Some News Sent in by a Fellow Wolf

BAC-BAD NEWS

Bank of America says nearly half its mortgages are ‘bad’ Washington Business Journal  Date: Wednesday, March 9, 2011, 6:56am EST Bank of America Corp. is segregating almost half its 13.9 million mortgages into a “bad” bank comprised of its riskiest and worst-performing “legacy” loans, Bloomberg News reported, citing Terry Laughlin, who is running the new unit. “We are creating a classic good bank, bad bank structure,” Laughlin told investors at a meeting in New York Tuesday, according to Bloomberg. He was promoted last month to manage the costs of resolving disputes stemming from the company’s 2008 purchase of Countrywide Financial Corp. “We’re going to get after this, we’re going to do it the right way and we’re going to put it to bed in the next 36 months,” he said.

Statfor Red Alert

Red Alert: Saudi Police Fire On Protesters In Oil Hub

March 10, 2011

Saudi police have reportedly opened gunfire on and launched stun grenades at several hundred protesters March 10 rallying in the heavily Shiite-populated city of Qatif in Saudi Arabia’s oil-rich Eastern Province.

The decision to employ violence in this latest crackdown comes a day before Friday prayers, after which various Saudi opposition groups were planning to rally in the streets. Unrest has been simmering in the Saudi kingdom over the past couple weeks, with mostly Sunni youth, human rights activists and intellectuals in Riyadh and Jeddah campaigning for greater political freedoms, including the call for a constitutional monarchy. A so-called “Day of Rage” of protests across the country has been called for March 11 by Facebook groups Hanyn (Nostalgia) Revolution and the Free Youth Coalition following Friday prayers.

What is most critical to Saudi Arabia, however, is Shiite-driven unrest in the country’s Eastern Province. Shiite activists and clerics have become more vocal in recent weeks in expressing their dissent and have been attempting to dodge Saudi security forces. The Saudi regime has been cautious thus far, not wanting to inflame the protests with a violent crackdown but at the same time facing a growing need to demonstrate firm control.

Yet in watching Shiite unrest continue to simmer in the nearby island of Bahrain, the Saudi royals are growing increasingly concerned about the prospect of Shiite uprisings cascading throughout the Persian Gulf region, playing directly into the Iranian strategic interest of destabilizing its U.S.-allied Arab neighbors. By showing a willingness to use force early, the Saudi authorities are likely hoping they will be able to deter people from joining the protests, but such actions could just as easily embolden the protesters.

There is a strong potential for clashes to break out March 11 between Saudi security forces and protesters, particularly in the vital Eastern Province. Saudi authorities have taken tough security measures in the Shiite areas of the country by deploying about 15,000 national guardsmen to thwart the planned demonstrations by attempting to impose a curfew in critical areas. Energy speculators are already reacting to the heightened tensions in the Persian Gulf region, but unrest in cities like Qatif cuts directly to the source of the threat that is fueling market speculation: The major oil transit pipelines that supply the major oil port of Ras Tanura — the world’s largest, with a capacity of 5 million barrels per day — go directly through Qatif. Visit STRATFOR to learn more »

EOD update

This has been a tricky one, every where you read, "The market is breaking down" and I'm a believer we are headed for that, just the question is timing and the games they play.

Here's the last minute charts..

IWM 1 min positive just starting

QQQQ 5 min starting

SPY 5 min building

and the TICK index improving.

When the market does break, I do expect to see an oversold condition and today we do have one, so that has made it more tricky, I'm just going on a few charts that haven't confirmed which should have, my understanding of how the market works from watching it everyday and a gut feeling. In any case, you should have your feet or toes wet in shorts in case I'm wrong on this, but I have a feeling we'll see an oversold bounce tomorrow. From there, we may get the Crazy Ivan shakeout.

Why I don't consider this a consolidation

I already mentioned the volatility and volume not being right, but look at today's chart...

While we have a good size drop, it isn't much different then other days we have seen. The dominant Price/volume relationship will probably be price down, volume up which will probably give us a 1-day oversold condition which makes sense with some of the charts that have suggested a bounce. Furthermore, this triangle that everyone has been so keen on, really didn't do much today, we didn't break to a new low below support and the day's price action gives us cause to believe that we will see more of the same, so the triangle wasn't all that important and it certainly wasn't a consolidation-this will be especially true if we have a move up tomorrow. I'm starting to think the Crazy Ivan scenario is the more likely end game, but we will let the market tell us. If it is, we'll have an excellent set up with very low risk and excellent positioning (if all is confirmed) to enter shorts in a bigger, more committed way and the best thing is, the sheep will be on the other side of the trade in massive numbers.

Not only have technicians not adapted, they've become even lazier and they are now missing the entire point of Technical Analysis, "listen to the message of the market"-it's there if you listen and think beyond page 127 of "How to Beat Wall Street" by Dr. I've Never Traded In My Life, M.D.

