5 years ago
Monday, April 25, 2011
SPY Update
Check the last market/SPY update for my thoughts on the action in the SPY, here's the updated charts.
Basically the 1, 5, 10 and 15 min charts all have negative divergences. The SPY has continued largely lateral since the last update. I'd be watching for a false move and an otherwise reversal. With some slight variations, the other averages look largely the same.
PCLN
PCLN has looked a lot like AAPL today, in fact there have been a lot of stocks looking like AAPL today.
Intraday we have the triangle, the breakout to the upside and a possible failure of that breakout, which could create a scenario that is much like a short squeeze, just happening to longs at a loss. Volume has ticked up in the afternoon on the sell side and the earlier gains have largely been retraced. A break below the triangle would make for an interesting trade.
As is often the case before reversals, a obvious pattern (like the triangle above) or defined resistance like we see on the daily, if often broken, again, the bull trap scenario.
The interesting part of a short that works on PCLN is the stock has been taken for granted as if it will move up forever, so I can imagine a fall and a break of the daily support would generate a lot of margin calls which could send PCLN tumbling very fast.
CFW Potential C&D Trade
I've been scanning for Cat and Dogs ( typical 1-3 day high flyers) and haven't seen too many pop up. CFW was about the only one that looked like a possibility.
This is a clear triangle and it even had a 2 day false breakout at the red arrow with some decent volume before continuing the consolidation.
The daily 3C chart doesn't look too bad for a consolidation, the very positive divergence can be seen in early 2011 before the Feb/March move up.
There's a few ways this can be played, as always though, these trades are considered highly speculative and risk management should reflect that. Option 1 is a buy right in this area or a partial buy with a stop around $.44-$.45. The second option which can be combined with option 1 is a limit buy (not on the books, set an alert) above $.56/$.57. If you were to go for straight option #2, then the stop can be placed around $.52. Based on the price pattern, an intraday target could be $.85, although I'd be quick to take partial or total profits as these don't tend to hang around those highs very long. My general rule of thumb is to take partial or total profits on any one day gain that hits double digits.
The daily 3C chart doesn't look too bad for a consolidation, the very positive divergence can be seen in early 2011 before the Feb/March move up.
There's a few ways this can be played, as always though, these trades are considered highly speculative and risk management should reflect that. Option 1 is a buy right in this area or a partial buy with a stop around $.44-$.45. The second option which can be combined with option 1 is a limit buy (not on the books, set an alert) above $.56/$.57. If you were to go for straight option #2, then the stop can be placed around $.52. Based on the price pattern, an intraday target could be $.85, although I'd be quick to take partial or total profits as these don't tend to hang around those highs very long. My general rule of thumb is to take partial or total profits on any one day gain that hits double digits.
Keep an Eye on AAPL for a Crazy Ivan Move
Market Update
Earlier I talked about where the market is in the current cycle and the proximity to a breakout (when it comes to ending cycles and reversals of them, we see that false breakout more often then not-way more often).
Here are the SPY and Q's charts, the DIA is not showing the same signals yet.
Earlier we had a positive divergence that moved the market off the lows, now a negative divergence is taking hold on the 1 min charts as seen here on the QQQ
The same can be seen on the SPY
The acc/dist cycle is very much like the 4 market stages in a cycle, whether it be intraday, a swing pattern or a Primary trend. Those stages are 1) accumulation, 2) mark-up, 3) distribution, 4) decline. When watching 3C, as I showed in an earlier post on the SPY, we saw the accumulation, the mark up period when prices rise and 3C confirms the uptrend, distribution when we see the negtive divergences, typically starts when the market is still rising and then a reversal. Distribution and accumulation occur most often in a laterally trending market as we can see the least two days. The recent trend before a reversal of a cycle has been a false breakout, whether it be a false breakout to the downside kicking off a move up as seen in the SPY chart I featured earlier, or a false breakout to the upside before a reversal. As I mentioned, the SPY is close enough to pull off a false breakout, whether it does or not, I can't say other then to watch the 1/5 min 3C charts. If the negative divergence worsens, but price fails to fall, then it's more likely we'll see that false breakout, what is happening is distribution which can also be interpreted as short selling. If the market prices fall in response to the negative divergences, the false upside breakout becomes less likely.
