The Week Ahead

I pretty much told you what I think happens next week, not only all day through numerous posts and the last couple days building toward today, but in the last post, Quick Intraday Update. Now I'll show you why.

I hope you can remember the Index futures charts, if not just go back and take a look at the post, Futures Indications you can also check out, BROAD MARKET UPDATE and LEADING INDICATORS, but this is pretty simple.

The short term charts are the most probable near term action. Remember 3C divergences tend to pick up where they left off so a negative intraday divergence at the close is likely to see weakness Monday morning. I expect a pullback, the charts are there, it's pretty simple, but these are the weakest charts, the 1 min intraday charts and such. The strongest charts in the 15 min range also typical of a swing trade are strong. For the short term charts to go positive they need a pullback as smart money doesn't chase stocks higher, they buy low and sell high.

With that in mind, these charts are pretty simple to follow the logic of a pullback, improved charts in timing/short term and a decent bounce.

 SPY 1 min intraday negative

 SPY 15 min trend positive

QQQ 1 min intraday negative

QQQ 15 min trend positive

IWM 1 min intraday negative

IWM 15 min trend positive

Remember VXX trades opposite the market and we have a short in VXX and UVXY. VXX 1 min intraday positive

UVXY 2 min intraday positive, but weak.

VXX 5 min trend leading negative

XIV is the inverse of VXX, so it trades WITH the market. XIV 1 min leading negative

 XIV 5 min tend leading positive

HYG is the lever they pull to support the market by rallying it. HYG 1 min largely in line with a small negative divergence in to the close.

HYG 15 min trend and very strong chart leading positive


All of the near term charts are also the weakest charts, they point to the pullback Futures point to, the same pullback or constructive pullback needed to swing the 1-3 min charts or timing charts positive.

The 15 min charts are magnitudes stronger and their trends have improved significantly, they are showing large accumulation areas and a large base area. Their near term (next week) highest probability is a pretty darn strong bounce.

I'm looking for intraday charts early next week to exhibit some weakness and start to accumulate on a pullback, that pullback could be a gap fill or a new low stop run, after that the 5-15 min charts should take over and take us higher until they start to fail at which point we'll be looking at new or additional short positions in to price strength/underlying weakness/distribution.

Today is the clearest the charts have been since Tuesday, but that's typically the case the last 2 hours of Friday when we get the best 3C data of the week.

Have a GREAT weekend!

Quick Intraday Update

A lot of people want to know how I think the market is going to close, honestly there are divergences, but just as I posted in the TLT update, divergences or the act of accumulation or distribution is not an event, it's a process so an intraday divergence in and of itself, unless absolutely screaming and with confirmation, is not necessarily an intraday sell signal. We watch volume , the intraday breadth via the TICK index, 3C charts and any other indicators you find useful to determine whether or not we are going to see an intraday move such as a decline in to the close.

If I don't know, I'll tell you I don't know. I don't dig the false hope of the Guru crowd who always has the comforting answer, even though they have no better idea than anyone else, it seems as long as they "seem" sure about it, like Cramer, people will let a lot of bad calls go by unchecked and it's because of the nature of the market and the nature of humanity seeking assurances. However if I don't know, that doesn't mean I won't try to find out.

The bigger issue right now is the Week Ahead and I'm just about ready to start that post. I'll give you a sneak peak just in case you need to make any adjustments, I'm leaving all positions in place including VXX puts, UVXY short and IWM calls.

I'm also leaving trend trades in place, these are largely core/trend shorts. Each trade is meant for a specific timeframe and I let them do their job, picking the right tool for the job is essential and while we could trade around these larger trend positions, just remember the fancy trading around AAPL when we knew it was going down, a few little trades to try to get better positioning and losing positioning on the trend that lost -45% in 8 months with no leverage. 

