Quick EOD Update

There's a very small 1 min positive in the SPY, and a 1 min positive in ES and NQ at 2:30,  not much of anything else though.

The amount of damage done between Friday and today (emphasis on today) is staggering, every time I look three''s a new, deeper leading negative divegrence and these are not 1 and 2 min charts, I'm seeing them on 30 and 60 min charts.

If I had to guess, I'd say if you ;look at the SPY, around noon today would be something like a mini H&S top with non time being the top of the head. I don't see how the market can not do what we expected Friday and start to wrap up the head fake process and send the market lower. In all honesty, I didn't see anything on the charts Friday that would lead me to believe we'd see this level of deterioration today, I'll post a few screen captures after this.

When we first expressed the probability of a head fake move and identified the bear flag that was a dummy flag put there to create the initial momentum, the idea was to use some long hitch-hiking trades to ride it up and then switch to the short side, use the price strength to short in to at better prices. I see no reason we shouldn't be using the time we have to enter positions we are interested in and I'll likely be spending most of my time tomorrow just throwing ideas out there, because I think we are past the analysis stage of what happens next.

MCP Update

MCP is a full-size long trading position, hopefully a trend position (that's what I really expect as it breaks to stage 2 mark-up).

We recently filled out our MCP partial position on Trade Idea: MCP Filling out Long Equity & New Calls Position and added Calls to that as well as MCP triggered stops on a run below $2.50, the next day MCP was up over +12% on the day without leverage (not the call positions, the stock only).

That same day (the day after filling out the long and entering the calls on the +12% gain) we exited MCP calls Taking MCP Calls Off the Table as the move was too much of an event rather than a process.

I'd still be willing to enter another call position if it sets up like the last, but for now we are still holding the MCP equity long position.

As far as I can see, so far so good as it has been since the post earning's decline, the charts are holding up extremely well.

 The flat zone with the dip on the 3rd is where we entered long on equity and calls as the move below $2.50 hit massive stops which were accumulated.

I wanted to move out of the position that day because the reversal process (that "V") is too tight to sustain a larger run and the next day MCP came down and has come right back to the range so a good thing we did exit the calls.

This 60 min chart is still leading positive and adding every day or so, I have no problem holding MCP, honestly I wouldn't have any problem opening a new position right here.

The 30 min chart shows the accumulation of the stop run and the positive activity since.

This is starting to look a little like an inverse H&S bottom, this is a much more appropriate place for it than the usual places people identify them. As far as volume, the volume is correct for one as well. Either way, I think this is a strong long position for a trending trade on the mark-up / stage 2 (break out from the base).

The shorter charts have a lot more detail so I included it just to show the additional accumulation in MCP since the +12% one day move as it came back down.

I think if you are long equity, all you need to do is watch and manage the trade, really just be patient. As far as call positions, I'd need to see something that tells me the set up for an options position is favorable enough to make up for the premium that puts you behind the 8-ball as soon as you enter.

Quick Market Update

Honestly I think we can all see that the momentum and market strength as hollow as it was as it was short covering and weak retail hands buying, is not on display today.

Friday in the The Week Ahead post, my take on the signals from the last two hours of trade as well as everything we know about this move since before it began around mid-May when we knew something was building, seems to be culminating, I do think the F_E_D Correlation post was very on the spot as far as the market front running, the richness of the market vs the known F_E_D balance sheet extrapolation all the way out the the end of QE3 as well as the 25-30 point divergence in CONTEXT, all pointed to a head fake move as we suspected mid-May.
In any case, from Friday's The Week Ahead


"Looking at the 3C charts in to the close in both the averages and futures, my feeling is the head fake move above $1900 which was resistance of the 3 month range and the area we expected a head fake move which in my opinion is more than large enough to do what they are intended to do, will start being resolved to the downside next week, it looks from the 3C charts going in to the close that this will likely start early next week. I'm not sold on one lump sum move, but rather more of something like a stair step, when $1900 is broken on the downside, I think that's where we get a lump sum move."

