Market Update, QQQ/IWM Calls at Instant Double Digit Gains

Friday (and earlier last week) we entered small short term hedging long (call positions), right now it looks like we did it at the exact right time, buying in to price weakness at a minor pivot point, I would say we, like Putin waited for the market to come to us, chose our battle and took decisive action. And that will be the last comparison I'll make to a man who used Polonium 210 (a nuclear isotope) to poison and kill Alexander Litvinenko for exposing Putin for who he really is, years after his death we are seeing with our own eyes he was quite correct in telling the world who Putin really was, how he got there and how he operates. My only point is to take decisive action when the environment is favorable, even when it may be the emotionally difficult thing to do in trading.

By the way, the Russian markets that were thrashed last week are rallying on the back of Obama sanctions and of course certainty over this weekend's referendum, I think because Obama only sanctioned 7 Putin aides, the Russian market saw it as a fly on the back of the bear and again uncertainty about what the US might do, seeing it's almost nothing, has sent Russian stocks and the Ruble higher.

As for the charts...

As predicted last week, the Index futures would likely transition from following AUD/JPY (formerly USD/JPY was the carry pair guiding the market) to the EUR/JPY, take a look for yourself...

 USD/JPY vs ES (purple) 1 min

AUD/JPY vs ES 1 min chart

EUR/JPY vs. ES 1 min

While it wasn't there last week, the signs where there in the individual single currency futures, we know which pair to follow. The AUD may have fallen out of favor as China just saw its second default ever, this is a real story for the global markets, I called it potentially "China's Bear Stearns Moment".

As for the market averages... There's some early weakness in confirmation of the open (don't jump to conclusions yet).

early 1 min IWM non confirmation of the gap, however, when compared to the larger divergences I'm fairly well convinced that this won't last long and the market has more upside and the VIX more downside, in fact I think this mini-cycle is just starting.

 SPY 3 min

QQQ 5 min

IWM 5 min.

The 1 min negative (if it holds) needs to migrate to 5 min charts before I'm looking at a pivot to the downside and a major one.

As for what I've looked at all last week in believing this move up was coming, HYG...

 HYG 10 min, note the head fake under support (stop run) just before the move- a typical head fake occurrence.

Also that divergence in a market manipulating lever hasn't been there for no reason.

Here's a closer shot on a 3 min chart of the head fake, IT WAS ACCUMULATED AND VERIFIED AS A HEAD FAKE MOVE, THUS ENTERING LIMITED LONGS FRIDAY MADE SENSE, but I'm not willing to take too much long risk as this is the move we need for a major downside pivot, the VIX futures will have a lot to do with that.

 3 min VXX, we need to see a larger move down and VXX accumulated, that's where our pivot point is for market downside, but large market downside, not a small pivot.

This is the 1 min VXX this morning acting in response to non confirmation in the averages, but this really isn't an issue beyond pointing it out.

There is some near term weakness in the EUR/JPY pair that could maybe cause some in the averages...

 EUR/JPY 1 min negative divegrence, but the 5 min chart is what really matters and...

The Euro's 5 min is quite strong so again, very near term (intraday) weakness has no real meaning other than using it to enter select longs if that's what you wish to do, I still consider them highly speculative and a bit dangerous, the time to enter was at the pivot Friday.

For the immediate future since we aren't at an inflection point it's more about managing positions (this is why I closed so many puts and took gains Friday, they'd be largely gone today), when we get to the point in which the VXX has dropped enough that they start accumulating it, that's when we'll make our next round of major trades, closing current hedging longs and entering shorts in size, but until then it's not wise to chase this market in my view, especially not now.

There may be select assets that look good for trades, likely non-market correlated.

This is what we have been looking for, I expected it earlier last week, but it took some time to build, but that time didn't translate in to stronger divergences in anything but the levitation lever of HYG, the averages are still very weak.