Quick Update

That 5 min ES chart is still a little bothersome, but the averages all continue to move in to deeper negative intraday divergences.

In addition, VXX/UVXY are moving toward stronger leading position divergences.

I'd say things are moving the right way, I'd  also say a little more patience is probably prudent.

The Yen's intraday 1 min is repairing itself, but it's still not at a mature reversal process and it needs to lead more, the 5 min chart and 15 min chart suggest it will get there, again I think it's a matter of some patience.

While VXX is generally looking much better, intraday it looks like they'll try to bang the close, you can see it in the quick slide in VXX 1 min.

I'm going to check on leading indicators.

By the way, PCLN finally did it, it's not ready for a trade yet, but it's finally made it to the area we've been looking for.

Trade Idea: MCP Calls

I decided to go with half and half... Half MCP February $5 Calls and half MCP March $5 calls, I prefer 6 weeks until expiration, even on a quick trade, February is a bit tight, if I HAD to pick one, I'd probably go with February, but I'll split them.

MCP Update

It looks like MCP just hit another cluster of stops and it looks like again they were accumulated. MCP is looking very interesting, there's only a couple things missing that I'd like to see, one is a few more leading positive divergences and the second is some kind of reversal process because a "V" reversal is not likely.

 Here's what triggered the stops, as usual technical traders are extremely predictable as to where they put their orders, but the pros have the full depth of the book so if you put in an order with your broker, they see it, why would you show your cards when playing poker? Worse yet, why do something so predictable. In any case, you should be able to see the small "W" base to the far right just before there was a breakout, it's support of that base that triggered the next round of stops and they appear to have been accumulated.

 This is a 5 min chart showing the break of that exact support and the stops getting nailed, someone is on the other side of that trade.

 The 2 min 3C chart shows a leading positive divegrence (coming out of a relative positive divegrence to the left) right at the spot where those stops were run, which is a kind of head fake move.

The 3 min chart shows this more clearly plus gives us confirmation that there is migration of the divergence (a stronger building divergence or underlying trade/accumulation).

Overall, the 10 min chart has shown the probabilities are very good we have been looking at a constructive pullback, it appears someone wants to load up on MCP on the cheap and they are using stop runs to accumulate which leads me to believe they may be pressed for time as they aren't taking the normal route of a range.

This is the 60 min chart, the distinction between distribution and accumulation is very clear, it's also the same time Goldman came out with a negative hit piece so guess who is accumulating MCP? I''d bet Goldman's fingerprints are all over this one.

 There are some support-like candlesticks popping up.

The 2-3 min charts are also leading positive even more.

This doesn't have the reversal process I'd like to see yet to fill out the long trading position, but this is the kind of downside momentum with accumulation that I love to use to enter options, I'm thinking February $5 calls, maybe March,. I'm going to check out what they look like and of course if a position is going to be started, I'll let you know first.

Market Update

It looks like I got back at the perfect time, the retracement I expected before I left took place, it was pretty much a non-event thus far, but there's some detective work to do now.

It looks like we are just about at the end of this intraday move, the USD/JPY is safe, the Yen looks safe, but there are some signals I've been looking for that are where the high probabilities are and thus far today has been more or less a bookmaker, a volatile one, but a book marker nonetheless.

 The NYSE TICK data alone shows the retracement channel starting to fade, it looks like soon it will break the channel, in fact it just did,

 ES / SPX Futures intraday 1 min went from the negative signal around the open to the slight positive I mentioned before I left for an intraday bounce and now is negative again. The one thing I want to look in to a bit more is the 5 min ES chart just in case this may be a wider range area.

 5 min ES, clearly negative at the highs and at the open this morning of regular hours, the positive divegrence I mentioned before I left for an oversold bounce and as of now, it's still slightly leading. It takes the 5 min chart a little longer for a brand new intraday signal to develop as it has on one minute charts, but this is one thing I'll be watching as it could and probably will go negative or it could stay in confirmation and we'd get more volatile lateral chop which is not usually the best place to be entering new positions.

 The 1 min Yen and the negative divegrence in it which led to the market oversold intraday bounce over the last 2 hours or so and a positive signal developing now.

As I suspected, thus far there's no damage at all to the overall positive 5 min Yen signal so there's no real surprises, what we expected to happen, happened thus far.

