Come Next Week, This is Why I'm Looking at Trend Positions

Instead of putting up 50 charts, I'm going to use the QQQ as an example.

First understand that with a head fake move, it's truly what is sounds like, it's a move to fool people and it wasn't a week and a half ago that the motto was "Short the rip" or Sell the Rip", replacing, "Buy the dip", investors got too bearish too quick. 

January 24th  we had quite a few posts that made it seem reasonable that the following week (starting with Monday Jan 27th) we'd see a range start early in the week.

"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 "Jan 24th...

That lateral range looked like this...

The market (most of it) traded laterally (sideways) for the entire week.

Our Friday afternoon post on Jan 31st, "Come Monday" which was the last day in the range made a prediction for the following Monday based on 3C's closing and mass psychology or market behavior...

"Ultimately though it came down to the 3C concept of "3C signals picking up where they left off on the next trading day" whether that be the very next day or over a 3-day weekend. 

The other concept that has very high probabilities is that of a head fake move before a reversal  or in this case, before a breakout from the week's lateral range which is normally at 80% of the time. The longer the defined range is,  the more probable a head fake move is to occur and we had a week long defined range.

The Bellwether stocks were in agreement, which makes long entries in them very enticing on a head fake move, that's actually the best entry we can get as far as price and profit , risk and timing since a head fake move occurs just before a move.

Since the major concept and most probable concept that will likely define the start of trade next week and the move that comes after is almost solely the head fake move, I think it is of utmost importance that you understand what this move is, why it occurs, what the signs of it are, what the effects of it are... "

That move, the next Monday, looked like this...

To the left is the defined range of the week before, the red arrow is Monday, the head fake move we called for. The reason it is a head fake move is because it did NOT continue lower, it was enough to hit stops and draw in new shorts, but after that they were caught in a bear trap as we made a "W" base the next couple of days.

 I described what the following Head Fake move would look like several times... See if this sounds familiar and note the dates, both BEFORE ANY UPSIDE MOVE.

Market Update January 31st.

" And of course the 60 min charts leading positive for Index futures suggests we see a strong bounce and there's no other reason to set up a bounce unless it's going to be strong, it is there for a specific purpose and to fulfill that purpose it needs to be strong, convincing, it needs to get dumb money bullish and buying. Should things go the way we expect, I'd expect the following week's insider selling to be even higher."

Tuesday February 4th

" When I said we expected a head fake move in my Friday post, "Come Monday", it was a head fake move to the downside, they need to be real, they need to be convincing, just as a bounce to the upside, I wouldn't expect a 1 or 2% move, I'd expect something that will fill my inbox with emails asking, "Are you sure the market is still bearish Brandt, this looks awfully bullish"."

I think you know what I expect next, but to give you some idea of how we closed, take a look at the QQQ (NASDAQ 100)...

 This is the 1 min chart from Feb. 12th (Wednesday, note how it ended on a negative divegrence and the next morning (Thursday) we gapped down hard and just after the open a positive divegrence formed.

This is the 1 min chart as of today's close leading negative.

This is the 2 min chart for the QQQ, also leading negative, distribution has picked up substantially, more than I'd even expect.

This is the 2 min chart's trend, #1 is the distribution that took us lower and swung sentiment toward the bearish side, #2 is the range area described above and #3 is the head fake move down, #4 is the base with accumulation confirming the head fake move and if you read the, "Understanding the Head Fake Move" articles on the members' site or even my description,  this move is very impressive, but you understand why it's there and why there's no accumulation or even an in line 3C signal on the move up.

 QQQ 3 min saw sharp distribution today.

This is the trend of the 3 min chart, the numbers correspond to the ones described above, again no confirmation of the move up and no accumulation, this was described before the move even started, that there would be no accumulation. This is a hollow move with no underlying fund support, just a short squeeze as a result of a bear trap head fake move.

 The 5 min chart...

The trend of the 5 min chart, note how consistent all of these timeframes are.

