EVen Most Shorted Index Refuses to Move

This may explain in part why the TICK is so low this morning, but not in while as these are not a lot of stocks.

Surprisingly, the MSI refuses to move with the market.

MSI in red won't budge

Opening Indications

This is almost exactly what we were (many of you were writing and what I had said about it, that Dow 17k would be hit for the 3-day weekend and that there was exceptional weakness, as if they had to save everything they had to do it on a low volume day when the markets are easiest to move), the data, beyond 3C is exceptionally weak, much worse than what I anticipated as Dow 17k is hit.

I'm wondering if the Dow can hold it, it doesn't look good.

 Today's TICK hasn't even moved above 500, ULTRA low intraday breadth and equality among advancers and decliners as the range is +/- 500

 This is yesterday's late day intraday 1 min IWM positive divegrence I showed, the move though is very weak, it didn't build a divergnce very big, in fact quite puny.

 Here's the same yesterday afternoon in the SPY, again only a 1 min chart, but take a wider view of the same...

Same SPY 1 min chart in line and very negative at what would be the head fake move anticipated, so far all indications are it is exactly that.

Yesterday's weak DIA positive divegrence on a 1 min chart, weak not only because of the 1 min chart divergence only, but the duration of it, it's like gas in your car, the less accumulation, the less distance the move can travel.

As for the wider view trend...

Just like the SPY.

And the QQQ which did not put in a positive yesterday, it's not confirming anything this morning.

I would not be surprised if the Dow comes back down under 17k, if it does, a failed breakout of 17k may lead to some ugliness in the market, the charts are certainly forecasting that.

SCTY Position Update

I try not to take a.m. trade too seriously, but we do have a half day. Yesterday I was hoping for a gap up in the a..m. to short in to as I continue to build out the SCTY short position which is at 2/3rds full size after yesterday's add too on the gap up. I was hoping to see a full bearish engulfing candle yesterday which would have been a tall order, we got the start of one  and this morning on the gap up, there was 3C distribution immediately which sent SCTY lower, furthering the gaol of a bearish engulfing and confirmation that SCTY is turning down from the top of a H&S top's right shoulder. I do expect some bouncing around intraday as is normal, but I do like this start.

Charts...

 This morning's distribution on the gap up and SCTY moving down.

This is the right shoulder, 3C accumulation at the neck line for a near 50% advance forming the right shoulder and distribution at the top of the right shoulder, one of only 3 places I'll short a H&S top.

This is the daily chart, the last 2 days thus far are moving toward the confirmation, a close below the recent range of stars and dojis at the top of the right shoulder.

On a 2-day chart the bearish engulfing candle is near complete, which would also be a larger, stronger signal for a candlestick reversal, again I'd like to see volume rise, but on  a half day, that's a tall order. So far, so good. It looks like we got excellent positioning here.

A.M. Update

Overnight equity futures weren't quite as flat as yesterday's day session, but still pretty flat.

China beat again overnight with HSBC services this time coming in at 53.1 vs consensus of 50.7, the highest print in a year (yesterday's Chinese manufacturing was the highest print for 2014).

The AUD/JPY (recent market leading carry trade over the last week or so) saw at least a 60-pip drop overnight and more since the NFP and all the other 8:30 data came out, this was on the back of weak retail sales in Australia and the RBA (Central Bank) governor telling the market that it is underestimating the chances of a AUD decline. He also said the RBA is not contemplating tightening policy at this time despite a rising housing market.

 AUD/JPY with at least a 60 pip drop overnight in little more than an hour, about 40 pips immediately and further weakness on the US data dump.

The USD/JPY was higher overnight, but didn't help the Nikkei much as most of the strength was due to dollar strength rather than Yen weakness.

USD/JPY and a surge on $USD strength after the 8:30 data dump.

