Trade Idea: Opening GDX Sept. $27 Call / NUGT Long

This is speculative and I think it can be choppy, for that reason I like NUGT long better in case there's some time delay, but as far as profit potential as I expect this to be a short move in duration, I decided to go with GDX calls, this is Gold miners.

This is a VERY speculative position.

I'll have charts out shortly

*Market Update part 2: Charts of the Averages

This is more complicated than usual because all of the chop creates multiple timeframes that can be traded, we always use multiple-timeframe analysis because that's what tells the story and has the highest probabilities.

Therefore, I have to use quite a few charts, you may want to come back and look at them later, the basic premise of last night is still in play, the market to move lower (How low now becomes a question, I was expecting back toward yesterday's lows and then a head fake below them before a run higher, at this point that's a large intraday loss, it will make retail short term or recent bears feel great and lock them in) the danger I have to watch for is that the set up doesn't slip, we do have a lot of wildcard fundamental news and long term destruction to the framework of the market, I don't think it's that high of a probability, but I have to watch and thus I'm not taking some of the trades I've mentioned today (day trades or 1-day) but am more interested in the larger plays. The other possibility I have to keep an eye on is that the market just rips higher from here, this is why I haven't moved many positions since Friday-THE CHOP.

I'll do my best to show you what I see and what I expect, with that said, in my experience, whatever you think is a reasonable move or a reasonable timeframe, you can usually just about double or triple it.

*You'll have to pay attention to the timeframes of each chart and the time scale at the bottom of the chart to keep all of these in perspective.

SPY

 2 min intraday shows the unusual and very bullish underlying trade from Friday resulting in an early week gap up. Today's 2 min chart is leading negative, I suspect retail is short all over this as I've already seen in some retail sentiment updates, thus the leading negative.

Smart money accumulation would not be expected to take place until we are near the lows of yesterday.

In a sense, retail shorting here could be considered a bear trap (short term or longer depends on how tenacious they are about holding).

3 min SPY intraday shows where this chart went negative (remember the first charts to go negative are the 1 min then if strong enough it passes to the 2 min, 3 min, etc).

You can see where the 3C distribution takes place on the 3 min chart the market has lost upside momentum and is stuck in a range, this is where we often see the strongest divergences.

 *This is the same 3 min chart as above, look at the timescale though, instead of intraday (today only), we are looking at the trend over the last 6+ days.

I tried to show you how large the accumulation is as time passes with the white blocks below, they are placed where the positive divergences and accumulation occur and their size is a representation of the size of the divergence or accumulation, clearly the chart is getting stronger and stronger which means it can support a stronger move to the upside.

This is the 5 min intraday chart, 5 min charts are typically the earliest timeframe where we see institutional activity intraday. 

To the left we see yesterday's mid-afternoon accumulation and an "in line" status in 3C (it takes a stronger underlying trade, distribution or accumulation,  to move the divergence at 5 mins),  however we can see it go negative intraday and as it does, the SPY has lost all upside momentum and is moving sideways.

The SPY 15 min is obviously a very strong, important chart and this is on a mulitple day timescale going back to July.

To the left we are coming out of a top and also where I believe this bear market started.

Around 8/16 a new cycle begins, accumulation for a move to the upside, even though the Primary  down trend is barely established, I'd still consider this cycle that has built a base since the 16th to be a "Counter trend bounce".

*Counter trend bounces in a bear market are some of the strongest rallies/bounces you'll ever see, they have to be to convince bears that perhaps the market has turned bullish.

At the bottom of the scale in red we have a distribution phase and the market heads lower, in white we have an accumulation phase of the newest cycle, but still countertrend, not primary.

The SPY 60 min chart is the strongest of all the above, it has the highest long term probabilities and shows the strongest accumulation/distribution, because of that it lacks details because a 5 min positive divergence may never become strong enough to register here, thus it's good for showing bigger trends.

 In yellow I have included the 4 stages of the market which are:
Stage 1 Accumulation/base; Stage 2 Mark-up/Rally; Stage 3 Distribution and Stage 4 Decline.

