Today's Action

First I want to thank all of my members for their understand and kind and compassionate emails today, I'm blessed in doing what I love to do and having the best members I could imagine that surprise me every day and are deserving of all good things in your lives. It's rare to have a group this big and so many like-minded, compassionate people. Today is a very complicated situation, I explained parts of it to several of you via emails, but sometimes G-d puts tests or roadblocks in front of us and while they are part of a greater plan that we may not be able to understand, sometimes we must make choices to do what we feel is the best thing, the right thing. While my religion would be hard to put a label on, I have witnessed enough in my life that faith is not something I struggle with, I believe in a higher power well beyond faith. I have seen too many works in my life and my members are just another example, each of you is a blessing that I appreciate more then you know. With that said, we should be back on track and I want to just touch on today's market a little.

Chronologically, late last night RIMM announced a shake up in management, you may recall I had RIMM calls last week that I exited, maybe a day too early, but still the exit was much higher then today's close and was a nice profit on the trade. It seems what I was seeing back then that I suspected would likely materialize by way of a pullback, may have been inside information being acted on before the management shake up. RIMM had 2 CEO's both resigned and were replaced by the COO. The initial chatter was that the two new positions and replacement of the dual CEO's may not be viewed by investors as enough "new fresh blood", however, something in the underlying action of RIMM has been positive since before their earnings gap down, we held because of 3C and made money on the trade.

Here are the charts.

 The white arrow is where I exited my Calls in the options model portfolio as the breakout the day before did not produce a strong follow through day, my assumption at the time was a pullback was needed before the next leg higher commenced and I would look for accumulation on a pullback to re-enter RIMM long (that is still the plan).

 Since my custom X-over screen has given a confirmed buy signal (the 10-day price m.a. is above the 22 day price m.a., the yellow custom indicator in the middle window is above its 22-day moving average and RSI s above zero), RIMM has done well, the only surprise is that the first pullback (today) is usually not this deep, the first pullback is almost always to the 10-day yellow m.a., which makes me suspect Wall Street had known in advance and was sending a message to RIMM that the shake up was not enough.

 The 15 min 3C chart has been positive since before the gap down, but also showed a positive divergence there, this is why I held RMM, even though it was near a 9% 1-day loss.  The action around the 18th/19th looked a bit worrisome as if a pullback was coming, in hindsight, I suspect this was Wall Street removing support for RIMM to make a statement about the management changes.

Even the 30 min chart showed a negative divergence which is rare for a pullback, this looks more like a message. That being said, they had been accumulating RIMM for several months before earnings and after the gap down after earnings, I suspect something good is going on under the surface and will keep an eye on RIMM for a low risk/high probability entry on the long side.

As mentioned last night, as the FX market opened Sunday night as well as ES (S&P E mini contracts) both saw a gap down on news that the Greek PSI (Private Sector Involvement negotiations led by the IIF (representing private creditors) had made no progress moving in to today's Euro-Fin. Summit, endangering Greece's next bailout tranche that s absolutely needed to avoid default in March when the coupons come due.

Here's what both looked like...

 ES gaps down on the Sunday open, the green arrow is the European open at 3 a.m. EDT and the white arrow is due to rumors from an FT Deutschland article (nameless source) that the IIF and Greece had reached a broad deal. With little in the way of economic data (none in the US) this was certainly a primary driver of early trade today. We have seen these rumors denied one after another so they are best taken with a grain of salt. In fact, Bloomberg later reported that the IMF, EU, ECB are still trying to agree on the coupon specifics; Finance Minsters in Brussels said the offer of 4% coupons was not doable and the Finance Minister of Cyprus said the Greek debt talks may not be concluded this week!

Here was the effect on the EUR/USD pair, you can see the Sunday opening in red and around the green arrow the rumor re: Greece debt deal. There's a high number of EUR/USD shorts, which helped produce a move above the significantly psychological $1.30 level. Note a Descending Triangle formed and the Euro just gave up the $1.30 level. Most of the time high short interest is cause for concern that a short squeeze rally will materialize, however there have been situations in the past in which high short interest have been  right on. The Euro should be watched to see what it does around this $1.30 level.

