Earlier I mentioned that the Nikkei had the same signals as the broad market and if the market is going to see an even more significant bounce than today's which I feel more confident about than ever, the Nikkei is going to move up as well.
Thursday, February 6, 2014
The Same Concept Applied to the Nikkei 225
The NKD (futures) is a lot like the Dow in terms of size (points and percentage moves).
Earlier I mentioned that the Nikkei had the same signals as the broad market and if the market is going to see an even more significant bounce than today's which I feel more confident about than ever, the Nikkei is going to move up as well.
intraday 1 min chart..
This 5 min is where things get neutral.
After that, the 15 min is leading positive in a huge way and very quickly.
As is the 30 min chart
Even the 60 min chart is strongly leading suggesting a huge move. This is the same concept as the market averages as well as VXX.
Earlier I mentioned that the Nikkei had the same signals as the broad market and if the market is going to see an even more significant bounce than today's which I feel more confident about than ever, the Nikkei is going to move up as well.
Other Positions
You'd think that if a VXX call position was ok, then I might be looking at SPY puts (even though I expect them to be super short term like yesterday's VXX puts), but I cannot enter a position in those assets when the 10, 15,and 30 min charts are so strong and have gained so much in a day or two, it's just not worth the risk to be trading against those odds.
Trade IDea Options/ VXX $48/$49 FEB Call
I don't need a lot of time on this one because I think it will likely be closed tomorrow.
I considered GLD also for a call very short term, but I don't like the way its correlation has been acting the last several days.
I considered GLD also for a call very short term, but I don't like the way its correlation has been acting the last several days.
Final Market Update
It's another strange day today, but unlike yesterday with no movement, today there's plenty of movement.
We had good intraday negative divegrence signals for an intraday pullback, they look like they were rescued across multiple assets,but they also have made it to about 3-5 min charts as negative divergences, I think the idea here is to reinforce to traders that any strength should be sold/shorted which sets them up for a short squeeze.
Depending on the asset somewhere around 5-10 min charts they go neutral and then 15-30 min charts are exceptionally strong, like as strong as you'd expect for a base area that has been created since Jan 27th suggesting a monster move up which we have expected, but now we have really believable signals.
I think this is psychological, teach traders they are rewarded for shorting strength and when the move doesn't come back they are squeezed creating even more momentum on a short squeeze.
Each average is a little different, but the Q's are a decent proxy.
Leading indicators for the most part are in line or flat, one sentiment was negative since 1 pm, everything else is flat which is a little unusual, but would fit with what I'm thinking above.
I'll keep equity longs in place, it's the options I wanted to take profits on, just like VXX, I think I can re-enter then at better prices.
In fact, VXX is the exact same example of what I'm going to show you on the Q's, it just trades opposite, but if you read the VXX update, it''s the exact same principle so we have confirmation there as well.
Intraday was going negative and then it was rescued as you see to the right.
However as I said, there are negatives in the 3-5 min timeframe, then charts go neutral
5 min negative
This 10 min isn't neutral, but some other averages are in the 5 -10 min range, this is actually very strong
I'm guessing retail who is bearish shorts the market, the market moves down and they are rewarded, thus the next move up they short it again, but when it keeps going they either are caught or keep shorting until they are squeezed.
These strong charts that have developed very recently would definitely squeeze shorts.
IWM 30 min
This is the exact same concept in VXX, in fact I might look at a 1-day long in VXX via calls, I will not close any equity longs as the drawdown is insignificant and they are good positions for the trade.
I also saw something similar in Nikkei futures, the major change is the very strong charts on 15, 30 and 60 min that weren't there before so it too should see a massive short squeeze.
We had good intraday negative divegrence signals for an intraday pullback, they look like they were rescued across multiple assets,but they also have made it to about 3-5 min charts as negative divergences, I think the idea here is to reinforce to traders that any strength should be sold/shorted which sets them up for a short squeeze.
Depending on the asset somewhere around 5-10 min charts they go neutral and then 15-30 min charts are exceptionally strong, like as strong as you'd expect for a base area that has been created since Jan 27th suggesting a monster move up which we have expected, but now we have really believable signals.
I think this is psychological, teach traders they are rewarded for shorting strength and when the move doesn't come back they are squeezed creating even more momentum on a short squeeze.
Each average is a little different, but the Q's are a decent proxy.
Leading indicators for the most part are in line or flat, one sentiment was negative since 1 pm, everything else is flat which is a little unusual, but would fit with what I'm thinking above.
