GLD Target Revision

For long term members, GLD/gold has been a fascinating ride, whether the bubble and the gold-bugs mentality in the face of objective evidence, the hedge fund manager who brushed me off when I warned him about Gold topping only to see gold top a month or so later, the whole QE-driven asset scheme and the gold/silver manipulation.

For those who haven't been around years, we were looking for a potential entry in to GLD as a long back in 2011 and instead we ended up calling a top and not only a top, but calling the Primary bear market gold would later enter.

Over the last year+ we have been looking at what we first thought was a counter trend move or a bear market rally, then it became more evident that we were looking at a base, but we still weren't sure how big it would be. Now it seems we have a significant base and Gold should enter a new bull market phase/primary trend.

As you know I've been looking for a deep pullback in GLD to complete the base and send GLD to mark-up, basically a trending position to the upside, but lately I've been studying the charts and think it's time to revise our base target which has implications for GDX/Gold miners as the correlation there is so close.

Here are the charts.

 This is the QE-Driven trend in gold as the fear of deflation is what drives gold prices, note I said the "Fear of deflation" and with the F_E_D dilluting the $USD, that's exactly what the fear was, you'll note some of the biggest gains on Gold were made during QE periods.

This is a 5-day chart so I could fit the trend on 1 chart and I'm using a 30-bar moving average, but it was the 150 day moving average that worked like clock-work from 2009-2010 and part of 2011, every time GLD pulled back to the 150 m.a.a it found magical support. We were looking for such a pullback when GLD made an odd, increased ROC in price to the upside, nearly parabolic at #4, as you know, "Changes in character lead to changes in trends"  and especially between stages, we tend to see a lot of changes in character like these parabolic moves that look very bullish, but are telling you, "Be careful, tighten your stops, a top is coming" and that's what we saw at 2011-2012 in the form of a large symmetrical triangle. This is when we backed out of any idea of a gold long and started looking for GLD shorts , we had a few very successful short term option trades during this period and then Gold did what we predicted when it was still in the top phase, it moved to a primary bear market as defined by trend, not the media.

Im 2013 we started to see a more bullish trend emerge.

This started off looking like it would be a counter trend rally within a downtrend or bear market, but it kept building a lateral base of immense size, this should make for a fantastic trending long position soon, but first we expected a move back down to the lower trendline, perhaps a head fake/stop run and then a new primary bull trend, however recent events and charts look like we need to revise our expectations for GLD.

 This is the 2-day 3C chart of GLD from distribution to increasing accumulation as the base develops, note where the divergences are...at the lows along the support trend line.

However recently I noticed the 4 hour chart looking very impressive, much more so than the pop to the upside we were expecting before a move to the low end of the base's range.

Here's a closer look at the 4 hour chart, no counter trend pop needs a 4 hour chart's positive leading divegrence, this looks like something bigger and looks like a classic bottom in the form of a "W", although it is within the larger base range, I just can't imagine this divergence giving way to lower prices other than a head fake move.

 The 2 hour chart shows the "W" as well and an increasingly strong leading positive divegrence where it is already very strong as seen on the multi-day chart above.

Finally even the 60 min chart is showing this area as looking like a base and why form a base here for a counter trend rally that doesn't need accumulation of this size? I suspect we are at an area that is about as low as gold will go on this base any way.

So, I'm revising my target from the $114.50 area to the $123 area which we are currently close to. I'd still be patient and let this finish and what I mean by finish is the support of the "W" is obvious, that means it's a likely head fake/shakeout target and that should be an excellent timing flag as to when we might want to start loading up the truck with long GLD trend or core positions.

The correlation with GDX is very tight and it looks like GDX already put in the lows of its base as well...

GLD daily chart (green) vs. GDX (red), that's a tight correlation and I suspect both are very close to very nice looking long positions, but  if you are interested in either asset as a long play, keep in mind this correlation for diversification. I'm not a fan of over diversification, but in this case I think the two positions should almost be treated as one as far as position sizing goes as they are so similar.

