In any case, take a look at PSLV.
Thursday, May 5, 2011
Silver Dead Cat or Something else
I didn't see much I really liked today in SLV, not anything really convingng, but looking at PSLV, there's a 15 min positive divergence forming that looks pretty clean. whether this is a dead cat bounce, a blip or something else, I have no idea and if it were to bounce, I can't say what the CME would do under a presidential directive (we see a hike just about every other day so tomorrow we'd be due for the 5th at the rate the CME has been going).
In any case, take a look at PSLV.
PSLV tracks a bit different then SLV, but that's a pretty clean signal on a 15 min chart. Remember that divergences can go on for several days, it all depends on how much they're trying to accumulate. I will say this looks pretty mature, pretty fast.
In any case, take a look at PSLV.
Some Pre-FOMC Observations
These were all posted here before the FOMC meeting:
"Last night I warned to beware or market action following an FOMC policy statement. Historically there's been a knee-jerk reaction that changes either the same day or within several days" 11 a.m. 4/27/2011
"I've got to say, I've been doing this for a long time and I don't often get nervous about much anymore, but I have to admit, there's some energy flowing through me regarding the FOMC announcement tomorrow. Almost as if we're about to witness something historic, in a way we will."
3:52 4/26/2011
The Red Arrows point out the day of the FOMC meeting, 4/27/2011
SPY
Global Commodities Index
SLV
EUR/USD
Below, here are some currencies vs the Yen
A few things to note, 1) the Fed effect held up, I think the trend underway is the market's true reaction to Fed policy. 2) Risk Assets (specifically commodities and precious metals) have been hammered 3) There's an unwinding of the carry trade in the Yen. 4) Many of the important divergences I've shown you have all had one thing in common, they all started April 28th.
What where the key statements from Bernanke?
With regard to QE3:
"The trade-offs are getting less attractive at this point. Inflation is gotten higher. Inflation expectations are a bit higher. It’s not clear that we can get substantial improvements in payrolls without some additional inflation risk. In my view if we are going to have success in creating a long-run sustainable recovery with lots of job growth we have to got to keep inflation under control. We got to look at both parts of the mandate as we choose policy."
With Regard to the monetary base:
"What matters primarily for interest rates, stock prices and so on is not the pace of ongoing purchase but rather the size of the portfolio that the Federal Reserve holds. So when we complete the program as you noted we are going to continue to reinvest maturing securities both Treasuries and MBS and so the amount of securities that we hold will remain approximately constant.
"Last night I warned to beware or market action following an FOMC policy statement. Historically there's been a knee-jerk reaction that changes either the same day or within several days" 11 a.m. 4/27/2011
"I've got to say, I've been doing this for a long time and I don't often get nervous about much anymore, but I have to admit, there's some energy flowing through me regarding the FOMC announcement tomorrow. Almost as if we're about to witness something historic, in a way we will."
3:52 4/26/2011
The Red Arrows point out the day of the FOMC meeting, 4/27/2011
Below, here are some currencies vs the Yen
A few things to note, 1) the Fed effect held up, I think the trend underway is the market's true reaction to Fed policy. 2) Risk Assets (specifically commodities and precious metals) have been hammered 3) There's an unwinding of the carry trade in the Yen. 4) Many of the important divergences I've shown you have all had one thing in common, they all started April 28th.
What where the key statements from Bernanke?
With regard to QE3:
"The trade-offs are getting less attractive at this point. Inflation is gotten higher. Inflation expectations are a bit higher. It’s not clear that we can get substantial improvements in payrolls without some additional inflation risk. In my view if we are going to have success in creating a long-run sustainable recovery with lots of job growth we have to got to keep inflation under control. We got to look at both parts of the mandate as we choose policy."
With Regard to the monetary base:
"What matters primarily for interest rates, stock prices and so on is not the pace of ongoing purchase but rather the size of the portfolio that the Federal Reserve holds. So when we complete the program as you noted we are going to continue to reinvest maturing securities both Treasuries and MBS and so the amount of securities that we hold will remain approximately constant.
