SCO / USO Follow Up

First remember that this asset, SCO is part of the Trading Portfolio which is not like the other tracking portfolios that are meant to track all ideas, I'd never have 40-50 or more open trades. Part of the reason I started this particular portfolio was to see if I'd have time to take care of it like I would with my own portfolio without any adverse effects on members or my main responsibility, another reason is I'd like to have a real trading portfolio to be able to use to take a few concepts a little further such as margin issues, risk management, position sizing, risk/reward ratios, etc.

I've ran it long enough to know believe a small portfolio isn't going to cause any damage, there's certainly no front-running risk, I think it's a good thing all around so I'll be adding that likely this week. The current gain in this portfolio with no options whatsoever, only equities has been an 18% gain and that's with new positions starting that haven't taken off yet, it has been up to 26% over the last 3 months since inception which is a nice return considering.

My main point though was I was not closing SCO to protect large gains like many positions Friday, I was not closing it like next Friday's QQQ March Put that was at a loss, but I thought closing it Friday (considering time decay) was likely the best exit I'd get with the smallest loss, I closed SCO to preserve capital, to raise capital and to prevent dead money or opportunity cost.

With a small gain of +2.45% and no strong near term prospects to add to that, it seemed taking the $10 commission hit here was a much better thing to do and create some dry powder that can be used in a better situation than to take a loss or even more probable, opportunity cost.

SCO is a 2x leveraged Oil short, lets take a look at the charts and my reasoning should be clear.


Remember the charts of USO are the opposite of SCO which is essentially a USO short asset.

 USO (oil) with the negative divegrence that would make SCO make sense as a long trade, but a recent positive has popped up that I've been keeping an eye on to see if it is consolidation only or a possible counter trend move against SCO... 30 min chart

The red box is the distribution area and the yellow arrow is a head fake move above clear resistance, we see this just before a reversal, I'm trying to point these out more often so you get use to looking for them, understanding the concept and trusting the concept to apply to your own trading system.

 USO 5 min, the first positive divegrence caught my eye, but I wasn't sure if it was just consolidating, the second with a head fake move told me probabilities are high that USO bounces, putting SCO at a loss, I could have exited at a better position today (red arrow), but this was close enough.

Here's the 1 min USO, not only is there a positive divegrence near term meaning it's likely close to being ready to move, but there was a head fake move below the yellow trendline telling me it's very likely to move up soon and it's time to take action with SCO.

SCO

 Here the 30 min chart shows accumulation not long ago with a head fake move below the yellow trendline, but the most recent divegrence is negative.

Now I have confirmation between USO and SCO, probabilities are mounting.

 The accumulation area and head fake in SCO's 10 min as well as a relative negative divegrence.

Finally short term 2 min (this is the short timeframe timing concept we are using with the broader market right now with VXX) is clearly putting in a more urgent, stronger negative divegrence at new lows on a slight head fake higher high, it's time to make a decision and I made that decision, remembering this is not a core or trend position, it is a trading position.

Closing SCO Trading Long for now

I expect a USO bounce

Market Situation

Today is a tough day because the market is nothing like all areas of life. For instance, most of us were brought up to think that if we didn't pass with 80%, we were sub-par, pretty bad students, the same doesn't apply in the markets, it's a lifelong conditioning program that we've all faced and we approach the markets thinking we need 80+% to be an even subpar trader, that will get you in to more trouble quicker than anything, people go broke all the time taking small profits so they can feel like they are right more than they are wrong, that's one reason why we ask, "Do you want to make money or do you want to be right?"

Another misconception that applies very well today is the hard work narrative, most of us feel that in order to get ahead we need to work harder and as a result that means in the market, you need to find a trade ecvery day or every hour and this is more wrong-headed than the above.

To be successful in the market you do need hard work, but not in the same way, always being a busy body leads to something called over-trading at the minimum or entering positions at the exact wrong time more often than not.

The time to exit puts or short term shorts was last week and Friday specifically, the time to buy longs or hedges was Friday, not today, not to chase the market so today is a patience day which is even harder than the hard work narrative for many of us because we equate doing nothing with "Not getting ahead", but patience in the market is probably the number one personality trait of successful traders.

