Early Indications-Multiple Asset Update

Here's an early look at what I expect from some key assets we are following. After this I'll likely be spending a good portion of the day looking at our watch list shorts and seeing if any are nearing a reasonable entry. I do not think the market will respond well to the jobs number after options expiration is over, it increases the chance of a June rate hike @ the next F_O_M_C meeting which is coming up mid-month. That being said, a weak bounce has looked likely, especially since yesterday's 1-day oversold condition. I should say weak as in the underlying position of the charts and the lack of 3C support.

For today, yesterday's sharp internals suggested a 1-day oversold event and a probable close in the green today, this "may" be a bit longer than 1-day, but I don't expect much longer if at all which we'll see later today as the charts further develop. From last night's Daily Wrap in internals and their next day reaction...

Although the Dominant Price/Volume Relationship was mixed...

"Tonight the Dominant Price/Volume Relationship is mixed. The NASDAQ didn't have one. The Dow and SPX were both Close Down/Volume Up,  with 22 and 249 stocks respectively. This is a 1-day oversold condition and usually sees a green close the following day. "

Much more importantly were sector performance indications suggested clearly a 1-day oversold condition (this is not the same as indicators' oversold, but based on breadth which is much more reliable)...

"Interestingly at the same time, 9 of 9 S&P sectors were in the red, Energy led to the downside. Among the Morningstar groups ONLY 14 OF 238 SOTCKS CLOSED GREEN. THIS IS AN EXTREMELY DEEP 1-DAY OVERSOLD CONDITION. ALL IN ALL, JUDGING BY INTERNALS ALONE, I'D EXPECT A 1-DAY BOUNCE OR A GREEN CLOSE TOMORROW."

In addition we have options expiration.

This is my initial take on what I'm seeing this morning (some of the short term 1 min charts may be already a little untimely, but still have a point to make).

As was seen and noted in the A.M. Update, 

" ES knee jerked lower, but looks ready for an intraday move higher."

So far, along with 1-day oversold internals, yesterday's 1 min positive and this morning's positives in Index futures...

 ES 1 min positive divergence as seen this morning after the payrolls data. The payrolls data won't be taken well by the market, which is one of several reasons including op-ex and the 1-day oversold condition from yesterday, that I expect it to bounce a bit which should open some short positions on our watch list, although we may need to wait until the op-ex pin wears off later this afternoon or early next week.

 NQ 1 min positive divergence this morning as well.

Since yesterday we have had this 1 min positive in the SPY, but it has not showed strength and migrated, made a larger base or divergence in the next longest timeframes, VERY MUCH INDICATIVE OF THE 1-DAY OVERSOLD CONDITION FROM YESTERDAY'S INTERNALS.

 SPY 2 min shows no migration of the divergence, thus suggesting a very short term, oversold bounce likely or move toward an op-ex pin. This is what I mean in saying that there's not much support here at all, a very small base from yesterday and a very weak divergence combined with a 1-day oversold condition. 

 However since the last bit of accumulation on May 6th and 7th, the SPY has not responded well at all.

The 2 min QQQ is in a similar position as the SPY, a short term, small 2 min positive divergence...

At the next timeframe of 3 mins, no positive migration or strengthening of the divergence.

This is why I chose UVXY (2x long VIX short term futures) yesterday rather than VXX calls, Trade Idea: VXX / UVXY Long , it gives me some leverage and some room on the wild card/unknown (as of yesterday) event of payrolls, but still allows me to hold the position without too much draw down in to next week where the market is shaping up to get even uglier.

 For instance, like the SPY troubles seen above on the 3 min trend, the QQQ 5 min trend is showing the same negative disposition in more important timeframes and through the last bounce from early May as the rounding top has taken full shape.

As for Treasuries/TLT... As you know I'm expecting a strong counter trend move once they wrap up their base/reversal process which I believe is nearly done. Remember we just closed TLT puts earlier this week for a near 40% gain on a short term trade, the reason why is I believe the larger counter trend bounce base was about to be finished up and so far it looks like that was the right call.

