AAPL Update

AAPL Puts were opened last week I believe, March $535's, as of the 14th of February they were down 29% so I'm sure as of the close yesterday that was quite a bit more if not double, today they have recovered a lot of that and are only down 1%, these options can cover a lot of ground fast and we aren't even in to the move I'm looking for in AAPL yet.

I like to show this at turning points because it gives you an idea of how the majority of retail was positioned, remember this is a broad tracking portfolio, not a trading portfolio which means every options idea I put out there is tracked, it's not the way I'd trade because gains are diluted with so many positions, but it still gives a good idea of a slight change in the market and how that effects rank which tells you a lot about the majority of the crowd (as you know, I like to set up positions ahead of time and short in to strength/buy in to weakness, so when a turn comes our positions are already in place).

For the week the options tracking portfolio is #17 of 609 competing portfolios which puts us in the top 3% and you also know that I don't swing for the fences with options, but rather use them as tools. Obviously the vast majority of the crowd was positioned long/calls in to this week.



Here's what we have...

 This is the daily AAPL chart, this isn't the worst divergence out ther, as I have mentioned several times, I believe AAPL is transitioning in to a MSFT which use to be an even stronger growth stock than AAPL, then they issued a dividend and became a range bound large cap dividend stock, I think AAPL's growth story is over and they'll start to look like a MSFT.

In any case, since AAPL already saw a -45% decline from its highs, I don't think it has as much downside as some others, thus one of the reasons I chose to use some leverage with AAPL Puts rather than an equity short.

I also want to point out the rally in yellow, but look at 3C already in a deep leading negative position. For the most part with a chart like this, we can assume the probabilities of the rally in the yellow box being anything more than what you see there are very low and the probabilities of downside and a lower low are very high as the primary divegrence is already in place.

The concept is akin to a bear market counter trend rally, it can move sharply to the upside, but you know the probabilities are heavily skewed in that rally failing and the primary bear trend resuming, this is what I was trying to say in the last post when I said,  "3C is in line with price, it doesn't need to be negative because it already is".

 This is another example, the 15 min chart which shows the accumulation that fueled the run up (and note there's almost always a proportionality between the size of the base and how far the base can carry the asset before a failure) and now we have a much larger, stronger leading negative divegrence, this tells me that when looking at AAPL now vs AAPL back during that accumulation period,  a lot more shares were sold and sold short recently than were accumulated, of course we wouldn't be able to have a price reversal if that were not true as smart money would still need upside to sell/short in to.

 The 30 min charts that I thought would hold together until the SPX breaks down below the 200-day moving average are all falling apart. Today's distribution alone is significant on this 30 min chart, it's pretty clear to see the leading today.

 As far as migration, where we see divergences first and how they flow, this 5 min chart (as I said in the last post) was already negative so there's no need for "Extra negative", price has a long way to go on the downside just to revert to the 3C signal.

 The 1 min chart shows a negative yesterday morning and today we have in line on the downside move which is what we want to see.

The 2 min chart also negative, has a small intraday positive, stocks rarely move in a straight line so it's likely we'll get another minor wave that rolls up and then rolls down as the larger tide continues to move out.

These kind of signals (if they materialize in to a move) are very useful as tactical entries that give you a better entry with less risk as you already know the more important charts show the probabilities are very bearish.

 the 3 min chart, also very negative yesterday and before and also a small positive forming. For March AAPL puts, this small positive is no threat at all, unless it was much bigger I won't even trade around the options position. If I were to close the put to trade around the positive signal, it's more out of Theta or time decay while we wait for that move to complete than it is about any worry that the expected trend is in trouble.

The 5 min chart again, but a closer look at the positive. You can also judge the size of the negative vs. the positive and since AAPL hasn't moved anywhere near what the negative divegrence implies, you have a pretty good idea that any intraday price strength or bounce from a positive like that is best used as a short entry (sell or short in to strength, not chasing it on the way down).

Quick Update

Right now 3C is in line with the moves lower in the market averages, it doesn't need to be negative because it was already negative, in other words thus far we have confirmation of the move lower which is not a surprise given how bad the divergences already were.


