Closing Take

This will be short, pretty much everything you need to know about today, you already knew last week as we put the pieces together throughout the day, this end of day post from Friday starts like this....

"Well I'd much rather have the NASDAQ call position than a NASDAQ put position going in to Monday."

SPY Daily-Support on Thursday, Friday had its own hints.

That QQQ Call position taken up on Friday is up +48% for 1-day, not bad.

I often say it and much of our strategy is built around it, "Price action is above all, deceiving"

Friday was a perfect example of it as this post from the EOD makes clear

EOD Market Update

Taking a quick look around, I plan on keeping the Call positions open as much of the market is showing decent confirmation, there are some 1 min negative, they may playout in to the close or maybe Wednesday or they will not be a factor.

I'm still not chasing AAPL here, I'll wait.

I'll update everything in a bit, but for now, I think we are starting trend 1 finally.

DE Trade Set Up Idea

Today we have some decent market gains, they aren't yet what I hope to see and expect to see, but the point is I'm not talking about chasing trades today, the trades for this move were set up last week. If the situation allows for decent trades to still be set up for trend 1, then we'd of course take advantage of that, but not chasing, there's too much risk for diminishing returns.

However, I did look at DE for another member and found it so interesting that I thought I'd share it with you. This is a trade that can take advantage of a quick move higher in the market and give you a great entry, lower risk and higher probabilities, so this is one you want to put on your radar and if it goes according to plan, which I think it will, it will be a set up for the next tradable move (trend 2, down).

 There are 3 possible levels that we want to watch as entry levels for DE, the 3 are shown with trendlines, obviously the higher the better, but the less likely we get that move as well.

 This is the first level, we should be able to get a move through this, it's a clear resistance area in a Dow-30 stock, it's seen by a lot of traders, therefore it sets up a perfect head fake move/bull trap. Where do you think all the Buy to Cover stops are? Where do you think retail longs would rush in to DE? Yep, right above that trendline/resistance.

We just need to simply confirm distribution and make sure it's not going to try to make a run to one of the higher target levels.

 The daily Money Stream chart shows 2009 accumulation, nearly perfect confirmation until 2012 which has been getting progressively worse on the negative divergence/distribution side.

 The 3C daily chart in a leading negative divergence and especially tight in this target area. When we see these kinds of signals before a breakout / head fake move, we almost know for sure that the trade will work, BIDU was one of the best examples of this in Q1 of 2012.


 The long term 15 min chart should be an obvious divergence.

 Close up of the same 15 min chart and we have recent distribution, but we are looking for a breakout on the upside. What the above charts have done is tell us that an upside breakout is A VERY HIGH PROBABILITY HEAD FAKE MOVE.

Here the 5 min chart gives us the positive divergence we need for a head fake move/upside move to commence. The fact it is 5 min only helps our case as it is not a large positive divergence so DE is shaping up to be one of the more interesting short prospects that may be available this week.

Call Positions Still Open

The Call positions where specifically for trend #1, last Friday I had liked what I saw in the NASDAQ and opened a split position in Jan $64/$66, those are in the green today, the older SPY calls, Jan. $140 & $145 are in the red, but have moved significantly closer to the green, I expect they will be green by the time this is said and done.

I have no intention of moving anything as of yet, either long or short, I'm happy with the way things are positioned which is kind of a modified, positional hedge. Instead of a traditional hedge in which short positions are protected by a call option and you end up with a toughly flat percentage move, these hedges are meant not only to hedge the short positions, but to make money, to be closed out when they are finished and then to let the short positions work.

I don't like what I see in the TICK right now though as far as intraday movement.

Volatility is still confirming Trend 1

There's a VERY weak positive divergence only in the intraday 1 min volatility futures (VXX/UVXY), this would signify an intraday (small) move lower in the market, IF there's no news that runs it over.

As far as the evidence I showed you earlier today regarding trend 1, the pop higher, volatility continues to confirm the other evidence (both presented over a longer period and today).

 1 min positive, suggests volatility moves up intraday, but this is the weakest of all the signals, and doesn't suggest much of a move, more a jiggle.

 2 min is perfectly in line

 3 min is leading negative, this would suggest volatility futures have more downside, the market moves opposite these futures, this is the reason for the call positions, the last was opened Friday in the QQQ.

 10 min in a deeper leading negative divergence, this is an important timeframe.

