GDX / NUGT Update

As you probably know by now as I have been doing daily or bi-daily GDX/NUGT updates, NUGT is a partial position (long) in the trading portfolio, it is a position I desperately want to add to, but there have been certain things that I have expected to see since late April that included a move out of a trading range and below it where GDX/NUGT (Gold Miners) would be accumulated as part of a much larger price pattern. 

I have been very patient with the process of letting it do what has been expected since April, amazingly it has been doing exactly what was expected, but we've had to let it do it at its own pace and just keep watch over the charts and let them tell us where we are in that process, BUT I'M FAR MORE COMFORTABLE WITH THE IDEA OF ADDING TO THE NUGT LONG AND BRINGING IT UP TO FULL SIZE. 

*I'm not 100% ready to make the commitment, but I'm 90% sure that I will be making it very soon and the past week or so has shown dramatic improvement in the process unfolding.

 I have assumed that GDX/NUGT are in the late stages of a much larger base, one that looks like an Inverse Head and Shoulders bottom.

Whether this is a true H&S bottom or not, I don't know. Volume confirmation of a H&S top is essential to identifying a real top vs. a random price pattern that looks like a H&S top. I know that technical traders gave up long ago on volume confirmation of price patterns like H&S tops as I recall one forming in the SPX/Market in 2010, many traders assumed it was a H&S top and a rather large one and had gone short the price pattern, but we were never able to confirm the volume pattern that is an essential part of identifying a real pattern from a random pattern and the result was this....

If you can imagine what this price pattern looked like with the right shoulder at the far right edge of the chart, with no knowledge of what came next, it looked VERY much like a H&S top, but the volume confirmation was never there, thus this 8 month old top-looking pattern went on to take a lot of shorts out and rightfully so because they ignored the volume confirmation which is the psychological confirmation of the price pattern, these are not price patterns that just generate, there are psychological and emotional reasons and the volume associated with the price movement is EVERY BIT AS IMPORTANT AS THE PRICE PATTERN ITSELF.

*VOLUME CONFIRMATION OF AN INVERSE H&S BOTTOM IS EVEN MORE ESSENTIAL THAN CONFIRMATION OF A TOP AS WELL AS THE RULES ABOUT PRECEDING TRENDS.

The point is, I cannot confirm this as an Inverse H&S bottom by volume confirmation, however, whatever the pattern is, there are 3C signals in the right places whether a true Inverse H&S bottom or not.

Looking at a 69 min chart of GDX, you can see the actual price pattern is quite large as we are only looking at the right side of the head and the right shoulder in what "would" be a "complex Inverse H&S bottom", meaning more than one shoulder as they "tend" to be symmetrical.

At #1 we have a head fake or stop run below the established range. According to our concepts relating to Wall St. using technical analysis against technical traders because they are so predictable...

*The articles about our Head Fake concepts can be found here:

* Understanding the Head-Fake Move Part 1

* Understanding the Head-Fake Move Part 2

The stop run at #1 creates a momentum move or reversal based on a bear trap via short squeeze that sends price ABOVE the range in another head fake move at #2 which ends up being a "False Breakout" or a failed breakout which traders chase on the upside. When price fails and falls back into the range, a bull trap is created and the associated selling of long positions at a loss sends price quickly down to #3, where we "seem" to be putting in multiple right shoulders similar to the left side even though volume doesn't confirm the pattern, HOWEVER WHATEVER IT IS, 3C CONFIRMS IT.

Eventually we should see the reversal process completed at #3 which also means that the 10 and 15 minute charts that told us in April to expect a failed breakout, a move below the range and accumulation below the range, should repair the 10 and 15 minute charts and we expected all of this before and as we got a  breakout at #2.

As price moves above the range at #4, we once again create a short squeeze generating upside momentum as well as a breakout that longs will chase, between the two that should absorb a lot of supply and force prices higher just as a supply/demand dynamic.

The momentum from #4 should be enough to send us up and through the neckline at #5. "If" this is a true Inverse H&S bottom, volume MUST increase at the move up from here. Since 3C is confirming the basing process, the only reason confirmation of an Inverse H&S would have any value is to give us a minimum upside target.

 This is the 1 min chart of GDX (trend), what I like here is not only the movement of 3C with price on the upside at the green arrow (confirmation), but the positive divegrence as price moves lower and 3C moves higher. Also the reversal (rounding) process is becoming VERY clear, before it was a choppier price trend without any clear reversal process.

 The 5 min GDX chart shows specifically the areas in which there has been accumulation and note that they are all at the lower end of the price range.

