Quick Examples

This is a follow up to the last post, after looking a little closer, it's even a bit more interesting and is a good lesson for those using 3C about the progression of divergences.

Here's an example using the QQQ of exactly what I was talking about including the end of day trade as well as the long term charts where there are some surprises.

 The 5 min QQQ chart shows a leading negative divergence, however it may be halted here (normally any way if we didn't have an election) and this is why.

 The 1 min chart is faster, it has more details and the 5 min chart is a reflection of what happened here first, note the 1 min chart was going negative in t the highs, this makes 100% perfect sense as smart money SELLS IN TO STRENGTH, by the time the 5 min is going negative, the 1 min is already moving up again, this wouldn't be seen on the 5 min because it takes time for a divergence to migrate through timeframes and the divergence has to be strong enough, but as far as the 5 min leading negative taking the market lower (under normal circumstances), this 1 min chart would suggest that early tomorrow we have at least the start of what may be a much larger positive divergence. Any time there's a change it will be reflected on the 1 min chart first, if it is strong enough it will reflect on longer term charts as we see migration of the divergence.

 QQQ 15 min leading positive divergence, this is a very strong signal by itself and there's no negative effect from the 5 min chart.

 The 4 hour chart's trend is leading negative so the long term probabilities are VERY strong on the negative side, but zoomed in we can see what the near term market looks like and here we have a leading positive divergence, this would be the first since the QE3 top.

 SPY 5 min also showing a leading negative divergence like the Q's

 However the 1 min is already reflecting the start of a new trend.

 SPY 4 hour zoomed with another first positive divergence since the QE3 top in mid-September.

I'm not going to go over the intraday charts anymore, 2 examples are enough.

 DIA 15 min leading positive divergence

 Surprising DIA 60 min leading positive divergence when zoomed in, of course the trend of the 60 min chart has a long term negative, but zoomed in for a closer look at the recent market, this is a surprisingly positive chart.

 Even more surprising is the 2 hour above with the first positive since QE3 and below...

 The first positive on the zoomed 4 hour chart since the reversal at the QE-3 announcement.


 IWM 10 min leading positive (this is why it's interesting, we have leading positive 10-15-30 min charts and zoomed we have positives on long term charts, this does not reflect the long term trend, but it does reflect near term trends).

 IWM 4 hour negative at the QE3 announcement and the first leading positive divergence since then, of course this too is zoomed in, if this is put in proper perspective for the longterm indication, it's very negative, but this signal is valid as well for the short term.

 ES 60 min. leading positive divergence

 ES 4 hour leading positive divergence

NASDAQ futures with a 4 hour leading positive divergence.

Beyond the Election

Going in to closing trade there were some pretty ugly divergences on the negative side, 5 min charts, etc that wouldn't normally be part of an intraday signal.

However when looking at the longer term charts as we did a bit this morning, every market average and the futures are showing longer term divergences on the positive side.

You've heard me say it, "When in doubt, go to the longer charts". I'm not changing anything with the leveraged longs in position since last week. I'm also not going to react to initial knee jerk movements in the market (the same way I didn't on Friday), any changes in positions or outlooks MUST be evidence based, not emotional or gut.

I'll try to get some of those charts up, although I do need to get out and vote.

Sell Off in to the close

The charts are getting ugly in intraday timeframes and it looks like we'll see a solid move down in to the close as the election is a wild card.

If I se anything interesting beyond that I'll get it up.

Election Analysis

After looking at the daily charts of different stocks that should do well under Obama or Romney, I came up with a draw, this unfortunately is not full analysis, I stuck with the daily charts as they are most likely to represent , "The next 4 years".

I can't put together full analysis of election details for all the possible companies and I can't even say how a favored company might move after their candidate is elected. For instance, if their candidate is elected, then you'd think initially the company would take off, but it's unlikely Wall St. would have established a large position in front of an election with a very sensitive stock that could get decimated if their candidate doesn't win, so in fact we could see a move to the downside in these companies allowing Wall St. to accumulate.

Furthermore, I'm not sure long term charts could possibly accurately represent what the changing dynamics of the election are. Also intraday how can we know if a stock is reacting to election results that Wall St. may have access to or something else? It's hard to say with any certainty.

I will say this, in general Wall St. has been giving Romney more money than Obama, last election it was about the same, this one it's roughly 2:1 for banks with certain banks like GS, JPM, WFC and others giving more like 3:1 or 4:1.

On Romney's side I looked at:

Financials: GS, BAC, JPM (as they have been big contributors), WFC, CYN and CMA-all suppose to benefit from a Romney Win.

I looked at Defense that should do well with Romney:

LMT, NOC and RTN.

In Energy I looked at companies I felt were more specific to a Romney win:

GPOR, PXD, CLR, NE, ESV and OLL

As well as those who benefit from "the pipeline": SHAW and CBI.

