While the US presidential elections seem to be the only vote this week that means anything to the market, there is another that if not passed would start Greece on the path of an exit from the Euro.
While the ruling coalition in Greece has fallen apart in recent weeks and a number of deputes came to power by promising to vote against Troika-imposed Austerity, the Greek Parliament just passed the Austerity package that the Troika demands before any further cash disbursements can be made to Greece.
The passing of the vote can only be seen as risk positive to a neutral event, had it not been passed, we would likely see the Euro in free-fall right now.
Wednesday, November 7, 2012
BIDU Follow Up
On Monday October 22nd I put out what I think is an interesting look at BIDU , what we were missing at that point, what we needed to see and some other details.
I ended the post with this...
"However there's not much confirmation among timeframes, only the 2 min, this is why I say I think BIDU needs that consolidation work to put together a high probability trade, the 4 hour chart is there, but now the other timeframes need to fall in place. I wouldn't chase BIDU here, but I would keep an eye out for consolidation work and I'll continue to update it as it develops."
I also said the following...
"Near term on this daily chart, I'm at a loss in identifying any price pattern here, if you see one shoot me an email, I do however see a clear resistance level and that is the only real upside magnet I see. I would be looking for a head fake move above the resistance area and to set up a new short position for the eventual decline, but until then, I think BIDU has a good chance of breaking above such a clear resistance level as traders will buy a breakout above such an obvious resistance area."
So several weeks ago we were looking for a potential break out in BIDU to the upside through VERY obvious resistance, but the charts hadn't come together yet, there was more of a downside move needed to put together the kind of accumulation that would breakout through that resistance and thereby pull longs in to the trade as they chased the breakout. Finally a break below support is one of the key timing events that tells us an upside reversal is near, so long as the break below support (head fake move) has solid positive divergences.
It looks like we waited the right amount of time as BIDU would have gone nowhere for us back then except in to the losing column, however now it's in a much better risk/reward area, it has much better probabilities and the timing looks much better which is the only reason I would consider options.
Here are the charts.
Clear resistance is a tempting trade on a breakout through that resistance for most traders, the same could be said of support here, but most traders are prone to trade from the long side for a number of erroneous biases. The break below support is often a good timing signal (any head fake move is), remember, "From failed moves come fast moves" so the failure of BIDU to hold this break below support and move back in to the range will almost certainly send it quickly up to and through resistance.
If you really wanted to play this safe, you could wait for A) a move back above former support around $105.75 or B) an even more high probability entry, but less profit would be to wait for the break above the resistance area at $117.20. I personally don't mind entering trades like this in an area like this, I most often would phase in to such a position allowing myself risk room and room to add if price dropped a little more (this is not averaging down a loser as it is planned in your risk management in advance and the extra position would only be added if the charts confirmed it was even more likely head fake move.)
While this kind of entry seems risky, EVERY SINGLE CORE SHORT position from the February-May 1 period was entered in such a manner and not 1 of the 8 or so positions was at a loss, most were up between 15% and 30% before they were covered. Almost all of the recent leveraged longs entered last week were entered under similar conditions, you actually have less risk; however I understand that it is often difficult to do the exact opposite of what your emotions tell you; that's probably why it works so well.
Here's the intraday break of BIDU, we have a nice triangle there today, I don't know if it's coincidental or intentional, but volume is picking up as it probes the upper resistance trendline. A move above roughly $106.50 should get upside momentum rolling.
The 15 min. Bollinger Bands are also pinching as that triangle is well developed. I'm not sure how big of a move BIDU can press here, I'm thinking at least the $120-$121 area as a minimum and that's why I'd choose options for added leverage. Above that resistance level in the $120's I'd be keeping a VERY close eye on BIDU for any sign of distribution in to price strength as it is likely that BIDU will set up again as a core short as it already was once for a great gain with no leverage. An upside move with distribution is the exact opposite "head fake" move discussed above, just on a larger scale and probably setting up a larger or core short position. So there are 2 potential trades in BIDU.
My DeMark inspired custom indicator shows buy and sell areas during the range on a 50 min chart, note the sells all at the top of the range and the buys at the bottom, the current signal would be a buy.
Since the BIDU positive divergence only goes out to about the 15 min chart, I'm thinking it's more in line with the broad market move we still expect (as the market still hasn't moved much out of the range we expected) and thus probably not a long term long position, but more likely sets up the short mentioned above. In any case, the last run in late October fell short of resistance which is a give-away signal to technical traders that BIDU is likely to fail at resistance, however just in case, it seems not only was the range in BIDU manipulated using divergences (selling at resistance to create a range/resistance), but it also saw a negative divergence before it could hit resistance that sent it lower, once lower where stops would be hit, the positive divergence went leading. Under support there's cheap supply, easy to accumulate, that looks to be what happened here.
