What Has Happened Since the F_O_M_C

This is what I've been most interested in, this and the way VIX and Treasuries as well as gold, react.

However, we may have found something in VIX that is right in line with Wall Street never showing their cards.

If you look at VIX, you'd think there's ZERO fear out there, however those of you who have been a while for some time have seen me feature the CBOE's (same people who put out VIX) SKEW Index.

What is the SKEW Index? From the CBOE:

"The crash of October 1987 sensitized investors to the potential for stock market crashes and forever changed their view of S&P 500® returns. Investors now realize that S&P 500 tail risk - the risk of outlier returns two or more standard deviations below the mean - is significantly greater than under a lognormal distribution. The CBOE SKEW Index ("SKEW") is an index derived from the price of S&P 500 tail risk. Similar to VIX®, the price of S&P 500 tail risk is calculated from the prices of S&P 500 out-of-the-money options. SKEW typically ranges from 100 to 150. A SKEW value of 100 means that the perceived distribution of S&P 500 log-returns is normal, and the probability of outlier returns is therefore negligible. As SKEW rises above 100, the left tail of the S&P 500 distribution acquires more weight, and the probabilities of outlier returns become more significant. One can estimate these probabilities from the value of SKEW. Since an increase in perceived tail risk increases the relative demand for low strike puts, increases in SKEW also correspond to an overall steepening of the curve of implied volatilities, familiar to option traders as the "skew"."

SKEW measures out of the money options, essentially expectations for a "Black Swan event" that is 2 or more standard deviations away from the mean while the VIX is constructed for 30-day volatility with SP-500 options at/near the money.

When SKEW is at 100 the perceived  probability of an "outlier" event or Black Swan is very low, the higher SKEW, the higher the perception is that an event of 2 or more standard deviations away from the mean are rising, since the F_O_M_C, SKEW has been rising to the top end of its historical range (100 to 150 although 150 has only been seen a handful of times).

 Since the F_O_M_C last Wednesday, SKEW has been rocketing upward, the perceived tail risk of a Black Swan event has risen dramatically which is what I was arguing last week between inflation and the F_E_D's inability to do anything but raise rates if the trend is not brought under control, even though Yellen called it "noise", almost dismissive of it because I think she knows what smart money knows, it doesn't matter what the F_E_D says, if the inflationary trend which is already above their mandate continues, they have no choice but to raise rates and likely long before current guidance which has also been reflected on the "Dots" over the last 2 meetings, the consensus of F_E_D members is that rates will be higher at the end of 2015 and 2016 for the last 2 meetings, even though you'd never know that from the policy statement, only if you looked at the associated charts released with the statement.

 SKEW since the F_O_M_C to the far right.

An interesting event that occurred at the July 2011 mini crash of -20% which I have already noted showed the same trend of lower yields for the 10-year benchmark in this post from last week, 10-Year Yield (Bemchmark) vs. the Market.

This is the actual chart...

This is the 10 year yield at or just before the 2011 sharp plunge of 20%, the only other places there were divergences were the 2007 top, an upward yield rise at the 2009 lows, here at the 2011 decline and right now.

Interestingly...

The VIX had dropped before the event while SKEW shot up, just like now, it gives the impression all is fine while smart money is hedging and buying out of the money options expecting an outlier event like this mini crash, the exact same thing is going on now, whether smart money is doing this intentionally as the above chart would suggest or not can't be proven, but it would allow them to knock VIX, ramp the market and sell in to those VIX monkey hammering gains and giving the impression all is well while retail holds the bag.

If we look at action since the FOMC, the SPX closed today at +0.02%, R2K at -0.29%, Dow -0.07%, the NDX +0.06%, the Dow -0.07% and Transports -0.52%. Since the FOMC the same averages have seen "follow through" or lack of it of +.28%, +0.06%, +17%, +0.01% +0.17% and -.19% respectively, in other words, other than the initial knee jerk on Wednesday, there has been ZERO follow through.

I've been looking for specific 3C action since the FOMC, here's what I've come across...

 IWM 15 min with significant distribution today, keep in mind there was never confirmation of the knee jerk move. Mirroring this is TF/Russell 2000 futures...

