7 years ago
Wednesday, April 15, 2015
Trade Idea: Adding USO Short/Puts
As posted per the USO / GLD Follow Up update today, I will be adding USO puts to the tracking portfolio, except not the same as yesterday's TRADE IDEA: USO SHORT (PUTS) May 15 $19 strike (PUTS), these will still be May 15th PUTS, but in the money at $20 strike, but treated as 1 position for risk management purposes.
USO 1 min intraday
USO / GLD Follow Up
As a follow up to yesterday's TRADE IDEA: USO SHORT (PUTS) USO post, for the moment, I'm not changing anything , although if I feel the charts are supporting a change of view, I'll certainly post it.
Just as we closed GLD Puts temporarily yesterday, Closing down the GLD May $115 Putt Temporarily, in expecting a near term/short term bounce/noise which would allow us to keep the gains and re-enter the position, I believe the USO charts still support the position yesterday, although I do believe Oil is in the midst of forming a longer term trend/primary reversal to the upside.
GLD is up today nearly +.75%, which would have cut in to the GLD puts opened Friday and their 30% gain (on May monthlies in the money $115).
The longer term GLD swing signals on a 15 min chart went from positive to negative which was the reason for the GLD puts (at red square) opened Friday.
However the near term 2 min chart, among others showed us a very short term/near term bounce that would otherwise be considered noise if the position weren't so leveraged, thus it seemed best to close it for the moment and then re-open it after the implied upside move from yesterday's positive divegrence on short term intraday charts, played out.
As you can see, today we have a +.75% move that is confirmed on a 2 min chart, which would have likely put the GLD put position at a loss or at least a significant loss of the +30% gains for little over a day of market exposure.
Likewise, the USO put position yesterday was based on the charts, although I do believe USO / oil generally has built a primary trend base that will support a broad move higher in a likely intermediate or primary Dow trend classification, a significant reversal of price to the upside far beyond the bouncing we have seen in USO that is still within the base area.
USO base area not only looking good for a longer term trend position (long), but with solid longer term 3C signals as well.
Short term, I expect a pullback in crude, which is many ways is very similar to GLD's multiple timeframe analysis as well including a likely longer term base in place for a trend change to the upside, although not as clear and clean looking as crude's.
As for yesterday's trade idea, I'm not ready to walk away from it yet, which is why I prefer more time than I think I'll need on the Put expiration (May monthlies).
Last night the API crude inventories came in below consensus, but the important one is the D.O.E's Wednesday 10:30 inventories which were out this morning with a beat, although now at 14 consecutive weeks of builds and 18 weeks of builds at Cushing, the longest in Crude's history, the actual build of 1.3 mn barrels was below consensus (just as API's was last night) of 3.5 mn barrel build.
However, also as part of the A.M. Update, the EIA's monthly report (not the same as the weekly inventories) sees Saudi Arabia increasing production/supply over the following month. The inventories explain some of the knee jerk reaction in prices, but they have little to do with the actual trade idea.
As for USO,
This is USO's intraday 1 min chart, a short term chart which is appropriate as Option trade=s for me are usually shorter term in nature, I like to try to capture the initial momentum and then get our before the first serious consolidation as you can always re-enter without the drawdown on options which is significant due to the leverage.
The 1 min chart was leading negative yesterday as the initial USO minimum target area of the gap was filled.
Today the chart is leading negative as well suggesting distribution in to the knee jerk reaction to the upside on the lower than expected API and EIA crude inventory builds. Still Cushing is 90% full, we still have a record 14 weeks of builds and we still have the EIA's report that the Saudis will increase production over the next month.
Intraday the 5 min chart is at a relative negative divegrence.
And most significant as USO has seen a number of week's in which the price and 3C trend were in line (green arrow areas), the opportunities are at the pivots at the divergences of which there have only been 3 significant ones on this chart for the year, the strongest is right now, 60 min leading negative divegrence as I suspect more work is to be done on the base area, perhaps even a head fake stop run below the March 18th, $15.61 lows, which on their own were a head fake move, breaking support at the $16.30 level before ramping approx. +25% higher since the stop-run/head fake of March 18th.
I probably don't have to say it, but with our market expectations of finishing up the last week+'s move to the upside in a reversal process, a dip lower in oil/Energy overall would be an interesting timing event as Energy is a large sector consisting of much more than just Energy/oil prices, but everything from exploring, drilling, transportation, storage, etc. are all part of the Energy sector which has given the market some upside assistance, a drop in crude and the overall energy sector around this area would be significant to our "What comes next" downside move as the reversal process finishes up in the broad market.
Crude Futures (Brent).
/CL 10 min, ner term leading negative divergence.
/CL 7 min leading negative divegrence.
/CL 5 min relative negative divegrence after the upside move since last night's API data, finally going in to a negative (relative) divergence.
I'd prefer to see this 5 min chart leading negative before adding to a USO put/short position, but I think the longer term 7 and 10 min charts are the higher probability unless they fail which they haven't thus far.
Just as we closed GLD Puts temporarily yesterday, Closing down the GLD May $115 Putt Temporarily, in expecting a near term/short term bounce/noise which would allow us to keep the gains and re-enter the position, I believe the USO charts still support the position yesterday, although I do believe Oil is in the midst of forming a longer term trend/primary reversal to the upside.
GLD is up today nearly +.75%, which would have cut in to the GLD puts opened Friday and their 30% gain (on May monthlies in the money $115).
As you can see, today we have a +.75% move that is confirmed on a 2 min chart, which would have likely put the GLD put position at a loss or at least a significant loss of the +30% gains for little over a day of market exposure.
Likewise, the USO put position yesterday was based on the charts, although I do believe USO / oil generally has built a primary trend base that will support a broad move higher in a likely intermediate or primary Dow trend classification, a significant reversal of price to the upside far beyond the bouncing we have seen in USO that is still within the base area.
Short term, I expect a pullback in crude, which is many ways is very similar to GLD's multiple timeframe analysis as well including a likely longer term base in place for a trend change to the upside, although not as clear and clean looking as crude's.
