USO SHORT / SCO LONG

Let me show you the charts first and then what I think would be the highest probability trade, personally this is the only way I'd take it because probabilities are one thing, but high probabilities which includes good positioning on your entry, lower risk, better timing and in better shape as far as market behaviors that we know are likely go.

 USO 5 min-the 1-3 min intraday charts aren't anything special, there's no strong edge on them, this is one of the 3 reasons why I prefer to wait for the set up I will show you.

The 10 min is leading negative which means oil has had some damage done to it on this run, lots of distribution.

You see it here on the important 15 min chart as well.

Now, SCO the 2x leveraged short on Crude.

 The 3 min intraday chart is in better shape here, leading positive and there's a nice flat range, perfect for SCO accumulation and USO distribution as we have already seen.

 The 5 min chart is positive in the right place for an SCO long.

The 10 min chart is leading positive and by this time you should be noticing that 2 ETFs in oil, both managed by different companies, different leverage, different volume are both confirming each other.

This is whAT I'D LIKE TO SEE, THE RANGE IN USO IS WAY TOO OBVIOUS. I'd like to see a head fake breakout above the range in USO (below the range in SCO) and see USO's negative divergences get worse in to the breakout and the 1-3 minute charts fall in line, SCO should show accumulation in to a head fake break to the down side. Because this range is so obvious, Wall Street knows there are traders who will buy the breakout of resistance, this is where they can sell USO or if they already sold it, short USO. The head fake move is one of the last things we see because it also creates momentum, in USO'd case (a short), the longs buy the breakout-as usual they chase and call it confirmation. Wall St. distributes (selling or short selling, both cross the tape as distribution/selling) and when prices fall back below the range, most stops will be right under causing the first wave of stops to be hit and volume to spike creating more supply than demand and sending USO lower even faster. Remaining longs are now hurting and scared of the failed breakout and enhanced downside momentum, they sell their positions at a loss and create more supply that sends USO down even faster. Whatever longs are left (maybe longer term investors or other traders) are now getting scared and selling. These are two of the reasons for a head fake move and the move itself allows you a low risk/high probability entry, 3 good reasons to wait and see if we get that.

This is patience, this is letting the trade come to you, it's high probability and if it doesn't happen, there's always another trade.

TECS Long

I mentioned this earlier, it's a way to play Tech short with 3x leverage. Here's TECS (long) vs. TECL which is the 3x long Tech ETF.

 TECL 5 min leading neg. divergence

TECS 5 min leading positive divergence, obviously I prefer TECS long, I'd still keep it somewhat speculative, this isn't a core position play yet.

IWM also-SRTY Trade

The IWM is going negative too with migration as well...

 IWM 1 min negative

IWM 2 min migration now negative, this now connects the intraday 1 and 2 min charts to the negative 3, 5 and 10 min.

 SRTY which is a 3X leveraged BEAR IWM ETF (buy long for IWM 3x short exposure) has been in line all day and is now positive, in line doesn't bother me as it's not distribution.

The longer 5 min chart in connected as it is leading positive.

So if you want an equity play rather than options, SRTY gives you 3x leverage and IWM short exposure.

Right after 2 p.m. SPY turns negative

this is why I don't get too worked up about early trade.

Leading Indicators

First the SPY Arbitrage...

 SPY Arbitrage is getting worse all day, I don't think any levers are being pulled, I think there's just a natural correlation to the SPX's movement, but assets like Treasuries (Flight to Safety) and VIX Futures (VXX) , a bid for protection, have a bottom in place and won't even follow the natural correlation lower because of the demand for these assets, all safe haven and enough demand to break the natural correlation. I also showed you last night the short term downside 3C signal is being replaced in both with positive divergences showing they are getting ready to move higher, the correlation is the market moves lower.

 HYG which is the VERY LIQUID High Yield Corporate credit, being High Yield makes it a risk asset. Credit is an excellent leading indicator, so much so we say, "Credit Leads, Equities Follow", which has been true at every significant turn up or down that I have seen since using this layout.

 The slightly longer term, but still near term divergence or dislocation between HYG and the SPX is a good tactical signal for the larger core position trade, I said the SPX needs to move up or at least sideways while HYG moves down or at least sideways for this dislocation to build, it is furthering that goal today.

 Junk Credit which is High Yield just because of the risk is also negatively diverging from the SPX today like HYG.

 Finishing out the trio, High Yield Credit which is less liquid and therefore tend to move first and deeper has a deeper intraday negative divergence with the SPX, Credit is fleeing the ship like rats, that's not good for the market no matter what SPX price is doing. In these circumstances the higher I can enter a short or Put, the less risk and better positioning I have in a high probability trade.

