JPM Faces 10,000 Legal Proceedings

And now they estimate another $4.5 billion in expenses on top of an undisclosed reserve that's been set up-who knows how much that is. JPM just disclosed this tonight so this is above and beyond the weekend posts on Bad News for Banks. Here's the article from WSJ.


One must wonder if there's a connection to the outcome of the silver short and if so, how that would be effected?


Here are the charts if you are interested in a JPM Short, I wouldn't be going long.

 In the red box we have a resistance gap, of course if this isn't filled, then we have an extremely bearish break-away gap.

 The 15 minute chart shows  a negative divergence from last week, one has to wonder if this is inside knowledge of tonight's disclosure being sold? At the white arrow we have a bounce/ accumulation consistent with the overall market.

 The trend channel set to 1 day held the uptrend until the red trendline, so it did very well in capturing the meat of the uptrend, now the rd box represents a short sale cover/stop.

This is a two day chart, I have two possible entries, one at the white line which is a short under $46.10 and the second would be taking out support and a higher probability of less volatility, that limit would be under $45.21


Trying to estimate a target is rough here as the legal action is unprecedented and who knows how many putbacks it could lead to and what the cost of the putbacks would be, but this is starting to look a lot like the initial stages of the banking crisis when they said at every opportunity, "We're confident we won't need to take anymore writedowns" just to take more writedowns.

In any case, there's a JPM trade idea for you.

Oh, by the way, the VIX descending wedge is looking a little different...

Remember that the VIX traditionally has an inverse relationship with the market.

F Trade and Some Basic Risk Management

We've talked about trade ideas, a few different entries, I just want to touch on the F trade with a little risk management perspective.

When we look at trades, it's natural to think about "How much money can I make on this trade?"

However, I'd like you to start thinking in terms of, "How much money can I lose on this trade?" first. Like we all know from simple math, you lose 50% of $100, you need to make 100% to get back to break even so it's infinitely easier to keep it then to make it back. The great trades will come, your job is to minimize losses until you hit the huge winners. You've seen we have them every week, you don't have to wait a year, but you do need to be a little patient. Minimize risk every time and you'll be ahead of many of the pros on Wall Street.

Here's F's charts:

 We don't need moving averages to see lower highs/lower lows, better known as a downtrend. The red arrow as of today signifies our Swing trigger candle as it has made the highest high/highest low, so tomorrow if we saw a move below the $14.89 area, we could enter a swing short and we could use a tight stop based on the signal candle around $15.31 or so.

 Here my Trend Channel is on a 1 day setting and it captured the uptrend and stopped out at the small red trendline. So we'll still use the same if we want to use a trending stop rather then a swing stop. The trending stop is at $15.80 (there's no judgement call here, there's no guessing, this is the standard volatility F has been trading at.

 3C daily sows us the negative divergence when distribution started in late 2010/early 2011, we also see that attempted move in the red box, that head fake is a good indication of the end of distribution, but so are our shorter term charts.

Here on the 10-min we see the possibility of some continued upside as there was an accumulation event on 2/23-2/24, that position needs to be distributed. Since it was only 2 days max, we know this is a bounce and not something more serious at this point. The 1 min chart (not shown) is starting to show the distribution so we are getting close.

We are going to assume that tomorrow is the final day of the bounce and we get a reversal down through today's signal candle which would give us an entry as mentioned above, around $14.89.

Let's assume our portfolio's total worth (never count margin) is $10,000.  If we were to go with the most aggressive risk management because of the smaller portfolio size, we'll assume 2% risk. 2% risk of $10k =$200, that does not mean we can only buy $200 worth of F, that is our risk money. Now we must determine our risk.

We have two potential stops, a tight swing stop at $15.31 (mentioned above) or our Trend Channel stop at $15.80, we'll look at both.

