Member's Question

"Do you see anything indicating a bounce into the close/tomorrow morning"

Answer is that the positive 1 min divergences in the SPY and DIA are already playing out, whether they could carry into tomorrow, I don't know, they don't look that strong and there's signs of a negative divergence on the SPY's  2 p.m. intraday bounce starting to form.

The DIA had an earlier 1 min positive and has since moved up, it's in line with price.

I'd be most concerned with the Q's, although the 3C reading there is inconclusive. I'v seen much stronger positive divergences for the end of the day on small intraday moves this week.

The TICK chart has been getting volatile and entering deeper into the negative zone as the day grinds on.

I like divergences that don't need to be analyzed, they should be pretty clear and I'm not seeing anything very clear. So that's my take.

War in Gaza

This crossed ZeroHedge which says Netanyahu does not rule out the possibility of war against Gaza as early as tonight. I was wondering about this possibility as my mind rambled when I saw an earlier article today that the Iron Dome (which was controversial in its deployment "if" it did not work) actually did work. Think of the Iron Dome as Israel's Patriot Missile Battery more or less as it's designed to stop incoming rockets from Gaza. The line of thought was if it didn't work, then it may invite a barrage of never-ending rocket fire out of Gaza, but it did work, which gives Israel some security should they decide to probe deeper into Gaza on a military endeavor.

What this means for the market, well for one it'll spook the heck out of Japan and #2) while I've witnessed oil completely ignore developments out of MENA (specifically oil failed to react much during much of the Egyptian crisis, although I believe there was a specific reason why), oil does not seem to ignore developments having to do with Israel. So no matter what the 3C charts may say about a corrective pullback in oil, no matter how overbought oil may appear to be, if things start heading south in the region, I'd expect oil to head dramatically north. You may want to consider that fi you are holding USO or other oil investments.

Euro/Dollar Follow up

Yesterday I posted this update on the pair  I was puzzled, but the charts seemed to indicate that the Euro would fall and the dollar (UUP) would rise, that's happened today even though the US governemnt looks set for a shut down on Friday as the administration has said it will not sign any "stop-gap" bills to keep governement functioning for awhile longer while the budget for 2011, which was supposed to have been complete in October of last year, is negotiated. It seems no progress has been made, Obama seems that he'll stand his ground on the stop gap measures and there's less then 33 hours left to get something through Congress and signed by the president before government shuts down in many respects at midnight Friday.

Still, the charts indicated some strength in the dollar and weakness in the Euro, of course Portugal seeking a bailout (the 3rd PIIGS to do so) apparently is being taken as more of a threat.

Here's what we have on the pair as of now.

FXE

 FXE's drop today and the important line of support ( a break below that red trendline and I'd consider shorting FXE). There's also been some big volume today, once on the open and later at intraday support.

 The 3C hourly chart with Stoch/RSI divergence signal mentioned several times today and profiled last night.

 The 30 min chart continues to slide down into a leading negative divergence.

 And the important 15 min chart has been divergence since before the breakout suggesting a false move, which was also suggested yesterday based on the actual price movement or lack of (see yesterday's post linked at the top of this post).

 There was a 1 min positive divergence, I think right around the intraday support I mentioned above in connection with the volume spike and there's a very small hint of a positive divergence now. Keep in mind this is a 1 min chart and not very influential in the bigger picture.

UUP

 UUP's 60 min 3C positive divergence as well as the  Stoch/RSI reversal signal.


 30 min 3C leading positive divergence, again, just the opposite of the Euro (FXE) which was negative before the breakout, this was positive before the breakdown.

 The 15 min 3C chart in a positive leading divergence

 10 min also a positive leading divergence.

And the 1 min chart shows a small negative divergence at the same time FXE showed a positive one, but the difference is that UUP also has a positive divergence into the end of the day. All in all, I wouldn't be too concerned with the 1 min chart or any choppy moves, it's the longer term trend charts that interest me.

TZA (long)

I like the leveraged ETFs, but the situation has to be right; when the market is choppy they can be dangerous.

TZA looks pretty good here.

 The daily TZA chart, note the stochastics (refer to last night's Stochastics article).

 The hourly 3C leading divergence and stochastics/RSI signal

 30 min 3C leading divergence and stochastics/RSI signal

 15 min. 3C leading positive divergence

5 min. 3C leading divergence.

I like the looks of this trade here and now. Contact me if you have additional questions.

A MACRO LOOK

No 1 min 3C charts here, just 15, 30 and 60 mins (the longer the chart, the more impact and importance).

 The price/volume action itself says something. Rising prices into falling volume are not indicative of strength, it tells us that traders are more and more reluctant to chase prices higher. In our red box, it's the "V" word, volatility and the DIA is nearing a new lower low breaking the uptrend decisively.