BONUS CHARTS-remember that we expect trend 1 to be shorter lived relative to 2 and 3, (2 is down and 3 is back up). Volatility on longer charts is in line and confirming trend 2, that would be a market decline and volatility moving up.



 60 min leading positive divergence

 2  hour leading positive, LOOK at that change in character!


And the 4 hour, no drawings needed, this is a big time move up in volatility, that is a big time move down in the market, that's still trend 2, trend 1 needs to play out first.

One Hint

This may be something, especially if it keeps up and more specifically if it can stay positive with a SPX pullback which is coming

Right now it is moving with the market, so it's not a huge signal or hint, but it is a bit stronger on the TICK upside.

 TICK trend is with the SPX so that's normal, the +1500 move is a little strong for this kind of a move in the SPX so maybe there's something there and this is one you can even watch.


SPY 1 min intraday negative divergence.

If the TICK moves more positively than the SPX, that may be an interesting hint.

Market Update****

Last week we saw some muddy signals in which it was obvious that the market didn't know which way things were going to go, but I really don't think I've ever seen this kind of indecision. 

Earlier today I showed you charts that were pretty much across the board suggesting trend #1 (the pop) which almost certainly seems to be tied to the announcement of a deal,  should happen and likely will happen fast and will reverse fast (my gut feeling is the reversal will be on the thought that it took so long to get this done and the Debt Ceiling is next- perhaps we even face a downgrade based on Congress's inability to work together as was the reasoning for the last downgrade also on the debt ceiling).

However in terms of timing and intraday signals, the market is showing no bias that I can ferret out no matter where I look, sure I can find hints, but nothing solid that I would consider high probability, this is one of those VERY RARE occasions in which (as I pointed out recently as we had another on the Boehner plan "B" vote), that the market seems to have no inside track, no inside line on when, how or what is coming and as such, they aren't making any moves.

I'll use the Q's as an example, but nearly every average, industry group and important stock look exactly the same.  Try to concentrate on the area from around noon to the press conference (in yellow) and note how 3C and price are almost exactly the same, this is where the market really went TOTALLY indecisive.

 1 min

 2 min

 3 min

 5 min

15 min.

Obviously, any strong move that diverges away from price is likely going to be a strong signal that someone knows something, so I'll be watching for that as it will give us an early heads up and depending on what it is, should give us a huge advantage over the crowd as once Wall St. figures out which way to go, it will take them a little time to position which we can use.

Some Idea of How Tight This Is

There's a little more negative movement the last few minutes, I think it's nervousness, but look at the right side of the charts as the Obama speech became known, 3C and price moved almost perfectly in sync, effectively short term the market doesn't know what to expect.

TLT Stands Out

However only on the 1 min chart, you saw the way TLT is moving (negative) and I think that is because of what the ultimate reaction is expected to be, but as far as this speech, the 1 min TLT is much more positive than price, suggesting money is moving to safety very short term.

Other Indications

Leading Indicators are completely flat as well.

The 1-2 min VXX and UVXY are pretty flat, they are negative in the longer charts, but that is what has been expected just on the reaction alone, as far as timing it, the 1 and 2 min charts seem to indicate what the rest of the market is indicating, IT DOESN'T KNOW if the Obama speech is it or not

Market Update

You've seen the more important charts, the QQQ Calls from Friday are in the green, now it's all about what Obama is going to say in 8 minutes.

Intraday charts are perfectly in line from 1-3 min in the QQQ, 5 min, and the short term 15 min are positive.

SPY is a bit more mixed, the 2 min chart right now is the strongest in a leading positive divergence, the 1 min is nearly perfectly in line, seemingly reflecting near term uncertainty.

DIA is mixed short term, 1 and 2 min are stronger, they are leading. It's not until the 10 min and only short term (today) that we have a positive divergence.

It seems the market expects a pop, they just don't know if this is it.

Still haven't moved on AAPL, but 1/3 a position isn't much risk

AAPL is REALLY Pulling my Strings

It's definitely not in the short term charts, it's this 15 min chart that is killing me.

I'm considering a phased in entry of 1/3 a normal position.

I'm still looking everywhere for near term confirmation, all of the longer term (beyond intraday) charts still seem to agree the market is looking for some positive news and a move to the upside, I still believe that move is limited for the time being, but perhaps it makes AAPL a trade.

Obama to Speak 1:30

OK, who knows what's going to be said, we have seen the underlying trade, implications of that and now an initial favorable reaction from the market.