At some point presumably early in our exit process we will I suspect based on conversations we have been having around the FOMC table it’s very likely that an early step will be to stop reinvesting all or part of the securities that are maturing but take note… that step does constitute a policy tightening"
While Bernanke says the above does not constitute a policy tightening, he may be correct, he may not, but today's comments from Kocherlakota certainly hint at policy tightening, by 50 basis points. Bernanke has claimed he's trying to make the Fed more transparent, the press conference being a first of its kind is certainly a symbolic gesture. Today's Fed comments could certainly be taken as a warning directly from Bernanke, in which case, something must have changed very quickly in the Fed's view.
Right now we are seeing some of the most heavily margined and speculative assets being sold off. I wish I had the capacity to be able to draw a chart showing the interconnectivity of all of the different asset classes and say, how unwinding in the Yen Carry trade effects other asset classes, how declines snowball because of margin maintenance and how other assets are sold to meet margin calls. It's a confusing web of arbitrage, margin, leverage, hedging, etc. However, it's pretty plainly visible that there's a massive risk liquidation, whether self imposed, forced (i.e.-Silver margin hikes) or both. This is something that is difficult for people like us to understand. A very small move in an asset can cascade into big trouble when dealing with the kind of leverage these institutions have access to.
In any case, the point was the Fed effect and what the emerging view of the FOMC meeting has matured into. And by the way, watch for something big coming out of Japan very soon.
Failed Breakout
When looking at a daily chart, it's exactly where the breakout on 4/26 occurred. It seems I'm not the only one looking at the probability of a failed breakout.
Market Update
So the idea yesterday was we would see some upside today as today would be the perfect day to lift the market before a bad NFP number on Friday. The Q's and IWM did exactly that, the SPY got close, the DOW is the biggest laggard.
Right now the Market is dropping like the Fed announcement I just mentioned was just released, although it was released a bit ago. It would make some sense as the negative divergence sending the market lower wasn't huge so a surprise announcement would have fit the bill. Of course it could just be they spent a little time setting up the chess board, but today has me a bit frustrated.
Here's what the Q's look like in several time frames.
Long term, this makes sense with a breakout move up that fails, for me this is the most important outlook, longer term negative. It has all the components of a reversal.
Here's yesterday's accum. at the lows and today's negative action into the late afternoon. Still makes sense even on the short term in which yesterday the idea was to lift the market into the NFP which allows some relief of oversold conditions and shorting into a bad NFP number.
The 5 min looks the same.
As does the 1 min, but notice the last negative divergence really isn't that deep, that's what is frustrating, but all considered, it seems to make sense even if it doesn't look exactly like what I'd anticipate.
The SPY...
Long term, we have the breakout seen before reversals which appears to have failed-makes sense.
Another look at the complete cycle, makes perfect sense.
The action yesterday and into today's morning lows and the negative divergence here make sense, the only thing that doesn't is that the SPY didn't perform better today.
The IWM
Long term, the same set up, a breakout to new highs that appears as if it has failed. This is the common theme among reversals.
A look at the entire cycle and a nasty leading negative divergence now.
This 5 min chart also shows the positive action into yesterdays lows as well as the gap down this a.m., timing and all make sense here.
Again, this 1 min chart is what is frustrating, but it appears the bigger picture is negative, there was some relief with the IWM up around .70% today near the highs.
My guess is the NFP will be bad tomorrow and the market should not react well to it.
Right now the Market is dropping like the Fed announcement I just mentioned was just released, although it was released a bit ago. It would make some sense as the negative divergence sending the market lower wasn't huge so a surprise announcement would have fit the bill. Of course it could just be they spent a little time setting up the chess board, but today has me a bit frustrated.
Here's what the Q's look like in several time frames.
