Market & Carry Trade Update

Really it's just a quick look at the market, this is my personal trouble spot (not risk, not fear...) patience, we all have them. 

This morning I should have done what I'd normally do, which is what many of you did as we trade options as a tool, not a lotto ticket, I should have taken the short term gains and repositioned for the next opening. I'm not concerned about the Calls at all, I'm thinking about the dry powder it would have created to give me more flexibility so to all of you who took the gain this morning, I'm happy to see you listened to what I said rather than did what I did, congrats on those positions by the way, nice trading.

So looking at the Q's, as a proxy for the broader market, here's the problem I personally am having...

 This 10 min leading positive divegrence that we were pretty darn sure would pop up early this week as of Friday's post for the week ahead, Looking Forward to Next Week is looking very good, it's the kind of divergence that I don't ignore, but I also don't want to enter a trade that I'm not convinced about and in this case it's ALL TIMING. So I have the "Greed/Patience" emotions stirring and you know what I feel about that, "Better to miss the trade than enter a sub-optimal position", which is to say, "It's easier to keep it than make it back".

Really this is all about that "W" I expect to form, we'd be right at the middle of the "W" (high end) right now and a pullback would be where I'd want to enter calls, with an equity long, even 2-3x leveraged it's not such a big deal, but we have a wild card event with the minutes tomorrow which I do think is a high probability leak with the way the market is behaving and I'm not just talking about the Q's, but VIX futures and others.

The 2 min chart's trend is also showing a positive divegrence for this week as we expected Friday, it's when we look at this chart on an intraday basis that the discord comes in to play.

This is the same chart zoomed in to intraday which is how it should be used, it was positive at the first "W" bottom low, it has a negative right now at what would be the middle of the "W" and if it would just pullback to the white trendline we'd have a complete pattern, excellent entries, lower risk and good timing indications, but it's just sitting there.

I looked at the Carry Trades to see if there was an edge, what I noticed was the same thing I saw earlier today, the algos must have been shut down because the Index futures are not following the normal correlation which tells me that Wall St. set up this little cycle starting Friday afternoon and they aren't about to let the carry trade destruction mess up what they've put some effort in to setting up because of some statements from the PBoC and BOJ overnight.

Take a look and it's clear the algos are in the "OFF" position, at least the carry correlated ones.

*ES is in purple and the asset/carry trade is in red/green price bars

 USD/JPY 1 min chart from about 1 a.m. to present, ES did not come close to following this lower and there's really not anything close to a reversal process in place for the carry cross.

EUR/JPY fared no better...

AUD/JPY also no better.

As far as the 3C charts for the pairs...

 AUD/JPY doesn't look that bad, but this is a 1 min chart only and on a 5 min it just isn't working for me.

USD/JPY 1 min doesn't look that bad and it's 5 min chart is working fairly well, at least better than the other two carry crosses.

USD/JPY 3C 5 min.

EUR/JPY wasn't even worth capturing.

So now it's off to the individual single currency futures to see if we can pull anything interesting...

 $USDX is more or less in line on the intraday, that's not inspiring, it seems like there's a bit of a panic to close carry positions today which may be why the VXX is looking so odd today. The 5 min version is in line, but a tiny bit more positive, not worth capturing.

The $AUD interestingly looks as if it's about to take a dive as 3C is leading lower, I suppose at least the $USDX is closer to in line than negative like the $AUD above.

Again the Euro is not interesting.

As for the Yen which may be the only thing that matters or moves any of these carry crosses...

 Earlier the 5 min Yen chart had a relative negative divegrence (Weakest form), so what we needed to see was the intraday 1 min go negative and the worse it got, the better the chance of a reversal in the USD/JPY (I'm leaving the EUR/JPY out because it's not interesting and the AUD/JPY because of the AUD's 1 min chart).

So we do have something brewing here on the 1 min as you can see, as far as the 5 min Yen, it's essentially the same as this morning which makes sense because it's not going to move until there's negative movement on the 1 min that is strong enough to migrate over to the Yen 5 min.

However the Yen 5 min is still in a relative negative divegrence so I suppose right now it's all about the Yen 1 min chart and seeing if anything changes with the $USDX.

As for the market, I didn't put out any positions for a reason and that reason is as stated above, better to miss the trade as another one will be right behind it than to enter something you have objective evidence that is saying, "Be patient" and that objective evidence would be the intraday charts of the averages being negative and suggesting that a pullback needs to finish up first, plus I wouldn't chase options, they need to pullback for me.

Most of the major averages ended the day with a bullish reversal candlestick, but if you look close what's missing? If you said increasing volume, that's exactly what I was thinking.

I think we need to just stick with our concepts, the objective evidence and be patient, you can't divine the market and you can't bend it to our will, kind of like fishing.

As for closing down GDX/GLD longs for a brief period (I still like them a lot, just not very near term based on today's action), I feel pretty good about it when looking at the EOD charts.

 GDX

GLD

For longer term traders I don't think these will present any trouble, I look forward to getting back in them because they have some very strong signals that I'd probably just leave open if it didn't seem like so much opportunity cost as volatility should increase as we continue moving to stage 4 (the Q's and IWM are both in stage 4 decline for the larger February cycle). Thus the assets deployed there in my view could be better used briefly elsewhere, I'm just looking for that "elsewhere " to get in to position.

I also like the way FXP closed (as a long), while there's no typical reversal process on today's gap down, to me it's not an issue.

I'm going to update internals, check Leading Indicators and probably have a long night watching the currencies.

Of course, I'll update you on anything I see that may be of any interest.