Closing Wrap

So for the second time today, I suppose you could say an ETF of the major averages gave us an early warning signal without the others being in sync at the moment. The first was the DIA suggesting a move to the upside, which happened, the second was a negative divergence in the Q's suggesting selling into the close, which happened. This is not the usual pattern, typically they all move roughly in line together and give signals together. I'm not sure what to make of it other then correlations may be falling apart a bit as different sectors rotate. I'm guessing this is an effect of the market now starting to discount in a more historical manner being that QE2 is drawing to a close;  as opposed to the ramp of the market led by the NY Fed which we have seen since March of 2009.

In any case, here's our breakdown today :

The Dow had 18 gainers (Monday it had 1 of .22%)
The NASDAQ 100: 67 gainers
S&P-500: 324 gainers
Russell 2000: 1471 gainers (out of 1901 stocks)

We did have a dominant price volume relationship today for the first time this week, Price Up/Volume Down-this is actually the most bearish P/V relationship, despite the close up feature. However in this market, volume has been long gone so I'm not attaching a lot of weight to this reading, but it is not irrelevant either.

(For informational purposes: the 4 P/V relationships are: 1) Price Up/Volume Up which is the most bullish, but at extremes can lead to an overbought market 2) Price Up/Volume Down which is the most bearish as it shows traders are backing away from chasing higher prices. This relationship is more relevant in a trend in which the dominant P/V relationship shifts from price up/volume up to price up/ volume down or in a case in which the relationship grows steadily over several days-suggesting the bulls are backing away from higher prices. 3) Price Down/Volume Down-this is almost a meaningless relationship, but in a bear market it is the most common relationship seen. 4) Price Down/Volume Up-This can show a very bearish sentiment when it occurs as a market breaks down in a meaningful way. It can also be bullish after an extended move down as it can signal a short term bottom or "capitulation". For a P/V relationship to be meaningful, it must be dominant, not just the highest, but often 2x higher then the second highest relationship)

We had 81 stocks that closed up 5% or more on heavier volume, compared to 31 stocks that closed up more then 5% on lighter volume. Only 39 stocks in the NYSE closed down more then 5%.

As far as 3C, it's been difficult this week as I've expressed, I'm not seeing good confirmation such as the DIA/QQQ early warnings today.

Here are the charts beyond 1 min

 DIA 5 min

 DIA 10 min

 IWM 5 min

 IWM 10 min

 QQQ 5 min

QQQ 10 min

 SPY 5 min

 SPY 15 min

At this point I see two possibilities. My original thoughts based on experience; I expected the market to stage an upside head fake. This would require the SPY to gain at least 2% from today's close which would be a pretty big move, at least for a 1 day move. It would make some sense that an accumulation period would need to take place first and if this range holds up or we breakout from here, then that is probably what we can expect to see. What bothers me is the lack of strong confirmation in various timeframes and among the averages.

There are longer term charts that look like these which look more bullish.

 DIA 60 min

IWM 60 min.

 QQQ 60 min

SPY 30 min

All the charts above would suggest an accumulation period is underway for what would likely be a significant move up. As stated above though, my doubts are centered around the lack of confirmation filtering through multiple timeframes. These longer charts tend to me more important, but confirmation is what gives us high probabilities.

The second scenario is that the move down out of the triangle is correcting through time (the market corrects through price pullbacks or through time). If so, then we can look for another fairly ferocious drop.

One other relationship I looked into was the $AUD which is highly correlated with the S&P and at times leads the market. I hope these charts are understandable.

 This is a daily chart of the SPY in green with the FXA ($AUD) in red. In February 2011, the FXA fails to make a higher high, a few weeks later the S&P tops and declines 6+%

 Looking at the current 5 min chart, yesterday the FXA ($AUD) makes a second test high, while the SPY fails to do the same, the next day (today) the market rallies off the lows. Finally this afternoon, the FXA does not make a new afternoon high (at this point we already suspected a problem with the negative QQQ divergence) and the market gives up the closing gains. I show you these charts to reveal the sometimes leading nature of the FXA ($AUD). Below we'll look at the 3C chart for the FXA.

 3C 5 min applied to the FXA reveals the negative divergence on the 20th, leading to a plunge on Monday-the same as the market. Currently we have seen a few positive divergences in the FXA and a now leading positive divergence into today's close. The positive divergence in the FXA could be foretelling of further market strength.

