EUR/JPY and the Yen

This is the earlier post of the EUR/JPY which runs the market or lets just say has a very strong correlation to the market, especially on overnight ramps.

Yesterday in my 10:59 Market Update I posted a "Shocking chart" for anyone who follows the currency cross vs the SPX futures (ES- S&P E-minis)...

The EUR/JPY are the red/green candlesticks and purple is ES, my comment yesterday under this chart was, "this is not normal".

Overnight did you notice the futures didn't ramp? Take a look at the pair overnight...

 This 5 min chart of the EUR/JPY shows the pair making a high for the week right around yesterday's 4 p.m. New York close, you can see from there, the overnight session was ugly, maybe it was partly due to the Chinese carrying out a reverse repo (as it is Thursday), but putting a fixed rate of I believe 4.3% or so, in any case it was well above the early October rate of 3% (the translation being it seems the Chinese are managing a tightening episode, not ending one). It certainly could have been Japanese Food and Energy inflation rising at a fast clip while wages are falling for something like the 14th or 15th consecutive month. It could be whatever brave souls are left in carry trades didn't like yesterday's F_O_M_C and decided to close them up.

Remember a carry trade is one of a hedge funds best tools to increase their funds or we might say margin, so long as it's going their way. You might recall that BOFA/Merrill Lynch just announced this about their Hedge Fund clients...

Last week, BOFA's hedge fund clients unloaded the most stock since 2008, while institutions and retail clients were net buyers.

 Net sales were entirely due to hedge funds, whose net sales were the largest since December 2008, and the second-largest in our data history.

In any case, around 12:40 or so I posted this 3C chart of the FX pair with a slight positive divegrence as they went from highs for the week to lows.

Important Market Update

The scaling on this chart is horrible, but you can see roughly the impact on the market... (ES)

As 3C posted a positive divergence at the EUR/JPY lows of the week, both the FX pair and ES went higher until the FX pair turned down taking ES with it.

Amazing huh? I'd say back around April I was posting charts of the 3 pairs every day, it probably got annoying because it really doesn't seem to be market related, it's not like, "NFLX just crossed above its 10-day moving average", but it was clear that if we wanted to know when smart money was heading for the doors, the Carry trades were one of the best barometers of that, now they are just being abused through this unnatural correlation.

I'm not even going to guesstimate what I think might happen here based on the current divergences until/unless I see something much clearer, but if the pair were to trade laterally for a bit, they could probably manage a more impressive bounce than earlier today and that might in turn cause some chop, Not to say we didn't already see some chop today, but I actually had something a little more extreme in mind.

For those of you who like to or need to plan ahead because of your jobs, I'll show you something that might be of interest. There are two articles I wrote in April of this year when the Bank of Japan first introduced QE-Zilla (doubling their monetary base in 2 years). The two articles are linked near the top right side of the members' site and called, "A Currency Crisis". Obviously many of the finer details are out of date, but the broad assumption was that the Yen would likely rise about the same time the US market crashed (and there are crash stories everywhere and from reputable people, honestly I don't like them at all because the market usually does the opposite of consensus so these stories popping up everywhere the last 3 weeks make me uncomfortable, but I just try to rely on analysis as these same people change their tune in a day).

For the Yen to rise, I'd think some pretty unbelievable things would have to happen in Japan and especially as it relates to probably the most ambitious QE ever seen, I don't pretend I have the answers to that one.

 This is the daily 3C chart of the single currency Yen futures, you can see what happened after the initial drop in April after the BoJ's policy announcement and a large triangle since then.

In my experience a triangle this large is almost never a consolidation triangle in which case it would be expected to break lower, but coming after a downtrend and this size they are usually bottoms. Around April also is when we started seeing changes in character in the carry trades and they were being unwound so some of this 3C divergence may be due to repurchasing the Yen to unwind the carry trade and perhaps the BoJ's QE has kept prices down during that period, it's difficult to tell, but there are very clear problems with their CB policy. It does look to me like this triangle is tightening up in to an apex and would be expected to breakout one way or another very soon.

