The UA Calls and Charts

I said I'd post this one and here's the basic reason I went with some calls which I'd like to convert at some point if possible to equity long shares and ultimately to a larger equity short.

 I don't prefer the 5-day chart in this case, but it is what I usually start out with to get a quick idea of the stock's character. Here with a Linear Regression Channel we see 2 channel busters, these are the counter-intuitive moves that are laced with upside volatility and seem like a blessing at the time, but are almost always a red flag as the reversion to the mean skips right over the middle and moves to the opposite side of the extreme, that's happened twice, typically it happens once and that's your top.

 I don't care for the death cross or golden cross, but I know other technical traders watch them so Wall St. watches them. We saw a recent daily death cross of the 50 below the 200 day moving average. What this does tell me quickly is that UA's character has changed and changes in character precede changes in trend. So far you might be thinking I'm making the case for a short trade, I am, it's just that I think UA moves to shake out early shorts and in doing so provides a short trade that comes to us rather than chasing it and gives us a better entry with lower risk. In the mean time, it looks like the shakeout to the upside can be played as well, but if I had to choose 1 trade, it would be to be patient and wait for the short set up to come to us.

 While I don't care much about moving averages, it's clear that technical traders respect them and Wall St. plays along. There are several instances here where the technical trader would expect the 50-day to hold as support and instead saw price slice right through, that's a trader who just bought at an instant loss.

A lot of shorts would have entered below the 50, below the 200 and on a death cross, that leaves a pretty decent potential shakeout. Maybe there's only a brief shakeout above the blue 200-day, if that's the case then the leverage of the calls makes it worthwhile, if it's a bigger move than I'd prefer take the call profit and buy shares long on the first correction or maybe just wait for the short set up, depending on the tone of the stock and market at the time.

 The long term 5-day 3C chart and long term TSV 18 and 100 (5-day charts) show accumulation at the 2009 lows, a decent signal on the way up in stage 2 and distribution at stage 3 and just entering stage 4 /decline.

 The daily chart confirms the same, but adds a relative positive divergence recently.

 The more detailed 2 hour chart confirms the top and shows a more detailed positive divergence recently.

 That positive divergence above put in a hammer bottom at the white box on increasing volume (always makes reversal candles more effective) and a flag like consolidation between the two moving averages with diminishing volume.

 Here's an even more detailed 30 min chart, positive at the hammer seen above, it goes negative at the top of the flag creating a pullback and toward the end that pullback is seeing a positive divergence or accumulation, why? I think to break through the 200 day and shake out some new shorts.

With obvious technical price patterns that bring in shorts, we almost always wait for a shakeout because it almost always happens, technical traders are going by the book, Wall St. is flipping the book and their discipline on their collective heads, giving us a great opportunity if we are patient.

The 10 min chart shows the same things in the recent flag consolidation, a negative to send prices lower where Wall St. would rather buy and a positive divergence, this looks to be as good a place as any to go for a shot at riding a shakeout north and then reversing positions to a larger, less speculative short once those signals start coming in, but the market behavior is common, we have seen it so many time that we rarely enter a short the first break unless we got in at higher prices, but never chase them.

Market Wrap

Nothing much changed from the overnight session through the regular session. I thought it was amazing that the S&P futures ended trade at $1513.25 Friday at 4 p.m. and opened trade today at 9:30 at $1513.50, a mere twenty-five cents more when talking about over fifteen hundred dollars.

The close today for S&P Futures at 4 p.m. EDT? Equally as amazing at $1513.50, the exact same price as the open!

The range for the entire day was 4.5 points or 0.003% (and that's rounded up), putting in the narrowest day session range in 6 months, along with that came the distinction of lowest volume of the year for the day session. I thought something like this would be the case earlier today when a lot of the  Far East was out of the market, there was no major macro news and a few other items I listed near the open.

Even the EUR/JPY carry trade I mentioned as the only catalyst to even try to move the market at the end of day failed miserably.

 The EUR/JPY EOD ramp to try to move stocks, note after the close that was the end of the ramp.

