Market Action A Bit Clearer

Look at the charts first

 1 min

5 min negative.

The 5 min is what gives me a little more confidence in my opinion.

Because breadth deteriorated so badly during the divergence, but price didn't move down much, however, distribution on the 1/5 min charts did, it's my opinion that today was used for short selling into some strength. Earnings I think have disappointed beyond expectations and we haven't even gotten into the heart of companies that face margin squeezes like manufacturers, retailers, etc.

While we're just negative up until the 5 min chart, the breadth charts deteriorating and how rapidly they did so, suggests to me that there was a target zone that the market needed to be lifted to, that's where they wanted to put on shorts and the deterioration in breadth would suggest that they did so pretty quickly.

If there are shorts or inverse ETFs that I've mentioned that you like, this may be your chance to pick them up with less risk. Feel free to email me about any equities you might be considering. For broad coverage, I do like TZA and BGZ, but I wouldn't have two ETFs represent my portfolio, although they can play a part, especially when you want quick coverage that is broad based.

I would also consider easing into any positions, we have a weekend here and Monday's tend to be the best performing day of the week, not that I'm seeing indications of that.

Also any earnings plays that report after hours or pre-market that you may be interested in , let me know and I'll take a look. I have about 150 stocks in a watchlist, I'm going to spend a good part of the weekend weeding through them looking for the best set ups.

Breadth

So I just took a look at market breadth, basically all the stocks in a given index and how they are performing today. Here's what we have for the Q's and SPY.

 The first 3 are the components of the NASDAQ 100. This chart is the number of stocks making 250 minute new highs/new lows. While new lows haven't moved much, I wouldn't expect them to while the average is elevated, but the falling number of new highs says something about the market breadth and the stocks in the NASDAQ 100 losing momentum and quite quickly.

 This is the number of NASDAQ 100 stocks that are above or below their 1 min 50 bar moving average, here we see a big change and not a bullish one.

 Here's the Advance / Decline Ratio and line, it's starting to go negative, meaning on the 1 min scale, we are starting to see more decliners then advancers.

The S&P-500 component's breadth

 Again, stocks above or below their 1 min 50 bar moving average, you can see quite a distinct and fairly quick change in the complexion of the components.

 The A/D line and ratio also going into negative territory where decliners are starting to outpace advancers.

 And new highs/new lows over a 250 minute period, also falling apart.

Since the last update, 3C has dropped into a bad leading negative divergence which is about right as far as timing considering the breadth charts above.

Market Update

Remember yesterday I said the market was frustrating? It didn't make  lot of sense, especially when GOOG went very negative at the end of the day, to see accumulation, but whether I understand the reasons or not, the accumulation yesterday has led to higher prices today. Which is frustrating again, I'll show you why.

 DIA 15 min chart and yesterday's rather short burst of accumulation, thus we have higher prices today so logically whether it makes sense or not, Wall Street creates these cycles up and down before thy start based on some knowledge or plan. Like I said yesterday, it's like a chess match, but they're thinking many moves ahead.

 Here's the DIA 1 min, now this will be interesting to see if this falls apart, how the market responds, etc. As of now, the market's 3C profile looks pretty god except right here.

 Yesterday the Q's were the weaker of the averages and I suppose that has a lot to do with components like GOOG and AAPL looking really bad and bad respectively. Still, what's frustrating is a major bellwether like GOOG gets torn apart in the market today, it should have been the fulcrum stock for the entire market and even the Q's of which its a component are in the green today, it doesn't make sense. By the way, there's no apparent accumulation here from yesterday.

 QQQ 1 min negative divergence.

 The SPY 15 min and yesterday's accumulation and a rather strong looking 15 minute chart thus far.

And here's the SPY 1 min which has a negative divergence.

So what becomes of these charts in the 1 min. timeframe will tell us more about what to expect next week. There's plenty of talk and actual downgrades to EPS in earnings season. There's the possibility that the so far, worse then expected earnings may be causing Wall Street to ramp the market a bit to have something to short into. Or there's perhaps something that they feel is more important then bad earnings the will be god for the market. The accumulation is 1 day old so it's hard to say and I don't want to overreact, but in the face of these earnings, the market would usually be falling apart at the seams.

So I'll keep watching for hints of where this is going.

The 3 USO Charts that matter

OK, Goldman downgrades oil on what appeared to be an African peace initiative that was dismissed immediately by the west as well as the Libyan opposition. I warned that they'd (Wall Street) would still drive the trade lower to shake out traders, but that USO still has a bright future and a couple of days ago, I said, "If you like USO, now's the time to start accumulating your position".

So a couple of lessons, 1) don't believe anything from Wall Street as it's all self-serving. they don't spend hundreds of millions of dollars to give out free advice. 2) When Wall Street is driving the trade lower, which they were as the peace initiative was DOA, watch for them to shakeout traders at an important price level, this can usually be taken as "expect a scary drop, but don't let that scare you". 3) You don't really need to know much about oil beyond the headlines of the middle east falling apart to know that it's going higher.

 The idea was the March highs would be taken out, they were taken out . The trendline which was an important support level is what most retail traders were watching, so that's the obvious Wall Street Shakeout target. Other then what 3C was saying, you can see the candlestick reversal right on the chart.

 Our pullback target was to the blue moving average, the entire time all 3 indications on this chart remained bullish, despite a 6+% drop in 2 days.

And 3C likes this trade, it passes the test.

