Oh My Lord! My Ears Were Just Violated

I don't know why I did it, it's my fault, but I was flicking through some of the channels I like, History, Nat Geo, etc and I hit CNBC, and you know I NEVER listen to CNBC, but the moderator has a bunch of traders sitting around and asked, "Your high flyers? Hold them or Fold them?"

The first answer? "I think yesterday was the day to sell them".

Are you kidding me?

I don't know what CNBC was saying yesterday, but I have to bet that it was, SPX and DOW at 5 year highs!!! Buy, buy, buy!!!

Oh my, I need to put the children's block on that channel.

For Now...

Honestly the last week has been exhausting, I think we have a really good start to trend #2. The minutes were the kicker, but I think Wall Street has had a pretty good idea that the F_E_D is trying to prepare market participants for a perhaps, more aggressive policy statement in which the punch bowl is taken away faster than people thought as of yesterday.

I posted quite a bit on this in last night's wrap, there has been some high profile F_E_D commentary days in front of the minutes release talking about not only taking away the punch bowl, but in fact the consequences the F_E_D will have to deal with after they do such as paying out $50 bn in interest to the big banks they already bailed out and how that is not likely to go over well with the public. Why have that discourse publicly with an event that is in the aftermath of QE being killed right before the minutes are released? There is a reason although it's not the reason the F_E_D is stating it as, it's Boiling the Frog.

The theory of "Boiling a frog", if you throw a frog in to a pot of boiling water it will jump out, but if you slowly turn up the heat you'll boil your frog. I'd say the F_E_D is taking this course, but I would not say that they have been slow in turning up the heat. You recall that I was already suspicious of this the day they announced QE3 because of the "Within the context of price stability" sentence and because of the talk of changing and adjusting purchases first according to inflation, then going from an outright calendar date to a much more subjective, "Economic based" model, as you saw in the minutes today the F_E_D made the economy sound, "Not so bad", even though we just printed our first negative GDP since 2009. The point being, I think they are starting to fear the end game/exit more than the current economy and for good reason.

I think the market has known this not only from the reaction I pointed out on September 13th to the very minute, I believe it was 2:26 p.m. when Bernie was asked the question about scaling back asset purchases in the context of inflation and the market didn't like it, but it's been developing for a while in a number of indicators, assets, currencies, dumb money sentiment, dumb money flows and the low volatility drift upward which is like a warm pool for dumb money that smart money can hand off shares to.

Don't underestimate what happened today, even if we rally 3% tomorrow, that's the second set of minutes that the F_E_D has been very candid, they have had a very different message than the F_O_M_C policy statement and the market has not reacted well to either and in the mean time, Bernie and Co. have been amping up the expectations dialogue. Don't think that the only time these people talk is at F_O_M_C meetings.

Taking the Punchbowl away exposes the entire house of cards built on QE since 2009, not on fundamentals, not on an improving economy, not even on an economy that was as good as it was when the market was much lower in 2005. This will be looked back on by those who are paying attention as the pivot.

Yesterday we had a Channel Buster in the S&P futures, remember Channel Busters "seem" to be bullish, but they are one of the best contrarian trades out there, it looked like this...

ES in a 5 hour Bollinger Band: "A" a tightening of the bands telling us a directional move is coming, "B" a directional move which turns out to be an upside channel buster and "C" the exact reaction I have been telling you about for years in understanding Channel busters. Too often we get caught up in what price is doing (and I blame Technical Analysis for that) and we don't pay enough attention to those things that the crowd missed.

If you were long ES yesterday you probably felt great last night, tonight, not so good.

So far from what i can see, even though price did respond and moved down, it looks like the initial shock was absorbed by the VIX, it's easier to hedge than to move around big positions in an unfriendly market environment, so while I do think volatility will continue to rise, I think the downside move today was not nearly as bad as it really is because a lot of the shock was absorbed by the VIX.

I can just tell you the tracking portfolio I use to keep track of positions which are mostly short, jumped by about +9% today, these are positions that have been under construction for a while, there are a few that still need to be filled out.

In any case,  my wife who has been away from home in Budapest since before Christmas for medical treatment, will be flying back in tomorrow and as a "temporary bachelor" I have some things that need desperate attention lest she jump right back on that plane! 

I feel great about today, I think this is the "start" of justification of our longer term views/positions, but I also know that feeling "Great" is not conducive to unbiased market analysis, so I'm going to step back for a bit, do some laundry and the likes, cool down and take a look at the market with fresh eyes.

