Leading Indicators

In most ways Leading Indicators were dull today, there are simply too many bond, equity, (insert here other types) of traders that have taken a long holiday and the markets are thin, may appear to be run by algos for the most part, a lot like we saw Friday on Quad Witching.

As far as any signals worth noting went, here they are... (*All comparisons made vs the SPX in green unless otherwise noted)*

Credit...

 High Yield Corporate Credit above and HY Junk Credit below really didn't do much of anything, I think this is largely because there were few traders around.

 One interesting indication today was found in Yields which tend to lead the market like a gravitational force, so this divergence (positive) in yields seems to agree with the short term assessment of the SPY Calls, this is one of the few clear signals.

 The November 16th lows were the start of the current cycle to the upside which I have and still do expect to make a move to the downside, there have been several strange events like that Tuesday almost two weeks back when we saw short term accumulation come in to the market in the afternoon, we identified the IWM resistance level that was very clear and packed with stops so that was an obvious target and probably the reason for the short term accumulation, after that the QQQ had the same level form, that was hit last week.

Here the $AUD, which is not only my favorite leading indicator among currencies, but among all leading indicators, is showing a large negative divergence, this to me argues for that downside I showed in the last post of the QQQ 15 min chart, that doesn't mean in the near term we can't fill some gaps, but this $AUD negative divergence isn't something to dismiss lightly.

One other asset that may be arguing for the same is the flight to safety, Treasury signals that are giving positive divergences suggesting money is moving from risk assets like stocks and commodities in to the relative safety of treasuries, take a look at the charts for the longer dated T's / TLT...

 After distribution Friday on the gap up, today's dip saw a leading positive divergence.

 The next timeframe, 2 min shows a leading negative from Friday-it DID not add any new downside today and as I'll show below, this in my opinion argues for the downside of the November 16th rally / cycle while still allowing for a gap fill (thus the short term trade in SPY calls).

 3 min chart shows several positive divergence since the market make a head fake move last week, there seems to be an influx of money moving to safety and away from risk.

The same is seen on the 15 min chart here, it was moving in line with price (green arrow) and now is leading positive, suggesting a much larger move in underlying trade toward the safety of Treasuries.

This would argue for a very short term move up, followed by a larger move down and that may be the transition we need to connect the positive divergence that has been under construction since mid- September.

I'll try to put it together for you on the daily SPY chart below.

At the white arrow is the November 16th lows with a hammer/support that kicked off this latest rally / cycle, the move above resistance was most pronounced in the IWM and QQQ, but we can see it here too in the SPY, I believe that break above led bulls in to entering longs and shorts in to covering, but as it is in a yellow box, I suspect it was a head fake move (failed move-manipulation) as you can see Friday when prices fell back below the resistance/support level volume picked up as bulls would be at a loss and new shorts would be entering, what better way to confound all of them than sending the market in to the gap created on Friday (our short term SPY calls should benefit from that)-this would trip up some new shorts and really leave the bulls wondering what to do, depending on where the intraday move and close ended up.

Today's small Doji in the middle of Friday's body is also a Harami reversal candle-this would be an upside reversal (remember there's no way to tell how long, it could be a day or a week as far as the candlesticks are concerned, they don't give that information). Again, this works well with a SPY Call trade.

I envision from what I see above a move in to the gap and the leading indicators pulling the market down, finally completing the cycle started Nov. 16th.

Copper would seem to agree with the above assessment...

SPY vs. Copper (red), while the negative divergence in copper argues for the completion of the cycle with a downside move, very short term the gap in yellow wouldn't be unreasonable to hit, in fact it would even push a bit past that gap as the market almost ALWAYS acts like a pendulum, swinging much further one way and then over-correcting and swinging too far in the opposite direction.

The one lesson I have to learn over and over is never to assume the market is going to mov to a reasonable level in a reasonable amount of time, you need to nearly double your price estimate and time to do so.

The Euro today did gap up above the SPX on some strength from earlier, but during market hours that faded, note though how the SPX stayed in a flat position and didn't follow the arbitrage trade down.

