GLD/GDX Update

Last week was a tough decision on the GLD/GDX options, in fact Friday's update for GLD started like this...

"I would prefer to either see GLD ( gold) get on with a pullback/gap fill or really tell us something is wrong as it is a QE asset rather than sit idly and chew up theta."

It's not like I didn't know or think there was going to be a likely pullback, as a matter of fact, Thursday's update showed this GDX chart with the following comments...

"Short term positive divegrence in GDX yesterday and the pop today, I'm a little uncomfortable with the support for this particular move."

Basically as I made the decision to hold both options, my expectation was that the gap in GLD would be filled, GDX didn't have the same gap issue so it was more of just a pullback, however since there were stronger charts in longer timeframes, my feeling was a gap fill pullback was probable and that's probably it, although with GLD, there's the possibility of pulling back a bit deeper which would just create a stronger, larger base which would ultimately benefit GLD and my thoughts were/are December expiration is enough time to take advantage of the expected move after a pullback.

Today we have that clear pullback, for GLD it's the gap fill expected Friday.

 Daily GLD chart and the gap at the yellow box, the gap is filled today so what I start looking for is whether there's accumulation as that gap is filled or whether it waits in which case a larger base would be the probability which I'll show you.

GDX didn't have the same kind of gap issue so a pullback with GLD is likely and what we have. So far there's some support, but I don't EXPECT anything to just make a "U" turn or a "V" turn and head right back up, even here the reversal process applies, although the scale is much smaller/shorter.

If GLD was going for the larger base which would benefit an uptrend as it would have a larger base to support it...

GLD 2 hour, the white trendline is where the larger foot print/base would be if GLD pulled back more beyond just the gap gill.

As I said last week (Friday) it was a decision to hold as I knew it was high probability GLD fills the gap, it's high probability that almost all gaps are filled now (it didn't use to be so).

The GLD 5 min as of the close Friday and why I thought a pullback (gap fill) was high probability.

 GLD 5 min as of the close Friday

And the reason I figured it's higher probability that this gap fill/pullback ends up being constructive and GLD benefits on the upside with December expiration calls having enough time...

15 min GLD not only seeing price flatten out (the downside ROC diminish to a lateral trend), but the 15 min leading positive divegrence which is significantly stronger than the 5 min chart above.

So that was the calculated assessment.

So now it's about watching to see if the positive divergences develop, they are usually not right off the bat because it doesn't profit anyone to accumulate at a higher price when they know they'll be able to get it at a lower price if they just wait a bit.

 GLD 1 min is seeing some action, I'm not thrilled or overly excited yet, but GDX is actually looking better than I'd expect at this point...

GDX (Gold Miners)

 The intraday 1 min and you can see the reason I felt a pullback was likely to the far left, but thus far it's looking pretty good today on the pullback.

Pullbacks are fine, in fact usually healthy as long as we see accumulation in to them and know someone is buying the pullback in size.

 THIS 3 MIN CHART IS ACTUALLY THE EXACT CHART I USED TO SHOW THE HIGH PROBABILITY OF A PULLBACK AND THE 5 MIN BELOW THAT THE PULLBACK WOULD BE "CONSTRUCTIVE".

So far so good on the 3 min, also leading positive in to the pullback.

 This is what the GDX 5 min chart looked like last week and why I suspected between the GLD 15 and GDX 5 min that a pullback would not be a horrible event and decided to stick with the options after MUCH deliberation and more than a half dozen posts.

NUGT 3x long GDX I show this for confirmation of GDX's signals.

3 min shows the probability last week of the pullback and thus far it's reacting very well so I'm pleased with that. I also have a core NUGT position not for trading and I easily decided to leave that open.

DUST 3x short GDX I'm using this too for confirmation, it should have the exact opposite signals of GDX and NUGT.

 Intraday 1 min on the move up (as GDX/NUGT pullback) is seeing a negative divegrence so that's good.

The 3 min chart shows the confirmation with a positive divegrence of the probability of a GDX/NUGT pullback, however again, the 3 min chart's response since the move looks good, leading negative.

So GDX, NUGT and DUST are all confirming and so far almost EXACTLY what was expected last week/Friday. So far GLD is lagging a little more than I'd like vs. GDX, but I doubt that will last for long, so, so far so good.

