The NASDAQ futures and the QQQ signals look very similar and as mentioned, at this area, there's a lot less risk than at a lower level in the QQQ (higher for SQQQ).
Thursday, September 13, 2012
QQQ / SQQQ position
I lime the idea of the SQQQ long as it's not overwhelming leverage, but can make even a short move worthwhile. It's also a fairly suitable replacement for AAPL which is not quite where I want the 5 min chart.
The NASDAQ futures and the QQQ signals look very similar and as mentioned, at this area, there's a lot less risk than at a lower level in the QQQ (higher for SQQQ).
While I'm interested in any divergence, I'm more interested in the divergences after the F_O_M_C, the NASDAQ mini Futures (NQ) have a nice divergence and the issue has given good signals.
While the QQQ 1 min trend is about as ugly as you get and added nothing today, I'm more interested in post F_O_M_C and in particular the divergence right at the 2:27 high which was the time the question was asked of Bernie about inflation. I am fairly certain this isn't coincidence as I was watching the actual GLD chart and time when he was asked the question and saw immediately GLD /gold futures didn't like the question and/or answer, it may have revealed the flaw in QE3.
QQQ 2 min so there's migration of the divergence.
And even the 5 min leading negative in a fairly short period of time, about 1.5 hours.
The NASDAQ futures and the QQQ signals look very similar and as mentioned, at this area, there's a lot less risk than at a lower level in the QQQ (higher for SQQQ).
Adding SQQQ Long
In fact, I'm going to add an ETF (3x leveraged short on the QQQ) SQQQ here, it can easily be sold with minimal risk in my view.
To QE3 or not
During QE1 and especially 2 there was a motto with a 4 letter expletive in it, "Just Buy the Dip", which worked out pretty well.
Things were a little different at that time, the mistake we often make is to assume a policy at a certain time in the past will work the same right now when many conditions aren't the same such as inflation, such as the perceived strength and now the known weakness in Emerging Markets, the EU situation which was hypothetical contagion back then and now real contagion, manufacturing and especially as it relates to inflation and margins, the unknown limit of policy then vs the known limit of policy now as Bernie himself even acknowledged during the presser.
The bottom line is we can get and are getting information now, but we also need other market environments to gather additional information before jumping to a hasty decision. For instance, on a market decline we can gather information as to whether smart money is buying because they sure aren't likely to chase stocks on a day like today and volume I think proves that.
Here's a chart from QE 2 I just received...
Speculation from Jackson Hole sent the market higher, after QE2 was announced there was a "sell the news" event, that is what I'd like to see because that's where information can be gathered as to whether smart money is buying "the dip" or not.
Right now the IWM, QQQ, and SPY/DIA to a lesser degree are showing negative divergences that I believe will bring them down as sure as the AAPL positive 5 min sent it up.
There's probably an argument that can be made to short some of these here as they can easily be covered on any move higher with pretty minimal risk, while you may not get the chance to short them at these levels. I'm fairly content with what is already positioned.
There are some other markets too that I have pointed out, but the main point is I'm not making any drastic changes on a 4 hour move, which is almost always a knee jerk reaction and against the bulk of the evidence without decent evidence to support that change.
More to come, I want to watch the close carefully.
Things were a little different at that time, the mistake we often make is to assume a policy at a certain time in the past will work the same right now when many conditions aren't the same such as inflation, such as the perceived strength and now the known weakness in Emerging Markets, the EU situation which was hypothetical contagion back then and now real contagion, manufacturing and especially as it relates to inflation and margins, the unknown limit of policy then vs the known limit of policy now as Bernie himself even acknowledged during the presser.
The bottom line is we can get and are getting information now, but we also need other market environments to gather additional information before jumping to a hasty decision. For instance, on a market decline we can gather information as to whether smart money is buying because they sure aren't likely to chase stocks on a day like today and volume I think proves that.
Here's a chart from QE 2 I just received...
Right now the IWM, QQQ, and SPY/DIA to a lesser degree are showing negative divergences that I believe will bring them down as sure as the AAPL positive 5 min sent it up.
There's probably an argument that can be made to short some of these here as they can easily be covered on any move higher with pretty minimal risk, while you may not get the chance to short them at these levels. I'm fairly content with what is already positioned.
There are some other markets too that I have pointed out, but the main point is I'm not making any drastic changes on a 4 hour move, which is almost always a knee jerk reaction and against the bulk of the evidence without decent evidence to support that change.
More to come, I want to watch the close carefully.
