MCP Follow Up +242%

If you missed yesterday's MCP Follow-up  you missed the chance to grab about +15% in a single day using equities with no leverage.

You know what our longer term outlook is for MCP so this is just a taste of what we can expect, but we still need to be careful, UNG is a perfect example.

As for the Jan. $5 calls closed today, I normally don't use options as a way to swing for the fences, they are (for me) a tool that is pulled out when the job calls for it, but I won't cry about a triple digit gain either.

MCP has enough evidence for me to suspect some lateral action, maybe even a downside correction, it's not overwhelming, but enough for me to play it safe with these kind of gains.

The MCP Jan $5 calls P/L today on the closed position came out like this.

At a cost basis of $0.19 and a fill of $.65, the P/L came to +242% or a gain of $25,300.00

The hourly chart is where the probabilities have always been, it was just a matter of a tactical entry.

I posted several leading positive charts like this yesterday, this is when the asset is usually ready to move, especially when price is so flat.

Today however on a 3 min chart the first negatives started popping up and while I am more than willing to still hold the long equity position as the draw down on a correction is minimal, I'm not willing to watch those gains erode as MCP travels sideways and eats up time or worse, moves down. This was a great trade, it's not time to get greedy over it.

Add-to Positions

I'm going to try to stay patient until Monday. TWTR I'm keeping on the trading portfolio as a short, I like how it looks.

I really like SQQQ, SPXU, FAZ and have room in SPXU and FAZ to fill out what are half size positions.

However if you are use to the concept of a reversal process and feel comfortable with proportionality, you can see in each they are just on the borderline, I think Monday is probably the most opportune time.

That being said, the signals in these are so strong that I'm really being VERY myopic about an entry, does a 1 or 2% intraday  draw down  that's going to happen just as a function of normal intraday trade, really matter in the big picture?

Still we have these concepts for a reason, they serve us well and it wouldn't be a very good example to abandon them to an emotion called greed.

The trading portfolio includes the following as of now: (All long) MCP, SPXU, SQQQ, DGAZ, IOC and UVXY.
The only short (many above are short exposure via inverse ETFs) is TWTR.

UVXY is the biggest loser, but is still within the risk management parameters and represents less than 2% loss of portfolio before margin. The leader is MCP at +16% and TWTR a little over 11%, not bad for a single day of trade.

In my view, I'm very relaxed with all of these positions, this would be the 4th set of trades in this portfolio and I think these are all set up to fire.

Stocks

I see quite a few stocks that have little flat areas this afternoon with intraday positives along the lines of what I reported earlier for the market update.

This would include NFLX, AMZN, AAPL... It's not so much in Financials, I haven't run across one yet on the watchlist.

UNG is clearly in the process of the pullback we were looking for so DGAZ should do pretty well over the next week or so,

SLV looks like it wants to fill its gap from today, I'd be interested in looking at either of the PM's on a small pullback like that which not only fills the gap, but the movement gives us information such as, "Was the pullback accumulated", so I'd pay attention to the PMs.

As I said, I wouldn't push MCP calls much further at this point, but the equity long I'd leave right where it is.

Chasing an intraday bounce for me is too risky and I have a high tolerance for risk. I think this 10-year yield as well as the China/Japan animosity heating up again, the situation in Turkey and one more (slips my mind at the moment) are all wild cards, especially the 10-year and wild cards can be very dangerous when market structure is this extended, extreme and thin, not worth it to me, but if the wild card issue doesn't hit over the weekend, I'd say something like NFLX has a decent bounce opportunity, for me it's options (although I haven't seen the pricing), the point is ttrade duration and the leverage needed to make it worthwhile.

MCP Calls

In my view, it's time to be out of Jan. $5 MCP calls.

I wouldn't push this any further, but that's me.

Market Update Charts

People get nervous when they hear "bounce", I tried to make it clear this is intraday if it gets going at all, which means it lives on the 1 min charts which are steering divergences for intraday trade, at best they can represent market maker or specialist activity, but that's much less clear than it use to be with the advent of High Frequency Trading becoming the primary source of liquidity, that is until they don't which is one of the many very dangerous market structure flaws that the SEC should have done something about long ago.