 TLT 1 min trend since out short term put position expecting a short term move lower.

The TLT 3 min chart's trend is much more clear, from our short term puts and negative divergence to the base-building positive divergence now.

 This TLT 10 min chart shows what appears to be 2 different bases, I believe they are one larger base with the break below TLT's long term trend line (Channel Buster) at the two red boxes on the 6th and 11th. Note the positive accumulation toward the low end of the base range.

As for oil, I closed USO's short term put position yesterday for a 40+% gain expecting it to see a short term bounce in which I'd like to open a new put position...

 The 2 min USO chart shows where it was negative and why we had open put positions and where it has turned very near term positive on the chart since closing the put yesterday.

Again the USO 3 min chart shows the same, the probability of a near term bounce allowing us to lock in yesterday's put gains and enter a new position at a better price with le

As USO's longer term 15 min chart still reflects more downside for USO before it is ready to finish up its longer term base.

As for the watch list assets/trade set-ups like the recent NFLX Trade Set-Up,  many, like NFLX, are moving in the right direction for the trade set-ups I was looking for and hoping we'd see before the market sees too much damage and downside.

 A break above this range was a prerequisite and part of the NFLX Trade Set-Up posted, today it is in the area and should soon be setting up that short position, one of many that are in a similar position, which is why I want to spend some time today checking up on the watch lists as the op-ex Fridays tend to be rather dull until the last 2 hours of the day.

NFLX's short term 1 min chart suggests it will move toward our short area, letting the trade come to us as the broader market and watch list charts are in bad condition.

For now I'll continue to hold UVXY long, I suspected some near term volatility and the UVXY long rather than VXX calls allows me to better weather that near term volatility, but still have a position in place and be prepared in case Payrolls went the other way and as you can probably tell, I am feeling pretty good about the market falling apart very soon, hopefully not too soon that we can't get off our new short positions like the NFLX example as we need the trade to come to us for the best entry, lowest risk and best timing.

So far we aren't far off from the projections posted this week and specifically yesterday.

Remember, one of the worst looking charts for the market is HYG's (High Yield Credit) leading dislocation in price vs the SPX, this is already on long term primary charts, intermediate charts and now shorter term timing charts.

HYG (red) vs the daily SPX (green), this dislocation is very serious considering how badly longer term HYG charts are already dislocated from the market to the downside.

A.M. Update

Good morning. Other than a tame 1.5% gain in the Shanghai Comp compared to recent action that sent it above 5k for the first time since 2009, Asia was rather dull. Europe isn't looking great right now with a cool deal of the markets down nearly 1%.

As you likely know, OPEC left production unchanged at 30 mm bbl a day, this sent crude higher as we have expected a bounce from the charts...

 However at 8:30 Non-Farm payrolls beat at 280k, well above the 226k consensus expected sending the $USD higher as we also expected at 8:30, which sent oil lower at 8:30.

We'll se what it looks like in the cash market.

 This is the USD on the better than expected jobs report, which seems to give Yellen the go-ahead with a June rate hike as not only did jobs beat, but wages came in stronger than expected suggesting the "slack" in the labor market is tightening.

Everything else sold off on the knee jerk reaction including equities, bonds, commodities, oil, gold, etc.

As also expected, the EUR/USD came down (see to the far right on this 16 min chart).

 ES knee jerked lower, but looks ready for an intraday move higher.

And Treasuries which we are watching for signs of a short term bottom knee jerked lower on the jobs print, but also have an intraday positive divergence suggesting a move higher.

Really none of this matters too much until we see what the cash market does and that may take a little time considering it's an  options expiration Friday.

I'll let you know as soon as I see it.

