It seems like the front runners got caught this time as I mentioned earlier with a high accepted to submitted ratio on the POMO today (see earlier comments today). The Dow gave up a $123 points today. I think you have to keep an eye on the ratio, today which was pretty high compared to recent POMO days, this gives you some insight into how the day will unfold as retail and Primary dealers frontrun the operations, it was about the same time POMO ended that the market started its decent.
However, someone seemed to know something as I showed earlier, the selling started right from the gap up this a.m.
I warned last week to keep an eye on the nature of forthcoming POMO days as we go all the way back to the Columbus Day Yellen speech warning the “runch bowl may be taken away” from asset classes that are essentially forming bubbles, this would arguably mean in part, equities, certainly some commodities.
The ISM number today was also not the good news the bulls had hoped for although Yahoo Finance, seemingly totally misunderstands what it is that the Fed needs to see to get aggressive on QE2, which is bad economic numbers. Today, as usual was one piece of the puzzle, but one report does not make a trend, just pointing out the seeming uselessness of some of these articles.
The real pain in the ISM report for those who looked at it came in the form of inventoried which were down -1.7%, this is where, in large part the 2009 GDP beat came from. So this was the non-silver lining in the report , which otherwise, was a headline grabber of bullish proportions.
However, we don't need to even read the reports if you are looking for a sign of the times in the economy, I found this story particularly enlightening on just how bad things are on main street and just how white-washed all these initial reports are (later of course most are revised down to the actual number).Another example is the U3 unemployment data which is significantly lower then the real joblessness or hurt being felt on the street. So THIS STORY out of Indiana kind of give you the flavor of the real economy when unemployment offices across the state have to resort to armed guards as people run out of extended U.E. Benefits-look for them in the U6 number if you can find it in the mainstream press.
On market cash flow we have a couple of different stories, one from Bloomberg which shows that insiders AGAIN were selling in what is probably record numbers this week at a ratio which is about double what we saw last week-423:1, but the close to if not record was in the amount of $662 million dollars of insider stock last week in the S&P components and again ORCL was at the top of the list. As I have said numerous times, there are a lot of reasons insiders sell, but “my company's stock is going much higher” is not one of them. We saw this same behavior before the tech bubble imploded.
Here's another story on insider selling from MarketWatch
Keep in mind the first is S&P stocks. The article is worth a read. This has nothing to do with mutual fund inflows, this is insider selling so lets not confuse the two.
We also got the numbers on the short interest out there and while there was a decrease of approximately 2% from $14.3 billion dollars to about $14 billion dollars, still this shows the shorts, most of which tend to be hedge funds, refuse to capitulate, even into higher prices.
Currency...
As the market has an on again/off again, but mostly on again relationship with currencies, it's important to note that the Euro was back under pressure today as the USD gained. Remember that H&S top that's still in effect in the Euro as we are pretty much in what would be the right shoulder coming down off the right side headed for the neckline. As of now, the EUR/USD pair has given up the gains it started this week's trading with.
The Dollar Index gained on the ISM report, but also trouble brewing in Ireland as reports that the ECB has sent an estimated EUR 260bln to Ireland to help its economy, which is on a rocky path again. Apparently there is an opinion that this won't be the last time either, so the Euro-zone is again facing more trouble, thus another link as to why the Euro was beaten up today.
As for the market...
I know there's been a lot of frustration with the recent trading range, up a day, down a day, or just unchanged with intraday volatility, such as today's rather high. As mentioned earlier today, I would normally think that the market is waiting out uncertainty regarding the US mid-term elections tomorrow, however it's hard to make an argument that a Republican sweep is not already priced into the market. Gridlock is usually a god thing, but in an economy that faces hard choices that need to be made, I'm not sure how the market feels about it yet. Hopefully we'll see some signs tomorrow during market hours, but most likely we won't see much until the returns are complete Wednesday unless it becomes clear very early that a sweep is inevitable. Then we may see some movement. As I said before I left on my cruise, if you are uncomfortable with your exposure in the market, please read the risk management article and make sure your position sizing fits with your risk tolerance or your version of the 2% rule that is laid out in the article.
Individual stocks....
Don't forget to look at the stocks I listed intraday, STI (Suntrust Bank) was listed just before the JPM news came out that tok the financial sector and a large part of the market down with it. I've been talking a lot lately about names like JPM and BAC and today STI-all of which I feel will underperform badly and could lead to some really nice trending trades as BAC is now.
Here's the bounce in BAC I mentioned several times last week
Note the diminishing volume
and here's the Trend Channel for a trending trade showing a large part of the decline already captured and the stock in no immediate danger of stopping out. As a mater of fact, so long as it does not close above the upper channel, I'd like to short BAC as high as possible.
You can see the channel has caught BAC's decline from anywhere from $19 or so down to the current $11.50-that's a nice trend, a nice gain, especially if you use the profits of a true short to pyramid the position.
So JPM and STI are two others we want to keep an eye on or look at starting a position in either as I talked about earlier today. FHN of course I another to put on the list, looking for a good entry set up.