Not to get off subject, but lets consider a pretty nasty crash, like the NASDAQ around Q2 of 2000, back then HFT's were not even heard of, you know who went up against the market makers and specialists back then? Day traders who specialized in scalping. A Market Maker (NASDAQ) and Specialist (NYSE) perform the same function, they facilitate an orderly market and match orders, they are by law the buyer/seller of last resort so long as you have your order placed at market which means you accept whatever their bid ask spread is which widens considerably in a volatile market or a crash. By law, for the many perks these middle men get such as naked shorting, the bid/ask spread on hundreds of thousands of shares, and other things the common trader can't get, in return, they have to provide liquidity. Day traders of old (especially before we went to the penny system -the market use to be quoted in fractions rather than cents) would see the best bid/ask from the market maker or specialist and they'd jump in front of it and try to capture that spread, known as scalping. Today there isn't a day trader in sight that isn't running a black box system who can compete when HFTs can execute in microseconds, the spread changes faster than you can blink your eye.

So some forms of HFTs have taken over where day traders left off and are content to make $.02 or $.03 on the spread thousands of times over and over and then also cash in on the volume rebates for sending their order flow to a particular clearing house.

This means that in many cases, a market maker/specialist doesn't have the inventory they use to carry because with the market moving so fast from HFT's, they risk getting stuck holding inventory at levels that put them at a loss, they have had to become more lean.

In a market crash, think about the May 6th 2010  Waddell & Reed Flash Crash when the Dow lost the most points ever (not percentage) in minutes. Some argue HFTs did cause or contribute to it, some say they helped mitigate it, the SEC and CFTC decided in their final report that HFTs contributed to the volatility while the CME disagreed.

In any case, it doesn't matter, what matters is that in a situation like that HFTs are not bound by law to provide the liquidity they provide now, they can just shut down and sit it out and let the market makers and specialists who are likely largely unprepared to handle such a situation. Sure we have circuit breakers, but when one goes off and you just watched the market drop 2% in 2 minutes, the first thing you'll want to do is get out as soon as the market reopens for trade. What exacerbates the situation is the exceptionally low number of shorts in the market, which represent a commitment to future buy side demand, many firms won't trade a stock that doesn't have "Healthy" short interest because if there's a Black Swan event as the CBOE's SKEW Index has been warning, there's no shorts to step in and take profits which is done by ""Buying to cover" which is the exact same as buying.

The market structure and the fact that it's inflated status is not a function of value, but a function of temporary liquidity (even if temporary means years, it must end), massive margin / leverage and investor negative net worth, taken altogether, it's a recipe for disaster as the SEC has fallen WAY behind the curve in facilitating an orderly market and no one thinks about it as long as things stay the same, but I've seen it too many time, you wake up one morning and you have a gap down that wipes out months of longs, that creates a snowball and HFTs are likely to exacerbate it by their activities or to just exit the market and watch liquidity dry up, then see how wide the spreads are.

In any case, I diverge, but it's interesting how many people are willing to stand in front of a steam  roller chasing nickels and dimes when the red flags are flying at full mast. That's Greed, one of two emotions that moves the market, but fear is even stronger, that's why markets fall much faster than they rise.

OK, so the charts from the last market update seem to be algo/arbitrage driven "IF" they can make it work, the reason I say "IF" is because HYG has been sold aggressively in to every recent move on the upside to activate the arbitrage scheme and although many have different opinions regarding the VIX this week such as a low volume smack down, mine is that tax selling and the last day of window dressing to be able to settle before year's end was yesterday is likely the cause because many of the longs that may be sold for tax reasons or for Window dressing were likely to have a matching VXX or VIX futures long to act as a hedge, if you sell the long position, you don't need the hedge so you sell that at the same time. A low volume market means wider spreads so that would contribute,  but it was noteworthy yesterday how fast VXX accumulation started up around 2 p.m., I'm guessing if I'm in charge of executing trades for year end and 2014's new prospectus and view of positions, I'm not going to wait until 3:30 and possibly not get all my work done and have a boss wondering why the hell I didn't finish the trades when I knew come 4 p.m., there was no longer an opportunity. So assuming they wrapped up early, well lets not even assume, lets just go with facts, around 2 p.m. yesterday all of the sudden the VIX went from in line to leading positive on a 10-min chart which means some heavy transactions were taking place.

