The One Thing Bernie Gave the Market

This was my question earlier, the answer, some form of certainty in the form of a date. Tapering is to begin this year and will end around mid 2014, since September everything has been based on a very subjective, "Economic realities", which are easily manipulated giving the F_E_D a face saving way to end QE, but today they gave a date for the first time since September 2012. The market hates uncertainty, even more than tapering. If Bernie tells the market when he will do what, you'll have a happy market, even if they don't like what he's doing and in some form, that's what we got today.

I think that is worthy of a rally/bounce. The market didn't end on a good note today, but it ended on an improved note, I'd guess we see some more downside and maybe some basing activity tomorrow, there's even a chance of some improvement tonight as certain Index futures are showing on their 3C charts, but I don't want to get ahead of the signals.

FCT's sentiment improved a little toward the EOD, overall on the day its negative, but the improvement toward the EOD is important, "What have you done for me lately" is the market's theme song.

Yields give the market something to gravitate toward on the upside the way they closed.

Commodities had better intraday relative performance.

Credit closed ugly, but there are some 3C areas in HYG that hold some promise.

The USD/JPY has made some progress, it's over 96, but I suspect it comes down overnight, perhaps by morning it may be ready to start a new cycle, although we are so fresh in to this I don't want to make any pronouncements until more data backs up the start we say today. Today did look like the typical F_O_M_C knee-jerk reaction, they are almost always wrong and reversed within hours to days.

One question I have is whether the huge 15 min positive divegrence I have shown you on the $USD which made good on that divergence today, is actually going to push the USD/JPY and market higher, there's a decent chance of this.

There's that move on the 15 min $USD chart 3C has been forecasting, someone knew something.

I was also surprised by the VIX's lack of movement today...

Taking everything in to consideration, it was almost like protection was being unwound today, you'd expect the VIX to be quite a bit higher.

Also, overall, HYG which can move the market up if it moves up, stayed remarkably strong today on the 30 and even 60 min charts.

Make no mistake, I do believe Bernie gave the market a bone here with an actual date for smart money could make plans and not guess in the dark, that's what they hate, that's what they'll sell every time.

The positions entered today were entered on their own merit so I would say my feeling that this is a knee-jerk reaction that will reverse is based on more than just gut feeling or market behavior dynamics.

Lastly, apparently other risk assets are preparing for a market move higher, look at CONTEXT which we saw earlier in the week go from a negative 16 or so points to an exact reversal or reversion to the mean, tonight...

We have a 45.6 point positive differential in the ES model, note the time it switched over as well. That would put ES around $1655 and 3C divergences on the positive side are creeping back in to the Index futures, perhaps we have a faster surprise than originally thought.

On a personal note I have an 8:15 a.m. doctor's appointment, I'm usually back before the open, but just to let you know.

Have a great night and get ready for a lot of action and excitement with plenty of opportunities.

FUTURES ARE PUTTING IN AN INTERESTING DIVERGENCE

I'll be doing the daily wrap a bit late tonight as I have a board meeting to attend.

Today's F_E_D or rather F_O_M_C policy statement and Bernie's "presser" after had a lot to say, but when I posted the following in this post, "OK... That's Positive For the Market" ...

"I haven't heard it all, but that is enough to give us the rally to the upside expected.

I'll be watching the volatility and looking for an entry."

There was one thing said that has been missing from F_E_D and F_O_M_C statements since just about every statement since September 13, 2012 when QE was announced. 

This is something we have talked about a lot, it is part of the reason I have suspected that the F_E_D was looking for a way out, ironically as they launched QE3.

This is central, does anyone have the answer or willing to take a shot at the answer? I believe this comment alone is enough to give us the second tradable trend, the upside trend we are already in as we have crossed above the apex of the massive bear trap's triangle.

Here are the Index Futures so far tonight and it's still very early.

 ES 1 min, I didn't annote the chart because I didn't want to draw over the divergence, it should be plain to see and exactly where we want to see it.

 NQ 1 min as well

And TF is leading positive (like the others) to a new intraday high.

