Here's an excerpt from the Trade Idea to reflect the trending nature of the trade idea, which I think is still in a decent area, actually looking at the big picture, I think it's in an incredible risk:reward area:
"For this one, I'm looking at something with some leverage,. but also some staying power for more of a trend trade, thus I like either the 2x leveraged short financials SKF or my preference the 3x leveraged short Financials FAZ here.
If we get a bounce, I'd look at puts."
As a quick reminder, this is the big picture and trade set-up. Always start from the long term charts and work down, we have to know where we are in a cycle to know where probabilities tell us we'll be going.
To compare where charts were as of last week vs. this week, see the XLF/Financials Broad Update post from last week.
A quick overview as this is just as important as any near term signals. First of all the "Financials will benefit" meme from the talking heads isa bunch of crap. When bear market hits the only thing people feel is fear, that causes them to sell just about everything and that's o top of the concept of the market being the strongest directional influence on any individual stock or industry group on any given day, good for about 2/3rds of the asset's bias. In addition, the old banking models dies when they all decided to become momentum stock chasers. The lending model is dead and it's not going to get better with rate hikes and higher interest rates if people can't afford to buy houses now. In addition, you may have heard about not only the subprime crisis in auto loans, but student loans as well. Banks have a rough road ahead of them.
To compare where charts were as of last week vs. this week, see the XLF/Financials Broad Update post from last week.
A quick overview as this is just as important as any near term signals. First of all the "Financials will benefit" meme from the talking heads isa bunch of crap. When bear market hits the only thing people feel is fear, that causes them to sell just about everything and that's o top of the concept of the market being the strongest directional influence on any individual stock or industry group on any given day, good for about 2/3rds of the asset's bias. In addition, the old banking models dies when they all decided to become momentum stock chasers. The lending model is dead and it's not going to get better with rate hikes and higher interest rates if people can't afford to buy houses now. In addition, you may have heard about not only the subprime crisis in auto loans, but student loans as well. Banks have a rough road ahead of them.
At #2 (white) we have a typical stage 2 uptrend in a nice channel, behaving well. At "A" in yellow, we have a channel buster on the downside at the October lows. Remember what channel busters do, they create reversal momentum. I can't go in to all of the reasons, you can find them in my two articles that are always linked on the members' site,
Understanding the Head-Fake Move... How Technical Analysis Went From an Asset to a Trap
And
Understanding the Head-Fake Move... Motivation
At "b" we see the result of a Channel Buster with a move from well below the channel to the upper range of the channel in one, big, strong move. THE PEELING AEWAY FROM THE LONG TERM TREND AT "B" IS A SEEMINGLY "BULLISH" EVENT THAT IS ACTUALLY A RED FLAG AS A CHANGE IN CHARACTER AND CHANGES IN CHARACTER LEAD TO CHANGES IN TREND. This concept is useful with any asset, any timeframe.
Shortly after we move to a change in trend as XLF moves sideways in a large symmetrical triangle or stage 3 top at "C". Triangles this big are NOT consolidation/continuation price patterns, they are most often tops or bottoms depending on the preceding trend.
Since there's such a clear triangle, traders are very aware of it and this brings up the head fake concept again in the two articles linked above. Remember the April 2nd market forecast that was not only said, "We won't see any significant downside until we have a head fake move ABOVE obvious resistance levels" and more to the point, the April 2nd market forecast called for a breakout above triangles market wide that in some cases weren't even finished at that point. WE DID GET THE HEAD FAKE BREAKOUT AND IT FAILED AS A HEAD FAKE MOVE SHOULD, SEE THE SPX DAILY CHART.
XLF is still in the head fake area above the triangle's apex with sharp distribution, making it still an excellent high probability/low risk entry.
With a multi-day (6) chart, you can see not only the clean break above the apex, but a bearish Hanging Man reversal candle at the yellow arrow, which is made 3-4x more effective by increasing volume over the previous candle. Since, the last candle is very close to a bearish / reversal confirmation candle which will actually trigger below XLF $24.50. XLF is high enough that you can wait for the price confirmation, but I've seen all I need to, thus the trade entry/add-to, Trade Idea: XLF Trend (short)
The long term 6 hour chart with extremely strong underlying flow of funds shows a distribution event with a leading negative divergence right at the area of the breakout above the triangle's apex, a head fake event or what will be a failed breakout as it already essentially is with no follow through over a near 2-month period.
