PCLN beat and the market is happy, sending PCLN up about +9% in after hours trade (but be careful with AH trade unless you are using its extremes to take profits or other tactical reasons). We can't forget just last week AMZN's miss sending them down -12% in after hours only to see the stock close up the very next day!
In any case, PCLN's continued gains are in line with our short term expectations and boy am I glad I covered PCLN when I did!
Hopefully the PCLN beat will help move the market in the direction we've been expecting and preparing for and saw today against the odds of currency arbitrage.
Thursday, November 1, 2012
FX Charts
I posted my findings from looking at the 3C charts of the Euro and $USD, in nearly every case the charts between the two confirm each other, that's a lot of confirmation.
The 1 min Euro chart doesn't have a positive divergence, if it did, I'd say the probabilities are tomorrow morning we see a gap up.
However on more important charts like this 2 min, there's a nice positive divergence right at a flat range where accumulation/distribution is most often seen. It is for this reason that I believe we will see strength in the Euro develop after the open, I don't know how far beyond it, but it looks like there will be a decent chance for a close higher tomorrow as well.
The 3 min chart shows the negative divergence sending the Euro lower today, again at the flat range this afternoon we have another positive divergence so again I suspect this will either build in to a stronger divergence which would be even stronger for the market (although I don't think that is necessary) or simply strengthen the Euro, weaken the dollar and help the market to move higher.
Even at a 5 min chart today in the same area, we have another leading positive divergence, so all indications point to the Euro strengthening at some point after the open tomorrow.
Here's the longer term 5 min chart from above, it has the negative divergence that we saw in the market averages on the 17th/18th of last month and the flat range and positive divergence from last week.
On a 10 min Euro chart we have a leading positive divergence, so this looks like it could be a decent move up, like I also said, when Wall St. plans a cycle they usually have a goal in mind and those goals are usually extreme behavior, for example, enough to cause shorts to cover.
Now the $USD, remember this should look and have the exact opposite signals from the Euro for confirmation and a stronger dollar generally means a weaker Euro and market, including commodities like metals and oil.
The 1 min $USD chart is the only one that doesn't agree with the Euro as it has a leading negative divergence suggesting the dollar open lower tomorrow which would support a higher open )gap up) in the market tomorrow.
Like the Euro that is positive on the 2 min, the $USD suggests that weakness is higher probability to develop, either early in the day or as we move through the day.
Here's a close up of the 2 min chart, note the end of day negative divergence after having seen a positive divergence early this morning sending the $USD higher.
Confirming the Euro 3 min's positive, the $USD's 3 min is leading negative, again this gives the stock market breathing room to the upside.
The 3 min trend is also leading negative through last week's range, the opposite of the Euro and market averages.
$USD 5 min chart is leading negative today as it went higher, this is inline with the Euro findings.
The 10 min $USD chart has a negative divergence, so again this suggests a decent swing move higher in the market, but it stops right here at 10 min. The market averages and stocks have different areas where they stop, but from 10-30 min is the norm so they all kind of confirm each other, after the move higher, we should expect weakness to develop, that is why we want to short the move higher.
$USD 15 min shows a positive divergence, this works against the market in the longer term and as far as probabilities go. This again suggests we see a near term strong move to the upside in the market followed by a serious move lower. This is why we set up long positions last week to take advantage of near term strength and why we want to short strength as we start closing longs and switching to short positions or adding to them, the only difference is the long positions are more speculative in size for risk management while the shorts will be core/full size positions.
Confirming the 15 min $USD leading positive divergence above is a leading negative in the Euro on the same time frame, again confirming the longer term probabilities are stacked against the market, the near term probabilities are for a move higher.
However on more important charts like this 2 min, there's a nice positive divergence right at a flat range where accumulation/distribution is most often seen. It is for this reason that I believe we will see strength in the Euro develop after the open, I don't know how far beyond it, but it looks like there will be a decent chance for a close higher tomorrow as well.
Now the $USD, remember this should look and have the exact opposite signals from the Euro for confirmation and a stronger dollar generally means a weaker Euro and market, including commodities like metals and oil.
Like the Euro that is positive on the 2 min, the $USD suggests that weakness is higher probability to develop, either early in the day or as we move through the day.
Currency Analysis
Despite today's move up in the market while the $USD also moved up and the Euro moved down, most of the time, the correlations hold and they are exactly the opposite of what happened today, but as I mentioned, "When Wall Street sets up a cycle, there's little that gets in their way that keeps them from running it". If we look at the 2 days we lost this week, it seems the market had to be sent higher no matter what, even if it broke all legacy arbitrage correlations.
