3C ES Trend Continues

So far in after hours 3 has made 2 new lows in ES without making a single higher high, we are now going on almost 50 hours of this behavior.

Tech on Deck

We had a lot of Tech companies reporting tonight, I'm not going to break down the releases, if your interested you can easily find that easy other then to make a few notes.

GOOG missed on EPS but beat pretty handily on revenue ($10.58 bn vs consensus of $8.41) the miss on EPS at $9.50 vs consensus at $10.50 is odd being their top line was so much stronger then consensus. These earnings look like these of a manufacturing company that has a margin squeeze due to rising input costs, it's strange to see that sort of tight margin miss in a company like GOOG. GOOG is down on heavy volume in after hours by 8.9%

A lot of that AH volume is significantly bigger then regular hours.


MSFT beat on EPS by a penny and missed revenue by a hair. MSFT is up 2.36% on light volume.

IBM beat on EPS and just missed on revenue, they're trading up 2.63%

INTC beat on EPS and revenue and is trading up .98%

ES is trading down slightly.

SKEW and more...

Most traders are familiar with the VIX, the VIX tries to estimamte the probablitiy of a market related move either up or down. The VIX is sometimes called the Fear Index. The idea is that a high level of fear represented by a high VIX reading usualy marks a market bottom and a low level reading on the VIX implies investor omplacency and is associated with market top. Here's today's VIX...

 The VIX closed today at 19.88, the lowest close since July 25 2010 at 19.35.

Here's the VIX with the S&P overlaid...

From that date, the SP-500 declined 17% in 12 days.

While the VIX attempts to measure the probability of a market event, the SKEW Index attempts to measure the probability of improbable events or Black Swans/Market Crashes.

I first mentioned the SKEW Index on Sunday. The index itself had not reached an alarming level, but the Rate of Change (ROC) in the index had certainly caught my attention, this is what the SKEW Index looked like on Sunday...

 As of last Friday's close, SKEW was elevated above the historical average of 115 at 121.92, but not alarming so, as mentioned, it was the rate of change that aught my attention. Three market days later, this is what the SKEW looks like as of today..

Today SKEW closed at 130.78 and as you can see, probably the sharpest ascent the Index has seen since being introduced by the CBOE.  A reading of 100 indicates almost a zero probability of a Black Swan event, the higher SKEW moves, the greater the probability of tail risk, or a Black Swan event.

As for today's Price / Volume relationships... Yesterday in this post I explained the importance of this little followed metric. Last night I said this about yesterday's Dominant P/V relationship:

"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."


Here are the P/V relationships for the major averages today.

All Stocks in the data base (these do not include penny stocks, pink sheets or OTCs).

Once again today, the dominant P/V relationship is Close Up and Volume Down, the most bearish of the 4 relationships.

Dow-30

Again today, nearly half of the Dow 30 closed at the same bearish relationship.

NASDAQ-100

We see the same dominant relationship in the NDX, over half of the components.

Russell 2000

 Today in the Russell, Close Up and Volume Down was the strongest relationship, but not what I would call dominant. The co-dominant relationship was Close Down and Volume Down, telling us that fewer stocks are closing up in the Russell 200

Russell 3000

The dominant P/V relationship was the most bearish, Close Up and Volume Down.


SP-500

And again today, nearly half of the S&P-500 came in at the bearish Close Up and Volume Down.


Forgetting 3C, ES, SKEW, VIX and the P/V relationships, I mentioned a couple of times today that optically, this market looks very dangerous here.

This is what I mean...

This is clearly an ascending wedge, it's also a bearish price pattern, trade has become thin. It looks reminiscent of 2008 in more then one way (I'm talking about the preceding trend)...

Throw in the other factors I excluded and it appears even more dangerous. The wedge in 2008 lasted about a month longer, but it's relative to the size of the preceding trend and top.

XLF/FAZ/FAS

Apologies in advance, I was really rushing to try to get this out before the close and I had an earlier chart request for FAZ and FAS and since FAZ is the inverse ETF of XLF (leveraged) and FAS is the leveraged long of XLF, well I like to compare and see if there are similarities. So you don't get burnt out looking at all the charts and lines, I'll put a summary below each.

***Don't miss the next 2 posts, they may make or save you a lot of money.

First FAS (Financials leveraged long):

 Short term FAS did nothing today after the gap this a.m., it didn't add at all on the weakness in the dollar/strength in the Euro, so much like the market which had a double top pattern intraday, the fact 3C led lower suggests FAS was under distribution.

 We have seen the same distribution over the last several days intraday and the 2 min chart hit a new low for the week while prices are near a new high. If that sounds counter-intuitive, it isn't. Pretend you are a fund manager with a 100,000 share position. You can't sell blocks of 10k without the HFTs sniffing you out, to them you are what's called an "Iceberg", meaning they see the tip of the iceberg on the 10k block, they know there's a lot more that is not seen and they will move prices against your position, so you have to sell in smaller blocks and despite what most traders think (they see big volume on a big drop and think its smart money selling) you want to sell in to higher prices so you never let out too much supply at any one transaction, you sell in to demand.