I purposefully tried not to draw on these charts, some do have reference to the bear flag where we saw accumulation and knew that it was not a real bear flag, but a bear trap to set up upside momentum which turned in to a short squeeze as well as the retail "confirmation/breakout crowd" chasing.

Take a look at some of these charts and how quickly they are falling apart (this doesn't mean we won't still see intraday bounces and lots of volatility, Wall St. is never going to make things easy), but there's a distinct change in character and it was obvious in ROC of price.

 The 1 min DIA (and other averages) steering divergences which looked more like "in line" started showing significant changes in character Friday, today a lot of them are just adding to that downside in a big way.

 There's migration as well, even though this is a closer view (as the trend view has been pretty bad through the entire process from mid-MAy).

 Look at the migration to the 3 min chart and the ground lost really since about 12:45 today AND ON A POMO DAY NO LESS (I guess we know what those are worth now).

 And 5 min migration...

The IWM was showing signs as you know from numerous posts last week that it was going to be showing better relative performance than the other averages as it had fallen behind them, that "better relative performance" turned in to the best week for the R2K for 2014, but again on pretty weak ground, short squeeze covering and weak hand buying as we know fairly certainly that the pros have been selling for this entire period and that's not just me saying that, 3C showed us, but that's hard facts and figures from BAC and GS.

 The IWM 15 min is actually in a very ugly downtrend or had been with perfect 3C confirmation, the run on a short squeeze in most shorted names and small caps sent it higher, but there's absolutely no confirmation whatsoever, which makes SRTY long a very interesting prospect, although the R2K doesn't have the same lofty position as the other averages despite the strong relative performance.

QQQ 1 min, as I said Friday, it was the first day we saw real divergences in the 1 min timeframe, look at what was added today.

And the 2 min which I tried to balance between trend view and intraday so you can see both, that's a lot of leading today.

QQQ 3 min, also trying to balance between trend view and intraday, the last 2 days have seen marked deterioration, thus the reason I felt this (what I fell 90+% certain is a head fake move >SPX 1900) is wrapping up this week.

SPY 3 min trend view showing the bear flag we first saw and knew something wasn't right, just after I had said that I thought the market would not see a serious downside move until that 3 month range was head faked. Then the Crazy Ivan which gave the market sling shot momentum around the bear flag with initial short squeezes.

Look at the new leading negative low in 3C! Add the price differential and you have a major divergence, this is what 3C was designed for, these are the kind of charts, i don't ignore.

 SPY 5 min seeing migration just from the faster intraday charts, also nearing a new leading negative low.

 And the trend of the short squeeze from the bear flag and Crazy Ivan through and above $1900 as we expected or at least thought was necessary before any downside reversal could begin, if you look at the BofAML data, and the new Institutional selling and new Retail buying during the same period, YOU CAN UNDERSTAND WHY HEAD FAKE MOVES ARE SO COMMON.

This is the 1 min intraday, the market is fighting to get a toehold, so far most of the Index futures have at least a reasonable 1 min intraday positive divegrence.

This doesn't surprise me, there are some assets I have seen that are on my short list (either long or short) and they do look like they are a day or two off, others look ready now and those are the ones I'm trying to get out there.

Quick Market Update

Last week we had a very parabolic move to the upside, I showed in a few posts how easy it is to recognize a short squeeze, most of that was short squeeze based, not risk/demand.

In any case, Friday I said I was looking for the unwinding of what I view as a proportional head fake move above the 3 month range in the SPX, however, the normal reversal process that tends to have a wider umbrella like top looks to me to be a low probability. I could make the argument that the short squeeze late last week was the "Chimney" part of an "Igloo/Chimney " top or reversal process, with that process starting as price crossed SPX $1900, either way the charts are really falling apart quickly and as I always say I don't trust parabolic moves like we saw last week because they tend to end as badly as they begin, just in the opposite direction. This is why I'm throwing more trade ideas out there quickly today.

Trade Idea : SQQQ Long

I already filled out the SQQQ long position so I won't be putting out an add to, but if I had not filled this position out yet, I'd be putting out an add to or a new position alert right now.

I'll have charts up in just a few minutes.

