Also Adding to VXX /UVXY

I'm going to be looking at "In the money" Aug. VXX calls, but I also like VXX or UVXY long equity positions at this point.

Went With QQQ August $74 Puts (Expiration 8/17)

Opening a QQQ Aug $77 Put

I may look at September as well to see what the premium and liquidity look like, there's nothing special about $77 other than it's in the money where I prefer to be.

For an equity position (Short the QQQ/NDX) there's the 2x leveraged short QID and 3x leveraged short SQQQ.

I may look at entering/adding to those positions, but for now I'm most interested in a QQQ put position as I have no open Index options.

Additional charts will be coming.

Q's Still Looking Like the Most Interesting Asset

Yesterday I posted this "QQQ Update" , the gist of the update was the following...

"The IWM started showing some pretty nasty distribution intraday today as I posted around 3 p.m., but that doesn't necessarily mean its the best entry. The topic of a lot of discussion the last week or two has been weighing the best entry vs. micro-managing the entry too much and missing the forest for the trees which is usually not that big of an issue, but when a market starts acting like this one has been, it becomes more of an issue and that's why I'm pointing out intraday action like the IWM and QQQ today.

I'll cover the market a daily wrap, but I thought you should see the Q's."

I had an email earlier asking if the Q's still looked like the best short entry (at the proper time) based on charts such as those posted Sunday night and yesterday more specifically. I'd say the Q's are still the most interesting of the 4 averages as of right now and that's not just because of their relative performance vs the other averages (less risk), but it does have something to do with the position the Q's are in, not only filling in the 7/19 gap, but moving above that area which sets up a possible (in this case, very probable) head fake move which gives us better timing, a better entry and less risk.

That being said, I'm not ready to rule out the IWM specifically or any of the averages making similar moves, but as far as what we have now, here it is (*This is not a full market update or really a market update at all in the regular sense, it's showing probabilities of a position and what we look for).

 SPY 3 min still has that positive divergence formed at the 11 a.m. lows of last Friday, it still has a little gas in the tank so the SPY "Could" make a move similar to the
Q's, but as of now, it hasn't and we can only make the best decisions we can with what we know, not where we guess an unknown asset will be at an unknown time and date.

 For the SPY to make a similar "Head Fake" move or in this case more specifically a "Bull Trap" (Please read the two articles linked on the members' site- UNDERSTANDING THE HEAD-FAKE MOVE- so you understand why these moves are important, why they occur and how we can identify and use them to our advantage). it would have to move above the yellow trend line. While the 3 min chart still has some gas in the tank, the 5 min chart does not, this is why I believe HYG was recruited,  as shown Sunday night, to help the averages along on an arbitrage basis.

 The IWM 3 min chart doesn't look like a high probability candidate to make the same move as the Q's, although it still can, most of the moves in to any kind of higher prices at all have been sold in to as you can see.

The QQQ by contrast is showing a very deep leading negative divergence in to a nice move to the upside, being the best relative performer on the day.

This is the head fake area or "Bull trap" area where retail will buy the Q's on a "Breakout" move, the 15 min chart shows acute distribution on the move above the former resistance zone. This makes the QQQ a VERY high probability bull trap, which falls under the broad category of "Head-Fake" move.

Volatility

Here's the VIX / VXX / UVXY charts I promised in the last post. As you know, our custom indicator that is loosely based on some DeMark principles, in the past has given us some excellent buy/sell signals and specifically with the VIX. As you know we just had a buy signal last week.

Here are the charts, as well as the reasons why (in these assets alone) it's getting hard to ignore them, even though there are some open positions already and a few underwater pretty deep, a few not so bad, but the VXX/UVXY options can move VERY fast in my experience.

In any case, sticking with our normal concepts the VXX and UVXY both have consolidation/continuation triangles, whether you draw them as bearish descending wedges or the symmetrical triangle that has no bias except for the preceding trend, in both cases Technical traders view both as bearish which sets up a head fake move which is something we'd expect to see 4 of 5 times any way, that's our best entry. 

I'd say, if you have a very high standard and can get through a trading day without saying, "I should have...","I wish I had...", "Why Didn't I?" then waiting for the typical head fake move below the triangle with 3C confirmation is by far your highest probability move.

That said, the probabilities are already VERY high for a strong upside move in both and I'd say EXCEPTIONALLY soon.

 The last buy signal from our custom Buy/Sell indicator, which is just a true/false indicator with a set of conditions that are loosely based on DeMark principles and give amazingly similar signals, sent the VIX up about +55%.

This is the 15 min VXX chart which shows a very typical reversal process price pattern that is in scale or proportion with the preceding trend, to the far right is the triangle of the last several days which is often a signal that we are VERY close to a directional move, most often Technical traders are used as these very well known price patterns are used against them.

This is the very big picture 2 hour 3C chart,  I show it because not only does it show the degree to which we have an exceptionally strong leading positive divergence, but it shows a near picture perfect divergence in the exact right place with the right price pattern.

I also show these for confirmation as VXX is managed by I-Path, UVXY is not only a 2x leveraged version of VXX, but managed by ProShares and XIV is a 2x leveraged INVERSE of VXX and managed by VelocityShares. In other words, from 3C's perspective, these assets have NOTHING to do with each other, the only way there is a similar signal between all 3 is if there actually is a similar signal between all 3.

