Market Update

INTERESTING, as you know on most op-ex Friday's (which is every Friday now with weeklies) we have a max pain pin that "typically" opens right about where we closed Thursday, that's apparently why we saw such strong divergences yesterday, but in such a small footprint,  which is why I said, "I'd rather miss the trade than take a sub-optimal trade", you have to watch out for fear and you have to watch out for greed, those two will take you out of the market feet first.

Yesterday I noted in this post XLF, HYG, Market Update that (beyond taking the gains on the XLF put being a good idea), that...

"HYG 2 min all of the sudden is leading positive, this wasn't there yesterday so there's some attempt to engage the Credit/Risk on following algos to drive asset prices up."

HYG (High Yield Corporate Credit) being the lever that it is, especially as part of the SPY Arbitrage with VXX down and TLT down- both of which are down today (remember yesterday I posted I was seeing distribution in 30 year treasury futures as well as TLT) was key to moving the market today as the algos chase what they interpret as institutional risk on as retail doesn't trade credit much. With the SPY Arb. going you also have the flight to safety (Treasuries) and the flight to protection (VXX-VIX Futures) down and algos interpreting that as a risk on posture, like I said several times, they aren't that smart, they are meant to do one thing, that's why they were all just shut down on the F_O_M_C as the USD/JPY carry trade flew on a strong dollar and ES flopped, the algos were shut down and the correlation was reprogrammed overnight.

In any case, this is what HYG looked like yesterday and what's happening today...

 This is a 2 min positive divegrence so it was pretty clear yesterday that we were going to move up (as I said though, probabilities are not the same as a high probability/low risk trade) as they were pushing or accumulating enough HYG to make it pop today, but it's really not much at all, beyond the pump, I'm not sure it will be able to do much more and it's already under distribution as has been the trend in HYG since the Feb rally petered out.

HYG intraday seeing distribution.

The market itself right now seems to be seeing some steering divergences because they are there in the SPY ands ES, but not in IWM or the Q's, I think this is probably max pain related...

 SPY's 1 min chart with yesterday's triangle (symmetrical which has no directional bias except that of the preceding trend, unlike the right angle triangles).

You can see some small negative in the SPY intraday, again I think they are just steering divergences .

 ES intraday, look at that small leading positive divegrence right before the pop on the open.

 At 2 min there's not much going on that's out of character, this is why I think the 1 min divergence is steering and max-pain op-ex pin related.

I think we will get some good data after 2 p.m., it seems most contracts are closed by then and the pin is lifted, as usual the market does what it wants with price action the last 2 hours, but the 3C signals are very useful as the market tends to pick up the next trading day (even over a weekend) right where the 3C signals left off so I'll be looking for those after 2 p.m. as the last 6 weeks we have predicted the next week's action with a lot of accuracy just on the last 2 hours of Friday.

As you know, I have been looking for a bounce in the market like this or better, but unlike past bounces that were head fakes to create demand or change sentiment, this one in my view was going to be about dropping the stubbornly high relative strength of VXX/VIX futures (remember yesterday I mentioned the forward month and May premiums were collapsing?) well today's move sent the VIX futures lower and the reason why I want to see them lower?

Because we already have the larger positive VIX divegrence in place, the smaller ones or that last bit of accumulation is like a timer telling us a trend change (major) is coming which as you know I have expected to be down.

There's only 1 asset that gets these leading "Flying" divergences and that would be the VIX assets, I suppose because fear is the strongest emotion, when people are accumulating VIX they have good motivation. In any case, it has been those flying divergences (positive) in a VIX/VXX pull back that I have been looking for for 3 weeks now, well take a look at VIX Futures today...

 Accumulation on the drop lower, not confirmation or a negative, but the accumulation I've been expecting and waiting for, we have a start.

Moreover, even more importantly...

 Look at that VXX 1 min leading divegrence, that's a flying divegrence and will likely only get bigger. Better yet...

The 3 min chart has it too now, so the VIX futures and the short term VIX futures are all not only seeing accumulation on lower prices which is exactly why we were looking for a move to the upside, not a strong move, just a move to lower VIX, but they are flying divergences! EXACTLY WHAT I'M LOOKING FOR.

