Market Update

I wanted to get the trade ideas out first as they are a bit more pressing, but I want to try to give you some perspective as to what I see and what I think about it. It's no secret that I thought we'd see some market downside Monday as early as last Friday, last night I also wrote the same for very near term trade.

I said Friday "If we get downside Monday, it would be a market gift", that's because the longer trade is entering long positions on market weakness and 3C strength.

This is why I closed some of the long Call positions Friday and entered some of the short positions mentioned in the last post, but those positions are just small hitch-hikers, I'd prefer the chance to open larger, a little less speculative longs in to weakness so what I'm looking for is near term weakness with signs that it won't last long and will be followed by market strength.

From a psychological point of view, as I explained last night, Friday's move up stopped right at resistance from last week's first test of resistance which failed and gave the bears confidence to enter shorts, but most of them won't take the failed attempt to break resistance alone, they also want price confirmation which can only be obtained by prices moving lower, this helps Wall St. and us as it brings in more shorts which gives us more propellent on a short squeeze (which is why I want to add those long positions back in to some price weakness to get them cheap and profit on them a second time.

So again, from Wall Street's perspective, they know what will move Technical Traders and they will give it to them in the short term to get them to move and get short, to lock them in.

Here are the charts, most of these were taken before the last post so they'll be 20 mins or so old, but the message is no different.

 This is 1 min ES (SPX E-mini futures), you can see overnight to the left from about 10 p.m. EDT to present and the initial knee jerk reaction to the S&P US outlook upgrade, but as I mentioned, we are in the bizzarro world of the market where good news is bad because it gives Uncle Ben more reasons to abandon QE faster, in fact with the hot water the S&P got in on the US downgrade, I wouldn't be surprised if this ratings change toward the positive weren't some part of a deal to keep them out of bigger trouble, kind of a punitive move, "You do this for us and we'll let you off the hook, you don't and we have every electronic form of communication you've ever sent for the last 10 years). Note the Payrolls data has been mild too, also offering Ben a chance to exit stage left and we know how manipulated the B.S., oops, sorry, the B.L.S. data is.

Point being here, ES is not in an intraday positive stance, just the opposite.

This is the 15 min ES chart, it called the bottom with perfect clarity, we have a leading negative divergence now, the two are "roughly" the same size and the positive was good for 2-days, this is why I'm thinking the trade ideas from the last post will probably be good through tomorrow.

Remember that the market moves, especially now, on emotion; so don't expect just some small pullback, the more powerful it is and scarier it is, the more effective it is, but it's still just a means  to achieve and end - Get Shorty! 

This is the USD/JPY pair, it's about the only risk driver left in the market, it also happens to move directionally (and until last week, proportionately) with the SPX/market, there's a 1 min negative divergence suggesting the pair move down, that would confirm the ES charts and suggest the market also move down in the VERY near term.

 This is the USD/JPY pair on a 5 min chart, it too suggests that the pair and thus the market, see some near term downside.

To confirm, I checked the single currency futures for the $USD ($USDX) and the Yen.

 This is the 1 min $USD future showing a negative divergence just like ES, just like the USD/JPY, since the $USD is the first in the $USD/JPY that means it is the long, the JPY (yen) is the short in the pair, the $USD moving down should signal the pair moves down as long as the JPY confirms.

The JPY (yen) being the second in the pair is the short (if you buy the $USD/JPY you are long the $USD and short the Yen), the positive divegrence in the 1 min Yen chart confirms everything above, again suggesting the pair fall and the market with it, short term!

 I checked the averages, they are confirming in the near term such as the 1 min SPY above which is negative.

The SPY 5 min above which is also negative and suggests a move of at least 1-2 days.

However, this is IMPORTANT, the SPY 15 min is strongly leading positive, this is a stronger timeframe than anything above and suggests that we see near term downside that will be ACCUMULATED by smart money and as such, we want to be on the same side, then the market will move higher which should be OUR BEAR TRAP SPRINGING SHUT !

 I used TVIX rather than UVXY (they are the same, 3x leveraged long short term VIX futures), the only difference is TVIX is an ATN and UVXY an ETF, but because UVXY had a reverse split, the chart is difficult to read with 3C today. VXX, UVXY and TVIX all move opposite the market generally so being long any of them works in a market expected to move lower, this is why UVXY was a long idea Friday. 

Here you see the positive leading divergence suggesting a move higher and a head fake move suggesting it comes soon.

 Longer term however, as we saw above with the SPY, TVIX has a negative divergence suggesting the move up is a bounce and short lived as we expect.

 TLT (20+ year Treasuries) also tends to move opposite the market so the positive 1 min divergence also confirms market downside to be the most likely course, we also have a head fake move this morning which is a great timing indication as they are typically the last thing we see before a reversal (to the upside here).

TLT 5 min is also positive with a head fake move, this suggests the market move down as TLT and VXX move opposite the market, they are also SPY arbitrage assets used to manipulate the market intraday.

HYG is another arbitrage asset, but this is the opposite of TLT and VXX, HYG is High Yield Credit and it moves with the market typically, actually it tends to lead the market. The good thing I see here is if the market's downside move were serious, HYG would be very negative, instead its positive, so it looks like smart money is accumulating this (one of their favorite risk on assets) in expectation of a move higher later this week-our bear trap move.

 And the 15 min chart is VERY positive for HYG, this also suggests smart money has been accumulating in expectation of a sharp, very strong market move higher, probably much higher, but first we have this downside head fake jiggle to deal with and trade if you like.

 This is the Yen in Green vs the SPX in Red, you see how they move opposite each other, don't forget the 1 min SPY negative and 1 min Yen positive.

And this is the SPY in red vs the thin High Yield Credit in green, this usually would be the first to fall if the market decline were serious, the fact it is holding up tells me smart money will accumulate in to any market downside retail bears chase and then squeeze them (shorts).

Our outlook and trade plan is no different than what I posted last night...

"How we play this...

1) If we get the move lower in the market tomorrow (it could reverse at the end of the day, it could run in to Tuesday, we won't know until we see the charts tomorrow) I'd be looking to close any short biased short term/speculative trades we opened Friday for this purpose. More importantly, I'd like to set up the long (Call or leveraged long ETF) positions that were closed to take profits Friday, we should be able to get them at lower prices allowing us to make the profit a second time.

2) We set up positions  that are smaller as they are speculative to take advantage of the move up in the market a springing of a bear trap should create. If we get the kind of short squeeze I expect with two failed moves at resistance last week, there should be a lot of fuel to lift the market higher.

3) We'll want to sell the smaller/speculative long positions in to the move up for a profit and start filling out or starting knew short positions, these are longer term or Core positions. I prefer to go with short equity like AMZN, GOOG, XOM, GS and many others, I'll let you know what they look ready.

From there it should be position management and trading around counter trend rallies which can be very strong and thus profitable to trade."