Yesterdays USO short Call

At 1:43 yesterday I put out a short term trade, short USO. From the entry area, it dipped ad then gained about 2/10ths of a percent. This trade was based on a long nearly 3-day 1 min divergence. This morning it certainly is paying off, especially if you used a leveraged vehicle as suggested.

Where the post came out.

Here's the current situation

The downtrend is confirmed, but we have a 2.67% gain on the short in USO alone, if you used a leveraged vehicle like SCO you should have about a 5% gain.

You might consider taking some profits off the table if you were taking the short term trade.

Early Market Update

 DIA 1 min in confirmation of the fall, but looks like it's trying to find support now.

 DIA out to the 30 min chart still looks like the market has the ability to bounce.

 QQQ 1 min also in confirmation of this mornings slide, but showing some initial attempts to find its footing.

 QQQ 15 min chart still looks like that capability to bounce is still very much there.

 SPY 1 min is in confirmation of the move down, no attempts yet at finding some support

Again the 30 min chart suggests there's still room for the SPY to bounce.

EEE

Yesterday I mentioned EEE-a Cats and Dogs Speculative trade, it just broke the 2.00 area I was looking for.

You may want to consider this one. These C&D trades can easily rack up double digits returns in 1 day.

A New Algo

Firstly, I have no idea what the purpose of this algo is, but it's getting stranger and stranger. Perhaps we have some math wizards among our members who have some theories as to what's going on. If you're going to try to crack this, make sure you read the full story with the earlier updates.

One thing is for sure, it drove traders out of an uptrend in UNG, you may recall we found accumulation in late May and some members took the trade and probably made about 9%.

Here's what UNG or Nat Gas, where this fractal algo showed up last night, looked like today.

Apparently this algo showed up in the SPY as well so it may be something we'll have to deal with.

Ironically I noticed trade in USO looking rather strange the last few days and it does share some characteristics with the algo.

The strange thing about the algo is it seems to contradict the law of supply/demand. In the first negative divergence, notice the similar algo pattern-this into a distributive environment, and the series ends with a move higher. Today I updated USO and showed some long term 1 min distribution and rec'd a leveraged short, we got a quick dip right after and then a recovery.

I can't say for sure, but it appears this same pattern was playing out in USO. It hit Natural Gas which has performed horribly until the positive divergence we found in late May. Perhaps this is a commodity killer algo?  In any case, right now it's a curiosity, but it may become more prevalent. To unleash it at 9 p,m, in Natural Gas in a thin market is one thing, but in the SPY, that's another.

A Scary Trend

This article is on ZH 


In short, a record number of people have taken loans out against their 401ks.

This reminds me a lot of a student I had when I taught Adult Education Technical Analysis for the county school system. She came to me after class one night and asked if I'd be open to giving her private lessons in addition to the class. I already had a few private students so what was one more? We met at a local cafe with Internet access and before I could get my laptop powered up, she was in tears. I'd guess she was about 65 years old and apparently a widower.

She told me that she couldn't survive off Social Security alone and had taken her savings of $350,000 and started trading them for extra income. She lost $50,000 in a week. She had told me she had contemplated suicide because she wanted to leave her children an inheritance, but at the rate she was burning through money and losing it, she was afraid there would be nothing left.

It's a sad story. Members of my own family are struggling with retirement and medicare. To make matters worse, Bernanke's policies have effectively punished those who were responsible saver their entire lives as the dollar is worth less and everyday inflation is much higher.

What makes the 401k loan trend especially scary is the fact that most 401ks will decline significantly in a market decline. There was a time in 2008 when even the stability of Certificates of Deposit were questioned as to their stability. What will happen to these people who have taken money out of their 401ks, when their 401ks fall in value?

Obviously Bernanke's low interest rates haven't helped people get loans and who couldn't see that coming? The banks are taking money at 0-.25% interest, why risk it on loans when they could stick it into commodities and equities that were being ramped?