In any case, I'm looking for the same thing I've said the last few days (actually most of the week), but after going through all of the assets today, I FEEL VERY STRONGLY WE GET A PULLBACK EARLY NEXT WEEK, IT COULD BE A GAP FILL, IT COULD EVEN BE A HEAD FAKE TO A NEW LOCAL LOW, BUT I BELIEVE THIS GIVES US THE 1-5 MIN CHART DIVERGENCES (TIMING) WE NEED AS THE TREND/BASE DIVEGRENCES LOOK MUCH STRONGER SO I THINK WE BOUNCE NEXT WEEK, BIGGER THAN THIS WEEK'S EXPECTED BOUNCE AND I BELIEVE THAT PRICE ACTION WILL GIVE US PLENTY OF OPPORTUNITIES TO ADD POSITIONS IN TO THAT PULLBACK WITH THE CONFIDENCE OF KNOWING WE AREN'T ENTERING ANYTHING WITHOUT OBJECTIVE EVIDENCE AND OVERWHELMING. THAT SAID, I FEEL VERY GOOD THAT WE GET THIS MOVE AND AFTER IT IS DONE, SHORT SET UPS FOR TREND TRADES AND LOOK OUT BELOW.

I'll be posting the charts for my Week Ahead post next.

TLT /30 Year Treasury Bond Update

This is a broad concept that falls under a head fake or more specifically a channel buster. I did close TLT Call positions on June 30th , Closing TLT July 17th $117 Calls - Looking to Re-open at better price for a +46% gain, TLT Follow Up / Update so the trade wasn't that bad.

That said, it isn't the trade I have hoped for yet which is why when I saw recent negative divergences in the charts, I closed the other part of the position which was essentially a 2x leveraged long TLT position created by shorting TBT, it was closed Tuesday July 7th, Closing TBT Short - Essentially TLT 2x long, on additional divergences and early warning, closing the entire position for now until the charts come together again.

As for the bigger picture trade...

 Looking at the daily trend of TLT, 2014 was a strong year and Treasuries outperformed equities. We had confirmation on 60 min charts throughout the year until about November when things started to change. Looking at the price trend, everything was fine at the green arrow. At the yellow arrow price started to peel away from the long term trendily which is always a warning sign and at the red box, price peeled far away from the long term trendily, this seemingly bullish move is almost ALWAYS a red flag in any asset because  it''s a major change in character and changes in character lead to changes in trends. Besides, we already knew long term 3C charts weren't confirming by that point and that it was a dangerous area. I believe we closed our TLT long within a day of the ultimate top/high.

 Then comes the Channel buster of the trendily and a base under it. I've been expecting this base to pull off a counter trend rally back above the trendily squeezing the thick short trade in Treasuries before heading down to a new low, a counter trend rally. We can see micro examples of the head fake concept in the small rectangle base. Note the stop run head fake under the rectangle's trend line at the small yellow arrow creating short squeeze momentum that blew TLT through the rectangle's top, creating breakout buying momentum that fails and snowballs as price falls back below the resistance trend line. These are a micro version of the broader concept I've been looking for in TLT,  but until the charts reset, I took ALL TLT risk off the table at a decent gain and have the luxury of waiting for TLT to prove itself to me again before entering a new position.

The 60 min chart shows the longer trend break from highs, distribution is clear and then the base area with a positive divergence that looks to me could support a counter trend rally/ head fake move up before failing back down, 2 nice long term trade set ups.

 The 30 min chart shows the same trends, just with a bit more detail.

And here was the last negative divergence at the highs in which the last of the TLT position was closed. While the negative divergence on both this chart and the 30 min above suggest the divergence was on the 7th and 8th, but we actually had earlier warning.

The more detailed 5 min chart showed trouble in the uptrend earlier, it just became actionable on the 7th which was an excellent exit considering price action since, The yllow area is the head fake/stop run below support that led to the move above the range which is where we closed the last position. Note the divergence there, leading negative and still hasn't recovered. TLT will need to move sideways and put in a new base/reversal process off this latest move down before I'd consider re-opening a long position, but I think it's a possibility.

