UNG Update

Over the last several UNG updates we have been looking at and for pullback areas, I still have the UGAZ (3x long UNG) position open and will keep it that way unless something materializes that warrants closing it as I'm more interested in the bigger picture than trying to trade around UNG, but that too can be done even with the simple ROC of price divergences I have shown in the last several updates for UNG.

 From left to right : At the yellow arrow the attempted breakout that we said on that day, "If it fails , UNG will head below the range and accumulate for the next breakout attempt"

It did fail, , just like a channel buster UNG moved quickly to the lower end and then below the range where it was accumulated (white box) and then as predicted broke out of the range. However we called pullbacks at both orange arrows, the first pullback at the white arrow and it looks like we are still building the pullback entry for the most recent pullback call (second orange arrow).

Volume is increasing on the day, if we get a bullish candlestick it will be very helpful and much more likely that UNG is near or done with its pullback.

 I have noticed a leading correlation with XLE/Energy in red, However correlation does not always imply causation. If it were a true correlation, then Energy as a sector would lead UNG as it seems to have, but again I can't prove this is anything more than random, I just thought you might want to see it and keep an eye on it.
 
 The UNG 3-day X-Over screen (for larger trends) has given a recent long signal at the white arrows proceeding a sell signal at the red arrows. Volatility around these initial signals is not uncommon.

 The macro 4 hour chart is still very strong, leading positive so I still like UNG/UGAZ long quite a bit as a macro trend.

The 2 hour chart shows the range we expected a large pullback from and got and the accumulation at that range on this more detailed 2 hour macro chart.

The 60 min showing more detail of the same , but also a smaller negative divegrence implying a strong pullback and I think the pullback area's size itself counts as "strong".

 In to the shorter term charts with more detail we can see accumulation/[positive divergences at the pullback lows, just like an institutional firm would fill their order, at the lows, hitting stops, etc.

The point is, I don't think there's anything wrong with UNG, it's just in an accumulation process , that's why they haven't let it follow through on the last 2 breakouts, they aren't done accumulating as their positions are much larger than ours and you also know I believe UNG has a good chance of entering its own secular bull market, especially now that the US shale oil industry is being destroyed by OPEC, nat gas will become an increasingly useful resource that the US has a lot of.

 1 min intraday, again showing accumulation at lows and negatives to push price back down.

I showed a way to use ROC on price to look for pullback areas and signs of pullbacks, this 30 min chart has called nearly every one.

I believe UNG probably needs a little more of a reversal process, but being under the range, it also could create a lot of upside momentum quickly. I have no problem keeping UGAZ long open so I really don't have a problem with UNG long positions in the area either, especially not for longer term traders.

If you're interested, I'd keep an eye on ROC of price and its divegrences. As I said, I think a decent reversal process that can support a breakout move needs a little wider (lateral base) footprint, but if the divergence starts screaming, I'd listen to it. I'll keep an eye on it as well.

Meet Your Levers

It looks like our bounce is getting some wind under its wings, intraday TICK has improved and the levers are very obvious, apparently just intraday accumulation of the averages wasn't going to be enough.

USD/JPY should be one...

 USD/JPY as a lever has already broken, we saw that over 2 weeks ago and especially last week. However I'm sure it's still useful intraday even though there's no divergence here.

Do note the new highs in USD/JPY overnight as Moody's downgraded Japan and the IMMEDIATE and strong distribution in to that high. The reason I suspect USD/JPY or maybe one of the other Yen carry pairs is the following...

 Well , perhaps I should have emphasized "Maybe one of the other Yen carry pairs" more. The $USDX 5 min has been negative, you can see the divegrence that took it lower on this 5 min chart so it doesn't look like it will be of much help, but it's a pair and it takes two to tango, that leaves the Yen.

 Intraday it has a negative divegrence which should send it lower sending JPY pairs higher, thus one of the levers.

The second and third are one in the same, you can probably guess. Looking at VIX futures I saw it right away...

 Intraday VIX futures with a negative divegrence which sends VXX lower.

VXX lower with TLT lower and HYG higher= what?

SPY Arbitrage, a useful lever and one that has been in and out all day. With VXX moving lower it will lock in that lever ad help out intraday.

Even though HYG is leading lower and destroyed, it can still play intraday and probably needs to with that gap. This is an intraday 2 min positive in HYG which can be used alone, but I suspect they need to call in al the troops after this morning's crack.

 And the last ingredient is TLT and with it, yields. TLT in line with a recent negative divergence sending it lower today is a complete SPY Arb activation.

I'm just showing you the mechanics of this move, not saying I think it's anything more or less than what has already been posted.

