VXX

In going long VIX Futures with VXX calls or via the equity position using 3x leveraged Short term VIX futures, UVXY, I'm expressing a bearish market view point, even if as I said numerous times, these are short term hit and run positions. This would fit perfectly with the IWM put/short position entered yesterday.

This was yesterday's 2 p.m. VXX $14 Call position or UVXY (equity) long

This was one of the last VIX updates from yesterday

Right now the VXX Oct. $14 Calls entered yesterday are now moving to a gain.

I'm going to try to show you the charts and explain again why I trust VIX futures more than the derivative VXX or UVXY based on VIX Futures.

 VXX 1 min intraday accumulating lows of the day today

The 2 min is even more positive today than yesterday,  but remember VXX prices (not 3C signals) moving lower are part of the SPY arbitrage to support the SPY or make it move higher, in addition to VXX, TLT has to move lower and HYG higher.

It doesn't matter what the 3C charts say for arbitrage, they can't see them, but they can tell us a lot about how much or how little support any market manipulation instruments like Carry currencies or SPY arbitrage have, this lets us take the market's temperature and better ascertain where we are in the cycle, what the probabilities are, what assets are highest probabilities and to an extent, we can get some idea of timing.

 VXX 5 min with a VERY strong leading positive on a stop run below yesterday's lows this morning.

The 15 min VXX is positive here, but this isn't the kind of strong divergence nor is it the size divergence that would be needed to give us high probabilities of core short positions being likely to fire and be successful and that is what this is all about, that is why I wanted price to be in the area and why Wall St. wanted it and it allows retail to be left holding the bag as their sentiment shifts with price movement, they apparently have no foreknowledge, but rather chase and in a choppy market, that's a meat grinder that will chew up a portfolio in several trades.

 This is what I believe is the first half of a larger VXX base, a "W" type base.

I can't draw the entire base because I have no room on the right margin, but above I try to give an idea including likely concepts. The green arrows are the finished base, the red arrow is where we are right now. A move above the top of the range "W" "should" see a head fake breakout above it, this is only to hit orders and more importantly to create the downside snowball effect of a fast moving decline that again breaks support of the "W" with a head fake and creates a lot of supply to be accumulated. By the time this would be finished, our longer term 3C VXX divergences would be strong and the market negatives would be weak. As of now, this is what we want to try to align our core short positions with, we want to be in place by the time we get to the lower head fake move near the end.

Until then, we can still find some core positions, but a lot of the trade will likely be short term hit and run.

This of course is VERY early in the analysis with a LOT of very important fundamental events that can occur at any time and be very surprising, like say a US attack on Syria just as it seems the diplomatic effort was a success, Obama left that door open in saying he wanted to punish Assad and discourage other leaders from using these weapons and that was in a primetime speech just 2 days ago.

 VIX futures 1 min have been positive all morning , this is why I don't sweat moves against our positions, especially early in the day, the signals are still there so the trade probabilities are as well.

5 min VIX futures.

Even though VXX is a derivative of VIX futures, I trust VIX futures more right now just because the attempt to manipulate VXX will be strong in order to move the market via SPY arbitrage.

Important Market Update

This is already a very complex and dangerous market, if you see some of your favorite traders in the Financial media, typically they have a very glum look when asked about the futures of the market because they know the very simple equation of what lifted the market since 2009, where the market would be today with out F_E_D intervention and QE (much lower) and they know that the mechanism that lifted the market is ending. I've heard from many of you as new members that you have been bearish on the markets for the last several years and have been punished for it, there's one simple explanation, QE or Operation Twist, the F_E_D injects 40+ billion of newly printed $USDs in to the banks every month (to one degree or another since late 2008) and the banks look for higher returns by putting it in the market creating a perpetual source of demand, this is why they say, "Don't fight the F_E_D", however that is ending.

Look it up yourself, the "Effects of QE on the stock market", here are just a few examples.

The SPX since 2008 shows the periods of F_E_D intervention, what the market did, the periods when there was no F_E_D intervention and what the market did.

