GLD, SQQQ & Head Fakes

Today's charts saw a lot of damage, actually most of the week there has been a lot of damage, surprisingly Monday there was more damage than usual that early in a bounce. It makes me wonder if the IMF Greek Financial Sustainability report that was released to the general public yesterday, but that the EU had over the weekend wasn't perhaps leaked to the same set of bankers who are behind the Greek drama, the usual suspects that are all from one firm and run the European Central Bank, have run both Greece and Italy as Prime Ministers while both countries accepted bum bailout terms and the one that releases trade recommendations that if you trade against, you always have a winning trade. It's that bank known as the Vampire Squid with its tentacles everywhere in all places of power across the world with a two ticker symbol starting with "G".

Hey, it's well known that Congressional staffers are some of the most profitable traders, how much more so with the alumni who not only run countries, have run the NY F_E_D, run the European Central Bank and host one of the most popular financial media shows on television. Anyone have a guess?

In any case, we're talking about the last position put out, SQQQ and specifically why I prefer to leave some room. The market looked VERY emotionally driven late this afternoon, that's not to say that there's not rightful damage for such an ugly end to the day, there is. However I chose to leave some room to add to and chose not to chase positions, because there's a concept that we see a good 80% of the time before reversals in just about every asset type and any timeframe you wish to trade in.

In fact the GLD long position today was in part based on that concept, the head fake as well as proportionality.

GLD as I showed earlier, took out the March 17th lows/support and obviously hit stops, a head fake move , specifically a stop run.

 I'm not sure if I would have noticed the head fake concept if I didn't have access to 3C and see what happens when they occur over a period of many years. For instance, this intraday chart of GLD this morning shows a large spike of volume at a VERY specific level; it was when the support of the March 19th intraday lows of $119.77 were taken out.

If I stuck to what I learned in somewhere near 100 Technical Analysis books in my library al gathering copious amounts of dust, I'd say, "WOW, smart money is selling gold, look at that volume".

IT's not until you apply a 3C chart and see it moving up that you realize that someone tripped up a lot of stops that are usually on the books for everyone to see and then they accumulated all that supply on the cheap and didn't raise any eyebrows in doing it, thereby surpassing the normal concepts of supply and demand dynamics. Of course it took me some time to also understand that multi billion dollar funds don't by odd lots or even even lots of 100 shares, they have much different position sizes than we do and therefore need to create specific circumstances that allow them to fill put those position sizes without triggering the supply ./demand dynamic and driving price against their large position sizes.

 The end product on GLD's daily chart is a beautiful daily candle called a bullish hammer with higher volume which typically makes the candle about 3-4 times more effective than the same candle on lower than the previous day's volume.

 I could show you the specific 3C divergence at today's break of March support, but I rather show you this GLD 3 min chart and point out that this is the kind of chart I'm talking about when I say, "Jumps off the chart" or "Is screaming" or "The kind of signal I don't ignore".

This is where our edge is with the tools we have. Yes we can torture the charts and try to get something out of them, but those are not the probabilities that this chart carries.

As for SQQQ, 3x short QQQ which I prefer for a longer term trending trade as I don't have to worry about expirations or massive leverage draw-down. Believe me, I think there's a right tool for every trade and in certain circumstances I'd go for a QQQ put. specifically if we got an upside head fake move above the recent QQQ highs from this bounce and that head fake move was chased by retail and sold by smart money with 3C divergences screaming to prove it, I'd say, "I think the discount on this move and the signals telling us it's a probable head fake. make this the right circumstance for a option trade".

 This is the SQQQ (3x leveraged inverse or 3x short QQQ) 60 min chart with a VERY similar chart to what we saw earlier in Short term VIX Futures like VXX and UVXY, a "W" type base with a leading positive divergence, the only thing that's missing here is the head fake move BELOW what is now a clear support level, in the QQQ it's a clear resistance level and the head fake would be a move ABOVE.