The red arrow is the FOMC, this is a 15 min chart of R2K futures, note the strong distribution today as seen above on the IWM.

 The QQQ since the FOMC, again non-confirmation of the knee jerk, this is above and beyond.

Mirroring this...

The same trend since the FOMC in 15 min NASDAQ Index futures

 As for the head fake move expected, the QQQ/NASDAQ 1000 can be seen as a double top of sorts, even though the Feb. rally highs were totally retraced, the move above them was the same time as the SPX's expected head fake move, the 3C trend calls accumulation at the lows before the Feb. rally and then after the retracement, in to the second top much worse distribution.

 This is mirrored as well on the 60 min chart (there are those that are worse, but I'm looking at this specific area.

 As shown earlier, SQQQ confirmation, this is intraday.

This is on a 60 min chart, almost the mirror opposite.

As for SPY... I posted the charts for all timeframes today here, SPY Multiple Timeframes

The confirmation in SPX futures (ES)...

ES 15 min since the FOMC mirroring what we've seen in the SPY.

However as you know we have long term divergences...

 2007 distribution, 2009 bottom accumulation and some of the worst distribution I've ever seen, it's almost hard to believe, but the F_E_D supported the ability to distribute huge positions in to higher prices which is why I call QE a Stealth Bank Bailout.

And the proof we have of this beyond 3C...Bank of America/ML was kind enough to show us who's selling, who's buying...

Institutional money follows the same path as 3C, this is why I have said I believe this is an opportunity way beyond what the market has shown the last 5 years, in fact an opportunity no one alive has seen (you may recall the 3C charts of the Dow in to 1929 vs now). Institutional clients have been net sellers through the same period 3C shows them as distributing, hedge funds as well, but look who has been the bag holders of recent! RETAIL!

This is classic, Smart Money leaves the building with retail holding the bag at all time highs as the market moves to all time lows.

 What is different about right now? Other than distribution getting worse, the worst seen, Yields are now in the red zone in which I showed (see the link above) that they have called every top without a single misguided signal, 2007 top, 2011 20% crash, the 2009 bottom and right now.

QE is being phased out, this is the only reason the market was able to make any gains, the Bernanke Put, it is being removed and with inflation, Smart Money doesn't believe the F_E_D has any choice but to raise rates, the inflation trend is there, the only thing the F_E_D can do is raise rates and that=BEAR MARKET. This is why I keep pointing out that the market front runs the F_E_D, in other words the market will discount (move down) long before rates move up.

Since last week's F_O_M_C we have seen a number of small signals such as the inflationary hedge, gold outperforming, the Safe Haven Utilities way outperforming, it seems obvious exactly what the market is focussed on, inflation which forces the F_E_D's hand.

In addition to all of the other things we have seen since the F_O_M_C, the rise of SKEW apparently is showing out of the money options seeing a lot of interest, in other words a move so large, these out of the money options will be worth something and in a big way since the F_O_M_C. Why? I can't say, perhaps the dots, perhaps Yellen's dismissal of inflation as noise hinting the F_E_D will be caught off guard again as they were in 2007/2008.

This trend though shouldn't be ignored, especially given 3C charts before, the head fake move, 3C charts during, gold rising, yields falling alone is excellent reason...

 10 year rates falling in to the 2007 top, the exact top to the far right.

 10 year yields falling in to the 2011 -20% decline in late July /early August 2011

And 10-year rates now...

 and now of course we can add...

 SKEW since the FOMC.

NUGT Follow Up

This is a follow up to the partial position closure of NUGT today, Trade Management: GDX / NUGT.

The P/L

I closed half the position because I'm feeling something transitional, I don't want to give up all of my exposure, but would like to have an opportunity to use those assets rather than have dead money and maybe be able to re-enter at a better price. At the fill of $44.82, the P/L for the NUGT trade was +46.5%
As for the reasons...

 Short term timing charts were heading south along the lines of a pullback, the same charts that quickly caught up on the last divegrence that looked like a pullback, but truthfully GDX/NUGT are a bit extended and I'd feel better owning them with a constructive pullback, I do not want to bet against them with a DUST long!!!

 2 min, I suspect a pullback to the gap.

