Ok, this is the strength I was seeing last night, the 1 min 3C is inline , confirming the price trend, but on the 5 min we are starting to see more distribution.
WFC which reports tomorrow is seeing short term 1 min negative divergence, but in the other timeframes it appears to be pretty positive. My guess "GUESS!" would be that they have good reaction to earnings Wednesday-keep an eye on that one it, may be worth a shot with a tight stop.
I'd think the market will pullback around 3-3:30 and then finish strong.
Tuesday, July 20, 2010
Update
The higher prices I expected to see in the market were based on a 5 min positive divergence, both 1 and 5 min positive divergences are loosing momentum, it could be a temporary consolidation, but I wanted to let you know. HOG is also loosing upside momentum for anyone trading that one.
earnings leaks
So far the analysis on BAC, AAPL, JNJ, GS, Especially HOG, BIIB and USO all seem , at least to this point, to be very accurate-HOG was one of the only stocks that I said looked like it would do well with earnings and it's been up this a.m. Over 15%. We did apparently miss on UAUA, but I didn't put as much analysis into that as I should have with DAL's disappointing earnings, it probably colored my perception. On Trade Guild I mentioned the after hours indications are pointing to a gap down, but we see positive divergences and thus far the market has been moving higher from the gap lower. It looks like 3C is picking up on earnings divergences, which confirms what I've been saying all along-the numbers appear to be leaked well in advance of earnings releases. I'll update as the market changes.
A Bounce? More Earnings Inspections With 3C
Take a look at Trade-Guild tonight and earlier today here at Wolf, I put up a note noticing the change in character in the market. It's possible we may have a bit more upside, do not be fearful, as I have said, there are more down days then up typically even a bear market. You want to limit emotional reactions, especially to earnings which are largely price driven by retail-dumb money while smart money is more then happy to sell into their demand. We don't chase every move the market makes-imagine if we had done that last week on the market rally... the result, a serious butt whooping for a lot of longs that react emotionally to information that has already been priced into the market.
It does feel like something may be coming out the news chute here shortly, maybe Fed policy? However, as I pointed out if the Fed was serious about trying to keep this market up, they would have released it when the rally started to falter, which makes me think they don't have much to work with(besides cutting interest rates paid to the banks reserves forcing them to lend or do something with the money other then sit on it) and if they do come out with some policy directive, it may be largely for show as the midterms are upon us and the incumbents are in serious trouble. In any case, the market seems to be bracing for some move up. Until the charts tell us different (and we DID NOT change course in the last couple of weeks when the Dow saw it's biggest 1 week rally in years, because there was nothing objective to change my mind-and good thing we didn't).
Read Trade Guild for more on the market, AAPL and BAC.
Tomorrow we have JNJ which is a biggie, not sure when they report though. Here's the analysis on JNJ (and by the way, I received several emails from people who made some money in the DAL trade short term when it was down over 9% intraday-nice gain for a day).
This is a two day chart of JNJ, look at all kinds of different chart timeframes, you'll be surprised what you can find in other timeframes. I used a 2-day chart here to show more clearly a probable Double Top and a bear flag. In the past, the second top of a double top often fell short of the first one-this is not how the market works anymore. Remember, they know what everyone is looking at and they want to use that against you so it's more common to see that double top (the second one) give a false signal by "appearing" to be making a new high and continuing the rally. What happens? Longs get excited and then trapped in a bulltrap and their losses feed the downtrend. In Q2/Q3 of 2010 we see a big bear flag, volume is not perfect but we had a few events transpire where it is not correct, that would explain that. The Red arrow shows a false breakout that seems to negate the bear flag, it's short lived and false moves create fast moves in the opposite direction-same theory as the double top-they suck in longs that feed the downtrend with their selling, converting paper losses into real losses.
Here's 3C (Blue) and TeleChart's MoneyStream in red, both red arrows point to negative divergences at the time of the false breakout from the bear flag, now 3C is in a leading divergence. This is a fairly long chart, but it doesn't seem like the kind of action one would expect if the earnings were expected to be really good. On the other hand, lower prices are better for accumulation, the problem is we see no accumulation!
