Bernie Didn't Help

According to Bloomberg, Bernie's speech today amounted to...

"Chairman Bernanke gave only opening remarks on conference issues and did not comment on monetary policy.  There was no Q&A."

I've had a pretty good look around and I'd be wrong to say that today doesn't have a distinct feel of distribution. There are few bright spots, there are many transitory assets (between trades) and all in all, it's what I'd call ugly. Hit the panic button, load up on shorts ugly? For the day, it kind of looks that way, but I've seen the market flip in a half day so many times that I'd just say, "A day a trend does not make".

Therefore, I'll sit pat, I was hoping to have a decent trade for today like TLT Tuesday and MCP today just to keep some income flowing, but as I said, a lot of assets are in a transitional stage.

The TICK tells the story for the day, it's bouncing back and forth between + and - 1000, that's not an EXTREME, but it's indicative of a lot of movement and to me it looks like a lot of indecision, when there's indecision most pros will reduce their risk so that may be why today is uglier than yesterday.

Once again, it will be up to the futures tonight to tell us if there's any meaningful changes. For now I'm not panicking, I'm not taking on any risk without good cause and I don't see any great causes for that today so it's a day of patience.

It's even difficult to pull any decent analysis out of the market today.

The one thought I keep having centers on the IWM. We had two good days up and not the kind of breakout that it needs to get retail pumped. I've seen this a lot of times, it's kind of like trying to get a car out of the sand in which you have to generate momentum by putting it in reverse and then drive and then reverse again to get a head start on the next swing forward.

To me, it looks like the IWM needs to put it in reverse before it can make another shot at forward or up in this scenario.

  It's just kind of hard to believe that Wall St. would give up all the goodies just above right now, but if this debt ceiling issue doesn't start to take on some tone of cooperation and the U.S. is going to default on its debt for the first time ever in little more than a couple of weeks, then that's a pretty bearish event to overcome with gimmicks and manipulations.

The Reason for the Fence Sitting...

Being as I know a lot of economic reports like Initial Claims, etc will not come out due to the government shutdown, I didn't look at today's schedule, but a member sent me a note and it makes perfect sense as to why there's so much activity in the market that looks like fence sitting all day, Bernanke speech at 3 p.m. With the gov't shutdown and the possibility of US debt default, Bernie's words take on new meaning.

GLD Trade Set Up...

Looking at GLD, there are finally some charts worth publishing, often it just takes some movement to see how trade reacts.

The idea here would be GLD as a long, but on a pullback or gap fill (today's gap).

Here's the charts and idea, I'd set alerts if you are interested.

 This 30 min chart of GLD is interesting, but up until now three haven't been any lower timeframes moving in the right direction or any direction at all to link up with this longer term chart that seems to have grown even stronger as a double bottom support level is taken out, the yellow bar is today's gap.

You can make out some divergences on this 5 min chart, but for the most part is has just been sloppy, this is why I didn't even want to publish them because I didn't even want to take the chance that someone tries to justify a trade bias with something on this chart because there's simply nothing there to give you an edge.

 However there's a clear change on the 3 min chart now, this should build in to the 5 mi soon which moves us closer to a reasonable trade.

The 1 and 2 min intraday charts look as if there will be a pullback, maybe even a gap fill, "if" there's accumulation on a pullback, then we are in good shape for a long position and judging from the 3 min chart and the longer term 30 min bias, I'd say probabilities are good that a pullback would produce accumulation, that's the set up we'd be looking for, lower risk, higher probabilities.

PCLN as a Quick Put

I was asked to look at PCLN and I think it looks interesting as a "Hit and Run" quick short/Put (I'd prefer the Put), however for November expiration there's VERY little liquidity so I took a pass, you might like it however. I think it's along the lines of the TLT, MCP positions, in and out on momentum.

Market Update

This is the first of the day because I've been watching in hopes that I'll see something different during the more liquid regular hours than I saw in last night's overnight trade which lacked any market support at all as seen on the open today.

As far as today's lift off the gap lower, technically (to us, not retail), it's almost like a pause in the market, the IWM did NOT make a higher high and thus a breakout above the ascending triangle which is probably one of the only close catalysts that can re-shape trade quickly.