QQQ 15 min showing the initial negative divegrence taking the Q's down by -6% from top to bottom. 

Now look at the negative divegrence to the left and how big it was and how much damage it did, NOW LOOK AT THE CURRENT LEADING NEGATIVE DIVEGRENCE, NOT ONLY IS IT A LEADING DIVEGRENCE VS. A FORMER RELATIVE DIVEGRENCE, BUT IT IS MUCH SHARPER AND LARGER, IMAGINE WHAT THIS WILL DO.

The up move or what we were identifying before hand as the expected sub-intermediate trend (which this is) was represented in the Q's on the 10 min chart, as I showed early this morning in the SPY, that timeframe is falling apart as it has here.

Initially I had thought the sub-intermediate timeframe would hold its positive divegrence right through a downside reversal and a break below the SPX's 200 day moving average, that's obviously not going to happen as the long timeframes are quickly falling apart. Here are the SPY and IWM versions which had been either leading positive or perfectly in line with the trend.

 SPY 30 min negative divegrence from a formerly leading positive just days ago.

IWM 30 min negative divegrence, also not holding up and falling apart quickly.

And remember what came after the Sub-Intermediate Trend, the one we have just been going through...THE PRIMARY TREND SHOULD REASSERT ITSELF... 

 This is a 4 hour version of the QQQ's with an enormous leading negative divegrence and even worse...

I compared this QQQ daily chart to the 2000 Dot.Com Bubble which I'll repost at the bottom.

QQQ daily leading negative as sharp as it gets, this is on the same scale as the Dow 1929 chart I have posted.

QQQ 1999-20000 Dot.Com Bubble.

1999-2000 QQQ Dot.Com negative divergence. Which looks worse to you?

Now you know why I felt it prudent to spend some time cleaning up Core / Trend positions and establishing new ones.

As for the P/L on closed positions today...

UPRO

I felt like I needed to just clean up core positions and take the gains here and open up a new keg of dry powder for new positions that need to be entered quickly and at the right spot. The P/L with a fill of $93.69 came to a gain of +16.7%

BIDU CALLS

These I could have closed earlier for much smaller loss, but I was busy catching up with the market, the P/L came to -23.8%

UNG I took partial profits in...

 

 UNG's P/L came to a gain of +20%

NUGT

I didn't like the looks of GDX and needed to free up resources for new positions so I figured take the small loss and put the resources to work in a better looking asset.

NUGT's P/L came out to -4.6% 

I'm sure I'll have more for you after I go through the nitty gritty, but I'm liking the idea of filling out core / Trending positions ASAP.

Trade Idea: MCP

I've been on the fence as to whether or not to close MCP (long) in the trading portfolio, I think there's a high degree of probability that it pulls back, but it's still one of my favorite longer term long positions.

 Longer term 30 min base/accumulation so this looks like a long term mover.

Intraday through 15 min there are some negative signals.

I plan on holding, but I think if MCP will pullback a bit for us, the 10-day moving average is right around $5 which would likely be run for stops, so I think we can get a nice new long or add to position on the cheap so long as we verify accumulation in to any pullback so I'll hold for now, but if you are interested I'd set some price alerts for the $5 area and we can revisit it is it moves that way, I think it would be an excellent new long or add to.

Trade Idea: Reiterating AAPL Short as a Trading Position

I like puts here, at least 6 weeks until expiration or thereabouts so March monthlies I think look decent. I think this could be traded as a pure equity short as well, obviously the leverage gives you more profit potential.

Trade Ideas: More Core Position Clean Up NUGT/DUST

GDX (gold miners) isn't looking too hot to me, I'm going to close out a long NUGT position and replace it with a long DUST position (3x short gold miners). I would prefer that this be a trading position, but I don't have much room left as I'm trying to keep that as a trading portfolio rather than tracking.

Quick market update

All Index futures are intraday negative, it looks a little like the pros may be coming out to sell the close.

