Friday, August 17, 2012
Wrap up post coming
Including some of the charts I mentioned in the AAPL Puts post. I have a lot of charts and a dinner appointment in 1.5 hours, I'm going to try to get it out before then.
AAPL Charts
AAPL isn't the only reason for the PUT position and I rarely use options unless I feel the timing is VERY close.
However, here are a few AAPL charts.
Short term I like the action today, I like there's no apparent accumulation on the 15th and I like the trend.
The same goes for this chart, a different timeframe, but very similar results. Today's action is why I chose a put.
The 5 min chart's trend is interesting to me because to open AAPL up to buyers. The red trendline would have to be crossed, there's accumulation at the lows, apparently to get that job done, but as soon as AAPL is above the trend is very strong and consistent. In other words, it looks like to get AAPL longs interested, they had to make a show of it, they did, but as they did it seems they wasted no time is moving out.
The long term charts are what I based the core AAPL short on, actually the first divergence to the left was the core short entry, the May accumulation was the biggest period and as I have said many times, it seems they have just been selling those shares since in to higher prices. Also the same breakout area talked about above is showing a horrible reading negative/leading at the breakout.
The 60 min chart is what the original position was based on, AAPL is at the same relative price area as March/April, 3C is not close and it isn't above the June highs.
However, here are a few AAPL charts.
Doing some spring cleaning-Closing TECL Hedge
TECL is one of the hedges used in the equities model portfolio, I'll be closing that now.
It did its job.
SPY Pin $142
While the $142 area seems to be the obvious pin, I just took a quick look at what the open interest looked like.
The range has been pretty locked in, I can't remember the last options expiration week that wasn't boring, you'd think they'd shake it up once in a while.
However technically where we are and why I think has more to do with making that move to the breakout high, even though volume is completely lacking and there's no follow through, it may just have been the best of both worlds for a pin and as we have seen so many times before, the more important a had fake move, the more effective it is, or "The bigger they are the harder they fall", it completely changes market psychology.
As for Calls, it wasn't too exciting, but PUTS had a lot more open interest.
The thing that struck me about the calls was just the overall lack of open interest, not just around max pain, but everywhere.
Contrast that with the puts, much more activity.
At $143 there's literally almost nothing there, but below it's quite busy, in fact I needed two captures.
Here's the second. That's a lot of contracts expiring worthless where Wall Street gets to keep the premium.
As for Calls, it wasn't too exciting, but PUTS had a lot more open interest.
Contrast that with the puts, much more activity.
Here's the second. That's a lot of contracts expiring worthless where Wall Street gets to keep the premium.
Dow Theory Request
Dow Theory was one of the most difficult concepts to teach while I taught Technical Analysis, but one of the simplest components is confirmation between the Industrials and the transports, how can the goods producing Industrials do well and the economy do well if the transports that deliver the product are not doing well, and while Dow Theory and the components of the Industrials have changed since way back when, it still works pretty well and I was asked to show Dow Theory and this seems like a perfect time as the market seems to be in an options expiration PIN which is simply the fact that most retail traders buy options, not write them and the majority of options expire worthless, the PIN is finding the right price level to make the most number of options expire worthless on expiration day (today) allowing smart money who is the primary write or seller of options to retail, to keep the premium, op-ex pins have almost NOTHING to do with the market and what comes the next trading day.
First here's the yearly chart for the Baltic DRY Index, these are the prices Dry Goods Shipping companies receive, when they are low, demand for shipping is low, as we saw this week, the Port of Hamburg which is the second largest dry goods harbor in Europe, just saw a huge decline in shipping activity, which matches the GDP activity also seen this week. Prices are at the same level as Feb. or at a 1 year low, it's actually much longer than 1 year.
However for our purposes of Dow Theory which is more immediate in this case, I'll use IYT (Transports) and show you some DJ-20 (Transports) as well , first vs the Dow. In Dow Theory the two should have good correlation, when correlation slips/diverges, you are likely at a turning point in the market.
The Dow in green and Dow-20 in red, the green boxes show excellent correlation and trend confirmation, the red boxes show divergences.
The Dow-30 vs IYT (Transports)
Now a look specifically at IYT, Transports
Since the 24th there has been a bad leading neg. divergence in IYT. (2 min trend)
This appears to be the same chart, it's not, this is a different timeframe, 3 min.
The 5 min chart's trend showing the history of divergences and the reversals from those, this current divergence would be the largest on the chart (price neg. divergences are in red, positive in white). Note how consistently smart money buys the lows and sells the highs, it has a lot to do with supply and demand.
