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Tuesday, April 14, 2015

USO / Oil Trade Set-Up

At Wolf on Wall Street we set-up trade probabilities in advance. We let the trade come to our members rather than chasing price around with no idea why and/or no edge or one we don't understand. Our edge is of our own making, not something that we don't understand and certainly not in a position that we don't expect in advance; it's not based on anyone else's opinions or analysis, but rather our own proprietary indicators. 

Rather than chase the market like sheep being led to the slaughter, Wolf on Wall Street members learn how to stalk the trade, let it come to us on our own terms at the place and time of our choosing and even simply walking away if the probabilities that are known in advance aren't confirmed by our own proprietary custom indicators. After all, to beat the market you have to see what the crowd missed and the crowd has never seen what we see every day, our advantage, our edge. As it has been said, "If you don't know what your edge is, you don't have one".

Below are some recent posts in which we set up our trades and market expectations in advance and let them come to us, confirm the probabilities we expect to see in advance before ever entering the trade and only entering the trade when we have a strong edge over the crowd.

After taking double digit gains today of nearly +30% for just over a day's worth of market exposure in GLD Puts, entered Friday around 2:30 p.m.

And then closing the swing position's OPTIONS part today around 10:45 a.m. on a probable near term GLD bounce,

we were able to preserve a nearly +30% gain for little over a day's worth of market exposure...

And come back to the position to fight another day, once again on our terms at the time of our choosing after we have confirmed the expectations we set in advance.

Today we entered a USO short/Put position we have had set up as a potential short trade since last week...

USO advance trade set-up from Thursday April 9th, approx. 4-days in advance notice and estimated target as we let the trade come to us.

Below is the actual USO Trade confirmation from today's post showing the signals in our proprietary money-flow indicator, 3C which was confirming the signals and the price target area we had set last week. In after hours, our trade is already at a significant profit

From our members' site,

USO Trade Follow Up...
Tuesday, April 14th, 2015

Here are the charts for the last USO / Trade update. I'm not including the /CL (Brent Crude futures), but there were signals there too.

Remember the original post was last week, Tuesday April 7th, USO Update as we saw a change in character from in line which USO had been since the previous update on MArch 31st, to showing a negative divegrence forming. That post was followed by USO Trade-Set-Up on Thursday April 9th and the open long position, Closing USO 1/2 Size Long Position was closed to retain small gains and prevent any downside risk, however USO was not quite where we wanted to see it at that point which was in the area of the 4/7-4/8 gap fill which USO hit today.

Here are the charts that led to the TRADE IDEA: USO SHORT (PUTS) just posted.

 The USO gap fill was not the specific target, although it was given as an area to set price alerts and an area expected to be filled and likely target. The actual signal for a USO short trade (although like GLD, the longer term perspective is that of a primary trend reversal to the upside as a large 2015 base seems to have good 3C accumulation/support for a trend reversal soon. In the meantime, I have expected a USO pullback, likely to the $16-00 area to broaden out and finish the base that has been under construction there since 2015 started. There are a lot of recent USO posts covering multiple timeframe analysis and the longer term perspective (long) with an upside reversal on either an intermediate or primary (Dow theory trend classification) upside reversal much like Gold.

Today's filling of the gap between the two red trendolines (yellow box) actually had NOTHING to do with the actual USO trade signal, it was coincidence and experience that our predicted area for a USO trade met with the right signals, it was not a price-based/target-based trade idea, it was a 3C chart based trade idea with the gap-fill as a probable area in which we might expect USO to move to before it was ready for a downside swing trade.

This is the USO 60 min chart. I had not updates USO until Tuesday April 7th since MArch 31st and the reason was that the 3C charts were perfectly in line with the price trend just as the market was last week with Index futures, thus we had no edge until the first divergence showed up last week when the April 7yh update was posted followed by a "Trade-Set-up" AS WE LET THE TRADE COME TO US ON OUR TERMS, AT OUR PRICE WITH CONFIRMATION OF OUR EXPECTATIONS.

Rather than chasing price like a flock of sheep, we set upo the USO trade expectations and let the trade come to us. As with any ambush HUNTER, PATIENCE is a prerequisite and one that we are often well compensated for. 

As the 60 min chart shows, despite the longer term positives and base, it looks very much like USO/Crude oil, still was going to pullback just as we have very similar expectations for gold.

The 30 min chart which has more detail than the 60 min chart above this one, shows the "In line" or confirmation status at the green arrow. 

This is an edge for us if we are already long or short a trade and 3C is telling us that the price action is confirmed and as long as we are on the right side of the trade, to remain there, however otherwise a divergence is our sharpest edge in a trade. This is the edge that only we have, normal retail technical indicators don't show the underlying trade action that 3C does as they are based on what PRICE HAS ALREADY DONE RATHER THAN WHAT IT IS MOST LIKELY TO DO.