I figured FSLR would go toward Obama, I also looked at hospitals:

HCA (The nation's largest operator of hospitals), THC and CVH

In Insurers: AET, HUM, UNH and WLP

To be honest, after looking at all of these, there are some that look great, some that don't look so great. I couldn't possibly handicap the election based on these companies as a trend just did not emerge EXCEPT IN ONE PLACE- COAL!

Considering Obama signed a law that limits new construction of any power stations to either nuclear or natural gas, coal is a big loser under Obama and a big winner under Romney.

This is the one place there was a trend and VERY POSITIVE. I looked at:  ACI, ANR and BTU and these 3 look fantastic!

I suppose if I had to bet based on what I just saw, I'd say Romney and that's based on the fact that the most solid trend is clearly in the Romney camp.

Lets see what happens and we'll know where we can position soon.

UNG Charts

I don't know how the very clean and inexpensive Natural Gas fits in to a Romney win considering he favors coal, but I can't see an independent US Energy policy without taking advantage of our Nat Gas Reserves. I can see Nat Gas being utilized under Obama considering the law they passed this year that would make it impossible to build any new power stations with clean coal technology, only nuclear or natural gas would pass the emission standards they passed.  Whatever is going on, it's been going on for a while with Nat Gas. The pullback in UNG is what I call a constructive pullback meaning there wasn't any heavy distribution to send it lower, just enough to get it moving and there were positive divergences in to the pullback just like we want to see and use to enter or add to positions (buy price weakness with strong underlying money flow).

 UNG 3 min positive divergence on the pullback and only a 3 min negative divergence to get it moving down.


 10 min chart has no negative divergence so it wasn't that strong, they don't want to let go of any more shares than needed to get the desired move, they want to accumulate as you can see on this chart as prices move lower.

 15 min leading positive divergence in the flat range.

 30 min-again no negative sending UNG lower, but a nice positive.

The overall 4 hour chart during UNG's base

UNG looking great here

I hate chasing anything, but I'd till consider UNG a buy here, as it has been the last several days.

Charts coming.

Leading Indicators

I don't see any real problems with leading indicators whether we are looking at a volatility bounce/rally/shakeout or what comes next. This will probably be the last Leading Indicators post for the day as it takes up some time. Next I'll be focussed on the stocks that may move from one candidate or another, I think this is as good a time as any considering the close.

 Commodities for once are doing pretty well today vs the SPX with Gold and Oil moving well, in fact I'll have to take a look at the gold leveraged long position and see what we might want to do with that as it is at a slight profit.

 Longer term commodities were not that far off the mark during the range section of the market and aren't that far off from Friday's false breakout.

 FCT 5 min from the mid October rally highs was negative as it turns out to be a decent leading indicator, there's a nice positive divergence during the range and it carries on right through Friday and this week.

 Yields are in line today, maybe showing even a little better relative performance on the day.

 Yields which are like a magnet for equity prices were negative at the first and second SPX little triple top and it was positive at the 3rd as well as the range after the 3rd and overall for the near term which is hard to define, but I'd say a move of probably close to a month, perhaps more.

 Long term Yields were one of the signals that got us short in March, April and May 1st, the reversion to the mean at the June 4th low along with all of the positive divergences saw us opening long positions, I decided to keep core shorts (or most) and hedge them with leveraged longs which was based on guess work, but the hedge was near perfect as it actually made money and protected some shorts that later served me well. However the big picture here is a severe dislocation and ultimately the reversion to the mean indicates a VERY nasty move down for the SPX-that is stage 2 of our current market expectations and plan.

 The $AUD as you know is my favorite leading indicator of the currencies, today it's working well intraday.

 The $AUD also was negative at top 2 and became more positive going in to top 3 and the range after top 3 as well as the current positioning, in my view this argues for a move to the upside in the market.

 Here'a little longer look at the $AUD and the signals from confirmation to relative negative, leading negative and positive currently.

 The Euro is a better confirmation indicator among the currencies than a leading indicator, today it has held well with the market intraday.

 As for Credit, High Yield Corporate is working well intraday with the market, surprisingly if I had to guess where it would be without having the chance to look at the market, I'd guess it would be down as traders looked to decrease their exposure to a wild card event.

 Junk Credit is of course High Yield, it is also looking decent intraday.

 HY Credit looks decent through the range and better since Friday's head fake move and everything that has come since then. Again, the fact it's not running to the downside, scared, says something to me.

Sector rotation lately over the last 3-4 days shows a clear trend of risk sectors moving in such as Financials, Energy, Basic Materials, Industrials, even Tech which has been lagging and the safe haven areas like Utilities, Healthcare (which is interesting considering the election) and Staples have been clearly moving out.

