Can the Europe Turn the Tide?

NO! 

If so, I think the Union will be very different then it is now, if it survives at all. The heart of the matter is still a one size fits all economic model that takes countries that could have otherwise avoided the perils of default through exercise of independent fiscal measures, however, they can not. Greece can not devalue its currency as its currency is the same as all of the other E.U. States. This is where the experiment went really wrong. One size can not fit all. However, one fate seems to be edging its way through the E.Z. As one country after another sees their bond yields rise to unsustainable levels and makes borrowing in the open market an impossibility. The CDS spreads are widening as well and all of this is happening in a historical nanosecond. That's what happens when things start crumbling.

What was once a concern for the small states or periphery has now become a concern of the major players, France and Germany are seeing the same risks already. The bailout mechanism that was meant to reassure the markets (not meant to be used as anything other then a deterrent), is not far away from being totally broke and when Spanish default risks rise a bit more, it will be.

Double dip in Europe is assured and while their at it, they seem to be willing to make things even harder on the states in bailout mode-such as withholding the next installment from the Greeks and trying to pass a 25% all inclusive (every E.U nation) corporate tax-which is a direct frontal assault on Ireland's 12.5% rate which has brought them major investment from the likes of companies like Microsoft and others. It's looking unlikely that Ireland will even be able to cope with the borrowing rate, and to drive out the foreign investment will make things that much harder. It's hard to imagine what these Euro MPs are thinking?

The Chinese are literally on the razor's edge of monetary tightening and the US real estate market seems to be well into a double dip that will take prices down further. Foreclosure-gate will only make that worse-I'm not even going to get started on the banks as it must be obvious what 2x more inventory will look like with 25% rate of class action lawsuits and putbacks.

Our own markets today looked a lot like yesterday's, except yesterday the sell-off occurred late in the day, today it started quite a bit earlier. The S&P-500 managed to hold the 50 day moving average for a second day in a row on rising volume.

The Dow Jones 30 did break the 50 day moving average on rising volume the last 3 days.

The NASDAQ 100 is just holding support at the 40 day moving average on rising volume the last 3 days.

Personally these moving averages are not important to me, but to a whole generation of technical traders, for some, it's all they watch-including institutional traders.

And albeit a small loss, November just closed out the first monthly loss since August.

Here's the SPY Daily Chart

Today's 1 min 3C chart's closed at or near the lows of the day, even though price had rebounded off those early morning lows.

The daily 3C charts of all 3 are at or below where 3C started at the beginning of the September rally. This is a horrendous leading negative divergence. In essence, there's no institutional support at these levels, but they have been active from what we see in 3C, actively purging their portfolios of long positions and surely entering short positions. It's getting to the point where I'm short, but actually concerned about the sell-off that could and by the looks of the charts below absolutely should ensue. I'm worried because if it looks like 2008, no one can predict what kinds of price controls beyond circuit breakers may be put in place. I'd prefer a smooth downtrend like we've seen in BAC over complete chaos.

That being said, today's dominant price volume relationship, nearly 2x larger then any other was Price Down and Volume Up which indicates panic selling, but can also create a short term oversold condition. I don't have a lot of reason looking at the 3C charts to believe in a bounce, but accumulation has been very little on the intraday price moves in which we almost always see some accumulation intraday. Instead the buying/rally has been brought on by open volume surges, which tells me one thing, whoever is doing this, they are counting on retail money to chase the volume surges and lift the market, apparently institutional money seems afraid to do that even on a short term intraday basis, which tells me another thing: as I've said, this market could be 1 press release away from a meltdown and it may be the case that institutional investors understand that as well and do not want to be caught holding long inventory when the music stops.

As for USO/OIL, I offered the trade idea up about a week ago as a bounce idea. I know a few members played it and did very well and as far as I know everyone is now out. This 10 min chart shows how bad and how quickly things turned around there, but there was never any evidence this would be more then a bounce play so it worked out great.

GLDGLD higher this morning. Whether this is a short squeeze or something more significant, today it ended on a positive note.

3C showed some trouble in GLD, GLD saw some downside, but now it's time to take a look and see where the early charts lead. China is opening up their market to GLD and a few other similar plays, that's a lot of possible demand so while we are in the early stages, we should see in a few days whether this moves beyond a short squeeze and into a reliable trade, the last month has been very volatile and rocky compared to the smooth uptrend that preceded last month since August.

Make sure you take a look at that EUO trade, the Euro is trading right around the $1.30 level, I see no reason, the way things are going, in the next week or so it won't be trading in the mid $1.20's

I was thinking about looking for some long trades for tomorrow in case we get a pop off support. I only say this because the support has held and because of the Price/Volume relationship today. After thinking about it, I thought “would you trade them?” and the answer was no. However if we see another day of support holding or some 3C signs of accumulation for a short term pop, tomorrow night/day I may add a few ideas in case. PLEASE do not think that I'm suggesting this market is going to do anything dramatic to the upside, it is simply the norm even in a severely downtrending market to relieve oversold tensions with 1-3 day bounces-look at the S&P chart and any downtrend and you'll see that's normal. Try not to get caught up in the day to day, but step back and look at the bigger picture (unless you are a day trader).

Tomorrow, I'll be adding more ideas to the Trade list which already has quite a few ETF and non ETF trades-ALL should be on triggers/alerts.

On an odd note, Wikileaks had publicised for weeks they were going to make this huge dump of American diplomatic cables, not much was done. Within a day of a major US Bank being announced as the next target (the speculation is it's Bank of America), Jullian Assange has a warrant out by Interpol for sex crimes, I believe it's the second time they've tried this angle-the first time I believe the woman backed away from the story. In any case, one has to wonder just how serious this leak could be. Lets face it, you don't dump 250,000 US documents and then come out with a weak bank story. This thing must have some major legs that could do some real damage to the economy. The timing is just too transparent.

So if you are so inclined, keep your eyes open for bond auctions in Europe and what rate of interest they are stuck paying. Also watch the CDS rates and which countries they are effecting. The quicker they move toward the big European economies, the worse this problem will be and I have no doubt that before it's over, they'll hit every Euro zone member.

Also the Korean Peninsula has been a little too quiet. I can't help but think that Kim will try to consolidate power around his son (both domestically and within the ranks of the military) with some act of defiance while the U.S. Strike group is in the region.

Last I want to show you the most successful pattern that's been popping up, you'll note that most of the trades or at least a lot of the trades I have listed all have this pattern in common (and I'm not looking for it, it's just there)-a Bullish Descending Wedge and how to play it.

The descending wedge is clear within the red trendlines, and while it is declining, the fact that the channel is narrowing is actually a bullish event. When price reaches the apex (point) of the wedge, there's typically a breakout. Also note the positive divergence, all that I have listed also have daily positive divergences. So we are seeing accumulation into lower prices. Then we get the breakout. Lately there's been some consolidation after a breakout, so I favor as wide of a stop as possible and getting in early on a breakout which means at lower prices. Like I said above, try not to get too caught up in the day to day action, you'll note in the uptrend that followed the breakout, we saw pullbacks that lasted 2 weeks or more-that's enough to scare people out of great positions, my Trend Channel may help you stay in the trade and all you have to do is email me and I'll give you the current TC update. In any case, the target for a wedge, whether ascending or descending is the base of the wedge, in this case that was around $88 and note price hit that level on the rally. That's a decent move and the kind of trend that can make your year. So remember this simple phrase when it comes to targets for wedges, “Wedges Retrace Their Base”, and there you have it. If you show some patience, keep your eye on the bigger picture, you can set yourself up in a very reliable trending pattern.