You all know that we've been building a new website that has a lot of new features, I posted the Risk Calculator that members can use that will automatically figure out position sizes based on the data you enter for stops, entry price, etc, and that is based on both the 2% rule as well as the "Maximum percentage per position" to protect against gaps.
One of the new features is the member's profile page where you can change your password, fill out trading biographics and see the averages of others in different trading situations, you can upload a picture or avatar which will be displayed in an area where members can upload their favorite trades ideas, some of which I'll likely feature and a bunch of other neat stuff.
It's always the details that seem to take the longest, but we are tightening up those details. The one area I think members would like input is "Post Labels" for email distribution.
For instance, on your personal profile page, you'll be able to select the types of posts you want delivered to your email as well as the email you'd like them delivered to, sort of like now, except you'll be able to chose "all", which you won't need to if it is simply to know when there's a new post as the site automatically refreshes so you'll always know when a new post is on the site. Or perhaps you only want "Trade Ideas" or "Trade Ideas and Daily Wrap".
In any case, each post will be labelled as to type and that will determine which you chose, we think 6 different post types are about right.
For instance: Trade Ideas, Market Update, Position Follow Up, Daily Wrap, Special - like special analysis such as a breadth post, or something unique, perhaps pre-market/post market, etc.
We need to nail down about 6 different types. Since this is really mostly to help you get the content that is most important (or you can chose "all"), I thought I'd run it by you. Perhaps there are certain posts you'd really like in your email and others you can read at your leisure.
In case it makes any difference in your choice, know that we will have regular archives like we have now, but in addition, if you check in to the site real quick there will be a list with links to the titles os that day's posts so you can see them quickly and easily. Also there will be a similar section with links to any trade ideas entered, exited or otherwise managed in some way so you can quickly see and catch up on the important stuff with a brief glance if you are pressed for time.
If you feel like sending more than 6, please feel free, but we are really down to the nitty gritty and I want this to be as useful to you as possible so please send me your feedback.
Thank you,
Brandt
Wednesday, October 16, 2013
Daily Wrap: Buy the Rumor / Sell the News
This morning obviously would have been the rumor and at last check 11 p.m. tonight is when it becomes actual news just in time as we and probably everyone thought.
So where do we go from now and how do we play it? Lets take a look at what we have.
Since we just got done looking at "Carry trades" and how currencies effect the market, the leader of the 3 major pairs today was the AUD/JPY, however as I talked about in the last post and recently the last couple of days, the Yen is changing in a way that is not conducive to supporting carry trades as the 3 majors all end with "JPY".
Here's one of several charts that looks like the Yen has found for now, looks to be some sub-intermediate base.
It's not just the range which is characteristic of accumulation (in this case), but even the head fake moves we see or stop runs (in this case) that occur just before a reversal in about 80% of reversals.
What may be more damning for the market is the Index Futures (ES, NQ and TF - SPX, NASDAQ 100 and Russell 2000 futures respectively).
These had been negative on 5 min charts, but the longer the chart, the more serious the divegrence, in 2 0f 3 we have clear negatives on the 30 min chart (the 3rd is negative on a 15 min), that's through the 5 min, through the 15 and to the 30 min. Take a look and I'll point out something else of interest that worked exactly as it should have.
This is the ES (SPX Futures) 30 min chart, before we look at the negative divegrence to the right, look at the positive divegrence at the white arrow.
You may or may not recall that on October 9th, my Custom "Buy/Sell" indicator inspired by DeMark principles gave a rare "Sell" signal in the spot VIX.
The positive divegrence in ES above correlates exactly with the red sell signal in the VIX and the VIX has come down since (remember the VIX trades opposite the market so a sell signal would cause you to expect the market to rise).
In the "Daily Wrap" of October 9th when I showed the chart of the sell signal (click the link to read the article), I had talked about a reasonable size reversal process in place for a move to the upside, showed the VIX sell signal, and ended with...
"So the play is to ride the upside, I call it "Hitch-hiking" until we get in to the upper end of the range or above it and look to close out the leveraged long and look to enter or add to the core short position."
All of the Index averages have positive divergences right at the 9th, the same time as our VIX Sell signal (you can't see it on the NASDAQ chart below because it's a shorter 15 min chart rather than the 30 of ES and TF).
What you'll also notice is all 3 Index futures have clear negative divergences now, take a look at ES above or NQ below.
NQ 15 min shows Friday and the last 2 hours of the day when we started to see some distribution, I figured it was light and likely for a pullback, however it looks like it was the start of selling in to higher prices and a larger negative divegrence/distribution.
I tell members who use 3C, "If there's no clear signal, look at the trend or longer chart". The 30 min chart gives a very clear trend of accumulation in to the low of the 9th, this was just after I had been talking about the market needing a larger reversal process and the action around the 9th provided it.
The green arrows are 3C/price trend confirmation, meaning everything looks fine with price as far as 3C is concerned.
The red arrow is obviously a negative divegrence, as is typical they start with a weaker relative as we see first and are followed by a stronger leading divegrence.
For the Russell 2000, this is exactly the kind of move I had expected, a move ABOVE the 10/1 highs, for other stocks like NFLX, we aren't there yet as a move above $334.50 (as mentioned earlier) is what I'm looking for , not just in NFLX, but many assets, still others are in the zone. The market tends to be extreme, so a head fake move is usually not just a slight break of resistance or support, they have to be convincing and there's a reason why.
If you haven't had the chance yet, try to read these two articles I wrote,
Understanding the Head Fake Move: How Technical Analysis Went from an Asset to a Trap
and...