Correlations are funny things, so I can't say with certainty a rising Yen will accompany the destruction of US markets, but I can't see how it can help as carry trades to create risk on leverage would be out of the picture.

The 60 min chart is leading positive too and this is more of an issue now that the triangle is winding up toward an apex or end (point).

The 30 min chart looks like the Yen will head higher in the next week or so as the rallies and declines are smaller and smaller.

I'd take a look at those articles, keep an eye on our currency analysis and pay attention to what's going on with cash crunches or interbank liquidity crisis in China and how China reacts to Japan as well as the Japanese market, particularly their JGB futures rather than stocks.

EOD Update

Very Quickly, most major averages have worse intraday negative just like BIDU's went negative intraday, I don't know if we get a positive to keep up a range of chop or if there's enough stored on some slightly longer charts, but it's now clearly looking ugly.

Glad I held trading shorts.

BIDU Trade Idea Update

I don't know why I didn't do this before, but I had been reminding you after the fact that before the bounce off the 10/9 lows, I had been looking for a strong rally to the upside and this was BEFORE there was any 3C indication of it.

My reasoning was that there were "Hundreds" of shorts on my watchlists that were just so close, but they needed that extra little push and that wasn't happening without the market driving.

This is 1 of those actual posts from Sept. 25 with the exact wording at the time and this was one of many in that time period, so we were expecting this move up first based on behavior and second we started to get 3C signals confirming the behavioral theory.

The comments from Sept. 25 as this is relevant to BIDU (Bold was from the original post)...

"In fact, the best reasoning I see for a market bounce is hundreds of individual stocks themselves and the vast majority have their own signals to bounce.

HOWEVER, LETS NOT FORGET THE OTHER SIDE OF THE COIN, that's why I took the time to remind you in the post linked above, what the averages look like and they are no joke. Those aren;'t divergences off in the future, those are divergences we are in the middle of right now so now is a time to pick and chose your battles, to be patient and know when to paddle in or when to swing that bat."

These comments are from Friday Sept. 20th...

"Last night I was trying to communicate that there's almost always a goal behind a market move, like when I said, "That Bull-Flag didn't appear by chance " yesterday. I explained the reason as well, the hundreds of beautiful short set ups that are just 1-4% away from near perfect entries, but more than that, from the kind of demand (higher prices and volume) Wall St. needs to position in the size they trade, so I haven't changed my tune at all since August when the accumulation range started forming, I'm saying right now and last night the exact same thing in August that I thought would happen and thus far has."

Here's the last BIDU Update in case you want to look at more information.

 THIS 5 DAY CHART IS EXACTLY THE KIND OF MOVE ABOVE FORMER HIGHS I WAS TALKING ABOUT IN SEPTEMBER AND BIDU WASN'T EVEN ON MY LIST OF STOCKS I WAS LOOKING AT.

The ATR on the last run is significantly lower than on the previous.

A Channel Buster on a daily chart, these are the "Changes of character" we look for as they lead to changes in trend. Usually we'd see a move back inside the channel before a failure, BIDU just missed that. The yellow to the right would be the new high and yesterday which I believe was earnings looks a while lot like a churning day better known in the west as distribution days, expensive shares exchange hands from strong hands to weak hands.

 This 4 hour chart seems to show the set up for the run above resistance with accumulation , then distribution right before the Channel Buster and a leading negative since, basically it never recovered.

60 min chart, distribution at the Channel Buster, again on the breakout new high  which did have some volume, we have a leading negative signal instead of 3C at a new confirmation high,

The 30 min chart shows the same process with more detail, distribution across that entire head fake area.

The 15 min chart shows more detail as it should, distribution INTO the Channel Buster and at the area we were looking for these stocks and hundreds like it to move to.

The intraday chart shows recent and very small accumulation, it looks like just enough to help BIDU over the hurdle, the yellow would be a head fake area or failed breakout as there's distribution and today we see more on the intraday highs.

Again the same small accumulation on a 2 min chart to help BIDU above resistance and a positive this morning at the lows with negatives at the intraday highs.

The 3 min chart shows the same, it's scaled to intraday so it's more clear.

