Bottom line

The main take away from the market today was that economic weakness in the US is NOT transitory as the F_E_D would have us believe. I think Bernie is caught between a rock and a hard place as to easing, is there's QE3 gas and food prices which the F_E_D considers to be volatile and doesn't consider in inflation projections, would go through the roof with a bunch of money sloshing around in the market heading to all speculative assets, this isn't good in an election year. On the other side, QE is they seem to know and other than lifting the market, it has done nothing for the economy, the same is true of easing in Europe through the 2 LTRO programs, as of today there is a record amount of money from banks in the ECB's deposit facility, that money didn't make it in to the economy, it didn't support bond yields, it went to fill huge bank capital shortfalls.

In the meantime, this trend will progress in the US.

Citigroup Economic Surprise Index has moved down with economic reports surprising to the downside since we moved out of the seasonal adjustment period earlier in the year.

Egan Jones also, like the S&P last week, cut Spain's credit rating today for the second time this year (same as the S&P) from BBB- to BB+, nearly JUNK status and part of the headwinds pressuring the market today. As I have been warning, Spain is the domino that could topple the Euro-zone, but recently Portugal has stepped up as the next country that will likely follow in Greek footsteps with an additional bailout and likely needing the same debt restructuring, I'll talk later about the huge mistake the ECB made with Greece and how that will effect every probable sovereign default in the future.

It was touchy in the market today and for the 4th time in a week, it looks like Wall Street stepped in with some additional support, this is small change compared to what they will distribute on a market move higher. I have expected and continue to expect 1 move higher to trap bull for reason I have mentioned numerous times, it's all about the snow-ball effect.

As for ES toward the close and thus far after the close... the support appears to have paid off.

 ES with a positive divergence all day was enough to halt the early morning slide, again, note how the divergence grew stronger on the dip below the SPX's intraday triangle, which short sellers saw as a continuation pattern, expecting the market to make a second leg down today. Those shorts are now trapped ad as momentum/short term traders, they will likely cover, which is probably what gave ES the momentum it needed to make it back to the VWAP.

WS from being down to recovering its VWAP, this may not look like much on the chart, but it is a victory for Wall Street's short term plans, in fact ES has crossed above the typical resistance found at the VWAP where sellers should be thick.

The ES CONTEXT model below has improved all day with the model showing that the underlying credit, currency, etc conditions are supportive of further gains in ES as the model is higher than ES, this is further evidence that this market volatility bounce is not just quite done, but the market (looking beyond a week or so, is done and in very big trouble, ironically a lot of that trouble is due to the manipulation of prices higher via QE1/2 as stocks are not fairly priced and much higher than they should be, that mean they have a lot of potential downside.

I have my first board meeting since being elected last month to our association's board so I need to get ready for that, but I will follow up with more information on the internals of the market, some tactical ideas for our longer term strategic views and perhaps a few stock ideas as well as covering any changes in the Futures.

If you have email questions, I should be back by 8 pm EDT.

I think today was an excellent day to pick up on several market trends, concepts in trading, and an inside view to what was really going on today as most traders who look at price and not the underlying trade would have been expecting an afternoon sell-off based on the continuation triangle that was in effect all day today. We try to follow in the footsteps of Elephants, always aware that Elephants love eating peanuts.

Enjoy your night, see you soon.

And Here it comes

Around 3:30 day traders (what's left of them) start exiting the market, the trade around that time has traditionally been misleading due to their exiting positions. The 3:30 to 4 p.m. is where institutional money is most active with regard to trade that counts as far as analysis, the a.m. trade is usually very manipulative and deceptive, either taking out limit orders/stops or setting up a head fake move that can be used later.

The support Wall Street has thrown behind the market has kept it afloat as we haven't lost much ground since the open, but we have had some bad fundamental news pressuring the market, as I mentioned many times, "Once Wall Street invests in a cycle, they rarely let it fail", this cycle started April 10th and is a volatility shakeout of the shorts and a bull trap for the longs before they take the market down. The shorts being squeezed on the break at SPX initial support lent momentum to the SPX $1400 move, now they'll be trying to get the bulls trapped to lend momentum to a downside move that has been long in the making.

