Daily Wrap

Today wasn't a huge macro-economic day for the US so there weren't too many undertones there, Europe was closed so there wasn't much coming from that corner either.

It seemed like today was a stop run...

Stops hit at local resistance this morning at the yellow arrow and a little market paranoia after a Republican press release shifting the burden of action to the Senate (orange arrow).

At year end there are so many undertones all playing out at once and amid very low volume. I'm still onboard with a quick upside move (thus the leveraged call position in the SPY), but I expect that to be short lived.

As I have said numerous times, I think the market still owes downside from the November 16th cycle or rally; I'd expect a new low below the 16th.

As far as charts today, there wasn't too much in leading indicators other than some interesting closing action in credit and a few other things...

 As the SPX (green) was seeing some downside that I warned about as 3C intraday negative divergences were forming beforehand , interestingly High Yield Corporate Credit made a push in to the close.

 Junk Credit which also was giving a little advance warning regarding the late afternoon drift down also saw a push in to the close. I would take both events as very short term positives, however within the context of a market that was half closed and the other half that was open across the pond saw dismal volume.

 Treasuries, the "Flight to Safety" trade give us some insight as well that falls in line with near term market outlook. TLT saw some distribution on this 3 min intraday chart, price fell a bit before a positive divergence formed Monday sending TLT a bit higher this morning, we saw one more positive divergence around the time of the market downdraft late this afternoon as the Fiscal Cliff came up.


 Longer term on the 15 min chart, which is much more important than a 3 min intraday chart, we've been seeing a leading positive divergence that has pulled TLT/treasuries higher and I believe this is the flight to safety that is being prepared in response to that market downside I believe the market still owes to finish the cycle started on 11/16.

 This is the SPY with accumulation on a 60 min chart leading up to the 11/16 lows and the bounce/rally from there, however there's been a rather large leading negative divergence in the SPY (red box) that I have said makes this market extremely fragile (recall the 50 point ES drop last thursday to send Futures limit down). This would also represent the market downside that I still expect to finish the 11/16 cycle.

There are other longer term trends that could play right off a new low below 11/16, but we need to deal with that when we cross that bridge. So for the immediate future, I'm looking for a quick move up, perhaps filling Friday's gap and maybe then some followed by a move down which I wold expect to make a new low below 11/16.

Volatility seems to confirm this as well.

 VXX very short term intraday (1 min trend) went negative and saw selling this morning around 11 a.m., it started to see heavier 3C distribution signals and the only thing that pulled it up was the negative divergences seen in the market in the afternoon which I already mentioned and since VXX trades opposite the market it saw a positive divergence right about the same time sending VXX higher as the market moved lower in to the close.


 If we go out to a bigger picture trend on the 10 min chart there's a decent negative divergence in place, this is along the lines of that quick market pop to the upside that I started preparing for Monday and today. However to see a real change in character...

 Move out to the VXX 60 min chart with some of the largest leading positive divergences it has seen in some time, this is along the lines of a new low in the market as smart money knows they can't unload large long positions in to this thin market so they are bidding up put protection for hedges.

Again, look at the 3 timeframes here and you'll see the same next 2 trends I'm looking for, a quick pop to the upside in the market (see VXX 10 min) and the bigger picture, a new low below 11/16 (see 60 min chart above).

Those are only 2 trends, there are at least 4 very clear trends that are developing and they all seem to fit together and work together well, but I don't want to overwhelm anyone right now so I'm trying to stay focussed on the next 2 as the first (up) is much shorter in duration than the second (down).

I could add a bunch of charts of the averages, charts of leading indicators, etc., but I don't think it would make the scenario any clearer, it would just add confirmation to the signals already in place.

As for commodities today...

 This is commodities (brown) vs the $USD, you can see how commodities as well as stocks and almost all risk assets have an inverse relationship to the $USD (green), as the USD comes off the a.m. lows commodities as a group falter in near mirror reversal. The Euro accounts for 50% of the $US Dollar Index and as such, it tends to move with commodities and stocks so often it is easier to use to spot divergences.

Speaking of which...

We have one heck of a consolidation in the EUR/USD thus far, it's almost a symmetrical triangle. Actually as I write, it's just starting to break north of the range, this (if it holds overnight, through the European open and US pre-market) would give the market support and perhaps kick start that pop higher that those SPY calls are there for.

Right now in futures, ES has a very small positive divergence, it's not big enough that I believe it to be material at this point, but if it grows I'll post it later. NASDAQ futures are moving pretty much in line with 3C (1 min intraday), no divergences there yet except on the longer term 5 min chart and even some hints on the 15 min chart.