Yesterday we used the Euro to give us a probability that the market would see at least early strength, we are going to look at both the Euro and the $USD, just remember they move opposite each other and a strong Euro/weak dollar helps the market, a Strong $USD/weak Euro hurts the market.
From a look at what we have, it doesn't look like we have early probabilities of a gap up in the a.m., but it does look like we will see strength build in later and the signals for a volatility move higher shaking out shorts that we have seen in many areas, is also seen in both of these. Finally, we want this move higher to short sell in to strength at better prices and less risk, the two currencies seem to confirm this also, that the move up is limited, although it may look very strong, the long term probabilities are very bearish and that's why we want to short any price strength.
I'll post the charts next.
Yesterday we used the Euro to give us a probability that the market would see at least early strength, we are going to look at both the Euro and the $USD, just remember they move opposite each other and a strong Euro/weak dollar helps the market, a Strong $USD/weak Euro hurts the market.
From a look at what we have, it doesn't look like we have early probabilities of a gap up in the a.m., but it does look like we will see strength build in later and the signals for a volatility move higher shaking out shorts that we have seen in many areas, is also seen in both of these. Finally, we want this move higher to short sell in to strength at better prices and less risk, the two currencies seem to confirm this also, that the move up is limited, although it may look very strong, the long term probabilities are very bearish and that's why we want to short any price strength.
I'll post the charts next.
Market Update
There are some 1 min negative divergences developing, they aren't huge, but enough to move the market down in to the close unless they change between now and then.
I'll look at some other indications.
I'll look at some other indications.
PCLN Update
So we're looking at PCLN to see if there's an obvious leak, just to be clear, we've found a lot of leaks and have a good record with them (about 95% correct the 1 quarter I devoted to looking at all earnings), but keep in mind for every 1 leak we found there were hundreds of stocks that didn't appear to show any leaks. As a matter of fact, that earnings season in which I set out to show members that there are leaks in the market, it wasn't to show 3C's accuracy, I believe we found about 20 obvious leaks, so they are not as common as people might think and even if there was a leak, we need to be able to see it and if the stock is moving like the market, there's no way to distinguish a leak from just broad market behavior.
As for PCLN, put earnings aside and I'd say I think PCLN will have a favorable reaction in the near term, I don't see anything that separates PCLN from the rest of the market. A Great example of this would be AMZN, their earnings were so bad they were down over 12% in AH, but the next day AMZN was up 7% as 3C was showing.
What tells me that it's doubtful there's a leak is the fact the 10 min and on charts are not positive (that tends to rule out a positive leak) and the shorter term charts are not negative (that tends to rule out a negative leak), if anything PCLN looks more like the market than anything else and in a few spots it looks a bit better than the market, but there can be reasons for this I will go in to.
This is the 1 min chart that I mentioned in the last update, I said I wanted to watch it and make sure it doesn't go much more negative or it may be signaling a negative leak, you can see it improved, but this is not unique to PCLN.
The IWM looks very similar on the same timeframe and improved in the same area, in fact IWM's positive divergence is a real positive as 3C was moving up as prices were moving down, PCLN's move is more in line with price movement and less a positive divergence.
PCLN 2 min shows a leading negative position in the near term, I'm not crazy about this for more PCLN upside, but it is a 2 min chart.
In context, the 2 min chart has been very positive over a long period.
In fact longer than a similar market average, the QQQ. From looking at the PCLN 2 min chart alone, I'd be on the side of PCLN has more upside, but I can't say with any certainty it is earnings related.
3 min PCLN
Similar to the 3 min IWM, except again PCLN's divergence is larger. However if this were based on a leak, I doubt it would be that old and I'd think we'd see timeframes above 10 min. positive, which they are not.
5 min PCLN is also a larger divergence, it was a bit negative today, but overall, it still looks like PCLN has more upside, whether this is an AMZN-like situation, or something else, I don't know. For me it's not an earnings trade, but if I were long PCLN right now, I don't see a lot of reason to cut it lose as I would expect more upside in the near future before turning in to a short again as that is where the larger probabilities are, SHORT. Again-if I had to chose now and not touch for 6 months, I'd be short PCLN, beyond that, the near term looks like it has more upside, like the market.
