A Quick Visual...

In reference to my last post... EOD Update Here's a quick visual of what I'm anticipating based on the charts for tomorrow. I'm using the charts for URTY (3x long IWM) l as a proxy for the broad market because there's not much difference.

 1 min intraday, even though we are leading positive, the late day action has a small negative divegrence and as you know 3C charts almost always pick up where they left off the next day, so maybe a gap down in the morning which is fine...that's part of the SCBO (Second Chance Buying Opportunity).

 The 5 min chart of URTY is leading positive in a big way and a lot of that came from the head fake move we anticipated yesterday in this post... Broad Market Update

Once you have a divergence like this, it's a pretty solid bet.

I said we'd need to see a move below yesterday's lows as a head fake move and a reversal process as well as accumulation in the reversal process, I think the flying leading positive coming out of that 10 min chart at the reversal process qualifies as what I was looking for.

And having a 15 min chart like this that is leading positive with a broad foot-print is pretty hard to imagine failing.

Now, putting a bow on it.

You may recall an earlier post from today as to what I thought the close might look like, it was QQQ Follow Up posted at 1:57 p.m.

This was the specific closing candle I drew, which is was what I thought was the highest probability close for today...

Note what price looked like on a daily chart when I posted this (the last green candle to the far right), a bearish Engulfing candle-as ugly as could be. I said I thought we'd end the day not only with higher volume, but with a bullish Hammer Candlestick which is a bullish reversal and I drew an example in yellow to the right.

Now, here's the Daily closing candle for the QQQ today...

That's a Doji/Hammer, bullish reversal candle and the higher volume than yesterday makes it about 2-3x more likely to work as a reversal candle, so we went from the ugliest candle to almost EXACTLY what was predicted hours earlier based on the charts we were seeing at the time.

How does this tie in to the intraday negative on the URTY chart above?

When you have a reversal candle the next day often gives you a confirmation candle and they are often (in this case) "Bullish Engulfing Candles", to form a bullish engulfing candle the market would HAVE to gap down on the open and close higher at the EOD, it would look like this...

I drew in the example to the right in yellow, it may not look EXACTLY like this, but the main two points are an open lower which is what the candlestick in yellow depicts as it is a hollow candle, not filled in and a close higher, that is bullish confirmation of a reversal candle and may very well explain why the intraday 1 min URTY chart is both leading positive (bullish) and has a small negative divegrence that should pick up where it left off tomorrow morning, such as the kind of gap down needed to form this exact Bullish Engulfing candle, one of the strongest forms of confirmation.

So in conclusion, I'll be setting alerts for the next few hours and then tomorrow as they go off, we'll check the asset, see if it has the divergences it was missing today, here's an example...

Ultra Long BioTech 

 The 10 min chart looks great, this looks like a long, but I need the short term charts in line positive as well.

The 1 min chart is positive, but it needs to migrate to the next timeframe and connect with the 10 min...

At 2 min we have no positive, thus I could have put this out as a long, but for high probabilities, all of the charts from 1-10 min should be positive.

As you know, smart money doesn't chase so a slight pullback would allow that accumulation to occur just as it did today with the head fake move below yesterday's Tweezer Bottom.

The whole thing fits together beautifully. I'm going to confirm or try to confirm on some other charts, assets, futures, indicators and put in my alerts for assets like this one, a pullback to $61.60 or so may be all that is needed to turn this in to a high probability long position.

EOD Update

It looks to me like we'll have a SCBO tomorrow, "Second Chance Buying Opportunity".

There are quite a few assets that are just screaming on 10-15 min charts, some out to 60 min, but there are others that still need a bit of time and an early pullback looks pretty high probability, likely part of the reversal process range, although I doubt at this point there would be a lower low.

So I have a watchlist I'm compiling of assets that look really good, just not quite there yet, GS, GOOG, AAPL, maybe VXX, etc so tonight I'll be putting in probably 100+ price alerts for these assets I've compiled, but it looks like we have a good set up here and a little more time to get in to some additional assets.

The NDX Biotech index or IBB is one that is looking very interesting, the leveraged short version, BIS is falling apart fast, the long version BIB hasn't moved positive to the same degree that BIS has fallen apart and I'm sure that's because of some gun-shyness, but that looks like it will be an interesting one tomorrow as well so hang in there, I think we have a neat opportunity.