As for yesterday's trade idea, I'm not ready to walk away from it yet, which is why I prefer more time than I think I'll need on the Put expiration (May monthlies).
Last night the API crude inventories came in below consensus, but the important one is the D.O.E's Wednesday 10:30 inventories which were out this morning with a beat, although now at 14 consecutive weeks of builds and 18 weeks of builds at Cushing, the longest in Crude's history, the actual build of 1.3 mn barrels was below consensus (just as API's was last night) of 3.5 mn barrel build.
However, also as part of the A.M. Update, the EIA's monthly report (not the same as the weekly inventories) sees Saudi Arabia increasing production/supply over the following month. The inventories explain some of the knee jerk reaction in prices, but they have little to do with the actual trade idea.
As for USO,
The 1 min chart was leading negative yesterday as the initial USO minimum target area of the gap was filled.
Today the chart is leading negative as well suggesting distribution in to the knee jerk reaction to the upside on the lower than expected API and EIA crude inventory builds. Still Cushing is 90% full, we still have a record 14 weeks of builds and we still have the EIA's report that the Saudis will increase production over the next month.
I probably don't have to say it, but with our market expectations of finishing up the last week+'s move to the upside in a reversal process, a dip lower in oil/Energy overall would be an interesting timing event as Energy is a large sector consisting of much more than just Energy/oil prices, but everything from exploring, drilling, transportation, storage, etc. are all part of the Energy sector which has given the market some upside assistance, a drop in crude and the overall energy sector around this area would be significant to our "What comes next" downside move as the reversal process finishes up in the broad market.
Crude Futures (Brent).
I'd prefer to see this 5 min chart leading negative before adding to a USO put/short position, but I think the longer term 7 and 10 min charts are the higher probability unless they fail which they haven't thus far.
AAPL Finally Looks To be Making a Move
AAPL is on the watchlist for a trade set-up, while I'd prefer to short AAPL in to strength, it has lagged over the last week and a half.
It looks like that lagging is about to end and it will finally make a move that can be used to set up a decent trade.
This is not my favorite long trade, but I suppose if you have the risk tolerance for it, there's some upside to be had.
As was originally posted on April 2nd about triangle's like AAPL's on the daily chart, "They are the promise of a highly directional move", but AAPL since has been hardly anything close to "highly" directional, while the rest of the market has made the anticipated move over the last week and a half, it has been somewhat half-heartedly, which I've speculated may simply be because there's not enough institutional support left. You may remember the chart showing each move progressively getting weaker and pinching in to a tighter and tighter range that has caused short term traders a lot of trouble.
In AAPL's case any way, this 5 min chart with a leading positive divgerence looks like AAPL is finally going to deliver. There has simply been nothing to short in to with AAPL over the past week and a half, perhaps now.
It looks like that lagging is about to end and it will finally make a move that can be used to set up a decent trade.
This is not my favorite long trade, but I suppose if you have the risk tolerance for it, there's some upside to be had.
Quick Intraday Market Update
The upside expectations for today posted yesterday, which should become a part of the reversal process, although it's rarely evident until it has already occurred, looks like intraday has reached its peak and we should be seeing some intraday downside, although I'd imagine a green close still.
USO also looks like it has hit an intraday high and I'm seriously considering a small add-to Put position in addition to yesterday's as long as it doesn't violate risk management position size rules.
USO also looks like it has hit an intraday high and I'm seriously considering a small add-to Put position in addition to yesterday's as long as it doesn't violate risk management position size rules.
Sticking With USO Put For Now
I'll be sticking with yesterday's TRADE IDEA: USO SHORT (PUTS) idea for now, I have an update that's nearly ready to post, I just have to add some oil (Brent) futures charts. Also GLD will be in the update as we closed the GLD put temporarily yesterday anticipating an upside move which we have today.
SPY Update-DAX flash crash-Futures
DAX futures saw some interesting downside volatility just a bit ago, this is a bit annoying as the A.M. Update dealt with Germany specifically, German Bunds and the overall contradiction or as I explained it earlier in reference to the A.M. Update, the land of 1+1=3 and how that won't fly for long.
I can't sum up the A.M. Update, but suffice it to say, as of when I started writing it, the ECB who left rates unchanged today is only a few weeks in to their QE program as German Bunds are a mere 14 bps away from a negative yield while the periphery sees yields jump, like Greece who saw the largest pop in yields this morning in over 2 years as the default prospects loom large. This has many aspects, not the least of which is what this means to the ECB's QE program with German Bunds 14 basis points away from a negative yield as the PIIGGS (generally speaking) are seeing yields sore due to sovereign risk.
In any case, I'll get to that, I just wish I had it out before this post, before the DAX's near flash crash this morning and what's happening in the overall market and the 3 main areas I've been monitoring for signals, the last holdout of one of the main areas were the signals on 15 min charts which have all gone from positive on April 2nd to negative and this was the specific timeframe or line in the sand that I'm watching.
As mentioned last night/yesterday, the 1 min charts of the averages looked like they'd see upside today as well as the closing hammers in the major averages yesterday (short term support) in the area we'd expect to see a reversal process anyway.
1 min charts like IWM are in line with last night's assessment of the averages with nothing, no support after 1 min charts such as IWM 2 min below... the implication being the reversal process needs to essentially turn laterally, although I didn't want to rule out some minor upside gains such as the IWM so far today, but the overall weakness just behind those very short term 1 min charts as Leading Indicators show the same thing, posted clearly in last night's Wrap.
IWM 2 min not even close to confirmation and leading negative and it just keeps going like that or worse in to longer timeframes.
As mentioned, this is across all of the averages...
SPY 2 min for example.
However for my larger pin-point the pivot purposes, the SPY 15 min chart HAS to turn negative.
As such, this morning's signals and early this afternoon thus far...
Show SPY 15 min in line as it should have been since the April 2nd triangle /breakout forecast, however today the chart is for the first time since the April 2nd forecast in position to start a leading negative divergence as it is not confirming.
