EOD Wrap...

I'll probably put out a video or a more comprehensive weekly wrap over the weekend, I like to step back from the market for a day or so and look with fresh eyes, but I did find the close interesting and couldn't resist commenting on it especially because of this post, "Market Update/EOD Hints" which was posted 1 minute BEFORE the EOD ramp in to the close and especially because the post written 15 minutes or so earlier (before it was posted) started like this...

"It doesn't matter too much what the market does price wise from this time (meaning 2:30-close after the op-ex max pain pin is no longer that important).

The reason why? Simply, if we have some very negative signals in to the close, the probabilities are higher that next week the market picks up where the actual signals left off, not where price left off, we have seen this numerous times whether it be day to day trade or over even a 3-day weekend.

In fact, if underlying trade is suggesting a move down via negative divergences, then a strong closing ramp draws in the weekend warriors who work 9-5 and place their limit orders "based on what price did", over the weekend or early Monday morning before they head off to work. THESE ARE THE SUCKERS THAT GET CAUGHT HOLDING THE BAG IN A BULL TRAP SCENARIO, it's for this reason that EOD price action on a Friday after the op-ex effect of "Max Pain" has diminished is of little concern to me, but EOD 3C signals are very important to me."

Almost predictive of Wall St. behavior, I think it's of some importance to see what the really important clues looked like... I don't want to get too caught up in this "correction/pullback" scenario because it's really almost immaterial as the move that means something to us and is helpful is a move higher in the market.

The only reason a correction is important is for 1 VXX Call position trade of speculative size and more importantly, to give the market a wider footprint or base from which to launch it's bounce/rally from, THAT'S IT!

So considering the current working theory is that we get a market pullback that is constructive (helpful for the bounce/rally we expect to proceed it) and as I have already posted in several different versions... may look something like this...

Option "A" is what we already have and that's a "V" reversal, besides being rare, they also are a reversal "event" rather than the much more common reversal "process". The reversal process offers a larger footprint which can support a stronger reversal (up) move and that is because the market has a chance to accumulate a larger position that offers more support.

Option "B" is a pullback, although not that deep, however it is just about what CONTEXT is calling for right now which is VERY interesting.

Option "C" would fill the gap and offer a much more stable base from which to rally from, it would most likely be a constructive pullback which would also offer us some higher quality short term trades. Finally it would give us a better set up for core short positions and this is the most important reason for a bounce/rally at this stage in the market, in fact in my view, for Wall St. it is the only reason.

Now for something truly ironic considering the last article I posted re: End of Day (EOD) trade, the ES (SPX Futures) CONTEXT model. One thing you missed in what would have been a 90 chart post last night was the chart showing ES and CONTEXT meeting or reverting to the mean, this shows as we have seen in the past, the CONTEXT model can be remarkably accurate.

You know I've been calling for a pullback since Thursday when we picked up some VXX calls for said pullback in the market, that was before this SPX futures model, CONTEXT started saying the exact same thing starting around 5:30 this morning with a very small dislocation and ending at 4:42 today with a differential between ES and the model of $18.5 ES points, which would create a pullback equivalent to the one I drew above in green, but CONTEXT has further room to erode as futures open Sunday.

Just as interesting are my comments above from the EOD post before the market closed, basically,

"It doesn't matter what price does the last hour to me, it matters what 3C does"  and CONTEXT is pretty clear that the way it sees institutional risk assets, smart money is preparing for a pullback, so the little EOD ramp which is insignificant technically, really means nothing compared to what follows.

For instance these EOD 3C charts become very interesting, not only because of their negative divergences, but because they say smart money is selling in to the end of day ramp just like the CONTEXT model says smart money is selling the assets they are known to almost exclusively trade like credit risk, interest rate curves,  or carry trades, etc...

 The 3 min intraday DIA chart shows clear accumulation (the same time we bought VXX puts) and today we see even stronger distribution (as we bought VXX calls). Compare the end of day ramp in price compared to the size and strength of the leading negative divegrence, that's telling us the distribution or selling of the DIA by smart money is huge, but still of short duration just like the move we expect.

Or how about the Q's? We see perfect price/trend confirmation as 3C moves with price until today at the price highs, then we see underlying trade via 3C showing massive distribution, even in to the end of day ramp.

Again, although the divegrence is impressive, it is short in duration and the timeframe (3 min intraday) which fits perfectly with our idea about what comes next put forward Thursday.

Or take the SPY, once 3C distribution starts, the SPY can't make any higher gains, there's selling taking place preventing gains and the end of day ramp? Still distribution.

So 3C not only does what we'd expect since yesterday, but fits perfectly with CONTEXT.

How about the Index Futures like TF (Russell 2000 Futures)

We see that premarket accumulation that sends price higher today and distribution throughout the rest of the day, PARTICULARLY WE SEE DISTRIBUTION AND VERY STRONG RIGHT AT THE END OF DAY RAMP MEANING WHILE PRICE LOOKS BULLISH, SOMETHING VERY DIFFERENT IS HAPPENING BEHIND THE SCENES.

What about other assets? How about out VXX Call?

The negative divergence worked perfectly for our +40% VIX Put, this current positive divegrence in VIX futures should do justice by our recent VXX call position, VIX also trades opposite the market.

Our VXX Call should do well with today's leading positive divegrence adding to yesterday's.

Take a look at what happened to credit today, an institutional asset...

We have accumulation here as the market reversed Wednesday & Thursday as we expected, but look at the distribution today in High Yield Credit.  Is it any wonder CONTEXT looks the way it does?

There's a lot more than this, I've just scratched the surface, but it looks like we have a near PERFECT call on the market, it has been a great week thus far as far as our expectations and trades have gone, our expectations moving forward just got a huge boost of objective data backing them up...

I'll probably have a member's video out this weekend or a more in depth post, there are a few assets that look like we can make some good money in a short period of time and our longer term trending positions look like they are setting up exactly as we had hoped.

Have a great weekend!