I'm not going to get too worked up over this as it is still early, but it is a significant divergence and already moving to 5 min charts.

I'll have much more for you later, perhaps an update of futures.

Today's lesson as with any F_E_D event is, "Beware the knee-jerk reaction, it's almost ALWAYS wrong".

I'll see you in a bit.

FSLR and AAPL Follow Up

Just to show you how these two held up today as current long (call option) positions.

 You may recall when this smaller triangle in AAPL formed a few days ago, before it broke under the triangle, I said it would likely make a break under the triangle before it went anywhere, even though this smaller triangle is a head fake move from a larger one, that's the fractal nature of the market which is because of human nature. In any case, 3C held up well today post F_O_M_C

The 5 min chart is now sitting with a nice positive divergence, that's about enough confirmation for me to say this move is the head fake move I warned of before it actually happened, that's just how predictable the market is with these common technical patterns.

 Here's a bigger look at the small triangle from above falling out of the larger triangle, the fractal nature of the market and of market manipulation, they know which price patterns people are familiar with.

As for FSLR, I didn't have the time earlier to show you everything I'd like with everything going on, but it held together very well, I'd have no problem adding or starting a position in FSLR today.

 This is a trend view of the 1 min chart, I think the divergence is obvious, again on a break below a well known support area.

This is the same chart above zoomed in so you can see today's 1 min action.

Here's the 3 min chart leading positive

And the 5 min chart leading positive.

As I said in that post, "I can show you more impressive looking divergences" but it's the timeframe that really determines their strength.

This is the 30 min chart posted earlier today, it doesn't look as visually stunning as the faster charts, but it's a much more impressive signal I guarantee. Longer charts also tend to take out the noise when we get in to a choppy market and are better at revealing the underlying trend.

All in all, I'm very happy with the way both AAPL and FSLR held up today.

Follow Up / Example

In the last post, "Leveraged Short ETF's" in trying to give an example of where we are in the progression of things, I said.

"I do expect continued volatility, there are some longer term charts in the 2 and 3x leveraged inverse or short ETFs, I suspect those are for the big picture, but the small picture is the first bridge we need to cross and you can see how a few are performing thus far....

Remember all new divergences start on the fastest timeframe-1 min, if they are strong enough, they migrate to longer timeframes."

 The SPXU 1 min is continuing to deteriorate.

Now the weakness is showing up on the 2 min timeframe, this is the start of migration.

Leveraged Short ETFs

The market is never going to make it easy, even if you pretty much have its number since we have had for the last 3 weeks.

I do expect continued volatility, there are some longer term charts in the 2 and 3x leveraged inverse or short ETFs, I suspect those are for the big picture, but the small picture is the first bridge we need to cross and you can see how a few are performing thus far.

 SRTY - 3x short IWM,  this is what I was hoping to see, a negative divergence in to the knee-jerk volatility.

 SPXU 3x leverages Short SPX 1 min chart=negative.

Remember all new divergences start on the fastest timeframe-12 min, if they are strong enough, they migrate to longer timeframes.

This is the SPXU 5 min chart, I'm not saying migration is rock solid here, but it's all I can ask for given the amount of time we've had so far.

Also Adding Partial HYG July 92 Calls Position

Partial because I intend to fill it out as it proves more to me, but I like it here and the market will need it to do anything on the upside.

New positions

This is a VERY Tough Call, but I'm going with it. I'll use smaller position sizes and look to add to them.

I'll be adding to XLF July $19 calls

Opening QQQ July $73 calls

IWM July $98

and SPY $164/July calls.

The Dow looks good here too, if you wanted to play it long 3x leveraged, use UDOW

For XLF, FAS,
QQQ= TQQQ
IWM=URTY
SPY=UPRO

All 3x leveraged ETFs

Believe it or not, I still like XLF

XLF has held up well on the 3C charts here, I'd almost consider adding, I may if other elements of the market fall in to place as expected.

Still Holding GLD Calls

 1 min GLD at the volatility spot looks pretty positive.

The 2 min looks even better.