I'm going to try to get to some more assets.

BIDU Core/Trend Short Update

I like to see what some of the popular stocks are doing, BIDU seems to be seeing rapid deterioration, not a good sign for the market.

 I have a BIDU core short position, it's down -2.9% which isn't bad, I'm going to fill this out although I don't think I have much room left for it, whatever there is, it's going to full size.

 The 15 min chart is where the divergences were for BIDU's move, they are turning here as you can see. Longer term charts are already in trouble so this swing type move seems to be wrapping up which means I want to enter my short in the area or fill it out.

The 30 min chart is a good example of the damage in BIDU, the divergences and confirmation on the 15 min chart are different than a 30 min chart, for a positive divegrence to show up on a 30 min chart it has to be significantly bigger than what is on a 15 min chart, they were not that big and I expect it is because this was always intended to be a move just like this, a strong swing trade, but it's like a wave rolling up the beach and getting ready to roll back down while the longer term charts are akin to the tide going out.

 Intraday we've seen a lot of damage, especially since the minutes- 2 min

And that is migrating, that means the divegrence is strengthening since the minutes were released, you can see that in 3C at the far right.

Futures Update

We know the negative divergences are there, the breadth via intraday NYSE TICK is VERY ugly, that said...

I see a lot of what I call "Steering divergences", these aren't meant to accumulate or distribute, they are meant to move price or most often pin price at a certain level, in this case it looks like it has been trying to keep price pinned not too far away from break even, however at the same time the USD/JPY and the Yen and $USD futures are seeing growing divergences which should send the USD/JPY lower, that move hasn't happened yet, but it would likely be a more effective way to move the market to the downside, instead of just letting it float down on retail trade, have all of the algos kick in at once and move the two together... this is the general gut feeling I get.

There could also be an attempt to stabilize the market for a knee jerk reaction, but typically they are right away, thus the name "Knee jerk".

Here's an earlier example of how the market was getting in to trouble around noon time and there were some steering divergences to stem that downside trouble that was building as we had hit a downside negative TICK extreme of more than -1500, note how bad the current TICK trend is as well.

Earlier the market trend was turning down and started to get really serious with  at least 1500 more NYSE stocks moving down than up at the moment, that was stemmed at least until the minutes came out. Now you can see a clear trend in TICK to the far right and it's once again making multiple probes below -1500 which is bearish for the market.


Here are some charts that make things a little more clear, I have a lot more to look at.

 ES with numerous small steering divergences to hold off any get away on the upside or downside.

The same for NASDAQ 100 futures

And for Russell 2000 futures.

Again, a possible reason is that a downside move leaving the longs holding the bag and completing an effective bull trap in which the door is shut hard on them would be to move the market down with the USD/JPY which looks like it's close to making a downside move, just not completely finished with it's set up.

This is the Yen futures overnight, their strength meant USD/JPY and Market Index weakness, pre market there was a small negative divegrence and a move lower allowing the USD/JPY to move up and allowing the market some support from the USD/JPY moving up, however since then, the lows in the Yen intraday have been under accumulation for a move higher (sending the FX cross and Index futures lower).

 The other half of the currency cross / carry trade is the $USD itself, here the $USDX is seeing a negative divegrence which would confirm the signal the Yen is giving and result in the USD/JPY losing ground and perhaps taking out the $102 level which would certainly be felt in the market averages.

This is the USD/JPY itself, you see the early positive divergence I showed several times today, enough to provide the market with some support, without this I don't think the market would look to good right now, but the divergences all seem to point the same way and that is for the next trend to be down and as you know, I suspect the SPX 200 sma as the first stop.

The divergence here is in keeping or confirmation with both the $USD and the Yen.

Gold futures, it made a pretty sharp move lower. At least the DUSt long is open.

GLD

I really want to enter a 2x short GLD ETF/ETN, for liquidity the only one I like is DZZ, a 1x short GLD ETN, because of this for the most part...

 This is a pretty horrible looking near term chart.

In all honesty the overwhelming emotion right now is, "I don't want to miss the trade".

