AUD/JPY vs ES / Market Update

Earlier this morning I posted the Currency cross that I thought was responsible for ramping the market overnight, the AUD/JPY and I also posted a chart of the pair showing it looked like it was running out of steam, I didn't do a direct comparison vs ES, just eyeballed it.

I think you'll find this interesting as to what really moves the market, it's stuff you generally won't hear on CNBC.

 This is a comparison of the AUD/JPY (green/red candlesticks) vs ES (purple line) overnight, as far as the carry pair that ramped the market overnight,  I'd say we can put that one to bed. Note that ES has broken away or AUD/JPY has broken away from ES.

These divergences may be a little hard to interpret as the FX ones generally are, but a negative around 3 a.m. (European open) sending the FX pair down in to a large positive divergence that ran the pair up to a new high with ES and then it went negative at its high for the week right around 9:30 a.m.

Note ES shows good confirmation on the intraday 1 min as I mentioned in the first post today just before the open and now as the FX pair has fallen out of sync with ES, 3C has also fallen out of sync at the exact same spot.

Again, I think this is just more confirmation of yesterday's analysis and a finer point was put on it last night as to what we'd be looking for...

This is from last night's post linked above, specifically 4 timeframes of the SPY and what I thought they were telling us, what we'd be looking for today...

SPY 1 min

"That 1 min positive divergence should be enough to take the market higher, specifically I'm thinking about the IWM triangle as the IWM is the average everyone is focussed on and that triangle was no coincidence."

SPY 3 min

" I think it's fairly safe to assume that any upside move is going to be a head-fake, false breakout which gives us excellent positioning not just on market averages, but a whole range of assets"

SPY 5 min

"...this leaves me pretty certain any breakout move is a false breakout, but we could have guessed that by market behavior. mass psychology and price action in the IWM alone (triangle intraday...pretty obvious what that's meant for)."

SPY 15 min

"The 15 min chart is already rotten as the Index futures confirm so I also feel very certain that this is the leg down that was first picked up about a week and a half ago.

*Note the head fake move in yellow, people usually don't notice them unless they are pointed out, but the entire point of them is to set up a reversal and that's why they tend to be the last thing we see before a reversal just like the example above."

I'm going through the watchlist I was putting together yesterday, GOOG hit one of my targets from yesterday's post, on the open, I didn't catch that and probably would have waited as I too like confirmation, but it's 3C chart confirmation generally well ahead of price.

The "Reversal Process" (rather than reversal "event") still applies, you can probably take a look at the charts and get a rough feel for timing, they tend to be proportionate and have symmetry. During this time I'll still be watching for additional confirmation as well as opportunities.

Market Update

So far, this is exactly (at least the IWM is EXACTLY) what I was expecting and hoping to see, that triangle was so very obvious as a lot of technical traders won't enter without confirmation and a breakout of a consolidation/continuation triangle is confirmation, especially after a new breakout high, they don't have a problem with chasing though.

In any case, The SPY and QQQ signals are good, but it was really the IWM everyone is watching and the signals there are pretty great so I'll be looking around a bit, I'm obviously leaving VXX calls open.

 SPY 3 min, no confirmation which is what we want to see on a move like this when we are looking for a false breakout, the reason we are looking for a false breakout is because of what we know about market behavior, but mostly what we see in numerous other charts, credit not being the least of them.

 SPY 5 min

QQQ 1 min, I would think the Q's would try to break that resistance area (white) as  an intraday head fake move, but I'm not going to wait on that.

Especially when the QQQ 3 min looks like this.

This is where the attention was focussed, the IWM is what changed sentiment, the best head fake was set up there, pretty much any time you see a triangle (consolidation size), you can pretty much bet it's artificial and there for a reason like I said yesterday, Technicians are still playing by the same rules they were playing by nearly 100 years ago with price patterns, I think Wall St. figured it out by now.

 IWM 1 min with ZERO upside confirmation this morning.

IWM 2 min divergence should be clear, especially on a triangle breakout at a new high.

The 3 min chart as it was really only the intraday charts that were feeding any kind of strength (meaning it wasn't a lot of support).

And to clean things up and make the trends very clear, you have confirmation of a trend and then a large negative divergence or distribution ion to the breakout move.