We'll track the specifics re: and entry next week, but for now I think changing the base/bottom expectations is a very significant change to our expectations , how and when we trade GLD or GDX.

FAZ Position Management

Yesterday I put out a trade idea, Trade Idea: FAZ Long toward the EOD. Today FAZ has been up over 3% and I could trade around it by taking those gains, but I feel the same way about FAZ as I do about VXX calls and SRTY long (both are giving me short exposure to the market) that I just posted, VXX Call Position and SRTY long Equity Position Management

Just as we saw earlier today with the market averages first and then the VIX futures, it looks very much like we get this continued noise/chop which has kept me from loading up the truck as I don't want to have a bunch of exposure out there and no dry powder in a choppy environment so I decided to keep most of the short exposure in the trading portfolio as well as some options, but not add to them until I feel we are at the right place and time to do so, my gut feeling from the charts is that will be early next week, Tuesday I'm thinking as of right now.

So I'm going to leave FAZ long (3x short financials) in place.

This is what the Financial sector looks like just so you know (XLF)...

 XLF 10 min is right in line with the market averages on the same timeframe, in fact XLF looks worse than most of the market averages so I think this is the highest probability and I want to trade with the highest probabilities.


 Even the 5 min chart (which we even saw some of the averages looking bad on this timeframe too, the QQQ specifically) doesn't look good and the positive divegrence is today (white) with a very small foot print and a very small divergence, at least thus far.

 This is the 2 min trend, leading negative with a relative positive today, this tells me the same thing, near term bounce like we have seen up and down the last several days and it looks like the negatives are just piling up even larger for a significant downside move, the one we are waiting for as far as adding positions.

This is a close up of the 2 min on an intraday basis so I do expect a pullback in FAZ, but this is such a weak divergence in Financials that I really don't want to let go of the FAZ position, I learned that lesson trying to get too fancy trading around AAPL when I knew the probabilities of a decline were very high, instead I was trading around small signals like this for better positioning and missed the initial move that led to a -45% haircut in AAPL.

VXX Call Position and SRTY long Equity Position Management

Both of these positions were opened for the decline stage 4 of the recent bounce. From earlier analysis it looked pretty clear that near term (2-3 and some 5 min charts) that we'd see some market upside, this seems to be an extension of the choppy noise that has dominated the later part of this week and I expect it to be another short duration move, perhaps a day.

However, the signals for the downside in the averages and in VXX/UVXY (long) look good so as far as SRTY (long) and VXX calls go, I'm going to leave them both open even though I know it's highly likely there will be some near term drawdown, I think it's not going to be a problem and I want to maintain that short exposure. 

The FXI long gives me a little diversification (which is hard to find in the US equity space right now).

Closed FXP trading position long, opened regular size FXI trading position long & FXI Calls

I closed the FXP trading position long...

There's no point in being long FXI and FXP is there and FXP looks ready for a pullback.

I opened an FXI equity long trading position to replace the one above and also opened FXI May 17th (expiration) $34 calls.

The Call position is a little smaller than usual since there's already exposure in FXI equity long, I basically tried to make it about the size of a normal trading position.

Trade IDEA: FXP / FXI (LONG)

I fully expect FXP to pullback and fill in some of the gaps and at that time I want to get long FXP again, but for the very near term FXI (China 25 ) long looks very interesting, it's not the high beta I'd prefer, but still looks solid for a swing type trade. I might even consider a call option in FXI as there''s quite a bit more volume there than FXP.

 THIS IS THE REAL TRADE I'M INTERESTED IN LONGER TERM (LONG), FXP (SHORT CHINA 25).  This is a channel buster so resistance around the lower channel after it broke down is not uncommon, but at some point these tend to blast right back in to the channel and often to the upper end of it and as you know I like China short for a longer term play,  but for now it looks like FXP is going to pullback which makes FXI (long China 25) which has much better volume, look intriguing.

