The Week Ahead and Friday (?)

Almost 2 weeks ago when the F_O_M_C seemed to wipe out and ignore everything they had said over the last year by totally ignoring the QE taper, the first question asked here was, "What is the F_E_D so scared of?".

Tonight it would "seem" we have our answer, perhaps the F_E_D's memory of late August 2011 is still fresh in their memories, for Wolf members, that was a memorable time for us too, over the next two months a "Trading" portfolio using 2x leveraged ETFs made +85% as we caught EVERY move up and down to nearly double a trading portfolio in about 2 months.

The Dow and S&P looked like this in 2011, this was the time of the last Debt Ceiling debate, which was ultimately settled, but came with the first ever S&P rating agency down grade of long term U.S.  debt.

 Dow-30 (A) the area around the first debt ceiling debacle and "B" the current political fight, notice how similar prices look at both periods. The white area is where we made +85% of portfolio using only 2x leveraged ETFs in mini swing trades of 2-4 days, we caught EVERY swing, up and down.

This is a closer look at 2011 with the SPX, about a 15% nearly immediate drop. That trading range was like a meat grinder for most traders, but it was some of the easiest money we ever made.

As of the last look at the news, the House of Representatives passed a bill that funded the military, but repealed the medical device tax that partly funds Obama-care as well as a 1-year delay of Obama-care.

The government's new fiscal year starts Oct 1, this Tuesday, it's also the start of Q4 for the market. Wednesday, Sept.25th was the last day for t+3 (Transaction plus 3-days) settlement rule for window dressing, tomorrow is the last day of the 3rd quarter so there are a lot of interesting forces coming together from window dressing, "The Art of Looking Smart" by smart money to the possible (at this point, likely) shut down of about  a third or 800,000 Federal employees on Tuesday and with just about a week or so left, the debt ceiling debate as the government runs out of money around Oct. 22nd, which would cause the government to immediately slash spending by approximately 32%. The government actually hit the debt ceiling in May, the Treasury has been able to shift money around o keep the government functioning, but that cash should run out around the 3rd week of October.

In addition we have political snafus in Greece and Italy as well with a huge group of Berluscomi's PDL party in an effort to force elections which has taken a toll on the Euro as the futures open for the new week.

However, does the market expect a last minute deal? Some of the most successful traders are, CONGRESSIONAL STAFFERS, why do you think that might be?

In any case, all of last week was interesting and required patience, a good thing we did as well because this wasn't a very tradable market...

As you know, the 3C signals were not strong at all last week, thus the patience, however there was improvement in to the end of the week, especially late Friday, perhaps it was due to Window Dressing, but it doesn't normally seem like a reasonable place to see it given the weekend, unpredictable events.

 Some weak positive 5 min 3C divergences last week through a large bullish ascending triangle in the IWN, note the rate of change to the upside in 3C Friday.

Note the 3 min chart's upside ROC Friday, kind of interesting given the expected weekend events.

As far as the market's / Futures open for the new week...

TF / Russell 2000 futures with a 5 min positive on the open today, there's also a 15 and 30 min positive as well. As for ES looks almost completely neutral to me in 1,5, 15 min timeframes.

While the bond market isn't open, 30 year and 10 year futures both popped higher, however the 5 min 30 year (think TLT) , 15 and 30 min are all showing negative divergences, of course the longer timeframes are reflecting last week and until the bond market is open, it will be difficult to get solid information.

The 10 year is much more neutral.

As for currencies...

 The Euro lost quite a bit on Italy as it gapped down, there's a positive there as well on this 5 min chart

Even more interesting is the longer term 30 min Euro chart, this seems like price is acting one way, but underlying trade last week was acting a very different way. Of course the PDL departure was unexpected so this could be a fundamental realignment or discounting, but what if it's not?

 $USDX 5 min positive last Friday at the looks, the gap up tonight saw a negative divergence and price moved down toward filling tonight's gap- another interesting event, at least for early trade which I don't want to put too much emphasis on, but taken with last week, some things seem a little out of place.