 The USO 15 min chart is similar to the 60 min chart in showing negative divergences at the same two former highs, one which occurred today on the gap fill target that had been posted as a likely trade opening area (and one in which we should have price alerts set if you were interested in the trade idea).

 The 10 min chart confirms the same, at this point we have strong timeframes from 10 min. to 60 min all showing the same thing or "Multiple Timeframe Confirmation" as well as the Brent Crude futures showing "Multiple Asset Confirmation".

Intraday, the trend of the 1 min chart shows the last turn to the downside, which was also the same time I started updating USO again on Tuesday April 7 with USO Update as the 3C charts which were in near perfect price/trend confirmation had finally diverged.

Today's leading negative divergence as the gap-fill area was hit, is quite clear and jumps off the chart as I require of 3C divergences before deeming to be worth the risk.

We are still looking for a Swing downside target of approx. $16-$16.50 or so, but like GLD today, Closing down the GLD May $115 Putt Temporarily, if there's a reason to take gains off the table and a probability or re-entering the trade at a better price while preserving initial gains while adding to them on a subsequent better entry without having to lose any gains do to price movement or time decay, I'll post those alerts as well.

For now, I anticipate our downside target which has not changed since posted last week. Obviously a straight USO short or a 2-3x leveraged inverse ETF may be worth following a different strategy than option trades that can suffer greatly upon changes in price, volatility and time decay.

Best of luck!

Tuesday, March 31, 2015

Index Futures Update

The following post below, Futures' Charts Update was from charts collected before today's afternoon deterioration that broke local support levels around 3:15 p.m. However the charts which were collected before 3 p.m. EDT today in "Futures Charts Update", forecasted this afternoon's events, but even more so, our Daily Wrap posted yesterday forecast events with an excerpt from our "Daily Wrap" from last night and this afternoon's, Futures' Charts Update both below...

From our Daily Wrap Monday, March 30th 2015:
"USD/JPY looks like it's going to see some overnight downside, this should weigh on the averages (overnight) if it carries through until tomorrow and being the divergences on the single currency futures are pointing that way both on the 1 min, 5 min and 7 min charts, I suspect that's a fair possibility (see the ES correlation with USD/JPY the last several days - above).

Index futures don't look good either. They saw distribution intraday and that has put them in a worse position as the day has gone on as we have seen in the averages as well.

The bottom line is this looks like the kind of bounce I suspected and it seems to be falling apart rather quickly, perhaps because it didn't have that base, but again, this was expected to be more of a counter trend bounce, a normal corrective bounce rather than the other types we have seen earlier in the year which had specific targets and goals like to break the 2015 range and create a bull trap."

However even before that, Friday's post, 
"The Week Ahead" 
forecasted the following...

"Now a broader look at the week ahead using SPY...
This 10 min chart shows the F_O_M_C knee jerk move, the distribution in to it we expected and the complete retrace of the entire knee jerk move as I always warn, "Beware the F_E_D knee jerk move, 80% of the time it is wrong".To the far right a positive for a bounce, but no where near as large as the negative on the chart. As far as what happens after a bounce early next week, I want to use it to short in to or open puts as the bounce looks to end..."

Even posted here on last week, from our members' site, 

Wolf on Wall Street Market Forecast... a Bounce?

Now, today's Futures Charts' Update from...

Looking at charts, I find two mistakes people generally make, the first is they look at the asset they are interested in first rather than the broad market. It's a pretty well established concept and truth that about 2/3rds of any individual stock's movement will be determined by the broad market. The second most powerful force acting on any individual stocks' movement is the Industry group; Biotechs would be a great example and before that Transports. If the Biotech Sector is hot, the probabilities that just about any stock in the biotech sector will outperform just about any other asset is very high. 

In the case of Transports, they were very hot as a momentum play and therefore any asset in the Transport Sector would likely outperform the majority of the broad market. Likewise, since transports have become one of the worst performing sectors on the year (YTD),  it stands to reason that any transport stock , generally speaking can be expected to underperform. *There are exceptions to every rule or concept, but the market isn't about absolutes, it's about probabilities. Card counting , while frowned upon in Vegas to put it mildly is establishing probabilities rather than blindly accepting the hand you were dealt and letting fate do the rest, that's gambling.

I like to think we have much better tools and many more than simply card-counting to establish probabilities as anything less is simply gambling and lucky or not, over a period of timer, just like Vegas your luck runs out, thus we look for an edge in the market and that includes the way we look at the market, sectors and individual stocks.

