AAPL

For those who are like me and like to hit and run on the options trades, you might take a look at AAPL, if it is worth it for you here as it should be making a move to the upside shortly. I will try to continue to hold this a while longer.

Russell 2000 / IWM / SRTY Trade

*The market update charts promised in the last post are coming, I wanted to get this out to you first though.

I have explained many time that the market doing what we expect as it has last week, this week, more broadly, etc IS NOT reason enough to enter a trade, WE HAVE TO HAVE THE SIGNALS.

This is why I still haven't entered a Financials short like FAZ, because the signals weren't there.

Yesterday however the signals were therefor a short on the R2k / IWM which I chose SRTY (3x short Russell).

Remember that the Russell should be the leader of any rally or risk on move. Over the last few days I have been pointing out the Dow's better 3C relative performance (large caps vs the R2K's mostly small caps).

While I was putting together the charts to go with the last market update, I ran in to the IWM again and saw what are continued negative 3C signals, flying in the face of short term signals in the other 3 major averages.

The SRTY position entered yesterday is at a small gain, nothing exciting yet, but if the IWM drafts the market intraday, I would consider adding to the SRTY position, if you like it and don't have any coverage on the IWM and mall caps in particular, you might consider using any price strength in the IWM that is a result of the IWM drafting the broad market (as there is no underlying strength in the IWM itself) to consider a partial position or an add to. I'll be looking at it for an add-to position as the current position is 2/3rds of a normal size position for this very reason.

Here are the charts for the IWM and some confirming SRTY charts as well.

IWM

 1 min is bucking the overall intraday market trend and is leading negative here. This is not important as far as the probabilities for the success of the trade go, this is more of a timing indicator and being able recognize a false move or a head fake move which can be used to get the best entry and lowest risk.

 The 3 min chart is still an intraday timeframe, but a bit more important and we see negative divergences in the IWM at all important highs and a current leading negative divergence in the red box, leading divergences (represented by a box around the 3C indicator-white for a positive or red for a negative divergence ) are always stronger than relative divergences (represented by arrows usually).

 10 min is showing price / 3C confirmation at the green arrow and then a leading negative divergence and another deeper leading negative currently.

 The 15 min chart- although with any other indicator a 15 min chart sounds like a not very influential timeframe, with 3C it is very influential and represents fairly large underlying smart money trades. This leading negative divergence is very important. It's pretty rare that we see a divergence like this and price does not respond, which in this case would be to the downside.

SRTY (3x short Russell 2000/IWM) *Be careful with asset allocation as a short position in small caps will move a lot like a short position in the IWM, you usually don't want too much correlation in your portfolio for risk management purposes.

 On a 3 min intraday we see a huge leading positive divergence in SRTY, which is the opposite of the IWM so this is also confirmation of the signals in each.

 10 min leading positive divergence, agin an important timeframe-the longer the timeframe, the heavier the accumulation or distribution.

 15 min leading positive divergence, again since SRTY is the opposite of the IWM and the IWM is leading negative and this is leading positive, the two ETFs are confirming each other on another timeframe, this increases probabilities of a successful trade.


30 min leading positive in SRTY.

Hopefully you can see why I liked SRTY so much yesterday and continue to. I left a little room in case I could add to the position at a better price (long SRTY).

Market Update

This is a quick update, I'll get some charts out for a visual in a moment. The averages are showing intraday positive divergences on the shorter timeframes as the market has been forming a triangle since the open, this is a downside continuation triangle so the break to the upside will surprise a few technical traders and may set up a bigger p move to the downside which you'll see in the charts, but do look for some intraday upside volatility shortly.

Charts coming.

Fiscal Cliff Plan "B" Sentiment Indicator

One thing you've heard very little about here is the "Fiscal Cliff", I'm pretty sure that every other source of news on the markets has been nothing but the "Fiscal Cliff", for example, "The market did XYZ because of the Fiscal Cliff today".

The masses ALWAYS want to know why the market did what it did and there's no end to the media sources as well as Wall Street sources that are more the happy to tell you why the market did what it did.

The truth is (because we have seen it sooo many times), in most cases the market is doing what it is doing because it already set that play up, in other words the market is a LOT LESS reactionary than people think and MUCH MORE forward thinking and planning. We wouldn't be able to predict moves like we have been doing if the information wasn't already there and the information was there long before any kind of reaction to the Fiscal Cliff took place.

