Quick Market Update

The SPY, IWM, DIA, NASDQ 100 futures, SPX Futures and Russell 2000 futures all have clear intraday positive divergences.

These divergences make perfect sense with what I've pointed out in HYG.

Furthermore they also fit with TLT and VXX, but not in the way most people would view them (price action only).

When I can get up a larger market update (which I alluded to in the URRE update), you'll see what I mean.

I believe the key to short term action (and that encompasses what I posted last night, distribution in to any price strength even if it was just a +.10% close, but off significant a.m. lows) is distribution signals in to that "price strength" even if it is only intraday, yet still impressive.

I think HYG was a give away and the way TLT and VXX are set up also seem to be a give away that the market appears to be preparing or perhaps even front-running "bad news" from this weel's F_O_M_C meeting, ironically with the new GDP revisions that will send almost every GDP higher, giving the F_E_D an easy, facer saving way out of QE.

I'll try to get this bigger picture market update up ASAP, but at the same time it's important to find assets that are beneficial to trade in to what may be a VERY useful move that sets up a high probability, low risk trade.

URRE Update

I also have an important market update to get out, but for many of you who have been with me in seeing something special about URRE as a long term long position, URRE is paying off right now and I just want to update you.

Today URRE (as of now) has added another 22% and that's about 100+% over the last 7 days, the follow through we were looking for materialized.

In my last update last Tuesday the first paragraph contained most of the relevant information...

"Congratulations URRE longs, you had to wait, but it is looking more and more like this is moving to stage 2, at some point there will be profit taking and a pullback, new URRE longs can enter at that point, but for now we'll keep monitoring and confirming, thus far other than intraday profit taking here and there, URRE is holding up very well."

I'd say URRE has proven it is moving or rather has moved to stage 2 "Mark up" out of the Stage 1 base.

As far as what I see now, I'd DEFINITELY have a trailing stop on it, a 50-bar 5 min moving average works pretty well, my Trend Channel has held the entire move up including consolidations and is currently at $4.95 (it always locks in gains, never lets them fall).

I'd say with today's gap, I'd either be taking profits, partial profits or using a trailing stop to create some blended approach, whether taking partial or perhaps taking the original investment off the table and letting the gains run.

Remember URRE was always intended to be a long term long position, not a trading position, but with a double in a week, it's hard not top think about protecting some of that.

 This is the Trend Channel I'd use now, 10 min as it has held the recent trend perfectly as the volatility starts to increase above the base area in a typical stage 2 mark-up with volume as a flashing "Open for business" sign.

If I was looking to stick with the longer trend, I'd use a longer channel, perhaps even the daily which would be around $3.00, but it should hold a significant pullback and a much longer trend; again a blended approach seems best to me.

For those interested in URRE as a new position, I'd wait for the first pullback, likely to the $3.50 area and then we can take a look at it there, it should be fine and a great add to or new position.

 The Stage 2 breakout, but the price pattern implied target is MUCH bigger. I think $10+ is an easily attainable target.

The recent 1 min intraday is seeing profit taking, no severe distribution though.

The 5 min shows the stepped up recent accumulation before blast off and also some profit taking, but nothing concerning.

 15 min chart essentially the same.

The long term daily chart shows URRE as having a lot more upside.

Opening Indications

Typically I don't trust the first hour to hour and a half of opening trade as there are a lot of games being played, stops or limits being run, this is especially true of Monday mornings, but I'm actually shocked at how "Calm" the 3C charts are, how close most assets are to in-line so far this morning, I don't expect it to last, but for now....

There's only 1 asset that had a divergence more significant than the others in early trade (although not of any special significance) and it has been the only one to trade notably, everything else is pretty darn close to in line and in my view, so far VERY flat with few signals as if the market is waiting for something or is unsure about something. THAT SOMETHING WOULD CLEARLY BE THE F_O_M_C MEETING STARTING TOMORROW QITH THE ANNOUNCEMENT MADE WEDNESDAY ALONG WITH GDP WEDNESDAY.  I'd say 3C trade looks EXACTLY the way I'd expect it to all things considered with this meeting.