I'll keep equity longs in place, it's the options I wanted to take profits on, just like VXX, I think I can re-enter then at better prices.
In fact, VXX is the exact same example of what I'm going to show you on the Q's, it just trades opposite, but if you read the VXX update, it''s the exact same principle so we have confirmation there as well.
I'm guessing retail who is bearish shorts the market, the market moves down and they are rewarded, thus the next move up they short it again, but when it keeps going they either are caught or keep shorting until they are squeezed.
These strong charts that have developed very recently would definitely squeeze shorts.
This is the exact same concept in VXX, in fact I might look at a 1-day long in VXX via calls, I will not close any equity longs as the drawdown is insignificant and they are good positions for the trade.
I also saw something similar in Nikkei futures, the major change is the very strong charts on 15, 30 and 60 min that weren't there before so it too should see a massive short squeeze.
SPY / VXX P/L & VXX charts
The VXX position was broken up in to 4 parts today so I'm just going to post the first capture of the day as that shows the original position size as well as the contracts and cast and then I'll post the fills for each of the 4. Don't forget to check out the VXX / VIX futures charts, if they can bounce a bit today, they looks like fantastic shorts (SVXY) or puts.
VXX March $55 Puts P/L
There were 70 contracts at a cost of $7.25 (I told you the position was way too big, but yesterday I got the whiff of something as I said and it smelled like profits). The cost basis is $7.25 on the 70 contracts.
Here are the 4 individual fills from today (10, 10, 10 and 40=70)
With fills from $7.90 to $8.60, the average fill comes to $8.485 for a P/L of +17% or $8,645 for a half day trade.
The SPY weeklies (I haven't used these in a while, but felt confident they'd work in time) had a cost basis of $1.71 with 100 contracts.
There was only 1 fill at $2.17 for a P/L of just shy of +22%
VIX futures/VXX/UVXY
This is the intraday VIX futures 1 min, not that impressive huh?
This is the 5 min chart that has been a disaster for most of the week and it finally paid off, but I think it has a lot more to go so I'd be looking for a new entry, either as a short trade (short VXX/UVXY or long SVXY) or using Puts.
This is the 1 min VXX chart, a little better intraday positive, but still nothing that worries me.
The really interesting charts are again out on the 30 min timeframe like the averages, look at the size of this leading negative divegrence in VXX
The yellow arrow is a head fake move, note it is right before the reversal move to the upside, do you see why it is a head fake move?
This is UVXY (2x long VXX) 30 min chart just for confirmation since they are managed by two different companies and we have confirmation, the 30 min chart is seeing massive distribution making any bounce a very attractive short/put position.
VXX March $55 Puts P/L
There were 70 contracts at a cost of $7.25 (I told you the position was way too big, but yesterday I got the whiff of something as I said and it smelled like profits). The cost basis is $7.25 on the 70 contracts.
Here are the 4 individual fills from today (10, 10, 10 and 40=70)
With fills from $7.90 to $8.60, the average fill comes to $8.485 for a P/L of +17% or $8,645 for a half day trade.
The SPY weeklies (I haven't used these in a while, but felt confident they'd work in time) had a cost basis of $1.71 with 100 contracts.
There was only 1 fill at $2.17 for a P/L of just shy of +22%
VIX futures/VXX/UVXY
The yellow arrow is a head fake move, note it is right before the reversal move to the upside, do you see why it is a head fake move?
Market Update part 2
OK, as I said, it was a strange and still is a strange market with a couple of assets, mostly in the Carry cross (USD/JPY), but also in the longer term averages, this is partly why I think there's a move on now to convince retail that the bear market is still on and they should be "Shorting the rip", which works to our advantage as a short squeeze on a move higher.
So here are some of the odd signals, some may have changed and if they do I'll put the updated charts as well.
First I closed the VXX puts earlier because the position was too large, the last set of them I closed is because I would rather enter a new position on a pullback than let the profits fall when I can just "wash, rinse , repeat and double the gains".
As far as the SPY calls, those were the experiment, (weekly calls that expire tomorrow), truth be told I should have closed those earlier.
Here's what was initially odd considering we already knew about the intraday negative divergences.
For the market to fall, it would be highly irregular for the USD/JPY (1 min) not to do the same, but here it had no sign of moving lower so I looked at the individual currency futures...
This is where it gets weird, the Yen futures (1 min) are positive, that would mean the USD/JPY would likely pullback and thus everything confirms with the market. I'd expect to see the $USD either flat or negative on the same timeframe, but...
