IWM Puts (June 21st / $117)

I was just looking at the IWM June $117 puts and considering closing them as they are a tool for me, not a lotto ticket, they have a small gain,

This isn't what I'd normally look for with options, but for a day and the fact they are fairly close expiration and time decay becoming a bigger issue, I had thought about it and moving them out to July perhaps as I like to have at least 3 times more time on the expiration than I think I'll need.

With the Daily candle looking as I had suggested earlier, a loss of momentum,

 Some people see an Inverse H&S at this price pattern with the neckline at the red trendline. However, for a "potential" breakout of such a pattern, the long upper candlestick wick yesterday indicating higher prices were rejected and the Doji-Star today indicating a complete loss of momentum which opens the door to a reversal, I had to think twice about closing these out at a 15+% gain.

Just checking the volume as it is the most important part of confirming a H&S and even more so with an Inverse H&S bottom, the rally to the neckline before the break above it shows diminishing volume, this is the point where it is imperative that volume rise significantly (on this rally), the breakout volume should be the highest by far and it's virtually the lowest of the entire pattern. No one using volume analysis which is the only way to confirm a true price pattern from a random or manufactured one, could possibly call this an inverse H&S, but we know most traders don't bother looking at volume, but they do like the price patterns which makes this a perfect bull trap which is the point of a head fake move above the SPX 1900 3-month range.

The 3C charts are clear across the averages and the IWM...

This clear topping process in the IWM...

 is about the best entry you could ask for, other than the actual top of the head, but in this case, I'd be more than happy to settle for top of the right shoulder. After 5 years of declining volume off the 2009 lows (look at any bull market, volume expands with higher prices) this rising volume in the topping process is more than interesting, I suspect this is the BofAML Institutional net selling. The low volume rally on the right shoulder is EXACTLY what I'd want to see.

Increasing volume on the moves down is bearish, decreasing volume on the moves up like the current IWM move to the far right, is bearish, I'll leave the rest unmarked if you want to follow volume.

The 60 min 3C chart goes negative in to the left shoulder, leading negative in to the head and never recovers, 3C doesn't make a single higher high with price as the right shoulder is carved out, reminiscent of 2007 in many ways.

This large topping process is very clear on a daily chart, just follow the trend, a new leading negative low at the right shoulder.

As far as closer term, it's difficult to let go of those puts when every chart from 5 min to 60 on the Index Futures is leading negative.

TF 30 min nose diving

TF 60 min doing the same.

I still prefer SQQQ right now, however SRTY may be coming up very soon. Also FAZ is a position I would consider starting to build a position or fill one out, I'll have XLF/FAZ and other confirming charts up before I put the Trade Idea out, but I think it has to be very soon as even the banking sector stocks are coming up in the sell scans.

GLD Charts

Other than the gap up today, the GLD/SPY correlation (inverse) that has been the norm, is pretty much missing today.

 intraday SPY (green) vs GLD (red) correlation is not the typical inverse it has been.

While I do have a NUGT long position and have been waiting patiently for an area that looks like a good add-to or new position as it continues to build out some strong longer term divergences, I haven't quite found that area yet. GLD and GDX have a fairly strong correlation, moving together, this is GLD's 60 min chart, but I think it needs to come down a bit to finish up a reasonable base.

 This is the reason for the GLD Fade position, no intraday confirmation at all.

GLD 2 min with a positive at intraday lows, but nothing today.

Trade Idea- FADE: GLD (Puts)

As we saw last week, there was a GLD gap that I didn't think would hold, although GLD, GDX are doing a really great job putting together very strong positive divergences, a move like today's doesn't have the confirmation and looks good for a very quick fade, however because of the market correlation, I'm making this one very speculative at 1/3rd size of a full position.

I'm going with June (monthly/21st) expiration at $121 

I anticipate this being a 1 day trade, but whatever it gives.

Market Update

On an intraday basis, there's what you might call "time buying", which is usually just part of the reversal process unless we were ahead of a big event like the F_O_M_C. There are quite a few intraday steering type divergences that don't amount to much other than in line here and there intraday, if you back out to trend on those same charts and it's a very different story.

More importantly, the signals being generated or damage being done in this area is so obvious, I am not even marking the charts in those cases unless I'm trying to point out a specific period or concept. The SPY still probably has the best underlying relative performance, but this is not anything I'd place a trade on, not even a 1-day option. The QQQ and now the DIA are easily the worst, the IWM is about in line which is a major downgrade from where it was as price performance is making clear the momentum of the "relative outperformance" we were forecasting for the IWM is dead and now looks to be clearly in the reversal process, the signals are what makes things so clear here.

