All Eyes On August 21st

There's so much to say today, but much of it has been said, it's putting it altogether in 1 place. If you thought the last F_O_M_C minutes were extreme, ambiguous and generally not very market friendly, just wait until Aug 21st because with no press conference today, the market has even less of a clue as to what Bernie is thinking.

However the one thing I talked about at the time, "Bernie's plausible deniability" when he spoke after the last minutes were released, I think everyone figured he's say something to take the sharp edge off the minutes, instead he came out sounding like the Super-Dove and that as long as unemployment was out of line, QE wasn't going anywhere, but that's not what he said, he said "as long as unemployment is out of line, accommodative policy will remain in place".

The market took this to mean QE, I took it to mean interest rates which is something we already knew so in effect, Bernie took the edge off the minutes, made it "seem" like QE was not in any danger and was able to deny that's what he said because it wasn't what he said. In essence, that day Bernie didn't say anything we didn't already know, but he would have made Greenspan proud.

So now we know that QE is not connected to employment, Non-Farm payrolls will have a lot less importance.

After the F_O_M_C statement that was virtually unchanged from June's, the market didn't know what to do with it initially (it was the minutes from the June meeting that gave a MUCH different impression than the policy statement just as the August release of today's will do the same). Apparently a rumor was making its way around that the unofficial F_E_D spokesman, Jon Hilsenrath of the WSJ was going to give the statement the strong bullish endorsement...

Pfffff... that's air escaping the knee-jerk reaction

SPY 1 min... Hilsenrath didn't come out as the usual "Super-Bull" after the statement...

This is the "Updated" original Hilsenrath article from the WSJ

After the major averages were up from +.73% to nearly 1%, the Dow and the SPX close red. This is why I think patience is an absolute after an event like this. After the September 13th 2012 announcement of QE3, I had a lot of people telling me that we should close all shorts and go massively long, but that's not what the charts said as of Sept. 13th. I'll admit, my emotional state of mind was very much with the conventional wisdom of "Don't fight the F_E_D" and there was a big part of me that wanted to close any and all shorts and go massively long, but again, that's not what the data said and I gave ti a bit more time to allow the data to come in and it turns out that September 13th was the high until the market bottomed November 16th, going massively long would not have been the right choice.

I'm 100% open to whatever the data says, but I want to see real data, not guessing whether the ball will land on black or red, even if the conventional wisdom suggests one outcome over another, that's gambling.

Before the F_O_M_C I had collected a number of charts, but didn't have time to post them, you may recall in this post... However, I did save some of those pre-F_O_M_C charts, I think there's information there and I think there's some things we can learn from them.

First Gold which I did post just before the statement to give you a visual of what I had just written. The VERY short term, as in intraday had gone positive as if the F_E_D would announce there would be no taper this year, yet the larger flows of underlying funds told a different story.

 First GLD's 3 min intraday chart went positive and just after that a.m. ramp that some suggested was a leak.

However the bigger picture of Gold which would move to the upside on QE positive news, shows not only the typical distribution range, but the 15 min chart is negative through the range as well. These two charts were reflected exactly the same in Gold futures as you can see by the post linked above.

As far as the later, intraday GLD charts...

After the post-policy run up, the intraday charts went negative and GLD started losing ground.

As for the Gold Futures mentioned above...

 The intraday 1 min gold futures looks almost identical to GLD's intraday chart above, positive and gold did run higher from that divergence. The point I was making during market hours was the accumulation period here was so short, it was very unlikely that gold could sustain a run much further than it did.

This is the 60 min Gold futures which look nearly identical to the GLD 15 min chart above  which told me, whatever the short term reaction to the policy statement, there's a lid on just how far gold can go in this distribution, this is why I view trying to trade gold long on the intraday signal as "Risky".