I'll try to keep on top of these so if anyone is interested in going long GDX, NUGT of GLD on a pullback that is healthy, you'll know when the timing looks best.

MCP Update

I'm sure you've seen a lot about MCP here whether you are in the position or not, but I will show just a few longer term charts just to give you a feel for where MCP is and where it would be in a large cycle (stage 1) and that to me, it's still in a REALLY attractive position as I really like this as a core LONG position (full size position).

The $4.70 Rubicon was crossed last week, that was pretty much the last thing we were looking for and it's now acting like I'd hope after taking out remaining $4.70 stops last week. In a way, this post is kind of for those who haven't paid attention to MCP until now and might want to consider it. For others, this is an update of where MCP is and finally even if you have no interest in MCP, there are some great concepts and examples of market behavior.

Just looking at the MCP chart it looks like a simple long, short trade and the short side looks really easy , like a no brainer.

These are the stages and trends of MCP, PUTTING YOURSELF IN THE EMOTIONS OF THE MOMENT (WHETHER LONG OR SHORT) IS ONE OF THE HARDEST THINGS TO DO, BUT GIVES YOU A REAL NOISE FOR THE MARKET.

MCP started at stage 2 Mark-up (2) however as I have mentioned many times, changes in character are important as they precede changes in trend, I just mentioned this Friday re: MSFT (when it was a momo stock) and AAPL recently before the top. At "A"  there's an uncharacteristic, nearly vertical price move, these are most often seen JUST BEFORE a stop tops so in actuality they are warnings or red flags, at least time to have a tight trailing stop. At "3"  we have a large triangle stage 3 Top.

At "C"  we have the break down from the top and then a 5 week bounce which was a +40% MOVE, try to put yourself in the emotional position of being short then.

At "D" we had a 5 month rally/consolidation, again just from a time perspective and after a 40% bounce, as a short this would be emotionally exhausting, but this is why it's important to know what is normal so you can anchor expectations and make fact based decisions rather than emotional ones.

At "4" we have a stage 4 Decline and at E  and F we have "Dual Capitulation". People always think after the first capitulation it's time to go long when in fact there are usually at least 2 capitulation events and then months or years to form the next stage 1 base so those going long on the "Blood in the streets" capitulation event are often at a loss for a long time or at least at Opportunity Cost.

 This is a closer look at Stage 1 in MCP, we have seen plenty of long term charts showing large positive divergences and especially recently after GS downgraded MCP, which means GS is probably the largest buyer of MCP in stage 1, it's smart money, NOT RETAIL.

 This is the $4.70 level we expected to be taken out and it was, note the volume as stops were hit so it was worthwhile for them to take out the $4.70 level, it provided: Supply and Cheap prices.

However, note what looks to be a final head fake/shakeout move (under the yellow trendline) and now a rounding bottom or at least lateral.

 A closer look intraday of Friday and today's tight intraday triangle with volume looking exactly as it should, this would be a textbook technical consolidation/continuation pattern, expected to breakout to the upside. I think it probably will as this is not yet attracting retail attention.

 I'll just use a couple of charts to show the longer term positive divergences in the base, note how much stronger the divergence is since price dropped and supply increased on the GS downgrade.

 This is a 15 min chart showing the same in the same area, but I really wanted to show you a closer view of the 15 min chart, but first give you context of where it sits and how it's leading positive.

This is an intraday/zoomed in view of the same chart, note the leading positive at the last dip below the yellow trendline above.

That's a strong 3C move in a short period of time.

 The 5 min chart shows the same thing, it is positive in to the break of $4.70, but even more so on the last dip.

The 3 min chart is showing the same thing, when I see something like this, I have high confidence that this is getting ready to breakout and eventually move to stage 2 mark up where the trend really cleans up and accelerates.

To me, this is the ideal area to enter, the risk is low as a stop can be placed not too far away and there's very high probabilities whether based on 3C or even just the normal 4-step cycle process or price pattern.

This may be the last good time to get involved with such favorable risk/reward dynamics, but that depends on your trading style, risk tolerance, etc. I love it!

Finally, THIS IS ANOTHER EXAMPLE OF HOW 3C PICKS UP THE NEXT TRADING DAY RIGHT WHERE IT LEFT OFF THE PREVIOUS DAY.

