Opening UVXY July $70 Call Right Away

This may be a very short term trade, but I think worthwhile.

Charts coming

MCP Update

As you can probably tell by now with that VERY clear MCP triangle, it is becoming a prime candidate for a head fake move, perhaps even a Crazy Ivan (2- head fake moves to clear stops and orders on both sides of the triangle).

Right now the 1 min chart that has been down all day (however the 2 min has been in line-suggesting clearly that the 1 min was all about creating this triangle consolidation), but is starting to move up, it's not bullish as of now, but improving.

This could certainly be a "tell" before a head fake move. The only reason this would matter in my view is for leveraged option positions or getting the very best tactical entry if you have time to watch the market like that. Otherwise as far as the trend in the days and possibly weeks ahead, I see no reason MCP won't head higher.

If we get a breakout/breakdown from the triangle which we will have to get soon as the apex of the triangle is now so narrow, I'll check them right away to see if they are head fake move/moves and what the probabilities are for a leveraged position, where and when.

Quick Market Update

I'll have some charts out shortly, but as you know, I expected a pullback in this area, I don't believe in coincidences as ridiculous as this one would seem to be, but 3:30 could tell us definitively.

In any case, either way, so far I'm seeing EXACTLY what I'd expect from a pullback and what that means is it looks like a pullback, not the bearish action the retail bears (overwhelmingly large numbers yesterday) are expecting. It looks to me so far that this is a pullback as expected and not a reversal of the 3-day move up and yesterday's start to the breakout of the 4+ day base. It looks very much like we will see that strong mover to the upside continue after this brief interlude.

I have to gather a little more data like credit's underlying action, but I'll have charts out shortly.

GLD / SLV Update

There's still no 2 min negatives in GLD or SLV, only the 1 min which as I just explained (and have many times in the past) is a 50/50 chance of an intraday pullback or consolidation, usually it is definitely some correction as we are seeing now, however when the 2 min is added to the miix, then a correction through price becomes the highest probability correction.

Things being as they are, the probabilities are still 50/50 between a consolidation and correction, so far we've had a consolidation.

The 2 min SLV chart is actually leading positive now so it wouldn't be surprising if this consolidation ended and the move to the upside continued.

MCP Charts/ P/L

Fill for the July $5 Calls at just over 25%, the longer MCP moves sideways or down, the more the profit is eaten in to. I always prefer to take the position off the table before the first correction sets in.

That however does not apply to an equity long that does not suffer from time decay and volatility changes.

 The 1 min chart with a negative divergence like this is usually a 50/50 toss up between a consolidation which is a correction through time and a pullback which is a correction through price.

 This is the typical correction through time, a very obvious / clear symmetrical triangle which has no outcome bias on its own, it depends on the preceding trend which in this case is up, so you could call this a small "Bull Pennant" which technical traders expect to break to the upside, which makes the pattern unpredictable as Wall St. likes to use technical analysis against technical traders (i.e. a head fake break below the triangle is something Technical traders would not expect to see and as such they'd take as a failure of the breakout move), even volume is perfect for the pattern.

The 2 min chart is largely in line so it's still a 50/50 toss up as to consolidation or pullback.

It's the 3 min chart that made my mind up that a pullback is a better than 50/50 outcome intraday, this could make for an excellent new position in MCP if it comes.

The 10 min chart shows the start of accumulation, you might remember what I said yesterday about price targets vs. where 3C accumulation started. 

MCP has already surpassed the point in which accumulation on the 10 min chart started, it typically moves well past that point eventually.

With the 15 min chart this strong, I have little doubt MCP will see further upside, I just prefer to rise it out in a non-leveraged position unless we get a pullback that discounts calls and 3C accumulation on the pullback, then I'd enter a new call position.

GLD, SLV and GDX / NUGT

I think by now with gold especially and silver to a lesser degree, dumping right as China opens clearly shows Chinese banks are selling assets to make up for the severe shortage in liquidity that the Chinese financial system has been experiencing this week like the US did in 2008 and a big part of that is because of the same US problem then..., Counter-party Risk.

However there seems to be asset managers who are and have been interested in accumulating the PMs, it's just every once in a while a Fundamental event that's not on the map pops up, that would be the severe Chinese Financial system's Frozen liquidity situation that has seen banks suspend all loans this week.

In any case, whether the PMs were getting ready to pop late yesterday or as I suspect may be the case (or likely both), the F_E_D's new story-line caused it, they have started to pop.