 FXA 10 min 3C chart. Once again another positive divergence in the FXA which is leading as of today.

Finally the 30 min chart. This covers a longer period, but the point here is the FXA near or at its lows, while 3C is significantly off those lows on a relative basis.

As I have warned the last few nights, we are really looking at the trees at this point and not the forest, trying to determine the most likely short term outcome for the market, which could be a significant if we do get an upside head fake, this will give us excellent positioning on just about any inverse ETF or short position you have your eye on.

BPAX

Time to tighten that stop or cash in, probabilities of more upside are diminishing.

 No new highs today, volume is lighter as well.

 3c 5 min negative divergence

15 min negative divergence.

Some of you have over 25% profit here and I think there's probably more to come considering the size of the base, but for now, it looks like a consolidation is coming.

Silver

Also, both SLV and PSLV are showing some 1 min negative divergences, most likely profit taking, but as I mentioned yesterday, the ride in silver looks like it will be a bumpy one. Just thought any of you trading intraday should know.

MARKET UPDATE

Just like the DIA was an outlier by itself and was leading the market, I've taken notice of the Q's recently in afternoon trade.

 DIA 1 min looks fine, in confirmation

 The Q's are showing a 1 min negative divergence.

The SPY looks fine

The IWM is also showing a negative divergence similar to the Q's so I'm guessing that there may be some late day profit taking. It's not the usual confirmation, but the DIA worked earlier so I thought you should be aware.

Chinese Take Down?

I've been flipping through my 100+ Chinese watchlist and came across FSIN.

 Weekly chart with a large top in place, which actually broke down today after 2 years

Here's the daily chart.

I don't know if this is a fraud company or not. As far as 3C goes right now, I don't see anything that suggests anything more then a 1 min divergence that took it off its lows on the day. Risk wise, the percentage drop today doesn't make this an ideal setup (at this level), but if you manage the risk through the position size, and perhaps consider phasing into the trade in case there is a bounce in which you can average a better entry, I think overall this looks like a company going lower. You might want to check into the fundamentals of their business and any news that might be available, see if it has a reputation or is suspect.

VRML

If you have been quick in taking protfits, you probably dd pretty well with VRML the last few days. This is a long trade, but of short duration and a bit speculative. VRML tends to make big one day moves. I look for the trades that not only have potential, but are in a handsome risk:reward area. VRML is in such an area.

 Consolidation, but has had some double digit gaps up. Currently price is close to the bottom of the range and volatility is squeezing which should lead to a directional move shortly.

 The 60 min 3C chart looks very good today

 The 15 min chart is now positive leading

And despite the sell off of the opening gaps, 3C is now higher then it was when price was 10-12% higher, even though price is currently close to the bottom of the consolidation.

Just don't get greedy if you get a double digit gain. I'd book it pretty fast.

Eur/USD

The Euro has some positive divergences forming, 1 min and 5 min. The dollar is not showing the 1 min yet, although it's in position in which t could move quickly to a negative. The 5 min has looked bad the last few days. In fact there are negative divergences up to the 30 min chart, which is one of the reasons I provided 3 different stops on silver. Remember, the Euro goes up, the dollar goes down and silver/gold/oil and equities generally speaking go up.

As far as the positive divergence in the DOW last post, the SPY and QQQ are also starting to post leading positives.

Market Update

Skimming through the averages looking for what comes next after the mid-day consolidation in the market, I ran across this chart of the DIA...

Curiously strong.

Is it a fluke?  The other charts aren't looking so strong, but not horrible either. The 5 min charts of the SPY, QQQ and IWM are shaping up, something not seen yesterday.

5 Year Bond, What the...

We've seen recent interest in bond funds, primarily 20/20+ years. Today's $35 billion issuance was strangely one of the strongest auctions we've seen recently. Goldman had a short call on the 5 year bond, which means they we're probably buyers, but the interesting stuff is in the details.

Despite this auction adds another $35 Billion to the debt ceiling breach and deducts $35 billion from Federal pensions (you wouldn't think there would be a lot of interest in a house that doesn't have it's affairs in order), the issuance was a curious success.

Indirect Bidders stepped up (i.e.-Foreign Central Banks) to take down 47.1% which is the strongest participation in about 7 months, this despite the fact the yield dropped from 2.124 down to 1.183-which is the lowest yield since last December.

