Final Update

Looking at leading indicators and others, I'd say they are consistent with what I said before, "If the market can put together a retracement/bounce from oversold (which is relative or subjective), the indicators don't hint at anything more than that possibility, thus the reason I won't go long any market correlated assets for a bounce, I'm saying there would need to be more of a basing process, an unwind of the very bearish action, which is ironic, because Investor .com had the highest bullish sentiment seen by our resident sentiment follower as today began!!!

TF futures are still building in to the close, not ES or NQ though. The 5 min divergences in the averages are the same.

VIX futures have a slight negative to them.

All carry trades have been lateral all day which is a big difference from the new lows of 2014 put in overnight, that is a somewhat bullish development so it seems there's a lot of panic selling and TICK verifies this.

Yen and USDX are flat as well. Sentiment indicators are either in line or slightly positive and Yields are slightly positive for the market in to the close.

That's the gist of it, unless there's a fundamental surprise, I don't see any "V" shaped bounce, the most likely thing would be lateral trade early next week that may give us a bounce, but I think it needs to end before the end of the month or just after as China faces some defaults that will spread contagion.

All of the negative signals we have been seeing, this is just the start of the result of those, no support, distribution everywhere. This is ugly, but in the big picture, it's nothing.

UNG Update

UNG's VERY parabolic move today is seeing worsening intraday negative divergences on it. These moves are something I'm always interested in as they fail so often, it's good to see the charts starting to confirm the same.

Market Update

A lot of assets are just falling apart and looking worse, I can't go long anything that's market correlated or short either for instance VXX, there's just too much risk. It almost seems like the markets of old before the Bernanke Put was in place, selling off late Friday because they have no idea what will come out of China over the weekend, that's something we haven't seen in quite some time.

In any case, earlier I mentioned how the IWM looked the worst from a 3C perspective earlier and added, sometimes it's the ones that look the worst that perform the best as the market is like a pendulum swinging way too far one way and then way to far the other.

It's ironic that the assets that had been holding up better like SPY are now looking worse and the IWM that looked the worst is now looking better. In any case, this is a serious break in the market's character, things won't be the same, the BTD's are not going to be the same after today.

Here's a look at a few of the averages with emphasis on TF/IWM in to the close which may just be a function of the pendulum effect. Also if you recall the chart I posted of the USD/JPY correlation vs SPX (ES) futures and how around Tuesday the carry pair was showing gross underperformance, remember that was the same day we had the knee jerk upside pop because of the PBoC liquidity injection that we were so suspicious of and now we know why. Watch those charts in that area as well, you'll see something that was giving away the distribution I was pointing out this week (earlier).

THE PLAN REMAINS TO STAY IN THE SHORTS ESTABLISHED, USE ANY PRICE STRENGTH WITH CONFIRMED SIGNALS FOR NEW OR ADD TO POSITIONS AND TAKE SELECT LONGS THAT ARE SHOWING STRENGTH FOR A MARKET BOUNCE OR AT LEAST THAT ASSET, BUT IN NO WAY IS THERE ENOUGH OR EVEN CLOSE TO ENOUGH EVIDENCE TO SUGGEST A LONG IN ANYTHING MARKET CORRELATED.

 MAJOR SELLING IN THE TICK, TONIGHT'S DOMINANT P/V RELATIONSHIP SHOULD BE CLOSE DOWN/VOLUME UP WHICH WOULD BE A 1-DAY OVERSOLD EVENT, BUT WHEN A MARKET BREAKS, A LOT OF RULES GO OUT THE WINDOW.

 SPY 5 min still holding its positive divegrence, remember the USD/JPY chart vs ES, the FX pair was underperforming the correlation right there where we see distribution in to the bounce, we already know for sure that BAC's main analyst is looking at the same things as he put out today.

 QQQ 5 min is still holding, but again that same area on the PBoC liquidity injection bounce shows 3C distribution in to the move.

My point about BAC's head technician/traders is that they saw the same lack of correlation in ES and the carry cross, so it would be obvious they'd be passing along "Sell" notes to their trading desks, that seems to be what 3C is showing us, it's showing distribution there, but it makes sense that BAC would have been a seller, THIS IS WHY IT'S SO IMPORTANT TO LOOK AT AS MANY PIECES OF THE PUZZLE AND NOT JUST A MOVING AVERAGE OR MACD.

