The Wrap

This week in one word, "VOLATILE. For some perspective, we have never seen 4 days of 400+ point swings in the Dow. However, all in all, on balance, I think this was a win for the bullish slant. The market took one of the most dispirited and somber FOMC statements I have ever seen and managed to turn the day into a huge rally off the lows. No QE3 was announced, no operation twist, nothing but a little certainty regarding rates. The Fed literally sounded broken, as if they had failed (which if you exclude equity prices, QE1/2 were complete failures and the Fed just about admitted as much) and sounded as if they were out of bullets, yet the market still moved higher. The ability to shake off that kind of an FOMC assessment of the economy is bullish.

However, I think the move up had little to do with the FOMC statement and was more likely planned in advance as 3C has been showing us a bullish undertone, even during some of the worst day down. The see-saw action has made it difficult to hold a trade for more then a day unless you are using very wide stops. You can always use the VIX as a gauge of market volatility to asses how wide your stops should be.

Europe is quickly falling. The best example I can think of right now is a personal one. My most beloved dog, an amazing dog who just a week ago was totally fine, was diagnosed today with malignant melanoma, with tumors in his heart, lungs, kidneys and liver, he has less then a week to live and more like 2-3 days. I hope that doesn't make you uncomfortable, I am always open about my life. However the point being, 30 days ago his blood work was normal, 30 days later and his liver is shutting down. There comes a point of no return, a tipping point in which things accelerate beyond our control and that is what Europe is experiencing this right now. Expect things to start to unravel faster then even the algo headline scanning systems can track,

There is talk of France (only 1 of 6 European countries ) losing its Aaa rating. Should this happen, the entire burden of the EFSF will fall squarely on Germany and there's already  political/social backlash against any involvement in baling out other failed/failing E.U. members. In fact, it looks like it will cost Merkel her political career.  Even though the rating's agencies have affirmed France's Aaa rating, the self-fulfilling effect of bank runs may indeed cost them their much coveted rating status. At which point Germany would likely let the PIIGS fall and the Euro experiment would end.

Italy looks to be stepping in front of Span to be the next of the PIIGS countries to be on the fast track toward default, I think they've closed their markets 2-3 times this week and it look like a short selling ban will go in to effect, likely exacerbating the situation rather then calming it as historical evidence from the US has shown, when we banned selling financials short.

The race to the bottom in currencies is going thermonuclear. First the Swiss National Bank, followed promptly by the BOJ , an intervention with a 2 day half life, and now the Swiss look to peg the Franc to the Euro. Border controls are already in place in certain countries and the spirit of the EU is quickly fading in to resentment. Yet the market showed some resilience, not only in the fact that it has not plunged further, but in the internals on the up days which have been astounding.

Charts and Internals...

The big accomplishment for the S&P--500 was holding right at the 500 day moving average.

The internals were not as exciting today, but not bad-20/30 major Morningstar groups closed green. 189 of 239 Industry/Sub-Industry groups closed green. The Dow had 21 advancers, the NASDAQ 100 had 78 winners, the S&P-500 had 333 winners and the Russell 2k had 1060 losers and only 857 winners.

The dominant Price/Volume relationship was easily Close Up/Volume Down, generally considered a bearish relationship, but in context it doesn't mean much. Had we rallied 5% today on that relationship, it would have been worrisome.

As I've been warning, there's something not right in GLD and GLD has fallen the last 2 days-irrespective of the safe haven trade.

 60 min negative divergence in GLD, a warning sign, note the divergence at the top of price highs.

The bigger problem for GLD, the daily chart is negatively divergent.

As mentioned earlier, the VIX gave a bullish signal today, having crossed above its Bollinger Bands on Wednesday, falling below on Thursday and posting a lower close today confirming the signal.

One way I get a feel for the market is buy the trades that are available and there are a lot of nice looking trades that seem to want to pullback a bit which is exactly what I expected for the market. We didn't make it as low today as I had forecasted, but we did give back some decent gains, for example: The S&P gave back about 1.3% off its highs on a day it closed up .54%, so this morning's early prediction was pretty good, but not perfect.

Also as mentioned, R1 is acting as resistance.

Oil is showing some bullishness, I expect a little more basing there before a rally attempt.

 The downside call at the red arrows.

 3C distribution at the downside call and recent accumulation.

The short term chart suggests a little more downside consolidation before a move up.