I'm holding positions open in PMs and GDX, but I probably wouldn't enter a new leveraged position at this point until there's a pullback that can be verified as seeing accumulation. Again Williams could easily cause that. Smaller pullbacks, if you are so inclined to enter the trade, seem a bit safer with either non-leveraged or 2-3x leveraged ETFs rather than options, for options, I'd prefer to do what I said above.

Here are the charts...

As of RIGHT NOW, a pullback of any size doesn't seem likely as we have some 1 min negatives, but we are missing the 2 min that gives a pullback a very high probability intraday, that could change of course at any moment, but the consolidation right now I think is just that, a consolidation, not likely a pullback unless the 2 min charts go negative.

IF the market makes a stronger move to the upside, that could do it, but ES is moving up and so far it hasn't changed the 2 min charts at all.

GLD 3 min looks like there may have been some movement late yesterday toward higher prices in GLD, but looking at 1 min charts, it looks as if the F_E_D announcement was the real cause, there was an initial short consolidation that was strongly accumulated and then the parabolic-like move straight up right after.

 The 5 min chart looks more like either they were preparing for a move higher or at least as of yesterday afternoon an accumulation phase was under way that morphed in to a move higher after the F_E_D double whammy this morning, the timing is near perfect.

I'll be holding positions for now for the following reason/s

 The gold futures 15 and 30 min charts showing the same accumulation as GLD (same timeframe) and it hasn't suffered at all, despite Chinese banks selling gold (just look at gold right as China opens)  to create some liquidity.

SLV 2 min has a similar question as GLD, but again

The 30 min chart is less ambiguous, like gold, it's very strong over the entire period. In fact I think if I had to chose again, knowing what I know now about Chinese liquidity, I'd chose silver over gold, but as far as metals being sold, even copper is being sold on China's open, gold is just a stronger asset to increase liquidity fast before the banks have to shutter their windows.
 

 Silver 3o and 60 min 3C futures are very strong, there's been no damage to them.

 As for miners, just as we saw a divergence between GG and GLD as well as SLW and SLV, GDX has been acting better recently (yesterday is the specific period I was talking about for Gold, Silver and Miners).

The 10 min GDX divergence is strong with no damage so I think we have a bigger move (much bigger) in store, I do think it will be choppy depending on how the equity market moves and of course the situation in China, but there's a counter (bullish) situation in India as well so it's hard to try to balance the scales for forecasting purposes between the market, a total unknown such as China's financial liquidity lock up- maybe it lasts a week, maybe like the US it just gets worse until the PBoC has to step in, but they are no where near as happy to do so as the F_E_D was in 2008/2009.

GDX 15 min also shows more upside, I think SLV/silver still has the edge.

NUGT 3x long Gold Miners ETF shows an intraday  1 min negative , if anything, this is the closest to an actual pullback rather than consolidation, and it's on a pullback with verified accumulation I'd consider opening a new NUGT long or adding to an existing one.

 NUGT 30 min seems to clearly have quite a bit of upside ahead of it.

This is the 3 min chart, it is perfectly in line so any intraday pullback has a very high probability of seeing accumulation in to the PB, making it a decent add to or new position.

MCP Position Management

I'll have some charts up after the Gold/Silver post coming next, but I've decided to close the MCP July $5 calls for now, I am leaving the MCP long Equity position OPEN and will look for an area to add the options back.

In other words, I'd like to take the momentum in MCP as intraday it doesn't look like I'll be seeing more AT this point, but the larger picture still looks awesome and with the criminal inquiry closed, there's nothing to hold MCP back.

The F_E_D Giveth and Taketh Away

Good morning, I've had a little "connectivity problem", but that;s sorted out now.

Being in the market for as many years a I or any of us have, it's hard to believe in coincidence, that's why it's somewhat amazing to have 6 F_E_D speakers in 4 days come out and play the dovish card to give us the best 3-day move of all of  2013, to only have 2, 1 of which was one of the 6 from earlier in the week, Lacker, but it was Stein who got the ball rolling with this gem....


Highlighted portion of the speech that sent futures down...

"Both in an effort to make reliable judgments about the state of the economy, as well as to reduce the possibility of an undesirable feedback loop, the best approach is for the Committee to be clear that in making a decision in, say, September, it will give primary weight to the large stock of news that has accumulated since the inception of the program and will not be unduly influenced by whatever data releases arrive in the few weeks before the meeting--as salient as these releases may appear to be to market participants. I should emphasize that this would not mean abandoning the premise that the program as a whole should be both data-dependent and forward looking."

In case you were wondering, it was the seemingly arbitrary "September" date for being "clear" with the market, so was that hypothetical or was that the F_E_D's clear guidance to the markets? Participants took it this way....

