As I warned Sunday night, there will be rumors, rumors of rumors, denials and maybe even some action. Today's Euro move brought to you by Greece's Papademos:

Preparations for Greece Euro Exit Considered, Papademos Says: DJ


Keyword:"Considered"


That's just common sense.

ES Update

ES is off to a decent start tonight.

there's a negative divergence during regular hours, but after that ES was in line in to the close, not leading negative, the current divergence forming is leading positive, I'll update ES again later.

I'm going to have dinner with my family and then update the Risk Asset Layout, which I've already looked at, the bounce looks like it's still on track

BIDU Chart Request

BIDU is a great example of a trade that we saw a head fake move coming before it even started,  we showed patience and let the trade come to us. My current equity short position in BIDU is up 18% and I'm hoping to fill out the position on some price strength.

Here's what BIDU looked like today...

 Looking at a 10 min chart and after seeing some of the 3C charts below, I believe when BIDU broke below the first support level, it was accumulated there as a possible head fake move as some shorts would have entered on the break of support, especially because BIDU has had a lot of relative weakness over the last several weeks, it would be an obvious retail short target.

 On the 1 min chart today there was a negative divergence right off the open.  Note the leading positive divergence starting at 1 pm through 2 pm, that's the accumulation I believe took place mentioned above. BIDU finished the day with a nice positive divergence. Remember the edge in 3C is that is has the power to contradict price and show us what the true underlying trade is whereas price is often deceptive.

 2 min chart shows a negative divergence on the open, the same leading positive divergence around 1-2 pm and a decent positive divergence o the close

 3 min chart shows the exact same, negative on the open, the 1-2 pm leading positive (which I don't think is a failed divergence) and a strong positive at the close.

 The 5 mi chart shows all the same things, that's a lot of confirmation and the way 3C's look back period works, it wouldn't show this confirmation if it wasn't there.

 The 15 min went positive at Friday's lows, currently 3C is in line with price, overall pretty good looking.

This hourly chart is very interesting, the negative divergences in to the yellow box area is the head fake move we shorted, you can see why the trade is at such a nice gain as the area we shorted was very low risk, high probability and we waited for it to come to us. The positive divergence on the 60 min is encouraging for a bounce in BIDU, a bounce that will be use to short in to.

This may be a candidate for anyone who wants a little long exposure or to hedge shorts.

PCLN Update

 First the weekly chart of PCLN, back in 2006-mid 2008, PCLN looked strong technically, volume was rising with the trend, there's about a 500% move there. In to 2010-2011 I believe PCLN was propped up way above any fair valuation as a momo favorite during QE periods, the Primary Dealers flipped Treasuries to the F_E_D with little to no risk, they made billions doing this (a F_E_D golden parachute for the investment banks and insiders) and the PD's took those profits and drove up every class of risk assets, commodities, stocks, PMs and PCLN. The Yellow area is a warning area as the character of the trend changed-this is most probably directly attributable to the Primary Dealers like Goldman, MS and the now defunct MF Global pumping virtually free money in to risk assets-an Investment bank's dream carry trade. Note the momentum in price, but the declining volume-this isn't healthy. This last run in red is very out of character and a parabolic move, this is why I finally shorted PCLN (at least successfully) as these parabolic moves almost always end badly and just as spectacular on the downside as the upside if not more so.

Although I added a long call, I'm not covering the PCLN short.

 I wouldn't expect a large top for PCLN as the parabolic move would usually dictate a quick reversal. In this case it's a small double top and surprisingly didn't see a head fake new high on the second top. Right now PCLN is in the perfect area to draw in shorts, they have read decades worth of technical analysis books that show this exact set up as a high probability/low risk short. Ten years ago or so I would look for shorts that looked just like this, the problem is it didn't take Wall Street long to see what technical traders would do given a certain set up, Wall Street adjusted to Technical Analysis as it became popular around the time of discount online brokers, but Technical traders still read nearly century old TA books that are considered to be the Bible of Technical Analysis and the culture of Technical Analysis through all of these different authors presenting their latest, greatest system has fostered an attitude that goes like this, "If the trade using this system didn't work, it must be because you didn't adhere to the principles of the system", which makes technical traders even more stubborn, following price patterns that once worked well because they were depictions of emotion, but that was when TA was obscure and few people used it and rather focussed on fundamentals and value investing, looking to buy undervalued companies and short overvalued companies. If the last 3 years have taught us anything or more acutely the Dot.Com craze, valuations don't matter, everything is perception.

