Market Update

I'm going to make this quick, I'm not going through how the Carry Trade Correlated Algos were shut off today, but on any upside you bet they'll be right back on. I'm not going through the "W" shape that we are holding out for and the signals that we have suggesting that, I'm really not going in to the VERY strange antics of Goldman in which they first turn their back on HFT, then they put their NYSE Designated Market Maker status up for sale and now, talk of them closing their Dark Pool Sigma X-SOMETHING BIG is going on, my best guess on short notice is there's so much damage in this market they're essentially in some way going to have to walk away from it and start from scratch at some point and Goldman seems to know what scratch is. This is exactly what I have maintained for years, "There's going to be a new market, a very ugly one and whoever has the edge and figures out how to trade it first wins" Technical Analysis in its present form isn't going to cut it.

In any case, here's what I have for you, the main problem with any carry trade supporting the market has been the same since this morning, THE REVERSAL PROCESS, but that may be resolving.

 The earlier positive divegrence on the USD/JPY 1 min seems to have fired and failed already, but that may not be bad. Take a look at the 5 min chart below...

It seems there's the possibility of that failure now sending the pair lower to create a "W" or REVERSAL PROCESS...

The 5 min $USDX is finally supportive of such a move.

The intraday QQQ looks like it wants to pullback intraday to do the same thing while the longer charts...

like this 10 min would benefit from the pullback and "W" base in the Q's, especially if the Carry trades do it at the same time and fire together, if that happens, there's no denying the invisible hand in the market, at least we can see its shadow.

Some Leading Indicators are signaling the same idea... HYG would need to be activated for market support and take a look ion to the close.

 HYG vs SPY...

As far as Leading Indicators, our professional sentiment was right on about the downside leading negative and now, leading positive so that which we waited patiently for today is starting to look more and more plausible and all of this from the last 2 hours of trade on Friday.

Remember tomorrow is the release of the last F_E_D / F_O_)M_C meeting minutes, they'll be closely poured over, especially those infernal dots. The concept is ANYTHING F_E_D related almost always causes an initial knee jerk reaction that almost is always wrong and faded within a day or two.

Even though we had bullish closing reversal candles in the major averages today, we did not have the volume moving up which makes those reversal candles 100% more effective, perhaps tomorrow? 

There was a Dominant Price / Volume Relationship among the major averages today, Price Up and Volume Down, that's the most bearish of the 4 relations and often leads to a close lower the next day, it's like a 1-day overbought condition.

Watch for volatility, as long as we're on the right side of the trade and I think we will be, it should be a blessing, but the minutes should crank volatility amplitude, we need to enter trades that are screaming for entries, not take chances here, I am still leaning about 85% short.

From here, one step at a time and as always, patience.

Market & Carry Trade Update

Really it's just a quick look at the market, this is my personal trouble spot (not risk, not fear...) patience, we all have them. 

This morning I should have done what I'd normally do, which is what many of you did as we trade options as a tool, not a lotto ticket, I should have taken the short term gains and repositioned for the next opening. I'm not concerned about the Calls at all, I'm thinking about the dry powder it would have created to give me more flexibility so to all of you who took the gain this morning, I'm happy to see you listened to what I said rather than did what I did, congrats on those positions by the way, nice trading.

So looking at the Q's, as a proxy for the broader market, here's the problem I personally am having...

 This 10 min leading positive divegrence that we were pretty darn sure would pop up early this week as of Friday's post for the week ahead, Looking Forward to Next Week is looking very good, it's the kind of divergence that I don't ignore, but I also don't want to enter a trade that I'm not convinced about and in this case it's ALL TIMING. So I have the "Greed/Patience" emotions stirring and you know what I feel about that, "Better to miss the trade than enter a sub-optimal position", which is to say, "It's easier to keep it than make it back".

Really this is all about that "W" I expect to form, we'd be right at the middle of the "W" (high end) right now and a pullback would be where I'd want to enter calls, with an equity long, even 2-3x leveraged it's not such a big deal, but we have a wild card event with the minutes tomorrow which I do think is a high probability leak with the way the market is behaving and I'm not just talking about the Q's, but VIX futures and others.

The 2 min chart's trend is also showing a positive divegrence for this week as we expected Friday, it's when we look at this chart on an intraday basis that the discord comes in to play.

This is the same chart zoomed in to intraday which is how it should be used, it was positive at the first "W" bottom low, it has a negative right now at what would be the middle of the "W" and if it would just pullback to the white trendline we'd have a complete pattern, excellent entries, lower risk and good timing indications, but it's just sitting there.

I looked at the Carry Trades to see if there was an edge, what I noticed was the same thing I saw earlier today, the algos must have been shut down because the Index futures are not following the normal correlation which tells me that Wall St. set up this little cycle starting Friday afternoon and they aren't about to let the carry trade destruction mess up what they've put some effort in to setting up because of some statements from the PBoC and BOJ overnight.