The 15 min chart's trend, and I show the trend so you can see how low and large the current leading negative divergence is compared to previous divergences. If you look to the far left at the first white positive divergence, if you were o have bought at the first sign of the divergence around $91.20, even as price headed lower in the positive divergence to the $88.80 level, you still would have made money up at the $94.40 level. We try to get the best entry possible, but very often this is how these charts play out, price often moves well in excess of where the divergence first started.
I don't want to over run you with charts, but I thought it would be interesting to see how similar some of the DJ-20 divergences are to IYT.
That same date of the 14th comes up on this 3 min chart.
On the long end, the 30 min chart, gain this is the largest divergence on this chart comparing relative price/3C levels and on an important timeframe.
However for our purposes of Dow Theory which is more immediate in this case, I'll use IYT (Transports) and show you some DJ-20 (Transports) as well , first vs the Dow. In Dow Theory the two should have good correlation, when correlation slips/diverges, you are likely at a turning point in the market.
Now a look specifically at IYT, Transports
I don't want to over run you with charts, but I thought it would be interesting to see how similar some of the DJ-20 divergences are to IYT.
URRE Position
There isn't much in the way of options for URRE so I went ahead with an equity model portfolio long, it is speculative in size which is half the size of a normal position, although I like URRE for the long haul, this is just a trade looking for a quick pop.
URRE
The other day I mentioned that it looked like URRE was getting ready to make another run to the upside, a member just alerted me to increased volume and thus far a bullish candle.
I may look at an options position here (buy a call) for a quick trade, but this is VERY speculative.
IOC Follow Up
Well, I'm selling the last contract in the IOC Put position.
Wednesday I closed 80% of this position at a 73+% gain, today, even though prices are lower and technically in a worse place, the Put is only worth 43%. Volatility is a bit lower today, but not a whole lot lower, it does contribute to the faded value of the put. However this is the reason I took 80% off the table as I saw a short term reversal coming and I'd much rather start a new position than sit through a correction and this is one good reason why. While I did trade 200 times a week at one point, I AM NOT a day trader and found that out the hard way. I'm not trying to be a day trader with options here, I'm trying to use the tools we have the best way I know how to make the most on a trade. I'd much rather be trading a trend like the core short positions, which IOC is a core short in the equity model portfolio and that hasn't changed at all, still the same size position with no intention of changing it because it is not leveraged.
Here's the reversal we saw Wednesday that caused the sale of the majority of the put position, we saw it in 3C first earlier in the day and then the closing candle was bullish with large volume which is a good example of the reversal concept I talk about so much-remember I saw "It just means high probability reversal, there's no target or time" and as you can see so far it only lasted a day before IOC made new lows today BELOW the support level I REALLY wanted to see broken, but we have not closed below this level yet and the chance of a day like today happening is the reason for probably the first time ever, I partially closed an options position to see if this move would come.
Intraday look at the volume on the moves below and above the key level, the volume down hit a lot of stops and few retail traders buy a move like this, which means the buyer of last resort, the Specialist had to absorb any market orders there were no matches for, thus that specialist probably wants to get rid of those shares, but needs higher prices to do it. Yesterday on a break above resistance he/she got some demand and higher prices, but it doesn't appear to be enough to have cleared out the inventory.
The 3 min 3C chart shows the positive divergence which was the reason for closing 80% of the position at a 73+% gain, then the negative sending IOC lower, right now 3C is about in line with price, there's no strong signal here.
The 5 min chart also shows the positive divergence, the reason to close the put position and again a negative and reversal, but again, 3C is not low enough to convince me that this low will hold without some more loitering around the resistance area to let the specialist exit the inventory that they have to buy by law if it is at market.
The 10 min chart shows all the same, it is a little deeper, but not deep enough. I wouldn't enter a put position on these signals so why should I hold one?
The 15 min showing the bigger reversal from what I believe to be a head fake pivot, still not a leading divergence which is what I'd need to see to hold the options position, the equity short will stay in place.
I'll keep an eye on IOC and report back any major changes.
As for volume...
There's the volume figures for the last 3 days, obviously the specialist isn't holding all of the shares, but the last 2 days thus far haven't been enough to allow a specialist to unload a position they may have been forced to take on, thus until volume picks up, support stays broken and 3C tells me, I'll wait for a new put position.