Unless you are a VERY short term and very nimble trader who is willing to risk a long position in a market that can crack at any moment (I'm pretty aggressive and I wouldn't take that trade), today was not a day to trade, but to be patient which is your biggest edge over Wall Street, you can pick and choose your battles on terms that you define.

 ES continued support is starting to pay off. Watch ES overnight for a possible Gap up tomorrow.

 The intraday triangle... As I said early on today, a 'u' shaped reversal is not likely, but rather a longer 'w" type pattern, the point being, they need time to get large positions in place, even if they are meant to be very short term in nature. I also warned, watch out for the shakeout/head fake move, that happened on the break below today's triangle's apex, the apex is approximately at the red trendline. Since this capture, we are well above that area. This is a lesson that we have learned thousands of times, no matter what timeframe, daily, weekly or 1 minute, the head fake move is there about 80+% of the time before the reversal, it is needed for momentum on the reversal and you'll see what they did with the head fake move below.

 SPY 2 min intraday positive divergence, look at the relative 3C level at the head fake break below the triangle, price is at the intraday lows, 3C is making a new higher low, increased accumulation as they pick up shares on the cheap that were stopped out. The leading positive since looks good for what I have been expecting, although today was a tough nerve racking day, I trust the charts.

Look at where 3C is at the head fake move below the triangle compared to earlier levels, the stops were accumulated as well as the short sales.

We are on track.

Speaking of Energy-Update

I do think Energy will rotate out, it is not well supported by FX/$USD here. I have a position started in XOM, I'd like to give it another day before adding, but quick coverage can be grabbed with a leveraged Ultrashort like ERY.

 Energy was trending down, we saw what I think was a head fake move out of the triangle and then out of the downtrend.

 Today's 3C chart in Energy showing distribution on strength, there needs to be strength to distribute in to the same way we want to short strength.

 2 min chart shows the same today, in yellow a big distribution point on a head fake move.

 The 3 min chart confirming distribution today

 The 5 min chart's trend is horrible, this is a deep leading negative divergence.

 The 15 min chart is bad enough that I would consider Energy/XLE a short here, I would leave some room on the stop though.

 The 60 min has a great negative divergence, the pop above the downtrend sen to the far right in negatively divergent.

We can look at XOM closer tomorrow as the market would need dollar weakness which would help energy in the very short term, this could be the chance to initiate or add, but as I mentioned above, for the longer term, I have no problem being short energy right here.

Bounce is still very much a possibility

In fact I'd say it is a probability. I haven't caught up with the rest of the news today, but the earlier Chicago PMI was disastrous and the Dallas F_E_D manufacturing index, other than having 1 sub index on employment that looked decent, was pretty bad. Considering, the market has held up well today, of Wall Street were not running a cycle (volatility shakeout) off the April 10th lows, these reports would have sent the market much lower and when the market break, the continuing trend of these reports is likely to do so in the near future. Remember the market is emotional above all else, FEAR and GREED and if you look at any market cycle, you'll see Fear is much stronger than Greed, take the 2002-2007 bull market and it all being taken back and then some in less than 18 months with the majority of that in 8 months.

Looking at ES however (this is short term only), they continue to add support, as I have believed all along (and we've had an excellent track record with these bounces), AAPL will be the stock to watch and I believe the market has one last upside push.

ES seems to verify that as they keep throwing more support behind it on an intraday basis (meaning the amount of support pales in comparison to how much they distribute on the moves up).

3C is nearly parabolic on ES 1 min.

I still have positions to add in AAPL, BIDU and a few other, I still feel pretty confident that patience here is the best tactic from the charts that have formed late last week and today.

Energy is one we'll have to take a close look at as it is the only real support among the 3 major sectors today. It should rotate out on an AAPL driven move and that's where we'll want to be looking to add/initiate Energy shorts in select area.

BIDU Update

BIDU is an example of patience and letting the trade come to you rather than chasing it, as well as the power of phasing in to a trade, which MUST be distinguished between the horrible idea of dollar cost averaging. The difference is all in your trade plan, I purposefully phased in to BIDU with a large stop and smaller position size so I could add to BIDU, it was part of my trading plan before I ever executed a position. Dollar cost averaging, whether long or short i an emotional reaction to a position that is going against you and that i already outside of your risk management plan.