The SPY still has that 15 min positive, the IWM's 10 min positive took a small lump today, it's not enough to negate the divegrence, but it's not helping either.

HYG credit was the only (or main) asset Friday that really suggested the market WOULD NOT fall in a -10% 2011-like move, however a lot of what was there Friday has faded and right now there's no strong indications, only a hint that HYG "may" create a lateral consolidation/base that could be helpful on the upside, but it's so new that it could really turn in to just about anything.

The charts...

 SPY's intraday negative yesterday and today. The EOD yesterday was saved by VIX futures being manipulated, they are still lagging, but they are showing improvement. Short term VXX/UVXY are lagging a bit too, but much closer to in line or just indecisive. The longer term have been positive for some time and are still positive on longer charts which fits well with the larger market trend being a bearish one and expectations for larger trends to be bearish.

 SPY 5 min is still leading positive after last week's weaker positives.

The 15 min is still leading positive and there is a rounding process look to price itself, so I'm not giving up on a move higher, today just seems to be more fence sitting than real movement.

The TICK data for the market vs the SPX is losing its ROC just as price is doing the same as there are a number of intraday negatives much like this period yesterday before a late afternoon reversal.

QQQ 2 min above and 3 min below look bad and the Q's themselves look the worst of all of the averages all the way around.

3 min QQQ

IWM 2 min intraday is fading as well

As is the 3 min in an even worse reading today.

This may be why the 10 min chart has a small relative negative divegrence today.

DIA intraday is fading and negative

The 30 min chart, like the SPY 15 or IWM 10 min still hold out the promise of higher prices so long as they don't just sit here and deteriorate from distribution.

ES 5 min looks worse today than yesterday

As do NQ 5 min futures

 Only the 5 min TF look different, this is to me the most important average at the moment.

Sentiment in at least one of the two keeps moving higher.

It's pretty hard to get a feel, unless I can say, "It feels like there's very little conviction and a lot of sitting on the fence".

I'm going to spend more time on individual assets and see if a composite picture appears, this is old school analysis for me and very labor intensive as you need a large sample of at least 100 charts, but it may be the only place to find something that is giving a stronger view of the current situation.

XOM Follow Up

Yesterday after several XOM trades and a core position trend trade were all successfully executed, I opened a XOM November $85 call, this link takes you to yesterday's analysis of XOM as well as the equity play, ERX which I think works well too if you don't want to use options.

Here's where we are today and remember oil is not the same as oil Energy and XOM is closer to the Energy sector than just straight oil, that's the reason I chose a leveraged version of XLE with ERX. However gains in oil will help the energy sector, so if you didn't get involved with XOM, but may be interested, here's your update.

 In yesterday's analysis I explain the gist of this ascending wedge and how they react as well as the head fake move which is part of the basis of an XOM long.

To the far right is the break below the larger wedge above and then a bear flag that consolidates in an upward sloping parallelogram as all flags should (against the preceding trend), the break under that is a smaller head fake, this is what I tried to explain in a recent video, how small head fake moves are like small fuses that light and prime larger fuses like the larger move below the ascending wedge.

Therefor my targets are at minimum an entry back in to the flag to stop out recent shorts, 2 a move above it which will do the same more effectively and 3 a move back inside or even above the ascending wedge's apex which would be a beautiful short set up as squeezed shorts provide the upside momentum. I'll be setting alerts for each area.

The 10 min 3C chart looks good, it went negative and price fell, this is when we closed our last XOM long, now it is positive and leading positive and I suspect we just saw a head fake move as the overall rounding price pattern is the reversal process we look for and is about the right size.

I drew in what I expect to happen with price and 3C shortly.

This is actually a low risk entry as a stop can be placed below recent pows and really be pretty minimal exposure.

MCP Follow Up #2

Earlier I closed 40 of the 50 contracts as the 10 contracts were paid for with the profits with an additional $1,000 already locked in.

Here's the P/L for the last 10 contracts.

