Quick NFLX and SCTY Update

I wanted to see NFLX drop below the 5 min 50-bar moving average before entering the put from yesterday, but the signals were enough to enter it, it just crossed below that average, there may be some chopping around it, it is a popular day trader average to follow.

SCTY so far is right on track moving toward that bearish engulfing candle. Both equities are in what I believe to be head fake moves that turn out as failed breakouts, that's why both were entered and added to at these levels. The overall market tone is deteriorating, I have a bunch of charts, I'll get them up ASAP, but I'm trying to balance my time between market analysis as that's the biggest mover of assets and actual trade positions.

 NFLX crossed below the 5 min 50-bar average (yellow) and Stochastics is clearly taking a turn for the worse, actually leading NFLX.

The daily SCTY chart is looking more and more like that bearish engulfing candle I was looking for in the initial/original SCTY Trade Idea/Set-Up.

Taken with market tone, these are actually quite significant as I think Yellen is trying to convince the market of something it knows from 100 years of history has never been true before, that rate hikes won't send it lower and won't send the economy lower, it has it will.

Quick Market Update-Tone Deteriorating

I'm trying to get a feed of Yellen's IMF lecture up, she has already said some things that are more in line with Bullard's comments last week, "The Market is wrong", she's not so blatant about it, but rates are the main area where you can see she has taken a different tact than the F_O_M_C on the 18th to be more in line with Bullard, I'll get those out ASAP.

In the mean time the TICK trend as you can see with price trend is locked in almost a very neutral lateral , cautionary mode, the weakness in the leading IWM in notable and there's weakness intraday coming in to the Q's as well as all of the other averages, the larger trends make it easier to see and I'll get that out to you as soon as I can capture them, but tone is definitely deteriorating as TICK is still in the +/- 750 zone of cautionary lateral movement.

NFLX is getting interesting as well as yesterday's put position looks to have been timely, I'll try to get that update out ASAP.

As far as some of the "hints" Yellen has given that are market negative (and 3C charts of treasuries look like they want to move to the upside soon), include....

POLICY AT TIMES MAY BE APPROPRIATE TO ADDRESS RISKS

 'MINDFUL' OF HOW LOW RATES CAN PROMPT 'REACH FOR YIELD'  which is a direct broadside at the market, saying they understand that their ZIRP policies have forced over speculation in the market in the reach for yield, taken with the above, "Policy": appropriate to address risks which are what in the economy exactly? She's talking about the market.

 RATE POLICY SHOULDN'T CHANGE OVER STABILITY CONCERN Which is ridiculous, rate policy is all the market cares about, thus the warning from Bullard that the market doesn't realize how close they are to normalizing rates. Even taken out of context of the market, rates rising are "HARDLY" good for the economy.

 RATES SHOULDN'T BE MAIN TOOL ENSURING STABILITY

Again, trying to take the market's focus off rates as they seem perhaps to be set to rise a lot sooner than the F_O_M_C projected on the 18th.

I'll get in to this in deeper context later.

Trade Idea / Trade Management

SCTY did exactly what I was looking for in the original trade idea and set-up, (letting the trade come to us) which relies on a few basic concepts that are seen over and over again like the head fake move.


The 6/24 Trade Idea, Trade Idea/Set Up: (Longer Term) SCTY and set up had a specific area in mind, a gap up above $71.20 which I set alerts for that triggered this morning, the idea is simple and explained below in this excerpt from the 6/24 idea linked above. There are also several basic concept charts for the trade idea in the post.

"Typically with a Doji/Star as a reversal candle, the confirmation candle of a downside reversal in about 50% of the cases over the next day or two, will gap up and then close down forming a bearish engulfing candle, confirming the downside reversal, that gap up with the 1-5 min charts going negative is an ideal entry and the lowest risk entry for a SCTY short position which I'd view as a longer term trending trade because of the size of the top.

I'll be setting alerts for a move/gap above $71.20 to look at a short in SCTY."

