Part 4-Treasuries

Earlier today I posted part 3 of the 2008 meltdown redux, here's part 4 focussing on treasuries.

Market Breadth

"DON'T GET LOST IN THE LINES"That's some good advice for artists, it's also good advice for traders. The market is one of the biggest emotional structures in the world where fears and hopes are represented and discounted. It's easy to lose your place and miss the bigger picture and the opportunities within that view.
So tonight, instead of the video that I had planned (which I will bring you this week as it has some crucial examples regarding the market). First though I want to show you an example of the big picture.

This nearly 90% decline today would provide many opportunities, however if you look at even the small bounce in the square, that represents a nearly month long bounce. In that time, it can be very easy emotionally to feel like things have changed, you could have been scared out of a short or wondered "How long can this possibly keep going, 25% of the population is out of work!" However, in the big picture, it's barely noticeable.
One way for us to keep our eye on the big picture is to look at longer charts, to understand that even in the most ferocious bear market, there will be counter trend rallies or in the strongest uptrend, there will be corrections. Emotions aren't a friend of a trader/investor.
Fortunately for us, programs like Worden's TeleChart/TC200/StockFinder offer us indicators to measure the quality of a move. We can then better determine if this is something we should be worried about, or something that we can use to our advantage.
Here's a look at today's market using Worden's T2 series of indicators in green vs the NYSE in red
% of stocks trading 1 standard deviation above their 40 day moving average, these are the really strong stocks.

 Note in October when the market was lower, 75% of all NYSE stocks were trading at least 1 standard deviation above their 40 day moving average. Now with the market even higher, that percentage has dropped by 52% to 35.81%. This tells us that many of the high flying stocks are no longer high flyers, most probably these were stocks that were momentum crowd favorites. This shows significant de-leveraging away from risk assets.

% of stocks trading 2 channels above their long term 200 day moving average. These stocks have been in steady uptrends for quite some time and as such, take a little longer to reverse as the 200 day moving average is a long average and these stocks were already a standard deviation above that average.

Here in November 43% of stocks had achieved this long term objective, now with the market trading even higher that percentage has dropped to 14.76%, a drop of 65% in 5 months!

% of stocks above their 40 day moving average, most stocks in an uptrending market will fall into this category.

In October when the market was lower, over 86% of stocks were trading above the 40 day average, even though the overall market is higher, fewer stocks are trading above the 40 m.a., at the top it dropped to 75%, now it stands at 61%, a significant decline for such a short average.

$ of stocks above the 200 day moving average.

Back at the November highs, when the market was 7% lower more stocks were trading above their long term average then now. Even the most recent bounce has shown some deterioration in this indicator.

Here' a longer look at the same indicator, note the strength in 2009 when 90+% of stocks were above their 200 day, now only 76%

% of Stocks trading 1 standard deviation below their 200 day moving average, these are stocks primarily in primary downtrends.

Between November and now the percentage of stocks trading in downtrends has doubled , even as the market has advanced 

% of stocks trading 1 standard deviation above their 200 day moving average.

In November, 75%, now at 55.76% this class of stocks has dropped by 25%

% of stocks trading 2 standard deviations above their 40 day moving average. These can be stocks that move up very quickly.

In November, the reading stood at 47%, that has dropped by 75% to 13.74%

I think the market breadth shows clearly that this market has been advancing on fewer and fewer issues, a lack of breadth or strength. Considering low market volume and low market breadth, this market is extremely dangerous, it's like standing on the end of a very thin limb.

Market Breadth

"DON'T GET LOST IN THE LINES"That's some good advice for artists, it's also good advice for traders. The market is one of the biggest emotional structures in the world where fears and hopes are represented and discounted. It's easy to lose your place and miss the bigger picture and the opportunities within that view.
So tonight, instead of the video that I had planned (which I will bring you this week as it has some crucial examples regarding the market). First though I want to show you an example of the big picture.

This nearly 90% decline today would provide many opportunities, however if you look at even the small bounce in the square, that represents a nearly month long bounce. In that time, it can be very easy emotionally to feel like things have changed, you could have been scared out of a short or wondered "How long can this possibly keep going, 25% of the population is out of work!" However, in the big picture, it's barely noticeable.
One way for us to keep our eye on the big picture is to look at longer charts, to understand that even in the most ferocious bear market, there will be counter trend rallies or in the strongest uptrend, there will be corrections. Emotions aren't a friend of a trader/investor.
Fortunately for us, programs like Worden's TeleChart/TC200/StockFinder offer us indicators to measure the quality of a move. We can then better determine if this is something we should be worried about, or something that we can use to our advantage.
Here's a look at today's market using Worden's T2 series of indicators in green vs the NYSE in red
% of stocks trading 1 standard deviation above their 40 day moving average, these are the really strong stocks.