ES at 8 a.m. on the release of the speech.

Then comes Lacker...
"Bond and stock markets fell sharply in response, but that should not be too surprising.The Chairman’s statement forced financial market participants to re-evaluate the likely total amount of securities the Fed would buy under this open-ended purchase plan — in other words, how much liquor would ultimately be poured into the punch bowl....


As market participants gain additional insight from the words of Federal Reserve officials or by policy actions in coming quarters, further asset price volatility seems likely."

And the EXACT reason I have been giving for the end of QE since September....

I seriously doubt additional monetary stimulus can provide much impetus to real growth right now. But further stimulus does increase the size of our balance sheet and correspondingly increases the risks associated with the “exit process” when it becomes time to withdraw stimulus. That is why I have not supported the current asset purchase program..

Remember the statement by former F_E_D member Kevin Warsh,

"Getting in to accommodative policy is easy, it has always been withdrawing it that is the hard part"

So is this "Pullback" that was discussed yesterday in so much detail F_E_D controlled also?

The SPX was not only at resistance yesterday after the slight breakout from the H&S Inverse bottom with heavy overhead resistance, but at one of the clearest Technical signals over the last 100 years, resistance at the 50-day moving average.

I'm not saying either of these matter 1 bit anymore in the real world or market as it is now, but these are what Technicians have been taught for well over a century, this technical set up is one of the most common in Technical analysis, again the VERY simple concept that any 1 month old Technical Trader knows by heart...

The SPX breaks the 50-day and then rallies up to it as resistance and backs off yesterday as you can see with the longer upper candlestick wick, a clear technical set up and one of the most basic.

So as to the question, "Is the F_E_D actually moving this market as I suggested they would Saturday, but to a degree unimagined or coincidence?"

If this was only meant to be a small pullback, we could have our answer at 3:30 when an additional F_E_D member speaks, John Williams...

I'd be shocked if the F_E_D were this blatantly manipulating asset prices for the banks, but not surprised.

After Market Wrap

I'll post several charts from the averages and from the Index futures to try to give you some flavor of what we're dealing with, don't worry if all the timeframes aren't exactly the same or signal, the point is the general theme is there and it's really not a question of the move up we expected (and so far have started) giving out early, I think it's pretty clear it has more upside to go, in fact I think it has barely started.

First those charts.

 Most of the averages as reported this morning did not confirm the opening gap as you can see in the SPY 1 min on the open.

OK, I know I've pointed this out several times already, but the degree to which this prediction was accurate is amazing and in my view it tells us a lot about how rigged the game really is.

Going back 1 more time to my email from Saturday with a member...

The question or discussion was about "potential catalysts" that would send the market higher, a number of ideas were rattled off and my response was the following:

"That's the obvious stuff, but I wouldn't be surprised if the F_E_D let a rumor slip, picked up by the WSJ that helps, remember they have a lot closer relationship than they disclose as evidenced by the minutes being emailed to 154 trading firms over a day early. They'd rather see them make money in the market than have to bail them out."

It seems even I lacked imagination, but was darn close. Instead of Hilsenrath rumors in the WSJ, we had 3 F_E_D Hawks come out and speak as of yesterday all calming the market and hinting that QE tapering is not as close as people think, short term rates aren't going to rise that fast (all of this is the opposite of what was actually said by the F_O_M_C). 

Then today at 10 a.m. we had the F_E_D's Dudley saying the same thing, hinting that QE tapering is not that close because the economy is still soft and rate hikes are a long way off.

At 10:30 this morning the F_E_D's (and F_O_M_C voting member) Jerome Powell, who says 2014 is the end date, but current data is mixed so QE tapering is still up in the air and no imminent, keep in mind none came right out and said it (they can't really), but they hinted enough that we got the message, but still left a lot of room for plausible deniability.

Then Lochhart at 12:30 was a bit more neutral, but still said that QE tapering was economic dependent, by that time as you can see above, 3C improved on the 1 min chart or intraday charts and jumped in to line with the gap up (seen to the right in the green box).

 The 5 min chart suggests that the distribution I talked about last night in the short term is there and it's probably enough to create a pullback or correction which would actually help our case as retail is clearly bearish and already shorting the market today, if you give them some price confirmation they'll be all over the market short. This is helpful because it gives us a better short squeeze at higher prices (like the "Slow boiling the frog " concept from yesterday).

 The 15 min SPY is showing what is clearly in my view, distribution in to higher prices including institutional short selling, but I do not think this the end of the move.