On 6/27 there was another update with a broader perspective of SCTY and how it has similar characteristics to the broad market, SCTY Update , History and Market Dynamics as a Proxy, the basic idea is something I've been using for well over a decade, time consuming, but effective...each night I'd go through several hundred stocks quickly on different watchlists, the basic concept is with whatever indicators I was using at the time and how price action was shaped, you'd either find a lot more bullish or bearish set ups and the broad market would often be in line with the majority stock trend, the market is no different today which is why I mention the numerous H&S tops with or at right shoulders like SCTY as it closely mirrors the R2K. However the important chart as far as today's activity goes is the one I drew as a representation of the bearish engulfing candle mentioned in the excerpt above from the initial trade idea... This is the chart from the post linked just above from 6/27...

I drew in the candlestick I was looking for to enter the trade to the far right under the red arrow, it is a bearish engulfing candle which would be an ultra-high probability downside reversal confirmation candle and a nice entry that gives you a natural stop just above the intraday highs with low risk., but the first thing we needed was a gap up above the $72.20 area as a bearish engulfing candle can't be formed without one.

This is what we have so far...

 Daily SCTY with this morning's gap up, tone since then hasn't been good as there's a large upper wick rejecting higher prices and the bearish engulfing part of the candle in which the close moves down and hopefully engulfs the previous stars and dojis of the last 4 days, providing an excellent price, low risk entry.

There's a chance it ends as a star or Doji today, in which case the same gap up tomorrow and bearish engulfing candle would be necessary to confirm the reversal down from the top of a right shoulder in a larger H&S pattern.

Initial indications look good for the trade.

 The faster intraday is clearly leading negative

 The 3 min chart is shown with a trend view, but intraday it is also negative

I initially started with the ornage version and moved to the blue as it is faster and better suited to stocks with momentum like SCTY, but this gives a little better overall trend perspective and the 5 min chart is leading negative intraday as well as the trend at the top of the right shoulder.

 I would hardly ever use the yellow version of 3C which is usually reserved for larger cap, Blue chip types of stocks that trade a lot differently because of their size and the time it takes to put positions together, but the point is I checked every version of 3C and am getting the same signals throughout. I didn't post the longer term charts that are already posted in previous articles because they have not changed for the better at all, just for the worse so there's nothing that concerns me there.

10 min

Here's one of the most recent chart follow ups from this Monday, SCTY Follow Up-Charts...

I also already started a partial position in SCTY, Trade Idea: (Swing Trade Plus) SCTY , although this is a longer term trend idea, I labelled it as swing plus because the first downside target would likely be the neckline after a roughly 50% move forming the right shoulder, there would likely be a consolidation around the area, likely below and then a head fake move, so how the trade is dealt with longer term is more up to the individual, I'd say the broad market will have a large influence on that decision.

While I intend to open a half size position and wait for the gap up for the rest, I'm closer to about a 1/3rd of a full size, so I'll be adding another third here and if it looks like we are going to close with the bearish engulfing candle today, I'll likely fill the position out in to the close. I'd like to see higher volume on today's candle, but considering the holiday and lack of carbon based traders, I wouldn't be discouraged if we didn't get that.

I would say to those more cautious, if you want to wait toward the close to see if there's a reasonably close bearish engulfing candle, you are still well within an excellent entry area and low risk as stops can be placed just above today's intraday highs.

Opening Indications

I have quite a lot to look at, the FXI/FXP trade idea from yesterday looks like it has done what I was expecting to see and what would give us a good set up for the trade so I need to confirm whether or not this is a set up area. SCTY has done exactly what I was looking for, the gap up that closes with a bearish engulfing candle, we have the first part of that and early tone is deteriorating which is still way too early to say how it will close, but we can see whether there's any confirmation in the gap up or distribution as I'd expect to find, this was the original SCTY short set up and then because the add-to set up.

I'm also trying to fine tune an indicator (version of 3C) as single lot trades of 1 share have been clogging NASDAQ and BATS which allow HFTs algos to move VIX as the system is clogged, who sends out thousands of 1 share TVIX trades in seconds? There's something there, an HFT algo that apparently may have been kicked out of a Barclay's dark pool since the investigation started there seems as if it may be running on another DP, NANEX has some good info on it, that would give early warning on VIX movements at least in VXX and related ETFs.

Opening action has been very "cautious" I'd say, very few divergences as you can see in some of these charts of futures...

 Es about as in line as you can get and has been overnight, not even a USD/JPY 8:15 a.m. ramp moved it.

 TF intraday

And NQ intraday in line.

