Guess the OP-EX Pin????

I just looked at the SPY options chain and the pin that looked like $120 has shifted, here are the calls and puts.

Calls

There's decent open Interest at $121.00 and $122.00


PUTS

Here the Open Interest is $120 and $122. So the two most likely areas would be $120 and $122. I'm guessing around $120 with some volatile chop.

This morning's head fake thus far

So far it's not looking great and a head fake is the last ingredient... 

 DIA 5 min

 QQQ 1 min

SPY 1 min

All going in to leading negative divergences on the move above local resistance or a head fake. I'm am going to add a few more shorts via inverse ETFs, Thus far they will include: SPXU, SDOW, SQQQ, FAZ, and SCO plus my gold long from yesterday DGP. I'm still keeping these as partial positions for now and will add more later.

Don't forget the head fake

As I showed you in last night's post, every reversal is preceded by a head fake, I would say this happens 80% of the time and that is conservative.

I also said to watch for one in XLF today. Lets take a look thus far.

DIA Head fake

SPY head fake

SPY 3C on the open,

There's a head fake in XLF as well, but the site is taking too long to upload the captures.

I'll be adding some ETFs that I listed yesterday

First will probably be SPXU and SQQQ as well as FAZ. These will be about 30%-40% of my intended overall position.

I'm going to try a different browser to get the charts uploaded more quickly.

Near a transition

Market cycles are like waves, when you actually look at a 30 or 60 min chart, you can see this, they round over or under and create the next cycle. I've surfed for many, many years and you get a sense of whether or not you should waste you precious energy (after paddling hard through the shore break to make it out to the line up) paddling in to the next wave. It takes time to see these waves, but when you finally develop the eye for them, you can see your wave maybe 3 or 4 waves back and you position your self so you'll be in the right spot when it crests and the energy you expend paddling into that wave is all worthwhile. However, there are many, many more moments when you just sit peacefully watching wave after wave roll under you, it's peaceful, it's exhilarating and it's about patience.

Market cycles aren't much different. A member wrote to me that he had jumped in on this move up but exited too soon due to other responsibilities in life, I think he did the right thing. This wasn't his wave, there were too many other distractions to pay close attention to it, but that's fine because another cycle or wave is coming.

I exited all of my longs today and started a short and bought some gold ETFs, I'm positioning for the next wave, but not yet paddling hard for it. 3C has shown this cycle up to be in a pretty good spot to be on the lookout for the next cycle down. It may be a day or two before it's time, or we may find that we need to act more quickly. I didn't see the kind of distribution  hoped to see today in financials. Perhaps we need that head fake move in financials.

Look at this chart, every move up or down started with a head fake (at the red arrows) so perhaps we get a head fake up tomorrow in financials, it could still end the day lower and be effective.

The short sellers are for the most part, not capitulating and it seems the market doesn't want them to. Our Price /Volume relationship today wasn't very dominant, but it was Price up/Volume down which is the most bearish of the 4 configurations and implies two things, one that traders are backing away from higher prices and two that we are in a low volume short squeeze environment, still the shorts are at a 2+ year record number and the market has given them a perfect set up to hold on tight. Sometimes I think Technical Analysis books do more harm then good and this is one of those situations.

The market/SPY has set up a juicy bear flag, one that has not gone unnoticed. It has the typical 5 points of contact and the last swing up didn't reach the upper trendline, a break down from here s a classic Technical Analysis strong bear flag, hinting at a huge leg down, but it may very well be a set up and a horrendous bear trap. We may even see new lows below the August lows, locking in more short sellers. We'll see how much distribution we get over the coming days and we can better gauge the intensity of this wave down.

Lets look at the accumulation compared to the trends that followed.

 The white boxes show accumulation periods, the arrows show the proceeding trend, the DIA seems like it could go a bit further comparatively.

 The QQQ seem to have way overshot, with the divergence making a new low in depth at the red line. I think this may be our worst performer in the next cycle.

And the SPY seems just about right. It appears that we have reached that moment we should be on the lookout for the entry.

As for the 15 min charts, they parallel the above charts with great similarity.

 The DIA is not yet in that bad of shape, perhaps tomorrow

 The Q's look horrible, they have been n a leading negative divergence the entire time.

And the SPY looks just about right with some damage being done today.