I'm not throwing any parties yet, it's still early in the day, but with the chart above in this position, it's pretty darn likely that we found what I said we'd be looking for last night.

I'll be Closing the SPY $164 and QQQ $73 July Calls on this run up

HYG Update / P/L

I've had some decent positions in HYG before, this just wasn't one of them.

In any case, you saw how High Yield Credit cracked and broke down yesterday, because of the thin liquidity, that's usually the first credit to panic and head lower which it did on significant volume yesterday. HYG is typically the first choice because of its liquidity, it's no coincidence that arbitrage and the ES CONTEXT model all use HYG as part of their modeling.

 High Yield vs the SPX (green) as of yesterday's close.

A larger view of HY credit confirming the SPX and then breaking with it late last week and yesterday.

Typically HYG will go next before the SPX as it becomes part of a downward arbitrage cycle, this is why I said HYG would be first to go among the call positions I want to clean up, most often HYG is already negatively divergence with the market before the market breaks, or in other words, "Credit tends to lead and equities follow"

This is the 1 min HYG intraday chart, once I saw this I didn't have high hopes for HYG gaining much more intraday.

This is the same chart scaled out, it was moving in the right direction, but had already been lagging and not showing good confirmation, this was just one small piece of the puzzle in last night's EOD post.

 The 2 min also not confirming

Nor the 3 min which I market the different relative areas of price with a red box, each is higher so there's no confirmation unless 3C was making similar higher highs.

As for the P/L...

-70.45% and just above the 2% risk rule.

Letting Go of HYG Calls Now

This is more clean up than anything.

I'll post the charts with the P/L which will be a lot more "L" than "P", but I think credit cracks first and I see some things I don't like in HYG so I don't see much reason to wait any longer.

NUGT P/L

The Aug. calls filled right at $1.55 for a 22% gain since opening them Friday.

Closing NUGT $4 Aug. Calls Now

I still like NUGT and GDX, I just feel like NUGT long (equity) is a better position for capturing more of the trend in NUGT so I'll be looking for an area to start that position on a pullback in to 3C strength,

SLV

Yesterday I had some nice gains from the SLV and NUGT Call positions opened Friday, however rather than take them (they are August expiration), I posted pretty early on that I'd be keeping them all as open positions.

"Repeating my basic position, I'm keeping all PM and miner long/call positions open."

I'll be getting to the others, but for now here's SLV and what I see as the big picture.

 Yesterday's range in SLV, whenever they are this quiet and flat, there's almost always something going on as SLV picked up strength in the afternoon. This isn't what I like though and I'm not sure I'll be able to capture it with options, even August...

This 30 min divergence is a clear change in character on an important timeframe.

And it has migrated all the way out to 60 min, in other words although SLV will have it's bumps and dips, it looks like there's quite a bit of fuel in the tank for an upside move.

SI/Silver Futures 5 min chart is pretty much perfectly in line as is the intraday 1 min

And the SI/Silver 60 min Futures chart confirms SLV charts.

Don't get me wrong, if the position looks like it's better served by taking profits and re-opening it after a correction or pullback, I'd pull the trigger in a minute, but for now I feel pretty good with SLV August calls, currently up about 30+%

Using this strength for some Spring Cleaning

I have some July calls that were run down with last week's range, SPY, Q's and HYG, I'll be letting go of the HYG July $92 calls first.

Pre-Market

Well that  R2K triangle that most of last night's post was centered on is certainly seeing the break above that was proposed.

As far as FX carry trades, nothing looks very interesting except the AUD/JPY, but it looks like it's losing some steam, if it does as I suspect it will, we'll see what that does for the market after a pretty nice overnight session.

Nothing among the immediate Index futures is sticking out of place, although where the probabilities are higher nothing has much changed there either so I'll still be looking for signs of a false or real breakout, based on all the data from yesterday I expected a breakout from the triangle which we have, I also expect it will give signals of failing based on the data in place, that will be key to setting up positions.

AUD/JPY, the first divergence topped it, we now have a second in place.

 TF/R2K overnight futures 1 min in line

The 5 min is where the problems start.

ES 1 min overnight in now in line

30 min where they continue and a bit beyond.