Preliminary Wrap

So close, but still so far away.... AAPL! A new closing high would have to break $545.18, AAPL closed at $545.15 a mere FOUR CENTS AWAY from a new high. However, I don't want to get caught in the same dogma I so often preach against (ex: "Support for the SPX is $1340.03"), it is the emotional reaction that matters. AAPL longs (and I've upset quite a few over the years) tend to be AAPL lovers not AAPL traders. I love AAPL products, I'm on my MacBook Pro right now with my I-phone sitting next to me, and I will trade AAPL long or short, but as far as falling in love, I save that for my wife, for surfing, for fishing, for my Vizsla and lately for Skittles.

I have said it more then once in a tongue in cheek manner, but seriously, after seeing that CNBC article last night about the department of labor turning to experts in keeping nuclear secrets so they can stop the leaks in the NFP data (as Wall Street has the numbers before anyone else-something we see in earnings and in particular, the EIA Energy report)-ok, I got off track... I have said several times, the Wall Street slogan/mantra, "Buy the dip" probably originated in the offices of Goldman Sachs-the propaganda unit that promptly put s it out on the web and on CNBC.

Point being, AAPL longs are probably the biggest "Buy the Dippers" out there. I'm not bashing AAPL, I'm not saying it doesn't have more growth, I'm saying AAPL virtually is the market and a break there, even if it doesn't hold for months, is probably more then enough to break the market. So back to emotions, after Monday's 2.2% drop what do you think AAPL longs did? And from what 3C looks like, it seems that the hedge fund favorite may have seen a little more selling then usual. What I am trying to say and could have probably said in a sentence, is that it is the emotional reaction that is the set up. If the longs are there and AAPL breaks, the snowball effect in AAPL and in the market could be tremendous.

As for the late day VXX position in the Options Model Portfolio, VIX moved a lot closer to Capital Context's model.

I'm not sure how they construct this particular model, but their model suggests the VIX should be moving higher. After seeing the amount of information a hedge fund acquires about the market using options and models based on them, I can say there's a lot more out there then I ever imagined giving these guys an edge and I'm not sure if I'm allowed to say this, but their volatility models which are nothing like a simple volatility indicator (these are 3 dimensional models that take every bit of options information in the market available and make constructs) have turned bearish. Apparently the options system they are using (and I'll get the name for you) is used by the NYSE, the CBOE and the SEC, it's that accurate and the data is that clean.

I try to watch as much as I can, you never know where the next hint is hiding, one thing I've noticed recently and today specifically is the FX carry trade seems to be moving to a risk off mode, or they're unwinding the carry trade, specifically in the AUD/USD, this is one way to tell what the big boys are doing, whether they are using the carry trade to fincnace risk assets or moving out of it.

 Here's FXA (AUD) vs the SPX, notice the recent divergence and AUD closing down specifically today.

 This chart shows the AUD channel, the break of that channel with an upside false breakout leading to a move below the range. As the trade has advanced, the ATR has narrowed significantly and the Close Within the Range has gone from closing in the upper 50% of the daily range to the lower 50% of the daily range.

 The weekly average of the price percentage gain has also gone from positive to negative.

And my Trend Channel was recently broken as it now starts to head downward. This all shows that the carry trade is being unwound and funds aren't putting money in the market, but rather taking it out.

As for intraday trade...

 Talk about smart money, here you can see the sell-off in credit right before the market dropped.

 The same can be seen in Corp. Credit.

 Energy was also leading the way down today.

As for late day sector rotation, it became more defensive. Only Financials held up and Tech started to make a small comeback at the end of the day, otherwise, it was defensive trade in Utilities, Healthcare and Staples.

On the news front, it has been decided, Greece defaulted on their bonds and CDS is going to have to be paid. This isn't good news for the EU financial sector, no wonder they've been hoarding cash at the ECB. Already 1 Austrian bank looks to have a $1 bn Euro short fall to cover CDS that were triggered today. It will be interesting next week to see how many more of the hundreds of bans that wrote CDS don't have the financial backing to pay up on the insurance they wrote.


Germany is also at it again (meaning trying to take over Europe for the 3rd time, but this time with debt instead of bullets) , as Reuters reports:

(Reuters) - Germany wants to reignite a debate over creating an EU constitution to strengthen the bloc's ability to fight off financial troubles and counter-balance the rising influence of emerging economies, Germany's foreign minister said on Friday.


an example of what they want...


"Germany argued that change was needed to enshrine tougher fiscal discipline and safeguard the bloc from further financial troubles.

For example, it wanted an amendment to incorporate tighter regional oversight of government spending and allow the European Court of Justice to strike down a member's laws if they violated fiscal discipline.

But Britain vetoed the plan in December in a row over safeguards for its financial sector."

I'll be posting more over the weekend and looking at some new tools that I have discussed with some members, I'll make the announcement after back testing the system, but lets just say any options traders should love it.

Otherwise, have a great weekend