China Exports/ Some Interesting Charts

Chinese Exports were releases just about an hour and a half ago, the y.o.y. performance was the worst in nearly 4 years, the consensus was for a +3.7% gain, the actual came in at negative -3.1%, suffice it to say this was a huge miss to a very important data release (at least it's very important now). For more on what this means I'm directing you to Bloomberg.

There are however some curious charts. You may recall earlier tonight I mentioned the AUD/ JPY currency cross and how the single currency futures weren't looking very good for this driver of over night market risk, there's the AUD which was effected as well as its other pairs and futures, I just took a quick look and found some charts a little interesting.

The yellow arrow is when the data was released.

This is the AUD/USD 1 min chart, that's a pretty sharp decline just before the data was released as well as a sharp decline in the AUD which is very sensitive to China obviously, the single currency futures show a lot more detail.

AUD 5 min, I noticed earlier and thought mentioned it tonight as the AUD/JPY pair was unlikely to be the force behind an overnight futures ramp as last night and the market followed the pair very closely through the day as well.

I didn't associate the size of the decline in #C with anything at the time other than the pair likely heading lower, but that is a new leading low for the week and a lot of it was after hours alone.

AUD 15 min, again one of the charts I saw earlier and thus mentioned, again another leading negative low for the week in a rather short period of time.

The 1 min Russell 2000 futures, you can see the size of the decline before the data release.

R2K 15 min chart as well

The 5 min NASDAQ futures had an especially interesting divergence before the data release, in just about every case we have new leading negative lows for the week and almost all created since the market close.

Positions / Precious Metals

I'll start with the PM's, I closed out the NUGT position today for a decent little gain for a position opened Friday, but I'm not really all that hot on the miners this moment, they look like they have some work to do.

GLD I think is going to have some real potential, likely a bear market counter trend rally which are (of course) some of the strongest rallies in any market. There's no doubt gold is in a bear market, we actually called the end of Gold's run at the end of 2011 and start of 2012 and said gold would move to either an Intermediate or a Primary bear market, it's a primary bear market.

This break of the $130 area was major and opened up a lot of supply, I don't doubt gold could run for 4 to 6 months and possibly to the $150-ish level, I just know it's not going to do it without a larger base, it's getting real gappy and GLD 3C charts as well as Gold futures don't show me anything near term any more, I do think it's a fantastic one to be on the watchlist and try to pick up some on head fake moves below support ($114.60's area), I think it will produce some great option trades as well while putting a base together.

Silver looks a lot better to me right now, but I'd like to get out of it (open call position), I almost feel like I may have already overstayed my welcome with options. If I was long SLV or AGQ I might feel differently and that's likely what I'll look at with some higher leverage trades when appropriate.

 This short term intraday chart is the only reason I keep this position open right now, plus the fact it's expiration is out to August, but I think there's some tough resistance coming up.

This 15 min 3C chart shows a pretty nasty negative divergence on the 3rd of all days, I'm thinking that gap is about all this leg is going to make before returning to build a stronger base. I kind of like the idea of AGQ long or maybe SLW for a longer term position.

 The  60 min, 2 and 4 hour charts all look like this 30 min so I have little doubt this is going to be a big mover, but it does need more base and it too is getting a bit gappy, I think a pullback in SLV is literally a gift.

My Trend Channel has held this entire move down without a single stop-out, so the fact the trend channel's stop is currently just above $19 and moving down every day as well as that distribution area at roughly the same level tells me this isn't the time to "see what happens". So I'll be looking to wrap this one up.

Daily Wrap

As mentioned and even posted earlier, the SPY example from last night's "Daily Wrap" was nearly right on. The SPY was simply a proxy for the market, as I said last night,

"the SPY provides a good model (the other averages are very similar) to how I think this goes down, which is really just a part of the reversal process of the next leg in the market which we have been expecting to the downside".

Actually the short note and example charts (4) were more accurate than I remember. The SPY intraday charts,

- should be enough to take the market higher, specifically I'm thinking about the IWM triangle as the IWM is the average everyone is focussed on and that triangle was no coincidence.

