Weekly Wrap- Is QE Losing it's Luster?

Lots of interesting things happened this week, we finally exited the chop zone we had predicted which lasted nearly 2.5 trading weeks, the range was so obvious that I had called for a head fake move several days leading up to the move finally taking off and what did it take off on?

Well you may not remember but we had some really nasty actual signals and they sent ES futures (SPX) 10 points overnight, however in the morning the Wall Street Journal released an article in which the ECB for the first time mentioned "Asset Purchases" which means QE even though the European Central Bank is expressly forbidden from financing any country's debt so what do they buy? Eurobonds? I'm not even convinced they were serious, but after a .25 point surprise rate cut that held the Euro down for several days and then let go, they tried a different angle; this time the Euro was down for a few hours before heading higher, but the equity markets loved the idea of more QE, even if it is European.

Then, interestingly after hours Wednesday Yellen's prepared comments for the Senate banking committee were leaked just before the Thursday interview; the dovish release failed to move the market much (ES). Yellen came off as an unapologetic  Dove and while the markets moved, I don't think the move can be distinguished from a head fake move that was ready to launch anyway, even if  the market was up on the probable new Leader of Liquidity (who seems more dovish than Bernie by a far sight), the market sure didn't have the 400 or 500 Dow point response you might expect on a bigger dove taking over the printing press.

Then overnight Shinzo Abe and Kuroda's QE-Zilla from the BOJ is failing horribly as was evident as soon as it started, just read my currency crisis articles written days after QE was announced and see the trouble already immediately present.

Well it seems they figure if a lot is not doing anything, then more should...??? I guess they haven't learned anything from the 3 US QE episodes, but it did manage to send the USD/JPY over the benchmark 100 level.

Then, once again China's PBoC skipped out on the regularly scheduled Open Market operation of reverse repos on Tuesday and Thursday to inject liquidity in to the market, you may recall the last time they skipped 3 consecutive reverse repos and the market showed us many signals that it didn't like it, well they skipped out again Thursday and the Money Markets went through the roof, overnight repo rate rocketed up to 5.32% which is the biggest 2-day jump since China engaged in a huge June liquidity draining exercise that sent overnight repo rates up to 10%. Apparently smaller banks are liquidity starved and China needs loan growth for GDP growth, but apparently they are concerned with inflation(likely real estate) again and the market just doesn't seem to like it when China does this. As mentioned earlier, it may have been a shot across the bow of the F_E_D, ECB and BOJ all talking up QE this week one way or another. Net/Net, China DRAINED liquidity from the economy this week.


So how did the week shape up and end up?

Credit was VERY interesting because this is the institutional asset used to express a risk on position, long term it's severely risk off, but short term...

 High Yield Credit made an unusual and very deep move down today, we saw some yesterday in the Daily Wrap, but today was very clear, credit players (some of the smartest and best informed out there) wanted nothing to do with any market ramp.

While it may have looked like HYG was risk on, the underlying trade showed something quite different which was first noticed yesterday (after the Chinese reverse repo failed to go to market).

 That is a HUGE, sharp decline in 3C this afternoon in HYG credit, this is the form used for arbitrage and whoever had been supporting it just threw in the towel for the second time in about a week.

Here's a 3 min chart, HYG doesn't look like it will be up much longer and the market won't like that, but the reason HYG is seeing distribution is the real question.

As far as QE-Sensitive assets...

 30 year treasury futures on the week saw a positive divegrence in 3C and moved up into Yellen's y\testimony, but after the 30 year saw distribution and traded more QE OFF than you'd expect.

 This is the benchmark 10 year Treasury Futures and they traded QE on in to Yellen's testimony, but saw distribution after and lost gains in a QE OFF manner. Note how the 10 year looks worse than the 30 year as I have been saying for months. Hopefully we get a pullback in TLT down to $100 or so, then I'm interested in a long position. It looks like we'll see that early next week in a QE-OFF manner.

Gold which may or may not be sensitive to QE right now was QE on into Yellen's testimony, but again, after, a 3C negative divegrence. It seems perhaps the market expected Yellen to be more dovish than she was?

