MCP Update

For the kind of position MCP was intended to be, I still love it and am holding it long. This was never meant to be a trading position, this was meant to be a stock that could walk on its own two legs, a stock that went through the cycles and is near the end of a stage 1 base with stage 2 mark-up next. I'm a bit surprised to see it up today, but it looks like it is coming along well. Sometimes these lower priced stocks act more like the market should.

 On this 5-day chart you can see the end of stage 2 at the far left transitioning in to stage 3 (top) and of course stage 4 (decline) and back in to stage 1 (base) preparing to move to stage 2 (mark-up) where the easy money / trending trades are found. Most stocks go through this cycle and in every timeframe.

The change in character in MCP is very clear just looking at the price chart, this is why I like to start with longer term (5-day) charts, trends and character are clear.

On a 1-day MCP has been vacillating as part of the normal basing process, the least move was on volume, the gap was filled so it looks solid, today so far we are above resistance (too early to judge volume), but again it's not about a 1-day or 1 month move here, this is a great looking stock toward the end of a nice base.

 For now until it really starts to trend I'm just using the 1-day X-Over screen, you can see we are just shy of all 3 signals firing a long signal, just the custom indicator in the middle window needs to cross its moving average (blue), everything else is a go.

This is the daily chart, from distribution at stage 3 which is what stage 3 is, distribution/top, to a leading positive 1-day divergence which is impressive, we don't get to see too many of these anymore, at least not right now.

The 4 hour chart is perfectly in line and doing what it should be, with this leading positive divergence now, MCP "may" be getting ready to move to stage 2, you can see there wasn't the same leading positive on the last run which was just knocked down so MCP could be accumulated at lower prices.

I'm staying patient with this one and think it is probably going to be a big winner with very little maintenance.

IYT Put Update

This was the transports put from yesterday, it's already at a decent gain, but I'm expecting a little bounce, but behind that there's not much so I'll be holding.

 1 min for an intraday bounce

2 min has nothing positive.

Just like yesterday, the DJ-20 transports look EXACTLY the same.

MCP Longs Wake Up- You have a 5% move Right now

Pre-Market Futures

If you've looked at the Russell 2000 futures overnight then you know it was one of the rougher, choppier sessions and it looks to gap down across the board. The 1 min 3C charts aren't trending so they don't tell us much, but the longer charts are and they, especially 5 min charts look pretty bad as I showed you on the release of Chinese data, with the Shanghai Composite being saved from a red close by a PBoC rumor.

In other futures, perhaps the night was choppy because the AUD did in fact fall.

AUD overnight

I still would expect the gap to be filled and those limit orders at least to be hit, but we'll see around 10:30 when the charts start catching up top the averages.

China Exports/ Some Interesting Charts

Chinese Exports were releases just about an hour and a half ago, the y.o.y. performance was the worst in nearly 4 years, the consensus was for a +3.7% gain, the actual came in at negative -3.1%, suffice it to say this was a huge miss to a very important data release (at least it's very important now). For more on what this means I'm directing you to Bloomberg.

There are however some curious charts. You may recall earlier tonight I mentioned the AUD/ JPY currency cross and how the single currency futures weren't looking very good for this driver of over night market risk, there's the AUD which was effected as well as its other pairs and futures, I just took a quick look and found some charts a little interesting.

The yellow arrow is when the data was released.

This is the AUD/USD 1 min chart, that's a pretty sharp decline just before the data was released as well as a sharp decline in the AUD which is very sensitive to China obviously, the single currency futures show a lot more detail.

AUD 5 min, I noticed earlier and thought mentioned it tonight as the AUD/JPY pair was unlikely to be the force behind an overnight futures ramp as last night and the market followed the pair very closely through the day as well.

I didn't associate the size of the decline in #C with anything at the time other than the pair likely heading lower, but that is a new leading low for the week and a lot of it was after hours alone.

AUD 15 min, again one of the charts I saw earlier and thus mentioned, again another leading negative low for the week in a rather short period of time.

The 1 min Russell 2000 futures, you can see the size of the decline before the data release.

R2K 15 min chart as well

The 5 min NASDAQ futures had an especially interesting divergence before the data release, in just about every case we have new leading negative lows for the week and almost all created since the market close.

Positions / Precious Metals

I'll start with the PM's, I closed out the NUGT position today for a decent little gain for a position opened Friday, but I'm not really all that hot on the miners this moment, they look like they have some work to do.

GLD I think is going to have some real potential, likely a bear market counter trend rally which are (of course) some of the strongest rallies in any market. There's no doubt gold is in a bear market, we actually called the end of Gold's run at the end of 2011 and start of 2012 and said gold would move to either an Intermediate or a Primary bear market, it's a primary bear market.

