The Week Ahead

I'm not going to cover stuff we've already beaten to death like falling yields and what that has meant in the past. I will say that the "Trade Ideas" posts went down by about 90% over the last couple of months and I didn't really like that, but the signals just weren't there. Now in retrospect I can see that we have had a range in effect of +/- 3% since the end of February, that's a horrible area to try to trade.

Making money in there market isn't just about successful trades, it's knowing when to preserve capital and stand aside, I didn't forecast the range (of that size), but 3C did give us warning in poor signals that weren't up  to snuff for a lot of trades.

Some of thee things we have expected included a run above the range (head fake) before a downside reversal, there was no accumulation for that move, instead it was built around a bear flag and a sling shot until short covering took us the rest of the way.

As far as that short covering, these are the 100 most shorted R3K stocks in one custom index the SPY...

Most shorted in red, SPY in green. Note how the short squeeze fell off today.

One other Index I have been watching is the Transports...

 1 min

5 min

30 min

60 min.

It looks like the transports rally is over and that is a big deal when we are talking about market expectations.

HYG was used today to ramp the market

 flat during the pin and up at the EOD

However not all credit was so impressed, High Yield actually went the other way.

Nor were professional traders,

 Sentiment intraday which has been a trend as of late.

 VIX was also   monkey hammered in to the close, but closed up on the week

TLT continues it's strange correlation with stocks...

And Yields are calling equities lower, the white arrow was a ramp today, just for perspective... and that looked like...

This over the past 2 days, still it's a drop in the bucket looking at the chart above.

As for the market, there was a little end of day strength, which is why I said,

"Essentially, if you take the NFLX Trade Idea Follow Up from earlier today and apply the same expectations and the same logic, you have the market forecast in to next week, "

 SPY 1 min, this is the kind of noise that is actually useful for tactical entries, but it's not giving us the really important information as the short squeeze abates...

 Migration didn't make it far, 2 min SPY

This is the trend since the bear flag that sling shot the market in to a short squeeze and head fake move, the fact we have a negative divergence on a 15 min chart tells us the probabilities are very high we have a head fake move.

And as far as the longer trend, what the head fake move jump starts, here it is since the start of the February cycle.

To the right, this is one of the best examples of a divergence no matter the indicator.

Speaking of which, I found this while looking around at news, smart money flow from another indicator..

 Someone else's smart money flow indicator...

 And ours with the first major neg. divergence at January highs in both indicators and distribution right in to the February cycle's rally and just worse from there.

As for the Dow...

The same divergences in the same places.

As I said about NFLX, I think there's a day or so left in the reversal process, THIS WAS A THEME THAT WAS MARKET WIDE ACROSS NUMEROUS WATCHLISTS AND DOZENS UPON DOZENS OF STOCKS WE ARE TARGETING.

So, I say sit tight, if NFLX, BIDU and many more want to come to us and give us the kind of signals we haven't had for months so we have the best timed entries possible, I'll take that.

Now, it's my birthday and II'm going to celebrate! 

Forward Market Forecast

I'll put    out a more complete EOD update, but for now, everything I'm seeing is making a lot of sense, signals are very clear unlike the last 2.5 months.

Essentially, if you take the NFLX Trade Idea Follow Up from earlier today and apply the same expectations and the same logic, you have the market forecast in to next week, which doesn't end well for the market. However, you do have time to position, I would not try to chase the market, just be patient and let it come to you.

More to come...

FB Trade-Idea Follow Up

Yesterday I went ahead and opened a FB short equity position Trade Idea: FB (Short), today FB is down nearly -1.5%, however, much like NFLX, I think there will be another opportunity early next week if you are interested. As for the charts, not much has changed with the important ones so here's yesterday's post, FB Follow Up . FB would be another right shoulder entry like NFLX.

 Yesterday's entry had great signals, thus the decline today, but there's a lot more downside to go.

Around the same area the averages have a little bear flag, FB is in line.

On a 2 min chart, there's a clear negative in to yesterday's highs and a small positive in to today.

This tells me that a small bounce, likely still forming part of the reversal process, not so much about price, but time, is likely, that means FB should offer 1 more chance at a choice entry.

 This is about as far as we go, 3 min relative positive (weakest form of divergence),

As far as the 30 min, it added some additional damage today, but for the most part it seems like an op-ex pin.

I'm seeing a lot of assets that look similar to this so while I do want exposure, I can be patient for another day or two.

NFLX Trade Idea Follow Up

On May 28th I opened a NFLX short, Trade Idea: NFLX (short) and these were the charts at the time, NFLX Charts

"I'm going to go ahead and add a half size trading position in NFLX right now, I'll leave a little room in case we get some better prices or signals tomorrow, but the 3C signals are starting to deteriorate more rapidly and it's worth at least a partial position to me at this point, this will be an equity NFLX short.

I'd have no problem considering this a core short or position trade opening as well."

I feel   very   good about the NFLX short even though it was a partial (half) position with intention to adding to it in the event of better prices. If I did not have any exposure (short) to NFLX, I would be opening a partial position today.

