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Thursday, October 16, 2014

Wolf on Wall Street Stock Market Forecasting

Tonight's Wolf on Wall Street End of day, Daily Wrap...

Usually I reserve these for Wolf on Wall Street members and post the previous night's analysis so you can see how our forward looking forecasting works, but I see a huge opportunity brewing and I'd hate for my loyal readers to miss it. We at


have already been positioning in sleet assets for what looks to be a rip your face off move after gaining over +20% on my entire portfolio over the last 3+ weeks, I think this has the possibility to double that and I'm talking about full portfolio, not a single position.

In any case, I hope you enjoy the post and if you like, check out the links on the upper right side of the site under "Directory" to learn more about Wolf on Wall Street membership which gives you access to analysis and ideas as they happen.

Daily Wrap
October 16, 2014

Objective data, you'd think price is the most objective data there is, but in fact, it tends to be the most deceiving data there is. For instance, if you reacted in pre-market to overnight futures in which the Dow was down at least 150 points or more, you got pillaged by the market, not exactly objective data.

However, take last night's Dominant Price/Volume Relationship, one of the most overlooked objective data points,

From last night's Daily Wrap

"Close Down and Volume Up, a short term oversold signal as I mentioned before that often leads to a bounce the next day and often beyond."

From that one data point we not only rose from the early gap down ashes which 3C pre-market on the Index futures predicted in the A.M. Update with an opening positive divegrence and upside recovery...
overnight 3C chart to pre-market from this morning's A,M. Update with a positive divegrence going in to the open.

 On the whole averaging the averages, we had a green day today, even though the headline I see most tonight is "Dow Closes Down for 6th Consecutive Day", breaking a streak not seen in 14 months, still a good 182 points off the morning lows!

While only 1 of the 4 averages hit yesterday's lows this morning (I would have preferred them all hit yesterday's lows to show stronger accumulation) , that average, the NASDAQ 100 also showed some of the best intraday work on the positive divegrence, it were those positive signals and the work being done to establish a strong bottom in the NDX which led me to chose the QQQ for an initial Call option position entered today, Trade Idea (Speculaltive Options Call position) QQQ.

I started last night's Daily Wrap with,

"Looking at the market from yesterday's perspective, I entered some partial positions based on the fact I expected, “because I think there can be some more work done in the area.”

So today's market action with the exception of the IWM, fit nicely in to forward looking expectations for the day, which were also posted Wednesday before the close with closing divergences all suggesting a lower open in every average except the IW a 3C concept worth remembering as well as the minimum target based on where a divergence started.

Also form last night's post, 

"The R2K ended the day with a bullish Engulfing Candle just a little bit after I had said I was considering going long some leveraged IWM ETFs,"

Tuesday's bullish Doji Star and Wednesday's Bullish Engulfing candle on increasing volume, is a strong confirmation of next day upside, the volume is key.

We also talked about VXX and VIX futures distribution last night, with spot VIX posting a strong downside reversal candle yesterday and today (remember the VIX moves opposite prices)...
After hitting the highest intraday price since December 2011 yesterday, the VIX closed with a bearish Doji Star reversal candle confirmed today with a bearish Engulfing candle. While this is strong confirmation of a downside move in VIX, I have to wonder if it's immediate begin we have a max-pain options expiration tomorrow, or in fact we might assume most contracts are puts and a higher close in the averages may in fact be where max-pain is, however the point being, the 1-day signal may not be as important to the overall pattern we have been observing almost since the start of Q4  which we predicted the last week of Q3 during window dressing, just by watching the objective data in the form of breadth and specifically the most oversold stocks. Either way, yesterday's VIX futures and VXX distribution played out perfectly today, a real forecast much more objective than price itself.

