Daily Wrap

Today was an odd-ball day, but much of what we were looking for last night, did happen.

SPX futures saw the narrowest trading range for the day in 6 and a half years, the range was 5 points high to low and 1 point open to close during regular hours. As expected, volume was super thin.

Also as expected, Treasuries did rally, 10 and 30 year, but I can't get a good feel on whether there's a trend there or not, it seems a bit noisy.


Gold pulled back to fill the gap from 12/26 and then some, volume was higher, but there was no bullish reversal candle, just a narrow daily range. I think it's too soon to consider Gold a buy, which means perhaps tomorrow we see accumulation and a reversal candle, but that's a best guess.

I showed several times how there was an effort to Pin short term VIX futures, but I also showed that there was accumulation in VIX futures, this led to an attempt that may have slowed VIX futures, but traders were obviously seeking protection and the hammer support candle from last Thursday at the bottom of the Bollinger Bands of spot VIX, HELD and acted as they should which puts the VIX BB squeeze back in play, remember the market moves opposite the VIX for the most part.

VIX's reversal Hammer held and protection was bid despite an effort right in to the close to slow or pin VIX futures.

Based on some other things seen today and VXX, my best guess is that we get a bounce attempt tomorrow, this is essentially the exact same thing I was looking for last night, except the schedule has been stretched so rather than have a bounce the first half of today and a probable short opportunity the second half, it looks to be the same idea, just stretched over what may be 1 day (completed tomorrow) or two days (completed Thursday).

As expected, most carry pairs today continue to lose their correlation to ES.

Leading Indicators show sentiment indicators turned south, VXX was outperforming the SPX correlation handily, Yields are starting (thanks to T buying today as expected last night) to diverge negatively and they lead the market quite well.

High Yield Credit which has no arbitrage correlation to the market also sold off today as it's definitely institutional risk off in larger markets.

All in all, I can't say that I'd change my views of what I expected in last night's post except the time horizon. I added AAPL as a long hedge for a short duration move to the upside, but did so with a very nervous hand, this was the best looking asset I could find and it wasn't great looking by a long shot, in fact AAPL will likely bounce right in to a short sale opening.

The major averages were able to hold on to the intraday positive divergences, however as posted earlier today, all of them are intraday positives within larger leading negative, I showed one intraday of XLF and then showed it in the trend and you could barely make out the intraday positive as the leading negative trend was so much bigger. Usually when I see these, they are bounces on a short term (I'd call it intraday, give or take) and then they resume the leading negative distribution and price follows the stronger negative divegrence, again, this could be and most probably is to finish the year strong as many funds are counting on it.

With such low volume though, I was truly surprised that the market couldn't put together a strong move or even an end of day ramp, the IWM actually fell near the close, but again managed to hand on to the intraday positive.

As was obvious, I had a lot of difficulty finding anything to use as a shirt term hedge for the short positions already in place and they look infinitely better than any positives, like night and day.

Leading Indicators are also in line or moving in the anticipated direction, Breadth indicators didn't have much to say and I imagine that's because there was so little movement today (as mentioned ES saw the narrowest daily range in 6.5 years), sometimes that's because of accumulation or distribution, but record setting with such poor divergences, it seems to be something else and not anything bullish.

Probably one of the clearest signals of major underlying action (and we are rarely out this far as futures move around a lot and don't migrate the same way equities do), is the 60 min ES chart (or others).

There's a large overal relative negative divergence from left to right, then there's a 60 min negative in to the pop on the F_O_M_C and right after Quad Witching, there's a leading negative move, also well below where it should be on a relative basis even without the leading negative move. Very recent 3C action has been pretty fierce, moving a lot in a single day on a very long term timeframe.

Just like the old days before I used 3C (except now I use 3C to get the same information), I use to run through a number of charts and I'd have a feel for whether there were more bullish or bearish set ups and that was always a good barometer of the market. Well the same thing was VERY evident today in my struggle to find one decent hedge and even with that one (AAPL), I was quite unsure of it and have a number of price alerts set.

There's no Dominant P/V relationship across the averages and if there was, I'm not sure I'd trust it with this holiday volume.

So that will do it for now, I'd like to have seen more data today, but the best I saw was what I expected to see, an attempt at some accumulation on mostly an intraday and short term basis, within much larger leading negative trends.

