Kind of Unbelievable

If the market is indeed going for the set up that I think I best outlined in last night's "Daily Wrap" video, (it's not much different than any of the recent analysis on the subject), I'm really shocked at how poorly the majority of the market, even assets that have great head fake price patterns , really look today.

The general feeling I got was the only assets that are really showing any reasonably tradable divergences (for a short term hitch-hiker move) are strictly the assets that would move the market, for instance, the average or Industry groups (as I said yesterday, the direction of the market is responsible for about 2/3rds of the direction of any given stock and that's not from me, although I had heard this before from someone I trust, that's from the SEC's website. The second most influential group are the industry groups themselves, responsible for about 50% and then of course subindustry groups and last is the stock believe it or not). So given what I just said about what moves the market, it's odd that those are about the only assets despite some that have good set ups for a head fake move, that were showing anything near tradable even for a quick trade.

As I said earlier and just confirmed in the Futures, the QQQ and IWM look the best, the SPY isn't even really interesting, by itself, I'd have no interest at all and the DIA looks downright bad, not even in line.

The Financial group looked pretty good, but again this is one of the 3 largest industry groups.

Some individual stocks that I thought might look decent for various reasons, didn't and I mean to the point that I couldn't find any reason to consider them for even the most speculative of trades, these included:


AAPL, AMZN, GOOG, IBM (which I would think would appreciate a bounce after today), XOM (which I thought had more upside in its counter trend bounce), NFLX (which had a bull pennant already in place, traders would already be watching it, why not go for it there?), MCP (which had a bullish ascending triangle in place), HYG (again a bull-flag/bull pennant), PCLN (with a bullish triangle).

The engines needed to push the market, SPY Arbitrage and former Carry Trade currency crosses are in place, the components that create the SPY arbitrage are in place (that means this market has no legs of its own and is depending solely on not 1 manipulation trick, but 3). The Leading Indicators were confirming, although only for the briefest of moves, so it looks like if there were any investment in to this mini-cycle, it was small and only in the assets that could actually perform a helpful function, the high Beta/momentum positions you'd think they'd want to be in, no interest at all.

Technically today functioned as a confirmation candle for the two-day tweezer top, so it's hard to see this lasting more than a day, at least with what we know right now, if that's the case, rest up this weekend because we'll be very busy come Monday

Trade Ideas...

Just looking through the watchlist, which I'm not finished as the charts evolve faster now that most of the op-ex activity is over, I'm looking for the strength of divergence, how far it has migrated, the reversal process as some assets haven't even started and some are mature and there are a number of assets that have nothing positive going for them.

Of the market averages, whether using calls (I prefer Oct. Monthly even for a short term position), I favor the QQQ and IWM. The SPY looks ok, the DIA doesn't look good at all.

For equity long 2 and 3 times leveraged ETFs...

QQQ= QLD & TQQQ
IWM=UWM & URTY

If you have to play a precious metal, although conventional wisdom would say gold would perform better, SLV actually looks better, it's borderline for me and since I have GDX which is PM exposure, I chose not to get involved, but I think SLV looks pretty good now.

SLV leveraged long ETFs I prefer the 2x AGQ, there is the USLV 3x leveraged long as well, it is an ETN rather than an ETF.

XLK (technology was getting close), I think this is a toss up (more so in the context of relative performance and stability). If you wanted to use a long leveraged ETF, TECL would be a choice.

Trade Idea: XLF Oct $20 Calls / FAS or UYG Long

I'm going to open the XLF calls, there's a good signal and the price pattern has a reasonable reversal process.

To play a 2x leveraged Financial long with equities/ETF, check out UYG and for a 3x long Financials, FAS.

Again, I expect these to be pretty short (term) positions.

I'll put a list of some of the better looking positions, but all are very short term, 5 min charts at most.

Leading Indicators Agree

It's really a great feeling to have an expectation of what to expect based on charts/objective data and concepts/experience of probabilities as well as having some idea of why the market needs to do certain things, there's very little that is random and very little that isn't already discounted.

So what started as an idea somewhere around the 3rd week of August is now seemingly being fulfilled. The expectations that I have laid out as clearly as I can in post and videos are now taking shape and the best part is, all of it benefits our ability to set up our chess board for the trending trades that I think many people would prefer over these hit and run, highly leveraged trades among insane volatility.

I don't need charts for Leading Indicators, they are exactly what I'd want to see and more.

First VXX is underperforming the SPX, TLT is in line and HYG is outperforming the SPX, so TLT is neutral in the SPY Arbitrage and both HYG and VXX are supportive of the SPY Arbitrage which is really short term manipulation because the market won't do it on its own unless they can get price past an area where traders are interested in buying.