If you caught the gist of last night's Daily Wrap, it was that leading indicators very short term (as in a day or less) were in line with the closing Hammers in the averages and the 1 min charts suggesting some strength today, while the larger price pattern should form a range/reversal process over the next day or so with op-ex this Friday, BUT THE LARGER SIGNALS THAT MEANT THE MOST TO PINPOINTING THE PIVOT/REVERSAL HAVE ALL DETERIORATED AS WE WERE EXPECTING.
Now it seems the long awaited SPY 15 min chart may be about to join them as it sits in a negative divergence at the moment. I'll be more comfortable calling it when it is leading negative, which may not be far away.
I can't sum up the A.M. Update, but suffice it to say, as of when I started writing it, the ECB who left rates unchanged today is only a few weeks in to their QE program as German Bunds are a mere 14 bps away from a negative yield while the periphery sees yields jump, like Greece who saw the largest pop in yields this morning in over 2 years as the default prospects loom large. This has many aspects, not the least of which is what this means to the ECB's QE program with German Bunds 14 basis points away from a negative yield as the PIIGGS (generally speaking) are seeing yields sore due to sovereign risk.
In any case, I'll get to that, I just wish I had it out before this post, before the DAX's near flash crash this morning and what's happening in the overall market and the 3 main areas I've been monitoring for signals, the last holdout of one of the main areas were the signals on 15 min charts which have all gone from positive on April 2nd to negative and this was the specific timeframe or line in the sand that I'm watching.
As mentioned last night/yesterday, the 1 min charts of the averages looked like they'd see upside today as well as the closing hammers in the major averages yesterday (short term support) in the area we'd expect to see a reversal process anyway.
As mentioned, this is across all of the averages...
However for my larger pin-point the pivot purposes, the SPY 15 min chart HAS to turn negative.
As such, this morning's signals and early this afternoon thus far...
If you caught the gist of last night's Daily Wrap, it was that leading indicators very short term (as in a day or less) were in line with the closing Hammers in the averages and the 1 min charts suggesting some strength today, while the larger price pattern should form a range/reversal process over the next day or so with op-ex this Friday, BUT THE LARGER SIGNALS THAT MEANT THE MOST TO PINPOINTING THE PIVOT/REVERSAL HAVE ALL DETERIORATED AS WE WERE EXPECTING.
Now it seems the long awaited SPY 15 min chart may be about to join them as it sits in a negative divergence at the moment. I'll be more comfortable calling it when it is leading negative, which may not be far away.
MCP "Patience Pays?"
I've probably sickened you to death with the Jesse Livermore quotes, if you don't know who Jesse Livermore is, I highly recommend going out and getting the book or e-book, there are a couple, "Reminiscences Of A Stock Operator", "Jesse Livermore: World's Greatest Stock Trader" and several more. The man who traded the early 20th century, a self-made multi-millionaire who started as a runner in a stock bucket shop and turned in to one of the greatest traders we have ever seen.
In any case, I may have bored you to death with the same quotes and messages over and over again, but the point is simple, truth is true no matter where it's found and in today's world, today's market it's easy to get "Lost in the lines". I don't regret posting the quotes until the point in which you want to send me hate mail, at some point in your trading career, they'll take on a new meaning for you, just like reading a book and getting one message from it, but after some life experience over a few years and reading the same book and you get a whole new message-especially true of religious/spiritual texts.
To paraphrase the main theme of many of the quotes, "I never made millions in the market because I was smarter than anyone else, there were a lot of traders who were right on the market as I was. It was always the sitting that made me the big bucks. It's a very rare thing for a trader to be right and have the ability to sit tight".
In other words, although that's probably a horrible paraphrase of multiple quotes, a lot of people saw the same thing he did, he just had the courage of his conviction as opposed to the others who were run out of their trades by emotions and all kinds of other market tricks.
I mention this specifically because no matter how hard Seeking Alpha tried to drive MCP out of business as their contributors were often short MCP on the hit pieces they'd write, there has always been a very strong underlying trend in MCP telling us that someone has known something about MCP that should at some point send the stock much higher if they were willing to stick with it over its sharp drawdown and continue accumulating it at lower and lower prices.
I know some of you have held tight to MCP and today I say congratulations as MCP is up well over +50%.
MCP up about + 55% today alone with no leverage.
There's a "W" bottom as you can see, a price pattern/concept that we see on daily charts, weekly charts or 1 min charts. Note the volume near the "W" base lows as well and today's break-away gap volume, BEAUTIFUL-AGAIN WELL DESERVED CONGRATULATIONS are in order for those who stuck with MCP.
THE NEWS...
Molycorp Chosen to Supply Rare Earths for Use in High-Efficiency Siemens Wind Turbine Generators
This is a 10-year deal, the probability of additional follow-oon deals is high, so the company that SEEKING ALPHA has been trying to drive pout of business as their short MCP contributors have been at it for well over a year, has just broken their collective jaws this morning.
There's not wit or sage market advice that just simply says "Stay in a stock and you'll be rewarded", that's not what Jesse Livermore was saying, it was the ability to BOTH be RIGHT and SIT TIGHT, were rare traits for traders.
Why would we assume we were right about MCP long term? Like everything else in the market unless you are breaking the law, it's probabilities which differs greatly from gambling.
These have been the probabilities that have kept faith in MCP alive for all tis time.
As I often say, 3C can show us the underlying activity in the stock, but the reasons why won't be known until the chance to make money has already passed, this morning we find out what this was likely about, or perhaps there's even more to come.
This is a weekly leading positive divergence with a specific leading positive divergence at the "W" bottom lows.
This is FAR from the only long term chart that has been suggesting someone knew something about MCP and what they had cooking on the fire.
Again, I have been pushing the importance of volume analysis as it is a lost art, but one that will serve you well in so many ways. Just look at this 3-day chart of MCP and the "W" base lows and volume and note the increasing volume on the move to the upside to the far right, EXACTLY as is should be.
