I have calls open there, I may even add to them, it looks so good right now that I had to get this note out and not waste time gathering charts, but I will follow up next with charts.
7 years ago
Friday, August 9, 2013
Opening SLV Sept (monthly) $20 PUT
You can go short SLV as well, I think there are some leveraged ETFS, but I doubt they have any volume.
Market Update: Setting Up right in time for the post 2 p.m. move
We see it every Friday, the market is pinned until most option contracts are settled, I don't know about you, but my broker would be calling at 12 and 1 p.m. asking what I wanted to do with expiring contracts, by 2-2:30 most are settled, Wall St. has peeled the premium out of about 90% of the people's hands entirely and the market is free to start moving as it wishes.
Right in time for that, exactly what I expected in the last update, a pullback intraday and probably the area and last chance for today any way to open call positions as price pulls back a bit just in time for the post 2 pm move.
DIA 1m looks like it'w pulling back to that intraday "W" like pattern I mentioned last update.
IWM as well
QQQ 5 min shows strength in a longer timeframe so I think we are headed toward wrapping this event up soon.
And SPY intraday.
Just consider that we have been seeing afternoon negative divergences in to afternoon bounces, I wouldn't want that for Monday's open, but I also think that if we are going to bounce they are going to have to let that happen, I just mention this in case there is an afternoon negative in to any price appreciation, you won't have any problems if you are not regulation "T" compliant and want to get out of a a trade (pattern day trader rule).
I'll be looking at positions, I'll call them out as I see/enter them.
Right in time for that, exactly what I expected in the last update, a pullback intraday and probably the area and last chance for today any way to open call positions as price pulls back a bit just in time for the post 2 pm move.
Just consider that we have been seeing afternoon negative divergences in to afternoon bounces, I wouldn't want that for Monday's open, but I also think that if we are going to bounce they are going to have to let that happen, I just mention this in case there is an afternoon negative in to any price appreciation, you won't have any problems if you are not regulation "T" compliant and want to get out of a a trade (pattern day trader rule).
I'll be looking at positions, I'll call them out as I see/enter them.
DE Core Short, BEAUTIFUL Chart
You can probably figure out where I opened the DE short based on the 9% gain in the short position and the market hasn't even broke.
If you are familiar with our concepts, DE is like a text book of them and you can probably tell where I opened the position, I just show you this because as you think about what positions you may like and why, you can look for certain concepts and almost be certain that the trade will come to you.
If I entered in 2011 and I do believe we did have a short there in 2011 that was closed mid-year, even at the top I would have waited years and not been much better off today then back then, that's a lot of market risk, instead we look for the events that signal the different stages and the concepts that Wall St. uses against technical traders to our advantage as well.
"A" When you have a triangle like this large symmetrical triangle, unlike the descending or ascending triangles, the sym. triangle has no implied bias, it is a pure consolidation/continuation price pattern and depends entirely on the preceding trend to predict it's eventual breakout near the apex of the triangle.
Concept: Technical traders will treat this like a consolidation triangle and because the preceding trend was up, they'll expect an upside breakout, however a consolidation triangle is rarely larger than a month or two, ANY TRIANGLE THIS BIG IS A TOP OR A BOTTOM DEPENDING ON THE PRECEDING TREND, in this case it's a top because the rally has run out.
*Look for 5 points of contact inside a triangle before a breakout
Technical traders are too lazy to apply their own rules which would tell them "Consolidation patterns aren't this big", yet they see it and think they know what it will do and Wall St. will use that to further their own position.
"B" Technical traders expect an upside breakout, they will buy and upside breakout so Wall St. can use the higher prices and buying demand to sell in to or sell short in to, this is a head fake or false breakout.
This is certainly 1 area to enter short or to phase in to a position.
"C" A bull flag shows up after the breakout, for a technical trader EVERYTHING makes 100% sense, a bullish triangle that broke out to the upside, a bullish consolidation flag that should also breakout to the upside, this is Wall St's dream and these price patterns are no coincidence.
"D" We see a breakout from the flag, that's what retail will buy, even though the flag pattern is WAY too big to be a real bull flag, THIS IS THE SECOND HEAD FAKE and you can be sure Wall St. is selling in to this as well, THIS IS ALSO WHERE I WANT TO BE SHORT AND AM.