The longer term 60 min $USDX futures look like a $USD pullback which would be QE on, but it may have nothing to do with QE as it seems clear, the trend above was QE ON IN TO YELLE'S TESTIMONY AS IF THEY EXPECTED MORE AND THEN QE OFF AFTER HER TESTIMONY AS IF THEY WERE DISAPPOINTED THAT SHE WASN'T DOVISH ENOUGH WHICH I CAN'T IMAGINE.

As for GLD and GDX which have been a thorn in my side this week for the December call positions...

 It's this GDX 5 min leading positive that has me still long those calls, I think a pullback will see additional upside gains shortly. In fact...

The intraday 3 min chart went negative, GDX pulled back, but didn't fill the gap and started showing positive divergences in to the pullback which is exactly what I want to see considering I'm leaving the positions open for now.

 GLD's 30 min chart shows some real strength, it could be more, but for now, it's significant.

The intraday 3 min chart shows accumulation in to the lows and then a negative divegrence like GDX suggesting the pullback I expect on a gap fill before heading higher. There may be some great opportunities to buy a pullback in either early next week.

Looking at the VIX and VIX futures, as mentioned earlier in the week, it seems  there has been stealth VIX futures accumulation as someone seems quite worried about something.

 We have large accumulation this week on a 60 min chart, it seems to be stealthy, I doubt anyone would notice it without 3C except maybe relative performance...

 Like this chart VXX / UVXY refuses to make a new low as the SPX makes new highs, there's demand there and that's what we are seeing in the 3C charts.

Additionally the SPOT VIX with my custom buy/sell indicator that has worked fantastically, is showing a tight squeeze in Bollinger Bands suggesting a sharp breakout (market down) or break down (market up), considering relative strength and 3C divergences, I think VIX blasts higher taking the market down as a head fake move in the market looks like it is near complete.

For example... you saw the 3C charts for the averages today, how about the Index futures...

 ES 30 min shows accumulation in to the mini cycle I identified before it made the lows, the range to the left was distribution and just needed the chimney on the igloo, a head fake move and it looks like we have that in place with a leading negative 3C divergence telling us it's a false move rather than a confirmed breakout.

We see the exact same in NQ/NASDAQ 100 futures on a strong 30 min chart. The 5 min charts have been negative several times this week, that has accrued on these 30 min charts.

Additionally...

Yields lead the market, when they were above the SPX (green arrow) the SPX moved up, now they are below, yields are like a magnet for the SPX.

 XLF/Financials show the entire cycle since 10/9 lows , accumulation, distribution and head fake move.

 XLK long term cycle shows something similar, but closer by...

Since the mini cycle, distribution which is why I like TECS.

Speaking of Tech, AAPL which I warned about last night....

The 5 min AAPL chart was warning...

Today the 10 min chart was screaming, AAPL looks like a great swing short.

I'll have more over the weekend, but that's it for now. Enjoy your weekend!!

Checkout AAPL Short

End of Day Update

If the intraday charts hold up through the close, then I'd say Monday opened up or in the area, however because of the significant damage already in place, I'd think the most likely scenario would be that it closes down, perhaps that bearish engulfing pattern I was talking about in PCLN, it would fit well in any of the averages as well.

I chose IWM because of the divergences, because of the momentum associated with Channel Busters on the reversal and because the IWM ran to the upside, lowering the premium (like shorting in to price strength).

Many leading indicators intraday are unremarkable or in line, but High Yield Credit is not one of them, it has fallen off badly as it started yesterday and the most important credit asset, HYG looks like this right now, something very nasty going on there as they are flocking out of HYG as it follows the SPX.

 High Yield Credit vs SPX falls apart today "Credit leads, stocks follow"


HYG after a failed attempted upside reversal seeing strong distribution.

A closer look at that distribution on an upside move.

The 3 day chart...

As I said above, I would think a higher open "IF" the intraday charts hold in to the close, that doesn't look so sure anymore.

Right now the SPY is the only one still hanging on.

 QQQ 1 min intraday falling off badly

 2 min was already there, but now worse.

IWM intraday was trying, but it's failing even late afternoon only

2 min chart and this is one of the reasons I went with the IWM puts, the timing looks great.