MCP was in a very tight range, typically we see accumulation in these ranges and there was a clear 3C divergence Friday, we'd expect MCP to move up from that leading positive divegrence as the market opened this week and what happens, it moves up and 3C/price are now (intraday) in confirmation.


I'll have MCP on the WL, but it's already a filled out long position.

USO Update

USO was last covered in the Daily Wrap from Thursday Nov. 14th. Since that was a pretty long post, I'll just sip out the USO part and paste it below, under the dashed line (------) the post will pick up with today's charts.

Thursday, Nov 14...

USO is one I like and last I updated it I said I thought it had a little more lateral reversal process, I think it's pretty close to done- THIS IS NOT THE SAME AS THE ENERGY GROUP, it's a part of the group, but only a part.

 The long term 60 min set up from distribution to lower prices to accumulation and a bottoming process, I think USO can make it back inside the channel before heading lower.


The 15 min chart is going from in line to a clear positive divegrence and that lateral, wider reversal process I thought we should expect to see, but from here I think it's very close to a strong counter trend rally on the upside of course.
----------------------------------------------------------------------------------------------------------------------------------
Continuing from the present...

 This is what USO looked like as of Sept. 13 on a 60 min chart, the point here is just to show the accumulation, mark up and distribution process.

To the left there was accumulation (I should have gone further left to show more of the accumulation zone); the actual distribution started in the red square, but most heavily in the yellow square.

This is the current 60 min chart and has the best overall look at the trends from negative and falling out of the channel to price dropping significantly to a new bottom being carved out.

My suspicion is that USO will move back in to the channel and create a short squeeze as it starts to do so, essentially a big shakeout, but I don't think this is a new uptrend, but rather a strong counter trend rally (shakeout). Still, at this level, I see USO as low risk, high probability with good profit potential.

 The rounding bottom is the very same reversal process I mentioned in last week's analysis...

"USO is one I like and last I updated it I said I thought it had a little more lateral reversal process, I think it's pretty close to done-"

Essentially the positive divegrence on this 60 min timeframe is where the rounding process began. The reversal process (rather than a reversal event) is fairly large and mature and fits with the size of the positive divergence and fits with the expected upside move. The larger the base, the more support it can offer the upside trend, so I'm happy to see it.

As far as risk, a place can be placed just under recent lows (as long as it's not too close or obvious) and you still have an excellent entry and very low risk, especially compared to the reward.

This is an intraday trend that does a great job of showing where USO was "in line" with the downtrend and where it was positive/accumulation, it's the same as the 60 min chart, but when I see charts like this with beautiful confirmation and then they change character and price follows, they are just beautiful and I can't ignore them.

In any case, I still like USO here, I have some leverage on it with December calls, but I think I prefer a USO long or maybe a 2x leveraged long ETF.

16k, 1800 and flop

The volume I'd expect on a breakout above such a strong psychological level was puny and the follow through, almost as bad. The confirmation between the averages may be the worst.

You might recall last night that I was on the fence with Friday's intraday trade in to the close, what really mattered for this morning, but I gave it the benefit of the doubt for 3 reasosns...

" Looking at the closing intraday charts, it's a coin toss as some like the SPY held in to the close and others didn't"

And this is where it gets interesting for the NASDAQ 100...

The other 2 reasons were the psychological levels and the last was a gap up would allow a set up for a bearish engulfing pattern which cannot take place without a gap up.

Any way, as I said last night, it was just a skip to those levels, the Dow had to move less than 0.25%, the SPX about +.20% to make the targets.

Here's a look early on, but remember I'm very skeptical of early trade, especially on a day like this.

The SPY's volume was horrible, you'd think there would have been a lot of psychological limit orders, not much at all.

 The Dow a bit better, but nothing like I'd expect say if this were 2006 or any time before 2009.

THIS QQQ INTRADAY CHART IS ONE OF THE ONES MENTIONED THAT WASN'T IN LINE OR POSITIVE IN TO THE CLOSE FRIDAY. THIS IS A PERFECT EXAMPLE OF HOW 3C CHARTS PICK UP AND PRICE ACTION, RIGHT WHERE THEY LEFT OFF THE PREVIOUS TRADING DAY. A Negative Divergence in to the close Friday and the Q's are below Friday's close.

