AAPL's Big Day, +0.04% or +$0.26

Sometimes watching intraday action too closely gives you the impression trade was either more bullish or bearish than it really was, that's getting lost in the lines, but I often do it, I just have to remind myself to step back and erase all trend lines and assumptions every once in a while and look at the issue with a new pair of eyes (usually after a day or two off).

So AAPL today shared some similarities with the S&P and NASDAQ futures, one was the close, SPY at +0.05% and the NASDAQ a bit better, but still only 0.17%, but that' not all.

 The red trendline represents yesterday's close, AAPL barely closed above yesterday's close; the end of the day rout was on impressive volume.

 I'm still not quite seeing the 5 min chart that I want to see before I consider AAPL at the top of the cycle, but today we saw a lot of in line or confirmation (green arrows), except toward the close (3 min).

 The 1 min chart was largely in line until 12:30, but that was followed by a positive to new highs on the day, followed by a clear negative divergence in to those highs and volume picked up as AAPL made its way back to VWAP.

 The next timeframe, 2 min shows the migration with the divergence coming in as a leading negative divergence on an otherwise in line day, the volume on this move and the move to VWAP was interesting, I don't say that with any bias, it was just interesting as it paralleled some other important markets.

ES (S&P mini futures) also were negative and quite so at the upper standard deviation of the weekly VWAP, ES also sold off toward the close on volume.

 And it headed right for the VWAP.

NQ (NASDAQ mini Futures) also saw similar negative divergences with the closing one leading negative as NQ moved down on heavy volume...

NQ, like ES and AAPL closed at VWAP on heavy volume and a pretty strong negative divergence for that timeframe, strong enough to illicit that kind of sell-off.

Like I said, it's interesting, but I'm not going to draw conclusions from it just quite yet, as I mentioned yesterday and today, not every rally is as bullish as price would have you think and not every sell-off is a bad or bearish thing. We need to look at the whole picture and see where individual pieces fit, then they can be used for timing and tactical entries once the strategic view point is set or confirmed rather.

I will be fair and say that during most op-ex weeks we often see price fairly flat that week and often the Friday option expiration hasn't moved too much from earlier in the week, but this is quad witching with a S&P rebalancing, there are bound to be opportunities available for those who are trading beyond the speed of light, yes in fact HFTs have been clocked faster than the speed of light according to NANEX.

Earnings Pre-Announcements going the wrong way in the wrong group

Today NSC, Norfolk Southern, trains I grew up smashing pennies on their tracks, occasionally doing other stupid teenager things, pre-announced and cut their earnings estimate. You may recall just this week we looked at the large divergence between transports and the Dow-30, it's larger now then at any other time in the last several years. This of course doesn't bode well for manufacturing whatsoever, especially the depth of the pre-announcement.

NSC said to look for Q3 earnings per share (EPS) in the range of $1.18-$1.25 vs consensus of $1.63, that's a big pre-announced miss for Q3! The fact its in transports too makes it all the worse as that's the end of the road for manufacturing so to speak.

 In a perfect example of not getting lost in the lines and when in doubt, go to the longer charts, NSC insiders and/or those on Wall Street were either very sharp with their analysis or someone got a tip off early, a big tip off.

PCLN offered 1 example of sticking with the longer term charts and just being patient

Overnight from this set of negative divergences-as typical the first a relative negative followed by a sharper leading negative divergence led to an overnight gain of 17+% for our short and put the core short at a 26.5% gain.

If you think that signal was half way decent, just look at NSC's

 In After Hours after a daily close of -1.66%, the after hours lows hit $68.00 and closed AH at $69.07, down from $72.70 at 4 pm.

 While these negative divergences on these longer timeframes aren't as time specific and we certainly don't know that there will be an earnings related event or something else, we just know that smart money seems to be headed for the exits pretty fast and they must have a pretty good reason for doing such. The 30 min chart shows good confirmation otherwise until this last ramp, the divergence is leading negative on a 30 min chart, the worst kind of divergence on a long term important chart timeframe.

The 60 min chart looks similar.