This 30 min DIA chart not only shows the negative divergences leading to the decline, but a leading divergence that is borderline spectacular. As I said last night, there are apparently a lot of great opportunities right around the corner.

Last I want to end with a daily chart of the $USD,

 The daily chart is showing a period of extended accumulation.

However the hourly chart is showing distribution.

This actually makes sense with what I'm seeing in the market.Remember that the dollar has an inverse correlation with equities, so f the hourly hart is about ready to turn down, that would likely mean equities would see a pretty fierce upside rally, however, as I have noted, I believe this will be the last rally and the next shoe to drop will be more intense then this one. With the daily chart accumulating, the dollar (after the fall signaled by the hourly chart), could put in a massive rally pushing stocks down in line with my last shoe to drop theory. This s why I say I see huge opportunities ahead, things are lining up and a crash in Europe could be exactly what sends the dollar higher and equities, much, much lower, but first we have a rally to look for.

Have a great weekend,

VIX Signal

It appears the VIX is going to close below yesterday's close and give us a very strong long signal.

Trade Idea CUK (long)

I love charts like this with nice, clean and consistent signals. There's almost certainly inside information being traded here which gives us an edge on a piggy=back trade.

 A very clean transition in MACD, RS and the 50-bar m.a.

 The 3C 60 min signals have been very clear and effective.

And my crossover screen has been flawless-both short and now long. I'd expect a pullback to the $30 area at which point I would give CUK serious consideration.

Trade Idea GA (long)

This s a longer term trade and will require some patience, but I believe it has a lot of upside potential.

I believe this is going to form a large triangle base. Today's move outside of the triangle will most likely be revealed as a false breakout and trade should continue to consolidate inside the triangle trendlines drawn. It's not a trade ready right now, but one worth keeping on your watchlist as the probable upside will likely be around $9+ from the area in which I think a long trade will be possible, making it potentially a 20+% move on the first leg up. I'd set some price alerts.

LDK Follow Up

LDK was posted as a trade idea on 8/10, it has made as much as 15%. Yesterday I sad I'd like to see it pullback to the $6.00 area and look for a new entry.

 LDK hitting daily 50-ma resistance

And the sign of a pullback, I'd keep this one on your radar as well.

Trade Idea PT (long)

I never thought I would post  Portuguese stock as a long, but it's telecom and we can't live without our phones anymore can we?

 This is PT's trend identification, red arrows=lower highs/lower lows, yellow arrows=nose which often precedes a reversal, the white arrow is our signal candle and the green arrow is a change in direction of the trend as its low is higher then the signal candle's high.

 Note the strong positive MACD divergence on the daily chart.

 My crossover screen gave a long signal, I expect a pullback to the red box, PT will be worth a look at that level.

Finally a vert rare MoneyStream positive signal; these are hardly ever seen on intraday charts, so it makes it all the more important. I would set some price alerts and keep this one on your radar.

Market Update

Early today I posted this in a Market Update

My expectations were as follows:

" note there's a triangle consolidation sitting just above the breakout trendline, I would expect a false upside breakout from this triangle and then a move below the breakout trendline, probably on increased volume."


My expectations were in part because of 3C readings, but had more to do with market psychology or the manipulation of market psychology of technical traders. As I have opined numerous times, Technical Traders are doing the same thing they have done for over 100 years, Wall Street has adjusted and Technicians have not. It makes it very easy to know what technical traders will do/think with any given price pattern, thus Wall Street's reaction becomes predictable.

 Here's the triangle I mentioned earlier this morning, it is a bullish consolidation triangle sitting above the breakout point, this mean technical traders assume it to be a bullish pattern and will buy it, but as I have pointed out, not only the triangle, but the larger base are way too obvious for Wall Street not to manipulate in the short term, punishing technical traders. I expected an upside breakout, which we see followed by a downside move, likely below the larger pattern's breakout line. It seems the 50-bar 5 min average which is widely watched provided earlier support, but has now broken, on heavier volume as I also suspected. This is a short term manipulation taking advantage of the predictability of traders.

 The DIA is showing signs of a pullback in 3C

 Here's the Q's with the triangle in the white box and the important breakout trendline, again the 50 sma was support, t s now broken on heavier volume.

 The QQQ is showing signs of a pullback as well

 Here's the same chart for the SPY

And signs of the pullback.


If you have kept up with my posts, you understand this s a short term manipulation of traders, you can take a look at my original post linked above to see not only my expectations for today, but also the bigger picture. As I mentioned last night, keep your eye on the forest, not the trees.


