Friday, March 6, 2015

IYT (Transports) Trade Set-up / Follow Up

Earlier I showed you how transports despite these unbelievably low prices in energy, have not confirmed on the upside , this from a group that use to be an upside momentum leader.

Back in late 2014 (Q4) we identified the tell-tale price action of a change in trend coming, a tracking short position at full size was opened in IYT and it remains on as one of the core short positions, with about a 5% loss in it right now which is not a problem from my standpoint, especially given all of the volatility and chop in the asset.

However failure to confirm and failure to rally on lower input (energy ) costs, is a big red flag.

Since I haven't covered it beyond an update for a while, I'll give you a broader picture so you know what you're looking at as well as a set up, although if you are considering it as a trend position, I would consider any where in the area to be an overall excellent entry.

Starting from the macro chart to the near term charts and with the set-up at the end...

 This is the daily 3C chart, the uptrend to the left was a confirmed stage 2 move and even the daily chart shows that, however at the top of it is where we started noticing some trouble with the price trend and the 3C trend which can even be seen on this daily chart. Since, transports have been in a flag-like downtrend except the area is way too big to be a flag and 3C has gone negative from in line just several months earlier in late 2014.

 On a 2 hour chart the trend becomes more clear, I don't know if you can see what we saw at the time, but the stage 2 mark-up trend followed a trendline near perfectly and then peeled away to the upside at the second red mark, "t" from the left, that's where trouble began and transports caught my attention, since I think you can see that the 3C trend has been extremely text book divergent, one of the easiest and strongest divergences you can find.

 This 60 min chart can't go back any further, but if it could, the uptrend confirmation in 3C would sit flush with the price trend as it did when it was happening and the current leading negative position on a strong 60 min chart would be even lower if I had enough history to properly scale this trend, but all that's really important is to know that 3C did what it was supposed to in confirming the uptrend and since it hasn't, things have changed significantly for the IYT price trend which has turned choppy lateral like a top.

 This 15 min chart shows not only the lack of confirmation in transports as they have failed to break the range and make a new high, but specifically the 3C trend during this large flat range.

At this point I think we have the strategic out-look for Transports down as clearly as we can ask.

This is the 5 min chart, you can probably make things out for yourself since it has started trending down.

This is the VERY short term 1 min chart which was in downside confirmation and has a small positive now like a lot of the market today.

At the 2 min chart you can see it's not an especially strong divergence

At the 3 min chart there is no divergence so it hasn't even been able to migrate to the 3 min chart.

This tells me all te long term trend signals are very weak and we have a very weak bounce signal, that's exactly what I want to short in to, price strength on a very weak underlying trend.

As we saw a lot of Igloo/Chimney formations in the last week or two, this is the best IYT could do in breaking above its trend which would be notable for IYT longs, but it wasn't enough to confirm the Dow, the break back below should lead to the lower trendline and a continued lower trend.

So on a short term intraday positive divegrence, I want to set price alerts for a break above this trendline around the $162 area and then look for the tactical entry, but as I said before, anywhere in the area is a nice looking entry if you are looking at this as a trend trade as I would be. I'll be setting those alerts and I'll follow up if they trigger, otherwise, I'm perfectly content with the position and I think it's going to be one of the more interesting ones.

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