EOD market Update

There has been some damage in 3C done today to the major averages, the SPY is the worst, but I still don't see what I'd call a clear reversal signal, although we may be heading in that direction.

USO has done a good job of holding onto today's gains, it'll be interesting to see if the Israel situation effects the market negatively should events continue to escalate.

GLD looks like today is it and should see downside pressure. SLV has deteriorated today, but it still doesn't look as bad as GLD so I'm not sure that it's quite done. I think 3C did a good job in seeing the difference between the two metals yesterday as GLD is slightly down right now and SLV is up about 1/2%.

Take a look at the trades provided today, as we near a clean market reversal, there will be many opportunities so I'd try to keep some cash on the sidelines.

I'll update further as situations develop.

Stealth Inflation

This has been another theme we've been talking about as all of the seemingly cheery manufacturing reports have consistently shown producer prices rising rapidly, when the companies can't absorb the costs or trim anymore of the fat, they take a hit to EPS and /or raise consumer prices (see NKE this week which did exactly that) in a consumer market that is in shambles, the result more or less could be an extreme form of stagflation.

MIT has released this chart showing that the US is on track for inflation over 8% for 201l, about 4x the Fed's target rate. So what can be done, as Fisher said in the last article I published an hour or so ago, they can do several things without adjusting interest rates higher, one was to sell treasuries. This is a flat out fallacy. When QE2 ends, there's a big problem. Up until now, the Fed has been absorbing the Treasury notes, which makes it easier to issue a few more as countries like China and Japan could absorb the small excess. When QE2 ends, so does that situation. Worse yet, Japan is unlikely to be buying treasuries anytime soon and to make matters even worse, the Japanese government and insurance companies are likely to flood the market with treasuries. This is almost like the perfect storm coming together and one more reason the market outlook is historically bleak.

So what will the economy and market look like when the Fed is forced to raise rates to sell treasuries and absorb the excessive liquidity that has been driving commodities parabolic?

GLD/SLV continue to deteriorate.

 I'm still of the opinion that today is the start of the GLD reversal and SLV is following about a day behind. Here on a 3C 15 min chart GLD continues to move down.

The 10 min chart of SLV, which needs to deteriorate to bleed into the 15 min chart where we typically see reversals, has been falling apart today as well.

A Couple of I told you so moments

Please don't take that literally, I'm not that kind of an egomaniac. However, I did just post this week that the Fed will do something to "scare the hell out of Congress", I believe that was my response I published to a questio from a member yesterday regarding the Supreme Court ruling. And here's the start of that process, from CNBC-

US Approaching Insolvency-wrning by the Fed's Fisher.

In another several dozen posts, I've been warning that regime change is only the start of a very long and painful, unpredictable process. Since Egypt never really achieved regime change as the military is the regime in that country, protests have flared up again. Reports are out that Egypt's Interior Ministry Building is on fire. There's very little chance that the military will allow free, democratic elections, which would effectively change the regime so the future of Egypt is not looking so bright and in the end, protesters (as they are realizing now) will most likely clash with the once esteemed military; that seems to be the emerging model in true regime change whether it be Bahrain, Syria, Yemen or Libya. There's no reason to believe it won't happen in Egypt.

This isn't meant to be breaking news, this is meant to illustrate how dramatically the power structure of MENA countries are likely to change and how dramatic the results will be for the global economy which only strengthens my theory of a very rapid increase in research/funding of alternative energy. If we consider Japan (the world's 3rd largest economy) alone, imagine what the effects will be if the oil imports they rely 100% on are disrupted because of these changes in the MENA region. There's already geographic choke points, now there's political instability and violence breaking out not only between citizens and their governments, but a much more dangerous kind of violence: Ethnic/cultural/tribal violence that killed nearly 1 million Rwandans in 100 days; religious violence between various religions (Sunnis, Shiites, Jews and Christians to a lesser extent).

As I made mention of a few days ago, Israel did enormous damage to it's perceived invincibility when it last engaged Hamas in Lebanon and that will certainly figure into the calculations in the current conflict.

One thing is for sure, none of this is good news for the market. I suspect as I have said many times and for many reasons, we will see the first long term secular bear market in equities and probably beginning this year.

FX Update

Earlier I showed you charts of UUP looking rather strong and the Euro Trust, FXE looking rather weak.

This may very well be the catalyst behind the action in both...

