Market Wrap

Today was really about one particular pivot, you might say AAPL, but AAPL was yesterday, we took our profits in the calls, expected AAPL to not do so good and expected the NASDAQ to take a hit as well, this wasn't arbitrary opinion, this was in the AAPL and QQQ charts. I didn't expect this much of a dive in AAPL or the Q's for that matter, but first thing this morning we could already see that the Q's were going to try to fill some of the gap, in fact last night we could see that in the NASDAQ futures as the 3C chart was positive.

However, the markets have recently become quite comfortable trading in dislocated fashion: NASDAQ 100 -1.40%, Dow-30 +0.33%, Russell 2000 +0.38% and the S&P-500 +0.03%. Sector rotation? Hardly. We got pretty good at predicting which index was going to do what last week and that has continued as they are giving pretty clear signals, but it's a far cry from the normal correlated risk on or risk off that we are use to seeing, that's because the market is dynamic, things change quickly and over the course of a couple week a new and profitable resistance area is formed, while al the other averages moved through theirs, it wasn't until yesterday that the QQQ moved through its-after more than 2 weeks! Does that seem strange to you that the Q's couldn't reach this goal until the day before they were to plunge?

 There's the range/resistance and it matters because why? You can review the first two parts of the 3 part series I'm finishing up or if you haven't read them yet, they'll help you understand why it was so important for the Q's to break above a range of 14 days (almost 3 trading weeks) before it was to take a tumble.

Part 1: "Understanding the Head-Fake Move: How Technical Analysis Went From An Asset to a Trap"

Part 2: "Understanding the Head-Fake Move: Motivation"

Some may call this skeptical, some may call it paranoid, some may understand that this is years of work and research and bigger than that, putting aside all that I knew about the market to open my mind up to a fresh perspective that was fact based.

During the range, the 60 min QQQ chart ( a very strong timeframe for underlying institutional trading) was also range bound and not doing much until just before yesterday, we see a fairly strong accumulation move at the white arrow (institutional short term traders buying the Q's) and then a strong distribution cycle starting yesterday in to higher prices (institutional short term traders selling the Q's  at a profit and likely shorting it as well.

That's the evidence, it doesn't matter what I think, it's right there for everyone to see.

I digress... The driver of action today in the averages that didn't have a nearly 20% weighting in one component stock of 100 (AAPL and the NASDAQ 100) were largely moved by this pattern that I have been talking about for over a week and have been saying the last few days that it's coming to a head.

 Here's the large triangle in the EUR/USD that formed after two vertical runs, then just went in to consolidation, forming one of the best known price patterns ever, the symmetrical triangle. The Technical expectation of this pattern forming after the preceding trend is that of a consolidation/continuation pattern, meaning it is expected to break to the upside and that it did, but as I pointed out earlier, "Assume it was going to ultimately break to the downside, they'd absolutely take advantage of traders' biases and run the orders/stops above the triangle".  There is an event coming up that would cause a consolidation, in fact, ironically after today's breakout the event is tomorrow, but this consolidation is way too large for even that, however it's not unusual to see a flat price range like this during distribution.

This was the pivot for the market today, not AAPL as it has been for years.

 Being we are so close to the apex, the range to break the support of the triangle is only about 80 pips, so as I said numerous times today, "I don't expect this to be a clean cut affair, I expect lots of game playing" and the support and resistance areas are close enough now because of the mature apex that this becomes a practical possibility.

 As for the Euro driving the SPX, just take a look, the SPY in green and the Euro in red-that's a pretty tight correlation right up to the point in which the market took a dive around 11 a.m. However as I pointed out in real time, the 2 pm countertrend move to the upside in the market had its roots in the Euro and not so much in any kind of positive divergence.

 Here's the 10 min SPY 3C chart showing the top of today's move at a negative divergence or distribution and then seeing  leading negative divergence, essentially strong distribution which is part of the reason the correlation with the Euro was broken, but we did see that end of day move back toward the FX arbitrage correlation.