Core Position Management : UNG

I'm going to take half off the table in UNG. The DGAZ trading position will stay open (long).

I'm trying to protect gains here as well as open up some dry powder for potential positions that may be better relative performers as near term I see UNG as opportunity cost.

 UNG around a +20% gain and this hasn't even left the base yet, I see this as a secular long term bull market play, but we are talking potentially  about years.

15 min is going negative which isn't that bad, but it's the mogration from shorter charts that should make it worse.

the 10 min

The 5 min definitely looks like draw down

Starting from the other end, intraday 1 min

2 min

and 3 min.

I see no reason to take losses here, even if only opportunity cost, but I will likely never be without some position in UNG.

Leading Indicators / Core Positions

From what I see, I'm going to spend the last hour focussing more on core positions (long or short, but I think there will be many more short positions), this means positions that are typically without leverage and are meant to be trending trades.

First currencies, we already know that the multi-year carry trade/market correlation that has been spot on is at least 80-80 ES points out of whack, there are changes in trends, but I don't think a short squeeze and 5 days is enough reason to assume the correlation between the carry pairs like USD/JPY are over.

Looking at the pair...

 USD/JPY intraday looks like it's getting ready to make a move lower

The Yen has moved a strong positive divergence all the way out to a 60 min chart and it has an appropriate base for the divegrence, this would send the USD/JPY pair down and the correlation between the Index futures and the carry cross have been nearly tick for tick for years, again it can be changing, but considering there's no accumulation on the move (as it should be with a head fake move) and powered by short squeeze alone, I can see how they'd separate briefly, I can't imagine what the reversion to the correlation would look like, all in one dump or something else.

If you check my articles "A currency crisis" written in April you will see way back then I thought a rise in the Yen would accompany a fall in the market and a 60 min positive in the Yen is something we haven't seen for some time.

 Meanwhile the $USDX on the same timeframe is in line with its downtrend.

The 30 min Yen futures is also positive leading at the same place

The $USDX is in line with its move lower.

The 5 min Yen is in line as it has just started a move to the upside coming out of the bowl on the 30-60 min charts.

$USDX intraday is in line

 While the Yen went from negative to building a positive divergence (early)

I've been hearing the EUR/USD is the current correlation and while directionality is correct, the correlation is far from it, but just in case it has anything to do with driving the market...

 The 5 min EUD/USD trend is negative

There's a slight negative on the intraday Euro futures.

And a clear 5 min negative in the Euro futures, so if the EUR/USD has anything to do with market support, it doesn't look like it will be supportive much longer.

 The VIX futures have been positive and moving to longer charts, this is all the way out to the 60 min chart for actual VIX futures, not spot, not ETF. This shows a massive move toward protection from a downside move.

TLT which is the long bond/flight to safety has been and is still outperforming the SPX correlation (SPX's price is inverted), normally with an inverted SPX, the two would be as 1 line.

 Interestingly today, High Yield Credit just fell off a cliff to 1 week lows in one fell swoop. That's the kind of move bulls don't want to see in the SPX, a week's worth of gains erased almost instantly, but that's what happens with volatility on the rise (remember the 1929 example of the first 4-days, that's when there were quite a few jumpers as margin calls came in).

The significance of credit of course is that its a much more well informed market, hence the saying, "Credit leads, stocks follow".

 Finally, one of my favorite Leading Indicators, Yields, the majority of the move out of the head fake bottom has been at odds with yields, right now we have a minimum reversion to the mean of about $1760 and that can pop very quickly.

With the major drivers looking like this and the price levels where they are, it seems to be a good use of time to be looking at trend positions.

The 2 p.m. Op-Ex Pin Hour

This has been a fairly long standing trend, on option expiration Friday which use to be the third Friday/Saturday of the month we'd see what was called the "Max Pain Pin", it was the level in which the most amount of options would expire worthless, not so much on an open interest basis, but an actual dollar basis as you can have 10,000 open interest at $.02 or 2000 open interest at $1.

