UNG-Patience Pays

It's been a long time since we first noticed a change in character of UNG, some of yo got in at very good prices, the core long position for the equities model portfolio is doing well...

Up 29% and I know many of you got in at better prices.

UNG which is one of the few, if not only long term long positions I like, gained nearly 6% today and still remains above the basing area. It does look like it could see some gap filling in the near term (correction), but it seems to be just sitting there waiting for sentiment to change and a volume surge from retail to set it in to motion in stage 2 mark up. If our trend expectations or ideas hold up, then the resumption of the sub-intermediate trend (up) could be the area where UNG is picked up as a stage 2 (mark up) stock and that's where the trending action is usually found.

Here's an update for UNG...

 UNG's base we had been patient with and the recent breakout. What's missing is the volume surge that fools retail in to thinking that smart money is buying, smart money was in long ago. That volume surge is also typically the marker setting the stock up for stage 2 "Mark Up".

 In the very near term, today's gap up looks like there was profit taking in to the move, I wouldn't be surprised to see some backing and filling, but it would be nice if the gap held as a break away gap.

 The daily trend channel has held the recent trend well so the $20 area should hold, but for my purposes, UNG is a longer term position and I'd have a wider stop than just the 1 day TC.

 The 2 min chart also looks like there was profit taking in to the gap up, but it seems to stop right around the 2 min chart so I don't think this was serious distribution.

 The 3 min is in line and confirming the move up, hence the reason I think it was just profit taking on the decent move.

 The 5 min chart also confirms today's gap up, I wouldn't expect too much of a correction in UNG.

 The 15 min chart is also in line, it will probably take more time for the 30/60 min charts to catch up as this was a quick move up in a day.

The bigger picture 4 hour chart shows how UNG went from downside confirmation to leading positive divergences or accumulation, like I said, smart money was in a while ago, but traders still want to see that volume spike as they still believe that's smart money entering the position, that's when they'll chase.

For my purposes, I just leave UNG alone, I feel confident it will take care of itself.

Market Update

Here are the short term charts that I believe support my theory of a short term gap up probably tomorrow, followed by negative downside action to pull u down in to a pull back. Remember the longer the timeframe, the more important the signal.

 DIA 2 min small positive divergence today, this would represent very short term price upside like a gap up tomorrow.

 The DIA 15 min chart represents the more serious trend, it is leading negative with a lot of damage done today.

 QQQ 2 min intraday positive

 QQQ 5 min leading negative

 QQQ 15 min leading negative.

 SPY 1 min leading positive short term...

SPY 5 min leading negative longer term with a lot of damage done today.

This is why I'm patient today, just look at price.

$USD Another Piece of the Puzzle

I'm surprised how many traders don't look at currencies being several are key to moving the market, there's a lot of information to be found in analysis of currencies.

The key currency is the $USD or for FX pairs, the EUR/USD. When the $USD is strong, typically risk assets like stocks, commodities, oil, precious metals, etc go down, when the $USD is weak, these same risk assets tend to rise.

So keeping in mind the near term analysis I posted several posts ago (about a possible gap up tomorrow as a bearish reversal confirmation signal), it seems the $USD's underlying action is very close to the analysis from that post.

Lets look at the charts...

 UUP (an ETF proxy for the $USD) 1 min shows some recent afternoon deterioration suggesting near term the dollar moves down, this would be in line with the analysis suggesting near term market price appreciation via a gap up possibly tomorrow.

 The 2 min chart which has been looking pretty good in white also shows some recent negative activity on a short term intraday chart, it's not a big deal, but it tends to fall in line with the analysis of a gap up in the a.m. that turns in to a downside reversal confirmation candlestick.

 The 3 min chart shows the same. This would also suggest USO see some very short, near term upside.

 However when we get to the more important timeframes starting at 5 mins, we have positive divergences, this would suggest after a small, brief bout of strength in the market, the dollar would push higher, pushing the market lower.

 The more important 15 min chart agrees and shows an impressive positive divergence, this would be negative for the market.

Finally even the 60 min chart shows recent leading positive action, again, this falls in line with the assumptions about the short term trend starting with a reversal.

UVXY

Last week I picked up some August and September UVXY calls for the options model portfolio, more in August, fewer for September. I was just looking at UVXY to see if it's in a position in which I would consider adding today, longer term I think it almost seems like arguing over pennies, shorter term unless something changes in the last hour of trade, I'd prefer to wait until tomorrow to look at adding.

Here's what I'm talking about with the longer term charts in VXX/UVXY

 UVXY 15 min added a lot to the leading positive divergence today

 Here's a closer look, this is why it makes me feel like it's almost haggling over pennies. I'm glad that I do have exposure to UVXY calls right now.

 VXX (the unleveraged version) with a nice leading 5 min divergence.

 The 15 min leading positive added today in VXX

Ultimately the 60 min chart in VXX, this looks like a very strong positive divergence.

Still, with a position already started and the findings of the last post, I think I'll be a little more patient, unless of course something changes.

Market Update

Based on what I'm seeing and experience, if I had to take a guess at what we are looking at, at least in very near term trade (and this is the reason I haven't been active in any trades today-I want the trade to come to me as a high probability set up), this is what I would guess and why.

 5 days ago when price first dropped below the support line of the SPX's / SPY's bear flag, I said (paraphrased),

  "To confound the most traders, a move back in to the bear flag short term would be what I'd choose if I were running the market and trying to knock traders out of positions".


