Daily Wrap

I'm a little excited today, a little disappointed, a little on my toes and quite surprised.

I can't possibly make the case I made yesterday (again) which is summed up in yesterday's Daily Wrap , but as most of you know we had an idea of what we were looking for yesterday which is why I left room to add to yesterday's Trade Idea: Opening UVXY (Short) Position .

The gist was a head fake move below the S&P 500's 200 dma, with a move higher from there creating a short squeeze. This was essentially the same model we saw (as described yesterday) with the S&P 150-day moving average before its last bounce before failing and slicing through the average to a lower low.

The daily S&P-500 with the 150 dam (pink) and 200 dam (blue). We were looking for a break of the $2050 level as a head fake move before an upside reversal. It wasn't the previous head fake just below support at the 150-day that led to the last decent bounce that was the model, it was the charts all pointing to this probability and of course our concepts. If our forecast of a move BELOW the 200 dma and squeeze higher hasn't convinced you that these two articles I wrote a while ago dealing with head fake moves, why , how, where, how to use them aren't worth the time to read, then I just can't give you a better understanding or edge in the market.

So once again (and they are always linked near the top right of the member's site)...

Understanding the Head-Fake Move... How Technical Analysis Went From an Asset to a Trap

and...

Understanding the Head-Fake Move... Motivation

Here's what today's move looked like intraday...

The major averages intraday (1 min). You can virtually be assured that there's going to be some trend change around the European close, but the real target seems to have been , as we expected a break under the 200 dam in the SPX and that goes back to how technical traders are so predictable that Wall street uses technical analysis against them which makes Wall Street so predictable that we can call a move like this a day in advance.

I didn't add to the IWM 7/17 $125 calls and I didn't add to yesterday's, Trade Idea: Opening UVXY (Short) Position, both of which I had anticipated adding to, but as I always say, "I'll always check a head fake move for the proper divergences before entering a position". I'd say 99% of the time this isn't necessary, we can see the divergence before hand as was well documented last week and throughly yesterday and in last night's, Daily Wrap , in fact I usually only do it as a means to find the best timing. However in today's case, this was one of the few times that I'm glad I always check.

There's a darn good case for a bounce as we've seen late last week and all put together yesterday,  but this is one of the few times that a head fake stop run that pulls in new shorts as the SPX's 200 dam is broken did not show the kind of accumulation that supports these little bounces that are ultimately sold in to hard. I don't know if there's some new information out there, but as I had suspected late last week and yesterday when looking at the 3C charts for HYG, it looked like Wall Street was investing very little to almost nothing in this bounce, instead they are letting the short squeeze potential move the market rather than absorb stopped out shares as is usually the case. 

The bottom line, I want to do what they do and if I don't see them accumulating the stops hit under the 200 dma, I'm not adding to my positions either.

Here's what things looked like in to the close...

 This is the intraday 1 min 3C chart. Note the positive divergence at the lows/around the European close. The problem here is this divergence is about the size of a simple intraday steering divergence. This is not the kind of accumulation of stopped out shares and of retail short sellers we see at head fake/stop runs like this.

Note that through the day 3C confirmed price action as volume increased with price moving back above yesterday's close, but didn't lead to the upside. However in to the close there was a negative divergence, not huge, but it was there. I was hoping intraday trade would send price lower and we'd get a larger reversal process and stronger positive divergence rather than a reversal event which is what a "V" shaped bottom is.

There's still a chance that price pulls back and puts in a stronger divergence, if that were the case, I would add to the UVXY short, add to the IWM calls and/or enter additional positions depending on how strong the divergence looked and what assets were offering low risk/high probability entries. However, that's just one possibility of several we discussed earlier and we'll only know if it's realistic with a decline in price and strong positive divergence which were missing today oddly.

 Bigger picture leading indicators as well as this stronger 10 min SPY 3C chart are supportive of a bounce from here and the head fake move is one of the very last things we see before a change in trend (like a bounce) so I find it very odd we didn't see stronger 3C accumulation signals at the lows today and below the SPX 200 dma intraday.

 As I said earlier, overall, the SPY's charts look the best, but there's information on the Q's and IWM as well.

 Once again the intraday (1 min) QQQ chart showed a small positive divergence at intraday lows, but this is akin to a normal intraday steering divergence, not the accumulation of a head fake move.

