The 2 p.m. Op-Ex Pin Hour

This has been a fairly long standing trend, on option expiration Friday which use to be the third Friday/Saturday of the month we'd see what was called the "Max Pain Pin", it was the level in which the most amount of options would expire worthless, not so much on an open interest basis, but an actual dollar basis as you can have 10,000 open interest at $.02 or 2000 open interest at $1.

 Usually by 2 pm or so (at least my broker would call multiple times and ask what I was going to do with expiring positions), most contracts are wrapped up and the actual pin is no longer needed. From 2 p.m. on price seems to do whatever it wants, but has little bearing on what happens the next day, however the 3C signals during the last 3 2 hours are very important. You may recall the post "Come Monday" in which the signals were given a very hard pattern to call, a trading range and the following week was a trading range for the entire week, so the 3C signals the last hour tend to be very important as they tend to pick up where they left off the next trading day. I showed earlier the small QQQ negative divegrence in to the close yesterday on a 1 min chart and this morning it gapped down along the lines of a 1 min chart.

So I'll be looking more for those, but from what I'm seeing in assets like AAPL , BIDU and many others, it looks like Monday may be very ugly indeed.

Since there has been so much of the 1929 analog Dow chart going around, let me remind you that the first 4 days iof the 1929 crash erased 25% of the Dow's value alone.

Trade Idea: BIDU (Short) Core/Trend Position

I already have a partial core short in BIDU that's at a slight gain, I've had it for a while and been waiting on the right time and area to fill it out, this is not dollar cost averaging as this position was opened as a partial position with the intension of adding to it and it's at a gain so if anything, it would be pyramiding up a short that's working.

BIDU I do see as a TREND TRADE and as such, I'd open this as a pure equity short. If there was a bit of a pop to the upside above the last few days's highs, then it might also be a decent put set up, but for a longer term position I prefer no leverage and I see BIDU as a longer term trend position.

I could wait and see if I can get a little better entry like $170, but I'm not making the AAPL mistake again, trying to cut too close to the bone and missing out on a big move.

 Daily BIDU trends/cycle from base/accumulation at #1 to mark up or Trend at #2 and distribution/top at #3, this is actually a H&S top that has already put in the volatility shakeout. As many of you know, I'll only short a H&S at 3 places, the top of the head, the top of the right shoulder and after a break below the neckline and a rally back above it that shakes out all of the new shorts who entered on the break below the neckline. We are at the top end of that volatility shakeout in BIDU and you can see not only the larger negative divegrence (daily chart), but also the leading negative of the volatility shakeout above the neckline.

My X-Over Screen shows the volatility shakeout and is just about as close as you can get to giving a sell / sell short signal.

The Trend Channel has already stopped out BIDU, as I often mention, there's often lateral chop/volatility after a Trend Channel stop, but as far as capturing trend, it's the best method in my opinion as lateral chop may give some added gains, but it is not trend.

The orange arrow is a 3-day Doji/Star reversal (bearish) candlestick which is a significant signal on a 3-day chart.

The 60 min chart shows the entire cycle from base/accumulation to mark-up to topping with a H&S top, the break below the neckline and volatility shakeout back above which is the last of the 3 places I'll short a H&S top, during this time 3C has done exactly what it should have.

C.T.R.=Counter Trend Rally or the Volatility shakeout.

 On a 30 min chart we have essentially the same signals with a little more early detail as the faster charts pick up more. Note distribution through the entire H&S top.

As far as timing, the 15 min chart is starting to lead negative sharply which is migrating from shorter charts.

Like this 10-min or...

This 5 min that has its own mini-cycle with a "W" bottom.

3C is leading negative below the "W" bottom so we have significant distribution.

Intraday we are in line or maybe worse, I'm not inclined to sit around to see if I can get a better entry for a couple percent when we have such a strong overall candidate.

A stop can be placed above the H&S top, but not at an obvious place, I'd give it a little room, I'd much rather give it a wider stop with a little smaller position. The great thing is you can pyramid up a pure equity short, see my article on "How to make more than 100% on a short".

The 3 min chart also looks right considering the migration from the 5 min on.

I'm going to fill out the equity short (no options/leverage) right here.

