Market Update-Deterioration as Expected

we're right on track from Friday's forecast of a little more upside before the market turns lateral and establishes a pivot/reversal process this week.

There are some signals quite a bit sharper than what the trend has been, I don't know if this has to do with the trouble on BATS causing dozens of mini-flash crashes like AAPL and related uneasiness with the fragility of the system (just wait until some real stress is put on the exchanges), or if it's the typical post European close selling we saw last week, or if it's the military incursion by China in to India, elevated tensions in Ukraine over the attack of a civilian convoy (What happened to MH-17?) or it's just as we expected to see this week, distribution getting uglier as this bounce nears its end, but this doesn't look good for the market.

 Friday afternoon our Pro-Sentiment Leading Indicators told us there was more upside, but things are not as stable under the surface, however this leading negative 2 min in QQQ intraday just after the European close is a little sharper than the trend of distribution through the bounce so far.

It's obviously not helping the position of the 5 min chart which has seen migration of the negative divergences/distribution and is close to taking down the base's 10 min positive which is the bellwether for this bounce (along with 5 min Index Futures' negative divegrence).

 The IWM which has had stronger underlying signals short term because it had not broken above even the first upside bounce target, but there's a pretty sharp divegrence there as well.

The SPY is also taking a good distribution hit intraday on this 2 min or for a bigger picture view...

The 3 min chart leading negative and looking like it may hit a new leading low.

My custom SPy/NYSE TICK Indicator shows the slow deterioration of intraday breadth as fewer stocks are trading in the green and more and more in the red.

The MSI was perfectly in line on the open , but now the Most Shorted Stocks are underperforming the SPY, so much for holding a squeeze.

And HYG which is one of the only levers to lift the market or one of the most popular has been deteriorating quickly, today is not helping.

MCP Update-Looks Like It's Getting Ready to Move Again

For a very long time I've suspected someone knew something about MCP and their main issue was one of raising financing, which was recently solved for now at least.

The chart below is why I've suspected someone with deep pockets has known some insider information about MCP, namely the financing that we have suspected as being the inside information someone had been privy too and accumulating MCP ahead of time before it came out (just at last earnings) and this chart is the reason I've held my long equity position in MCP, even though there have been numerous times I've considered closing it just to make better use of the funds.

 This is the 4 hour chart. For now I've been focussed on the continued positive divegrence at "b", although longer term I suspect we may look back and see a reason the divergence since "a" has been in place.

When Z recently reported, they announced a financing deal which obviously has been a while in the making. The way Z's price reacted after was more of a "sell the news" action, although often we see similar behavior when there's something bullish that comes out that was not discounted or known by the market, price will drop and give big money a chance to accumulate on the cheap while everyone thinks the market lost interest. This is what I'm a little perplexed by as the long term chart suggests someone has had inside information and been accumulating on it for a  long time.

Either way...

We see strong near term signal developing like the 15 min chart above this 30 min as they both see leading positive divergences in to lower prices, someone is apparently accumulating in to lower prices as if they didn't know about the financing deal, while longer term charts have shown the opposite to the point that we even specifically forecast MCP would get a financing deal based on the longer term charts like the 4 hour positive.

In any case, it's the recent behavior and divergences in to lower prices which are getting much stronger right now that is of interest.

Even short term timing charts like this 1 min are showing the same and below...

The 2 min (there's more positive migration of this divergence right out to the 30 min chart since the downswing from the 8/8 highs).

I wouldn't be surprised to see MCP pop very soon to the upside. For now I'll continue to hold the equity long position,  however if there were a sharp decline like June 3rd or July 10th, I'd look at entering some calls as we have done very well with those set-ups, buying calls on the cheap in MCP with excellent 3C confirmation for some very nice short term trades, but only if we get such a set-up, otherwise I'll just maintain the MCP equity long.

Z Position Update

Last Friday I had to sell my Z weekly calls as they expired Friday and luckily I got out at about the best place I could have on Friday taking a small loss on a small spec position , I wish I had done what I usually do and went with a longer expiration. In any case, right now it looks to be in a consolidation between support and resistance, I think support will win and resistance will lose and I suspect it will happen in the next day or so, so I wouldn't be very concerned about weekly calls (this Friday).

Here are some updated charts and a warning not to be deceived by any upside in Z.

 Z's 60 min chart takes away all the noise and shows this as the strongest divergence Z has seen on this chart any way. Z also has a nice rounding bottom for this size divergence.

The 15 min chart shows more detail with a clear positive just before the last launch to the upside and a larger positive presently.

Even the 2 min chart's trend makes the positive divegrence trend very clear. However since Friday there has been some resistance...