The 3-15 min. charts...

-Leaves me pretty certain any breakout move is a false breakout, but we could have guessed that by market behavior, mass psychology and price action in the IWM alone.

 There's only 1 way to confirm a false breakout (which is still a breakout) and ultimately that is the failure of that move rather than leading to a new leg up. However we can get a lot of information that tells us what the probabilities are, often to the point that reversal positions can be taken in the area of the false breakout. Finally the one part above that is very important as I talk about this all of the time,

""the SPY provides a good model (the other averages are very similar) to how I think this goes down, which is really just a part of the reversal process of the next leg in the market"

When I say process, I mean that literally, if you've been around more than a couple of months you know how often I talk about "V" vs "U" or "W" and how a "V" is an "Event" and the "U & W" are a "Process". It's very rare to get a "V" reversal.

For the second day in a row, the gains in the market were made during the overnight session in thin volume (speaking of which market and ES volume has been very thin, yesterday SPX futures saw about half the volume of Friday!) which is obviously easier to move; you can see this either by looking at the rather flat intraday action or what I find to be more interesting, the daily chart.

Almost every day in this leg up has been a Star or a Doji, I guess that is not shocking during last week's holiday shortened week, however the open and close of the last two days is virtually unchanged as you can see above on the candlestick charts, meaning almost all of the gains came from overnight futures trade.

I identified the currency cross that was driving overnight markets earlier at the open, it was the AUD/JPY, but if you superimpose the pair over ES you can see the two never really separated the entire day. I can post a bunch of charts, but it really doesn't matter much, however after looking at the individual $AUD and JPY charts, it looks fairly clear that the $AUD is going to come down in the near term and the Yen rise which does in that pair and the market "IF" it stayed correlated to that pair which we can't know and thus doesn't really matter. Longer term as in the 60 min charts, the opposite seems to be true.

As I was saying, the way to determine whether the probabilities are on the side of a head fake move (false breakout) or a real move are numerous, however confirmation or distribution is a good place to start. 

 QQQ

IWM

DIA

SPY

Index futures traded largely as expected, the only thing I'd add is they're doing more damage to the 30 min charts, which had been trading perfectly in line with price.

I could keep going on, but it's just as easy to tell you. HYG Credit not only displayed 3C negative divergences, but instead of a 1.38% move up like yesterday, today was red most of the day right up until the close where it launched a large 5 min candle that was nearly as big as it's entire daily range to allow it to close at +0.05% (*Remember this end of day move, it will be important later) , Junk Credit which trades almost identical to HYG didn't put in any such closing move and closed @ 0%.

Short term VIX Futures traded better than their correlation and were rising where they should have been falling. Yields created a wider spread between them and the SPX, remember they are below the SPX and tend to act like a magnet until there's reversion to the mean.

I'd be lying if I told you I didn't think the market will likely make a move higher on the open (likely overnight futures again), there are several reasons I say this and this is also a large part of why I said,

"Other than positions already in place, I'd like to wait to tomorrow before looking at entering any new positions... I am not going to rush in to positions, there's no need for it, there's a bus every 30 minutes."

At the time I was thinking more about the "Process" and there being an abundance of good signals, but that's not our edge, our edge is great signals. There are several other reasons, the SPY and IWM 1 min charts, just like Friday and yesterday, have a signal that is in line and as I said Sunday night, that "should" keep the market in that direction, since then however the charts beyond 1 min have seen a lot of deterioration.

The red area is actually intraday distribution as there should be higher lows, the afternoon move "looks" like a positive divergence, but if you actually look at it it's simply in line, there is no positive, but this in line was enough to gap the open Monday and Today, what happened the rest of the day was a struggle, but it looks like (at least in the IWM and SPY) they are expecting either a gap up or a stronger opening (I'm guessing a gap up).

After looking at the closing charts, this makes quite a bit of sense, most of all for the SPX, then the Dow and the NASDAQ last.

 In the SP-500's case, resistance at the arrow to the left is at $1654.19, today's HIGH was $1654.18, EXACTLY 1 PENNY AWAY FROM A TECHNICAL BREAKOUT.