That's an emotional response called greed, I had a plan earlier which was to short in to GLD intraday strength and 3C weakness, to chase GLD down and enter DZZ long here is making an emotional decision in my view rather than an objective one and it creates more risk, sometimes it's better to miss the trade than to chase it.

I considered entering a partial position and entering the rest if we get some intraday GLD strength, but I'll hold off and stick to the plan and if I miss it, there's another bus right around the corner.

I do still have a long DUST position (3x short Gold Miners), that will stay in place.

DUST.

Typically we have more of a knee jerk response, usually it is a response to the headline news, but when you dig down deeper you get the real story and I believe other times it's used to create wiggle room to enter positions, say a knee jerk up in GLD so a GLD short can be entered. I'd like to see that happen, but again I want to make decisions based on objective data and we just got the minutes, it's almost like we need to look at 3C anew (at least for the very short term reaction), strategically nothing should change.

I'll hold off, but I do have price alerts set for a move higher in GLD to short in to via DZZ long.

Initial Thoughts...

As you might know, we not only have a new F_E_D chairwoman, but several new voting members rotating in, on whole they are more hawkish than the member's rotating out.

The F_E_D seems concerned about low inflation, however to my ears on the whole, the talk about RAISING RATES by mid 2014 seems to be way AHEAD of what the bond market was expecting. There was talk about guidance because rates were originally guided to be raised AFTER QE ends and when unemployment hits 6.5%, we are at 6.6% right now so we are very close.

The meeting seems to want to address that guidance, but there was no mention of how they'd do so (as far as I know without reading the minutes).

However the one thing that has really spooked the market even more than tapering is the prospect of rate hikes, I didn't expect talk about possibly hiking rates by mid 2014, I always had the feeling it would be out to 2015, maybe even 2016 so even though this may have just been a handful of member's talking about this, I can't imagine the market is going to take this well, I think they may have expected guidance that told them, "Don't worry about the 6.5% unemployment rate threshold, we are going to keep rates low for an extended period", but that's not what we got, in fact all it seems we got is talk about "Talking about" forward guidance regarding the unemployment threshold and rate hikes.

Remember Yellen already said last week (after the meeting) that QE would continue on pace, so whatever was said in the minutes probably is not that important being Yellen has spoken out in the interim.

My take is net market negative, but often we get a knee jerk before those fears show up in market discounting.

More on the inflation concerns as I get a chance to read the actual minutes.

Quick Update

DON'T FORGET ABOUT THE F_E_D KNEE JERK EFFECT.

So far most of the action intraday just looks like steering divergences, not letting the market get too far from unchanged. Around 12 pm we had a VERY negative TICK -1500 or more, there have been attempts itt looks to keep things neutral until the mins.

VXX is looking pretty darn good, protection is bid.

MCP Follow Up

MCP is one of a handful of Core/Trend long positions I really like, this one still in a stage 1 base, but should make fro an excellent trending stage 2 trade that could last quite a long time, I'm thinking primary trend and that's why I like to keep MCP as a core position and not worry about it, even though once in a while it also is a nice trading vehicle.

I have a feeling it may see a little softness in price soon, I think that would be a fantastic opportunity to start a long position or add to one. I don't think I would sell or even lighten the MCP position, but it is something you should be on the lookout for.

Here are the charts and you'll notice a 180 degree difference between MCP and the broad market.

 Daily MCP, note the two head fake moves, one larger on a failed breakout of the rectangle base/range and then a 4-day range on top of support, this would look like a great buying opportunity to most Technical traders as MCP pulled back from the first head fake move and stopped at support (former resistance), any breakout from that range would be an ideal buy from a Technical Analysis point of view. We got a breakout the very next day from a defined range and that was a head fake move as well, catching new longs in a bull trap and then MCP reversing to the bottom of the range fairly quickly, this is classic head fake move material. Now we are once again above the longer term range, but if you look at the last 3 daily candles after the initial breakout the first is a bearish Shooting Star, the second is close to a bearish Hanging Man and today's is a star in the middle of yesterday's body making it a bearish Harami reversal, all 3 days have bearish candles and we aren't very far above former resistance or the range, a pullback here would not be surprising, but I do think it would be a gift.

