UNG UPDATE

While we're on Energy, I thought I'd update UNG which has its storage release tomorrow (EIA) morning.

So far, everything looks good....

 60 min shows the overall trend, which is why I've been patient with UNG, as long as it continued to show progress.

 The 15 min chart with what looks like a head fake move/stop run turned rounding bottom with a strong leading positive at yesterday's stop run just under the range I was willing to tolerate, so long as it didn't close below which it did not.

 The 3 min chart shows the confirmation of yesterday's head fake to hit stops and a positive divergence on that move.

And intraday on the fastest chart, we have confirmation with 3C making higher highs with price.

So far, so good. It looks like the worm has turned for UNG/UGAZ.

USO Update

This morning's 10:30 EIA Petroleum inventories came in higher than expected at +5.39 mm barrels vs consensus of 1.75mm barrel build with the last a draw of 3.062 mm barrels.

This initially sent crude lower at 10:30 on the report's release, but from everything I can see, we should still be expecting a USO/oil bounce.

 USO 1 min with the EIA release and a positive intraday divergence holding USO together from further decline.

The 2 min chart has no damage and the 5 min...

Still looks great.

This is one of those common scenarios in which once Wall St. sets up positions for a move, they rarely call them off, which is what makes the current market's 5 min chart so interesting.

Market Update

There's still a lot to look at, but so far what I see is pretty much in line with last night's internals which were a weak short term oversold condition, ripe for a near term bounce, which as you saw yesterday, is pretty much the only way we'll see distribution..in to higher prices (as the 5 min chart moved quite a bit yesterday alone, the first day of some gains, despite the fact they didn't hold.

 TICK intraday rather ugly at -1250, but some +1000 and a flat trend.

There's improvement on my custom TICK indicator as yesterday would have represented short term capitulation or a short term selling event leading to a flameout of sellers near term which can give the market some room to bounce. Yesterday's short term oversold signals were not that strong, unlike what we saw going in to January 5th, which is the cycle we are still stuck in, the Jan. 5th accumulation for a bounce that hasn't really played out as last Thursday the market was spooked by something, which now appears to be Obama seeking approval to send boots on the ground in Iraq, as we have mentioned before, US forces have been building up on the Iraqi border.

As for intraday charts, they are not clean and clear, there's a lot of mixing between timeframes which is indicative of the apparent change of heart we suspected we saw last Thursday before the small oversold bounce cycle could do much.

 QQQ 1 min is not showing anything very exciting, very close to in line, even for an intraday chart.

The same applies to QQQ 2 min. The two main features are the original accumulation around the 5th/6th for an oversold bounce and the sudden deterioration that looked like Wall St. got some scary news last Thursday and was looking to reduce any long exposure, even very short term bounce exposure.

 And the 5 min chart which is as far as the oversold bounce positive divergences made it. Again, the main features are the positive and since, the negative. The chart is still in limbo so until it gives a strong 5 min negative divegrence, I'm inclined to be patient and keep things as they are unless an unreal opportunity crosses our path.

 SPY 1 min not looking so great so far today, but price is lateral, which is a big change compared to the last 3 days.

 2 min isn't telling us anything currently, but recently it has been negative since the small stage 1 bounce base was put together (white).

 SPY 5 min, which is not in good shape, it's not what you'd expect from an asset that was putting together a bounce base or actually did put one together, but it is not past the point of no return, which is what I'm looking for along with confirmation before making additional moves.

 IWM 1 min does look a bit more positive intraday. I would not be surprised to see an intraday bounce at some point before the close.

 A closer look at the same chart.

The 2 min tells us little right now, except any possible intraday bounce has no support on the 2 min chart, which again, as we saw earlier this week with the exact same set-up, it meant near term upside followed by downside as there's no support beyond the initial move on the 1 min chart.

 And IWM 5 min which is the closest to the point of no return, it just needs a little more confirmation/3C downside.

 I think concentrating on near term charts so much makes you lose track of why we are looking at them, what comes next? So I've put together some of the slightly longer charts, what to expect after this cycle resolves and wraps up.

 IWM 15 min leading negative since the strength of the October lows.

QQQ 15 min needs no commentary. This is why I would use price strength to sell/short in to.

SPY 30 min needs no commentary.

And the longer term, primary trend 6 hour SPY, shows you how bad things are, how close we are to that cliff if not already having stepped off it.

General Update

There's quite a bit that has transpired over the last several days, more specifically last night/early this morning and continues.

The commodity complex has been hit hard...

 Commodities vs the SPX- 60 min.

This time the overnight rout wasn't in crude as per usual, in fact as I said yesterday, I think crude is as good a place as any right now for a bounce...

