Daily Wrap

Unbelievably, after China's real estate boom ended with ghost cities...

One of China's many Ghost Cities as a result of the failed real estate boom...

Next, everyday Chinese as we have posted before including the illiterate, grandmothers, street side fruit vendors, farmers and just about anyone (at approximately the rate of a million new trading accounts created a week), with very little knowledge of the market or risk were encouraged to leverage up and send the Chinese indices sky high.

 However when that started to fall apart, China and the PBoC took just about every conceivable and some inconceivable actions to halt the decline including:

-Ban on Major shareholders, Corporate Executives and Directors from selling any stock for 6 months
-Reducing Equity Transaction Fees
-Blocking Fund Redemptions
-Halting IPO's
-Providing daily liquidity to the Margin Lending authority
-Reducing Margin Requirements
-Banning Public Funds from Selling
-Banning the Financial Media from reporting negative stock market stories
-Halting more than HALF of listed companies from trading

It seems the threat of being labelled a "Malicious Short Seller" with imprisonment did the trick and sent Chinese markets up the most since 2009.

The late day positive divergences we saw yesterday were seen as a start, but not quite enough to take additional risk on/bounce positions, the gap up overnight on the Chinese threat of imprisonment didn't help anyone who was accumulating as I nor most of you would enter risk positions on a gap up. This is what we spent a lot of the day watching as our early Opening Indications said,

"My initial take on this was yesterday in the late afternoon we saw some accumulation, as I mentioned we didn't get the normal signals I'd like to see and that was a matter of lack of time, but if we had, I'd fill out the partial positions in IWM and SPY calls.

My initial take until we get more data is this is the same concept for Pros, the gap up didn't afford them the time to fill out positions they were opening late in the afternoon and they are bringing prices down to finish that process.

That's my interpretation of the open thus far until we get some different signals that would suggest otherwise so for the moment I'll continue to hold the short term bounce positions, UVXY short and 2 partial positions in IWM and SPY calls as well as leaving the primary trend core shorts in place."

While I can hardly deny that the Chinese threat of imprisonment for short sellers was certainly most probably the catalyst for overnight gains, still the concept of 3C charts picking up where they left off was once again seen today. For all we know, the Chinese authorities actions may have been known in advance as yesterday we saw a marked change in the tone of the market during the last hour, also the time the NYSE came back on line...

Yesterday's afternoon accumulation/positive divergences leading to today's gap up. We don't know what smart money knows, but we can often see what they are doing.

The open put in a rather minor negative divergence sending stocks lower most of the day leading to the 10:30 a.m. quote above from the Opening Indications post.

While the normal safe-haven Treasuries were sold today as some would make it out to be specific news from today, we saw this days ago on Tuesday as we closed our TLT 2x long trade, Closing TBT Short - Essentially TLT 2x long.

Numerous timeframes in near term TLT /20+ year Treasuries were showing distribution well before today which led to our closing the 2x long TLT by shorting the inverse 2x leveraged TBT, again Closing TBT Short - Essentially TLT 2x long. Today was the second worst day for 30 year Treasuries since November of 2013 with a 13 basis point gain, so I think we were probably right to take this divergence seriously.

As for the larger TLT trade idea, I'll update TLT in a specific post tomorrow.

While we had a much better set of signals coming in to this week which was mentioned last Friday in the The Week Ahead and while our forecast for a move below the SPX's 200 dma which would not hold and would return higher causing a short squeeze came to fruition on Tuesday,

The daily SPX chart with the SPX breaking below the 200-day moving average and then sharply moving higher to create a Hammer (at the white arrow) on Tuesday. Everything about the forecast went exactly as envisioned except the accumulation usually seen at a head fake move which is why we have been patiently waiting on the sideline before adding any new bounce/long (short term trade) risk.

Remember, all core/trend shorts remain open despite any impending bounce, the reason is they are trend trades, the right tool for the trade.

Since our April 2nd Forecast calling for a head fake/false breakout above the 2015 range before any credible downside would hold, we have seen the head fake/failed breakout (yellow) and a series of primary trend lower highs and lower lows. This is what we opened core shorts for. While it's up to you whether you want to trade around them, this is the path of least resistance, the big picture's highest probabilities as ween join a daily SPY 3C chart.