In the mean time, there was excellent confirmation across 6 different leveraged / inverse QQQ based ETFs I looked at Friday after posting QQQ Looking Interesting Here last Friday.

Transports / IYT

Transports are not looking good, there's a lot of momo stocks in the sector, thus it's not great for a market that has relied on squeezing these stocks the last month.

Lets just get right down to the charts (Dow-20/IYT).

First off, the daily candle for IYT is looking like a bearish Shooting Star thus far, volume is already above Friday's which is something that tends to increase the likelihood of a reversal candle being effective.

 The strategic end of the trade has to be right first, here we have a 4 hour of transports and a theme you'll see over and over again. When there's a change in character of price, a change in trend is usually right around the corner. Some of the strongest rallies have led right in to market tops and we often see momentum rate of changes in price as stocks move from one stage to the next in all 4 stages. The take-away though is where the divegrence gets extreme and it coinciding with the more extreme momentum of price.

 The 60 min chart has the same theme of a leading negative as price picks up momentum.

 The shorter charts give us more detail, this 30 min shows a positive divegrence that leads in to what I suspect is enough upside to create a short squeeze, much like the market from the mid-May bear flag.

 The 15 min chart just confirms the theme

And as we get to more tactical timeframes, the 5 min chart goes leading negative, this is what I was seeing last week when I put out a note that I thought transports were going to give out soon.

And right down to an intraday basis, leading negative on a very tactical timeframe.

I think IYT is in a very interesting spot to consider it. If you are a bit more cautious, maybe see if there's a bearish confirmation candle tomorrow, I think there's plenty of downside and this would be an excellent entry area even if you have to wait on a confirmation candle of today's possible/likely bearish reversal candle.

Quick Market Update

I'd still like to see strong daily volume by the close for a downside reversal, the way the IWM sits right now, oif it loses ground in to the close, it will form a bearish reversal candle, Shooting Star, higher volume than the preceding day would make it a much higher probability reversal candle.

First TLT is seeing positive action, you have to look at the updates I posted in the TLT/TBT reiteration this morning, but I have suspected distribution in equities via a short squeeze is going in to safe haven and protection assets. This is one of the reasons I like TLT long or TBT short creating essentially a 2x leveraged TLT long position.

As for the actual 30 year Treasury futures...

This is the same type of positive divergence being seen in TLT right now on a suspected Channel Buster, which should give it a nice upside move through the upper channel. Also note volume.

I mentioned last week VIX FUTURES, not spot or the rolling 2 month VXX, are seeing positive activity.

 VX 5 min, also note volume.

VX 15 min, again note volume. If VIX ix a protection trade, Treasuries are a flight to safety trade, the volume is certainly interesting as well as the after hours volume seen in VXX two times last week which I posted here, Broad Market Update.

Transports looking as weak as they are looking taken with the COMPQX's major decline in the A/D line and Leading Indicators, all here Broad Market Update make me think this is the head fake move we were talking about around May 15/16th and as I said Friday, I expect it to start winding down now, it was clear that the IWM was going to see relative strength first as I think I posted that about a week in advance.

As for today...

As mentioned earlier, intraday breadth was falling apart...

The early action was trending up, it wasn't hitting any extreme bullish readings, then it lost the channel, early warning.

As for the SPY, that damage from last week that was on the charts other than the 1 min is still very much there.

 This is the SPY 5 min. You may also recall that the Index futures are seeing negative leading divergences in some cases all the way out to 60 min, but really once they get to 5 mins, they are worth paying attention to.

 SPY 10 min is showing how much ground the SPY lost in 2 days.


As I said Friday, (DIA) the averages all saw minor divergences on 1 min charts, steering divergences until Friday when they put in the largest divergence, really the only divergence of the week on the 1 min timeframe, another change of character.

 Again, a lot of damage in 2 days on something as long as a 15 min chart.

 The QQQ 1 min like the others was nearly perfectly in line on the 1 min with only tiny divergences here and there, like little tweaks to price, but come Friday everything changed, that continues today.