 The 15 minute chart gives you a clear picture of the accumulation/distribution cycle I've mentioned and the fractal/micro view of the 4 stages of a rally (accumulation-seen at the white arrow, mark up with 3C making higher highs until the start of the red arrow, distribution seen at the red arrow and stage 4 is decline)

 The 30 min chart confirming the same cycle with distribution on this long timeframe, it's pretty serious.

The 60-min chart, I didn't mark accumulation but you can see it at the far left. For anyone who didn't see last night's "Stochastics Post" we have the overbought situation I mentioned that can go on for awhile, but when we add an RSI negative divergence, the Stochastics signal becomes much more reliable. In the bottom is the RSI negative divergence, in the middle the stochastics signal turning down and at the top a negative 3C divergence on a 60 min chart. Make sure you read last night's stochastics post as to the importance of the signal here and now.

OOPS, they did it again, and again AND... AGAIN!

Today was the last Permanent Open Market Operation (POMO) of the week and just like last week, the data is in and nothing has changed. Over half of the issues monetized from Primary Dealers were bought by Primary Dealers from the Treasury just last week. So once again, the Fed continues to prop up 42 PD's with virtually risk free transactions that go something like this: the Fed holds a Treasury Auction, the Primary Dealers buy about half of the issuance (because foreign bidders aren't there like they used to be) and before there's any risk to the T's they bought, the Fed pays them hundreds of millions in premium pricing at tax payer expense.

You see, the Fed is prohibited from buying directly from the Treasury for all intents and purposes, so they created a little mechanism in which they can achieve the same illegal effect, legally-however shady. The Primary Dealers are in essence making free and risk free money from the agreement and that is how the market has been levitated. This is also why the market is a bit worried about the seemingly diminishing chances of a 3rd operation after this one ends in June. And for all the baby-boomers who were responsible savers their entire lives for retirement, they get a swift kick in the pants for actually doing the right thing and saving for retirement as the Fed debases the value of their savings via dilution or millions of cartridges of ink stamping cotton paper.

Of course we have several problems coming up: inflation, the possibility of a government shutdown, the debt ceiling and possibility of default on our debt and most importantly the question of who buys our debt if not the Fed, especially when the full faith and credit of the US all comes down to how many more times Congress will raise the debt ceiling? This all makes for the probability of higher interest rates-1) to deal with inflation and 2) to entice someone to buy treasuries. Raising rates should do wonders for the economy, unemployment, housing, the stock market, etc.

They call it the Bernanke Put, I call it the Bernanke Chinese Finger Trap and I choose "Chinese" carefully.

USO Update

USO has certainly made our target of breaching the March highs, 3C has been suggesting a pullback (but in my view a healthy pullback/consolidation which will keep USO from becoming overbought and on a nice trend up).

The problem with USO is fundamentals have so much influence and right now we are going through the biggest fundamental shift in decades (in the long run, maybe the biggest ever). Today USO raced higher around 2:40, I've seen some news that OPEC shipments are declining and assume that has at least something to do with what's going on as well as Gaddafi bombing the oil fields in rebel held territory as the rebels have started exporting oil, he's obviously seeking to deprive them of financing their push against him.

I wanted to include an email sent to a member yesterday that goes into more depth on the oil situation and why I remain bullish on oil for the foreseeable future. As Obama hinted yesterday, "Get used to it" there's nothing that the government can do that will change things quickly. That's not entirely true, but I wouldn't presume to make judgements as to the wisdom of opening up the strategic oil reserve's in a revolutionary MENA environment.

Any way, as to OPEC shipments being down, this email may be somewhat helpful; here it is....

Longer term I still feel bullish on oil. I think the MENA situation and possible escalations in supply disruption are likely and I think with the Japanese crisis the world is re-evaluating clean, renewable energy and I think OPEC is aware that their days are probably numbered. Japan itself will lead the charge in clean, renewables. They're very sensitive to nuclear events, more like terrified because of their history and they are basically at the mercy of oil. Japan imports 100% of their oil, this is why they are especially sensitive to events in MENA as there are numerous geographic choke points that could interrupt their consumption needs and volatility in MENA raises the possibility of the Suez or other strategic, geographic choke points being cut off. So once Japan sets their mind to something, they technologically are the best suited to lead the effort. I don't think new nuclear plants are in their future and they know that they are at the total mercy of oil exporting countries. They'll try to become self reliant and then Europe will follow and finally the US with a lot of kicking and screaming, so for OPEC which contrary to popular belief, is actually in financial dire straits, is likely to make the most of the crisis as their hey day has more or less reached its apex. It will be down hill for them soon and while oil will continue to be in demand, they can't afford to lose the current demand they have now. So for the next few years, I believe they will find ways to keep oil elevated and climbing until they can figure out how to transform their economies. Of course the continued deteriorating situation in MENA will also keep oil high for the next few years. The mess there hasn't even started yet. As recent history in Afghanistan and Iraq show, even with 10's or a hundred thousand troops to support governments, they still can't set up a government that can stand on their own feet and that's with a huge US military presence, we can't do that in Yemen, Bahrain, Egypt, Tunisia, Libya, possibly Kuwait, Syria and who knows where else-the Ivory Coast? The potential for a push toward a regional Caliphate is virtually being handed to Muslim extremists. We're doing the heavy lifting for them, they just have to be politically prepared which they've been doing in Egypt weeks before Mubarak stepped down. In a power vacuum, the best organized wins. Look at the Islamic Revolution in Iran. What people wanted in protesting against the Shaw, is very different then what they ended up with.

