Market Update

There are still some great signals developing and I'm still weary of this potential reversal (probabilities are increasing) being too much of an event and less of a process, UNLESS AS I MENTIONED SEVERAL TIMES EARLIER, THE NY F_E_D'S TRADING DESK PUTS OUT THE MARKET'S ENDORSEMENT OF YELLEN.

Can't you just see the dumbed down CNBC headlines? "Market rallies in support of Janet Yellen"...Oh I swear if that happens my stomach will literally turn.

I still prefer the SPY/SPX and Financials overall, but everything is making progress.

Leading Indicators are coming together, they started the week off slow , but continue to add, the most important of which in my view is credit and not just the highly correlated (to market manipulation) HYG, but HY, and JUNK too, they have no correlations to anything that can manipulate the market and HY is skittish because of liquidity issues, the fact they have held up means something as retail doesn't trade credit.

*ALL Leading Indicators are compared to the SPX in green unless otherwise noted*

Sentiment

 Intraday sentiment is looking up the last two days and this one has been very negative so any positive activity here is notable.

Longer term you can see how our second sentiment asset has acted as a leading indicator on this 10 min chart, going negative at tops before the SPX and positive at bottoms before the SPX, interestingly since the F_O_M_C, while the market has lost ground as we were 100% correct on the knee jerk reaction as well as the negative divergences going in to the F_O_M_C, the interesting thing is that sentiment has held up, this is not retail sentiment.

VIX / VXX correlation

 I saw this popping up yesterday, but as you can see, I inverted the SPX's price action so you can better judge the normal correlation that should exist. VXX has been underperforming that correlation since late morning after the a.m. trade washout was completed.

FX/Currencies-specifically components to the USD/JPY carry trade

 We've been following developments here all week, you can see that the $USD is acting a lot better as the 3C signals were suggesting.

Yen

 The other side of that carry cross is the Yen which needs to underperform , we've had the signals, we now have the price action and right as a.m. trade washes out, this is why a lot of pros won't even trade before 11 a.m. In any case, the carry pair, USD/JPY should provide support to the market and the pair is coming to life.

Yields

 Yields act like a magnet for equity prices, we saw yields moving higher Monday and they have continued to do so, this means the market is dislocated from the natural reversion to the mean.

Credit

 HY credit is a little skittish because of the lower volume, but it has still done a good job as a leading indicator, the question anyone who knows what this chart represents must ask, is why is HY Credit holding up so well vs the market?

There's only 1 good answer in my view, but we need more than just 1 asset.

High Yield Corp. Credit...

 We also have outperformance of HYG all week and then some.

Junk Credit has no correlation to any kind of manipulation or arbitrage scheme, so why is it holding up? Who invests in HY credit as a risk asset? If you answer that question, you answer the first question and the market suddenly takes on a very different dynamic than just price action.

A few examples of some of the averages with some impressive signals...

 5 min DIA

2 min IWM

1 min QQQ

3 min SPY

5 min SPY, recall the positive started showing up very weak on the 23rd, by the 27th it strengthened...

FAS, 3x bull Financials 15 min

XLK (Tech sector) 15 min

Intraday pullback

Nice, just before the Yellen announcement or maybe it's the Minutes from the last F_O_M_C meeting, I haven't had a chance to read them yet, either way we are getting signals for an intraday pullback which I think is good, it gives a lot of assets the chance to create a bigger reversal footprint and to add to positive divergences as they typically don't accumulate higher prices.

In addition, this will give me some time I need to get some analysis done as well as potential positions to enter before the close.

I'll just use the 1 min intraday futures to show the pullback divergences.

 ES/SPX futures 1 min

NQ/NASDAQ 100 futures 1 min

TF R2K Futures 1 min

VXX , UVXY and VIX Futures

It looks like pretty good timing on those VXX puts, I didn't want them to see downside momentum and have the premium jump, but there were enough leading negative divergences that it was really close to doing exactly that.

 VIX Futures on a 15 min chart have been in trouble since late Friday when the other negative divergences were evident especially in the afternoon. Despite the VIX making some record setting moves, the underlying trade suggested this was more retail than anything driving the moves or if anything, institutional involvement was on the manipulative side, otherwise, we'd see a new high in 3C which never came.