Understanding the Head Fake Move: Motivation
(Both articles are linked at the top right of the member's page)
This explains why these moves occur so frequently and why in this case, they benefit Wall St and in many cases in which we are setting up trending trades, us as well.
If I had to guess based on the concepts alone, I'd say the market can remain extreme and they can use whatever tools at their disposal from the SPY arbitrage intraday to Carry Trades to flat out support of highly weighted stocks, although fooling around with VXX seems to be one of the preferred methods that likely costs a lot less.
I'll show you both sides as best I can and quite honestly we can't rule out something as simple as a move to the downside to regroup and a push to the upside over these resistance points, that may be what explains numerous signals.
The fact is a day like today is very difficult to get good analysis from as it's a fundamental, emotional event that often isn't efficiently discounted because no one knows what shape the final resolution will take- we still don't (not to mention unforeseen consequences, i.e. Fitch).
At the end of the day I mentioned how flat, not only the averages were, but almost every stock out there and I suspected there was likely something going on around VWAP (Volume Weighted Average Price) which is the area a specialist or market maker tries to fill institutional buy or sell orders, the better the fill the more business they are likely to get. HFTs have largely taken over the liquidity role, essentially doing what day traders were doing 15 years ago when a T1 line was considered fast and that's scalping or trying to get in front of the market maker and essentially perform that task.
This is ES and VWAP for today from 5 a.m. EDT to about 5 p.m. Typically a fill for a buy order would be at VWAP or at the lower channel (almost always an average) and selling is at or above VWAP. It's kind of interesting that the market sat near VWAP later in the afternoon.
Considering what the market is doing, it's getting interesting again to see what smart money is doing and I don't just mean 3C above, I mean the CONTEXT model for ES (SPX Futures). When the market gapped down Sunday night, it gapped almost exactly to the level CONTEXT was modeling, missing it only by a few percent.
As of tonight...
Shortly after the opening move higher which was the momentum move of the day with the rest of the day more or less range bound, the assets that make up CONTEXT were selling off, smart money was apparently moving out pretty quickly and there's now about a -19 ES point differential between ES and the model, whereas it had recently been flat around +/- 2 points. These are institutional sellers of risk assets because very few retail traders are trading Credit risk, Carry Trades, interest rates and curves, etc.), these are institutional risk assets.
As far as some of what I saw today, a lot of it was just getting started, remember other than a short duration pullback, this is the move to the upside we've been expecting and pretty darn close to the area we've been expecting.
HYG (High Yield Corporate Credit) is a risk asset institutional traders use often, because of that, it also happens to be one of the 3 assets used in SPY or market arbitrage, the other two are VXX (Short Term VIX Futures) and TLT (20+ year Treasuries). The basic idea of arbitrage manipulation is algos/computers see HYG (an institutional risk asset) moving up and they assume professionals are buying, so the algos buy. At the same time to make it effective, the VIX should fall so they look for VXX to fall and because Treasuries have long been considered a "Flight to Safety " trade, TLT falling as well all help with intraday or very short term manipulation of the market.
HYG up, VXX down and TLT down = positive market arbitrage
HYG down, VXX up and TLT up= negative SPY arbitrage
The computers are just trying to figure out if there's a flight to safety or a risk on move and they are buying and selling based on that; earlier today I snapped the Arb. model because I saw HYG moving uncharacteristically, I took a later screen shot and as I suspected, there was an effort to activate SPY buying which are charts I showed you today. In fact, just before the news came out and the market shot up this morning, VIX futures were hit first with selling.
So HYG performed a little better than even the SPX, however at the same time High Yield JUNK Credit which usually performs almost exactly the same as HYG (however is NOT an arbitrage asset so there's no utility in manipulating it) traded worse.
*These are considered Leading Indicators the way we use them, the comparison symbol will always be the SPX in green unless otherwise noted*
HYG performed almost exactly like the market, but had better momentum from 12 p.m. to 2 p.m. when the SPX was flat and also had better relative performance at the dip just before and in to the closing ramp attempt.
JUNK Credit however was more similar to the SPX and didn't participate at all in the last hour and a half ramp attempt.
The much more sensitive High Yield credit (due to tighter liquidity) acted totally different as it has no correlation to anything market moving. This was the most supportive risk asset especially among credit since the end of September, actually leading the SPX...
HY was very strong off the Oct. 9 bottom, then faded pretty quickly, it lost more ground today with ZERO participation. The issue with HY Credit as I've seen once before, if traders with decent size (institutional) positions need to get out fast, the thin liquidity can send this down fast and hard (I've seen it erase a year of gains in 2-days) so it's usually the fist institutional credit asset to react.
As for our Leading sentiment indicators,
You can see how this showed bullish sentiment almost 2-days before the market moved to the upside, it's been showing negative sentiment about the same length of time.
Our second indicator for sentiment is showing similar, but more dramatic negative sentiment. Essentially, the pros are packing it in.
As for longer term...
The first sign of trouble was in to the May 22nd 1-day Key Reversal and of course now things are a lot worse which fit with numerous other indications, this is the big picture so in my view, the choices made in this area are very serious.
Yields are another asset we use, they tend to lead the market and almost act like a magnet pulling the market toward them until they meet up. Today's action in Yields wasn't very good for the market.
Notice how Yields are leading the market well before the SPX hit the Oct 9 low (Monday there's no data as the bond market was closed for Columbus Day). Today Yields led the market lower almost vertically. I don't like to look at 1 day of information and give it to much weight, but this market is in a very volatile, fast moving area so it can't be discounted either. Obviously tomorrow's data will be important.
