UNG Update

UNG REALLY needs to convince this time, it's just getting started on the reversal process and so far so good, but it really needs to impress before I would consider adding back any of the shares exited in order to avoid this recent plunge.

 We have a 15 min leading positive divergence in UNG, that's nice, but this time UNG needs to show it can build more on top of that.

The first rounding base gives you some idea of the scale although it's a bit larger than I'd expect for the preceding trend down. The current "U" base has a good start with the chart above this one, but it has more to go and needs to build on that divergence. If it can do that, we should get some head fake/shakeout move before it heads higher and that would be the time I'd evaluate UNG for a new position or adding back the shares closed before it dipped too much.

USD/JPY Has Started Its Run

This will be interesting because I can darn near guarantee that there are some VERY upset traders who were using a lot of leverage and felt their hearts in their throats as USD/JPY crossed below the firewall of $100.

Right about now there are some short traders in USD/JPY who are wondering, "What's going on?" as they see the pair moving higher and eating in to their short profits, wondering how high this can go, but feeling comfortable that $100 will be a brick wall.

For our purposes, the higher the USD/JPY moves, the higher the market moves in the near term, beyond that, I think Abe-enomics and the BoJ just went too far and lost control, in the end that won't be good for the market.

Here's the start of the run off the positive divergence that's been building.

This is a leading positive divergence in USD/JPY, the $100 level is going to be the first area of real interest, we could see a round of short covering if the pair moves above that area and South Koreans will be screaming and throwing objects at their computer screens while the politicos fire off more letters of discontent to the G8 as well as the Japanese.

Went With NFLX June 22 (monthly) $215

I wanted to get the June 28th, but the premium was about 35+% more. I don't suspect I'll hold on to it that long any way.

NFLX Looks Great For A Call Trade Here and Now

I had an alert set for NFLX on the downside, it triggered, I checked it out and NFLX just broke below 2+ hour range, a head fake move as it appears which means the positive 1, 2, 3 and 5 min positive divergences built in the range, should take NFLX higher and that alert for a new low (below NFLX's range this afternoon), is almost certainly the head fake move we see before a reversal (to the upside).

Again, any longs right now MUST be considered speculative, I feel better with them as my main positioning is short so these are just some quick trades and if they go wrong, the short positions which are the bulk of the positions will easily make up for any losses.

That being said, I'm going to try to open a NFLX Call, likely June or July and in the money.

3 min

Opening Long SCO (2x Short Crude)

I believe SCO is an ETF rather than an ETN, which I believe (however I'm not an accountant and this isn't tax advice) is treated differently as far as taxes go (the ETN I mean).

In any case, SCO has a lot more liquidity. The asset never moved with enough momentum for me to consider an options play. As of now the positive divergence doesn't go much beyond 5 mins so I expect this to be a trading position.

However I think this can still be a worthwhile trade, just remember with this volatility everything long right now is speculative and you need to be able to close the position fast if need be.

If You Are Trading USO Long...

I think this is all the upside you get for a little bit until the USD/JPY move is over.

Quick Market Update

So far we are looking good for the scenario described in the last post.

The market averages are all positive, the Index futures are positive, the main asset that is influencing the market and has been for well over a month, the USD/JPY looks set to do its thing, VXX is already failing and TLT has as well. HYG is in positive position, most everything that matters is set,

 VXX leading negative divergence, this is why I said for short term/leveraged longs, you might want to take profits. Remember that VXX, TLT and HYG are the 3 assets used in SPY Arbitrage manipulation, you need TLT and VXX to move down and HYG to move up to support the market, VXX has a very clear negative divergence and has already lost ground.

 TLT also needs to be down, remember I closed the Aug. Calls earlier today, you can see why as it has lost all gains since Friday with a leading negative divergence, just as the SPY Arb. manipulation needs.

 I added to the HYG Calls earlier, this one needs to move up to support the SPY arbitrage, it has a nice leading positive divergence.

99% of the market doesn't have any idea that these 3 assets have more to do with moving and manipulating the market intraday than almost anything they follow or CNBC feeds them and at important intraday inflection points, fewer can see the underlying trade we can long before price starts to show where it's going.