SLW Chart Request

SLW in red shows that false upside breakout we see so often. In white, today has lost downside momentum, opening the door to a correction to the upside.

On this 60 min 3C chart, you can see the false breakout in the red box as 3C puts in a negative divergence on an important 60 min. chart. The leading divergence to the downside suggests there will be future trouble ahead for SLW longer term.

The 30 min chart confirms what we see above on the 60 min chart, from the false breakout to the current negative leading divergence.

Oddly, the 5 min chart is showing strength, it makes sense with today's daily candle losing downside momentum, but not so much with the 1 min chart.

The 1 min chart is showing a negative divergence at the highs and a pullback. It is possible that the locals intend on accumulating some more around $40.50 where they started.

I'd think we'll see a correction bounce, possibly in line with the broader market. Longer term, SLW appears to be in some trouble.

UNG Trade

UNG may provide a short term long trade, it seems like there's some accumulation going on there. Take a look.

Price is lateral, 3C is leading, this suggests that UNG may be undergoing an accumulation cycle. Right now, I'd say it's small, but may be worth a quick long trade.

USO Update

You'll have to forgive me today, I'm a little distracted as my brother (8 years older with no history) had some kind of seizure late yesterday and what was supposed to be an overnight stay in the hospital is quickly turning scary with some of my family's history, so I'm dealing with some phone calls and things that need to be done as I watch the market as well. So forgive me if I'm not as timely as usual with the emails.

Here's USO

Here's USO's earlier positive divergence which was more or less in line with the broader market's. Right now it's trading in line with price with a slight positive bias.

The 5 min chart shows the same divergence and is looking a bit more positive, in a slight leading divergence

The 10-min, unlike the market, is trading down in confirmation with the earlier weakness which raises some questions as to whether USO is coming unhinged from market correlation, I would think it would considering world events.

Finally the 15 minute chart is looking worse today then it has in recent days when I started warning of a correction here. So we may see some brief upside bounce or correction, but I'd still assume the short term- to sub intermediate trend will continue to be down,

SPY Update

Not a lot has changed here.

The 1 min divergence ran its course and is now in confirmation with price..

The 5 min is showing some positive action.

The 10 min looks exactly the same as the last update, it has not confirmed the downside move today which it should have by now.

The 5 min chart is making me feel like my earlier theory may be coming into play, although price is always the final judge in these matters.

SPY -Market Update

This update kind of explains why I think there may be a "Crazy Ivan" in play.

Here's the 1 min positive divergence mentioned earlier and we've seen some upside from it 

Interestingly, for the size of the drop, the 5 min chart did not confirm, it didn't move at all

Nor did the 10 min chart, perhaps this changes later, but this to me suggests that inventory is being held within that "consolidation zone" because prices are headed back there, and why head back there unless you have a good/profitable reason like another shakeout?

The longer term 15 min chart I believe is showing the true character of the market, not healthy, but that doesn't really matter when it comes to short term manipulations.

The same is true of the 30 min chart.

This "Crazy Ivan" idea is not a prediction, it's just a theory based on what I see right now and what we know of how the market operates.

SLV/GLD

It's a little difficult to determine how SLV and GLD will react being that they have benefited from QE1 & 2's ultra cheap money that has bid up all risk assets, so considering my latest theory, do they behave in similar fashion?

Here's what we know as of RIGHT NOW

GLD

I have suspected that the breakout above resistance on GLD was a false breakout, it seems we have confirmation of that today in price, but more importantly in the 3C readings of the past weeks.

The daily chart for example failed to confirm a new high, this was crucial and before that we saw some extreme weakness is 3C off of support.

Here the 30 min chart shows several negative divergences at the breakout, including a leading negative which is important on a longer term 30 min chart.

However, the 1 min chart of GLD looks similar to the overall broader market with a positive divergence forming. Typically we see moves back toward resistance (where the breakdown occurred) as the market uses volatility to create volume to make money as there is a severe lack of market participants left-ironically, this volatility is partly to blame.

SLV

SLV has basically fallen back to the break out level here, it hasn't broken down too much below it so whether we are looking at a big pullback or SLV is coming apart, it's difficult to say. The action over the next week is not likely to answer that question either as SLV is likely to see meaningless volatility.

So far the 1 min chart is in confirmation with the move down unlike GLD and the market, but...

The 5 min chart shows what appears to be a strong positive divergence building, price alone suggests this.

The 15 min chart broke down on the tweezer top toward the EOD on 3/8 pretty badly, but even on the 15 min chart we are seeing hints of a possible positive divergence taking shape, although I would not call this a strong indication, it is a bit too early, but worth noting.

