ES Update

In just the last several minutes, ES posted another new low.

Market Internals

Looking at market internals is a way of gauging whether a move up or down in the market is solid and has breadth or underlying strength. Given the multiple 3C charts that show underlying distribution, checking out a day that closes higher is helpful in determining whether it's a move that is most likely being used to sell (which includes selling short) in to or whether there may be a change in the character on the day that is a warning flag. Much of what we do at WOWS is not based on what you can see or what has happened, there's not much of an edge in information that anyone with an Internet connection can view. One of my favorite market quotes is, "To make money in the market is to see what the crowd missed" and often the edge that we seek out is seen only in a brief glimpse. I'm not a believer in fundamental analysis at all because the fundamentals are so flawed and downright deceptive, furthermore, your fundamental analysis would have to be better then Wall Street's and they pay hundreds of millions of dollars for that analysis whether in house or through so called "Expert Networks" which are companies that hire former insiders who still have vast connections, you might as well call it insider information networks.

However, I am a huge believer in understanding the economic fundamentals. For example, understanding what banks are doing with their money via the ECB deposit facility or through short term debt auctions. There's information there that is useful, for example, when you see a trend such as we have seen over the last 3-4 weeks of banks willing to take a 0% return or even pay a premium just to get their money out of the financial system, that is a powerful piece of information. Hundreds of billions of dollars are out of the financial system earning negative yields rather then being put to work in investments and in this case, investments guaranteed to make money such as the LTRO carry trade that never materialized. Instead of making 6% or so banks are willing to pay out money just to keep it safe. That is something one should understand. Banks seemingly view chasing returns as being akin to picking up pennies in front of a steam-roller.

So on a smaller scale, understanding the dynamics in the market on suspect days are important as well.

I have used dominant price/volume relationships of the major averages for 5-6 years with good success to understand whether the day's action is something that needs to be examined further or whether it is a day in which there was likely market manipulation and the day is more of an outlier then the start of a strong trend.

The four price volume relationships are Price Down with either volume up or volume down and Price Up with volume either up or down, that gives you the 4 possible combinations. The key to using this kind of analysis is looking for a "Dominant Price Volume Relationship". Every day we have P/V's but very few days to we have truly dominant P/Vs and when we do have a dominant P/V it's usually smart to listen to the message of the market. This is a type of analysis that few look at, there are variations such as the Advance Decline line and A/D volume, but this is a bit more unique. Lets just take a look at the major averages.

This is a custom screen I have created on TeleChart for each of the major averages. It looks at each component stock in the average and tallies them into 1 of the 4 categories. Remember, we are looking for dominance in one category and confirmation among the various major market averages.

The Dow-30

Today's dominant P/V relationship in the Dow-30 is Price Up and Volume Down, it is 3x greater then the second place relationship and almost 4x larger then the relationship that would make today a truly bullish day; therefore it is heavily dominant.


NASDAQ 100

 We see the same dominant relationship among the 100 NASDAQ stocks,  Price Up and Volume Down. The relationship accounts for nearly half of the NASDAQ and is therefore extremely dominant.

 Russell 2000

Here again, the dominant P/V relationship is  Price Up and Volume Down. There are about 4 times more stocks in the dominant relationship then in the second place position, which would also have been the bullish relationship. This is a VERY DOMINANT RELATIONSHIP, with more then half of the components falling into it.

S&P-500

Again, we have dominance in  Price Up and Volume Down, more then half the stocks and more then double the second place relationship.

All Stocks in the database (There are no pink sheets, penny stocks or OTCs)

Here we have the same dominant P/V relationship,  Price Up and Volume Down and by a wide margin, approximately 50% of the total.

So we have a common theme among all the major averages, we have extreme dominance now what is the relationship's meaning?

Close Down and Volume Down has the least meaning, it is very common during a bear market as low volume is the hallmark of a bear market. It can be slightly positive to neutral on a pullback in a strong uptrend, it is valid on a major break in prices to the downside, but generally it has the least meaning.

Close Down and Volume Up needs to be interpreted within the market's trend or structure. A break away gap to the downside with heavy volume can be a sign of a very strong move down, thus very bearish. The relationship can also be bullish after a prolonged down trend when the market gaps down on heavy volume as it may be capitulation effectively ending the down trend.

The next two relationships have a bias and need not be interpreted within a trend.

Close Up and Volume Up is the most bullish relationship, stocks should see increasing volume on higher prices.

Close Up and Volume Down is the most bearish relationship and also our dominant relationship today. When we see this relationship, it suggests the market is being manipulated higher by using heavily weighted stocks within an index to move the index higher, however, the majority of stocks are rising on falling volume meaning that traders are not willing to chase prices higher enthusiastically. This relationship is often seen near or at a reversal and in my experience many times the market closes lower the next day. A string of these relationships within an uptrend is very bearish as well.