As momentum died a bit by the time I got back to MCP, I lost $.10 on the contracts so that's a clear example of what happens when you lose momentum and even intraday volatility / theta kick in, this is why I'm quick to take the trade off if momentum looks to be fading, you can always re-enter.

The P/L @ a $1.52 fill and the same $.96 cost basis came out to be +58% over the earlier +.38% , but 10% less than if I had closed these contracts before momentum was lost intraday. That leaves us with a n average +42% gain or a bit over $2,000 for a half day of market exposure. Even MCP equity longs did well with a 10-15% 1- day gain, that's seriously not bad at all.

 MCP 3 min leading negative, I waited a little too long here.

 MCP 5 min leading negative.

However, the good news is our next MCP set up is looking more and more likely.

I like to capture initial breakout momentum with options, it multiplies the effect, but when it comes time to capture a longer term trending trade, I prefer to use a straight equity trade, it's less hassle, less draw down and a solid position.

 "To make money you have to see what the crowd missed"... In this case, a simple 2 day chart shows us what happens in MCP after initial momentum, a consolidation which is what we need to hit the most probable initial pullback of the 10-bar (60 min) moving average on our X-over screen as explained earlier today.

I drew in where I think the 10-bar average (price) will be by the time the two meet, somewhere around $7.20 and I want to set my alerts for this area so I know when MCP arrives there so I can double check underlying trade and if all is as it should be, enter MCP long.

Closing last 10 MCP call Contracts from Yesterday

USO Update

I'm happy that in this crazy environment of a market, we made the right choice with the TLT trade and did well, we made the right choice with the MCP trade and did well and for the third day of the week, I knew USO was next, but didn't move on it fast enough and am actually quite perturbed with myself which is something I usually don't do, but it was clear, I mentioned it yesterday as the next trade, last night and pre-market, maybe there's still something. I'll set some alerts and see if it comes to a reasonable area, otherwise it's off to the next.

 Long term view of USO, the breakout of the triangle and parallelogram is NOT a bull flag, a flag consolidates away from the preceding trend or "flag-pole", this is consolidating with it so it's an unstable price pattern longer term and that's why I think a move to the upside will set up a larger short trade, that one I won't miss.

*Note the head fake moves before each of the major breakout/breakdowns?

 Maybe there will be some resistance at the bottom of the range that gives us a decent entry.

The 3C charts were all set up, we had the head fake below the recent range and the leading positive divegrence.

Even 30 min crude futures were leading positive.

We will see if the trade can be salvaged, but if you pay attention to the price movements, it's clear what to expect from these price patterns based on how Technical traders thing, I knew there would be a rally in USO, I've been waiting for confirmation and that's just because it broke support.

For the larger short I expect USO to see at least a move back inside the range to shake off shorts, a move above the range is a taller order, but a stronger short with less risk and built in momentum as longs chase the break out and provide supply to snow ball price lower as they are stopped out.

MCP Follow Up, P/L, the Next Trade

MCP was actually entered around 3:15 yesterday so that nearly +40% gain was for about an hour and a half of market exposure with a quality (November) call.

If you're curious as to why the trade was entered (as we have been pretty cautious the last week and a half, here are yesterday's charts.

With a cost basis of $.96 and a fill of $1.33, the P/L came to + 38.55%. 

You may have noticed I only closed 40 contracts of the 50, that's curiosity to see what MCP will do and since they are November expiration, that should minimize Theta burn. Besides, the nearly $1900 gain pays for those remaining contracts and still guarantees at least a $1000 profit even if they expire worthless.

 I showed you in the linked post above how MCP respected support and resistance and the "Tweezer-like" bullish reversal yesterday and Monday right at support.

I said I wasn't sure if this run would make it to the breakout of the ascending triangle base, which is NOT a consolidation/continuation pattern, it's too big. However, irregardless of whether it was going to make a breakout or not, I said I thought it was worth the trade, even if you just traded the stock itself with no leverage, you could have made +14% thus far over the last 2.5 hours.

This is a clean set up for 3C and a typical one. Starting with "A" , A relative Positive Divegrence in to "B", a relatively flat price range, "C" a Head-Fake move below the Hammer's support /Stop-run with "D" a Leading Positive Divergence confirming the head fake move.

