SPY Jan 145 closed @ +126%
Here's a sample using the QQQ of the divergence migrating and strong in certain timeframes
AAPL Update next...
6 years ago
Thursday, January 3, 2013
Calls Closed-NASDAQ / QQQ Update
AAPL Update next...
Closing the Remaining Calls
There are some very sharp negative divergences that have grown out of the ones I posted in one of the last market updates. If there's reason to re-enter long positions after a move down (intraday or not), I'll look at that when we get there.
With these negatives in place, I can't justify holding leveraged longs.
With these negatives in place, I can't justify holding leveraged longs.
Other Indications
These are not rock solid signals, I'd usually try to bring you more solid signals, but because this is a special case, because the market's volatility has grown very unpredictable and because many of you are in very highly leveraged trades right now, I want to give you the information as I see it.
Speaking of volatility, the ROC of the descent in the VIX has slowed considerably, going from the biggest 2-day percentage drop EVER to a much smaller ROC today. Right before a reversal I expect to see strong intraday and 10-15 min (maybe longer) positive divergences in volatility VIX futures like VXX and UVXY. They are showing some improvement and have some base areas that the leading divergences can build on, but I'd say not there yet.
Treasuries are starting to see some positive divergences, there was a definitive flow of funds out of Treasuries or what might be considered the "Flight to Risk" trade as money moved out of safe haven treasuries and in to higher yielding risk assets. Remember as we saw price drop Friday, almost al other risk assets held up, Treasuries saw a flight to those risk assets, this is why that drop Friday didn't bother me because it looked like price being manipulated to be accumulated at lower levels as everything else argued against the price drop being real.
Here's what Treasuries looked and look like...
Late last week there was a move out of T's and this before the "Very uncertain weekend-Fiscal Cliff", as I said Friday, I think smart money is smarter than anyone realizes as they were positioning while everyone else was saying, "Step to the sidelines in cash", we positioned with QQQ calls Friday and were rewarded. I'll step to the sidelines in cash when I can't find a signal in the market.
There's some movement as it looks like some funds are coming out of risk assets like Credit and moving back to the safety of Treasuries.
One other asset that you may not have even thought about, but UNG-Natural gas, also seems to have been a victim of a flight from lower yielding/BETA assets to higher ones for this move. In fact UNG saw almost the same exodus as Treasuries so I expect them to also see the same inflows of capital too as the market moves closer to a leg down.
Negative on the 5 min last week and positive now.
Speaking of volatility, the ROC of the descent in the VIX has slowed considerably, going from the biggest 2-day percentage drop EVER to a much smaller ROC today. Right before a reversal I expect to see strong intraday and 10-15 min (maybe longer) positive divergences in volatility VIX futures like VXX and UVXY. They are showing some improvement and have some base areas that the leading divergences can build on, but I'd say not there yet.
Treasuries are starting to see some positive divergences, there was a definitive flow of funds out of Treasuries or what might be considered the "Flight to Risk" trade as money moved out of safe haven treasuries and in to higher yielding risk assets. Remember as we saw price drop Friday, almost al other risk assets held up, Treasuries saw a flight to those risk assets, this is why that drop Friday didn't bother me because it looked like price being manipulated to be accumulated at lower levels as everything else argued against the price drop being real.
Here's what Treasuries looked and look like...
There's some movement as it looks like some funds are coming out of risk assets like Credit and moving back to the safety of Treasuries.
One other asset that you may not have even thought about, but UNG-Natural gas, also seems to have been a victim of a flight from lower yielding/BETA assets to higher ones for this move. In fact UNG saw almost the same exodus as Treasuries so I expect them to also see the same inflows of capital too as the market moves closer to a leg down.
Market Update & Leading Indicators
As you know I haven't closed out the complete long call position, I closed portions of it because of the vehicle used-Calls, even though the QQQ is higher right now then when I closed the half position this morning, the percentage gain in those same calls is a bit lower as changing volatility volatility and time decay effect price.
With a less leveraged vehicle I'd probably have a much larger position open and that is what I mentioned yesterday, "If needing a long vehicle, I'd close the options and move to a less leveraged product that doesn't have the drawbacks of options, like a leveraged ETF".