And we see the same at a 5 min chart, that's good migration for a single day. At this point I'd want some exposure to BIDU at these levels and if I can add at better levels, I'd have plenty of room.

Trade Idea: BIDU (Short)

As I'm going through the BIDU charts for the next post, it's just looking better and better.

I'm going to enter a partial 1/3rd of full size core position, phasing in with intentions to add the rest at better prices if available, this has to be part of your risk management BEFORE entering the position.

Market Update

After this I'll update BIDU which was an idea brought up several days ago.

This short term trade is very dangerous as the longer term signals, charts, leading indicators, etc are all strong enough to steam roller over these short charts, don't think they can't be steam rolled in this environment. Remember the AAPL short (full size) I had in place and I closed it to re-open it as we had some short intraday positive signals, but huge negative longer term ones. Well I got too fancy and thought I'd be ok, the Dan Loeb's top 5 came out and those short term positives were steam rolled and I gave up fantastic positioning and somewhere close to -45%.


I'm very open to any new information right now that makes short term trade more visible because it's very useful right now tactically.

However so far from what I see in the Index futures there's nothing there to say the chop or MEAT GRINDER theory isn't probable, but forecasting twitches and jiggles in the market is really something of an art that I'd rather not engage in, I want to know as much as I can and then look for the screaming signal that says, "Don't ignore me".

As for the averages, again, there's nothing there that tells me the chop theory isn't probable.

Here's the current charts and as we've seen recently there is a lot of dispersion between them, usually if you know what one is doing you can pretty much guess what all are doing, those days have past. *Later, after market I will give you as much information as I can and my best interpretation of that information and some things I think you need to know.

 My personal Russell 3000 Most shorted Index is underperforming the R3K today, no squeeze, shorts are down.

New divergences from yesterday would follow the normal path, 1, 2, 3, 5, and here 10 min. The positive did start yesterday as I saw yesterday afternoon and this is inline, maybe a bit better, the new divergences for today again start at 1 min and then out...

2 min positives yesterday and in to today's lows, price up on that small accumulation and early signs of some distribution.

***THERE'S NO WAY THAT I CAN SAY THIS BEHAVIOR IS NOT CONNECTED WITH THE TYPICAL FRIDAY OP-EX PIN, it very well could be.

 3 min also from negative and then late yesterday/today positive, price up and apparent distribution in to those higher prices, this I am guessing would be the first swing in chop, but as I said, I'll update that theory on any new information.

QQQ 3 min shows what we need in 1 chart

IWM 10 min, note the size of the accumulation is very small vs what's around it, if you wonder why I say "I think this is noise", this is why.

 IWM 2 min negative in to the afternoon, still intraday signals though

And the 3 min migration following that.

BIDU is up next...

Gold. GDX, NUGT Long Set ups and trading positions

The last time I had done fairly intensive analysis of the 3 assets which have a fairly high correlation right now my conclusion was that I'd hold NUGT (the same with a GDX or gold/GLD long) as a core/trend position.

However that wouldn't stop me from making counter trend and short term trades from a couple to days to swing.

I also felt that the long term underlying trend in gold suggests that the downtrend was coming to an end and we'd see at least a sub-intermediate to intermediate uptrend and if gold pulled back enough to widen the footprint of the base, then I'd upgrade that to an Intermediate to a new primary uptrend in gold.

Understand the most common reason for buying gold (and right now we are seeing very strong suggestive activity of such, more so than price represents) is inflation EXPECTATIONS, so if you are trying to figure out what the F_E_D will do, when, etc. that's an important pice of information. QE drove gold higher for a long time, that was based on inflation expectations with a weaker $USD as the F_E_D's printing press ran 24/7. There can be other reasons however than simply QE, as a matter of fact I do believe this would be the first and only time gold was bought because of QE based inflationary pressures which did mount and were very obvious in commodities and companies' margins between input costs and sales.

Not too much has changed in the assessment for both, but there is a decent chance for some misleading activity and a decent chance for some trades if you are pretty aggressive.

