Daily Wrap: Something Wicked Comes This Way...

Well it's the end of Q1, here are some facts:

Q1 2012 was the worst market performance since 2012
The Dow closed the quarter in the red for the first time since Q4 2012
Bios were up 3% for the best day in 2 weeks, and up 4% on the quarter which is the worst quarterly performance in 5 quarters, March was the worst month for Bios in 4 years.

Gold was the best performer of the quarter and High Yield Credit (Credit leads, equities follow) was the worst performer of the quarter.

Utilities were the best performing S&P sector of the 1/4 (utilities are considered a defensive play.

Judging by the above alone without even looking at this chart...

 This daily chart of the Russell 2000 looks exactly like a H&S volatility shakeout after a break of the neckline of a H&S top, it is also the last place I'll short a H&S top.

The IWM 60 min...

It would seem the change in character away from risk (HY Credit as the worst performing asset and defensive Utilities as the best performing S&P sector) and in to safety is very clear, which makes me wonder about a few things, namely...

Why is the FBI all of the sudden investigating HFT for "Abuse of information", trading on non-public or insider information" ? Why hasn't the SEC led any such investigation? WHY NOW? 

Why is it that one of the seeming, "confidential informants" happen to be someone from Goldman Sachs who not only ran their own HFT, but were the lead underwriter for the HFT firm Virtu's IPO? This is the HFT that had 1 losing day of 1238? Does Goldman know something? Is HFT (as wicked as they are in destroying market structure) suddenly being scapegoated for an event to come that was caused by the F_E_D?

What is the new dynamics of the market going to look like as we move forward? 

Interesting questions as the FBI announces an investigation in to High Frequency Trading, something the SEC failed to do for the last 5+ years and why all of the sudden urgency with certain public figures suddenly leading the charge and GS itself, an HFT user and lead underwriter of Virtu (HFT company going public)?

It makes you wonder what is being set up, we already know who and why, to give the F_E_D cover. I am VERY interested to see what the underlying trade looks like in the market come tomorrow and moving forward.

As for the market, it was led by the AUD/JPY, but seemed to lose correlation around the time the FBI announced their probe...

ES lost some gusto vs the AUD/JPY around the time the probe was announced by the FBI.

The market looked a big fractured, the SPY ended the day with distribution in the intraday timeframes with no solid base to move off of...

 SPY and most averages looked like this at the close on intraday timeframes in the 1-3 min range, the IWM however has at least some 5 min which makes sense according to the "Trading plan" put forth earlier today.

IWM has some 5 min positives, but not a lot so it looks to be enough to cause a head fake which it's already at, we'll see how long it can last, I think not long with such a small foot print. 

The Q's were somewhere in between and much sloppier.

The trend of HYG distribution / negative 3C divegrence continued today as it has for well over a week and VXX's divergence is growing much stronger, still not at the "flying" level, but that can happen quickly and this is only the second day in an event I've waited at least 3 weeks to see unfold, it finally started Friday.

Both GLD and GDX ended the day with strong 1 min positives, I continue to like both and will keep both positions open (UGLD and NUGT ).

 GDX 1 min

GLD 1 min

I checked correlated assets for confirmation and there was strong bullish confirmation for both.

As far as Leading Indicators...

HYG was an under performer vs the SPX most of the day until the close, almost as if it were being held up which I'm sure is the case judging by some other leading indicators in to the close.

Sentiment (pro) also fell off badly most of the day until the close so I'm guessing they may try another pump and...?

Sentiment's EOD pump...

And VXX's smack-down, which is fine with me as it is what I was waiting to see, but it was obviously a move to keep the market up in to the close.

Yields fell off which is a negative for the market, but they can certainly fall further, especially if my thesis on the IWM/market is correct...So far this is what I'm going with short term, but there's not enough support for me to even enter a partial piggy back/hitch hiking trade (long/calls).

Otherwise, my main interest is how the FBI investigation effects HFT which is responsible for about 70% of the market volume, an even thinner market? If that's the case, then a stage 4 decline would be absolutely brutal and what is it that Goldman sees or is getting out of this? Perhaps providing cover for the F_E_D as they truly created the market mess/bubble, but with a multi billion dollar (PLUS) industry all of the sudden put on CRIMINAL notice, not SEC, things could get strange awfully quick.

