GLD / Gold Long Trade Set-Up

In the Daily Wrap, you'll see how this all fits together, but I suspect we get an entry for a long Gold/GLD trade within the next day or so, I suspect at the same time that bonds and the averages are ready to bounce.

I can't answer the longer term question I have suspected for some time at this point, "Is this a long term bottom for gold and is it about to make a new primary uptrend?"

For our immediate purposes, this question is not that important, but if you are looking at additional information and you think my hunch may be right (I only have a problem with it based on the $USD correlation for now, but that may change substantially in the near future), then if you like the trade idea, you might consider choosing an asset that would let you hold for a longer period of time in case this is that moment. In other words, you're not going to capture a primary trend with options. You may or may not be able to capture it with a leveraged ETF like UGLD as the pullbacks will cause more drawdown than something like GLD, that all depends on your risk tolerance and how much you like the trade. I'm just bringing up the issue for your consideration as we will not be specifically dealing with that aspect (long term trend) of GLD in this post, this is about a near term set up-perhaps tomorrow.

And again, I'll show you how this fits in to our ballet that is largely $USD based and likely because the carry trade is unwinding and is exerting more influence on the market and structural damage that will have a profound influence in the near future than most anyone realizes.

The WSJ (I believe or perhaps it was Bloomberg) said that a full 1/3rd of professional Wall Street traders had never seen a rate hike. The last rate hike was 2006, that means a lot of Pro and probably a majority of retail traders (if we consider the global market with the millions of new accounts opened in China every month -sometimes in a week, than we can say the clear majority of traders have never seen ...) A) a rate hike, B) a bear market, C) a Carry trade unwind or D) a "semi-normal" function market devoid of incessant central band tinkering and policy accommodation... This is NOT the norm.

That tells me the one thing I have believed for years is more true now than ever...THOSE WHO UNDERSTAND THE GAME AND ADAPT HAVE THE OPPORTUNITY OF NOT ONLY A LIFETIME, BUT LIKELY MULTIPLE GENERATIONS IN FRONT OF THEM. While the vast majority will be in territory they have never seen, most seem to not even be aware there's such a thing as a bear market. Finally, nearly all of these people say the same thing that has been said at every asset bubble since the Dutch Tulip Craze in 1637... 

"This time it's different" 

I've long been a student of the markets. In fact around 2007/2008, I put out a 5-part video series on market bubbles, which I can only find 2 parts of now. The phrase above was uttered in one form or another in all of these bubbles, that's what they all had in common...

The: Dutch Tulip Craze/Mania, The South Seas Company, The Railway Mania, the Missisippi Company, the Speculative building bubble in Florida in the 1920's (Jesse Livermore was involved), The Roaring 20's (led to the Great Depression), The Asian Financial Crisis, the Dot.Com bubble and numerous real estate bubbles worldwide just to name a few.

Gold was getting like that in 2011. A lot of you old timers may remember a certain hedge fund manager/investment letter writer who was a big gold bug who had asked my opinion of gold in 2011, after being nearly laughed off an email, I never heard from him again, but if you remember that then you'll remember this...

 This is gold during the QE era at #1. Note the near perfect adherence to the trend line and even more so to a 150 day simple moving average until #2 in which price "seemingly" bullishly pulled away from the trend line and the long term 150 ma for a move up on an increased rate of change in price, one of the earliest signals that a trend change is coming. This is a red flag that has me looking to get out of a position rather than celebrating as people often become extremely emotionally attached at that point and all kinds of cognitive biases take over once price turns down that cause them to lose a lot of money. In Dow Theory this phase is actually called the "Excess" phase

We called a top around the very high in 2011 in Gold and this hedge fund manager was a huge gold bug, I don't even know if he owned anything else so he didn't like what I had to say for sure. We forecasted in advance that gold would either enter a primary downtrend or an Intermediate downtrend from there. Just before entering a downtrend, note the head fake move above the obvious triangle at #3. As I often remind, head fake moves occur in every asset on every timeframe. In addition, large triangles like this or the ones we are just loitering around now are NOT consolidation/continuation triangles, they are most often tops or bottoms depending on the previous trend.

