Trade Idea: XLF / FAZ

XLf as you know was 1 of the 2 industry groups I showed Friday in addition to many other assets, there were other industry groups, it's just these are two of the most important.

I'm thinking of adding an XLF December Put, I also think a long SKF or FAZ (2 and 3x leveraged short Financial ETFs respectively) position work fine as well.

In this case, I'm not going to add any more exposure, especially a time sensitive option position without a concession from the market to reduce the premium and the risk on the position, that means an upside head fake move and I think there's time for one, I still need to look at currencies and Leading Indicators more closely.

 This is the SPY 5 min chart, it's about the first intraday timeframe where we see serious institutional activity (shorter timeframes can show it as well, but typically in their longer term trends).

The leading negative of Friday the 18th is among many occurrences Friday that grabbed my attention, in fact, equities were among the last of assets to respond and it was as if someone knew something about the market that had them very scared. In fact I wrote to a member I'm actually surprised there was no after market news Friday like an Egan-Jones downgrade of the US, but we do have the BLS data dump tomorrow which is all the data that was not released due to the government shutdown. I can't help but wonder if there's a whisper on Wall Street as we saw signs early in Volatility and then credit and treasuries (basically the biggest and smartest markets first) and finally in equities (considered to be dumb money compared to the others) then  finally equities.

However what is shocking about the signals is how strong they are and how fast they developed and the number of assets they developed in.

 The SPY 3 min with the Oct 9th accumulation/low, note the size of the reversal processes, then the size of the divegrence since Friday .

The 15 min chart looks as it should, the shorter term charts move faster and have more detail, this has more trend information, larger signals and higher probabilities, although they all work together in a complementary way.

Here's XLF/Financials where I'm interested in a possible put position if we get a head fake move. Typically we see head fake moves about 80% of the time, in this case it might look something like a new high above the rounding top, I often describe it's look as , "An Igloo with a chimney".

 You can see in yellow where a head fake move would really need to push through probably to $22 to catch retail's attention and get them to act.

This is the same 4 hour chart as above, I've just drawn in what I consider to be a reversal process and a reversal event, however two things you might notice 1) bottom reversals to the upside are almost always smaller than top reversals to the downside and the preceding reversal as well as move's length has some effect on the proportionality of the process.

The "P" stands for "Process and the "E" stands for event. Even though some of the tighter ones are still probably a process because of the nature of the preceding price action, many of these have a "V" shape to them and that is "Event". The point here is there's enough evidence to support a tight reversal process in XLF, however before taking the risk, I want a concession or I'll just stick with what I have.

 The 60 min chart with a large relative negative divegrence and a relative positive divegrence, in the red box is a leading negative so this would be the strongest signal on the chart.

The 30 min is similar, plus I added a trendline, you can see XLF is above the area where a head fake move would normally occur, but it isn't inspiring yet, it's not the kind that makes traders afraid that they'll miss the move if they don't but now and it's often that kind of emotional extreme that is needed.

 The 15 min XLF chart shows there was already a leading negative as we see above, but Friday saw things deteriorate even more.

I'm surprised a little because Friday's 10 min chart was leading negative, but today added so much more to it, Friday it wasn't a chart I'd post because it wasn't that extreme so quite a bit of leading negative distribution has been added. Remember earlier today my opinion in the market updates that any bounce would be sold in to or rather distributed as there is a difference, 1 is overt and the other is covert.

Of course the 3 min chart is going to have more detail, a lot was added to this chart on the downside in 3C as well today. I'll have an alert set for > $21 (**I may have misspoke above in saying $22)  and that's where I'd look for reduced premium and a head fake move.

I also like SKF and FAZ (long) as mentioned above if you prefer not using options.