Take a look and it's clear the algos are in the "OFF" position, at least the carry correlated ones.

*ES is in purple and the asset/carry trade is in red/green price bars

 USD/JPY 1 min chart from about 1 a.m. to present, ES did not come close to following this lower and there's really not anything close to a reversal process in place for the carry cross.

EUR/JPY fared no better...

AUD/JPY also no better.

As far as the 3C charts for the pairs...

 AUD/JPY doesn't look that bad, but this is a 1 min chart only and on a 5 min it just isn't working for me.

USD/JPY 1 min doesn't look that bad and it's 5 min chart is working fairly well, at least better than the other two carry crosses.

USD/JPY 3C 5 min.

EUR/JPY wasn't even worth capturing.

So now it's off to the individual single currency futures to see if we can pull anything interesting...

 $USDX is more or less in line on the intraday, that's not inspiring, it seems like there's a bit of a panic to close carry positions today which may be why the VXX is looking so odd today. The 5 min version is in line, but a tiny bit more positive, not worth capturing.

The $AUD interestingly looks as if it's about to take a dive as 3C is leading lower, I suppose at least the $USDX is closer to in line than negative like the $AUD above.

Again the Euro is not interesting.

As for the Yen which may be the only thing that matters or moves any of these carry crosses...

 Earlier the 5 min Yen chart had a relative negative divegrence (Weakest form), so what we needed to see was the intraday 1 min go negative and the worse it got, the better the chance of a reversal in the USD/JPY (I'm leaving the EUR/JPY out because it's not interesting and the AUD/JPY because of the AUD's 1 min chart).

So we do have something brewing here on the 1 min as you can see, as far as the 5 min Yen, it's essentially the same as this morning which makes sense because it's not going to move until there's negative movement on the 1 min that is strong enough to migrate over to the Yen 5 min.

However the Yen 5 min is still in a relative negative divegrence so I suppose right now it's all about the Yen 1 min chart and seeing if anything changes with the $USDX.

As for the market, I didn't put out any positions for a reason and that reason is as stated above, better to miss the trade as another one will be right behind it than to enter something you have objective evidence that is saying, "Be patient" and that objective evidence would be the intraday charts of the averages being negative and suggesting that a pullback needs to finish up first, plus I wouldn't chase options, they need to pullback for me.

Most of the major averages ended the day with a bullish reversal candlestick, but if you look close what's missing? If you said increasing volume, that's exactly what I was thinking.

I think we need to just stick with our concepts, the objective evidence and be patient, you can't divine the market and you can't bend it to our will, kind of like fishing.

As for closing down GDX/GLD longs for a brief period (I still like them a lot, just not very near term based on today's action), I feel pretty good about it when looking at the EOD charts.

 GDX

GLD

For longer term traders I don't think these will present any trouble, I look forward to getting back in them because they have some very strong signals that I'd probably just leave open if it didn't seem like so much opportunity cost as volatility should increase as we continue moving to stage 4 (the Q's and IWM are both in stage 4 decline for the larger February cycle). Thus the assets deployed there in my view could be better used briefly elsewhere, I'm just looking for that "elsewhere " to get in to position.

I also like the way FXP closed (as a long), while there's no typical reversal process on today's gap down, to me it's not an issue.

I'm going to update internals, check Leading Indicators and probably have a long night watching the currencies.

Of course, I'll update you on anything I see that may be of any interest. 

FXP Looking Like a Head Fake Move-Very Interesting Here

Especially after the Asian overnight, "No QE for You!" from the BOJ and PBoC, I was actually surprised to see FXP down, but it does look like a head fake move/stop run below some pretty well defined support. I'm still keeping FXP open, if I had the room from a Risk Management perspective, I'd probably add today, here's why (besides what was already mentioned)...

 As many of you know I've been looking for a way to play China short all year, FXP hasn't given us much of an opportunity (until now) so we were looking at commodities after the Chaori default as banks were making cash calls against business' collateral which in the immediate default sectors was mostly iron ore and copper, you may recall we were looking at aluminum as a possibility and then a couple of defaults were rescued so the situation became a little murky on the commodity side, then FXP finally gave us an in, I'm still holding that FXP position open (long). I would think that the overnight Central Bank hawkish talk out of Asia would do FXP some good and a move like today's could very well be the typical last minute head fake before a reversal as it's easy to fill out a large institutional position when you create supply by hitting stops.

We also have a Channel Buster above, which means when FXP gets going on the upside again, the momentum should be very impressive. As for the daily chart today, we have a hammer or almost a long-legged Morning Doji Star and on volume, either way they are both bullish reversal candles and the increasing volume makes them more likely to be effective.

