Strategy Update

Sunday night I laid out a strategy or a "theory" that one of our members (credit where credit is due) who has taken in our concepts, seen the proof in market behavior and understands to the point in which he can "Think like a crook".

I explained the ONLY reason for a volatile upside move is to create selling/short selling opportunities for smart money, a new high should have done it, it should have got retail excited enough to create that demand, but it didn't. He put forth the idea that the shorts, after having been beaten up so many times, but still having objective evidence on their side (this is the market can stay irrational longer than you can stay solvent behavior, which makes risk management and understanding what to risk and when, a very important market "feel" that comes with experience), would be happy to step in to the market in size on a severe momentum downside move, we have the volatility for that and the ATR, then the shorts may have a few days, maybe a little longer before the market is run up again, scaring the shorts and forcing them to cover. When you cover a short you are buying, it's no different on the market's tape than a long buying, the only thing the market sees is buying and that's what the market needs so if the longs don't have the attitude to do it, maybe the shorts will. That is in essence the thrust of his argument which I found VERY compelling and it made me incredibly proud because as you know, I don't give "Buy, sell or hold" calls like some self-proclaimed gurus, I try yo show you the best set up, if the market comes to you, then you take it, if not, then there's a bus every 30 minutes and you look for the next one.

Not only did this make sense from a "What Wall Street needs" point of view and it really doesn't matter how they get the buying, from longs or shorts covering, but it also made sense with what I'm seeing in some of my core short target stocks like GOOG, AAPL, AMZN, NFLX, IOC, GS, IBM, DE, CAT, XOM, TJX and others. Obviously I don't want members to enter all of these positions, there's too much correlation, there's too much over-diversification, but there are enough targets that we'll find a high probability/low risk entry in one of them for you when you need it.

Yesterday I mentioned our strategy and how I'd prefer more generic shorts for the initial break to the downside because a lot of the specific stock ideas look very close, but not 100% there yet, exposure to the broad market is generally going to be more consistent than to a stock specific exposure that has news, earnings, etc, in other words, at this point, I'd rather be short the entire financial sector than GS, but as we get to the bigger set up which the 3C charts and short term leading indicators suggest are not quite there, I'd rather wait. I'll use AMZN, which a lot of people including myself are interested in getting a short position in place as a core equity short (no leverage, just a longer term trending trade, a lot safer, easier and a good profit).

As I've already shown you the near term leading indicators, what they need to do and what they have been doing, I'll use AMZN as an example for the other side that leads me to the same conclusion...

 2-day trend in AMZN, the green arrow is a healthy trend, the yellow shows AMZN pulling away from the bottom channel and likely getting ready for a Channel Buster which it does twice at the orange arrows, note the yellow arrow right before the last channel buster. Although these look bullish, they tend to be bearish and often lead to reversals. After the first one, note price pulled right back to the bottom of the channel quickly (first red arrow from the left).

 MY MACD Heat Map, if you look at it closely and compare price, you'll see how it works, when Blue diverges and goes negative the high probability trend loses probabilities, when green and yellow do the same, it's usually time to be out or moving back in to the trade and by the time red does it, often the trend is over for that leg. More importantly is how small the last blue peak in 2013 was (white trendline) vs. the first in 2011, momentum is falling off as the trend has developed. This indicator is great for all timeframe trades as a momentum indicator, even intraday or swing.

The 2-day long term 3C chart shows accumulation in a big way at "A", a rounding base, "B" a flat base, but it does have a head fake move in yellow just before it launches and "C" which is a stronger head fake that breaks all support, accumulates those lows and takes off to the upside, again these head fake moves are valuable in almost any timeframe.

In red you can see where the 3C trend has gone negative on a very important, long term money flow timeframe.

 At the other end of the spectrum the 1 min chart shows the recent trend, it's the closer chart below that is more important.

