PCLN TRADING Positions ONLY

Any Core positions that are in place or are going to be added to, I won't risk them by trying to trade around a likely bounce, but I opened the "Trading Portfolio" for TRADING and I can't ignore this signal for a bounce, I'm guessing>$1200, that's where I want to close the long (as the market tells us, but I think it will likely be very fast) and open a short trading position as well as add to any core short positions or longer term trending positions, it's really a matter of your risk tolerance, the time you have to dedicate toward this and your gut.

Again, for a trading portfolio I just can't see allowing a likely gain go by and just watching it. This is a different tactic, a more aggressive tactic, it's not well suited to everyone. The probabilities beyond a week still are heavily leaning to the downside and for core positions (trend) and set ups that have been under construction, I wouldn't risk them for a bounce, but for a trading portfolio, this is a trade.

It is essential that price alerts be set so you can stay on top of what will likely be a fast moving trade.

Just like I can't ignore the short set up in PCLN on 10-60 min (and longer ) charts, I can't ignore the trading set up for short duration trades, you know I've been wrestling with this decision since yesterday.

 intraday 1 min, the "U" formation is almost in place, 3C shows accumulation of the move, it's a short term head fake in my view which makes it a good entry for a "TRADE".

The 5 min chart is as far as we go here, but leading positive, I can't ignore that.

I'll have to close the PCLN short in the trading portfolio at a small gain of about 1.5% and open the long. When we get done with the long move, both the core positions (trend) and trading positions will be adding or starting shorts here as the probabilities are deeply skewed to the downside.

This was not an easy decision for me to make, so make sure you are comfortable with your ability to be there for this position and can tolerate the volatility. 

Quick USO Update

I suppose this could change very quick, especially on the F_O_M_C announcement tomorrow as that could have a dramatic effect on the $USD which has an effect on oil as oil is sold in $USD, however for the moment, I'm not ready to commit to a new long or add to position there yet.

Trade Idea: DGAZ / UNG follow up

I suspected UNG would pullback after its initial breakout and DGAZ looked like a good way to play that pullback, yesterday I though we'd see a little pullback in DGAZ though like the rest of the market.

I will likely increase my DGAZ position in the trading portfolio to a full size position rather than the half size it was or thereabouts. I'll likely also go through the Core portfolios and close UNG longs and replace them with DGAZ long (which is a 3x short natural gas ETN, not ETF).

I said I thought the DGAZ/UNG trade was separate from the broader market cycle and I do think that. I think UNG's pullback is a larger or longer duration move so DGAZ long would be a longer duration move.

 I think over-diversification/Modern Portfolio theory is retail trying to imitate the diversification that Mutual Funds MUST follow by law- (no position representing more than 5% of the fund), so they've sold everyone the myth of "diversification" and called it "Modern Portfolio Theory", I think you can diversify with 5-6 positions. The point is, Mutual Funds took what really is in my view, a law they are forced to comply with that kills returns to make Mutual Funds "Safe" for the average citizen and they've spun it to make it seem like "diversification" is a good thing, I agree, but not over-diversification.

In any case, the point is I think DGAZ and/or UNG are good diversified positions (I prefer DGAZ for the moment until a pullback in UNG is complete) because they are not correlated to the market like most assets are in either a 1.0 way or an inverse way.

Here's the DGAZ charts.

 2 min intraday, you probably recall this yesterday, I suspected a pullback and we have a pullback. You could probably wait for a bit of rounding toward the upside, a "U" shape in DGAZ before deciding if you want to go long, or it could move back quickly as a head fake kind of move.

 Past intraday, 3 min positive

5 min positive

And all the way out to 15 min leading positive.

I love UNG, but I don't want to sit through that kind of draw-down when those funds could be making money here for the time.

For some of you, perhaps the rounding of DGAZ (the reversal process) might make the difference in deciding whether you want to take the position on. I'll try to keep it updated, but I will at least fill out the trading position in DGAZ long.