 IWM is outperforming near the close and just as important is the rounding process with the 3C signal.

This is the Russell 2000 futures, like the IWM they also have the rounding price pattern which is usually a reversal PROCESS, not an event, and the positive divegrence there is really the only one as ES and NQ both lost theirs on this timeframe.

I'm going to say if there is a bounce, there's going to need to be more work on a viable base so Monday would likely see more chop, but likely more sideways and/or rounding, maybe a "W".

I can't see a "V" reversal unless there's a fundamental even like the F_E_D comes out and says they won't taper at the end of the month meeting.


So, let positions work, be patient and wait for the set up.

Closing PCLN Feb $1200 Put

There's a profit, some intraday positives and I need to move this to March, I'll wait for a little better price on an upside move to open a new position.

UNG / DGAZ Update

This position has been a nightmare, in any case, here's where we are... UNG is VERY parabolic and looks to be starting to run on some fumes while DGAZ is picking up some hit stops.

 It's hard to root against a stock you love, but I want that DGAZ position working.

The parabolic move is always suspect, I never trust them and for good reason. In this case there's a long upper wick on the candlestick forming on large volume, the larger that wick is, the better and more likely the parabolic move fails and they fail faster than they start.

UNG intraday at the parabolic/wick trouble

Migration of the divergence from today

more migration

DGAZ is showing the opposite signal/confirmation intraday leading 1 min

 2 min

and 5 min on volume.

The opposite wick formation here would create a bullish hammer so I'm looking for that, this is just too parabolic to walk away from

BIDU long still looks good

In fact it's one of the few things that has any consistiency.

I can only get a single chart to upload, but all intraday through 5 mins are leading positive.

GOOG Service interuption

I don't know if you are having any problems, if you are please let me know. I'm having Gmail and website (blogger) service interruptions in S. FL.

The last post to have gone out is a fairly long (lots of CAPS) Market Update, it seems to have posted, but the service is intermittent. Let me know if you are having any similar issues.

I'm still looking through the market

Market Update

Just so you know, when I'm quiet, it's not because I'm taking a break, I don't take breaks, it's because I'm looking at a lot of stuff.

Yesterday we started a reversal process for a BOUNE, nothing more. My main reasoning is the same reason I said a couple of weeks ago (thereabouts) that we are already on the right side of the hill, specifically I think I said something like, "Don't expect Wall St. to send up a flare and let you know the market has turned", but the evidence of what they are doing and the panic they are in can be found in the carry trades, this is why we have been watching them so intently and more so the Yen.

TODAY BAC'S TOP TECHNICAL ANALYST SAYS THEY ARE NO LONGER BULLISH ON THE MARKET, GUESS WHY? Because he's looking at ES doing its thing and then the carry trades (USD/JPY) doing there's and it doesn't match, the carry trades are saying something very bearish as the market churns along and hands off shares (short even) to the greater fool.

I'm just trying to determine what's happening right now, I've been pretty steadfast on what I think is coming and I think is already here.

Yesterday's divergences weren't run over so much as price just declined on what is really bad news. Our knee jerk pop higher earlier in the week on PBoC liquidity injection (Tuesday) of $255 bn sent retail in a knee jerk tizzy, but recall I said the more important question the pros are going to be looking at after this knee jerk is "Why?". We know that China has some major trusts close to default (as soon as next week), today the market was slammed on additional credit default warnings in the mining sector.

Still when a divergence gets run over, it disappears, that's not the case for the SPY, the Q's don't look as good, but they've managed to hold a ,lot of yesterday's work, the IWM was slammed, but it's starting to put itself back together (thus the closing of the IWM puts).

HYG is done as we know it as an arbitrage lever, it may still play a role, but not like it had. This afternoon it is in line with the SPX in a bit of a reversal/rounding process and there are some intraday positive divergences forming, I would NOT go long HYG like I chose to with BIDU, by the way, both the $155 and $160 calls in BIDU were finally filled and both are up +11 and +6% respectively already.

Remember the CRAZY IVAN head fake moves I suspected...