However TLT won't be pulling back for long, not with a beautiful , huge rounding bottom like that and a 60 min leading positive divegrence, so TLT may be an interesting pullback long once this is finished, I prefer shorting TBT to get an effective 2x long TLT position.

Those are the levers.

Market Update

The market is still building a toe hold for a bounce, I suspect a gap fill as the market has been relentless in filling gaps over the last 5 years, although where the SPX sits right now as well as the NDX and others, a failure to fill that gap would be devastating and suggest a much nastier, sharper decline than I already think we'll see (this morning was just a tremor)...

I'll update quickly with Index futures as it's a bit faster for me.

Intraday as I mentioned, they are working on a basing area or reversal process, it doesn't matter how short a reversal may be, it needs a reversal process rather than a "V" shaped event as we rarely see those and after such a deep blow to breadth (as seen in intraday TICK), building a toe hold takes a bit more time than just a quick reversal to the upside for a gap filling bounce.

 ES 1 min intraday still working on a reversal process area for a gap fill/bounce. Even this morning's move was too parabolic, too early. Moves like that , while in this case very probably establishing the first fault line crack in the market, don't usually keep moving all day in the same direction, Wall St. will want to shake off as many traders as possible and from what I'm reading, retail sentiment is still very bullish which is very useful to smart money to continue to sell in to and build bigger bull traps.

NQ/NASDAQ futures 1 min intraday aren't spectacular, but like I said, they are building a toe-hold or at least a consolidation.

Remember, as volatility increases, it's easier for these short term, weaker divergences to be run over, all that is needed is the AAPL panic effect like when all the hedgies found out Dan Loeb sold his AAPL and AAPL fell -45% in 8 months from there.

 And TF/Russell 2000 intraday building a positive divegrence at the consolidation area.

 The problem still remains that there's a roof on any bounce or gap fill and that's what I was posting last night in, Sunday Night Index Futures
 

There's a full house across the timeframes even if the very short ones are reflecting a parabolic , short term flame out (oversold condition), as fear rises these oversold conditions will be harder and harder to create.

At the 7 min chart ES shows the negative divegrence in to last week which was forecasting this morning's break, the whole week was nothing more than a Black Friday sentiment exercise...Keep the market from adding to any negative sentiment which is already clearly out there before Black Friday and apparently reflected in this weekend's sales figures as well.

 NQ 30 min just like last night...actually even deeper so any bounce will simply make this divegrence worse.

ES 60 min, etc...

The macro themes are intact, the "Full House" multiple timeframe/multiple asset confirmation is in effect. We're looking at a consolidation and likely bounce still trying to build a toe-hold.

In my opinion this is to be sold in to so long as the market can get a bounce/gap fill off the ground or shorted in to.

Nothing we didn't expect earlier this morning thus far.

AAPL Update

AAPL has been synonymous with NASDAQ 100 / QQQ support, which is one of the reasons we have been tracking it. As a trade, AAPL is not my favorite, but I do think on a bounce it can be shorted for a decent swing, I just think there are better opportunities out there as AAPL transitions from a mega growth stock like MSFT use to be to a blue chip, stable dividend paying stock like MSFT is now.

In any case, for both AAPL and the NASDAQ 100, this is an update picking up from our last one on Wednesday, November 26th, AAPL Update

In last week's post linked above, we were looking at both AAPL distribution and a head fake move probability, both have come to pass.

The first 1st and 3rd charts are from last week's update

 This intraday 1 min shows a bullish consolidation/continuation triangle that I thought would see a head fake move above the triangle as technical traders would expect and a move back below, since then...

A small head fake move setting a bull trap was made above the triangle (yellow) as traders buy on breakout confirmation, thus this morning many were stopped out as a common place to put a stop is below support of the triangle and look at that volume this morning as AAPL broke below those stops.

Aslo from last week...

 The clear change in character in AAPL/3C from in line on this 5 min 3C chart which was confirming the uptrend and thus providing QQQ with support with AAPL's weight on the Index and a clear transition to distribution.

This 30 min chart (current) also shows the transition to distribution.

The 10 min chart shows the deep distribution late Friday in to the close and as usual, price action picks up right where 3C divergences left off, even over long weekends.

 This is the 5 min chart now, close to in line and as such AAPL is consolidating.

The shorter 2 min (also weaker) is showing minor accumulation of the stops hit this morning as there was plenty of supply at cheap prices and we get a bounce which that can be sold in to. At that amount of supply, that's a quick and very easy buck for HFT's. However AAPL also appears to still be in line intraday on a 5 min chart.

As it does on an intraday 1 min chart.

When looking at a 60 min chart, you can see AAPL's accumulation area which is EXACTLY the same as the broad market, mid-October at the October lows and the divegrence recently since.