Today is a patience day, this is why I talked about market trades (opening or closing them) a lot Friday, but not at all today, it's the wrong time.

I've looked at a lot of individual stocks today to see if there were any decent set-ups, they're all too risky, if they weren't entered last week/Friday, it's too late as far as I'm concerned from a risk perspective and it was already risky entering at the best possible price level Friday.

Here are a few charts.

 SPY 2 min and the yellow box, that was the place to enter a SPY call, a speculative one or just sit back and let the market do its thing and be patient if you prefer, I only opened 2 positions, but took a lot of profits off the table Friday.


 At 5 mins there's no positive in any of the averages, this alone is reason enough to consider this market too risky for longs, this is why I used options with all of their leverage, because as of now, I don't expect much based on a chart like this, I do expect something, but not something worth really positioning in to.

The SPY 60 min is the probabilities, it's the trend, it's where we are other than very short term timing, it's the reason I want my portfolios leaning at least 80% short.

The IWM 3 mins doesn't even have a clear positive today, WHY IN THE WORLD WOULD I CHASE THIS AFTER A GAP UP WITH SUCH A HORRIBLE CHART?

The 1 min chart tells me we're likely to see some more upside as has been expected since last week, but the 3 min chart tells me it's not the probabilities you invest in in any meaningful way. If I wasn't already 80% or more short, I'd NEVER have opened those QQQ/IWM calls.

The QQQ 3 min and the box where the long entry was, anything after that is chasing and there's nothing positive after this 3 min chart. This is why I've looked at things like GLD and GDX, assets that don't have a strong market correlation right now.

The QQQ 1 min and Friday's entry, it's not worth chasing now, but it does tell us probabilities are for more upside, this is one of those times we need to decide what probabilities are worth as far as risk vs "High probabilities and low risk", for me it's worth exactly what I did Friday and today, action on Friday, patience today and looking forward to the next set of trades that happen when this mini cycle ends.

 REMEMBER FOR ME THIS HASN'T BEEN ABOUT THE MARKET AS USUAL, THIS IS ABOUT THE VIX FUTURES. 3 min VXX negative and a move down, it needs to move down to be accumulated, the accumulation is our signal so things are moving the way we expected and need them to, but they need more time. That red box to the far right tells me that VXX has more downside most likely.

However as I pointed out earlier today, the 1 min chart looks like accumulation has "STARTED" today, I wanted to see migration to be sure...

The 2 min chart shows that, but right where stops would have been hit early in the day, we still have more downside and a reversal process plus the VXX flying divergences that only VXX provides, that's when we take our next major action, much stronger than anything last week.

However until then, sitting and being patient isn't being lazy, it's not trying to force something that isn't meant to be right now, IT'S BEING SMART.

THAT'S WHERE WE ARE.

DUST Should be on deck soon

I'm sure a GLD short will give a better entry, but DUST looks like (via GDX) it's going to give a really worthwhile entry within the next 4 trading hours or so, I'm going to take it.

Here's the intraday reversal I thought would form, the longer negatives virtually guarantee it's just a bounce on a small scale, but perfect for a tactical entry in to DUST long.

 GDX 1 min preparing for an intraday bounce in a small reversal process, just what WE NEED FOR DUST LONG.

 This is GDX's 3 min chart, there's nothing beyond this so it's nothing serious on the upside, but enough to give us a better entry, let the trade come to us with a lot less risk.

GLD has a positive, but it's nowhere near as consistent as GDX, I still love DZZ (2x short gold), but for a new entry right now, DUST gets the check.

GLD 3 min

Looking more and more like we get the GDX/GLD intraday move

See previous posts from today....

GDX/DUST follow up / New Position

Last week (in my follow up post) GDX had done what we were looking for the day before, it broke above resistance on distribution which makes it a head fake probability and excellent entry.

I may even add this to the trading portfolio even though it's very closely correlated to GLD, I'm just not chasing it.

Last week around Wednesday I believe we were waiting for what I was certain would be a head fake break, the next day it was there and confirmed and now the positions are moving in our direction, but to enter a new or add to, I want it moving the other way, I don't want to chase it, we might get that chance.

 The GDX (gold miners) breakout we were looking for, resistance was too obvious for there not to be a head fake move and 3C showing it was a head fake move with distribution in to the breakout.