A is a 5 week range, a very obvious target as retail will chase the breakout.  1 is a head fake move as we often see right before a reversal, you have to read my two articles linked on the member's site to understand why, but that's not random price action, there's a reason for it and a reason it directly precedes the breakout and using this to your advantage gives you a huge edge in any timeframe you trade. B is a legitimate Bear Flag that technical traders would expect to break to the downside as it did at 2  and 3  is the upside break that creates a Crazy Ivan shakeout, the move at 2 shook out new shorts, the move at 3 brought in new longs and forced remaining shorts to cover, the longs were next to be shaken out as that is what a Crazy Ivan shakeout is. C is a Bull flag, traders expect it to breakout to the upside so the longs who entered on the head fake at 2/3 will stay long on a bull flag with an expectation of a breakout to the upside, this is where they got caught and shaken out at 4.

NOW 4 brings us under SPX $1806, this is BAC's technical break that turned them from bullish to neutral, but this is all just for your consumption, these guys plan 6 months and in some case as I have showed you, 3 years or more out.

The SPX futures already broke $1800. The mistake here is to expect that the market moves in a straight line, it doesn't so a bounce makes sense, it's just been difficult this morning to see the same signals that developed yesterday as ES, TF and NQ are all NEGATIVE intraday, on a 5 min chart  ES has a small positive divegrence, NQ has a VERY slight positive and TF is negative or inline, this is exactly the same as their counterparts with SPY looking the best holding much of yesterday's divergences meaning they weren't run over, QQQ is second best or second worst and IWM is the worst, just as the futures are showing.

To me the rounding in HYG and recent positives, although small are a bounce indication. Sentiment intraday was negative and then spiked toward positive, not a lot, but enough to be meaningful short term.

VXX as mentioned earlier with intraday (ONLY) negative divergences  is also underperforming its correlation.

Yields aren't pressuring either way as the SPX and Yields have reverted to the mean. HY credit was holding up better than expected until noon, then they just broke ranks and sold.

Perhaps the most important is the driver of all of this, the carry trades and the USD/JPY has been relatively flat from an overnight downtrend so that's a change in character or improvement, this isn't because of the Yen which is still positive and confirming, it's because of some $USD strength, but that doesn't look great intraday.

 $USDX gained ground helping USD/JPY stabilize since the US open, but note the negative divegrence while the Yen is still confirming.

 This 1 min chart os USD/JPY (candlesticks) vs SPX futures (ES) is close to inline, you can see how the carry crosses are leading the market and thus very important.

On a 60 min chart of the same, the SPX futures held up better, but today reverted to the mean on the downside with USD/JPY, however this chart is deceiving and this is what the BAC analyst was talking about and what we've been talking about for most of 2014 and watching for the last 6 months.

THE USD/JPY HAS A CLEAR, CONFIRMED DOWNTREND, LOWER LOWS/LOWER HIGHS, I SHOWED YOU THIS MORNING.

THE SPX DOES NOT, THIS IS WHAT THE BAC ANALYST FOUND TROUBLING FOR THE MARKET, THE CARRY TRADES ARE OUR WINDOW (OTHER THAN 3C) IN TO WHAT SMART MONEY IS DOING AND THEY ARE RUNNING FOR THE HILLS.

Still short term is what I'm looking at, there are some long trades I like such as MCP, but specifically for a bounce BIDU as you know, however I'm looking to short price strength in BIDU so the long there is just hitch hiking for some extra $.

My general plan is going to be to leave most short positions in place except where there were gains and time sensitive issues like the IWM Feb. puts, otherwise I'm sticking with the most probable underlying trend. As for longs, I  DO NOT WANT TO GO LONG ANYTHING HIGHLY CORRELATED TO THE MARKET.  So in essence, it's a stock pickers game on the long side for a short term retracement and it's a patience deal and waiting for opportunities on the short side.

I want to say the indications (especially VIX futures) are still short term on the side of a bounce, but when we get on the right side of the mountain and are coming down, the slopes are slippery and all it takes is something like the overnight Chinese banking regulators warning on credit defaults in mining, although the trusts and shadow banking system are the real problems.