My BIDU position averaged is at a 9+% gain as of now, but if you have been following the trade idea, I expect a lot more. This is one to keep an eye on as it is still in long term good position and we may not get another chance to add on strength.

 The long term picture is that of a large triangle after an extended uptrend, these are almost never consolidations, but rather tops (or bottoms if the preceding trend was down). The daily 3C chart shows the long term distribution going on in BIDU previous to the triangle appearing.

 The trade plan was the same as usual, BIDU is in a top that should break down, wait for the head fake move to short in to strength, 3C confirmed we would see a head fake move breakout above the triangle and that it would be sold in to, the yellow area is where BIDU made the head fake move above the triangle-this is where we wanted to start shorting BIDU on strength-let the trade come to you.

 Near term BIDU has a gap and a short term positive divergence like the market, AAPL, ES nd a number of other risk assets, it wants to make a move higher although I very much doubt we will see the head fake area and probably more likely a gap fill and maybe some.

BIDU hourly shows the distribution in to the head fake move. I have room to add about 40% in BIDU and being I started the position higher, my last phase in is usually as the trade is confirmed to be moving in my direction on some short term strength, so if you have been following or phasing in to BIDU, any strength over the next day or so should be looked at as an opportunity to consider shorting or adding to BIDU. The larger trend's price pattern target implication is around the $70 area conservatively speaking, this can be leveraged up, here' an example from an article I wrote at Trade-Guild.net that is linked on the left side under "Resources and Concepts", you can make more than 100% in a short trade.

Keep BIDU on your radar.

Still working to push the market higher

 We are coming in to the last hour of trade which is the most important, They seem to still be throwing short term support behind AAPL which at this point is a proxy for the entire market.

The same is true of ES.

Context

Last night the CONTEXT model was DEEP in the red, recently the underlying conditions that make up the model have improved slightly and the model is now higher than ES, not by a lot as there are some significant head winds, currencies are not supportive, but for the most part they aren't hurting too bad either, they are pretty much in line. I would think this is why we are seeing some external support on the charts, for example ES-still positive.

Recently the leading positive in ES has grown even more. There's a bit of a fight going on here between the macro data and the cycle set up, but it looks like there's increased support as the day wears on, I'm still in the camp Wall Street is going to run this higher one last time.

Pretty close to make or break time...

 The Bollinger Bands (10 min) are ver tight, indicative of a highly directional move (considering the timeframe).

 Here's the Apex of the triangle, as I have warned in nearly all of the updates, "Watch for a head fake move first" and it looks like we have that move as price moved just below the triangle and volume ticked up as stops were hit/shorts entered (it's all the same-selling).

 SPY intraday positive divergence.

 The volume surge wasn't HUGE on the break below the triangle's apex, but the NYSE TICK chart shows that move to have the lowest TICK reading of the day, a lot of stocks moved down right there and there' a positive TICK divergence since.

ES remains in an intraday positive divergence which is not too common lately during these overall distribution periods in to strength, but in my opinion the market stepped in again to support it from falling too much on the economic data misses as I suspect they still want that final blow-off move above $1403 or greater.

Quick Market Update

 AAPL which never confirmed the downside move, continues to hold up on the short term chart, it's now moving intraday to a leading positive divergence. I don't think the AAPL chapter is quite finished yet.

 DIA 2 min is now leading positive above Friday's highs as it remains in a flat range like area, which is a typical accumulation area, remember though these are short term chart for short term trends, the longer term trend as you know is in shambles.

 The IWM 3 min is continuing to move higher even though this has been one of the worst as far as underlying trade goes, I don't see the IWM as setting any break out precedents that will encourage the bulls like the SPX could do.

 QQQ 5 min is improving and leading positive here.

 The triangle has grown much larger, I warned about an intraday head fake move below the triangle, it looks close to making that move, so pay attention we could see a fast move shortly.

The SPY 2 min is also looking much better in the area here.

UNG Update

UNG has been a long term stock of interest, the last update that is fairly comprehensive was from last week, April 23rd. If you are not familiar with the stock and long term trade idea, that's a place to start.

