Daily Wrap... Summer Doldrums?

Just looking around tonight I wanted to give you my impression or gut feel based on looking at a lot of charts, you know I've expected a short pullback and I demonstrated today how that has been happening right under our noses, disguised in intraday trade wackiness of a.m. weakness and afternoon strength, but the net effect has been such a pullback. You also know I expected a bounce after that, my gut feeling is the market looks like it's in true summer doldrums, but I'm not sure I believe that is what we are seeing.

If I had to make a call on a bounce again this week or tonight based on a lot of charts, I'd say it would be very difficult to see any real strong market upside at all, there's very few areas that even have some of the short term enthusiams that has lifted the markets in afternoon trade. Index Futures look especially weak, as a matter of fact the only place I can find any buying excitement in underlying trade is VIX futures and that's not good for the market.

 5 min VIX Futures building a nice divergence.

 The 60 min is already there, none of the market indexes have this kind of decent signal, not just 60 min charts, but hardly anywhere if anywhere.

The spot VIX seems to be dull, but since the buy signal (the last one took several weeks to fire) note how the Bollinger Bands have pinched on the daily chart indicating the high probability of a very directional move and all indications are it will be to the upside which is the opposite direction of the market's relationship with the VIX.

If it weren't for the 5 min charts in the SPY, QQQ and DIA (10 min in the R2K), I'd not be looking for a bounce at all.

In fact, today's end of day action in 3C looked horrible (as it has for nearly a week which has led to weak a.m. action and afternoon recoveries), I started with the SPY and was surprised at how much worse it looked than it has recently (but the 5 min positive is still there-the bounce), then I looked at the NASDAQ 100 expecting to see better looking charts after the Icahn/AAPL tweet, what I saw was EVEN WORSE than the SPY. The IWM and DOW were EVEN WORSE than the R2K.

This is above and beyond the normal recent EOD weakness.

HYG was flat today and I'm talking about "vs the SPX", but it literally was flat at 0%, Junk Credit was worse with end of day weakness, only High Yield was in line, but not really leading with any enthusiasm. VXX was pretty much right as it should be considering the normal correlation, TLT was weaker in the a.m., significantly vs the correlation, but I've expected this from TLT as well as signs of accumulation which there have been which "should" make TLT a long worth considering or adding to.

As far as Treasury futures, they've lost nothing but ground since yesterday's open, but as I showed you at least a week ago, the difference in underlying trade is striking between the 10 year and the 30 year (closer to TLT), the 10-year doesn't look like it's worth any consideration as a long whereas the 30 year has positive signals in futures as well as TLT.

Commods were oddly flat today vs the SPX, from futures it looks like both Gold and Silver will lose ground, but silver has longer term signals that look good so a pullback in silver may indeed set up a long position. USO has some significant weakness, it's just a matter of a good entry and I think we'll see some real downside there.

I mentioned another site that was making the argument that the USD/JPY carry cross abandoned US assets to buy PIIGS bonds, something I wasn't quite sure I agreed with, but I did see and point out a rotation to another carry cross, the AUD/JPY and I see after hours this same site pointed out what I had pointed out much earlier in the day (I mention it just because they have some decent analysis from time to time on carry trades).

Short term the AUD looks like it could take the market further, short term the $USD looks like it will stay out of rotation a bit longer. While we are on it, the Nikkei futures look like this tonight...

You can see a positive divergence on the 5 min futures to the left and a leading negative that has formed recently, I suspect some near term weakness will be seen in the Nikkei 225.

US Index futures aren't even worth mentioning or showing, they look VERY uninspired. The best I see on a shorter term basis is a bullish hammer (upside reversal candlestick), one in the NASDAQ 100 too, the Dow looks more like a long-leegged Star (not quite as bullish for a short term reversal) and the R2K doesn't have anything going on, it looks very "BLAH".

Internals are no better, there has been NOTHING even approaching a dominant price /volume relationship for at least a week, again, "blah" internals that appear to be "Summer Doldrums", but I suspect it's something a bit more serious.

Sentiment on a short term basis today was in line with the price action in the SPX, that's a positive, but it wasn't leading or showing any "Real" excitement and of course, the longer term sentiment readings are horribly bearish.

There really isn't much more to say, I'M JUST LOOKING FORWARD TO ANY PRICE STRENGTH SETTING UP SHORTS, before some of the better ones crumble (take AMZN's price action for example, I'm glad I already set up the bulk of that core short and this is why I do it before we reach the cliff).

