Daily Wrap

Today was really quite simple, if you followed Monday's posts then there weren't really too many surprises.

Monday there was a pretty clear sign that money was moving and had been moving for a while in to the safety of treasuries as profits are taken and longs closed, the money goes to a less risky asset, this may be part of the pre-F_O_M_C ramp, but if it is, that's only part of the story as all the trend 2 indicators were there before a F_O_M_C ramp would have started and remain, if anything they significantly deteriorated around what first appeared to be yesterday, but in looking around it seems late Friday was the real start.

Here's the September Pre-F_O_M_C ramp that preceded the announcement of QE3, it started right after the green arrow, the F_O_M_C announced QE3 (something the market had been crying for), then note the action after the announcement and remember the warning I ALWAYS give pre-F_O_M_C, "The initial knee-jerk reaction is almost always wrong".  As you can see the knee jerk reaction was to rally the market, the next day (red-September 14th) started with a continuation of the rally, but faded. As the market chopped sideways for the next month I kept gathering data as the signal at the time of the QE3 announcement was a clear negative. As the data kept coming in it became clear that signal was correct which took us down to the November 16th lows which started a new cycle.

As mentioned, Treasuries gave up a pretty big clue...

 TLT's 60 min chart was and is leading positive which confirms the negative market signals as money is moving out of them it is moving in to safe haven assets like Treasuries-"The Flight to Safety".

 What was interesting was the shorter term signals were getting stronger as mentioned yesterday, it almost became a call that I really didn't want to make as it would have been very rushed. Luckily I checked the inverse of TLT, TBT and saw something that told me, which I told you, "Don't rush, you have some time".

 Here's the time I was talking about, this is only a 2 min chart, but there's a positive divergence which is short term money flows in to risk on assets, this is why I said you have some time, a couple of you played TBT long today and did well, that's what I like to see, taking the analysis and working it in to trades that fit your style.

TBT long term though is confirming TLT's signal as there's a nasty leading negative divergence in the same area as Trend #1 and the same area as risk assets and the averages, TBT would be considered a risk asset.

However in pre-market this morning, things weren't looking good for the market, ES had seen a negative divergence overnight that sent ES lower and was sending the entire market gapping lower.

 From about 11 p.m. Monday night to 1 a.m. Tuesday morning there was a nasty 3C negative divergence in ES as it pushed higher, from there it lost about 8 points to hit the new week's low around 6:45 a.m. (EDT). The green arrow is the European open.

This didn't make a lot of sense to me initially looking at it because when we have signals in something that closes at 4 and doesn't trade overnight, those signals are almost always played out, so how were the TBT 2 min positive divergences going to play out with ES looking the way it did? I figured it might be the typical reverse ramp we see on the open from time to time, but it became very clear how the market was going to be turned around... Use the legacy FX arbitrage correlation of the EUR/USD/SPX

 Right in and around the open the EUR/USD ramped from green arrow to green arrow in a very short period of less than 30 minutes, after that the pair was largely lateral or consolidative the rest of the day, but that ramp as well as an early one in volatility did the trick. By 9:54 a.m. today I had already posted it and shown you what happened in another form of manipulation, if this happened 4 hours earlier maybe we'd not call it that, but happening right at the open, it was clear. In any case, this made the TBT signal from the day before whole again and there was time as the market wasn't going to break down immediately as I said Monday afternoon.

Just while we're at it, this is ES as of right now, it is a negative divergence, but it's still very early in the overnight session.

I mentioned the VIX was used as well in the early ramp, but like yesterday it couldn't be harnessed all day unlike the recent past in which pushing on the VIX was the easiest way to send the market higher rather than even fooling with heavily weighted stocks within each market average and it had the added bonus of taking advantage of traders moving their hedges out further toward the Debt Ceiling debate.

 This is the VIX (green) vs the SPY (red), early in the green box the VIX was pushed on which helped risk assets move to the upside, but later in the day the VIX was moving with risk assets as protection seemed to be bid up in front of the F_O_M_C, the second day in a row they haven't been able to push the VIX down like the first two weeks of the year.

 Here's the VIX's daily close, today is a little more bullish for the VIX (VIX typically trades opposite of stocks) as fear pushed the VIX off the lows, but still managed to close yesterday's gap entirely. We had actually seen real time evidence of this shift, I just hadn't put 2 and 2 together at the moment, but it was in the VXX and UVXY intraday charts...