In fact, the action last week of distribution in o any "strength" also fits very well. 

 As some of the longer charts develop, perhaps we'll see an underlying pattern become apparent, but for now, it's the same as what I showed you last night, distribution in to anything resembling strength (and price strength is a VERY relative in the context of recent trade).

The only other thing that stands out is near term positive divergence in HYG, it conflicts with a lot of other assets.

Most of the time the market will try to front-run the F_E_D, Bernie has done a pretty good job of muddying up the waters though, however I do find the new revisions to GDP to be very interesting and wonder if they're not another face-saving way for the F_E_D to back out of QE, the same way they changed the yard stick for QE guidance from a calendar based one to a very easy to manipulate and arbitrary "Economic based" measure.

Any way, I better post these as we are starting to see some changes, most of the negative price changes since these were captured are also seeing a more negative 3C intraday stance as well so I may follow this up very shortly with a revised update. At least this will give you a base line to compare the next update to.

It does make sense to me that there was distribution as I showed you last night in to any intraday moves to the upside.

 NQ 1 min was the only Index futures that was even slightly positive in to the open and you can see how price responded on the open, this is however, only intraday.

The NQ 5 min chart is still leading negative since late Friday and the opening yesterday for futures trade.

 The DIA has an overall negative 1 min intraday trend, intraday today it is in line with price here, but you can clearly see the trend is leading DIA negative.

IWM 1 min has been in line EVERYWHERE EXCEPT at areas of "price strength) and that term is used somewhat loosely with the IWM and more loosely with other averages.

 QQQ 1 min intraday is nearly perfectly in line as of this capture with intraday trade, which is strange for a Monday morning.

 The SPY intraday chart is nearly perfectly in line on this intraday 1 min chart.

This is where things kind of enter the "Twightlight Zone", this almost makes me wonder if HYG will be used to stage a final price move to the upside that is sold in to very hard as I pointed out in my post last night from Thursday and Friday.

 HYG 5 min, a respectable timeframe for near term trade, but not a "Big picture trend", shows very clear distribution at a very flat price range (they are tell tale activity areas-either accumulation or distribution depending on where they occur in the trend) and strangely recent positive 3C readings at a flat price range, this is what suggests to me HYG may be used to try to lift price to sell in to again like last week. 

TLT becomes VERY interesting in this scenario.

TLT 2 min intraday trend shows a very slight negative divergence, this is what I was hoping to see so we'd have a shot at TLT at lower prices just as I mentioned last week before I left for vacation, I thought we'd see lower prices AND I THOUGHT WE'D SEE ACCUMULATION OF THOSE LOWER PRICES WHICH WE DID.

It seems someone is making last minute preparations for an F_O_M_C announcement this week.

VXX also has seen some accumulation at lows, intraday today as of this capture it was in line, lets see how things change.

Despite last week's gut-wrenching intraday and opening trade, I think the underlying patterns are a lot more negative than price would ever suggest.

USO/Brent Update and P/L

While I'm waiting for a.m. (Monday especially) to burn off, might as well look at Oil.

I was considering a short term long position in USO as a counter trend trade, but I think until I have a better feel for the overall market, I'll pass on anything counter trend that's not jumping off the chart for now.

I'll show you what I liked/like about USO or Brent Crude futures short, why I think in the near term they are better off closed and why and what would cause me to enter them again. Had I been around Friday to close the USO put position, it would have done pretty well. Today, closing these is out of an abundance of caution and possibly better use of assets (opportunity cost).


USO

 USO's longer term picture (60 min chart), despite what's happening in MENA, is showing clear distribution on the 60 min chart, that's the bigger picture, but just like the movement of the planets in the solar system is the big picture, planets like Earth still wobble within that larger orbit.

