I have an open FAZ long position from last week (3x short financials) and I actually still like that quite a bit. I was talking with another trader using some more conventional indicators which I use, but in unconventional ways, such as a 100 period Stochastics, whether the 60 min chart where it's making a clean bullish turn or shorter timeframes that are bullish in divergent or non confirmation signals.
The only thing I'm not crazy about in FAZ or XLF is the most current bottom area which I think is part of a much larger one and thus should be more proportional, this may be a longer term issue that could be resolved with some kind of head fake move below SPX 200 sma.
I'll show you and why I still like this 3x leveraged Financial short as a trading position.
FAZ 4 hour long term chart with an in line status with price and then around December the first of what I think will be something like a double base, although distorted, I suppose that's not so far off considering the SPX H&S daily chart's distortion.
I'd normally look for a similar size second base to the right which isn't there, but it may be that's just how it's going to go, the leading positive divegrence at the second area is significant, note there was no distribution at the pivot high, this tells me this is under accumulation; they use just enough distribution to turn the asset, you don't want to lose any more shares than necessary when you are trying to accumulate.
FAZ 30 min from a negative to in line wit the downtrend (I love these charts) to a leading positive divegrence, on a 30 min chart the leading positive is a strong signal because of the longer time frame.
This shows the first base area (if this were a true double bottom) and enormous accumulation, more than what was used in the run up. Note at the top of the run, there's no negative divegrence even on a 15 min chart at the pivot, accumulation picks up almost immediately as the downside move starts.
A closer view of the FAZ 15 min with trend confirmation on the move down and a leading positive divegrence as FAZ loses downside momentum and starts a reversal/rounding process in price.
The 5 min chart has been leading almost the entire time which tells me the average accumulated price is likely in the $22 area so any move up should move significantly past $22.
The 1 min chart is the ONLY thing that would keep me from an entry right now and that's purely on a tactical basis, not strategic, even though it is leading positive, I'd like to see 3C moving to a new leading positive high, but as we know this can change before I finish writing this post.
XLF (Financial Sector) 4 hour chart with a huge leading negative divegrence, this gives me plenty of comfort with the FAZ position, this is an extreme divergence, however that is because this is a unique market in what pushed it higher, trillions in liquidity from outside the market.
The closer term 30 min has a very nasty leading negative in to the highs, this is what is really going on, the head fake move which at this stage we might as well call a counter trend rally, (you'll be seeing more of those and hearing about those more and more as we move forward) is leading negative, there's no confirmation so there's distribution in to that move and considering the primary underlying trends, I personally would not be long financials, the surprise risk is just too great.
XLF 15 min chart is showing the exact same theme as the 30 min above.
This is a closer look at the 15 min FAS which is 3x long Financials, if there's true confirmation in underlying trade, FAS should look like XLF, you can see it does, it may be even a bit more negative which is something I see often, either stronger or earlier divergences in leveraged ETFs, this is one reason I use multiple assets in the same group for confirmation.
The FAS (3x long Financials) is leading negative too, it never saw much accumulation at the "W" bottom for the head fake move.
I have no problem holding FAZ, opening or adding to it, I'm usually myopic about entries, but I would like to see that 1 min chart making a new leading positive high, but this is really a small issue in the big picture, it's just every edge counts.
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