From left to right, stage 2 mark up runs in to stage 3 distribution at the red arrow marking a major top and sending price lower in stage 4 decline.

Right now we have stage 1 base/accumulation, but notice I made the number smaller, it would be like Elliot Wave counts, the previous stages are larger, intermediate and belonging to a Primary trend, this is more of a sub-intermdiate base or "Counter trend" move.

QQQ

 2 min over the last 5+ days showing accumulation at the bottom of the chop's range and distribution at the top of the range. The distribution is not meant as true distribution, but rather to stop price from advancing and sending it back to the accumulation zone, smart money "Can" take well over a year to accumulate a position, this isn't that case, but they aren't like us where we can put on a position with 1 trade because of the size they are dealing with.

However, look at the direction of the overall 3C trend.

QQQ intraday 3 min shows in line in green and distribution in red as price turns flat.

When price is flat, this is where distribution (in this case) often becomes more severe or it can be timing to hold the market in place until an event or catalyst occurs in which they can magnify the move.

QQQ 5 min again shows the distribution of the highs to send price ,back to cheaper levels where smart money will buy, smart money does not chase prices higher, ONLY RETAIL does that.

 QQQ 5 min, I tried not to draw too much on the trend, but I wanted to show how the price range (especially at the lows) has remained fairly consistent, but note the trend in 3C, higher and higher, which is indicative of a stronger positive divergence/accumulation as well as base.

The larger/stronger the base, the larger the upside move can be, it needs the base's support and smart money needs to push prices higher to offload more inventory IN TO HIGHER PRICES as well as short those higher prices.

IWM

 The 3 min trend, again overall look at the trajectory of price (lateral) and 3C (up).

3 min intraday  has gone clearly negative and held up any more upside . To me the only reason I think at this point we are still lateral is just part of the reversal process rather than a reversal event.

IWM 5 min accumulation as we saw it yesterday afternoon, in line on the way up until the 5 min chart went negative intraday and the IWM has been lateral ever since.

the same 5 min chart in trend perspective through August, again note the lateral (sideways) flow of the market's base and the higher and higher 3C readings, this of course suggests a stronger and stronger base to rally from, still however counter trend in underlying trade if not actual Dow Theory price, as new as the trend would be.

This IWM 15 min chart (a very strong, important timeframe) is one of the clearest explanations of the trends taking place, a large top/distribution sending price lower and the start of a new cycle for an upside move 8/16 and becoming stronger ever since as it should.

I have little doubt we see a very strong, sentiment shifting upside move, I just hope we get the 1 more pullback I wrote about last night.

This 60 min chart is a representation of the underlying trend, Primary trend, it's clearly leading negative on the strongest of all of the above trends, you can see the white accumulation which is no more than a counter trend set up, this puts it in perspective.

While I'd like to catch upside on a bounce and have set up to do that, the real prize is to sell short in to upside price strength as the prevailing 3C trend says the market is in huge trouble.

*Market Update

Incredibly volatile intraday action, if I had more time and could watch over positions more closely, I'd probably take a quick options or 3X leveraged trade, ultrashort term down like 3x leveraged IWM bear, SRTY or UVXY long.

However this I believe is still the same theory as last night and accumulation would pick up in to any move on the downside which would mean switching pretty quick back to long positions like the 3x long IWM URTY.

Here's a quick example with the IWM, but there's a lot more to it that I'll be positing.

 IWM 3 min intraday, this isn't important in the bigger picture of a bounce, but intraday, this is a very negative divergence that has migrated through the faster timeframes to a leading negative, My guess is this is the move that takes us to the lower end of the range talked about yesterday.

 At 15 min which is the bigger picture for the bounce, we have an even stronger leading positive divergence (most of that is trailing or catching up from yesterday's lows.

This suggests exactly the kind of bounce I've been talking about, it should turn bears bullish and ultimately create a bear trap before the big leg down.

I'd say using this 15 min IWM chart, the moves "should" look something like this, a run to the downside (red), I expected this to move to the lower end of the range and ultimately even break below it on a head fake move and then the large move to the upside at the green arrow.