 The USO 30 min chart has good confirmation, going from in line with the move up to negative at the top which is around the area we entered these positions. Judging by these two charts, USO still looks like a good short, DTO a good long and indeed if you are playing them longer term (at least DTO, not USO puts) then that may be the case, but again, it feels like there may be a better opportunity unfolding while this one takes a breather.

 Near term trade (or the wobble) on a 5 min USOP chart , shows the negative divergence at the top, but also shows a shorter positive divergence developing as USO has lost ground from the recent highs.

Light Sweet Crude Futures

 Although these have some differences in performance (WTI vs LSC) , the trend has been essentially the same and gives some confirmation of both the shorter and longer term picture.

The 30 min chart of Light Sweet Crude futures shows 3C clearly negative at the top, but in the recent decline (first leg), there's been a positive divergence forming in to the loss of momentum and what looks like a reversal process under way in price. I believe this is just a normal counter-trend wobble, even though the new trend is very young, so I do envision entering USO short again in the not too distant future. As far as trying to play a bounce, right now I wouldn't, but if the signals really start jumping off the chart, I'd consider it.

 The CL futures (4 hour) make the 3C trend VERY clear in removing the shorter term noise, I'd say that leading negative divergence is about as clear as you get as price was rising. This chart represents the big picture in oil.

 The CL (Light Sweet Crude futures) 15 min chart (showing the near term action with more detail) shows what is not only a pretty clear price pattern (loss of momentum and a typical reversal "process"), but also a pretty clear 3C positive divergence building. In my view the edge is no longer with the short side in near term trade, but taken with the larger picture, there's a clear position (short oil) setting up, a trade that looks like it has very good probabilities of coming to us and giving us a low risk, high probability entry.

I'd definitely keep oil on the radar and set some upside price alerts/triggers to take a closer look at some better entries.

The USO put should have been closed Friday on downside momentum , but as I was fishing, the fill of $1.15 gives the position a P/L of break-even.

The DTO equity long position fill of $33.48 leaves a slight loss, again this was better closed last week, with a loss of -0.01%.

C.osing DTO Equity long position as well

This is a 2x short crude ETN, it looks like it may be a good position to come back to, but right in this area, it looks more like a near term pivot is about to take place.

I'll update USO soon to give you a better idea of what it's looking like.

CLOSING USO AUG. $38 PUT AND POSSIBLY DTO LONG TOO

I'LL LET YOU KNOW BEFORE I DECIDE TO CLOSE DTO, IF I DO, I'LL PROBABLY GO LONG USO FOR A BIT.

3rd Verse. Same as the Second and First?

This morning we are going to see a third gap down, I feel like this is almost some kind of Pavlov conditioning, "Oh, I know how this ends...A slow, low volume melt-up to a green close!" and then....


It doesn't. We'll see, but these patterns, like, "Buy the dip" that work until they don't and then you have a lot of unhappy, drooling dogs.

Kuroda of the BOJ spoke last night, didn't say anything that the market wanted to hear and the Nikkei futures (and Nikkei) hit another low (we were at 13,775 last night, now 13,630).

las night 3C was in an area where it "could" have turned up to the first positive divergence, it seems the market was waiting and taking in Kuroda's speech (of the BOJ) and didn't like what they heard, as I said last night, 3C never turned up so it wasn't a divergence until it did, this is what Nikkei 225 futures (15m) look like now.


I checked the USD/JPY and the AUD/JPY and found them both to be rather interesting considering market action intraday, but maybe not as surprising as far as closing action goes, I need to look at the charts of the former carry pairs more closely, there's something of a missing puzzle piece there.

The Shanghai Composite didn't fare well either, closing below 2000 as participants became acutely aware that a revision of local debt was set to "possibly " double Chinese non-performing loans, essentially giving some sting of reality to the fact that the PBoC is not going to do anything (the one Central Banck that won't give in to the ridiculous notion of debasing, which is odd because it use to seem China was the lead debaser....and then came Japan).