So being PCLN is in the position it is in today, I wanted to take a look at it after having seen quite a few charts that look bullish in the near term.

 PCLN's daily chart went leading negative very quickly, daily charts don't often see these kinds of divergences that quick, they take more time so this tells me there was a lot of distribution in PCLN in a relatively short period of time.

 The hourly chart confirms the distribution and gives more details on where it occurred.-clearly in to price strength and at the small double top.

 The 30 min chart offers more details about distribution, the second top saw way more distribution than the first top as 3C is much lower at the same relative price point, however on this chart you can see the start of a relative positive divergence and this is where it would be expected. Remember I shorted PCLN in to strength, I didn't chase it as it fell below support. As a reminder I try to stay away from shorting the first break of important support as these shorts are commonly shaken out in a volatility shakeout.

 The 15 min chart, as it should, shows more details re: the negative divergences and the current positive developing. Just as we see the trend of the volatility shakeout so often that it changes the way we enter shorts, 3C is confirming that a volatility shakeout is a high probability outcome. I use to believe in waiting for confirmation like the break of support and then shorting on a failed test of resistance, but with what 3C has shown me over the years has changed all of that as short to mid term moves are more often than not shakeouts, head fakes and other Wall Street controlled set ups rather than the traditional market discounting function which still exists on a much longer term scale, but not so much in the near term.

Finally the move up to resistance today, which backed off (emboldening retail shorts to enter PCLN on what they perceive as a failed test of resistance) shows a positive divergence in to the decline, backing off resistance and there's no negative divergence at the start of the day.

In other words, while the longer term outlook in PCLN looks very bearish (thus my longer term short position there which is not a leveraged short, allows me more room to sit through Wall Street games and with options I don't want to deal with time decay and expirations and I don't believe in using excessive leverage where it's not needed). The near term outlook looks positive and it looks like PCLN will see a volatility shakeout as has been the trend in the market for some time.

This is another example of why it's important to find out what kind of trading style works best for you. If you are a longer term trader and don't have time to watch the stock market all day, you want to enter on strength, get good positioning, high probabilities and low risk. This way you can sit through the games and not have a portfolio loss that causes you to make an emotional decision or a decision that must be made to protect your portfolio, when the decision on the trade should be about the actual trade, not emotions or excessive risk which go hand in hand.

If you are a shorter term trader, you may want to enter the same way and take a nice 14 or 15% gain in a week or two and loo for the next set up. I'm running two different trades at once, but I understand what each trade is, a short term long leveraged position for near term strength and a more important longer term perspective, building short positions in to strength and reducing risk. My actions alone should demonstrate this as I'm holding my longer term shorts rather than trying to trade around them to maximize gains, but run the risk of missing the longer term big move. My shorter term long position is much smaller in size as it is counter to the major underlying trend.

In any case, PCLN looks like another stock that is pointing toward that bounce we have been preparing for.

Adding Small PCLN July $655 Call

Basically this position is so small, it's about the value of the gains in the PCLN short which is up 13.55% in a straight equity short.

PCLN charts coming next

GOOG Update

I entered the GOOG equity short position taking a chance on a head fake move, the head fake move worked and I was willing to risk 1.2% (originally) of portfolio value (not including margin) and up to 2% maximum to see if it would work. The head fake trade worked, my hope was GOOG wouldn't see the typical strength most stocks see when the market moves (occasionally you get lucky) as the market's direction is the greatest gravitational pull on a stock on any given day (excluding stock specific events-earnings, news, etc). I tried the trade, I see some things I don't like and got out at better than break even, it's not a great gain, but this was a speculative (probabilities, not position size) trade to begin with.

 Covered GOOG for a 3.3% gain in 3 days, again not the gains I was looking for, but better than a 1.2% loss. Note that GOOG represented nearly 10% of portfolio size (not including margin), but the trade itself represented 1.2% risk. The point being, you can put on a decent size trade and still keep your risk small if you wait for the trade to come to you.

