For Those PCLN Hunters

I had been saving this one until it was in a more advantageous set up, instead of waiting to call it out as a Trade Idea, I thought I'd give you an example of "Why you don't need to chase".

Every stock has different relative performance, this means, especially in PCLN's case, that it's going to be an entry at a different time than most stocks or the broad market in general. I'll show you what I mean about Relative performance in this context.

Lets just jump in to the charts...

 First off, we are seeing a lot of H&S tops that are right at the top of their right shoulder, the next move from the current position at the top of the right shoulder is down which fits with market expectations as they were put forward Friday.

However, PCLN's relative performance vs the SPX has been poor, from 5/29 to 6/10 PCLN did - 5.33% while the SPX did + 1.68%, that's a differential of over 7 % in the wrong direction. However, after examining the charts a little more closely, it seems there was some premature decline in PCLN, I'm not entirely sure why, but it looks like it will offer a better entry which still isn't bad here, it's just at least 4% off the optimal and perhaps even more off what will become available.



This is a quick custom cumulative volume indicator to make it easy to spot volume trends during rallies and declines and confirm a H&S top. At #1 volume fell off hard in to the highs, this is typical of a H&S, but just before it had been moving up and if it maintained that, it would be shaky calling this a H&S top. At #2 and #3 volume increases on the decline to the neckline which is what we want to see and at 4 volume declines on the right shoulder rally which is one of the most important areas for volume confirmation, once you are on the right side (decline) of the head, volume plays an increasingly more important role.

As far as breaking the trend, this is my custom Trend Channel I've won awards for, basically it won't take us out at the top. but tell us when the trend is done and the easy money is done.

The trend was held very cleanly without a single stop since the start of 2013, but it stopped out at the red trendline, this doesn't mean an automatic reversal, it does mean the probabilities of the trend continuing are VERY low.

This is the right shoulder I mentioned, note today's positive candle in an ugly market with a +1% gain, like I said, this is one that is not following the market's relative performance and thus it will be ready in its own time which shouldn't be far off, but still, there's no reason to chase any asset lower on downside action like we saw today. THERE ARE A LOT OF OPPORTUNITIES OUT THERE.

 I was looking at how sharp this multi-day 3C chart dropped off so I compared it with TSV, although 3C almost always has more accurate signals than TSV, I just wanted to see. As you can see TSV does not drop off as sharply, but does drop off and is in a leading negative divergence.

There's more...

The Trend version of 3C which eliminates most smaller signals and a lot of noise also drops off considerably around the same time, looking at intraday charts, it looks to be accurate, the point would be, distribution in PCLN took on a very serious role over the last year and we know for sure Institutional traders have been net sellers for more than the last year from the BAC material.

 A daily chart of PCLN has the same wicked drop-off/distribution, so strategically, PCLN looks like a monster short, it's all about the tactical entry now.

 The 4 hour chart during the H&S top, exactly what we want to see and very similar to other assets like NFLX that are in the same pattern and the same place.

 This 60 min chart of the right shoulder looks like distribution was fast and heavy, but it was very poignant and in a shorter period than usual, volume was higher in the area as well

 The more detailed 30 min chart shows the same, as well as the positive divegrence that created today's relative strength, this is why I haven''t put PCLN out yet, I was expecting a bounce that could be shorted in to, tactically it doesn't look to be ready, at least not as close as we can get.

 The 5 min chart shows all the same trends from quick distribution to a positive divergence , so I think PCLN bounces a bit and gives us a better entry, although I would not consider this a bad entry when looking at the bigger picture.

From 3C and BB's, I'm setting alerts above $1250 to $1325, I suspect somewhere in thre distribution will kick in and we'll have our short entry, you may want to set alerts if interested.

The downside target looks to be about $775

Don't Chase

I just got through looking at as much as I could from Futures, currencies, credit, yields, TICK data, Leading Indicators.

I think this was a very real move lower, the charts are just right where they need to be, but as I said in the last post, "Wall St. isn't going to make this look like a clean, simple reversal to the downside", they are going to jerk it around, cause doubt, condition the buy the dip crowd.

However where it counts such as TICK data on the decline, that was very real, very bearish and extreme. Very short term charts for the averages are not terribly positive, but they are more moderate than the charts that really matter when looking at the bigger picture.