The 15 min chart is the only place I can find accumulation, but this isn't all that strong depite it's appearances, if you trace price, it's strongly confirming with a bias toward accumulation, MS below is showing the complete opposite.
Blue=positive divergence / red= negative divergence-red boxes= big selling and at the right side of the chart we see a negative divergence at a time when the indices are putting in positive divergences. Looking at the whole picture, my guess is that JNJ (despite any initial reactions), will see downside and the bear flag target will be in effect with a first stop around $52
GS will be of major interest reporting at 8 a.m. I have to say, it hard to find a real bad negative divergence, but I also am quite sure that the settlement (which amounted to a slap on the wrist with a wink and a nod) was likely leaked before it was announced, I think we covered this. So a lot of those positive divergences may be left overs from the settlement with the SEC. The only thing I see that is at odds with the market is a 1 min negative divergence on several 3/4C charts. Here's one-
The red boxes show negative 1 min divergences in MoneyStream, TSV and 3C-this is at odds with the markets behavior and GS reports in the a.m. It appears the Specialists are reducing their inventory before the earnings... why? You'd think if GS was going to pop that they'd want to have accumulated supply to sell? right? I don't know, it's a little mystery, but this is what we have to work with, however expect GS to be fulcrum of the market tomorrow, as in "as GS goes, so goes the market"-at least for tomorrow to some extent. Keep an eye on this one. After all the accumulation before the SEC news, if earnings/guidance disappoint, then there could be a lot of sellers lined up-and institutional sellers at that.
Do HOG owners love their Hogs more then their savings?
The easy answer to that is probably yes. I didn't do exhaustive analysis on this one, just a quick look as they are reporting Tuesday and it looks like HOG may very well come in with some good news that the market can sink it's teeth into. Like I said, this was a quick look but it appears to be fairly positive. The thing that makes HOG interesting is that its price position is so close to changing the downtrend, it just needs to get above $25.50 and it will have changed at least one trend from down to up, there could be some room for the bulls there. We'll know soon enough.
DAL took it on the chin for a bit today before the market thew it a lifeline, UAUA reports tomorrow, so more of the same? Is the industry just not in good shape? It wouldn't surprise me. UAUA has a strange triangle top, it's (cyclically speaking) in the right spot for a stage 3 top (distribution) and although DAL had a different top, it too is stage 3, so there may be an opportunity tomorrow for the nimble to catch a quick move down like a few members did with DAL today. Otherwise, it may be a worthwhile trend trade.
A double bottom-3C showing accumulation there and as I have said-accumulation occurs on light volume-this is Stage 1. Stage 2 mark-up is confirmed with 3C and the triangle top shows signs of distribution and a false breakout, most likely in stage 3, next stop=DECLINE
BIIB
Reports in the a.m., this stock is not looking good. My guess would be that it will not do well over the next few days. Although it has had a significant rally in July, it appears at best 3C confirms the trend in in a few instances the daily chart is in a negative divergence. It reports in the am and while the SPY saw price confirmation at the 3 p.m. rally high, BIIB sold off, so there was 3C relative weakness which without doing an hour work up/analysis on the stock, I can only take it to mean that the results will not be well received.
Now for some questions I didn't answer yet....
USO-this chart is in a consolidation, a big one and the most likely resolution is the preceding trend which is down. I only make 3C calls when a divergence jumps off the chart and is extremely obvious. If I have to search for it, I pass it by. USO is one that I would pass by, 3C is not giving any strong signal which could mean it's in some transition, So next I fall back on the price/volume of the chart which I mentioned, right now it's in a downtrend that is consolidating so I'd guess, besides a false breakout, the path of least resistance is down. However that's a 60/40 call and not a high enough ratio that I would put money into the trade. There are thousands of opportunities, the trick is to find the highest probability trades, USO right now is low on that scale. A break above $35.50 or below $33 would change the dynamics and then there may be a worthwhile trade there but right now I'd just put it on a watchlist. The typical correlation with the $USD is not strong right now, I suppose it's because currencies are in such upheaval and our government is so out of control with spending that every other country is calling for some other currency benchmark.