 Note in October when the market was lower, 75% of all NYSE stocks were trading at least 1 standard deviation above their 40 day moving average. Now with the market even higher, that percentage has dropped by 52% to 35.81%. This tells us that many of the high flying stocks are no longer high flyers, most probably these were stocks that were momentum crowd favorites. This shows significant de-leveraging away from risk assets.

% of stocks trading 2 channels above their long term 200 day moving average. These stocks have been in steady uptrends for quite some time and as such, take a little longer to reverse as the 200 day moving average is a long average and these stocks were already a standard deviation above that average.

Here in November 43% of stocks had achieved this long term objective, now with the market trading even higher that percentage has dropped to 14.76%, a drop of 65% in 5 months!

% of stocks above their 40 day moving average, most stocks in an uptrending market will fall into this category.

In October when the market was lower, over 86% of stocks were trading above the 40 day average, even though the overall market is higher, fewer stocks are trading above the 40 m.a., at the top it dropped to 75%, now it stands at 61%, a significant decline for such a short average.

$ of stocks above the 200 day moving average.

Back at the November highs, when the market was 7% lower more stocks were trading above their long term average then now. Even the most recent bounce has shown some deterioration in this indicator.

Here' a longer look at the same indicator, note the strength in 2009 when 90+% of stocks were above their 200 day, now only 76%

% of Stocks trading 1 standard deviation below their 200 day moving average, these are stocks primarily in primary downtrends.

Between November and now the percentage of stocks trading in downtrends has doubled , even as the market has advanced 

% of stocks trading 1 standard deviation above their 200 day moving average.

In November, 75%, now at 55.76% this class of stocks has dropped by 25%

% of stocks trading 2 standard deviations above their 40 day moving average. These can be stocks that move up very quickly.

In November, the reading stood at 47%, that has dropped by 75% to 13.74%

I think the market breadth shows clearly that this market has been advancing on fewer and fewer issues, a lack of breadth or strength. Considering low market volume and low market breadth, this market is extremely dangerous, it's like standing on the end of a very thin limb.

End of Day Ramp

As I showed in the TICK Index, today's end of day ramp job did not have broad market participation which means, as I mentioned this morning, that a close higher has little to do with any market strength and is just an attempt to juice the returns for Q1 results for fund's prospectus. The averages that saw the most juicing EOD were the Q's and the SPY

 The Dow was largely lateral and a little toppy looking the last two hours so no need to look any further there.


 The NASDAQ was juiced and the prime candidate with 20% or so weight on the index (about the same as the bottom 50 NASDAQ 100 stocks combined) is AAPL, that's an easy one.

And AAPL is confirmed.

The SPY was juiced as well. The top 10 components or the top 5% of the index accounts for 20% of the market cap. So I looked at those.

XOM is top dog, but had nothing to do with the juicing as you can see.

 CSCO @ #8 did

T @ #3 did

 And BAC @ #6 did, despite it closing down, they needed to move the average @ EOD and you can see BAC was one of the mover EOD.

As far as the Price/volume relationship, which I was very interested in, it came in VERY dominant (there are 4 relationships possible) with well over half of the stocks in each of the above averages in that dominant relationship. The dominant relationship, believe it or not is actually the most bearish of the 4 possible combinations, PRICE UP/VOLUME DOWN.  So again, we have evidence that today's move lacked market breadth or participation making the move extremely suspect. Also a relationship that dominant and negative can induce a 1-day overbought event, although tomorrow is still part of the quarter.

I think after Wednesday (after the prospectuses are locked in and the gains reported) we will see some significant realignment of portfolios, this is in large part based on apparent de-leveraging yesterday as we saw that very heavy volume and selling on the last day to adjust their portfolios.

In the NASDAQ, the Ratio of Advancers vs Decliners deteriorated throughout the melt up

This is not what you expect from a strong move, this is what you expect with a price/volume relationship like today's.

In another breadth chart, as the market rises, you expect to see more new highs, not less. This again shows a lack of participation or a lack of breath.

All in all, I think what today was is pretty clear, not a move of strength in the market, but rather a move to keep redemptions from hitting hedge funds en masse once they release their quarterly results.

The Chernobyl Option

Yesterday we briefly touched on what happens when fuel rods have been left exposed too long, they melt into a radio active blob and sink to the floor of the steel containment vessel which makes the blob extremely hard to cool at that point because there's less surface area. Yesterday we speculated that process may have already begun as there are leaks in the containment vessels.

Just out from the Guardian, it seems the worst scenario has occurred and reactor #2 has experienced a melt down, which makes it just a matter of time before all containment fails. The Guardian says that the actual steel containment vessel has likely been breached and a radio-active blob is now on the concrete floor of the containment building which houses the steel containment vessel.

It seems it's too late now to save reactor #2, which essentially means we can expect a massive release of radiation making it that much harder to deal with reactors 1, 3 and 4. If we follow the logic here, then similar events will occur in the remaining reactors and Fukushima is for all intents and purposes a total loss.

