Leading Indicators...

As far as what we expect for this week, what we expect to see and what comes next, Leading indicators are spot on.

If you have the means to watch the strength with 3C or other indicators you like, watch HYG, that's the true support in the market. AUD/JPY is going to play its role, but it will be limited because traders in general (not smart money) know what kind of trouble China is in, we saw it back around 2011 through commodities and they have just gone downhill since then, but now that there are bond defaults, this is really serious, as in US circa 2007/2008 serious.

In any case, take a look at Leading indicators, just as we saw what was the most probable path for this week the last two hours of Friday, you can see the same in certain Leading Indicators.

 HYG is a leading indicator, actually most credit is, it's a much better informed market than equities, as are bonds. In this case High Yield Corp. Credit which we have talked a lot about this week as being the sponsor for any upside move as the strength just isn't there in the averages, was actually part of what went in to Friday's afternoon analysis for what to expect this week, we could already see HYG under some accumulation on Friday the 7th and if you look at HYG (blue) vs the SPy/SPX (green), there's a leading negative bringing the market down and HYG settles in to a lateral trend under accumulation by Friday, it continued to do so (reversal process) the rest of the week thus far and now SPY is right at reversion to the mean where HYG should take over soon.

Although we'll be watching everything, in this particular instance, HYG is the patron saint of any upside so it's an asset you want to keep an eye on looking for distribution or changes in character.

 High Yield Credit started to lead to the upside right after last Friday, which is a short term leading indicator, so equities should follow unless things really go wrong with another bond default in China or more deterioration in the Ukraine.

My experience by and large though has been, Once Wall St. sets up a cycle, even a mini cycle, they see it through because there's a reason they set it up, these aren't random moves.

 Our longer term Pro sentiment indicator is calling out a clear top, they are not interested in chasing the market, but rather getting the heck out of Dodge.

Our short term pro market sentiment is right in line with the SPY.

One of my favorite Leading indicators is 5 year Yields, you can see short term they are at reversion to the mean, the ideal scenario would be the market moving up a bit and Yields moving down as they act like a magnet for equities and eventually pull prices to Yields.

 The longer term view of Yields shows that it's calling a top here as well as it is leading on the downside, equity prices should soon revert to yields.

 As for currencies, you saw earlier that the AUD/JPY carry trade is the one Index futures are following as China is a much bigger deal right now than people appreciate so one of the ways we determine where the pair is going is by looking at the individual currency futures with 3C...

AUD 5 min is leading positive, that should push AUD/JPY up and Index futures should follow tick for tick

Again, the Yen is leading negative 5 min but VERY strong on the 15, 30 and 60 min which would mean in multiple timeframe analysis that short term it should provide some market upside as we are looking for, but the longer term charts will win out, which is perfect as we look for our stage 4 pivot.

Looking at the close, I suspected we wouldn't see downside in QQQ and IWM which is why I went ahead earlier and added to the QQQ/IWM call hedge position, so all in all, things look to be right on track, timing is "follow as you go", but expectations have been nearly exactly what we have been looking for for 3 days now.

THERE GOES DUST/GDX

Earlier today in a GDX/DUST position update I said,

"The question isn't whether I like the DUST long, I do, the question is, "Is this the best time and area with the highest probabilities and least risk to add to that position?" and I can't say, "Yes" to that question...(For GDX) However you've followed the concepts, what do you see missing on this 60 min chart that GLD is NOT missing this morning? There's a stage 3 top area, there's obvious resistance, what's missing is a head fake move though resistance.... (For DUST)...  I could be 100% wrong and DUST may be the perfect entry here, but from what I know about the concepts we see and the probabilities, the probabilities say, "Wait for the head fake move, this is too defined for there not to be one"."

Now take a look at the charts...

 Here's the trendline and obvious support, a little too obvious for me not to expect a head fake move below the area as seen above from earlier today. Look at DUST make its move under that area which I set price alerts for.

And volume picks up as stops are hit which is part of the reason of a head fake move.

I wouldn't go looking to buy DUST today personally, there still needs to be a sideways reversal process even on a small head fake move, but once we see that the short term charts 1-3 mins are building accumulation of all the stops they are hitting, DUST will likely make a fine add to or new long position.

We stuck with the concepts that are high probability and not even a day later there it is...