IF YOU ARE A NEWER MEMBER, YOU ARE PROBABLY FIGURING OUT BY NOW THAT WE DON'T FOLLOW LAGGING INDICATORS LIKE MOST OF TECHNICAL ANALYSIS, for instance a moving average or MACD is a lagging indicator, it has already happened, WE FOLLOW UNDERLYING TRADE, WHAT SMART MONEY IS DOING WHICH WILL ALWAYS GIVE US AN EARLY HEADS UP, THE  CHALLENGE IS DETERMINING WHERE THE HEAD'S UP TURNS TO ACTIONABLE TRADES, but I'd much rather have an idea of what's coming than follow price around led by the nose.

Like yesterday, again the Dow Transports lead the Industrials, a Dow Theory divergence with transports up +1.12% leaving the two looking as follows...

In green the Dow Transports led the Dow Industrials lower until recently as they have led the Industrials higher if you are a fan of Dow Theory confirmation.

And today the move in transports certainly can't be blamed on oil as our Monday USO long call option position, Trade Idea (Short term Call/Options) USO was seeing green with USO as today's USO Update shows, we should expect more upside there. Our IYT short is still at a +5% gain and I have no problem leaving it in place as a core short.

Contrast and compare, if the SPX's volume was the highest in 3 years yesterday, then today's ES / SPX E-mini Futures volume, was abysmal, a strange back to back occurrence as noted earlier this morning with a chart from NANESX showing the absolute failure in liquidity, although yesterday's high volume looked like short term downside capitulation and when I say short term, I mean as in about the length and strength needed to give us the bounce the 60 min IWM charts are depicting which would be a monster bounce.

From this morning's A.M. Update...
The E-mini liquidity yesterday in orange vs this morning's in purple, a huge difference, so why 3 year SPX volume highs one day, possibly capitulation followed by ULTRA thin liquidity the next?

In fact, liquidity was so low, this is what happened this afternoon on a 500 contract TF_F / Russell 2000 transaction, only 500 contracts did this...
See the spike, that's from a mere 500 contracts in R2K futures...

My gut feeling..., other than what this portends for the future as the market really crashes and HFT's pull all liquidity making it nearly impossible to get out of a decent size position without running through the bid stack and the completely insane volatility (which I noted this morning doesn't mean down, it means crazy moves either way), is the assumption that today's move in R2K futures had more to do with options expiration tomorrow which is a monthly, not weekly and I suspect most options are puts and most are in the R2K, meaning a higher close/move will send the most possible percentage of contracts expiring worthless, a brief pause in our longer term upside bounce projection which may not be done building out to collect some easy op-ex profits as the pin causes most options to expire worthless letting the writers of the contracts (almost exclusively smart money), make a quick and very easy buck.

Right now, this is the most dominant pivot/trade on the table...
When a 60 min chart is leading positive, you have a huge amount of underlying flow, and as predicted during the last week of Q3 and during window dressing, all of the dogs/small caps which are evident by the breadth charts as well as the 50+% of NASDAQ Composite stocks in a bear market -20% decline that were sold during window dressing, are going to be looking excellent for an oversold bounce , essentially buying back the same stocks sold during window dressing at a deeper discount to bounce the market as sentiment is throughly bearish.

Index future price action around VWAP smells of accumulation, although I don't think we need extra evidence, just take a look at R2K futures vs VWAP...
Larger volume during regular hours at or below VWAP smells of accumulation and the light selling volume at the upper standard deviation, typically to send prices lower without letting go of too much of the accumulated inventory is a classic pattern which we see here in R2K futures.


Interestingly for the second time in as many days, F_E_D regional presidents have been making QE noises, first the San Francisco F_E_D talking about the "possibility" of QE4 and today, Bullard's comments to Market Watch that "perhaps", QE 3 shouldn't be phased out so quickly.