We don't always have very clear signals, we didn't for nearly 3 months and the Trade Idea posts declined by 90%, looking back now though we can see why the signals weren't there as a 3 month range is the worst possible area to try to trade, it's just a meat grinder whether long or short unless you are writing options.


DIA

 I don't think I need any notations on the intraday chart, you can see why it's now one of the worst underlying performers, I'll be looking closely again at Dow-20 / transports as I'm very interested in a position there.

 2 min DIA, MIGRATION

 3 min with some perspective as to where and when this deterioration is occurring and scale, we are now at 3C lows not seen since May 30th and got there in 2-days.

 This 15 min chart is what I mean by , "Very Obvious Signals".

IWM intraday nearly perfectly in line

The 2 min with minor adjustments, that's the 10 a.m-ish lows and then a negative as price moves up after 2 pm, this looks a lot like range bound of VWAP-type setting of price.

The same general concept on the 3 min chart

And just to make the point not only of the signal on this 15 min chart, but the point that this move was not due to accumulation, the last decent accumulation was the February lows/rally, this was the bear flag/Crazy Ivan momentum slingshot that led to short covering.

QQQ 1 min, again a lot of minor steering like divegrences, but back the same chart out to trend...

 A very different picture emerges, this is why I encourage looking at all timeframes, including 5-day and monthly.

The 3 min chart and this is just a theme at this point through all the averages with the same kind of intense damage at the same place which happens to be just about right for a head fake move's reversal process when you consider the proportionality of the preceding trend and what it was meant to do.

 SPY 1 min intraday,

2 min, same theme of "steering"

Back it out to trend and you can see the bear flag and Crazy Ivan bear trap/sling shot leading to a short squeeze rather than actual accumulation to create the move. We did predict this would happen at the time the bear flag first showed up, even right down to the Crazy Ivan.

And taking it from the same area, looking at a simple 15 min chart, you can see what I mean about "clear signals".

Important MCP Update

We have some newer members that may not be up to speed on the macro-view of MCP which is one of a handful of stocks that I believe can and will start their own primary bull market despite what the broader market does which is rare as most stocks float with the tide.

I'm not goingLets just go with charts...

 Here's a daily chart of MCP since inception, we see the 4 stages, Stage 2 Mark-up/rally, Stage 3 Top, Stage 4 Decline, Stage 1 Base and in order just as they should be. This is a fractal concept that can be used with any asset in any timeframe. The stage 1 base is over a year long so it can support quite a move. The 1999-2000 Home Builder accumulation I have shown on occasion while the Dot.com bubble was busting were about the same size and there were some moves in excess of 2500%

If you look at the chart's multiple stages, there's a certain proportionality that you get use to seeing after understanding stages and looking at enough charts. Even the recent move below support (head fake move) is VERY proportional.

 Daily MCP Base- closer look. With a base of this size and a rectangle with solid support at the same level through the entire base, there are a few things we are looking for before stage 2, one of the last things we'd be looking for is a shakeout of any longs (head fake move) just prior to the transition to stage 2 mark-up which is the trending stage or THE EASY MONEY. The most obvious shakeout is a stop run especially since support has been so well defined as well as the base's rectangle price pattern.

Even here, although the decline post earnings that created the head fake move seems dramatic, it is VERY proportional. These head fakes are meant to do a job, scare out all longs so they tend to be extreme. You may recall from our most recent long entry and call options entry that we waited most of the day as MCP traded around $2.53-$2.57 for a break below $2.50 as it's a psychological level where stops would be piled up as well as orders (shorts), volume spiked on the break of $2.50 as the stops were hit providing smart money with cheap supply and plentiful and the next day it was up over 12%.


 This is a 60 min chart ofMCP post earnings, this is very reminiscent of a RIMM trade we did some years ago where we had very positive 3C charts in to earnings and suspected there might be a bullish leak of earnings only to see RIMM fall on disappointing earnings, however the 3C charts never deteriorated, they got stronger so we held and a month or so later we find out their long time twin CEO's were departing in a major shake-up of the company, this is obviously the inside information that was causing the accumulation as the losses in RIMM turned in to a double digit gain from there.

Some members have commented on the Inverse H&S like look of MCP in this area which I consider to be a head fake move (below base support) as well as a reversal process of that move to bring us back in to the base and eventually to stage 2.

Whether this is an IH&S or not, the accumulation is there.

 This is a custom cumulative volume indicator I threw together to make volume trends easier to spot. As far as volume confirmation of an Inverse H&S, volume is right on the left side of the pattern, only at the yellow arrow is volume a bit light, but with this price pattern, volume is not that important until the head and to the right of the head, there it is essential, even more so than a regular H&S top.
We have increasing volume on the rally from the lows of the head which is what we should have and now we need to see increasing volume on what would be a breakout from the base pattern, so far so good as this is an hourly chart and the break to the upside just started around 12:40.

