Major Volatility

I really would have thought I'd be able to move a trading portfolio much more directionally by now, for instance leaning long or short, but it's really kind of split, like a hedge which is fine considering the wild card event.

However, just in looking at the Index futures or the averages across a number of timeframes, I'm waiting because it looks like there's more than 1 or 2 set ups in the works, for instance the initial move off the F_O_M_C may look like a knee jerk reaction, but it may just be setting up a slightly longer knee jerk reaction before we finally return to our main trend which is the most probable over a longer period which is bearish, thus if there's confusion among other timeframes, I want to stick with the highest probability and as such positions like SPXU and/or FAZ are still open, but I have a feeling they will probably shift and offer new opportunities on volatility post F_O_M_C at 2 pm today.

For instance, the Index futures look pretty consistent through multiple timeframes, so take a look.

(Since the charts are so similar, I chose the best representation of each trend/timeframe among the 3 major Index futures, ES/SPX NQ/NDX and TF/Russell 2000)

 The short term 1 min intraday charts are largely positive to different degrees, but that's the intraday trend, this is ES 1 min

NQ 1 min

TF 1 min looking very much like a head fake move to the downside (stop run) as we often see before a trend reversal . The near term trend would have been the 2.5 day lateral base and the reversal would be to the upside after stops are hit just below the range's support.

ES 5 min, we can see the lateral trend that we expected since Friday's chart indications and now we can see that range and some positive divergences at the bottom of the range as you'd expect.

 ES 15 min seems to be in line, almost perfectly, the short term charts like 1-5 min should migrate to this longer one so if they continue positive, they should move this one to a more positive stance rather than in line.

TF 30 min shows the negative divergence that sent prices lower and then the larger volume Friday as if we hit a short term capitulation event on the downside, which was part of the reason I suspected we'd see a lateral / sideways trend/base and there are clear positive leanings here.

 As with the averages, many of the positive timeframes are in the intermediate area like 1, 15 and even 30 min, but short term.

This  ES 1 hour is VERY clear on the negative divergence sending prices lower and the leading positive divegrence is even more clear at the sideways base this week.  Remember, no matter how strong this leading positive divegrence is, the cap on the move is the accumulation amount/time. 2.5 days is respectable, we can get a strong move from that, but it is not a game changer as far as core positions or our strategic view.

 At the high probability/long term and strongest signals, this 4 hour TF chart is VERY clear about the distribution event where I've been pointing it out.

And the TF 1-day chart is also clear about the underlying distribution trend and a very strong one, again the timeframe of the diveregnce is the cap on it and at nearly a year, this can support a HUGE bear/down trend.

If you recall what the Breadth charts look like, they are nearly at the EXACT same spot where they really turn sour and we see more and more stocks falling among all NYSE stocks despite the rising averages. I've explained how this can happen numerous times (how the market can rise with a majority of stocks actually declining or performing worse).

So I also need to look at the multiple timeframes and be aware that it should create near term volatility and the F_O_M_C today is the PERFECT instrument to create that volatility. This chould allow for tactical signals to become clear as we move forward.

TRADES

For now, I'm only dealing with short term Trading Positions.

*Closing SQQQ long
*Buying TQQQ long, half size, I may add after the F_O_M_C at 2 pm
*TNA (long) leaving in place, I would consider it a long and especially under $68.70 on a head fake move, maybe after the policy statement
*URTY (long) leaving in place, I'd consider it as a new or add to position on a head fake move under $78.75
*FAZ (long)- I'm leaving this short in place for the time being.
*IOC (long) leaving in place
*MCP (long) I am leaving it in place, I might consider it an add to on a move below $4.75
*DGAZ (long) leaving in place, UNG looks like it's making a head fake move > 1/24 intraday highs, but all of the intraday charts are negative. I may consider it an add to/new position ion a move below $24.85 for UNG or a move above $4.60 for DGAZ.

So I'm taking action now in SQQQ & TQQQ

Quick Market Update

NYSE TICK is negative. The 1-2 min and some 3 min charts of the averages are negative. Around 3-5 min they go positive so this suggests a pullback. MANY of the shorts (TRADING) that I'll be closing will likely be at better prices over the next 30-60 mins, but I need to just get it done so I can focus on other issues.

As I said earlier, the IWM and QQQ look the best for a bounce, the SPY is my least favorite.