I REALLY like this as a longer term trending trade which means I likely won't treat it as a trading position, I'll just let it do its thing unless I see a major counter trend rally coming and after that re-enter short again.

Closing BIDU Feb 160 Calls

I should have got to these earlier when they were at a profit. I'll come back to BIDU, it''s looking like a nice short.

Trade Idea: AAPL Short (Puts)

Wednesday I opened a partial AAPL position using puts. The reason I didn't go with an equity short as I would have preferred is that AAPL's longer term charts except for the primary trend, don't have me convinced AAPL will put in a serious trend lower, but I do think it will put in a move lower thus the puts allow more leverage to increase the profit potential.

Remember, AAPL lost -45% off its 2012 highs in only 8 months. I have pointed out numerous times how similar MSFT pre-2000 and AAPL pre 2012 top are, both hit major highs (MSFT even more so than AAPL), then declared dividends and went from explosive growth stocks to large cap range bound dividend stocks, their yield is nearly identical. When AAPL declared a dividend that was the first comment I made, "The growth story is over, look for AAPL to become a MSFT large cap, ranging stock". Thus I don't feel it's the best trend trade as it was when we we warning during 2012 that it was about to collapse.

I will go ahead though and fill out the Put position opened Wednesday, AAPL March (monthly) $535 puts.

 1 min chart...For a reversal process (rounding top), the chimney part of the "igloo" should look exactly like this, the deeper distribution is done as a higher high is made above the rounding top as it opens up new demand and is easy to short in to, this tends to be the last sign in the reversal process before the actual reversal. The concept if fractal in any asset on any timeframe, 80% of the time there will be a head fake move (in this case a higher high that should fail) just before a reversal.

 2 min chart's trend

3 min chart's trend, note they all get worse in the chimney area.

5 min chart's trend, I view this entire rally as a counter trend rally, I'm just not convinced of another 45% decline.

Another reason I wanted to go with puts (still having to do with the concerns about a trending trade) was the longer term charts not being in as bad a shape, they certainly were at the 2012 top and we got a -45% move, but again I have doubts we see another move like that, I think it's more likely AAPL moves to a low that will likely define a range over coming years.

30 min chart

This is the daily, we see confirmation on the move up and a 2012 divergence, this was huge on 1, 2 and 4 hour charts, it was as clear as day that AAPL had topped.

If you look at the current signal, this is why I think this move up from the gap down is not only a gap fill, but a counter trend rally. The trend should reassert itself, but I don't think it has the downside of some other assets like PCLN.

Closing Core (long) UPRO Hedge

This was a hedging position for the core portfolio which is mostly long term shorts, also the long term UNG (long) position is there.

I'm basically just cleaning up a bit.

QQQ Trade Idea and Charts

As I said in the last post, I'm going for the QQQ puts, I decided on March $88 Puts (monthly), that's nearly 6 weeks, it's enough.

A few things I've noticed, the initial 15-30 min positive doivegrences I "thought" would hold up until a move down to the 200-day moving average to stage an even dstronger head fake move, are falling apart, they do not look like they will hold. This massive 6-day move which is the strongest move since April 2012, go back to the archives for Jan 31st this year when on that Friday we predicted a head fake move that would lead a very strong upside move, for the NASDAQ 100 it has been the strongest 6-day move since April of 2012, that's not because we have a strong market, once again to better understand, if you have not already, please read the two articles I wrote and linked on the members' page called, "Understanding the Head Fake Move", Part 1 and Part 2.

These two articles will ALWAYS be linked at the top of the member's page because these are some of the greatest insights I've gleaned from nearly a decade of using 3C and they will teach you more about the market in an hour than years of watching the market.

How can we possibly have a truly strong market when breadth looks like this? Breadth doesn't lie, there's no interpretation or art to it like most technical analysis, these are pure science, pure numbers.

The SPX in red vs the Percent of All NYSE Stocks Trading ABOVE their 200-day Moving Average. That percentage has fallen from 81%to 57% and during the last 7 months hasn't been able to best itself, certainly not since January of 2013. 
 