 Here we have distribution, a head fake move and then the decline, a small positive and a deep leading negative divergence, this almost makes me want to open a put position in AMZN for the short term like yesterday's positions, but as AMZN made a lower low in price today, there was a positive divergence, this may not hold out all day, but...

The fact it is on a 2 min chart also doesn't give me high confidence in a put. It does make me think a downside move is possible and this is the market getting ready for that final move in AMZN where equity core shorts are opened in to price strength, 3C weakness.

The 5 min chart shows the same with this a.m.'s new low also being a head fake move at a positive divergence. This is why I don't feel a short -at least a leveraged short like a put right now is worth the risk, I'd rather have exposure to the broader industry group.

Overall, the 60 min which is very important shows a strong negative at the last high, I personally don't think AMZN can make it above the yellow trendline where the next head fake level would be, if it could that would be ideal, but I don't see the strength there yet. If the market does make the downside move expected, AMZN can accumulate in to that move and this chart may then look like it has enough in the tank to make a run above the yellow line, that's the highest probability/lowest risk short right now.

I hope you get the gist of where I'm going with this.

Quick Update

Before I go in to a more extensive update, I do want to post an example of the short term strategy and longer term strategy or tactical plan.

So far for the most part we have a flattened range which is good for distribution or accumulation (in this circumstance distribution) and I think we probably have some time before needing to make any decisions so I do want to show you AMZN as an example, then I'll post a wider update, but until then, the market looks fine the way it's going thus far, it may give some opportunities in options, remember even on an intraday basis a head fake move is common as a timing indicator even if today's early action was the larger head fake move.

CONTEXT continues to stay about at a -6 point differential, so no improvement there which is good.

I believe right now we are more in just the market process which can be full of small adjustments to get things in place.

I think we have enough time for me to do what I said I wanted to do above and still find candidates.

After the AMZN example, I'll post a broader update.

Market Update

As exciting as that opening was, I figured it was way too early to have a waterfall sell-off, typically whatever the opening trade is doesn't matter much, by 2 p.m. it changes and then by 3-3:30 it often changes again, this is why I really don't sweat opening trade, it's designed to make people panic, to run the amateurs out of the game early, it's amateur hour in which the sheeple are fleeced.

Now whether we get the kind of upside momentum needed to make a put attractive is a different story, but there may be some regular equity shorts or longs that will set up that aren't dependent on volatility, time and the other elements options and the Black Scholes model are sensitive to.

Honestly, I hate early action like that as it forces you to make a decision well before you have solid data in front of you, as I said earlier, I'm much happier to have opened positions yesterday when I had the time to look, I had the time to verify the signals, if anything this seems to be more of a head fake move. For those in UNG, it looks like it is seeing a similar move and no matter how many times I show it as a positive event for your position-excellent pricing, low risk, excellent timing, many are stuck in the old ways of Technical Analysis and think price is the end all, be all. In my experience, price is one of the most deceptive and dangerous indications to rely on, it causes subjective, emotional decisions.

In any case, the market is getting itself in to a sticker and stickier mess, this is the confirmation that's there in a huge way on longer term charts like I've never seen, but tactically we still need it on shorter term charts and it's building.

As for wold-wide global risk assets, remember what CONTEXT looked like for ES (SPX Futures) the last few days (positive 6-8 ES points on average)?

Take a look today? What's changed? Risk assets aren't in agreement with SPX enthusiasm.

 CONTEXT has moved to a -6 point differential. With the delay in the chart and all, the nearest I can tell is current ES fair value is about 8 points lower at 1609, if CONTEXT doesn't loose more ground.

Some of the things really starting to wear down the market like body shots to a boxer...

 Short and long term commodities as risk assets should perform with equities, they did until 2010-2011.

Remember this morning I said commodities went 180 degrees in the opposite direction of the SPX, yesterday the problem was evident, today it was screaming.