News Story on Portugal's Austerity Vote Tomorrow

Market Update

 As I wrote yesterday around 2:45, we were seeing late afternoon strength (3C) build into the market and since the market didn't do much with it in the afternoon, I said,

 "So that brings us to afternoon trade and a trend I've been watching unfold wondering if it was going to spark an intraday move-it hasn't thus far, so I'm assuming that it's being coiled up under pressure for another move up tomorrow and why not? It's not at all out of character with the market's behavior, in fact it's  so increasingly common, you can just about assume and trad off the notion that it will happen. I'm talking about these volatility moves up and down that tend to be right before a reversal."


Thus far, that analysis has been correct so we are still in wait and watch mode as the title of the post I quoted above was, "Bounces are Scary" and the first sentence was "And they are meant to be".


So here's the current situation in the major averages.

 DIA 1 min showing some weakness, but there's not enough in the mid term timeframes right now to assume a reversal here. In that post yesterday, I included several possible upside targets before we see a reversal.

 The DIA 15 min today is still in confirmation of the move up today.

 Again the 1 min chart of the IWM is showing intraday weakness, which may be the start of something, but...

 The 15 min, while there's a small negative divergence, doesn't look that bad yet.

 Again the 1 min of the Q's this a.m. is showing weakness

 However the 15 min is pretty much in line with price, confirming the trend.

 The SPY 1 min is showing some recent weakness this afternoon

And it has the worst looking 10 min chart thus far, but that needs to worsen and carry over to the 15 minute chart before we can assume with any degree of certainty that a reversal of the correction is at hand. I believe in the post referenced at the top of this one, I had a potential upside target in the SPY of around $131/$132, there were some target area I also provided based of gap resistance that were more moderate, but until we see that deterioration, we must assume that the correction will continue. One thing to remember is that a correction can also be lateral, it doesn't have to be gains to the upside. Today's action in the SPY to me falls into the "lateral" category.

LEI Trade Idea (long)

 LEI Triangle -this triangle suggests a pretty big move to the upside, approximately $6.00 or so. Because it's a cheaper stock, the obvious triangle may pass under the radar of the black box pattern systems that manipulate these obvious price patterns.

 The 15 min chart has been showing a very positive divergence which is rare to see inside of consolidations like this.

Today's intraday action seems to have set several zones of accumulation, thus a break out may be coming very soon. I'd probably set a stop of $3.20 or so of I bought now, if I bought on a breakout, then closer to $3.45

GLD/SLV/USO UPDATE

Yesterday I thought GLD would reverse down today, it has, but marginally. I also said SLV seemed to be about a day behind (meaning it was still stronger then GLD) and SLV is up today so far, so thus far the analysis has been on track.

Lets take a look at the charts for the PMs

 GLD down marginally so far

 The 15 min chart has deteriorated more today suggesting that GLD does have at least a swing move of several days to a week moving down. There are some short term positive and negative divergences that may keep GLD a little laterally volatile intraday today, but I still believe that it's heading lower.


 SLV which looked stronger is up marginally today which isn't surprising.

 The 10 min chart doesn't look nearly as bad as GLDs, but it is showing some weakness

The 15 minute chart hasn't developed a strong negative divergence yet, so I'm not ready to say that it'll reverse tomorrow until this chart starts to fall apart some more.

USO

 Before the events in Israel today, I was expecting a normal correction in USO, (if I was long, I probably wouldn't even sell it and just ride out the correction, maybe add a little on the weakness). However events moved oil up. 3C 1 min above looks as if it is going negative now. There appears to have been some short covering as well so I'm not sure what this means for our correction, it could be less severe, it could not come at all if events continue to escalate. All in all, since the correction wasn't very threatening to a long position in USO,  personally wouldn't take any action other then to hold the position.

 The 5 min chart is showing some weakness, partly from yesterday, and I assume partly because today's reaction was short covering and not accumulation.

The big picture on the 30 min chart still shows USO in a positive leading divergence, so it seems it's still on track to take out the March highs.

GM TRADE FOLLOW UP

HERE'S THE ORIGINAL GM TRADE POST The entry was $32.77. Since then, GM has acted well for us.

 GM is threatening a new low. Now that GM is trading below the IPO price, just about every large fund that bought it is now underwater. The selling has picked up subtly as we'd expect to see, they don't want to crash it, but they do appear to want out.