That left the pair looking very fragile here with a lower low and perhaps a lower high, maybe even a little H&S top pattern (not good for the market if the pair falls).

It was a clear ramp attempt as the only currency not openly being beaten down the last few days that matters any way is the $USD, guess what it was doing as they tried to get the algos. retail or anyone to bite?

The $USD seemed to be providing natural resistance against the market as it has been up the last 6 days now (the market/stocks and most risk assets move opposite the $USD, not with it). The problem for locals in a thin market is, no volume, no Range, no spread=no money.

Not that you can read a lot in to a market that is not operating at full capacity, but all the normal risk ramping element failed to move the market off its opening prices! Then, if you like, if you think it's worth it, you can discuss the concept of follow through or you can discuss the implication of a Doji that doesn't get any thinner than the open and close at the exact same number. You can even talk about how none of the risk ramping assets like the VIX which has worked all year and then some, currencies, etc. could be used today in a low volume, easy to manipulate market.

Or you can take the middle road as I would and not read too far in to any of this, but consider all of it.

I looked at and posted the 3C charts for the averages and for the Futures and really can't pull much more meaning out of today, I said I thought volatility would pick up and the ATR would pick up, but we'd be spinning our wheels, none of that increase in volatility would translate in to an increase in prices and so far it really hasn't, which gives the feel of churning.

When you have bullish sentiment at such huge spreads to bearish, you have macro data falling at a time of year when it is easiest to manipulate and a low volume market with a number of risk ramping mechanisms including AAPL, all fail on very low volume, something just feels a little strange and I'm VERY happy I didn't face a total waste and 20+% time decay on Friday's call options that were closed at a 2-something percent position loss which is a fraction of a fraction of a portfolio value loss, again something didn't feel right there. The 5 min negative divergences in the Futures today have been the recent signal to buy puts for tomorrow, but with no movement in the market, there was no hedge of the risk, again even that didn't feel right and I'd rather miss the trade at this point.

The bottom line is, there are a lot of ways to look at today and we really can't be sure of anything other than they did at least try to get some movement toward the close and failed.

Despite 9-days of loitering in the area of a Bollinger Band squeeze for the VIX, it remains in striking distance of a sharp upside move, it also has several very successful buy/long signals in place that have proven themselves.

As for Dominant Price/Volume Relationships, even there it's hard to squeeze anything meaningful out of the market, I will say the only major average to close in the green, the Dow-30, had dual P/V dominance between Price Up/ Volume down and Price Down/Volume Down, the first is the most bearish relationship, the second doesn't hold a lot of meaning, but it is the hallmark of a bear market. The most bullish P/V relationship, Price Up/Volume Up was the least dominant and covered only 1 stock of the 4 different relationships on the Dow-30.

All of the other major averages were pretty solidly on the Price Down/Volume Down relationship for their component stocks, again the least meaningful of the 4 relationships and the thematic dominant relationship during a bear market (I'm not calling this a bear market, I'm just telling you about the relationship).

Not that it's a screaming signal, but it is one of the only Black Swan warning indicators we have; from the CBOE, the SKEW Index.

The SKEW tries to assign a probability to an improbable event, specifically a market crash or Black Swan, the historical range for SKEW is 115, elevated levels indicate increased risk, the $140 level or so ha seen some pretty bad crashes, what's interesting about the SKEW now is first, how fast the R.O.C. moved it up and secondly, how long it has been elevated in this area, taken with the VIX just recently coming off  nearly 6 year lows with sentiment indicators pegged at some very wide Bull over bear spreads.

As I started last night's post off with comments from Peter Worden which is something you know I NEVER do, but I agree, it's worth posting again... "I'm willing to sacrifice what I believe to be limited upside potential from here in order to be well positioned for the eventual downturn."

One of the other stocks recently discussed and a pivotal stock, especially in the past as a risk ramper, AAPL. Recently I've said, "There's something going on with AAPL, but I don't see the edge yet.

Although I didn't bring it up, I was watching it pretty closely to see if I could draw out the edge from trade.