A few other things of note, today's Spot VIX saw the largest 1-day move to the downside all year.
Today's candle is huge. Although we had a sell signal in the VIX and this is consistent with that sell signal, I think a lot of today's downside action in the VIX was simply protection that had been bought over the past weeks as no one knew how or when or even if the D.C. stand-off would end and it was simply being unwound. In some way I have to wonder if this didn't create a short duration exhaustion event in the VIX.
You may remember 3C on a 15 min chart was showing us a negative divergence in he VIX Futures around the time the sell signal came.
There was a very late day (intraday) negative right in to the close and open this morning of VIX futures sending them lower, however there was also a positive divegrence building since about noon time which is when the market was starting to range.
VXX/UVXY are also interesting, not only because they showed the distribution going in to the VIX sell signal which allowed us to make +40% in 4 hours (see the link from the trade) believe we made 40% on VXX short based on those signals in 1 day, but also because of what's happening now and how the 3C signal mirrors the VIX futures (price between short term VIX futures and VXX should match, but underlying trade can be VERY different).
This is VXX intraday, the same positive divegrence as VIX Futures at the same time.
However look at the same chart zoomed out to reveal the trend, note the distribution in to Oct. 9th which is what gave us our short VXX signal and check the large leading positive divegrence around the 14/15th and today.
I can't say some or a lot of this won't be unwound, but it seems what was going to be unwound was already done today. A 1-min chart can EASILY confirm distribution in unwinding this position and could have done it in the first 30 minutes of trade. This is why I have very little problem holding VXX November Calls or VXX / UVXY long (equity).
This is a 10-min chart of UVXY (some people think ProShares tracks better) and it has a clear leading positive just before VXX/UVXY launched and a clear leading positive divegrence like the 1 min chart above.
I'm honestly not sure what to think of this because even a 10-min chart could have confirmed the downside in a few hours today sending 3C down to the same level as price, it seems to me something is going on here. (Remember VIX trades opposite of the market).
The CBOE SKEW Index is another that's interesting, this is sometimes called the "Black Swan" index, meaning a market crash. I really don't have enough historical data (CBOE does, but they didn't release historical data) to test the efficiency of the Index, I know I have very little respect for the famous Hindenburg Omen, we've seen how many now and in clusters?
So again, I don't know how much weight to give this, but a couple of weeks ago I posted what I thought was a change in the ROC and sure enough...
What I do know is that this is meant to predict an unpredictable event or a "Black Swan market crash". The normal reading is 115, up here at 133 it is elevated and what the CXBOE would probably label as a warning flag.
Other than that, HYG had been building accumulation a month or so ago and this is one of the reasons I suspected the up cycle along with other reasons, today there was some intraday distribution in HYG, but it seemed they were leaning on HYG pretty hard to help the market at the EOD. I would expect to see VERY strong distribution in HYG before a market crash, I think we could see a volatile correction with much less, but otherwise we have seen strong distribution and HYG dislocate with the SPX, I'd expect to see that, but in this market I think you have to not be too rigid and be open to what the market is showing you.
Again today there was no Dominant Price / Volume relationship among any of the major averages.
As most of you know, based on our concepts (here I'm talking specifically about the articles "Understanding the Head Fake Move" linked above) , signals, etc, there are so many great looking shorts that are in a position like the SPX chart below, I fully expected a head fake move in a lot of them like the NFLX chart I showed today.
The SPX isn't the best proxy because a lot of these have clearly defined resistance or double tops and a break above those areas is what I expected from this move. I'm going to look at a larger watchlist and see how many actually made that move, but there are quite a few bellwethers I expected to that didn't. This isn't to say anything of action for the next several days, there are a lot of ways it can play out and there may be information that tells us we have to change our expectations, for instance perhaps that move is as close as it's going to get.
A lot of you may remember my AAPL short at the top, I clearly expected a head fake move higher and it looked very probable, then Dan Loeb's Third Point Fund released their holdings and AAPL was no longer on the top 5 and immediately all the hedgies sold at once dropping AAPL 390 points of -45%, that's a fundamental even only Loeb knew about, so we may have a similar situation with this event as well as unexpected circumstances like the F_E_D acting differently because they obviously held off on the taper because of this ordeal, if it's a done deal, we may be taper on. Fitch may downgrade US debt, there are so many variables when a fundamental event like this occurs that is next to impossible for the market to discount.
Bottom line, we did see negative divergences today in the averages, in the index futures, we saw confirming signals in VIX futures (VXX, etc), however based on the move to the upside, I'd expect early limit orders from the 9 to 5-ers as they chase today's move, so a.m. trade would seem to me to be volatile and likely filled with early limits, UNLSS FUTURES GO SOUTH TONIGHT.
This is VERY early, but since I saw it develop as I've been putting this post together, I thought I'd include it.
I already shoed a positive (larger) base forming in the JPY/Yen, which can basically kill any of the carry trades that have been used to help move the market. I recently have been using a new analogy, "The longer term divergences are like the promise of something locked in a chest, the short term divergences are like the key".
This may not be much, but at the lows and because it coincides with Nikkei 225 futures, I thought this 1 min JPY leading positive divegrence may be important.
Further along and in to today, the 5 min JPY leading positive divegrence is already in place.
A rising Yen wouldn't be good for the Asian overnight market or at least the Nikkei 225, here are the 225's Futures...
At the same time and high (vs the Yen low), there's a similarly confirming leading negative, this is still intraday 1 min and usually not something that holds overnight unless it continues building.
