Volatility Squeeze- Closing Risk Assets

Well there's not many times that this happens and nothing follows, in fact this is usually the moment of truth.

 This is the short term VIX Futures, this is the tightest the Bollinger bands have ever been on the daily chart since the ETF has been in existence.

Using my De-Mark inspired custom indicator, we are also getting a buy signal here, the sell signals are orange.

The 4 hour chart has seen a huge leading positive divergence.

The 30 min chart, also with a strong signal in the same area.

The leveraged version, UVXY also has the tightest daily Bollinger Band squeeze ever, this portends a HIGHLY directional move, all indications are up, that would be a market negative.

The 30 min chart looks very similar to VXX with a leading positive right under a break of support-Supply.

As for Risk Assets, the close saw commodities fail (as a group) to follow the market's parabolic move higher, High Yield Corp. Credit also failed to move with the SPX, the $AUD made no move higher whatsoever, High Yield Credit never moved off the lows of the day at or a little before 11 a.m., Junk credit made no effort to follow the risk on move or parabolic market move, and Treasuries actually moved higher from 1 pm and 2:30 pm.

For all of the intraday excitement today, every major average closed in the red EXCEPT the IWM, interestingly, the ONLY average that hasn't until today, made a head fake move higher.

Today's price movement all started at the same time, the only catalyst is that AAPL will release an I-Phone 5, I guess that's news (?) reminiscent of the buy programs seen in the POMO days.

More in a bit...

GLD Charts

I'm not seeing the kind of signals I'd like to in DUST yet, but I'd suspect that DUST would probably be a decent starting position in the area, it broke under some support, it has a fairly decent looking daily candle formation the last two days, very close to a harami reversal. I'd prefer a straight long position in DUST rather than a souped up leveraged options position.


GLD

 GLD 2 min

 GLD 3 min'

 GLD 5 min

 30 min

60 min

I wanted to see $162+ for a put position so we are well within the area.

Added to GLD October $165 Puts

Charts coming, this puts the October $165 Puts at a full size position.

Examples

These are just a few, many many more...

 AAPL 1

 AAPL 2

 AAPL 3 -All the intraday and most of the longer (5+ min-60 etc.) are already leading negative in the trend.

AAPL is an example of migration of the negative divergence through timeframes.

 ES leading negative

GLD leading negative-if I have more time I'll try to look closer at GLD as I wanted a put position here and a long in DUST or short GDX.

 NASDAQ Futures

 QQQ

SPY

MARKET UPDATE

The first signs of negative divergences and deep on the parabolic move are there. I'll upload ASAP, I have so many quotes coming through that I'm having to shut down certain charting programs.

Finished with AAPL Puts

The October were cheaper today as you can imagine, but still splitting the position left me with 2 October contracts and about 7 September.

I'm now done with AAPL for the options model portfolio.

The core shorty in the equity model portfolio is already filled out.

Opening AAPL Sept $650

This is the other half of the trade opened a week ago Friday I've been waiting for in AAPL, I'm going to open half of the remaining half (25%) in September $650 Put and the other half in something close to the money in October.

AAPL Update

This is just a start, but pretty fast thus far...

VXX

Even VXX has only moved down -.22% on this move, something doesn't smell right here.

The parabolic move is missing here too, at least compared to the averages.

Here's another bothersome chart-TLT

TLT trades nearly exactly opposite the market, it is a long term 20+ year Treasury ETF, it is what you call a "Flight to safety trade" when the market looks to be in trouble, why is it not dropping like a rock?

There's even a positive divergence late in the day that I didn't expect to see today, price alone should be near vertical to the downside with the market move.

This is what bothers me, it looks like a last minute flush of risk assets in to very quick demand, no one has any idea why, it APPEALS to greed. If in fact the move is toward risk on, why aren't they aggressively re-positioning out of TLT?

This feels like exactly what I just said, an impulsive move to create impulsive buying by appealing STRONGLY to our greed instinct.

BIDU

Is BIDU a dud? There are a lot of parabolic charts out there, there's no currency arbitrage to make such a move, I haven't heard any rumors, it looks like a program just kicked in, but why is BIDU not making a parabolic move? I'm not crazy about the way this chart looks, but I'd try to be as patient and rational as you can and let price tell you if it is done or is just got a wet fuse.

Where's the parabolic move?

A break below the range wouldn't be a very good sign for BIDU

AAPL

First I think we have to acknowledge the very parabolic price move, while these look impressive and very bullish, they almost always end badly, I never trust them either up or down, this isn't specific to AAPL.

I'm not sure what's moving this either, I haven't seen rumors, it's not currency based, like I mentioned, the first day of the month could see some very aggressive movement to the downside.

 My target to enter the rest of a put position in AAPL is around the $680 level, I'll be re-evaluating that with this parabolic move apparently out of thin air.

 I was going to point out that although AAPL didn't look as bad as BIDU's intraday charts, if you roll them back to 2 pm there were slight negative leading divergences, again not as bad as BIDU and there was that flat range.


 This is what the 1 min in AAPL looks like currently, it is in line with price.

 The 2 min at 2 pm, no where near BIDU, but still a minor divergence and flat area.

 2 min now is in line

 3 min is in line

 5 min is lagging, I think it is because of the speed of the move and not a negative divergence.

 The 5 min again at key price levels and the deterioration, this gives me the confidence to enter the other half of the put AT THE RIGHT TIME AND PRICE LEVEL.