 The 15 min SQQQ chart is what I'd call a screaming divergence, the only thing I'm not absolutely crazy about right now is the smaller reversal process at the lows as they tend to be proportional to the preceding reversal and trend, thus it looks a little narrow and as pointed out above, there's no head fake move which we see about 80% of the time , especially at important reversal areas.

 If we take the SQQQ 5 min chart and consider the common Igloo/chimney concept and simply invert it as head fakes aren't just on downside reversals as we just saw with GLD above, we'd have a rounding bottom (the igloo) and then a Chimney that pushes below the rounding bottom, this is what makes retail technical traders ignore the bottoming process as they see a new breakout/breakdown move which they consider price confirmation. These are nearly a century old technical concepts and Wall Street is well aware of them, they can see your stops when you place them with your broker and if I can tell where the stops or limit orders are based on technical traders' predictability, how much more so do you think they can?

What I'd like to see to either fill out SQQQ to full position size or to open a QQQ put or SQQQ call (I'd go with the QQQ put because of liquidity) would be the "Chimney " portion or the head fake that breaks below the rounding bottom's lows and draws in new SQQQ shorts or QQQ longs, they have already been insanely bullish on the stream as I get daily sentiment updates.

 If we look at SQQQ's 1 min chart on an intraday basis, there's a late day leading negative divergence, this isn't anything I'm concerned about, but it does point to the building chance of that head fake move I'd like to see.

So why not just wait for the head fake move and not open any SQQQ position until then? Well I think the SQQ charts already look fantastic and while I'd say the head fake concept occurs about 80% of the time, in this position and this time in the market, I can deal with a little head fake draw down that allows me to tweak my entry or go with a more leveraged options position.

 This is the QQQ 15 min chart and a ugly leading negative divergence which is already lower than the previousness with price in the same relative area, it's sort of that UVXY  "W" concept in reverse.

 However on a 1 min intraday chart, just like SQQQ, we have a leading positive divergence, in fact it confirms the SQQQ leading negative 1 min chart and increases the probability of a head fake move.

 We don't usually notice them, although some are very extreme and really standout, but this chart of the QQQ shows a rounding top to the left with some emotional and pretty nasty price declines on an intraday basis, but still it makes that higher high or head fake move at the Chimney in what looks like an igloo with a chimney on the right side. I often say that this price pattern/head fake move is one of the best price-based timing indications we have as these moves almost always directly precede the reversal whether that be down like this or up as I suspect we see near term in GLD.

The current price pattern to the far right doesn't have a head fake move as of yet and it's a bit too narrow as I said before, there's usually some sense of proportionality between former reversals and/or preceding trends. 

THERE'S NO HARD AND FAST RULE, THESE ARE PROBABILITIES, BUT TEND TO BE VERY HIGH PROBABILITIES.

 Here's a longer chart of the Q's with 2 of these price patterns. As I said above, sometimes they stand out like a sore thumb, usually when they have a job to do like change sentiment and create an extreme and believable move, other times they move just enough to trigger stops or limit orders such as we saw in GLD this morning.

 As for the intraday TICK today, as emotional as the market was feeling toward the end of the day, it didn't register any eye-opening extremes. The lowest TICK print was -1265 or so and then shortly after an upside print of +1200, while rare, we have seen these print extremes of 1600-2000.

And our custom TICK Indicator so we can follow the trend, it definitely went south today since the bounce started, but like the divergences intraday at the end of the day in QQQ and SQQQ, note the very late day improvement in TICK which points to a higher probability of that head fake move that gives us the strongest, best times entry with the least risk.

Of course this is pretty myopic, all in all we are in a good position no matter what in my view, I just prefer to try to get the best position within reason and today reason meant having some exposure with UVXY long, SQQQ long, GLD long which really could have been SPXU long, VXX calls , IWM short, etc. You know that VXX/UVXY trades opposite the market so if I think UVXY is going to move higher, then I obviously think the market averages are going to mover lower.

I'm going to take a post close look around and see what else stands out other than price recovering off the late day lows and making a head fake a higher probability.