The SPY...
The IWM
Long term, the same set up, a breakout to new highs that appears as if it has failed. This is the common theme among reversals.
A look at the entire cycle and a nasty leading negative divergence now.
My guess is the NFP will be bad tomorrow and the market should not react well to it.
If you believe in Fed transparency...
Then the rate hike that has been speculated as having wreaked havoc in the commodities sector and the market this week just got a little credibility, again, if you believe in Fed transparency.
From the Minneapolis Fed's Kocherlakota's speaking engagement today,
"A core inflation rate of 1.5 percent is still markedly below the Fed's price stability objective of 2 percent. Accordingly, an increase of 50 basis points in the fed funds rate would still leave the Fed in a highly accommodative stance. First, the fed funds rate would be extremely low—between 50 and 75 basis points. "
A 50 basis point hike! This language (and every FOMC statement is compared for even the placement of a comma) is quite a divergence from the recent FOMC's highly accommodative stance for the foreseeable future. First of all, it's parsing words with regard to "highly accommodative", Kocherlakota just redefined accommodative which was until today considered a Fed Funds rate of zero to .25%, now it means 50 basis points higher. 50 basis points in a single move sounds more like panic and would have a dramatic effect on the Fed's balance sheet not to mention the speculative money banks have out in the market.
I think this explains a lot and I think the banks had a heads up, probably last week.
From the Minneapolis Fed's Kocherlakota's speaking engagement today,
"A core inflation rate of 1.5 percent is still markedly below the Fed's price stability objective of 2 percent. Accordingly, an increase of 50 basis points in the fed funds rate would still leave the Fed in a highly accommodative stance. First, the fed funds rate would be extremely low—between 50 and 75 basis points. "
A 50 basis point hike! This language (and every FOMC statement is compared for even the placement of a comma) is quite a divergence from the recent FOMC's highly accommodative stance for the foreseeable future. First of all, it's parsing words with regard to "highly accommodative", Kocherlakota just redefined accommodative which was until today considered a Fed Funds rate of zero to .25%, now it means 50 basis points higher. 50 basis points in a single move sounds more like panic and would have a dramatic effect on the Fed's balance sheet not to mention the speculative money banks have out in the market.
I think this explains a lot and I think the banks had a heads up, probably last week.
Market Update continued.
Not much has changed since the last update.
Here's the intraday pullback I mentioned and said it didn't look too serious. My assumption was that the Q's/IWM would gather a little momentum and take another hot at intraday highs and a possible inverse H&S breakout, if that happens, we want to keep an eye on the volume.
QQQ Update
So far the NASDAQ 100 and the Russell 2k are in the green so far on the day.
Daily chart of the Q's -volume appears to be rising today.
The 1 min QQQ 3C chart showing some backing off , but nothing too horrible.
Here's yesterday's positive divergence and in the red box, a further positive divergence on the open, so it seems that old day trader trick on the NYSE still works. This 5 min chart looks pretty solid, but it is a 5 min chart, not an hourly. Yesterday my thoughts were the market would be up today going into a bad NFP number on Friday.
The IWM (Russell 2k) daily chart, so far a pretty impressive move and volume again appears to be up.
Here's yesterday's positive divergence and in the red box, a further positive divergence on the open, so it seems that old day trader trick on the NYSE still works. This 5 min chart looks pretty solid, but it is a 5 min chart, not an hourly. Yesterday my thoughts were the market would be up today going into a bad NFP number on Friday.
The QQQ exhibits what looks like a small inverse head and shoulders bottom, volume was good until the breakout point, so for now, I'm assuming it will drop a bit, get itself together and make another run at a breakout with expanding volume.
Here's the 5 min 3C on the IWM, it shows yesterday's positive divergence and again a positive divergence on the opening gap lower "Fade the gap" The white box is an approximation of the positive divergence zone and the yellow line is an approximation of the average position cost.