For our swing stop we have $.42 risk per share ($15.31 stop less our entry at $14.89). Now we divide our risk capital ($200) by our risk per share ($.41)= 487 shares of F. If we purchase 487 shares at $14.89 we have $7250 in the trade, more then 70% of our portfolio. We can not guard against gaps with such  heavy load of F in our portfolio so it may make more sense to use our trending stop. However, lets assume we don't want to use our trending stop, we want the tighter swing stop. Then we need to bring our portfolio exposure to F down to 15-20% maximum (I prefer 15%), but at 20% ($2,000) divided by F's selling price, $14.89 we can pick up about 135 shares of F and have 20% of our portfolio in F. Our risk (not inclusive of gaps) is still $.41 a share which puts our total portfolio risk in F at $55.35 which is of course about half of 1 percent of portfolio.

Using our wider (which I prefer) trending stop at $15.80 less out entry on the swing trade at $14.89, we have $.91 risk per share. Divide our 2% risk capital of $200 by $.91 and we can buy 219 shares-still too high as we have nearly 32% of our portfolio in F. We want to lower that to 20%, so $2,000 divided by our entry of $14.89 135 shares-same as before, but our total portfolio risk is now about 1.2% of portfolio-still manageable and we have a wider stop and a trade more likely not to be stopped out.

I know this is a lot to take in and it doesn't seem like a lot of shares, but succeeding in the market is about protecting your portfolio and compounding your gains. With 1.5% risk of portfolio we can be wrong a lot of times and still hit those 300% moves and see a nice return.

This was one example of risk management, for bigger portfolios I'd be a little more conservative and look at our second example which you can find here at this link.  Also read this one about placing stops.



Any questions on risk management or any other subject, you know I'm an email away, but this is very important, especially at transitional, volatile periods like we are seeing now. So do the work now before the trade comes and you have to move fast. Protect your capital, be steady, be patient, you will get there.

SLV Update

Well there's still some correlation left as SLV took off about an hour after the market.

 The 1 min chart and our negative divergence that led to the waterfall sell-off-note there's no positive divergence leading prices higher-market correlation.

 The 5 min still shows some trouble here as it hasn't had the chance to confirm at all today and it's just a 5 min chart.

Here's the first guess of where we are going. While we are there, a false breakout would probably be a likely event so we'll watch for that. It's still not clear that JPM has lost this battle, there's no real sign of short covering as I'd expect, but there was a good sign of a bear raid today.

Market Update -Trade Alert

OK, we're getting a little upside, nothing too big here. Today we have a striking amount of dislocation in the market's correlation. I'm guessing this is because of deleveraging. There's about a point of difference between the Russell 2k -currently negative and the Dow currently leading the averages.

Here are the 1 min 3C charts...

 IWM is roughly in confirmation with a slight leading positive divergence-

 The QQQQ you can actually see where the positive divergence took hold so there was a bit of accumulation there, they may gap up tomorrow to distribute it, maybe a little in after hours, but the wild card remains that which even smart money can not discount and that is in world events right now so the amount of accumulation here, which is small makes sense, they aren't going for a big position here.

 The SPY -second best performer today is trading right now slightly better then confirmation and although it's not marked, there's a positive -relative divergence at 1 p.m. to 2 p.m. as 3C stair steps higher. As I've mentioned, there's a couple of possibilities and one is a new high as the market's troubles are becoming mainstream, thus the market looks to make the most people wrong at any one time. This could be some of that or there may be something they are discounting (leaked report, etc) that we are yet to see. I wouldn't chase this though, there's not that much of an edge here.

The DIA is performing the best, ironically it also has the worst looking 3C 1 min chart showing a negative divergence into higher prices.

By the way, an alert for RIG long just triggered so take a look there.

Another Example-DECK

This one is different, but lets take a look....

 Looking at DECK, I can tell, without even looking at 3C that the red arrow day was a head fake (false breakout). It gapped up and gave up the gains. It didn't swallow the previous day's body so this is a "dark Cloud Cover" candle-still bearish, still a reversal candle. Resistance is about $92.60 and that's a possible area to go short or as part of phasing in (discussed later)

 Looking at the daily 3C chart, I can see DECK is "toppy" with distribution starting back in late 2010, but the real bad divergence came at the false breakout, note how much lower 3C is, even though prices made an intraday new high.

