Friday Semi-Wrap

There's  a lot to look at closely today before I would dare give a simple wrap of the day. There were some events that seem well planned, the reason is more of a mystery, there are some serious contradictions and there are some serious implications.

It's sometimes hard to remember that the average price move today was -0.43%, it felt a lot more volatile than that when watching every tick. The NDX was the big loser at -.95%, the Russell 2000 was the best performer at almost unchanged -0.08% and on average the Dow and SPX came in at -0.25% and -0.43%, these aren't big moves.

If I HAD to sum up today and in a simplistic view, I'd probably guess that weekly options expiration pins seem to be gaining more and more momentum, whether more people are using the weeklies or light overall volume in the market is playing a part, that is what it felt like, but that is somewhat biased by a string of these weekly expiration Friday's showing some real reasons to believe such as closes that are 2 cents off causing a contract to expire worthless, but I think there was a lot more going on today than just that.

A few things that were exceptionally strange included the following:

 The triangle in most averages, but particularly noticeable in the NASDAQ 100 / QQQ was strangely very noticeable in the NYSE TICK data (Number of NYSE stocks closing up for that bar less the number closing down. The range for the TICK data was also strange, until the triangle saw the downside break mentioned here before it happened... note the range barely crossed below -500 and spent a lot of time at +750 to +1000, this is strange because +/- 500 is a very mundane reading, it's what you see when there's nothing going on on the market, +1000 isn't an extreme, it's strong, but what was strange is how much time was spent in the area. Even on the break of the triangle with volume jumping up we didn't see a -1000 reading once! Typically we'd be seeing extremes like -1250 to -1500.

 In fact, the upside Tick was stronger than the downside in a break below a price pattern!

 The Euro which has a positive correlation with the market was strong today, the market typically follows it as you can see to the left, today the Euro was quite strong along with the $AUD and the market wasn't budging, except commodities were following the correlation nearly perfectly and they are a risk asset so it's not like there was a "Risk off" mood prevailing.

 This is the $US Dollar (orange) vs the S&P (green) so you can see the inverse or mirror opposite relationship that normally exists.

 Here's a closer view of the same.

However today the S&P followed the dollar, something it shouldn't do, if commodities had done the same I would simply call it a fear of carrying any risk assets long, but commodities did move up on a weak dollar as they should.

Other oddities included a number of leading indicators positive all day or most of the day hinting at the market getting ready to take on risk to the upside.

Transports (if you are familiar with Dow Theory) broke a nearly 9 month trendline down and move up through it. There were more oddities than I can list, but since the F_O_M_C we have had 3 down days, last time we had 2 up days before a trend change. Remember what I warned about, the knee-jerk effect and it almost always being wrong. So are we on the edge of a big upside reversal with the last 3 days being the knee-jerk reaction?

I don't think the answer is that simple so I have a lot of work this weekend, a lot of charts to look at. I think I could say the F_O_M_C knee-jerk effect could be more likely than a weekly op-ex pin.

I'm also going to try to get out that head fake article and maybe one more on an HFT strategy I've noticed a lot lately.

Enjoy your weekend, I'll let you know what I find.

AAPL Charts

Wow, what a horrible day for the country.

I don't mean to down play it and I'm not a news source, just really shocking.

As for the AAPL charts,

 AAPL Daily and this is a concept you can use on just about any timeframe, but the longer the better (daily charts work great). We can see the "Hammer" candlestick on 11/16, it kicked off this most recent move in the market, a Hammer is a bullish reversal/support candle and all of these reversal candles are much more reliable when they have heavier volume than the previous day and the heavier the volume, the more reliable, just like a mini capitulation day (for upside reversals) or like churning (for downside reversals).

Today AAPL gapped down and formed a small bodied star (not to be confused with a Doji), volume was excellent, so this will likely end up being a variation of a Morning Star reversal with the gap in place and it found support right at the Hammer from 11/16.

There's also a bigger potential head fake move on the chart which may help explain today's volume.

This is a Bear Pennant, a bearish consolidation/continuation pattern, honestly I didn't even notice it until today, but it's fairly obvious. The first break below the pennant was yesterday and volume was increasing yesterday as it should with a break below the pennant, today volume increased even more because price moved below the bottom of the pennant. where it found support from the 11/16 hammer.

As far as underlying trade during this daily chart pattern, the 3 min chart could easily confirm the move down from the pennant by 11 a.m. this morning, it could have confirmed it yesterday, but it didn't-the same thing I was waiting to see in the QQQ and other averages as the triangle was broken to the downside, is right here....

3C seems to follow or almost trade out the entire pattern, the flag-pole decline, the pennant formation, but it DOES NOT confirm the downside break down which if the bear pennant is being used for a false break down as mentioned in this post we should see confirmation easily on such a fast timeframe.

This weekend I'm going to write an article/post on head fake moves, false breakouts, false break downs and explain when, where and most importantly, why they occur-how Wall Street uses them and how we can use them to our benefit.

