Trade Idea: Extremely Speculative (Options/Puts) VXX

After having closed the UVXY Long at a +5% gain, I am opening a half size, Very speculative VXX May 15 $23 Put.

Taking UVXY long off the table

Quick Market Update

This may be enough for me to take UVXY gains off the table soon.

Remember this morning's Market Update waring (from the post below)

Something at least like a small "W" base-be on the look-out for another head fake stop run below this morning's lows on the formation of a second low and wider base.

This is quite the move and which seem to be a little more extreme than stop run, but that's exactly what had take moved you are

Like earlier, Watch for a change in the trend of TICK and watch for the downside to flame out on huge volume and a bullish candle. I'll let you know soon as I see something on the intraday chart. If I do, I'll likely take the UVXY gains off the table in light of the additional information, USD, USD/JPY, NKD, etc.

$USD Update & Market Repercussions

This time is giving me an opportunity to see which stocks on my list are looking like they'll respond and come to us, which look the best and allowing me to set price alerts so if they meet the ideal target/entry area, I'll know immediately and can confirm the expected signals and make a decision on whether it's a strong, high probability, low risk trade.

In considering the $USD we are not only considering the recent leading relationship it has had with the market,  thus as of this week the anticipated bounce in $?USDX should act as a leading indication for the market bounce we are seeing right now with its base under construction.

We are also looking at a much bigger story, that of the F_E_D and interest rate hikes and that of the Carry Trade unwind, both scenarios are interlocked and effect each other. The F_E_D knows that interest rate hikes would have the effect of strengthening the $USD which is already too strong vs. those countries that are in outright Q/E such as Europe, Japan or any other countries that are trading lower than the $?USD which causes problems for exports and US multi-nationals. So as of the last F_O_M_C (before yesterday's) they made it very clear that $USD strength was one of the things they were concerned about in hiking rates.

However, it is my opinion and I think we can make a good case for FACT that the F_E_D not only inflates asset bubbles such as they did with housing and the stock/bond market since 2009, but they also pop bubbles as they did with the Housing market , Dot.Com tech bubble and I suspect they are willing to pop the current equity bubble to normalize policy from nearly 6 years of highly accommodative policy  (the last interest rate hike was 2006!!!).

I know this carry trade stuff is a bit confusing vs. what most investors know about the $USD's historical legacy arbitrage correlation which is exactly the opposite of the carry correlation. The point being, popping the market bubble unwinds the carry trade and that sends the $USD lower, off-setting any effects (a higher $USD) of policy tightening. So the unwind of the $USD carry sends the $USD lower while F_E_D policy tightening (rate hikes) want to send it higher, in the end it should be a wash theoretically, except when the carry trade unwinds at 300:1 leverage, those on the losing end (those who waited too long to act), take substantial losses quickly causing the $USD to snowball lower so it may be that the $USD actually falls in to F_E_D policy tightening and I think that is what both the $USD and Yen have been reflecting.

If I had more time, I'd update the Yen and Euro charts as well, but suffice it to say for now, the primary trend in the Yen has changed (no longer as carry friendly and looks like evidence the unwind is already in effect) as expected at this point in the market.

Short term however, I'm thinking about the counter trend bounce in the $USD I talked about last night and the correlation (if there's still any left) as a leading indication for near term market direction.

$USD daily 3C chart...

 Amazingly for such a long timeframe, it has worsened this week alone and specifically the last 2-days, note the new leading low in 3C.

Taking a closer look at the same 1-day $USDX chart and the change in trend seen above from UP on the carry trade to lateral or a triangle top and the very recent break down...

 1-day $USD close up shows the same type of triangle seen in the market averages and as we have forecasted as of April 2nd (seen in last night's Daily Wrap or yesterday's $USD Update and USO / Oil Update, the Carry Trade ($USD-Broad market too). )

We now have a clear break below the triangle, a lower high and now a lower low and are sitting right near support at intraday lows (yellow dotted line), which is just a good a place as any for the $USD to make a counter trend bounce/correction.

The April 2nd $USD forecast...

 On the 2nd the $USD was weak, but the forecast was that a move higher was coming which it did (green) which would be followed by an even larger move lower which it has. At the yellow "CTB" (Counter Trend Bounce), this is a NORMAL corrective move that ended and established the leg lower. Right now we are in the perfect place for another CTB at intraday low support as seen on the daily chart above.

 In addition, we have had positive 10, 15 and now 30 min divergences in $USD such as the one above (30 min) with a base/reversal process also under construction like the broad market.

 This 1 day chart of $USD (candlesticks) vs ES (purple), shows the more recent falling off of $USD carry support and leaving ES unsupported.

