Risk Asset Layout Update

Today seemed to go by pretty fast, I wanted to look at this earlier but just didn't have the time.

 The SPX is always the green comparison symbol unless otherwise noted. Commodities vs the SPX, mostly they were in line today, nothing too special, they fell off a bit at the end but I believe that has more to do with Energy or crude specifically.

 A longer term view of the recent lows, of the many leading indicators that are in this layout, commodities were on that were making higher highs/lows as the SPX was still moving down. This layout tends to give excellent divergence signals for timing moves, whether starting or ending.

 This is the same chart as the first, I just added USO in blue, you can see commodities as a whole move more like USO at the end of the day. The EIA Energy report was out today and while crude saw a draw of -.1mn barrels, the real underlying weakness in crude is because inventories of oil are bloated, near the upper range of the limits. This was the first draw in crude since the week of March 16th and demand indications are soft showing slippage both for gasoline, where wholesale supplies are down a year-on-year 4.0 percent, and for distillates where wholesale supplies are down 5.0 percent. Softening demand together with heavy supplies of oil is not a bullish combination.

 This is high yield credit and the one indication that I didn't care for much today, there is the chance that HY credit is being effected because of the JPM whale trade as they try to unwind it, but I have no proof of that. For now, it's a day, we'll see what it looks like tomorrow.

 Longer term at the recent bottom HY Credit was another that started trending up before the SPX.

 Yields which are another favorite leading indicator were in sync intraday all day, that's a good sign.

 Again, at the bottom they were another leading indicator heading higher as the SPX went for the break of the 200 day moving average.

 The $AUD was in sync today as well

 Here the $AUD also was positively divergent at the bottom and is leading now, that may be partly because of the Australian central bank rate cut of 25 basis points whereas many feared it would be 50 bp; the $AUD was strong after the cut. Either way, I'm glad to see it leading rather than lagging or heading the opposite direction.

 The market was pretty much in line with the Euro as well today

 A little longer term view, the Euro also was moving higher Friday as the market was moving lower. Relatively speaking the Euro is leading the SPX in the near term.

 I'm happy to see High Yield Corp. Credit was in line with the SPX, if it had aso slipped like High Yield, I'd be a bit worried.

 Another leading indicator that was moving higher as the SPX was bottoming, it isn't as apparent on this chart as it is on an intraday chart or as I showed you last week, with ROC applied to both, the HYC credit move looked likely based on the slight shift in momentum only visible using ROC.

 This is Energy today, I think we already addressed that situation. Still with a falling dollar it will be hard to keep oil down, even though it may not have the same relative performance as some other groups.

 I had mentioned I thought Financials were coming in to rotation on Monday, Tuesday they did just that, today they were more in line with the SPX.

 Tech slipped a bit today...

 However longer term Tech was not only positively divergence at the SPX bottom, it is leading the SPX so some rotation isn't bothersome to me.

As far as sectors go, you can clearly see today was a risk on day as Utilities, Healthcare and Staples all slid out of rotation, Financials entered rotation yesterday while the defensive sectors trade was still on. Overall Tech has been in rotation, Basic Materials are showing a good trend, Energy really doesn't look that bad, Industrials are starting to rotate back in as well.

All in all, the Risk Asset Layout looks decent, it provided some good confirmation that something was up in the market as everyone was bearish and focussed on the break of the 200 day. As I frequently mention, it's the little things that the crowd misses that give you an edge. I'd much rather know what credit is doing than what everyone knows, "The SPX broke below the 200 day ma.a", which I don't think was entirely market coincidence if you catch my drift.

ES Update

It looks like ES is getting close to confirmation...

Today's noon negative divergence was just about enough to create a lateral consolidation, currently ES is higher since 4 pm, 3C needs to make a new high on the chart for confirmation, it looks like it is moving in that direction.

FB-Right According to plan

Here's yesterday's update for FB, note the head fake expectations on the bearish descending wedge.

The second set of July $25 calls are in the money now.

 FB's bearish descending wedge consolidation/continuation pattern after an extended downtrend, this is what bears were looking for to short, ultimately it looks like it is turning in to the bear trap we expected.

 The 2 min chart in a strong leading positive divergence

 The 5 min chart over the course of the descending triangle with a large leading divergence today alone, price responded.