What really caught my eye though was the Russell 2000 Futures, TF 1 min
That's a pretty impressive leading negative divegrence , NQ may also be starting a similar divergence, but I'm going to let that have some time before posting it.
We already know the TF 30 min chart is in some trouble...
I wouldn't normally say this is so extreme that it's jumping off the charts and I can't ignore it, meaning I'd have to take a position, but it's clear deterioration. When all of the intraday charts link up to this one, that's when the fireworks start.
Lastly, in addition since capturing CONTEXT earlier, the dislocation has grown.
Of course I'll check futures again in a few hours and see if we have an early edge.
So where do we go from now and how do we play it? Lets take a look at what we have.
Since we just got done looking at "Carry trades" and how currencies effect the market, the leader of the 3 major pairs today was the AUD/JPY, however as I talked about in the last post and recently the last couple of days, the Yen is changing in a way that is not conducive to supporting carry trades as the 3 majors all end with "JPY".
Here's one of several charts that looks like the Yen has found for now, looks to be some sub-intermediate base.
What may be more damning for the market is the Index Futures (ES, NQ and TF - SPX, NASDAQ 100 and Russell 2000 futures respectively).
These had been negative on 5 min charts, but the longer the chart, the more serious the divegrence, in 2 0f 3 we have clear negatives on the 30 min chart (the 3rd is negative on a 15 min), that's through the 5 min, through the 15 and to the 30 min. Take a look and I'll point out something else of interest that worked exactly as it should have.
You may or may not recall that on October 9th, my Custom "Buy/Sell" indicator inspired by DeMark principles gave a rare "Sell" signal in the spot VIX.
In the "Daily Wrap" of October 9th when I showed the chart of the sell signal (click the link to read the article), I had talked about a reasonable size reversal process in place for a move to the upside, showed the VIX sell signal, and ended with...
"So the play is to ride the upside, I call it "Hitch-hiking" until we get in to the upper end of the range or above it and look to close out the leveraged long and look to enter or add to the core short position."
All of the Index averages have positive divergences right at the 9th, the same time as our VIX Sell signal (you can't see it on the NASDAQ chart below because it's a shorter 15 min chart rather than the 30 of ES and TF).
What you'll also notice is all 3 Index futures have clear negative divergences now, take a look at ES above or NQ below.
The green arrows are 3C/price trend confirmation, meaning everything looks fine with price as far as 3C is concerned.
The red arrow is obviously a negative divegrence, as is typical they start with a weaker relative as we see first and are followed by a stronger leading divegrence.
For the Russell 2000, this is exactly the kind of move I had expected, a move ABOVE the 10/1 highs, for other stocks like NFLX, we aren't there yet as a move above $334.50 (as mentioned earlier) is what I'm looking for , not just in NFLX, but many assets, still others are in the zone. The market tends to be extreme, so a head fake move is usually not just a slight break of resistance or support, they have to be convincing and there's a reason why.
If you haven't had the chance yet, try to read these two articles I wrote,
Understanding the Head Fake Move: How Technical Analysis Went from an Asset to a Trap
and...
Understanding the Head Fake Move: Motivation
(Both articles are linked at the top right of the member's page)
This explains why these moves occur so frequently and why in this case, they benefit Wall St and in many cases in which we are setting up trending trades, us as well.
If I had to guess based on the concepts alone, I'd say the market can remain extreme and they can use whatever tools at their disposal from the SPY arbitrage intraday to Carry Trades to flat out support of highly weighted stocks, although fooling around with VXX seems to be one of the preferred methods that likely costs a lot less.
I'll show you both sides as best I can and quite honestly we can't rule out something as simple as a move to the downside to regroup and a push to the upside over these resistance points, that may be what explains numerous signals.
The fact is a day like today is very difficult to get good analysis from as it's a fundamental, emotional event that often isn't efficiently discounted because no one knows what shape the final resolution will take- we still don't (not to mention unforeseen consequences, i.e. Fitch).
At the end of the day I mentioned how flat, not only the averages were, but almost every stock out there and I suspected there was likely something going on around VWAP (Volume Weighted Average Price) which is the area a specialist or market maker tries to fill institutional buy or sell orders, the better the fill the more business they are likely to get. HFTs have largely taken over the liquidity role, essentially doing what day traders were doing 15 years ago when a T1 line was considered fast and that's scalping or trying to get in front of the market maker and essentially perform that task.
Considering what the market is doing, it's getting interesting again to see what smart money is doing and I don't just mean 3C above, I mean the CONTEXT model for ES (SPX Futures). When the market gapped down Sunday night, it gapped almost exactly to the level CONTEXT was modeling, missing it only by a few percent.
As of tonight...
As far as some of what I saw today, a lot of it was just getting started, remember other than a short duration pullback, this is the move to the upside we've been expecting and pretty darn close to the area we've been expecting.
HYG (High Yield Corporate Credit) is a risk asset institutional traders use often, because of that, it also happens to be one of the 3 assets used in SPY or market arbitrage, the other two are VXX (Short Term VIX Futures) and TLT (20+ year Treasuries). The basic idea of arbitrage manipulation is algos/computers see HYG (an institutional risk asset) moving up and they assume professionals are buying, so the algos buy. At the same time to make it effective, the VIX should fall so they look for VXX to fall and because Treasuries have long been considered a "Flight to Safety " trade, TLT falling as well all help with intraday or very short term manipulation of the market.