Intraday look at the volume on the moves below and above the key level, the volume down hit a lot of stops and few retail traders buy a move like this, which means the buyer of last resort, the Specialist had to absorb any market orders there were no matches for, thus that specialist probably wants to get rid of those shares, but needs higher prices to do it. Yesterday on a break above resistance he/she got some demand and higher prices, but it doesn't appear to be enough to have cleared out the inventory.
I'll keep an eye on IOC and report back any major changes.
As for volume...
Risk Asset Update With a European Twist
First, since Europe is now closed for the week... Interestingly despite big moves in the EUR/USD up on no news and down on no news, the EUR/USD has ended the week from last Friday UNCHANGED! If the moves up and down on no news and fairly dramatic moves didn't already stink of market manipulation, the close at almost EXACTLY unchanged, really complete the aroma.
As for European Equity markets, remember they are benefitting from a 3+ month short selling ban on financials in several major European markets, the equity markets are moving in such a way that you would think something very positive is going on, yet the reason we look at risk assets is precisely the phrase, "Risk Assets". When equities rally, if it's not on manipulation, there's every reason to expect other risk assets will move with equities/stocks as they are both benefitting from the same Fundamental catalyst. On the other side of the coin, when we see equities moving down and other risk assets moving up, we usually know that there's probably some extreme downward manipulation in stocks and they will soon reverse. Many a stock trader believe what they have heard for decades, nearly a century, "The stock market is a financial leading indicator" which under normal circumstances is discounting the economy 6-12 months out. However, there are bigger markets such as credit that are the playground and almost exclusive territory of smart money, these markets tend to be smarter than equity markets and tend to mov first because of sheer size, the same as if you were turning a small boat or a large boat (obviously with a large boat you have to start the turn sooner), which leads to the phrase, Credit leads, stocks follow" or some variant of that.
Here's a look at Europe...
I bet you can guess the European stock index, it's dark blue, while all kinds of credit are less enthusiastic, which include the Financials that are protected by the short selling ban, both senior and subordinated Financial credit are underperforming, as well as X-OVER.
These are the European 10-year sovereign debt, in red Spain and in black Italy, those are the 2 worrisome ones and they are starting to leak lower as seen in to the European close.
As for the US markets and our normal layout...
I put a small white trendline at yesterday's close, here's High Yield Corp. Credit vs the SPX, still severely dislocated.
Credit was warning of a bottom as mentioned above to the far left, the bottom is the June 4 bottom, credit stayed with the market for a while, but has diverged significantly as you can see by this histogram I created.
Very high yield credit such as JNK (Junk) which should benefit from a move in stocks is also very dislocated.
Here's the histogram for JNK.
Intraday this is commodities, green is inline, white is positive momentum, red is negative momentum vs the SPX.
Yields have dislocated badly intraday, we'll be taking a look at TLT/Treasuries as I can almost guarantee something is going on there as there were 3C hints this week.
The very reliable leading currency, the $AUD also saw a major drop today like the Euro, except this seems to be a much better leading indicator than the Euro.
The Euro, strength early, reversion to the mean and weakness today.
Euro from the July lows, dislocated, longer term it's much worse.
Intraday momentum among the 3 big industry groups, first Energy falling off.
Next Financials falling off vs the SPX.
Last Tech with some late morning strength, but now the momentum is close to reversion to the mean.
Not much has changed with this layout over the last week, it is as dislocated as it has been this year and called the last 3 turns in this market this year very well.
As for European Equity markets, remember they are benefitting from a 3+ month short selling ban on financials in several major European markets, the equity markets are moving in such a way that you would think something very positive is going on, yet the reason we look at risk assets is precisely the phrase, "Risk Assets". When equities rally, if it's not on manipulation, there's every reason to expect other risk assets will move with equities/stocks as they are both benefitting from the same Fundamental catalyst. On the other side of the coin, when we see equities moving down and other risk assets moving up, we usually know that there's probably some extreme downward manipulation in stocks and they will soon reverse. Many a stock trader believe what they have heard for decades, nearly a century, "The stock market is a financial leading indicator" which under normal circumstances is discounting the economy 6-12 months out. However, there are bigger markets such as credit that are the playground and almost exclusive territory of smart money, these markets tend to be smarter than equity markets and tend to mov first because of sheer size, the same as if you were turning a small boat or a large boat (obviously with a large boat you have to start the turn sooner), which leads to the phrase, Credit leads, stocks follow" or some variant of that.
Here's a look at Europe...
