I Knew It!

Toward the end of the day I made a comment I was getting some strange ticks going through, at first it looked like a circuit breaker, 3C dropped bad and then came up again, something I hadn't seen and I saw a few after hours trades coming through as settled trades. It was strange, I thought it had something to do with the early close, but apparently not.

Check out this article.


Again, I'm wondering if this may be part of the Dark Pool reporting mechanism? Computers and the Internet have brought trading to a computing arms race. As I've shared with you a few times, I have a relative that is on the technical operations/computing side of a a black box operation and I was surprised at the lengths they went to and the money invested to lower their latency. HFT's are like ICBMs compared to what these guys were doing.

Chart Request

Here's the current SPY daily 3C chart. Earlier this morning when first asked about it, I was surprised as the 3C line was up in a "V" like pattern and the line was nearly equal with the $108 level which I found very surprising.

Yesterday of course, our market was closed, and I have been doing a lot of reading trying to understand the effect of "Dark Pools" on indicators like 3C or really any indicator. When I fisrt saw the higher reading this morning, I thought maybe it was some move from yesterday conducted in European Dark Pools which a number of US investment banks and exchanges maintain in Europe as well as Asia, of course they would be open yesterday.

In any case, 3C daily has deteriorated significantly from that earlier look today. Whether it is Dark Pool related or not, I do not know, but the same reading was not there at the close of trade on Wednesday.

As to the question that accompanied the chart request, "Are you saying that the current (SEC man hunt) will effect how the INSTITUTION trade? 

Will the SEC man hunt CHANGE the (CURRENT ACCUM/DIST) that we have been seeing? "

With regards to Dark Pools it would be a welcome change as there is no transparancy for the little guys, and no access either. If I understand Dark Pools correctly (which I may not-technically), it would give bigger, faster signals on 3C I would think. I suspect that 3C is more efficient then other moneyflow indicators because of the reporting period of Dark Pools and the fact that 3C uses a look back mechanism that some other money flow indicators do not use. 

With regard to various forms of HFT firms, I think abolishing them would give us a clearer picture of the market as much of their activity is not menat to do anything but churn volume and jump in front of market makers, so certain types of High Frequency Trading does nothing but try to front run a market maker for the spread as well as generate returns in the form of volume rebates. They have little to offer the market in terms of price discovery.

Any of these being reigned in or abolished would give us a more transparent market with fewer games until they came up with new ones any way.

As far as funds under investigation, as an accredited investor, how would you feel about the fund you choose to handle a multi million dollar portfolio being raided by the FBI? Or even mutual funds for the rest of us? I think it would at best lead to liquidation of positions via redemptions, which in English means more supply, less demand and downward pressure on prices, at least in the near term (meaning possibly a year or more). All of the funds that have come out of the market are not just because of mistrust of markets, but think about if you were struggling with you weekly paycheck and you could boost it a bit by eliminating contributions to a 401k at least for awhile.

Why the Europeans and the SEC (including the Justice Department and the FBI), within days of each other have gone after all sorts of firms, I'm not sure. It could be to cut down on speculative and or manipulative activity, but more likely it is to try to restore confidence in the markets. At least that seems to be the common sense reasoning, but these are major friends of the political machine. There may be reasons that we do not understand yet.

I don't see any downside for 3C if these firms are abolished, only upside. They won't discontinue trading, they'd just be forced to do it in a more transparent way. 

GOK is BACK

I know at least one member has been long this trade since it was on the "LIMIT LIST" in late August. I posted this reminder the next day to hopefully get you to put these trades on watchlists with alerts as you can't watch them all, but when the limit is triggered, you'll know in your email.

Now GOK is looking as if it may be set to break out of a wider base. Take a look at the charts and don't forget to set those alerts.

 GOK looked like a base being formed and had an excellent 3C daily positive divergence which has only turned out to be a fantastic looking divergence and base. The little triangle is where out long limit order was. The next day it was up huge. It has also traded very orderly in a nice trend.

 Here's the current gain since late August +132%

Here's a linear regression channel with settings you can use. There's 3 possible entries or a combination of the 3-all are at the green squares.  If you note the red trendline, we have a huge "U" shaped base, the breakout point is around $9.50. One entry is a breakout of 9.50, you can add to it if it tests $9.50. The two most likely outcomes are a breakout is either a straight breakout with no pullback, or a run close to $9.50 then a pullback to one of the two lower green boxes on the linear regression line. With so many possibilities, phasing into this trade could be a great tactic.  The base suggests a measured target of at least $15.25

If you are interested in the trade, feel free to email me for options that may ft with your tactics.

Intraday bounce...

GLD and SLV also have the 1 min positive divergence, USO does not.

CME has Nothing on China

The Chicago Mercantile Exchange which recently hiked margin requirement s on about a half dozen commodities just got upstaged by China which just hiked margin rates on (as I read it) virtually every commodity traded in China. Interestingly as well, earlier in the week, the Russians and Chinese agreed to start trading commodities in their own currencies rather then the standard, the US dollar. While I haven't had the time to put in the research and brain-cap on with regard to the two situations, I feel pretty confident they are correlated in some way.

China also introduced measures earlier in the week to crack down on commodity speculators. If this move doesn't work to cool inflation in hard assets like commodities, expect China to announce next, an interest rate hike.

In a somewhat related note, EDZ is looking pretty good thus far today. This is a long idea I have presented recently.

GLD/SLV

 GLD 1 min -pretty much in line except for the one attempt to break higher met by a negative divergence this a.m.

 GLD 5 min showing a negative divergence near the recovery top and pretty much most of Wednesday 3C headed down while GLD was lateral in price.

 SLV 1 min looks like a reversal off the gap bounce this a.m.