The SPY Arb is now positive $.80 meaning the model suggests the SPY should be $.80 higher right now based on HYG and VXX's current position. This fits perfectly with the currency pairs mentioned earlier.

Speaking of currencies... The $AUD vs the SPX put in a higher low and thus positive divergence at 2:20 today as 3C predicted earlier today, it also predicted the Euro see strength short term and the Euro is even a better leading positive signal vs. the SPX. The tricky one that fills out details is the Yen, it has been range bound and we often see that before a reversal so as 3C suggested, the highs that are range bound in FXY (Yen) look like they will come down as 3C suggests, you probably remember what happens after that and why this is looking like a short (term) operation.

Sentiment Indicators are fairly negative, especially HIO, but in to late afternoon trade I see FCT improving.

High Yield Credit (again as another indication of the short term (I'm thinking day/days-not week or weeks) is range bound trading sideways, but vs the SPX, that is a positive correlation. The more important one is the dislocation of HY credit from the SPY over weeks.

I think we are right on track, I'm hesitant to trade this move because it has a high chance of turning on a dime, that reversal confirmation candle can gap up strongly in the a.m. and close significantly lower by the end of the day and the Tweezer top is confirmed.

So unless I see signals that really are worth it, I'll probably spend more of my time looking for the best core position set ups as this is the market gift pinnacle.

IWM P/L

It was a small loss, but worth it just to free up dry powder.

At the fill of $2.57 and cost of $2.66, the P/L was a loss of -3.3% of position, it was maybe 1/10th of 1% of the 2% rule so absolutely negligible.

FSLR Update

I don't need charts, yesterday I posted on FSLR, the area I expected a pullback to and where I'd like to verify accumulation and look for a long entry.

There are intraday charts that are positive, but to me I think they either at best provide a parabolic spike up which is very unstable and can fall just as fast or "maybe" these divergences are the start of that reversal process of a larger consolidation in which case FSLR would remain flat and the timing wouldn't be ideal.

Either way, I see improvement in FSLR, I just don't see a trade with the kind of edge we are looking for, although I feel 90% certain it will come with a little patience

Gold & Silver

I give Gold and Silver a 75% probability of a bounce from these levels, likely at least to fill today's gaps, however I will not be opening a position in either even though the entry looks fine, I'm just not sold on the charts and that may express itself in the risk vs reward equation. To me GDX/NUGT long looks like a better position.

 These charts and the set ups which I covered a bit yesterday, are well worth going over again with the bearish descending triangle, the break down as TA traders expect, a head fake move that acted as a perfect timing flag, there are a lot of our concepts on these charts this week.

This is the 3 min, I think it heads for the orange gap and fills it and find that to be a high probability, however, beyond that, even using leverage with options, I don't see strong enough charts to indicate a high probability of profit potential, it may develop before the EOD, but it's not there now for either asset, although Silver looks a little better.

 5 min GLD, not looking good at all and it's hard to justify any position that isn't strong on at least a 5 min chart. The trade concepts are on the charts.

SLV 3 min has the same head fake concept as GLD, the chart is about the same.

I just find the 5 min chart to look better in silver, but not good enough for me.

CLOSING IWM Oct. $108 Put from yesterday

I'll take about a 1% loss on position, but why stay with so little to lose?

CLOSING IWM Oct. $108 Put from yesterday

I'll take about a 1% loss on position, but why stay with so little to lose?

Trade Idea: Re-opening GDX $25 Oct. Call / NUGT long can work

I'll probably leave the current NUGT long as is and just open GDX, but for new positions, I think either work, although I don't expect either to be anything even close to a swing trade, maybe a day on the calls, maybe 2 on NUGT.

Market Update

Everything in this post is confirming or highly probable to confirm the ideas laid out in the last post which all stem from longer term thoughts about all of this that I tried to explain in last night's video.

There are still some other assets I'd like to look at and then maybe make a decision if I want to close any positions like the IWM Oct. PUT, which I'd take a -4% loss on and perhaps open a short term call (doubtful unless the charts are convincing) or maybe look at positions in precious metals, maybe a NUGT add to again if there's convincing data. This (deciding whether to move positions or open new positions)  isn't about "probabilities", I know what the probabilities are; this is about "HIGH PROBABILITY, LOW RISK, EXCELLENT ENTRIES". 