 The AUD has been supporting and moving along with the SPX, a role it took over from the Euro when the Euro broke down. You may recall the last RBA rate decision was policy on hold, no change, the RBA wanted to see what the economic data would look like and as such the $AUD wasn't tipping its hand either way longer term, most expected at least a rate cut at the next meeting and maybe 1 more this year, the economic data has not been good out of Australia and China-they're basically the same region, Australia ships a lot of raw materials to China. Overnight the RBA had no choice but to cut, the AUD was reflecting the probability yesterday on the weak Chinese/Australian data, today it just fell parabolically, again, not a market positive, a negative.

The Euro long term is way dislocated, so much so I doubt many think reversion to the mean is likely, but given enough time, reversion to the mean is almost always a certainty, that's very market nregative. Closer to home the SPX making new highs here and the Euro failing and making lower highs was another makret negative event, all putting pressure on the market and thus all the recent intraday manipulation.
 

 Remember the Yen and its increasingly stronger correlation with the market? Who came first, the Chicken or the Yen, I think it's the Yen moving the market, not the other way around. Whenever the Yen gets in to a sticky spot like in yellow, the market drags, when it moves like in red, the market pays for it. This is why I wrote about 10 hours (my time, not your reading time) of information on the Yen/USD and the long term implications for the market, not good at all.

 Speaking of the $USD, since the global race to debase currencies, as I said way back when, as this happens for whatever reason, traders buy the $USD, I also think this strongly reflects smart money's foreknowledge about F_E_D QE plans, the dollar weakened under QE, now it's getting stronger and that tells you what?

The Yellow area on the chart above this one of the USD is a pullback from a large "W" base, not at all unusual, the market has been running on this weakness short term in the $?USD, but as soon as it makes the first higher high and shows the pullback is over, the market is in big trouble. You can probably see how the timing of all of these major events like the Yen/Dollar long term moves are all converging to take place around the same time.

 The normal inverse relationship between TLT (Treasuries) and the SPX this morning probably seems intact at first look, but as I updated earlier today, it wasn't, you can see treasuries moving up with the SPX longer term here...

And this morning here, which is ironic because just last night I posted the 3C accumulation in treasuries, which is to say smart money is moving away from risk and back to the Flight to Safety Trade. Check the 3C charts for TLT and VXX published last night warning of this.

 VXX won't make a new low as it should on a new SPX high, again this is pure demand for safety in VIX futures being bid and not just short term, but intermediate out to 7 months.

And this morning's VXX move up with the SPX, warning of trouble and traders flocking to safety. Again, this was shows in last night's post as recent accumulation in VIX Futures.

These are but a few of the many charts of objective proof, but most traders are too busy watching a moving average of the SPY to ever look where it really matters.

Bearish Engulfing...

It's very early on in the day, but these are very volatile days, their not like a month ago. So far, the bearish engulfing candle I imagined with a gap up and an ugly finish is in place in the QQQ and moving in that direction in the SPX, IWM and Dow.

I'm sure the Q's will bounce, but it's hard to imagine them being in a better position than first thing this morning or having picked them up yesterday.

As far as the events moving the market,  their all the same as what was posted in the pre-market update this morning.

Pay attention to the 9:30 timeframe on the charts (US Market open)

 The EUR/USD which was strong overnight off German economic numbers, but the ECB is going to work hard to push it down as a strong Euro benefits only one country in all of the Euro-zone, the biggest exporter, Germany.

The 3C negative divergence was apparent in the pre-market update and by the open (green arrow on the timescale), the pair fell-market negative.

 I always confirm so I looked at the Euro single currency, it too had a negative pre-market divergence and by the open it fell, the market never had a chance, just a head fake move it looks like.

For the EUR/USD to fall, the $USD has to rise, it had a c;lear positive divergence as seen in the pre-market update, look at the $USDX at 9:30 (green arrow) market negative.

I don't even have to say anything about the $AUD, beyond what was said already, the $AUD was telegraphing this cut yesterday with very poor performance-another market negative and above the Yen, which I said had a 3C positive divergence pre-market and it flew on the 9:30 open (green arrow), another market negative.