This is interesting because it was right about this time I had said the range was not likely to break down without a head fake move above it as it was a 3 month range and in the most watched ETF in the world, then we saw the bear flag with accumulation and suspected this was going to be used as a sling shot for upside momentum to break through the resistance of the range, we got that right down to the Crazy Ivan right after the bear flag, then short covering took over above the range or SPX 1900, however as the trend makes clear, there's been strong distribution in to that covering.

There are several reasons to sell/sell short an asset, but one of them isn't, "I think this is going higher".

QQQ 3 m also showing the change in character and deterioration late last week on a much stronger scale.

With transports not looking very good (I may look at a position there) and the Flight to safety and flight to protection trades both strong and the increased ROC in price , there are several very notable changes in character.

I'll try to get transports up next.

Transports / IYT Are Looking Horrible

I'm trying to get a market update out, but it seems there's quite a bit to do and quickly.

I'm going to get an abbreviated market update out and then the transports / IYT chart, I may be inclined to look at a position there.

Adding To IWM Put

I had originally intended to open a 4/13 IWM put last week and then added to it, the first one went through as a fat finger and expired Friday, so I'm going to replace that position right now with a 6/20 expiration IWM $117 put.

Trade Idea: Reiterating TBT (SHORT)

This is from last week, essentially I'm using TBT short to create a TLT long position with 2x leverage.

The details of the idea are here in the original trade idea/follow up...
Trade Idea: TBT (Short)

TLT / TBT

Intraday breadth is falling apart...

TRADE IDEA: LONG TERM... ACI (LONG)

This is one of the few that popped up on the long scan, there were about 10 times more short signals.

In any case, this looks to be the "new normal" for a double bottom.

 This is the scan buy/sell signals, there were recently a cluster of long signals right below major support on a daily chart, double bottom support. This looks like the head fake move below that support we'd expect to see just before a significant reversal.

Again, this looks to be a longer term position, not a trade.

This is the 5-day chart, note the flat range to the right of about a year, this is where the double bottom-like base is.

This is support on a daily chart being taken out, double bottoms use to act differently, often holding support, but again for the last 10 years or so, Wall St. has used these century old concepts against traders.

There''s a lot of volume as price moves below support, one of the reasons why we see these moves.

However..

The daily 3C chart is positive at the break below support, multi-day charts look even better.

 It looks like the reversal process started before the break below support (60 min) judging by some of the 3C charts.

If I were to place a stop, I would not put it right under new support, it's a very obvious place, I like to give it as much room as possible on a new reversal, however our M.A. screen looks like it should hold above the support area.

This is the 60 min chart at the break below support, exactly what we want to see to confirm the probability of it being a false/head fake move.

The other charts are where they should be as well like the 30 min

Or the 15 min

The 10 min and the 5 min is perfectly in line right now so I don't forsee any pullback of significance on the near term horizon.

The M.A. Screen we use to avoid whipsaws and give singals as well as first pullback and second pullback areas, is being used on a 60 min chart right now, I'd like to see this on a daily ASAP, but the signals will always show up on faster charts first as they are new. We have 3 long signals here.

Typically the first pullback is to the 10-bar yellow moving average and the second and subsequent to the blue 22-bar, I prefer stops on the close. Again, I'd like to see this get to a daily chart ASAP and  then switch stops over to the daily.

I'm going to go ahead and open a small long "Core" tracking position in ACI now. You might see if you can get an entry around the blue-22 bar on a 60 min chart, for me it's insignificant for the size of the base.

Trade Idea: Longer Term... HLF (Short)

HLF is one of the stocks on my short list that popped up in last week's scan.

While I'd never want to go up against Carl Icahn, shorting a stock he's an activist investor in, his Q1 13-F shows he may not be quite the activist investor in HLF not that he laid out Bill Ackerman which seems that was one of his main motivations as Ackerman was short HLDF and telling the world about it in a 300 page research piece detailing how HLF is a multi-level marketing scam. Ackerman and Icahn got in to a screaming match on CNBC and not too long after, Icahn went in to HLF and squeezed Ackerman.