 Commodities as shown earlier today gave up any willingness to take on risk and went the opposite direction of the SPX even though they are risk assets, there was some intraday floating with the market which probably didn't help as commodities are already so far dislocated, but didn't hurt either. More recently commodities are turning away from the SPX.

 Yields should normally move with the SPX, you can see today though they have refused to make a single higher high with the SPX and therefore are in a negative divergence with the SPX, just what we want.

 The AUD got hit so hard I don't think any move in the $AUD will help the market-the overall daily move is actually very negative, but the last hour or so the $AUD has moved directionally with the SPX, but again you can't see from this chart how much lower AUD is.

The Euro price alone is not supportive of the market at all, remember though currencies are the only near term concern I have and price is deceptive. The flat trend in the Euro can be one of the more dangerous for accumulation and an upside move in the Euro helps the market, even though on a daily basis the Euro is significantly dislocated with the SPX.

 The Yen has been moving up, this pressures the market, only recently has it given the market a small break as it consolidates, but the Yen moving higher again will put more pressure and effective pressure on equities.

The $USD on the day has moved up from the lows, a market negative, but given the market a break at the red arrow in declining a bit to allow the market some breathing room as the $USD's trend is typically opposite all risk assets.

VXX (VIX short term futures) will not make a lower low with the SPX's higher high, again this is the demand in VIX futures to bid up protection as traders are worried about the viability of this move.

In Currency futures, here's what I'm looking at and the reason for a partial (half) SPY Put position) as I always like to leave room in my risk management for a wide stop and the ability to add at better prices.

 EUR/USD had a neg. divergence pre-market sending it lower on the open (green arrow), the flat range looks like typical accumulation which would be market supportive, hover there is no positive divergence at the yellow line, 3C is actually making higher highs with price, the only reason I include it is because on the top it looks a little like a leading positive divergence.

 The carry pair of EUR/JPY, this doesn't look so good which is curious and why I'd like to see these resolved as there are some inconsistencies. This paid suggests the Euro moves lower as well as the pair which is market negative as 200:1 carry trade leverage makes even a small move down very painful.

 The AUD I think is so far dislocated that it can't do much to help the market, but in any case it is almost perfectly in line so there's nothing there.

The Euro itself seems to have a strong leading positive divergence, the problem is so does the $USD.

The $USD was positive before the open, at the green arrow (open) it moved higher, putting downside pressure on the market, now the range as well as the "Flag" look to the consolidation and leading positive divergence all make the $USD look like it will run higher, but that doesn't make sense looking at the EUR/USD and Euro divergences, this is why i'm a bit cautious. The Leading Indicators are falling apart negatively, but currencies could hold the market, this is why I'd like to see some resolution before moving to full sizes.

The Yen was positive pre-market, it ran on the open putting negative pressure on the market, it seems to be in a triangle consolidation and in line with 3C, but yet again, the EUR/JPY pair suggests that the Yen moves higher and Euro lower, another contradiction between the pairs and the single currency futures.

Went with XLK Put (long) 5/18 expiration, strike $32

XLK-TECH PUT

While I'm very tempted to try AAPL here, I think I'll go with another partial (half) put position in the Tech Sector, XLK.

TECS is a way to play the same with a 3x leveraged Tech BEAR ETF (buy long). Even here I'd still prefer a half/partial position until the currency situation resolves.

Went W/ SPY PUT (long) May 24, $165

Taking 1/2 SPY Put (LONG)

This is based on short term signals and leading indicators, I think there's a chance for some more upside based on the EUR/USD, but I'd much rather have some position in place right now.

I'll show you leading indicators which many are supporting a downside move, most importantly credit.

I'll also show you Futures, especially currencies.

I'll be looking for May 18 or 24th expiration and a few dollars in the money.

Quick Market Update

This is exactly why I don't let the emotion of greed, "I better move fast or I'll miss the move" make decisions, I let objective information make decisions. Had I chased the IWM this morning on the downside move, I'd be in a worse position than right now where the opportunity is looking better as I suspected it would as it was too early in the day.

The IWM shows the longer term migration of negative divergences through the charts that make the Put move a high probability looking move, tactically intraday it's all about leading indicators and the very short term intraday 3C IWM charts.

 1 min saw no positive divergence, but popped back up, mostly drafting the other averages.

The 2 min chart saw a small positive divergence at this morning's lows, since then though it has simply been in line, not leading positive, I want to see these go negative for intraday tactical set ups/timing.

The longer chart shows the trend more clearly, as I often say, if you're in doubt, go to the longer charts. The 3 min shows the clear near term distribution trend.

As does the 5 min chart

And the 10 min chart, now it's up to short term 1 and 2 min charts as well as other confirming indicators to give us a tactical signal. Ideally it is an upside momentum run in to a fast downside negative divergence, that would be the best set up for puts.

I'm checking the Leading Indicators.