Market Wrap

There were quite a few stories today from CAT's abysmal earnings and near +3% close to the symmetry in the market averages, well most of them to the NFLX move, one which I alluded to earlier as a larger trade as the longer term NFLX doesn't look as good as you might think.

Gold had it's best day in 3 months and best week in 18 months, we were positioned perfectly for that move and I believe in the days ahead we will see even greater gains. While I mentioned the market looked like it could pullback tomorrow, maybe the first half of the day or perhaps consolidate, AAPL's charts are looking very strong, if AAPL earnings are anything like the reaction to poor CAT earnings and not as good as you might think NFLX earnings, than we are most likely off to the races, cashing in on positions set up last week and starting new ones in advance of the next move which should be a doozy.

While I didn't know what the larger/longer term problems were with NFLX when asked earlier today, I did think NFLX would break north of $200 and this is the area of our sweet spot. As NFLX's earnings were digested, the problems that I saw on the longer term charts were specifically named, I suggest you read this article...

Does Netflix' $3.4 Billion Off-Balance Sheet Liability Make It A "House Of Cards"?

As to tonight's after hours move, a short squeeze in the less liquid trade of after hours and the reason I don't pay too much attention to that trade for analytical purposes.

We'll look at NFLX in greater detail as it sets up, but for now, here's a quick look at the longer term problems...

You can see exactly why I suspected prices would move above $200, but this hourly chart also shows trouble brewing, NFLX may not be quite ready yet, but it is moving in that direction and today's gains will only hasten that move.

Late day action in Credit, Yields and commodities as well as other Leading Indicators seemed to confirm the charts that lead me to believe we see some softness in the market, most likely during the first half of the day.

SPY charts as to tomorrow's action...

 

 The 3 min intraday chart as it was deteriorating intraday most of the afternoon as I had warned several times, but...

None of that weakness made its way to the 5 min chart, essentially the divide between intraday action and the start of institutional signals.

The most dominant P/V relationships were Price Up/ Volume Down which often results in a one day overbought condition with the next day closing down, however we'll see how the market reacts in to the run up to AAPL's earnings and then of course on Wednesday.

Index futures tonight are on the same course that the 3 min short term SPY chart above had set by the close and are leaking off gradually right now.

AAPL's charts as well as GLD's still look outstanding, what does someone know about AAPL that we don't yet? However as mentioned today, we may see some consolidation in gold after such performance, yet it looks like it still has a full tank of gas to move forward in coming days.

I trust these charts need no annotation, my ugly drawings would just take away from their beauty.

 AAPL

GLD

We may even see another opportunity in silver as something has been brewing over there.

There is very short term $USD strength/positive divergences and Euro weakness, yet this is very short term, the $USD should see downside in the next day or so with the Euro rallying, a market positive environment, however for now that is causing EUR/USD weakness which is risk negative/market headwinds, it shouldn't last long though.

Additionally the $AUD is seeing some weakness and the Yen some strength, this is also a market negative right now, however once again the longer term positives in the $AUD suggest it will come back and offer the market support so futures, FX, leading indicators and the market averages all show 3C charts suggesting near term weakness or consolidation followed by a larger, strong move to the upside, we may find some short term trading opportunities in this environment tomorrow and we'll be watching for them.

Don't forget about UNG as well, this is a great opportunity we have, it may be the last before a stage 2 breakout.

In any case, there's nothing too concerning to me at all, it looks like the charts that matter are still very much where they need to be, just remember that any short term price strength over coming days is a means to a larger, higher probability trade in which we take profits from our longs and set up our new or add-to short positions.

All in all, we have some great signals, just look at gold and you know how I hate to trade precious metals!

Have a good night, tomorrow is another day full of opportunities.

NFLX Gives Earnings Some Bite

After CAT missed today on Revenue, EPS and gave poor guidance (you know what I think as to why it performed the way it did today), but still managed a nearly 3% day, it seems that Wall St. is creating the sentiment to go along with that most obvious of bases, the Inverse H&S base which I can darn near guarantee you was not there by chance.

