Entering Partial GDX November $25 Calls

I'm not where I want to be so this will be a partial position, "if" we see GDX back to the area described earlier as the probable area of a new position, then Ill add to the GDX call position.

Here's what has changed my mind to make an early entry.

 15 min GDX bear flag looks like it wants to break out, there's a little resistance seen at the longer upper candlestick wicks (orange), but volume is up.

This 10 min chart's fast move up grabbed my attention so I checked NUGT.

And NUGT (3x long GDX) has the same, I checked DUST which ius 3x short GDX and...

It confirms, so this isn't the ideal set up for an option position, I think NUGT long which I also have is better suited, but I'll go for a partial position now.

GDX Update

GDX is through the first alert area which is below the bear flag, but it didn't cause much in the way of volume as there would be few stops after the earlier clearing of them, so the second area may be where we pick up some volume and that is where I'm interested in the trade, I have a November $25 call picked out and I'm just waiting to see if we get there.

There's no pickup in volume as there normally would be when a bear flag is broken as the stops (and limits) were cleared earlier today (at the large volume), so the other alert I had set was just below the intraday low, however I'll continue to watch the signals because they matter most, they are just more likely to form stronger at these kinds of areas.

The green arrows are what I'm hoping to see next, a break below the intraday low and volume up, 3C should start looking great intraday if that happens.

Market Update

There's a short squeeze in the IWM Most Shorted Index and as you can see by the performance on the day (DIA +.14%, SPY +.25%, QQQ +.37% and IWM +.65%) it's causing the IWM to lead.

All of the averages are coming up to some kind of intraday (at least) resistance and I'm really hoping the IWM backs off, but it is a short squeeze...

I pointed out earlier this morning how the R3K's Most Shorted Index (I created) was outperforming and leading the market.

I'm thinking between intraday resistance and the fact they can't get SPY Arbitrage even close to neutral, we can get the pullback in the IWM that we need to set up so many short term long positions.

SPY Arbitrage is actually negative around $.70 so it is pulling downward on the SPY.

There are intraday negatives too that should help, otherwise we're likely to get a premature breakout and to me, the risk in chasing it or taking trades that didn't do what we wanted them to do, would just not be worth it so I am hoping the IWM is about done showing off here and lets the market fall back a bit to set up those positions.

GDX did break below the bear flag so I'm watching that one now as it's entering the zone of interest.

All of the Index futures look like they will pullback from negative 3C divergences, the IWM looks the worst (3C negative) so that's good.

GDX / NUGT Update

Yesterday GDX / NUGT put in a nice closing candle, a test of lower prices and that test ended with GDX closing higher, almost forming a bullish "hammer reversal".

I'm still holding NUGT and some GDX $25 calls from last Friday, I'm considering adding some November calls, I'll show you why and what triggers I'm looking for intraday.

 In one sense I'm conflicted on the larger or longer trade theory because I simply don't see the support for it on a longer 60 min chart, a 15 min chart is about as far as the support goes, even though there's a slight positive on a 30 min in the area, so I'm thinking of adding to calls rather than NUGT just in case there isn't the support.

If GDX is correlated with Gold and gold is correlated with risk on, then I don't think GDX has a chance on the longer term trade, but if gold flips back to a flight to safety asset like treasuries did this week, then it's possible, we are still missing the 3C longer term support though.

At the yellow arrow, I'm pointing out a head fake move, look at it, it's the same as what I've been showing you all morning, the concept is the same no matter if it's a bottom or a top or a 2 min chart or 60 min chart, it's just different scaling.

The 15 min chart has support, you can see where we sold the last GDX calls on the F_O_M_C release and sold in to upside momentum for a double digit gain.

The 15 min chart looks stronger now on what I would consider a head fake move, so I'd like to add to GDX in this area, in fact likely soon if a couple of things happen.

Right now Technical traders looking at Gold Miners would see a bearish flag and expect a move down, they would short GDX on confirmation of a break below the flag so my two alerts are for a move below the flag and a move below the recent intraday low (formed this morning). If you want to have confirmation and are more interested in an equity position like NUGT, I'd look for a break below the flag and then go long NUGT on a break above the resistance trendline of the flag, that's where the short squeeze would start.

