Don't Get Involved in Ego-Wars

Many of you may remember the short-lived trade in HLF as a short squeeze on December 26th of 2012 as a number of heavy hitting fund managers came out to say they were short HLF as they didn't believe in the pyramid scheme Herba-Life is known for. It sounded like a good old fashion bear raid in which mega-fund managers, Tilson, Ackman and Einhorn had all been identified as short HLF, this seemed like a good opportunity for a short squeeze and most all of you who took the trade (at least that I heard from) made money, but I thought twice about it, I didn't like these guys coming out and saying what they were doing, it's just not the way unless you're up to something, but then Carl Icahn got involved and from past analysis as well as a friend working at one of his pet projects, MOT, I wanted nothing to do with HLF either long or short, Icahn came in on the long side.

I don't look back and ask, "Was I right to stay away from or cancel the trade, it could have made some really good money?"

I ask, "Do I have an edge here that is quantifiable, that makes me giddy and one I just can't ignore?" If the answer is, "No", I don't care what the trade did, I'm not a gambler.

For those who stayed on board as the short squeeze worked and then stopped. From the 26th, the move up made 68%, then it came down 25%.

Just after hours tonight, Icahn who I believe first came in with about 5% of the company, just announced a nearly 13% stake, 12.98% to be exact. Guess what just happened to mega-short Ackman? He should wake up to something in the neighborhood of a 24% loss overnight.

Ackman might learn to keep his mouth shut now. Fidelity owns 15% of HLF, Ackman put on a 20 million share short, Fidelity as an owner of 15% would have to have allowed Ackman to borrow to fill a short that large, so one has to wonder whether the hunter became the hunted and didn't even know it? Why would Fidelity allow Ackman to borrow their shares when his intention seems to have been to join Einhorn and Tilson and possibly draw in the public in an epic, 1920's like bear raid? Fidelity would have no upside, unless they knew what was going on, they gave Ackman enough rope to hang himself (Fidelity could have pulled the shares from being borrowed), and let Ackman borrow, knowing Icahn was coming in at 13% and knowing Ackman and any others like Einhorn and Tilson (if they're all still in) would never be able to come up with the shares to cover when Fidelity and Icahn pull the borrow. The short interest is 24% of the outstanding, bottom line, this could be a career killer. It could also be one of the most brilliant ploys in which a company under direct assault figured out a way to turn the tables on the bear raiders.

This is why I prefer to stay away from urinating contests between managers with the biggest egos on the street, you never know what they'll do to win.

I mentioned earlier today I developed a new 3C, it's an extreme version that I'm still testing, but in essence requires the underlying accumulation to not just be there, but to be 50% greater than the norm, it will not pick up on subtle moves, it won't do a lot, what I'm hoping it will do is identify areas in which people like Icahn made huge moves that will effect stock prices, then use the normal 3C versions to do what we normally do. I checked HLF and guess what I came up with?

 This is the new version I'm testing and hope to run as a stand alone scan to pick up on LARGE activity.

At "A" there's distribution, remember short selling comes across the tape as selling just the same because it is, I'm guessing that's where Tilson and Einhorn got in, Ackman came in later so I'm guessing he came in around "B". I don't have the December vs January short interest, but I'm guessing there was either some shorting there too or it's even possible that Icahn himself sold just enough to send prices lower, if he can accumulate at $35 rather than $44, why wouldn't he? It's all about the end game.

At "C", I'd say it's pretty clear that's where Icahn went nuts buying, notice it's a flat area as well, that's where we always see accumulation and distribution.

Take a closer look and remember this is a 60 min chart, so these are big underlying flows and for 3C to move up, they have to be 50% greater than the average each and every tick.

During February at the lows and the range (flat area) and especially the last week, almost every single tick is to the upside, that's 50% greater meaning serious accumulation.

