Tuesday of this week when we first started seeing strange signals that told us something other than a plunge in the immediate future of the next few days was coming, I put out a number of posts very quickly as it was not the typical "Directional move" in which all risk assets were going to likely move together-at least not in the initial start of this.
In this post I thought Financials were going to rally as I was calling for the closure of FAZ calls, which is an ultra-leveraged position short financials, I wanted it closed based on my view that Financials would be moving higher in the immediate future.
Financials as a group moving up over 2% since the note was posted, individual financials may have moved multiples of that. A leveraged Put on Financials would have been killed.
You may recall I didn't think the QQQ/Tech would do so well on the same day so it was a tough call because it was a totally split market which we rarely see, but these calls were all based on the signals, not my opinions as I wouldn't generally have an opinion like that.
However, when it's time to add or initiate new positions on the short side, Financials are near the top of my list.
Lets take a look...
To be clear, I don't think Financials short at this moment is a Primary trend trade, I think it could last weeks perhaps, I think it is worthwhile, but I'm not ready to say it's a primary trend trade. Here's XLF, Financials on a 60 min chart since the October top, you can see this counter-trend rally has been sharp, they always are in a declining trend, but the negative divergence is just as sharp-more so than any other on the chart.
XLF 15 min showing Tuesday the 4th and a leading negative divergence here.
XLF 10 min also leading negative, the 16th is when the entire market started this move up.
XLF 3 min seems to be about in line, I'm not too concerned with getting the exact top, I'd rather have some exposure with a partial position than risk missing the entire move because I was trying to be too fancy.
This is FAZ, the 3x leveraged short on Financials, it has a leading positive divergence on the 5 min timeframe here, with an in line move at the green arrow, not negative.
FAZ 15 min is also leading positive, it has broken below any local support so a potential head fake is in place, it may go a bit deeper, but that's why I chose to phase in to the position in 2 or 3 entries-make sure your risk management/position sizing is figured out before you enter the first position, phasing in is a plan, not a reaction to losing money like dollar cost averaging.
Here's the 3x long FAS 15 min chart, leading negative.
I actually have a FAS equity position at break-even that needs to be closed and I like the idea of picking up 1/3 of a full position of FAZ here, at this point I would not use options until it is VERY clear we are ready to fall, just as it was very clear Tuesday we were going to see Financials up and Tech down the next day and that reversed the day after.
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