At #4 we started to notice some strange signs mixed in intermittently that looked like gold was forming a base to rally from, but they have been on and off several times , each over periods of months. At #5 we have what looks like a stop-run head fake move we'd expect to see just before a trend reversal to the upside. Again, I'm not covering the long term picture in gold right now as there's too many factors with the $USD that skew the interpretation of data.

 This is a daily 3C chart and positive divergence near the apex of the triangle and after a potential head fake move, thus there's still a very good chance that gold enters a primary uptrend,  however inflation data doesn't support that thesis right now as gold is typically bought in advance on expectations of inflation.

This is where our trade set up resides...

 The long term 60 min chart has a clear positive divergence especially since April where/when a lot of things happened/changed.

The 30 min chart is also leading positive.

As is the 10 min chart so at this point we have pretty strong multiple timeframe confirmation of something going on in gold that looks a lot like some deep pockets have been accumulating.

 More recently this 5 min chart is nearly vertical leading positive. I almost considered this a position now just because of this chart, but there are other elements that I'll address in the Daily Wrap.

Interestingly, gold has the same 3C intraday pullback signal that I hoped and expected to see in the market averages today and gold shares a correlation with them recently which you'll see in the Daily Wrap.

I looked at Gold futures as well and found much the same in confirmation...

 "YG" Gold Futures 60 min leading positive divergence like GLD.

 This is the 30 min gold futures leading positive like GLD.

And the 5 min, I didn't draw an arrow, but just compare price and the level of 3C at point "A" and "B".

Intraday on a 3 min chart, gold futures are pulling back like the market, this is our potential trade opportunity (long).

And while less liquid, the 1 min gold futures chart shows the same.

I'm looking for a pullback likely at least to fill the gap just below, but am setting price alerts at all 3 levels, $114, $113.50. $113 and $112 so I don't miss the opportunity.

We just need to see the short term intraday charts show accumulation on a pullback, if we can get that, GLD or whatever derivative asset you decide you like, will likely be a well timed swing+ move, maybe more as mentioned at the top of this post.

Market Update

The theme of the day today has been building a base that can hold a bounce and that the market needs to come down to allow the charts to strengthen (accumulate on the cheap as is smart money's way). There are quite a few different trade ideas we can go with, but the market needs to come down first.

In to the close, we have pretty decent signals that this is what will happen, whether in the overnight session or tomorrow or a bit of both...

 QQQ 5 min intraday negative near term

IWM 5 min intraday negative near term

ES/SPX futures 3 min intraday after accumulation at lows this morning.

NQ/NASDAQ 100 futures near term negative after accumulating lows this morning.

TF/Russell 2000 futures negative , again after accumulating the lows this morning.

It is this same accumulation of lows which would improve the charts,  but as I have been saying all day, "Price must come down".

I have a trade set-up coming out next in Gold/GLD and then I'll tie all of this together in the Daily Wrap, you'll be surprised as it is one of those beautiful market moments like a ballet when everything just slips in to place.

Quick Update

As was my opinion in the last market update, my opinion remains the same, the market averages have to come down from their current intraday levels and do some more work on their base before they can bounce and while it may or may not be a strong bounce or just a stronger move within the recent loitering chop, we'll have to wait on the charts to give us a clue as they straighten out as they need to in order for a reasonable trade to be taken.

I looked at some different assets and as I concluded last week in the Week Ahead forecast and as I have been arguing for most of the year, the $USD is very important and has a direct correlation to bonds, equities, a slightly leading correlation to gold, etc. I'll show you this.

THIS IS ALL CARRY TRADE RELATED AND YOU CAN LOOK AT A FEW $USD CHARTS ALONE AND SEE WHICH WAY THIS ENDS FOR EQUITIES WITHOUT ANY OF THE OTHER INFORMATION WE HAVE PUT TOGETHER.

I considered perhaps another VXX position (1-day short term) as I believe the market HAS to come down to do this repair work, but I don't see the charts to support a trade there and I suspect it "might" be because the moving lower may occur in futures overnight.