Daily Wrap

It seems that one of the wildcard events of tomorrow may have been defused for a short time as the Greek government has asked the IMF to bundle tomorrow's 300 million euro payment with the rest of June's payments, giving the government a few more weeks to try to find a solution. This would create a total debt of €1.5 billion due to the I MF by the end of June should they accept their request which is widely believe the IMF will accept the bundling request. Just for some perspective, considering the Greek government made their last IMF payment by using their last IMF reserves ( essentially paying the IMF with their own money)  and can't afford to pay the current €300 million due tomorrow, it's difficult to imagine them paying he €1.5 billion due in June much less the €274,340,000,000 debt scheduled to last through 2057. In any case, that seems to be one bullet at the market may have dodged for the moment. For more information see ...

Greece asks to bundle IMF payments to pay at end of June-Kathimerini

If indeed the IMF accepts the bundling request tomorrow's main event will be non-farm payrolls out at 8:30 AM. A print above 250,000 may cause some volatility in the market to the downside as a rate hike would be more likely. On the other hand if there is a print substantially below 250,000 we may see some upward volatility in the market. I am curious as to whether or not we see some stronger signals if indeed the Greek drama has been put off until the end of the month.

Otherwise volatility in China Will certainly be one of tonight's main events as well as the ongoing volatility in German Bunds and EUR/USD as the pair has seen a 400 pip move in the last 3-days alone. Interestingly, the US 10-year yield has been tracking the FX pair quite closely this week.

The EUR/USD (candlesticks) vs. the 10 year UST. Yields move opposite Treasuries so if the 10 year Treasury (purple) were inverted, the 10-year yield would be exceptionally close to the EUR/USD.

As I said earlier today, I expect the USD to put in a corrective bounce and judging by the 3C chart of the USD and the euro, I expect that's exactly what we will see.

USD 15 min positive divergence for a corrective bounce ...

EUR 15 min negative divergence suggesting the $USD see a bounce. Furthermore...

The daily chart of the USD with a bullish (reversal) hammer.

I would normally expect a bounce in the $USD to send $US Dollar denominated assets lower, however in this case, I think we made the right decision this morning in closing the $USO put position, Closing USO July 17th $20 Put Position which resulted in a nice 3-day gain of +45%, USO Follow Up. As shown before the close, I expect oil/USO to bounce, however it looks quite the opposite, USO / Oil Analysis short term any way.

For instance...

USO 3 min intraday not only turned lateral shortly after we closed the put position just after 10 a.m. this morning, indicating a small base to bounce from, but also put in several positive 3C divergences like the one above.
Crude Futures (5 min and longer) are also showing the same probability of a near term bounce, allowing us a new opportunity to let the trade come to us and set up a new short/put position as the longer term charts suggest oil has more downside to go.

For instance, this 60 min chart of Crude Futures showing a deep leading negative divergence. However on a longer term basis, I'm still expecting crude to come back down in to this year's base, finish up some remaining work and then put in an upside trend reversal. However, we do have the OPEC meeting tomorrow where production is expected to be left at current levels if not boosted which would be a selling catalyst for oil. With the 3C divergences in place though, I suspect the market already has a good idea of what OPEC will do, which I'd venture to guess will be to leave production at current levels. Nonetheless, we'll be looking for our next trade set up here very soon as one of the few assets showing enough volatility to be able to trade.

The same can't EXACTLY be said for equities despite today's downside volatility in which the Dow lost its psychological level of 18,000 and the SPX lost its psychological level of 2100. Perhaps tomorrow's NFP will introduce more volatility, as you know (despite already having core shorts set-up and wanting to see them profitable), one of my main concerns this week has been the market falling too soon before a decent upside move allowing us to enter a number of watch list shorts at better prices/less risk and good timing. I don't see anything in the charts at the moment that suggests the Non-Farm payrolls are leaked as we only had a slight 1 min positive divergence in the SPY today, it didn't go any further than that and that's not very impressive.

SPY 1 min intraday positive divergence which appeared right around the time we called an intraday bottom for the day at 2:21 p.m. this afternoon, Intraday Flameout-SPY/Market intraday Capitulation Likely

However note that the divergence was not strong enough to migrate even to the next intraday timeframe of 2 mins which remains in line with price action (3C price/trend confirmation).

