Financials

I've been going back and forth between what has worked for me with options and what I think may be necessary to take advantage of some disproportionate, extraordinary gains. I could have closed out Friday's XLF Puts today for a 20+% gain for a day's exposure and normally that's exactly what I'd do at the first sign of a change in momentum, even if only a counter trend bounce, however there are bigger things at play, the February rally's top is dead and this last week's cycle was a timing trigger in that, fear is stronger than greed and markets fall a heck of a lot faster than they climb so having puts in place at the right time can bring some unreal gains.

I decided with only a day in to April contracts to hold them, this doesn't mean that I might not open a position like the SPY weekly calls I just opened that are already at a double digit gain and as you know puts or not, I've already done the work of putting positions in place, I don't need to scramble to chase the market, but rather sit back and cherry pick opportunities.

On that note, Financials specifically (XLF) and some of the Core shorts like GS or JPM are looking very interesting. I want to give you a feel so when we take action you know why we are.

First lets start with the Financial sector (XLF), again I held Friday's puts that were opened.
*Don't be afraid to substitute FAZ (long) for XLF puts, this is not a specific thing, incorporate the ideas and concepts in to your trading style and the assets you prefer to trade, just because I chose puts doesn't mean FAZ or SKF long won't work or even XLF short if you don't like the leverage. The idea I try to pass along are the broad strokes, the concepts, the timing, specific assets, position size, etc is what you are comfortable with. I'm never so happy as when I hear a member made 300% on a weekly option because I had decided to go with a monthly, they took some more risk and really it was just the 3C signals that gave us the timing, the asset and how it was managed and the resulting gain were the trader's own style. That's all I want is to help you add an edge to your style, not create a cult guru following, we're all students of the market and if it works for you, keep it up. I just had to say that so you know what I'm trying to pass along is information, concepts and an edge, not strict trades that have to be adhered to like some other services that want you totally dependent on them for everything you do, I want you to succeed-however you are comfortable doing that.

 This is the 60 min XLF, showing accumulation for the Feb rally and distribution since, price is moving up in to distribution and that's why we call it a divergence, that's our edge or one of them, knowing what is really happening behind price moves and how stable they are.

Closer to home on a 5 min chart, see the little H&S like top? To be a valid H&S top there are strict volume principles that must be met, most traders don't know and don't care, if it looks like an H&S, it's an H&S and I've seen 6 months of shorts burned in 2010 because they didn't do the very simple volume analysis to confirm a H&S which it wasn't.

Right now, because of the concepts and the size of the top, it doesn't matter much, what matters is that traders take the bait and short the break below this mini H&S's neckline, that sets up a small bear trap/short squeeze and sets up some nice shorts for us at better levels with less risk.

This is what has happened in XLF on a 2 min chart since the break below neckline support. Shorts entered on that today, stops are just above the neckline and they are going to be shaken out, that's what 3C is showing us, so why not take the gains in XLF puts? Because this is a short term move, it's a little trap that allows the set up of short positions at better prices because in institutional terms, this top area is not big enough to fill their orders.

This is the 1 min XLF top, you see distribution at the head, a break under the neckline and accumulation which is easy because the retail short sellers are selling to enter the position, that means the institutional buyers setting the bear trap have supply to absorb on the cheap, it serves their purpose perfectly. However don't forget the longer term trends , those are the highest probabilities and the direction I want to be positioned by this point in the game.


This will lead to a lot of other individual assets setting up too, there are different circumstances, but you know what retail looks at, here are two different set ups (short) in financial stocks.

GS

 This is GS's 60 min chart, it's clear what the trend here has been and where the probabilities are, that doesn't mean you have a specific entry on a chart this long, but you know which way you want to be positioned which is short, that means using any price strength to do that enhances your gains and lowers your risk.

This is the 2 min GS chart, notice it's doing the same as XLF in the same timeframe of the Financial heavy SPX?

So this is one I want to short or add to on a pop higher because I'm not chasing it after it has already taken losses when a little patience gives me a much better entry.

JPM... This is a good short, but different circumstance, just remember the concepts, remember what technical traders see, how they react to it and how Wall St. uses that against them as do we.

 JPM's 30 min distribution, we know where the trend is and which way we want to be positioned in JPM, but this is not the same as GS which is chasing weakness which we don't do.

The white box is the Jan/early Feb. accumulation for the Feb rally/cycle and you see what 3C looks like since, the same as the averages and almost all assets.

On the short term 5 min JPM we have price near highs and we could short it here, but if we know financials are likely to see even a 1-day or half a day pop, why enter now? We know JPM is more than likely going to move with the market and the Industry group, why take a sub-par entry when a better one will be available?

Look at the price pattern with the orange trendline as resistance, what do you see? I see a small ascending (Bullish) triangle, traders love these and they'll buy them, so a pop in financials=a breakout in JPM, that's a head fake move and as long as I can confirm, that's when and where I want to enter JPM short, above resistance.