As far as targets, if we look at the big picture showing a large Inverse H&S bottom, or actually a complex H&S bottom because we have 2 left and right shoulders (these are almost always symmetrical on both sides of the head), then we have a price implied measured move of $40.25, based on... the base. 

This is why I'd go with longer November calls, just in case, but it seems unlikely to get such a move unless correlations with gold or the gold trend changes. I think the most probable outcome with the charts we have now would be a move to $31.25 and above, somewhere above $31.25 would be where I'd expect distribution.

I think the latter possibility is the more likely. My alerts are for a move below $24.90, $24.57 & $24.50

XLF / Financials Update

Yesterday I drew these exact trendlines, I haven't changed them and they represented "Where" I'd consider an XLF long (most likely a call or 3x leveraged long like FAS)...

 The support at $20.11 held all day yesterday which was one of two levels I was looking for a move below before going long XLF via calls or the 3x leveraged FAS. This morning that level was broken, but the most obvious level is the whole number of $20, the human mind gravitates to whole numbers and even numbers so a move below $20 should take out a boatload of stops and I haven't seen that with volume yet. This morning's low was $20 exactly, typically the stops are "A break of $20", so this is what I'm looking for and have price alerts set for. I'll likely enter a long position in the Industry group if that final move below $20 is made.

Here's 3C on the move below $20.11 with a positive divergence so I think the <$20 move is reasonable and will likely have the right divergence for a long trade, even though I don't see it as very strong and that's where the risk is and that's why I want that concession first.

Honestly, if or when XLF breaks $20 on a head fake move, it will likely correspond with a market-wide change in character and nearly all averages and Industry groups should be ready to make an upside move so watching XLF alone should give you a good feel for the market in general.

I'll have the asset Ticker (option/call) ready for any such alert below $20 and after 3C confirms a shakeout.

Conceptual Update

If you had a chance to watch the video in the last post and understood not only expectations, but how they are all common concepts from F_E_D-related Knee Jerk reactions to head fake moves, to the reversal "process".

The concepts I try to give you are universal in trading whether you are trading a 5 min chart as an intraday trader, a 15 min chart as a swing trader, maybe a 60 min chart or a daily as a trend trader, or long term investor, all of the concepts are fractal like the market and scaleable and they work for bullish areas as well as bearish, you just reverse the concept.

Here's a VIX Futures and SPY Update that should be helpful in understanding both short term positions and longer term ones and if you think this amount of time for a market top seems unreasonable, I'd just remind you of the size of the reversal we are talking about and remind you of the concept of a reversal process vs an event. Take a look at this 9-DAY chart of the SPY and former tops.

From left to right, the Tech Top (2000), the Housing Top 2007, the anticipated end of QE top (yellow) and where we are currently. There's a lot of noise in tops as you can see, this is why a lot of people don't like to trade them, but there are ways to trade them obviously with the right tools. The point is, none of these former tops in which (on this chart) each bar represents 9-days  reversed in an immediate or "V" shape, what I'd call an "Event", they were all a process and if you look at them as daily charts rather than 9-day, you see the process, it's just like the same process we are undergoing now on a 2-day basis, like I said, it's all fractal and scaleable.

 The 30 min VIX Futures shows a positive divergence, this fits with a larger trend than the anticipated move to the upside off the small "W" base I showed you this morning, this is more in line with "What comes next".

 The 5 min chart of the same VIX futures however is in line, giving the market enough breathing room to bounce if it wants to, but in no way does this mean the VIX futures look weak, which ultimately is not good for the market.

VXX on a large 60 min chart, see the dates below. I wanted to see the second half of the "W" gain 3C momentum on a 15 min chart, it did, this is a 60 min chart so the larger market trend probabilities are definitely still skewed to the very bearish side.

However like the futures, the 3 min VXX chart is simply in line, giving the market room short term.

The same chart backed out (zoom) shows the trend is actually leading positive so it gives you even more information about charts that seem to be neutral, they are still bearish for the market.

 SPY 2 min F_O_M_C distribution and the "W" base I did the video on.

This is interesting because it's a long term 30 min SPY chart (look at the timeframe/scale axis), note the very same concept as the small "W" base we are looking at this morning, this is a large "W" (upside down) or double top with all of the exact same concepts including the head fake. If you were to take the 2 min "W" of the last 2 days, stretch it out, remove the time scale axis and flip it like a mirror, you'd have the exact same concepts in play, just in reverse.