So for now, it's patience, I don't think we are far from some quick trades that are worthwhile or will be and not far from big picture entries as we held off on positions like NFLX over the last couple of days looking for a bounce, this should be it (As an example).

I have to gather a few more charts and then I'll post what I've found which is something we have been following for some time and more and more recently.

Quick Market Update

This is that bit about "Patience" that so often pays off.

I see signs the market is moving toward a more sustainable base that should be able to meet the forecast from last Friday's The Week Ahead post. Specifically...

" I believe  we will see early weakness on Monday. HOWEVER THIS PART OF THE FORECAST IS NEAR MEANINGLESS COMPARED TO THE REST SO I WOULD NOT GET TOO HUNG UP ON THAT.

I'm still expecting a $USDX led bounce in the equity market as well as the bond market, certain stocks are going to be shorts before others, but this gives us a chance to open or add to any positions we may want to tweak a little.

As I have tried to make clear, it doesn't look like smart money is even participating in this move, thus my own participation level is so low at present having closed VXX puts today.

In comparison to what comes next, this bounce is nearly meaningless like Monday morning's forecast."

Obviously first things are first. The early week weakness seems to have been fulfilled for the most part today, more than enough reason to take the VXX (Friday) Call position gains off the table as we did this morning...

We exited the calls with a nice gain right at the red arrow before VXX started losing ground, this exit was brought on by the loss of momentum which I never want to be caught in an options trade when that happens.

The point of the chart however is this is a 3 min VXX chart (VIX trades opposite the market). While I could see no good reason to keep short term calls that expire either this Friday or next in place, we really haven't seen that much deterioration on the 3 min chart as we might expect on a market bounce where we might consider VXX puts. With a  chart like this at present, I WOULD NOT CONSIDER VXX PUTS. Again this is not about probabilities, it's about  high probability/low risk, well timed trades with a reasonable risk:reward ratio.

That chart alone tells me something about the market. In brief, I still expect some sort of bounce in both equities and bonds (I need to do some updated $USDX analysis). The charts for the averages are showing significant improvement along the lines of the forecast from Friday, BUT in my view they are either NOT THERE YET or EVEN IF THEY WERE READY TO MAKE A MOVE HIGHER, I WOULD NOT ENTER A TRADE WITH THE CHARTS LOOKING AS THEY DO  which is to say they are incomplete. That would be a move I wouldn't trust and I like to sleep well at night.

That all being said, it's my opinion that we are in the very reversal process I mentioned first thing this morning as something that would have to occur before the market is ready so I wouldn't say there's any failure or missed opportunities, it seems to me at this point it's just the process unfolding. The main difference in market action terms is a process which is more stable vs. an event like a "V" shaped reversal that is NOT stable.

Here are a few charts showing the probabilities of a bounce and where we are in the process.

 This QQQ 10 min positive divergence is one of my favorite charts for a bounce trades. As I said earlier, I favor the Q's and IWM for any long bounce trades (kind of like what we have been doing with VXX calls/puts). However, the narrow "V" base was predictably weak and the market needs a stronger base even to pull off a bounce that is more or less in the noise "loitering" range  (A concept we talked about last week and expected to see. This typically happens at important pivots, the last good example was after the failed head fake move last September right before the move to the October lows) as these are, at least if we are to get involved with them.

 SPX triangle's upper resistance trendily was the area for the head fake, it wasn't the best head fake example, but since it failed price has loitered around that area the same as just after the September head fake (Igloo and Chimney top) move and just before the move to the October lows. I suspect this is a larger loitering range as it should be a larger primary trend move (eventually taking out the October lows).

The NDX had a better example of a head fake move/false breakout in the first yellow box to the left, it failed and then the loitering around the resistance/support area or the pivot at the top trendily. Note the daily hammer candlestick, the same is in the SPX above.

It looks a bit to me like the market wants to make a move higher here. I just wouldn't want to put money in to it at this point without some better looking charts.

The IWM 5 min also looks good, it has a better "W" base it has moved off and today's divergence looks good so far.

The SPY 10 min was close to the QQQ 10 min, it wasn't leading as much and has seen some damage since. Note again the sharp "V" bottom ,

Now intraday charts which is where most of my problems with the market right now lay...

