Market Update

While I was writing the AAPL post, 3 members who have become near experts with 3C wrote me and said, "Look at AAPL", seeing the same thing I was pointing out, for such a slow day with few emails, to get 3 all while I'm writing the article is rare, it's just that obvious I guess.

OK, volume is pathetic, I'm surprised they didn't rocket this thing through 1.5% on the day, but that would just be a short term effect of the low volume and the ease in moving a market, if we had enough members willing to go in on a position all at once, there are several stocks we could move on our own today (not AAPL).

Index futures, especially the SPX e minis are negative and they have confirmation with other Index futures as well as the averages, I'm a bit surprised to see it, perhaps they are worried about Thursday or are simply booking what they can before the End of year.

ES intraday, but recall 5 and now 15 min are negative, we never waited for 15 min charts in trading positions before so it's more extreme than usual.

Averages are negative intraday with paltry gains, Q's up 0.03%, SPY up less than a quarter of a percent, DIA about 1/3rd of a percent. The IWM is the outlier, however trade action in the IWM is exactly the same as yesterday, 1 min perfectly in line, longer charts, really ugly.

 SPY 5 min, but note the time of the divergence, right after the F_O_M_C, I think there's a hint there about how the taper is being taken by the big boys, "Fiscal Tightening"

 IWM seemingly worked by a skillful market marker/specialist intraday, but likely working both sides of price and underlying.

IWM 5 min.

The QQQ, exactly the same off the F_O_M_C.

QQQ/FOMC 5 min

Industry groups are far worse, Financials and Tech.... Energy is more mixed, I'll cover USO as the Futures for brent are looking better.

What I don't like yet is VXX, it's rare that the 5 min Index futures are that negative and VXX is not flying, I have a feeling it has to do with unwinding long exposure and at the same time unwinding the VIX protection that was bought for those longs. I don't want to take any positions on a volume/half day like this any way, but I especially don't without VXX confirming.

HYG is getting slammed again today, I'm not sure if there was an effort to jump start the arbitrage from yesterday, but credit players are getting out of the way.

 They're moving out from yesterday afternoon intraday and..

Longer term. If I had to follow 1 asset only, it would be credit, these are much better informed players, too bad HYG doesn't have enough Beta.

The Yen is holding it's ground and base-like area.

Other than that, it's hard to get much out of today with volume like this, but it's something, the credit move is the most interesting for today other than maybe AAPL, the Yen is a larger window and the carry trades, but they are not going to take losses exiting on this volume.

We'll see if anything else interesting pops up, that gut feeling hasn't changed, especially seeing Credit and AAPL.

AAPL Update

It's kind of weird seeing some of the "old ways" of the market , pre-F_E_D "Accommodative Policy" start to come back, I obviously assume it's because of the Taper and I'm going to say there's a 70/30 chance that the taper is seen not as a process, but a tightening mechanism and if that's the case, it's not good, especially when we are in the "Seasonal Adjustment " period for economic data, it runs from now until March/April, if you can still find the CITI Economic Surprise Index, you can see the period clearly, economic data looks beautiful during the period and then just dumps as the S.A. period ends. The actual Seasonal Adjustments applied to each economic data series are different, but totally arbitrary, talk about a "Goal seeked" print, this is the meaning of it, put in the number you want and the computer figures out how to adjust the data to give you that number because no one can find a consistent, objective system os adjustments, they are arbitrary, but the point is, they allow the F_E_D to say, "The economy is better, we can taper/tighten more" so I suspect the new year will bring the Good news is bad news to a level we haven't seen before.

The point was though, the old days when each day had a stock that was the fulcrum of the market, this is what Cramer was talking about in his one truly brilliant interview, (paraphrased)

"If your fund is down for the year (and RIMM is the fulcrum stock that day) it's exceptionally important to knock a RIMM or an AAPL down by using options, you can move the market for about $8 million which is not much and then spread disinformation to the Pissanni's of the world because they want the story, it's really important when your fund is in survival mode to do whatever it takes to knock an AAPL down it's a fun game and it's a lucrative game and if you aren't willing to do it, maybe you shouldn't be in the business".

We haven't seen that kind of fulcrum behavior for a long time, the market has been risk on or risk off and it didn't matter what you bought or shorted because everything moved together, that is ending as we have commented recently as the averages see massive dispersion, look at the IWM vs the Dow last Friday, huge dispersion, And yesterday, AAPL is the fulcrum on VERY old news, but it's buy the rumor, sell the news, however when you sell, you don't sell in to losses, you sell in to gains (smart money).