 On a 60 min chart we have a stage 1 base area , these flat ranges are where there's tons of underlying action although they seem flat and boring, just think "Fill at consistent VWAP" and you'll understand why these ranges have so much underlying action. The first break didn't seem to hit much in the way of stops, but the hammer support it created would be an obvious place to put a stop or open a short and today's move below that hammer support seems to have done just that.

The long term multi-day 3C chart looks great, there's definitely something going on here and the base area of FXP looks quite large.

Note where the positive divergences have occurred, every one at the lows (white boxes).

 The 60 min 3C chart shows where FXP went negative inside the channel BEFORE the break below it and how it has gone positive since right at that flat range, I'm guessing today is a head fake move/stop run to create some supply to be accumulated quickly, possibly because of overnight comments.

I will try to get to the Carry trade follow up, you may want to look at that before making any decisions, for me the decision is easy, I'm sticking with FXP.

30 min chart showing the same negative inside the channel before the break under it and a positive divegrence since, even at today's gap down which doesn't typically hit a 30 min chart that quickly, again making me think this is some quick last minute buying.

 The intraday charts aren't the best on FXP so I just went with the 2 min chart's trend, it is leading positive the entire time, it just looks like there may have been a little supply fed out to keep prices steady and at the lower level where anyone would want to accumulate-who can refuse a sale?

The 3 min chart looks like the last few days have been accumulated above and beyond the normal accumulation as I scaled the chart to be in line to the left to show the recent action.

This also looks like they've been "steering" prices to keep them at a particular (lower) level and today's gap down has no downside confirmation, but the opposite, a leading positive divegrence.

From here, I've seen enough that I like it and would add to it if I had the room, the only thing left would be the reversal process, but you may have noticed that overseas charts don't behave the same as US equities, they are more gappy, less predictable and there's already a SUBSTANTIAL reversal process in place so I'm not so concerned about that as far as a small reversal process for today's gap down, you may want to require that to raise the standards of the trade, I'm fine with it as is.
From my last look at the market it still seems like I have enough time to cover some other assets so as long as nothing has changed and things still look like that broader "W" is the highest probability and we are not preparing for an imminent move up, I'll try to get as much of the FX Carry trade update out as I can *(USD/JPY) mentioned earlier.

Bottom line, I like FXP (long), I'd probably add to it if I had room available.

Quick Update

Honestly I'm a bit surprised the market has managed to stay in the area as long as it has intraday, I think that's about to change and I still think it's going to be moving to a second bottom of a larger "W" as I mentioned in regard to the QQQ as that's the one I've had the most interest in opening either some calls or maybe a leveraged long ETF like QLD or TQQQ.

Essentially I'm looking for this before taking any action and thus far this is a pretty fair guess as to what we should expect...

 QQQ 5 min intraday expectations have been for a pullback toward support forming a wider "W" type reversal process.

The intraday charts have been pointing to a pullback so those who took gains on the QQQ calls from yesterday, nice play. WASH, RINSE, REPEAT. This 3 min negative intraday has been suggesting a pullback most of the day, it looks like it's likely coming now so that's one of the reasons I wanted the GLD / GDX positions cleaned up so there was some dry powder for such a pullback.

As far as the intermediate charts, the QQQ to me still looks the best even though the SPY is finally catching up, this leading positive 10 min chart looks great.

 As far as longer term expectations, this 60 min chart shows distribution at stage 3 and it's still leading negative.

The 4 hour chart is leading negative in a big way, this is a different trend that we'll get to on a market bounce.

We can draw the trend lines a few different ways, if we draw them like this we have a Channel Buster, that would put a target up around or above the upper trend channel before it heads back down.

At #5 the volume also suggests a Channel Buster, the increasing volatility of a late stage top also fits the bill, this is what I was talking about yesterday in saying the long trade is the hitch-hiking trade, it's really entering or adding to primary/trend short positions on the bounce that is the real trade here and whether you felt comfortable trading the long side was something each person has to decide for themselves based on their risk tolerance as probabilities are clearly to the downside.

That said, a nice bounce sets up nice shorts, the market is clearly coming undone here, but tomorrow's F_E_D minutes should introduce a lot of volatility which also fits the bill , making me thin more and more that they were leaked as far back as last week when we first saw signs of a base forming up early this week (Friday afternoon).

We could also draw the February cycle this way with the Q's having entered stage 4 either way with a Volatility shakeout like the IWM, the EXACT same concept as the VSO after a H&S neckline is broken, the third and last place I'll short a H&S top.

In that case, we'd still have a target on the upside somewhere in the same area, it would likely have to pass above the apex of the descending triangle to hit short seller stops, even though retail is wildly bullish.

It's for these reasons that I think less leveraged assets will work just fine too like 2-3x leveraged ETFs (long) rather than options or a blend, heck you could probably just buy the Q's if you don't like leverage.