If there's a solid upside market reaction, I'm looking to capitalize off it with the SPY/QQQ calls, I will be planning on selling in to strength, of course I'll be watching indications to gauge when the best time may be, but I have viewed "Trend 1" as a short term event, the kind of event that you sell in to while the rest of the market buys.

That's the initial game plan in case we have to move quick, I'll be updating you as frequently as possible.

Volatility & Treasuries Seem to Confirm Underlying Trends

At least when it comes to what I just posted,

 "From the looks of these charts, it seems like the market is already pricing in some resolution in underlying trade."

So far this morning, I have posted quite a few indications that look like there's some expected short term resolution that the market reacts favorably to, this is what I believe to be "Trend 1-the pop to the upside".

Volatility seems to be confirming this as well, although along with some of the other indications, it is more recent, but also quite strong where it needs to be.

 This is the Clear Method (slightly adapted) that a lot of swing traders use to identify what is important and what is noise, the white days in the daily VIX are important, they are the uptrend, the yellow days are noise, but most of the time a reversal is preceded by a noise day, today the VIX is down over -8%, consider the VIX typically moves opposite the market, it would seem that some recent hedges that have been put in place for long exposure protection are perhaps being taken off. The trend line is still in effect at this moment though.

 Friday I told you that when an average or something important like the VIX "Walk the upper Bollinger Band", it's a very strong move, again we are still in the area, but if the VIX is showing sign of hedges being taken off, there's likely an underlying tone of more near term confidence in the market.

 VERY short term I mentioned earlier the VXX and UVXY are positive on the 1 min chart, this suggests intraday weakness in the market or perhaps consolidation, that's very much in line with the market update I posted and used the ES chart as an example. We are in a tight consolidation right now, in fact very tight.

 Slightly longer term, but still within the range of what I have been calling, "Trend 1- the pop to the upside", we have a negative divergence in the Volatility Futures ETFs like UVXY here, this fits well with the 15/30 min positive divergences in ES and NQ I posted today.

 When you go out a bit longer to 30 mins it's not as negative, but slightly, this is kind of the outer limits thus far and this is what kind of keeps expectations more along the lines of what I have been calling, "Short term"- at least what we have right now.

Treasuries... These move pretty much opposite risk assets as a flight to safety trade when th market is not performing well or expected to not perform well.

 The 2 min chart is something I have talked about recently and it's leading negative divergence has pulled TLT (Treasuries-long term) down today.

 There's also a negative 5 min divergence-again, these signals are moving along the same lines as the other indications we have seen.

At 10 min there's a slight negative, it is what I would consider the outer edge of the move, similar to the VXX 30 min chart above.

What I'm saying is it looks to me like the market is pricing in a favorable reaction that is in line with our first trend, a quick, powerful move to the upside, TREND 1.

Leading Indicators and Futures

Leading Indicators today are so flat I don't think I've ever seen them this indecisive, they are nearly perfectly in line with the SPX except for 1 out of about 10, that's High Yield Credit and it's not really that off the scale, it is showing better recent relative performance, but nearly everything else is in what I'd call a holding pattern. This seems to me to be more tactical than strategic, in other words what we have been calling "Trend 1", a quick (quick is relative to the size of the other divergences representing the other 2 trends) pop to the upside. I don't want there to be a lot of confusion over quick as I noted above because it is small or quick looking when compared to the other two trend, trend 3 has been in place for months. This "Trend 1 pop" could still be a very strong move, this is represented by calls in the SPY and as of Friday the QQQ as well, I prefer to use more leverage on moves that tend to be smaller or faster and less leverage on longer lasting moves.

The other indication I want to show you is in futures for the Equity Indices, the S&P and NASDAQ (ES and NQ respectively). They are showing some momentum on charts that are fairly substantial and the momentum is very recent, meaning I suspect it is tied to expectations regarding the market's reaction to the Fiscal Cliff and as I pointed out yesterday, the resolution to the Cliff may not be ideal, it may in fact be horrible, but it's the market's reaction to the news that is important, not the news itself, at least for our purposes.

So here are the trends in futures that are much stronger recently.

 ES 30 min chart with a new leading positive divergence,

NQ 15 min chart with a new leading positive divergence, unfortunately I don't have any more history on the TOS charts to show the bigger picture.

From the looks of these charts, it seems like the market is already pricing in some resolution in underlying trade.