Flipping the intraday chart (as long as you removed the timeframe and scaled it to this chart)
would fold over almost perfectly to match this chart because the concepts are the same. 

This should be useful in understanding and planning your trades.

This is a 60 min SPY chart, again the same processes are in play, the current 60 min divergence is leading negative at a new low for the chart. You can see the cycle that started with the accumulation range (stage 1) and is in to the distribution/top (stage 3) stage.

Again if we removed the time axis and just looked at the drawing of the last two days' bottom, it's no different than this much larger top pattern, the head fake move and all.



The SPY just completed the F_O_M_C head fake below support. Take a look, imagine scaling the current 2-day chart out to this size and folding it up, it would be almost exactly the same because the concepts are exactly the same.

VIDEO: Market Update

I think I've been pretty clear on expectations, what the F_O_M_C knee-jerk was about and how it has not only played out, but how that is setting up the next cycle. Also I think I've been pretty clear on head fake/"W" base expectations as well as the strength of the respective moves.

It's important to understand all of this so you can use the information and judge what kind of risk you feel comfortable with. The stronger the base, the more likely I'd trade the long side, but I'm under no illusions as far as how the strength of any potential hitch-hiking longs and under no illusions regarding the risk of such longs on such a small base.

I did cover the head fake concept on a larger scale and within the base, those may be issues that make a possible trade more or less attractive to you. If I set an alert for a move below yesterday's intraday lows and find accumulation is stronger and we now have a solid "W" base, I'm more inclined to trade that area as risk has dropped, the head fake move makes the timing probabilities of an upside reversal much higher and overall probabilities (based on the 3C charts of course) much higher.

I hope you don't get too much out of the video because if you do, then I haven't done the best job of conveying expectations and what looks like or doesn't look like a more probable trade.

You should see an emmbeded video player below, if not then click on this link which will take you to the video which is unlisted on YouTube, so only this link will get you there.

Opening Futures

Once again, despite dropping 6 points in ES futures overnight from the 4 p.m. print, here we are just before the open and back within 0.75 of a point to 4 p.m.'s print, as I said yesterday, this looks like a new concept as long as it is in the accumulation or distribution phase of a cycle.

I'm not so much interested in the news, the overnight German Zew poll or what Credit Suisse is doing with it's "poor" clients, I am more interested in the overnight gains in Treasury futures with negative 3C divergences since they took on the role of "Flight to Safety" asset yesterday, this suggests as we expect, a pop higher.

Both Gold and Silver futures look to be cranking out a base in the area which also fits and fits with gold miners indications.

Crude is also looking ready or close to ready for that move I said I would be interested in being long.

That's what I'm most interested in, or this Russell 2000 Futures 15 min chart.

15 min R2K futures negative at the F_O_M_C with a flag-like, long consolidation, perfectly primed for a pop to the upside as 3C has been positive during most of the pullback, it fits with all of the analysis, just look at last night's recap.

Daily Wrap

I wamt to look back on the concept of anything F_E_D or F_O_M_C related, more often than not, sees a knee jjerk reaction (it can be up or down) and that reaction is typically faded and erased within a few hours to a few days.

Concepts are a [robabilitiy and they only work if you use them and not just consider them academic or forget about them. I always warn before a F_E_D event, "Beware the Knee-Jerk reaction, it's almost always wrong".  So in an effort to sere this in to your trading consciousness so it's useful because I've seen it too many times for it to be ignored.

First, I'm not a Jonny-come-lately, these are posts from before the F_O_M_C...

Check the dates and times.

Here was what I saw in the market, in which I described as "Shocking" and I'm not one for hyperbole, the market truly didn't know what the F_O_M_C was going to do and was caught off-guard, at the same time I've shown you the ES 60 min charts that show there was immediate distribution in to the move higher. As you know, there was no follow through and now both the Dow and SPX have given back ALL of the post F_O_M_C No Taper policy statement from last Wednesday, approximately 2-days or about normal, another reason you can't be glued to everything the market does from day to day and let that effect your decision making.