IT has been the 10 and 15 minute charts though that were the only ones between GDX, NUGT and DUST that gave us true confirmation and this is what they told us...

 GDX 10 min , despite the accumulation of the lows, it told us that the breakout above the range would not only fail, but would create the downside momentum to pierce the bottom of the range, an area where smart money is willing to accumulate. Since that's where they'd accumulate, that's also where I expected the 10 and 15 min charts to be repaired as it is very unlikely we get any sustainable move to the upside or true breakout without those important timeframes on board.

As you can see, there has been real improvement of the 10 min chart and while there has been a nice reversal process.

 NUGT 10 min told us the same thing, this is the confirmation between GDX, NUGT and DUST that only existed on those two timeframes at the time.

Again, you can see real improvement as before we had hints of improvement, but nothing as solid as what we have now.

 GDX 15 min shows the same expectations of a false breakout, the failure that would send price below the range and the improvement of the chart once below the range, a place where smart money has been accumulating.

 Whether a true IH&S pattern or not, the 60 min 3C chart gives good confirmation at the head, neck and right shoulder areas.

DUST was also confirming and continues to do so as it is the opposite of NUGT so the leading 10 min divergence is confirmation.

As I said, I'm much more comfortable adding to the NUGT position, usually we'd get a head fake move in the reversal process that is evident on the 10-15m minute charts, that's where the best pricing would be for a new or add to position and the probability of that happening is usually around 80+%.

Otherwise, I don't feel like we are very far from the absolute bottom before a move higher, if I didn't have any position in NUGT long here and planned on one, I would have no problem opening a partial or half size position in this area. Otherwise I think the intraday charts will give us good guidance on the best place and timing, but I'm very close to adding the remainder of the position.

TLT / TBT (trade) Update

There's been quite a bit of interest in TLT trades, both short and longer term, since TLT is looking good for a short term trade (short) right in this area (I know some of you have been waiting all week for a TLT short or TBT long which is a current trading position long which is down about 3% since opened, but for a 2x leveraged ETF, I'm not concerned at all about it) I thought this was a good time to update the charts.

 This is a 5-day chart of TLT (20+ year Treasury Bond Fund). You can see what looks like a H&S top , a stage 4 decline, which only declined about half of the measured move if you draw the neckline perfectly horizontal, but there are many different sloping necklines for a H&S and if you draw the neck line from the left reaction low to the higher right reaction low, the decline is actually exactly at the measured move target. In any case, TLT seems to have built a base in the area of $102 which is the measured move target of a H&S that's drawn like this which is probably the correct way to draw the neckline.

sloping neckline...

 This would be the base TLT formed , a double bottom which looks like a large "W" and then it has a breakout which has stayed in a near perfect channel.

This is the breakout and channel. If you recall last week I put out a post on candlesticks and volume and the lost art of reading volume. You may recall that reversal candlestick patterns or specific candles with larger volume than the preceding day are often about two times more likely to be effective.

At the orange arrow above price we have an Evening Star (bearish reversal candlestick) and it is on large volume (see orange arrow above volume), which often denotes "churning" or the handing off of shares from strong hands to weak hands. 

Today (red arrow above price) "looks" like it may form a bearish confirmation or "engulfing" type of candle, it would be interesting if volume were to rise above Friday's as that would make the confirmation candle (today) a much more probable bearish reversal to the downside for TLT, thus the TLT short or TBT (UltraShort 20 year Treasury Bond Fund), the opposite of TLT with 2x leverage, which is a current open long trading position.

As for 3C...

 This is the daily 3C chart for TLT, you can see a negative in the region of the H&S top and a positive in the area of the double bottom on the $102 area, which is where I'd like to look at buying TLT for a longer term trending position so long as the charts hold up.

The current daily divergence is a weaker relative negative suggesting a pullback, but not the destruction of the larger positive divegrence.

Here's a closer look at the daily TLT chart. I expect TLT to fall out of the channel and as it does so, volume and momentum should pick up as support of the channel is broken.

 This is the (still VERY strong) 4 hour TLT chart, also showing a positive leading divergence at the double bottom area and a relative negative divegrence currently, again suggesting a move back down toward the $102 area.

 The 15 min chart has an even sharper leading negative TLT divegrence, thus it looks like it's ready for a move on a trading basis, either short TLT or long TBT (UltraShort of TLT).

 Intraday the 5 min chart has gone negative, but you can probably see part of the reason why I was saying to hold off on a TLT short last week.

On an intraday basis working toward the 5-15 min charts., this intraday 1 min is leading negative, again you can see why I was saying, "I'd wait" last week for a TLT short or TBT long, but now it is clearly deteriorating and the shorter timing charts are falling in to line.

