NFLX Update

There's a very strong 5 min (the first institutional timeframe) leading positive divergence. A lot of members are interested in NFLX.

In my view, probabilities are good NFLX is putting in or has put in a base and will head higher, however as you know I always distinguish between probabilities and what I consider a HIGH probability TRADE SET-UP.

Here's what we have on NFLX and what I'd like to see before increasing long exposure w/ NFLX.

 The 5 min leading positive divergence forming after a very strong relative positive (arrow). This is not retail "Buying the dip". However, look at price, what does it look like to you?

I'm not saying "V" reversals don't occur, they do and typically because of some previously unknown fundamental event that has to be instantly discounted, I don't see Janet Yellen's 3 p.m. announcement as O's pick for most powerful woman in the world as an event that hasn't already been discounted. However as mentioned before, the NY F_E_D's trading desk may send out the minions to goose the market to give the impression of a favorable response to her nomination as she still would need to be confirmed.

 I personally (taking the "V" reversal out of the equation) would prefer to see a return to the lows, maybe a head fake move below them and at that point we have a little more reasonable foot print, but as I've said in the recent past, "Don't expect to see the kind of institutional support of long positions we use to see even a couple of months ago. These guys are not going to risk being the last one standing when the music stops with the market where it is now.

Still, I have to make my decisions and I'm still requiring a HIGH probability set up,  even though I can see a reasonable case for reasons that kind of set up is less likely.

SO WHAT IF I MISS THE TRADE! There's a bus every 10 minutes.

The 4 hour chart is a warning. NFLX went from confirmation of the uptrend to distribution. Normally there's be a much larger topping process, but I suspect (even though I have not had the time to do the analysis yet) that NFLX is going to act a lot more like a Channel Buster Position than a stage 3 top. For a review of a Channel Buster, see last night's Daily Wrap and SPX example.

If NFLX starts to look more like I'd like to see, I will of course let you know, but the probabilities are on its side

Opening November VXX $17 PUT

This is Spec size as all option positions typically are.

Market Update

There's actually a lot happening today so I may have to post several of these, but thus far it looks like we are moving in the tight direction and the long/call positions I said on Friday I thought we'd be able to enter late Mon or Tuesday after early weakness, look to be pushed out a day to this area. So today may be quite busy for me, please understand if I'm late with email responses.

I'll show you the averages, there are some really interesting divergences that are probably going to be even more so by the time this is posted.

 DIA 3 min trend with distribution in to the F_O_M_C and an impressive leading positive now


 5 min is broader, with distribution again in to the F_O_M_C and accumulation recently and building stronger today specifically.

Just so we don't forget...

 Although this hourly chart will allow the market room to make even a significant upside bounce, the end of the story isn't pretty. The leading negative has grown worse and worse, it seems the last F_O_M_C was really a strong turning point, the minutes should be interesting.

 IWM intraday positive also very strong thus far, it's still a process, not an event.

The 2 min is following up so that's a good signal and they are moving fairly quickly.

 You probably recall last Friday's EOD update with distribution in to the afternoon telegraphing early weakness this week, a little more than I expected, but we went from negative to in line and now the 3 min which is key, is working on a positive.

 The 15 min IWM which has been negative shows accumulation in Aug, a run up to a large bullish ascending triangle so a head fake move there made sense, the breakout failed and From failed moves come fast reversals"

However the hourly chart is not rolling over yet so there's room for another swing to the upside.

The longer 2 hour and beyond rolled over a while ago so once again, the story doesn't have a happy ending for bulls.

QQQ...

 Again interesting intraday strength- 1 min QQQ

Here's a closer look, remember TECK (XLK) had interesting positive divergences forming yesterday.

 QQQ 2 min migration and a fairly strong signal where as,  the Q's have been the weakest looking of all the averages as far as 3C signals go.

 This 3 min is working on a positive, it's at a relative positive, it needs to lead before I'd enter anything long here.

SPY 15 min has managed to stay positive, I think there has been a lot more retail selling than institutional, it may not appear that way, but this 15 min chart wouldn't have held together with thee kinds of moves if institutionals were behind it, besides, they typically don't sell in to weakness, that's retails gig.

 SPY has been stop hunting, they know where the stops and limits are, it looks like the predictable $165.50 was the area, it was hit late yesterday and check the volume, larger than anything else in this move, so that's where they've been heading.