This break of the $130 area was major and opened up a lot of supply, I don't doubt gold could run for 4 to 6 months and possibly to the $150-ish level, I just know it's not going to do it without a larger base, it's getting real gappy and GLD 3C charts as well as Gold futures don't show me anything near term any more, I do think it's a fantastic one to be on the watchlist and try to pick up some on head fake moves below support ($114.60's area), I think it will produce some great option trades as well while putting a base together.

Silver looks a lot better to me right now, but I'd like to get out of it (open call position), I almost feel like I may have already overstayed my welcome with options. If I was long SLV or AGQ I might feel differently and that's likely what I'll look at with some higher leverage trades when appropriate.

 This short term intraday chart is the only reason I keep this position open right now, plus the fact it's expiration is out to August, but I think there's some tough resistance coming up.

This 15 min 3C chart shows a pretty nasty negative divergence on the 3rd of all days, I'm thinking that gap is about all this leg is going to make before returning to build a stronger base. I kind of like the idea of AGQ long or maybe SLW for a longer term position.

 The  60 min, 2 and 4 hour charts all look like this 30 min so I have little doubt this is going to be a big mover, but it does need more base and it too is getting a bit gappy, I think a pullback in SLV is literally a gift.

My Trend Channel has held this entire move down without a single stop-out, so the fact the trend channel's stop is currently just above $19 and moving down every day as well as that distribution area at roughly the same level tells me this isn't the time to "see what happens". So I'll be looking to wrap this one up.

Daily Wrap

As mentioned and even posted earlier, the SPY example from last night's "Daily Wrap" was nearly right on. The SPY was simply a proxy for the market, as I said last night,

"the SPY provides a good model (the other averages are very similar) to how I think this goes down, which is really just a part of the reversal process of the next leg in the market which we have been expecting to the downside".

Actually the short note and example charts (4) were more accurate than I remember. The SPY intraday charts,

- should be enough to take the market higher, specifically I'm thinking about the IWM triangle as the IWM is the average everyone is focussed on and that triangle was no coincidence.

The 3-15 min. charts...

-Leaves me pretty certain any breakout move is a false breakout, but we could have guessed that by market behavior, mass psychology and price action in the IWM alone.

 There's only 1 way to confirm a false breakout (which is still a breakout) and ultimately that is the failure of that move rather than leading to a new leg up. However we can get a lot of information that tells us what the probabilities are, often to the point that reversal positions can be taken in the area of the false breakout. Finally the one part above that is very important as I talk about this all of the time,

""the SPY provides a good model (the other averages are very similar) to how I think this goes down, which is really just a part of the reversal process of the next leg in the market"

When I say process, I mean that literally, if you've been around more than a couple of months you know how often I talk about "V" vs "U" or "W" and how a "V" is an "Event" and the "U & W" are a "Process". It's very rare to get a "V" reversal.

For the second day in a row, the gains in the market were made during the overnight session in thin volume (speaking of which market and ES volume has been very thin, yesterday SPX futures saw about half the volume of Friday!) which is obviously easier to move; you can see this either by looking at the rather flat intraday action or what I find to be more interesting, the daily chart.

Almost every day in this leg up has been a Star or a Doji, I guess that is not shocking during last week's holiday shortened week, however the open and close of the last two days is virtually unchanged as you can see above on the candlestick charts, meaning almost all of the gains came from overnight futures trade.

I identified the currency cross that was driving overnight markets earlier at the open, it was the AUD/JPY, but if you superimpose the pair over ES you can see the two never really separated the entire day. I can post a bunch of charts, but it really doesn't matter much, however after looking at the individual $AUD and JPY charts, it looks fairly clear that the $AUD is going to come down in the near term and the Yen rise which does in that pair and the market "IF" it stayed correlated to that pair which we can't know and thus doesn't really matter. Longer term as in the 60 min charts, the opposite seems to be true.

As I was saying, the way to determine whether the probabilities are on the side of a head fake move (false breakout) or a real move are numerous, however confirmation or distribution is a good place to start. 

 QQQ

IWM

DIA

SPY

Index futures traded largely as expected, the only thing I'd add is they're doing more damage to the 30 min charts, which had been trading perfectly in line with price.

I could keep going on, but it's just as easy to tell you. HYG Credit not only displayed 3C negative divergences, but instead of a 1.38% move up like yesterday, today was red most of the day right up until the close where it launched a large 5 min candle that was nearly as big as it's entire daily range to allow it to close at +0.05% (*Remember this end of day move, it will be important later) , Junk Credit which trades almost identical to HYG didn't put in any such closing move and closed @ 0%.

Short term VIX Futures traded better than their correlation and were rising where they should have been falling. Yields created a wider spread between them and the SPX, remember they are below the SPX and tend to act like a magnet until there's reversion to the mean.