 The 3 min chart also going negative for a downside move.

And again the 5 min chart.

The only chart I'm still looking for a turn around in is the 2 min chart, however, if the SPY/Market does indeed pull back and create a "W" base (Friday and today), then this 2 min chart looks right and should see TLT offer up a short entry around the $114+ area, a better entry and less risk.

 2 min chart.

This was the SPY capture at the time I captured these charts just before the last post today, Quick Market Update.

Here's the SPY now...

 The SPY intraday divergence (negative) is deeper and as you see price is moving lower, which means TLT is moving higher, closer to that $114-ish area that I think will provide an interesting TLT short entry or...

A TBT long new position or add-to around the price of $60.50 or so, which would give a better entry, less risk and still a very strong positive divegrence such as this 5 min leading positive.

I don't know if we'll make it all the way to TLT $114+, but I'd set some price alerts, a move above $114.25 and I'd be considering a TLT Put position if you want a little extra leverage or of course the 2x leveraged TBT would work if you prefer not to trade options.

Quick Market Update

I've been watching for the market to come down intraday as the charts suggested on Friday at the end of the day as well as intraday today, they look pretty darn close right now to a downside reversal intraday. All of the averages have negative intraday divergences from 1-3 mins and the 5 min charts are still holding up and positive so it looks like some of the assumptions from late Friday afternoon about action early this week are still on track.

Market Update and Some Probabilities

EOD Market Update

On the Index Futures, NQ and TF have intraday negatives, but ES has a sharp leading negative divegrence...

ES 1 min intraday (where you see the volume pick up is the 9:30 a.m. open.

The only thing that's a little difficult on intraday timing is the Yen looks like it wants to come down which should support the USD/JPY, but I'm leaning toward that being a quick move and if anything, perhaps the averages just linger in the area for a bit longer before heading lower, I don't think the USD/JPY is ready to make a real move to the upside just yet.

I'll have a TLT/ TBT post out in just a few minutes.

FXI June $36 Put Trade Update

As the signals pointed to Friday, FXI JUNE $36 PUT UPDATE, FXI did come back down today and thus the put position is back in the green and I think I'll continue to hold that one open.

With the latest Chinese housing data just out and the housing market slowing down significantly, as well as the probability of more corporate/bond defaults (and banking issues), FXI short (puts) seem poised to continue to gain in the near term (FXP is an UltraShort ETF that can be used as a way to short FXI with 2x leverage if you don't care for options, but that position was best opened Friday when this update was posted, FXI JUNE $36 PUT UPDATE).

Here's what we have now...

 This is the intraday chart, leading negative Friday, suggesting today's gap down.

However I do expect more...

 The 2 min leading negative

3 min leading negative

5 min is leading negative and getting worse. This is about where I saw the end of the duration of the trade, at the 5 min chart, however, recently...

That last move on Friday which was a false breakout (head fake) looks like the 15 min chart is going negative as well, so there may be even more downside here than initially thought, thus FXP may not be a bad play at all if we get a little bounce to lower risk on the entry.

For now, I'm just leaving this one open and will be looking for the longer term play in FXP.

Opening Indications

We are losing the opening momentum off the gap fill from the opening gap down and should be heading down as expected late Friday.

The Q's are a pretty good map...

 Intraday 1 min losing momentum and should be turning back down soon ...

This is the 2 min negative from Friday suggesting this would be the case early today...

And the 3 min building an early positive that is dominant (from Friday) and a late negative that is more minor, but still suggested early weakness and maybe forming that second bottom or a "W" like pattern (Friday and today being the bottoms) before a move above Friday's flag, this will depend on whether a pullback intraday is accumulated, but I suspect from Friday's stronger 5 min chart that it will.

 This is the 5 min chart's leading positive divegrence suggesting a "W" pattern forms today, unless we don't get accumulation on the intraday pullback, if that's the case this 5 min should deteriorate, but I doubt it.

This is the intraday NYSE (Custom ) TICK Indicator showing intraday market breadth falling off late Friday and this morning.

If there's one average that may be worth a hitch-hiking trade on the upside, that would be the DIA, it is looking the best by far...

DIA 5 min from negative last week sending prices lower to positive Friday and a nice flat range.

First lets see if a pullback accumulates, then we can look at whether this is worth a quick trade, maybe even an options trade if a pullback causes the DIA to break under Friday's support, that would set up a nice call buying opportunity for a very short term long trade. Or you could use UDOW (3x leveraged long DIA/DOW ETF)

A.M. Update

Friday we left off with some negative intraday divergences suggesting some downside early Monday morning, perhaps the first part of a Crazy Ivan shakeout below Friday's bear flag that formed in the averages before making a break higher (also possibly creating a larger base than what we have now by forming a "W" type base).