The ECB policy announcement left rates unchanged even as Europe has weakened since the last policy decision to send the deposit facility to Negative Interest Rates (NIRP), rates remain unchanged with the Main refi rate at 0.15%, the Deposit rate at negative- 0.10% and the Marginal Lending rate at 0.40%.

Draghi's press conference was ongoing during the US data dump so there's likely a lot of algo confusion as to which headline to follow.

US Data

Initial Claims came in at 315k,

	Prior	Consensus	Consensus Range	Actual
New Claims - Level	312 K	314 K	307 K to 325 K	315 K
4-week Moving Average - Level	314.25 K			315.00 K
New Claims - Change	-2 K			2 K

This is a slight beat and in line with the 4 week moving average of 315k

US Trade Deficit saw a modest improvement, prior-$47.2 billion, today's print at -44.4bn on consensus of -45.1bn.

June Payrolls / NFP surge to beat expectations at +288k, above consensus of +215k and the whisper number of +245k, the unemployment rate dropped to 6.1% on consensus of 6.3%, well below the F_E_D's 6.5% target for policy tightening.

May's report was revised higher from 204k to a staggering 282k, this is the 5th consecutive month of gains >200k.

Private Payrolls came in at a 262K gain above consensus of +215k.

Hourly earnings came in as expected at +0.2% m.o.m. and 2% y.o.y. vs 1.9% expected., down from 2.1% in May, declining on a real basis when adjusted for inflation for 3 months in a row. The average NFP print has run around 272k.

The lower unemployment rate of 6.1% vs consensus of 6.3% was due to the magic of "People not counted in the labor force" which  dropped to a new record of 92,120,000, up +111K from June, but we knew we'd see this as Congress failed to continue extended claims in their budget earlier this year which should have the cumulative effect of 3 million people dropping off unemployment during 2014 and no longer being counted as part of the work force despite whether or not they want a job.

The civilian employment to population ratio is at all time record cycle lows. The labor force 
participation rate remained flat at 62.8%, matching the lowest print since 1978.

As a result, Gold is down, as we expected for a Gold pullback,  Treasuries are down, USD is up , but losing some momentum as well as USD/JPY and ES as of the open...

ES, but from the look of the $USD, NQ and TF, we may see some upside momentum fade off shortly.

We have even more data at 9:45 and 10 a.m. (PMI Services and ISM Non-Manufacturing) and an early close at 1 p.m.

A.M. Update Coming

I'm just waiting for the market to settle in as we have a major data dump right now and more coming. Futures were down on NFP, back to where they were just before NFP

Daily Wrap

It's always the days when you feel like you are watching grass grow that are the most dangerous and you need to be paying the most attention, since I haven't said it in a while, "It's like the kids in the room next door being just a little too quiet, you know they're up to something" and that something is what I spent a good part of the day looking for.

Tomorrow is going to "theoretically" be a very volatile day, although the set ups in advance didn't seem to materialize, I'm guessing not many know what's going to happen. First it will be a low volume day as  the equity markets close at 1 p.m. and are closed Friday which means whatever high level traders were left on Wall St., they're on their way to the Hamptons right now for a nice 4-day weekend. Non-Farm Payrolls are pushed up to tomorrow as the market is closed Friday, that's at 8:30 as weekly Initial Claims also come in at 8:30. 

If the pretty much irrelevant, backward revising ADP employment report can cause as much volatility as it did this morning at 8:15, just imagine what one quarter of a market will do on Initial Claims and most importantly, NFP at 8:30 tomorrow morning.

This morning as ADP was released and came in with the biggest beat and best print since December and November of 2012, the $USD knee-jerked higher then spent the rest of the day treading water laterally, gold and silver both spiked lower, then gold and silver both moved higher (especially gold) in to early and mid morning and gold later started to roll over in to the afternoon along with Gold miners (GDX) who saw a nasty little end of day plunge.