 Our expectations on a head fake move and today's expected price action would have included migration or strengthening of the positive divergence such as the QQQ 2 min chart which should also be showing a strong positive divergence,  instead it's actually showing a negative divergence and distribution in to the close just like the SPY and the 1 min QQQ above this chart.

 The 3 min QQQ chart also should have easily been leading to the upside in a positive divergence, it started to fail to even confirm in to the afternoon and was showing some distribution in to the close as if there were some new information smart money ran in to. We usually don't see distribution , even intraday this early in a move.

 Again the intraday 1 min IWM looks just like the intraday SPY or QQQ with a small positive divergence at the intraday lows ad small distribution in to the close.

 Like the IWM, the slightly longer charts that should have been showing stronger positive divergence were actually weaker like this 2 min leading negative slightly in to the close as it saw some distribution.

 And the 3 min chart seeing no accumulation in to intraday lows, meaning it wasn't strong enough to show up on a 3 min chart,  this is what I mean when I say today's divergences on a head fake move were more like intraday steering divergences than accumulation of supply for a decent bounce.

As you know VXX and UVXY trade opposite the market so if there's confirmation in their charts it should be the opposite of the charts of the averages above...

 We see UVXY with a negative divergence at intraday highs as we'd expect, just not very big like all of the averages above and we see a positive intraday divergence in to the close, the exact opposite of SPY, QQQ and IWM, thus confirmation.

Like the 10 min SPY, the larger 10 min UVXY chart is still leading negative and that's why I decided to hold it, but  based on today's action, I didn't trust this market enough to add to those speculative positions.

This just doesn't feel right.

As for Index Futures, they too should have been positive intraday and at least out to the 3 and 5 min charts which are the bare minimum standard for a trade in the direction of the divergence on the 5 min chart. Lets take a look.

 The ES/SPX Futures 1 min chart which went negative overnight right around the European open, which is what we expected for a move lower in to the cash open and below the SPX 200 dma. Again like the SPY, QQ, IWM, etc there's a small intraday steering divergence at intraday lows around the time of the European close and in the right place, just not the right size and just like the SPY, QQQ and IWM there's late day distribution in to the cash close.

As you know, I don't take any trades unless the 3 and 5 min charts are divergent in the direction of the trade. These charts should have gone leading positive today...

 The Es 3 min chart goes negative overnight around the European open and there's barely a positive divergence at cash market intraday lows, also there's a negative divergence in to the cash close/afternoon just like confirmation in the SPY, QQQ, IWM , VXX, UVXY, etc. This is also seen in NASDAQ and Russell 200 futures.

The 5 min chart, much like the longer intraday charts of SPY, QQQ, IWM above shows no positive divergence at all at the intraday lows meaning it wasn't strong enough to print on a 5 min chart, but the early morning distribution and late day/afternoon distribution was.

While our call on what price action would do today was spot on, this is one of the first times I seen a head fake move not post a strong divergence worth using as a pivot for new trade entries, I would have broken all of my own rules had I added any additional long/bounce positions today.

The problem right now is not whether there may be an additional bounce form here or a pullback and the divergences that are missing will appear, we can deal with that if and as it comes; the problem is that without institutional money's support in absorbing the supply created by today's move lower  (especially under the extremely close watched SPX 200 dma) they have nothing vested in the short term bounce which means rather than see the typical distribution in to a bounce and knowing it's time to exit and enter shorts, this is the dangerous kind of position in which you could wake up one morning this week with a 2-3% gap down with no warning and that's why I chose to leave my core/trend short positions in place along the lines of highest probability and not to add to bounce longs as I had hoped to today. We may be able to add to them tomorrow, we may not. The closing 3C divergence suggests a next day (pick up where we left off) bit of softness in early price, but it's hard to say whether that was middle men setting up for tomorrow morning or simply institutional money selling in to ANY price strength.

Thus, Sitting Tight, was by far the best choice today. Unless you like gambling in the market, it simply didn't give us an edge beyond what we expected of the head fake move and even there it failed to deliver the normal accumulation of supply that would be created with such a move for a short term bounce.

As for some of our Leading Indicators...

 Our SPX:RUT Ratio Custom Indicator was supportive of a head fake move and recovery in to the green for today as of yesterday, however look at the indicator this morning in line with the SPX and then this afternoon as it fails to confirm, just like the ES, NQ, TF, SPY, IWM, QQQ, VXX and UVXY charts in to the close.