So we are just on patrol right now looking for the next entry (long) for this bounce move, IN NO WAY DO I SEE ANYTHING THAT MIGHT CHANGE OR SAVE THIS MARKET, IT'S STILL UGLIER THAN JUST ABOUT ANY MARKET I'VE SEEN GOING BACK OVER A CENTURY.

GLD / GDX Broad Update 2

OK, so the point was I closed those two to open up some room, create some dry powder as I felt they were likely dead money for a very short term, but in that very short term the dry powder could be used to make some nice gains rather than just sitting and waiting (which is fine too if that's your trading style, as I said, I think both positions have a lot more upside to go and really haven't even started yet)...


Lets start with Gold and broad expectations...

 Back in 2011 we identified what we thought at the time was either a Primary top or Intermediate top in GLD/gold, we were right depending on how you apply Dow theory, but we caught the top.

The red #4 represents stage 4, but the very end. As you can see there;s a gap down on volume which is the increased ROC or volatility we see between stages and in this case it's better known as "Capitulation", but capitulation doesn't mean instant or even near term reversal, markets often drop off a bit more and work on a stage 1 base for a while so I wouldn't go buying falling knives in the name of capitulation.

I've thought for a while that GLD was working on a base of some importance, it wasn't clear early on if it was a counter trend move or something bigger, it looks like something bigger that will likely lead to a primary uptrend in gold/GLD and I have suspected for a couple of months now that we'd visit the lower support area of this base before we get to a primary uptrend, which will make for a very nice long term trending trade when we get there.

First however, I've expected GLD to make a sort of "Counter Trend Rally" to the upside, a sharp rally, an impressive rally and that's what the UGLD and NUGT positions were for. If I feel there's at least a swing trade there I'll usually stay away from options and use an equity position or maybe some leverage like the 2-3x leveraged ETFs. I fully expect GLD to head lower after that CTR is completed.

 This is the 2-day 3C chart of GLD, the 2011 top which we had a lot of evidence for on multiple timeframes, the decline and the stage 1 base area (large) that we are in now, you can see 3C confirms all of it.

However on a "Counter-trend " basis as I expect GLD to pullback 1 more time in the base, the 60 min GLD chart is leading positive and tells me that a strong counter trend rally is likely before GLD heads lower to the lower part of that larger base seen above. This is the reason for the NUGT/UGLD long trade.

 On a VERY short term basis the intraday charts which were confirming or inline for the most part yesterday are not confirming the gaps up today, being the market and GLD/GDX tend to have a little bit of an inverse correlation at certain points...

SPY 15 min chart in green, GLD in red, note the inverse correlation at certain bounces/pullbacks... Taking this in to consideration, the intraday charts like the one above this make some sense considering the intraday charts of the market averages.

This 3 min GLD chart was in line, now it's leading negative, it doesn't look like a huge pullback, but no confirmation, a gap, and the rest of what I'm seeing tells me some pullback is likely before the Counter Trend Rally really gets to the meat of the move.

 The 5 min charts are what really did it for me, GLD above which had confirmation yesterday has none on the gap up today.

 As for the longer 10 min GLD chart, you see the base area and leading positive divegrence so I still think GLD/GDX will make a strong move up and if I didn't need the dry powder immediately I'd probably have no problem holding through a pullback with signals like this.

However even here you can see a current , smaller relative negative divegrence.

GDX

 GDX is a bit different than GLD, you can see it already put in a large base and moved to stage 2, it pulled back pretty deep and the 2 hour leading positive divegrence looks like it's going to move up with gold / GLD on the CTR. This is the reason for the NUGT long position

 However, like GLD on a shorter term basis like this intraday 1 min chart, there's no confirmation of this morning's gap up when we had confirmation the day before.

Even at 5 min where we had beautiful 3C/price trend confirmation, there's none now, that tells me in the near term GLD and GDX or UGLD and NUGT are likely to pullback a bit to the base area that is sponsoring the counter trend rally move that we see on 60 min and 2 hour charts.

Even the 10 min GDX chart is not confirming and thus in a negative divegrence, not huge, not worrisome, but enough to tell me its probably dead money for a few days at least, so why not use it elsewhere considering it was in the TRADING portfolio?

 The final straw for me was the confirmation in all of the assets and specifically here at NUGT 5 min negative divergence today with no confirmation, if there's to be confirmation, DUST should have a 5 min positive divegrence...

And there it is , 5 min positive for DUST.

So I think GLD and GDX likely pullback to about the April lows or thereabouts which should make for an even stronger counter trend rally up, I do NOT think this move is dying or over, I think there's just some rotation in to different assets and that may be because of a F_E_D leak of the minutes.

I'll be back in NUGT and GLD/UGLD long, I'll just let the market/3C tell me when.