 VXX (short term VIX Futures) is leading negative on this chart in a single day, that's some serious distribution, that was about all I needed to see, but the intraday charts are the timing.

The 1 min VXX is strongly leading negative today and yesterday as well, which kind of backs up my view that the price action of the last several days has been to accumulate on the cheap, how else can we explain HY Credit's position?

UVXY is the 2x leveraged version of VXX, some say it tracks better, I use it for confirmation as it is a 2x asset and because it's managed by a different group (Proshares vs. Ipath) so the signals shouldn't be similar unless something is really going on.

 the 5 min leading negative so we have good migration from the 1 min chart through the 5 and on the 15 (10 min charts are neg. too).

 XIV is an inverse of VXX and managed by a third group (Velocity), this should show the opposite, a leading positive divergence, making it a buy and on this 5 min chart, it does exactly that so we have good confirmation between 3 different assets managed by 3 different groups with the actual VIX futures confirming, 3C "Compare, compare, compare) is pretty well satisfied.

At this point, I think the best entry for options has passed, but VXX can still move quite a bit and the leveraged version can certainly move so I would consider a short VXX trade or long XIV worthwhile, especially if they get a correction.

NFLX Update

There's a very strong 5 min (the first institutional timeframe) leading positive divergence. A lot of members are interested in NFLX.

In my view, probabilities are good NFLX is putting in or has put in a base and will head higher, however as you know I always distinguish between probabilities and what I consider a HIGH probability TRADE SET-UP.

Here's what we have on NFLX and what I'd like to see before increasing long exposure w/ NFLX.

 The 5 min leading positive divergence forming after a very strong relative positive (arrow). This is not retail "Buying the dip". However, look at price, what does it look like to you?

I'm not saying "V" reversals don't occur, they do and typically because of some previously unknown fundamental event that has to be instantly discounted, I don't see Janet Yellen's 3 p.m. announcement as O's pick for most powerful woman in the world as an event that hasn't already been discounted. However as mentioned before, the NY F_E_D's trading desk may send out the minions to goose the market to give the impression of a favorable response to her nomination as she still would need to be confirmed.

 I personally (taking the "V" reversal out of the equation) would prefer to see a return to the lows, maybe a head fake move below them and at that point we have a little more reasonable foot print, but as I've said in the recent past, "Don't expect to see the kind of institutional support of long positions we use to see even a couple of months ago. These guys are not going to risk being the last one standing when the music stops with the market where it is now.

Still, I have to make my decisions and I'm still requiring a HIGH probability set up,  even though I can see a reasonable case for reasons that kind of set up is less likely.

SO WHAT IF I MISS THE TRADE! There's a bus every 10 minutes.

The 4 hour chart is a warning. NFLX went from confirmation of the uptrend to distribution. Normally there's be a much larger topping process, but I suspect (even though I have not had the time to do the analysis yet) that NFLX is going to act a lot more like a Channel Buster Position than a stage 3 top. For a review of a Channel Buster, see last night's Daily Wrap and SPX example.

If NFLX starts to look more like I'd like to see, I will of course let you know, but the probabilities are on its side

Opening November VXX $17 PUT

This is Spec size as all option positions typically are.

Market Update

There's actually a lot happening today so I may have to post several of these, but thus far it looks like we are moving in the tight direction and the long/call positions I said on Friday I thought we'd be able to enter late Mon or Tuesday after early weakness, look to be pushed out a day to this area. So today may be quite busy for me, please understand if I'm late with email responses.

I'll show you the averages, there are some really interesting divergences that are probably going to be even more so by the time this is posted.

 DIA 3 min trend with distribution in to the F_O_M_C and an impressive leading positive now


 5 min is broader, with distribution again in to the F_O_M_C and accumulation recently and building stronger today specifically.

Just so we don't forget...

 Although this hourly chart will allow the market room to make even a significant upside bounce, the end of the story isn't pretty. The leading negative has grown worse and worse, it seems the last F_O_M_C was really a strong turning point, the minutes should be interesting.

 IWM intraday positive also very strong thus far, it's still a process, not an event.

The 2 min is following up so that's a good signal and they are moving fairly quickly.

 You probably recall last Friday's EOD update with distribution in to the afternoon telegraphing early weakness this week, a little more than I expected, but we went from negative to in line and now the 3 min which is key, is working on a positive.