I didn't, it too is positive and still positive. In fact both are positive on the 5 min charts too, I suppose it's a matter of relative performance, once out or underperforming the other, but still strange signals.
This is the current USD/JPY 1 min, it suddenly saw a more negative 3C move and that happened fast.
As far as VIX futures, the 1 min chart has a small positive divegrence, but they move opposite the market so a move down intraday would have stolen the profits from the puts opened yesterday so I closed those, however I will likely re-enter them if I can get in at a better price.
What is also strange, but good to see and gives me confidence to enter longs or a new VXX put position in to some intraday weakness is the next set of charts.
Usually the 15, 30 and 60 min charts don't move a lot intraday, if they do, it's showing an awfully strong underlying movement because the size of the position on an hourly chart is much larger than say a 5 min chart.
Here the SPY 30 min not only went leading positive as we completed the "W" base yesterday, but added to that today, I suspect that any downside in the market will see additional accumulation, although I think this is more a psychological game making retail think that this morning's move up was a fluke and reinforcing the idea that they should short any weakness which helps an upside move as they short in to it until they can't stand it anymore and get squeezed creating a burst of momentum which can bring in longs and change sentiment to bullish from bearish, the entire point of this move.
Look at this 60 min chart, not just today's move which is impressive, but the entire move, that's strong.
The same is true on the QQQ 30 min as well.
This gives me the confidence to buy long on an intraday dip or reestablish the VXX puts, but I'm likely to look more at a VXX short equity position for a longer term trade.
I'm going to look around some more, see if any opportunities are opening up and as always keep an eye on the horizon so nothing sneaks up on us. I'll post the closed positions' P/L next.
So here are some of the odd signals, some may have changed and if they do I'll put the updated charts as well.
First I closed the VXX puts earlier because the position was too large, the last set of them I closed is because I would rather enter a new position on a pullback than let the profits fall when I can just "wash, rinse , repeat and double the gains".
As far as the SPY calls, those were the experiment, (weekly calls that expire tomorrow), truth be told I should have closed those earlier.
Here's what was initially odd considering we already knew about the intraday negative divergences.
What is also strange, but good to see and gives me confidence to enter longs or a new VXX put position in to some intraday weakness is the next set of charts.
Here the SPY 30 min not only went leading positive as we completed the "W" base yesterday, but added to that today, I suspect that any downside in the market will see additional accumulation, although I think this is more a psychological game making retail think that this morning's move up was a fluke and reinforcing the idea that they should short any weakness which helps an upside move as they short in to it until they can't stand it anymore and get squeezed creating a burst of momentum which can bring in longs and change sentiment to bullish from bearish, the entire point of this move.
This gives me the confidence to buy long on an intraday dip or reestablish the VXX puts, but I'm likely to look more at a VXX short equity position for a longer term trade.
I'm going to look around some more, see if any opportunities are opening up and as always keep an eye on the horizon so nothing sneaks up on us. I'll post the closed positions' P/L next.
Market Update 1
Here's that intraday pullback I mentioned, I'm thinking it's going to keep retail in the short game, but it may provide us with some last minute trade opportunities, there are some really strange charts I'll post next, strange in a strange way, not good or bad as far as I can figure out.
SPY 3 m
QQQ 3m
IWM 3 m
This is made to look like the bears are still in the game, perhaps even short the rip.
This is made to look like the bears are still in the game, perhaps even short the rip.
Changing Sentiment
I've been getting a lot of retail sentiment updates plus the ones I get from AAI/Investors Intelligence, but I think members who are dialed in to the Twitter community get the best feel for sentiment and especially as it relates to what they are looking for which is the same thing Technical Traders would have been looking for a century ago, the difference is Wall St. knows the game and knows how to play it and retail traders never adapted (this didn't become a big issue until TA went mainstream with the Internet and online brokers).
So today's sentiment report is not surprising in the least...
"Practically everybody on my stream was calling for the 200 day as if it was a certainty yesterday."
This makes perfect sense from a Technical point of view, it's the same expectation traders would have had in 1932 or 1964, but times are different. We may not have the perfect system, if I did I wouldn't be sharing it with you (Actually I'm just kidding, anyone who is serious about the market, who are good people and willing to stray from the herd, in my view deserve success).
As you can see on the daily SPX chart a move to the 200-day moving average as retail sentiment was strongly predicting yesterday would be a pretty strong move and even looking at the F_E_D liquidity pumped maket, you can see the market still doesn't move in straight lines, the F_E_D pumped liquidity would be the best chance to see something like that and to the left, we don't see it. The market is a series of waves.
