Leading Indicators Update

As promised earlier, this was the one place that was giving a loud and clear signal of what to expect in afternoon trade and as promised, the 30 seconds that gave me a lot of insight in to the market's reaction to QE3.

 September 13th the F_O_M_C announces the long awaited QE3. Long term members are probably sick of hearing it, but you know it's true, "Almost everything F_E_D related sees an initial knee-jerk reaction that is almost ALWAYS wrong".

The market rallied on the 13th and for a bit on the 14th as QE3 was announced, but if you followed QE1, QE2, Twist, Twist 2.0, the market rallied after these policy announcements, it only did so for about a day and a half after QE3 was announced. Now to be fair it was probably already priced in and we had a strong 3C signal before hand suggesting that the market would not rally on the announcement...

This is one of many negative divergences in to the announcement, the shorter timeframes that better nail the timing can't go back this far. I remember there were a few members a little unsettled with my call for patience, not to close out shorts even though I said, "Emotionally I feel like we should close all shorts and go 100% long, but the data doesn't support that". So I got a lot of emails referencing, "Don't Fight the F_E_D", I wasn't, I was just going by the objective data and you can see what happened after, there was no QE3 announcement rally, but that's not the point.

This is the point, "Fleeting Glimpses". I just so happened to be watching Bernie give his press conference and watching the market for reactions, at the very minute he was asked a question that was something like, "Will you modify purchases under QE3 if inflation becomes a problem", Ben answered in a round about way with something like, "We'll have Very accommodative policy in the CONTEXT OF PRICE STABILITY". It was that answer that topped the market for the day in almost every asset class at that very minute. The F_E_D basically added something new, they'd adjust how much they buy if inflation became a problem. The market didn't like this and that's why it topped that minute, that day.

When the F_E_D started talking about changing policy guidance from calendar based to economic result based, the market went nuts again and hated this and still does. Now we have the minutes that are casting even more doubt on QE.

However the point was, I could stare at that chart all night, but if I had not seen the press conference and market reaction, I wouldn't have understood what the market was REALLY afraid of, it was revealed in 30 seconds and few caught on to it.

Now, Leading Indicators today were a lot less subtle than the 1 question asked of Bernie.  One theme was the EUR/USD which has been weak lately, last night I noted a change in the opening 3C chart of the pair in this post,

"I'm not going to read to much in to this as it is an early signal and the EUR/USD hasn't exactly been tracking the market recently, but there are some signs on a 5 min chart that the pair may look to head higher soon, that would be supportive for the market very near term, any further out and there's still a large divergence between the two that is more negative, but this could spell early strength for the FX pair that historically correlates to market strength-again we are talking about very near term...I may be getting a bit a had of myself, but Friday's late break above resistance certainly wasn't enough time for smart money to make any significant moves, some extra time and demand helps them, as I always say, "Price is Deceiving, and Friday as I also said, it's a gift for us as well."

The EUR/USD pait showing a positive divergence last night gained some ground which is supportive of the market overall.

It appears the pair lent some support to the market, but there's a lot more going on in the short squeeze area of the R2k and Credit, specifically HY Corporate.

Leading Indicators... (Comparison symbol is the SPX in green unless otherwise noted)

 Commodities finally moved with the SPX as a risk asset as they should, we saw a lot of negative diverging to the downside in commodities over the last several days as they followed the EUR/USD much more closely.

 This is what commodities looked like vs the SPX over the last several days, the divergence is still quite large despite today's move together. All in all as a leading indication, this is generally a market negative.

 Here we see commodities oddly losing ground with the $USD (green) early today and finally gaining ground with the market in the afternoon as the $USD flattened out.

This is the overall negative divergence between commodities and the SPX since the 11/16 cycle lows.

Credit

 I think there's a short squeeze in certain credit as High Yield was dead flat today, but...

 Junk Credit was giving early leading signs, it's little wonder the SPX tried to rally in to the close with Junk Credit making earlier higher lows.

 High Yield Corporate which is right at all time Short Interest highs also gave an early set of higher lows, hinting the SPX would follow as credit leads most often.

 This is the Euro today vs the SPX, the Euro which has recently been weaker was showing 3C positive divergences last night, those held up and the Euro outperformed the SPX on a correlation basis, but the Euro has a lot of catching up t do to revert to the mean of equities.

 FCT which just happens to be a decent leading indicator showed early strength, but by the end of the day wasn't looking quite so hot as it was unable to hit the a.m. highs.

 This is a longer look at the Euro vs the SPX, you can see it was supportive at which dates? That's right, the same we saw over and over again today in to late December, then after that the Euro just fell apart, that is what commodities have been tracking the last several days and why they are so out of sync with the market.

