What a Week!

This has been an absolutely crazy couple of weeks, our return and ranking on the options tracking portfolio is insane and we've been using more options lately than normal because of how choppy the market has been; you can have a great signal, but if the profit potential isn't there, then it's not worth risking the money in the market.

However what has been the greatest thing I've seen more and more every day, every week, every month is how many emails I have received from members that are doing fantastic and most of you I have known since the start so I remember where you were and where you are now. I never wanted Wolf on Wall Street to be a follow-along trade idea service, those are a dime a dozen. I wanted it to be something for traders who really want to become better, not rely on someone else. I want to provide you explanations and concepts that you can use to supplement your own trading style and experience with, to offer different ideas and concepts that you just don't come across unless you are watching the market every minute of the week. To bring and share (together) concepts, ideas and tools you can make your own and I see that you are doing exactly that.

I'm really proud and VERY happy to hear about your successes, so many of you thank me or compliment me, but these are not easy trades to take emotionally or otherwise. You know we do things a bit different than the crowd.

The point is, I can't take the trade for you, I can't manage it, I can't set up the risk management and I can't decide when and where you should exit so in essence, you are giving me credit for something that you did, I'm just providing information and concepts, some ideas, etc, but you are the ones making them work, that's everything I wanted this site to be and I'm really proud of all of you, you've all come so far and I often find I'm the one learning from your ideas, thoughts, questions, comments and your own trading styles.

Great trading everyone, enjoy your weekend-I'm pretty darn sure you earned it. I'll have a post or a few out over the weekend; I think I've got a handle on what's going on so we should have some insane opportunities next week as well.

Again, GREAT JOB!

Not taking any positions, will be patient

Here's the gist

I can't put everything together this fast and do it justice, but this is the general idea, we'll look at the SPY as to why a pullback in to Monday is likely and why we have time to wait.

The QQQ will verify this

The IWM is an example (remember, the IWM should be the leader in any move up-it's relative price action alone this year is telling) of how things are looking very bleak for the market.

This weekend I'll give you a more in depth post.

 1 min negative is what suggested prices decline toward the close, they already are.

 2 min negative is what starts to suggest that we need more basing before a move up. The yellow area is a potential buy zone, the lower, the more shares, but still partial, no more than a/2 a normal position.

 3 min chart shows where they have been accumulating, suggests Monday sees prices in the same area.

 This is our move up, the yellow is the interruption of that move, the 10 min is still leading negative, it should need more base, either that or the move will be weaker and shorter than expected.

 15 min leading neg.-this is the trouble that is closer than we think.

 30 min-this is a glimpse of how bad the trouble is, it has built up like a spring

 NASDAQ also suggests more pullback before any move up

 The area they accumulated in and probably will again.

 30 min-trouble is closer than thought

 4 hour, some hint at how bad that trouble will be

 IWM 15 min shows the idea, prices move up in to heavier distribution, the divergence should be horrible by the end of the move.

 Imagine the same on a 30 min chart

Hourly showing the change in character, an idea of how bad the trouble is

Tactical execution of the plan

Don't rush it, there will be plenty of opportunities, if prices come down in to the close, then you may want to consider the leveraged long/partial positions, they appear to be coming down, but don't just buy a discount, it has to be attractive to you, worth your while, otherwise just be patient.

Strategic and Tactical Plan

I'm going to explain this first in case it happens or happens faster than I expect, remember the market is free from option expiration pins around 3 p.m. typically as most contracts have been closed/settled, so the market can start behaving more like it wants to without needing to worry about the pin.

So, as I already mentioned, I think there's a decent possibility that Monday we continue to finish this base area to finish the move up that was interrupted by today's op-ex pin.

The charts for a move higher soon have improved a lot today, but I do suspect we pullback a little bit before the close.

IF WE DO pullback a bit in to the close, I don't want to open new options positions yet, I'd rather miss the trade and be ready for the next set up (which should be the better one) than enter without having all my ducks in a row.

That being said, 2 or 3 times leveraged ETFs will allow me the ability to get some upside coverage in case this move to the upside comes sooner than expected  (early Monday-with no continuation of the basing procedure), since the positions will be partial, it also allows me the opportunity to add to them in case we do get some more basing Monday or allows me to enter more leveraged option positions.

Basically it's some upside exposure just in case, but not so much that a continuation in this range will cause any major draw-down or losses, it seems to be a good compromise for where we are right now.

I'll post charts trying to better explain it, but we have little time left today for this leg of positioning if you are interested, there's nothing wrong with patience either.