Much in the same way I'd look at the broad market first and determine the most likely course which helps me establish the most probable outcome for any individual stock, imagine I was in a new area of land that is unfamiliar and I wish to set up a temporary residence like a tent as I'm passing through. I want to start at the longest charts or the widest view and see what the landscape tells me, then I may narrow things down to a specific area in which I want to pitch my tent whether that be on high ground to have a good vantage point or near a watering hole to have access to life giving water. Say after surveying the broad landscape, I've determined that there's a watering hole about mid way between the highest plateau that offers me a wide viewing vantage point and the canyon floor which I may wish to avoid because I don't want to be caught in an area in which perhaps a flash flood may put me in jeopardy. So after deciding what the larger prospects look like, I've narrowed things down to an area or the intermediate term in relation to the market (or perhaps sector relative performance). Now I want to take a closer look at the area and make sure wherever I decided to pitch my tent, I'm in a safe place, perhaps partially elevated to stay dry in case of rains and off beaten trails that may be animal/predator trails to the watering hole where predators may lurk , waiting for their prey. It's just rational decision making and the same applies for the market. The last thing I want to do is nail down my exact spot which is akin to picking the stock that best suites all of the prior observations I've made.

While the example may be a bit esoteric, it's survival the same as the market. You would not believe how many people do nothing but look at a stock with little observation of the broader market that we already know has the most influence on an individual stock's performance. I don't know if it is laziness or just not knowing better. 

In any case, in looking at Index Futures, I want to start with a broad overview, determine the most likely outcome or what I often call the 'strategic outlook", then I want to narrow things down to the "tactical perspective". In the context of out example, I may choose a location to camp at when in survival mode that takes the strategic outlook which is traversing the area safely and even better, using its resources to increase my chances of a successful journey. In doing that, I may have decided that the watering hole midway between the highs of the Plateaus and the lows of the canyon made the most sense from a safety, outlook or vantage point and survival perspective. Tactically I may even set some traps on the animal trails that are close to my camp, but not in the middle of it and thus I let the natural resources come to me rather than expend energy chasing or stalking prey. I know what the probabilities are and I simply set up my tactical trap to enhance my strategic goals.

Starting with the longer term Index Futures (I can't cover EVERY chart in every timeframe, but I did my best to pick the best chart representative of all of the avergaes') to gain a broad perspective (which we have done long ago)...

Starting from the broader view with the ES/SPX E-mini 1-day futures (*ES-SPX Futures, NQ=NDX futures and TF=Russell 200 Futures*)....

 The longer term strategic outlook is worse than this, we just don't have the history on these charts to show it, but this is more than enough.

Note the negative divergences or distribution in to the September highs to the left that led to the October lows which broke an important longer term trendline and set up some potential megaphone or Broadening Tops in several of the averages.

As 2014 transitioned to 2015, note the bad start to the year in this 1-day chart which is some of the strongest underlying flow of funds (accumulation/distribution concepts) as the 2015 Macro-Economic data is the worst start to the year in something like more than a decade despite the advantage of seasonal adjustments during the 1st quarter.
Just after that divegrence is a range that as well established and VERY visible, so much so in fact that I had said well before it occurred, that the market would have to run a head fake shakeout and set a bull trap ABOVE the range before we see any significant new lows that stick, it was just that obvious and just that easy to set up smart money's larger positions so they could sell in to strength and/or short in to strength just as tAppaloosa did reducing their equity exposure by 60% in Q4 2014 or Soros' SPY put position, expanded by 600% to levels not seen since Lehaman for Soros during the same period.

These are "STRONG HANDS", they don't run at the first sign of a bounce, their positions are large, they take time to set up and they have what you'd call conviction.

In to the move above the range, note the leading negative divegrence at new leading negative lows on a very strong signal 1-day chart, right where we expected that to occur as it was a head fake/bull trap allowing smart money to unload on retail who they knew would chase the breakout and the "all time new highs" title even if the market would then be at a loss YTD only weeks later.

The divergence to the right of the chart is the most important above as it shows the level of distribution in to what we forecasted would be a head fake move BEFORE it even started, it was just that obvious.

 The VERY strong 4 hour chart of NQ (NASDAQ 100 Futures) shows the same range area in yellow and the same HEAVY DISTRIBUTION at the head fake move above. This is the kind of resistance/range breakout that retail/dumb money has been conditioned to chase over nearly a century of Technical Analysis dogma which became mainstream analysis as the Internet allowed for the management of one's own account with cheap online discount brokers. In my view this was the biggest change of the last century to the market's and Technical Analysis as it was once an obscure asset in trading and is now a mainstream liability as Wall St. knows EXACTLY how retail will react to certain price patterns / price movement and that can be used against them. NOW MORE THAN EVER, PRICE IS TRULY DECEPTIVE.

Again, the leading negative divegrence to the far right is huge.

 The 60 min Index futures' chart are important, not as strong as the Daily and 4 hour, but important nonetheless. This is the 60 min NQ or NASDAQ 100 futures chart.

To the left there's an accumulation zone where we first closed QQQ/AAPL puts that expired as MArch monthlies, a good thing as well as the market bounced from there which would have eaten up all profits in both. It was also a base that we couldn't be sure if it was alone or part of a wider base as I initially suspected as we saw the negative divegrence sending it lower (red box) and a second base area formed in the area, making it look like 1 larger "W" base. However, I see no 3C indication that this is 1 larger base, rather it looks like 2 distinct bases, each has shown signs of failing or having failed.