This is all Draghi/ECB playbook propaganda. As the F_O_M_C minutes showed, the F_E_D is concerned with the $USD's strength and the effect on growth in the global economy, thus I don't believe for a second, not even a 1% chance that they are seriously considering QE4, I believe they are doing what Draghi has made in to an art form , Jaw-boning the currency to where they want it without actually doing anything. You have to admit, 2  F_E_D presidents in 2 days, all of the sudden talking about the one thing that we know will knock the strength out of the $USD at a time when $USD concerns of strength emerge just a week earlier. However, for our bounce purposes, after this morning's Initial Claims came in, all but totally eliminating any F_E_D accommodative policy, just hours later we get the one thing that would restore some "HOPE" (the Obama kind), that the F_E_D actually does have retail's back. I suspect this will be a centerpiece theme to any upside market move once the shorts are drawn in once more and run out of town on a sharp/volatile move. It was obvious from retail sentiment reports today that they were looking for the IWM to hit the area it hit to enter shorts, thus one more go-round knocking additional shorts out of the trade with a swift upside move would create intense head fake momentum as shorts first cover, reducing supply followed by longs entering on a short squeeze, even further reducing supply, the whole point of a head fake move, insane momentum without spending much if anything at all.

Today's market and $USD reaction to Bullard's QE4 comments...
 All of the major averages bump up on Bullard's QE 4 comments...

However, the real target, the $USD saw a small decline on the comments, mission accomplished? Hardly... Which means in the days and weeks ahead, expect more "Dovish " sounding F_E_D soundbites, perfect for a market rally/bounce.

While Bunds hit a new record low yields on a flight to safety as Europe is likely already in the rip of a triple dip recession, although the periphery saw the opposite happen with Greek bonds up 200 basis points in yield this week alone, I have suspected that TLT (20+ year Treasuries) as well as 10 and 30 year treasuries have been selling in to higher prices with asset allocation in to risk assets and it looks like we have evidence for that, in other words, smart money "seems" to be moving away from protection and the Flight to Safety trade to the "Risk On" trade or our market bounce... You have to remember, accumulation is in to lower or stable prices while distribution is in to higher or stable prices, otherwise they'd drive price against their position and one of the greatest recent examples of this is Apollo Group's Black saying last May they have been net sellers of "Everything not nailed down" for 15 months, not because they were wrong on the timing, but because a moderate size position can easily be a billion dollars in a single equity, in other words they have to feed those shares out slowly as to not crash their gains.

 This is the daily TLT chart, 20+ year Treasuries with our pullback call at #1 on a channel buster and distribution, but it was a pullback call , expecting new cycle highs to be made after the pullback. At #2 we called a bottom or end to the pullback and a buy area and at #3 we have what looks like a blow-off top and on huge volume.

As for asset rotation from risk off to risk on...
 TLT 60 min is in line with IWM 60 min, confirmation as the two are opposite each other suggesting a decline in Treasuries as the resources have been moved to risk on assets like IWM long.

10 min TLT distribution after upside confirmation off our pullback.

30 year Treasury futures, $ZB_F with a 60 min negative like TLT

A 30 min negative

And a 15 min negative.


For forward near term expectations, remember this short term 1 min positive divegrence in 30 year Treasury futures.

As for the benchmark 10-year Treasury Futures..
 The same as 30 year and TLT, a 60 min negative divegrence in to the blow-off top.

 15 min negative

And a 2 min TLT positive divegrence like our ZB 1 min positive.

Whether the IWM keeps going from here or pulls back as I'd like to see over the next day or two (I say two because of the op-ex pin tomorrow), the clear trade and path of least resistance for the next swing pivot is to the upside. TAKE this 60 min positive seriously, we have seen huge bounces just on 15 minute positives.

What I'd like to see over the next couple of days and in this case days are a drop in the ocean, is a pullback in the market averages, that's what I wanted to see today, but beyond the a.m. DECLINE, WE WERE HIGHER MOST OF THE DAY. ACCUMULATION OCCURS IN TO LOWER PRICES...

 IWM 5 MIN, NOTE WHERE THE POSITIVE DIVEGRENCES ARE, AT THE LOWS OF THE RANGE.

 QQQ 15 min , strong timeframe, again note where the positive divegrences or accumulation are, at the low of the range...

SPY 15 min, another strong timeframe with divergences at the lows of the range which is why yesterday looked so god and why I wanted to see price near the lows of yesterday's range to do the same today.

