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Thursday, November 20, 2014

Gold ($GLD) and the Message of the Market

This is one of the strangest trades we've seen in recent memory taken from several posts/excerpts from our member's site, 

(Click the link above for more information about WOWS)

Gold and the Message of the Market

This strange trade and message the market was sending us started on Tuesday November 18th in a post called, Trade Idea (speculative) GLD / DGLD at 3:13 p.m.

This is what GLD looked like as the first post was published as something strange was happening in underlying trade or our 3C custom accumulation/distribution indicator.

As you can see it was a gap up, but flat intraday trade when the following post was published at the white arrow...

The following are the actual charts and excerpts from the post above.

"This is an interesting one, especially ahead of tomorrow's F_E_D minutes.

It looks like GLD is going to see a quick move to the downside, I suspect after that, it makes a move higher. I am opening a speculative half size DGLD (3x short GLD) trading position), although it would have to have a pretty tight stop, likely a bit above below DGLD's intraday lows and then consider, if everything goes as I suspect, a UGLD long (3x long GLD).

Here's the charts, the negative GLD divergence is sharp, but not very large which is why I suspect it's a quick, sharp move, but not a long one."

 " The 5 min (GLD) chart is in line, The fact there isn't a negative divgerence on the 5 min chart suggests to me any downside move can't be that big, it can however be sharp."

 "Here's where it gets interesting, the 2 min (GLD) chart intraday has essentially fallen off a cliff."

"And the 3 min UGLD (3x long GLD) chart has fallen off a cliff."

All of the above suggested a fast move down the next morning, but not a big move down, this is why I decided to use DGLD long (3x short GLD) as I expected a sharp move, but not a long move). At 3:45 p.m. later that same day I posted, F_O_M_C Minutes Shakeout with the following excerpts...

"I'm seeing quite a few strange charts, the Futures are one...the averages intraday are another, Gold and it's very interesting divergence, now in treasuries... These charts are fast developing and rather new as you saw with GLD so I don't think they last long,"

"ES TODAY WITH DISTRIBUTION THROUGH THE WHOLE MOVE...TF doesn't look good today either...TBT, 2x short TLT looks like it is set for a small pop, perhaps pre-minutes release, but like GLD, it looks like a small move, though sharp"

So in addition to gold, other charts showing the same strange, fast developing behavior, expected to react like gold included the averages ($SPX and $RUT), 30 year Treasury bonds, TLT and the 2x short TBT was expected to act the opposite and see a quick pop up the next morning."

Here's what happened the next day, Wednesday November 19th at 10:55 a.m., Closing DGLD at a nearly 5% Gain

"The reason why is not just the parabolic move, but the large volume on that move. This was meant to be a short term trade and it has worked fantastic, I'm not pushing my luck." 1:55 a.m. Tuesday 11/19.2014

This is where we closed the 3x short GLD ETF, DGLD and what happened next...
 From GLD's perspective, the white arrow is where we went short GLD via the 3x leveraged GLD short, DGLD and the next morning at 10:55 at the GLD lows on heavy volume is where we closed the GLD short by selling the 3x short GLD, DGLD.

As we expected the day before when the trade was first purposed, it was a short, but fast move that bounced right back, from Tuesday's original post...

"It looks like GLD is going to see a quick move to the downside, I suspect after that, it makes a move higher."

From DGLD's perspective, the actual trade...
The white arrow is where we went long Tuesday afternoon and the red arrow is where we sold at the top Wednesday morning and as expected, DGLD fell right back down just after.

However, as the second post from Tuesday shows, GLD was the first asset we saw this strange signal in, but not the only. As for the averages, here's how they performed during the same time period.
As posted yesterday after the close... "For no apparent reason at all, Index futures (ES/SPX futures above) dislocated with USD/JPY (candlesticks) and headed lower just like gold in to the 11 a.m. lows as if on perfect timing and cue together."

Index futures broke their correlation with USD/JPY and headed lower from pre market right until 11 a.m, the same as Gold, the same time we closed our gold short.

We also mentioned TLT moving down and it's 2x short inverse ETF, TBT moving up in the same fashion, here's what they looked like...
As posted Wednesday night after the Tuesday afternoon prediction, "To make this easier to visualize, I mentioned "TBT, 2x short TLT looks like it is set for a small pop, perhaps pre-minutes release" and there's TBT making an a.m. gap higher while TLT and 30 year Treasury bonds gapped lower.