And that's the mechanics of putting 4 huge egos in a trade and seeing who's going to come out on top. All my best wishes to Ackman, Einhorn and anyone else who shorted HLF in quantity, it's going to be REALLY hard to find 20 million shares to cover at anything resembling a reasonable price.

Volatility

VXX and UVXY are seeing big leading positive signals, XIV the inverse seeing big leading negative signals...

ES 100 lots going through

ES Trade Size is Up

Since ES took a bit of a spill downward, the trade size that has been single contracts nearly all day just changed dramatically, it's worse than this , but moving fast.

Not sure where ES is in relation to VWAP, I'm guessing around or above the 2nd standard deviation so yes, if you are trading ES institutional size, you want to sell , even if it is starting to move down.

All day I have seen 1 or 2 contracts, occasionally 5, here we have 20, 62, 16, 11... I just saw 42 and 50 go by and these are not cheap contracts.

Watch out for the close if you are long day trading

ES / NQ Update

Holy Moley (Moly? Mole-E?)...

IT's not just 3C, CONTEXT continues to deteriorate which means Leading Indicators which take too long to load at this point, are surely worse off.

 Since the 9:30 open today, the Red ES Future has went in the 180 degree opposite direction of the CONTEXT ES Model in Green, which is based on risk assets, you see when the market is feeling bullish, all risk assets for the most part move together, take High Yield Credit or some of those High Yield Bonds portfolios or currencies, yields, anything other than stock, all tend to move together because each trader in that particular asset class want to make money, when they refuse to follow stocks which are the dumbest of the smart money (credit and bond traders being the smartest), there's something wrong.

CONTEXT is now at a -13 differential, this is borderline record since I've been tracking the differential.

 1 min 3C on ES saw accumulation at the bottom of the VWAP channel where no one in their right mind (institutional players) would sell, but market makers who fill orders would to move ES to VWAP or better, since that time, there have been no positives at all, just distribution/selling in to price strength,

 If I chose a weekly option (buying puts) I'd go with the SPY, although I'm sitting this one out.

The same is true of the 1 min NASDAQ futures as the 1 min ES futures.

There should be lots of good data to download after the close.

Another Sentiment Indicator?

I'm conservative when it comes to options, most all of you know they are my least favorite asset and I usually only use them when I feel there's a great trade signal that doesn't have enough profit potential to make it worthwhile, like these 1-day weekly calls and puts in the SPY/QQQ.

I figure if I'm sitting on a decent rank like this, then there are a lot of people doing the wrong thing.

Ranked 14 of 930, before I closed AMZN it was 9 of 930, that's tells me not only are options dangerous, but a lot of people are looking in the wrong direction, which is interesting given some of the historically high bullish sentiment readings, especially in some of these market as I pointed out in last night's daily wrap with the NASDAQ 100 returning less than 1% for all of 2013, yet everyone is so bullish with GDP negative and the world in recession.

UNG charts

For those interested, today was the 10:30 EIA Natural Gas Report and Nat Gas for the 3rd week in a row sold off on a draw, except this week it sold off on a 160 bcf draw when consensus was a 157 bcf draw, for all practical purposes, that's in line, not a disappointment, but you'll notice just as we noticed UNG about 6 months before people started talking about Natural gas and maybe a year before this administration put in clean air controls that will make any new power plant built in the US use either Nuclear or Nat. Gas, clean coal is out.

So with all of the hoopla, including a good portion of the State of the Union even talking about Nat Gas, I'd think there may be some late-comers who want in on the ride UNG's huge base is setting up.

Here are the charts and a few insights.

 First of all, we've talked about or lamented the death of gaps since HFTs entered the market, even this small gap in yellow was filled today. Looking at the daily chart, the volume is there, we only need a little longer lower wick/higher close for a high probability reversal candle called a "Hammer".

