Market Outlook

Today I posted the Macro outlook for the market. Friday there was this post showing accumulation through Friday afternoon. Then this post on Friday looking for a target of $129 on the SPY. Today, we all but hit that target. This is not coincidence, this is what I mean when I say that the game board is set up in advance and the market is not random.

Today's closing outlook....

The market update showing  a negative divergence at 1:43 was the high of the day.

 DIA 15 min. The 15 minute chart is where we see swings coming for the most part. You will notice that all the 15 min charts of each of the representative averages shows a negative divergence right before we saw the crash on Friday . Right now this 15 min chart is trading more or less in line, we want to see some solid indications on this chart to see whether the market will actually break down soon from this channel or whether there will be volatility shakeouts to the upside.

 The 5 min chart is divided between Friday and Monday at the white line. Note the negative divergence throughout the morning into 12 p.m., even the bump up in the afternoon was doing so under a negative 3C divergence.

 The 1 min chart gives more detail, you can see the positive divergence that caused the bump I mentioned. Here we see the bump trading mostly in line with price, but the 5 min shows us a little more negative character in the late day bump up.

 IWM 15 min-Again that Thursday, nasty negative divergence and Friday's positive that led to today's strength. As the 1/5 and 10 min charts take shape, they will melt into the 15 minute and give us the indication we are looking for.

 IWM 5 min chart showing Friday's positive divergence into the afternoon and today was in line with price until 2 p.m. when it went negative and the IWM lost some ground. All in all, the chart is pretty much in line with price here.

 IWM 1 min In the middle you see in greater detail the negative divergence into 2 p.m., a small bounce with slight accumulation at 2:30 (this is usually the market's middle men). There was a slight negative into the close.

 The QQQQ with the negative divergence into the false move out of the ascending wedge, a retest of that level saw another negative divergence, the white arrow is Friday afternoon's accumulation. This chart looks slightly positive today on the close.

 The Q's 5 min showing Thursday's negative divergence leading to Friday's meltdown, since then this chart has traded in line for the most part.

 The 1 min QQQQ showing a negative divergence into today's highs, then some accumulation and a slight move up. The accumulation zone is larger then the move I'd expect so again this chart closed slightly positive.

 SPY 15 min, the same as the other 15 minute charts.

 A good representation of Friday's positive divergence in the afternoon and the effect on the market today. The ending position of 3C is negative, but that nay be because it hasn't had enough time to catch up as the turn up at 3 p.m. was late in the day.

The 1 minute suggests that is just ended the day slightly negative as we can see nearly the same resistance level but 3C is considerably lower.

All in all, I think it's going to be a reset as we are not seeing the type of strong indication of direction that we saw on Friday. Why there was accumulation into an uncertain weekend, I don't know. It may be that they thought Mubarak would quickly be forced out of power and the military would take control and the riots would be over. That obviously didn't happen and now we have a huge march in Egypt planned for tomorrow. We know that the internal security forces have been dressing as protesters and causing trouble. There's also a lot of animosity between the army and the police/internal security. There's a lot of room for error tomorrow, even as tensions seem to cool today and there are a lot of shady characters looking for their spot in a new government. Tomorrow may be defining. Make sure you take a look at the post linked at the start of this article about the macro analysis. That will be key and if it goes south, it will go south quickly.

A quick side note, USO did post a 5/10 min negative divergence toward the end of the day. More on that in the a.m.

The Home Builders Turn?

I just read an article that said something that surprised me, not that I haven't been bearish on real estate, but it said nearly 11% of housing units are VACANT! 

If there's a specific home builder stock you are interested in, let me know because there's a bunch that don't look so hot. Here's a couple of ideas.

 GFA short- This is a big and very symmetrical Head and Shoulders top pattern. 3C daily has obviously called a top in it and it has broken down below the neckline of support.


 Here's my moving average screen with my custom indicator to prevent false crossovers or whipsaws. You can see in green where it went long and in red where it went short. This is a fairly new signal so the trade seems to be in a good spot.

 A better look at that H&S-again very symmetrical and the volume picked up quite a bit on the break of the neckline. There's a good chance it rallies back to test that neckline, that' why I prefer to phase into a position like this, maybe a little now and save some room in case it bounces so you can add at better prices. The pattern implied target is about $8.00 but there's ways to enhance those gains with a short position.

 Here's LEN in a bearish ascending wedge. MACD has not built upon the September high at all. We see, as is often the case, a head fake right at the apex of the ascending wedge where many technicians are looking to get short the stock. The breakout on big volume to the upside puts those shorts at a quick loss and in a market with little volume, these are the tricks the market has resorted to to make their bonuses. The pattern still remains bearish and it's taking a turn downward now.