 Again, 1 min intraday with a very strong leading positive signal and right as the stops were hit, "All of your shares are belong to us!"

SPY 5 min has held together fairly well, the leading positive is a good sign with the other signals so I'm a lot closer to entering some longs.

The SPY 30 min, distribution in to the F_O_M_C and a very positive signal in to the multiple stop levels that have been hit. You may recall the SPY was only positive to the 15 min, now we have a clear 30 min,

I'm checking futures and leading indicators and then sweeping the asset list if everything checks out.

AA Charts

I'm really not sure if AA was an earnings leak and there's some intention to stay with it or it was just a rather large earnings leak.

In any case, I don't think I'm going to discover the reality today so I'll keep watching AA and see if there's fast distribution (suggesting an earnings play they are exiting) or see if it holds. While we await these signals to develop, I'm also throwing AA in to a couple of trending systems for those who want to use some kind of trailing stop.

 This is when and where we picked up AA on Monday, just a penny above the lows of the day.

So far this version of 3C is showing confirmation of the gap up on an intraday basis.

The 2 min chart being positive once again is like that example of the longer 30/60 min positive charts being the treasure chest and the intraday charts being the key to open it. This is what I really liked about AA, the consistiency of the divergences through 5 or 6 timeframes, all doing the same thing at the same area/time, so there was excellent confirmation, but that doesn't tell me what their intentions are even if it does suggest an earnings leak.

 The 3 min chart shows the same as all, distribution at the highs to the left and accumulation in to lower prices, EVERY chart shows the same thing.

This is the 60 min, again negative or distribution at the high/ accumulation in to the lows.

 30 min chart... the same thing

The 5 min chart was leading positive before today which was good for an entry signal. As far as confirmation of continuing strength today, the 5 min chart will take a little time to either move higher or show distribution.

So until the shorter term charts start showing a clear trend, I'm going to put this in a trending system and if you like, you can use that as a trailing stop, both will lock in gains as they move forward.

 Above you can see where the X-Over system gave a short signal and in orange a whiplash/false buy signal and then a confirmed buy. For now since this is new, it will stay on the 60 min chart, hopefull we'll be able to move it out to a daily if the trend holds up.

For now the expectation would be for an initial pullback to come down to the 10-bar moving average (on a 60 min chart) which will be higher, I'm guessing around $8.10-$8.15 if it pulls back. The other two indicators need to stay positive and I'll keep an eye on them.

I also gave the choice of using the Trend Channel...

This is also set up on a 60 min chart for now. The current stop is a close (60 min bar) below $8.00, this is still above the entry at $7.85. The TC will continue to lock in gains, even if there's a consolidation. I'd like to get this in to a daily chart as soon as possible.

If you don't have the Trend Channel, for now a 22-bar expo. m.a. is pretty close to the channel, I'll update you on the m.a. that is closest as we go.

AA Follow Up

Our long in AA from Monday as an earnings play, looks a little like it's losing some intraday support, it's difficult to tell if it's just a consolidation or something more because it's only on an intraday 1 min chart so far.

I'm still trying to decide if and how long I want to hold AA, it's already at a +5.1% gain for the last 2-days since it was opened. Whether I decide to hold AA or not is more a matter of whether I think this was an earnings leak and that's it (in that case I'd have to estimate about how long it would take to distribute the accumulated shares) or if this is something more (which still may be an earnings leak, that's why I liked the position initially, it looked like an earnings leak, but if there appears to be intent to hold AA for a longer period/move, then I don't mind having a long hedge like this.

I'll have charts up shortly.

URRE Follow Up- Parabolic Open

You may recall yesterday's URRE add-to or new position for some of you, here's the post from yesterday at 3:28

URRE is up over +19-20% today making it a nice long position for anyone who entered yesterday. I personally wouldn't blame any one for taking a 60 min 20% profit, nut I'll be sticking with URRE for a bit.

Please see the post above as to why we entered or added to URRE yesterday on multiple leading 3C divergences.

As for now, you know I don't trust parabolic moves, even when I benefit from them, however whether the parabolic move holds or not is not so much the question for me as I'm not looking at URRE as a day trade, the question is sustainability, so far we are off to a good start.

 Today's daily chart with yesterday's long entry coming around 3:30 p.m. or just after. Volume is up on the day thus far so it looks like it will have good volume confirmation by the close.

