Daily Wrap

So far for the casual observer, september being the worst month for the Dow and generally not a good month, has been living up to its reputation, however few people would likely concede that the F_O_M_C's knee jerk higher and subsequent shakeout lower is behind a great deal of the poor price action and then the debt ceiling and "will they/Won't they shut down government?" is of course weighing on the market as the US fiscal year comes to an end.

I think to get members up to speed, I'd recommend this morning's first post and then a clarification this afternoon and then I think I could wrap it up with 2 if not one chart tonight, lets try the two ES/SPX Futures and then the single chart.

 All week I've said how nice the rounding bottom looked, but how weak underlying trade has been, today's 15 min Es chart saw a significant change in character.

You know what I expect from here. The next important chart which should fill in all the blanks in between and how we'd like to take advantage of all  of this would be a simple 60 min, longer, stronger ES trend.

ES 60 mins.
Any Questions?

I'm sure there are a lot of tactical questions.

I see Treasuries as very likely to come down more, that sends Yields up, yields pull on the market so there's an upside influence.

The SPY arbitrage should be activated (it was flat today) with further losses in TLT and VXX as it didn't hold up as it should have today.

Since VXX and the SPY (green) have an inverse relationship, I just invert the price action for the SPX and you can see where VXX "Should be", apparently there's not as much demand for protection as the VXX has been steadily trending down vs the SPX.

With VXX and TLT down, the SPY Arbitrage is activated and we have a second source of upward bias that has almost nothing to do with equities and real demand. The fact that the SPY Arbitrage and CONTEXT have been virtually neutral means anything stronger than this is going to exert short term bullish bias.

Then we have the 3rd engine, that of the Carry Currency, I've been watching and the winner, winner - Chicken dinner I think will be the AUD/JPY and here's why...

 The 30 min $AUD chart shows a clear transition from F_O_M_C distribution to current accumulation, that's the first half of the cross...

Then the 30 min Yen has a relative negative divergence, but even if it stays flat and the $UAD does the work, you still have a rising AUD/JPY, so the little parts are coming together after a week in which it seems the market has been nervous to make any real commitments, but suddenly today, something seems to have changed and it's more focussed on the SPX than any of the other averages, think Financials.

Then there's professional sentiment... this one hasn't been an issue, all it needs to do is maintain.

And I think it's very clear it's outperforming the SPX so long as you know the SPX is the green one.

 Yields lead the market so we follow them as leading indicators. Short term we have a couple of moves to "reversion to the mean, this is like CONTEXT hitting ZERO of 3C being in ling, today we saw yields bump which is upward bias on the SPX VERY short term- just remember the first two charts of ES and you pretty much understand how things should go down.

 This longer chart of Yields is like the 60 min chart of ES, it's clearly leading the market lower, but nothing just "ups and moves", there's plenty of time and room for a short term bounce before yields start exerting massive gravitational pull on the market.

When you think about it in those terms, you can almost figure out with certainty what each move is designated for unless you believe in random walk theory in which case 3C shouldn't be able to predict any better than about 10% (I know you'd think 50%, but there are way too many dynamics, no trade in the market can be successful or a loser based on two dynamics alone.

 I have talked a lot about High Yield Credit this week because this is illiquid, it panics easy, yet it has hung in there, it also happens to be an institutional asset that they use for risk on moves, note the character of the SPX vs. that of HY Credit. VYC has been so reliable at forecasting, we have been using it for sometime as one of our main Leading Indicators.

 This is the CBOE SKEW Index, the higher it is, the higher the probability of a black swan event or sudden crash, the normal range is $115, $130-$135 is elevates, it's only at $122, but I can see a fast ROC (Rate of Change), you'll get use to seeing it to, but for now, I simply added ROC to the index.

Here you see the fast ROC change in SKEW in orange, options activity is starting to act like it does before a sudden 1987 style crash, so we'll want to keep an eye on the absolute level as well as the Rate of change.

Finally, the single chart that I think represents short term and long term marker movement and how each should be played, if you understand our concepts, then this chart should tell you all you need to know about probabilities and what to do with them.