Today we see the $USD/JPY up significantly on Yen weakness and $USD strength, ES is in purple on this 1 min chart.

I suspect there are a few things going on here, one is support for the Nikkei as it was toasted last night, down -2.69% as it is going to be effected negatively by a USD/JPY carry unwind with an increasing Yen. Remember the negative 1-day $USD and the positive 1-day Yen? What would you expect the 1-day Nikkei 225 futures (NKD) to look like on the same daily chart?

 NKD Nikkei 225 futures, just as I would expect, topping and turning negative.

 The 60 min chart shows the negative divergence this week sending it lower.

 However with a $USD counter trend bounce, the Yen should weaken, the $USD/JPY lift and support a counter trend bounce in the Nikkei futures as well as seen here on an intraday 1 min 3C chart with a strong positive divergence.

This is the ballet, the beautiful part of the market where everything comes together and makes sense. 

This 30 min chart of Nikkei futures with a recent positive divergence.

I suspect the other half of the strength in USD/JPY is specifically from today's Initial Claims, the 2nd lowest print in the history of Initial Claims, this does a lot to make a stronger case for the F_E_D's want to see stronger employment and a stronger case for rate hikes sooner than later so everything is coming to a head, but the $USD was up on this morning's Initial Claims print showing the labor market strengthening (at least that's what the data shows) which is what the F_E_Dm wants for a interest rate hike.

Near term the effect it has had on the $USD and by extension the JPY, would be supportive of a bounce along with near term $USD analysis (counter trend bounce), but the bigger picture (daily $USD charts, Nikkei charts, Yen charts are all falling apart.

Translation, likely bounce...CRASH

Market Builds a Wider Base-Still Holding UVXY (Long)

As forecasted this morning with specific emphasis in the last post, Market Update the market has built a slightly stronger base structure from which to bounce. This would normally make me a little more probable to take the gains from yesterday's Adding a Partial UVXY (VXX) long Short Term VIX Futures off the table and had I used options (calls), I likely would. 

However as you saw in multiple timeframes in the last post, Market Update, probabilities are strongly with VXX / UVXY long and I'm not keen on maybe missing them because I was trying to trim the fat a bit too closely rather than keeping my eye on the ball. I do not disparage anyone from taking some decent 1-day gains in a position that you should be able to easily re-enter at a better price, it's just not for me at this moment in the market.

The anticipated wider "W" base from this morning's "V" base is largely in place and as suspected, at least one of the major averages did put on another stop run, which makes for an excellent entry if you were inclined to try to play this bounce long. The 3C signals also improved on the pullback to form a wider intraday base. However, lets not get carried away, this is still an intraday base.

 DIA almost at this morning's lows and a wider base area with a stronger leading 3 min positive divergence.

IWM with the first 5 min leading positive divergence, still small and not much of a concern, but definitive intraday improvement.

SPY has pulled back almost perfectly to form a wider "W" intraday base with improvement on the 3 min 3C chart

And 3 min QQQ pulled the head fake move (stop-run) I suggested in the last update, that was a likely probability. Note the increased volume as stops are hit and accumulated on the cheap with a leading 3 min 3C chart.

This is great from my perspective, it makes trade set-ups and entries much easier.

Remember the probabilities that were clearly laid out in the last post , if not the entire year and then some.

Market Update

I thought I'd give you a baseline of the charts in multiple timeframes (multiple trend analysis) so you can get your bearings and you'll see that we are in no position whatsoever for a new breakout leg higher as many of the bulls anticipated upon seeing the large triangles in the market which they intrpretted as consolidation/continuation price patterns. Remember my note on Monday about CNBC running a piece and having JPM on just for good measure to point out these triangles and their "Bullish" characteristics with the wording, "They may" lead to a new leg higher". The articles and interview were of course completely biased as CNBC is not in the business of market analysis anymore than Roy Crock considered McDonald's to be in the hamburger business. Roy Crock insisted he was in the Real-Estate business as Mickey-D's owns some of the most prime located real estate around the world. CNBC is in the Ad selling business, therefore, they aim to please their customers. You are not their customers, you are their viewers; JPM and the like are their customers so always keep that in mind when listening.

For instance, Cramer is Goldman Sachs Alumni. When we called a top in oil in 2008, the very same week Cramer was telling his Mad Money viewers to buy oil on the next bad EIA report (put a bid under oil) as a "Contrarian" trade. I never understood how potentially millions of viewers all doing the same thing at the same time could possibly be considered, "Contrarian", but that's one of those keywords that make people feel like they're on the inside.

When I think of Cramer, I think of who he goes to lunch with, the average Goldman Sachs employee earning approx. $400,000 a year (on average) and/or the much higher ups who are in a position to provide plenty of perks and lifelong security, even make you the PM of a foreign country or Central Bank (Greece and the ECB- Papandreaou/Draghi), in fact here's a list of who's who around the world who were once GS employees, alumni. It truly is, "Who you know" and it's quite shocking.