THIS IS WHY I SAY THAT PRICE IS ABOVE ALL, DECEIVING. THE RALLY TUESDAY ON A $255BN CNY INJECTION FROM THE PBOC WAS FOOLISH TO CHASE, WHY TRADERS DON'T STOP AND THINK, "WHY?", I THINK THE ANSWER IS BECAUSE THEY HAD NO IDEA TO START WITH THAT THERE WERE LIQUIDITY PROBLEMS IN CHINA.

OK, I'm going to keep checking and seeing where there are some opportunities, typically this is where we find them, they are just in the wrong direction for the most part (trading against probabilities).

MCP Update

Yesterday I loaded up MCP and today it first looked like it was heading for a gap fill which you'll see, but I think it just got caught in the tide as it was/is in a transitional spot. Bottom line, I'm still very much ok with it.

 This is the entire MCP base so we are still very low in the base, it's also a large base capable of sustaining a nice up trend once it moves to stage 2 and by the behavior of 3C and MCP itself, I think this is the last time it's going to be down at the bottom end of the base.

This is the more recent base, breakout/pullback. In orange is a gap fill and a psychological stop area at $5 where stops were definitely hit and I'm happy to say, accumulated.

The mind just gravitates toward whole numbers and that's where the stops are, that's why you never see anything for sale for $5, it's always $4.99 when you're shopping, believe me, I did a 4 week sales course in Baltimore and mass psychology was a big part-color too, ever notice all the fast food places have red (the first color your eyes focus on) and yellow (associated with hunger) in their signs? McDonald's, Burger King, Wendy's?

 This is a 5 min chart today and the red arrow is the first move of the day to $5.00, volume spikes there as stops are hit.

This is the intraday MCP 3C chart, the positive and then leading positive divegrence are right at the $5 stop run (red arrow).

This is the leading positive 5 min divegrence from yesterday and...

Here it is today so there was no confirmation on the downside, but rather another divergence.

The only thing I'm not crazy about would be the reversal process, but I'm not sure that it needs one as it has been in an accumulation cycle and seems to just have got caught in the tide, maybe on purpose as it usually has very little correlation with the market.

Closing Up the Rest of the Feb IWM $118 Puts

I'll be looking for a bounce and a new area a bit higher to start a new position if there's a decent opportunity and it looks to be worthwhile. I'd rather not sit through a consolidation or bounce with February expiration.

HYG Follow Up

If you were able to get HYG puts (no fill for me) the other day, I personally would be looking to take those profits now. Downside momentum for this leg seems to be done, I'm not saying HYG is done, but I'd rather take the gains and re-open a new position when it's ready, they should be substantial.

 HYG daily

The large intraday volume was the last straw for me, it looks like a mini-capitulation event and there's some lateral price action forming up, from here puts tend to lose their profits.

This 10 min chart is a pretty clear picture, HYG is FAR from strong, but it's a totally different dynamic dealing with options vs equities.

Market Update

It looks like they'll be trying for an intraday reversal. The SPY never gave up much of yesterday's positive divegrences.

Right now VXX is going negative intraday and TICK is improving.

VXX 2 min

Yesterday's divergences as a bounce divergence were some of the weakest I have seen in I don't know how long, but the fact the SPY still holds them seems to mean they are still planning for that move despite more fundamental (non-discounted) Chinese default news overnight.

The Q's look ok, not as good as the SPY, but better than the IWM.

I'm keeping an eye on it, but I wouldn't have entered a BIDU call if I didn't think they could effect a bounce. We have a little less than a week before a probable Chinese Trust failure so now's the time to try to pull a bounce off, thus also the reason for taking some off the table in IWM puts.

HYG is out of the game, no help there, but the VXX chart is revealing taken with the SPY charts holding up.

BIDU Fill and IWM P/L

I couldn't get BIDU Feb $155's filled, I had to go with Feb $160.

As for the IWM Feb position which I'd prefer to re-open on a bounce and move that out to March, the last 20 contracts closed came out like this (this is what I was trying to express yesterday, when you have enough time on a contract a -24% loss can be overcome in a day).

With a cost basis of $3.21 and a fill of $4.60, the P/L on these 20 was +43%

Taking more IWM Puts off the Table

I'm going to close down 20 more of the Feb 118's so the position will be half the size it was this morning.