The X-Over Layout is meant to be more of a trend layout and I'd prefer use it on a daily chart rather than a 60 min, but 60 min is the only trend we have. Note the buy signals confirming in the white boxes, the problem here is the moving averages are too close to price to be effective pullback targets, but then again it doesn't look that bad, but there are some signs so if you are interested in MCP, I might set some price alerts to notify you of a pullback.

 The 1 min chart with a leading positive to the left as MCP broke out of the range again, but since it has gone leading negative. While the divergence itself looks really bad, keep in mind it's an intraday 1 min chart so the size of the distribution is not that serious.

At a 5 min chart we see the same accumulation area as above, a stage 2 mark-up cycle with 3C confirmation and a very weak relative negative divegrence out to 5 mins so I don't see any real distribution here, but it does look like a pullback is at about 70% probability and I think a pullback would be a great entry that is a better price and lower risk.

The longer term shows the accumulation in MCP-60 min - and the leading positive divegrence as well as a larger "W" bottom.

The daily chart also shows a downtrend with 3C confirming the trend and a switch as it ranges to a leading positive on a weekly chart, the divergence may not look as impressive as the 60 min chart above, but the accumulation size difference between a 60 min chart and a weekly chart is enormous. For these reasons, the probability of a pullback being constructive/accumulated are probably in the 90+% area, thus it's a market gift if it materializes so if you are interested, I'd set price alerts to make sure you don't miss it.

*Note the difference between MCP's charts and the broader market, night and day.

Reminder of where we are

The Yen and $USD divergences continue to form even as the $USD/JPY has given up some ground, as I suspected and said, the pre-market positive divegrence was a very weak relative (weakest form) divergence.

This has created a true mini parabolic move in Index futures.

 Russell 2000 Futures which we already knew had a leading negative divegrence so it shouldn't be a surprise that this morning's typical retail-smacking games failed, but they did what they were meant to do (for a.m. trade) drag more bulls in to the mix, hand out bags for the bag holders.

Note price itself, this is why I never trust parabolic moves up or down, they almost always fail in spectacular fashion.

Part of this is likely some nervousness with the January F_O_M_C meeting minutes coming out in about an hour and a half, DON'T FORGET THAT WE ALMOST ALWAYS SEE A KNEE JERK MOVE ON F_E_D RELEASES AND THE KNEE JERK MOVE IS ALMOST ALWAYS WRONG.

This could also be the turn to the downside I've been expecting to bring us to the next, larger trend we have been expecting which I still think is likely headed to the SPX's  200-day as the first step.

However, whatever all of this and whatever we want to blame it on and whatever may come upon the release of the minutes, for the sake of cleaning up market correlated long positions and setting up the next trend (short) positions, I wanted to remind you of WHERE WE ARE IN THE MARKET RIGHT NOW....

This is the 15 min SPY, it went very negative late December/January and was followed by a move down, this is when our head fake position started forming with a range on the week starting Jan. 27th, then the head fake move below that well defined rectangle and continued accumulation as we formed a "W" base. The move up from there is a head fake in a way, but the true head fake was the set up just previous (that I just described) that pulled in all of the shorts and set a bear trap, that was the head fake move and as I said back before the first upside point accrued, "Don't expect anything other than distribution". We knew what the reason was for this move before it even began and the Leading negative 3C position during this rally shows very clearly what that reason was, to shift sentiment from bearish to wildly bullish, to create demand at higher prices in size that Wall St. can first sell in to (as they did accumulate a pretty large position starting Jan 27th) and then sell short in to (both a sale and a short sale are selling and register as distribution on 3C).

In other words, I'm showing you what I told you would happen January 31st and more specifically February 4th while everyone was still raging bears selling any rip or shorting it, this is the excerpt from Feb. 4th which you've seen, but I imagine you've felt exactly what I described, I have and I feel very confident in knowing this was going to happen and why, we are still creatures of emotion and this was an emotional attack to change dynamics, a like a wrestler or fighter that uses a smaller tactical blow to knock their opponent off balance to set up a larger strategic opportunity...