HYG and the 4 averages in the 5-15 min range are all that keeps the notion of a bounce alive, everything else looks really weak, I'd say uninspired, but I know it's something much more than that. The charts before those single charts that represent a bounce look weak as if there have been smaller block trades going through as distribution in to afternoon price recovery (or strength if we can call it that) and the long term damage on any chart above that single bounce chart in each of the averages is SOLIDLY leading negative.

In other words, like I said last week, chasing a bounce here is akin to chasing nickels and dimes in front of a steam roller and I feel bad for any longs that get sucked in to chasing the market on a bounce because I think they are going to get the worst of it. Just to be clear, I don't think we are close to the start of the big picture, I think we are already in it.

EOD Wrap Coming

I have that once a month PITA called, "The Board Meeting" as I so generously volunteered to take on Secretary and Treasurer. In any case, tonight is not going to be a fun one, but I should be back somewhere around 8:30-ish at which time I'll put out the daily wrap as well as any futures action taking place.

Initial charts suggest nothing much has changed today with regard to this same pattern that appears every afternoon in 3C and then every morning in price. Also the expectations haven't changed for trends, except the pullback that I was expecting I believe has already taken place as I showed earlier today.

Bounces at this point in the market take on much less meaning than they might have 2 or 3 months ago, the analogy I used about scrambling for nickels and dimes in front of a steam roller is much more appropriate now to describe the risk:reward outlook of playing bounces.

If it were the weekend I might just take the numerous hours it would take to show you just how many posts were published regarding "Strange" behavior in AAPL that was so out of the norm, I was sure something was going on, I just didn't know what and that's part of the faith I have in 3C, so many times I've seen something going on like we have seen the last few months in TLT and even though it makes no sense at the time, it usually reveals itself at some point, but if you wait for that certainty you miss your chance to make money. The bottom line is we get paid to take risks, it's just whether the risk makes sense and whether we have enough evidence to suggest the highest probability outcome.

See you soon!

AAPL Riddle Solved

Is This what AAPL has been up to?

Way back on February 6th, one of the first posts to address something that was going on in AAPL that was bizarre was addressed in, What is AAPL Really Up to?

AAPL gave a "Buy" signal on our DeMark-ish custom indicator..

We see the sell signal at AAPL's top and a buy on this 2-day chart that led to a bounce and finally this buy on February 6th. AAPL was trading at $457 back then so if you were a long term investor and took that signal, you'd be in the green today as AAPL is around $545 mark.

The Daily 3C chart was even giving a positive divergence signal

"The point is, now there's a relative positive divergence so it seems something is going on here."

Furthermore...

"...there's enough information to tell me something is going on, but is this something that's going to move soon or base for a while to support a stronger/longer move?...Like I said, I don't have the exact game figured out yet, but the range is important and what happens above and below are important."

Yes, I remember this period well, this wasn't the typical, "I think there's a trade developing here", this was something clearly out of the ordinary and we were seeing signs of it at least as early as early February.

In the daily wrap of February 7th I said...

"However the biggest early morning and end of day news may be AAPL which I recently looked at, decided something is going on there, but not having a solid grip on what, what timing, what kind of move, decided to wait for the charts to provide more of an edge than just, “Something is going on”."

If I did a search and sorted it by date and worked from February forward, I could probably produce something along the lines of somewhere near 50 posts just about the odd behavior in AAPL, that AAPL was up to something, but it was very difficult to tell if we were going to see a longer base that could support a bigger move or not and just what in fact this was all about.

In my view, although AAPL lost -45%, it had not seen that capitulation, crazy low wipeout, so I didn't think AAPL had hit an area of fair value where it could build again because before we get to those areas the market must first swing ridiculously lower than any common sense would dictate.

The only thing that made "some " sense to me was a counter trend rally because AAPL was in a bear trend and a rally in this area is pretty normal.

However even that didn't make a lot of sense and I've talked about it recently because the market and AAPL are typically pretty tight and I couldn't see the market going one way and AAPL going the other, but with the size of the accumulation, it seemed like AAPL had to be up to something and this has been an ongoing mystery as to "What AAPL is really up to".

Considering AAPL is the largest valued stock by market cap, when Carl Icahn "TWEETED the following today...

When ICAHN says he has a LARGE position in the largest Cap stock out there, you know its big. It would be absolutely no surprise to see that Icahn was buying in February, in fact considering the facts we have now, it wouldn't surprise me if he was buying before February as hedge funds were rushing out the door at significant losses.

I guess now we know what this was all about, like I say, 3C will often show us things that we don't understand and often by the time we do, the money has been made.

The two largest 3C accumulation signals.

AAPL 4 hour.