As for the US markets and our normal layout...
Not much has changed with this layout over the last week, it is as dislocated as it has been this year and called the last 3 turns in this market this year very well.
Intraday volatility
The ES chart and the QQQ chart on 1 min look like they want to make an intraday move higher, which is not anything special being the time of day and being the QQQ is the only of the 4 averages and only on the 1 min chart, not the 2 min or anything longer, so we might see a quick move higher on an intraday basis, at least in ES/QQQ, SPY, DIA, IWM all looking bad.
BIDU Update
Yesterday I added September BIDU $130 Puts as BIDU broke above resistance to make a pivot and more importantly, most likely the false breakout or head fake move that the pivot represents, thus far BIDU is down -0.84% today and the Put are up in the green, not a lot, but 5% is a start.
Because the last nearly 2 weeks of trade were so lat, they formed a VERY obvious resistance zone, the more obvious the resistance, the more stops and orders that pile up just above it, the more that happens, the more likely the area will be run for those stops and orders for a number of reasons which include volume rebates, shorting strength as I did yesterday or selling in to it, and the snowball effect of all the longs all of the sudden at a loss; as the loss grows deeper more supply hits the market and you get a snowball effect-this is partly why markets fall faster than they rise.
Today's VERY EARLY daily candle is a "Dark Cloud Cover", which is a bearish reversal candle, a move below former resistance (now support) should set off another wave of stops and start BIDU on what would likely be a fast and hard fall.
Look at the volume created on the BIDU move, this volume alone benefits everyone on the Wall Street side from your broker to the market maker/specialists to the clearing firms and others as large volume rebates add up; not to mention the tactical advantages gained in such a move.
BIDU 5 min in to the open
BIDU 10 min
BIDU 30 min big picture and the clearer the institutional trend/action (I usually use yellow to denote a head fake move, they'll always be around an important support/resistance level or a break from some obvious, well known price pattern).
The 60 min showing BIDU's bearish descending triangle with a head fake break below it that we knew about in advance as we expected a counter trend move such as we have seen in BIDU, this looks to be another head fake move as we are now leading negative to new lows on the 60 min chart which is the most important of this entire update.
Today's VERY EARLY daily candle is a "Dark Cloud Cover", which is a bearish reversal candle, a move below former resistance (now support) should set off another wave of stops and start BIDU on what would likely be a fast and hard fall.
Consumer Confidence just beats
Here's the 9:55 Consumer Confidence which had nothing to do with the EUR/USD move as that started nearly 30 minutes earlier, unless the report was leaked, but why a drop in the Euro on a beat (I'm not saying it was leaked or is connected)? As always, the devil is in the details.
So we have a modest beat on the headline print... Lets see how the on their knees, QE-rain dancing crowd took the report.
This is the initial knee jerk reaction in GLD on the release of the report -remember for the QE crowd and gold as a QE sentiment indicator, bad news is good and good news is bad, this was good news hence the knee jerk reaction to the downside on some volume. However, GLD is a little range bound since, why? Again, the headline print is used by retail, they rarely look deeper, but it is often the sub-indicies of these reports that show the devil in the details.
First the headline print is only a modest beat and it is coming off the worst levels of the year. In the sub-components, Consumer Outlook for the economy saw a massive drop to an 11 month low, consumers are not optimistic about the economy which translates to Consumer Spending and from there to all other parts of the economy, the shift was also a very sudden and deep shift. In addition, Inflation Expectations hit 17 month highs for the report, put the two together and it sounds like consumers will be tightening their belts and buckling down.
Food price inflation is in the news right now even though it has yet to hit the supermarkets based on Wednesday's CPI report, but consumers are obviously not filled with the Hope of nearly 4 years ago (that's not a political statement, just an observation of fact).
| Released On 8/17/2012 9:55:00 AM For Aug, 2012 | ||||||||||
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First the headline print is only a modest beat and it is coming off the worst levels of the year. In the sub-components, Consumer Outlook for the economy saw a massive drop to an 11 month low, consumers are not optimistic about the economy which translates to Consumer Spending and from there to all other parts of the economy, the shift was also a very sudden and deep shift. In addition, Inflation Expectations hit 17 month highs for the report, put the two together and it sounds like consumers will be tightening their belts and buckling down.
Food price inflation is in the news right now even though it has yet to hit the supermarkets based on Wednesday's CPI report, but consumers are obviously not filled with the Hope of nearly 4 years ago (that's not a political statement, just an observation of fact).