SPY 1 day (strongest 3C signal other than multi-day charts) showing a steep and very distinct leading negative divergence through 2015.

that said, I have no problem reading counter trend or bounce moves, so long as we have the objective evidence that shows the bounce trade is a high probability/low risk trade, which was much better looking coming in to the week than it was as of the head fake /stop run on Tuesday.

I do believe the probabilities still lay with a short term bounce and VIX based assets have had some of the strongest signals, but there are others, such as Financials which are a core short and I'd love to see a nice bounce to short in to as a second chance opportunity or an add-to position.

 XLF/Financials 3 min chart show the probabilities of a near term bounce with a decent positive divergence.

 The 5 min chart shows the last distribution area and decline with the most recent positive divgerence out to a 5 min chart. Thus it looks probable that we see a near term bounce from here, but while I don't have a problem trading it on the long side, I also don't want to forget to put it in to perspective and remember where the larger trade is in to any price strength...

The 60 min XLF 3C chart's strong distribution, thus any upside in Financials looks like a beautiful second chance short opportunity to me.

As mentioned, VIX based assets seem to have some of the best signals as they move opposite the market, thus our recent UVXY short and today's additional speculative Trade Idea: VXX Short/Put Position and the charts, VXX / UVXY / XIV Follow Up-Charts.

As is often said, to gain an edge in the market you need to see what the crowd missed. The SPX's daily chart doesn't look fantastic by any stretch of the imagination, however a 2-day chart...

shows a near perfect candlestick bullish reversal Tweezer Bottom with 2 penetrations of the 200-day which hits stops and allows smart money to accumulate the stops without anyone asking "Who's on the other side of the trade". While this is FAR from an upside reversal, it is a decent enough signal for a bounce.

I want to be EXCEPTIONALLY careful about adding any bounce/long risk here without strong objective evidence and it certainly shouldn't be anywhere near the size of core short positions in my opinion.

However, the charts seem to  be cleaning up. You may remember my standard for Index Futures, at least the 5 min chart divergence in the direction of the trade, even for short term 2-day trades...

 The ES/SPX E-mini Futures 3 min chart have moved away from the extreme "V" shaped moves earlier in the week with CLEAR negative divergences and have moved to an in line/price / trend confirmation position (green), this makes it very easy for the charts to move to a leading positive position, even overnight and beyond that...

We still have the stronger 10 min ES chart in a leading positive position just as we expected going in to this week.

It seems there's more stirring with regard to Greece whose deadline seems to be Sunday/Monday of next week to present something to the Troika. As was predicted a day before it happened, the IMF which was the tip off and their demand for a haircut reflected the US's concern about a Greek pivot toward Russia/China for funding, after all the US and NATO have spent the last 17 years boxing in Russia by cozying up to former Soviet states. To lose Greece to Russia with a naval base in the middle of the Mediterranean is something Washington definitely has an interest in and while the EU has their own interests like not encouraging more breakaway leftists movements such as Spain, Italy or France to preserve the EU as a debt write-off for Greece would do exactly that, it seems Washington has brought some influence to bear in the whole situation.

In any case, it seems Greece has a new/old proposal, apparently the same one which was rejected on June 26th and the same one the Greek referendum roundly shot down, so this may be the risk on catalyst and may be why we've been seeing late day sudden positive divergences like yesterday and in all honesty, no different than us, smart money would bring prices dow to accumulate on a gap up day like today so I don't see that as a negative in the bounce scenario, but this is the first time in quite a while in which the market seems to be changing its mind on a near daily basis as we watch underlying flow. We still look to be pointed toward a bounce, but I think I'll need exceptionally strong objective evidence(charts) before adding any more long risk for  short term bounce.

That said, the market tells us what to do and we just watch for that message.

Remember tomorrow is an options expiration Friday which means it's likely we get a max pain price pin somewhere near today's close, usually until about 2 pm at which time the pin is released and we get some of the best 3C data of the week through the last 2 hours of the day.

Index futures are pretty much in line right now, I'll check in on them later tonight and if I see anything really standing out, I'll post it.

Otherwise I hope you enjoyed the Farage video and I'm wishing you all a peaceful, relaxing evening for tomorrow we'll be back at the grind looking for that which the crowd missed.

