Tuesday, December 28, 2010
Market Update
It looks to be another "nothing day" with the averages mixed. We have the start of a short term 1 min negative divergence, it may provide some selling into the close.
Triggered Trades from last night
Last night I listed "limit trades" so they have a little something to prove before you jump in, they are still the high flying cats and dog trades. About 5 triggered today and look decent, but CFW is standing out.
From the looks of this one, I'd guess it will see some follow through buying so long as it closes near the top of its range.
USO breaking down
WMT
Retailers are suffering right now with most customers across much of America as snow keeps customers from soaking up the after X-mas sales. However, WMT has been in some trouble long before that and is now in an area that may very soon provide a high probability, low risk trade.
Here's a closer look at resistance. As of now, a possible trade would be a short when WMT moves below today's low around $53.45, the stop I'd use would be near the red line around $53.85 or so.
Here 3C shows a top, the accumulation for the last run up that ended in a H&S top and now a negative divergence on the retest of resistance. This is a pretty good looking trade if we get the price move lower showing a failed attempt to break through resistance.
Below you can see a Head and Shoulders Pattern that has broken down and now it's retesting resistance on very light volume. You can see the long version of MACD I use has showed this trouble coming.
Precious Metals
Today we've seen quite a jump in gold and silver. However, the big controversy and what many consider the path to instant riches, the "Squeeze JP Morgan's Silver Short" viral campaign, is really the big news as many expect SLV to shoot up to $50 on a short squeeze.
I don't know if the story behind the campaign has legitimate legs or not, I suspect we are not privy to the real nature of JPM's holdings or plans, but one thing seems certain-$30 on SLV is a line in the sand that has been defended vigorously recently. I do not consider SLV a trade worth risking until it can show that it can hold the $30 level.
Here's what the charts look like...
This daily chart shows the high attained earlier in December-exactly $30 on an intraday basis, at that point some heavy selling took place to end the day on high volume at $28.08. That does seem like a defensive play to protect a short and even though we are close to that level today and up 3.5%, I'd prefer to see if SLV can hold $30 on a closing basis and maybe a test of that level.
The 1 min 3C chart seems to be showing profit taking in SLV today.
The 5 min chart shows accumulation yesterday and Thursday, obviously someone was setting up a long position to take a shot and it looks to have paid off today. Whether the 1 min chart is light profit taking or real distribution/defense of the $30 level (by JPM), I don't know.
The trade may very well be worth a shot, but in my opinion, the threshold of $30 needs to be taken out, it's just too much resistance and doesn't seem like a high probability trade until SLV can prove itself. It is one to keep on your radar though.
I don't know if the story behind the campaign has legitimate legs or not, I suspect we are not privy to the real nature of JPM's holdings or plans, but one thing seems certain-$30 on SLV is a line in the sand that has been defended vigorously recently. I do not consider SLV a trade worth risking until it can show that it can hold the $30 level.
Here's what the charts look like...
The trade may very well be worth a shot, but in my opinion, the threshold of $30 needs to be taken out, it's just too much resistance and doesn't seem like a high probability trade until SLV can prove itself. It is one to keep on your radar though.
The Case Shiller Index Misses
Today the Case Shiller Index was one of the important economic releases and it missed expectations by a fairly wide margin showing us that the housing recovery simply isn't there, in fact we are in the midst of a double dip recession in housing over the last 4 months-at least in 18 of 20 markets.
I recently talked about the mortgage and refinancing application data showing an extreme slowdown and posted comments emailed to me by one of our members who is a residential loan officer who said in his area, the data was worse then suggested:
"By the way, I would say the mortgage applications are down way more than they are letting on. I have taken maybe two decent applications in the last month, compared to 10-15 a month up til the end of October. Volume has dropped off a cliff with the rise in rates. More bad news for the housing industry; as rates rise the payment goes up, which drops the amount a potential buyer can qualify for. As a result, home prices will need to come down to a level of the buyers. In addition, keep in mind that this dramatic drop in refinance activity to nearly zero will also affect the early prepayment of MBS loans on the Fed's balance sheet. It is this prepayment of MBS loans that the Fed is using to fund the POMO program. Where is the money going to come from to continue the program through next year, more printing?"
Here's the daily chart of SRS which has been in a very big, bullish descending wedge. In November we saw a breakout from this pattern and lately a lateral trend which in this case i believe to be a zone of accumulation. You can see where the daily 3C chart posted positive divergences and in the white box, the area in which accumulation of SRS would occur.
This 15 min 3C chart of SRS shows accumulation at the white arrows and distribution at the red arrow, you can see the red arrow led to a pullback in SRS. remember though that an equity under accumulation is usually accumulated as cheaply as possible and then sold into rising prices.
I recently talked about the mortgage and refinancing application data showing an extreme slowdown and posted comments emailed to me by one of our members who is a residential loan officer who said in his area, the data was worse then suggested:
"By the way, I would say the mortgage applications are down way more than they are letting on. I have taken maybe two decent applications in the last month, compared to 10-15 a month up til the end of October. Volume has dropped off a cliff with the rise in rates. More bad news for the housing industry; as rates rise the payment goes up, which drops the amount a potential buyer can qualify for. As a result, home prices will need to come down to a level of the buyers. In addition, keep in mind that this dramatic drop in refinance activity to nearly zero will also affect the early prepayment of MBS loans on the Fed's balance sheet. It is this prepayment of MBS loans that the Fed is using to fund the POMO program. Where is the money going to come from to continue the program through next year, more printing?"