This is a 15 min 3C chart of the IWM, the market leader. The in line readings to the right serve as calibration and confirmation of the effectiveness of the indicator, the leading negative divergence in to the F_O_M_C confirms our "Knee jerk" theory. The bullish Ascending Triangle following an uptrend tells us what retail traders are looking for and where they have set their limit buys as well as their buy to covers. You know how hitting these levels creates a snow ball effect so you can probably guess what the next move for the IWM is and why, with the leading negative divergence, you can probably guess what the move after that is and what you should be doing with the first move so you are ready for the second move.

That's a lot of information for one chart, but it's based on proven concepts.

I'd say the only reasonable long area at this point would be a head fake break below the triangle's apex, that's the only good area I think to hitch-hike a long to the upside, it also gives the upside move the snowball effect re: momentum. After that, it's stocks like PCLN or FB which I almost put out there today as a trade set up idea, I'm just waiting for a little more development so I can see where the likely target area will be now that we are above the original IPO price and day that GS and MS got so wrong.

Remember that tomorrow is an op-ex pin Friday just like every Friday, but not Quad witching like last Friday. In general I've noticed that Friday's open isn't too far from Thursday's close and the pin is pretty tight until about 2-2:30 as brokers unwind remaining contracts that are open by hounding you with phone calls, after that, the market seems to stretch its legs a bit, but I haven't noticed any real correlation between late Friday action and Monday action, however the late Friday 3C divergences more often than not pick up where they left off on Monday so if we are in an accumulation phase late Friday, I expect to see more early Monday, that's a pretty well verified effect.

Beyond that, it's futures action tonight if anything pops up, I'll be watching ES and the 15 min chart specifically. Of course if there are any developments in futures, I'll let you know, but looking toward the AUD/JPY long about to come in to play if you trade FX.

Financials XLF / FAS Update

I have both XLF calls and a FAS equity/ETF long open. There are a lot of areas where I'm thinking to myself, "I could add here or open there" but the reality is, this is not a strong market for a long position. Any longs were entered because there was an edge like XLF below $20.

This is the kind of trade that you can make some extra money while you wait for a bigger set up, but just because you know the probabilities are on your side and maybe you're a little bored from a range bound week, I think it's very important to still pick and choose your battles.

I can't stress this enough, knowing the probabilities is great, it's a lot more than most people know as we haven;t changed our tune all week while retail sentiment has shifted all week and retail sentiment from Investor.com has gone from 69% bearish yesterday and shot up to 81% bearish last night and now 64% bearish earlier this afternoon, they're literally flying by the seat of their pant, whatever the market is doing at that moment is what influences their opinion. 

We don't have any such mechanism, everything is based on objective data and a lot of it, then any trades are based not just on the probabilities, but the best entry, the lowest risk, the best timing (we don't always succeed, but the TLT Puts yesterday as it was headed higher for the 6th of the last 7 days and a gain on the upside of a gain of +4.3% in the very low beta of TLT vs the SPX for the same period which was down 5 of the last 7 days with a loss of -2.1%. 

Did we just get lucky to pick the right asset at its highs on the day just before it turned the next day and use options which were at a deep discount because of the intraday action and TLT near it's highest highs of this leg giving us a low risk, high probability, well suited entry for puts? No, it wasn't an accident, it also wasn't JUST the probabilities, but as you know options' premium are at their cheapest when things look the worst for the position you are going after (for instance our puts as TLT was making new highs for the last 7 days. All of this together gives us a lower risk profile, a higher profit potential and excellent timing as we don't want to waste anything on Theta/time decay. Today we have a nice double digit gain in the position.

The point really is that you can't be hard on yourself and say, "I should have done..." I know the probabilities, for most people that would be enough for them to load up the truck, but it's more than that, it's the set up as well. I'd rather miss the trade and I'm ok missing the trade, then take a sub-par position that has the potential to cost us and the worst part of that is having known ahead of time that this was not the best asset or the best time to enter the asset, you have to take full responsibility for taking what I'd call a, "Sub-par position".


So here's Financials via the Industry group, XLF and the 3x leveraged long, FAS. I chose to use the broad industry groups as they are needed to help move the market being the second most influential factor on any given stock on any given day, this way I also avoid the news specific discounts that may make a specific Financial stock underperform the broad Industry group.

