Among All the Other Oddities Today...

And I truly mean odd, actually not in the sense of scratching one's head and saying, "That's odd", but in the sense that one thing after another all day, all connected, all moving toward the same direction of overwhelming fear and VERY sudden at that. I detailed the events in the last post, but through most of the day there were beginnings of this behavior and then extremes. Whatever it was, I'm guessing it started pre-market and it seems as the Wall SAtreet Whisper made its rounds, first institutional assets saw these strange, rapid fear-based events and finally the dumb money which is generally considered to be stocks (Credit and Bond traders being some of the best informed, currency and futures traders and then stocks).

In our world where HFT dominantes approximately 70% of the liquidity, do you find it strange that as the market is making highs with the debt debacle settled and no holiday in sight, suddenly HFT trade dropped off when you'd expect it to be at its busiest, all the way to 3 YEAR LOWS! That's almost when HFTs were just getting a name in the market.

NANEX provides details and lots of color. So just an off coincidence or did HFT pullback from the market for a reason?

Nanex ~ 18-Oct-2013 ~ Is Quote Spam Abating?

On October 18, 2013, Quote/Trade ratios dropped to 3 year lows. Charts below chronicle the average number of quotes per trade for each 5 minute period of the regular trading session (9:013 (through 10:45 ET). Each day is color coded by age - older dates start with purple while more recetal red line is in the future (after 10:30 ET on October 18, 2013).
 

Quotes/$10K Traded (accounts for trade size drop and changes in stock price)	Quotes per Trade

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Trying for an EOD Ramp

It's obvious in the Euro (EUR/JPY) and High Yield Corporate Credit) (HYG), but it would be the biggest joke of the day as both are broken, but that doesn't mean they won't stop and do you think smart money would be buying said ramp, or...?.

For instance...

 1 min Euro futures intraday looks to have been working toward a closing rampo via EUR/JPY, however the Euro is broken.

The 5 min Euro chart

The 15 min Euro chart.

HYG is the other east ramp asset , I don't have to point out the distribution

However right in to the close, they gave it a shot.

Just a few minutes later the ramp attempt is cut in half...

AH brings the bid/ask back toward the afternoon lows.


I'll probably put together a video for theWeekly Wrap. There's too much that was too strange to cover with charts alone. A quick overview...

-The EUR/JPY FX carry trade that has been running the market since Oct. 9th suddenly fails just before the open and dislocates the most from the SPX since August.

-The quiet of Friday's earlier op-ex was (at least for me) shattered when the short term HYG 3C signals go sharply negative in a very abrupt manner.

-VXX (Short term VIX futures) transition from underperforming their correlation to suddenly outperforming their correlation.

-The actual VIX futures which gave a negative 15 min signal in the days running up to our custom indicator's Oct. 9th VIX  sell signal and then traded in line with price the entire time since then, suddenly are in a huge leading positive divegrence suggesting protection from market downside is being aggressively bid in 3C underlying trade.

-3C is correct about the VIX futures as VXX and UVXY that should have made a new closing low today suddenly start to very obviously outperform their correlation and are moving up almost the same as the SPX which is the exact opposite of what they should do and before the close, they are actually green on the day.

-Numerous assets see very sharp moves, distribution for risk assets and accumulation for safe haven assets ; the list includes market averages which have the most influence on price for the average stock followed by Industry groups such as Tech and Financials which have the second most influence on stock prices.

-As the day wears on, these divergences develop faster than I can capture and upload them.

None of this was the 2-3 p.m. op-ex behavior that is typical once the majority of option contracts are cleaned up.

Tuesday the BLS will have a data dump of all the macro economic data that has been missing since the government shut down. It is possible there was a leak and there's something in those reports the market is going to hate, but this was already known yesterday, it seems it's something else, but who can say.

Today was far, far from the average day. I'd have no issue with calling it a red flag day.

