ES VWAP Study

 The above chart shows ES (The S&P-500 E-mini futures) with the VWAP in white (center) and a +2 standard deviation (light blue top channel) as well as a minus 2 standard deviation (green lower channel0. The history covered here is almost the entirety of 2012. The dark background is normal market hours, the light tan background is the everything that falls outside of normal trading hours. ES futures trade 24 hours a day except on weekends when they close Friday at the close and open Sunday night. Don't get lost in the lines, just eyeballing the price chart shows a choppy lateral trading range; to demonstrate the choppy lateral range, from the first trading day of the New Year through yesterday at 4 p.m., the S&P-500 has gained exactly .29% (5 trading days yield a return of just over 1/4 of a percent-that's a lateral trading range). To demonstrate the volatility of the range, note how price before last night (where the blue arrow is) chopped about bouncing between -2 and +2 standard deviations. On an daily basis, you probably have felt like the market has been bullish, but in reality it has just been very volatile and has gone nowhere in 5 days-the big first 5 days of the month when funds are supposed to be flowing back into the market.

Last night represented by the light blue arrow shows the first trend that has developed, there's still little reason to support any notion of where it came from, AA's earnings and assessment of market conditions were given early credit, but Alcoa has closed today at a .11% gain, hardly the bullish assessment that should have been most beneficial to Alcoa itself.

The move last night was clean and strong, but also on very light volume. Price spent a lot of time near the +2 standard deviation top channel and only pulled back to VWAP 1 time and that was at the opening of the European markets at 3 a.m. EDT (at the red arrow). Note how such a powerful and clean trend started falling apart at the US open and broke below VWAP for the first time throughout the entire period from about 5 p.m. yesterday until 10 a.m. today (17 hours, but all in the low volume environment).

Here's a closer view of ES from about 2 a.m through today' close. ES gave up VWAP in the normal volume environment several times and on pretty heavy volume as ES either broke below VWAP or tested it as resistance. Toward the close, as I suspected, ES broke below VWAP again on increasing volume and tested VWAP and failed on the largest volume of the day; quite a difference between last night's low volume (easy to manipulate) environment and regular hours.

ES didn't look right from the start today, I mentioned it many times and many metrics that should have been much stronger like early NYSE TICK were way off the kind of gins ES put in.

I'm not sure what this is about, but it definitely seems fishy to me.

Thus far in After Hours ES has broken below today's regular hours lows, this even despite the Euro showing a slight bounce during the same time.

When something in the market is inexplicably fishy, you are best off looking at as many different metrics as you can and determine whether it is a bullish or bearish event. These are usually opportunities, at least once you figure out which way to play it. I'm leaning toward this being a bearish setup/manipulation.

AAPL close

AAPL had a chance yesterday to breakout above all time new highs. Yesterday it gave up the gains, today AAPL gapped again and gave up the gains, this is way out of character for AAPL over the last several weeks, although the advance of the last several weeks has been parabolic and thin in the trading range, as I mentioned several times, it looks to be driven by short covering and by hitting a new intraday high yesterday, I would think the fuel of short covering is just about all used up.

 The last two days AAPL has gapped up and given back the gains.

The short term 3C chart shows this happening in underlying trade. Note the negative divergences on both opening gaps, AAPL gave back all of the gap intraday both days and now it's leading negative.

The situation in AAPL is similar to the market today. Furthermore the XLK hart (Technology) that I showed in the random charts post, had a nasty 15 min leading negative divergence.

I could go on and on listing everything that seemed fishy today, but it's all there in today's posts.

Volatility- VIX/VXX

As you are probably aware, lows in the VIX are associated with complacency and often market tops, the VIX and intraday VXX both have an inverse relationship to the market.

 The 10 min VXX is showing a strong leading positive divergence, a move up in the VXX would mean a move down in the market.

 That 10 min strength in the VXX is now flowing to the 15 min chart as it starts a leading positive divergence, suggesting the VXX is about to move higher, remember the market's inverse relationship.

 On an hourly chart, there's a long term relative positive divergence in place in the VXX as well.

 Here's the VIX on a daily chart making intraday new lows that go back to late July .