 The SPY and other averages are ready and ...

For right now, the most important correlation (because it wasn't always this, in fact it rarely is ever this and probably never to this extent) is the last carry trade standing which may have been destroyed today with the break of $101 and then $100, but...

As you see, the pair is quite positive and looks ready to go.

What Retail Sees, How Wall St. Uses Technical Analysis Against Retail

I really don't get it, why traders are using the same price patterns and set ups that they've been using for over a century in many cases, a lot of them worked GREAT until about the late 1990's, early 2000.

I remember I was a big Tech-Head, I have 100+ Technical Analysis books in my library, I've been to half a dozen seminars and I was just around the point when T.A. started to lose some of its usefulness, but was still pretty reliable.

What happened? Why did these technical patterns work so well for nearly a century (in some cases like Japanese Candlesticks, for several centuries as rice traders used them) and then change?

As I explain in "Understanding the Head-Fake Move... How Technical Analysis Went From an Asset to a Trap"  and in the second part, "Motivation" (both are linked on the member's site at the top right), it wasn't until the late 1990's that the Internet was pervasive and online brokers were causing many to handle their own accounts, but they didn't have time to follow the Peter Lynch and Motley Fools and spend hours doing Fundamental research (which I think is 100% useless any way, they all lie on their earnings so you are starting with flawed information from the start) so following price and a couple of moving averages was much more appealing and then the mass migration took place and Technical Analysis (when I was first using it) went from a joke and "Voodoo Analysis" to mainstream. As soon as that happened and because of the main appeal of T.A., "laziness", TA didn't change much and Wall Street knew exactly what technical (retail) traders would do in almost any circumstance because the dogma was so ingrained. 

In fact, those who wrote books selling the greatest, new trading system (and years later I backtested every one I could program and couldn't find one that would hold up in different market environments) would have you so brain washed that you'd believe "If the system failed, it was because YOU didn't show the appropriate discipline in following the system". 

The only systems I know of that really worked, like the "Turtle Traders", weren't ever disclosed to the public until years after they were no longer being used and even the most successful systems like theirs would see multiple years in which they suffered significant drawdown before bouncing back.

Back to the point, probably around 2003, a trading buddy of mine (David DT from Russia-many of you know him) sent me a research paper that showed technical price patterns had less than a 50/50 chance of working according to all of his back testing. I didn't want to believe that, but I was seeing it.

This is why I started creating my own indicators or using existing ones in different ways, I don't want to see what everyone else sees. This is also why it took me so long to comprehend what 3C was telling me because I believed I knew how Wall St. operated, to see something contradict years of study wasn't easy to swallow or believe.

Eventually I just couldn't ignore what I was seeing daily any more. I don't have all the answers, I'm not a guru, I'm a lifelong student of the market and I learn more by teaching and helping others than I would by myself.

So here's the point of today...

Here's what the market at larger (retail) sees.

 This is a very obvious "Inverse H&S" base or bottom forming, it's no where near textbook, but most traders are going to identify with this, I bet if you searched StockTwits right now for "Inverse H&S", you'd find a lot of new posts today claiming to see one and it's there.

Here's what we see...

This is the typical positive divergence progression, from a relative positive, to a stronger relative to a leading positive-this is the most common progression so it looks very much like the market will move higher and by sucking retail in to buy the H&S bottom, Wall St. barely has to do any work to move the market to the upside, as long as they don't sell in to it too hard, retail will take it up.

 This is also what Technical Traders see, as mentioned last night, they see a triangle which IS NOT at all a consolidation/continuation triangle to the upside, but I'm sure before it broke down, most traders were looking at it as such.

The typical 5 points of contact for most consolidation/continuation patterns are there and the next thing they'd expect is a breakout to the upside, that didn't happen.

When a technical pattern fails, TA teaches to reverse your position which means they all went bearish as out earlier sentiment report made clear, THIS IS LITERALLY WHAT T.A. TEACHES TRADERS!

Now the next thing most traders will expect is a "test" of resistance at the lower triangle trendline, most traders will expect the market to fail there and then head lower.