That's exactly what happened 3 days later and on strong volume so it is believable. Today we are not seeing what you might call a "strong follow through day", in fact right now the daily SPY candle is a Doji which in its current position, sets up a downside reversal pattern. Even if the market rallied a bit, it would still likely close with something close to if not a candlestick reversal pattern. The most common confirmation of a reversal of a set up like this is in red and would represent tomorrow, a gap up with a close down, at least below today's real body (open to close), the deeper the better. This could then bring us below the bear flag where shorts would jump in, fulfill the short term trend expectation and set up the resumption of the sub-intermediate uptrend (the second trend expectation we have been working with). The moves would be almost perfect head fake moves, however I'm not so arrogant to think I can call the market that closely, however the signals we are seeing today seem to support at least the first half of that scenario, and the first half of that scenario makes the second half more likely.

 SPY 1 min intraday positive divergence, this looks like a short term intraday, maybe gap up tomorrow is being set up.

 Here's a closer look at today's 1 min chart.

 The 2 min chart continues to be in a bad place so the positive divergence looks like short term noise, not anything more than what it is.

 The 3 min chart tends to agree.

 The bad leading negative of the 5 min chart also makes  move down look highest probability near term.

 The QQQ 5 min also joined in the very negative leading divergence today.

As did the 15 min

Th DIA 15 min was already very negative, it just added to that today.

So the less influential short term charts look like a very short term move up, the more influential longer term charts have deteriorated pretty badly today, it looks like the highest probability will be a move down. Therefore I want to look for price strength and look to sell short in to that strength, this is why I haven't been too busy with trades today, the probabilities just haven't been there thus far.

We'll see what we get and if it plays in to our hands shortly.

It's political, It's Personal

Mario Draghi of the ECB is the subject. What once seemed like a very close relationship (almost as one) between the European Central Bank and Germany, now seems to have soured quickly after Draghi's statements last week while Germany's Merkel was away on vacation.


Earlier today a German party leader said Germany should take legal action against the ECB, their Finance Minister and Central Bank have made their displeasure well known too. 


Now, the EU's Ombudsman suggests that Draghi may have 'Conflicts of Interest" due to his previous jobs, you can guess which one? The same one that employed Italy's current PM, Greece's former PM, a bunch of Troika members and the ECB president himself, none other than Goldman Sachs.


From Germany's Spiegel:


 "As soon as you took office, there were discussions about his past in the U.S. investment bank Goldman Sachs - now has Mario Draghi, head of the European Central Bank, and problems with the EU ombudsman. It's about the membership of an influential banking lobby organization;  one is Draghi's presence in the Group of 30 which  is the real behind the scenes central planning group which decides the fate and future of the world.  The other factor? Mario's son Giacomo, who just happens to work as an interest rate trader at Morgan Stanley London. 

Risk Asset / CONTEXT Update

 The CONTEXT S&P E-Mini Futures (ES) model is still near new lows, lower than last week as we saw it start to turn from neutral to negative. You can see the trend of the model in green and actual ES in red above.

 Their SPY Arbitrage model (I assume it is comprised of the S&P-500 component prices) is also lower by about $1.00, it has also grown worse as the day has gone along.

 The model above for the SPY would put it right around the $137.50 mark, assuming more damage wasn't done as intraday support was taken out.

The Risk Asset Indicators...


 HY Credit remains range bound for almost 3 days now, not following the SPX to higher highs as it should, it did move intraday toward the bottom of the range.

 High Yield Corp. Credit also didn't make a higher high with the SPX late Friday (seen at the yellow arrows) and today HYC Credit is starting to peel away from the SPX a bit.

 The divergence or dislocation in Yields persists, this one usually is pretty effective as a leading indicator.

 Of course there hasn't been anything to move the Euro back to its correlation with the SPX, it remains dislocated.

As for Sector rotation, earlier it looked a bit confused as I mentioned...

Now risk sectors like Financials, Basic Materials, Industrials, Tech and Discretionary are moving out of rotation while the defensive Utilities and Staples Sectors continue to move in more aggressively.

FAZ Update

If we stick with our basic short term (down), sub-intermediate term (up) and Primary trend (down) assumptions, FAZ (3x leveraged short Financials) seems to make pretty good sense, although being an ETF I wouldn't expect the Primary trend to be reflected on this kind of n instrument yet.

 FAZ 2 min leading positive divergence, even the negative divergence that preceded the turn down in price wasn't all that strong.

 FAZ 3 min trend with this chart also in a leading positive divergence that started shortly after the reversal to the downside from the last reaction high. There's also a large relative positive divergence in place.

 Like some of FAZ's long counterparts, it is showing the mirror opposite today as it should on the 5 min chart with a leading positive divergence.

 Here's a closer look at the leading positive divergence.

At the 15 min chart FAZ is just barely positive, this would seem to fall in line with trend assumptions, the shorter term trend looks pretty strong to the upside (market pullback for the short term trend) and isn't showing much on the longer term charts which would make sense when as the sub-intermediate trend continued (market upside).

Gold Miners Also Look Set For a Pullback

However, they also, like GLD, look like they are working on a longer term bullish trend, perhaps in the process of creating some sort of base now.

 GDX-Gold Miners 2 min intraday has turned leading negative

 GDX 5 min relative negative divergence.

 GDX's longer 15 min trend showing what appears to be accumulation at the price lows in perhaps some sort of base, the current 15 min divergence is negative and suggests GDX pulls back as it has in the past.

 GDX 30 min chart with a negative divergence, very clean with little noise, however...

The longer term trend, 60 min chart not only has a large positive divergence that sent miners higher, that divergence overall is leading positive on an important timeframe. I'd watch miners for any positive divergences/accumulation in to price weakness.