In any case, according to the Q1 13F for the period ending MArch 31st, Icahn brought up positions like AAPL by 60% (we already know he's been an activist there), he brought up HLF only by 1%, of course the released 13F was 45 days old before anyone saw it so who knows what the positions are at now.

As an aside, I described (I believe around the time Icahn was accumulating AAPL) a process by which you don't have to disclose a position on a 13F if it may hurt your ability to fill out that position, Warren Buffet did it with IBM (it seems a lot of people don't know this), well Icahn also disclosed a previously undisclosed EBAY position, so yes, you can go at least 1 quarter without disclosing your full holdings on a 13F.

In any case, the point is, 1% isn't much and 45 days later, well... it may have just been a symbolic purchase to say, "I'm still in HLF" when in fact he may have been moving out the last 45 days, someone seems to be.

Take a look at the charts,

 This is the scan I mentioned from last week showing HLF with a sell signal, note the previous buy/sell signals were all pretty much right on, this one is a bit larger than the rest and I think I know why.

 This daily chart looks like a H&S top, its neckline can be drawn a couple of different ways so I just split the difference. We have the Left Shoulder, the HeAd which is the first and most advantageous place I prefer to short a H&S top, then the right shoulder and finally the break below the neckline which I will never short, but this is EXACTLY where retail will, then (as one of our concepts), there's a "Volatility shakeout", which is a sort of head fake run because the H&S is still valid, it's just meant to knock out all the new shorts that entered on the break below the neckline, which is exactly why I won't short a break of the neckline, that's what the retail herd does. The "Volatility Shakeout" back above the neckline where retail place their stops as they expect the broken neckline to act as resistance, fails and forces them to cover which allows institutional players to either sell more of HLF at favorable prices and in to the demand of a short squeeze or allows them to sell short at a much more favorable level with plenty of demand to absorb their short selling from retail shorts who are buying to cover on the break back above the neckline. THIS IS THE THIRD AND LAST PLACE I'LL SHORT A H&S TOP.

We do have to use volume confirmation to be sure this is a true H&S top, these aren't random price formations, they have been around well over a century and that's because human emotion and logic never change, thus the pattern is still with us, but the things that create the pattern (which are rooted in the human element) must be confirmed and volume is one of the best ways to do it.

A short entry at this area is also low risk as you can put a stop just above the recent reaction high (shakeout high) or above the head of the pattern, depending on your risk tolerance, but it's much better risk positioning than shorting below the neckline, especially when we know that the probabilities are VERY HIGH, that these shorts will be shaken out.

 At the left shoulder "1" volume decreases in to the rally, this is what we want to see. At the decline from the top of the head at "2" volume increases substantially, this again is what we want to see. At "3", the break of the neckline, volume increases as shorts pile in with their orders sitting just below the support of the neckline. Finally at "4", our shakeout of new shorts, volume drops off substantially which is not part of confirmation of a H&S top as this is not something you'll see in a textbook, this is something Technical Analysis hasn't caught on to even though this same process has been playing out for a decade.

 This is the weekly 3C chart, you can see distribution at the 2012 high, I wouldn't expect to see any significant distribution in this pattern on a long, strong chart like this when people know Icahn is in the stock, but with a token 1% increase, it almost seems like he may be trying to make people think he's still interested in HLF, but 45 days later by the time the 13F was released, a lot can happen and since then, even more.

 On a more detailed 4 hour chart the head is not seeing the kind of 3C confirmation it should for a price move like that and after the Q1 reporting period was over, we see a larger negative divegrence on the volatility shakeout at the far right, this would have been after the 13F release.

 A 2 hour chart is exceptionally strong for underlying signals, not as strong as the 4 hour above, but it shows in even sharper detail the 3C negative divergence at the shakeout run.

As does the hourly chart...

The 10 min chart as well as the 15 min

And a very sharp, strong recent move on the 5 min chart.


I consider this a longer term position, more like a core short. I'm going to enter a tracking short position now though there may be a little better entry, I don't think it's of much significance, I think the charts and probabilities here as well as where we are in the process are of significance.

The price implied target is nearly -50%, around $29-$30 longer term.