A MEMBER'S EMAIL QUESTION

I received this email tonight and thought, a lot of people are probably thinking something similar and I just wanted to take the occasion to use this email to comment on the question.

"With the headlines prepping everyone for a lack of action from Bernanke when he speaks on Friday; are you suggesting that despite that lack of action, you wouldn't be surprised to see the market blast to the upside much like the day the FED announced their recent policy stance?

 

thanks,"

I think from my posts, people could very well draw that conclusion. However, I don't quite know what to expect from Jackson Hole, I do know however that the big banks have all commented on the scenario, offering free information and analysis at the same time they try to pick your pocket. Yahoo just carried the headline, but Zero Hedge Commented on it, CitiGroup commented along the same lines, I believe GS also commented on the disappointment of Jackson Hole as well as Bank of America.

I could point out the simplicity of contrarian thought right now when everyone is setting the stage, however I merely would like to point out that this is a time to keep your minds open, not to buy the dogma that the banks who are trying to take your money are selling or the press that caters to them. I don't know what to expect of Jackson Hole, but I think the market and 3C will give us guidance before the day comes and we will have an idea of which direction our toes should be pointing in. 

What everyone knows is not worth knowing, to make money in this market you have to see what the masses have missed and that's exactly why the SPY looked like this last week, because of crowd think and herd mentality.

A smooth curve in the market sees an abrupt change of course, all connected to crowd/herd mentality on options expiration. The market will always surprise you.

This is what I mean

The talk is the same everywhere, the market's rarely give you this kind of heads up notice and just play along.

From Yahoo Finance Tonight and I've seen it in a lot of other places.

Daily Wrap

There's a lot of buzz about Jackson Hole this Friday when this time last year Bernanke let that QE2 cat out of the bag. In fact I think there's too much buzz about it and expectations are ridiculous, just because he choose that date a year ago that he would choose it again this year. Taken with the Aug 9 FOMC statement, it sounded a lot like the Fed wasn't up for doing much of anything for sometime.

Remember all the hype about the last FOMC statement and surely Bernanke was going to hint at QE3, it was the total opposite, yet the market still did this...

And then two days later went on to rally.

This chart doesn't fit at all if you look at the nature of the markets.

Tops and bottoms are processes, not events, yet last Thursday we had a sharp sell-off as you can see on the chart, I warned of this sharp sell-off the day before and said it would be coming over the next two days as it did in this post. So maybe it's not quite time to give up on that theory as it has played out so far just about as expected.

Today's trade was technically insignificantly significant.

Although we gapped up, there as a negative divergence on the open, so I didn't expect it to hold, what I was interested in seeing was how the close held and for the most part we were flat to a bit green. This reminds me of two things, 1) A base is a process and 2) accumulation and distribution (in this case because of where price is it would more likely be accumulation) are often found in flat, range bound trade.

That's what happened at the last bottom, despite the huge daily moves.

The volatility wouldn't cause you to think this was a flat area, but it was.

As for today's P/V relationship, it came in dominant at Close Up and Volume Down...

This is generally a bearish P/V relationship, but they must be considered within the context of trade. Had we advanced 1.5% today, I'd call it bearish, but being we were flat, it's actually not all that bad.

The market isn't tipping its hand clearly quite yet, but there was a lot of bad news out of Europe, especially in the way of spreads on CDS, yet the market managed to hold it together. I'm still a bit fixated on the July 29th Fed/Primary Dealers meeting and the market falling the next day. I don't think we've seen a conclusion to that meeting yet.

If we compare volatility and similar price action, we come up with a time period that was similar to Jackson Hole/QE2, this is part of the reason I think it's just too obvious. People are comparing the 2007/2008 top to now and there are similarities, there are bound to be, but as Mark Twain said, "History doesn't repeat, but it rhythms". I think we need to be careful in drawing conclusions based on a past that was very much different then the present.

Here's the VIX chart vs the SPY (red).

 The volatility is similar, the price action is similar, but we have to be careful with expectations beyond that. The Fed's attitude is very different right now, however, I do think it would be amazing if the Fed came out with a blockbuster that moved the market much higher given the meeting with the PD's the market reaction and the 3C readings.

I'm going to browse some more harts and see if anything is sticking its head up, most everything seems to be laying low today. I'll follow up should I find an interesting nugget.

XLK/XLE

With XLF showing some bullish signs, I checked XLE (Energy) and XLK (Tech), they also showed some bullish signs, so I'd think the entire market may go along for a little upside ride.

 XLE 10 min positive divergence

XLK 10 min positive divergence.

BAC/XLF

BAC is one of the dogs of dog in financials, but if its short term charts look like this, then Financial more broadly will probably see some upside shortly.

 BAC 5 min

 BAC 10 min

XLF 10 min

MARKET UPDATE

It's been a hectic last hour or so, we lost all electric on our block, I ran to a friends house to get logged on, but he couldn't find his password key for his network, about the same time I got a call that the electric was back on. And it's about 90 F today with humidity probably around 80%-phew!

