The Wrap

I'll make this brief.

First as I said, volatility will increase, the Dow has its widest weekly range of the year, 460 points but the move from Monday through the close today was worth an AMAZING -0.04%

Tons of volatility with the market going no where, why do you think that is? Meat GRINDER, Traders are the meat.

The gap up move we were expecting and got today also came with the title, "Second best day of the year for the market".

We were looking for a gap up today and we got it, the thing is the Non-Farm Payrolls were about as luke warm as you can be, I'd guess if there was a leak of the number, then the market wasn't set up in advance this week as we saw to gap up on the data, it was the lack of movement from the data that gave them the ability to set up the market (which costs them some money) and not have to worry about a surprise going against the set up they already had in place (which was put together all this week).

It seems the bears are still bearish, but quite a few had covered yesterday, yet quite a few more entered short again today and why not? This is TEXT BOOK Technical Analysis short set up, just from textbooks that have been around for a century, it's not like the market isn't aware of how retail will react, so I think we can also safely assume they put this set up together because of that and secondly because a set up this textbook hasn't worked in over a dozen years, but technical traders still fall for it every time, it seems they don't have the ability to think outside the text book and for themselves.

The exact same resistance spot, it sucked the shorts in last time, but this won't go on too much longer the way the important bear trap charts look.

 SPY with a huge positive divergence on a 15 min chart at the lows, now leading at a new high for the market, this kind of divergence is the kind I don't ignore.

Or the 60 min (60 min now!) SPX Futures, note there hasn't been a single positive divergence until this week and it's a doozie! This bear trap is springing!

Or NASDAQ futures, Again the first positive divergence this week at the lows and it's leading on a 60 min chart, they're going to cook these bears for not paying attention.


The set up today which was a gap up right in to the triangle's resistance again just like Tuesday seemed to serve a couple of purposes, 1) it was more than likely the area of max pain for an op-ex pins today as it didn't move much after 2 p.m. and 2) it's again the perfect textbook area to short right below resistance. What would be the difference between this time and the last? Well the Pavlovian effect. Earlier in the week if you shorted on the rejection of resistance, you got 1-day down, not much, but they need that day down as confirmation to bring traders in. Looking at setting up a new short in the area they will be expecting a lower low, I saw some things in the market today that made me think we either see the market move down in to the close and part of Monday or Monday. The reason this is NEEDED is because the bulk of Technical traders won't make a move without price confirmation meaning the negative divergences seen today in the market and every other place as I showed using IBM as an example are likely to send the market lower on Monday, at least enough to pull in the shorts that need that price confirmation.

Toward the end of the day it seemed like those negative divergences that in some cases went out to 5 mins (so it could potentially be a nasty little move down) started to dissipate. In fact by the end of the day it wasn't really clear what exactly was happening, did someone change their mind about how to handle short term trade or was it the need to wait until after op-ex pins after 2 p.m.?

I did some looking around at futures and guess what I found, the earlier charts are confirmed, my best guess Monday we see some downside, at least enough to pull the shorts in, how it acts from there I can't tell you, but the bear trap is still very much alive and well, futures confirmed that too, in fact it grew stronger. So some of the short term trades we picked up today like XLF puts or FAZ/VXX long should make a little money early in the week which should allow us to set up new call/long positions again. As I said, I'm not exactly sure how the reversal will look, maybe a ket 1-day reversal with downside early and a snap higher later, all I know is the probabilities for the bear trap to spring are the highest other than the longer term market decline.

What convinced me other than market behavior (meaning retail won't move big without price confirmation)...

 SPY 5 leading negative today tells me we should see that pullback early next week, likely Monday. I'm not going to kid you, a 5 min divergence can produce a pretty nasty move, that's why I wanted a little hedge with XLF puts and VXX Calls or FAZ long.

ES 15 min tells me the same thing today.

If I'm totally off base and we snap higher Monday and trigger the bear trap, most of us still have June monthly calls and we'll still be fine, it's really more of a minor detail than anything.

In any case, the SPY 5 min or SPX 15 min futures can't compete with the SPY 15 min and ES 60 min above, the rough translation is a move down which is still setting up the bear trap followed by a VERY nasty upside move.

Hopefully is we get downside early next week, we can use that as I said today- a Market Gift to set up new positions as 4 were closed today that were set up this week, only 1-2 days old and gains of 18+ to 69%, it would be fun to do that again.

Other information...

HYG held up well considering, my guess is they have their HYG positions for a big move on the upside and they aren't letting them go, VIX moving up and TLT will have to do the job, HYG is an institutional risk on asset and they look to be set for the bear trap.

Amazingly, HY Credit held up even better, this is also one of their main-stay long positions, but because it's thinner liquidity than HYG, it usually doesn't move like iot did today, they are in HY credit long and they aren't letting ti go it would appear so those SPY and ES/NQ charts of a bear trap above have more than a few confirmation signals.


WHAT'S NEXT AFTER A BEAR TRAP?
First of all, we don't want to misjudge just how strong this move will likely be, if you think the downside moves have been volatile, this upside short squeeze should make those look like mellow days.