We do have this newer leading positive NASDAQ E-mini divergence, it will be interesting to see of this can build a bit overnight, that may just be the signal for the quick pop to the upside. I do want to point out that I keep using "Quick pop" to the upside, I am referring to time, I am not referring to intensity; with the market in the condition it's in right now volatility is to be expected - I wouldn't have considered the SPY call trade if I didn't think it could be worth the while.

So there's not much more as of right now that we haven't already covered, if anything rears up in futures trade I'll be sure to bring it to you.

Silver Update

Last night I showed you a chart or two that suggested Silver is in play again, I'm going to make this post very brief and just remind you that while we see something is going on here, the best way to play it and when to play it has not cleared up yet. This may even be a trade (please don't take this as my analysis as I am saying, "may")  in which I might actually think the physical is preferable over the equity choices you have.

There was a ton of 3C intraday volatility in SLV today and none of it made any difference to trade analysis, but where it did make a difference is out in the long end of 3C, the important end where large money flows are found so I just want to show you a couple of charts picking up from where we left off last night.

 This isn't the same larger perspective view of the SLV 60 min chart from last night, but to the right that is where the 60 min SLV 3C position was.

 Today the 60 min chart added this leading positive bit to it, this may not look like a lot, but on a 60 min chart, it is.

 To give you some idea of what has to take place to move a 60 min chart like that I'm showing you the leveraged version of SLV, which also provides confirmation as it's a different ETF... the 5 min leading positive divergence, that's huge.

And the 30 min chart's leading positive, I partioned off today's move.

So in my view, something is going on in SLV, something we aren't seeing across the board in the PM space, this is unique to silver.

MARKET UPDATE CHARTS

Unless something big changes in the last 15 minutes or so, this will probably be the EOD market update as far as 3C charts of the averages go.

 I see since my last post warning of intraday downside coming, while I've been preparing this post, it has materialized so I hope it was helpful and this is why I sometimes include charts on a separate post as I can't get the information out fast enough to be useful if I include chart capturing and uploading time.

There's some interesting things going on, the DIA continues to display better relative underlying 3C performance than most of the other averages, the IWM (which I was told today had a large skew in the Put/Call Ratio of 6.6 whereas the SPY was at 1, last I heard 185k puts to 28k calls- I don't base analysis on this as there are a lot of games played in options, but considering the IWM charts it's interesting), the SPY and QQQ also have some interesting characteristics in which there seems to be some meeting of the different trends I spoke about as they were already in close proximity-remember the "Perfect Storm" post earlier today?

Each is telling us something a bit different, but all part of the same story, it's kind of like watching an event from several different perspectives.

 The DIA is one of the few charts that made it to a positive intraday divergence today alone, many other charts were in the 2-3 min intraday area.

 Speaking of the 2 min intraday area, this is a large leading positive divergence, you can see it is stronger looking than the 10 min chart above, but since the 10-min is a longer timeframe, it is the stronger, more important chart. This is how divergences migrate, if the divergence on this 2 min chart is strong enough it moves to the 3 min, then 5 min , then 10 min.

No matter what price is doing in end of day trade, the DIA is telling us that there was some strength for a short term move put together today and that is what we are prepared for.

 The IWM 2 min chart shows the negative intraday divergence that caused my last warning much more clearly, even though the overall divergence on the day is leading positive in the white box.

 The 5 min IWM chart (remember the Put/Call ratio for the IWM) is not seeing the same strength as the other averages, certainly not like the DIA, this is still in line with a quick move to the upside followed by a bigger move to the downside which has been what we have been seeing in most areas including leading indicators which I will update after the close.

 QQQ 5 min looks much different than the Q's, the leading positive today is respectable and tells me today's price action was almost certainly a head fake shakeout before an upside reversal, no mater how short that move may be, we can't account for how strong it may be and this is why I prefer the call position for this situation.

 QQQ 10 min is interesting as it seems to show a short term and probably something closer to the tail end of an intermediate term positive divergence coming together, the sub-intermediate move can still be to the downside and strong, this is a chart to watch.


 QQQ 15 min is showing the high probability of a sub-intermediate sharp move down, but zoom this chart out to September and the intermediate positive trend becomes visible, this is what I mean when I say multiple trends are converging and it's a complicated market right now.

 SPY 2 min leading positive as of about 1 pm today...

 The same chart this afternoon warning of downside with an intraday negative divergence.

 The 3 min as of 1 pm or so, leading positive...

And the same chart at the EOD with barely a hint of any negative divergence, this tells me the negative divergence I warned of in the last post is likely nothing more than an intraday move and is not strong enough to be concerned with, it is likely more tactical and psychological than anything.

sPY Call options are still open.

Quick Market Update

Expect some downside very shortly intraday, I'll get some charts up.

This doesn't mean it's bad, just expect it if you are in an intraday trade.