 All I can say right now about ES, is the 5 min chart looks similar to last week's action going in to today's open.

Although it was overnight, the last time we had a leading negative divergence early in the wee hours of Friday a.m., price followed it lower, it's nearly the same set up right now.

The 1 min charts are largely in line.

Purposeful

I just got back in around 11 pm tonight from a much needed vacation, I'll get some of the pics up when I have some more time, caught a few things, black tip shark (baby), decent snook, etc.

However I've been just looking at trade since Wednesday and my first gut feeling was "nauseous", some pretty volatile days there, but then as I dug a little deeper it seemed purposeful, very purposeful, but what the actual reason is, I don't know. Part of me wants to say this is a gap fill to some degree from last Friday (over a week ago), I'll have a better feel tomorrow, I can't look at the entire market in an hour and a half, but here are some things that stood out.

First Thursday we have gaps down in the SPY and DIA, pretty close to even in the IWM, but a gap up in the Q's with everything closing near the highs from almost unchanged to the IWM +.92%. Friday everything sees a pretty gut wrenching gap down except for the IWM, but everything closes near the highs of the day, the DIA and SPY nearly flat, the IWM down almost half a percent and the Q's up half a percent, again everything closing near the highs of the day.

Looking at the 4 p.m. Closing price for ES (SPX futures ) they were around $1684, there's lots of movement during regular hours for the US markets from $1676 to $1687.245, but tonight they're nearly exactly where they left off Wednesday at 4 p.m., that struck me as a bit odd given the intraday volatility which must have been pretty emotional.

Here are just a few charts I pulled tonight that look interesting.

First the Nikkei 225 is truly gut wrenching, Wednesday at 4 p.m. (US EDT) Nikkei 225 futures were $14,795, now they're $13,775... DOWN OVER 1,000 POINTS and this is a pretty close proxy (in terms of points) to the DOW-30.

There's some interesting movement that may be developing, but something isn't right there, I'm very interested to see how short term moves play out vs the bigger picture.

There's a pretty clear 15min negative divergence earlier in the week (about mid-week), the longer term 3C charts are in line on the move down, there's what looks to be a probable positive divergence forming, but until 3C turns up we can't really call that, it could just as easily keep heading down to confirm price action.

Looking at some of the arbitrage assets and more important indications as well as leading indications, some interesting things appear there as well. For instance, High Yield Corp. Credit; TLT (long term treasuries which I have liked) and VXX (short term VIX futures).

 Credit gives way Tuesday vs the SPX through the afternoon, the SPX feels that move Wednesday, then the closing highs Thursday and Friday have no confirmation from Credit. To me this is one of the more interesting charts because this has a lot to do with a) Arbitrage and more importantly, B) what smart money is doing.

 On an important 5 min chart, the distribution in HYG is clear right in a range as usual, then Thursday and Friday we have some accumulation in another price range. However, the bigger picture is as expected...

 The more important 15 min chart is leading negative with only a slight relative positive divergence recently, the bigger picture is much uglier in credit than the short term reflects,  as has been expected.

VXX vs. the SPY (green)

 The VXX loks like it's being used almost perfectly for arbitrage to help move the market, at least in some areas where others just show deterioration in the structure of the market.. The highs in the SPX (green) Monday and even Tuesday look like VXX was used in SPY arbitrage to support the market, but some VXX strength Wednesday (or just the natural correlation brings the SPX lower, this is the same thing seen in HYG leading up to Wednesday, Thursday there appears to be some arbitrage to help the SPX close higher in to late day trade, the same happens Friday. This looks a lot like arbitrage activity.

 VXX 2 min, where you'd expect to see 3C confirming arbitrage activity actually does so, but Thursday and Friday look like the VXX is seeing real accumulation in to that late day market activity that VXX would have been used to help, it's almost as if the market action was secondary to buying protection in the VIX futures or rather "accumulating " it on Thursday/Friday.

