear negative divergence telling us it was a head fake move and wouldn't hold.

The more detailed 2 hour chart shows the same as well as the positive divergence at the head fake/ stop run below the base's range which gave it the momentum for a Crazy Ivan shakeout with a break above the range in early May at the second head fake as the charts never confirmed the breakout, telling us the highest probability was a move back down inside the range. These head fake moves are very useful for momentum , read my two articles on head fake moves linked on the members' website and you'll understand why.

The 30 min chart I showed earlier which was leading negative now has seen price "catch down" to 3C's leading negative divergence.

I don't expect any "V" shaped upside reversal although volatility should be intense in the area including gap fill attempts, but before the next trade set up is ready, we should see clear accumulation of lower prices in the area and down to and/or below $16 on another head fake move, this is the longer term, larger opportunity trade I've been looking for since we first identified basing action in USO. Again though, we take no long trade action until we have confirmation of our expectations of accumulation of lower prices now that we are clearly inside the range.

Market Update-Patience Time

The The Week Ahead forecast from last Thursday started like this:

"It may be a little early for the week ahead post, but there's only so many outcomes and so far today it has looked (including the rest of this week), like there's a bounce set up and in place and a bounce early in to next week looks like the most probable outcome"

However, just before Thursday's Week Ahead forecast, I posted this a little over an hour before the Week Ahead and stuck to it the rest of the day, NOT Taking Any Additional Action FOR NOW

"In looking at the charts below, I have to remind you this is not a situation in which we weigh the pros against the cons and make a decision and take a position, that's an attitude that reflects the notion that there are only long or short positions, there are also stand aside positions and that's what I will do for the moment until/unless I get better data...Remember a high probability / low risk trade is not about probabilities alone, it's about high probabilities, charts that jump off the screen and can't be ignored, barring that you are just taking what you think are the best odds rather than excellent odds."

So far, after having just gone through the daily 80-100 Futures charts, I think there's a good probability of the bounce talked about last Thursday and today, but I still don't see short term charts that are screaming or jumping off the charts to the degree in which I would view the charts' and/or the timing to be pristine. In effect, not much has changed since Thursday afternoon's NOT Taking Any Additional Action FOR NOW in which my plan was to wait until there are strong enough charts or not, to decide to take on new positions or continue to stand aside.

After having gone through all of the futures (I haven't made it to Leading Indicators yet, but I will and update those as well) and the market averages, my feeling is we have something going on in the area, but it's not at an area in which timing probabilities as well as the stronger divergences needed to lock in a high probability/low risk trade are present yet. Thus it looks like we are in the middle of a short term transition period leading toward a bounce, however as I said above and Thursday, it doesn't look like we are at an area yet that gives us the high probability/low risk part of the trade idea equation.

For instance...

 SPY 1 min intraday is "BLAH", close to in line, not showing the accumulation that I'd want to see to enter a new or add-to bounce position.

The SPY 3 min chart is showing essentially the same thing, it looks like price is working its way down toward the SPX-200 day moving average where a head fake or some kind of daily closing bullish reversal candle would seal the bounce story and give us a high probability, short term bounce, otherwise things seem a bit slow and there's not a high probability short term set up in place yet.

In fact, until there is, there's very little reason to believe that we can't or won't just slice right through the 200-day on a move lower, although I don't think that is a probability at this moment, until we have the divergence locked in, it's a possibility and one worth staying on the sidelines until the short term market charts have straightened out.

The longer term SPY 5 min shows the basic area in which a bounce/base looks to be forming, although clearly not done at this point.

And the longer 10 min SPY chart shows the same. Near term, these charts tell us that a bounce in the early part of this week or at least starting in the early part of this week is the highest probability, but until the short term charts are onboard, we are at the same place as Thursday when I posted,  NOT Taking Any Additional Action FOR NOW.

 The 1 min QQQ is showing the same bit of negative or in line type activity, not the high probability timing indications yet.

As is the QQQ 2 min chart

The QQQQ 10 min chart shows the area where it looks like a bounce base is trying to form and it's in the area of the SPX-500's 200-day m.a.

The intraday IWM 1 min is in line to slightly positive, not jumping off the screen yet though.

However the 30 min chart as well as others, show something going on in this area for a short term bounce, it's not extremely well developed this far out on a 30 min chart, but the fact it's even starting to migrate this far tells us this is there highest near term probability, the timing just isn't there, the work is just not complete yet to give us a high probability/low risk trade. Probabilities are there, but not high probability, low risk, excellent timing probabilities, otherwise known as the standard for taking a trade.

After having gone through all the futures including Index futures and in 9 time frames, I see the same thing as well as additional information.

 ES 1 min looks similar to the averages, it's a bit negative intraday and price action makes perfect sense with the intraday 3C chart above, but not an entry.

The Russell 2000 futures look a bit better just as the 1 min IWM chart did above, they are in line, but not leading positive or screaming for a trade opening yet.

As we get out a bit further to the 7 min ES chart, like the averages, we see something is going on in the area, the same thing we saw last Thursday, it's just not matured and in doing so, reducing risk, It does look like a head fake move has been accumulated which is interesting and a probability of a bounce, still timing is the issue as seen on the shorter term intraday charts.

The 10 min NASDAQ 100 futures also show the same thing as R2K futures or ES futures or the averages on slightly longer charts above, there's a high probability of a bounce trade setting up in the area.

It may be a bit easier to understand looking at intraday breadth, the NYSE TICK...

 This is the trend for the day today, down and hitting some extremes under -1250 to more than -1500, which is the kind of intraday flameout or capitulation that can help build a short term oversold bounce condition.

Our custom TICK/SPY indicator shows the same trend on the histogram, earlier strength faded and downside is the trend which fits with intraday charts, but doesn't rule out the chances or even probabilities of a decent bounce trade, maybe long ETFs or options, just not yet.

I know it's not the cool thing to say, it's not the exciting thing to say, but I think it's the right thing to say, I would try to stay patience and let the short term charts work themselves out and in the process strengthening the intermediate term charts.

Again, please don't take any thing out of context, a bounce is a bounce, you've seen the primary trend of the market with lower highs and lower lows which is a downtrend, even if it doesn't meet the financial media's definition of a bear market (being down -20%), we are certainly moving that way and look to be very early in the primary trend reversal process or stage 4 with 2009 being stage 1, in other words a primary bull market in the transitional stage moving toward a primary bear market.