NFLX had a fantastic report, whether they would have surged over +22% if Wall St. weren't supporting earnings is obviously a debate that can never be settled(sentiment), in other words, "It isn't the news, it's how the market reacts to the news-just look at CAT!).

I looked at NFLX for several people today and was asked whether I thought NFLX would roar in to earnings, my opinion was yes, and to look for a regional high >$200, which it's at $212, but added NFLX seems to have some longer term trouble and the second part of that trade may be the more interesting part, who would guess a +22% AH move? It really comes down to what it does in regular hours, but there are some very interesting possible NFLX trades over the next few weeks or perhaps even sooner that may make a lot of sense.

In any case, the point is more to the atmosphere, the sentiment, the really clear bait in the form of the most obvious bottom pattern that anyone who has even looked at a Technical Analysis book would instantly recognize, in fact some seem more prone to recognizing the H&S base or Inverse H&S more than the top which over the course of the last 100 years has been one of the most reliable price patterns out there (so long as it is correctly identified with volume analysis). Much of the market was fooled by a H&S top price pattern in the SPX from Jan. of 2010 to July of 2010, it was an obvious random pattern as the most important confirmation, volume analysis, clearly showed it was not a valid top.

The point really still going back to last night's post, it seems that Wall Street has set up a very friendly atmosphere inviting longs in, I don't think they'll want to spook them as I was saying last night with short term head fakes and tricks, I think they have their eye on the prize and that is getting retail to trust in and buy this base they have set up (Good thing we were set up for this last week).

Again, the ultimate goal can be summarized by any number of charts, from currency, to Futures to Treasuries, to volatility, market breadth, market averages, or any number of 100 different indications. The prize is an early counter-trend rally as the SPX has finally made a lower low in the 2013 trend and sell the shares accumulated last week in to higher prices, the same thing we want to do and continue selling short in to demand and price strength, again, the same thing we want to do.

I think this was one of the great, "Charts of the day"... from the linked post published earlier today...

Here's the Bloomberg US Macro Data Surprise Index, (Negative vs. Positive data surprises for 2013).

The Index is now at negative lows not seen since November of 2012...
It looked very familiar... This is the Market Breadth indicator, T2108, All NYSE stocks trading above their 40-day moving averages which should rise in to a healthy rally...
As you can see, the percentage of NYSE stocks trading above their 40-day moving averages' hit a high of 85% in January and a low of 37% last Friday, which is also a level not seen since November of 2012...

MARKET UPDATE

After looking at all of the market averages as well as Index Futures, I see the same intraday negative divergence that has been there most of the day. All of the charts that matter and that influence my decisions are very strong.

If I'm not mistaken, then a consolidation or pullback tomorrow through part of the day, I suspect early trade, morning or the first half, would not be unusual, nor would it be cause for concern in my view. If I'm correct, AAPL reports after the close, I believe that this may indeed be the trigger used to explain to dumb money the "out of nowhere" rally that we are looking for and seeing.

I'm not making any changes other than what has already been stated. I'm just going to be... PATIENT

AAPL Update

This is a call position I'm leaving open, we have a +3% move in AAPL today, you see, even an equity position would have been worth it.

As for the charts, I can't find anything I don't love...

 2 min chart needs no annotation

2 min intraday with confirmation

5 min intraday with confirmation

 The 10 min chart just soaring-these are the kinds of 3C signals you just don't ignore.

And the 15 min chart, AAPL looks as if it is ready to do something huge

GLD Charts

For me, GLD is a bit more of a trending position than the normal options play of in and out ASAP, I see longer term signals, a larger base and a lot more upside coming, that doesn't mean it will be linear with no pullbacks, today saw some consolidation. ON THE OTHER HAND, AS A SHORT SQUEEZE, THERE'S NO TELLING.

