A.M. Update, Parade of Confidence in Portugal & ESSENTIAL FUTURES CHARTS

*Sorry this is late coming out, but there are very important futures charts that needed to be included.

Last night was largely quiet except for a huge sell-side propaganda campaign, obviously rushed as many of the tier 1 banks issuing statements that Portugal's Banco Espirito Santo was an isolated incident even though it spread like wildfire from the shares to the bonds to Portuguese sovereign bonds to European sovereign bonds of peripheral nations like Greece, Ireland, (the PIIGS), etc and sent 10 year German Bunds to an all time low yield as investors rushed in to safe haven assets like the German bund and then crossed the Atlantic and sent US futures lower.

Among the banks who rushed out statements of support and all is clear, many filled with typos and circular logic (clearly rushed) included Goldman Sachs who had Banco Espirito Santo as a buy until this morning (if I had to guess, they have some exposure they'd like to sell), BoFA, RBC, Soc. Gen, Henderson, Cairn Capital, Merrion, BNP, Barclays, SEB and of course, the Portuguese Central Bank. One must wonder what this hurried rush to support a bank who has a very strange structure and is the second largest in Portugal by deposits, is really all about. As mentioned, the structure of the bank is unique and complicated so I'm going to do some weekend research to better understand it.

Late last night, Banco Espirito Santo issued a statement to pave the way for the bank’s shares to resume trading today, which they did with a 10% rise and then a prompt decline 5% below the close of its trading as it halted early after a 15+% decline yesterday.

Deutsche Bank's Jim Reid had an interesting take on the bank as a larger view of the markets : "Liquidity is really poor in credit these days which doesn't matter when markets are in buy only mode as they have been for many quarters now, but it does matter on the days when you get a negative story. So when the big story/event comes credit could be in a fair bit of trouble"

Since yesterday Portuguese 10 year rates have fallen, but does that represent a feeling all is clear because yesterday morning I put out a chart showing only hours after the panic started, there was intervention in 10 year Portuguese bonds, likely the ECB trying to contain a sovereign crisis as it spread like wildfire, in my view, this is how nervous the market really is.

In other news, those perma-bulls looking for the ECB to take up QE as the F_E_D ends it won't like these comments from the ECB's Ewald Nowotny (the name always makes me think of Harry Potter):

"The ECB’s newest stimulus package has had an impact on markets and there is no urgency to take additional steps" and said that the ECB did not need to "show a new trick at every meeting."

Look for any signs of stress in the Euro that this thing may be growing in to a bigger issue as the sell side quickly tries to diffuse the situation, no doubt with a little prodding from certain central banks that shall remain nameless.

In Japan:

Despite a 30% decline in the yen since 2011 against the currencies of its trading rivals, Japan’s exports of goods fell 0.6% in the same period, according to an analysis published on the Federal Reserve Bank of New York’s

In the rest of the world that is clearly calm and stable watching US nightly news:

Ukraine hit separatists near Donetsk with air strikes, saying it killed more than 50, as the European Union geared up to expand sanctions

Israel called up 33,000 reserve soldiers and may bolster infantry brigades, intensifying its military campaign against Hamas

In reference to CYNK, the company I talked about last night that had no assets, no revenue, no website and a single employee with a $5+ billion market cap on less than 100k shares traded, here's an interesting take of how this is more systemic of the market as a whole:

The non-existent company CYNK, went from essentially zero to a market cap of over $5 billion in under a week, most people missed the key message here: the stock is a harbinger of what is happening to the entire market. CYNK's epic surge took place on less than 0.1% of its outstanding shares, however those that defend the move are the same people to say precisely the opposite about the S&P 500. "Ignore the collapsing volumes sending the stock market to all time high - it's perfectly normal" is an often repeated refrain by the permabullish crowd. Just not when it involves case studies in market insanity like CYNK apparently. In other words, just like the CEO of CYNK who promptly "made" a few billion in paper profits, it feels great to "make" money on virtually no volume. The problem arises when one tries to cash out of paper and into all too real profits.

And here is what happens when one does finally try to book profits: moments ago the OTC BB just announced that, finally, CYNK was finally halted.

As for other news, charts...

We have largely mixed trading of little note throughout Asia and Europe this morning, nothing worth mentioning at this point.