The positions I'd consider, especially if prices come down are 2-3x leveraged longs of the major averages, UPRO (3x long for the SPX), TQQQ (3x long for NASDAQ 100), URTY (3x leveraged long ETF for the Russell 2000).

I only want partial positions, maybe 1/3 to 1/2, so normal full position size is $15k, then these I want at $5k to $7500 at max and max is only if prices come down lowering risk and signals are good, which if I post them as new trades, signals will be good.

AMZN

AMZN is acting more and more as I suspected, at first glance I was thinking a dead cat move and not looking too much further ahead, I figured once we get past that, we'll see what it looks like, however after putting AMZN in to context via market analysis, here's what I'm thinking...

AMZN will likely make what appears to be a dead cat bounce, the indicators today are improving, but rather than be just a dead cat bounce, I think it could be 1 solid move that takes us right to the area we want to be in, above $282-$284  in that area and on the way there, the distribution should be intense. By the time we are there, AMZN should have a strong leading negative divergence making the price move an easily recognizable head fake move and that is where we'll likely find the prime short set up.

Market Opinion & Leading Indicators

*If you'd rather skip some of the analysis and go straight to the theory/conclusion, just skip down to the bottom of the post*


I'm going to have to wing this as the market is moving fast and making a determination whether we are getting the positive divergences in to a pullback as we expected (see yesterday's posts) for a 1-day decline for op-ex or they are building, but it's more than a 1-day decline is VERY difficult to determine, especially on an op-ex day.


As far as HYG-High Yield Credit, it and Junk Credit have been very supportive intraday. Regular HY Credit today has been supportive of the continuation of the move up as I have expected.

Both FCT and HIO we use as sentiment indications, both are leaning more toward a risk on posture (market positive).

The $AUD has been largely in line, the Euro has been more supportive today, which may explain some of today's activity, the market can do strange things in front of a Central Bank policy announcement (ECB next week). The $USD today has been relatively weak, the market should act stronger, this tells me a lot of today's weakness was options expiration related as suspected. The Yen has been moving in line with price action which tells us nothing.

Intraday Yields have been weak (market negative) and overall (bigger picture) they are weak, but this can be related to the move down I expect after this move up that we have been seeing this week, finally completes. I do think the Yield weakness is related to the downside coming after our cycle up is complete (yesterday before any pullback today, I estimated the move up to be at least half way done).


Commodities intraday are fairly supportive of near term higher prices, larger picture as in comparing the previous SPX all time highs with this recent high, commodities are extremely negative hinting at the nastiness of the major downside move to come.

To make things even more confusing, the SPY arbitrage has been going negative so this last move intraday to the downside in the SPX makes sense, at the same time CONTEXT for ES is going severely negative, now at a -12 point negative differential, it has more than doubled today, however it can keep going negative in to rising prices, this is what creates the large 40+ point negative differentials and the sharp moves down which is something we are expecting to come soon any way so this may be part of that process.

Credit is not there yet so I believe that CONTEXT will continue moving to a more extreme negative differential even or especially in to short term higher prices.

The most useful 3C charts on an op-ex day are during the last hour which doesn't allow much time to analyze and position, but from what I see now, I don't think there's a need to be in a big rush.

Conclusion: Rather I should say theory, I think that the market may very well indeed be getting ready to make that final push higher, I also think it may base, which means continue in this general range/area on Monday to get ready to finish this upside move off, I think we'll be able to close positions if need be then and I think we'll have enough time to open new positions with high probabilities.

One thing I notice is the charts that support a nasty downside move are getting a lot stronger and a lot closer. When I said I thought the move up may be half way done in terms of time, it may be further along than that.

In other words we may be a lot closer to that nasty break lower than thought. I'd expect, especially if the market continues to build a base for the final push to the upside on Monday, that the move will be impressive on a percentage move basis, I also think that will offer us a great opportunity to enter or fill out short positions.

Bottom line, I don't think it's as urgent that we make big decisions on big commitments today, the signals for those moves will be very clear when they are ready.

Quick Update

I may be quiet from time to time, but I'm looking at 20 charts a minute on my end.

I see some intraday downside, there are some signs the market is building for a move higher, but we expected this all along, even last night, the question was, would the build for the continued move higher be a 1-day pullback on op-ex (today) or a longer pullback? I still can't answer that, but I'm ok with the AMZN and NFLX positions in options, I'm glad we flattened out in the index options, you can even do so on an intraday move down like we are seeing now if you want to flatten out on some put positions.

I do believe we will be opening some call positions or longs for the continued move higher before it fails and we get a very nasty move lower, the question is timing and I'd rather be flat and have time to make the best decision than worry about missing a trade.