I'd be very interested to see if the correlation algos give out, if so, the entire carry trade correlation could evaporate just like that along with HYG and the SPY arbitrage, but those are just a handful of literally hundreds of different programs running, all apparently on criminal notice tonight, it's about time, but they ought to serve the F_E_D up as well as that's where the real criminality and destruction of a healthy market came from.

What are they trying to cover up and scapegoat so quickly and so ruthlessly?

Tune in tomorrow, I'll be looking high and low for signs that any of these algos are shutting down (watch volume as well), it could be very interesting.

Forward Planning

I just looked at Leading Indicators and between those and where they are at, what's going on with
HYG, what is going on with the stages and a nice juicy stop run/limit run in the IWM which is a great market proxy , but most importantly what is going on with VXX, I have a pretty clear vision of what I expect and where I want to make my stand.

All of the above pieces are coming together nicely, assets are acting like I'd want to see them.

You've seen what's going on with HYG so there's no need to keep posting distribution in HYG (a market manipulation lever, especially when VXX and TLT are down).

I think after several weeks of me talking about it, you know what I'm looking for in VXX (short term VIX futures) and why it's so important, that just started Friday and it continues today.

The IWM is a perfect proxy, it's in an area that's a perfect head fake kind of move, it's really almost too good and with these other assets and where they are and how they are behaving, it's all tying in very nicely.

I was looking to maybe enter some IWM puts (weekly) today, I already have trading and core shorts open and will leave them open as volatility should pick up significantly this week.

I'm going to be a little more patient and let the assets I have been waiting on like VXX finish up the process they are undergoing (accumulated at cheaper prices and let the IWM make its move which I'll show you and that's about where I want to make my stand and the best thing is all these assets are in just about the perfect place, they are in the right stage of the process individually (not quite done, but moving forward and for me it just looks like a symphony coming together.

First the IWM as it is the best proxy right now for the psychological part of the market or market behavior concepts.

 First on a 60 min chart of the IWM, we saw an accumulation period from Jan 27th to Feb. 5/6th and knew we'd get a strong rally, but there was a point to the rally and it was to set up the kind of demand needed to sell/short in to because at the time everyone was bearish and expecting the market to drop lower, you just can't find enough demand to sell or create short positions as large as institutional positions are, this is not some Monday morning quarterback analysis, this is EXACTLY what we thought before the market had moved up at all in early February, in fact most of you have already seen the post I put up on Feb 4th warning how strong the rally would be, but that it was a means to an end, not an end.

Most of you know about the 4 stages of a cycle, whether intraday, a primary trend that last 6 years or one like this: Stage 1 accumulation or base which was Jan 27-Feb 5th (approx). and then stage 2 Mark-Up or rally and then stage 3 distribution which starts during stage 2 and leads to a stage 3 top which you can clearly see now and finally stage 4 which is decline, THE IWM IS ALREADY IN STAGE 4 AS IT HAS MADE A LOWER LOW BELOW STAGE 3.

However... Look at the chart, look at the clear line of resistance, behaviorally speaking, "Thinking like a Crook", what is the highest short term probability for the IWM right now with new shorts in place and longs buying the dip?

You know it's to make a move through an area that traders are watching and will respond to for a myriad of reasons from the bid ask spread to momentum/bull/bear traps.

This is why I'm going to wait before entering a options position, even a call for a move above the red trendline looks dangerous to me, I'd have to see something a lot stronger to even take a hitch-hicking trade at this point.

HYG is showing distribution and its correlation with the market is fading, I can see that in Leading Indicators, sentiment (especially the longer term one) is fading fast and negatively dislocated, Yields, etc all look right, BUT WHAT I'VE BEEN LOOKING FOR THE MOST IS THE ACCUMULATION OF VXX / VIX FUTURES AS A TINING INDICATION.

Back to the IWM... 

 Intraday the 3C signals are a "Pump and Dump regardless of whether price actually does and I think this would be the first of the last 7 days consecutively that we've had a pump, but no dump. Remember it's quarter's end. Why would they pump it and not hold, why dump?

Think about the concept of P&D, it's a distributive move and the pump has been coming from the low volume overnight session, the dump in higher volume regular hours where shares can be moved.

 This is what I'm expecting on the IWM 3 min which is in line right now, that means in line with the losses it has taken as it has entered stage 4.

I'm expecting a break above the trend line of resistance I mentioned before, shorts get wiped out, bulls should buy, the "But the Dip Crowd" is conditioned to keep walking across the mine field with their eyes closed. At the same time I'm looking for 3C to drop leading negative here.