 Long term the 10-min chart's leading negative divergence at the top and then at several bounce attempts has been stubborn, but a recent 10-min positive divergence has caught my attention after AAPL did just about everything we expected around a large descending price triangle including a perfect Crazy Ivan shakeout.

 Here's a closer loo at that positive divergence, it's interesting, but doesn't have enough confirmation to give us any sort of edge, today "may" be all it was meant for.

The gap was filled in AAPL today, I really miss good break-away or exhaustion gaps that you could count on, ever since HFTs have been dominating the role of middle man, it seems nearly every single gap is filled, especially the important ones like break-away gaps. 

Now why do I say it's possible that's all the 10-min positive was meant for? For one, it doesn't go much beyond the 10-min timeframes, it's not building and migrating, although there's still a chance it builds a larger base and if so we'll know that by seeing accumulation in to a pullback.

 Secondly the timeframe just before 10 mins., the 5 min chart went negative a the gap was filled, that would be what you'd expect if that's all the divergence were there for, we'll know if that's the case if the 10-min chart starts falling apart and the faster charts get worse.

As the gap was filled, the 3 min chart went leading negative, this migrated to the 5 min chart and if the 10 min sees the same migration of the divergence, then we know a whole lot more than we knew a day before and can decide if there's a trade worth taking there or not.


Beyond that, futures aren't doing anything impressive tonight and still have a more serious negative signal on the 5 min charts.

 ES futures went from leading positive in the afternoon to their attempted ramp and then just lost any sort of positive divergence.

 The 5 min ES chart is leading negative, this is essentially the same chart that had us buying weekly puts on the SPY and making double digit 1-day returns.

 The NASDAQ futures never really got a head of steam today, they look a bit worse right now as they are leading negative, but we do have a long night so I won't read too much in to such a small divergence.

However once again as it pertains to the weekly options and making double digits in a day, this 5 min chart shows the positive divergence and the same negatives we were using to trade those weeklies and we are in a negative position right now.

The EUR/JPY is probably one of the more important FX pairs right now and you saw that above, it's really teetering on the edge.

I'll keep an eye on the other pairs and futures, but I really think the currency debasement battle between a host of countries is really what's going to be the defining pivot this week and if the carry trade fails at that kind of leverage, they'll have no choice but to liquidate longs anywhere they can to close out the carry.

More as/if it develops

Closing Indications

Like Friday's quick Call position that was closed Friday and closing it was a good call because it would have been down pretty bad on a weekly with zero movement and 20% of the time gone, I just can't bring myself to take a position (call/long) today with so little support or evidence behind it. That's the danger in options, you make good money and even consistent money and then you start taking trades that shouldn't be taken because you are so use to and addicted to that kind of action, at that point it's just gambling. The Put position for the market looks good, really good, but even with that I'd really want some room and reduced risk before taking that.

Looking quickly at the end of day  move, there's no way I could take a long with charts like this out there (without going through everything)...

 Even in ES which looked the very best of all the charts, it went negative on the move toward the close.

 NASDAQ futures went negative and they weren't even really positive enough for any consideration.

 DIA positive Thursday and negative Friday through today.


 SPY leading negative through a flat range for 2 days on a 15 min chart.

QQQ showing that same Thursday short term positive divergence for a 1-day move and negative through the next two- this is the volatility (even though it's really flat in the area the last two days) that I showed you way back before it became very obvious and as we started using some different trades to take advantage of it.

So last night and last week (later in the week), I really suspected the carry trade currencies were really going to be important, the market went from no volatility and no corrections (What I called a dumb money friendly market)  which sent bullish sentiment in to the stratosphere, which is never a good indication for the market, to volatility that was huge as well as ATR compared to the first month of the year.

I didn't see any news, I did mention currencies today in the Leading Indicators update and guess what correlates with that end of day market move?

 SPY (green) vs FXY (yen in red), the Yen dumps, the market moves, if that's not enough...

