A Quick Run Down

I want to start with currencies because I keep meaning to get there...

 Today the Euro (orange) and the SPX tracked each other pretty much spot on as the focus continues to be Cyprus, although tomorrow the F_O_M_C will provide an interlude.

 However if that correlation were to hold, the SPX would have a lot of catching down to do to the Euro, meaning the $USD is stronger and we can see that.

USD with its normal market correlation (SPx) in white and in red, the very non-typical correlation as a stronger $USD typically drives down asset prices from oil to gold to stocks, however as I suspected, in a world where every nation is devaluing their currency, the $USD is one of the ones that is bought, cue China in 3, 2, 1... WE WILL BE TALKING ABOUT CHINA and very soon as they will not tolerate the hot money from every countries' own QE program and all that money pouring in to China and causing inflation. For now, the USD has broken above resistance in a "W" like base.

One of the more interesting currencies is the Yen as it is a carry trade favored currency and we can see what's going on with hedge fund financing and positioning by watching how the carry trade unfolds.

 Here long term the Yen moves down and the SPX moves up as the Yen is sold for the Carry, but look at what has happened recently despite the most dovish PM and new BOJ governors in the last 20 years, the Yen has flatlined out of the downtrend and caused significant market volatility when it has done so. The Japanese story is not of its own making, China will push back hard against Chinese inflation that the Yen creates, we've already talked about the conflict brewing.

 A closer look at the Yen/SPX

 One of the favored carry pairs, the EUR/JPY has seen its trend line broken, changes in character lead to changes in trend, are hedge funds moving to a risk off position and winding down the carry trade? You couldn't be blamed for suspecting it.

 And the Yen recently rising vs the Euro, when the pair falls, the Yen is generally rising.

 Yields have also been calling a red flag, they are a sign of the flight to safety, as I say about yields, "They are like a magnet for equities".

 Here yields have underperformed the market and note how the market has been following.

 Longer term, the SPX has some catching down to yields also.

For 2013, Yields have failed to make a single higher high so they remain severely dislocated.

We can also see a flight to safety in relative sector performance.

Note most risk sectors have declines this week while the safe haven ones in white have done better, Utilities, healthcare and Staples.

To me it looks like the market is ready for some early upside, perhaps anticipating the F_O_M_C, but as I said earlier, I would not buy long a new position here.

 The 3 min intraday 3C chart of TLT has a slight negative divergence just like we saw in my earlier post with the market averages, this is confirming.

 At the more important 60 min chart though, there has been a clear flight to safety with this very strong leading positive divergence, this is why I think we can probably sell in to some short term price strength, GOOG for example.

 VXX 3 min shows a short term intraday negative divergence, yet...

The 10 min chart is very strong suggesting a move to the upside that will be faded as money continues to seemingly take the path of safety or risk off.

Tomorrow at 2 p.m. we are scheduled for the f-O_M_C announcement, we have caught a leaked announcement in 3C once before and successfully front ran the trade, but those are few and far in between, but I'll be watching as the F_O_M_C statement is embargoed with the news outlets way ahead of the actual announcement.

REMEMBER AS I ALWAYS SAY IN FRONT OF THE F_O_M_C, "BEWARE THE KNEE JERK REACTION, IT IS ALMOST ALWAYS WRONG", this is where it takes some patience and emotional discipline, but we can often get good setups there as well, so be ready to move and unfortunately I'll have to tune in to CNBC for a few hours.

As far as futures tonight, there's not a whole lot that's very exciting so far, I doubt there will be too much movement in front of the F_O_M_C unless something breaks in Cyprus or maybe even China.

Everyone will be listening carefully tomorrow, seeing where periods and commas are placed in the F_O_M_C statement to figure out if the F_E_D is actually looking for an exit from accomodative policy as they have hinted more than once, I suspect Bernie will try to dial it back and do some damage control, but I don't think that will be the truth of the situation, that we'll know more about when the minutes from the March meeting are released. For now, just remember, the F_O_M_C almost always causes a knee-jerk and it's impressive, it's also almost always wrong.

If anything special happens while my eyes are still open, I'll bring it to you, but for now I leave you with always interesting British MP, Nigel Farage on the EU.

ECB's Liquidity Fails to Spark Risk-Taking

Earlier I said that the EUR/USD looked like it was going to move the market, I didn't know what the news was, but it turned out to be a statement from the ECB that they would provide Cyprus liquidity "Within exiting Rules", which I think after the initial enthusiasm was taken more like the F_E_D's line, "Within the context of price stability".

You can tell exactly when the ECB statement was released...

 The EUR/USD saw an initial 61 pip gain in 5 minutes...

As for the market...

The SPY followed the Euro instantly.

However since then 3C intraday on ES has gone decidedly negative for now as ES pushes back below VWAP.

Nothing to see here, move along folks...

Balance and Patience

It is my personal belief and experience that on the whole (for every trader no matter what their tools), patience is your biggest competitive edge over Wall Street. You can pick and chose your battles or you can decide to stand aside, few funds can stand aside (other than moving to safe haven assets like Treasuries or hedge), we however can.