From left to right before any F_E_D or QE intervention the market loses -47%, during QE (Quantitative Easing) One, a +43% gain, when QE 1 ends and before the market knows anything about a new QE called QE2 coming, the market loses -14%, as QE 2 makes its way through the market the SPX gains +26%, in between F_E_D intervention after QE2, the market loses -13% in a VERY short period and then operation Twist lifts the SPX +20%.

Do you see the pattern? QE has done nothing for the economy outside of the Financial system or the stock market, it hasn't done what it was advertised to do, end the crummy economy and drop unemployment rates.

Forgive me, I digress...

The charts this morning and why I believe we will see choppy trade, but I don't think we are done with the move or at least not at the area where I would consider something like a IWM short as a core position, right now they are trading positions and yesterday's IWM puts are already at double digit gains.

IWM as an example (remember we are using multiple timeframe analysis or multiple trend analysis).

 intraday 1 min IWM doesn't look good, this is what was expected and the reason IWM Puts were opened yesterday. 

 IWM 3 min shows a deeper leading negative divergence, this is why I am comfortable with Puts, but am still treating this as a short term trading opportunity, thus the need for leverage (3x leveraged ETFs can work too, like SRTY long for IWM short coverage).

 The IWM 5 min is negative, but not so much I'd base a trade off this chart, that leaves me still with a shorter term trade needing leverage.

The 10 min chart hasn't seen a divergence move that far yet, so in my view, unless it does, we are likely to see a choppy area with trades both up and down depending on what the shorter term charts tell us. When these longer charts start to fall apart, then we start looking at core short positions or longer trending trades.

 IWM 30 min with the range/accumulation area and distribution in to the upside, this is to be expected, it is the reason for the move, but it's not an imminent threat of a crash in IWM, it's progression of expectation.

 The 60 min chart is overall leading negative, but right now it's trading in line based on the accumulation zone creating a "Counter trend rally".

When this chart goes clearly negative, we'll be in longer term core shorts.

 The 2 hour chart shows primary 3C negative downtrend, this is where the market is eventually going according to the 3C charts which makes perfect sense.

Opening charts for today-QQQ

 This 1 min is leading negative, I almost entered a QQQ put or SQQQ long (3x short QQQ), but there was too much correlation with the IWM already short.

QQQ 3 min leading negative, this is what I expect for the type of "Hit and run" options or leveraged ETF trading we are looking at, of course we will let the market tell us when it's time to shift.

The 5 min QQQ is still in line so this tells me that unless it weakens substantially,  the highest probabilities are for chop, a day or two up and the same down which can still have a trend of generally up or down, but most traders get eaten alive in such a meat grinder.

 SPY 1 min intraday is CLEARLY negative, it should head lower as our IWM put and VXX call represent.

The 3 min chart makes it a move that is worthwhile, but I still think chop is highly probable while longer term distribution takes place which should degrade the longer 15, 30, 60 min 3C charts at which time we are looking to be pretty well loaded up with core short positions although I'd take any position now that is at it's highest probability as that will happen.

I need to track the market, the SPY arbitrage and ANY currency moves that look like they'll effect the market.

Stay patient, but be ready to act quickly.

Market Update

As per usual, my Doctor was running late again as he seems to be every time I go, but I'm back now.

There are a LOT of fundamental events occurring this morning, the largest is Syria accepting the Russian diplomatic solution, this isn't a serious solution because the Russians are allies and have a naval base in Syria, everyone knows Syria could hand over 10% of their chemical weapons stockpile and Russia would certify it as complete. We still have John Kerry with his 2-day meeting starting today. I suppose we are going to find out soon whether the Kerry comment that led to all of this was a slip of the tongue that Russia and Syria (as well as China) latched on to or if it was a face saving measure, in a way this is actually more uncertainty than we had yesterday and the market doesn't like uncertainty.

Underlying trade is only as good as the trade itself which is being changed in small ways to reflect the discounting of new fundamental data such as the Syrian / Russian plan announced this morning.

I took a quick look at the averages to see what the opening indications were, every average save for the IWM is clearly negative (1 min) as expected yesterday in to the opening hour thus far.

I still see positive divergences in VXX and some very odd or extreme readings in Capital Context.

I'll take a quick look at positions to see if there's anything that needs to be adjusted, but from what I've seen at the first quick peak, VXX moving up and IWM down (positions entered for short term trades yesterday) still looks high probability.

