Draghi and ECB Disappoint, Tepper Games the Market?

This week the two big data events were the ECB June policy review this morning and tomorrow's Non-Farm Payrolls.

For the last few days I've said that the market has "lofty expectations" for Draghi. This is just two mentions of the same theme 8 times this week before today...

Monday June 2nd A.M Update

"In Europe, the ugly mix of low inflation and near record unemployment as well as another (second in a row) overnight miss in Eurozone May PMI (from 52.5 to 52.2 on consensus of 52.5) that sent bonds higher has set expectations even higher than the already lofty consensus expectations for Thursday's (6/5) June ECB meeting, with an overwhelming number of economists expecting NEGATIVE INTEREST RATES via cuts to the deposit rates with additional expectations of the main benchmark lending rate to also be reduced. Furthermore there are expectations for a new ECB long term LTRO program and easing of lending standards with many expecting Draghi to do more than "HINT" at possible outright QE at the press conference after. I believe the economists surveyed are largely on board with this line of thought with something like 56 of 58 holding these expectations which leaves a lot of potential for disappointment with Thursday's meeting/policy announcement and press conference."

June 4th in Quick Market / SPY Update I said,

"personally I think expectations are way too high, the press conference will be a big deal as well, although Draghi does a lot of talking and hasn't followed it up, but they're having a real inflation/unemployment problem so I'd think, despite lofty expectations, he has to do something, although I do have a gut feeling it will fall short. Look for volatility between the policy announcement and the press conference, in fact I'd suspect most of the day."

Lets just track this thing...

As the ECB policy statement was released, market expectations were widely met:
-The Refi rate was cut by 10 bps to 0.15%
-The Marginal Lending Facility was cut 35 bps to .40
-And the widely expected Deposit Rate Facility was cut by 10 bps, creating a situation in which you have to pay to deposit money at banks/ECB.
-A Targeted $400 bn LTRO was included as expected
-The SMP sterilization was suspended

These were the market expectations that were priced in, ES after being FLAT all night rallied, the Euro sank, the $USD rallied off Euro weakness, USD/JPY rallied and gold briefly dipped.

However, the danger of disappointment was always the press conference, "would Draghi mention some outright QE?" True to our expectations as Draghi is a lot of talk and a lot of caution, the press conference was a disappointment and ES promptly faded all of the earlier gains. The Euro pared its losses and went on to move to a new 10-day high (not what Draghi wanted), this was market disappointment. The $USD pared its gains that were based on earlier Euro weakness , USD/JPY turned from knee jerk strength to weakness. Volume was high on the press conference downswing in Index futures.
Then around 11 a.m. comes David Tepper of Appaloosa who had just said on May 15th, at Skybridge's SALT conference "Don't be too freaking long,...Investors should approach the market with more caution...I'M NERVOUS ABOUT THE MARKETS, IT'S NERVOUS TIME".

This is the same David Tepper whose 13-F filing for the quarter ended March 31st 2014 (Q1) was rleased the maximum 45 days later which I had posted just to show the size of some of these hedge fund positions.

At the time on May 15th (remember this date) when Tepper made the above comments, Appaloosa's 13-F showed the fund's top 3 holdings were SPY calls with a notional value as of March 31st of $1.1 billion dollars, the second place position was $900 mn in SPY (ETF) and $815 million  in QQQ. 

Not that it matters, but this was a change from the December 31st 2013 holdings of approx. $8 million in SPY calls, $2.1 bn in SPY (ETF) and $765 mn in QQQ (ETF). 

Tepper's May 15th comments were attributed to  early SPX losses of -.80%, Dow -1.07%, NDX -.90% and the R2K -.90%, whether this was the cause or not is not really the point. Also what Tepper's fund held when the 13-F was released 45 days later likely was vastly different than the reporting date of March 31st.

However, you may recall that May 15/16th is when we came up with our forward looking market move based on a bear flag in the SPX.

On Friday May 16th I put forward our market expectations based on the move Tepper's comments are attributed to and the resulting bearish bear flag, here's the post on May 16th, EOD Market Update in which I said,

"QQQ is the same as the SPY, this is good as confirmation, however the larger move that "Should" follow (assuming we do get a Crazy Ivan shakeout with a break below the flag first) is the larger breakout above the flag which is not expected by the rules and precepts of Technical Analysis, thus it is a head fake move."

And...

"That's what I see going in to the close, if anything pops up in the next 10 mins or so, I'll let you know, but that's where probabilities rest as of now, a pop above the bear flag formation which is useful to short in to and perhaps a Crazy Ivan which may open a second trade, a short duration long hitch-hiking trade to ride the head fake move above the flag, but we'd want that pullback or break below the flag to reduce risk and make it worthwhile."

