A.M. Update

So far, what we seem to be observing is the reversal process, what we have this morning is EXACTLY what I said I thought we'd see yesterday afternoon (for today). Was that confusing?

OK, in this Market Update from yesterday I put up this chart with the following commentary...

"I'm glad I took the gains from the IWM put opened yesterday. (Which really was perfect timing, check the reason why I took the gains (here) as it's one of our market concepts in the subtle art of volume analysis as well as candlestick charting which was followed up here)

The SPY handled itself better than the Q's or IWM and VXX continued to accumulate, I just think we have a minor oversold status which is nothing big, but I wouldn't be surprised to see it relieve, perhaps tomorrow's options expiration max pain pin will do that. (As Thursday's close is usually right about where the Friday pin is until 2 p.m. Friday afternoon)

From VXX's point of view, this is the asset that is most important for me this week as far as signals, HYG is a means, VIX futures are the end.

Since the first day VXX moved down off the negative divegrence at the top which was small (I think they only needed enough distribution to get the move down and maybe get off some hitch-hiking trades, but the intent is to accumulate protection), there has been accumulation. This is the 5 min chart of VXX and you see the divergence is at a new leading positive high, this is exactly what we expected BEFORE the market move started so I'm always happy to see expectations which come from objective data, pan out.

I don't like the reversal process, this is the oversold/overbought condition from today, I'd think VXX would have to come down and form a more symmetrical rounding base or a "W" base, but they won't accumulate by chasing prices, that was the point in the first place."


So that's what was expected yesterday, relief from a short term oversold condition that manifested in a short term capitulation event intraday via volume and a hammer candlestick, that's when I closed the IWM puts opened the day before, but options trades are always as short as possible for me as you know, the longer you are in them the greater the chance the house wins, just like VEGAS, and deliberately so as they are a Wall St. derivative product.

So this chart of the IWM is no big deal, it's why I closed the puts as they'd have lost most gains by now, but this needed to happen anyway.

 As I said yesterday, taking the IWM Put gains wasn't so much about overwhelming accumulation at the lows or really about accumulation at all, it was about the volume/capitulation event, the hammer candlestick and the fact that the VXX reversal process wasn't done and smart money is not going to chase VXX higher when the point of this week's move was to knock it lower.

Remember the VXX chart above, well actually here it is again...

So as I said yesterday, VXX/VIX futures need to come down for a more symmetrical reversal process, meaning I don't think they were or are done accumulating there and this is the example I drew yesterday from the post linked above.

Here's what we have this morning...

VXX moving back toward the reversal process area whether that be some kind of "W" base or rounding bottom, the point is it needed to come down and since it trades opposite the market the market needed to move up. Those were the probabilities, that's not the same as a HIGH PROBABILITY / LOW RISK trade, thus there was no call position entered.

RIGHT NOW IN 3C OPENING INDICATIONS, much like yesterday the SPY looks better than IWM and is in line, the Q's are second and in line and the IWM looks the worst, as of now I have little doubt this is a short term oversold correction, there are lots of crazies out there who "Buy when there's blood in the streets, like us".

 SPY in line so far this morning

QQQ in line so far this morning

IWM is lagging as 3C is slightly leading negative.

There's no trade here at the moment, the IWM "may" offer another PUT entry, we'll see about that.

What we want to see is continued VIX Futures accumulation and continued HYG distribution, at some point I'll likely be entering a VXX/UVXY long and HYG put as well as a number of other market correlated and individual asset shorts.

For now, lets let the dust settle, see if DE Shaw and Virtu have reprogrammed their algos, like I said 3 times this week, these are not smart machines, they are meant to do one thing, chase correlation, that's why the USD/JPY flew up and the Index futures dropped, the algos were shut off as they are programmed to follow the correlation, they'll either be re-programmed or we'll return to business as usual and the correlations will slowly come back.