Here are the SPY and Q's charts, the DIA is not showing the same signals yet.
Commodities and Inflation
Earlier I mentioned commodities seems to be acting strangely today, even though they are roughly in line with the dollar's action (there's a largely inverse relationship there), the dollar hasn't had the same correlation it once had and certainly not to the degree.
A whole host of strange events have taken place over the holiday weekend from the Obama move to curb speculation in the oil market, to China warning about the US protecting creditors, followed a few days later by a seeming threat to unload 2/3rds of their US debt holdings and now we have Benanke giving an open interview after this week's FOMC policy meeting, that hasn't been done by a Fed chairman EVER! As mentioned in a WSJ article this weekend, Greenspan conducted an on air TV interview and shortly thereafter we had the 1987 crash. Greenspan never did that again and became known for "Greenspeak" which is to say, he'd say a lot, but at the end you'd take away nothing from it, he wouldn't let on to what his intentions and opinions were. Bernanke is about to change all of that which is a very risky move for a Fed Chairman , especially in a live-mic interview when you don't know what questions are coming. Bernanke has asked his overseas Central Bank counterparts how they handle these situations and there are rumors that he's been conducting dress rehearsals with staffers to prepare. The question is why is he taking this risk now and right after the FOMC policy is announced?
These latest insights about the FOMC meeting came after I said what I said about commodity behavior today, so I'm thinking there's some linkage.
The Dallas Fed Production Index released today, moved down from 24 to 8. Shipments were down, the average employee workweek was down while wages increased, prices paid is still elevated. In the comments section, here were a few choice excerpts: "commodity prices continue to increase with a negative impact, we are taking price increases to the market (think NKE ), Sales are up, margins are at record lows,rapidly increasing costs and fuel costs have SHOCKED consumers away from non-mandatory spending"
The net result, the Bernanke Chinese Finger Trap. I think the market is not comfortable with this interview Bernanke will conduct, not because he might slip up, but because it seems very drastic.
I can't render judgement with regard to the Fed's plan moving forward, whether they'll keep rates low and let inflation rise or raise rates and kill off any green shoots. Congress is a big part of the problem and a hike in rates would force Congress to act to impose some fiscal discipline. That may be the best outcome as it may restore some faith with our creditors so the Fed doesn't spend the foreseeable future propping up our debt markets while the rest of the world runs away from them. Do I think it's likely? Not really, but a I said in 2007 before the bubble burst in a 5 part video series on bubbles and the real estate bubble (pundits were still preaching Dow 20k), "The economy is much like when you have food poisoning, the last thing you want to do is be nauseous, but until we go through that and take our lumps, this economy can't get better". The Fed's managed to kick the can down the road ever since 2009, but Congress isn't willing to act, our debt buyers and even worse, debt holders are telling us, "This is the end of the road, no more kicking the can". So this FOMC meeting seems to be shaping up as a major event. It seems most analysts think that the Fed feels it's too soon to raise rates and that Bernanke will use the press conference to be the first voice heard out of the Fed justifying the reasons why. For others in the Fed, it's not too soon, it's too late and their voices will be heard in short order.
Thus commodities I believe are acting a bit strange and I think it has more to do with the FOMC then the dollar.
