Daily Wrap

I was really surprised last week / Friday at the number of supportive emails and members doing well last week, I had a very hard time with 3C signals and as we saw earlier this year, when that happens, there's a reason and it usually becomes clear in retrospect. This is just one of many reasons I require substantial objective evidence before entering a trade.

Around last Tuesday when we correctly forecast a head fake move in the SPX below the 200 dma and a short squeeze back above it along with the typical accumulation of stops hit at/below the 200-day, everything went according to the forecast EXCEPT the accumulation of stopped out shares.

Since the May head fake move (yellow)  on the daily SPXC chart, we have seen lower highs and lower lows. At the white arrow we saw the head -fake stop run below the SPX's 200-day moving average and the resulting short squeeze to close higher as expected (white row) we just didn't get the accumulation/objective evidence that would normally have us entering new bounce/long positions and good thing.

 This is why we didn't enter a lot of new bounce positions because something wasn't right, something that we expected to happen and almost always happens didn't. The 3C signals were horrible almost all week and only started improving Thursday and by Friday were finally clear, but as mentioned earlier today and last week, when we don't have strong 3C signals as objective evidence there's usually a reason why. Looking back in retrospect, there was nothing wrong with the 3C signals, they were right on, they told us that beyond short term trades we were best off staying clear of new positions and here's the evidence in retrospect.

From Friday the 2nd of July's close to Friday the 10th of July's close, the SPX moved -0.01%, that's it. We had several nice short term trading signals, but for anything beyond that, it was simply a meat grinder that went literally nowhere and 3C wasn't missing anything, it was giving us the best warning we could possibly ask for if we stuck to the signals. It was frustrating at the time, but in retrospect, just as we saw earlier this year, it was dead on.

As of Friday, we expected a bounce this week, a bounce in which it's entire process would take up a majority of the week. From Friday's The Week Ahead :

"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."

We didn't get the early week pullback, but at this point I'm not sure we need it. We did get an absolutely flat market after the initial "Greece is fixed" gap up and it wasn't until the VIX was whacked that we saw any price gains in the last hour of trade, again, the market needed to whack the VIX for some short term support.

As I said last week, these aren't oversold bounces, these are risk off bounces allowing pros to sell in to strength and to do that, they need to be convincing looking moves. The last 3-days have given us the biggest 3-day move this year and as we saw today, it was distribution right off the bat which is likely what held the market so flat after the opening gap up until the VIX was smacked down in the afternoon to give price some upside manipulation.

 beyond the gap up, most of the major averages were dead flat until the last hour or so of the day.

This of course was with a VIX Whack, SPX prices in green are inverted to show relative performance.

However as we saw last week, our VIX Inversion (BUY) signal, so far has been right on as it has in the past.

 Each of the white bars=VIX Inversion/Buy signal, although they don't have specific targets, they have led to a bounce overtime they have fired since we have started using this custom indicator.

 Our custom SPX:RUT Ratio has also been supportive of the market bouncing, but today as we saw some form of weakness everywhere we looked...

Even the SPX:RUT Ration was showing weakness in to the close which may be why they needed to whack the VIX (and VXX).

Even High Yield Corporate Credit which had the same 10-15 min positive divergence as the averages late last week suggesting a bounce through this week, saw some daily and late day weakness too as well as HYG distribution intraday.

HYG (blue) vs the SPX (green).

HYG in blue vs the SPX (green), note it doesn't follow the market higher in to the afternoon.

 There was an obvious attempt to ramp the market in the afternoon as the 1 min HYG 3C chart improves in to the afternoon, but...

The 3 min HYG chart shows damage had already been done by then.

I wouldn't call this a dead end to the bounce, but it clearly had trouble on its own without na lot of manipulation/help.

It wasn't just HYG though...

 Pro Sentiment which was supportive last week just fell off a cliff today.

Here's a closer look intraday, as I said and as we saw nearly everywhere, pros were selling in to price strength.

And our confirmation (secondary version), showing the same intraday, especially at the last hour of trade.

Yields which were leading the market higher last week, also fell today.

 30 year yields (red) vs the SPX fall short today

Here's a closer look-not so great intraday.