 This is a daily 3C chart, it's a different color because it's a new version that I'm not sharing yet until I have a good feel for it, but if adds a few things to the code, 2 of which are conditions that the accumulation/distribution be between 30 and 50% more than the average, basically it's a nuclear tipped version of the indicator, not subtle at all, a Whack-a-Mole. The head fake we confirmed is clear at the negative divergence, the current positive divergence is leading positive.

 Volume is up today and it doesn't appear to be selling at all, we are getting that nice smile in the intraday price trend as well.

 Just like the last 3 sell-ofs on draws on the EIA report, the day before showed a negative divergence meaning I don't think they care what the EIA says, they will act like it's bad news, bring prices down so they can be accumulated on the cheap and make institutional clients happy. Why a negative divergence setting up the next day down all 3 weeks in a row?

 Here it is again yesterday with a leading positive 3 min today, EXACTLY what I wanted to see.

Here are the two head fake moves with 3C negative divergences on the attempted breakouts, PERFECT HEAD FAKE MOVES THAT SERVED THEIR PURPOSE. So the daily positive divergence in the normal 3C version which is also leading is enough for me, I'm a long term fan of UNG and I feel this is a good place to take a little extra risk on the position.

Going with UNG APRIL $18 Calls

AMZN-Like I said, more than enough-UNG Calls Next?

The last half of calls were just closed...

+77.62%, not bad for less than a week and as a hedge.

I'm looking in to UNG calls right now

Closing the rest of AMZN March $255 Calls

They made more than enough to hedge a huge move in AMZN which I'm not worried about

According to our weekly system

We do have 1-day weekly Put signals in the SPY and QQQ, I personally will probably pass in favor of longer term positions.

The signals aren't as strong, but I suspect by the close they will be

Leading Indicators

Just as I suspected, we ought to be looking for shorts in to strength where we can find them, I'll probably devote the rest of the day to that as well as trade management of open positions.

You have to see to understand and know where the opportunities are and how bad off we are.

First, CONTEXT is 30 mins delayed for non-subscribers, but it has added another -2.5 points to the ES/Model differential.

 Since the open, which is where the liquidity is, and you should absolutely be looking at CONTEXT, the fact the ES model is extremely lower than what ES is trading at, that this happened as volume and liquidity pick up at 9:30 and you should absolutely not forget the ES VWAP selling today, but yesterday's as well and this will help you understand how the market is reacting to bad news, it seems indifferent to it, but remember smart money doesn't sell or sell short in to falling prices, just the opposite as Goldman Sachs proved 2 posts ago.

 Commodities as a risk asset are not in a risk on move, they don't have a lot to distribute because they haven't made the move stocks have, they are trading closer to the FX correlation as the market did yesterday.

 Commodities vs the $USD intraday, not perfect, but very close to the proper correlation.

 Stocks on the other hand, completely out of the FX correlation as the $USD (orange) is higher on the day and the SPX (green) has moved higher on the day, the exact opposite of yesterday's nearly perfect FX/equity correlation-what changed since yesterday?

 The $USD (ornage) vs the SPX (green) over a longer time period, it seems with 10-days in to a new move in the $USD, this may be more than just a correction and may be a new trend. Either way, the SPX in green has an inverse relationship with the $USD, this can't hold forever, but there's a reason for it right now.

 My modified Clear Method Swing Trading Trend Identification, the $US Dollar is in a solid trend up, broken resistance after a 1 day pullback and has very few noise candles (yellow), in other words, so far, a very strong trend.

 A long term 60 min chart of the $AUD and how its divergences with the SPX (green) in the past have led us to market tops we have successfully trades with at least 20% or more gains in non-leveraged short positions, even at the 2012 Q1 divergence that started around mid-February, was clear by March allowing us time to build core shorts at the best prices and the market moving lower May 2nd to June 4th, still all 9 core short positions posted a double digit gain and not one had leverage.

Currently there's another and much deeper $AUD/SPX negative divergence

 Look at the typical correlation between the Euro (orange) and the SPX (green) at the green arrow, then look at today's slamming of the Euro and the market totally ignoring it, at least for a little bit, arbitrage platers won't let that last long.