What I find truly exciting for MCP longs is that this "W" base is just that, a stage 1 base that hasn't even broken out yet or moved to stage 2 mark-up!!!
As for those who are in or would like to get in, I of course would not chase MCP here if you weren't already in, but lets lay down an update and base of analysis that we can move forward from, whether it's trade management or new or add-to positions.
Again, the long term charts like this long term 4 hour 3C MCP chart shows a clear positive divegrence at its base as well as the longer term charts above showing a much larger overall divergence, this tells me something about the suspected upside target we'll get to.
This is the "W" base on a 4 hour chart, the divergence here should be obvious,
However it has been a long term divergence, I can't get any more history out of this 60 min chart, but you can see where it started leading.
Based on the 3C concept of divergence reversals almost always surpass the area where the divergence was first seen (although there are several charts we could use for that purpose), using this 60 min chart would suggest a move through the $8.00 level which would make MCP an attractive long position even if you weren't already in it.
As for the price-pattern implied target of the base, the upside would be at least $2.00, but I suspect that this would be very conservative over the long-haul.
The 10 min chart is not fast enough to catch up with this morning's now 67% move to the upside, but shortly it will and these intermediate charts will be helpful in discovering pullback areas and confirming them as pullback entries or for those who want to trade around swings.
Note the yellow arrow which I use to point out head fake moves ( a stop run here).
The 5 min chart is showing PERFECT upside confirmation so far which is a strong signal for the move.
On a more detailed 2 min chart, it looks like accumulation by middlemen/Specialists as it's probable they were building inventory ahead of the known deal announcement. The chart is also in line and confirming this morning's price move.
The 1 min chart shows the same kind of activity, usually market makers/specialists and also good overall upside confirmation.
If using the X-OVer Screen for management, you'd need to wait for the 3rd signal to go long, the custom indicator in the middle window above its 22-bar moving average (blue) on a 3-day chart. The first pullback should be to the yellow 10-bar (3-day) moving average or thereabouts. Subsequent pullbacks likely AFTER a breakout from the "W" base will likely come down to the 3-day blue 22-bar moving average.
The chart shows the last sell signal and a false whipsaw in the price moving average in orange which is why we use this system, to root out false whipsaw price moving average noise and keep to the trend,
Speaking of which...
For now, I'd use the 3-day Trend Channel for stop management. It stopped out the downtrend at the yellow area, but it's yet to move to a long trend as the channel needs to turn up, which it should do with little trouble, we can adjust the width of the stop after that according to preference, but for the longer term trend, for now I;'d stick with the 3-day Trend Channel.
Again, congratulations to MCP longs for today, you've earned it.
In any case, I may have bored you to death with the same quotes and messages over and over again, but the point is simple, truth is true no matter where it's found and in today's world, today's market it's easy to get "Lost in the lines". I don't regret posting the quotes until the point in which you want to send me hate mail, at some point in your trading career, they'll take on a new meaning for you, just like reading a book and getting one message from it, but after some life experience over a few years and reading the same book and you get a whole new message-especially true of religious/spiritual texts.
To paraphrase the main theme of many of the quotes, "I never made millions in the market because I was smarter than anyone else, there were a lot of traders who were right on the market as I was. It was always the sitting that made me the big bucks. It's a very rare thing for a trader to be right and have the ability to sit tight".
In other words, although that's probably a horrible paraphrase of multiple quotes, a lot of people saw the same thing he did, he just had the courage of his conviction as opposed to the others who were run out of their trades by emotions and all kinds of other market tricks.
I mention this specifically because no matter how hard Seeking Alpha tried to drive MCP out of business as their contributors were often short MCP on the hit pieces they'd write, there has always been a very strong underlying trend in MCP telling us that someone has known something about MCP that should at some point send the stock much higher if they were willing to stick with it over its sharp drawdown and continue accumulating it at lower and lower prices.
I know some of you have held tight to MCP and today I say congratulations as MCP is up well over +50%.
There's a "W" bottom as you can see, a price pattern/concept that we see on daily charts, weekly charts or 1 min charts. Note the volume near the "W" base lows as well and today's break-away gap volume, BEAUTIFUL-AGAIN WELL DESERVED CONGRATULATIONS are in order for those who stuck with MCP.
THE NEWS...
Molycorp Chosen to Supply Rare Earths for Use in High-Efficiency Siemens Wind Turbine Generators
This is a 10-year deal, the probability of additional follow-oon deals is high, so the company that SEEKING ALPHA has been trying to drive pout of business as their short MCP contributors have been at it for well over a year, has just broken their collective jaws this morning.
There's not wit or sage market advice that just simply says "Stay in a stock and you'll be rewarded", that's not what Jesse Livermore was saying, it was the ability to BOTH be RIGHT and SIT TIGHT, were rare traits for traders.
Why would we assume we were right about MCP long term? Like everything else in the market unless you are breaking the law, it's probabilities which differs greatly from gambling.
These have been the probabilities that have kept faith in MCP alive for all tis time.
As I often say, 3C can show us the underlying activity in the stock, but the reasons why won't be known until the chance to make money has already passed, this morning we find out what this was likely about, or perhaps there's even more to come.
This is a weekly leading positive divergence with a specific leading positive divergence at the "W" bottom lows.
This is FAR from the only long term chart that has been suggesting someone knew something about MCP and what they had cooking on the fire.
What I find truly exciting for MCP longs is that this "W" base is just that, a stage 1 base that hasn't even broken out yet or moved to stage 2 mark-up!!!
As for those who are in or would like to get in, I of course would not chase MCP here if you weren't already in, but lets lay down an update and base of analysis that we can move forward from, whether it's trade management or new or add-to positions.
Again, the long term charts like this long term 4 hour 3C MCP chart shows a clear positive divegrence at its base as well as the longer term charts above showing a much larger overall divergence, this tells me something about the suspected upside target we'll get to.