Charts...

 15 min GLD has a nice, very strong base with a leading positive divergence, buying started days ago, not last night.

 5 min today went leading positive in a big way, I like this, there's no distribution on the institutional side.

 A closer look at the 5 min today that kept seeing continued positive divergences through the flat-ish range intraday, it looks like more accumulation.

 3 min also looks good intraday

 The 30 min momentum chart for this base is still very well intact.

Futures

 1 min Gold futures look like a pullback, at least overnight, but I'm not too concerned with that.

More importantly the 30 min leading positive is above the level where it saw distribution at higher highs in price.

For position size, I only closed about 25% of the total position.

Taking Half of the GLD 5/3 $134 Calls off the table

This is largely because I have 2 open GLD calls and a lot of exposure there, I'll update the charts.

IOC Short Set-Up

I last updated the trade set up for IOC on 4/11 in this post.

Just to save some time, I'm going to post a few charts from that post as well as the commentary in Italics.

"This is the right shoulder of a large H&S top in IOC (see the last post for the target-somewhere around $10-$15 wow!). The ascending triangle is within that range in red."

"If I can't short a H&S at the top of the head or the right shoulder, then I wait for the neckline to be broken as you will almost always see a volatility stop run to take out new shorts with a move above the neckline, that's the last place I would short a H&S and the least favorable."

"IOC 10 min chart is a pretty serious timeframe and you can see as it has broken down below the triangle (any Technical traders paying attention would most likely short the break below the triangle), but there's a 3C positive divergence, it looks like they are going to squeeze the shorts. "

"The divergence has migrated to the 5 min chart (from to 5 to 10-good migration of the divergence) where you can see the negative divergence at a head fake breakout above local resistance that was sold in to sending IOC lower, which is the point of a head fake move, they give the reversal added momentum."

Now to today...

One of the reasons I like IOC so much is it's late in a stage 3 top, next comes the trending stage 4 decline. Even more, the price pattern implied target for IOC is about $10, with the article I linked above (which has a link called "How to make more than 100% on a short"), IOC as a pure equity short gives you advantages a short ETF cannot.

This is a 2-day chart showing the different stages of IOC's trend and now a "Slanting" neckline on a large Head and Shoulders top (ironic that we have been talking so much about slanting neck lines on H&S tops and bottoms), this is a large top. "A" is the left shoulder, "B" is the head, "C" is the right shoulder and it is at a good entry near the top of "C" in which we have been waiting to either add to this position or initiate new shorts for those interested.

 In side the right shoulder we have a bullish ascending triangle, the truth is it's too large to be a real consolidation pattern, but most traders don't care about the rules to verify if it fits with what they want to see. As mentioned above in an earlier post from this month, we saw a head fake break below the triangle which would bring in new shorts, then as we suspected long before it happened, the positive divergence told us that they'd be squeezed which as you can see today, they are. We wanted to enter IOC short above this price pattern and we are getting there, ALL head fake moves!

Here's the triangle within the context of the H&S top in the right shoulder, this is the second most ideal spot to enter the short (the first being the top of the head).

 As mentioned above in the last post, the 10-min 3C chart showed a positive divergence in to the break below the triangle so we knew weeks ago that this would be a short squeeze move, in addition the move today above the triangle's resistance is seeing a similar head fake move with a negative divergence on the move up, telling us smart money is selling/shorting IOC in to price strength, the same as what we want to do and have been waiting for.

 For now the 1 min chart is inline with price so I expect the upside move is not over, which is even better, a better entry, less risk, higher probabilities.

The 15 min chart also tells us this breakout is almost certain to fail, when the short term charts confirm, the timing will be excellent and we can make our move then.

This long term daily chart is really the final say on this H&S top and as you see, it's showing pure distribution in to it, so it is a trade we want to seriously consider.