For example iof you looked at NFLX this morning, there was a pop that would have been a bit scary for a NFLX short, but if you look at the last 5 trading days, the upside momentum is gone, there's a reversal process, the important charts are leading price, so it's a matter of riding through the intraday games and I think there will be plenty.

I still think the F_O_M_C next week will have an unpleasant surprise.

In any case, the point of this post is, "Don't chase", don't feel like you missed any bus or that you need to take sub-par trades, the opportunities on the intraday games will present themselves. However, I also wouldn't doubt that this has been a very real move, there is fear among smart money, not so much dumb money as you saw by the Investor's Intelligence chart with all time lows of complacency.

Index Futures Update

This feels like the real thing, but remember , "Wall St. is never going to make it easy", they are going to throw sharp counter trend reversals, they'll likely keep conditioning retail to believe "Buy the dip" is a sound strategy to lock them in a bull trap north of SPX $1900.

As for the charts in Index futures, almost all are in line, there are some 15 and 30 min charts that are leading negative in a big way, but ultimately what really matters is the 60 min chart to set this apart from a "pullback or correction".

All of the Index futures and even VIX Futures are showing the same very serious event unfolding as we expected to see this week per Friday's The Week Ahead post in which the charts all looked like the head fake run was done and this week it would be unwinding to the downside, momentum has done exactly that since Monday.

 ES 60 min (RSI in the lower window)

NQ 60 min

TF 60 min, note there's a lot of similarity between 3C trends.

 And look at this VIX futures 15 min, we saw this accumulating last week in some size, plus those strange huge volume spikes in VXX after hours.


And surprisingly, the 60 min VIX futures.

I have more to go through as well as assets.

Trade Idea/Reiteration -Longer Term : NFLX

I don't know how many more times I can put NFLX out as an idea, but as it remains in a beautiful spot, I can't not put it out there as it is by far one of my favorite non-market correlated (as in inverse ETFs like QID, SQQQ, SPXU, SDOW, etc.) stocks.

I've already gone through all of the timeframes which look excellent, I've shown the confirmation of a H&S top, I've told you there's only 3 places I'll short a H&S top and this is the second and sometimes the last, depending on market conditions. I'm going to make my last pitch of the idea pretty simple.

 You are looking at a daily chart of NFLX, to the left is the head in the H&S and currently is the top of the right shoulder, this is where I want to short these patterns practically right on the nose.

If you can see the ROC by the trendlines I drew of the right shoulder, you can see momentum falling off, that's where we go in to the reversal process or a rounding "U-shaped" area. If you look at the last trading week (5-days including today), NFLX is down 0.47%, intraday it can look like it's strong, but step back, it's at that moment when the stall starts to turn to the fall.

 The most important charts for me for the long term idea are the 4 hour above at the H&S top and...

The 60 min as it shows the timing of the Head short entry and the right shoulder short entry as the 60 min chart leads negative at both.

 I included the 30 min, it has a bit more detail, the accumulation needed to create the right shoulder so smart money can dump at higher levels and in to demand which you can see happened, these charts are looking excellent across the board in all timeframes.

 And this is the 2 min intraday, I really don't know how much time NFLX has before shorting becomes chasing and I prefer not to chase.

The only way I would consider a put at this point would be an intraday move above this trendline around $435, otherwise, I'd rather stick with the longer term trending short position.

I have figured the price pattern implication gives us a target somewhere around $200, possibly lower as these have a tendency to overshoot. being the market has been lifted artificially since 2009, there may be an even bigger surprise than that.

GLD Fade Trade Follow Up

Yesterday I put out this Trade Idea- FADE: GLD (Puts) . I actually like GLD and miners a lot, it's a question of timing to fill out the NUGT long and/or enter a GLD long, but very near term, 3C is clearly forecasting a pullback in both GLD and gold futures, since it's more along the lines of a pullback or fade of recent gaps up, I decided to use some leverage with options as there are few good choices among leveraged ETFs (too low volume).

 Accumulation to the left which I don't think was specific to this move, I think it's part of the larger base work being done that's apparent on longer term charts.