***Important Market Update

In the 5 minutes it has taken me to capture a sampling of some of these charts, I've had to recapture them because they are moving so fast and new assets are being added every time I run through my watchlist. The Impression I get is that something is being discounted rapidly, something the market is not going to like. Protection is being sough, risk is being sold.

If I wasn't of the attitude that patience pays and there's always another bus if you miss this one, I'd have a hard time not adding a lot more short exposure. I'll explain some that I did add like AMZN which blew through resistance with distribution, the set up I'm looking for.

The other interesting thing (which I'll demonstrate later) is that distribution is already in effect in most assets, it's the short term charts, the ones that move the market near term on the upside move we had expected as the GOOG video makes clear 3 days before we got the start of it, that were positive. It's these same charts that are going negative so quickly, the implication being, they just found out something as well and are reacting violently and quickly.

Here are just as few assets to give you some clue and I can pretty much guarantee they'll be more extreme by the time I get this post out (5 mins or so).

 This VIX 15 min futures chart (on the 15 min timeframe) has been in line with the price trend f=all week, really it gave a negative before the 9th and since it has been in line. The sharp move to the upside in 3C is massive accumulation as someone is seeking a lot of protection and fast.

Earlier I noticed it, but I didn't want to be myopic and didn't post it, but I have the SPX price (green) inverted so you can see how VXX should perform according to its correlation, it should follow the green SPX exactly.

Before I said VXX shouldn't be near break-even on the day with the SPX up +.65%, now it is positive/green on the day, again there's more demand that is overwhelming supply resulting in higher prices for protection.

HY Credit moved lower

I showed you the EUR/JPY dislocating with the market after near perfect correlation this morning and again this afternoon, it's not the Yen, this is the Euro falling apart suddenly with strong distribution.

 HYG 5 min, it was 1 min, then the stronger 5 leading negative, "Credit leads, stocks follow", if it's not true in price yet, it was certainly true for 3C signals today as this grabbed my attention first.

QQQ distribution

Look at the IWM distribution, insane!

Financial sector, XLF

And a huge move in the Tech sector, XLK.

There are many more and as I thought, VIX futures are already seeing a strong 3C positive than what is posted above.

SOMETHING SERIOUS IS GOING ON.

Adding SRTY (3x short Russell 2000 ETF) long

Normally I wouldn't do this, because even though the longer term charts are negative and are in the right place and we have these sharp changes today as if something big is about to happen and only those on the street know, I still am a firm believer in the reversal process, a move up in SRTY from here would be more of an event rather than a process, but this is why I'm not going with options, the draw down on SRTY would be less, the risk is much more manageable, but seeing what I'm seeing and you saw some of it earlier with HYG and I'll show you more, I want to have at least a spec or trading position in place.

I truly haven't seen this in a while, usually there's a process and it builds, these are very sharp turns in assets.

VXX shouldn't be trading near break even on the day with the SPX up +.66%

Adding 20% to AMZN Core Short Here

That's about all the room I have left.

Something is Definitely Up

Someone knows something that they are pretty darn scared of, retail is not doing this.

 This is the VIX Futures 15 min chart, this was positive on the 5 min yesterday, but not the 15 min, it was in line there, now it's in a huge leading positive on the 15 min which doesn't usually happen this fast.

As mentioned, the VXX/UVXY are moving the wrong way, they should move exactly opposite of the market, instead they are about to go green on the day and they are showing a huge leading positive divegrence, those VXX calls are still open and will stay that way.

It seems someone knows something that is not out yet and that the market is not going to like.

$USD looking more like Up and Gold looking more like Down

 $USD 15 min continues leading positive, it looks like a small inverse H&S bottom.


Gold Futures 15 min continue leading lower.

I haven't changed my mind about NUGT or Gold/GLD, but there are quite a few things suddenly happening as we near the end of the op-ex pin, whether it be EUR/JPY, $USD, VIX, HYG, etc.