As far as adding the other half, I'm going to wait, I'm thinking 1-2 days and I'll show you why.

 NFLX dominant 4 hour trend at a H&S top, probabilities for longer term resolution are solidly down.

There are only 3 places I'll short a H&S top, the top of the right shoulder is the second and that is where we appear to be right now.


 30 min, distribution at the left shoulder, head and right shoulder, note accumulation at the neckline to form the right shoulder.

The 15 min chart is leading negative, i'd like to see a new leading low, but more importantly I think the reversal process needs at least another day or 2, the left shoulder's took about 4-days.

 10 min also suggesting we are at the top of the right shoulder.

As far as price, I don't think there will be much difference between now and 2 more days, I think the main difference is timing which I try to get as close as possible.

This is today's intraday deterioration vs the recent 1 min trend, I think this could be a larger reversal process, especially considering top reversals are usually larger than bottom reversals.

2 min chart...

proportionately, I'd expect a larger reversal process, however I do want some exposure in case we have a July 2011 event in which we had a rather sharp  downside move -20%.

You can see that if we were to reverse straight down right now we'd have a very "V" shape reversal, these are very rare unless fundamental news that hasn't been discounted by the market hits, I want some exposure because of what I see in the averages, but as far as adding, I feel quite safe in giving it another day and deciding.

This area is the second best entry for a short position on a H&S top.

USD/JPY Sending Market Lower

Interestingly the USD/JPY looked like there was some Yen goosing early today in pre-market, perhaps to lift futures, although they opened right where I'd expect for an op-ex pin.

In any case, the loitering period for the carry pair is over as I showed several times the last 2-days and it should be making a new low, ES is severely dislocated and needs to revert down to the pair.

Even though a ramp in USD/JPY earlier today produced no effect on Index Futures, a decline in USD/JPY right now is sending the market lower, that tells you something.

The bear flag in the averages was not anything like the bear flag that got us here, it couldn't even produce a positive divergence on a 2 min chart so I think it's an intraday event, but the FX pair seems to have some influence, especially given the amount of intraday deterioration today in the averages on top of the week long deterioration.

Market Update

Yesterday my first impression was that short entries to fill out partial positions or new positions wouldn't become available until after the op-ex pin is removed which is typically around 2 p.m., there are several charts , actually almost all of the charts that not only suggest that entering or adding to those shorts after 2 p.m. is the right time, but that entering them period is reasonable at this time.

Remember this move above the range was something we expected conceptually, but there was no accumulation to support it and few levers working, it was largely built around a short squeeze off a bear flag and Crazy Ivan which is to say, the MARKET USED TECHNICAL ANALYSIS AGAINST TECHNICAL TRADERS  as we often see.

 Speaking of using TA against traders, the first thing you may have noticed is a bear flag forming on the intraday charts, technical analysis expects this to break down and make a new low approx. the same as the preceding move down just before the flag formed, however the very appearance of a flag or well known technical price pattern has to give you pause and make you think twice about what it's really doing there.

If this flag is to be head faked, with the deterioration all this week in the charts, any upside this afternoon as the op-ex pin gives way would be a better entry, especially since we already have strong evidence that distribution this week is not only there, but has increased today; you'll see all of these concepts in the averages below.

 DIA 2 min is showing increased distribution, there's already a large trend of it for the week.

This 10 min chart makes that clear. Also notice there was NO accumulation at the recent lows leading to the break above the range, this is what I was talking about above, it was done via manipulation of traders expectations based on a price pattern and that led to a short squeeze that did most of the heavy lifting.

The fact that Wall St. is not even willing to put in a small amount of accumulation to press the market above the range is also telling as they'd have to first dump those longs and then sell additional supply short, it seems they didn't want to take on even that risk.

 1 miin intraday DIA is pretty close to in line which doesn't tell us much, but there's also no bear flag on the chart.

 IWM 3 min continuing to deteriorate at a reversal process.

The larger trend on a 10 min chart which is excellent confirmation of this week's move being a head fake move and not a genuine breakout, however we expected a head fake move days/week before it started.

IWM 1 min intraday was in line with the downside, but is showing some intraday strength at its bear flag.

QQQ deterioration today as we have seen all day...

The 10 min chart reflecting distribution in to this week's move above the range, the head fake move expected and it looks like excellent confirmation it is a head fake move, which makes it a VERY useful entry point for short positions.

 And 1 min intraday, Q's went negative, then were in line as they lost ground today and now like the IWM have a 1 min intraday positive forming at the bear flag area, a bear flag is a bearish consolidation/continuation pattern, if it were a real bear flag we'd see distribution in to the flag, I suspect this is to set up a head fake move intraday which is why it would be useful to use to enter short positions.

SPY losing a lot of ground today and the bear flag in yellow, this is not a large price pattern, nothing like the bear flag that got us here and it's not even able to push a 2 min chart to a more positive position.

SPY 30 min trend for the move above the range/head fake, again note the last decent accumulation was mid-April.