 GLD 2-day 3C chart
A) Accumulation at 2009 lows
B) An inline or 3C/Price trend confirmation
C) Where we first suspected a top due to intraday charts
D) At this point we already expected an intermediate to primary downtrend on heavy distribution
E) The current accumulation in GLD.

On a shorter timeframe of 30 min you see the strong accumulation phase and a couple of areas of gap fills we expected, 1 is filled, the larger one is the one I suspect we are heading to. There is a chance GLD widens it's base with a deeper pullback to the second white area forming a "W" or double bottom, often there's a slightly lower low, but that's something we'll deal with as it comes.

If GLD does make this pullback, I'd upgrade the future uptrend 1 notch to Intermediate to a full primary bull market. Not all pullbacks and declines in price are as bearish as they appear.

 This is the daily chart of Gold Futures, this is a significant positive divegrence confirming the GLD charts.

Again, I think you can imagine how easy it would be for a downturn to create a larger base in gold futures from here.

Gold futures 30 min showing in line price/trend confirmation at green and distribution on a smaller scale in red, but more than enough for a pullback.

Gold 5 min futures, this is positive and it looks like gold could chop around as I suspect the market is likely to do, I'd expect a wide chop to attract longs/shorts, but chop nonetheless so far with what we have.

*I mention this because ultimately it's noise, but it could either scare you out of a position, give you false confidence over a position or prove to be useful for tactical and short term trades.

 This is the $USDX 1 min chart w/ a negative divegrence, a pullback here would likely send risk assets (gold, stocks, oil) higher.

This is a 5 min chart which is more reliable, the same signal, this would be the first swing.

Ultimately though the $USDX  4 hour chart has a strong positive and that's a negative for risk assets so short term looks choppy and risk assets up and probably down in a wide range, but the more important trend looks like it agrees with most every other chart, risk assets down on a stronger $USD.

GDX-Gold Miners

 This is a 5-day chart, my view based on market behavior and signals in place is this large H&S type top is REAL and will eventually see the downside it's measuring implications predict,  THAT WOULD ULTIMATELY PUT GDX IN THE AREA OF MID-TEENS OVER A LONG PERIOD.

A) the Top,
B)The break where shorts jump in
C)  A consolidation that is actually a base
D) A breakout higher
E) A large head fake move that clears all the shorts and sets up the real leg down.

 GDX daily positive at the base described at "C".

The accumulation and first leg, but also a smaller negative suggesting the pullback we've been expecting.

NUGT 3x long GDX/Gold miners as confirmation

The same longer term base/accumulation

(4 hr. chart.)

 The current negative/pullback signal on a 15 min, but compare the accumulation period to the distribution and it too spells pullback that should be accumulated as it moves lower and make for an excellent , low risk, high probability long position that comes to you.

Very short term, 2 min intraday negative yesterday and going positive today as part of the chop (which I may change with new signals, but I'd still classify whatever we call it as trend noise),

This is not only good confirmation of gold and GDX, but all in all, good confirmation of near term market trade as well.

TICK

I meant to get this chart in too, it matches up almost perfectly with the 3C signals yesterday in the afternoon and today, many of you probably remember the 30 min trend version of this, it's ugly, but this is 1 min intraday we are looking at.

This is my custom indicator using TICK and SPY to create a histogram, you see the negative yesterday and late afternoon turning positive as well as today, remember this is short term .

This is the longer term for the last cycle or current.

First up as it should be with a new uptrend and then it starts fading

Important Market Update

I've been looking at the market all morning (the day after) and while I didn't listen to CNBC yesterday much longer than I had to, I've seen (I think we all have seen) QE expectations earlier this week go from "No taper until 2014/2015" to, "The F_E_D can never taper" and even "They'll announce an expansion of $15 bn in additional Treasury buying a month".

What a difference a day makes, today the "consensus" seems to be a taper in December.  My point is simply like the tongue in cheek prediction I made that the F_O_M_C would increase asset buying, but they'd do it last week", which makes no sense and it was not suppose to, it's a statement of how useless these predictions are.

Our best source of market information is market action itself.

