Charts-

I've closed several speculative Calls at a profit this week, FB & AAPL among them. Because my primary positions are short and we've been expecting a move higher since mid-May, rather than close the short positions which we entered at excellent prices (as of now, even with the move up, every short position is at a gain), I made the decision some time back to keep the core shorts rather than try to trade around them as I would normally do. I believe we've entered a period in the market in which there are too many events that the market or smart money cannot discount; for instance the outcome of the Greek elections, the negative reaction to the Spanish banking bailout, the unsustainable yields in Italy that may send them looking for a bailout, German politics which may hold up ratification of the ESM bailout mechanism, doubts about whether the ESM can possibly be effective if Spain and Italy break at the same time, etc.

We have entered, "Black Swan Season" and rather than trying to get too fancy and try to trade around the market (I have been burnt before thinking I could trade around the market when we were in similar periods in the US circa 2008), I decided to hedge the short positions with smaller positions in leveraged longs, ETFs & options. 

The thinking goes like this: The short positions were entered at excellent levels, thus they are all still in the green (BIDU and CAT are up nearly +20% with no leverage at all). My big picture analysis suggests we would and will continue to see higher prices in the market before the next significant leg down. If all goes as planned, not only will the short positions be hedged against upside risk, but the leveraged longs should also make money (out of 4 equity long positions in leveraged long ETFs, 3 of 4 are at a profit:  1%, 8% and 13+% and the only loser is down -0.23%). In the equity model portfolio there are 10 long and short positions with only the 1 loser of -0.23%. I have good short positioning if a black swan event occurs, the hedge longs should make money and in the end, I should be able to add to core short positions at better prices and significantly less position risk. I usually don't like to hedge, but events are spinning out of control so rapidly in Europe that maintaining those core shorts is a priority.

  I have mentioned several times this week that it appears we are set for a pullback, even though both the Euro and the SPX are at levels in which additional gains should cause more shorts to be squeezed, the market never makes anything easy, thus we see a lot of noisy moves to shake out both bulls and bears.

As of just before the close, it appeared that we may see some upside volatility, but the only real theme with an edge in near term trade is the pullback, whether you play the pullback on the short side or use the pullback to enter long positions for continued upside gains.

 DIA 3 min has a couple of positive intraday divergences so there's a possibility for some more upside (I mentioned this in the GLD trade post).


 The real edge though can be seen on a 15 min DIA chart,this divergence is large enough for me to take profits on longs and loo at the possibility of entering a few short term short positions. However I didn't close all long positions as I want to maintain that hedge, but there's definitely a bias to the downside in current positioning. Again let me repeat that I expect a pullback, the 30/60 min charts still suggest more upside and it could be quite impressive.

 IWM 1 min has an intraday positive divergence, but unless I was a day trader watching this every minute, there's not enough of an edge here to make a long trade worthwhile, especially considering it will probably very volatile as we saw intraday today.

 IWM 3 min negative divergence suggests a pullback as has been mentioned Monday/Tuesday as well.

 The IWM 5 min is sharp enough to consider a trade on this divergence, I chose GLD thus far as the signals there are quite strong.

 QQQ 1 min intraday shows a positive divergence at the 3:15 lows, some more upside is certainly possible here, but in my view I would only use that possible upside to set up better positioning on some short term pullback short positions.

 QQQ 5 min is positive at the F_O_M_C lows and largely in line since.

 However the signal that has some edge is found on the 15 min chart, again, while there may be upside volatility intraday, this is a signal I consider to be worthwhile.

 SPY 1 min with a small relative positive at the afternoon lows.

 SPY 2 min shows the stronger signal suggests a pullback.

SPY 15 min again is the only short term signal worth trading in my opinion.

To be clear, while I feel the signal is worthwhile, this is for a pullback move only. The more important trade is re-establishing some of the longs like FB/AAPL that were closed because of the probability of a pullback. If we can get a pullback with positive divergences, we will have a trade with high probabilities, low risk and a trade that has come to us rather than a trade we are chasing.

Next up is the Risk Asset Layout Update.