GDX's late day plunge on heavy volume, still managed a 0.91% gain on the day, but trading lower in AH. You may recall we closed our long NUGT position last Friday, Closing the Rest of NUGT Long Position to preserve 40 and 50% gains as GLD and GDX are both set and need a pullback which I have every intention of buying as the charts there are still spectacular on a longer term base that is very close to a stage 2 breakout. I see that pullback heading at least for the 22-day moving average.

Gold was seeing stronger distribution signals today, they have been strong since the 30th but especially around 1 pm today.

GLD 5 min, signals last week were more than strong enough for a pullback, today's leading negative mostly from 1 p.m. makes me consider adding a GLD put if prices are still at a reasonable level tomorrow, I don't care much for the volume of most of the leveraged gold inverse ETFs.

Gold futures give us a good idea of the short term distribution/profit taking that precedes a pullback.

Also sharply leading negative, so these should pullback no problem, but the longer term chart patterns and accumulation in both gold miners and gold are spectacular, especially miners which I believe will lead gold as they use to before the F_E_D got involved in the market.

We are VERY early in the gold trend (miners too) as they are both still within their bases, I think this is going to be a huge winning position over the next year or so, but just as importantly this tells us something about inflation expectations as gold is bought on inflation expectations, well before actual inflation which is (as I have noted before), the one thing that will force the F_E_D's hand to hike rates as they were even warned this weekend by the Bank for International Settlements (the central banks' bank),  which said, that "leading" central banks shouldn't "hike rates too slowly or too late" which the market is going to hate as that's a market bubble buster every time.

Also on the ADP report this morning (which is usually widely ignored because it's so noisy), 5 year, 10 year and 30 year treasury futures fell sharply, even though this is directly attributed to the ADP as they fell at 8:15, there has been a trend the last several months of treasuries selling off the first two days of the new month (I suspect it has something to do with bank window dressing as we just saw a new record via the F_E_D's 1-day reverse repo to the tune of 1/3rd of a trillion dollars in borrowed collateral for 1-day, the last day of the quarter, WINDOW DRESSING).

Note the negative divegrence in 30 year treasury futures from around midnight to 4 a.m., then 8:15 ADP at the yellow arrow and accumulation in all 3 treasuries the rest of the day. As far as any leaks of NFP, traditionally the Chairperson, Yellen, of the F_E_D receives the data the night before, of course media outlets will have it on embargo early, but it makes me wonder what the knee jerk to a better than expected NFP print might look like?

As mentioned, the $USD shot up on the ADP data and then treaded water the rest of the day, USD/JPY gained on $USD gains, however the market TOTALLY ignored the usual market mover.

ES (purple) vs USD/JPY (candlesticks), you can see the 8:15 ADP spike in USD/JPY, but SPX futures (ES) are flat as a dead cat. I don't know what to think about that other than the distribution in to the flag of the last week and the head fake move of yesterday.

Speaking of flat as a dead cat...

The major averages ended the day as follows: SPX +0.06%, Dow-30 +0.11%, NASDAQ 100 +0.12%, Russell 2000 -0.54% and Transports -0.36% with the Dow having its narrowest range day since December which has in the past led to corrections, which makes sense as the daily candlestick would have a tiny body and wicks, a typical candlestick reversal pattern. If the Dow breaks $17k, it's not going to be on any strong accumulation whatsoever as you saw in today's intraday updates, maybe it does and provides 3 days for the bulls to wallow in their "apparent " victory, it would also set up a nice bull trap,  because the only thing I've seen set up by Wall Street the last week or so has been the flag that saw a head fake move yesterday with significant negative divergences in to it.

Each time the Dow has neared the 17k level we have seen progressively deeper leading negative DIVERGENCES with this last one leading to a new low as price is the highest of the 3 attempts making this the largest divergence and it gives us a pretty clear sign of what's going on, DISTRIBUTION IN TO PRICE STRENGTH.

