Retail Sentiment Update

This is the most recent retail sentiment update with a couple of tweets to sum up sentiment, one I find really interesting as we talk about it so much.

"everyone bearish on twitter

Here is the typical tweet:

"I bought 1/2 position in $SPY 163.50 puts/ Will add upon triangle confirnation."

Seems everyone is convinced a taper is coming."

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OK, sentiment seems clear from retail, as I said the last few days, the market has thought a September Taper was the highest probability so those 9 of 11 days down in the SPX was the market discounting that probability. If there's anything that seems to open the door in today's minutes, even something like Bernie's ambiguous "Plausible deniability" press conference answer after the last minutes were released and damage control was needed (he referred to "continued policy accommodation" which the market took to mean QE, I took it to mean extended low interest rates, but a very cunning Green-speak play on words to make the market think he meant QE as that was the topic of the moment, later the next F_O_M_C policy statement confirmed it was extended low rates), I doubt they want to see the market crash with this kind of leverage and HFT's ability to instantly pull all liquidity, so they may have been more careful this time or added something that the market can grasp on to as hope that the taper won't be as dramatic or will take longer to finish, perhaps even start later.

This is all speculation, but you see how retail is thinking. Now Leading Indicators and Pro Sentiment...

 Sentiment via FCT over the last few days vs the SPX has been positive...

Even more, look at sentiment this morning vs the SPX!

HYG is drifting lower, but still a "V" reversal and still outperforming the SPX on a relative basis.

HY Credit may not look impressive, but it's holding up and because of the low liquidity, this is the first form of credit to panic out the door at the first sign of trouble.

Junk Credit looks like HYG. It's a very strange atmosphere, all I can think of is if there's a bounce and it looks more and more like there will be, then, there was a leak of the minutes.

As far as the second issue in retail sentiment,

""I bought 1/2 position in $SPY 163.50 puts/ Will add upon triangle confirnation."

How often do I talk about every Technical trader, even a newbie of 1 month, having an absolute fascination as if it were dropped from the heavens, with TRIANGLES and the "CONFIRMATION" of the breakout of triangles? THIS IS WHY AND WHERE HEAD FAKES ARE FOUND AND IT IS RIGHT THERE IN A RANDOM TWEET, THE ENTIRE CONCEPT WE USE SO OFTEN IN ONE SENTENCE.

$USD/JPY Engine

One of the questions I've had regarding any kind of bounce is, "What's going to be the engine?" SPY Arbitrage assets have been scattered and not looking like a probable driver and the Yen has maintained strength over the past week as more carry trades are closed, last night for the first time I showed the first hint of a little weakness in the Yen and some strength in the $USD which has an effect on a number of commodities as well.

Here are the contenders for carry crosses...

 First the $AUD which seems to have been the victim of a massive carry unwind the last several days, going from highs of the week to lows in a couple of days; it has a slight positive divergence on this 15 min chart, but doesn't have enough lateral time put in in my view to be an effective carry cross.

 The Euro has shown some recent strength, but that hasn't done much and it's in a consolidation right now.

The $USD has always been the main contender and it is showing a strong 15 min leading positive divergence, it still needs JPY weakness and that is what has been missing until yesterday when we saw the first sign of it, but 1 sign does not make a trend, however it can start one.

Last night I pointed out this negative 15 min 3C divergence as the Yen was making a new high on thew week, signaling distribution in to the high and this morning we find the Yen has lost ground overnight, that's the weakness we need for the $USD/JPY carry cross to work as an engine to push the market.

Pre-Market I mentioned the USD/JPY in a range, it has broken out of the range since then.

I'm not convinced as you know of these very recent, very sharp positive divergences, they are unique in how fast they have formed, again, like someone knows something and found out very recently. Credit's "V" reversal which is the first "V" reversal I remember in a long time is another sign. We'll just have to see how these signals continue to develop.

Thinking like a "Crook", if it were me moving the chess pieces, I'd want to keep prices in the major averages subdued as long as possible before the 2 p.m. release (I'M GOING TO HAVE TO TURN ON CNBC FOR THE SECOND TIME IN A MONTH) and accumulate and build a stronger footprint in price to support any move.