 Usually by 2 pm or so (at least my broker would call multiple times and ask what I was going to do with expiring positions), most contracts are wrapped up and the actual pin is no longer needed. From 2 p.m. on price seems to do whatever it wants, but has little bearing on what happens the next day, however the 3C signals during the last 3 2 hours are very important. You may recall the post "Come Monday" in which the signals were given a very hard pattern to call, a trading range and the following week was a trading range for the entire week, so the 3C signals the last hour tend to be very important as they tend to pick up where they left off the next trading day. I showed earlier the small QQQ negative divegrence in to the close yesterday on a 1 min chart and this morning it gapped down along the lines of a 1 min chart.

So I'll be looking more for those, but from what I'm seeing in assets like AAPL , BIDU and many others, it looks like Monday may be very ugly indeed.

Since there has been so much of the 1929 analog Dow chart going around, let me remind you that the first 4 days iof the 1929 crash erased 25% of the Dow's value alone.

Trade Idea: BIDU (Short) Core/Trend Position

I already have a partial core short in BIDU that's at a slight gain, I've had it for a while and been waiting on the right time and area to fill it out, this is not dollar cost averaging as this position was opened as a partial position with the intension of adding to it and it's at a gain so if anything, it would be pyramiding up a short that's working.

BIDU I do see as a TREND TRADE and as such, I'd open this as a pure equity short. If there was a bit of a pop to the upside above the last few days's highs, then it might also be a decent put set up, but for a longer term position I prefer no leverage and I see BIDU as a longer term trend position.

I could wait and see if I can get a little better entry like $170, but I'm not making the AAPL mistake again, trying to cut too close to the bone and missing out on a big move.

 Daily BIDU trends/cycle from base/accumulation at #1 to mark up or Trend at #2 and distribution/top at #3, this is actually a H&S top that has already put in the volatility shakeout. As many of you know, I'll only short a H&S at 3 places, the top of the head, the top of the right shoulder and after a break below the neckline and a rally back above it that shakes out all of the new shorts who entered on the break below the neckline. We are at the top end of that volatility shakeout in BIDU and you can see not only the larger negative divegrence (daily chart), but also the leading negative of the volatility shakeout above the neckline.

My X-Over Screen shows the volatility shakeout and is just about as close as you can get to giving a sell / sell short signal.

The Trend Channel has already stopped out BIDU, as I often mention, there's often lateral chop/volatility after a Trend Channel stop, but as far as capturing trend, it's the best method in my opinion as lateral chop may give some added gains, but it is not trend.

The orange arrow is a 3-day Doji/Star reversal (bearish) candlestick which is a significant signal on a 3-day chart.

The 60 min chart shows the entire cycle from base/accumulation to mark-up to topping with a H&S top, the break below the neckline and volatility shakeout back above which is the last of the 3 places I'll short a H&S top, during this time 3C has done exactly what it should have.

C.T.R.=Counter Trend Rally or the Volatility shakeout.

 On a 30 min chart we have essentially the same signals with a little more early detail as the faster charts pick up more. Note distribution through the entire H&S top.

As far as timing, the 15 min chart is starting to lead negative sharply which is migrating from shorter charts.

Like this 10-min or...

This 5 min that has its own mini-cycle with a "W" bottom.

3C is leading negative below the "W" bottom so we have significant distribution.

Intraday we are in line or maybe worse, I'm not inclined to sit around to see if I can get a better entry for a couple percent when we have such a strong overall candidate.

A stop can be placed above the H&S top, but not at an obvious place, I'd give it a little room, I'd much rather give it a wider stop with a little smaller position. The great thing is you can pyramid up a pure equity short, see my article on "How to make more than 100% on a short".

The 3 min chart also looks right considering the migration from the 5 min on.

I'm going to fill out the equity short (no options/leverage) right here.

I REALLY like this as a longer term trending trade which means I likely won't treat it as a trading position, I'll just let it do its thing unless I see a major counter trend rally coming and after that re-enter short again.