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Tuesday, March 24, 2015

Wolf on Wall Street Market Forecast... a Bounce?

Every once in a while I publish the complete post from our member's site, 

Believe it or not, even though this is a member's site, I have a keen interest in seeing the little guy who doesn't mind hard work, beat the street and occasionally we are at areas in the market where you have pivotal moments that most people can't or won't see, they can be used to your advantage and as you'll see below in our DAILY WRAP. Wolf on Wall Street isn't just about forecasting the market, trade ideas, market updates, but rather teaching our concepts and things we've learned by viewing the market with a perspective that few if any retail traders have ever seen. A lot of what you see will make sense, some will not because there are other posts linked that members already know all about so take what you like and leave the rest, hopefully you'll find some value in the work we do to help the little guy beat the street. Feel free to share!

Daily Wrap
March 24, 2014

Today's market somewhat resembled yesterday's in that both started on low volatility and ended on higher volatility, both ended down, but for very different reasons. I'd much rather take today's close than yesterday's as it brings us closer to something that is a meaningful move and that is volatility and I'll discuss that at greater length below, but it is something that we have been pointing to and noting all of this week thus far, it may even be the key occurrence other than the EUR/USD divergence for the new week.

Looking at pricew only, 15 years ago I would have called this a slam-dunk decline with the SPX closing at the lows of the daily chart.
 However, the truth is, we have much better tools to read the market now and a lot has changed in Technical Analysis since then or more appropriately, nothing has changed in Technical Analysis since then.

Volatility is almost always the key to a real, sustainable and deep move. Check out how the SPX fooled around from 9/18 2014 to 10/8 2014 before getting serious about downside as volatility picked up. Or not as good of an example, but closer to home, 3/3 2015-3/6 2015. We too often just expect the market to do an about face and without a fundamental catalyst that the market has failed to discount, that's just not the highest probability so volatility where we are is good.

Since last Friday's close.. 
 This is what the averages have done. Note that not only did transports not confirm the Industrials all of 2015, but that's them in salmon at the bottom since last Friday.

These are the averages since the F_O_M_C knee jerk and again, that's transports at the bottom, TOTALLY RETRACED ALL POST F_O_M_C GAINS!

And for all the momentum monkeys, remember that move in copper in last night's Daily Wrap and the commentary?
"That's one parabolic trend I would not trust (Copper Futures)."

And today for anyone who chased momentum...
Massive, "V" shaped FAIL right on the Chinese open.

As for Leading Indicators, as you'll see below, the changes in character including volatility and later 3C divergences took place just after the 1 pm area. Our custom SPX:RUT Ratio was failing to confirm the market as it made lower lows intraday, right in line with our end of day post, Tomorrow's Market-Patience Pays

 SPX:RUT Ratio fails to confirm SPX downside this afternoon. This isn't much more than a next day signal at this point, but it has been remarkably accurate. 

You can start to see the case building for a bounce tomorrow in assets you'd never consider. At one point I use to be able to use candlesticks and volume alone, but Wall St. has changed and if you don't change with it, you die (figuratively).

Last night I mentioned in to the close HYG was trying to offer some support as were yields as the last hour sold off. You might recall the earlier post from today, Leading Indicators Point to some SPY Arbitrage and a Tug of War in which HYG was still a factor in near term trade. As of the close... 
HYG vs SPX (green) and the SPX nor HYG are inverted. If you saw the other two charts of HYG in the same post then you know that this bounce is an opportunity , especially for put plays as the charts that really matter if your trade horizon is longer than a day are beyond reconciliation with the market. Smart money has left town, which is not only visible and has been visible in asset like HY credit for some time, but now we are seeing it in S_E_C_ filings, take David Tepper's Appaloosa. Many didn't believe me when the highest paid fund manager over the last 3 years said he was selling "Everything not nailed down" at a fund managers' conference in May of 2013, as he saw the market as being "pice to perfection at that point", meaning he needed the time to move a lot of assets and that he did. As you might recall, in Q4 of 2014 on recently released SEC filings he closed something like 13 major positions including all of AAPL, FB and several other large momo names and  more importantly he cut his already drastically reduced equity exposure since May of 2013 by another 60% in a single quarter. Or George Soros's increased SPY Put position that is 600% larger than the previous quarter and the largest since what he held around Lehman.