In the white box, this shows that area in late July in the S&P-500. The two yellow boxes represent 1 confirmed head fake above the S&P's neckline and today's move above the same.The long wick on today's price candle shows higher prices being rejected. I would think a breakout above the trendline would shoe a strong finish, but remember we got to this price point largely because of overnight action in ES on low volume in a strange advance (see earlier posts). As a matter of fact, that overnight advance was the price advance in the market today, intraday, the market added nothing to the low volume overnight action that caused the gap up today.

This is what I mean about the intraday market...

The area in the yellow box on this intraday chart of the SPY is all the market added to the overnight low volume melt up. A breakout above an important resistance level should close strong, it had a jump start from overnight, essentially there was no follow through the entire day.

ES Update

Today has just had an all around fishy smell, something just doesn't feel right (I've shown you a lot of charts, but I have a strong gut feeling here too)

ES S&P E mini's intraday went negative off the open, the first real divergence all night, look at 3C leading negative now and the increase in volume as ES gives up the VWAP again. It just doesn't look good.

BAC Trade

For the BAC trade in the options model portfolio, I bought Feb $7 Puts

BAC Trade

I'm going to open a small PUT in BAC, it is speculative, it's not exactly here I want it, but there's changes occurring pretty quickly here and I am thinking I might get that gap fill in the a.m. The JPM chart looks worse, but it may be leading BAC.

Some Random Charts.

 JP Morgan Chase/JPM 2 min

 USO 10 min, I rarely use this timeframe because of limited history, but the 15 min started looking a bit bad, so I checked the 10 min which would flow in to the 15 min and it's leading to a new low on the chart.

 XLF intraday-financials

 This should have been the first chart, it is JPM, but the 1 min (above is the 2 min), the 1 min flows in to the 2 min and looks worse, it appears to be making its way through the longer timeframes.

This one is really ugly, XLK-technology 15 min hitting a new leading low going back to late November.


And ES just broke below VWAP.

ES Gut Feel

Just looking at the chart of ES (as posted last), I think it's going to give up the VWAP and take the market lower in to the close.

I'll post some other charts that look a bit troublesome too

ES Update

I know this chart is a little confusing...

The light purple line in the ES VWAP, it just managed to climb above the VWAP, but the light blue is 3C, note the negative divergence in ES as it just pops above the VWAP. Remember that the VWAP is used by Wall Street to judge whether their orders, which are routed through market makers and specialists, were filled at a decent (competitive) price. My take on this chart would be seeing a negative divergence right above the VWAP would suggest institutional short selling, the price would be favorable for the institutional money if they are shorting above the VWAP and the negative divergence would suggest that is exactly what is happening.

The Treasury's Shell Game

I received this in an email from a member...

Can anyone guess why?

Hint: t has to do with my last post.

3 Year UST Auction

In keeping an eye on these auctions, we are keeping an eye on the flight to safety financial institutions are undertaking (remember the 4 week note which was 9x oversubscribed and placed at 0% yield-essentially banks are parking money at the Treasury in a flight to safety as any other place in the financial system must be scaring the heck out of them).

Today's 3 year $32 billion dollar auction is notable for several reasons, the first of which is that it breaks the debt ceiling (as of last week the Treasury was only $25 billion away from breaching the debt ceiling).

Second and attracting a lot of attention was the new record set in the auction's bid to cover ratio coming in at 3.73 vs previous 3.624 (the bid to cover is the number or amount of bids that came in vs those accepted by the Treasury-anythng above 2 is considered a successful auction).

The yield for 3 year debt (and keep in mind this is debt that is above and beyond the debt ceiling) priced from .276 to .37%. Imagine that! Holding 3 year debt at just barely above 1/4 of a percent yield, talk about opportunity cost! Again, I think this auction can be classified as a flight to safety rather then any real bullishness toward USTs.

Most of the auction was taken down by Primary Dealers, think Goldman Sachs and the Former MF Global, they took over 56% of the auction, which would be normal under the QE2 regime as they would simply flip the treasuries back to the F_E_D in POMO operations and make billions of dollars for holding the debt until it could be flipped (in some cases as short as a week), but they are obviously buying for a different reason now.

