ES Afterhours

Thus far ES is relatively flat, although I don't expect it to stay that way for too much longer, I'd guess it will bounce a bit, whether that carries over to the a.m., I can't say.

 ES 5 min

The EUR has seen a modest bounce off support since the close.

Couldn't resist

I had to republish this, originally from ZH.

This is a 99 year old cartoon, drawn 1 year before the creation of the Federal Reserve in 1912. Amazing.

This is from William Banzai, seemingly a Jules Vern of Central Banking.

IBM Earnings Leaked, Yes or NO? You Decide...

I knew IBM was reporting today, but my concentration was in other places.

Here are the charts and you make the call, I'll just point out the highlights.

 IBM 1 min

  IBM 1 min A rather small accumulation period for this last rally and distribution almost right off the bat. Think about that, there weren't too many shares accumulated, but there were a lot of shares distributed.

  IBM 5 min A longer view in which IBM's price and 3C are in line at the green arrow confirming the downtrend, a few accumulation periods, the last is almost imperceptible and a leading negative divergence, or heavy distribution on this last rally.

  IBM 15 min This is before the market broke down to present, the last rally sent IBM to new highs on the hart, however 3C was leading negative -the blue arrow points out the depth of the divergence at new highs for this chart.

 IBM 60 min Here's even more history, IBM is trading pretty normally as I'd expect at the start of the year, 3C is moving higher as price moves higher in general right in to July. Price made a new high last week, again, look how much lower 3C was, and in a leading negative divergence n the last MONSTER RALLY. The green trendline points out the former high so there's also what is likely some head fake action here too.

So, normal trading activity or someone knew something and was acting on it? What does your gut tell you?

Other NEWS

IT'S NOT THE NEWS THAT MATTERS, IT'S THE MARKET'S REACTION TO THE NEWS.


I have been very busy today watching for all kinds of signals, clues, hints about the condition of the market and whether the EUR/USD has broken out of the closed environment. Market sentiment will be very important to follow as well, especially through earnings and given IBM's reaction, sentiment looks to have shifted. THE MARKET HAS NOTHING TO DO WITH VALUE AND EVERYTHING TO DO WITH PERCEPTION.


Here's today's round-up that I couldn't bring you earlier.


Early this morning German Finance Minister  Wolfgang Schauble made some not so favorable comments about the EU, this after the G20 pressured the EU this weekend to come up with a credible plan to sort out the EU crisis within a week.


Schauble said, 


"Anyone dreaming that next week's EU summit will solve the crisis will be disappointed. "


In addition, 


 "We won't have a definitive solution this weekend," detailed talks were likely to go beyond this weekend with a final package not in place until the G20 world leaders' summit in Cannes next month.


This was in addition to Merkel's spokesperson echoing similar comments, clearly trying to play down the G20 warning and manage expectations. The G20 for their part are very concerned that EU troubles will hurt growth in emerging economies.


Schauble seems to be working overtime to manage expectations: asked an interview with ARD whether there could be a Greek debt write-down of as much as 50-60 percent, Schaeuble said: "A lasting solution for Greece is not possible without a debt write-down, and this will likely have to be higher than that considered in the summer."


This means higher then the agreed 21%, as I pointed out this weekend, even a write down of more then 21.01% will trigger a credit event as well as CDS-a type of insurance banks have written to cover losses from this kind of an event. Being the last EU bank stress tests DID NOT uncover the extent to which banks had exposure to Credit Default Swaps, there's a real problem which is part of the reason that interbank liquidity and liquidity otherwise has frozen. You probably remember this from the US in 2008, when credit markets froze up. The problem is, interbank lending has halted as (same as the US crisis) counter-party risk is an unkown. In other words, no one knows what bank on the other end of transfers has what CDS exposure and how much. Should Greek bondholders take a loss greater then 21%, as Schauble has repeatedly said must happen, then a rating's agency credit event is triggered as are the CDS with banks taking unknown losses-nearly exactly the same situation that sent US markets over the waterfall in 2008.