 USO 5 min positive. The caveat of course being, this is no trend change, but could be a very sharp move to the upside on a massive short squeeze.

Natural Gas is also up...

I've been watching UNG carefully and recently added to the UGAZ long. So long as UNG stayed in the band in white, I was okay with it as stronger divergences were taking over and this morning it has gapped up (15 min leading positive).

It was Dr. Copper who was pummeled in the overnight session on a collapse in Chinese demand which accelerated a bout of margin calls and stop-loss selling.

 Copper vs SPX 2 min chart with copper's fall on opening trade in yellow.

Copper is now at 5.5 year lows (red) vs the SPX.

The larger message here is Global growth concerns which brings us to another overnight event, the World Bank downgraded Global Growth for 2015 from 3.4% to 3%, the US being one of the few countries not downgraded. Copper is called "Dr. Copper" because of its forecasting features for global growth, the action in copper has not been supportive of growth or the market.

As already mentioned, we saw crazy 900 point round trip volatility in the Dow yesterday, nearly -600 points off yesterday's highs to this morning's lows.  The larger story here is volatility picking up which is not bullish where we are with the charts we have. However it's not a one way street, it just doesn't tend to end well for the market. Watch for increasingly more unpredictable market moves, especially to the downside and on gaps as volatility increases.

Overnight the main event scheduled was the top European court, The European Court of Justice (ECJ), expected ruling on whether the ECB's OMT program was legal as the Germans charged it was not, which has more to do with ECB QE and whether it would be legal than anything. The court ruled that OMT is legal under conditions, so there's a legality and a conditionality, this sent the EUR/USD lower pretty sharply after the 4 a.m. announcement...

EUR/USD spikes lower on ECJ ruling, setting the path for QE. Shortly after that Draghi announced that the ECB is ready to buy government bonds, however the anticipated sell-off in the EUR/USD didn't amount to much of a reaction , a mere -15 pip move in the pair, it seems ECB QE is fully priced in.

This hasn't done much for European markets either with the FTSE 100 down over 2%, the Dax -.75, the CAC-40 -.73%.

Kocherlakota, a non-voting F_E_D dove also was out again telling Reuters he does not favor a US Interest rate hike in 2015.

Then this morning at 8:30 US Retail Sales missed big, down .9% month on month vs a -.1% expectations. 

All of this bad news, would normally be taken as good news. The World Bank growth downgrade, the badly missed retail sales, all point to the F_E_D's inflation target of 2% not being hit, in fact just the opposite, which would presumably stay the F_O_M_C's hand longer before raising rates as they want to be reasonably sure inflation will move to 2% before hiking rates, so all of this bad news would almost always be taken as good news and it may still be, which is why until those 5 min charts are destroyed, I'm careful not to call anything or load up the truck on new trades, but rather stay patient as I see the current position of holding current shorts an almost no lose proposition, they either keep working as they have been or we get a bounce to short in to as charts beyond 5 minutes are destroyed.

These charts are form earlier this morning, but still they show some interesting things, although I don't usually look at them this early in the day.

 The pro sentiment indicators which have been a few I've been waiting to see decline as confirmation of the 5 min charts going south made a sharp move lower this morning and recovered quite a bit, but it was the first really sharp downside move since the bounce/accumulation was put together around the 6th of this month.

HY Credit is also looking troublesome, HYG is not looking good this morning and this is one of the first go-to levers for ramping the market.

HYG gaps down, 3C negative as well (1 min intraday).

 The 5 year yields have seen price this morning roughly revert to their short term mean, however the 30 year yield continues to lead lower...

30 year with today's drop lower in red (5 min chart).

I have a lot of charts to look at, but I'm still looking for those 5 min charts to fall apart.

SPX;RUT and VIX Term Structure Buy Signal

As you know from the last couple of days and pretty plainly yesterday and last night, I expect to see a bounce here and I expect to see the 5 min charts fall apart through it.

A LOT has happened overnight with some strange reactions, but the fact is this 5 min chart we have been watching is on a short term oversold basis, the Dow is off some 900 points from yesterday's highs, that's a short term oversold condition.

In any case, my two custom indicators, SPX:RUT Ratio and VIX Term Structure are both flashing a bounce here and where we are, it's actually not a bad little head fake move to set it up.

Very short term signals on a 1min chart this morning, but they are there and there is the catalyst for a bounce and it is what's needed to see the 5 min charts definitively deteriorate and give a strong sell signal.

I am sticking to my plan which is to sit tight in the shorts I have open and add to on price strength and confirmed 3C weakness.

I have a lot more for you, things are just happening at a pretty fast clip.

