IYT/ DJ-20 Transports Update

We entered a partial position, about 2/3rds in IYT short last Friday, Trade Idea: (Longer Term) IYT Short based on these charts IYT Charts.

This isn't just interesting as a position, but for those fans of Dow theory, the intensity of the distribution in Transports as a sector is notable as a major market event.

 This is the daily Ascending (bearish) wedge in transports, I personally like shorting head fake moves above the price pattern's resistance as they typically fail pretty quickly as we are seeing now. Any counter trend bounces from here or add-to spots are likely to occur as support of the wedge is broken which we just did today. This gives us some time to see how the price and underlying trade is responding while having a position and allowing room to ass as we see how the asset has reacted and so far so good which has implications (bearish) for the broader market (Dow Theory).

The red arrow is where we entered IYT short, you can look at Dow-20 as well (Transports).

 This is the intense distribution on the IYT 60 min chart, the Dow-20's 60 min chart looked very similar...

Dow-60 min chart with similar distribution. This looks a lot more like a large distribution event rather than the more typical distribution process.

 So far the intraday chart is in line with the downside move

As are the other intraday 2-3 min charts.

Transports tried a small bounce which has failed and is back to in line.

I suspect we will see a bounce /add-to or new position opportunity open soon, based on what I've seen thus far, I'd have no problem either opening a new position or adding to an existing one.

NFLX Core Short and Call Swing Trade Follow Up

I like NFLX a lot, actually one of my favorite longer term short set-ups and we have an open position there, I have mine filled all the way out and because oof position sizing rules can't add anymore to it,  I will be holding this position as a longer term core short position/trending trade.

However we have also been looking at a NFLX Call position, here was yesterday's update for the position on more of a swing basis, Trade IDea/ Follow Up: (Swing Trade) NFLX

And the P/L for both positions...

The NFLX August (standard) calls which I could add a little to.

And the NFLX longer term trending position which I intend to hold, the call would act as a hedge for the longer term equity short.

And the charts... I suspect we are getting very close to the anticipated NFLX bounce which should set up an excellent short entry or add to position.

 NFLX 4 hour chart which is the highest probability, through the top-formation with a strengthening leading negative divegrence. Of recent interest has been the last pivot high...

 The 2 hour chart gives more detail, again leading negative in to the move and top and deteriorating since.

 The 15 min chart offers more detail, also leading negative so I don't think a NFLX bounce, while it can be impressive, is going to change anything for the equity short position.

As we move to faster timeframes, this is where we get in to the charts for the call position or Swing trade bounce.

 The 10 min chart shows the area where there has been accumulation to kick off the bounce, again nothing that changes the core short position except giving us another opportunity to enter or add to an equity short at a better entry point with less risk.

I believe in the NFLX short enough that I have no problem holding the equity short through what I am pretty certain will be a bounce/corrective move, however the call position just hedges that and offers some extra gains in addition.

Yesterday as we made this small double bottom with a slightly lower low (not quite the stop-run head fake I would have expected) NFLX's bounce looked a lot more mature as far as the reversal process.

At this point I'm content to hold the open Call position, but I think we may get slightly better prices for a call position entry/add to intraday today, if that happens I may consider adding to the call position or maybe even opening a different one with a shorter weekly calls.

The 1 min intraday chart looks like a pullback. I'll have price alerts set , what I'd be looking for is a positive divegrence intraday, at that point if we have enough of a correction to make it worthwhile, I'd add to or start a new NFLX (Swing trade-type) call position. I suppose you could swing trade NFLX itself, but I'd prefer not to tie up so much in capital for a move along the lines of a swing trade.

Z Update

Yesterday I put out an "Add-to" or new Put position idea for Z using August monthlies, Adding to Z Aug $155 Put.

I also opened a weekly put for this Friday's expiration in very small size as the 5 min chart wasn't as bad as the 3 min chart which was horrible yesterday, I usually have a 5 min standard for most trades. I closed that small position (ultra speculative) at 10:30 for a +90% gain. I think there's a pretty good chance we get another Z entry set up here shortly, which is why I closed the weekly put so quickly this morning, but at the right time as it (the Put) has drifted a bit lower since.


After adding yesterday's puts to the position that was already in place for August monthlies they went from down -40% yesterday to -4% right now, I would certainly consider adding to them at the right area/set up. As far as an equity short, I'd like to see a little more happen in Z before considering that.

 The typical increased ROC that we see before a stock transitions from late stage 2 (Mark-Up) to a stage 3 top, has already taken place in Z, I won't get too much in to my personal opinion of one profitless company buying another for a half billion more yesterday than what was thrown out last Friday amongst a declining real estate market and the prospect of a dead market as rates rise as both of these are real estae- Zillow and Trulia, but it's something to consider.

The reversal process for this macro trend is just not there yet, but I am interested in keeping this one on the radar.

 As for the intraday charts, I saw prices losing momentum and starting to move sideways which is why I closed the weekly put and as expected an intraday 1 min positive divegrence is developing for a corrective bounce, depending on where it moves to and what the signals look like will determine what tool I would use in entering or adding to the position.