A whole host of strange events have taken place over the holiday weekend from the Obama move to curb speculation in the oil market, to China warning about the US protecting creditors, followed a few days later by a seeming threat to unload 2/3rds of their US debt holdings and now we have Benanke giving an open interview after this week's FOMC policy meeting, that hasn't been done by a Fed chairman EVER! As mentioned in a WSJ article this weekend, Greenspan conducted an on air TV interview and shortly thereafter we had the 1987 crash. Greenspan never did that again and became known for "Greenspeak" which is to say, he'd say a lot, but at the end you'd take away nothing from it, he wouldn't let on to what his intentions and opinions were. Bernanke is about to change all of that which is a very risky move for a Fed Chairman , especially in a live-mic interview when you don't know what questions are coming. Bernanke has asked his overseas Central Bank counterparts how they handle these situations and there are rumors that he's been conducting dress rehearsals with staffers to prepare. The question is why is he taking this risk now and right after the FOMC policy is announced?
These latest insights about the FOMC meeting came after I said what I said about commodity behavior today, so I'm thinking there's some linkage.
The Dallas Fed Production Index released today, moved down from 24 to 8. Shipments were down, the average employee workweek was down while wages increased, prices paid is still elevated. In the comments section, here were a few choice excerpts: "commodity prices continue to increase with a negative impact, we are taking price increases to the market (think NKE ), Sales are up, margins are at record lows,rapidly increasing costs and fuel costs have SHOCKED consumers away from non-mandatory spending"
The net result, the Bernanke Chinese Finger Trap. I think the market is not comfortable with this interview Bernanke will conduct, not because he might slip up, but because it seems very drastic.
I can't render judgement with regard to the Fed's plan moving forward, whether they'll keep rates low and let inflation rise or raise rates and kill off any green shoots. Congress is a big part of the problem and a hike in rates would force Congress to act to impose some fiscal discipline. That may be the best outcome as it may restore some faith with our creditors so the Fed doesn't spend the foreseeable future propping up our debt markets while the rest of the world runs away from them. Do I think it's likely? Not really, but a I said in 2007 before the bubble burst in a 5 part video series on bubbles and the real estate bubble (pundits were still preaching Dow 20k), "The economy is much like when you have food poisoning, the last thing you want to do is be nauseous, but until we go through that and take our lumps, this economy can't get better". The Fed's managed to kick the can down the road ever since 2009, but Congress isn't willing to act, our debt buyers and even worse, debt holders are telling us, "This is the end of the road, no more kicking the can". So this FOMC meeting seems to be shaping up as a major event. It seems most analysts think that the Fed feels it's too soon to raise rates and that Bernanke will use the press conference to be the first voice heard out of the Fed justifying the reasons why. For others in the Fed, it's not too soon, it's too late and their voices will be heard in short order.
Thus commodities I believe are acting a bit strange and I think it has more to do with the FOMC then the dollar.
SLV
SLV is in an area and flashing signals that make this a fairly high probability area for a pullback.
As mentioned last week, SLV has had a very parabolic move up thus far, today's exceptionally heavy volume suggests some churning may be in play. What I'm looking at is a pullback, I'm not talking about anything beyond a pullback which in SLV's case right now, would be healthy for the ETF. There is a chance as some negative press has been coming out about the Silver Trust itself, that this has something to do with that as well as a dissection of the prospectus recently has left open many loopholes that would allow the Trust to avoid having to actually deliver physical. There have also been rumors swirling for months that they simply don't have the physical to meet the trust's obligations or that it may be leased, etc.
The 1 min chart has negative divergences including this morning's gap up, that was not confirmed by 3C and SLV fell, the second move up today is also not in confirmation and is negatively divergence.
The 10 min chart with negative divergences
And the same on the 15 min chart.
On a daily chart of my x-over screen, SLV still looks strong, the yellow/blue moving averages tend to be the typical pullback points as you can see in the red box. Considering the momentum of this move, usually you'd expect a pullback to be a bit shallower. However, the ever changing complexion of the dollar is the wild card here in a target area. Personally if I were long this one, I'd be taking profits off the table and letting some run with a trailing stop, I'd probably use a 20-bar moving average on an hourly chart as my trailing stop.
