Futures Update

I suspected quite a few things, a few thing have been a mystery such as, "If the market sells the news, what happens to our expectation of the breakout high/bull trap moves?" Yesterday I thought a possibility might be, we'd have a pullback, the market would gather a little energy and make that final push. Another possibility is the market acts in its normal extreme way and keeps pushing from yesterday's levels or the 3rd option is that we have to revise our expectations and the scenario falls in to the AAPL lesson in which expectations are suddenly and quickly shaped by events the market had no way to foresee or discount and in AAPL's case, caused a panic that caused a -45% decline to what was previously thought to be  a stock impervious to any decline.

The futures have some VERY interesting clues, they don't answer the immediate question, but they tell us what shape the market is in no uncertain terms. I suspect it will be regular hours trade signals that tell us what we need to know about the immediate future and that tells us how to proceed, for instance, putting on the core positions / trend trades for the long haul or continue to navigate volatility using short duration positions.

Currencies...

For right now, all of the major carry pairs look to be incapacitated, this is the first break in them so I wouldn't be surprised to see choppy (stop/limit hitting) volatility. I'm not going to say these trades are done, I will say they have failed this morning as they have not been able to make a higher high since yesterday and one is making a deeply lower low; it looks like the start of something I've been expecting. There's nothing wrong per se, with the AUD or EUR or nothing in my view that is hurting the carry pairs, it is as expected, the strength in the Yen that is hurting the carry pairs, the $USD would be the only exception but I'll deal with that separately.

I showed this chart, I drew in the range exactly as it is and even said I though the break below the range was the typical head fake move we see about 80% of the time before a reversal (to the upside here). 3C shows the accumulation in the range and now the Yen is moving up and thus explains why the Carry pairs are not performing regardless of what the AUD or EUR are doing, it's the Yen's price strength that is causing their failure this is important because it has been one carry trade after another supporting the market for quite a long time now.

The $USD is one currency we've seen 3C distribution in lately, this week and last week I said I thought it was going to head lower, in fact this week I said the historical legacy arbitrage is that a lower $USD means higher stock, commodity and precious metal prices, but I wasn't sure whether a lower $USD would be taken in the historical fashion or in the failed USD/JPY carry fashion as for the last year or so, a lower $USD has been bad for the market as it has only been seen as a carry trade. The $USDX lows this morning are new lows that haven't been seen since early February! This might be helpful to the market near term, only time will tell as this has had a totally different correlation for so long.

Precious Metals

Yesterday I said I liked gold, several days ago I showed how gold was acting as a flight to safety trade or trading opposite the market. Because I am already overweight GDX (gold miners) I couldn't add a highly correlated position, but both gold and even silver look interesting.

 This is a long term (meaning strong signal and very high probability) 4 hour gold futures chart. The green arrow shows 3C is in line with price or what I'd call, "Price trend confirmation". At the red arrow there's distribution in 3C and gold moves lower, I had been expecting gold to move lower to solidify a larger base that may put gold in to a larger trend such as an intermediate up trend, maybe even a primary upturned as it transitions out of a primary downtrend which we called very early near the 2011 top.  The recent accumulation sent gold higher, which also tells us something about the market considering their correlation.


 This gold futures 30 min chart shows more detail and an inverse H&S-like price pattern where accumulation occurred, I showed these yesterday and today we have a nice launch higher, but had I bought gold yesterday, especially leveraged, I'd be considering taking some profits now, I suspect gold will pullback as there are early signals for a pullback. The market has been ruthless the last several years about filling gaps so the short term 3C readings that are starting to lean toward a pullback or gap fill (they are very young as Gold just launched) look like they may just provide a decent buying opportunity for those interested, again I have suspected gold has been working on a longer term base for a solid trend reversal. I honestly expected gold would pullback toward the July lows and I'm not ruling that out, but so far it doesn't look like that will happen.

Silver 4 hour chart is also showing some strong accumulation, even though silver is my least favorite asset to analyze because of years of JPM manipulation, going forward we might get a more reliable asset as JPM was hauled in once over Blythe Masters' manipulation, they got off scott-free, but perhaps it caused a shift in thinking or perhaps their large, inherited Silver short position from Bear Stearns is finally covered? Although this is one of the best positive divergences silver has seen in a good, long while, I'd still let the trade come to you and not chase it.

Treasuries...
As you know, I've seen something going on in TLT (20+ year Treasuries) for a long time, this same positive  action is not found in 10-year treasury futures and I really don't know exactly what it's about, although I have a few guesses.  I just know that I have been very interested in a trending long position in TLT on a pullback to $100-$102 and perhaps look to leverage it up, maybe with some sort of short TBT scheme.

 The long term 4 hour 30 year treasury future/3C chart shows what looks like a substantial accumulation area and TLT is up today, however I'm looking for a long term trend position, not a trading position,  again the chances of a gap fill are decent.

The same asset's 5 min chart shows a positive divegrence from yesterday (this is not TLT, but 30 year Treasury futures) and there's a negative divegrence in to the move / gap up so I think a pullback is likely and I'll be patient with this one, perhaps phase in to a position in 2 or 3 parts.

Index Futures...
I saved the best for last. It wasn't but a week ago or less actually that the only negative divegrence in Index Futures was on a 5 min chart which isn't a very strong negative divegrence, Yes there has been a persistent 1-day negative divegrence, but that is long term and as I have been using a new analogy, the long term chart is like the promise of something locked away, the shorter term charts building a bridge to connect to the long term is like the key that opens it.

So imagine my surprise when the divergences that had been moving to longer 15 and 30 min charts are now as clear as day on 60 min Index Futures charts. I have no doubt the market is in horrible shape, we've seen that in almost every aspect, but there's a difference between a strategic outlook like the long term charts in which you can be 100% correct and the tactical entry which is the difference between making money or not.

Lets just start with these charts as they are stunning. I'll tell you in advance, most of the damage which is significant, started after hours Tuesday.

 ES (SPX E-Mini  Futures) with a devastatingly strong leading negative divegrence, this run up has clearly been used by Wall St. to sell/sell short in to higher prices and demand, the two things they need. Selling or selling short is difficult to differentiate as both come across the tape as a sale.

 The NQ (NASDAQ 100 E-mini Futures) with confirmation at the green arrows and a very impressive (really only 2-day ) leading negative divegrence. The short period of time it took for this deep leading negative divergence (the strongest kind) to develop is evidence of how sharp the distribution has been.

TF (Russell 2000 Futures) 60 min showing the same, confirmation to the left, a wicked leading negative divegrence to the right and nearly at a new low even as price is higher.

This is the 5 min TF chart, although there are at least 3 different distribution areas above, it also has a smaller positive divegrence, it's not in the other index futures so it's probably best dealt with and monitored on the regular hours charts of the averages. Considering the daily negative has been in place for sometime, I think this lends some credibility to that rising CBOE SKEW Index of the "Black Swan Index".