On a 5 min chart you can see just about where I exited Z later in the day and some resistance since with a relative negative divegrence from Friday through today. I think this is just a brief consolidation as Z is stuck between support and lighter resistance.

 This is the 2 min chart and its last positive last Thursday before gapping up Friday and basically flat like price since, but note how quickly the timing divergence developed, it took less than 3 hours, really about 2 hours to light the fuse so to speak as the larger divergences are already in place. Essentially for the next move up, Z is just waiting for this short term timing divegrence (intraday) and I think what it's currently working through is...

 This area on a daily chart of 50-day ma support and lighter 22-day resistance, I think the outcome is pretty predictable and resistance will give way, Z should see a nice move. However, Z may show a very nice move and it may be tempting to want to stick around for a while, be careful.

Z went on our radar because of the stronger 4 hour chart and others deteriorating badly in to price strength. Z is not recovering and going to go back to a happy story to the upside, it is a picture perfect chart of storm clouds brewing. I think you'll see a nice break in them and some beautiful sunshine, but I wouldn't bask in those rays too long, there are bigger storms ahead for Z.

A.M. Update

Friday I suspected we were nearing the end of our bounce off its base, I think it was a move designed to run a lot of deep out of the money protection buyers out of their positions since SKEW had been elevated so long and since it was apparent that those protection buyers were slowing as SKEW dropped.

In Thursday's "Daily Wrap" I put forth this theory and also noted as we neared op-ex that the upside ROC in SKEW was once again increasing, basically the older contracts were running off and going to expire worthless, but new contracts were being entered at an increasing pace late last week, I also though it might have something to do with the formation of the base and an expected bounce as well. The white arrow is how much SKEW advanced Friday alone, back in to the red flag area and you can see the increased ROC on the upside move from early August.

I suspect this is telling us that the bounce is nearing its end and downside protection which is normally bought in VIX futures is being heavily bought again in SKEW which means there's fear of an outlier, unusual move deep to the downside, a "Black Swan Event".

As for opening indications, not the best looking underlying trade, especially in Futures where the 5 min chart is my main barometer. It has been in line for the most part, now it's showing a clear negative divegrence, I almost always align my new trades with the signal of the 5 min Index Futures charts.

Here's the open and the 5 min chart...

 ES with a negative 1 min chart

NQ also negative in to the open...

And TF with more history showing a negative trend since futures opened yesterday.

The 5 min ES chart ( as well as NQ and TF) show almost all of last week negative and now we have a leading negative divegrence here, the first one since the bounce started.

As for the averages, I'll show the opening 1 min charts as well as their base charts in the 10-15 min range which I'm looking for strong deterioration in this week, most have already started.

 QQQ shows no confirmation as the open created a leading negative divegrence which had already been negative by Friday's close.

The QQQ 10 min base chart is just starting to see relative negative divergences, but now that the shell has cracked, deterioration can be very rapid.

 IWM was also negative in to the open intraday with no confirmation.

And is also showing deterioration finally on the base timeframe of 15 min.

SPY is in intraday leading negative position with no early confirmation attempt.

This is the only base that's still in line without a negative divegrence, but with Index futures' 5 min charts leading negative, I don't think it will be long, I expect we'll be in a reversal process sometime this week, where and when are the important questions and which assets are the right ones with the right timing.

A.M. Update

Ukraine made it through the weekend without the much dreaded invasion by Russia from last Friday's alleged shelling of a Russian military convoy, destroying most of the vehicles. Something felt a little awry Friday when no video evidence was presented and since numerous theories have popped up from an outright fabrication to perhaps a friendly fire incident with Ukraine possibly shelling their own armor, but one thing seems pretty certain, no Russian military was shelled or killed inside Ukraine, that news which sent the market in to a tailspin Friday.

Consequently, like MH-17, it's forgotten and back to risk on...

In the The Week Ahead posy I said, "There normally would have been more mileage out of a base with this much gas in the tank, but the distribution trend this week has been relentless".

I still expect more upside from the base as well as more distribution with it which has been the theme since the start, however I do suspect it will start turning sideways this week as well.

As far as the week's most anticipated event, Jackson Hole where QE2 was forecasted by Bernanke in advance, I don't expect Yellen to offer anything of significance, however that doesn't mean the market, which is running on hope right now, will feel the same between now and then.

I suspect this is the week we've reached pivot #2 or the more important action area, the action area that is in line with long term probabilities so I'll be looking for any opportunity, but likely looking to clean up any longs this week that are market correlated and starting to prepare my list of longer term position trades (mostly short) that I suspect I'll be looking at entering this week, that and looking for the best timing on an actual pivot in the market. Pretty simple really.

