ES & FX

The tone of ES has changed considerably, whether the G-20 news was real or rumor, the only thing really needed is the EUR/USD to hold and/or gain above resistance which it is now, so ES could be responding to either or both.

Although it is very early and I expect at least several counter rumors before the open tomorrow, as of now, the tone of ES is much more bullish than it has been in some time.

 ES tone improved a lot since just before the close

 A closer look

Just this afternoon I wrote that the EURO was seemingly, "SO close, yet so far away"; it's always some quiet Tuesday when you least expect it that all heck breaks loose. Right now, EUR/USD is above the resistance area. Should the Euro hold here or gain overnight, we are in short squeeze territory.

FB gaining momentum

FB closed nearly +4% today, but it's the last hour that is telling. For those of you using 3C, this is a pretty good example.

 On this hourly chart, note the close in FB today as it approaches the breakout zone to move the stock in to Stage 2 mark up. A few weeks ago who would have thought we'd be long FB?

 This is a 1 min chart of the last hour, this has a distinct short covering look as volume rises and there are no pullbacks, this is the snow-ball effect and the reason we see so many head fake moves before a reversal as it creates this effect.

 FB is a good lesson in why the long term charts are important, this shows the extent of institutional activity as all the accumulation from the shorter charts accrues on the longer charts. This is also a great example of a divergence that jumps off the chart, these are the high probability trades.

 Note the pullback and quick accumulation today just before the move.

The Trend Channel which had an initial stop below $26 is now at $27.50, note how it has narrowed to reflect FB's recent trade, this also means it will be locking in gains faster.

Positions

Since March we have been building core or primary short positions in to market strength...

 While traders expected the uptrend to continue, we started using bounces and any strength to sell short in to at these areas in yellow. The reason why? It's not as simple as two charts, but they do sum it up...

 60 min negative divergences in the SPY and all of the other averages.

The Trend Channel was also early to show a change in character, we also looked at breadth charts and many others.

Now the dilemma is this... Every time since 2009 the Central Banks have injected liquidity in the market, it has surged, just look at the market and dates when QE 1 and 2 started and ended. If there's anything to this rumor, then the assumption is the market moves higher, except this time is not the same as the last several times, things are much worse now in Europe than ever and perhaps in the US too, I'm not sure we can use past precedent for future analysis.

The core equity shorts (no leverage-just a regular short) I opened are all in the green and include the following: CAT +24.8%; BIDU +19.3%; PCLN +16.41%; AAPL +6.87%; XOM +4.39%; BEAV +3.57%.

I added speculative long positions based on the positive divergence to take advantage of upside and hopefully sell them and add to shorts in to strength, but it also had the effect of hedging the short positions in case of a surprise Central bank intervention.

Some decisions are going to have to be made and we are going to need to pay extra attention to the smallest of details, that's where we'll find our edge.

EUR just hits the target

This is the major resistance area that has been tested 4 times and failed, this is why bears are frustrated, at each test and failure they will typically enter short positions on the failed tests, yet the Euro and market won't cooperate, we have seen why in advance, but this is why the sentiment among bears is growing in to exasperation.

Now the Euro needs to hold above this level, if it can do that, watch out above as a short squeeze should follow and it could be historic.

More to come...

Continued...

It appears the announcement itself wasn't known in advance as far as timing today, but it does appear the action of the policy announced has been known. Global intervention like that isn't decided on in a day, there's a lot that goes in to something that big, thus these two charts of the SPY...

 1 min intraday suggets timing of the announcement wasn't known-don't assume this is a cake walk, there will almost surely be denials causing market volatility.

The 60 min SPY chart has been in leading position since the bear pennant (yellow triangle), but look at the leading positive since the market pulled a head fake and hit the lows (which technical traders assumed would be the next leg down0, that divergence is amazing and starting to bleed to the daily chart.

This would explain a lot

Not only the move in the market just a few minutes ago, but depending on how long this has been in the works, the larger divergences we have been witnessing.

G20 SOURCES SAY CENTRAL BANKS PREPARING FOR COORDINATED ACTION AFTER THE GREEK ELECTIONS

UNG

I just got a head's up on UNG as I have been so busy looking at other things, I didn't look there today on the EIA Natural Gas report that comes out every Thursday morning. Pretty much everyone here knows there's only 2 stocks or Industry groups that I like for longer term long positions and among those two, UNG/Natural Gas is my favorite.

For quite some time we have been following the changes in character in UNG, it's been tough but the base I have suspected was forming seems to have formed.  I picked up some UNG for the equities model portfolio and it's a position I don't even monitor, it's a longer term play so I'm not too concerned with the day to day stuff.

We saw a change in character in UNG late last year.early this year and have been following it since. I had no idea what was causing this...

A large positive divergence in to falling and or range bound prices.