Based on the 3C concept of divergence reversals almost always surpass the area where the divergence was first seen (although there are several charts we could use for that purpose), using this 60 min chart would suggest a move through the $8.00 level which would make MCP an attractive long position even if you weren't already in it.
As for the price-pattern implied target of the base, the upside would be at least $2.00, but I suspect that this would be very conservative over the long-haul.
Note the yellow arrow which I use to point out head fake moves ( a stop run here).
The chart shows the last sell signal and a false whipsaw in the price moving average in orange which is why we use this system, to root out false whipsaw price moving average noise and keep to the trend,
Speaking of which...
Again, congratulations to MCP longs for today, you've earned it.
Market Update
I've been working on the A.M. Update, which takes quite a while to put together as does the Daily Wrap, to get some idea, just look at the time it is posted, I start as soon as the market closes and maybe have 30 minutes of time in which I take the dogs out, get something to drink etc. so if I post at 8:30 p.m., it's about 4 hours in to that post.
While I really would like to get the A.M. Update out as it is a remarkable "Study in Contrasts", it's like a world in which 1+1=3 and the accounting in that world just can't hang on for long, but it's proving to be too time consuming so I'll post it later today.
The market's overnight action and cash market opening action thus far is EXACTLY what we were looking for in the reversal process with a lot of support from near term Leading Indicators, 3C charts, etc.
This is what the reversal process looks like, although it won't be a strong picture until it's finished, then you'll see days like today fit in perfectly.
The daily SPY chart with yesterday's bullish Hammer / support area. Remember, a reversal candle carries no target with it, but you can generally assume the larger the hammer, the more the volume, the stronger the reversal. As mentioned yesterday, this is not a strong reversal candle with a short lower wick, not the best real body and low volume, but it's perfect for where the market needs to be to complete the reversal process (drawn in yellow).
However, the market needed a lot of support to pull this off, take a look at HYG today as a ramping lever along with VXX, if I had to guess and checked Capital Context, I'd guess their SPY Arbitrage signal was active (a ramping / manipulation lever to lift the market), which means one thing, the market's strength itself is not there, not even for a simple reversal process, but this is far from news to us over the last week and a half or so.
As I said last night, the 1 min charts were in line or slightly positive supporting upside at least early today and the reversal process...
SPY 1 min intraday with a leading positive divegrence at yesterday's a.m. lows and the "Flameout" on the downside and nearly in line this morning, NEARLY.
It was the charts just after 1 min as I was posting yesterday that are bothersome for the market, but right in line with a weakened market in the end stages of the last week's move, the reversal process.
As early as the next chart, SPY 2 min I'm sure you can see the difference in tone and it just keeps going from there.
SPY 5 min leading negative through the entire forecasted move from April 2nd.
IT ALSO LOOKS LIKE THE SPY 15 MIN IS GOING TO PUT IN THE DEFINITIVE NEGATIVE DIVEGRENCE THAT HAS BEEN ONE OF THE FEW SIGNALS I'VE BEEN PATIENTLY WAITING ON.
Index futures intraday are similar to the SPY/averages' charts, they don't look great. Here's 1 min ES as an example...
ES/SPX e-mini Futures 1 min. Enough of a positive divegrence to ramp ES futures higher starting about 2 hours before the European open to about an hour after (the positive divergence) and then the ES move higher as expected for the cash open, but since then, not pretty just like the SPY charts after 1 min.
As far as I can tell, this is EXACTLY in line with what we have seen in all indications and right on track, although I'd much rather see the market moving strongly in the direction of our positions or toward better levels for new positions, I can't say I'm displeased with the reality of the market and the reversal process and our analysis of it. Everything remains predictably on track which is where I want it.
I'll have more specific asset updates as they ripen, likely through the day.
The A.M. Update which is more than just covering the news events as you can get that anywhere, is especially interesting this morning so although it may seem irrelevant being released later in the day, please try to get to reading it if you can, it's important information, something approaching a new indicator if it were possible.
While I really would like to get the A.M. Update out as it is a remarkable "Study in Contrasts", it's like a world in which 1+1=3 and the accounting in that world just can't hang on for long, but it's proving to be too time consuming so I'll post it later today.
The market's overnight action and cash market opening action thus far is EXACTLY what we were looking for in the reversal process with a lot of support from near term Leading Indicators, 3C charts, etc.
This is what the reversal process looks like, although it won't be a strong picture until it's finished, then you'll see days like today fit in perfectly.
However, the market needed a lot of support to pull this off, take a look at HYG today as a ramping lever along with VXX, if I had to guess and checked Capital Context, I'd guess their SPY Arbitrage signal was active (a ramping / manipulation lever to lift the market), which means one thing, the market's strength itself is not there, not even for a simple reversal process, but this is far from news to us over the last week and a half or so.
As I said last night, the 1 min charts were in line or slightly positive supporting upside at least early today and the reversal process...
It was the charts just after 1 min as I was posting yesterday that are bothersome for the market, but right in line with a weakened market in the end stages of the last week's move, the reversal process.
IT ALSO LOOKS LIKE THE SPY 15 MIN IS GOING TO PUT IN THE DEFINITIVE NEGATIVE DIVEGRENCE THAT HAS BEEN ONE OF THE FEW SIGNALS I'VE BEEN PATIENTLY WAITING ON.
Index futures intraday are similar to the SPY/averages' charts, they don't look great. Here's 1 min ES as an example...
As far as I can tell, this is EXACTLY in line with what we have seen in all indications and right on track, although I'd much rather see the market moving strongly in the direction of our positions or toward better levels for new positions, I can't say I'm displeased with the reality of the market and the reversal process and our analysis of it. Everything remains predictably on track which is where I want it.
I'll have more specific asset updates as they ripen, likely through the day.
The A.M. Update which is more than just covering the news events as you can get that anywhere, is especially interesting this morning so although it may seem irrelevant being released later in the day, please try to get to reading it if you can, it's important information, something approaching a new indicator if it were possible.