We have an incredible ranking right now in the Options Tracking Portfolio and nearly doubled the return this month alone for the entire portfolio, I want to keep on making smart choices and not worry about missing the moves.

I will be silent for 15-20 minutes as I go through currencies and leading indicators to get a fell.

Here's our current Options Tracking Portfolio Ranking for the week/month.

QQQ/IWM Put P/L

Both of these were opened yesterday...

The gain for the IWM puts is +33%, the QQQ gain is +16%

Not bad for a day

Market Update

Today is pretty crazy, you should be making decent money though.

Here's what's going on. As I said earlier, we are either getting downside to bring the averages in line with options expiration Max Pain or there's a bigger downside move coming (perhaps a couple of days).

What I need to watch for today are signs that it may be an options expiration move only, in which case the market should start to see positive divergences in to the move down that build and we would likely continue on with the move up.

If there aren't strong enough positive divergences, then it's likely that the most probable outcome according to the charts as of yesterday is that we have a few days of downside before the move up finishes.

The only way to tell is to look for new divergences and new divergences always start on the fastest chart, the 1 min and if they are strong enough, they migrate to longer timeframes.

In today;'s case, if there were no new positive divergences, it would be highly likely that we continue down for a couple of days, but if new positive divergences form and especially if they migrate to longer charts, then it is more likely that today's move down was options expiration oriented only and we can expect the move up to commence shortly, likely early next week (Monday).

The reason for closing IWM/QQQ Puts is 1 the leverage and 2 the positive divergences formed quickly and strong on the IWM/QQQ charts. It remains to be seen where we go from here, but I'd rather you take a profit than a loss.

Charts...

 IWM 1 min. As you can see, the new positive divergence is there, it is strong and leading as well as fast.

 The 2 min IWM chart has not seen the same yet, if it does, then we are likely to continue on the move up with only a 1-day interruption to the move up (today).

 QQQ 1 min the same...

QQQ 2 min the same, not confirming (at least not yet).

We'll watch and see what comes out of this.

I didn't close FAZ or UVXY because they did not have adverse divergences

Closing IWM and QQQ Puts for now-Leaving UVXY and FAZ long open

AMZN Charts

The covered position was at a +5.71% gain.

The charts...

 On the daily chart, I've wanted to see AMZN move at least above the $282 area and even better the >$284 area before considering filling out the position.

The volume on today's move qualifies for either a break away gap or a short term capitulation move, I've seen VERY few breakaway gaps over the last 4 years.

Here's the intraday 1 min chart with a leading positive divergence and also a rounding bottom, as you know I believe reversals are a process, not an event (except with fundamentals like earnings), however AMZN's fall today qualifies for a parabolic move and they often reverse in parabolic fashion so the rounding bottom would not need to be very big, in fact for a parabolic recovery, I'd say the bottom would be more than half done already.

A head fake move that dips below the red trendline on volume and then recovers back above, would be a strong indication of an imminent reversal to the upside.

The intraday chart's rounding bottom

Note the volume as well.

2 min leading positive divergence

 Look at the leading positive position of the 2 min chart, this is a fast chart and could easily have confirmed price lows by moving to a similar low, but it hasn't, this is very suspicious.

In other words, it looks like there's more strength in AMZN on today's move than you'd think by looking at price alone.

3 min leading positive

Even the 5 min chart is in leading position and yes, this chart, by this time of day could have easily confirmed the price lows by making a similar low, but it's no where near the level. I suspect the price movement today is retail panic helped along by Wall St., I do not think it is Wall St. panicking, in fact they seem to be doing quite the opposite.

Even this 10 min chart by now would or could have confirmed weakness in the move, but refuses to do so.

Also note on this chart that has called every reversal up and down with divergences, there was NO DISTRIBUTION IN TO YESTERDAY'S HIGHS. Why would that be? Well if you were accumulating a position and could grab more shares at a -7% discount, why would you sell shares you have been accumulating?

Something more than meets the eye seems to be going on in AMZN

Something Not Sitting Right w/ AMZN-Covering Half the Equity Short

As you know, we have a partial position in AMZN short equity (stocks), I purposefully left plenty of room to add at higher prices, but something isn't sitting right with me, I'm taking alarge risk by possibly missing out on a continued AMZN move lower, but I'll cover half of the partial position that's at a small profit, however it is not the profit that motivates this.

As you know, I'm looking for AMZN to clear recent congestion on the upside before adding, when you see the charts next-you'll understand.

Going with AMZN May 10th $250 Calls

Again, this is a very speculative position, if you are not able to watch it all day, I'd think twice about it and I wouldn't invest any more than you can reasonably afford to lose. That said I wouldn't take the position if I didn't think there were a high probability move, I just think you'll need to be very alert and very nimble.