I can only speculate at this point, certainly sentiment has been sour on the day, but the daily candle is pretty impressive considering the preceding trend and the fact we saw some accumulation yesterday.
So the NASDAQ and IWM are green, the SPY/DIA aren't down very aggressively. As I mentioned in an email to a member, the market's action tomorrow will be important. If we get what will probably be a bad NFP report, does the market move to discount the news or as we see today, take it largely in stride and whistle past the graveyard? Considering where futures where this morning, this is so far a market that has taken a horrible report in stride. However, as I pointed out yesterday, today would be the perfect day to lift the market if indeed we see an aggressive sell off on a bad NFP number.
More on Speculative Money
ZH just released this article on margin debt, it's worth a read to understand a little more about a speculative money unwind.
My speculation (which is speculation) is that Bernanke is trying to wiggle free from the Chinese Finger Trap without making policy adjustments. Bernanke is producing a true dichotomy, in official FOMC decisions, they feel inflation is too low and they want it at the long term target of 2%, however commodities which we'll define as pretty much anything that is used to produce something else, are out of control. I think part of the problem is that the Fed considers food and fuel to be "volatile" or in Bernanke vernacular, "transient". However, this is the Fed's historic way of viewing inflation; I think we can safely say that the entire world is at a historic turning point that requires the Fed (if they want to be in the reality loop instead of the dogma ditch) to adjust their historic view on "volatile" food and fuel. There's probably several other inflation guides they use that could use an overhaul as well at least for the time being.
If we are real about the jobs market, we can probably safely assume that 20% of Americans are either unemployed or severely underemployed-the U6 number isn't that far off and private polling puts it a bit above that. We can safely assume that for those who are employed, they are earning less, they don't have access to the kind of credit available to them 3-4 years ago, they have a heavy debt load and their buying power (the dollar) is severely diminished.
Some examples from my experience and perspective: I've been in several lines of work, as a production manager for a high-end custom interiors manufacturer, I made $48 an hour 7 years ago! These same jobs, when available are now paying between $12 and $15 dollars an hour. The national average use to be $18 an hour, but we are in an affluent area and even the people who worked under me made $25 an hour as moderately skilled laborers and had no management capacity.
Gas is off the chart in my young experience, I wasn't driving in the 70's so I don't have that longer perspective, but I know what it costs to fill up my truck vs. what it cost a few years ago, even when oil was in that 5 year uptrend under the Bush/Greenspan "weak dollar" policy period.
From our family cafe, I know that food prices and surcharges shot up very quickly. Applicants for minimum wage jobs are hugely over qualified, I'm talking about architects making sandwiches and smoothies. A job opening ad on CraigsList would produce about 100 emails a day for at least a week straight.
So Bernanke I assume is trying to get commodity inflation under control and keep rates low. We assume the Fed has a few policy tools and none of them are good choices. We also know the Fed and Federal government have enormous influence.
So my speculation at this point, what if their using that influence to try to effect a change without moving policy? For instance, why are brokers coming out with silver margin hikes that are much larger then the CME's enormous hikes? If you ever read Jesse Livermore, World's Greatest Stock Operator, you'd realize the government has had the power to sway Wall St. when it needs to. "We need you to hike margin rates on silver oh and about that SEC investigation, it'll probably disappear". Or "We need you to reign in your speculative positions, we'd rather you do it then force us to hike reserve requirement ratios on your bank". Sure it could be a lot more friendly then that, but until/unless we hear FOMC policy changes, I am assuming some back door influence is being wielded.
Look at Pimco and Bill Gross's prophetic Fed musings? He clears out his bond portfolio and all of the sudden it seems like he's on the outside as he almost overnight becomes one of the Fed's biggest critics.
Sound a little paranoid? Good. Usually the truth is way further out then our paranoid imaginations can carry us.