High Yield Corporate Credit is the first lever of market manipulation they pull for support and you saw over the last few days how little they accumulation they put in to it, but I almost doubt whether the market would have closed green without HYG's support today. So far it's intraday chart is holding so I'm not too concerned with a sudden drop come the a.m., otherwise I would have closed out the UVXY short and speculative IWM calls.

 If you see last night's post or any over the last week, our pPro Sentiment Leading Indicators had been supportive of a decent market bounce,  what happened in to the close today vs the SPX? Just like all of the other assets I just listed.

 And High Yield Credit had been supportive recently of a bounce...

Again, what happened today as it failed to even confirm the upside in the SPX late in the day?

Greece is not the only fluid situation out there, a lot of people are missing China for Greece and while we may not know what smart money knows, we can often see what they are doing.

Can you look at today's charts and tell me it doesn't feel like they came across some new inside information today?

For now, I'm not panicking, I'm not making any calls without objective evidence, that means we'll watch the market, we'll look in the places others don't and we'll figure out what may have changed. Whatever the message if the market is, that's where we go, I'm no fortune teller and I'm no gambler, so we'll look for the message of the market.

I'd just remind you, the charts are already in on the big picture. Remember the bounce off the SPX-150 ma we projected the same day?

The SPX's 150 dma (pink) and our call for a bounce at the white arrow, then our call for a downside move that slices through the 150 dma at the yellow reversal process.  i have very little doubt that we'll see the same thing happen to the 200 dma in the days and weeks to come, timing depends on the message of the market.

Have a great night!

Sitting Tight

Today's move was exactly what we forecast as far as price action, thus far it has led exactly to the squeeze that we forecasted, but it's a very different head fake move than past ones and a very dangerous looking one. I'll sit tight on the UVXY short and IWM 7/17 $125 calls, but am very glad I didn't break any rules by adding to positions that weren't confirming.

Right now the best we have is confirmation intraday, the worst we have is non-confirmation is some averages and two very parabolic moves right next to each other.

The real danger with this move is that it suddenly slices back below the 200-day on very little notice, the support or shares Wall Street usually accumulates and sells before a reversal just weren't picked up today. They did just enough to move the market to short squeeze territory after new shorts entered below the 200-day.

This is the difficult thing about confirmation, 99% of the time I don't even need to do it, I do it out of habit and to make double-dog sure things look right. This is the 1% of the time in which that habit is well justified.

I'll ride out UVXY short and IWM calls for as long as we can, but I would not be surprised if this move were a lot more volatile and a lot more surprising in a negative way than what we have seen thus year so far.

If you missed out on a trade here or an add-to, I believe you did the right thing. NOT EVERY PRICE MOVE IS WORTH TRADING, AT LEAST NOT BEYOND SPECULATIVE SIZE. Remember, it's not about probabilities, it's about high probability, low risk trades with excellent timing and it goes without saying, support...this one is sorely lacking that support.

I'll fill you in on the rest of the charts in the Daily Wrap, but right now none of the Index futures are confirming so I'm guessing Wall St. is already selling in to price gains. 

THIS IS WHY I KEEP THE BULK OF MY POSITIONS (CORE/TREND) IN PLACE AND ALIGNED WITH THE PATH OF LEAST RESISTANCE.

USO Update

USO is moving exactly as expected. Yesterday we closed the USO short, Closing USO Equity Short and for these exact reasons, USO P/L and Follow Up.

Today, it is moving exactly as suspected yesterday and the exact reason it was closed yesterday (I'd like to see the market act a bit more like this).

 After yesterday's sharp gap lower we closed the position anticipating an oversold bounce. Today's daily candle is a bullish reversal Hammer and on volume, this is the reason for taking the USO short gains off the table.

The intraday chart is showing a nice divergence in to today's reversal candle-this is what we are missing from the major averages thus far and why no additional action has been taken on them yet.

The process of migration or strengthening of the divergence is taking place as the 2 min chart is positive

As well as the 3 min chart.

I would NOT call this a trade unless you are very nimble, it's likely to bounce in to the gap created yesterday, but this is not the larger accumulation for a primary trend reversal we are looking for to open the next trade here. This can be traded on the upside, I just don't see the signals be strong enough yet to warrant the trade as they don't look like much more than a gap fill at the moment.

However, we were right to close the position at +15% gain yesterday.

Market Update-should come down intraday

This is a strange day for me, the market did exactly what we expected with the sox-200 break and a nice looking reversal hammer in place.