As for PCLN, put earnings aside and I'd say I think PCLN will have a favorable reaction in the near term, I don't see anything that separates PCLN from the rest of the market. A Great example of this would be AMZN, their earnings were so bad they were down over 12% in AH, but the next day AMZN was up 7% as 3C was showing.
What tells me that it's doubtful there's a leak is the fact the 10 min and on charts are not positive (that tends to rule out a positive leak) and the shorter term charts are not negative (that tends to rule out a negative leak), if anything PCLN looks more like the market than anything else and in a few spots it looks a bit better than the market, but there can be reasons for this I will go in to.
The IWM looks very similar on the same timeframe and improved in the same area, in fact IWM's positive divergence is a real positive as 3C was moving up as prices were moving down, PCLN's move is more in line with price movement and less a positive divergence.
3 min PCLN
5 min PCLN is also a larger divergence, it was a bit negative today, but overall, it still looks like PCLN has more upside, whether this is an AMZN-like situation, or something else, I don't know. For me it's not an earnings trade, but if I were long PCLN right now, I don't see a lot of reason to cut it lose as I would expect more upside in the near future before turning in to a short again as that is where the larger probabilities are, SHORT. Again-if I had to chose now and not touch for 6 months, I'd be short PCLN, beyond that, the near term looks like it has more upside, like the market.
Market Update
While there are interesting positive divergences beyond the intraday in the market averages, the most interesting may be the currencies, EUR/USD.
DIA 1 min intraday picking back up-this is what I meant with AMZN.
IWM 1 min positive in the afternoon
QQQ 1 min leading positive
SPY 1 min going positive
The Euro/FXE 2 min trend that has been very positive, we can see intraday it is leading positive now.
A closer look at the same chart on an intraday basis.
The $USD/UUP showing a 2 min leading negative divergence, this is supportive of the stock market.
$USD seeing late day distribution on the short 2 min timeframe, this should and is starting a EUR/USD reversal to the upside.
It may be interesting to see what the market can do on the upside with currency cooperation as it accomplished a lot today without it, but as mentioned, this is Wall Street running a cycle and they won't even let currencies get in the way of their plans, luckily we can get a glimpse of what they are up to ahead of time and plan for it.
QQQ 1 min leading positive
$USD seeing late day distribution on the short 2 min timeframe, this should and is starting a EUR/USD reversal to the upside.
It may be interesting to see what the market can do on the upside with currency cooperation as it accomplished a lot today without it, but as mentioned, this is Wall Street running a cycle and they won't even let currencies get in the way of their plans, luckily we can get a glimpse of what they are up to ahead of time and plan for it.
AMZN Update
On 10/25 before the market closed and before earnings, I said that if I had time I would have gone long some AMZN calls, there was something there I liked, earnings weren't good and AMZN was down I think 12+% in after hours, but closed only down about 1%. The next day AMZN closed up nearly 7%.
There's still something there I like and AMZN has pulled back a bit making an entry a bit easier to swallow, still I view most longs as speculative based on the longer term charts and the big picture probabilities.
At the white arrow, the day I said I liked AMZN about 15 mins. before the close, although there was earlier analysis as well. At the green arrow, the day after earnings that seemed not to go well, however whatever we saw in AMZN played out that day even with disappointing earnings. The last 2 days AMZN has done nothing technically important to the upside or downside.
The Trend Channel shows where the AMZN long stop would have been and shows where AMZN would change the current downtrend, around the $241 level on a close.
On a 60 min chart there's a positive divergence, it isn't huge and the big picture for AMZN doesn't look good, if I had to take a position and not touch it for 6 months, it would be short, but I think we can make some money on the upside in the near term.
The 15 min chart, as it should, has more details and a better looking positive divergence right before earnings came out.
The 10 min chart has even more detail, notice most of the positive divergences are along the timeframes seen in the overall market, with maybe a little more positive 3C signals in AMZN. The recent pullback has been in a leading positive divergence on this chart.
Now since we know there are longer term divergences there, we want to look at the short term for timing, the 1 min shows the first positive divergence of the last 2 days as well as the negative that sent AMZN in to the 2 day pullback.
We want to see migration of the positive divergence near term and we do on this 2 min chart with a leading positive divergence developing this afternoon.
The 3 min chart shows a leading positive position.
And the 5 min is positive, it looks a little early for the trade, but it's speculative and I don't want to miss AMZN again.