What Bernie Said that the market didn't like
At 2:27 which was the intraday high for the SPY, QQQ, IWM, DIA and Gold, Bernie was asked about inflation and what the F_E_D's response would be if inflation, which is already problematic for consumers as well as manufacturers as evidenced by the PPI and ISM (manufacturer input costs sub-index which is rising while manufacturing is in contraction) became a problem (as QE has ALWAYS been inflationary) would be. While i can't quote verbatim, he said words to the effect hat the QE program would have to be adjusted until inflation was under control (target rate is 2%). I noticed it first in gold, it immediately responded and didn't like his answer; I noticed later the market averages topped intraday at the same minute and the TICK chart broke below the uptrend.
With inflation already a problem, it almost sounds as if the best has come and gone with the F_O_M_C policy statement as actions from here can only be downhill in response to inflation which is sure to be a problem.
The markets are not about what a company's earnings did, their about guidance and if the company can do better next quarter.
In that one question, it seemed as if Bernie admitted we've reached the plateau.
Furthermore, there's a decent article that was originally published by the New York F_E_D on the "surprise effect" of not knowing what the F_E_D may do 24 hours before an F_O_M_C announcement and since the F_O_M_C just seemed to shoot all 6 bullets, it may be of particular interest.
Here's the article...
Here's the chart from the NY F_E_D on what the SPX would look like with the surprise element vs what it would look like it without it.
Now back to seeing what the post Bernie presser action looks like.
With inflation already a problem, it almost sounds as if the best has come and gone with the F_O_M_C policy statement as actions from here can only be downhill in response to inflation which is sure to be a problem.
The markets are not about what a company's earnings did, their about guidance and if the company can do better next quarter.
In that one question, it seemed as if Bernie admitted we've reached the plateau.
Furthermore, there's a decent article that was originally published by the New York F_E_D on the "surprise effect" of not knowing what the F_E_D may do 24 hours before an F_O_M_C announcement and since the F_O_M_C just seemed to shoot all 6 bullets, it may be of particular interest.
Here's the article...
Here's the chart from the NY F_E_D on what the SPX would look like with the surprise element vs what it would look like it without it.
Now back to seeing what the post Bernie presser action looks like.
IWM cont...
3C is not just showing deterioration in the IWM, Rate of Change in price is as well and finally the NYSE TICK
The NYSE TICK is also deteriorating, this may just be while Bernie speaks or it may be something totally different, but it's deterioration nonetheless.
Gold didn't like Bernie's answer
I'm still listening and watching, but Bernie may have just answered a question that provides the catch 22 and gold immediately didn't like it.
This is exactly where the question was answered, I'll get further in to it after the conclusion of the press conference
Gold a little nervous before Bernie's speech
Bernie is speaking now, but it looks like the market is a bit nervous in GLD/Gold futures, both of which show the same divergences that have sent gold sideways.
GLD 1 min leading negative
GLD 2 min leading negative halted all upside at least for the moment.
Gold Futures look similar
Gold min futures
Gold Futures look similar
A couple of charts
These are not the only charts by a long shot, they are just two that I think are extremely relevant.
IWM 1 min is a fast responding time frame, the Russell 2000 or IWM is typically the leader of a risk on move.
IWM 3 min hasn't done anything here and volume is not impressive and dropping.
The NYSE TICK chart is breaking below the uptrend channel since the F_O_M_C announcement and is sitting around $100. A serious break of the channel will likely lead to trend reversals in a lot of averages and stocks. Out of all the NYSE stocks at this point, there are only 100 more advancing than declining.
Several intraday changes in character
One is the NYSE TICK chart which hasn't made a definitive move, but is very close to a move down through it' upward sloping channel. Another is the IWM which is the choice index (Russell 2k) for a risk on move with a huge leading negative divergence. I'll get charts up.
Some Futures Markets
Here are some futures markets, particularly gold and crude, both of which were QE darlings, acting a bit strange. These of course are very early readings for such a large policy shift, but we have to start somewhere.
Crude oil
Gold
NASDAQ
AAPL
Here's some of the strangeness in AAPL, although what would be most telling is a drop in asset prices and see how underlying trade acts then.
From yesterday afternoon (flag pole) to today up until just before noon (pennant), AAPL formed a bull flag/pennant. Interestingly the volume isn't that large for either a breakout of the pennant or more importantly a breakout of the pennant on a QE3 announcement.
AAPL's open showed confirmation (which is to say there's no divergence that should change the course of AAPL's price movement, then it was followed by a leading negative drop, which did change the course of AAPL's price movement from up to sideways.
