TLT / Treasury Trade Idea Update

The TLT long/call position (second half) that I'd like to fill out, but have been waiting for it to finish its reversal process and hit stops under $118.50 (hit) and $118 (not hit) is looking a lot better, a lot more interesting for a strong counter trend bounce/rally. 

As I have said numerous times and we just saw the last 2-days in $USDX, Counter trend rallies are usually some of the strongest rallies you'll see even though they are destined to fail. They need to be strong to be convincing and turn sentiment around against the preceding trend, thus the name "counter trend" rally.

I don't think it is just TLT or 20+ year Treasuries that will see a counter trend move higher, I believe it will be across most of the curve from 5 and 10 year out to 30. I don't have any specific data on 2 year or less.

As for the charts, I'm very close to pulling the trigger and filling out the second half of a partial position already started, there's a few intraday charts I'd like to see "jump off the chart" as I often describe it.

This post from May 7th (note the date, it keeps coming up in asset after asset), Bond Rally / Swing will give you a strong background on the concepts and reasons we have been looking at TLT for a strong counter trend rally and why we have already put out a partial position and why it was a partial position to be filled out at a later date.

As for the charts...

 This is the break down in Treasuries which were unbelievably strong performers last year. Almost the entire year the 60 min 3C chart confirmed their upside, then suddenly it didn't and we expected something to happen, this is what happened: lower highs and lower lows with a long term trend line break which is the set up for a counter trend bounce as you'll see in the post linked above.

I fully expect Treasuries will head significantly lower after a strong counter trend rally.

 This is the area of what I have seen as a base and shakeout of shorts. Notte the rounding bottom and the last 2-days forming almost a perfect Tweezer bottom reversal candlestick pair. If today's daily candle looks like a bullish one and volume increases significantly, I think today will likely be the day the counter trend move begins.

The first major momentum would come above the trendily on a short squeeze, although I would like to see $118 broken first, it would be an excellent timing signal and call (option) entry point.

 In past updates the 60 min chart has been in line with the downside move, this is the first time it has shown even a hint of a positive divergence which looks to be migration as the 30 min charts just before the 60 min have been positive.

For example this 30  min. Note the date the major part of the divergence was in effect, May 7th. This is an impressive looking divergence for a counter trend move.

The 10 min chart leading positive and again those same dates of the 6th and 7th of May. Institutional money obviously was involved in setting up a cycle and likely rotation, but this is through numerous asset classes from FX to treasuries to commodities and equities.

The 5 min TLT chart, again the first divergence at the same dates.

Right now I'd like to see either a move below $118 to hit the stops as that would be an excellent timing indication and discount for a call position entry and/or a larger leading positive divergence as I drew in to the far right with an orange triangle...ideally both at the same time.

XLF/Financials Update

As I said in the last post, Financials are one of our long term core/trend shorts. The story that Financials will benefit from higher rates to be is absurd unless the F_E_D is going to hike meeting after meeting with 50 basis point hikes, all indications have been that they are going to go slow and I just don't see how a 1/4 or 1/2 point off ZIRP is going to do anything for Financials who seem to have largely abandoned their previous banking business model to become stock/momentum chasers like everyone else.

I certainly don't think higher rates are going to help loans in which no one is borrowing from a Cap-ex perspective, I don't see any treason they will when rates are off ZIRP and despite the Housing data yesterday, that was 1 print. Again, I don't see how higher rates are going to boost an already weak housing market. These are just the bones of some of the arguments or disagreements I have with the Financials will benefit from higher rates. I think it's more likely that they are stuck between two business models that have both been made "MORE" mediocre by higher rates.

In any case, if you pay attention to the longer term charts you'll see that same trendily break in October of last year and the same triangle price pattern we have seen everywhere and that I have shown you in the past was not a naturally occurring price pattern, but rather an engineered one, you can even see evidence of it in XLF/Financials.

Finally, just so you can see the concept of market cycles that Wall St. (generically) sets up, you'll see the exact same bounce accumulation dates of May 6th/7th as the rest of the major averages and you'll see the exact same behavior in to higher prices that breakout above the apex of the triangle.

