Currency Moves

I know for equity traders currencies can be boring, but they can also be the reason the market moved, damn what CNBC said.

We have some interesting movement and it seems to be largely based on the $USD, although the Yen is somewhat interesting, I will NOT be watching it until 3:45 a.m. like last week just to make sure we weren't blind-sided, but the Yen and it's pairs the EUR/JPY and USD/JPY are important for what is left of the carry trade, when you are trading currencies at up to 200:1 leverage and then buying stock, even a slight change can turn a trade very negative very fast, thus we watch currencies, plus there's the risk on/risk off provided by the EUr/USD which long term is in huge trouble (actually the market's reversion to the mean is in huge trouble, but it also effects overnight and intraday trade as the Euro tends to trade with the market and the other side of the pair, the $USD trades opposite the market (weak $USD =cheap stocks and programs buy/ Strong $USD = expensive stocks and programs sell). So it is important that someone keep an eye on them.

Tonight we have some strong movement mostly in the $USD, but a bit in the Yen which could become interesting if it keeps up. First here are the pairs.

 USD/JPY is seeing downside, this is not good for the carry trade and by extension the stock market.

 However the weakness seems to be in the $USD as seen here in the USD/CHF

 And the EUR/USD-the pair moving up means the Euro is higher, $USD is lower.

Now for single currency futures.

This is a 3C negative divergence from last week just before the BOJ announced their policy decision, 3C was correct here.

 Now the longer term 3C is indicating the Yen may be in trouble with a large positive divergence

 And the Yen is moving right now, so far interesting , but not alarming, it could grow to alarming.

 The Euro has a positive divergence sending it higher, this is generally good for the market because it means the $USD is likely down.

And here's the divergence in the $USD, the negative is quite sharp.

So far the Market Index Futures haven't moved much, although all have significant negative divergences in them short term.

More on the AGQ / SLV trade

I knew I liked SLV and GLD and I knew I wanted the ETFs (leveraged) rather than options because I thought we'd see more of a longer term trade and I'd prefer to be able to just hold it than jumping in and out with options.

What I didn't know until just tonight is that the short interest based on the Silver Futures COT (Commitment of traders) data has only been this high 5 times in the last 20 years, 4 of the 5 saw significant short squeezes.

Here's the COT data with the last 5 times in 20 years and the performance.

The one time silver fell after hitting this level of short activity was after a long and steady rise in short interest, not a spike up like we have now.

The average trade return, +40.5%

I knew there was something I liked about my least favorite asset to trade, as mentioned in today's update I left the leveraged ETF long positions open in Gold and Silver. I think we have a little more work on the consolidation side, but it seems we are close. I personally would have no problem buying in this area.

Low Volume. Levers and Algos Gone Wild

Wouldn't you just know it, a 14th day and officially 3 trading weeks...

For 14 days now the SPX has closed up then down, then up, then down, etc... I'm going to say there's a larger reason behind this, if not intentional.

Other than multi-day, daily divergences are the strongest of all, here's the SPX in that area with a staggeringly strong negative divergence, ever hear of churning? Usually it's on a daily basis (1 day), but the market is fractal.

Now before you just throw out my algo argument, consider these facts... I was expecting a move higher as of my first post this morning, when said move came, I immediately said something wasn't right or normal with this move, it was too "Forced" as seen in this post, "Not 100% sold on this move" . 

Now consider this, TODAY WAS THE LOWEST VOLUME (NON-HOLIDAY) DAY OF THE YEAR! PERIOD! That means it's exceptionally easy for an algo to push the market around or just  normal algo's trading is exaggerated in the market.

For those in the "Every gap is filled camp" which is increasingly true at an accelerated pace, all of the major averages completely filled the gap  down from last Friday's Non-Farm Payrolls gap down.

So LOW VOLUME + SHORT TERM MARKET LEVERS + CARRY CURRENCY JPY = THE MOVE WE GOT TODAY THAT WAS NOT TECHNICALLY SOUND JUST BASED ON VOLUME ALONE AS WELL AS AVERAGE TRADE SIZE EHICH FURTHER PROVES ALGOS WERE AT WORK.


So here's a look at what seems to have been a truly beautiful example of what algos can do on THE LOWEST NON-HOLIDAY VOLUME DAY OF THE YEAR.