So, thus far we have some really interesting developments that are what we need to have happen before we can get to a major primary trend change.

I have some looking around to do, but if we can get a bigger reversal process /  footprint on the VIX futures and keep building these leading positive divergences, it's going to likely tell us to the day when to expect a nasty decline, allowing us plenty of time to get inn to the right areas of the market, even though most of us are already set up.

TSLA Update & Possible Trade Set-Up

TSLA is one of the big 5 momo stocks, it looks exactly like the broad market yesterday with the symmetrical triangle which Technical traders have been taught over a century to interpret as a bearish consolidation/continuation with the directional bias coming from the preceding trend, which means we know there's a VERY high likelihood it gets gamed (these patterns did use to work by the way before discount online brokers and the flood of new traders embracing Technical Analysis which was like Voodoo analysis previous to the Internet revolution).

In any case, we were expecting this upside breakout yesterday just because technical traders would see the market wide triangles and expect a downside continuation, I just had hoped they might drop prices below the triangle first to draw in some new shorts and then reverse it to give us more upside momentum on a squeeze, plus it would have allowed for a bigger base footprint (bigger than a day), but all of that tells us something about the market (I'm leaning toward yesterday's accumulation being more about the weekly op-ex pin and of course the VIX Futures scenario we've been waiting on for 3 weeks now I believe?

OK, here's what TSLA looks like on the charts and where we might have a couple of potential trades.

 This is the daily 3C chart, one of the strongest underlying trend timeframes we use. To the left you see a YEAR long accumulation period, remember I showed you the homebuilders being accumulated for a year- a year and a half right as the Tech Bubble was popping, then housing leads the next bull market with many of those stocks making 2500%.

In any case, we have stage 1 base/accumulation during 2012, stage 2 Mark-Up/confirmation during most of 2013 and we are in to distribution in to the higher high through 2014. Like I said, there's a lot worse out there, but if you recall my analogy about "Waves and the tide" in explaining a bit about Dow Theory, the tide is probably the biggest factor in what TSLA does moving forward, I'd say the market's overall direction is responsible for about 65% of the gravitational pull on TSLA on any given day with the Industry group coming second (in a healthy market it's a lot stronger influence than in this market). This is where most traders go wrong, they look for stocks to buy or short, you start with the market and what it's most probable direction is, then you look for assets, not the other way around.

Point being, there is some distribution here, not as bad as many of its peers, but enough to send it lower when it comes to primary trends.

I double checked several longer timeframes and this is the 4 hour which as you know is a very strong timeframe for underlying trends, you can see clearly distribution in the same basic areas, we have a little more detail, but the higher high was definitely used for the demand it creates to sell in to- again, institutional money are in a tough spot filling orders compared to us, we can get in and out and barely budge the market for more than a few seconds and we don't have predatory HFT's on our butts either (the Iceberg hunters), they can easily drive a position against themselves because of their size, thus a breakout to a new high gives them demand they need to sell in to.

Again, point being it looks like distribution in to demand and higher prices.

 The 60 min chart alone is more than enough to trade an Intermediate trend so it's very strong as well, you can see a smaller accumulation area in white with a positive 3C divergence and then there's NO confirmation on the run to new highs, more evidence that run was used to sell in to. We also have a relative negative divegrence at the red arrow which is telling us the same thing.

The 15 min chart is just a more detailed picture of what we see above, but to the far right, even though 3C is in a leading negative position (distribution), there's a small relative positive divegrence at the white arrow. Here's a closer look...

 Here's a closer look at the same 15 min chart, distribution at the top, in line at the green arrow on the downturn and a relative positive divegrence at the white, this is a bit bigger than what we have seen across the broad market so TSLA may be more than the 1 -day accumulation we saw yesterday, otherwise I wouldn't have brought it up as I'm not chasing assets trading roughly with the broader market.

 This 5 min chart gives us more detail, you can see the same triangle yesterday as the market/averages and most assets had in place and a leading positive divergence so I think there's more to a TSLA move than just a quick op-ex pop (or whatever this turns out to be-possibly the VIX futures move we were looking for).


So the set up...