As for the averages, the Q's are now giving an intraday negative signal, it's still a bit young, but I think valid considering all of the other confirmation above.

 The IWM with Friday's closing negative signal, as I said, we usually pick up where we left off the next trading day (even over a 3-day weekend) and that negative signal knocked the gap up on the open, down. You can see the intraday positive I mentioned for a bounce/retracement intraday and how that has been sold in to once again, going negative.

The exact same can be seen on the SPY.

VXX / UVXY is one of the assets I look to for timing of new positions as it gives excellent , unmistakable signals and that's one thing I'm looking for. VIX / VIX futures trade opposite the market for the most part so the inverse signals and price action above confirm all of the charts above this one, we have a leading positive divegrence in to the pullback here (matches the bounce in the market the last two-ish hours) and that's a good sign, there's a reach for protection, some fear and when this leads positive in a big way, we know we have a big trade coming.

So that's what's happening right now, I'm going to look at some assets that may be in position for a trade and also keep looking to see what the market is up to and when might be a good time overall to look at trades, YOU DON'T WANT TO WASTE YOUR TIME IN VOLATILE CHOP, AT BEST ITS OPPORTUNITY COST, AT WORST IT'S UNNECESSARY OPEN MARKET RISK.

Market Update

For the most part, this is just noise and there's not a lot that's very exciting as far as positioning right now, we are kind of going through the movements, however we are pretty much on track. As we approach some better timing there are a number of positions that can be opened.

First the immediate market update.

We've had solid downside on Friday's negative divegrence that has continued on the open today as is normal to see with 3C divergences . ES (SPX E-mini futures) has lost a whopping 17 points since the open this morning, that's an impressive FAIL, although it looked like it was heading that way last night from the early action in the Yen as of last night's post.

Here's what we have now, you could call it a bit of an oversold condition, but it's more about tactics, movement and opportunities.

 First, the NYSE TICK (intraday) data from today shows the typical "Retail Chasing" +1300 reading on the open, this is a great example as to why we don't chase things, but let them come to us.

Since then, TICK has seen a solid downside extreme just shy of -1500, this is where we are getting a bit oversold on an intraday basis. I don't believe in true oversold/overbought in the way they are described in main stream analysis, it's just the market can't be predictable and too much movement in one direction has too many traders on the same side of the boat and that doesn't work in a zero sum game.

 The intraday 1 min 3C signals for ES this morning are near perfect, distribution at the highs and we have what looks like a bear flag that traders would expect to break to the next leg down, which in this case would be close to another 15 points or so when accounting for the flag, but I suspect this will flatten out and create a small intraday reversal process and we should see a bump on the upside retracing some of the sizable loss this morning in ES.

 No need to go to the carry trades which the market is tightly correlated, just go directly to the Yen. This 1 min chart of the Yen futures shows good upside confirmation, but recently you can see an intraday negative divegrence in red, it's actually leading negative. I don't think this will be a serious or threatening pullback because of the following chart/s...

The 5 min Yen chart was barely leading positive last night, but migration of the divergence occurred overnight as it travelled laterally in a range, as I said this is where the most activity in underlying trade is often seen, right where price looks to be the most boring.

There's no damage at all to the 5 min chart and it's leading positive in a big way so a 1 min negative is a signal that should move the market, but it likely won't overcome what has been built here. We could get in to the fundamentals, the initial knee jerk last night on the added Central Bank liquidity and as I said last night, as that knee jerk fails, the serious questions regarding why this injection was so big and some concerns that fade the knee jerk and maybe a lot worse.

For now, even without ES, the Yen alone suggests it pulls back, the Yen carry crosses move up and drag the Index futures with them (on an intraday basis). THIS IS WHERE WE CAN GET SOME SOLID INFORMATION SUCH AS WHETHER THERE'S DISTRIBUTION IN TO ANY RETRACEMENT/UPSIDE MOVE.

 As far as the USD/JPY carry, it has been in a downtrend since the start of the year, lower highs/lower lows.

I have the same short term concern as last night, a move in the pair above the last reaction high around $104.91 would cause technical buying as the downtrend would be interrupted. I don't view this as anything more than a delay or hassle, but there is a silver lining if it occurs and that's in letting shorts come to you if you need them and having a strong entry at better prices with lower risk, but for now it's just an area to watch for and more of a nuisance than anything as I'd rather we just got on with it. I KIND OF DOUBT THE 5 MIN YEN POSITIVES WILL ALOW THAT KIND OF A MOVE ANYWAY..