I can't stress enough for those of you using 3C on your own, probabilities are easy to figure out and find, but it's the high probability, excellent entry that is your edge. If the market has been up a few days and 3C is in line with price, you know the probabilities are for a move higher the next day, but that's far from a low risk, excellent entry, in fact you have more risk than profit potential so that probability isn't a great trade set up.

This is my Custom TICK Indicator, kind of a MACD, but instead of two moving averages, it's comparing the SPY to the TICK data. Right now it is positive because the of slope of the linear regression of each.

My other new indicator, "The Most Shorted R3K vs. the R3K" 

Here' we see my custom, "Most shorted" (of the Russell 3000) in red vs the Russell 3000 in green. You might think stocks would be falling hard today on some of these market moves, but the MST Index shows a CLEAR positive Rate of Change that no one needs any ROC indicator to see, this is a short term positive for the R3K, the fear is not there among retail.

 The SPY 3 min intraday positive

 The SPY 30 min leading negative which is via migration . I estimate the scenario look something like the below which is still in line with last night's video.

 On the left is the 10 min SPY chart  and on the right "A" is the 1 min, I marked "A" on the 10 min so you could see where the 1 min chart fits in to the bigger picture.

The thinner green line is current price and the thinner orange line is current 3C, you'll notice they get wider, that is my estimation of future action in both 3C and price. The red dotted trendline is that breakout area in last night's video, above yesterday's intraday high.

The idea is the longer 3C charts should go deeper negative. The short term intraday should stay positive until we get a move up and then start leading negative and going through the timeframes. We'd be left with a larger negative divergence and we'd have the confirmation needed and suspected for the final head fake move that can act as a confirmation candle to the tweezer top reversal already in place.

 IWM 3 min

IWM 10 min from in line to leading negative, it should get worse in to upside, but we need upside for them to sell in to , they don't sell chasing the market lower unless they are panicked like AAPL last year.

 QQQ 3 min, note a trend in intraday?

QQQ 10 min. Also note a trend in the longer charts?

Market Update

You recall my video last night, the scenario I was trying to explain, well in addition to all other assets acting in a TAPER OFF / RISK ON manner other than Gold/Silver, I also now have 5 min positive divergences in the $AUD and Euro, the $USD as you know from the last post has turned negative.

Last night I was trying to communicate that there's almost always a goal behind a market move, like when I said, "That Bull-Flag didn't appear by chance " yesterday. I explained the reason as well, the hundreds of beautiful short set ups that are just 1-4% away from near perfect entries, but more than that, from the kind of demand (higher prices and volume) Wall St. needs to position in the size they trade, so I haven't changed my tune at all since August when the accumulation range started forming, I'm saying right now and last night the exact same thing in August that I thought would happen and thus far has.

As I showed last night, we also don't need a lot, we don't need a renewed market with a 3 week uptrend, we just need a few key stocks to move and this is why the Yen was interesting.

SPY Arbitrage is already being used today which has to tell you something (as it has been used nearly all week) about the lack of strength in the market itself.

Today's SPY Arbitrage is again activated like yesterday.

However, maybe the most insightful chart was that of the Yen. The importance of a positive divergence in the $AUD and Euro is that if the move to the upside strongly on the 3C 5 min divergence, then they can cause a carry cross to move up like AUD/JPY or EUR/JPY. For this to happen, the Yen needs to either move DOWN or move up a lot less slowly than the other currency (AUD/EUR).

Here's where it got interesting, the Yen 5 min is in a positive divergence, but also at a low as if it is in a reversal process. The 15 min chart is positive too, but the 1 min chart suggests the Yen falls back toward the bottom of the most recent range where it's creating a reversal process, this would give the carry pairs a short window to move up and push the market as that's what they are used for since they truly died earlier this year. However when the Yen recovers and starts accumulating and moves up on this reversal process, the carry crosses will likely falter and market support will be gone.

In other words, there's a short window forming for a market move to the upside, but it is capped by the Yens likely larger move to the upside coming, it's just near a downside correction to build a larger upside reversal base and that correction is what the market can use as an engine to push it as shown last night.

It really doesn't look like HYG is interested in sticking around much longer, the distribution process there is already well under way so they're about to lose SPY arbitrage capabilities to support the market as well.

MORE FED Up and Walking Back by FED Speakers

When the F_E_D's own unofficial WSJ plant/mouthpiece criticizes not the F_E_D's decision, but their communication (as it was 180 degrees out of the blue), then you know they REALLY screwed up and bond traders are definitely not going to trust them which is an unintended consequence of immeasurable proportions in the future, or there's more to this story than meets the eye which was my initial thinking.