And what was up with the EUR/USD?

Suddenly EUR/USD (purple) doesn't look at convinced that Greece is fixed vs ES, or perhaps the bounce was never about that.

 Commodities (brown) weren't exactly risk on on the day...

Nor where they intraday vs the SPX.

 And High Yield Credit with the first positive divergence since May seemed to give us notice of the bounce this week, but once it started, they lagged badly.

Here they are intraday vs the SPX in green not buying the late day ramp which seems to have been VIX whacked inspired.


Although prices did move out of the flat range, especially for the QQQ with the best move on the day...

 The Q's did see heavier 3C distribution in to higher prices out of the earlier flat range.

The IWM tried to improve, but also closed worse on the late day ramp.

Remember this is a process, distribution doesn't mean an immediate reversal.

This SPY 10 min chart like the QQQ and IWM is essentially the gas in the tank. Until this goes negative, this market has the gas in the tank to move higher as was initially expected of this week.

As I said, I don't know that a gap fill is necessary at this point, I don't think we are talking about a 3 week bounce here, the gap will be filled on the way back down, but the tome today everywhere I looked was selling in to price strength which is exactly how the expected bounce was described well over a week ago (initially expected some time last week), that means selling in to price strength which is what we have seen.

As to futures, I don't think this move is over on the first day, but remember, all new divergences start on the earliest timeframe and work their way out as they get stronger. The strong timeframe as of last week suggesting a bounce this week was the 10 min charts like this one of ES.

 This is the 10 min ES chart that suggested clearly that we bounce this week in addition to the market averages.

However intraday, the 1 min ES chart just keeps getting worse going in to the overnight session and it's not just ES.

This is the NQ 1 min chart

And the TF 1 min chart.

As the divergence gets stronger it migrates to longer timeframes.

Like this 3 min NQ chart...

Or this TF 5 min chart and thus far today...

The negative divergence has made it all the way out to the 7 min chart (ES).

There's definitely distribution in to higher prices which is what we expected in a bounce, we also expected that the bounce be impressive, in a downtrend it has to be to change sentiment and we are in a downtrend since May.

The daily SPX with lower highs and lower lows on the daily since the May head fake/failed breakout. Prices are right at resistance in the area of the 50 and 100-day moving averages, I'd think that they'd need to break above at least the 50-day here to be convincing, it would also give more ground and demand to sell in to, but make no mistake, I don't see this as anything more than a counter trend bounce, they can be and usually must be impressive, but the phrase, "counter trend" should tell you all you need to know.

For now it's about position management, UVXY short and looking for the pivot to the downside and the best looking assets to use that price strength and pivot to short into whether with options or just equity shorts.

This is what we expected, I can't complain about the way the market looked the first day in to it.

I'll check the overnight charts as they look pretty bad on the intraday Index futures above, if it looks like we may have some sort of surprise in the a.m., I'll let you know, but as I said, there's still gas in the tank, there's still an obvious resistance level that readers will want to see broken before they jump in with both feet (SPX 50-day) and there's still a process like most everything else in the market.

Just a word to the wise, Greece is getting all of the attention, but the market is going to be focussing more on the F_E_D and soon China's luck is going to run its course. 

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USO Charts Follow Up

Last week we took a USO short off the table (straight short, no leverage) for a +15% gain, USO P/L and Follow Up. Interestingly after a week of volatility, price is just about at the exact same area, but it has had some time to put in a small reversal process.

If you have been following our long term analysis on USO, then you know that we have been expecting a break back in to a stage 1 base-like range and last week we got that move, Patience Pays: USO Breaks. There was so much congestion in the area, we needed a clean break of not just the base's upper trendily around $20.25, but a clean break of $19 where the congestion had been offering support.

Longer term I envision USO/Crude pulling back, maybe as low as <$16, we want to watch it very carefully there for accumulation of lower prices and filling out what has been a base area that has been in place just about all of this year. "IF" we se that accumulation as I suspect we will, USO looks to be one of the better looking long trend trades out there with a primary trend reversal of all the losses from last summer and a substantial trend back to the upside well above any recent highs loitering around the top of the base's range.