Looking at the 1 min chart on an intraday basis, the second high from the pennant breakout is negative, this of course is a small intraday signal, but it was effective thus far as AAPL was halted and hasn't passed that price level as of right now.
The 5 min chart however is where we've wanted to focus this entire time, there's some weakening of that chart as seen above.
And closer up, you get a little better feel for it. I think this is still a key timeframe, but as I mentioned in a recent post, there are several assets that are acting strange considering what just happened.
SPY action
A bit strange, there are several I'm following including AAPL, USO, GLD that are acting a bit strange or not as you might expect to see on QE3 announced.
The scale seems strange because of the recent range and price having to adjust scale, but the 1 min is still not looking good.
Volatility-QE History
Conventional thinking as well as the history of QE1 and QE2 is that QE (now 3) will push stocks higher.
As has been commented on just about everywhere is that the market seems to have already priced in QE 3.
The price move thus far isn't as big as I would think and some analysts have just said the same.
So is QE 3 priced in? It's all about watching assets and underlying trade.
Volatility thus far has been fairly high within the move.
SPY, but maybe more interestingly...
AAPL, not a moon shot in one of the stocks that benefits from QE.
Conventionally my first instinct is to cut short exposure, but I think I'm going to wait just a bit and see how things shape up, see if this announcement was fully priced in.
I'm here, I'm just jumping from chart to chart so email responses will be a bit slow.
As has been commented on just about everywhere is that the market seems to have already priced in QE 3.
The price move thus far isn't as big as I would think and some analysts have just said the same.
So is QE 3 priced in? It's all about watching assets and underlying trade.
Volatility thus far has been fairly high within the move.
Conventionally my first instinct is to cut short exposure, but I think I'm going to wait just a bit and see how things shape up, see if this announcement was fully priced in.
I'm here, I'm just jumping from chart to chart so email responses will be a bit slow.
Example charts
Although these are 1 min charts, keep in mind that the policy statement is already out an under embargo.
IWM 2 min
QQQ 2 min
SPY 1 min big move...
UVXY 1 min
F_O_M_C coming
Again, be prepared for the knee jerk reaction, try to keep a cool head as the knee jerk reaction is often wrong or at least leads to extreme volatility in the opposite direction.
Market Update
The 3C/Price action has been pretty consistent this morning, nothing too exciting, but in the last several minutes there has been some sharp (albeit short term timeframes as divergences have to start somewhere and it is on the short/fastest charts first) downside 3C action, particularly in the SPX, QQQ and the IWM to a lesser extent. The only holdout so far on the short term charts has been the DIA/DOW.
TLT/20+ year treasuries showed a positive change yesterday as the gap was filled, the positive behavior continues there, but on the very short term 1 min chart it is seeing some negative divergences as this noon time slightly higher intraday high has been made.
With regard to short term volatility, there has been both intermediate improvement to join the already present longer term positive character and the short term has been positive to extremely positive this morning and especially in the last hour or so.
TLT/20+ year treasuries showed a positive change yesterday as the gap was filled, the positive behavior continues there, but on the very short term 1 min chart it is seeing some negative divergences as this noon time slightly higher intraday high has been made.
With regard to short term volatility, there has been both intermediate improvement to join the already present longer term positive character and the short term has been positive to extremely positive this morning and especially in the last hour or so.
AAPL Update
Yesterday I didn't tell you earlier about one of the things I was looking for (actually I told you before AAPL went parabolic and when I saw what I was looking for) because it wasn't a normal signal, just a theory I had. Today I will tell you that one of the other things I have thought about AAPL is that a downside reversal would likely be an event more than the usual process which is probably the first time I've said that. However the process has seemingly been underway already for some time.
The only thing in my view that can save AAPL and the market broadly speaking is some form of QE announced today, which the market seems to have already fully priced in, that results in liquidity finding its way to the market as it did with QE1 and QE2. Bernie seems to have some legacy considerations to consider along with policy at this meeting considering Romney's disdain for Bernie.
I can't speculate what the F_O_M_C might or might not do other than to say the market has been expecting QE3 since QE2 ended at EVERY F_O_M_C meeting and Jackson Hole and has been let down, but hasn't given up hope; this seems to be the final chance for 2012. With today's PPI providing the latest proof of rapidly accelerating gas and food inflation and with manufacturing going in to contraction the world over with one of the difficult areas being input cost inflation, it would seem almost suicidal to introduce any liquidity injecting form of policy right now, it would kill the already floundering consumer (as seen in Consumer Credit) and make the manufacturing contraction even deeper thus recessionary environments deeper.