The Yen gap up is killing all of the Carry trade,  EUR/JPY cross.

Some of the charts from Friday that I found interesting were the following...
First the IWM chart you already saw, but as I mentioned last week, there was a very thin line between 1-5 min positives and slightly longer charts, from weak positives to very strong negatives, it looks like a perfect head fake set up.

For instance, look at the short term IWM charts above and this 15 min below within a bullish ascending triangle.

That's ugly.

I'd take this as a short term head fake move above the ascending triangle as traders would normally expect as a head fake move below has already started, followed by a very nasty downside move represented by this 15 min chart above, which is what we have been expecting, short strength (core shorts) and sit back and watch the market drop.

So is the seemingly impossible, possible? Does the market somehow go up with these political headlines tonight?

 SPY 5 min, Friday looks different, stronger.

DIA 5 min, the same as the SPY above.

Beyond the averages, the SPY Arbitrage assets acted differently Friday as well.

 5 min HYG leading positive Friday

TLT 2 min leading negative late Friday...

Or Financials...

XLF with a distinct change of character late Friday, perhaps this is window dressing related of something else, but it seems strange going in to an uncertain weekend.

Also some leading indicators, such as HYG's better EOD relative performance or sentiment below...

 Sentiment not only is strong, but stronger in to the end of the week.

High Yield Credit didn't give up ground, but held up well.


I can see the argument of new information in the market and the market discounting it, I just don't get the late week strength/Friday with the market knowing what was likely coming over the weekend, d do they know something we don't? Something futures aren't reflecting? Perhaps something Congressional staffers know?

We will see soon enough, gathering data as the market's open on some real volume will be essential, but this could be an incredible head fake move on the IWM's bullish ascending triangle (to the downside) which quickly moves up, sell off hard in underlying trade as expected with the market following to the downside.

I don't think the end game is any different than before, it's just what happens between now and then and it's an interesting dichotomy, I can't wait to see how it plays out, there's potentially a lot to learn from this moment (week) as well as some potentially huge trading plays if this market is really playing possum tonight.

We have the Budget snafu, the debt ceiling, Italian politics and of course Q3 window dressing tomorrow and the start of Q4 Tuesday as the government is due to shut down. At least we "apparently" know what the F_E_D was so afraid of, "apparently..."

Chart Examples

Being this is an op-ex Friday, I'm not too concerned with what price does the last hour as it hasn't shown any steady correlation to the start of the new week, but the 3C signals at the EOD have shown a strong correlation to market behavior for the new week.

In the last post I mentioned some names that just started moving in an eye catching way just around the time op-ex pins tend to end (2:30-ish), here are some of those charts.

I'm not in love with any as positions if we aren't already in them, but I do like what they say about underlying trade going in to a crazy start of the week which I personally think is a bit overblown.

 AMZN

ES 1 min

GOOG 2 min

GS 2 MIN

HYG 5 MIN

SPY 5 MIN

TLT 2 MIN

XLF 1 MIN

GDX 1 MIN

NUGT 3 MIN

GDX 5 MIN

Market ans specific asset update

It's usually around this time on op-ex Friday's that most of the contracts are closed and the market can start moving away from the pin and you see some character come out.

I've probably never seen such a narrow distinction between a short duration long trade and a long duration short trade set up, meaning in the VERY short term certain assets look like they'll pop to the upside, but you can literally (in some cases) go from the 1-5 min charts that look solid for a move up and then the 10-60 min charts that are near perfect for shorts, I think the message is pretty clear.

Some assets I've noticed that have changed character this afternoon (just recently as op-ex ends) to more positive stances or positives developing quickly include: GDX, GOOG, USO is borderline to making a much more positive stance, this would be a shakeout bounce, XOM has seen rapid change, URRE seems to be coming to life, AMZN, XLF,  FAS and ES as well.

These are assets that have  gone from mediocre or uninteresting intraday readings to readings that quickly turned around and catch my eye very easily.