 The longer view-this 60 min positive divergence after nearly 2 weeks of trend confirmation suggests this will be quite a large move.

I'd like to use a wider Trend Channel than 60 min, but there's not enough history in FB for anything wider at this point, the current sop is just under $26, avoid whole number stops.

It looks like FB is coming together, this should be interesting.

CHK Follow Up

You may remember this one as it is one divergence we were actually able to confirm with real numbers and dates on Carl Icahn's accumulation. I posted CHK as a trade idea on May 24th as I had been following the trade for a member, here's that post when CHK was at $15.59

Then we got our hands on Carl Icahn's actual accumulation and were able to verify the 3C positive divergences showing accumulation in CHK. I couldn't find the post here, this is the one from Trade-Guild.net 


This is a great post to read if you are new to 3C.


So far CHK is up 16+% and above where Icahn accumulation first started.

CHK may provide a pullback opportunity to consider starting a new position or adding to an existing one.

 CHK is trying to break out of a base area today, it's also near that head fake breakout gap which may be where it will provide an entry.

 The X-over custom Screen with moving averages on price and a custom indicator in the middle with RSI at the bottom hasn't given a single false signal, it is now 2/3 signals on the long side and the 3rd looks to be coming soon. The pullback area usually is to the 10-day yellow moving average on the first pullback after a new signal, so I'd set some alerts around that area.

 My Custom Trend Channel held the entire downtrend except that volatile head fake move, it is now in long mode with a closing stop at or below $15.64

 The 60 min chart shows the distribution at CHK's top, accumulation in April (this is what I keep mentioning when talking about the positive divergences market wide starting May 7th), Icahn accumulated there and then at lower prices up to May 24th-see the links above for confirmation. Currently the 60 min chart is leading positive, very strong.

 The 15 min chart shows that same accumulation ara and then lower prices and more accumulation-almost exactly like the May 7th signal across the market. The yellow area is gap resistance and there's a negative divergence suggesting CHK will pullback, which would make for an interesting long opportunity. LET THE TRADE COME TO YOU.

THE 5 MIN CHART SEEMS TO CONFIRMA THE SAME.

This may be similar to what we may see in the market, we'll have to wait it out, but I'll certainly be looking at CHK on a pullback, I'd set some price alerts.

Market Update

I don't think this consolidation/potential pullback is quite done yet. A pullback in to the close would get shorts putting in limit orders (retail) tomorrow a.m. thinking we have a failure of resistance, on the other side, a blast through resistance would have BTC orders going out in the a.m.

To me, there's some improvement, but this consolidation or what could be a pullback is not through just yet.

 These are all intraday charts, so don't confuse them with the bigger picture 15-30 min charts. The DIA from the negative divergence that halted the upside momentum and sent the DIA lateral the rest of the afternoon saw one relative positive divergence, but is yet to move back in line with price.

 The S&P E-mini Futures (ES) saw the same 1 min negative divergence at the same time, pulling ES back a bit, there's some improvement as you can see, but it's not a strong signal in which I would say this resistance/consolidation area where I posted this a.m. I expect to see some Wall St. games,  is over yet.

 IWM 1 min intraday negative divergence sending the IWM lateral, there's a small relative positive and an attempt to gain some ground, but not in line with price yet.

 The longer IWM 3 min char has a very slight hint of a relative positive, the short timeframes have to get strong and they will bleed in to the longer timeframes, when the longer timeframes like 3-5 min jump in line, I would say the consolidation in this area is ove, but we really haven't seen any major Wall Street games yet, just some resistance which is normal, I expected in my post this a.m. so more volatility in this area.

 QQQ 1 min, the same relative positive and some additional 3C gains, still not in line, still not enough to bleed in to the longer timeframes.

 For instance the QQQ 5 min , this will need to get back in line, although Es could pull that off overnight.

SPY 2 min working on a positive move, but still not in line (remember these are very short term timeframes and do not have anything to do with the bigger picture, like the bullish 30 min positives.

 The Euro is showing some 3C momentum, but it is still consolidating

The 3 min Euro will have to improve, for that to happen the 1 min chart will have to get much stronger.