 SPY 1 min is showing an intraday negative, it looks like it wants to come down if this holds which would probably be good for straightening out these charts and getting them in shape.

The 3 min SPY chart has the same type of signal. I simply could not go long even for a 1-day bounce with charts like this not in line with the trade.

Again though, if this is part of the process and prices come down, I would view that positively so long as the 3C charts show improvement in these timeframes.

 SPY 5 min is still in line and hasn't seen the intraday negative 2 and 3 min charts above migrate this far out so this again tells me that this is likely still part of the basing process ad there are still decent chances we can pull off some short term longs and then move to the larger trade... see the quote above from last Friday's forecast for the larger/next trend after a bounce.

 The NYSE TICK shows the second high of the day failing to exceed the first, much like the 2, 3 min intraday negative divergence at the second high of the day.

 And my custom SPY/TICK indicator shows what looks like short term capitulation of the recent weakness and a market trying to build out a base that it can bounce from.

 QQQ 3 min is in line which is a decent signal for a bounce/long, however...

The faster, more sensitive 2 min chart is showing a negative intraday divergence again suggesting a pullback in price. Again, if the 3C charts improve on an intraday pullback, I'd view that as a positive for taking a position.

IWM 5 min is more or less in line intraday which shows some repair of recent weakness.

However like the other averages, the 3 min which is more sensitive is calling for or showing a negative divergence intraday which should lead to a pullback which could be accumulated and whip these charts in to shape.

I just wouldn't trust them as they stand RIGHT NOW, even if I knew the probabilities were extremely high for a bounce, you don't want to wake up the next day with a 3% gap down on the open.

Patience...

TLT/Treasuries Counter Trend Rally Follow Up

Last week I opened a partial tracking position in TLT, I wanted to use some longer dated calls, but couldn't get them through so I needed up opening a half size position (which was the plan the entire time-calls or otherwise) short TBT (2x short 20+ year bonds or 2x short TLT) which created a 2x long TLT position essentially, Trade Idea: Long Bonds / TLT

If you read any of the posts from last week like the trade idea above or the charts/reasoning here, Bond Rally / Swing , you'll see I suspected TLT/Treasuries would come down and that is where I'd fill out the second half of the position. If you need a quick explanation of the logic of the trade idea, see the Trade Idea: Long Bonds / TLT post from last week. There's a Channel Buster/head fake, there are 3C signals, there's huge short interest for a squeeze.

I do not think bonds are going to see a primary trend reversal, I consider this a counter trend rally which will see treasuries hit a new low as the rally ends. However, counter trend rallies are some of the strongest rallies you'll see in a bear market or otherwise.

Right now in my opinion, TLT is looking a bit better or more mature in basing than the market averages, but I also think they'll move roughly in sync which IS NOT NORMAL. We've talked about the reasons, you've seen the $USD analysis, binds tend to drop on the carry trade unwind, although some think the ECB has been a bond seller rather than be stopped out at -.20% Maginot line they have. I don't know if there's validity to that , but I do believe this is carry trade related as the $USD and Yen give evidence of it.

However right now Treasuries are one of the most overcrowded shorts near the historical extremes for shorts.

Here's what we have in TLT so far. I'm not going to go too far in to Treasury futures because that's a lot of charts, but it's not just the 30 year bonds, it looks like the entire curve will rally on a counter trend move so I'm looking for an area to enter the second half of the trade started late last week as the second half depended on a pullback and I'd say we've met that criteria.

 Yesterday I posted the 60 min chart and probably in last week's posts as well linked above, it's clearly in line with the down trend, thus I don't expect more than a counter trend bounce which is not meant to belittle a counter trend bounce/rally... as I said before, these are some of the strongest rallies in a bear trend you'll see in any market trend. Look at the first counter trend rally after the initial crash of the Dow in 1929, it was a near +50% move, that is their job, to suck people back in, to make them believe. In this case the thick shorts should be helpful as well.

In any case, the 30 min positive divergence is what I was pointing out and the 3C concept of the minimum target being where we first saw the divergence which on this chart would be around $124.40 with a gap around $127. Looking at the size of the base under construction, I'd say that's probably a very realistic and easy target to hit ($127). I wouldn't be surprised if we got a move to about $128 on a volatility shakeout of technical shorts...