The Leading Indicators support this line of thought.

 Looking at the 5 min positive we picked up last Thursday we are set for a move a bit higher, but this is still not a divergence with any sizable foot print, you need to have a decent size base to support a decent run, it's not there.

However for those in GLD or GDX, those are putting in a wider footprint, I'll hold those no problem and add to them if the situation is right.

The 60 min IWM chart has always been where the probabilities are and the fact the IWM already started stage 4 just confirms that, but nothing in the market moves straight up or down, they'll never make it that easy unless they are setting you up.

VIX futures started accumulating strongly on Friday because it was the first day they started pulling back, smart money DOES NOT CHASE, that's why I've been waiting for a VXX pullback but it has remained well bid supporting price, it seems they've been fooling with the options as mentioned before as this is the 3rd day with double digit declines in call premiums, the second day (Friday ) was the first day VXX pulled back and was under accumulation Immediately.

You can see VICX futures are doing the same intraday today as they pullback a bit further and on a stronger 15 min timeframes (over only the last 2 days )...

 Friday and today, we have a strong 15 min leading positive signal in VIX futures, THIS IS EXACTLY WHAT I HAVE BEEN LOOKING FOR EVERY WEEK NOW FOR 3 WEEKS.

VXX

 THIS IS THE ACCUMULATION FRIDAY IN VXX, I ROLLED THE CHART BACK SO YOU COULD SEE BECAUSE TODAY'S OBSCURES FRIDAY'S, IT WAS ALSO THE FIRST DAY WE GOT A DECENT PULLBACK IN PRICE.

This is today's, now you can see why I showed you Friday's first, today's is much stronger as VXX pulls back deeper.

Also remember HYG up or stable with VXX and TLT down activates the lever called SPY arbitrage, keep that in mind when thinking about behavior concepts and the trend line on the IWM chart at the support area of the stage 3 top that has already broken, WHAT I'M EXPECTING IS A VOLATILITY SHAKEOUT, THE EXACT SAME CONCEPT AS IF IT WERE A H&S TOP THAT JUST BROKE DOWN.

That's the last area I'll short an asset like IWM, on the volatility shakeout as most traders expect resistance to hold and will short even more at what looks like a failure at resistance, instead they get shaken out and stops hit that are just above resistance as limit buys are triggered as well setting up a short squeeze and bull trap.

VXX 3 min, look AT THE ACCUMULATION/3C DIVERGENCE SINCE VXX DROPPED BELOW SUPPORT, THIS IS WHAT WE EXPECTED AND WIATED FOR.

A run such as the one described above gives VXX enough time to put in the flying leading positive divergences and the reversal process.

***If we don't get a dump today after 6 consecutive days, it will be because the scenario I just outlined will almost certainly take place.

All of the assets and Leading indicators I mentioned should all fall in line about the same time, the VXX can still be used as the main timing proxy, but we should see all of the assets confirm.

Thus that's where I'll fight my battle on my terms at the place of my choosing. 

I would enter a call position or two as hitch-hiking trades, but they need to have the 3C signals to support them, otherwise I'm gambling and not with great odds on my side. If they show up I'll put them out as quick trades that will likely need leverage, but in the absence of that, it's just setting alerts on the short list and being ready to take on positions (clean some house to free up dry powder).

Emotions move markets, fear and greed and fear is by far the strongest so a stage 4 decline is one of the fastest, easiest ways to make money. Just look at the last REAL authentic bull market off the 2002/2003 base that rallied in to the 2007 top, it took about 16 months to erase over 5 years of bull market and the majority of that happened in 9-10 months and it not only erased the entire bull market, but then some, that's why I like being short and stage 4 declines, especially off a head fake or failed break out.

SPX example...

Closing JJC Long (Copper) Trading Position

With Chinese companies getting cash calls from the bank they had been selling the collateral they put up, copper and iron-ore, you probably recall the beating copper took recently right after Chaori solar was the first Chinese company to default, the banks that were still flush with cash cut off funding for all new deals and put out cash calls on existing loans, thus the sell-off in commodities, specifically copper and iron ore as these companies met the cash calls by selling their tangible collateral.

I though JJC might make a nice bounce trade and it still might, but the performance is just not up to par, there are a lot better places to put the assets to work in my view so why maintain the position as well as what looks like some near term risk?

A 3% gain is just not worth the risk.

Near term it looks like Copper is going to pullback a bit, this may be forming a larger base and if so, then I'll take at a few other ways of playing copper that have better profit potential.