He goes on:


 "We need better regulation and we also need a better capitalization of banks, which is what we are doing in the short-term. Not everyone will like it, but it is the best way to ensure that we don't have an escalation in the crisis due to a collapse in the banking system," he said.

"We simply have to recognize that banks don't trust each other at the moment, which is why the interbank market doesn't function as it should. The best means to tackle this is better capitalization," he added.

After my post this weekend, these issues should be somewhat familiar, regulators are pressuring banks to lower risk, but more importantly raise capital because they foresee 2 situations. The first is that they need to get Greek debt holders (the banks) to accept voluntary losses greater then 21%, which was already agreed to in order to prevent a "credit event ". The second situation is that a credit event may be triggered as they couldn't get enough bondholders (banks) to rollover their Greek debt with the 21% loss. How will they get them to accept losses of up to 50%? Rating's Agencies may trigger a downgrade even if there's a 50% agreement. This triggers an unknown amount of CDS, in effect the banks will have to pay up on the insurance policies they wrote. Either way, they need banks to hold more capital, a ratio that is vague, but it is money that is available in a ratio that is compared to liabilities. As you know, banks do not want to re-capitilize at depressed share prices and are following the path of "Shrinkage", which in turn could very well mean less lending, which will destabilize any hope of an economic recovery. It's a big, ugly circle.


This morning as you know from earlier posts, CITI posted earnings that were more or less viewed as an accounting gimmick. The early strength in C today faded as the day went on and they went from an opening gap up of 1.4% to a loss on the day of 1.65%, a 3+% intraday drop.


Pre-market the Empire Manufacturing report missed. The "Future general business conditions" index fell to the lowest level since Feb. 2009.


A day after Credit Suisse revised the Chinese banking sector's Non-Performing Loans originally from 4.5% to 12% and said that the cumulative losses could equal 65-100% of the entire Chinese banking sector's equity, meaning that the banks in worst case scenario could be worth $0.00, they took on the European banks. CS believes in the 3rd round of European stress tests, 66 banks will fail, including some of the biggest banks: RBS, Deutsche Bank, BNP, SocGen, Barclays, Unicredit, Commerzbank and another 59 banks. The amount of capitalization these banks will need ranges between $11 and 19 Billion Euros for each bank. For the 7 banks mentioned above, the prospective shortfall is 96 billion Euros! To put this in perspective without going in to the details of each, the sector has a cumulative market capitalization of $541 billion Euros and may need to raise $400 billion Euros. That is staggering! These banks may need to raise 75% more capital then their current market cap! And where will that money come from? The size of the problem here should be sinking in now, especially in light of what you already know about their ability to raise new capital.






Later in the afternoon, Deutsche Bank warned that France may be put on downgrade review before year's end! DB notes that France probably has the ability to avoid a downgrade by taking immediate and painful corrective action, which would come just a few months before elections. To put this in perspective, you may remember what the bond vigilantes did to Ireland, Portugal, Spain and Italy, of course Greece was first, but now, as it seems to be apparent and I showed you the chart last night, "Contagion", the biggest fear of the core, is seeping from the PIIGS to the very core and once France is the target, you know who will be next... Speaka da Deutsch?


 Doesn't this make you wonder whether the still salvageable countries like France and Germany really have the stomach to put their population at risk in order to save some other country/culture that they share a common currency with? It almost seems like the height of irresponsibility and egomaniacal desperation to prove that something that many people said 20 years ago would never work, can, maybe, actually work? You never hear too much about England-except of course Barclays above, being drug in to the mud, you ever wonder why? They have kept a certain amount of distance between the and totally swallowing the EU pill-suh as not having adopted the currency which may have been their smartest move.


In the afternoon today, rumors took hold as to whether Goldman Sachs would actually take only their second quarterly loss since going public in 1999. We'll find out tomorrow.


Of course in AH, IBM misses! They are now trading down 3.8% in after hours.


