That's a Wrap

The market ended the week just like it traded all week, on a VERY ugly note, ES looks to have taken the brunt of the downside.

I will of course have some updates out, but for now, it's time to do some holiday shopping and maybe a little fishing and surfing.

SPY Action

The worst tell today as the 3C ES chart, it's not too busy today, 'm not getting a lot of emails, but I suggested a fade of the market and I know at least 1 member just made some nice Holiday spending money in a few hours!

This was a perfect intraday/day trade short and worked well for at least 1 member that emailed me that she took the trade, is now out and has some Christmas money to spend!

The big news today, as predicted right here last night over the DEXIA problems, the S&P Ratings Agency downgraded Belgium from their much coveted AAa rating by one notch, outlook negative.

Guess who will be next with DEXIA exposure,

Pouvez-vous dire la France?

KCG Trade Idea (short)

As I mentioned, "As the trend starts developing, we'll be moving away from directional trades and in to sector trades with financials being the first target", this is why you are starting to see more individual names rather then directional market trades.

This is a financial and looking bad...

 First on a daily chart, KCG formed a positive divergence in MACD, as well as a bull flag with perfect volume, bit volume on the up days as well as big volume on the lows of the flag which was a reversal doji candle. A top formed and MACD/RSI has been negative throughout, there are two red trendlines of support, 1 broken, the second close.

 On an hourly chart, look at where the volume picked up, as support from a closing as well as gap.

 The 3C hourly chart shows what MACD showed us, accumulation to start the move and then distribution throughout it, this entire move was used to sell KCG shares as distribution started almost immediately.

 A 30 min chart shows more detail with the accumulation in white and distribution in red, note both highs at 1 and 2 were head fake breakouts marking the top and saw a vert fast move down, "From failed moves come fast moves".
The 30 min is leading negative.

 On a 2 min chart, we see the last head fake move in yellow, short term accumulation and distribution in to new high as momentum chasers would have bought a breakout new high as Wall Street went short taking the other side of retail's long trade.

Here's my daily Trend Channel in a solid down trend, if at all possible, I would want to short any strength in the white box, but not above the trend channel. This is a position that I would consider entering in phases, maybe a little now, wait for the next and last support level to be hit, see if there's a bounce and add the rest on that bounce.

Keep this one on your watchlist.

UNG Update-Trade Idea

You may remember the article I posted about Natural Gas and the government (USGS/Army Corp. of Engineers) in a study released right around the time UNG cracked lower, found a connection between the wells that are used to extract Nat. Gas and earthquakes, this must have been a VERY long ongoing study and in my opinion is the sole reason that UNG has been under daily chart leading positive accumulation for some time. I believe the initial knee jerk reaction was "This is not good for Nat Gas" and sent UNG lower, but the larger view is, "This may restrict supply, which would send Nat Gas prices much higher". 3C seems to confirm this line of thought and as I often say, 3C shows us what smart money is doing under the price action, but we rarely know why until later, I think we found out why UNG has been under long term heavy accumulation. Here's an update and my argument for the above theory as well as some key levels in which UNG becomes attractive as a new or Add-To trade.

 The top trendline break is about when the report was released, of course these are routinely leaked. Currently the lower trendline looks like an area that we may want to look at getting long nat gas whether through UNG or another entity.

 On a shorter term intraday chart, I don't think this breaks out today, but this $8-ish level should be watched.

 3 60 min went into a very positive leading divergence as support was broken. One thing I've noticed about long term bases, they almost always head fake/crack lower, right before they start their move up, this is in total contradiction to what Technical Analysis teaches and thus is a very good reason as to why it happens; shares can be accumulated en masse and on the cheap as the weak hands fold.

 The 30 min chart shows the same intensifying leading positive divergence on the recent "U" shaped move lower.

 Here's today's intraday action and why I think it likely will not pop today, besides, the volume and trading day are too thin/short to attract momentum buyers that will flock to the stock once it breaks in to stage 2 markup, which will be represented by a move higher on surging green volume.

 For me, any pullback into the white zone is probably a very low risk buy area, or a break above resistance at this $8-ish level, especially on heavy volume.

 My crossover system on an intraday basis is now moving to a buy signal.

My Trend Channel has flattened out and a move above $8.15 changed the trend by two standard deviations.

Keep UNG on your radar.

GLD Update

While at the moment I remain bearish for now on GLD and question longer term whether a top is building in gold (I have some very unusual ways to judge bubbles which have been successful), this is not the place I would be adding or establishing new shorts on GLD. Here's why...

 GLD is at a support level, you can see at the red arrows this level acted as resistance, once resistance is broken as you can see at the two vertical white arrows and on heavy volume, it becomes support. We have seen 3 days of support at this level which could lead to a bounce or just lateral consolidation, but I don't want to have dead money in the market for any reason and until support is broken, it's dead money at risk.