I do think this will carry AAPL lower, but it's not my favorite trade, it probably means more to me in that it won't be supporting the Q's, but if I were to enter an AAPL short I'd want a lower risk entry and with the market gearing up and trying to build a toe-hold for a bounce to try to tackle this morning's gap, AAPL might provide it.

The area I'd want to enter to make it worthwhile...

I'd want a move at or above $119.75, another head fake on the triangle and a higher high which is the only thing I think will get longs to buy and thus provide the demand for smart money to sell in to. From there my target would be the October lows and of course asses the situation as we move forward, but for me, I'd want to get a better entry with much lower risk considering there are so many other positions like inverse ETF's (leveraged) of the averages themselves that look like stronger positions.

*Remember if you are short when a stock goes ex-dividend, you pay the dividend which normally isn't a concern if you have an edge and are in the right trade.

Market Update

That intraday, oversold (parabolic drop) bounce (likely to fill the gap) is looking more and more probable as a small intraday divergence builds (positive), however this is not the "same old, same old", trade character should look VERY different this week (weakness) along with price declines.

I'll get in to the bigger picture later, but we found support at the trend line of the Broadening top as the market has been in a head fake move,  a break below this trendline should see a near vertical drop in the markets as fear is much stronger than greed, THIS IS THE MOVE I HAVE BEEN TALKING ABOUT SINCE EARLY AUGUST WHEN WE FIRST SUSPECTED A VERY STRONG BOUNCE FOLLOWED BY A STRONGER DECLINE. As I said, I'll touch on that in more detail later, but I'd be using these bounces (intraday or otherwise) to fill out short positions I'm interested in (I'm already loaded for bear so to speak).

The intraday charts...

 The intraday Index futures look ok, this is ES, it by far looks the best intraday with a positive divegrence (intraday) on the a.m. decline, thus the bounce to perhaps fill the gap mentioned earlier, but trade should continue to get much uglier as we move forward, nothing moves in a straight line and the market is always going to try to throw as many people as possible.

This is the 1 min SPY intraday chart, you can see the distribution last week and a small intraday positive this morning as a lateral support area forms which it will need just for a gap fill bounce.

 The QQQ is not positive yet, it will have to pullback a bit more, but I suspect it will have an intraday poisitive, it's just nothing like the sharp distribution to the left leading to this morning's decline.


And the 2 min IWM is starting to build it's intraday positive, note all of these occurred AFTER the volume short term capitulation, so this is a macro/micro concept that can be used on any timeframe, it's especially effective on longer timeframes with bullish reversal (or bearish reversal) candles, such as the 60 min chart I showed earlier this morning.

The TICK which was VERY flat early Friday before declining hit -1500 on this morning's sell off so it's pretty bad thus far.

Our custom TICK indicator vs SPY shows the negative intraday breadth, but also to the far right a break in that, this is our intraday bounce base that is building.

I'd be thinking about what assets you might be interested in shorting in to that bounce as that is a gift horse.

BABA Follow Up

It hasn't been that long since our original BABA post on 11/10 predicting a Channel Buster pullback below its channel which some of you shorted, but the intention of the post was to see if BABA still had gas in the tank and thus a worthy long trading position or if BABA is transforming with the Channel Buster and a change in character and trend is in the air.

The last update on 11/24, BABA Follow Up showed this chart with the following excerpt forecasting what BABA would do next...

This chart is from the 11/24 post...

" If BABA pulls up to the underside of the channel at the yellow arrow and gracefully backs off, there's a good chance it forms a stable base and makes an excellent pullback trade, there hasn't been so much damage that this kind of pullback long is ruled out. However if it enters the channel, chances are things will get ugly and it may turn very ugly which may be the start of a whole other trade we are yet to consider. There will be stops and limits in the channel, that you can be sure of (red arrow)."

As you can see, BABA did NOT enter the channel again which would have made it a high probability short, instead it backed off at resistance and pulled back which was our first scenario.

Since, as we are looking for the highest probability trade in BABA...

 On the BABA daily chart you can see the original Channel Buster in yellow, this was when we first posted on BABA that this breakout move would lead to a sharp pullback BELOW the channel. The post above from the 24th was from the pullback area (white) to its bounce area (orange) which stayed out of the channel, reducing at least for that moment, the chances of a BABA short trade entry and has "gracefully" or as gracefully as possible considering this morning, pulled back to the expected area.


 Just like the market averages this morning, BABA found some support on heavy volume or a short term oversold (like mini capitulation) move which you can see on this 60 min chart at the white arrow, but even better below...

A 5 min BABA chart.

Other than the volume surge concept (as a short term support area), the other concept is the VERY parabolic nature of the early decline, as you know , whether up or down I don't trust parabolic moves to hold very long (on their respective timeframes), before some sort of at least corrective behavior occurs.