SLV 5 min showing negative divergences into the top

Both Gold and Silver have seen a mass psychology bubble. The mantra for both has been "buy, buy, buy". While fundamentally I do not object to that mantra, I've issued no trades on either except in a few gold mining stocks. There's just something that doesn't make sense, especially with GLD on the longer term charts and bubble mania always makes me nervous. This is neither an endorsement or a call to stay away. I look for edges in the market, if I don't see a clear edge, I don't raise the issue as far as trades go.

I've found some of the most dangerous assets to be in are those that are seeing this assumed, right call by the masses-it happened right before the stock market topped in 2007, it happened with tech, it happened with housing , it happened with oil and at the time, there was no good argument against any of the long calls in those assets, except the bubble effect. If 3C were massively bullish, then I'd issue a call. If it goes very negative and we see price confirmation early on, then I'd issue a call.

As far as your own opinions and how you feel about trading them, as I said, I'm not taking a bearish stance in terms of a short call. I'd just advise not to get so caught up in the hysteria and even if you go long, always assume a defensive, skeptical posture which should be accompanied by good risk management,

Gap Update

 DIA 1 min

 QQQQ 1min
SPY 1 min

This looks like the typical early a.m. gap fill which is why I don't really place too much importance on opening trade before 10:30-11:00 a.m.

Retail sellers seeing news and futures place orders, usually they go to work after that (today may be an exception) so the market makers fade the orders. taking prices higher and then short them bringing them back down. that appears to be the case right now.

Next update will be on GLD /SLV

Update

It's a little early for readings from the 5 min charts, I just include them to see Wednesday's activity. Remember that distribution is a process (negative divergence) in which locals/smart money are trying to exit positions at the best available price, this is why it is called a divergence-price is going one way, while 3C showing the underlying trend is going the other. Wednesday suggested to us that locals were moving out of the market, that leaves retail to support it and retail can not support such a large position in the market, especially when retail has been fleeing the market. Once institutional support is gone (and they may have shorted as well Wednesday) price drops.

 DIA 1 MIN

 DIA 5 MIN


 QQQQ 1 MIN

 QQQQ 5 MIN

 SPY 1 MIN

SPY 5 MIN

Right now we are seeing the typical gap being filled, what happens next, we'll have to watch the 1 min, but there's already some signs of negative divergences in the 1 min charts.

USO update

I'll get to the rest of the market just as soon as I can, however, short term weakness was seen on Wednesday in USO so an intraday pullback is not surprising. The extent to which it may effect the longer term charts of USO, which have looked good for a continuing bounce, despite the rising dollar, is as of yet unknown. I'd think by mid-day we should be able to see to what degree the longer term charts are effected and whether there is still a viable bounce opportunity in USO. I would personally be nervous to hold any long positions over the weekend, unless they were inverse ETS (basically buying a long ETF that is a short on a particular sector).

Quickly, the pullback in the market this morning is not surprising either as I stated earlier on Wednesday that I thought they'd try to keep prices up even as we saw distribution/negative divergences into those higher prices. So this morning's drop isn't surprising considering the way the 5 min charts looked on Wednesday and with a nearly 5-day weekend as few traders return to work today. The light volume could produce some extreme volatility intraday today.

Euro Update

More trouble for the Euro last night. Things are happening so quick I literally can not finish one situation update before the situation changes and turns into something else. Last night the Euro fell again on further concerns about the need for a possible Spanish bailout, keep in mind that this is before the Irish bailout terms have been negotiated, before Portugal has requested any kind of assistance and while Spain has sought or made no comments about assistance. However, bond yields are rising, making it increasingly expensive for Portugal and Spain to raise money they need to keep their governments operating at a reasonable rate of interest repayment.

Now news is out this morning that the strongest of the Euro countries, Germany itself may be facing trouble along with France and the Dutch as CDS (Credit Default Swaps) have risen for all 3 in the last few days. CDS is most easily explained as an insurance against the borrowing country from defaulting on their bonds, so you can think of it as bond insurance for the 3 countries as rising.

Apparently the German people are panicking and angry as they feel Germany can not keep financing bailouts without going broke itself. Reportedly, you can not find a bank deposit box in Germany as people hoard gold and silver for fear of losing their savings as they did in 1923 and 1948. Their also angry that Germany may have to raise funds for other Euro country debtors as cuts to welfare programs in Germany are underway.

German debt itself is not considered to be high until you adjust it for the aging crisis (like our own baby-boomer Social Security crisis), once adjusted for that, Germany has one of the highest debt levels in the world.

Causing further tensions are the rumors and denials that the European Financial Stability Facility (EFSF) rescue mechanism of 440 billion Euro announced in May will need to be doubled to handle bailouts of Ireland, Portugal and Spain. The Spanish bailout could be twice as large as Greece, Ireland and Portugal combined. If Spain is bailed out, the bond vigilantes will most likely attack Italy which is already seeing its bonds go up at the rate of 10 basis points a day and with two trillion Euros in debt, they are forced to go to the bond market often; and then France next which would be one of the most difficult entitlement societies in the world to try to curb with austerity measures.

For those who think and have believed from the start that the E.U. Project will end badly, that eventuality may be forth coming sooner rather then later. The Greek bailouts, the EFSF and the ECB bond purchases are going to challenged in German constitutional court as a number of cases have already gone into the court system. German legal scholar and contributor to one of the complaints, Prof Hankel, said, “There has been a clear violation of the law and no judge can ignore that, I am convinced the court will forbid future payments."

I wrote a piece at Trade Guild to give some basics of the Korean Peninsula history and dangers as they may relate to the market and posted a video as well of a very vocal E.U. Critic, which is a short, but must see video.

You can find the Korean Article Here 

and the E.U. Video Here