TLT and HYG are also interesting, especially because of the arbitrage trade. 

PCLN is a position I'm very tempted to short here, I have a hard time justifying that though is we are to get a positive market environment for a short period as the entry in PCLN would be better.

I'm going to keep looking around

Precious Metals

I have had a lot of emails about gold and silver and what they look like, I'm not even going to post charts of them because in my view they give no actionable or even helpful information at this time.

The one take away I get from that is that any moves in the very near futures are much less about what the market thinks of QE and much more about either politics or running a cycle, the reason I say running a cycle is because this entire week the stage 1 of a cycle has been prepared. Treasuries have flipped their correlation 180 degrees like gold did about 3 weeks ago and rather than move in a "Taper-On / Taper-Off" manner, they are moving closer to a typical flight to safety, but probably even more so as a SPY arbitrage asset. 

The point was, gold especially and silver, don't seem to have a near term dog in the fight and they don't seemed to be worried about QE (as with the market in general).

The best I can scratch together is a few positives in SLV on the 3 and 5 min timeframes and a 15 min positive in Silver futures, but everything else that is needed to align timeframes is missing.

In gold's case, I can find even less. The case for gold "could " be made via its correlation with gold miners and the general stance we have toward gold miners, but on the other hand I have said the last 2 nights that I think the $AUD is going to see some upside and I could make the case that the $A?UD leads gold miners and they are responding to the Aussie.

I'm not including any charts because 3C is used to gain an edge in the market, I don't want any charts to be twisted or given more weight than they deserve to suggest any edge, there is no edge in either asset right now.

GS Charts

 The price trend and the 3C Trend version on a 15 min chart, I'm not looking for a core long or trend move up here, I'm looking for a counter trend bounce so the 15 min chart is plenty, especially on this version.

The trendlines and a very tight intraday triangle, I suspect there will be some head fake, intentional or not with a triangle this tight and mature,  however as far as trade possibilities, an upside channel buster may be the long portion of the trade, you know they typically fail badly so that may be where GS becomes a core short or add-to position if you are already short GS.

I don't have time to explain every nuance of each chart, but I tried to mark them, just check timeframes and remember the concepts.

60 min chart - there's no disputing GS is a core short, any short duration long trade is just hitch-hiking a ride to a better area to enter or add to existing GS core shorts for a longer duration trending move.

 I started at 15 min positive, but there's even some signs on a 30 min chart.

10 min

Now switching from the strategic view to the tactical and starting with faster timeframes and working to the middle. The 1 min positive at that tight triangle today

 2 min confirmation and migration


5 min positive as well

I'm not sure why the 3 min chart didn't load, but there's been a lot of strong positive action on 3 min charts all day and yesterday, GS is no exception.

Trade Idea: GDX Calls / NUGT long

I'm also seeing some interesting signals in GDX right now which I do like, this move has the potential of being a better options set up finally. The bull flag is seeing a shakeout and the 3C signals are going positive on it.

I'm not adding anything yet, but after I post the GS charts, I'll take another look at it and open exposure and make a decision, if I didn't have any exposure to it, I'd likely be opening a position here (long) GDX or NUGT.

GDX seeing positive divergences on the break below the bull flag.

Trade Idea: GS Long

This would obviously be for a short term trade as GS is one of the core short candidates and an open core short via equity so a call can even be used to hedge and if we are right, it's extra money as well.

I'm looking at adding a November $160 call, but it will be fairly small because of the exposure to XLF and FAS already.

I'll get some charts up ASAP, but this is one of the few that I've seen this morning that I feel comfortable with, despite what the probabilities say.