I am not a bull or a bear, although I think the bear side is a lot more fun as it moves a lot faster and even the counter trend rallies are stronger, I do have  point of view based on hard data, but I always want to check and re-check and make sure that I'm not letting ego get involved in that analysis.

For all of you who made good money today on yesterday's SPY Put (and I really love that so many of you took this as your first options trade and did well) CONGRATULATIONS! I can only provide data and an opinion, it's you that has to do the hard part and you deserve all the credit for doing that.

For all of you who are looking to position yourselves, remember... PATIENCE-that's your biggest edge over Wall St. You don't have to be in the market all of the time, you can pick and chose your battles so use that to its full advantage. There's a bus every hour.

I'll be updating and looking at the market in a bit, if there's something I can add that I haven't already beaten in to the ground, I will.

The positives

Maybe these play out in the a.m., I still think a natural trade to play on a market bounce is a pullback and go long volatility.

Here are some of the signals, so far nothing much over 2 mins so these are not strong by any means.

 DIA 2 min intraday positive

 IWM 1 min intraday positive

 QQQ 1 min intraday positive and the TICK...

Note the trend and the break above it.

These divergences can form and play out the next day as we have seen many times or even continue to build, I wouldn't feel rushed though.

Volatility-Trade Idea

On any upside market strength, volatility may be a decent play in to what would be a pullback there, VXX (my preference) or UVXY. Take a look at how the VIX worked out, it also argues for a long volatility play in to any market strength that causes volatility to pullback.

 The price pattern is bearish on the daily VIX, even the descending triangle, yesterday we had our head fake move in the last 1/10th of a second of trade (yellow arrow) which hit new lows going back to 2007, today we have the other side of the head fake move, the breakout to the upside.

Out buy signal with the Bollinger Bands, remember this, I said the VIX was likely to bounce around and loiter for a bit in the volatility squeeze before making a highly directional move, which we already had a buy signal on.

So VXX or UVXY would probably make for a nice play as they pullback in to any market strength.

UNG Nat Gas report

I don't know if anyone wants to play it, but you know for the last 3-4 weeks there has been a negative divergence the day before in UNG and on the day of the EIA (Tomorrow) UNG is down.

Those short term negatives are there...

 UNG 1 min intraday

 2 min

5 min

I'd say it will fill the gap, I'd rather buy in to the move down, but if you want a spec. play, maybe a little leverage for a quick downside play.

ZNGA

I'd say ZNGA has a pretty good chance to bounce a bit to the upside, by the time I get the charts up it will likely be too late. I do think it can make a move of a day or perhaps a bit more to the upside.

Intraday Update

There are some VERY early signs that there may be an attempt to bounce in to the close, some 1 min positives forming in the Q's the IWM to a lesser extent the SPY and DIA, the TICK is also close to breaking above the downtrend.

Maybe there will be something we can sell or short in to.

Market Update

Leading Indicators are a bit all over the place and I haven't had the time to look at currencies, but they have been trending since Feb 1 so I doubt there will be any surprises there. I think we now know definitively what the VIX "last 1/10th of a second" move to run stops yesterday was all about.

I'm going to update without charts because it's so easy, this looks like a significant break so far.

The SPY is either in line or leading negative on every intraday timeframe from 1, 2, 3, and 5 min, the 10 min has been in leading negative position for some time just waiting for price to break down to it, the 15 min is UGLY, leading negative both on a shorter intraday basis and the long term, the same is true of the 30 and 60 min. This is why I wanted to have shorts prepared, try not to trade around them and just hedge them with the short term options trades and others.

The QQQ is very similar, except the signals are close to inline with the move down, the Q's are even worse off on the long term 60 min trend. In a sense, I'd say the Q's look a little stronger, but it's almost impossible to put strong in a sentence describing them right now.

The IWM is somewhere between the SPY and QQQ, although there's 1 chart that I think sums up the IWM action the best so I'll show this 1, it's a 30 min going from in line to distribution or relative negative to recent leading negative.

Nothing goes straight up or down, but this kind of damage is not usually repaired, that would make any price strength likely a good area to short in to.

The very short term DIA 1, 2 and 3 min are kind of congested, it may be that there's a lot of price congestion in the area or maybe it tries to correct to the upside a little although I wouldn't take that trade.

At 5, 10 and 15 min there's some real damage done. The 30/60 intraday aren't horrible, but their long term positioning is leading negative so again, there's just a lot of damage everywhere.

This is why patience is so necessary and why I've been trying to point out that the upside gains of the last 3 weeks or even since the start of the year, really need to be put in to perspective.

