Perspective: VXX / UVXY

This is really 2 posts in one. The first is to give you some perspective, beyond that for more detailed intraday or very short term probabilities such as the potential bounce to either fill the gap or to move the market toward the max-pain op-ex pin for tomorrow's expiration, I'm going to need to go through the typical ritual of the 100 Futures charts and check leading indicators.

However, in my view, unless you're a day trading junkie, there's a very clear trade and its the same one that we called out BEFORE the bounce started around July 10th when it was called a Risk Off Bounce.

As a real quick and dirty way of showing some perspective via SPY charts, I've put a few timeframes in.

 SPY intraday found a toehold from that pretty ugly downside. I suspect in the coming days and weeks we are going to see some much uglier versions of this morning on a lot larger scales.

There was some increased volume on a downside pullback, we would usually call this an intraday flameout, but it's the wrong place for it, if anywhere it would have been at the lows of the day. Tick was pretty mellow at that moment so it looks to be more SPY specific.

 The 2 min chart is holding about the same as the 1 min above, but the 3 min where we had a base area , albeit very weak, forming, it looks like  that was lost as 3C makes a new lower low.

 The 5 min chart as you may recall from earlier today went from a short term, weak positive within a longer term strong negative, or in other words, a weak bounce within a stronger downtrend. This moved to a new lower lows as well, so as I said earlier, damage was done today to the short term bounce probabilities.

As far as the bounce cycle from 7/10. this SPY 30 min chart is VERY clear about the divergence at the different stages (1 = accumulation; 2=Mark up; 3=Top/Distribution; yellow is out head fake; 4= decline.

This is a very strong 3C chart at 30 mins, not much noise, mostly trend and it's clearly leading negative way worse than price so far.

Perhaps an even better way to look at this with some perspective is the Vxx / UVXY VIX Short term Futures. 

If this isn't about as clear as you get as to what the trade is here, which we have already set up for, I don't know what is.

 VXX 1 min intraday with a positive divergence at the opening gap lower confirming the lack of confirmation in the averages that gapped up this morning, Otherwise a slight negative as the market found a toe-hold on the earlier decline and a slight positive at "A", but within a short term leading negative divergence.

In other words,the short term charts are still a mess.

 The 2 min XIV which trades opposite VXX and with the market or you could say the SPY for the most part. It shows the lack of confirmation on the open and a negative divgerence there with the toe-hold on the morning decline. Other than that, short term there's not a lot to see.

 VXX 3 min leading positive divergence, but also note the shape of price action in the area, a rounding bottom with flat support.

 This is the XIV 5 min chart showing the bounce cycle, a clear positive at the base for the bounce started around 7/10, then a strong leading negative divergence which I tried not to draw over so you can see it's clarity and what I consider a beautiful chart. By this time, I'm pretty well clued in as to what the trade is here.

 The inverse of XIV or VXX short term VIX futures, again a strong leading positive 5 min divergence confirming the XIV 5 min chart above as they trade opposite each other.

And a beautiful 15 min, very strong VXX leading positive divergence. The last VXX bounce's divergence can be seen to the left in white. Look at the difference in size and shape of the current divergence.

The UVXY long positions have been left open, I would consider adding a call if we were to get a head fake move below VXX support in the area, but otherwise, I just want to hold the position and let it work which shouldn't be long the way this is leading and the way price action has played out (shape).

For more intensive short term projections, I need to go through the Index futures and leading indicators. I do want to add additional short positions, but I don't want to chase them so I'd like to see if there's any thing we are missing in futures and Leading Indicators.

However the main concept here or for me is to align my positions with the highest probability direction which I have, you should be able to figure them out pretty easily from the charts above. I'm not so worried about short term noise, even an impressive bounce which may be off the table. An op-ex pin looks more probable. The basics of this thought process are, whatever is going to happen, theI want to have trades aligned with the path of least resistance. We can chase intraday moves and I'm not saying there's anything wrong with short term trading, but there's a difference between high probability/low risk short term trades and we have taken quite a few 1-day option trades and then there's what we have above. To me it's almost self-destructive behavior to chase bounces or perceived bounces in the area and while it sounds like something no one in their right mind would do, there are a lot of adrenaline junkies in the market that are looking for a rush, I'm looking for long term sustainable gains.

I hope this has helped a bit with perspective, although after everything you've seen this year, none of this should be news.

Back in a bit after I go through futures/leading indicators, although I'll be keeping an eye on current market action as well.