Wednesday, June 15, 2011
Closing Stats
For the most part, the dominant price volume relationship was close down and volume up. Dominance in the relationship could be found in the Dow, the NASDAQ 100 and the S&P-500.
While the relationship was the strongest in the NYSE, it wasn't dominant. The Russell 2000 also didn't have a singular dominant relationship either.
However with the 3 majors posting dominance in Close Down / Volume Up, it's usually taken as a bullish, short term capitulation indication in the market' current configuration.
Much of that volume today was during a period of churning, which also has bullish implications.
Further contributing to the oversold condition, only 5 of 239 industry groups closed in the green.
Of the worst performing groups, there weren't many surprises: Cement, Life Insurance, Aluminum, Paper and Paper Products, Agricultural Chemicals, Education and Training Services, Lumber/Wood Production, Textile Manufacturing, Accidental Health Insurance and Tobacco Products.
One interesting thing about the close... in the last several weeks-month, the last hour of closing trade has been dubbed, "the sour hour" with the market fairly consistently selling off.
While today you couldn't say that the market rallied the last hour, it did manage to to get some foothold.
Beyond that, the market is trading slightly higher in after hours.
I'll need to look through a lot of charts and run scans to get a better feel for what tomorrow and the rest of the week may look like. I'll also post any signals from the Miner Trading System.
While the relationship was the strongest in the NYSE, it wasn't dominant. The Russell 2000 also didn't have a singular dominant relationship either.
However with the 3 majors posting dominance in Close Down / Volume Up, it's usually taken as a bullish, short term capitulation indication in the market' current configuration.
Much of that volume today was during a period of churning, which also has bullish implications.
Further contributing to the oversold condition, only 5 of 239 industry groups closed in the green.
Of the worst performing groups, there weren't many surprises: Cement, Life Insurance, Aluminum, Paper and Paper Products, Agricultural Chemicals, Education and Training Services, Lumber/Wood Production, Textile Manufacturing, Accidental Health Insurance and Tobacco Products.
One interesting thing about the close... in the last several weeks-month, the last hour of closing trade has been dubbed, "the sour hour" with the market fairly consistently selling off.
While today you couldn't say that the market rallied the last hour, it did manage to to get some foothold.
Beyond that, the market is trading slightly higher in after hours.
I'll need to look through a lot of charts and run scans to get a better feel for what tomorrow and the rest of the week may look like. I'll also post any signals from the Miner Trading System.
USO setting up for a short trending trade?
Fundamentally, there doesn't seem to be a good reason to get behind lower prices in oil after the last OPEC meeting. Saudi Arabia's promises to increase production are met with increasing skepticism and doubt that they even have the capability. Even if they did, what would keep Iraq and Iran from lowering their output?
The one wildcard may be Russia. Russia has the capability to increase supply, they aren't a part of OPEC, it's just a question as to what their motivations may be.
I've posted many, many times on this pattern in USO.
A big bear flag in USO- a bearish continuation pattern. Today USO broke as ultimately expected, below the consolidation area and did so on increasing volume. The price pattern implied target is around $32-$33. However, oil is one of the most volatile trades out there with fundamental developments that can't be discounted effecting price, for example, Libya and the MENA situation.
Today if you kept a tight stop on USO as advised, you could have pulled about a point out of the UCO trade, but a 5 min negative divergence appeared pretty quickly sending USO much lower. There's the possibility of margin calls on a heavily leveraged commodity sending USO lower on follow through selling.
The trade as I see it, accounting for volatility, would go short USO, especially if there's any strength that stays below the $39 level. A stop can be placed at the white trendline at approx $39.41
The closer you can get to that trendline/stop, the less risk and the more the trade makes sense. If you want to consider entering a short trade now on the possibility of margin induced follow through selling, the stop needs to be tighter for the trade to make sense, I'd say around $38.25.
I think if you like the idea of the trade and keep risk down to 1%-2% of portfolio on the trade, it's certainly worth a crack. As I noted at the top of this post, I've written about this outcome many times and here it is. If you need help figuring out the correct position size, feel free to email me.
The one wildcard may be Russia. Russia has the capability to increase supply, they aren't a part of OPEC, it's just a question as to what their motivations may be.
I've posted many, many times on this pattern in USO.
The closer you can get to that trendline/stop, the less risk and the more the trade makes sense. If you want to consider entering a short trade now on the possibility of margin induced follow through selling, the stop needs to be tighter for the trade to make sense, I'd say around $38.25.
I think if you like the idea of the trade and keep risk down to 1%-2% of portfolio on the trade, it's certainly worth a crack. As I noted at the top of this post, I've written about this outcome many times and here it is. If you need help figuring out the correct position size, feel free to email me.
Closing Update
Today is nearly the mirror opposite of yesterday. Yesterday we had 1 min negative divergences all day as the market moved higher, it led me to believe we'd see weakness this morning. Today we've had positive divergences on the 1 and some 5 min scales that have seen lower prices all day, if I apply the same logic as yesterday, then I should be looking for some strength tomorrow.
It' been a tough day as the Greek news was not discounted into the market.
In any case, the divergences are there, they are positive on the 1 and some 5 min timeframes. I'll have to assume the same logic as yesterday, that this could lead to some strength tomorrow.