The longer term 30 min chart looks like a "W" base is likely, but the shorter term chart above makes it look like a move to the lower end of what would be the "W"'s support is at hand, time to move out and raise some dry powder.

Market Update

Intraday charts are not looking good... You already saw BIDU as a sort of market proxy, here are the averages...

SPY intraday

QQQ 2 min

IWM 2 min looking really nasty.

I'm almost considering a put here, maybe a weekly.

As far as FXP, it looks pretty darn good for a long, I've reiterated that at least once.

GLD and NUGT (both open longs- I'm using the 3x leveraged UGLD rather than GLD) don't look that exciting intraday, but they seem to be building even bigger bases, their 5 min charts look superb so I'm sticking with both positions, I'll keep an eye on intraday activity.

FXP 5 min

 GLD 5 min

NUGT/GDX 5 min

Here Comes the Dump.... Charts to follow

BIDU Gap Fill Not an Opportunity...

I was looking for a possible hitch-hiking trade (long) maybe some BIDU calls on Thursday's update, but the signals just weren't there to take the risk, I figured today's pullback in to the gap would have some improvement for a short term trade, but all I've found thus far is a good reason to keep the core short position open.

 Friday's post pin positive divegrnce for a gap up today or a pump and a gap fill today so far, but no positive, not even on a 1 min charrt, it is simply in line.

I cannot open a long of any sort without a positive divgerence on at least a 5 min chart, but nothing on even a 1 min, this just makes me glad I kept the core short position open.


The 3 min chart is worse...

As is the 5 min chart.. in many ways this is a proxy for the broader market.

Market Update...

So far , still so good.

Like Friday there's a negative divegrence that has caused a loss of momentum from the initial overnight pump and then the additional pre-market pump, it seems to be a trend that's working, pump the market in the low volume overnight  session and then sell in to it during the higher regular volume hours so they aren't leaving footprints or causing waves to the causal observer.

First the averages...

 SPy's Friday afternoon accumulation, as usual, 3C action picks up where it left off and the late day accumulation suggested an early pump or price strength in the market Monday, however like Friday we see intraday negatives setting in.

Here's the post again from Friday explaining what we were seeing and why I thought we'd see more of this P&D action as we move in to the new quarter with window dressing pretty much complete considering the T+3 settlement rule (Trade and 3 days).

The Q's with the same Friday afternoon positive and the same loss of momentum

And the IWM

 The Index Futures...

 ES showing the same except this shows the pump pre-market in addition to the gap up on the open of futures trade last night, we also see the same intraday negatives or distribution.

 TF futures, the same

NQ futures the same


The ONLY reason ANY market upside has been of interest to me is the VIX futures or short term futures (VXX) and the strong, near vertical leading positive "Flying" divergences that only VIX assets put in, I suspect they give these much stronger signals because as they say, the VIX is considered "The Fear Index" and when there's fear, they are accumulating VIX hard, this has been the key to many market pivots/reversals, and I have been waiting on what is going on the 4th week I believe as the market has been in a stage 3 top.

 Note the VXX did not see 3C confirmation of the gap lower, which is what I've been waiting to see, the positive divegrence on the gap lower is what I expected to see and it is what we need to see in order to have a high probability timing marker for a market pivot in to a primary trend (down).

 Another view of the 1 min VXX, as mentioned Friday was the first day I saw the strong leading positives that turn to these near vertical "flying" divergences. This is excelent, normally we'd expect to see confirmation with a gap up in the market, this is the move down I thought the market needed before they'd accumulate in size and thus far they seem to be doing exactly that.

Don't forget that the relative strength in the VIX futures has been very strong vs the market, but last week the last 2 days the VIX Futures calls had seen double digit declines in premiums, it seemed no matter what they tried there was a solid bid for protection keeping it lofty, it almost seems they took a new tact to help knock them lower and we are seeing immediate results from that.



Don't be surprised if we have some VXX longs soon or calls.
 VXX 3 min is obviously seeing an increased ROC on the upside in 3C as prices drop below a support level.

And VXX 5 min has been in good shape, but it needs most all of the timeframes to be in this shape or better to be truly useful.

HYG 1 min intraday shows they are trying to give it some steering support, but the trend here is very clear, although HYG helps move the market up as a manipulation lever via algos, it seems no one wants to get caught with a position of any size.

5 min HYG trend is VERY clear without any drawings.