 Here's AApL intraday 1 min chart with intraday support at the 11:15-ish lows, this is why technical traders get abused so often, they are so predictable, look at the volume rise as price crosses below intraday support. Then see how volume increases as that support/now resistance is taken out on the upside.

 Here;s the 5 min chart which also did not confirm the move below the pennant.

 And overall the 15 min chart that tells us something bigger is happening in AAPL right now, it's not obvious what yet, but it will be soon and it's positive.

 I don't know if this is dovetailing in to the longer 30 min base since late October, it may be.

 However even on this different 3C version on TOS, something is going on here-60 min chart.

 The NASDAQ seems to know it, 1 min intraday with no downside confirmation and a stronger leading positive at the end of today.

That migrated to the 3 min chart even though there wasn't much time left in the day.

AAPL Call Trade Add-To

There are several good reasons to like an AAPL short term trade with calls here and more are developing every minute, I'll add to that position.

Initial Charts

We look for accumulation of a move like that, the large volume the move creates as technical levels are broken and stop or short orders are triggered creates a lot of supply that can be accumulated in bulk as someone has to take the other side of the trade (without arousing suspicions) and of course it's a much better price and clears out weak hands-like dead leaves.

So here are a few charts already starting to catch up to the move and put in divergences...

 DIA 1 min, the white line is supposed to represent the triangle area, the brea happened exactly at 2:30 EDT. Although the DIA has been in leading positive position all day, to the far right this is the first leading positive divergence that is specific to this break below support levels.


 If we zoomed the DIA 1 min chart in very closely to reflect intraday activity, not just the overall leading divergence, you can see the negative divergence intraday that sent it lower as price was at the exact same level at both ends of the red arrow (a relative divergence) and then you see the leading positive take off.

 That's a pretty strong move in the 1 min, it has started to migrate over to the 2 min chart and that has turned up.


 ES has had a positive going all day, it led even higher at the move down.


 QQQ 1 min leading higher.


A zoomed view of the chart shows the leading positive divergence right at the break lower below intraday support of the lows.

Market Update

I'll post the charts ASAP, but for now I need to get this out fast. We are now seeing the first positive 3C divergences specific to this move form, some are stronger than others, but they are forming up and telling us this is most likely a head fake move, the stronger they get, the higher the probability.

The charts are coming...

Leading Indicators

I  took a pretty quick look at these and had to cut it short when my alerts went off, but here's what I came up with (to summarize, leading indicators are more positive than the comparison symbol , the SPX).

*Unless otherwise specified, the comparison symbol in green will always be the S&P-500*

 Commodities intraday today are performing much better than the market, being a risk asset they typically should follow the market for the most part, but there's a dislocation between the market and currencies short term that the market is ignoring (maybe op-ex, maybe manipulation with this triangle), however commodities seem to be embracing the normal correlation risk assets share with currencies.

 This is the same chart, same timeframe, same asset-commodities, I replaced the SPX (green) with the Euro which the market and commodities have a positive correlation with, meaning they tend to move with it as commodities are doing today while the market ignores the Euro for the time being.

 Back to commodities vs the SPX, this is a 15 min chart and a longer view of the bounce/rally since 11/16 and as you can see in a positive and 3C supported move up, commodities track the market well as they should as a risk asset, commodities even fell around the area we expected the market to fall, except sharper, but then that Tuesday happened and extended the market move to the upside.

 Yields intraday, these are like a magnet for equities to the better performance intraday is a positive divergence suggesting the market revert to the mean on the upside.

Longer term since 11/16 Yields have had an overall deeply negative divergence so the probabilities for the market longer term on this move are to the downside.

 The $AUD is a great leading currency, it is leading the market intraday pretty sharply.

 As mentioned above, the market usually follows the Euro very closely and the Euro is leading the market today as well.

 High Yield Credit is a great leading indicator, you can see even small moves in the past and divergences have caused the SPX t move, today overall HY credit is negative, but...

 intraday it is improving as we move toward the close, creating a more positive outlook.

 HY Corporate Credit is also leading the market today.


As is High Yield Junk Credit, strangely almost every risk asset is leading the market today.

It will be interesting to see how that triangle resolves.

Kids Were Too Quiet

It's kind of ironic, well actually not that ironic as the pattern was almost complete), that I was just posting what it would take to make that triangle an effective bear trap which I'm definitely posting too early to call it that as it hasn't completed a bear trap, but there are a few things worth seeing as they happen, here are just a few so far.

 Note how volume starts to pick up as soon as the support trend line of the bottom of the triangle is broken, but it's not until the intraday lows are broken that orders are hit and volume soars.

So now we let that play out a bit and see what the underlying action is.

The leading indicators that I was busy putting together right when my alert went off are actually kind of interesting too, I'll be positing those next.

 Here's the TICK on the break, for such a big break and high volume, the TICK reading didn't even hit -1000 when it has been trading all day around the +1000 level.

About that triangle...

Remember that triangle is going to be pretty obvious by now to traders so remember that to get them committed, they need confirmation, that only comes with a break below the triangle so if you see that, pay attention as it may reverse very quickly.

The triangle is not very useful if it doesn't do it's job and to do it's job, traders need to see a break below the lower trend line.