Can't Miss Video: Nigel Farage

Nigel Farage who is the leader of the UK Independence Party and member of the European Parliament has provided countless hours of fact-based entertainment, but it's always the guys with FACTS and who aren't afraid to speak them that are called the "Whackos" because they don't conform to the standard politician who is in the middle, the "Luke Warm". As Revelations in the bible  is quoted (perhaps no matter where it is found, truth is true):

Revelations 3:16: "So, because you are lukewarm—neither hot nor cold—I am about to spit you out of my mouth."

I think there's little doubt that a number of "Luke Warm" politicians should be spat out of their perches of power. I unabashedly support fact based speakers of truth such as Ron Paul, regardless of political affiliation , religion, sex, color, race or creed. As I said, no matter where it's found, "Truth is true" and on that note, Nigel Farage, viewed as the fringe because he doesn't conform to the lukewarm standards set for politicians, destroys the EU in this 4 minute video clip. If you follow Farage, you'll know that almost everything he has predicted in the past with regard to the European Union has come true. 

However we don't have to wait for his predictions, the Europeans have already done the same in the Middle East and the MENA region and today we can see the results of their foley.  Farage goes in to some detail about the problems of the European Union experiment, which are the same problems we can see if we fast forward about a century in Iraq. Once again it was the Europeans, in this case specifically the British after World War I who drew straight, neat lines on an empty map that had been ruled by the Ottoman empire since the 16th century. These straight lines had no consideration for the fact that Iraq which is perhaps one of the most heinous examples of arbitrary nation building, had 4 distinct religious/cultural groups and none of them got along. This is what led to the iron-handed dictators like Saddam that were necessary to hold such a volatile country , born of arbitrary straight lines, together. I'm not a believer at all in the Terror groups criticism of the same arbitrary borders and their vision to bring all under one rule, that's worse than the arbitrary maps. It's more about respecting a nation or a people's individuality rather than forcing something down people's throats without their consent  Remove the totalitarian hand of cruel dictatorship and see what you have left in Iraq, a failed nation which is what Farage points out is the European Union nearly a century later, except rather than drawing straight lines on a map, a common currency was to unite all of Europe, the plan is failing and Farage is much more articulate than I could be on the subject which is quite relevant to what is going on in Greece today.

VXX / UVXY / XIV Follow Up-Charts

Strangely VXX  and UVXY which is the 2x long VXX (Short term VIX Futures) have actually had some of the best signals this week. I'm including the XIV charts as well which are the inverse of VXX, that means they tend to move WITH the market rather than opposite the market. I also have some VIX Futures charts in here as well.

Although these are ETFs all mimicking an underlying asset and as such are meant to move a certain amount that is equal, inverse or 2-3x leveraged the underlying asset, 3C uses them and gives confirmation or non confirmation because even though prices may move similar, volume is totally different and indicative of demand and 3C is based on volume as well. I like to use multiple timeframe confirmation and multiple asset confirmation as much as possible, the differences in volume between these similar assets allow us to see confirmation/non confirmation of the underlying signal or the asset we are interested in.

VIX Futures...

 VIX Futures intraday 1 min show mostly in line at the green arrows which is 3C/price trend confirmation which means there's no significant underlying trade that is contradicting price, otherwise known to us as opportunities. It isn't until the cash market today that VIX futures intraday are in a deep leading negative divergence suggesting distribution which wouldn't be surprising near local highs on a pullback in the market along the lines of what was suggested in the early, Opening Indications.

The 5 min VIX Futures also shows a negative divergence. Typically for any type of trade from swing trade to a trend trade, I require that at least the 5 min chart is in line with the direction of the trade, thus a short VXX (or put position), should confirm with a clear negative divergence which is something I've been looking for since yesterday's late day market positive divergences during the last hour.

The VIX futures 10 min chart is just a bonus was you can see the negative divergence to the far right,

VXX (short term VIX futures), UVXY (2x long short term VIX Futures) and XIV (Inverse VXX),,,

 The current short position at full size for a short term trade is in UVXY. This is the intraday 1 min chart of UVXY showing a large relative and then stronger leading negative divergence through the last several days and much worse today.

UVXY 2 min chart shows migration or strengthening of that negative divergence as it is also leading negative here.

VXX shows an overall larger accumulation area,  note the "U" shaped base as mentioned several times earlier today. This is a concept that works on any timeframe from intraday to several days for a swing trade to a full on primary trend that starts a bull market. I'd expect at some point this larger positive divergence to reassert itself and see VXX climb higher meaning the market move lower, but near term the chart has gone negative suggesting a pullback, both in several areas that are specific and across the entire range.