I'm sure we'll do fine on this next wave as we have the last several ones.

As for the Miners signal tonight, both systems are long NUGT which makes some sense after seeing positive divergences in GLD.

Look at the correlation.

Green is NUGT, red is GLD and we saw positive divergences in GLD which would also suggest a move down in the market on a flight to safety trade.

That's it for now, it's time to wait patiently for the next wave.

Understanding 3C Part 2

As promised, I'm going to keep adding to this library on 3C until it is a useful guide. You should know that this is a very hard indicator to master for a few reasons. It took me about 3 years to get the basis of what I had on my hands, it is no where near as simple as most indicators that give signals at certain levels or crossovers.

One of the most challenging difficulties in understanding 3C is understanding that it is showing you the underlying action of smart money, which often contradicts price and contradicts most of what we have been taught about the market. There are thousands of technical analysis books basically regurgitating the same thing with a new spin, but the market cannot be summed up in a book and those who truly understood it would never tell you. Why do you think it's so hard to find a book written by a Goldman Sachs trader or someone who is really in the know?

So for a few years I thought 3 was good at the daily timeframes, but was missing on the intraday, it wasn't, it was a contradiction between the reality of the market and my understanding of how the market works. I had to unlearn everything  thought I knew about market function and let experience show me.

The second difficulty in understanding 3C is understanding that each timeframe represents something different, and depending where you are in a cycle, the behavior of 3C will be different.

For example, when someone asks what the market trend is, what is the proper answer to that question? This is akin to a trick question because the market can have many trends in effect all at the same time, it depends on the timeframe you are looking at and the amount of history.

Lets answer the question, "What is the market trend?"

 On a monthly chart, the trend is UP

 Even on a weekly chart the trend is UP

 On a daily chart, the trend went from a top to a downtrend.

 On an hourly chart, the trend is UP

 On a 30 min chart, the trend could be up or down, depending on how much history we looked at, here the trend is down with lower highs and lower lows.

The 5 min chart shows the trend as up.

So just as the market can have multiple trends all at the same time, 3C can pick up multiple trends at the same time, that is because while Wall Street may be in a current cycle uptrend over the last week, their purpose of doing so is to get rid of more shares or to go short, so the positive divergence we see that started this uptrend, may not be the only trend 3C is showing, it could be showing Wall Street's larger motive of getting short as well. Each timeframe tells us something different.

The charts I usually deal with, multi-day, daily, hourly, 30 min., 15 min, 10 min, 5 min, 2 min, 1 min and sometimes tick by tick.

The multi day trend shows the broadest picture of the market and while our monthly chart above showed an uptrend, 3C would contradict that be showing the very negative underlying character. The daily chart can also show primary trend's underlying action. The hourly chart (don't be fooled by it's seemingly short timeframe) can show us underlying action that can influence a month long move or more. The 30 min chart is similar. It also depends on how long the divergence took to form; the longer the divergence, the longer the resulting trend that results from it generally speaking. The 15 minute chart is a good timeframe for market swings or a week to several weeks. The 10 min chart can reflect a trend of about a week. The 5 min chart reflects trends of a few days and the 1 min chart usually calls intraday moves up and down.

However, remember, I also said the function of each timeframe depends on where we are within a trend. Starting from a brand new trend, lets assume the market will soon transition from a downtrend to a new up trend. The first chart that will show a positive divergence will be the 1 min chart. When this happens, the 1 min chart may be useless in calling intraday moves as it keeps moving up in what I call a "Running Divergence". If the accumulation is strong enough, then the 5 min chart will start to show positive divergences. If accumulation continues, the 10 min chart will turn positive, at this point the 1 min chart may go back to calling intraday trends up and down as it has passe along the accumulation to longer and more important timeframestimeframes, 5, 10 and 15 minute.

Market Cycle Stage 4 "Decline"

Wall Street lets no move go to waste and the end of their successful uptrend is not the end of the game, with no more institutional support for the market, it will drop. At some point distribution is over, but the negative divergence will continue as they continue to sell, but now they are selling short. Again, one of our best timing indicators id the head fake that adds extra energy to the next trend, this time down, so they'll typically run some sort of bull trap. Another good timing signal if you are paying close attention will be multiple timeframes all showing the same signal.

One last area to over before  wrap this chapter up, types of divergences.