The Direct bidders were notably absent at just over 5% (regular investors, like Grandpa back in the day). This probably should be taken as an indication of American's disposable income. Indirect bidders took about 38% (Think foreign entities, especially central banks).

Back to the debt ceiling, not even an hour after the auction, The Hill comes out with this news:

Obama administration to ask for increase to debt ceiling in a 'matter of days'

The White House will be asking Congress to raise the U.S. borrowing limit by $1.2 trillion. The move would mark the third and final increase from the debt-ceiling deal reached last year by Congress.

I don't know what to expect other then this to be used as an election year dispute of some form. We'll see how this goes down, but as a famous Chicago White House Chief of Staff once said, "Never let a good crisis go to waste".

AAPL Follow Up

This is a follow up from yesterday's AAPL post

 AAPL fills all break away gaps. Yesterday AAPL gapped up to close lower, but not before making a new intraday high. Higher prices were rejected yesterday, however the breakout to new highs intraday would have certainly caused longs to jump in setting up a potential bull trap on an intraday head fake move. Lack of follow through today is not a good sign for longs, the fact AAPL is underperforming market averages today is not a good sign as was pointed out earlier. Of course we have to consider the possibility of a true breakout, however yesterday's action and today's do not support a real breakout and the parabolic-like nature of the price action since mid-December is also a sign of probably not much more then a short covering rally. The volume on the rally was rather low and there were no significant pullbacks, both signs of short covering. That would leave AAPL pretty exposed at such lofty prices with no underlying support other then short covering. Yesterday's volume was also the largest seen since the rally started, with a close lower on the day after making a new intraday high, this is not good news for longs in AAPL.

 This is an hourly chart with a linear regression channel applied to the rally. While a move out of the channel appears to be positive, a break from an established channel like this often precedes a reversal, it is a change in the character of the move which should always be noted for a possible change in trend. Should we get a reversal, $400 will be a psychological barrier because of the whole number as well as a  support level (because of the channel) that will likely see some volatility, if you are considering the trade, this should be considered as a target and your trade management should keep a careful watch on the area.

 My Trend Channel on a 60 min chart has held two legs in this trend very well, it is now turning laterally rather then moving up (another change in character)  and the long stop level is $421.25, this would also signal a likely reversal, especially is the channel is heading down which it should.

 There have been 3 sell signals on the daily chart, the first two were right on.

 Short term 3C 2 min has gone from trend confirmation to a negative divergence starting yesterday, it is currently in leading negative position.

 The 5 min 3C chart shows where the first leg of the rally saw resistance (as mentioned below the Trend Channel chart ), the current negative divergence is quite a bit bigger and occurred at the breakout to new intraday highs. The idea would be selling/short selling by smart money on demand from longs buying on the new high breakout which later failed.

The 60 min chart shows confirmation early in the move, however the second leg of the move appears to have been under distribution, this would make sense in the 4-part cycle (accumulation, mark up and at the 2nd leg distribution into demand, the 4th stage is decline).

If you are interested in an AAPL trade, you might initially think of it as a swing trade and see what it becomes, a stop can be placed a few percent above yesterday's intraday highs.

3C Market Update

I've included several different timeframes from short to long, the theme should be pretty clear.

 DIA short term 1 min never confirmed the gap up today as shown in the opening post this morning, but worse yet, it is leading negative quite sharply today in the red box. There has also been a larger negative divergence across a flat trading range in the DIA (remember institutional money, whether accumulating or distributing is usually doing it in flat ranges that are pretty quiet-volume was unusually low yesterday which is another hallmark of institutional activity).

 Here's the longer term hourly chart, which carries much more importance regarding the longer term trend. If you follow each of the positive (white) and negative (red) divergences, you will see how they effected price, sending it higher or lower, but the overall trend has been very negative with the DIA leading negative as 2011 closed out and the New Year began.

The Russell 2000 / IWM has been on my radar as few people realize this may be one of the most important averages to follow, it is Bernakacide's choice when trying to illustrate the "Wealth Effect" in Congressional testimony. The Russell 2k lost -7.22% last year and was the basis of my video post that we would NOT see a Santa Claus rally at the end of 2011. The 2 min chart shows what very much looks like a head fake move today as it also leads negative.