And the 10 min has made a move  just below support, it is positive as it did so. I'll hold here, if there's more that develops, I'd consider adding, but I still expect this to be a short term trade.

USD/JPY

Sharp move to the downside right? Remember this is most likely the "Knee-Jerk" effect.

The $USD/JPY with this kind of strength couldn't do much to hold the market together or rally it, so the obvious fall as the negative 1 min 3C is strong, is what's causing the move to the downside.

This is fine, it was somewhat expected.

The important thing moving forward is finding the assets that are accumulating this move or confirm there aren't any, I doubt that will be the case, but we get our best signals when we have movement and we have movement.

All the Averages 1 min charts negative

This could be a valuable put trade if you can get a decent price and stay on top of it, I am concerned it will be very fast.

Financials

For those interested in an equity position rather than an options position, UYG (2x long) and FAS (3x long) would be the assets.

FAZ, 3x short is seeing deterioration.

FAS is a bit blah, but looks decent where it really counts, 5min and 15 min look pretty good. I think my plan would be to be patient and see if I can get a bargain on a market move to the downside, as far as the XLF call, it's long enough to deal with a sharp move down because I believe if that does materialize, it will be very short lived.

UYG (2x) long looks very similar. The 10 min looks great, I'm guessing a sharp move to the downside would allow the intraday charts to strengthen and link up with the 10-min chart, at that point, it's a very strong position.

I'd probably show some patience.

Update and Financial Position

My gut feeling was that we'd see another sharp, SHARPER move down, I think it's still possible, although since Bernie gave a date, the market will like that.

The one asset that looks good here is XLF, even though I know that draw down, even sharp drawdown is probable, but I think the signals and relative strength in 3C make me feel comfortable entering a Call position in XLF.

I'm looking at July $19. I'll take a closer look at the ETFs and follow up.

AAPL & FSLR long

I mentioned in the last update for these two that a "Head fake" move was probable during the initial knee jerk reaction, WE HAVE THAT MOVE IN AAPL.

Both stocks look good, they appear to be accumulating downside volatility. If I didn't already have full size positions, I'd certainly consider at least opening a partial position in either or both, I'd probably consider taking on a full size speculative position.

Good start.

This is the initial market reaction expected

Remember SPXU looking strong short term, this is why.

This is the downside we need as just mentioned in the "Last Pre-F_O_M_C post", I said,

"Certain 3x leverage long ETFs are improving like TQQQ, UPRO and URTY, they are not where I'd take a position yet, but I suspect any initial downside will be accumulated, if it is, that's when I'd likely step in."

This is what we are seeing so far, so it looks like we are on track., next to confirm positive accumulation 

OK, that's positive for the market

I haven't heard it all, but that is enough to give us the rally to the upside expected.

I'll be watching the volatility and looking for an entry.

AAPL and FSLR

Right now I'm getting all my quotes, systems set up to be able to move quickly if need be.

As far as AAPL and FSLR, I still love them, I think a short squeeze is likely, there may be a head fake move and that could happen in initial post policy volatility.

The charts.

 AAPL 10 min

FSLR 30 min

I can show you divergences that look a lot stronger and insanely strong, but they are shorter timeframes, the truth is, this positive divergence on a 30 min timeframe does not look visually as impressive as the shorter timeframes do, but it is a much stronger signal.

I'm holding open positions in both, I won't try to trade around them.

Otherwise assets that I'll be looking at will be UPRO, URTY, TQQQ, maybe FAS, etc.

Final Pre-F_O_M_C Update

Sorry to cut this so short, but I wanted to be as sure as I can which is not REALLY sure, but I think it's a plan.

To me it looks like there will be some initial negative reaction just because of the way some of the Ultrashort ETFs look, this could be a swing in minutes, I don't know.

I'm not taking any pre-statement positions, but waiting for the dust to clear and see if the path I see keeps building, then I'll jump in.

Take a look at CONTEXT, it kind of tells the story.

From negative to neutral, I expect it will move positive soon and the market will as the next tradable trend.