Hilsenrath writes today:

"Federal Reserve officials created new uncertainty about how much farther they will push their easy-money policies—and new questions about how effective they are at communicating their thinking—with the decision to stand pat on the pace of their bond purchases for now. 

The Fed on Wednesday went beyond merely deciding to keep buying the $85 billion a month of mortgage-backed securities and U.S. Treasurys that it had been telegraphing for months it might start winding down. In the news conference after a two-day policy meeting, Fed Chairman Ben Bernanke also seemed to walk away from some of the guidance he had given in June on how the bond-buying program would play out over the next year, making it even less clear when the program will end."
------------------------------------
As I posted in the Pre-Market Update, Bullard had come out with some very non-chalante wording about the F_E_D's decision, said that October is a possibility which contradicts the "Over the next several months" language from Wednesday's statement that replaced the "imminent" statement previously (regarding F_E_D actions could add to or take away from QE at any time, the "OVer the coming months" languauge is something I was quick to notice Wednesday, the market was quick to notice it as that is where our first significant negative divegrence came in to play (you'd think the opposite) and I wrote at length about this Wednesday and ever since as it gave what will probably again be Bernie's "Plausible Deniability" that he's getting so good at, like his own version of "Green-speak".

It seems Bullard's comments, which were along the lines of, "what's $10bn in the taper, a drop in the bucket" as well as the October talk.

So far as we saw in an earlier GLD/SLV/GDX update, we sold the GLD/GDX calls at the perfect time, the green NUGT long has been hurt, but still remains profitable and I'm sticking with earlier analysis on that one for now.

Gold and Silver acting very "Taper On" with significant declines today

 Gold's positive divergence as I showed earlier including the head fake move right in to the F_O_M_C where we took profits on GLD/GDX calls, perfect timing too.

Today, even on a 15 min chart with the decline, 3C is STILL leading negative.

The same with Silver Futures on a 15 min chart, it's not just the amount lost since the Bullard comments, it's that a timeframe as long as 15 min intraday is still leading negative instead of just in line or even lagging!

On the other-side of the "Taper On" & "Taper Off" reaction in QE sensitive assets...

Treasury futures look a bit different to me after yesterday's retrace, the 30 min 3C chart is actually showing a marginally positive divergence and as usual, the longer 30 year looks WAY better and is showing a CLEAR positive divegrence. I'll be updating TLT, I did see some interesting things earlier that I wanted to post and you know how I feel about the position, although I can't tell you why exactly (I do have some guesses that I'll keep to myself until I have objective data to back them up).

You've seen the $USDX (futures) positive divergence, well guess what, I'm losing it,it is already negative and has migrated to a 15 min chart. Watch for $USD downside, remember your correlations between the $USD and risk assets and remember where I said I'd put alerts in the PM's.

I mentioned today's main event was a bevy of F_E_D speakers, you know what I think about the F_E_D/FOMC action and what I think it does to confidence is crucial areas like the bond market, well Esther George spoke and said the F_E_D's CREDIBILITY IS NOW AT RISK! Sound familiar?

George said the F_E_D (this is a F_E_D member, granted one of the hawks) created a disconnect and market confusion.

We still have Federal Reserve Gov. Daniel Tarullo who is speaking now, St. Louis Federal Reserve Bank President James Bullard at 12:45 (all F_O_M_C voting members) and Minneapolis Federal Reserve Bank President Narayana Kocherlakota  at 1:45.

With other risk assets acting the way they are and the $USD, besides Gold and Silver, I think it's a decent probability that the scenario I laid out last night is still very much in play.

We'll see what the 3C signals say and if they concur with T's and $USDs.

URRE Follow Up (CORE Long)

I'm following up on URRE among a lot of other tasks I'll get to. I like URRE, I have for quite some time, almost as long as UNG and I think it's still in a large stage 1 base so imagine the upside possibilities.

I hope you can tolerate some more of my chicken scratch drawings.

 The 5 min chart shows URRE heading down while the market was in a range around the same time, now there's a flat range here and these seem boring and like there's nothing going on, but this is where most of the set up happens, AT STABLE PRICES/LOWER PRICES.

The 15 min chart's migration from the decline is positive and looking good in the range. Longer term, investment/accumulation already in place like ours...

The 30 min chart makes clear this second base or second part is stronger than the first, I don't think they are disconnected.

The 60 min chart shows what I think is the entirety of a stage 1 base, that's large, a good range, the measured move from here is worth nearly a double, depending on what you consider the base.

 The 2 hour chart confirms 15/60 min charts in that the most recent accumulation zone is stronger tha they last which is typical of the process.

