Financials Update/Trade XLF, SKF, FAZ

Seeing accumulation or distribution is not hard, hat's more difficult is knowing when you are so far along in the process that your probabilities are so high that if you wait much longer the move starts and your positioning is worse, your risk is higher, etc.

Looking at the big picture, it's hard to say that a few days of the market turning would be a deal breaker for a position as there's so much potential.

In any case, Financials are now at the point in which I find the signal very hard to ignore much longer. There's patience which is absolutely essential and then there's the fine line of timing. Luckily the charts tend to tell us when things are going from distribution to something much worse and with Financials, we look like we are at that point. Intraday or within a small period there's probably a slightly better entry, but I don't think waiting much longer is going to be beneficial.

Here are Financials as a broad sector (I prefer to start most positioning with a broad ETF and go with sector momentum and at the first correction, have an idea of what specific stock I might want to replace the ETF with). If you don't want leverage you can short XLF, for 2x leverage you can buy SKF and for 3x leverage you can buy FAZ (the last two you buy, but thy are bear or short ETFs). The reason I prefer to move to an actual stock at some point is there are advantages to being short rather than being long an inverse ETF.

Here's the update of XLF (Financials) which I consider a short, FAS (3x long financials) and FAZ (3x short financials) which would be a long position and probably my choice as an add to position. I use all 3 as confirmation of each other.

 XLF (Financials) 1 min trend. This entire area is "Trend #1", the idea of trend #1 with respect to trend #2 for our purposes is to act as a segue or a transition to trend #2; it's along the lines of the head fake concept or the bull trap. There are a number of reasons why; I keep saying it, but I will get the first 2 of the 3 part article, "Understanding the Head-Fake Move" linked on the site.

The expectation for trend #1 was mostly distribution, maybe a little initial confirmation to run prices up (we really couldn't say how long trend #1 would last, only that it would be shorter in duration than trend #2). This most recent divergence in the red box is not only leading negative at a breakout area, the  change in character of the 3C momentum is really astonishing-especially as we see the rest of the charts.

 XLF 3 min shows the actual accumulation for trend #1, essentially smart money buying a long position, not nearly as big as you might think, but necessary to provide the support and spark to get trend 1 moving up, they also make money obviously, but they don't want a position so large that they can't quickly get out of it and find themselves stuck like many did and still are in AAPL. This is a new leading negative divergence, essentially there's less money long here than there was at the lows on the chart at much lower prices, this is through not only distribution, but short selling as well.

 XLF 30 min, this is interesting because before trend #1, most of the negative divergences were around the 15 min area, which is substantial, but not like the 30 min charts, these are a much bigger deal. The trend on a chart this long becomes much more clear at the expense of some detail, but when a 30 min chart falls as fast as this one did the last 2.5 days, there's a major move in underlying trade.

FAS-3x long Financials -essentially the same as XLF, just with 3x leverage on a daily basis, this is not  meant to mimic the 3x leverage over a period greater than 1 day -this can be troublesome in certain markets like rangebound or very volatile chop. This is one reason that I prefer to switch to an outright equity short at some point for longer trends that may have longer consolidation periods.

 FAS 2 min chart from the start of trend 1 to present, also seeing a sharper momentum move in 3C at recent highs.

 FAS 10 min. including the 11/16 cycle and trend #1, note the confirmation until trend #1, also note the recent downside momentum in 3C.

 FAS 15 min, an important timeframe, here you can get a feel for how large the accumulation period was vs. the distribution period, also the recent 3C downside momentum change. For me, this is nearly an impossible signal to ignore.

 FAS 30 min, much longer, stronger. Accumulation at the 11/16 cycle lows, confirmation through most of that cycle (note that faster timeframes will show some distribution, it just isn't strong enough to show up on a chart this long/strong). Look at the recent 3C negative leading divergence, that is VERY fast for a 30 min chart.

FAZ 3x leveraged Short Financials-Remember if you want to use this to go short financials, you buy it long and it gives you short exposure, don't short FAZ unless you effectively want to be long 3x leveraged financials. Some brokers won't even allow it with a pair ETF like FAS.

 This should show roughly the opposite signals compared to XLF and FAS above, on a 5 min chart we have a strong leading positive divergence recently.

 15 min FAZ with the negative divergence at 11/16 and a strong leading positive divergence with exceptional momentum the last several days.

This is FAS, it might as well be XLF as far as the LR Channel is concerned, this is why I say there's probably a bit more upside, but at this point it's getting myopic. I'd like to wait for the perfect entry, but in my particular situation that's my last priority, the first being to members so I'll likely fill out the FAZ long at some point today. Don't forget we have a holiday Monday in the U.S. markets for Martin Luther King Day.