We do want to see the next lower low made soon.

 As for the Crazy Ivan around a bear flag on a daily chart of almost any market average (A) is the bear flag, (B) is the expected technical break below the flag, (C) is the upside shakeout of shorts following the break below the bear flag and the Crazy Ivan shakeout and (D) should be the resolution of this area.

As for some charts...

 Intraday the IWM (nor any of the averages) did not confirm the gap so it was destined to fail, there's a VERY slight divergence, this is likely to grow, I'd think the market / IWM will have to put in a little more lateral work to get a foothold that can get any upside traction, I'm not talking about a new high, I'm talking about a retracement of some of this morning's losses.

 So far there's no positive at all on the 2 min chart, it is/was leading negative since Friday and further back so this morning's price action shouldn't be a surprise.

If this stays leading negative at 2 mins (which I doubt, but if it does), then there's very little strength for even an intraday bounce. I doubt very much we'll see anything of significance here.

The  you have the institutional 5 min timeframe leading negative, I really don't think any bounce is going to change anything here and the probabilities remain very negative. This is not even in true scale, it's much worse, I'm just trying to show recent action only.

So I think over the next few hours there's just going to be some jiggling about, after we get a retracement (assuming we do), then there may be some interesting positions worthwhile.

Keep your eye on PCLN, we are looking for +>1200 to look at starting or adding to a core short and/or put options.

I have that Dr's appointment soon, I won't be gone long and I don't think I'll miss much beyond what I laid out above.

The VIX/VXX divergences aren't quite where they need to be yet for a really serious signal that we want to move on quickly.

Quick Update

We should see some stabilization in the averages shortly, maybe an upside correction. I'll show you why as soon as I gather all of the charts. It's not a big deal, but may be useful in tactical entries or exits you may be considering.

MCP Update

Last week I opened a half size position in MCP looking for a pullback which is just in the green at 1.5%, even though we saw the pullback coming, the core/trend MCP long position was left alone, no trading around the pullback because I like MCP a lot as a long term long position and that core long is up +12.5% even with the pullback.

What we saw on Friday as per this update from Friday looked like a head fake move just under a larger reversal process, it definitely hit stops as could be seen by volume right under support. (See the previous update for more background)

Right now it's in a smaller reversal process that's part of the larger one, it's actually still the head fake area and so far, so good.

I want to add the second half of that position to bring it up to a full size trading position, but I want to see some more migration in the positive divergences before doing so although I suspect this area is probably about the right area and timing is probably pretty close. Remember, MCP is one of the few stocks that will go against the market's tide.

Here's what we have so far this morning... From micro to macro

 We have the "W" base and the pullback/shakeout . At the yellow area a rounding reversal-like process which is under the stop level taken out Friday. It's possible this morning';s volatility is the warning flag that we are about half way though this smaller process (yellow).

This is the same chart just a bit closer on a 5 min timeframe with the stop run at the red arrow forming the basis of a head fake move as long as it is verified by 3C as being accumulated which is high probability based on the longer/stronger charts.

The 1 min 3C chart shows a weaker, but larger relative divegrence right until those stops are hit, someone is on the other side of the trade and notice that's when we get a stronger leading positive divegrence so my initial impression is those stops were accumulated, it's an easy way to pick up a larger number of shares on the cheap without alerting anyone as to what they are up to, I never understood why Technical traders never considered who was on the other side of the trade in a stop run like that.

 The larger 5 min chart shows the strong base with a leading positive divegrence (W base) then the weak negative divegrence that caused the pullback which is when we closed MCP trading longs, but left the core position in place. You can see the head fake area at the yellow trend line and the 5 min chart seeing some migration of the positive 1 min divergence in the area as the 5 min chart is starting to lead which is good for confirmation, but I want to see this really pop on the chart, stand out and scream "Buy me". In any case, so far, so good.

 A closer look at the 5 min chart from the reversal/pullback area where we exited the trading longs, a small "W" base and a small pullback, all are in leading positive position so the probabilities of this resolving to the upside are very high, for me it's more a matter of timing than anything and whether there's an opportunity that forms for a call options position.