You probably saw the small intraday positive divergences that might make a run for Dow 17k, they don't hold a candle as far as the underlying trend to this chart. Here they are in case you missed them, not much to see, certainly nothing I'd trade...Dow 17K 4th of July? Just off the top of my head, perhaps that's what the game is, all the bulls expecting 17k to be taken out so they're all in? It leaves them holding the bag which is what the game is all about at the end.

Even the VIX today didn't move the market!

The VIX (red) is hammered early on the open, the SPX, FLAT. The Index futures didn't even move on the ADP data that moved everything else from the $USD to carry pairs like USD/JPY to treasuries and precious metals, Index futures barely budged.

YES, SOMETHING WAS VERY STRANGE ABOUT TODAY'S ACTIVITY.

HYG was flat today after selling off yesterday, it looks like it could be used to support the market for a half day tomorrow, yields were the same unless the positive divegrence in treasuries send them lower before the open. Credit markets were ugly in the early morning, but regained some of the lost ground the rest of the day, the certainly weren't leading.

 HYG vs the SPX, at 1 as normal it's ramping the market, at 2 it's leading the market and the SPX plays catch-up and at 3 it's leading the ,market, but this time to the downside, although it was flat today which might be used as a lever for tomorrow, I just can't imagine much is going to trump the NFP on such a short day, but you never know with volume as low as it will  be.

Professional sentiment remained sour today, it was selling off on yesterday's head fake move above the flag-like price pattern and continued selling off today as the SPX was flat across the day, just as we saw in TICK with +/- 500 readings most of the day.  Something certainly doesn't feel right, especially with a number of short trades setting up the way we had hoped.

As for MCP, it was down today on a Seeking Alpha article last night suggesting that if they don't raise cash, the stock is worth $1.60 a share which sent it down in premarket, however there were positive divergences on the day and the longer term ones remain in place, I'm beginning to wonder if a GS or someone else like that is an accumulator and also a facilitator of a capital raise? Clearly this is retail selling, a GS is not going to sell on a Seeking Alpha article, they have much better research.

 MCP's longer term 30 min positive divegrence with our last trade at A when $2.50 was broken, we had a +12% gain the next day in equity longs and a call position that was in the double digits closed the same day. At #2 I was looking for a stop run under $2.40 and potentially another call trade, but the short term charts didn't give a strong signal like at #1, however as I was watching today, I came close to looking at a call trade at #3, here's the intraday action below...

MCP intraday 3 min positive divergence, if this hit 5 min leading positive I would likely have entered a call position, but it still has time.

As far as the rest of the volatility for tomorrow, we have International Trade also at 8:30 (lots of data dumping at 8:30), we have PMI Service at 9:45 and ISM non manufacturing at 10 a.m. and we close at 1 p.m., lots of data in a condensed space on ultra-low volume, should be interesting, maybe set up some option trades.

Oh, of note, SKEW ticked up again today to the 140 level which is an extreme, which means OTM low strike puts are being bid up, someone is desperately seeking protection via a hedge against longs or just have heightened expectations for a Black Swan event, otherwise known as a market crash.

Index futures are still range bound and clogged up, nothing on the intraday charts even approaching a divergence, this is one strange day.

I'll check in if anything changes in futures.

SCTY, Z, NFLX

On the close I didn't get the exact bearish engulfing candle I'd like to have seen, but SCTY did retrace 82% of its move today to end with a bearish candle,

Volume was increased today, but it's not something I was too concerned about. While not a significant gain, between yesterday's 1/3 position and today's add to 1/3rd position, the SCTY position is in the green now, again not a big deal, but this is what I'd like to see when phasing in to positions, getting the best entry with the least risk.

The speculative 1/2 size Z position is also starting today off in the green.

The NFLX put position (July $465 puts), Opening NFLX July $645 Puts Now entered yesterday on what I believe was a head fake move above very clear resistance in a popular stock, started this morning being down about -20%, for options this isn't as big of a deal as it sounds, they can move quite a bit quite fast as long as you have some time on them. NFLX did cross below the 50-bar 5-min moving average, which was the original trade set up from yesterday, it crossed that moving average today and the change in price's character was almost immediate. The position ended the day today only down 5.44% from today's earlier -20%.