 On an hourly chart you can see the initial head fake breakout led to no further upside whatsoever. The horizontal red trendline is a last stop area of support and if you want to be a little more cautious, you may want to wait for that support to be broken to go short, or you could phase in and add to the position there. Obviously you want an initial stop a little above the recent highs. New trades often need a little more room for the type of volatility that we see right here with the false breakout to the upside out of a bearish pattern.

 LEN 60 mn 3C chart-looks pretty bad...

Here we have the Vortex indicator at the bottom crossing over and ADX has crossed 40 and turned down which often signals the end of the preceding trend (the end of the uptrend).

 Here's a possible long, it's speculative in a few ways, but it may be worth a look. 3C seems to like the daily chart.

 There's a couple of ways to play the stop, this Trend Channel setting has worked well in the past, it puts the stop pretty far away at $1.06. If you like the company, it may be worth a shot down there.

 Here's an alternative stop at recent support around $1.20 although I'd move it slightly lower by a few cents.


Since today formed something that was almost a hammer, my preferred trade here would be a stop below today's lows on a closing basis and going long above today's high at $1.28

If you have questions, feel free to contact me. These trades will be added to a new list for February.

OBAMACARE RULED UNCONSTITUTIONAL FROM THE STATE THAT BRINGS ALL THE CONTROVERSY

THAT WOULD BE MY HOME STATE, FLORIDA.

Looking for ideas.....

UUP Looking Better

 It's held support, when volume picks up on a doji or star candle, often that signals a reversal. Volume could be a tad higher but not bad.

Today's 3C profile looks fairly strong

LNG UPDATE

LNG is up about 2% since it was featured earlier today right now it's looking pretty solid going into the close.

 Here we have 3C confirmation of today's move-no negatives at all, perhaps even a small leading divergence.

Volume is up nicely, not too much creating an overbought situation, but a solid increase and it looks as of now that it will be closing near the highs. The probabilities of follow through buying tomorrow are now higher.

DUG Follow Up

DUG seemed to be on track for a long position until the global events drove oil up late last week. Initially, DUG which is an inverse ETF that tracks DJUSEN which is the Dow's Oil and Gas Index. There's about 90 components in DJUSEN raging from major integrated Oil companies to independent oil and gas. However, it is also full of servicers, such as drilling and exploration, transportation/shipping, and other support structures.


DUG actually did ok on Friday when I expected it to be down quite substantially when tracking against oil itself. Today it is down, my thoughts were as follow and I'd like to hear yours as well.


This is a hard play to analyze fundamentally because of the mix in DJUSEN. I'm thinking oil of course is spiking because the middle east is being thrown into chaos and there are a number of governments that could fall almost in domino succession, this isn't so much a demand for oil as it is the uncertainty of regime change, the closing of the Suez, possibly even OPEC itself falling apart. So if oil becomes a problem, it's not so much a service industry problem except for the fact that those service industries may be prohibited from doing what they do. That doesn't seem to bode well for the service industry if they can't get oil out of the ground and through the canal. That's why I assumed DUG did okay on Friday compared to oil. Today, not so much. While I haven't been able to track the latest developments in the Middle East the last few hours, here's what the charts look like in DJUSEN and DUG. Be forewarned though, when we have fundamental shifts of the magnitude we are seeing in the Middle East and they have not been previously discounted, sometimes, fundamentals and technicals go right out the window. However, for now, we'll look at what we have.

Looking at several charts of DJUSEN, I see the following: 

 This is a Heiken Ashi chart, not a candlestick chart, but you can see volume by price in DJUSEN, there's a small contingent of buyers that could be left in the cold "if" we were to have a sudden reversal, that can not be counted on, it' just an observation.

 Here's a closer look...

 Looking at the volume by price you can also see the trend in DJUSEN of higher prices, less volume-this is a candlestick chart. Basically this shows traders backing away from aggressively chasing prices higher. ADX which is an indicator that falls into the trend category nearly surpassed 50 and turned down, quite often this leads to a change in trend. Again though we have fundamental development in which we have no idea regarding "How discounted they are if at all" We do know the situation in Egypt was making its way around strategic forecasting sites like Stratfor back in December so it's not totally out of the blue.

 Here's an RSI positive divergence in white that kicked off the uptrend and a negative divergence in RSI currently.

 This is a daily chart of DJUSEN showing the positive divergence in 3C at the same time we saw the RSI positive divergence -June-September EXACTLY and the negative divergence in 3C now which is relative between October and the present, but the actual first dip was in November, the same as RSI EXACTLY.

 Looking at a 1 min chart of DJUSEN, we can see the positive divergences that have led to higher prices today and a slight negative divergence near the top of today's highs.



 Looking at DUG-the inverse ETF of the above DJUSEN, we see a negative divergence that is the opposite of what we see above as it should reflect and a fairly substantial positive divergence right now.

 DUG on a 5 min chart shows much the same.