***WARNING- Watch out for initial knee-jerk reactions, don't panic on them because this always happens with F_E_D events, however in my view I was looking forward to letting the few long positions gain on a bounce and then quickly flip to short in to strength in areas that have good tactical positioning set up, I would not trust this "bounce" should we get it like past bounces in that they take time to form a reversal process, I think if we do get a bounce on the minutes, it can and probably will fail unexpectedly and suddenly, the market has obviously changed to a much different character. I wouldn't trust the tried and true market behavior concepts on this one. For me this means don't get greedy with any longs and be ready to act and short strength.

If the minutes get a bad reaction, remember the intial reaction can change within a day or two, usually faster though.

Otherwise I plan on simply letting the core shorts do the work and wait for the next set up.

Opening Indications

Today so far is just as strange as yesterday, VXX has caught a bid for protection which seems quite normal in front of the F_O_M_C minutes at 2 pm, however a few other things seem a bit strange, take some of the averages (keep in mind this is opening trade and not the best time for analytical data, but... it's what we have)...

 SPY 1 min intraday has come down and is now in line, but this is exactly what I was saying the SPX needed to do to create a bigger base/footprint to support the 15 min positive divergence that is really way too big, too fast for the price formation (there's not enough base).

This is the SPY 15 min leading positive divergence.

The Q's have been the worst underlying performer since last week and probably before, even though at times they have been the best price performer, but we have seen distribution in to every move higher in the Q's.

Here at a 10 min chart we have no such positive divergence like the other averages, but...

This morning the intraday 1 min chart is acting as it should for accumulation and the Q's are the only average that has a foot print large enough to support a 15 min divergence like the one found in the SPY , ironically.

 IWM 15 min leading positive

As I said yesterday, I'd like to see price come down to the recent lows and form a bigger, more stable base if these divergences are to be trusted, otherwise they formed too quickly, as I said, "Like someone knew something about the minutes before anyone else".

The opening IWM is acting normally with a slight positive and price moving up here.

This is the VXX quite suddenly late yesterday catching a bid in to this morning with a gap up.

HYG hasn't done anything definitive, it's drifting a bit lower, but still sharply elevated in a rare "V" shape reversal, another apparent signal that someone found out something and quickly acted on it.

I have a lot more to look at, but as far as the minutes go, Bernie may not want a repeat of the last release in which he had to come out and say something that sounded as if he were talking about QE to keep the market from nose-diving, but as the last policy statement revealed and as I said that very day the minutes were released, "He wasn't talking about QE, although he was vague enough to leave that impression, he was talking about accommodative policy which includes keeping rates low which is what the policy statement confirmed".

The point is, there's a chance that they don't want the market spooked as badly as last time, ALTHOUGH I'M NOT TRIMMING ANY OF THE CORE SHORT POSITIONS. The market has already largely discounted a September Taper, if the minutes suggest a date further out or a more gradual taper or any other dovish concession, then the market should take that well, then we'll know for sure there was a leak and it wouldn't be the first time as the F_E_D was caught red-handed sending 154 emails of the minutes more than 24 hours before their official release to Private Equity firms and big Wall St. banks.

I have some limited "bounce" exposure, GOOG calls, MCP calls, XLF and FSLR calls.

If the evidence builds before the release and there are good signals in an asset, I'd be open to adding more, HOWEVER, we need to keep our eye on the prize and that's using any price strength to add to core short positions.

MCP Reminder

I posted it again late yesterday and have an open call position (Sept. $6), but I still like MCP long here, it is very speculative as a long, as a lower priced stock and on a day like today, but if I didn't already have it, I'd be picking it up this morning.

Interesting Overnight Changes

Yesterday I mentioned many times that the speed and size of some of the divergences in the 15 min range or so was very fast, they don't have the footprint usually needed to support a divergence like that, I thought/think there may have even been buying in to higher prices as if someone knew something about today's F_O_M_C minutes (the real information the market wants) which are released at 2 p.m. today.

I said I thought the market needed to come down a bit and create a bigger footprint for any base to bounce off of and the market has started that overnight.

I also thought that an engine like an FX carry trade would be needed, overnight the $USD strengthened and the JPY lost some ground which is what is needed for the USD/JPY pair to be that engine.

I really have no idea if there's a leak of the minutes, but the "V" shaped reversal up in credit yesterday was VERY ODD as were the 3C divergences, I might not have believed one of I had not seen the other.