Bottom line, until something happens, skip it.
Look for updates tomorrow. If we do get the gain in market prices, it's not something I'd be concerned over. The drop on Friday was enough to put the market into an oversold condition in a single day so there's bound to be some correction, It's when sentiment is so bad, we will see the market forget about oversold and just dump. We are getting closer to that as Friday proved.
Last, if you are not getting updates via email and want them, please let me know.
When we get back into a decent trend and less of this seesaw volatility I will post trades again to the spread sheet. Right now though there's a ton of window dressing and volatility due to opposing forces, on one side we have political/ Fed interests (or surface interests from the Fed) and the other, what the market really wants to do, they are fighting day and night and institutions use that volatility to scare people out of positions set false breakouts and make everything worse and more volatile. This is not a good trading environment unless you can sit in front of a screen all day, then there's some money to be made, otherwise, sticking with the prevailing trend is the best option. They say don't fight the Fed, but there's so much more to that story nowadays then ever before, it's just not a hard rule like it used to be; nothing is anymore-just look at the correlation that used to exist with the VIX-it was reliable-now... it's like a kid scribbling on paper. Correlations are quickly disappearing and rules that use to be hard and fast are fading fast. Like I have been saying, this is a new market and it isn't easy but you need to understand how it works and I hope I can help with that as I learn more every day myself.
In any case, if there's one time you don't want to actively trade, it is during earnings. Why? The whole idea of what we do is to put probabilities on our side and then and only then commit. Earnings (unless we figure this out with 3c in a manner in which we have a strong edge) are a wild card that kill probabilities. That doesn't help our cause and it would be irresponsible of me to feed you some trades just to make it look like I'm doing something. That is not a good investment of your membership and I won't do that unless the probabilities are overwhelming. That said, there are a few ideas people made some money on today, just don't swing for the fences , okay?
It does feel like something may be coming out the news chute here shortly, maybe Fed policy? However, as I pointed out if the Fed was serious about trying to keep this market up, they would have released it when the rally started to falter, which makes me think they don't have much to work with(besides cutting interest rates paid to the banks reserves forcing them to lend or do something with the money other then sit on it) and if they do come out with some policy directive, it may be largely for show as the midterms are upon us and the incumbents are in serious trouble. In any case, the market seems to be bracing for some move up. Until the charts tell us different (and we DID NOT change course in the last couple of weeks when the Dow saw it's biggest 1 week rally in years, because there was nothing objective to change my mind-and good thing we didn't).
Read Trade Guild for more on the market, AAPL and BAC.
Tomorrow we have JNJ which is a biggie, not sure when they report though. Here's the analysis on JNJ (and by the way, I received several emails from people who made some money in the DAL trade short term when it was down over 9% intraday-nice gain for a day).
Here's 3C (Blue) and TeleChart's MoneyStream in red, both red arrows point to negative divergences at the time of the false breakout from the bear flag, now 3C is in a leading divergence. This is a fairly long chart, but it doesn't seem like the kind of action one would expect if the earnings were expected to be really good. On the other hand, lower prices are better for accumulation, the problem is we see no accumulation!
Blue=positive divergence / red= negative divergence-red boxes= big selling and at the right side of the chart we see a negative divergence at a time when the indices are putting in positive divergences. Looking at the whole picture, my guess is that JNJ (despite any initial reactions), will see downside and the bear flag target will be in effect with a first stop around $52
GS will be of major interest reporting at 8 a.m. I have to say, it hard to find a real bad negative divergence, but I also am quite sure that the settlement (which amounted to a slap on the wrist with a wink and a nod) was likely leaked before it was announced, I think we covered this. So a lot of those positive divergences may be left overs from the settlement with the SEC. The only thing I see that is at odds with the market is a 1 min negative divergence on several 3/4C charts. Here's one-
Do HOG owners love their Hogs more then their savings?
