Volatility

Today wasn't nearly as volatile as I would have expected, the Sunday night to Monday open was more volatile, especially for the Euro.

The reason is the season, silly season or politics. It was just Sunday that PASOK said they would not form a coalition government with the New Democracy unless Syriza was in it too, which as I mentioned last night, is beyond highly unlikely. However today PASKOK has already flip-flopped and is now willing to explore the possibility of a ND/PASOK coalition, you see what I mean, total 180 degree reversal within less than 24 hours, expect a lot more, especially as Greece tries to renegotiate with Germany-good luck there.

Watch Italy very close this week, we know Spain is in trouble, but there are troubling proposals that are about to be floated with the EU finance ministers, Italy may be much closer to the edge than most realize. If Italy and Spain sink at the same time, it's game over; it's not really a matter of "if", but "when" and this is why I decided a month ago to keep my core shorts intact, the Black Swan that pops its head up on some quiet Tuesday morning.

Egypt will also be very interesting as a technical win for the Muslim Brotherhood in elections WON'T be allowed to stand, the military has retained the reigns of leadership since Nasser, they are not about to be told what to do by the Muslim Brotherhood, this could be well beyond an economic event, this could be a flash-point in the MENA region.


Another HUGE event will be the June F_O_M_C announcement Wednesday, it's time to really start paying attention to how gold behaves, we may very well have an answer to why the positive divergence on the 30-60min charts has been in effect since before the SPX made its last low. Remember that there's almost always an initial knee jerk reaction to the policy statement and it is almost always wrong.

However, this chart is what got me started on this post, ES tonight, once again looking a bit scary.

That's a nasty leading neg. divergence in ES. Last night's was spot on, we still have a long night, but this doesn't look good and may explain the shorter term 3C charts today suggesting a pullback.

Review of the Closing Risk Asset Layout

Commodities surged ahead despite their $USD legacy correlation, the Dow Jones UBS commodity index closed at +1.07% vs the SPX at +0.14%, so commodities are making up some ground from their current negative divergence with the SPX and they are doing it in spite of the gap up in the $USD, although it did remain flat most of the day.

High Yield Corp Credit made a late day run the last hour to bring it just above unchanged at +0.03%, still a tiny bit lower than I'd like to see for the short squeeze scenario 3C has been pointing to.

The Euro's move lower was disappointing, although some of the downside momentum faded during the afternoon session and there was some increased positive 3C momentum in the 1-5 min charts. Likewise, the $USD saw some increased negative 3C momentum in the same timeframes, so perhaps the Euro is looking for some footing in the area.

The $AUD went negative vs the SPX at 2:25 today as the SPX hit intraday highs, from that negative divergence the SPX lost some ground from that point. For purposes of the short squeeze scenario, the $AUD is not presenting a problem and is in confirmation of the SPX trend.

Yields which are an excellent leading indicator, gapped down on the open and remained fairly flat most of the day, however the damage done in yields really started on the 14th with lower highs, this was worse on the 15th. The ONLY silver lining is they seem to be holding some support from June 8/11th area, otherwise they are negatively divergent vs the SPX with regard to the trend that has developed that 3C seems to indicate will end with a short squeeze. It should be noted however, we have seen some large moves in yields very quickly so I'm not counting them out of the game, not with the 3C chart the way they have been.

High Yield Credit added some more upside on the day which was good to see, although HY credit still is in a negative divergence with the SPX. The contradiction between HY credit and HY Corp. Credit is curious. As mentioned earlier today HY Corp. credit may be moving within its longer term channel or there may be some distortions as JPM tries to unwind their whale trade.

End of day sector rotation saw Financials leak off in to the close, Industrials came in to rotation or continued moving in, Discretionary also saw some added momentum, Tech lost a little ground and the safe haven industries saw some flow in to them (Healthcare, Staples and Utilities).

The EUR/USD...

 This is the daily chart and shows major resistance and the area a short squeeze would really need to hold above  which the Euro has not had good success with, this only emboldens the shorts as they see failed tests of resistance, but the overall 3C charts for the Euro and $USD suggest the break higher in the pair will come.

 The Euro giving back all of the Sunday opening gap up as I warned it likely will do.

 The FX pair during regular market hours with some loss of downside momentum.

ES remains rich to the CONTEXT model.

I expect some wild volatility this week, I'm hoping though that we can use it to enter some positions.

While it's way too early to make any assumptions, ES does have a continuing negative divergence on an intraday basis, this isn't as bad as last night, if it changes I will publish it tonight.

Interestingly, Treasuries saw 3C positive divergences today from the 1-5 min timeframe. Except for the 2:25 high in the market, Treasuries moved with the market for much of the day which is not typical. The fact Treasuries were seeing positive underlying action also fits well with a pullback in the market; as of now it doesn't look to be anything major (except credit is a little worse than would be expected).