I'll also show you where, when and why I'd enter XLF long as a new position or an add to as well as FAS which have slightly different criteria for a long based on the options vs. the leveraged ETF and their individual dynamics.

 I've marked the 30 min XLF chart with 3C signals just for study and I put a yellow trendline which signifies the area I suspect is the minimum target in any upside move and the area in which we want to start looking out for areas to take profits as well as start or add to core short positions.

You should be able to notice the steady trend of 3C distribution across the highs from July to the recent highs. There's no doubt that XLF is a short, strategically we have its number, now it's the tactical execution of the position and for that, we need to be patient and get that move above the yellow trendline and look for the signals that tell us, "This is high probability".

 Take a look at XLF this wayI removed the trend line support area I thought XLF would break as it did break both, but looking at it this way, what do you have?

To me you have a clear bear flag, but what do we know about Technical Price patterns? More often than not they are traps, so while technical traders are looking for a break below the flag and an initial move down to about $19, I'm looking for a false breakout above the flag and a move back down below it.

However I told you the area I'd consider adding or starting a new XLF long position and that would be under the flag below the $20.00 level or specifically $20.03. This would be our Crazy Ivan shakeout and it would be useful in assisting with an upside move, but at this point, that's the only area I'd add unless I was using the ETF, FAS, then those few cents are of less importance.

 10 min 3C of FAS (3x long Financials) ETF, note the leading positive at the stop run of the whole number $20, this was the second of our two targets and the one most interesting. Today's gap higher was driven down by a negative divergence, why do you think that would be?

FAZ, 3x leveraged Financial Short is showing a leading negative divergence on this 2 min chart. The divergence is respectable, but again the story these charts are telling is that the move we are expecting doesn't have the normal "Invisible Hand" support and I can relate to that, I wouldn't commit to any more than need be to get the job done.

GDX / NUGT Update

I've held on to the GDX calls and intend to do so. Yesterday's late afternoon pullback came from a negative divergence that was about 4 hours old so I can't imagine a large pullback and there's already signs of positive divergences now taking over.

I'd be open to adding to GDX if I could find the right set up, NUGT is much easier to start a new position in or add to because of the elements that gop in to options premiums, NUGT's price is its price. For now, I'll just be holding the open positions, if I were looking for a long at this point, I'd be leaning toward NUGT (3x long gold miners ETF) over options unless as I said before, an appropriate set up  showed up.

I'll use GDX, NUGT and DUST which is the opposite of GDX and NUGT (3x short Gold miners ETF) as confirmation.

 GDX 2 min positive, I think it will need a little range like yesterday afternoon's range from about 1-3 p.m. for an appropriate reversal.

GDX 3 min positive so the divergence is building strength

GDX 5 min has a relative positive, so looking at the 3, they look as they should for this point of the process.

The 10 min NUGT and GDX chart are both still leading positive like NUGT above so this seems to have been a corrective move in side a larger move to the upside.

The same (15 min) DUST chart is negative or exactly the opposite as it should be to confirm so NUGT and GDX both look like they have a lot more upside room to go and DUST, downside.

DUST 1 min intraday is negative as it should be vs GDX/NUGT.

TLT Follow Up

I have double digit gains in yesterday's TLT November Put position, typically I'd be taking them early on early gap down momentum, but since they're November and since I think a dip in TLT would be essential to a pop in the market, I decided to hold out on these for a bit longer. The 30 year Treasury futures are in line with this decision as well as TLT.

 30 year Treasury Futures on a 30 min chart with excellent up trend 3C confirmation and of course the negative from yesterday that we had to just take the leap of faith with and it paid off.

I'd like to still be long TLT closer to $100-$102, but one bridge at a time.

If we got a pullback in to the gap area in the next day or so, I'd consider TBT long, TLT Puts of course are still available, but I think getting them with the element of surprise yesterday was ideal as they had a significant discount.

 TLT 5 min with the gap (yellow) and intraday leading negative

TLT 15 min cycle, this isn't a distribution event in my opinion, but rather rotation which would suggest again the market move higher, but not in an accumulation event, just a rotational event with a specific purpose as you know.

