Nightly Wrap

Today the S&P-500 snapped its 4 day loosing streak with a .02% gain, that's the most consecutive days down since August. Here's what the SP-500 daily 3C chart looked like today.

Last night I showed positive divergences in USO, the Dept. of Energy report released today, seems to be one of the most leaked reports I can recall with 3C often catching accumulation before a good figure or vice versa. Today's report was bullish for USO, but it seems profit taking took hold pretty quickly. Yet there remains a decent 10 min positive divergence as well as 1 and 5 min positive divergences so I would keep an eye on USO for further gains this week. The rest of the post should confirm this line of thought.

USO could be boosted by a weaker dollar in the short term. Looking at UUP, it seems fairly likely we will see a trend of a stronger dollar, but nothing goes straight up or down and while the first chart of UUP is showing a longer term buy signal (as 3C has been showing), the 5 min chart looks like it may be ready for a breather. In trying to confirm this I took a look at the Euro through FXE and the daily finding is consistent as it is showing what appears to be a longer term reversal down, but the 3C 15 minute chart is showing a positive divergence. Translation, I think we may see a bounce in the Euro and a dip in the dollar which would likely benefit USO on the upside as well as GLD, SLV and equities
.

 UUP 5 min negative divergence suggesting a pullback.

UUP's daily chart looking very bullish for the longer term/trend

 FXE is the opposite of UUP so the positive divergence on the 15 min chart suggests the same, a bounce for the Euro and pullback in the dollar short term.

However the long term chart of FXE has turned here on my moving average screen.


While we are on the subject, I've been showing divergences of varying timeframes the last several days all suggesting that SLV would outperform GLD, it was on last night's daily wrap and sure enough today GLD closed down -.45% while SLV closed up +.28%. If the charts are right about the currencies, both SLV and GLD should benefit. Considering the talk that China is set to increase its gold holdings, I'm not sure why GLD is not outperforming SLV, but this is what I've been showing you on the charts since last week.

The divergence seen in SLV today looks quite strong as it has went from a positive divergence to a leading positive divergence in the white box.

As you can see above, GLD's positive leading divergence is quite impressive also, this may be stronger then SLV's. However, the longer term charts are still in confirmation of the move down and are not yet showing significant reversals, although there are some positive things building. I don't think we'll know for sure until we see the actual bounce and the underlying strength or weakness accompanying it.


Today we saw NTAP get slaughtered in the afternoon on what I believe was a Bloomberg leak on guidance which apparently triggered the 10% circuit breakers. Last week CSCO was beat down badly. So I decided to take a look at some tech ETFs and here's what I found.

This 60 min chart of SMH shows 3 moneyflow indicators 3C, TSV and MoneyStream all in negative divergences. Despite any bounce we may get, I think there's a good setup around the corner in shorting Tech or specific names in Tech, a bounce would be most appreciated for those setups to materialize en masse.

To confirm this I took a look at TYP, a bearish 3X leveraged ETF on technology. TYP was almost exactly inverse from SMH showing leading divergences in 3C on the hourly chart, and positive divergences in TSV and MS as well. So as I said, any pullback here, or bounce in the market should set up some nice possible trend trades short technology.

Last night I mentioned TMV as a long trade I still had some faith in especially at a pullback to the 10-day moving average. We saw that pullback today and right now it looks pretty well positioned from a risk:reward position as the blue 22 day moving average can serve as a stop. With proper risk management/position sizing, I personally think it's not a bad looking setup here.

Notice also that TMV put in a bullish reversal signal in the hammer candlestick today right at the 10-day average.


There's been a lot of talk about Emerging Markets. The Fed's Quantitative Easing and easy money is said to be pushing capital out of the U.S. and into these emerging markets which are showing signs of asset bubbles, like home prices. China is putting controls into action, specifically on Food as they have seen some food products see 200% increases this year alone. Their latest measure of inflation, the Consumer Price Index came in at 4.4%, which is above their comfort zone of 3%. China will be tightening monetary policy as many emerging markets have said they are doing as well as the Fed is more or less exporting inflation. So I found this chart of EDZ to be very interesting as the crowd is being told to buy Emerging.