We'll see if we get a stronger base/positive divergence in the early part of the day and whether the USD/JPY continues to move toward a breakout from an overnight consolidation, the minutes released at 2 pm (unless they were leaked again) are the main event and as always with F_E_D events, "Beware the knee-jerk reaction", the initial reaction is often the wrong one.

Daily Wrap

Because of Friday's "blah" intraday signals and even the opening of futures Sunday night, I didn't expect much to happen Monday unless it was late in the day, I expected action to pick up Tuesday, but I must say in front of tomorrow's 2 pm release of the F_O_M_C minutes, I'm surprised at some of the action even though charts have been pointing to that.

What is also strange is how fast some divergences (positive) developed, but how tight they are, as if smart money was buying in to higher prices as if they knew something in advance about the minutes or had a plan of how they were going to shake things up, it just was not normal, perhaps increased market volatility, but I think the first option is more probable.

Credit acted a lot better today than one might think, especially because there was no real tell or build up, it just popped much like some of those linger term 15 min 3C charts did.

Gold and Silver got smacked down overnight around 1 a.m. but recovered, however this makes me wonder about the two assets and a real pullback in both.

 Gold 6 0 min chart so the smack down doesn't look as dramatic, but it was around 1 a.m. as you can see, the 60 min, negative divergence is in place, this is what makes me wonder how long they can hold up, I don't think too long.

Silver 30 min 3C chart also has a sufficient negative divergence and saw a sharp move down around 1 a.m.

Credit jumping back in to the fray was probably the biggest news other than divergences for a bounce.

 HYG Credit vs the SPX, that's an odd transition

HY kept up, but looked like it was suggesting a pullback for the SPX.

And Junk Credit also made an odd transition.

IF WE DO GET OUR BOUNCE, BE SUPER CAREFUL AND DON'T GET GREEDY WITH LONGS BECAUSE THESE MOVES IN CREDIT REALLY DON'T HAVE GOOD SUPPORT, THEY SEEM LIKE LAST MINUTE, "SOMEBODY KNOWS SOMETHING" AS WELL.

I've been showing USO a lot and looking to get in there short, it got smacked down today as well at the close so I'm hoping I didn't miss a chance.

USO today in the red box selling off during afternoon trade.

Currencies were quiet again, this is getting strange, I wonder if they're waiting for the F_O_M_C minutes?

For the first time in what seems like week, TLT finally not only moved higher, but resumed a "Close to normal" correlation, this is a long I put out a specific post about last night so I'll be looking for opportunities there.

As I said though earlier, one of the strangest things to me was some of the 3C signals today...

 SPY 15 min

IWM 15 min- this was a horrible performer just yesterday!

Financials 15 min.

Just like the "V" reversal in credit today, the 15 min leading positive divergences look very rushed, I'm quite sure there had to be buying in to higher prices to get that done and I can't think of many good reasons they'd do that without knowing something in advance. It's just too out of character, too strange.

I'll keep an ee on over night futures and I feel good having some calls in XLF and some other places, but I wouldn't want large exposure to this VERY strange environment that took place today.

One last thing, tomorrow the F_O_M_C minutes are released, they are typically more volatile than the policy statement, as I ALWAYS do, I'm reminding you to beware of the F_E_D knee-jerk move, it can be exciting, it's also often wrong.

I'll report back if anything else pops up, other wise I'd play it safe and any longs should be quality like MCP, at least as of today's close.

BIDU Trade Idea / Set Up

BIDU is one of my favorite shorts of the last few years and if I ever wrote a book about how Wall Street uses Technical Analysis and Technical traders' laziness against them, BIDU and the posts from that period of Late March/mid-April 2012 would be textbook.

The chart itself may not look that impressive, it was mainly the posts days and weeks ahead of time saying, "OK, watch for this to happen" and why and then the next part and the entire thing went down as envisioned and the trade came right to us on our terms with hardly any risk in the position.

A) is a large triangle that first caught my attention as 3C was clearly negative and in my experience I don't think I've ever seen a large triangle that wasn't a top (proceeding an uptrend), as a matter of fact, GLD did the same exact thing (large triangle) in 2011 when we called a top in GLD. ADM was another that gave us a head fake move too in 2008 (ADM is probably where I first really started understanding what they were and how they worked.

