Market Update

So far the assets that are in the right area to start showing accumulation, are. Assets like QQQ had to break below the range so they are lagging a bit as they had further to go before a head fake move even started.

I'm sure there will be many other short term trading longs if you wish to trade around the market. As far as the stronger underlying trends that show massive distribution, they are all still very much intact which makes the real trade here a short in to price strength with all of the underlying weakness and those positions I prefer no leverage, just equity shorts for trending trades, plus a pure equity short (rather than a long inverse ETF) has benefits like being able to use some of the profits to pyramid the trade up.

 QQQ 2 min from Friday's distribution hinting at a break below the range and a likely head fake to price starting to make a "U" shape or reversal process with 3C going positive in that area.

QQQ 3 min leading positive in the same area after a leading negative from last week,  as I try to show as often as possible, 3C signals pick up right where they left off the next trading day, even over a weekend.

QQQ 5 min positive as it catches down to the rest of the market and breaks below the range which is where a head fake move would start.

QQQ 10 min leading positive and today's break below last week's range, still a very positive chart which is good for what we are looking for.

 IWM 1 min leading positive, this looks good to me as premiums drop on this kind of downside volatility for calls, for longs like IWM, TWM or URTY, I think you can wait a bit longer for more of the rounding reversal process to take shape.

 IWM 5 min from a strong leading negative divegrence sending price lower to the break under last week's range and a positive divegrence at that break under the range.

SPY 1 min positive divegrence and a good example of the rounding bottom, this is really a "Reversal process", a reversal is a process, not an event. On a chart a process looks like a "U" bottom or a double ("W") bottom, an event would look like a "V" and we see very few reversal events except when we have a strong parabolic move up or down.

SPY 2 min with good migration of the divegrence and leading positive. As the rounding reaches further to the right side of the chart, the divergence should pick up strength.

 SPY 3 min leading positive

You already saw the GLD charts and why I closed the GLD calls, this is the 5 min Gold futures showing the same thing, distribution in to this morning's price gains.

The 15 min chart shows the same. Remember, gold has been trading opposite the market so a positive divergence in the averages and a negative divegrence in gold is a sort of confirmation.

Also Short term VIX futures are showing a leading negative divegrence, this is also seen on real VIX futures below, this would be a rotation (short term) out of protection and in to risk.

VIX 5 min futures going negative

Another safe haven asset, 30 year bond futures are seeing a clear negative divegrence, the same concept applies as with VIX futures.

Hopefully this will allow a set up long TLT (20+ year bond ETF) on a pullback for a long term , primary trending position now that it has put in a solid base.

15 min 30 year Treasury Futures with the same distribution.

And the ETF version, TLT with a 3 min negative divegrence in to today's highs. I suspect as I said above, there's a short term rotation out of protection and in to risk assets as they are abundant in supply and on the cheap with a head fake move, this is one of the many reasons for a head fake move and why we see them so close to major reversals in all timeframes.

Call positions QQQ, IWM & SPY

I decided to mix these up a bit as far as expiration, I'd usually want at least 6 weeks until expiration, but being I think this is a head fake move, I can entertain the possibility of weekly and February monthly calls so I decided to split them up a bit. I personally would not recommend so many market directional positions, but I kind of just want to see what the performance looks like being a head fake move (or highly probable head fake move).

This is what I decided to go with.

SPY Feb 7th $175 Calls (weekly)
SPY March (22nd) $175 Calls (monthly)

IWM February (22nd) $109 Calls (monthly)
IWM March (22nd) $109 Calls (monthly)

QQQ March (22nd) $85 Calls (monthly)

I've split up the position size between each of these so the main risk here is overcorrection between SPY, IWM and QQQ.

If I had to choose one, I'd probably take the IWM March $109 Calls.

Trade Idea: SPY, QQQ, IWM Calls

I'm not sure if you are interested or not in a call position which for me, would be a quicker trade than say a long SPY (leveraged ETF) position, but if so, I think all three averages look pretty good here for a call position entry (by 3 I mean SPY, QQQ and IWM).

