EOD Market Update

In yesterday's afternoon post, "Close the Q's Strong" a few things came together for me, 1) the reason why negative divergences formed quickly only to be held up at the 5 min chart, which suggests there was selling in to yesterday's QQQ breakout that we have been anticipating since last week, but there was a limit to how much damage they'd allow yesterday, in essence it seems they did exactly what I posted,"Close the Q's Strong", 

2) This is why I thought that was likely...

"If they can close the Q's strong and above that resistance range... Then it's likely the same thing will happen as it did with the IWM, traders who work during the day will come home, see the breakout, place their limit orders and go to work, the market gaps up and sells off the next day, more flies in the web."

I used this chart of the IWM as an example as it went through the exact same scenario last week...

Yesterday would represent the first day in the red box on this IWM chart and today would represent the second bar with a gap up and late day sell-off.

Here's how the Q's Closed...

Almost the exact same scenario that I talked about yesterday except today we even got a move below former resistance (support) on the close.

In the 2:30 Market Update today there were some intraday 1 min positive divergences, I said,

"There are several 1 min charts, especially the QQQ that look like they could see some intraday movement to the upside,"

And...

"Because there's not  whole lot of support of intraday timeframes beyond 1 min, there's always the chance the 1 min positives just get rolled right over, they are nowhere near as strong as a 5 min or a 10-15 min."

Here's what happened there...

Around 3 p.m. those short term divergences seemed to kick in as the intraday downtrend was broken to the upside, but as mentioned, the changes the short term positive divergences would be rolled right over were real and that's exactly what happened with volume picking up on the break through support which is also the former resistance level on a daily chart we have had marked as the target area.

Today we broke through that temporary road block that held negative divergences back to the 5 min timeframe only and moved beyond to more important areas, here are the Q's today.

 The 1 min positive intraday divergence mentioned this afternoon, it did break through the intraday downtrend and was subsequently run over.

 2 min. showing the 2-day leading negative divergence with today's addition to the divergence marked. Note the very flat range in the area, whenever I see these ranges, I can almost guarantee there will be some divergence there. Think about it, it's quiet trade, market participants aren't paying much attention, they're bored and off guard, it's a perfect time to conduct quiet activity because no one's paying attention and the other half is best summarized by my little saying, "It's like the kids in the room next door being way too quiet, you know they're up to something".

 The 5 min chart is where we were road-blocked yesterday so you can see the additional downside added today.

We did have a large relative negative on the 15 min QQQ, but as you can see yesterday we didn't have a divergence, today we added that.

The DIA

DIA 1 min positive divergence and that getting crushed

 The 30 min chart with an impressive leading negative divergence today.


And the 15 min chart

The IWM...

 IWM daily with the first obvious range that we predicted would be taken out. We have a Harmai downside reversal Candlestick pair today on higher volume.

 IWM 1 min positive divergence triggered and run over.

 3 min added to the leading negative today

The 30 min is interesting because you may recall that even though on a percentage basis the IWM was the best performer yesterday, I said all day it had the weakest underlying trade and today it was the only average to gap down and the worst performed through the day by far. I mentioned why I thought this was so, because the orders where the money is to be made had already been hit at the yellow arrow and since then you can see the IWM never saw any kind of underlying strength, there was no more incentive as they hit the accumulated orders already.

SPY...

 SPY 10 min didn't have much yesterday, it added a large leading negative divergence today, in fact just about hitting new 3C lows on the chart.

 15 min also added to the leading which was non-exisitient yesterday, much of the leading happened before price fell today.

The overall 60 min since this move started on 11/16 with a large negative divergence, way out of proportion with the positive divergence that started the move. 

I'll have more for you shortly, I have a meeting to go to for a bit and then run my scans and collect any interesting charts that may hold some clues or answers for us. 

ERY Follow Up- Add to

Yesterday ERX (3x Bull Energy) was closed and ERY (3x Bear Energy) was opened at a speculative position size of 50% of a normal position, I think I'll be adding another 25% to that position in the equities model portfolio.

 ERY 3 min leading positive divergence

 5 min leading positive divergence

 10 min went leading positive today

15 min is just moving in to leading position.

Here's XLE-Energy Sector...

 5 min XLE leading negative

15 min with a long term relative/leading negative and a leading negative over the last 2-3 days.

BEAV is up to you

As are all ideas, but for me, "If I had room and weren't already over-exposed, I'd be taking on at least some exposure to BEAV short". There's no dividend in BEAV so you don't have to pay that, you can make more than 100% in  short trade despite what you may have heard, I wrote an article about how years ago linked here and shorting is no more dangerous than buying long, unlimited risk is not realistic as your broker has to cover their but and will cover the position if thing get out of hand because it their margin money so they have skin in the game.