Opening IWM December $111 Put position

Opening IWM Put

I don't have the strike/expiration yet, but I'll let you know shortly. There's a huge distribution event in HYG even as it tracks the SPX and several other nice signals that this ramp should be used to short in to and I prefer a put in this case.

QQQ Would probably be my second choice and I may even look at a put there.

I do have 3x leveraged shorts like SPXU, SRTY, FAZ and TECS, I would use any of those as well if I didn't already have them as trading positions.

And There's the Post 2 P.M. Ramp

In the market update posted at 1:58, I said it was very likely because of intraday signals that there would be an afternoon ramp or closing ramp, it's pretty irrelevant, the charts are what matter, you can find all of it in this update  that I just put out an hour ago.

You can see it clearly in my Custom SPY/TICK Indicator.

SPY TICK

PCLN Core Short Position Update

You probably recall about a week ago I said I like PCLN as a long term core short, I have a partial position open, but wouldn't fill it out until PCLN crossed $1100 which it did a day or two later, the set up was that obvious.

The bottom line for today thus far is PCLN has done what I hoped to see for a second day, I really like the way this is developing, the trade is coming to us as we expect, however if I have to decide right now whether to fill out the remaining position, I think I give it a day or so more unless the afternoon trade makes a significant change. However if I had no exposure to PCLN (I prefer to phase in to positions like this which is not the same as "Dollar cost averaging" because this is part of the risk management plan from the start, not a reaction to a losing position) I'd have no issue with adding half of my intended full size position on a day like today or perhaps on a bearish confirmation candle which could develop today because the gap up would allow for a bearish engulfing candle today


This is the last PCLN update from yesterday PCLN Update...

"Thus far today, the daily candle in PCLN is just as imagined and so far perfect, another star/Doji in the area with a bearish confirmation candle would give us an appropriately sized reversal process rather than a "V" shaped event that is very rare....

"Yesterday's large, bullish candlestick was VERY unlikely to just reverse down today no matter what 3C says, it's too tight and no reversal process, there's a reason for the process and why "V" reversals are so uncommon....

Today's star is a near perfect second day candle, one more would make the process a little wider and a bearish confirmation like a bearish engulfing candle would round PCLN's reversal process.... So, I'm not making any moves in PCLN yet, but what we hoped to see yesterday did develop thus far today. Another day or two could be the sweet spot to fill out the rest of the position."

Today's charts and some longer charts that haven't been in recent updates.

 First the long term character of the trend has changed in 2013, the same happened to MSFT when it was a momo stock and AAPL saw the same before it topped.

The "seemingly" bullish Rate of Change to the upside is one of the earliest signs of a top about to take hold, look at tops and the trends just preceding them and there's almost always a change of character that looks bullish with increased ROC on the upside just like 2013 as PCLN peels away from its long term character.

 This is why I said I'd wait until PCLN was >$1100, the range was that obvious as a head fake area.

I said I wanted to see something like a Doji or a Star candle after Wednesday's strong candle, we got a star yesterday which helps create the reversal process and is a well known reversal candlestick and yesterday as you can see above I wanted to see another to give the top area a wider/rounding area as "V" shape reversals are uncommon and unreliable, today we have another star so far, but since it gapped up, if it closes significantly lower we have a confirmed reversal pattern.

 The 10/9 cycle
1 Is the start of the cycle like the rest of the market, this is why I always say the market is the most important thing in picking a stock and people get it backwards, the market has about 66% of the influence over any given stock's movement any given day.
2 The down channel made for an easy head fake area and channel buster.
3 Is the first Channel Buster sending price BELOW the Channel
4 Creates the second Channel Buster and these are used for reversal momentum
5&6 Is the Bull Pennant from the Channel Buster, but also the start of the head fake move. We showed charts that PCLN would break out from this pattern to the upside and it happened 45 mins. later.
7 This is the fulfillment of the breakout above the range, the head fake move.

 Here you can see how the candlesticks of the last 2 days have helped create a more rounding reversal rather than a "V" shaped one.

 Long term Money Stream with a negative divegrence/distribution around min 2012.