I'll likely be opening at least a couple very soon and will let you know before hand, I want them slightly in the money with about a MArch expiration, although I think you could get away with a shorter expiration (maybe I'll mix them up a bit).

I'll post the charts momentarily. It seems our head fake scenario is coming to pass; there's a rounding/reversal process in place with growing positive divergences so if I were looking to add some leveraged long ETFs like URTY, TWM, UPRO, QLD or TQQQ, I'd be looking to add them pretty soon, I think the call timing is probably a little more crucial and the equity/ETF positions still have time to develop a bit further.

Again, so far so good.

GLD Follow Up

Friday just before the close, once I saw the 2 p.m. -4 p.m. signals and decided on the highest probability which I was leaning toward anyway, I decided to take out a Call position in GLD, the second options position this for the week in GLD (the first being a put position for a gain of +22% closed earlier Friday). 

After having watched GLD this morning, it seemed at first it had enough in the tank to make a larger run, but then things got too lateral and when that happens there's generally distribution going on and being GLD has been trading opposite the market and I believe we'll see a head fake stop run in the market today, it all just pulled together and was time to take the GLD position off the table.

 The P/L came to just about +27% or $6800 for a 3.5 hour position, the fill was at $4

Here are the charts.

 The 1 min positive on Friday was very clear, but since the open it seems there's been distribution, slow and steady.

 Here's the 2 min chart, note the range developing as well.

The 3 min chart also negative so there was migration of this negative divergence.

It's the strength of the 5 min chart that made me think we might see some more upside, but about a percent and a half for the day isn't bad.

The 10 min chart didn't have the strength of the 5 min chart so as far as market signals go (being gold has been trading opposite the market), this also tells us our head fake scenario is looking more likely as well.

I hope you did well if you chose to take on the position.

Closing Friday's GLD March $120 Calls

UNG Update

Last week we saw some divergences in UNG which looked strong enough to bring it down, especially considering the wide-legged Doji-Star right at resistance of the large base.

We also saw a short term corrective bounce-looking divergence forming Friday. Some of you want to add to UNG shorts, for me the DGAZ long position is at full size, I try not to average down losing trades, even if it looks like they are turning in my favor. If I were to, the only question that need be answered is, "Is this the best looking possible trade to put assets toward right now?"Usually there's a better looking trade somewhere and ultimately my goal is to make the most of the assets that are put to work in the market. Don't get me wrong, I still want to see the DGAZ position do well, but unless I planned to average in to the position as part of my risk management BEFORE the trade, I think it's a bad habit to dollar cost average.

That being said, here's what we have in UNG thus far this morning.

 UNG 3 min chart looking like a distribution area at the top, to the right is the corrective -looking divergence from Friday, it already has a small negative today to the far right.

On a 1 min chart which will show more detail faster, the positive from Friday is already seeing negative divergences form to the right side.

This looks to be migrating to the 2 min chart, but 3C needs to pivot down to lock that in.

Even if this does lock in, I would require some stronger signals as this is still very early before I added to a UNG TRADING short position, but there are definitely some signs it's moving that way, just not strong enough yet in my opinion to take the risk.

Some Early Signs

When I spoke of a head fake move (last night included), I suspected it would take most of today, perhaps even longer. If you had time to read the two posts I linked, "Understanding the head fake move" for weekend reading, you'll understand this is more psychological and tactical warfare against retail traders than anything and that means the moves tend to be extreme or extreme looking because they need to look that way to swing emotions and there's no good reason to run one without accomplishing that goal. There are other goals such as accumulating at a low cost with a lot of supply and those are some of the signs we look for. We can see these signs early on, much earlier than the end of the head fake move.

So far we have some early signs, they are very young and so far still pretty small, but this is what a larger divergence builds on.

 ES intraday 1 min positive in to lower prices

QQQ 1 min positive in to lower prices

IWM 1 min positive in to lower prices

SPY 1 min positive in to lower prices

The VXX / UVXY trade opposite the market so the first relative negative divergence in to higher prices is confirmation.