 5 min seeing a lot of intraday profit taking today on a larger scale, but not a long duration, so still pullback in my view.

And the 10 min.

As for why I still love them and want to re-enter at better prices if possible while using the proceeds in a more constructive area in the meantime...

 30 min in line...

Strong 60 min and beyond out to daily charts...

Here's the X-Over screen, an official long, the first pullback is usually to the 10-day price moving average which should be around the gap as well, it just fits together well.

Quick Market Strategy Update

There are a lot of very interesting areas of deterioration, especially since the F_O_M_C, it's certainly not coincidence.

I suspect we have a bounce from today's levels, I'm going to try and remain patient for that, I suspect it will be the usual suspects, HYG, VIX hammering, etc. , but there are so many little changes in character today it could take me all night capturing charts.

One I like a lot is Financials/XLF short, whether it is FAZ long (which would be my preference ) or perhaps the right set up and a put position in XLF, but I'll be looking for either at XLF > $29.93.

Volatility is one that I'm also VERY interested in, but I want to make sure to get the right positioning on that.

As for a bounce from today's levels, I wouldn't say it's so much from divergences as HYG's position, VXX's position, TLT's position, however these pale in comparison to the move in the Black Swan Index, SKEW, someone is VERY worried, the $140+ level has been historically (according to CBOE who puts it out), Crash level readings so this isn't just the protection we have been seeing in Utility outperformance, recent VIX outperformance the last several days, this is something bigger and much more rare.

I'll have some charts up as soon as I decompress, update and find the charts that tell the story the clearest without a lot of unnecessary captures. I definitely have a feeling that I need to get these positions in place and I want to get the best timing, but as I was pointing out with FB and others, there are much, much bigger issues on the same chart if you just look at volume or the number of right shoulders market wide, etc.

Trade Idea: (Swing) SQQQ Long

SQQQ (long) is a 3x inverse or bear ETF for the QQQ, this is one I like and have at full size, it has good confirmation through multiple QQQ related assets and timeframes, what I find interesting is the recent movement in the "timing" timeframes, for instance...

 This is the 30 min leading positive with a nice reversal process as far as the price pattern goes, true I'd usually look for a head fake move and may put an alert just below the recent lows as that might cause me to enter either a call in something like this or more likely a put in the QQQ as there's better volume there.

The 60 min chart has looked great and has shown great confirmation of price's trend in the past, it also looks exactly like the QQQ 60 min chart, except inverse as they are opposite (QQQ leading negative, SQQQ leading positive).

However, especially considering recent data, analysis of inflation, Yields, gold, 3C signals, multiple H&S tops and right shoulders, now SKEW's huge move, these shorter term timing charts are really grabbing my attention.

This is a 2 min chart leading positive, it's interesting how it confirms as it should and then changes character so dramatically, the same week I'm looking for changes in VIX (smart money going long volatility) and Treasuries, as I showed, Yields have predicted the 2007 top, 2009 bottom, 2011 -20% sell off and they are showing the same signal now as they were at the 2007 top.

Here's a closer look at the same chart intraday, very interesting how fast it's leading.

I already have a full size position here, but if I didn't, I'd absolutely consider it if I needed some short exposure, especially in the Tech area. I will set alerts for a head fake move below recent support lows and if they are hit, consider something like a QQQ put.

The Black Swan Indicator Going Parabolic

We've talked about the SKEW Index before, I tend to follow abrupt Rate of Changes in it with interest, I don't have the reading for today from the CBOE until the close, but from last Wednesday (F_O_M_C) until the close on Friday, it went from 129.53 in to "Crash territory" to 143.26 in the days of and just after the F_O_M_C, something doesn't smell right here.

The far right, the last 3-days have seen a vertical climb and intense rate of change and right after the F_O_M_C.

I may look to increase my short positioning, FAZ (3x short Financials ) is one I'm considering right now.

Trade Management: GDX / NUGT

I'd say there's a very high probability of a pullback very soon in GDX and NUGT, I think that extends to GLD and likely SLV, I've decided to take about half off the table in NUGT, it's all of the gains and then some, but I'll leave half in position.

I feel the highest probability near term is for a pullback toward the 10-day moving average where I'd want to add the shares back.