The closer 3 min GDX shows the exact reversal/distribution point, however there's a small intraday positive forming, this is what may give us our break to start new positions or add to existing ones, we need a little bounce so if you like the idea, I'd set up price alerts above to warn you.

 GDX 10 min making it clear the break above resistance was a head fake with distribution above resistance, failed moves reverse fast, again there looks to be a small upside reversal candle that would likely only be an intraday event, but enough to give us better positioning in what's already a beautiful position.

 GDX 2 min intraday probable bounce and some target areas.

DUST, the 3x short gold miners that moves opposite GDX (this is where my trade would be, DUST long) had to do the opposite and break below defined support and price a head fake with accumulation, it clearly did just that.

 Look at that leading divegrence at the head fake, all the stops were accumulated.

So we have a minor intraday negative, it will probably materialize and you can see why I don't want to chase, I want to buy the pullback.

I'll be setting alerts, if you are interested I'd do the same, I'll follow up if any decent ones are hit and likely enter a long DUST position.

GLD / DZZ Follow Up / New Trade

I already have DZZ (2x short gold) in the trading portfolio so it's meant for a swing type trade, it's down a little over -4% which is fine for a 2x leveraged ETF, I really don't have much room to add to it, but I'd like to see anyone interested in the trade be able to get in at the most favorable area. Generally speaking, GLD looks like a good short here, could it be better? Yeah, >$132.60 would make a more ideal short entry whether short GLD or long DZZ, but we're not talking about a huge difference and I'm more than content with my DZZ positioning. I may add to DUST, but it would need the same bounce I'd like to see in GLD intraday.

 GLD 30 min, 60 is positive for the larger trend, but that's still a ways off.

 15 min, I can go through a lot of them, the point is distribution is here, GLD should be pulling back around 15-17 points.

Here's the near term divergence or timing divegrence, if you look close I think you can see why I'd like to enter the position either short GLD or long DZZ around the $132.60 area which is around overhead resistance, you might put this on your radar with some price alerts, the timing seems right, I'd even take it here, for all intents and purposes I have, but there may be a little better entry later today.

Market Update

In the last Market Update this morning I said,

"As for the market averages... There's some early weakness in confirmation of the open (don't jump to conclusions yet)....early 1 min IWM non confirmation of the gap, however, when compared to the larger divergences I'm fairly well convinced that this won't last long and the market has more upside and the VIX more downside, in fact I think this mini-cycle is just starting."

And now as the a.m. trade burns off, the thought above is materializing...

 The early 1 min non-confirmation of the gap up created some lateral market movement and some price backing and filling, but it wasn't a serious signal to the downside as I pointed out above.

The IWM is finishing and starting to go positive intraday (our QQQ/IWM calls will appreciate that).

And the Q's as well, at the red box was the non-3C confirmation, you see what price did, virtually nothing.

As far as retail, the sentiment among these fickle "price only" based traders is that NO ONE was prepared for a gap up, they were too worried about the weekend and not following underlying price movements, remember how many puts we took profits in Friday thankfully as well as opened and expanded some short term long/market calls (QQQ/IWM?).

Thus they are bearish, which is funny because we have been tracking their sentiment and it can be changed in a mere 3 hours, they have no clue other than chasing price.

To be clear though, this is the move I had expected last week, the move in the averages isn't important to me at all and thus I was not willing to take on much long risk (only 2 call positions in the QQQ and IWM), what is important however is the moves in VXX; it needs to pull back and since it moves opposite the market it made sense the market would move up, however there is such a thing as relative performance meaning the VXX can move down faster than the market moves up which would suit me fine and if it doesn't, the hedging calls were added for that reason.

What I need to see before re-entering put positions or adding new shorts or adding to existing shorts is the VXX to move down enough that it starts accumulating, the larger position in VXX accumulation is there and huge, just like the larger market divegrence is huge and negative, but this is more about pinpointing the pivot to the downside now, timing and that happens on shorter term charts, thus the need for the VXX to move down and then start accumulating, it's the accumulating part that is the signal.