 The very big picture 60 min VXX 3C chart shows not only a large relative positive divergence through July and the 8th of July comers up again as standing out as an area where something changed quickly in the market as we have seen in a number of assets including FX carry trades.

The most recent VXX 3C activity has been the strongest, leading positive (accumulation).

TLT (20+ YEAR TREASURIES)

VERY short term at SPX spikes last week, TLT almost looks like it's seeing quick arbitrage activity, but if I am right (and it looks like I am) about a pullback in TLT being accumulated, then arbitrage activity might be difficult to sustain.

In fact Thursday and Friday it looks like it was almost impossible to run any SPY arbitrage, this would be the case if the demand in TLT was overpowering any short term intraday manipulation attempts and the demand in TLT was expected on a pullback this week which looks to be what we saw, THIS IS WHAT I WANTED TO AND STILL WANT TO BUY IN TO.

 TLT 5 MIN (important, for institutional activity in detail) shows quick distribution and not very heavy, it looks like just enough to create the pullback I expected in TLT and wanted to buy in to "if there was accumulation", again Thursday and Friday are interesting in that TLT sees a strong relative positive divergence in 3C and then a stronger leading positive in to Friday. What's interesting is that the 3C signals (and even price action to some extent) are moving despite market action intraday Friday  as all of the averages close at or near their intraday highs.

The "BIG PICTURE" in TLT is EXACTLY why I wanted to add to or open TLT longs in to a price pullback, the long term chart suggested any pullback would see accumulation and you can see a huge accumulation zone in TLT, why would a flight to safety trade be accumulated in this size? I think I gave the answer in the question by telling what kind of trade TLT is and as far as the size, long only finds don't have too many options as to where they can put their assets in a market downturn.

I said back in April that I thought TLT was being taken down to facilitate new market highs to create a bullish change in sentiment and to accumulate TLT, but it although (for smart money the both go hand in hand), it seems like accumulating TLT in size seems to be the more important of the two concepts. REMEMBER, I WAS INTERESTED IN TLT FROM ACTION EARLY IN THE YEAR, THIS IS JUST MORE CONFIRMING/STRONGER REASONS.

Other Leading Indications...

 Yields typically act as a magnet for equity prices, (yields in red, SPX in green)...Thursday Yields seem to help pull the SPX off a.m. lows, Friday they seem to do the same, but Friday afternoon, yields are NOT supportive of the late day market move.

 A 1 min chart of High Yield Credit vs the SPX shows some intraday accumulation in HY credit in white and negative divergences in red, I put the effected area of the SPX in either a white box or a red box. Again, HY credit is NOT supportive of the SPX's late Friday move (or rather the move off the 11 a.m. lows), nor Thursday's.

 The bigger picture of HY credit vs the SPX (green) shows confirmation earlier in the year, a leading negative in credit pulling the market down and this most recent move (as 3C has also shown in numerous assets) to have NO support at all from HY credit.

Commodities vs the SPX (green)

 Commods are in line Wednesday, they fail to support the SPX late Thursday and TOTALLY fail in to Friday's afternoon move.

Look at Sector relative performance since Wednesday, risk sectors like Tech, Industrials, Basic Materials and certainly Financials are all out of rotation vs the "Safe Haven Assets" like Utilities, Healthcare and Staples.

As for a quick look at the market averages...

SPY...(as an example)

 Intraday 1 min SPY/3C charts show no confirmation Friday, even on the 5 min chart. This isn't heavy intraday distribution, but it's not confirmation of price action either.

The 3 min chart shows WHAT I'D CALL A VERY "PURPOSEFUL" SET OF MOVES. 

Gap up openings on the 23rd/24th saw immediate distribution. The lows of the 25th and to a greater degree (intraday) see intraday accumulation, both the opening gap up distribution and the intraday low accumulation on this intraday timeframe are very clear and seemingly VERY DELIBERATE.