 Short term there are some relative positive divergences, not very strong, but enough to maintain support for now.

 The 15 min chart is much more bearish and more important to the trend, it shows in white exactly where accumulation occurred, in red where distribution happened and the red box is a leading negative divergence, the worst kind, so the trend remains bearish, it's just the tactical entry that I am concerned with in this post.

Very short term-the last 2 trading days, 3C shows us distribution taking GLD lower and a near perfect signal of accumulation on today's opening lows. There is some distribution in to the early rally, but once again, until support in GLD at $163.00 is broken, my thought is that you have money in a trade that for the time being, isn't doing anything. I DON'T WANT MONEY IN THE MARKET AT RISK UNLESS IT IS DOING SOMETHING OR HAS A HIGH PROBABILITY OF DOING SOMETHING. Our greatest edge over Wall Street is we don't have to always be active in the market (although longer term established GLD shorts I would hold), we can pick and choose out battles and wait for the highest probability entry. I don't believe this is the highest probability as of right now, but soon I imagine.

USO Update/Trade

Remember we were looking for USO to fill the gap created Wednesday and if you listened to my thoughts, (if not already short USO) you would have a partial position. For me, (so long as I can stand the uncertainty of mid-east events over the long weekend), this is a nice looking spot to add another 25% to the short via long SCO/DTO bringing the total planned position to 50%.

 The USO gap is nearly filled today, just off by a little.

 Short term 3C on USO is negative

 Today's intraday is negative (reversal to the downside)

And the 15 min chart is negative.

Something to consider.

And the CONTEXT Model....

As of 10:27 a.m.

 The risk basket is severely underperforming ES

Here's the difference in the model.

Market Update 2- 3C

Oh my...

 That SNB stick save didn't fool smart money, look at the distribution in the DIA

 Same in the Russell 2000 thus far

 The NASDAQ 100 looks even worse and is now lateral, perfect distribution environment.

 And the S&P.... Distribution on this morning's move up.

 Slightly longer S&P distribution.

However without a doubt, the worst 3C readings are in the E-Minis/ S&P futures.

Look at that leading negative divergence.

Short term traders may want to fade this move up.

Early Risk on- Market Update

The early chatter is the Swiss National Bank is or will adjust the EUR/CHF peg as the Euro was approaching the $1.32 level (side note: the last Goldman Sachs "Buy the Euro" note of 10 days ago was stopped out with their customers taking a substantial loss, I believe their call was buy to $1.40!)

The Euro (EUR/USD) almost breaking the important $1.32 level with a low this morning of $1.3211 and Goldman's stop at $1.34. Of course while Goldman clients lost, the GS trading desk likely took the other side of those trades and made out. As another aside, GS has announced they are giving up on EU calls due to the volatility and unpredictability in the EU. Unpredictability? Everything is going down, why would they issue a long EUR call? That's a rhetorical question.

The Broad risk basket according to my new indicators looks like this, which seems to simply be a legacy arbitrage Euro/FX trade.

 The commodities basket vs the S&P is higher this morning, however it is not higher over the last day as the S&P has broken above the 11/23 highs (white trendline) while the commodity basket is still below the 11/23 highs, so briefly put, commodities are doing what they are supposed to do when the dollar weakness, however ES/S&P 500 is a bit more excited then the typical risk assets that rally with it.

 Here again the correlation between the Euro and the S&P is a bit off, while both are moving in the same direction as they should, the S&P is a bit more excited.

 Part of this may be explained by the Euro losing ground over the US holiday and the S&P just hasn't been marked to the Euro, one easy way to find out is to count how many pips the Euro moved since the 4 p.m. 11/23 close and see what the difference is in Dow points; 1 pip in the EUR should equal 2 Dow-30 points, I suspect that correlation is a bit higher this morning, but I will make the count after this post.

 Early momentum in Financials is clearly leading the S&P on an intraday basis.

 On a longer term basis, and this was also an easy way to identify the top and one of the reasons I told you to short the S&P on that Friday I wasn't feeling well (11/11) , Financials are leading the market much lower. That 11/11 trade as a straight S&P trade even with today's early bump was worth 7.20% and using SPXU as I have been recommending, well over 23%.

 Interestingly, because High Yield isn't correlated to the EUR, it is moving down this a.m., so while equities are risk on, High Yield Credit is leaking lower and as we know, credit leads stocks.

 After Wednesday's sell-off in High Yield Corporates, it is just about in line with the S&P this morning.

 Rates also sold off on Wednesday and the market tends to revert to rates, there's a fairly decent correlation this a.m., but just recently in the red box rates are starting to diverge from equities.

On a long term scale, rates predicted the top as well as 3C both in July and in November and there's still substantial downside before equities revert to rates, assuming rates don't move lower.

I just loaded the SF 3C template and will update that next.