Dow Closes Red for 2014, SPX Makes it Back to VWAP

So far, the USD/JPY has been very reliable for market action this week, however I think there's little doubt that things are getting significantly weaker...SPY Timeframe Update

As the title says, the Dow closed red for the year and ES closed at VWAP after significant weakness coming on the heels of two failures of USD/JPY to break and hold above $102 early this morning and around 8:30 a.m. EDT.

ES closed like this at 4 p.m....

 First a walk down the lower VWAP standard deviation, then a bounce to VWAP at the close .

As we expected yesterday, this makes 4/4 when ES has dislocated from the USD/JPY, only to be dragged back to the correlation almost no matter what it takes, but it's interesting that ES ended back at both the USD/JPY correlation and VWAP.

The SPY Daily had an interesting close...

The candlestick pattern in the yellow box which would also be considered a false breakout/head fake is a Doji reversal with confirmation yesterday and today as well, but today's candle. although it's technically nothing, did move up off the lows on heavier volume so I looked at the Dominant Price/Volume Relationship of the component stocks within each of the major averages and found a dominant relationship as I expected based on today's close/volume.

The dominant relationship for all of the major averages was Close Down/Volume Up, which is a short term oversold condition and typically the next day closes higher. 

Here's how dominant the relationship was: Dow saw 23 stocks in this category of the 4 possible categories, the NASDAQ 100 saw 73 and the SPX-500 saw 333, so very dominant. This is however, only a short term signal.

I also found the intraday action and close interesting.

 SPY 5 min intraday leading positive

SPY 1 min going negative in to the close.

IWM 5 min leading positive

IWM 1 min going negative in to the close.

DIA 5 min leading positive

DIA 1 min intraday going negative in to the close.

It seems like the averages "could have" moved higher today, but were pulled back at the last hour or so which is interesting when looking at the VXX correlation.

I have inverted SPX prices (green) to better show the natural correlation between VXX and the SPX, as the SPX moved toward the close it started falling harder than the VXX. It's as if they were aiming right for VWAP.

Still with the 5 min positives, there's not a whole lot of firepower there considering the duration which is about half a day. The R2K looked to be the best 3C intraday performer today and it's not surprising considering how many traders it has shaken out above and below its 200-day moving average.

Many traders use the 200-day m.a. as a trade signal, they would have been eaten alive the last month.

As for Leading indicators, I don't know if it is a bounce as we expect and hope to use to short in to or Options Expiration (pin) tomorrow, but there are some very short term signals and then the more serious ones and a bit of difference between them.

 HYG (High Yield Corp. Credit) is still leading the SPX, it hasn't fallen yet or not that bad so I still expect some sort of bounce and with the Yen signals moving, that could provide the bounce.

However, pro sentiment isn't waiting around, that has turned negative on our first...

And second indicator we use.

As for Yields, like VWAP or the USD/JPY correlation,  the SPX has come right to Yields short term. However as I have pointed out several times this week...

The SPX still has quite a bit of catching down to do to longer term Yields.

As for breadth...

 The NASDAQ Composite's A/D line has fallen out with the Comp.


The Percentage of all NYSE stocks trading above their 40 day moving average has dropped from 77% around late February to 51% today.

The Percentage of all NYSE stocks trading 2 standard deviations (momo stocks) above their 40-day has dropped from 30% to 1/3 that, about 10%.

As for futures, I'll check them again later tonight. but for now...

Index futures aren't giving any signals right now, they're pretty much in line, that's not only intraday, but out to 5 mins as well where they were negative before today, they are still negative on longer timeframes.

The Yen looks like it will come down at some point over the next 24 hours, but the $USD remains very weak, we may see more action from 3C signals of the averages than the USD/JPY.

For now, I expect tomorrow to be the typical pin, maybe some upside based on the Dominant P/V relationship and candlestick close, however, I would be using any strength to get in to shorts that finally look ready.

* On a side note, Appaloosa released their 13-F quarterly report for Q1 2014, 45 days after the end of Q1, this is why I would never try to trade according to their holdings.

Some of the positions (as I often mention position sizes of the big boys being much larger and taking much larger to fill out) include $1.1bn in SPY calls (as of 45 days ago), about $815 million in QQQ shares, $492 mn in GOOG and $480 mn in Citi and these are considered "moderate" size positions.