Today I think was a very successful day in managing patience and flexibility as were are in a very fluid situation that has repercussions that no one can fully imagine. In an environment like this I want to be patient with the positions I have established as they are set to fully take advantage of a black swan event, but as to new positions, this environment is very fluid so one must be very careful.

Today AAPL was giving a strong  negative signal the trade was entered at 10:15 a.m. using puts and then exited as momentum seemed to swing at 1:10 p.m. for a gain of +28% for 3 hours, this was a good gain, low risk, but the point was it was picking your battle and then standing aside.

So as part of my assessment of what action I want to take, if any, I took a quick look at the market. Do I want to enter shorts or puts? Are there any longs I want to enter?

Here's what I found in a basic look at the 3C charts, the best vs the minimum worst.

 As for the DIA, I couldn't find any charts that were bullish looking, the 10 min chart looks really bad, there are other charts that look worse, but I'm just trying to get a bare minimum, local feeling.

 IWM 3 min positive divergence, this is about as strong as the IWM gets.

 The IWM 15 min chart looks very severe.

 The QQQ 10 min chart is probably one of the strongest on the bullish side.

 However at 30 min, it looks pretty bad.

 3 min SPY IS ABOUT AS POSITIVE AS IT GETS

The 10 min SPY is again pretty ugly.

So what do I decide based on this, to me there's not enough of a case to make any new long commitments beyond my scope of influence, that means I don't want to establish any new longs that are held overnight. If anything my bias is to the downside based on the charts, but even then I think in most cases, like GOOG, we are a bit too far from a great entry with low risk.

I'm fine with holding the established GOOG April Puts and the equity short position, I'd probably be fine with an equity short position here too although I think it can be had at a better area. I don't want to add to or start any new puts in GOOG at the moment because prices on puts haven't fallen with a strong gain over a day or intraday. I want to establish a put at the best discount and the best timing possible, I don't feel strongly about that right now.

 It looks like a weak move to the upside early tomorrow is possible, so I want to look at that, although I don't want to buy it. If there's a strong signal like AAPL had today, then that is something we look at when we get there, but for now patience with the current positions is the name of the game. In fact you saw the option model portfolio gains for the week and placement number 5 of 606 with a +23.45% weekly portfolio gain.

The Equity model tracking portfolio alo did very well...

 A 4.23% total portfolio return and #47 of 1417.

This week some of the positions that have been built that are coming together include:

AMD long, which is up 10% over the last 2 trading weeks.
UNG long, which has run about + 22% over the last month.
IOC Short, which is gained nearly 8% since the March 11 Entry near the very highs.
AMZN Short is working, although I'd like a bit of a bounce to add to the position or at least give others the chance to get in at a good area.
ERY long is just starting to really look ready for a strong move as well as VXX...

The typical "new" Double Bottom with a head fake shakeout first and in to strong 60 min leading positive divergences.

We'll probably start some new core positions as well, but as I said, for now, just let the trade come to you, there are plenty of assets out there, no need to rush it.

Quick Update

The positive divergences in the intraday market averages and the Futures specifically seem to be coming in to their own now , it appears it's on the back of a move in the EUR/USD higher, we'll see shortly, but there has been some other currency developments I will get to that may have more dramatic, longer lasting and much more relevant effects on global economies and the market, what we are seeing now is a simple EOD push.

Cyprus Votes Down EU Plan-Not 1 Vote For It.

Incredible

The news is coming out so fast that it's hard to keep up with and its important to keep up with it, for all those who didn't keep up with a tiny island in the EU called Cyprus, some people with very large deposits are likely going to see them shrink substantially.

You never know how one strand of a spider's web will connect and then resonate with another creating something totally unexpected and it is always period like these where the fundamental data is not discounted and everyone learns of it at the same time (except headline running algos that get it a millionth of a second before you possibly could) that we are at the greatest risk for drastic unforeseeable events, although we already know which way the probabilities point.

Earlier today I was forwarded a Stratfor Article about the situation between Cyprus and the rick Russian Oligarchs that keep their money their in savings.

My response to the member who sent the Stratfor article, "Russia Condemns Cyprus' New Bank Tax" was exactly this,

"Yeah, saw that one coming, this could get interesting for Stratfor if Russia decides to finance Cyprus, they leave the Euro and Russia has a naval base in the Med."

Just moments ago, a step in that direction was taken.

From the WSJ:

The official said that Michalis Sarris, who is being accompanied by a delegation of businessmen, is going to propose a deal that includes imposing a 20% to 30% levy on Russian-held deposits in Cypriot banks, which could cost them billions of euros. In exchange, Russia will be given equity in Cyprus's future national gas company and some additional strategic benefits in the sector, while Russian investors would be given control of the board of directors at Cyprus's banks.

However, the deal looks like a long shot. Ahead of the visit, Kremlin spokesman Dmitry Peskov said: "It's practically impossible to talk without knowing the details."

"The situation is very difficult--unprecedented--and we don't understand what's happening," he said. Mr. Putin hasn't spoken to his Cypriot counterpart, he added.