While some thought it may be a leak about a gold vote, the movement of the Averages, Index futures, Gold and even the $USD...all at the same time to the same area and then reversing cannot be explained, BUT IT'S EXACTLY WHAT WE CALLED FOR THE DAY BEFORE ON TUESDAY STARTING WITH THE FIRST ASSET WE SAW IT IN, GLD...

"It looks like GLD is going to see a quick move to the downside, I suspect after that, it makes a move higher. I suspect it's a quick, sharp move, but not a long one."


While we may not understand how or why smart money set this little move up, we were able to track what they were doing and follow almost to the minute...FOLLOW THE MONEY!

Monday, November 17, 2014

If This Doesn't Tell You Something is VERY Wrong With This Market Here and Now...

This is an excerpt from our members site, 

(click the link above for more information)

VIX, VIX Futures, High Yield Credit Telling of Trouble Ahead
Monday November 17th, 2014 posted by: Brandt

You've seen the VIX Futures accumulation on a strong and long 60 min chart, this is HUGE accumulation way beyond hedging.

 This tells you there's huge accumulation, but you don't even need this, just look at VIX vs the SPX...

This is SPX prices (green) inverted so you can see the normal correlation with VIX. To the far left is the normal correlation, they move mirror opposite each other, thus when I invert SPX prices they move almost exactly together, but look at the SPX trend which is nearly flat vs the VIX (light blue) trend which is moving higher every day for over a week, this  is telling us there's a large bid supporting VIX prices above and beyond the correlation.

The VIX today vs SPX (still inverted SPX prices)...
 look at the outperformance again today. Why is someone accumulating so much VIX they are changing the entire correlation? This is way beyond hedging.

I'm still going to try to get out that post that explains why "Credit leads and stocks follow", although we've seen it numerous times in leading indicators and top/bottoms.

High Yield Corp. Credit which has been used as a market ramping mechanism, but before the market take s a plunge, the rats leave the ship and HYG falls in front of the market, again, "Credit leads, stocks follow".

 Today's divegrence in HYG vs the SPX (green) is interesting because whatever short term move I might have expected in Friday's the "Week Ahead" post, HYG is not even interested in helping out intraday, it's full evacuation mode.

 And while this just shows the most recent HYG lever boosting equity/SPX prices and then running for the hills, as you have seen, the dislocation/negative HYG divegrence is much, much bigger than this as a new low is hit today.

Speaking of new lows, HY Credit is not manipulated the way HYG is, thus this trend should be very disturbing to anyone long this market especially after the taste of what increased volatility on the downside looks like last night in the Nikkei 225.

HY Credit not only divergent during the October rally/cycle, bt hugely so. Remember this is a risk asset just like stocks, except smart money is going the other direction. Most importantly as far as this week, look at today's divergence alone!

Friday, November 14, 2014

Stock Market Forecast: Leading Indicators from Wolf on Wall Street

This is one of our intraday updates, Leading Indicators for members of 

Enjoy, hope you can benefit from the forecast that is evident in the Leading Indicator signals...

Leading Indicators
November 14th, 2014

Here's a  look at Leading Indicators and the biggest developments of the week. If I have time, I'm going to try to explain why the saying "Credit markets lead, stocks follow" in a subsequent post, but as you probably know, the last two hours of op-ex Friday often gives me some of the best data of the week so I'll do my best, but I will cover it because HY is screaming and stocks will follow.

In my opinion the biggest developments of the week other than the re-introduction of volatility the last day or so (not today) as I remarked earlier in the week, "Volatility tends to slowly die down, but from low levels it explodes". If we look at volatility in its most common measure, the VIX, high volatility is a high VIX which trades opposite the market, meaning high volatility often is the result of a sharp market decline.

The real developments though have been accumulation in VIX futures well above and beyond any divergences I can recall this year including the negatives at the October lows before the rally started.

The other interesting indication is Treasury bonds accumulation, if VIX futures are the "Flight to protection", Treasuries are the "Flight to Safety", as I have hinted at this week and specifically last night, I think we are on the cusp of a major treasury rally, again they tend to trade opposite the market implying a sharp market move down which is something I have expected since we first got wind of accumulation for the October rally nearly 2 weeks ahead of the actual rally's start.

Take a look...


 Looking at Pimco's High Income (Credit) Fund in green vs the SPX in red, note the absolute carnage in HY Credit.

I'll try to cover this in greater detail so the mechanics are more clear.