A closer look at the 15 min chart and the leading positive divergence after support was broken, a high probability head fake move.
On a short term timeframe like 3 min we also see the negative divergence sending BIDU below support to the left and the leading positive divergence since, with the 15 min and the shorter timeframes all in line, we finally have what we were missing in October when we looked at BIDU, a high probability trade and ironically it worked out just about the exact way we imagined over 16 days ago!
I ended the post with this...
"However there's not much confirmation among timeframes, only the 2 min, this is why I say I think BIDU needs that consolidation work to put together a high probability trade, the 4 hour chart is there, but now the other timeframes need to fall in place. I wouldn't chase BIDU here, but I would keep an eye out for consolidation work and I'll continue to update it as it develops."
I also said the following...
"Near term on this daily chart, I'm at a loss in identifying any price pattern here, if you see one shoot me an email, I do however see a clear resistance level and that is the only real upside magnet I see. I would be looking for a head fake move above the resistance area and to set up a new short position for the eventual decline, but until then, I think BIDU has a good chance of breaking above such a clear resistance level as traders will buy a breakout above such an obvious resistance area."
So several weeks ago we were looking for a potential break out in BIDU to the upside through VERY obvious resistance, but the charts hadn't come together yet, there was more of a downside move needed to put together the kind of accumulation that would breakout through that resistance and thereby pull longs in to the trade as they chased the breakout. Finally a break below support is one of the key timing events that tells us an upside reversal is near, so long as the break below support (head fake move) has solid positive divergences.
It looks like we waited the right amount of time as BIDU would have gone nowhere for us back then except in to the losing column, however now it's in a much better risk/reward area, it has much better probabilities and the timing looks much better which is the only reason I would consider options.
Here are the charts.
If you really wanted to play this safe, you could wait for A) a move back above former support around $105.75 or B) an even more high probability entry, but less profit would be to wait for the break above the resistance area at $117.20. I personally don't mind entering trades like this in an area like this, I most often would phase in to such a position allowing myself risk room and room to add if price dropped a little more (this is not averaging down a loser as it is planned in your risk management in advance and the extra position would only be added if the charts confirmed it was even more likely head fake move.)
While this kind of entry seems risky, EVERY SINGLE CORE SHORT position from the February-May 1 period was entered in such a manner and not 1 of the 8 or so positions was at a loss, most were up between 15% and 30% before they were covered. Almost all of the recent leveraged longs entered last week were entered under similar conditions, you actually have less risk; however I understand that it is often difficult to do the exact opposite of what your emotions tell you; that's probably why it works so well.
BIDU Calls
If I have time I'm going to try some December BIDU calls, I'm looking for a move up, I'm not sure how big it will be and that's the reason for the extra leverage. As usual they will be in the money.
Odds and Ends-Credit, Currency and TICK
These are just a few odds and ends I look at during the day or after the close, they help give guidance or confirmation/non-confirmation to other information.
First some of the leading indicators that still haven't impressed me much today, but there are a few that stand out, on the downside of leading indicators most are in line with price action and not worse.
As for currencies, if I had to guess, I'd guess that stops were just run pretty hard using Draghi as an excuse even though we've known well before Draghi that German Bunds were yielding 0% and that there were signs of contagion long ago whether it be ISM, PMI, ports and volume at ports, etc, it really wasn't news, but saw a violent reaction which most are blaming on the election, it started well before the election and ES was heading higher after it was clear Obama won. Things always need to be broken down to the easiest common denominator as everyone wants to understand "Why?", but the question and generally the answer couldn't be more irrelevant.
This is one interesting leading indicator, High Yield Credit has maintained and even gained some as the market went to risk off mode, usually if it were true risk off, Credit would be telegraphing it long before equities, especially High Yield Credit as the move would be to Investment Grade.
The NYSE TICK chart today hit extremes this morning below the -1250 mark and at the low of the day a little less extreme, the rest of the day was in a pretty moderate area on the TICK, we even saw some moves >+1000. SPY is in red on this chart
In this area of the end of day trade on some small bounces that were barely noticeable...
TICK hit >+1000 again and this while the market was more or less still in a pullback area.
The 3C chart for EUR/USD has been positive since the US open, it went negative at the yellow arrow/European open on Draghi's commentsWe even have a recent new leading high.
