Euro Head Fake Day? Brought to you by GS

Today we went from a SPX loss of 1.52% to a close in the green at +0.16%, an intraday move off the lows by +1.72%. The NASDAQ lost over 1.7% and rallied back to close green +.30% with a +1.9% rally off the intraday lows. The Russell 2000 lost -1.5% at the intraday lows and rallied back to a +.71% gain and a move off the lows today of +2.3% While the closing gains weren't huge (The Russell 2000 maybe being the exception), 3 of 4 of the major averages clawed their way back in to the green with the Dow-30 down by only -.07% and the intraday move in all of the averages was impressive considering most of it came starting at 2:15.

3C gave some good signals today, that's the reason I used the weakness to move forward with the plan I was considering yesterday to increase the spec. long positions to more of a hedge. The TNA position added today made over 6%, TYH made +4.11% today, ERX was up +5.65% and FAS +4.7% today.

The AAPL June $540 calls are up +107%, the new July AAPL $560 calls bought yesterday are up over +21% also some July 555 calls from yesterday are up +25% and yesterday's PCLN July $625 Calls up 29.70% in a day; ranking the options model portfolio #10 for the week of 2002 weekly portfolios. I don't even make these trades for rankings as if I had entered larger positions the rank would probably be closer to #1.

While I'm prepared for drawdown in the core short positions, every one of the 5 (remember I covered GOOG yesterday and glad I did as I would have had a smaller gain covering today) are in the green from +7% to +16% and are now pretty effectively hedged. Should things go according to plan, the leveraged longs and Calls will be sold at a large gain and I'll move back to adding long term short positions (no leverage) for what I believe will be a very sharp next leg down. That's the plan, we'll see if any fundamental economic events or news change that, but I feel better not only hedged, but with excellent probabilities in making gains on the upside rather than just waiting and I still have all of my core shorts. Of course there are a lot of ways you could hedge positions, with the time that I have available for these positions, this was a good option.

None of the profitable leveraged long ETFs today were entered by chasing them, most were picked up near the lows of the day, let the trade come to you. I can't help but think back to Sam's sentiment email update today...

"Judging of how bearish everyone is and I don't know if you recall I told you about co-workers buying apple at $600 and selling at a loss well they just told me they are short the market by ETF's..."


While it's way too early for a victory lap, it seems that chasing the market has once again proven to be a losing proposition. Furthermore today was ugly;  judging by the model portfolio's weekly rank (in the top 0.5%) and the gains in the leveraged long ETFs along with Sam's update of traders shorting the market, I think it just goes to show that emotions are not helpful in trading. The positions entered today are certainly contrarian, but not for the sake of being contrarian; those positions were entered based on hard data, not contrarian psychology. Even if the market moves lower from here, those positions are all at minimal risk because of the entry. I know a lot of you are keeping trading journals which I think are invaluable tools for teaching yourself and finding your place in the market, for me the lesson pulled out of the pages of my journals was, "You need to be patient". When I was trading exclusively for a living I often felt pressure to "make" something happen. I entered trades too early, I exited them too early and knowing what I know today, I was lucky to survive the experience. I still need to work on patience and knowing when to be still in the market. While I think 3C gives us a great edge, I think the greatest edge all of us have over Wall Street is we can pick and chose our battles, we don't have to be in the market all of the time; think about that and use it to your advantage.


While I probably sound like a broken record right now, I think one of the most significant events this week was the GS short call which as you know I would say the call is useless at best and very dangerous on average. Papademos talking about preparations for a Greek / EU exit were the final straw considering G-Pap is Goldman alumni. This is also why I NEVER watch CNBC unless there's a news event like an F_O_M_C policy statement. Some of you have been around since before Wolf on Wall Street  at Trade-Guild and some of you may remember my short call on oil after nearly 8 years of gains. We got the top of the oil move within about a week to 2 weeks. What I remember most clearly was Cramer on Mad Money telling his viewers to buy oil on the next negative EIA petroleum report, which he called a "Contrarian trade". Within a week of Cramer saying that, oil rolled over never to look back. I remember the strong 3C signals and remember thinking, "How can millions of viewers all doing the same thing possibly be considered contrarian?". I also remember thinking about Cramer's admission on the Street.com of how he manipulated the market as a fund manager, how he said it was fun and if you weren't willing to do it, you shouldn't be in the game. I thought about Cramer's own allegiances as a  Goldman Sachs alumni and immediately thought, "This guy is a lot smarter than this, he must be helping his buddies at GS by providing GS demand to sell in to by way of his vast audience".