And Pimco's fund in green vs the SPX over the course of the October rally which started at the green arrow. Anything look familiar? Almost every Leading Indicator looks similar to the dislocation or divergence between Pimco's High Income Fund and the SPX, meaning all have deteriorated at about the same time ( a VERY LEARGE dislocation) and all very sharply, much stronger then the leading indicators at the October lows which caused us to try to anchor expectations by saying this was going to be a face ripping rally that will have you scared even though you have advance notice days before it started", followed by the challenge to "Book mark this post and come back" as you'll see, the rally will be that strong you'll feel fear to short in to it, which is something no one at the time was thinking as sentiment was as bearish as it could get. No one could imagine even a bounce, much less this kind of move, so what does that tell you about the size of the current leading indicator dislocations?

 HYG's 2 hour 3C chart and long term distribution, it is especially sharp right now at a new leading negative low.

 HYG 30 min from in line with 3C confirmation of the uptrend at the green arrow to a leading negative divegrence in June and a worse one now.

Just looking back at past posts...

July 25ths Daily Wrap post, this is right at the SPX top before sharp decline in to the end of July and about 15 days before the August rally started...

"High Yield ETFs and funds have seen huge outflows the last month, THIS WEEK SAW THE LARGEST OUTFLOW FROM HIGH YIELD FUNDS  IN MORE THAN A YEAR! Much of the flow has gone to low yielding, defensive Investment Grade Credit."

August 14th's Daily Wrap just as the August rally was starting the next day or two...

"Lastly, as we moved toward a base/bounce I noticed some inflow (small) in to HY credit which I figured was for a bounce "

And this chart and commentary from August 18th's Daily Wrap... just as the rally got started for August...

"Here's the massive outflow. The market cannot stay up with HY credit falling, thus the saying, "Credit leads, stocks follow". You can see the tiny inflow last week for the bounce."

And from our Sept 12th Important Market Update which was going in to the August cycle's head fake move and change from stage 3 top to stage 4 decline with an SPX decline in to the October lows of more than 8% and a Russell 2000 decline of more than 11%...

"According to Lipper Data, for the week ended Sept. 10 US High Yield bond funds saw an outflow of $765.8m , which is the second consecutive week of outflows as the previous week saw an outflow of  $198.1m. I think it's pretty clear to see that HY fund flow (much more coming out than what went in in late July/early August, is leading the market and pretty well synced with assets like High Yield Corporate Credit (HYG)."

It's obvious that while the trend is hugely toward outflows from HY credit, we see small inflows for bounces or market lever support such as HYG just before a rally starts.

HYG's 15 min chart in to the October rally with a sharp leading negative 3C divergence with the sharpest 3C decline the last day (yesterday) at the red arrow.

The longer term HYG/SPX correlation with HYG supporting the SPX through most of 2013 and as of June when huge outflows from HY Credit began, look at HYG's leading negative dislocation from the SPX, they are literally moving in opposite directions with the SPX making new highs and credit making new lows with large divergences at each SPX pivot high. Credit markets are much bigger and more sophisticated than Equity markets, they are telling you two different things, which do you trust?

And this week we have seen VIX and VIX short term futures outperform the SPX almost every day. Here's VSXX, short term VIX futures vs the SPX just today, I have inverted the SPX prices (green) so you can see the natural inverse correlation and differences in relative performance.

 At the green arrow VXX is moving as the correlation would suggest, in line with SPX, but today for a 4th consecutive day, VXX outperforms the SPX as VIX futures are bid.

 The spot VIX has also been outperforming the SPX all week, again SPX prices (green) are inverted. Note the SPX trend is nearly flat through the week while the VIX's trend has been up, this is because protection has a solid bid under it, demand = higher prices.

Not only is there a Flight to Safety, but a Flight to Protection". Why do you think large caps outperformed small caps yesterday so massively?

 And the chart of the week, the 60 min VIX Futures, this is not hedging, this is a HUGE leading positive divegrence/accumulation of VIX futures. Someone with very deep pockets has been accumulating VIX in size that is at least 15 times larger than the distribution at the October lows before this strong rally.

 VXX short term VIX futures 2 hour large picture chart and highest probability resolution for price leading positive at the move up (in VIX-down in equities) that led to the October low in SPX (at the top of this move) and the current leading positive divegrence, even higher and stronger.

Note the head fake move at the yellow arrow just before the upside reversal.

 UVXY 2x long VIX short term futures 60 min chart with an impressive divegrence now, again note the stop run/head fake move at the yellow arrow just before the last reversal to the upside.