Trade Idea: (Longer Term) FB Follow Up

This is from an initial idea at the end of May, this follow up on May 30th, FB Trade-Idea Follow Up says,

"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."

The important part is the numerous assets that were expected to bounce to help set up better entries on multiple assets that (more importantly) shared the same chart pattern, THE TOP OF RIGHT SHOULDER PATTERNS WITHIN A H&S TOP.

That same FB short position is still among my trading positions, at full size, down just under 4% which is well within reasonable , manageable draw-down, especially for top entry positions.

As for the update, I think FB is in an interesting position here, it looked like it wanted to run a Crazy Ivan shakeout of a small range near the top of the shoulder, but if you focus too much on the details, you miss some very important large , bearish trends.\ ESPECIALLY IF THE MARKET CONTINUES TO ERODE LIKE THIS. There are not the set-ups of swing trade/corrective short trades, these are the set-ups of major, primary market moves that in many cases look worse than anything I've seen pre-bear trend.

The major market erosion I'm talking about... I've tried not to draw on these too much as I think it's distracting and takes away from what's going on, in some cases I drew in the lows that led to the February rally/cycle and the retracement of the entire move in the QQQ/IWM. Remember, for confirmation 3C should make similar moves with price, a new high in price should see a new high in 3C.

 IWM bigger picture and Feb rally retracement, giving the IWM a large H&S-type price pattern that would be at the top of a right shoulder.

 DIA with a price pattern from about May to present that looks like a slanting H&S at the top of a right shoulder with 3C at new leading negative lows.

 The QQQ with an extreme leading negative divegrence once the Feb. range highs were crossed (around the same time the SPX crossed its 3-month range/1900).

SPY from Feb rally, the range and cross above with new leading negative lows.

There's a lot of fracturing of price in the market as well, the QQQ and IWM have one look and the DIA/SPY another, this is not common, they typically move together, but IWM and QQQ both saw stronger weakness after the February rally, retracing all or nearly all gains from the lows.

As for FB, this is a weekly chart showing the 4 stages, we were among the first to trade FB long at stage 1 when it was the most hated stock.

 RSI on a 5-day chart is also confirming a divergence at recent highs.

This is my custom cumulative volume indicator, to confirm a H&S top, as you move further to the right around where the head starts especially, volume should decline on rallies and pick up on declines in price to confirm, that's what we see here, especially from the head to the current right shoulder, this is the macro and very important trend that is telling us a lot about the condition of FB.

3C on a daily chart also shows accumulation at stage 1, confirmation at stage 2, massive distribution at stage 3 which is also in line with the kind of distribution seen in a H&S top.

 And here's a 2-day chart with less noise showing the distribution pattern so typical of a H&S top, the slanting neckline isn't a problem for the price pattern, the bigger macro trend that tells us a lot is the fact it's at the top of a right shoulder like so many other assets and averages.

 This is a 10 min 3C chart of the rounding of the right shoulder, I drew the accumulation at the neckline to form the right shoulder, the distribution at the right shoulder should be obvious,

I believe there was a small stop run/head fake on the 20th for a small Crazy Ivan at the top of the right shoulder, shaking out both sides before a conclusion of the shoulder makes sense.

 This is very small accumulation on a 3 min chart on the 20th as support is broken and supply is created (see volume), we see a small positive divegrence and the launch from there, I'd expect it to try to break above the yellow trendline around $66.50 and will put an alert there in case it does for a possible put position, however it looks like there's damage occurring fast here and it may not make it.

 The 2 min chart is already showing distribution in to the move today so it's hard to say if it will make it.

 This would be the wider move, an Ascending (bullish) triangle breakout is around that same area which may be a head fake at the top of the right shoulder as the bottom end of the small range was shaken out (stops run) on the 20th, the larger macro trend is the declining volume in to what would be the top of a right shoulder, EXACTLY what you want to see in a H&S top at this point in the pattern.

I'd consider FB for a short here, a put position above or around $66.50 and a stop could always be placed just above where there's a gap and some confirmed resistance, this could easily be positioned sized to not risk more than 2% of overall portfolio with the ability to add to the position.