There are numerous ways to play a financial short from options to a straight XLF short to 2 and 3x leveraged bear ETFs like SKF and FAZ.

 XLF's most recent trend and a trend line break at the October lows with the same triangle price patterns . These are much too large to be consolidation/continuation price patterns, but I believe that's what they were constructed to make traders believe as we had pointed out in the past month that we'd be seeing false breakouts above those triangles as they are the most easily recognizable of price patterns even for neophyte technical traders.

 There are a couple different ways you can draw the trendines of the triangle, lets just go with the 2015 triangle that we see everywhere.Yesterday's bounce which seemed to be on the better housing data and the "Rate hike sooner" theme looks like a bearish closing candle with a tallier upper wick (higher prices rejected) and on increasing volume which is what I want to see from a potential reversal candle. Because of today's gap up in XLF there's a chance it may form a bearish engulfing candle which is normally taken as confirmation of yesterday's weaker candle with the taller upper wick.

Either way, XLF is above the apex of the triangle which is what we have been watching for somewhere around a month bow expecting breaks above to fail as many have and several have even given it a second shot.

 The long term 2 hour chart is negatively divergent in to the breakout above the apex area.

 As is the hourly chart which continues to accelerate in its deterioration 


 And the 15 min chart with more detail, but still a very strong timeframe is VERY clear about the underlying trend since the break above the triangle's apex, strong 3C distribution.

Swinging back around to the fastest 1 min chart and working out to monitor migration in the charts because this is the exact same set-up on the exact same date as all of the major averages...

 The 1 min trend shows accumulation at the sharp "V" bottom (the same "V" bottom in all of the major averages at the exact same data except the IWM which has a slightly wider "W"-like base. The positive or "Bounce" divergence just like all of the other averages (the same one that caused our 5/8 Week Ahead forecast to call for early weakness in to the beginning of last week followed by a bounce and taking it a step further, followed by a much larger, sharper decline).

I don't think I need to point out the 3C trend since.

 The 2 min chart confirms accumulation at the exact same area, Wednesday and Thursday , May 6th and 7th before Friday's May 8th "Week Ahead forecast".

Again, I think the 3C trend since is quite easy to see without any notation on the chart and also showing the process of migration or strengthening of the divergence.

 The 3 min chart shows the exact same features and migration with a bit of a cleaner trend with less noise.

 This is the 5 min trend and while I didn't mark divergences as usual, I did mark the areas they occurred in, you should be able to pick them out. The point here is the support or resistance created by these divergences are exactly what created this symmetrical triangle, just as we have seen in numerous other assets. In other words, it's not naturally occurring, it was purposefully put there for a reason. Technical traders will chase a breakout from such a large triangle even though these large triangles are most often tops/bottoms depending on the preceding trend, but technical traders won't even check the volume of a H&S price pattern to confirm its authenticity, so I doubt they care much about the triangle's size which is like a bill board Wall St. has put out to lead the lemmings where they want them. Can you guess why Wall St. might want demand at higher prices with divergences like the one to the far right where the breakout occurs?

 This is a closer look at the 5 min chart's trend which continues to migrate and see more damage.

Interestingly, the 10 min charts of the major averages have been the line in the sane or "Gas in the tank" for the bounce that was forecast to start last week after earlier week weakness.

 The XLF 10 min chart with a leading positive divergence at May 6/7 and the breakout above the triangle's apex starting May 8th. Again these are the charts that I've been most focussed on in the major averages, but they are everywhere. In other words, this is and always has been a Wall St. set u, we knew it in early May, we see it unfolding now and the results of that.

I do like Financials short in the area, it's an excellent entry with low risk. I may put out an additional trade idea for tracking purposes after I see how the charts develop before the minutes and if need be, after the minutes.

XLF/Financials looks like an interesting short here

This is already a core short position (long term), but is looking especially interesting after yesterday's move. I'll have some charts up in a few minutes.