This is one of the reasons I want to establish as quickly and as credibly as possible, whether QE3 caused a reset or whether it was priced in (and it could have been priced in for bearish purposes as well), if it was the later, then we still have some very ugly longer term charts in many, many assets.

For now we now a few things, the earnings "pre-announcement season" which we have seen nearly all year has started in which companies lower expectations before earnings and still the majority miss; we also know that transports are feeling the pinch and if we follow the bread crumbs this leads right back to consumers and manufacturing, which raises more concerns about the economy and inflation going forward now that Bernie has all but spilled his guts, shown the market all of his cards and taken away the surprise effect that the market benefitted from so dramatically according to one of the F_E_D's own reports.

Semptember 22 Effect, S&P Re-Balancing, 4 Witches and the End of Q3

The scheduled volatility and the mystical volatility, several large issues are all converging on this Friday; the perfect storm or an overdone dud?

First with the scheduled and well known... This Friday is not only the 3rd Friday of the month, better known as options expiration, it is the end of Q3 and therefore instead of our usual options activity, we have Quadruple Witching. Quad Witching is when we have: Stock Options, Stock Index Futures, Stock Index Options and Single Stock Futures all expire on the same Friday instead of just the normal Stock Options. Usually I'd be looking at the options chain today and/or tomorrow to see where the likely "Max Pain" market pin would be, but with so many different asset class options all expiring this Friday, it makes it difficult.

In addition, this Friday also happens to be Standard and Poors routine maintenance and re-weighting of the S&P. From the S&P on page 10 under, "Index Maintenance"/"Rebalancing":

Share Updates. Changes in a company’s shares outstanding due to its acquisition of another public company are made as soon as reasonably possible. At S&P’s discretion, de minimis merger and acquisition share changes will be accumulated and implemented with the quarterly share rebalancing. 

All other changes of less than 5% are accumulated and made quarterly on the third Friday of March, June, September, and December. 

There's also a "Credit Default Swap" roll, that should primarily effect credit, HYG being on in particular (High Yield Corporate Credit).

In addition, while it use to be more of a yearly or semi-annual event, redemptions in Hedge Funds are more and more moving toward quarterly, at last check with 89% of Hedge Funds underperforming the S&P-500 on the year, it's more than likely that a number of hedge funds will need to or already have, raise capital to meet client redemptions. After all, if the Hedge Fund that charges a 1.5%-3% management fee of funds managed in addition to a standard 20% incentive fee, but as high as 50% (meaning if you have $1 mm dollars in a hedge fund account, they automatically take off the top $15-$30k per year and whatever profit they make, thy take between 20-50%), so for some, a simple Vanguard Fund tied to the SPX is a lot cheaper.

Of course as with any end of month and more so, end of quarter, there's the typical window dressing or as it was best described, "The Art of Looking Smart", in which hedge funds dump their losing positions for the quarter and pick up the quarter's big winners so when the next prospectus is delivered for new clients, it appears that this fund has picked all the right stocks, even if they only did so 4 days before the end of the quarter!

The last day for Window Dressing trades to go through because of the T+3 settlement rule is next Tuesday the 25th.

Now on to the mystical and I'll let UBS' Art Cashin take it from here. I'll just say that on one hand there's enough history and data out there that you can justify almost any position you want to take, but on the other hand, there are some strangely accurate market behaviors on certain days as the Trader's Almanac points out every day.

From Art...

The legendary trader W.D. Gann reportedly claimed that capital and commodity markets tend to top on or around September 22nd more oft than on any other day of the year. There is not apparent economic logic behind this reported observation, but the notion might very well have a certain appeal to astrologers, in as much as September 22nd happens to be the usual date of the Autumnal Equinox…the day that the earth crosses the Sun’s equator going south, and one of the two dates each year that the days and nights are of equal duration.

This is the day which, according to ancient lore, the Sun enters its “Fall,” thereby reversing for a time the rising animal spirits and other good things associated with Spring and Summer, and setting the stage for untoward events to unfold. Apparently this concept is so ancient it pre-dates even the oldest Mesopotamian culture.