SPY Analysis
To summarize in a nutshell, the market was entering an up cycle (short term)
Here you can see the accumulation period on 4/12-4/14. On 4/15 which was the Friday the S&P ratings outlook news hit Wall Street (we didn't find out until Monday) I posted that 3C and breadth were falling apart quickly and it looked like short selling on that Friday. Sure enough, Monday we dropped hard and interrupted an up cycle that was only in its second day. On Monday, 4/18 I posted the following:
"I would think if there was a fairly certain fear on Wall Street that they've lost control, we'd be seeing a lot more negative looking charts. Unless we see something really nasty toward the close, my guess is they try to salvage what they can of the last cycle that was in effect; that may cause it to be shorter then originally planned, but it also gives you the chance to let the trade come to you.
If tomorrow (and I don't see a high probability of this right now) the market falls apart, then the entire game changes and Wall Street would be in a position it's rarely in. So for now, my vote is that they'll try to regain today's lost ground. If that happens, then we'll have to see if they intend to continue with the original plan or if they will modify it by shortening the cycle (we'd see pretty heavy distribution) and try to make up the rest on the downside."
If we take away the S&P effect to the market (the days in the white box) and follow the green arrow, they did exactly what I suspected they'd do from my post above on Monday the 18th, the continued the cycle. Right now it's close to an area i which I'd expect to see distribution in play.
Looking at the 5 min chart, we can see there are negative divergences starting Thursday of last week and today.
"I would think if there was a fairly certain fear on Wall Street that they've lost control, we'd be seeing a lot more negative looking charts. Unless we see something really nasty toward the close, my guess is they try to salvage what they can of the last cycle that was in effect; that may cause it to be shorter then originally planned, but it also gives you the chance to let the trade come to you.
If tomorrow (and I don't see a high probability of this right now) the market falls apart, then the entire game changes and Wall Street would be in a position it's rarely in. So for now, my vote is that they'll try to regain today's lost ground. If that happens, then we'll have to see if they intend to continue with the original plan or if they will modify it by shortening the cycle (we'd see pretty heavy distribution) and try to make up the rest on the downside."
The 10-min is also in a negative divergence, so it appears that this cycle is coming close to having run it's course. Because we are so close to the April highs, I wouldn't be surprised to see an attempted move intraday or otherwise to breach those highs before a reversal takes effect. It's not a mandatory event, but it happens more often then not. The main point is the cycle seems to be near the end and we can start to look for the next cycle which would most likely be down, although there' also a 3rd trend which is lateral, however I feel that is less likely.
There are several trades members have emailed me about this a.m. that look to be in good position to start phasing into, mostly short trades or inverse ETFs. You may want to consider using any strength we see to phase into trades for the next cycle as your risk is now substantially lower then it was a week ago as you can place stops a few percent above recent intraday highs. If there are any specific trades you'd like to talk about, as always feel free to email me.
AAPL, Second Verse Same as the First
Thursday AAPL set up a triangle for a directional move, according to mainstream technical analysis this should have been a continuation pattern that broke out to the upside and continued an uptrend, but in real life, these patterns are used to whipsaw traders as we saw this morning in AAPL coming out of the first triangle. AAPL has formed a second triangle this morning, so watch for more volatility around the apex of this triangle-upside breakouts, then moves below the apex, etc. It should be happening as I'm writing this.
This morning's second, smaller triangle
Thursday's triangle, today's triangle and a Bollinger band squeeze suggesting a directional move.
Volume will be very important to watch, thus far this morning it's been bearish
Volume will be very important to watch, thus far this morning it's been bearish
I'm Still Here
My Internet provider, Comcast, just changed their network to Xfinity today, for some reason their online switch-over program isn't working so I'm on the phone the last 45 minutes waiting to talk to someone. Meanwhile I found a weak signal I'm able to leach off of and using that, but it's extremely slow. Hopefully this will be resolved shortly.
AAPL Follow Up
Picking up where we left off Thursday, AAPL has spent this morning whiplashing traders at several resistance/support levels including Thursday intraday lows, especially the Apex of the triangle mentioned on Thursday and a few other intraday resistance areas.
