Something Not Sitting Right w/ AMZN-Covering Half the Equity Short

As you know, we have a partial position in AMZN short equity (stocks), I purposefully left plenty of room to add at higher prices, but something isn't sitting right with me, I'm taking alarge risk by possibly missing out on a continued AMZN move lower, but I'll cover half of the partial position that's at a small profit, however it is not the profit that motivates this.

As you know, I'm looking for AMZN to clear recent congestion on the upside before adding, when you see the charts next-you'll understand.

Going with AMZN May 10th $250 Calls

Again, this is a very speculative position, if you are not able to watch it all day, I'd think twice about it and I wouldn't invest any more than you can reasonably afford to lose. That said I wouldn't take the position if I didn't think there were a high probability move, I just think you'll need to be very alert and very nimble.

AMZN Update

AMZN is a great example of how Wall St. views earnings, they crushed earnings estimates, but it's not about what you did, it's about what you will do and their guidance was a bit lighter than expected and that has sent AMZN down over 7% today.

The question now is, DEAD CAT BOUNCE? I think the answer is yes, but I think it is a VERY speculative play, you may have to be VERY nimble (even a day trade) and I really can't say what the best tool is in this situation as there could be a dead cat bounce and failure all in the same day (today), furthermore I don't know how much of this move is options-expiration related.

In any case, I do believe AMZN is building for a dead cat bounce, I want you to know that now so you can look for yourself and make any decisions, I'll be positing charts in the next post.

I think I might try some Calls (but VERY speculative in size) for a week or two out in expiration.

AAPL Quick Update

I haven't seen the AAPL options chain (haven't had time), but I've heard from a few members there is some heavy activity in $420 calls that expire today, I was asked if I think AAPL can move to that area.

I doubt it, AAPL is in much the same position as described in the previous NFLX post intraday, there are 1-3 min charts trying to build some strength, although in AAPL's case they are no where near as strong as NFLX's (and I'm not suggesting NFLX charts are strong other than intraday for today's expiration). The 5 min chart in AAPL is negative, thus I'm happy to have closed out the calls yesterday at a 0.004% loss rather than a greater loss today.

We'll have to see if AAPL can make any moves and what signals come out of those moves, but I will say while AAPL intraday is similar to NFLX, it is not even close in terms of strength where strength was found on the NFLX intraday charts.

NFLX Update

NFLX seemed to see early gains based on a couple of million shares bought by a director of the company, the thing was they were bought at $85 on an option exercise. The market seemed to get that after first reacting to the "Insider buys 2+ million shares".

This is for those who may be holding VERY short term NFLX puts, like today's expiration, longer term is not the same issue.

 The 1 min intraday NFLX chart for today is nearly perfectly in line with price action, that means it's better than a negative divergence, not as good as a positive divergence. Based on that alone, I'd think additional downside in NFLX anytime soon would be difficult to achieve.


The 2 min chart has a small positive divergence on it, this isn't a concern for equity shorts or longer dated puts (longer than today's expiration), but for today it's not good for puts.

The 3 min chart's overall position is leading negative, but within that is today and it is showing a positive intraday divergence, again suggesting the probabilities are moving closer to a move up intraday or at least very low chances for a significant move down for options (puts) expiring today.

For longer dated puts or equity shorts, this leading negative 5 min should give you some confidence in the position, but for today's expiration, I doubt it does much.

The 15 min VERY leading negative chart is exactly why, if I had room, I'd sell short or buy puts in to any price strength at all, this shows very strong probabilities of a bad downside move, thus any price strength to sell short or buy puts in to, is truly a gift.

Short Term Manipulation-SPY Arbitrage and the Levers

For whatever reason, (I'm guessing to effect an op-ex pin as there's a lot of premium on the line and thus profits if the majority of contracts close worthless) there's been an obvious effort to control prices today. As seen in last night's post, the 3C charts are suggesting down is the highest probability over the next few days), however it seems from risk assets and the SPY arbitrage chart that they've been trying to either hold the market in place, slow the rate of decline or maybe even are attempting to lift it.

Yesterday in this update I documented the same behavior in VXX we saw right before the sharp decline on 4/15 and then yesterday, the VERY next post, I documented the same behavior seen in TLT again, just before an op-ex Friday with the decline on Monday. 

The gist of the behavior can be summed up as VIX futures (via VXX) were not making lower lows as they should have with the market making higher highs-in fact the highs of the week, this is because of REAL organic market demand for protection as smart money was fearful of a decline and bidding up VIX futures, keeping VXX from falling any further and instigating our long UVXY trade. The same behavior was found both time (incl. yesterday) in TLT which is a Flight to Safety asset which would not fall to lower lows because real demand was keeping prices steady, the same thing that happened before the sharp decline of 4/15. Note both UVXY and TLT are up today.

So far HYG seems to be the asset of choice (HYG, VXX and TLT are the 3 assets used in the construction of the SPY arbitrage model from Capital Context).


Here are some examples with an updated SPY arbitrage chart...