Change of Character in MSI along with SPX/SPY difference getting interesting

We had talked about a bear flag that formed around 6/13-18 and how they are normally used against technical traders who expect the bear flag to break to the downside as per 100 years of Technical Analysis teaching, but Wall Street knows how predictable technical traders are, that they don't seem to adjust to the new realities of the market and follow the same 100-year old dogma religiously which makes it easy to predict what retail will do when faced with certain technical price patterns or situations, which in turn makes it easier to predict how Wall St. will use those against them, for instance we were specifically talking about how a bear flag like the one mentioned above, would normally see a Wall St. head fake move ABOVE the flag rather than below as 1`00 years of TA have taught, before price resolves in the initial direction of the bear flag (down).

Take a look at not only that, but the difference in the shape of price between the SPX and SPY above the bear flag and of course the significant change in the Most Shorted Index today.

 Interestingly, it seems to be the F_O_M_C knee-jerk move that caused the break above the bear flag, look at the SPX's price shape in the white box vs. the demand (risk) driven SPY.

 A bit different...

As for today though, one of the more significant changes in character is the MSI as we saw earlier, but it's getting more extreme.

MSI (red) Most Shorted Index and the F_O_M_C squeeze, a squeeze all of Friday afternoon that did almost nothing for the market, a failed squeeze on the open today and now it moving a lower lows....

It's starting to feel like the F_O_M_C "knee jerk" is starting to be faded as the knee-jerk move (bullish or bearish) has a high historical rate of being the wrong move (direction), which also brings the bear flag back in to play as Technical traders are taught, "If a price pattern doesn't resolve as expected, switch positions", meaning a bear flag that some may have shorted that fails would mean they cover their short and go long, however with stops likely in the $195.30-$194.40 area, a lot of selling could take place as stops from recent long trades (per the knee jerk move) are hit.

SPY Multiple Timeframes

Here's a catch-up with multiple timeframe analysis in SPY, the most recent information since the last update would be the F_O_M_C reaction and just as is normally the case, the initial reaction , "knee-jerk", whether good or bad, appears to be the wrong reaction (as F_O_M_C / F_E_D events have the "knee-jerk effect" with the initial move often being faded), you'll see in some of the more detailed, shorter timeframe charts which have had time to react to the new data in the market (F_O_M_C policy announcement/Yellen press conference).

4 hour SPY

 60 min SPY isn't really scaled properly, it's as far back as I can go with history though. The first bad negative divegrence here is January and then a decline, this is when we saw late Jan (28th) accumulation in to early February launching the Feb. cycle which was entirely retraced in both the QQQ and IWM, however the SPY/SPX carried on with a 3-month range, this is when in May I suspected there was little possibility of the SPY making a significant downside move before that obvious range was taken out, shortly after the bear flag with accumulation formed mid-May (15th-19th-flag portion) which we expected to see a Crazy Ivan creating a bear trap and short squeeze which is what jump-started the move to the break above the top of the range as expected earlier in May as well as the psychological SPX $1900 level in the same place. In this configuration, creating demand to sell/short in to is the purpose of a head fake and they tend to be both proportional (compared to the 3-month range) and extreme as they have to swing sentiment to overwhelmingly bullish to create the demand that is their very purpose

*See the first bear market rally of 1929, lasting 5 months it was almost twice as long as the initial break in the Dow (1929) with a +50% gain over that period, again its purpose, before plunging to 6 more new lows until 1932 was to swing sentiment by making a believable move that people would buy.

 Dow 1929, after a nearly 8-year rally , the "Roaring 20's" and the initial break only lasting 2-months, the 5 month/ +50% counter-trend rally would have been believable.

The 1929 crash and following several years with at least 5 counter-trend rallies during this period.

SPY 30 min with the 3 month range, as well as the leading negative divegrence that we'd expect to see at a head fake rally.

 15 min chart

10 min

A closer view of the 10 min with focus on the F_O_M_C period.

 The 3 min chart showing the severe damage done the week 6/9 to 13 as expected the Friday before and the subsequent , non-confirmed F_O_M_C 1-day knee-jerk reaction.

The 2 min chart at the same area, also non-confirmation on some of the shortes/fastest timeframes.

And the 1 min chart with the severe damage done the preceding week in to the following week's F_O_M_C knee jerk move.