So lets take a look at the darling which I have stayed away from. You may recall as early as April this year I was saying, "There's something up with AAPL", maybe a counter trend rally, then maybe the Icahn stuff, but something was developing and we had a few trades in that period.

The reason I have maintained interest in AAPL, but no positions is a 15 min leading negative, but everything else was in line or better, it's a matter of patience to let the timeframes align, well if it was "sell the news" yesterday, take a look at AAPL now.

 From AAPL's top, which we gave plenty of warning that there was huge distribution as AAPL hit all time new highs and I made the mistake of having a beautifully positioned core short position that I closed to try to trade what looked like a little bounce figuring I'd short AAPL again after having taken profits on the last position, at higher prices, then Loeb's (Third Point) 10-k filing came out and AAPL was missing from the top 5 holdings. Since hedge funds herd just like retail around a leader (LOEB is one of the few that is willing to try to outperform the pack), they all sold en masse at once and I missed a -45% gain which I would have pyramided up all the way down using the "Making more than 100% on a short" technique described in this article I wrote, one of the benefits of being short vs. long.

Right now, AAPL has just about retraced a typical counter trend rally and is entering an area with massive overhead resistance, the people who held the bag and are more than willing to sell if price gets near there entry which they assume it will.

The long term Trend Channel, where AAPL was stopped out and below a 10-day ATR which is falling as AAPL makes the move higher, not what you want to see as a long.

 This is that 15 min chart I mentioned, the lonely chart, but interesting. It seems there's a VERY clear zone of distribution, likely a large fund has a sell order in the area.

The 30/60 min charts were perfectly in line with the trend so I didn't want to touch AAPL either way until something changed, now the 30 min chart has gone negative initially, the 60 is still in line so I'd prefer to give AAPL a bit more time or at least wait for normal volume.

If indeed yesterday was sell the news, this 2 min that had been in line sure went negative on the gap up.

As did the 3 min

And incredibly, and this is an example of the "Gut felling" I had yesterday that things are going to get much more ugly than I've even seen, the 5 min chart where intraday institutinal underlying trade can be seen, went straight down.

Here's a closer look.

That's not a mistake, that's intense selling, but again, I think patience and letting the market get through Window Dressing (Thursday at the close) and letting some volume return to the market would be wise before entering AAPL, I may change my mind if charts like the 5 min keep popping up.

This is what I meant yesterday and both the "Sell the news" and Fulcrum of the market effect are very old concepts that have been missing for years that are just returning.

Broad Market Update

As you know this week is very thin volume, today is historcally one of the thinnest days of the year which makes it easy to move the market, remember how Cramer could move a stock as big as RIMM back in its heyday with what he called as little as 8 million spread out through options exchanges, that use to be the time when a stock would be the fulcrum of the market daily, we lost that a long time ago as everything went correlation 1.0 with the F_E_D, either risk on or off, no rotation.

If there was a fulcrum stock yesterday it would have certainly been AAPL upon the news of the completion of a 6-some odd year negotiation with China Mobile, that was supposed to have been concluded last week, but apparently wasn't until the weekend, still it's old news and the market discounts this, even as we see a retail chasing pop, the big players in Chine discounted this information immediately and continued to do so as it developed, they don't wait for the news to come out. In fact the entire market is a discounting mechanism that isn't and hasn't been working well for the last several years, although there are signs with all of these Hindenburg Omens and stocks below their 200-day moving averages that the discounting is happening in market breadth which has been horrible, as one of the larger Hedge Funds said about 2 months ago, "We've been selling everything that's not nailed down for 15 months now", that's not something they can lie about as it's really easy to check their quarterly 10-Q and yearly 10-K which discloses all of the positions they entered or exited with a few caveats (that's what caused the AAPL crash, Third Point having AAPL as a top 5 holding and then their 10-Q came out and AAPL was missing causing the herding Hedge Funds to all try to fit out the same small door at once as they follow the leader, Dan Loeb). Additionally market breadth shows the same clearly as I have posted numerous times.

Speaking of Market Breadth, even though yesterday's volume was EXTREMELY light, market breadth was improved on a day to day basis. The Carry Trades were nowhere to be found yesterday so it was AAPL and an extremely aggressive Arbitrage (SPY Arbitrage was positive +$.80 which is quite a bit, accomplished by jacking HYG and knocking VXX which I suspect is seeing some end of year unwinds that may (as they often do) accompany a long position unwind as protection is no longer needed as the long is unwound.