Tuesday, April 14, 2015
DAILY WRAP
ALMOST UNBELIEVABLY, once again, like last week, the Dominant Price/Volume Relationship from last night's Daily Wrap & AAPL Re-Visit that is best characterized as the nick-name I gave the relationship, "Carry on doing what you were doing" (Close Down/Volume Down-although not significantly dominant), once again ends the day today with a similar close as yesterday and exactly as the relationship would imply.
The best performer being the Dow on the day at +.33% and the NDX lagging at -.26%, perhaps the Russell 200's -0.01% was as close as it gets to that particular relationship.
On the week so far...
Small caps (yellow) are just barely green, everything else is mildly red so far...
This is more or less, exactly what was forecasted in the Week Ahead post last Friday as well as the A.M. Update this morning and several other posts forecasting...
The reversal process-rangey trade...
"This shows the roughly lateral trend starting to develop, I expect to see a bit more of this, sideways chop in the area, maybe a head fake move of this little range if it becomes very defined."
What would otherwise be known as a tight range creating a reversal process as we expected about mid-week this week. I went in to additional details today regarding the range, the possibilities of a Head fake or Crazy Ivan shakeout, what would be needed to create either, etc.
The overall data was pretty ugly as well, Retail Sales in the US missed. We saw an opening dump until once again like I just mentioned, "Watch for a spike in volume/flameout on a bullish candle" early lows saw positive divergence and the higher volume flameout, although not quite an intraday breadth oversold condition that I'd call significant.
Again, just like the IWM recently as I warned to watch for a spike in volume on a downside flameout and a bullish candle, you can see the same concept worked perfectly again this morning, the same concept works in any timeframe with any asset you want to use it on.
Crude entered our forecasted range for a trade, also from the A.M. Update
"Crude looks to be moving closer to our target range and it has the divergences we want to see."
As the divergence that formed intraday as our target of the gap, which was filled today, created a window for a trade opportunity this afternoon, TRADE IDEA: USO SHORT (PUTS)
Note USO distribution as price entered the range we had forecasted as our target area.
Tonight after the market closed the API oil inventory data came out with a build of 2.6mn barrels which was below consensus of 3.5 mn, but still was the 14th weekly build (if the D.O.E.'s EIA inventories confirm tomorrow morning at 10:30), which is a new record of 14 consecutive builds with 18 weeks of builds at the Cushing facility which is said to now be 90% full. Our trade set-up wasn't based on any inventory data, but the 3C charts and the gap fill, which both looked great this afternoon.
Earlier we closed out the GLD put position even though copper, silver and gold were all down today despite overall $USD weakness, this was a short term trade management move for options specifically, I'm still looking for an overall swing decline in GLD so I expect we'll have another opportunity shortly to re-entter the puts, but possibly giving away a near +30% gain on little more than a day of market exposure just didn't seem reasonable given the GLD short term positive divergences as seen earlier (see related posts).
Macro data was horrible again from China which finally is seeing a pullback in Shanghai and the Hang Seng, FXI seemed to give us a clue this was likely. From Friday's A.M. Update
These are excerpt charts and comments from the Friday A.M. Update regarding FXI and a blow-off looking top.
"Looking at FXI- FTSE/Xinhua China 25, there are some charts that a re more than a bit concerning...
FXI daily chart which is very parabolic and has the look of a potential blow-off top...
And the 15 min 3C chart in which apparently smart money was ready for a parabolic climb, one it looks like they are selling in to fairly hard ion this 15 min FXI chart."
I think there's likely a bit of a reversal process that needs to finish up there as well, but I think we may have a position short FXI or long FXP in the next day or so for those interested. I'll update FXI tomorrow.
In sectors today, XLE led while Tech lagged, little wonder the NDX lagged.
Energy (light blue) leading and Tech (salmon) lagging today.
As for the averages themselves, most 1 min charts were pretty close to inline, so another day in the reversal process would put us right at Wednesday which is right about where I had suspected we might find a pivot to the downside from this move forecasted April 2nd (bounce from triangles).
Nearly every other timeframe is showing HEAVY negative divergences, except the SPY 15 min is still not where it should be. Thus I believe as I wrote numerous times earlier today, we are still not quite there, but exceptionally close.
The daily closing candlesticks for all of the major averages were close or actual bullish "Hammer" reversal candlesticks so the idea of some more fooling around in the area to complete the reversal process makes a lot of sense from where I'm standing, even though some of my earlier examples may have been a bit on the longer side of a reversal process, but they were drawn as examples of a concept only, not as a price/date forecast.
VIX was in a tight range today, appropriate for a reversal process near term,
Spot VIX's intraday range tightens up near its triangle apex...
Yet within striking range of the coiled triangle and 50-day breakout area...
VIX daily with a most probable Crazy Ivan shakeout at the apex and just below the 50-day, right in line with our broad market forecast and a somewhat near term listless market- right in line with a reversal process
Leading Indicators were our 3rd area I'm watching (in addition to the averages which are severely damaged since the move based on the triangles started last Monday, and of course the Index futures' 7-15 min charts which you know the story on)...
I've largely been showing near term/intraday Leading Indicators as I was watching for our forecast to be fulfilled, but the main signal is that of Leading Indicators on a larger basis.
For example, our SPX:RUT ratio which was part of the puzzle in creating the April 2nd forecast as it led positive in to the 4/2 area. Now take a look at its signal now that the move has occurred...
The indicator (Red) was leading positive in to the early April area when the forecast for a move up based on the market/stock triangles was posted on April 2nd for last week and finishing in to this week. However since, THIS IS EXACTLY THE KIND OF LEADING INDICATION I WAS EXPECTING TO SEE AND THAT WE CLEARLY HAVE POPPING OFF THE CHART. This is a leading negative indication in the SPX:RUT ratio and considering the other two sets of indications, it's a perfect signal.
Professional Sentiment Indicators...
The first of 2 we use is perfectly in line with the breakout/triangle forecast from April 2nd, but on a larger basis has recently deteriorated significantly.
The second of the 2 we use...