What market maker or specialist wouldn't push for that, it's worth it just for the volume rebates or the spread.

 The Dow is about 20 points from the same.

The NDX is a bit further. The only catch to this is the market hasn't been able to do much during the day, all the gains are coming from overnight ramps and in that area for the 3 averages above, there's a lot of overhead resistance from May.

This is why I said remember the last minute move in HYG at the close, after struggling all day and seeing stronger/deeper negative divergences, HYG is an arbitrage asset, "Pulling the levers", so HYG wasn't so much about a green close or the 0.05% gain after really underperforming from yesterday's +1.38%, I believe it's more about trying to act as a lever, no one can look at the intraday trade and tell me this isn't a market that would need help going in to overhead resistance zones, however all that is needed is the limit orders triggered and the volume that comes with them. In fact the signals on the Index futures are pretty darn ugly, NASDAQ , S&P and Russell 2000 futures all not only have negative divergenceS right now, THEY ARE ALL WORKING ON LOWER HIGHS, FOR SPX AND NDX FUTURES THAT WOULD BE THE FIRST LOWER HIGH SINCE BEFORE THE OPEN.

Thus, no need to rush in to positions today at the end of the day as trade in many ways started to deteriorate. 

If anything interesting pops up in futures later tonight, I'll post it, right now the lower high is interesting. Nikkei futures don't look great.

 The last 5 min negative divergence topped the Nikkei just as the new week opened Sunday.

The 30 min chart did the same and it's been leading negative to new lows not seen in 11 days. This is looking like the Nikkei is not going to have a good night.

What's Coming and What's coming

OK, I didn't post this earlier today for 1 reason, when people see a differential like this they get excited and trigger happy. You may have notices, I only opened 1 position today, that was IYT and it's at a decent gain already. Otherwise I just did some spring cleaning, took some losses on some July calls that I think we're probably at just about as good a place as I can expect for them considering the time decay.

It's not I feel things went different than described in the SPY example of expectations for the market, in fact I think that the example provided thus far has been very accurate, in many cases it's not even a matter of positioning, it's a matter of timing.

I figure since several of you have already sent it to me today, I might as well post it now.

So here it is... The CONTEXT model for ES (S&P-500 futures).
 

I have been watching this grow the last 2-days and now it's around a -30 point differential. CONTEXT has been extremely accurate in the past, I posted in Sunday night and said I didn't trust it and thought that they would tweak the model in the morning and they did, I believe about 2 a.m. Monday morning.

The model is based on other risk assets, it's no where near as simple as the SPY Arbitrage based on 3 assets.

So do I trust it now? Yes and that's not just self-serving, it's because I see the assets like credit are lower, I see VIX futures are higher than they should be, Treasury's etc.

So as of now, it has ES $30 rich to the implied value judging by other risk assets so in a way, that's what we have coming and I say that because twice we have seen CONTEXT around the $30-$40 level (differential ) and price moved within a couple of points of the model, it was pretty amazing.

As far as what's coming from me, I'm going to update several positions that are currently open, a brief market review and then the trade ideas.

Trade Ideas

Rather than spend a lot of time on the market tonight because you already know what I was expecting, we got that move, I'll dedicate more time to positions I think are in good position or areas where I'd consider them

FAZ Looks GOOD

I'd consider if you have time to do the risk management, a partial position long FAZ, I plan on entering tomorrow.

Thoughts Moving Forward

Other than positions already in place, I'd like to wait to tomorrow before looking at entering any new positions, HYG is not only not performing price-wise, but 3C wise, so it's leading well.

I'm trying to watch the close, but also let you know what I'm planning, I will fill out SRTY and enter some other positions, I'll hold SLV for now and IYT opened today. However I am not going to rush in to positions, there's no need for it, there's a bus every 30 minutes.

GS

I know several of you are trading GS, I'll just say real quick that GS is one of the few stocks that has a real and powerful base that can support a real move.