Still I had a gut feeling yesterday to wait on filling out trading positions even though we had the typical and still do, 5 min leading negative divergences in the Index and early VXX signals that were building, good thing we waited, patience is truly undervalued in trading.

The 5 min divergences such as The Russell 2000's...

 This is the kind of divergence we've had a lot of success shorting in the trading portfolio or options portfolio.

These are now making their way to 15 min charts which is much different and more serious in Index futures than it is in the market averages.

 The pivotal NASDAQ 100 futures from yesterday seeing a strong 15 min leading negative, this wasn't part of my gut feeling yesterday, I didn't notice this until later.

In any case, price is doing one thing yesterday on a low volume, Arbitrage induced melt-up while underlying action is doing something quite different.

As for pre-market today, the intraday divergences were and right now, are working perfectly, interesting because this is rarely seen pre-market other than in a long overnight divergence.

Yesterday was also a bit unique in it's very tight range, all the gains came from the overnight melt-up, there weren't much to be seen during the trading day.

This daily candle of yesterday's close is called an "Evening Star" and it's perfect from a candlestick p.o.v., it also happens to be a downside reversal candlestick formation as the intraday range is flat creating the star or Doji body of the candle.

The Dominant P/V was useless considering the volume, it couldn't come in as anything other than Price Up/Volume Down which is the most bearish of the 4 relationships, but again with the seasonal volume factor, it's hard to say this is a useful metric. I believe the most important metric right now is End of Year Window Dressing which should end Thursday with the Trade+3-day settlement rule.

This doesn't mean there weren't interesting things to be found in breadth such as Consumer discretionary Stocks / Leaders under-performing quite badly with WAG, WFM, SWY, HSY, CAG, PG, KMB and AVP all down on the day yesterday and none have made a new high with the market.

Speaking of Consumer discretionary, yesterday some Christmas data was out: Black Friday all in all posted a 4% decline. Then the first two weeks of December both saw double digit declines in sales, the last and final week saw a 3rd consecutive double digit decline in sales and was down 21.2% on a Year over Year basis.

However there are funds that need to survive the year with the average performance well below the SPX's yearly return, this is make or break as the new enrollment comes in January or redemptions. So with no carry pairs working, HYG and VIX were the mechanism along with AAPL/Tech.

HYG's 15 min chart though doesn't look so hot heading in to the close of the year, short term manipulation (especially on extreme low volume) is easy, but this is a bigger trend or exodus and you have seen the yearly divergence which is quite sharp since May.

VIX was Whack-a-Moled, it seemed rather sudden, but it was nonetheless which gave the SPY an $.80+ advantage of its $.97 gain yesterday.

Thus far this morning it looks like they tried to start the Arbitrage mechanism, but so far have failed which is surprising. VXX saw a gap down this morning, but is already seeing stronger signals than early yesterday which was one of the things I was waiting on, we'll see how they continue.

As I mentioned better breadth yesterday, it still leaves only 53.85% of all NYSE stocks trading above their 200 day moving average, up from 52+% the day before, but well off the 82+% earlier in the year.

The Spot VIX, despite being banged, still maintains a rounding bottom as a new low was not made.

I'm fairly well convinced this bullish set up is not going to fail.

Forgetting about VIX Futures 4 hour leading positive which I've never seen since following futures with 3C, the Spot itself has a very strong daily positive which have tended to work very well.

Daily 3C leading positive in spot VIX.

If the market was as strong as some think it feels, this VIX chart would be trading well below the lower Bollinger Band and rightfully at new lows on the year.

I mentioned some weakness I saw developing in the Nikkei 225 futures, that has grown, take a look (this is Japan's equivalent of the DOW, they are roughly the same size in terms of points/percentages).

This leading 5 min looks like it's already effecting the Nikkei 225, I'd like to short this if I had a good vehicle.

Gold which has been trading opposite the market looks more and more like it has found a toe-hold...

 Gold Futures 15 min, I also saw something in silver yesterday which is my LEAST FAVORITE asset.

While we're at it, perhaps the oil consolidation is ending as the 15 min looks more constructive than it has recently.

One of the other curiosities I looked in to was what was assumed to be a fat-finger trade in the Sunday overnight trading action in the long bond as a large block was put out driving the long bond up from 130 to 135 almost instantly, I do not think this was a fat finger trade.