Or this...

 A clear change in character both in price trend and volume.

Or this...

The Trend Channel holding the downtrend without a single stop out until recently.

Then somethings started popping up, the first was Bernie testifying before Congress and a Congressman asking him a clearly rigged question about the beneficial virtues of Natural Gas. The question was way out of left field as the F_E_D has nothing to do with energy policy, however the testimony was being watched by traders the world over and what better way to give Nat. Gas a prop than during Bernie's testimony. Not too long after that some legislation that would limit the pollution from any new power plants built in the US left only two options, nuclear which is the second area I like and Natural Gas.

Well take a look at Nat Gas today on this EIA inventory report

Released On 6/14/2012 10:30:00 AM For wk6/8, 2012 Prior Actual Weekly Change 62 bcf 67 bcf

Highlights Natural gas in storage rose 67 billion cubic feet in the June 8 week to 2,944 bcf. An injection of 80 bcf was expected.  Today a 13.25% gain on huge volume. Now you take a look at the 3C charts below starting with the longer term (more important-showing the true extent of institutional activity) to the shorter term and you tell me if you think there was just MAYBE some inside trading going on in advance of this morning's report?  The 30 min chart, negative at the May top and then a large relative and leading positive divergence to new highs.  The 15 min chart with a leading positive divergence that grew stronger right in to yesterday. The 1 min chart going very positive yesterday (many times this is the market maker/specialist stocking up on shares as they have seen the larger orders go through already and may have filled the orders themselves).

The Currency Charts

Basically we have a very short term intraday positive in the Euro (1 min), when going out to about 5 mins the Euro has a negative divergence, the Dollar a positive. These are in my view the exaspirating timeframes, they typically have little to do with the larger trend, but they create exaspirating volatility or noise. When going out to the timeframes that tend to represent the most likely trend (taking away intraday and day to day noise), the Euro is not only positive and dollar negative, but these trends are intensifying.

There is no fundamental reason for the Euro to rally, but there's a technical reason, it is at or near historical highs in short interest. I use to ask my students what Wall Street manufactures, what is it that they sell? While they do sell services (I'd love to do a post showing how many calls Goldman Sachs has made and traded against their own clients), they make their money in a zero sum game. For one person to make money, another has to lose it and when everyone is piled up on one side of the boat, it represents a technical opportunity for Wall Street to make money as no one in their right mind can make a reasonable case for a bullish Europe.

From my latest sentiment reports, the Twitter-verse is expaspirated for the very reasons I've been pointing out, everything they expect to happen has gone the other way, case in point...

 When the market broke down as we suspected it would , from the bear flag/pennant, traders expected the next leg down, we expected a move higher. Even before that when we were building short positions as early as March, traders were expecting higher prices.

As for the Dollar/Euro

 Intraday over the last couple of days the dollar in green and the Euro in white.

 This is the $USD 5 min chart, it looks like it wants to pop, but this is still only a 5 min chart, this doesn't represent a major trend.

 The Euro 5 min, the opposite, a negative divergence.

 Very short term, today's 1 min chart showing a positive and the Euro moving up from there.

 Now the timeframes that matter, the 15 min $USD leading negative

The 15 min Euro leading positive. The 30 and 60 min charts show the same trend. It looks like more near term noise, however it's very hard to ignore these 15-60 min charts (6 between the Euro and $USD) that all confirm each other and suggest the Euro moves quite a bit higher, which of course would almost certainly pull the market higher and really annoy shorts.

Dollar Upside?

The dollar has been holding relatively flat for the second day in a row, a quick look at it suggests to me we will see dollar upside shortly. I can't say whether it is connected to the EUR/USD correlation or is just going to move for its own reasons, I will look in to that closer.

In any case, typically the $USD moving up means most risk assets move down, I'd be very interested to see how gold reacts.

That's my take, I'll be back with some charts.

Risk Assets/Context

Again we are getting a mixed bag in the Risk Asset indicators, most of which are leading. There remains a divergence between the performance of high Yield Credit and High Yield Corp. Credit. Context for ES looks to be about fairly valued, while the SPY arbitrage suggests the SPY is undervalued. All in all a mixed bag, it almost seems (and this wouldn't be unreasonable), that the market is in a short of holding pattern awaiting both the Greek election results and the F_O_M_C policy statement due this month. We also have triple witching options expiration, so there are quite a few under-currents, some are not discountable by Wall Street, just recall the surprise at the last Greek election when Syriza out-performed and did so well that it upset all assumptions that a pro-bailout coalition would easily win and this doesn't even take in to consideration the wild card that is Europe, whether it be rumors, policy announcements or unforeseen consequences of policy announcements.

 CONTEXT's SPY Arbitrage shows the SPY undervalued here.

