Daily Wrap

Today was a nice day, the December  VXX $45 call position brought in +31.7% and 91.25% for a total gain of +61.25%, the best thing is that so far as I can tell, we get to do it again.

The Dow lost the $7.77 that held it above $16k yesterday with a -.58% drop or $93.12 points to leave it at 15915.65. As expected, stops were crushed on the open.

Stops triggered as the obvious level of $16k was broken on the open.

The SPX just lost its 1800 at 1795.16 or down -0.32%. The NDX Comp was able to hand on to 4k with a close -0.24% @ $4037.02.

One thing that was different about today than 4 of 5 previous days (really 4 of 4 if you take out Black Friday) was the sell-off's in to the close, we might not call today's close a spectacular rally, but it was a short term change in character.

Another change in character was volume hitting 2 week highs, in other words, the sell-off today was in to volume.

Last night I posted a chart of each of the major averages and where 3C is in the cycle, it's pretty clear and that's why I didn't need to take much action today other than to take some profits that I get to do again.

Those 4 charts could be summed up in 1 chart I think, a 60 min chart of ES or any of the Index futures.

With a divergence like that am I surprised most of last week we sold off almost every day in to the close, the VIX calls made nearly 100%, the VIX BB squeeze, the action of the last 2-days...Am I surprised? Not at all, in fact, we're just scratching the surface.

However I try to keep things realty and fact based or as objective as possible. Yesterday I mentioned the IWM trying to putt together an intraday positive near the close, I said this about the VIX Bollinger Band Squeeze that WILL produce a highly directional breakout...

"The Spot VIX officially broke out of the Bollinger Band Squeeze, although there's often loitering around the initial breakout, sometimes even a Crazy Ivan shakeout, we'll have to see if this sees the follow through tomorrow, but I have little doubt this will make a highly directional upside breakout whether tomorrow or a week from now."

Don't get me wrong at all because I haven't got to the point yet, WE HAVE HUGELY NEGATIVE SIGNALS AND CONFIRMATION, LAST NIGHT'S WRAP SHOWS A LOT OF THEM.

But like I said, "Reality based" and reality-based objective charts led me to post at 10:36 a.m. today, the following in this Market Update 

"It looks like we are going to get a bounce"

This later led me to close the second half of the VXX Dec $45 Call position for nearly a 100% gain. Honestly, I probably would have set up some very short term trading positions, but I find when I put too many of these "trimming around the fat" trades out there, people get confused, so instead I just put out this post... For a Quick Trade...

Most of the positives in the averages today reached to the 3 min chart so there wasn't a huge 1-day accumulation period, in fact with the exception of the IWM which started yesterday, I can show you where most of it occurred.

That was mostly real and strong selling above VWAP this morning, but around 1:30-2:30 in the white box at the lower VWAP channel. that's where most of the accumulation intraday took place.

Even looking at my custom TICK indicator you can see it...

Note where TICK goes from negative to positive.

Now before anyone gets too confused, this is what a normal market functions like, even early in a break, that's why I took the time to show you a nasty bear trend and point out the areas that would have thrown most of us out that you don't notice when posting this MCP chart. Just click this link and roll down to the MCP chart.

As far as probabilities go, there are so many stacked against the market right here, it's difficult to even say with real confidence that the bounce set up today will make it rather than be run over like one was in AAPL. In fact, in several charts, making the case for a bounce also makes a stronger case for a continues decline, the market just doesn't move straight up or down. 

I'll let last night's Daily Wrap stand for the bearish side without posting it all again.

Today we had between $3.25 and $5 billion in 2 separate POMOs, a LOT of people were convinced that the market would end green today as that money found its way in to the market. This is another change in character, as soon as a POMO was done in QE1 and 2 it ended up right in the market usually within minutes driving it higher. I'm not saying the POMO money did or did not end up in the market, but if it did, then it's another change of character as it is being used to set up brief fade trades, the same kind I would have taken by selling the VXX calls and buying IWM puts today for a 1-day trade.

If we are to believe the POMO crowd following the F_E_D's balance sheet, then today's operations (2) netted a total of $4.66 bn in asset purchases and that equates to 1.4 S&P points (3.25bn per S&P point). 

I really don't want to get in to hypotheticals about where the market will bounce to, assuming it's just today's accumulation, then it's more or less nothing but noise, but I'll gladly use it to enter a new VXX Jan call position.

FIGURING OUT WHAT LEVERS HAD TO BE PULLED TO PULL THIS OFF WAS EASY...

You may recall I've been saying for 3-4 weeks now that each lever is either completely failing or losing its effectiveness? So which did they choose? It looks like all of them, which would suggest they really need quite a lot to get anything off the ground.