AMZN Update

AMZN is a great example of how Wall St. views earnings, they crushed earnings estimates, but it's not about what you did, it's about what you will do and their guidance was a bit lighter than expected and that has sent AMZN down over 7% today.

The question now is, DEAD CAT BOUNCE? I think the answer is yes, but I think it is a VERY speculative play, you may have to be VERY nimble (even a day trade) and I really can't say what the best tool is in this situation as there could be a dead cat bounce and failure all in the same day (today), furthermore I don't know how much of this move is options-expiration related.

In any case, I do believe AMZN is building for a dead cat bounce, I want you to know that now so you can look for yourself and make any decisions, I'll be positing charts in the next post.

I think I might try some Calls (but VERY speculative in size) for a week or two out in expiration.

AAPL Quick Update

I haven't seen the AAPL options chain (haven't had time), but I've heard from a few members there is some heavy activity in $420 calls that expire today, I was asked if I think AAPL can move to that area.

I doubt it, AAPL is in much the same position as described in the previous NFLX post intraday, there are 1-3 min charts trying to build some strength, although in AAPL's case they are no where near as strong as NFLX's (and I'm not suggesting NFLX charts are strong other than intraday for today's expiration). The 5 min chart in AAPL is negative, thus I'm happy to have closed out the calls yesterday at a 0.004% loss rather than a greater loss today.

We'll have to see if AAPL can make any moves and what signals come out of those moves, but I will say while AAPL intraday is similar to NFLX, it is not even close in terms of strength where strength was found on the NFLX intraday charts.

NFLX Update

NFLX seemed to see early gains based on a couple of million shares bought by a director of the company, the thing was they were bought at $85 on an option exercise. The market seemed to get that after first reacting to the "Insider buys 2+ million shares".

This is for those who may be holding VERY short term NFLX puts, like today's expiration, longer term is not the same issue.

 The 1 min intraday NFLX chart for today is nearly perfectly in line with price action, that means it's better than a negative divergence, not as good as a positive divergence. Based on that alone, I'd think additional downside in NFLX anytime soon would be difficult to achieve.


The 2 min chart has a small positive divergence on it, this isn't a concern for equity shorts or longer dated puts (longer than today's expiration), but for today it's not good for puts.

The 3 min chart's overall position is leading negative, but within that is today and it is showing a positive intraday divergence, again suggesting the probabilities are moving closer to a move up intraday or at least very low chances for a significant move down for options (puts) expiring today.

For longer dated puts or equity shorts, this leading negative 5 min should give you some confidence in the position, but for today's expiration, I doubt it does much.

The 15 min VERY leading negative chart is exactly why, if I had room, I'd sell short or buy puts in to any price strength at all, this shows very strong probabilities of a bad downside move, thus any price strength to sell short or buy puts in to, is truly a gift.

Short Term Manipulation-SPY Arbitrage and the Levers

For whatever reason, (I'm guessing to effect an op-ex pin as there's a lot of premium on the line and thus profits if the majority of contracts close worthless) there's been an obvious effort to control prices today. As seen in last night's post, the 3C charts are suggesting down is the highest probability over the next few days), however it seems from risk assets and the SPY arbitrage chart that they've been trying to either hold the market in place, slow the rate of decline or maybe even are attempting to lift it.

Yesterday in this update I documented the same behavior in VXX we saw right before the sharp decline on 4/15 and then yesterday, the VERY next post, I documented the same behavior seen in TLT again, just before an op-ex Friday with the decline on Monday. 

The gist of the behavior can be summed up as VIX futures (via VXX) were not making lower lows as they should have with the market making higher highs-in fact the highs of the week, this is because of REAL organic market demand for protection as smart money was fearful of a decline and bidding up VIX futures, keeping VXX from falling any further and instigating our long UVXY trade. The same behavior was found both time (incl. yesterday) in TLT which is a Flight to Safety asset which would not fall to lower lows because real demand was keeping prices steady, the same thing that happened before the sharp decline of 4/15. Note both UVXY and TLT are up today.

So far HYG seems to be the asset of choice (HYG, VXX and TLT are the 3 assets used in the construction of the SPY arbitrage model from Capital Context).


Here are some examples with an updated SPY arbitrage chart...

 As we already saw, they were defending the market early this morning against sharper downside at the green histogram, then before we had a current update of this 30 min delayed chart, I pointed out they were using HYG to hold the market or slow the rate of decline, sure enough as the updated chart came in, the histogram is green again.

However, I think they are going to have trouble and a hard time at least in trying to use HYG to manipulate the market because it seems (according to the 3C charts), that natural supply (sellers) are starting to overwhelm the manipulated HYG higher price than SPX performance would normally suggest.