So I'm looking for a pullback toward the lows of the range with higher 3C divergences as well as leading indicators, almost everything suggests that's a high probability and a couple of hours of divergences like yesterday near the lows of the range or EVEN a HEAD FAKE MOVE BELOW THE LOPWS, would give us the high probability/low risk entry that I'd feel comfortable in expanding my long position.

Remember the short term Treasury futures and TLT chart, it seems to me that's a possibility looking at them and the intraday negatives in the averages, although tomorrow is about one thing and one thing only, Pinning the market at the max-pain op-ex level to collect and keep all those premiums, after that we can move on, or maybe even after 2 p.m. tomorrow when the op-ex pin is typically removed as most contracts are wrapped up.

To give you some idea of why I said a day or two is a drop in the ocean as far as this move is concerned, look at the last time our SPX/RUT Ratio indicator and VIX Term structure were inverted at the August lows preceding the August rally...
 This is the August stage 1 base with the SPX/RUT Ratio positive vs the SPX and VIX Term structure inverted, a buy signal.

You may remember the rally after that stage 1 base completed on 8/11... Now compare the same indicators to now...

To the left the August base, to the right our current situation with a much bigger VIX Term Structure Inversion and a much sharper SPX/RUT Ratio positive divergence. If this is a bit hard to fathom, just consider volatility represented by ATR of the SPX...

The 4-day ATR of SPX during the height of the base was about 25, now it's nearly double that at 41 and rising, the volatility alone could make this a huge and powerful run, this is why I want to be involved, but for the right reasons.

With HYG under accumulation and VXX and TLT in distribution, the SPY Arbitrage would also be a lever for lifting the market (HYG up and VXX/TLT down), not to mention HYG on its own as a leading indicator under accumulation as shown today, HYG Update.

I hope you can see now why patience and the evidence that the base started October 2nd making it huge, is worth the patience....

As for breadth indications at the close, here's what we have, although it's small potatoes compared to what we are looking at.

Dominant Price/Volume Relationship...Tonight we have dual Dominant relationships which isn't hard to understand given the difference between the IWM and the rest of the averages the last 2-days.

The Dow and NDX are both Close Down / Volume Down, this is the least influential relationship, I call it, "Carry on" as it has no real next day implications, this also happens to be the dominant relationship during a bear market. There were 18 Dow stocks and 51 NDX stocks.

The R2K and SPX were both Close Up/Volume Down which is the most bearish of the 4 relationships with 905 of the R2K and 221 of the SPX, this usually has a next day close lower, although with op-ex tomorrow it's a toss up, but will be interesting.

As for the number of stocks in each of the majors above their 50-day moving average, the Dow has 3, the NDX has 18, the R2K 685 and the SPX 59. When I taught Technical Analysis for the Palm Beach County School system's Adult Education program, rather than teaching the intricacies of Dow Theory, moving averages were close enough with assets below the 200 in a primary downtrend, assets under the 50 being in an Intermediate downtrend, in other words, we are pretty oversold on a breadth basis.

Of the 9 S&P sectors, 5 closed green with Energy (surprise, surprise) leading at +1.79 and Consumer Staples lagging at -.74%.


Of the 238 Morningstar Industry and Sub-Industry groups I track, 156 of 238 closed green, similar to yesterday so the deep, deep oversold conditions have worked off and it looks like we are seeing a sub-intermediate or short term bottom being put in.

As for Breadth Indicators, largely positive indicating a shift in breadth. The New High/New Low Ratio, the 4 week version and the 13 week version were all up significantly. The NASDAQ Composite Advance/Decline line as well as the Russell 2000 and Russell 3000 were significantly up, the Percentage of NYSE Stocks Trading Above their 40-day moving average were up more than you'd expect and the the Percentage of NYSE Stocks Trading Below their 40-day moving average and 2-standard deviations below (the dogs and most shorted stocks) fell dramatically. In other words, considering the price gains or relative stability of the market, breadth has improved dramatically.