This is the 1 min SPY with a positive in to the bear flag.

 The NYSE TICK trend is now showing signs of a trend change, but not before it hit -1100 on the downside.

And my custom TICK indicator lost breadth all day until very recently at the bear flag formation.

Time to get busy with asset choices.

AAPL Update

Wednesday, May 28th I put out Trade-Idea: AAPL Scalp (Puts), a "Scalp" is a short duration, somewhat speculative trade, essentially trying to take advantage of small price movements, thus the leverage of PUTS used, June monthly $625 to be exact. From Trade-Idea: AAPL Scalp (Puts),

"This is a speculative, short duration position, I'm not crazy about longer term AAPL positions right now in either direction, but I think near term there's a decent scalp I'm going to open in the options tracking portfolio, AAPL June Standard $625 Puts, full size.

I'm not using as much time because I'm viewing this as a shorter term scalp-like trade."

AAPL has their WWDC (Worldwide Developer Conference), one of their biggest events of the year  Monday June 2nd. Their 2013 event on June 10th saw an immediate 10% draw down over the next 2 weeks or so and the June 11 2012 event led right in to the Sept 2012 top in which AAPL lost nearly half of it's value over the next 8 months or 390 points.

To me, this looks like a buy the news, sell the event situation, but on a scalp basis, I'm not convinced by longer term charts as the 30 min is ugly, but the 60 min hasn't turned yet. The other issue, once Tim Cook took over, AAPL's products seem to go from revolutionary to evolutionary and they still lag some of their biggest competitors in handsets, something changed with the loss of Steve Jobs.

Another interesting event that happened to MSFT which was a major growth stock in to 2000, was once they declared a dividend and share buybacks, the growth story in MSFT ended, for instance...

 MSFT gaining at least 18,000% over this period, then came the dividends and the growth story ended as MSFT became a blue chip and largely a ranging stock.

AAPL also was a super growth story with at least a +6000% gain over this period in to the 2012 top which we called right on the head, this is still a sore spot for me as I had a nice short and closed it thinking I'd get a little better positioning on a bounce, then the Third Point 10Q came out and all of the hedgies saw AAPL was no longer a top 5 holding for Dan Loeb, immediately all of the funds tried to exit at the same time driving AAPL down -45% or -390 points over a short 8 month period, THIS IS THE HERD MENTALITY THAT IS PRESENT EVEN IN HEDGE FUNDS/SMART MONEY.

 Since the Sept. 2012 top, AAPL has retraced a very significant portion of the decline, well over the 66% retracement level,

 As well as clearing some strong overhead resistance.

Today's daily candlestick is a DOJI, an indecision candle which is taken as a bearish possible reversal candle as the previous momentum has faded. If this candle closes today with significant volume (above yesterday's), the probabilities go way up that it is an effective downside reversal candle which may be the case with the WWDC Monday if it disappoints. Really the market is about perception, it doesn't matter what you did, it matters what the market's perception of what you will do moving forward is and judging by AAPL's earnings and where their revenue is coming from, the Iphone better make a big impression as Ipads missed and Macs account for so little in sales.

As for the 3C charts...

 This is the intraday 1 min

The 3 min that looks like some larger sellers were already busy selling in to strength as they had theopportunity.

The 5 min leading negative

And 10 min leading negative.

The reason I put this out as a "scalp-like" trade idea is the longer charts are indecisive.

 The 30 min chart shows clear accumulation which we had seen and were wondering whether it was a counter-trend bounce brewing or something bigger, shortly after Icahn had come out and said he had been accumulating a stake in AAPL that was quite sizeable.

The current 30 min divergence is leading negative, based on this I'd consider AAPL for a longer term core position play, maybe a 150 point decline, the trouble is...

While the 4 hour chart shows the same large accumulation at the exact same spot, it is not showing the same level of distribution.

I think long term probabilities are AAPL moves lower, this is based on the daily chart...

 AAPL daily negative at the 2012 top, and leading negative now. Not only that, but the Tech Sector looks bad as well.

Daily 3C chart of XLK.

I think the larger issue near term for anything longer than a trade in AAPL on the short side is this...

There's no reversal process in place. 

In 2012 we had a "V" shaped reversal event in AAPL, but this was after 6 solid months of distribution on a large scale , likely Dan Loeb selling his stake. However, that "V" event was what I'd call "fundamental news", it was a panic of all the hedge funds trying to exit at once as they saw Dan Loeb no longer held AAPL in the top 5 holdings and while 99% of hedge funds are the herding type, a few strike out to try to generate larger profits for their clients, Dan Loeb is one of them (Third Point) and as such, he's a leader for other hedgies who wanted to quickly get out of AAPL, you can see the result of not selling in to strength over a longer period, AAPL crashed and lost nearly half its value in 8 months.

As a speculative scalp/short term trade, I'd still consider AAPL a short here despite Monday's wildcard event, I think though it is important to have enough time on any put options, or look at an AAPL short equity position.

Watch out for VXAPL, volatility is rising in to Monday's event and with it the premium on options.