Filling out SPXU Trading Position

The volume/stop run I was looking for just got pegged, I'm going to bring SPXU up to a full size trading position (long).

Trade Idea: SPXU (long) Trading Position

I'm going to go ahead and add to the VXX call position for this near term downside move I expect. Part of the reason is the growing size of the divergence and SPXU looks like it's in pretty good shape here.

I'm not going to enter a full size trading position and I'll leave the other trading positions that are long biased as they are, SPXU will act as a hedge and some extra gains.

I may add to SPXU if it makes a little bit of a move lower and I see volume spike up on the move lower suggesting stops were hit. 

I do think this move is tradable (downside move in the market), I just rather not put too much in to it as I'd like to focus on the next two larger trends (long and then short).

 If I see intraday volume spike up and 3C remains positive, I'll add to the SPXU long position, this is a short term trading position (days at the most I'd think).

The 1 min positive which is negative for the market as SPXU is SPX 3x short.

The 2 min leading positive.

And the minimum for me to enter a position, the 5 min leading positive, plus a nice rounded reversal process that is proportional. We'd usually expect to see a stop run right about now, just before this makes a move to the upside.

This is the 15 min, it's not that impressive, but the fact it's even there makes me want to have at least some hedging ability in the trading portfolio.

MCP Position Update

Our MCP March $5 Calls are up about +20% right now, usually with an impending market pull-back likely, I'd be taking the position off the table and looking for a new entry, but I think March is enough time and MCP has the ability to move on its own and away from the market's normal pull.

As far as a new entry in MCP long or new call positions, I'd prefer to wait, even though I don't want to see it pullback with the March calls, I also wouldn't want to chase it and buy here without some pullback.

 The long term looks fantastic for MCP, this is a 60 min leading positive divegrence of some size, the larger the base, the more of a move it can support.

Here at the 10 min is where I have some difficulty deciding whether to keep the March calls or close them, MCP equity longs will remain open for me, I have no reason to close positions that are meant for a long term trend over a possible pullback.

 The 5 min chart showing the last bit of accumulation before MCP launches and today we see some slight negative signals, but nothing leading negative like the SPY 5 min so I'm inclined to hold on to the March calls.

This is the 1 min chart which is slightly negative, but nothing that's concerning me too much.

Although I'd prefer using my X-Over System on daily charts only, sometimes with a new move you have to go to a 60 min chart.

Here you can see the confirmed short/sell signals to the left and the recent buy signals to the right. On a daily chart the first pullback after a new signal is to the yellow 10-day moving average, however on a 60 min chart it's not uncommon for a pullback to the 22-bar blue mooving average, if I were to add or open a new MCP long position, I'd want the concession of at least a slight pullback to the 60 min 22 bar moving average.

I'll be setting price alerts for the area in case it does so I'll know immediately and be able to make a decision based on how the charts look then. For now I'm leaving all MCP longs open (options and equity longs).

Market and GLD Update

Interesting that GLD is up as it has been consistently trading opposite of the market and I'm expecting a market move down.

I see a potential GLD trade set up coming around shortly and it's connected to the market update.

 GLD has gapped above a clear range, this in itself sets up a probable head fake move, especially when you consider the expectations for the market as GLD moves opposite the market.

This is GLD's 10 min chart which is negative, I think with a market move lower and hopefully GLD moving a bit higher and above a range that looks to be a head fake move now with this 10 min negative, GLD could be setting up a very low risk short.

 The intraday 2 min chart is in line so it's not out of the question for GLD to move a bit higher setting up a nice position, it's also similar to the market averages intraday right now.

Here's the SPY which is seeing even worse negative divergences, so I'm thinking a move to the downside is still highly probable and a move to the SPX's 200-day is very probable.

 1 min intraday this is the VERY slow underlying action I've been talking about, it's nearly perfectly in line, but that's not where the damage is, that's just a good timing marker for a move on the downside to start when the 1 min goes negative and I think this happens before the close or at least starts.

The 5 min is where the trouble is, this leading negative is part of what we saw late last week, but since...

Even the 10 min chart is now seeing migration of the divergence (stronger distribution).

 Actually the 1 min SPY just started going negative (3C) right now as I'm writing.

