Wednesday, December 8, 2010
2:41
With not much in the way of market moving news, other then the tax cuts are under pressure in Congress from the liberal base, the market moved in almost lock step with the EUR/USD currency pair since 2:41 p.m.
1 min update
The 1 min is getting worse and starting to show on the 5 min, but we are still within range of a normal pullback off resistance, which could be tested again. However at the moment, there is deterioration in the 1 min and the SPY just saw some ugly volume.
XLF may offer a hint
Financials have been the backbone of the upside, take a look at XLF's chart.
I think if the divergences there come through as selling, we may have our answer.
I think if the divergences there come through as selling, we may have our answer.
AT RESISTANCE
The market is at this morning's intraday highs, except for the DIa which is lacking a bit, so they are at resistance. the 1 min charts are showing a bit of a negative divergence, whether that's just resistance/profit taking or a more serious trend to develop, it doesn't really fit well with the 5 and 15 min charts that are looking stronger. So in my opinion, what happens with the 1 min is crucial here. Is it just hitting resistance or starting a trend that will filter into the longer term charts?
These charts are 1, 5 and 15 minute for the DIA, QQQQ and then SPY. The DIA is the only one that seems to make logical sense.
Afternoon Update
It's been kind of a slow day for signals.
DIA 1 min most of the day in confirmation-no divergences except the one red arrow-green arrows=confirmation/no divergences.
The 5 min does have a leading positive in the white box
The 15 is showing pretty much nothing here.
QQQQ had positive divergences in white and a leading pos. divergence in the white box now.
5 min confirms
As does the 15 min
SPY 1 min is in confirmation right now of price
as is the 5 min
as is the 10 min
The 15 shows a very slight negative divergence, but that is so small and not developed it could change soon.
XLF 1 min appears to show some distribution
As does the 5 min
as does the 15 min
That's about it for now, however this type of lull-other then the Q's, is very dangerous to be complacent.
That's about it for now, however this type of lull-other then the Q's, is very dangerous to be complacent.
Update
As for the averages, the only eye catching indication at this point is the probability of an intraday bounce as the QQQQ charts post some positive divergences this morning.
There's No Anticipating The News
Just Monday night, Obama and the Republicans seemed very close to a deal on taxes, which seems to have been expected and priced in. Had they not or if Congress fails to pas certain measures, the most dangerous for the market-the Capital Gains rate, then it would be very likely that many traders would be locking in gains from this year before options expiration sending the markets lower so last night seemed to be a good deal for the market and the market acted that way before the open with futures ramped up between half and one percent until the bond market realized that the deal would be adding a trillion dollars of debt in the next two years alone.
As I showed in my very first update, we had negative divergences across all timeframes right off the open, meaning the gap up was used to distribute shares, not rally the market higher.
Why is this? Take a look at what happened to bonds today. Despite the Feds massive QE bond buying, bonds were dumped today in a way we haven't seen in quite awhile. The reason? Deficit spending was front and center stage with all of the tax cuts and add ins of the proposed agreement. The 10-year bond's yield rose to levels not seen since June-this despite the Feds buying to keep rates subdued, their now higher then before the most QE began, well higher then QE2 levels, that's how intense the selling was. The move in treasuries sent the dollar higher, a higher dollar leads to lower asset prices.
As I'm writing this, the Asian markets are mixed, Japan is getting a boost from the stronger dollar, weaker yen which makes Japanese exports more competitive. Other Asian countries are booking profits and are sliding on fears of uncertainty.
In the US, the higher bond yields, especially on the 10-year which determines mortgage rates is causing higher rates in an already soft real estate market, remember that SRS is on the long list of trades, (an inverse ETF or short on real estate). The saying is “Don't fight the Fed”, while the war may not be over, today they lost the battle with the Fed getting spanked hard with rates higher, remember QE was supposed to keep rates low.
All that said, the divergences seen today across many timeframes, all really didn't just develop today, there's a bigger back story going on as this distribution has been going on for some time. One factor may be funds are not willing to gamble right now with gains, they may be trying to lock them in, today's gap sell-off on negative divergences surely illustrated some degree of that line of thought.
Here's what the charts look like as of tonight for the SPY.
Finally the most serious, the daily chart. While it's hard to look at the market and think about the consequences of these charts when the market has been moving higher, I can't ignore them.
We'll see how tomorrow goes, but I'll be updating many of the trades to reflect better positioning.