 The longer trend in the Euro (ornage) vs the SPX (green) shows the normal correlation at the green arrow and an ever larger negative divergence lasting 9 days thus far, today added at least 100 pips of Euro/USD downside. AND I HAVEN'T EVEN LOOKED AT THE FX PAIRS AND WON'T UNTIL LATER!!!

THESE ARE ALL RED FLAGS

 The Yen moving down in a nice set up for a carry trade that finances hedge funds' stock purchases as long as the Yen is moving down, however as I suspected in saying FX is going to be the focal point this week, the Yen has turned lateral, failing in the downtrend.

Remember this is important because of the leverage currency traders and carry traders use, a 1% loss can easily be a 10%-200% loss and they can happen in hours-they of course are closely tied to the market.

 Yields are sliding intraday vs the SPX-Where's the support? What does that tell you?

 The TICK chart, other than the open at -1000, there have been no extremes at all that use to be common lace to have at least 2 dozen spikes +/- 1000 a day, now nothing above +750, nothing below -500.

 High Yield Corporate Credit leads the SPX even intraday!

 Longer term, this is the kind of divergence between credit and equities only a fool ignores.


 Remember the positive divergence in HY Credit and my opinion it was a  short squeeze, well the 10 min chart now has shown a negative divergence developing, that means HYG has seen distribution since the first minute it opened higher, supporting the squeeze idea and leaving the market with a huge red flag.

 HIO- a newer leading indicator, a high yielding bond fund with a negative divergence vs the SPX.

 The same thing locally intraday

Also new, PHB, another High Yield Bond Fund, just Corporate, it compliments HYG, see the similarities vs the SPX and see the problem for the SPX? These are all risk assets, why are they afraid to express risk sentiment when they are so cheap to own right now?

Preview...

I told you I was going to be looking at internals as one of the first things I said today in the second post of the day, "The Open & the Close and Who Can Forget About Currencies?"


"There are two things that matter for us for practical purposes, the open and the close, what happens between is where we make tactical moves largely based on the strategic environment dictated by the open and the close."

This post followed the first post of the day, "GDP" in which nearly every Euro-Zone Country and Japan, all posted negative GDP, Germany for the second time, leaving the EuroZone to enter it's second, third and in some countries, 4th dip recession which I might remind you, the U.S. is 1 print away from a recession as well.

The EUR/USD plummeted 100 pips on the news, the market is extremely correlated to the EUR/USD and we got an open that I liked as I pointed out in the second post. However a little past the noon hour, the SPX is almost flat, the NASDAQ 100 is nearly flat, the Dow is admittedly down, and the IWM is green by +.25%.

Meanwhile, a quick and dirty look at other risk assets that should move with the market shows a problem, this is why it's the open and close that matter...

Since the New York open, ES has made a run higher while the CONTEXT model for ES has made the opposite, a run lower with a differential of a significant - pts. 

That will be your preview for now so you can make any decisions you might need to make or put off any you might have been considering until I bring you the more specific update of our Leading Indicators which is becoming more and more valuable right now as price at this point, as a survival tool for banks like the Squid, is more deceptive now than ever.

What do you think the realistic reaction to an overnight Global GDP meltdown is? Buy risk assets?

More to come, but you should at least have that and THERE'S ONE MORE REASON TAKING HALF OFF THE TABLE IN AMZN MADE SENSE.

Proof of what I show you everyday

It takes a while to learn 3C because you are seeing the underbelly of the beast, not the fair garden of stocks, where everyone is equal because the SEC makes sure it is so.

I ALWAYS started everyone of my Technical Analysis classes with that video I post from time to time of Cramer actually being himself, actually being useful and telling the truth and that's why the video is no longer hosted on the Street.com and why it has been scrubbed from every site they can and what use to be a very easy video to find with 1 search, is now a lot more difficult.