This is the FXE/Euro chart on a 2 min scale, this is why I said my guess would be a stop run in the Euro.
3 min chart looks too similar.
As does the 5 min chart
As for the $AUD...
Remember this for later, intraday it showed a negative divergence yesterday and a positive today.
The FXE/Euro 15 min chart would be along the same lines as say the QQQ 15 min leading positive divergence, thus I'd think we saw a run of the stops in FX-land.
The $USD 1 min today leading negative, in line with the EUR/USD chart.
The 2 min, again too similar to the Euro/FXE 2 min and 3 min charts.
$USD 5 min, also too similar for coincidence in my opinion.
And UUP 10 min, compare to the Euro/FXE 15 min above.
The AUD/USD looks like it had a pretty big hiccup...
A closer look appears to be showing a rounding bottom, FX trends better than stocks and we do have the positive divergence in the $AUD, this would imply risk on is still the theme despite today's shellacking.
$AUD vs the SPY, still in a pretty positive area.
The trend in the $AUD vs the SPY, this is probably more important than any of the other FX charts.
First some of the leading indicators that still haven't impressed me much today, but there are a few that stand out, on the downside of leading indicators most are in line with price action and not worse.
As for currencies, if I had to guess, I'd guess that stops were just run pretty hard using Draghi as an excuse even though we've known well before Draghi that German Bunds were yielding 0% and that there were signs of contagion long ago whether it be ISM, PMI, ports and volume at ports, etc, it really wasn't news, but saw a violent reaction which most are blaming on the election, it started well before the election and ES was heading higher after it was clear Obama won. Things always need to be broken down to the easiest common denominator as everyone wants to understand "Why?", but the question and generally the answer couldn't be more irrelevant.
This is the FXE/Euro chart on a 2 min scale, this is why I said my guess would be a stop run in the Euro.
As for the $AUD...
$USD 5 min, also too similar for coincidence in my opinion.
Look at the QQQ/Tech
As the last post was the SPY, this is the Q's, although we'll start with the SPY 1 min negative divergence...
This is the essence of 3C in its simplest form, price moves to an equal high or higher high and 3C moves to lower high, this is a negative divergence. This tells us that there's less money in the issue at the second high vs the first high, we have to understand what that means to the trend. Because this is only a 1 min chart this means it's an intraday move, it's not big money, it's just enough to move the issue intraday and there can be a lot of reasons for that such as wanting to accumulate more of the issue at a lower price. In any case, you can see the SPY responded to the divergence. The longer the timeframe, the more important or larger the money flow is, the longer the divergence persists, the longer smart money has been engaged in whatever they are doing (accumulating/distributing) and eventually it follows the more powerful the eventual reversal the divergence is warning of, just as the 1 min chart warned of an intraday move to the downside in the SPY (as well as other market averages).
QQQ 1 min shows a very positive divergence, leading in fact which is the strongest form of divergence (in the white box). If this divergence is strong enough and there's enough money moving in to the position, it will begin to show up on longer timeframes, sometimes there are a number of small divergences on fast timeframes that don't stand out, but their divergence accrues on the longer timeframes.
The QQQ 3 min is a longer timeframe and we have a leading positive divergence here too, this is telling us that the 1 min divergence is more than just an intraday mover, in fact if the QQQ were to follow the 1 min chart, it would probably have closed today's gap by now, but smart money trades in much bigger size which is what most people fail to understand, thus it takes them more time to accumulate or distribute their larger positions and do it without being detected by dumb money or the predatory High Frequency Traders that search out large orders or "Icebergs", in both cases they would each try to front run smart money making smart money pay a lot more for their shares than they would otherwise. You have to think about the difference between 100 share lots and 100k or 1 mn share positions or even larger, it requires an entirely different approach and thus my early certainty that it was unlikely we see a "V" shaped (fast) reversal.
QQQ 5 min is leading positive, with a pullback it can add to this positive divergence.
The 5 min Tech chart shows why the QQQ is outperforming the SPY today.
Here's the accrual of a longer term accumulation cycle from the 22nd through the 31st and even in to this week, this puts the very important 15 min chart in a leading positive divergence. If there were large scale distribution today this 15 min chart would show deterioration.
So far so good, although it's a distraction and a bit of a waste of time from our perspective, however we can only see parts of what smart money is doing (a lot more than most see), we almost never know why they are doing what they are doing until the reason comes out and by then there's no money to be made.
This is the essence of Technical Analysis and what it seeks to do, figure out what smart money is doing and do the same.
