Market Update

All I keep hearing is how longs (and traders in general ) are getting chopped up in the volatility of this market, yet we've had some of the best trades in the same conditions....

From Sentimental Sam (who tracks retail sentiment via several different sites- straight from the horse's mouth)...

" The twits are turning to chopped liver and EW guys advising not to trade a "B" wave as it's too easy to get stopped out."

*"Twits" being those that he tracks on StockTwits*

 I'd probably expect a max pain pin tomorrow, typically the pin is in the area on Thursday's close (Today's close this week because we are closed Friday). Remember that the pin usually lasts until about 2 p.m. and this is a monthly, not weekly op-ex. Usually around 2 p.m. or so the pin is lifted as most contracts are closed by then and price will do as it wants and usually have very little to do with trade the following week, however the 3C signals the last 2 hours of the day almost always pick up right where they left off on the next trading day, even over a 3-day weekend, assuming nothing horrible happens in Ukraine, but the market seems to be largely shrugging that off any way.

In any case, here are the charts...

 SPY 1 min intraday is still leading negative, it really "should" come down, but remember I'm not expecting much more than the pullback discussed yesterday.

SPY 5 min is showing a clear negative divegrence intraday as well, it's starting to lead which means it's picking up some strength.

 As far as the bounce/rally or whatever we want to call it, the base is still very much there as this 10 min SPY chart reveals so I'd like to get back in to some longs like the URTY position closed this morning, I'm glad I closed the Q's as well, they'd just be sitting there losing value ion this kind of market.

QQQ 1 min leading negative like the SPY

The QQQ 10 min base is still in effect and still healthy, but you can see today's intraday negative on this chart in relative form.

 The QQQ 15 min is "one" of the stronger 3C relative performers.

IWM 1 min is in leading negative position, but it doesn't look as bad on this one min chart, I suspect that is because as of yesterday the 3C signals in the IWM really started to catch up to the QQQ 3C underlying trade.

The IWM 5 min looks good, but it does have a relative negative today and that's a 5 min chart so it's a pretty strong signal for a pullback. The area of the head fake move yesterday which broke below recent support as well as the R2K's 200-day moving average, was VERY effective in accumulating that supply created by longs stopping out, the next chart demonstrates this.

 IWM 10 min, look at the relative positive divegrence cruising along and then at the head fake move down we get a leading positive divergence shoot nearly straight up.

As for the Index Futures...

 Yesterday I said we "use" to make short term trades on the positive 5 min chart of ES, ironically the short term QQQ calls worked out, now we have the same kind of 5 min signal that we use to trade very short term except negative.

ES 1 min isn't as noticeable, that's why I like slightly longer charts to clean up the noise, but you can still see negatives in the right places.

The NQ 5 and 15 show signs of a negative divegrence even though the overall main character of the chart is leading positive, however that doesn't lessen the reality of the negative in place today although on a relative basis (weaker) which fits with our pullback scenario.

TF/Russell 2000 futures (IWM) shows the same head fake I was just talking about and the divergence in to it, we also see today's negative action as far out as 5 and 15 mins so it should come to pass shortly.

I started looking to the VIX Futures for confirmation of what I was seeing in the Index Futures as well as the averages, that's when I noticed that there are strong enough signals there to warrant at least a spec trade, this is the 1 min intraday VIX futures trend, very positive.

Also note the flat range, this looks boring, but this is where we see the most underlying trade activity as they are sticking near VWAP and being quiet about what they are doing as to not attract attention before their position is put on, these are some of the best chart/price patterns to find strong 3C signals.

The 5 min VIX futes is leading negative as it should be considering all the other charts above, but has a relative positive like many of the charts above, just the mirror opposite as VIX trades opposite the market for the most part, that's the natural correlation any way, although we've seen it broken, recently at the February rally we saw VIX moving up as the market was as well.

 VXX 2 min

VXX 3 min migrating the divergence.

VXX 5 min with a small reversal process in place, it is proportional to the decline from yesterday and it looks like we even have a probable head fake move that just occurred in VXX, that's an excellent entry area for VXX calls so long as we get good confirmation which we don't have yet as it's still very early in the head fake process.

Trade Idea: VXX May $43 Call

I was putting together the charts for the market update and noticed that the VXX looks pretty good for a long, UVXY is the 2x leveraged version of VXX and can be used if you prefer to stay away from options. I think this would be a VERY short duration trade and that's the only reason I typically use leverage, so I'm going to open a VERY speculative long VXX May $43 call position, about half size of a normal position just because it's so speculative.

Quick Update

The intraday pullback should FINALLY be coming...

I'm likely not going to put on any trades here with April monthly options expiration tomorrow in addition to low liquidity because of the shortened trading week, if I do, there will be a VERY specific reason for it.

I'll have the market Update charts out in just a moment.

FXP (Short China)

Yesterday I posted a couple of times on FXP, the first FXP Update was to let you know that the 6+% move (+5.04% on the close) was looking a LOT like it was going to pullback today and fill the gap. I pretty much left it open for each individual to decide what they'd prefer to do in making it clear that it could be traded around, but that it also could be held and the draw down on the gap fill may be a little ugly, but it didn't change anything as far as FXP's reliability as a nice long asset as a short play on China.