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"."

That's exactly what this entire set up that started Jan 27th was meant to do. Like we always say, "Wall Street, doesn't do anything without a reason".

 I don't even have a chart long enough to show the full extent of this 4 hour leading negative divegrence, but you can clearly see that there has been an insane amount of deterioration since December, this is more than anything I've seen before, but if we look at the Dow 1929 daily chart at the top vs. now or the QQQ daily chart at the top of the Dot.com bubble vs now, both right now are significantly worse than the previous crashes so it's not surprising that I've never seen anything this extreme, we've never been in a similar situation and able to use 3C on intraday charts.


The 10 min IWM just to give you a feel for the underlying weakness in the rally, this is the distribution I thought we'd see because that's the only thing you'd expect to see when considering why this move was set up in the first place.

The longer term 4 hour chart for the IWM

The QQQ 30 min chart and intense leading negative divegrence in to a strong price rally, exactly what they needed to create, BELIEVABILITY" 

And the 4 hour QQQ.

Just remember where we are and what these charts look like, I am as I'm cleaning up certain longs, entering / holding certain short positions and creating dry powder for new opportunities.

You have to know where you are on a map to know where you are going and I wanted to remind you of where we are.

GLD Trade Set-Up

I'm not a big fan of the leveraged short gold ETF/ETNs, their volume is pretty thin, DZZ is a 2x short gold ETN that has the best volume of the choices available. There's also a pure GLD short or Puts, the way things sit and considering a I have a DUST position (3x short gold miners) in the core tracking portfolio (but consider it more a trade than a trending position), I might be inclined to add some exposure to the trading portfolio which is equity positions only, no options. However if there was a good options set up, like a fast run up intraday with obvious and deteriorating negative divergences, I may consider GLD Puts, it all depends on if the move up intraday would be enough to bring premiums down.

Here's a review of GLD and the set up I'm looking at...

 Remember, before February we had a lot of success trading GLD with options, if GLD looked positive the market was likely going to go negative and vice-versa, they had a short term inverse relationship which made it easy to confirm GLD trading signals on a short term basis, on a longer term basis, GLD is transitional and choppy and not a good trending candidate, or at least it wasn't, but that is going to change.

As for the correlation which you can see above (GLD in green, SPY in red), it flipped and they moved together on a short squeeze, I think this was a temporary change in correlation and the primary trend correlation will most likely revert to an inverted (opposite) one.

I also think GLD is going to be a nice longer term trend position (long), but not just yet, however a pullback may be the perfect set up for us to get involved in a core GLD long trend trade.

You may recall when EVERYONE was a goldbug, gold could do no wrong under the QE/Dollar destruction Bernanke regime.

At #1 we have the normal / healthy price/volume relationship in which volume builds as price rises, you'll notice the market since 2009's low has not had this healthy volume relationship and while it wasn't a problem over the last several years, I do think in the end it will come home to roost.

At #2 we had a very predictable entry at the 150-day moving average (even though this is a 5-day chart with a 30-bar moving average), a pullback to the 150-day was a great entry for long gold positions and you may recall in 2011 we were looking at a long position and then I saw the increased ROC in price at #3, which always looks bullish, but it is a change in character and one most often seen as stage 2 transitions to a stage 3 top so in many ways it's a red flag to tighten up stops and start taking profits. Then came the triangle, it was way too big to be a consolidation and large triangles like these function as tops and bottoms depending on the preceding trend, in this case a top and we waved off the GLD long trade idea. 

You may also recall we called a top in GLD right then and there when it was most popular and goldbugs were worse than AAPL longs, at the time I had said I expected an intermediate downtrend at minimum and maybe a primary downtrend, I'd say that call was right on.

 This is a daily chart of GLD which we noticed a while back was putting something together, in the early stages I assumed it was a counter trend bear market rally, but the base grew larger and now it looks to be more than just a counter trend rally that will emerge from this basing which by the way looks like a bearish descending triangle so it's entirely possible (even though it is too large to be a true consolidation triangle) that retail traders will see this as a consolidation/continuation pattern and expect a continuation of the preceding downtrend, this gives us a possible downside target for a swing trade (short) and a possible target to open a trend long position.