 The 15 min IWM which has been negative shows accumulation in Aug, a run up to a large bullish ascending triangle so a head fake move there made sense, the breakout failed and From failed moves come fast reversals"

However the hourly chart is not rolling over yet so there's room for another swing to the upside.

The longer 2 hour and beyond rolled over a while ago so once again, the story doesn't have a happy ending for bulls.

QQQ...

 Again interesting intraday strength- 1 min QQQ

Here's a closer look, remember TECK (XLK) had interesting positive divergences forming yesterday.

 QQQ 2 min migration and a fairly strong signal where as,  the Q's have been the weakest looking of all the averages as far as 3C signals go.

 This 3 min is working on a positive, it's at a relative positive, it needs to lead before I'd enter anything long here.

SPY 15 min has managed to stay positive, I think there has been a lot more retail selling than institutional, it may not appear that way, but this 15 min chart wouldn't have held together with thee kinds of moves if institutionals were behind it, besides, they typically don't sell in to weakness, that's retails gig.

 SPY has been stop hunting, they know where the stops and limits are, it looks like the predictable $165.50 was the area, it was hit late yesterday and check the volume, larger than anything else in this move, so that's where they've been heading.

 Again, 1 min intraday with a very strong leading positive signal and right as the stops were hit, "All of your shares are belong to us!"

SPY 5 min has held together fairly well, the leading positive is a good sign with the other signals so I'm a lot closer to entering some longs.

The SPY 30 min, distribution in to the F_O_M_C and a very positive signal in to the multiple stop levels that have been hit. You may recall the SPY was only positive to the 15 min, now we have a clear 30 min,

I'm checking futures and leading indicators and then sweeping the asset list if everything checks out.

AA Charts

I'm really not sure if AA was an earnings leak and there's some intention to stay with it or it was just a rather large earnings leak.

In any case, I don't think I'm going to discover the reality today so I'll keep watching AA and see if there's fast distribution (suggesting an earnings play they are exiting) or see if it holds. While we await these signals to develop, I'm also throwing AA in to a couple of trending systems for those who want to use some kind of trailing stop.

 This is when and where we picked up AA on Monday, just a penny above the lows of the day.

So far this version of 3C is showing confirmation of the gap up on an intraday basis.

The 2 min chart being positive once again is like that example of the longer 30/60 min positive charts being the treasure chest and the intraday charts being the key to open it. This is what I really liked about AA, the consistiency of the divergences through 5 or 6 timeframes, all doing the same thing at the same area/time, so there was excellent confirmation, but that doesn't tell me what their intentions are even if it does suggest an earnings leak.

 The 3 min chart shows the same as all, distribution at the highs to the left and accumulation in to lower prices, EVERY chart shows the same thing.

This is the 60 min, again negative or distribution at the high/ accumulation in to the lows.

 30 min chart... the same thing

The 5 min chart was leading positive before today which was good for an entry signal. As far as confirmation of continuing strength today, the 5 min chart will take a little time to either move higher or show distribution.

So until the shorter term charts start showing a clear trend, I'm going to put this in a trending system and if you like, you can use that as a trailing stop, both will lock in gains as they move forward.

 Above you can see where the X-Over system gave a short signal and in orange a whiplash/false buy signal and then a confirmed buy. For now since this is new, it will stay on the 60 min chart, hopefull we'll be able to move it out to a daily if the trend holds up.

For now the expectation would be for an initial pullback to come down to the 10-bar moving average (on a 60 min chart) which will be higher, I'm guessing around $8.10-$8.15 if it pulls back. The other two indicators need to stay positive and I'll keep an eye on them.

I also gave the choice of using the Trend Channel...

This is also set up on a 60 min chart for now. The current stop is a close (60 min bar) below $8.00, this is still above the entry at $7.85. The TC will continue to lock in gains, even if there's a consolidation. I'd like to get this in to a daily chart as soon as possible.

If you don't have the Trend Channel, for now a 22-bar expo. m.a. is pretty close to the channel, I'll update you on the m.a. that is closest as we go.

AA Follow Up

Our long in AA from Monday as an earnings play, looks a little like it's losing some intraday support, it's difficult to tell if it's just a consolidation or something more because it's only on an intraday 1 min chart so far.