As you can imagine, with China's Beat/Miss Q1 GDP last night coming out and generating the myth of PBoC intervention/QE which they have stated they will not engage in (but then again Bernanke said they wouldn't monetize the debt and look at what happened), it's no surprise that FXP pulled back in to the gap as expected (according to financial sources, on the expectation of QE on "poor" GDP results), but we had signals long before the Q1 GDP data even came out so either someone knew something or this is just typical market behavior which is useful as a concept, the perpetual and never ending gap fills of the last 5 years.

In any case, I like FXP as an add to or a new position if short exposure to China is something you might be interested in.

From yesterday's FXP Update ...

"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."

So it was pretty clear yesterday at 12:05 that a gap fill was likely today and perhaps a bit further...

If you are interested in FXP as I am, then these charts should give you some idea of how things are progressing...

 There are plenty of posts showing why we entered FXP long so I'm not going to go in to that.

Yesterday we ended the day with a bearish (semi) Shooting Star reversal, the tail is a little short, but few things in real life look like the cherry picked textbook charts.

Note the increased volume yesterday on the reversal candlestick making it MUCH more likely to be an effective reversal candle. Today we have a star candle on the daily, not a lot of downside momentum and right in the gap. I'd say before we get an upside reversal and continuation of the new uptrend, we will see a bullish candlestick with increasing volume over the previous day.

This is a 15 min chart of FXP, note the rounding "reversal Process" yesterday and large volume near the top which is often bearish "churning" telling us a downside move is more likely.

Today we are in the gap, we haven't filled the gap which is high probability.

 The 60 min chart and our lucky break down in FXP allowing us a great entry at low risk with a very strong positive divegrence.

The 5 min chart shows the very bottom with a head fake move before the upside reversal as well as accumulation of the stop run. Yesterday's leading negative divegrence is just more evidence of what was likely today.

As the 5 min chart goes, FXP still needs some work before it's a new long or add to position.

The 1 min chart is already showing signs of accumulation meaning this is a constructive pullback, not a decline. These are the kinds of pullbacks we want to buy, but they must be confirmed.

 We also have positive migration of the gap fill moving out to 3 mins which isn't a big deal, but the migration of the divergence is actually the important signal here.

 At 5 min there's a slight migration moving in to the timeframe which is good, but overall this chart is not there yet for a new position or add to entry (long).

Interestingly on my Custom DeMark Inspired "Buy/Sell" indicator we can see some accurate signals with a recent buy right at the very bottom which was also a head fake move, this is still in effect as a long position although we probably have at least another day of work and that's not counting options expiration.

All in all, things are going exactly as envisioned and this will give us a SCBO very soon in an area I want short exposure to, that's real diversification... China!

MCP is Looking Interesting

This is a long term core long position as well as a trading position, it had a head fake move below a small triangle...

 Daily chart's head fake under a small triangle...

This while there's been evidence of a major base - 60 min leading positive divergence.

Recently there has been a pick up in action as if it's getting ready to make a move.- 1 min

3 min

5 min trend

5 min local...

I'm still holding this one as a trading position, it wouldn't take much from here for me to put out an add-to or new position post, I'd keep an eye on this one, I will be.

Index Futures / USDJPY Update and QQq/URTY P/L

First here's the P/L for yesterday's positions opened, QQQ May $84 Calls and URTY long...

With the QQQ Call cost basis of $2.32 and the fill at $2.83 the P/L for less than a day's worth of exposure came to +22%, note how quickly the premium evaporated between the screen capture and sending the order. This is why I try to set up option trades (and exits) in a very particular way, I'm not looking for home runs, I'm looking for a tool to make a good looking signal a worthwhile trade. I know some of you were at +80% when you closed these yesterday and at least one person in the triple digits.

As for URTY (3x long the Russell 2000) also opened yesterday, with a costs basis of $75.36 and a fill of $78.59, the P/L came to nearly +4.3% for a few hours in the market, I intended to hold this one for a longer period, but I really though=t I'd just look in to re-entering at better prices given what I was seeing in the market.

Here's what I was seeing on the Futures/FX side...

Index Futures...

 This is the ES 5 min chart, we already expected some pullback today from yesterday's closing signals, a 5 min negative is to be taken seriously , at least in the context of what our expectations were by the EOD yesterday for the market averages.

I saw the recent negative divergence on an ES chart out to 15 mins so I took that seriously given the non-confirmation in the averages and what I saw in FX/Currencies...

The ES 60 min isn't as strong of a timeframe as the SPY 60 min, but it's still strong enough to tell us the short term story and that appears to be a short (perhaps intraday) pullback and the bounce we are looking for should still be on track considering this 60 min positive. This is not the only evidence for a bounce case by far, it's just a quick view of the case for a bounce.

NQ / NASDAQ 100 Futures has negative divergences on 1, 5, and this 15 min chart, considering the calls were in the QQQ, I took this serious as well. However, even the negative divergence this morning is still small in context of the larger accumulation that has been taking place, thus leading me to still believe we are looking at a SCBO (Second Chance Buying Opportunity) before we get a bounce , basically exactly the same as yesterday's late day expectations, only the overnight action didn't allow for a gap down.