Especially given the fact that it looks like that triangle was manufactured and not naturally occurring.

TICK

While I was waiting for the Leading Indicators template to load I checked the NYSE TICK just because and look at this...

 A nearly perfect symmetrical triangle in the NYSE TICK data, it would "ALMOST" seem to me "If I was the suspicious type that didn't trust Wall Street", that this triangle didn't appear by accident.

Computer Algos making trades at a micro-second (that's one millionth of a second or put another way, what 1 second would be to 11 and a half days) surely couldn't make  pattern like this, or could they?

As for the bias, there's almost no data below -500, very mild, at the highs, +1000, interesting.

Quick Market Update

Today's flat intraday trade reminds me of an op-ex pin, but I'm not sure that's what it is, take a look at the QQQ chart...

 This is a perfect symmetrical triangle, traders expect it to break to the downside so the market can catch quite a few off guard with an upside breakout, it may be the formation of these triangles in the averages causing the flat trade and you know what I say about flat trade, "It's like the kids in the other room being way too quiet", you know something is up.

During that flat trade, in addition to the volatility indicators moving the right way (I still have to check leading indicators), the 3C positive divergence is there and out to 10 min charts on the Q's.

 Look at this flying positive divergence on the DIA 2 min, also w/ positives out to 10 min, maybe even 15 min intraday.


 IWM 1 min leading positive, this has the weakest positive divergences, but the IWM already did what it had to do, it already broke that resistance range.

SPY 1 min leading positive and out to about the 5 min which is respectable for a short term move.

ES futures are looking very strong intraday as well.

Leading indicators next, let's see what they have to say.

If we don't see much movement today then it probably i an op-ex pin on the weeklies which makes Friday's the most boring days with these weeklies, but I'm sure there's a way we can take advantage of it.

Market Update - Understanding the Trend Table

Just to avoid confusion as having an options call in SSO (Ultra-long S&P-500) and a short equity position (actually it's long, but an inverse ETF) in SPXU (3x leveraged S&P short/bear ETF) seems to be contradictory, a very leveraged long position and a leveraged short.

First let me explain how I view and like to use leverage, if there's a short term signal that looks good, but may not have enough profit potential to take the trade with an equity position, then I look at options, but these are for very short/quick trades and I want to get out of them ASAP.

If the trend (and as I just explained with AAPL, multiple trends can exist at the same time) looks to be a bit longer, but still not a long trend, maybe it's along the lines of a swing trade, then I prefer to use less leverage, but still some so I might pick a 2 or 3x leveraged ETF like SPXU, I don't want to hold this for a very long time, but several weeks or before the first major correction, they work well and I may enter it before the call position (enter a short and then a long) because the positioning may have been better when it was entered and the call may just be for a quick trade.

If there's a primary trend I prefer not to use leverage, the trend itself has enough profit potential and I can avoid pitfalls of leverage which I won't get in to now.

So how does that apply to say the S&P where there's a call position in SSO (short term heavily leveraged long) and a short position in SPXU (3x leveraged short)?

First lets look at the reason why there may be a move to the upside in the market....

 The QQQ has a VERY clear resistance area, there are bound to be a ton of Buy to Cover orders there from shorts and buy orders from longs, making a move above that level and triggering those orders can be worth a lot of money to Wall St. and because it's so obvious, it becomes more likely.

In fact when we saw weird action Tuesday 12/4 I eventually figured out it was because the IWM had the exact same issue, very defined resistance where all these orders are, as you can see the IWM resistance area that we have been saying will be hit, was hit, but while that was happening, the Q's built their own.

How to make sense of this and the positions with 3C...

I'm using the SPY as an example , but first lets look at the trend again...

The rally started on the 16th, I fully expect it to move down from these levels even though it may have to make a quick move up to hit those orders.

3C shows us...

 Short term positive on the 1 min chart, it seems the market is preparing for at least an intraday move higher.

 SPY 3 min, this is a leading positive divergence, this suggests that the market is preparing for more than just an intraday move higher, but still not enough to change the trend down expected.

 This 5 min tells me that a call position will likely work very well for a short term trade as this 5 min chart shows migration of a positive divergence so I do expect a move higher, I believe it is related to that QQQ resistance area, but the market tends to move together.

That explains the Call/Long position (short term).

Now for the SPXU bearish position...

 Since the rally started on the 16th with a positive divergence we have a deep leading negative divergence, this tells me there's almost no chance that the SPY will not move significantly lower and having at least a partial position in SPXU makes a lot of sense to me, if the SPY moves higher in the very short term and the short term charts go negative, I'll add to the SPXU short position (it's actually long SPXU gives you short exposure to the SPX).

The 15 min chart is an even stronger signal, this is a huge leading negative divergence, I don't ignore these, this is why I have an SPXU position and because these are highest probability, I don't want to trade around my SPXU position and try to get too fancy, if the SPY breaks suddenly, I have exposure to the move and even though we have strong short term long signals, the highest probabilities are always with the longest charts and strongest divergences.

Market update with other averages to come...