UVXY Update and Market Example

First I want to explain why I would close FAS (3x leveraged long Financials) and not open a full FAZ position to replace it (3x leveraged short Financials) or why I would close FAS and enter a partial FAZ position when I think the probabilities are still for a move higher in the market, even if it is just a gap up that is faded immediately.

The market all comes down to probabilities. The reason I want to be out of FAS is this, we are already dealing with what I would consider a short term move ( the pullback to the downside) and we have this noise move (which was expected and talked about even before the move down started). Trading FAS long is trading against the short term probabilities, seeing a change that fast in the market seems to have a reason (Ron Paul's bill passed the House), but it also could be something else, something more serious.

Basically I don't want to take a loss on a position in which I know I'm trading against the probabilities, that loss would be 100% user error, 100% on me.

As for starting a position is FAZ when I think the probabilities are that I can get it at a better price, as I said, I think we know what caused underlying trade in the market to shift so quickly and dramatically, but I don't know for sure, so I want some coverage (without the leverage of options) in a position that is in line with what seems to be the highest probability trade. If the trade moves against me for a few days, it won't be much of a bother so long as the larger probabilities stay on the same side as the trade.

Now for UVXY, which is a leveraged short term volatility ETF (kind of like trading the VIX on steroids for short term trades), just like the VIX, both VXX (non-leveraged) and UVXY (leveraged) trade opposite the market or have an inverse correlation, so when the market goes down (which happens to be the short term trend highest probabilities), these ETFs should move up and thus far we've had good success with timing these trades. So a positive outlook in UVXY is a negative outlook for the market.

 The 1 min UVXY intraday chart, other than a negative divergence at the 10:45 highs, 3C stayed in line or confirmation most of the day, until the late afternoon where an uncharacteristic (compared to the rest of the day) positive divergence developed very quickly ending in a leading positive divergence. Something changed and smart money was reacting.

 The 2 min chart shows the predominant trend which is a negative divergence and price has responded to that divergence moving down. However, once again today the 2 min chart shows the same fast positive divergence later in the afternoon.

 Here's a closer look at the 2 min chart this afternoon, that's 2 leading positive divergences that pretty much came out of nowhere.

 All the same things said about the 2 min chart can be said about the 3 min chart

 The 3 min chart zoomed in shows a new leading positive divergence for the day as price was near the lows of the day.

 The 5 min chart shows the trend as a negative divergence, remember how strong the market averages were earlier today? That is reflected in how weak UVXY's 5 min chart was today as they trade mirror opposite, but that same 5 min chart moved up at the end of the day with the faster charts. Based on how we ended the day, I would think the highest probability is higher prices, I tend to think they will come quick and may not last long, but that's a gut feeling. I think we will see continued negative divergences in the market averages and continued improvement in issues like VXX and UVXY, that should lead us toward the continuation of the (short term) downtrend. Just so there's no confusion, the move up could be considered "short term", but I'm talking about market trends and the move up does not even qualify as a trend, that's why I refer to it as noise.

Now the charts that really have me excited about UVXY and VXX.

 The 30 min chart with an incredible leading positive divergence, this makes me want to just buy right now and sit and hold the position, but that' not good tactics, especially when dealing with an options position or any kind of leveraged position. However this tends to confirm in my mind that we will see a nasty downtrend on the short term timeframes and ultimately when the primary trend re-emerges.

The leading positive divergence on the 60 min chart I believe is more suited to the Primary trend, this is quite impressive.

F_E_D Audit Bill Passes House

It looks like Ron Paul's "Audit the F_E_D" passed the house this afternoon and that is exactly what the market reacted to so quickly in both underlying 3C trade followed by price.

I was going to say, "I'm surprised GLD didn't crash", however there's deteriorating 3C trade in GLD.

I'm thinking this is a knee jerk reaction and we still have a good chance of those 5 min positive divergences sending the market higher, it may be a gap up that is faded quickly, but I want to wait a little longer and give it a chance before entering something like UVXY calls, although their longer term charts look incredibly good.

Here's GLD's reaction to the House vote (which by the way will probably go no where in the Senate or with the Pres).

 GLD 2 min suddenly shifts to a leading negative divergence.

The 5 min GLD chart does the same.

I'll be looking for a bounce in the market intraday to start a partial long call UVXY position.

FAZ charts

 FAZ 1 min doesn't look like much, but zoom in

 A fast move.

 FAZ 2 min moving up quickly

 Same with the 3 min

 3 min zoomed in.

And now the 5 min moving.

Entering about 1/3 normal size position in FAZ

This is the Financials 3x leveraged short ETF. I'm entering about 1/3 of a normal position which is a bit smaller than a speculative position in my book so I can leave room to add at lower prices in FAZ if they become available.

I'll post charts next...

Quick Market Update

So as I said, I don't mind if FAS moves higher from her, the market trend we are looking to trade is down and any price strength (so long as underlying trade remains as it is), is what I want to use to help me enter positions at higher probabilities and lower risk.