The SPY 30 min is leading, it's still strong, it suggests to me if we do get a pullback that it will just be noise (we can probably open some decent trades on the movement), but this strong 30 min chart tells me the real move, the real pendulum effect, the real emotional movement the market seeks to create hasn't even started as we are barely even out of the base, much less the mark-up area.

Although I didn't think the market would need it because I thought a short squeeze was more important, I estimated the basing area to need about 4 days, well the market figured out a way to keep the shorts involved and the basing period was exactly 4-days. How did I know this? An indicator? A lucky guess? No, simply looking at the character of price action, the size of the preceding move, historical price action and basically a sense of symmetry or scale (Neither are really the right word), "Proportionate" is a better adjective.

This isn't the best "artist's rendering", but imagine if the base was shorter like this, does that have a look of symmetry to it, does it have a look of the normal SPX character? Does it appear to be a big enough base to support a strong move to the upside? To me it looks more "V" or event than "U or W" for the basing process. This would be about as tight as the last pullback and base which was a much smaller pullback (between the two trendlines)  and a smaller run. The size of the base is directly proportional to the size of the move it can support.

Here's the actual base and today's breakout, for bears, this is the perfect area of overhead resistance that they'd assume the market would not be able to overcome, but for me, it's barely even the start of the 4 stages of any trend (base, mark-up, distribution, decline). 

The price pattern's measured move/ target implication based on what's there now without accounting for increased volatility is around $1660, which would be a break out and traders would turn bullish (they are fickle) and start chasing this new Technical move.

If we assume the minimum measured move and then add volatility and perception shift to the bullish side, we could certainly have a move toward a new high, although the May 22 Key Reversal Day should be strong resistance. Wall Street rarely does anything without a reason and they aren't likely to bounce the market without really getting something or the effort.

The QQQ today

 The intraday chart is the same as the SPY, no confirmation on the open, around 11:30 or so 3C improved and the Q's too saw confirmation, it's clear that the 6  F_E_D speakers this week so far had an effect and specifically the three today changed market underlying action from negative to at least in line. 

The QQQ 15 min, like the SPY shows distribution in to the most recent area of the move today, distribution is something that is happening, it's expected, it's the reason for the move, but it's not a signal for the end of a move by itself.

Like the SPY, the 30 min chart holds the promise of a lot more upside, despite any pullback/correction which I believe will be fairly strong if we get it, maybe a -1.5 to -2% move because it needs to pull the shorts in and get them frenzied, but as I have maintained since last night, I believe it's no more than trend noise.

 IWM 1 min didn't confirm on the open, but improved after the 3 F_E_D speakers today.

 The 10 min chart showing distribution in to today's move which I think saw a short squeeze in the IWM, maybe not a historic one, but a squeeze.

IWM 15 min holds a lot more gas in the tank.

ES...

 Like the market averages, ES had difficulty confirming the early action, then saw strength come in as a result os the 3 speakers today, after it had already started deteriorating badly. We ended the day in line and since the close we have seen some negative momentum in 3C.

The 5 min Es chart is nearly perfectly in line, but like the averages, the 15 min above shows there has been some distribution in to the last several days of price strength.

Not only the ES 30 min chart, but the 60 min above and the 2 hour are all leading positive and very strong.

All of these charts share one thing for sure, they all have plenty of positive activity to take the market WAY higher. The next thing I'd say is they've all seen recent distribution, perhaps they had no problem with that because they expect a pullback and a move higher so if they can sell in to some strength, why not if you already know what's coming next?

As I said earlier, there is a chance a short squeeze just takes hold and there's no looking back, but that does not seem to be the optimal use of resources for Wall St. to get the most constructive move possible. It would be my opinion that if we didn't get a pullback and skipped right to a short squeeze, that it likely was not the intention or original plan.

*Furthermore, tomorrow an op-ex Friday so perhaps a pullback lines up and works perfectly with an op-ex max pain market pin???

As far as the TICK data goes, we had a 3rd (or was this the 4th?) very strange day of data, no trends, just lateral chop and I'd never expect this from a  market that gained +.95%, +.96% and +.65%.

No trend at all, but a bias to the upside as we see +1000-  to +1250 on the upside and mostly -500 to -750 on the lower end.

I mentioned some charts that look very much like shorts, but only after they finish a move higher. I'll be covering these as they get close to a decent range, (look at AMZN, we expected +4282.50, we waited patiently, we got the area we wanted and even with 3 days of market gains, AMZN is still a profitable short, it's all about getting in at the right area).

GS is one example...

 GS 15 min from in line downtrend to distribution on a bounce/rally to accumulation on the pullback. GS not only looks like it wants to move higher (which it would have a real hard time doing if the market were heading in a different direction), but with a chart like that open, I wouldn't short GS until that signal was resolved on the upside.