FAZ Trading Position Update

You'd think with longs in the Q's and IWM I'd be closing the FAZ (3x short financials) position and I don't doubt it will see some drawdown, but looking at the signals there, I just can't justify closing the position especially knowing what the primary underlying trends look like, this may change as the market does every minute, but for now, I'm leaving some short leaning trading positions ( core shorts  in place without question) in place... at least for now

IWM / URTY Long Follow Up

I like to have some calls or options if the set up is right which it was today with the lower low in the Q's, premiums were lower, it was easy to buy the weakness with strong 3C signals, however,  as you know I want to be in and out of options as soon as the first sign of a loss of momentum shows up, hanging around trying to greedily score a 3 digit gain has cost me a lot of money in options, they're like Vegas as far as I'm concerned, you sit there long enough and the house wins.

So I also like to have something that I can hold for a longer time without the concerns of time decay and some of the other things that make options different than stocks, thus the URTY long position will allow me to catch more of a trend if it's there to take whereas I might be out of options earlier and not be able to take full advantage of the complete trend. For me in a position like this, a 2-3x leveraged ETF is ideal and the IWM started really coming alive today.

Here's a look at the charts, you can probably get a bit better positioning intraday, but for me it's not worth the risk of waiting.

 IWM intraday may offer a little better entry...


3 min is seeing migration of the divergence

The 5 min is flying with a leading positive right at the head fake move below both support of price and the 200 day, so a nice head fake move there and it is clearly responding.

Look at this 10 min chart fly as the head fake move is made, this is exactly what I want to see with a head fake move and confirmation.

This 15 min chart just looks a lot better than it did last week.

We even have positives all the way out to 60 min charts here.

As for URTY, here are a couple of interesting charts.

10 min leading positive right at the head fake move

And the 5 min trend is pretty darn impressive at this point.

I have other assets to check.

I did choose the IWM and Q's over the SPY for a reason, if I see something that I really like about the SPY I will post it.

Trade Idea: Entering URTY Long (3x leveraged long Russell 2000)

This is a trading position, full size.

Watching Other Assets

I want to make sure any asset that is entered as a new position (trading or otherwise) has the signals to confirm the trade. One asset I was interested in was XIV long or SVXY which are the inverse of VXX (Short term VIX futures).

However, I'm not seeing the signals that I'd like to see yet, even though VIX futures themselves have given some good signals. You have to remember that VXX is "Short term VIX Futures,", a rolling 2 month contract, not just 1 month and we just had a roll so I want to really make sure.

There are tensions flaring in the Ukraine once again as the government's Monday deadline for pro-Russian fighters to lay down their weapons (mostly in the Donetsk area) where they have captured government buildings and at least 1 airport in Eastern Ukraine, passed with no action from Kiev which led to Maiden protestors calling for the interim president to step down as there seemed to be no beef behind the threats, well that changed today as Ukrainian forces entered the Donetsk area and at 1 airport that was under pro-Russian militia control, at least 4 SU-27 Russian fighters opened fire on the airport under Pro-Russian control, apparently some people were hurt or killed as ambulances were rushed to the scene, but it appears Ukrainian forces have retaken the airport despite the Russian intervention from above.

So VIX futures may be an interesting asset even in a risk on situation as a hedge.

This is what VXX and XIV (the opposite of VXX) looked like as of a few minutes ago.

 The green "X" marks about the time the Russian SU-@&'s were firing on the airbase, VXX intraday just doesn't look as bad as VIX futures intraday.

VIX futures intraday 1 min

The 5 min VXX would have to look worse than this before an XIV position could be considered, but the point is any asset I put out today or soon will have to have the charts to stand on, not just anticipated or normal correlations that most traders would expect.

VXX 60 min is a different trend, you might call it the May/Sell and Go Away trend or the stage 4 lower low, we are not at that trend yet and a bounce in the market will only help this trend so it will almost certainly be a great trade, just not yet.

As for the actual long asset being considered, XIV (similar to SVXY, just on the NASDAQ rather than the NYSE)...

 The 10 min chart has some promise, there are other charts though that need to look the same, that's what I'm missing and I'd rather miss the trade than to take a sub-optimal position.

 For instance, the 1 min chart for XIV has a positive, but not what I'd expect to see, this may change.

at 3 mins we are in line, not what I want to see with a 10 min positive like the chart above.

And the 5 min is not anywhere near a long for me, this doesn't mean the market won't still be acting as expected, it may very well, we just can't assume that because the VIX usually travels opposite the market that it will this time especially being there may be a need to hedge long exposure due to events in the Ukraine.

QQQ Follow Up

So as of yesterday we were looking for a few things to happen before entering some new positions and I'll likely be throwing some other ideas out there. Here's a quick look at what I liked about the Q's.