 VXX with a positive divergence and most of it taking place between 1 and 2 pm, the same time the VIX turned away from the pressure on it to help the market and moved up starting at 2 pm.

UVXY, the leveraged version of the VXX (Short term VIX futures) gave an almost identical signal at the exact same time.

Important Leading Indicators/Risk Assets also continued to diverge significantly from the SPX today, the biggie was a continuation and acceleration in the divergence in Credit, the saying goes, "Credit leads, stocks follow".

 High Yield Corporate Credit fell yesterday, but really put in a quite noticeable decline today.

 Junk Credit was even worse with a one day move taking out at least 3 days of gains.

The asset, FCT, which works for whatever reason, remained negatively divergent in a large channel and headed down before touching the top of the channel.

So tomorrow is the F_O_M_C, there's two events, the 12:15 policy statement and the 2:15-ish press conference, each can move the market and in different ways as I have seen in the past. I don't think the market has any great expectations for policy changes, but any talk about changing or re-examoning the efficacy of Quantitative Easing may very well spook the market as this has been slowly rolled out over the course of the last 2 meetings and minutes as if the F_E_D is starting to think about policy normalization or the end game way before anyone expected, we'll see tomorrow if they continue to prepare the market for the end game or whether they have a renewed vigor as the economic data has been coming in in poor fashion despite what the mainstream media would have most think.

Get some sleep, tomorrow is a big day and remember, "Beware of the knee-jerk reaction", I know it's hard when you see a big move, but go back to the September F_O_m_C I posted above and you'll see as long term members have seen nearly every time, initial reactions are almost always wrong.

A Look at Gold/GLD

I always like to take a look at gold in front of an F_O_M_C_ meeting, it has been and can be one of the assets that drops a big hint in front of the meetings.

I remember a little over a year ago, I was in touch with a newsletter writer who also managed a fund, a few of you know who he is, his initials are B.C.

In any case, for a long time Gold had been like the "No Duh!" trade that everyone was buying, this fellow wanted to see what I was all about and I told him Gold's trend is in trouble, if I had profits I'd be a seller.

At that point you were a goldbug or you weren't, if you were, how dare anyone say anything contrary to "Gold is great!", after all over the last several years you probably made a small fortune, so I got a dismissive email more or less and never really thought about it again, but a year or so down the road and the situation has a totally different perspective.

 For years GLD's obvious trade was buying it at the 150 day moving average as yo can see by the white arrows, we were looking to buy GLD in late 2011 on the next pullback to the 150 (yellow arrow), but after seeing how it ran up in volatile fashion, I didn't like what I saw and we waved the long trade off, not long after the 150 m.a. that had held for years broke and quite a few people got run out of the trade. This was around the time I was telling this guy that I wasn't big on GLD at the time, it had put in at least an +80% return since the trend until just before it got very volatile and since it has returned about 5% long over the last year and a half, that's what I call "dead money" and open market risk.

 I could see the volatility that was a definitive change in character and you probably can too, but just in case, I put a linear regression channel on the trend and you can see the upside channel buster.

I know a break out of the channel looks strong, but more often than not after a trend this long, it's a sign of the volatility associated with a top or the end of a trend so while most people are excited to see their asset fly, if they don't take profits in to the strength, they're likely to take a decent loss as changes in character (even seemingly bullish ones) lead to changes in trends.

 Whenever you have a big triangle like this after an extended uptrend it is a top 90% of the time or after a downtrend it is a bottom, they are way too big to be consolidation patterns, although many technical traders still look at them as such so if you were looking at it that way then you were expecting a breakout to the upside starting the next leg of the trend up. Instead, GLD broke down below the triangle, I can't recall if we bought it there for a long trade knowing it was a head fake move, but I know for sure we shorted the next breakout to the upside with puts and made something like +211% in about 3 days as GLD made one of the biggest 1-day moves to the downside in its history-now you have a true "Crazy Ivan shakeout". The problem has been GLD just hasn't done much so the way I see it is as a swing or options trade until it proves different.