"We don't know about the visit [on Wednesday] because we have information that the [Cypriot] finance minister has offered his resignation. Since we don't know if Cyprus has a finance minister, we can't comment on proposals that he might make," he said.

 

Mr. Anastasiades hinted that the government is already working on a plan B. "We have our own plans," he said.

Russia as you already know most likely has sent something like 6 or 7 warships in to the Mediterranean including frigates and destroyers. The Russians already have a naval base in Syria, but if there's one thing the old guard in Russia including Putin are REALLY HOT over, it has been the West's (US and Europe's) bold incursions in to former Soviet strongholds, making many of them NATO members and even European Union members.

How much would it be worth for Russia to pay to have a naval base right off Europe's coast and flanking the left side of the Middle East, $10 billion? Russia already has the EU by the short hairs when it comes to Gazprom and whatever prices Russia wants to set for the EU, Gazprom already sells more Natural Gas and oil to Europe than they do to the entirety of Russia, the CIS and Baltic states combined, in fact twice as much! From my understanding, Russia is the main exporter of Energy to Europe, there have been several close calls in the past and the Ukraine felt the wrath of the Russians via Gazprom.

What would Putin give to see some of the old guard former glory and do what the west has been doing to Russia for over 20 years and set up shop right in Medditeranean waters?

Wait for it, I'd be willing to give odds on Anastasiades' plan "B", there's no love lost between Cyprus and Germany or the EU, this time the EU may have made a blunder that has far greater consequences than former ones.

Futures Update

First, yet again today we have a very high correlation among the risk assets we typically use on the leading indicator layout, however (other than there being negative divergences in them), there's pure, palpable fear everywhere from tEurope to the US with sovereign bond yields rising, Swiss yields dropping in to the negatives, treasury yields dropping, the VIX being bid, so I'm not sure I understand what the game is there.

In any case, the futures are also now showing some positive divergences, they aren't huge, but should relieve a little of the downside from today, how much longer they can do this?

As for Gold, I have no problem with the intraday exit, I think it was timed well between gains and momentum.

Context is nearly perfectly in line...

 CONTEXT's ES model vs ES is almost perfectly in sync.

 ES current positive divergence

 NQ positive divergence

 And R2K positive divergence, this fits well with the market averages, there don't seem to be any big surprises, this looks like a simple relief bounce.

Volatility Update- VIX, VXX, UVXY

I just wanted to remind you of what I said yesterday, when you have a set of confirmed signals in the volatility assets, you are typically going to find the exact opposite in the market averages to some degree and vice-versa; I'll give you an example below-although this is not a market update.

 First the daily VIX has a huge move in it, this is also a "Bullish Engulfing" Candle pair

 This is the VXX Short Term VIX Futures 1 min chart with an intraday negative divergence, this should cause at least a consolidation if not a pullback in the VXX and thus likely the opposite in the SPY.

 I check the same timeframe in UVXY (the leveraged version of VXX) for confirmation.

 VXX 2 min is in line so far so as of now, it's not a big divergence but looks more like intraday movement.

 UVXY is in line on the 2 min also.

 XIV is the opposite of VXX and UVXY so it should have a positive divergence which trades similar to the market, so we have confirmation here too.

 And the 1 min chart of the SPY, the same, so there's confirmation there as well, it looks like an intraday move higher or at least a consolidation.

 If the SPY 2 min were positive I'd say a bounce was more likely, but with the 1 min alone, a consolidation is more likely. The up to date 2 min chart is slightly more positive.

 VXX 5 min on a more important timeframe shows accumulation and an inline/trend confirmation signal at the green arrow.

 VXX 10 min has the same signal so we have migration and confirmation.

 The more important 15 min shows a larger accumulation period that the VXX is just breaking out of.

 The 30 min shows an even larger divergence area, the yellow hash mark is where 3C was yesterday.

 Here we have a 2 hour chart that is in line or trend confirmation on the way down, the it goes in to a large positive divergence/leading.

Here's a closer look, this is why I have been saying that it looks like someone has really been accumulating volatility for some time now and they would have been able to do it cheaply with a lot of available supply.

Quick Market Update

It looks like there are some very small signals in the intraday charts of the averages that suggest either a consolidation or an intraday bounce, beyond that there has been some real damage done to an already damaged market.

The VIX looks well bid in an attempt to hedge/reach for safety.

I'll update the market and volatility with charts, there is the same move in Risk asset correlation as yesterday and the same signals of flight to safety despite them.

AAPL Fill

This position ticker is not correct except the cost basis.

$12.50 is the cost, the fill was $16.00 for a 28% gain in something like an hour.

Here's why as the intraday momentum looks a little off to me and this was meant to be a short term pullback position. Actually I se AAPL has already moved up, it looks like there may be another chance to do the same thing again.

 AAPL 1 min makes it clear it will move up intraday

 2 min

 3 min

 However at 5 min there's still trouble and...

At 10 mins it's even worse, so another bounce intraday in AAPL may very well set up another trade like this.