That's a long way to go on the downside so I'm having second thoughts, but the fact intraday volatility is up as much as it is, those second thoughts are very minimal.

The market is always extreme at this point.

If I had time I'd likely play some very short day or less options, as it stands now, I'm only interested in going long at the bottom of the range and then ultimately selling short toward the end of a large bounce higher.

More charts coming, I have to break this up in to pieces.

HYG Follow Up

You may recall HYG (High Yield Corporate Credit) which is a popular smart money risk asset (they use when expecting a market move to the upside) caused some initial concern for me yesterday as it gapped lower.  After an hour or two accumulation in to lower prices was noticed and as the day went on that grew stronger my concern dissipated. I figured it was likely that because of the long holiday weekend and the VERY sudden change in character to very strong accumulation Friday (which bore itself out with the open this week in futures Sunday night and the market yesterday morning) that the gap down was likely to accumulate more, upon further reflection it also seemed obvious that as a SPY arbitrage component, one of the ways to knock down the strong gap up open of yesterday is to knock down one of the 3 main arbitrage assets for the SPY, sending HYG lower not only helped manipulate the market lower off the gap up yesterday, but allowed HYG to be accumulated at cheaper prices.

I took a look at HYG, here's a follow up to the charts there; remember the maxim, "Credit leads, stocks follow".

 The daily candlestick chart thus far is forming a bullish Harami or what we call in the west, "An Inside Day". I don't know if this holds through the close, but I'll be very interested to see what HYG looks like in our Leading Indicators near the close.

This was the gap down yesterday morning, the market gapped up so that normally wouldn't make much sense, but as you recall the market pulled back from it's gap up to re-establish itself with positive divergences right around Friday's accumulation range, almost as if Wall St. had an early head's up on Obama going to Congress during the day Friday, accumulating on that and using Tuesday's pullback to continue. HYG's move lower would have helped bring the market down as algos read HY credit moving lower as smart money taking a risk off position, however underlying trade showed us yesterday it was the exact opposite of the way algo trading would read price action, and rather it looked like much more bullish accumulation for a stronger upside move.

 This is the initial "in line" 3C reading (green arrow) as prices moved lower in HYG yesterday, they wouldn't accumulate at high prices thus the in line reading until prices moved lower. 

Again toward the close there was a late day sell-off, that seemed engineered to stop the market from moving above ES's VWAP as it bounced off intraday lows in to the close. Thus far the positive divergence in HYG continues as it still remains in the general range from yesterday.

The longer term 30 min chart which is very significant was leading positive at the lows back in late June (accumulation) sending HYG higher, then a leading negative divergence (distribution) at the July highs.

It looks like we have a fairly strong leading positive in place, I don't expect by any means and never have that any positive divergences now would be as strong as ones a month or so ago, the market is in too dangerous a spot to put a lot of money on the long side, when the music stops no one (smart money) wants to be caught without a chair.

Also Closing GOOG $860 Calls

I still like GOOG long, but I think I can get these cheaper.

Closing XLK Oct. $31 Calls

For now... The TECL long will stay in place.

Day Trades

Keep an eye on the intraday TICK, I think it's about to go negative. There are a number of intraday or day trades you could take here, I'd consider them very speculative, but they'd include and of the averages, SPY, Q's , IWM (DIA is not my favorite) and use either puts or leveraged short ETFs like SPXU, SQQQ or SRTY. The VXX or UVXY long would be another play.

However they are VERY speculative and I want to give you an idea as to why.

This is just the IWM and UVXY so you understand the probabilities vs. risk.

 IWM 1 min initial intraday distribution. That has migrated to the 2 and 3 min charts.

 3 min which was in line on the move up and now starting to lead negative, the probabilities for an intraday decline are pretty good here, but compare it to the risk as you know we are looking for a strong, longer term (days-week+) bounce higher.

 The 5 min chart in an ugly base, but accumulation keeps hitting at the lower end of the range, look at the 5 min chart and how much leading positive it has added just since yesterday around 2 p.m., it's growing very strong as this would be the base that the bounce would launch from.