Ultimately I'd say we have a lot more to go in terms of downside and scaring traders out of positions, the reversal process because very rarely do we see "V" reversals and much stronger positive divergences, but this does appear to be a start.

January Overview, Market , AAPL and GLD Update

January 2014 has been the worst month for the market since May 2012 with the SPX finishing down-3.56%, the Dow-30 a whopping -5.28%, the NASDAQ Composite -1.74% and the Russell 2000 -2.82%.

Emerging Markets finished January down (via IShares MSCI Emerging Markets ETF) -8.61% (thus all the EM central bank action recently.

While TLT (the 20+ year Bond fund which we have been watching as a potential long for the better part of a year, finished up +8.61%.

I told you that so I could show you these charts which may give us some downside head fake targets.

 SPX daily. The consolidation of last week has been around the longer term trendline, while the shorter term trend line presents a very volatile, but possible head fake target.

RSI just shows the deterioration in January.

The same more or less can be said for the Dow's short term trend line, although the long term is broken.

The Composite has been consolidating along the long term trendline, I think the short term is a bit too far of a stretch for a head fake move.

The R2K is interesting as it has been consolidating along the short term trendline.

What is interesting is last week's very heavy volatility above and below the trendline.

Here are Emerging Markets, the high recent volume appears to be a short term bottom.

And here's TLT with a double bottom, I knew there was something going on here and note the head fake move at the second bottom before the launch higher.

 Here's the AAPL P/L from the March $500 calls opened 1/30

As for AAPL, it looks pretty god with early 3C confirmation, but I just don't see high probabilities of it making much more head way with the market making its move lower, which we expected for today, we also expect it to be a head fake move, but we'll need to wait for the data proving or disproving that to develop.

So far this is the SPY making its move below last week's range for the first time with the start of a small positive divegrence, this is a good sign, but not nearly large enough yet to call it a head fake, but that's a matter of time, I wouldn't expect it this quickly.

 The Q's this morning have not made it to the bottom of the range yet.

The IWM did and so far looks ok.

GLD which I entered Friday (March 120 Calls) I will leave open, it's already at a profit, remember it trades opposite the market so when I start seeing market divergences going positive and a rounding reversal process, I'll close the GLD calls for a gain and look at new positions to open, but this all still depends on a head fake move being successful and it's way too early to tell yet.

Taking Gains on AAPL March $500 calls

Until the rest of the market can resolve a head fake move or an upside move, I don't see much more upside for AAPL calls immediately, so I'll likely return to them later.

A.M. Update

Good morning....

We are on that slippery slope, but any potential head fake move also has the same potential to fail if it is not supported, that's the thing about changing probabilities when most assets are on the right side of the top like the Carry pairs.

Overnight on a slew of bad Chinese manufacturing and Service PMI data the USD/JPY slid and broke support at $102, although Index Futures got some kind of support from what I can only guess is the PPT, we saw the same thing last week. This will be the key to everything near term. Asia didn't do well with the Chinese data out, NKD down 2%.

 This is a 5 min chart of the USD/JPY (candlesticks) vs. ES (purple line), note the break of USD/JPY under 102 this morning, but ES failed to follow it to the lower low, someone seems to be supporting Index futures.

Here's proof of it with a 1 min 3C chart of ES, positive divegrence where USD/JPY broke.

The same on the 1 min TF chart

And the NQ chart

Right now with Yen strength on the 1 min, USD/JPY downside still has the edge, the Yen 5 min chart though is still negative suggesting a move higher is still in the works for Index futures.

The $USDX 1 min went negative and then positive overnight , chopping price about, so this will be important to see how it resolves.

Right now the Yen and $USD are locked in a short term battle which may be different central bank factions throwing support out to their various interests.

$USDX 5 min still has that slight negative suggesting Index futures will break below the range, that's just the first step though and it isn't necessary, but it is probable as we see it 80% of the time before a reversal (to the upside in this case).

So we'll continue to watch the currencies dance, USD/JPY $102 is the important level, if the Index futures are eventually going to break out (with or without a head fake move) $USD/JPY $102 will have to be recaptured.