 The daily 3C chart is pretty much in line with the uptrend at the green arrow, we saw the first significant daily negative divergence at the red arrow where 3C should have been up around the yellow hash mark, this was one of many signals telling us not to be a long term buyer. The current signal is within a small leading negative divergence, but this is a very long term daily chart.

 A 30 min chart is more manageable for near term trade, the red boxes are the kinds of trades I'd like to hit in GLD with some leverage, it looks like we have a positive divergence and trade building so I'll keep the open long GLD open a bit longer, but I'd like to see a pullback and some better signals, then it may be worth a shot with options.

 The 15 min chart tells the story pretty clearly and tells us the current position looks pretty good, still that gap can be filled and would almost certainly be an opportunity.

The short term 3 min chart looks like a pullback in to the gap is not out of the question, so we'll keep an eye out for that, if the charts still look good like that 15 min, it may be worth a longer options trade or a swing trade, perhaps a leveraged gold ETF.

In any case, as far as the F-O_M_C goes, I don't see anything standing out. As far as that old trader goes, I wonder what his position is in gold now? Some of you might know, send me an email.

AMZN -VERY INTERESTING

I'm not making any prognostications about price in after-hours or what it means, but it is getting progressively more sloppy as the after hours session continues and what is very interesting is the fact that we might indeed get our entry and for the already established positions, like I said earlier, AMZN isn't infallible, MSFT wasn't, oil wasn't, gold wasn't and AAPL wasn't.

Before we get to the actual earnings, lets take a look at the AH chart...

AMZN had an after hours low of $249.50  which is down about 7% after the close today which was down -2.85%. The AH high was $290.49 and is currently at $284.51 - up +9.28%.

The first thing that popped out after I let trade settle a bit was a wedge that hit it's apex right at the AH high, volume was correct for the wedge as well, a bearish wedge in fact. I've seen a lot of these on daily charts and many are created, this one I would think is organic or the real deal, I can't see an algo being programmed to create that pattern in the chaos of after hours trade.

I have no idea where AMZN will land when AH trade is over and it's not that important to me, what is important is what happens tomorrow, I'd like to see a move to the $276+ area. Remember the chart posted before the close, this isn't the kind of chart that spells support.

So we'll see about that.

Now as to the actual earnings...

Missed on revenues
Missed on EPS
Guidance for Q1 was LOWER (This is usually the most important component of earnings)
Book Sales saw the lowest growth in 15 years
Worldwide net sales growth on a y/y basis was down to 23% from 34% a year ago
The Last 12 Months Net Income is officially negative in a huge plunge since 2010.


That's a stinker of an earnings report, but I've seen a lot of interesting ones and AH reactions, that's why I said earlier today that tomorrow will be much more important unless smart money could use this to their advantage, it seems to me they could with prices up like this.

Earnings aren't about what you did unless you consistently miss or beat and something changes, it's about perceptions moving forward.

I'm pretty excited about tomorrow and the weeks and months to come.

AMZN Earnings

The reason I don't care too much about after hours trade after earnings is because in very few circumstances is smart money going to be active in a market that is extreme and reduced liquidity unless it's to their benefit, they aren't chasing anything.

The other reason is we have seen after hours do one thing and sometimes pretty extreme and the next day do the exact opposite and just as extreme. I feel good about a partial position in AMZN in place (short), I hope that we get the opportunity I mentioned earlier today.

Take a look at this chart...

There's a problem there, the thing is it looks like a lot of other market averages or stocks, but the fact still remains, this is AMZN's chart, not the market's.

Index Trades

As you know this has been a reliable source of income on a short term basis using options, picking the next day's rotation from one market average to another.

If I had to, I'd go with the Q's and probably the IWM, but this is one day in which I'm not at all comfortable taking any of those trades. I get the impression there's early strength before the F_O_M_C (maybe not as much in the SPY) and I'd be worried about them changing course late morning.

We have had a number of successful trades, even AAPL from Friday, on 1-2 min positive divergences, but they were really there and really strong for their timeframes, which correctly told us they were short duration trades as none lasted more than a day except for AAPL so far.

I don't even see that minimum of probability, except in BIDU.

Watch for AMZN earnings tonight, the after hours trade is irrelevant to me for the most part, it's what happens tomorrow and if I have time I'll get up some charts that address that specifically.