When I talk about accumulation or distribution and especially head fakes, running stops, running limit orders, etc, I often talk about it in the context of providing demand for Wall Street to sell in to at higher prices or supply for Wall St. to buy in to at lower prices and tons of supply, like when an area of tons of stops is hit, that's cheap prices and east supply for Wall Street to accumulate, but no one ever thinks of, "Who is taking the other side of that ugly trade?"

 Finally I often tell you to never trust the "Free" research companies like Goldman hand out, do you really believe they'll spend millions of dollars in research and give you their conclusions for free? I also have made mention of how Goldman Sachs trades against their own clients, why would they treat you any better?

Here's a story that ties it all together, real world, real facts, don't take my word for it.

An investment bank issues a rare SELL rating on HNZ. The investment bank? The Squid, Goldman Sachs.  The Sell rating is issued to a select few known as Goldman Sachs Clients.

What are Goldman's traders doing in the meantime (and that's a perfect word, "meantime") ? 

BUYING HNZ!

Here's the story, this is one firm caught red-handed, this goes on every day at every firm, Goldman just happens to have very long tentacles that reach in to every position of power.

Market Update

ES is certainly going negative here, it is now in a very clear leading negative divergence. Along with ES, the SPY is going negative in 3C, intraday the 1 and 2 min charts are negative, but the 3 min chart's overall position is worrisome for the SPY both intraday and longer.

I'd have to say the DIA is pretty much in line, it really doesn't look that bad.

The Q's are largely in line intraday, but just like I mentioned the other day with some 10 or 15 min charts being the only ones that were negative and the following day we saw the real downside those charts picked up on, the Q's have the same type of thing were distribution is being caught at very specific time that are being caught on charts like the 2 and 5 min.

NASDAQ futures still look to be in line intraday.

The IWM is showing negative divergences through a range of intraday through medium term (5-10-15 min) charts.

I'm going to check some of the breadth and leading indicators.

AMZN Calls Worked Perfectly

As you know there's an AMZN equity short as a longer term position and I felt AMZN was going to see a move to the upside, the calls were to hedge the equity short and hopefully make some money, they did both beautifully.

The calls were $10.10, the fill on half the position was $16.60 for a +64% gain, this not only hedged AMZN, but all in all put the position deep green.

I'm still holding some as I want the hedge protection that the remaining position so easily provides. Here's why I wanted to get some off the table on a momentum basis and why I wanted to leave the AMZN specific hedge in place. I guess I could have just said, "Here's the AMZN update".

For those of you who don't understand 3C that well and multiple timeframe analysis, this might be a little confusing, I'll do my best, but the bottom line is the AMZN position/trade management is doing great.

 This is the second most important chart for me, the daily is the first most important, but it takes a little time for you to be able to see that so when it's time, I'll show you and I find that's the best way to let you see a chart that looks as the AMZN daily does, once you have some reality behind it.

The 2 hour is a very long term chart, a very strong underlying institutional activity trend, we see accumulation in large size around December of 2011 through Q1 of 2011, the first distribution of those shares is done about $70 higher in the Sept/October area, the heavier distribution was done recently and AMZN as a short equity trade was added to at the most recent top where 3C is hitting a new leading negative low position. This is why I want to hold the AMZN short instead of try to trade around bounces, I'd rather hold it and hedge with options because it is at the point where it can crack nearly at any moment, trying to get too fancy often leaves you empty-handed. I learned this lesson well with AAPL as I had a filled out equity short position in place and closed it at a small profit to try to short it at slightly higher prices that never came and missed out on something near 200 points.

 This is the 60 min chart, still a hugely influential timeframe, there's accumulation at the positive divergence in November of 2012 (white) and as AMZN moves up, there's distribution in to the higher prices or retail demand, the yellow area is about where the AMZN short was added to as it was a partial position and it was planned that way to be able to add at higher prices. If you look to the far right there's a squiggle, that's actually a positive divergence, it's no where near as clear as the November one, but enough to cause me to hedge the AMZN short.