XLF / Financials Update

This is a pretty neat set of charts, multiple timeframe analysis is pretty easy here and you get a good feel for strength in each timeframe.

 The 4 hour chart is the highest probabilities, it's the long term trend of underlying action.

The leading negative here is a very serious deal, however it is a primary trend so the trade has to be set up for that, luckily it pretty much is. There was a resistance zone just above $22 that looked fairly probable to be taken out, wait until you see where it was and what happened.

The accumulation for the move to take out that yellow trendline was Jan 27th through Feb 6th, the same as the overall market that we have seen time and time again and that we saw as it was happening and even allowing us to predict days and in some cases weeks in advance. The actual move above triggered bulls to buy as a new breakout move does, but you have to know whether it's a real breakout in which case 3C would confirm with a higher high or a bull trap/head fake in which case you get distribution of the event, this was market wide so it's not surprising that it was there in Financials as well so this is a really nice looking entry area for XLF short or FAZ long as new positions or even add to.

I'm not going through every timeframe, but we're not hiding anything either, I skipped to the 15 min, we see distribution at the former high sending price lower and much stronger distribution on the head fake move, this leaves XLF in a much weaker position, but an excellent entry area.

Since we are now looking at the short term market movements around 2-3 min charts, here's the 3 min with a relative positive from the 7th (last Friday) where we saw others as well to allow us to have a game plan for this week and of course this morning's gap down was accumulated, but again nothing beyond 5 mins (that chart is leading negative), so we have a weak XLF, if we can get a little upside here this too will be right there on the list of short candidates that I'd like to hit as close as possible to the pivot from stage 3 to decline.

The 1 min chart looks smlar to others today with the lows accumulated, this is why I thought this morning's SPY shakeout of longs from the last 6 days all at a loss on the open was a minor head fake, but I really like this set up, it's another "Come to us", but truth be told I'm really getting myopic with htis, years ago I'd have entered this and just sat still and let it come around, we have better tools now and a better understanding of the games, but there's no doubt XLF is in a great area, low risk, high probabilities and very weak.

I'd set some price alerts just to remind you , maybe something from $22.20-$22.40-ish.

Trade Idea: MCP Long Update

I just followed up on the MCP post of the 4th with another on the 7th that you can see here....

What we were looking for in MCP was a lateral reversal process and the positive divegrence to confirm that, it looks like we are in pretty darn good shape if you like MCP as a long position. MCP does have some market drift (follows the market directionally as most stocks do), but it is a strong contender for a long term log position and this pullback is a gift for anyone who wants to add to it or maybe start a new position.

The bottom line is as of the 4th it looked like MCP was going to start a lateral process, as of the 7th we were correct and it had, now it looks pretty darn mature, the only thing that's missing is a good head fake move as we do have a very defined area of support.

In any case I'm going to bring MCP back up to a full size long equity position, here are the charts and it should be clear as to why. If you are interested in what we saw as early as the 4th before price gave any hint or why this was a trade that "Came to us" on our terms, check out the two updates above.

 Remember the updates were the 4th in which we expected a lateral process or reversal process to begin, 3C gave signals before price ever started that process. By the 7th's update we were moving sideways and building the divergence needed as you can see above on the  3 min chart.

However I wouldn't have a full size long based on a 3 min chart alone as we have been talking about all week with the market and it's lack of strong timeframe positives.

Here's a 5 min chart which is kind of the minimum that must be positive for me to consider a long and it is leading big time.

Beyond that, as the process unfolded...

The 15 min chart has a clear leading positive 3C divegrence, you also see the flat support level that is ripe for a head fake move, but with these positives it should be a head fake and I don't mind if it comes, I would rather be back in this position that is a long term base and a long term favorite.

This is the 60 min, we have stronger timeframes than even this so I do like MCP a lot regardless of what the market does. I'll be filling out the long EQUITY position, no leverage.

BIDU and IWM Put P/L follow Up

Yesterday I took about half of BIDU puts off the table as they were at a +70% gain and I wanted to protect some of those gains while I hedged out the rest with the QQQ/IWM calls which were in very small size, about 1/3rd of a normal options position.

Here's the P/L for the +70% gain in yesterday's BIDU position (closed about half).