The 60 min chart, still exceptionally strong, but with a bit more detail also shows the same thing, DISTRIBUTION IN TO HIGHER PRICES ART THE EXACT AREA TECHNICAL TRADERS WILL CHASE THE BREAKOUT- ABOVE THE TRIANGLE'S APEX. This gives institutional money/large position traders, the demand they need and price appreciation to sell or short in to as they are in large positions. Without this move, selling/shorting at the triangle's apex would cause supply/demand dynamics to kick in without any retail there to chase prices higher and offer a bid, which would result in institutional money sending XLF lower and thus their positions at a loss or at least a sub-par fill and their short positions at a poor entry vs. the current one. This is essentially one of the main reasons for a head fake move.
We usually know in advance when we see a perfect triangle like that what Technical traders will do in specific situations like a break above and we know how Wall St. uses Technical concepts against traders so we usually know in advance with 3C evidence what the most likely outcome is before it even starts, thus the April 2nd market forecast of what would happen in advance of it happening and thus far, we are exactly on track (SPX) as we have seen the breakout, the failure and the move lower below first the apex of the triangle and then below the triangle as we hit first support at the SPPX 150 which was also forecast as a speed bump on April 2nd.
SPX daily chart. Look where April 2nd is, all of this forecast was made April 2nd, well in advance based on the concepts and signals at the time.
There was already clear resistance by April 2nd which is why I said there would be no significant downside until a head fake move above resistance first as it was becoming too obvious not to take out and offer Wall St. the opportunities they need in the size they trade.
At the yellow box is the head fake move, each average had a slightly different variation of a triangle, but all broke above them and failed (I hope you can see the red triangle trendiness, if not try clicking on the chart to enlarge).
Then the move failed, price broke under the apex or point of interest and then below the triangle and through the 50-day (yellow) and the 100-day (light blue) as forecast on 4/2 with support with a second tag of the 150-day (pink) starting the June 15th bounce .
From here I expect (as per the forecast) a break below the 150-day and another short term speed bump or short term support at the 200-day (dark blue) just below. Although it depends on how much fear is in the market by then, we could just as easily see a break below the 200 with nothing but a momentary bit of support.
Back to XLF as the broad market's trajectory will have an influence on Financials as a sector.
On a very short 1 min chart's trend, we see a slight positive divergence at June 15th as we projected that day as the SPX tagged the 150-ma for the second time and sentiment was extremely bearish, setting the market up for an easy short squeeze and changing sentiment from bearish to bullish, what I called on that Monday (June 15th), "Flipping the boat" as too many traders were lined up on the same side of the market with smart money and in a zero sum game, someone has to lose for someone to win, thus the flip of sentiment, crushing of shorts and getting retail to hold the bag as we saw when entering our NFLX short this week, NFLX Trade Management
All in all, XLF is still in an excellent area. For an options/Put trade, I'd want to see a run higher to get a discount on the put premium, otherwise I like XLF short as either an equity short or the 2-3x leveraged inverse ETFs (long) like SKF or FAZ.
We usually know in advance when we see a perfect triangle like that what Technical traders will do in specific situations like a break above and we know how Wall St. uses Technical concepts against traders so we usually know in advance with 3C evidence what the most likely outcome is before it even starts, thus the April 2nd market forecast of what would happen in advance of it happening and thus far, we are exactly on track (SPX) as we have seen the breakout, the failure and the move lower below first the apex of the triangle and then below the triangle as we hit first support at the SPPX 150 which was also forecast as a speed bump on April 2nd.
There was already clear resistance by April 2nd which is why I said there would be no significant downside until a head fake move above resistance first as it was becoming too obvious not to take out and offer Wall St. the opportunities they need in the size they trade.
At the yellow box is the head fake move, each average had a slightly different variation of a triangle, but all broke above them and failed (I hope you can see the red triangle trendiness, if not try clicking on the chart to enlarge).
Then the move failed, price broke under the apex or point of interest and then below the triangle and through the 50-day (yellow) and the 100-day (light blue) as forecast on 4/2 with support with a second tag of the 150-day (pink) starting the June 15th bounce .
From here I expect (as per the forecast) a break below the 150-day and another short term speed bump or short term support at the 200-day (dark blue) just below. Although it depends on how much fear is in the market by then, we could just as easily see a break below the 200 with nothing but a momentary bit of support.
Back to XLF as the broad market's trajectory will have an influence on Financials as a sector.
XLF 10 min chart which is a better timing instrument than the 60 min chart above. We have in line price/3C trend signals at the green arrow and a negative , then a leading negative divergence at the break above the tri. in the red box. Note the stronger decay in 3C just as the 6 hour and 60 min charts, which is multiple timeframe confirmation.
All in all, XLF is still in an excellent area. For an options/Put trade, I'd want to see a run higher to get a discount on the put premium, otherwise I like XLF short as either an equity short or the 2-3x leveraged inverse ETFs (long) like SKF or FAZ.
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