I'd be lying if I told you I didn't think the market will likely make a move higher on the open (likely overnight futures again), there are several reasons I say this and this is also a large part of why I said,

"Other than positions already in place, I'd like to wait to tomorrow before looking at entering any new positions... I am not going to rush in to positions, there's no need for it, there's a bus every 30 minutes."

At the time I was thinking more about the "Process" and there being an abundance of good signals, but that's not our edge, our edge is great signals. There are several other reasons, the SPY and IWM 1 min charts, just like Friday and yesterday, have a signal that is in line and as I said Sunday night, that "should" keep the market in that direction, since then however the charts beyond 1 min have seen a lot of deterioration.

The red area is actually intraday distribution as there should be higher lows, the afternoon move "looks" like a positive divergence, but if you actually look at it it's simply in line, there is no positive, but this in line was enough to gap the open Monday and Today, what happened the rest of the day was a struggle, but it looks like (at least in the IWM and SPY) they are expecting either a gap up or a stronger opening (I'm guessing a gap up).

After looking at the closing charts, this makes quite a bit of sense, most of all for the SPX, then the Dow and the NASDAQ last.

 In the SP-500's case, resistance at the arrow to the left is at $1654.19, today's HIGH was $1654.18, EXACTLY 1 PENNY AWAY FROM A TECHNICAL BREAKOUT.

What market maker or specialist wouldn't push for that, it's worth it just for the volume rebates or the spread.

 The Dow is about 20 points from the same.

The NDX is a bit further. The only catch to this is the market hasn't been able to do much during the day, all the gains are coming from overnight ramps and in that area for the 3 averages above, there's a lot of overhead resistance from May.

This is why I said remember the last minute move in HYG at the close, after struggling all day and seeing stronger/deeper negative divergences, HYG is an arbitrage asset, "Pulling the levers", so HYG wasn't so much about a green close or the 0.05% gain after really underperforming from yesterday's +1.38%, I believe it's more about trying to act as a lever, no one can look at the intraday trade and tell me this isn't a market that would need help going in to overhead resistance zones, however all that is needed is the limit orders triggered and the volume that comes with them. In fact the signals on the Index futures are pretty darn ugly, NASDAQ , S&P and Russell 2000 futures all not only have negative divergenceS right now, THEY ARE ALL WORKING ON LOWER HIGHS, FOR SPX AND NDX FUTURES THAT WOULD BE THE FIRST LOWER HIGH SINCE BEFORE THE OPEN.

Thus, no need to rush in to positions today at the end of the day as trade in many ways started to deteriorate. 

If anything interesting pops up in futures later tonight, I'll post it, right now the lower high is interesting. Nikkei futures don't look great.

 The last 5 min negative divergence topped the Nikkei just as the new week opened Sunday.

The 30 min chart did the same and it's been leading negative to new lows not seen in 11 days. This is looking like the Nikkei is not going to have a good night.

What's Coming and What's coming

OK, I didn't post this earlier today for 1 reason, when people see a differential like this they get excited and trigger happy. You may have notices, I only opened 1 position today, that was IYT and it's at a decent gain already. Otherwise I just did some spring cleaning, took some losses on some July calls that I think we're probably at just about as good a place as I can expect for them considering the time decay.

It's not I feel things went different than described in the SPY example of expectations for the market, in fact I think that the example provided thus far has been very accurate, in many cases it's not even a matter of positioning, it's a matter of timing.

I figure since several of you have already sent it to me today, I might as well post it now.

So here it is... The CONTEXT model for ES (S&P-500 futures).
 

I have been watching this grow the last 2-days and now it's around a -30 point differential. CONTEXT has been extremely accurate in the past, I posted in Sunday night and said I didn't trust it and thought that they would tweak the model in the morning and they did, I believe about 2 a.m. Monday morning.

The model is based on other risk assets, it's no where near as simple as the SPY Arbitrage based on 3 assets.

So do I trust it now? Yes and that's not just self-serving, it's because I see the assets like credit are lower, I see VIX futures are higher than they should be, Treasury's etc.

So as of now, it has ES $30 rich to the implied value judging by other risk assets so in a way, that's what we have coming and I say that because twice we have seen CONTEXT around the $30-$40 level (differential ) and price moved within a couple of points of the model, it was pretty amazing.

As far as what's coming from me, I'm going to update several positions that are currently open, a brief market review and then the trade ideas.

Trade Ideas

Rather than spend a lot of time on the market tonight because you already know what I was expecting, we got that move, I'll dedicate more time to positions I think are in good position or areas where I'd consider them

FAZ Looks GOOD

I'd consider if you have time to do the risk management, a partial position long FAZ, I plan on entering tomorrow.