The key with large symmetrical triangles is understanding that they are NOT to be treated as a consolidation triangle that is so popular in Technical analysis that typically lasts a week or so to a month) those are corrections through time rathe than price. Technical traders love them because they are the easiest to remember,  descending and ascending (bearish and bullish) triangles can get confused easily by new Technical traders, but a sym. triangle is the same every time, all you need to know is the direction of the preceding trend, if it was up, then it's a bullish price pattern (according to Technical Analysis). The misidentification of what the triangle actually is, is the first mistake, but traders see a triangle and, "A triangle's a triangle is a triangle. What grabbed my attention was the distribution already present, I knew all we had to do was look for a head fake move that lined up with out market analysis.

B) The triangle breaks out to a smaller consolidation triangle and 3C gets worse, this was obviously going to breakout to the upside and the market was close, but not quite there.

C) Is the Breakout that we shorted, a dollar or so off the highs for most of us and again 3C looked even worse so we were able to confirm the breakouts that technical traders were chasing and buying were distribution, we just had to wait, we actually phased in to that position in 2-3 parts because there was a rectangle range forming and we weren't sure if there would be a head fake above that which there wasn't.

D) Is the first place we or I covered half of the position which was already at a 30% profit with no leverage.

E) Is where I covered the second half after adding a little at higher prices.

F) Was a bull flag that had negative divergences that we shorted and made a quick buck there too.

The magic of the trade wasn't the gain, it was how smoothly everything went, understanding exactly what traders would see and how Wall St. would react and being able to use those "Concepts" to our advantage.

BIDU now... Psychologically I already know that I have to be careful because the last few trades in BIDU just came together so perfectly and it was such an easy trade, I don't want to let my guard down even a little because I had good experiences in the past.

 We've had plenty of buy/sell signals and we just got past a sell signal

This negative divergence to the far right on a 4 hour chart is something I haven't seen in BIDU before.

 The same with this 2 hour chart, BIDU is in a lot worse shape than it was before.

 The 30 min chart tells me were are already close enough to the major damage, what we need to to get lucky with a bounce/head fake move.

Like the original trade in BIDU, we already know that any head fake move or bounce is going to fail because of the depth of distribution, that makes it a lot easier to short in to price strength when you know this stock is not recovering from this damage any time soon.

The 10 min chart shows us something that looks like a bounce is setting up, but we don't have much more than that at this time so it's a matter of watching it and looking for that opening as well as setting some alerts.

I'd like to get a shot at BIDU in the $140 area, the higher the better, but at least above $138 would be a decent entry, you may want to keep BIDU on your alerts.

MCP Update

Last Friday I posted about GOOG and MCP for trades, each a little different, here's the post. And Here's the link to the positions, MCP was a September $6 call. GOOG was up Monday 30+%, but because of the longer term nature of the divergences, I decided to hold GOOG a bit longer, MCP hasn't fired yet, but it really looked good as I was skimming through charts late in the day.

 Like URRE, MCP is a long position that I believe has legs of its own, the market will always exert influence over all stocks, but I think MCP could be one of the few that can buck the market's primary trend, like URRE.

Above the 4 hour chart shows 3C in line with the downtrend which is something I like to see, confirmation, 3C should only diverge when there's something going on, as MCP makes some capitulation like moved, 3C starts to go positive and builds a large 9 month base.

The 1 min chart's trend has tracked price, then went negative and price responded shortly after, now has gone positive, the 16th is last Friday when the position was entered so it has added nothing but base since then.

The 2 min chart just kind of drives the point home as this has been a position I've been patiently waiting to get involved with again.

The 15 min chart is really the magic here, not only did it really start making headway last Thursday, but the length of the leading divergence is well above anything even at much higher prices, I find it to be very impressive and would have entered the trade again today.

It's not often we get a 30 min chart like this either, that's nearly pure accumulation.

If you are in MCP, I'm happy for you, I think you'll do very well. If you're not, I would urge you to take a closer look at the position, although I have a call, this could easily be an equity long, perhaps even a core long position.

MCP Looks Like it will move up SOON

I was wondering how long this would take

There's something definitely in the works, the distribution in the market and futures has been strong and evident for quite some time, I don't know why, but I had a git feeling there would be an afternoon slamfest, but I suspected it start around 3:30, this is a bit later than that and I suspect there's a reason, perhaps to create some panic and loosen up the grip on some shares?

Es (SPX Futures) 1 min