This is a typical, solid long / 3C set up, all of our concepts are there in the correct order. That's a nice way to start the day with a 40% gain with less than 2 hours of market risk.

 

 Here's a 10 min chart of the same region, 3C continues to make higher highs and lows as we get our best timing signal, the head fake move that is confirmed by accumulation.

This is why I cut out, the trade is VERY parabolic, this is exactly where I like to take profits with options before momentum fades as do profits. My next play would be to enter MCP as an equity long (maybe a call position with it for the initial move).

Using our Custom X-Over Screen, Usually after a long signal cross-over the first pullback is to the 10-bar yellow average, as long as our other two indicators stay long and 3C confirms accumulation in to the pullback, that's where I want to buy MCP equity for the longer move to the upside. I drew in where I think the 10-bar average would be by the time of a pullback, it's a best guess, but the $7.20 region, although that parabolic move has the potential of a deeper correction if we don't breakout of the ascending triangle.

Then MCP becomes a longer term trending trade.

Closing MCP

If I were long MCP stock, then I'd keep this one open, but yesterday I opened a MCP November 6 Call and I can't let a nearly 50% 1-day gain walk away.

There's still pretty good early confirmation, price is just too parabolic for me not to take profits.

A.M. Report

Not much to report, we are gapping down and am I surprised? Should you be surprised? I don't think so considering there was no overnight support at all and I even waited nearly until midnight to see if any hint would develop, here's what it looked/looks like in SPX / ES 5 min futures.

ES 5 min- there "may" be the start of a positive forming so I would not be surprised if we saw strength toward the end of the day/afternoon, I didn't say we would see it, the divergence has to develop first, but I would not be surprised.

Treasuries will gap up as expected and hopefully a new TLT trade will present itself. Gold and Silver are still showing improvement, but I think they have some more work to do before they are ready for a trade.

My early focus will be on a crude/USO long play before it heads down as I mentioned last night.

Lets get busy

Bang Goes the Close

Earlier in the day (mafternoon), I mentioned that VIX futures did not look bid, the bid for protection against a downside move. You probably recall all last week how I was saying the accumulation was weak at least until Friday. I also said the very fine line between the positive short term and the negative long term is very fine, the short term is very weak and the long term is very strong. I suspected there's be some games to get the market higher like a breakout above the obvious IWM Bullish Ascending Triangle, they need retail to do some of the work and a move above the triangle can do that.

Well they took that weakness in VIX futures which may not have been weakness at all, but manipulation and as an easy asset to manipulate intraday, used it to do a number on the close, but this was planned out well ahead of time.

 15 min VIX Futures and the 3C lagging weakness I mentioned, this made it easier to send VIX futures lower near the close.

VXX which is one of the triggers for the algos/computers, sank quickly on a leading negative that was set up hours before as you can see in my market updates with weakness in VIX futures first.

Since the VIX trades opposite the market, the market ramped in to the close.

Here's the intraday IWM, first clearly negative and made a downside move, then a market update said the 21 min charts are going positive, this is the market knowing ahead of time what is going to occur in to the close and positioning for it.

The SPY might be a better intraday example.

A clear intraday negative steers the SPY lower off intraday highs and then a VERY clear 1 min positive builds out until the ramp takes place. That quite literally is the evidence of traders, market makers, specialist, computers, etc taking a long position for a ramp in to the close, considering HFTs trade in micro seconds, a couple thousand trades executed per second for a few cents here and there really adds up.

The point is, we saw the set up earlier in VIX weakness, they knew what they were doing because they were doing it.

The SPY 15 min still looks like it can and will make the upside move I've been talking about, as I said earlier today, the short term long positions are difficult, but when we start entering or adding to the long term core shorts, these positions will be MUCH easier, the trades will last longer, they won't need baby sitting every minute and they won't need excessive leverage like options.

The only thing we need is the same thing we've needed this entire time, bulls to take the bait and a breakout of what I've already called several times, "A manufactured price pattern" in the IWM.