I did gather some interesting charts...

US 10 year Yields which I published charts of in last night's Daily Wrap and more specifically in yesterday's Big Picture Charts / Market Map, are down 1 bp and set to end the week -11 bp for the last 5-days which would be the biggest weekly gain in Treasuries in 4 months, if you saw the chart of the 10-year and what it means in context, you'll understand why this is such an important development.

I also spoke last night of USO and a possible trade there, that it just needed a slightly bigger base, Crude was down overnight and moving toward my drawing of what we'd be looking for as you can see in CL Futures...

There's the initial accumulation as crude closed up for the first day after 9 down and the pullback I said to look for last night to create a wider base that can sustain a larger move, so far so good and right on track from last night's forecast in the Daily Wrap.

This was last night's chart linked above.

USO to pullback and form a larger base and rally?

Gold also looks toppy as mentioned yesterday, here are gold futures, YG...

30 min gold futures negative divergence.

And most importantly, what's going on with the market? Bounce or just enough recent accumulation to hold it up for op-ex or to avert a nastier decline? Futures seem to have something to say and it all ends the same way.

 ES 5 min (SPX futures) show Tuesday's initial accumulation which was small and then the negative divergence sending it lower as we had predicted Tuesday and in Tuesday's Daily Wrap, complete with a drawing of what to expect including a new low below Tuesday's that would be accumulated which it was and then as mentioned yesterday, the strange distribution in to the bounce off the lows as seen in ES 5 min above.

ES charts don't tell us much more until we get to the big picture on a 4 hour chart showing the Feb. Rally and the 3 month range and the suspected head fake move we expected above the range with huge distribution in to that move as was expected (as we did expect a head fake and the distribution is evidence of that). This chart does not end well with that level of distribution in to the move above the range, the only place retail would buy as the range was a meat grinder.

 NQ/NASDAQ Futures 5 min show the same accumulation Tuesday, small and the same move lower we expected with a negative divergence and then the gap lower accumulated (small white box to the right) and the strange distribution where we should have seen a larger base being built.

 The 30 min NQ chart offers more information, showing whatever accumulation actually took place, it's so minimal it's not even showing up on a 30 min chart, in fact quite the opposite, we still have strong distribution patterns hinting at lower lows very soon- bounce or not.

 The 60 min chart confirms the same with a deep leading negative divergence currently after the top saw distribution, there is a relative positive divergence (weakest form) at the white arrow which is yesterday's gap down lows. Otherwise the entire market is in leading negative position, again meaning ANY bounce should in my view, be sold/shorted as it may be the last chance with right shoulders already having broken, stage 4 decline comes next.

And NQ's 4 hour chart, the most important shows what looks similar to the H&S like pattern in Russell Futures with negative divergences in the same place, despite having a different price pattern and these are the large divergences. Instead of a H&S, we have the same distribution pattern where the H&S would be in R2K futures ending with the worst leading negative divergence at the worst place for price making it a monster.

And Russell 2000 futures/TF 5 min also showing Tuesday's initial accumulation, expected to come down, break the lows and form a larger base with accumulation , but yesterday the distribution I saw in the averages is apparent here as well to the far right in the red box.

The 60 min chart shows distribution at the right shoulder of the TF's H&S pattern and accumulation at yesterday's gap low. whether this is temporary or creates a bounce is almost semantics, but does have an impact on the trades we enter and when, but as far as how the story ends, they are all the same.

This is Russell 2000's 4 hour chart showing the H&S top more clearly here than in the R2K itself, the Left Shoulder, Head and Right Shoulder. Each successive top sees a deeper negative divergence as a H&S top should and now we have the worst leading negative divergence of the year and then some as we have already broken from the top of the right shoulder, without a bounce, next stop is the neckline and stage 4 decline or BEAR MARKET.

THERE'S NO BETTER ILLUSTRATION OF WHY I'D SHORT ANY PRICE STRENGTH THE MARKET OFFERS.

Finally...

Charles Plosser from the Philly F_E_D is due to speak at Jackson Hole at 11:15 a.m. and later Charles Evans of the Chicago F_E_D and Dennis Lockhardt of the ATL F_E_D will also speak later at the same Jackson Hole Summit, that's the gist of macro US data today.