VXX has so far been contained today, limiting some of the SPY downside damage, although I don't think this can hold long, here's why...

The same chart on a longer perspective is quite positive.

TLT

 They seem to be doing the same with TLT today, even though it has gapped up strongly, there may be some profit taking here as well.

However the accumulation from yesterday was quite strong, I can see further upside here and that means downside for the market.

Most importantly, HYG...

Although they've been able to keep HYG from falling with the SPX and therefore positively effect the SPY arbitrage to some degree-obviously not enough, the holders of High Yield credit are overwhelming the manipulators as there is a sharp negative divergence suggesting the sellers through real supply and not manipulation are likely to send HYG lower and the market with it if they can't force VXX or TLT down.

GLD May 10th $130 Calls Are Finally Closed

I say finally because we closed half of the original position on Wednesday, half of what was left Thursday and the final sale to close out the position completely just now. The Wednesday P/L was a +30% gain from the $5.70 cost basis, yesterday the fill was $11 for a 93% gain and today, even though GLD was higher than yesterday, the fill was still $11.00 for a 93% gain with the position now closed.

This is why I like to use momentum to close positions, even though GLD is higher today, the volatility and time decay didn't add a single penny to the fill.

Here's why I decided to close GLD entirely, SLV was closed entirely yesterday for a 95% gain...

With this negative 1 min divergence this morning, it would take a monstrous move to the upside to overcome the time decay and make the position worth holding for any additional gains, in this way options are VERY DIFFERENT than stock long or short positions, option pricing is based on a complicated Black-Scholes model with premium based on volatility, strike and time remaining/decay.

All in all though we had a good run in both PM's, I still like both and think there's more upside to be had, but first we need to find another new entry point.

Closing the remaining half of GLD May 10th $130 Call Position

HYG Still Being Used

The SPY arbitrage model runs at least 30 minutes delayed so what is happening at this moment is unknowable from their end, but from what I see, HYG is still being used. My question is whether it is to slow the rate of decline in the market or arrest it, or whether it's being used to try to push the market higher intraday?

HYG

HYG vs. SPX

From the SPY and DIA intraday charts it seems it is being used to lift the market intraday, not so much on the IWM and QQQ charts.

Market Update

I don't find anything particularly interesting about early trade thus far, the charts as of yesterday and starting the day before were suggesting a near term pullback, the first reason for that could be an options expiration (weekly) pin in which max-pain is lower than the market was/is, thus the market needs to adjust to that to make the pin effective. The second reasons could simply be a correction that lasts a little beyond today, we should get some hints today as to which.

The early trade has been congested, but as I posted earlier, the 1 min charts were sharing small relative positives and moving toward gap fills whereas the 3 min charts were more in line with recent analysis suggesting some drawdown in the market.

For the most part, everything I've seen early on fits with all of the above. First the market congestion this morning...

SPY 

 The yellow box is where today's trade started, not much of a trend, just congested.

ES (SPX futures) have been congested also this morning...

ES since the open at 9:30 (white arrow), there's not much of a clear trend in price or 3C intraday.

The NYSE intraday TICK chart (all NYSE stocks advancing per bar less all NYSE stocks declining for the same bar) shows us a choppy market with a little direction, but no conviction as the TICK hasn't broke above the very mediocre reading of +750, so there's no strong underlying movement in stocks, just as the congested market would suggest.

The CONTEXT Model for ES suggests the analysis of somewhat longer (meaning longer than intraday, perhaps today's op-ex close or even a few days) term downdraft, while the SPY arbitrage (intraday shows the very early manipulation of the market (presumably to try to fill the gaps) and worsening trade since, HYG was clearly the lever used to effect early upside manipulation (or at least to halt the pace of decline).

 CONTEXT for ES, as mentioned last night saw ES come off the highs of the week yesterday afternoon and revert toward the model with only a -4 point differential last night as opposed to about a 25 point negative differential before that. Interestingly, Es has come down about 12 points-still about 13 points shy of the model, but has just about an 11 point negative differential right now which is growing- that's pretty close to "reversion to the model".

SPY arbitrage earlier this morning shows manipulation being used to help the market (green histogram), that is fading.

The obvious asset used which is 1 of 3 that makes up the model is HYG - High Yield Corp. Credit.

Note HYG's positive relative performance vs the SPX this morning?

So far there's not much of interest that is conflicting with our analysis. I would expect some volatility today as shifting option contracts being closed, exercised or even opened, change the area of max pain throughout the day. What we are interested in is whether there's any significant underlying change in tone, thus far, nothing.