NASDAQ and S&P 1 and 5 min futures are resolving that earlier transition to the downside, if there were some price strength to short in to I would, but for now it's about just letting the positions in place work and keep your eye on the progression, look out for any opportunities.

This is apparently why the C&D trades were nil yesterday, they had mostly all fired off already which comes at the end of a bull move.

Futures Update-Short term thinking

The S&P futures exemplify my thinking about very short term trades right now, it looks transitional and can break either way. Longer term short positions are already in place, short term positions have mostly been hedging and taking advantage of the market environment, like today's SPY weekly Put closed at a 35% and 49% gain.

 1 min ES had a positive divergence, this is where I was closing out the rest of the SPY weekly put from yesterday. The current position could be called positive, but it is still facing downward so I have to assume it may be moving to the negative just as well.

 The 5 min ES chart which was the signal for yesterday's SPY put, there's a possible 5 min positive here, this isn't strong enough that I would take on a 1 day SPY weekly call trade, but I don't want to be on the wrong side of what it likely a transitional signal.

Bigger picture, the 15 min Es chart from earlier that was leading negative is doing so even worse so I'm ok with the longer term positions, the longer term long VXX, shorts, etc.

If an opportunity pokes up to make some short term $$$/hedge (hedging lately has been pretty profitable), then we'll go from there.

For right now, I think it's best to just let the longer term shorts work until we get a better picture of the very near term.

UVXY / VXX

The UVXY was opened yesterday as a trading position so closing it today at a +5.5% gain is fine, I want to be a little flat on short term positions right now.

As for the Longer term positions like VXX and I believe a UVXY, I'll leave those in place, here's why for both the short term and long term...

 short term UVXY 2 min chart positive yesterday at the opening, there's a slight negative intraday.

 3 min UVXY is looking stronger as it is a longer chart and reflects a longer position.

 10 min is leading positive-VXX

The 2 hour chart is in line on the downtrend and leading positive at what is 5+ year record lows in volatility, the daily VIX is also in a strong leading positive divergence

Closing Yesterday's UVXY Trading position-Still holding long VXX

I want to flatten out a little in the very short term as in trades lasting hours or 1-day

Minutes = Good Cop, Bad Cop

So we have our good cops:

Several others argued that the potential costs of reducing or ending asset purchases too soon were also significant, or that asset purchases should continue until a substantial improvement in the labor market outlook had occurred. 

And we have our bad cops:

• SEVERAL FOMC PARTICIPANTS SAID EASING MAY PROMPT EXCESSIVE RISK -Read as asset bubble which we already have and inflation
   
• MANY FOMC PARTICIPANTS VOICED CONCERN ABOUT RISKS OF MORE QE-Read exactly as stated here, the potential good of more asset purchases is starting to look less appealing vs. the consequences of trying to withdrawal policy accommodation which is always the harder part
   
• SEVERAL ON FOMC SAID FED SHOULD BE PREPARED TO VARY PACE OF QE-This is exactly what was said on September 13th when Bernie added the "Within the context of price stability" sentence, the market didn't like that. From there they went from a calancer based "You can count on ZIRP until xx/xx/xxxx" to, "Asset purchases should reflect the incoming economic data."- Note that the first the market knows EXACTLY what to expect, the second is conditional and the market hates uncertainty.

• FOMC PARTICIPANTS SAID ECONOMY WAS ON 'MODERATE GROWTH PATH' They can't back out until the above is true or they say it is true despite the fact we just printed our first negative GDP since 2009!!! Like I said last night, Bernie says he has our back as long as need be, they are reducing the bar for, "Need be"

• SEVERAL FOMC PARTICIPANTS SAW IMPROVED U.S. CREDIT CONDITIONS Read same as above

• A NUMBER OF FED OFFICIALS SAID TAPERING QE MAY BECOME NECESSARY They started this with "Economic conditions", then this week with regard to paying banks $50 bn a year in interest and that not looking good, this is the exit plan maturing while trying to seem like they are not taking away the punchbowl.

If you read recent posts and last night's market wrap, it was all there, everything above. The thing about "Good cop, Bad cop" is that they are working together to accomplish the same goal, I'm sure you can figure out what the goal is. When was the last time you heard the F_E_D explicitly bring up details about a potential exit? Not until Sept 13th did they even hint at it, now it's getting a bit deeper each time.

Right now we are seeing a lot of knee jerk in the market, but there will likely be one clean knee jerk break, I almost feel like there's not much use in watching right now with the TICK looking like this...