This is what is more likely given Wall Street's propensity to use TA concepts against traders.

At "1" the market moves to resistance, "2" the market makes a little jiggle making it look like resistance is holding, shorts will enter, longs will generally sell, "3" then the market blast above the triangle, new shorts are squeezed, older shorts from Friday are squeezed and their buying sends the market higher, traders see that it was a dip they should have bought and they chase it buying too, now you have all the bears buying to cover their shorts and the bulls buying to chase prices above the triangle, Wall St. doesn't have to do anything but wait.

At "4" volume should pick up as shorts are squeezed and longs jump in. This gives us our "Crazy Ivan" shakeout, we look for distribution in to rising prices, that's where we want to dump any longs and get our shorts in order.

*This is what I see as the most probable outcome, some details may differ a bit as there are a lot of dynamics in the market, but that's the gist of it.

Now we have seen this so many times that this is why it is what I'd expect, but the market is as dynamic as anything you can imagine, millions of extreme emotions all being pulled in different directions and we have a big hedge fund, SAC capital that has to sell a lot of stock to meet redemptions, so while this is what I expect, if I see something change or something different, I'll let you know.

A Guru is simply someone who tells you something is going to happen and they say it with 100% certainty and people LOVE that in a market that is far from certain, the "guru" doesn't know any better than any one else, in  fact more often than not, they aren't very well informed, but people will forgive a lot for someone who sounds absolutely certain.

We just want the truth, if it changes, we changes with it, that's not being a guru, that's being smart.

Positions If You Are Interested...

Placing option positions is much different than equity positions, you need momentum going against the trade you want to place, earlier I opened a SPY Call (long), but I needed downside momentum when everyone is selling SPY calls so I can buy them on the cheap.

It's similar with stocks, the same concept, but the Options pricing formula is much more complicated and makes positioning a much more important affair.

For those who want to play an upside move, this is still a good area, just be careful that you aren't violating Reg. T as a pattern day trader in case we need to get out fast which I doubt, but you have to keep it in mind.

These are also speculative and you need to be able to watch them, but any of the following should work fine.

UPRO (3x long SPY), URTY (3x long IWM), TQQQ (3x long IWM), UDOW (3x long the DIA) or FAS (3x long Financials).

All are still in good position to take advantage of a move to the upside.

I'll show you what I expect next in the following post.

TLT P/L

With the crummy and very long fill times, I wanted to see if I could even get these filled while it was still worth it so I put out 5 contracts of the 25 just to see if they'd get filled, then followed up with the other 20 as you see below, all 25 were filled at $3.40 which is an +11.5% gain or $875 which isn't much, but recall these are August calls, they are way out there and they were for a reason, because I think there's something very interesting going on.

Last week's powerful signals in early timeframes that caused me to open the position were clearly tied to "Balanced Portfolios" needing to buy a lot of treasuries before the end of the month to maintain their mandated balance, surely you've seen them before at some job offering some 401k type program where there's a pie chart and you have "safe", "moderate", "Aggressive" and a pie chart showing the percentage of stock holdings vs treasuries and other assets.

With Treasuries getting hammered as they have the last month or so, these fund managers had to buy treasuries and we saw that Friday, May 31st (the last day of the month for them to do so).

After taking that in to consideration plus what I saw in TLT intraday below...

 And seeing the same in VXX with HYG positive, I knew what the SPY Arbitrage model would look like before I even looked at it.

The intermediate 15 min TLT chart still looks good so I'll likely look for a lower area to start that longer term position again.

 As suspected, the SPY Arb. chart is positive over +$.50 because of those 3 assets, in other words, SPY upside levers are being pulled.

The long term 1-day TLT chart shows a very interesting process, the head fake move was made today so I think TLT is probably going to be opened again within a few days which means the market may not be looking very good within a short period.

However first, I think the most likely course is to teach all the buy the dippers (who are bearish right now simply because price moved down 1-day, they have no idea what credit, treasuries, currencies, etc all look like which are much worse than they can imagine)  that they shouldn't question tradition, they should have bought the dip, so if this move gets off the ground, which I thought it would last Friday, last night and I do right now,  I expect it to be emotional.