However for now, that break below $19 last week seems to have created a short term capitulation/selling event with a nice gap above which is what this latest trade idea, Trade Idea: USO SPECULATIVE (Long) Bounce, will be targeting.

I believe if we get that gap fill, we'll be set up for another USO trade, this time back to the downside with maybe a put position or a leveraged inverse ETF which should be the one to take us down to the lows where we need to be for the long term stage 1 base/price pattern to finish accumulating on the cheap before making a real breakout around the range at the $20-ish level. So... lots of potential nice trade set-ups in USO.

The reason I went with a smaller speculative position here is #1 the leverage, but more so just in case price comes back down a little to the $17 area to create a stronger "W" base, at which time I'd consider adding to today's speculative position size so long as we have strong objective evidence that such a pullback very near term, is accumulated. For now, USO looks like it has hit a short term flameout or selling exhaustion (capitulation) event.

 USO's daily chart with distribution at a H&S top last summer followed by confirmed downtrend and in to a lateral stage 1 base with significant positive divergences. Stage 3=top/distribution, Stage 4= Decline and Stage 1= Base/Accumulation, the typical asset cycle which also is fractal in nature and can be observed in any asset and in any timeframe whether on a daily chart like this over a period of a year or on a 15 minute chart over the period of a week, even intraday sometimes.

If you know how to identify the different stages and we talked a bit about that today when talking about "Changes in character leading to changes in trends" in the NASDAQ Biotech Follow Up (IBB) post (which had a nice afternoon/close).

 Taking a closer look at USO's daily chart for 2015, the change in character that stands out most obviously is the trend change in price from down to lateral, indicative of a stage 1 base following a stage 4 decline which ends with a high volume selling event or capitulation. Ironically, this shorter term trade idea is based on the same concept of short term selling exhaustion, a perfect example of how our concepts are fractal in nature and can be used in any kind of trading, in any timeframe.

Within the range we get a head fake move on March 18th BELOW support which triggers a bunch of stops and allows pros to accumulate the stopped out shares not only in size, but at cheaper prices. We almost always see some kind of a head fake move, in this case a stop run, right before a change in trend-I'd say 80% of the time making head fake moves one of the best price-based timing indications we have.

In like manner, the stop-run head fake move created a strong upside bounce as new shorts were squeezed and new longs chased price higher leading to a false breakout on the top of the range (second yellow arrow).

We can tell these are head fake moves or false breakouts (etc) by the lack of 3C confirmation or distribution in to the breakout. I really expected USO to fall back inside the range much more quickly, but it lingered around the top of the range for nearly 2 months, but ultimately we had the signals on our side and patience prevailed giving us a nice 15% gain using no leverage, Patience Pays: USO Breaks.

We were looking for the psychological support level of $19 t break and it finally did, but that left a gap above (orange area) and I suspect that's our minimum upside target, thus the use of a trade with some leverage to make the profit potential worthwhile.

 Volume analysis is not only a dead art form, but one very few new traders are even aware of and most of the time they have it completely backwards. The volume surge at the white arrow shouldn't be interpreted as a selling break by smart money, but rather a selling event by retail, accumulated by smart money. Either way, the large volume in the area is indicative of a selling/capitulation event, even if only temporary.

 See what the crowd misses, look where they don't look. Using a 5-day chart, suddenly USO's candlesticks give a cleaner picture of price action with a  stall in downside momentum on large volume putting in a bullish Doji star candle. Thus we have a pretty decent reversal candle to the upside and near term long trade.

 As for 3C charts in USO, this is an intraday 2 min chart showing the distribution of a head fake move on the upside or failed breakout leading to a downside move. Note 3C never confirmed the upside move and as mentioned before, head fake moves such as a failed breakout tend to be some of the best price-based timing indications for a trade entry or exit as price arcs lower with increasing downside momentum (our USO short and +15% gain), However notice the positive divergence in the area, the same area in which we have heavy volume indicative of steps being run leaving pro traders with a lot of supply at very cheap levels while retail is no longer interested in long oil, this makes for an excellent accumulation area and the 3C chart is leading positive in the area.