However, to put the cherry on top of the day, and this just came out as I have been typing, Moody's rating agency says that France is the weakest of all Aaa rated countries!!! +1 for DB! I think DB had an inside line, catch this,


"Over the next three months, Moody's will monitor and assess the stable outlook in terms of the government's progress in implementing these measures, while taking into account any potential adverse economic or financial market developments."


Thus far, ES is trading down in post regular market trade. Maybe it's time to go back and review that chart of the CCI I posted over the weekend!








  

ES @ the Close

 ES 1 min this is today's action, a few smaller divergences, near the end we had a leading positive, that bounced a bit, went negative and currently a 1 min relative positive divergence. I would expect to see overnight upside.

 ES 5 min This is a bit longer perspective with the futures turning down last night on a negative divergence, since then they traded in line with price (green arrow) and posted a relative positive divergence, however that is within the context of a leading negative divergence as 3C is now lower then readings at previous price points, such as where the white arrow/box are last Thursday during market hours.

 ES 15 min has a longer term negative divergence, with a relative positive divergence today being formed.

 ES 30 min This is just about the entire trend up and the first really serious 30 min divergence which is leading negative.

ES 60 min Also showing the first really serious divergence, leading negative and in 1 day.

We are at an area on the EUR/$USD chart which has several support zones nearby, I don't expect them to just rollover without volatility, unless something very negative comes out or perceptions change for the worse very dramatically. Otherwise, I'd expect some lingering in the area and some bounces off the support levels.

I've been meaning to check the EUR/USD trendline, as you can see by the linear regression channel, it has been broken on this hourly chart, MACD went negative, RSI failed to make a higher high at 10/12 and made a lower high at 10/14 and is currently under 50, which has served as a sell signal for me in other screens I've developed. However the support levels depicted on the chart above may serve to let FXE/Eur. kiss the channel good bye.

In after hours the EUR/USD broke intraday support from 2:40 p.m. at $1.3731, it will likely be tested.

As for Big Blue, they beat on EPS at $3.28 after consensus was lowered to $3.22. IBM missed on revenues by a slight amount, which is a first in my memory. They did lift year end EPS guidance from $13.25 to $13.35, but still are being taken to the woodshed down -3.94%.

BIG BLUE-IBM earnings after the bell

Targets?

I'm getting a lot of emails about targets for a bounce, truth is I have no idea, I just see the short term positive divergences and when they turn negative, then we have a better idea.

As far as a guess...

 This 30 min Bollinger Band has acted pretty well, possibly the upper band, however that may turn down a bit as it lags.

Here's the trend using linear regression, there's the "Kiss the channel good bye" effect, but that appears it may have already happened on the first break of the channel and Friday acting as the kiss.

Current NYSE TICK Chart

This is stocks ticking up, less stocks ticking down and is a good way to see trend changes for yourself.

Much of today's activity has been centered below the "0" line with the average upside Tick around +800 and the average downside Tick around-1200.

SPY Update-Not Quite Out of The Bull Pen

 This level needs to be broken on a daily chart before we have good confirmation like the CCI hart posted over the weekend.

 This level at $118 needs to be broken for very good confirmation.

 The 1 min is still showing a SPY positive divergence suggesting some more volatility in the area, off the support gap.

 The 2 min chart is negative, but also with a relative positive divergence, which is minor to the leading negative, but also suggests near term intraday strength.

 The 5 min is very ugly leading negative, but also shows signs of short term bounce.

 The 15 min chart is turning in to a leading negative divergence.

 So is the 30 min chart

 And the 60 min chart, so longer view, confirmation looks good, with short term volatility still in the area.

 ES 1 min also shows the same 1 min positive divergence

 The 5 min shows the breakdown and some short term relative positive divergence.

 This is an ES 30 min chart in a 1 day leading negative divergence

 And an hourly chart in a negative leading divergence on ES.

 Here's the EUR/USD short term 5 min chart.

This is the entire trend on an hourly chart, it is very close to breaking the uptrend line here if it hasn't already.