We have good migration/confirmation on the other intraday timeframes like 2 m.

3 m.

And all the way out to 15 min.

Actually we even have a negative out to 30 min, it's not as sharp, but the distribution wouldn't be as large and therefore wouldn't print as sharply as the shorter timeframe charts.

As far as the longer term base in both GLD and GDX...

No damage done whatsoever, I suspect a move toward $115 will put us a lot closer to a long term trending long position in GLD and / or GDX.

IWM Follow Up

I really should have closed this earlier, there was a much larger gain to be had, but I have been busy going through a watchlist of over 300 stocks.

In any case, it's still a gain and I still need to move IWM puts (if we can get a decent set up) out to July expiration, I like a lot more time than I think I'll need.

Even though I missed the high of $1.93 by quite a bit, the $1.64 fill still brought in a 30% gain, 2x what it was yesterday.

I'd like to see a move up and sharp to re-enter puts, otherwise I may just start looking at SRTY long (3x short IWM) for a longer term trade.

Closing IWM June 21 $117 Put

I want to see if I can move this expiration out as the time decay is going to start getting nasty and I have a decent gain there.

Gap Fill?

I have received more emails this morning thus far about whether the gap will be filled in the major averages and whether the gap "has" to be filled, so it's easier for me to try to address it here than in 20 different emails.

First, no, there's nothing that says a gap "Must be filled". In fact, before HFT (High Frequency Trading), Japanese Candlesticks and gap analysis was one of the most effective ways to discover true resistance and support as gap resistance/support was some of the best you'd ever find, however, when things become obvious in the market, the market adjusts just as a casino in Vegas would if their one-arm bandits were paying out too much. The crowd that doesn't adjust is retail, it has been well over a decade since Technical Analysis has been used against traders and they still do the same thing over and over.

A gap that is not filled (in a situation like this or a worse gap) is called a break-away gap (after a prolonged downtrend it's called an exhaustion gap, similar to the concept of capitulation. The break-away gaps were rarely filled and certainly not any time soon, it may have taken months or even years to fill them and they were an excellent give-away of a market breaking, in large part Wall St./HFTs have eliminated that edge.

As far as, "Will the gap be filled?"We don't deal in certainties, we deal in probabilities, the probabilities alone say yes just because they have been so relentless in filling gaps, especially since 2009.

As far as what we know right now...It looks like it, but as I posted earlier with the more angular reversal pattern and the more rounding pattern, the only difference really is time and that is what Wall St. needs, it's actually volume, but that volume is accrued through time.


Charts...

 After an opening TICK reading extreme of -1350, we've been sitting in a -750/+750 range which tells us nothing, this is why I created my custom TICK indicator.

Here's this morning, you see intraday TICK improving so the chances of a gap fill (probably before I finish this post, but the concepts are still useful) are higher, higher probabilities. 

What matters is what you do with the move.

 The DIA which was the worst looking, but moved in line this morning from yesterday's intraday deterioration has two things, a 2 min positive divegrence which is continuing to build and notice the "reversal process" there, it didn't have a built in positive on the open like the IWM did, it has to build the divergence, thus the reversal (rounding) process. However, there's not much beyond this, which helps us understand 2 things, first before we were even talking about gap fills, the two charts of a reversal of this move, one more angular and one more rounding, the difference is time, a gap fill is time.

 DIA 3 min, note where distribution was strong, in to price strength (if we can call it that, but the highs on the chart), then in a range where we most often see accumulation/distribution it led negative almost all day yesterday.

At 5 mins, the same thing, leading negative in to the close and in line on the 5 min. A move up in the DIA would likely leave the 5 min where it is as there's no positive and it's not likely to build out that far considering the distribution, why distribute just to buy back what you were trying to get rid of?

Thus we'd have an even worse divergence here.

The IWM 1 min looks like a gap fill, remember though, this is an intraday chart used for tracking intraday price, this is not where we find institutional moves, they are on 5 min and up charts.

 The QQQ 1 min is simply marking time, however the market averages typically move together, there may be differences in relative performance as we have seen in a big way this week and last with the IWM, but they tend to move directionally which is interesting if you look at the Q's from a longer perspective.