Daily Wrap

I'll make this quick and informal.

Once again, we saw an overnight ramp of Index futures higher and as 3C early timeframes signaled, exactly what we expected from the as posted yesterday, Daily Wrap,  market happened...

"Toward the end of the day there were some pretty solid positive divergences in the 1 min range mostly, yet not much behind them so I suspected that we'd likely see a move higher tomorrow morning , maybe longer...However, no movement or migration to the 2 min chart which would normally tell me to look for some early gains and then a failure of those early gains."

 SPY gaps up this a.m. on an overnight ramp, shows the early strength and then fades hard.

In fact, the Dow swung OVER 950 points today.

This isn't that much different from Monday, with Friday's Daily Wrap forecast for Monday,

"After seeing some late day action, I'm thinking Monday will see weak opening trade, that's based on how the charts ended the day. These are the 1 and 2 min charts..."

Yesterday's overnight ramp on ECB QE rumors and a fade and then some on the open...

And from Friday's Daily Wrap with regard to what 3C said about Friday's action on Thursday...

 "It was very clear yesterday that we'd have a week start to the day and was posted numerous times yesterday, all based on the concept that 3C divergences pick up where they left off and we left off Thursday with some very ugly ones".

Other than the concept of 3C charts picking up where they left off on the cash open NO MATTER WHAT HAPPENS OVERNIGHT, I think the take-away here is Thursday we saw the first signs of a strange "spook" in the market. Friday, although it was an op-ex max-pain (weekly) pin day, early trade was aggressively sold. Monday early trade was aggressively sold.

TODAY, EARLY TRADE WAS AGGRESSIVELY SOLD. I don't think we can ignore that, since the seemingly spooked market Thursday which I suspect was an early head's up of Obama's "Boots on the ground" in Iraq, the market hates uncertainty.

??Friday and yesterday we have been looking for follow through from Thursday's signals, Friday being an op-ex day we didn't see any, yesterday being down most of the day allowed no opportunity to sell in to higher prices, but today for a brief while, it was different, we were up and the 5 min charts that had started to infuriate me because of no movement, suddenly have moved.

 SPY 5 min, not totally there, but way more movement then we have seen since Thursday's odd underlying 3C signals.

The Q's also moved, not quite there, although you know what we are looking for near term.

And the IWM, just about there, just a little more and a few confirming indicators.

As for next morning signals, it's very difficult tonight as the averages are all over the place, SPY has a 1 min positive, the QQQ and IWM are roughly neutral.

As per today's post,  I think we do get that bounce in Crude/USO, just remember the caveats.

USO ended with a nice leading positive divegrence for the day.


As long as we continue heading in the direction we are, which I suspect a monkey wrench as everyone knows what I just said above about the market the last 3 days, whatever everyone knows, isn't worth knowing, however I'd suspect a short term monkey wrench to throw the pack of the trail and I think the decay of 5 min charts carries on, likely while the monkey wrench is being thrown in there. As I said, they need higher prices to unwind those positions so the two ideas are not at odds, they compliment each other and they give us exactly what we want in doing so.

While the 1 min charts are mixed, ther are some hints along the lines of what I just mentioned above, namely the Dominant Price/Volume Relationship among the component stocks that make up the major averages.

While the Russell 2000 had no Dominant Relationship today, the rest of the majors did, the Dow with 14, the NDX100 with 52 and the SPX wwith 220, the relationship was Close Down/Volume Up. This is EXACTLY the same next day concept as the parabolic drop today on big volume, it typically signals the end of that move and the start of a relief bounce which I suspect we see tomorrow with distribution in to it.

The S&P sectors had 7 losers, 1 gainer and 1 flat. Utilities outperformed at +0.28% and Materials underperformed at -1.12%.

Of the 238 Morningstar groups, 107 closed green, the rest red.

What I like about these internals is that they are not extreme, they do point at a bounce, but not an extreme one which would fit with the 5 min charts falling apart in to some higher prices.

Additionally our SPX:RUT ratio was positive at he lows today with a small VIX Term Structure buy signal as well, very small.

TLT also underperformed at the EOD, suggesting some help as they activate the levers (TLT/VXX/HYG). Speaking of which HYG outperformed at the EOD as well, VXX was in line so they also point to what we have been expecting today.

Yields are still very negative, but they can get worse while the market does it's thing, it would actually be a stronger signal for our timing purposes.

I'll continue to add more trade ideas that are on our terms such as today's, Tech Set-Up (XLK / TECS) along with the others, but remember, WE DON'T CHASE AND WHILE IT'S HARD, PATIENCE PAYS.