A small bounce might just offer that setup. However, this one could certainly see downside follow through.
Here's a possible intraday (maybe more) bounce I see that looks to be setting up in Natural Gas as it took it on the chin today-
Note 3C showing the negative divergence at the downside reversal and now a little accumulation on this 5-min chart. It may make for a nice 1-2 day trade.
Here's AMZN which looks like a possible false move on the daily 3C chart. I personally would like to be looking at shorting this one under the gap where the white line is, but 3C daily certainly did not confirm the new highs.
PCLN is another market darling that may have just staged a head fake to the upside with no 3C daily confirmation
Here's PCLN 's intraday chart-5 min 3C
You can clearly see the accumulation leading up to Friday's move and the negative divergence at today's open. This is another to watch if the POMO game changes as these in my opinion will be taken down the hardest.
FAZ is one I've been talking about for a few weeks and it's held suport very well. I believe the current levels, which are just below a technical breakout can offer a good risk/reward trade.
HIG , as mentioned earlier today looks like it's getting ready to resume its downtrend as t broke the large bear flag today on an increase in volume. There's probably still a little room for this one to bounce a bit, this is why I prefer to phase into positions, get a little so if it continues to break from here you have your toes wet, if it bounces and stays in good technical form (on the short side) you can add to it for a better average entry. Before entering the trade though, you need to figure out your risk management and how big you ultimately want the position so you don't violate your version of the 2% rule or whatever risk management you prefer. I always like to look at my risk before any potential reward.
Others in this sector to take a look at include PRU and MET. PRU I'd look at filing out a position as it breaks support, MET looks a lot like HIG and therefore my plan would be very similar.
PWER is another that I might want to start a position in just in case a follow through move drops this like a rock. However, in the event of an oversold bounce, I'd like to be positioned closer to the red trend-line I've drawn on the chart. This stock looks like it's in real trouble here.
On the long side, PCP is hard to make a bearish case against, this is a pretty clean consolidation pattern after a run up with volume confirming as well as MACD.
If I had my way, I'd prefer to buy it around the blue 22 day moving average, although this is another you could build a position in. The red VWAP would probably be my stop or if RSI 22 crossed below 50. Being that it is a fairly obvious pattern, the stop in my mind should be wider initially (take on less shares-you can always add) just because we know the black box systems play games with obvious patterns like this. Personally I'd also probably cut my risk in half on this one as it is a maturing trend, but seems like it still has the opportunity to continue higher as the technicals all seems to be in good shape.
Given what happened to Ambac today, I'd be keeping a close eye on MBI as they are basically in the same line of business.
As you can see, MBI had a great looking 3C chart of confirmation until recently when it made a negative divergence at it's highs. This is one I'd definitely be keeping close tabs on. It's hard to recommend an entry as a “great set up” is not yet present. Sometimes, if you believe in the trade, you just jump in with good risk management. I do suspect though that MBI will be facing some of the same challenges as ABK.PMI is worth throwing in with the group as well. It's all just a matter of a high probability entry or the tactic of your choice. Many times with this kind of momentum, you don't get that bounce that lowers your risk and they just continue down. If I really like the trade, I realize that the best ones just don't come back and I use pretty strict risk management and sometimes take more then one stab at the entry until I get the position I want.
Another stock I like, JNY is a pretty H&S top on this 5 day chart-look at MACD!
There's a couple of setups here or combinations of each.
The first would be to try to get in on a bounce in the red box, the second which is safer is to wait for a break of the neckline which I would say IS coming with a chart this nice.
Well it's pretty obvious what the big event tomorrow will be. The reaction of the market, not so obvious yet, but I'll be watching for signs of “tells”.
Quickly I'll tell you my cruise was not what I anticipated with regard to posting, I could not even open my charting, much less update it and this after paying more then what I pay for a month's internet service on a very high speed connection for one hour of super slow speed that seems to be meant for checking email at best. I was going to go on about the car battery being dead in the cruise terminal parking lot and about 10 other things, but I really shouldn't be complaining about a nice little break.
In any case, one thing I did want to share with you is the concept of risk management as I laid out in the linked artile I wrote on this site. I did really well in the casino playing poker, but only when I wasn't being rushed or hurried around. The point is, when I played, I got in the game, I had a lot of loosing hands, but then a few big winners put me up considerably-as long as I was patient and didn't bet too big until I got those winners. Then I started betting bigger. Any time my pot came back to break even I lowered my risk again and waited out those big winners that allow me to bet bigger-I ended up making about 50%-although I didn't spend much more then a few hours in the casino. The point being, RISK MANAGEMENT-get the winners under your belt, get on the right side of the game before you start swinging for the fences. The fastest way to lose everything was to be down significantly-lose patience and start betting big to try to “DIG YOURSELF OUT OF A HOLE”. Like I said in the article, “When you're in a hole, stop digging!” The game and the market are all about patience and risk management-THAT'S IT! That's the big secret. It is not about doubling down on a loser.
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