On this hourly Trend Channel Chart, here's the upside or first upside target I'd expect, near resistance and also the trend channel. If we see a move higher then that, we'll really need to watch for accumulation/distribution.

If these two become part of the Crazy Ivan theory, then I'd expect to see even more volatility in the PMs then equities as the traders here are hard core in their beliefs, I'd say they are not willing to look at information objectively, but rather have formed their opinions based on what they believe will happen fundamentally in the world and with the fiat money system. Therefore, their commitments are likely to be a lot stronger (on the retail side) which actually sets up good positions for those looking at the data as it is.

An Alternate Theory

Being prepared for this (if it comes to pass) will allow you to be the wolf and not the sheep. I got an email this morning which was forwarded from a well known newsletter. They are focused like a laser as are all technicians and even non technicians on the "consolidation pattern".

The pattern is within the red trendlines and it's being called a "consolidation"IT IS NOT A CONSOLIDATION! The price action is WAY too volatile within it, the volume is not correct, but people see it just like they saw a random pattern in 2009 early in the rally that looked like a Head and Shoulders. Volume is the second most important indicator on your chart, but technicians have become enamored with anything exotic and have forgotten all about volume. By the way, it wasn't a H&S top, just a random price pattern that looked like one and volume made it VERY clear that it was not.

So everyone is now watching this triangle which as of yesterday I thought thy may try a false upside breakout to shake out shorts and trap longs, but now I'm wondering (if they still have control over the market) whether they might be going for something even bigger? It's what I call a "Crazy Ivan" from the movie, "The Hunt For Red October" in which the submarine does a 180 degree turn to see if there are any other enemy subs following in their prop wash where they can't hear them.

In my market interpretation of a Crazy Ivan, there are two shake outs, one below the pattern, one above. Which way the pattern breaks first has a lot to do with which way the market eventually will really break. For instance, if we had a false upside breakout, then there could be no false downside breakout, just a real move down, but if it breaks down first, then all the longs can be immediately shaken out, then the shorts when prices move higher. Then we have an upside breakout as I mentioned late yesterday. This one will take out any remaining shorts and capture longs in a bull trap. Eventually the market moves back down. All indications to me, both fundamental (from Bill Gross/Pimco's words and actions and the Fed's Fisher's word about QE2 possibly not being completed) all suggest to me that there is nothing left in the market to melt it up, except whatever remaining POMO operations are left and those are now being thrown into question.

So we'll watch for the signs, but be aware that this is a possibility, we have had the mother of all bear market rallies, it's not going to fizzle away to the downside, it's going to see the mother of all volatility.

Be prepared for this mentally so you can use it to your advantage, so you don't get caught in the game. I'll let you know what I see that may confirm this. As always, if you understand what is happening, there's a huge edge and opportunity for you, but the stakes are high so make sure your risk management is not a motto, but something that is water tight.

GM Trade Idea Follow Up

I featured GM Late February , this is a trade idea I really like. First I think GM is a dog anyway, second the fact the government was involved in it is a second strike. However, most importantly, the IPO of the newly issued GM shares was snapped up by a bunch of hedge funds and GM is trading below IPO pricing at $33. You have to understand how Wall Street works. There's not a lot of incentive to try to outperform other funds as that would require risk taking, but if you can keep up with the crowd, then you're ok. This creates a "herd" mentality among multi million and multi billion dollar salaried fund managers. They all buy the same things so they don't under perform and stick out like a sore thumb and get hit with redemptions. Even if they believe GM is a great deal and they'll come roaring back, when that prospectus goes out, you don't want to be the last idiot holding GM at a loss. So I expect to see funds continue to sell GM as they clearly have been doing and at a loss; that was the premise of the original trade.

Can GM trade at $4? Sure! That's not a prediction, it's just a possibility.

Here's the current GM charts which are limited because of the limited amount of time since the IPO was released (I have fewer data points to compare).

GM trading below the IPO of $33-note the volume in the red square-that's likely distribution, it doesn't happen on huge volume, but there is a noticeable uptick in volume if you pay attention.

The $32 area seems to have been capitulation event, but someone bought there for the shares sold, thus it's a strong resistance point as well. It's likely we'll see a move to that area and a failure around there. It is an important level as it provided support and we saw a gap right through it on heavy volume.

I'd consider this a "longer term trade/investment" and have a stop up around $33.50 or so. I do believe that "if" they can pull it off, the hedgies will try to get out of this at a minimal loss, it's the very same human emotion that rules retail traders and creates support and resistance, the idea, "If I can just sell close to where I bought". So I may consider picking up 10% or so of my intended position in the area, maybe fill it out to 50% around $32-ish and then add the rest on a break to a new low. Then I'd set my trend channel and let it do it's thing. Locals bought this thinking that retail would follow, retail was more interested in the high P/E momentum stocks then GM. So the locals will correct that mistake ASAP and GM will suffer for it.