Here are the charts captured right after the last post...

 The DIA as mentioned never even went intraday 1 min positive.

The IWM was the only one with a 1 and 2 min positive

The Q's were 1 min positive only

 The SPY was 1 min positive only.

ES was in line, but look at the volume falling off badly as traders pack it in for a trip to the Hamptons, if you were going to try to move the market and there are a lot of reasons, HFTs can move it up a 1/4 or half a percent and make a killing, it may have nothing whatsoever to do with the state of the market and more is just an opportunistic move because they can with volume so light.

 HYG with a very flat range looked to be one of the instigators and checking, sure enough it is.

Although VXX is growing much more positive much faster than anticipated, it's the other half of the arbitrage and needs to move down vs HYG up for it to work.

Yet as mentioned, big changes in Short term VIX futures yesterday afternoon, they've been added to today as well, so once again there's a significant difference between 1-3 min intraday charts and 5-60 institutional charts.

 TICK is flat as can be at +/-500, almost no movement, no trend.

Worse than that is my custom TICK indicator on a larger scale, you see TICK is falling off badly, this easily explains why last night's breadth charts showed all of the "Percent of NYSE stocks Trading BELOW their 1 and 2 standard deviation 40 and 200 day moving averages"  trading up, in other words while the market put in it's gain, more and more stocks yesterday were falling below those moving averages at 1 and 2 standard deviations, all four in fact, four for four.


Some of those divergences have already mellowed out, some are worse like the DIA.

I'm going to spend the remainder of the day looking at positions and seeing if there are anymore great cues like yesterday's TWTR and MCP, both of which made for great 1-day moves even though they are meant for more. I'd be considering taking those gains and enjoying the rest of the day at the beach.

Quick Market Update

I think an intraday bounce is coming, it looks like HYG is going to be the catalyst, so far it's nothing special, it's on the 1 min intraday chart where it belongs, it doesn't go any further on the SPY, QQQ and isn't on the DIA at all.

The IWM has 1 and 2 min.

Charts to follow, but essentially the intraday movement that we use the 1 min chart for.

TWTR Follow Up

Yesterday TWTR was presented as a trade idea (short) and entered in the Trading Portfolio, 

The charts/reasons for the trade were not so much 3C, but it has fallen in to line, it was more based on a parabolic move and change in character, neither of which I trust, there was the additional Hanging Man close and some other stuff like the Trend Channel, here are the charts put out after the trade idea.

TWTR is down -7.61% and our position is up +7.6% so we entered at essentially THE EXACT RIGHT MOMENT.

I WOULDN'T BLAME ANYONE FOR TAKING A 1-DAY +7% GAIN, but for now I'm going to stick around and see if we get the true parabola of a parabolic move.

 The Hanging Man bearish reversal candle yesterday was a GREAT start and the fact it came on increased volume just about doubled the probabilities of the candle working the way it is expected to. You could dsy the increased volume and very narrow range between open and close which forms the real body of the candle or the head of the Hanging Man in the candle from yesterday (yellow) is a visual representation of a bearish event.

Most traders just see a Hanging man and trade from that without ever understanding what it means psychologically, if you don't understand what the chart is telling you, then you are just blindly following the dogma of Technical analysis and that is NO EDGE IN THE MARKET AT ALL.

What it tells us with the expanded volume is at the price level yesterday there was a "Churning" event, that's when price barely moves as the open to close range barely did, but the high volume shows a lot of shares exchanged hands, most commonly in this formation it means smart money is handing the shares off to dumb money and leaving them holding the bag.

Today's candle isn't what I expected, but it is one of the most common confirmation candles for this particular 3-candle set up.

 The increased ROC and parabolic move also played a big role in the decision, the churning was the cherry on top,.

Remember yesterday I said that the parabolic move is as close as we get to a "V" reversal or an event rather than a process, but there is still some process, you can see the mini , tight "U" at the top.

 The same Trend Channel used yesterday was stopped out, as I said, it will never take you out at the top, but it will give you an objective stop that allows you to keep more of the trend and not guess as to when you should stop out.