My speculation (which is speculation) is that Bernanke is trying to wiggle free from the Chinese Finger Trap without making policy adjustments. Bernanke is producing a true dichotomy, in official FOMC decisions, they feel inflation is too low and they want it at the long term target of 2%, however commodities which we'll define as pretty much anything that is used to produce something else, are out of control. I think part of the problem is that the Fed considers food and fuel to be "volatile" or in Bernanke vernacular, "transient". However, this is the Fed's historic way of viewing inflation; I think we can safely say that the entire world is at a historic turning point that requires the Fed (if they want to be in the reality loop instead of the dogma ditch) to adjust their historic view on "volatile" food and fuel. There's probably several other inflation guides they use that could use an overhaul as well at least for the time being.
If we are real about the jobs market, we can probably safely assume that 20% of Americans are either unemployed or severely underemployed-the U6 number isn't that far off and private polling puts it a bit above that. We can safely assume that for those who are employed, they are earning less, they don't have access to the kind of credit available to them 3-4 years ago, they have a heavy debt load and their buying power (the dollar) is severely diminished.
Some examples from my experience and perspective: I've been in several lines of work, as a production manager for a high-end custom interiors manufacturer, I made $48 an hour 7 years ago! These same jobs, when available are now paying between $12 and $15 dollars an hour. The national average use to be $18 an hour, but we are in an affluent area and even the people who worked under me made $25 an hour as moderately skilled laborers and had no management capacity.
Gas is off the chart in my young experience, I wasn't driving in the 70's so I don't have that longer perspective, but I know what it costs to fill up my truck vs. what it cost a few years ago, even when oil was in that 5 year uptrend under the Bush/Greenspan "weak dollar" policy period.
From our family cafe, I know that food prices and surcharges shot up very quickly. Applicants for minimum wage jobs are hugely over qualified, I'm talking about architects making sandwiches and smoothies. A job opening ad on CraigsList would produce about 100 emails a day for at least a week straight.
So Bernanke I assume is trying to get commodity inflation under control and keep rates low. We assume the Fed has a few policy tools and none of them are good choices. We also know the Fed and Federal government have enormous influence.
So my speculation at this point, what if their using that influence to try to effect a change without moving policy? For instance, why are brokers coming out with silver margin hikes that are much larger then the CME's enormous hikes? If you ever read Jesse Livermore, World's Greatest Stock Operator, you'd realize the government has had the power to sway Wall St. when it needs to. "We need you to hike margin rates on silver oh and about that SEC investigation, it'll probably disappear". Or "We need you to reign in your speculative positions, we'd rather you do it then force us to hike reserve requirement ratios on your bank". Sure it could be a lot more friendly then that, but until/unless we hear FOMC policy changes, I am assuming some back door influence is being wielded.
Look at Pimco and Bill Gross's prophetic Fed musings? He clears out his bond portfolio and all of the sudden it seems like he's on the outside as he almost overnight becomes one of the Fed's biggest critics.
Sound a little paranoid? Good. Usually the truth is way further out then our paranoid imaginations can carry us.
$USD
Please go back and read this post from Tuesday when you have a minute
In a nutshell, accumulation in the dollar was underway as of that post. Take a look at the dollar today via UUP
The FOMC's last policy statement should have sent the dollar lower. Again, the April 28th date comes up in the analysis posted above.
Granted, there's been some bad news out of Europe this morning, specifically German manufacturing, the ECB and Bank of England kept rates unchanged as there are signs of a fading recovery in England and for the ECB, Germany. Also the True Finns have spoken out saying that Greece WILL default, we already know that they have veto power over the Portuguese bailout so there's certainly pressure on the Euro and that accounts for half of the Dollar index, but the signs of something stirring in the dollar went back to last Thursday-something shifted very quickly last week.