 Interestingly, the 30 min Gold futures shows something most may not have caught, look to the far right and note what 3C was doing as gold was moving higher in to the afternoon, that's a leading negative divergence. Sell in to ANY strength? Honestly it looks that way, but I'd need more data than 2 hours before making a call on this specific asset.

The $USD...
Generally speaking, if QE were to taper or end, the $USD should gain in strength, part of QE and why so many governments around the world are engaged in some form of "accommodative policy" is because it lowers the value of their currency which helps exports along with other benefits to the government, especially the Treasury.

The first two charts were captured before the policy statement and the third was after,

 This is the 1 min 3C $USDX futures, oddly the $USD had a smaller, but positive divergence just before the statement. The $USD fell right after as stocks were moving higher.

 However the 60 min $USD futures show a huge positive divergence/base suggesting the $USD move much higher, this also suggests that QE will end some time fairly soon as they are already positioning for the inevitable.

This 5 min $USDX chart was captured AFTER the dust settled, note that the $USD fell as you'd expect with stocks rising and then it lifted a bit as stocks started falling, but the interesting bit is the 5 min 3C made a new leading positive high during all of this as if the move to the downside right after the statement was aggressively accumulated, this would fit with distribution in to strength with stocks.


As far as ES (S&P E-mini futures)...

 This is ES 5 min 3C chart just before the statement, the 1 min chart is decent for intraday moves, but the 5 min chart shows more of the underlying trend and it was already moving toward distribution, I'd say based on today's price action, that's exactly what was happening, again, selling in to any price strength.

This is the ES 4 hour chart, this is where the large flows of underlying trade are found and the big picture or high probabilities, that's some nasty distribution, it might look familiar from some charts I posted last night.

For a different view...

This is the same area in the S&P-500 using MoneyStream, it's showing the same distribution and if you go to last night's post linked above, you'll see a lot of other confirming indicators (3C, MS, etc), but this is confirmation between the SPX futures and 3C vs the Cash S&P and a totally different money flow indicator, Money Stream.

The picture looks quite clear.

I also collected this chart of VIX futures, not VXX, but VIX futures...

This is a 5 min chart of VIX futures, remember the concept for the VXX position, a head fake below the descending triangle that technical traders will sell/sell short and look for accumulation to confirm it's a head fake move which gives us an excellent entry. Well I showed confirmation in VXX and UVXY, but this is actual confirmation in the VIX futures themselves.

Also don't forget our recent VIX buy signal.

You also saw the incredible strength in TLT today, this is an asset I've been talking about for some time  and even though it has a fairly low Beta, I think something big is going on here, today's move looked a whole lot like accumulation of a flight to safety asset.

I'm not saying the market is going straight down tomorrow, I'd have no way to know that based on 2 hours of data after the policy statement and in my view, $1700 is a strong psychological magnet.

I even mentioned a couple of names today that I'd consider for call positions, AMZN, PCLN and NFLX, but the call positions weren't meant to reflect the profit potential, but rather the time potential. This market is a lot uglier than I think any one alive has or will ever see, I think a lot of people don't appreciate that or at least not t the extent that is reflected in the charts and the truth is, it's probably a whole lot worse than that.

When I mentioned these stocks in this post,  I said,

"Initially I'm thinking of playing some calls, specifically because they are short term, the assets I was considering were AMZN, NFLX, PCLN and a couple more, the plan would be to then short those names coming out of the call positions, but I see this as EXTREMELY risky."

If the incoming data supports such a trade, I'd go for it, take the opportunities where you find them, I understand there are periods when the market is going to make enormous moves and I think we have some strong charts supporting an enormous move to the downside, but I'm not so naive as to not recognize that the market jiggles a lot. Take the SPX for example over the last 10 weeks...

That's a lot of movement, there were a lot of good short entries in that area that are still great entries/positions and there were some great long trades, June 21st (look back to our archives) we identified a market move on the upside 1 day before it hit the bottom and reversed and we took long positions to capitalize off that move. However, when looking at the last 10 weeks above, understand that there's a 1% difference from today's close and the close 10 weeks ago, ONE PERCENT!