Initially, we never took such notions seriously. This was despite the authority of W.D. Gann and even despite the research from the Department of Neuranatomy at Yale Medical School, which discovered that the human nervous system typically undergoes measurable perturbations during the late September time period (and in mid-March as well). However, subsequent to hearing of Gann’s proposed rule, and of Yale’s medical research, we have experienced firsthand the October Massacre of 1978; the October Massacre of 1987; the October Crashette of 1989; the 1997 Asian Collapse; the Long Term Capital rescue on September 23, 1998, etc. Also, remember the great Gold Boom of the 1970s, while bullion peaked on January 21, 1980, the Gold and Silver stocks made their all time bull market highs on September 22, 1980.

This day also saw the major peak of many oil stocks, which were enjoying a parallel bull market at the time. Also prior to the Great Crash of 1929, the last stock index to make its then all time peak… the Dow Jones Utility Average… did so on September 21, 1929. Even as far back as 1873, there was such a panic that the New York Stock Exchange voted, on September 21st to temporarily close its doors...

Besides stock market moves, numerous currency market moves also have keyed off this date. On September 21, 1931, for example, the British pound was devalued 28% overnight… from $4.84 to $3.50. Also, the now famous Plaza Accord of September 21, 1985, which started a dramatic run in currencies, occurred on the exact 54th anniversary of Britain’s leaving the gold standard. And recall a decade or so ago in 1992 when the French vote on the Maastricht European Exchange Rate Treaty was set for Sunday, September 20th. The British pound sterling collapsed a few days immediately previous to this vote… And finally, recall that the historic Gould-Fisk Gold Corner Panic” saw riot conditions as Gold peaked exactly on September 21st… the year was 1869.

The bottom line, Friday could have the makings of an exceptionally volatile day or perhaps all these events just cancel one and another out, who knows, but it is an extremely heavy day. Thankfully the US has no Macro-Economic Data on deck, just the F_E_D's Dennis Lockhart speaks at 12:40 p.m. 

AMD "Cats and Dogs" trade (long)

The Cats and Dogs trade is more of a season and if you watch enough charts and different price ranges, eventually you might stumble on it too.

Typically the C&D season starts to come alive after a protracted rally in which a lot of people sat it out and they are seeing the gains and starting to feel they missed the move.

Since people are naturally bargain hunters, they don't want to go for the stocks that are $100 or more, they want something they can buy thousands of shares of. Typically the stocks are NASDAQ, many times they have easy to remember tickers like BOOM, AMD is also pretty easy to remember and they enter these trades that typically show up just as the bull run is approaching its end, it's actually one of the signals of a bull market dying when you have a lot of these trades popping up.

The trades are usually good for 1-day double digit gains of at least 10%, but often they make 30-50% and are top performers for the day. Sometime the move lasts a day, sometimes it lasts 3-4 days, but they are inherently short in duration and when they reverse, they reverse quick.

With QE3 just having been announced, there are probably a lot of traders who remember the golden days of POMO during QE, these traders likely went through the meat grinder of Feb-May this year with numerous head fake moves and probable decided to sit out or were forced to sit out the market, with the run since June 4 and QE3 announced, I'm willing to bet there are a lot of C&D trades out there and I'm going to run a scan to see.

Here's AMD...

AMD vs the SPX, AMD certainly fits the profile of a cheap stock and if you believe QE3 lifts all assets, then it doesn't matter too much what AMD looks like, although there is definitely something going on with AMD as I'll show you.

The yellow gap in this case actually looks like a break away gap even though it should be much higher in the trend, the orange gap is probably another break-away then there's an area of very clear resistance and the market had broken out 3 days earlier and was still moving up, AMD staged a beautiful head fake trade in the white box, longs paid the price for the downside momentum that appears to have finally forced capitulation at the white arrow -probably on some bad news.

The 4 hour chart shows the main primary trend from top to what may eventually be a bottom, I wouldn't call this anywhere near a true bottom yet as it would have a lot of lateral work to do.