If anything interesting pops up in futures overnight, I'll let you know. Thus far the only thing of real interest is how dull such a low volume environment has actually been, quite the opposite of what we normally would expect.

UNG / DGAZ Trade Update

I've been asked about this a couple of times so I thought I'd show the charts, I still like DGAZ for a pullback in UNG. On the pullback in UNG I want to confirm accumulation and when it looks to be done, close the DGAZ long (3x short Nat Gas) and re-open the UNG long which is a long term primary trend trade that hasn't even broken out of its base yet.

 The top pattern in UNG for its reversal is a little more complex than a "U" shape, it's like a small mini H&S and as such, the short term charts will go positive and negative to form it, but whenever you have a situation in which things are confusing short term, move to longer term charts, take the short term moves that don't mean anything (unless you are using them as tactical entries/exits) and look for the underlying trend.

I have done that here with DGAZ, Natural Gas Futures and UNG, you'll see some trends emerge and different information on each, but confirmation as well.

 DGAZ (3x short nat gas) has a nice, clear 15 min leading positive, it also shows what looks like an inverse H&S reversal/bottom, I could have used longer charts here to show the higher probabilities, but I didn't want to make this look like a long term trend that was somewhere far off in the distance before it materializes.

I used /NG Natural Gas Futures to show the longer term trend and how strong this divegrence is, this is a 4 hour leading negative which means UNG should see a significant pullback and DGAZ a significant rally/bounce.

The 30 min chart of UNG has been spot on with divergences from negative to positive to in line and back to negative with what also looks like a H&S pattern, except a top which is good, you can see the negative divegrence although I didn't draw it in.

So I think DGAZ long is fine, I'd consider adding if possible at the right time. Also I don't see this as connected to the overall market's trend at all, this looks to be doing its own thing.

Long term, UNG long is the trade, likely a primary trend that lasts years, but we're not quite there, this looks like a good chance to make money on the pullback and the pullback gives us a chance to enter UNG at a better price, less risk and hopefully right as it starts a new leg higher.

Long v. Short

Here's the AAPL (Trading ) long hedge I was considering.

 AAPL 2 min intraday positive, not very big at all.

 AAPL 5 min positive, pretty decent signal, but on this low volume there's only so much you can accumulate in 2-days which isn't much.

Now take the exact same 5 min chart above and put it in perspective, this is why it's a little scary to be long AAPL or much of anything, you need to be absolutely on the ball.

 Again a 15 min chart shows there has been accumulation and a bit of it relative to the volume available today, yet the same problem exists, "How much gas can you put in the tank with only a day or a day and a half?" and how far can that carry you.

Then...

 Put the chart in perspective. The highest probability trade here is waiting for AAPL to bounce and shorting in to that bounce.

SPXU, 3x short SPX-500

 Unlike the intraday positives that are a day or maybe 2 long, SPXU (a short ETF) has a huge trend leading positive, this isn't a day or so, there's lots of gas in the tank and if it dips, they'll add more as I  will.

I'd take this 5 min SPXU leading positive over AAPL's 15 min leading positive every time, it has size to it, it has strength, it has a process that is mature.

Look at the 10 min, it's not just the most recent "U" bottom, this is part of a larger base going back in to November.

FAZ 3x short Financials

 This 10 min leading positive looks beautiful, the divergence matches the reversal process, both are mature, both are the size you'd expect.

FAS 3x long Financials on the same 10 min chart...

 On the other side of the coin, its inverse, FAS, on the same timeframe is nearly the mirror opposite.

FAZ 60 min (3x short Financials) with the probabilities/ big picture, I don't even need to write on this, it's clear as daylight.

The size of the divegrence is unusual as most have been, this tells me this isn't a correction or a dip and all of the other data from leading indicators to breadth, market structure, mass psychology, margin debt, F_E_D policy, etc. all are in agreement.

Usually we'd see a huge move off a divergence a third of the size of this, but it's only once every 4 -6 years that we get a change in the primary trend and that's when we run at extremes,this however has to be the most extreme market I've seen from all of my time studying past bull and bear markets and I understand why when you understand how this market got here, it's a house of cards built on the shifting tidal sands of the beach.