However, even on the fastest, most sensitive 3C chart (1 min.) there's no sign whatsoever of a positive divergence to turn the market up in to the late afternoon, that was first led by the EUR/USD and then momentum as the SPX crossed above yesterday's close to the green zone which brings its own momentum. Before this even happened it was predicted to happen, not because of any special knowledge other than basic market behavior.

Just as AAPL and the Q's rallied yesterday before they were to dump on disappointing AAPL earnings, the move in the EUR/USD also seems interesting as tomorrow before most of us wake up; I know there are those of yo in Australia, New Zealand, Japan and Europe, but for those of us on the left side of the pond, the market may look very different by the time we wake up. Why?

The ECB's Long Term Repo Operation, better known as LTRO. tomorrow the European Central Bank will release data on early repayment of LTRO loans, you may remember the operations in which the ECB took increasingly junky collateral from banks in exchange for 3 year 1% interest loans in what Sarkozy thought would spark a carry trade with sovereign debt as the buy. The idea went something like this, the ECB gives out the loans at 1% interest for 3 years, the banks take the money by putting up A rated (the second LTRO took less than A-rated) collateral for an interest rate of 1%, then the banks would buy sovereigns like Italy, Portugal or Spain yielding between 5 and over 7%, thereby driving down the borrowing cost for the sovereigns and preventing more bailouts.

Did that happen? NO! Instead what happened was the banks parked the money in the ECB's vaults at 0.75 interest to the point that the ECB's deposits reached an all time record high as the banks were willing to carry a -0.25% loss just to have access to the liquidity, forget the carry trade.

Tomorrow the ECB will tell us how many of these banks and to what tune, have made early repayment on the loans, the thinking going something like this:

1) If there's not enough repayment the market will take that as the banks still have a liquidity/capital problem and the market and EUR could suffer because of it, which could send the Euro down tomorrow and of course the market tracks pretty well with the EUR/USD meaning the market is at equal risk.

2) This is where it get funky...Too much is paid in advance creating a disparity between the ECB and F_E_D's balance sheets, driving the Euro higher at first. However the real reason there's fear over tomorrow is because Italy and Spain were among the biggest borrowers using their sovereign debt as collateral in LTRO 1, but since then their debt (collateral placed with the ECB) has rallied so if they choose to repay the LTRO loans early, they can benefit by getting their collateral back which is now worth more because it rallied and then cash in on it by selling it. If this happens, the fear is that it will renew upside pressure on peripheral bond yields as there's now more supply in the market, reducing demand, raising yields and making it all the more difficult for the sovereigns to issue new debt as their yields rise, perhaps to unsustainable levels which is the reason all of the PIIGS countries that have received bailouts needed them in the first place - their yields were too high to borrow in the open markets.

So the market is looking for repayment around $100bn Euro, any more or less and the market might not like it. My opinion, considering Draghi is an ex-Goldmanite (as are most of the power players in Europe) is that Wall Street already knows, hence Goldman's Euro $1.40 call (Goldman has some Euro's to sell apparently); if that be the case, it's little wonder the Euro moved above resistance today to hit orders as it would be moving below support shortly, within days.

Leading Indicators...

As far as risk assets go, the first half of the day High Yield Corporate and Junk Credit refused to follow the risk on move in the market, they stayed flat like they have been nearly all week, but for whatever reason toward the close both HYG and Junk credit did rally, High Yield itself did not, so I'm not sure what to make of that.

The $AUD dropped pretty hard right off the open and also didn't play along with the market in the early move up or really at any part of the day so that's a negative leading indication, Yields moved in line with the SPX nearly tick for tick intraday, but are severely negatively dislocated longer term, so that's another negative indication. Commodities had very little interest in taking a risk on approach early today or at any time today, gold and silver are still feeling negative pressure.

Futures...

Strangely we have some interesting activity tonight in the S&P and NASDAQ futures, when I see it I think back to my gut feeling since day 1 that trend 1 (the move up) reverses very fast, intraday most likely whereas reversals are normally a process, I have felt strongly this would be an event and a volatile one, so I don't know what the end looks like until we see the underlying signals, but the futures tonight are interesting in that context.