All of these charts show distribution and then very fast and strong accumulation, meaning AMD was accumulated in size very quickly to show up on some of these intermediate time frames. We'll need to watch 3C carefully if you are in the trade, I suspect something is going on, some news maybe?

1 min leading positive

2 min relative negative , leading negative and leading positive

3 min relative negative and leading positive-all in the same flat area like I always mention.

 5 min relative negative, leading negative and lading positive, agin the accumulation in a nearly perfectly flat area. If you were in AMD during that time, you would be so bored and convinced the stock is going no where, in reality smart money was hard at work.

10 min leading negative and a leading positive.

There are even signs of accumulation on longer charts so the fact it is leading on such long charts in less than 2 days, tells me there was a rush to get the position in place. We'll see what it's all about, but I'd think the gap near $4 is a reasonable first target, we'll see how it performs in to higher prices (confirmation or distribution).

Also Closing FB Sept $21 Call

I think this one is going to pullback soon so I might as well take care of this now as I doubt it's likely to get better.

Cleaning Up-Closing USO Sept. $34.50 Put

Honestly I don't even remember this one and why it's so small, but in any case, now's the time to clean it up.

AMD as a Quick Cats and Dogs long

You'll have to act quick, but probably still worth it. I'll explain the C&D concept in the next post, it's just important that you treat this as a speculative trade and that you are able to move fast and watch the market as thy turn fast.

Positive divergences out to about 5 mins, after that not much, the target is $4-ish

QQQ/SPY/NQ/ES- ETFs vs Futures

This is a good example of how useful the ETFs are when a real average can't be used and there are some issues with the averages sometimes related to weighting. Finally the final advantage of ETFs of the averages is that they try to mimic price, but they don't mimic volume or underlying demand/distribution, meaning the NASDAQ 100 could be up because of AAPL, but the QQQ might show entirely different order/volume patterns giving you and idea of whether there is demand or not for the ETF as a form of sentiment for the underlying average.

In any case, here you can see how close the SPY/QQQ re to their counterpart futures charts.

 QQQ 1 min, as you saw earlier in the Risk Asset Update, Tech was the only of the 3 major groups that was performing today, the QQQ is showing a leading negative divergence here as it makes intraday new highs.

 NQ, the NASDAQ mini Futures (like ES, but for the NASDAQ) is showing a similar large relative negative divergence and a leading negative is starting here. Note the huge difference in volume from early in the day to the afternoon.


 SPY 1 min negative divergences at both highs (resistance).

WS also negative at both highs, resistance.

Clues to QE3

While it's not very likely there's going to be a major "Ah-Ha!" event that answers the question of whether the many dichotomies and differences in QE3 such as the lower SPX dividend yields now vs. at past programs and the nearly 50% higher stock valuations. There are other questions such as inflation and how much inflation will not only pressure manufacturers and consumers even more, but how much the F_E_D will allow before dialing back asset purchases. You don't want to be the person who just bought a stock with a 30 P/E on expectations of $40 bn a month in asset purchases and then have the F_E_D come out and say, "We are not making any more purchases until inflation subsides". There are a whole host of questions, many I can't even imagine, but this is why we gather evidence.

One thing I wanted to see was how underlying action looks in to a pullback, we didn't get a very big positive divergence, it's respectable in normal times, but doesn't look at all like loading up the truck for QE. Another way to gather information is on the move up, dos it hold together well or is there distribution early in to the move? Now we have at least some data o this second point, it's nowhere near conclusive, but it's going to be putting a bunch of pieces together and see what the picture looks like.

I'm going to try to draw as little as possible on the charts unless I need to point something out, you know what divergences look like and confirmation is when 3C moves with price with no divergences. There's nothing here that is earth shattering or in my opinion requires any special action to be taken, it's just pointing out the obvious. I also don't think there's an impending downside reversal, from the positive divergences built up yesterday for a short term move up.

 SPY 1 min, good confirmation until the highs today

 SPY 2 min excellent confirmation until the same highs today.


 SPY 3 min also trouble at the same highs today

 SPY 5 min positive divergence and the chart is in line, so I don't see these as major signals that will change the short term trend, but it does look like consistent distribution at the highs of the day thus far.