The IWM is similar, in line intraday, but still a relative negative divegrence and ultimately sending the IWM below Friday's close.

It's still early in the a.m. so I'm not locking on to any of this data, but keeping it in mind.

I THINK THE MOST INTERESTING PART OPF THE POST IS WHAT I'VE BEEN TELLING YOU ABOUT HOW 3C ENDS AT THE EOD AND HOW IT PICKS UP WHERE IT LEFT OFF THE NEXT DAY, THIS ISN'T 3C, IT'S THE MARKET.

MCP Longs, Pay Attention

The $4.70 level was key last week, we are above that and look to gap up, this could get interesting in a stock like this real fast.

A.M. Observations

As I said Friday...

""If the intraday charts hold up through the close, then I'd say Monday opens up or in the area, however because of the significant damage already in place, I'd think the most likely scenario would be that it closes down, perhaps that bearish engulfing pattern I was talking about in PCLN, it would fit well in any of the averages as well."


And then last night, "Even though we don't have such an open so far in futures...The rule applies to the averages in regular market so the opening futures Sunday night wouldn't apply, it would be the early trade Monday. Looking at the closing intraday charts, it's a coin toss as some like the SPY held in to the close and others didn't, but all in all, I tend to agree with the basic assumptions of that late Friday post, once again with an additional area highlighted as well..."

As of right now, we are about 1 ES point from the 4 p.m. Friday print, right where we left off.

China had a big night, the Shanghai Comp. was up some 2.87% on both the Chinese Third Plenum reforms and I expect more so on the way China will now calculate GDP, adding "Research and development " costs to the bottom line of GDP, mind you I said ADDING, this is nothing new for the U.S. and Europe so some of those 0.1% prints might have been recessionary had it not been for that neat accounting gimmick, but if the US and Europe are doing it, why shouldn't China compare apples to apples?

Housing inflation in China is still up, but slowing so the PBoC may just be tinkering and tweaking liquidity, we'll see overnight in to tomorrow.

Europe followed China's / Asia's lead and the DAX hit an all-time new high, the FTSE-100 was the laggard.

Other than that, there's nothing too special about futures, the market will pick up pretty close to where it left off, the 16k and 1800 levels will be hit as it's nearly impossible for them not to be this close with such magnetic force of centennial/whole numbers pulling like a tractor beam, it's what happens next.

As mentioned last night, we have a bevy of F_E_D speakers on deck in front of Wednesday's minutes.

Gold still looks like a pullback or it is putting itself back together after the pullback expected last week at least in to the gap.

Oil looks very much like it's continuing to develop the right side of a bottom that we've been expecting for a pretty big upside move so USO will be on the radar today.

Treasury futures are pretty flat, I'm guessing they're in a holding pattern until they hear what the F_E_D speakers have to say.

EUR/JPY was wide chop through the night, USD/JPY looked worse as it looks to be rolling over. AUD/JPY looks to be the best performer, it is choppy, but less of that downside drift and I suppose that's because of the Asian/Chinese markets which the AUD is very sensitive to.

Other than that, it's pretty much a normal Monday a.m., although the media is ready for a 16k/1800 ticker tape parade.

We'll see how things look as we get that business out of the way.

One More Thing

I forgot to mention China, the last time they skipped 3 reverse repos in a row is about the time the market went lateral for those 2.5 trading weeks, therre were a lot of signs the market didn't like that and it just happened again Thursday so we'll see what they do moving forward, but it really seems the market doesn't like it and the smaller banks in China may end up in some real liquidity trouble.

Also, while I was posting the Week Ahead, something happened to the Yen (up) and all of the carry pairs are getting crushed right now. It "may" not be the open I had imagined late Friday.

The Week Ahead

I hope everyone had a relaxing, safe weekend.

I'll start where we left off Friday which is the 3C chart action in to the late afternoon on an op-ex day, it's never price that tells me much as the op-ex pin releases because most contracts are cleaned up by then and the pin no longer matters, it's the underlying action because that is what I see most often, pick up right where it left off near the close on Friday.

