Trade Idea: DGAZ (Long)

This is a play on a pullback in UNG, but in looking at it, I'd say it has a chance to be a larger duration position than the others that are market bounce connections.

I'm going to go with a 50% trading position long DGAZ.

Trade Idea: Materials

I really like XLB, Materials, but I can't find anything leveraged with decent volume, if you want to check them out there's MATZ, UYM and MATL, again for me there's just not enough volume in the leveraged ETFs and XLB just doesn't have the profit potential.

Market Update

As you can probably guess by the small flurry of activity, much of the market is looking pretty good for that move, that includes the QQQ (long). I'm considering some other assets, but I want to try to stay away from specific assets and more toward broad, like instead of AAPL long, QQQ long and I'm also trying to use leverage of 2-3x.

At the same time maintain some diversification. There are certain assets such as VXX you might think is a short if the market is going to move higher, but I won't touch those, I may take profits off the table, but not go short those, that's asking for trouble.

I'm still looking for assets that fulfill those criteria that look reasonable, DGAZ on a UNG pullback is one I'm considering, I'll let you know as always.

Trade Idea/Execution: FAS (Long)

You'll also likely recall FAS (3x long Financials) mentioned earlier as a short duration position. I will add the entire intended position right now, but it will be 75% of a full position, URTY would be a full position and I normally run about 6 positions in a trading portfolio.

Earlier Financials/FAS Update

Trade Idea/Position Update: URTY

You'll recall URTY is the Russell 2000/IWM's 3x leveraged long ETF which I opened a partial position in today in the trading portfolio which means I expect a shorter duration move, a normal bounce, even though I believe all moves Wall St. sets up serve a purpose.

In any case, I'll be adding the other half to that position to bring that to full size, again this is the new shorter term trading portfolio.

VIX / VXX Follow Up

The spot VIX daily Bollinger Band Squeeze/Breakout and the VIX Futures 4 hour leading positive divegrence are still two of the most recent red flags for the market on the downside and VIX on the upside, this is why I want to maintain some exposure to the VIX at all times now, even if only a VXX long.

Short term, I like the momentum in VXX, that's where I usually try to take profits and we did pretty well with the position.

The P/L looks like this...

With a cost basis of $3.25 and a fill of $4.90, the VXX calls came in at +50.7%

 This is what the intraday VIX futures look like on a 1 min chart.

The more concerning for the short term and for option positions, especially if they are December expiration is this 5 min chart, this is where I take a signal seriously with futures.

However, the long term is still VERY solid and I'd love to re-enter VXX calls and UVXY long in the trading portfolio, this is the 15 min chart so you can see there isn't that much damage done, more or less along the lines of a bounce and that's about it.

The big picture that's driving the Bollinger Band Squeeze in spot VIX is this never before seen (by my eyes) 4 hour leading positive divegrence in actual VIX futures.

Closing the other Half of VXX Calls Jan. $45

As for positions in VXX or UVXY that are meant to be longer term (meaning other than the trading portfolio), I'm leaving those in place, just taking gains on the call position, as you know I don't like to be in these long and on any pullback I can reestablish the position at a better price.

Trade Idea: Financials

This, like all of the others, can be looked at a couple of ways, depending on how aggressive you are about the trade.

First the position I'm watching and considering is FAS (3x long financials), this is for a short duration trade, any positions in FAZ (3x short Financials) that are in the core portfolio would just stay as they are and perhaps if there's room I'd add to FAZ upon certain conditions.

First I want to give you the overall feel or the "Highest Probabilities" because this sector has been destroyed.

I'll start with XLF which is the non leveraged ETF for Financials...

 10 min XLF

15 min XLF

30 min XLF through the 10/9 cycle

4 hour XLF, clearly the probabilities are to the downside in financials so for larger/longer duration positions I prefer a Financial short, XLF short or FAZ long.

Short duration FAS (3x long Financials) for a bounce...

 Yesterday again we can clearly see where the divergence started and where it failed. We are getting a sort of inverse H&S look to the price pattern, although I can't say that is what it is because the failure was pretty obvious.