There are two types of divergences, relative divergences and leading divergences. Leading divergences are the strongest type of divergence. I'll show you some examples.

 Above is a 30 min chart of the SPY. This is a relative divergence, we are comparing 2 relative points, point A and point B. Note that price is higher at point B (you can see by the red trendline.), but even if it were the exact same level, 3C s lower at point B then point A, this is a negative relative divergence.

 This is back in July of 2011 at the market top. The white arrow is accumulation and a relative divergence. The red arrow marks a relative divergence, but what is more important is what is in the red box, this is a negative leading divergence. Note how it is going in the complete opposite direction of price and it is making lows that when compared to 3C at similar levels in the past, price was much lower. The next chart will show you what happened after this 15 minute negative leading divergence (leading because it is leading price).

The late July/early August decline. The red box is the area we looked at in the chart above where 3C was leading negative. This shows an enormous amount of distribution which at this point, was most likely institutional short selling.

That's t for today, I will continue these posts and link them for you to go over. Email me with any questions.

RIMM UPDATE

Yesterday RIMM was under consideration as an earnings play trade, a lot of people are trading RIMM so I decided to just update RIMM. I do have a mid size position in RIMM that I think I will hold, but I would not generally place RIMM out for all members as an earnings trade because of one chart today. So the bottom line, those of you thinking about it, here are the charts.

 RIMM 1 min shows improvement

 5 min shows improvement

 10 min remains in line

 The 15 min chart was very positive, today it is just in line-this is what I don't like.

The 30 min chart looks positive.

I am thinking that with the market being ready to reverse, if RIMM reacts well, it may be short lived.

Trade Idea DGP (long)

GLD has been showing improvement and a few things are standing out. Again this is probably a bit early so I am easing in to these positions a little at a time as I suspect the base could be larger then it is now.

 GLD 5 min has improved significantly today

 So has the 15 min chart, which is more important.

 DGP 10 min is coming along moving toward a leading positive divergence.

 And DGP 15 min is already there.

 The head fake we see so often before a reversal, appears to have happened today, taking out support.

Here's the intraday view.

So I like DGP as a way to play gold long. I'm still leaving room to add on any weakness.

Trade Idea SCO (Long)

SCO is an Ultrashort on Crude. It is probably a bit early to be buying, but I don't mind getting my toes wet and picking up a little in this area, I can always add to the position.

 SCO 5 min accumulation. There's a chance that the base grows in which case you can probably pick up some shares a bit cheaper, but like I said, I'm just getting my toes wet, not putting on a huge position, although I am leaving room in my risk management to add to the position.

 The 10 min chart looks good, in a positive leading divergence and note the flat trading range.

The 15 min chart probably has even more room to improve, but as it stands, it to has entered a positive leading divergence.

USO/Energy Update

USO and Energy are correlated, but Energy is a much broader Industry group with services and other non-crude components, so they trade a little bit differently.

USO

 USO 1 min showing today's action from the negative divergence on the open sending it lower, to a positive divergence recently. This is short term, intraday action.

 USO 5 min chart shows the last cycle down, accumulation for this cycle up and a pretty strong negative divergence in place now.

 USO 10 min is also in a leading negative position.

 Here are two cycles, note the 15 min chart is much more negative on this cycle top.
The way USO looks now, it may be one of my first short positions I enter. The Euro/$USD is what the trade is all about at this point.

EUR/USD

 In red, this is the  resistance zone I expected to fail last week. Since the Euro has moved higher, pushing the dollar lower and allowing a positive environment for equities. When this reverses, so should USO and the broad market.

Here's a 1 min hart of the same FX pair, right now there is a consolidation, when this breaks, I'll be looking to short USO/Crude as a higher dollar will bring oil prices down being they are traded in dollars across the world.

XLE-Energy 

 This is the broad Energy Industry Group, the 1 min chart hasn't been very strong today.

 There's a relative negative divergence on the 5 min chart as well.

 This shows the last cycle's top, the accumulation for the move up in white and current negative divergences.

This 15 min hart shows a broader history going back to August with accumulation in white and distribution n red. One notable feature of XLE, when it falls, it gaps down most of the time.While I feel USO is a stronger short, I also want to have exposure to Energy on the short side for that initial gap down that is likely to occur.