A Candid Moment that "May" be a Game Changer

In this video of German Finance Minister Schaeuble speaking candidly to the Portuguese finance minister (apparently unaware he was being taped by a Portuguese news station) tells his Portuguese counterpart that after dealing with Greece, Germany will relax conditions and help Portugal, making it clear they are making an example of Greece. I'm sure by now this has gone viral throughout the EU, but especially in Greece where it is bound to inflame an already very enraged population.

Here's the link

Here's the Google Translation:

Talk quietly and when the two thought not being heard, was held on Thursday in Brussels during the meeting of European finance ministers and was captured by a camera TVI. Schäuble told Gaspar that Germany was willing to relax the Portuguese aid program, but after you solve the problem of Greece. "Thank you very much," said the Portuguese Minister of Finance. Vítor Gaspar said after the German minister: "We made ??substantial progress in the European context." "Yes, they did," says Schäuble. Pedro Passos Coelho said recently that Portugal does not need more time or more money to fulfill according to the European Union and the International Monetary Fund. "Portugal will not ask for a renegotiation of the program is running. (...) He said it clearly in Parliament and I will reaffirm it: Do not ask more time or more money to implement the program, "said on January 24, during a press conference.

Transcript of the conversation in its entirety Wolfgang Schäuble: If at the end we need to make an adjustment to the program [Portuguese], having taken large deciosões about Greece ... This is essential. But then, if necessary an adjustment of the Portuguese program, will be prepared. Vítor Gaspar: Thank you very much. Wolfgang Schäuble: No problem. Since ... It is that members of the German parliament and public opinion in Germany does not believe that our decisions are serious, why not believe in our decisions about Greece. Vítor Gaspar: We made ??very substantial progress in the European context. Wolfgang Schäuble: Yes, you did progress. Vítor Gaspar: Yes, we did. And now we have to work ...

If there were any question who is running the show in the EU/Troika, this should answer the question definitively, especially when you listen to the Portuguese Finance Minister acting like a dog sitting at his master's feet, grateful for any crumb, while the German Finance Minister acts as if any changes that need to be made to the Portuguese bailout are, simply completed by a wave of his hand.

How much humiliation are the Greeks willing to tolerate? I'm sure Wolfgang is getting a severe dressing down right about now by Merkel. And what of German opinion among the population? All I can say is this wasn't a good time for this candid exchange to be made public.

CME Cuts Gold, Silver, Platinum and Copper Margins

Wow, I never thought I'd post this, an actual CME margin cut?

We'll see if it effects gold or silver, it is bullish. The real question is what in the heck is the CME end game?

Cats and Dog Failing

The importance of the Cats and Dogs trades is that they often come at market extremes in sentiment just before a reversal. A few days ago the C&D trades dominated the top 25 stocks and the top 150, today they are notably absent, only 10 of the top 25 were C&D trades, one was URRE's gain today (one of our longs).


Conversely, 20 of the 25 worst performing stocks today were that Cats and Dogs, I mentioned this last night when I listed 5 possible C&D trades. In fact, I specifically said,


" I found a mere 5 trades that look good, I will say that I'm pretty shocked, I expected to have more like 30 or so, but going through the 32 stocks in a narrowed down watchlist, I found a lot of these Cats and Dogs trades are already burned out, meaning they drove them up and got the heck out of Dodge taking their profits with them, not at all what I suspected I would find."


I don't think this is a rotational issue as there was rotation in the C&D trades, biotech to shipping to Energy services, etc. The C&D trades aren't really a rotation in the market, they are more like a season and as I have maintained since I started talking about them and throwing some ideas out there, in my experience, they tend to make big moves right at the tail end of a bull move when sentiment is very bullish and traders who feel like they missed the move enter the market and look for stocks that are on sale.


Tonight's findings were not exactly expected, I had a hint last night just from seeing how many were burnt out (as I also mentioned, they are quick trades that can go up big and fall just as fast), but a complete mirror reversal from them dominating the top performing stocks to being the worst performing stocks (and these aren't pullback moves, they are collapses) in such a short period, was surprising.


