Trade Idea: Transports (short) IYT

I've covered Transoports several times over the last week and mentioned a candlestick pattern last night called "Falling 3 Methods", sort of like a bear flag Transports seems to be in. While I've seen few make a clean turn without some volatility, this is looking like a high probability/low risk set up.

In the interest of time, I'll post the charts next so I can get this out as you have likely seen multiple updates, the near term charts have fallen in line.

Leading Indicators

I'm not afraid to make a trade, but I want the best timing possible. Even though this move (other than the Russell) over Tuesday and Wednesday has been a garden variety oversold bounce, I still don't want to enter a day earlier than should be and while the Index futures move towards sharper negative divergences like what was seen leading to Monday's parabolic collapse in the market, in specific assets, there are a lot of nice looking signals, but not a lot of ones that are screaming, although many are within reach of that and could be in such position in 30 minutes should they decide to move.

Looking at Leading Indicators, the last thing I'd want to be is long. However, I also don't want to be in a chop zone for new positions, such as...

 The last 6 days of QQQ action, only -0.13% of movement.

That's opportunity cost at minimum and open risk at worst.

However the broad market is starting to scream for downside...Leading Indicators are just the latest confirmation of that...

 This is my VIX Term Structure, above 1 and it paints candles white and gives a buy signal, the opposite should hold true, although I don't use it for sell signals, but if I were too, the indicator is now at the lowest point in a year and a half, perhaps more if I looked back further.

Interestingly, VIX was SLAMMED today, around the time the Bloomberg story or "RUMOR" came out, that smells fishy.

The earlier HYG 1 min positive divegrence offered some help intraday, although it's still in the red.

High Yield Credit continues to tumble and now at an accelerated pace.

 As does professional sentiment

 TLT and Treasuries are no longer supporting the last 2 day bounce and are in "Flight to Safety " mode.

 As such, Leading Indicator, Yields is leading the SPX lower (5 year)

 As well as the more important 30 year.

30 year trend warning last Friday of what was to come in SPX Monday, 2-days of levered support and warning again.

The market seems to be screaming.

Now to find the right asset with all timeframes in place. It's days like this I'm glad I'm already set up short.

ECB, Bloomberg, CNBC Shenanigan's Notwithstanding, the Market's Opinion

At least the ones who move the market...

 VIX futures intraday accumulation continues...

ES distribution continues...

NASDAQ 100 futures distribution continues...

 Russell 2000 Futures distribution continues

And despite TICK's earlier volatility, it has dies to an unbelievable range of +/- 250

It looks like those who move the market, are not moved by the rumor, counter rumor, retraction, disappearance of said retraction...

Think Like a Criminal ECB Edition

Here it is, truth is stranger than fiction!!!

This morning in Draghi's press conference of an hour and a half,  he came off 180 degrees his norm and as a hawk or much more hawkish with statements like the ECB will "Reassess Current Stimulus NEXT Quarter" and "ECB may not decide on new measures in January", apparently pushing back any potential QE of sovereign bond purchases that I remind you again AGAINST the ECB's charter, Rule 123 which you can find right here on the ECB's website...

"the prohibition of monetary financing (Article 123 of the Treaty on the Functioning of the European Union),"

Despite Draghi saying the above: "Reassess Current Stimulus NEXT Quarter" apparently putting of any dream or hope of QE (which is still not on the table as it is still against their charter and the Germans , which are the only opinion that counts among EU nations are against it) which still remains a figment of the market's immagination until the next quarter...

And..."ECB may not decide on new measures in January" which told the market that their figment of immagination of QE, may not be considered in January, despite no mention of QE, simply "new measures" and new measures to possibly be put off.

And " DECISION TO CHANGE BALANCE SHEET LANGUAGE NOT UNANIMOUS" which sounds like the Germans saying NEIN to any QE-esque measures...

We all of the sudden get Bloomberg reports today, which are promptly picked up by the cheerleaders at CNBC, that...

"The European Central Bank is considering a broad-based quantitative easing package for its next meeting in January, a source told CNBC. That would be from Bloomberg as CNBC admits, "Bloomberg originally reported the rumors"

Additionally...the comments by Draghi that Staff has "stepped up technical preparations for further measures," which a source said is in line with considering QE proposals was taken again, with no mention of anything specific and on rumors, that now instead of today's meeting, QE is imminent in January, DESPITE EVERYTHING  DRAGHI said to the contrary during his 90 minute press conference where I'd think he'd have ample time to put out all relevant information.