A.M. Update

Not a lot has changed overnight as far as some of the near term currency based expectations that have been initially developing that may have a corrective effect on a couple of positions like gold and oil. The broad market still looks very sickly with the same deterioration I posted again in last night's Daily Wrap as a few examples, but overnight Index futures were actually quite flat.

The only real news on a macro level was Japan's Q1 GDP beat of 2.4% better than consensus of 1.6 and last of 1.1, but it turns out that 80% of that print was due to inventory stocking, more pulling it forward (the ECB's May/June bond buying yesterday), so Q2 better find some snow in Japan for an excuse as to why GDP is so low.

 ES 1 min flat overnight ahead of today's F_O_M_C minutes...

As mentioned yesterday, 1 min gold futures with a positive divergence look like a corrective move is likely after yesterday's carnage in precious metals, but I believe there's a lot more downside to go.

The  Yen 1 min positive suggesting a modest correction in USD/JPY to the downnside

The Euro futures 1 min also suggesting a correction in EUR/USD to the upside

 3 min Gold futures also suggesting the probability of a corrective bounce or maybe gap fill, but the larger trend is still more downside. This would be very normal behavior.

And the 3 min chart of Euro futures also pointing to a corrective move in EUR/USD (up).

And the 5 min $USDX with a slight negative divergence that confirms/compliments the charts of the Yen and Euro.

However looking at the $USD likely correction within its counter trend bounce on a longer 30 min timeframe...

You can see it looks like it is already starting. Again I fully expect it to resume its counter trend bounce higher after a brief correction, but this is based on what we know BEFORE the minutes at 2 p.m., make no mistake, they'll be the fulcrum of the day, just remember to be wary of any F_E_D based knee jerk move, they are wrong a lot more than they are right.

Daily Wrap

Today I actually started out yesterday in London around 6 PM local when the ECB's Couere gave a speech to an audience packed with hedge funds and let them know that the ECB would be pushing forward it's QE Summer purchases into May and June as summer liquidity is very thin and May has the highest net issuance of Euro bonds.

The only trouble is that the hedge funds had and approximate 14 hour advantage between the time the speech was given and the time the ECB made that information public.

 The EUR/USD having dropped about -350 pips since Friday highs (the 3rd biggest move since October 2011) with the ECB's private hedge fund speech with an initial reaction in EUR/USD and then about 14 hours later as the information was made public at the European open.

I was obviously interested if there were any tell-tale signs and took a quick look at a few relevant assets...

 Euro futures with initial selling as hedge funds found out (green arrow) and heavier selling as the general public found out 14 hours later, I don't see anything out of the ordinary, but I'm sure certain entities front-ran the (in effect) insider info.

Note the positive divergence in Euro futures as I mentioned toward the end of the day in several posts including, GLD Update where we have some currency sensitive positions.

 I looked at the $USD which would gain on a falling Euro and there was a minor positive divergence right around the same time the hedge funds would have heard of the QE front-loading by the ECB in London last night and what could be a possible positive divergence just before the news was released to the rest of the world 14 hours later on the European open,

Note the $USD looks rather flat toward the end of day vs. earlier in the day.

And Es/SPX futures which essentially gained since the London speech and then really shot up as the information was made public, only to retrace all of the gains by the US cash open. creating a lower high and a lower low.

The 8:30 Housing starts created quite a ruckus as they came in at the highest level since November 2007, up +20% M.o.M. to print at 1.135 mn vs consensus of 1.015 mn. This was the second biggest M.o.M gain in the history of the data series and the biggest jump since 1991! The market took this as "Good news is bad news" and that it would mean rate hikes earlier as the $USD that has been setting up for a counter trend rally that started to breakout from yesterday, surged higher sending our GLD puts in t the green as Gold, silver, copper, iron ore and oil (commodities) fell on the stronger $USD as well as losses in Index futures and bonds.

 60 min $USD chart showing our April 2nd forecast for a bounce (green) to be followed by a much larger downtrend which has seen a series of smaller counter trend bounces (yellow), but this one was expected to be larger based on the size of the divergence and the area the $USD was in.

One of the largest, strongest $USD accumulation areas we have seen since the downtrend started on 15 and 30 min charts with a "W" base. There looks to be plenty of upside still left in the $USD although I suspect a slight correction or consolidation.