The easy answer to that is probably yes. I didn't do exhaustive analysis on this one, just a quick look as they are reporting Tuesday and it looks like HOG may very well come in with some good news that the market can sink it's teeth into. Like I said, this was a quick look but it appears to be fairly positive. The thing that makes HOG interesting is that its price position is so close to changing the downtrend, it just needs to get above $25.50 and it will have changed at least one trend from down to up, there could be some room for the bulls there. We'll know soon enough.
DAL took it on the chin for a bit today before the market thew it a lifeline, UAUA reports tomorrow, so more of the same? Is the industry just not in good shape? It wouldn't surprise me. UAUA has a strange triangle top, it's (cyclically speaking) in the right spot for a stage 3 top (distribution) and although DAL had a different top, it too is stage 3, so there may be an opportunity tomorrow for the nimble to catch a quick move down like a few members did with DAL today. Otherwise, it may be a worthwhile trend trade.
BIIB
Reports in the a.m., this stock is not looking good. My guess would be that it will not do well over the next few days. Although it has had a significant rally in July, it appears at best 3C confirms the trend in in a few instances the daily chart is in a negative divergence. It reports in the am and while the SPY saw price confirmation at the 3 p.m. rally high, BIIB sold off, so there was 3C relative weakness which without doing an hour work up/analysis on the stock, I can only take it to mean that the results will not be well received.
Now for some questions I didn't answer yet....
USO-this chart is in a consolidation, a big one and the most likely resolution is the preceding trend which is down. I only make 3C calls when a divergence jumps off the chart and is extremely obvious. If I have to search for it, I pass it by. USO is one that I would pass by, 3C is not giving any strong signal which could mean it's in some transition, So next I fall back on the price/volume of the chart which I mentioned, right now it's in a downtrend that is consolidating so I'd guess, besides a false breakout, the path of least resistance is down. However that's a 60/40 call and not a high enough ratio that I would put money into the trade. There are thousands of opportunities, the trick is to find the highest probability trades, USO right now is low on that scale. A break above $35.50 or below $33 would change the dynamics and then there may be a worthwhile trade there but right now I'd just put it on a watchlist. The typical correlation with the $USD is not strong right now, I suppose it's because currencies are in such upheaval and our government is so out of control with spending that every other country is calling for some other currency benchmark.
Bottom line, until something happens, skip it.
Look for updates tomorrow. If we do get the gain in market prices, it's not something I'd be concerned over. The drop on Friday was enough to put the market into an oversold condition in a single day so there's bound to be some correction, It's when sentiment is so bad, we will see the market forget about oversold and just dump. We are getting closer to that as Friday proved.
Last, if you are not getting updates via email and want them, please let me know.
When we get back into a decent trend and less of this seesaw volatility I will post trades again to the spread sheet. Right now though there's a ton of window dressing and volatility due to opposing forces, on one side we have political/ Fed interests (or surface interests from the Fed) and the other, what the market really wants to do, they are fighting day and night and institutions use that volatility to scare people out of positions set false breakouts and make everything worse and more volatile. This is not a good trading environment unless you can sit in front of a screen all day, then there's some money to be made, otherwise, sticking with the prevailing trend is the best option. They say don't fight the Fed, but there's so much more to that story nowadays then ever before, it's just not a hard rule like it used to be; nothing is anymore-just look at the correlation that used to exist with the VIX-it was reliable-now... it's like a kid scribbling on paper. Correlations are quickly disappearing and rules that use to be hard and fast are fading fast. Like I have been saying, this is a new market and it isn't easy but you need to understand how it works and I hope I can help with that as I learn more every day myself.
In any case, if there's one time you don't want to actively trade, it is during earnings. Why? The whole idea of what we do is to put probabilities on our side and then and only then commit. Earnings (unless we figure this out with 3c in a manner in which we have a strong edge) are a wild card that kill probabilities. That doesn't help our cause and it would be irresponsible of me to feed you some trades just to make it look like I'm doing something. That is not a good investment of your membership and I won't do that unless the probabilities are overwhelming. That said, there are a few ideas people made some money on today, just don't swing for the fences , okay?