 This is the small "W" created yesterday that gave us the Daily Candle Tweezer bottom, it was obvious support and a head fake run on stops below it was what we were looking for to enter calls today as I prefer to enter them on weakness/lower premiums.

We also needed a reversal process, since the head fake was so small, the reversal process didn't need to be very big as they are proportional.

 This is the QQQ reversal process.

On a daily chart the idea was yesterday's "Tweezer Bottom" didn't look like the final reversal because typically volume would be higher than the day before which it wasn't yesterday, as of this capture volume is right about on par with a couple of hours left, I can easily see volume up and a possible Hammer reversal candle which would be a strong short term reversal signal, they don't have much in the way of implied targets, just that the trend will change.

I drew a possible scenario for the EOD daily candle in yellow which will be on higher volume than yesterday making such a bullish reversal candle much more effective.

We also needed to see positive divergences in the head fake area which we see on this QQQ 1 min chart as well as others.

 The 3 min chart is leading positive at the head fake stop run and we already know that charts out to 15 min are positive for the Q's.

As for some confirming indications, the VIX futures move opposite the market...

 The intraday VIX futures have a negative divegrence here on the 1 min

 And a 5 min divegrence that is almost the mirror opposite of the  NQ 5 min chart so that's good confirmation in an unrelated asset (somewhat unrelated).

 NQ 1 min also shows a leading positive 1 min at the head fake area so Index futures are confirming the averages as well.

And the NQ 5 min stayed leading positive through the entire episode, I couldn't ask for much more for an entry.

I'm going to see what else may look decent out there.

Trade Idea: Opeing QQQ May $84 Calls

I think I'll go with a full size position here.

Going to be entering some QQQ Calls Soon

Likely these will be May $83 or $84, I think we are at a pretty close level.

Later I may look at something like URTY long (3x long IWM) as it seems to be setting up a bit better too.

FXP Update

FXP, our short play on China is slamming this morning, up +6.23%. I posted this idea numerous times and reiterated it numerous times to the point I felt like I was probably getting annoying with it, but I really like the position.

Right now I'm trying to decide whether to take the position off for a bit for a gap fill pullback or just leave it. "IF" this were an options trade I'd be taking the position off, waiting for a pullback to fill in some of this morning's gap and then re-enter, but as a trade that was envisioned as at least a swing trade and likely a position trade, I think I'll just keep it open as I have little doubt it will be higher a week from now.

First there's a lot more weakness in China and especially their credit system (I mentioned yesterday that banks are issuing preferred shares to raise a capital buffer over growing credit concerns), there are numerous other problems as well that we first caught on to about a year and a half ago like hot money flows from Japan and the US, the high Yield Bond market with investors seeing it as a no lose game, thus China which has been preventing defaults by making interest payments for companies in trouble, went ahead and let a few default, Chaori Solar was the first. Shortly thereafter the banks put in cash calls to these businesses that had mostly put up iron ore and copper as collateral for loans (largely mining companies), this is what drove and keeps driving iron ore and copper prices down as these companies scramble to sell their collateral to meet the banks' cash calls.

In any case, things just keep getting worse which is one reason I'm so happy we were finally able to find a short play in China (you may remember we were looking at aluminum as a possible next sell-off commodity to play China short, then FXP gave us the break we were looking for all of 2014).

Overnight the Shanghai Composite was down -1.4%, worse than its other Asian market peers, this was largely on the back of yesterday's weak Money Supply data and growing concerns about tomorrow's GDP data that many think will reflect a deeper slowdown in China than previously thought (why are these guys so late to the party?).

As for the charts, I'll show you why I was "considering taking gains and re-entering on a gap fill and why I decided to just stay put and where I think FXP (UltraShort FTSE/China 25) is headed.

 This is the uptrend channel for 2014 that wouldn't let us in until a recent Channel Buster, you can also see a bullish reversal candle at the lows with the typical increasing volume that makes them that much more effective, this morning we are up over 6.5%.

I believe as with many Channel Busters, we will not only hit the BTC or stops inside the channel, but many times these channel busters move right through the top channel before settling down.

*Note this morning's gap as well, there's a high probability that it is filled and 3C agrees on intraday charts.


This is the intraday chart of FXP, you can probably see why I'd be taking call option gains here.

 This 60 min chart shows distribution INSIDE the channel "1" and on the Channel Buster break, large accumulation "2", it appears smart money was well aware that China was going down the tubes and decided to pick up some FXP on the cheap.

