Forward Planning

I just looked at Leading Indicators and between those and where they are at, what's going on with
HYG, what is going on with the stages and a nice juicy stop run/limit run in the IWM which is a great market proxy , but most importantly what is going on with VXX, I have a pretty clear vision of what I expect and where I want to make my stand.

All of the above pieces are coming together nicely, assets are acting like I'd want to see them.

You've seen what's going on with HYG so there's no need to keep posting distribution in HYG (a market manipulation lever, especially when VXX and TLT are down).

I think after several weeks of me talking about it, you know what I'm looking for in VXX (short term VIX futures) and why it's so important, that just started Friday and it continues today.

The IWM is a perfect proxy, it's in an area that's a perfect head fake kind of move, it's really almost too good and with these other assets and where they are and how they are behaving, it's all tying in very nicely.

I was looking to maybe enter some IWM puts (weekly) today, I already have trading and core shorts open and will leave them open as volatility should pick up significantly this week.

I'm going to be a little more patient and let the assets I have been waiting on like VXX finish up the process they are undergoing (accumulated at cheaper prices and let the IWM make its move which I'll show you and that's about where I want to make my stand and the best thing is all these assets are in just about the perfect place, they are in the right stage of the process individually (not quite done, but moving forward and for me it just looks like a symphony coming together.

First the IWM as it is the best proxy right now for the psychological part of the market or market behavior concepts.

 First on a 60 min chart of the IWM, we saw an accumulation period from Jan 27th to Feb. 5/6th and knew we'd get a strong rally, but there was a point to the rally and it was to set up the kind of demand needed to sell/short in to because at the time everyone was bearish and expecting the market to drop lower, you just can't find enough demand to sell or create short positions as large as institutional positions are, this is not some Monday morning quarterback analysis, this is EXACTLY what we thought before the market had moved up at all in early February, in fact most of you have already seen the post I put up on Feb 4th warning how strong the rally would be, but that it was a means to an end, not an end.

Most of you know about the 4 stages of a cycle, whether intraday, a primary trend that last 6 years or one like this: Stage 1 accumulation or base which was Jan 27-Feb 5th (approx). and then stage 2 Mark-Up or rally and then stage 3 distribution which starts during stage 2 and leads to a stage 3 top which you can clearly see now and finally stage 4 which is decline, THE IWM IS ALREADY IN STAGE 4 AS IT HAS MADE A LOWER LOW BELOW STAGE 3.

However... Look at the chart, look at the clear line of resistance, behaviorally speaking, "Thinking like a Crook", what is the highest short term probability for the IWM right now with new shorts in place and longs buying the dip?

You know it's to make a move through an area that traders are watching and will respond to for a myriad of reasons from the bid ask spread to momentum/bull/bear traps.

This is why I'm going to wait before entering a options position, even a call for a move above the red trendline looks dangerous to me, I'd have to see something a lot stronger to even take a hitch-hicking trade at this point.

HYG is showing distribution and its correlation with the market is fading, I can see that in Leading Indicators, sentiment (especially the longer term one) is fading fast and negatively dislocated, Yields, etc all look right, BUT WHAT I'VE BEEN LOOKING FOR THE MOST IS THE ACCUMULATION OF VXX / VIX FUTURES AS A TINING INDICATION.

Back to the IWM... 

 Intraday the 3C signals are a "Pump and Dump regardless of whether price actually does and I think this would be the first of the last 7 days consecutively that we've had a pump, but no dump. Remember it's quarter's end. Why would they pump it and not hold, why dump?

Think about the concept of P&D, it's a distributive move and the pump has been coming from the low volume overnight session, the dump in higher volume regular hours where shares can be moved.

 This is what I'm expecting on the IWM 3 min which is in line right now, that means in line with the losses it has taken as it has entered stage 4.

I'm expecting a break above the trend line of resistance I mentioned before, shorts get wiped out, bulls should buy, the "But the Dip Crowd" is conditioned to keep walking across the mine field with their eyes closed. At the same time I'm looking for 3C to drop leading negative here.

The Leading Indicators support this line of thought.

 Looking at the 5 min positive we picked up last Thursday we are set for a move a bit higher, but this is still not a divergence with any sizable foot print, you need to have a decent size base to support a decent run, it's not there.

However for those in GLD or GDX, those are putting in a wider footprint, I'll hold those no problem and add to them if the situation is right.

The 60 min IWM chart has always been where the probabilities are and the fact the IWM already started stage 4 just confirms that, but nothing in the market moves straight up or down, they'll never make it that easy unless they are setting you up.

VIX futures started accumulating strongly on Friday because it was the first day they started pulling back, smart money DOES NOT CHASE, that's why I've been waiting for a VXX pullback but it has remained well bid supporting price, it seems they've been fooling with the options as mentioned before as this is the 3rd day with double digit declines in call premiums, the second day (Friday ) was the first day VXX pulled back and was under accumulation Immediately.

You can see VICX futures are doing the same intraday today as they pullback a bit further and on a stronger 15 min timeframes (over only the last 2 days )...

 Friday and today, we have a strong 15 min leading positive signal in VIX futures, THIS IS EXACTLY WHAT I HAVE BEEN LOOKING FOR EVERY WEEK NOW FOR 3 WEEKS.

VXX

 THIS IS THE ACCUMULATION FRIDAY IN VXX, I ROLLED THE CHART BACK SO YOU COULD SEE BECAUSE TODAY'S OBSCURES FRIDAY'S, IT WAS ALSO THE FIRST DAY WE GOT A DECENT PULLBACK IN PRICE.

This is today's, now you can see why I showed you Friday's first, today's is much stronger as VXX pulls back deeper.

Also remember HYG up or stable with VXX and TLT down activates the lever called SPY arbitrage, keep that in mind when thinking about behavior concepts and the trend line on the IWM chart at the support area of the stage 3 top that has already broken, WHAT I'M EXPECTING IS A VOLATILITY SHAKEOUT, THE EXACT SAME CONCEPT AS IF IT WERE A H&S TOP THAT JUST BROKE DOWN.

That's the last area I'll short an asset like IWM, on the volatility shakeout as most traders expect resistance to hold and will short even more at what looks like a failure at resistance, instead they get shaken out and stops hit that are just above resistance as limit buys are triggered as well setting up a short squeeze and bull trap.

VXX 3 min, look AT THE ACCUMULATION/3C DIVERGENCE SINCE VXX DROPPED BELOW SUPPORT, THIS IS WHAT WE EXPECTED AND WIATED FOR.

A run such as the one described above gives VXX enough time to put in the flying leading positive divergences and the reversal process.

***If we don't get a dump today after 6 consecutive days, it will be because the scenario I just outlined will almost certainly take place.

All of the assets and Leading indicators I mentioned should all fall in line about the same time, the VXX can still be used as the main timing proxy, but we should see all of the assets confirm.

Thus that's where I'll fight my battle on my terms at the place of my choosing. 

I would enter a call position or two as hitch-hiking trades, but they need to have the 3C signals to support them, otherwise I'm gambling and not with great odds on my side. If they show up I'll put them out as quick trades that will likely need leverage, but in the absence of that, it's just setting alerts on the short list and being ready to take on positions (clean some house to free up dry powder).

Emotions move markets, fear and greed and fear is by far the strongest so a stage 4 decline is one of the fastest, easiest ways to make money. Just look at the last REAL authentic bull market off the 2002/2003 base that rallied in to the 2007 top, it took about 16 months to erase over 5 years of bull market and the majority of that happened in 9-10 months and it not only erased the entire bull market, but then some, that's why I like being short and stage 4 declines, especially off a head fake or failed break out.

SPX example...