There seems to be no doubt about what triggered the algos, while everyone thinks the SPX is the index everyone in the market watches, it's actually the Russell 2000, even in Bernie's Congressional testimony he doesn't say "Look at the gains in the S&P", he said, "Look at the gains in the Russell 2000" because its a broader array of stocks more representative of our economy, so Bernie let it slip, although there was no harm, but you see what he's looking at.

So the R2K futures along with the NDX futures crossed VWAP at the same time...

 TF-The Russell 2000 Futures cross VWAP and the market takes off, we could do a whole post on VWAP and how institutional traders, Hedge funds, investment banks, etc all judge the fill a particular market maker or specialist got them by judging against VWAP, to sell at the top of the channel is an excellent fill and those middle men will be getting more business and it appears that's exactly what was happening up there, this is why I didn't want to chase the market (I never do) and at the same time I didn't see this as a massive distribution event either, volume was extremely low in the market, it was easy to move it.

 Here's the NASDQ breaking above VWAP, the SPX futures had already moved above VWAP, but didn't spike to the upside until the R2K and NDX futures crossed.

As for distribution at the top of the channel...

 This is the negative divergence in the R2K futures which is indicative of selling at VWAP.

The NDX futures also seeing selling on the way and at the upper VWAP channel

And SPX futures selling at VWAP.

As for some of the market levers that were used (although it doesn't take much on such a low volume day)...

 The Yen is questionable whether it played a part or was just picked up by some arbitrage program, but I suspect the Yen in orange played a part as it made a pretty steep new low as the SPX was making the opposite high and ended down 1.8% on the day vs the $USD-that's a bit too convenient.

The Euro as mentioned earlier today is in a very supportive position, this was one of the charts cited earlier today when I was expecting a move higher (but this is not the way or the move I am expecting). However later I'll show you why I chose to hold and be patient here as the Euro was helpful, but also giving some near term signals that suggested we just be patient.

 As I said, Volatility via Short Term VIX Futures (VXX) was definitely used (this is 1 of 3 assets that makes up the CONTEXT SPY Arbitrage model, the other two being TLT and HYG). You can see VXX was definitely used as a lever to help push the market up as you compare the SPX high to the left at the green trendline and today's high and then compare VXX with much less fear as it is lower while the SPX should be making a higher high than the previous one on the 2nd, so VIX futures were sold to move the market.

 HYG supported the SPX all day as we saw earlier today, but lost some support as the Futures hit the top VWAP band and distribution signals started rolling in.

High Yield Credit was supportive erlier today as mentioned as well, but it too was only going to go so far and not follow the market past the upper VWAP channel as you can see the SPX is at the same level as the 3rd and HY credit is actually higher at that previous level where as it refused to make a new high in the late afternoon.

As for some assets that cautioned us...

 Commodities were initially supportive early on in the day, but they as a risk asset had no intention of following a ramped market higher.

 Yields made a new low on the year this morning before joining in (via TLT) to help ramp the market higher, however even they weren't going to be pushed to those extremes and I say extreme in a technical health sense, not in a SPX +0.61% gain sense.

 The USD started rising which probably drove commodities more than anything and creates a situation whereby the short term extended market doesn't have short term $USD support, in fact exactly the opposite as the two typically trade opposite each other.

 The Euro which is overall in a supportive position lost all support intraday, this is why I felt taking some off the table in a profitable position was wise and reducing short term risk. By 1:30 the Euro was working against the market, but it didn't matter on such low volume, however it may matter tomorrow, this is why I suggested PATIENCE.

 Even non correlated risk sentiment itself which was positive earlier in the day, turned down as seen in FCT above and HIO below.

You can probably guess what today's dominant Price/Volume Relationship was, if you said Close Up/Volume Down, you are correct, this is not the relationship between the averages, but among all component stocks in each of the averages, it was very dominant, this is the most bearish of the 4 correlations and suggests a 1-day overbought condition which most typically sees the next day close down, which would fit with a 15th day of up down in the SPX.

I'll be back with more and the futures in a bit after I look around and update my charts and scans.

Update

I'm just looking around and seeing if there are any moves I want to make here, I'm inclined to err on the ide of patience here and not make any moves for the moment.

After looking around more, the move started as NDX and R2K futures both crossed above VWAP so it was almost certainly algo driven, the futures are bumping up against the top VWAP band with distribution signals so I don't want to go long here, but I also don't think this is worth shorting.