PCLN Trade Idea / Management / Update

I can't really do much with the trading portfolio regarding PCLN as I set it up so there's no options trading there, just equities, so my choice is to cover PCLN short at a small gain and go long, then flip back short in what will probably be a very short duration trade above $1200. However for me it's just not worth it, the options position opened yesterday is another story, I might add to that, but it's in the options portfolio so it can't act as a true hedge (this is all just relevant to what I have set up), for you it could.

I think it's probably worth a shot if you have that kind of risk tolerance which I do.

Here's the improvement in PCLN for that specific trade and then we get to the first ugly chart and they get much worse from there, that's the probabilities, that's why PCLN short was left in place when all other trading positions went long in the trading portfolio, it's because I believe in this as a short and I think it makes a nasty fall when this bounce gets done, as confusing and ugly as it may seem (the bounce).

 1 min intraday leading positive even more, that means the move this morning was likely a head fake, as we saw it hit stops and probably got some shorts involved so as a head fake move it did what it was designed to do and as a 3C chart, we have good confirmation it was a head fake move which is a broad term for different manipulative strategies like stop runs which is actually what this is or a bear trap.

 There's support for the 1 min divergence here at 2 min

And clearly improving at 5 min.

That's where it end, as I said last week, the divergences are 1-5 min and that's about it, that means bounce and the roof or lid on that bounce starts right below.

10 min leading negative, but every timeframe above this is as bad or worse so for an equity position, swing trade or longer, you may have to sit out some draw down, but if you want to trade the probabilities, it's short.

If you're not in or in a partial position, good for you because any move >$1200 which for me is just a magnet for price, is an excellent entry, I'd take it all day long and twice on sunday if the market was open.

Otherwise if you have the risk tolerance, I think calls will work, I'd want something longer than a weekly, but that's me, I'm not looking for a lotto ticket.

Market Update-Trade Oppty.

As I said, watch that VXX, it will scream when it's ready to make the next leg up and it's not doing that, it was signaling the gap fill is ending this morning and look what we have...

 ES intraday and all of the other Index futures intraday are going positive as the gap from yesterday was filled and then some.

/VX (VIX futures) are showing an intraday negative like VXX, except these are the real futures so they confirm not only VXX, but the Index futures.

Then...

 The intraday IWM

QQQ

And SPY, all fixing themselves up, putting some lipstick on these pigs and getting ready to go to the dance.

I think if you wanted to you could jump in to a 3x leveraged long, right now I'd leave it to the major averages with ETFs like URTY, TQQQ, UDOW and UPRO. I'll look at some sector ETFs too, but this is just  as speculative as when entered last week and you need to be able to watch and make a move when necessary which could be a lot faster than it has been over the past 4 years.

As for PCLN, IT'S COMING BACK, I MIGHT ADD TO THOSE CALLS...

Market And VXX Update

Remember yesterday my opinion or interpretation of the charts was an early gap fill today, but the up/bounce cycle was not over? Last night I reconsidered that analysis because of the 3rd Hindenburg Omen, but it seems thus far today that yesterday's analysis was right on.

While the intraday averages aren't really doing much that has me excited (that's not to say they aren't doing anything, in fact almost all of the averages have some sort of very short intraday improvement, just not anything I'd make decisions from) the Index futures make near perfect sense with price action, but as I have been saying, I think they key to all of this is the VXX / VIX. So Index futures help to make sense of what's going on now and VXX and related VIX assets I think are what we need to be paying attention to moving forward.

For instance...

 ES 5 min... The 5 min charts ALL make sense to me since most have all continued to deteriorate overnight, this morning's downdraft makes perfect sense. It's the 15 min charts that are still holding up and the VXX charts that are the combo to watch in my opinion which is little changed over the last several days regarding the VXX as a barometer. 

This ES 5 min chart's negative divegrence makes sense with market action this morning, but...

The 15 min ES chart is not in bad shape, it needs to be watched, but it's holding up.