 The hourly chart just confirms that gap sticking out like a soar thumb, which could not hold it's gains, was a head fake to trap longs at a loss. Never mind the bigger negative divergence we see from 2/08/2011

 The 10 min char also confirms the same, so we know there was distribution and or shorting by the locals that day. This leaves a bad taste and we know it's not a healthy stock, that doesn't mean it can't move yup and this is why I cautioned you in the most recent risk management article to use wider stops initially, we HAVE to adjust to the market, it is as we find it, not as we would have it or remember it.

 The 5 min chart shows a positive divergence, so this could very well bounce a bit, thus the wider stop, still we know even in a bounce this sin't a healthy stock. Remember, we have to take the wide view, the big picture.

 Here's a 1 day version of the trend channel that has held DECK's rally, so I'm using it now. The TC works based on each stocks own trading volatility, not a preset number like Bollinger Bands that are more generic, the Trend channel is fine tuned for each individual stock. I put a red 22 day moving average on the chart to show you how it works as a decent replacement for those who don't have TeleChart or StockFinder-for those who do, email me and I'll share the custom code I wrote for the indy. Note when DECK was trending down, the upper line of the trend channel was the stop, also a move above the red 22 day m.a. would have been a stop on the CLOSE. Now that we have a trend up and note how the channel has widened to account for recent volatility, now the bottom channel line is the stop and a move below the 22 day moving average functions as the same.

Now, on looking at the big picture, when a stock approaches the end of a rally it gets very volatile, note the straight up price ascent ended the rally in 2007, and look at the current one now. THIS IS A 5-DAY CHART.

LOOKING AT A 1-DAY CHART, DO YOU THINK YOU WOULD HAVE NOTICED THAT SAME VERTICAL VOLATILITY? This is why we must compare as much as possible. "3C" stands for "compare, compare, compare" as a reminder.

The trade here is a little harder because it's not a swing trade with a signal candle. Thus I would consider this a short in a few circumstances, phasing into the trade and adding more shares as it moves higher, but save at least 50% of the allocated funds for when price breaks down and confirms the trade-PRICE IS ALWAYS THE FINAL JUDGE. That can be determined by 3C if and when the bounce takes place and ends or for a higher probability trade, when the trend channel stop is broken.

Learning To Fish

OK, I can't possibly get everything out to you in the form I'd like to so book mark this post because this is going to be a quick, but meaningful way to look at trade ideas, discover entries, set stops and more. We'll look at BRCM which I consider a trade right now.

 Here's the daily chart and this is a way to enter a trade without too much risk, which means you can still keep your portfolio risk (not accounting for gaps as we can not protect against those except as I've outlined in the risk management post-by not committing more then 10-15% capital to any one trade). Remember, first we want something that looks toppy and if it's broken down, even better-BRCM fits the bill. This is a Swing Entry, like I mentioned in the examples I showed last night and many other times, we want to look for the upside bounce/correction and that becomes our signal candle. I've put the stop a little higher then normal to account for today's gap up which has fallen and given up all the gains-VERY BEARISH and it's called a "Dark Cloud cover" in Japanese candlestick vernacular when it retraces about half of the previous day. Today it retraced the entire previous day and then some, that's even more bearish and is called a Bearish Engulfing candle because it engulfed the entire previous day's body. Yesterday is still our signal candle (actually Friday) because it made the highest high/highest low-that's what we want to look for for this swing set up.

 For those of you using Telechart or Stockfinder, 3C is helpful in determining whether the gap up is real or not and the top pattern. This daily chart shows us that the highs of BRCM were distributed and shorted into. We know it's a bad chart or a short, we just need a good risk:reward entry. Note the bounce off of support (red trendline) and at the green arrow we have our signal candle. Today was not a signal candle because it didn't make a higher low, despite having made a higher high.

 On the 5 min 3C chart we can see the negative divergence in BRCM on the gap up in the red box, 3C moved down instead of up (which would have confirmed the gap up as bullish-didn't happen). We also have a leading negative divergence as 3C makes new lows, yet price has not yet.