Beyond that, Leading Indicators were showing VIX Futures as well as Treasuries moving up with the market, that's not going to work and very soon after the market open, it didn't work.

There were plenty of signals both yesterday and today, at least thus far. I'm much happier and more relaxed having opened the positions yesterday, I don't think I could have got to all of them today, maybe 1 add here or there.

However, again, it is early, so we'll wait and see if anything else sets up as high probability. My gut feel is that this is not the final break, but possibly one of the last before a final-the short squeeze shakeout still seems high probability as even today's upside volume wasn't very impressive.

If you moved yesterday, you should be good and soon happy, if not, maybe we get a chance today somewhere.

Most Everything I'm Interested in...

For this leg anyway, has turned pretty quickly, if some of them comeback and offer a high probability/low risk set up, then I'd go for them, if not, then I'm fine with the positions picked up yesterday.


The only position I see right now still worth it is probably UVXY long equities, not options.

AAPL Update

AAPL's 3C charts from 1-15 min look horrible, I wouldn't try puts myself just because of the momentum right now, an AAPL short is probably more appropriate, but that still leaves us with a probable bounce in a few days in AAPL where the best equity short position lines up, I just wouldn't want to take the chance on an equity short here with the potential return being so small and the PUT position is really not very strong with momentum heading down.

This is an obvious market negative, but I'm not convinced AAPL doesn't have more upside in the days ahead as it tops in its counter trend rally.

QQQ signal looks worse than IWM

Price as well, but with both, especially the IWM, I'd like to give it a little bit more time and see if it makes one more run to the upside, after all, it is very early still.

SCO / USO Short

SCO (2x short crude) is getting close to a long, I suspect it sets up today, it's probably more a matter of the tactical entry than anything, some intraday momentum indicators wouldn't hurt.

Quick Update

After a quick look, TLT and VXX are both heading up (market negative), there's a reach for safety in this semi-parabolic move (depending on the average), I'm keeping my finger on the trigger to add to yesterday's Puts.

Also the AUD has taken a bit hit from the overnight rate cut, (market negative). The $USD looks like it's about to start it's move higher which cuts the support from under the market's feet in the form of EUR/USD, that's a pair you might want to keep an eye on, any downdraft there, especially faster than the SPX is a potential trigger pulling event.

Yields, as earlier as this is, are starting to go negative on the market as well which makes sense considering TLT.

Commodities have done a 180 degree reversal from the SPX, today's the day, it's just whether you want to add and where, I have a feeling it's sooner than later.

Pre-Market

After France reported a miss in both its manufacturing and industrial production numbers (-1.0% and -0.9%, on expectations of -0.5% and -0.3%, from priors of 0.8% and 0.7%) did nothing for the EUR pairs, it was Germany who announce March factory orders which beat expectations of a -0.5% solidly, and remained unchanged at 2.2%, the same as in February. Germany is happy with a stronger EUR, Merkel will be delighted with the outcome while all other European exporters will once again come back to Draghi and demand more jawboning, which they will certainly get complaining the EUR is still too high, not for Germany.

This moved the EUR/USD overnight...

 You can see the EUR/USD's  current 3C position looks like Draghi and ECB FX traders have been chipping away at the strength, I expect it will fall.

However the solid performance for the pair sent Index Futures like ES above and NQ below, higher, both of them also look similar to the Euro going in to the open, negative divergences.

 NQ.

The positive in the $USD would tend to confirm that as it is a market negaitve just like the EUR/USD falling.

The Yen doesn't look like it will help support the market either.

Also overnight and not much of a surprise, the Australian Central bank, RBA cut rates to a new record low of 2.75% from 3%, which isn't surprising given their wait and see attitude and what they've seen (especially yesterday, wasn't good.

The AUD fell and keeps falling, it will not support risk in the markets either.

Today may be the day we get that red Bearish engulfing candle I drew in for the SPX early this week, the start is the first part, check, the divergences are the next step, check.

We'll be watching for early opportunities.