I said the direction of the channel also plays an important role and while it's still a 15 min channel, it is the one that defined the parabolic move.

The blue version of 3C is faster than the others, the 60 min chart shows there was distribution in the form of churning near the top.

The 10 min chart also shows the same so we have long and intermediate charts in line.

And the 5 min chart that drew my attention yesterday.

I'll keep an eye on this, but it's a fast mover, if you are trading TWTR, I suggest you set lots of price alerts on either side of price so you can react quickly.

CLOSING MCP Jan 5 Calls

MCP Update, Booyah...?

Just in case you're use to the term expressing excitement about a well-performing asset, I put it out there. Otherwise I'm a little disgusted with myself for writing that, but a little self-loathing once in a while keeps me humble.

It's hard to be humble when you're long term long pick, MCP is performing like this for you...

MCP is up +12% today on what looks like a mini stage 2 breakout.

I just put MCP out there again yesterday as a long for those who were interested, already had a partial position and wanted to fill it out or those who may not have known about it.

My Call position in the Options Tracking Portfolio is well above what I usually allow, but it has been performing so well, I've left it in place, but I/we need to pay attention to any loss of momentum with expiration less than a month away.

The MCP calls are now up 142+% with a $15,000 gain

The straight Equity position in the Trading Portfolio is up +12% thus far and we are far from making a real stage 2 breakout.

The Daily chart with stage 4 decline, which starts the entire cycle process over starting with Stage 1 Base/Accumulation which we are still well within, in fact at the lower end of the range.

"a" use to be an ascending triangle base until GS came in and knocked MCP lower, you might think GS didn't like MCP, I'm willing to bet they've been buying it hand over fist near the base lows, NEVER TRSUT GS, if a Wall St. firm says, "We sold or bought XYZ", they are probably telling the truth because that can be fact checked through their SEC disclosures (quarterly and yearly), HOWEVER IN NO CIRCUMSTANCE SHOULD YOU TRADE FROM THEIR 10-Q SEC filings as many traders do. These traders figure, well if GS sold or bought "XYZ" as their 10-K says, I should too, however the 10-K can be delayed up to 45 days so by the time you get it they may have had a position and either closed or reversed it and you wouldn't know until the next 10-K which can also be delayed 45 days. In some circumstances, like if the filing would be detrimental to their ongoing process of putting a large position together or selling it (as all the sharks would smell blood), the SEC will allow them to delay reporting for another quarter, I SUSPECT THIS IS WHAT ICAHN DID WITH AAPL AND I KNOW BUFFET DID IT WITH IBM.

Bottom line, never chase old reporting  and 30-45 days is a lifetime in the market.

I digress...

The point was GS put out a downgrade, not a notice of a trade so when GS is giving free advice (being it's commonly believed GS routinely trades against their own clients), you are best of doing the opposite. GS's Tom Stoppler put out something like 9 free trades and all nine were stopped out, do you believe for a moment GS was stopped out? No, they were using that trade idea to create movement so they could trade the other side so for MCP they say, "Downgrade", MCP falls, they are buying it hand over fist from all that followed their downgrade and sold, GS created the opportunity and the supply at cheap prices they needed to accumulate.

 "B" the Ascending triangle base, "C" GS comes out, "!a" a smaller rectangle base inside the large rectangle base and "2a" the seeming breakout to stage two from this mini fractal base inside a larger base.

Ironically the strongest intraday 4 hour chart shows more accumulation after GS's downgrade than before it, make sense now?

The 60 min chart shows the same, stage 1 base, stage 2 mark up.

This is what I posted yesterday, a leading positive and this is why I said I thought yesterday was a good chance to move in to MCP or add to it.

This was another leading positive chart and look at what happened today.

 I'll hold the equity long trading position and any core long position built, but the options position is going to start feeling the Theta decay with about 3 weeks until expiration so any loss of upside momentum and I'll be out of MCP, whether I replace the calls or not with a longer expiration depends on the situation, it seems implied volatility is very high right now which may not be ideal for entering new option positions.

