Closing Wrap.

News wise, Interactive Brokers are getting traders ready for commodity margin rate hikes that look like they'll be above the exchange imposed hikes. The unwinding of leverage seems to be a theme that is starting to make brokers nervous if the downside or a panic unwind comes to pass, their essentially covering their butts, unless they are being "asked" to cooperate by a government entity.

Last night I watched "Too Big to Fail" on HBO, a docu-drama about the Bear Stearns/Lehman Brothers period and it was very interesting. Catch it if you can, it may be out on a rental basis. One of the things that I didn't find surprising, but didn't exactly know about was when Hank Paulson called all the heads of the major Wall Street investment firms together and said that Barclays would be taking most of Lehman, but they didn't want the real estate portfolio. Paulson told these CEOs, all competitors of Lehman, to sit down in a room together and figure out a private sector solution, the government wasn't getting involved and "We will remember who was helpful and who was not". Jamie Dimon (in the movie) basically led the group and  said we'll all kick in  billion dollars and take the toxic assets. In another scene, Paulson more or less ordered the head of the SEC to call Dick Fuld of Lehman and tell them to file bankruptcy, a power the SEC didn't have, nonetheless, the call was made in a roundabout way. Eventually the Lehman deal fell apart when Paulson forgot to run the Barclays deal by British oversight and they didn't take kindly to being left out and killed the deal, saying "We aren't going to import your cancer". Interestingly, like a total amateur (literally) Fuld could have had a deal in which Warren Buffet bought Lehman at $40 a share, instead Fuld insisted that the stock was worth $66 a few months ago and he wasn't giving away the company. I can't remember how much Fuld held in stock, it was over a 100 million, at the end of all of this, he was left with $56,000.

Any way, good movie, the point being the government can exert pressure in round about ways. What I find interesting was the last line of the movie after the Fed and Treasury forced banks that didn't need TARP money to take it, Bernanke said, "I just hope they'll use the funds as they were meant to be used". It makes me kind of wonder if this stock market/commodity bubble may have been a scenario in which POMO and other funds given to the banks were used in a manner which was unintended. After all, the economy is no better,  the jobless rate is more or less unchanged, the housing market may be worse off, but the market is certainly higher.

As for today:

The S&P 500:  178 stocks close unchanged or better-much better then yesterday.
The NASDAQ 100: 19 unchanged or better (yesterday it was 7 I believe)
The Dow: 9 stocks unchanged or better (yesterday there was 1)
The Russell 2000: 584 unchanged or better

The price/volume relationship didn't have 1 dominant, the only real change was yesterday the highest relationship was close down/volume down, today was largely the same except for the Russell 2000 which had a few more stocks close down on rising volume.

3C is all over the place in the short term, it looks like a very disorganized market. The only charts that can possibly be interpreted to make any sense would be the mid-term charts (10-15 minute).

 DIA 10 min -this could make some sense within a range. The longer the range and divergence persist, the larger then anticipated move up.

 The Q's look horrible and we can't even get to a 10 min chart, 5 min is as far as we can go with this idea.

 The SPY 15 min.

And another that is looking bad, the IWM on a 10 min chart.

I mentioned this as a possibility last night, basically a range would have to persist with improving 3C readings without the market dropping like a rock and the Q's and IWM are both very close to falling off that ledge. Both were the worst percentage losers, the SPY was nearly flat and the DIA off by about .20%.

Internal breadth readings improved slightly today, but that is to be expected as today's percentage losses were no where near yesterdays so we can chalk that up to useless.

USO looks like it has done the work and wants to rally

60 min chart, TSV and 3C have both called the top and are showing positive activity inside this bearish descending triangle.

The problem with USO is we've had several peeks above resistance and there is no volume to push a breakout through. Maybe this is being controlled for some sort of market synchronisity (the energy complex will have to rally if the market stands a chance in doing the same), but there will have to be some increase in volume to get the fish biting

Silver looks very similar to USO

 This 60 min chart looks nearly identical to USO in both 3C and TSV, whether it be the top or the positive action inside the more benign triangle.

Silver did breakout today, volume was up, not hugely inspiring though. I mentioned earlier that I felt this may be a bumpy ride. Looking at the EUR/USD pair right now, the trend is at best consolidating. If it turns out to be more then a consolidation, Silver will likely fill some of today's gap. I'll check on the pair when the Asian markets open later tonight.