The market averages themselves were slightly negative as I posted today, most damage was intraday and halted at the 5 min chart so we didn't see massive distribution, but enough that a pullback in the market is certainly a  possibility. There was a little better tone in the intraday timeframes toward the close in the SPY and DIA, however the QQQ/IWM didn't see the same, but overall the tone on the day seemed like there was selling in to price strength above the SPX's major resistance area, which would make some sense as nervous shorts would provide the bid.

We have a couple contradicting signals in the near term/intraday which is not surprising as the market tries to figure out how to discount the Greek elections which were not as simple an affair as one might have expected with a New Democracy win, however nothing very dramatic. As of now, it seems a pullback remains the path of highest probabilities.

I'll update some other information shortly.

More on PCLN

As many of you know, PCLN was a short trade for our Primary trend "Core Short" positions. The PCLN short in the equities model portfolio was shorted at $761.69 and is still at a 11.71% profit. We have expected a move higher in the market and usually I would cover the short, maybe go long and look to short PCLN (assuming nothing has changed in our outlook) at a higher price, but since we are where we are in the topping process and because of the possibility of a Black Swan event out of Europe, as you know I made the decision to hold on to core shorts (all 6 are still at a profit despite recent gains in the market) and hedge them with some spec. long positions. The idea based on our current forecast is to make money on the longs while hedging the short positions, when the move is over, adding to the shorts for the next primary leg down. Thus far the strategy is working well with longs and shorts all working well with the additional benefit of the hedge, this is only possible because we let the trades come to us; we shorted in to strength and bought weakness, allowing us excellent low risk positioning.

PCLN has had a nice move up the last 2 days, but for the very nimble trader looks like there's a quick downside trade (most likely a pullback), which I personally would approach with puts to get the extra leverage, yet at the same time I would not have a large position size.

PCLN may set up another trade from there in the sub-intermediate long trend.

Here's what it looks like.

 This is the price area in which PCLN was shorted (thick red trendline/arrow).

 This is why, 60 min negative divergence at the top in PCLN (of course much more analysis went in to the trade, but that's the gist of it).

 The 30 min chart which shows the negative divergence at the top also shows a recent positive, while it was other charts that had us looking for a move up in the market and the reason I added the hedges, PCLN clearly is showing a positive divergence suggesting higher prices which is still in line with our analysis on both a Primary trend and sub-intermediate trend.

 PCLN 60 min looks a lot like an inverted H&S base, it clearly broke out of a resistance zone Friday. One other scenario since this Inverse H&S is so visible on such a popular stock, would be a head fake move above resistance before a pullback, perhaps a gap up on a negative divergence which would be an even better entry for a short side trade (I repeat though, you must be nimble and able to watch the trade).

 The 2 min chart shows the tell tale flat price range where we see divergences commonly form and we also have a leading negative divergence today after good confirmation over the last week.

 While I can mark some shorter term divergences on this 3 min chart, the basic trend is in line with price until today, the negative leading divergence is pretty obvious.

Here's a closer view of the 3 min

 I'm thinking a move to $650 would be possible, hence the reason I'd prefer to use some leverage, but I wouldn't take this trade if that were all there was to it, it would be way too speculative.

 The same 30 min positive divergence that sent PCLN higher is also not confirming higher prices, this is a significant timeframe and suggests the potential for more downside than just $650. If this 30 min chart wasn't present, I wouldn't have bothered bringing up PCLN.

As to the possible long trade I mentioned... (I said there are several possible trades here, actually at least 3- 1) the pullback idea mentioned today, 2) there's a sub-intermediate long trade on the chart above and finally 3) there's the Primary short which would be an add to for me on price strength.) 

Above the X-over Screen to avoid false crossovers did a good job at the first X-over as the other two indicators didn't confirm the move down until all 3 went red, now we are close to all 3 giving a long signal, this is in line with what we have been seeing on the 30-60 min charts market wide, so there's also a decent PCLN sub-intermediate long play possible, I would not take it unless the trade came to me. If everything goes according to what I have laid out here, a short trade for a pullback would be trade 1, so long as we see some 3C strength on the 15 min chart during a pullback and the X-Over screen continues to loo good, then there's a sub-intermediate speculative long trade. Finally that move would allow us to short in to strength for a continuation of the Primary downtrend.

As for the Primary trend, here's a long term 3 day 3C chart...

The staging here is near perfect, during 2001-2003 we have a stage 1 base, 2006 saw Stage 2 Mark up, 2010 saw stage 3 Distribution and PCLN is moving in to the later half of that stage (primary top), the only thing left is stage 4-Decline.

PCLN

PCLN looks like it's ready to back off a bit, whether a pullback or something worse is hard to say, but for a quick trade, I think it may be worth a crack if you are nimble and can watch it

GOOG Follow Up

I mentioned GOOG several times last week as another speculative long play, it looks like we might get a SCBO (Second Chance Buying Opportunity), if you are interested of course.

Here are the updates on GOOG,

June 12

June 13 #1 This is when the head fake set up became apparent

June 13 #2

So here's the idea and update...