As for the AAPL update, I think the game plan/Theory has been pretty clear, so lets see how it's developing with a little broader perspective on AAPL and a newly formed bull flag this morning.
On a weekly chart with ROC applied to price, you can see AAPL had a very healthy run with volume rising as it should with rising price up until 2009. I would have no problem saying the continuing price advance after 2009 on diminishing volume has everything to do with QE1 and 2 as well as expectations for QE3, rising price and falling volume has never been considered a healthy market. ROC has dipped with price in the past, it hasn't diverged with price in the past as it is doing now, I point this out because it's a change of character that few probably realize and changes in character lead to changes in trend.
Again volume climbing with price from the early 1990's and it abruptly ends on this weekly chart at 2009 as AAPL goes parabolic (keep in mind to lift the averages as Bernie clearly wanted to do as he cited the "Wealth Effect" of higher asset prices in Congressional testimony, the heaviest weighted stocks in an index are the ones that are targeted with excess liquidity); parabolic moves historically almost always end badly.
Recent price action has been choppy and range bound, sometimes the back of a stock is broken before price reflects it, the red arrows are what I consider to be important days for AAPL. Our concept of the bullish candlestick (which is nothing new) with a high surge in volume (that is a bit unique, but not completely original) has again provided for a reliable reversal. Remember there is no target/timeframe attached to these reversals.
Intraday from yesterday's rise and this am's gap up with flat prices forming a triangle, we have a perfectly shaped bull flag and volume confirming it, traders will front run expectations and buy this pattern in advance as it suggests another leg higher about the same as the first (+3.5%) once the flag breaks out to the upside, this is where we often see traps set as technical traders follow TA like it's the bible.
The short term charts are showing some deterioration -1 min
2 min
3 min
However the 5 min chart has been the main chart to watch.
I'm not sure I'd call this deterioration yet, but it needs to be watched closely. A 5 min chart can change and turn on a dime so as I stated above, be prepared for the possibility if not probability of a sharp/fast change.
The only thing in my view that can save AAPL and the market broadly speaking is some form of QE announced today, which the market seems to have already fully priced in, that results in liquidity finding its way to the market as it did with QE1 and QE2. Bernie seems to have some legacy considerations to consider along with policy at this meeting considering Romney's disdain for Bernie.
I can't speculate what the F_O_M_C might or might not do other than to say the market has been expecting QE3 since QE2 ended at EVERY F_O_M_C meeting and Jackson Hole and has been let down, but hasn't given up hope; this seems to be the final chance for 2012. With today's PPI providing the latest proof of rapidly accelerating gas and food inflation and with manufacturing going in to contraction the world over with one of the difficult areas being input cost inflation, it would seem almost suicidal to introduce any liquidity injecting form of policy right now, it would kill the already floundering consumer (as seen in Consumer Credit) and make the manufacturing contraction even deeper thus recessionary environments deeper.
As for the AAPL update, I think the game plan/Theory has been pretty clear, so lets see how it's developing with a little broader perspective on AAPL and a newly formed bull flag this morning.
Natural Gas / EIA / UNG
Yesterday it looked as if UNG, which is otherwise looking pretty good, may be about to pullback a bit. The EIA report came and went, I don't think it has much to do with price action in UNG though as a pullback already looked set. I see this as another opportunity in UNG to establish new longs or add to existing positions as UNG is the only CORE long position in the equities model portfolio. We'll want to look at buying on positive divergences in to a pullback.
The Thursday EIA Natural gas report was released at 10:30 today...
The injection of 27 bcf wasn't far off consensus of 25 bcf so I doubt it had too much to do with today's move.
Here's what UNG looked like at the release of the data at 10:30.
UNG had already gapped down on the open, the smaller red arrow is the EIA release.
We've been paying attention to UNG as a probable primary trend base looks to be completed and awaiting stage 2 mark up.
The hourly chart's longer term view looks quite positive.
Here are a couple of charts from 3 min to 15 min. that suggested a UNG pullback.
15 min
The red trendlines depict the base's shape thus far. I have a daily Trend Channel which is a little too narrow for a Primary trend stop, but it looks about right for a pullback, I don't envision much more than this which likely will create some buying opportunities.
Back to the hourly chart, the very positive bias here suggests the pullback will be constructive, meaning we should see accumulation in to the pullback which is what we want to see to enter or add to long positions here.
The Thursday EIA Natural gas report was released at 10:30 today...
| Released On 9/13/2012 10:30:00 AM For wk9/7, 2012 | ||||
|
Here's what UNG looked like at the release of the data at 10:30.