Don't mistake the start of the process with a reversal or action point, we just want to know where we are in the process, especially because of the fact that I have a gut feeling the change will be swift as we saw last week with what were at the time very volatile moves down and then an incredibly volatile move up Monday-I don't think that has disappeared, I think that trait has grown stronger as I also believe the Fiscal Cliff resolution was priced in even before Monday's pop higher.
So here are a few charts showing some of the process underway and a few charts showing some deterioration in underlying trade conditions, this is not the same as what price is doing, it's the support or lack of it under price.
As for the averages... As it takes time to capture, upload and write this post, these now look worse than they do below.
I chose to show you these charts because I think it's important that you understand the process, how we arrive at our opinions, how the market is connected in a number of ways, each can give you a hint and so you can apply the principles to your own trading.
DIA 2 min negative in to the move up, the 3 and 5 min are also moving down now.
5 min, this is now clearly negative, not a much as the shorter timeframes, but that is natural.
SPY 3 min was positive yesterday as it needed the help, but today we see some of that turning negative on this 3 min which is now worse, the 1 and 2 min are also negative, the 5 min is not yet.
QQQ 3 min negative, which means the 1 and 2 min are as well, these are all now much worse than the chart above. Still the 5 min is holding up and that's where we need to see deterioration.
QQQ 5 min looks a little worse than this tight now.
This is to say nothing of the longer term leading negative divergence in which there's almost no support for this move, this should give you a mental picture of a tall ice spire that gets thinner and thinner the higher it moves up, that's like price.
The EUR/USD longer term is not supportive of the market at all and at some point the arbitrage players will step in and pressure the market, they may be doing that now, for instance if the FX pair was supportive, the market might be up another 1.5% right now.
Yesterday's drop and today's in the EUR/USD, again this is divergent (negative) with the market.
Leading Indicators
As yesterday, once again commodities as a risk asset are lower and putting in a stronger negative divergence vs the SPX.
I changed the green comparison symbol to the Euro, note how commodities follow the Euro almost perfectly.
The Euro today vs the SPX.
As you can see, the Euro is weaker today than yesterday so the divergence is that much more dangerous.
These are the kinds of things that can make this market snap in a very short period of time.
A larger view shows the Euro down around the SPX as of last week.
The $AUD is a bit off today, but not like the Euro.
FCT as I mentioned, for whatever reason, works well as a leading indicator, especially longer term, but as we see here it was positive yesterday as shown which predicted the market moving higher in the afternoon, it is negative today.
High Yield Credit is seeing some deterioration.
High Yield Corp. Credit is also not holding up, this is not good for the market, the worse this gets, the worse it is for the market.
Junk Credit is really seeing money move out of this risk asset that should move with the SPX if the move had some real legs under it.
All of this is telling us that we want to be patient, I wouldn't chase any new longs up here, I also wouldn't commit to a large (new) short position just yet, I'd be patient, understand there is deterioration and wait for the opportunity in which it becomes high probability with low risk.
With a less leveraged vehicle I'd probably have a much larger position open and that is what I mentioned yesterday, "If needing a long vehicle, I'd close the options and move to a less leveraged product that doesn't have the drawbacks of options, like a leveraged ETF".
Don't mistake the start of the process with a reversal or action point, we just want to know where we are in the process, especially because of the fact that I have a gut feeling the change will be swift as we saw last week with what were at the time very volatile moves down and then an incredibly volatile move up Monday-I don't think that has disappeared, I think that trait has grown stronger as I also believe the Fiscal Cliff resolution was priced in even before Monday's pop higher.
So here are a few charts showing some of the process underway and a few charts showing some deterioration in underlying trade conditions, this is not the same as what price is doing, it's the support or lack of it under price.
As for the averages... As it takes time to capture, upload and write this post, these now look worse than they do below.
I chose to show you these charts because I think it's important that you understand the process, how we arrive at our opinions, how the market is connected in a number of ways, each can give you a hint and so you can apply the principles to your own trading.
FX
Leading Indicators
These are the kinds of things that can make this market snap in a very short period of time.
HLF
I was asked if today's gains change my mind about HLF as a potential short position, the answer is no. They are playing this stock and managing it expertly.