This is just the nature of the market, here's another SPX example...

During the 2007 top, during the course of about 12 weeks from white arrow to white arrow, that's about a 1% move, I'm going to try to take as much out of that market as I can, but at the same time I'm looking at and preparing for the bigger picture that develops to the right.

Because what took 5 years to build, was torn completely down and then some in about a year with most of the damage over 8 months...

Almost 5 years of rally is totally taken back and then some...And I know this time is much worse, in fact the worst I can find digging back through a century of market tops.

It's not only 3C being at a lower level than all of the previous tops, it's also where price is vs where 3C is.

So..., short term trades like AMZN calls (if they make sense) wouldn't change the composition of my core short positions nor would it take AMZN off my core short list.

Lets take AMZN for example so you better understand the above and how I view the opportunities both short term and the perhaps once in a lifetime opportunities and the risk associated with the above statement.

 This 5 min chart of AMZN is only a couple of days, it's not a big accumulation area and I'm not even sure if it will hold, that's why I want to see the data coming in after today's statement, but taken on its own, I'd probably "normally" take a call position for a quick move.

 However, the way AMZN was taken apart today in to its attempted rally reminds me of the risk.

This is migration of that negative divergence at the end of today to a 3 min chart (in red), that's a pretty large negative for only 30 minutes.

Then I have to consider what a call trade "might" make "if" the data moving forward supported it, BUT...

I can't forget for one second the time I waited to get in to an AMZN short, looking for >$287 and >$300 and then when I look at a much stronger 2 hour chart and see the extent of the distribution in such a short period and exactly where I thought it would be, I want to be real careful chasing nickels and dimes in front of a steamroller.

TLT Update

Yesterday I posted this, "Filling Out TLT Core Long Position".

For a long time I've been seeing things in TLT's charts that just didn't make sense back then, they continued to show up and I started a position, yesterday I filled it out.

I think the TLT positioning we got yesterday may be the best positioning you could ask for, over the course of the big picture I still think TLT is in a great area, of course I'd want to still look for the best entry possible.

Today TLT has moved nearly 2% from low to high which is a lot for TLT, here's what the daily 3C chart and price candle look like so far.

 TLT Daily, first that's an enormous leading positive divergence/accumulation with 3C hitting a new high.

Second, the candlestick today is spectacular, I don't know if this was a head fake move because of it being a F_O_M_C day and the early data this morning sent yields flying which would have sent TLT lower as they move opposite, either way it doesn't matter much at this point.

The intraday divergence 1 min was positive early this morning so I wasn't concerned and the draw down in the position was so minimal it wasn't even a back thought.

The 2 min confirmed, the concept of migration of a divergence cannot be overstated in confirming the strength of the divergence or underlying money flow.

Look at the 5 min chart,  talk about migration, that's a huge leading positive divergence and these are the strongest kinds of divergences.

 TLT 30 min, you may recall an earlier long position that was closed as this leading negative divergence showed up, I figured they needed to knock TLT down at the time to make new market highs as TLT is a SPY Arbitrage asset, but after looking at it all, I think that was one part, continued accumulation was another part.

The daily chart shows why I had a long position up higher, this entire year TLT has been under accumulation which should tell you something about the degree of trouble this market is truly in.

In any case, as you can see, the recent base area was an excellent place to open and add TLT long positions, this is an exceptionally powerful chart.

Remember, this is a "Flight to Safety" Trade, who is this scared and how much in assets do they have to protect that TLT has been under accumulation the better part of 2013?

Quick Update

Right now, this is exactly why I felt there's just too much risk to even try a short term knee jerk play, the signals are getting uglier, the TICK is falling off, the assets that looked like they had the best chance are falling off like AMZN (for a short term trade-Call).

The data changes as new information is discounted, sometimes patience is the best position.