Why? Because there's really only one good reason for a bear trap and that's to create a bigger bull trap and why would that be? Because this market is a disaster about to show us what a real bear market decline can do. That's another day, another bridge though, I'll just offer you some evidence...

 ES 4 h. chart

NQ 4 h. chart

SPY 2h chart

QQQ 4h. chart

If you want an idea of how bad this really is when we look at the BIG picture...

 The Dow-30 in 1929, confirmation on the move up, then about a year long negative divergence

Dow 2013, confirmation and then about a 2+ year negative divergence.

Just so you know, as part of my hobbies, I've looked at every bull and bear market in the 20/21st centuries, these are by far the worst 2 and in many ways, the current one is even worse than 1929.

The AAPL Call Position P/L and Charts

Yesterday at 1:11 p.m. I opened AAPL Calls, Now I'll Take Some AAPL- June $435 Calls-Nice Discount

Today I closed those on good momentum and the hope and probability that I can replace the position at better price levels.

Here's the P/L and below are the charts.

At the $17 fill today, the P/L came out to +18.9% for about a day's exposure.

I like AAPL for a longer term move, here's an example of why...

 This 10 min leading positive chart is very appealing for a long /call position, you can see where it closed yesterday at the hash mark and how much it added today.

Earlier today it was just migrating over to the 30 min chart, by the close it had added a significant amount for 1-day on such a long timeframe so I like AAPL for a long trade, but what I was seeing earlier made me believe AAPL was likely to pullback, in which case we can take profits on the momentum move up today and re-establish a new position that has the same if not better probabilities at a lower price and essentially make the money again.

Once the momentum fades, there's not a lot of reason to stay with the position, yes you can absolutely wait for higher prices, but I've had the most success with options by taking what is given and getting out at the first sign of a pullback or loss of momentum. You can usually re-establish the position at lower prices and lock in the profit on the first position.

This is what I saw that made me suspect a pullback in AAPL which at the time was very similar to the  market averages and a number of stocks that moved higher today.

First you can see why I chose to open a position yesterday as 3C went very positive, however you can see a  negative relative divergence today on a 2 min chart, when it's on a 1 min chart it is a 50/50 shot of being either an intraday consolidation like today during the afternoon or a price pullback, when the 2 min (above) is also showing a negative, the probabilities lean much stronger toward a pullback in price so taking the profit for a day of exposure and possibly opening a new position at better prices was appealing.

If I don't get a chance Monday to open a new position that's fine. This was never meant to be a long term position and taking a gain of nearly y19% for a day is nothing to sneeze at.

I will say during the last hour or so of the day, the averages and many stocks started looking a lot better and less likely to pullback.

I'm Going to Hold the SPY $162 Calls

I have a good profit in these and I don't blame anyone for taking it, but on the other side of the coin, the intraday charts have improved quite a bit the last 30 minutes, whether its enough or not, these still have 2 weeks on them and I want to keep some long leverage here in case the market just keeps rolling to the upside.

Other Indications

Things really moved fast after the 2 p.m. hour (after most op-ex contracts are closed).

As I said this morning and often, a reversal is the start of something, it's not a straight line up. The market's job is to make money in an environment in which they produce nothing, it's a zero sum game for 1 entity to make money another has to lose it so the market is always trying to make the most people at any 1 point in time wrong.

First I mentioned earlier locking in bears over the weekend, the longer bear and shorts can be held in a short squeeze, the more powerful it is, the other issue is when you are putting psychological pressure on  a trader, you want to keep it on. The point is to induce a fear driven or greed driven panic, shorts right now are correct in the long run, it's just making it to the long run and the false moves and fear are what knocks them out of trades.

Here's what I have so far.

 From a short's perspective and I can tell you this from experience when these patterns use to work well  over a dozen years ago, this looks like a perfect spot to go short again. The zone i which they fear is the apex of the triangle, but we are right under that so in essence this is EXACTLY the same as the failed test of resistance that brought all the shorts in on Tuesday, this is the same set up, their short position has gone no where, it hasn't gained anything, but they see this as a chance to get back in if they were stopped out yesterday afternoon or add to if they are stronger hands.

This is the $USDX, combined with the yen below...

It looks like the USD/JPY is going to pullback which also pulls the market back, it may just be fear over the weekend of how Japan will open and some pre-emptive positioning or it may be a real move.

This is the 1 min ES chart, however...

There has been no damage at all to the 5 min ES chart suggesting that whatever pullback may be gathering its place, it hasn't been strong enough to effect the next timeframe at 5 min in Es.

The leading sentiment indicator FCT, which is much different than the retail twitter sentiment, has held up well, it is seemingly not afraid of any significant risk.

 This so far is good news, I'd expect them to try to take HYG down if there's going to be a pullback as part of the SPY arbitrage, the truth is, as long as Institutional money stands aside until the pullback is at a level they want to accumulate, they don't need the HYG arb, retail can do the work.

Even more encouraging is the fact that the very thin High Yield Credit isn't leading a run to the downside, this would be an asset smart money would use for a risk on(bounce/rally) move and because of the thin liquidity, it is often the first to break off and lead lower, it hasn't done that which suggests smart money knows what's going on and they are staying put.