Certain 3x leverage long ETFs are improving like TQQQ, UPRO and URTY, they are not where I'd take a position yet, but I suspect any initial downside will be accumulated, if it is, that's when I'd likely step in.

XLF looks like it will improve, I'm not so sure about XLE. \

HYG's intraday charts look good, which is strange given my expectations, but it's longer, stronger charts look better so that does support my thesis.

VXX looks as if it is set up to support the market to the upside as the next TRADABLE trend.

The plan is to wait for the announcement, maybe even the presser, if the market reacts like I think, if any downside is accumulated, that's when I'd look at entering longs and calls, likely ETFs and market averages for the calls.

I wish I had a position going in to this, but I don't think it's worth it, too much stress, I still think patience is warranted, not because things are so unclear, but just because they are moving in the right direction, but not there yet.

Leading Indicators

Just like yesterday, I will not enter any positions unless they have a solid reason for doing so. I think if you are going to trade today, you need to be by the computer and ready to move.

If you are thinking more in terms of the general trend for the next day, couple of days, perhaps a week, I'd say that looks like it's shaping up to be to the upside, however it's still very new, it's just these other assets providing a hand add more credibility.

Those assets include, VXX which so far has been supportive of market upside, as I said about SPXU, it does look like VXX will make a quick move to the upside, that would help send the market down, but if that happens I expect it either before the F_O_M_C or in the initial chaos.

Yields right now are supportive, they are above price and calling price higher.

High Yield credit is surprisingly resilient for this uncertainty so I count that as supportive.

Commodities are also supportive.

That's what I have for now, I'd personally reduce some leverage and flatten out short term, I'll be looking for new signals that are developing now like the IWM long, I want to see some more strength there before taking a position, it may be after the policy statement, it may be after the press conference, it may be before, I just have to keep watching the charts. Heck, it may turn around and fail, the only thing that tells us now is the charts which are moving fast, they are becoming clearer, but still timing of specific intraday moves is questionable, therefore I'm looking at any potential trades to represent the next decent trend, as I said before and affirm now, after the Knee-Jerk reaction, I suspect that's a continued move higher setting up a bull trap.

More Evidence, More Confussion

For now, I still like how AAPL looks and FSLR, they will stay open.

There are a series of different divergences on similar timeframes, it's hard to tell if they are meant for a 1 hour trade or a 15 min pop or a few days.

For example, as of right now the way it looks, I would close SRTY long and SQQQ long, that makes some sense because the IWM has been building so SRTY would naturally look a bit worse.

However, as mentioned the SPY didn't look like it was building positive and as you'd expect, but probably not understand, SPXU looks good for at least a short term move higher.

To make it even more confusing, the Index futures look like they are building.

Personally, I'd reduce leverage in those particular trades, perhaps SPXU pops just before the F_O_M_C and then sinks.

I have a number of other items that look as if the market is getting support from other asset groups to make that move higher discussed in the last post or two ago.

I'll let you chew this over with your positions and the next post I'll tell you what other assets are SUPPORTIVE of the market making a move higher near term as in the next move or short (time) trend.

Best Guess

And unbelievably, it's not too far off at all from our original expectations 3 weeks ago yesterday.

The SPY Arb is in no way what instigated any of the near term analysis, it was confirmation of what I already thought was happening.

 SPY Arb looks like they are pulling the levers to support the market.

Since the IWM is the cleanest and I believe the most reliable right now...

 Intraday it needs a little time (by the announcement should be fine) to put its  base together, this would explain why AAPL and FSLR look good in this area.

I'm guessing the first knee-jerk reaction to the policy statement is positive, you'll see how this all fits together.

 3 min intraday improving, it's going through the reversal "PROCESS"

 IWM 5 min. So I'm guessing after initial first few mins of volatility, the first wave after the F_O_M_C will be up. If we get just a few more better signals I may consider some longs and some calls before the F_O_M_C.

The 10 min chart shows pretty much what we expected 3 weeks ago, the triangle breaks down, creates a bear trap and rallies past the apex which it has done and then makes an even stronger move from there (after the F_E_D) and that sets up the BULL trap and then down we finally go.