Now that smart money has had plenty of time to distribute a large position and go short, who is left holding shares at higher prices?
What happens as those start moving to bigger and bigger losses and who will buy those shares as they try to sell them without extracting a serious price concession?
This is a text book chart to study to understand the relationship between smart and dumb money, how Technical analysis is used against technical traders, how technical traders are largely attracted to technical analysis because of laziness and how it shows above.
Just wait for Stage 4, decline, then we'll talk about "The Snowball effect" of compounding retail losses and a VERY profitable short.
If you are familiar with our concepts, DE is like a text book of them and you can probably tell where I opened the position, I just show you this because as you think about what positions you may like and why, you can look for certain concepts and almost be certain that the trade will come to you.
"A" When you have a triangle like this large symmetrical triangle, unlike the descending or ascending triangles, the sym. triangle has no implied bias, it is a pure consolidation/continuation price pattern and depends entirely on the preceding trend to predict it's eventual breakout near the apex of the triangle.
Concept: Technical traders will treat this like a consolidation triangle and because the preceding trend was up, they'll expect an upside breakout, however a consolidation triangle is rarely larger than a month or two, ANY TRIANGLE THIS BIG IS A TOP OR A BOTTOM DEPENDING ON THE PRECEDING TREND, in this case it's a top because the rally has run out.
*Look for 5 points of contact inside a triangle before a breakout
Technical traders are too lazy to apply their own rules which would tell them "Consolidation patterns aren't this big", yet they see it and think they know what it will do and Wall St. will use that to further their own position.
"B" Technical traders expect an upside breakout, they will buy and upside breakout so Wall St. can use the higher prices and buying demand to sell in to or sell short in to, this is a head fake or false breakout.
This is certainly 1 area to enter short or to phase in to a position.
"C" A bull flag shows up after the breakout, for a technical trader EVERYTHING makes 100% sense, a bullish triangle that broke out to the upside, a bullish consolidation flag that should also breakout to the upside, this is Wall St's dream and these price patterns are no coincidence.
"D" We see a breakout from the flag, that's what retail will buy, even though the flag pattern is WAY too big to be a real bull flag, THIS IS THE SECOND HEAD FAKE and you can be sure Wall St. is selling in to this as well, THIS IS ALSO WHERE I WANT TO BE SHORT AND AM.
Now that smart money has had plenty of time to distribute a large position and go short, who is left holding shares at higher prices?
What happens as those start moving to bigger and bigger losses and who will buy those shares as they try to sell them without extracting a serious price concession?
This is a text book chart to study to understand the relationship between smart and dumb money, how Technical analysis is used against technical traders, how technical traders are largely attracted to technical analysis because of laziness and how it shows above.
Just wait for Stage 4, decline, then we'll talk about "The Snowball effect" of compounding retail losses and a VERY profitable short.
Market Update: Now Change s in the air
Here's the Yen via FXY...
When FXY breaks under the trendline, the market will likely be ready to make it's run higher, keep in mind the scale or the FXY top/reversal when thinking about the market's opposite move.
Now we start seeing the process unfold of intraday accumulation, DIA 1 m
IWM 2 m
QQQ 2m
SPY 2m.
I'd guess we'll see one more bottom or intraday low to create a "W" intraday, but the last 3 days have been more like a bear flag with the a.m. decline being the pole and the afternoon trade being the flag that trades away from the morning trend in a sort of parallelogram.
I'd guess we'll see one more bottom or intraday low to create a "W" intraday, but the last 3 days have been more like a bear flag with the a.m. decline being the pole and the afternoon trade being the flag that trades away from the morning trend in a sort of parallelogram.
FXY Follow Up / Trade
There's no real great secret that I need to hide from you to try to impress you with foreknowledge of the market, my goal is to give you the tools to apply the concepts to your trading as you see fit.