It seems that last night's FINAL offer from the private sector is not enough for the EU, the private sector is saying the minimum they can accept is a 4% coupon on any existing debt written down in a 50% haircut. In Brussels today as the Euro Finance summit got underway, the finance ministers called the IIF's final offer, "Insufficient". It seems despite articles published with no source, the Greek debt deal is as illusive as ever and make no mistake, the hedge funds that have bought a lot of Greek debt would be very happy for the negotiations to fail or an outcome that sends the entire matter in to litigation. There are at least two sets of bond holder laws in the Greek debt issued, the stronger UK protections and the weaker Greek protections. If Greece resorts to retroactive Collective Action Clauses, CDS will almost certainly be triggered and you can expect this to end up in court, which means there will be no clear resolution before the March deadline and Greece could be the first European sovereign to default in 65 years. While it is beyond the scope of this post, the legal hurdles Greece faces in this restructuring are incredible, from the Lisbon Treaty re: the ECB to the IMF, separate bond holder legal protections and the possibility of creating a two tiered system of Senior and Sub-ordinated bonds through CACs imposed retroactively.


I'm sure you know that the F_E_D's  F_O_M_C committee starts the first of it's two day meeting Tuesday. While as is always the case, many traders are looking for an announcement of QE3, John Hilsenranth of the WSJ who is seen as the unofficial mouthpiece of the F_E_D thinks that it won't come this meeting, even though the voting members who have come in to rotation for 2012 are heavily biased to the easing side unlike the last batch from 2011 which was a bit more evenly dispersed. It seems the F_E_D may start slowly and announce an explicit inflation target as their goal for this meeting. We'll see what Wednesday brings. It's my personal view, with many congressional Republicans very unhappy with the F_E_D's easing policies and some even suggesting that their dual mandate of maximum employment and price stability should be curtailed to a single mandate of price stability. In an election year cycle, I think the F_E_D needs more economic cover before embarking on another round of easing. Do not underestimate the repercussions that will almost certainly be felt throughout the financial system as well as a horrible precedent being set regarding bond holder protections that would turn the bond market on its head. Once these kinds of doors are opened (despite the EU saying Greece was a unique situation), they spread and the first thing to look for will be Portugal, Ireland, eventually Span and Italy all sabotaging their economies to get similar treatment (a 50% or more reduction in debt owed).

One note re: the F_O_M_C statement, long term members have seen this many times, the initial knee jerk reaction to the statement, is ALMOST ALWAYS WRONG as the market considers what was said, compares to the previous statement, we almost always see a reversal either that day or with in the next few days. This has been a reliable trend for years now.



At 10:45 today the one post I did manage to get out was a negative divergence in the market, here's the chart and the post is linked above.

Note the negative divergence started earlier, before 10 a.m. This is an excellent visual representation of Wall Street's inside information, they we distributing shares in advance of a bit of bad news for Greece that came out at from the Dow Jones Newswire around 12:00 EDT. The story was as follows:

• No Intention By Euro Zone, IMF To Give More Money To Greece, Say Dow Jones Sources -DJ
• Major Greece creditors made clear EUR130 bn bailout loan "won't be increased by a single euro" - DJ

Furthermore, the $130 billion tranche from the Troika remains in doubt as Greece has yet to finalize the debt deal. Again, if they fail to receive this money, the bigger message will be that the EU has given up on Greece and Greece will enter a disorderly default. It is interesting to see how far in advance smart money are making their moves.

Once again take a look at the Euro in after hours trade.