The 15 min is just about in line and the 30 min is still positive so the expected trends are still the same, just this short term downside move looks to be more impressive than Friday as soon as it gets started which may force me to consider trading it with some leveraged short ETFs like SPXU, I haven't made that decision yet.

BIDU Update

I had decided last week not to play any more short term moves other than VXX calls, but I am intrigued with BIDU, it looks close, but not quite there yet.

 The 5 min BIDU chart is negative enough for me to consider for a quick short sell trade.

The 3 min intraday is negative, but I'd like to see the timing on the 1 min give a stronger signal.

This is the 1 min, today is another one of those days where underlying action has been very slow, it has been picking up as pros are trading in to the close more and more frequently.

If BIDU offers a really attractive set up, I might just take it short.

For now, I'm sticking with VXX / UVXY long which is doing better, which is not good news for the overall market.

Quick Update

I've been watching the market, it's all been about the Yen. For a little bit it looked like the Yen was going to lose ground, now it's coming back which should pressure the market lower.

However a lot of the smart money movement has been at EOD...

It looked like the Yen was going to loose some ground, now it seems to be coming back which is a market negative.

Quick Update

So far so good.

The Yen made a move to the upside which sent the USD/JPY down as we expected...

 USD/JPY move down this morning...

The intraday SPY chart was fairly well turned around as we saw the other intraday charts last week.

We still have these larger 5 min negative divgerences so I suspect this move is just getting started.

I'll only have the VXX calls for this move, but I'll likely clean up some leveraged short positions and get ready for the next move, but one bridge at a time.

VXX / UVXY Update

Expecting a move down in the market early this week/today, I entered 1 position which is VXX Calls, I decided to leave it at that and try to trade the bigger picture.

For those who may be interested, I prefer UVXY long (2x leveraged VIX short term futures) over the calls right now, I considered adding, but that would have too much correlation in one area, however I thought I'd show you what VXX/UVXY are looking like this morning as they trade opposite the market's direction.

 VXX 2 min continues to add to the positive divegrence this morning and has a nice rounding reversal process (in price) in place.

The 5 min chart is leading positive, but what surprised me a bit is the next chart.

10 min charts in both VXX and UVXY are leading positive in a big way, that's a strong signal and it looks like the two will be heading up which fits with our short term market outlook considering they move opposite the market.

Flat

Overnight the USD/JPY carry trade drifted a bit lower as would be expected considering the looks of the Yen and ES drifted a little lower with it, but I'd call the pre-market FLAT. However, that often changes as soon as the bell rings.

All divergences from last night are still intact and  some are worse, none are better so my outlook for the early part of this week (likely today) is still negative short term.

 USD/JPY sliding softly overnight...

ES following the carry cross and is in line premarket.

The Yen was put on hold after moving up last night by a weaker relative negative divegrence, but since in the range, a positive divegrence has developed suggesting the Yen is getting ready to move higher, the USD/JPY & ES lower. We'll see soon enough.

The Week Ahead

As you know, we've been hunting an upside move that I think will be quite strong, however, not a move that will last and thus it makes it a market gift to short in to. Since Jan 24th we saw signs of what I thought would be a range forming the following week (I suspected it would be smaller, several days, not a week, but nonetheless...) and as of Monday 1/27, that range formed for the entire week. The next thing I was looking for was a head fake move below the range (again if you haven't already, please see the two articles I wrote and have linked at the top right of the members' site, "Understanding the Head Fake Move" parts 1 and 2) which happened the following Monday and then we were looking for a base/reversal process and accumulation to prove it was a head fake move, we got that and the momentum a head fake move causes (one of the reason they run them) gave us the best 2-day performance of all of 2014, in fact of the last 4 months as the head fake worked and a short squeeze followed.

As of last Thursday though as this move got started, we had hints of a correction to the downside and Friday gave us more data which I wrote about in the Daily Wrap Friday and just before that in LAST MARKET UPDATE-IN TO MONDAY.

I still think we will see a stronger move than what we have already seen, the divergence (positive) that formed over the period of the range and head fake move down is too large for just a two day move. However, before it continues higher, the charts show a very high probability of market weakness early this week, likely starting tomorrow, this may even take us to a new low for 2014, possibly the area of the SPX's 200-day moving average and then I think we finish what was started late last week before we see a real and unrecoverable break to the downside.