 This is a closer look at the 60 min "squiggle" divergence, again, not huge, but enough to move AMZN higher and it's still in place so the hedge is still in place. This divergence will be chipped away from the shorter timeframes first, as the distribution gets worse, the longer timeframes will turn negative.

 This 30 min chart shows several negative and positive divergences which are smaller in size, but still respectable, you can see to the far right the same positive seen on the 60 min chart above.

 The shorter timeframe of 10 mins also shows a more detailed view of the positive divergence and how distribution of the move higher has started already, I doubt it's near done, but it is moving at a pretty fast clip looking at that negative divergence.

The 5 min chart shows distribution in a leading negative divergence. Since this seems to be moving faster than I'd normally expect, I'd rather take some off the table here before momentum slows and time decay starts eating in to the profit.

By the end of the day, I might see the 30 or 60 mi charts going negative, by the profits from the early momentum could be lessened, the hedge is still more than large enough to cover any draw down in the equity short and still add to the green column.

Closing Half of AMZN March $255 Call Position

Futures

Both ES and NQ futures are seeing intraday neg. divergences. Can you guess why? I gave you the answer earlier, a 4-letter acronym...

 ES/SPX futures w/ a negative and leading negative divergence.

 ES futures hitting the upper SD of VWAP.

 NASDAQ futures with a leading negative divergence...

NASDAQ futures hitting the upper SD of VWAP.

I checked quickly and there are negatives in most of the averages intraday, the bigger or more pressing item is the longer charts and their negative divergences.

I'd guess they'll want to hang around VWAP as long as possible, so we may get some lateral/choppy trade, I'm going to keep an eye on the charts of the averages and se if I can figure out where this is going, the bigger story is going negative, I'm talking more immediate.

Gold / GLD

Last night I saw some curious action in the after hours market in gold futures (YG), I asked you to hold on because I wanted to look closer and maybe even say," I like GLD even in AH", instead I looked and said, "I think GLD will get there, but it's not there yet".

Here's what I'm talking about and with the race across the globe to devalue currencies, gold is going to be the only real hedge and gold's behavior recently has changed as the race to devalue currencies has recently heated up.

 Technically, GLD did what traders expect and broke below this triangle, they now expect it to make a new leg lower, but I think it's most probably gathering energy here to put in a near term base and will likely make a move back above the triangle, of course there's the high probability of a slip below support before that happens to get shorts committed, which only helps an upside move as they are squeezed.


 This is a short term 3C 1 min chart of GLD, note the gap up this morning and how it saw immediate distribution on a 1 min chart, that's enough to send it down intraday, but it's not real distribution/heavy selling, in fact as it moved down it started being accumulated, so in my view they are keeping GLD in a range where they can accumulate it cheap and that's why I said I didn't think it was ready last night.

 This is more or less the range and the accumulation should take place at the lower end, I think GLD may have a little more time in this range or in a "U" shape pattern, but I do like the idea of GLD as a probable long even though I hate trading the asset itself.

 I think the move in GLD may be either newer or picking up more urgency lately, her it looks like it was intentionally knocked out of the triangle as you can see negative divergences sending it lower and positives forming at the lower levels, everyone wants to buy low, Wall St. demands it.

 This is a longer term look, it's kind of sloppy, but I'm not convinced that first positive divergence has anything to do with this one, the currency wars weren't that hot back in December.

 Looking at Gold Futures, YG, the 1 min chart looks like slop, nothing there really, but as I always say, "When in doubt, go to the more important, longer term charts that show the real trend".


 At 5 min the positive divergence becomes more clear.

 At 15 min it's leading positive

At 1 hour, it fits almost exactly with the point in which I became very centered on currencies and the debasement of them as the pivot for the market, a leading positive divergence so I do think gold is moving higher, it's just a matter of how big of a position do they intend to build?