Like I often say, "Underlying trade is telling you things that you can't understand or confirm until the chance to make money has already passed you by".

Carrying on with Leading Indicators, not everything was a bowl of cherries for a bounce tomorrow as the EUR/USD charts are clearly showing.

As mentioned earlier in the Leading Indicators update, the SPY Arbitrage assets seemed to be active which you can see by one of the 3, HYG above, but also I mentioned the underperformance of VXX/Short term VIX futures, 2 of 3 SPY Arb. assets...
After an initial VIX smack-down that wasn't so obvious that everyone picked up on it, the VXX continued to underperform its correlation all day supporting the SPX despite the price losses, they would have been worse had HYG and VXX not been activated in a SPY Arbitrage scheme. Above the SPX (green) is inverted so you can see where VXX "should " have been and its relative underperformance on the day,

Our Pro sentiment indicators were also supportive of the market for a bounce tomorrow, although one saw a bit heavier selling at the close than the other.

However not everything and at least one of the SPY Arbitrage assets were not cooperating. BONDS. Bonds were bid all day.

 TLT in red (20+ year Treasury Fund) vs SPX in green shows bonds were bid all day in an apparent flight to safety.

The 5 year yield (yields move opposite the bond price) was nearly a perfect leader for the market to the downside yesterday as it diverged and today as it moved in almost perfect sync with the SPX. We can't see what happened after the 3 p.m. closure of the bond market, but by inverting TLT we can see what yields would have looked like after 3 pm.

Again, divergent yesterday and nearly a perfect magnet pulling equities lower as yields often do.

If you are at all concerned that yields might bounce and support the market and take away that leading negative divegrence, the "Not everything was a bowl of cherries for the market bounce tomorrow", don't be.

Again, as always looking to close gives you tunnel vision and high blood pressure, back up and take a look at Yield' reality vs the SPX and remember they act like a magnet which has already begun.
This is just the dislocation for this bounce which retraces ALL of the bounce and if we back out more, we see that it has a much deeper drop before the two revert to the mean.

Finally commodities were supportive today as well as a Leading Indicator, but on a bounce basis since the area around 3/10, they are still significantly dislocated and leading negative.

Sector performance today wasn't all that hot and you may have read several times that I'm interested in Financials and a Financial short, but would like to see a bounce/gap fill first to do that.
 These are the 9 S&P sectors intraday today, broadly off with all 9 of 9 closing red.

Utilities were the worst performer at -1.11% and the best performer was Materials at -0.33%, however Financials have my attention, if not for today's -.81% move, for the move since the F_O_M_C knee jerk reaction which you'll see, was a knee jerk reaction as more and more assets retrace the initial knee jerk including...
Financials! These are the S&P sectors since just before the F_O_M_C knee jerk higher, Financials in green have now retraced the entire move SO A BOUNCE HIGHER WOULD BE VERY WELCOMED FOR A TACTICAL ENTRY AS LONG AS IT IS A SHORT TERM BASIS. As you know from numerous posts like Intermediate MArket Update to EUR/USD, everything is pointing at a much lower move in the market so in that case when the strategic stage is set, I want to use short term noise to execute tactical entries.

Briefly on to volatility...

I'm not sure how many times I've posted examples of how volatility changes, almost always increases just before a change of trend and more specifically between the 4 stages of a market cycle. These market cycles can be intraday, they can be a bounce over the course of 2 weeks or 2 months or they can be a primary trend over the course of 5-10 years, but the 4 stages almost always play out over and over again and in just about any asset you can trade. This is just part of human nature and how human nature has been taken advantage of by the criminal syndicate that runs both Wall Street and our economy.