The point simply is, the truth about the markets, how and why they move is much too complicated for the average CNBC viewer and a simple reason as to why the market did this that or the other is about all most people can digest or care to digest.

However today I will say that this is one of those days in which things look muddy, we have VERY clear signals like before the IWM breakout and before the QQQ breakout where we know what to expect and how to play it, then there are brief moments in which the market gets muddy in the short term (mostly short term) and it is in those moments that I believe the market is not operating so much on forward planning, but is truly worried about a fundamental event that the market has no way to discount.

For instance, Boehner's Plan "B" vote in the House which I believe is scheduled for today after market, although I've seen conflicting reports.

No matter how much inside information Wall Street has, they just can't poll all the members of Congress and find out how this vote will go, how Obama may react to it, how the Senate may react to it (although that seems much more certain) and whether Boehner can keep his own party on the same page-remember the Tea Party is very independent from "Republicans" on certain matters and this is one of them.

I can't tell you what the market may be worried about, but the muddiness I'm seeing does seem to reflect some worry about a fundamental event that they can't discount because it hasn't occurred yet and they don't have inside information to know how it will turn out.

That's my guess for the time and we have seen this before (usually in front of some major EU conference or election), as always we don't guess, we wait for the market to give us a clear signal in underlying trade, which often contradicts current price movement.

I'll let you know as this develops, but this is my initial take on how the market is developing today, of course we have other events such as Op-ex tomorrow and end of year window dressing which could cause some insane volatility.

We also are nearing the last days of trade for the year, remember the T+3 settlement rule, so the last day of trade for hedge funds and others trying to clean up their prospectuses is not the last trading day of the year, they have the 3 day settlement rule so it's before that-I haven't sat down with a calendar yet and figured out when that is, but I will.

I'm going to be looking at everything, lading indicators, sectors, bellwether stocks, TICK, breadth, etc as we can usually find some hint somewhere that is right on like volatility on the F_O_M_C QE3 day that told us  which way the market was going before the announcement and then told us to look for an intraday reversal, exceptional signals.

So I am here, I'm just going to look at about 200 different assets in the next 2 hours.

As for AAPL Puts, I'm sticking with them, but I do expect some intraday upside soon.

Quick Market Update

This is a little myopic, but I figured I'd let you know just in case it turns in to something else. There were lots of intraday (1 min.) negative divergences at 11 a.m. and 11:15 a.m. this morning, in the SPY (which is currently in line with price), the DIA which is leading price a little lower, in the QQQ (in line with price now), and IWM (also in line with price).

I'm guessing this is just intraday jiggles (volatility) and probably nothing, but as you know, new divergences start on the earliest timeframe (1 min) and if strong enough, migrate to other timeframes. So I wanted you to have that basic information in case there is a change so I don't have to post a lot more charts than needed.

I will keep an eye on the 1 min and the 2-3 min to see if it keeps up and if it starts to migrate. If that happens, then the probabilities for earlier weakness in the market start to rise.

Also keep an eye on MCP, it's peaking above the apex of the triangle-watch for volatility, head fakes. etc. If you are in the trade you can email me for an update.

AAPL Update

Yesterday's puts are in the green and you know I don't like to be in heavily leveraged products very long, but the last AAPL call position was closed too early so I think I'll wait this one out a bit.

Remember there are some long term (since October) positive charts in AAPL, I don't think we are at that bridge yet, but AAPL looks like there's somethings going on that will make this an interesting, if not complicated trade at some point, but we should be ahead of the curve/crowd so I think it will be especially interesting.

Here are the charts thus far, although we're still early in the day.

 1 min has an overall leading negative position to it, this was part of the reason for the trade at least timing wise.

 The 5 min chart from positive and up to leading negative and I expect a decent move down.

 10 min leading negative and at a new leading low.

15 min leading negative and approaching a new leading low.

For me, no changes in yesterday's Jan 535 AAPL puts.

Opening Indications

There's what looks to be quite a bit of volatility through out the day, the initial indications from some of the confirming assets I use like short term volatility futures and Treasuries as a flight to safety asset show what looks like early strength in the market-along the lines of the 1 min positive divergences I mentioned in an earlier post this morning, but still that negative tone in the more important charts.