This was in response to the fact that the multi-month range was not likely to turn to the downside BEFORE a head fake move and the bear flag manipulation was a way of creating momentum that we even talked about trading as a hitchhiking long. Here's the chart...

At "BF" we have the "Bear Flag" of nearly 3 days, technical traders expect this price pattern  to break to the downside and make a lower low, but we already knew there was accumulation to send it higher, thus we were looking at a long "Hitch-hiking" trade. The speculation was we'd see a Crazy Ivan shakeout (shakeout both sides of the flag) and the move below the flag's support would bring shorts in to the market. This happened at "CI", the Crazy Ivan that broke back below the flag's support, from there a bear trap is set and a move higher creates momentum via a short squeeze. That short squeeze gave us the move (head fake) above the range (green) that we were looking for and anticipated before any downside reversal could take place.

For Tepper, if he wanted to sell long SPY , SPY calls and QQQ, there's only one way to create that demand, that's to create an upside breakout above the multi-month range, positions that big NEED demand to be sold in to and at a better price without taking a loss.

However, as the breakout came to pass and the move above the multi-month range created demand, we knew that it was a head fake move and large funds "like" Appaloosa were selling/shorting in to the short squeeze rally above the multi-month range from May 27th to present. We have multiple confirmations of this, but here's one 3C chart of the action during that time period.

#1 is the multi-month range resistance, technical traders aren't going to buy in any kind of size without a breakout, the bear flag and Crazy Ivan on May 16th is what we thought would deliver it.

Looking at the 30 min 3C chart as it broke out above #1 causing a short squeeze at #2, we see massive distribution of the rally/head fake/short squeeze and it's actually a lot worse than what you see here, I'm just focussing on the important area. The 30 min chart looks a bit more like this zoomed out to trend...

This shows the multi-month range and breakout above it and 3C at new leading negative lows, however this is not the point.

Even if I had doubts about the numerous confirmations of distribution on this move, we can thank BofAML for their charts showing what Institutional money was doing and what retail or dumb money was doing ...

Institutional money were net sellers and in a big way, they need someone to sell to though, retail money on the second chart were net buyers, that's what 3C is designed to track, not price, but the institutional/smart money trends that price doesn't reflect.

The point being, Institutional money with position's like Appaloosa's that are over a billion dollars, can't be sold in to a flat market without crashing the asset and taking large losses, they need demand, they need buyers who are anxious to buy and they need time to move a position that large (that's just one fund), if they try to dump it too fast, they once again crash prices and take losses.

That brings us back to today as the ECB disappointed and the market was heading lower...

Just as Drahi's press conference disappointed the market and started sending it lower and safe haven assets like treasuries higher, does anyone find it interesting that the world's second highest paid hedge fund manager (making $3.5 billion dollars last year) came in with a stick save around 11 a.m. forcing another shoprt squeeze which we know was hollow and being distributed like the larger one above as shown today in Quick Market Update, from the 3C charts to market breadth as it fell off in the TICK Index.

Does it strike anyone as strange that just 20-days after saying , ""Don't be too freaking long,...Investors should approach the market with more caution...I'M NERVOUS ABOUT THE MARKETS, IT'S NERVOUS TIME"." Tepper, an unscheduled guest on CNBC called in and said...

His "Fears" were "alleviated"?

Furthermore, Tepper added that his, Current positioning would allow him to ramp back up to a bullish posture if conditions changed?
What?

If I was wearing my tinfoil hat, I'd say that an easy way to get out of any remaining SPY calls or SPY/QQQ longs would be to create a bearish atmosphere as he did May 15th, create a bear trap and squeeze it, that provides the breakout and the dumb money demand. Today's stick save allows that short squeeze that was pretty hollow as there wasn't even intraday confirmation to do EXACTLY the same, sell/short in to demand.

Not everyone was buying it though...

 VIX oddly started rallying on the day rather than the usual money hammering at the EOD to ramp the market, it seems a little fear may be creeping in as protection is bid despite the inverse correlation VIX (light blue) has vs. SPX (green).

Our professional sentiment Leading Indicators have not only been bearish recently, but VERY much so today specifically.

This is the second one we use, falling off just about as bad as I've seen it this year.

 And why were the "Flight to Safety" Treasuries rallying (TLT vs SPX) today again?

Which of course sent one of my favorite Leading Indicators, Yields lower, as they tend to pull the market toward them.