In any case, yesterday I said volatility had really dies down and that in itself was worth taking notice of as it's a message of the market, a piece of the puzzle as there's no Holy Grail that will just give you the entire picture. We have to take all the pieces and put them together the best we can, see what the probabilities are and make the best decisions we can with the information we have at that moment.

The 4 stages of a cycle are 1) Accumulation/base 2) Mark-up/participation 3) Top/distribution 4) Decline

As most of you have probably seen, the breakout from a base is in itself a large increase in volatility and it's a change in trend from lateral to up. As the end of stage 2 starts to appear, volatility increases as price pulls away from its channel or moving average to the upside in a near parabolic move, again volatility increasing and a warning that a new stage is about to begin. A perfect example of this was gold or GLD back in 2010/2011.

This is a 3-day chart of GLD so I could fit everything on it. The yellow moving average is a 50-bar, so being this is a 3-day chart, it would be a 150 bar daily moving average. From 2009 through part of 2011, GLD was a perfect consistent buy as it pulled back to the 150-day moving average, NEVER ONCE breaking it. We had been watching gold and suddenly it peeled away from the moving average to the upside at the orange arrows or you might say the price Rate of Change (ROC) increased and it didn't touch the average again. This was a warning, although gold bugs would not hear anything negative about gold which they saw moving up another 200%, but shortly after that volatility change gold went sideways in a choppy top and as we forecast in late 2011, gold would make either an intermediate or primary downtrend which as you can see it did.

As for the increased volatility at a top, one good example is the 3 places I'll short a H&S top and the one I won't. This is a chart from one of the core shorts we have , HLF and here's the link if you are interested in more...HLF Position Management / Possible New Trade Set-Up
THis is the H&S top in HLF and the 3 places I'll short it, 1) at the top of the head which is difficult, 2) at the top of the right shoulder. I will NOT short a H&S on the initial break of the neckline as TA teaches, but rather wait for the volatility shakeout of new shorts who just entered at area #3 back above the neckline and this is an example of the increased volatility we see as a top transitions to a downtrend. We entered HLF on the biggest day up in its history, over a +25% gain on the day, but not just because of the gain, but because the charts told us to even before the move up started, that was just a bonus, although an emotionally difficult one to short in to.

A good example of the transition from stage 4 decline back to a stage 1 base is what is known as "Capitulation" or a mass selling event. This is typically a large "Exhaustion" gap down on huge volume. This marks the end of the Decline phase, although price often drifts lower over a period of time before starting to build a new base. OFten just before capitulation you'll see a near vertical drop, much like a blow-off top might look like.

Again, the point is the concept of increasing volatility at turning points and this is why I thought it was worth taking notice of the lower volatility yesterday ad we should work in to higher volatility on stage 4 decline, tomorrow could produce that kind of volatility.

You have to keep in mind that everything is relative to its proportionality or scale so you wouldn't see a +25% move in the market here/tomorrow like we did in HLF which was a much larger topping pattern.

The Bearish engulfing candle I proposed last night in the Daily Wrap would be a great opportunity not only from an entry point of view for a put position, but from a volatility/signal point of view, although that may be asking a little too much with what we have to work with.

Check last night's post linked above for the proposal of a Bearish Engulfing Candle that I would have loved to see today. The chart I drew as an example from the post last night is below, just keep in mind that is as of yesterday's close, but the concept is still the same.
A gap up and a close below one of the opening up days' real body (in red).