Financials are also my least favorite (for a bounce) among industry groups and the SPX has the most exposure to financials. The VIX is outperforming its correlation and although I'd expect it to move opposite the market if the market bounces as I suspect, I think it will have very poor relative performance and as such, in my view does not make for a good trading short.

For a bounce I prefer small caps over Large caps (thus the TNA long already in position) which also means the DIA is among my least favorite as well. I also prefer Tech to Financials.

So IWM/QQQ/small cap and Tech look pretty good for bounce longs.

XLF / Financials continue to look great as a group I want to short in to on any price strength (bounce).

I'm going to start shifting some positions now, but I will leave FAZ (long) open as I just don't like the looks of finicals and the 3C charts (if I looked at FAZ alone) do not support closing the long position (Short Financials).

REMEMBER, the F_O_M_C / F_E_D initial knee jerk, it can be very strong, it's almost always very wrong and that can take a few hours or less to figure out or a couple of days.

I SUSPECT, there will be a knee jerk to the upside (perhaps not the immediate reaction). In fact if we get the market bounce I suspect we will, I think it will look like the F_O_M_C knee jerk reaction and then that should fade as we short strength.

MARKET STRATEGY

ALL long term (Core/Trend) shorts will stay the same.

I think this base we expected to form this week as of last Friday is real, I do not think it is coincidental with the F_O_M_C today. Therefore, I suspect there's a leak. There may (or may not) be a knee jerk reaction that is negative at first and then goes positive.

I have several SHORT TERM 15,30MIN POSITIVE DIVERGENCES IN THE MARKET. 

As such, I'm going to move some of the TRADING positions (only) and maybe some quick option positions to a more long leaning stance. Remember three things...

1) There's only about 2.5 days in potential base, that means I don NOT see this as a change in underlying trends, long term positions I'm still bearish. As I often use as an analogy, "You can only go so far on a half tank of gas" as it relates to the 2.5 days of base.

2) Even though you can only go so far, the market's underlying trend is very bearish, almost every other asset is already is a clear, definable downtrend and as such I'd also say the market is even though the actual Dow trend would not call this a bear market. The point though, THE MARKET DOESN'T DO ANYTHING WITHOUT A REASON. Therefore a bounce has a reason and it's not the technical "oversold" argument. For the bounce to fulfill it's purpose, IT MUST LOOK VERY STRONG, IT MUST OVERCOME ANY BEARISH BIAS AND CONVINCE EMOTIONS TO SWING BULLISH. That means it would need to be impressive and in the type of market we are in now, volatility will be high. Remember BEAR MARKET rallies are the strongest rallies you'll see for this EXACT reason, they must overcome the inherent bearish bias and swing emotions around and convince traders that the move is real, thus they are very strong.

3) The real underlying trends across all asset groups is very bearish, a very broken market so as hard as it might be emotionally, we want to use any price strength to short in to.

I wouldn't blame anyone if they wanted to just sit in cash or on the sidelines for a potential bounce move in the market, the market is at a very negative, slippery slope (the AAPL lesson), However, the bigger picture and the reason for a bounce would be to take advantage of the bigger picture set up. As I said, the market doesn't do anything without a reason and if they are setting up a bounce as it seems off this 2.5 day base as we suspected would happen last Friday, then they have a reason for it. THE BOUNCE IS TACTICAL, IT CREATES MOVEMENT TO SET UP THE LARGER STRATEGIC PICTURE. I WOULD SAY IT WOULD BE 90+% THAT SMART MONEY WHO CREATED THE BASE AND A LIKELY BOUNCE TO COME FROM IT, ARE GOING TO USE IT FOR THE SAME REASON I WOULD USE IT, TO SELL ANY LONGS IN TO STRENGTH, EVEN ONES COLLECTED THE LAST TWO DAYS AND TO SELL SHORT IN TO STRENGTH.

So I always try to lay these things out BEFORE hand to help ANCHOR EXPECTATIONS so you don't react emotionally, so you know what it likely to come and why so you may use it to your advantage, still some of you will feel the emotional pull of a move such as the one I suspect is coming, even when expectations are anchored BEFORE HAND, this is Wall Street doing its job, to move emotions of people who know what to expect and have charts laying out the big picture, that's how effective they can be at playing on the two forces that move the market, GREED and the stronger, FEAR.