SPX daily

With all of the other recent signals, I'd expect the intraday charts to be a slam-dunk confirming accumulation of the head fake move, this is not for anything other than a short term trade like we would take and then using the price strength to sell in to in a big way, the same we would do.

However, I'm just not seeing the head fake confirmation today that I'd expect to see. Granted the reversal off intraday lows was a very sharp "V" and that's why I've been hoping the TICK would give in and let market prices fall a bit so we can get a wider reversal process and stronger divergences for a bounce...

And it looks like the intraday uptrend in TICK is over and we should see some market downside, but in the meantime, this is about all we have on a day in which we'd normally have a VERY clear divergence for a short term bounce which would be sold in to by smart money.

 QQQ 2 min doesn't have any kind of divergence, just in line today which is not the confirmation I'm looking for to increase the size of the 2 bounce positions.

 The 3 min chart looks just as bad, well it's in line, but not leading positive.

 The IWM chart like UVXY and others has put in a 1 min intraday positive which is a start, but not confirmation by itself.

 This IWM 3 min chart's 3C signal should be flying at this morning's head fake.

The SPY actually looks the best, it has the strongest charts going in to today.

 For instance, this 3 min chart leading in to today was already leading positive.

However, on a faster intraday 1 min chart below..

Again we aren't getting anything better than in line / confirmation, rather than positive.

This is odd. I'm not willing to increase long risk without additional charts showing some stronger signals. I'm thinking one of 3 scenarios is likely, 1) the market comes back down, makes a bit of a wider reversal process rather than today's sharp "V" reversal off the lows and we get the divergences we should see on the move lower, maybe toward today's intraday lows, the TICK suggests price should come down as does the intraday VXX.

This 1 min intraday positive divergence after the negative at intraday highs, suggests VXX moves up and the market comes down soon, this would give the market another chance to straighten out this bounce platform/base.

The SPY 1 min and QQQ 1 min also suggest we see a move lower soon. If we get a stronger base, stronger signals on that move lower, I'll add to the 2bounce positions that are open as partial positions now.

The second possibility is Wall St. doesn't even want to try to make a quick buck on the long side as they sell in to price strength and short in to it, which would be a first and a major change of character suggesting they are willing to sell in to a bounce or short in to it, but they are not willing to put any money at risk on the anticipated bounce which again is a strange scenario, but the market is changing and perhaps they are with it.

The last scenario is that the market just slices through the 200-day and moves to a new lower low. This doesn't make a lot of sense considering all of the other signals we've had in support of a bounce, but it's a possibility and in that case you can see why I wouldn't want to add to small bounce positions without evidence.

I still think our original expectation is the highest probability, but to get there from here, the market needs to come down intraday, smart money doesn't buy strength, they buy weakness and sell strength especially now.

So until I see the evidence, I'm not making a move. If we get a bounce from here without additional chart evidence, I'll be closing the bounce longs in to the move and using the move for the same reason Wall St. would be using it, to sell or sell short in to.

This is why today is more or less quiet right now, we're waiting to see which way this is going to go and we need the market to come down a bit for our first and main scenario or as I have outlined above, there are ways to handle alternative scenarios, but now you see why I don't close core shorts in a market like this, they make money on moves lower that more than make up for any speculative bounce trades.

Quick Market Update

This daily chart of the SPX and today's candle is exactly what a head fake move should look like on a closing basis with higher volume than yesterday which I think we'll get.

 SPX broke under the 200-day ma and moved back above.

We still don't have great confirmation although I'd say our trade plan for a bounce here is a probability, the charts still need to be in line.

So for now , since we still have plenty of time in the day, I'm looking for the NYSE TICK to come down.

The earlier up-channel that hit extremes of +1500 broke down a bit in to a flag-like pattern. I'd like to see this come down, market averages come down with it and the confirmation 3C charts show some better charts, at least further out than 1 min charts, otherwise, this may just be a brief speed bump before the market slices through the 200-day like it did eventually with the 150 day.

The bottom line is still patience.

TLT / TBT Follow Up

I've been in this TBT short position (essentially a 2x long TLT position) for a while now. I still like the TLT trade...

 The larger picture 30 min chart still looks great.

However looking at this daily chart, the last 2 daily candles look pretty darn weak here and on gaps.

I've been watching some weakness developing in intermediate charts in the near term like this 10 min

This 5 min shows it even more sharply.