So does Cramer's loyalties lie with GS or the average, nameless, faceless viewer of CNBC? I know where mine would lie and that's just common sense, that's not to disparage Cramer in any way (only he can answer the question).

I can tell you that oil fell about -80% in just over 7 months from there.

In any case, as we pointed out on April 2nd, the market's triangles were not coincidental, they were not naturally formed, they were quite specifically engineered as 3C divergences were found at every high and pow as they pinched in to the apex as of April 2nd and moving forward as they became more recognizable.

 The triangles formed purposefully and ironically they coincide with the F_O_M_C (yesterday) nearly perfectly. The most common, easily recognizable price pattern in all of technical analysis just starts showing up everywhere with CNBC and others making a point to point it out for anyone who somehow may have missed them (Monday morning).

Moving along...

 This morning's stop run builds up some inventory for a short term bounce, but the very tight "V" reversal is not to be trusted as you can see from the l;last one. This is no different than building a house, if the foundation is not strong, the house is only as strong as the weakest link and won't be supporting multiple levels/stories.

Thus if the market has any hope for something more than what we just saw this morning, it has to build a wider base here.

Something at least like a small "W" base-be on the look-out for another head fake stop run below this morning's lows on the formation of a second low and wider base.

It just so happens that TICK turned down allowing for the market to give this a shot...

NYSE TICK this  morning.

I'M VERY EAGER TO GET TRADE IDEAS OUT, BUT TO DO THAT, WE NEED A BOUNCE WITH SOME MORE LEGS THAN JUST THIS MORNING'S LITTLE, WEAK ATTEMPT AND FOR THAT, THE MARKET NEEDS A BROADER BASE.  I believe there are decent probabilities it will form that base, but to give you an idea of the all encompassing big picture including intraday charts (and you'll see why I'm eager to get trade ideas out ASAP)...

 SPY 2 min "Relative" positive divergence, which is the weaker form between relative and leading.

 SPY 3 min stronger relative positive divergence and starting to move toward leading as price pulls back right now.

Remember smart money accumulates on the cheap and sell at elevated prices, many technical traders have this all wrong.

SPY 5 min with a relative positive divergence and perhaps something better as price pulls back. The dominant feature however is the negative divergence at the highs and will remain as such unless/until the SPY puts in a stronger positive.

 QQQ 1 min relative positive which is adding a bit of strength on the current pullback, not quite there for a replacement chart.

 QQQ 2 min with a relative positive and of course the dominant feature and highest near term probability resolution is the leading negative at the highs. This shows you how smart money uses price strength to sell in to quite clearly.

 QQQ 3 min is adding to this positive divergence on the current pullback. However once again the near term dominant feature of the chart and highest probability resolution to any near term bounce is the leading negative divergences.

 QQQ 5 min shows NO positive divergence. The concept of "Migration of the divergence" in which a strengthening divergence moves to longer term timeframes is not in effect here and the 5 min chart is the line in the sand between intraday chart signals on the 1-3 min. timeframes and the 5 min chart which is the earliest timeframe to show intraday institutional activity.

I drew in the leading negative divergence on the time axis below.

 And the highest probability//strongest chart of the bunch, the 30 min QQQ. I doubt it needs any commentary.

 The IWM has been the best relative performer in 3C charts this week in the averages and futures, thus my gut feeling it shows the best relative performance on any bounce attempt.

The current chart on the intraday pullback looks slightly stronger now.

IWM 2 min relative positive, which also has a very slight bit of improvement, not enough to make it worth capturing and posting a new/updated chart.

IWM 3 min relative positive, again what looks to be some possible improvement, but not material enough to warrant a new updated chart.

IWM 5 min which again like QQQ shows no positive migration of the divergence and the 5 min chart is at best, "in line", more realistically leading negative with a clear distribution area at a parabolic move, THIS IS A CLEAR EXAMPLE OF WHY I NEVER TRUST PARABOLIC MOVES UP OR DOWN.

And the highest probability 15 min IWM which was already negative on April 2nd, telling us what the outcome of the forecast was most likely to be. This chart has only gotten worse as smart money has distributed in to price strength through the April forecasted move in price.

There is NO mistaking this divergence and this is the kind of divergence I tell members to look for, the kind that screams or jumps off the chart. The kind that you don't have to look for. I never ignore these divergences, they are our true edge.

Of course all of this was already put down to the highest probabilities on April 2nd and before, well before the triangles even finished forming much less breaking out. The ES 1-day chart which has seen continuous deepening deterioration as the strong 3C timeframe leads to a new negative low through 2015.