Of course the intraday accumulation was my first clue...(I tried to keep most of these in scale for you so you can see the size vs the previous negative, only the SPY did I slip up and zoom in too tight, but it's a good look at intraday action).

 DIA 3 min

IWM 3 min, I was surprised the IWM didn't make it to 5 min, I really think there wasn't as much accumulation intraday as I might have thought.

QQQ 3 min

SPY 3 min, note the time.

In any case, there wasn't a credible 5 min divergence in any of the averages, for probabilities just go back to last night's wrap and look at the 10/15 min charts posted.

The second thing I noticed was SPY Arbitrage as well as a support mechanism, in the recent past HYG (1 of 3 SPY Arbitrage assets) has been used on its own, but there were enough negative in intraday VXX charts today for me to close the December calls, really VXX just has to stay put and HYG rise and Arbitrage supporting the market works, if VXX falls a bit it works better.

Then the weighted assets in the averages were also in use, take a look at AAPL vs the QQQ today (as AAPL is by far the most heavily weighted stock in not only the NDX, but the SPX as well) when you put them together around mid afternoon.

 AAPL in white vs the QQQ in candlesticks, nearly identical until AAPL ramps up at the close dragging the NDX with it by virtue of its weight alone (which at last check was the same as 50 other NASDAQ 100 stocks combined).

 Here we have the Dow-30 vs MMM which is the 5th most heavily weighted stock in the Dow and it's doing the same. A good base can be made for the #2 weighted Dow component, IBM.

So they are using the old weighted index trick as well.

Then if you don't believe me about the SPY arbitrage or at least HYG credit, take a look below...

 This is SPX in green with price inverted and HYG in blue, they're a perfect match for each other today.

Even HYG alone is a lever used many weeks in a row in the last several months.

The VIX wasn't available to help as it underwent stealth accumulation and WOULD NOY make a lower low, but up here, it has some room to help, like I said yesterday, often the breakout of a VIX Bollinger Band Squeeze is not clean and price loiters a couple of days. However at the EOD you can see VXX weakness over the SPX.

So it appears the SPY arbitrage is going to be used as well.

Perhaps they need all of these because the most effective mover of the market is the EUR/JPY and they really don't know what to expect, but from what I can see, they probably do and this also makes the case for the bearish side as well.

This was actually the easiest part to figure out, but because it's not a simple indicator takes the most time.

 This is the EUR/JPY in candlesticks and ES (SPX futures) in purple on a 1 min chart. This is what happened overnight as the JPY apparently saw some carry trade covering and it sent the JPY higher sending the EUR/JPY lower (as I explained last night, the first ticker in the pair is long and the second is short, they don't have to move up and down against each other, but it's a matter of relative performance).

The falling EUR/JPY drug all Index futures lower overnight as ES is nearly glued to EUR/JPY. So, this was an obvious place to look and the best way to figure it out is to look at single currency futures.

 This is the EUR/JPY vs ES in to later in the a.m. and through the close, look how tightly they come together at the close.

Here I compare the Euro in candlesticks to the EUR/JPY in purple today, you can see there's strength in the Euro early morning, but it's not translating to the EUR/JPY, even at the Euro's high around noon, still the pair is seeing lower highs, that's because the Euro is only half of the carry pair.

 Now look at a 1 min chart of the EUR/JPY in purple and the Yen in candlesticks also from today (remember the Yen is the short so it would have an inverse relationship with the pair).

It's clear to see Yen strength was stronger than Euro strength and the Yen's high was the EUR/JPY's low, so...

If they want to manipulate the market and have already pulled all the other levers in existence, they'd need to have some assurance that the EUR/JPY will cooperate.

So I looked at single currency futures, you know 1 min doesn't mean anything to me overnight so I went to 5 min and checked 15  where there wasn't anything.

 This is the Yen on that strength seen above, but it's also seeing a 3C negative divegrence. In fact, that divergence worked and the Yen already topped for today and is headed lower... This is what the market would need, but also some Euro strength.

 So here's the Euro single currency chart, you can see the distribution that led to recent weakness, it's the strongest type of 3C divergence, leading negative. The Euro also has a negative divegrence, but not as bad and it has a better accumulation zone at the upside reversal pivot.

All that really needs to happen though for the pair to rise is for the EUR to outperform the Yen, even if they both fall, as long as the Yen falls faster.

I CHECKED LONGER CHARTS TO SEE IF THIS COULD BE A LARGER MOVE THAT I CAN SEE RIGHT NOW, THERE WAS NOTHING AT 15 MIN CHARTS, BUT LOOK WHAT I FOUND AT STRONGER 30 MIN CHARTS.

 That's the Yen with a HUGR leading positive divegrence, it looks like the days of the EUR/JPY ramp are just about over. This also confirms all the market signals, VIX signals, Leading indicators, etc (most of which can be found in last night's post.)

