OA SELL $BIS

Sold $BIS at $40.22, +40%.

Holding $LABU from slightly higher.

Just picked up $JUNO $40.60

More later,

OA

If you’ve traded through one of these market events, you’ve seen how the process works. Whether we’re talking smaller market pullbacks, or market corrections, the procedures remain the same.

Assuming this is a correction of a bull as opposed to the beginning of a bear, divergent signals are an important indicator to validate what the market is doing underneath the surface. In the same manner that we had bearish divergences leading into the Fed several sessions ago, I am looking for divergences to surface here, as they do in market corrections.

One of the most important divergences we’ve discussed is in the USD/JPY.  It managed to stay flat here despite the recent run up, and the recent sell-off. When its ready to move, it will confirm the fate of equities moving forward.

Other divergences to watch this week:

Breadth: $NYMO, PPT, $ADV-DEC, or any other metrics you use will likely avoid the values they hit in late August. If these indicators are significantly higher than their August levels, and the market has traded lower, get long.

Foreign markets: I typically will use $EEM, $FXI, or perhaps even $SSEC, $HSI, $NIKK, $DAX, $FTSE, $CAC, etc to see if the $SPY sees a little more excess than the others. Notice that the $EEM and $FXI are not following the $SPY into the same depth of their late August extremes…yet. If this persists, get long.

Biotech: With the volumes we saw today, 7 days of straight selling, and the trending action on stocktwits for some of the destruction in the space…I doubt the $IBB will follow the market down any further. If we see today’s low taken out later this week, and the $IBB doesn’t follow, get long.

Market Darlings: The relative strength names finally got sold today ($FB, $GOOG, $AMZN, etc). That usually happens near the end of a correction. Again, if these stocks do not follow the market into more downside, get long.

There are many other instruments to locate divergences with, but these are a few simple instruments to watch. Maybe they don’t manifest this week, and the idea of shopping for longs is wrong? We’ll know soon enough.

Also, I’ve heard that more and more people are using our current analogue, so I won’t discuss it much more this week, but one of the most critical components of that analogue was the divergence in market breadth. In the last 20 years, here are the breadth stats in terms of the percent of stocks that outperformed the market:

Please don’t tell me about the number of stocks in bear markets already, or that weak market breadth will equal lower prices. 1998 set the fucking bar for worst year in the last two decades in terms of market breadth. I’m well aware.

OA

I picked up $LABU as discussed earlier. I think the bio’s will avoid new lows after today, even into broad market weakness.

I bought short dated calls in $NFLX, and NOV calls in $CYBR. I am scrambling to pick up 1 or 2 more from the names indicated in my post at the open. Keep an eye on the comments for specifics.

This action on my behalf doesn’t indicate that I think the market has bottomed today, FYI. Our theme this week is divergences and I will hop on to explain this concept in better detail later tonight.

OA

I started a position here at $16.76

Will remove $BIS on additional confirmation.

OA

In a world where yield no longer exists, the USD/JPY has become a VIX-like indicator for me. It breaks down these panic situations to one underlying concept, when investors can borrow yen and buy US stocks, they will. Until this situation changes, my outlook remains boolish.

The traditional yen carry trade is an interest rate play, where investors borrow yen and buy higher interest vehicles, formerly U.S. Treasuries…now stocks.

One of the divergences we are looking to play out this week, is a non-responsive USD/JPY (or /6J) while stocks sell-off.

The USD/JPY hasn’t made it out of its’s post-August range yet.

We’ve referenced this as an indicator each time volatility has spiked, and it hasn’t disappointed yet. Should this start to breakdown, I become a little more worried about the outcomes we’ve planned.

OA

As mentioned last week, your resolve will be tested here over these next few days. In terms of signals on the week, I want to focus on divergences. Any divergences this week should communicate to me that I am in the right place and the right time in terms of taking risk here, in the thick of this ugly price action.

I’m ready to deploy a bunch of cash this week with the year end in mind. I have avoided options quite a bit lately, but am starting to eyeball some positions for the Nov/Dec expiry. I’ve cleared out some space and am ready to fire this week, should everything align as we’ve diagrammed.

My basket of names here includes $TSLA, $NFLX, $GOOGL, $CYBR, $YOKU, $SINA, $VMW, $N, $MKTO, $LNKD, $GOGO, $JUNO.

Be back in a few,

OA