The 3 min chart falling apart dramatically yesterday was the reason for the trade idea yesterday, Adding to Z Aug $155 Put  and my own little speculative trade.

 The 5 min chart makes obvious sense with a positive divegrence forecasting a move higher and distribution in to that move, "Buy the rumor, sell the news".

 The 15 min went from in line to leading negative, this is a good start toward an equity short, but there needs to be a larger reversal process that just isn't there yet for an equity short.

The 30 min chart is getting there too, but for now I'd stick with the shorter term, leveraged position with puts. I'll have an eye on this one for a possible entry whether for the longer August or maybe even September as well as shorter term weeklies if the set up is there.

Market Update

So far the a.m. update is looking pretty weak in underlying trade, but this isn't surprising as I was expecting noise in the form of a gap in to Friday's range. The 5 min NQ and TF charts look like they can do it, the ES chart though is leading negative so it's a bit of a question, perhaps on a F_E_D knee jerk move.

So far....

 IWM intraday 1 min is starting to come undone, it never confirmed truly as it is in a relative negative divegrence.

The 2 min so far is in line

The 3 min may pivot down here and create a negative or it may follow the 2 min and move higher and in line, I suppose it depends on how much the 1 min chart changes.

QQQ 1 min looks weak on the open and about ready to test some lower prices.

The 2 min is clearly already leading negative

As is the 3 min

And I suspect the 5 min 3C chart will pivot down and put it leading negative as well, actually it already is, just solidify the signal.

This is more in line with the kind of "Noise" I was talking about last week, perhaps Friday's gap filled, but obvious underlying weakness, thus noise.

SPY 1 min is leading negative with no confirmation

As is the 2 min

 And out to the 5 min chart.

This is what I mentioned, TF and to a lesser degree, NQ's 5 min (short term trade) charts are leading positive...

 TF 5 min, not a huge signal, but about right for today and maybe part of tomorrow if they hold up, however...

ES is leading negative.

 The MSI barely moved this morning, nothing special which can be seen in TICK which hasn't done much above or below +/- 750

That's why I created this Custom SPY/TICK indicator to track the trend which should be obvious from yesterday afternoon to today. There certainly won't be any improvements in market breadth at this pace and I never suspected there would be, as I said, "Noise", perhaps useful, but noise.

A.M. Update

Overnight we saw weak Japanese Household Spending as well as Employment which should be no surprise by now for anyone keeping up with Abenomics, the Nikkei finished up +.57%, a part of that seems to be a jump in the USD/JPY.

The $AUD which I showed yesterday and thus the AUD/JPY should take a back seat to USD/JPY (as shown with a negative divegrence in $AUD yesterday) as there are renewed calls on the street that the RBA will have to cut rates before year end.

AUD/JPY's positive divergence off lows for the week yesterday and a range bound move ever since yesterday's negative divegrence in the $AUD single currency futures.

 The USD/JPY on a 1 min chart lifting off first around 8 p.m. last night and then again around 4 a.m. just after the European open, there's a current negative divegrence but that has lifted US Index futures...

USD/JPY vs ES (purple) and with little else to go on after yesterday's very tame day where the SPX put in the second smallest gain for 2014 of 0.03% (this was not the noise I mentioned last Friday, I expected at least a gap fill), the one thing I said in last night's Daily Wrap

"There was no Dominant P/V relationship today. The only thing I see that might suggest a little noisier bounce are several of the major averages with "Hammer" candlesticks on a slight increase in volume which typically is a pretty decent indication of a close higher the next day"

Gold is worth watching, after yesterday's update, we may have the signal for the timing of a decline there...

5 min gold futures leading negative.

The EU is obviously a bit nervous as new Russian sanctions are unveiled, German Bunds rose to all time yield highs and there's trouble again in Portugal as Banco Espirito Santo was down -10% on the day at 1 week lows.

As for the major event tomorrow we find out what's what with GDP at 8:30, the US "may" be in recession this time tomorrow. Typically two consecutive quarters of back to back negative growth signal a recession, but some purists believe that GDP must print at least +2.9 or else the entire first half shows no growth and we are thus in a technical recession, although I doubt the mainstream financial media would consider it as such.

As for tomorrow's F_O_M_C policy statement (meeting begins today), I don't expect much although we have to always beware of the F_E_D knee jerk effect that is so commonly seen and so often incorrect or faded at some point. I doubt the F_O_M_C will release anything too market moving UNLESS that's specifically what they want. The fact is that employment and inflation data have been somewhat inconclusive since the last meeting with inflation data moving pretty much sideways, while employment data  has toned up a bit, forward looking forecasts from manufacturing and services reports have al shown expectations for, if not real declines in employment moving forward. Business and Housing as well as wage growth/inflation have certainly been softer since the last meeting, but I just don't think the data has been firm enough to make any solid decisions based on them, unless as we have suspected, the F_E_D is already on a preset course that is data independent. Just this week the F_E_D's Fisher wrote in the WSJ that the F_E_D should/may consider shrinking the reinvestment of assets in their portfolio for the first time, essentially rather than letting assets mature and roll off the F_E_D's balance sheet, this would be active balance sheet contraction. If you ever want to see why they say "Don't fight the F_E_D, look at a chart of the size of the F_E_D's balance sheet with the SPX overlaid. Still I'd be aware of the knee jerk effect and I'm keenly interested to see if there's a change of character there as well as we usually see it 90% of the time.