HLF Update

Earlier today I mentioned an article I had seen while browsing about some big players short HLF and the possibility of a short squeeze. I personally don't like chasing anything so it's not my kind of trade yet, but has the potential to be. As I said, it depends on your risk tolerance and I've received several messages today from members who made a nice chunk of change on pretty quick trades in HLF long today.

I'm hoping that what I'm starting to see is going to lead to the kind of trade I prefer, the kind of traded I hinted at in the first post.

Time will tell and may provide us with a great trade because despite today's decent gains, this was no short squeeze. On the other side of the coin, I don't really like when bigger players start letting on as to what their positions are, it's just not the way things are done on Wall Street, so with all of that in mind, the only thing that matters to me is the signals and the set up; if they come then there's a decent shot at this, if they don't, well then there's always another bus.

Either way I'm happy to hear some of you made money on this one today.

The charts...

 The daily chart, that's about a 50+% drop since the middle of October where distribution (short selling is also distribution) can be clearly identified. I'd think the big fish are pretty happy with that and I'd think they'd like to be trying to cover this position unless they think they are going to run HLF in to the ground which I doubt. The question is, "Are there bigger, faster fish that can front run these guys and squeeze them?". It's kind of hard to gauge unless you actually tried to get some shares short and see if they are available or not and I'd rather not do that, but I'm quite sure the Iceberg hunting HFTs have been pining the heck out of HLF to figure that out.

 On an intraday basis, a lot of intraday swing traders (not day traders anymore), watch the 50-bar 5 min chart, HLF is breaking under that average which should put selling pressure on it intraday or at least act as resistance. Volume has also dropped off noticeably, not the stuff of short squeezes and the price pattern just doesn't look like a short squeeze, not that I'm trying to determine whether there was a squeeze or not, there was not, at least not today.

The 15 min. 3C chart shows where it appears most of the positioning took place or at least where it reached a crescendo, around mid October as there's a deep leading negative divergence into the highs of this range, since then it's stayed in a leading negative divergence so the short positions were in place for the most part back then.

 This 5 min leading negative divergence is more like  fuse to ignite what was already in place, we also have a 5 min leading positive divergence today. Part of this could be traders looking for a short squeeze taking up long positions, but it could also be the big fish covering their short, they know they'll have to take a little dent to get out of a position that large, it's just the cost of doing business. I'd rather have seen a large positive divergence in place before any upside movement took place.

 This is today's 2 min intraday chart going leading negative so this is one of the reason I expected some intraday downside from here and why I personally would have taken profits off the table for the day.

 The 5 min chart was leading positive going in to today from Monday, it also has lost momentum and is going negative intraday.

So what's the plan, the set up from here? It's roughly the same as the first post this morning in which I want the trade to come to me and on my terms rather than chase it, but that' a matter of risk tolerance.

I'd like to see this 15 min chart (note the leading negative divergence before the drop) or rather price, pullback, perhaps to the recent lows, maybe even a break below those lows. At the same time I want to see the intraday 3C charts go leading positive and have enough strength to move this 15 min chart to a new lading positive high like the orange arrow, at that point that's where I'd be comfortable entering this trade whether it' a short squeeze or perhaps a double feature in which they run it down, hop the tracks and run it up with retail thinking it's a short squeeze, if that happens, they likely leave retail with the bag and let it drop again.

So one bridge at a time, I'd wait for a bit of a pullback and make sure 3C is more positive than it was today. If the trade comes to us, GREAT! If not, then there are plenty more.

HLF Coming Down

I'll follow up with charts and an update, but I know several of you already emailed me today and made a good chunk of change, in case others are still in HLF, you may want to consider taking some profits and check out the next update, THIS IS NOT A SHORT SQUEEZE YET...

The Perfect Storm- Stage 1: Shakeout

As I have alluded to, there are so many different timeframe trends, with 3C each timeframe represents a different trend, a different amount of accumulation or distribution and different start dates for each trade or depending on your trading style, there may be several different trends all at once; for example Long Term Bearish, Intermediate term bullish, Sub-Intermediate term bearish, Short term bullish. I know that sounds confusing, but if you were to look at the underlying trends and even price trends, you could make a case for each of those elements and aligning your trade to the right trend and using the right vehicle for the trade is often the difference between success and being right on the market and just using the wrong assets at the wrong time.

Also as I alluded to earlier, this is one of the most complicated set ups (the different trends and all starting to converge) I've seen all year, perhaps in several years; it reminds me of the perfect storm but instead of all one way destruction, this will be moving in different directions which should cause pandemonium among traders who don't have an edge and are stuck in one way of viewing the market and one way of trading.