Last night's Dominant Price/Volume Relationship as well as the S&P sectors and the Morningstar Sector's performance told us one thing, the market didn't have any kind of short term oversold condition, not even on an intraday basis. You might even recall what I said about last night's Dominant P/V relationship and what I said taken with the S&P sectors and Morningstar groups,

"The Dominant Price Volume Relationship today was in everything but the Russell 2000 as usual. The Dow had 18 stocks, the NDX had 76 and the SPX had 276. Confirming there was no oversold condition even on an intraday basis, the Dominant Price/Volume Relationship was Close Down/Volume Down, the least biased of the 4 relationships which has earned it the nick-name, "Carry on" as in keep doing what you were doing which was selling off at the close.

Of the 9 S&P Sectors... 2 closed Green with Consumer Staples leading at +0.16, two closed at 0% and the other 5 closed red with Industrials lagging at -.84%.

Of the Morningstar groups, 120 of 238 closed green. These are very middle of the road readings, but what it tells us is that even on that last hour's sell off, the market didn't approach even short term oversold so theoretically from an internals point of view, the market could pick up right where it left off and continue selling off tomorrow."

That's essentially what the market did today with all of the major averages in the red.

Today the change in volatility was there if you were looking for it. You might recall earlier updates today with the NYSE TICK and the readings at a very mellow +/- 750.

Well by the end of the day, things had changed and as always, "Changes in character precede changes in trends" even on a very short term intraday basis.

This is today's NYSE TICK by the close...
For a good part of today volatility was average at +/- 750, but look at volatility with no trend other than choppy/lateral pick up in to the afternoon with extreme TICK readings hitting +/- 1235!

This is also almost the EXACT area where the intraday positive divergences formed.

Looking to the rest of the internals as I already mentioned 9 of 9 S&P sectors closed green (compare this section with last night's sector performance, Morningstar group performance and Price/Volume Relationships and see how yesterday they predicted the outcome today and how they differ today to predict the 1-day short term outcome tomorrow.

Only 68 of the 238 Morningstar groups ended in the green today, many more sold off than yesterday much like the 9 of 9 red in the SPX. See what we said about that last night in the Daily Wrap as to what it meant for the market on a short term 1-day basis, then compare and contrast, but you'll need one more thing...

The Dominant Price/Volume Relationships. These are NOT the price and volume relationships of the averages themselves, these tell us much much more about what's really going on. These are the relationships between price and volume for all of the component stocks in each of the averages, giving us a much broader view of the market as a whole rather than as a weighted average.

Interestingly the Dominant Price/Volume Relationship for the major averages was EXACTLY the same as yesterday, right down to the Russell 2000 having no relationship again which at this point must be at least 75% of the time over the past couple of weeks which is extraordinarily rare.

The Dow had 21 stocks of 30 with the Close Down/Volume Down relationship, the same as last night. The NDX had 54, the SPX had 226. This is slightly less dominant and as I said last night, this is  the least influential relationship with the smallest effect on the market's next day bias which is why I call it "Carry on" as in do what you were doing and yesterday with the S&P sectors and the Morningstar sectors no where near oversold, the most logical conclusion was to carry on to the downside. However since this relationship has barely any bias on its own, the 9 of 9 S&P sectors and the more Morningstar groups closing red creates a 1-day oversold condition and the Dominant Relationship (P/V) has no real influence to counteract that.

Thus the most likely outcome for tomorrow is the market bounces, although I wouldn't go so far as to say it closes higher because of the P/V relationship, it may just bounce and turn lower in to the close or it may just bounce as expected.

Either way, this puts us in the driver's seat to enter positions tactically with a strong strategic probability of the market moving lower,  this is what I call a "Market Gift".

This is simply the stuff you can't pick up from most price/volume based indicators, but it is a jig saw puzzle of clues that need to be assembled. I've seen 17 years of traders searching for the "Holy Grail" of trading, that one system that is perfect, it's not out there and the search for it just highlights their laziness. If you are going to take from Wall St., you're going to have to work to get it.

I was browsing through some other screens/indicators today and noticed this, our X-Over Screen.