UNG

I also like UNG long equity, I have an open position there already and will hold it, this o\in my view is a long term position, not a trading position, except for this call (options) of course.

 UNG 1 m trend, a nice flat range, a move below the range on continued accumulation would be a nice entry as well, perhaps for any who are interested but want to wait for the EIA inventories tomorrow, this may be a good strategy for you.

UNG 2 m

UNG 10 m

And the longer term for equity long, UNG 4 hour.

I Will Be Opening August $18 UNG Calls

The charts are coming, I just wanted to let you know.

Remember tomorrow is the EIA Natural Gas Inventory at 10:30 so you may want to wait for that to come and go as it is a wild card, I don't mind it so much because of the charts.

Initial Thoughts

Initially I'm thinking of playing some calls, specifically because they are short term, the assets I was considering were AMZN, NFLX, PCLN and a couple more, the plan would be to then short those names coming out of the call positions, but I see this as EXTREMELY risky.

We only have about 50 minutes of post policy data and in a lot of places it's not looking as good as it should.

TLT is looking strong, I think if you looked in to it yesterday when it was mentioned, I'd feel pretty good about it's activity today.

Part of the danger is that we have such limited data since the policy announcement, the other is in the last post before the F_O_M_C in which I tried to give you a visual of a "No Taper" looking asset which was gold futures, they were positive in the very short term and only part of today, it doesn't really matter how positive the divergence is if it's only a couple of hours old, it can't support that big or long of a move, that is where I see this as being definitely dangerous.

I think the best course of action, rather than gambling is to give the market a few more hours or day to settle in and to only take the trades that have held up with strong signals.

I'm still looking, we are very early in to data since the statement.

I'm not the only one who caught that

From ZH...

"The FOMC appears to have 'tweaked' its message to fit with Bernanke's confusing commentary and confirms that 'tapering is not tightening'.

FED REPEATS RATES 'EXCEPTIONALLY LOW' UNTIL JOBLESS AT 6.5% 

---QE was just unhinged from unemployment meaning Non-Farm Payrolls will be much less significant to the stock market. Employment is now firmly tied to low rates, THIS WAS BERNIE'S "PLAUSIBLE DENIABILITY" DURING THAT HORRENDOUSLY CONFUSING MESSAGE THAT THE MARKET CXHOSE TO GET WRONG.


" It seems preferable to pretend the economy is strong enough to withstand less-easing (tightening) than admit the Fed is cornered."

EXACTLY WHAT I'VE BEEN SENSING SINCE SEPTEMBER 13TH AND ARGUING FOR SINCE.

ACCOMMODATIVE POLICY

I suspected it, the F_O_M_C statement JUST confirmed it.

Remember when the last minutes came out and the market did NOT like them even though they were all over the place, the minutes did contain language talking about some members wanted to end QE at the last F_O_M_C meeting, also "Half believe it is appropriate to end QE before the end of 2013".

THEN BERNIE SPOKE LATER THAT AFTERNOON AT A CONFERENCE AND TOOK QUESTIONS...

Bernie said that accommodative policy would be in place for words to the effect of "longer than the minutes seemed to imply and longer than the market seemed to take the minutes as saying".

I said back then that this was "Plausible Deniability", Bernie was letting the market determine what "accommodative policy" was, the market chose to interpret that as QE, I argued that interest rates staying low was "accommodative policy" even if QE was ended immediately and Bernie was purposefully being ambiguous to let the market interpret it the way he knew it would, but to be able to back away from the statement by saying, "Low interest rates are accommodative policy".

In the policy statement just read, unemployment which HAD been tied to the length of QE was just tied to the length of low interest rates, I don't have the exact words, but they were to the effect of ...

AFTER QE HAS ENDED, ACCOMMODATIVE POLICY/LOW INTEREST RATES WILL REMAIN IN EFFECT UNTIL THE LABOR MARKET STRENGTHENS.