This morning I said I was closing the rest of BIDU and IWM puts as there were substantial gains to protect and I believe that we'll get enough of a bounce in the market that I can add these back, even if we don't I still have taken significant gains out and still have plenty of short exposure.

Here's the P/L for the remaining BIDU position closed today and the IWM April Puts.

There were 15 BIDU contracts yesterday, 8 were closed for a +70% gain, the remaining were closed this morning for 85+%

The IWM April $120's were closed all at once this morning to protect a nearly +44% gain there.

Here's what the charts of each looked like around the time the decision was made.

 You can probably see on this 3 min BIDU chart why I took some off yesterday and then today at the lows a stronger divegrence so I closed the position .

As for the IWM...

Again, a leading positive divegrence right on the opening gap indicating accumulation of the gap, that was the reason for closing them and I want to do it in to downside momentum if possible as they usually lose value once they start moving sideways like they are right now.

IWM / QQQ Hedge Add to

I don't see very good or strong intraday divergences right now that are suggesting significant downside or pullbacks that I like to use open call positions in to, you know from earlier I want to increase the size of the hedge which was a very small position yesterday long QQQ/IWM calls.

I do show a little something in futures, a intraday VIX futures 1 min positive, NQ negative and slight TF negative on the 1 min, and a very small $AUD negative on a 1 min, but it's more or less a wash as the Yen too has a 1 min negative.

The 5 min charts are stronger and more important and they are leaning toward the market getting ready to start what will probably be an afternoon ramp, I'd prefer to have the calls in place before then so I decided to add half of what I intended, if there is an IWM/QQQ pullback and the intraday charts are positive I'll add the second half, which will bring these (at full size) up to normal option position sizing, but the leaning is still net bearish because these are only 2 long hedges vs several puts like NFLX, PCLN, XLF, some leveraged short ETF's etc, the point is the whole of the tracking portfolio still leans about 80% bearish after the calls are at full size.

Full Update

I'm going to do my best to make this understandable. First let me say that Friday's analysis which was that the market would either show relative strength in not falling as it is very weak (meaning getting some kind of short term support, I was defining short term as early this week) or it would actually get a little bounce (and I do mean little as we have not seen a single divegrence in the averages beyond 3 mins, most not beyond 2 mins ).

Then in addition to the short timeframe divergences, I also noticed something rather new or unique that is not seen often and that was in this post from last night about "Accrual Rather than Migration" which was showing there are multiple negative and positive steering divergences, I suppose to keep the market from an all out decline near term, but at the same time there has been more distribution than accumulation for early this week, you can see that post here which is an interesting new dynamic in the market.

The last part of the analysis was that the VIX futures which already have a huge positive divegrence (think about them in these terms, in early February we had 30 min positives that led to the Feb. rally, now we have the opposite, 30-60 min positives in VIX futures which should lead to the opposite, a strong decline), however on short term charts early this week what I was looking for was the VXX to pullback and then go positive giving us the actual pivot signal that turns the market from this obvious stage 3 top as it has barely moved in weeks vs the prior trend of a strong move in days. To get that signal the VIX futures need to pullback so they may accumulate which means the market needs a small bounce at least and we had/have the signals for that.

Also on Friday and increasingly so since then HYG was part of our analysis, it has been used as a lever of market manipulation for a long time and even though it saw significant distribution and broke from the market correlation in heading down, Friday we could see they were propping up the market with HYG support or manipulation because there's no real accumulation, it's a trick used on algos to make them think smart money is in risk on mode, we can see through the averages they obviously aren't, but that is how High Yield Credit works as a lever of manipulation.

Obviously some things have happened and the market is not static so we have been following along, moving a few positions such as profits in IWM and BIDU puts and some smaller call positions to act as hedges to protect put positions that have a gain via some small QQQ/IWM calls yesterday to act as a hedge or an off setting asset.

While many things have changed, China's default and credit lock up most notable and perhaps most serious (I called it potentially China's "Bear Stearns moment" of 2008) we've also had some other things with the Ukraine pressuring the market.