For the time, positioning hasn't changed and I see no reason to change it, the short term trend 1 is covered with more leverage in SPY and QQQ calls, Trend 2 is covered with less leverage so it is easier to hold them without massive drawdown pressuring the position and those are in either remaining core shorts are 2-3x leveraged short ETFs. As for the trend 3, I haven't positioned anything for it, I haven't even wanted to bring it up as I don't think we are there and don't want to confuse people, but certain analysis forced me to at least cover it in some detail.

Quick Market Update

The averages are at best, in line intraday, the SPY, NASDAQ Futures & DIA are nearly perfectly in line, the QQQ are slightly better than in line and the IWM is negative. I think ES (SPX futures) is the best representation at this point of all of these signals taken together.

As mentioned earlier, the first negative divergence is enough to cause a consolidation which has happened as ES moves sideways, but the divergence continues to grow deeper here so I'm leaning a bit more bearish intraday, at least for the next move from here.

The short term 1 min TICK chart isn't horrible, but it doesn't have the strength it was showing earlier today. The short term volatility indications in VXX and UVXY are positive which is negative for the market, again stressing SHORT TERM 1 min charts. It seems the market is still in a holding pattern, waiting for Congress, but it also seems like trend #1 (a pop, likely on some Fiscal Cliff good news) is well supported.

AAPL - 3 Trends - The Fiscal Cliff

AAPL is kind of becoming a bellwether or almost a lading indication for what I consider to be trend 3, but we still would need to see trend 1 (a quick pop up which could come quickly on news of some Fiscal Cliff arrangement and fade as fast with the debt ceiling debate coming up) and trend # 2 which looks to be a move below 11/16 lows. AAPL has been in a long term accumulation pattern, but near term hasn't been signaling that trend is ready yet, although I keep an eye on it for any changes in these trend table assumption.

I'm starting to wonder whether it makes some sense to pick up some shares of AAPL for the longer term, I'll show you why I'm thinking that, where I would consider it and what may hold me back right now.

Friday I posted the bigger picture long argument for AAPL here.

First to understand the 3 trends on the table, I'll use the QQQ as it seems to be the easiest to see and explain the complicated situation.

 Short term as we come close to the deadline for the fiscal cliff we have a short term, but powerful trend on the 2 min QQQ chart, this looks like the market is preparing for some good news, that it will bid the market up on this good news, but ultimately will be a quick move. This is the only move that I have any assumption as to a catalyst , Fiscal Cliff resolution of some sort.

 On the 15 min chart, the cycle to the upside (and remember there's typically 4 parts of a cycle, accumulation, mark up, top and decline-I'd say we are at the top part, close to the decline). The leading negative divergence here suggests a move below the 11/16 lows. I don't know how the Fiscal Cliff resolves, but I'm assuming the debt ceiling may be a catalyst to send the market on a path lower, the logic (after a bounce higher on some resolution) being "Look what a mess the Fiscal Cliff was, now we have to do it again with the debt ceiling!"

As to trend 3, which has been a longer term positive divergence out on a 30 min and some 60 min charts, I don't know what the catalyst could be, possibly F_E_D related?

In any case, AAPL is showing signs of this trend 3 and without resolution in the other signals it makes it hard to be a buyer of AAPL for a longer term move like it's longer term charts are implying, but on the other side of that coin, you also don't want to miss a move that looks like it could be quite powerful because you are nickel and dimming the entry to death.

This is why I have said so many times that this is one of the most complicated markets I've seen, maybe ever as there is at least one or two more trends that are hinted at (4 and 5!)

To AAPL...

I'm not interested in the move intraday in AAPL, in fact it looks to be failing as we speak. The move didn't have near term support and I think it was just more moving with the NASDAQ  and some news.

 AAPL 1 min chart this morning showing an initial negative divergence, this divergence also goes out to at least the 5 min chart.

 However this is the bigger picture on a 15 min chart and it's impressive, it's also part of an even bigger picture...

 I think I posted this chart Friday as well, it's a bearish descending triangle, a head fake move to the upside today is not surprising, but the head fake move I'd like to see is a Crazy Ivan with AAPL moving below this triangle's support as traders expect and to be a buyer in that area, I am assuming we'd have to hit trend #2 for that to happen, but that's a gut feeling as of now or at least until the charts between the 1 min and 15 min clear up because as of now, only the 1 5 min is really positive (as you saw the 1 min is starting to already turn down and there's no positive support beyond that in the 2, 3, 5, or 10 min range. I'm also assuming a move below support would bring those 3C positive divergences in those timeframes which would confirm that is where I want to buy. The trade would be coming to us, it would have less risk and higher probabilities.