Like I said earlier today: even having a good edge and idea of where the market is going, no one ever said Wall Street would make it easy, but this is the market we have.


Today's charts coming next...

Now That Looks Like Short Covering

That action in the green box looks like short covering and there's a good reason for it. I'll be back After market with more analysis.

I'm glad I used today's weakness to add those leveraged long ETFs. As is usually the case, the hard thing to do is often the right thing to do.

Revisiting the Euro, "Someone Knows Something We Don't"

You may recall last Tuesday (last week) I noticed something strange in 3C in the Euro and $USD and asked the question, "Does someone know something we don't?" The market was goosed higher early this week which seemed to be a natural progression from the May 15th 3C signals in the Euro/$USD.

There seems to be an immediate desperation to get long quickly, which could certainly be worth it even with the big picture very bearish. Market as a snap back rallies, bounces or counter-trend rallies -whatever you want to call it (As a reminder, bear market rallies are some of the most impressive rallies we see including during full-on bull markets), would certainly be worth going long for nimble traders and Wall Street, especially if there is an answer to the question I put forth on May 15th, "Does someone know something we don't?"

This is 100% speculation, but based on some facts. European banks are facing probably the worst capital crunch they have seen during this entire crisis. The ECB is not conducting LTRO operations currently to give the banks capital, the banks have few assets left to pledge as collateral (specifically European banks), just like during the credit/liquidity freeze of 2008 in the US, European banks are not lending (overnight lending) to each other for the same reasons capital froze up in the US during the Lehman crisis- COUNTER PARTY RISKS. This means one bank won't lend overnight or at any other term to another bank because they are unsure of the counter party (other bank) risk. With the downgrades of EU banks, the bank runs, diminished assets, secretive off the books trouble, etc. banks aren't lending to each other. As mentioned, the ECB is not providing the liquidity the banks need-I doubt they have the "Bazooka" needed to do so. So EU banks are turning to the only source of funding they have left, which is also the most expensive: Cross Currency Basis Swaps.

What this all means? The EU banking sector is experiencing a liquidity and credit freeze.

Why would Goldman want to get long and long fast? One possible answer is that we are about to see another globally coordinated round of intervention as we saw last November when EU banks were in a similar situation. The ECB and F_E_D participated, the PBoC also eased, but it is not for certain whether that was coincidental easing for Chinese reasons or whether they were acting in concert with the other 2 central banks, I suspect it was a bit of both. Lets not forget that at that time China wanted to do all they could within what they considered reasonable to keep their number one trading partner afloat. China has since (recently) given p on Europe and is looking for opportunities in Africa.

The point being, Goldman and Wall Street see this crisis, they know how the Central banks acted before in a similar, but less severe situation and may be in the know regarding another round of coordinated easing.

Such an action (depending on the size -the ECB's balance sheet is in a lot of trouble) would provide the near term catalyst to give us that last strong move I have been suspecting and it would fit well with the trends of Wall Street short term market manipulation.

Just food for thought, however if there is a round of easing announced, we will have answered the question asked on May 15th.

ES Update

 EUR/USD longer term chart...

 The 9:30 open, since breaking below the dowtrend line, the Euro has lost downside momentum and looks to be consolidating, I highly suspect this is a head fake shakeout/bear trap-GS/Papademos seem to be the catalyst.


 CONTEXT is showing ES right around fair value, we'll take a closer look at our indicators.

 ES since midnight EDT

ES during regular hours... Remember I said I wanted to see the lows tested and see how 3C responds, well at each of the lows (green arrows) 3C has responded as I suspected and hoped it would, further suggesting yesterday's/today's move in the EUR/USD is most likely a bear trap for Euro and market shorts. ES in the afternoon was leading positive, there was a slight negative that caused a pullback, but ES is still leading positive.

We'll dig in deeper to see the specifics in the next post.

Sentiment Update

Sentiment email update from our long term member (and friend), Sam...

"Judging of how bearish everyone is and I don't know if you recall I
told you about co-workers buying apple at $600 and selling at a loss
well they just told me they are short the market by ETF's,  I had to
ask which, it was the US. It makes sense considering that our Canadian
market is falling apart along with others but it seems the US market
was the last one to give.  Sounds like LDI mark II."

This isn't a surprising update, as you know I suspect GS wanted to move the market and seemingly pretty quick to pick up shares on the cheap. As a member pointed out, the March long call by GS took a while before the market gave out...