 EOD Market Update.

" the formation of the bear flag continues, yes the market is advancing, but that's what a bear flag is, a consolidation that moves in the opposite direction of the preceding trend which was down coming in to the flag.

The 3C charts still suggest very strongly that we see a head fake breakout of the flag to the upside and while we haven't seen the head fake below as of yet, there are still good signals to suggest that probability as well, I assume it would be very early next week, however this is a smaller probability than the upside move."
Also see... Market Update and Some Probabilities from the EOD Friday.

The USD/JPY seems to be helping in the divergences seen (negative) in the shorter intraday timeframes late Friday as the carry pair broke below long term support as well as the 200-day moving average this morning at $101.23...

 USD/JPY drops on $USD weakness and Yen strength overnight and through the a.m. hours as it breaks and tests the 200-day (failed tests) at $101.23. However...

 There's a positive divergence in the 1 min USD/JPY and the Yen itself has a negative divergence on the 1 min suggesting the pair try to break above the 200-day moving average.

As the 3C signals suggested late Friday in intraday timeframes (1-3 mins ) which were negative, we are seeing early weakness as expected Friday afternoon for the start of the new week, at least early on.

TF/Russell 2000 futures fall in overnight/early a.m. trade (as well as the other Index futures on a clear negative divergence), but have the same early positive as USD/JPY.

Only the Yen is showing a 1 min negative divegrence, the $USD is in line, NOT positive, so it's not the strongest divergence for USD/JPY to gain,


In China spot Iron Ore prices have fallen to 18 month lows, this is the same commodity price action seen a couple of months ago when companies were defaulting on debt as the banks called loans that were backed by commodities, thus the commodity (iron ore) selling to meet the cash calls (thus the low prices). There's more evidence of banking troubles as China enacted new domestic banking regulations aimed at curbing growth in their shadow banking system.

The Shanghai Comp is down with Financials leading the way.

Other banking weakness is felt in Europe with Deutsche bank raising massive capital, something I have long suspected and addressed Friday when talking about what banks are doing with POMO profits as they certainly aren't putting them in the market as evidenced by the weakness in the last two POMO Tuesdays. Speaking of which, there's a $1.5-$2bn POMO on deck for today in short term notes, we'll see if that has any effect, but I suspect banks are raising capital and not putting it at risk as evidenced by April's month end window dressing and the F_E_D's massive 1-day fixed rate reverse repo at the second largest ever , well above $200 bn as banks dress windows for month end to throw off investors and regulators by making their capital position look stronger than it is by borrowing from the F_E_D for a day, the last day of April when they close out their books.

Other evidence includes a Bank of America survey published last week in which  Global Money Managers are at the HIGHEST CASH POSITION IN TWO YEARS! The survey also said that America was the worst place to invest according to global money managers.

There's not much tier 1 data on deck today, but the F_E_D's Fisher and Williams speak in Dallas at 12:10 p.m. with Bernanke speaking in Dallas at 12:50 p.m. and as mentioned, the $1.5-$2 bn 11 a.m. POMO today.

TF and NQ intraday have small positive divergences as seen above in TF and ES is inline. The Yen looks ready to fall in early action, but the $USD remains weak looking, yet there is a positive divegrence in USD/JPY on intraday 1 min charts.

Momentum Stocks

Last night's post Dow Closes Red for 2014, SPX Makes it Back to VWAP had a Breadth chart, it's a Worden T2 series chart which uses the NYSE stocks to gauge breadth. I love breadth charts because they don't lie, there's no interpretation (except forward looking), they give you the facts as they are.

This chart's ticker is T2112 and this is what it looked like as of last night....

There are 3 categories in this form of breadth chart that Worden tracks with their T2 indicators as that's what this is, a breadth indicator; they are the #1) Percentage of All NYSE stocks trading above their 40-day moving average #2) Percentage of All NYSE stocks trading One Standard Deviation above their 40-day moving average and #3) Percentage of All NYSE stocks trading Two Standard Deviations above their 40-day moving average.

The last one, #3 are typically momentum stocks like PCLN, NFLX, TSLA, etc. These stocks are the ones featured in the chart above, they were trading at 30% in March, that's down from their typical 42% and as of last night, there were only 10% trading 2 SD's above their 40-day moving average, what this tells us is that momentum stocks have taken it on the chin very hard over the last two months.