I'm still trying to decide if and how long I want to hold AA, it's already at a +5.1% gain for the last 2-days since it was opened. Whether I decide to hold AA or not is more a matter of whether I think this was an earnings leak and that's it (in that case I'd have to estimate about how long it would take to distribute the accumulated shares) or if this is something more (which still may be an earnings leak, that's why I liked the position initially, it looked like an earnings leak, but if there appears to be intent to hold AA for a longer period/move, then I don't mind having a long hedge like this.

I'll have charts up shortly.

URRE Follow Up- Parabolic Open

You may recall yesterday's URRE add-to or new position for some of you, here's the post from yesterday at 3:28

URRE is up over +19-20% today making it a nice long position for anyone who entered yesterday. I personally wouldn't blame any one for taking a 60 min 20% profit, nut I'll be sticking with URRE for a bit.

Please see the post above as to why we entered or added to URRE yesterday on multiple leading 3C divergences.

As for now, you know I don't trust parabolic moves, even when I benefit from them, however whether the parabolic move holds or not is not so much the question for me as I'm not looking at URRE as a day trade, the question is sustainability, so far we are off to a good start.

 Today's daily chart with yesterday's long entry coming around 3:30 p.m. or just after. Volume is up on the day thus far so it looks like it will have good volume confirmation by the close.

 This is one of the leading positive divegrences that caught my attention, a 30 min leading.

This is a concept I try to show whenever I can...  If you see where the divergence started or where accumulation started, even though accumulation is almost always in to lower or flat prices, price almost always moves well above the area where accumulation first started regardless of the average accumulated price being much lower. IN THIS CASE, THAT HAPPENED ON OPENING TRADE ALONE THIS MORNING.

 As I was saying yesterday about some other charts, the positive 30 and 60 min is like the promise of a large, strong move locked up in a chest and the intraday 1-5 min charts going positive are like the key to opening that chest, it's really more of timing thing than anything, but the 3 min positive is one of the reasons I decided not to wait any longer yesterday.

The 15 min had already been accumulating as well as 30 and 60 min, it looks very much like the move below the trendline was just a head fake move to pick up shares on the cheap and they were accumulated through out.

For now we have a strong set up that doesn't look like a 1-day flame-out, although price may not be +20% by the end of the day.

As soon as possible I'll be throwing this position over to the X-Over system and Trend Channel, I think we are just getting started, just remember nothing moves straight up or down.

I'll update URRE again in a bit

Futures In to the Open

Today at 3 p.m., it seems Janet Yellen, the woman who's most memorable quote is  from the 2010 Financial Crisis Inquiry Commission,

“For my own part,” Ms. Yellen said, “I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, the S.I.V.’s — I didn’t see any of that coming until it happened.”

Honestly, I'm not sure what to say... Applaud her for her honesty? Scoff that the San Fran F_E_D Dove couldn't see any of that which most of us at least saw some part becoming a potentially catastrophic problem and many of us seeing at least parts of it years before it happened? I really don't know what to say, truth is Bernie didn't see it either, they were caught flat-footed OR the truth maybe  perhaps they did see it, they had a hand in creating it, the so called "Business Cycle" and it just got out of control. In any case, Yellen is about to become the most powerful woman in the world assuming she is confirmed.

I think some expected some market bounce from the "seeming" Ultra-Dove's nomination, although some would contend she's a Hawk in Dove's clothing. In any case, Yellen is no surprise and the fact the market didn't jump for joy is no surprise, it's been priced in. Perhaps the NY F_E_D trading desk will get busy at 3 p.m. to make it look like there are some fireworks and the market is welcoming Yellen, but I doubt there'd be too much more of a response than that.

As for Futures, the Index futurees continued to see improving diivergences  overnight, the bigger news though may be the improvement in the $USD which is now positive from 5 min to 15, 30, 60 and 4 hour. The $USD has been in a consolidation since midnight after it made a run higher last night starting around 5:30. 

The $AUD looks to be losing some of it's strength as does the Euro as a currency to lead a JPY cross, but the $USD looks stronger than it has and looks like it will take control once it comes out of its consolidation

The Index averages also continue to see underlying divergences improve.

PM's still look like underlying trade has them on the bench or out of rotation for the moment.

I'll have some opening charts up as this first wave of a.m. sell orders runs its course.