The 5 min chart shows the details, a little accumulation which may have been a primer or a trade and then the instant 5 point move overnight in thin volume which was sold in to, however there's another accumulation period as the long bond dips, it's quite interesting, I'm not sure what the game is here, but something is happening in which there's a bit of an illusion likely at work. In the words of Cramer, "Never do anything remotely truthful".

The carry trades are of interest, one of the most used over the last 5 years has been EUR/USD, not lately as much, but I could look at the pair in the morning and tell you where the market was going to open, it was like the EUR/JPY now or how it behaved recently as the correlation is broken now. 

Interestingly BOFA has a lot to say this week on carry type crosses although this isn't the biggest, it revolves more around the Euro, at least their warning which comes on the heels of their disclosure they are out of the USD/JPY,  they just warned on the EUR/USD. HOWEVER, I FIND THE YEN MORE COMPELLING...

As far back as April this year my opinion was the Yen would rise as the market fell which was not largely based on the closure of carry positions, but now it is more so.

A CARRY TRADE IS AN EASY WAY FOR A FUND TO LEVERAGE UP THEIR AUM, BY CLOSING THE CARRY THEY ARE ESSENTIALLY WALKING OUT ON THEIR LEVERAGE AND UNLESS JAPANESE RATES WERE ABOUT TO RISE WHICH THEY AREN'T (at least not by the BOJ's consent), A RISING YEN INDICATES THE CARRY TRADE IS BEING CLOSED AS THE LAST THING TO BE DONE IS TO SELL THE FIRST OF THE PAIR (EUR) WHICH BAC JUST WARNED ON AND BUY BACK THE YEN WHICH HAS A STRONG POSITIVE DIVEGRENCE THAT STARTED EXACTLY AS THE FOMC HIGHS WERE HIT.

So from here we will see what the market does on this, traditionally the lowest volume day of the year with an early closure at 1 p.m. for everything but NYMEX which closes at 1:30 (this is not the NYSE).

Watch China in the coming days, they just conducted a symbolic 7-day repo (liquidity injection), but yields only dropped on the 7-day repo briefly before going on to hit 9%, well above the seasonal highs seen in the past that have to do with banking regulations in to the close of the year.

What I'm saying is the interbank lending system is breaking down like it did in the US circa 2008 around the failure of Lehman as no one trusted counter parties because no one knew who had what exposure to sub-prime.

Broad Market Update Coming

I just wanted to respond to all of the (as usual) very kind emails of support, well wishes and wanting to know what's up as I had to cut out a bit early yesterday for a Dr.'s appointment  and it's easier to do it here than write it 35 times or so.

First thank you.

Second it's not a big deal, I think I might have said something about it because I had to leave 15 minutes early about a month ago or perhaps not, in any case about a month ago I had a pimple size scab that had been not been healing cut off and biopsied, I pretty much already knew what it was from a few Google searches and the biopsy results came back as Basal Cell Carcinoma which is a type of skin cancer, but probably the least aggressive and a lot of you have probably had one removed at some point, it just happened to be about 3/8ths to a 1/2 inch under my eye. Initially I thought after the biopsy that a Mohs procedure was going to be scheduled, but they wanted me to have a consultation with the Mohs surgeon first, that's what yesterday was.

There weren't any big surprises, except initially they had said that their plastic surgeon would stitch it up and I'd have a slight scar beneath my eye. After talking yesterday, even though it was a small spot, the Mohs surgeon said she'd have to cut an area just smaller than a dime minimum and maybe more depending on what they find. This is a very highly effective procedure, they basically take some tissue, check it for cancer cells and if need be take some more and check it again, so on and so forth until they have clear margins. The only tricky thing about Basal Cell is that it tends to grow down and out so what you see topically is like the tip of the iceberg. There had been some talk of radiation being used, but they thought I was to young for that and it has risks.

I guess the only bad news was the size of the area which will cut in to my lower eye lid at minimum depending on what they find and instead of using their plastic surgeon to close it, they want me to go to an ocular (eye) specialist. So that's about it, I'm not concerned with the Basal cell although I am a bit young to have one popping up, but I spent so much time surfing, my surf buddy of 15 years got a much more aggressive and likely deadly type, Melanoma that metastasized so I'm lucky. I am just a bit bummed that the apparent scar is going to be larger than initially thought and there's no way of telling how large until they've completed the procedure.

However I'm fine and I thank you for all the support, you all amaze me constantly and I thank you for the understanding. I know a lot of you have been through much much worse and are still living happy, healthy lives.

Update is coming as I also watch the market.