So in the days and weeks ahead there will be more games, Wall Street probably didn't pickup as big of a position as they'd like to, so I'd guess they'll be more scare tactics, unless the charts which are the literal proof of what is being done despite what is being said, give you a good reason to sell, don't let them scare you out of a good looking trade. They know it's a good looking trade and they want your shares. They took quite a few from nervous traders, but the entire point I've been trying to drive home here at WOWS is that technical analysis (which would tell you it broke down when it broke support) is being used against technicians everyday. Whatever you learned about TA in the past, it's likely more of a liability then helpful, unless you understand that Wall Street is using it against retail traders; with that perspective, Wall Street becomes as predictable as the retail traders they rob every day.

Greek Bonds

I just read something about this and how it was unlikely Greece was going to get the debt restructuring deal they sought after lying a mere 6 months after their bailout and trying to cover up the fact that they would need new terms on the bailout. I've written pretty extensively about the ECB alternative or expanded bailout mechanism and my pessimistic view that they'd be able to get that done, especially as Angela Merkel's party is losing election after election with the German populace sending a resounding message to any would be party or leader, "NO MORE BAILOUTS"

A member just told me about an article on ZH and said I should read it, I did. Here's the Full Story...

The bottom line is Greek bonds are in a situation in which they simply can't afford, the ECB has stepped in before and baled them out on the bond issue, but this time, the ECB is nowhere to be found. The bottom line seems to be that the ECB may have settled on letting Greece fail.

And then there's that nasty word, "Contagion" which has been used to describe the faltering governments in the Euro periphery, those being what are affectionately known as the "PIIGS" (Portugal, Ireland, Italy, Greece and Spain). These are the countries in which crushing debt is making it very difficult if not literally impossible for them to raise money through debt offerings (bonds) as the interest rate demanded is simply not sustainable, the countries would default. Ireland sought a bailout as well and Portugal is there now. The problem is Spain and Italy. More or less, after Portugal, the current bailout mechanism in the EU is bankrupt, that's why there's been talk of expanding the facility, which seems unlikely to happen.

So there seems to be a message being sent via Greece who dug their own hole after being bailed out last year. The effect of all of this is quite profound, literally we could be watching the EU fall apart a few decades after many economists warned that this experiment in Europe was bound to fail.

There's a little sarcasm at the end of the article, but don't underestimate how linked these economies are and how potent the domino effect is. Other then the possible dissolution of the EU as we know it now, the bigger picture is a second and way more dangerous world-wide recession.

VIX 2

Sorry, I meant to include this chart of the VIX in green vs. the SPY in red so you can see what extreme readings do.

KEEP AN EYE ON THE VIX

POMO has been rough on the VIX, still the VIX today is only a few cents off a 3.5 year low. A reading like that will be hard for the market to ignore. It's off the lows today, but who knows for how long.

The VIX trades inversely to the market and extreme readings typically indicate market turning points.

Michigan Consumer Confidence

Leaked? Who knows for sure, there were obviously a couple of leaks when we see the GOOG/BAC earnings which GOOG was for sure leaked. In any case, that's not the point, Michigan Consumer confidence, despite contradictory findings from Gallup, came in better then expected. So I want to show you the machines at work.

As some of you may know, I have a cousin in Atlanta that works as a tech for all of their computer related systems. He told me of the millions they spent setting up various hubs (something I don't really understand) to reduce their latency by a few milliseconds. It's a technology arms race for these computer driven algo systems.

Mich. Consumer Confidence came out at 10:00 a.m., look at the ramp at precisely 10 a.m.-this is computer driven trade.

The SPY was lifted nearly a 1/4 of a percent in a minute on heavy volume. This is one reason day traders are nearly extinct, they can't afford the speed and execution. A T1 line might as well be the equivalent of a dial up connection to the internet.

Market Early Update

Yesterday the Q's were the weaker looking of the major averages, this morning that is apparent. I keep wondering about accumulation yesterday, like I said it wasn't huge, but it was there.

 The DIA with a relative negative divergence on the open, and a positive divergence at this a.m.'s lows.

The SPY with a negative divergence on the open.

 The Q's with the worst open and a negative divergence very similar to GOOG's late day, also negative on the open.

Why is the NASDAQ underperforming so badly?
Both AAPL and GOOG are components, take a look at their charts.

 AAPL with a gap up and a negative divergence at the open (distributing the gap)

And of course GOOG has been hammered.

So, all things considered, I'd say the CPI numbers were leaked. It's not anything rare, despite what the mainstream thinks, we saw Bernanke leak an employment report just a few weeks ago. This is the advantage to seeing the underlying action. GOOG at the close was a great example, most technician would have bought that ramp up thinking GOOG was leaked to be positive, I've seen this many times before and it almost always ended the same, a lot of people were left holding the bag and in GOOG's case, that's a heavy bag to be holding if you went long on the ramp yesterday EOD as GOOG is down 37 points or 6.5%

I didn't choose the name Wolf on Wall Street because it sounded cool, you're either a wolf or a sheep.

Interesting Start....

Yesterday I showed you some charts of BAC that suggested some accumulation. 


This morning it was difficult to reconcile their miss with those charts in pre-market, but as the market opened, take a look at BAC.

So for whatever reason, 3C called it right as I'm sure those shares are probably under distribution right now into the opening strength.


I also showed some charts of the market seemingly under accumulation, in pre market the market was down, then came the CPI report and lifted most of the market to a gap up. Interesting. That's the thing about 3C, it shows us underlying action in the market that you could not gather from price and volume, but it can't tell us "why" so we can only speculate, but the speculation isn't even that important. I remind you of the Wall Street maxim, "Do you want to be right or make money?"


So thus far 3C has been right, for reasons or assumptions that were wrong. This is now the 4th major earnings that 3C has been correct on the underlying action, AA, JPM, HAS, GOOG and now BAC; 4 for 4-not too bad.


The market is dipping now so I'm going to take a look.