It's time to tighten stops on longs, especially those that have a high correlation to the market (meaning they move with the market-we have several longs that have moved up against the market and those should be safer long plays). Most of you know what I'm expecting, there's just no way of knowing for sure when it will come (although there are many signals such as the season of the C&D trades that hint we are very close) and worse yet, the initial break can be devastating.


Just be diligent, have your risk management in line and look for those small changes that are out of character. I'm not trying to scare anyone, in fact this is one of the fastest ways to make money, I'm just putting out a cautionary note.

ES Leaking in AH

Toward the end of the trading day I updated ES, which had a relative negative divergence that lasted the entire day and had just moved to a leading negative divergence, that action continues since the close.

ES has taken out afternoon support levels and is still leading negative. Right now it is below yesterday's 4 p.m. close of $1347.

GLD/SLV Update

Both PM's were unable to hold onto earlier gains today and remain range bound after breaking their short term uptrends.

 GLD remains in the area of its large triangle's apex, it also closed with a bearish engulfing pattern today on increased volume.

 The break of the Trend Channel on a close is still where I want to see GLD before committing to any short of any size, the TC has done an excellent job in holding swing moves and then some.

 Early gain disappear again on short term negative divergences which are getting worse.

 Here's the same on a 2 min chart ( 1 min above).

 The 5 min chart had some modest accumulation at the white arrow, but saw a negative divergence again.

 Here you can see the cycle on a 30 min chart, accumulation at the white arrow, trend confirmation at the green arrow and distribution at the red arrow.

 Here's a larger view of the 60 min chart, again showing a negative divergence as bad or worse then the  October divergence sending GLD down to the December lows.

 SLV

 SLV also put in a bearish engulfing candle on the close while it remains rangebound.

 Again, a break below the Trend Channel is where I would want to consider any short trades.

 The 2 min chart's leading negative divergence shows why SLV can't hold any gains.

 Now the 5 min chart looks really bad

 As does the 15 min and 30 min below.

And here's the 60 min negative. This is a lot of timeframes all negative, I would say a decent move down/correction in SLV is on the way.

Robo-Signing Deal Complete

After nearly 2 years of the "Robo-Signing" scandal, the deal was completed today, in an election year and that has my mind thinking about the possibilities, especially considering billions of the proceeds are to help struggling homeowners, which will amount to a hill of beans when all is said and done over a 3 year period, but it sure looks like a victory for Obama any way you look at it. The banks are essentially footing the bill for housing aid and 3/4 of a million people foreclosed on will get a check for $2,000 (that's buying votes 3rd world style) ; it makes Obama look like he was tough on the banks in a period of American history which has seen probably the biggest backlash against financial institutions via the Occupy movement. For the banks, it amounts to a slap on the wrist-$26 billion between the 5 big banks, JPM, C, BAC, WFS, and Ally Financial, which lets not forget is GMAC financing, which got more then a little help from the government.


Was it a good deal for the banks? Rick Santelli pointed out, the banks are paying for this settlement using cash proceeds from previous bank bailouts which have not yet been paid out. The $26 billion dollar deal amounts to $2,000 for every person foreclosed on, which is probably about as much as the banks spent in legal fees per foreclosure. Some bank bulls/supporters such as Dick Bove, called this, "The mortgage deal from hell. There is no sanctity of contracts in the United States. Only fools meet their financial commitments. The non-payers are the truly enlightened." He also pointed out the inequality of the deal, more or less one person who made extra principle payments or put down a bigger down payment, won't get the benefit of the principal write down that those who have an upside down home, which may be because they stopped making payments, they put down a minimal amount, etc,  will.


 Initially the major money center banks were green and up more then they closed, several closed red. Buy the rumor, sell the news? 


BAC had a 2.6% intraday gain, closing at a +.62% gain, ALLY didn't give up much and closed at +.43 on a doji star and extreme volume. WFC didn't give up much, closing down at -.16% (a big deal these days). C was at nearly a +1.4% gain and closed down at -1.64% on a Dark Cloud Cover candle, the first since April 15, 2010. JPM also lost a bit from nearly a 1% gain on the day to a close of -1.12 and also putting in a bearish candlestick pair, a Bearish Engulfing pattern, the first since December 6, 2010.