The Index futures are inconsistent or in line at best, none of them have enough confirmation that would give me the confidence to make any long trade at the moment, I say at the moment because the market is as dynamic as any living organism out there and things can change quickly, but for now, it is what it is. Certain assets I'm hoping to get us in to are showing some promise on the watch list such as the NFLX Trade Set-Up I posted yesterday or perhaps Transports, although they are struggling to do much with a divergence that would have sent them higher for a good 2-eweeks a year ago. The market has simply seen a lot of damage and although it's silly, overtime I look at internals, Leading Indicators or the charts, this image comes to mind...

I do believe we are close a strong counter trend rally in TLT (20+year Treasuries) as posted when it first broke and set up the Channel Buster Concept which can be seen in the original post here, Bond Rally / Swing

As for the charts...

TLT Daily chart with the stage 2 trend at #2, the stage 3 top at 3 and already in decline, stage 4 with a break below the long term trendily setting up a Channel Buster counter trend rally concept and by the size of the base, I suspect it will be a doozy.

Here's a closer look at TLT's daily chart. Note the head fake/stop runs on all of the charts at the yellow areas. Yesterday's stop run on high volume looks to have been accumulated in size.

And the 3C chart showing the base area as well as the recent stop run and 3C positive divergence showing the shares having been accumulated. I'm just looking for the short term timing charts to scream or jump off the chart. 30 Year Treasury futures are also showing positive divergence adding more credibility to what "should" be an exceptionally strong move. If we can make +40% on a short term pullback trade here, imagine the counter trend rally as they are some of the strongest rallies you'll see in any market.

As for internals tonight, yesterday we had no interesting internals at all. Tonight the Dominant Price/Volume Relationship is mixed. The NASDAQ didn't have one. The Dow and SPX were both Close Down/Volume Up,  with 22 and 249 stocks respectively. This is a 1-day oversold condition and usually sees a green close the following day. However the Russell 2000 was Close Down / Volume Down which is the least influential of the 4 possibilities with 1055 stocks. In addition to the NDX not having a Dominant P/V and the miix between the other averages, I would NOT call this a strong 1-day internal condition, but does lean toward a higher close overall.

Interestingly only 13 Dow stocks are above their 50-day moving averages, less than half of the R2K are above their 50-day at 842 and less than half of the SPX at 201 stocks.

Interestingly at the same time, 9 of 9 S&P sectors were in the red, Energy led to the downside. Among the Morningstar groups ONLY 14 OF 238 SOTCKS CLOSED GREEN. THIS IS AN EXTREMELY DEEP 1-DAY OVERSOLD CONDITION. ALL IN ALL, JUDGING BY INTERNALS ALONE, I'D EXPECT A 1-DAY BOUNCE OR A GREEN CLOSE TOMORROW.

However I'd be remiss not to remind you that tomorrow is an options expiration Friday and we most often see the max-pain options expiration pin right around Thursday's close. Although it's difficult to believe any pin would hold if the 8:30 Non-Farm Payrolls come out significantly off a 250k print.

Additional influences that are effecting the market would include our custom SPX:RUT ratio which is not confirming today's downside, but rather leading to the upside VERY near term. Pro sentiment indicators closed in line with the market and are overall negative regarding the larger picture as  a leading indicator. If indeed 30 year yields are still acting like a leading indicator as they have been for several week, but not for months before that, then they are pointing to a bounce in the market. However most telling in my view is the total and complete collapse in High Yield Credit. While I'd prefer all of these were pointing in the same direction and most are except 30 year yields, this is not the kind of slam-dunk immediate, "Hit the panic button" market decline expectations often shown by leading indicators,  but it is darn close, especially HY Credit.

For some time Yields which had been one of my favorite Leading Indicators, but had stopped working  (I suspect as the $USD carry trade unwind began) and I expect soon they will stop working again, but over the past few weeks they have been pretty accurate and right now point to the short term upside /head fake bounce I had been expecting to fill out the "Igloo/Chimney" top pattern

Perhaps more telling than any other Leading Indicator is High Yield Corporate Credit... Looking at HY Credit in blue, remember the phrase, "Credit leads, stocks follow". In that light, it's pretty hard to imagine this market holding up for very much longer as credit has completely dislocated from the SPX on a long term, intermediate term and now near term basis.