That's my working thesis as things start to clear up, we'll have to be fast, but I think there will be a lot of opportunities over the next week.

General Market Update

This is still a VERY strange market, it almost looks like an extreme case of rotation in a healthy bull market, for instance the IWM which tends to lead risk on moves, at least healthy ones, continues to improve.

The QQQ is ambiguous at best.

If I were to view the SPY alone, I'd probably still have Puts open, it doesn't show much of anything positive like the IWM, which I will remind you is still just in the intraday stages of positive signals, but they are building.

The DIA, the one I expect the least from, looks just about the same as the IWM and on certain charts even a bit better.

This is the craziness I'm trying to navigate and none of the arbitrage assets that usually are so good at confirming one way or the other, are pretty dislocated from each other, if they are not correlated between themselves as they normally are, they serve little purpose for our needs of confirmation, instead they cause a more complicated situation in which I'm trying to understand what is F_O_M_C related, what is a reach for protection, what is hedging longs and what is moving out of risk altogether.

I'm still working it, but today is a real job and a half.

I will remind you though that we have seen F_O_M_C tells before, obvious leaks just hours before the release and we have seen earnings leaks like GOOG that developed literally 15 minutes before earnings. Even yesterday the IWM put idea came late in the day and worked as the short term trade it was intended to be so I still have hope, I just need to pay attention to details, again for that reason, emails will be difficult to respond to in a timely fashion.

FSLR Also Looks Good

Again, "If" I had room, I'd gladly add to the FSLR call position, this is probably even a decent long equity position.

I'll keep a close eye on them both, but I'd say as soon as the market is in shape, they move, they may even lead, especially AAPL.

AAPL

I hate to do quick analysis like this and not post charts, but for me, IF I had the room, AAPL long or calls would be an add to right here, right now.

I'm looking at FSLR.

Market is Still All Over the Place

Take a look at the IWM, it looks like it is starting to repair some of the damage that started in 3C yesterday and was the reason for the puts, this is also why I thought closing them right now to be the best solution, it's really more about taking unnecessary risk off the table as I WOULD NOT enter the puts right now, yesterday when we did, yes, but now, no.

 IWM 1 min looks to be starting to find support

IWM 2 min also shows the same

As does the 3 min, note the time when it was negative yesterday afternoon and how it looks this morning, this is why I couldn't keep Puts open.

The 5 min chart isn't there yet.

Interestingly or frustratingly, every average looks different, the SPY doesn't look as positive as the IWM, but it didn't see the same move down either. The DIA looks a bit more positive in most timeframes, at least from 1-5 min. The Q's don't look positive in these timeframes at ALL!

That's the reason for the quick move this morning, you can also see what chaos the market is in and that's just the start of it, it really looks like a lot of people are going in all different directions, even different asset traders such as equities vs treasuries/bonds.

As for GLD

I think VERY short term-intraday GLD will come down, I'd consider closing near term expiration calls, July calls may be fine.

Let me show you what I see right now and GLD is very F_O_M_C sensitive.

 GLD 2 min is still in line, there is however a gap just below from today of course, so directionally we were right on.

This 15 min chart suggests GLD will see a fairly strong move ahead, this could be quite a bit ahead, like weeks, but there's still good chances for closer term moves to the upside.

As for Gold futures.

It's this 1 min that has me concerned immediately, perhaps a gap fill?

The 15 min chart is improving and positive.

As is the 30 min, I believe yesterday was Gold's near term bottom, we should see upside from here, but it will be choppy. If you want to try to play more of the trend, then I might suggest a 2x leveraged long ETF

The Last Decision

I know that was quick, but I suspected they'd be short term, I don't feel they were worth the risk with TLT taking quite a quick nose-dive and VXX, etc looking like they will see a sharp near term upside move.

Once you lose the momentum in options, you start losing the profit and I didn't want a loss.

Right now option positions are essentially flat.

The ETF's entered yesterday are still active as they won't experience the same degree of draw down, I have more space and time to be more patient.

