The market is murkier than ever. With last night's defeat of austerity meaures and rebuke of German policies, the Euro zone is like a super tanker with no one at the helm. Samaras had 3 days to form a pro-bailout government and gave up after not even a day, now it is the anti-bailout party's turn to see if they can cobble together a government. Nothing good will come out of Greece for the EU, maybe for Greece at some point, but not for the EU.
My take on the Greek elections was it caught the market off-guard, polling data seemed to give the ND/PASOK a win which would keep the status quo in place, the results shook all assumptions of the status quo and just about everything else EU related. By all rights the market should have crashed today, but as well know smart money doesn't want to sell in to weakness and today's move in ES perfectly closed the Sunday night gap. From one perspective the market looked a lot stronger than it should today, from another perspective, ES moved up just enough to allow smart money to exit their positions without taking a massive loss.
That's the heart of the matter, is the market showing more strength because it still ha some upside plans or was it simply allowing smart money to get out without a loss?
We didn't have the benefit of major European credit markets to look to today as the UK was closed on a 3-day weekend, tomorrow that will change and with it, probably many other things, although it is difficult to say where. There are very few times when smart money doesn't have an inside line in to events long before everyone else, these elections were one of those few times and it makes the market that much more unpredictable. In either case, we should be positioned correctly for the bigger picture, although it would be nice to get some additional strength to fill out positions.
3C/ES didn't look good at all today so that's one negative as ES is where a lot of the gap fill-selling would occur. I would maybe feel a bit different if ES had moved past the gap and closed strong, it didn't close especially weak, but it didn't close strong, suggesting to me that there were plenty of sellers as the gap was filled.
As for other indications and they are quite mixed...
The EUR/USD HAD to move above $1.30 if there was any chance of the ES gap being filled. The question here is whether whoever has been defending the $1.30 level is still defending it or whether the algos where turned lose today to walk the EURO up to a level in which the ES gap would allow smart money to get out of dodge without taking a large loss? Unfortunately the Euro doesn't tell us much about this because the loss of momentum at the end of the day is typical of bullish market action as risk assets typically will consolidate before they try to break a major resistance level which is the gap. On the other hand, this could be a case of, "That's all that was needed to close the ES gap".
Here's the Euro's Linear Regression channel today, you can see the loss of momentum clearly at the end of the day, however the reason could go either way.
The market itself was just doing what the Euro was doing, so the question there too is the same, "A consolidation before an attempt to move higher or that was all that was needed?"
The 1 min 3C charr on the SPY doesn't tell us anything either as it is near perfectly in line with price.
The 5 min chart does look more bullish today, however that same 5 min bullish look is only found in the SPY, none of the other averages were able to keep pace with the SPY.
The SPY 15 min chart looks rather bullish today as well. The QQQ, IWM and to a lesser degree, the DIA all look pretty good on the 15 min charts.
QQQ 1 min is also nearly perfectly in line with price action, not giving any near term hints.
Here's the QQQ 15 min I mentioned above.
As for the near term charts in the other averages (1-3 min), the DIA was pretty close to in line with a slight bearish slant, the QQQ 2-3 min charts looked similar, only the IWM was in line with a slight bullish slant.
I'm inclined to lean toward the 15 min charts, but the fact is the shorter term charts feed the longer term, so the shorter term charts should look better than they do.
As for AAPL
The 1 min chart looks stronger today than Friday, although it did see some late day negativity creep in.
The 2 min chart also looks better with some late day deterioration.
The 3 min trend still looks good.
At 5 mins there's a clear transition from an in line downtrend to a relative positive divergence that is actually probably leading a little here.
Again the 15 min chart, like many of the others, looks good, good enough for me to stay in the AAPL calls.
The ES CONTEXT chart shows the model lower than ES, this would make sense if ES was being pushed to fill the gap, however in the last several risk on bounces, ES has led the model as well, so again there's not much to go on here. I would prefer to see the model higher than ES, that would tell us something.
Interestingly commodities held up better at the end of day trade than the SPX, although I will say the SPX dipped a bit harder at the end of day than the Euro did, commodities stayed a bit higher than the Euro correlation.
High Yield Credit does look supportive of higher prices, it is higher than it's recent range while the SPX has dipped.
Here you can see the Euro top just before the SPX, this is likely what caused the SPX to dip at the end of the day. However the important question is why did the Euro dip? Because the ES gap was filled or because it is consolidating for a run above resistance at the gap from Sunday night?
High Yield Corporate Credit looks much better today and the credit markets generally lead the equity market, there was some selling in the afternoon in HY Corp. Credit, but all in all, its position looks supportive of higher prices in the market.
The one relative out-performer today was Financials which showed good momentum vs the SPX all day.
Financials are in Green on this chart and the SPX red. Financials did dip as well, but all in all performed much better.
Financials on the 2 min 3C chart looked good all day until the close when they went slightly negatively divergent, however it not uncommon for risk assets to move together directionally, even if the percentage gains are different (rotation). The longer term 3 and 5 min chart showed the selling a bit more pronounced which is again not normal. The 15 min chart is not as strong as some of the other 15 min charts, but it is positive.
I'm not one to punt on the question of the highest probabilities as for market direction both near and long term, you know my long term perspective or"Big picture perspective" as the long term trend may not be far away. However in the short term there are too many unanswered questions, too many very ambiguous actions like ES filling the gap and then pulling back. This action in itself normally would seem quite normal, after resistance is taken out, the asset takes a breather, consolidates and makes a new leg up. However being that the Greek elections left a big surprise gap down, the filling of the gap is all smart money would really be looking for with the uncertainty in Europe, a dip after that gap is filled in this situation could mean a lot more than it would normally imply.
In fact there were a lot of very small actions and results that could have dramatic effects, take the Greek vote for example, the Pro-Bailout parties only missed having an automatic coalition government by 2 or 3 seats, yet those few seats could have a dramatic impact on all of Europe.
I'll check currencies and ES again later tonight and see if there are any new clues that can help us determine near term direction, but if you have ben accumulating short positions over the last month or two as I have been doing, it won't really matter too much which way the market goes. If it goes straight down from here our shorts will perform well, if we get a decent bounce from here we will be able to add more short positions as the bigger picture looks to be pretty set in stone.
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