Leading Indicators remain on trend

High Yield Corp and High Yield are both still lingering near the lows of the day for the second day of solid disconnection from the SPX, Junk credit is reaching toward new lows on the day, not at all inclined to follow the "apparent" or "seeming" enthusiasm in the SPX.

The $AUD which seemed to also be a part of the opening FX pump to get the market out of the overnight funk it was in is also turning and has not kept any sort of pace with the market. FCT is also headed lower in it's bigger picture trend.

The only thing moving and probably supporting the broad market is the EUR/USD which put in a new leading negative divergence(unfortunately we don't have a great way of seeing divergences there other than the 1 min timeframe).

Red is negative divergence, yellow is lateral consolidation, the pair seems to be fighting to keep the SPX on track.

It's odd to look at Leading Indicators and see them still moving in a bearish direction as there have been so many months of seeing the initial early readings only to see them scrubbed later in the day.

The plan right now is try to make some short term upside in stuff like BIDU or AAPL calls and then look to reverse them quickly so long as everything remains in position, probably tomorrow, probably before the F_O_M_C

Talk About Sentiment Indications

Which we have been noticing lately as some like the AAII bull/bear spread jumps to 28, significantly above the 18 that has marked past tops.

We get the following today which can really lead to a pain trade...

NYSE Margin Debt Rises To Fresh Five Year High As Short Interest Slide Continues

If this isn't the complacency the VIX represents, I don't know what is.

Volatility: VIX, VXX, UVXY, XIV

I'm very close if not at the point in which I want to look at filling out the VXX equity long.

I'm even close to considering a VXX Call position although I'd rather give that about a day more, perhaps a very small speculative position that can be added to?

In any case, here's VIX and volatility related assets. First of all, all the stops were pulled, it looks like not only was the EUR/USD used this morning and again this afternoon, but the VIX also looks like it was used as it had been pretty consistently toward the first half of the month to prop up the market.

 The VIX vs the SPY intraday today, yesterday the VIX correlation that was used the first couple of weeks consistently in the market was totally broken, today it looks to have reappeared to some degree, but not anywhere near the area the correlation would suggest, I could read in to that as VIX strength/market weakness, but I won't at this point unless I can find a way to verify it with real data.

 Interestingly though as we move from what was a relative positive divergence, today we have a leading positive divergence which cannot be fully appreciated without comparing it to a past positive divergence as this leading move changes the entire chart's scale and makes the move look more normal than it is.

 Remember yesterday I was talking about the momentum change in important charts over the last 2 days, this leading 30 min is looking pretty darn strong and it's confirmed.

 The leveraged UVXY is also shooting to a new high in a leading positive in to lower prices, the divergence is perfectly placed vs price today.

 And UVXY's own 30 min leading positive divergence.


 XIV kis the inverse of VIX, VXX and UVXY, therefore for confirmation of the above charts, XIV should throw off the exact opposite signal or thereabouts. The 1 min

 I didn't want to draw on this 15 min chart because it's so obvious where the divergence is.

And out to a 60 min we have a new leading negative low that goes back beyond October.

I'll let you know if any positions are changed, opened or closed.

BIDU Update-Improvement

It's a bit hard to believe that as the market is seeing some negative divergences that need to be defended that BIDU is improving at the same time. Almost all of this improvement is over the last 20 minutes.

 We had the 1 min...

 Now the 2 min joins with a leading positive move.

And the3 min follows, now the 5 min chart is where the divergences stop so it is still intraday or short term, but it looks better now than it did just 20 minutes ago. I told you the market moves fast.

Quick Market Update

At this point we are really only looking at short term intraday charts as the damage done last week has made it very difficult to move those longer term, more important charts.

There's negative intraday signals in the SPY, the DIA, the Q's to a degree, but the IWM looks by far the best, I almost think there's some rotation in to the IWM as we have seen happen over the last few weeks.It's the longer term charts now that have changed the dynamic as they are a significant drag/anchor on any moves which have been short in this low ATR environment.

It seems someone noticed the distribution and is trying to support the market again like they did this morning on the ugly pre-market futures and opening ramp via the EUR/USD.

After a long 1 min negative divergence and a long sideways consolidation, but only after a 9:30 ramp, it looks as if they are ramping the currency pair again to try to support the market as it hits a new high for the week.