This 10 min 3C chart of the IWM also suggests more upside, although futures tonight don't look very supportive of it. Do you think it's coincidence or a natural occurrence that a "bullish" technical price pattern which is larger than normal, shows up right now with price just at a break out level in which technical retail traders will not only watch, but likely chase?

I've said since last week, "This price pattern is no coincidence". The market itself I don't think has the juice to make the move and judging by 3C, I don't think smart money wants to invest what it normally does to make a cycle like this work considering how close we are to a deep ledge, take the IWM 15 min chart...

That's the difference between the 10 min and 15 min, that fine line between a breakout and a total break down and this is why smart money isn't willing to invest in the cycle as normal, THEY ARE COUNTING ON RETAIL TO DO IT!!! Why else would that ascending triangle be there? WHY ELSE WOULD FUTURES BE GREEN HOURS AFTER THE U.S. GOVERNMENT SHUTS DOWN  as they are ramped or held together in the low volume of the overnight session?

This isn't going to be a cake walk with such slight difference between an upside move and an avalanche, but we stick with probabilities and objective data and we don't gamble.

I was hoping by this time, Index futures would show some reasonable 3C support to make this IWM breakout stick and see follow through, but I was disappointed to not only NOT see that positive support, but in fact it looks like they are selling in to even this small move. This doesn't mean that the market falls and can't move up as distribution, like accumulation or reversals, is a process, but it's one well under way.

Sentiment is split between out two Leading Indicators, but the one that is positive was positive all day, long before the EOD ramp. HYG and JUNK Credit showed better relative performance than I expected, HY credit isn't gaining ground anymore, but it's holding that positive stance it has had for the last 7-9 trading days vs the SPX.

The hammer I talked about in the daily SPX chart was not for conversation or to take up space on these pages, it meant something and tonight you can see clearly what it meant. Remember, the increased volume on the Hammer (upside reversal candle) gave it a much higher probability of success, I'd say if a normal hammer had a 65% chance of a reversal, when volume increases that goes up to about 85%, maybe a bit more so it was a significant signal.

SPX daily reversal, today's candle confirmed yesterday's hammer reversal. Now, to kiss the channel goodbye or to try to get into it? I think getting into it is a tall order, but that would normally be my response, all we really need is for retail to turn bullish, if we get close enough to kiss the channel, we are close enough to enter it and cause all kinds of havoc for retail shorts.

The Dominant Price/Volume Relationship among each of the major averages' components was Price Up / Volume Down, as you might imagine. This is actually the most bearish (weakest) of the 4 possible outcomes and it was DOMINANT through all 4 major averages.

I even looked at IYT/Dow-20 / Transports for a short term long position because I had a very strong feeling that to make a rally believable, transports would have to join the Industrials, this is another example of a total farce of Technical Analysis Dogma rigidly adhered to with no understanding of why. Wall St. sent Transports up because retail expects them from Dow Theory which was put forth over 80 years ago. Back then the Industrials and Transports which were almost exclusively railroads, had to rally together, it only made sense as an industrial nation; if we produce more industrial goods, the transports should do well as they have tio ship them, but the U.S. hasn't been an Industrial Economy for decades now, we are a services economy and transports (except maybe Fed-Ex that deals with services) are totally irrelevant and we all know the economy is not doing well so Transports are not doing well, it's just another thing Technical Traders believe so Wall St. put it there for them.

As for Breadth, stocks above their 200-day m.a. were at 61% at the August highs, they're at 51% now and down from 82% January 23rd.

Even though the SPX made a higher high, stocks above their 40-day m.a. did not. The McClellan Summation Index is making its second lower low instead of moving up with price, the points are  May highs, July highs saw the first lower low and current highs are seeing a lower low. From May we were at +3500, now we are at -500, a clear sell signal using the MSI.

We know the market isn't strong, this isn't news, the question is, "Is it strong enough to pull off this heist?"Futures tonight aren't inspiring me, but I think Wall St. will do whatever they have to to reach the goal and we're hot on their tails.

Of note in futures tonight, gold futures are showing improvement finally as are silver, I wouldn't run out and buy them, but they can go back on the watchlist as they come out of the twighlight zone.