That's the reason for this post late Friday To save you some time I'll give you the gist, the first sentence/paragraph read as follows...

"If the intraday charts hold up through the close, then I'd say Monday opens up or in the area, however because of the significant damage already in place, I'd think the most likely scenario would be that it closes down, perhaps that bearish engulfing pattern I was talking about in PCLN, it would fit well in any of the averages as well."

Even though we don't have such an open so far in futures...

ES (SPX) Futures open Sunday night below Friday's closing print and move lower thus far.

The rule applies to the averages in regular market so the opening futures Sunday night wouldn't apply, it would be the early trade Monday. Looking at the closing intraday charts, it's a coin toss as some like the SPY held in to the close and others didn't, but all in all, I tend to agree with the basic assumptions of that late Friday post, once again with an additional area highlighted as well...

"If the intraday charts hold up through the close, then I'd say Monday opens up or in the area, however because of the significant damage already in place, I'd think the most likely scenario would be that it closes down, perhaps that bearish engulfing pattern I was talking about in PCLN, it would fit well in any of the averages as well."

One of the reasons I can see this is the charts (intraday late Friday), another reason is that SPX 1800 isn't that far away and it's a major psychological factor and it's less than 2 points away, that's a fraction of a fraction of a point away. Friday the SPX was up +.42% (less than half a percent ) on SEVEN and a HALF Points, we need LESS THAN 2 POINTS!

How can we not go there?

The Dow-30 is less than NINE POINTS away from 16,000, it moved 85.5 points Friday for a 0.54% gain. AGAIN MY POINT IS, THESE MAJOR PSYCHOLOGICAL MAGNETS ARE A FRACTION OF A FRACTION OF A PERCENT AWAY.

The third reason is in the paragraph above from Friday..." I'd think the most likely scenario would be that it closes down, perhaps that bearish engulfing pattern"

Something like this perhaps...

16k is hit, any orders above that can be taken and we "could" end up with a bearish engulfing pattern like this, that part isn't in the intraday 1 min charts, that's in the more important ones.

Those reasons can be found in this post from the EOD Wrap Check out: High Yield Credit in that post in to the close,  or the 60 min VIX futures, the intraday VXX, the spot VIX Bollinger Band Squeeze, the ES 30 min chart in to the "Head-Fake" area or the NQ charts of the same, The IWM or QQQ charts, look at the Financial sector charts or Technology and DON'T MISS AAPL. These are the reasons a candle like the one above is not hard to imagine with the intraday charts from Friday in the post linked at the top of this one, I could keep going, but there are a lot of posts dealing with things more specifically.

As I look at the area I think is VERY high probability a head fake area after nearly 2.5 weeks of FLAT trade in the major averages (as we see head fake moves so frequently at reversals and especially important ones, which Is why I expected one after the range was so well defined after nearly 2.5 trading weeks of flatness) I also took a look at some other indications that I found interesting.

For example...

 The cycle is clear across all of the averages, it started at 10/9 lows in all of the averages, showed reasonable stage 2 markup after the stage 1 accumulation in to the 10/9 low and then the distribution area in to the flat trading range which is one of the most obvious places we see accumulation and distribution.

I typically say about 80 of all reversal in any asset and any timeframe have some sort of head fake move, "The Igloo with Chimney" which is similar to the SPX above. 

The yellow arrow represents the nearly 2 and a half trading weeks of flatness/choppiness...HOW FLAT? The SPX gained about 0.45% during that area of nearly 2.5 TRADING WEEKS!

 The IWM is similar (Russell 2000) except instead of a false new high breakout, the IWM put in a bearish "Channel Buster" which I think is going to be a text book example of how a Channel Buster works and one of the reasons I decided Friday to add an IWM December $111 Put in addition to the SRTY (long) trading position.

The 3-day head fake isn't to a new high as the IWM was already trending down, but the 3-day head fake move is the same, it's just a different type of a  head fake move.


The NASDAQ 100 looks almost exactly the same as the SPX, the same range, the same 3-day move above the VERY OBVIOUS range and creating what would be the same head fake move we see at reversals which in this case would be called a bull trap rather than a channel buster.

If we look at the 5 min charts of the Index futures for these areas (where the head fake moves occur) we get a pretty clear picture of underlying trade not just in the averages, but Index futures.

