EDZ-Leveraged Short on Emerging Markets

I've talked about EM and the many reasons I think a short on these emerging markets will make sense. I won't  get into all of it again, but I will tell you what I've discussed with members via email re: EEM (long emerging markets ETF). Six months or so ago, EM was all the rage, I can imagine portfolio managers talking their clients into EM portfolios, since then EMs have aggressively defended the Fed's main export to them... inflation which diminishes the EM trade.

However, EM trades were strong into the end of Q1 and it was somewhat logical to me. Q2 prospectuses and Q1 reports come out after the end of Q1 (March 31st), therefore it was very important to many funds that talked up EMs for them to perform well into the end of the quarter. However, I believe fund managers know the problems associated with emerging markets and I believe they are rethinking the trade. However, if you were paying 20-40% of your gains to a hedge fund manager, you expect performance and if you were aggressively pitched emerging markets 6 months ago, it wouldn't look very good for the fund managers to have sold them shortly after selling you on them. What I mentioned over and over again was this, "What a fund manager wants in their portfolio and what they must have in their portfolio are not always the same, thus once Q1 is over, they are free to sell EMs aggressively, it won't be reported for another 3 months and in that timeframe, should EMS fall significantly for fundamental reasons and because the herd is moving out of them, then it's easier to break that to your clients without seeming wishy-washy (pitching EM and selling them the same quater would seem wishy-washy). So I told members to watch EEM/EDZ right after Q1 ended through April. Interestingly, it looks like this may be what's going on.

Take a look at EDZ which is the leveraged short ETF on emerging markets and also note the dates.

 EDZ (short EM) starting lateral movement from a steep fall around April 1st

 60 min 3C positive divergence starting April 1st

 EDZ 30 min and TSV 55 (long term)going positive into April

 10 min 3C and price appreciation in EDZ in early April

 5 min positive EDZ divergence

 Here's a 1 min chart suggesting a possible slight pullback in EDZ (which would be welcome if you were interested in buying EDZ)

My X-over screen on a 60 min. chart, the possible pullback area would be to one of the two moving averages.

Now compare to the Bullish Emerging Market's ETF-EEM

 a 60 min negative divergence starting around April 1st.

 30 min 3C negative divergence in the same time period.

 10 min negative divergence and price falling.

And the same X-over system showing nearly the exact opposite signal.

For me, the theory seems to be working out, I like the idea of shorting emerging markets, if you are interested in the trade, you may want to phase into it or wait for a pullback for a better entry.

DRYS

This may be a short trade worth looking into if we get the proper set up.

Here's the Baltic Dry Shipping Rates, normally it's quite volatile, however this index has been falling for quite some time which is in itself an indication of global shipping demand of dry goods. Even if we consider there are more dry ships available and attribute the fall in prices to that, it's still not good for a shipping company. If we add the increased cost of fuel, it's even worse. This is a sector that could be a prime candidate for a margin squeeze.

 Here's DRYS' daily chart, which shows it has broken below a top and while moving somewhat laterally, has been making some lower lows. The current price placement compared to a few weeks ago could set this up for a nice false breakout/reversal to the downside which could decisively break that lower trendline.

 Here's the distribution on the first test of resistance (far left), then distribution a few weeks ago and apparent distribution on this bounce.

 This 1 min chart is showing a minor positive divergence developing which could be the key to the trade's setup.

 If we can get a move into or above the white rectangle, it's highly likely it would be a false move and an excellent area to short DRYS with minimal risk.

Here's the long term Trend Chanel, so far, it is in a downtrend.

Remember, there's two possible setups, the outright break of the lower trendline on the daily chart or a false breakout mentioned just above. 

SPY Update

I'm back and the SPY has continued laterally since the last update, the positive divergence continues to build suggesting a bigger move to the upside, the longer it builds in a lateral environment, the bigger the eventual upside move will be. I'm still expecting a move above the apex of the triangle.

Market Update

Here's a market update, I need to run out for about 45 minutes to pick my mother up from a surgery center then I'll be back.

 Basically everything from the last update has come to pass, the triangle continued to develop, note where traders put stops and limit orders-the usual places and volume increased as those were broken.

 As I said, the volatility dropping would cause the Bollingers to squeeze and we'd get a highly directional move-DOWN.

The triangle is too obvious and the initial break (intraday) I doubt will hold, we may see a "Crazy Ivan" with a reversal break to the upside of the triangle's apex.

There's already 3C indications of positive divergences, like here in the SPY

 Here in the DIA

And a strong one in the Q's. 

Another possibility would be a kiss goodbye to the apex, but again, that is what trader's would expect, so I doubt that will be the final move, I lean more toward the upside shakeout. After that we'll see what happens. It's likely the market will close semi-flat going into AA's earnings tonight.

Be back in about 45 minutes.

AAPL

We watch AAPL a lot, whether trading it or just because it has so much influence on the market. AAPL is now heading toward a crucial inflection point as earnings season kicks off tonight with AA.