This is what the market was responding to earlier, but the original "source" of the "RUMORS", Bloomberg's source for European Economics TWITTED the following...

So Bloomberg retracted all of the above.

However the plot thickens...shortly after, the tweet was taken down...

Again, think like a criminal and you'll have a much better understanding of the market. In my opinion, this is much a do about nothing, but it is exactly what a LEVER looks like when all else has failed as the ECB "may" not have been happy with moves in the EUR/USD today after Draghi's press conference.

UNREAL!

QQQ Short May be On Deck

I don't want to jump ahead of the confirmation signals, but the Q's are showing the strongest intraday negative divegrence at present. I prefer more confirmation as this is a new, short (time) move up and it could use more confirmation, even though the 5-7 min charts are now in the short camp.

I figured I'd at least throw this out there so we have a bench mark for further confirmation...

QQQ intraday 3C chart is falling the fastest, however I'd like more confirmation than just this initial 1 min chart, it's a new move (parabolic up on a VIX slam) so it takes a little time for the longer timeframes to come through and to verify the divegrence is strengthening by migrating to longer term charts.

My personal favorite for playing QQQ short is long SQQq (3x short QQQ Inverse ETF).

As for Index futures, they are all showing about equal strength negative divergences in to the VIX slam / parabolic move.

No Support in Index Futures Either

 ES negative on the parabolic move which I never trust in the first place-just as I didn't trust Monday's parabolic opening move down.

 TF negative

NQ negative

And TICK negative and at 7 almost ZERO

VIX Slam

Wondering what that parabolic move in the averages is all about? I was too. HYG made a move on its positive divegrence, but not enough to explain it. USD/JPY also made a move, again not enough to explain it, however VIX, well that explains it.

Note the VIX slam in red.

TICK is giving out. Broadly speaking, this is the kind of move I like to short in to.

Market Update

A few things have been settled this morning, first the intervention some were reporting on by the BOJ to support stocks via USD/JPY is as we thought, no more than an easy money stop run at $120 before USD/JPY fell too far away from that easy psychological stop level, since USD/JPY has plunged and the rotation to the NASDAQ 100 was in place as it was way outperforming the Russell 2000 finally on a relative basis (both still red), but the plunge in USD/JPY and some initial AAPL momentum faded.

HYG is showing the signs I was looking for on the chart I was looking for so it seems that lever is finished as well.

This morning's decline hit -1500, nearly a straight channel down from yesterday afternoon's highs through this morning.

We'll surely have intraday volatility, as I believe 100%, Wall Street will never make moves obvious, they'll try to shakeout as many people as they can along the way, but the 5-7 min charts which were negative late last week/Friday which led to a deep downside move that flamed out early Monday morning on a short term oversold basis, gave way to 5 min positives which were the bounce/gap fills we had been anticipating since just after 10 a.m. Monday morning.

Now, those same charts that have been so accurate with these moves are negative as seen in this morning's A.M. Update and the macro trends in many assets are coming in to play, but I'll touch on that later. It may very well be reflecting an end or at least a slow down in global central bank activity. Why would the Euro macro trend be positive if there was to be sovereign QE which this morning we found out has just been more jawboning from Draghi and co. as they completely punted on it when the market expected "SOMETHING" at today's meeting?

Why is the Yen showing macro strength? Perhaps Abenomics is going to be crushed at Japanese snap elections mid December? This is another subject entirely, but one we'll touch on as the macro trends we have seen in 3C forecasts that have been against generally accepted views are one by one giving us answers that no one expected and crushing those views. Obviously someone knew in advance or the divergence would not have existed...they're not called "Smart Money " for nothing, even if their smarts are in the form of leaks from the NY F_E_D.

Right now IWM is roughly in line intraday as it has become the under-performer after 2 days of leading without question.

 IWM 1 min intraday close to in line with price action this morning, but the charts I have been watching to mark a change in character beyond intraday (such as the 5-7 min Index futures from this morning), are making moves here as well...