USO Update

USO 1 min-bounce coming with the rest of the market-good time to add or initiate shorts into strength(broadly speaking).

The 5 min is trying to catch up on the downside it looks like, we'll have to watch this one.

10-min is in a leading negative divergence

And old faithful, the 15 min chart shows the exact point of reversal-it's also in a leading negative divergence suggesting we have more downside to go before an accumulation cycle begins. However, NATO bombs over Libya could muddy the waters, or we may be seeing a discounting of that eventuality now.

Market Update

There's a positive 1 min 3C chart and a price pattern that suggests a little accumulation any way. Watch for some upside shortly.

The World is Officially "Falling Apart"

The stock market says so! First we have Pimco's action of ridding themselves of bonds, remember I said listen to what Bill Gross says and does as he is the informal mouthpiece of the Fed? What Gross said and did told traders, "The punch bowl is being taken away-no more QE3" and the Fed's Fisher said very much the same, even going so far as to say he'd consider voting to end QE 2 early. Understand that the market has not headed north in a parabolic move because of earnings, EPS, outlook, sentiment or anything other then ultra-cheap, nearly free money that has been put into risk assets. If you can borrow at 1% and make 2% leveraged on billions or hundreds of billions of dollars, you just made a killing. Gross and the Fed seems to be saying, "The party is over" and if you pat attention to details, everyone on the other side of the market knew this as well as we've has nearly 7 months of consecutive insider selling at ratios I think are probably historic. This should tell you something else, there's a so called"Boys club" sorry for my female members, but guess what, none of us boys are in the club either. How did these insiders know to be selling all this time?

And why have they been selling for so long? Because if you are a CEO with 10 million shares and you put 10 million shares on the market in a week, you just killed your paycheck and your stock and there's probably internal rules that don't allow for that. However, if you sell 300,000 every week for 7 or 8 months, it doesn't tend to stand out as much and if everyone else is doing it and ll the sheep are making money anyway on the melt-up, some may question it, but ultimately... who cares? That is until the music stops. It was the same way with the housing bubble, everyone from every walk of life was a real estate speculator, at Home depot at 9 p.m. and working until 2 a.m. to flip that house in 30 days before the first mortgage payment came due. Everything was great until it wasn't. I have a couple of friends that now have 2 and 3 mortgages, most of them are at prices that are double what the property is worth now. Bubbles are always the same, no matter how many times they tell you "it's different this time-the Fed HAS to buy". Well, guess what? NO THEY DON'T!

And it's not just America, everyone knows what's happening in MENA, I won't even go there except to say that the consequences of what is happening now will be worse then we can imagine and it WILL NOT be confined to the Middle East and North Africa. Think Asia, maybe Eastern Europe, maybe even Europe and the US as well. It will eventually hit south America and when things get closer to home, watch out. Think EDZ. Emerging Economies Will NOT survive these complete tears in their newly formed social fabric.

Euro Zone contagion is back on the table? Did it ever leave? Check this story, this is the nightmare of nightmare for Euro contagion because there isn't enough money to bailout Spain and they are moving ever closer to that end result. There's nothing, no light at the end of the tunnel suggesting they can avoid this. Germany may very well split from the bailout mechanism and perhaps even the Euro. The consequences of all of this put together are mind boggling. We are living in one of the greatest times of social upheaval the world has seen and when all is said and done, it may rival the collapse of the Roman empire-what was then the known civilized world.

I feel kind of bad to be licking my lips, but if we are going to get lemons, why not make lemon aide?

USO/Dollar Update

Both of these are moving in the direction that this week's analysis has suggested, interestingly it's because of the dollar that USO is down today. You may recall, my short to sub-intermediate outlook for USO has been down, my longer term outlook based on the problems in MENA (Middle East/North Africa) is for USO to gain.

The Dollar I just recently analyzed...

Here and Here

UUP has made a nice move up , well through the signal candle and has started a new leg up.

USO, I've updated several times a day so you should be familiar with my opinions on it. In fact last week I called for a trailing stop on longs that got hit two days ago to take you out of USO. The Trend Chanel will never take you out at the top or bottom, but it will catch the bulk of the trend.

Today USO is down nearly 2%!

In THIS ARTICLE that wrapped up the big picture, I mention the fact that the precious metals, gold and silver are likely to be taken down as well, they are both down today, -1.09% and -2.72% respectively.

It's no time for victory laps, although I'm already hearing from members that are at big profits this early in the morning, it's a good way to start the day.

Lets not let our guard down.

JASO Trade Alert (short)

This one just triggered short below $6.60

FXP Update

I hope you got your toes wet in FXP, today China declares "largest trade deficit in 7 years"!

Here's recent FXP/FXI analysis

And some more