However you never know when that passing moment of clarity will come so I'll keep watching, I think on the whole this is not good for the market, I think the market will start to reach that perception if it hasn't already which I think smart money has, but we always want to watch for the traps.

Positive Minutes?

It sounds like they are looking for an exit, the market won't like that

Beware the F_E_D Knee Jerk Reaction

I always warn about this because it happens more than not, the initial reaction is faded.

As for ES, it looks like it could even do that, although  it's not that strong, it looks more like waiting on the sidelines - consolidation.

Still holding UVXY long for volatility.

10 minutes until the minutes

It's hard not to like AMZN Here (short)

I'm as far as I can go with AMZN, the position is filled out and it's right about here at an average of $269.09.

Here's why I like AMZN (Short) here...

 This is a substantial trend, it's not going to just roll without some decent top in my view... (weekly chart)

 Here's the daily chart, I'd say from the looks of 3C and a custom cumulative volume indicator, this looks a lot like the head of a H&S top. When playing an H&S top, I either want in near the top of the head or after the break of the neckline and a shakeout of the initial shorts that jumped in which would be a ways off still if the pattern were symmetrical, a stop can be put not too far above the recent highs and can certainly be positioned sized for a 2% portfolio loss or even 1% if you take on fewer shares.

 Here's where we are now on a daily vs where a stop might be placed, that's only about 7% with a stop at $290, you should be able to have a decent size position (although I prefer to stay around 15% of portfolio on the overall max position size) and still hold a -2% of portfolio risk plan.

 The bigger picture 2 hour 3C chart shows some accumulation to the far left, what looks to be a run from the neck line to the top of the head. As you can see, there's a substantial negative divergence.

There are a lot of charts in between, but looking at today's and recent intraday action, it looks like this is a negative divergence and likely a reasonable area to assume to be the top of a head. I think the risk / reward here is favorable as long as you use decent risk management.

Got Lucky

Filled right at $.76 for a 49% gain...

Closing out SPY Weeklies from yesterday-Except Very Small Position

I'm not taking the chance with them here, they are meant to be very short term, but I'll keep a very small position. I may watch the market for the best timing, but more than likely I won't have time for that.

High Yield Corp. Credit

I'll try to make this short, but just like yesterday's VIX punch through the bottom in the last 1/10th of a second to hit stops seems to have been purposeful, I think HYG may be finishing a short squeeze or some other theme that has the same effect.

The saying is, "Credit leads and equities follow", we've seen it play out many times both here and Europe. This 60 min chart below shows the SPX moving up and Credit diverging, this has in the past, always been a red flag for the market's trend, the yellow arrow is Feb 1.

 The thing is, HY credit diverged so much, it was so incredibly cheap and attractive as a risk on asset, but more than that, I think HY Credit started moving up on a short squeeze.

 Looking at HYG (High Yield Corp. Credit), the 30 min chart shows the negative divergence and break to the downside, in green is 3C/price trend confirmation, red is the distribution/negative divergence and white is a positive divergence that I have said in the past I believe to be part of a short squeeze.

 A faster 15 min chart shows the same, but if this is what I think, then the recent activity is no longer confirming at the far right and is going negative.

On a 1 min intraday chart it looks as if HYG is about to turn down, I wonder if this is a final shakeout of shorts like the VIX seems to have been shaken out late yesterday?

Short Term SPY (For weekly Puts)

Like I said before, I'd love to be in the position BEFORE 2 p.m. to be flat on the cost basis on the SPY weekly puts, in other words taken the cost off the table and let the profits run, that would be great if that were about half the position, but we'd need some good downside momentum.

I do have some thoughts on HY Corp. Credit as well that may explain what's going on there, it's kind of along the lines of the VIX move late yesterday.

I'm looking at so many charts that my fingers are nearly bleeding from typing, both of them (left thumb and right pointer-"Hunt and Peck Typing").

For now, the SPY may give us some more on the downside near term....

 TICK is having trouble holding that channel.

 The 1 min SPY i-very tight intraday- is going negative here.

The 2 min which never had much of a positive is just barely in line and close to negative.

Right now it's Credit and ES bothering me, I'll get to credit, ES 1 min has a slight positive divergence, but NQ had one too and it is starting to fall apart so maybe ES's 1 min does the same.

Remember what these trades are about, making some money in a difficult environment, not getting greedy. Longer term position in place are there to deal with a substantial break.

Thinking About Taking Some More SPY Weekly Puts Off

CONTEXT for ES doesn't look good...

We're at nearly a 10 point differential between the model and ES itself.

