All Eyes On August 21st

There's so much to say today, but much of it has been said, it's putting it altogether in 1 place. If you thought the last F_O_M_C minutes were extreme, ambiguous and generally not very market friendly, just wait until Aug 21st because with no press conference today, the market has even less of a clue as to what Bernie is thinking.

However the one thing I talked about at the time, "Bernie's plausible deniability" when he spoke after the last minutes were released, I think everyone figured he's say something to take the sharp edge off the minutes, instead he came out sounding like the Super-Dove and that as long as unemployment was out of line, QE wasn't going anywhere, but that's not what he said, he said "as long as unemployment is out of line, accommodative policy will remain in place".

The market took this to mean QE, I took it to mean interest rates which is something we already knew so in effect, Bernie took the edge off the minutes, made it "seem" like QE was not in any danger and was able to deny that's what he said because it wasn't what he said. In essence, that day Bernie didn't say anything we didn't already know, but he would have made Greenspan proud.

So now we know that QE is not connected to employment, Non-Farm payrolls will have a lot less importance.

After the F_O_M_C statement that was virtually unchanged from June's, the market didn't know what to do with it initially (it was the minutes from the June meeting that gave a MUCH different impression than the policy statement just as the August release of today's will do the same). Apparently a rumor was making its way around that the unofficial F_E_D spokesman, Jon Hilsenrath of the WSJ was going to give the statement the strong bullish endorsement...

Pfffff... that's air escaping the knee-jerk reaction

SPY 1 min... Hilsenrath didn't come out as the usual "Super-Bull" after the statement...

This is the "Updated" original Hilsenrath article from the WSJ

After the major averages were up from +.73% to nearly 1%, the Dow and the SPX close red. This is why I think patience is an absolute after an event like this. After the September 13th 2012 announcement of QE3, I had a lot of people telling me that we should close all shorts and go massively long, but that's not what the charts said as of Sept. 13th. I'll admit, my emotional state of mind was very much with the conventional wisdom of "Don't fight the F_E_D" and there was a big part of me that wanted to close any and all shorts and go massively long, but again, that's not what the data said and I gave ti a bit more time to allow the data to come in and it turns out that September 13th was the high until the market bottomed November 16th, going massively long would not have been the right choice.

I'm 100% open to whatever the data says, but I want to see real data, not guessing whether the ball will land on black or red, even if the conventional wisdom suggests one outcome over another, that's gambling.

Before the F_O_M_C I had collected a number of charts, but didn't have time to post them, you may recall in this post... However, I did save some of those pre-F_O_M_C charts, I think there's information there and I think there's some things we can learn from them.

First Gold which I did post just before the statement to give you a visual of what I had just written. The VERY short term, as in intraday had gone positive as if the F_E_D would announce there would be no taper this year, yet the larger flows of underlying funds told a different story.

 First GLD's 3 min intraday chart went positive and just after that a.m. ramp that some suggested was a leak.

However the bigger picture of Gold which would move to the upside on QE positive news, shows not only the typical distribution range, but the 15 min chart is negative through the range as well. These two charts were reflected exactly the same in Gold futures as you can see by the post linked above.

As far as the later, intraday GLD charts...

After the post-policy run up, the intraday charts went negative and GLD started losing ground.

As for the Gold Futures mentioned above...

 The intraday 1 min gold futures looks almost identical to GLD's intraday chart above, positive and gold did run higher from that divergence. The point I was making during market hours was the accumulation period here was so short, it was very unlikely that gold could sustain a run much further than it did.

This is the 60 min Gold futures which look nearly identical to the GLD 15 min chart above  which told me, whatever the short term reaction to the policy statement, there's a lid on just how far gold can go in this distribution, this is why I view trying to trade gold long on the intraday signal as "Risky".

 Interestingly, the 30 min Gold futures shows something most may not have caught, look to the far right and note what 3C was doing as gold was moving higher in to the afternoon, that's a leading negative divergence. Sell in to ANY strength? Honestly it looks that way, but I'd need more data than 2 hours before making a call on this specific asset.

The $USD...
Generally speaking, if QE were to taper or end, the $USD should gain in strength, part of QE and why so many governments around the world are engaged in some form of "accommodative policy" is because it lowers the value of their currency which helps exports along with other benefits to the government, especially the Treasury.

The first two charts were captured before the policy statement and the third was after,

 This is the 1 min 3C $USDX futures, oddly the $USD had a smaller, but positive divergence just before the statement. The $USD fell right after as stocks were moving higher.

 However the 60 min $USD futures show a huge positive divergence/base suggesting the $USD move much higher, this also suggests that QE will end some time fairly soon as they are already positioning for the inevitable.