Another Nuclear Facility Hit

The Onagawa Nuclear Power Plant has had 2/3 power systems fail, which would seem to indicate there's still some power at the site. We know how quickly things can fall apart though so lets hope for the best. I think it's fairly safe to assume that Tepco, who also owns Onagawa will shortly become a ward of the state and nationalized.


Toshiba built these reactors, there were several different builders at Fukushima, one of which was Toshiba and one had very poor construction with a lot of short cuts, I don't remember who built it, lets hope it wasn't Toshiba.a

PMs

Today is the day to keep an eye on GLD/SLV. They both had similar channels to the market that advanced on diminishing volume (advances should occur on increasing volume) and since, they have broken the channels up and down and are now seeing a lot of volatility on increased volume.

 GLD

SLV

TIV Follow UP

This was a speculative trade posted Monday April 4th.  TIV still looks good and appears to b prepping for a breakout from the triangle base.

 The base with excellent volume for the pattern...

 15 min. 3C continues to rise


 Positive divergence on the 5 min chart...

And positive on the 1 min chart.

A breakout will occur at roughly $.65-.66 so this is a speculative trade, but it's held up well this week while it appears that it continued to accumulate which would imply a larger breakout move.

Japan Struck by Powerful Aftershock Quake at 7.4

It seems the quake struck about 10:50 from what I can gather, leaving the Crazy Ivan effect intact.

There's also a Tsunami Alert and there's been recent warnings about the possibility of a hydrogen explosion at Fukushima due to the nuclear reaction splitting the hydrogen/oxygen molecules of the seawater that has been pored into the reactors to cool them, so we may have hydrogen explosions at the reactors. The poor Japanese just can't catch a break. Lets hope and pray the worst escapes them.

And There IT IS! A Perfect Crazy Ivan

I didn't even use 3C in calling a Crazy Ivan, THIS is how predictable this market has become. The minute the limit orders would have been hit above the channel, the Crazy Ivan was complete and reversed back down.  Please put this lesson in your tool box, it goes against almost everything every technical analysis book teaches and that's exactly WHY it works. You just were witness to a market event that proves how the market TRULY works and you just saw a bunch of technical traders suckered in and left holding the bag.

 DIA

 IWM

 QQQ

SPY

Crazy Ivan

Yesterday here's my last market commentary...

The most important part of that post was the following, "In my opinion, there's still a decent chance of a gap opening or something like that early tomorrow that breaks the channel to the upside. As you will see, the bear flag is very well defined and the channel is tight, it would seem to me that the opportunity to break it to the upside before a downside break (during regular hours) would be irresistible."

This morning we have several breaks already despite the gap down. No significant news came out between 9:30 and 9:40 when the market's pushed higher. Basically a lot of traders in after hours and those with their orders to sell/short this morning were trapped, the shorts look to have been squeezed by the looks of price action and we have some upside channel breaks in the major averages.

 DIA

 QQQ

SPY

And remember, I wrote this after market when the trading action had already broken significantly BELOW the channels. This is what I mean when I say, "Retail traders have become so predictable that it makes Wall Street's response predictable".

Crazy Ivan, if you are new to the site, it's a phrase from the movie, "The Hunt for Red October" and a known tactic of the former Soviet submarine fleet. The only way to effectively follow a nuclear armed sub (and this is the job of the hunter/killer submarines on the opposing side) is to get behind them in their prop wash where listening devices can't here the other sub. So the Soviets adopted a strategy called a Crazy Ivan or "clearing the baffles" in which they would do a 180 degree turn and head directly in the direction of any sub possibly following them before returning to the previous course.

That's what I call the price action when there's a likely trend (down), but the stops and limit orders are hit (in this case) both below and above the channel, shaking everyone out of the trade, before resuming the tend (arguably down). So we have our Crazy Ivan this morning in the market.

I encourage you to look at historical charts, especially since 2007. You will see how the market has changed and how in many ways it has become predictable if you can recognize the changes. After all, last night and this morning in extended trading we had fairly definitive breaks of the channels, I still posted my expectation that the breakdown price action wold reverse, it wasn't a lucky guess, it was a guess based on high probabilities based on the market's own action.