 As for the other market moving lever, the carry trades and USD/JPY specifically, the intraday 1 min action makes sense with the market action above, however the stronger trend on the 5 min chart shows something a little more ominous for the market...

I think the trend there is pretty clear, if this keeps up then it's just a matter of time before the 1 min charts give out and the signals of the longer charts like this 5 min kick in and the market follows.

Going to check on some individual trading assets and positions.

BIDU Follow Up

Thursday March 27th I posted this follow up to the BIDU core short position which is at a nice gain (equity short as a trending trade) and what I thought was most likely moving forward for either a new short position or an add-to for partial/phased in entries (NOT DOLLAR COST AVERAGING AS IT HAS EVOLVED).

First here's last week's BIDU Update...BIDU Core position follow up...

If you are interested in BIDU you might want to check out the post, but the gist of the update was,

"Right now at #6 we can see a daily hammer candlestick today, that's a bullish upside reversal, although it carries no target, but you can probably guess where a target might be based on the past. I'D TRADE BIDU LONG RIGHT NOW ON SOME CALLS AND THEN SHORT IT AS IT REACHED A HIGHER LEVEL ABOVE THE TRIANGLE AND FILL OUT MY CORE SHORT (I would not close the core short as it already has excellent positioning)....."

And where we stand as BIDU has transitioned from that daily bullish Hammer candlestick to the counter trend move up and it does not look strong which is what we want to see when looking to let a trade come to us and short it on price strength, but underlying moneyflow weakness.

 Daily chart with several head fake (Failed breakouts) from a large (technically ) bullish Ascending triangle, but when they are this large they are most often tops. The first and second head fake moves both would have lured in longs that buy on price confirmation of a breakout and put stops below former resistance/what becomes "support" and the market runs themm Both areas to the left were also "Tweezer Top" bearish candlestick reversal patterns showing resistance in the area. The 3rd head fake to the far right also would have triggered new longs on a break ABOVE former resistance found at the Tweezer top highs.

Then our bullish reversal, Hammer last week with increasing volume which is KEY to the reliability of transitional/reversal candlestick patterns , either bullish or bearish.

The same chart, #1 the first HF and Tweezer top, #2 second HF and TT, #3 the second bearish downside reversal with a bearish engulfing candle serving as confirmation of the top pattern in the candlesticks. #4 resistance from the Tweezer tops and #5 is the most recent head fake, causing longs to buy the "confirmed" price breakout which in typical head fake fashion fails and causes downside momentum as longs with different layered stops are taken out, adding supply to the market and driving prices down-THIS IS A KEY CONCEPT TO OUR "HEAD FAKE" CONCEPT WHICH CAN BE FOUND LINKED AT THE TOP RIGHT OF THE MEMBERS' SITE.

#6 is the Bullish "Hammer" reversal candle with expanding volume making it much more reliable, thus the update last week.

Here's a 30 min chart, you can see where support was broken on the Bullish Hammer and the short term exhaustion or capitulation event in volume making that  candlestick all the more reliable.

 I did not end up with a long BIDU position because the 10 min chart that has been in line and still is (if not slightly leading negative since prices moved up) never went positive which was my standard for a hitch-hking trade to the upside until a larger core short could be entered or added to.

 The 5 min chart had a positive divegrence at the hammer , but note the VERY typical reversal (rounding) process with a "Chimney" or a head fake that hits stops as we saw above with volume swelling.

Thus far since the hammer, I'm not impressed with price or price/3C action, it seems very weak which is fine with me as long as we can get a little more upside to make a new or add to position worthwhile.

 3 min showing the same small accumulation at the Hammer and so far NO confirmation of the move higher off the hammer, not even on a 3min chart.

 This is my custom DeMark inspired "Buy/Sell" indicator, note the sell signals to the left and the recent buy at the Hammer lows.

 On a 60 min chart my X-Over system has produced 2 of 3 long signals, but you really need all 3, that may happen, but again this is showing underlying weakness in BIDU as we expected to see, making it an excellent short candidate AS WE LET THE TRADE COME TO US RATHER THAN CHASING IT.

If you need a stop the 60 min Trend Channel has the current long stop at $151.90, however I'd be willing to give it a little more room and this is a stop on a CLOSING basis, NOT intraday.

So far, so good in BIDU, I'd set price alerts for higher levels where we want to look at adding or starting new positions, I have little doubt BIDU is an awesome short, I just want to make sure that any new entries are as favorable and timely as possible.