 The 3 min intraday was flying in a leading positive yesterday at the sym. triangle, I'm surprised they didn't head fake it and wonder if they might still with a move below the apex which would be a gap fill as well, in any case they knew the market was going to pop early today and were in place for that short term on the 3 min as that's a strong leading divegrence yesterday.

The 2 min chart...

We have pretty good confirmation of the move up, but there are some intraday negatives forming now, if TSLA is just going higher than I'm not chasing it and I'll wait for these charts to go negative and short it at higher prices and less risk, but if it pulls back to at least a gap fill, maybe even a head fake move below the triangle and we still have strong accumulation on that pullback, I'd enter TSLA long or with calls depending how deep it pulls back.

I'd set price alerts if you are interested in the possibility of the trade (I will) and double check 3C if we do get that pullback in to the gap at minimum.

Otherwise, we'll let it do its thing and look for a short entry as the 15 min positive turns negative. The positive divergences are pretty nice here on a swing basis, but the problem is the same as the market yesterday, the footprint for the reversal process is very small, you can't stack a bunch of blocks really high on a small base, it's the same with the market, that footprint in the reversal process counts.

For now, it's patience and setting alerts, double checking underlying action, either way we'll get this one.

6th Pump... Dump?

This is the 6th day in a row of overnight carry trade driven levitation (the pump) and on the open, even more so...

ES pumped overnight, even more on the open.

The last 5 consecutive days have seen a dump shortly after the pump either pre-market or just after the open... Is today different? We were seeing some things yesterday so I'd think it is, it's also an op-ex Friday so this may be the max-pain pin for the weeklies.

In any case, so far we have what looks to be a little loss of upside momentum coming up, but we have good confirmation of the move up this morning across all the averages.

 IWM 1 min with a VERY slight negative, it may slow momentum to a more lateral pace.

However at 2 min, we have confirmation all the way around, we haven't had that the past 5 previous days.

QQQ 2 min confirmation

SPY confirmation.

Both GLD and GDX are up and looking decent so far, there looks to have been a little head fake in GLD, this is why I kept reiterating GLD and GDX long the last 2 days.

SO FAR, VXX is doing what I wanted to see for the past several weeks, it's down, but more importantly there are already hints of accumulation starting there, that's what we need for a real, serious market pivot to the downside, but that is unlikely to happen today and certainly not before the op-ex pin is lifted around 2 p.m.

More in a few minutes as trade data is coming in and looking good thus far.

Market Update

So after a week of divergences that were in place for 2-3 days, but none beyond 2-3 mins., today we transform from a slow signal environment to a suddenly increased signal environment in which we have many market averages with at least 5 min positives and some even with 10  min positives, yet I have not been running around crazy throwing positions out there... I did close a some that I felt were not going to gain any more or not much more that would make the risk I'd face a reasonable proposition.

So why not add long positions like 3x leveraged ETFs or Call options?

Remember the market is not controlled by supply and demand, they are a function of price discovery and in some instances they seem to rule price discovery, but what really moves the market are emotions, FEAR and GREED with fear being the stronger of the two.

It took me a long time to trust 3C and be able to buy in to a low, not because I'm trying to catch a falling knife, but because that's where 3C was telling me, "This looks like a great trade now". It took me the same time to learn how to overcome my fear and short a new or breakout high, again not just because it was a new high or seemed to move so much that it had to correct,  but because of objective data saying, "This is the place to enter". If Wall St. didn't play the games they did, I might be entering those positions in the middle rather than at the extremes, it is not the extremes that drives me to enter a trade, it's the objective data, it just so happens that Wall St. plays some games and for good reason.

So I conquered my fear in many ways, probably not all, but in many.

THE SECOND EMOTION IS GREED, while not as strong as fear, it can be a close second.

On a day like today with divergences building and some building to quite long timeframes, it's hard to keep your finger off the trigger, but just like I had to conquer fear, I've learned over the years, "IT'S OK IF YOU MISS A TRADE, THERE'S ANOTHER BUS COMING". 

If I don't feel that the situation is as favorable as I can get, sometimes I'd rather let go of greed, take a chance and possibly miss the trade, I think it's far better than taking what might be considered a sub-optimal trade.