I'm going to look at volatility and treasuries and see if the market has a chance and if there's a trade there perhaps in the IWM toward the end of the day.

BIDU charts...

There are a few different perspectives and I wanted to update all of them as we haven't looked at BIDU in a while, but I also saw what looked like an opportunity now and wanted to get it out.

 Since BIDU has no local resistance (yellow arrow) like almost every other average or asset to target, it targeted larger resistance from earlier in the year confirmed several times (red vertical arrows), the move did what any head fake move should do, although I'm hesitant to throw that around loosely in BIDU's situation currently, and sent demand soaring. The part of BIDU's daily chart I don't like is the look at the early 2013 highs and the more recent highs of a "Tower top".

 BIDU was one of out Q1 2012 Core short positions and we shorted it at the orange arrow, you can see the negative leading divergences in each of the red boxes and a leading positive on this 60 min chart recently. There's no negative on this 60 min chart, that's why I'm careful as to how I classify BIDU.

 At the 15 min chart there are clear signs of accumulation at the reversal point which are sharper than the ones on the 60 min. as the shorter chart offers more detail. There's also some recent negative divergences which mean there is some distribution in BIDU, especially as it crossed resistance where demand would be, so smart money took advantage of that demand and was able to unload some shares. At the second high of 2012 (that looks like a tower top) there was more distribution, but distribution (the selling of shares) doesn't mean reversal, if you have 1 million shares and sold 200,000 at strong demand and higher prices, you engaged in distribution, but you still have a decently large position open long-this is why we have to look at a lot of different timeframes, a lot of market behaviors and other clues to determine when we are near a reversal rather than in the very early process of getting to one.

 Locally on a 5 min chart there was a little head fake move that was sold in to sending prices lower, allowing a restock of short term trading shares to move BIDU up again in which some more shares were unloaded.

If I were long BIDU since the trend started (up), I'd probably consider taking some profit, but stay long. If I have no position I don't want to enter BIDU here, the probabilities aren't stacked up in your favor. As a short, I don't see it as a high probability short either, but there does seem to be a trade available here,

 3 min chart just so you know where divergences start and end...

It's this 1 min chart and the flat area with a leading intraday positive divergence, this looks like a decent short term trade along the lines of AAPL, maybe shorter, but it's enough that I would take it, but only as a speculative position.

We'll see what happens here

Went with BIDU Feb $105 Calls-Speculative

BIDU Trade-

For the very nimble, you might consider a speculative long, either BIDU or calls, this could be as short as a day trade. I'll fill you in on the charts next, but it looks ready to go right now, have tight risk management in place and remember a short term long trade.

For You AAPL Longs...

This is exactly what I was afraid of with AAPL as a 34% options gain can disappear or be substantially reduced pretty quickly. It's not so much the move down at the yellow arrow, but in fact the loss of volatility/momentum which is part of the pricing, the better the volatility, the better the price, you can have higher price tomorrow with flat volatility and have options worth less tomorrow.

The part that I don't mind taking a chance on missing is the red resistance zone being created, AAPL can still break above that and if it does, it will likely be a strong and volatile move, this is why I wasn't dead set on closing it, just in my particular circumstance.

There's still what appears to be gas in the tank for AAPL, although that is one of the timeframes I mentioned that could go wither way and may in fact be representing a longer, bigger trend that must see AAPL pull back to form a larger intermediate base.

If AAPL does break out on a volatile move, you might consider taking some partial profits, hopefully I'll be able to cover it real time.

Market Update

Earlier I mentioned in a market update,

"Using the SPY as an example the 1 min chart has a very clear, pretty deep negative divergence, the 2 min isn't so bad,"

What do I almost always remind you of when there's a 1 min negative divergence, but it stops there? The answer would be that there are two outcomes for intraday trade, either a correction through price otherwise known as a pullback or a correction through time, otherwise known as a consolidation.

Here's a fantastic example from earlier today... Once the 2 min or longer chart/s join the divergence, then it's almost certainly a pullback rather than a consolidation.

 This red square is about when I posted the update, you'll see below the 2 min chart remained in line with price and was not negative so the market consolidated sideways through time, a second negative divergence caused another consolidation through time.

The 2 min chart almost perfectly in line with price.