 GOOG made the head fake move in yellow above a defined area of resistance, the yellow arrow is the entry, GOOG opened above my initial 1.2% risk stop the next day, but 3C showed distribution and I stuck with it. Today I see something new developing. Keep in mind that market updates aren't the only way to judge the market's most likely path, when you see a bunch of stocks all giving the same signal that's also an important piece of the puzzle. You saw it in AAPL, now you'll se it in GOOG. I will continue to monitor GOOG for another potential short position. One of the defining differences between a pro trader and an amateur is that a pro will take several tries at a position keeping their losses small until they get the position they want. An amateur tries it once and forgets about it, especially if they took a loss which is usually much bigger than it should be.

 GOOG 2 min positive divergence at an area of support.

 Yesterday GOOG still looked good with this negative divergence on a 3 min, today there's a positive building.

 The 5 min chart is leading positive at that support area, you can see the negative yesterday that kept me in the trade.

The 15 min chart looking at the overall head fake move's distribution-reson for entering and now a 15 min positive divergence is building. GOOG wouldn't be one of my picks for a speculative /hedge long, but nonetheless there's a positive signal developing there, time to close the trade as probabilities are no longer on the side of the short.

Going to Cover the GOOG short

I'll post the charts next...

Going to add AAPL July $555 Calls

I'm adding a relatively small position in AAPL July $555 Calls as the time decay on the June will set in as this looks like it could be a significant bounce and I want to just add a little hedge to the short position in the equity Model Portfolio.

AAPL Update

AAPL June $540 Calls are at a 70% gain, I may even consider adding some July calls to the mix on this pullback today, after all, the expected bounce move was always thought to be led by AAPL.

 AAPL is in short covering territory, yesterday's intraday trend had a bit of a short covering look to it, but not the classic intraday short covering look which lacks pullbacks intraday. I think the $575 area where there's some resistance will be an important level and the gap up to the $580 area, I think that will produce more of a short covering move in AAPL.

 The 1 min chart is going positive in to AAPL's pullback today

 The 2 min chart confirms the trend, shows (like the 1 min) some distribution on the open (likely retail shorts) and we have a positive divergence on this chart as well.

 The 3 min is also going positive, not you don't see the negative divergence on the open, this is why I think it was retail shorting the gap up.

 The 5 min has a fairly large accumulation cycle, confirmation and is moving positive.

 At this point there's really no need to see additional accumulation on the 15 min chart, as AAPL moves up we should start to see distribution on this chart, but it has remained in a leading positive position, suggesting AAPL underwent some significant accumulation in to lower prices.

The 60 min chart shows a leading negative divergence as the main theme, but also a relative positive for the near term. The yellow arrow denotes what would be a classic head fake move below support.

If I decide to add AAPL July Calls, I'll let you know, right now it's more of a time issue than anything is looking at the chain, prices and figuring out appropriate position size-risk management.

Euro Looks Like its Running Out of Downside Momentum

 Euro/FXE appears to be losing momentum to the downside...

 2 min chart is going positive

 3 min chart has held up very well

 5 min chart has held up well with some relative positives.

 And the 30 min chart is still flying, this is why I don't get worked up about intraday trade or even day to day when working with signals like these.

 The $USD/UUP is going negative, running out of upside steam

 2 min chart confirms

3 min chart also confirms with a leading negative and just to compare the long term view...

30 min $USD deeply leading negative.

This may be useful for those who may want to add some speculative longs (when I say speculative it means they are going against the primary underlying trend and as such, risk management should be a priority, my speculative positions are always much smaller and represent less risk).

SPY Update

This is a larger update than usual, hence why I'm just covering the SPY (6 charts vs 24), but it should give you a feel and some perspective on the intraday, the near term action and big picture.

 SPY 1 min you can see where it went negative earlier today, I think this is mostly because of the Euro moving in the opposite direction, all things considered I'd still call the market strong here when comparing where the Euro is today. We have what looks to be a positive divergence forming, remember my earlier post, early gains are hard to hold and the afternoon trade is usually much more important.

 The 2 min chart is here just for confirmation of the 1 min and it confirms the same findings.

 The 5 min is a little leading negative after having been leading positive, but just looking at this timeframe alone, the positive divergence is much bigger than any negative action.