If we look at the same indicator, except use All NYSE stocks Trading 2 Standard Deviations ABOVE their 200-day Moving Average (stronger stocks), that percentage has fallen from 42$ by an incredible 65% to 14.6% currently, meaning 42% of these stocks were 2 SDs above their 200 day at Jan 2013, now only 14.6% are, that's a huge segment of the market falling.

Now for the NASDAQ... Remember a head fake move is set up in advance, IT ALWAYS SERVES A PURPOSE, in this case my opinion was to turn a VERY bearish retail crowd that had changed their mantra from "Buy the Dip" to "Sell or Short the Rip", the locals on Wall St. needed to change that sentiment to bullish, that's the only way they win as you can't have everyone on the same side of the boat in a ZERO SUM GAME, someone has to lose for someone to win. Furthermore (although I can't reprint both articles here), it allows Wall Street to set up large short positions (as all of their positions are large) and they need 2 things to do that, higher prices and demand, without either they can't accomplish their goal. Wall St. will not sell short in to lower prices and they can't establish the size positions they trade without solid demand and that means swinging sentiment to bullish among retail investors so they have someone to sell to as selling short always begins with a sale, someone has to buy, SOMEONE HAS TO BE LEFT HOLDING THE BAG!

 THE 1 MIN QQQ from left to right: We can see the right side of the head fake move or stage 1 base for this cycle, there's some distribution at resistance of that "W" pattern (you may recall) and then a breakout to stage 2 or mark up. We have a large relative negative divegrence at the longer red arrow in the middle that worsens and the last few days an incredibly sharp leading negative divegrence that is well below the lows of any part of the head fake move; with price where it's at, there's almost no monetary support, in fact I'd say it's more than negative.

 1 min intraday saw distribution yesterday into the close which gapped the Q's down this morning, there was a VERY SMALL positive divegrence around 10 a.m., but that is being sold in to as well. Since I captured this chart about 40 mins ago, 3C has made a new low.

The 2 min chart with a strong relative negative divegrence and an even more impressive leading negative the last 2 days, this is a much deeper divergence than we can see on this chart only.

 The stronger 3 min shows the distribution used (it's not much) to move out of the accumulation range and in to the head fake move where we get more accumulation confirming the head fake move, you can revisit the archives from these days and read along as this head fake move progressed. The short squeeze on the upside which is a direct result of a head fake move ("From a failed move comes a fast reversal") has no accumulation, no confirmation, only distribution which means it was used for the purpose we predicted it would be used for on January 31st before it even started, distribution which includes short selling and on a massive scale AS THIS IS THE LOWEST 3C LEVEL FOR THIS CHART OF ALL OF 2014.

 5 MIN CHART with the initial break down that caused retail to go bearish, the accumulation in the range area and the accumulation in the head fake area, this is all to give the upside reversal a kick start until a short squeeze takes over, the pullback move expected before a larger head fake squeeze never materialized as distribution just got worse and worse.

The 15 min chart tells the story without any commentary.

 The 30 min chart which I suspected would hold up through a move down and under the 200-day moving average is now broken and leading negative, this scenario is no longer viable and we are back at the original scenario of a strong move that will move as far as it needs to in order to swing sentiment among retail traders from bearish (which seemed almost impossible at the time) to bullish which they are now wildly bullish. The fact this chart has broken down creates a very bearish environment in underlying trade.

While I don't subscribe to the charts that look like 1929 (although I'm not saying it can't happen, I'm saying be careful in expecting the same exact market to play out), I do subscribe to increasing volatility as we change from stage 2 to stage 3 and from stage 3 to stage 4 (decline). THE FIRST 4-DAYS DOWN IN 1929 LOST -25% ALONE.


AS FOR THE PRIMARY TREND...

Like the Dow now vs. 1929, this is a very intense leading negative divegrence, I've never seen the equivalent in the NASDAQ including 1999/2000... SEE BELOW

Which looks worse to you? The Dot.Com bubble in the NASDAQ 1999/2000 or the current period above this chart?

I'll be entering the March QQQ $88 Puts now. If I didn't think we'd see some temporary hang up at the 200-day for the market (meaning the SPX), I'd likely enter a longer expiration.

Trade Idea: QQQ Puts

I'm at full size with a SQQQ (3x short QQQ) position in the trading portfolio, it's down -4%, but that's nothing for a 3x leveraged ETF.

