Coincidence?

OK, so we've been watching an intraday negative divergence in the Euro for several hours now, yet the Euro wasn't moving, finally it did move, albeit not that much, what moved the Euro? Apparently an Egan Jones (This is by far one of my favorite Credit Rating Agencies, they have no fear about being the first out of the gate) downgrade of Spain somewhere around 3 p.m. today, about the same time the Euro moved, but the divergence in the Euro has been there several hours longer than that.

Spain was downgraded, get this, from B to CCC+ "Outlook Negative".

Egan Jones cites Spain's 1 year default probabilities at 18% in large part due to their rising yields on debt issuance, the 10 year hit 6.75% today. Remember that Spain's 10 year opened slightly down on Monday as the market opened up, then as the market fell Monday, Spain's 10 year yields sky-rocketted. It is very worthwhile to recall why this happened, the Spanish Banking Bailout announcement which was discussed over the weekend by Finance Ministers from the EU in a 2 and a half hour conversation that ended with a $100 bn commitment, although the facility of choice, the ESM, isn't even active or ratified by Germany. The worst part is the announcement that all other debt is secondary to the ESM loan to Spain, meaning that Spanish debt holders almost certainly will be shafted like the Greek ones and while it took the ISDA about a week to make a determination on whether to activate Greek CDS (insurance for bond-holders in a situation like that), it took the ISDA about a day to let Spanish bond holders know that they wouldn't be covered, CDS wouldn't be triggered. As a result, widespread selling of Spanish debt and the yields sky-rocketting to 6.75%, which I believe is a record high.

So the moral of the story is this great banking bailout that was supposed to restore confidence in the market, actually made it worse by taking Spain from a banking sector failure to a probable sovereign debt failure. Only in the EU!

Most of the day we watch this divergence, then comes the news and the plunge which was already under way, coincidence? I don't think so.

The only question I have is whether the shares were bought up as they dropped? There's some initial evidence that may be the case in ES.

Follow Up on GOOG

In today's earlier update on GOOG as a speculative long (nothing against GOOG, I consider all longs right now to be speculative), one of the entry options was the head fake move as the triangle in GOOG would be very obvious and it's a bellwether stock watched by all. The thing we'd be looking for is 3C to stay positive in to a move like that, these head fake or false moves tend to come just before a reversal because they create the extra momentum needed for the reversal (in GOOG's case, shorts enter on the break of the triangle, prices move back above the triangle, shorts cover and it snowballs from there).

 There's a break of the triangle, realistically they are usually sharper and deeper so there may be more to come, but even without watching 3C, a move back above the apex (point) of the triangle is where the shorts who just entered start to cover and that's not a bad place to consider a long entry. Remember though this is a short term spec long, I am NOT bullish on GOOG beyond the move that I showed setting up earlier.

 3C thus far on the move below the triangle, looks pretty good.

The 3 min chart still leading.

This is what I call "letting the trade come to you" and my favorite entry method, all the core shorts put together from March to April are still at a profit because we used the same entry method, we just shorted on strength.

If you are interested in GOOG, you can always email me for an update of where it stand. I may even consider a very small position, even though I'm pretty much maxed out on longs as far as maintaining the hedge I wanted on the primary short positions

I'm surprised the Euro has held up this long, the indications suggested both the Euro and market would pullback and the dollar would rise, in the near term -the $USD divergence doesn't go out past 3 mins, but it's strong enough that it should move both currencies-Euro down/Dollar up. The market has already reacted as I suspected both the market and Euro would.

 The Euro is near some resistance, but not far away from that important resistance level-that's a game changer for sub-intermediate trends.

 Thus far it's held up much better than I expected, I don't know how much longer it can go.

 The SPY in green vs the Euro-as usual stops are placed at the most obvious place and taken out, at least the pros are making money on volume rebates.

 $USD 1 min positive

2 min positive.

As I mentioned it goes out to 3 min, but stops there.

As I'm writing this the $USD is moving and there goes the Euro.

Market Update

Not surprisingly the averages look very similar to the Euro, however similar to yesterday when I was just capturing the last chart for a market update, you may recall all of the sudden the market character (3C) changed instantly with a big leading positive jump in the IWM which caused me to have to scrap 10-15 mins of work and start over. There may be a similar change starting to occur right now, I'm not scrapping this update though as it is not yet as definitive as yesterday's was.

 Note how similar the SPY divergences look to the Euro/FXE just posted-3 min negative/leading divergence.

 The 5 min isn't too bad, but still a negative divergence this afternoon

 The 60 min chart, leading positive above where 3C was at during the May 1 highs.

 Here's where things get a little strange as the DIA 1 min did go negative at the same area as every other average, but the 1 min has a leading positive divergence (I captured this after the SPY). The way the intraday charts would work is negative divergences on the 1 min, if strong enough would move to the 2, 3, and maybe the 5 min chart. If a new divergence, like a positive divergence started forming, it would again start on the 1 min chart and work it's way through the longer intraday timeframes, while it's a bit early to say, it appears that may be what is happening in the DIA.

 The 2 min chart wouldn't see any new positive divergence yet, it would just show the extent of the previous negative, I will note the 2 min in its current position has a relative positive developing, whether that holds will largely be up to what happens on the most recent data (the 1 min chart).