Has seen significant deterioration on the larger scale which is what really matters to me of the 3 indications I'm looking for.
However, in line with the listless market, the weak hammers in the daily charts, the VIX holding right under a place where its volatility will increase significantly and the overall reversal process in line with 1 min charts of the averages, but beyond that, tons of ugliness...
The intraday version is pointing to a near term intraday bounce as all of the other indications pointed out above.
The reversal process is needed so this is good, but the larger Leading negative signals in Leading Indicators are the most important and they are coming along nicely in the right places.
As for yields,, they sold off early in the day and tried to rally back in the afternoon, what does that tell you about our near term reversal process forecast and our larger April 2nd forecast move coming to an end? Remember yields move opposite the flight to safety trade, treasuries and they are a great leading indicator as they act like a magnet for equity prices.
10 year yields (red) vs SPX (green) on a Leading Indicator basis, dislocated negatively right in the area of our move.
5 year yields showing the exact same, the Leading Indications we expected to develop.
However intraday, just like the longer term Pro Sentiment indicators and the intraday...
The 5 year (as well as the rest of the curve) tried to rally back up through the afternoon, right in line with our very near term forecast (such as the closing daily candles-bullish hammers, but weak) among the major averages today... Yields low volume rally in the afternoon makes perfect sense for what we are looking for in the reversal process here. The Leading Indications of the longer term charts above are exactly what was expected as of the April 2nd forecast for the market's move and WHAT COMES NEXT.
Commodities as a leading indicator showing the EXACT same thing.
Commodities as a broader leading indicator, as you can see they called a top at the last significant bounce for the year in Feb. and they are Leading negative in position right now, akgain, EXACTLY what I was looking for.
Intraday I bet you can guess what they looked like...
Supportive of the market on a very near term basis, our reversal process.
As I address, the intraday 1 min averages look like some near term upside or at least range bound, after that it gets ugly so we'll be watching also the proportionality of the move (reversal process) as posted earlier today as well. I suspect that intraday Leading Indicators will head south now that the larger basis indications already are when we are at our EXACT pivot.
As mentioned yesterday, the HY Credit (HYG) charts are falling apart (3C) badly.
As for the 4th , and one of the most important indications, volatility picking up...
A look at the Dow futures shows something you don't easily see in the cash market, but exactly what I'm looking for as a transitional marker...
VOLATILITY INCREASING1 These are Dow futures and that's just about 700 Dow points in swings!
The Dominant Price/Volume Relationship between the component stocks of the major averages was COMPLETELY NON-EXISTIENT TODAY, not just the Russell 2000 as has been the case, but not 1 major average had anything even approaching a Dominant theme. Again, indicative of a listless theme in the market.
Sector performance...
As for the 9 S&P sectors, 6 of 9 closed green with Energy leading at +1% as mentioned earlier and Tech lagging -0.31%, but not any big moves, again consistent with a listless market in a reversal process.
Morningstar Groups...
Once again, a middle of the road 128 of 238 groups were green, another listless reading and suggestive of the kind of near term price action depicted in numerous charts today within a reversal process.
As for Index futures tonight, the 1 min charts aren't telling us much. If I had to rely on the charts of the averages as noted above, I'd say we have another small reversal process bounce based on intraday 1min charts, but it gets really ugly after that. As mentioned for the Index futures 7-15 min charts, each is a bit different and they are mixed, but I think they will be an excellent timing signal and right now they are in agreement with the broad consensus from this afternoon's IMPORTANT Market Update post as well as the near term forecast posted this morning in the A.M. Update, essentially the reversal process to continue to unfold, perhaps some additional gains which would be very helpful for our position entries, but other than that, things are ugly as I'd expect them to be based on our April 2nd forecast.
I'd say we are right where we need to be, but I don't think we'll have too much longer in the area and opportunities for a head fake move if possible should be used, I'll be watching for them, I also think in addition to some smaller option trades we have been in and out of, it's getting high time we look pretty much exclusively at trade ideas, although I always have to keep an eye on the broader market as it is what moves everything else we are looking at.
Look for the reversal process to finish up. Whether we can get some upside volatility or not remains to be seen, it looks very weak here, but if we can, then we have some great put option entries, otherwise we'll just be looking at the best, timeliest entries in assorted watchlist stocks and ETFs.
I feel great about where we are as well as pour forecast which for this week was about "mid week" or specifically 2 days of strength left. We do have monthly options expiration this Friday which could come in to play, that will be on the watchlist , but overall, I think we have the market's number here.
Patience pays.
On the week so far...
This is more or less, exactly what was forecasted in the Week Ahead post last Friday as well as the A.M. Update this morning and several other posts forecasting...
The reversal process-rangey trade...
"This shows the roughly lateral trend starting to develop, I expect to see a bit more of this, sideways chop in the area, maybe a head fake move of this little range if it becomes very defined."
What would otherwise be known as a tight range creating a reversal process as we expected about mid-week this week. I went in to additional details today regarding the range, the possibilities of a Head fake or Crazy Ivan shakeout, what would be needed to create either, etc.
The overall data was pretty ugly as well, Retail Sales in the US missed. We saw an opening dump until once again like I just mentioned, "Watch for a spike in volume/flameout on a bullish candle" early lows saw positive divergence and the higher volume flameout, although not quite an intraday breadth oversold condition that I'd call significant.
Crude entered our forecasted range for a trade, also from the A.M. Update
"Crude looks to be moving closer to our target range and it has the divergences we want to see."
As the divergence that formed intraday as our target of the gap, which was filled today, created a window for a trade opportunity this afternoon, TRADE IDEA: USO SHORT (PUTS)
Tonight after the market closed the API oil inventory data came out with a build of 2.6mn barrels which was below consensus of 3.5 mn, but still was the 14th weekly build (if the D.O.E.'s EIA inventories confirm tomorrow morning at 10:30), which is a new record of 14 consecutive builds with 18 weeks of builds at the Cushing facility which is said to now be 90% full. Our trade set-up wasn't based on any inventory data, but the 3C charts and the gap fill, which both looked great this afternoon.