I'm looking at the Q's which look horrible here, if I had the room I'd most definitely enter an SQQQ long position, but as I said, I'm at full size.

I've decided I'll put on a March monthly QQQ put as all timeframes have connected in a significant negative divegrence.

As I said a couple of times this week, duration is going to give way to volatility, if you recall 2013 the market went up nearly every day but by 0.10% or less, that was duration, volatility is the 1+% moves, except volatility grows and it is a notorious sign of the end of a stage and the start of a new on. You may recall how stage 2 uptrend ends with a massive volatility move nearly straight up that looks VERY bullish, but it's a sign of a top 90% of the time.

In this move the head fake break down was stage 1, the move up the last week was mostly stage 2 and the last 3-4 days have been a large stage 3, decline is stage 4. I don't know how much volatility will increase by, but it will increase. In 1929, the first 4-days of the initial drop lost 25%. As you know I think the SPX 200-day is going to be an initial target, but unlike the 100-day (NASDAQ 100) which was support, I think the first move will be below the 200-day. I can't believe they'll use the less popular 100-day for a head fake move, but will let the most popular 200-day just slip by with no gaming. We will have to see if there's accumulation below the 200 day to see if there's a head fake move or what kind of head fake move, but that is where I think the next leg is heading so I'll be entering a QQQ Put, March; I'm not sure of the strike, but I'll post both the actual position and the charts next.

A.M. Observations

Good Morning. I want to thank you all for your patience and you incredible support once again, as I have always known, I have the best group of people, to the point in which it defies statistics (you'd think out of 100$ you'd have 20% of the people who are difficult or 10%, I don't have 1%, everyone is fantastic).

I must have received 75 well wishes, wondering what's going on, people offering to drive several hours to help me if I needed it and...

"Hey, you OK pal? 

I am sure I am not the only one concerned.  And, I am pretty sure your pipes didn't burst. Is your mom okay?  Are you having any complications from your surgery?

Its a short flight from Ohio - if you need any help, just say so, seriously."

a member who considers a flight from Ohio to Florida a short hop to be of assistance. Thank you , each of you.

The truth is I'm not sure what happened, at 5 a.m. my dog was vomiting non-stop, my house-mate (soon to be ex-wife) called me from work at 7 a.m. asking for me to bring her medicine and before I could get out of the shower I was competing with the dog for the rest of the day to the point in which I couldn't talk, move or keep any medicine d own, it took me nearly all day just to be able to look at the market quickly and write 3 sentences. The only thing I can think of is we all went to her condo she purchased for the inspection, the inspector was wearing a mask and the place was in shambles, neither the electric or water had been on in 8 months as there was a massive flood that filled the neighbors condo and as such there wasn't even a bathtub in this 1/1. Perhaps some fungus or mold got us, but it was a horrifying day, I'm just finishing off my 6th bottle of Pedialite.

As for the market, I have two thoughts from yesterday; one is that yesterday was a continuation of broadening out the reversal process. The Dow Futures hit Wednesday's highs, took out stops or ran limits and then rolled over, that was the cleanest version of broadening out the top (just like with a bottom and its upside move, the larger a top, the more downside it can support). I'll admit when I initially looked at the Daily IWM chart it didn't look like that at all, but when I looked at where price had been much of the day on an intraday chart it made more sense.

 DOW  yesterday
The IWM with the tell-tale rounding top

While I haven't seen everything from yesterday yet, I see that HYG was under heavier distribution, I probably would have added to the Put position yesterday as it did what I was looking for or close enough. VXX held up very well and has a beautiful bottoming process/divergence

 VXX / UVXY leading positive with a huge reversal process, larger than the averages.

HYG giving out relative performance vs the SPX yesterday

HYG's leading negative divegrence/distribution.

As far as my 200-day moving average theory, that we head down to the 200 day, likely break under it and have one more bounce, I think it's still on the table, but if they didn't let the 100-day pass which is no where near as popular as the 200-day or 50 day...

NASDAQ hitting the 100 day on a daily, forming a hammer/bullish reversal after the head fake move and swings sentiment, something that seemed impossible as bearish as everyone was just a week ago.