 Our X-Over Screen (60 min because there's not enough trade data to fill out a daily screen) , has issued a sell/short signal. A bounce to the yellow trendline (10-bar... 60 min), would normally be the first correction and thus likely a short entry. Our second and third indicators to confirm have both done so. On a daily chart, while we don't have enough data to form a full screen, 2 of 3 indicators are moving to a larger sell/short signal.

As for 3C charts...

 The 60 min chart which was so strong and confirmed (green arrow) before it went negative at the Channel Buster (red) hasn't really done much in the way of more damage or repairing damage, for now I'd have to call it neutral.

 However the more detailed, 15 min chart still strong, but not as strong as the 60 min chart,  shows the original distribution (Channel Buster), the bounce we expected and some accumulation for it and the distribution at the top of the bounce.

Unless BABA pulls back and forms a wider base with much stronger positive signals (which aren't here yet), I suspect BABA is going to be a short sale, it may even be one on a bounce to the 10-bar 60 min moving average so I'd set some price alerts in the area.

 This 5 min chart would show improvement if there were any to speak of for a pullback/bounce trade, right now I don't see it making BABA look more and more like a better short.

I would not short such a parabolic move lower this morning or chase price, I'd be taking a close look at BABA near the 10-bar 60 min. moving average which is where I suspect it is going broadly with the market as a whole on a short term oversold bounce from this morning's deep, parabolic drop.

So far the intraday 3 min chart just put in it's first positive divegrence, this is what I'd expect to see for a bounce to the 10-bar moving average, but this is not the overall pullback accumulation of a long trade we though was a possibility, which is why we have been stalking BABA.

I suspect it will be a short and at a decent entry with lower risk, but I want to confirm that and get a good entry with low risk and high probabilities.

If you are interested, don't forget to set those price alerts I mentioned. BABA just hasn't seen the recovery it was capable of on its pullback from the Channel Buster.

A.M. Bounce Attempt

HYG is leading the market lower, but this is a symptom, not a cause.

 HYG with a leading negative 3C has gapped down even further...

And the averages including SPY above are seeing the move lower confirmed by 3C as it moves lower.

However if there's to be a bounce in the area, this is probably a good place for it, first...

Volume is increasing on the downside, this is no different than macro capitulation, the concept holds true intraday, it can cause a short term flame out to downside momentum and a bounce, whether a gap fill or not I can't say, it doesn't look good right now.

And second, just as we predicted after the week of protecting Black Friday consumer sentiment (via the market), the price pattern with a head fake move on the daily chart is near breaking...

 60 min chart of SPX and this morning's BIG move to a support area with higher volume...

That would be the head fake move above the Broadening Top I was showing last week, it's right at the top trendline, when that breaks the market has a high probability of seeing a fast drop lower, faster than this morning.

A.M. Update

Good Morning.

It was a bit of a rough start for the market thus far with the averages gapping down on several things, one of the first and foremost is the 11% dip in extended weekend holiday sales as reported by the NRF, although there have been many rationalizations, the fact is that's a big drop in sales.

China saw its second manufacturing miss in a row with the Euro-zone November PMI manufacturing missed again with a revised October print for Germany who was on the edge right at 50 to outright contraction at 49.5 (anything below 50 is contraction) so not only did the Euro-area core miss for November and at the lowest in more than a year, but Germany, the manufacturing engine of Europe,  is as many suspected, in contraction. This coming just after the 2nd consecutive Chinese miss.

Japan was downgraded by Moody's from A1 to Aa3, although you can read the reasons anywhere, the punchline is a belief that Abe-nomics will and has failed.

Gold and silver rallied overnight as safe haven investments, certainly not on inflationary concerns considering there's no global growth and oil, well it continues it's slide which is a contradiction of what most would think of as common sense, "Lower oil prices mean more consumer spending" right? Apparently not. Look at copper overnight, it was lambasted again so in fact slowing oil prices are a mere reflection of the manufacturing misses and the lower demand for oil, in which case Saudi Arabia and OPEC may have not only been trying to kill the US shale oil industry when they left output unchanged last week, but obviously see the decline in global growth and lower demand for oil. How can you have more consumer spending when manufacturing is in outright decline?

The ECB is due to meet Thursday for a policy announcement which as usual, it is widely hoped they'll announce sovereign bond QE, but as we know Draghi is mostly all talk, some of the better analysts such as Jim Reid don't think they'll change anything of significant importance as far as policy goes.

I want to get a better look at the opening action, I suspect we may get some gap filling, but overall I'd say expect a VERY different tone to the market this week than what we have seen since October 15th/16th.