The only thing left to do is to launch plan C, the Chernobyl option and encase the entire complex in a concrete sarcophagus.

As for the market, Japan obviously is no where near the size of the Ukraine. What happens to the Japanese economy (I'm talking about the nuts and bolts, whether citizens will evacuate Tokyo or not) remains to be seen. Everyone is talking about costs of rebuilding, etc., but if you were Japanese and had any alternative which would allow you to leave the 4 island nation, what would your choice be? As Japan is (for now) the world's 3rd largest economy, this will have unimaginable consequences. As a major producer of advanced electronics, there are thousands of companies that will be effected immediately and for the foreseeable future.

2011 has gotten off to a historic, world changing start. From events in MENA, Europe, Asia and the U.S., it seems the whole world is about to be permanently realigned. The thing the market will be most concerned with immediately is the uncertainty of each of these unique situations. The market doesn't like uncertainty and has a habit of cutting and running when it can't understand, predict and accurately discount events. Being there is little if any precedent for each of these unique situations, it's not difficult to imagine why yesterday at 3 p.m. through the close, we saw huge sell side volume. Monday was the last day for the market to position itself (when accounting for T+3 settlement) before the end of the quarter tomorrow. The positioning was without a doubt negative. In fact in the market environment we've been in the last two years, one would have expected the exact opposite of yesterdays late day selling, that is if we failed to consider world events.

The market is telling us something, we need to listen.

All About Qtr's End

With the Tick index stinking so bad....

it's obvious there's no breadth to the market, therefore the gains are being accomplished by juicing select, heavily weighted stocks. For the NASDAQ, the answer is simple, AAPL represents nearly 20% of the NASDAQ's weight so AAPL is being used to juice the NASDAQ 100. I haven't had time to look for what's being used for the Dow and S&P, but the Tick chart makes it obvious that it's not broad market strength, it's select stocks and the market is being juiced as I talked about earlier today for 1 simple reason, Quarter End Results to avoid redemptions. The Quarter ends tomorrow.

About that Tick Index

The Tick Index is all advancing issues less declining issues on a tick by tick basis, it has good correlation with the market as you can see below, the Tick in in green, the S&P-500 in red.

Now look at this afternoon's trade, the S&P close to intraday highs, the TICK Index not even close and in fact in negative territory.  This move has a bad smell.

Why Would a Legendary Hedge Fund Manager Return All of His Client's Capital?

Check out this article

As I've stated before, we may be very close to being the first people alive to see and trade a secular bear market in equities.  It seems Carl Ichan may very well agree, shutting down a hedge fund in advance of poor results has some pretty dire implications.

This last hour of trade could be an interesting one

Right now the SPY, DIA and QQQ are negatively divergent as they make intraday highs (1 min 3C), also the TICK index is negatively divergent as well trading just a little over the neutral line, but far from making new intraday highs.

TSO Update

This is a position we made some money in. It just broke out to new intraday highs, I am a little concerned about this being a vlid move, however it could be traded long with a very tight stop around $26.83 and on the other hand, if it fails to close above that level, it may turn into a nice false breakout move which could be played on the short side. Typically false breakouts reverse fairly fast and deep so either way, the trade is worth keeping an eye on.

Back to GOOG

In the last GOOG post about an hour ago, I showed the stops being hit, why and how you can protect yourself. Now, lets take another look at the chart.

The red arrow and big red volume was our last update and I listed several reasons why a market maker, etc would hit these stops, one was for their own position. If you look at the white arrow, there's a 1 min positive divergence so looking back now, we can see very clearly what happened, the stops were hit, the market maker or whoever was behind the shakeout, picked up the shares on the cheap easily and has run GOOG up for a decent little intraday trade/profit. This is another reason I prefer to use stops on the close as well as all of the other reasons I provided as to how and why the GOOG longs got hit. If you were one of them, how would you feel now?

Again, this is an example post for reasons of learning about the market and is not analysis of GOOG itself.

FCEL (Long)

FCEL was highlighted March 24th

Today, it just broke out of the level I mentioned as a buy area, $2.18-$2.20.

Take a look as it may provide a quick gain. I do believe I did see FCEL on the insider transaction sell list though. By the way, Insider selling:buying ratio came in at 18:1 with sellers taking the lead as has been the trend for months, many, many months.

Fed's Reverse Repo

This is the second time this week the Fed has conducted a reverse repo. I'm not sure what the end game is here, but it seems between the extraordinarily large number of Fed regional presidents and voting members holding speaking engagements this week and the hawkish tone of them, it would seem at a minimum that the Fed is letting the market know that QE3 is not a foregone conclusion and perhaps that QE2 might not even make it to the end of it's scheduled operation.