 DIA 5 min negative divergence from earlier. If the 1 min positive divergences were stronger right now and I felt there was definitely something to them like yesterday's 5 min IWM, then I would post the charts in a different order for you to understand, I'd start with the 2, 3, and 5 min negatives and end with the newly forming 1 min positive.

 IWM 1 min negative intraday, with a possible relative positive forming now.

 IWM 2 min negative at the 1-1:30 test and a possible relative positive forming up.

 IWM 5 min was very strong yesterday leaving it in a good relative position, leading positive, even though intraday you can still see the negative.

 QQQ 1 min negative at 11:30 and 1:30 with a possible relative positive forming.

 QQQ 3 min leading negative intraday.

And the extent of the negative divergence on the 5 min which is leading negative intraday.

Now to see if there's anything to that DIA 1 min chart.

Euro Consolidation

As far as I can tell, the most pivotal event in the markets right now is the Euro/Dollar relationship which has a significant impact on nearly every risk asset. The market is pretty much hung up in a consolidation or a pause and if you look at the EUR/USD it is as well, it seems obvious that the two are very interconnected right now, both with very high short interest. The short term or intraday Euro charts are hung up in intraday negative divergences that have thus far led to a consolidation, they are probably large enough to create a pullback (the market should follow the Euro roughly) as the Euro is confronting some resistance, the $USD charts confirm, but when in doubt, look at the longer term charts so here they are.

 The Euro since 4 p.m.  (NY) yesterday

 The EUR/USD since the 9:30 open today, note the consolidation

 Euro intraday 3 min is in or was in overall leading positive position, 3C has pulled back pretty deep, I suspect a pullback in the Euro as well.

 The divergence is on the 5 min chart as well.

 When we get to the 15 min chart there's no divergence and 3C is leading positive, the divergence above is an excellent example of a relative positive divergence.

 The longer term 15 min chart since the May 1 negative divergence/top with the 15 min currently in leading positive position, much of that from this week.

 The longer term trend of the 30 min chart has been in a very positive position and this is a large divergence, suggesting  large move.

 Until recently the 30 min divergence was impressive, but that is as far as it went, now it has made it to the 60 min chart as a leading positive-even more impressive.

 The 2 min $USD intraday has seen a positive divergence that has thus far halted the slide and created a consolidation, I suspect it will send the $USD higher in the near term and Euro lower and the market lower with it.

 However at the $USD 5 min chart there's no positive at all, so I don't view it as much more than a correctional divergence as the Euro is at resistance.

The $USD 15 min chart is confirming the Euro 15 min in that it is leading negative, the opposite of the Euro 15 min.

 The $USD 30 min negative also confirms the Euro 30 min positive.

And the 60 min negative $USD confirms the 60 min Euro positive.

However in the near term, I'd expect some pullback in both the Euro and the market.

GOOG Follow Up

GOOG was mentioned yesterday as an interesting speculative swing type trade candidate-I don't like the bigger picture, but in the near term I do like what I see in GOOG. I'd certainly consider GOOG as a spec long here.

 GOOG's recent trend on a 15 min chart

 I like the recent volume on this 60 min chart, we often see large volume spikes like this before a reversal, like mini-capitulation.

 GOOG 1 min chart's trend has picked up considerably

 The 2 min chart as well in an area that looks a bit like a triangle price consolidation.

 The 5 min chart in leading positive position at the same area.

 Finally the hourly chart in a leading positive position.

I'd consider GOOG here at this triangle, a stop could always be placed below the lows of 6/12. There are several different ways to enter: an entry now; wait for a possible downside break below the triangle with a 3C positive divergence or wait for a break out of the triangle. For me personally, they're all so close it really doesn't matter. I'd prefer a long Call position with an expiration in July, but as you know, I like to get out of option trades ASAP.

Risk Asset Update

There's a bit of a mixed bag thus far today, however the main story for the market is, "How far will the Euro get?"

A look at ES Context and the SPY arbitrage model.

 CONTEXT's ES model is still looking a lot better than it has over the last week or so, even as the two converge.

 The SPY arbitrage model is positive for the SPY.

 Commodities intraday are interestingly following the SPX rather than the EURO, although there is a bit of divergence between the performance of the Euro and that of the dollar, so it may be they are tracking the SPX mostly and the Dollar second.

 The longer term picture in commodities vs the SPX is not what I'd like to see, however commodities have severely underperformed the market for the entire year.

 High Yield Credit fell off a little thus far today, but it's still early, yesterday we saw some pretty extreme moves in some of these indicators in the afternoon to the upside.

 High Yield Credit sill not in line with the SPX after that steep plunge on Monday.

 High Yield Corp. Credit is once again contradicting High Yield as its momentum outperforms the SPX today.

 Bigger picture, High Yield Corp. credit is near the highs while the SPX is off the local highs, this means HYC credit is in a slight leading divergence.

 Yields which gained a huge spurt of momentum yesterday have backed off a bit today, but...

 that backing off puts them pretty much in line with the SPX and again, it's still early, yesterday Yields made a huge move in the afternoon.

 The $AUD's momentum is leading the SPX intraday, it shaped up quite a bit yesterday.

 Longer term it is well in line with the market and actually leading it.

 Here's the Euro's move today mentioned yesterday based on the charts.

Sector rotation vs the SPX shows financials rotating in, Tech is finally starting to see some momentum that has been missing the last several days. The safe haven sectors are in rotation today as well, which is interesting with Financials looking the way they do.