IOC Update Coming-Don't Miss

This is one that has done EXACTLY what we said it would back at the start of April, it's getting ready to come to us on the terms we set and it is going to be a fantastic entry and position, moreover even if you are not interested in the short set up, just seeing the way we were able to predict exactly what would happen and wait for the right trade to come to us, should tell you a LOT about Wall St.

This is letting the trade come to you, low risk, high probability and a lot of patience.

Post is coming...

Volatility and Catalysts

The market and retail money ALWAYS love to be told WHY the market did something, it's almost never the truth, but they need to hear it for whatever reason, I guess so things make sense when in reality the market is far more complicated and an unsavory place.

In any event, I hadn't even thought AAPL may be consolidating (waiting) for earnings tomorrow. I told a member who asked about some earnings this week that it would depend on the market sentiment, if it is bullish, then bad news will be spun to good news, if bearish even the best report will see the stock lower. If CAT is any indication and the most important part isn't they missed on Revs and EPS, its that they guided lower, yet the market can forgive that and rally the stock, then they are in a pretty forgiving mood. Imagine what AAPL earnings could do! They'd also provide the CNBC viewers an easy reason to believe, even though we have been watching this base unfold for about a week!

As for volatility, it too tells a story. I'm going to use VXX (short term VIX futures), UVXY ( a leveraged version of VXX for confirmation) and XIV (the inverse of VXX/UVXY), it moves opposite both and moves with the market.

 VXX 1 min intraday is showing a positive divergence, this is confirmation to the intraday market averaages' negative divergences as these move opposite each other.

 2 min VXX is still in line right now so the divergence on the positive side isn't very strong as of right now, just enough to turn the market around going in to the afternoon, again this may very well be to hold the market until AAPL earnings come out, that's a gut feeling based on AAPL's own holding pattern identified earlier today.

 UVXY 5 min is the same as VXX, but a different (leveraged ETF) so it is used for confirmation. Here it is showing a larger negative divergence which is market positive, at today's action, it could go either way.

 XIV 15 min is the opposite of the two ETFs above and essentially trades as if it were following the SPY, the longer term 15 min positive divergence in this area is the sam,e as the IHS positive divergences in all of the market averages, so we have good confirmation between volatility and the market.

Long term, UVXY shows a heavy bid for protection on a 30 min chart, much like the long term TLT charts, this is a bigger picture of fear and a flight to safety.

Market Update

All of the averages and Index futures still have an intraday negative divergence so they'll be coming down shortly, any moment now. I'll have to look at the price patterns to see what they'll likely form and I will, but I didn't even think of this, AAPL's earnings tomorrow are more than likely why they are in a holding position and they'd be a perfect excuse for the herd.

Treasuries, The Flight to Safety Trade

These TLT charts, which is 1 of 3 assets used in the SPY Arbitrage model is performing better today for a reason and in looking at TLT both shorter term and longer term, the entire market is mapped out for you. When looking at these charts try to remember the breadth charts, the 3C charts, this morning's Macro-Economic Surprise chart vs. Market Breadth, a similar them,e will emerge among all of them that can be summed up nicely with TLT alone.


This is a very simple explanation, but shorter term 3C charts reflect shorter term or near term activity, longer term charts reflect the overall trend or flow and what we expect the major moves in the market to be.

 Intraday shorter term 1 min TLT shows a leading negative divergence forming as the day wears on, this is why Yields have recently begun to perform better and are more supportive of the market as I just mentioned in the Leading Indicators post. This also means that there's a short term shift AWAY from the safety of bonds and in to risk assets by smart money, they are ready for a market move higher in the near term as we expect and are prepared for as well.

They say it isn't the news, it's the market's reaction that matters, look at CAT's earnings today and price up 2.5%, what does that tell you with today's reaction about risk sentiment?

 The 5 min TLT chart shows a leading negative divergence at the same area our Inverse H&S base would be in the market, we already know smart money accumulated, I showed you last night, but they moved out of the safety of TLT and in to risk assets for the move.