NQ 5 min is not very surprising, but again...

NQ 15 min is a stronger chart, it's not seeing deterioration so whatever this is, which I suspected a gap fill yesterday for early today), I don't think we are done with this sloppy cycle.

 The 5 min TF chart is screaming, "I'm going to pullback and I'm SERIOUS", but again...

At 15 mins, there's not much damage.

So perhaps yesterday's initial interpretation of some very sloppy charts (actually it's just dispersion across the market) was right on.

I still think the VXX is key. When the VXX is ready to be bought I think 3C will scream "buy", THEN I think the market bounce is over. While VXX has moved higher (REMEMBER I WOULD NOT SHORT ANY VIX DERIVATIVE LAST WEEK DESPITE THE INVERSE CORRELATION) , the 3C charts are not looking good, but only in the market bounce timeframes of last week.

 VXX 1 min

VXX 2 min

VXX 3 min

So, the point simply is, I think we probably due have some more market upside, I warned Sunday night to be prepared for a very volatile week, it's not just F_O_M_C, it's not just Quad Witching this Friday, but it's window dressing pushed forward because of the holidays and the T+3 settlement rule.

So, lets stay calm, I'm staying the course with the trading positions and of course staying the course with core positions. I think things will clear up, but I think we will have to look in unusual places.

PCLN Update

Ohhh... That's what I'd call a trader humbling market slap in the face right after opening PCLN calls to hedge the PCLN equity short position because of a small, tight triangle yesterday and positive intraday divergences. PCLN itself being down is not surprising, it was the only of 7 positions in the trading portfolio that was left open as a short, the rest were long exposure, but the hedge, wow, what a slap, that woke me up.

In any case, I'm not run off so easily on a.m. trade, it's up to the charts from here so I'll just watch and wait for instructions.

 The triangle yesterday and the volume as stops are hit below that triangle.

A closer look, stops right at the apex and under the lows of the price pattern.

Of course this is why PCLN was left as the only trading short, because it's in trouble, but a pop >$1200 seemed/seems likely.

The 2 min chart is still holding up so I'll watch this for any deterioration as well as the 5 min below.

5 min.

Other than that, there's nothing but bad news for PCLN so if I'm short an equity position there, I stay in place and be patient, as far as the hedging calls, well, we'll see, I never take retail raking, a.m. trade too seriously.

A.M. Observations

Good Morning. Today is the start of the 2-day F_O_M_C meeting, tomorrow at 2 p.m. is the policy announcement, some are leaning toward a Feb/March taper (as always) for reasons I mentioned yesterday morning and this morning's CPI data didn't help the Taper cause.

The headline Y/Y consensus was expected to be 1.3 and came in at 1.2. The F_E_D prefers the second set of numbers however, there the CPI Y/Y less food and Energy is 1.7% which is not that far off the 2% range they look for. While some think this is significant before the policy announcement, I see it as trivial.

As far as overnight action and what we have right now, obviously things were kind of flat, but it was the signals I was more interested in and they were interesting. Keep in mind the EUR/JPY is in shambles recently and looks toppy if it weren't for such a tight top, I'd say very toppy. A quick look at single currency futures reveals it's the Euro this morning that is having trouble and the Yen which is flat, yesterday we saw the Yen higher and the Euro flat in the a.m., either way, the pair is not supportive of the market.

ES is not interesting as it remains in line overnight so the others...

 NQ looked positive on the 1 min last night, it turned out to be a bit positive, but not a big move.

The 5 min chart has no changes of significance.

 TF/R2K I was more worried about with a 1 min negative divegrence which I usually don't pay attention to early in the overnight session as it changes a lot, but this kept deteriorating as seen above.

 And worse off, the 5 min chart kept deteriorating so today the IWM will be in focus as well as trade management.

Gold saw another one of these overnight slap-downs, but it has an interesting positive divegrence, I think it's time we took a closer look at gold and the miners again.

As for crude, it seems to be getting some legs under it after I anticipated a pullback and got a correction instead (same difference as they say).