 C on a bearish "Dark Cloud Cover" candlestick pair.

JPM with a bearish "Engulfing" pattern that swallowed the last 4 days of buyers.


Any way you dice it up, you saw what Financials broadly looked like in the last post so maybe this was a buy the rumor sell the news event.

HY, Financials & Commodities

 Commodities showed us some early correlation with the SPX, but have fallen off since noon time.

 High Yield Credit has refused to follow the SPX and make a higher high for 5 days now, this would suggest de-leveraging in Credit, which is a trend that has been underway for a while now.

Financial momentum showed nearly perfect correlation with the Financial heavy SPX early today, since then, even with a deal on Fraud-closure being struck, Financials have under-performed all day. Perhaps the deal was a sell the news event?

A closer look at Financials...

 A little surprisingly, Financials' daily chart looks more like the Dow then the SPX, but there are some pretty big money center banks as Dow components. Today's close is what is called "Dark Cloud Cover", a bearish candlestick pattern that often leads to a reversal. XLF was only $.03 away from making an even more bearish, Engulfing pattern. Either way, the flat period after a breakout from an ascending wedge (which is the reverse of what technical analysis books teach), is a common event before a reversal, it's the head fake concept. The breakout from such a large bearish wedge "should" have brought in buyers on the failed pattern. I think the reality is that retail alone can't move the financial sector. Over the last 5 days, XLF has gone nowhere at a -.14% decline. Volume was also higher today on the bearish close.

 Here's the same head fake-looking pattern in XLF as we see in the Dow-30, we also see the ATR for XLF drop over 40% as XLF rallied in the wedge. Just as a function of higher prices, one would expect the ATR to increase, not to mention a solid rally should see a wider range and stronger closes.

 My version of Demark principles, buy and sell signals. Notably this is the largest sell signal in well over a year.

 The daily 3C chart from 2010-2011 through present. Daily divergences are very strong signals.

 The hourly chart, leading negative with a possible little head fake move.

 The 15 min chart leading negative.

 The 5 min chart leading negative and especially at the gap up this a.m. as a possible head fake move.

And the 1 min chart getting very ugly in to the close.

I'll check on the other major industry groups as well as their inverse ETFs

ES Update

ES looks the same, there's been a long relative divergence all day and now it is leaking to a leading negative divergence which is stronger then a relative in most cases.

It's 3:30, time for the big boys to come out and play...

It looks like we'll be in for a volatile close (as volatile goes these days,  +.15% daily returns aren't exactly volatile, but it's all relative).

As you probably know, the locals (Wall Street) usually does most of their positioning at the close or in the last half hour as traditionally day traders exit the market. This is why I favor end of day closing stops as intraday volatility can often be meaningless.

 As seen in the last market update, things weren't very rosy, they have gotten worse since. The DIA 1 min is leading negative and the price pattern looks like a rounding top, intraday of course.

 The 2 min is leading negative

 Even the 10 min is leading negative on an intraday basis.

 The IWM which has been the under-performer for the 2nd day was mostly in line, it is negative at the last run up.

 The 2 min chart which was nearly perfectly in line is leading negative.

 This has seeped in to the 5 min chart, which is leading negative.

 QQQ 1 min has been in a leading negative position most of the day, actually all day.

 From yesterday's afternoon leading negative divergence, it has just gotten worse.

 Now it is leaking in to the 5 min chart, leading negative both intraday and long term.

 The SPY 1 min is leading negative and rounding over

 The 2 min has really changed character today, strongly leading negative.

And that has leaked to the 5 min which is leading negative intraday and long term as well.

The NYSE TICK chart is very volatile bouncing between +1000 and -1000 in a matter of minutes, there's no trend there, just extreme volatility.

Time to check credit/risk assets

Miss a Little Time and You Miss a Lot

Market events are moving so quickly, a few hours can be a major change.