I closed the TLT put today for a +16% gain and said I'd look for a new entry on a bounce to re-enter, it looks to me that 10 and 30 year futures are getting enough support for that bounce so today's sale seems to have been perfectly timed and sets us up with another trade opportunity.

In my opinion, crude/USO are in trouble, but I think we can see 1 more bounce above the recent range that sets up a long term / trending short, so that bounce looks like its tradable, that one will be on the watchlist as a counter trend bounce as the downside looks like it will curtail shortly as 3C improves short term so that would be a quick long with leverage and then a core short set up above the downward slanting range it broke under.

This may be a problem for the market, it's not helpful, but the 60 min Nikkei 225 looks really bad, maybe it can get a countertrend bounce in somewhere, but for all intents and purposes, this is looking like you can stick a fork in it.

Nikkei 225 Futures 60 min LEADING NEGATIVE and this is no joke, this is VERY serious.

Note the flat-ish trading range as 3C saw deeper and deeper distribution, this is so typical, it's an effect of trying to fill institutional sell orders near VWAP or a range designated by the Institution, it means a lot to the middle man (market maker) and the firm they work for to get and keep business like this for a number of reasons, so these flat ranges with distribution or even accumulation if it is a bottom type range, are very frequent. 

This is why I always say, "You know there's trouble when the kids are a little too quiet in the room next door". These seemingly boring, flat ranges are actually seeing some of the most intense activity which is why I say, "Above all, PRICE IS DECEIVING".

FINALLY...

Short term it looks like the $USD could see a bump to the upside, nothing spectacular though. I think the $AUD saw a short term bottom last week and is in a small uptrend, it looks like it is correcting right now, but should continue higher, this may be fuel for a carry pair like AUD/JPY to help drive the market higher.

I don't have a strong read on the Euro except for the larger trend which is negative, but in the short term, it's hard to read.

Finally the Yen's move up has been pretty well supported, but since it made its high Friday morning, something has started to shift. It's not an obvious leading negative, but it's not the same confirmation it had since mid-September, so if the Yen drops and the USD, AUD or EUR can pick up the ball, then the market gets a lot of help it seems to desperately need.


Still, all in all, Wall St. wants and needs something and I think they will push to get it, they are just doing the bare minimum right now as we saw with last week's signals.

The Debt Ceiling is the event the market is really worried about, the Treasury has kept the U.S. alive and cutting those interest checks, but we officially ran out of money during May, the Treasury has been doing "Creative Accounting", the kind you or I would go to jail for, but their creativity has kept the money flowing for a bit longer, but come the 2nd-3rd week of October, all extraordinary measures will run dry. For the Republicans, they've looked like spineless cowards the last several years and it's hurt them in the polls, I think they need this fight with Obama and as for the Dems and Obama, Federal Health Care has been the Holy Grail for some time, remember "Hillary-Care" under Clinton? 

It's like whichever Dem got Universal, Federal healthcare done, was going to be akin to getting the "New Deal" done, so Obama who went after this goal rather than focus on the economy because he knew that was his best chance while the Dems had the seats to pass it, to get it done. They are not going to back down, even though by their own admission, the system is so plagued with glitches and snafus and there are so many labor unions who will need to be exempted to buy their silence, it really could take the year the Republicans are after to stall it just to fix the logistical side of things.

The point being, the Continuing Resolution debacle we are experiencing now is being viewed as "What's to come" with the debt ceiling, if it's not resolved by the time the treasury runs out around Oct. 22nd, the government will have to automatically and immediately slash the budget by 32%, you think 800,000 Federal Employees with no paycheck is a hit to GDP, just wait and see what happens when the US OFFICIALLY DEFAULTS ON ITS DEBT!!! That 2011, 20% drop on the last debt ceiling debate that was settled in time, would look like a pullback compared to what would happen  as the USD's reserve currency status is worth little more than toilet paper, but a lot more than treasuries.

In my view, this is why there's such a thin line between the IWM 10 min, "I think I can bounce" and the IWM 15 min, "You are going down, it's just a matter of time and not much of it!".