The Odd Treasury Trade

I'll be the first to admit, buying TBT logically makes no sense; after all, it was my analysis BEFORE the F_O_M_C yesterday that said,

"I shouldn't be speculating like this, but after looking at the Risk Asset close and some other indications, my best guess is that the F_O_M_C will disappoint the market with a lack of QE, in fact I don't even think it will be mentioned (as in the Jackson Hole Speech of 2010) beyond some possibly more dovish than usual, "We stand ready with an array of policy tools to step in should market conditions warrant intervention" or something along those lines. This may bring the market pullback I've been expecting and the Euro may be the catalyst for the short squeeze, meanwhile GLD I expect to pullback, but most probably be accumulated for QE possibly later this year. By the looks of treasuries, I would not be surprised if some policy adjustment was made that may be favorable for treasuries."

The analysis in red was 100% right on, the F_O_M_C statement obviously did disappoint the market-today may be taken as token evidence of that, although signs of a pullback were in place before the F_O_M_C.

Not only did the F_E_D not give us QE, they didn't even hint at it, former policy statements did more to hint at the possibility.

As to GLD, it also had been showing signs of a move to the downside for several days before the F_O_M_C.

Highlighted in orange, the policy statement specifically said they'd be buying 6-30 year treasuries (TLT is 20+ years) and selling 3 year or less. This was exactly in line with our TLT analysis the day before the statement. In fact the initial reaction in TLT looked like this...

Here's today's intraday price action.

 The price pattern is very reminiscent of what we see during distribution episodes.

Note the volume near the end of the day.

I'm not really sure what's going on with Treasuries, perhaps sell the news? In any case, TBT (UltraShort 20+ year treasuries) looks like it should be at least a decent swing trade, perhaps it will add to that.

 There was unusual heavy (mini-capitulation-like) volume recently in TBT.

 TLT intraday 1 min today shows the typical flat price action and a leading negative divergence

 The 3 min chart confirms the same.

 As does the 5 min chart.

 Even the 15 min chart saw some bleed through, this is typical of new positioning as the divergence starts on the shortest timeframes and makes its way through the longer timeframes. The "Long Treasury" trade after the policy statement seems obvious and anything obvious in the market is more often than not, obviously wrong.

 TBT confirmed TLT as it saw the same flat area today and a leading positive divergence in to that area.

 The 3 min also confirms, just as the TLT 3 min chart confirmed.

 We have an impressive leading positive out to 5 mins today.

And even some hint on the 15 min chart.

As I said, other than the long treasury trade being obvious and perhaps a "sell the news" trade, I'm not really sure what's going on, but after looking at 75 or so charts, this is the trade that stood out.

We'll see shortly what it brings.

Treasuries?

I've been looking everywhere for something that wasn't in line with the market today, an opportunity.

Strange enough, TLT looks to be seeing some distribution and TBT some accumulation.

I'm going to start a very small speculative long in TBT right now using straight equities (long the stock), it doesn't make a lot of sense to me, but the signal is there.

I repeat, this is straight long purchase of TBT and pretty speculative at that.

Risk Asset Layout

I was hoping this layout and these indicators would hold up during a pullback, they haven't performed in the best case scenario, but overall I'm VERY happy with where they are at today.

Commodities- With no QE announced, commodities were bound to take the brunt of the selling action, perhaps even worse, Manufacturing reports from China, Europe and the US all released overnight or today were horrible, not exactly the kind of environment that supports commodities.

 Commods intraday vs the SPX.

 Commods intraday vs the Euro

 Commods and the sub-intermediate trend, performing a bit worse than the SPX overall, but I think that's understandable.

 From left to right on this daily chart of commodities vs the SPX, note in 2010 Commods were hit first as QE expired, when the Jackson Hole speech came out and QE 2 was evident, commodities took off, when QE2 was drawing to a close, once again the bearish tone showed up in commods first. Operation Twist does nothing for commodities and the slowdown in China has become evident over the last 6-9 months, it's little wonder commodities are performing so horribly vs the SPX currently.

 High Yield Credit has ben the problematic asset on this layout over the last week, I'm very happy to see it holding up very well vs the market, this further suggests that although very volatile, we are seeing a pullback in the market, which means we still have strong probabilities for further gains after this pb runs its course.

 As mentioned yesterday, "If HY credit can hold up and the market pulls back, they should meet-reversion to the mean or confirmation", that is what has happened today.

 HY Corp Credit has been holding up better than HY the last week, intraday its in line with the market for the most part.

 With regard to the sub-intermediate trend, HYC credit is still holding up well, again suggesting we are looking at a pullback as has been expected the last 2 days.

 Yields pulled back intraday, but are performing better on a relative basis than the SPX, this is also good news.

 And like HY credit, the pullback in the SPX has caused the 2 to revert to the mean or confirmation.

 $AUD is nearly in perfect sync with the SPX, as long as it is not negatively divergent, it's fine with me.

 The Euro/SPX intraday

 On a sub-intermediate basis-looks fine for me.

Sector rotation (relative to SPX momentum) shows defensive sectors rotating in, that's no surprise. Industrials, and Tech are a bit stronger than I'd expect.