IWM 5 min with the negative divegrence late last week and Friday leading to Monday's downside move and flame out on a parabolic move and a selling climax which was followed by the accumulation for a bounce/gap fill that we anticipated minutes after the Monday morning flameout and now that move is turning negative on this chart to the far right. You can't look at this without considering the action and changes in the market levers activated Monday/Tuesday.

The Q's have regained this morning's title of out-performer on a relative basis with the IWM the under-performer, despite some recent bounce action. I still think the Q's want to rotate in and have their moment before this all ends, but I still think they need AAPL and time is running short...

 QQQ intraday with at least a small 1 min positive divergence at the lows this morning, but still a steering divegrence.

 It may not look like the Q's are in much trouble and still have some time to rotate in, but everything must be viewed in context, the exact same chart with a minor negative from late yesterday to this morning looks more like this on the week...

Leading negative and this is not conducive to upside moves, thus I think AAPL is it's best chance and I'll update AAPL as it is getting more interesting as a swing (plus) trade.

The SPY looks a bit better intraday, but again like the Index futures, the charts that have been calling moves like Monday's, like Tuesday and Wednesday's are falling apart.

 SPY 1 min intraday positive...

However the 3 min calling last week's/ Friday's weakness as well as Monday morning's parabolic drop and flameout/oversold condition is now calling another bout of weakness that the longer term charts can't afford.

The matter of the USd/JPY possible support/lever at $120 has been settled, it was a run for stops and easy money while they still could.

So much for financial media's call of BOJ intervention, it was simple greed and opportunity.

As for the VIX futures as we know where VIX stands (buy signal/Bollinger band pinch), the VIX futures have large accumulation waiting in the wings...

 VIX futures 15 min positive (which is on even longer timeframes) and even this morning on intraday price volatility...

VIX futures have not only been perfectly in line with their move up (something we covered yesterday), but are even accumulating small moves like the one to the far right.

While HYG is seemingly being used to create intraday volatility (market confusion-like I said, they'll never make it easy or obvious unless it benefits them)...

 HYG 1 min intraday

The chart that I have said all week is the only HYG chart that matters to me, the 5 min shows something different...

Again we covered this and the levers yesterday, but as you can see the divegrence from late last week leading to Monday's rout and parabolic drop, the small accumulation to support a bounce as the market doesn't have the strength to do it on its own and the 5 min negative divegrence that would satisfy me that HYG is done and ready to start back on its path to lower lows.

And while TLT sees some intraday shenanigans like the rest of the market, it is now clearly answering the question I had about its intent...

TLT 10 min leading positive, bonds higher, yields lower, stocks follow yields...

USD/JPY Ramp or Last Chance for $120 Stops...

Interestingly this morning as ES / SPX futures and other Index futures/market averages fell on the Draghi disappointment that as I stated last night and before, "No one should be surprised at " as he has maintained an ambiguous tone that the market CHOSE to interpret as imminent QE, Draghi maintained enough plausible deniability to say, "I just said we need to do something about inflation expectations ASAP, I did not say that included QE"; well as ES and other futures faded on dashed hopes for ECB QE, a curious thing happened...

It seemed as if the BOJ intervened and supported the market through a USD/JPY ramp (one of the levers", however I have my doubts.

Just as S&P futures hit unchanged on the week giving back the last 2-days of oversold bounce, the USD/JPY shoots up past $120, apparently lending the market support via the carry pair as a lever to ramp the market.

Remember USD/JPY moving above $120, I'm not sure if I said this in a post, I haven't had time to go back and look, but stops at $120 are a very obvious psychological level and an easy target for easy money...

 A few of our macro themes have been a weaker $USD...

 While the macro theme of a weaker USD remains intact, the shorter term timing/action timeframe of 7 minutes, just like we saw in the Index futures that has been so predictive, is showing a negative $USD and expectations for a negative $USD as you can see happened this morning on Draghi news.

The $USD lost ground because of a stronger EUR/USD or a stronger EUR, that means the USD/JPPY would be bound to lose ground as well so close to the stops and easy money at $120.


The 30 min $USD chart negative, so this morning's move lower is not or should not be a surprise as 3C has been forecasting such a move as part of the macro trend for $USD.

On the other hand, another macro trend has been a strengthening JPY/Yen. Why? I have no idea, I'm just following the money, by the time we find out the reason your chance to make money has long passed.