Lots of stops were hit today and I think we get a bounce higher, but I don't know if its a gap fill or something more. If the market can put together scenario 3 from today (a "W" base), then it has a better chance of some stronger gains, I think that's the highest probability, especially since we have seen all of these stop runs largely based on the pre- No Tapper levels as support.

GDX is a great example (NUGT is the long we have that is 3x long GDX), this is a great example market wide.

 There's pre-F_O_M_C support, broken as well as ALL F_O_M_C gains, this is why I took profits immediately in the GDX calls, but kept NUGT for a longer term trending or semi-posiiton trade.

THIS IS A CLEAR STOP LOSS RUN, EVEN THE LONG LOWER WICK ON THE CLOSING CANDLE IS ALMOST A BULLISH REVERSAL CANDLE.

Whether NUGT or GDX, the 15 min chart has been key to maintaining the 3x leveraged GDX
long and that divergence remains intact, but the options would have been destroyed rather than the double digit profit they came out to, KNOW THE RIGHT TOOL FOR THE JOB.

I looked at HYG today and with all the stop loss runs, it looks like a perfect counter trend or bear trap set up (near term trade)

Distribution in to the F_O_M_C and accumulation in to the flat range, this is about all there is though so it's along the lines of the Yen and many other indications (very short term market support only followed by much ugliness.)

This was an important candlestick concept for Technical traders and I know the news will dumb everything down and give you all of these reasons, but just look at the logic of the charts and decide, "Concepts" or "News"?

Failure of the Bullish (Technical) Rising 3 Methods.

 This is a 60 min chart so 3 isn't correct here, but it really doesn't matter how many candles consolidate in flag-like formation, just as long ass they stay within the large uptick candle's body, Techical traders expect 3 candles to fall inside the body of the large up candle and then prices to take off to the upside, I think we will still see prices take off to the upside, but first, they used Technical Analysis against traders and caused them to stop out as this familiar candlestick pattern was violated.

SPX on a daily chart, we have the large day up, then as long as the close is within the "Real Body" (not including the wicks), the price pattern remains a bullish consolidation very similar to a bull-flag, except used in Japan nearly 400 years ago by rice-traders before Technical traders used it here.

Also note we have a downside "Channel Buster", Technical traders expect a brief bounce to the bottom of the channel (resistance) and a failure there and then a move lower, I'm willing to say that it won't be a failure yet, it will stop out shorts and squeeze them as it re-enters the channel, giving it momentum ( again the reason these Channel Busters are so easy to trade).

Note the volume as the candle fell out of the channel-Those were stops at a VERY obvious trendline so of course Wall St. is going to hit them, take the shares for cheap and sell them higher. Then the Candlestick bullish consolidation fails, we saw this market wide today, it's the same concept as GDX, it's like a spring being compressed and the head fake is the trigger.


*Note if the Rising 3 Methods "had" held, so would have the channel!!! A Double Whammy, and you think it's news after the F_E_D's knee jerk reaction Wednesday? Then why was Thursday flat? Where was the follow through? There was no news to hold it back!?!?

Bonds changed their correlation from Taper driven to "Flight to Safety". Both the US 10 and 30 year were up today, the USD held ground in a "Taper on" kind of way and stocks fell, so Bonds have flipped correlation quickly to a flight to safety in both the 10 and 30 year futures.

Today we heard from the Dallas F_E_D's Fisher (non-voting member) who said several things including:

-He tried to persuade the F_O_M_C to taper last week

-Decision  not to taper undermined F_E_D credibility (you heard that here that same day and from a number of F_E_D members since last Wednesday)

-TBTF Banks (the same one our Justice Department said, "Some banks are just too big to prosecute") are a "Dagger pointed at the heart of the economy"

-Not tapering adds to uncertainty (another thing you heard here that day and you know the markets HATE uncertainty).

-The vote last week to hold off on tapering, DID NOT reflect the discussion around the table at the F_O_M_C (Wait for the minutes from this meeting to come out, they'll be explosive!)

Some say Fisher was responsible for the market's weakness, I have no problem saying,"This is the knee-jerk effect".

Take a look, Fisher spoke and comments were released at 2 p.m. today.

This was the time of Fishers comments, 3C fell apart a little intraday, but price wasn't moved significantly so he was not the reason for the season today.