The daily $USD chart showing the 2-day move  which is the largest 2-day move since October 2011. Remember what I said about "counter-Trend rallies"? They are some of the strongest you'll see as they need too be impressive enough to change opinions to be effective.

The daily $USD chart shows what appears t be the $USD carry trade unwind as the currency has made a lower high and a lower low on a closing and intraday basis, but was just below the support of an intraday low which is where I suspected a counter trend bounce would originate (hit stops and punish shorts).

The $USD gains sent our Crude short lower, definitively breaking support and our gold parabolic put fade in the double digit green column with silver seeing the biggest move down in 3 months and copper the biggest drop in 4 months. Commodities as a whole were pounded on the $USD move.

Commodities (brown) vs. the SPX (green) clubbed lower with crude, gold, silver, copper an iron ore al lower.

This is exactly the move we have been anticipating and setting positions up for including oil short and gold puts.

The averages looked like this on the day...

 On the day the major averages were pretty close with the SPX and Dow at -0.06 and -0.07% respectively and the NDX and R2K down -0.20% and -0.15% respectively. The big loser was transports down -.76%

On the week so far transports have lost all of their gains while the Russell 2000 leads.

As you probably know it has been 3 weeks since the April F_O_M_C meeting and the minutes are due out tomorrow at 2 p.m. As I ALWAYS warn, "Beware the F_E_D Knee-Jerk Reaction , it's usually wrong and usually retraced within a few days.

However as you probably already know, the afternoon trade brought about some minor divergences in currencies that looked like a possible $USD/JPY decline and EUR/USD bounce which would mean a $USD decline or consolidation.

As for the USD/JPY, Index futures weren't much for following it today, unlike 6 months ago when you knew where the market would open simply by looking at the USD/JPY...

The USD/JPY in red/green candlesticks vs. Es/SPX Futures (purple line) showing the European open, the US open and the US close. Again it's hard to look at charts like this and imagine it's not Carry trade (closure) related.

As for the Currency futures...

 Looking at individual currency futures I see a slight intraday negative divergence in the $USD which I think is acceptable after the biggest 2-day move since Oct. 2011, again, that's the strength of counter trend rallies and I don't think this is near complete.

The Euro futures show a couple of negative divergences, one just before the ECB public announcement decline and then an end of day positive divergence. This could be profit taking from the hedge funds front-running the ECB QE information or...

The 1 min Yen also has a positive divergence.

If these all fired it would result in a USD/JPY pullback, a EUR/USD bounce and a $USD pullback. It's hard to say whether they are profit taking or the real thing which would be perfectly logical after such a strong move.

What reinforces the corrective behavior in my mind is that I found these same divergences on other timeframes in the Euro and $USD, but not the Yen (only 1 min positive). This is the 3 min $USD with positive divergence before the break higher and an end of day slight negative divergence.

And the opposite with a positive divergence in the 3 min Euro futures and on this chart it does look like smart money or the hedge funds acted on the ECB information before the european open when the bulk of the move occurred.

I can track these divergences out to even longer timeframes and tomorrow's F_O_M_C minutes are a wild card that could do virtually anything unless we see a leak before them which is rare, but not unheard of.

The reason I'm not too concerned is whatever might happen short term, this divergence in the $USD, is very strong and I doubt very much that it is anywhere near done...

$USD 30 min positive divergence. The $USD may have gotten a boost from the good housing starts this morning, but unless there was a leak, it was moving higher no matter what with a divergence this large on this strong of a chart , furthermore, whatever may happen in the very near term (tomorrow), this divergence looks FAR from done.

Oil broke decisively sending our USO short firmly green...

 Again , whether USO sees a bounce or consolidation, between the $USD 30 min positive and the USO 15 min leading negative at the breakout area, I'm not too worried as this should move significantly lower.

The same applies for GLD/gold. Even on a gap fill, the June 19th puts have plenty of time and the 15 min leading negative divergence and $USD positive suggest serious downside ahead.