Fear is Rising, I Doubt it's Retail

Judging by some of the cockiness on ST, retail is not fearful, but someone is, it's showing up in the 3C VXX/UVXY charts and the spot VIX.

Today's VIX candlestick (Daily) is looking like a bullish hammer reversal candle.

The correlation between both VXX/UVXY and the SPX is completely wrong, they are moving in the same direction, VIX seems to be bid, in other words it looks like there's some real fear building in.

Quick Look at Leading Indicators

The SPX is cleanly above Sept 18 (FOMC) level, the Dow doesn't look like it's going to make it.

What is so interesting about HYG is that Credit is a very large market and some of the smartest guys are in Credit and bonds, both huge markets.

HYG is obviously used to move the market, if you watched the GOOG video from Oct. 6th I re-posted today, you can see we were expecting a strong move to the upside, but not for the SPX's sake or the Dow's, but for the hundreds or more of short trades (by that I mean they already have sharp distribution on longer charts) that were just below a very useful area, I won't get in to the whole thing again, it's pretty much explained in the GOOG video or the DE post from yesterday.

One of the things some traders that I respect have been asking for a good part of the year is, "What does credit know that the market doesn't?"

When we look at HYG it's on a short term basis because it's being used like EUR/JPY carry trades to move/support the market.

So this chart of the EUR/JPY carry cross that started earlier this morning, is definitely eyebrow raising, although I don't want to jump to conclusions on an op-ex Friday, but you can clearly see the correlation and the change in character.

This is a 5 min chart of the EUR/JPY in green/red candlesticks and ES (SPX futures) in purple, that dislocation between the two started earlier this morning.

Here's the correlation between HYG and the SPX...

It is used for short term moves and you probably are thinking that doesn't look short term, but hold on.

The HYG chart just posted is only getting worse...

It looks pretty clear this isn't being distributed to hold the SPX pin in place on op-ex, this is money leaving HYG.

Here's the larger view and why traders have been asking, "What does Credit know?"

 This is a 4 hour chart, look at the dates below, Credit has been exiting the market. If you look at October you can see HYG supporting the market, but once it fails, HYG likely makes a lower low.

We've used Credit as a leading indicator for a while and it has called a bunch of smaller reversals on smaller dislocations, this is the largest I've ever seen.

The same with the sentiment indicators, we typically use them intraday to see what the next day or so brings, but look at the 4 hour chart and FCT that has been in line with the SPX intraday, is in much worse shape on a bigger picture.

This is the LI for Yields which called the Oct. 9th bottom, this was one of the indicators we used in expecting an upside reversal, but like HYG's 3C chart, this dive to the downside is also a leading indication.

As I said yesterday, I don't think the question is where the SPX is going, it's what has the market's move done for the shorts like DDD which I showed earlier today making that move, GOOG yesterday making it, NFLX making it today...

HYG Update

I saw some of this yesterday, HYG is an arbitrage assets the algos/computers follow as a risk on signal that causes them to buy, that's why it's part of the SPY Arbitrage. I talked about it quite a bit yesterday, this is getting to be a nasty little signal. There may be some quick new positions/add-to positions coming.

When the 2-3 p.m. time approaches, it's not price that's important as it's released from the pin, but the short term signals.

Take a look so far at the largest credit class, High Yield Corporate... This is one of those finds that means something and gets some adrenaline pumping.

 HYG 1 min

The 5 min was getting nasty yesterday, it's added quite a bit today to the leading negative divegrence.

$USD, Gold, GDX & NUGT Update

I really started out looking at this to see whether closing some or all of NUGT (long) or GDX (long) made sense as they look like they may pullback and fill their recent gap, largely because of the way GLD, Gold futures and $USDX look.

This turned in to a larger post because there are bigger issues, for one, the $USD has been moving in its historical legacy arbitrage pattern (weak dollar means stronger stocks, commodities, precious metals, etc.) so the outcome of the near term $USD has an effect of all of those.