So earlier today we heard directly from Mario Draghi, the HEAD OF THE ECB! Draghi said he talked to the Greek PM and a deal had been struck, this is not some off beat news rag, but the head of the ECB!

However, not to be left out, the FT also reported early today,


"An official in the prime minister’s office says: “There’s an agreement, Mr Papademos has met with Mr Samaras and it’s done. There will be a statement shortly."


This report would mean that the Greek coalition government has actually agreed to a deal, which is about as far fetched as anything.


In Draghi's press conference he said,  "GREEK PARTY LEADERS HAVE REACHED AGREEMENT"


The initial report was Draghi had spoken directly to Papdemos.


Then form the Greek Prime Minister's office, a statement was released this morning,

"The agreement with the troika has been completed

Prime Minister’s Press Office
Thursday, February 9, 2012

The government’s discussions with the troika were concluded successfully this morning on the issue which had remained open for further elaboration. The political leaders have agreed on the result of these discussions.

Thus there is general agreement on the content of the new program, in view also of this evening’s Eurogroup meeting. This program accompanies the new loan agreement to finance Greece with 130 billion euro."

Pretty darn official so far! Remember at this point, Germany still has to vote on the bailout package Friday.

Then from the IMF-again, not a local news rag....

IMF SAYS IT'S NOT FORCING AUSTERITY ON GREECE AS TALKS CONTINUE

IMF SAYS 'PRIOR ACTIONS' LIKELY TO BE REQUIRED BEFORE FUND OK OF NEW GREEK LOAN PROGRAM

and...

 Greek Deal Lacks Detailed Paperwork For Decision

As I said yesterday and many times, in the EU and Troika, "one hand doesn't know what the other is doing."

Then from Bloomberg:

"Greek Deputy Labor and Social Security Minister Yiannis Koutsoukos resigned his cabinet position to protest austerity measures agreed to by Greek political leaders"

Then the new wild card, Germany, is reported as saying the following in the AP:

 From the German Finance Minister, keep in mind, this AFTER Draghi said the deal was done as did the Greek PM's office directly...

 Greek deal on spending cuts appears to not yet fulfill bailout conditions

What comes next? We'll find out shortly, but what a CIRCUS the EU is!

Updated Dow Theory...

One of the most time consuming and difficult concepts to teach (while I taught Technical Analysis for our local school system's Adult Education "Community Educator" program for 3.5 years) was that of Dow Theory, something Charles Dow started via Wall Street Journal editorials (by the way, he also founded the WSJ), but was actually only later put together as a cohesive concept after his death by 3 men. Charles Dow never used the phrase Dow Theory nor did he present it as a cohesive system.

The gist of Dow Theory (remember this is the early half of the 20th century) was that the two major indexes at the time, the Industrials (what we now know as the Dow-30) and the Transports (known now as the Dow-20) should confirm each other, if for instance the Dow moved higher (being packed with Industrial stocks), but the transports failed to confirm (if Industrial production is truly strong, then the transports that deliver industrial goods should also be strong), you would have a suspicious market and should be wary of that market, whichever was moving without confirmation from the other.

Although the Dow-30 itself has changed dramatically over time with few true industrial stocks left in it as technology has changed the American landscape, the theory still holds up. When the market is in a bull market, rarely do the major averages diverge, they move up together. Although the beta might be different in say the Dot.com era, you would expect the NASDAQ 100 to out-perform the Dow-30, or during the housing bubble, you would expect the S&P-500 which has more exposure to financials to out-perform technology. Yet, they should move together fairly tightly.

So I quickly threw together a way to take a look at the averages real quick just to see what the confirmation between them looked like; here's what I found....

 Since the NASDAQ is the recent leader, I compared it to the Dow and the SPX using a Rate of Change indicator applied to both averages and then looked at the difference between the rate of change between the two. Although the price chart doesn't accurately reflect the volatility of the market and the moves down because the price chart is so small with 3 windows open, I did add the percent move in the areas of divergence. As you can see they diverged in July before the NASDAQ plunged over 16% in a very sharp fall, you may remember it, many people thought that the move down had no end in sight-as a side note, 3C identified the likely bottom 3 days before it actually bottomed in early August. There was another smaller move within the trading range during a divergence and as you can see now, there's a current divergence.