This makes some sense, at the white arrows these were bouts of price strength-typically short lived and they were a real meat grinder for those chasing stocks, one day they were up and the longs chased them, the next day the longs were at a loss, the same goes for the shorts, one day they are chasing a move down, a day or two later and the market is bouncing, this is why you simply can't count on price action alone and many of the indicators that are derived from price action such as the very popular MACD (especially using it on a short term basis). We had an inside line via 3C as to what the big picture was so there was no chasing and we had the confidence of our convictions to hold and keep adding shorts in to price strength, it paid off.

One reason this time may be different is based on Papademos's comments about Greece making plans for a possible Euro exit. Whether Greece leaves on their own or the EU forces them out (such as the ECB cutting off funding to Greece), it's simple common sense that every nation in Europe, every bank, every trader would be considering contingency plans, THIS WAS NOT NEWS! The Papademos connection to Goldman Sachs is just too much to think this was coincidental. This was not the caretaker government speaking out, it was a "Has Been" Goldman hack that spoke out. Papademos, you aren't the PM anymore, WHY ARE YOU SPEAKING FOR GREECE? That's the question and the answer seems simple.

In conclusion, it seems to me that if this is as I suspect, a GS market manipulation so they can pick up shares on the cheap, it seems like a hasty one if they needed to get Papademos out there to hurry things along. This would also suggest to me this is less about the June F_O_M_C meeting and more about a market cycle which could lead to a ferocious upside move. As I showed you several weeks back, volatility, ATR and amplitude of the swings are much larger so an upside move (as I warned when I said, "it may move you emotionally and cause second guessing") could be very strong, in fact I have suspected the last move would be the strongest.

If this were more about an F_O_M_C accumulation period based on QE3, I would think the accumulation period would be MUCH larger, the rally off the October lows, we showed at the time, had an accumulation period that lasted from the beginning of August right through the October low. Those are my initial thoughts, obviously subject to change should the data suggest that, otherwise I'm in no mood to guess what the F_O_M_C "might" do in an election year and beyond that, how effective any such program would be. At best QE1/QE2 and to a much lesser extent, TWIST, didn't accomplish much in the economy, perhaps it would have been worse, but it seems to just have kicked the can down the road.

The Chinese were backing off from buying US treasuries (US debt) and the F_E_D needed to step in as the buyer of last resort, this was accomplished through the Permanent Open Market Operations (POMO). It lifted our market, but not because of fundamental valuations, it was because the Primary Dealer Investment banks had wads of cash from flipping treasuries to the F_E_D as the F_E_D can't participate in primary auctions, only the secondary market.

The problem in the US, which Bernie himself has raised numerous times is not something the F_E_D can fix, it's overspending in Washington and as such is a political problem, which means it's not likely to be solved as spending in Washington is synonymous with "Re-Election".  So once again, there's a reasonable question of just how effective a new QE program would be any way given the increased instability around the world, but centered in Europe-an even more impossible situation.

I think it's pretty widely accepted that TWIST didn't live up to expectations and as such we have a reason to doubt whether future F_E_D easing will have the same effect as past easing-the balance sheet has changed dramatically, the macro-economic and Global economic environment has changed dramatically and there's the sensitivity toward F_E_D independence during an election year. Yes, QE kicked the market higher, but it also created an inflationary problem. Whatever the F_E_D thinks of inflation and their expectations for moderation, they consistently ignore the "Volatile" Food and Energy, the two items we use every day. So there are many complexities.

My strategy right now is to hold the shorts we've spent so much time putting together at great prices and hedge some of them with these leveraged long positions, which if all goes according to plan and based on what we know right now (not based on guesses about QE3-which has been speculated to be announced at nearly every F_O_M_C meeting and even on an emergency basis) the idea is the shorts will be in place as the larger position in case of a Black Swan event (the risk for a Black Swan is higher now than ever) and will be added to on price strength and 3C underlying weakness. The long positions act not only as a hedge in case of a QE announcement (which is the smallest reason for them), but also as an additional source of profits on a market move higher, they will then be sold (hopefully at a very nice profit) and filling out short positions will resume in preparation for the big picture trend in the market. As you know, I was thinking about this strategy yesterday, today just gave me the tactical means to effect it.

That' where we stand and those are my thoughts and rationale, the method of the madness. It seems like a good plan.

FAS Shaping Up

FAS the 3X leveraged Financial long is starting to shape up as well, it was a little later than some of the others, but it's starting as I suspected Financials would start to rotate back in as mentioned in a previous post.

The market needs what I call the "3 Pillars" to sustain any type of significant move, Energy, Financials and Tech.