Financials did stabilize a bit today (so there's no confusion, I'm talking about in the very short term)

 Although XLF was off by .06%, lower prices were tested and rejected.

XLF 15 min, 3C has worked well here calling the top, so I suppose we should give this positive divergence the benefit of the doubt and say financials are looking a little better. Financials will be critical for the market to move as well as energy. Again to avoid confusion, I'm not looking for a bull trend, at most a head fake. As I showed you last night, we are really looking at the trees or more tactical perspectives. The strategic outlook is very bleak for the market right now. If I'm  long term investor, I pick a handful of shorts, leave some cash on the sideline and enjoy my summer.

Tomorrow we hav the DOE inventories, which could be a catalyst for energy, Durable Goods and the House Price Index, I believe the Fed's Kocherlakota is also speaking tomorrow (he's been floating the 50 basis point hike in the Fed Funds rate) so that could be interesting.

I'm going to take an hour or two off with my wife and start looking through the Chinese stocks as well as  Natural Gas companies to see if any jewels pop up. I'll update later if the Euro takes a nose dive or if anything interesting pops up out of Asia. Enjoy your evening.

Silver/Gold

 SLV has a clean breakout today, volume is up a bit, but I'd expect to see a much bigger volume surge on a breakout. The pattern implied target is $40, but that's just a rough gauge.

 The 1 min SLV chart has shaped up and is now in confirmation of the breakout.

The thing I don't like is charts between 5-15 mins should be looking much stronger then they do. The 60 min chart looks very strong and I'd expect these shorter term chart to look similar, they don't so perhaps we'll see a pulback filling in some of the gap from today?

 I looked at PSLV to get a better feel for silver, we have the same pattern , a little stronger looking breakout.

 An overall better looking 1 min chart in confirmation thus far, but again 5 and 10 min charts don't look a strong as I'd expect.

 The 15 min chart does show some of what I'd expect to see, PSLV has it, SLV doesn't.

 And the hourly chart looks very strong as it did in SLV. This bodes well for a intermediate move that could be quite profitable, but I suspect the gaps in the mid-term charts will create a lot of volatility among the way until they shape up.

 GLD is breaking out of a different pattern, more like an inverse H&S-volume is disappointing on the breakout.

And once again short term charts aren't looking strong, the mid term to long term charts are. I haven't seen this situation too often. I can only assume the potential for a nice move is there, but I'd expect a bumpy ride.

Oil is much the same. I'd go so far as to say the entire commodity complex. This looks like a very nervous market. Rightfully so.

USO is looking more encouraging and some other charts

USO didn't pullback quite as far as hoped, but the range has shown continued 3C upside momentum.

The next trendline which was intraday support earlier, will be the next test.

Also The Tick Index is showing some changes as well for the broader market...

The last update was a downtrend in TICK, now we have an early uptrend.

There's also been some progress in 3C on the DIA, IWM and QQQ

UNG-NAT. GAS

I just read a report on natural gas which a member sent over. I'm not going to go into the details, but the gist was that Nat. Gas is trading far under value compared to oil and there's been a recent trend a declining number of rigs that extract Nat Gas. So after having been burnt on a trade a year or so ago, I took another look and found a little surprise.

 Here's the typical trading range I like to see when looking for divergences, these trading ranges are fertile ground for accumulation/distribution. Furthermore, from a bullish perspective, the head fake is always an added bonus, which you can see on 5/18 with the increase in sell side volume. The recent gap up came on heavier green volume, which is what we want to see in a range that i nearing a breakout. Finally we want to see a breakout on strong volume.

And the 15 min 3C chart, pretty much what I hoped to see. It appears Nat. Gas may be getting ready for a little run. I'm going to try to take a look at some individual stocks in the sector as well.

USO follow up

I know a lot of people are looking at USO for a possible entry, the last post I said that  positive divergence was probably our best bet in determining an entry point.

Here' what we have since the last update.

You can see the intraday shakeout-right at EXACT intraday support as usual, but we have a pretty strong 1 min positive divergence. I would prefer to see a test of the $38.65 level with a continued divergence, that would be a stronger set up, but we may not see that.

What I find bothersome at this point is the 5 min chart hasn't responded very well. I think the $39.15 level will give us a better idea of the underlying character (former intraday support). Until then, I wouldn't make any large bets here personally. As you know, I preferred buying at the bottom of the range from a risk management perspective.