 Since the day session  ES has put in an intraday leading positive divergence, I'd think it plays out overnight, but who knows, maybe even in to the European open?

And the NASDAQ futures which I really think want to fill the gap, maybe get that chance as they are leading positive overnight. What's interesting is this seems to be a manipulated set up as no major markets or bond markets are open, but it is nice low volume and easy to manipulate, this is the perfect time. I'm very interested to see how this develops and where it fits.

The overall trend today in 3C was that of negative divergences adding to the already negative stance. The averages all have a sell signal on my custom indicator which gave a buy on the VIX yesterday, today was the first day the VIX didn't fall lower as the market moved higher, this was a clear break with recent trend behavior between the market and the VIX.

Past sell and buy signals in the VIX and yesterday's buy, no one who watched the VIX over the last week can argue against the much improved tone and reversal of trend in the VIX to the bullish side. The scary thing is all of the averages have sell signals like the orange that cover the entirety of trend #1, I've found the larger the signal (within a reasonable area), the more powerful the drop...

I'll update futures if anything exciting happens.

Lots of interesting things going on the last 36 hours.

UNG Update

UNG is a long term, long position that has a solid and fairly large base able to support a large move. I look at this as more of a long term investment rather than a trade. Most every one in the UNG trade has a decent profit even though we are still in the base.

Today UNG fell -2.35% upon the release of the EIA weekly Natural Gas report.

Released On 1/24/2013 10:30:00 AM For wk1/18, 2013 Prior Actual Weekly Change -148 bcf -172 bcf

Highlights Natural gas in storage fell 172 billion cubic feet in the January 18 week to 2,996 bcf. As you can see we had a draw of 172 bcf this week vs last week's draw of 148 bcf, this puts natural gas right about where it was this time last year.

After the 10:30 release of the report, there was a fairly substantial slide with large volume...

This volume wasn't entirely from the report alone, but included some stops hit as the 5 min candle crossed below recent local support triggering stops.

The daily chart still looks good and although this pullback was a bit more than I'd like to see in a day for a pullback, many of us have forgotten what a healthy stock trend looks like, that is to say they should include corrections, however over the last several years with F_E_D / ECB / PBoC and BOJ liquidity injections, few traders remember what a normal, healthy trend looks like as they think a, "Birinyi's ruler" trend is normal, it's not, it's a house of cards. Not to get too far off track, but every time they say, "This time it's different", it was said during the Dutch Tulip Craze, it was said during the South Seas Trading Company, during the one time when they had the most reason to say it, during the Internet/Tech revolution, they said it of Apple and they say it now during the "Great F_E_D Bubble of the 21st Century", but as Kevin Warsh (formerly on the F_E_D's board of governors) said so succinctly, "Policy accommodation is easy to get in to, it's exiting it that is the hard part", ironically that's how most 20th century bubbles burst, the F_E_D's withdrawing of policy accommodation which always happens. 

In any case, I strayed a bit too far.

As for UNG's daily chart...

At the yellow area we were able to confirm that break out as a head fake move and one that could have been sold in to and UNG could be bought back at lower levels. In my opinion, it was a necessary move as UNG is close to breaking out from a stage 1 base and moving to stage 2 mark-up or what you might call, "The easy money", but before it does that, there's going to be one last pullback, the big boys are going to top off the tanks just like we fill out positions at advantageous areas and it should make a run right through resistance and in to stage 2.

The 1/9 low was verified by heavy 3C accumulation and today's move really isn't a big deal when put in to context.

Using our X-over screen...

The recent bottom that 3C  is joined by a long X-over and today's move pulled back to the 10-day moving average which is very common for the first pullback within a new move. We may see a little more lateral consolidation before a reversal, but I don't see this as a problem in any way. In fact, looking at the 3C chart, it seems the pullback was planned before the EIA report came out unless the report was leaked in advance which EIA use to be fairly notorious for.

