European Market Closed Up-Credit and Rates, Not as Happy

Since Draghi gave his "Everything to save the Euro" speeches, it's almost as if the market totally forgot that when it came time to act on those words, Draghi took a pass. I say, "almost" above because I find it interesting that the day after the ECB punted last week, it seemed GS had Euros and quite possibly stocks to sell (being they pretty much move together) and GS, the company that trades against their own clients, came out and gave us all free trading advice and told us to buy the Euro; to me that sounds like GS has some Euro's to sell after Draghi's sharp words were met with a wet blanket and the F_O_M_C didn't do much the same week.

Can GS sell a large position in a day? No, it would likely take several days and they aren't selling in to weakness, they are only selling in to price strength and demand as that is the Wall Street way.

So maybe that explains in part why the much better informed bond and credit markets are not as enthusiastic as the much less informed equity markets, as they say, "Credit leads, equities follow" and on that note...

European Equity markets higher, Credit dislocated and headed lower.

In fact, from our own Risk Asset layout, take a look at the very liquid High Yield Corporate Credit vs the SPX..

 On an intraday basis, HY Corp. Credit is trading below yesterday's close as it comes dislocated from the SPX, this has traditionally been one of the better leading indicators when it diverges from the SPX, but this didn't just start today, it just got worse today.

Since July 31, HY Corp. Credit hasn't made a single higher high while the SPX has made lots of them, yet today's divergence still stands out on this chart.

Even though the Australian Central bank didn't move rates last night, take a look at $AUD, one of my favorite currencies as a leading indicator for the stock market...

That's the first real negative divergence between the two that I can remember in at least weeks, maybe more.

We'll see how some of these indicators end the day, but HYG and the $AUD dislocated as well as European Credit vs equities, it smells like change is in the air.

IWM 5 min

I think similar to financials that had not yet broken above support, the IWM was seeing similar support or at least was not seeing as sharp a negative divergences. Now the IWM has crossed that threshold, look how fast the 5 min chart went leading negative and took out the last 2.5 days in 2 hours.

MCP

Yesterday was one of those days in which MCP put on a real show for us, it was similar to our very profitable FB long when everyone hated FB, but much shorter in terms of accumulation, it was how spectacular the accumulation was that made MCP hard to ignore.

I closed the long MCP position from yesterday I believe around a 7% gain, not bad for no leverage and 1 day. I said I'd definitely close it if the negative divergence reached the 5 min chart, it has. Here are the charts and a couple of stop ideas if you are still long MCP.

 Based on this 5 min ultra-leading positive divergence, I wouldn't be surprised if MCP pulled back and constructed a bigger base that can sustain a longer move, we'll certainly keep it on our radar. Earlier I mentioned this chart hadn't seen a negative divergence, but was getting sloppier.

 The same chart intraday has now put in a negative divergence, up 5.4% today, plus yesterday's gains.

 For a tight stop, the 5 min Trend Channel has it at $12.20-about 5 cents more than earlier.

If you are looking at MCP longer term, the 60 min Trend Channel has a stop at $11.90 which is still a profit from yesterday's entry.

XLF 5 min looks NASTY

Finally it looks like Financials have broken, I'll bring you the charts in a sec

Charts that count

I don't know if you saw my ES post last night in multiple timeframes, but I thought it was interesting.

Here are 2 charts from the major averages, 1 long and 1 intraday/short.

As I said last night, trading is about a lot of things: risk management, seeing what the crowd missed, patience, but it's really a lot about probabilities and putting the probabilities on your side. We can't control what the ECB does or what the F_E_D does, we can only react to what they do and exercise good risk management and decision making, but when it comes down to it, we have to make decisions with the best information we have at the time. With these charts looking the way they do, there was no way I couldn't finish adding to those positions. Or in other words, when there are divergences like this, I can't ignore them.

 DIA 15 min in the worst leading negative divergence on the chart.

 DIA 5 min, compare Thursday's accumulation to the last 3 days of negative divergence -leading negative.

 QQQ 30 min in the worst leading negative divergence since at least May.

 The 2 min intraday chart leading to new lows.

 SPY 60 min leading negative divergence, again the worst on the chart.

2 min leading negative at new lows

BIDU Positions

I'm also going to fill out the BIDU core short position in the equities model portfolio and add a speculative $135 September BIDU put position in the Options model portfolio.

One last UVXY Call position

For the options model portfolio, I'm going to go with some September $5 calls.

Adding to UVXY Equity position

I'm going to add to the UVXY equity position here.

Financials

Financials have been one area that seems to have held up better than other important industry groups, as a matter of fact, last Friday I said that the market was hanging on by Financials and I've been monitoring them since.

Here's the updated charts, they are, I believe, sufficiently ugly enough here to cease support of the market.

 Financials didn't really break above resistance until today, there was some intraday probing yesterday, but today was the solid break-look at volume today.

 The important 15 min timeframe, it's almost a crossroads in 3C analysis. We have seen plenty of smaller negative divergences send financials on volatility runs that have driven both longs and shorts crazy (throughout the market), but this is the first time we have a real deep leading negative divergence at these kinds of price levels with the "head fake " component in place. I'd dare say this is the ugliest divergence on this chart.

 Intraday timeframes, the 2 min has shown several divergences moving financials intraday, again this is the deepest leading negative divergence and in flat areas each time the divergences get worse (flat areas of price action are where we often see institutional activity).

 The 3 min with a relative negative at the left, a leading negative in the red box, we see some movement with price and a divergence now within the leading negative divergence.

The 5 min leading negative divergence on an important timeframe. I'd think Financials are very close to a break lower.