ES was negative all day today, usually the 3C ES moves quite well on divergences, I suspect what we saw today was a ramp in prices with heavy underlying distribution, it remainS leading negative in After Hours.

Early today I posted the ES chart with several negative divergence that were pre-premarket and they responded well, today's ES action vs 3C is one of the worst ES divergences I have seen since we started using ES. 

As to possible catalysts to today's move, yesterday a hedge fund manager  from Marathon and also at one point a member of the bond holder committee said that a Greek Private Sector deal in the ongoing debt restructuring debate that is holding up Greece's next tranche of Troika money desperately needed to avoid a real default, by March 20th, was essentially a done deal as Bloomberg reported yesterday. Some believe that Mr. Richards of Marathon who gave the Bloomberg interview may have used today to trade to his fund's benefit. He was and may still be a member fund involved in the negotiations (that is unknown, if he is not, then he probably would not have direct knowledge of the negotiations), which up until the Bloomberg story yesterday, were all but dead in the water. The Financial Times has reported late today that the deal, is far from done.

"Several hedge fund managers that hold Greek debt have said they have not been involved in the talks and will not be agreeing with the “private sector involvement” (PSI) deal – which centres on a 50 per cent loss on bondholders’ capital and a reduction in the interest they receive... Even members of the committee concede the process is unlikely to succeed in time for the crunch date: a €14.5bn bond repayment falling due on March 20."

So yesterday's late day rumor which was likely the catalyst to today's move or had some part in it, is now back to where it was before the Bloomberg interview late yesterday, the is to say, not looking good.

Why does this matter? If a restructuring deal can't be reached or looks coercive, it may lead to the end game that Greece has been moving toward for well over a year, outright default, which will have effects that will reverberate across the world as well as likely hasten the end of the EU as the dominoes start falling for real, not just in rates.

MORE AS I UNCOVER IT

Internals Coming Up

I have to wait for the end of day to get the internals on the day. I just peaked at the first set and they are interesting, not what you might expect.

Post will be up soon.

Interesting 1-2 day signals

You've seen this indicator many times before so I probably don't have to explain it. a 1-day sell signal is pretty powerful, a 2 day sell signal is very powerful. There are 1 and 2 day signals in all of the major averages.

 S&P-500 1 day sell (orange) and buy (green) signals

 S&P 2 day

 Dow-30 1 day

 Dow 30 2 day

 NASDAQ 100 1 day

 NDX 2 day

 Russell 2000 1 day

R2k 2 day

XLF FAS

I'm pretty sure GS is behind Financials' move today, however comparing different ETFs because they trade with different demand/volume can often give clues, that's the basis of the name of 3C "Compare, compare, compare"

 FAS 2 min today, if there were confirmation, 3C would be as high as it was at the same relative price level marked by the red trendline.

 That weakness has bled through to the 5 min chart.

XLF 1 min s just starting to get nasty.

More ES Observations

Not only is 3C making new lows on ES (and this timeframe has been very useful), I didn't notice until just now, volume in ES is falling off to lows not often seen.

Been waiting for this too: JPM possible trade

It seems GS's earnings have given financials a boost today (?). JPM left a pretty decent gap to be filled and today it got its chance.

 JPM filling the gap

 Intraday JPM filling the gap on declining volume

 The 1 min leading negative I was looking for as we neared the gap top

 JPM 2 min

JPM 5 min

If I wasn't already bloated with financial shorts, I'd be taking a look at JPM in this area.

I've been looking for this all day... AAPL

 I've been looking for the weakness in the 1 min chart below to bleed in to the 2 min chart all day, here it is.

AAPL 1 min

Germany Downgraded

I can't believe I missed this! Egan Jones downgraded Germany from AA to AA-. What is significant n my mind are as follows:

1) Germany was downgraded
2) Egan Jones is the one who did it.

If there's one rating agency that has been on the ball before everyone else, it is Egan Jones.

From Forbes...

Time To Cut Germany's Credit Rating? Egan-Jones Downgrades To AA-

As to the broader implications, this may not effect the credit worthiness of the EFSF as the S&P has their own revised model, or it could prompt other ratings agencies to follow in Egan's footsteps so they don't have 2007-2008 egg on their face.

Internally in Germany, the populace is not going to like the fact that Germany was just downgraded because Germany is the top contributor to the bailout 

mechanisms which are already hugely unpopular with Germans.


In recent days there's been talk of an EU exit by a member state, yes Greece is the obvious on, but I was referring to Germany. It isn't the first time either. Politically things just got a lot harder for Merkel and the CDU. This may have some unexpected fallout yet to come.