So far so good, although it's a distraction and a bit of a waste of time from our perspective, however we can only see parts of what smart money is doing (a lot more than most see), we almost never know why they are doing what they are doing until the reason comes out and by then there's no money to be made.
This is the essence of Technical Analysis and what it seeks to do, figure out what smart money is doing and do the same.
Intraday Pullback Highly Likely
However not every decline is bad, in fact earlier today, near the start of the day I mentioned that a "V" shape reversal is not a likely event even though it is more likely now than in a different situation, but still not likely.
I'll use the SPY as an example because they are the poorest performer today as I suspect we are seeing the same rotation we saw in the middle of October, one day Tech (today), the next Financials. Before showing you the SPY, I'll say that the QQQ especially, the DIA and IWM have all made a lot of progress today, the SPY has made the least, but I think that's more a function of financials which were clearly hoping for a Romney win judging by their contributions to each candidate.
Now the charts and understanding where the SPY is and then I'll show you the others, this actually gives us a good chance to take a good look at high probability trades at very low risk levels. Below I'll show you Tech vs Financials.
The 1 min intraday SPY showing a negative divergence, most averages are showing some version of this, although it is clearest in the SPY. The S&P is financial heavy so as Financials are out of rotation even on a relative basis today, this is why the Tech heavy QQQ looks better. The rotation among these groups in the recent past has lasted about 1 day!
2 min SPY is leading and making some progress, not like other averages.
And the 3 min is leading and making some progress, but this is sort of a micro version of the range we were expecting after the October 18th top started to head down. That range was needed to build a divergence strong enough to make a significant move, much like a "V" reversal doesn't allow the time for the divergence to mature, a decline in prices to wherever, as long as it's close to today's lows allows the divergence to continue to develop. If Financials rotate in as showing better relative performance, then the SPY will have a stronger day than the Q's.
On the 5 min chart where the repair needs to be made, a decline in price with an advance in 3C gives us that repair of the 5 min positive divergence. It also allows us to look at some Financials at a low risk area and see which are seeing interest.
Financials 2 min showing a decent positive divergence, but to 2 min.
The relative positive of the 5 min chart suggests Financials will see the same kind of move, price down, 3C up, that is the essence of a positive divergence.
XLK or Tech you can see is in much better shape today with the 5 min chart just about all healed up.
I'll use the SPY as an example because they are the poorest performer today as I suspect we are seeing the same rotation we saw in the middle of October, one day Tech (today), the next Financials. Before showing you the SPY, I'll say that the QQQ especially, the DIA and IWM have all made a lot of progress today, the SPY has made the least, but I think that's more a function of financials which were clearly hoping for a Romney win judging by their contributions to each candidate.
Now the charts and understanding where the SPY is and then I'll show you the others, this actually gives us a good chance to take a good look at high probability trades at very low risk levels. Below I'll show you Tech vs Financials.
Market Progress
I have one data feed to my most important 3C charts down so I've had to look through another platform that isn't as detailed, but I'm happy with the progress of the divergences today thus far, things could have been a lot uglier although I wouldn't expect it based on where the longer charts are.
Today seems to be a good day to scare people, to get emotional reactions, to blame things on the election, yet there were signs of this going in to yesterday (we would have no way of knowing it would be this ugly, but the 5 min negative was there with the new divergence starting).
I'm going to get this data feed loaded up and run through the averages, the Industry groups, see if anything has changed with leading indicators and see what opportunities might be available today.
Today seems to be a good day to scare people, to get emotional reactions, to blame things on the election, yet there were signs of this going in to yesterday (we would have no way of knowing it would be this ugly, but the 5 min negative was there with the new divergence starting).
I'm going to get this data feed loaded up and run through the averages, the Industry groups, see if anything has changed with leading indicators and see what opportunities might be available today.
Considering AAPL Calls
AAPL has been a tough one, I figured a while back what we would see in AAPL would be too many hedge funds trying to fit through the same door at the same time and we'd see AAPL fall, however at some point some larger fund would likely manipulate AAPL higher to sell in to that strength. Last week's filing from Dan Loeb's hedge fund didn't help as AAPL was listed as the #1 loser for the month, this is totally broadly in line with what we've been seeing in AAPL really since Winter this year, positions were unwound a little back then and then through the summer.
AAPL has been the one stock I suspected would lead a bounce move, but it just hasn't developed in the charts, it's been a big disappointment in the charts as money still seeks the exit and too much is trying to fit through at once.