This is our base case, we'll see what develops from here. I'll be spending my time going through watch lists, but it would be most helpful to get a bounce in the market here to open up trade set ups in which they come to us as we DON'T chase trades. Like the wolf or predator, we let the trade come to us, we chose the time and place and we decide whether the expected/anticipated conditions have been met and then take the trade at the best entry level, the lowest risk level and the best timing. Anyone entering broadly based market correlated trades before now would have simply been whiplashed around through lateral chop and volatility, that's not a good use of dry powder. At the very least, it's opportunity cost.

VXX Price Alert Correction

In the last post, Flameout at the bottom I wrote the following under this chart of VXX...

And more interested in the big picture, 5 min VXX. If you were looking to enter or reenter, I would set some price alerts around the 16.50- 17.00 level

I'm suffering form a minor bout of lack of caffiene this morning, as there's a typo there which should read,

"And more interested in the big picture, 5 min VXX. If you were looking to enter or reenter, I would set some price alerts around the 20.50- 21.00 level"

My apologies for any confussion.

Flameout

It looks like we've hit our intraday flameout. I was considering closing the UVXY long opened yesterday to take some small gains and reenter at a better price, but it's not really that important to me considering the bigger picture however you may want to consider it.

 This looks like an intraday flameout in the SPY

 The same in the IWM

 TICK hit extreme levels this morning and has now broken the channel.

 What we have here, "is a failure to communicate"... I'm just kidding. 

What we have here is a stop run which should fuel the small bounce.

As forVXX/UVXY, as I mentioned very short-term it's should see some downside so if you want to preserve gains from yesterday you might take them now and reenter at a better level.

 VXX 1 min.

I, however....

And more interested in the big picture, 5 min VXX. If you were looking to enter or reenter, I would set some price alerts around the 16.50- 17.00 level

Early Update

Looking at the market on the open, it does not look very promising for a bounce, but the price is deceiving.

I wouldn't mind so much being wrong in this case and let those core short positions tear loose, however I think it's way too early to assume the charts are wrong.

In fact, Here are a few things to be looking for...

 Yesterday the intraday breadth wasn't at an oversold level like the sectors, However this morning as you can see the trend in the NYSE TICK is taking care of that with a low of nearly-1500 which is an extreme.

We're looking for an intraday flameout

 The daily SPY chart is right in the area of 50 day support

That means watch those intraday charts for a bullish hammer or some other bullish candlestick on increased volume, preferably higher than anything around it.

 The Russell 2000 features intraday one minute chart still has the same positive divergence intact.

 As does the NASDAQ 100 futures

Looking at a very tight 10 minute ES chart, Note the positive divergence also. We have to consider this within the reality of multiple time frame analysis so this is a short term bullish signal, but when put into context...

This is the wider view of the same 10 minutes ES chart it is overall leading negative divergence however it is not unusual to have countertrend balances as it looks like we've already transitioned from the head fake move or chimney to the beginning of stage 4

A.M. Update

Good Morning,

Yesterday's Pre-F_O_M_C positive divergences in intraday timeframes have continued to build overnight suggesting TODAY, we see a bounce attempt most likely with the 1 Index Future that has been lagging ES and NQ in turning negative on the 7, 10 and 15 min charts and  that's Russell 2000 futures or the IWM, so yesterday's worst performer should end up being today's best, but again this doesn't look to be anything other than a short term "noise" move.

As for futures...

 NASDAQ 100 Futures 1 min chart overnight and this morning positive, again it is a very short term timeframe, but should hold a bounce today.

 Russell 2000 futures / IWM also positive on the 1 min chart.

I said yesterday I thought the Russell would lead as it should in any risk on move... jumping to the 5 min charts which are a much more serious timeframe for near term trade...

NQ remains nearly perfectly in line with price, not positive.

ES does as well, although the longer 7, 10 and 15 min  charts are still damaged like yesterday.

However the "tell" is the 5 min Russell 2000 futures, as I said yesterday, it's showing better relative performance on the 3C charts as it is positive on this 5 min timeframe as well.

While most Leading Indicators are falling apart, yields are roughly (as of the close) still in the area of the averages as a short term leading indicator so that may provide some additional support. A ew other Leading Indicators short term reverted down yesterday from leading, but leave them in line short term as well, this from their "mildly supportive position of the last few days".

As of last night we also had a 1-day short term oversold condition in market breadth by way of sector performance, 8 of 9 S&P sectors red and only 53 of 238 Morningstar groups in the green.

For these reasons, I believe we'll see a bounce/bounce attempt on a short term basis meaning a day or so, which works well to get more positions out. Nothing has changed on the "Big picture end".