 TF/Russell 2000 futures were also negative on a 5 min chart, this is stronger than simple intraday, but not enough to ruin the work that has been put in, it's along the lines of what we were expecting for today as of yesterday afternoon.

FX/Currencies/Carry Trades...

 The USD/JPY (green/red bars) is shown here vs ES/SPX futures and it has had a decent correlation as I mentioned earlier this week, the FX/Carry Trade correlation algos seem to be in the "ON" position, however as you can see, ES fell out of bed with the USD/JPY early today , right around the open and with some softness in the $USDX and Yen charts, I thought it was safer to just close those positions and regroup.

I checked the EUR/JPY (above) and AUD/JPY for correlation with ES and although EUR/JPY looks to be the closest RIGHT NOW, recent action suggests the USD/JPY is still the carry pair of choice.

Thus... since we don't get great signals on the FX pairs and we didn't have anything interesting, I went straight to the single currency futures that make up the pair we are interested in...

 This is the Yen 1 min intraday since about 10 p.m. last night to present, this suggests that the Yen see some modest upside which would pressure the USD/JPY as well as the Index futures and the market averages to the downside, along the lines of a pullback as we were expecting yesterday so this seemed like pretty good confirmation, why stick around and let those QQQ calls evaporate to a loss when the gain can be taken and a new position can be taken when we have solid data saying, "Time to buy again" as we nearly hit the exact bottom yesterday buying QQQ calls.

 The Yen 5 min is in line on the downside which is in line with recent market action, however to the far right there's a slight leading positive which is in line with the intraday pullback scenario.

 As for the other currency in the pair, $USD, this is a 1 min chart showing no confirmation on some early strength this morning...

The 5 min chart showing confirmation of the Yen's 5 min positive with a 5 min negative which again would pressure the USD/JPY and that would pressure the Index Futures as well as the market averages, likely to the pullback scenario from yesterday.

What may have bothered me the most was the 15 min $USDX chart as you see above with a negative a little larger than I'm comfortable with, especially holding calls, so that was that.

From here I just want to be careful, the real prize is shorting in to market strength so longs at this area are really opportunity that's a bonus, but it's not worth putting portfolio finds in serious jeopardy when the main theme for me is preservation of capital to be used to enter those short trades in to market strength, thus if I miss the upside move (I don't think we will), I'm not crushed at all, I'd rather miss it than take any unnecessary risks with dry powder that's meant for a larger trade. The real trade is with the 3C trend and that's short.

I'll be keeping close tabs on what's going on, we are approaching what will be a Holiday shortened week and you know those Wall St. types, always taking a 3-day weekend and turning it into 4 or 5 days at the Hamptons, so I'd expect liquidity to be dry at times which may facilitate even more volatility, WATCH THE VOLUME OF ANY ASSETS YOU ARE LOOKING AT, I've seen some pretty wide(r) than normal bid/ask spreads.

Early Update

Even though the futures got a lift overnight from Chinese Q1 GDP data which came in at 7.4% y.o.y. vs consensus of 7.3% and sequentially at 1.4% vs. consensus of 1.5% for an annualized 5.7%, well below the Chinese norm/expectations leading to speculation that the PBoC would enact some sort of easing which they have said several times (I'm paraphrasing), "If you are expecting QE/ Monetary Easing, DON'T!" on top of the news that Japan is going to downgrade their economic assessment leading to more QE/stimulus expectations even though Abe, the creator of Japan's Godzilla-like Abenomics has made it clear he's not looking for moor QE. On top of that the case is being made overnight for ECB stimulus sending futures higher.

I believe you saw what the market looked like at the close yesterday, it looked like a pullback was probable.

After giving the market a little time with its gap up I decided I didn't like what I saw short term as far as the May QQQ $84 and URTY long positions go (I'll post the P/L when things settle down a bit), here's a look...

 SPY confirmed the gap on intraday 1 min charts at first, but couldn't move any further, this is why I gave it as long as I did.

SPY 2 min charts could not confirm and as of yesterday's close, a move lower or a pullback looked very likely in the very short term (meaning early today).

This is the 1 min QQQ which showed a negative in to yesterday afternoon's close, that kept going on the open so no confirmation there.

The 2 min chart agreed.

And the IWM 1 min was the same, no confirmation on the 1 min intraday (I use these because they are the fastest to confirm or not).

 And the IWM 2 min chart needs no commentary.

As far as the bigger picture of a bounce, that still looks alive and well, although there are several things that I saw in Index futures and USD/JPY that I did NOT like as far as a market bounce near term goes, I'll post those in another post since I expect the market to be moving soon.

 5 min IWM (this is just an example timeframe, there are stronger charts)

 Such as the SPY 30 min positive divergence

And the QQQ 10 min positive.

I basically went flat on short term trade while maintaining my heavily short bias on just about everything else.

I'll have the P/L for those positions as well as the futures out as soon as it looks like I can take my eye off the market for a couple of minutes.