Interesting huh.

I'll let you know if anything interesting pops up in futures tonight, I kind of doubt it with op-ex tomorrow.

MCP Update

MCP has been a position of long time interest, we've traded in and out of it many times, but there seems to be something there longer term.

Right now I'm carrying a partial position (about half) as a speculative play as the charts looked very good just before earnings (MCP Update/ Possible Trade,) of course earnings were not received well and MCP dropped like a rock (MCP Update,) but this reminds me a lot of the RIMM trade in which nearly the same exact thing happened, the charts looked very good pre-earnings, earnings failed to impress and RIMM dropped like a rock, but it maintained strong 3C signals and a few weeks later (approx.) RIMM shot up as the long time dual CEOs stepped down and there was a massive management shakeup. It appears that the positive divergences in RIMM were not earnings related, but management related and the position ended up being closed out at a nice profit after holding through the very rough weather.

Here are the charts for MCP now, if a few more things happen, I'll seriously consider adding to the position and bringing it up to full position size.

 Daily chart... This Descending Triangle (within a larger rectangle base that stretches back just about to the start of 2013) broke out on April 22nd which you would think is a good thing considering we were long MCP April 22nd as it broke out of the triangle.

There are several issues here, one was a smaller cycle that began April 11-15 which caused us to close an SQQQ short trade on the 11th (Closing SQQQ (long) Trading Position) and open a QQQ call trade on the 15th (Trade Idea: Opeing QQQ May $84 Calls) and by the 22nd it was flashing clear negative signals and some trades were exited such as MCP, ( Closing MCP Long Trading Position For Now ).

However, there were other issues with that trade that may not have had anything to do with the short term cycle. April 22nd in the post, MCP (long) Position Follow Up... the following was published...

"so far we have a parabolic move (granted there's nice volume) and very little in the way of intraday confirmation so far.... For now I am keeping the MCP long open, but if I don't see some improvement or I see deterioration, I may close out the trading position on today's move of +5.68% thus far.

The post continues...

"A breakout of a triangle like this at its apex is a clear technical trading buy signal, what bothers me is there was no head fake/ stop run on a very obvious support level, first. Thus, if I feel this is going to end up being a false start, I'd likely try to book the gains, get out and wait for what would more likely than not, be a head fake move below support, that's where I'd want to re-enter, but lets give this a little time and see how things pan out.

Shortly after on the same day...  Closing MCP Long Trading Position For Now

So the issue of the lack of a break below support "BEFORE" an upside breakout was bothersome back on April 22nd, well before the earnings drop. In fact, I had even said that the probabilities favored exiting this +5.68% (no leverage, just long MCP) one day move to re-enter AFTER there was a break BELOW support.

In this context, what happened after earnings, is not that surprising, although the move is extreme, but most head fake moves have to be extreme to achieve their goals. For more on head fake moves, see our two articles linked on the members' site:

* Understanding the Head-Fake Move Part 1

* Understanding the Head-Fake Move Part 2

This is a look at the triangle base inside the larger rectangle. Support for both the larger rectangle and the triangle was at the exact same place, right around the $4.50 area.

The first break to the downside did show positive 3C signals and came after Goldman had said something about MCP which leads me to believe (considering the signals just after the decline), that GS was an active buyer of MCP.

The next volume event was at a failed move to the upside, it looks like churning and then the break below support where stops would have been piled up at $4.50 as a nice round number.

 Looking at an intraday (60 min) chart, you can see the initial stops were hit and there was a secondary run just below at, wouldn't you know it...$3.00 even.

 This is the 60 min MCP chart right now, there's plenty of time/space for this chart to see 3C decline, but it hasn't which is one of the reasons I continue to hold the partial long position.

As far as the decline, as of Monday May 12th, one of my thoughts was we may get a dead cat bounce.

The reversal process thus far though is already larger than what I'd expect to see from a dead-cat bounce.

The 1 min chart is clearly leading positive, especially on the run of stops below $3.00

You can also see the 5 min chart positive on the break lower and even stronger on the break below $3.00. If you place your stop orders with your broker, no matter what they say about no one being able to see it, you have to assume that it si visible to Wall St.