I'm not knocking Icahn's smarts or talents, just saying, he doesn't let anyone push him around, when Bill Ackman and Carl Icahn had a screaming match on CNBC and Ackman had made it very clear he was short Herbalife, Icahn bought and otherwise locked up so many shares of Herbalife that I'm pretty sure Ackman still hasn't found the supply to cover.

Just saying... I wonder if an AAPL store manager ticked him off and he said, "Do you know who I am? I'll buy this company and fire you!"

Hey, he can do it and make it work.

FSLR Follow Up- Sept. $38 Calls & Charts

I wished I had done what I normally do and went with Sept. expiration in the first place, this is what has worked for me and with a few exceptions, I typically regret not following my own guidelines with options like buying in the money and usually at least 3-4 times more time than you think you'll need.

As for FSLR, the range it formed the last week or so was VERY obvious, this means stops and limit orders fill up there and it makes it worthwhile to run those whether it be for the spread, the order/volume flow or picking up shares on the cheap in good supply. you really can't ask for a better situation if you are accumulating in size.

The reason I feel fine with FSLR when the market is not looking quite the same is because FSLR made up a lot more ground today that I anticipated.

 The 1 min chart looks a lot different than all of the market averages just posted in the last update.

 This 2 min chart looked pretty good earlier, I didn't expect that it would lead positive today above yesterday's 3C range.

I really didn't expect FSLR to make it to the 5 min charts the way the market was acting, after taking out a very clear zone where stops and limit orders will accumulate, I look for accumulation to back up the probability of a head fake or in line trade that suggests it is a market break lower and not a head fake.

 This is a closer look at the 5 min, it's almost exactly opposite the market averages which are going more negative on the 5 min chart toward the close, this is leading to new intraday highs.

Then to see the 15 min chart move, that was more than expected.

15 min FSLR today, that's a lot of intraday movement.

Adding FSLR Calls, likely Sept. $38

Market Update

Today has been a very difficult day, but by judging by the moves so far in the market today, being patient and waiting for confirming evidence has been the right thing to do, it was the right thing to do each and every afternoon last week, yesterday afternoon and all of today and thus far the afternoon trade as well, it makes for a boring day, but at least not a boring day with unnecessary losses as well.

Unless something dramatic changes in the last 30 minutes, this is what we look like thus far, some longer term progress for a bounce, but not the short term progress needed to make investing in a bounce worthwhile at this point.

 DIA 1 min was showing weakness yesterday afternoon and again today in afternoon trade.

The 3 min chart just confirms the above.

Even the 5 min chart which has made progress is showing negative activity in the afternoon.

IWM 1 min is flat to negative in the afternoon trade.

2 min makes it clear it's negative intraday day during the afternoon

QQQ 1  min losing strength in to the afternoon

QQQ 3 min overall stronger, but losing strength this afternoon.

 Even the QQQ 5 min shows a negative afternoon divergence.

QQQ 5 min chart (same as above, but in perspective)

SPY going negative in the afternoon

2 min SPY negative as well

3 min SPY negative

5 min SPY is almost in line, all in all, not worth the risk yet.

Increasing the Equity Long Position in URRE

On August 7th I opened a MCP call which was closed I believe the next day for a gain and I decided (mostly because of liquidity, but also because URRE can move on its own without a lot the need for leverage) to go with URRE long equity, URRE was opened on a speculative basis, but I'll add to the position, still not a full size long, but more than a half-size position.

URRE looks to me, unlike MCP, to be moving in to stage 2 mark up, but like MCP it looks like a stock that has its own legs and doesn't depend on the market for gains, although there's always going to be a clear relationship between them.

The daily URRE chart says a lot when you consider most stocks were heavily accumulated at the 2009 lows, URRE was accumulated there, but it now looks so minimal because of the size of the current positive divergence in a beautiful basing pattern of quite some time, meaning the 3C signals as well as the base and size of base are all there to support a large upside move in URRE.

 The 30 min chart looks good since its had time to settle and build off the last run up.

Pay attention to the accumulation dates on this 15 min chart.

 The 10 min chart leading positive...

The 1 min is close to in line, but at 2 min look at the accumulation dates again, the same as the 15 min chart, the 7th, 9th and 11/12th.

 This is the larger picture 5 min chart, it actually looks stronger here than it did just previous to the last launch.

The 5 min chart with accumulation on the 9th as well as 12/13th again.

I feel ok with adding a bit to this position here.

AAMRQ / LCC

This is really ironic timing, last night before I went to bed I was setting my alerts on my Galaxy S4 (Yes, I finally gave up on the IP after owning every single model until the IP5 which I described as "evolutionary" rather than "revolutionary" for the first time in AAPL's IP history and although there's a learning curve and AAPL is really the best at simple, intuitive interfaces, I love the S4).