Even at the 10 min chart, the distribution and then accumulation look VERY purposeful. 

The 10 min chart is still positive, there's some deterioration of the divergence as seen above in the 1 min chart, it hasn't quite reached the 3 min chart yet.

All new divergences (even intraday) will start on the shortest timeframes.

SPY 15 min though, during what I'd call the "Reversal Process" is also very deliberate as far as strong distribution goes, only late in the week do we see some 3C positive activity, but in context it's very light.

 The 5 min QQQ chart shows heavy distribution at the range mid July, we get the gap down and a relative positive divergenceS which is much weaker than the prior distribution, we also see this DURING A RANGE (as is common) and some confirming activity at the green arrow, but still very much leading negative in context.

IT ALMOST SEEMS THE PURPOSEFUL OR DELIBERATE ACTION IN THE MARKET (QQQ) WAS TO CLOSE THE GAP FROM THE PREVIOUS FRIDAY'S DISTRIBUTION.

As we have seen almost every time this year (and talked about last week), all gaps get filled. While we do have a small relative positive divergence this past week, it is so incredibly small compared to the much stronger leading negative divergence as well as the size of that divergence.

THIS CHART ALONE IS WHY I SAY THIS WEEK'S TRADE SEEMS "PURPOSEFUL AND VERY DELIBERATE. I'd also say it looks MUCH more tactical than strategic.

Futures tonight...I haven't had time to look at everything I'd like (I'll get there tomorrow), but there are some interesting charts.

 ES (SPX futures) 1 min see 3C distribution through Friday and in to the new week, price reacts.

 ES 5 min shows clear distribution in a range Wednesday night and VERY clearly Thursday night/Friday early a.m. There's also a smaller, but clear positive divergence at the 11 am lows and distribution in to higher prices off both of those lows, DISTRIBUTION IN TO PRICE STRENGTH, even when it's not especially strong on a closing basis.

 NQ (NASDAQ 100 futures) also seeing the axact same distribution (1 min) in to Friday afternoon and continuing in to the open of futures trade this week until price follows, this is still just intraday signals over a long night.

NQ 5 min is a much stronger divergence, again at the important areas where there's either a range or price strength (used in a relative context), the 3C distribution signals are VERY CLEAR.

TF (Russell 2k Futures) 1 min

 There wasn't even 1 min accumulation ion to Friday's 11 am lows, but there's distribution signals in to any chance at higher prices.

TF 5 min shows very clear positive divergences at R2K lows, but again the distribution signals are even stronger in to any price strength.

I obviously want to get caught up some more, but the last several days of last week seem VERY deliberate, for exactly what reason, I'm not sure, but it seems much more bearish than bullish and my closest guess as of now is a gap fill, but I wouldn't bet the farm on that, it just seems like the obvious move thus far.

I'll see what a.m. futures look like, but the most important signals will be whether or not distribution in to higher prices or moves off lows, continues. Distribution in HYG Credit and HY Credit, Accumulation in Treasuries and VIX futures, these will be the most telling.

Hopefully there's still an opportunity to add to or open new positions in TLT (Treasury ) longs, I think VIX futures (VXX) as well. HYG will be important for the overall tone of the market and timing.

AS I SAID LAST WEEK BEFORE I LEFT FOR VACATION, "NOTHING TACTICALLY HAS CHANGED, I'D STILL BE LOOKING TO USE PRICE STRENGTH TO SELL OR MORE IMPORTANTLY TO SHORT IN TO. 

I don't see that anything has changed EXCEPT THE LOW VOLATILITY EARLY IN THE WEEK WHICH WAS OUT OF PLACE, IS STARTING TO PICK UP AS IT SHOULD, which should make for some good option/short term leveraged trades as well as setting up longer (strategic position) tactical entries.

I'll see you in a few hours.