Finally as to Futures indications tonight, NASDAQ futures are showing a pretty negative intraday / 1 min negative divergence since the lose in which it looked like the market was trying to ramp back up to VWAP. The SPX futures (ES) don't look quite as bad since the close, but they are in line with the downside all day and do also show some deterioration since the closing ramp to try to make it to VWAP before the close. I can't really spin the tea leaves here in to a coherent strategy for the broad market and there are too many short term wild cards such as Greece and Non-Farm Payrolls, but I do have a feeling we will be seeing better signals if indeed Greece receives the bundling request by the IMF to avoid all out default on tomorrow's $300 mn Euro payment.

ES/SPX futures late day closing attempt to hit VWAP above.

The NASDAQ 100 futures closing ramp toward VWAP 

And the deterioration in ES/SPX futures in 3C since the 4 p.m. close (red arrow) since VWAP was no longer important with the cash market closed. You probably get the drift... VWAP is used as a measure of a market maker's or Specialist's fill for institutional orders. Typically in a market that is trending down, they are looking for the middle man in that particular asset to sell/fill their orders at VWAP or better. It seems after the cash close, it didn't matter much anymore and that shows in ES's 3C chart above, but more so in NQ's below...

NQ 1 min 3C chart since the 4 pm close (red arrow)...

As always I'll check futures before I turn in and if there's anything standing out, I'll let you know. I suspect we'll see more volatility in Asian markets, they are starting to trade like a penny stock. Have a great night and let the trade come to you.

Quick Asset Update

As I just posted what I'm looking for in oil/USO for a new trade, I also see TLT as pulling back a little to finish up work in its base area, I'll be looking for a long entry there.

Gold I also see as pulling back a little tomorrow and they should both make for probable long entries at some point tomorrow.

I'll post the charts after the close.

The 1 min intraday SPY chart is still positive which would normally tell me to expect a gap up in the morning, but there's nothing after the 1 min chart so it's not a strong divergence by any means, more than likely just the market getting oversold intraday. We have too many wild card risk events from the NFP at 8:30 am EDT to the Greek/IMF loan repayment/default debacle.

This is a time to be patient (overnight).

As for some of our trade set ups, I'm hoping transports can do more on the upside than they have so far as they look like they'll make an excellent 3rd entry for our long term trend short or core position already open in transports.

If you saw my Trade Set-Up for NFLX yesterday, than you know it's headed in the right direction, but it's not there yet. Once again, some patience and let the trade come to you.

NFLX is  a proxy for a number of our watch list trades, so I suspect most will set up around the same time.

The $USD which has seen the counter trend rally, strongest 7-day move since 2008, fail. However short term we should see a slight correction before it returns to making new primary trend lower lows.

There's not only evidence on the big picture charts you have already seen for the Index futures (ES, TF, NQ) SPX, Russell 2000 and NDX too all fail (big picture), but as I wrote over 2 years ago, "When the market fails, look for the Yen to rise. There's also evidence of the Yen building a longer term solid base from which to rally from as the $USD sinks lower, F_E_D rate hike or not.

More to come after the close. Patience... let the trade come to you.

USO / Oil Analysis

Thankfully we still have good volatility here. Even if you're not interested in trading USO/Crude, there are some good concepts here that are worth looking over.

First we closed out the USO put position today on concerns I had earlier about a counter trend bounce,  Closing USO July 17th $20 Put Position . The trade yielded a decent gain of +45% for 3-days, USO Follow Up.

Now the question is where we go from here.

My view has been that USO is building a large base for a primary trend reversal. It has also been that USO/oil needs to pullback further to finish that base before it can sustain a breakout to a true stage 2 uptrend that will hold unlike the earlier breakout which we called in advance to not only happen, but to fail as a head fake move.