I of course have a number of other assets to look at including gold which seems to have taken a hit because of the lack of physical to back up the GLD ETF, crude will be important as well as currencies, VIX futures and credit as well as rates (treasuries).

I'll have any updates on immediate action that may need to be taken on specific positions first and then updates to follow, but I'm not too concerned about positions entered yesterday this early with signals looking this bad to start the day.

Pre-Market

Futures are relatively flat, I can see some of the movement that I kind of suspected last night that could be responsible for near term chop in the market, that's the reason I'd personally play these recent positions like yesterday's IWM puts and VXX calls in the "Hit and Run" style we've had to use in choppy markets before.

Russell 2000 overnight futures are little changed since yesterday's 4 p.m. close.

What I see that looks like it could bring chop is the changes in currencies or at least the start of them that could send markets lower one day and higher the next, whether there's a general trend to the chop or not and how long it would last would be data we'd have to gather as the signals appear. I'm not saying the changes needed to move the market in currencies will be easy, but they appear to be moving.

 $AUD overnight collapsed on a bad jobs report, it was a pretty substantial miss sending the $AUD lower, however it looks like it's trying to find its footing, this doesn't mean rally, but a base is the first step ion that procedure.

This 5 min chart of the Euro shows what looks to be more downside coming, thus this won't be easy.

The $USD looks like it could put together a base, I think it needs one more run up and down to form a "W", otherwise it will likely just make another low so I'll be watching the charts there.

The best thing any currency driven gains that may come, have on their side is the Yen looking tired and this is the main thrust of the evidence for any currency driven gains

If the Yen falls hard enough (and it looks like its coming in to a top), then it can drive any of the 3 carry trades and help the market as we saw earlier in the week.

While we're looking at the Yen, global markets haven't been performing with much gusto, take the Nikkei 225.

This is a 5 min chart of the Nikkei, the negative divergence has sent it lower, but it looks like it's searching for a bottom in this area which is convenient with the Yen looking tired, thus we would have "CHOP".

I'm not sure of what the actual cause was, but another thing that may contribute to chop looks to be nervousness in front of the 2-day meeting between John Kerry and his Russian counterpart on the Syria issue.

Here's crude futures overnight.

Around 4 a.m. they were sent sharply higher, again this is another component in near term CHOP.

I suspect the spike around 4 a.m. EDT may be linked to a story of a couple of shells falling in the Golan Heights, Israel.

As far as market jitters that seem to be expressed in oil and a flat overnight session...

 Gold fell closer to the European open , but seems to be accumulating a bit down there. I didn't take any positions in GLD because I don't see the signals rto support a position, this is another reason I suspect market chop in the very near term, perhaps the next couple-several days, the evidence isn't strong (more of a gut feeling from what I see), but it's early still.

Silver has this small positive divergence, but right now I don't think it's enough to move silver much without carving out a larger base.

Otherwise there's not much of interest right now from the overnight session. I suspect the near term sessions will be largely defined by market jitters over the Kerry meeting on Syria the next two days.

We do have Initial Claims this morning so that could be a bit of a market mover.

I'd personally stay on the toes in this area of the market, at least until we see what develops today.

I have the back Dr. appointment in 30 mins. so I'll miss the Initial Claims, but I should be back as usual (no pun intended) around the open.

Near Term Chop

I'm not getting in to longer term expectations yet because we never really had any expectations other than a strong move up from the range and then to look for the distribution in that range.

For now though, as I've entered IWM puts and VXX calls, I do expect near term downside, I do think this will be choppy, but I'll have to have more data to make that case.

Here's what the intraday, more important charts looked like for the averages at the close.

 DIA 3 min with a nasty leading negative, this looks like the positions entered today should hit with little trouble.

IWM 3 min and this has been one of the strongest underlying averages.

The Q's I considered, but it was too much correlation for me so I stuck with the IWM and VXX.

SPY 3 min with a deep leading negative

And VXX confirming with a strong positive.

I'm probably going to be doing more research tonight than positing, I'd actually like to put together a video and I'm thinking about running out and buying one of those screen tablets to annote the video, I think this is the best if not only way to get the thoughts I have about the market expressed to you.