Note the Doji daily candlestick on a gap (Evening Star Doji-almost shooting star)... that's  a bearish reversal candle (down). Volume doesn't look very good either.

 This is the longer term FXP 60 min chart and the negative followed by the positive which we bought and then sold with a gain looking for a new entry on a pullback, this may be that pullback, but why not trade it with FXI long (effectively short FXP)?

This is the near term 3 min chart for FXP, it looks a lot like a strong pullback signal here which makes FXI interesting as a long.

Here's FXI's daily chart, a head fake/stop run with a bullish daily reversal candle...? Looks that way.

Here's the 60 min chart for FXI, it was negative as FXP was pushing higher off the lows, but now we have a positive divegrence in FXI.

The 15 min chart looks great as well.

And the 5 min chart, so timing thus far also looks on track, both 3C and daily candlesticks.

Here's the 2 min intraday chart, this is a VERY hard chart to ignore.

I'm likely going to enter at least a long FXI position, but I'd like to add a little leverage to it so I may take on some May 17th $34  Calls.

I'll let you know whether I go for the calls, but I will at least take an equity long in FXI for now.

VXX / UVXY Update

We have some VXX May $43 Calls open, this is essentially exposure that is short the market as VIX/VXX/UVXY have an inverse relationship with the market.

I'm looking at these charts and finding that they have a LOT in common with the market averages I just posted here, Pre-2 p.m. Market Update .

Again, I feel that these will be fine, but I would like to add to the calls if there's an opportunity or perhaps pick up VXX or UVXY as a straight equity long position for a longer trending trade. I prefer to use the leverage of options for very short duration moves to capture initial momentum, but I usually want to be out before they can correct. However if I think there's a good chance of a trade that has at least enough duration to be considered a swing trade, then I don't like as much leverage because I want to be able to sit back a little and not get too concerned about simple, normal corrections, not worry about time decay and just let the trades work.

From the last post, Pre-2 p.m. Market Update, the general idea looked like VERY short term we could see some more choppy noise, but this time to the upside (recall the 2, 3, min charts being positive, etc.), however when we got to 10 and 15 min, even 5 mins for the IWM the charts look very much like we not only move to stage 4 for the bounce that started around April 15th, but we make a new low in all of the averages below the February lows, essentially a larger, more important trend.

Volatility looks very similar... *remember that VIX related assets trade opposite the market so their signals should be opposite the market averages for confirmation.

In the 2-3 min range....

 2 min is pretty much in line with price, this isn't very different than the market averages which were all in line with price at the 1 min charts except for the DIA.

At 3 mins we see a positive divegrence at the rounding reversal process, this is negative in the average and we have a slight negative divegrence today whereas the market averages have a slight positive divegrence suggesting VXX pulls back a little while the market bounces a little, both still seem to be within the realm of the noise / Chop of the last several days.

 The 5 min chart has a leading positive at the reversal process lows as the market averages have leading negatives in the same area, but in the immediate area the signals are weak negative while the averages are weak positive.

If you recall with the averages it was the 10-15 min charts that really were showing clear, strong signals that were negative and leading negative.

This VXX 10 min is leading positive at a new high for this chart and all of April, the opposite of the market averages which is the kind of confirmation we look for.

The 15 mi chart is doing the same thing, again confirming the idea of a short term bounce/noise likely on a daily basis, but the larger trend is coming unravelled as we have already put in head fake moves at stage 3 of the market averages.

Just to take it a little further, the 30 min VXX is leading positive in a big way at a new high for all of April and half of March, likely more.

This confirms the action seen on the last post, Pre-2 p.m. Market Update

The general idea of the last post (seemingly confirmed here ) was,

"right now the charts all seem to suggest that we are correct in largely sitting on our hands as this day to day noise/chop that is up one day and down the next looks set to continue to dominate for at least another day, however, it looks very clear to me that this market is transitioning to stage 4 from this bounce and this bounce in actuality is a volatility shakeout for the SPX and DOW so the downside implications are beyond taking out the lows of April 11th, they are about taking out the early February lows in my view."