So that's it for now, I think for what signals there were today, we may have got off a decent trade, we'll pick this back up Wednesday and in to the Final Window Dressing date of Thursday (because of the Trade + 3 "T+3" settlement rule), of course that just effects window dressing, not year end gains and tax selling, setting up new positions for the new year after the T+3 day, etc.

Everyone have a fantastic Holiday and I'll see you very soon.

Closing Market Update

I'm still happy to have taken the SPY call position, I think it make sense. Here are today's charts, some mixed charts, but overall they seem to make some sense.

 DIA 1 min today

 IWM 3 min today, negative

 IWM 5 min today-negative

 QQQ 2 min positive

 QQQ 10 min positive

 This is what I think, short term the gap gets filled, the SPY calls should work well for that, longer term the market still seems to owe downside on this negative divergence overall.


 SPY 1 min positive

 3 min positive

10 min positive.

I'm looking for at least a gap fill and then we'll look at finishing the downside off the last move.

MCP Update

If I had time to make a quick long trade in MCP I probably would, I'd prefer a straight long position over leverage/options, but that's me.

Here's how MCP is developing today and since the last update.

 After MCP broke out above some resistance it pulled back and formed a triangle, the fact it broke under the triangle to wipe out any weak hands is not surprising and I think we even covered that before it happened.

I do see positive signals getting stronger here, again more toward the short term, maybe a swing or new leg up, longer term is still not there yet for high probability.

 2 min positive leading today

 3 min also was already in a positive leading position, but added more to it today.

 5 min is really what the trade would be based on, leading to a new positive local high today

 Even the 10 min is leading today

Since the break below the triangle seen on the first chart above, the 60 min is in a strong relative positive divergence so I personally have no problem with a speculative long in MCP here. Watch for a break below local support as seen on the intraday charts above as a head fake move to get the move up started, other than that, it has shaped up well today.

AAPL Update

The Jan 535 AAPL Puts were bought for $25.15 and closed at $27.80 for a +10.5% gain, but the gain wasn't the point, the probabilities of the trade were the point. I knew at some point AAPL was going to get complicated as the longer term charts started to clash with the shorter term charts (bullish/bearish respectively, but in different timeframes).

Lately we've been seeing some very complex timeframe trends developing, AAPL is one of them so for now I'm going to try to keep this as simple as possible, but many of you probably remember a longer term timeframe trend building on the positive side since late September for most of the market and October for AAPL specifically, I mentioned it was there many times, but it wasn't ready to act on and said, "We'll cross that bridge when we get to it".

Well we are getting closer to that bridge, but there are still some things I'd expect to happen in the market first, having year end trade to complicate things just makes the waters that much more muddy, but as I always say, when you are unsure, go to the longer term charts.

As for closing AAPL puts, first let me say I'm not ruling out additional downside, I'd like to see it, but technically AAPL did do what I expected even though it didn't do it in a way that I liked, it did do it. I expected AAPL to make a new low before any of this longer term trend business would come up and AAPL did that. I can't rule out another new low as the way I see it, the broad market still owes one.

The AAPL Put trade closed

 AAPL1 min intraday went leading negative last Thursday and Friday gapped down, you may recall I closed part of the AAPL position Friday.

 Looking at today's intraday trade, there was a leading negative divergence intraday in AAPL, it pulled price lower, but then the divergence lost its strength, it's this point in which I decided to close the rest of the AAPL Puts as I NEVER want to be in options trades 1 minute longer than I have to, any kind of suspicion with them and I'm out of there, it's too much leverage not to be SURE.

 Here's the 30 min (much more important and larger trend) 3C chart for AAPL, you see the leading negative divergence at the top to the left and what happened to AAPL since, but around October a relative positive divergence started forming, it gained more momentum in November and went to a leading position since-this is the short term and long term clashing and the long term should eventually win out, even though I must say the charts longer than 30 mins show the even bigger picture as very negative for AAPL, it all depends on the timeframe you are trading and when, but at some point AAPL should make good on this positive divergence.