 The 3 min chart is more confirmation of a failed upside move and a positive divergence in to lows and higher volume.

 Here we have a pretty strong 10 min chart positive in the area that's pretty impressive. However as I mentioned above, part of the reason for a speculative position size is the chance of a "W" bottom base which is more stable for a bounce, price just needs to come down about $.50 to $.75 and we'd of course monitor any such move for accumulation which would be a prerequisite before adding to the spec. size position.

 As to the longer/stronger 15 min chart that shows a lot of distribution to send prices lower as we saw last week, it's about in line. On a USO bounce, I suspect this chart would go fairly negative setting up the next trade, USO short (or USO puts), a smooth transition tut of one trade and in to the next.

The longer term 6 hour chart which is very strong confirms the distribution area at the false breakout, this is how we determine whether a move is real or a head fake and allows us to take advantage of the trade long before it moves and long before anyone is in the trade.

So we'll give USO a shot; the calls were for an August expiration, much more time than I think I'll need, but it has worked well for me to use about 3x more expiration that I expect I'll need.

Trade Idea: USO SPECULATIVE (Long) Bounce

I'm going to try out a very speculative size position in USO Aug 21 $17 calls for a VERY short term bounce. I believe USO has some pretty significant downside to go and I'd love to see this bounce work out and fill the recent gap, at which point I think it will make for a nice short/put trade.

Again, this is speculative in size as we have 2 inventory data releases tomorrow and Wednesday.

Charts to follow.

Quick Leading Indicator Update

If you recall the last week+ our VIX Inversion (buy signal) put in several days of signals and it has had an excellent track record, this is one of several reasons the market's probabilities and base for a bounce started really clearing up Thursday and definitely by Friday.

However just as we have seen in multiple assets all day, this is being treated as a RISK OFF bounce, rather than a risk on bounce as we are seeing distribution in to higher prices everywhere we look.

Well I just looked at Leading Indicators and they too are showing the same thing, so much more clearly than last week's very difficult week to get decent signals after Tuesday and you saw why in the Friday to Friday closing percentage moves or lack of any moves at all.

So as the bounce carries on, distribution signals continue, but interestingly and as I'd hope to see, Leading Indicators are falling apart as well which I'll post in the Daily Wrap.

The VIX specifically was whacked around 3 pm or so to get the market to move (NDX mostly) above the intraday tight range that has persisted most of the day.

 ES 1 min intraday. To the far right price moves above the intraday flat range due to a VIX SLAM, both VIX and VXX were slammed to push price higher, but you see the negative 3C signal as price moves above what has been an intraday range, but that's far from all.

 The Russell 2000 futures didn't make the break above the intraday range.

The NASDAQ 100 futures did, they made the best move.

However during this, although we do have that very reliable VIX inversion signal from the last week or so which has always been followed by a bounce for as long as I have been using it (custom indicator), other leading indicators are souring on the day and especially in to the late day move above the range in the SPX and NDX.

The SPX:RUT Ratio which was one of the Leading Indicators supporting a bounce as of last week for this coming week has soured in to the late day break higher specifically.

VIX as I mentioned was whacked, it seems the market was having some trouble getting above the flat range thus they played Whack-a-VIX as is fairly common in short term market manipulation.

Yields which have been leading as shown Friday are flat or in line unlike last week's positive (market positive) stance. Both of our Pro Sentiment Indicators are falling off as pros aren't chasing the move, but selling it as we had called it last Friday, a RISK OFF bounce.

Also High Yield Corporate Credit, the first lever that is pulled for short term market manipulation is not only seeing 3C distribution as shown earlier, even though it has had a nice base and positive divergence along with the averages around the 10-15 min timeframe, but HYG price itself is not keeping up, rather than leading as usual as a lever, it's lagging.

High Yield Credit is also lagging.

Initially on Friday I foresaw this bounce lasting through most of this week, but that's inclusive of the stall and reversal process, essentially meaning the majority of market action this week would be centered around the bounce and the end of it or pivot where we want to open new positions.