 The longer view of the same chart shows an increase in the rate 3C has fallen, with no reason to support the market, retail trade isn't moving anything nor is short covering as we are at multi-year lows in short interest, so the only thing moving 3C is distribution.

 The strong divergence in the 2 min chart has bled over to the 5 min. Right off the gap up this a.m. 3C was negative, it pinned FAS the rest of the day as there were no institutional buyers, only sellers.

 The 15 min chart looks confusing, the only thing that really matters right now is 3C hasn't moved above November levels. There was enough accumulation to make the cycle worthwhile back in early November. You saw what confirmation looks like in URRE, not present here. Nice day in URRE too, nearly up 19%.

 The 30 min chart is not as detailed, it's more of the general trend, but a divergence on this timeframe is serious. Again, 3C hasn't moved above the November levels, it is considered leading negative.

 Very long term, the daily chart shows FAS rolling over, it shows accumulation  and now a negative divergence. Daily chart divergences almost never fail.

XLF-Fnancials

 The 5 min chart is showing the same thing as FAS, that's good. XLF also went nowhere today. I can almost guarantee what the dominant Price/Volume relationship will be today and it won't be good.

 Anytime a 15 min chart shows a divergence in 1 day, it's pretty serious. It usually takes a lot of underlying action to move a 15 min chart that quickly.

 Longer term, you can check on past divergences to verify that 3C is working, that's really the only reason I notate them. The trend in the 15 min chart over the last month ha not been good.

 The 30 min hart alled the October highs as they were under distribution, the November bounce highs (this is a god example of distribution length being commensurate with the trend or amount of shares accumulated, October was a big rally, therefore it takes longer to distribute the shares, November was a bounce it took much less time). The leading negative divergence in the red box isn't the worst on this chart, the relative price levels between today and in late October and the 3C trend since is the biggest problem for XLF.

 The daily chart shows some distribution at the 2011 top, then confirmation in green then accumulation for the October rally and now a strong negative divergence. My overall feeling is that we are not talking about a 10 or 15% move down, it seems like the market is being prepped for something much more serious.

FAZ-Financial Short or inverse ETF. This should look roughly the opposite of the signals in FAS and XLF.

 Today FAZ was flat, but that's a function of the ETF's correlation. The 1 min chart was positive which is the opposite of FAS.

 The 5 min chart is very positive, compare it to the 5 min FAS/XLF chart. What the 3 charts tell you is there's confirmation.

 The 15 min. FAZ looks almost the mirror opposite of the 15 min XLF or FAS, again, more confirmation.

The FAZ 30 min chart is nearly the mirror opposite of both FAS and XLF.

Although these ETF's are meant to show the same price levels depending on their leverage and whether they are long or short, however, the underlying demand for each is very different, they'll never show a correlation in volume like they do in price and therefore, they are useful in confirming each other. When you consider how many timeframes are confirming each other and that they are in 3 different assets, the probabilities go way up.

Don't miss the next two posts, they may make or save you a lot of money.

XLK-Tech

I'll have to do these in separate posts.

 If I'm correct then looking at XLK above after it made its first break, the lows were accumulated in white, everything since then has been under distribution, if it seems like a long time, I'v seen longer a I have mentioned before about the $USD, USO and the market, here are the examples and I remember these vividly because they were situations similar to this, long ongoing divergences, but it all depends on the size of the position Wall Street is selling or putting on.

 Th market in 2008 was showing a long period of distribution in which it went higher, but that's the point, to sell in to higher prices, but even if you went short on the first sign of distribution, you still made a ton of money.

 This was when the election was coming up and the 4+ year uptrend in oil was killed, presumably to help the Republican candidate so Energy costs weren't an issue in the election, there was a large segment of distribution, but this was after 4+ years of no stop higher oil, still would have made a ton and I was trading this one.

Same thing happened in the $USD except it was accumulation, it went down probably 6 months after the first signs of accumulation, but any one who went long on the intial signal still made a lot of money (relatively as the dollar doesn't have high beta).

 XLK today

 2 min close up

 2 min zoomed out, green is confirmation or the mark up stage

 XLK 5 min today

 5 min long term

 XLK 15 min

 XLK 30 min, accumulation in November and December

XLK 60 min.

The interesting thing is now that XLK has spent 2 days outside the triangle, all of the timeframes are aligning and ES... well you saw it

Market Update

First off, ES has hit another new low. This is VERY strange, 3C on ES usually tracks very well and divergences respond well, I have never seen ES lead like this for so long.

Here's a quick look at the major averages, I want to get industry groups up next.

 I want to show you the zoomed out versions too, I'm just pinched for time so here's today as the market has hit a sort of double top, resistance and I suspect it has been selling and heavy at that. This is the DIA 1 min leading strongly negative

 DIA 5 min the same

 Even 15 min leading in a single day which usually takes more time

 IWM has been falling off in this parabolic move which I called earlier today, "Dangerous looking", like picking up pennies in front of a steam roller.

 IWM 5 min leading negative strongly, plus the IWM couldn't even make the second part of a double top today.

 QQQ 5 min leading negative strongly.

 On the 15 min chart as well.

 SPY 2 min, not much to say that the chart doesn't

SPY 5 min as well.

I'm going to try to get up the 3 industry groups.