 Linear Regression shows a well defined downtrend in AAPL for most of the year, note how it's headed for the lower channel and possibly the 3rd major lower low putting AAPL into a possible primary downtrend.

 The daily chart was pretty unambiguous about the distribution into the top, what's perhaps more striking is the current leading negative divergence in both 3C and Money Stream.

 On the 60 min chart, note how sharp the reversals in AAPL were.

 The 30 min chart confirms the 60 minute with a little more detail.

 On the 15 min chart we see the tricks of the market, each negative divergence/reversal happened AFTER a false breakout (in the red boxes), again, these false breakouts serve as a primer to get the reversal moving under its own power as longs sell at a loss increasing supply.

The 1 min chart has been very clearly negative, both in 3C and MS, it seems like the bottom channel is a magnet drawing AAPL toward it. What happens there and the severity of any possible moves could have major implications for the NASDAQ 100 and the broader market. I think AAPL is one of the reasons the NASDAQ is underperforming the other averages today.

If you are interested in trading AAPL, I'd wait to see what happens at that bottom channel, a bounce would be a welcomed set up.

LVS Trade (short) Follow Up

This one was from March 1st

LVS made about 15% since it was brought up, then bounced with the market to an area which I would consider to be a "Kiss Goodbye" to the top pattern.

 The March1st Trade idea and the subsequent "Kiss". LVS looks like it's rolling over here which makes for a pretty decent probability trade with good risk/reward characteristics.

 30 min 3C shows negative divergences both at the breakdown from the top and a worse one currently on the bounce as it starts to round over.


 The 15 min chart is also negative in a leading divergence.

On the 1 min there is a positive divergence, I'm not sure how much further it can bounce intraday if at all, but my guess would be to the white trendline, making for a lower risk entry.

Watching Grass Grow

Today's market is mixed and lackluster, it reminds me of the summer doldrums when you couldn't find a trade anywhere as nothing moved. Interestingly, Monday's historically are the biggest gainers of the week and responsible for most to all of the gains for the week. So far this market is like watching grass grow, which always makes me nervous and on alert.

 The Dow is the strongest today, but remains in the lateral range so technically it's doing pretty much nothing.

 The IWM is one of the weaker of the averages, but has managed to find some support at Friday's lows.
Look at the volume on each of these, excruciatingly low.

 The QQQ another weak one, basically having an inside day within the range.

The SPY also is having an inside day with very little going on, some higher prices earlier were rejected and the averages look like they too are in triangle-type consolidations as well; that means that volatility will die off and Bollinger Bands will narrow, that usually leads to a highly directional move, that's why this type of action makes me anxious.

Chart Request- SLV

Today's SLV momentum is turning into an intraday triangle. Usually triangles are (in this case) bullish continuation patterns). There also tends to be a high degree of vaolatility and false moves around such common price patterns, especially in an ETF that has such a loyal and large following.

 For a consolidation day, it is interesting the volume is so high already, it appears it's on track to surpass Friday's which is not common for a consolidation.

 The hourly chart has moved into confirmation of the trend

 So has the 30 min chart

 as well as the 15 min chart so there's no reason at this point to suspect anything very negative with any sort of high probability.

The 5 min chart is showing a bit of a negative divergence. My initial thoughts, considering the intraday triangle, the volume and this chart as well as SLV's extended run, are that it may be prepping for a pullback or consolidation. Typically high volume days are often associated with reversal days whether it be a real reversal in trend or just a short term correction. That's my initial take, but it's too early with little evidence to declare a pullback at this point, I'm just leaning in that direction from what I see now.

LEE- A Cats & Dogs Trade (long)

LEE just breached a technical level I had an alert set for, you may want to take a look at it this morning. The breakout came on good volume.

USO to Gap Down

Last night's post speculated on the probability of a gap down in USO for reasons outlined in the article, "Action/Counteraction" so far in premarket it looks like that's what we'll see.

Here are some USO charts as a pullback was expected around March 4th or 5th, but oil being sensitive to fundamental developments kept running higher.

 3c Hourly, continues to make higher highs, this is very bullish confirmation of the longer term trend in oil/USO

 The 15 min 3C chart shows in red where a pullback was expected, in white, we see where 3C has been playing catch-up but never quite making it.

 The 5 min chart has been ( as it should be) more responsive in catching up and doesn't reflect any distribution so it seems likely that the African Delegation's Road Map to Peace was not expected to be an event that would move the oil market.

 We still have a long signal in USO and here are a couple of potential pullbacks. The 10-day in yellow seems too shallow for a second pullback, maybe the 22 day in blue.

The longterm Trend Channel Stop is even deeper and this would represent a real shakeout which I think is very possible, however, so long as the channel is not breached on the close, USO would still remain within the trend.

We'll watch for the buying opportunity, it should be a decent one.