Hopefully a few examples will make this clear.

 Although many of the short term chart weakened quickly, the 5 min chart of the DIA is still just as positive as it was earlier, this suggests the DIA makes a move higher, I want to use a move higher to sell short in to, thus I'm trading with the highest probabilities.

 The IWM 5 min is in a similar situation, you may ask, "Why get out of longs if you expect higher prices", it's because the intraday charts like 1, 2, and 3 minute are falling apart fast and that could move in to this 5 min chart just as fast. The trend or the highest probabilities which has remained down, despite any noise, is where I want to focus most of my attention.

 The SPY 1 min chart, remember how impressive this was earlier flying high? Look how fast it just fell right back down, something in underlying trade is going on and I don't want to take risks trading against what I see as the highest probabilities.

FAS / Market Update

I closed FAS which was just a long trade, no options. Between the charts there and how fast ES just got ugly, I don't mind if FAS goes higher, it's not with the probabilities and I'm not going to have a loss trading against the probabilities as the trend expected has been down and any up action has been considered "noise".

 Not much of a profit, but hey!

 FAS 1 min

 FAS 2 min

 FAS 3 min- between these 3 charts, it may be early, there may be more upside later, but I'm closing it up.

I really don't like how fast and how negative the ES chart turned, even the 1 min FAS chart turned pretty quickly around 1 p.m. or so.

Selling the long FAS position

Based on what I'm seeing now and based on the fact that I want to trade with the highest probability trend, I'm closing the long FAS (3x long financials) position and will look for an entry in to FAZ.

Charts coming.

Risk Asset Layout Update

I wanted to take a closer look in to the specific risk assets rather than the broad CONTEXT model, what I see looks in many cases to be short term supportive and then support falls away, this is still more or less in line with the probability of higher prices before the short term trend resumes or the pullback trend resumes.

I'll have to keep an eye on 3C because at some point we will expect to see negative divergences in to higher prices, that tells us smart money is selling and/or shorting in to higher prices and that we are near a downside reversal.

As for the charts...

 Commodities intraday are held up around the same resistance area as the SPX, but in general commodities have shown better relative strength on this move down from the highs, just as they had been recently showing better relative strength in the move up.

 High Yield Credit still hasn't gone negative and sold off, I'm assuming until it does, we still have good probabilities of higher prices.

 The long term trend  or longer term 30 min chart also shows good confirmation, for a truly nasty downside move, I'd expect HY credit to go negative vs the SPX, so we may need to keep a very close eye on it if the market moves higher from here, this could be a big "tell".

 HY Corporate credit is looking a little less excited than its HY counterpart, this is fine for a noise move up.

 Rate are looking cooperative for a short term move higher, but as for the pullback aspect of the trend, they are severely dislocated longer term.

 This is largely what is probably driving CONTEXT, currencies as the $AUD has held up better than the SPX and the Euro below has as well. Longer term they are in line with the market pulling back and strongly.

 Energy's relative momentum vs the SPX is about in line.

 Financials, (this is where I chose a long -FAS) are showing better relative momentum vs the SPX.

 Tech was showing some optimism yesterday, that has fallen way off today.

In Sector rotation Financial and Industrials are in, the defensive sectors are rolling out except Staples which is hanging in there, Basic Materials, Tech and Discretionary are not doing well, this doesn't look good for the market, but we were only looking for a short term move, noise more or less in the downtrend.

ES UPDATE

ES intraday looks like it will see a pullback shortly.

 3C 1 min has recently gone negative and the CONTEXT model is about fair value if not negative.

Market Update

Yesterday's positive divergences suggested we'd see higher prices in the market, I assumed it was from a knee jerk reaction to AAPL earnings and then a sell-off once the earnings were dissected, but it wasn't AAPL at all. We have the market moving up off the intraday lows just as the short term charts were predicting this morning, we still have yesterday's positive divergences and now stronger divergences today to deal with, all in all, I'd say we still have some decent upside in this current cycle.

 Look at how the DIA 1 min chart is leading to a new local high, this is a short term chart, but a very impressive positive divergence.


 The 2 min chart has seen migration and is leading above local reversal highs.

 The 3 min chart almost looks like a small base with several positive divergences or accumulation zones.

 The price pattern I see looks a lot like an inverse Head and Shoulders bottom.

 IWM 2 min is showing a sharp leading positive divergence from today

 IWM 3 min is seeing the natural migration from the 2 min chart as it should.

  IWM 5 min has a nice leading positive trend.

 Look at that 1 min leading positive in the QQQ today, a really strong move.

 QQQ 3 min chart is overall in leading positive position and the 3 min today has made a lot of progress.


 This 5 min QQQ's progress today is kind of stunning.

 Look at the SPY 1 min, like all the others.

 The 2 min is in line or confirmation.

So is the 3 min, but in leading positive position.

I do think we will see that extra upside I mentioned yesterday.