The ECI and PCE inflation data and NFP non Farm Payrolls later in the week will be much more solid data and I seriously doubt the morning's GDP release will change the statement at that point, so I'd expect the September meeting to stir the pot much more than tomorrow's policy guidance. 

Keep an eye on our HLF short today, I'll follow up on GLD/GDX and of course Z.

Daily Wrap

Last Friday in the The Week Ahead post, when I said,

"My opinion is other than maybe some minor noise, the trend should move down, this will be reestablishing the preceding down trend in the Russell 2000 that has been in effect since just after July 1st as Window dressing for Q2 ended."

I meant minor noise as something like a gap fill from last Friday, today was true "minor noise" and not without repercussions for the market.

While we had a mixed close with the SPX + 0.03%, Dow + 0.13%, NDX +0.05% and R2K -0.46% with obvious weakness in the IWM, breadth saw more damage and the 3C charts themselves saw more damage than I'd expect for such minimal gains. For instance...

SPY 5 min after a positive divegrence at intraday lows this a.m. sees a deeper leading negative divegrence at the close.

QQQ 5 min intraday after a positive divegrence off the a.m. lows ends with a leading negative,  any bounce seems to be sold, even intraday.

IWM 5 min leading negative.

Transports are down for a 3rd consecutive day, -1.12% and close to the area I wanted and expected to see them break on an Ascending (bearish) Wedge.

The break above the wedge is my preferred shorting area on a head fake move, there is plenty of distribution in the area.

The VIX remains within its bullish Rising 3-Methods consolidation/continuation (bullish) candlestick pattern.

A textbook Rising 3 Methods has 3 candles inside, but it really doesn't matter how many as long as their real bodies remain inside the large bullish candle.

SKEW remains in the red zone and elevated for its 27th consecutive day.

 There was no MSI short squeeze on the open unlike last week, at least until Friday. The MSI has also been unable to hold any kind of short squeeze even when we have semi-decent signals for a bounce, they are just distributed almost immediately on any thing that resembles strength.

I showed you the AUD/JPY earlier which was in charge today and the negative divegrence in $AUD single currency futures, this is what the pair vs ES looked like...

AUD/JPY notmal hours (red) vs ES (purple). I saw a negative 5 min divegrence in $AUD today and thus far it has started to move to the pair...

AUD/JPY which had no negative divegrence to speak of earlier.

HYG was down as expected (remember when we expected a bounce HYG only had a 5 min positive so that can only take it so far.

High Yield Credit continues to diverge from the semi-exuberance (if we can really call it that) in stocks and is more grounded in reality...

HY Credit vs SPX.

As for our Leading Indicators, while there were no "jump off the chart smoking guns", they all deteriorated noticeably, much more than last week when most were at least in line, this includes Credit & professional Sentiment.

Of the 9 S&P sectors, 6 closed green, but the only one with a decent gain was perhaps not surprisingly...

The Defensive Utilities, way outperforming anything else.

Of the 239 Morning star Industry and sub-industry groups I track, only 97n of 239 closed green, this is a trend carrying over from last week of poor breadth.

Some breadth indicator examples...

 Percentage of NYSE stocks Trading 1 Standard Deviation Above their 40-day moving average is clearly negatively divegrence on the biggest tare of the year in a market that's not in correction.

 The NASDAQ Composite's A/D line which has fallen out since May, but has just gotten worse since July 1.

The Russell's are joining the Composite, the R2k A/D line above. The Comp., r2K and R3K have all ticked down the last 4-days consecutively.

Stocks 2 Standard Deviations BELOW their 40 and 200-day moving averages are near 2 month highs, Stocks  1 Standard Deviation BELOW their 200=day moving average are near 3 month highs & Stocks above their 200-day moving average are near 2 month lows, there are more, this is just an example.


There was no Dominant P/V relationship today. The only thing I see that might suggest a little noisier bounce are several of the major averages with "Hammer" candlesticks on a slight increase in volume which typically is a pretty decent indication of a close higher the next day, although the volume didn't stand out. A little more of a bounce would be welcomed as I said Friday in the "Week Ahead" as there are a number of assets that look like near perfect shorts, just too close to an obvious head fake area that needs to be taken out and can be used as the entry.

bRemember we have a ton of macro data, GDP, the F_O_M_C and Non-Farm Payrolls this week.

On another note...

 NYSE margin debt has recouped virtually all its losses and is now essentially back to all time highs,  investor net worth, defined as total Free Credit Cash and Credit Balances in Margin accounts less Margin Debt, has once again dropped to all time lows.

Lets hope al of these margin calls don't come at once, well depending on how your positioned you might hope that they do, I suppose I would hope that they do... BUY THAT DIP!