Here the trend channel is set to 2 days, which held the entire uptrend, (for those not using TeleChart, a 22 day moving average is a pretty good substitute. The red trendline shows the highest high the Trend channel made before we got a close below that level at the red arrow. Now we have determined that the uptrend is over. that doesn't mean automatic reversal, we can go lateral and build a top like here, but it means the 80% gains in the middle we want, the least risky, is over and we are now at the 10 or 20% in the top that are very risky. I would have exited the long at the red arrow-the lateral movement is market risk and opportunity cost. Now the TC has turned down and we are in a downtrend so the lowest point of the upper channel line becomes our stop on a CLOSING BASIS-not intraday action-CLOSES ONLY.

The yellow ADX indicator also turned down from nearly 40 showing that the uptrend ended and now it's moving up showing the down trend is gaining strength. ADX by itself is neither bullish or bearish, it just looks at the strength of the trend and when it turns down from 40, the trend is ending in most cases.

So now we have a swing stop based on the charts above and a longer trending stop based on the trend channel-depending on your risk tolerance and other personal preferences. Because BRCM has moved below the low of the signal candle, it has set off a swing trade short.

I know that's a lot and not covered very well, but a lot is happening and I want you to have a rudimentary understanding and a way to enter trades, determine stops (and risk), be able to figure out how many shares you should purchase based on risk management by identifying your stop.

Questions on this should be emailed to me after market. There's also a video called "Swing Trade entry" that is linked on the site at the upper top right with the risk management article. Take a look. Now you have a decent way to get into trades and set up risk management. Remember that the 22 day m.a. is a good substitute for my trend channel, but also remember it must fit the stock and that's why I use a 2-day chart because that is what has worked with BRCM's typical volatility-every stock is different.

I will strive to bring you the charts...

However, for now I need to get the stocks out to you. Here are some that have shown recent (mostly false breakouts) and these are the type of breakouts that precede a downside move and we are seeing that in these names today. Don't be afraid to enter a stock that has moved already, if the market truly breaks, we'll have a lot of profitable opportunities.

Short names to consider:

DECK
CRM
PCLN (be careful as she's a very volatile stock-wid stops on this one initially)
JOBS
SAP
BRCM * I like this one a lot.
F
PVH
FCX (which was covered last night)
SMH-good exposure to tech downside-there are ultra shorts too available. This one is just the index so you have to short it.
PPO (possibly-I need to look closer)
WFC-(covered the bad news here over the weekend)
AMZN

MArket Update-Urgent

Remember that the Fed has used the Russell 2000 as their primary object of levitation because it is so broad, the breakdown here thus is very important.

 A bearish cloud cover reversal candle thus far on the daily chart....

 IWM (Russell 2000 ETF) 1 min negative leading divergence-the worst kind.

 Even on the 10 min chart it's an ugly negative leading divergence. Remember the SLV update and my post warning how correlated all of the asset classes are, this appears at first glance to be major de-leveraging

The QQQQ 15 min chart is now solidly in a negative divergence and this is about when we see reversals.

Finally, this is a daily chart of the SP-500 showing only closing prices, last night I said that when a channel or support trendline is broken, we often see a "kiss the channel goodbye" bounce. Also I mentioned the fact that we may see an effort to establish a new head fake high (false breakout), but right now we must take this chart as our first assumption of perhaps a reversing market. If we get the false rally, we'll deal with it then, until then, I would make sure I have cash, I have gone off long margin and have exposure to short positions that I would like to trade anyway regardless of the market, meaning good looking shorts, not just any old thing to get short.
I'll bring you some ideas.

SPY, USO and SLV Update

I have some trades I want to get out to you, I don't know how I'm going to get them all out in the time I have, but will try my hardest. Here's an update before I start putting that post together.

SLV

 SLV is still in play, earlier I noticed the lateral movement which is usually when distribution happens,  see next chart.

 There's the sideways movement and 3C falling apart, SLV has dropped like a rock, I'm guessing we could be seeing a bear raid here.

 The 5 min chart is confirming... and....

