IWM Fails to impress Again

My Sunday video about the Santa Rally focussed in large part on the leadership which was in the more defensive oriented Dow when the small caps should have been leading, like the Russell 2k/IWM. This was the basis of my ideas about a Santa Rally being a dud.

Looking at the IWM's breakout at the end of day, first the IWM lagged the Russell 2k, now I understand that the managers of the ETFs can't always match performance of the underlying average point by point, but a difference of .16%  ( a 15% difference in the ETF vs the underlying) is excessive. One of the reasons I like ETFs for analysis is that is where market participants express an opinion in 1 stock rather then tracking the nearly 2000 individual components and I have found from time to time that the difference between the average and the tracking ETF isn't a matter of management (well it is in a way), but it is a difference in opinion as one sees heavier selling or buying, so in some instances the ETFs performance vs the underlying (so long as it is not a small insignificant difference, a 15% tracking difference is not insignificant) can often tell you something about the mood of traders.

Furthermore the IWM barely outperformed the more defensive DIA (1.08% vs 1.07% respectively), earlier the IWM was leading by a better margin. As for the breakout itself, the IWM didn't look great.

As a matter of fact, by the lose, it failed and closed below the breakout level. Furthermore it looked like it was hitting rough resistance, but there wasn't much in the area that was strong resistance.

Small caps should have led. As I said earlier, a false breakout to the downside would probably have meant that the consolidation was going to continue its leg up, but seeing a breakout to the upside first, that' more bearish as 80% or so of these breakouts are head fakes and the price pattern of the seemingly bullish ascending wedge was there all day and was about the only thing to look at so it was obvious. So unless this was a breakout in the 20% (real breakout), I would tend to call this a more bearish move. For those who may be puzzled by what I'm saying, the heart of my comments lies within the fact that what Technical Analysis has taught you and everyone else over a century, is now being used against you as traders become predictable, it makes it easy for Wall Street to take advantage of that predictability.

The only real positive for the market I see right now is that the Euro broke out, but it's been less then an hour and it will move around a lot overnight.

Tech didn't get much of a boost and Financials didn't make any use of the move.

 XLF didn't make any new highs...

and compared to XLK during the day, the move there was negligible. AAPL after the break made 3 lower highs/lower lows, it didn't take the bait and run.

Much like the end of day ramp in stocks on Friday December 23rd, which in my opinion was used to keep longs in place over a 3 day weekend when they would normally be closing positions, which led to the downside we saw yesterday, there was no positive divergence before the ramp and no confirmation in the SPY.

 This is last Friday's ramp at the end of the day, note there was no positive divergence suggesting shares were being accumulated to sell in to higher prices on the open this week.

 This is today, no positive divergence either, no confirmation in the 1 min or the 2 and 5 min charts below.

 2 min

5 min.

So we'll see what the Euro and ES does overnight, maybe we get an opportunity early tomorrow to put on some trades. I'll be updating as I have a chance to look at the charts more closely.

So far not much in the way of confirmation

Maybe, just maybe we are getting a head fake move right now...

Like I said, you have to pay extra attention on dull days...

 The market is making a bit of a breakout move, yet High Yield Credit is selling off to new lows on the day.

 So are Rates.

 Here's the kicker, the Euro didn't start this move, so if this is an upside breakout and the Euro doesn't respond, it could very well be a head fake in which case I'll be checking BAC/XLF next.

And here's good reason, Financial momentum has fallen off.

I apologize in advance

These aren't meant to offend any one, today is just really dull and these gave me a chuckle, it was either this or pictures of what my dog has recently destroyed and I can't really top the 12" hole she chewed in my last memory foam mattress.

 Turbo Tax Timmy! Does anyone really get it, how an un-convicted tax cheat becomes the head of the Treasury?

 A New Species discovered!

 Rumors of Kim Jong's death greatly exaggerated.