 This is the larger trend for VXX/UVXY 60 min leading positive, this accumulated position is already in place, smart money is expecting a major market drop as evidenced above, however we have to return to short term charts for timing, thus we need signs of accumulation in VXX for that signal and they don't accumulate strength or chase price, only weakness and let price come to them, this is much less about the market and much more about final preparations in protection.

 The 3 min negative pullback signal in VXX and...

The 1 min chart has lost ground, theoretically they could start accumulating now, it takes them a few days typically to accumulate enough and that's the REVERSAL PROCESS we see.

I can't be sure if accumulation via this 1 min chart has already started or this is just in response to this morning's non-confirmation on the market gap up, we'll have to see if this migrates to longer charts, but if it is,, then they may be a lot more nervous than though, perhaps Putin's speech tomorrow or the end of the cease-fire/peace deal between Russia and the Ukraine on March 21st (which is another brilliant Putin ploy).

In any case, that's what we have been looking for to start forming last week, it's here now and we've had a week to prepare.

There are a few positions that look interesting, no market correlation, but need a little pullback, I'll be bringing you those.

Market Update, QQQ/IWM Calls at Instant Double Digit Gains

Friday (and earlier last week) we entered small short term hedging long (call positions), right now it looks like we did it at the exact right time, buying in to price weakness at a minor pivot point, I would say we, like Putin waited for the market to come to us, chose our battle and took decisive action. And that will be the last comparison I'll make to a man who used Polonium 210 (a nuclear isotope) to poison and kill Alexander Litvinenko for exposing Putin for who he really is, years after his death we are seeing with our own eyes he was quite correct in telling the world who Putin really was, how he got there and how he operates. My only point is to take decisive action when the environment is favorable, even when it may be the emotionally difficult thing to do in trading.

By the way, the Russian markets that were thrashed last week are rallying on the back of Obama sanctions and of course certainty over this weekend's referendum, I think because Obama only sanctioned 7 Putin aides, the Russian market saw it as a fly on the back of the bear and again uncertainty about what the US might do, seeing it's almost nothing, has sent Russian stocks and the Ruble higher.

As for the charts...

As predicted last week, the Index futures would likely transition from following AUD/JPY (formerly USD/JPY was the carry pair guiding the market) to the EUR/JPY, take a look for yourself...

 USD/JPY vs ES (purple) 1 min

AUD/JPY vs ES 1 min chart

EUR/JPY vs. ES 1 min

While it wasn't there last week, the signs where there in the individual single currency futures, we know which pair to follow. The AUD may have fallen out of favor as China just saw its second default ever, this is a real story for the global markets, I called it potentially "China's Bear Stearns Moment".

As for the market averages... There's some early weakness in confirmation of the open (don't jump to conclusions yet).

early 1 min IWM non confirmation of the gap, however, when compared to the larger divergences I'm fairly well convinced that this won't last long and the market has more upside and the VIX more downside, in fact I think this mini-cycle is just starting.

 SPY 3 min

QQQ 5 min

IWM 5 min.

The 1 min negative (if it holds) needs to migrate to 5 min charts before I'm looking at a pivot to the downside and a major one.

As for what I've looked at all last week in believing this move up was coming, HYG...

 HYG 10 min, note the head fake under support (stop run) just before the move- a typical head fake occurrence.

Also that divergence in a market manipulating lever hasn't been there for no reason.

Here's a closer shot on a 3 min chart of the head fake, IT WAS ACCUMULATED AND VERIFIED AS A HEAD FAKE MOVE, THUS ENTERING LIMITED LONGS FRIDAY MADE SENSE, but I'm not willing to take too much long risk as this is the move we need for a major downside pivot, the VIX futures will have a lot to do with that.

 3 min VXX, we need to see a larger move down and VXX accumulated, that's where our pivot point is for market downside, but large market downside, not a small pivot.

This is the 1 min VXX this morning acting in response to non confirmation in the averages, but this really isn't an issue beyond pointing it out.

There is some near term weakness in the EUR/JPY pair that could maybe cause some in the averages...

 EUR/JPY 1 min negative divegrence, but the 5 min chart is what really matters and...

The Euro's 5 min is quite strong so again, very near term (intraday) weakness has no real meaning other than using it to enter select longs if that's what you wish to do, I still consider them highly speculative and a bit dangerous, the time to enter was at the pivot Friday.