FAS 3 min, so we are not there yet.

Looking at it's opposite, FAZ...

 1 min so it looks like a pullback of short duration is probable making FAS long a play on that pullback.

And as far as FAZ goes, even for the trading portfolio, I look forward to re-entering the position as this 10 min chart makes clear, this is where the probabilities are.

For an aggressive trader you can try to ride FAS on a bounce, as it ends jump in to FAZ long for the next leg down.

A less aggressive trader can just wait for price to pullback in FAZ (hopefully) and enter it there.

The least aggressive trader who may be holding FAZ, I'd have no problem just holding it, you'll likely see some short duration drawdown, but things should resume right back on the upside as this possible correction ends. So, 3 different ways to play this not including options.

Remember if you have exposure to FAS long you may want to be careful about too much exposure to SPY long as well, about 22% of the SPX is financials.

Trade Idea: TQQQ (Long)

This is another short duration trade idea, I have not entered a position here as of yet. TQQQ is a 3x leveraged long NDX100/QQQ ETF. Many times in situations exactly like this (where a short duration correction is probable, we will see signals appearing in the leveraged ETFs before the underlying index (NDX/QQQ). I suppose this is because there's more demand for the leveraged product as there's less profit potential being a shorter duration position, but this is not only how we confirm signals (using multiple derivatives of the underlying), it's also how we can get a feel for what traders are thinking and this would suggest that they are thinking this is a corrective move that needs leverage to make it worthwhile, much in the same way I'll use options for their leverage.

I personally think that the IWM is more "oversold" on a relative basis vs the other averages and thus probably makes for a better position. In the past I would only chose 1 of these (either the IWM or QQQ) as they traded almost exactly the same, but we have been seeing the market splinter much more so that may not be the case to the same degree it was.

Remember if you enter an IWM/Russell 2000 based position, you'll want to be careful with any correlated trades which would be more along the lines of a small or mid-cap ETF and if you enter the Q's, then the correlation you may want to watchout for would be technology. Having a long QQQ based position and long Technology based position in my view is too much correlation.

 The 1 min is starting to lead in TQQQ

 This is yesterday's 2 min early positive divegrence that was being put together and you see where it just got run over and failed, now there's a second chance as I figured they'd try and we have a relative positive.

Remember they have some inventory in place most likely from BEFORE the fail, they'll want to free that up, although there are numerous ways they can do that, a bounce would be the simplest concept.


Also remember that just about EVERY Wall St. created cycle (even a super mini like this, which we know was Wall St. created because we saw it yesterday) HAS A FUNCTION, IT HAS A JOB TO DO, so don't just expect a little bounce to work off an oversold condition, there's a reason why they are putting it here. There are a lot of 50-day moving averages in the area for the majors on daily charts, technical traders pay attention to them, so that could very well be the game, but it's always going to be to shakeout as many traders as they can.

 TQQQ 1 min positive forming. You can see it needs more of a base built sideways.

To compare to some of the longer charts (TQQQ is 3x long, SQQQ is 3x short)

This is compared to the 3x short, SQQQ 10 min, this shows the negative probabilities for the market.

SQQQ 30 min again with a large base

and 60 min with a large base, all showing the bearish probabilities.

This is TQQQ's 60 min chart for comparison, leading negative while SQQ has a huge base in place.

However we are looking at short term /duration longs in TQQQ.

Trade Idea: URTY (long)

Again, this is the short duration trading portfolio, I'm going to open a half size position long URTY (3x long Russell 2000). If the base widens out more, I'll add to it. After this has run its course, it should set up a nice IWM short or SRTY long for a longer duration position.

Here are the charts that attracted me to the asset.

 URTY 1 min, note the flat range and positive divegrence.

The same with the 3 min

And the 5 min is leading positive.

As mentioned before, most of these are going to be in the 1-5 min range and will likely take a few more hours to fully set up.

These are the P/L's for the positions closed out this morning in the Trading Portfolio.