So I remain bearish on Residential, which has seen a recent bounce. Lets take a quick look at one of my favorite ways to play the decline in the residential market...
SRS
Looking at today's daily chart of SRS we see a "star" candlestick which in this configuration, (assuming it closes like this) is a potential upside reversal signal. Watch for the volume in SRS today, if it increase (and it's already near yesterday's closing levels), then it becomes even more likely that SRS has bottomed which makes for an excellent risk:reward entry. Just remember this is an ETF and there are certain drawbacks to an ETF, but for a swing up or a leg up, this is my favorite way to play residentials.
Out of Europe
Central Banks are tricky institutions. Most people don't understand what they are, what they do, how they came to be and in the case of our own Federal Reserve, do not even understand that the Federal Reserve is about as Federal as Federal Express. There's a reason for all of this deception, there's a lot of great videos on YouTube that explain the concept and origins of Central Banks and the damage they do to societies. Not to mention the secrecy the operate under-again in our own case, the Fed will have their sheets pulled when Ron Paul and the new Republican controlled Congress start their oversight of the Federal Reserve-next year (2011) promises to be a watershed year for the entire concept of US Central banking, it's control and secrecy and it's about time.
However, we are talking about the ECB right now, the European Central Bank who has been busy buying up sovereign debt from mostly the PIIGS (Portugal, Italy, Ireland, Greece and Spain). In buying their debt, which no one else wants to touch, at least not at an interest rate these countries can afford to repay, the ECB has stepped in-similar to our Fed's own Permanent Open Market Operations (POMO)-part of the Quantitative Easing.
In any case, to maintain plausible deniability, as the ECB has been maintaining, they need to unload their purchases to bidders-generally speaking other banks, including Central Banks-remember last week China's announcement that they'd continue to support the Eurozone? That's one example.
This week, the auction to cleanse the ECB's books of the sovereign debt didn't go well, in fact in went quite bad. This could lead to the next round of European Contagion fears and the Euro is reflecting those fears right now as it was trading up this week around $1.3275-a fairly good cushion from the $1.30 level which is widely seen as an important support level. Well in the last 6 hours the Euro has dropped to lows of $130.94, not such a great cushion from $1.30 anymore.
Also remember "normally" a stronger dollar, which happens largely when the Euro weakens, is bad for most investment vehicles such as equities. We're not quite in normal times, especially this week, but yesterday we did see the market bounce back at the same time the dollar dipped-to the minute.
Keep an eye on the situation. As usual, big events are sometimes just one headline away.
However, we are talking about the ECB right now, the European Central Bank who has been busy buying up sovereign debt from mostly the PIIGS (Portugal, Italy, Ireland, Greece and Spain). In buying their debt, which no one else wants to touch, at least not at an interest rate these countries can afford to repay, the ECB has stepped in-similar to our Fed's own Permanent Open Market Operations (POMO)-part of the Quantitative Easing.
In any case, to maintain plausible deniability, as the ECB has been maintaining, they need to unload their purchases to bidders-generally speaking other banks, including Central Banks-remember last week China's announcement that they'd continue to support the Eurozone? That's one example.
This week, the auction to cleanse the ECB's books of the sovereign debt didn't go well, in fact in went quite bad. This could lead to the next round of European Contagion fears and the Euro is reflecting those fears right now as it was trading up this week around $1.3275-a fairly good cushion from the $1.30 level which is widely seen as an important support level. Well in the last 6 hours the Euro has dropped to lows of $130.94, not such a great cushion from $1.30 anymore.
Also remember "normally" a stronger dollar, which happens largely when the Euro weakens, is bad for most investment vehicles such as equities. We're not quite in normal times, especially this week, but yesterday we did see the market bounce back at the same time the dollar dipped-to the minute.
Keep an eye on the situation. As usual, big events are sometimes just one headline away.
Crazy Ivan, Clearing the Baffles
That's what I call it, but in reality it's just running the stops. The few firms that are trading this week are going to have a hard time making money in this low volume environment, thus my warning sunday night about volatility this week.
As you can see, the holiday season has killed volume.
So firms that are trading are doing what they can to make money and the easy fallback is always running the stops, especially when people who go on vacation during the holiday season make sure to log a stop with their broker, which any of these firms can see as they are on the books, this is why I don't ever place orders, except manually. If we consider Thursday's close the median last week (white line), you can see yesterday they took out the stops on the longs-(remember the NASDAQ was down yesterday morning over .80% in 15 minutes?) That's represented by the red line. Today they took out the stops on the shorts to the upside and maybe triggered some longs as well (green line). This has almost nothing to do with price discovery and almost everything to do with fishing expeditions to try to make a few bucks in an environment where there aren't many players to take money from.
WEST just Trigered
By the way, there was a typo on the list last night, it said "MZO", it should have read "MSO"
TRADES FROM LAST NIGHT
THESE TRADES FROM LAST NIGHT'S LIST HAVE TRIGGERED, TAKE A LOOK:
CFW
XING
ATEC
FBN
CFW
ATEC
FBN
MORNING UPDATE
I've never seen a gap that was as doomed to failure as quickly as this morning's, I feel bad for any momentum traders who went chasing it, no matter what happens the rest of the day, I'm sure they were forced out of their day trade positions in short order. 3C showed the gap never stood a chance-pure distribution right on the open.
DIA 1
QQQQ 1
SPY 1