 This 60 min chart shows institutional movement, note that it went leading negative right as the range was crossed and in the SPX 1900/SPY 190 area, exactly where retail would be buying a breakout move, thus the reason we had anticipated such a move in May before the 15th's bear flag.

The continued leading negative is showing us continued stronger probabilities, but look at price, a VERY flat , obvious resistance level, if the gaps are filled, that resistance level would be taken out and SQQQ would be a key position to be looking in to (long).

One of the strategies Wall St. seems to employ is conditioning... in other words, lets call this morning "The dip", retail has been conditioned to "Buy the dip", this is helpful for distribution purposes now, but for making money on short positions set up, retail continuing to buy bigger dips like one to SPX support around $1900, leaves retail holding a very big bag when the market drops, this is the reverse of a short squeeze, retail starts taking losses which causes more to start taking losses and whalah! You now understand why bull traps (head fake move) create downside momentum and why fear being stronger than greed makes declines fall about 5x faster than markets rally (look at the 2002/2003 to 2007 rally and the ensuing decline from the 2007 top through 2008 and to the lows of 2009, about 5 times faster and it took back all of the bull market and then some.

Filling the gap isn't the question, although I know many are eager to see a solid down day, how you use the filling of the gap at this stage is the question.

I have a feeling next week's F_O_M_C will take care of the rest.

Opening Indications

There's still a good deal of divergence in relative strength (underlying) in very short term intraday charts as you'll see below, the DIA has been in the worst shape as it joined and surpassed the Q's yesterday.

 The DIA's leading negative divegrence in a flat-ish range yesterday is quite noticeable, remember that 3C charts often pick-up right where they left off the next day, so with a leading negative in the DIA it's not surprising that it is slow to try to fill the gap which (gap filling) has been a defining feature of the QE regime or perhaps the rise of HFTs (both happened essentially at the same time).

The DIA is at confirmation in the green box right now. 

The DOW theory of confirmation between the Industrials and transports is why the 3C weakness in Transports has been important to me, although the R2K is probably a much more relevant average than the Dow in today's market, still the underlying weakness in transports needs to be there for this market to crack and right now transports are very close to breaking an important semi-intermediate trendline.

 The IWM which has been closest to confirmation on intraday charts did not confirm the gap down, but rather had a 1 min positive divergence which is fine and I'll show you why (the 1 min chart is losing strength right now, but it's a long day, it likely will fill the gap, UNLESS THE F_E_D & FINANCIALS SITUATION CREATES A 2008 LIKE PANIC, in that case even the NY F_E_D's Plunge Protection Team is pretty helpless to control the descent).

 The QQQ intraday did not confirm the gap, but rather moved right back to in line status, as I said, the 3C charts pick up where they left off the next morning. There's a hint of some weakness starting in the Q's, but in this case a 1 min chart in line is not a bullish thing, it's more or less "time".

Since in line status on an intraday chart is essentially neutral, it falls to the longer charts to determine the probabilities and they have been and remain solidly negative.

You just don't see major reversals in trends when there are very familiar price patterns and the longer they persist, the more stops/orders collect and the higher the probability is that they will be run, that's the head fake move as the run is not a show of bullish accumulation, it's use of higher prices and demand to sell in to, that's the negative divergences since the move above the range intensifying.

Imagine it this way....

This is the 3 month range in the SPX/SPY. At the first reaction high, traders (retail) are going to place limit or BTC orders above the last reaction high. That high is tested again and it becomes a stronger area of resistance, trendlines can now be drawn and even more orders for a break out Long or a "Buy to Cover" of a short are going to continue to build (white hash marks), then as resistance and the range persist longer (especially in the most watched ETF in the world), more and more orders are sitting up there, this is why I keep all orders mental and never place limits/stops with my broker, you are showing your cards to Wall St., but the fact is people do so you have to be aware of this.

At this point at the end of the range, there's so much demand there, it's easy to sell in to or short in to and when you are carrying billion dollar single positions or putting them together as an institutional investor, YOU NEED THAT DEMAND AND HIGHER PRICES TO SELL OR SHORT IN TO. Even beyond that, the money made on the bid/ask spread or volume rebates is incredible, they have EVERY reason to run that area, create bullish demand, scare shorts out as everyone can't be on the same side of the trade in a zero-sum game.