3C ES Now Hitting New Leading Negative Lows

Churning

Churning is generally the handing off of shares from strong hands to weak hands, it tends to occur at price highs and reversals tend to follow as smart money is no longer supporting price.

I show you these charts because I think it's interesting to ponder that all of them are churning the exact same minute. There's a lot of interconnectivity in the market, correlations, etc, but ES and 3C both showed us distribution heading in to this. I don't want to push the whole conspiracy theory too far, but you can't deny the coincidence here is beyond strange.

 You already saw it in the DOW, which means 30 individual stocks or some of the heaviest hitters were all churning the exact same minute, strange enough, but here's the DIA-that would really be some impressive ETF management to create the same effect at the same minute.

 The IWM

 QQQ

 SPY

XLF

I hope you followed my gist and just learned something that may be new about the market.

Here the DIA chart without my scribbling

ES gave the first head's up, then the DIA, which recall the Dow has been leading. Any way, here's that DIA chart...

That's a pretty clear divergence

Churning it was!

This is where you want to take a look at short that you may like as you can probably get some at decent prices which lowers your risk. If you have questions, email me as always.

Dow-30

Right after that churning, which was also resistance intraday, this is what the Dow did.

DIA

I could be wrong, but t's worth pointing out...

This is the DOW-30, not the DIA, MACD is negative here (MACD should be used on trends and we have a trend on this timeframe). The high the Dow made also saw a decent chunk of volume, not the biggest of the day, but the Dow didn't move north of that high, which makes me wonder if that is a bit of churning. Keep an eye on intraday support levels if they are broke and watch volume at those areas.

Quick Update

 The DIA really grabbed my attention, I almost posted it with no annotations as it is so clear.

 The Q's are negative, not like the DIA, but negative.

And the SPY as well. The market (price only) looks frothy here.

Now ES is getting negative

Some earlier positive divergences in white, the first was the strongest, the second is a relative divergence, usually not all that strong and since it's been two negative divergences (or 1 larger) as ES looks to be getting frothy.

The CONTEXT Model is starting to break lower.

USO Should Really be Watched Here, Especially on a Closing Basis

Remember, because of the holiday on Monday, the EIA report will be due out tomorrow a.m.

 Today both highs which were in the green failed to hold on negative divergences. Right now (intraday) USO is playing out nearly the same model we see over the last 4 or so days on the daly chart and note that USO is in line on this intraday move, there was no positive divergence.

 Here's the break on volume intraday, similar to the daly chart. One can never say for sure, but it seems the EIA report is one of the most leaked reports out there judging from past experience.

 Here's the daily model I posted earlier today, it will be important to watch the close and volume which is looking like it may surpass yesterday's, this would give an entirely different character to the bear flag-like move.

Specifically (forgive my lousy graphics), a close with higher volume, which would be red and price closing below yesterday's open would be a bearish engulfing candle, a bearish reversal candle. The lower the close, the more bearish the formation would be. I still can't remember the name of this candlestick formation that I referred to in my first USO post today, but it ends like this (what you see above).

URRE Update

I updated URRE a little over a week ago, I said I believe it is in a larger base then what you see here and I just want to see the price action continue to round upward, day to day swings aren't important, just the trend. I also said I'd like to see volume increasing as we move forward, so far, so good.

 Yesterday URRE gave back some decent gains, but again, this is a longer term position, the day to day stuff is of little consequence. URRE since the last update has continued to round up and volume is obviously picking up. I believe this is the second part of a larger base and it is still in stage 1 accumulation. Stage 2 mark up would be represented by an impressive breakout on big volume, that's the attention getter that would help move URRE in the mark up stage.

 Here's a 5 min chart of the base formation you see above, 3C is doing what I would expect for a base under accumulation.

 The last accumulated base ran for a gain of over 100%, but I do not view these as two distinct bases, but rather 2 parts of a base. The run up would have forced them to bring prices back down in to the accumulation zone.

 On an hourly chart, you can see how the two bases look to be part of one larger base with the most recent base in a leading positive position, meaning increased accumulation.

Most importantly is the positive divergence on the daily chart. This would be the 3rd cycle for URRE with the first two yielding gains of 300% and over 860%. The daily chart shows this base as being even larger.... patience pays.

NYSE TICK INDEX

I'm pretty anxious to see what tonight's SKEW Index comes in at after that sharp gain yesterday. For the time being, here's a look at the NYSE TICK INDEX vs the S&P-500.

 Note the trend of the TICK Index (green with red trend lines) and compare to the S&P-500.

The chart below is of the S&P today, it may give a clearer view f the S&P's trend, now that you have seen TICK's trend.

You see what's going on during this rather flat area of the S&P? TICK s calculated as advancing stocks (per each tick, in this case the number of advancing NYSE stocks every minute, minus the number of declining stocks).