There are many unique characteristics in UNG/Nat. Gas in general and I think the last time I saw something this long, protracted and meaningful was home builders being accumulated during the 2000 Tech bubble sell-off, Wall Street was clearly way ahead of the crowd on those trades that saw long term accumulation of a year or more and incredible moves. Coming right after the "Tech Revolution", who in their right mind would have thought housing was going to lead the next bull market? Wall Street knew and years in advance. I have laid out many of the strange occurrences concerning Nat. Gas, like Bernie's Congressional testimony.

In any case, as a long term trade that probably has a long term secular shift headed its way, Nat Gas / UNG seem to be one of the few stocks out there that seem to be building a huge base.

Here's the update for today as UNG is moving against the FX correlation and the overall market (up in a down market).

 If you look at the last update you'll notice volume is huge lately, you can't see it on this chart as it isn't long enough to show the pick up in volume. The bearish Descending Triangle/Continuation pattern looks to me to be one giant head fake area in which shares of Nat Gas can be accumulated on the cheap, but there have been some recent changes in the trend that are worth keeping a close eye on.


 First the Trend Channel which has held the move below support is now broken-this is the daily chart, so it's a significant break suggesting the down trend since breaking below the triangle is over. The stop area on a long position is around the red box, although I look at this as a long term secular change and it may be worth having  smaller position size and a wider stop to counter volatility/noise.

 In the VERY near term, UNG has run in to a head fake upside move which is acting as resistance, the head fake move is at the green arrow, note the price spike and reversal-again we almost always see some sort of head fake on every timeframe before a reversal in trend, it i that way because the head fake provides momentum to the reversal. So on the 1 min chart we are seeing some profit taking most likely in anticipation of a slight pullback or maybe consolidation.

 The longer term trend on the 5 min chart looks excellent, it is leading positive here. So I doubt there's going to be much more than a pullback or consolidation.

 Here's the move below support on a 30 min chart, as I suspected, it looks like all of the stops/shorts, etc were accumulated as this 30 min positive divergence looks very strong.

The 60 min long term relative divergence is huge, o we may in fact be seeing the start of a move toward the upside in UNG/ Nat Gas that will break out back above where support initially failed. This appears to be a huge stage 1 base, stage 2 mark up would be significant on a base this large.

PCLN Update

On Friday I added a bit to the model portfolio EQUITIES PCLN short position, here is Friday's PCLN update as PCLN is in the target zone.

As you know, since we have been in the volatility shore break zone with few trends lasting more than 1-3 day, I had been using options for short term trades of 1-3 days, in effect using the volatility to add to profits in trades that otherwise wouldn't have been worth the risk:reward relationship. About  a month ago I started building equity short positions rather than using leverage and the transition has accelerated to very few leveraged trades and trying to short strength wherever possible, but leaving plenty of room for a stop and to add, PCLN on Friday was an add to position which wasn't very big as I'm tech heavy right now. However it is still looking like a good set up and for whatever reason, this seems to be the 1 stock that I get the most emails about with regard to shorting it. What did PCLN do to you guys that you hate it so much? :) LOL!. Wherever there's money, I'm in for the trade. The reason for moving toward equity shorts and away from options is because I believe we are on the edge of a downtrending market, I don't want expiration concerns and I don't think I need the leverage although it served me/us well. I think it is just choosing the right trade for the market conditions.

 Since April 10th, PCLN has broken through all 3 of our upside targets offering many opportunities to phase in to this trade and short on strength rather than chasing a downside move. The final target area is a new high around the yellow area as posted Friday and in numerous other updates, this would be the best looking entry from a risk perspective and a bull trap/downside momentum perspective.

If I could access the model portfolio (there having some site issues today), I'd be considering adding one last position in PCLN on a break to a new high, as mentioned already though, I'm a bit heavier in Tech than I would prefer.

 This morning the stop were hit o a move below local support -see volume under support, this looks to have been a planned shakeout to boost PCLN.

 Friday 3C 1 min was leading negative in that support area suggesting short term they were positioning PCLN to break support in red, the market obviously helped out. The chart quickly jumped back in line after that break.

 As to the trend locally, strength is being sold/shorted.

 The 3 min chart with less noise shows this more clearly as PCLN is leading negative on this most recent move. Note how distribution starts slowly as to not knock the price down by selling / shorting too much and then accelerates in to higher prices.