Keeping in mind the respect we have to have for risk with 60 min charts and shorter looking as bad as they do, here's what I'm looking at and what I'm looking for to go ahead and maybe take on some positions beyond what we have so far this week.

 First look at the volatility in this choppy stage 3...

The daily SPY chart with a Harami reversal on Mon/Tues. that was run over Wednesday and today something close to a Morning Doji Star bullish reversal that looks interesting and volume is up on the candle, but is that enough?

 Remember the triangles (symmetrical) I mentioned in the averages, these derive their directionality not from the price pattern like most price patterns, but the preceding trend which is down which means traders expect a downside break and will likely short it.

You can see how a move like that would give us a better entry, possibly better divergences, less risk and a bigger foot print to launch a move from, a small move, but a move.

So you know what we'd need to see tomorrow to make the trade come to us, especially if you want to enter options. I think that is worth the wait considering we see this about 80+% of the time.

 SPY 5 min is beautiful for a day, but with a head fake it can be even better so was it worth entering today? I think the evidence shows what the most probable outcome is and that would mean waiting, putting greed aside or the fear you might miss the trade and doing what is sometimes the hardest thing in the market, be patient.

 QQQ 5 min positive, but such a small footprint. It doesn't matter how positive if it's such a small footprint.

IWM 5 min positive.

Point being, I think we have a good chance at making some extra $ on some really quick trades and I think if they come to us we have VERY little risk, a better entry, higher probabilities and we'll likely know the best place to deploy assets.

Today was a good day for us, for letting trades come to us and for our trend expectations in general because a pop up does what we need in the VIX futures. I think today may have been a better day for us in showing patience which is not easy, especially if you trade for a living, but as I said, greed has caused me a lot of trouble in the past, just as much as fear.

Gold and Gold Miners

I already have positions in the trading portfolio in both UGLD and NUGT long (3x long Gold and 3X long Gold Miners respectively).

I'd reiterate the fact that if I didn't already have them, I'd certainly be open to at least a partial position, with op-ex coming up tomorrow I'd like to leave a little room to add to the position just in case I find a slightly better entry.

AAPL

Here's the AAPL charts that have been requested. On Monday I said I though AAPL looked terrible and that I wouldn't buy it, if I owned it I'd sell it.

There has been stunning improvement, but like the averages I showed in the last post, it's not about a nice foot print to bounce off, it's strong intraday divergences, but you can still only accumulate so much in a limited period, even if you dial up the accumulation so it's reading on longer charts intraday.

In my view, I'd probably still wait a bit to see if a wider footprint in this base area can be established, just because there are good probabilities doesn't mean they are great probabilities and just because you probably can trade it and do ok, doesn't mean it's the best decision.

 This is the AAPL 15 min chart just to remind you of what's on the other side of the charts below, this is only 1 of several very strong negatives, so if you do end up trading AAPL from the long side, keep in mind it's a trade, not a change in the primary trend.

AAPL 1 min

2 min

5 min

And all the way out to 10 min intraday, the problem for me is still the footprint size, I'm not going to enter anything I don't feel very comfortable with, even if I know the probabilities are that the asset is higher by Monday.

XLF, HYG, Market Update

I closed XLF Puts because it was easy to see they were losing momentum and easy to see there was a reason for that, a reason which may have some new trades opening up soon.

First here's the P/L for the April $23 XLF Puts just closed...

The 100 contracts had a cost basis of $.69 and they were filled at $1.06, so they came in right around a +55% gain which is fantastic for me, I', not using options to try to win the lotto, I use them to make what looks like a decent looking trade that may be lacking in profit potential worthwhile by using options' leverage. If I don't need the leverage, I prefer not to use it as it cuts both ways and you can only play with hand grenades so long before something unexpected happens.

There's been a lot of roatation this week from IWM to QQQ to SPY which it seems is now leaning toward SPY, that likely means Financials are going to outperform and we'll look at those charts.

If we decide to move forward with a long position it will almost certainly need leverage as the base that was there earlier in the week was pretty much trashed yesterday as it had never gained strength (the strongest divergences were 3 mins. and most only 2 mins.).