Market Update

I'm getting a lot of emails, so I'll just post an update, although there's not much to see at this point. The only area where there seems to be any slight appetite for risk has been in commodities.

 The 1 min chart has been in line most of today so there's not been much point in telling you there's no real signals. However, there's a small 1 min divergence forming currently.

 The most bullish chart as I pointed out last night is this 15 min chart. Note also the relatively flat trading range, if you saw my Trade Guild post last night or follow my comments here, these flat trading ranges that no one is very interested in are most often where the action occurs, whether distribution or accumulation.

 Here's the 10 min BB screen, price tends to bounce off these bands from upper to lower and so on until you get  trend in which they walk the bands, when a market average walks the upper or lower band, you have a pretty strong trend.

The TICK chart has shown some slight improvement in its channel -a break out here would be bullish.

Dollar Update

 15 min UUP-the recent pop was not confirmed by 3C, so it looks like a move that may fall back down and give the Euro a little breathing room for a few days.

 The 5 min chart refused to confirm as well, I showed this to you yesterday with the EUR/USD post.

 However very short term on the 1 min chart, there's a little positive divergence there tht sent the Dollar a bit higher.

In red is the GCC commodity index compared to UUP (USD proxy) and around 11 am, the same time as the 1 min positive divergence, commodities fell as the dollar gained.

Right now, I don't see this as a substantial threat, unless there's more downgrades out of Europe, I'm sure the Syrian/Iranian nuclear situation isn't helping oil right now either.

As a brief side note, I don't like to get into politics and there are only a handful of politicians I like. However, I mentioned a Stratfor report that I read about Israel's security and for the most part, Israel is secure in its current format/boundaries. However, the West Bank is crucial to their security. They're relatively safe from the south/South West with the Sinai, There's little chance of a serious attack from the north, the West Bank corridor is crucial and they've been under heavy pressure from the US government regarding the region.

This Syrian/Iranian nuclear news that's coming out is probably not helping the oil situation at this point.

However as the point of this post is the dollar vs commodities which seem to be the only thing seeing any risk appetite today, I don't see this particular move in the dollar as being a sustainable threat in the near term.

USO pullback

I was asked about a USO pullback and before I could capture all the screen shots, there it was.

 Daily chart just poked above the breakout level.

On the 1 min chart, you see the poke above, support and the high volume break of support.

There's quite a gap there so it's pretty tough to tell at this point where this may land. I think the best shot will be to look for a positive divergence, especially if one forms on this break of intraday support.

SQNM/ VRML

Both trades are worth a look here on the long side. I'd consider a stop on SQNM at yesterday's lows around $7.51-watch out for stops at $7.50. VRML maybe a stop a little below $5.00

Both are spec. trades, but may be good for a quick pop.

Follow Up SQNM

Yesterday I highlighted SQNM

I still think it's in an area where the risk isn't too bad and biotechs have been popping off lately.

 The common shakeout we see in bullflags from yesterday, before a move up begins...

3C 10 min with a positive divergence at yesterday's shakeout.


Take a look. Volume is a bit low thus far this a.m.

VRML Follow up

VRML was brought up as a trade idea twice on Friday, May 20.

This morning it's up 12-14+% on the day. If you are in the trade, keep in touch today. What we would like to see is a close near the top of the daily candle's range and heavy volume, even if this is all the gain we get today, the close near the top of the range is important for follow through buying.

Short term traders, there's nothing wrong with taking a double digit profit, but that all depends on where you got in. For those who may have missed the trade, there may be a chance on follow through buying for tomorrow, but that assessment can't be made quite yet.

Silver and USO

Silver for the last two trading days has been dilly-daliying around the breakout line, crossing above and below, suffice it to say, I didn't trust the action and didn't believe the multiple pops silver made to breakout status. Today we do have a break out and I might be inclined to pick up some silver on an intraday pullback.

USO

I think we can guess who may have had a hand in this after GS's upgrade yesterday.

60 min positive divergence

As for the market, it's thus far what I thought to be the highest probability yesterday, interesting how the market's technical structure matched up very well with dovish comments from the Fed's Bullard about the not taking any steps too soon and leaving it's balance sheet intact to take a look at the economy after QE2 ends, which was taken by many QE bulls as a hint, there might be something else for you.