Since this is such a short cycle/bounce, it lags a bit, but on a 60 min chart, it is just about to give all sell signals.
As I said, because of the short cycle, the moving average based system (with custom indicators and Wilder's RSI/U.O.) gave a late buy signal, but it's giving a sell signal right now as the oscillators are below 50, the price average has crossed down and the final key, the custom indicator in the second window is about to cross down, likely tomorrow even with a bounce.

Winding down tonight's Wrap, I usually report on the Index futures and what they look like , if there are any smoking guns.

If we didn't know better as far as probabilities are concerned, I'd look at Index futures and say, "Look for more downside tomorrow". The great thing, if you already entered some positions while the market was near the top of the bounce is we are set if the market can't pull off the bounce and nothing lost. IOf the market can pull off the bounce, we have some second chance opportunities or better opportunities to enter strategic positions on a tactical basis, it's virtually a win/win scenario.
 ES 1 min intraday with 3C perfectly in line with the downside. However, the accumulation we are looking for isn't to be found on steering divergences as we have some charts of the averages with 5 min positives even though they were less than half a day.

 The 5-7 min charts reveal an in line status rather than a leading negative, these can change very quickly, but are additional confirmation of the bounce tomorrow seen in the averages, leading indicators and other signals.

When we get to the stronger 10 min charts, the distribution of the last several days is apparent, only to see slight accumulation for a bounce during the afternoon today, not much gas in the tank.

For whatever reason, the Russell 2000 futures (remember the RUT has had no Dominant P/V most of the time), looks worse than even ES futures below on the 10 min.

 ES 10 min.

Where it really counts as we watch the strong underlying trend on a 60 min chart, you can see the stage 4 decline from the February cycle which transitioned as we sold our AAPL puts and QQQ puts on March 10th, Closing Down the AAPL and QQQ Puts for now, as we saw something that we thought would be a nearby bounce and as the puts expired on the 20th, we'd have at best, time decay, at worst we'd lose the nearly 50% gains in one and 30% in the other.

The base for the bounce started showing on 3C by the next day and the bounce above now has a leading negative divegrence, thus I have no problem shorting in to a bounce and Financials are high on my list.

As for the bigger trend, the one in which  we said ahead of time, well before it happened that the range from 2015 that was so obvious in the SPX at the time...
That there was little chance of us seeing lower prices and challenging the October lows and eventually breaking below them with such an obvious resistance zone in place that traders would chase. IT WOULD BE LIKE YOU WALKING RIGHT BY A $100 BILL THAT YOU COULD USE IN A LEVERAGED SITUATION AND NOT STOPPING TO PICK IT UP.



So knowing what we know now and what we expected then, we can look at this ES daily chart and see if our assumptions were correct. Did Wall St. buy and or confirm the break above the range or did they do as we expected before the move even started and use it for distribution, leaving retail traders who chase breakouts holding the bag?

You tell me? 3C is at a new leading negative low to the far right.

That will do it for tonight, I'll check on futures later before I turn in and report on anything exciting, but I think we have a pretty high probability scenario already set up, now it's just time to see if it plays out as expected and to find the right assets at the right time as a market gift.

Have a great night!

Wednesday, March 18, 2015

Closing Update

Today was the much anticipated F_O_M_C removal of patience, yet the market knee jerked higher, I wonder if there was a leak as to what dovish bones Yellen and co. would throw the market to cushion the sudden lack of the F_E_D put or as you might call it, "uncertainty".

Last Tuesday we called a bounce that we saw coming and cleaned up some put positions expiring March 20th as it seemed we weren't going to make much more with time decay. We forecast the divergence in relative performance between the Russell 2000 and the SPX and NDX last week and forecast the rotation to the SPY and QQQ from the IWM last Friday for this Monday, We also forecast the bounce run right in to the F_O_M_C and gave price targets of SPY $211-$212 and QQQ $108 as well as a knee jerk move higher on the F_O_M_C today as well as a change in the $USD direction...