However the 3 min GS chart looks like it clearly wants to pullback near term doesn't it?

 IOC is one of my favorite shorts, I closed it earlier this week for more than a 20% gain and it hardly moved, but this 60 min chart looks like I'll be able to open a short at much better prices.

However on the 10 min it looks like it wants to pullback first.

There are dozens of these among my favorite shorts. 

Before I used 3C, I had a great way of forecasting the market, it took a lot of work, but similar to what we have above... I'd look at something around 500 charts a night, I can look at about two charts in 5 seconds, I just flipped right through them.

If I found there were a lot more short set ups I knew the market was coming down and vice-versa, this is sort of the same concept.

Take a look at VXX and UVXY which move opposite the market...

 VXX 1 min

UVXY 5 min.

Do you see why I closed the VXX put today and took decent profits from the UVXY short?

UVXY 10 min

VXX 10 min

And can you see now why I CLEARLY believe we are headed for a significant move to the upside?

Finally, because I don't think I can make the case any clearer with the data we have, HYG, High Yield Credit, Smart Money's risk asset of choice, if HYG is moving up, you can be nearly guaranteed the market is following because Credit and Bond traders are a lot better informed than equity traders just because it's such a huge market compared to even stocks.

 This is the HYG 5 min chart showing some distribution late today, if I posted the 1-3 min. charts they'd look exactly like the SPY, the same forces moved HYG intraday.

However no matter what kind of pullback, it almost doesn't matter to me if it made a new low below the base, with a 30 min. Leading positive HYG divergence, I feel more than assured that we will see such a strong upside market move that for our purposes of going short, I'll consider it a gift, but I can almost guarantee that some members will be frightened to short a market that looks as strong as this 30 min chart is telegraphing. Just remember I said that when the time comes.

It's always easy to make a plan when nothing has happened, but like I said last night, "Every boxer has a fight plan until the first punch is thrown".

My point is, EXPECT a monster strong move, but remember it's a gift, it's a means to an end.

I'll check back in on futures in a bit.

Sentiment

I want to thank so many of you for doing things I don't have time to do, monitoring retail sentiment through the groups and Twitter/StockTwits, give me a head's up to an interesting stock, etc.

One of the most active contributors of sentiment information is Sam for Canada (Eh?)  who has done an amazing job sending me the actual posts from mini-leaders i the twitter community and examples of the overwhelming tone.

The overwhelming tone today is not surprising, it is VERY bearish from retail's perspective. If I posted half of what Sam sent in, I'd have a 3 page post here. The point is, this is good, it's exactly what we expected. I expected certain moves by Wall Street to be facilitated by retail positioning and certain moves by retail to be facilitated by Wall Street's actions.

As to be a bit more clear, here are a couple of real life possibilities.

Retail has a lot of reasons to want to be short here. The truth is there's so much data in the market that anyone can justify any position they want to take, this is why objective analysis is so important and requires that you check yourself often to make sure you are not goal-seeking data, this is a good reason why I don't listen to CNBC, I never have it on, except when I want to hear the F_O_M_C statements.

If we stick with last night's analysis of a short term pullback or market correction, this facilitates retail entering short positions for 1 simple reason, they love price confirmation, they'd rather chase price lower and have that confirmation than enter closer to a reasonable stop. A short term market pullback gives shorts that opportunity to fill up short.

Wall St. needs retail to be short, why? If we are to get an unreasonably large move to the upside which Wall Street can use for exiting long exposure, entering short positions, etc. They'll need to see a short squeeze, otherwise they have to invest money in puts and stocks , etc to create an image that creates the same outcome, why pay for it when you  can have retail do it for you.

One other example is on a short squeeze, Wall St. moves tend to be very strong, emotional, convincing and can turn even the most level-headed trader with tons of objective data in to an emotional basket case making all decisions on an emotional, subjective basis. With this kind of strong move along with some other things that have happened this week (the very strong move up is not there yet, but started), Wall St. can change sentiment from bearish to bullish, retail is very fickle and will switch opinions in a day if the move is convincing enough. 

Now we have retail believing the market is going up because it has already made this spectacular move, everyone following objective data knows this isn't true, but we are talking about emotion, not objectivity.

Once retail buys it, literally and prices start to come down, retail is at a loss and again emotional. This creates a snow ball effect of selling that drops the market so fast it can make your head spin and it can make Wall St. a lot of money with really no investment to speak of in creating the catalyst.

So we have a few questions, but it doesn't change much. I'll try to give you a clearer picture and probabilities.