I suspect some of the market action seen this week including AAPL is such a head fake move, you know the concept.

XIV, inverse short VIX futures, this moves with the market unlike VIX, yet look at the distribution at pivot highs and the lower lows in price vs the SPX as well as the sharp leading negative divegrence this week.

VXX short term VIX futures 30 min, again the head fake move before the last rally (yellow) and the current positive, much like actual VIX futures above.

XIV-the opposite of VXX above, again at 10 mins showing strong distribution this week.

Note the head fake move just before the downside reversal, this is the same time as the head fake move in the SPX in September as the August cycle transitioned to stage 4 decline.

XIV 5 min leading negative especially strong this week.

VXX short term action looks like a near term pullback before it launches higher, perhaps a head fake move/stop run?

And of course one of the other big developments of the week, the VIX buy signal on our custom buy sell indicator, only the second signal of the year. 
 VIX sell signal at the SPX's October lows and a current buy signal, more interesting, look how VIX has performed since the buy signal...

It has been trending up this week with the buy signal marking the week's lows on Monday.

30 year rates...
 As shown earlier, they not only called a top in yesterday's intraday SPX move in the morning (red trendline), but are leading negative today.

 Rates move opposite treasury bondx, this is the 60 min 30 year Treasury bond futures with another leading divegrence similar to VIX futures.

 And the 20+ year Treasury bond fund, TLT with a 60 min leading positive divegrence.

The 2x inverse TLT, TBT with a matching negative divegrence as confirmation, the green arrow being the October lows and small accumulation there.

TLT 10 min with October lows at the green arrow and small distribution compared to the positive divegrence now.

And the inverse TBT with a confirming opposite leading negative divegrence, with notable weakness this week.

TLT 3 min looks like it's about ready to fire...

10 year yields also leading SPX price (green) lower today

While the 10 year treasury Futures lead positive.

And 5 year yields leading the SPX lower (green), while...

5 year T-bond Futures show a leading positive divegrence. Remember bonds and yields move opposite each other and yields tend to pull equity prices toward them like a magnet.

As for professional sentiment...

 Again we are seeing it sell off vs the SPX in green and the trend...

This is since the July decline and the October lows and rally, there's a very clear professional sentiment divegrence.

Thursday, November 13, 2014

$BABA Alibaba Forecast and Analysis

 Here are excerpts from 3 posts at Wolf on Wall Street from this week , November 10th, 11th and 12th.

$BABA Analysis

This is what $BABA looked like as of the close Monday November 10th, +4.01%

Excerpts from Monday 11/10/2014

I've had some inquiries about BABA (Alibaba) recently and this recent tear it has been on. I personally would not consider this stock a short whatsoever, however it may be building up to a pullback that is worth a swing trade short (or options),  it's on that pullback that we'll know what kind of shape BABA is really in.

You may not recall, but this was one of the stranger IPOs of recent memory, for quite a few reasons, but one being shares held by insiders and the underwriters of the IPO that are not locked up as part of the boilerplate 6 month lock up for these types of shares on a new issue, which smelled fishy.

Right now I can't say there's anything other than strength in the underlying trend, as short as it is (historically)...however there are signs of a change coming which is likely a pullback. This pullback may make for a nice long entry or it may tell us something is starting to sour with BABA and to look for tactical positioning.

BABA daily chart shows price peeling away from the trendline in a "seemingly" bullish way, however this change of character more often than not, leads to a bearish change in trend.

In this case the move is called a Channel Buster and they often reverse to the lower end or break through the lower end of the channel just as fast as they breakout of the upper resistance trendline of the channel. As such...
There's no doubt this looks very strong, very bullish, but history has shown us again and again, these types of moves are a red sign flashing that a change in trend is coming.

The 2 hour 3C chart with accumulation at the lows and confirmation since.

The 10 min chart is the same, but also the first place we see a significant change in character with a negative divegrence in the area of the Channel Buster. I'd suspect if insiders were selling non-locked shares, they'd be doing it here.

The 3 min chart shows the same trouble in the same area,  so I'd expect a pullback. HOW BABA ACTS ON THE PULLBACK TELLS US A LOT, whether this is a potential long opportunity of whether the show is over already.

This channel held all of BABA's move including the consolidation. Again, look for a pullback around the 60 min 30 bar moving average, we'll see what underlying trade looks like there.

The very next day $BABA pulled back for the second biggest 1-day loss since it started trading...