Quick look at the QQQ/Tech & SPY/Financials

My earlier post this morning showing how head fakes play out and specifically the current market was an attempt to anchor expectations, while I think we are through the worst of the false moves (The Crazy Ivan shakeout is one we haven't seen in a while, but made perfect sense as it fed the bears everything a Technical Analysis textbook tells them to look for), this morning's post about head fakes did mention a couple of areas where some volatility is likely. First the apex of the bear flag (which was actually a bear pennant) as that is a resistance zone and bears who are overwhelmingly bearish will expect a failed test of that area, that would bring their confidence level up, get them shorting more and that's what a bear trap is all about. The bigger area is the resistance area of the SPX top, that's where a short squeeze will do some real damage so I also mentioned that area. While things have gone according to plan (everything we were looking for has happened-maybe not on out schedule, but we don't have a crystal ball) and trade should get a lot easier than it has been, don't expect Wall Street to make this easy for bears or bulls, it's a zero sum game and for them to make money they have to take it from others. Just be realistic about the market, keep your eye on the big picture and use Wall Street's games to your advantage. It wasn't emotionally easy for many of you to short the highs of March-May 1, but it was low risk and profitable, it wasn't easy to buy speculative longs in to a falling market, but we weren't buying to be contrarian, we had hard evidence. Usually the hardest things to do emotionally are the least risky, just keep that in mind (this is also why I think every trade journal should not only have the trades, the market conditions, the reasons why, but most importantly, as much honest information about your emotional frame of mind-that's where you'll make the discoveries that improve your trading.

OK, enough of the rant, on to the charts...

 QQQ 5 min confirmation and a negative divergence today with a leading component to it, still not very big in the larger picture, but enough to consolidate or pullback and this is the area bears are looking for that to happen. For newer members you can email me for the link to a weekend post that shows the big picture and how bearish this market really is, but nothing goes straight up or down and bear market rallies are some of the strongest rallies you'll see.

 QQQ at the bear pennant apex and what would be considered a breakout above the apex which would have bears nervous about a failed bearish patten days after they shorted the market on the break below the apex. This is a line in the sand, momentum today clearly shows that.

 Being the Q's are Tech heavy and being I've expected Tech to lead the last bounce, here's tech on a 30 min chart, the pennant portion of the bear flag started around May 18th -31st, note the leading positive divergences and several very large relative positive divergences like the one at the recent lows, now the chart is leading positive almost to a new high and the sharpest leading positive divergence on the chart.

 Tech 5 min with the distribution at the May 1 top, confirmation on the way down and an overall leading positive divergence through the formation of the pennant and the break below it, note the leading positive is higher than anything on the chart incl. where 3C was at the May 1 highs.

 Tech 2 min intraday, confirmation lost momentum and went negative then slightly leading negative, remember though this is a short term intraday chart and this is the area I was talking abou in my 2nd post of the day.

 The SPY at resistance of the bear pennant (yellow box), you can click on the chart for an expanded view.

 SPY-Here's the 15 min chart I should have shown earlier instead of the 5 min, note from left to right the May 1 negative divergence (what keeps stroking me is the size of that negative divergence and all the downside from it compared to the size of the current positive). As I showed you last week and several other times, we have seen in almost every average, industry group and a slew of stocks a positive divergence starting May 7th-15th-ish. I might have been temped to call it a failed divergence (although they are rare), if I hadn't seen the CHK chart that did the exact same thing, but w/ CHK, we had the actual dates & amounts Carl Icahn accumulated so we were able to verify that 3C was correct, so I learned something new about the accumulation process. Being this divergence is everywhere, I don't think it is coincidental.  The bear pennant is in leading positive position throughout (marked by the white trendline just above dates). The 29th is the upside failed breakout that was important as a failed test for sucking in bears, now the leading positive is well above the May 3C level and price highs.

 SPY 5 min, that's a fairly small negative divergence (relative divergence).

 SPY 3 min showing resistance at the yellow box and a negativ divergence intraday as prices reach that area.

 Financials 15 min-negative at the May 1 top, that same accumulation/positive divergence from the 7th on, Financials going very positive at the drop and now setting a new leading positive divergence.

Financials 3 min intraday, a negative divergence today.

Really there's not much here that is surprising, I think everything is still on track.