Market Update Charts

So far the charts remain really interesting; on the short timeframes I think you have to expect volatility on a day like this. However on the longer term charts that really matter, Friday was an interesting head fake day and just about every average improved incredibly from the lows created from the head fake breakout. The bottom line, although I feel nuts for trying to predict market direction after an election, remains that what we expected going back to about October 19th sis still holding up.

Here are the intraday updates I promised and the interesting charts.

 DIA 1 min showing intraday weakness.

 DIA 5 min showing a leading positive divergence at the lows after Friday's head fake false breakout, currently the 5 min is in line with the price trend.

 The special chart is the 15 min DIA with the move down to the left (and this looked much more serious back then before we could see what was coming after), the relative positive divergence through the range (23rd-31st) and the leading positive divergence to a new local high above mid October's rally high and most of this was all in a day and a half!

 ES/SPX 1 min intraday futures showing an intraday negative divergence, they've lost some ground since this capture.

 IWM 1 min intraday was in line and then went to a leading negative divergence, not horrible, but enough to expect a consolidation or pullback and not the continued uptrend that we had seen earlier today.

 IWM 2 min shows the negative divergence and head fake / false breakout on the gap up opening last Friday, prices fall fast as they are supposed to, "From failed moves come fast moves" and a positive divergence at those lows. In my opinion either the market wasn't quite ready for the cycle to breakout or it had to do with weekly op-ex or something else, but the fact it seems they accumulated the lows seems like maybe they weren't quite finished with the cycle preparation-curretly in line.

 IWM 10 min from the mid-October negative divergence (note it looks similar in all the averages), the relative positive divergence through the range (22nd-31st) and last Friday's head fake negative divergence leading to a much larger positive divergence at the reversal lows-currently leading positive very quickly, very strong on an important timeframe.

 QQQ 3 min shows Friday's head fake move, note as usual the head fake is ABOVE resistance, which allows smart money to sell to buyers buying the breakout, they need demand and the breakout provides it, just think about what smart money needs to move in to large positions, not 100 lot orders.

Then we have the positive divergence at the lows from Friday's move like everywhere else and a small relative negative divergence intraday now. We may have to wait until Wednesday or so before we see how these positive divergences pan out, but I see no reason to close the leveraged longs we bought during the range last week.

 QQQ 15 min from leading negative at the mid-October decline to leading positive from Friday's head fake decline with a relative positive divergence during the range, this is an impressive move on an impressive timeframe.

 Interestingly, take the QQQ 2 hour which is leading negative in its trend and zoom it in, this is the first positive divergence since the September highs rolled over after the QE3 announcement, that's pretty impressive.

 SPY 2 min intraday leading negative.

Just beyond that though at the 3 min, there's no migration of the negative divergence suggesting it is intraday and not much stronger.

Market Update

It looks like we have a pretty serious looking negative intraday divergence, watch for downside very soon, it may offer some opportunities to pick up longs tactically if we get a reversal in the signal. Charts coming.

WYNN Trade Idea -Long

I was asked to take a look at WYNN as a short term, long trade and I agree, I think WYNN has good probabilities of an upside move for a long trade and is at an area where the risk is pretty manageable (unless we see a massive gap, but even in that event your maximum position size should limit the risk there). WYNN also looks pretty darn ready to make that move.

Here are the charts...

 WYNN is a channel Buster, many times these will make a move higher before they make the next serious leg lower and that's probably the long trade that we are envisioning. These moves also tend to be volatile so there's likely a decent risk:reward ratio in the trade idea.

 If we use the 2 day Trend Channel a closing price of $112.65 breaks the uptrend, I'm not so sure how important that is to this particular idea being shorter in nature, but holding above that level certainly wouldn't hurt.

 Here are the gaps created recently in WYNN's gap up and down, this leaves a sort of Island top, we don't often see gaps like these left unfilled with HFT's in the market.


 The longer term bearish outlook is hard to disagree wit, but this is a 4 hour chart so this is a really longer term trend, this is the kind of signal in which if I had to make a trade today and not touch it for 6 months I'd choose to go short.

 The 15 min timeframe is more along the lines of what we are looking for in a trade like this, you can see a leading positive divergence before the gap up, that gap up was sold at the second red arrow and the gap down is NOT confirmed, the 15 min chart is still in a leading positive position; this fits well with a shorter term trade to the upside that at least fills the gaps, but probably moves a bit more than that.

 The 3 min chart is leading positive exactly where it should be in a flat range, remember what I said about quiet markets yesterday, they are usually up to something and this chart looks like they've been up to something-accumulating WYNN on the cheap.

 The 1 min trend is the most detailed, you can see the negative divergence at the top and a leading positive divergence at the gap down.

Zoomed in, we see a strong leading positive divergence right now and on the break of minor support this morning, I'd guess WYNN is tradable right in this area. If you look at the daily candles, thus far they are forming a Harami upside reversal, if they close that way and on some volume today, an upside reversal becomes even more probable.