I didn't add as many charts for the other averages, you get the idea.

 DIA 2 min

 DIA 3 min

 DIA 5 min, also consider where the DIA is in relation to Friday's highs.

 QQQ 3 min

QQQ 5 min

I couldn't find much in the IWM, but the IWM hasn't moved much either.

FB Breakout?

If so I'm happy as the FB long position is up nearly 16% with no leverage at all, just long the stock. If not, that's fine too, maybe it will offer an opportunity to enter a low risk trade using some leverage. My first inclination would be to lean toward the answer being, "No". One of the great things about FB is it has very little correlation to the market, but in the last post you saw there's no other game in town today other than Tech among the 3 major industry groups, FB may be drafting off that.

I still think a pullback is the highest probability, but if not, then that is the reason we buy when we have signals and often in areas where emotionally its not easy to open a position. Imagine telling people that you are nearly beating the  S&P long FACEBOOK!!!

 The general base is about what I expected back in early August, it may even be a bit bigger, a pullback in FB here really does nothing at all to this base, it probably helps FB as it nears the base's neckline.

 FB intraday resistance from a head fake opening high that was faded, that area held as resistance.


 Here you can see the distribution in to the earlier head fake and a smaller negative divergence now, what is missing from this chart is any decent accumulation zone so I suspect this is a shakeout move in FB.

 3 min chart, a small accumulation area and it was in line, now a little worse.

 5 min chart has no confirmation and no decent positive divergence to send FB higher.

Same with the 15 min chart, several relative negative divergence, all through the yellow area, there's no positive divergence to justify FB making this move for real.

Back to Spain?

It seems the main issue effecting the market on that last bit of downward volatility is the EUR/USD, the Euro after bouncing off support at $1.30 has hit a resistance level. Spanish Bond holders are getting nervous about Spain, will Spain ask for a bailout? They have a large amount of debt payments due in October so I suspect we'll know by then, but for now they seem to be loathe to do anything.

The market appears to be discounting some normal-type developments and correlations rather than discounting a flood of QE3 money, it's noticeable in some key areas as well.

 Commodities today have fallen way off, they seem to want nothing to do with the move in equities as we have seen in gold and oil specifically, the two assets conventional QE wisdom would expect to lead the market, especially given stocks' valuations.

 Commodities in anticipation of QE leading stocks and since QE also leading stocks, just to Pre-QE levels.

 Here's the reason for the intraday volatility to the downside, the Euro since the 9:30 a.m. NY open.

 A longer look on an hourly chart shows support at $1.30 and the Euro has run in to some resistance.

 The $AUD is an excellent leading indicator among the currencies, it too is vastly underwhelming vs the SPX.

 Long term there's several large divergences in the $AUD which have been effective at calling tops, the negative divergences are both local and relative to the last top area.

 Here the Euro on a 5 min chart appears to follow the market or rather the market follow the Euro closely.

 Again, today's break in the Euro causing the move up to stumble, but why is the market paying attention to legacy arbitrage relations if the only thing that matterss QE liquidity?

 I've been watching High Yield Corp. Credit to see if it will give a sign, thus far it is not leading or lagging.

 Intraday it is lagging, this may be the start of something or just some noise, but once again it seems like the market is paying attention to things like currencies and credit.

 High Yield Junk Credit is showing a similar divergence today.

 Yields have followed the market lower, they don't look fond of following it higher here, these also has some predictive value at divergences.


 Speaking of which, on a 15 min bigger view of Yields, we have a large divergence.

 The 3 main groups needed to sustain a rally are Energy, Financials and Tech., this is Energy today.

 And Financials

 Finally Tech which was leading yesterday, the SPX and Tech seem to have met at the mean.

You can see some of this sector movement above as this chart shows today and yesterday as of noon, Financials are definitely falling off later in the day, Energy has been off all day, Tech is vacillating, the high Beta Materials stocks are doing pretty well as are Industrials, interestingly the defensive Staples and Healthcare are also doing well.