Since Dow Theory can be difficult to explain in a short period of time and since there have been revisions to it since first recorded in the WSJ almost a century ago (Charles Dow owned the WSJ), the best visual example I can give is the beach and tide.
If you go to the beach and wait for a wave to break and roll up to its highest point on the beach and then stick a wood stake right there in the sand, over the next few hours you'll see that the waves are either coming further up the beach (an incoming tide or bull market) or are receding, an outgoing tide or a bear market, but no matter what the tide, the waves will still roll up the beach and the market is exactly the same.
The candlestick pattern I talked about Tuesday was a bullish Harami upside reversal, since it put in hammer candlesticks yesterday which are also bullish reversals and many of them were also Harami's (their body fell within the body of Monday's large body). Today we seem to have good confirmation of a reversal, but we've been hunting this move for more than a couple of days.
Several days I go I posted this exact chart of the long and shorter term trendlines, that's exactly where the move found support. This also looks like a broken H&S top or an unfinished H&S top, they aren't all textbook.
Usually once the neck line is broken, retail chases the move and the sentiment has clearly been bearish, that's typically when we see the H&S volatility shakeout back above the neckline which it appears we will see, this accomplishes about a half dozen things, they're all well documented in my 2- part article on the member's site, "Understanding the Head-Fake Move".
As far as the Trend Channel for the SPX, it held all of 2013, it recently broke for the first time, but until the channel is clearly trending down, volatility and choppiness are very high in this area which often causes the channel to move sideways for a short period which it is just starting to do now.
My X-OVER system was never going to give a long signal on a daily chart in this environment, but a 60 min chart isn't bad and we are a hair away from that with the middle indicator almost crossing above its moving average, this would be a wave in the larger tide rolling up the beach even as the tide is moving out.
Note the 3C divergence (accumulation/Distribution) we've been tracking and this move we've been hunting has been very predictable as we have been able to predict every move since the 24th starting the 27th. Even with a move lower which I believe is a head fake move, it certainly did its job with retail sentiment, we still have an unbroken leading positive divegrence since the 27th.
The QQQ has the exact same thing at the exact same place.
As does the IWM, this is not coincidence, these averages don't give exact same signals over the same period unless there's something to it.
So I'd still expect waves of all sizes, minor intraday waves, daily waves and even weekly until we make our next move to a lower low and likely bust right through the 200-day moving average rather than find support, retail expects one thing, Wall St. will do another.
In any case, you know I expect a move strong enough to change sentiment, but there are no victory laps in the market so we'll keep watching, but if this is as we suspected, then there's not going to be a lot to do other than take care of the positions we entered in expectation of this move, look for some new entries and at a certain point when we are seeing distribution on a large scale, move in to core short positions like GS, PCLN, NFLX, GOOG, etc.
So today's sentiment report is not surprising in the least...
"Practically everybody on my stream was calling for the 200 day as if it was a certainty yesterday."
This makes perfect sense from a Technical point of view, it's the same expectation traders would have had in 1932 or 1964, but times are different. We may not have the perfect system, if I did I wouldn't be sharing it with you (Actually I'm just kidding, anyone who is serious about the market, who are good people and willing to stray from the herd, in my view deserve success).
Since Dow Theory can be difficult to explain in a short period of time and since there have been revisions to it since first recorded in the WSJ almost a century ago (Charles Dow owned the WSJ), the best visual example I can give is the beach and tide.
If you go to the beach and wait for a wave to break and roll up to its highest point on the beach and then stick a wood stake right there in the sand, over the next few hours you'll see that the waves are either coming further up the beach (an incoming tide or bull market) or are receding, an outgoing tide or a bear market, but no matter what the tide, the waves will still roll up the beach and the market is exactly the same.
Usually once the neck line is broken, retail chases the move and the sentiment has clearly been bearish, that's typically when we see the H&S volatility shakeout back above the neckline which it appears we will see, this accomplishes about a half dozen things, they're all well documented in my 2- part article on the member's site, "Understanding the Head-Fake Move".
So I'd still expect waves of all sizes, minor intraday waves, daily waves and even weekly until we make our next move to a lower low and likely bust right through the 200-day moving average rather than find support, retail expects one thing, Wall St. will do another.