That target would be below the base or a new lower low as retail T.A. traders already would see the price pattern as bearish, but they won't engage short positions until they get confirmation in the form of a break below support of the triangle, that's where a swing short in GLD may end up and a new trend long position considered...likely around $110-112.

 This is a close up of the daily chart, note the gap and 3 small bodied candles indicating a loss of momentum and opening GLD up to a downside reversal as these are considered bearish reversal evening star and doji stars.

When I said the long term trend looked very good (bullish), this is the daily 3C chart, that's a nice leading positive divegrence, but that's only part of it.

The entire trend from the triangle with downtrend confirmation to the first positive divegrence in which I suspected a smaller counter trend rally has turned in to a larger leading positive divegrence/base so the descending triangle in price is very deceptive for any shorts jumping in on a head fake move below support ( a new low for the trend).

The 4 hour chart also shows a strong leading positive divegrence, this is mostly in line with the same move the broader market made.

The 30 min chart is falling apart now as you can see it leading negative and that is migrating from shorter charts.

Like this leading negative 15 min chart so we already have a strong signal for a short (sale) swing trade.

The 10 min chart was feeding the 15 min, it has a sharper leading negative divergence as it should and in what has been a rather flat range, these quiet areas (flat) are where we often see the most underlying action so they are deceptive and catch people off guard, but this is how Wall St. works, they aren't going to show you their cards unless they want you to see them.

 Intraday the 1 min chart has a positive divergence, I'd like to see it look stronger (right now it's weaker than this, but still positive).

A large flush of volume on a hammer or some other bullish candle intraday would set up a short entry or a put position.

 The 2 min chart has this small intraday positive and it's still working, so once again, I'd like to see an intraday move up to short in to rather than chasing the move on the downside.

The 3 min chart is damaged significantly since the gaps up and is part of the migration process, this won't repair, it may get to an intraday positive, but it won't repair the leading negative damage.

I'm going to set some price alerts just above on an intraday basis, maybe up to the recent highs and then look at the intraday charts to see what kind of entry looks best, (GLD short, leveraged short ETF or Put position).

I wouldn't be surprised if the F_E_D / F_O_M_C minutes at 2 p.m. create the opportunity as gold is very sensitive to F_E_D actions and statements and there's often a knee jerk move when they first come out, that may work to our advantage.

Trade Ideas: Reiterating DUST Long

I see some stuff going on in GLD too, if I were to take a position there, I'd try to wait for an intraday bounce, I think we will get one, but it is starting to also look good for a swing trade pullback.

Gold's long term charts like daily are going off the scale bullish, however it looks like it will come down first. I'll get a GLD update out, however for the time being, I want to reiterate DUST long or GDX short (the DUST position I opened Friday is at a slight gain).

Futures Update

Ever notice the pre-market futures are VERY different from the regular hours open? That's the game playing and the reason most traders I know won't even start trading until 10:30- 11 a.m. after the initial a.m. games are played.

In any case, that pre-market positive in USD/JPY wasn't that strong and it looks like things are getting prepared for it to roll, like the Yen, USD and Index futures.

 USD/JPY chart from earlier / overnight with trend confirmation on the overnight decline and subsequent break of $102, then a weak relative positive divergence. Now we are seeing how weak the relative positive was as there's now confirmation of USD/JPY here which is moving futures, it's in leading negative position.

 The $USDX futures are going negative, not good for USD/JPY and...

The Yen futures are going positive in to their pullback which also isn't good for USD/JPY and Index futures.

These probably have a little more time/ divergence to put in, but I think it gives us an idea of what's coming next intraday... USD/JPY counter trend (overnight) test above $102 should fail and take Index futures with it.

ES intraday futures looked the most like USD/JPY, positive in the same spot, right now they are in line, but looking at the other two, I doubt that in line status holds for much longer.

NQ is at best in line, it does have a large relative negative divegrence and is in leading negative position with no confirmation.

R2K futures look worse, they had a small positive at the same area as USD/JPY and ES, but no confirmation now and a leading negative position.