 Intraday we have a series of negative divergences through all intraday timeframes, they may move to inline status, but gap fills have been the rage for the last several years unfortunately, I'd guess we'll see a gap fill, but with a 60 min chart looking the way this one does, I have no problem just riding it out.

Second Market Update

If you set the price alerts for the ETFs of the major averages that I suggested yesterday and again this morning that will tell us when we have moved to the "area" of a head fake move, then you should have already received notifications that the QQQ and IWM triggered, the SPY and DIA have not yet, so it looks like what we were seeing yesterday and last night and expectations based on those charts, at least so far, are right on track, but I'll keep watching as that is one of several possibilities, just the one I feel is most probable and actionable as well.

As for current charts...

 This is the 1 min Yen, remember all we needed was for the Yen to appreciate and the $USDX to drop, we found some signals yesterday that suggested this would happen, at this point if you haven't read last night's Broad Market Update you might want to skim through it as thus far all of our expectations BASED ON THE CHARTS, thus far have played out.

The point of understanding the post from last night is understanding what we are expecting next and where the market becomes actionable for a high probability/low risk trade or set of trades and how that fits in to the bigger picture for the next round of trade set ups.

In any case, the Yen moved up on this morning's 1 min chart as I was thinking we'd see, but we'd also need the $USD to move down to effect the USD/JPY and market, or at least it would be more helpful...

And at the same time the Yen moves up, the $USDX moves down... this causes the USD/JPY which is now correlated to the Index futures fairly tightly to...

Drop as well at the same time, here's the effect it has on SPX futures at the same time...

ES 1 min

Thus the effect on the broad market and our head fake target areas have now been hit in 2 of the 4 averages.

Last night I showed 3 5 min charts of SPX, NASDAQ 100  and Russell 2000 futures (ES, NQ and TF), ES had a negative divegrence near term suggesting it would pullback which fit well with out head fake concept, especially given where we are in the larger "W" and yesterday's "W" that created the daily Tweezer bottom which is a very visible area for stops to be lined up under, thus a high probability head fake area and a good looking area to enter some longs so long as we can confirm accumulation and a small reversal process (all of this was covered in last night's post).

I didn't quite understand why TF and NQ didn't have the same 5 min negative that ES had which looked like this as of last night...

Even though we have an overall stronger positive in Es 5 min to the left, near term divergences to the right suggested this morning's price action, I didn't understand why TF and NQ didn't have the same divergence, but it wasn't anything that bothered me much. 

Now looking at the same chart of TF from last night or even today...

The fact that we have a move down toward the head fake area and a leading positive divegrence gives us EXACTLY what I said we'd need to look for, CONFIRMATION OF ACCUMULATION AT THE HEAD FAKE STOP RUN LOWS, so it actually worked out fine, I just had not looked forward enough in TF and NQ being events suggested by the charts had not yet played out.

 As for the SPY right now on an intraday 1 min chart, the negative intraday at this morning's highs are clear, the leading negative suggests that SPY will move toward our downside head fake targets.

I also said last night that the SPY 10 min chart was showing a stronger SECONG bottom divergence as it should in a larger "W" base, but it still wasn't that impressive that an upside launch looked imminient, thus a head fake move lower actually allows this chart to improve, actually any downside that is accumulated allows the chart to improve and give us more confirmation as to when it's time to start entering long positions for a bounce/hitch-hiking trade.

The yellow trendline is the area I gave as an alert area.

The "b1" is the first base of the "W", the "T" is the middle or top of the "W" and "b2" is the second base of the "W". The entire "W" formation WITH its head fake already built in can be seen below in the yellow box across the time scale.

 QQQ 1 min intraday, note there's no distribution as it turned down this morning, this is actually good for a head fake scenario and a long trade set up as it reflects that they are not letting out accumulated shares, but holding on to as many as they can being they only have a limited amount of time to put together their position and they are in much larger size than we can conceive.

 The QQQ 15 min chart and where the "W" area is on the timescale in the yellow box, also the head fake area or support at the small yellow trendline which has already been hit as well as a larger second base leading positive divegrence as we'd expect to see in one larger base rather than two distinct events.

The IWM which has already moved below support or the area I gave you for an alert and is already showing signs of accumulation, although for a real and effective head fake move, more downside and more accumulation as well as a clear reversal process for this move down this morning are also needed, this "can" all be achieved today.

IWM 5 min looks impressive as a divergence, but the fact it's only 5 min is a little problem, we want to see this move out to 10 or 15 min with the other averages, watch the price action around former support that was just broken this morning, that was the IWM $109.65 target I gave you last night and this morning.

So far, so good.