Financials (FAS/FAZ)

FAS is a 3 leveraged long Financial ETF and FAZ is a 3X short Financial ETF, to express a bullish position you buy FAS to express a bearish position you buy FAZ.

I opened FAZ calls which is expressing a VERY leveraged bearish view, but remember that ETFs are generally a good tool and used for short term moves and options, ESPECIALLY MY view of them are ULTRA SHORT in time holding them, usually little more than a day. So this position would be a shorter term one to hedge longs that I wouldn't want to take the time to move around selling and buying back, etc.

Nothing has changed since earlier in the week when the first pullback signals showed up, nothing has changed with the highest probability, largest trend signals still VERY bullish. Nothing has changed about wanting to use a pullback to establish leveraged longs like AAPL calls, etc like we did last Friday and closed Monday this week for a 100% to 115% 1 day gain.

Here are FAS and FAZ expressing the outlook of the trend, just like the market signals.

This is FAZ (3x Bear Financials) and this is the higher probability timeframe that shows us the same thing the market has been telling us, we are going to see a strong move higher that will probably last the rest of the year, maybe even longer. The negative divergence on the 15 min chart (the longer the timeframe the more important) tells us that Financials should do well over the coming weeks/month/s as this bearish ETF is seeing distribution in a timeframe that is known for pretty decent trends of weeks to months and considering the size and intensity of the divergence (leading negative at a new low), it is probably on the longer side of that estimate.

 Go out even longer to an even more important timeframe, 30 min chart which we have seen move stocks for 4-5 months and we have a very ugly leading negative divergence at a new low, the point is as FAZ was run up and Financials were run down, Institutional money was selling (distribution) in to the run up. There are two gaps in FAZ at the yellow areas, I'd guess that a short term pullback in the market as we are expecting will send FAZ in to one of those gaps.

 Even on a shorter 10 min timeframe, FAZ is leading negative and you can see not only where smart money bought in anticipation of Financials falling (white arrow), you can see how they sold those shares in to higher prices in FAZ and demand, by the top, they were out and long gone, probably long Financials at that point in FAS.

The point of showing you the 10 min chart is if this were to be a pullback in the market that I expected to last 2-3 weeks, this 10 min chart would be positive, not leading negative.

 Now on a very short term 2 min intraday chart we see some recent accumulation in FAZ in anticipation of a pullback in the market including Financials, today's new low allowed them to pick up shares on the cheap, but this isn't a big divergence and does not reflect a serious move although as it is happening it always feels serious, that's why we put these in to context so we have an idea of what to expect.

 At the FAZ 5 min chart this is the last timeframe that is positive over the last 2.5 days, so the December $17 calls opened today should take advantage of a short term move up in FAZ/short term move down in the market and financials, how short? We can't say, we just know the more serious probabilities are heavily in favor of the market trending higher over the next few weeks to month/s.

Now FAS, the 3X leverage Long Financial ETF... If we expect to see confirmation (which we've already seen the last couple of days this week in almost every asset class) we expect FAS to look the opposite of FAZ.

 On a 5 min chart FAS really isn't that negative, so it's not that strong of a move against Financials in the big picture.

 On the 3 min chart though (which is less important) the last 2.5 days have shown a negative divergence in FAS or distribution, again indicating the same thing we knew on Tuesday, that a pullback in the market including Financials was very likely.

Now if we look at a little more serious timeframe in FAS, a 10 min, we can see a leading positive divergence, so the short term tells us in the next several days FAS moves lower, but the big trend has been to accumulate FAS and over the bigger picture it and the market move up, this is why once the pullback reaches a certain area, I expect to see heavy accumulation of FAS, Financials and the market in general, that's an opportunity and that's when I want to add to or start new long positions.

Savy?