 The 3 min trend gave us even earlier warning and is in line right now, which means until it turns lateral and starts putting in positive divergences, I have no reason to re-enter the trade at this point.

 The 2 min chart showing negative divergences, but...

The 2 min chart also showing a positive trend, it just needs to build at least out to the 5 min chart.

As for /ZB- 30-Year Treasury futures, here are the charts.

 The 3 min chart negative with price following and a small positive divgerence, not enough for a new entry, but definitely worth keeping on the radar.

The 10 min chart's trend. Again there's something to work with, but just not quite there. Patience is the hardest part of a trade set up, You have to remember that accumulation and distribution are not events, they are a process.

And the 30 min chart with a hint of some positive work starting, however at the longer/stronger 60 min chart below...

We are in line. I'd like to see this chart positive before looking for the counter trend rally trade, we'll keep this on the watch list, I still think it can do it, but my opinion is not objective evidence.

LEADING INDICATORS

So after looking at Index futures with longer term charts improving and the cash market averages with the same, but both needing the short term timing charts to improve, it would only make sense that the market should pullback and fill today's gap which would create a situation in which the short term charts "could" fall in line, go positive and give us a strong timing signal on top of strengthening underlying trend signals suggesting we have a base here for a bounce.

Leading Indicators are not jumping off the charts, but for the most part in any type of counter trend move which this would be since the SPX has done nothing but make lower highs and lower lows since May, I wouldn't expect many leading indicators to jump off the chart except the ones that are levers of manipulation like HYG, on occasion a VIX-whack/beat down, etc.

There are some interesting trend signals and there are some interesting shorter term signals. In my opinion, the way things are sitting now between Futures, the averages and Leading Indicators, if the short term charts went positive (timing charts), I'd have high confidence in a pretty substantial bounce. To get those charts positive, the market would need to pullback and fill most of today's gap, maybe even a stop run, smart money simply doesn't chase prices higher, neither do we, they do things like hit stops and create massive supply on the cheap.

Charts...

 This is our custom SPX:RUT Ratio, it has shown improvement since yesterday and in to today.

Our VIX Inversion Custom Indicator has had a remarkably accurate track record when there's a VIX inversion which is a buy signal labelled on the histogram and price in white. This is a 60 min chart of the local VIX Inversions we have had, they are in the general base-like area since about the start of July.

Just to show you the track record on a daily chart...

 This VIX Inversion daily chart vs. the SPX shows a bounce of some sort after EVERY signal (white), a bounce here would be the first failure of this chart in I don't even know how long.

 This is HYG, you already saw the 3C charts for it in, BROAD MARKET UPDATE earlier today. This lever looks like it's being pulled. Yesterday HYG was flat even as the market came down, this morning it gapped up and just look at the correlation between the SPX in green and HYG in blue. as they say, "Credit leads, stocks follow". and on that note, I'd be remiss if I didn't tell you that on a daily chart, HYG has been in a primary downtrend nearly all year and maybe some, leading much lower than the market so bigger picture I expect the market to absolutely catch down to credit's reality much lower.

 As for pPro sentiment indicators, they haven't been on fire, but personally if I were in their shoes managing large positions that take time and liquidity to get out of, I'd rather wait for a bounce and short in to it than try to ride a bounce and then sell and short in to it. Their positions are much larger and they take more time, it's not like ours where you sell a round lot of 100 shares and that's that.

That being said, the near term chart looks like price should come down as it has the last several divergences , but...

The overall trend in to the base area (as I said looked much stronger coming in to this week)  is still in a positive position.

Our secondary confirmation of Pro sentiment has led the SPX up off Wednesday lows and has held up through yesterday's intraday pullback and is right about in line with price with a small negative divgerence suggesting, in my opinion a gap fill pullback which would be interesting here and probably very helpful as far as getting a bounce going and having the confidence to feel timing is strong enough to pull the trigger on any new or additional bounce positions.