On the powerful 60 min chart we see the head fake breakout in yellow which was confirmed by a negative divergence and then the accumulation of the pullback at the white arrow which is the 1/9 lows and as you can see, a negative divergence for a move down (correction) was in place before the EIA report was released, almost two full days before.

Judging by this 15 min chart, I'd say we are likely to see a little "U" shaped price action in to a rising 3C positive divergence as other timeframes are migrating toward the 15 min chart. Indeed, this could be an opportunity to start or add to a UNG long. All in all, it doesn't look like anything to be concerned about and more like an opportunity if you are interested in UNG in the area.

AH Earnings

It seems in most AH earnings there was a miss of either EPS, Revenues or guidance.

MSFT beat on EPS, but missed on revenues and their Entertainment devices division (Xbox) was down 11% year over year. Guidance for 2013 was in line.

After a daily close with a Shooting Star (bearish reversal) candle with heavy volume, MSFT is trading down around -1.3% in AH.


AT&T just missed on EPS, revenue did beat consensus, they also reported activations of 8.6mn with 16% new to AT&T and talked about a $300 mn buyback. T is trading up+0.31% in AH after some initial volatility on both sides of the close.

SBUX was at consensus with EPS, revenues missed, they slightly lowered 2013 guidance. They expect margin improvement in the Americas and contraction in Asia. SBUX is up +0.46% in AH.

ES is more or less flat with the 4 p.m. close and has a slight positive bias intraday, but this is really nothing in the scheme of things and considering overnight.

NASDAQ Futures  are also about flat since 4 p.m. and 3C is in line with the 1 min chart.

It's still going to be largely about the EUR/USD and the JPY to some extent, even though their currency destruction did nothing for exports as we saw this morning.

This is the triangle in the EUR/USD I have been talking about, it was preceded by two nearly vertical ramps, they usually don't end well.

Around the time GS came out with their long EUR/USD "FREE" idea for the public, the pair went in to this triangle. Now GS has a $1.40 target so it sounds like GS has some EUR/USD to sell or they are shorting it, very possibly covering a carry trade.

If you look at the end of day attempt to ramp the SPX, yo can see it was driven by two things, first a move in the EUR and then the move above the SPX's close from yesterday which is first resistance. There was very little to no accumulation on that move so it doesn't look like there's confidence in buying here.

I'll be looking over the stats/ charts and also covering UNG and the Nat Gas report today in a little bit.

The one thing I kept thinking about today was selling the aAPL calls at a profit yesterday as AAPL took a crushing blow of over -12%

Market Update

The Euro itself is flattening out which was the initial catalyst for the loss of intraday downside momentum...

Here you can see the pair has flattened out and really is no longer the driver of intraday trade.

If you read the last post, then you can probably guess what the driver is right now, I'll give you a hint...

It's the first level of support/resistance for the day, yesterday's close, as mentioned in the last post, it was very likely that price would move above the area and not only that, but likely back and forth a few times.

This is the other chart traders are watching, the 5 min 50-bar ma , so this break above was as predictable as the break above first resistance.

As far as the signals go... There's a theme...

Th EUR/USd is still going to be the pivotal asset until it is settled which, well you know, it's such a common price pattern, there's a lot of room for manipulation.

Earlier I talked about the change in momentum that led to the late day upside above yesterday's close, that was almost completely EUR/USD initiated. There was some VERY short term accumulation on intrday 1-2 min charts, but not in all of the averages, once they made it above the resistance area momentum from retail took over.

The point being, the accumulation areas intraday before the reversal are so small, they were meant for the upside intraday move, they aren't big enough for anything else.

Volatility should continue, but it feels like the back has been broken, we'll have a better idea once we see the closing stats and charts as well as signals.

If you really want to see what's going on and how it's progressing, just keep your eye on the EUR/USD.

As far as the longer term 3C charts today alone, there was some significant damage done.

Quick Update

I'm working on a more complete update, but there's some softness in the momentum indicators and a bit in some of the very short term 3C signals. ES is also going negative here and NQ.