As mentioned, we see fewer head fake moves in futures and FX markets because of their sheer size, which makes it difficult to manipulate such a large market. Had this bearish descending triangle in the Euro been in a stock or an average, it likely would have seen an upside breakout before moving lower under the $1.30 level. In After hours, somewhere around the red arrow, there was this news breaking:

From Reuters:

• EURO ZONE FINANCE MINISTERS REJECT OFFER OF GREEK PSI REACHED WITH PRIVATE BONDHOLDERS, ASK NEGOTIATORS TO CONSIDER COUPON ON NEW GREEK BONDS BELOW 4 PCT-EURO ZONE SOURCES - RTRS
• EURO FALLS VERSUS DOLLAR AFTER EURO ZONE FINANCE MINISTERS REJECT GREEEK PSI OFFER

Effectively this means Sunday night's final offer from private creditors has been shot down and we are no where near a compromise or a deal, at least not any closer then a week ago.

Furthermore, the S&P ratings agency began their downgrade of European financial institutions, something they always do after market.

• CREDIT LYONNAIS CUT TO A FROM A+ BY S&P
• BNP PARIBAS OUTLOOK NEGATIVE BY S&P

This is almost certainly just the start to what will likely amount to over 100 downgrades.

As for other trading action today....

Thursday and especially Friday of last week, I noted a very big change in character in UNG's trade, both underlying and real price. Today UNG was up over 9%.

 On the daily hart, I have highlighted there candles, first we see a huge amount of volume on a rather small bodied candle, this suggests bullish capitulation. The next day (Thursday) we see a high volume (high or green volume) Doji star candle, which represents a lack of downside momentum and a change in trade, these are often found at reversal areas. Today we had a very strong move off Thursday's pivot, UNG closed near the high of the day on huge volume. While "V" shaped reversals are rare, this is a good sign no matter what, even if it s the start of a lateral base. A "V" shaped recovery cannot be ruled out because of the strong underlying action in the long term charts. Remember, Wall Street buys in to weakness and sells in to strength. Ether way, a very welcome change in the tone of UNG.

 Here's the hourly UNG hart with a leading positive divergence, this is the strong underlying support I mentioned and implies that UNG has been under heavy accumulation during this down trend.

 The pivotal and important 15 min chart also has shown recent accumulation, suggesting that this move has been building for over a month.

The recent 2 min 3C chart shows accumulation at the recent lows and is still in a leading positive divergence. I don't know if we get a "V" shaped recovery, but whatever comes from this, it is an excellent start that telegraphed last week, therefore I do NOT view this as a dad at bounce.

There was some chatter today out of the EU that official Iranian oil sanctions would start I believe the date was July 21st, many attributed the move up today in USO to that news, however we already knew last week that EU sanctions were 6 months off. The move in USO is much easier to explain.

 Here's the bear flag we have been predicting would break down on a 15 min chart, it did break down and as mentioned earlier, it's a bit harder to head fake a commodity as big as oil, although it has been done. As you know, because of the insane volatility n the market over the last year, really picking up in May 2011, gaps are rarely left unfilled and you can see the bear flag break down left a gap in the yellow area, which USO nearly closed today, nothing surprising there, but that was not the impetus for the move either.

 Here's 3C at the bear flag, note the first negative divergence formed the bear flag pole (price drop), the second divergence sent USO falling out of the flag area. It is important to note that on the 15 minute 3C chart, the recent move up showed NO positive divergence.

 On a 2 min chart we can see a positive divergence, but this is more a function of short term trading as dollar weakness was obvious and as crude (until recently) trades exclusively in $USD, a weaker $USD means higher crude prices and vice versa. The green arrow shows confirmation of the move thus far so a complete gap fill is not out of the question.

 The 1 min chart also shows 2 relatively small positive divergences, likely market makers/specialists as well as confirmation in green, however these are very short term 3C charts and don't carry the weight of a 15 min chart which showed no positive divergence.

 Here is USO vs the dollar intraday (dollar in red), this is the reason for the move in USO as the dollar was weak today on Euro strength, giving USO a boost. In other words, the move was a matter of legacy arbitrage correlations and not a more important change in character.

On a 10-min chart, my custom sell signals in orange show two recent sell signals, the latest today as the Bollinger Bands pinch, implying a highly directional move. I wouldn't be surprised to see a move up on a head fake followed by a move down, however currencies will be the main driver of the trade in the near term, long term I remain bearish on USO.