THE POINT IS, I BELIEVE THE BASIC PREMISE PUT FORTH FRIDAY AFTERNOON STILL HOLDS, THE VIX FUTURES ARE STILL THE TRIGGER, THE MARKET SHOULD STILL SEE A SHORT TERM BOUNCE OR MAYBE JUST TREAD WATER AND HYG IS THE ASSET BEING USED AS THERE'S SIMPLY NO ACCUMULATION OF ANY NOTE IN THE AVERAGES, IN FACT AS SHOWN LAST NIGHT MORE DISTRIBUTION AND TODAY'S OPEN WAS EVIDENCE OF THAT.

What matters is where we go from here. I said earlier today that I would not be against adding to yesterday's QQQ and IWM long (calls) hedge, I think leveraged long ETFs can work as well, these positions though are hedges to protect gains in puts and shorts, they are not meant to express even a very short term net long stance, my stance is still 80+% short even if I were to add to the QQQ/IWM long hedge which I may given the right opportunity or if it's not practical than I'm fine just sitting through the break to the upside we need to get the VIX futures in position, I don't think it will be that serious or even significant so if I can get the additional hedges in place that's great for a very short term and very speculative trading position, if I can't then I'm just patient in waiting for the market to finish this and that's where I want to add to PCLN, NFLX, BIDU, AAPL, GOOG, GS and numerous other short positions.

Lets see if I can make some visual sense of this for you... You know that the AUD/JPY carry trade got slammed last night, apparently on some commodity unwinds as copper is getting killed and iron ore and going limit down nearly every day now as corporations that put the commodities up in China as collateral for cash from the banks are getting cash calls and they are unwinding the collateral to meet the cash calls, thus the dive in metals like copper and iron ore. Whenever the $AUD is involved, unless the RBA (Australian Central Bank) made a move, it's likely reflecting something in China and yesterday and overnight that was intense fear as China is no longer a growth engine, but a ticking time...

Lets look at the charts, note that some have nearly no divergence, none have anything even at the 5 min range so there's weakness that HYG is making up for or will.

There are a lot of charts, but if you can see the correlations, the big picture and short term picture should emerge and give you confidence in our strategy.

The averages...SPY

 This has been by far one of the weakest averages since Friday, the 1 min intraday chart as of this capture shows some downside which may be helpful in entering the hedges whether calls in IWM and/or QQQ or whether you choose a long average ETF, maybe a leveraged one like QLD, TQQQ or UWM, URTY.

 The 2 min chart shows the divergences and weakness that is accruing that is in the post linked above from last night, but we also have another positive divegrence today, take a closer look at this 2 min chart on an intraday basis below...

 Here's today's positive in to price weakness, I suspect a head fake move and that the real move is coming VERY soon, thus I took gains in some select puts that I intend to re-enter upon the conclusion of the market move that is expected. This would be the same reason for adding the long position hedges.

 SPY 3 min weakness is quite strong, but today we have a strong 3 min positive, just short lived so it's not going to lead to another February rally, not even close.

At SPY 5 min, just like all the other averages, there's no positive at all, this is unusual for a cycle that is 3, almost 4 days old, the 5 min should have been positive, this is the weakness in the market on a slightly longer or bigger picture view, this is why HYG is needed.

IWM

 1 min showing a positive at today's lows...

The 2 min shows the several divergences in several days and that accrual concept from last night, we have a relative positive right now.

Taking a closer look at the same chart...

These are positives, but nothing even close to impressive strength, perhaps just enough to get the job done, perhaps they get run over, but I doubt it because of the backstop in HYG.

3 min intraday pulling back, I'd like to use a pullback in price to enter the hedge positions, that's about all it's good for to me right now.

The 5 min chart once again no positive whatsoever.

QQQ

 1 min, this is by far the best looking of the charts, this morning's lows were accumulated ON WHAT WAS AN OBVIOUS STOP RUN AS THE SPY TOOK OUT 6-DAYS OF LONGS / STOPS.

This tells me we must be close, thus I took action to protect significant profits and set up hedges on the rest.

1 min intraday is showing the pullback I hope to be able to use.

2 min is also positive and could be enough to get the move off.

The same chart intraday shows the lows accumulated as stops were hit.

The 3 min chart has some positives, by now you can see it looks far better than SPY or IWM, but still very small accumulation as evidenced by only a 3 min chart.