The last post explained just about everything that has happened since then.

The next post will have some charts that are changed already, but the gist remains the same.

Working with the Hints

OK, we've crossed an important level, a number of important things have happened today. The last post I mentioned an intraday change in the wind, I want to show you from the start of noticing this and what tools and hints I used through the present in which, despite the market having made a lower low since my last post, I am not convinced of anything intraday as of yet.

It's not so much the indicators as it is the concepts as many indicators can serve similar purposes.

 The first clue that there was going to be a correction or in this case a loss of momentum could be found in the NYSE TICK data, I have linear regression trendlines set up on the SPY above and the TICK data below and then I have another indicator at the bottom, TICK multiplied by price which also serves to highlight divergences, but you don't need all of this, you simply need the TICK data which is "$TICK" for Worden platforms.  You have to be able to distinguish whether or not there's a divergence between TICK and the SPX which you can do by drawing trendlines around the TICK. Here we see the TICK is stronger than the average suggesting a loss of momentum which can lead to an intraday reversal.

 The fact that price broke the popular 50-bar 5 min moving average also is a warning sign, not that you should jump in short as most traders like to use it, but a warning that there' likely to be volatility in the area as traders can be enticed in to positions with moves above and below the average as it is so closely watched. The Trend Channel did give a negative signal in red, the white is not a stop because it did not close below the channel, only opened there. However until the Trend Channel is clearly trending down, there's a lot of room for games, what the stop out on the channel told us was the easy money playing the short side is over.

 There are many different indicators that will work here, but on a 1 min chart I'm using a momentum indicator that went negative t the top and positive recently. I'm also using a fast Wilder's RSI (not the same as Relative Strength Index-RSI only, there's a difference as Wilder's RSI compares the symbol against its own momentum whereas RSI compares the symbol's momentum against a comparison symbol, you want Wilder's RSI).

 Looking at the rest of the indicators in this screen, MACD went positive, but note the very long settings used (26/52/9) to reduce noise and Stochastics which I use primarily for embedded signals was embedded during the downside momentum, but broke loose as the white box-all signals something has changed, albeit short term, bigger changes typically start with small ones..

 A VERY IMPORTANT piece of data is knowing which asset is the pivot asset for the day, yesterday it was AAPL, before that GOOG, today with the break above the nearly 2 week triangle in the EUR/USD, it is the pivot asset and many clues can be found in that asset alone. Note as we saw the initial signals above of changing momentum, 3C shows an intraday positive divergence in the FX pair.

 Here's the bigger picture of the breakout at the time...

 And a closer view-a break below the trendline and ultimately below the triangle is a huge bearish market signal, but since it's such a common pattern and every technician thinks they know how to trade it, they're going to manipulate and shake the tree hard.


 This is ES with 3C, it looks as if it is going negative here, but the fact that the 3C move down was even interrupted is a signal to pay attention to.

 After 15 mins or so, the EUR/USD 3C signal becomes even stronger and since has seen the pair move up in price a bit.

 The 1 min 3C chart of the SPY looks like everything is back in line, but the fact is momentum changed significantly from earlier.

What is probably one of the most important things to note is the fact that price in the SPY which was significantly higher and is now in the red, is not too far from the first resistance zone that traders will watch, that's yesterday's close at the yellow trendline. If thre's to be volatility to shakeout players as I have suspected since I first saw the EUR/USD triangle, this is a perfect area to do so.

However you don't want to get lot in the lines, always keep things in perspective.

Market Update-A Pause

I'm pretty sure this is EUR/USD related, but if you are looking at entering positions, you might hold off for a little bit as you may get a better entry. So far the 1 min charts in 3 of 4 averages have a small 1 min positive which generally leads to at least a lateral consolidation.

Whether they can muster more than that for a counter trend move, we'll have to wait for the market to give us the signal. I suspect we will see that as it's still early and as I said, this isn't going to be an easy or predictable situation, plus the ES futures look a bit stronger on the 1 min.