This does not change the fact that damage that seems disproportionate thus far to market moves was done yesterday after the Dow missed 17k by 1.3 points, how that can possibly happen without someone specifically preventing it, is beyond me.

 NQ 5 min chart shows the damage in larger timeframes since the Dow failure yesterday, but I've shown that already in many of the averages.

Speaking of which, they are acting the same this morning, I would say this is definitely pre-Yellen hesitation, why? I suspect the Q&A portion with Christine Lagarde may raise some tough questions that reporters won't ask (if they want to be called on again), but the head of the IMF will.

 SPY 1 min perfectly in line as of the open

Yet there was significant damage after intraday highs/Dow failure as this 5 min chart shows as it moves nearly straight down.

 The Q's which have had the best underlying trade since the flag started and closest to confirmation through most of the flag also saw damage.

 QQQ double checked vs another money flow indicator showing the same thing, confirmation until yesterday and then damage at the highs of the day and after in to the close.


 IWM saw the same as all of these moves yesterday were what we normally see on a flag-like pattern as far as head fakes go, I had even wondered earlier in the week how the flag would resolve, suspecting a break above and a head fake confirmation which we are very close to with the weakness that showed up, it's just the Dow 17k nearby that is strange, I'd think it would have been hit, juicing the sell side with all of those orders/volume before any damage was done, unless someone at the NY F_E_D's open market's desk specifically didn't want that. While Yellen said she essentially saw no problems with the market, that may be the facade to keep the market from seeing a black swan while the NY F_E_D manages a slow, controlled decent. That of course is speculation, but it fits with the dichotomy of what the F_E_D officials and what the F_O_M_C have said over the past month.

 IWM 5 min damage yesterday, again near vertical.

This morning you can see how little things are moving as the TICK in around a +/1 300 range, ULTRA TIGHT.

As for the TICK trend, my custom indicator shows something else with more information.

TICK as of yesterday and today.

A few things I'd be watching until we hear from Yellen (I imagine press releases as I haven't seen a live feed), TNX (10 year yields as well as Treasuries, esp. the 10 year, the $USD Index and any strange movements in VIX.

I'll be back after looking quickly at some of the trade ideas.

A.M. Update

Dow 17k today? It's a huge pschological magnet, a millennial number, whole number, new high, there should be tons of limit orders, for the life of me I can't figure out hoe it could have possibly missed by little more than a single point yesterday at intraday highs (1.3 points away before the market took a much more negative tone). From a sell-side point of view, it's worth hitting just for order flow, bid/ask spreads, volume rebates, I'd think for new clients as well for hedge funds, private equity, etc.

Overnight was rather dull as you'll see, the Hang Seng was up 0.95% as it was closed yesterday and more or less just catching up, the Nikkei was up +.30% which is up, but well under yesterday's performance at this time.

8:15 a.m. ADP came in at the biggest beat since late 2012 and the best print since late 2012, although ADP is known as a noisy data series that few take seriously, being it's in front of tomorrows Initial Claims and the moved forward Non-Farm Payrolls (as the market is closed Friday), it seems to have sparked some movement in currencies, the USD/JPY in particular...

 USD/JPY overnight and pre-market, the spike is on the ADP data, however, it did little to move Index futures...

ES 1 min premarket

NQ

TF

and the $USDX

The AUD/JPY which has been the closest carry trade to leading the market at least yesterday say disappointing May trade data and lost ground overnight...

AUD/JPY

As far as the main event of the day, other than all of the data coming at us over the next day and a half, is Janet Yellen speaking or "lecturing" at the IMF, no one knows the topic, the lecture is simply billed, "Central Bank Lecture". Interestingly there will be a Q&A after with the IMF's Managing Director, Christine Lagarde who has become increasingly vocal about financial stability and the central banks. High Yield Credit may be one topic on the agenda of the Q&A so this "could" be a market mover unless Yellen is as dull as she was droning on like she did after the F_O_M_C on 6/18.

Other data until Friday's closed market...

 Tomorrow is very heavy and a half day with NYSE and NASDAQ closing at 1 p.m., all markets are closed for the 4th on Friday.

That means there are increasingly fewer and fewer carbon life forms on Wall St. and more and more at the Hamptons, volatility could certainly be high, especially on tomorrow's NFP at 8:30 a.m.