Closing Update
Wednesday March 18, 2015

I'm sorry, but I'll be putting out several more posts, I just can't capture everything I need to in a timely fashion, upload and post it and still keep relevance to a fast moving market. However a fast moving market is often a quickly changing market and as I posted this morning in Levers

"However I've always advised with 3C and other indicators, "When you aren't sure, go to longer term charts", they reveal more trend and higher probabilities for near term choppiness or volatility in shorter term charts."

However, lets back u a bit to the earlier portion of that post and some others from yesterday.

In yesterday's Daily Wrap I posted some pratical targets based on the gas in the tank for the averages (SPY/QQQ)

"... if I had to pick a target on the upside and the F_O_M_C starting tomorrow through Wednesday wasn't a consideration, I'd say $210-$211 for the SPY....

 (For the QQQ) I'd say $107.60 is an easy target and $108+ is likely. "

Incidentally, right now we are either right in the middle of that range or right at the exact price target and on a parabolic move.

Additionally from last night's post just so there's no Monday morning Arm Chair quarterbacking,


If there's one concept that has been rock solid it's "BEWARE THE F_E_D KNEE JERK REACTION". I don't believe there's been a meeting that has gone by over the last 5 years in which I haven't warned about that in capital letters. More often than not there's an initial knee jerk reaction, sometimes hours, often days, sometimes weeks, but it's almost always the wrong reaction and is faded so be careful on any assumptions immediately following the meeting or the press conference.

While everyone and their uncle has a guess at what the F_E_D will do, I suspect they take a little and give a little, such as maybe remove patient, but perhaps say that they won't be hiking rates in
June. Don't take that literally, it's just an example, but that would be my gut feeling, that would obviously cause some crazy volatility"

From this morning's post, Levers...

I'm more interested in the levers, HYG, VXX (and its derivatives) as well as TLT as there's been more curve flattening since last night between the 2 year and 30 year.

The very near term indications on the 3 SPY Arbitrage assets are interesting in that they seem to be calling for more near term volatility which wouldn't be much of a surprise as we get a F_E_D/F_O_M_C sponsored knee jerk reaction about 90% of the time they have an event.

However I've always advised with 3C and other indicators, "When you aren't sure, go to longer term charts", they reveal more trend and higher probabilities for near term choppiness or volatility in shorter term charts.

 Unless the F_E_D has leaked and that information is discounted in to the charts, it may not matter, as the F_O_M_C is by far the major market fulcrum today which will easily run over anything below 5 min charts and depending on how big of a surprise they may deliver, can run over charts even longer although that's usual;ly less likely or the market finds a way back to those charts after the knee jerk is over."

And kind of summing up the post, while the 1-3 min charts were all over the place, mostly indicating short term volatility to the upside or a knee jerk reaction, the bottom line was as follows:

"The only thing that looks clear are these stronger, longer term signals all pointing to a lower market, I suspect that would be the case even in the face of a positive F_O_M_C initial knee jerk reaction."

Most of the above explains why I was in no hurry to replace recent puts that were closed or the recent 
UVXY position that was closed at a +10% gain.

However somethings are just so true, they become concepts. The longer term charts as just seen in this afternoon's closing post, Beware the Knee Jerk- Uncertainty, Meet the Market. are where the important trends lay, as well as the LEVERS post from this morning in which short term charts were in limbo and many leaning short term toward either lost in limbo which would be unusual or a market./F_O_M_C knee jerk bounce/.

I could probably make a convincing case via the EUR/USD and $USD divergence specifically that there was an F_O_M_C leak, in fact the more I look, the more probable it looks. It's not like F_E_D leaks are all that rare,  one right now just turned to a criminal investigation, the other was the 154 firms that received the F_O_M_C minutes by email 1.5 days in advance, plus we've caught 3 leaks in the past on our own so it''s not like it doesn't happen. You take a look at the charts if you like and tell me what you think.,  Market Update and EUR/USD Possible F_O_M_C Leak as well as the charts below.