 Yields didn't do much and aren't giving any signal as they tracked the SPX all day.


 One of my favorite leading currencies, the $AUD is still at an overall negative divergence, but showed good catchup momentum today.

Note where the $AUD started the day and where it finished relative to the SPX and itself. This seems to suggest some more short term strength in the market which is what I have been looking for as Friday break above local resistance is an integral part of a downside reversal, but to do that it needs to spend more than 30 minutes up there.

As for futures, as of this moment there's a 1 min negative divergence in ES and NQ futures (S&P and NASDAQ) , I suspect it has something to do with a negative divergence in the EUR/USd on the same timeframe.

 EUR/USD 1 min negative divergence

 ES negative divergence

NQ negative divergence.

I'm not going to read too much in to these as we have a long overnight session and a lot coming up this week, but I will keep an eye on them for any migration to longer timeframes.

As for the averages, in to the close the DIA showed some distribution on the intraday timeframes, perhaps we see a gap down in the a.m., but there's still some support there in the 5 min range (overall a leading negative divergence, but within that there has been a positive divergence develop today), so that could lead to some upside late in the day so long as it holds which we'll watch as well.

The SPY also showed some light distribution in to the afternoon ramp attempt, the negatives stopped pretty early at 2 mins and there's a relative positive divergence in the 5 min timeframes, again within a larger leading negative position. The 10 min in the SPY is flat out negative, no ifs ands or butts so any strength in the market, even at new highs in some of the averages is unlikely to hold with those heavier negative divergences bearing down.

The QQQ also saw end of day selling in the 1, 23 and just made it to the 3 min chart, yet there is a positive divergence, again within a larger leading negative on the 10 min QQQ, this is why I suspect better relative performance from Tech tomorrow.

Just to show you what a positive divergence within a larger leading negative looks like, because I know it sounds confusing, here's the 10 min QQQ mentioned above.

The longer term and larger signal is negative, it has hit leading negative lows, yet there's a local positive divergence, essentially this would suggest a near term move, but one that doesn't hold, it can still be a fairly decent move (this the AAPL calls today). However unless there's a major change in character, ultimately the larger negative divergence trumps the positive and caps it's effect on the upside.

As for the IWM, there was lighter distribution in the short term timeframes at the end of day as compared to the other averages, however the IWM has some pretty heavy longer term negatives like this 15 min.

As for the volatility ETFs like VXX and UVXY, they saw some in line 3C movement today as prices moved lower, I believe this is an effect of hedges being moved out to March and beyond in response to the debt ceiling fiasco. I think it's a short term move as the more important charts there have very positive divergences suggesting volatility lifts which means the market moves down, that I believe is part of our "Trend #2".

Finally Treasuries aren't showing any really strong indications short term which makes some sense with the way the market acted today and if we are to get some more short term market upside, there's still a huge 15 min leading positive divergence that looks like someone built a flight to safety position there, again I think attached to trend #2 (down). However near term signals are mushy, I think the market would have to pop above the SPX's Friday intraday highs before we started seeing really strong negative divergences in the averages and strong positives in Treasuries in the faster charts )1-5 min).

That's it for now, I'm still looking for some more short term upside that can be used to set a bull trap in essence, that leads us in to trend #2.

as always though, I'll be looking for the message of the market in underlying trade and bring you any changes that I see that I think are material.

Have a good night, I will update is anything changes.

Sector Rotation?

I'm not sure I would have expected to see any sector rotation and I suspect it has more to do with a NASDAQ 100 level or AAPL than rotation, but there's some evidence that Tech will perform better (on a relative basis) than financials.

The S&P-500 closed at -0.32, the index is more closely associated with Financials than any other because it has more Financial weighting than any other. The NASDAQ 100 closed at -0.28, not a big difference, but as you know the NASDAQ 100 is the most closely associated with Tech and specifically AAPL which at last check carried nearly 20% of the entire NASDAQ 100's proprietary weighting, yes it's a trade secret that you can own with a subscription to NASDAQ for  a mere $10,000 a year. In any case it always seems to come out sooner or later.

To give you some idea of how much weight AAPL wields over the NDX, if you took the bottom 50 NASDAQ 100 stocks according to their weighting and combined all of them, they'd have roughly the same wight a AAPL (at least at last check). It's the same with all of the averages so if the Plunge Protection Team wants to hold the market up they don't have to buy thousands of stocks, just s few carefully selected stocks among the major averages that have the most weight (influence over the daily percentage move).