Congrats to MCP longs, I hope you have a nice steak or lobster dinner tongiht

It May Be Time To Grab Some Commodities

Sorry about the late start today, but I've been looking around quite a bit, it's important to see what changes in character are taking place once Window Dressing is largely over which was yesterday as Window Dressing in such a low volume environment is going to be the dominant market force, all funds are moving, and reallocating assets, most do so to look smart so when new clients read their prospectus for 2014, they see, "Oh, this fund owned this and that stock that did great last year", the thing is the fund may have only owned them as of yesterday and as far as the losers, they sell those even if they are ready to take off, they'll just buy them back after the prospectus comes out and potential clients will say, "This fund didn't own one big loser" which they may have all year, but sold it on the last day of window dressing so it doesn't appear on the prospectus.

This is why we call Window Dressing "The Art of Looking Smart", it's smoke and mirrors, they may look smart, but it's all deception that anyone who's not really willing to do their homework, will never find out about.

In any case, what I've been watching of course is the 10-year benchmark yield crossing the 3% mark today, 3.019%, this isn't good and is proof positive that institutional money isn't buying what the F_E_D is selling, TAPERING IS TIGHTENING. 

Whether you believe that or not is of NO CONSEQUENCE, the market is 100% PERCEPTION and if that's the perception, which it strongly appears to be, then THAT IS THE REALITY.

So what I was hoping for with a gap up this morning, so far is doing it for the reasons I hoped to see, here are a few assets...

 SPY daily, yesterday I said, "I'm ok with a gap up this morning because the best  bearish candlestick confirmation candles all start with a gap up such as a bearish Engulfing Candle which would see the real body of today's SPY candle that gapped up, close below yesterday's real body which is where the SPY opened yesterday. Even if the candle today closes more than halfway below yesterday's REAL BODY, we still have a bearish Dark Cloud Cover, in other words we have the bearish confirmation reversal candles I hoped to see today and specifically the day after window dressing finished.

 The IWM's candle is different because it put in a bearish candle yesterday, this second one is helpful, the larger its range to the downside the better.

TWTR was specifically one I was watching for bearish confirmation as it was entered as a short position yesterday, thus far, even though it's not an engulfing candle, this is one of the most common 3-candle reversal patterns seen, the Hanging Man or Doji Star from yesterday and a lower, bearish candle today serves as confirmation, but we are still a long way from the close.

What I find of great interest is the market again acting like Bernanke hoped it wouldn't, the 10-year benchmark yield is rising and broke above 3%, that's only happened a couple of times over the last several years, one as I showed last night led to a -20% sell off in 2011.

I think the F_E_D had to know, thus Bernanke tried so hard to define Tapering as just that and not as a new policy tool akin to tightening, but as I said, the market is all about perception and whatever the perception is, that's what the reality becomes.

Gold (Silver to a lesser degree because I haven't spent as much time looking at it) and Oil all look set to rise, in OTHER WORDS, COMMODITIES LOOK SET TO RISE.

We saw commodities up significantly during QW@, so much so it was squeezing Corporate profit margins as input costs sky-rocketed, the F_E_D made sure that didn't happen with QE 3.

HOWEVER, one scenario in which HARD ASSETS do well is when BOTH Bonds and stocks fall, bond yields move the opposite of bonds and we have the 10-year hitting the 3% area, not good, but it may be great for commodities.

Weekly Chart of the 10-year Bond Futures, not good. 

Gold itself is bought on inflation expectations. I have liked gold/GLD for sometime as a long term play, I think I'll be looking in to a UGLD / GLD purchase soon.

 THIS IS THE 4 HOUR GOLD FUTURES CHART, which I have liked a lot as a long term play as a large base has been under construction for some time.

This would be the base on GLD's daily, the implied "measured move" would be $260-ish which is a solid counter trend bounce that puts us in the area of a major crossroads between a counter trend bounce and a new primary uptrend.

The 60 min GLD chart looks like a strong base, ready to go in a rectangle or large "W" formation. I see an entry here as low risk/high reward, ESPECIALLY IF I'M WRITE ABOUT WHAT IS HAPPENING IN THE MARKET WHICH IS BEYOND THE COMPREHENSION OF MOST TRADERS AS THEY ARE NOT USE TO THIS CORRELATION AS IT'S NOT SEEN THAT OFTEN.