As the newest low was just put in place and ready to bounce Friday as the Week Ahead post indicated Friday afternoon, we haven't quite seen yesterday's negative divergences move this far out through the process of 3C divergence migration (when stronger divergences moves to longer timeframes).

 I should have posted this chart before the one above, but it too is a 60 min Index futures' chart of ES/SPX E-mini futures.

Note the first base area from MArch 11th on , the F_O_M_C on Wednesday the 18th of MArch which we warned ahead of time would likely be  a F_O_M_C knee jerk event which are most often wrong and retraced as this one was completely.

This led to the second base area from last week which was posted as most probably moving up early this week (Monday) as it did, yesterday as you'll see there was strong distribution in to the move, oe of the fastest distribution events on a bounce. To be fair, past bounces have been larger and have had specific missions like to break above the 2015 early year range and set a bull trap.

As I have said numerous times, I view this bounce as PART of a stage 4 decline as a counter trend , corrective bounce to keep the market from becoming oversold.

 And the 60 min TF/Russell 2000 Futures chart.

The same initial March 11th base (start) is seen, the F_O_M_C knee jerk reaction and the retrace of all F_O_M_C knee jerk gains sending the market to the second base area, initially suspected to be part of a larger "W" base, but I see no evidence of that now as it has formed.

Note the distribution in to the F_O_M_C knee jerk gains and the total obliteration of all gains for any longs who chased the move, they are sitting on nice losses.

 Note how I've started with the longest timeframe and have been working my way down. Each chart slightly faster than the last, each chart with slightly more detail and each chart confirming what the big picture strategic charts have shown, this is multiple timeframe analysis and confirmation as well as multiple asset confirmation.

On the above, 30 min ES chart, the distribution in to the F_O_M_C knee jerrk gains is clear as it was on all the preceding charts as is the second base area from late last week.

However note that the more detailed 30 min chart, which is still a strong timeframe shows something the others don't yet, distribution in to yesterday's gains and today's broader prices in the same area.

 The 15 min NASDAQ 100 futures/NQ also show the accumulation of base #2 and the distribution in to higher prices as foretold or forecasted in advance last week.

 This is the more detailed Russell 2000 10 min futures chart, the base area is visible as is  the strong negative 3C divergence in to yesterday's gains as posted numerous times yesterday and in to the Daily Wrap as well as post cash market futures last night.

Coming back around from the shortest timeframes which will migrate to longer ones if they are strong enough, I want to start looking at those and see how the migration period or concept has progressed being we can see the 10 min chart above is showing CLEAR distribution in to yesterday's and today's gains or relative price stability in the area.

 This is the 1 min Es/SPX futures before the afternoon stop run. Note the positive divgerence pre-cash market open which was posted in this mornig's A.M. UPDATE  which was an extension of last night's FUTURES' forecast in the Daily Wrap from last night (see the first several paragraphs from this morning's post which are the last several paragraphs from last night's Daily Wrap in which this price action was forecasted based on the ugly charts last night).

The green arrow is the North American Cash open, the positive divegrence was after overnight losses which were (again) forecasted last night in the Daily Wrap.

The A.M. UPDATE post showed this positive divergence and the probabilities of higher prices in to the cash open, but we didn't have any evidence that the market would do anything different than what it did today, such as make a new closing high.

 The ES 5 min chart was used as an example (5 min futures) that there was strong distribution in to yesterday's gains and that this bounce, as put last night in the Daily Wrap,

"Index futures don't look good either. They saw distribution intraday and that has put them in a worse position as the day has gone on as we have seen in the averages as well.

The bottom line is this looks like the kind of bounce I suspected and it sees to be falling apart rather quickly, perhaps because it didn't have that base, but again, this was expected to be more of a counter trend bounce, a normal corrective bounce rather than the other types we have seen earlier in the year which had specific targets and goals like to break the 2015 range and create a bull trap."

I purposely show the 5 min Nq/NASDAQ 100 futures to show the same negative divegrence was present here as well and this as of this afternoon BEFORE the closing sell-off that broke near term support...
ALL OF THE INDEX FUTURES CHARTS IN THIS POST WERE CAPTURED BEFORE THIS AFTERNOON SELL-OFF THAT BORKE SUPPORT AND HIT STOPS (see the rising volume in the yellow box as price broke below recent support levels on large volume). This just goes to show how bad the condition of the charts were even before the afternoon decay, in fact the charts were forecasting the afternoon decay.

 Note how the TF 5 min (Russell 2000) 5 min chart looks better than the others on a relative basis? Look at today's closing action and you'll see the R2K, the only average last night with no Dominant Price/Volume relationship, outperformed on a relative basis. 

Still, there are numerous charts above showing weakness in the Russell despite the better looking chart (5 min) of the R2K ON A RELATIVE BASIS! (Approximately 1/3rd of the losses of the other averages on the day).