Last night's forecast in the Daily Wrap for both GLD and USO remains unchanged and the USO charts were right on today and that was without any significant decline in the $USDX, in fact pretty flat.

Stay patient, let the trade come to you. I think this one, as long as we are patient and wait for the strongest signals, is going to be well worth trading. Trading bear market rallies is one of the fastest ways to make money and we're not even in a bear market yet.





Wednesday, October 15, 2014

Our $NFLX Short Just Struck Silver, next stop Gold...

One of our core short positions at 


NFLX, just paid off, although the signs of distribution have been there for some time.

NFLX


Doing what most of us do, it's hard to stand back and look at the bigger picture when you watch the market all day every day, but that's where the real probabilities are and the shorter term trade of hours, days and weeks are to be viewed as tactical compared to the big picture's strategic view. As Jesse Livermore once said, "Give me TIME, not TIMING", fortunately our "outside the box" thinking, concepts and indicators try to accommodate both.

I have long called NFLX,  "One of my favorite core short positions"  for months now. Being a core short, unlike the trading shorts we are engaged in now, NFLX, like HLF, SCTY, etc. are core short positions I see no reason to try to trade around, but rather enter them at the right spot and just let them be, let them work for us longer term.

It appears in after-hourds NFLX's earnings have disappointed, actually, more specifically their Q4 guidance which is some thing I often mention with regard to earnings, "The market doesn't care what you did, they care what you're going to do",   therefore the market is all about perception and with Q4 Guidance coming in at $.44 (EPS) vs the consensus $.84 , perceptions just hit a wall and tell traders, "This last quarter was as good as it gets , thus there's no longer any reason to hold NFLX. The light new subs and ad revenue didn't help either, but like AAPL or MSFT before it, the growth story in NFLX is over.

We have 2 entry positions I have in the tracking portfolio for our NFLX shorts and as of right now, post earnings, they are up +21% and +30.5%.

I expect at some point market makers may have been caught with inventory at a loss and will look to get out of that inventory ... at some point, but a bounce won't change things for NFLX going forward and the large top we have been tracking is just getting started.

This is our long term 3C leading negative divegrence/distribution and a large top pattern. The current price in AH at the red arrow hasn't even broken the top pattern yet so I suspect over the months to come, we'll see much bigger downside gains in NFLX as a core short position.

Congratulations for those of you who believed and hanging in there. The objective evidence of distribution has been there, now significant gains accompany it. 

$USD Weakness coordinated?

These are excerpts from two posts from Wolf on Wall Street this morning....

On a side note, NANEX, the collector of all things market data posted last night that there was a surge in cancelled quotes yesterday, noting previously when this has happened it has led to a sharp V-shape upside move,

Here's the chart some are calling the F_E_D's hidden buy signal...

 Previous quote cancellation highs and the effect on the SPX (we had the most recent yesterday)...

The effect of these quote cancellation spikes...


And...

The F_E_D and BOJ Working Together?


Last night I mentioned the San-Fran F_E_D's president talking about the possibility of more QE, QE4 if in fact the market data suggested it. I dismissed this out of hand right away as a Draghi jaw-boning gimmick in which he has no intention of doing anything, but tlks big to manipulate the Euro.

We know from last week's minutes that the F_E_D is concerned about the $USD's strength on the global economy, I suspect that's what those noises from the San Fran F_E_D were about yesterday. Interestingly, overnight the outgoing Chief economist of the Bank of Japan said it may be time to start looking at exiting QE, this would create a strong Yen.

Take a look at the $USD weakness this morning on the back of Yen strength...

 The 1 min Yen chart this morning...

The 1 min $USDX chart this morning.

I've seen recent weakness in the $USd prompting me to believe that it was going to not only help crude, but US stocks and other dollar denominated assets as well.

This is the 5 min #USDX with a negative divegrence calling for a near term drop in the $USD.

And the bigger picture 60 min $USDX negative divegrence.