This is where the larger probabilities are, the 60 min chart with a large "W" base, the breakout and pullback I was hoping we'd see. Note to the far right the entire pullback area is leading positive so again the probabilities are all saying this resolves to the upside, it's just a matter of the intraday charts migrating and connecting with intermediate charts as far as timing goes and additional/stronger confirmation.

At that point, I do want to add to MCP long and bring it to a full size trading position.

Market Update

You remember what I said Friday about price doing what it wants, but 3C signals will usually pick up right where they left off, even over a 3-day weekend and I say this every Friday, well we'll see those in a minute and once again, they are fulfilling that concept.

It looks like that reversal process built up overnight is in the process of starting to reverse to the upside in the Yen. There's always the chance that it becomes a wider "W" footprint and it's early and you know how I feel about a.m. as far as analysis, but the USD/JPY stayed below an important technical level and since last night's post the market stayed largely lateral whether the Yen, the USD/JPY or the Index futures.

 Last night I expected the 1 min positive divergences in the Yen that were just starting as lateral movement (reversal process) was just getting underway to migrate to the 5 min chart showing us a much stronger signal, indicating that the low levels in the Yen were likely being used to close carry trades, in this sense it's kind of like being short, the lower the Yen when you close the carry, the better position you are in.

The base widened out and so far is now breaking out, although it could make a wider "W" as mentioned above, but it is proportional as of now.


 The Yen upside is causing USD/JPY downside which is effecting the Index futur

ES 1 min right now has an intraday negative divegrence, but this is not the most important signal and as I said above, we are still very early and still a.m. trade with a lot of games usually being played in the morning.

As far as picking up where we left off with 3C signals...

 The SPY 1 min not only did not confirm the gap up, but continues the negative signal, pulling price lower right where we left off at Friday's close even over a 3-day weekend.


 The 2 min chart is stronger as a signal and is worse so as I was saying last night, I don't think the initial knee jerk to the Chinese liquidity will hold long, especially as people start wondering why such a large operation just before the Lunar New Year.

 IWM 1 min did not confirm the gap on the open and is pulling the IWM down.

The same with the Q's. It just seems the Yen was waiting for the US open before making any moves which is probably about right as far as proportionality is concerned.

I'm going to buzz through some other assets and see what's happening.

A.M. Observations

In addition to the PBoC liquidity injection last night sending futures up following the carry trades which were following the weak Yen, we had some other Central Bank news, this time in the US and courtesy of the F_E_D's unofficial mouthpiece, John Hilsenrath of the WJS who writes overnight that the F_E_D is on track for the next taper of another $10bn as soon as the January 28/29 meeting. I can't say I'm surprised, they've been looking for the exit for well over a year and it seems even with weaker jobs numbers in a seasonally adjusted period, they are going to stick with the line that economic recovery is proceeding and as such, so is the taper.

Of course the main mover last night was the $255bn CNY injected by the PBoC via 7 and 21 day reverse repos. It seems there's a threat of a potential Trust Default on Jan. 31st which makes sense with the injection being stacked on the 21 day RR side. Adding to the question of why which comes after the knee jerk reaction higher last night, a head researcher at the Chinese Academy of Social Sciences says China will see ,"Trusts and Shadow Banking will see defaults this year".


Even though we will gap higher, the USD/JPY did not break the technical level of $104.91 which would have set off technical buying and more important, as expected, the Yen's reversal process looks to be solidly in place.

This is the same chart of Yen futures as last night, except now it has migrated from 1 min to 5 min, the rounding process is larger, the 5 min positive divergence is large and leading positive. To me, this looks fairly well developed and pretty close to being proportional given the preceding action. We'll see very soon, I'm betting it's about to flip.

The PBoC Pumps the market with $255 bn in liquidity

I'm happy to see so many emails tonight with members focussing on the Yen as that's where the real indications are, even though in this case (despite the BOJ 2-day meeting just starting) it's actually a move China made that has the SPX E-minin futures up 10 points from Friday's 4 pm print.

We have been following the tight liquidity conditions and blow out in money markets in China, similar to the US 2008, this has been a big deal because they are caught between a rock and a hard place with inflation, yet the lack of credit growth and of course interbank liquidity lock ups.

You may recall that the market did not respond kindly to 3 consecutive skipped, regularly schedule Tuesday/Thursday reverse repos. In like, but opposite manner, the PBoC injected $255 bn CNY via a $75bn 7-day reverse repo and a $180 bn 21-day reverse repo for an injection of $255 bn CNY.