 This VXX 5 min chart shows the same thing, although I removed I added the smaller regional negative divergences which sent price lower (smaller red arrows).

This is XIV, the inverse (opposite) of VXX / UVXY and tends to move with the market. The large 1 min leading positive divergence confirms the leading negative divergence in UVXY above.

I didn't draw in each divergence, but color coded them on the time axis so you can see them for yourself (red=negative, green =in line/confirmation and white- positive divergence).

VIV'x 2 min chart is also leading positive confirming the leading negative 2 min UVXY chart above.

XIV 3 min shows the migration or strengthening of the divergence as seen in VIX futures, UVXY and VXX above and the current divergence is leading positive, again confirming the VXX leading negative signal.

XIV 5 min is also leading positive after the last distribution area at the red negative divergence sending price lower. Once again, this confirms the VIX futures as well as the VXX/UVXY charts.

That's a lot of timeframes in 4 different assets all confirming and the reason the UVXY position is at full size as the charts to support the trade are there.

XIV 15 min which is a much stronger timeframe, JUST TO KEEP THINGS IN PERSPECTIVE. There's a huge leading negative divergence or distribution at XIV highs, this is still in effect and despite short term positive divergences, this is the highest probability resolution of price action. In other words, while all of the charts above are pointing to a near term bounce in XIV and pullback in VXX/UVXY/VIX futures, the bigger picture tells us that it will not hold and eventually XIV/and the market will head lower.

Trade Idea: VXX Short/Put Position

I know I already have a full size UVXY short position, but when certain elements come together, I like options as a TOOL and here I like it so I'm opening a speculative size August 21st VXX $21 Put position. It's speculative in position size because of the large exposure to a full size UVXY short and the expiration is pretty long because my experience has been, while it may not make as much money, since I've been using about 3x more time than I think I need,I've gone from totally losing up an options portfolio to seeing one nearly double in size. I'll go for consistency over a lotto ticket any day.

Charts coming.

This would obviously mean that a market bounce looks highly probable being VXX/UVXY move opposite the market.

AAPL Follow Up

It looks like AAPL, which did show an increase in volume earlier, AAPL May Be Setting Up a Head Fake Long/Bounce, as yesterday's close was taken out-running stops, looks like it just hit the psychological magnet which is a support area from former resistance back around early February and just as important, the whole number and psychological magnet of $120. If you don't believe in the reasoning and the predictability of technical traders and humans in general (the same reason why you'll never see anything on sale for $120 in any retail outlet, but rather $119.99 which is our attraction to whole numbers), then just look at the charts below and the volume surge right at the break of $120.

 AAPL daily chart with a support (former resistance area) right at the $120 level and the psychological magnet that causes traders to put their stops in at $120, which I'd never do (put stop orders in for everyone to see, I actually did this when I went on vacation years ago and the low of the day before the stock took, the low was my stop, an it wasn't at an obvious place, but it was visible).

 Just look at the volume surge as stops are hit in mass, " I felt a great disturbance in the Force, as if millions of voices suddenly cried out in terror and were suddenly silenced"

 The intraday 1 min AAPL chart is still positive which makes it look like, "all of your shares are belong to us...hahahahaha!" 

This is the AAPL 5 min chart which remains positive.

There absolutely still needs a reversal process and the charts NEED to jump off the screen, but it looks like we may have just seen an intraday FLAMEOUT.

Market Update-Transition Point?

It's starting to look like it. As I said early this morning in the 10:30 a.m. Opening Indications:

"My initial take on this was yesterday in the late afternoon we saw some accumulation, as I mentioned we didn't get the normal signals I'd like to see and that was a matter of lack of time, but if we had, I'd fill out the partial positions in IWM and SPY calls.

My initial take until we get more data is this is the same concept for Pros, the gap up didn't afford them the time to fill out positions they were opening late in the afternoon and they are bringing prices down to finish that process.

That's my interpretation of the open thus far until we get some different signals that would suggest otherwise so for the moment I'll continue to hold the short term bounce positions, UVXY short and 2 partial positions in IWM and SPY calls as well as leaving the primary trend core shorts in place."