 A little longer term/bigger picture perspective shows this choppy range bound market under a large negative divergence which is leading negative today.

 With 15 min chart I have not identified every divergence, but rather focussed on the main ones, like the October rally positive divergence and the more recent negative divergence which is also leading negative.

 The hourly chart covers some of the main trends from QE2 starting to the top, the recent activity is also leading negative on a 60 min chart.

 QQQ 2 min, the short term chart shows again no confirmation today and in fact a sharp leading move down in 3C, this among a larger negative divergence trend.

 The 15 min chart again showing the broader trends as well as a very nasty leading negative divergence. There is a clear transition from relative negative divergences which are bad, to leading negative divergences which are the worst.

 Here's another, but on a more important 30 min chart.

 And finally the long term 60 min trend covering Jan. 2011 through present, the trend should be quite clear as it moved through the 2011 top area and currently is near the worst leading negative areas.

 SPY 5 min relative negative divergence through a flat trading range leading to a negative leading divergence today.

If you recall the wedge on the S&P-500 chart, you can make it out in price, there's nearly a mirror opposite negative 3C trend moving lower as price moves higher.

The Averages

What is also interesting is the break in ES's VWAP coincided with a break in most of the averages initial intraday support.

 DIA

 IWM

 QQQ

SPY

From my earlier posts today in which I could find no reasonable catalyst to the underperformance of the best performing stocks of the year and quite frankly, just the look of overnight trade, nothing has passed the smell test.

I think it is reasonable (and ironic as I mentioned, I was talking about the lack of a head fake above the S&P neckline after hours last night with another member) to look at the S&P neckline and break above it today with a suspicious eye.

The long wick on today's daily candle s a rejection of higher prices. Interestingly, its not only a break above the neck line which certainly could turn out to be a head fake as we saw in October, but it is also a break out from a bearish wedge (white arrows) and considering the wedge in place, I would lean heavily toward a probable false breakout there as the pattern is too obvious on a major average's daily chart.

ES Breaking VWAP

This is one post I couldn't get out fast enough. If the overnight action in the E-Minis (ES) has had 1 clear attribute, it is that it has maintained well above its VWAP (Volume Weighted Average Price), an indicator still used by Wall Street. I had just looked at the 3C negative divergence in ES and decided to look at ES's VWAP which was just on the verge of breaking, as I put together the screen captures, it broke.

 Here's the earlier negative divergence (relative) that I showed you near the open.

 Here's a second at the highs during market hours, you can also see ES dropping quickly on this chart.

This is what ES/VWAP looked like when I decided to post this, it was to be a warning that if VWAP is broken, there may be a significant changes in character. VWAP broke and broke hard.

2012 Top Performers Acting Badly Today

You may have heard the Wall Street maxim, "A rising tide lift all boats", with that in mind and with the first week's performance in mind (virtually flat for the majority of the indices), I looked at NFLX which was covered here yesterday.

" I would expect a pullback as they don't want a overbought condition to sink prices either, then the next leg up I would expect more distribution."


Then I ran a custom scan for other top performers in the New Year, the results are a bit surprising considering the market environment today.


These are just a few examples and they are not cherry picked, I went to my 5-day performance scan and almost every stock here was in the top 20 of the Russell 2000 (almost all with gains of 20% for the previous 5 days which is as close a scan as I have for the New Year). If I were long any of these stocks and woke up to see the futures, I would be very excited, that is until the market opened.

 ATML

 CBLI

 CIEN

 DCTH

 DNDN

 GNOM

 IPGP

 ITMN

 JAZZ

 MRVL

 MU

 NFLX

 OCZ

 RTK

 ZGNX

ZUMZ


Most of these stocks are the top performers for 2012 in the top 1% of the Russell 2000, it sure is a strange day for them to be pulling back or otherwise showing very weak relative performance.


Lets not forget about AAPL, also recently covered here: "AAPL on Thin Ice"

There certainly may be some pullback opportunities in some of these names and I'll be keeping them on my radar, however their price action today is most unexpected considering the market's early tone; they performed better in a flat market or on red days.