I'll post a much more in depth analysis of AAPL, but right now the critical mid term 3-10 min charts where transition occurs are not giving great signals yet.

The 15 min chart went from our November 16th rally low to AAPL's high with a leading negative divergence sending AAPL back down, I expected AAPL to make a new low on this move, technically it did, right in to a positive divergence. The reason it's positive, the former support of November 16 is where all the stops and limit orders were so AAPL only had to trigger those orders and it provided enough supply to accumulate so I believe this is part of the tactical movement regarding the longer term 30 min strategic chart (see chart below).

The daily AAPL chart with volume shows the November 16th low as the rest of the market put in the same low, then remember the bear pennant that I said would likely be a head fake move-you can see it above and the break, it is there that AAPL broke support and triggered all of those orders, look at volume. This is how Technical traders are manipulated everyday because they are so predictable, they put stops and orders just below support as if it were some protective barrier and Wall St. knows this, why do you think the volume is higher the first day of the bread at the red arrow than the next day? Because all of the accumulated orders were wiped out. We're still in head fake territory on the break below the bear pennant as Technical traders expect that the break below the pennant should have led to the next leg down, instead we are still lateral.

This is an excellent lesson about stops and how Wall St. uses Technical Analysis against the crowd and how you can use their predictability to your advantage. Study the charts above, they're pretty simple.


Short term we probably will see more volatility, but it's time to be patient with AAPL and let the market tell us, when, where and how.

Closing Out AAPL Jan $535 Puts Here

There are several conflicting signals, I'd rather close the position until they clear up.

Charts coming

Market Update Charts

I don't think this movement should be too surprising this early on intraday charts considering the EUR/USD SINCE the 9:30 NY open.

 Even though for the week, which is young, the EUR/USD are showing better relative performance, since the open they have been pulling back which puts intraday pressure on the market, that mixed with the other under-current of the overall better relative performance has the market at a stalemate.

 The open at the green arrow, SPX in green and Euro in orange, so since the open the EUR/USD has pulled back, but is still leading the SPX for the week, a strange bit of arbitrage that has the SPX flat.

 DIA 1 min leading positive divergence took a break as the Euro lost ground, but still in a leading positive position.


 Essentially the same deal for the SPY.

The Flight to Safety trade, Treasuries is seeing some interest, I imagine as a result of the ER/USD movement, but it is interesting to note where yields are.

Yields , a leading indicator are in an overall positive divergence, so another interesting undercurrent, but this fits more in line with my reason for wanting a Call position, it's not based on opening trade or early indications or anything like that, it's based on the positive divergences from Friday and the gap above, so I'm fine with it, I just thought all of these different undertones were interesting.

Watch for improvement in the EUR/USD and I'll bet you'll see improvement in the market overall.

Getting some more movement

This is still intraday movement as there aren't too many charts migrating to longer timeframes, but the SPY leading positive is pulling back a little and interestingly the flight to safety Treasuries are seeing some interest here.

I'll have charts out in just a minute.

Quick MCP Update

MCP has pulled back a bit, it's sitting right on the 50-day which I don't really care about, but other traders will. I'm more interested in the fact it hasn't broken through or hit a stop on the daily Trend Channel.

I'm not willing to go out on a limb past a move up from the recent consolidation and give an opinion on longer term views until the charts clear up on that end, but near term MCP looks like it is preparing for a move higher from the last move's pop and consolidation.

 5 min chart shows selling in to the last move up and a positive divergence on the pullback/consolidation.

15 min chart also shows the same except with a leading negative divergence and then a larger  relative positive divergence (white). Considering its holding the Trend Channel, I like it. I'd till view this as a more speculative trade in this area being the long term charts haven't aligned, but they have time, they may still.

I would watch for a possible head fake move below the 50-day m.a. as it's very obvious, it's a good place to trip up any stops that are likely right under it, if we get that, feel free to email me for an update if you are interested in the idea.