We'll just have to keep on top of the charts to tell us when we are close enough to the pivot that it makes sense to open new positions, but so far we have EXCELLENT confirmation everywhere I look that this is a RISK OFF bounce, it is being sold in to hard and as I suspected and as has always been the case with a counter trend bounce/rally (as we have multiple lower highs and lower lows on the daily SPX chart), it is meant to be convincing with good daily price percentage changes, but more so, the best 3-day move this year. Counter trend bounces/rallies are always impressive, they need to be to overcome the negative sentiment of the preceding trend.

I'll post those charts in the Daily Wrap, I want to spend the last few minutes seeing if there's any thing that looks worthy of a trade.

NASDAQ Biotech Follow Up (IBB)

After the last post, I figured I'd post some charts of IBB. BIS is the 2x inverse (2x short IBB).

This is what we were looking at in June, a head fake move after months of very tight, VERY obvious resistance, just screaming for a head fake move, IBB / NASDAQ BioTech Follow Up.

Today's charts (just IBB as there's already 9)...

 On a longer term daily chart of IBB,  note the concepts that we see in just about every stock that has moved to a topping scenario. These concepts will work with any asset and in any timeframe; they are more about changes in character and how changes in character lead to changes in trends.

At #1 we have some downside from early 2014 and a lot of volume as there's a capitulation or selling event' essentially all the weak hands sell at once which creates a nice opportunity for Wall St types as they can buy in size and on the cheap and no one ever tends to ask, "Who's on the other side of the trade?" Someone is and they're going to want to sell those shares they just accumulated on the cheap at a gain.

Note the channel for most of 2014, that's a clean trending channel, but at #2 price starts to peel away from the channel on the upside which "seems" bullish, but it's almost always a red flag that there's change in the air. At #3 price peels away so much with such a major change in character, it actually ends up being the top and a lot of traders chase price higher and are stuck at that level. #4 was the head fake move we had expected in this post from June, IBB / NASDAQ BioTech Follow Up.

 This is a closer look of the same chart, the same changes in character at #2 and #3 which prioduces a resistance zone as clear as day with about 3 months of clear resistance. Just about every technical trader that has been in love with biotech the last several years, has put price alerts on IBB or watches it daily for a breakout above resistance as that is confirmation in their dogma of a breakout and a resumed trend higher, but in our experience once we start seeing the changes from 2014 take place, we know there's a trend change coming. Therefore when we see 3 months of resistance at the exact same area, we know it's a perfect head fake set up which technical traders will chase on what they see as confirmation of a breakout and smart money will be there to sell to them at the best prices available and in size as there's plenty of the one thing their huge positions need, DEMAND.

#4 in yellow is the head fake move or failed breakout we were looking for in the post linked above.

Here's a closer look of the head fake move we were looking for in June and a 4 hour 3C chart, an exceptionally strong timeframe. Note the disposition of the 3C chart vs. price at the breakout. Instead of moving higher and confirming price action, we see a negative divergence which means heavy distribution in to price strength and demand above resistance for it to show up on a chart as strong as a 4 hour chart.

 Coming around from the short term timeframes, just like everything else we have seen indicating distribution in to higher prices, despite there still being a pretty solid set of charts in the 10-15 min range, which is why I suspected a bounce would take up most of this week (that's not just upside, but lateral movement and the reversal process) in the The Week Ahead ...

"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."

 The IBB 2 min chart is seeing the same trend we are seeing in every asset today, distribution in to higher prices which are migrating to stronger timeframes intraday.

For instance, this 3 min chart is not only interesting for the leading negative divergence in to this week, but intraday as well,  there's no attempt at near term price confirmation.

And we see the same thing all the way out to a 5 min chat intraday.

This is a trend of the IBB 15 min chart with confirmation to the left, a leading negative divergence at the June head fake/failed breakout and a leading negative divergence in to this week as well.

Here's a closer look of the same chart. Note the price/3C trend confirmation at the green arrow, I love seeing this as it's like calibration of the indicator, confirming price action, then showing a real change with distribution EXACTLY where we'd expect it.

I probably don't need to point out the current divergence and this is why I like BIS long (2x short NDX Biotechs). You can probably also tell why I fell comfortable adding and leaving a little space to add something like an options position at the right time.