Betond the NUGT trade management, this also gives you an opportunity to possibly enter GDX or NUGT on a pullback with good upside probabilities, not to mention gold and obviously has an effect on the market.

I'm not sure where to start so I'll just start where I originally did and let things progress as they did for me going through the charts.

 This 10 min GLD chart shows a pretty decent representation of the current trend, from distribution at the early October highs to accumulation at the mid October lows and a leading positive 3C divegrence that is confirming the move up. I don't think any pullback to fill the gap below would ever show up as a negative divegrence on a 10 min chart, those kinds of pullbacks just aren't that strong. The point being is we do have a pretty strong GLD trend and it's probably worth looking in to as a long, especially on a pullback and secondly, any negative signals are not negative for the trend, they would (right now) just be shorter term indications of something like a gap fill.

*As a reminder, we were probably among the earliest to call a top in gold in 2011, many of you probably remember me corresponding with a well known fund manager who has a website and was a huge gold bug, I had told him gold had topped according to our indicators and we were looking for at least an intermediate to primary downtrend, he had laughed me off in essence, but shortly after gold DID enter a Primary downtrend.

The point of me reminding you about this, is this: Fall in love with your spouse, fall in love with your hobbies, heck, fall in love with trading, BUT NEVER FALL IN LOVE WITH AN ASSET NO MATTER HOW GOOD IT HAS BEEN TO YOU IN THE PAST, IT WILL BREAK MORE THAN YOUR HEART.

 The GLD 30 min trend shows the same distribution and the same leading positive divegrence, so in a pullback situation, although we ALWAYS want to confirm, I'd be fairly confident that it would be a constructive pullback meaning it would show accumulation in to the pullback.


 GDX (Gold Miners) Also has a similar leading positive divergence in this 15 min chart, the only thing I'm hesitant about short term is the new price high didn't make a new 3C high, nothing to get too worked up over, but it does tend to suggest a pullback is now becoming a probability.

 The longer 60 min chart shows no such move because it's too strong for that to show up, it does give a good overview of distribution and accumulation trends. This is a fairly strong chart like GLD. I would caution not to over-correlate your portfolio with two similar assets unless each were treated as part of the same trade for risk management purposes.

 NUGT is the 3x leveraged long of GDX, these leveraged ETFs are where we often see signals first.

This 30 min chart is strong, but not as strong as GLD and GDX, it didn't make a 3C higher high with price so it looks probable a pullback will occur, it will still likely make a for a good long and the probability is a pullback strengthens the asset.

 The very long term 2 hour chart leaves little doubt about the future of NUGT, this is also the chart that made up my mind to just hold, We should be nearly at break-even with NUGT (I'm tracking about a -2% decline from where it was entered which is great for a 3x leveraged miner.

This chart should be kept in mind as well on a pullback if you are trying to decide whether you may want to enter NUGT, it's an excellent longer term looking chart, likely a trending position.

 If you like, I used the Trend Channel and came up with a plausible stop on a closing basis of $40.25

This is Gold Futures 15 min, this more than anywhere else is where I'm seeing the probability of a pullback.

 The 30 min gold futures look strong, they aren't seeing anything like the 15 min chart so I don't think it is position distribution, but likely trading around a pullback or creating one.


This is the SPY (green) vs GLD (red) on a daily chart, there have been several flip flops of correlation, even recently from a risk on asset to a flight to safety such as we saw briefly before the debt debacle was temporarily resolved.

The clear recent trend is the $USD losing ground since July  and the most recent thrust to a new low for the year sent gold higher. Keeping that in mind (that the historical correlation is in effect, it's time to look at the $USDX.

 This is the $USDX 60 min chart, an accumulation zone led to some upside, but it was distributed pretty quickly and it's been all downside to a new low on the year.

As many of you know, any new divergence will start on the fastest charts first as it forms and then move to longer charts as it strengthens.