 FAS 1 min, the divergence started later than the other leveraged long ETF's I have mentioned.

 2 min

 3 min

 5 min is just seeing the earlier timeframes bleed through.

And finally 30 min

I don't have any short exposure to financials, one sector I want to add in to strength, although I have a long speculative position in FAS.

It doesn't look bad in this area.

Decided to add a little TYH

Although I already have a long position in TYH, most of the shorts in the Equity model portfolio are Tech oriented and I'd like to just hedge them a little more. Also as you know, I've felt pretty strongly a move higher will be Tech led.

Sector rotation looks good for Tech, Industrials as well and I'd think Financials will start to rotate back in.

Adding ERX Long

I'm going to also add ERX long (Energy 3x leveraged) to hedge the XOM short.

 ERX 1 min leading positive.

60 min has a decent positive divergence here as well.

Adding TNA to Equity Model Portfolio

Here's TNA and TYH, I already have some TYH so I'll be adding some TNA. I'm choosing leveraged ETFs because I feel we are in for more of a directional move, less chop and it's for a short term position.

 TNA 1 min looks good so far...

 The 30 min looks excellent between the two relative bottoms, the second is leading positive on a 30 min chart no less.

 TYH 5 min doesn't look bad, I may have added some of this if I didn't already have some coverage there.

The 30 min chart looks good too, but I like TNA's better

ES 3C momentum

 This was the last update for ES just minutes ago.

Note the new leading positive move in ES.

So far from sector rotation I'm thinking about adding a leveraged Tech ETF, still researching it.

Market Update

Things are progressing, I'll be looking around for a couple of speculative long hedge positions to add, I'll of course let you know before taking any action.

As for the market,

 ES is progressing

 The Euro is as well (2 min)

 Finally the DIA is showing decent underlying action (1 min)

 IWM 2 min

 QQQ 1 min

SPY 1 min

It looks like the Euro shakeout theory was correct thus far so this seems to be as good an area as any to consider adding spec longs to hedge some of the short exposure and make a few extra $$$.

Euro Shakeout?

Given the timing of GS's "FREE" bearish advice and their former employee and former Greek Prime Miister's Papademos's "COMMENT" (which was common sense, but the algo headline scanning trading systems don't care) and subsequent denial, I wouldn't be surprised at all if this were a Goldman shakeout so they can buy on the cheap.

Whenever a Wall Street Institution spends tens of millions on research and then offers that to the general public for free, you pretty much know what it's worth, this is even more true for GS who is documented as trading against their own clients and given their last Free report in March when they were Bullish on the market...

What the market looked like the last time GS (the same analyst in fact) released a bullish call on the market. Throw in Papademos's denied comments and you have a nice heap of subterfuge.

 There were 2 VERY obvious levels of support in EUR/USD, the lateral trendline representing the base the Euro has been carving out since mid-last week and the downtrend line the Euro broke above.

 A longer look at  the down-trendline and a small support level that seems to have triggered a lot of orders.

 Since I don't have EUR/USD volume we can see on the Euro ETF at the exact time these two support areas (1 major, 1 minor) were broken at 10:20 a.m. volume surged as orders and stops were hit.

 Updated Euro 3C 1 min

 2 min leading positive

 Long term $USD gaps and local resistance broken yesterday to the upside on heavy volume, volume today thus far is much lighter.

 $USD (UUP) 3 min negative divergence on the break above local resistance and the long term gaps

UUP 5 min again the same local resistance on a parabolic move.

This looks like a good ole' fashion shakeout. No body said Wall Street was going to make any of this easy.

Market Update

 SPY 1 min positive divergence

 SPY 2 min positive

 Euro 1 min positive

 $USD 2 min negative

ES 1 min positive.

It looks like we'll find some support in the area, I would think it would need to be tested at least once before any meaningful reversal, that would also give us a better 3C signal to see what happens on a test, I would expect 3C to build.

Some Support Finally Building In-Market Update Coming

Overnight / In to the Open

Yesterday's Euro weakness as we now know, is directly attributable to the FORMER Prime Minister of Greece, Papademos in which as mentioned last night he said that Greece has made preparations in case of a Euro exit. As pointed out Sunday, this week we would see many rumors, rumors of rumors and denials.

First with the situation in Greece what prudent person wouldn't make contingency plans for a possible Euro exit? That's just common sense, but the market is hyper-sensitive to anything Greek related.