HYG up, VXX down and TLT down = positive market arbitrage
HYG down, VXX up and TLT up= negative SPY arbitrage
The computers are just trying to figure out if there's a flight to safety or a risk on move and they are buying and selling based on that; earlier today I snapped the Arb. model because I saw HYG moving uncharacteristically, I took a later screen shot and as I suspected, there was an effort to activate SPY buying which are charts I showed you today. In fact, just before the news came out and the market shot up this morning, VIX futures were hit first with selling.
So HYG performed a little better than even the SPX, however at the same time High Yield JUNK Credit which usually performs almost exactly the same as HYG (however is NOT an arbitrage asset so there's no utility in manipulating it) traded worse.
*These are considered Leading Indicators the way we use them, the comparison symbol will always be the SPX in green unless otherwise noted*
The much more sensitive High Yield credit (due to tighter liquidity) acted totally different as it has no correlation to anything market moving. This was the most supportive risk asset especially among credit since the end of September, actually leading the SPX...
As for our Leading sentiment indicators,
As for longer term...
Yields are another asset we use, they tend to lead the market and almost act like a magnet pulling the market toward them until they meet up. Today's action in Yields wasn't very good for the market.
A few other things of note, today's Spot VIX saw the largest 1-day move to the downside all year.
You may remember 3C on a 15 min chart was showing us a negative divergence in he VIX Futures around the time the sell signal came.
VXX/UVXY are also interesting, not only because they showed the distribution going in to the VIX sell signal which allowed us to make +40% in 4 hours (see the link from the trade) believe we made 40% on VXX short based on those signals in 1 day, but also because of what's happening now and how the 3C signal mirrors the VIX futures (price between short term VIX futures and VXX should match, but underlying trade can be VERY different).
I can't say some or a lot of this won't be unwound, but it seems what was going to be unwound was already done today. A 1-min chart can EASILY confirm distribution in unwinding this position and could have done it in the first 30 minutes of trade. This is why I have very little problem holding VXX November Calls or VXX / UVXY long (equity).
I'm honestly not sure what to think of this because even a 10-min chart could have confirmed the downside in a few hours today sending 3C down to the same level as price, it seems to me something is going on here. (Remember VIX trades opposite of the market).
The CBOE SKEW Index is another that's interesting, this is sometimes called the "Black Swan" index, meaning a market crash. I really don't have enough historical data (CBOE does, but they didn't release historical data) to test the efficiency of the Index, I know I have very little respect for the famous Hindenburg Omen, we've seen how many now and in clusters?
So again, I don't know how much weight to give this, but a couple of weeks ago I posted what I thought was a change in the ROC and sure enough...
Other than that, HYG had been building accumulation a month or so ago and this is one of the reasons I suspected the up cycle along with other reasons, today there was some intraday distribution in HYG, but it seemed they were leaning on HYG pretty hard to help the market at the EOD. I would expect to see VERY strong distribution in HYG before a market crash, I think we could see a volatile correction with much less, but otherwise we have seen strong distribution and HYG dislocate with the SPX, I'd expect to see that, but in this market I think you have to not be too rigid and be open to what the market is showing you.
Again today there was no Dominant Price / Volume relationship among any of the major averages.
As most of you know, based on our concepts (here I'm talking specifically about the articles "Understanding the Head Fake Move" linked above) , signals, etc, there are so many great looking shorts that are in a position like the SPX chart below, I fully expected a head fake move in a lot of them like the NFLX chart I showed today.
A lot of you may remember my AAPL short at the top, I clearly expected a head fake move higher and it looked very probable, then Dan Loeb's Third Point Fund released their holdings and AAPL was no longer on the top 5 and immediately all the hedgies sold at once dropping AAPL 390 points of -45%, that's a fundamental even only Loeb knew about, so we may have a similar situation with this event as well as unexpected circumstances like the F_E_D acting differently because they obviously held off on the taper because of this ordeal, if it's a done deal, we may be taper on. Fitch may downgrade US debt, there are so many variables when a fundamental event like this occurs that is next to impossible for the market to discount.
Bottom line, we did see negative divergences today in the averages, in the index futures, we saw confirming signals in VIX futures (VXX, etc), however based on the move to the upside, I'd expect early limit orders from the 9 to 5-ers as they chase today's move, so a.m. trade would seem to me to be volatile and likely filled with early limits, UNLSS FUTURES GO SOUTH TONIGHT.
This is VERY early, but since I saw it develop as I've been putting this post together, I thought I'd include it.
This may not be much, but at the lows and because it coincides with Nikkei 225 futures, I thought this 1 min JPY leading positive divegrence may be important.
A rising Yen wouldn't be good for the Asian overnight market or at least the Nikkei 225, here are the 225's Futures...
What really caught my eye though was the Russell 2000 Futures, TF 1 min
We already know the TF 30 min chart is in some trouble...
Lastly, in addition since capturing CONTEXT earlier, the dislocation has grown.
context 
Of course I'll check futures again in a few hours and see if we have an early edge.
Goldman Lesson and some Odds and Ends...
I want to start with Goldman Sachs first, you may not recall and I don't blame you, but I've seen this so many times that I make a point of following the information, on Thursday October 3rd, Goldman Sachs (GS) came out with one of their infamous "Free Trade Ideas", as you know we've tracked something approaching a dozen of the last GS free trade ideas and this was no different.
I mentioned it first in a midnight futures post on Friday October 4th at about 12:53 a.m. as follows...
"Interestingly, the VAMPIRE SQUID, better known as Goldman Sachs who trades against their own clients, is out with some free advice from Mr. Stoppler, which is an ironic name because the last 6 or 7 trade recommendations he's put out have been "Stop-plerred" out.