A cleaner way to look at it is using a 15 min chart, a much stronger divergence and look at the extent of the leading positive divergence again just in the last day.

As for an intraday long day trade in VXX or the 2x leveraged UVXY, the 2 min chart is leading suggesting that will happen which confirms the short term likelihood of a market move lower intraday, I would however look for a head fake move down below the day's lows (yellow arrow) first before a launch or at least if you saw that it would give you a better entry and less risk with higher probabilities as long as 3C confirms which it should.

However looking at the larger picture (remember VXX and UVXY move opposite the market and their signals should be opposite to confirm), the 10 min chart is leading negative and a lot of the damage has been done since yesterday afternoon, the same way a lot of the positive accumulation in the market has come since yesterday afternoon so I think this means we are very, very close and any market pullback has VERY HIGH probabilities of creating even stronger divergences.

***In fact we may be getting a head fake move in the averages right now. I'd want to see VXX/UVXY hit stops first though at a new intraday low to make any such trade worthwhile. I will not be entering any of these, I have too much to watch to be involved in intraday trades.

Be careful if you decide to go with a day trade, but there's likely some quick $ in it.

A.M. Update

This is a continuation of the last post, all of these charts were captured before I published the last post as they were meant for it, but I thought the market may move a bit too fast to include them and still get the information out for those using options.

Beyond the general concept of last night's post, as you know a.m. trade is deceptive for analysis because it's a lot of game playing, stop runs, limit triggers etc. It will be interesting to see how retail sentiment acts today, I'm guessing it's going to start to be less bearish and start to move toward indecision.

As for the pre-market moves in "Syria-senitive" areas such as the big moves pre-market and in to the open in Gold, Silver and Crude, we also had positive divergences in the Index futures as seen in the Pre-Market post with the ES (SPX Futures) and its positive divergence intraday, the NASDAQ and Russell 2000 futures had the same so the apparent catalyst is McCain's remarks about not backing the Senate Draft Resolution backing a Syrian Strike. As some of you may know, some of the most successful traders are in fact, Congressional Staffers, I'm sure you can guess why and don't think Goldman doesn't have their tentacles in the Congressional offices via staffers.

In any case the parabolic market move up and war sensitive move down at first "seems" to be because McCain is not backing the draft, it sounds like he's a dove, but if you saw him and Lindsey Grahm over the holiday weekend, you know the truth is in fact just the opposite, they are looking for MORE, not less.

There's two issues I think "could" be in play, one would be the knee jerk reaction as most would think to McCain's statement, the second would be, "LETS GET THIS BOUNCE MOVING BECAUSE THERE'S A WINDOW AND THE UNCERTAINTY THAT IS GOING TO BE COMING DOWN THE ROAD IS GOING TO BE WORSE FOR THE MARKET THAN ORIGINALLY ANTICIPATED WITH A SURGICAL 2-DAY STRIKE", which now seems to be a moot point. There's a lot of politics here that I think are exactly the opposite of what is being said in some of the highest corners of government, but we're not about politics, we're about listening to the market.

For now, lets get back to the charts that were captured BEFORE the last post suggesting the parabolic open was going to lose steam, thus for options traders, it's important to take that gain on momentum if you are playing them in and out. As you can see, the momentum has faded and War sensitive assets are consolidating.

The charts...

 The first 3 charts are the Index Futures, make sure to look at the time scale in EDT, this is ES (SPX Futures) and pre-market they had a positive divergence suggesting a pop on the open, so the opening pop up shouldn't be a surprise, but it's also a transitory, intraday move and it doesn't negate last night's post looking for perhaps one more run toward the local range lows for more accumulation, perhaps a head fake break below local support before the market really moves to the upside on what I've been calling a , "Bounce", but in fact I'd expect it to be quite a bit stronger than what we normally associate with a bounce.

 The NASDAQ 100 Futures also had a positive divergence going in to the open.

 As did the Russell 2000 Futures.

Now as far as why I thought the move would lose some momentum, VXX and UVXY as well as VIX Futures were showing positive divergences on their 3C charts, which should move opposite the market.