I have a quick cumulative volume indicator I use (it's especially helpful in confirming patterns like H&S tops/Bottoms) and if you have TeleChart or another Worden product, the formula is a simple custom indicator with the following " V+V1 " and you have it.
A stock that's healthy should see rising volume on rallies, falling volume on declines, the exact opposite of AAPL's action this a.m.
The white line is cumulative volume, you can easily see what I'm talking about. This is typical early action taking advantage of stop, limit orders. I'd think they'll dry up soon and we'll start to see something more like a trend establish.
I have a quick cumulative volume indicator I use (it's especially helpful in confirming patterns like H&S tops/Bottoms) and if you have TeleChart or another Worden product, the formula is a simple custom indicator with the following " V+V1 " and you have it.
A stock that's healthy should see rising volume on rallies, falling volume on declines, the exact opposite of AAPL's action this a.m.
Keep an eye on CAT
Last week I mentioned a possible short trade in CAT, but first to let CAT come to you as an up-cycle was disrupted over a week ago on Friday April 15. The idea was that the cycle would resume and Thursday I mentioned CAT has moved into the distribution phase, where I'd like to start accumulating shorts.
CAT has seen some early downside this morning so we could be through with the distribution phase, although I'd much prefer to see an intraday move above $109.50 fail, there's no telling we'll see that so hopefully you were able to start a position last week at the highs where the risk is less. I prefer to fill out the position on a confirmed reversal, that could be today. We'll continue to monitor CAT.
CAT has seen some early downside this morning so we could be through with the distribution phase, although I'd much prefer to see an intraday move above $109.50 fail, there's no telling we'll see that so hopefully you were able to start a position last week at the highs where the risk is less. I prefer to fill out the position on a confirmed reversal, that could be today. We'll continue to monitor CAT.
Commods and PMs
This morning has been interesting so far for the commodity complex as a whole and precious metals specifically. It appears they are reacting to the bounce in the dollar off the opening lows, at one point in time that would make perfect sense, but silver and gold are reacting in a way that seems to suggest it's more then the dollar. For now, I'm just making a very short term observation, but I am wondering if there isn't something else behind this.
The IMF Bombshell
I'm a proud American, most of the time. Our leaders have certainly let us down and led us into some moments in which pride is hard to come by. However the IMF just dropped a bombshell that was most unexpected, even for someone who feels the chances of a secular bear market in the US are very high and very close. The IMF predicts China will overtake the US as the world's #1 power in the next five years with the US declining and China expanding. Forecasts are always tricky, the further out you forecast, the less accurate they tend to be and China is facing many problems now that may make this forecast true, but through the timing off.
I just wrote this weekend about the problem of US Treasuries/Debt. It's Ironic that within a week or so, the S&P has put the U.S. on a downgrade watch, China has talked of diversifying out of 60+% of their American debt holdings and now the IMF prediction. It all fits well with my opinion of a secular bear market, but goes way past that in its implications and the implications for our debt.
While forecasts may be difficult, trends show clearly the trajectory and how the IMF came t it's conclusions. The most clear fact in the article is this, a decade ago the US economy was 3x the size of China's. That's a rapid decline and one that has left the US middle class falling lower and lower while the richer get richer by escalating China through their business doctrine.
More on this later.
I just wrote this weekend about the problem of US Treasuries/Debt. It's Ironic that within a week or so, the S&P has put the U.S. on a downgrade watch, China has talked of diversifying out of 60+% of their American debt holdings and now the IMF prediction. It all fits well with my opinion of a secular bear market, but goes way past that in its implications and the implications for our debt.
While forecasts may be difficult, trends show clearly the trajectory and how the IMF came t it's conclusions. The most clear fact in the article is this, a decade ago the US economy was 3x the size of China's. That's a rapid decline and one that has left the US middle class falling lower and lower while the richer get richer by escalating China through their business doctrine.