 Es 7 min sees migration from the 5 min chart to the 7 min chart, again this is BEFORE the closing ugliness.

And back to where we left off as we came back around to the short term charts, the Russell 2000 10 min trend showing the accumulation area of what has been called out "Second base" and the distribution from yesterday and today as well as overnight in to the gains and relative flat price range since yesterday's gains.

In retrospect you can see now why I said well before any bounce started, "I would NOT try to trade this from the long side, but rather let the market come to you on your terms and at a time of your choosing and open or add to short positions or sell in to price strength". 

That's what the best tactical plan was considering the probabilities were already laid out on the longer term strategic charts. As such, we were in a win/win scenario as any of our core shorts would perform on downside and any price gains would allow us to open new short positions, sell longs or add to existing shorts at better prices and less risk.

Even if we did nothing and just sat through it, we had a better tactical plan considering the strategic outlook.

I'll have more on today's update and what assets we might be considering and what the near term probabilities look like now that the charts from yesterday's Daily Wrap have been vindicated as having been accurate with all of the averages closing in the red as the Dominant Price/Volume relationship as well as S&P and Morning star internals suggested as well as the 3C charts of the cash averages and the 3C charts of the Index futures.

Tuesday, March 24, 2015

Wolf on Wall Street Market Forecast... a Bounce?

Every once in a while I publish the complete post from our member's site, 

Believe it or not, even though this is a member's site, I have a keen interest in seeing the little guy who doesn't mind hard work, beat the street and occasionally we are at areas in the market where you have pivotal moments that most people can't or won't see, they can be used to your advantage and as you'll see below in our DAILY WRAP. Wolf on Wall Street isn't just about forecasting the market, trade ideas, market updates, but rather teaching our concepts and things we've learned by viewing the market with a perspective that few if any retail traders have ever seen. A lot of what you see will make sense, some will not because there are other posts linked that members already know all about so take what you like and leave the rest, hopefully you'll find some value in the work we do to help the little guy beat the street. Feel free to share!

Daily Wrap
March 24, 2014

Today's market somewhat resembled yesterday's in that both started on low volatility and ended on higher volatility, both ended down, but for very different reasons. I'd much rather take today's close than yesterday's as it brings us closer to something that is a meaningful move and that is volatility and I'll discuss that at greater length below, but it is something that we have been pointing to and noting all of this week thus far, it may even be the key occurrence other than the EUR/USD divergence for the new week.

Looking at pricew only, 15 years ago I would have called this a slam-dunk decline with the SPX closing at the lows of the daily chart.
 However, the truth is, we have much better tools to read the market now and a lot has changed in Technical Analysis since then or more appropriately, nothing has changed in Technical Analysis since then.

Volatility is almost always the key to a real, sustainable and deep move. Check out how the SPX fooled around from 9/18 2014 to 10/8 2014 before getting serious about downside as volatility picked up. Or not as good of an example, but closer to home, 3/3 2015-3/6 2015. We too often just expect the market to do an about face and without a fundamental catalyst that the market has failed to discount, that's just not the highest probability so volatility where we are is good.

Since last Friday's close.. 
 This is what the averages have done. Note that not only did transports not confirm the Industrials all of 2015, but that's them in salmon at the bottom since last Friday.

These are the averages since the F_O_M_C knee jerk and again, that's transports at the bottom, TOTALLY RETRACED ALL POST F_O_M_C GAINS!

And for all the momentum monkeys, remember that move in copper in last night's Daily Wrap and the commentary?
"That's one parabolic trend I would not trust (Copper Futures)."

And today for anyone who chased momentum...
Massive, "V" shaped FAIL right on the Chinese open.

As for Leading Indicators, as you'll see below, the changes in character including volatility and later 3C divergences took place just after the 1 pm area. Our custom SPX:RUT Ratio was failing to confirm the market as it made lower lows intraday, right in line with our end of day post, Tomorrow's Market-Patience Pays

 SPX:RUT Ratio fails to confirm SPX downside this afternoon. This isn't much more than a next day signal at this point, but it has been remarkably accurate. 

You can start to see the case building for a bounce tomorrow in assets you'd never consider. At one point I use to be able to use candlesticks and volume alone, but Wall St. has changed and if you don't change with it, you die (figuratively).

Last night I mentioned in to the close HYG was trying to offer some support as were yields as the last hour sold off. You might recall the earlier post from today, Leading Indicators Point to some SPY Arbitrage and a Tug of War in which HYG was still a factor in near term trade. As of the close... 
HYG vs SPX (green) and the SPX nor HYG are inverted. If you saw the other two charts of HYG in the same post then you know that this bounce is an opportunity , especially for put plays as the charts that really matter if your trade horizon is longer than a day are beyond reconciliation with the market. Smart money has left town, which is not only visible and has been visible in asset like HY credit for some time, but now we are seeing it in S_E_C_ filings, take David Tepper's Appaloosa. Many didn't believe me when the highest paid fund manager over the last 3 years said he was selling "Everything not nailed down" at a fund managers' conference in May of 2013, as he saw the market as being "pice to perfection at that point", meaning he needed the time to move a lot of assets and that he did. As you might recall, in Q4 of 2014 on recently released SEC filings he closed something like 13 major positions including all of AAPL, FB and several other large momo names and  more importantly he cut his already drastically reduced equity exposure since May of 2013 by another 60% in a single quarter. Or George Soros's increased SPY Put position that is 600% larger than the previous quarter and the largest since what he held around Lehman.