Important Market Update

After the A.m. Brief which led to a question answered in the last post and given the nature of a lot of the intraday trade, like the very trend-less NYSE TICK data, yet it's rather extreme for having no trend at -1400 / +1000 so far today, it's important for me to get a grasp on whether there is something in underlying trade or other areas of the market that are in essence, the smoking gun ("To make money in the market you have to see what the crowd missed")

Among the averages themselves, there's not a very clear path, although I'm leaning toward better relative underlying  strength in the SPY as opposed to the IWM or QQQ and as you know, the SPX and DOW haven't been great performers on a relative basis. Here's what I have and don't miss futures at the bottom which once again lean strongly toward the SPX.

 DIA 3 min leading negative on the knee-jerk reversal and a mediocre positive divergence.

 When you have noise or a trend is not clear, the longer 3C charts tend to have less detail, but a cleaner trend, the DIA on a slightly longer 5 min chart, still not a smoking gun, but a cleaner trend. Then things get a little sloppy.

IWM 15 min to me looks a lot like a big head fake set up with a bullish ascending triangle that traders are looking for to break out on the upside, yet a 3C leading negative divergence.

However, when you think about expectations, what this move was suppose to do and the 5 min chart of the DIA above, this may be showing us exactly what will happen.

Lets assume some good news on the debt ceiling / budget or at least something that takes the market's uncertainty away briefly, we can have both the head fake move above the triangle that gets us the upside move we were expecting to enter specific shorts , I keep using PCLN as an example because it was at resistance and the place we want to look at it is above resistance, it's there now.

If this 15 min chart stays true, we can still have the breakout move or the same effect for individual stocks and have that followed by the fulfillment of the head fake move. The IWM has to breakout to the upside to even have a head fake move. Once we have our additional shorts in place, if the market drops on a head fake like the one seen above, it's not only a market gift, but it's showing us the order of events and events exactly as we'd have them and there all right there in a simple head fake concept.

Intraday a lot of charts look like the TICK, trendless, but that doesn't mean something is not happening.

Take a look at the same intraday chart zoomed out to see the entire Ascending Triangle, it does look like a head fake move is set up here, but we need the upside break out (the small move up we were expecting early in the week) to complete the head fake move and a downside/ STRONG reversal.

This chart is making a lot of sense.

QQQ 1 min, again, intraday nothing too exciting.

SPY 15 min suggest the upside move, but it hasn't been strong, this has been the case all week and I point it out multiple times each day. I think this probably goes back to the previous post, there's some accumulation in here, but this is not all about the reversal process, a lot of it is about the "Wait and see" process because they literally can't know how to discount an event they can't predict.

What would happen next if the 15 min chart broke out? The hourly gives us a clue, a leading negative divergence, the order of events are the same as the 15 min IWM head fake, up and down.

SPY 1 min, as I said before, not much to go on.

However the SPY 3 min is interesting, it's a stronger timeframe than 1 min and would be more accumulation than just intraday moves with a divergence like this.

Now come back to this morning's ES/SPX Futures 30 min chart...

This chart tells us the same thing about the week, the range or whatever price pattern you want to call it has "Cautious" accumulation, but it's spread over a longer period because of the wait and see, if it were consolidated in to 1 or 2 days, it would be strong, but it's diluted among the week as there's a holding pattern.

The important concept here just might be my experience that "ONCE WALL STREET HAS STARTED / INVESTED IN A CYCLE, THEY RARELY LET IT FAIL".

Now look at the ES 15 min chart, new divergences start on earlier timeframes, it appears something has changed and now there's more of a willingness to take some risk to get this move going.

As far as positions, for most shorts they'd be most ideal on a move to the upside. As far as longs, I'm still of the opinion that we need more than probabilities, we need high probabilities and low risk entries. We'll see what we can find, but I'm not done confirm,ing analysis either.

Market Information and Clarification for the Week

I received a good question that essentially was

" The post from thi suggests either a bigger move and/or taking longer in duration than originally expected from this cycle...What you think will play out here? "

I understand the nature of your question perfectly because it's the same question I have. This isn't a "typical" situation. I did expect a smaller base and a rather small move that "could" have hit an important breakout area, but the way it would look on the outside would be very different than the way it looks on the inside, meaning a breakout move that appears by price only to be strong, could in fact be VERY weak and so far all this week that has been our experience, the 3C charts have remained very weak, seemingly like the invisible hand that sets these cycles up is trying to do it with the least funds committed to a cycle (which they always make back just as if we hitch-hiked a ride on the trade, but have very different intensions once we get to where we were hoping to go...i.e- ride a move higher with some calls, but our main intension is selling short core positions like PCLN as it makes a move toward the area we were looking for).