Updated Short List
These are some of the stocks I like most as short candidates. The reason, they have significant tops, the tops have been broken (the top volatility is a very bad place to short, once there's been a break, they are much easier to short), most of them have retraced a portion to lower risk and they all have significant downside.
ARUN
GBX
GE
ISYS
LNC
MBFI
MDR
MERC
NETL
PCH
PNFP
TSO
TTMI
VSH
WDR
WU
While it would be nice to be able to short these on some strength, I think all are within reasonable risk areas compared to the potential downside. If you have questions or want to talk about specific strategies for your trading style, feel free to email me anytime.
While it would be nice to be able to short these on some strength, I think all are within reasonable risk areas compared to the potential downside. If you have questions or want to talk about specific strategies for your trading style, feel free to email me anytime.
More From Greece
Some other charts
These charts are standing out a bit suggesting that maybe Wall Street is preparing to run a short squeeze.
Two important support levels were breached causing a huge spike in volume, but since the market has been pretty much lateral, we didn't see a huge sell-off on the broken support.
FAS has been positive on the 1 min chart since it hit the lows this morning and is now at the highest reading of the day.
FAZ-the bearish financial ETF is showing negative divergences ever since it hit its high of the day.
The TICK chart recently just hit the highest reading of the day at the white arrow-+1000 and is starting to trend up.
TLT which has been today's safe haven trade is in a leading negative a min divergence
The dollar loks like it's starting to come under some pressure on the 5 min 3C chart hitting new lows on the day.
XLF 1 min has been positive since it hit the lows of the day and is now in a leading positive divergence
And the 5 min XLF chart has shaped up and looks significantly better.
If you decide to run a spec. trade based on a possible short squeeze, just make sure you keep your risk management tight. The breaks below support seem common and don't bother me that much, but a break to a new low would have me concerned. Also anymore surprise news out of Greece would have me concerned.
Two important support levels were breached causing a huge spike in volume, but since the market has been pretty much lateral, we didn't see a huge sell-off on the broken support.
If you decide to run a spec. trade based on a possible short squeeze, just make sure you keep your risk management tight. The breaks below support seem common and don't bother me that much, but a break to a new low would have me concerned. Also anymore surprise news out of Greece would have me concerned.
Market Update
Opinion
Maybe we're looking at today's Greek events in the wrong light. The past few days, MPs from the ruling party have been peeling off. There's been talk of a national referendum (which is an instant no), the situation or contagion is starting to effect the core with French banks on the radar of the rating's agencies. Can the Troika rally be that dumb to think Papandreou can get this latest austerity package through parliament?
Maybe the Troika sees the writing on the wall and realizes that they're going to have to have a unity government in Greece to pass anything and that means they're going to have to renegotiate the terms.
If Papandreou is willing to step down to form a unity government and this comes a day after MP's are peeling off from his party and French Banks are under ratings pressure, perhaps the EU has come together and started fleshing out a new approach as they are starting to see the effects of contagion in the core the way things are going.
Cutting Greece loose doesn't seem to be an option, just look how fast the rating's agencies moved on the European banks. This may be the start of a new plan, now that the core is starting to get a taste of what default would look like in their countries.
Maybe the Troika sees the writing on the wall and realizes that they're going to have to have a unity government in Greece to pass anything and that means they're going to have to renegotiate the terms.
If Papandreou is willing to step down to form a unity government and this comes a day after MP's are peeling off from his party and French Banks are under ratings pressure, perhaps the EU has come together and started fleshing out a new approach as they are starting to see the effects of contagion in the core the way things are going.
Cutting Greece loose doesn't seem to be an option, just look how fast the rating's agencies moved on the European banks. This may be the start of a new plan, now that the core is starting to get a taste of what default would look like in their countries.
US Dollar
I've probably written over a dozen posts showing accumulation the $USD via UUP a a proxy for the Dollar over the last 3 weeks or so.
It seems the Greek Tragedy has been seen as a fait accompli for quite awhile now.
Look at the dollar today.
The dollar has pretty much broken through the intermediate term downtrend on a move of 1.65% today!
The FXE was showing distribution at the same time the dollar was under accumulation. The final negative divergence and reversal signal came as usual on a false breakout in the red box.
And FXE (The Euro) today... -1.86%
More then just Greece, the downgrades coming in on French and other Banks are putting the Euro under a lot of pressure.
It seems the Greek Tragedy has been seen as a fait accompli for quite awhile now.
Look at the dollar today.
More then just Greece, the downgrades coming in on French and other Banks are putting the Euro under a lot of pressure.
MARKET UPDATE
The QQQ still looks the best, the divergence so far is only on the 1 min charts.
TLT the safe haven flight, continues to see negative divergences.
I'm thinking they may run a short squeeze here, watch for the SPY to move above $127.50
QQQ update
Market Update
This is going to be quick, I follow it up with an expanded update.
The SPY took out both support levels on heavy volume -a lot of stops hit and a lot of short sellers coming into the market. If it can move back above what is now resistance around 4127.25 or so, it has the chance to create a short squeeze.
Around the same time the TICK chart broke the downtrend and moved up, this is a significant first step.