Opening Indications

So far, pretty slow. You know how I feel about dull markets, "Their like the kids being a little too quiet in the next room over", but this is also an abbreviated day with ZERO in the way of US Economic Data.

Still, there is at least 1 or maybe two interesting opening indications, as it was last week, the DIA/Dow seems to be showing better underlying tone than the other averages and we see that this morning.

The Pre-market ES negative divergence kicked in and dropped ES about 4 points pretty much right on the open. There's a slight relative positive divergence in ES right now. NASDAQ Futures so far aren't showing anything of note, like most of the market , but not all.

These are all intraday 1 min charts

 DIA with a leading negative late Thursday that dropped the Dow Friday on the open and a leading positive divergence this morning.

 Here's a closer look at Friday through present with the leading positive divergence developing mostly this morning.

 The IWM went negative on the 1 min late Friday and we see the lower opening today, remember though we do have some positive divergences in the averages on slightly longer timeframes as shown last night.

 The QQQ 2 min (only exception to the 1 min charts) had a leading positive divergence as of Friday afternoon and still does, it's just not adding to it so far this morning.

The SPY is in line as of this capture.

*Since these are fast moving, the changes since these were captured a few minutes ago are: The SPY is now in a leading positive position.

Jan 19th SPY 140 Calls

I chose the Jan 19 SPY 140 Calls, it just makes me feel better to have a hedge there with that gap above, wit the Euro showing better relative strength, the $USD down a bit, Yields are up as well.

The bigger picture leading indicator and my favorite of the currency indicators, the $AUD is down so as I mentioned Friday, with any bounce in the market it makes that negative leading divergence with the $AUD worse, so I still view this as a short term opportunity to make a little upside on the gap and have a little hedge in place as well.

Considering Upside Hedge for a Gap Fill

As you saw last night we had some positive divergences in the averages from 2-5 min or so, these were from Friday so I'd like to see more information considering Friday was Quad Witching and considering what happened to futures Thursday night, still I'm considering maybe a SPY Call position or a 3x leveraged long in one of the averages as either an upside hedge or as a quick trading opportunity.

Other than the charts I already showed you Friday and last night, here are a few additional ones very early today....

 The EUR/USD open yesterday and this morning, the pair is performing better than the S&P for the start of the week, there may be some arbitrage players looking to lift the S&P as the Euro is higher/Dollar a bit lower than the implied vale of the S&P correlation.

 The Euro in ornage vs. the SPX this morning to the right on a 1 min chart showing the Euro outperforming the SPX when these usually move together.

And of course the gap in the market, these almost always get filled, too much HFT action seemingly for them not to get filled.

So at worst I see it as a known premium risk, maybe a decent quick trade, maybe a decent short term hedge.

I'll probably consider at least a small position in something like SPY Jan 140 Calls or UPRO long (3x long S&P) and if there's more confirming information, that position can always be enlarged, note though the instruments I'd prefer are also the same ones I prefer for short term trades.

Futures Heading In To the Open

S&P E-mini (ES) Futures gapped down last night on the open for the new week to about 1422.50 from the 4 pm price of about 1426. Here's what happened overnight....

Futures bottomed out shortly after the open at 1417 and about an hour after the European open hit the level again so I'm guessing there's support there as a 3C positive divergence formed through the night and at the second bottom sending ES back up to the opening levels near $1422.50 currently with a small negative divergence forming on the 1 min intraday chart.

Really overnight nit much happened, as mentioned last night, Congress/the US government- isn't set to pick up Fiscal Cliff talks again until Thursday which should also be the last day for Window Dressing with the T+3 settlement rule, so I'd expect more action late in the week, but with low volume and algo's and HFTs dominating, volatility can't ever be ruled out. Other than that, you know we always see the 9:30 volatility spike that typically gets faded in the afternoon, today we'll just be missing the afternoon.

We'll see if there's enough action to push an underlying tone as we look at opening indications around an hour from now.