This is the exact same idea we saw in to the afternoon trade/closing trade yesterday, Quick Update-CHARTS ARE STARTING TO COME ALIVE

I have a lot of charts, they are short term, but I want to give you a bird's eye view, hopefully they don't change too much before I get all of these uploaded and posted.

 The NYSE TICK (intraday breadth) is very mellow and very even, unlike earlier TICK charts.

It's the TICK trend on our custom indicator that allows us to see trends that may not otherwise be visible.

 The downside right off the open fits with the theory from above in this morning's, Opening Indications. Just the same as you or I, smart money is not going to chase prices higher, they are going to bring them down and accumulate at lower prices, the same as we would.

The initial TICK trend intraday today reflects prices coming down, but as the SPY starts to turn more lateral, forming that "U" shaped reversal process discussed earlier, it looks like the TICK has just about maxed out and is near a transition point back to the upside. This is a VERY early interpretation, but it's inline with some other charts and I'll update it.

 Considering the AAPL post earlier and some Semi-conductor ETFs looking pretty decent, as far as we can go with that today, it's interesting that the QQQ intraday is sharply improving off yesterday's already [positive change in character, with a small negative on the open to bring prices down.

 The IWM intraday since yesterday afternoon is showing some improvement here.

The 2 min chart is also showing some improvement, it's not the screaming, chart jumping off the screen divergence I want to see, but this is a process.

 Even the IWM 3 min chart is looking better intraday and positive at yesterday's late afternoon trade.

The intraday SPY looks to be improving as price starts moving more lateral than down in that "U" shape seen at a reversal process.

 Even the 3 min chart is showing improvement as prices come down in what could be a constructive pullback.

 ES is just starting to turn back to the upside intraday

It looks like Russell 2000 futures are as well.

And while early, I wouldn't be surprised if NASDAQ futures did as well.

 Interestingly, VIX futures are showing a deep negative divergence intraday.

From VIX futures to our UVXY (2x long VXX VIX short term futures) which we are short...

 It has a leading negative divergence today.

As does its 2 min chart

And the inverse of VXX/UVXY that moves WITH the market, XIV is showing a confirming leading positive divergence. Interestingly, there seem to be stronger confirming signals in VIX assets than even the averages, but that's still a give-away.

I added volume here as XIV is making a top run move so we want to watch for volume in these assets and divergences with that volume showing there has been a reaction.

And XIV 2 min is also moving positive intraday.

As is its 3 min chart which means there's migration or strengthening in the divergences.

For now these are still not popping off the screen so I'm not making any new moves, but it looks like we are in a process and I'm looking for the pivot in that process and the divergence that make adding additional positions worthwhile.

AAPL May Be Setting Up a Head Fake Long/Bounce

This is NOT a TRADE CALL/IDEA as of yet, this is an early heads up.

Like the rest of the market, AAPL has some more work to do before I'd consider adding long risk here.

However in the mean time, we do have some events that have at least caught my attention.

 This is AAPL's 1 min intraday chart, all new divergences will start on the fastest chart, also the smallest amount of accumulation or distribution and as they strengthen, they'll migrate to longer timeframe charts showing additional accumulation or distribution. AAPL would certainly be an interesting stock to bounce here given its weight and psychology with regard to the market.

A closer look at AAPL intraday we see yesterday's close was hit with a stop run (white arrow), this is the same area the 1 min leading positive chart above is still leading positive.

Since more supply has come in to the market (AAPL), likely short sellers, which means AAPL is cheap right now and there's supply available, two of the main reasons head fakes such as stop runs are pulled off in the first place.

Right now, just like the market averages and many assets, AAPL is positive until about the 2 min chart.

THIS IS NOT ENOUGH ACCUMULATION FOR A HIGH PROBABILITY TRADE, BUT IT HAS TO START SOMEWHERE.

AAPL would also be in need of a reversal process, a sharp "V" reversal is an event, most reversals are a "U" or "W" shaped process which also gives the longer charts more time to put in stronger signals as the asset is accumulated on the cheap in a stable environment.

The 3 min chart,  is not there yet.

This chart will have to go positive and really I'd like to see the 5 min chart positive before entertaining adding long risk here, but this is on the radar and could turn itself around in a matter of hours, although a day or so would be more appropriate given the reversal process.

Just one to keep on the radar for now.