I'm going to do my very best not to confuse you and try to stick with what's in front of us right now, but I will give you a couple of examples of what I mean when I talk about different timeframe trends of different importance all coming together at the same time, you don't have to worry too much about it as I'll try to keep things relevant for you. To add even more craziness, we have the Fiscal Cliff and several other economic and geo-political uncertainties in the market.

Lets start with what's going on today, why we have the options positions we have which are geared up for a short term move (How long is short term? I can't say, a day, several days maybe, but we'll know it when we see it) and what today's volatility was all about.

Shakeout...

One of the first things we see before a new move, trend or reversal occurs is a shakeout or what we often call a head fake move because it makes traders think the market has a particular sentiment based on price action, but price action is rarely representative of what is really going on and that's why we get in place earlier than most because many times we can see the underlying trends that will influence price action, giving us the best entries and lowest risk-at least that' out goal.

 We have a defined range since Friday's Op-Ex, we saw some things that suggested a short term move up, since the move is shorter in duration, I prefer a more leveraged vehicle, in this case options which fits well with my view of using options-I want to take the gain as fast as possible and get out of leveraged trades as soon as possible so they seem to be a good choice here to give us the leverage and get out before options related risk starts to appear.

Today's move under support looks to be a shakeout move, not just because we see these moves all of the time with a defined support/resistance level, but also because the short term 3C charts are confirming.

 If we look at today's NYSE TICK Index (Number of NYSE advancing issues less declining issues) we see an extreme of -1200 at the break below support today (shakeout) and as the market is flat and lateral we see the TICK rising showing good intraday breadth for an average that really isn't moving much as of this capture.

The 3C SPY 3 min chart with a leading positive divergence only after the shakeout move, this creates supply as longs stop out and shorts sell short, it makes it easy for smart money to accumulate without driving price against them.

The other averages... So far the positive divergences on the averages today have been limited to the shorter term intraday timeframes, although a bit of a pullback may move them out a little further, but all in all, this is why I'm more concentrated immediately on a short term move, perhaps a gap fill from Friday's open, maybe more as the market is often more extreme than rational thinking would seem to indicate.

DIA

 3 min with a relative positive followed by a leading positive divergence, how many times do we see this combination in this order? The relative divergence (arrow) is not as strong as the leading divergence (box) so as we move forward in to a divergence it gains more accumulation or distribution and shows more strength.

 The IWM, which earlier had no divergence at all, now has a leading 2 min positive, quite strong for the timeframe.

QQQ 3 min leading positive, but we are still within the intraday timeframes.


Volatility Futures/ETFs as confirming indicators.

 UVXY is the leveraged version of VXX (Short Term VIX Futures) both move opposite the market, when the market was moving down today the VXX and UVXY were moving up with 3C confirmation, as the averages bottomed out and started building positive divergences, these two topped out and started building negative divergences, this is one form of confirmation of the market signals we are seeing.

The more confirmation, the higher the probabilities are.

 UVXY 5 min is starting to lead negative.

 VXX (same as above, just not leveraged) with a 3 min leading negative divergence, this is the mirror opposite of the market averages, confirmation!

 XIV is the daily Inverse VIX Futures ETN and moves WITH the market, so a positive divergence here is confirmation of a positive divergence in the market averages and confirmation of negative divergences in VXX / UVXY.

XIV 5 min leading positive-more confirmation.

Leading Indicators...

I will largely stick to near term trade and analysis related to the options position from Monday and today.

Credit

 High Yield Credit is a risk asset, it should move with the market if the market is moving up, this is a short term chart and HY credit is performing better (relatively) than the SPX (green), this means Credit in the near term is supportive of higher prices, a positive divergence.

 High Yield Corporate Credit fell hard initially with the market this morning, now it's moving along with the market, an improvement.

 Junk Credit  is acting a lot better than the SPX as well as the day wears on, these are all near term positive indications.

 The $AUD is a great leading currency, this is also an example of a few different timeframes and trends. Short term the $AUD is trading with the SPX, recently it has been moving lower in a negative divergence so the short term picture here is improving, but it is the short term picture.

 The sub-intermediate trend in the $AUD is in a solid negative divergence with the SPX, this is a more bearish view, this would be interpreted as a short term bounce and that is followed by a longer term and more serious decline (bounce may equate to a gap fill from Friday's market open, etc.). This is only 2 trends of at least 5-6 (depending on how you classify them).

 The Euro is a good confirmation currency for the market, it headed lower today, the SPX followed it nearly tick for tick, this isn't just because of the Euro, more importantly because of the $USD, but the Euro is a good proxy for the $USD that moves with the market instead of against it, making divergences easier to see.

Looking at the same 1 min chart, but zoomed out, the Euro is more positive than the SPX hinting the SPX has some upside in the near term or short term to move back in line with the Euro.

I only showed you 2 timeframes/trends, there are at least 4 major timeframes/trends in play right now.