Here's a look at my Custom Demark-inspired Buy/Sell indicator, I think we can get a short bounce and still have a valid sell signal.

This is a daily chart of the SPY with the last two sell signals, the first right on. There have been nothing but sell signals lately, no buy signals at the trough or reaction lows.

Gold and Silver Futures look like they will see a snap back (counter trend move) to the upside shortly (which is reflected in the tightly correlated GDX/NUGT as well), if they move with the market as they have been lately, then it's no surprise at all, if we get a decent entry, maybe we'll hitch-hike, I'll update them tomorrow, but each still have an intermediate downtrned they need to fulfill and down there we'll see if they are still worthy of a longer trend trade.

Last week 3C shoed USO would see upside, but from the charts, I predicted it would be in to more chop and continue as chop until it finally fails and didn't want anything to do with the move up and I'm glad.

The range is slanted, but still a choppy range. The move up last week happened as 3C predicted and the chop that I suspected because of the charts, continued on a move down, but this was a channel buster so if there is stronger accumulation down here at the yellow point, I may look at a long in USO looking for a quick move to and above the top of the channel before there's a final downside failure as the 60 min 3C chart is leading negative.

After all of the F_E_D's strange behavior as we hear from voting members that essentially it generally wouldn't have been a big deal to taper $10 of the $85 billion a month and non-voting members saying, the discussion wasn't what you think, I'm still pretty sure there's something the F_E_D is very afraid of and I THINK THE F_E_D REALIZED THAT IN NOT TAPERING, THEY SCARED THE MARKET WHICH IS WONDERING THE SAME QUESTION I ASKED THAT DAY, "WHAT ARE THEY AFRAID OF?" I THINK THE PRICE ACTION OF GIVING BACK ALMOST ALL OR MORE THAN ALL OF THE F_O_M_C GAINS IS A REFLECTION OF THAT.

To make F_E_D actions even more BIZARE, they engaged in an $11.8 Billion (more than the monthly taper) "Fixed Rate Reverse Repo " which drained $11.8 BILLION dollars of cash liquidity out of the system in one day in exchange for Treasury collateral. WTH? (sorry I don't curse). 

Leading Indicators were little changed in to the close, there were some slight changes in to the close, which included the $AUD losing strength as the JPY gained some in to EOD, TLT also gained strength on the "Flight to Safety" Or perhaps the F_E_D's liquidity draining operation today (Which I don't get because it was bigger than an entire month of taper in one day) might be a hint of things to come, already soaking up a large chunk of Treasury collateral, perhaps the operation today was a test, which means if we have less supply as the F_E_D is still taking in $40 bn a month (or $45?) and the Treasury department will issue less T's, this operation today may have been a test ballon and bond traders may know something we don't that has been reflected in TLT for a while now, perhaps the F_E_D decides they'll add in these reverse repos to drain liquidity as they see fit with on going QE, or...? I don't know, but it was strange and TLT liked it.

Sentiment improved in to the close, so this fits with the bounce move I envision on this bear trap and finally as I showed earlier, HY Credit was stronger (relatively) than the SPX, but it did give some up in to the close. Really there weren't any big shocks to the earlier Leading Indicators Update.


OK, so here we are, there are a lot of concepts that have been reinforced, not just the knee jerk, but the head fake, channel busters, Candlestick head fake moves, there have been reversals AGAIN, almost instantly from Risk on to Flight to Safety in Treasuries whereas it happened overnight a couple of weeks ago in opposite fashion for Gold!

I believe we are still right on track, I think the head fake moves today provided Wall St. with enough ammunition to move the market higher and the real goal is to finish selling short in to that move, that's what I'll be looking to do as I thought this was the reason for the move BEFORE the move started as we started seeing rangebound accumulation in the later half of August.

Looking forward, you saw today that the SPY ARBITRAGE FAILED. However, even though I think the next nice trend in the $AUD will be short, in the short term as expected from last week's analysis, the $AUD has room for a bounce to the upside before a larger move down. The Euro is in a similar situation, but far worse condition, it "could" bounce, but it doesn't have the same quality of short term 3C signal as $AUD, and it, like the $AUD, has nasty longer term negatives as well, so I doubt it will lead the market, but it may contribute for a very short period.