That's the initial break of the long term trend line that draws in new shorts and the market often runs them out with a move back above the trendily causing a short squeeze and emotional reactions. In any case, you can see why I'd prefer some leverage even with a decent technical move.

 The 10 min chart is positive on the suspected pullback from last Thursday. Look at volume, this looks like a clear head fake/stop run. "All of those shares are below to us!"

 The 5 min chart also looks good, we have nice consistency among the multiple timeframes...

And the 3 min chart including the negative divergence that formed the day after the initial partial entry as was suspected then along with a leading positive in to the recent new lows.

You can see a wider "W" shaped base with a head fake move in place so I think this is close to being ready to make a move.

 This is the 1 min intraday chart, it went positive at the lows today, but looks like a pullback intraday. I'd like to see it move toward yesterday's close or below on a stronger positive divergence and I'd likely consider that the second entry point.

The 2 min chart is showing a little migration of the 1 min chart's current intraday negative "steering" divergence, so again I suspect a run a bit lower to allow them to accumulate more at lower prices and this is where I'd like to add the second half. I suspect it will be today.

Just to show you, these are treasury futures...

 The 1 min 30 year (similar to TLT) reacting positive intraday as you see above on  the TLT charts.

 This is a 15 min chart of the 10 year Treasury futures also positive.

And a 30 min chart of the 5 year treasury futures.

I show you these because as I have said several times, this looks like a broad based counter trend rally across the entire yield curve, not isolated just to 30 year Treasuries.

I'll let you know as always once I decide to add the second half of the position to the tracking portfolio.

Quick intraday update

The market showed some extreme resiliency on very short term 3C charts, but I haven't trusted it...not yet anyway. As I was sating earlier this morning, there needs to be a reversal process, not en event and that takes a little time...

 SPY 1 min intraday saw rapid improvement.

I still think the IWM has the best looking underlying trade right now with QQQ a close second. However this early progress was too quick, too early and I wouldn't trust it.

 The 3 min SPY chart still looks like this.. In my mind, this should be repaired and positive before even considering an SPY long bounce trade. The white trend line represents the gap fill we were talking about yesterday as a target on the downside which was hit this morning as stocks catch down to bonds.

I still like the TLT/long Treasury swing /short squeeze trade, I may like it more than any of the possible equity trades that may come up. Looking at some core shorts, it's very hard to get behind any long trade right now so they'll need to prove themselves  even for a short term trade. For this reason alone I didn't trust the early improvement that looked quite extreme on 1 min charts.

 This shows what has happened since, QQQ 1 min is leading negative intraday so price should come back down and hopefully it will build out laterally and we'll see some better divergences for short term trades.

The QQQ 10 min chart marks about the size of the base that we can bounce from (from last week's "Week Ahead" post on Friday). However there's still work to be done and I'd rather sit on the sidelines than to enter a sub-par position.

I do believe we'll have opportunities for both short term bounce positions, they may or may not be in the averages and the downside divergences are just monstrous. I was looking at Financials and considering whether I might close a core short position to do some shorter term trading and just could not even bring myself to consider it.

So there's 2 or 3 probable trends all developing at once, each more probable than the next, but all probable. I'll continue to update the proper made and hopefully have a Treasury post out soon.

VXX Call P/L

The VXX calls entered last Friday, Trade Idea-EXCEPTIONALLY SPECULATIVE...VXX Short Term Calls at 3:37 p.m. were meant as a very short term position, in fact specifically for the early weakness forecasted for this week. Yesterday I decided to hold them as I did not see the weakness I expected from the signals we had as of the close on Friday, this morning we got that weakness and I ended up closing them as I usually do, as momentum starts to fade and before the first major correction.

For a trade that lasted little more than a day, it worked out pretty well and these were the longer dated 5/22 expiration rather than the 5/15 I had intended.

At a cost of $1.08 and a fill of $1.70 the P/L came out to +57% which is fine with me for this type of trade.

In any case, I'm already looking at the next potential position, I hope you did well.