So here's the most recent market update with the IWM looking a little extra special this afternoon, otherwise trade seems very much inline with what I said last night, "Bottom are a process, not an event". I do not however want to confuse anyone who thinks I sound bullish on the market, this market is an absolute house of cards and one of the worst I have seen. f I was a long term trader that didn't touch anything save for once a quarter, I'd probably just get fully short here, but being many of you trade around the market a bit, there doe seem to be an argument to be made for one last push before the house comes tumbling down.

 DIA 1 min

 DIA 10 min

 DIA daily

 Very strong IWM 5 min

 VERY Strong IWM 15 min

 QQQ 5 min

 QQQ 10 min

SPY 10 min

All the charts seem to be showing improvement since I said last Wednesday to look for a sharp break in the market between now and Friday, that break seems to be under accumulation or to say it another way, it seems to be creating a base.

Market Update

It looks like the normal intraday jiggles.

As you'll see the 1 min short term chart are showing some negative divergences, but the longer 5-10 min chart have shown improvement today, the longer charts being more important.

 DIA 1 min

 DIA 10 min

 QQQ 1 min

 QQQ 5 min

 SPY 1 min

SPY 10 min.

For those of you watching RIMM

 RIMM trading Rande-Daily

 I have felt that RIMM would test support of the bottom of the trading range once again and likely hold, except for perhaps a brief head fake.

 Today the 1 min chart is shaping up, it was negative on the open, thus the fall from the opening price, but has since gone positive.

 The 10 min chart is showing improvement too.

 This is the daily chart and largely responsible for my outlook on RIMM

 I think RIMM will probably break out of the trading range and depending on the market, could put in a nice short squeeze. I do NOT think this is a sustainable run for RIMM and eventually it will set up a nice short position at a better price point with less risk in the trade.

This is the 3 day Trend Channel, it has held the uptrends and the downtrends perfectly. The current stop on a daily close is $24.25. ADX is also turning down from 67 (anything over 40 shows the end of a trend) so this is likely signaling the end of the downtrend. On a daily chart, it turned down from 67 in mid June.

A Little Help from the $USD

It looks like there's a move underway right now that is softening the $USD, which is good for equities and oil.

 The Euro/USD showing a consolidation that may see the Euro move higher and the $USD move lower, helping equities.

 GBP/USD we already see the GBP moving up, thus the dollar moving down recently on this FX chart.

 And here the USD is making an initial move down vs the CHF, we'll have to see if it keeps up.

 Since the Euro is 50% of the weight of the Dollar Index, this positive divergence in the FXE (Euro Trust) would be negative for the dollar and supportive for equities.

 Looking at the inverse, UUP (the Dollar Index Fund Bullish) we see 1 and 5 min negative divergences, confirming the FXE hart above.
(1 min)

(5 min)

Email From a Member

"As for the week ahead, I had a thought on Friday which has seemed perhaps more and more possible. It is that the markets continue to fall this week thereby giving Fed political cover for QE3 talk at Jackson Hole.

In fact, now I'm wondering more and more if that was the primary dealer meeting discussion back on July 29. Something to the effect of, "you know, with the Tea Party and Congressional fighting over the debt ceiling there just isn't political will for a round of QE3. It would take a sizable market correction in order to justify further QE at this juncture."

Anyway, my question is, with most of Friday's move being inline, as opposed to divergence, on the shorter time frames (if I'm understanding and remembering correctly), I'm wondering if you've given thought to that scenario and if/how you would be able to recognize it vs. your own expectation for a good bounce based on the 30 & 60 minute time frames. Couldn't the bounce indicated by them come after Jackson Hole just as well?"

I've been very suspicious of the Fed/Primary Dealer meeting on July 29th, I think a lot more was said there then we know about and that's when the trouble in the market started, the following market day which was a Monday, and soon after when we started picking up hints of divergences. From the FOMC statement, it didn't seem like they had the will to try anything at all, but who knows, seeing the underlying action and understanding it are two different things entirely. 

One of my responses was, I think we would start to see positive divergences on the daily charts. Last night I posted what could turn in to a positive divergence on several charts, today we have the start of a daily positive divergence. Like I said, the divergences start on the short timeframes and accrue until they spill over in to the next longest timeframe and so on and the longest timeframes (daily charts) show the most important divergences. So here's today's change from a maybe to a pretty solid looking "It looks like it will be"

 The DIA Daily chart as of Friday

The DIA daily chart as of today

It would be pretty spectacular if 3C picked up on QE3 or something like it a month or more in advance.

Market Update

 Since we are near several support levels and out of morning trade, I think these signals have more credibility. DIA 1 min.

 QQQ 1 min

SPY 1 min

USO Update

 USO opened on a negative divergence, it's just starting to show signs of a possible intraday base (5 min)

 The 10 min chart is still very strong and in leading positive position

 Here's the 1 min again showing signs of a potential intraday base to work from.

 The 30 and 60 min USO charts remain in leading position. (30 min)

60 min