Inflation seems to be the key here. Inflation has been evident for quite some time in manufacturing reports and MIT's recent projection of a rate of inflation near 8% for 2011. This may be causing the Fed actions.

Here's more on the story...

UUP Prepping for the Next Leg Up?

It apears that way and if successful, this is the most important price level for UUP in weeks and could have some major implications for a more solid footing and advance.

 The intraday trend. There's nothing wrong with this picture, a simple intraday pullback.

 The start of 1 min accumulation near the lows and in a lateral trend.

If UUP can close above the white trendline, then it has broken resistance and will be set to change a few of the trends in the short and sub-intermediate terms. Remember that historically the dollar has an inverse relationship with equities and most commodities including precious metals. So whether you trade UUP or not, it's a useful ETF to keep an eye on for broader market implications.

A Quick Market Lesson (GOOG)

In my rik management article, I talk about never placing stops at whole numbers and if you can avoid it, try not to place stop loss orders on the books with your broker. The market makers and all kinds of Wall Street participants can see where you have placed your stop. When a bunch of stops are congregated in a particular area, you can be sure if it's within reach of the market makers. etc, they go for it and try to knock those stops out. In doing so, the create volume which creates profits for them, whether it be the difference between the bid and ask (the spread-which is their profit) or volume rebates or just popping off one of their own positions, they stand to gain.

Take a look at GOOG's intraday chart...

 Error # 1, stops were placed at extremely visible intraday support. Error #2, the stop level was a whole number- $579.00. Error #3 as evidenced by the immediate turn up in volume, the stops were placed with brokers. Just look at the volume the minute $579 was breached by a penny, volume surged as the stop loss orders were triggered.

For those of you short term trading/day trading and using 3C, the signal of a negative divergence was pretty clear, it's especially more accurate as GOOG has been range bound and this is often where we find accumulation/distribution so when you see a negative or positive divergence in a lateral trending market, the chances are that it is VERY reliable. That being said, it's still a 1 min divergence which is the realm of intraday movements, helpful for day traders, but not very meaningful for longer term traders.

ASTI

Remember that alternative energy post I put up on 3/20 (Sunday Afternoon), ASTI was one of the picks there. Take a look at it today.

I'm still thinking AE is going to be an upcoming trend so I'm building my watchlist and seeing which stocks are going to emerge as the leaders. ASTI has a nice head start.

TSLA

Here's a potentially interesting  long trade in TSLA (Tesla Motors).

 A Bullish descending wedge, sets the implied target near $34

 30 min 3C positive divergences in a base building environment.

 Recent 15 min positive divergence leading to higher prices.

The first level of resistance is taken out thus far today, the next level would lift TSLA into stage 2 or mark up where it would have a decent chance of hitting the $34 upside target. Technically this is still a base so there's still volatility issues. You may like the trade here or may want to wait for the $25.50 resistance area to be taken out. In either case, this isn't a quick pop trade, but looks to be more of a longer term trending trade. Currently I'd try to give it as wide a stop as possible if you enter here, a bit under $22.

INTRADAY DIVERGENCE AT WORK

All of the majors are showing a negative divergence on a 1 min timeframe  (intraday moves), but the QQQ is by far the worst.

 1 min 3C

Declining Advance/Decline Ratio

Quarter's end

We discussed the selling late yesterday and the reasoning, the quarter ends March 30, which is tomorrow. The divergences I look for in a reversal are there and deep, there hasn't been anything positive to back up today's move up which isn't much, but it's not down. So thinking about it, it does make some sense, the funds who are more afraid now then ever about redemptions have to show the greatest possible performance. Yesterday it looked very much like they were positioning themselves for a downturn, however until quarters end, they need to keep their returns as high as possible. Like I said, I'm not seeing anything that suggests the reversal isn't on track, however a short term manipulation of the market of a day or two isn't that hard. It's not anything written in stone, just a passing thought.

As hard evidence of confirmation of the thought or evidence showing it was nothing more then a passing thought, comes in, I'll be posting it. Right now the market is trading in confirmation so there's not much to report as of yet, except that the divergences we look for in  reversal are still very much there and they are very deep.

USO Update

As you may be aware, we were looking for a pullback in USO, nothing bearish, just a normal correction.

 Here was one of the targets, so we have hit it. I also had a secondary target closer to $40. Whether this is it for the pullback or not, I' not quite sure, in the bigger picture I don't think it matters much, but there is some evidence to suggest this may be it for the pullback and USO is getting ready to try to break the March highs.


 The 15 min pullback reversal signal and a current positive relative divergence.

 Same thing on the 10 min chart, except a bit more defined.

 Ditto for the 5 min chart.

And some accumulation between late yesterday and early today which is moving USO higher.

From the evidence and initial targets published last week which have been hit, I have to assume the probabilities are highest that the pullback, which was not expected to be a big deal, is over.