Above is the Yen futures (/6J)  shorter term timing 7 min chart, again like Index futures that has been so accurate this week and the Yen initially popped higher, pressuring the USD/JPY lower and away from the easy money stops at $120.

The longer 30 min Yen chart and macro trend is for a higher Yen, again through what mechanism I have no idea, but that's what the chart s showing, both USD and JPY are insisting on a lower USD/JPY, which from a traders perspective, would be a shame if that move lower happened before the stops at $120 were cleared.

Another macro trend has been a strengthening Euro, this HAS been at odds with expectations of ECB QE as that would send the Euro lower, again, until this morning there was no way to understand the divegrence, but it seems someone has been betting on the ECB taking no action and $EUR strength which you can also see to the far right this morning, pressuring the $USD down and with it the USD/JPY lever which has fllen short of the stops at $120, at least UNTIL JUST A FEW MINUTES AGO.

This is the Euro 4 hour macro trend forecasting a stronger Euro, this a weaker USD, thus a weaker USD/JPY , thus a weaker market.

As Draghi disappointed this morning, ES in purple (SPX futures) fell and EUR/USD gained (Euro gained, USD dropped), which influences the USD/JPY negatively taking it further away from the stops and easy money at $120, so...

Is this move just minutes ago in USd/JPY higher and ABOVE $120 a ramping lever?

Or is this move in USD/JPY above $120 a last ditch attempt to collect the easy money stops above $120 as was just done before the market and USD/JPY fall further?

I suspect the latter. 

A.M. Update-Central Bank Update

Just last night I started the Daily Wrap with the following...

"...tomorrow's ECB meeting is probably one of the most anticipated events since the F_E_D ended QE, with the expectation among the "Buy the Dip " crowd or the "This time it's different" crowd, being that the ECB will pick up where the F_E_D left off and run with the sovereign bond QE purchases, despite the fact it's against their charter. You'll get no argument from me that something needs to be done with the deflation monster, but ever since I can remember expectations being set, they have been set for the ECB at least making a clear hint of QE at the December meeting (tomorrow). However there seems to be a stand-off between EU governments the ECB wants to make reforms that it believes are necessary for QE to be of any use (did I mention it is outside their charter?) and the governments themselves unwilling to make any changes, but of the opinion that Draghi should do his job regardless (despite the fact his job doesn't allow for sovereign QE). Recent Draghi and Constancio dovish comments and a lot of them have many thinking some kind of hint will at least be dropped, kind of like, "We're hiring Black Rock to advise us on sovereign QE purchases". However nearly all dovish comments made have plausible deniability, like Draghi recently saying they want to get inflation expectations back up to 2% ASAP, well the market takes that as QE is imminent as it has a tendency to cause inflation, however he's making a common sense statement that the market or elements of the market choose to interpret as QE and Draghi seems to be fine with that, his hands are still clean, he didn't say anything about QE in that statement."

And this morning after the ECB left everything unchanged, Draghi's press conference shows all of that dovish jawboning was exactly that and it wasn't him that said QE was imminent, it was his ambiguous remarks that the market to mean imminent QE, but as I said above, he has plausible deniability as the ECB head says what really counts in his press conference and the market likes it none too much...

• *DRAGHI SAYS ECB TO REASSESS CURRENT STIMULUS NEXT QUARTER
• *DRAGHI SAYS ECB MAY NOT DECIDE ON NEW MEASURES IN JANUARY
• *DRAGHI: DECISION TO CHANGE BALANCE SHEET LANGUAGE NOT UNANIMOUS

So instead of imminent QE or any QE, there's just a simple reassessment and one that will wait another quarter! As for January, let the market down easy  or not... and changes in the balance sheet..well the bottom line is Germany will probably NEVER be on board with QE and the EU is Germany while the ECB is Goldman Sachs. It's all about the charter for now.

The market's reaction, S&P futures....

 ES on Draghi comments...

As for the 5-7 min charts that showed a negative in to Sunday's/Monday's futures/cash open and then an oversold event with positives forming the next day which have been fading, are now back to negative as was expected after an oversold bounce ...

NQ 5 min which never looked good, but there's still hope they'll try to ramp it with AAPL, otherwise it's probably done.

And Tf/Russell 2000, the one with the strongest positive divegrence and leader the last 2 days, looks the worst and this is the stronger 7 min chart...

It should be an interesting day as the levers have given way or are about there.