After all, if the ECB is loosening and the F_E_D_ is tightening, why would the $USD be the one with a negative divegrence hours ahead of the plunge there on a knee jerk move?  I remember yesterday looking at the relative performance of the market vs the EUR/USD correlation and the day before and thinking, "This could be a leak", but it wasn't something standing out so much that I'd publish it. This is the gist of what I'm talking about though.

Es/SPX futures in purple have been in near lock-step with EUR/USD on the downside.  Last week we saw a run above the correlation and a reversion to the correlation, yesterday and Tuesday we saw another run above the correlation, then the pair take off to the upside. How this happens with the ECB easing and the F_E_D tightening is a strange occurrence beyond that of a knee jerk reaction, which gives rise to the question, "Was this leaked in advance?". 

You probably remember that the "gas in the tank" (positive divegrence) in Index futures made that one of two possibilities although I considered it to be less likely, it was still a possibility, that the F_O_M_C Dovish Bone thrown to the market today was part of what was leaked in advance on today's knee jerk move higher.

Take a look at the $USD from the very early signals from today to some longer term charts, remind yourself that the market expected "Patience" to be removed and that's hawkish, if anything based on market perception absent any short term knee jerk manipulation, the $USD should have been leading and the EUR lagging.

 $USDX 1 min chart today mentioned earlier as a possible leak.

 However going back even further, there's more evidence, take this $USDX 5 min chart's negative

This 7 min $USDX negative
 This 30 min $USDX chart with a negative divegrence

And the 60 min $USDX chart with a negative divegrence. that's not exactly what you'd expect for a hawkish event from the F_O_M_C, unless the attention from the real issue, the removal of patience, was buffered with a bunch of dovish bones thrown to the market as they were today like, "No rate hike in April". SERIOUSLY? Have you heard ANYONE mention an April rate hike?

If anything is to come from today's EUR/USD move, I suspect we may be seeing the beginning of that now as the initial knee jerk move start to wear off and the market comes to the realization that no matter what else was said, "Patience was removed" and now June is on the table introducing for the first time in 6 years, uncertainty from the F_E_D, in a market that is use to the F_E_D promising to protect the Bernankle put through all means for the foreseeable future. That all changed today.

This may indeed be the first evidence of that change as smart money is smarter than to fall for the Dove bones thrown to the market.

 The first hint that the EUR/USD and thus Index futures move is a head fake and may not hold very long is the negative intraday divegrence in EUR/USD.

Next, the first chart to show a change in direction would be as always, the fastest, this is the 1 min EUR chart leading negative, thus it looks like the pop higher in EUr/USD was used to cover or sell some EUR and gratefully at that, but it's also the first sign we have that this is am knee jerk move that fails to hold which is bearish for the EUR/USd pair.

 At 7 mins the EUR is simply in line, no divergence, just in line.

As you know, I don't believe "V" shaped reversals hold any more than I believe parabolic moves like today are to be trusted so the EUR/USD and each of the currencies individually would have to put in a reversal process whether U" shaped or "W", either way, we should see it not only in price., but in the 3C divergences in each of the pairs as EUR is already showing distribution in to the knee jerk move.

As for the averages, this gets a bit interesting too, we expect to see some signals along the same lines.

 SPY intraday failing to hold any confirmation and leading negative

That migrated to the next longest chart at 2 mins.

And in the time we had, started to move to the 3 min chart.

The 5 min didn't add any accumulation or confirmation and had already been showing signs of running low on gas so it remains in a leading negative position, to the left is the second accumulation area for the SPY (white).

 QQQ 1 min shows what may or may not have been a positive divegrence just before, but certainly some distribution in to the knee jerk move.

This migrated like the SPY to the 2 min chart, but I'll remind you, NOT UNTIL BOTH OF OUR TARGETS FOR BOTH AVERAGES WERE TAGGED TODAY.