 As for ES, it is bouncing back and forth and I'd call it pretty much in line for the most part.

 Commodities today are seeing good relative momentum vs the SPX, however...

 Longer term commodities are underperforming significantly as they have been doing since late last year. There's a down trend channel and it may just be a brief spike, but coms are just above that channel, it could be the start of a move higher or simply noise, but it's worth keeping an eye on.

 High Yield Credit while somewhat in line with the market today, dropped overnight, yesterday it wasn't performing that well either.

 Note the strong signal in HY credit at the SPX lows, then in red a lot of damage was done in one day, there are some higher lows, it remains to be seen if we get a higher high in the yellow area, as it stands HY credit is divergent from the SPX and this is a bit worrying.

 Yields intraday are seeing decent momentum

 Longer term they are just about in line.

 The EUR/USD since the 9:30 open

 And here's major resistance-this is a very important area, yet it feels like "So close, but still so far away". A definitive break above this resistance area would change the entire tone of the market to a much more bullish one, however remember what the primary trends look like, this is why I have kept the core short positions. Right now at last check all of the core shorts are still in the green and almost all of the speculative leveraged longs used as a hedge for the shorts are also in the green.

 The $AUD intraday vs the SPX is just starting to see some downside momentum pick up.

 Longer term the $AUD is in a good position

 The Euro seeing intraday downside momentum.

 Remember the sell-off yesterday while we had signals suggesting it hours before? I wondered last night whether those shares were picked up on the cheap, it seems they were, whether just for a short term trade or? In any case the Euro didn't see the same downside so it stuck out to me as some short term manipulation or more accurately a shakeout.

 High Yield Corp Credit is performing much better than HY credit.

 Here you can see a new high in HYC credit. All in all this area since the 7th seems very messy and unsure.

Sector rotation over the last several days (click on the chart for a closer view.)

Brief market update

The last 1 min negative divergence I mentioned did in fact create a consolidation intraday, right now those same 1 min charts are "Starting" to improve. We'll see if they go out a bit longer, but so far so good on the intraday signals.

I really want to look at CONTEXT and Credit as well as the EUR/USD; coming up next...

GLD Update

There are a couple of competing themes in GLD/gold, 1) a possible primary trend bubble, 2) a short term decline 3) a possible intermediate bullish trend. This may sound counter-intuitive, but there are at least 4 major trend classifications and each can be different at the same time, for instance we may have a primary downtrend with a bear market rally that registers a sub-intermediate up trend, but within the bear market rally a pullback of a week or so, giving us a short term downtrend, so various trends can all play out at the same time on different timeframes. I have had a feeling for a while that gold's primary or intermediate trend was changing and possibly a bubble. It definitely changed in that the former solid uptrend was halted and at best the primary trend is lateral.

Gold use to be very closely correlated (inversely) to the dollar, for a while it acted as a risk on asset, and for some time as a flight to safety, it now seems to be driven by QE sentiment as gold has a lot to gain from dollar debasing.

Lets take a look at the recent charts without going in to full scale analysis of gold's primary trend as I just don't think there's enough information (or there are some changing charts) to make a determination there.

 Here's the recent bearish descending triangle that implies a continuation of the downtrend, it is within this triangle we found a strong positive divergence at the lows and GLD shortly after (2 days) saw it's largest 1-day gain in about 3 years, once again putting the squeeze of technical traders expecting a break down from the triangle. However at the yellow arrow I have suspected this failed move may in fact be a precursor to a downside reversal, GLD is at resistance right now.

 GLD's opening trade, it quickly backed off resistance on the open and rallied back up to the level this morning.

 The 1 min chart shows a negative divergence on the open, a small positive on the a.m. pullback to the lows and then confirmation of the move back up to resistance where another negative divergence set in.

 In trying to reduce noise and uncover the trend, I'm using a 15 min chart, you can see the breakout from the bearish price pattern to the left and in yellow the area I suspect was a head fake failed breakout as 3C is negative on that move, it is also negative as GLD approaches the same area of resistance.

 On an hourly chart we see much the same, a spectacular positive divergence in the bearish price pattern on the 30th that sent GLD higher and then a negative divergence at the point I think is suspect, also a current negative divergence. It would seem to me GLD may have upside capped in the near term, however...

This support area on a daily chart that has seen several positive divergences including the last one on the 30th, may be a feature we need to watch as 3C daily looks a bit stronger here. I'm wondering if we might see a move that breaks just below that support level and puts together an intermediate uptrend or sub-intermediate uptrend. The jury is still out on that, we'll have to first see what the local price action does, but it looks like it wants to back off and maybe test that support area, which at this point is becoming so obvious that a head fake move is almost certain.

The long trade on the 30th is the last good signal I see in GLD worth trading and I believe at this point, that trade is over.