I have little sense of the $USD until we get to long term charts like 4 hour, it is in a probable head fake area below support (around $80.617 for the $USDX as it currently sits at $80.59). To me it looks like the $USDX will build on a head fake move there and come back in to the game a bit later on the upside.

Noting has changed for the Yen for our purposes and recent analysis, I think it will weaken on a pullback to allow the AUD/JPY to help the market, but this is a simple, natural pullback, the longer term JPY doesn't look good for the market and those charts aren't far off at all (same analysis as last week).

The Index Futures have lost some ground thus far tonight in price, but what they lost there, they gained in positive divergences in the 5 - 15 min range so yes, they look like a solid head fake move as the knee-jerk move was faded and right through the stops, setting up a small bear trap, which springs and sets up a larger Bull trap which springs and we get a new leg down, perhaps that nasty one.

Finally, the Nikkei has positive divergences so I'm looking for some overnight gains to move it higher from here.


That will do it for tonight, I'm turning in (obviously when I say "today", for me it's still Monday!"

Lets have a great week, judging by retails's sudden change of heart after being wildly bullish after the F_O_M_C, they are now something like 80% bearish so it looks like we are set for a short squeeze, but again I've been very cautious about it because it's more dangerous than the past ones so if it is played, it's only on strong , objective data.

Lots of Stop Runs

What do they do before they make a move higher? They take your shares on the cheap. "Head fake" is a general term encompassing a lot of different tactics including false breakouts, false break down, stop runs, limit triggers, etc, just about anything that "looks" one way according to price (and this is why I say, "Above all else, price is deceptive").

Right now I'm seeing a lot of stop runs, it's not just so they can say, "All of your shares are belong to us HAHAHA!!!", it's because 1) it's the easiest way for them to accumulate quickly without raising any suspicions because for some unknown reason, whenever there's a big stop run like that, traders just assume their shares just disappeared, NO! There's always someone on the other side of that trade and when you get big volume on a 1 cent stop run, someone just took on a lot of shares cheap. 2) It's a momentum thing, shorts enter, longs who were stopped out go short (that's one of the most brain-dead concepts of Technical Analysis) and when the former support area (where traders always put there stops at as predictable as the sun rising tomorrow morning) which is now resistance is broken, you get a massive short squeeze and who ever took the other side of the trade is making nice money on cheap shares and finally 3) in large size.

I'm seeing a lot of stop runs, it's making me think that scenario 3 or the last scenario ("W" bottom) is high probability.


Time to think like a crook.


Take a look at XLF and tell me, of you could (and they can) move this a little, where would you take it.

Look at all the volume earlier today, that's like 4 or 5 days of normal accumulation all at once, EASY!

The support area to the left on the upper trendline is $20.11, guess what the intraday low was in XLF and look at volume the rest of the day before you answer after the initial gap down stops were run?

The answer is $20.11, the stops would be placed "ON A BREAK OF $20.11" or below support, all day today $20.11 was support so those stops were never hit, at least....NOT YET!

There's one more zone that is within reach, the second trendline below the first, that's a gap and the stops would be somewhere around $19.96. Notice anything else, give you a hint, it's psychological?

That would be one of the most obvious stop levels of all, $20 even.

I see some interesting things, still totally in line with the Yen trade, the 3C charts, basically the idea of "This isn't that much of an impressive set up for a big move higher", but in looking at HYG's 3C chart, I think it's just as if not more probable than when I first expected something from it last Friday.

The PMS are in play, someone sent me FFIV which looks like there's no way from a daily chart, but that all happened early in the day and it's been lateral the rest of the day, so there are a lot of assets that have either run the stops already or like XLF, are a penny from it.

I think we get the move, I think I'm setting alerts for stocks like XLF under the stop levels of $20.11, $20 and $19.96. Of course I'll double and triple check 3C and the correlations, but this is now becoming a cleaner, less risky set up, I'm glad I didn't do much today other than clean up some shorts/puts.

I think tomorrow there will be lot of game to hunt, again if you'er nimble, otherwise I'd just wait a bit more and let the market do what it will do and use that to your advantage on core positions.

More to come, but as I looked through the watchlist before the close, almost every asset had an area that I'd set an alert at an be very interested in buying on a head fake / stop run move.