Like I often say, "Underlying trade is telling you things that you can't understand or confirm until the chance to make money has already passed you by".

Carrying on with Leading Indicators, not everything was a bowl of cherries for a bounce tomorrow as the EUR/USD charts are clearly showing.

As mentioned earlier in the Leading Indicators update, the SPY Arbitrage assets seemed to be active which you can see by one of the 3, HYG above, but also I mentioned the underperformance of VXX/Short term VIX futures, 2 of 3 SPY Arb. assets...
After an initial VIX smack-down that wasn't so obvious that everyone picked up on it, the VXX continued to underperform its correlation all day supporting the SPX despite the price losses, they would have been worse had HYG and VXX not been activated in a SPY Arbitrage scheme. Above the SPX (green) is inverted so you can see where VXX "should " have been and its relative underperformance on the day,

Our Pro sentiment indicators were also supportive of the market for a bounce tomorrow, although one saw a bit heavier selling at the close than the other.

However not everything and at least one of the SPY Arbitrage assets were not cooperating. BONDS. Bonds were bid all day.

 TLT in red (20+ year Treasury Fund) vs SPX in green shows bonds were bid all day in an apparent flight to safety.

The 5 year yield (yields move opposite the bond price) was nearly a perfect leader for the market to the downside yesterday as it diverged and today as it moved in almost perfect sync with the SPX. We can't see what happened after the 3 p.m. closure of the bond market, but by inverting TLT we can see what yields would have looked like after 3 pm.

Again, divergent yesterday and nearly a perfect magnet pulling equities lower as yields often do.

If you are at all concerned that yields might bounce and support the market and take away that leading negative divegrence, the "Not everything was a bowl of cherries for the market bounce tomorrow", don't be.

Again, as always looking to close gives you tunnel vision and high blood pressure, back up and take a look at Yield' reality vs the SPX and remember they act like a magnet which has already begun.
This is just the dislocation for this bounce which retraces ALL of the bounce and if we back out more, we see that it has a much deeper drop before the two revert to the mean.

Finally commodities were supportive today as well as a Leading Indicator, but on a bounce basis since the area around 3/10, they are still significantly dislocated and leading negative.

Sector performance today wasn't all that hot and you may have read several times that I'm interested in Financials and a Financial short, but would like to see a bounce/gap fill first to do that.
 These are the 9 S&P sectors intraday today, broadly off with all 9 of 9 closing red.

Utilities were the worst performer at -1.11% and the best performer was Materials at -0.33%, however Financials have my attention, if not for today's -.81% move, for the move since the F_O_M_C knee jerk reaction which you'll see, was a knee jerk reaction as more and more assets retrace the initial knee jerk including...
Financials! These are the S&P sectors since just before the F_O_M_C knee jerk higher, Financials in green have now retraced the entire move SO A BOUNCE HIGHER WOULD BE VERY WELCOMED FOR A TACTICAL ENTRY AS LONG AS IT IS A SHORT TERM BASIS. As you know from numerous posts like Intermediate MArket Update to EUR/USD, everything is pointing at a much lower move in the market so in that case when the strategic stage is set, I want to use short term noise to execute tactical entries.

Briefly on to volatility...

I'm not sure how many times I've posted examples of how volatility changes, almost always increases just before a change of trend and more specifically between the 4 stages of a market cycle. These market cycles can be intraday, they can be a bounce over the course of 2 weeks or 2 months or they can be a primary trend over the course of 5-10 years, but the 4 stages almost always play out over and over again and in just about any asset you can trade. This is just part of human nature and how human nature has been taken advantage of by the criminal syndicate that runs both Wall Street and our economy.

In any case, yesterday I said volatility had really dies down and that in itself was worth taking notice of as it's a message of the market, a piece of the puzzle as there's no Holy Grail that will just give you the entire picture. We have to take all the pieces and put them together the best we can, see what the probabilities are and make the best decisions we can with the information we have at that moment.

The 4 stages of a cycle are 1) Accumulation/base 2) Mark-up/participation 3) Top/distribution 4) Decline

As most of you have probably seen, the breakout from a base is in itself a large increase in volatility and it's a change in trend from lateral to up. As the end of stage 2 starts to appear, volatility increases as price pulls away from its channel or moving average to the upside in a near parabolic move, again volatility increasing and a warning that a new stage is about to begin. A perfect example of this was gold or GLD back in 2010/2011.

