Gold Margins Lowered in After Hours

I don't know what the catalyst for this one is, some say it's a move to regain credibility, in essence a show that the COMEX is NOT manipulating precious metals. I don't buy this theory, if they wanted to gain some credibility, they should loosen up the margin requirements on silver which they hiked 5x, even after the silver rally was dead-I guess one for good measure.

In any case, they lowered initial and maintenance requirements by 10%. We'll want to watch 3C very carefully to see if this is going to provide legs to a trade. Right now GLD is in a very tight consolidation that implies a directional breakout one way or the other. GLD is also sitting right on the short term trendline, a break of which could send gold lower.

Here's the charts

 The short term trendline

 The long term trendline.

 The 150-day moving average-a buy at the 150 sma is pretty much a no brainer

 Here's the consolidation with a directional move quite likely. The first move is not always the real move as we know.

And here Bollinger Band's volatility is very narrow, again suggesting a directional move coming very soon.

In other CME news after hours, they hiked margin rates on Corn by 50% and Lean Hogs by 66%, also raising margin on Wheat, Soy Beans, Lumber, Dry Whey and Cattle. The hikes sound a little political.

The Miners Trading System Update

Tonight's signal, like last night, remains long DUST for both trading systems.

Here's a look at what DUST did today

That's a pretty nice 1 day gain and look at the volume on the move! Considering how choppy the overall market has been, this is a pretty nice swing trend.

I've had a couple of email questions from members who want to add a trailing stop as the system's signal is always after market and the execution of the signal is on the open the next day, this creates a short lag, I don't think it's very significant, but for members who want to utilize a trailing stop, you might try a 6-day simple moving average on a closing basis.

It's important that this stop is used on a closing basis and not intrday, intraday would have taken you out of the trade yesterday and you would have missed the nearly 5% gain today. I haven't tested the system with a trailing stop, I may do so and see if it performs better, but one of the nice things about this trading system is that it's user friendly for those who can't watch the market all day. The signals come after market and are executed on the open the next morning-an easy system for those who have jobs that don't allow them to watch the market.

$127.25 just about the perfect close for tomorrow?

SPY Calls as of today, note the volume and open interest in the $128s

And the SPY Puts as of today-Note the volume and open interest at $127

Putting premium aside, it would seem a close tomorrow of $127.25 (or thereabouts) would be the ideal pin.

RIMM Reports After Hours

It's not my favorite stock by far, but maybe they discounted it a bit too much.

It's looking better then the broader market going into earnings.

As always, any earnings plays are SPECULATIVE.

A Broader Example

I'm going to use FAZ as a proxy for the market 1) because it gives good signals, 2) because it's related to financials and the market is going where financials are going.

 This is FAZ (Financial BEAR 3x) on a daily chart, ultimately this is where I want to be. The leading positive divergence on a daily chart is a VERY strong signal, so effectively, for the long haul I want to be short financials and the market.

However in the shorter term, this is FAZ on a 60 min chart, it's negative and shown distribution on several occasions. This indicates to me along with a lot of other charts, that the market wants to bounce as the bear trade is getting overcrowded.

 The 15 min chart confirms the same.

 As does the 10 min chart

 And even the 1 min chart today on the sell-off. It seems FAZ is being distributed near highs.

Looking at the last time the market reacted to the end of QE1, there were some steep plunges, but also some nice counter trend rallies.

I think this time is different then the end of QE 1, there's a lot more bad news to be considered.

However, the market doesn't fall straight down and the last 5 or 6 day, the market has definitely lost the downside momentum it had going for it. I think it's possible that the calls and puts for that matter are going to be pinned in a narrow range. Who writes the majority of options? Most retail traders buy them, not write them, so who profits from pinning them and seeing them expire worthless?

If I'm close to on track here, then tomorrow options and puts which are close together and can easily be pinned together near the highest volume and open interest, are pinned. Perhaps the start of the week, we see a counter trend move in the market.

To be clear, my bias is VERY bearish, but a bounce can and should be traded and will ultimately set up some great positions on the short side.

OPEX Tomorrow

Not just option expiration, but Quadruple Witching.

Here's today's SPY Calls

Heavy volume and big open interest. If I had to put money on it, I'd say those $128 calls will be pinned tomorrow.

Look at where the market sold off today..

At the high of $127.97


Looking at the 3C charts for the SPY from longest to shortest (longer charts have greater implications).

 A huge positive divergence on the 60 min chart...

 A Strong divergence on the 30 min chart

 We make new lows today on the 10 min chart, but into a positive divergence on a relative basis vs yesterday's lows.

The same thing on the 5 min chart...

Just thinking out loud, but if the sell-off are being accumulated and the idea is to pin the market (SPY $128 is just one example), then Monday (after Op-Ex) could possibly be a pretty exciting day.

I think I have an idea of what to be looking for.

Financials Update

FAS was one of the first to show the bottoming of the downside move... Lets take a look a look currently

 FAS 1 min 3C positive divergence

 The 5 min chart is now positively divergent compared with yesterday's lows.

 As is XLF's 5 min chart. It seems like some very strong shakeout behavior is being run through HFT algos.

The longer term charts in FAS/XLF remain positive. I have a feeling Monday may be an exciting day.

FSIN Revisited

FSIN is a short position identified after it had broken down, we were looking for $7.20 on a bounce to short FSIN and it's a position that I've considered a long term position, there have been some bounces and moves against the position but all in all, the daily gyrations weren't of concern, the larger pattern was.

 The weekly chart with a massive top.

The white arrows were our chance to short FSIN at $7.20. So far the gain on FSIN is 33%, but I expect this one to go way lower. The point is there were several days in which FSIN moved into the green by 7 or 8%, the idea of the trade is a long term trending trade and unless I see something that suggests something major has changed, I want to keep exposure to this position.

That's the idea behind the short candidates I've been positing. They need to be viewed as long term trades and daily gyrations can't have you stopped out, otherwise I would have stopped out of this trade 3 or 4 times already. The key to doing this is allowing a wide stop and making sure your position size doesn't exceed a 2% of portfolio loss if you have to cover the trade.

Again, I refer you to last night's post at Trade-Guild.net

Extreme Volatility on the TICK

I have rarely seen action like this before on the TICK Index.

From +1000 to -1250 in 15 minutes. It seems like a major HFT algo just hit the market all at once.

Financials Update

It looks like FAS may be working on a bottom here...

There are some preliminary signs in some of the averages, but FAS so far is the strongest signal