 The 15 min chart is where we really start to care about what is going on in the longer term trend, you clearly see strength being sold for some time, it takes some time to reverse positions for large Wall Street funds, it can't happen in a day like we can trade. You also see the April 24th Tech rotation we identified before AAPL earnings after market the 24th, look at the divergence (negative) since April 24th, deeply leading negative, ugly chart for PCLN.

 The even more important 30-60 mi charts confirm the longer term trend as PCLN is seemingly dumped by hedge funds and institutional money everywhere as well as insiders I presume by the looks of the overall insider transactions.

I obviously like PCLN right here, but  break to a new high  (closing would be best) would certainly attract my attention and I'd probably add 1 more time. At least I have a decent position built there already.

Full market update

 Earlier I mentioned a "U" shaped reversal to the upside was unlikely, a "W" shaped move would be more in keeping with what we normally see, the SPY has traced out such a pattern, interestingly for the intraday momentum traders it has also thrown up a bearish descending triangle, this is taken by technical traders to be a bearish continuation pattern from the preceding trend and on this timeframe the trend was down, so shorts will pile in to this pattern based on that alone. A head fake move that breaks lower support would draw even more in and can't be ruled out, but what I was expecting to see based on the break of support, the volume surge and the early 3C charts, thus far is playing out. A breakout to the upside on this triangle is what we would be looking for as to that one last blow-off upside move. We have 5 points of contact in the triangle and the apex is almost complete so a directional move should be coming soon.

 The  1 min chart continues to be positive in the SPY, now leading positive.

 That strength on the 1 min has bled to the 2 min which is also leading positive here, it appears the busted stops were accumulated. Usually after 12 p.m. or the Euro close we see some dollar weakness and that gives the market some upside breathing room.

 The 5 min chart is by no means bullish at all, scaled out correctly it is leading negative, but there is a mall intraday relative positive associated with the 1-2 min charts bleed through.

 Recently underlying trade in the DIA and IWM has looked the worst, we have a decent enough 2 min positive divergence in the DIA which is very close to moving to a leading position, in fact I just checked and since this capture it is leading positive now (3C has made a high above the white trendline).

 The 5 min chart is simply in line with price, that may change if the 2 min keeps growing.

 Look at the 30 min DIA-this is the longer term trend and the most important of the above DIA charts, we expected distribution in to higher prices, that is what we have, this is deeply leading negative for a 30 min chart and very quickly. It is VERY IMPORTANT to realize that the cliff holding the market HAS broken, this is the most difficult time to get exact tops as this is already more than negative enough to send the market lower. However the trend in the market has not been one in which the market easily tells you what it will do in the near term and  head fake upside move to possibly  new high before a reversal is still the highest probability based on market action. Almost no reversal takes place without a head fake move first and that applies to EVERY timeframe from 1 min to daily.

 Remember the quiet market in ES last night and what I said about it? Here ES goes negative at the EU open, I suspected that was where we's see some action in ES overnight. Since that negative divergence ES was in line with price (green) and now we have a 1 min positive divergence which looks again like Wall Street has stepped in with some support to counter the Chicago PMI and rotten EU data that is creating a head wind against Wall Street's attempt to set the bull trap with a move higher. This is about the 4th time we have seen this in the last week and it is not something we see often.

 As mentioned above the IWM's underlying trade has been some of the worst, however it too has a 1 min positive here as a flat range is carved out.

 The 2 min looks horrible on the whole, yet we have a positive divergence intraday today.

 The 5 min is in leading negative position overall, but again a positive divergence intraday, there's a difference between the trend of 3C and intraday movement, the intraday movement suggest Wall St. is fighting for the blow off move higher, the trend in 3C has shown they have been selling in to every bit of strength they can and only stepping in with minimal support when absolutely needed.

 The IWM 15 min is starting to look like the DIA 15 min as of Friday when it started to lead negative only to see that divergence deepened dramatically in the afternoon.

 QQQ 1 min has seen some positive intraday divergence as well, including a brief leading move earlier.

 The 5 min also looks horrendous, but the intraday positive is there.

The 15 min is also just starting the same move as the DIA Friday.


We are definitely in the red zone here, I am still trying to be patient and watch the underlying trade in the market, but if I were to take a position and not look at it for a month, I would have no problem shorting the market any where in this area.