 Here's  the 10-min

 Here's the SPY 1 min

 SPY 5 min -leading negative divergence...

 and now distribution is on the 10 min chart, usually when it makes it to the next, the 15 min, we are at a reversal.

 You can see it developing now in the 15 min chart.

USO

 Here we have some support building in on USO...

 USO  showing confirmation on the 1 min

USO 5 min showing a leading positive divergence developing. compare price at the green arrow and 3C at the orange.

I'll be back with the trades, I have a lot to bring you....

POMO

I've explained POMO before and how Primary Dealers make risk free money in return for levitating the market for the Fed- it' a no lose proposition for them, but to see in action just how corrupt the system is, this article will explain succinctly how the Fed uses the PD's to monetize debt and how the taxpayer and savers are punished for it while the PD's like GS make a killing nearly risk free. It also shines a light on the complex and inside relationship between the investment banks, hedgefunds, etc and the Fed and just why so many reports we have found with 3C, show obvious leaks.

Here's the article


This is who we are up against in a zero sum game and why we join them rather then try to beat them.

Main Stream Press

A little late-Gadhafi Handing Out Cash-

Worldwide rise in protests 

Closer to home-Cuba on the agenda?

Here at Home 

Last night I mentioned the North Korean crisis and how they'll deal with it, typical-Nationalism united is the dictators first choice in dealing with social unrest.

Events in Kuwait-despite the cash for protesters may be rising.

Oman is in it's 3rd day of protests....

And the Saudis are getting nervous-I hope none of my members are from S.A. as you may lose your internet access, I hope not, but it was the first thing Syria did when they saw protests taking shape and Egypt tried it as well.

Latest Breaking and important news out of Libya is the repositioning of US forces around Libya. There have been attempts to get the UN involved-these things never seem to go well in Africa, but we can't forget nearly a million dead in Rwanda in less then 100 days while we went on with out lives. 7 years later and we still can't get a government in Iraq to stand on it's own two feet and that's just 3 religious groups. Libya has some 6 or 7 Tribal groups, sort of similar to Afghanistan where the government can barely project power outside of the capital. 

Just think of 10-12 failed governments in the middle east... And the Fed still, even today through William Dudley is still crying totally naively innocent as to food and commodity inflation worldwide which is what TRULY SPARKED THESE OUTBURSTS.

In his speech today, he said: "Fed is not an exporter of inflation and not to blame for inflation in emerging markets"

"Current Fed policy is in the interest of the world's economy"

It's like that child rhythm, "whoever smelt it, dealt it" and the more the Fed protests their innocence, the more clear they make their guilt in having some responsibility.

Again for your gratification-the chart of the commodity complex which fits right in there with QE 1 and 2

That's a 50+% rise in 7.5 months. At this rate, we could see a double by the time a year passes. Although something will most likely break before then, but it will be too late for many countries.

Read with the earlier Chicago PMI

Here's the earlier post on Chi-town PMI


Now the Dallas Fed chimes in on what has been the imminent profit margin collapse due to higher prices paid (due to the Fed's ultra low interest rates fueling speculation in every risk asset).

The Dallas Fed, just like the Philly Fed has confirmed again that prices paid (for manufacturing of goods) has again edged up.  The headlines seem good when you just read the headlines, even great, but you can not have input costs continue to rise or else corporate margins are squeezed, Earnings are drained and ultimately companies have to get more efficient which means laying people off and passing along the higher cost of manufacturing goods to the consumer. Put higher unemployment together with inflation in the everyday things we buy and what do you get? Stagflation-stagnation in the economy and inflation in goods and services. This is the insidious little noticed segment of these otherwise, seemingly bullish reports that will creep up and collapse the house of cards. Black Swan? And I'm not talking Oscars.

Another False Break in the $USD/Euro?

 The FXE Euro trust ETF 5 min chart

 3C 5 min of FXE-possible head fake....

 UUP breaks support on a gap down, but has been gaining all morning...

And the 3C chart for UUP (proxy ETF for the US dollar Index).

There may be a trade shaping up here....

Alternatives to USO