 As we already saw, they were defending the market early this morning against sharper downside at the green histogram, then before we had a current update of this 30 min delayed chart, I pointed out they were using HYG to hold the market or slow the rate of decline, sure enough as the updated chart came in, the histogram is green again.

However, I think they are going to have trouble and a hard time at least in trying to use HYG to manipulate the market because it seems (according to the 3C charts), that natural supply (sellers) are starting to overwhelm the manipulated HYG higher price than SPX performance would normally suggest.

VXX has so far been contained today, limiting some of the SPY downside damage, although I don't think this can hold long, here's why...

The same chart on a longer perspective is quite positive.

TLT

 They seem to be doing the same with TLT today, even though it has gapped up strongly, there may be some profit taking here as well.

However the accumulation from yesterday was quite strong, I can see further upside here and that means downside for the market.

Most importantly, HYG...

Although they've been able to keep HYG from falling with the SPX and therefore positively effect the SPY arbitrage to some degree-obviously not enough, the holders of High Yield credit are overwhelming the manipulators as there is a sharp negative divergence suggesting the sellers through real supply and not manipulation are likely to send HYG lower and the market with it if they can't force VXX or TLT down.

GLD May 10th $130 Calls Are Finally Closed

I say finally because we closed half of the original position on Wednesday, half of what was left Thursday and the final sale to close out the position completely just now. The Wednesday P/L was a +30% gain from the $5.70 cost basis, yesterday the fill was $11 for a 93% gain and today, even though GLD was higher than yesterday, the fill was still $11.00 for a 93% gain with the position now closed.

This is why I like to use momentum to close positions, even though GLD is higher today, the volatility and time decay didn't add a single penny to the fill.

Here's why I decided to close GLD entirely, SLV was closed entirely yesterday for a 95% gain...

With this negative 1 min divergence this morning, it would take a monstrous move to the upside to overcome the time decay and make the position worth holding for any additional gains, in this way options are VERY DIFFERENT than stock long or short positions, option pricing is based on a complicated Black-Scholes model with premium based on volatility, strike and time remaining/decay.

All in all though we had a good run in both PM's, I still like both and think there's more upside to be had, but first we need to find another new entry point.

Closing the remaining half of GLD May 10th $130 Call Position

HYG Still Being Used

The SPY arbitrage model runs at least 30 minutes delayed so what is happening at this moment is unknowable from their end, but from what I see, HYG is still being used. My question is whether it is to slow the rate of decline in the market or arrest it, or whether it's being used to try to push the market higher intraday?

HYG

HYG vs. SPX

From the SPY and DIA intraday charts it seems it is being used to lift the market intraday, not so much on the IWM and QQQ charts.

Market Update

I don't find anything particularly interesting about early trade thus far, the charts as of yesterday and starting the day before were suggesting a near term pullback, the first reason for that could be an options expiration (weekly) pin in which max-pain is lower than the market was/is, thus the market needs to adjust to that to make the pin effective. The second reasons could simply be a correction that lasts a little beyond today, we should get some hints today as to which.

The early trade has been congested, but as I posted earlier, the 1 min charts were sharing small relative positives and moving toward gap fills whereas the 3 min charts were more in line with recent analysis suggesting some drawdown in the market.

For the most part, everything I've seen early on fits with all of the above. First the market congestion this morning...

SPY 

 The yellow box is where today's trade started, not much of a trend, just congested.

ES (SPX futures) have been congested also this morning...

ES since the open at 9:30 (white arrow), there's not much of a clear trend in price or 3C intraday.

The NYSE intraday TICK chart (all NYSE stocks advancing per bar less all NYSE stocks declining for the same bar) shows us a choppy market with a little direction, but no conviction as the TICK hasn't broke above the very mediocre reading of +750, so there's no strong underlying movement in stocks, just as the congested market would suggest.

The CONTEXT Model for ES suggests the analysis of somewhat longer (meaning longer than intraday, perhaps today's op-ex close or even a few days) term downdraft, while the SPY arbitrage (intraday shows the very early manipulation of the market (presumably to try to fill the gaps) and worsening trade since, HYG was clearly the lever used to effect early upside manipulation (or at least to halt the pace of decline).

 CONTEXT for ES, as mentioned last night saw ES come off the highs of the week yesterday afternoon and revert toward the model with only a -4 point differential last night as opposed to about a 25 point negative differential before that. Interestingly, Es has come down about 12 points-still about 13 points shy of the model, but has just about an 11 point negative differential right now which is growing- that's pretty close to "reversion to the model".

SPY arbitrage earlier this morning shows manipulation being used to help the market (green histogram), that is fading.

The obvious asset used which is 1 of 3 that makes up the model is HYG - High Yield Corp. Credit.

Note HYG's positive relative performance vs the SPX this morning?

So far there's not much of interest that is conflicting with our analysis. I would expect some volatility today as shifting option contracts being closed, exercised or even opened, change the area of max pain throughout the day. What we are interested in is whether there's any significant underlying change in tone, thus far, nothing.