Today GS and the Stop man put out some FREE trading advice and rec'd:
"We recommend going short $/JPY (USD/JPY) at current levels of about 97.30 for a tactical target of 94.00, with a stop on a close above 98.80."
Short the USD/JPY huh? Free advice from Goldman huh? Other than the fact the trade is a 2:1 risk/reward ratio, WELL BELOW the minimum of 3:1 any decent trader would consider to be the bare minimum, the fact is GS fully expects this trade to be stopped out because they don't spend millions on research to give you their trade ideas and have you competing and taking away their edge and profit, they aren't a charity.
This simply means, GS is buying $USD/JPY, they aren't dumb, that means a risk on currency pair should be seeing upside action and that's helpful to the market, but what does 3C show?
I mentioned it first in a midnight futures post on Friday October 4th at about 12:53 a.m. as follows...
"Interestingly, the VAMPIRE SQUID, better known as Goldman Sachs who trades against their own clients, is out with some free advice from Mr. Stoppler, which is an ironic name because the last 6 or 7 trade recommendations he's put out have been "Stop-plerred" out.
Today GS and the Stop man put out some FREE trading advice and rec'd:
"We recommend going short $/JPY (USD/JPY) at current levels of about 97.30 for a tactical target of 94.00, with a stop on a close above 98.80."
Short the USD/JPY huh? Free advice from Goldman huh? Other than the fact the trade is a 2:1 risk/reward ratio, WELL BELOW the minimum of 3:1 any decent trader would consider to be the bare minimum, the fact is GS fully expects this trade to be stopped out because they don't spend millions on research to give you their trade ideas and have you competing and taking away their edge and profit, they aren't a charity.
This simply means, GS is buying $USD/JPY, they aren't dumb, that means a risk on currency pair should be seeing upside action and that's helpful to the market, but what does 3C show?
15 min Yen futures look a little negative...15 min $USDX futures look VERY positive, so despite their recommendation, it looks like the USD/JPY pair is set to gain, stopping out those taking advantage of Goldman's generosity and making GS money as well as providing a risk on carry pair a potential engine for higher market prices!"
So even the day of their recommendation, it was obvious Goldman was going to be doing the opposite of their recommendation, 3C that very day had said the USD/JPY was going higher and it was part of our market analysis for price expectations.
Today, as usual, the free GS trade call was stopped out at a loss, never approaching their downside target, here's what the whole debacle looks like in case you ever decide to listen to any Wall St. free advice and that includes Goldman alumni, "Cramer".
Above is the date of their (Tom Stoppler's) short call, the lowest price the pair made which was no where near their target and the trade going completely wrong almost from the start for any taking it right to today when the trade was stopped out above $98.00.
What may be even more interesting, being GS was in my opinion positively doing the opposite of their call, is if Technical Traders follow the T.A. Dogma of Technical Analysis in which Dr. Alexander Elder (an author I actually like) originally laid out,
"When a trade goes against you (I'm paraphrasing and a bit out of context), then switch positions in the opposite direction"
Effectively that would mean USD/JPY shorts who just lost a boatload and were stopped out, "should and may" reverse their position and go long the $USD/JPY.
3C was correct about the direction of the currency pair the day GS announced it, right now 3C is showing the following re: the FX pair (and by proxy, risk-on support for the market via this particular carry trade).
As the Yen has dropped during the USD/JPY rise, there has been a 3C positive divegrence forming on the 15, 30 and 60 min charts. In fact, just last night in the Daily Wrap, I was showing how the USD/JPY had an incredibly tight correlation with SPX futures; what I was really showing you was how a currency carry pair can either support or send a market lower, take a look at the post.
However the important part for our purposes here was the following from a post last night...
"That leaves the $USD, in my opinion from the 3C charts, this is the currency that is most likely to see downside "
(*It's true that the legacy correlation with the $USD has been a falling $USD makes stocks, precious metals and commodities more expensive, but in the context of a carry trade, the exact opposite is true and that has been the correlation just about since November of 2012*)
Also from last night...
"The Yen finally is inline on the 1 min and has definitive positive bias beyond 1 min charts, which could be trouble ahead if there's nothing else moving the market like bi-hourly Congressional leader cheerleading...Strength in the Yen, which I'm 80% convinced is coming, will damage the carry cross like the Euro/JPY above in candlesticks, when you look at how ES (purple) has been hugging the pair both up and down the last 4-days (yesterday up, today down, tonight up), you understand why a falling EUR/JPY (like today during regular hours) is damaging to the broader market."
I know that's a lot to take in if you are not use to Currency Pairs and how they effect the market, especially the "Carry Trade" pairs; the posts above from yesterday show you the correlations.
When you buy the USD/JPY you are long the $USD and short the Japanese Yen. Goldman recommended doing the opposite on October 3rd and that trade (which had barely any profit potential vs. risk) went bust today, but not before GS could accumulate it on the cheap due to those selling it short and then squeeze them and sell the same trade for a nice profit... leverage in FX can be huge.
However the charts I have been showing the last several days or so have been showing this trade looks highly probable to reverse which would probably suit GS just fine as their target stop is likely the same area they'd be done selling to shorts who were covering at a loss and if retail technical traders do that, "Take the opposite trade if you are stopped out", they'd likely be going long just as the FX pair looks ready to drop. Beyond that, although this is only 1 of the 3 popular carry trades, it has been used a lot lately so it also has market implications.
So what we can take away from this other than "be careful taking free advice from Wall St, is that this becomes a piece of the analysis as I am demonstrating above. The USD/JPY in the green/red candlesticks has had a very tight correlation with the SPX futures in purple. Very often the Currency pair moves first (especially overnight and the market follows, so that helps to answer the chicken and the egg question). Last night and over the last several days a trend of a stronger JPY (Yen) and a weaker $USD has been developing as per the posts quoted above from yesterday, if this correlation holds, that's a bit of interesting and useful analysis.