We may have some new trade opportunities on any corrective moves so I'll be setting alerts in case anyone is interested in a second chance position in the case of a corrective move.

The question of whether the market can put in a head fake move stronger than this one...

SPX daily chart/ascending triangle... is still an open question. Under any other circumstances I'd say yes 99% as the approx. head fake percentage before a trend change in any asset and any timeframe is about 80%, this is that much higher because of the asset, the size of the price pattern, the visibility. however, today wasn't exactly a stellar follow through day and there was a lot of weakness in a lot of places. Even USD/JPY couldn't lift it, nor did HYG...

 HYG vs SPX intraday...

And as was expected, HYG is diverging from SPX to a greater degree.

As is HY credit with the 4th day of divergence.

Here the SPX (green) is shown with its price inverted so you can see the relative performance vs spot VIX which looks a lot like protection has been bid very recently which is the same thing we've found in short term VIX futures.

 It may be because of tomorrow's minutes, but VIX short term futures were seeing positive accumulation today and this in addition to an already huge 15 min divergence.

However, I haven't changed my position that I elaborated on Friday regarding the "gas in the tank" charts, mostly on the 10 min charts of the major averages. We could very well see a corrective move on a $USD pullback allowing the 10 min charts to go negative as all evidence has shown any sort of higher prices have seen distribution.

As far as where we stand with those charts...

 SPY 10 min "Gas in the tank" bounce chart that needs to go negative.

QQQ 10 min

The process (and that's exactly what it was called in Friday's "week Ahead", a Reversal Process") is working, but as the word implies, a reversal is a process, especially one I'm contemplating that is as large as I suspect this one to be...

The IWM intraday charts keep looking worse and the process of migration (strengthening of the divergence)  is under way...

5 min IWM leading negative more today than yesterday

And bleeding through or "migrating to the 10 min chart which is the Maginot line so to speak.

As I explained earlier today, the cap on the market is right above at the 15 min chart...

IWM 15 min through 2015. something very definitive changed in the charts as soon as January hit.


As for internals today...There were none today. No Dominant P/V relationship, 3 of 9 S&P groups closed green with Financials leading on the "Rate hike is good for financials" meme and Energy lagged at -1.42%.

Of the 238 MS groups a very mellow 104 of 238 were green. Again, absolutely nothing interesting about internals today.


As for futures tonight, other than the currency futures and the general migration process, tonight's specific futures aren't all that exciting, but I'll try to give you a few different angles...

 YG/Gold futures 1 min with the small positive divergence intraday mentioned several times along with crude. The previous 3C trend at the green arrow is downside confirmation.

CL/Crude (Brent) 1 min futures showing the same thing which fits with the currency futures divergences so a consolidation/correction wouldn't be surprising, but this could also be as simple as profit taking.

The Index futures are rather blah tonight, this is NASDAQ Index futures as it was the cleanest example, otherwise they aren't giving away much.

However as you get deeper in to the trend with less noise like this Russell 2000 3 min futures chart, the distribution in to higher prices I mentioned is quite clear and they all look like this.

The process of migration is at work here too with Index futures...

This is gold 3 min futures with a clear negative divergence leading to today's move lower.

This is a 5 min chart of VIX futures, remember that accumulation/protection mentioned above today, well it's more than just today. This may be because of the minutes tomorrow, but I suspect it's part of the migration trend as well as this chart would confirm the next...

ES 5 min leading negative.

And here

 And here we have TF/Russell 2000 futures 10 min from the positive divergence, note it's the exact same date and place as the averages above and that turning to distribution in to higher prices and leading exceptionally negative.

And NQ 30 min, which needs to see some more work done here, but again it's the same reversal process as the averages.

Tomorrow should be interesting, if we do get a move/correction in the currencies, it would set up some second chance positions for anyone interested or who may have closed gold/oil trades today to book the gains and may be looking for a new entry.

No one can say what the effect of the  F_O_M_C minutes will be, but a knee jerk move on anything F_E_D is so common that I ALWAYS warn before any F_E_D event to beware of knee jerk reactions, they are rarely what they seem to be.

Have a great night!