We use to see this a lot with AAPL until everyone in the Hedge Fund community saw that Dan Loeb no longer held AAPL among his top 5 holdings and every other hedge fund raced for the same small door all at once. You may not believe it, but the reason 88% of hedge funds underperformed the S&P during 2012 is because of this very lemming-like response. Hedge Fund managers make a lot of money, you'd think they'd try to earn it, but what they really do is try to keep it. If you follow the crowd, then you don't stick out of the crowd, but if you strike out on your own and happen to strike out, you do stick out and risk losing your high paying job. Think about how many times we saw an accumulation period today running in to December 28th from several days/week before, it actually makes our job easier in some sense.

We get a pretty clear and very strong signal on a 4 hour chart (this is a super strong timeframe and represents heavy institutional activity) that tells us a lot of someones are selling in to AAPL's higher prices/top and then they keep selling as 3C follows price down. So all these funds doing the same thing actually created that signal.

In any case, the point is Financials vs. Technology in the very short term. It looks to me, even before I glanced at the two sectors that AAPL was hinting at some Tech rotation.

Here's both Tech and Financials...

Financials

 The very short term chart (1 min) shows a pretty ugly picture in Financials over the last 2 days, it looks like there's a fair bit of distribution and not much support under Financials.

 On a 5 min chart that afternoon move up went negative pretty quick also suggesting there was selling in to any strength and not by retail.

Technology

 The 1 min chart is Tech looks a lot different doesn't it? The recent trade today looks more like there's been accumulation there.

Ultimately though the 10 min and longer charts are the highest probability, they show the heavier action and this leading negative divergence in Tech suggests that any short term strength as seen on the 1 min chart above is likely very short lived a it will likely be sold in to as well.

This is why when looking at AAPL I prefer an options position over a straight equity buy, I feel the probabilities are decent for AAPL to make a move higher, but I also feel the probabilities are decent that it is short lived so the extra leverage of options can make the trade's profit potential worthwhile.

AAPL Charts

These are all pretty much short term signals...

 1 min

 3 min

 10 min

 5 min

15 min

AAPL February Monthly $520 Call

Opening VERY Speculative AAPL CALL

This is VERY speculative and probably will be a trade that is closed tomorrow I'm guessing, but I see enough short term positives and with what I expect from the market short term, it makes sense. Remember, speculative and probably very short term.

I'll post the details on the strike, but February will be the expiration.

Leading Indicators Called It

Today is one of those days that I have so many emails, it's such a crucial area in the market and at those areas I want to be looking at trade ideas that are timely and well set up, that I often get overwhelmed with things to do and miss something that I never want to miss.

In all my years in the market, I have found that it's often a very small detail that is only seen in a fleeting glimpse that gives you a huge edge. If I remember I'll tell you about the 1 minute I was in the exact right spot at the right time and saw a fleeting glimpse that lasted about 30 seconds, yet defined an entire market move or lack of one that totally contradicted all conventional wisdom and if I had gone back to look at the chart that night, I would have never found this glimpse.

In any case, Leading Indicators were the place to be today, I looked at them early, but they totally called this afternoon move.

By the way, 3C has some interesting things to say about it so far as well.

I'll update the charts of these indicators after the close, but you'll want to see them. In the mean time I'm going to be watching the market's response and 3C's response to this, what I've been looking for all day...

GOOG Update

Friday's GOOG Feb $720 Puts are doing pretty good all things considered (choppy intraday-flat daily) so I'm fine with them. I'm also fine with the update, I'm not going in to the larger strategic update, if you need that-the original idea, I can dig it up after the close.

Here's today's update and once again, please pay attention to where the recent accumulation zone was, it's been a theme in every asset we've looked at today. Ask yourself, "Can all these different assets, with different versions of 3C and in all different timeframes REALLY be coincidence?" or does this give you some idea of how manipulated the market actually is?

 GOOG Daily Chart, just above a resistance zone just lie nearly every average and a bunch of bellwether stocks. I don't know if it will hold, but on the daily chart we also have a Harami (bearish-downside) reversal candle pair from Friday and today, in the west it's known as an inside day.

 The 1 min chart's trend, this is where the 1 min chart can be influential, it's clear as GOOG pops above that resistance area 3C goes clearly negative strongly suggesting selling in to the demand created by retail Technical Traders chasing, oops I meaning buying a breakout because it is confirmation.

Oh, note the leading positive divergence and the date, 28/31st of December.

 2 min chart also going leading negative at the same area, it made a new leading low today, also note the accumulation area -right in to the 28/31st of December, the same time the entire market moved. It wouldn't be interesting if the signal happened as the market moved or after, it is interesting though when it happens before the market moves over and over again everywhere you look.