I personally have been watching the base develop for sometime and this is one that I wanted to sync up with the last market move to the upside, get in on the base early just as the market is turning up.

I think it's tough to trade in here as market headwinds aren't the best thing for moving up, I'd love to see it pullback and wait for the market to be at the start of a fresh move up, I'd consider going larger than full size if that were the case.

A couple of charts..

 This is the 60 min base, it's impressive.

This is the 5 min chart, I expect we'll have market headwinds and the GS base looks mature, I really don't know if it will come down and make a larger base or do its own thing, I'd hope that it will come down.

I'd say from some of the 3C charts that the true base is up at the higher trendline, that gives a very large price implied target.

Process vs. Event

A lot of the email questions I'm getting today (interestingly about a wide-array of assets) have 1 feature that I've been pointing out more than anything else today so I figured I'd just address it in a post.

This is about a concept that we talk about here a lot, "Reversals are a process, not an event".

There are reasons for this, a lot of it has to do with scale, turning a jet-ski is a lot easier than turning an oil tanker and when you consider the size of "our" orders and the size of institutional positions, I think the analogy between our typical 100 lot orders and institutional size positions, being a jet-ski vs an oil tanker are probably pretty close to fair.

It's not that they can't execute in micro-seconds, they  can, but there's only so much volume before you start effecting your fill, this is exactly why there are head fakes, to facilitate this process. Read these two articles when you get a chance and you'll see that is exactly why or at least one of the largest reasons why there are head fake moves.

These articles are linked on the members site at the top right for you any time/

#1 

#2

A quick example using AMZN first because where AMZN was in the charting process is not surprising vs where it is in the price process and then quickly the IWM.

 Each stock / asset has its own character depending on size, volume, institutional sponsorship, etc, this is why my Trend Channel self adjusts to each stock rather than have a static setting like Bollinger Bands or an Envelope Channel.

This is AMZN above, bottoms tend to be a little sharper than tops, but there's a proportionality to the moves, like the preceding trend, how long it was, how vertical it was, etc.

The yellow box shows a couple of small reversals, but the proportionality is right on, only the red box has a sharper up and downside reversal than you normally see. I try to explain it this way, "A reversal is more like a "U" or a "W" than a "V" or more of a process than an event".

The orange box is pretty right on, notice the bottom is a little quicker than the top.

In blue I drew in 3 green lines that you can see at the red arrows, if AMZN were to make a move down like that right now it would be out of character considering the preceding move.

The IWM 2 min chart...

Now the same chart with no 3C...

Note the "process" in reversals here.

I'm not talking about the IWM specifically, I'm talking about proportionality because each stock has a little different character.

Transports (IYT) vs DJ-20

I know that seems a little crazy and quick, I can jump through these charts a LOT faster than I can capture, annote them, upload and post them and when the market is moving fast like this one is, it makes it even harder.

I'm not going to comment on these too much, just know that IYT and DJ-20 might as well be like comparing PCLN to HD as far as 3C is concerned, it's working off the signals from that asset including their own unique volume patterns, this is why I use so many different assets and ETFs to confirm a signal.

What looked a little strange to me at first was the 10 min IYT chart, that negative chart didn't look right and at first I assumed it's an anomaly, then I looked at longer charts in IYT and then I looked at the DJ-20.

You'll see what I saw.

 IYT 10 mins.

 IYT 15 mins.

IYT 30 mins.

DJ-20 (Dow-20 Transports) 10 mins.

DJ-20 30 mins

DJ-20 60 mins.

IYT 60 mins.

IYT 5 mins.

DJ-20 5 mins.

IYT 3 mins.

Dj-20 3 mins.

Remarkably similar.

Transports / IYT Trade

I can't get these charts out fast enough, but I'm very close to pulling the trigger at least on a spec size IYT Put.

The DJ-20 looks the same.

Actually I am going to pull the trigger, probably Aug. $113 Put.

 A bit longer at 10 min

Intraday at 1 min.