The 5 min chart, like the others, distribution, no sign of a positive, THE FEB RALLY WAS SIGNIFICANTLY POSITIVE TO 30 MINS, WE DON'T EVEN HAVE 5 MINS, THIS IS WHY I SAY IT'S NOT EVEN CLOSE TO BEING ON THE LEVEL OR A CONCERN FOR ME IN ANY WAY.

HYG, HIGH YIELD CREDIT, SMART MONEY TRADES IT, ALGOS FOLLOW IT AS A SIGN OF RISK SENTIMENT, BUT IT'S A LEVER OF MANIPULATION, IF THER WERE THIS KIND OF INTEREST BY SMART MONEY WE'D HAVE POSITIVE 5 MIN CHARTS IN THE AVERAGES.

HYG 10 min positive is about as far as it goes, but significantly more positive than the averages, I think it's cheaper to buy 1 asset than all of the averages to try to move them. Smart money knows the score, they don't want to be caught with a medium size long in the averages when the music stops playing.

 Here's a closer look at HYG 10 min, you see the range since last Friday and the accumulation, it is being used as a lever of manipulation, but the move in the market doesn't start until HYG starts as the algos buy the averages seeing HYG moving.

The VIX futures are really what's important though, long term they have plenty of accumulation, I showed this last night as well as relative performance (price) vs the market, much stronger and this is similar to the strong positive before the Feb. rally just in reverse, a strong market negative, but we still need pin point timing and for that we need the shorter term charts.

 VXX 15 min just to show the confirmation and strength in the protection of VIX futures which is a flight to safety move undertaken in huge size, this is not retail.

VXX 5 min leading positive, remember we don't have any positives on the 5 min chart in the averages.

What I'm actually looking for in VXX are these flying, near vertical positive 3C divergences and to get them VXX NEEDS to pullback to be accumulated, smart money doesn't buy in to higher prices, only lower ones, that means the market needs to move up for VXX to pullback so we can get these signals that are the actual timing indication we need to see for the overall market.

THIS IS MORE ABOUT THE VIX FUTURES THAN ANYTHING, IT'S JUST WE NEED THESE OTHER ASSETS TO MOVE TO GET THERE.

 2 min VXX seeing short term distribution on the gap up this morning as the market gapped down, confirmation as the averages accumulated so more confirmation.

I believe the VXX will have to move at least to the yellow trendline or below to have a large enough reversal process to allow for the flying 3C signals.

Intraday 1 min shows the same distribution of highs but only in the short term 1-3 min charts, the exact opposite of the averages.

As for the actual VIX futures...

 1 min positive, which is like a 1 min negative for the market, this is good for adding the hedges at a lower price.

5 min negative, this is more along the lines of, "I think we are now close to the market move we need, the pullback in VIX we need and the accumulation on the pullback in VIX we need, that's the key, it has been since last week.

Remember, all last week I was patient and never brought VXX out as a position because I'm waiting for the final move at the best price with the least risk that also is calling a turn in the market.

 The 15, 30 and 60 min VIX futures all look like this, just like the long term 30-60 min VXX and UVXY so the accumulation is there, it's just waiting for the move.

Carry trades... first compare the USD/JPY to ES(SPX futures in purple)

 You can see where ES was weaker than the correlation that normally holds, the reason is the Index futures are more concerned about China and as such are following the AUD/JPY carry trade for once...

See how ES follows the AUD/JPY a lot closer?

The AUD/JPY fell last night and overnight , but I showed accumulation in to that fall, the move up in the pair is the same as the Index futures as you see they follow tick for tick.

So we need the $AUD to go positive and move up and the Yen to go negative and move down.

Here's the 5 min $AUD, that's pretty darn positive in to the crash overnight over China.

Here's the Yen losing its steam with a negative, THIS IS EXACTLY WHAT WE NEED FOR THE MARKET TO MOVE TO GET VIX TO DO ITS THING AND GIVE US A TIMING SIGNAL AND A BUNCH OF POSITION ENTRIES.

The $USD doesn't have the positive it needs for the USD/JPY to lead, but it doesn't matter because ES is following the AUD/JPY and that is where we have the divergences we need.

I hope this makes some sense, you should be able to read it tonight and it will be just as relevant except maybe some of the short term intraday hedge entries.

This is little changed since Friday's thoughts on what was coming this week, in fact unchanged except to deal with what has happened in the market.