It Just Keeps Getting Stranger

Earlier I alluded to the strangeness of the European Central Bank President out spouting off possible huge policy changes with his virtual twin, Germany, seemingly having no idea of what he is talking about and shooting down his ramblings.

Then we hear that members of the ECB seemed to got off guard as well.

Now the WSJ reports that ECB members are not backing Draghi proposals, that would be like Bernie saying the F_E_D_ is going to do "XYZ" and then all the voting members coming out on the same day and saying, "No we are not!" and just because Bernie is the president doesn't mean that it doesn't have to go up for a vote.

The WSJ summarizes the chaotic trade today as rumor/denial went back and forth, but suggested whether the market over-reacted today or simply mis-interpretted what Draghi said, the bottom line is, "one thing is sure. If the ECB does nothing next week, the markets will tumble."


What the WSJ is basically saying is so much "Hope" that the ECB will buy sovereign debt from the likes of Spain and Italy next week has been priced in to the market today, if there is no action next week (actual ECB buying, which they haven't done for over 5 months now), the markets will sell off hard. 


As mentioned above, even those in the ECB don't seem to back Draghi. Germany who has a lot more say than you think, obviously doesn't back Draghi, so that leaves what for a conclusion? Interestingly, that's almost exactly what our analysis of GLD/gold said today, it's what 3C has been saying the last 2 days and it's what we expected at a target level that was set BEFORE a move up even started. Essentially those in the know, don't believe and those who don't know where buying stocks today.


The closing indications for CONTEXT for the S&P e-mini futures (ES) said the same thing, those in other risk assets other than stocks were selling more aggressively.

The blue line is the close of ES for the week, CONTEXT just hit a new wide between the model and ES, meaning the risk assets that should rally with ES weren't and most of those risk asset are traded exclusively by smart money.


ES wasn't the only thing considered overvalued, SPY arbitrage player probably set up some nice trades today for a reversion to the mean.

This also got worse as the day went on.


The more damning evidence against a QE "Hope" driven rally from the ECB is gold itself or GLD which has the most to gain from easing measures.


This is the SPY in green vs GLD in red on a $100 scale, meaning if you invested $100 in each at the start of the chart which is almost exactly today only, the scale on the right in your return and don't forget the 3C/GLD post.

What I find also very interesting are the 3C charts in the context of what this move was about. Remember before the slightest hint of a move down started, I put out trend expectations and the first was a strong pullback that would take us easily below the bear flag (which happened on the second day of the pullback), but I was also careful to warn, "There's a lot of volatility and there will be noise days in the trend", Tuesday I gave 3 targets of where the first noise move would end up, you saw the charts earlier...

The last target which is above the last reaction high was put there as explained because 4 out of 5 times we see a head fake move "BEFORE" a reversal of any magnitude and this happens on all timeframes. You may recall earlier in the week I described that last rally where the upper target is as having "fallen short" of the upper trendline and as such is a sign to Technical Traders that the flag is weak and about to break. The flag did break, so some shorts were caught with their pants down in another bear trap, the move above that point today would be exactly the kind of move that would make a bear switch their position over to the long side, setting up a bull trap. If you recall, this was the reason that target was included.


I have some interesting charts to look at so don't be surprised if I put out some weekend posts, everyone enjoy your weekend!