 Here's to hoping! At least it would make for an interesting 4 years at the F_E_D


OK, couldn't resist after slandering my daughter, she really is loving.

Maybe a little too much.

And if I weren't so lazy in the morning, I could enjoy this everyday with a 3/4 of a mile drive from my home....

Market Update

For such a low volume market I'm surprised it is so listless, it's a bit annoying to watch. In any case, last update I was thinking the market may just be in a consolidation, it may be, there are a few signs that have changed a little.

 DIA 1 min is mostly in line with a slight lag.

 The 2 min is starting to deteriorate a bit.

 As is the 5 min.

 The QQQ 1 min which has been in line most of the day is starting to deteriorate.

 I'm not sure what to make of this 2 min chart, but it's not particularly positive.

 And the 5 min is starting to see some deterioration, this s the main difference as earlier the 5 min charts were in line.

 The SPY probably looks the most reasonable as the 1 min continues its weakness

 As does the 2 min like earlier, except a bit worse.

 Finally the 5 min hart is starting to see some of the 1/2 min chart weakness.

 However this sloppy, ascending like triangle may see a head fake in either direction at this point, if this is a consolidation then I would expect a downside head fake before a move higher (this still remains a short term correction as far as I can see as expected yesterday).

 ES 1 min which carries more weight then the ETF/Stock 1 min charts is falling apart a bit here as well, this is probably the most bearish of all the charts right now.

And again we have another FX triangle, we have seen 4 of these (3 small and 1 larger) that have all had upside head fake moves that fell apart, this is probably the chart that has me thinking we are still in a consolidation, but honestly today has been very slow, which means for me, it's the time to be the most vigilant.

I still think the Euro is leading this whole move. One thing is certain, the seasonal Santa Rally has not shown its head. The most crucial time would be between this past Tuesday and the first day or two of the New Year, but as far as Santa rallies go, they are generally well in to strength by this time.

XLF-Financials

After that nice trade in BAC yesterday, I'm kind of itching for another set up. Financials of the 3 pillar groups, are definitely outperforming. Technology (XLK) is underperforming and XLE/Energy  isn't doing much at all.

Here's XLF, I suspect it is consolidating, but 'm watching very carefully in case it is more then that.

 This is the 1 min showing in yellow the flat area in which we saw accumulation yesterday for a bounce, a half a day of accumulation isn't going to produce much, but the Euro seems to be the key still. In any case, the 1 min chart is leading negative, again in a flat area (in yellow) which is where we see accumulation/distribution often.

 Here's the 2 min chart with a negative divergence at the left in to a small head fake, then the flat area with continued leading negative distribution and then the fall. The second yellow area with the positive divergence is the positive divergence I mentioned so many times yesterday, but again the 2 min chart is leading negative. As I said, I suspect it is a consolidation because of the look of the Euro, but I could be wrong and it could be distribution as the accumulation period was pretty short lived.

 This 5 min chart shows the accumulation yesterday and so far today the 1/2 min charts' negative posture hasn't leaked over, but the 5 min isn't much better then in line, it's not leading positive here.

 Longer term this displays the Euro bounce accumulation I thought we'd see after the initial break of Euro $1.30 and then the distribution that led to yesterday's weakness, note 3C is leading at a new low even though prices relative to the accumulation area still are higher, this is not bullish.

 And even the 30 min chart is leading to a new low, what is impressive is that this timeframe doesn't usually move down or up this fast.

This is the Euro which is the only reason I'm thinking consolidation, the 1 min chart has a little leading area that makes it look like the Euro will gain more ground which should help the market. In any case, I don't see this as a long lasting bounce.

Credit/Risk basket and the Euro

There aren't too many changes today, but the ones that are apparent speak to the oversold (1-day oversold) bounce we are seeing and again it seems to be Euro based as the Euro itself pulled the much dreaded parabolic drop yesterday.