As for oil, it looks like it benefitted from the drop this morning in the $USDX...

Crude Futures (Brent).

It's hard to say if stocks have too at this early stage in the morning session, but it appears they are finding footing.

So did the BOJ and F_E_D just coordinate to knock the dollar lower on Yen strength and could that have something to do with yesterday's peak in order cancellations that some believe is a secret F_E_D buy signal?

Friday, October 10, 2014

Wolf on Wall Street's Daily Wrap and Week Ahead...

We've had a fantastic month, quarter and especially week with overall portfolio gains (using no options) at +7.5% on the week and +18.5% over the last 30 days, again using no options.

I usually post the Daily Wrap from the night before as members have to come first and I urge you to be careful with what is posted as you are seing one of a dozen or more posts throughout the trading day, but if you can gain some good from this and it helps you break frree from the sheep mentality of Textbook Technical Analysis and helps you think outside the box, then I'm happy as that's the way to beat Wall Street in a zero sum game.

From our member's site,


click the link above for more information or...


Daily Wrap
October 10th, 2014 posted by: Brandt



It was another day of volatility induced headlines such as we have seen all week. You may remember months ago the warnings that as we get closer to sliding off the top and in to a bear market decline, volatility will pick up and the days of new SPX all time highs on a tenth of a percent (+01.10%) gains that were celebrated so foolishly would be seen for what they were, foolery, no one in their right mind trusts a market that makes a series of all time new highs on nothing larger than a 0.25% gain. Also along with that warning was, "As volatility picks up, market unpredictability will pick up as well", that part we haven't seen so much yet, but there's always a ramp in volatility between stages like from stage 1 base to stage 2 breakout (at least in a healthy market) and stage 2 mark -up as it peels away from moving averages higher in to stage 3 top/distribution and stage 3's volatility pick up as we move to stage 4 decline which we are seeing now.

The headlines are fast and furious and other than keeping CNBC in business as viewership plummets. the headlines are about as useful as CNBC itself. For instance, here are just some of today's headlines:

"Futures a Sea of Red", "Stocks Rebounding", "High Beta Stocks Hammered", VIX at highest since Dec. 2012", "Stocks Decouple Higher from Bonds" and all of that back and forth was just from this morning to 12 p.m. today. 

For some other useless headlines, but certainly an exclamation point on the subtle negative changes in character seen since July 1st...

-Dow Industrials lose all 2014 gains, red on the year
-NASDAQ has worst week in 2.5 years
-Dow Transports worst week in 3 years (loving that IYT short)...
-S&P-500 closes at 200-day moving average (which is one of the head fake targets posted from yesterday)
-VIX second biggest week in 4 years
-Yields close at 2014 lows
-30 year yield (remember our TLT pullback and new high called August 28th) at 17 month lows
-10 year yields under 2.3%, lowest in 16 months
-$USD up 2nd day in a row (recall Wednesday's charts suggesting a short term $USD bounce followed by a bigger move lower to come) but first losing week in last 12 and worst week in 6 months.
-Gold best week in 6 months (glad we held on to the UGLD long)
-WTI Crude worst week in 9 months (Don't forget last week's Complete Energy post from Friday October 3rd, Energy Sector/Oil Update, that ended with the warning, "I'd stay away personally. However, I would consider what these charts are telling you about the global economy and how that impacts the stock market as well as our businesses, our homes, our every day life."

The simple reason for the back and forth of headline from pre-market to noon time is most likely exactly what I said last night in the Daily Wrap,

" without the Dominant P/V relationship, I feel it's a bit shaky and would suspect we spend a lot of time tomorrow in today's lower range, just as a gut feeling."

Which is exactly what we did as we saw a lot of short term steering divergences that suggested the options expiration Max-Pain pin effect was in play, usually until about 2 p.m. as most contracts are wrapped up, giving the market that choppy feel that generated one after another conflicting headlines before 12 p.m. 