 This is one of the leading positive divegrences that caught my attention, a 30 min leading.

This is a concept I try to show whenever I can...  If you see where the divergence started or where accumulation started, even though accumulation is almost always in to lower or flat prices, price almost always moves well above the area where accumulation first started regardless of the average accumulated price being much lower. IN THIS CASE, THAT HAPPENED ON OPENING TRADE ALONE THIS MORNING.

 As I was saying yesterday about some other charts, the positive 30 and 60 min is like the promise of a large, strong move locked up in a chest and the intraday 1-5 min charts going positive are like the key to opening that chest, it's really more of timing thing than anything, but the 3 min positive is one of the reasons I decided not to wait any longer yesterday.

The 15 min had already been accumulating as well as 30 and 60 min, it looks very much like the move below the trendline was just a head fake move to pick up shares on the cheap and they were accumulated through out.

For now we have a strong set up that doesn't look like a 1-day flame-out, although price may not be +20% by the end of the day.

As soon as possible I'll be throwing this position over to the X-Over system and Trend Channel, I think we are just getting started, just remember nothing moves straight up or down.

I'll update URRE again in a bit

Futures In to the Open

Today at 3 p.m., it seems Janet Yellen, the woman who's most memorable quote is  from the 2010 Financial Crisis Inquiry Commission,

“For my own part,” Ms. Yellen said, “I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, the S.I.V.’s — I didn’t see any of that coming until it happened.”

Honestly, I'm not sure what to say... Applaud her for her honesty? Scoff that the San Fran F_E_D Dove couldn't see any of that which most of us at least saw some part becoming a potentially catastrophic problem and many of us seeing at least parts of it years before it happened? I really don't know what to say, truth is Bernie didn't see it either, they were caught flat-footed OR the truth maybe  perhaps they did see it, they had a hand in creating it, the so called "Business Cycle" and it just got out of control. In any case, Yellen is about to become the most powerful woman in the world assuming she is confirmed.

I think some expected some market bounce from the "seeming" Ultra-Dove's nomination, although some would contend she's a Hawk in Dove's clothing. In any case, Yellen is no surprise and the fact the market didn't jump for joy is no surprise, it's been priced in. Perhaps the NY F_E_D trading desk will get busy at 3 p.m. to make it look like there are some fireworks and the market is welcoming Yellen, but I doubt there'd be too much more of a response than that.

As for Futures, the Index futurees continued to see improving diivergences  overnight, the bigger news though may be the improvement in the $USD which is now positive from 5 min to 15, 30, 60 and 4 hour. The $USD has been in a consolidation since midnight after it made a run higher last night starting around 5:30. 

The $AUD looks to be losing some of it's strength as does the Euro as a currency to lead a JPY cross, but the $USD looks stronger than it has and looks like it will take control once it comes out of its consolidation

The Index averages also continue to see underlying divergences improve.

PM's still look like underlying trade has them on the bench or out of rotation for the moment.

I'll have some opening charts up as this first wave of a.m. sell orders runs its course.

Daily Wrap

Pre-Futures activity...

First I want to show you something that applies more to long term investors, but there are some concepts that apply to all.

On 5/22/2013 we had a 1-day Key Reversal, back then I recall saying, "This is the day the market's back was broken".

First there's the "Channel Buster" concept, they always seem bullish (in this case), with a downside channel and break, they seem bearish, but the concept of, "Changes in character lead to changes in trends" applies here more than anywhere.

The upside Channel Buster on May 22nd (yellow and red) "seemed" to be a bullish day, this is why getting lost in the lines or paying too much attention to intraday or day to day trade can be dangerous. 

The break above the channel was also where we found the Key 1-day reversal which is a serious technical price pattern. As an investor, the easy money is now over and staying in the market after this point is dangerous and usually not worth it for a long term investor. The maximum SPX gain that could have been made from that day would have been +4.24% "If" you sold at the EXACT top, otherwise, locally it would have been about +2.5% which is not worth it to most people considering the huge increase in volatility and market unpredictability. 

The gain from 5/22 to today would actually be a loss of -0.02%, or almost dead even, so you have roughly 4.5 months of market exposure for a probable gain of about +2.5%, this is why the top and bottom 10-20% are the hardest and most dangerous gains to try to make while the 80% in the middle, the trending area of stage 2 mark-up, are the easiest. FROM THE START OF THE CHANNEL TO 5/22, THE GAINS WERE +22% WITH LITTLE RISK.