Tonight's 3C Index futures give me no reason to change either my short term view of a move down early this week, nr my sub-intermediate view of a continued strong move to the upside or my primary view of a horrendous bear market following the upside move which should set up another head fake, this time for strong downside momentum, but one thing at a time. Right now I have a few Inverse or short 2-3x leveraged ETFs that I'd probably close in to a lower low this week, however the core short positions (equity with no leverage) will stay in place and we should have a great opportunity to add new ones or fill out existing positions. The trading model portfolio has been positioned long since the range of the week of the 27th, those positions will stay in place as well (as of now the only position I have for a short term move down early this week/Monday is a VXX call position).

Here's what we have...

 Above is a daily chart of the SPY, it looks like a H&S top that formed a "L" left shoulder, "H" head and then broke support on a head fake move or a volatility shakeout which are some of my favorite rallies to short in this particular price pattern as most technical traders short the break below the neck line and then are the victims of a head fake move back above the neck line where they have placed their stops creating a short squeeze such as the one we saw Friday, knocking them out of their positions.

The "HF" is the head fake move where a "W" base was formed and where we confirmed this as a false break as there was accumulation. I suspect we will likely end up with some distorted H&S pattern before this is all done, the right shoulder is missing, typically the head fake move would come AFTER the right shoulder was in place, but we follow the signals the market gives us and so far so good.

The "?" represents the top of the right shoulder as I do expect this move up started late last week to continue, however as I said Thursday and Friday, the probabilities of a move to the downside first look very strong which allows us all kinds of opportunities to take profits and enter new positions and get ready to set up larger trend trades.

 The Yen has been one of my favorite leading indicators because of the tight correlation between Index futures and the USD/JPY carry trade. While I wish signals for the carry cross were better, they aren't and the individual currency futures like the Yen 15 min chart above give us a good idea of where the carry cross and thus the market are going.

With a strong 15 min positive divegrence in the Yen, that should knock the USD/JPY lower, I suspect Japan's BOJ will try to intervene should the USD/JPY $100 level be in danger and that may be what propels the second part of this bounce higher.

Remember, a strong Yen (and we have a good positive divegrence) runs opposite to the market as it pushes the USD/JPY lower and Index futures with it.

The carry trade/Index futures correlation is already out of whack with ES (SPX E-mini futures) about 25 points to rich vs other risk assets and this is due to the momentum the head fake caused (creating a short squeeze Friday).

This is the 1 min USD/JPY (candlesticks) vs ES (purple), you can see how ES broke loose from the correlation to the upside due to a short squeeze from our anticipated head fake move, that alone suggests ES should revert back down to USD/JPY near term and the Yen strength above suggests the carry cross moves even lower on Yen strength short term (this is all about what I have suspected would be short term market weakness early this week, likely Monday).

The green arrow is the opeing of futures for the new week tonight.

Here's a 1 min chart of ES (SPX futures ) with a clear negative divegrence rom Friday's close and since the market has opened today.

Russell 2000 Futures (TF) 1 min chart.... and the same leading negative divegrence in a tight range tonight.

What is more important to me is the 5 min chart, these were negative Friday and I suspected they'd hold in to the open of trade this week as they have, these are indicative of a short term move to the downside before our larger upside move continues.

 ES 5 min chart with a clear leading positive divegrence right where we saw it in every average leading to the Thursday/Friday reversal and since, a leading negative divegrence that continues tonight.

 NQ (NASDAQ 100 futures) also with a clear 5 min leading negative divegrence that has only grown worse tonight since Friday's negative appeared.

And TF (Russell 2000 Futures) 5 min leading negative which being the index that leads the market, looks the worst with a horrendous 3C leading negative divegrence through late last week and continuing tonight.

However I do think the larger move that we had been hunting which included the accumulation in the range and the head fake move as seen below (from the 27th on) on a SPY 30 min chart will continue after we get some downside early this week.

SPY 30 min with HUGE distribution before falling and starting a range on the 27th and  then a head fake move below the range giving us a "W" bottom from which to launch last week's 2-day, brutal upside short squeeze, all from the simple concept of a head fake move...

This 60 min ES chart's clear positive divegrence suggests that the larger upside move will continue, despite near term weakness which is really a blessing for setting up new positions.