The bottom line, Bernie made Greenspan and Greenspeak proud by really pulling a hood-wink with "Plausible Deniability"

QE and unemployment are no longer linked, this lets them exit QE as soon as they want, now accommodative policy meaning low interest rates is linked with the unemployment situation.

I don't know how long it will take the market to put this together, but I think it's significant and I think I need to be watching to see how the market is taking this.

A Quick Visual with Gold Futures

 1 min taper off

60 min taper on

Last Minute F_O_M_C Post

I wish I had more time to look at these charts because a lot made very interesting things changed right around that 10:30 area when stocks shot up higher only to see intraday distribution and move lower again.

Keep in mind the knee jerk effect when looking at these charts, that is the initial move in the market after an F_O_M_C announcement tends to be very volatile, but wrong and typically reverses within a few hours to a couple of days.

Generally speaking, if the market is expecting a taper sooner than later or an end to QE sooner than later, we'd expect to see Gold moving down, bonds moving down, yields moving up and the $USD moving up.

There are interesting differences between the short term charts and the longer term charts and many around that 10:30 mark this morning, keeping in mind what some have said about a possible leak and what I have said about the knee jerk effect.

I'll never be able to post these in time and let you look at them in time.

However as we know Credit (HYG) dropped off today, not good for the market generally, but that 5 min short term (days/weeks maybe) is still positive, it's possible it hasn't had enough time to let that divergence fall apart like the shorter ones have. The longer term charts in HYG are solidly negative.

As for Gold, the 1 min chart right now is seeing a pretty darn strong positive divergence, but anything in the more serious timeframe of 30-60 mins is solidly negative. The positive 1 min in gold didn't start forming until around 11 a.m. this morning.

The 30 year bond looks like it saw a positive divergence in futures also this morning.

The $USD, short term it's not doing anything exciting, the 60 min is in a raging positive divergence.

I have to get this out now, but the initial signs , many of which started around 10:30 this morning show what looks like a F_O_M_C "Do nothing" policy statement as the initial reaction, followed by a realization that something wicked comes this way sooner than later as far as QE.

I know that''s not as easy to understand as I'd like it to be, but there were several changes very quickly this morning, I DON'T THINK THERE'S ENOGUH ACCUMULATION OR DISTRIBUTION ON THESE SHORT TERM SIGNALS TO MEAN ANYTHING MORE THAN A KNEE JERK REACTION.

ALSO THE INDEX FUTURES ON 5 MIN CHARTS HAVE BECOME MORE NEGATIVE, WHILE THE RUSSELL 2000 1 MIN FUTURES IS MORE POSITIVE, AGAIN TO ME IT LOOKS LIKE AN INITIAL POSITIVE KNEE JERK FOLLOWED BY SOMETHING TOTALLY DIFFERENT.

Leak?

That's part of what I'm looking for, but in reference to this earlier post and the subsequent 3C distribution intraday, I see ZH is running an article,

"Who Leaked What At 10:26 AM?"

"Did another Federal reserve employee 'accidentally' email the right people again?"

MY ONLY POINT IS WHAT I SAID BEFORE, "IF I KNEW WHAT THE F_O_M_C WAS GOING TO SAY AND IT WAS BAD FOR THE MARKET, I'D BE RUNNING THE MARKET UP AS MUCH AS I CAN BEFORE THE POLICY STATEMENT.

Here's the current update for the averages & HYG Credit with one more point at the bottom.

 DIA 1 min

DIA 10 min

IWM 2 min

QQQ 2 min

QQQ 10 min

SPY 1 min

SPY 2 min

HYG 2 min hasn't only dropped today, but is seeing negative divergences in early timeframes starting to migrate to longer ones.

As far as ZH's perspective, they are seeing price only and yes, that gives a certain perspective if you think there's a leak, but looking at underlying action in the averages and credit... well to me that looks more like some last minute distribution in to higher prices than accumulation on any potential leak....