So understand this is tactical planning, anything that comes from here on out. Unfortunately I'll have to turn on CNBC for the only time I watch it, F_O_M_C.

IN MY VIEW, Q'S AND IWM LOOK THE BEST SHORT TERM, SPY LOOKS THE WORST.

ALTHOUGH I'LL LIKELY CLOSE SOME SHORT TERM SHORTS, FINANCIALS LOOK BAD AND EVEN THOUGH THEY'D LIKELY MOVE WITH THE TIDE OF THE MARKET, I JUST DON'T HAVE THE SIGNALS RIGHT NOW TO CLOSE FINANCIAL SHORTS, THEY JUST LOOK THAT BAD.

IN MY VIEW, ALTHOUGH SHORT TERM VIX FUTURES SHOULD TRADE OPPOSITE THE MARKET ACCORDING TO THEIR CORRELATION, THEY JUST DON'T LOOK GOD FOR A SHORT, I THINK THE REASON IS THAT PROTECTION WILL BE BID, EVEN IN A MARKET BOUNCE AND THUS THEY WILL LIKELY HAVE BETTER RELATIVE PERFORMANCE THAN THEIR CORRELATION WOULD SUGGEST, THEREFORE I LIKELY WILL NOT SHORT ANY VIX PRODUCTS.

From here on out, I'll just be calling out some short term Trading positions, whether closing or opening.

QQQ Puts P/L

I forgot to put the P?L for the Feb put position now that it's closed.

At a cost basis of $2.12 on 125 contracts (which was in the red) we ended with a gain of +13.86% at a fill of $2.41 (a $3,625.00 profit)

QQQ P/L and Possible Trade

I just closed the Feb QQQ $87 Puts. This position was at a loss, but not so much that I thought it was unlikely to recover so I've kept it hanging around, but with a Feb. expiration and what looks like a head fake move this morning BELOW the range for the NDX, even if the Q's fall significantly (after a bounce) before the expiration, I doubt I'd ever be able to close the position at as favorable a position as now considering the time decay.

I'm seriously considering a QQQ long like TQQQ (3x leveraged long NASDAQ 100) as a TRADING POSITION, not a core/Trend position, those I want to leave short.

However I have SQQQ (3x short QQQ) among trading positions. The initial idea AS OF MONDAY, was to leave the trading positions in place (shorts) and hedge with a few select longs such as the TNA and URTY longs added Monday. The idea being the long hedges would be hitch hiking longs that acted as hedges as well, on the way up (during a market bounce) I'd close those out at a profit and then add some more shorts in to the remaining price strength (bounce) and let the longer term positions (short) take over.

However, with the trading positions, I'm now considering taking profits on some short positions and trying to trade around this bounce (that I believe is coming) and close SQQQ (long) and replace it with TQQQ. I haven't decided yet, but this morning's move (at least in the Q's) looks a lot like the head fake move we see just before a reversal. You know that I expected a range to build  this week as of Friday afternoon, so a head fake/stop run move like the head fake it appears we just witnessed would be right on cue as I expected a 2.5 day base (Monday, Tuesday and Wednesday until the F_O_M_C at 2 p.m.) so the timing looks perfect. 

The reservations? Well the F_O_M_C is a wild card event and as far as I'm concerned, every market indication except the averages actual price trend, all appear to show us on the right side of the top, meaning we have topped and should be moving down as the macro trend despite the bounce I expect.

Last time I tried to cut too closely around the fat with AAPL at its top, I missed a great short set up (closed it rather) to try to chase a small bounce and reestablish the core short and then watched AAPL plunge -45% or 390 points over the next 8 months when I had perfect short positioning.

The other side of that coin is the core shorts (trend/long term) are still in and will remain in position, I'm only looking at moving around assets in the TRADING portfolio. I'll let you know soon.

The P/L for the puts and QQQ charts.

 The positive divegrence I said prices were falling into this morning before the bell and right into it.
ES 1 min

NQ 1 min also shows the same, prices falling this morning in the Index futures, but being accumulated, this would appear to be a PERFECT head fake set up and WE SEE HEAD FAKE MOVES ABOUT 80% OF THE TIME BEFORE A TREND REVERSAL, even from lateral to up or down.

NQ 15 min in line/confirmation (green) of the downtrend and then the predicted lateral move/small base and the small negative divegrence that started in FX last night that would send the Index averages down to the lower end of the base where it would be probable we'd get a head fake move (under the recent range lows.