USO/ERY

USO has done generally what it should have, although there are several charts that I don't understand, whether this is a change in algo programming or whether there are fundamental issues in supply or perhaps it's something altogether different or perhaps nothing at all. It just looks a bit different then I would expect.

 USO (green) vs FXE/Euro (red). USO has tumbled on a stronger dollar as it should, it too is showing some signs of not trading in lockstep with the Euro/Dollar which may be reprogramming of HFT models or in this case, USO/Crude is showing a bit more resiliency compared to the currencies, so there may be an underlying fundamental issue of supply or political tensions, or as I said, it may just be nothing, but I am not surprised to see the perfect correlation broken, I am surprised that the breaks in correlation favor strength rather then weakness. On the other hand, this is a 1 min chart and this may be trying a little too hard or what I call, "getting lost in the lines".

 USO 1 min 3C shows a positive divergence on the gap down open, which it rallied from and then went negative, but it is still more or less in line with price.

 The 2 min chart shows the same, so 3C did an excellent job of picking up on intraday accumulation on the gap lower. Perhaps the gap will be filled up to the $33.81 area?

 USO 5 min showing Friday's negative divergence, but some positive strength today in to falling prices, again a bit surprising.

 USO 15 min, picking up from accumulation kicking off higher prices to a relative negative divergence now, gain, not as strong on the negative side as I would have suspected.

ERY-Energy Bear ETF 3x leveraged.

 This may not be the best comparison as it is not crude, but energy more broadly, but I had a request for the chart. 1 min overall, a positive divergence at the lows.

 ERY 2 min several positive divergences following a distribution event on Oct. 3-4.

 ERY 5 min, a longer view, including the early Oct. distribution and a leading positive divergence currently near the price lows.

The 10 min chart is just seeing that 5 min strength bleed over with an at least 5 day relative positive divergence, it may be more, this is all the history I have for this timeframe.

FX-EUR/USD closed loop, closed?

I mentioned a few possibilities this weekend in explaining the EUR's strength and how it was trading nearly impervious to any bad news. I suggested that this weekend the algos for High Frequency Trading "may" being reprogrammed away from the legacy arbitrage of chasing EUR strength/Dollar weakness. There are some signs that may have happened, although there's no way to be sure. I also said that watching 3C and the EUR would be crucial.

 Here we see the EUR/USD trading up on this 1 min chart.

 Here's the SPY in green vs the Euro in red and the former correlation that was so strong, at least in this small data series, seems to now be different, this isn't big time confirmation, but 1 small signal as the EUR trades up on some intraday strength and the SPY trades down rather then shadowing the EUR.

 Here's a Euro/FXE 1 min chart showing an intraday positive divergence that should lead to some more upside in the EUR on this move as it is a leading positive divergence.

 However, the same 1 min chart of ES is trading in line, not showing anything near a leading positive divergence, so this may be evidence of algos reprogrammed over the weekend as chasing the melt-up certainly would have raised their risk profile, especially if the melt-up in the EUR wasn't based on any fundamental strength, but rather a repatriation of foreign capital-that could have or could lead to a very risky situation for HFTs thAt are run by computers that have been chasing the Euro for seemingly , ALL THE WRONG REASONS.

 FXE /EURO 2 MIN CHART IS NEGATIVE OVER THE LONGER PICTURE AND LEADING NEGATIVE TODAY, BUT THERE IS A RELATIVE POSITIVE DIVERGENCE. Sorry about the caps, I'm not yelling!

 FXE/EUR 5 min is about in line today, with the longer term negative divergence in place.

 The important 15 min chart which went from a positive divergence starting the rally, to confirmation of the rally (green arrows) to a current negative relative and starting a negative leading divergence. This may be an important turning point for the Euro.

 The Dollar index/UUP is showing a 5 min positive divergence, which is significantly different from the FXE 5 min chart which is in line.

UUP 10 min leading positive.

The 15 min is also positive.