Look at that change in character as soon as the 50-bar 5 min moving average was broken today.

Quick Review Of Index Options

Here's a quick peak of Index options, you'll notice today looks like total noise, only as you move further out do trends become apparent.

 ES 1 min

NQ 1 min

at least TF is following price down, closest thing to a trne d all day in index futures...

Longer term charts though...

 NQ 5 min

TF 15 min,

it seems to me the R2K is getting ready to see a stronger or leading move down, consider yesterday's IWM volume and shortly thereafter the volume surge in SRTY (3x short IWM), in addition index futures not looking good, nor are the averages. I still like SRTY as a play on the broad market as well as small caps.

The SRTY position with 3x leverage is down around 5.5% which is very manageable for a 3x leveraged ETF. I'd consider adding or perhaps putting out a new trade alert, but I need to look at leading indicators, yields, treasuries, and breadth as well as some other candidates to see which has the best looking set up now.

Dow 17K 4th of July?

Many of you have written in today suggesting that the Dow $17k is being saved for the 4th of July 3-day wekend where retail can fester and gloat in the new DJ-30 high, setting them up for a nasty surprise on the open of next week, I suppose this is possible, it's something I would have suggested in the past, however I don't see why a move above 17k yesterday and further moves today and tomorrow wouldn't be just as if not more effective, it almost seems as if there may be limited firepower to accomplish this goal and that (if what many of you think is correct) it has to be preserved for the right moment like tomorrow's half day in which there will be a skeleton crew on Wall St. with EXTREMELY thin volume making the market a lot easier to move, that still tells you something about what firepower is left in the market if that's what needs to be resorted to.

Don't forget we have non-farm payrolls and Initial claims tomorrow, NFP being way more important, it would seem to me any good news would be bad news as that just puts the F_E_D further in to their mandated or stated goals which they've already surpassed on both mandates. I would think that would be the defining tone of the market tomorrow, but the market works in strange ways that are set up in advance.

If I were very sporting I may take out some weekly DIA calls (next Friday's expiration) for such an event, I don't see any positive divegrence in the Q's and we have seen the averages with a 1+% gain in the Russell while the Dow prints red on the same day so if I had to choose, I'd go with the Dow calls, but I'm not that sporting that I'd be willing to see if there's a gain there still available to collect come Monday morning when the market reopens at full staff, higher volume.

For now, the TICK has remained in an extremely narrow range today and we have divegrences intraday in 3 of 4 averages.

 TICK in the +/- 500 range this afternoon, as tight as tight can be.

The DIA has a leading positive divegrence, not the typical, but it should do the trick in a half day market with volume VERY low, this is a  2 min chart. I don't usually trade any divegrence unless it's at least out to a 5 min chart so this small period on a 2 min chart doesn't cause me to want to take that risk.

The broader 15 min trend during the last few days, very ugly.

 IWM intraday 2 min positive, again I would not take the risk of chasing this.

And the 15 min trend of the last 2 days.

The SPY is very hard to even call a positive divegrence, this is as close as it gets and...

The 10 min trend overall and last 2 days, I would not trade this long even with the signals we have.

As mentioned, only 3 of 4 average have anything approaching a positive divegrence and not impressive enough that I'd hold over the weekend.

QQQ has no positive and is seeing an increased amount of decay today after being one of the best underlying performers.

PErsonally, I'd just leave the calls alone unless something larger develops.

In Index futures, there are no positive divergences at all, there's a small negative in the $USD. There's no positive on 1 min charts and 5 min charts have nothing but leading negative divergences.

I'll try to get Index future charts up, I want to look at a few other things.

Personally I wouldn't mind if any downside was put off over the weekend, it would give me more time to gather more assets that are ready to enter positions in rather than scrambling all day and in to the night.