This is the 1 min intraday $?USDX, it's leading positive here and whether it's the op-ex pin or the $USD RIGHT NOW starting to move up intraday from this divergence, the SPY has been pinned laterally.

This 5 min chart shows there's some strength as it is leading positive and now it has moved...

to the 15 min chart.

This isn't a huge divegrence by any means, but it is enough to move these assets, whether gold, GLD, GDX, NUGT or the SPX.

GOOG / Market Video From Sunday October 6th

This is a really timely video because of what happened in GOOG last night. I had thought GOOG would see a breakout above its range (thus it's one reason I used it as the subject of the video) and thought $1,000 would be the perfect psychological number, the mind gravitates to whole numbers and centennial marks, $1000 is a big one and where did GOOG hit today? However I didn't think $1,000 would be a reasonable target, now it clearly is.

I recorded this video Sunday October 6th and was talking about using short term leveraged long positions for the move up I was expecting and you know the reasons I was expecting it (as is also made clear in the video). The idea was to use some leverage on long positions until we get above resistance areas where retail would buy as that was out target short zone for long term positions with no leverage, you'll hear at the end of the video as you may remember me saying, "There are hundreds of these", I'm just using GOOG as a proxy.

Beyond the video, I'll be checking out GOOG, but the point here is much broader in scope.

 The two days in white are Oct. 4th and Oct. 7th, I recorded the video October 6th on a Sunday, but this expectation had been with us the previous week ending with October 4th.

This is the range I thought tis market move would push GOOG through above the range is our target area for long term trend or Core short positions.

These are the same two days (10/4 and 10/7 with the video recorded 10/6) on GOOG's chart, I think the 3C observations and the time (3 days) after them are VERY interesting as well.

If you have questions about any of this, email me.

Here's the link to the original post.

Here's the YouTube link to the video

And there should be an embedded video player below, if not just go to the YouTube link. The video is just under 8 minutes long, but I think an important 8 minutes.

Put DDD on your Radar

This is another perfect example of a probable short set-up that was on my watchlist with an alert once it crossed the Rubicon, that level I showed you in NFLX or DE last night, my alert just went off and the process I summarized in the DE post last night and is detailed in the two posts I encourage you to read, can be seen right now playing out in real time in DDD. It's not there in my opinion yet, but it's certainly in the process.

 This is the daily chart of DDD, the trendline that is drawn there has been there for well over a week, it's a clear resistance zone and a move above it is where I set my alerts, this for me was the purpose and the function of a move higher, I found a video from 10/6 using GOOG as an example as to what we were looking for both in GOOG, but using GOOG as a proxy for the market, when you see how timely the video/expectations were, I think this entire process makes more sense and GOOG itself is on the list, I'll post that next unless something more important comes up.

This 10 min chart shows volume surge on the break of the trendline, a breakout move, then as price falls below the same trendline volume is up again as that's where most traders will set their stop, broken resistance is suppose to become support, so those were hit and you see what happens as DDD moves back above the trendline again this morning.

As this move is occurring 3C 1 min is in line until we get to the breakout, where the volume is because the volume or demand is what institutional money needs, someone has to take the other side of the trade, but few traders ever think about who that might be or why.

The 2 min chart shows a clear divergence as DDD approaches and moves through the trend line.

And the 3 min chart showing the same, this is migration as the divergence starts on the fastest timeframe, if it is strong enough it moves to the longer timeframes.

We have the Oct. 9th low with a 15 min positive divegrence, this is to help get it above the trendline, but this is market wide as the same day we had only our second VIX signal of the year on my custom buy/sell indicator, it was a VIX sell on Oct. 9th, the VIX moves opposite the market so it was perfect timing.

As far as DDD moving forward, usually 1-day in the target zone is not enough, especially for larger stocks, but more than that, this 15 min chart and longer ones need to see heavier distribution, that's the confirmation we need, I have little doubt we will get it, but it's early still so it takes time to move a large position.

Just keep this one on the list.

I'll have that GOOG video up shortly.