My first thought is we frequently see some type of move in the morning or first half of the day and they almost never have the staying power to last through the close, so if we were to see a big drop this morning in the market, it would be unlikely the market could hold that through the close, we'd almost always see some sort of reversal at some point in the afternoon. Afternoon trade is the most important trade for our analysis and for the market.

I'll show you some of the opening indications and what I mean by the rot in the longer timeframes.

A secondary thought that can't be ignored is op-ex Friday, typically Friday's op-ex close is not too far off Thursday's close, wherever that lands.

Here's a sample of some of the charts...

DIA 1 min is almost perfectly in line (price/3C trend confirmation), this is one of the exceptions.

 DIA 2 min went to a leading negative divergence around noon yesterday and lost ground from there. This morning there's a slight positive divergence on the 2 min (intraday) chart).

 The longer term and more important signal (flow) on a 10 min chart from the positive divergence we expected for the QQQ breakout to the negative divergence once that was achieved and a leading negative divergence sending the DIA lower, this is still in effect and is the most important of the charts here.

 QQQ with a late afternoon 1 min positive divergence and an early this a.m. slight relative positive divergence, the rest of the day so far is in line.

 QQQ 2 min going negative as soon as it makes that breakout we were expecting and in to a leading negative divergence, this still is much more negative than price suggesting price has further to go and this is only the trend of a 2 min intraday chart.


 QQQ 15 min at the last area of resistance going negative, the positive divergence we expected to send the Q's through that resistance level and the leading negative divergence on an important 15 min chart that is currently in effect.

 SPY 1 min with a positive divergence visible late yesterday and another relative positive at this morning's lows.

 The 2 min chart negative at the SPY highs and in leading negative position, the trend though is pretty close to confirmation.

 And again the rot... 10 min SPY relative negative to the left and a slight positive at the white arrow with a deep leading negative divergence in effect now.

The confirming charts, I'll just use volatility to save time and not be redundant.

 3 min from a leading positive sending volatility up and the market down to a negative divergence in effect now, again this is a short term 3 min chart.

 The next timeframe at 5 mins is in confirmation so the negative divergence here is not that strong, along the intraday timeframe.

However get to an important chart like 15 min and we have a new leading positive high over the last 2 months, this is a strong signal and suggests volatility soars, we know the market moves the opposite of volatility.

So that's what I meant earlier, there's a visual. I'm not changing any positions, just being patient and letting the charts develop and let the market tell us.

MCP Charts

Again this looks like more of a quick trade than a longer term sustainable one at this point, but these quick pops can be pretty large, you just have to know when to get out and not get greedy if you get the move.

Here are the charts...

 Daily w/ a 50 day m.a., I don't care much about the 50 m.a. , but other traders will, it also shows the change in character which is something I'm more interested in.

 Here's the range getting very tight after a pullback with declining volume, this is what technical traders will be looking for, this is another reason to be aware of a head fake move or this perhaps being set up as a quick pop and dump.

 The 1 min chart since the negative divergence at the top has seen a positive divergence through this tightening range.

 Same out to the 5 min chart

And to some degree, at least improvement in the 15 min. chart.

This isn't my cup of tea, but some of you like these kinds of quick, fast movers which this looks like it could be.

I would consider keeping the trade size at a speculative level.

MCP -Quick Pop?

Take a look at MCP, it's in a very tight range and looks like it's close to making a quick pop. It's still within the larger lateral range of what is likely a base so trade will most likely remain choppy, but this could be a fast move to the upside. Be aware of the possibility if not probability of a downside shakeout.

The 3C charts are supportive in a more gentle slope up during the consolidation, not the typical sharp divergence, but if I had to guess, I'd say iy' going to break higher. I'd also expect it to be a fairly quick move, not a trending trade because of the multiple overhead resistance areas. I'll have charts out in a few mins., but I wanted to bring your attention to it now.

Open

Futures  at this time, ES futures are in line, NASDAQ futures have a negative divergence, neither Initial Claims or the Final GDP read moved futures much.

the one thing I did notice last night was some positive 1 min divergences, very short term and everything longer than that starting at two minutes looking pretty bad, almost like a thin veneer of strength with a wall of rot behind it.

We'll see what opening indications point to soon enough, but I suspect that 1 min positive is not new strength, but more like a final thread.