 Here's today in the SPY to the right of the red line and yesterday to the left, with most of today spent in yesterday's lower range as the op-ex pin usually opens somewhere close to Thursday's close. 

The one thing we were looking for today as posted in last night's  Daily Wrap,

"I believe we are still on track and I believe a head fake move is still probable to give us a good timing indication, I couldn't think of a better day to get this done than tomorrow on an op-ex pin."

Note around what time the move lower that we need to see to confirm a head fake stop run and short magnet, actually headed significantly lower... Right after the normal op-ex pin expires between 2 and 3 p.m.

In fact...

One of the things we look for as the head fake move is only effective with it, is volume and we didn't see any strong volume during the earlier op-ex pin part of the day, only when we headed lower after 2-3 p.m. did volume pick up which is a prerequisite for any head fake move.

While there are numerous, very interesting signs and signals, patience is essential and this is where the emotion of greed comes in to play as I don't want to miss a move in such a volatile environment, but as posted at 12:49 today in, Quick Market Update

" I think we still need to be patient, I'm not convinced the low is in yet " and in fact it wasn't, the volume that a head fake move generates (one of the main reasons for the move), wasn't there at that point.

As for head fake moves, as I often repeat and did so this afternoon in the UNG/UGAZ Follow Up / Trade Management post, "head fake moves have to be convincing. UNG's break of range lows wasn't a convincing head fake move, however today's move in the averages was a bit more so...
The support area was so obvious, in the most watched ETF, there's almost zero possibility of any bounce without a head fake move lower first. Not to say all breaks of support are head fake moves, but in this case, it's a prerequisite to a bounce and I'd say it fall sin the "convincing" category. From what I understand from some of my sentiment followers, retail traders were long thinking support would hold and bounce. Hmm...

In fact, I told you already about the SPX target for a head fake being below the 200-day moving average yesterday in the post, A few Downside Target Areas which included the SPX breaking below its 200-day which it closed right at, the Dow breaking below its 200-day which it did, the NDX closing below its 100-day moving average which it did today and the R2K closing below it's 500-day moving average which it is about 9 points from doing or about 0.009% from hitting. So as far as head fake moves go, you can see from yesterday's post of expectations we aren't Monday morning quarterbacking, but expected a strong, convincing move.  The second and most important part of a head fake move is verifying it...

Interestingly, we had very few positive divergences in the averages beyond 5 minutes as of about a week ago and while intraday trade was earlier characterized as "steering" divergences to hold the max-pain op-ex pin like this 1 min chart that's nearly perfectly in line...
 1 min SPY intraday...

However, much like the 60 min ES positive divergence, we are now seeing clear SPY 15 min positives right at the "W" base anticipated, the red trendline is the area we expected a head fake move below today. I'd like to see 3C turn up from here early next week as well as the intraday charts, but those can turn very quickly, within an hour or so.

Surprisingly, we have a positive divegrence in SPY all the way out to...

a 60 min chart with a probable head fake move already in place which is an excellent timing indicator once it is confirmed.

The SPY is not the only one... as a divergence persists over a period of time it migrates or accrues on longer timeframes, all of the other major averages have the same 60 min positive as well.
 IWM 60 min

QQQ 60 min

DIA 60 min

This fits with the ES 60 min positive...
ES/ SPX Futures 60 min positive divegrence.


The 5 min chart has held up, but because we are looking at a bigger base than the typical quick swing trade, I want to see more than just a 5 min positive which is why we added the 7 min chart as well.

You can see that there was distribution in to the F_O_M_C Knee-Jerk reaction that we warned of as it's so commonly seen, plus the parabolic move wasn't going to hold. We have a slight NQ/NASDA 100 futures positive here, but this needs to be a clear and clean positive divegrence before we are ready to consider a long trade.

As noted several times today, UPRO was toying with my patience all day today, but I couldn't enter a position based on one very strong leveraged ETF, where we often first see signals and strong signals...
UPRO (3x long SPX) is not only a strong looking chart, but leading positive in to today's decline, calling it a head fake move. I suspect rather than the normal QQQ/IWM, SPY is going to be near the top of the list for potential long plays.