So, once again, I'm going to be looking for reasons to stay in the positions we are in, if I can't find them, I'd rather move short term trading positions to cash or perhaps something else.

Off to work we go, may it be a good day.

Daily Wrap

This will be a quick one. Today I think it was clear that there were some confusing signals, the DIA particularly didn't look good while some averages did, Futures were split too, I figured it's this dysfunctional rotation we've been seeing, but today was the third Hindenburg Omen. The practicality of what a H.O. really is, is a mass of confusion in internals between highs/lows, advancers/decliners, in the past it has had a good record for sharp declines and even during QE the last two clusters made significant corrections, now we have a cluster of 3 which perhaps makes some sense with what we were seeing in the market today. 

It wasn't 3C that was off or funky, it was actually the market and I'm seeing the same thing in to tonight's futures. So what are the probabilities, well short term it's a toss up, if I don't start to see short term probabilities improve significantly, I'm taking the trading portfolio and going to cash, I see no reason to stick around if there's no reason to stick around. 

Big picture probabilities are clearly to the downside so I'd probably move in to some positions on the short side in the trading and other portfolios.

Here's what I mean about Index Futures tonight, just remember that last week when we closed trading longs and went long in the trading portfolio, almost all of the Index Futures had at least 5 min positives and some 15 min positives, that was GOOD reason to work toward a bounce which we saw start today, but since (today), things have gotten messy and with no apparent reason other than where the market is, this is the definition in reality of a Hindenburg Omen so I feel good that I'm not missing something in the charts and I'd rather err on the side of caution if I need to err.

VXX was interesting in after-hours trade tonight.

It ran higher, into an intraday negative in AH, but higher. Remember I would NOT short the VIX last week even though it should move down with a market bounce. Earlier today I showed the VXX's relative strength vs the SPX, it was much stronger than expected.

VIX futures are positive on the 1, 5 and 15 min timeframes, NOT shorting VIX derivatives was the best idea of last week.

As for Spot VIX, as I suspected, even in a bounce, protection is well bid as it closed higher and that Bollinger Band squeeze's highly directional move after a pullback to the 20-day as we expected, is REALLY taking shape.

VIX since the BB squeeze.

Correlation last week said go short VXX, 3C said, don't and so far 3C was right.

As for ES...

 1 min, as seen in the SPY, there was intraday late strength on the 1 min in the SPY.

The longer intraday charts though showed some damage had already been done, distribution in to strength, but not that bad yet, the 5 min ES chart is showing the same.

The 15 min that was so strong and a good reason for moving trading positions net long still looks like it has plenty of gas in the tank for a move higher, but if deterioration continues like the 5 min chart, it will be seen here as early as tomorrow morning.

As I recall, the NASDAQ 100 was also showing late day intraday strength, similar to tonight's 1 min chart in NQ, but everything else is in line only, if the charts in NQ looked like this last week, I would not have entered any NASDAQ longs.

 I usually don't pay much attention to 1 min charts overnight, but this one looks like it's preparing for a move higher soon.

The 5 min above and 15 min below were positive last week, now they are simply in line. If these go negative, I have to reduce long exposure.

15 min NQ.

Now to confuse things real good, that is what a Hindenburg Omen is in the context of breadth and advance/decline/new highs/lows, confusion rather than a clear trend.

 Remember, the Russell 2000 tends to lead the market, especially in risk on moves, but this 1 min intraday chart looks like TF is about to drop overnight while the NQ chart looks the exact opposite.

Moreover the 5 min chart looks like its also prepared for a sharp drop. You may recall my interpretation of these charts before I knew there was a Hindenburg Omen today was that a short gap fill (maybe on the open ) would be likely and then strength moving the market higher, it's still a possibility, but I think the charts were not reflecting that so much as the confusion of the Hindenburg Omen or the trading action in the market that creates it.