 TLT 10 min chart again shows the same thing, money flowing out short-mid term and in to risk assets, this isn't retail as they wouldn't have considered buying until Friday, this is smart money.


However if we want to know what the primary trend or bigger trend has been, look at the daily TLT chart, stronger than any above and it has shown a strong flow to the flight to safety trade, in to TLT and TLT has moved up because of this demand despite the market being up at the same time, this tells us the bigger picture is one of a lot of fear among smart money that the market is going to crash and there are tons of confirming indications and a lot of catalysts as to why, the Yen was one I covered last weekend.

Quick Look at Leading Indicators

The SPY arbitrage is positive and getting more positive as the day goes on, I'm not sure what the angle is in the disconnect between the SPY which is performing nearly perfectly with leading indicators and the QQQ which seems like it needs to put in one more definable right shoulder before its ready to go, perhaps the SPY is being used as a teaser to keep the gamefish interested while the rest of the tackle is deployed in,  "FISHERMAN'S VERNACULAR".

This positive SPY Arbitrage model vs the SPY (red) doesn't surprise me at all, HYG and Junk Credit are performing nearly tick for tick with the SPX, Volatility or VIX futures are being manipulated to the downside (making market conditions more bullish), commodities which have been performing pretty horribly today (I'm guessing because of what CAT's earnings mean for construction and most materials) are starting to improve, Yields/TLT aren't bullish or leading positive, but have made huge strides in improvement today.

As for FX,  I think this may ultimately be where the hang-up is, I wouldn't launch a market rally unless everything was onboard and ready to go and currencies are not, not yet at least. The $AUD is not supportive, the Euro is not supportive,  the $USD hasn't been supportive, but that is just changing now, the Yen is barely a factor, but intraday a bit supportive.

Looking at FX futures, 3C's position on the $USD is much more supportive of a move to the downside, the divergence has developed beautifully during regular hours today. The Euro, whether as an effect of the $USD move or on its own is looking positive with 3C and supportive of a move up, that means the EUR/USD pair should look good for a move higher and it does. The cog in the wheel may be the Yen, it does look like it wants to move higher and this is what I wrote so much about last weekend, this is a major player for the market, near term and more so longer term and it doesn't look good. However, surprisingly, the divergences in the Euro and the $USD look like they will send the EUR/JPY and USD/JPY higher, which is bullish for the market near term, essentially the divergences in the Euro and $USD are stronger than they Yen.

All in all, leading indicators are becoming more and more supportive.

Quick Market Update

All of the averages plus the Index Futures are showing short term 1 min intraday pullback signals, the best looking is the SPY, the worst (not bad, just underperforming) is the NASDAQ 100/QQQ

AAPL Update

Friday I put out this trade alert for AAPL long right about at the lows of the day and followed up with these charts of AAPL. I even considered AAPL to be worthwhile as an option play or a straight equity long position.

I believe, although we've seen some volatility and what would seem like the apparent move toward the symmetrical IHS bottom targets, we're still a bit too volatile in some of the averages and I suspect, although I need to confirm, that they'll likely (or at least a couple) consolidate a bit at some point today before finishing their task; chief among them is the QQQ which AAPL has significant weight. I looked at AAPL and thought today it looked like it was in a bit of a holding pattern  (still a decent area if you are interested in AAPL long for a swing-type trade), this would make perfect sense considering the QQQ looks like it's not quite done in this area (whereas the SPY in particular looks like the whole market is ready to roar just looking at that average alone).

Lets take a look today thus far...

This is the QQQ Inverse Head and Shoulders (IHS) bottom, it could be ready to go from here, but I still suspect it has another right shoulder to put in, a bit more defined than the last attempt from this morning.

If AAPL moved now and the Q's weren't ready, being AAPL is nearly 20% of the NDX's weight (about the same as the bottom 50 NDX stocks combined), the Q's would have trouble finishing up their job.