So if we think about what is driving the market or will create change (whether short term so we can possibly enter 1-2 day calls/longs or long term to enter shorts) there's either going to be the SPY arbitrage to send the market higher, in which case the relative performance of arbitrage assets vs the SPX and each other is one force that can move intraday trade. In this case you'd look for HYG's price to move up while TLT's and VXX's moves down, for a negative effect on the market, HYG moves down and TLT and VXX move up.
You can watch for that alone or individually with the next driver, ideally both work at the same time, the next is simply the USD/JPY currency pair, but to keep it simple you just need to watch the Yen, if you are charting futures, the symbol for the Yen in TOS is /6j if you are using ETFs, use FXY.
Here's both...
Yen 5 min futures are topping short term and starting to make that turn, they are still up on a bounce this morning, but when that turns down it will relieve the downside pressure on the market.
The longer 15 min trend is cleaner, as the Yen has been bid, it's effect on the USD/JPY has been negative on the market, I showed this chart several nights ago just starting to go negative and now the divergence is in, we just need to see intraday trade turn down and that will set up the market for some short term strength, but I'd remind you it's so fragile that anything I entered would be speculative, leveraged because I suspect it doesn't hold long and stuff that I can get out of quickly, this is for the hitch-hikers, for those waiting for some price strength to short in to, just be patient, that's the real trade/market gift.
using FXY as a proxy for the Yen
The 3C 5 min chart in line and then goes leading negative, it's almost like a small H&S at the top and this is part of why I said FXY short is a trade that would work with little risk.
The 3 min chart, I didn't draw on it, but the trend of 3C and the trend of price should show an obvious divergence, a stop can be place above the red trendline, but the less obvious it is, the better.
The 2 min chart, so essentially this is very close to what might be considered a right shoulder in FXY, looks as if it's about to turn down (relieving downside pressure on the market.
This top of the left shoulder is also one of the only places I'll short a H&S pattern, keep in mind its size when considering the profit potential.
FXY in the trend channel shows a break below $101.25 should be close enough to creating a substantive change in the market that can be taken advantage of for short term action only.
I show the averages as starting to chop around so some of that downside momentum has been relieved, there's still a reversal process proportionate with the a.m. decline, but that's pretty much what to look for right now as far as steering currents and timing.
So if we think about what is driving the market or will create change (whether short term so we can possibly enter 1-2 day calls/longs or long term to enter shorts) there's either going to be the SPY arbitrage to send the market higher, in which case the relative performance of arbitrage assets vs the SPX and each other is one force that can move intraday trade. In this case you'd look for HYG's price to move up while TLT's and VXX's moves down, for a negative effect on the market, HYG moves down and TLT and VXX move up.
You can watch for that alone or individually with the next driver, ideally both work at the same time, the next is simply the USD/JPY currency pair, but to keep it simple you just need to watch the Yen, if you are charting futures, the symbol for the Yen in TOS is /6j if you are using ETFs, use FXY.
Here's both...
using FXY as a proxy for the Yen
This top of the left shoulder is also one of the only places I'll short a H&S pattern, keep in mind its size when considering the profit potential.
I show the averages as starting to chop around so some of that downside momentum has been relieved, there's still a reversal process proportionate with the a.m. decline, but that's pretty much what to look for right now as far as steering currents and timing.
Opening Indications
There aren't really any surprises, the signals the last three days have been negative in the afternoon, a unique feature of 3C or at least of what 3C shows us in the market, is whatever was planned the day before (no matter what happens overnight), you can rely on that signal playing out the next day, even over weekends.
So the last 3 afternoons have shown negative divergences and the last 3 openings have shown the market weak in a.m. trade as was suggested in the inrtraday 3C signals the afternoon before, today is just a 3rd day of that.
There are some "slight" signs of a little momentum loss or very slight positives developing mostly in the IWM and DIA, but nothing even close to being worth taking action on.
The DIA's afternoon intraday weakness yesterday and this morning's price weakness on a 2 min chart.
The 1 min shows the same, but with a very slight positive and this is even more slight considering it's on a 1 min chart so I'm not paying much attention to this right now.
IWM 3 min showing the negatives rolling from Wednesday afternoon to Thursday afternoon with price weakness Thursday and Friday morning.
This 1 min IWM chart is the closest thing to a positive in the averages.
