Levers and Uncharted Territory...

So far since last Monday (a week and a half ago), we have called this pattern- Wall St. game perfectly, however where we are now is starting to get in to uncharted waters, I'm fairly certain that the next trend still remains that of a short squeeze, what I don't know is just how big this will be? Will there be a bigger base?

The only thing that I feel fairly confident of is the fact that Wall St. doesn't do things randomly. As a very quick example and some of you have heard this, but I had a (well I'm not going to disclose the relationship) that was feeding me for several months research department data for a major Wall Street Firm, even if you never traded in your life, you'd know the name.

I thought I had a gold mine, this was the research that was being given to the trading desks, I didn't understand all of the lingo and there were obviously assets they traded that we don't, credit derivatives, swaps, etc. However where I could make sense, I tried some trades (many years ago) and they were all bust. I din't know why they didn't work, but they didn't until 6+ months later I was deleting files off my desktop and I opened these again and looked at the assets again, they had all moved substantially in the direction indicated, the point being, Wall St. plans way ahead, they are rarely acting on spur of the moment, but because that's all we know, we assume they are like us, they are not. their positions sizes are much larger, they have accounting concepts to take in to consideration, many things. 

I saw this again with Home Builders during the 2000 Tech crash, they were under accumulation for nearly a year and a half, who would buy home-builders for the next bull market after the miracle of the Tech revolution. Yet, by 2003, what asset was leading the economy higher? Home values. How in the world did they know almost 3 years in advance that an asset that typically gained 4% a year or so was going to in some cases, double? One stock of a HB went up 2500% in 2 years.

The point is, I expect the next move not to just be a 1-day sharp move higher, it serves a purpose and the only purpose I can see is to make bears back in to bulls and that requires a huge shift in sentiment which requires a very strong move. I can't tell you what that looks like, we take it as we get it.

In any case, as far as levers today, the SPY arbitrage doesn't look like they are being used, HYG's action intraday looks reasonable, TLT is actually moving against a lever effecting a pullback, only VXX is moving in a direction that would effect a pullback, it's somewhat sharp, but very limited, it seems to have a purpose too, perhaps to keep the shorts saying, "I told you, just keep shorting any move higher, it worked the last two times", those being the last 2 failed attempts at resistance I talk about every day.


Some measures from Capital context...

 This is the SPY Arbitrage chart, it's based on price levels of TLT, HYG and VXX. As far a short term intraday manipulation, when TLT and VXX move down, they cause the market to move up, when HYG moves down, it causes the market to move down.

To better understand this, just think about it this way, TLT is a flight to safety when traders are scared of the market they park money for safe keeping in Treasuries. VXX is the VIX short term Futures, when people are scared they bid up protection in the VIX, so it moves opposite the market just like TLT, both are "safe haven" assets.

HYG is an institutional risk asset, High Yield (like High Beta) Credit which is something few retail traders trade, but it is a choice asset for institutional trades, so when HYG is up, the model assumes smart money is taking a "risk on" position expecting higher gains and that's how the arbitrage model works, by manipulating any or all of these intraday you can manipulate the SPY/market.

CONTEXT is ES based, ES is SPX E-moni Futures. CONTEXT takes a number of different risk assets from treasuries to currencies, commodities, credit, and a lot of assets most of us haven't heard of and looks at how they are priced, ES theoretically should reflect the either "risk on" or "risk off" position of these assets, when there's a divergence between the two, Es usually reverts to the model.

Here CONTEXT had been nearly 30 points above ES prices, interestingly in the last 24 hours ES has moved from $1597 to $1624, that's  $27 points, pretty close to CONTEXT's 30-ish points, now the two are at reversion to the mean.

The assets... HYG. VXX and TLT.

Summary: "Thus far", it appears to me that VXX has some very strong, but very short term intraday strength that "could" effect a market pullback, the problem is, it's pretty much on its own and furthermore, the strength is capped around 5 min charts.

TLT is not acting like VXX, it seems to have its own agenda which I have suspected for weeks, in fact I'm looking for the best way to set up a leveraged longer term position in TLT. I believe TLT is being targeted for lower prices in an accumulation zone, I believe TLT will likely run up explosively, but that won't happen until the market breaks down explosively, in the meantime during our "short squeeze" or whatever move higher (as a short squeeze may just be the initial catalyst), I expect TLT to drop back to the accumulation zone and likely put in a strong head fake break below support to accumulate more. Interestingly, the World's biggest Bond Fund, Bill Gross' PIMCO did not sell as many T's as people expected, in fact very few, I think he knows something.

HYG ultimately is DEAD as a door nail, traders with any sort of large size position are long gone and any left will be, however for a "TRADE", it seems HYG has been pulled out and dusted off. HYG is hard to show and understand on any one chart, but it does seem they are using it for a TRADE, not a position which fits with my expectations.

 HYG intraday 1 min, not a strong break, but enough for an intraday move. Since capturing, HYG has moved higher. Again it seems damage as seen earlier is being fixed quickly, but nothing moves straight up and while I believe in the move, I'm also on my toes.

HYG 2 min-nothing much to speak of.

HYG 5 min, since this capture, it is subtle, but the 5 min chart is even stronger, this is why no matter what happens intraday, I feel pretty good about the overall move, just as the break below the triangle could not have been shorted and stuck with for any significant gain with all of the chop, there will be some here as well, although I don't think as much.

 15 min is a strong timeframe for this asset, it's along the lines of some of the averages, it seems a bottom is in place or it is still under development, the bigger the bottom, the bigger the move it will support.

 Look at HYG (green) vs the SPY, look at the directional trend, HYG lateral, SPY down, this is why Credit is considered a Leading Indicator.

Even the low liquidity (easy to get trapped in) HY Credit is showing the same as HYG. Perhaps there's even a base yet to breakout there.

TLT1 min intraday is of little consequence, the difference in 3C trend/levels from yesterday to today is.

 TLT 2 min, again intraday of no consequence, it's the trend between the two days that stands out and is the real information.

A wider view of the 2 min chart. To me it looks like they want TLT lower to accumulate, that also helps the market on the upside from an arbitrage perspective.


HYG 5 min,  AGAIN, THE QUICK AND STRONG DIFFERENCE IN THE TREND FROM 1 DAY TO THE NEXT.

The longer term view of TLT, this is why I think a big move is coming, but not yet.

Even the 60 min chart. I think the red trendline will be broken (head fake) before TLT takes off. I can think of several VERY good reasons why TLT would be accumulated in size given market conditions, just think about long only mutual funds and what they can do with their money if they are expecting an epic collapse in the market. Why else would Gross hold on to Treasuries so tightly?

VXX 1 min intraday which should send the market in the opposite direction, it's fairly strong for a 1 min chart.

at 3 mins the strength is gone, the 2 min chart is strong as well, but the point is, it seems like a very new position, put together quickly for a reason, that is to move the market, but it doesn't have enough fuel to make any substantial moves.

 At 5 mins, VXX is leading negative, this tells you which way the market should be heading.

Even at 60 mins, VXX is negative, this suggests a VERY strong market move to the upside, it won't come in a single day or even a few days, this will likely take more than a week, two wouldn't be unreasonable and I've learned to double whatever I think is reasonable.