For the immediate future since we aren't at an inflection point it's more about managing positions (this is why I closed so many puts and took gains Friday, they'd be largely gone today), when we get to the point in which the VXX has dropped enough that they start accumulating it, that's when we'll make our next round of major trades, closing current hedging longs and entering shorts in size, but until then it's not wise to chase this market in my view, especially not now.

There may be select assets that look good for trades, likely non-market correlated.

This is what we have been looking for, I expected it earlier last week, but it took some time to build, but that time didn't translate in to stronger divergences in anything but the levitation lever of HYG, the averages are still very weak.

IT HAPPENED, THE WAY THE MARKET EXPECTED IT TO HAPPEN, THE MARKET IS OVER IT ...FOR NOW

I probably don't need to recap events this weekend in Crimea, but if you missed it: 95+% of residents voted in the referendum to become a region of the Russian Federation. The voter turnout was over 70% which is more than any US election in more than a century.

Ukraine had already made it clear they were prepared to let Crimea go and not fight for it as Russia has mobilized 60,000 troops on the much more important (to Kiev) Eastern Ukrainian border where there's also a high concentration of ethnic Russians that want to join Russia.

So things happened exactly as they were expected to and as such the market was ok with that, it's the surprises it doesn't like and it may be headed for some big ones this week.

My personal take (and this usually wouldn't matter, but may in this case) is that Putin is shrewd, he's the old guard who came to power, will not leave power, lifted Russia which was becoming like a third world nation out of the much and restored the national pride they lost around 1998 as democracy didn't work out as well in Russia as they were led to believe it would as companies like Goldman Sachs, the Oligarchs and others pilfered everything they could get their hands on as the Soviet Union fell apart blindingly quickly and surprisingly.

Putin is restoring Russian pride which is no small thing.

Look at the Crimean situation and you see how Putin operates, he's extremely patient, he waits for an easy opening and then moves without hesitation with incredible speed and no dithering, he knows what he wants and he goes after it. Obama by contrast looks like a dithering president that has no idea how to deal with the situation, what did we do? Send 1 destroyer to the region, impose a few travel visa sanctions? However Mr. Obama has promised Mr. Putin that there will be "Additional Costs", really? Can you imagine how Putin feels after getting off the phone with Obama? An old Soviet KGB top spy vs a Community Organizer? You can simply see in the way the situation has unfolded that Putin has all of the characteristics to get exactly what he wants and he won't be cowed by anyone and everyone else is standing around literally afraid of what he'll do next and they should be, a man like Putin doesn't pull out all the tricks to stay in power as long as he has without an agenda and a real legacy to cement.

Moving forward, Crimea has already applied to become part of the Russian Federation and is expected to be by Wednesday or Thursday, but not before Putin addresses a joint session of Parliament and Parliament has already set up a vote to consider Russia taking over other "Cities, countries and regions " that wish to secede and become part of the Russian Federation, this is where Eastern Ukraine may find it's way in to mother Russia's arms and the EU, NATO and US left losing one of the biggest trophies of the Soviet collapse. 

This sets the stage for Putin, who has chosen the time and the place of the battle and has made swift preparations while his opponents where caught off guard playing golf. 

I use to call Putin, "Man of Action" as a joke because of the photo ops of him topless fishing or in a submarine going to the deepest part of the ocean or his Black belt karate displays, it was kind of silly, but he truly is a man of action that will not dither as the US has one of the biggest dithering presidents in many decades, Putin played this to perfection and he's just getting started.

In the meantime, the VIX protection bought Friday and a little late day selling looked like retail to us Friday, the pros knew what to expect and as such the market was ok with things so long as there weren't surprises. Tuesday's Putin address may be one of those moments of surprise or the Parliament on Thursday taking up annexation of other country's territory "If" the residents want to secede, that's Eastern Ukraine more than anywhere now, that's why Kiev didn't split their forces and valued the east over Crimea, they know what's coming next, they know Putin better than do we.

For now, the market is doing what we've been expecting and that's good enough, lets keep an eye on it and make sure it keeps doing what we expect and we too should come out of this for the better by taking deliberate action on our terms and at the time of our choosing rather than chasing the game after the train has long ago left the station, yes Mr. Obama, that's you.