FAS 2x long Financials

Like you'd expect, the inverse ETF has the inverse signal, this is one of many ways we look for confirmation, but there it is.

Or we can just look at the underlying Financial Sector, the whole story is there.

 XLF Daily. I drew in the distribution areas with red boxes and I made them approximately the size of the distribution, hopefully uoi'll understand what this all means, that this is not a corrective downside move, don't forget to look at the 3C money flow at the left in 2010 and compare to the current even as price is significantly higher.

XLF 4 hour chart

 XLF 30 min chart, this has been negative all year, usually these would have produced a move the first month, but as we have seen with some of the top Private Equity and Hedge Funds, they have said, "We have been selling EVERYTHING not nailed down for the last 18 months".

They wouldn't lie about that because it's so easy to fact check via their SEC filings, especially a trend that size, that long, this explains not only the long and extreme 3C signals, but also the indisputable falling breadth from 2013 at its height at the start of the year to its lows presently, those stocks don't fall below those moving averages if they are being bought.

 XLF 15 min with more detail, but the same conclusion.

 XLF 10 min

XLF 5 min

Here's an intraday positive divegrence in financials on a 1 min chart, but...

Put that same chart in perspective and tell me, can you even see today's positive divegrence to the far right?

I didn't cherry pick any of these, I leaned toward the assets I want to add to or am involved in, but it's the same everywhere, that's why I had such a difficult time finding a hedge and I'd much prefer having a 3x leveraged one, but the industry groups and averages that have the leveraged ETFS available looked worse than AAPL.

New Trade Position: AAPL Long

This is a hedge only, I have to use some size to get the hedge I need, but I'm not giving this much rope if it turns on me and I don't expect it to last long, I'll have a comparison post, you want to be very careful with this as a long.

Desperately Seeking a Hedge

I'm looking everywhere for a long trade as a hedge against all the short positions in the trading portfolio and I can't find one I trust and has enough Beta to perform the task of hedging 6 other positions.

AAPL is about the best I've found, yet again the beta isn't near enough to cover 6 other positions.

I may take AAPL as a very short duration long (likely closed tomorrow), but again I can't see it offering enough profit potential, as a call maybe, but I'm a bit concerned about the implied volatility, last week it was very high in a number of assets so I may end up paying some ridiculous premium to sell in to lower premiums and it doesn't hedge the trading portfolio.

That said, the short trades look AWESOME, I'll post what a few look like, maybe vs AAPL and you tell me where you'd rather be.

Market Update

I'll try to show you the clearest trend/view of the market. I would say what I expected last night is still the highest probability, but stretched out more, this could be just to try to maintain the market in to tomorrow's close so the year end doesn't chip in to the year. The other possibility is one I find to be more common, "Whatever you expect in terms of time and movement, double or triple it and you'll likely be much closer".

This is because we look at the market with our rational mind, the market is far from rational, it's a cornucopia (that's a good holiday word right?) of extreme emotions, and as such, extreme market behavior.

SPX Futures...

 1 min chart, you can see what I mean about intraday, although price action looks to be either at a standstill or negative, either way it would be taken as negative because a standstill is a loss of momentum that invites a reversal, just like having a compromised immune system, it's just inviting a virus or bacteria.

The 3C charts are what show me something a bit different than price, but as mentioned last night (although timeframes are off), the overall concept here is movement, it's not anything significant, just movement. If you are in to watching mixed martial arts, a lot of the strikes are not meant to win the match in and of themselves, they are to create movement to create an opening, the market is much the same and if you've read my articles, "Understanding the Head Fake Move" you'll understand why.

 ES 15 min is where we have a strong firewall, at 5 min we have in line so it's not even positive there, the former 5 min negative divergences have been pushed out to longer timeframes (migration) as discussed last night.

 ES 1 hour, this is really horrible especially considering the VIX futures in the same timeframe confirming.

 HYG has been destroyed as I showed last night, but intraday, this is a 1 min chat and note even the rounding, it's important to keep the timeframe and the size of the rounding process in mind since they are proportional. A 1-day 1 min chart rounding positive does not lead to a 1 week bounce. A 1 week rounding positive divegrence does not lead to a 1-day bounce, vice versa more or less.