 DIA

 QQQ short term daily signals and the longer term yellow -larger signal, like a head fake as it was above the resistance the Q's couldn't break through for over 2 weeks.

SPY 1

Financials

Yesterday's post, "A Quick Look at Financials / FAS / FAZ" ended with the bottom line as new positions in FAZ (add-tos) have been on hold for a while,

"I want to see what the other industry groups are looking like, there's definitely an increased rate of deterioration in Financials."

That deterioration seen yesterday will be evident on the charts below, today is much worse, but you can see how the momentum shifted yesterday, again I do think this has a lot to do with the AAPL/QQQ move as well as some other things such as the massively Psychological level in the SPX of $1500, it's a magnet, there's a lot of money to be made just above $1500, which has since been lost.

First XLF, then the 3 leveraged long Financials, FAS which should look similar to XLF except it may have more extreme signals being leveraged and then the 3x short financials, FAZ which should be the mirror opposite of the other two and the signals are likely to be newer, at least the very strong ones as the timing is much easier when you have the entire depth of the book.

 XLF's daily candle is hardly  strong follow through/breakout candle, it' a bearish shooting star right now with pretty heavy volume which one would think was associated with a break to a new local high, but no...

 There was very little volume on the opening move above resistance, while I'm not a fan of huge volume as more subtle changes give us information that few others notice, it's pretty hard to ignore all this volume and price topping out.

 The 2 min XLF chart started with more downside 3C momentum yesterday and today started to cascade.

 Most interesting to me is the 15 min chart, it did turn negative yesterday, but it's not often one moves this deep in a leading divergence in one day, much less half a day.

 FAS (remember this is the long, it should resemble XLF above), 2 min

 3 min about as close as you get to a screaming signal with the time that its had.


 The 5 min is where we see more important signals and the deterioration here is notable.

 The 10 min leading negative is also a big move for the day and what I'd call a screaming signal, the only thing that makes is better and jumps off the chart more is a longer duration which is a function of time so it can't be held against the signal.

 Another 15 min leading negative and look where, consider the XLF volume today.


FAZ-(short) 3 min

 Remember I said "When the 5 min FAZ chart looks like the chart above..." in an earlier post, well there it is.

And a bit surprisingly, the 10 min chart.

Even if this is only for a short term trade, I think it's worth the risk here.

Going to Fill Out FAZ (Long)

Not only is FAZ moving toward that screaming level, FAS is at that screaming level, just in the opposite direction.

Stops can be placed not too far away, as you know I prefer not to have any one position have more than a -2% effect on the total portfolio size, that DOES NOT mean a 2% stop, you can have a 20% stop, it all depends on how many shares you buy. If you need a refresher on the concepts of the 2% rule, you can find it here. 

Charts for FAS and FAZ will be posted momentarily.

Macro Data Keeps Getting Worse...

The strong beat in Initial Claims this morning was in part due to the BLS estimating the numbers for Hawaii, Virginia and get this, California, the most populated state in the US. The BLS just guessed at what their data would be due to the holiday shortened week. Well that's one way to get a beat and when they revise it next week no one will care.

However there's no escaping this one, as you know the Philly F_E_D, the Empire State and the Richmond F_E_D all are in contraction and at levels (in most cases) not seen since 2009. Today the Kansas City F_E_D joins them in moving in to contraction.

FAZ catching my interest

It was just yesterday that we looked at Financials and they were looking close to being ready, FAZ is my preferred choice for a trade of a swing nature or perhaps a bit longer.

FAZ gave the opportunity this morning and it's very close to that screaming signal and it has the longer standing base divergence which would be right here....

This is the opportunity this morning, note the volume at an easy to spot support level, but not a very big support level for that kind of volume.

This is a strong signal, not quite screaming, but close

This is going to be a screaming signal as it already is, it just needs to last a bit longer...

When the 5 min chart below looks like the one above, then I think I'd have to make a decision and I'm pretty sure what it would be. However there's more to high probability trades than one ETF, so I'm going to  do my rounds again.