I see nothing in VXX/UVXY or VIX Futures that contradicts the thesis above.

Pre-2 p.m. Market Update

As you know, typically around 2 p.m. on an options expiration Friday the character of the market changes as the max pain pin is lifted, price does whatever it does which I'm not too concerned about from an analysis p.o.v., but it can be helpful for positioning. The real information is what happens in those last 2 hours on the 3C charts as they tend to pick up on the next trading day right where they left off, even over a 3-day weekend.

So lets see what we have before the 2 p.m. hour comes around.

As I said in the QQQ post, I think the May puts will be fine, but if I can book a little gain and re-enter at a better price, all the better so I had an idea of what would be reeasonable for me with a limit order and put it out there and it got filled.

This is the QQQ May $87 Put P/L

At a cost basis of $1.72 and a fill of $1.82 the P/L is not stunning, but 6% in this choppy noise is better than a stick in the eye.

As for the market and why I think I can get a better entry, thus the reason for closing the position to free up some dry powder... The SPY, QQQ and IWM intraday 1 min charts are all in line, the DIA is not, it's positive.

 DIA is the only 1 min intraday chart that is positive, the rest are in line or a bit worse, it's the slightly longer charts that look (so far) like a continuation of the noise trend that has plagued the market the last 3-days or so.

SPY 2 min is an example of where the charts start to shoe modest positive divergences in short timeframes.

 Here we have evidence of migration from the 2 min to 3 min SPY chart, so a bounce (of the noise variety) seems likely so I think it's okay to take the Q puts off or leave them on.

The SPY 10 min is where we see the higher probabilities beyond noise develop. This chart is leading negative and there's a gap area that makes a lot of sense for a noise bounce, but we'll see what the charts say over the next few hours.

The QQQ doesn't give any signal until 3 min, it's similar to the SPY so that lends some credibility (confirmation).

 However as early as 5 mins for the Q's, the divegrence is leading negative at a new leading low for the last several weeks, this is an important chart and why I think the QQQ puts for May would be fine.

 QQQ 15 min is also leading negative in a big way on an important timeframe, so I do want to re-enter the QQQ puts ASAP at a better price point if possible.

The IWM 2 min lends more confirmation/credibility with a 2 min positive, thus a decent reason to take what I can of the Q puts with the intent of adding them back at a better price point, less risk and "maybe" a slightly longer expiration.

The IWM 3, 5 and 10 min charts are all in line which is ugly as price is down and 3C is following it nearly perfectly. The 15 min chart really takes the charts from in line which is bad enough on a move to the downside and introduces the leading negative divegrence that has already made a new leading negative low.


Although I fully expect the last 2 hours of the day to give us some interesting information, right now the charts all seem to suggest that we are correct in largely sitting on our hands as this day to day noise/chop that is up one day and down the next looks set to continue to dominate for at least another day, however, it looks very clear to me that this market is transitioning to stage 4 from this bounce and this bounce in actuality is a volatility shakeout for the SPX and DOW so the downside implications are beyond taking out the lows of April 11th, they are about taking out the early February lows in my view.

Closed QQQ May $87 Puts

I'll look for a better entry...

QQQ Puts ... I know... but...

I'm going to put out a limit order on the QQQ puts and see if they get filled, I'd like to re-enter them at a better price, maybe even extend the expiration a bit.

I'll let you know if they get filled.

QQQ Chart Update

Earlier this morning I was trying to decide whether or not to book gains in the May QQQ $87 put, I think if I had it wouldn't have been an issue and from what I'm seeing on the charts, the fact that I didn't isn't an issue as the expiration is May standard, so the third Friday of May (17th) which is plenty of time.

There was a double digit gain in these this morning, low double digits, but I would have likely re-entered them at a better price. In any case, I think they have enough time and the charts are bad enough, the stage of the current bounce is far enough along that the slight loss that they are at now (about -4%, that's how fast things change with options) isn't a concern and I think these will return a healthy double digit gain in the mid to upper range.