What you may not know or remember is that the former PM, Papademos is in fact Goldman Sachs Alumni, that's right, just like the head of the ECB, Mario Draghi and Italy's Monti, they all have long standing relationships with Greece.

As another reminder  yesterday I posted, "Goldman Sachs is Bearish" with the following comments,


"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 I find it a little more than coincidental that the same day GS issues their "bearish" stance (recall last time they were bullish on March 21st, 2012 they were selling everything) that a FORMER PM of Greece (not exactly the most relevant person in Greece anymore) who happens to have a long standing relationship with GS comes out with "NEWS" that is little more than common sense, but it did I said on Sunday-moved price.


Now for the counter-part to any good rumor, THE DENIAL. That's right, overnight on CNBC Papademos denied this!!!


The effect? Lower prices for GS to buy in to, unless you really believe GS is being honest and giving you FREE information when they routinely trade against their own clients!!!


The irony and timing of it all is just too surreal, BUT that's the market we have. Now we've seen some inner working in FB and of course the propaganda side of market manipulation via Papademos and Goldman.


The market overnight stayed pretty much transfixed on the Papademos comments, which again whether he said them/meant them or not, it had the intended effect as GS isn't going to chase strength any more than we would.


As a result the new PSI Greek bonds, (GGB2) which were issued in the PSI debt restructuring "haircut" are now trading at new lows, as well as another issue regarding a PSI hold out with the non-Greek law bonds who may be demanding or bringing legal action against Greece to recover full par on $500k Swiss Francs with immediate payment and/or may be moving to pressure Greece to post collateral. The issue is not the $500k SF payment, the issue is all of the outstanding International law bond holdouts and how they are pressuring Greece to make their investments whole, whereas the PSI participants who swapped out their bonds and took the haircut are now at nearly 90% losses.

The new bonds are trading at a 50% loss to the value when issued at the conclusion of the PSI swap in March.




Overnight retail data out of the UK was weaker than expected (at this point to be "weaker than expected" either shows a naivety toward the EU situation or things are really much worse than what is already considered to be unthinkably horrible).


In addition the BoE's (Bank of England) minutes from their last policy meeting were released showing an 8:1 vote to keep QE on the back-burner, not a market positive for a market that is addicted to QE/money printing.


Also according to YahooFinance,


"LONDON (ShareCast) - Spanish President Mariano Rajoy will ask for assistance from the European Central Bank (ECB), Spanish daily El Mundo reports citing a conversation between Rajoy and Socialist leader Alfredo Perez Rubalcaba yesterday. Rajoy will be traveling to Brussels today to meet with European leaders after meeting with French President Francois Hollande in Paris. He is expected to ask the ECB to buy Spanish sovereign debt to help calm the urgent liquidity problems. The monetary authority has not intervened in the secondary debt markets for the last ten weeks as it has resisted calls for a more active role. The leaders will continue to debate between austerity and growth. Rajoy is expected to side with German Chancellor Angela Merkel's stance that there cannot be growth without austerity first. MG"


So now we have additional worries over Spain as they seem to be entering the first stages of the bailout process, at least that's how market sentiment will read this given the concerns over a Spanish default and their banking sector.




In early Asian Trade, the BoJ (Bank of Japan) surprised some by not changing rates and not engaging in further asset purchases, which led to Yen strength across the board (Yen strength is typically associated with market weakness because of the carry trade). Here's the USD/JPY chart from overnight...

Here you see the Dollar drop and YEN rise after the BOJ decision in early Asian trade, since then the Yen has flattened out.


There will also be an informal EU Finance meeting in Brussels at 5 pm London time and a tentatively scheduled Press conference at 8 pm so we should see the results of that later this afternoon.




Thus far in the US, we have New Home Sales just out...


Released On 5/23/2012 10:00:00 AM For Apr, 2012

	Prior	Consensus	Consensus Range	Actual
New Home Sales - Level - SAAR	328 K	335 K	325 K to 355 K	343 K

We have a beat in New Home Sales, it did little for the market as it's fighting Euro weakness.




Here's the Euro and ES overnight...

 Europe opens at the Green arrow, the Euro finds support at the downtrend line at the yellow arrow.

 This shows Monday's close, the overnight downside, Tuesday's open and Tuesday's close and the Euro finding support at the downtrend line.

 Support around 4:30 a.m. EDT

The longer view.


By far, the biggest or most interesting event is the GS/Papademos connection, it's time to pay attention as I believe GS is engaging in their typical subterfuge.


Right now we are seeing a sell-off in the Euro since the open...

This appears to be a technical move, I have a strong feeling GS has something to do with it.