Daily Wrapv

There were several interesting events today, it's hard to know where to start as I've covered many of them in individual posts. I think the first thing to recognize if the flag in the major averages from June 25th, as I;ve said, in my opinion this is not a random flag, it is not a price-discounting mechanism, it is a specific flag, perhaps for the purposes of the last week of window dressing and as we often see, flags are head fakes as Technical traders expect them to break to the downside which they often due, but not before breaking to the upside.

The point in the excercise is that a failed price formation tends to see traders reverse positions, for instance the dogma of Technical Analysis says if a price pattern fails, reverse your position, thus a head faked flag looks like a failed flag and causes traders to reverse their positions.

The cleanest version of the flag is in the IWM

 Here's the flag formation started June 25th. I've often said, "Once Wall St. starts a cycle or a price pattern, they rarely let it fail", this one almost did with pre-market selling on 6/26 on F_E_D president James Bullard's comments that the "Market was wrong" and didn't understand how close the F_E_D was to its goals/hiking rates. In the SPX and Dow it is a clear bear flag, not quite the same in the IWM and SPX, but the IWM maintained the cleanest version without the distortion caused in the other averages by Bullard's comments.

Also note today the extreme volume in the IWM about 40 minutes after the Dow missed 17,000 intraday by a mere 1.3 points, IT'S VERY DIFFICULT TO IMAGINE THE DOW COULD NOT BE PUSHED AN EXTRA 1.3 POINTS so I think there's likely more to this part of the story to unravel.

The yellow area today would be the typical head fake move above a bear flag that we see almost always, what happened next is something a bit different, but it also leads me to question why this kind of move wasn't run yesterday at quarter's end, the only thing I can come up with was the opportunity was not there as we did see some unusually heavy volume selling and overnight the USD/JPY lifted the Index futures giving them a boost in to today's open.

This 2 min trend of the IWM shows the accumulation at the start of the flag, it's actually very small accumulation and the price pattern that has emerged since is further north than that amount of positive divegrence would normally provide, that may be why the move that appears to be a head fake was run today as the flag was running out of gas as you can see by the 3C trend in to higher prices, which would almost certainly mean the flag was put there for the sole purpose of selling (again this includes short selling) in to higher prices.

Again the 2 min chart shows deterioration and then much more extreme deterioration the higher price moves (distribution in to higher prices/demand which is a necessity for institutional positions given their size).

What was interesting was not simply the lack of confirmation on the move, but at the highs where the Dow failed by a mere 1.3 point, the amount of leading negative damage done after that taken with the unusual activity in the IWM and shortly thereafter the large green volume spikes in the inverse leveraged SRTY.

The unusual amount of leading negative damage which occurred after the Dow failed to make 17k was also just as the TICK had turned, a greater number of stocks were selling...

 TICK turns just as Dow fails, almost to the minute.

The unusual damage that occurred right after could be summed up with this ES chart posted in Leading Indicators update,...

This is a very extreme intraday move in 3C.

However ES alone doesn't give the real climate of the afternoon

 Take the IWM 5 min chart, being a 5 min intraday move of this size is fairly heavy.

The 10 min chart had already been leading negative but saw additional intraday downside.

 QQQ fails exactly at the top and then sees an unusual leading negative divergence

 The same happens with the SPY, past divergences on the same chart forecasted following moves well, today's leading negative however was much more extreme and right after the failure of the Dow at 17k which would be a major psychological level with orders sitting right at 17k, why it wasn't hit is a mystery.

 SPY 5 min, that positive is not the positive that started the flag, it's the stick save from Bullard's comments, the leading negative today can be seen to the far right.

And the DIA, again an unusual amount of damage for the average not to have followed (yet) intraday.

What is also interesting is the VIX and how it hasn't been working as of late in ramping the market.

The SPY (green) vs VIX (red) intraday, the typical 3 p.m. VIX hit is tried and VIX moves down, but the market fails to move up which is something new, although we've been seeing less and less effective VIX manipulation especially over the past week or so.

The VIX was just at lows not seen since February of 2007, since it has headed higher, today's specific relationship vs the SPX shows the VIX really barely moved down at all vs the SPX's normal correlation with it.