 AAPL breaking serious support and opening up significant volume/supply at excellent prices, this also creates a head fake move for all the Twitter shorts to get burned by and therefore propel AAPL even higher, faster.

As you can see the AAPL 10-min 3C chart has made progress today.

 The 2 min chart has made progress today, but...

 The intraday chart is starting a new intraday divergence that looks like AAPL will consolidate at this point.

 We can also see that even though the 15 min chart is beautiful, it hasn't made additional progress (a new higher high) today, that stopped at the 10 min chart and with the 1 min now going slightly negative, it should peg AAPL in place until their ready, this is why I still consider AAPL a buy here, but not for options as downside momentum is what we want in opening those positions.

 This consolidation pattern is totally wrong, but traders will choose to interpret it any way they want as usual, it's a bullish ascending triangle, but in the complete wrong position, so traders who are bullish will view it bullishly, traders who are bearish will point out it's in the wrong spot, I personally think it's a random pattern from consolidation movement and means nothing.

 The recent AAPL shift above the 5 min/50 bar m.a. is a nice start, I'd like to see it hold, but even if it pops below briefly it's not that much of a concern.

 The 5 min momentum chart shows the kind of signals expected for intraday consolidation, however...

The more important 15 min momentum chart shows AAPL has turned a corner, I'd say just be patient and if you are interested in AAPL long stock, this is just as good a place as any, for calls I think you need some downside momentum to lessen the premium.

CAT Follow Up

This is one of the trade set ups I can find for CAT around early January, at that time I was looking for a move above $95.50 with indicators falling apart (short in to price strength, 3C weakness). We had a previous position in CAT as well that did good.

My gut-feeling about CAT and earnings after having taken a closer look at the charts is that it was not going to be a surprise to anyone that heavy construction equipment (especially as it relates to China) was not going to do well. Wall Street is all about sentiment and expectations, if they've already priced in CAT's horrible performance, perhaps now it's at a price in which the valuation is attractive, it has a 2.4% dividend yield and as of my latest information a P/E of 10x so that's a relatively cheap stock and I think this was known in advance, CAT was discounted in advance, just look at the trend.

I think probabilities are that CAT bounces from here, there are several gaps that are obvious targets, however if you ask me if I think this is a quality trade, I would not take it. If I was short CAT since the January set up I'd be taking my profits, but I wouldn't want to run with CAT and then have the bottom fall out on some unassuming day, that's my take, yes I think it can make money from here, do I want to take the chance on it? No.

 Our first CAT short from Q1 2012 did very well.

 This is the area in the CAT "Trade Set-Tp" post linked above from January this year looking for a move above $95.50 which we saw to about $98

 This is the long term 4 hour negative divergence at that top, this is a VERY strong divergence, the visual divergence is just one aspect of the quality, the longer the timeframe, the stronger the divergence so this is a big one.

Right now it's still in line with price, maybe it hasn't caught up yet or maybe it just doesn't have a strong enough positive to support a really strong move, this is one of the reasons I'd fear a collapse in CAT during a rally on some random day.

 CAT 30 min negative at the Jan 2013 top looks much sharper than the chart above, but a 4 hour chart is much more meaningful than a 30 min chart, there is a decent positive divergence in place, thus I think the bad news in CAT was well known by the street and discounted pre-earnings.

 The 15 min chart positive too in a flat-ish base-like area, a little sloppy for my tastes, but it did just go through a knee-jerk earnings response.

 The 5 min chart with a clear negative at the April highs, not such a clear positive here, but it is there, the first gap in yellow just above should be an easy target, especially if the market is cooperative which I expect near term.

Here are several other gap areas and large volume at this morning's (capitulation ?) lows? For me the 7 points or maybe a bit more are just not worth the trouble, but if you are nimble, I think the surprise factor of CAT rallying after earnings like that could see some initial strong upside momentum.