This is what $BABA looked like as of the close Tuesday November 11th, down -3.87%, the second largest 1-day loss in $BAVA's history.
BABA as of the close Tuesday November 11th 2014, down -3.87%

Excerpts from Tuesday 11/11/2014

I set price alerts as usual with these pullback trades which have been popping off all morning as BABA is down -3.22% on the day right now, even more than that at 11 a.m. lows.  I'm not going to repost all of the main charts telling BABA's story, they can be found here, Alibaba (BABA), however short term charts need some updating as the situation has changed.

 I used a 30 bar moving average on a 60 min chart to define the trend and a break of that moving average should lead to a deeper pullback. I'd suspect somewhere around the 50-bar 60 min chart (blue) moving average which is around $110.

I had to widen out the Trend Channel by 1 standard deviation since there's so little history, it's not possible to use a daily Channel, but this channel has held the entire trend including a close call on 10/28. The current stop for this trend is $114.24. Note that's the stop, which differs from the $110.00 guess-timate pullback area above at the 60 min 50-bar moving average.

 Since yesterday (in the red box), the intraday 3 min chart has grown worse to a deeper leading negative divegrence, pulling price down (now around -3%).

After a break of the Trend Channel there can be some sideways volatility, for any counter trend short trade I'd like to see some volatile lateral chop as it would give us a clear picture as to whether BABA is worth a counter trend short swing trade. Otherwise the next trade oopportunity we'd be looking at is a long entry on the pullback so long as the underlying charts stay strong and show accumulation. If this is not the case, then the next trade we'd be looking at is a potential short trade if BABA is in fact deteriorating.

So far the day after our call for a pullback, $BABA sees the second largest down day in its history, showing that the seemingly bullish Channel Buster was indeed a warning flag of a possible change in trend.
BABA's closing chart as of Wednesday November 12th, up +3.20% and in the range we were looking for the day before when saying, " for any counter trend short trade I'd like to see some volatile lateral chop as it would give us a clear picture as to whether BABA is worth a counter trend short swing trade. "

BABA as of the close Wednesday 11/12

Excerpts from Tuesday 11/11/2014

Monday 11/10 we covered BABA in Alibaba (BABA) saying that BABA was very strong, but a pullback was expected near term, yesterday a follow up post was put out, BABA Follow Up as BABA had its 2nd biggest day down,  at -3.87%, it certainly looked like our near term pullback thesis had started.

I had posted in yesterday's BABA Follow Up ,

"I used a 30 bar moving average on a 60 min chart to define the trend and a break of that moving average should lead to a deeper pullback. I'd suspect somewhere around the 50-bar 60 min chart (blue) moving average which is around $110."

 Right at the 60 min 30-bar moving average,but also...

Right at the top of the Channel on the Channel Buster move. It's going to be very hard for BABA to resist the failed breakout of a Buster's downside momentum usually taking it to the lower channel or below the lower channel before having the ability to right itself.

This plays right in to our hands as I had also posted yesterday,

"After a break of the Trend Channel there can be some sideways volatility, for any counter trend short trade I'd like to see some volatile lateral chop as it would give us a clear picture as to whether BABA is worth a counter trend short swing trade."

So really, so far, so good for several potential trades.

Officially the Trend Channel has not been broken yet on a closing basis. However as I previously said, it will be hard for BABA to resist the gravitational pull of a Channel Buster, a concept that has worked over and over again.
The 2 min chart is a carbon copy of the divergences on the 1 min chart.

If the 1 and 2 min current divergences keep up, we should see BABA range in a consolidation which will be excellent for determining whether a swing trade short (on a pullback) is a safe trade.

As of today, Thursday 11/13, this is what BABA looks like...

Since yesterday's follow up in which the 3C charts above suggested a down day or pullback today, BABA lost -2.82% today and formed the range we have been looking for since the start with a pullback thus far of -3.60% that started the day after we called for it on Monday.

BABA has not only broken the 30-bar 60 min moving average and headed toward one of our shallower targets, the 50-bar 60 min moving average, but broke the Trend Channel as expected and the top trendline of the Channel in the Channel Buster making our downside move to the bottom channel or below much more likely.

The 3C chart now suggests the Channel Buster move is the highest probability.
BABA looks like its highest probability move is lower, if we can get a low risk entry with confirmed 3C weakness, we'll take a shot at a swing short until our downside target is met and decide whether BABA is still as strong as it has been and perhaps enter a pullback long, if not, we'll decide what to do once the market has passed along its message regarding BABA.

I'll update the trade...

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