As for Index futures, you'd think they might be pumping higher in the low overnight market, but they're pretty flat with negative to leading negative divergences.

 ES/SPX Futures flat since the 4 p.m. regular hours close.

NQ/NASDAQ 100 futures also flat and leading negative.

And the winner today, TF/ Russell 2000 futures with the worst leading negative divegrence. These are migrating to the 5 min charts as well.

Remember, we have Non-Farm Payrolls at 8:30 tomorrow morning.

Leading Indicators Update

After a quick look at Leading Indicators, a few things stood out, #1 VIX is not being monkey hammered in to the close as has been the trend until last week when it closed green on the week and the best close in 5 weeks. VIX is actually moving up in to the close more than the market correlation would suggest.

Our two professional Investor Sentiment indicators are both about as negative as the 3C charts I just posted in the last update, they are not only not buying this move, they are as suspected in the last post, selling it.

Also of note, as expected when we entered the TBT short yesterday, Treasuries (the traditional Safe Haven" trade are rallying. This means Yields are down and they tend to pull equities toward them, there's a pretty decent dislocation between yields and the SPX.

TICK remains in the downtrend channel , TICK is ALL NYSE stocks ticking up per bar less those ticking down, so intraday breadth since the uptrend channel first broke has been turning more and more negative.

I'll post additional charts /leading indicator charts after the close.

Remember tomorrow at 8:30 we have Non-Farm Payrolls as well as the weekly options expiration pin.

Quick Market Update

That last post, I do suspect was churning.

The IWM is by far the best relative performer today, but recall what I've said about the IWM the last couple of days this week,

Wednesday, Quick Market Update "However, as noted yesterday, the IWM does look like it wants to play a little catch-up to the other averages as it has had the worst relative performance."

Tuesday: Scan Candidates
Also all of the averages, but the IWM (which I suspected earlier today would see slightly better relative performance in the very near future) 

Tuesday: Market Update
the IWM has seen weaker relative performance and is slipping from its range, I suspect there will be some IWM outperformance on a relative basis just to get it back up in to the range area.

So the IWM's performance is not a surprise, I'll show you why I said that.

Looking at the charts, remember the underlying trade in 3C as the only thing that would get retail to buy after a 3 month range would be a breakout of that 3 month range. You know what 3C showed us and then what BofAML showed us,


The charts from that post, 3C Distribution Confirmed by BofAML

This is net Institutional Selling for last week, the same time we just moved above the range.

Institutional sellers sold EVERY sector except defensive utilities and they did this at the only time they'd have buyers (whether they were selling or selling short.

 This lower chart is the same week and shows who was buying or net buyers, RETAIL

Why? Because that was the week price broke above the range, retail traders will generally only buy on confirmation, this is the entire premise of what we expected when we saw the May 15/16 bear flag that had accumulation.

So, if Institutional clients needed to push the market above the range to have demand to sell in to and did that for the entire week (and the 3C signals were horrible negative), why would today's short squeeze be any different?

The charts 

IWM distribution in to the SS today

 QQQ distribution in to the SS today

SPY distribution in to the SS today.

Take a look at the new trend in the TICK chart intraday.

The earlier uptrend was the short squeeze, we now have more and more stocks selling per bar than being bought and are in to the negative overall.

I HAVE A GAIN IN THE IWM PIUTS THAT EXPIRE TOMORROW, I INTENDED THOSE TO BE NEXT FRIDAY'S EXPIRATION SO I MAY CLOSE THOSE OUT BEFORE THE CLOSE.

Adding to IWM Weekly Put

I'm talking about the Put fade trade entered earlier (next week's expiration) Trade Idea: IWM Intraday FADE.

Around 2:23 -2:25 in the various averages volume looks like a churning event, TICK dropped over  -1000 the same moment.

THE FIRST POSITION WAS A FAT FINGER AND EXPIRATION TOMORROW. THIS ONE WILL BE NEXT WEEK'S EXPIRATION, THE 13TH

RIGHT AT THE "SUSPECTED" CHURNING EVENT, TICK DROPS OVER -1000

Trade Reiteration : NFLX (Short)

I'm putting this one up again although I just filled out the position Tuesday, Trade-Idea: Bringing NFLX Trading Equity Short to Full Size.

There are so many great looking charts from the H&S to the proportionality of the stages, the volume confirmation of a H&S top and 3C divergences across the board in every timeframe, NFLX has to be one of my favorite non-ETF short trades and since it's still in a very favorable shorting area with much lower risk as well as at the 2nd of only 3 areas I'll short a H&S top, it's really as close as I've seen to a stellar position. NFLX even popped up on my Custom DeMark-inspired Indicator scan earlier this week Scan Candidates and Results of Last Night's DeMArk (inspired) Custom Indicator Scan.