This all looks great tonight, but is surely a thin veneer of subterfuge that most people don't understand, China has REAL problems in the inter-bank market. An injection this big (the biggest since last February) would not be arbitrarily thrown out there like the F_E_D's "Throw it against the wall and see what sticks " mentality, the PBoC has been very surgical in their injections or lack of injections and even several liquidity draining events over the last 3 or 4 months, so I'd say that the initial knee jerk reaction to a lot of money sloshing around is really not the important aspect of what happened tonight (Tuesday, a regularly scheduled open market operations day).

As far as what we have right now because that's what matters right now...It seems like momentum is fading a bit, but as always it's a long night and Europe still has to open.

To me, it looks a bit like someone knew something just before the operation. I have to stick with 1 min charts for now, the morning may be a different story, the reason being is it's a new fundamental (surprise) event so we have to let it price in and let the underlying trade react. My gut feeling is the initial exuberance will give way to the question, "Why so big? What's wrong?" That may actually be taking place right now.

 ES 1 min looks like it had some early accumulation before the PBoC event. As we move along there's an obvious loss in price momentum, but also a range and that's where we see a lot of strong underlying trade which happens to be starting to lead negative in that range, but this is by far the least damning chart.

 The Carry Cross, USD/JPY DEFINITELY looks like someone knew something with a huge leading positive divegrence in a FLAT RANGE as mentioned above, since another loss of momentum/range and a relative negative divegrence, again a 1 min chart which isn't my favorite for overnight, but we have to start where the event started until the 5 min charts catch up and/or the divergences migrate to longer term charts.

 As for the 30 min USD/JPY chart, the only thing I see that may cause some additional movement is if the $104.91 level is taken out as it represents part of a series of lower highs/lower lows since the top at the New Year so there would likely be some technical trading if that level were taken out.


 The 1 min EUR/JPY (by the way, BoFA downgraded the EUR/USD tonight as you'll notice the EUR is looking weaker tonight). Again, another positive divegrence before the event, this one with a head fake move below the yellow line and it did what it is suppose to with immediate shift to the upside with momentum. Also once again, another trading range developing in the carry cross and another leading negative divegrence forming.

Going right to the source, the Yen single currency futures, 1 min, you can see there's not only a loss of momentum, but what looks like a small reversal process underway with a positive divegrence in that process, so it may be this is being seen as a good opportunity to cover/close some carry trades at advantageous price levels with the Yen down here, that's my guess as to what we are seeing right now.

 The Yen's 5 min chart shows a leading negative divergence (red box) and that same little rounding bottom from above with a positive divergence just migrating from the 1 min to the 5 min so if it keeps it up, this divergence should look pretty strong in the morning if it hasn't already moved price.

 The longer term 15 min Yen chart is largely unaffected, the positive divegrence at the lows is just too big and the leading positive divergences following it are showing it has stayed in good shape, yes it's reacting a bit to tonight, but the probabilities are still a higher Yen, lower carry crosses and index futures.


I think the MOST interesting chart is the Nikkei 225 futures, note the strong leading positive (1 min) divergence on the new open and price following that, then a just as strong leading negative divegrence now as the NKD hits its highs, interesting because again it looks like someone knew something before hand (a leak) and as of now, it looks like the knee jerk reaction to all that liquidity sloshing around may be giving way to the question, "Why?" which will likely not be a pretty answer.

Other than that, not much has changed since Friday, I still think there's a very good chance we have aCrazy Ivan shakeout going on in the averages as I showed Friday, that doesn't end well. I wonder what we'd be looking at if the PBoC didn't surprise the market with an 11 month high reverse repo injection?

As far as my schedule, just to let you know, I have a Pre-Op Dr.'s appointment at 1 pm tomorrow, it was supposed to be last Tuesday, but the market was so busy I cancelled it, I have to make this one, but I'll have my laptop with me and it's just a quick appointment to give me the all clear for anesthesia for that skin cancer operation I told you about. That operation will be the 28th of this month. Other than that, I'm here and as I said, tomorrow I'll have my lap top with me so it shouldn't be much down time, but I do need to get this taken care of being so close to my eye.

OK, we'll see what things look like in the morning, I think they'll look a bit different.

See you in a few hours.