QQQ 1 min 3C chart with a head fake at the yellow arrow in to a positive divergence

5 min QQQ from negative that sent prices lower to the positive that has formed in the predicted lateral move which I thought/think is a small base.

 QQQ 10 min and the head fake area.

QQQ 15 min confirmation of the downtrend and now a leading positive divegrence, this is a significant short term trading signal that suggests a move higher, it's nearly perfect that this lines up with the F_O_M_C, it WOULD APPEAR THE MARKET IS AWARE OF A F_E_D LEAK AND WILL SEE EITHER A KNEE JERK BOUNCE HIGHER OR A MOVE HIGHER AFTER AN INITIAL NEGATIVE KNEE JERK, IN EITHER CASE IT SEEMS THERE'S A LEAK THE MARKET IS AWARE OF JUDGING BY THE 3C CHARTS IN TO THE F_O_M_C.

Closing QQQ $87 PUT

A.M. Observations.

After the Turkish Intervention (Central bank) the Lira has now faded all post policy gains and is below pre-policy change levels as South Africa unexpectedly raised their benchmark interest rate by 50 bps to +5.5%.

Emerging markets are selling off, the USD/JPY (as mentioned and posted last night) is lower with Index futures on the negative divergence also significantly lower, however they are largely moving down as expected (although more early afternoon) in to intraday positive divergences. What really matters is what the 5 min charts do which should be signaling soon.


Obama if anything (from what I saw before I fell asleep) used the S.o.t.U. address to tell Republicans he was prepared to do a lot by executive order, bypassing Congress.

Remember today is the F_O_M_C policy statement, remember the KNEE-JERK reaction and how it is almost always wrong and proven so usually within a couple of days. This will be Bennie's last F_O_M_C along with a change in voters with doves such as Rosengren and Evans, the Center Bullard and Hawk George all being replaced by a slightly more hawkish group, Plosser and Fisher (hawks), Pianalto (center/hawk) and Kockerlakota (dove).

What we aree looking for is guidance on the initial 6.5% unemployment rate that would trigger rate hikes as we are at 6.6% due to a smaller workforce as those who dropped off extended unemployment when it wasn't renewed after the last budget agreement, are no longer counted as part of the workforce, thus the 4 bps drop from 7% to 6.6% on a gain of only 74k jobs last month.. The F_E_D is likely to argue that low core inflation will keep rates low for an extended period, however any deviation in the taper or more dovish tone will send the market higher.

As for charts, remember the open always sees a strange shift in volatility and we just opened.


Index Futures

 This is the 1 min intraday positive divegrence I mentioned above that the market was falling in to which should slow the fall or create a bounce, how serious depends on the 5 min charts.

ES 5 min shows the range we predicted last week (yellow) and last night's post predicted a move to the lower end of the range pre-F_O_M_C, I thought early afternoon, but the a.m. works as well. Note the divergence CREATING the range. We may see a move below the range if we still stay positive enough for a move higher as it forms a "U" shape which is a bit late now or more likely, a head fake move/shakeout/stop run which we see just before a reversal, in this case an upside breakout from the range.


USD/JPY

It was obvious last night from Yen futures alone as I posted that the USD/JPY (and other JPY crosses) would see downside, the POSITIVE Yen divergence was there last night 

Yen Futures

 Here's the Yen 5 min chart, note the downtrend as we predicted which is seeing 3C confirmation (green), this sent the USD/JPY up or at least steadied it so we could get enough support from the carry trade to build the market's base of this week. The white arrow is a positive divergence sending the Yen higher (we saw this last night) which sends the USD/JPY lower with Index futures following. 

NOW we have a slight Yen negative divegrence, this could be what halts the decline and forms the Index futures lower base area drawn above on the ES chart in yellow.

 This is the EXACT 15 min Yen positive we saw last night, all in all, the Yen has been positive most of 2014 which is why the USD/JPY has been in a downtrend all year. This may also move further into the 30 min chart and this will ultimately halt ANY UPSIDE MOVE, KEEPING IT AT A BOUNCE, THUS GIVING US STRONG REASON TO SHORT IN TO ANY MARKET STRENGTH.