In a nutshell, accumulation in the dollar was underway as of that post. Take a look at the dollar today via UUP
Granted, there's been some bad news out of Europe this morning, specifically German manufacturing, the ECB and Bank of England kept rates unchanged as there are signs of a fading recovery in England and for the ECB, Germany. Also the True Finns have spoken out saying that Greece WILL default, we already know that they have veto power over the Portuguese bailout so there's certainly pressure on the Euro and that accounts for half of the Dollar index, but the signs of something stirring in the dollar went back to last Thursday-something shifted very quickly last week.
Commodities
I have a feeling that something very nasty is about to break news. The action in the commodity arena (which I chose to highlight because of the extreme leverage available there) is the antithesis of a short squeeze, it looks very much like unwinding of speculative money. What does that mean? In a nutshell, the Fed has kept rates between zero and .25% for an extended period of time. Ever wonder why banks earnings are pretty much garbage if you take away their trading desk operations? They take money which for all intents and purposes, is nearly free and invest it in speculative assets, some have been in stocks like PCLN, but the bulk has gone into the commodities complex. It looks like they are desperately trying to unwind that risk exposure quickly before "an event" occurs. An event could be the hiking of interest rates, at the leverage they're using a 25 basis point hike could be disastrous. It could also be a reserve ratio requirement being lifted, I don't know what the event is, but action like we see below is telling us something is coming. I keep falling back on the April 28th date that I showed you yesterday.
SLV is interesting in that not only is the CME hiking margins, but brokerages are putting in some of the fiercest hikes. I can only assume they're going after silver so aggressively because of its recent parabolic activity-the flavor of the month.
Interestingly, TLT is creeping up very quietly. For the price pattern involved, volume should be huge, it's not. It's almost as if there's a migration into TLT that's trying to go unnoticed, that kind of action or non-action is precisely what you'd expect to see in a quiet rotation. It' odd behavior, it's not typical at all and should be kept on your watchlist.
Initial Claims Historic Miss
This Initial Claims miss is the second biggest in history vs. consensus. Tomorrow's NFP can't look good.
The average of the averages
Below is the zone in which we saw positive divergences yesterday
QQQ
SPY
NYSE specialist (unlike the NASDAQ) actually choose the opening indication and in some cases, when to open the market, it's not always at 9:30. An old day trader trick was to buy the a.m. lows in the first 5-10 minutes as the specialist would usually open the market close to what they thought the lows would be and then move it up from there to fade the open. It's a bit more complicated with ETFs of the averages themselves, but ETFs do at times diverge a bit in price from the underlying asset, this is one reason I prefer to track the ETFs rather then the average, volume and demand is different and you often get better, faster signals about intentions with ETFs.
We'll see if that old day trader secret still works shortly.
SLV
SLV at the Trend Channel stop that has held the SLV run up since early 2010.This is our final line in the sand on the close, should this break, the 1.5 year character of SLV changes with it. This is also one of the last areas for SLV to stage a bounce before a major change in character comes down the road.
From ZH on the margin hike (you have to wonder which commodity will be next):
"Nobody could have foreseen this. Nobody. At this point there is nothing left to comment on what is a concerted action to "mitigate" any and all risk in the commodity market but could as well be classified as executive order 6102.5. While we were joking before that soon one will have to post more cash than an silver contract is worth, we are now forced to reevaluate this sarcasm."
This is getting Conspiratorial
If you didn't already here, CME, for the 4th time (this is happening about every other day now as this is the 4th in 8 days) has not only hiked silver margins again, but this time by and whopping 17% (12, 10 and 9 percent previously).
I know someone at CME that I'm going to try to get in touch with. This is really sounding like orders are coming down from a higher up place as each hike is evaluated.
I know someone at CME that I'm going to try to get in touch with. This is really sounding like orders are coming down from a higher up place as each hike is evaluated.
NFP Doesn't Stand A Chance
Initial claims this morning was beyond bad. Previously IA came in at an upwardly revised 431k, estimates were for a drop to 410k, the number came in at 474k. This is a wild miss and does not bode well for Non-Farm Payrolls tomorrow.