However, interestingly High Yield Corp and Junk Credit are performing better today than you'd think, especially given COTEXT. I'm not sure at all what that means, but there are positions in place to handle a bigger break to the downside and even at a 35 or 40% 1-day gain, I can't cry about that.

I may take something along the lines of half off and give it some more time, I'd really like to get to the point of just taking all of the entry price off and let profits run in to 2 p.m. when the minutes come out.

SPY Update

This is the reason for taking some of the SPY Puts off the table and the reason why some are still on.

 The first hint or at least the first I saw was the NYSE TICK as it was starting to change trends.

 Then a 1 min small intraday positive divergence in the SPY, this is within a much larger leading negative divergence.

 I still like the overall idea of leaving some on the table, although I wanted to capture that early momentum, because of charts like this 5 min in a leading negative position.

 Of course the 15 min leading negative mentioned earlier as well.

 Nearby in intraday action, the 30 min is leading negative, step back and take a longer view...

 As we were talking about last night with the EUR/JPY divergences and the Feb 1 date playing such a key role in so many indications, the 30 min chart is leading deeply negative, the green arrow is Feb 1.

SPY PUTS P/L

As you know, I have just about zero tolerance for consolidations, loss of momentum, etc, especially in weekly options, I'd rather take a decent profit and leave some on the table as long as there is reason which there is.

The position for a day has done ok so far...

The fill came in at $.69 for a 35% gain since late yesterday, this is 1/3 of the position closed so I'm all for letting the majority run for now.

I'll try to get an update on the SPY out soon.

Taking 1/3 of SPY Puts off the table

This is due to a lull in momentum via the TICK

DE Follow Up

DE was a phased in partial position, looking for an opportunity in the future to fill out DE as a Core short, here's the last position update

Considering what's going on with CAT (Another Short Idea), DE is not only a good sympathetic play, but it is crossing some major Trend Channel Breaks.

 This is the area I figured would be the failed move, we're pretty darn close.

 The Trend Channel 3-day stop which defines this trend was just taken out.

The 2-day Trend Channel defining the trend above the resistance breakout has also been taken out.

We have a partial position already in place, so for a new trade I wouldn't even mind a partial position here as long as that is part of your risk management BEFORE you enter the trade rather than dollar cost averaging.

I'd like to see an intraday move to the upside to fill out the position, I'll be keeping an eye on it, but there are a lot of things to keep an eye on today.

Looking for an Intraday Bounce in DE to Fill Out Core Short

Charts to come...

Closing AMD Long for Now

I still think there's a future, I just can't justify holding it as a speculative long here anymore, there's a slight profit ...

SPY Update

Here are the points of interest for me in the SPY with the weekly puts, but also as part of the big picture.

I try not to draw on the charts unless I have to point out something because I think it distracts from the divergence which I think most of you are fairly adept at seeing at this point.

I do note the positive 1 min Friday vs the negative yesterday because on Friday I was going back and forth over whether or not I should open a SPY Call position, I decided that I didn't like the atmosphere, the 3-day weekend and although remote, the possibility the G20 might say or do something that upset the apple cart, which is pretty upset today with AAPL down 1.54% already, this is why yesterday was specifically a day trade in AAPL ONLY.

In any case, the divergence was right, but as I said, I'd rather miss the bus and catch the next one than be a pig led to the slaughter.

 The SPY 2 min chart looks like I want through yesterday's and today's trade thus far.

 As does the 3 min chart.

 What was really interesting to me yesterday and today is the 15 min chart, it too supported the idea of calls Friday, however yesterday's negative divergence is not only longer in duration, but much deeper and is a leading negative vs. a relative positive.

 Of course it has been the 5 min futures charts that have been the key signal in picking these weekly options trades, remember I'm not a huge options fan, but with the 2 feet forward, 1 foot back, 1 foot forward 2 foot back type of trade the last 3 weeks, quick and leveraged has been the tactic that has been working best. I would much rather be in a straight equity trending trade, but you take what the market gives and as I showed you last night, over the last 3 weeks and even this year in some instances, being long and sticking with it has delivered in some cases half a percent, that's not worth the market risk, not when you can make 35-100% (some members are scratching out 300%) in a trade that lasts 1 to 2 days.


 What is really interesting about this last SPT Put from yesterday is the 15 min chart in a really ugly position here.

With all the hoopla yesterday, the TICK Index not hitting +1250/1500 is strange, it hits that pretty regularly even in a +.50% day, I think this all comes back to the breadth charts of "Percentage stocks above 40 day moving average" or some standard deviation above and how they have fell dramatically since Feb 1.

In any case, today's TICK looks like it just took a step down.