Overall, I'm happy with what I see here and it should give us some good opportunities.

FB Finally to pullback?

As you know, I closed out my FB calls for a gain I believe last week, I have been hoping for a suitable pullback to add the position back. As it stands now, it looks like FB is going to pullback. I don't see a strong enough edge to short the move, but if it turns out to be a reversal instead of a pullback, it's no skin off our backs. If a pullback opens up another great opportunity, then that's great.

 FB saw some volume come in to the market as stops or orders (shorts) seemed to be triggered on a break below some intraday support.

 This is the bull flag which technical analysis teaches is a continuation pattern that should break out to the upside and start another leg up, I suspected this pattern would be gamed and we'd see a pullback here. As you can see some volume came in to the market as FB broke above the bull flag (pennant ), that's the head fake move that should set up the downside pullback.

 Ultimately, this is the area that FB would have to break above to get a real Stage 2 mark-up move going, it still may do that, in fact I see that as the highest probability as the longer term charts are still very positive.

 FB 1 min negative after good confirmation on the move up, again for those of you using 3C, note the flat price range where the negative divergence occurs.

 The same negative is on the 5 min chart, it's not too sharp so I don't have any reason to believe this is more than a pullback at this point and I also don't have a strong enough signal/edge, to short the pullback. I'll just wait it out and see if the next opportunity presents itself as I suspect it will

 The 15 min chart, again note the negative divergence on the head fake move above the bull flag/pennant and the flat price range.

 The 60 min chart is still leading at a new high for FB, which is why I won't short FB and believe we'll have another chance at this on the long side for a move in to stage 2 mark up.

The Trend Channel has worked great, the original stop was below $26, the Channel locked in gains every day. The current stop is $31.41

GLD Follow Up

I decided to close 1/2 the August $160's, I may go ahead and replace that half on any intraday strength with some July expiration as the August are just not moving as I'd like.

 I closed half of this position at a nearly 37% gain since about 3:30 yesterday.

 Here's the 5 min chart, visually to me it looks like it's losing momentum.

 I added a Rate of Change (ROC) to price and sure enough it is losing downside momentum. By the way, applying ROC to some of your favorite standard TA indicators may reveal some surprising advantages over using the indicator itself.


 GLD 3 min is not what I would call accumulation (the arrow should be white), but it does look like a little warning for the intraday movement that I'm concerned with presently.

 GLD 5 min is in line with price after a negative divergence, which is where I would have rather taken the position, but I decided to wait for the F_O_M_C event risk to play out.

The 60 min chart showing the last long trade which did very well for members and this most recent short.

I'm thinking that the area of support at the $148.40-ish level will ultimately be breached, that would also be a move below the descending bearish triangle. This is where I would look for accumulation in GLD if we are to find it as that move would be breaking below two major technical levels and the shorts would pile in creating a bunch of shares available to be picked up on the cheap.

Re: the GLD position

I decided I'll take half off the table in the GLD Aug puts. I'll still have a position there and lok at add on some intraday strength, but for now, I'll lock in some profits.

Quick Market Update

The signals suggesting the market pulls back were obviously on to something. I suspect we have more to go, but it seems like we may be getting  little overdone on an intraday basis, I mention this because I know many of you are in trades with options that you want to keep on top of and use counter trend moves to enter exit positions.

What I'm looking for to tell me a pullback is ending would be a strong signal that the pullback is being accumulated. There are some hints, but nothing like what I would normally be on the look out for and although we have a pretty good pullback on a daily % basis, this is only day 1. The market is in the zone where it moves in extremes, but there are some hints that we may see some intraday loss of momentum. I may even look to adjust my GLD position if that's the case.

 CONTEXT for ES is showing the model more positive than ES, which reminds me I want to see how the risk asset layout is holding up in to the pullback.

 The SPY arbitrage model is also more positive than the SPY.

 I wouldn't call this a strong positive divergence in ES intraday, but it is in an area where it is certainly worth considering for the first time today.

 As evidence of the momentum in the pullback , just look at ES walk the 2 standard deviation channel of its VWAP. This is a VERY different environment today than yesterday after the F-O_M_C, remember the knee jerk reaction? Sometimes there are several, this could be a secondary knee jerk reaction-the market is CLEARLY NOT happy about the lack of any mention of QE on tap yesterday.

 The SPY 15 min is seeing an EXTREME move here, the 30/60 are still holding up fairly well all things considered.

 SPY 60 min still in leading positive positive, but today's action has moved the 60 min chart a bit.

 This may be the catalyst for an intraday respite from the downside momentum, the Euro is showing a rounding lie bottom intraday-this could have an effect on both oil and gold so I'll be watching this, it would also likely effect the broad market is the Euro rallies intraday.

 Euro 3 min showing the same.

 $USD 1 min is confirming as price is flat in the afternoon.

$USD 2 min also confirming.

This is just something to consider, I still think we have more pulling back to go, but may get a brief break. I'll have to decide if I want to close the GLD put on some intraday strength and then re-open it at the end of that strength. As many of you know, I like to spend the least amount of time possible in options.