This 5 min $USDX chart was captured AFTER the dust settled, note that the $USD fell as you'd expect with stocks rising and then it lifted a bit as stocks started falling, but the interesting bit is the 5 min 3C made a new leading positive high during all of this as if the move to the downside right after the statement was aggressively accumulated, this would fit with distribution in to strength with stocks.


As far as ES (S&P E-mini futures)...

 This is ES 5 min 3C chart just before the statement, the 1 min chart is decent for intraday moves, but the 5 min chart shows more of the underlying trend and it was already moving toward distribution, I'd say based on today's price action, that's exactly what was happening, again, selling in to any price strength.

This is the ES 4 hour chart, this is where the large flows of underlying trade are found and the big picture or high probabilities, that's some nasty distribution, it might look familiar from some charts I posted last night.

For a different view...

This is the same area in the S&P-500 using MoneyStream, it's showing the same distribution and if you go to last night's post linked above, you'll see a lot of other confirming indicators (3C, MS, etc), but this is confirmation between the SPX futures and 3C vs the Cash S&P and a totally different money flow indicator, Money Stream.

The picture looks quite clear.

I also collected this chart of VIX futures, not VXX, but VIX futures...

This is a 5 min chart of VIX futures, remember the concept for the VXX position, a head fake below the descending triangle that technical traders will sell/sell short and look for accumulation to confirm it's a head fake move which gives us an excellent entry. Well I showed confirmation in VXX and UVXY, but this is actual confirmation in the VIX futures themselves.

Also don't forget our recent VIX buy signal.

You also saw the incredible strength in TLT today, this is an asset I've been talking about for some time  and even though it has a fairly low Beta, I think something big is going on here, today's move looked a whole lot like accumulation of a flight to safety asset.

I'm not saying the market is going straight down tomorrow, I'd have no way to know that based on 2 hours of data after the policy statement and in my view, $1700 is a strong psychological magnet.

I even mentioned a couple of names today that I'd consider for call positions, AMZN, PCLN and NFLX, but the call positions weren't meant to reflect the profit potential, but rather the time potential. This market is a lot uglier than I think any one alive has or will ever see, I think a lot of people don't appreciate that or at least not t the extent that is reflected in the charts and the truth is, it's probably a whole lot worse than that.

When I mentioned these stocks in this post,  I said,

"Initially I'm thinking of playing some calls, specifically because they are short term, the assets I was considering were AMZN, NFLX, PCLN and a couple more, the plan would be to then short those names coming out of the call positions, but I see this as EXTREMELY risky."

If the incoming data supports such a trade, I'd go for it, take the opportunities where you find them, I understand there are periods when the market is going to make enormous moves and I think we have some strong charts supporting an enormous move to the downside, but I'm not so naive as to not recognize that the market jiggles a lot. Take the SPX for example over the last 10 weeks...

That's a lot of movement, there were a lot of good short entries in that area that are still great entries/positions and there were some great long trades, June 21st (look back to our archives) we identified a market move on the upside 1 day before it hit the bottom and reversed and we took long positions to capitalize off that move. However, when looking at the last 10 weeks above, understand that there's a 1% difference from today's close and the close 10 weeks ago, ONE PERCENT!

This is just the nature of the market, here's another SPX example...

During the 2007 top, during the course of about 12 weeks from white arrow to white arrow, that's about a 1% move, I'm going to try to take as much out of that market as I can, but at the same time I'm looking at and preparing for the bigger picture that develops to the right.

Because what took 5 years to build, was torn completely down and then some in about a year with most of the damage over 8 months...

Almost 5 years of rally is totally taken back and then some...And I know this time is much worse, in fact the worst I can find digging back through a century of market tops.

It's not only 3C being at a lower level than all of the previous tops, it's also where price is vs where 3C is.

So..., short term trades like AMZN calls (if they make sense) wouldn't change the composition of my core short positions nor would it take AMZN off my core short list.

Lets take AMZN for example so you better understand the above and how I view the opportunities both short term and the perhaps once in a lifetime opportunities and the risk associated with the above statement.

 This 5 min chart of AMZN is only a couple of days, it's not a big accumulation area and I'm not even sure if it will hold, that's why I want to see the data coming in after today's statement, but taken on its own, I'd probably "normally" take a call position for a quick move.

 However, the way AMZN was taken apart today in to its attempted rally reminds me of the risk.

This is migration of that negative divergence at the end of today to a 3 min chart (in red), that's a pretty large negative for only 30 minutes.

Then I have to consider what a call trade "might" make "if" the data moving forward supported it, BUT...

I can't forget for one second the time I waited to get in to an AMZN short, looking for >$287 and >$300 and then when I look at a much stronger 2 hour chart and see the extent of the distribution in such a short period and exactly where I thought it would be, I want to be real careful chasing nickels and dimes in front of a steamroller.