In any case, you know I expect a move strong enough to change sentiment, but there are no victory laps in the market so we'll keep watching, but if this is as we suspected, then there's not going to be a lot to do other than take care of the positions we entered in expectation of this move, look for some new entries and at a certain point when we are seeing distribution on a large scale, move in to core short positions like GS, PCLN, NFLX, GOOG, etc.
UNG / DGAZ Charts
I already decided I have better things to do than chase trades up and down on every move in UNG and DGAZ like watching over this move we have been hunting, managing the positions that were put in place and keeping an eye on the horizon.
I think DGAZ will ultimately be fine. I don't think the CME hiked Natural Gas margins twice in a week as a result of Natural Gas (UNG's) volatility for it's own sake, I think this was more political with unprecedented polar vortexes covering the nation, I think the last thing the government wants is for speculators to create a frenzy in Nat Gas during this economy. Ultimately I don't think this is bad for UNG long term, it has been building a solid base on solid fundamentals, a momentum-minkey chasing spike isn't the long term move and structure we want in UNG, we want real support built in for the long haul as it has been doing, not a speculative blow-off. In any case, my point is I think the CME move was pushed from political avenues more than their own margin requirements.
As far as the charts, I'm going to show you the UNG intraday charts and then the same chart in context and we'll end with DGAZ.
This 1 min UNG chart almost had me in panic mode before I took a step back. This does look like an intraday move higher off a "W" base much like what we saw complete in the market yesterday, except that was over a period of days with a large week long range right before it, this is over a matter of 3.5 hours.
This is the exact same 1 min chart zoomed out to context, now that 1 min chart looks a lot more like what I think it is, a common bounce as UNG has had a couple of rough days and formed a little base. Remember that a base tells you a lot about how much the proceeding move can support.
Again when I was just looking at intraday charts, UNG's 2 min confirms accumulation at the second half of the ":W" base, it's almost a spitting image of the market except on a much smaller scale (that's the fractal nature of the market because all timeframes are still dominated by the same things that move the market, emotion).
The same 2 min chart in context, the negatives are huge and deep, this is almost like a bottle rocket, perhaps a quick move and a sharp pop, but not much else.
By the time I got to the 3 min chart, the intraday views really had me concerned.
Again though, put the same chart on a wider context and you can see the distribution signals are much, much stronger, the divegrence almost gets lost here. If this were a 4 or 5 day divergence that built up, then I'd look at it much more seriously, but it's several hours.
Then the 10 min chart has no sign at all of any positive, but quite a negative set of signals.
The 15 min chart keeps deteriorating to worse and worse levels.
And I don't need to say much about the stronger 30 min chart, I probably didn't even need to highlight it. So looking at UNG/DGAZ, is it worth trading moves that are a day here and then switching back? For me it's not.
DGAZ's 1 min chart up close confirms the UNG 1 min chart as DGAZ is the 3x short version of UNG.
The 2 min chart is a bit "ify", it seemed to confirm, but there's also a small positive building in there.
The 5 min is clearly positive on DGAZ and I wouldn't exit the position based on this chart, I wouldn't even consider it.
However it is the longer charts that are showing a strong reversal process and divergence in to it like this 10 min chart or...
Or this 30 min chart (recall UNG's 30 min chart-nearly the exact opposite). To me, this looks like one of the better Swing trade (and maybe then some) opportunities.
I still have my core UNG long and I'd like to add to it, a pullback with the trading long DGAZ in place would be appreciated and I think that's where we are headed.
Honestly, right now I'd much rather treat this as a swing type trade than try to trim around fat, there are better assets to do that in.
I think DGAZ will ultimately be fine. I don't think the CME hiked Natural Gas margins twice in a week as a result of Natural Gas (UNG's) volatility for it's own sake, I think this was more political with unprecedented polar vortexes covering the nation, I think the last thing the government wants is for speculators to create a frenzy in Nat Gas during this economy. Ultimately I don't think this is bad for UNG long term, it has been building a solid base on solid fundamentals, a momentum-minkey chasing spike isn't the long term move and structure we want in UNG, we want real support built in for the long haul as it has been doing, not a speculative blow-off. In any case, my point is I think the CME move was pushed from political avenues more than their own margin requirements.
As far as the charts, I'm going to show you the UNG intraday charts and then the same chart in context and we'll end with DGAZ.
I still have my core UNG long and I'd like to add to it, a pullback with the trading long DGAZ in place would be appreciated and I think that's where we are headed.
Honestly, right now I'd much rather treat this as a swing type trade than try to trim around fat, there are better assets to do that in.