 The 15 min (which if zoomed out to show the trend is also in a leading positive position and has been for a while) is strongly leading positive and hasn't been effected at al today. As you can see, the 15 min chart can move a lot in one day when there is strong underlying trade, the fact it hasn't moved to the negative even a little speaks to the path of least resistance-a strong market move up.

 Even the 30 min shows a positive divergence that is quite large, remember when the market was moving down I reminded you that accumulation doesn't take place in a day or even a couple of days for a strong reversal move, it takes time and the 30 min chart illustrates that, but is it too strong? Does it damage our long term market perspective (bearish)?

Judging by the SPY daily chart's leading negative divergence, I would say the answer is a resounding no. The positive divergence seen at the left is the October lows and that market rallied hard off those lows, the distribution/negative divergence is much bigger than the positive divergence that gave us an almost 8 month uptrend.

Basically not much has changed in the analysis.

As for QE3, I would think we'd see a pretty strong positive divergence if someone actually had the inside track on that becoming a reality. Thus my earlier comments, "I doubt GS themselves even know", in fact, I doubt very much the F_O_M_C even knows at this point. This is a sensitive topic in an election year.

Egan Jones, Spain and the Euro

Arbitrage seems to be the name of the game today, at least intraday.

Egan-Jones cut Spain to BB- from BB+, which is effectively JUNK status and EG seems to be ahead of the rest of the ratings agencies.

Here's the EUR/USD and market effect...

 EUR/USD

 Longer term EUR/USD

Clearly the Euro lost ground overnight and the market even being up would not be normal, I believe it's evidence of Wall Street's intensions, but there certainly has to be some market impact from the Euro lower-it's not in a red zone right now and I don't get to wound up about intraday or day to day trade, however you can see how it has effected the market today (the red square being the approximate time of the Egan Jones downgrade).

I think it's time to take a look at the Risk Asset Layout as well as a few other indications.

GS is Bearish

Goldman Sachs released a "FREE" report in which they are bearish on stocks, whenever GS or any other Wall Street firm is giving away free advice, you can pretty much count on them doing the exact opposite. Last time this particular analyst came out with a recommendation it was a buy on March 21st-of course what was Goldman doing, dumping everything. So now it's a sell, the part that is impossible to forecast is the F_E_D factor. Some think GS is out trying to buy on the cheap in anticipation of the June F_O_M_C meeting where as with every other meeting, the speculation is that a QE3 program is coming. I kind of doubt even Goldman has an inside line on what the F_E_D will actually do, I can't be sure, but I doubt it.

So is GS buying in anticipation of the F_O_M_C? Or the potential for a massive short squeeze above SPX $1340? The short squeeze certainly has the potential to make GS's note worthwhile from what I've seen as far as hard data goes-not guess work.

It makes me wonder. There are so many arguments to be made against QE in an election year and for, there' also the question of if QE3 would even have the same effect as 1 and 2 as event risk across the world is at Black Swan stages.

In any case, you have to be a fortune teller to guess what the F_O_M_C may do and what the effect of that will be. I'm not big on positioning trades based on a "Black or Red" Roulette type of analysis.

I can say one thing that may be worth consideration, I have several speculative trades (long) which were put on in anticipation of a strong bounce, for over a month I have expected 1 last strong bounce before the market makes a serious new leg lower and we although last week was ugly, it wasn't the kind of serious I'm talking about.

Based on hard analysis, I'm not letting go of my shorts, but I may consider hedging them out with a larger spec position in some long trades. The thinking goes like this (and keep in mind I already have a healthy short presence), add a few more spec longs to hedge the shorts in case of an unpredictable event like QE, I have my opinions about QE, you have yours, everyone has an opinion, but opinions aren't anything more than gambling-there not at all the same as trading with an edge. However if I add some more spec trades to hedge the possibility of a QE-type announcement, it's almost a no lose situation. Th spec longs would do well in a short squeeze market move, at the top of a short squeeze move profits can be booked further hedging the short positions and we should be near a F_O_M_C meeting at that point. My intension is and has been to add shorts in to price strength, if I can make a little extra on some more spec longs, all the better should the market move as evidence shows.

As for the unpredictable F_O_M_C, the spec longs would hedge out a lot of risk in case there's a QE3 announcement. For the record though, at just about every F_O_M_C meeting, there's always someone who seems to be in the know saying QE3 is coming.

