Sunday Matinee at Chess Cinemas

It’s hard to believe that it has been fifteen years since American Pie (1999) was released.

I remember watching this movie, out of tradition, the night before a big exam in law school to unwind and get into a relaxed frame of mind after the studying had been done.

This is a classic comedy, ahead of its time in some respects, with memorable and often-quoted characters like Stifler, Oz, Jimbo, and Finch, among others.

Check it out, or re-watch it.

Interesting time capsule from 1998, for a variety of reasons.

It’s the same old story in a bull market—Negative divergences do not matter until they do, and then they matter in such a way where you wish you had respected them previously.

As it pertains to junk and high yield corporate paper, they had horrendous weeks by any metric, for all intents and purposes staging swoons. Typically, that type of price action does not bode well for risk appetite, including equities. Nonetheless, it remains to be seen if this resilient bull can shrug off the junk bond action, as well.

Still, the weekly chart for the high yield corporate paper ETF is flashing a fairly textbook rising wedge breakdown, dating back to the 2009 lows.

The 12631 Trading Service and Weekly Strategy Session members have been paying close attention to bearish divergences for a while now, and we are seeing the major averages beginning to succumb to them a bit. I will be fleshing out and updating this thesis soon.

Have a great weekend!

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My only position walking into today was a long TZA trade (triple-short the Russell 2000 Index), taking inside 12631 yesterday and playing off my “All You Can Eat Divergences” blog post from yesterday morning discussing the many small and micro cap divergences in the market.

Just now, I scaled a piece of the position. I still think small caps are a major warning sign here, with the potential for multi-year tops very in play here and with the micro-caps, especially. I retain a small piece of the position and will soon decide whether to hold through the weekend.

Here was my note to members:

Sold 1/2 of 1/2 position Long $TZA @ $17.11 from $16.42 entry to lock in part of the win into this small cap sell off. 1/4 position left now.

12:52:09pm EST on Aug 1, 2014

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What are your top trade ideas this morning?

After this morning’s jobs number, the issue widely-discussed again is whether bad news is good news for the ‘QE market,” or instead if bad is bad and good is good, or a various combinations of all of them.

If anything, it seems as though trying to sort through that thinking is akin to Abbott & Costello’s “Who’s On First” skit.

What we do know is that the market chopping around today after a trend day lower yesterday, without seeing much of a convincing bounce yet. I am not expecting much from this summer Friday, and am still giving the nod towards the S&P and Dow following the Russell lower in August.

A good test for bulls will be to see if TSLA can hold this earnings pop for a potential breakout from the triangle we looked at yesterday.