Here's a recent move this a.m. that is a bit too parabolic for my tastes, these typically don't hold.
The price pattern today looks like a short squeeze, but the volume doesn't. This spike in volume on a parabolic move is something I would have shorted before I was using 3C, now I really want to see the signals line up just right so I'll keep watching HLF, I still haven't figured out what their game is, but they have one.
Here's a recent move this a.m. that is a bit too parabolic for my tastes, these typically don't hold.
Quick Market Update
The market is starting to move fast in 3C signals so there won't be any charts.
The QQQ 1, 2 and 3 min charts are all turning decidedly negative, the 5 min chart hasn't quite got there yet.
The IWM 1 min chart that was in line earlier is now negative and this seems to have caused the 3 min chart which was already negative to move to a new leading negative low for this 3C leg.
The SPY 1, 2 and 3 min are turning negative, obviously the 1 min has a stronger negative and the 2 and 3 min are less severe at this point (that's how migration of divergences works). I'd say the SPY so far has the least amount of negative posture, which makes sense as it has spent the least time above resistance.
It's kind of the same story for the DIA as it was in the same boat as the SPY yesterday, the 1 and 2 min charts are definitely negative, it has barely touched the 3 min and has not touched the 5 min at all yet.
Remember too this is still VERY early in the day and a lot can happen, but the reason this is important in because I believe when we do get a reversal, it will be fast so any thing that pops up I want to share with you.
The QQQ 1, 2 and 3 min charts are all turning decidedly negative, the 5 min chart hasn't quite got there yet.
The IWM 1 min chart that was in line earlier is now negative and this seems to have caused the 3 min chart which was already negative to move to a new leading negative low for this 3C leg.
The SPY 1, 2 and 3 min are turning negative, obviously the 1 min has a stronger negative and the 2 and 3 min are less severe at this point (that's how migration of divergences works). I'd say the SPY so far has the least amount of negative posture, which makes sense as it has spent the least time above resistance.
It's kind of the same story for the DIA as it was in the same boat as the SPY yesterday, the 1 and 2 min charts are definitely negative, it has barely touched the 3 min and has not touched the 5 min at all yet.
Remember too this is still VERY early in the day and a lot can happen, but the reason this is important in because I believe when we do get a reversal, it will be fast so any thing that pops up I want to share with you.
Closed Call Positions
These are the Call Positions just closed...
40 of the 75 Jan QQQ 66 were closed at a 222% gain
15 of the SPY Jan 145 were closed at 114% gain
And all of the Jan SPY 140 were closed at 52% gain.
For newer members, my preference is to be in option positions for the least amount of time possible and still make it worthwhile. At the first site of a pullback I'd rather close the positions and re-open them than wait through the pullback's draw-down as well as the time decay's losses. Ideally I'd like to be out in 1 or 2 days, it depends on how the position is acting, I figured we were still ok and kept these open overnight, but as some slightly more negative information creeps in early this morning, I'd rather close at least a portion if not the entire position. The more leverage there is on a trade, the quicker I want to be out of it.
For newer members, my preference is to be in option positions for the least amount of time possible and still make it worthwhile. At the first site of a pullback I'd rather close the positions and re-open them than wait through the pullback's draw-down as well as the time decay's losses. Ideally I'd like to be out in 1 or 2 days, it depends on how the position is acting, I figured we were still ok and kept these open overnight, but as some slightly more negative information creeps in early this morning, I'd rather close at least a portion if not the entire position. The more leverage there is on a trade, the quicker I want to be out of it.
Opening Indications
There's a little softness and there seems to be the start of some negative divergences moving or migrating through longer timeframes which is what we were looking for yesterday, but didn't expect we'd see until the SPY and DIA broke out above resistance making it possible for institutional money to sell in to higher prices and demand.
Although it seems the process is starting, we would still be early in it, even though it can occur (and I expect it to occur) quickly; it also means that we are still dealing with the shorter timeframe charts which are the easiest to move and do move frequently through the day. The point being, until we reach some longer timeframe charts, the process is not solid yet, but it's enough for me to want to reduce positions that are profitable.
DIA 1 min opening is not confirming, so this is a negative divergence, it can move to a positive quickly, but this is what it is for now, I don't try to guess the future.