What I was trying to convey earlier is that typically when we have a nice rounding base like this and it's 4 or 5 days in the making, we usually would have a VERY strong 3C signal to go with it, we have a nice price pattern, but the 3C signal is not what we'd normally expect and this makes sense to me. I think the market does want this move as it sets up so many shorts like PCLN right now, but I think this entire week it has just been cautious and more in a "wait and see" mode because of the debt-cieling and political fight that could shut down the government with the deadline fast approaching. 

So my question is the same as yours, "Does this bigger base equal a bigger move?" or is this just a bigger base, not because it's in the reversal process of being accumulated, but a more apathetic process of, "Lets just wait and see what D.C. is going to do" and I think that is why (if you recall I posted yesterday and a time or two again this week) that the base of this week has to be kept in perspective with the bigger picture charts because it feels like it is teetering on a fence and on one side is the upside pop and the other side is a disproportionately longer, larger, stronger downtrend.

This is why I haven't been aggressive or even in the typical mode for opening new positions, I've been very cautious as well as the risk:reward of either event are no where near equal.

The only way we'll know for sure is if 3C shows drastic improvement, suggesting Wall St. is now satisfied that the "Surprise" risk has diminished like a government shut down or some other objective and confirmed data; that's where all of our probabilities come from, objective data and the amount of it that we can confirm.

So this is a different scenario than most in that the size of the base right now which as far as the "Reversal Process" goes, is absolutely beautiful, but everything else we'd expect to see go along with such a base simply hasn't been there and I feel very confident it's because they are being cautious about the political/economic situation at hand and we are being cautious because of the objective data that essentially shows us that they are being cautious. 

I could put this all in context of the politics, but that's not my speciality, Wall St. has better information and will have it long before it is reflected in price so I'm more just watching what they are actually doing in the market rather than what anyone is saying in the news.

MCP Update

For a stock that is a long time favorite as a longer term long position and more importantly, still in a base, I think we've had more double digit wins in this stock than most. I did a quick search of the archives just to see what past analysis and positions have been and there area number of +14%, +22%, +34% P/L posts.

However, we are where we are today, a lot of this is going to depend on the market, although the longs that I like have what I call, "Legs of their own", meaning they are stronger than the typical 2/3rds of stocks that simply draft the market, I think there's still a gravitational pull for MCP, just not at 2/3rds as it controls more of its own destiny.

I don't believe we have any open positions ion MCP at the time. Earlier in September I wrote, "I think we are pretty much done with gains for September."

MCP is complicated as there are so many possible trades on different timeframes (almost all bullish) so general market conditions will probably count for more than usual, I'll try to do my best to give you some ideas.

 A weekly (5-day) chart shows the broad strokes of a large base, check out volume which is characteristically low during a bear trend, then the larger volume of capitulation, churning, and ultimately accumulation. However as we get closer to the apex of this large triangle base, volume is falling off as it should, MCP is very close to a make or break it moment, but we can't exclude the probability of a head fake move and on a weekly chart like this, that could be significant in terms of days.

This is more recent action on a daily chart near the apex of the triangle above. The price pattern is a bullish ascending triangle with at least 4 points of contact, an upside price pattern implied target of $11-ish.

There are a bunch of technical and our concepts on the chart, this is why I like candlesticks, they give you so much more information than any other price representation. The numbers are just the points of contact, typically in any size consolidation we have 5 before a move. The letters are events or concepts.

First the overall pattern is an Ascending Triangle which carries an inherent bullish bias and is EXPECTED by technical traders to break out to the upside which makes a breakout to the upside very likely, but a head fake move below the lower support trendline to fuel a short squeeze breakout to the upside, even more or just as likely.

A) Large volume, even on a strong day can be bearish when we have a long upper wick like the first and second day (B)  both have, the candlestick is telling us (along with the volume) that higher prices could not hold, but while prices were extended there was a "Churning" event in which smart money handed off their shares or "sold high" to dumb money. The two consecutive days along with overhead resistance made a downside reversal very probable.

