Since right now just about all I can do is manage positions which requires very little, keep up on the market which is a bit more time, but still leaves me with some time, I figured I'd post some "
Let them come to you" trades.
Financials (short) are one of my favorite areas to have some exposure, but I want to enter a new position or add to an existing one which has room (according to risk management rules) on a bit of short term Financials price strength, already knowing that the probabilities are for financials to fall significantly further.
So we'll start with XLF and my preferred position which is the 3x short Financial ETF, FAZ, not to be confused with the 3x long financials, FAS.
First we want to establish the highest probability resolution of price action, not short term, but the underlying trend of money flow either in or out of Financials. As usual we'll be using multiple timeframe analysis and multiple asset confirmation. With all of the timeframes and 3 different assets, if I posted charts of every one, we'd have nearly 30 charts so I mixed up the representation so you can still see confirmation without a bunch of charts you'll never look at.
The strongest timeframe down to the nearest term, weakest timeframe, but most probable near term move.
6 hour XLF (Financials with the last significant positive divegrence at the October lows, the current divergence is leading deeply below that level while price is significantly above the same level making this an even bigger divergence than it appears on the chart. The underlying flow has been distribution and heavy, but in to higher prices and demand as smart money's positions are large and need higher prices and demand to move them without crashing price around them. Selling can include short selling, it comes across the tape as a sale just the same.
XLF 2 hour which is usually what we use for the very long term view shows the same patterns of Oct. low accumulation and strong distribution in to the move higher. These are the highest probabilities, to the downside as this is not being supported and certainly not accumulated, but distributed.
XLF 60 min shows the same with a bit more detail.
Here I switch to FAZ, the leveraged ETFs tend to give faster, more accurate signals in the faster timeframes, I suspect it is because of their leverage that these positions have to be moved in or out of first. FAZ is the 3x short Financials and its 30 min chart went from negative to in line confirming the downtrend in price to a huge leading positive divegrence. Thus again, the highest probability is Financials down/FAZ up.
The 10 min chart of XLF tends to confirm the same with a more detailed chart, 3C is at a new leading negative low.
However short term we have been looking for a bounce. The 3x leveraged long Financials FAS shows that positive divergence currently. To the left is the positive we forecast on December 12th which gave evidence on the December 15th/16th lows with accumulation, a move higher above the IWM range area and distribution in to the move. On the downside, this is the recent positive divergence suggesting a bounce that will allow us to short Financials in to temporary price strength, with underlying weakness, thus a better entry, lower risk and good timing.
FAZ 3 min shows recent accumulation and the move up corresponding with the move lower in the market during the Santa Rally, but also a near term negative divergence on a short term time frame (3 mins) to the far right.
FAS/3x long Financials confirms at the more detailed 2 min chart with a larger positive divegrence in to today's intraday lows which we called out as gaining a foot hold earlier in the day for an upside move.
FAZ's 1 min chart confirms as the earlier move in the market down (up in FAZ) sees 1 min distribution.
Everything here suggests that XLF and FAS see a near term upside bounce as we have expected and FAZ a pullback, thus giving us an excellent opportunity to either short XLF in to price strength and intermediate and long term negative divergences or to buy the 3x leveraged Financial short, FAZ on a near term pullback as probabilities clearly favor FAZ making a much stronger move to the upside than it has just started to. In my view, we haven't even taken the plastic protective cover off this market on the downside yet, there's plenty of opportunity, so this looks like an excellent position, we just need to pay attention to the short term charts after a bounce begins and look for the right entry.
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