However for the first time in a couple of weeks AAPL is finally building something which is a change in character because it is something we haven't seen recently.
The difficulty is we've been burnt on AAPL calls, especially on this last, most extreme move in AAPL. Just so newer members are aware, AAPL is one of my FAVORITE shorts out there, but not here, it needs to shakeout the early shorts and weaker hands, it could do that on the bounce move we are looking for, the problem was it didn't look like it was participating in building like other stocks and averages were through the range and beyond.
I'll show you the AAPL charts, as far as any new positions in calls, I think I'll require a higher standard from AAPL, but if I were considering a straight equity long, I might be more inclined to look at that here, however I am not.
AAPL Daily
AAPL 3 min positive
Closer view of the 3 min
5 min positive
15 min positive
Even a 30 min positive, something is going on here.
And for the first time a higher high while price makes a lower low on a 60 min chart, a positive divergence out to 60 min!
AAPL has been the one stock I suspected would lead a bounce move, but it just hasn't developed in the charts, it's been a big disappointment in the charts as money still seeks the exit and too much is trying to fit through at once.
However for the first time in a couple of weeks AAPL is finally building something which is a change in character because it is something we haven't seen recently.
The difficulty is we've been burnt on AAPL calls, especially on this last, most extreme move in AAPL. Just so newer members are aware, AAPL is one of my FAVORITE shorts out there, but not here, it needs to shakeout the early shorts and weaker hands, it could do that on the bounce move we are looking for, the problem was it didn't look like it was participating in building like other stocks and averages were through the range and beyond.
I'll show you the AAPL charts, as far as any new positions in calls, I think I'll require a higher standard from AAPL, but if I were considering a straight equity long, I might be more inclined to look at that here, however I am not.
Market Report
What I don't like thus far...Within leading indicators, there aren't any moves against the market downdraft except in High Yield Credit which held up much better than the market, in fact it has managed to stay unchanged. None of the other leading indicators are diverging, at least not yet.
In sector rotation it is a little interesting
This is relative performance of sectors, Tech is doing better than Financials, this can be seen broadly in the 3C charts for both groups this a.m., Industrials and Basic Materials look quite a bit stronger than I'd expect as does Discretionary at the top. I find it surprising Healthcare and the other Defensives aren't doing better, I suppose this could be attributed to broad market weakness, but I'd still expect some flight to safety, the fact Utilities are barely outperforming Energy is strange.
As for some other charts, some of these may be getting a little outdated, I'll check on them as they are posted below.
The charts shown late yesterday showed the 1 min starting to move back in to positive position after having migrated through the timeframes until we had a 5 min negative divergence, the process of that divergence ending and a new one starting began yesterday, whether it would be strong enough to make it to the 5 min chart and turn it back positive remained/s to be seen, but with the longer term charts still positive I think it does.
This 2 min positive in the DIA (I said I was worried they might be out of data since they are such fast timeframes so I check them) has a leading positive divergence as it should progress from 1 min to 2 min, right now this divergence is nearly at a new high so it has become even stronger.
Ultimately this 5 min DIA negative that is now in line will have to be repaired by the migration of the positive divergence through the timeframes.
The 15 min DIA saw relatively little damage and still remains in a very strong leading positive divergence, this is why I think the probabilities are the 5 min will be repaired and we'll continue on track.
We still also have much longer positives like the 2 hour. In proper position it is in a deep leading negative divergence, but there is a change in the flow from the 11th of Oct to present.
IWM 2 min leading positive is now at a new leading positive high.
This chart is current -3 min,
IWM 5 min seeing some positive activity or repair.
The IWM 10 min chart is very close to the 5 min, it really hasn't seen much damage at all.
QQQ 1 min is also moving, this is at an even higher point.
This chart is current
QQQ 3 min making progress.
As shown yesterday, the 5 min was negative, this needs to be repaired, this is part of the reason "V" reversals are less likely as it takes time to repair the damage via accumulation.
QQQ 15 min chart wasn't damaged at all.
The SPY short term charts were not showing anything interesting in divergences, now the early timeframes are starting, but again here you see a divergence as far out as 4 hour.
I'm going to check individual sectors next.
In sector rotation it is a little interesting
As for some other charts, some of these may be getting a little outdated, I'll check on them as they are posted below.
This 2 min positive in the DIA (I said I was worried they might be out of data since they are such fast timeframes so I check them) has a leading positive divergence as it should progress from 1 min to 2 min, right now this divergence is nearly at a new high so it has become even stronger.
I'm going to check individual sectors next.