 Here's that vertical drop, I always tell you that these make me nervous and while it just crushed small caps yesterday, we also saw the signs of a bounce that was largely in my opinion, due to the nature of the move in the Euro, especially considering that everything that has happened in the market the last week or two has been Euro based.

 Here commodities are not responding to strength in the Euro and keep selling off, I would look to China and imagine that within the next week we will here some more bad news out of China. We originally were first to the gate on China before any of their horrible PMI numbers came out and that was 100% because of the action in commodities that led me to believe a slow down in China was becoming a real problem.

 High Yield Credit continues to trend lower, if this were a serious bounce, credit would at least keep pace with the market.

 Rates have diverged sharply today from the market and remember yields are like a magnet for the market, there will be dislocations, but eventually the market will gravitate toward yields.

 Even the Euro itself is lagging the market a bit, although we have seen some recent strength today in the Euro. The Euro and the market (Euro being a proxy for the inverse market / $USD relationship) usually track together.

 3C has shown several positive divergences in the Euro that led to bumps up and we see one from yesterday, this is why I say this move is largely FX based.

Here's the 1 min chart for the Euro, still looking like the Euro will gain more ground, it may even test the $1.30 level, but this will be one of the charts I'l be paying attention to, when it goes negative, I'll likely put back on the other half of the BAC position I exited this morning and there will probably be some other nice shorts that are ripe as well.

PEIX POPS

PEIX was a long trade idea and yesterday it popped. These are speculative trades as they are low price and volume, but can often make huge moves. My general rule of thumb is to take all profits or enough to guarantee a profitable trade on any 1-day move of 10% or more (I'm speaking in terms of speculative trades only).

 Here's yesterday's 30+% move, much like the Put trade in BAC yesterday in which I took half off the table today knowing we'd see a bounce in the market today.

 This is my X-over screen set to swing trade (60 min.) and we had all 3 long signals on PEIX. A pullback to the 10 bar m.a. (yellow) is not uncommon.

 The hourly Trend Channel has easily held trends in PEIX and it would have a stop around $1.00, but do NOT put a stop near a whole number like that, either $.97 or $1.03, but not $1.00, it's too obvious.

 If I'm trying to hold the position but also give it a chance, depending on my risk tolerance, I either use the 10 bar moving average above as mentioned with a break below as a stop or this 15 min trend Channel with a stop at $1.04, maybe $1.03 would be better, the momentum on the pullback has slowed as you can see by the last two doji candles.

 All of the 3C charts have shown accumulation EXACTLY where I would expect it, this 60 min chart shows accumulation at the flat area in the white box, Wall Street loves to accumulate at stable prices and they want to do so quietly and not arouse suspicions and drive price up against them, it is for this reason that I always say a flat boring market forces me to be extra aware as that is usually when and where something is going on.

 The 30 min chart agrees that accumulation was heavy in the same flat area.

 As does the 15 min chart

 Short term intraday, we see the initial profit taking and that makes sense, we also see a bit of a positive divergence, combined with the loss of downside momentum, I think I would give PEIX a chance, after all, it showed a lot of strength on a very weak day yesterday. One of the things that I have always noticed about trades like this, what I call the "Cats and Dogs" is they tend to pop like this right before a major downdraft in the market. The best season for these trades is near the end of a bull market before the top. The reason is simple, people got burned on the previous bear market and are timid to re-enter the new bull move, after seeing the market up for a year or so, they finally say, "I'm missing the boat" and they tend to look for the cheap stocks that haven't already seen a huge run. Wall Street knows this and that is the season of the cats and dogs, when the least sophisticated investors finally jump in the market. Trading the C&D's is an art unto itself, but the point s, in any market (and the housing and gold markets are great examples), when the average Joe or housewife (and I mean no disrespect to housewives) start becoming speculators in something like the real estate market, something I have seen first hand, you know you are near the end, the same applies for the season of Cat and Dog trades.

For Swing traders not using my Trend Channel, the 50-bar 30 min moving average has held past trends well, this would be my choice for a stop using a moving average.