Among the trading positions which are mostly leveraged inverse ETFs like SRTY, FAZ or SPXU, I have TECS (3x short Technology (which is down about -5% which isn't bad for a 3x leveraged inverse). I haven't wanted to let any of these go and thus far I'm pretty happy I haven't, most remained in the green despite the move off the 10/9 lows.
I took a look at Financials last yesterday and since Technology is one of the 3 larger groups that a market needs to stay in rotation (a healthy market any way), I thought we'd take a look at XLK / TECS as this may be a position I look to add to or bring up as a new (or add-to if that is in your risk management) position and it may happen quickly.
I also want to get to PCLN in a bit and will make every effort to do so.
First XLK which is the Technology sector as the 3x leveraged ETFs have low volume and can be much noisier.
This is the daily chart of XLK, the most important long term feature is the divergence between early 2012 3C highs and where price was then and current 3C readings and where price is now, 3C should rise in a healthy market just like volume, that's confirmation.
Closer to home, the recent divergence of this year is clear and looks a lot like the broad overall market which is not surprising given the incredible level of correlation between assets, there's barely any rotation left in the market unless it's high short interest or hugh beta and non.
This is the same 10/9 lows that the entire market moved up off to create a fairly large cycle, I call it a cycle because there are typically 4 stages of a cycle, if we consider a complete cycle it starts with stage 1 accumulation which would have happened here in to the 10/9 low, you'll see the positive divergence, this stage is also referred to as a base in Dow Theory terms.
The bottoms of these reversals which are a process (rounding) not an event (sudden sharp "V") in most cases are almost always tighter on a bottom like you see below in white. The tops are almost always quite a bit larger and rounder. I "USUALLY" look for something like an "Igloo with a chimney. The Igloo is the rounding top (although it can take other forms) and the Chimney is often off to the far right rather than in the middle and that represents the head fake move or in a case like this, a false breakout which is typically an excellent marker for timing as they tend to occur right before a reversal for numerous reasons, one is starting initial momentum as new longs sell at a loss quickly.
So far (even more so since this capture), XLK has created that "Falling 3 Methods" candlestick (bearish) pattern I've been talking about for this "Mini cycle", the big down candle's real body (the dark green) sees the next three days (or sometimes more) rise like a bear flag, but their bodies (without the wicks) stay within the range of the first candle's body. Thus far that has been the case for Tech, what matters though is the close.
This 3 Methods pattern is seen in a lot of places.
However as you know, as I said Thursday when expecting Friday to be up, "Wall St. doesn't do anything without a reason and these last 3-4 days have not been random walk, the cycle was obvious on Thursday, called out on thursday, started Friday, was held together through a horrendously horrible NFP print for the market bulls and of course yesterday's strange activity. My opinion is a false break out over a clear 2+ week range is what's missing, the clearer the range, the more effective a head fake move as the more traders will join in on it.
XLK's cycle off the 10/9 lows, remember stage 1 "Accumulation", just like the rest of the market you can see it at the white arrow in to the lows. Stage 2 is mark up, that starts to transition in to stage 3 distribution and the Rate of Change of the price climb slows and is now largely choppy lateral, this is considered stage 3 top and the final stage, 4, is decline and then it typically starts again, but it depends on the trend as to how it plays out (as a counter trend cycle, a trend cycle or a top cycle.
This 5 min chart gives very good detail as to the accumulation in to 10/9 and where distribution starts, Wall St. always sells in to higher prices, although much of retail think otherwise when they see a big day down on volume (likewise they buy in to weaker prices and supply as can be seen to the left).
The range here is fairly tight like the rest of the market (yellow).
I'm thinking we get a move above that range because it has become so obvious, but as a head fake move or failed breakout, (there are many different types of head fakes, this would be akin to a bull trap).
TECL is easier to look at with long charts because of the low volume, this is the 3x long Tech or XLK, it should look similar and it has the same accumulation area in to 10/9 and similar negative divegrence on a very strong timeframes, quite a bit larger than the positive divegrence.
This is the cycle from 10/9 on a 30 min chart, also a negative divegrence in the same area, although shorter charts have more detail, sometimes it's noise though rather than clear trend with low volume issues.
And the 15 min chart, stage 2 is in green, mark up with 3C confirmation, stage 3 looks very clear.
As for TECS, 3x leveraged inverse/short Tech/XLK ETF, the 60 min chart has the exact opposite signal compared to XLK or TECL, it also has that rounding bottom. I find often the rounding portion is proportionate to the preceding trend and accumulation size or distribution, this trend currently is larger than normal.
The 30 min chart and a negative divegrence in to 10/9 highs in this case, the exact opposite of XLK and TECS at their 10/9 lows, so this is a form of confirmation because even though they are suppose to mimic the underlying asset (XLK), volume can be very different, they aren't suppose to mimic volume, only price and that's where we get a lot of information "What is the demand like, how strong are divergences, etc?".
Here is a 2 min chart, you can see because of the lower volume even price gets spotty, so it's difficult to look at intraday charts because of that, some bars on some timeframes will have no trades, however the overall trend is confirming what we see above and the rounding process is more than mature or reversal process (you'll see very few "V" reversals although a lot of the time we expect a market to reverse quickly, they rarely do.)
So like XLF, XLK or TECS are on my radar and while I prefer TECS for a longer term trend and less trading around bumps and jiggles with options, whether or not I prefer an option or ETF depends on the set up.
I just wanted you to have this on your radar along with Financials as these two groups are essential to the market.
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