The Week Ahead

Today really skewed a lot of things, but just going from the trend prior to today, it wouldn't surprise me if we were very near the end of this bounce, maybe a day or two more, but I suspect we'll be seeing a lot more lateral (sideways) trade next week, a reversal process. which is where we'll find most of our short entries.

 SPY 60 min

IWM 60 min.

There normally would have been more mileage out of a base with this much gas in the tank, but the distribution trend this week has been relentless, Financials still haven''t recovered intraday. I suspect those yellow arrows will be heading sideways for a good part of next week with some volatility here and there creating short set up entries. I wouldn't add anything as far as market related longs at this point, I'd say we are right about at the apex or tipping point give or take a day or two.

Closed Z Weekly Call

Expiration was today, I got filled at $2.95 on a limit which ended up taking a -22% loss on the position,  I broke my own rules for options in buying too short of an expiration. This was a speculative position so not much damage done, but I'd rather salvage what I can while I can.

Market Update

As usual, after 2 p.m. (although I find it hard to believe the max pain pin was down where the Ukraine news took the market), we tend to see price move off in a different trend.

It seems our leading indicator, "Professional Sentiment" called this one out correctly, although the math on this is pretty easy, "You need higher prices and demand to distribute in to".

As for the Leading Indicator posted earlier...

Our Leading Pro Sentiment Indicator... (red) vs the SPY looked pretty clearly like there was a bit less fear about the weekend or at least the immediate future intraday.

 The IWM was reflecting that as well intraday.  I don't expect to see much in the way if distribution today as they need higher prices to carry that out which is the point of a bounce in this situation to begin with.

IWM leading 3 min with fast and strong intraday recovery.

QQQ 3 min with the same

And SPY leading price.

The TICK transformed from down to improvement to up , it took some lateral trade as usual.

One group that hasn't recovered very well (3c and price) is financials, so I may be closer to a FAZ entry than the broader market analysis would suggest.

I'm going to hold off on the weak ahead post until I see what trade looks like closer to the close. My gut feeling is that this bounce isn't over, but is pretty close to being over. Today was essentially a wasted day as far as the bounce/distribution goes, no higher prices, nothing to sell in to, but there wasn't a lot of panic either so I suspect we have some more upside ahead of us next week, but each move to the upside brings us that much closer to this bounce ending.

Z Should Continue Higher in to Next Week

The Z divergence is large, the base area looks right and there was really no damage done today, I see no reason this doesn't continue higher in to next week and maybe some.

 Z's 15 min positive is a beautiful chart and right where it turned lateral.

The 5 min chart has been ready to go for a move on the upside and...

There's been no damage to any of the charts for Z today, it's leading positive intraday and price is tagging right along with the divergence.

Leading Indicators and the 2 p.m. Pin

Typically around 2 p.m. the max pain pin is lifted as most contracts are cleaned up by then, today is a bit of a mystery though with the monkey wrench thrown in earlier today.

Intraday charts are holding their ground, not adding any really strong intraday divergences so far, but more or less halting any further serious decline for the moment. The overall trend since the bounce started hasn't changed much either.

For example...

 IWM intraday leading positive divegrence has halted downside and put a lateral consolidation in to place.

I believe the latest is there are high level talks between Ukraine and Russia scheduled for Sunday which may put investors minds at ease over weekend escalations.

The Custom SPY/TICK Indicator shows the immediate drop off on the Ukraine shelling news and a gradual improvement in TICK, there's a slight deterioration which shouldn't surprise me to see a pullback to intraday lows, that's where we'd get a good sense of whether they were accumulated for a continued move higher or whether they deteriorated.

 HYG is still leading the market, but apart from the Ukraine situation, the internals/3C charts here yesterday were already falling apart fast hinting the bounce is in the end stages.

HY Credit which has also been supportive and making higher highs/higher lows with the market this week saw a move lower this morning,  this was BEFORE the Ukraine news broke, so I suspect that this is another sign the bounce is losing it's legs, but likely not quite over.

What is interesting is our professional sentiment indicators just started flying intraday, it looks like pros are stepping back in the market and this may be due to the Ukraine/Russian meeting Sunday, taking some of the unknown off the table at least for the weekend.

At the same time, unrelated (largely) to Ukraine as this is a trend in place before, yields are leading the market lower and sooner or later stocks tend to revert to yields so while some new lows were hit on the Ukraine news, the trend has been in place, also suggesting we are getting close to the end of the bounce.

I would not consider this an end point as of yet, but I think the trend that has been in place all week is starting to take on a more serious posture.

As for the 10-15 min positives, not much has changed there. Remember the idea is to sell/short in to higher prices and today didn't offer that opportunity so right now I think we are close to the end of the bounce, but I don't think we are at the pivot just yet.