TLT, VXX were used and HYG gave support.
However the Euro is losing support for the market and the Dollar is gaining so it will be pressuring it, I just don't see this as a time to be making any moves other than maybe taking some short term trade profits if you have them as I think you'll be able to buy them back cheaper generally speaking.

So What's up with that move?

Anybody have anything? The best I see is the SPY, QQQ and IWM all crossed in to the green about the same time, maybe that triggered an algo to start buying.

I believe Putin and Merkel were assualted by a group of naked women-no really, that happened, although I don't know why that would move the market.

At almost the same time the carry pairs of EUR/JPY and USD/JPY also took out intraday resistance moving to a new high, but that's a chicken or the egg thing.

Also about the same time, ES broke above VWAP which it had been over, but just not moving to the upper channel until all 3 averages made that new high and above the congestion just above VWAP, that could trigger algos too.

ES 1 min VWAP

Charts seem to be confirming original gut feeling

I didn't like this move from the start even though that is what we were looking for today or in the very near term, but it just didn't do the work.

Here's some charts now that seem to confirm my original gut feeling, I think this move is going to give it all up and maybe then it can do it right.

 DIA 1 min negative

 2 min never saw any strength migrate to the chart, stayed negative

 IWM 1 min leading negative

 QQQ 1 min REALLY leading negative

 QQQ 2 min also no strength migrated over, leading negative even at the highs.

SPY 1 min leading negative

TICK isn't going along

 The Intraday Momentum Screen is negative in every window.

You can probably make a few bucks fading this move if you are nimble.

IWM $91 Call Fill

I decided to keep half to take some risk off the table with a move I don't trust, but keep half just in case and because I think I can still add to it at lower prices if my gut feeling is right and still have a decent position.

With a $1.34 fill, the position made 14.5%, not a great gain since holding them since last Wednesday, but this wasn't about the gain.

Selling Half of the 4/12 IWM $91 Calls

ES and NQ Futures

The SPX and NASDAQ 100 futures aren't buying it either.

 That's all ES put in for a positive divergence and now it's leading negative

NQ never even went along, leading negative big time.

Maybe it's algos, I still think it doesn't hold

GOOG Charts

This is what we should have seen today... This chart is putting in the time, it's doing the work to create a base that can hold a move, even though I'm looking forward to shorting or adding to shorts on that move at some point pretty soon.

 1 min chart putting in new leading positive highs today with a nice rounding "process", not an event like AAPL and the market

 2 min leading positive with a new leading positive high today

 3 min leading positive, no weakness there.

 5 min chart built at the a.m. lows and again at a little double bottom with a larger divergence as it should

And of course it's longer term chart is ready to go like AAPL's.

AAPL is another one...

I'll show you GOOG next, GOOG is putting in the time.

 AAPL 1 min still never came around, this looks like selling in to this move.

 The 2 min chart really didn't put in much of a divergence

 Nor did the 3 min chart, at least it did something, but not enough.

The 5 min chart looks great, this is what they all should look like.

Some SPY Charts

Well if this is the move and it holds, I'm not going to complain, short term positions will be green and we got what we were looking for, but I'll show you why I'm skeptical of this move in particular.

The 1 min chart didn't build a decent positive divergence and thus far there's not confirmation yet, although that could just be lagging a bit.

  The SPY 1 min (and my concern is over the intraday charts, the mid-term charts I have no argument with, they look like the market is going to put in a decent mov to the upside, but this almost seems as if it is a knee-jerk reaction to something.

It was building a decent little accumulation zone, but the way it left it was unusual. So far the 1 min is in line, the 2 min chart is not confirming the upside move yet, although it may just be lagging a bit.

 The 3 min chart really doesn't look like it accumulated much and no confirmation thus far.

 The 5 min chart is where they needed to swing positive and this didn't do that except last week, again no confirmation.

 The 10 min needed to swing positive near term, it didn't other than the leading positive it already put in last week.

I would have expected a deeper pullback to at least create a range somewhere around the green arrow and trendline.

The 15 min chart is in good shape, it's a go, it's just the shorter charts, but hey, breadth is so weak and last week did put in some leading positive moves, maybe, I just wouldn't chase it or put any more long positions (unless they were outstanding) in until this resolves a bit.

I still have a feeling this is based on something, a knee-jerk to some news or correlation, maybe even an algo program.

Like I said though, if that's it, I'll still take it, just more cautiously.