Market Update and Possible Trade set-up

Today has been a day for patience, letting the market work itself out and show us some probabilities, it looks like those probabilities are starting to grow and there appears to be several different ways to approach them, all essentially the same trade set up.

Remember the charts of the averages before from earlier today such as, Market Update & warning.. Well it would seem that despite the stronger intraday positive divergences in the major averages, my warning to be careful with any upside move they might produce today was worthwhile.

However I see a scenario in which a couple of different trades could be set up and some trade management of some current positions might be worth a look.

 As shown earlier, the SPY positive divergence have improved considerably over yesterday,  5 min chart.

And the SPY 15 min chart, leading positive, but still not trustworthy unless more work work is done, specifically...

This "V" shaped reversal area is a reversal event, not a process and it's not stable.

As I mentioned in the warning post, more work would need to be done to create a somewhat stable base that could be trusted enough to consider some trades, very short term trades. Take for example the lateral work I suggested that needed to be done to create something more like a reversal process or a "W" base.


The SPY intraday move that I said I wouldn't trust, 1 min chart...

is now failing intraday and coming down,  this would create the opportunity for that lateral basing work to be done and form something like the "W" base drawn in above.

Make no mistake, this is still FAR from a respectable divergence, but with HYG already being geared p for support, it's pretty easy to see what the target would be...

SPX daily chart. With nearly 3 trading weeks of downside and a break of the 100-day moving average as well as it meeting resistance today, new shorts are likely pretty eager and taking positions, this is an easy thing to guess just from how predictable Technical Traders are without any additional evidence. 

Furthermore, smart money need not risk much at all (long) as a break ABOVE the 100-day would come with its own built in solar panel in the way of a short squeeze seeing how we've had 3 weeks of downside and a break of the 100-day and failed test today. Still even for such a move, a "W" base would be pretty much the minimum to support such a move.

I'm not saying this would lead to a new high or even a swing above the 6/3 Shooting Star intraday highs, but it would game traders and new shorts, it would give us the move I've been looking for and as was forecasted on 4/2 in which everything forecasted has come to pass from the clearer formation of a larger triangle to a break above it on a head fake move to a decline to the 100-day moving average which I believed would be broken to the downside leading eventually to a new lower low below the October lows, I also thought , as is reasonable, that there's be some consolidation around the 100-day , some game playing.

This looks to be the play. While I'm not terribly excited about the idea of any long trade in any of the averages (SPY, QQQ, IWM, etc.), if there were strong enough signals, I'd be open to a trade with some leverage, perhaps a call or a VXX put.

speaking of which since Short term VIX futures (VXX) have been confirming the SPPY action thus far...

 The 5 min chart of VXX has gone from upside confirmation to a small leading negative divergence, confirming the SPY 5 min chart.

The VXX 2 min chart shows the same divergence, also confirming the SPY 2 min chart (as well as QQQ/DIA).

Here's a closer view of the VXX 2 min chart. Again, nothing has changed where it really counts on VXX 10-15 min leading positive charts and it won't, meaning I believe after this little bit of game play, the SPX will slice down through the 100-day and move toward a new lower low below the October low.


Thus a VXX put for a short term trade may look very attractive in the next 24 hours.  

Just as the SPY 1 min chart went negative intraday and looks to be heading back down to where it can build a more solid base of operations for a break above SPX-100 day, the VXX 1 min chart is seeing an intraday positive divergence as the SPY has turned down intraday off the move I warned not to trust.

Thus I may take UVXY and VXX long equity positions off the table to preserve the small gains and prevent losses as VXX moves up/SPY down intraday. If there's enough solid evidence that supports this theory which I think there will be, a VXX put (short term, somewhat speculative) may look like a nice trade set up. I'm not as excited about SPY calls, but we'll see what looks like what.

Right now, this looks to be what we should expect so if we do see price and 3C continue to act as I've laid out above, you might consider some VXX/UVXY trade management or any other positions that may be effected and perhaps a new short term, speculative position. However I'd remind you that the much riper, wiser trade is letting the market bring the trade to you and entering on confirmation at the time and place of your choosing. It would also be the larger, longer term trending trade.

*Last note, a break in the SPY below today's intraday lows on large volume would make the above scenario much more appealing.