At "A" we have the same distribution seen above on the SPY chart, at "B" we have the range predicted on Jan 24th that started the next trading day on the 27th and ran through the entire week, you can see there was accumulation of that range and then the head fake move below the range where it was very obvious where stops would be and where shorts would jump in at our predicted head fake move at "C" and then the accumulation in the "W" reversal process confirming we had a head fake move or false downside break. "D" represents the move above the area where shorts would have placed stops on their new positions and once we were through that, it was a short squeeze or the snowball effect that head fake moves are notorious for, that's one of the several reasons they exist (again, if you haven't already, please see my two articles on "Understanding the Head-Fake Move" linked on the members' site).

 Here's the same overall Russell 2000 60 min positive divegrence suggesting we get a much stronger move than just 2-days, but as you see above, it looks like we get some downside market weakness first.

My plans are to use any downside market weakness to create some space by closing most leveraged shorts and perhaps add to the trading position longs. As the move to the upside progresses and we see the intermediate and short term charts show distribution, that will be the time I'd like to add to core , long term short positions. I have BIDU as an example of the various trends below which is a good proxy for the market in general.

 Here we have the infamous 4 stages of a stock's life cycle, stage 1 "Accumulation or base", stage 2 "Mark-up or breakout and trend up", stage 3 "Distribution/Top" and in this case we get the often seen head fake move above a large ascending triangle as they are often seen as tops, although because they are ascending, they are taken as a bullish price pattern, the problem is, this is way too big to be a bullish consolidation/continuation pattern. Technical traders are looking for the breakout to buy/chase, that's what makes it such an easy head fake. Note the head fake move is proportionate with the cycle. Then the breakout fails and stops from long positions are hit causing a snowball effect sending BIDU lower. As you can see, like the market it too is bouncing and thus it makes a good overall proxy for market action and planning. There's only 1 stage left and that's stage 4 decline or a bear market (note the two ranging stages are 1 and 3 and the two trending stages are 2 and 4).

 Here's the same chart with 3C showing accumulation at stage 1 and confirmation at stage 2 and distribution at stage 3 and leading negative (stronger distribution) as the start of stage 4 emerges.

As far as trading the various trends that all exist in different timeframes at once...

The first is the very near term which I think is Monday/early this week as we have a 5 min chart clearly leading negative (distribution) suggesting a move down of some strength, but probably not the resumption of stage 4 quite yet. While this could be traded as a short, it's a more minor move and I'd prefer to keep my powder dry and be set up to trade a more major move that emerges from the downside move.

 A faster 3 min intraday chart shows a negative divegrence as do the other intraday timeframes so as far as timing goes, it looks like BIDU is ready to move down right now (short term).

 The intermediate 15 min chart has confirmation to the left of the downside move that came out of the head fake above the ascending triangle so there's good overall bearish confirmation as the primary trend in BIDU, but that doesn't mean it moves in a straight line or we can't take advantage of multiple trends. The 15 min also shows a leading positive divegrence at the EXACT same spot the market produced the same signal at the "W" bottom of last week which produced Thurs/Fri move to the upside so even though I expect BIDU to move down in the very near term, that should set up some trading longs to take advantage of this positive divergence which is large enough that I don't think BIDU is done with its upside move.

*A bear market rally is one of the strongest, fastest moving rallies you'll ever see so they are worth trading.

My plan would be to wait for a downside move to get better long (trading long) position at a better entry and lower risk.

The 4 hour chart is in horrendous shape with leading negative divergences as is the daily so any uptrend produced by a 15 min chart eventually is going to provide an EXCELLENT short entry at a better price and much lower risk so once we move out of the long trading position, I'd be looking for a long term / Trend Trade equity short for BIDU, a core short.

All of the trends you see above in BIDU are essentially exactly what we see across the major market averages, this is why BIDU makes a good proxy for the market. You can see there are numerous fantastic opportunities as long as we match our trades with the trends and open and exit them at the appropriate times. Some may wish to only trade the primary trend such as the trending short or primary trend (short), some may wish to trade the swing-type long as well and some may wish to trade the short term downside with some Puts to make the profit potential worthwhile.


This is what's on the dock for this week, lots of F_E_D speakers including Yellen.

That will do it for now, I'm sure we'll have some volatility as Europe comes online in a few hours and in to the pre-market with that often, sudden change in to the North American open. I'll see you in a few hours, have a great week ahead.