If I see anything in futures before I turn in, I'll let you know. Around 4 a.m. tomorrow morning an adviser to the EU Court of Justice will say whether the European Central Bank’s Outright Monetary Transactions program overstepped the law in a non-binding opinion that may signal whether QE must also be reined in. This is going to be a big deal for the market before the US open, however, it's a non-binding opinion and as JPM and GDS have pointed out, ECB QE is fully priced in, at this point there's little it can do other than disappoint if it ever sees the light of day, but just so you know if you see anything strange in the early hours around 4 a.m. EDT.

Tech Set-Up (XLK / TECS)

Let the trade come to you...

Just browsing around and looking at different charts in different stages, I'm mostly looking for charts that already have substantial damage, near term damage since the 6th and the possibility to bounce a bit in to a divergence. After looking at several I really like including SPXU (long)- 3x short SPX, I really like Tech as a short set-up (XLK).

Lets start with the macro or longer term view which is the highest probability over a period that covers a Primary trend.

 Just to establish that Tech has enough damage to hold a longer term primary bear trend, we'll look at these long term charts like this 6 hour, you should be able to see the divergence.

Since the October cycle which has been defining for the market up until now and will be until its lows are surpassed, the 60 min chart shows the entire cycle, but the distribution side of it is much larger than the accumulation side at the stage 1 area at the October lows.

 In what you might call a small H&S type top, the 30 min chart is very clear about the trend in XLK

Now for more tactical timeframes...

 This 10 min chart represents the oversold bounce cycle lows to the right and some others to the left, both sold in to strength with a new leading negative 3C low. Today's action on this chart alone is very interesting.

 We've been waiting since first seeing something wrong on Thursday for some 5 min chart confirmation, Friday was op-ex and not likely to produce anything and yesterday was a down day, not able to produce anything other than to show us that any price gains were sold off aggressively both yesterday and today.

From a tactical perspective, we want the trade to come to us. All of the charts above suggest that any upside move will see distribution in to the move so we are really just looking to confirm that.

 The intraday 1 min found lows like the rest of the market after a parabolic sell off of today's gains. This sets up a short term bounce that we are looking for rather than chasing Tech lower, we let the trade come to us.

The 3 min chart shows no positive strength in to today, so it's another chart suggesting high probabilities of a negative divegrence in to any price strength, confirming what we already see as a high probability and making any move reasonably higher an attractive short entry, either via XLK short (or puts) or perhaps a 3x leveraged inverse ETF like TECS (3x short Tech).

Market Update

This is where the 5 min charts should be cleaned up.

As you saw today, the 1-3 min charts are no longer ambiguous, they used the earlier price gains to sell in to, just look at the intraday TICK all day today trending down. To finish up and clean up the 5 min charts (and this is just from our perspective, from the mechanics of it, it's just smart money unwinding bounce positions like a reversal process, they are large positions and take more time, there's nothing any more meaningful about a 5 min chart to Wall St. than a moving average, they are reflections of behavior).

So you saw the parabolic move stall out and appear as if it will try to put in some upside gains that can be sold in to or shorted in to. The gas in the tank (accumulated shares) at the 5 min charts basically need to be sold off or drained in which case, the 5 min charts will look worse than they already do.

As for Leading Indicators, other than the seriously bearish yields...

 5 year (red) vs SPX (green)

10 year (red) vs SPX (green)

30 year (red) vs SPX (green)

All of which are pressuring the market to the downside... There's not a lot of other movement. There's a bit of deterioration in pro sentiment, but perhaps the biggest change that is underway is HY Credit, it is starting to finally take on a more negative local tone (long term is very negative).

 HYG (blue) vs SPX gave up all gains today and moved to red on the day. The market doesn't follow the HYG 3C divergences, it doesn't even know about them, they just point to the direction of HYG and the market follows HYG's price. Note at the intraday parabolic flameout, HYG went positive in a small area and led the SPX.

There's nothing wrong with this, these 5 min charts need to be mopped up.

The SPX:RUT Ratio in the middle also diverged intraday to positive at the lows and the VIX Term Structure put in a 1 min buy signal, very small, nothing like the one on the 6th or past ones, but indicative of an intraday low probably being established and giving you a chance to get in to some positions without chasing them which would have hurt even intraday today.

As for the 5 min charts, I'd say the Q's and SPY are about the same, definite deterioration, the IWM is worse and just about where we want it so any upside in the IWM would likely open up some small cap short sales or IWM shorts like SRTY (3x short IWM),

 SPY 5 min

QQQ 5 min

IWM 5 min.

This is opportunity. If we can get some price gains and keep these 5 min charts turning down/deteriorating, we have EXACTLY the edge you only get once in a while, this is why patience pays.