THE YEN 30 MIN WHICH IS THE CHART as far as what's going on. You can see the pause that has allowed index futures to build a little base, we will see what happens at $9.825 (resistance) which may allow for the Index futures bounce, but all in all, I doubt very much it will turn the major uptrend which is a market negative.


 USDX Futures...

 $USDX 1 min chart and negative divegrence, with the bouncing Yen and weakening $USD, you can see why the USD/JPY was/is lower and Index futures with it.

 The 5 min chart is closer to in line so it can shift either way pretty quick.

$USDX 15 min chart with the same kind of negative divegrence that we saw on the ES 5 min chart (second chart) which is forming the rectangle base that has been building al of this week.

 Gold Futures (YG)

 Remember that gold trades opposite the market for the most part and this is also why I'm considering fading GLD/gold strength early on.

You can see the steering divergences (negative to a move down and positive to a move up)

The 5 min chart however, is clearly diverging leading negative, this is why I would fade this bit of strength in gold.

Gold futures 1 min also show it looks to be about the right time for a gold/GLD short on a trading basis, maybe a very quick one.

Trade Ideas: Gold (FADE)

This would be a VERY fast trade, likely intraday even, but fading gold's rise. I think you'd need Puts to make it worth while (GLD), I'll let you know before I do.

AM Observations coming next, just wanted to mention a gold FADE for a move lower INTRADAY.

Quick Post

I hope everyone did well today,

I just wanted to touch base before tomorrow. First, THANK YOU ALL SO MUCH FOR ALL OF THE KIND, THOUGHTFUL EMAILS, you are my family.

Second, as always, tomorrow is the F_O_M_C announcement and as I always warn, BEWARE THE KNEE JERK REACTION, it's strong, but often wrong and in this case was part of what we were expecting to culminate the choppy range predicted Friday, Sunday and Monday.

I haven't gone through the entire market yet, but this is EXACTLY WHAT I THOUGHT WE'D SEE AND TOMORROW'S F_E_D POLICY ANNOUNCEMENT MAY BE THE TRIGGER.

The way I see it, the market has another $10 bn in tapering priced in or that's consensus so if the F_E_D abstains that sends the market higher, but they don't even need to do that, even if the policy statement sounds slightly more dovish, that could be the same trigger because it seems (as expected since Friday) that the market had enough time (almost exactly) to build a base in to the F_O_M_C tomorrow at 2 pm and the key to it was the USD/JPY and Yen/USD and they all did what we expected.

Remember the big picture is weakness so while we hitch-hike on some trading longs, the real play is shorting price strength.

The charts and really the only ones that matter for me right now...

 As of Friday/Sunday we needed some Yen downside and we had signals for it., we've gotten that as the USD/JPY had just hit another lower low in its downtrend, but recall we need that pair to move up for a bounce to trade long and sell short in to.

This 15 min chart still has the overall negative and price did fall as expected, there's a small positive so I might expect a pullback in the early afternoon before the F_O_M_C at 2 pm

 We also had signals for the $USD to gain and it did, still positive so that's still on point.

 60 min chart of the USD/JPY, the downtrend since 2014 started is clear, lower highs/lower lows. We were near the lows of the year when we saw this sideways chop in the market coming, which establishes a small base to bounce off, but not big enough to change anything. We have some hitch hiking longs, but the big play is to short or add to shorts on a bounce or price strength, not true market strength.

The orange box is where I predicted the USD/JPY would move to before this is over, I believe on Sunday, we have a good start.

ES 15 min went from a clear downtrend toward that volatile, wide chop or lateral/sideways trade, what was needed to form a reversal process, I predicted 2.5 days and tomorrow afternoon it will be 2.5 days.

So far, so good.

 The NQ 5 min chart shows a small negative divegrence, this fits perfectly with the Yen chart, a small pullback tomorrow - probably early afternoon, a last chance to set up hedges/longs. The wide, choppy sideways trade since Monday should be apparent.

And TF 1 min futures tonight show a sharper negative divegrence as they should, again hinting at a pullback which would really just be part of this lateral/sideways chop that we were looking for.

Everything looks great after being away a day.

I have a feeling the exchange from longs to shorts will occur fairly quickly, but can still be intensely volatile.

Don't forget what the prize (Big picture) is.

TF/Russell 2000 futures daily chart's massive distribution.


I'll see you in a few hours and THANK YOU AGAIN, YOU ARE REALLY THE BEST I COULD EVER HOPE FOR.