The last stop I remember placing with my broker was when I was going on a short 4-day cruise and I placed an emergency stop just in case. Wouldn't you know it, even though I knew not to place it at an obvious area, the low of the day was my stop getting hit, then price moved up significantly and I missed substantial gains.

 10 min chart... Again, this chart is not so long that it hasn't had time to react and confirm the drop in price, however thus far it has refused to.

The same can be said of the 30 min chart and of course, it's not far off from the 60 min chart...

For now, I'll continue to hold MCP until I see something that doesn't fit, deterioration in 3C as this is a speculative partial position as it was opened just before the wild card of earnings.

Holding FXI June $36 Put Position

Basically all FXI did today was form what would be known as a "Bear Flag" in technical analysis, it is probably organic as I doubt FXI is one of the "manipulated ones"unlike a FB, PCLN, NFLX, TSLA, etc.

A bear flag is a price consolidation/continuation pattern. To be legitimate it must consolidate against the prevailing trend which would be down for the timeframe we are looking at, thus the flag should consolidate upwards forming a parallelogram.

I don't see anything on the 1-5 min charts, where I'm most concerned with option positions, that would cause me ANY alarm.

 There's the bear flag on a 1 min chart which formed intraday today, the 1 min 3C chart is in leading negative position.

The 2 min chart gives you a VERY clean divergence as price consolidates upward in the flag, while 3C moves downward, the very definition of "Divergence".

The 3 min chart is also leading negative and...

The 5 min chart is leading negative as price consolidates against the prevailing trend (since yesterday) which is down, thus we have good divegrences that don't raise any alarm for me of an impending consolidation or correction, therefore I'll keep the position open.

GDX/NUGT Update

I like the intraday action in GDX and NUGT, however, although there are some signs of the 10 min chart being repaired and of general accumulation of this pullback which is exactly what we want to see, for now I'm not going to fill out the NUGT long position just yet.

        

 GDX 1 min leading positive and intraday positive.

NUGT 3 min positive

NUGT 5 min positive

GDX 10 min with one of the signals yesterday that told us a pullback was coming today, however it is also showing improvement on the GDX chart, which wasn't even the troublesome one, but I'll take the improvement if I can confirm through DUST and/or NUGT.

This is the 10 min NUGT, not as nice as yesterday's start, but on the pullback we do have intraday migration of the positive divegrence in the 1-5 min range.

As far as confirmation using DUST, the 3x inverse / short GDX (opposite NUGT)...

 The 10 min DUST chart also shows improvement, it's a bit slower out on these intermediate timeframe charts, but it is improving with confirmation.

As for NUGT intraday confirmation...

 The 1 min negative

The 2 and 3 min are negative

And the 5 min is negative.

As I said, it's not quite enough for me to fill out the partial (half size) trading position in NUGT, but it's a god start.

Market Update Charts

These were all captured just before I published the last post, so if the market starts moving fast on a move from the divegrence, you'll understand why they look a little different, otherwise they are not worth re-capturing over 10 minutes or so.

 DIA intraday 2 min, the DIA has been one of the worst looking of the averages, it was also hit the hardest today so it's not surprising to see a rather healthy positive divegrence forming here.

 DIA 5 min

IWM 1 min

IWM 2 min

IWM 3 min

And IWM 5 min is as far as this divegrence goes, but still we are seeing fast intraday migration of divergences ever since Monday when they flipped to the negative side in FX and then migration in the averages as it quickly reached the 15 min charts.

QQQ 1 min

QQQ 2 min

QQQ 5 min

SPY 1 min

SPY 3 min

And like the rest of the averages, the SPY reaches the 5 min chart.

As for the TICK data on my custom SPY/TICK indicator, you can see the trend in intraday breadth improving.

As for the Yen which is the main player right now for the USD/JPY...

 The intraday Yen looks as if it's ready to start moving down which would start to fulfill the 5 min negative below...

Yen 5 min negative.

The $USDX almost looks like it will sit this all out and let the Yen do the work.

 $USDX 1 min in line

$USDX 5 min from negative forecasting to a negative trend and in line or no divergence.