 This is the 2 hour UVXY that looks nearly EXACTLY the same as VXX.

This is the 2 hour XIV which is the inverse of VXX w/ 2x leverage so the signal should be the mirror opposite which it is.

 I was looking at an intraday view of a 3 min chart and it looks to me like this triangle was engineered, the steering currents on a 3 min intraday chart not only form the triangle, but give last min accumulation signals.

A head fake move would almost certainly be BELOW the triangle's support, it should trigger volume and it should see 3C move higher before it breaks out to the upside on the move we'd be looking for.

 Amazingly UVXY in the exact timeframe has nearly the EXACT same 3C signals.

This is UVXY intraday, the point is, as we are seeing a downside intraday price move in these assets, we are seeing the stronger positive divergence I'd hope to see.

In my view if we get a picture perfect head fake set up, then I'd say a VXX call position would be warranted, but I'd also like to have or add to UVXY equity long exposure for a slightly longer move than we'd normally take with options.

VXX / UVXY

I'll have an update out for you soon, HYG overlaid over the SPX today shows quite clearly how HYG's arbitrage value was used today, but otherwise the SPY arb from TLT and VXX seems to be about nil.

It's getting very hard to justify not taking on some exposure or additional exposure in VXX or UVXY long; even the price pattern is a clear accumulation pattern, the triangle that is formed over the last several days looks very obvious as well, the only thing holding me back right now would be looking for a head fake move below that triangle, but with the Buy signal in our DeMark inspired custom indicator in the VIX that has been very accurate, especially in the VIX,  it's a matter of weighing the best entry vs. missing the move at this point and most of you know I'd gladly miss a move as there's always another in favor of patience and getting the best signals, but this is a different level of play.

Update

In a few key areas there's some decent movement, for example the averages are showing some good movement, HYG as I posted last night, was able to fend off deterioration and create a short term positive divergence that I thought would move higher today, thereby supporting the market which it is.

MCP is working as I suspected it might, but it just doesn't have the divergence I was hoping it would have, maybe it will later, but without that, it's hard to trust that the move there won't suddenly fall apart in an instant.

There are still a lot of areas with virtually no movement and I don't think anyone would be surprised with the F_O_M_C underway today and out with their statement tomorrow, unless there's a leak or some other information, that's something we are looking for, so far it's pretty quiet.

Here's a sampling of the averages in the timeframes that are useful at 10:30 in the a.m., they look as I suspected and without MCP showing its own positive divergence today, it's hard to trust it with the market averages looking like this so far.

 DIA intraday 1 min example, no confirmation of this morning's price action at all, in fact the opposite.

The same with the IWM 1 min (really all the charts from 1-3 min look the same, I'm just not posting  12 charts).

 QQQ 2 min is leading negative so it's very far from confirmation and in to distribution as I suspected based on the tone of recent trade.

SPY 3 min and the original positive fueling any upside which came from Friday morning lows, on the open though the 3 min chart is not confirming and I'd say pretty close to distribution.

HYG showed this deterioration that was saved late day and turned to a positive divergence, I figured HYG would be higher today in support of the market, it is, but it's not any better than in line on a 1 min chart.

In essence, HYG is the jump-starter for the market right now.

This is MCP  which already had a number of short term positive divergences, but the move today below support should have given a very clear signal, without it the leveraged trade is very ex[posed, especially when the under-currents in the market are this fragile.

I'm looking at positions on the watch-list that I think will make good trades, yet again, whether it's too early or there's just not a lot of activity in front of the F_O_M_C,  there's very little movement or what is for us, a strong edge...at least as of this first 90 minutes of trade.

Opening Indications

It's a bit early to take much away from a.m. trade, but in all 4 of the major averages, in all 3 of the intraday timeframes thus far, there's not one that is confirming the gap up, everyone in all 3 intraday timeframes is negative which is also what I was expecting to find, distribution in to any strength.

Like I said at the start, it is very early to make a call on this based on a.m. trade, but it is a pretty solid indication so far so I'm going to look at individual assets.

MCP Update

So far MCP has completed the first part of what I'd want to see for a trade there today, a move below the bear flag that hits stops (creates volume), now the second half as I laid it out last night is evidence that those hit stops are accumulated, then it's time to make a call on the position.

Here's what we have so far.

 This morning's break below the bear flag which was the obvious part...

Next we need to see some confirmation that those stopped out shares were accumulated,  I drew in a blue arrow of what that might look like, but it could look a lot of different ways.

If we do get confirmation, I'll be looking at Aug. $7 Calls.

Pre-Market

Last night I thought the $AUD might participate in sending the market higher TODAY or at least part of it, but RBA Governor Stevens said Q2 inflation data retains RBA's scope to ease and that the AUD drop makes sense and that it is no major surprise if it falls further and fell further overnight it did, yet we are still gapping up, so I guess all of those other little indications taken together were more than enough, this has nothing to do with overnight action. this likely is all about pre-F_O_M_C action, get what you can, while you can.

That being said, it's movement, movement is good, it allows us opportunities and good analysis. I'll be looking for distribution of higher prices as we have seen a continuos trend of recently or confirmation of them, I suspect I'll find distribution, if so, we'll be looking very closely at the stocks that have the best risk / reward profile.

So far we are exactly on track from yesterday's analysis.

MCP is on the early radar.