EOD Update

Don't forget tomorrow is a Friday and that means it's likely the market will open near today's close and we'll have a weekly op-ex max-pain pin until about 2 p.m. so we may not get a lot of action tomorrow.


I still think all "potential" bounce or failure of the market here depends on the $USD/JPY pair, we'll get to that.

As far as some of the near term and big picture signals, here are leading indicators

 HYG went positive in to the lows yesterday and is still in line, I'd think this would be leading negative if we were on the edge of imminent collapse.

 High Yield Credit is essentially the exact same situation as HYG (Corp. Credit).

 Pro sentiment went positive at the lows yesterday and fell off a bit today, that's probably in line with afternoon trade.

The big picture though is very bearish in sentiment alone. This is the Feb. Cycle with the 4 stages and 4a being the volatility shakeout that happens early in stage 4 decline.

Our other sentiment indicator is in line with the SPX, in line with an op-ex pin tomorrow.

VXX had a nearly perfect correlation with the SPX today so no point in showing it, this chart of TLT with SPX (green) prices inverted so you can see the normal correlation shows TLT went from leading yesterday and early today to negative, which makes sense considering the earlier TLT/TBT post and TLT expectations of some decline.

Yields as one of my favorite leading indicators as they pull equities toward them are just getting worse as they dislocate negatively from the SPX, so this is the near term move I expect, after we get a bounce or what remains of a bounce assuming USD/JPY hold up as I think it will.

As for the more important near term driver of market activity, USD/JPY carry trade...

 This 5 min chart of USD/JPY (red/green candles) vs ES/SPX Futures (purple) shows the correlation, a little screwy today, but this is the driver right now of the market.

 This 5 min 3C chart of USD/JPY looks to be a "W" base to me with price now pulling back toward the second bottom of the "W", meaning almost done, there's a positive divegrence at the first bottom and a leading positive right now.

Resistance is clearly at the $102 level, if USD/JPY breaks $102 where there are bound to be tons of BTC stops and long orders, the market will get a bounce and I suspect it will no matter what the 3C charts look like, without decent 3C charts though to hold the market together, the relative performance and the staying power would be greatly diminished.

UNLESS THERE'S A VERY STRONG POSITIVE SIGNAL IN THE AVERAGES, THE ONLY USE I HAVE FOR A BOUNCE IS TO SHORT IN TO PRICE STRENGTH AND UNDERLYING WEAKNESS, IT'S A FREE GIFT IF YOU HAVE THE OBJECTIVITY TO OVERCOME THE EMOTIONAL DIFFICULTY OF SHORTING IN TO PRICE STRENGTH, it sounds easy now, but when the moment comes and sentiment in financial media has changed, it's a lot different.

"Every boxer has a fight plan until the first punch is thrown"

For the $USD/JPY to move up, the Yen either has to move down significantly, the $USD has to move up significantly or best of all both happen, the Yen moves down and the $USD moves up.

 Here the 5 min chart of the Yen is threatening to make a move lower which would help to send the USD/JPY and Index futures (the market as well) higher., however this is not the main signal that has me watching for this outcome...

The 15 min Yen chart is showing and has been showing a significant 15 min negative divegrence, price "should " follow the divergence lower sending the USD/JPY/market higher, however this is ONLY out to the 15 min chart, there's no divegrence past the 15 min, which means in my view that any USD/JPY move up (market move up) is limited because the roof is established at this 15 min chart.

 The $USD moving up would send the USD/JPY higher and this 60 min chart suggests that will happen. We have also seen a recent return to the long term "$USD Legacy Arbitrage" which has been missing since the F_E_D's intervention in 2009, that correlation means $USD higher=stocks, precious metals, energy and most commodities lower. We are just seeing this correlation re-establish as the F_E_D continues to taper out of QE which is what killed the correlation in the first place.

This could mean GLD/gold heads lower near term which would make sense then to wait a few more days before entering a NUGT/GDX long as the correlation between gold and GDX is very high, but once again, we are just "starting to see" the correlation return, it's not dominant.

