The Forest and the Trees

Or Perhaps the Forest and the weeds after days like today, if you saw my late day posts, you saw how disconnected the market was from everything around it, as I have recently mentioned...RED FLAG!

As we all know, Europe opens in a couple of hours and it's like a box of chocolates...

However, we do have Spanish and the bellwether French bond auctions so there's certainly some reason to believe that what we are seeing overnight has a good chance of sticking at least to a fair degree.

Overnight futures are blood red with few exceptions...

US Futures are at the top and range from -.83% to -1.45%, of course I'll always respect the fact that many things can change between now and 9:30, but it's not looking good.

I mentioned many strange things in the market today and not just to take up space on the site, something wasn't "normal", we'll see how it plays out tomorrow, but as of now, the momentum crowd is probably saying a lot of prayers tonight or just glued to every tick in the futures.

Looking at FX, EUR/USD, there are some interesting developments both short and longer term.

 First, Monday night I recall a bounce in the Euro and said it was a counter trend bounce as the trend has been down since the Sunday night open, now I can't even find that area that was a bounce as the trend looks solidly down-which has a negative implication for the market, which totally bucked the legacy correlations so I almost want to say, the market owes us some significant downside just to revert to the mean.

 EUR/USD broke Goldman's $1.35 stop, I can't imagine why client's stay with them because even if GS is trading against their client and sends the EUR higher by buying at the sub $1.35 level, their client WERE stopped out of the long trade they recommend just this week, AT A LOSS and in FX land, 1 pip can mean a lot on that kind of leverage.

 Here is $1.35 and the last few stops just below that level being hit as the Euro plunges right through $1.35 in a matter of minutes, Goldman's call for their clients is a disaster and it only took a day or two.

Sine the mega rally of early October seen here, EUR gained 1100 pips! Huge move! However it has retraced over 800 of those pips and is now in the vicinity of retracing 75% of the rally.

As to what the market owes to mean reversion, it's time for an S%P margin call.

 The S&P has retraced as much as 1/3 of the rally, but currently stands at less then a 25% retracement, so will the market collect on that reversion?

Every major top I have studied over the last century, as I have shown you, all had this in common, an ever so slight turn down of the 200 day moving average, it may be a little difficult to make out, but it is there and not very different then the historical norm, which would suggest that the market needs to ante up.

 All of those historical tops also had 3C in common, calling everyone, but this one compared to how close price is to 2008 and how far away 3c is, looks to be one of the worst and it's not a fluke that 3C called the 2007/2008 top as well as the 2003 and 2009 bottom as well as all of the other major tops over the last century on this timeframe, so if it s wrong here, it's going to be a first for the last 100 years.


 As for ES, if you were an ES trader buying a single contract at 50X the S&P's price and chased the momentum rally today, again on minuscule volume, you aren't very happy right now as ES has broken BELOW today' regular trading hours intraday lows.

 It seems from my study of 3C on ES that a 1 min timeframe is more like a 5 or 10 min timeframe on the SPY, so an hourly timeframe is more like a daily and a 4 hour is more like a multi-day except more responsive. Here's the 1 hour 3C on ES showing a very nasty leading negative divergence currently.

Here's the 4 hour 3C hart on ES from the July crash which it nailed as well as what I believe to be the recent top of the October rally and again, a leading negative divergence currently.

I find it hard to believe that so many long term charts that have had such a great track record are some how being fooled this time.

Finally I read something interesting that I didn't know tonight. Italy has massive debt to GDP, that's known, but France was supposed to look much better, however investor are taking out their bearish views of French debt as it is a fair and square corner in the market where few are left, being that France, at least until it cries "uncle" is not eligible for secondary bond market support from the ECB, making one of the only remaining bastions of TRUE price discovery and market sentiment, although if the ECB really wants to, they can figure out a secret roundabout way of supporting French debt even though they have failed to prevent an Italian blowout above 7% when they intervened in the secondary market dozens of times and apparently directly-counter to their laws- in the primary market at least twice.

So here's what I didn't know...

By Public debt measures, France doesn't look too bad...

 At 82% of GDP, they look a lot better then Italy at 119% of GDP and the debt load as of 2010 was at 2+trillion $USD.



However through in external debt such as that carried by their banks and the situation looks much different, their debt load is all of the sudden more then double that of Italy's at an astounding  4.7 trillion dollars while Italy is around 2.2 trillion, I'm too tired to do the revised debt to GDP, but it's a lot more then Italy's 119% making France the ultimate TBTF and with yields moving up EVERY SINGLE DAY. This could partially explain why they were o up in arms about the S&P downgrade rumor that is being blamed at last I heard, on a hacker attack! LOL!!!

Should they loose their AAa rating and all of the sudden be locked out of debt markets and see the dreaded 7% vortex, it is "GAME OVER MAN!, GAME OVER!"

All of the sudden, Germany's rush to reformulate the EU membership and as Wikileaks described in a government cable released a little over a week ago, ultimately extract itself from the EU altogether, makes perfect sense, it's a matter of self-preservation-the Union be damned!

And interestingly, the SEC has made its first foray into the cold waters of enforcement in dark pool trading markets as they went after a small fry, called "Pipeline", it remains to be seen if they go after Goldman's Grand-Daddy of the Dark Pool, Sigma X ?

However, these trades that are essentially, scratch that-literally- a "SECRET" which only appear on the consolidated tape, meaning no one knows who actually bought what, at what price, at what time , in what size and from whom, except the companies like Pipeline and Sigma X; the former was charged with front running their own customers, but they (the customers) would never know because they aren't called "DARK" for no reason.This is the antithesis of free, fair and open markets and why the SEC has waited this long to look in to them, can only be summarized as "Wall Street campaign contributions".

In any case, the big secret of who is trading what in huge size without moving the market, is interesting if we look at today's action. Note just who was being sold.

Figure out what countries each of these companies hail from and you'll get an idea of how bad the Euro Crisis really is and how seriously it is being taken by Wall Street. There are a few in there that you'd expect like UniCredit, there are a few surprises in there that would suggest contagion may not stop at France, but engulf the entirety of the EU area as well as making its way across the English Channel.