 HYG on a 15 min chart with a very nasty leading negative divegrence, what is interesting is the range and the triangle in the range, this is taken as a bullish continuation triangle and today would be a head fake move that shakes out longs, but this asset is not one that many retail trade so I'm not so sure the concepts of head fakes and Crazy Ivans apply as much here. This is more of an institutional asset and even as a manipulation asset, most retail traders have no clue that it is used, I'm sure most haven't even heard of it.

 VXX / UVXY 1 min pinned like I've seen several times before, I think it was pinned right before the F_O_M_C and before Quad Witching and also pinned on a market decline toward the EOD that started getting ugly, that doesn't mean it's not being accumulated, in fact any one accumulating would be quite thankful that price is pinned because it's a better entry for them.

3 min positive and price is up on that and then the pin.

But again like HYG (only opposite), 15 min is leading.

As for the real VIX futures.

 1 min pinned just like short term vix futures above.

But at 5 min there seems to be pretty clear signs that it's being accumulated.

At 15 min it's very clear as is 4 hour.

I suppose if this stretches out longer, the question will lean more toward "Is this what I initially expected last night or is this just trying to pin the entire market in place for the last day of trading tomorrow?"

TWTR P/L

I absolutely love stocks that travel so cleanly inside the Trend Channel, we haven't seen many because we've had nearly 6-weeks of lateral market trade (sideways), it's hard to find much that has a stable trend in that kind of chop.

In any case, the trading position for TWTR was closed out this morning in hopes of establishing a new one at higher prices (a gap fill) and to protect an awesome 2-day gain with ZERO leverage. TWTR alone brings the trading portfolio up, just under +18% for December with no options (heavy leverage) used at all, in fact I set it up as a default that options can't be used, even if I tried.

So here's what we have, I wouldn't go long this, even for a trade (at least not with what I see so far).

This is the earlier closing of the TWTR short from last Thursday around noon. The cost basis (sold short) was $73.30 and the fill to cover was $60.45 which leaves a gain of +17.5% or just about 13 points in less than 2-trading days

 The 5 min Trend Channel from earlier today was hit, I expected it to be no matter what.

This 15 min Trend Channel, cleanly held the up-trend and down-trend, it hasn't been hit yet which is $61.50, but it will likely keep locking in gains and moving lower so I suspect it will be hit soon.

PCLN Follow Up

I don't know what it is about PCLN that has captivated so many people's interest in trading it short, perhaps it's a revenge trade or because it is up so high, the assumption is it has the most to fall, remember that points are points, but 20% of $10k is the same in a $5 stock or an $1100 stock.

That being said, your patience with PCLN and waiting to short at the right spot, waiting to fill out that short at the right spot (still hasn't happened) will be handsomely rewarded, I feel 95% on that statement so long as your tactical entries and trade management are good, PCLN will offer the points, it's up to you to capture them.

That being said, we have been very patiently waiting for PCLN to cross above $1200 before filling out the partial position that was started. I CAN'T BELIEVE PCLN didn't take out $1200 when it was so close, $1200 is akin to Dow $10,000 when it's trading at $9,990, heck CNBC would buy it just for the story and headlines.

Having a partial position short PCLN, we do appreciate this down side, but most of us would like to fill out the position to a full size core short.

I don't know if we get $1200 or not, I can't imagine that it passes it by, but I do think the current nasty price trend is going to bounce which may be intraday or a couple of days, it's not clear because the set up is just starting to form to hint at the probability, it's no where near mature or strong enough to give us much more than that.

 This is the $1200 area, we still aren't far from it and still in a range.

The longer daily chart shows the trend is your friend, that is right until the end when it starts to bend which PCLN has done in not making that higher high. Even of PCLN does make a higher high and hits our >$1200 expected target to fill out the short position, the damage of not making that higher high is done, the trend is sloppy when it was crystal clear, and that is reflected in 3C as well.

 What I'm looking at is the capitulation type price move and capitulation like volume, this is not true capitulation as in "End of a stage 4 decline", but the market is fractal and this smaller stage 4 decline looks like it's moving toward a stage 1 after capitulation from many longs. There's also rough support in the area. Normally I'd look for that support to be broken in the stage 1 process, but it's hard to expect that with timing factors in play.