Right now price is getting ahead of the TICK chart so we may see a more substantial correction shortly.

The SPY and DIA are the only two averages that are trending above the 50-bar 5 min chart and in the Trend Channel. Intraday momentum indicators are all turning negative as well so you may take a look at any longs you may be playing intraday and pay close attention to trailing stops and if you are considering short positions, but wanted to get them at better prices, you may want to start thinking about that (although I'm still talking intraday today, not the complete bigger picture).

 the 5 min trend is much worse than what you can see here as this is shorter term, but the move up today as predicted by TBT yesterday has almost no support other than FX, by now a 5 min chart could have easily confirmed price action, but there's nothing to confirm, it's a hollow shell being pushed by first the EUR/USD and then its own retail momentum takes over. I don't see heavy distribution in to this move yet, so I'm guessing it's not done, which makes sense as I figured it for a 2 day move with the F_O_M_C tomorrow, I'd think it will run right in to the announcement, kind of buy the rumor/sell the news.


As far as the long term, the momentum in the 30 min chart is what I wanted to show you, but I decided just to show the entire move. The new cycle as you saw today in AAPL and in the past in the averages, had accumulation in front of it as it made a head fake new low at 11/16 that started the cycle. It looked like it was about to roll over until there were hints and then positive divergences that suggested Trend #1, a strong trend up, but much shorter in duration than trend #2 which at the time I expected to take out the 1/16 low, add the pendulum effect on top of that and we could easily have a -20% move in the SPX.

Individual analysis on assets like TLT and TBT as well as the VIX will likely fill out the market picture, don't forget about the declining Leading Indicators that have picked up downside momentum today in the same way 3C picked it up Friday and yesterday.

Look for the other posts coming, I do them separately because the charts change too fast with long posts, but do keep in mind all of the parts, as each part is a piece of the puzzle and when you start seeing a picture, you're probably right about to roll down the hill.

Leading Indicators Are Leading

In fact they are leading both short term as expected last night and longer term or at this point I think "Big picture" is a better adjective than "Longer Term", although I'm confident you know what I mean.

For example, in last night's "Daily Wrap" I mentioned an odd, late day spike in credit after it had been trending lower most of the day,

"the bigger picture of HYG's action throughout the day was very much on the bearish side, whereas the very late day action of very short duration was on the short term bullish side just like the TBT post linked above."

I was talking about the very late day action in credit confirming the very short term TBT analysis from yesterday.

 I have to fid a better way to scale the two assets as this doesn't do the reality justice, but yesterday credit was weaker than the SPX correlation, though the end of the day saw a spike out of nowhere which as I said above, I believe was a signal with regard to the short term analysis that I first espoused yesterday in this post- basically, "Don't rush, you have time". 

Today's move in High Yield Credit is showing that Credit which is typically a much bigger and more well-informed market, is not sharing the upside in the SPX  which if you recall, was created this morning after a horrible night in the futures,  by simply using the EUR/USD which also formed a tight triangle last night that I also thought would see a head fake move kind of like what we saw this morning to ramp the market RIGHT ON THR OPEN!

 Here's a closer view of HY Corp. Credit vs the SPX today, losing ground.

 Junk Credit did the same thing at the close yesterday and is performing just as poorly as HYG above, perhaps worse, never a good sign for the market.

 Here's one of my scaling problems, High Yield Credit has been flat for over 3 days, it should be scaled so it is much lower than the SPX in green, for now you'll just have to compare the two trends. Today is also seeing HY Credit take a dive after a fairly steady trend, although a negative trend compared to the SPX.

 FCT as mentioned last night is still trending in a deep leading negative divergence vs the SPX.

 The $AUD which has also been trending negatively as discussed last night in the Daily Wrap with regard to the Carry Trade pairs starting to fall apart. My guess is by the looks of things, pairs everywhere were ramped to get the market moving up.

The EUR/USD (as lined above from this morning's post) was definitely ramped and right at 9:30. Just looking at the ES futures pre-market, they looked horrible and under normal circumstances it looked like they were set to fall even more as the market (for the most part) gapped down, but the ramp in the EUR/USD is what supported the SPX, that's starting to die off a bit. Don't forget the small and large triangle in the FX pair, breaks below either will be notable events.