I mentioned this last night, the VIX daily candle price pattern called Rising 3 methods, a bullish consolidation (flag) continuation pattern in which the real bodies of the candles preceding the large up day (yellow arrow) all stay within the real body of that up day, this typically leads to a strong move up (in VIX) which would correlate to a strong market move down, perhaps stronger than the normal VIX/SPX correlation being the VIX is outperforming it so much recently, to the point in which an EOD whack-a-VIX didn't even work. *I'll remind you again of the strange volume in the IWM, highest in at least 2 weeks and then the strange large green volume about 20 minutes later in SRTY.

The selling in HYG on a day like today, especially if they wanted to push to Dow 17,000 was more than a little strange, it seems as if the institutional risk on asset that's often used for market manipulation intraday wanted nothing to do with today's "Risk on" tone in equities.

I was actually surprised when I saw this as I expected HYG was one of the culprits behind trying to push the Dow to 17k. Rather High Yield Credit went the other way and sold off.

Professional sentiment also saw strange selling as it was before the Dow failed.

Sentiment vs the SPX intraday.

Taking another look at HYG, it started selling off stronger as well early, when you'd think they'd want to stick around and take place in any limit order rally as 17k is hit.

High Yield Credit vs SPX intraday

commodities have had some correlation with the SPX since mid last month, that also went by the way side.

Commodities vs the SPX.

I still feel GLD, GDX, NUGT and likely SLV will still pullback and offer another opportunity to go long, however I can't impress enough that I BELIEVE THE ONLY REAL BULL MARKET IN TOWN WILL BE GOLD AND MINERS, MAYBE SILVER. The general retail crowd hasn't picked up on the large base in Gold and gold miners as of yet just as the market is forming numerous tops in the same area, in fact it seems retail missed the GDX +20% move which is huge as they are so focussed on the equity market.. I PLAN ON SAVING A DECENT PORTION OF RESOURCES FOR GOLD/GDX LONG OVER THE COMING YEAR OR SO AS I BELIEVE THIS WILL BE A MORE SECULAR TREND. The trend in gold and miners also tells us something about inflation expectations, which tells us something about the probability the F_E_D may have to surprise and hike rates faster than the market has presently discounted or at least the street has discounted, there's a clear reason there's so much accumulation in GDX and GLD, smart money isn't called that for nothing and we certainly didn't create it, but were lucky to latch on to it early. The exciting part is a 20% rally in GDX and it hasn't even moved out of the base yet, stage 2 mark-up is where 80% of the trend gains are made.

THE $USD WAS FLAT ALL DAY, BUT IT HAS A DECENT DIVERGENCE IN IT WHICH SHOULD HELP GOLD AND GDX PULLBACK AS THEY TEND TO TRADE OPPOSITE THE $USD AS WELL AS OIL.

$USDX 5 MIN ALSO POSITIVE ON 15 MIN SHOULD BE ABOUT THE RIGHT AMOUNT FOR A GLD PULLBACK AS WELL AS GDX/NUGT.

The daily close of numerous candles doesn't look good, for example...

 The IWM, SPY and DIA all have bearish candles with longer upper wicks today which is higher prices being rejected, but they also have heavier volume which suggests some level of churning, strong hands handing off shares to weak hands.

IWM

SPY

DIA

The SKEw Index also remains in dangerous territory, over 135 is the red zone, in the 140's is very high as we haven't been there many times.

 SKEW Index trend for 2014 in general...

SKEW's recent strong move higher.

Basically this means investors or smart money because retail would hardly think of this, are paying higher and higher premiums for deep out of the money puts meaning they are expecting a Black Swan or sudden market crash, that's why they are buying the low strikes, they believe price will be low, but it's not just that, it's the demand that those options are in causing the premiums to rise abnormally.


Otherwise, there are multiple tops in place, people don't want to call them tops based on the market action of the last 4-5 years, but that was held up entirely by the F_E_D's balance sheet expansion of nearly $trillion dollars, the F_E_D is getting out of the game and those who aren't quick to realize it may see the market gap against 3 months of trend in a single morning, it has happened plenty of times in the past.

PCLN is one of the assets I'm keyed in on now, it's a clear top, but few will realize it until after it's too late, then everyone will talk about how they saw the top. What's really giving it credibility other than the F_E_D removing their support from the market is how many stocks and averages look the same or are in the exact same place of a top.

See you in the a.m. unless something develops in futures overnight.