The rounding price action after a steep decline, we would call this a "Process" and likely a reversal process, but keep in mind the scale, this is not a daily chart, it's a 5 min chart so whatever stage 2 move is made is proportional to the stage 1 base, which means it  really isn't a concern on the daily chart other than the area we have been looking for (+>$1200)

The intraday 3 min, like many of the averages as mentioned in the market update, is positive in this process so this is what I was talking about last night except on a more stretched-out time scale.

I could show many charts much shorter than this 60 min chart that are negative that give you a feel for just how far PCLN can move on the upside, it's not much, it "may" be enough to hit +$1200, but we've had much stronger positives that failed to do so.

The point here is PCLN had PERFECT 3C confirmation on a very smooth, clean uptrend, then 3C gives a hint of distribution and PCLN stutter steps and then a large reversal process (WHICH MUST BE LARGE IF IT IS TO BE TRUSTED AS IT HAS TO BE PROPORTIONAL TO THE PRECEDING UP TREND) has taken hold and 3C has shown an exceptional level of distribution.

I believe there's a 95% chance PCLN is SMOKED, but again in the simple wisdom of Jesse Livermore, "Being right and sitting tight are a rare combination of traits in traders".

Just because PCLN offers the downside, doesn't mean we/you/I have the guts to take it, "Being right and sitting tight"...

Covering TWTR in the Trading Portfolio

I'm 90% sure I'll be back shorting TWTR, but like GLD, it has a gap and these are just not left open like they use to be which was very helpful.

There's too nice of a profit for such a short duration trade and I feel very comfortable with the ability to short TWTR at something like a gap fill.

Quick Market Update

The market has some complexities to it this morning, but it is more or less what I expected, timing though may be a bit different.

Price alone looks bearish in several of the averages with a few bear flags and such so technical traders may be feeling a bit bearish on the market, but just as Gold / GLD did move down and fill the gap, I expect the market will move opposite gold and catch some of the retail bears this morning off guard. There are intraday 3C signals to support this, some HYG, but not much, what is very clear is VIX short term futures are pinned again, there's no doubt they have demand, but there's also no doubt that someone is working them to pin them right where they are and not let them climb.

On the other side, the second half of the day (which may be longer than thought last night), the intraday positives all stop like a very finely delineated line and go positive like the 15 min VIX chart I showed last night, in most cases this is at the 5 min mark, so the general concept of what I expected last night is in play, we just haven't seen the initial intraday move yet , then we look for the 3C information. In gold/GLD, it is JUST starting to show some accumulation, it's not where it needs to be to buy yet, but it is starting, thus I suspect it will start accumulating when the market shakes out the initial retail bears on the intraday positive signals.

The actual underlying breadth is poor, it's stuck at -/+500 which is a VERY narrow range.

So I'll be looking to see if there are any assets worth trading VERY short term, but I doubt I'd take the risk, also checking on management of other assets.

However the punch line is EXACTLY the same as last night, the only thing that is different is the timing is longer thus far from my initial expectations.

Gold is going to make a fantastic buy, we do want confirmation of the pullback though if for any reason, simply for timing, I think it's fine otherwise.

Remember, you can roughly use gold's action as an inverse indicator for the averages and gold made a healthy move to fill that gap, so for the market you reverse everything, the move, the health of the move, everything.

TWTR Trade Follow Up

Last Thursday around noon we entered TWTR short at what turned out to be a fraction of a percent from the absolute all-time high and have ridden it down since. This morning's 5+% gap down is a little bothersome in the very short term just because few gaps are left open. However as I was saying last night, this is something along the lines I would be looking for early today, see how 3C reacts to some movement and then act on that information during the second half of the day, in TWTR's case, see what 3C looks like in a gap fill and decide how I want to proceed from there because I think the parabolic failure is a stronger concept than the gap fill ultimately.

 With a short costs basis of $73.30, our Profit is now around +18.15%, it was higher on the open, that's not bad for less than 2-days of trade.

This is the daily chart and why I never trust parabolic moves, the IWM has a large parabolic move as well, it hasn't started the failure part, but it's much larger.

 Right now I'm watching trend channels, this first one I expect will be broken.

The wider one which will come down, is the one that has held the trend thus far, I'll be watching this and 3C. I may take partial profits and look to re-enter or I may just stay the course and be patient. If these were put options I would close them and re-open them later.