Closing May VXX $20 Calls From Friday

They are just loosing too much momentum.

Opening Action....

This price decline is much more in line with what was expected for the early part of the week (Monday) in Friday's The Week Ahead forecast...

Since Friday's close, yesterday was not the kind of move I'd den worthy of a VXX call position such as the one opened Friday, Trade Idea-EXCEPTIONALLY SPECULATIVE...VXX Short Term Calls which was shortly after closing the both VXX puts around 12:30 on Friday at a gain, Taking Both VIX Puts off the Table. Again the difference between a high probability move and a high probability, low risk trade are two entirely different things so I'm happy to see this more extreme move this morning.

As we have been seeing lately, the bond and equity markets are moving together which is not usual, I suspect it's because of a carry trade unwind, but the HFTs seem to have created a correlation trade. It seems to me that equities are catching down to treasuries today...

Since Friday, Treasuries (TLT red) have led, today equities (SPY green) seem to be catching down to that correlation.

We expected both to pullback as of late last week and both to form a larger base as the "V" base in place from last week was bound to fail. Don't forget the larger part of the Week Ahead forecast which is for a bounce/bounce attempt and the even larger big picture which is a lot worse and to the downside after the bounce attempt.

For now though we are looking for the end of this move which "may" end with a flameout, a mini oversold/capitulation event intraday. Look for a large volume spike with extremes in TICK and then a positive divergence in TICK vs the market such as TICK starts moving off extreme lows while the market hovers near them.

I find one of the easiest ways to do this is to draw parallel trend lines around TICK and price and watch for TICK to miss the bottom trendily or break above the channel while the market remains within it. Note TICK has hit an extreme reading of -1431 this morning.

Obviously we also want to watch for the capitulation event or flameout. This will typically occur on a bullish candle, it can be on any of the intraday timeframes, but the stronger the candle like a large hammer and the higher the volume at that candle, the more likely you've found an intraday capitulation point. As an example with just what we have so far today...

This 30 min SPY chart isn't the best looking hammer, but it does have a longer tail and large volume.

Look at TICK now since that has been put in and since the first TICK capture above...

Note TICK did not reach the lower trendily and is now moving above the channel.

Also just because we have an intraday flameout/capitulation event, it doesn't mean that's a reversal point just like with primary capitulations in a primary downtrend (bear market). Often a reversal process that is more lateral in nature will take place while short term 3C charts post positive divergences as the base is carved out that price will rally from.

I'd like to be out of VXX before that process gets too far down the road.

A.M. Update

It seems global we have had a bond sell-off from Japanese JGB's to German bunds and across Europe  with a certain conspiracy theory as to who is doing the selling which we'll wait for confirmation of conspiracy fact.

US Treasuries sold of as well, but as I posted yesterday, I think this is more destruction to build a base and I suspect we are nearly done.

The selling is across the curve, however this is the 30 year Treasury future intraday and it looks like it's looking for a bottom here.

See yesterday's Multiple Asset Update: Market, VXX, TLT for background or Friday's,  Bond Rally / Swing.

As bonds and Treasuries have been moving together as of recent, Index Futures fell... Again I suspect we are closer to a bottom and will be looking to close VXX calls shortly with some evidence.

 ES 1 min largely in line, I'll be ;looking for this to go positive and likely close the short term VXX call trade.

ES 5 min with a positive divergence like the other Index futures.

7 min with the same.

It seems we have found our "early in the week weakness". Now I'll be looking for the pivot as I still expect a bounce as posted in Friday's week ahead, but I suspect it won't happen instantly, but may require a small reversal process. I'll also be looking to see if there are trade opportunities worth the risk of being long here as selling /shorting in to price strength when it comes is the more sound strategy.

As for Oil, as posted in  USO/Oil Update yesterday,

"Here's what has happened recently in USO as I suspect a near term (as in a day or so) bounce off support/resistance of the base"

And that is already underway from the overnight session, we'll keep an eye on it for a tick down as I don't see it as much more than a bit of noise.

Oil Futures since yesterday's close.

Again, I'll likely be closing the VXX calls sometime today, perhaps early.