 A 60 min chart shows the transition a little better.

This is the daily chart of the NDX vs the SPX, we see similar divergences and at the same times as the Dow chart comparison above.

Quick Market Update

 DIA- yesterday at the lows the DIA did put in a small intraday positive divergence, lifting off the lows in to the afternoon, this went negative in the afternoon and sent the DIA in to a closing range, that negative divergence manifested on this morning's gap up open, which quickly failed. The rally off the lows since this morning hasn't seen a positive divergence and is now in a leading negative position.

 The IWM, again the under performer today also saw a similar negative divergence in closing trade yesterday, carrying through to this morning's gap up, which again failed, most of the day thus far the IWM has been in confirmation, which is slightly bearish as it is underperforming and in the red, there is a slight negative divergence on the move up from 1 p.m.

 The QQQ's were leading negative in the late afternoon rally yesterday, the initial gap up failed, but found support right at yesterday's close 9white arrows), since then the rally this has been under a leading negative divergence, fairly sharp at this point and lower then yesterday's.

The SPY also saw a negative divergence in to the afternoon trade, sending it from a rally mode to a lateral range during the last hour and a half of the day, that negative divergence carried through to this morning's gap up and as you can see, the gap failed quickly. There has been no positive divergence off the 10:20 intraday lows and the move off those lows, although originally confirmed, has since gone negative. It is now leading negative locally intraday and a larger relative negative divergence between prices around 1:30 yesterday (and the 3C position at that point) and the present higher prices, suggesting there is less short term intraday money in this move up then there was at yesterday's 1:30 price level.

URRE Chart Request

Finally back, the Doctor is going on vacation, I've never seen it that busy. In any case, URRE a long term long trade we have been eying is making a bit of a move today and I was asked about this, it's time to update URRE in any case.

 When URRE first started showing changes in the character of its trade, I warned, 'don't get too excited just yet, rarely do we see "V" shaped recoveries, URRE will need to build a small base" and as is often the case after a bullish descending triangle, unlike what Technical Analysis books will tell you, it has. When it got a little choppy a few weeks ago I said, "As long as it keeps rounding, I have no concerns" and the 22 day moving average in blue is a good way to look at the trend, it is rounding, it was getting a little ahead of itself and has corrected which is good, the stronger the base, the better.

 Here is the bigger picture of the bullish descending wedge, the opposite of the bearish ascending wedge I showed you in the Dow-30 last night. As T.A. textbooks will tell you, this wedge should break out at the apex, which it did in yellow. THIS WAS A HEAD FAKE MOVE. As I have been telling you for nearly a year, these wedges almost always act the same and that is to confuse and knock traders out of their positions. Any immediate break out without at least some small base, is suspect. So the market has changed, technical traders have not and URRE is doing what it should, these are the new rules of wedges. We see on this 2 day chart, just to clean up the trend, the rounding in price and volume, THIS IS WHAT I SAID I WANTED TO SEE. We also have a positive RSI divergence at the base.

 Short term , today we have a move of +6.45%, which is nice, but nothing compared to what URRE should do. Wedges commonly retrace their base, meaning a target of $4.00 is a rough estimate, but that is around what we are expecting. URRE can REALLY move when the set up is there. Thus far the 1 min chart is confirming today's move and is actually leading it. This is what a healthy move should look like in 3C, confirmation at the bare minimum and leading positive is even better.

 The 2 min chart over the last week or so is in near perfect confirmation . Confirmation means 3C makes higher highs with price or lower lows with price. This tells us the trend is healthy.

 The hourly chart is a very important timeframe for the big picture, here we see at least 3 major accumulation zones.

Looking at the 3 day chart, even more influential, we see a positive divergence in 2008 that led to a 300+% move, another in 2010 that led to a move of over 800% and now a leading divergence that is just as strong as any o the past ones if not stronger.

Thus far, URRE is fine, better then fine.