 After the open you can see clearly on the QQQ 1 min 3C chart that the opening move was starting to see a negative 3C divergence (light distribution) which was likely to slow the move and/or reverse it depending on what the 2 min chart does. At the time the 2 min charts didn't have enough time to catch up as it was early, but the  2 min charts now are all negative which makes it high probability we see an intraday pullback from here.

*This is an example of a CURRENT 2 min chart (vs these charts that were captured before I posted the initial warning).

This is a 2 min IWM chart that shows the strong accumulation yesterday centered around the 2 p.m. hour and the move up from there as talked about last night right in to SPX futures' VWAP.

The point being (for this morning), a 1 min divergence as you know is a 50/50 chance that we'll either see a correction through time (consolidation) or a correction through price (pullback). When we have the 2 min chart negative as well the probabilities drastically shift toward a correction via pullback which is what I was talking about last night.

Back to this morning's charts...

 The 1 min IWM was going negative as you can see

The DIA was in fact one of the strongest intraday underlying 3C charts, the 1 min is STILL in line with price, however the 2 min is not confirming so I'd expect the DIA to pullback as well.

 This is the SPY 3 min chart's leading positive divergence from yesterday's mid-afternoon accumulation which is very strong and remains so, this is excellent for our bounce, it's not great for intraday timing. However, right now price is almost perfectly in line with what was a leading positive divergence so price moved to the divergence and now it is more likely that it will start to consolidate and roll over at some point, this of course still being based on a.m. trade.

 The VIX futures started showing a more positive tone earlier just after the opening run and that's not the best for the market (speaking on an intraday basis).

The custom Indicator for NYSE TICK is showing a slight deterioration this morning.

This is the current TICK chart.

The channel I drew around TICK data (number of advancing NYSE issues less number of declining NYSE issues) is in an uptrend as it should be for the price move, but note how it's no longer hitting the top of the channel. A break below the channel will come with an intraday reversal to the downside with price.

3C is suggesting this, TICK is, Futures are, VIX is as well. This is not bad at all for our bounce, in fact if it follows the path I laid out last night it will make it a much stronger move and give us plenty of opportunities to add to or start new positions to hitch-hike on the move, of course it's still the big picture of shorting in to strength that is the real prize.

Opening Indications

I'll be following this post up with some charts, but I wanted to get it out early in case anyone trading, "Hit and Run" with options.

Early morning momentum should start to fade soon and I'm guessing we're still on track for a scenario as described in last night's "Daily Wrap".

Charts are coming.

Pre-Market

Overnight I wouldn't say the action was significant other than some starts to moves down in the PM's, but from around 8:45 to 9 a.m. something strange is going on in War sensitive commodities like Silver, Gold and Oil, the first two which I have expected to come down in the near term as mentioned last night,

"I'd think PMS would behave in similar fashion, I posted a SLV/Silver update today, I'll post GLD/gold tomorrow. but I can tell you from eyeballing the charts, GLD/gold looks like it has near term downside as there was distribution in to the move higher, there may be a position thre tomorrow."

If anything you might expect the opposite unless the market is aware of the window it has before uncertainty becomes too much of a burden.

Overnight the Senate Foreign Relations Committee passed a resolution authorizing the use of force against Syria with a 60-day period and an additional 30-day if needed which is larger than the 2-3 day strike that has been expected. In addition Moscow has not only sent two ships carrying a total of about 400 marines, but now another Missile Cruiser and Frigate in the very tight Theater of Operations in the Eastern Med.

I doubt CNBC would expect the market to behave this way with war sensitive commodities on the news.

 Brent Crude Futures being hit hard this morning...

Silver Futures also being hit hard on this 5 min chart, a possible positive 3C divergence may slow that move down soon.

Gold Futures taking a leap off a cliff pre-market.

However, ES (SPX Futures)...

Look strong, not a huge move, but a nice positive divergence.

Of course early trade is unreliable as it's a lot of games, but we'll be watching for a continuation of my theory from last night and as such, new positions to open.