If you have questions about the concept of the trade idea in BEAV, please see the earlier posts, one of the first today has links to some of the original ideas that lay out what we were looking for to happen in BEAV.



BEAV charts...

 1 min intraday

 2 min

 5 min

 15 min

30 min

GLD Update

Occasionally GLD and even more so, SLV are extremely hard to analyze, they flip flop correlations such as one week they may represent a risk on trade, the next week a flight to safety trade, for months they represent anticipation of QE and then they seem to lose any such interest. Throw on top of that manipulation of the PM market which has been proven time  and time over, especially in SLV and margin hikes that appear out if nowhere and seem to be ordered from higher ups in the food chain and you have n asset that i very difficult to follow, it didn't use to be so.

I have an open position in GLD long, I will leave it open, but will not add to it because I really can't get a grasp of what's going on here, it feels like GLD is in transition again as to its correlation which may be true given the QE3 announcement and QE3.2 last week with Treasuries added to MBS.

 GLD daily-this is a long timeframe and further out trend

 GLD 4 hour also long timeframe and trend and looks pretty bearish for the long term

 60 min looks better, maybe GLD runs up a bit before a move to the downside? It's hard to say as the long timeframes can change if the shorter ones are strong enough.

 15 min positive as well

 10 min positive

 near term 3 min positive

For the reasons seen on the near term timeframes which should be executed first, I'll hold the GLD long open for now, but I will not add to it as these charts give me the feel that they are in the middle of some sort of transition. With QE3 MBS announced in September and QE3 Treasuries announced in December, it is very likely Gold is shifting its correlation, I just don't know where it's going yet

Market Update

There are several 1 min charts, especially the QQQ that look like they could see some intraday movement to the upside, the longer term charts which were blocked off yesterday at 5 min. are now seeing deterioration in the 10, 15 and even some 30 min ranges. Because there's not  whole lot of support of intraday timeframes beyond 1 min, there's always the chance the 1 min positives just get rolled right over, they are nowhere near as strong as a 5 min or a 10-15 min.

All in all the intraday, short term charts like 1 min are pretty much noise, the longer term charts are trend and probabilities, here's what they look like on both ends.

 DIA 1 min.

 DIA 10 min

 IWM 1 min

 IWM 5 min

 IWM 15 min

 QQQ 1 min

 QQQ 15 min

 SPY 1 min


SPY 15 min

Starting Position long in SRTY-Short the IWM/R2K

SRTY is a 3x leveraged Bear/Short ETF for the IWM, I think I'll be opening a partial position, likely 2/3rd of a normal size position here in the equity model portfolio, here's why....

 Remember I said that since the IWM took out the orders above resistance last week, the underlying trade there has been much weaker than the other averages which makes sense because the profit motivator was already hit last week. Here on today's gap down, the IWM / Russell 2000 tried to fill the gap, as it did the 15 min chart went negative in to price strength or price moving up, not a good sign.

 SRTY is the 3x leveraged IWM short or Bear ETF, this 15 min chart is flying in a strong leading positive divergence.

Even the 30 min chart is leading positive.

Just remember that an IWM position is close in correlation to a small cap position so you want to be careful not to have too much exposure to the same asset class or highly correlated assets.

BEAV Continues to deteriorate

I WISH I had room to add to BEAV which has been a core short position since April of this year. I try to keep good habits though even on model portfolios.

If I didn't have any exposure to BEAV (aerospace/defense products which I think will suffer under the Obama Admin.), I'd be very hard pressed not to consider at least a partial / phased in position in the area; it doesn't have to be an all or nothing proposition and in fact this is the way Wall St. enters positions, it's just not as practical for us because of transaction costs accounting for a higher percentage of the overall cost, but in 2 or 3 phases, it's usually doable. THIS IS NOT DOLLAR COST AVERAGING  which is a losing concept used by Wall Street to keep their clients not only in bad trades/investments, but to get them to even spend more on these bad trades/investments which lines Wall Street's pockets with more cash, now that's taking a lemon and making lemonade. If you make phasing in to a position part of your risk management plan before you enter the trade, it is a valuable concept and tactic, it's not the same as throwing more money in to a losing trade.

 "If" BEAV closes weaker today, it may very well put in a candle that looks like the one I drew below today on the daily chart, this would be very bearish, especially if it closed below the trendline.

 The 2 min chart deteriorating and in a bad position on a relative basis.

 3 min chart getting worse as BEAV is in a flat range.

10 min chart in a deep relative negative divergence on the breakout and a very parabolic looking price range today, these typically fail in the same spectacular fashion as they went up.