C) Is a decidedly more bearish looking candle that opened high on a large gap up and closed lower around the previous day's close, but not before testing higher prices (the long upper wick) and not only seeing them rejected, but also forming a "Tweezer Top" candlestick formation with "A", the fall was rapid after Institutional support evaporated as all shares were handed off to weak hands through churning creating a downside snowball effect.

D & F) Are both gap fills, since HFTs have dominated market liquidity and nearly replaced the middle men (market makers and specialists), almost all gaps are filled, which is a shame because in the past, gap support and resistance were the best support and resistance based on actual supply and demand and not a self-fulfilling move as those created by popular moving averages that would otherwise have no value other than that which traders attach to them. Break away and Exhaustion gaps were valuable information that is largely gone from the market, they survived centuries of trading from rice to stocks, but didn't survive HFT.

E) Is a churning move similar to (A) with a long upper wick and increased volume as it was also a head fake move in the form of a failed breakout, the next day's candle was a bearish Engulfing candle, gapping up above the previous close and closing deep below the previous open so it swallowed the entire body of the previous day, this also confirmed the bearish reversal (Note the head fake move at an important reversal).

G) is a recent close, similar to a bearish reversal candle called a "Shooting Star" or what the Japanese rice traders called, "Trouble overhead". The increased volume (it doesn't have to stand out like a sore thumb, but even though it doesn't readily stand out on this chart, it is nearly double the local volume) makes the reversal pattern at least 50% more likely.

 My X-Over System to avoid false moving average cross-overs and it can be used as a stand-alone trading system with pullback probabilities and targets as the trade proceeds as well as warning indications or a probable change in trend. The top two m.a.'s are a 10 and 22 , the middle window has a custom indicator (yellow) with a 22 bar moving average applied to it and in the bottom window is Wilder's RSI period 14. You can probably figure out what is a sell/short signal and what is a cover/buy signal as well as what would be considered a trend and any noise that might otherwise kick you out of the trend is confirmed or denied by all 3 indicators working together, this is an excellent swing/trending system.

I mentioned "warnings" such as the divergences in RSI vs price, these may not be enough to close a trade, but they are a warning that you should maybe take partial profits, have a trailing stop or keep a close eye on it.

The current likely pullback areas  are $6.79 and $6.53, however this signal is so new that it is unlikely that these are great pullback areas until there is a clear trend established which means a breakout above the ascending daily triangle and a breakout above the 5-day symmetrical triangle-watch for head fake moves below either or both triangles at the same time, THESE HEAD FAKE STOP RUNS WILL BE YOUR HIGHEST PROBABILITY ENTRY IN TO MCP FOR WHat should be the one trade we haven't had yet, a trending trade of some size and duration.

A multi-day (2) 3C chart with great downtrend confirmation by 3C, several smaller price moves that were certainly tradable and the start of, and increasing 3C accumulation. 

 The 4 hour chart, you can see the various divergences especially the leading positive right now, also several other concepts such as a tweezer top and two symmetrical triangles that Technical Analysis expected to break in the opposite direction (Head Fake moves).

 Closer to home, the breakout from a bearish triangle to the upside (another head fake move) is seeing distribution, this is why I've been patient with MCP. However, it is worth keeping an eye on, remember all new divergences like a positive that may make this negative divergence unimportant, will start on the fastest timeframes first and if they are strong enough, they will migrate to longer timeframes.

 The 2 min chart is still negative, it was positive at the head fake breakout from what was suppose to be (according to Technical Analysis) a bearish consolidation/continuation pattern, however it was a clear head fake set up as 3C was already showing a positive divergence as it formed. There was another positive at the dip/correction, but a leading negative on a parabolic-ish price move recently.

If we see this chart start to go positive, then we may have a high probability trade in MCP that  would be at least swing, but considering the 5-day chart, could go to a position/trend trade.