The 15 min chart is still positive, any damage done today or distribution hasn't been strong enough to make it to the 15 min chart, but as you may recall, my gut feeling was any bounce would likely end before the 2 p.m. Wednesday F_O_M_C, it may run right in to it and then drop right before, but I think it does go risk off and the VXX flies right before so WE'LL BE LOOKING FOR THE LONG ENTRY IN VXX OR UVXY REGARDLESS OF THE MARKET, AS LONG AS THE SIGNALS ARE THERE.

We did have a Dominant Price/Volume Relationship across all the major averages, it was Close Up/Volume Up, in the Dow there were 20, the NASDAQ 100 saw 45, the R2k, 775 and the SPX 248, definitely a dominant theme.

Close Up / Volume Up is the most bullish of the 4 possible price/volume relationships among the component stocks of the averages, however this can often mean the market is at a short term overbought inflection point and many times the market closes down the next day, but I find it hard to say we have an overbought situation with our first day up of the move and it wasn't like a +3% day so maybe we should just take it as a bullish signal for now.

Looking at Breadth Indicators I don't see anything today that is inconsistent with the gains seen in the averages, in fact they look exactly as I'd expect, but the trend in the SKEW Index (although not at an extreme) has gone a bit unnoticed as we have focussed on the actual number rather than the trend, this is a CBOE indicator like the VIX comes from them and it tries to put a probability to an improbable event, specifically a Black Swan or sudden market crash. The Index is normally at 115, when it's in the 130's it's elevated and chances rise of a Black Swan, it's really the sharp and clear trend that is a bit alarming in the SKEW.

SKEW vs SPX (red), the trend is very clear.

Other than that, I guess we need to see what tomorrow brings. The probabilities were good for a bounce, we've seen the start of a bounce, last night's futures behavior suggested accumulation of the lows and a move higher today after that 10k block of ES contracts sold all at once and we were right on in that case.

As long as there's a reason to keep those long positions open, I'll do so, but once there's no reason, then there's no reason to have them open. I'd rather be in cash than in limbo. However we did have some interesting moves like PCLN documented earlier today that would suggest the original bounce theory plays out, perhaps it's what comes after the bounce that is ugly, disjointed and falling apart at a rapid pace.

Either way, we'll be watching the probabilities and making adjustments based on that. Thus far I can't complain about taking short profits last week in the trading portfolio and opening longs, the trading portfolio now has a 15% + total gain in about 10-days since inception, that''s already more than two times better than the average of hedge funds for the year.

See you soon

Follow Up on the Real Estate Market

Just because I had posted this article last night... Specifically the point on real estate. Just from my perspective, we had two verbal offers pretty close to our asking price which is well above the comps as the banks cleared out inventory at a discount. The strange thing is, the latest offer is wanting to move on the property so fast it's scary. They expected Anna to sign a contract tomorrow when they haven't even submitted a contract for us to read, they haven't put down the standard deposit that usually comes with an offer and a contract. For some reason this person is really serious about getting the deal done right away, but willing to let Anna stay in the house for an additional 60 days after closing so it's not a fast closing for rental purposes, I really don't know why this person is so interested in closing so fast, all cash, no inspection!

So this article I saw tonight seemed like a reasonable follow up, as I said last night, I don't know how the rental real estate bubble is going to pop, but I think it does and provides a massive amount of inventory and really cheap prices while at the same time many HELOCS from the property bubble are set to change and see their rates go up, it has something to do with a 5 year fixed and then a higher rate so many banks are getting ready for another bout of foreclosures, this time on the HELOC or second mortgage side.

In any case, I think there's opportunity for those who are patient and paying attention.

Here's the article I saw tonight about cracks in the NY real estate market. We have some interesting real estate data due out this week as mentioned last night as well. It's like a feeding frenzy down here in Florida, we've had properties in our community going for ABOVE asking prices after they have been offered to people who want to live in them as part of some Freddie of Fannie Mae program, after a month or so they open them up to investors and the bids go well above the asking price, interesting huh?