GLD 15 MIN IS GOOD

AS IS THE 5 MIN.

Theoretically under the scenario I'll describe, silver should do well too, I saw some interesting bullish signals last week, but haven;t paid much attention to it because silver has been one of the most manipulated assets since Bear Stearns' and their large silver short was inherited by JPM back in 2008. JPM's Blythe Masters has put in countless sleepless nights defending JPM's silver short, they even were taking to court over it and won, but that doesn't mean they weren't doing it, in fact it's well accepted and known they were and may still be so this is my least favorite of hard assets.

30 min chart in SLV looks decent.

Crude oil and Nat. Gas would be two other assets that would do well, you know how I feel about UNG long term and the last several months I've been saying crude is setting up a base for at least a large counter trend rally.

Looking back at the action in gold, crude and nat gas, it seems Wall St. may have been preparing for a new scenario that is just being revealed now, this is what I mean when I say they work years in advance just like they did when they accumulated home builders in 2000 during the Tech crash, who would have guessed a couple of years later, HOUSING of all assets would lead the next bull market? Smart money knew and years in advance.

This is oil which looks to be in stage 2 after a lengthy lateral consolidation, I'd like to see volume, but we likely won't see that until the new year.

This is the 60 min chart that I've depended on to define the base building in USO.

The 30 min, 15 min, 10 min, 5 , 3 and 1 min charts are all in line with price.

So what is this all about? 

Commodities do well or hard assets which ironically can include real estate, I say ironically because what has private equity been doing for the last 2 years? They've been scooping up as many single family homes, condo's and rental units, holding them and financing the holding by renting them and even selling rental backed securities just like the banks sold MBS, Morgage backed securities before the 2007/08 crash.

The same thing is playing out, a bubble in real estate, but not in terms of shoddy loans, in terms of rental units, ALMOST AS IF THE ENTIRE HOUSING BUST WAS ON PURPOSE SO THEY COULD GRAB THESE HOMES IN THE HUNDREDS OF THOUSANDS PER PORTFOLIO ON THE CHEAP AS A HARD ASSET.

WATCH COMMODITIES.

The scenario I'm describing is a bit unusual, usually if bonds sell off then risk assets rise and vice versa, it's the flight to safety or reach for risk trade, but that hasn't been a well oiled correlation for some time. In certain rare instances, both bonds and stocks sell-off and when this happens, investors look to buy tangible or hard assets, better known as commodities: Gold, Silver, Oil, Nat. Gas, real estate and commercial real estate to some degree.

IRONICALLY THIS WOULDN'T BE POSSIBLE WITHOUT THE F_E_D'S QE, the withdraw of QE or tightening looks to be perceived as a policy tool of tightening no matter what Bernie says, perception is reality in the market so that could take care of stocks, at the same time when they do this, support for bonds falls as they are no longer buying $40 some odd billion a month and bonds fall, yields move opposite bond prices and thus the 10-year crossed 3% today. So the F_E_D itself may have created this new monster in which stocks and bonds fall at the same time while interest rates sky rocket as the 10-year seems to be hinting at.

A Unique situation.

As far as other things I've been watching...

 VXX, short term VIX futures are continuing with that 20 min leading positive divergence, I may take action soon here.

The same can be seen in the 15 min VIX futures, even stronger than yesterday.

If we get a bond and stock sell-off, the safe haven asset is no longer bonds, maybe the CHF currency will see some flow, but I'm guessing a good commodities fund with some diversification may serve you well.

It seems as I suspected and was waiting for confirmation, since the F_O_M_C taper, smart money has decided a taper is not a taper, it's a pol;icy tool and any policy tightening is bad news for the market, in this case it's also bad news for bonds as China is no longer an enthusiastic buyer of US debt, maybe that will change if the F_E_D promised then to reign in QE, but for now, the market seems to be discounting falling bond prices and rising yields which means interest rates across the board may be soon hitting a shocking level, Poof there goes the economy again.

I'll be looking for assets that make sense outside of what we are already looking at or holding, as this could be a very dramatic and unique situation.

As for Gold and USO, I like them bother where they are, of course I would prefer buying in to a pullback (UDSO specifically).