Follow Up

I'll try to make this as concise as possible. First, tomorrow the German Constitutional Court will drop their ruling on the constitutionality of the European Stability Mechanism (ESM) which is where all future bailout funds for Europe are to come from, however with the German Bundesbank being the largest contributor to the ECB which of the 27 member nation central banks, the German Bundesbank has the largest contribution share of nearly 19% (compared to say the Bank of Ireland at 1.11%), clearly the German Central bank is key to any plans regarding the ESM not only as the largest contributor, but as 1 of only 4 Aaa rated countries left in the Euro-zone.

Should the German Constitutional court surprise the world and strike down the ESM as conflicting with the German constitution, it would be a major blow. It is not expected that the court will strike down the entire ESM and a recent filing yesterday by a German government coalition member (arguing against the ESM) was thrown out immediately suggesting the court has probably already made a decision.

It's not a simple yes or no vote, the Constitutional court could uphold certain provisions while striking down others or attach conditions, the only consensus as of now is that they will uphold the ESM, but any details beyond that are anyone's guess and the details could be significant in the functioning and ratification of the ESM by Germany.

AAPL of course releases the I-phone 5 tomorrow, I have opinions on that and the competition as well as Consumer Credit, but none of that is really relevant. As I showed you today, it appears there's short term accumulation in front of the event which makes sense, but beyond that it looks like the floor has fallen out below AAPL.

 5 min AAPL chart with positive divergences at each low and a leading positive growing stronger in to the close at the lows of the day. Beyond the 5 min chart, there isn't much of anything so unless AAPL was going to spend more time accumulating, this looks like a 1 time deal and after that, there doesn't appear to be any support. As I have said numerous times, it looks like "Sell the event".

AAPL 4 hour -Compare the negative divergence of the last top in April and then where 3C is now at higher prices with a very sharp leading negative divergence (it's much clearer with a closer chart, but I wanted to show the relation between the indicator and price at two relative points).

While the NASDAQ, which underperformed today, was putting in a positive divergence most of the day, the other averages only put in relatively small divergences at the end of the day.

 DIA late afternoon 1 min positive divergence

 However nothing at 3 mins., 2 mins barely has anything.

 The IWM has had the best underlying chart action and it too only put in a late day 1 min positive divergence, normally if there weren't the ESM event I'd say this is evidence of an early gap in the morning which would likely be faded in the afternoon.

 IWM 2 min has a less impressive positive than the 1 min, the 3 min is not showing much and the 5 min shows nothing of any substance on the positive side, usually any decent move of a day or more would have at least a 5 min divergence.

 The QQQ 15 min on the other hand (and most timeframes below 15 min) is quite positive, again I believe this reflects the flow smart money saw today or put in today with AAPL considering AAPL's weight on the NASDAQ 100.

 While the 4 hour QQQ looks even worse than AAPL's 4 hour chart with a nearly vertical leading negative divergence, much, much larger than the April top.

 The SPY showed a late day 1 min positive...

And a 2 min relative positive divergence, but nothing beyond that with some very sharp negative leading divergences in the 15 min+ timeframes and even 5 and 10 min timeframes.

Thursday we have the F_O_M_C, it seems equities have fully priced in some easing action, yet Bernie at Jackson Hole seemed to kick the mess back to Congress as have several other current and former F_E_D members.

Gold is where we want to look for possible F_O_M_C expectations, not equity prices.

 GLD 15 min had some intraday momentum, but in context, it's still leading negative.

 The 30 min is much worse

As is the 60 min. I would think if the F_O_M_C were about to unleash a program as massive as equities semed to have priced in, we'd have some pretty stunning positive divergences all the way out to the 60 min chart.

As for futures...

 ES Futures

NQ Futures-niether are remarkable, in fact the NASDAQ futures are nearly perfectly in line.

What did bother me today was High Yield Corporate Credit's performance which was up +.67% at a breakout high, some feel this is merely related to index arbitrage and therefore not an important signal, but I've had good luck with HYG as a leading indicator and only have seen it break away like this once or twice before, but not this strong.

High Yield Credit which has negatively diverged for the last 6 days did see a move at the end of the day that is similar to the 1 min 3C charts on the averages at the end of the day, this gives me a little comfort that HY credit is acting more in accordance with other charts and makes some sense for a quick burst followed by a fade of the move.

That's what we have as hard evidence and base our probabilities from there, so I'll be looking for some quick strength and any opportunities, especially in Financials to use that strength to short in to, however common sense and experience tells me to be prepared for volatility as the German Court ruling is in a way very much a Central bank issue for the EU and Thursday we have the F_O_M_C which almost always creates a knee-jerk effect whether lasting several hours or a couple of days.

I'm going to check around specific stocks, when you get a bunch leaning one way or another, it is usually just as good an indicator as anything, it's just a lot more time consuming. If I turn up anything that will add materially to what we have in front of us, I'll be sure to post it. I may even set my alarm for 3 a.m. just to see how Europe opens.