I'll get some more charts up in just a min, as fast as I can capture them

AMZN Charts

I might be a little too myopic at times about entries and exits especially when we are looking at big picture positions, but I think AMZN looks really interesting, but with it's current position, I want to be as sure as I can be as far as timing, as far as the position itself and the big picture, I still like it a lot.

I'll try to give a run down from macro to micro, there are some really interesting aspects to AMZN, it has built some incredibly strong bases and just some other things that just show patience pays and the big picture is really where it's at whereas I think sometimes we get too caught up in day to day or hour to hour trade.

 This is the range and the reason I wanted to see AMZN > $287, each timeframe has to be looked at within that timeframes perspective, here on a daily or multi-day chart, this is the obvious range and movement is created as well as opportunities at the obvious areas. It seemed like waiting forever for AMZN > $282.50, but it was worth it. Note also it's not $282.50 or $287, otherwise you could just set a limit order, it's ">" greater than and the reason for that is the range needs to be broken and it needs to be convincing, that's the only way you get sentiment shifts and traders to take action. It's that action retail is taking that Wall St. uses against them or you might say for their own purposes, it's darn hard to fill an order the size they are looking to fill at with a great entry (short in this case) and enough liquidity or volume to fill an order the size they are trading, the best and easiest way to do that is to create these head fakes, whether false breakouts for short positions or sells Wall St. wants to fill or shakeouts/stop runs for longs of BTC positions.

This is one of my custom indicators, it is DeMark inspired, we still haven't named it, but these are sell signals in orange, also note the Bollinger Bands pretty much giving away that move >$287 as the start to squeeze implying a directional move and with a range like that as clear, where do you think that directional move is headed?

 This is a multi-day (3) chart that shows a lot of history, look at the size of that rounding bottom/base  from mid 2000 through 2003, that's years, then there's another strong base from 2004-2007, again years, but very strong divergences so very active accumulation, the last major accumulation area was 2009 at the market lows when just about everything went positive around Q1. Since then at "D" 3C has been in line with the trend, not calling out any major disruptions to it, but at "E" we see the distribution process showing up on a 3-day chart which means it's pretty significant.

Again with institutional orders the size these guys are trading, they aren't closing positions in a day or a week, often it's a process of months and distribution can even hit years just as the accumulation was years.

 The 60 min chart is what I've been watching as far as >$282.50 and now, it's in the right direction, the break out from the range is almost vertical so it's convincing.

At the 1 min chart you can see the same type of cycle (Accumulation, confirmation, distribution) as you saw on the multi-year chart, even intraday we see these same cycles, there's actually 4 stages, most of you know them, but now's not the time to cover them.

A closer look at the 1 min chart shows a pretty strong distribution area at the yellow box and just preceding, there's a move just above the intraday range (we see them on every timeframe) preceding the move to the downside.

What I want to see here is the 1 min chart dig down deep in a leading negative position from here, I want the chart to scream it's ready and if that happened with price moving above the intraday highs on this chart, I'd be fine with that because distribution is either in to higher prices or flat prices, very rarely is it in to downward prices unless someone got caught with their pants down.

 The 2 min chart also shows how strong the distribution at the yellow area was if you follow 3C to that point, it's still negative, but I want to see this chart also lead deeply.

 To the left on this 5 min chart there's point "A" and "B", there's a small relative negative divergence between them that sends price lateral until a positive divergence appears and sends it higher.

What I want to see here is simple, I want to see 3C move to a lower area, a lower low, if it just moves up and is just in a relative negative divergence like the one to the left, then it's not ready.

I think this will all happen soon, how soon is the question and that is what the entry will depend on.

This 10 min chart had a nice leading positive divergence, but it's only so big ands it's on a 10 min chart, not a 60 min so it is about where I'd expect these negative divergences to start getting a lot worse.

There's one other thing I'm thinking of and that's psychological, $300 is only about 3% away, these centennial numbers are like magnets, I'd say the overall market will have a lot to do with whether or not that becomes a factor, but it's something that has to be considered being it's so close.

Right now I'm going to wait on AMZN, but I'm not walking away from it at all, I'm just keeping an eye on it and waiting for it to give a screaming signal that jumps off the chart.