I am looking for a near term bounce that we can re-open a new crude short (options / put) position and when the time comes, to enter a long term oil long position for a reversal of the downtrend that started last summer. As for the USO equity short, that was left in place as a trend trade which I don;t concern myself with small counter trend corrective moves, options are different because of the leverage and time decay.

 The 1m intraday USO chart shows recent negative/distributoon and the call to close USO puts this morning as shortly after USO turned sideways , creating a small base it can bounce off-likely in to fill today's gap. We have positive short term (weak) 3C divergences to support such a bounce.  It is there that 'll look for a new put position opening on higher prices and a turn to distribution short term in the 3C chats.

The 2 min chart shows the concept of 3C migration. As a divergence (this time positive from the 1 min intraday) gets stronger, it migrates to stronger/longer timeframes such as this 2 min chart. Also note the flat price trade since this morning's closure of USO puts. I always want to close the option position BEFORE prices lose momentum.

 Even the 3 min chart is now leading positive. This is not a strong enough divergence that I would risk going long USO/Oil for a short term trade, but it tells me that we can let the trade come to us while maintaining out gains and open a new position at better prices and less risk.

The 5 min USO chart is starting to show the same positive /accumulation activity short term.

Even Crude (Brent)  futures are showing the same thing on intraday timeframes...

 CL / Brent Crude Futures 1 min intraday positive with a rounding bottom for a bounce, as I said earlier today, likely enough to fill this morning's gap and maybe some offering us a new position opening for a put/short.

I mentioned the head fake moves, very slight, like a channel buster that give an asset momentum, the yellow area is one of those head fake moves with distribution in to the move higher setting up a fast downside reversal which is  why we added to Monday's USO put on Tuesday. Today we have a 5 min positive just like USO and thus decent confirmation between Brent and WTI crude.

 This is the 60 min chart of USO and the channel/trend with a head fake below the channel for a strong upside reversal and then a second head fake above the channel for a strong downside reversal.

these can be seen on the 3C charts as false moves and why we added to the position upon confirmation.

This 10 min chart/3C of  USO shows the same trend at the same place with a positive/accumulated stop run below the channel (yellow to the left)  and the distribution ion to the head fake or false break above the channel (yellow to the right).  Note the distribution as new traders would have bought the apparent breakout of the channel as smart money sold to them, built in demand at higher prices,  this is why we want to do the same thing.

 The 15 min Crude futures show the same features, a move below the channel after downside confirmation at the green arrow and distribution telling us the break above the channel was a head fake or false move, which again is why we added to the USO put position. Now you can see accumulation (white) to the far right (today)  for a short term bounce . Let the trade come to you, don't chase.

 Here's a larger version of the same concept. The USO base's support line was broken on March 18th (yellow box) as stops were run and accumulated providing good power for the upside move. However you may recall, we not only predicted the move above the base's resistance range, but that it would be a false move/head fake and turn back down in to the range as it has (second yellow box to the right above base resistance).

 On a 3C chart (15 min), this is what the above looks like, the stops that were hit in mid-March were accumulated and like most false moves, there's a fast reversal (to the upside). 

In like manner, the false breakout above the base's range showed 3C distribution telling us USO was headed lower (second yellow box to the right).

3C is still leading negative so I believe we still have more downside to go before Oil finishes its longer term base sen at the bottom of this post.

The 60 min Oil futures chart shows the same divergences at the same areas, positive on the stop run below support and negative on the false breakout above resistance and to course we still have a leading negative divergence  which tells me I want to use any short term price strength to short in to for now.

On a longer term basis, last summer we had a clear negative divergence at a H&S top and a trend lower in which 3C moved lower with (confirmation). Since then, we have seen a large, strong base forming with a leading positive divergence, but the small red arrow in the white box represents the current pullback that needs to complete allowing lower prices and smart money to finish accumulating at cheap prices. Then I suspect we'll have a strong, primary trend upside reversal that WILL breakout and hold the breakout for a move higher.