Earlier we closed out the GLD put position even though copper, silver and gold were all down today despite overall $USD weakness, this was a short term trade management move for options specifically, I'm still looking for an overall swing decline in GLD so I expect we'll have another opportunity shortly to re-entter the puts, but possibly giving away a near +30% gain on little more than a day of market exposure just didn't seem reasonable given the GLD short term positive divergences as seen earlier (see related posts).
Macro data was horrible again from China which finally is seeing a pullback in Shanghai and the Hang Seng, FXI seemed to give us a clue this was likely. From Friday's A.M. Update
These are excerpt charts and comments from the Friday A.M. Update regarding FXI and a blow-off looking top.
"Looking at FXI- FTSE/Xinhua China 25, there are some charts that a re more than a bit concerning...
I think there's likely a bit of a reversal process that needs to finish up there as well, but I think we may have a position short FXI or long FXP in the next day or so for those interested. I'll update FXI tomorrow.
In sectors today, XLE led while Tech lagged, little wonder the NDX lagged.
As for the averages themselves, most 1 min charts were pretty close to inline, so another day in the reversal process would put us right at Wednesday which is right about where I had suspected we might find a pivot to the downside from this move forecasted April 2nd (bounce from triangles).
Nearly every other timeframe is showing HEAVY negative divergences, except the SPY 15 min is still not where it should be. Thus I believe as I wrote numerous times earlier today, we are still not quite there, but exceptionally close.
The daily closing candlesticks for all of the major averages were close or actual bullish "Hammer" reversal candlesticks so the idea of some more fooling around in the area to complete the reversal process makes a lot of sense from where I'm standing, even though some of my earlier examples may have been a bit on the longer side of a reversal process, but they were drawn as examples of a concept only, not as a price/date forecast.
VIX was in a tight range today, appropriate for a reversal process near term,
Yet within striking range of the coiled triangle and 50-day breakout area...
Leading Indicators were our 3rd area I'm watching (in addition to the averages which are severely damaged since the move based on the triangles started last Monday, and of course the Index futures' 7-15 min charts which you know the story on)...
I've largely been showing near term/intraday Leading Indicators as I was watching for our forecast to be fulfilled, but the main signal is that of Leading Indicators on a larger basis.
For example, our SPX:RUT ratio which was part of the puzzle in creating the April 2nd forecast as it led positive in to the 4/2 area. Now take a look at its signal now that the move has occurred...
Professional Sentiment Indicators...
The second of the 2 we use...
However, in line with the listless market, the weak hammers in the daily charts, the VIX holding right under a place where its volatility will increase significantly and the overall reversal process in line with 1 min charts of the averages, but beyond that, tons of ugliness...
The reversal process is needed so this is good, but the larger Leading negative signals in Leading Indicators are the most important and they are coming along nicely in the right places.
As for yields,, they sold off early in the day and tried to rally back in the afternoon, what does that tell you about our near term reversal process forecast and our larger April 2nd forecast move coming to an end? Remember yields move opposite the flight to safety trade, treasuries and they are a great leading indicator as they act like a magnet for equity prices.
However intraday, just like the longer term Pro Sentiment indicators and the intraday...
Commodities as a leading indicator showing the EXACT same thing.
Intraday I bet you can guess what they looked like...
As I address, the intraday 1 min averages look like some near term upside or at least range bound, after that it gets ugly so we'll be watching also the proportionality of the move (reversal process) as posted earlier today as well. I suspect that intraday Leading Indicators will head south now that the larger basis indications already are when we are at our EXACT pivot.
As mentioned yesterday, the HY Credit (HYG) charts are falling apart (3C) badly.
As for the 4th , and one of the most important indications, volatility picking up...
A look at the Dow futures shows something you don't easily see in the cash market, but exactly what I'm looking for as a transitional marker...
The Dominant Price/Volume Relationship between the component stocks of the major averages was COMPLETELY NON-EXISTIENT TODAY, not just the Russell 2000 as has been the case, but not 1 major average had anything even approaching a Dominant theme. Again, indicative of a listless theme in the market.
Sector performance...
As for the 9 S&P sectors, 6 of 9 closed green with Energy leading at +1% as mentioned earlier and Tech lagging -0.31%, but not any big moves, again consistent with a listless market in a reversal process.
Morningstar Groups...
Once again, a middle of the road 128 of 238 groups were green, another listless reading and suggestive of the kind of near term price action depicted in numerous charts today within a reversal process.
As for Index futures tonight, the 1 min charts aren't telling us much. If I had to rely on the charts of the averages as noted above, I'd say we have another small reversal process bounce based on intraday 1min charts, but it gets really ugly after that. As mentioned for the Index futures 7-15 min charts, each is a bit different and they are mixed, but I think they will be an excellent timing signal and right now they are in agreement with the broad consensus from this afternoon's IMPORTANT Market Update post as well as the near term forecast posted this morning in the A.M. Update, essentially the reversal process to continue to unfold, perhaps some additional gains which would be very helpful for our position entries, but other than that, things are ugly as I'd expect them to be based on our April 2nd forecast.
I'd say we are right where we need to be, but I don't think we'll have too much longer in the area and opportunities for a head fake move if possible should be used, I'll be watching for them, I also think in addition to some smaller option trades we have been in and out of, it's getting high time we look pretty much exclusively at trade ideas, although I always have to keep an eye on the broader market as it is what moves everything else we are looking at.
Look for the reversal process to finish up. Whether we can get some upside volatility or not remains to be seen, it looks very weak here, but if we can, then we have some great put option entries, otherwise we'll just be looking at the best, timeliest entries in assorted watchlist stocks and ETFs.
I feel great about where we are as well as pour forecast which for this week was about "mid week" or specifically 2 days of strength left. We do have monthly options expiration this Friday which could come in to play, that will be on the watchlist , but overall, I think we have the market's number here.
Patience pays.