 ES 5 min 3C chart over Wednesday, Thursday and Friday, the same 3-days.

 TF 5 min

NQ 5 min...

Notice a theme? You may remember the IWM charts as well, I sure do, they're beautifully formed.

BUT THIS ISN'T BREADTH, THAT'S WHAT I WANTED TO SHOW.

Breadth doesn't lie, it's a straight count of how many stocks did or did not participate and gives you a good feel for the strength of a market or weakness. 

For example,  as the SPX was making new highs Friday, of the approx. 2800 NYSE stocks, only 228 made new highs with the SPX making new highs!!! Would you not find that troublesome?

These are "Breadth Charts", they compare (typically) NYSE component stocks vs a comparison symbol which I have set to the SP-500.

 Looking at the NYSE Advance /Decline line I see an A/D line (green vs SPX red) that hasn't cleared last month's A/D high and certainly not with the SPX. THE LAST TIME THE A/D LINE DIDN'T MAKE A HIGHER HIGH IN AUGUST THE SPX LOST -80 POINTS.

 The NASDAQ Composite (ALL NASDAQ listed stocks) isn't able to clear last month's A/D high either...AND THIS WHILE WE ARE MAKING NEW HIGHS? With the Index 3C charts and averages, credit, Leading Indicators, etc, it's not hard for me to believe these are the head fake moves we expected after the range became so clear (plus we hasn't seen a head fake move to that point) and the head fake moves that accompany a reversal so often (usually JUST BEFORE the reversal).

 Looking at the Percentage of NYSE Stocks that are ABOVE their 40-day price moving average, since this cycle started on 10/9 they rose as they should have in the "mark-up" phase to almost 82% of all NYSE stocks trading ABOVE their 40-day price moving average.

However, as the SPX breaks out the last 3-days above the range, that percentage is now 58.61%! Wouldn't you expect it to be at a new high above the former 82% high?

The Percentage of NYSE Stocks Trading TWO-Standard Deviations Above their 40-day Price Moving Average (these re typically the momentum stocks)  has dropped from 42% when the SPX was actually lower (red) to a mere 17.13%! 

Forget 3C, forget Leading indicators, this is cold, hard math, there's no interpretation here, there's no bias, there's just fact. You have to decide what you think of those facts, I've spent a good part of my trading career watching market breadth and this is not good, it's not typical.

As for the longer term 3C trends, I've showed you the daily Index futures and what has happened in 2013...

 ES daily 2013...

NQ Daily 2013...

TF (Russell 2000) daily 2013...

Now look at the Percentage of NYSE stocks Trading Above their Simple 200-day Moving Average (a measure many use to determine whether an asset is in a bull or bear market)...

From the New year 81+% of NYSE stocks were above their 200-day moving average. In May that dropped to a HIGH of 75.43%, in July at the high, 61.12%, then 55% and now 53%. 

Nearly half of the NYSE is trading BELOW their 200 day moving average, but more specifically, as the SPX has gained 5.18%, the percentage has dropped from 61% to 53%, at the lows, 43%.

I think there's more than just 1 cycle (timeframe) that we need to be looking at here.

As for what's ahead...

We have a lot of F_E_D speakers this week, an unusual number, I wonder why? Could it be the release of the F_O_M_C minutes on Wednesday? Remember the last time the F_O_M_C minutes came out and half the participants wanted to end QE by the end of 2013 and the market nearly dropped a... rock? Then after the close, Bernie comes out saying that "Accommodative Policy" is here to stay for a long time?

Then the market went nuts to the upside, I was saying the entire time, He's not talking about QE,  holding interest rates low until 2015 as the market expected is "Accommodative Policy", "He's using ambiguous, plausible deniability" to counter-act the horrible F_E_D minutes!

Then after a few weeks Bernie said, "I never said anything about how long QE would be around, I was talking about holding interest rates down for at 6 months after we conclude QE" !!!!!

In any case, there's a lot of speakers there, a lot of chances for all kinds of knee jerk reactions as they are both doves and hawks.


In any case, there are a lot of charts looking really bad, really quick, I'll be looking at AAPL early in the week as it seemed to fall apart almost instantly.

Have a great week, I'll see you in a few hours.