This really doesn't change anything since the initial range started to form, that looked like this...

 This is what the range looked like, the white arrows are accumulation areas on pullbacks, the yellow arrow is the expected pullback toward the bottom of the range and a heaad fake move below it would kick ogff the move to the upside, you can even see at "X" that the head fake started on Friday, that is why Monday the move lower was expected.

However at the same time, John Kerry changed the whole tone of Syria giving them a way out without a strike (I still don't know if it was a slip or real), whether it was a slip or real, Syria, Russia and China grabbed on to the "offer" which was a simple question asked of him, that changed the dynamics incredibly, but all it did from our perspective in changing expectations was to cut the range/accumulation process short by a day or two, we still expected the move at the green arrow.

This move to the upside is the "Final Market Gift" as we can enter shorts, core positions which we have not been doing because they have not been in the perfect place, but this move would allow them to move to areas that create supply and demand and allow them to be distributed, this is why this was and still is such a market gift, there's no way the market is coming back.

 Here's the 3C accumulation through the range and in line on the move above it, which was all expected so no surprises there either.

As far as the market's condition, just look at the leading negative divegrence right now even in to an in line rally. Compare price and where 3C was at point a and point b and you can see how much damage is in the market.

My gut feeling is we have some near term chop, but after that it's difficult to say because I did expect an upside move that last longer, however funadamentals can change all of that, for instance a Syrian resolution would most likely create a "Sell the news" effect cutting a distribution zone short.

When I say distribution zone, this all comes back to the concept of the reversal process and how they are proportionate. The market could move up in to distribution, but at some point we get more laterla (rangebound) trade, the head fake move would be the strongest indication of a market ready to make the next leg lower which is the last part of our expectations.

I hope that gives you a better feel, I'll try to make this as clear as possible as we move forward, but other than a couple of days that didn't change expectations at all, except maybe made the rally we are in now will be a little weaker than it would have been because it didn't get that final accumulation spot at lower prices Monday.

This doesn't change that some stocks will be ready to short as core shorts now and some will take a bit longer, but this is what was needed.

One of the best explanations for why we needed this move and why it is a market gift can be summed up in PCLN, you might recall where I wanted to short PCLN, take a look...

I wanted to short PCLN ABOVE the recent former high on a head fake move that has distribution in to the breakout, there was little chance PCLN could do that without market help (not saying this is all about PCLN, it's the concept). Shorting PCLN above that last high is where the best price and the lowest risk are to be found. So long as there's distribution and I can't imagine any circumstance that is probable that would stop PCLN from being distributed, then we also have a very high probability trade.

This is exactly what we look for, we don't chase, we stalk. PCLN up there is the best price for a short entry which is the same as being long, sell high and buy low, you just happen to sell first. It's also the lowest risk and we don't enter without confirmation so it becomes a high probability position as well, this is but 1 example of why this move is even in place, THE SECOND REASON IS THAT RETAIL WAS EXCEPTIONALLY BEARISH, TRADING IS A ZERO SUM GAME, WE CAN'T ALL BE ON THE SAME SIDE OF A TRADE AND MAKE MONEY SO ONE OF THE MAIN EXPECTATIONS I HAD FROM THIS MOVE AND THE REASON IT NEEDED TO BE "STRONG" WS TO FLIP RETAIL'S SENTIMENT TO BULLISH.

Wall Street needs someone to hold the bag, who better than retail? Who else other than retail?

Quick, but IMPORTANT Market Update

This is a gut feeling based on very imperfect information.

As you know from the IWM put and VXX call, I think we get a market move to the downside, I'm not convinced this is anything more than a move that is essentially chop.

I'm not seeing the large positive divergences in gold that I'd expect to see if the market were about to break down hard, in fact according to our initial expectations of the market coming out of the accumulation range, this wouldn't even be the end of the upside move as it was expected to be larger than the range.

So I'm thinking we get some chop starting with a downside move. Although they tried today to get the SPY Arb to work (see VXX), they couldn't, however I think the Yen pulls back, it may take a day or so to complete that move, but that would allow the currency crosses to come back to support the market.

You have to keep in mind what the original purpose of the accumulation range was, to send the market higher, to sell accumulated shares at higher prices and the grand-daddy of prizes, to short that strength. 