In any case on the news feed I saw an ex-girlfriend who recently became a Flight Attendant for US Airways and something really irked me about it, I don't know if it was her ID badge she had posted with WAY too much makeup, the fact that the entire time we dated she REFUSED to work, the fact that she talks about it non-stop on FB while my wife has been an international flight attendant for 15+ years or the cheerleading end of the update that said something about LCC being, "Part of the NEW American Airlines", which just came off like a AA commercial, in any case, this morning AAMRQ was cut in half on news that DOJ is bringing suit to block the merger on "Anti-Trust" grounds, so I'm a little petty in being irked and then kind of feeling better about it, ok, VERY petty.

In any case, a lot of you have asked if AAMRQ is a "Dead cat bounce" play. In my view, you can probably guess what I'll say, I don't see any evidence based charts to support that at this time, to me it's probably not even as good of odds as "Black or Red" at this point. This would be the most speculative of speculative longs looking for a dead cat bounce, they simply need more time in most cases like FSLR today and it's decline wasn't anything like AMRQ's.

We can keep tracking it to see if there is a point in which evidenced based charts start putting probabilities on a dead cat bounce, but as of now, I think it's a total Las Vegas style gamble.

FSLR / Market Update

The reason I keep including FSLR is because it seems to be a good market proxy in terms of the timing and completion of the reversal process.

A dump in the market like this morning at the end of a short pullback phase wouldn't be surprising, it's like the opposite, but same concept as a "Blow-off top" at the end of a market rally just before a reversal. FSLR just happens to have a nice proportionality to it that represents that reversal process pretty well.

The first 3 charts of FSLR represent the longer term charts and how they have basically held up allowing FSLR the opportunity to bounce (dead cat likely, but still a decent bounce).

The last FSLR charts are more specific to today's process itself and the market averages below are confirmation of what I see intraday in FSLR. I already have the September $38 FSLR Call ticker ready so when I feel it's time (if), I can just move to open the position.

FSLR 60 min

 FSLR 10 min

FSLR 5 min and the VERY clear range which increases the probabilities of a head fake move below support to run stops which is often the last thing we see before a reversal and that's why a head fake move makes for such a great timing indication.

The overall 1 min chart trend is very positive, it's not as obvious when looking at it on an intraday basis.

 This is the 1 min chart on an intraday basis, although the reversal process has come together nicely, it still looks like it needs a bit more time and the 1 min negative divergence suggests that it pulls back a little intraday to allow for that. You'll see the market averages confirm the 1 min FSLR chart.

 The 2 min chart has been growing stronger all day as I'd like to see. You can see the uptick in volume as stops are run just below the support zone of the recent range.

The market averages confirm the FSLLR 1 min chart's negative intraday divergence to give the reversal process some more time. I don't consider FSLR to be the only opportunity, I just consider it to be a great proxy for all of the different moving pieces that need to come together before the risk:reward profile starts to make sense.

 DIA 1 min intraday negative for a pullback most likely.

IWM 1 min negative

QQQ 1 min negative

SPY 1 min negative

The Carry Connection

Personally I think it's suicidal to be engaged in any carry trades right now (one of the only reasons to be in them is to leverage up your AUM and with carry trades the leverage is often 10:1 but can be as high as 200:1 which can make a very small move in the currencies absolutely devastating to your position), however as we have seen numerous times in the past, Amaranth Advisors or Long Term Capital Management, sometimes the smartest guys in the room are so smart they need to be carried inside from the rain, or in other words, they do suicidal things thinking they can outsmart the market; it didn't work out too well for either of these firms and the second almost took down the US financial system and this was the dream team founded by two Nobel Prize winners in economics including  Myron Scholes who won for his work in the Black and Scholes options pricing model.

In any case, the point being, I'd think by now FC "carry traders" would be completely unwound, but apparently they aren't.

 This is the daily chart of the AUD/JPY (one of 3 popular carry trades from November of 2012 to April of 2013), you may remember these white FX charts as I was tracking the carry trades every day looking for the reversal in them which I found around April/May this year.

The carry trades were started just previous to the November 16th market low.

 USD/JPY 1 day

A closer look at the daily chart of USD/JPY which shows the carry is underway as the market bottoms on November 16th of 2012 and it tops in the April/May Period.