While I was capturing the charts intraday for the QQQ, I just went ahead and grabbed a few more to give you a more complete picture as I did earlier in the week with the SPY.

 This is the 1 min intraday QQQ chart, note the leading divegrence (negative) to the left, simply compare price at two approximately same areas and 3C at the same areas, is it any wonder the Q's lost ground intraday or short term?

There's a small positive divegrence at the time of capture which was probably 30 minutes ago, it has added a bit to it. Remember, the op-ex pin tends to be lifted around 2 p.m. when most option contracts are closed and price will do whatever it wants and have very little to no bearing on next week's action, however the last two hours of 3C signals on Friday have been very useful to set the theme for the start and sometimes the entirety of the following week so despite price action, it's the 3C signals that contain the most useful information.

Now look at the same chart (1 min QQQ) over the bounce cycle. You may recall as I have reposted it this week, April 11th we knew there was going to be a bounce and I even posted the upside targets I expected which have been hit in 3 of the 4 averages.

This is a pretty nasty leading negative divergence for this cycle.

 This is the 5 min chart with the same "bounce" cycle, note the head fake move BEFORE the upside began and the head fake move BEFORE the downside began, this is why I look for these moves as "Timing markers".

This 5 min is leading to a new low on the chart (3C).

The 10 min covers almost all of the February cycle, which is probably what I'd consider to be the sub-intermediate trend, nearing a more important intermediate trend. There's a clear succession of lower lows and lower highs and as you may recall, one of the last "lower highs" was my upside target to break up the trend and change sentiment to bullish from bearish. However, any bulls are likely to be fleeced as 3C is at a new leading negative low for the 10 min chart going back through the entire February cycle that has also been completely retraced by price,

 Here's a closer look at the 10 min chart within the context of the recent 4/11-15 bounce , note the head fake moves BEFORE the move starts on the upside and as the move starts on the downside, this is the noisy area of the last few days I've been trying to steer clear of.

From this chart alone I feel it's safe to hold the May 17th QQQ puts.

 The 15 min chart with the April 15th bounce, again the head fake moves stand out at the yellow trendlines and we have a deep leading negative divegrence and a very small relative positive to the far right today.

I suspect the most probable trend would be a series of lower lows/highs on a leg down in stage 4, but if there are some extreme moves, that's where we want to get involved and there's usually something.

 30 min with the accumulation of the February cycle (January 27th - February 5/6th) and stage 2, 3 and 4 as the Q's bounce off the Feb cycle lows on the 15th with a leading negative divegrence currently.

By this time it should be pretty clear the probabilities are with the QQQ puts, so I'm okay that I didn't cash in a smaller gain and I think they can do better.

While I was capturing I thought, "Why not show some of the larger, real important trends?"...

This is the Daily chart of the QQQ, check out the depth of the leading negative divegrence through 2014, even BOP (Balance of Power) that I rarely use because the signals are not very clear, is sending a very clear negative signal right now at the deepest negative/distribution low since the 2009 trend started off the 2009 lows.

NDX-NASDAQ 100 Index

 I thought I'd compare the Tech bubble to the current charts like I did with the Dow and 1929, as you can see the tech bubble crept up fast as the F_E_D just kept hiking rates successively to deal with "irrational exuberance". You can see the 2002 base and conformation of the rally from there, the 2007 distribution, the 2009 accumulation and look how big the distribution right now is compared to all of those other major events for the NDX!!!

NASDAQ Composite... Unlike the top 100 NASDAQ stocks in the NDX, this is the entire Composite for the NASDAQ...

Again, the 1000 bubble popping happened fast because of F_E_D involvement, the 2002 base and confirmation of the bull market to 2007, the leading negative divegrence now is staggering in its proportions vs past MAJOR events.

Bottom line, I think the QQQ May $87 puts will be fine