Even if it did, the situation we are in now with Europe which could turn in to a black swan on any given day (but the risk is much higher in June at the elections) the situation in China and the US are all very much different and much, much worse than when QE1/2 and even Twist were announced. The macro-economic situation and risks have grown exponentially. Trying to figure out what the F_O_M_C will do is in my opinion, a waste of time, but increasing exposure to some more spec longs seems like a reasonable course given the probability of them doing well in a real short squeeze and they have the added benefit of offsetting the F_O_M_C unknown.

This is just food for thought and I haven't made any decisions. If I were to increase long exposure (keeping in mind the majority of the portfolio is already short-I wouldn't be as quick to add longs without having a large short presence already), it would still be more speculative with the major portion of allocation being short as this is where we have hard facts and data, the rest is a guessing game.

Heck, my AAPL calls may be enough on their own as a hedge with them up +76% right now, although I'd have to roll them out to a longer expiration.

This is where thoughtful risk management is important and letting the trade come to you helps that cause.

Food for thought...

S Chart

I've been asked about S several times so I thought I'd just share it with everyone, this is a tough nut to crack, but I think we have a short term direction at least that may be worth a look.

 This is a long term 5 day chart of S to give some perspective.

 Recently S put in what looked like a bottom, to the left there's a capitulation day, it was quite heavy volume, we saw a "W" type base form, volume drop off as it should and as you'll see, a 3C positive divergence in the area leading to the March rally. I'm sure the AT&T 5 year exclusive on the I-phone ending is a plus for Sprint. RSI was also positive at the base (RSI 22) and now we have a triangle consolidation that is pretty mature.

 Here's the triangle, from the rally off the "W" base (of the chart to the left), it topped with a bearish engulfing candle and the trend has been down. Technical traders may have some trouble interpreting the triangle as it is very low in S's price range, but the Technical Analysis books all tell them that it's a consolidation/continuation pattern and the preceding trend was down, so if they are following the textbooks as they usually do, they'd be looking for another leg down in S based on the triangle, also note volume is correct for a triangle. I have a feeling at least in the near term, S will surprise and break to the upside, after that it's not so clear, but I'd stick with the larger bearish trend in the market so "S" may be offering a couple of different opportunities, a short term breakout play, a possible head fake breakout move or least likely, a move higher which would be difficult to go against the prevailing bearish trend in the market, but there are at least 2 potential trades: 1) now -breakout to the upside and 2) possibly later-short a head fake breakout move-we'll have to see how the charts develop).

 The daily 3C chart has worked well, calling the top last May and a positive divergence in that "W" base I mentioned above, right now in the triangle there's a small daily positive divergence.

 On a 60 min chart we see the end of the move up from the "W" base with a neg. divergence and then trend confirmation to the downside. In the triangle there have been several positive divergences.

 The 30 min chart is showing prices being brought back down inside the triangle where they would be accumulated at the lows of the triangle as seen above on the 60 min chart, there's also a leading positive move on this price move that looks like the start of an attempted breakout, S will probably need some market support to pull it off.

 The 15 min chart shows the same, and this is the purpose of a triangle, to keep price in an accumulation area and knock it back down when it rises too high from the accumulation zone.

 The 5 min chart shows  positive divergences at the lows and a leading positive as the triangle matures toward the apex.

The 2 min chart is showing the same concepts as above and some difficulty in the attempt to breakout today, which is most probably market related.

$2.50 is about where S would breakout, the price pattern implied target would be around $2.85, maybe a bit closer to $3.00. The 60 min trend channel has held all of the swings inside the triangle, the level to watch for a failure of this attempt would be under $2.38.

Lastly, obvious price patterns like this are often shaken out before they move in the intended direction, so I'd also watch for a break below support of the triangle (the break below $2.38 would be your first hint) and then a move back in to the triangle. That would lead to a higher probability trade and a stronger breakout. We see these kind of head fake shakeouts a majority of the time and they often represent good opportunities to fade the head fake move. We may not see it in this case if the overall broad market gets upside momentum under it again.

Feel free to email for an update in case of a break below the triangle, we can usually see accumulation showing it's a head fake move and that offers an excellent entry point. S is also option-able, but as with any long trade tight now, I view them all as speculative for risk management planning.