It's only natural that these stocks are the ones to lead a bounce, the kind we are looking at in today's data as posted earlier, EOD Market Update.

So, if we are to look at any hitch-hiking longs, the obvious place to look would be among momentum stocks that have been beaten down. I may post some more, but taking a look around at some of the usual suspects, I have found some 3C signals that are outperforming the broad market averages, thus rather than trade something like SPY long on a hitch-hicking long, I may prefer a momentum stock.

Here are a few examples and if we get a decent pullback that looks like a high probability, low risk entry, then these might be some of our best options.

 AMZN has been on my radar, I've been watching it the last several days and I'm starting to like what I see for a short duration long trade that follows a market bounce as it seems we are setting up for, likely with USD/JPY leading the way once again and taking what would likely be a last shot at $102. This 15 min chart of AMZN with a positive divegrence shows much better relative underlying strength than the broad market which are largely at 5 min positive divergences.

AMZN's intraday chart looks similar to the 3 min charts of the market averages posted in the  EOD Market Update , suggesting a near term pullback that can serve two purposes, 1) allow us a better entry at lower risk and 2) allow final confirmation that a pullback was accumulated as this would give us very high probabilities that we are very near the bounce I have been talking about.

Since the market has the most directional influence on any given stock (about 2/3rds of a stock's direction is determined by the overall direction of the market) followed second by Industry group performance, a pullback in the market would most likely cause a pullback in any of the following equities, giving us some good choices.


FB has a nice looking 15 min chart that is out-performing the broad market's underlying (3C) trends.

FB 3 min, is not even really in much need of a pullback so this would be on the list, as any pullback would just make the position more favorable.

 PCLN 5 min probably wouldn't be my first choice, but I wanted to show it as it is among the group of momentum stocks.

SCTY I looked at pretty closely today and it too would be a candidate.

I'll likely go through my momo watchlist and pull some other names out that may be interesting,  however don't forget that these are for short duration, "Hitch-hiking" (meaning to follow the market or draft it) trades.

EOD Market Update

I have a little time this weekend, likely tomorrow in which I'll post a more complete analysis of the market with breadth readings and such that I can't get until after the close. However as of now, the formation of the bear flag continues, yes the market is advancing, but that's what a bear flag is, a consolidation that moves in the opposite direction of the preceding trend which was down coming in to the flag.

The 3C charts still suggest very strongly that we see a head fake breakout of the flag to the upside and while we haven't seen the head fake below as of yet, there are still good signals to suggest that probability as well, I assume it would be very early next week, however this is a smaller probability than the upside move.

The only reason this would really matter is if there were signals strong enough to warrant a hitch-hiking trade (long market) for the head fake move and then switch to shorting in to price strength.

Here are some examples...

 SPY 3 min still has a relative negative divegrence suggesting a break below the bear flag in the VERY near term , unless 3C goes on to make a higher high which it hasn't here or in any other 3 min average.

 QQQ 3 min is the same as the SPY, this is good as confirmation, however the larger move that "Should" follow (assuming we do get a Crazy Ivan shakeout with a break below the flag first) is the larger breakout above the flag which is not expected by the rules and precepts of Technical Analysis, thus it is a head fake move.

The 5 min charts are higher probability, but also would be the second move with the earlier charts representing the first.

5 min QQQ definitely has strength enough for an upside breakout, if we did get the head fake below the flag that formed a bear trap and a "W" base, this chart would only get stronger and "may" make it worthwhile to open a hitch-hiking, long trade.

IWM 3 min also confirms as does...

The IWM 5 min

As far as the FX aspect goes, the $USD still hasn't done much...

 However the intraday USD/JPY does suggest a move lower in to the close by both the USD/JPY and the market averages, or perhaps very early Monday, but I doubt this chart would hold water as a 1 min Futures chart as it would have to go through Sunday night, Monday morning and in to the open, very unlikely.

However,

The negative divegrence on the 5 min Yen is still not fulfilled and it looks like 3C is getting uglier. If the Yen comes down, as long as the $USD can at least hold in position or gain, the USD/JPY moves up and take Index futures with it, THIS WOULD BE CONFIRMATION OF OUR 5 MIN CHARTS WITH POSITIVE DIVERGENCES.

That's what I see going in to the close, if anything pops up in the next 10 mins or so, I'll let you know, but that's where probabilities rest as of now, a pop above the bear flag formation which is useful to short in to and perhaps a Crazy Ivan which may open a second trade, a short duration long hitch-hiking trade to ride the head fake move above the flag, but we'd want that pullback or break below the flag to reduce risk and make it worthwhile.