 As does this 3 min.

But when we get to the 1 min timing charts, that's about as far as I want to go and you can see the divergence today.

In the end I exited the TBT short at just about breakeven so I'm still liking the trade, just after a pullback and some near term chart work improves.

Market Update

Patience is the hard part here. For instance, one of the positions I'd like to add to for a bounce in the market is short UVXY as it will move opposite a market bounce so when I saw price in UVXY coming down fast, emotionally speaking, it made me want to panic and fill out the rest of the position immediately.

 UVXY 1 min chart with good confirmation here on the 1 min chart. Note the fast move to the downside, which makes me want to abandon patience and fill out the position immediately.

 However at almost the exact same time the NYSE TICJ chart which has been rising and pulling the averages together while sending UVXY down, suddenly breaks the upside momentum and comes down a bit.

This should send UVXY back up a bit from here and the market back down to do some more work and hopefully give us more confirmation.

This is the UVXY 3 min chart which is already in place for a move to the downside and the 1 min chart is confirming, but remember the process of migration.

That means the 2 min UVXY chart should start looking like the 1 min which is confirming today specifically and the 3 min which has been in place for a bit longer.

The bottom line is , if the 2 min chart can't confirm like the 1 min and 3 min, then I don't want to add any more risk via UVXY and I'm happy sticking with the partial position opened yesterday. It's only if I see the probabilities for the trade improve significantly that I trust the move and am not concerned about adding more to the bounce trade. 

The point is, patience is difficult especially when a trade "seems" to be moving against your set-up, BUT IF YOUR CONDITIONS AREN'T MET, THEN MAYBE YOU SHOULDN'T BE IN THE TRADE OR AT LEAST NOT ADDING TO IT.

That said, the Custom TICK indicator is showing a much better looking chart today for our bounce scenario so it is progressing as well.

Closing TBT Short - Essentially TLT 2x long

I believe TLT is going to be coming down and I'm going to exit the TBT short which created a 2x long TLT position, it's at about breakeven. I'l look for a new entry long TLT in the coming days/week or so.

UVXY Follow Up

This chart is exactly why I left room in UVXY short yesterday, Trade Idea: Opening UVXY (Short) Position.

You can see yesterday's divergence and the partial position was opened leaving room for the potential break of the 200-day moving average (SPX) scenario. Thus far the scenario is exactly as envisioned, the next thing is to confirm divergences and while this is not what I'd consider full confirmation yet, UVXY should not have a deeper leading negative divergence in a scenario in which the market is pulling a real move rather than a head fake. A real break below the SPX 200-day should see assets like VXX and UVXY with intraday 1 min charts leading to the upside, not seeing signs of distribution.

So far so good, everything has moved exactly as anticipated yesterday, right now it's about time and he reversal process, but as I mentioned yesterday, the last head fake move below the SPX's 150 sma which was support was an intraday event and the bounce started right off that intraday break of the 150-ma so it doesn't need to be a 2-day process, but it needs a bit more confirmation and reversal process than we have now.


Otherwise, I an't say I'm unhappy to see the core position portfolio in the green by 4% today alone, although the bounce would be nice to add some extra gains before the core positions take over again.

Market Update

Our downside target has been hit and there are a few interesting developments, although as I said yesterday and this morning, I want to confirm accumulation in to any downside scenario before adding to the bounce positions that are so far IWM calls and UVXY short.

 The downside SPX target of $2050 was hit, I'd like to see some volume pickup in the area, but I'm already seeing the "Freaking out" with multiple financial media outlets calling out the break of the SPX 200-day moving average, so that's what we want in a head fake move.

 Additionally the TICK intraday has been trending down all morning, but as it broke our downside target area, it broke out of its downtrend channel, this isn't confirmation, but it's the right track.

Our custom TICK indicator is also showing improvement since the break below the SPX's 200-ma.

This is the intraday 1 min SPY which is in line, we need to see a positive divergence here and this "V" shaped reversal would likely be way too sharp so I'd expect to see more lateral/sideways reversal process which would give divergences time to develop. Again, I'd like to see some large volume on an intraday flameout or short term selling event.

ES/SPX futures intraday are still holding that earlier positive divergence, it just needs to build on that from here. 

Very few traders are going to buy long under the 200-day moving average which is why it makes a perfect head fake area, we just need the confirmation that smart money is buying down here and to do that, they need volume so watch for that as well.