As for the EUR, on the same 30 min chart we have negative divergences, one of the smaller ones already sent the Euro lower.

This is even worse news for the EUR/JPY and thereby the market.

I don't need to post all of the charts backing up our view, you have seen it in market character, indicators, leading indicators, price action and a VERY desperate attempt to use EVERY lever at once on an intraday bounce!

This is the kind of thing that gives me the confidence to take some of the trades that are emotionally difficult to take.

I'll let you know if anything changes, but that's the way I read it now. There were no dominant Price/Volume relationships tonight.

AAPL's Call to Arms

I also see HYG and VXX are being used in the SPY Arbitrage, I'll have to check the MSI, but AAPL obviously is being used as well.

AAPL (white) vs QQQ intraday

For a Quick Trade...

I think (and was thinking about it, but decided not to just because of confusion it may generate) you can make a quick buck with a 3x leveraged long ETF like URTY or TQQQ, I prefer to focus on the IWM and QQQ.

That said, I'd make sure you are nimble.

You might get some traction out of XIV as well, although that's my least favorite.

*Speculative

VXX / UVXY Update

I cleared out the VXX December $45 call positions, but left the UVXY long equity trading position, it can handle draw down a lot better than a call expiring this month. I do intend on replacing the VXX calls, but be warned it will be one of those positions in which you have to "Hold your nose and jump" because I prefer selling in to upside momentum and buying them in to downside momentum, it's amazing how fast the profits melt away as momentum dies.

I'm keeping UVXY because I don't see a positive divegrence so strong and well put together that I fully trust it is immune from being run right over as happened in AAPL before it lost 45%.

As for the P/L for the VXX position and this was in the red pretty well not too long ago...

The first half of the position was closed as the position (for an options position) was carrying too much risk at nearly a full size core position. The P/L with a cost of $1.83 and a fill of $2.41 came in at +31.7%

The second half was closed because of the following charts, at the same cost basis and a fill of $3.50, the P/L came to +91.25% for a blended average of 61.5% or +$5,625.00 gain.

Here are the charts...

 VXX 1 min intraday negative

VXX 2 min intraday

VXX 3 min intraday

VXX 5 min intraday just going negative, notice that all I'm looking at is the intraday charts, that's because this move doesn't have anything beyond intraday and thus the reason for leaving the UVXY position alone.

IF I LOOK AT THE SAME 5 MIN CHART IN SCALE FOR VXX...

 This is what we get, there's no damage here beyond and intraday jiggle.

If we look at the same chart in UVXY just for confirmation...

We get the same strong, solid positive. I have marked a few similar 3C pullbacks in the past and what they did to price.

This is exactly why I want to re-open new VXX call positions out in January on a pullback as the premium drops, because the charts are still incredibly solid, any chance to pick these up cheaper after just having made a nice profit is just a gift as they have a much bigger move to make.

GLD and Gold Futures

Gold is historically bought before inflation, but on inflation expectations. We'll delve further in to what inflation expectations are present or likely to soon be present.

 I don't recall if we had gold longs at "1", we may have, after "2" had pulled back a bit we entered a position thinking one of two things was likely, one that is was near done and would see a pop higher or that gold would pullback a little more and create a larger, sturdier base that would be capable of making a larger move to the upside so it was one or the other, but worth it either way.

At #3 we saw the accumulation as price neared a "W" bottom and larger base, at "4" in yellow the typical head fake we'd expect to see at a "W" bottom, but "5" was something extra.

 The 30 min chart shows the entire area as being accumulated including the recent lower low. but this may not have enough detail.

At 15 we see the specific place that the move under support was put together, the 14- 18th and as price moved below, the accumulation of lower prices as this is one of several reasons for these moves.

Here on a 5 min chart we have a lot more detail, we can see the negative to drive price below support to the left and accumulation of that move below at the white arrow.

2 min chart shows the EXACT SAME THING.

And the 1 min chart confirms with detail what I hoped to see.

As for Gold futures, something bigger is going on here and I've been thinking that for about 5 months as GLD has been getting itself together out of a downtrend.

Gold futures 1 day

4 hours showing where base #1 and the second base were as well as the break below the support area.

60 min chart

30 min chart

15 min chart

There seems to be more than enough reasons to take on a gold position, I'll leave calls in place and watch GDX carefully.

When we have more time we'll get in to why gold may be entering a new bull market and what the inflation expectations are that could drive it, I'm guessing "Stag-flation"

MCP Trade Management

We have another 5+% move in our MCP long today, that's +13.5% in the last 4 days.

For now, I'm holding MCP, I'll check it again in a bit.

Closing VXX December $45 Calls

This is the second half.