There is a clear bullish descending Wedge in place that has broken out on rising volume.

The 60 min 3C chart above is also showing a very strong leading positive divergence. EDZ


There may be some other more specific plays on emerging markets, however, once the risk of lateral trend movement is gone and this starts moving up, I personally would have no problem using the ETF. I would recommend a somewhat wide stop if you enter soon before a possible pullback and keep in mind the leverage on the trade when deciding on position sizing.


When China and these other Emerging markets tighten their monetary policy, there will be no more cheap credit, demand drops and prices fall. Other Emerging markets that do not get a handle on this will face credit shock and the possibility of uncontrollable inflation.


The Mortgage Bankers Association’s Index of Mortgage Applications dropped 14.4% last week. I read that lenders that are selling FHA backed loans are now imposing higher FICO score requirements on these loans, higher then the agencies require. This can not be good for the glut we are seeing in housing and while there's plenty of cheap money and cheap houses, the problem seems to be two-fold. People like myself who are buying real estate are staying away from short sales because of fears over the Foreclosure/Robo-signing mess. In addition, we were told by several Realtors that 80% of people who put in an offer on a short sale home for the first time are walking away because of how long it is taking to get an answer back. 


If I understand correctly, there is about a two week period in which the approved sale price is still good, but then the process resets and starts all over again. We also decided to stay away from corporate and bank owned REO's for the same reason. We ended up going for a regular arm's length transaction, of which there are very few because people bought at much higher prices and still seem to think that the higher price they bought at 3-4 years ago is what their home is worth, leaving people like us very little to choose from. So while these increased lending standards may or may not be a good idea, the idea of all of the aforementioned problems and many others such as putbacks and legal ramifications, still have me very bearish in the long term on stocks like BAC and JPM as well as many others in the financial arena.


So again, a little bounce here may very well set up some nice shorts in these stocks, and more specifically real estate equities. I would think at some point, new construction may make a small recovery.


Here's SRS, which is an UltraShort on Real Estate. 

Notice this pattern keeps popping up and I think this is becoming one of my favorite technical patterns as I can not recall the last big one like this fail. We see it above in EDZ and also the US Dollar. These Descending Wedges seem to be quite reliable.


Note that MACD has just started to pick up as well as volume on the breakout. The only thing is that they can be a bit volatile right after the breakout so I prefer to give them some room on the initial entry regarding the stop. You can always add once they make a new high and again the target here has room as it is around $32, however they commonly overshoot the target.

 SRS 3C daily

The 5 min 3C chart suggests a pullback as the rest of my post tonight is in agreement with-a market bounce would cause a pullback in an UltraShort which again gives you a better risk:reward entry point.


As for the rest of the market...


We now have 4 POMO days of the new QE2 schedule in the books. Today's accepted to submitted ratio came in at a formerly bullish 3.7x, yet the market failed to capitalize on this 4th operation in a row. The S&P closed .02% higher, the Dow-30 closed down -.14% and the NASDAQ 100 closed up +.30%. The Price/Volume relationship was mostly Price down, Volume Down which is the typical relationship seen during bear markets and doesn't tell us a lot, other then today, the market did not act oversold or overbought which we could have guessed based on prices.


It was interesting though to see the SPY hold support at the daily VWAP

This should be the next support zone after a bounce and subsequent pullback.


Tomorrow we have another POMO, the Euro is bouncing right now so the conditions are right for a bounce, unless some fundamental surprise out of Europe, China or elsewhere develops overnight. As I showed last night, there's a pretty decent amount of room to bounce and still not do any technical damage to a reversal. With the Euro alone rising, the market should bounce. I'm not sure I would be too quick to ascribe any gains in the market to the POMO event tomorrow.


We also have Initial claims out tomorrow, Leading Indicators and Dell will be reporting, which may shed some more light on the tech sector. Take a look at some of the long bounces I posted last night and set alerts for them if you can, if you can not, then try out www.FreeStockCharts.com. You can set alerts there and you have a ton of great technical indicators on a very easy to use interface and the best part is it is real time, no 20 min exchange based delay, plus they are FREE!


Until the a.m.