However, we are able to differentiate between a price breakout and a head fake move, which is something few others can do, thus we can use this to our advantage in several ways (hitch-hiking trades, short sales, cleaning up old long positions, etc). This concept is true of every asset in every timeframe , even a simple half day bear flag will be head faked 80% of the time due to technical traders' predictability in following 100 year old concepts and not adjusting to new dynamics.



 The SPY had a relative 1 min positive divegrence, but right now that's starting to fall apart.

Here's why a gap fill is not such a bad thing and time is not such a bad thing.

If you look at enough charts, you'll notice a proportionality to the reversal process, there's a reason it's there, we are like jet skis that can make fast, sharp turns because of the size we trade in, but with billion dollar positions, Institutional money (which is who makes the market move) is more like a super tanker that takes several miles just to come to a stop. THIS IS WHY REVERSALS ARE VERY RARELY "V" SHAPED AND MORE OFTEN "U-SHAPED" OR ROUNDED.

Those large orders and setting up the next trade as we do in this area take a lot more time as they have to be broken up in to smaller pieces and sold in to demand, otherwise predatory HFTs (Iceberg hunters) will front run the orders if they can uncover them. THIS IS NOTHING NEW, BACK IN THE 1920'S JESSE LIVERMORE DESCRIBES THE SAME CONCEPT, THEY CALLED IT "CORNERING". 

If you know where your competitors are active and what they are trying to do, you do the opposite (if you are large enough) and you force them to take a loss in a zero sum game, which becomes your gain, often this is achieved by front running their orders and pushing price against them while you feed them the shares they need.

This is why the above chart looks a bit "angular", maybe not "V" shaped, but Angular.

Most reversals are going to look more like this...

Rounded.

I'm not saying that there aren't straight down drops, if the Financial information that just came out of BAC starts to become epidemic, you'll have a 2008 waterfall sell-off or something similar to the 2012 AAPL sell-off, that's when the losses taken by waiting will be much larger so everyone tries to fit through the same small exit at once. WITH FEW SHORT SELLERS AFTER A SHAKEOUT RUN LIKE THIS, THE DECLINE IS WORSE AS THERE'S NO NATURAL DEMAND (COVERING/TAKING PROFITS BY SHORTS WHICH MUST BUY TO CLOSE THE TRADE).

I don't have specific information that this will be the case, but conceptually I'd imagine something more like this...

I would expect initial support and maybe a bounce at #1 (support) as this is still viewed by Technical traders as a breakout move and this would be buying the dip as they are more bullish than ever, see example 1 below. Next a move in to the range, however, just like the Crazy Ivan around the Mid-May bear flag created upside momentum, the move above this range is a large version of a Crazy Ivan that should create the same extreme downside momentum and fear moves 5x faster on average than greed (declines move about 5x faster than rallies as fear is a stronger emotion and the market is emotion driven) .

Finally a break below the range is a solidly failed breakout, we'll talk about what happens after that, but this is where I see intense downside momentum and I'd say we will be near the F_O_M_C somewhere around #2 or #3 and I have a feeling that they'll put out a hawkish statement or action as they have clearly voiced their displeasure with the lack of volatility and the complacency of investors in a bubble market.

Example 1

This is the LEAST BEARISH Dumb Money has EVER been, note former lows at 1999/2000, 2007 (you know what happened next).

Finally in what may be the straw that broke the camel's back, I don't know because I refuse to listen to CNBC unless it's for a F_O_M_C statement, but I've heard the Fast Money guys were all bearish until just the last week in which they threw in the towel and became bullish. 

I remember the week of the top in 2007, CNBC had numerous guests saying this market was just getting started, there was even one who was the author of "Dow 20,0000". The same week, the market started to break.

If the F_O_M_C does more than voice their displeasure with the market bubble they created in speeches and actually puts something in their statement (remember original guidance was for QE to end at 7% unemployment, then 6.5%, then it became arbitrary with qualitative analysis as forward guidance which essentially means, "We will make it up as we go along".

There's no need to chase assets, there are plenty out there and there will be plenty more, but I am happy to have a full size SQQQ and FAZ, I'll cover financials later today and give you a run down of the timeframes.