I'm just going to put the charts out there agin without too much commentary as they have been covered numerous times (except where I feel there is a concept that is broad based and can be used with other assets in multiple timeframes).

 This looks like a H&S top, it takes volume confirmation though to make sure, in 2010 there was a market based H&S looking top that everyone was talking about, but no one seemed to confirm and after approx. 9 months of short selling excitement, it took off to new highs, if they had confirmed the volume, they would have seen it was a false or random price pattern.

If you look at enough reversals, you'll notice it's a process rather than an event, institutional money moves the market and their positions are so large, they simply can't move in and out like we can.

 This is a custom indicator I threw together real quick so it's easier to see the trends in volume. I've already shown you the entire pattern's trend and it's exactly as it should be. This is the right shoulder rally, volume should fall off in to the rally, you can see that happening by the volume bars alone, but the indicator makes it crystal clear.

 I've posted the daily 3C charts for NFLX that went back to the 2012 stage 1 base, I figured I'd show a longer view as NFLX has been through all 4 stages before. @007-2008 were stage 1, you can see 2, 3 and 4 from there. The 2011 top wasn't what I'd call a H&S top, at least not a clean one.

This is a closer look at the current pattern using the same multi-day 3C chart I used above, the 2012 base is clear, mark up is confirmed and a sharp leading negative at the H&S top, in fact right at it.

As far as the other charts, you've seen the 1-day negative, we have a 4 hour which is large enough to print a primary bear trend.

The 60 min on the right shoulder which was PERFECTLY in line with price, this top of the right shoulder being the only significant divergence on the chart and a very strong timeframe or larger underlying flow (distribution).

The great part about the 3C charts is the confirmation across all timeframes, 30 min above.

15 min

10 min

And as we transition from the strategic timeframes to the tactical /entry timeframes...

5 min and right in the area I was talking about last week when on Friday I said I thought NFLX needed a few more days to make the reversal process mature, rather than an event as we saw in MCP, even though that's comparing apples to oranges because of the size of the preceding trend and two totally different price pattern concepts.

IWM Fade Trade Already in Double Digits Green...

Don't think GDX / NUGT / GLD move is going to hold

We've been waiting patiently for a place to open or add to NUGT / GDX long, maybe a GLD position, although that's a bit too much correlation for me.

Today's +5.5% gain in NUGT caught my attention as I haven't put out the position yet, but after looking at GDX, NUGT, DUST and GLD, I don't think today's move is going to hold, it's very much in line with the broad market and there's no confirmation in any of the above mentioned assets for today's move.

I was considering taking some off the table or maybe even a quick NUGT long, however I don't want to trade against the underlying probabilities so I think I'll just let it be for the time being, but in case anyone needs to take action, there's no confirmation in this move so I think it will fill the gap at minimum and likely return back to the range of the last 6-days.

Trade Idea: IWM Intraday FADE

I'm going with a speculative put position for IWM weeklies (next Friday the 13th) at a strike of $115, this will be about 1/3rd the size of a normal full size position.

If You Are Interested in Fading the Squeeze

I personally would probably look at puts, I don't like close expirations like tomorrow's weekly, but perhaps next week's.

The Q's and IWM are starting to give negative signals, intraday RIS is negative on all of the averages and TICK continues to fall off pretty badly. I may play a little fade trade here, I'll let you know shortly.

Fade-able Short Squeeze

This is a perfect example of a short squeeze,

 A straight line parabolic move with no pullbacks is a classic sign of a short squeeze, interestingly Treasuries are rallying at the same time.

Not that a straight line move like that needs to be confirmed as a Short Squeeze, but my Most Shorted Index (red) vs SPX (green) for today also shows it, Credit is not buying as HYG lingers.

I think this is going to be a fade-able move for those of you who like intraday fades, I know there are quite a few.

Es is already starting to put in a negative, but this is the least of the evidence.

Aside from the fact that I never trust parabolic moves as they almost always end as badly as they started. I have to wonder as well whether this is our chimney on the igloo as looking at the rounding of the SPX before this move and the .33% gain since last Friday don't really seem like a head fake move of any consequence.

 SPY is not confirming at all, this could have confirmed (2 min) nearly in real time.

DIA 1 min and..

2 min are also not confirming.

 One of the easiest indications to watch for a reversal of the move for a fade trade is the NYSE TICK index.