I think before you make tactical plans you need to have some idea of what the broader market is likely to do, right now we are sliding down a slope so it gets a lot trickier. Retail is getting bullish again, but what do you expect, they've been brain-washed to BTD and I'm actually glad to hear it.

We all know the market can change dramatically in a few hours, even underlying trade can warn us of a change in a few hours so this is something that needs to be watched, but I saw something yesterday and I'm seeing some today, although dispersed as the averages are breaking correlation more and more.

The reason this is important is because about 2/3rd of a stock's movement is dictated by the market's movement and the second most powerful force is the Industry group which is totally at odds with the way most people pick trades, they pick the stock first and then hope the market cooperates.

MY GUT FEELING FOR THE IMMEDIATE FUTURE IS A CHOP-FEST, A GRINDING MACHINE. This is normally not the kind of market you want to trade, it's a portfolio killer.

So far I don't expect it to last long, maybe through op-ex tomorrow. 

Here are a few Leading Indicators and other things that tell me this seems to be the most probable direction (remember we have 3, up, down and sideways- no one likes to think about sideways, but it's real and it's dangerous).


*With Leading Indicators, the comparison symbol is always the SP-500 unless otherwise noted (green).

There are a few longer range charts in here, I prefer saving these for the daily wrap, but you know most of them, this is really just to demonstrate the atmosphere even with short term moves doing something different.

 Commodities intraday, not looking great, not leading positive, but this may change as currencies change trends.

This is the leading quality of commodities on a larger scale, it's the entire 10/9 cycle with commodities leading the SPX at the lows and leading at the highs. I only include this to give you a feel for the atmosphere so I'm not just leaving you with short term "choppy" (and choppy is my best guess right now based on what I see).

 HYG Credit has been pounded and it's a great leading indication for the market's important trend, however very short term...

Again these 3C charts if taken for the timeframes and the underlying trade those timeframes represent, should also tell you something.

 Intraday distribution in HYG before it falls and the slight 2 min positive divegrence that started yesterday and continues today, this would represent very short term support for the market, even if that were only sideways.

For a while it's been this HYG 60 min chart that has been perplexing as it was ready to support the market long before 10/9 and had been used in every rally before from August, finally it moves from 3C confirmation to 60 min leading negative. Many times it looked like it would do this with 15 and 30 min charts leading negative, but pulled out, now it's locked in.

Again this is to give you some sense of the structures that have been holding the market together that are collapsing.

VXX-short term VIX futures don't have the bid in them today you'd expect, but the fact they didn't make a lower low for a week also tells you something as the bid was there, I suspect there's probably some short term manipulation for the market's sake and to buy protection on the cheap.

 This is the trend in sentiment and it's not retail sentiment, it's important and it leads the market.

Again to show the broader atmosphere, this is the same indicator, I don't think it has ever been so dislocated from the market, but it goes to show where professional money has been going. It's almost a spitting image of what 3C has been telling us about the same subject.

 Yields are up today, that's short term supportive of the market, they are a fantastic leading indicator and act like a magnet for price of the market.

A longer view...

 Leading the market in August, Sept. and October whether up or down, but the current leading negative is the worst, again much like any of the leading indicators.

 This is the 60 min Yen chart, if it moves up with the 3C divergence the carry pairs move down and the market loses that support which it did yesterday and even the day before it started.

However short term I think the Yen pulls back, that allows the carry pairs to offer some short term support.

This is the EUR/JPY, you can see how the carry pair collapsed and where the market is now, however this short term 3C positive matches the Yen's short term charts so I do think the carry pairs or at least one or two will offer support.

AS OF NOW, I DON'T SEE ANYTHING IN 3C THAT SUGGESTS A COUNTER TREND BOUNCE UP AS AVERAGES LIKE THE R2K HAVE CLEARLY ROLLED, BUT I DO SEE ENOUGH TO CAUSE A DANGEROUS CHOP, WE MAY BE ABLE TO USE IT FOR SOME TACTICAL ENTRIES, BUT OVERALL I'D BE CAREFUL THE NEXT DAY OR SO UNTIL WE SEE SOME CLEARING, ESPECIALLY WITH OPTIONS.