 The IWM 1 min was the closest to confirmation, although I wouldn't draw too many longer term conclusions from that given the market's dispersion between the averages going on a week now.

 The IWM 10 min chart was already seeing lots of damage so any additional should feed right to this intermediate 10 min chart.

As for the TICK intraday, you can see the market was quiet pre-FO_O_M_C, but after we get an extreme upside tick reading, however toward the end of the day things suddenly start falling apart in breadth as divergences go negative.

Here's the TICK with the SPY in red, why would the SPY in red be seeing a negative tick of -1000 at those price levels?

In wrapping it all up, our forecast of a bounce in to the F_O_M_C this week along with rotation out of the IWM and in to the SPY QQQ early this week has been right on as well as our SPY/QQQ targets hit exactly today.

Right now futures are getting a bit ugly, but there's still more assets to look at , but you can see why I waited on the QQQ puts with gas still in the tank, it had to go somewhere and the UVXY long as the short term charts weren't in line, in fact the 1-3 min TLT, HYG and VXX charts were in the right spot to support a knee jerk move higher. The 10-15 min + charts are a different story.

I'll have a daily wrap with remaining observations out shortly.

Friday, March 13, 2015

NFLX Trade Set-up/Follow Up

This is from our member's site,

Our NFLX trade set-up and entry, now at +8% gain (short).  

The original position idea post February 26th...
And the Follow Up charts/Analysis from Feb. 26th...

Thursday, February 26, 2015

NFLX Follow Up

Other than being a long term core short which was up well over 30%, we first started following the next set-up and let NFLX do it's thing, let it come to us on what were a joke of earnings. I wouldn't be surprised if we see Q1 2014 disclosures with numerous funds dropping NFLX completely, ala AAPL/Appaloosa Fund.

In any case, after following it for over a month, I think I'm about ready to say, ?YES, I like NFLX short here, but I do want to show some charts and the way I look at a NFLX position which is simply my own view of things.

 This primary trend with the 4 stages of NFLX is the way I view the NFLX position, not a swing trade, not a 2 month trade, but looking for stage 4 decline. You can see the characteristic rounding bottom of a stage 1 base and the 3C daily chart accumulation with it. Then 3C confirmation at stage 2 mark up or where public participation starts to grow, then stage 3 top which like many of the other averages, appears to be a Broadening/Megaphone top.

You can go back to the Jan. 21st post and see why I think the earnings were bunk, why I thought NFLX was set up in advance to rally no matter what earnings were and especially if they were bad and how that had a lot to do with inventory held at higher levels that had to be cleared out from an earlier gap down.

The move since the earnings gap up has grown more and more parabolic, but still within the Broadening top and the 3C trend would suggest that it is a top. So I'm looking for the stage 4 trend that retraces all of the gains since the 2012 base and likely then some.

 60 min chart's overall negative or distributive trend...
The faster charts are going to have more detail and sharper divergences, but a 30 min chart is still a very respectable timeframe and the divergence here has been unrelenting, suggesting to me that the same thing that happened to AAPL in Q4 in which some large funds like Appaloosa dumped their entire position in a quarter, is most probably what is going on here, funds that size need demand and higher prices to sell large positions in to otherwise they just collapse price on their position at a loss, basic supply/demand dynamics.

 I suppose you could call this range and the subsequent move above it, akin to the Igloo/Chimney price patterns in the major averages, most assets will behave in similar fashion although relative performance will differ.
This 2 min chart tells me the same, this was likely the head fake move of this entire run and as such, would be the best timing signal.
And the intraday chart which is not all that meaningful compared to what's above.

I'm glad to see the range and break above in the same area as the markets' Igloo w/ Chimney price patterns and the negative divergence in to it. With all of these timeframes and a head fake event, this is what I'd call a full house and whenever possible, I want to use head fake events to enter trades as they have better entries and less risk.

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