 1 min 3C chart suggests we may have an opportunity to short GM on a little strength some time today or add to established positions.


 The longer term 60 min chart still looks very bad for GM

Here's a potential stop around $32.80

HDY Follow Up-New Position

HDY was featured Feb 16th as a trade for that day it's now up close to 24% and in an area in which a new break out looks likely to occur. If you didn't catch the original trade, you may want to consider looking at it here.

 We caught this one just coming out of a triangle. It's consolidated a bit laterally through time and looks like it's getting ready to try to take out the next resistance level.

 Here we can see on the 15 min chart, accumulation, a move up since then that has been confirmed with 3C.

 Intraday there's another triangle and volume looks right for this type of consolidation. There's always the chance of a downside dip below the triangle before a move up, but we didn't see that last time.

If you are considering this trade, you may want to use a tighter stop as sen on the 60 min chart here around $5.87

DE Trade (short)

 DE is one of the few stocks trending down without a major top in place or a "V" shaped reversal. The red square represents a volatility move outside the channel. The candle stick pattern of the last 3 days is that of a confirmed reversal.

 Here's the 15 min chart with a negative divergence on the volatility move/breakout of the chanel

Personally I'd like to short this on some strength around the green square. My stop for this trade would be $92.49 making this a fairly low risk/high probability trade.

Israel and Oil

Just this morning, Israel was listed here as a flashpoint.

Take a look at oil as Israeli tanks enter Gaza and several civilians are killed

The action in the red box is what short covering looks like, that and computer trade.

There are some negative divergences building in that have taken away some of the momentum.

As you know, as of yesterday we were expecting a normal, run of the mill pullback in USO, nothing that threatened the uptrend. It seems as of now, events will dictate oil for a bit. The question technically is whether the short covering covered the entire position that was set for a pullback?

It's interesting to see how much more aggressively oil reacts when Israel is involved. There are some real fears building that this transition in MENA may have disastrous effects on Israel strategically.

CAT TRADE (SHORT)

 BELOW YOU CAN SEE THE 15 MIN 3C CHART SHOWS NO CONFIRMATION OF THE BREAKOUT MOVE, WHICH SUGGESTS THIS IS ONE OF MANY FALSE BREAKOUTS.

As for entries, more aggressive traders may want to enter here/today, if you are more conservative, then a break below $106.03 would be more appropriate. My stop would be at $107.71

SPECULATIVE CURRENCY TRADES-UUP/FXE

Recently we've been watching for a possible false break in FXE and UUP, it appears we have that. With both trades in the position they are at, the trade makes sense as the risk is limited.

 FXE seems to have hit a double top with two false breakouts.


 FXE 15 min chart suggesting a reversal

 FXE's 5 min chart suggests it's ready to go. Below is an indicator I rarely use, it gives signals when there are extreme conditions and right now, it's very negative.

My stop for FXE would be $141.85

UUP

 Here's the possible False breakout in UUP

 UUP's  15 min chart suggesting a reversal-the volume seems to have accomplished what a false breakdown is meant to accomplish, knock traders out of their positions.

UUP 1 min seems it's ready to move up.

My stop on UUP would be $21.60

So Far, Pretty Close To Target & ADM Trade (short)

3 of the 4 major averages did gap up today, the early trade however will tell us little. Remember, we are watching for a reversal in the broad market.

The assumption yesterday from the 3C charts was that GLD would reverse today, it has done so.

The same is true of USO, although USO's reversal looks more like a typical correction, we'll be watching for the buy/add to opportunity there.

As for a possible short trade shaping up, take a look at ADM. Food inflation is out of control and ADM's EPS/margin may be under a great deal of pressure.

 ADM is clearly in a top on the daily


 Looking at the moving average crossover screen, we have a confirmed Sell Short signal with all 3 indicators in unison.

 The daily 3C chart shows the negative divergence at the top.

 The hourly chart is more specific with the top divergence as well as the recent bounce positive divergence.

 The 10 min is in a leading negative divergence...

And today on the opening gap, the 15 min chart has gone negative. If the 15 minute chart remains negative today, today should be our reversal day in ADM and by the looks of the 10 min chart, negative pressure should keep building into the 15 min chart.

OXGN Trade Alert (long)

You may want to take a look at this speculative trade, there's a good possibility of follow through buying today.