Take a look at the time and the asset, the EUR/JPY, Euro moves up (so does the dollar by the way which puts pressure on the market) and the Yen moves down-market tries to move up-all the averages close in the red except for the Dow-30 at +0.35%, but apparently loosing the transports correlation as they closed red too.

I'm just hoping (sort of all though it's not that big of a deal), that the 5 min negatives today weren't the opportunity to buy weekly puts (short) on the market.

It's not a huge deal, like I said before, because a trade looks probable, doesn't mean it has a sharp edge and we did so well with the weekly puts because we had a sharp edge. So we'll see where it leads.
I'm going to update all my sorts, scans and data and come back with a closing wrap as well as an explanation of the UA trade idea.

Went with UA March $50 Calls

Will look to switch to equity before the first correction

Going Long UA, Probably March Calls-Maybe the Stock

I'll post this after the close because it's interesting and a bit complicated, the best trade is short, but that needs to be set up and looks like it will, it's the set up which is the long trade I like and will open at least as a speculative and maybe then a little, size.

The real trade though is short, again it needs some time before that.

I'll let you know what I decide on.

Futures Update

This is a faster, shorter way to update the market, kind of like CONTEX vs the Leading Indicators.

As I showed you, the currencies are in place for the market to move higher, but these are very small moves in the currencies, the EURO move wasn't even started until after the EU open this morning, the Yen is 1 day, the point is it's not a trend, it's a bit of noise.

I see a trade here, I would not risk an options position on a call for the trade right now based on the currency factor, but if the currencies were enough to cause the breakout technical traders would be looking for, I do feel there's a strong enough divergence to take a put trade that fades the breakout, heck, I'd be nervous to even hold a call trade overnight, even if it broke out before the close.

 ES divergences (1 min 3C chart) since the European open at 3 a.m. EDT, a positive divergence around 9:45-10:30 in the early US session and a leading positive divergence since, this suggests a pop to the upside short term.

 Here's the price pattern that is interpreted by technical traders as a bullish consolidation pattern, the thing is to get most of them to bite, they need confirmation, so follow the yellow arrow to set up this trade...

 The 5 min ES and NQ charts are what have been largely guiding these successful trades of 30% to some members making 300% or more in days. There's a leading negative divergence on the 5 min which is much more important so as long as it remains, I'd fade any upside with a weekly put, either in the SPY, Q's or IWM.

 The NASDAQ futures 1 min chart is less impressive with only a divergence at the same time this morning and a very small one now, most of the rest of the time 3C and NASDAQ futures have been in line.

 The price pattern in the QQQ, again follow the yellow arrow, without the move up to lower risk, to me the put trade (short) is not worth it, too much risk without a move up first.


NASDAQ futures 5 min chart, there's the positive for a call trade last week, then I tried one late Friday and closed it because I didn't like the looks, good thing, but right now we have a deep leading negative so if we get the price pop and the charts still looks something like this, we are back on track with another high probability trade set up, taking what the market is giving.

Market Update 2 - Leading Indicators

Without seeing internals and trying to keep other things in perspective such as reduced liquidity/participation in the Far East, the G-20, the new seeming disturbance inside the ECB as of this morning with Weidmann trying to upstage Draghi as they take polar opposite views on the race to debase the Euro with the rest of the world-Japan is winning of course. You might recall my quip wondering if, "Draghi had responded yet?" Well in his stead are the French who have been the most vocal in complaining about a strong Euro, "EURO GROUP MUST WATCH RISING EURO'S IMPACT ON GROWTH: MOSCOVICI (French Finance Minister)"

It's difficult today to judge whether anything or any particular signal means something or not, it would be like trying to judge whether a rally in stocks had legs when the Bond market or the currency market was closed, you just can't view these things in a vacuum, they are all connected, even rumors.

I will admit the one thing I really don't understand is how CONTEXT's ES Risk Model vs ES changes so strangely. It's almost as if there's a rolling 24 hour period i which it resets, but has some strange look back that discounts anything before a certain period, it's certainly not a cumulative indicator as useful as it has been in the past, here's an example of the market/risk assets looking very bearish earlier today vs the exact opposite right now, but there's no segue between the two.