This is what would have to happen.

The thing that has me a bit edgy is how good the 15 min chart looks, today's move I could care less about, it's that longer chart.

I always try to make decisions based on objective data and high probabilities, for now, I'm going to hold off on AAPL and hope to see the charts from 2 min to 10 min. fall in line with that positive 15 min chart, that's where the probabilities are highest, I just have a bit of an emotion called Greed or maybe even Fear (fear that I'll miss the move) creeping in.

And that's where we are at with AAPL, with some hints about the market in there as well as potential Fiscal Cliff and Debt Ceiling reactions.

HLF's Controlled Short Squeeze

Remember this one, a bunch of large institutions short HLF (they are going after the multi-level marketers) and the chances for a short squeeze?

Last week, Friday I believe I posted this, "HLF-Controlled Burn" because this isn't acting like a normla short squeeze, but is seemingly being expertly managed by the institutional shorts. I mentioned how it is seeing moves in quick +5-7% bursts and how you can probably make some money if you pay attention to the pattern and are nimble in getting in and out.

I suspect that professionals like these (who were and maybe are still) short HLF, don't let it slip they have a huge short position like this on accident, they aren't going to try to purposefully attract a short squeeze and shoot themselves in the foot just to tell all of us how they are positioned, they let that information out for a purpose, as of now I can't figure out what exactly the purpose is, but this is not acting at all like a typical short squeeze and more like a controlled burn, a little here, a little there.

I suspect in the end they intend to go after HLF again as it seems like the government will be cracking down on multi-level marketers like HLF, but that's just a hunch.

For now if you are trying to take advantage of this trading pattern of quick bursts up and then consolidation, I would keep it nimble until we figure out exactly what the plan here is.

On that note, it's made a decent move this a.m. as it typically does in the a.m. so you might consider an intraday trailing stop if you are long HLF.

Opening Indications

This morning's opening indications are telling us less about the market this morning and more about the way the market really works in a much larger sense, although there are some early hints worth mentioning.

As you know from Friday, while the market was plunging, 3C would normally follow if the smart money underlying trade was selling off as well, instead in many assets they seemed to be accumulating the sell-off which was strange given the perception of the Fiscal Cliff being solved are very negative.

We saw this in ES , the SPY, DIA, QQQ and NASDAQ futures had the strongest signal. Not only is it amazing that the Equity Index futures like ES and NQ maintained a bid under them all night, holding them up, but this morning they have moved up in a most profitable way. This probably has nothing to do with the Fiscal Cliff and more just Wall St. taking the other side of the retail trade (sell-off) and making money on it. This is the bigger lesson, this is Wall St.

We'll look at opening indications as well as that is the point of the post, but they are telling us much less.

 DIA 1 min backed up to Friday's close...

 1 min this morning with a very slight negative divergence, this is along the lines of a consolidation unless the divergence grows larger, but not telling us much as of this moment.

 S&P E-mini Futures are closing in on the pre-plunge levels from Friday  and also have a slight 1 min negative divergence, I think I know why- I'll show you at the end.

 NASDAQ E-mini Futures which saw the strongest 3C positive divergence during Friday's plunge have now moved above Friday's pre-plunge levels, a definitive profit for those that accumulated the plunge.

 The QQQ also had a positive divergence during late Friday, over all the 1 min chart is slightly leading, but for practical purposes I'd call this more "in line" or price/3C trend confirmation.

 SPY 1 min close up is a little better than in line this morning.

 This is the divergence on the 2 min chart since Friday.

The slight negative divergences here and there are likely because of the FX pair below, EUR/USD...

Overnight as the pair lost ground while the Futures didn't budge (which is strange in itself under normal circumstances), but as the EUR/USD lost ground, they too saw a positive divergence in to their own p;lunge, it wasn't quick like Friday's, it lasted all night, but the pair shot up just before the open, now they are losing some ground and I suspect that is what is causing the initial 1 min negative divergences in a few averages, but here's another bigger picture lesson of how the market really works, cheaper prices all night are accumulated and then a quick surge when volume is higher and they can easily sell in to it and make money.

I'm going to look elsewhere for signals, there are some interesting longer term signals such as AAPL which I mentioned late last week, I want to keep a close eye on these.