This move, should t continue to play out as expected, will set up quite a few long trades that should pullback to very attractive levels. I'll be listing those trades.

Financials

 This 30 min chart with a 50-bar average has held the entire downtrend in XLF (Financials) so the cross above the 50 sma is an important occurrence. RSI has also been positive throughout the basing process.

 The 15 min 3C chart has had a positive bias for sometime, even during the decline, but went in to leading positive status during the basing area. Remember, a leading divergence is the most powerful type of divergence, although because of zoom/scaling issues, it should not be viewed as a target area for price. However, the strength of the divergence suggests very sold underlying action in price.

 The shorter 10 Min chart, which is less important to the big picture and more indicative of short term moves, is negatively divergent and leading, suggesting that financials will pullback a bit, this may be an excellent opportunity to pick up positions at reduced cost basis with high probabilities and lower risk as well as a higher Risk:Reward ratio.

 My hourly Crossover system has issued a buy signal. I believe a pullback will likely stop around the blue 22-bar moving average which is also around the same area a the 30-day VWAP (Volume Weighted Average Price). This is an area I would watch for potential strength to build for a possible entry in a financial related equity/ETF.

As you can see by my sector rotation chart, financials at the bottom have been performing poorly today, that will most likely show up in weakness in the S&P-500 as Industrials are in rotation, benefiting the Dow.

Gold Follow Up

My earlier post on gold around 10:25 suggested some intraday upside.

The first red arrow is the time of this morning's post, the second is showing a short term negative divergence, taken with the previous post, there may be a little more upside, but GLD looks about ready to reverse to the downside from here.

GLD/DZZ Entries

If you are considering shorting GLD with DZZ, you might consider using a linear regression indicator on GLD to time entries or add-to positions.

This is a 15 min chart using linear regression, the settings are 50 period, extension of 1 and width of 20.

Following this entry system, a long in DZZ would be indicated right about now. You can also monitor the trade for stops and profit taking should there be a break of the channel.

ERX Chart Request

ERX is a 3x leveraged Bullish ETF on Energy.

 ERX performs similar to USO, except it is 3x leveraged, as you know, back in July I was expecting USO to pullback after failing to make good on a breakout, I also expected there to be accumulation at some point and a buy signal, so ERX is very much like USO in that sense. This is the daily chart.

 The 30 min 3C chart called the top in ERX and s now showing a positive leading divergence on an important timeframe.

 The 15 min chart confirms the 30 min chart, having made the two exact same calls, with just a little more detail. So ERX looks bullish and as if it is basing similar to the broad market.

 Here you can see ERX forming a base. RSI has been positive throughout.

Short term, the 5 min eC chart suggests either a pullback or consolidation, it may make for a good entry point on a pullback.

Market Update

At 11 a.m. I posted a market update

The idea was there were triangle consolidations, I said I thought they would breakout to the upside, then head back down. These are short term moves only and don't have a major impact on the bigger picture.

 Here's the DIA triangle, it broke out to the upside as predicted and now seems ready to head lower.

 3C showing more signs of a short term pullback in the DIA as expected.

 The Q's showing the same upside breakout from the triangle as predicted.

And short term 3C indications of the pullback expected after the breakout.

USO UPDATE

 USO 15 min shows the probability of a pullback, note the base.

The longer, more important 30 min chart suggests the pullback will be temporary before rallying higher.

BULLISH VIX SIGNAL

As I mentioned yesterday, a consecutive close below yesterday's VIX close would be a strong buy signal. At the first arrow, the VIX moves out of the Bollinger Bands, the next day it falls back inside the Bollinger Bands, should the VIX close today below yesterday's close (at the red trendline), we will have a very bullish market signal.

Here's a similar signal in the VIX

Here the VIX moves outside the BB's, then back inside, and the next day a close lower. The SPY in red went on to rally from there.

KCG Long Trade Follow Up

Yesterday I updated the long term and short term stops for KCG.

 So far, today looks like it may pullback a bit.

 If you were usng the tight stop I suggested yesterday, then the trade would be stopped out now and we'd look for the next long entry on a pullback. For longer term trader's the $11.20 level was suggested.

 The red box is where I suspect a pullback will land.

There were some signs yesterday of a pullback, thus my updating stops. The lateral range is often seen in distribution, I suspect this is only short term distribution and a short term pullback and KCG will offer another long entry and make a move higher on the second leg.