Commodities which we leaking early today have diverged even worse from the S&P and have closed in the red for the day.
High Yield Credit which looking from a longer term perspective is severely dislocated, sold off today and particularly in to the close with the S&P making a minor move up in the red box and credit moving the opposite direction.
Here's USO
USO volume picked up on the break of intraday support. MACD and RSI also warned of trouble for those using conventional indicators.
Here's the USO daily close, we have 4 days of no momentum (remember reversals are process and rarely an event). With all that has happened in the middle east, it is surprising USO closed lower, there may be a lot bigger trouble in China then we know.
Speaking of China, here's the FXP (Ultrashort FTSE China) ETF on an hourly basis.
You can see distribution at the red arrows and boxes as well as accumulation at the white areas, the hourly chart here looks pretty good and seems that traders have been buying up shares of FXP for a while if we have positive divergence all the way out to 60 mins.
Last week I warned about GLD and a potential bubble forming there, it's in Friday's posts. Here's the updated GLD action and some other charts...
The GLD short term chart has been telegraphing trouble since last week, now the decline sees 3C trading in line confirming the downtrend.
The 5 min chart shows what a lot of other charts have shown and what I have suspected, that this bounce has been used to sell short in to, this chart would certainly suggest that as there's almost no confirmation and just 3C distribution.
I covered the long term in more detail last Friday, you can see a list of the posts in the timeline to the far right of the site and down a bit. This hourly hart looks like GLD may have reached a top, whether it is an intermediate top or a bubble, I'm not sure, but I expect we will see the 150 day moving average fail, it's currently around $160.00
The long term daily charts are what have me really worried about the long term prospects for GLD, that's a 6-day leading negative divergence, after what started out as decent uptrend confirmation, a top and now what appears to possibly be a triangle top forming.
SLV has also telegraphed weakness recently on the 5 min chart, that has come out in a few parabolic moves up that failed, currently 3C is in line confirming downside price action.
The more important 15 min chart confirms the same top area and is leading negative, that's a bit of a problem for SLV right now.
The 30 min chart has nailed several tops and remains weak looking.
However, it's the 2-day chart that really shows problems in SLV, you can see accumulation in white and distribution in red, the red box is a leading negative divergence on a multi-day chart, which smoothes out the noise. I would be careful trading SLV long for anything more then a swing trade and only when the short term harts show some accumulation. Otherwise, I might consider shorting SLV on any strength.
Some other charts....
Last week I mentioned keeping AAPL on your watchlist as a bearish ascending wedge formed, we know what happens with these obvious patterns, Technical traders expect them to break down so they are almost always head faked with an upside breakout, any shorts from the bearish wedge are squeezed and new longs enter thinking the bearish wedge is a failed pattern, this tends to be a high probability trade with good risk characteristics. One we have the false breakout, we look for distribution letting us know it's a false breakout and an order can be placed with a stop above the recent highs-NOT AT THEM where everyone else will place stops. You can also wait a bit for downside confirmation.
The 1 min chart has suggested this breakout of the wedge is under distribution, thus a false breakout likely being shorted.
Here we have some accumulation in white, shares are distributed on the way up and by the time we get the false breakout, Wall Street is usually short or shorting into that strength, this also seems to confirm we are looking at a false breakout of the wedge and the pattern is in fact valid.
The long term 60 min AAPL chart looks pretty bad so it's not hard to believe that this is a false move. If you are interested in shorting AAPL and want a second pair of eyes, ideas for entries and stops, just email me. Don't forget to check out Friday's analysis on AAPL and Tech (XLK) in general.
Speaking of Tech, here's XLK. The 15 min chart is inline with many other charts on this bounce, they all seem to suggest it's been used for distribution. You can see the white accumulation area at the lows and a current leading negative divergence that is lower then the late November lows suggesting a lot of distribution/short selling has been taking place in to price strength.
The 30 min chart nailed the bottom with accumulation in white and several topping areas along the way, the indicator looks progressively worse.
However the long term 60 min chart, really looks bad with a new leading negative divergence low that is below anything we have seen all summer.
Energy broadly (XLE) has also been telegraphing recent weakness and is now in a leading negative divergence hitting new lows on the 5 min chart (dates are at the bottom). This price pattern has the look of a small head and shoulders top and 3C looks right for the pattern as well.
The 15 min chart shows accumulation at the October lows that kicked off the October rally, since we have seen a couple of tops in a larger top, remember that tops are a process not an event, in any case, the last bounce is showing a leading negative divergence in 3C.
The 30 min chart shows more history and called the summer top that led to a nasty market wide decline, as well as the August and October bottoms. 3C clearly shows a rolling over of the top in XLE.
The hourly hart shows even more history with accumulation in white and distribution in red. It looks pretty clear to me we are seeing a rolling over top in XLE and with the China data as well as PMI from multiple EU countries, it makes sense.
You've seen a lot of XLF-Financials, but the 15 min chart is worth a reminder.
Finally I want to address TLT or Treasuries, which we have seen some unusual trade, the last few days especially. Treasuries are a safe haven trade that traders buy when the market declines, so these charts showing accumulation are especially interesting to me,
TLT itself in green has shown a bull flag which led to more upside as it should have and a recent pullback as the market has bounced, however the inverse correlation between the market (white) and Treasuries has been void the last few days with the market rising and TLT also showing 3 days of strength, this is not the correlation one would expect to see, the fact that TLT has been strong during the market bounce indicates to me that there has been some serious rotation in to safe haven assets like Treasuries.
Look at the leading positive divergence/accumulation on a 15 min chart of TLT over the last few days, it's hitting new highs and seems to be under heavy accumulation.
Even more impressive are the leading positive divergences in the 30-60 min charts above and below. These chart rarely make a move that leads in a day or two, just like I warned on Friday when the market averages where leading negative in a day on the 15/30 min charts, this would be the inverse or confirmation of the market action seen on Friday suggesting a weak market and a flight to safety.
I'm going out to celebrate my wife's birthday shortly, but I'll be looking at more charts later tonight and will bring you some more news as the S&P releases information regarding possible downgrades including a possible 2 NOTCH downgrade of France. This would be catastrophic fro any plans the EU comes up with and we have already seen French yields rising as the ECB is not allowed to buy French bonds on the secondary market like they do with Italy, Spain and Portugal, so the French yield is one of the true measures of risk and contagion of the core. Should they be downgraded, the bond vigilantes may step up attacks on France and we may see French 10 year yields hitting 6-7% and then it's game over, who bails out France?
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