This is a 3-day chart of GLD so I could fit everything on it. The yellow moving average is a 50-bar, so being this is a 3-day chart, it would be a 150 bar daily moving average. From 2009 through part of 2011, GLD was a perfect consistent buy as it pulled back to the 150-day moving average, NEVER ONCE breaking it. We had been watching gold and suddenly it peeled away from the moving average to the upside at the orange arrows or you might say the price Rate of Change (ROC) increased and it didn't touch the average again. This was a warning, although gold bugs would not hear anything negative about gold which they saw moving up another 200%, but shortly after that volatility change gold went sideways in a choppy top and as we forecast in late 2011, gold would make either an intermediate or primary downtrend which as you can see it did.

As for the increased volatility at a top, one good example is the 3 places I'll short a H&S top and the one I won't. This is a chart from one of the core shorts we have , HLF and here's the link if you are interested in more...HLF Position Management / Possible New Trade Set-Up
THis is the H&S top in HLF and the 3 places I'll short it, 1) at the top of the head which is difficult, 2) at the top of the right shoulder. I will NOT short a H&S on the initial break of the neckline as TA teaches, but rather wait for the volatility shakeout of new shorts who just entered at area #3 back above the neckline and this is an example of the increased volatility we see as a top transitions to a downtrend. We entered HLF on the biggest day up in its history, over a +25% gain on the day, but not just because of the gain, but because the charts told us to even before the move up started, that was just a bonus, although an emotionally difficult one to short in to.

A good example of the transition from stage 4 decline back to a stage 1 base is what is known as "Capitulation" or a mass selling event. This is typically a large "Exhaustion" gap down on huge volume. This marks the end of the Decline phase, although price often drifts lower over a period of time before starting to build a new base. OFten just before capitulation you'll see a near vertical drop, much like a blow-off top might look like.

Again, the point is the concept of increasing volatility at turning points and this is why I thought it was worth taking notice of the lower volatility yesterday ad we should work in to higher volatility on stage 4 decline, tomorrow could produce that kind of volatility.

You have to keep in mind that everything is relative to its proportionality or scale so you wouldn't see a +25% move in the market here/tomorrow like we did in HLF which was a much larger topping pattern.

The Bearish engulfing candle I proposed last night in the Daily Wrap would be a great opportunity not only from an entry point of view for a put position, but from a volatility/signal point of view, although that may be asking a little too much with what we have to work with.

Check last night's post linked above for the proposal of a Bearish Engulfing Candle that I would have loved to see today. The chart I drew as an example from the post last night is below, just keep in mind that is as of yesterday's close, but the concept is still the same.
A gap up and a close below one of the opening up days' real body (in red).

Last night's Dominant Price/Volume Relationship as well as the S&P sectors and the Morningstar Sector's performance told us one thing, the market didn't have any kind of short term oversold condition, not even on an intraday basis. You might even recall what I said about last night's Dominant P/V relationship and what I said taken with the S&P sectors and Morningstar groups,

"The Dominant Price Volume Relationship today was in everything but the Russell 2000 as usual. The Dow had 18 stocks, the NDX had 76 and the SPX had 276. Confirming there was no oversold condition even on an intraday basis, the Dominant Price/Volume Relationship was Close Down/Volume Down, the least biased of the 4 relationships which has earned it the nick-name, "Carry on" as in keep doing what you were doing which was selling off at the close.

Of the 9 S&P Sectors... 2 closed Green with Consumer Staples leading at +0.16, two closed at 0% and the other 5 closed red with Industrials lagging at -.84%.

Of the Morningstar groups, 120 of 238 closed green. These are very middle of the road readings, but what it tells us is that even on that last hour's sell off, the market didn't approach even short term oversold so theoretically from an internals point of view, the market could pick up right where it left off and continue selling off tomorrow."

That's essentially what the market did today with all of the major averages in the red.

Today the change in volatility was there if you were looking for it. You might recall earlier updates today with the NYSE TICK and the readings at a very mellow +/- 750.

Well by the end of the day, things had changed and as always, "Changes in character precede changes in trends" even on a very short term intraday basis.

This is today's NYSE TICK by the close...
For a good part of today volatility was average at +/- 750, but look at volatility with no trend other than choppy/lateral pick up in to the afternoon with extreme TICK readings hitting +/- 1235!

This is also almost the EXACT area where the intraday positive divergences formed.

Looking to the rest of the internals as I already mentioned 9 of 9 S&P sectors closed green (compare this section with last night's sector performance, Morningstar group performance and Price/Volume Relationships and see how yesterday they predicted the outcome today and how they differ today to predict the 1-day short term outcome tomorrow.

Only 68 of the 238 Morningstar groups ended in the green today, many more sold off than yesterday much like the 9 of 9 red in the SPX. See what we said about that last night in the Daily Wrap as to what it meant for the market on a short term 1-day basis, then compare and contrast, but you'll need one more thing...