A government that breaks its promises to its senior citizens is a shameful government indeed. Perhaps I'm too biased by personal experience, but this 401k trend sounds like it's going to end very badly.

Tonight's Miners Trading System Signal

No Changes!

System 1, the original which went long NUGT today remains in a long signal. The current stop-loss for today's signal is $27.94.

System 2 remains long DUST but is moving closer to a crossover signal to buy NUGT. If you are trading system 2 and still long DUST, there is no action to take for tomorrow. The 3% stop loss remains at $42.23.

Closing market update

 Not much of a surprise, the false breakout/negative divergence and some profit taking toward the EOD

 Same thing happening in the Q's

As well as the SPY

The DIA/SPY 5 min charts are a bit ugly, but beyond that, the 15 min continues to suggest we have more upside before this is over with.

USO's Probable Course

There's little doubt that Bernanke/Obama would like to see oil killed off, ironically it's Bernanke's policies that have caused a surge in commodities. I call it the Bernanke Chinese Finger trap. On one end is his economic policies and on the other, the unintended consequences (although some would make a strong case that the consequences were in fact not unintended as Tiffany's sees higher prices and food stamps see record usage). I've never believed in an organic business cycle, I do believe in a Fed controlled business cycle, but that's another story. Right now, we have an election coming up and the MENSA head of the Fed needs to prove his misinterpretation of the Taylor rule wasn't a misinterpretation.

So, USO...

 The RSI negative divergence with Stochastics above 80 (compare both red arrows) was a definite warning sign. As usual, resistance was taken out the last 3 days before USO plunged (pseudo-bulltrap).

 I've viewed this pattern in the white box as a big problem and akin to a bear pennant. If it is so, then the price pattern implied USO target would be near $33.

 The false breakout of the ascending triangle was promptly identified by 3C as exactly what it was, a false move.

 Here it is on the daily chart and as with most false moves, a reversal is in order. I can imagine 1 more relative high being posted before a drop of some magnitude, just because we see this action so often.

On the 15 min chart, we had about 3 days of accumulation near $38.60 and have moved up since then. It's not a huge divergence, probably not a huge position, but may be enough to make a marginal new high.

After that, I'd be watching 3C very closely to see if it is confirmed or if as I suspect, it's another failed move, but this time, if it is a failed move, I would imagine the shoe would drop in a more sever way.

SRS-Trade

Is SRS finally going to have its day?


This is a story that has had me in disbelief for quite sometime. No matter what came out about real estate, double dip, lawsuits that may put REO/Short Sale buyers out on the street, investigations and fines galore, huge overhanging inventory, etc... all of it and SRS (a short on real estate) can't get off its butt. I guess that may have something to do with the Fed moving all of that garbage on to it's balance sheet. Really, I can't think of any other plausible reason.

That may be about to change.

Reuters quoted Robert Shiller as saying a 10-25% slump in housing prices "Wouldn't surprise me at all". I wonder how our mortgage member feels about this? Want to chime in Jack?

As for SRS...

 The potential is certainly there. Here we have a conservative bullish descending wedge so the implied price pattern target is about a double.

 As with just about every wedge, it transformed into a lateral base and now we're getting some volume and some movement. My best guess is that this will end up looking like a complex inverse H&S bottom with a move to resistance around $17, a pullback to $15 and hopefully a move on volume back through $17-ish (sorry about my sad graphics).

3C daily has been positive in the base area and is now in a leading divergence. Also SRS is one of the few bear ETFs actually up on the day.

Keep an eye on this one, I've been watching in disbelief for 6 months now, amazed this hasn't shot up higher.

USO Update

USO has been a bit disappointing, XLE definitely looks better.

For you day traders, there may be an opportunity to fade a little bit of the USO move today-I'd certainly use something leveraged as there's not a whole lot to retrace.

This is the 1 min chart over the last 3 days, NO CONFIRMATION!