Almost 2 weeks ago, I said watch URRE, watch for it to continue to round up in its base and watch for increasing volume, all of that has happened and URRE is looking much better here.

 Here's the behavior I said to watch for, it is all indicative of a stock moving from stage 1 accumulation to stage 2 mark up or "the east money".

 However recently it looks like URRE will pullback, the last 2 days have seen small bodied price candles as well as falling volume, a pullback here would be normal and healthy for the bigger picture.

 As my X-over screen has gone long URRE, the obvious pullback level would be to the yellow 10-day moving average on the first pullback.

 My daily Trend Channel would be my choice for a stop, allowing room for a correction, the bottom channel is the stop out level on a closing basis. Note the Trend Channel has held the entire trend since January as it self adjusts to each stock's own volatility unlike an envelope channel and not as wild as Bollinger Bands.

 The 15 min chart is also showing a little near term distribution implying a pullback.

 The 60 min chart is providing excellent underlying accumulation/support and is leading positive.

Even more important, the daily chart is very strong and also leading positive. This is a very clear view as to how smart money accumulates a position.

As to the broader market, remember last week I said the market in this very thin wedge like area looks very dangerous.

 The 30 min chart is showing distribution into this thin wedge-like area, it's pretty bad.

 The 5 min chart is aligning as well showing distribution into higher prices.

 Today's action saw a negative divergence at the early highs and a positive divergence as they fell, going in to the close, 3C went negative on the price gain.

The 1 min chart for today confirms all of the elements of the 2 min chart above.

In AAPL's ongoing analysis, I'm still leaning bearish and have the PUT position in the options model portfolio which is about break-even right no. As to today's acton, not impressed.

AAPL was negative right off the opening gap and  continued the negative divergence through the close.

As for the VIX and SKEW

 VIX green vs the SPX red, the VIX continues to show investor complacency and a lack of respect for risk, it is at the same area now as it was when we saw the late July-early August decline in the market.

SKEW which measures the probability of an improbable event, such as a black swan market rash, remains very elevated in one of the fastest moves it has seen since the CBOE introduced it. It only stands to reason with Friday's options expiration that SKEW would dip a little as the further out months have less open interest then the month just completed on Friday so the drop does not look like a decrease in the warning it is sounding, just a decrease caused by the way SKEW is constructed and options expiration Friday, you can see the dip coincides with Op-ex Friday. This indicator is little watched and sounding some serious alarm bells.

Commodities outperformed the SPX today..

 Commodities in brown vs the SPX green, however this was more a function of currencies and the weaker dollar as you can see below.

This is commodities in brown vs the Euro, you can see the correlation wasn't so much a risk on as a simple FX correlation.

The dominant Price/Volume relationship today among the major averages was Close Down/ Volume Down. This isn't a strong correlation on its own, it is the hallmark of a bear market. The relationship was 

most dominant in the Russell 2000.

As far as current indications...

 ES in overnight trade is near the lows of the New York session

 ES/3C shows a positive divergence at ES lows during regular NY hours and a negative divergence as ES moved in to overnight trade, currently it is in line.

 EUR/USD 3C shows a negative divergence and a recent positive divergence, this makes sense.

As we almost always see, once an important support level ($1.30 for the Euro) is broken, we almost always get a retest r volatility move. Currently the Euro is hitting resistance at both the $1.30 level as 

well as the descending triangles's resistance trend line.

On deck tomorrow we have the start of the F-O-M-C meeting, Goldman Store Sales, Red Book, the Richmond F_E_D manufacturing Index around 10:00, a 4 week bill auction which should be very interesting as the last one came in at a yield of 0% (banks essentially parking money with the Treasury to get it out of the financial system) and a 2 year note auction at 1 p.m. 

Europe opens in 2 hours. 

Tomorrow I'll cover Gold and Silver, both benefitting from a weaker dollar today as well as crude and copper.

See you in the a.m. and thanks again for all the great emails.