 Daily 3C shows the same distribution mid-2012 and in to 2013 even worse, this is a large, long multi-year trend, it takes time to unwind such large positions without knocking price down.

Each indicator above is constructed completely different so they would not show the same thing unless it was there.

 60 min chart in to the head fake/ Channel area, a slight positive sending PCLN up at the second Channel Buster, exactly where it would be expected as that is a momentum generator.

 5 min negative in to the head fake area.

This is in leading negative position, but I;d prefer to see 3C leading negative to the downside.

The intraday 1 min chart

A close up of the same suggesting a pop in to the close, but it's a very weak signal.

The 3 min negative at the channel and even more so (distribution is heavier in to higher prices) as the head fake move is made.

There's plenty of confirmation to call this a head fake move.

Ultimately other than the 5 min, I'd like to see this 2 min chart also lead negative clearly like the IWM or VXX, jumping off the chart.

If you want more confirmation and play it safer, the Trend Channel has held the entire 2013 trend without a single stop out, a stop out (now at $1021) on a close would show a huge change in character and it's VERY unlikely PCLN would come back from such a break.

Often price will bounce around or loiter after the channel is broken, but they almost never come back especially with a trend this long.

Market Update Charts

These are just the averages and the VXX / VIX Futures, I'll cover some others in another post as these move so quickly.

There's significant damage done that is consistent with a head fake move.

This is the head fake area, it's in the right place, the nearly 2.5 trading weeks of range makes it the most obvious area to shoot for and it creates our "Chimney".

It's my gut feeling from the 3C charts that the serious damage is done, the negatives are confirming a head fake move, but around 2 p.m. or so, it looks like the market will try to ramp. I mention this often, in my experience after an op-ex pin wears off around 2 p.m., price can do anything, it's the 3C charts that actually pick up where they left off on Friday, not price.

So I'm thinking we will see an afternoon or closing ramp, but the damage is done at the head fake area. My next post will either solidify/confirm this view or not.

SPY

 10 min with a very sharp leading negative divegrence, this is typical of a head fake move ending, the speed and depth of the divergence on a strong chart.

This is the entire 10/9 cycle from accumulation to mark up to distribution and top with the head fake which is the typical transition to decline.. 3C is at a  new low for the entirety of the chart while prices are on the other end, that's a big divergence.

The 5 min chart also falling off VERY fast when zoomed in to intraday.

3 min in the head fake area confirming distribution which helps us identify a head fake move vs a real breakout.

The 1 min is leading negative, but see the intraday positive in white, it's very insignificant in the big picture, but it can be very significant in price movement this afternoon if that's all you are looking at.

QQQ

 15 min showing that same fast decline in the head fake area

10 min chart doing the same

2 min chart is leading negative overall, but this is that same intraday positive divergence I suspect will cause some upside after the 2 p.m. pin passes (2 pm is an estimate, not an actual time for option expiration, but by then, most contracts are wrapped up.)

IWM

 IWM 30 min without the channel shows a leading negative divegrence

 15 min chart with the channel, a clear leading negative divegrence and a big move today alone

The 5 min chart at the Oct. 9 cycle and the channel buster in yellow with a leading negative divergence/distribution, this should make for a great example of Channel Busters.

 2 min intraday falling off fast intraday, the IWM may not see the same attempt to ramp in to the afternoon.

The 1 min chart shows the same thing, including the probability for afternoon action, I like SRTY long as a short play for IWM, if IWM can bounce in the afternoon, then I may consider a put option.

 IWM 1 min intraday not looking good

Index Futures

 ES 5 min leading negative, but like SPY a small intraday positive in to the afternoon?

NQ leading negative

TF intraday, also showing intraday weakness for the R2K, looks to be the laggard for an afternoon ramp

VIX/VXX

 This leading positive started suddenly late yesterday, I suspect China was part of it as they were last time and the same thing happened last time they withheld liquidity and it was this time the next day (Friday), EXACTLY like today.

 3 min leading UVXY / VXX

10 min large leading.

15 min leading VIX Futures, there seems to be a REAL reach for protection and a strong one. 

Even 60 min VIX Futures leading positive starting yesterday, again, a VERY strong signal, it looks like a lot of fear.