 A close up of the 1 min chart on more of an intraday basis of the last 2 days, we have a little bit of a positive divergence intraday like the SPY, etc.

 3 min chart's trend, again the accumulation zone in to the 28/31 and then a leading negative divergence at a new low on the chart as GoOG breaks above resistance, in a healthy move 3C should be right up there with price making a new high or even leading it.

 5 min chart, again where's the accumulation, in green we have 3C/price confirmation until GOOG breaks out, then a leading negative divergence hitting lows lower than the accumulation area.

The 15 min chart shows the same accumulation area and the same leading negative divergence on the breakout. I could stand to watch this 15 min. get worse on the downside, but that's actually a lot of movement for a 15 min chart in such a short period.

I'm going to switch templates and look at leading indicators now that the SPY and others are moving in the right direction short term.

Now We Get the Move

The move up, above Friday's SPT highs, why? Because the SPY 1 and now 2 min are positive, 1 min can be consolidation only as we have seen much of today, but add the 2 min and it's almost always a move.

Add to that QQQ 1, 2, and 3 min and IWM 1 and 2 min, the DIA is less of an issue.

Both ES and NQ futures are also moving to their strongest point of the day, still not very impressive, but a change.

HLF Follow Up

This was a potential short squeeze trade, many of you made quick hit and run profits on this, but a real short squeeze never materialized, I realize HLF is a fair bit higher, but not typical short squeeze. There were at least 3 major players short HLF and they made it publicly known, which is what bother me and made me thing there's a set up going on here, pros would never volunteer their positions without being forced to or having a good reason to. If people think HLF is going to be hit by a short squeeze they are going to buy, when they buy they are creating demand and doing it in to higher prices.

I have suspected the original players are shorting in to this move and plan on riding HLF lower, the short squeeze trade just gave them demand to sell in to, at least that's the way I see it, volume certainly doesn't argue against that idea.

So we've been watching HLF for a potential short entry, we may be getting close to one, take a look at the updated charts.

 First the market via the SPY because this actually has something to do with the HLF set up for a short position. This is the 1 min SPY positive intraday chart, "IF" it had any real strength behind it that strength would migrate out to longer charts like the 2 min, 3 min, 5 min, etc and they would be positive, but...

 As you can see by the SPY 2 min chart, there is no such strength (at least as of now and that's the data). This still suggests 1 of 2 thins, a continued consolidation area or a move to the upside which is what I would expect of the market unless they did everything they needed to do during the last 30 mins of Friday. If the 2 min chart were positive, I'd say a move up is almost inevitable.


 Now HLF's 2 min chart shows a strong positive divergence at the very lows of HLF, there was a ton of volume there and I suspect these 3 institutional shorts covered right there at the lows and then started talking about their short in HLF. As it has moved higher the 2 min chart has grown more and more leading negative, now there's a range and this is where we most often see divergences, there's a reason for that, think; "Filling orders and VWAP".

 The 1 min chart today only went negative at the opening highs, the rest of the day it has been in line.

 The 10 min chart is now also leading negative.


 As is the 5 min which uploaded incorrectly, it should be above the 10 min.

 Even the 15 min is going leading negative now. This is migration of a divergence, this is how it works.
I'm a bit hesitant to short HLF here in any other size than speculative until/unless the 15 min gets a bit worse and/or something happens that I will describe below.

 The 30 min chart has no long term surprises, it is moving in line with price, if this went negative I'd be interested also. I don't think it is a matter of if, but more when.

We now have a range that has formed, a head fake move above the range with the 15 min and other charts going even more negative would get me to bite, so I'd set some price alerts for that breakout if you re interested in the trade. I'd say we see head fake moves like I'm describing above at least 80% of the time on a reversal, we also see them in every timeframe's reversal and they are typically commensurate is size with the trend and timeframe.

So if you are interested, I'd be watching for that move and if the market can make a move higher above Friday's highs, that may help HLF to make its move.

I'd keep it on the radar as I have suspected this one is being set up since I heard them talking about their position there.

Intraday Market Update

I've been arguing for a move back above Friday's late afternoon breakout, the entire point of the breakout cannot be fulfilled in 30 mins. at the end of Friday, the intraday short term charts are now even more positive then they were and I think the move happens, but past 1 min charts no strength has developed in other charts, that means any move up is a manipulated move, there's no real strength behind it and this is where I really want to watch for places to add positions and for a fast reversal when it comes.

Here are the intraday charts, all 1 min because there's not even 1 2 min positive chart.

 SPY 1 min stronger leading positive

 NASDAQ Futures 1 min starting to lead positive

QQQ 1 min leading positive at a stronger, higher high. This should move the market up, but it's  deceptive move and a gift for us.