 This $USD 15 min chart has a small negative divegrence, this "may" be enough to pull the USD/JPY back down to support which would form the "W" base that I have been talking about.

 The $USD intraday 1 min chart suggests the same right now, but this is unlikely to hold overnight, the 5 min may.

 If you look at a monthly VWAP of ES, this looks like a normal sell at VWAP, price moves down to the lower standard deviation and then bounces to VWAP where it would be sold again, in other words, this looks like a pretty normal move to the downside.

The ES 5 min chart is showing a negative divegrence, which would fit with a USD/JPY pullback to the support forming a "W".

As far as market signals in to the close and beyond, there's what looks like some rotation, but there are very poor divergences in intraday timeframes...

 DIA intraday 1 min didn't close looking very good, distribution of any gains.

DIA 2 min is probably one of the better migration signals, leading negative

And 5 min leading negative

 As far as probabilities, this is the 2 hour chart, the divegrence has grown exponentially to the downside.

SPY intraday with a very small relative positive.

The 10 min SPY is really showing this is ready to fall off a cliff, it's pretty much up to the USD/JPY and $102 at this point.

We haven't talked about what a base and failure of $102 in the USD/JPY would look like, likely an instant sell off.

 SPY probabilities with distribution at 4 hours

The IWM did show some late day strength, but this was isolated.

At the 3 min chart there wasn't enough migration to move this very far.

And 4 hour probabilities are clear which way this is heading.

QQQ also has an intraday closing positive, but like the IWM, it couldn't make it to the 3 min chart, it may be early, or it may just be weak, trying to hold the two averages at the op-ex pin for tomorrow.

QQQ 5 min shows how close the averages really are to the cliff.

I'll check the Futures later as that's really all that can save this market or rather give it a VERY temporary reprieve.

Very Seriously Considering Adding A Partial NUGT Long Position

If I did, it's because of the improvement I have seen since we have moved below the rectangle which was expected and the improvement on the two charts that I basically set as the line in the sand, the 10 and 15 min charts.

If I did enter a partial position, the reason for not entering a full position is there's still room for some more improvement and head fake moves tend to be extreme. There's also some 1-3 min charts (roughly) that should or could look much better.

In any case, here are a few charts that have me really considering whether or not it's time to start looking at some GDX/NUGT long (I feel VERY confident that the time will come in the very near future, I'm not too worried about a failure of the set up, it's more the exact timing).

 This GDX 4 hour chart shows the entire suspected Inverse H&S base, they do tend to be symmetrical, which this one isn't because it's missing the second right shoulder, but that's a general rule of thumb, not a prerequisite.

The leading positive divergence on a 4 hour chart as the base pattern has matured is the exact reason I say, "I feel VERY confident that the time will come in the very near future, I'm not too worried about a failure of the set up, it's more the exact timing".


 This 60 min shows the positive at the head and the negative sending price lower to create the right shoulder and a positive divegrence in to the pullback creating the right shoulder.

The 30 min chart shows the same thing, the accumulation at the right shoulder and to the right, the range we have been watching. Note that overall, this is a leading positive divegrence.

 It was the rectangle and our market psychology concepts (based on the predictability of technical traders) as well as the 10/15 min negatives in the range that suggested a head fake move below the range that would create supply (from stops and shorts) that would be accumulated and the intraday charts show in yesterday's post, that this rectangle range was constructed, it's not naturally occurring.

 Look at the improvement on NUGT's 15 min chart from the negative sending price BELOW the range and the leading positive/accumulation of the head fake move, that's impressive, especially that fast.

 While the leveraged ETFs tend to give signals earlier than the underlying asset, GDX's 10 min chart has improved, but it's not where we want to see it in relation to NUGT's 15 min.

This would be one of the reasons for either waiting a bit longer before entering or entering a partial position, leaving room to add to at lower prices.