There's still something there I like and AMZN has pulled back a bit making an entry a bit easier to swallow, still I view most longs as speculative based on the longer term charts and the big picture probabilities.
Leading Indicators
There are some interesting developments here. I think part of the reason the Euro is under pressure is because of a Greek constitutional court shooting down some of the Troika's austerity demands for financial help such as the retirement age increase. Furthermore there's political upheaval among the coalition government in Greece at a very sensitive time, this doesn't bode well for the EU. We've also had 2 misses in economic data in the US today, but I think this is more about Europe.
*Unless otherwise specified, all leading indicators are compared to the S&P-500 in green.
Commodities on an intraday basis are holding up pretty well vs the SPX, longer term commodities are one of the brightest rd flags for the economy worldwide and the market. Remember though, we are just looking for price strength/3C weakness we can short in to.
FCT which was mentioned to me by a member and has performed very well in my back-testing to confirm it as a useful leading indicator shows a positive divergence right where the SPX range is, it also has a negative at the last peak in the SPX sending the SPX below important support that could be read as a head fake move on the downside for an upside reversal-STILL, the loss of 2 days this week means a lot and I'm not sure how discounted that is in the cycle that was set up this week and seems to be launching today.
FCT longer term was in line with the SPX at the first and second of the 3 SPX peaks, it was negative as mentioned above at the 3rd, this is how FCT works, as a divergence indicator, the SPX broke below support at the red trendline and formed the range we were looking for which needed to be stronger just because of the break below support and because it is likely set up as a volatility shakeout move and as such needs to be impressive.
Yields generally follow the market, or the market is like a magnet toward yields, this is why when there are divergences in yields, they work well as a leading indicator as the market tends to move toward yields. Intraday today they are weaker than we'd like to see for confirmation, but being we don't know how long this move can last, we also want to see negative divergences in leading indicators as the move progresses, perhaps because we lost a few days, that process is starting early.
Yields longer term show a nice positive divergence at our range, prices should continue to move toward yields here in red.
EUR/USD since today's 9:30 open, unreal the market has had the strength it has had with the Euro showing this weakness and the dollar showing strength, the market is moving 100% AGAINST the normal correlations.
The 1 min Euro 3C chart is in line right now with the Euro move.
The $USD is going negative intraday on its strength today.
The $AUD was leading positive yesterday and today is moving pretty much in line with the market.
Longer term $AUD (which is one of my favorite currency indicator as well as leading indicators) shows a negative at the SPX second peak and a positive building since the trough between the fall of the 2nd peak and the rise of the 3rd, it is also leading positive as the SPX broke below support at the yellow trendline and at the yellow rectangle's range.
The Euro vs SPX intraday today, impressive market strength as it fights the tide of all FX correlations!
Longer term the Euro is still in a positive divergence suggesting more upside for the market before the next leg lower.
Today High Yield Corp. Credit (HYG) is out of sync with the SPX, I'd like to see how it closes, again, maybe this is the start of the negative divergences, but I don't feel really good about HYG falling out of sync with the SPX today, although situationally and with the Euro, I think it can be excused.
HYG longer term in a recent positive divergence and now moving toward "reversion to the mean".
Junk Credit which is HY as well is acting almost exactly the same as HYG credit intraday and longer term, closing in on "reversion to the mean", today's close in credit will be interesting.
High Yield Credit is interesting in that it has broken away from the other forms of HY credit and is in line with the market, this is used to express a risk on sentiment among credit traders (a much larger and better informed market than equities).
The NYSE TICK chart vs the SPY in white, you can see today how the SPY held up even while the TICK was seeing deterioration.
For a moment it looked as if the TICK might breakout to a more positive position, since the capture of this chart it keeps threatening to break higher, which would be supportive of the market.
Sector movement today shows Financials rotating in, ALL of the Defensive sectors rotating out, Energy also on the downside, but Basic Materials, Industrials and Tech all rotating in.
Since several days ago, Financials continue acting better on a relative basis, Defensive sectors like Utilities, Healthcare and Staples are seeing rotation out, Energy has been rotating out, Basic Materials where a lot of momentum stocks are is rotating in with Industrials, Tech generally and Discretionary.
In short, we have a more recent rotation toward "Risk on" which makes perfect sense with what we saw in the market today.
*Unless otherwise specified, all leading indicators are compared to the S&P-500 in green.
In short, we have a more recent rotation toward "Risk on" which makes perfect sense with what we saw in the market today.