We did get a fundamental surprise as the week started with the Syrian diplomatic measures, not the market rallied right as that came out, when it should have pulled back to the bottom of the range Monday, but this would just have been to accumulate and create a stronger base for the market to rally from so it doesn't rally matter, the market moves up and that was the end result we expected from the range.

It's difficult to say if the market can put in any significant gains from here, there are a few stocks I see that need a little more on the upside like BIDU, PCLN (these are close to resistance areas and those are magnets, especially for those who want to sell short in size, they need those breakouts.

The general feeling I get is that the market (from initial expectations) should make a stronger move to the upside, but since the events (fundamentals) on the ground have changed and could change again, there's always a "Sell the news" on any Syrian resolution.

As I said earlier today, in my view, the market NEEDS more of a reversal process just so longs can be sold and shorts entered, it wouldn't be a big deal if the accumulation range hadn't been as effective as it was, but this in no way looks like a new bull market or resumption of such.

I think we get a lot more chop than people might expect, so that means more hit and run shorter term trades while setting up for the big trending shorts or core positions.

I think by the time the market is really serious about a major break, gold will be clearly under heavy accumulation.

This is a REALLY difficult market because we have 3 fundamental events, Syria, the Taper of QE and the replacement or not of Bernie which depends on Syria. In addition, the hedge fund herd will be breaking up so this looks to be one of the most challenging markets, however if we play hit and run on positions and ONLY take the best looking positions, don't get greedy that you'll miss a move, don't get scared that a move looks too strong, I think we'll do better than fine, we may be some of the only ones left standing.

VIX Futures

The intraday 3C chart for VIX futures is flying in a leading positive divergence.

Again, I get the feeling that were are about to see some market downside, but chop as well, I'm not convinced this is the big downside break as you know, but for the time being, I'll take VXX long or UVXY for a strong, even if short move.

1 min VIX Futures

VIX Futures: VXX / UVXY / XIV

We have good confirmation for a shorter term trade here like a call or a leveraged ETF, I'm not convinced of a longer term trade (as you know, VIX moves opposite the market), that means there's still a very open and unresolved matter of how much top/distribution we get here. Normally I'd say quite a bit more, but several things this week did not go according to the cycle that was set up, it seems Syria has more fundamental influence than any of the past MENA revolutions, for this reason it makes the market highly unpredictable which it already is with increased volatility and the probability of the hedge fund herd breaking apart.

This is why I think good signals are more important now than ever.

As for VXX or UVXY long, I mentioned them as longs earlier and that I'd be looking to get involved, I may even add to them if I am given the chance and it looks reasonable.

For now, I chose calls/leverage because I don't see this as a long trade like we might expect as the trend returns to a primary down.

 VXX 1 min intraday

VXX 2 min

UVXY 5 min confirms

And the inverse XIV with a leading negative 2 min (as well as several other intraday timeframes) also confirms.

VIX Futures. VXX is based on the VIX futures, but in this case I give the futures even more wieght because as I said yesterday, the most likely way the market can support itself seeing as how the carry currencies were failing is via SPY arbitrage and the 3 components of SPY arbitrage are VXX, HYG and TLT so price movement in VXX may have more to do with an attempt to support the market with the SPY arbitrage than actual demand. 

Since VIX futures ARE NOT part of the Arbitrage scheme, I trust the signals there to be cleaner.

This is the intraday 1 min

VIX futures get more impressive though as the 5 min is clearly positive, but here's where it really gets interesting...

VIX futures 15 min positive, this is why I'd add to VXX on a dip or a head fake move below today's intraday lows, because of the strength in futures.

As far as why I don't think this is a longer term trade as in, market crash yet, this 15 min chart "should" see a new leading 3C high, that's when I'll be convinced there's significant fear.

Trade: VXX Calls (UVXY long)

I was just capturing the charts for this post and VXX started to move.

Again, I'm not viewing this as a primary trend trade, but I think UVXY long (equity) will work as well as VXX calls, I'm going with $14 calls.

I'll have the charts up in just a couple of minutes.

Trade: Opening IWM Oct $105 Puts

I'm not counting on a long term trade here, I do think we see some near term downside though.