The ES chart

I had a feeling it would be headed in this direction, while price is pretty flat, this is a serious leading negative divergence.

ES Now making the leading lows I wanted to show...

I'd think a move has to come soon to the downside

The Volatility ETFs

VXX and UVXY (I have a position long UVXY calls) are starting to see some extreme moves as well.

 VXX 5 min just blew through the local highs on an almost uninterrupted leading positive divergence.

 The 15 min chart did the same thing, it seems there's activity and a lot of it as this is nearly a straight line.

 The long term or "Strategic" view at 30 min leading positive.

 The 1 min UVXY trend over the last several days, but look at that spike in the box today.

 Even though the 15 min has been positive, again, look at the recent spike up.

The strategic view, it seems money has shifted around quite a bit since June.

DIA example

 The daily DIA and the head fake aspect-the June 6 lows were a solid head fake move we saw over a week in advance, still it had to make the head fake move lower. We've been seeing pretty solid negative signals almost market wide since Friday, yet it seems we have to make the move higher-as I mentioned last night, the more longs that can be pulled in, the more effective the head fake, but volume looks like there won't be too many more.

 Forget the leading negative 15 min trend and the distribution areas vs the accumulation area from Thursday and the difference in size.

 The DIA 5 min trend over the last 3 days vs the accumulation period Thurs.

 The 3 min trend over the last 3 days vs Thurs. accumulation.

The 3 min chart intraday with a new low in to a price pattern at the orange area that looks like a bearish ascending wedge.

MCP Follow Up

I closed the equity long in MCP for a 1 day 7% gain, if I had a larger position I probably would have phased out of the position, but it was on a spec basis.

I still think MCP looks pretty amazing, it just doesn't look "yesterday" amazing.

 MCP 2 min looks great yesterday, it's getting sloppier today

 Intraday it's even put in a negative divergence. I'd rather look at MCP at lower prices to start a new position than sit through a pullback.

 The 5 min is close to a negative divergence.

5 min trend yesterday was very clean, today it's getting a bit sloppy.

Still, a 7% gain for 1 day with no leverage isn't bad.

SPY at new intraday leading low

ES Update

I wanted to wait a little longer to let this continue to develop, but I decided to bring it to you now. As ES has been flat and already in a relative negative divergence from pre-market, a leading negative has been building.

AAPL's price/3C action not looking good either

QQQ Example

I'd post longer updates, but I'm watching so closely I'm afraid I may miss something with longer updates.

 QQQ 2 min intraday today at a new leading neg. low.

2 min QQQ trend at a new leading negative low.

ES may be getting interesting shortly on the negative side

Furthermore, TLT, the flight to safety trade is seeing some sharp intraday divergences as well, with a 60 min new leading high.

Closing MCP

Quick SPY Example

 Intraday 1 min

Trend 1 min

Lots of charts like this right now...

Risk Asset Update

This will be quick, High Yield Corporate Credit is peeling away from the SPX, a bearish signal. The Euro is as well, and it looks like commodities are about to on an intraday basis, longer term they are already way dislocated.

Watching the charts VERY close here

There are some really interesting battles going on, the SPY in this flat range since about 11:45 is looking like it's almost about to tip, the Euro on an intraday timeframe just saw a nasty intraday negative divergence. I'll be watching and get information out ASAP.

MCP Charts

Remember that the MCP move in 3C yesterday was very sharp and strong, but it wasn't a big base which is what we look for when looking for an extended move. Today's move has been sharp like yesterday's accumulation.

I'm considering taking the quick almost 9% 1 day profit.

The charts...

 1 min intraday in line, but trend is seeing a negative divergence.

 migration of the negative to the 2 min above and 3 min below.

 It hasn't reached the 5 min yet and this is still leading positive and in line.

As is the 15 min.

I think if the negative hits the 5 min, I'll close the position or maybe if it hits the stop around $12.15.

MCP Follow Up

There are some intraday neg. divergences in MCP, I thought I'd offer a tighter stop as well.

MCP's interesting accumulation-up 6% today

MCP is now up 6% today, no stop out.

I don't have confirmation, but got an email this may in fact be why and we caught it at exactly the right time.

 China National Radio reported the country plans to shut down ~20% of rare earth industry capacity 

One Reason a Break Above Resistance Has Such Low Volume

First, thinking about the last post, I just wonder if Thursday's accumulation was because of knowledge of the fact of Friday's F_E_D repo operation? It doesn't seem likely at that amount, the GS "Free Euro" buy advice seems more likely as part of a market cycle, but just something to think about.

I noted the lack of volume on the move above resistance yesterday, take a look.

 DIA since it broke above resistance and volume

 IWM intraday 60 min chart with today's break above resistance, not much volume.

 QQQ

And the SPY

I just read this, QQQ short interest is at the lowest since October of 2000, the SPY short interest is the lowest sinceOctober of 2007. There's no volume because there's no short squeeze, simply because there aren't any shorts.

Think back to our trend expectations, the next move a deep move down bringing shorts roaring back in to the market, followed by a bear trap, the shorts are squeezed and we see the resumption of the sub-intermediate trend we are in right now, except it hits a higher high and is more volatile, followed finally by the re-emergence of the Primary Bear trend.

Those assumptions were based on the charts, but if we think about it, Wall St. can't make much money if they don't have retail to trade against, since there aren't any shorts to squeeze here the next logical move (FORGET THE CHARTS) is the exact move down we have expected to come next, it has to be strong enough to really get the shorts excited. Then and only then can we see a huge short squeeze move higher as we expected in our future trend assumptions (assuming there's no Central bank intervention which changes everything).

I thought that was very interesting as it is in line with the charts that gave rise to our trend assumptions.