Over the next few days I'll show you the only trading system out of hundreds I have tested (including every one I could program from every Technical Analysis book I've read) which is a VERY simple system with approximately 1-2 trades a year and a gain that out performs over 90% of the 20 and 2 Hedge funds (20% incentive fee and 2% of AUM management fee). YOU'LL BE SHOCKED HOW SIMPLE IT IS, HOWEVER MOST PEOPLE CAN'T FOLLOW THE SIMPLE RULES AS WE LIKE TO TINKER OR GET BORED EASILY.

After the upside "Channel Buster", the same thing that almost always happens, happened- price quickly dove to the bottom end of the channel and broke through the bottom, once again, "Above all, price alone is deceptive". 

Technical Traders expect a "Kiss the channel goodbye" bounce, which is a bounce that fails at the lower resistance of the channel; this is the Technical Dogma, but in reality Wall St. knows that's what traders are looking for so a vast majority of traders are head faked when price doesn't fail at resistance, but rather moves inside the channel as a shakeout, new longs enter as they believe the trend (channel) is still active. This move is effectively a"short" stop-run or BTC and a limit buy for bulls. This move then fails and we are closer to the collapse of the cycle that was in stage 2 before the Channel buster and is in stage 3 distribution/top after it. 

The new site has an expanded risk management section that identifies different risk including exposure risk, opportunity risk and many other forms, I think it's essential to know what kind of trader you are and what types of risk you are willing to accept vs. the probable limited gains.

Moving on... ***All Leading Indicators we use are compared to the SPX in green unless otherwise noted.

 Sentiment: Wile price action today was record breaking in many ways, it was also deceptive in many ways. This sentiment indicator has been the least forgiving and the most accurate, today is probably the first time in weeks that it posted positive sentiment (this is NOT retail sentiment).

 For the second day, Yields posted a positive dislocation vs the SPX, Yields act like a magnet for the market and tend to pull prices toward them.  This is yesterday's positive Yield  indication.

 Today's was so large that it obscures yesterday's.

This is the VXX (Short term Volatility  vs. the SPX), I inverted the SPX price scale so you can see the typical correlation which should see both moving in tandem. Instead you see VXX leading the market to the left, in line and then failing late today, a transition.

 TLT, 20+ year treasuries also failed to keep up with its normal flight to safety correlation showing less fear in the red section. Taken with HYG (HY Credit), these assets for the basis of the SPY Arbitrage algos and Wall St. use to determine fair value, as I showed yesterday, for the first time in days the SPY arbitrage was going positive which means it is supportive of the market although it may not have looked that way today.

You may recall seeing this earlier today with about a +$.40 positive arbitrage value, it ended near $.80 today, clearly a change in character is taking place.

 The NYSE intraday TICK (All advancing NYSE stocks for that time frame/bar minus all declining issues gives you the TICK). Today we saw some extremes mostly on the bearish side of -1000 and a few beyond -1250, but notice there was very little trend vs. price today.

My custom SPX v. TICK indicator/Histogram is going positive today as you can see TICK's linear regression is flat vs. price which gives a positive histogram reading similar to a MACD histogram and used the same way.

Credit, the real insight in to Institutional money...

 High Yield is a "Risk-On" asset, the move in green in confirmation, the move in red is HY signaling a loss of market momentum and the white is a positive divegrence as credit is acting better than the SPX, this is a change in character that is very different than price action alone.

JUNK Credit is also HY Credit and used to express an institutional risk on posture.

 Note today's VERY positive credit activity vs the SPX.

Since HYG is the most liquid of the HY Credit assets, it is the most important and goes in to the construction of the SPY arbitrage as well as the ES CONTEXT model.

HYG (High Yield Corp. Credit) was much more positive than one would expect given price action. For those who saw the action in credit today, they saw something that most traders don't and received an insight few traders received as the focus their sentiment on past events (chasing price).

All things above considered (without even considering futures), it's no surprise the CONTEXT SPX futures model was so positive and increasingly so.

Actual ES activity is in red, the ES model is in green and the Histogram is green below which is indicating that as of 7:05 p.m., ES looks relatively cheap, by approximately 25 ES points. This model is based on institutional assets including treasuries, carry trades, credit, CDS and other assets that retail rarely trades.