QQQ 1 min 3C weakness yesterday afternoon (other timeframes as well) and price weakness in yellow this morning.
SPY 3C weakness Wednesday afternoon, price weakness off yesterday's opening gap, yesterday afternoon 23C weakness and this morning's price weakness, nothing to see here yet as the signals from the afternoon still dominate morning trade.
A cleaner trend of 3C afternoon weakness and this morning's price weakness.
CONTEXT is positive by something like 8 points, also the SPY arbitrage is positive, I suppose that is from early TLT weakness which I have expected to materialize in the short term as signals have developed there the last few days and probably helped by HYG at least holding its ground for the most part.
This is what we expected since yesterday afternoon so we can't really complain, just look for opportunities, signs that a window of opportunity will emerge and stay patient. The slightly longer charts that have also been correct about what to expect after a.m. weakness have also been right on and I showed you the multiple signals and leading indicators, it may just take a bit longer on an op-ex pin Friday, typically around 2 p.m. the market frees up from the pin.
So the last 3 afternoons have shown negative divergences and the last 3 openings have shown the market weak in a.m. trade as was suggested in the inrtraday 3C signals the afternoon before, today is just a 3rd day of that.
There are some "slight" signs of a little momentum loss or very slight positives developing mostly in the IWM and DIA, but nothing even close to being worth taking action on.
CONTEXT is positive by something like 8 points, also the SPY arbitrage is positive, I suppose that is from early TLT weakness which I have expected to materialize in the short term as signals have developed there the last few days and probably helped by HYG at least holding its ground for the most part.
This is what we expected since yesterday afternoon so we can't really complain, just look for opportunities, signs that a window of opportunity will emerge and stay patient. The slightly longer charts that have also been correct about what to expect after a.m. weakness have also been right on and I showed you the multiple signals and leading indicators, it may just take a bit longer on an op-ex pin Friday, typically around 2 p.m. the market frees up from the pin.
XOM Reminder
I'm at a bit of a loss until this screen capture software re-initializess, it usually takes about 10 mins, so about 5 more.
XOM is a core short position, I've had it open for a a while and the fact that it is right around break even shows that it was entered (phased in to) at some advantageous areas that were "high probability, low risk areas", I wouldn't be able to hold an energy short as long as I have this one if it wasn't entered in a good area which was in fact based on what smart money was doing, this wasn't my guess as to where to enter, I'm just following the signals and trying to act when smart money is acting.
In any case, XOM looks like a large top. I think the best case "entry" scenario is that this local support in the $91 area which has been broken, may provide for a sling shot move higher (this is consistent with the short term bounce theory) and that may put XOM in the $93.50 area. I have a little dry powder to add to XOM and I'd wait for that opportunity to do so.
I'll try to get some charts of some of my favorite core short positions like DE which has been doing great out of a huge head fake / triangle top, IBM rolling over in a large rounding top, PCLN which I think has just run out of goodwill sentiment that they can do better moving forward in this economy, AMZN which is toppy anyway (look at a 5-day chart) and has come to us as we patiently waited on this one), and NFLX as well as others.
I think XOM has a realistic minimum (trending position) target of $55, but we can leverage the trade up as an equity short, which I explain in this article I wrote some time ago, the argument made by the Peter Lynchs of this world that short selling has unlimited risk and limited potential simply isn't true.
The unlimited risk is handled by your broker as they have skin in the game and will close the position without you even knowing about it long before it gets to any scenario approaching "unlimited risk concern" and as for the argument, "You can't make more than 100% and that's if the stock goes to zero", is just wrong and shows a total misunderstanding of how margin and long and short positions differ.
This is my article that is quite old, but still valid, "Making More Than 100% on a Short"
It looks like my software is back up and running.
XOM is a core short position, I've had it open for a a while and the fact that it is right around break even shows that it was entered (phased in to) at some advantageous areas that were "high probability, low risk areas", I wouldn't be able to hold an energy short as long as I have this one if it wasn't entered in a good area which was in fact based on what smart money was doing, this wasn't my guess as to where to enter, I'm just following the signals and trying to act when smart money is acting.