The Dominant Price/Volume Relationships. These are NOT the price and volume relationships of the averages themselves, these tell us much much more about what's really going on. These are the relationships between price and volume for all of the component stocks in each of the averages, giving us a much broader view of the market as a whole rather than as a weighted average.

Interestingly the Dominant Price/Volume Relationship for the major averages was EXACTLY the same as yesterday, right down to the Russell 2000 having no relationship again which at this point must be at least 75% of the time over the past couple of weeks which is extraordinarily rare.

The Dow had 21 stocks of 30 with the Close Down/Volume Down relationship, the same as last night. The NDX had 54, the SPX had 226. This is slightly less dominant and as I said last night, this is  the least influential relationship with the smallest effect on the market's next day bias which is why I call it "Carry on" as in do what you were doing and yesterday with the S&P sectors and the Morningstar sectors no where near oversold, the most logical conclusion was to carry on to the downside. However since this relationship has barely any bias on its own, the 9 of 9 S&P sectors and the more Morningstar groups closing red creates a 1-day oversold condition and the Dominant Relationship (P/V) has no real influence to counteract that.

Thus the most likely outcome for tomorrow is the market bounces, although I wouldn't go so far as to say it closes higher because of the P/V relationship, it may just bounce and turn lower in to the close or it may just bounce as expected.

Either way, this puts us in the driver's seat to enter positions tactically with a strong strategic probability of the market moving lower,  this is what I call a "Market Gift".

This is simply the stuff you can't pick up from most price/volume based indicators, but it is a jig saw puzzle of clues that need to be assembled. I've seen 17 years of traders searching for the "Holy Grail" of trading, that one system that is perfect, it's not out there and the search for it just highlights their laziness. If you are going to take from Wall St., you're going to have to work to get it.

I was browsing through some other screens/indicators today and noticed this, our X-Over Screen.

Since this is such a short cycle/bounce, it lags a bit, but on a 60 min chart, it is just about to give all sell signals.
As I said, because of the short cycle, the moving average based system (with custom indicators and Wilder's RSI/U.O.) gave a late buy signal, but it's giving a sell signal right now as the oscillators are below 50, the price average has crossed down and the final key, the custom indicator in the second window is about to cross down, likely tomorrow even with a bounce.

Winding down tonight's Wrap, I usually report on the Index futures and what they look like , if there are any smoking guns.

If we didn't know better as far as probabilities are concerned, I'd look at Index futures and say, "Look for more downside tomorrow". The great thing, if you already entered some positions while the market was near the top of the bounce is we are set if the market can't pull off the bounce and nothing lost. IOf the market can pull off the bounce, we have some second chance opportunities or better opportunities to enter strategic positions on a tactical basis, it's virtually a win/win scenario.
 ES 1 min intraday with 3C perfectly in line with the downside. However, the accumulation we are looking for isn't to be found on steering divergences as we have some charts of the averages with 5 min positives even though they were less than half a day.

 The 5-7 min charts reveal an in line status rather than a leading negative, these can change very quickly, but are additional confirmation of the bounce tomorrow seen in the averages, leading indicators and other signals.

When we get to the stronger 10 min charts, the distribution of the last several days is apparent, only to see slight accumulation for a bounce during the afternoon today, not much gas in the tank.

For whatever reason, the Russell 2000 futures (remember the RUT has had no Dominant P/V most of the time), looks worse than even ES futures below on the 10 min.

 ES 10 min.

Where it really counts as we watch the strong underlying trend on a 60 min chart, you can see the stage 4 decline from the February cycle which transitioned as we sold our AAPL puts and QQQ puts on March 10th, Closing Down the AAPL and QQQ Puts for now, as we saw something that we thought would be a nearby bounce and as the puts expired on the 20th, we'd have at best, time decay, at worst we'd lose the nearly 50% gains in one and 30% in the other.

The base for the bounce started showing on 3C by the next day and the bounce above now has a leading negative divegrence, thus I have no problem shorting in to a bounce and Financials are high on my list.

As for the bigger trend, the one in which  we said ahead of time, well before it happened that the range from 2015 that was so obvious in the SPX at the time...
That there was little chance of us seeing lower prices and challenging the October lows and eventually breaking below them with such an obvious resistance zone in place that traders would chase. IT WOULD BE LIKE YOU WALKING RIGHT BY A $100 BILL THAT YOU COULD USE IN A LEVERAGED SITUATION AND NOT STOPPING TO PICK IT UP.



So knowing what we know now and what we expected then, we can look at this ES daily chart and see if our assumptions were correct. Did Wall St. buy and or confirm the break above the range or did they do as we expected before the move even started and use it for distribution, leaving retail traders who chase breakouts holding the bag?

You tell me? 3C is at a new leading negative low to the far right.

That will do it for tonight, I'll check on futures later before I turn in and report on anything exciting, but I think we have a pretty high probability scenario already set up, now it's just time to see if it plays out as expected and to find the right assets at the right time as a market gift.

Have a great night!

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