XLF, HYG, Market Update

I closed XLF Puts because it was easy to see they were losing momentum and easy to see there was a reason for that, a reason which may have some new trades opening up soon.

First here's the P/L for the April $23 XLF Puts just closed...

The 100 contracts had a cost basis of $.69 and they were filled at $1.06, so they came in right around a +55% gain which is fantastic for me, I', not using options to try to win the lotto, I use them to make what looks like a decent looking trade that may be lacking in profit potential worthwhile by using options' leverage. If I don't need the leverage, I prefer not to use it as it cuts both ways and you can only play with hand grenades so long before something unexpected happens.

There's been a lot of roatation this week from IWM to QQQ to SPY which it seems is now leaning toward SPY, that likely means Financials are going to outperform and we'll look at those charts.

If we decide to move forward with a long position it will almost certainly need leverage as the base that was there earlier in the week was pretty much trashed yesterday as it had never gained strength (the strongest divergences were 3 mins. and most only 2 mins.).

That means a SPY call might work, a UPRO (3x long SPX ETF) equity/ETF long could work, XLF calls might work or FAS (3x long Financials) might work if you prefer to stick with equities over options. I will look more closely at small caps (IWM) and Tech (QQQ) to see if there's anything stronger there than what we see below.

FIRST though...DON'T FORGET WHERE WE ARE...

 This 60 min chart of the SPY should clearly show massive distribution in a toppy environment, you don't get a much clearer signal than that. In fact, me drawing on it only distracts from how powerful it is so just to impress upon you the risk of taking longs...

Better yet, take a look at the stronger 2 hour chart (the 4 hour is even worse, but I think this gets the point across)...

SPY 2 hour leading negative divegrence art a new leading negative low in a flat , choppy, toppy stage 3 range.

Now as far as the lever to move the market, HYG has been getting slaughtered all week, it seems someone does want this market to bounce as they were working on earlier in the week, I still think it is VIX accumulation related, the market needs to bounce to send the VIX futures lower where they can be accumulated on the cheap-I've held this opinion for several weeks and nothing in price or 3C action has caused me to question it.

HYG 2 min all of the sudden is leading positive, this wasn't there yesterday so there's some attempt to engage the Credit/Risk on following algos to drive asset prices up.

The HYG 5 min chart is ugly, but there is a relative positive divegrence look at HYG's lower low vs the trend line and 3C's higher low, this is a mino divergence in the scheme of this chart, but it is a change toward the positive, even if it has no chance of changing the leading negative.

SPY, I like this one the most of the averages.

 1 min, YOU'LL NOTE IN ALL OF THE AVERAGES THERE'S A SYMMETRICAL TRIANGLE TODAY, THIS HAS NO DIRECTIONAL BIAS OTHER THAN THE PRECEDING TREND WHICH WAS DOWN.

The point being, traders see this and expect it to act as they've been taught for over a century and break to the downside once the triangle is finished because only the preceding trend gives a sym. triangle it's directional bias unlike the right angle ascending and descending consolidation/continuation triangles.

Do you see why this would be there, how it would set up a head fake move and a bounce? Traders expect it to break down, they will short it and when priceEs are run back above the lower trendline or the triangle's apex where all the shorts put their buy to cover stops, you get a mini short squeeze and momentum to the upside which longs will chase as we have figured out through StockTwits that it only takes 3 hours of price movement to change sentiment, TRADERS ARE JUST FOLLOWING PRICE, A LAGGING INDICATOR AND THAT'S HOW THEY GET IN TROUBLE IN A SITUATION LIKE A SYM TRIANGLE.

 2 MIN SPY, by now you should be seeing a pattern of migration starting.

3 min SPY, now you see even more, it seems yesterday's volume was a short term exhaustion/capitulation event.

Even the 5 min SPY is positive. The problem is the reversal process/ base is not very large, it may be the 5 min chart is engaged because they lost time and shares yesterday and are making up for it in quantity rather than quality or the time it takes to form a proper reversal process which would also explain the market wide sym. triangle if it is used as a head fake price pattern.

QQQ

 The 1 min isn't that impressive, but slightly leading

The 2 min isn't that impressive, but the 3 min looks better. I WILL look at AAPL because I know I'm going to get a slew of emails about AAPL any time I talk about the Q's making a move.

 This is the 3 min, there's a much clearer divergence, like I always say with using 3C, "If you don't see a clear trend, go out to the longer timeframes where there's less noise and more trend".

The 5 min QQQ chart is simply in line with price unlike the 5 min SPY.

IWM

 The IWM is my least favorite, this si the 2 min chart.

This is the 5 min chart, the 1 and 3 min aren't very interesting, but if they shape up, then having this 5 min in place will change dynamics and I'll like the IWM a lot more.

XLF-Financial Sector...

 1 min

2 min

3 min

5 min

Even 15 min...

You see why I closed the XLF puts? You see why I'm thinking about XLF calls possibly or FAS long for a bounce, not a swing trade, not a change in trend, a bounce!

More to come as I watch these charts and individual single stocks like BIDU.