Market Update

Yesterday at toward the EOD in a Market Update I posted the following...

"So after a week of divergences that were in place for 2-3 days, but none beyond 2-3 mins., today we transform from a slow signal environment to a suddenly increased signal environment in which we have many market averages with at least 5 min positives and some even with 10  min positives, yet I have not been running around crazy throwing positions out there... I did close a some that I felt were not going to gain any more or not much more that would make the risk I'd face a reasonable proposition.

So why not add long positions like 3x leveraged ETFs or Call options?

Remember the market is not controlled by supply and demand, they are a function of price discovery and in some instances they seem to rule price discovery, but what really moves the market are emotions, FEAR and GREED with fear being the stronger of the two....

So I conquered my fear in many ways, probably not all, but in many.

THE SECOND EMOTION IS GREED, while not as strong as fear, it can be a close second.

On a day like today with divergences building and some building to quite long timeframes, it's hard to keep your finger off the trigger, but just like I had to conquer fear, I've learned over the years, "IT'S OK IF YOU MISS A TRADE, THERE'S ANOTHER BUS COMING". 

If I don't feel that the situation is as favorable as I can get, sometimes I'd rather let go of greed, take a chance and possibly miss the trade, I think it's far better than taking what might be considered a sub-optimal trade."

With what I'm seeing today, I'm happy I closed the XLF Put position and protected that gain. I'm also happy that I wasn't throwing leveraged longs out there and kept both the core net short bias and trading portfolio net short bias.

Yesterday's divergences were fast and apparently they were meant for today (I'm assuming op-ex max-pain pin), but the footprint just wasn't big enough.

From what I see, it's still time for patience, there aren't too many assets screaming buy, sell, short, etc. In fact since the open with HYG's distribution on the gap up, things really haven't been that impressive. The minor divergences that looked like we'd lose upside momentum set in and worked as they should have, now we have some other signals and they just aren't at a place in which I'm in any rush to enter new positions or to change the net directional positioning of the tracking portfolios (net short). I think you'll understand after looking at the charts below.

"If you don't know what your edge is, you don't have one"... ANYTIME your money is in the market, no matter how low the beta or how safe it might seem it is at risk and to put your hard earned money at risk, you better know what your edge is (I bet MBS sounded like a rock solid, safe investment when being pitched, "Backed by a diverse portfolio of tangible property, housing boom, etc, etc..." but it was far from safe). 

 SPY 1 min has deteriorated all day, but looks like it may try to bounce in to the close.

The 2 min went positive fast yesterday, actually out to 5 min, but I couldn't pull the trigger with 1-day of accumulation in front of op-ex, the foot print was too small to lead to anything significant in my view.

Now the 2 min is in line so the 1 min positive looks (if it holds) like an EOD bounce only at best.

Remember the 5 min charts going positive in a single day when we had a week of 1 and 2 min charts positive, but nothing beyond 2 min? It seemed like a stronger day and maybe it puts in a "W" base and accumulates a larger footprint, but we make decisions with the information we have now and what I'm seeing is nothing better than in line and there's no edge there.

However the 60 min chart has a very clear edge, this is why the trading portfolio and the core/trend position tracking portfolios are all positioned net short, this is the largest edge/probability, this market IS coming down and the VIX is key to the timing of that, that's why it has been so important for me the last 3 weeks to see it accumulated on a decline with those flying leading positive divergences we JUST started seeing today.

Honestly... Would you have wanted to take the risk of being long a 3x leveraged ETF like UPRO today for this?

 IWM 1 min also looks like a possible EOD bounce...

But not much more as the 2 min is in line only from a positive yesterday.

As I said, this may develop in to a "W" base and a broader foot print and stronger divergences, but that's a bet, we don't have objective data telling us that yet and I don't bet in the market.

 The stunning 5 min positives from yesterday are no more than in line today.

However the IWM long term chart has a clear edge doesn't it and right at a flat trading range that is in stage 3 position or better known as a top.

That's an edge I'll trade.

 QQQ 1 min intraday is perfectly in line.

The 3 min positive from yesterday is now in line, lost all of that.

However once again, the long term, strongest underlying trade has a clear edge, THIS IS WHY PORTFOLIOS ARE POSITIONED NET SHORT.

As for HYG, as I've been saying, other than some quick 1-day accumulation yesterday to get the algos following and buying the averages for the pump, Credit is being distributed and if the guys in credit are running for the hills, I'm right behind them.

And those signals we have been waiting at least 3 weeks for in VIX futures (VXX) , here they are finally, not where they can be and should be yet, but that's just a matter of time.

3 min flying divergence

The 5 min was already there and as mentioned the longer charts were already there like...

This 15 min.

That should explain why I'm not looking to throw out a bunch of short term trades right now because the edge isn't there, but as far as the shorts I'm holding open, there's a clear edge there.

We'll see what the last hour gives us, I'm going to check Leading Indicators too.