The more specific point is another site that does good work or is submitted good work from other sites, made the argument this morning that the USD/JPY carry suddenly and VERY abruptly switched from US equities and Treasuries around 4 a.m. this morning on the better than expected German Zew Business confidence survey and instead went in to European peripheral sovereign debt, the example they used was Spain, which  I think is a hard case to make as Spain's Bond Spreads were already trending lower yesterday, gapped down lower and about 2 hours after the open saw a severe draw down, meaning Spanish debt was being bought with the USD/JPY carry rather than US equities and Treasuries,  they make a pretty convincing argument, but provide only one European peripheral sovereign to back up the claim. There are a number of reasons the PIIGS Bonds could be bid which include secondary market intervention from the ECB, perhaps just a simple rotation or it could be the USD/JPY did flip and that would make sense if the market were finishing up on the pullback we expected, it's hard to knock a market down when it's receiving carry support, but that doesn't seem to be the whole story in my view; I don't think 1 chart can explain a situation credibly, you need confirmation.


I did notice last week that the AU?D/JPY carry cross did slip in as market support for a short time last week in leu of the USD/JPY so I looked closer in to the pairs and the single currency futures that make up the pairs.

*Remember when we look at a pair like USD/JPY moving up, that means the first currency is the long in the pair and the second currency is the short of the pair. So the USD/JPY moving up means there's $USD strength and relative JPY weakness, buying USD/JPY is like being long the $USD and short the JPY.

Looking at the correlation with /ES futures (SPX E-minis) here's what we get.

 This is the USD/JPY 1 min overnight and to the present in the candlesticks vs ES in purple.

According to this chart it does look like Carry traders jumped ship before pre-market today as ES fell and the USD/JPY carry held strength suggesting it was put to work somewhere else, what would cause such a sudden and large shift is hard to imagine, I doubt the German ZEW poll alone could do it, but perhaps if they needed to create a final flush to the pullback we have expected and that has been taking place right under out noses, then that makes more sense.


The thing is the AUD/JPY carry cross looks VERY similar to ES, ES is a bit more extreme, but that happens when stops are hit. Could the AUD/JPY have switched out like it did briefly last week? It seems it has.


So now we have to look at the single currency futures to better understand what each carry trade is likely to do, we'll start with the JPY first, anything that looks like JPY strength is going to be bad for either carry cross and ultimately the market. JPY weakness is good for the carry and market strength, AS USUAL, TIMEFRAME ANALYSIS IS ESSENTIAL TO UNDERSTANDING THE MOST LIKELY SHORT TERM AND LONGER TRENDS.

 JPY 1 min short term shows some strength building, this would suggest some near term market weakness or that the JPY is just starting to build a larger base of support that would match up with our ultimate "Big Picture" market view, the JPY would strengthen and weaken all carry crosses and help send the market lower.

The 5 min JPY is seeing positive divergences, but it's missing the process, so it looks like the start of more positive action, but more like it will spend more time building out that positive divergence in the area.

The rules of the "Reversal Process" apply to the huge FX market just as they do to the equity market.

The 15 min JPY shows "top" weakness and since the decline the kind of positive signals we look for in a pullback, again suggesting the JPY is likely working on a larger reversal that would likely sync up with our "Big picture " view of the market and help it move to the downside.

As far as the long $USD charts...

 $USDX 1 min intraday the $USD looks like it will lose some strength, that would not be good for the market or if the USD carry traders are indeed operating exclusively in European peripheral bonds, then it wouldn't be good for them.

$USDX 5 min the 5 min chart shows weakness which matches up with the $JPY strength building so this makes sense, it's a question of what timeframe will this effect, is it building for near term movement or longer term divergennces?

$USDX 15 min The 15 min chart is showing weakness RIGHT NOW, but it has a base with a good amount of accumulation that should push the $USD higher before it loses momentum, short term though it may indeed fall, it comes back to the timing question which is difficult to answer.

$USDX 60 min. Ultimately the 60 min seems to confirm the $USD has more strength in it.

As for the $AUD...

 The $AUD 5 min chart on the other hand looks stronger than the $USD short term so if it is the carry cross operating in US equity and treasury markets, it looks like it has the ability to provide market upside support along the lines of our expected bounce.

The $AUD 15 min also shows the same support.

Longer term though at 60 mins, the $AUD has failed.

Right now, THE AUD/JPY LOOKS LIKE THE CARRY CROSS MOST IN LINE WITH MARKET EXPECTATIONS OF A NEAR TERM BOUNCE, BUT "BIG PICTURE" WEAKNESS.

I have a feeling the other site had it half right, but didn't follow all of the clues.

It seems the AUD/JPY is now steering the US markets and the way it looks, it seems to make perfect sense with our market expectations.