Here's more recent action on a 1 min chart with a Bearish "looking, "Descending Triangle, although it's in the wrong place as it should follow a preceding downtrend, either way, traders are focussed on the triangle and / price pattern and not so much the rules. A head fake break below support would possibly create enough stop losses and perhaps some short selling to give Wall St. enough supply to accumulate, if so, then the intraday 3C charts that are negative, will start to turn positive and we will have a HIGH probability long trade, but the break below or even above, must be confirmed by 3C as either a head fake or a real breakout, I probably wouldn't trade a real breakout without the head fake move. There could be a "Crazy Ivan" shakeout with a failed upside breakout followed by a head fake downside break down and if we have 3C accumulation on the second leg I'd consider entering long there as we then have a High probability, low risk, excellent timing position.

TLT Update

If you entered the TLT Nov. $108 Puts yesterday around 2:15 when the idea was posted and when I said I'd be opening a position there, you're up in the double digits this morning. TBT longs should be doing decent as well.

I want to give you some updated idea of the target and where I might be looking at TLT long because as you know, the target zone has been $100-$102, but I have a feeling we're not going to make it back to that level unless the market bounce we are looking for, which price wise looks beautiful so far this week and today, is as strong as the base itself looks, the 3C signals in the base as I have been complaining all week are there, but some of the weakest all year.

 This trendline broke this morning giving pour puts from yesterday or TBT longs, a nice profit for 2 hours in to the position. You know the TLT trade is not just about the market's need for an engine via the SPY arbitrage, but the Treasury correlation recently changed overnight just like the Gold correlation changed overnight a couple of weeks ago (flipping from risk on to flight to safety in T's and Flight to Safety to Risk on in G- at least for a time, now that may be in the air again- I think the only way to be sure about gold is to come cleanly out of the SPX base).

In any case, that's a clean, clear violation of the trendline. While I don't prefer puts at this time tactically speaking (although they may still offer the best return- they no longer have that element of surprise and deep discount we got yesterday), TBT does work as it doesn't have the unique features built in to options premiums. We "may" get a pullback to fill this morning's gap and that would be the place to look, but I don't think it is necessary as it can always be done later.

 TLT 3 min 3C Negative divergence, there are some worse, but I never considered this to be strong distribution, I considered this to be rotational distribution.

 The 10-year Treasury Futures have a distinctly different character about them, the benchmark Treasury does not look to have the same future as the 20+ years Treasuries which you know I like as a longer term play in the right place. This is the 30 year future on a 30 min chart, note the negative 3C divergence, again, not large, more in the area of a rotational distribution than serious selling.

Here's the problem with the $100 to $102 long target.

On this chart stretching back to July, you can see the price pattern clearly right? Well I suspect that unless the market bounce is stronger than it appears for now. Maybe a short squeeze with SPY arbitrage (which a dropping TLT helps) and add an activated carry cross  and some "just right" news on the Congressional budget front gets us there, but in lieu of that, the obvious area is that of symmetry and that's in the yellow area to the left and implied price target to the right of the mid $104 level.

We'll see how 3C reacts to prices either falling or bouncing intraday within this move for hints.

For now though, I'd be looking to take TBT profits when TLT hits the mid $104 level unless the updates for TLT and 3C show something quite different and with the puts, it's all about the momentum so I'll of course let you know when the position is wrapped up.

A.M. Brief

Good morning.

Well I can say we were RIGHT ON about the Nikkei 225 for anyone who may have traded futures last night, from the After Hours post...

"*For those of you who may be trading the Nikkei, so far the futures look like it's going to see a bounce."

 The Nikkei shot up higher almost immediately after last night's comments.

As for the US...
Although Initial Claims beat, Continuing Claims missed so I guess we can't get a feel for whether good is bad or good is good and vice versa.

Final Q2 GDP came down from the initial adjustment of 2.52% today's final print missed expectations of 2.6 when it printed at 2.48% print and guess what? The market didn't care about either event.

While this 30 min chart of ES is just starting to see a semi respectable positive divergence (I told you this has been weak all weak", more impressive is the size and shape of this base that I really didn't expect to be much in terms of size because the 3C charts were and for a base this size, still are very weak, but finally improving.

It seems quite obvious there's a stall to see what happens with the debt ceiling and the DC "debate", but overall, I have to say this still looks like it will fire, it just becomes hard to say how much of this is real base and how much is just killing time before Monday?

Remember, Thursdays tend to close near the Friday op-ex pin, which I suspect will be quite a bit lighter than last week for obvious reasons.