 30 year yields which we have long used as a leading indicator until their trend was turned around this year, seem to be working as leading indicators once again,  the old risk on/risk off /flight to safety, flight to risk correlation. At the white areas you can see yields led the SPX (green) to an upside move and at red areas you can see yields led the SPX to downside moves. Currently Yields are sitting higher. I like to think of them as a leading magnet that pulls price toward them.

A closer look shows in line status at the green arrow, negative divergences at the red arrows and a leading positive divergence at the white. This would suggest the bounce theory is still on.

 HY Credit's longer term trend vs the SPX is still in a positive position,  this is probably the first positive divergence since the May highs sent the SPX lower.

In yellow is the May SPX head fake highs with HY credit diverging negatively and bringing the SPX lower which has been the trend ever since with a deep leading negative position overall, but within that you can see the short term positive in white as seen above this chart.

Again my impression would be a bounce, something worth selling/shorting in to followed by a new low with a decisive break of the SPX 200-day, so this could be played as a long and then short (given the proper signals) or just wait and look for a bounce and short in to that as that would be the higher probability, larger trend trade.

And the TICK trend, note what looks like a downside flameout at #1 or short term selling event otherwise called capitulation which opens the door for a bounce which we see improvement in breadth at #2.

All in all, I think my opinion of the market is more than anything and more than ever since Tuesday, solidified in the probability of a bounce. However I'm still not budging on the concept that is always in place, not just now and that is that we have objective evidence that we base all trades on. So far we have good objective evidence for a trend or the trend of a base, we need the timing signals in the short term charts, that's the prerequisite for adding here and for a high probability, low risk trade.

Intraday Charts Took a Sharp Turn Negative

It looks like an intraday pullback, glad I closed the SPY calls. I'm guessing this is Yellen related, but a gap fill wouldn't do any damage to the overall chart/base picture, in fact it would help it, but for intraday traders, you might be interested in this...

SPY 1 min. So far it is contained to 1 min intraday charts only.

As I said, a gap fill wouldn't hurt the overall base area.

BROAD MARKET UPDATE

After getting a feel for Index futures and the broad improvement being seen there, although not specific pin point timing improvement, Futures Indications I thought we'd go ahead and look at a market update and next I'll take a look at the leading Indicators layout, and we'll put the pieces of the puzzle together.

So far price action by and large today is acting like an options expiration max-pain pin with a roughly lateral range since the gap up open. If that's the case, then around 2 pm we should start to see much better data as the charts aren't being manipulated short term to preserve the max-pain op-ex pin.

The charts...

 SPY 10 min is showing a pretty clear positive divergence. We had a nice positive divgerence coming in to this week, which is why last Friday's Week Ahead forecast was looking for early strength in the market this week. We did get the head fake move we were looking for as of Monday on Tuesday when the SPX plunged below its 200-day moving average support and then short squeezed right back above to close with a bullish Hammer candle, but something wasn't right that day as you know, we have been very cautious with adding new positions.

Price did EXACTLY what we expected, we were left with a BEAUTIFUL bullish reversal candle, but we didn't see the accumulation of the stopped out shares below the 200 dma which was a red flag for us immediately even before the close. Since, it seems the overall trend has begun to improve again. If I had to select a base area in the SPY based on the above chart, I'd say from July 2nd to present with some dilly-dallying in-between.

 However short term and the reason I decided to close the SPY July 17th (next week) calls this morning is the lack of upside confirmation this morning which could absolutely be part of an options expiration max-pain pin management. Like Index Futures, the longer charts like 10 and 15 mins. are looking better, the short term timing charts like 1-5 mins remain unconvincing.

We can have a strong base area, but not know when the base is over and the move /bounce is about to begin, that's why the intraday charts from the 1--5 minute timeframes are so important, they give us a good idea of when we have reached that pivot point which I feel is crucial information for options trades especially.