WHILE WE ARE ON THE SUBJECT OF GS...
I opened a GS call position (which was closed today) on October 8th if I recall, this chart from October 8 showed what I expected to be a decent bounce, in fact that was the caption under the chart.
If I had expected a larger move without too much chop, I would have just went with GS long equity, however since the profit potential seemed limited because this was only a 5 min positive and the market had been very volatile, I decided to use November $160 calls.
This is the same chart today...
You can see the original positive divegrence that made a long trade interesting, but since it has gone to a relative negative with 10, 15, 30 and 60 min charts negative. In addition, there was decent intraday momentum earlier which I prefer to close a position, but the afternoon trade was flag-like, but consolidating in the wrong direction which I've seen turn in to a mess, thus my preference to close it, even if at a small loss.
This is the P/L for the GS $160 call...
At a cost of $6.00 and a fill of $5.96, the loss was 7/10ths of 1% or .007% so almost break-even, I just didn't see the edge there any more.
VWAP?
Everything is so flat, equities, averages, etc, all I can think of is their sitting somewhere around VWAP. I have to upload a different layout that I'd rather not until after the close as the data I'm watching now is more important, but I'm guessing we are sitting right at VWAP, typically flat ranges are distribution or accumulation ranged depending on the preceding trend, signals ,etc.
It's these quiet markets that are range bound that are the most dangerous, you know what I'm going to say I'm sure, "It's like the kids in the next room being a little too quiet" They're up to something and the flat range/non action lulls people in to complacency.
We'll see in a few minutes.
It's these quiet markets that are range bound that are the most dangerous, you know what I'm going to say I'm sure, "It's like the kids in the next room being a little too quiet" They're up to something and the flat range/non action lulls people in to complacency.
We'll see in a few minutes.
VIX , VXX, UVXY Follow Up
There's been a solid spike in underlying trade across all correlated assets from VIX futures to VXX, UVXY and XIV (which are all different ETFs with different leverage or inversion and different management companies, there should be no confirmation unless something actually happened).
Furthermore, VXX which is effected by manipulation to effect the SPY Arbitrage, looks to be in the clear as it looks like they are either giving up on the SPY Arbitrage or it was only meant to hold the ,market up until closing trade in which I speculated there may be a rip lower.
VIX Futures see a sudden spike higher after quiet positive action all day.
VXX has been seeing steady 3C positive divergences intraday
At 3 min you see the same rip higher at the same area.
The 10 min VXX is in a strong leading positive position, this is why I prefer longer dated options or the use of VXX or UVXY long, UVXY long yesterday had a double digit gain.
The inverse (opposite) of VXX is XIV, you see the same spike, except here it is the opposite as a leading negative divegrence as it should be.
The 3 min chart shows it clearly as well.
As to the longer term charts or rather intermediate positives in VXX and UVXY, this 10 min XIV confirms with a leading negative divegrence.
This is HYG which is negative through all intraday timeframes and thus the reason I believe they are letting go of the SPY Arbitrage.
Furthermore, VXX which is effected by manipulation to effect the SPY Arbitrage, looks to be in the clear as it looks like they are either giving up on the SPY Arbitrage or it was only meant to hold the ,market up until closing trade in which I speculated there may be a rip lower.
Trade Position: VXX and VIX Futures are Picking Up 3C Momentum
I'm going to add back the 1/3 VXX calls I closed yesterday in hopes of getting them cheaper, that's a given.
The equity trade is either VXX long or for 2x leverage UVXY long.
Of course I'd still call this speculative.
The equity trade is either VXX long or for 2x leverage UVXY long.
Of course I'd still call this speculative.
Gold & Gold Miners
I've mentioned I like Gold long, I even like Silver which I usually hate due to the years of manipulation and I like Gold miners (GDX) or the 3x leveraged long gold miners, NUGT.
I'm going to put out a Gold/GLD post with both GLD and futures as well as cover GDX, but I wanted to give you a heads up so you can take a look for yourself.
I am seeing these as longer duration positions, swing, maybe longer.
I'll have charts for both out. Because I have NUGT exposure I'll probably not add gold, it's just a matter of risk management and having two assets that are so closely correlated.
I'm going to put out a Gold/GLD post with both GLD and futures as well as cover GDX, but I wanted to give you a heads up so you can take a look for yourself.
I am seeing these as longer duration positions, swing, maybe longer.
I'll have charts for both out. Because I have NUGT exposure I'll probably not add gold, it's just a matter of risk management and having two assets that are so closely correlated.
Market Update
Glad I'm not crazy, as I was putting up the last post, I received this email from a respected trader, that I only saw AFTER the last post...
"Well, for sure one of the worst SPY arb. abuse day I've seen in quite a while. SPY making lower highs since 11h, yet VXX still making regular lower lows. Perhaps it also has to do with the October futures opex, but...."
The point for right now is there's bearish intraday market pressure, the SPY Arbitrage was activated to keep the SPY from falling at the very minimum, maybe to try to lift it. As far as reasons beyond that, whether it's for an EOD bake sale, I don't know, but the SPY looks like this...
SPY 1 min leading negative
There's been migration (stronger divegrence) to longer charts as in the 2 min leading negative above and...
The 3 min is nearly vertical.