It was pretty clear to me today that we needed more time, especially as the potential head fake really didn't take place (judging by volume) until after 2:30 p.m. and it takes some time to accumulate the supply that is created. Leading Indicators weren't of much use today which is one of the best reasons to be patient.
 Pro sentiment was calling the market's bluff on the minutes rally Wednesday as it refused to move, but at the same time during the decline today it also refused to move lower, a positive divegrence followed by the earlier minutes negative divegrence, it's not screaming, but it's also not plunging.

 The same was true of HY Credit Wednesday as well as today, it was used as a leading indicator Wednesday and the same standards hold true today.

HYG tracked the SPX nearly perfectly to the downside so it is not leading at the moment, however the start of positive divegrences there may be some indication of what HY may be planning, along with the first minor inflows in to HY credit this week  which is the exact same thing that happened at the August lows/ cycle base.
 HYG with a late day positive in to lower prices and...

a larger, stronger 2 min leading positive in to lower prices today.

As for our VIX Inversion custom indicator and SPX/RUT Ratio Indicator...

First the red highlights are VIX inversion buy signals, I mentioned this week we got the first one since the August cycle lows and accumulation base of the first week. I also mentioned these run a few days early as you can see above.

As for the SPX/RUT Ratio, I've been showing this 60 min chart that has been suggesting the SPX move below the August cycle's base, completing stage 4 decline before it's ready, this is part was why I expected a head fake move this week.

However on anearer term basis... 
The same indicator intraday started flattening out and is NOT confirming the SPX's afternoon lows as it is still above the trend line, this indicator has been spot on since we introduced it.

Other wise, we are left with market breadth.
Interestingly, our custom NYSE TICK Indicator v. SPX didn't make new TICK lows in to today's decline, but rather softened to the upside a bit.

Our Dominant Price/Volume Relationship was Close Down/Volume Up, which is a 1-day oversold event with the following day usually closing green, think of it as mini-capitulation. In that theme we saw 13 Dow stocks, a whopping 81 NASDAQ 100, 756 Russell 2000 and a strong 241 of the SPX-500. A Dominant relationship among all 4 majors.

The S&P sectors unbelievably had 2 green of 9, Consumer Staples +.48% and Utilities +.47% with Tech lagging at -2.56%. Of the Morningstar groups, 21 of 238 closed green, a bit on the oversold side as well.

All breadth indicators declined as you might imagine, but BOUNCE OR NOT, REMEMBER THE PIER AND PILING ANALOGY I HAVE MADE ABOUT THIS MARKET? Look at these select breadth indicators and tell me you can't see how easy it will be for this market to just completely collapse...

 The NASDAQ Composite's Advance/Decline line (green) vs the NASDAQ Comp.

The Percentage of NYSE Stocks Trading Above Their 40-Day Moving Average  is at a measly 13.5%!!!

And  The Percentage of NYSE Stocks Trading Above Their 200-Day Moving Average is at 31%.

While this is a market on the brink and not coming back, it is also these very deep oversold breadth conditions that led to the July 31st post predicting a bottom and a bounce which was the August cycle, of course breadth only repaired for about 10-days before sinking again, but on a near term basis, we are deeply oversold by breadth alone, I don't count price.

I still expect we will see confirmation of a head fake move which as you can already see, gives us an excellent call option position as well as entries in to swing trade longs, I prefer the 3cx leveraged ETFs, but we'll only enter them after confirmation.

This has been a fantastic month and out longer term positions we have been setting up haven't even started the first 10% breakdown of the roughly 70% gains that are made in stage 4 as most are still stage 3 so we have a lot more gains to look forward to.

We'll be looking early next week for the signs and signals to enter new longs on a strong swing trade or non conformation in which case we keep managing short positions and adding to them when and where we can without chasing.

I'm really looking forward to next week, I can see some huge potential in all of this volatility.

Have a GREAT weekend.






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