Any comments or thoughts on this curious auction are welcome. (BT46N2 at Gmail.com)

On the Other Side of The Euro Bank Coin

Irish Bank, AIB looks like there may be a short to swing trade opportunity in the making.

 The shorter charts are a bit random, but I found this 10 min leading positive divergence to be interesting considering where AIB is.

As you can see, AIB is sitting right on some old support, therefore you have a nearby stop, I wouldn't use the exact trendline in case of a shakeout, but the set up here seems to be a fairly decent risk:reward opportunity.

Remember to check dividends and the ex-div. date when shorting companies as you will be responsible to pay the dividend if you are short when it goes ex-dividend.

A Greek Default or Worse...

The rhetoric is being ramped up and it's looking more likely that Greece will at some point in the not too distant future, cut ties with the EU. The EU has said today that's Greece's future in the EU is at stake. I don't think at this point the Greeks would be too upset to return to sovereign  control over their own currency.

So which banks that we can readily trade have the most exposure ? German and French, also here in the US JPM and probably even worse, MS.

I put out a short call on DB last week, it's down since. It may make some sense to look at any strength in DB to establish a short position. MS is in terrible shape, I don't see the set up there yet, other then just jumping in and riding the established downtrend of 3 months solid.

 The DB negative divergence and current minor positive divergence.

I would prefer to enter DB near the white box to reduce risk and get better positioning. Perhaps set an alert on DB's price as a reminder. If you don't have the capability, check out www.Freestockcharts.com which is real-time charting with no 20 min delay. You can set alerts for price there.

Correction in Commodities.

 There's a positive 1 min divergence in UUP (US dollar) so I'd expect some more upside there, with downside in inversely correlated commodities.

Here's USO on a 1 min chart, in a correction now, note the negative divergence here.

Silver should see a correction as well as the rally this morning seems to be based on dollar weakness.

PSLV Stops

 PSLV Trend Channel Daily stop-this is the widest, you won't catch the top, but if there's a substantial move it will allow for consolidations.

 60 min Trend Channel and my preferred stop, has held PSLV's trend for nearly 6 days, it should allow for moderate corrections/consolidations, it will move higher to lock in gains.

The 30 min trend channel will allow some consolidation, this is about as tight as I personally would go. It's held the last 3 days no problem  and will also move up faster then the others to lock in gains, however, any major correction/consolidation would likely trip the stop.

USO Update

 USO has decisively broken out of the triangle, volume on the day looks like it will be substantially heavier then yesterday.

 While a 1 min chart shows no volume spike at resistance, when volume is cumulated on a 10-min chart there's an obvious increase which is what USO has been in need of.

Another DOE Counter-intuitive trade? Or just the dollar? There seems to have been a slight positive divergence at the initial knee jerk move down, however, the Dollar must be influencing the trade.

That's quite a move down in the dollar compared to normal intraday action.

As to SQNM, it keeps making new highs on the day and is close to taking out a downtrend line.

Silver Update

SLV reached the apex of the consolidation (where a directional move is expected) and broke out on an increase in volume.

 Breakout with volume

 3C raced higher on the 1 min scale, it's still not in confirmation, but moving in the right direction. SLV needs to be watched for any head fakes at this point.

The 5 min chart may not have had time to respond yet, but is slightly out of confirmation. Again, a drop below the Apex in silver / SLV could lead to a quick move down intraday so if you have the ability to set a price alert, I would if you are in the trade.

$USD

A bit surprisingly, although as I mentioned before, we've seen it before, USO continues higher. This appears to be because of the dollar falling quite rapidly this morning.

Elsewhere, I mentioned SQNM, it's starting to get a foothold.

Silver Request

Remember last night I said from what I see in silver, it looks like there could be a decent run, but a bumpy one.

 PSLV slightly negative, but better looking then SLV on the 1 min. The 3C pattern makes sense that we are seeing a consolidation in silver currently.

 The 5 min chart is in line.

 SLV 1 min isn't looking as good-you can see the intraday consolidation

However the 5 min chart is also in line.

Volume on the day looks to be running high this early in trade. As of now, I don't see any indication of a breakout one way or the other, but volatility is getting tight so we will most likely see a directional move shortly. I'll keep looking for any hints as to which way this is going to break.