I'll re-enter them, for now I think I'll leave UVXY long equity positions in place.

Quick Market Update

After I get gold out I'll take a closer look at the market, but basically the same theme continues, the Q's and IWM are leading the way toward a bounce, the Q's have positives from 1-3 min intraday charts, 45 min is neutral, after that is negative.

The IWM which I would think would look better is positive 1-2 min charts and just barely 3 min.

The SPY and DIA are late to the party and trying, but very sloppy.

This looks like a dog shaking the water off itself before carrying on.

I'll have to make some decisions on volatility trades.

Trade Idea: GLD ... Good news and bad news

The bad news first, I don't really like stocks or ETFs trading under 250k shares avg. a day, but with the leveraged gold ETFs, there's not much of a choice in anything leveraged with volume. I looked at the entire gold sub-industry group, but those are all miners and I'm looking more specifically for gold as there's already a miner position.

I didn't find anything with better volume that I liked better than gold,  so I decided to go with the best of the bad options (volume) and since there's not much difference between UGLD (3x leveraged long GLD) and GDP (2x leveraged ETN) and BOTH ARE ETNs, I decided to go with UGLD.

The position will be about 2/3rds the size of a normal positions because of the exposure to NUGT.

The good news is that although I'm not as impressed with GDX right now compared to gold, there were quite a few miners (individual companies) in the sub-industry group and I went through all of them in all timeframes, that actually looked pretty good.

I'll have GLD charts up momentarily.

Looking to Add Gold Asset to Trade Portoflio

I have 6 in that tracking portfolio which is usually what I'm comfortable with, 5 of the 6 are green, NUGT is red, but UVXY easily covers that and some.

I will let GLD/GDX calls stand, for the moment though I'm looking at something in the gold group, I am sorting through the entire industry right now to see what stands out that has some volume, simple 2 or 3 x leveraged gold positions would be nice, but the volume on these are really pathetic, most well under 100k at this time of day.

I'll be back with an update on gold and what I like as an asset here.

Market Update

I still think they'll try to bounce this market, especially if it seems retail is jumping on the VIX bandwagon. I've been trying to decide whether to close up the entire VXX call position, now at a +70% gain, but I don't see the signals there to do so.

Really it's still largely the Q's and the IWM that have the signals for a bounce, the SPY and DIA really don't, perhaps this will be like yesterday in which the IWM was a severe under performer except we rotate to the SPX where Financials are hurting it as its nearly 25% financials.

The only ramping lever I see at the moment is AAPL and HYG is seeing intraday accumulation so again it doesn't look like much more than a shakeout move or shake off any new, clinger's on.

I think for the moment I'll look for the opportunities on the other side of a probable intraday bounce rather than selling VXX calls now as the signals just aren't there, if they show up, then I may change my mind and try to trade around this.

XLF Financials

I'm not going to cover FAZ because you can more or less reverse XLF and get FAZ indications.

As I said yesterday there's this unhealthy dispersion where the markets have broken away from each other as all moved together at once as all were being fed equally at once, as funds dried up and retail margin lev, it seems there weren't many others willing to chase this market and I get that just by watching their favorite risk on asset, credit.

The point being, this dispersion in which all the averages are broken up is chaos, not rotation.

 XLF 1-day with the bearish engulfing pattern clearly visible which is a confirmed reversal pattern.

In the spirit of a Wall Street maxim we often repeat, "To make money you must see what the crowd missed",

a 3-day chart shows a clean, clear reversal, an Evening Star with an engulfing candle as a bearish engulfing confirmation candle.

Once the head fake area > $21, which I had said several times, I would not add to Financial shorts until XLF was over $21 as it was a clear zone of resistance and therefore an obvious target for a head fake move (in this case a failed breakout of bull trap)- once this area at $21 is broken, stops get hit en masse, this leads to a self-fulfilling prophecy of sorts and an event that snowballs as every trader has different risk tolerances and multiple levels of stops, at some point the shorts come in and then we watch for a counter trend shakeout to trade.

 I think we have 2 head fakes, the market is fractal in nature, one represents the first leg and then there should be a consolidation or correction before the deeper second leg starts. My guess is the first leg probably takes us below $21 and maybe near the bottom of the trading range and the second leg below the range.

 3C distribution signal for the first leg or smaller rounding top.

3C distribution for the second leg or larger rounding top.

Overall Financials, 30 min chart, obviously there are big problems here, but no where has distribution been so heavy as in November, I can only say that in my opinion (other than smaller trading positions), smart money has been gone for a while and any of these moves to new highs or breakouts above $21 were simply used to set up short positions.

 Unlike IWM or QQQ charts you saw earlier, XLF has no such intraday divergences

Here's the 2 min chart which actually looks even worse.