That's what I see and my take thus far, we'll see at the close.

MCP Updated Charts

 On both 5 and 10 min timeframes MCP added quite a bit in the last hour or so.

At this point I wouldn't even mind a shakeout move, with a long equity position it shouldn't cause that much draw down if it did happen and with July Calls I'm not concerned at all.

MCP Went With July $5 Call

I like MCP a lot as an equity long as well.

It looks like MCP is Going NOW

I may either open a long equity position or add a July Call

For an Equity Position of VXX Calls... UVXY Long

This is a 3x leveraged ETF, basically VXX 3x long. I prefer to use this as a quick trade, luckily that's my intention.

Opening VXX June Monthly $19 Call

This will likely be about 1/2 of a normal speculative position

Taking Profits in AAPL Calls

***MARKET UPDATE

I'm thinking of grabbing some more assets like the XLF puts (FAZ long is a good choice for equities) as a hedge, it's starting to look more like this pullback will have some guts to it and will last longer than an end of day move, I'm guessing maybe the EOD today and in to Monday at this point.

So I'm thinking as the market is bouncing a little here, I may grab some more hedge protection (market shorts-but trade shorts like FAZ, GLD long, SQQQ, UVXY, etc).

Here's what I'm seeing.

 SPY 1 min showing today's negative divergence and a new slight positive sending it up a bit right now.

 The overall 5 min is still in a very good long position, but the 5 min chart today does suggest a pullback bigger than just an 1 or 2 hour move.

Where it really matters at the 15 min SPY, it's still strong as ever so again, a pullback at this point would be a gift, but I want to take calls and get that momentum and add them back after a pullback is confirmed to be ending. This should certainly lock in shorts.

HYG's intraday charts 1, 2, 3, 5 min etc all suggest a pullback like the SPY, but again the important 15 min is leading positive,  that is supportive of the market when it makes its move.

However assets that suggest a pullback (like the SPY 5 min chart) are confirmed with assets like TLT 5 min positive, so TLT long or a call for a pullback move would be an obvious trade.

 At 10 min there's nothing in TLT, this confirms the SPY (and other averages) strength on the 15 min along with HYG, the bigger move.

VXX is also positive at 5 min, suggesting it and UVXY run higher and the market lower, but again...

at 10 mins it's leading negative.

SO I may add some pullback hedge positions as I think they'll last in to Monday, then I want to add the calls back for the Bear Trap Squeeze.

I told you they wouldn't make this easy.

MCP Update

I've liked this one for a while, so much so that I have a pretty decent loss in a call option, but it expires the 22nd so I think I still have time and if the right scenario plays out, I will add to it.

Here are the charts, when you get to the 2 hour and daily, you can see why it has been so appealing to me and how much upside potential this one really has-this may be one of my favorite trading longs and not based on any bear traps, based on its own charts only.

I'm going to leave most of the analysis to you due to time, you should know what I'm pointing out.

 2 min

5 min trend

5 min up close

10 min

30 min

2 hour

1 day-

This has been building a large base, it came out of stage 4 and looks to be completing a new cycle at stage 1.

What would cause me to add? What usually happens right before a reversal?

SLV

I would think SLV would track GLD pretty close, it doesn't have the same signal, which is just barely enough to enter a spec position, it has 1 chart that's decent, that's the 3 min, after that, especially at 10 min, it's leading negative.

Another trade opportunity is to set alerts for the gap fills and you should be able to initiate a lower risk short position in GLD and SLV, the market should be just about to turn back up around the same time.

Went With GLD Calls, Weekly June 14th $133.50

GLD VERY Speculative Long-

I'll probably give this a shot, this is the same as the intraday pullback trades, very speculative, but I think GLD could fill the gap so I'll use a call that's in the money, but as soon as that gap is filled or I get a signal, I'm out of there.

 The 2 min positive today

3 min positive today-that's all we have on the long side to trade, after that there's nothing.

As you saw with the others, like the market's 15 min charts very positive, the GLD 15 min is very negative so a gap fill maybe, but not much more.

VERY SPECULATIVE, but I think it can work if you are nimble.

IBM As an Example

I wouldn't encourage a trade in IBM either way right now, but this is what the entire risk asset market looks like so it's a fair example to delineate between an intraday pullback and trying to day trade that, vs the short squeeze bear trap of this entire week.

 IBM's 2 min intraday shows a negative divergence today, but put in to scale, you can see it is nothing compared to the positive, I do believe it is enough to pull IBM/the market back which does what we need and collects more shorts, but it also shows how an IBM pullback would be a market gift to add or start new positions to ride the bear trap.

The 3 min chart shows an even smaller intraday negative and larger positive trend, even the time or reversal process to the downside is not big enough to be any serious threat.

Then the IBM 15 min chart, this is the main mid term trend, not long term because eIBM is a core short, but this is the bear trap positive divergence and why I'd want to add to positions/Calls on a pullback, this is the highest probability for the pattern of the last 1+ week and then it's on to building and filling out shorts.