Market Update

I'm very seriously considering some leveraged long ETF, maybe SPXU, I already have financials though and the SPX has a lot of Financial components. I think the larger point is, there are a lot of things from the base to bear flags just under support of that base, 10-30 year treasury futures going negative right now, VIX futures not looking the best right now either, once again they are lagging even the basic correlation with the SPX meaning it doesn't seem like there's a strong bid or even the expected bid for protection, of course you know how I feel about the flight to safety trade (TLT) as I have an active put there. Sentiment has made a new high today (our leading indicator, not retail), the $AUD continues to build positive. The only slight negative is HY credit which made a slight low that is in to the 25/26th whereas it had remained above the lows of those two days, but the overall position is still positively dislocated from the SPX.

 DIA 5 min with an increased ROC as there's a small bear flag (possible head fake move) just below major support.

The IWM has a large ascending triangle, I'd think even for a head fake move (which is what I was explaining last night in that a head fake move above alone could be the extent of the bounce needed before it failed)  the likelihood of an upside breakout would likely make a leveraged long worthwhile, however as explained last night and all week, these are not strong signals and these are in my view, very speculative trades. I wouldn't blame anyone if they sat this out.

 IWM 5 min positive divergence, again it's just not as strong as it should be, but I suspect it's enough.

 Don't forget the larger picture and what I suspect via the 15 min IWM chart.

 These 3 min charts have been the interesting ones, I can try to explain the mechanics of this later, maybe in a video.

SPY 3 min with that small bear flag below support and an increased ROC on the 3C positive divergence.

I suppose the only thing holding me back from a specific position is finding one that looks strong enough to warrant a position, I'd be in the wrong to take a position that I didn't feel had high probabilities, especially in this environment when our main focus will be setting shorts, which I'm watching, most look like they still need a small upside move of maybe a few percent.

GDX / NUGT Update

Wednesday's afternoon divergence was small in scope (about 3 -4 hours max.) so as I said yesterday, the reversal process would be proportionate and probably not very long. We started seeing very positive intraday charts yesterday afternoon and this morning a gap up. If you had to have a position there, NUGT would have been the way I'd go unless you already had a GDX Call from before when we had an advantageous entry.

Here's yesterday's update as GDX and NUGT started going positive again and DUST negative as well as today's action with a gap up. When looking at the shorter term trades in GDX and NUGT I have to give them a positive bias because the intermediate term charts that are typically in the Swing range of a week to a few weeks are positive so until or unless those charts start falling apart, GDX gets "some" benefit of the doubt in analysis, which is still objective because the intermediate chart is there.

Action thus far in most assets still looks "guarded", however it's very difficult to say that with ANY certainty being this is the normal action for an op-ex Friday. We do however have a few hints, perhaps some targets that may help you with trade management and/or add-to or new positions, which in this case, I'd prefer to stick with a leveraged ETF like NUGT long, options have more leverage, nut the premium is pretty high right now.

 GDX 15 min leading positive divergence and the question I've had and asked here a few times, "Are we dealing with two distinct cycles, the first already completing the 4 stages or are the two individual cycles really one large one? The numbers, 1, 2, 3, and 4 correspond to the 4 stages of a cycle, accumulation, mark-up, distribution and decline.

A 1 min chart of GDX shows the Wednesday afternoon distribution and yesterday's accumulation and a current (as of this capture) "in line" status or confirmation.

DUST 1 min shows the mirror opposite as it should for confirmation.

If this is 1 large cycle, then we have some measured move targets that are usually exceeded. Note from left to right, the first bottom was put in by a dual candlestick pattern, a "Tweezer bottom" in yellow. The left portion of the "W" would have been a head fake bear flag that was expected to break to the downside, giving it decent upside momentum as it failed to break lower. The right side of the "W" is defined by today's bull flag which is expected to break to the upside. I suggested with some other assets that Wall St. may actually be using retail to help push assets higher, if that's the case, the bull flag should NOT fail and should move higher. The measured move for the next leg of the GDX bull flag would be about $.90 to $1.00 out of the flag or around ...

$26.30 and as you see, since I started this post, the 3 min chart is already leading positive so it looks like this is the most probable outcome, although I'm not of VERY high confidence, I will hold open GDX calls and long GM positions.

With the bull flag, watch for either a gap fill attempt and/or a small head fake below the flag.