 The information is delayed about 30 minutes or so, this above model of ES was posted around noon today with the risk model totally risk off vs where the value of ES was, it was at "-10" so a pretty big disparity between the model and ES.

This is the 2 pm  update. How is it that we went from -10 to risk assets leading ES at +5, but on the chart since 2:30 a.m. above, there's no sign whatsoever of the earlier lows of -10? I've see this before and just don't understand their modeling.

In any case, this is partly why we use out own and ours is broken down to see where the actual changes in risk assets are rather than in the aggregate.

Lets look, but keep in mind there aren't any signals in the averages on 3C charts that would cause me to take even a short term, 1-day options trade like we have been doing successfully nearly the last two 
weeks (long and short).

Also just as I said last night, "My attention will really be on the carry trade currency pairs", I think other than a few areas, the main shorter term pivot are the currencies.

*All assets are compared to the SP-500 in green unless otherwise specified*

 Commodities vs the SPX are a risk asset, they are down today as the SPX is rather flat in a larger version of Friday's "Pseudo Bull-pennant".

Why?

 Here are commodities on the same timeframe except I changed the green comparison symbol from the SPX to the $USD (UUP), commodities are acting exactly s they should, mirror opposite the $US Dollar.

 FCT, for newer members, has been a good lading indicator that went negative vs the SPX and right at the time the change in character started in the SPX with wider daily ATR and increased volatility.

 Today's NYSE TICK so far, not much on the upside, some earlier nasty -1000, but all in all a very balanced, dull market and dull markets always have me on edge.

 Since we got a buy signal on the VIX (sell for the market) and volatility went from the widest of the year to the tightest, indicating a highly directional move is coming, my first words were "Price will likely loiter in the area for a while, crossing above and below the media" and that's exactly what it has done (yellow), I still think the buy signal is the more important take-away along with the Bollinger Band Squeeze.

 High Yield Corp. Credit (HYG) vs the SPX is not following as it has not been for some time creating a very bearish dislocation for the market between the two...

 Longer term Credit fell off a cliff when volatility in the SPX picked up, it no longer leads to the upside, no longer confirms, but leads to the downside.

 However looking at HY Corp. Credit with 3C and we can see the distribution or negative divergence at the top and a recent positive divergence as HYG has been flat the last several days, a perfect area for accumulation.

 Credit led the market's November 16th new cycle up, it bottomed at least a day before, it was in line at the green arrow, going negative at the red arrow and seeing a short squeeze at the red box/leading negative divergence-distribution, now we have the positive divergence which is at support from the start of trend 1, but when we look at it in scale, we can see the recent 3C lows are below the Nov. 15th bottom in 3C, so I think this is an oversold bounce or short shakeout move, not so much a revival in the health of credit.

 Junk Credit behaves almost exactly the same as HY, the recent refusal to follow the SPX even intraday and scaled out...

 A deep leading negative divergence which have helped us call so many tops and bottoms (if the signal were reversed) which is why we use these indicators.

Currencies...

 The $USD has recently put in a powerful 5-day move to the upside, this isn't good for risk assets including stocks-you saw commodities above, however t looks close to breaking the channel, probably because of Weidmann's comments earlier today.

 The $USD intraday 1 min is down, the market really should be up intraday here, why isn't it?

 The Euro is also slightly up, so again why isn't the SPX following it to the upside?

 Here the Yen, so important in the carry trade basket had been helpful to the market at the green arrow, at yellow warned of caution, at red was getting dangerous for the highly leveraged market and was down today on comments from the presumed next Japanese Finance Minister, but I don't think this show is over for the Yen and this is what is really key right now, especially as it relates to a fast move in the market with what I believe has more downside risk than up.

 The Yen intraday is down, so again, why is the SPX not up?

I'm going to show you some 3C charts, you know I lie to take what the market give even if it is a 1-day trade, but I don't want to take risks that aren't warranted, so far from what I see in the 3C charts, the risks aren't warranted and we've taken one of these types of 1-2 day trades quite often over the last 1.5-2 weeks.