 This is NUGT's 5 min chart, negative at the head fake move above the range which creates downside momentum and that was used to break support, since then that supply has been aggressively accumulated.

As for intraday charts, GDX's 1 min looks great, right where it should, but...

The 2 min chart is in line, not leading.

I looked at DUSt hoping to get some more confirmation to help me decide...

 This is the important 15 min chart, it is confirming NUGT/GDX by putting in a leading negative divergence.

 The 10 min chart is confirming as well.

Truth be told, although we have good confirmation, I do think another day may make these signals irresistible.

And the 5 min also confirming DUST's negative leading, like NUGT's positive leading.

I think I'll try to give it a little more time, if I enter today, obviously it will be toward the close, otherwise I'll wait until tomorrow and see what we have.

I think if you had enough room for a wide stop and patience, NUGT would see some incredible upside no matter what, right now though for me, it's a matter of not wanting open market risk or opportunity cost if this asset is not absolutely ready to go.

It would be a shame to see all of our patience we've displayed count for nothing.

TLT, 30 year Treasury Futures & TBT Update

OK, as mentioned, the in the last post, I brought TBT long in the trading portfolio up to a full size position. Normally I'd consider this a flight out of safety if TLT is looking to come down, but there are other considerations like the F_E_D's continuing tapering of their bond buying program and China hasn't exactly been the US debt eating monster it use to be. There could be all kinds of reasons, I'm just following the signals.

If you want to compare TLT charts and 30 year T Futures to the last update, here's the link, Treasuries Update & TLT / TBT Trade Update

I believe I also looked at 10 year benchmark and 5 year Treasury futures, there was a little difference, the 30/60 min charts in the 10 and 5 year were not as bad as they were in the 30 year which is fine because the trade I am interested in is closer to the 30 year. As I looked today (quickly) at the 10 and 5 year futures, I found that to still be the case.

The charts... 30 year Treasury Futures...

 5 min 30 year T's, a leading negative divegrence after being in line , the pop up was sold in to pretty hard today, but this is just near term character, it is not what makes me consider the trade, but it does make me consider the trade being ready.

The 15 min continues to lead with a negative divegrence.

 This is where the trade gets more serious, a 30 min chart of 30 year T futures, also leading negative and today's pop up even has a bit of a head fake look to it as it crossed above local resistance on some volume and failed.

 The 60 min chart is really the probabilities so this looks like a decent pullback is coming, I'm looking for the $102 area in TLT to consider a long position I have long been interested in so this may be the move that gets us there, making the inverse TBT with 2x leverage, a decent vehicle to go along for the ride to set up the larger trade (again, one bridge at a time).

TLT Charts...

 This is a 2 hour TLT chart, note the positive divegrence (white) and the in line status shortly after, then a leading negative, not huge, but fast and sharp, looks like a good pullback.

The 60 min chart gives us good confirmation of what the 2 hour chart shows us.

Here I knew TLT wasn't quite ready to turn and there's be some chop in the area before a turn to the downside, that's why I left room to add to the TBT long position, but this 30  min is looking more acute in the negative divergence.

 This is the 15 min, note the range in yellow and the distribution in the range, ranges are very useful for finding underlying action, although by looking at price only, you'd never know.

The 10 min chart in the same range

And of course today's intraday chart on what looked to be a head fake move, it was distributed immediately.

This is the 3 min TLT, it too looks like timing is just about right for a move lower.

I suspect there are some market correlation algos running so any action in the market may see some inverse TLT movement or TBT moving with it, although I'm not at all convinced that's the reason behind some of these longer term signals.

TBT, the actual long position

 The 3 min chart in TBT is leading positive, confirming the 3 min TLT chart which is good to see from a timing perspective.

The 10 min chart also confirms as many do, I just didn't want to overwhelm with charts all showing confirmation.

And as to the possible duration of TBT, this 60 min chart gives TBT plenty of upside profit potential so I would have looked for a 2x leveraged position as options for me is too much leverage and not needed and TLT alone (short) wouldn't be quite enough.