 On a 10 min chart, we see the reason we started to get bullish on this trade, there are negative divergences pushing price lower, but at the lows we have seen a big expanse of a positive divergence.

 The next 3 charts are all daily and show each version of 3 C, each look nearly identical with large recent positive divergences stretching back months. This would be massive accumulation.

 Again the same

 and again the same. These chart all remind me very much of the dollar index in 2009/2010 when there seemed to be no possible reason that the dollar would go up, yet the long term accumulation on the daily charts were there and the index not only went up, but surpassed the target..  If you look at the chart until December 2009, it looks nearly identical to the chart of DUG above.

US Dollar Index Daily chart.

DUG currently

DXY0 Dollar Index 2009/2010

 DUG currently

Dollar Index 2009-2010

Remarkable similarities. However, until DUG can break out of the wedge, I feel we have to respect the fundamental events that are taking place and look for that opportunity in DUG.

Quick Macro Analysis of the SPY

 This is a 60 min chart with Linear Regression applied to price in blue. Note the strength of the trend early on trading in the top portion of the channel, there's a transition that takes place as it begins to trade in the bottom half of the channel and if you look at volume you can see the transition. Any healthy uptrend should be accompanied by expanding volume, instead we see contracting volume in the first half of the trend. When volume does expand, price is trading in the lower half of the channel and we are seeing some large spikes of red volume. Furthermore, MACD (I use long settings) consistently has deteriorated throughout the trend which makes sense considering the breadth post I recently published. Now we have a channel burst and price has broken below the linear regression channel.  Conventional technical analysis would be short the SPY right in here on a chart like this, but we have to be careful as we have seen time and time again, the precepts of conventional technical analysis are often manipulated as Wall Street knows what traders are all thinking and how that translates into herd mentality. The obvious play from Wall Street's perspective is to rally price back above the channel or at least into it and knock out any short positions that have been established against the SPY/Market. However it doesn't stop there either. We have huge fundamental occurrences that may be pushing this market beyond the control of Wall Street and the Fed. This may be an opportunity, but you must be cautious about it until we see a lower low and a more established break of the trend. Resistance as we are seeing today at the channel, after a break, is quite a common occurrence.

 Here's the daily SPY 3C chart, we can see not only a bigger negative divergence from November through the present, but a more recent negative divergence here in January. If you look close, there's also a positive relative divergence, although small, at the end of November, we'll see that in greater detail on the shorter charts that are confirming this one.

 Here's the "Shorter charts", this is a 60 minute and now the positive divergence in late November becomes very clear and it also shows the extent of the divergence which is fairly large. Distribution appears to have begun on this accumulative leg up around late December and has followed into January. This is the accumulative/Distributive cycle we see in leg up trades and other cycles both long and short. There's accumulation, a run up of prices and then a process of distributing those shares. It runs very much like the 4 stages: 1 accumulation, 2 mark-up, 3 distribution/top, 4 decline. These trends play out on a macro and micro basis-this is the fractal nature of the market. Currently in the red box we have a 60 min leading negative divergence which is more serious then a relative divergence. These divergences tend to lead price down with them.

The 10 min. chart shows a small positive relative divergence and then the negative divergence that led to our down day early on Friday. We can see the positive divergence late Friday as I showed you in earlier posts, the green arrow shows confirmation of the price trend on the 10-min chart, but as we have already seen, there is a negative divergence on the 1 minute chart (from the last market update) . That divergence has not made t to the 5 min chart so there's no reason we' expect to see it on the 10 min chart. If the 1 min negative divergence keeps up, t should migrate to the 5, 10 minute and possibly beyond. If that becomes reality, then we have a stronger basis to believe this break may be something more serious and we may not see the typical manipulation of common technical patterns like the break of the L.N. Channel.

Either way, even if there is manipulation of the channel break and we see upside, it's likely that it would be a false upside breakout to drive out shorts and capture longs before breaking down once again-much like we saw in the QQQQ's ascending wedge last week.

In any case, the technical picture is deteriorating. Whether the Fed steps up or whether world events take a more prominent role remains to be seen. Just remember that tops are volatile. Any trades you enter should take that into consideration when assessing your risk management.

Market Update

 Here's the accumulation seen late Friday, it has seemingly led to today's early strength. Remember this is a 1-min chart.

Today's POMO came in at 4.8x submitted to accepted which is higher then the 4.1x median. With lower values we often see some kind of accumulation in the time period in the white box overhead, we didn't see that today, just some confirmation. When the ratio is higher then the median, often the Primary Dealers are not positioned to float the market buying up assets. Right now we have a negative  leading divergence on the 1 min chart of the SPY.It should lead to some downside selling, but we'll have to see price confirm. In that case, if that is the case, some of you asking about stops on new trades in inverse shorts will probably get some breathing room.