I don't have much problem holding the SPXU long, I'm a little hesitant to add VXX at this point, not because of signals, but because I think (at this point) VXX upside would be correlation based, not fear based as they seem to have removed the fear from the market with the D.C. solution.
We'll see, I'm keeping short term positions on the speculative side until there's indisputable reason not to.
One of the things I like about SPXU is that it is leading positive in short, intermediate and long term timeframes, not every one, but it has representation in each.
"Well, for sure one of the worst SPY arb. abuse day I've seen in quite a while. SPY making lower highs since 11h, yet VXX still making regular lower lows. Perhaps it also has to do with the October futures opex, but...."
The point for right now is there's bearish intraday market pressure, the SPY Arbitrage was activated to keep the SPY from falling at the very minimum, maybe to try to lift it. As far as reasons beyond that, whether it's for an EOD bake sale, I don't know, but the SPY looks like this...
I don't have much problem holding the SPXU long, I'm a little hesitant to add VXX at this point, not because of signals, but because I think (at this point) VXX upside would be correlation based, not fear based as they seem to have removed the fear from the market with the D.C. solution.
We'll see, I'm keeping short term positions on the speculative side until there's indisputable reason not to.
One of the things I like about SPXU is that it is leading positive in short, intermediate and long term timeframes, not every one, but it has representation in each.
Short Term Manipulation- Arbitrage for Algos
I'm trying to be cautious and patient today, in the last post I mentioned two very different outlooks. One of the important parts of the post was this and I wanted to elaborate on it in a separate post...
"There are some other issues like some divergences that are not all the way there yet, some credit markets like HYG that haven't failed because I suspect they are likely trying to hold the market up to get to areas like >$334.50 in PCLN."
I mentioned this in an earlier post today With an Apparent Deal In Place and Cruz Not Blocking
This was at 12:39 today from the linked post above...
"I'm checking in to what looks like an effort to kick in the SPY Arbitrage with HYG/VXX and they could do it without TLT, it looked like it might stick, but HYG is now on the fence, if TLT is not involved (and it's not), HYG has to lead for it to work, otherwise, we fall."
I was suspicious of this earlier so I took a snap of the SPY Arbitrage model while it was negative.
Right around 12 p.m. (this is delayed) the SPY Arbitrage was negative, but there wasn't as much pressure on the market as there was just a little later, take Yields for example..
Yields are red, the SPX is green, mYields act like a magnet and pull the market toward them. Today on the seeming resolution in D.C., Yields spiked lower, putting more downward pressure on the market, but as I mentioned in the NFLX example, "We aren't that far from the most ideal area".
ES and other averages were feeling the pressure as well...
ES intraday
This however is why I was suspicious earlier, TLT was moving up, for the SPY Arbitrage to work and support the market HYG needs to move up, VXX and TLT down or at least have worse relative performance.
HY credit that is NOT attached to the Arb. scheme looks like this...
Much like intraday sentiment, HY credit is not buying the market rally, in fact Credit has a very different view, but why would HYG look like this?
Intraday HYG is OUTPERFORMING the SPX
I inverted the SPX so you can see VXX, even being down, is still underperforming the correlation.
It doesn't matter what 3C is doing to the algos they read price only, VXX is where it needs to be which isn't surprising given its correlation, but the extra push beyond the correlation is what I suspected when I saw HYG outperforming the SPX.
So far both of these add up to, They are trying to support the market with the SPY arbitrage scheme" TLT is the only one left... (the 3rd of the 3 issues that create the arb.)
And it looks like they're trying to slow or knock TLT down, the net effect...
This is the current capture of the SPY Arb. model
This is what I suspected and the reason I captured the SPY Arb at the top of this post earlier.
I'm not sure if the game is intraday , until they can try to activate a Carry trade, maybe longer sited as in to the effect I suggested...
It's just common sense a bull trap above resistance makes this a more powerful short.
I'll keep watching, but it seems they are up to something and they are feeling downside pull, the Arbitrage wouldn't have been activated if they weren't just as they didn't need it this morning.
In any case, I still wouldn't make any large commitments unless you have good reason and have your risk management set up. Sometimes patience is the best policy.
"There are some other issues like some divergences that are not all the way there yet, some credit markets like HYG that haven't failed because I suspect they are likely trying to hold the market up to get to areas like >$334.50 in PCLN."
I mentioned this in an earlier post today With an Apparent Deal In Place and Cruz Not Blocking
This was at 12:39 today from the linked post above...
"I'm checking in to what looks like an effort to kick in the SPY Arbitrage with HYG/VXX and they could do it without TLT, it looked like it might stick, but HYG is now on the fence, if TLT is not involved (and it's not), HYG has to lead for it to work, otherwise, we fall."
I was suspicious of this earlier so I took a snap of the SPY Arbitrage model while it was negative.
ES and other averages were feeling the pressure as well...
This however is why I was suspicious earlier, TLT was moving up, for the SPY Arbitrage to work and support the market HYG needs to move up, VXX and TLT down or at least have worse relative performance.
HY credit that is NOT attached to the Arb. scheme looks like this...
So far both of these add up to, They are trying to support the market with the SPY arbitrage scheme" TLT is the only one left... (the 3rd of the 3 issues that create the arb.)
This is the current capture of the SPY Arb. model
I'm not sure if the game is intraday , until they can try to activate a Carry trade, maybe longer sited as in to the effect I suggested...
I'll keep watching, but it seems they are up to something and they are feeling downside pull, the Arbitrage wouldn't have been activated if they weren't just as they didn't need it this morning.
In any case, I still wouldn't make any large commitments unless you have good reason and have your risk management set up. Sometimes patience is the best policy.