 In the white box, it became clear something was changing in GOOG's short term trend, this could go out to the sub-intermediate trend, as you can see, GOOG is responding to the set up we put together last week.

 After a downtrend, a symmetrical triangle is considered to be a consolidation/continuation trend, traders would be looking for GOOG to break lower and start the next leg down, this is where we often find good trade set ups as technical analysis is used against traders' predictability. To be clear, I don't like GOOG for anything more than a short term spec. trade, longer term it remains ugly, but that doesn't mean some money can't be made on a counter trend move.

 We expected a head fake break down and got one, the same thing traders would be looking for except they would have been shorting the break where we were buying it (yellow box).

 This 3 min 3C chart shows the triangle that formed on the 12/13th and the break below the triangle on the 14th with a 3C positive divergence in to that break. It looks like we could get a little pullback on a negative divergence on today's chart, that may be worth keeping an eye on if you like the GOOG idea and didn't get in last week.

 The 60 min chart shows a leading positive position in 3C, which would suggest that GOOG has plenty of upside potential.

This 60 min Trend Channel isn't my favorite, but a daily is too wide for this trade, I would look for a pullback to the $565 area as a possible entry, we want to make sure 3C is positive in to any pullback before entering, but by the looks of the 60 min chart, I think it will be.

This is an excellent example of using technical traders' predictability and Wall Street's response to let the trade come to you.

Market Update

Basically today looks like a technical move that probably triggered some short covering, there isn't much showing accumulation/positive divergences except off the open, everything since seems to be based on the SPX above major resistance in short squeeze territory, although the intraday trade doesn't look like there was any real strong short squeeze in play. There's damage on the intraday charts, but it seems to be halted at about 5 mins, which isn't a whole lot of damage thus far.

As suspected, the leading negative in ES is getting worse.

 The first volume surge in the SPY was apparently some short covering, the second looks a lot more like bearish churning.

 A closer view of the churning as the candlestick (1 min) rejects higher prices and forms resistance intraday on large volume.

 DIA 1 min is leading negative intraday, however the trend is more interesting and why I'm willing to be patient and let the trade come to me rather than chasing it.

 The DIA 1 min has been in excellent confirmation the last week or so, today is a clear change in character, mind you on the least influential timeframe, but it is there and divergences always have to start somewhere and that is right here.

 DIA 3 min relative negative divergence, there really isn't that much damage done so far with only a relative neg. on a 3 min chart.

 IWM 1 min positive on the open, note though in the yellow box where we'd expect to see a positive divergence for a move higher intraday, there is nothing, currently leading negative at new lows on the day.

 The IWM 3 min in line from last week and 2 relative negative divergences, one at the a.m. highs today and the other is worse at the afternoon highs, the green arrow intraday is 3C in line with price, so again, no positive divergence where it would be expected to be found, suggesting momentum simply came from the cross above SPX major resistance as we have expected to see.

 The IWM 5 min chart is still in line so the damage done intraday today is contained at the 3 min chart, which means there wasn't serious damage being done, it just looks like the market is going to pullback or consolidate.

 QQQ 1 min is one of the worst looking with a deep negative 1 min divergence at the afternoon highs, it looks like pretty good selling in to strength on an intraday basis

 The 2 min positive on the open, negative at the a.m. highs, negative at the afternoon highs and no positive divergence in the yellow area where it should be seen.

 There's a slight negative on the QQQ 5 min, but not horrible.

 SPY 1 min positive on the open, no positive divergence at the mid-day lull and a relative negative at the afternoon highs.

 SPY 2 min, same features, same lack of a positive divergence mid day.

The 5 min chart is in line so it seems damage is contained to the intraday shorter charts.

Quick ES/Market Update

I'll follow this up with an update on the averages.

ES's positive divergences intraday have been very small, to be fair, so have the negatives. but this most recent negative is leading now, 3C has been very volatile since 2 p.m. and I suspect that this will turn in to a deeper leading negative divergence as the risk assets are not supporting this move.

 The Euro has managed to hold in place, but it hasn't confirmed with the market on the upside intraday.

CONTEXT for ES is getting more negative, I'll be interested in seeing the risk asset layout after the close, I suspect some deterioration in some of the key assets.

BPZ Follow up

Unfortunately there's so little volume in the July $2 calls, it's a bit scary. I think I'll use the equities portfolio and just go long the stock.

BPZ-Trade Idea (Long)

Something seems to be going on with BPZ and I'm going to look in to a speculative long position (I consider all longs to be speculative for risk management planning right now as the Primary trend in the market is very ugly). I'm not sure what I'll choose as a vehicle for a long trade there, but I like what I see (I'll let you know before).

 BPZ Daily, something is going on with the volume, it looks like mini-capitulation.

 BPZ daily closer view

 BPZ 1 min positive

 2 min positive


 BPZ 3 min leading positive

 5 min leading positive

 15 min leading and 2 relative positive divergences.

 30 min leading positive

And the big one, 60 min leading positive.