The 10 min chart is a little better than in line, but this isn't a huge deal. It will be very important to watch the parabolic move for signs of failure. I'm hoping it will hit $680, if not, we'll see what everything looks like.

AAPL Update next-

AAPL may help with BIDU perspective.

BIDU Update

If you are long BIDU on calls for a short term trade, this is a tough call. If you are short via equities like the core BIDU short this is an easy call, if you are looking for a put position (we closed out the last put position opened on 8/16 for a great profit and have been waiting for another set up), then it's just about letting the trade come to you and see if it does or not.

Here's how we look. Keep in mind, we are now out of the month of August so monthly window dressing is and has been a done deal, we still have Q3 at the end of September and I think for the funds that allow it mid year, the redemptions will be coming in.

 In and/or above this yellow area is where I'd consider a new put position, the reason is it creates a higher high and some retail will buy that. If we don't get there, it's hard for me to justify a put that isn't giving me a reduced risk position and higher probabilities on a head fake move, I'd rather just hold the core short and look for other opportunities.

 Short term if you have a call, I don't like the looks of intraday trade, it's very flat (often where accumulation and in this case, distribution occur-REMERMBER THAT, they are most active when you least expect it). We are leading negative on a few intraday timeframes.

 2 min

 5 min

 The 10 min "looks" like there's enough juice to take BIDU higher, the things we have to consider include fund positioning, how the divergences are moving, etc.

 The 15 min is in line, the positive divergence never made it here so the move was capped, I never expected a huge move from BIDU.

Hourly, this is where I think the top of the counter trend bear rally was.

The real question is whether the intraday timeframes are seeing distribution and they try to push BIDU higher to distribute more, it may not happen today OR whether the natural progression of a divergence is taking place as the short timeframes turn first and they work their way to the longer ones like the 10 min that is still positive and the 15 min that is still in line. This makes BIDU very difficult from a long perspective right now, if this weren't the first day of a new month I'd lean toward holding BIDU, but being the first day of a new month, positioning in Hedge funds may turn aggressively negative. I'll keep watching for signs and post them.

"IF" I had any profit in BIDU long, I'd consider taking some off the table and lowering my risk, waiting for a better set up that is more in line with the bearish nature of the stock.

Closing September AAPL $675 Calls

At a 12+% loss on the position.

This would not be a normal position size, but because I entered the order several times when it wouldn't fill it eventually did fill all of the orders.

Pieces are coming together

The one question that had been bothering me with all other evidence stacked up in a bearish direction was credit. While ETFs representing underlying credit do have a T+3 settlement rule, that rule is for securities/equities/stocks, so HYG for example would be bound by the "Trade Plus 3 Days" settlement rule, however it is tracking real credit, I have not seen any SEC regulations that Credit transactions are bound by the T+3 settlement rule for equities.

The first bit of evidence that HYG and other High Yield Credit wasn't as strong as price appeared was in the form of 3C charts. Last night I gave you further evidence collected that Hedge Funds are moving out of "Risk On" positions which is exactly what High Yield Credit is as opposed to Investment Grade (IG).

The only reason that the T+3 rule even comes in to the equation is because of what happened in credit today and today's date, Friday was the last day of the month, important for fund performance and window dressing, but apparently there appear to be different standards for settlement in Credit vs Stocks as evidenced by the price action in High Yield Credit on the first trading day of the new month.

So lets take a look at the Risk Asset Layout now.

First the evidence that has been very clear.

 Yields haven't failed us yet, the SPX (green) tends to follow yields like a magnet once they diverge like this.

 A reversal and timing is one thing, the amplitude or seriousness of it is another, look at Yields compared to the former highs in the SPX, this speaks to the seriousness of the situation, not just timing of a reversal.

 The $AUD intraday isn't interested at all in following the SPX.

 Longer term it is another that hasn't failed us when it gives a signal thus far and the signal just got a whole lot worse.

 Take a look at the last market reversal and $AUD divergence and this one, again you get that feeling of a bear market counter trend rally rather than what the price trend really represents, but price is deceptive.

 Commodities had also recently been moving on a legacy arbitrage basis, I'm not sure about their settlement schedule either, they are not equities, today they are very much out of sync with the SPX.

 Here you can see them following the EUR/uSD legacy arbitrage model, that seems to be breaking down as I believe the Euro will as well shortly with record low short interest for the year.

 High Yield Credit is falling with the SPX, not a very liquid market so not my favorite, but it's a start.

 High Yield Corp. is underperforming the SPX worse than the chart shows, this is a very liquid market.

 Here's a better view of High Yield Corporate vs the SPX, finally diverging, but why so long?

 We have seen HY Corp. Credit pull a head fake move out of a 3 month downtrend channel, after it popped above the channel, it fell fast, this appears to be a larger head fake move as you saw in last night's post, hedge funds have been moving out the last month, remember what we see preceding 80% or more of reversals, it's right there in yellow and the fact HYG breaks down after the month of August closes is interesting as well.

 Remember I checked out the internals of HYG as it didn't make sense? Here's the divergence on the 4 hour chart at almost the exact same relative price level, much less flow in HYG now.

And closer, the 5 min chart breaking down badly as HYG made that slight new breakout high Friday that failed today.

 Junk Credit isn't any better than HY Corp. Credit. These were the missing pieces, but apparently the evidence for them staging a false move is there.

Sector rotation today doesn't look good.

Only financials are making any showing, Tech is trying, but Energy, the high momentum/Beta Materials stocks are down and out, Energy, Discretionary and Industrials look horrible and all the defensive sectors are stronger than ever and you saw how strong they were last night longer term.