That means a SPY call might work, a UPRO (3x long SPX ETF) equity/ETF long could work, XLF calls might work or FAS (3x long Financials) might work if you prefer to stick with equities over options. I will look more closely at small caps (IWM) and Tech (QQQ) to see if there's anything stronger there than what we see below.

FIRST though...DON'T FORGET WHERE WE ARE...

 This 60 min chart of the SPY should clearly show massive distribution in a toppy environment, you don't get a much clearer signal than that. In fact, me drawing on it only distracts from how powerful it is so just to impress upon you the risk of taking longs...

Better yet, take a look at the stronger 2 hour chart (the 4 hour is even worse, but I think this gets the point across)...

SPY 2 hour leading negative divegrence art a new leading negative low in a flat , choppy, toppy stage 3 range.

Now as far as the lever to move the market, HYG has been getting slaughtered all week, it seems someone does want this market to bounce as they were working on earlier in the week, I still think it is VIX accumulation related, the market needs to bounce to send the VIX futures lower where they can be accumulated on the cheap-I've held this opinion for several weeks and nothing in price or 3C action has caused me to question it.

HYG 2 min all of the sudden is leading positive, this wasn't there yesterday so there's some attempt to engage the Credit/Risk on following algos to drive asset prices up.

The HYG 5 min chart is ugly, but there is a relative positive divegrence look at HYG's lower low vs the trend line and 3C's higher low, this is a mino divergence in the scheme of this chart, but it is a change toward the positive, even if it has no chance of changing the leading negative.

SPY, I like this one the most of the averages.

 1 min, YOU'LL NOTE IN ALL OF THE AVERAGES THERE'S A SYMMETRICAL TRIANGLE TODAY, THIS HAS NO DIRECTIONAL BIAS OTHER THAN THE PRECEDING TREND WHICH WAS DOWN.

The point being, traders see this and expect it to act as they've been taught for over a century and break to the downside once the triangle is finished because only the preceding trend gives a sym. triangle it's directional bias unlike the right angle ascending and descending consolidation/continuation triangles.

Do you see why this would be there, how it would set up a head fake move and a bounce? Traders expect it to break down, they will short it and when priceEs are run back above the lower trendline or the triangle's apex where all the shorts put their buy to cover stops, you get a mini short squeeze and momentum to the upside which longs will chase as we have figured out through StockTwits that it only takes 3 hours of price movement to change sentiment, TRADERS ARE JUST FOLLOWING PRICE, A LAGGING INDICATOR AND THAT'S HOW THEY GET IN TROUBLE IN A SITUATION LIKE A SYM TRIANGLE.

 2 MIN SPY, by now you should be seeing a pattern of migration starting.

3 min SPY, now you see even more, it seems yesterday's volume was a short term exhaustion/capitulation event.

Even the 5 min SPY is positive. The problem is the reversal process/ base is not very large, it may be the 5 min chart is engaged because they lost time and shares yesterday and are making up for it in quantity rather than quality or the time it takes to form a proper reversal process which would also explain the market wide sym. triangle if it is used as a head fake price pattern.

QQQ

 The 1 min isn't that impressive, but slightly leading

The 2 min isn't that impressive, but the 3 min looks better. I WILL look at AAPL because I know I'm going to get a slew of emails about AAPL any time I talk about the Q's making a move.

 This is the 3 min, there's a much clearer divergence, like I always say with using 3C, "If you don't see a clear trend, go out to the longer timeframes where there's less noise and more trend".

The 5 min QQQ chart is simply in line with price unlike the 5 min SPY.

IWM

 The IWM is my least favorite, this si the 2 min chart.

This is the 5 min chart, the 1 and 3 min aren't very interesting, but if they shape up, then having this 5 min in place will change dynamics and I'll like the IWM a lot more.

XLF-Financial Sector...

 1 min

2 min

3 min

5 min

Even 15 min...

You see why I closed the XLF puts? You see why I'm thinking about XLF calls possibly or FAS long for a bounce, not a swing trade, not a change in trend, a bounce!

More to come as I watch these charts and individual single stocks like BIDU.

Closing XLF April $23 Puts

I'm leaving FAZ longs in place. An update will be out shortly.