GS Update

GS is a stock that a lot of members are interested in, I've been interested in it because for so many months I've been saying, "No, I would not short GS right now" so it has been somewhat of a bellwether for the market in a sense.

There has been clear deterioration and there is a very specific area that I'd like to see GS hit for a large short position or a put position.

If you are somewhat interested in GS there were several updates yesterday, but this last one sums things up pretty well.

As far as what we have today...

 One thing we look for is obvious/magnetic areas that will cause movement, for GS it's right above this yellow trendline, the point I was making in yesterday's last update linked above is that from a risk perspective, that's only about 5 or 6 points, somewhere around 3% or so which is really not much if you are looking at an equity short, for an options/put position, it's a big deal.

 This 5 min chart shows several areas I pointed out yesterday, accumulation at the late June/early July area and then distribution at the recent downside reversal. We have a current 3C move that is improved, but still in a negative area overall. I also point out in the linked post above, this is the reason I haven't called a specific GS trade as of yet, but I do think it's one that is showing deterioration, it's important for the position and the market.

 This is a closer intraday look at that same 5 min chart and how it made a sort of "W" accumulation area that it has lifted from today, however...

As stated above, the overall position is still much weaker than GS has been in past months, this 10 min chart is a good example of that, it does show the same positive divergence the 5 min chart shows above, but that is much less important than the overall leading negative position.

This 1 min intraday chart is interesting because it looks a lot like the market averages I showed earlier.

"If" GS continues to deteriorate from this area, this could be very significant for wither an equity short or a put position so I want to keep you up to date, especially considering how many people are interested in GS.

OK, I have some broad market charts to look at pre-F_O_M_C, if you have stock specific questions, unless they are really interesting and look like fantastic opportunities, I'll be a little bit slower on email responses because there are a hundred different things to look at in front of the F_O_M_C policy statement, especially with no press conference after.

Please do remember that there is a well documented "knee-jerk" effect after F_E_D events, so keep that in mind whichever way the market initially moves, it typically doesn't hold.

Market Update... The Trend Continues

When I came back from my mini-vacation Sunday night, it was already late, I was exhausted, but I spent about 90 minutes looking at the market and what I missed, Sunday night I posted that there was a very clear trend of selling in to any strength and that the words, "Price strength" were very relative, whether actual, as in a green close up a half a percent or intraday like the Dow losing 150 points in the morning and then moving up all day to close 2 points in the green, not actual strength by most people's standard, but intraday strength. The point is, in just about every case, wherever there has been an opportunity to sell in to higher prices (even if they are simply higher than the intraday low), that opportunity has been taken. This morning's run looks to be no different.

Also don't forget that we had window dressing for month end last week and today is the last day of the month, trades won't count toward window dressing because of the T+3 Settlement rule, but overall monthly percentages count and underlying action in to the end of the month certainly counts.

 SPY 1 min intraday leading negative in to this morning's run.

 SPY 2 min leading negative

SPY 3 min leading negative with the positive divergence that stemmed from HYG as shown in last night's "Daily Wrap" post.

SPY 5 min showing some trend and some intraday.

DIA 1 min leading negative in to this morning's run.

The positive divergence is the one I talked about at the 11 a.m. lows on Friday or Thursday depending on the average.

 The IWM has had a very clear trend of selling in to almost any strength more so than any of the other major averages, this morning is no different with a sharp negative divegrence this morning.

IWM 2 min confirming as migration of the divergence continues...

IWM 3 min showing the same and all of the concepts discussed (recent trend).

QQQ 2 min intraday, not even close to confirmation and in fact a lower 3C reading.

I'll have more, I'm really looking for anything that stands out of place, we have had some signals before F_E_D / F_O_M_C events, one meeting about two hours before the policy statement 3C just dropped like a rock, I'd rarely take a position back then before a policy statement, but we did and were paid handsomely for doing so.