Trade Idea: BIDU Feb $155 Calls 1//2 position

I really prefer having more time, but I'm thinking I can slip buy with Feb. monthlies, so I'm going with a half size position in BIDU Feb $155 calls for a bounce which will see the calls sold and an equity short added to or started if you like the idea, the longer charts for BIDU are in yesterday's post HERE.

It should be pretty clear why I like BIDU as a short, but in the very near term, if it will give us some upside, why not take it?

BIDU Update

Yesterday I updated the possible/probable bounce BIDU should see as a volatility shakeout from a H&S top break below the neckline.

Today we have quite a few intraday positives out to 5 mins that say we will see that bounce, that's where and when we want to start or add to an already profitable BIDU short position (Core short/trend position).

I may very well even open some calls for a bounce higher, but make no mistake I am BEARISH on BIDU and would use any such bounce to short in to, but as long as it's going to bounce, why not hitch-hike? I think this only works with options, I don't think three's enough profit potential with an equity long to make it worthwhile from a opportunity cost p.o.v.

 1 min

There's migration further to the right as accumulation for a bounce picks up on the 2 min and subsequent charts.

 3 min leading positive

5 min leading positive.

I'd prefer something like a March (at least 6 weeks of expiration) $155 or so, I'll see what's available, but remember this is only a quick trade to hitch-hike the bounce so we can add to the core short.

I'll let you know before I do anything, but I'd rather do it while sentiment is sour.

Took about 25% of the Feb. $118 Put off the Table

The position was a bit larger than I wanted. Just yesterday I was talking about how fast this would turn around...

"I do want to point out I was talking to a member yesterday about the IWM Feb. 118
Put which was down -24% yesterday, I said, "That can change very quickly with that much time"... today it's down only 11% of position, not portfolio."

And today it's in the green. I wanted to capture the initial momentum on the opening downswing seeing that it is still an op-ex day and we are still learning the new rules that apply to trading this market.

 I ended up closing 20 of 80 contracts for an 18% gain.

Yen Up on another China Credit Default Risk

It was just a few days ago that the market was knee jerking higher on $255bn CNY in PBoC liquidity injections with the majority in 21-day repos (over 7-day). As the market knee jerked higher, we asked the question, "What is so wrong in China right now that they needed to inject so much money into the system after watching them carefully inject and withdraw from week to week, tweaking their liquidity.

That was the main event, not the injection, the question as to why. 

Yesterday we found out that their already nearly frozen interbank system was expecting a trust default (still is) within a week. Today or overnight rather, banks are told to watch over the credit of coal miners as they expect defaults on their credit. China knew there was a problem alright, now that we are hearing about the reason $255 bn CNY were injected Tuesday, it's not such a knee slapping party anymore.

 Tuesday's "Chase it higher" has not ended well with this morning's move taking out nearly the last 6 days of IWM longs.

 And the Yen keep roaring.

Remember about December 27th as window dressing ended, the market hasn't been the same since.

The 30 min Yen chart has been positive through all of 2014 and now we have an even stronger USD/JPY downtrend, approaching the BOJ's Maginot line of $100.

ES is in line on the downside, it got ugly last night

The USD/JPY did it, another new low in the 2014 downtrend, the first since ...well before Nov. of 2012 when the carry pairs were activated.

Here's the USD/JPY that has ,made a new lower low, just yesterday we weren't even close to making such a low, but expected it. In fact this was yesterday's chart....

This was just yesterday with the comment...."The USD/JPY since the start of the year in a downtrend which WAS NOT BROKEN ABOVE $104.91, means this break of $104 today is likely going to see some volatility, but the end result should be the next lower low."

Well there it is. This is a big part of the reason I said, "The market isn't going to send up a flare and tell you when it has topped", but in other p;laces like the Carry crosses 2014 downtrend, we can see we are coming down the right side of the mountain and...

Now it should be clear to see why we've been watching China so carefully. Anyone who thinks Credit Defaults in China won't cause contagion clearly don't remember 2008 in the US very well.

Considering taking some profit in Feb 118 IWM Puts

It's just because I like this momentum, I'll likely only take a small bit off the table, maybe 15% of the position size.