That said, these are VERY weak, be careful if you try to trade them.

Z Chart Follow Up

There's still an intraday IWM divergence brewing, but I'll cover that later. For now SCTY, even Z are already at small gains and the NFLX put has cut it's loss from this morning in half and is very much within reasonable limits for the position. When you see so many shorts lining up at the same time, it's like that old, very time consuming way of measuring the market by looking at hundreds of stocks a night, but it was effective.

In any case, here's the Z charts, the reversal process is my major concern and why it's a partial position, but other than that, I like what I'm seeing.

I'm just guessing, but I think it's reasonable to assume higher rates would have a detrimental effect to a company like Zillow.

This is where I usually start, on a 5-day chart to gather in information about the character of the stock, where it is in the 4 stages, etc and what I notice here is a very pronounced increased rate of change, in fact a parabolic price move and I never trust them whether they are up or down, they tend to end badly.

 A closer look at the weekly shows several reversal candlesticks and how increased volume increases the probabilities of these becoming effective reversals, remember they don't give any forecast on the size of the reversal, but a weekly reversal candle should see at least a week of reversal.

The Doji Star we have currently is a loss of momentum, a balancing of supply and demand whereas before, demand was outstripping supply, this is an indecision candle and just like anything that loses momentum like a ball thrown up in the air, there's a high probability of a reversal at that point.

 On a daily chart you can see the former trend line and the increased ROC break-away, I often say these increased ROC break-away's are "seemingly" bullish, but between EVERY stage (1 base, 2 mark up, 3 top and 4 decline, there's always a change in the ROC of price just before entering the next stage.

I mentioned a stop above recent intraday highs, I prefer something wider, but even with a tighter stop of $145.75, you still have a position risk of only 4.2% which is well below the norm most traders use of 7-8% which I find totally arbitrary as each stock has much different beta so one percentage stop doesn't fit all. This can still be position sized so it only represents 1 or 2% loss of portfolio if it is stopped out, again that's via position sizing which is a handy little calculator I have created for the new site, giving you both the maximum share allotment for the 2% rule as well as for your own maximum position size, mine tend to run around 15-20% of portfolio (total position size of a trade).

The last several day's daily candles also have higher wicks which is a bearish sign of a rejection of higher prices intraday.

 As for my Demark-inspired custom Buy/Sell indicator, it has given 4 sell signals in Z, each has been virtually right on, the current one is much larger and I do find that has a correlation to the size of the reversal.

 I don't show this often, but do look at my MACD Heat Map, you can see the faster blue has gone in to a negative divegrence while the longer term Red/Yellow are very large, typically very bearish with a small blue or negative blue reading within them.

As for the 3C charts...

 The 60 min overall underlying trend is where the highest probability resolution is, it has been negative which would suggest distribution in to the increased ROC which is often the case as stage 2 ends and moves to stage 3, however the even more negative recent downturn to a new leading negative low deserves some attention.

 The 15 min chart in line with price and even showing a positive divegrence at a dip in price, after that it looks like pure distribution in to the following price trend. If an institutional entity hasn't moved their entire position and you have price turning down as it was at the divergence, it's not uncommon and often seen by market makers and specialists to create enough demand to get the trend back on track to finish the job.

 The 10 min chart shows the exact same thing which is why I like to use multiple timeframe confirmation and multiple asset confirmation.

 As far as timing, it has been intraday charts I've been watching for our member in Z, this 3 min has gone negative and over the same period as the flag which seems to have been used exclusively as a distribution zone as seen in charts of the averages so the fact that we see the exact same signal on the exact same days starting at the 25th tells me something not only about Z, but confirms suspicions about the market in general.

And finally 1 min intraday going negative at both intraday highs, thus forming the longer wick daily candles as intraday highs were distributed.

The only thing I'm not crazy about is the lack of a reversal process, but I can give a little slack because of the parabolic price trend.