There are other timeframes in the DIA that are seeing negative divergences as well, but until we get to a negative position on this 5 min chart, I wouldn't be very keen on calling for a reversal.
The IWM 1 min is almost perfectly in line- price/3C which is trend confirmation, no divergences here yet.
We did however see some yesterday as I mentioned, a new high in the IWM/R2k opens up demand to sell in to and it looks like that is what was happening yesterday on this 3 min chart.
Even the 5 min which was in line is seeing a slight negative that is migrating from the 3 min chart. This is how the process should unfold.
QQQ intraday 1 min has been moving in line with price, but is in an overall negative 1 min divergence as 3C has not made a new higher high.
The 5 min chart still retains it's strength so the 1 min then 2 and 3 min will have to turn negative until they have enough distribution to start to turn the 5 min chart negative. At this time the 2 min chart is also negative, but the 3 min (which would be next) is still positive like this 5 min chart.
SPY 1 min-the SPY needed some extra support yesterday to make it above resistance so the 1 min is in good shape, but on the open this morning is showing a little negative momentum, we'll see if it builds.
The 5 min chart is positive so it's a similar situation as the IWM.
As for futures, the intraday 1 min charts look decent for ES and NQ futures as do the 5 min charts as of now. The 15 min charts have seen a little damage from the overnight session, but they can go either way, it will depend on whether the 1 and 5 min charts stay positive or whether they turn negative.
Although it seems the process is starting, we would still be early in it, even though it can occur (and I expect it to occur) quickly; it also means that we are still dealing with the shorter timeframe charts which are the easiest to move and do move frequently through the day. The point being, until we reach some longer timeframe charts, the process is not solid yet, but it's enough for me to want to reduce positions that are profitable.
As for futures, the intraday 1 min charts look decent for ES and NQ futures as do the 5 min charts as of now. The 15 min charts have seen a little damage from the overnight session, but they can go either way, it will depend on whether the 1 and 5 min charts stay positive or whether they turn negative.
Going to Close that Half of Calls From Yesterday
Yesterday I decided to close half of the call position and did so, then thought about closing half of what was left, but did not do so, I will do so now as I'd rather close them now and re-open them later if need be and not get stuck in a consolidation, pullback or worse.
Early Action
The pre-market futures ramp I showed you that brought us back almost perfectly to yesterday's closing levels (which a mere 1 and a half before we were set to open down by at least 6 ES points) and showed a positive divergence before the 8:15 ramp well in advance (a couple of hours) was on the laughingstock of all economic reports, the ADP Private Payrolls report which is one of the most flawed models out there when it comes to actual employment data, in any case, ES was accumulated hours before its release and ramped at 8:15 on its release which was of course a beat coming in at 215k on expectations of 140k with November revised higher as well.
So the futures which were set to gap down were brought right back to where they closed at 4 pm yesterday, not surprising as we have not seen any significant negative divergences yet, but another example (if you pay attention) of how corrupt the market is as ES would never ramp on ADP for real, but it's a convenient excuse so CNBC can tell viewers why the market did this or that, even though the market was set to do this and that this morning hours before the release with a positive divergence.
In any case, early ES volatility has been met with intraday positive 3C positioning thus far...
ES drifts lower all night and then hours before the ADP report is released at 8:15 (green arrow) there's an intraday positive 1 min divergence. Since the open ES has seen some volatility with some moves to the downside, but 3C has stayed positive thus far.
Our next clues will be opening indications. I expect to be closing most if not all of the calls today, but that is just my expectation, I'll wait for the market signals in underlying trade.
Opening Indications are coming next.
So the futures which were set to gap down were brought right back to where they closed at 4 pm yesterday, not surprising as we have not seen any significant negative divergences yet, but another example (if you pay attention) of how corrupt the market is as ES would never ramp on ADP for real, but it's a convenient excuse so CNBC can tell viewers why the market did this or that, even though the market was set to do this and that this morning hours before the release with a positive divergence.
In any case, early ES volatility has been met with intraday positive 3C positioning thus far...
Our next clues will be opening indications. I expect to be closing most if not all of the calls today, but that is just my expectation, I'll wait for the market signals in underlying trade.
Opening Indications are coming next.