 As for 3C, this is the 2 hour trend, you can see when it was near resistance or the high end of the price pattern, there was distribution and then a Goldman Sachs downgrade sending MCP to the lower end of the base where it is likely to be accumulated in greater size (on the cheap) which happened right through a descending (bearish) triangle. The 3C leading positive divegrence since the decline below the base/triangle has seen a new leading positive high giving us strong evidence the supply from all of the stops and lower price was accumulated in large size even after a year+ base.

 60 min chart of the descending triangle which actually was showing accumulation as it is at the low end of the base. You may remember we were long when MCP broke out on 4/22 and we had a 6+% gain, this is when I started getting nervous because there was a low probability of a stage 2 breakout on a base this large with support this obvious WHEN THERE HAD BEEN NO HEAD FAKE MOVE FIRST. 

Later that day 3C was not confirming the breakout and we got out around a +6% gain on the day and MCP fell right back down (before earnings). That's how strong this head fake before reversal concept is, that was the original reason I wanted to get out on a 6+% breakout day.


 This was our last trade in which I /we filled out the half size position when price broke <$2.50 and hit stops on accumulation, we also entered a call position on the same day, 6/3 (you can find the posts in the archive on the member's page to the far right about half way down) and we closed the calls the next day on 6/4 as this small, "V" shaped reversal was not strong enough to support a real breakout move, it was a reversal event rather than a larger reversal process, however I suspect that price action since the lateral range after the earnings drop has not only been the head fake move I was expecting, but also acting as the reversal process in which case, it's plenty big.

Note the volume on today's move thus far as MCP is now +4.5% 

 There wasn't any huge accumulation signal yesterday, but a smaller one that we use to often see just before a move which I always attributed to market makers/specialists loading up for the move.

Otherwise, the accumulation through nearly every timeframe ha been there this entire time, thus the reason I've held and added the full position size on 6/3.

 Right now, using the Trend Channel, we'd need a close above $2.93 to break the downtrend, the next significant level would be a close >$3.02 , you might want to set some price alerts.

Finally, my Custom DeMark inspired buy/sell-sell short indicator gave several buy and one sell signal, the past signals have been right on. I also see a very tight Bollinger Band squeeze just after two buy signals.

As I said before, I don't see any reason this couldn't be the real deal, early in June the sharp "V" reversal was reason to doubt the move and before the earnings decline, the fact there was no shakeout/head fake move was major reason to doubt a move, but now everything is in place, even the head fake move on 6/3 of the post earnings range that took out stops at $2.50

MCP longs, keep your eyes open

I'm preparing the update for MCP (long) right now, it has been up as much as +6% today on good volume.

There's no reason I see that this "couldn't" be the start of the move we have been looking for as we have followed and traded in and out of MCP for about the last year.

The large stage 1 base is there, the head fake move under the rectangle base is there, the accumulation is not only there, but never dissipated even a little, even after the post earnings decline and finally the reversal process is there.

I don't see any reason (unlike our last call/options trade bought 6/3 and closed 6/4 at a nice gain) that this couldn't be the real deal.

The update is almost done. If you are looking at MCP as I am, for a long term trending trade (stage 2), then despite the day's gains, it's still in an excellent , low risk level for a long position.

The Other-side of Relative Performance

I'm obviously talking specifically about VERY near term intraday performance. Yesterday I put out an SQQQ long (UltraPro 3x Short QQQ) Trade Idea : SQQQ Long , right now  this is one of my favorite leveraged inverse or short ETFs considering probabilities, relative performance, risk and timing.

You may recall in Friday's Broad Market Update I included a breadth chart of the NASDAQ Composite, it was an Advance/Decline line vs the COMPQX and there was a significant divergence in the A/D line (negative) vs the COMPQX and this is a huge Index, all NASDAQ listed stocks.

In any case, here's what the Q's are looking like, why I like SQQQ as a broad market play (and it gives you some idea of where I'm looking as far as individual assets beyond ETFs).

 This is the QQQ's Rate of Change, the same settings as the earlier IWM post, this area that I believe is a reversal process (as I had said Friday in The Week Ahead, I thought this week the head fake move above the range resistance would start to wrap up). The Q's broke resistance from the strong February Rally highs which it completely retraced as did the IWM.

 Near term, on the relative performance spectrum, the Q's are on the opposite side of the SPY. This is the trend of a 1 min chart with the Feb. high resistance level (yellow) and what happened as soon as price crossed above it as this is where retail traders will buy, especially on a breakout after a 3 month range of getting chopped to pieces trying to pull trades off inside a +/-3% range.