 Again the QQQ 15 min chart is showing improvement leading positive to the far right, it doesn't look as impressive as the chart above because it's zoomed out just to keep things in perspective, You can see how negative the divergence was at the Q's high, that's still a dominant signal with the local signal being a short term signal like a bounce and then we return to the negative trend. In any case,  there has been improvement there to on a strong 15 min chart.

 Intraday o the 1 min chart, we have the same lack of confirmation as the SPY which again could be part of managing the op-ex max-pain pin level.

 Where the IWM 15 min chart is also confirming the SPY, QQQ and Index futures with niice improvement on this strong intermediate timeframe chart, a good chart for something along the lines of a swing trade.

The IWM intraday looks a bit better as far as price / 3C confirmation.

This is the IWM 2 min chart, while it looks better than the others, it still hasn't made the kind of move on this chart that would really get me excited and moving in to positions, but it's a process and it looks to continue to improve here.

As for the UVXY short/VXX put, this is the intraday 1 min UVXY chart with a leading negative divergence and prices starting to come down a bit more seriously as the divergence has developed in to a more serious divergence.

The 2 min UVXY chart has seen migration and you can see in the 3C/price trend a clear leading negative divergence. This makes me feel VERY comfortable with the UVXY short and VXX put position.

The more important VXX 5 min chart has a clear divergence/negative , there is a positive as well that's fairly large, but the interpretation here would be a pullback first and then VXX putting itself back together for a larger trend move higher.

As for the manipulation lever that is High Yield corporate Credit, which is one of the first levers they reach for when they want to bounce or support the market, so much so that just seeing divergences in HYG often give us an early heads up as to market direction long before HYG price actually moves.

The 1 min HYG trend is clearly positive, this lever has clearly been pulled and I can think of no other reason than to support a market bounce or support the market in general. Note the move higher in HYG today after the accumulation/positive divergence. It is not the HYG divergence that moves the market, it is HYG's price, it is the HYG divergence that gives us EARLY WARNING OF WHAT WALL STREET IS UP TO.

Here the 3 min chart is leading positive, you can see what the last negative divergence did to price (red), I would say we have  not seen the kind of market bounce that this HYG set up "could" support.

Even the HYG 10-15 min charts have strong looking positive divergences, this 15 min chart may not look that strong to the far right, but it is, I just wanted to make sure you are aware of the divergence within the context of the larger trend. HYG is in a primary downtrend or bear market and HY Credit leads equities so while it may be used right now for a market bounce, don't forget the dominant trend and how that bounce is most probably going to end which should give you some ideas of what you may want to use the bounce for.

As for TICK/Intraday breadth...

This is the NYSE intraday TICK channel as of about 30 mins ago, I have a lot of charts to capture and post so I can't get them all on at the immediate position. Since this capture, police has fallen out of the uptrend intraday. However more important is the larger trend unveiled by our custom TICK indicator.

As you can see yesterday the decline in breadth fir with price, but as I suggested, as price started to move more sideways and less down, we'd reach a flameout or pivot and start to improve,  that is what we are seeing today on the whole, IMPROVEMENT.

I think it's safe to say, on the whole, through a CRAZY week with the market having breakdown, acting very skittish and seeing some unreal events such as arrests of sellers in China, it's rather interesting that we can pull some kind of probability out of this chaos.

I'm still leaning toward a bounce off what I would call a very volatile base area this week. I do still want to see intraday charts improve before adding additional risk, but for now I am ok holding the remaining bounce positions including UVXY short, VXX puts and IWM calls.

I'll take a look at the leading indicator layout and if there's anything of note, I'll be sure to post it, but either way I'll give you some kind of update since we have already covered two of the 3 most important areas when trying to put the pieces of the puzzle together using OBJECTIVE EVIDENCE.