In any case, XOM looks like a large top. I think the best case "entry" scenario is that this local support in the $91 area which has been broken, may provide for a sling shot move higher (this is consistent with the short term bounce theory) and that may put XOM in the $93.50 area. I have a little dry powder to add to XOM and I'd wait for that opportunity to do so.
I'll try to get some charts of some of my favorite core short positions like DE which has been doing great out of a huge head fake / triangle top, IBM rolling over in a large rounding top, PCLN which I think has just run out of goodwill sentiment that they can do better moving forward in this economy, AMZN which is toppy anyway (look at a 5-day chart) and has come to us as we patiently waited on this one), and NFLX as well as others.
I think XOM has a realistic minimum (trending position) target of $55, but we can leverage the trade up as an equity short, which I explain in this article I wrote some time ago, the argument made by the Peter Lynchs of this world that short selling has unlimited risk and limited potential simply isn't true.
The unlimited risk is handled by your broker as they have skin in the game and will close the position without you even knowing about it long before it gets to any scenario approaching "unlimited risk concern" and as for the argument, "You can't make more than 100% and that's if the stock goes to zero", is just wrong and shows a total misunderstanding of how margin and long and short positions differ.
This is my article that is quite old, but still valid, "Making More Than 100% on a Short"
It looks like my software is back up and running.
Opening Partial PCLN Short Position
I'll have a post and charts up, I'm waiting for the screen capture software to re-initialize.
I'll be opening half of a full equity short position (no more than 15% of portfolio in my case / risk management) and will look at adding the other half soon.
I'll be opening half of a full equity short position (no more than 15% of portfolio in my case / risk management) and will look at adding the other half soon.
Pre-Market
I don't think we need any detailed rundown of what happened overnight, the charts from late afternoon have dominated morning trade as we look toward a gap down.
I don't know if professional equity traders have a line on the USD/JPY 6-24 hours in advance, but either that, something else that 3C is showing in late afternoon trade or perhaps simply getting in to the area of maximum pain on another "Weekly" options expiration Friday pin, has seemingly done the trick.
Since I can't do anymore than guess about 2 of the 3, the one I know for sure moves the market has been in position to do so overnight and that's the USD/JPY pair.
USD/JPY overnight on more JPY strength...
sending ES trending lower overnight...
Which was built in to expectations yesterday as many calls were closed as the afternoon negative divergences dominate early trade...
Perhaps not the best example, but there were quite a few presented last night with the charts just slightly longer than intraday still calling for more bounce.
Either way I think it works, we get the downside open that was expected and prepared for yesterday, if the signals are there for adding calls in another 1 day hitch-hiker trade, we take them. If not, we have good short exposure built up and we add to that and just enjoy the ride.
There's a method to the madness, it's called being prepared rather than chasing the market and thus far it's working out well as the core shorts are going a darker shade of green with each slight dip in the market while the short term calls are bright green in low exposure 1-2 day leveraged trades.
I think we just continue on that path and we know from last night what the most likely scenario is, the pullback which has started overnight, "if" there's any sign of short term 1 min-2 min accumulation we consider calls, if not, we finish entering shorts which are coming in to their own.
I don't know if professional equity traders have a line on the USD/JPY 6-24 hours in advance, but either that, something else that 3C is showing in late afternoon trade or perhaps simply getting in to the area of maximum pain on another "Weekly" options expiration Friday pin, has seemingly done the trick.
Since I can't do anymore than guess about 2 of the 3, the one I know for sure moves the market has been in position to do so overnight and that's the USD/JPY pair.
Either way I think it works, we get the downside open that was expected and prepared for yesterday, if the signals are there for adding calls in another 1 day hitch-hiker trade, we take them. If not, we have good short exposure built up and we add to that and just enjoy the ride.
There's a method to the madness, it's called being prepared rather than chasing the market and thus far it's working out well as the core shorts are going a darker shade of green with each slight dip in the market while the short term calls are bright green in low exposure 1-2 day leveraged trades.
I think we just continue on that path and we know from last night what the most likely scenario is, the pullback which has started overnight, "if" there's any sign of short term 1 min-2 min accumulation we consider calls, if not, we finish entering shorts which are coming in to their own.