Since I didn't have room to draw, I drew below what I think the highest probabilities are based on concepts and the information we have, a lot of this is projection, but based on common concepts.

This would represent the first and second half of the full base. We're in a consolidation now that is rather flat and are seeing 3C accumulation. I think they things to watch out for are first a break below the range in place now, stops will be there, however the apex of the triangle a little lower is likely to create volume as well, so it could be what looks like a sharp breakdown, I have little doubt based on the charts now, it will be a head fake move (yellow), this makes for the best entry or add to as it has the least risk and would be the best timing element.

There should be a lot of upside here so I'd really pay attention to this one.

Quick Market Update

As the SPY, DIA, QQQ all get their dividend today and the 3C signals don't look bad at all as I posted first thing today, they are now improving to the point I think we could see an intraday upside move shortly.

Some others like are core short, CAT, aren't doing so well (news out for CAT).

GLD, SLV & GDX Update

Of the 3 positions, GLD I almost took short yesterday, probably should have and NUGT (3x long GDX) is an open long that is taking more off what was a nice +30% gain.

Here's what we have so far and if you have an alert system, I'd suggest setting alerts for the top of today's gap as you're likely to find a trade set up in the area.

 This is the GLD chart from downside confirmation to accumulation at a bearish descending triangle with a head fake move below that lifted it higher and yesterday a negative 5 min signal that I was on the fence over whether to open a GLD short.

 A closer look, you may recall the accumulation zone was at the bearish descending triangle, so while price was telling traders "bearish", underlying trade was saying a move below support will almost certainly be a head fake move that is accumulated. The closest target would be from a measured move and give us a target of $130, however the head fake is like an igniter or spark like I was showing in last night's video, of course the F_O_M_C was responsible for a lot of that and I questioned the $11 gain in gold 3 minutes before the policy statement, however that move would have been a short stop out as it crossed the apex, therefore it is reasonable that the head fake move did what it was suppose to do, just 3 mins before the F_O_M_C or this entire move could have been set up because someone knew what the F_O_M_C would do, but without the head fake, there wouldn't have been as much upside momentum.

 So far the move down in GLD is confirmed by intraday charts, no accumulation, just confirmation.

SLV didn't look quite as ready yesterday, but it's down too, these are two QE assets so given conventional wisdom at the time of the statement, the move up may have messed up the options pin, thus the need to rebalance to the downside where the contracts' strikes are.

 SLV's early downside is also confirmed, no accumulation, but if there is (the market doesn't leave many gaps open), I'd set an alert for the top of the gap, that will likely be a nice short sale entry if we get a gap fill which is probable.

 NUGT has been held because of the 15 min chart suggesting at least 1 more upside run, I suspect it's following the tight gold correlation.

There is a 2 min positive thus far in GDX/NUGT so that's good news for any NUGT longs, suggesting the downside is being accumulated at a discount for a move higher.

I wouldn't enter a new position on a 2 min chart only, but if it keeps migrating, it may make for a quick long.

Initial Impressions

There seem to be quite a few assets dropping at a fairly fast rate of decline for this time of day, the SPY, DIA, XLf, XLF, etc.

I'm guessing op-ex probably got way off course on the F_O_M_C announcement, typically Thursday's close is close to Friday's pin, we were largely flat, to slightly down yesterday, I'm guessing that had something to do with op-ex and not losing all that premium and I suspect the early action is about the same. The intraday 3C readings this morning aren't THAT bad on the initial declines, this is part of why I suspect this is more pin related right now.

That said, the Index futures 3C readings are worse from the overnight session, the 30 min negatives which started as 1 min and migrated to 30 min are now about to link up with the 60 min negatives that were already in place as it was clear there was already strong distribution in to the F_O_M_C policy statement, in other words, those charts are approaching the actionable kind of ugly.

Pre-Market

It's been fairly quiet overnight, gold and silver lost some ground, $USD gained some, $AUD lost some and TReasury futures are pretty flat, however don't expect it to stay that way with op-ex and Quad Witching today, if anything should be able to shut the COMEX, NYSE and NASDAQ down all at once, it's Quad witching.

The F_E_D's Bullard said this morning on BB TV that an Oct. taper is possible, we have 3 other F_E_D speakers today and that's about all on the eco-docket, but that may make for some interesting fireworks among the random market action that often is Quad-Witching.

Sunday night we have German elections so a little excitement over the weekend.

ES just made a quick run to the upside after about the same size run to the downside, volatility is starting to pick up there a bit, it should get more intense theoretically.