Also suggesting the market is nearing an upside reversal (beyond today's exhaustion or capitulation move) is DOMINANT PRICE / VOLUME RELATIONSHIPS AMONG THE AVERAGES.

HERE'S WHAT THEY TOLD US ABOUT TODAY...

 Of 500, 372 SPX component stocks finished the day with a relationship of price down and volume up, THIS IS USEFUL BECAUSE IT IS DOMINANT AS ARE THE OTHER AVERAGES.

 25 OF THE 30 DOW-30 FINISHED @ PRICE DOWN/VOLUME UP.

And 96% of the NASDAQ 00 finished lower on higher volume.


Of the 4 possible relationships, today's dominant relationship was a lower close on increasing volume which is actually the second most bullish of the 4 relationships as it represents short term capitulation or a selling / exhaustion event.

As far as Futures indications from earlier (after the close, but more than an hour ago)...

 1 min. ES or SPX Futures show a positive 3C divergence which is not surprising as many of the averages showed the same intraday as did numerous assets and industry groups, thus the entries today in FAS long, XLF Call options, URRE long, XOM long as well as market averages or leveraged ETFs.

5 min ES is showing increased positive activity since late Friday's negative

 NQ 5 min is seeing positive activity as the chart is seeing positive migration to longer NQ/NASDAQ100 charts, even as price seems so very bearish. The increased volume also suggests a short term selling climax / exhaustion.

TF- Russell 2000 Futures.

 TF 1 min intraday is positive.

As is TF's 5 min chart that started the new week with a late Friday negative defining early week price expectations.

TF, the R2K, which should lead risk on moves is also the only of the major Index Averages to go positive as far out as 30 min charts as above and a leading positive divegrence at that.

Earlier today I showed the currency movement and carry pairs that have been directing market activity, last night and even before that it was plain to see that the JPY would see downside pressure allowing the carry crosses to help support market averages. The AUD/JPY was the dominant carry cross pair to lead ES/SPX activity. FEW TRADERS REALIZE HOW MUCH INFLUENCE CURRENCIES HAVE ON THE MARKET...

ES=purple and AUD/JPY=red/green candlesticks. The degree of correlation today is no mistake or coincidence. The carry trades held the market up overnight as the JPY weakened enough to allow the USD/JPY, AUD/JPY and EUR/JPY to support the market.

However as of a bit over an hour or so ago...

 Only the 1 min $AUD single currency futures was still positive, it has gone negative since.


The 5 min AUD/JPY suggested the pair would pick up and have more upside to go, since then the 1 min chart has gone negative and ES is moving higher than the carry pair as you can see on the chart above this and the next.

1 min AUD/JPY went negative and thus has allowed the Index futures to break away with a more positive bias.

 As seen last night, the weakness in the Yen is what allowed the carry pairs to advance and support the market. The Yen has seen even more distribution since last night as seen above on this 60 min chart.

The $USDX 15 min is leading positive, I suggested the $USD/JPY was a likely pair to lead the market higher.

Now the 60 min $USDX positive has migrated all the way to a 4 hour chart.

This is very bullish for the Carry, Currency crosses and as such, as an engine to support the Index futures.

As already posted, yesterday's long position in AA for the kick-off of  earnings season has seen AA post a beat on both revenue and EPS, despite lower expectations. As of now AA closed at $8.18, making yesterday's purchase at $7.85 now a +4.2% profit in AA with no leverage for a single day, not bad.

As far as current Index Futures action, ES is positive on the 1 , 5, 30 and 4 hour.  NQ (NASDAQ 100) has a lot more work to do as mentioned, it is positive on the 5 min chart. TF or R2K futures are positive on the 1, 5 and 30 min charts, a lot of progress from Friday.

Currently ES has gained about 5 points of CONTEXT's roughly +20 points since the 4 p.m. close.

NQ/NASDAQ futures have gained nearly 7 points since the 4 p.m. close.

And TF/Russell 2000 futures have gained about 10 points since the  4p.m. close!

TF 15 min

We needed to see the overnight 3C positive divergences hold overnight and in to regular hours, they did both and they continue to gain through early overnight action.

I'll check up on futures later tonight and let you know if anything has changed. Thus far our analysis since Friday afternoon, through Sunday night, Monday, Monday night, early Tuesday and Tuesday regular hours, has been nearly 100% accurate.