I'll bring you more shortly, but again things are moving very fast, it almost seems like Wall St. itself is unsure of what to expect which would surprise me so I'll keep looking for their foot prints.

Closing All Puts from yesterday now

Market Update...

This is a fast moving market, it will continue or get worse.

I think some of the last two day's optimism will be unwound before the policy statement, it looks to have already started, but we seem to be at a brief pause.

 This is the ES 5 min chart, this looks like it has to unwind some of the upside, CONTEXT is -12 points below ES.

The 1 min IWM

The 5 min IWM, again near term it looks like an unwind is likely.

However, as you see on the SPY 1 min chart, there's some intraday strength to the right, it's small, but still there. The more important chart for direction is the 5 min below.

SPY 5 m. Leading negative.

HYG has a lot to do with this...

There's a move up this a.m. from a 1 min positive divergence from yesterday, but it doesn't go much beyond that.

I think the downside this 5 min chart forecasts will have to be realized, the market typically moves with HYG, actually HYG typically leads the market.

VXX, UVXY and XIV all taken together form a composite picture, there's a tiny bit of intraday strength, it may be a SPY Arbitrage attempt, it's not showing up yet on the SPY Arb. chart, however they are all very clear now in the 5 min space, they suggest the market moves down as do all the charts above.

TLT is still sloppy so it's hard to make much out there.

I will stay patient, but busy looking for signals. For now, I'm holding everything in place, most of you should have profits from yesterday's positions, no one can blame you if you chose to take them before a wild card event like the F_O_M_C and worse after that the Bernie Press Conference which will send volatility soaring yet again today.

The market is ready to come down

It looks like fast and hard too, so get ready to take action on some of yesterday's positions.

Pre-Market

You'd really think the biggest story overnight would be the F_O_M_C, but it's a continuation from last night and the night before, CHINA. What is known as "Hot Money", excess liquidity produced by the F_E_D and the BoJ has to find its way in to some market to try to generate a return and that market has been China, because China already has an inflation problem they can't fight back by engaging in liquidity providing/QE operations, in fact they are doing the opposite and draining liquidity from their system to soak up all the extra cash sloshing around driving housing prices to crazy levels.

It seems this has become a brewing crisis and this is the real reason China and Japan have been at each other's throats overtly, but over seemingly unconnected events like the Senkaku Islands which are little more than rocks in the East China Sea, well whatever sea it is depends on which side of it you live on.

The CNY benchmark money-market one-week repo rate was 138bp higher overnight to a 2 year
high of 8.15%. The 7 day Interest-Rate swap rose for a record 13th day in a row jumping +10 bps to 4.08%, the highest since September 2011. China sold 10 Year bonds at a 3.50% yield, above the 3.47% expected, and at a bid to cover of 1.43 which was the lowest since August 2012. Moody’s commented that local government financing vehicles (LGFVs) pose significant risks to Chinese banks. LGFVs
accounted for 14% of loan portfolios at end-2012 according to Moody’s.

As for ES overnight, one might say, "Slightly Cloudy with a Chance of Rain", a very choppy session overnight. The USD/JPY is stuck in the same chop and looks more likely (stronger signal) to go down in the immediate future as in before the F_O_M_C or around that time.

That means the market should follow.

Bloomberg shows the F_O_M_C announcement as being 2 p.m., but often that is the press conference with the announcement at 12:15, I'll have to double check their schedule, all I can say is make sure your computer is cleaned up, your browser fast and be ready to move quickly.

More than anything, REMEMBER ELMOST EVERY F_O_M_C OR F_E_D ANNOUNCEMENT PRODUCES A KNEE-JERK EFFECT, IT IS STRONG AND CONVINCING, BUT ALMOST ALWAYS WRONG, IT USUALLY SHIFTS WITHIN SEVERAL HOURS TO A COUPLE OF DAYS.

This is where 3C will be most crucial. One time we found a leak 2 hours before as smart money all shifted 2 hours before, I'll be watching closely which means I'll probably be slow on email responses.

Good luck, stay frosty.