Again, in this situation (trend) a head fake move has to be convincing, it's meant to create retail demand which pros sell in to, it's also meant to squeeze out shorts as we can't have everyone on the same side of the trade in a zero sum game (the market) where someone has to lose money for someone to make it.

I think the 3C trend as price crosses resistance ALONE, is evidence enough of what a head fake move is used for and gives us the confirmation we need to have in order to establish it's a head fake move and not a real breakout.

The most recent ROC of 3C is in the area of last Friday to present.

 This is an intraday view of the same 1 min chart. Even intraday the Q's are showing some of the worst underlying relative performance.

 The 2 min chart showing confirmation, the yellow trendline is former resistance from the Feb. rally highs.

 a wider 3 min trend view, also the former Feb rally resistance (yellow) and 3C's recent downside ROC.


 This 10 min chart shows the most interesting area of 2014, the accumulation we spotted as far back as late January in to the first week of February leading to the February cycle/rally (for the IWM/QQQ it's a rally as they retraced the entire move already, for the other averages it's still a larger cycle in my view).

You can see the retracement of the entire rally on a negative divegrence, this isn't even that sharp, although respectable, but compared to the leading negative now, we are dealing with two totally different situations and this one looks much worse, thus my preference for SQQQ (long).

 The more strategic view on a 30 min chart since the Feb rally.

 And the long term strategic view on a $ hour chart.

This QQQ 60 min shows the negative at the top of the Feb rally and the extreme leading negative now, compare the relative placement of 3C at the two relative price levels at A & B.

For confirmation, 3C should make an all time new higher high with price, instead it's probably days away from an all time new low for the chart.

This is the same 60 min chart for SQQQ, the long UltraPro Short QQQ I like. Note the positive divegrence which is where the Q's topped and retraced the Feb. rally then note how 3C is in line with price nearly perfectly until this huge leading positive divegrence confirmed by the Q's as well as 4 other long and short leveraged ETFs all with the Q's as the underlying.

I guess you could call this a SQQQ reiteration.

Basic Market Update

The price pattern since Friday has been that of something like a small H&S top which is a change in character, here's another. Just a week or so ago there were divergences in the IWM (really not that strong or impressive) that on a relative basis (relative to the other averages) looked like the IWM was going to see some outperformance or better performance relative to the other averages, last week the Russell 2000 had its best week of 2014. However this brings us to the Rate of Change concept and how it often increases on the upside just before a top, lateral trading zone or reversal.

This is what has happened to the IWM's ROC or performance since Friday using a simple ROC of price.

On this 10 min chart the green is the IWM with its strong move and orange is ROC of the IWM's price, note as it moves to the area of this mini H&S looking pattern the ROC has fallen off dramatically, this too is a change in character, from a breakout move in most averages (which has seen strong negative 3C signals) to a lateral move which is commonly the "Reversal Process", recall we exited MCP the day after filling out the equity long and buying calls as the reversal area was a "V" shaped event rather than a process, thus I figured it wouldn't hold and it didn't, not to say it won't , but that's another update. The point is the reversal process is seen 90% of the time I'd guess, there are very few straight up and straight down "V" reversals unless it's a clear parabolic move, but even they typically have a small reversal process.

Right now I'd say the SPY probably looks the best as far as underlying trade, I mentioned a 1 min positive at the lows yesterday just before 2:30 and there was another on 1 and 2 min charts around the 10:30 reaction lows today. I don't think this is anything more than the continued chop of a reversal process as the trend is largely lateral or a range.

 SPY 1 min yesterday and this morning, essentially it seems to be holding the neckline area (if this were a true H&S formation).

Here it is on a 2 min chart so the possibility for some volatility in price is there on an intraday basis.

However, the damage that is being done in this area on a shorter term (as the strategic damage is already there, this was also confirmed by BofAML in the recent charts they provided showing institutional money as net sellers Year to date and especially recently- above SPX range/1900).

 3 min SPY from in line to leading negative.


migration to the 5 min from in line to leading negative.

 SPY 10 min relative to the multi-moth range's resistance trendline, the amount of damage done here and the amount of time it occurred in is what is impressive.

 15 min SPY, not only relative negative, but leading negative and the leading damage was very fast, near to a vertical drop.

 The strategic trend as confirmed by BofAML, the leading negative ROC as price moved above the range is notable and makes this a VERY high probability head fake, the type would be a bull trap as pros hand off shares to weak retail hands.

And the trend that I saw on another chart that looked so familiar even though it was a totally different "Smart Money" indicator. This is the strategic trend, the flow of what smart money has been doing, the move above the range sees a very bad leading negative divegrence, this too gives me VERY high confidence this will end up as a failed breakout, but before retail catches on, as they buy the dips, they'll be solidly locked in to a bull trap which provides the downside momentum on a fear based decline.