I think we're heading to the 200-day next for the SPX and it will be head faked, but again we are running out of time so intensity and volatility will replace duration as I pointed out Wednesday.

Again yesterday it was the most shorted stocks that outperformed everything else, I'd think they are largely covered, I'll have to check the updated short interest when it comes out, but as you can see, retail is fickle.

Pro sentiment also fell off harder again (last night's chart of sentiment vs the SPX in green).

TLT's flight to safety also outperformed its correlation as Yields fell hard leaving a disconnect between them and the SPX, Yields always win so they should be pulling  the averages lower.


Overnight the USD/JPY lost its critical support from the last week at $102, there's 100 pips in a $1 move, with a carry trade each pip can be worth $10k or more, add 100:1 leverage and a move like this adds up to large losses quickly.

 This is the intraday 1 min break of $102 which dragged the Nikkei down with it overnight.

Cross asset correlation is off again and as I suspected, the gold/SPX relation that worked so well and was so consistent for so long has flipped 180 degrees.

 The 60 min USD/JPY has been in a perfect downtrend since the start of the year, now its rolling over to make a lower low. The Index futures have followed these carry trades tick for tick since November of 2011 and even through most of 2014, only on this last short squeeze from the head fake move have they come apart for the first time since November of 2011 and I really don't expect that to hold being market trades are financed by carry trades, there's more to it than just that, but it just gets worse for the market.


However as I said before the head fake move materialized, but when we expected it, Wall St. doesn't do anything without a reason and the reason here is to swing sentiment to bullish, WHEN I SAID THIS IT SEEMED IMPOSSIBLE THAT ANY LEVEL HIGHER WOULD SWING SENTIMENT OUT OF THE BEAR CAMP AND IN TO THE BULL, BUT THAT'S WHY THESE MOVES HAVE TO BE SO EXTREME, THERE IS A REASON FOR IT AND IT'S NOT THAT WALL ST. IS BULLISH.


THE CORRELATION BETWEEN ES (SPX FUTURES) AND USD/JPY IS SEVERELY OFF, ABOUT 80-85 ES POINTS RIGHT NOW, REVERSION TO THE MEAN IS GOING TO BE JUST AS VOLATILE AS THE SHORT SQUEEZE HAS BEEN.

My feel for the open is that the USD/JPY tries to bounce, but resistance at $102 is just above, that may be the early tone plus we have op-ex max pain pins, I do wonder if it may be a move lower as I'd guess most options are going to be higher calls rather than lower puts.

We'll see what the carry trade looks like after the first couple of a.m. hours of trade burn off, but $102 is a serious breach, the BOJ is probably getting nervous.

Remember the Carry trade is typically leveraged 100:1, every pip thus has the potential of carrying 100 pips in losses, thus the CT can fall very quickly as it has done throughout 2014 and it has been the main driver of risk since 2011.

There's a lot in transition right now, whether it is temporary which after 6 days it never feels like it, but 6 days is a drop in the bucket or whether it is a change we need to take seriously we'll know soon enough, the Carry trade is a big one, the USD and of course the Yen and right now, gold as it has flipped 180 degrees, but as they say, "Everything is planned out and ready until the first punch is thrown". 

One defining feature of this shift in sentiment is that it has sent investors who are unsure to 11 year highs, THIS IS EXACTLY WHAT WALL ST. WANTS AT A TRANSITIONAL PERIOD, they can't do what needs to be done with full on bearish sentiment, but investors are also nervous with this move which makes the falling wall a lot easier on the first sign of a move a little more aggressive on the downside than they've seen the last week.

I'll be checking on all indicators I missed yesterday si I'll likely have a lot of updates as I sip my electrolytes like a 1 year old.

I THANK EACH OF YOUFOR YOUR CONCERN, EMAILS AND SUPPORT, I LOVE YOU ALL AND WANT NOTHING BUT THE VERY BEST FOR YOU.

Good Morning

I will be posting today as normal, I'm working on one now. Don't forget today is the typical op-ex max pain pin usually until about 2 p.m.

Appologies

I've had a minor emergency I've seen dealing with since 5 a.m.

I'll resume posting ASAP

So far today is just a repeat of yesterday's broader top