Note the clean channel of intraday breadth on the initial short squeeze and early warning as TICK is falling out of the channel, this would be one of the first indicators I'd be watching if you are considering fading the move.

TBT Reiteration (short) / TLT (long)

Yesterday's TBT short position Trade Idea: TBT (Short) (a way to get 2x leverage on TLT long) is looking very good for a trade, it wasn't worth it to me with just TLT, but with TBT, it makes more sense (short).

TBT short from yesterday is just going in to the green right now, we have good signals, but what I really like about the trade idea is the Channel Buster, it has a high probability of breaking above TLT's ascending channel now that there has been a break below the lower support line. The with the break below already in place and expecting a normal Channel Buster reaction (a break above the channel), we essentially have a Crazy Ivan shakeout just like we did mid-May that led to the short squeeze, it's a momentum creating play and for the first leg of the trade, it's riding the upside momentum above the channel which then sets up a short TLT trade or long TBT at that point (reversing the current position).

This is in line with longer term expectations of TLT pulling back to its base area around $102, however as you've probably heard a lot recently, the fact Treasuries (not yields) and equities have been moving together is an odd situation. The last time this happened was 2011 and led to a July break lower of nearly -20% as Treasuries ( a risk off trade) and equities ( a risk on trade) don't usually move together, however as we saw last week in 3C and courtesy of BAC confirming institutional selling last week and retail buying on the head fake move above the 3 month range (the only thing that will get retail to buy, a breakout), and the fact that the average move since last Friday has been about a half a percent (a reversal process), it's likely that there's a rotation out of equities by institutional money (and net seller can mean selling longs or being a short seller, they're all sales) and in to Treasuries.

My premise has been that Treasuries will maintain their legacy correlation as a Safe haven asset, but I have had some questions about the correlation which will only be answered if TLT makes a move back toward $102 (down).

In any case, I still like the TBT short here as 30 year Treasury futures as well as TLT and TBT all confirm the same.

30 year Treasury Futures...

 This is a 30 min chart of 30 year T Futures, note the positive divergence just as TLT (20+ year Treasury bond fund) broke below a multi-month, very clean channel, a Channel Buster.

The 30 year Treasury futures on a 60 min chart are positive as well (accumulation).

We just saw the initial channel break, typically this creates strong upside momentum that breaks above the top channel, from there (like a head fake move), it creates strong downward pressure which might be the move back toward $102 (TLT) that I've been expecting, but we'll have to wait and let the market tell us what the probabilities are.

Even on a very short timeframe and small reversal process, we have a head fake move or stop run, I showed the volume pick up yesterday on a chart as the channel was broken, that helps to create the upside momentum as long as we can confirm it was a head fake move and the positive divergence suggesting that supply was accumulated, is what we look for to prove a head fake move.

Intraday there's a small relative negative divergence (weakest form of divergence), this may cause some intraday consolidation, perhaps a pull back if the 2 min chart were to go negative as well, but... thus far...

 The 2 min is leading positive, making the timing of the trade look excellent and lowering the risk profile significantly.

Charts like 5 min are relative positive then leading positive, this divergence has seen more leading upside today already.

As for the longer term TLT action and my expectation of a move lower, the 15 min chart now has a negative divegrence, this is why I suspect we get this channel buster move and then make a strong run down, perhaps to the $102 level.

TBT which is the actual trade, short as that's the only way to get 2x leverage on TLT as TBT is a 2x leveraged inverse ETF of TLT.

 This also has a channel (descending) with the same confirming positive divergence at its lows where TLT was negative at its highs at the same time. The current divergence is leading negative for TBT which also confirms not only TLT, but the 30-year Treasury futures as well.

This is also exactly what we want to see for a TBT short position.

The 5 min chart confirms the exact same as well as a negative divegrence at the last reaction high to the far left that I didn't draw in.

The only place I can't get confirmation in TBT is on the 15 min + charts that suggest on TLT charts that TLT pulls back, but being this is a 2x leveraged ETF, those signals are usually closer to the event and often stronger and leading the non-leveraged assets as they near the event.

OIn any case, for now, TBT short still looks like a nice entry, but I don't think it will last long. A stop can be place just above reaction highs (I prefer a little wider, mental stops and on a closing basis. Of course watch where you put it, stay away from whole numbers, moving averages or strong support/resistance levels.

Opening Indications

So far the trend this morning is similar to what it has been all week, 1 min charts acting as steering divergences which tend to be largely in line, with longer charts continue to deteriorate which is right about in line with last Friday forecast for this week in continuing what was an immature reversal process which can be seen in the price action's rounding with very little in gains, the SPY has gained 0.33% since Friday's close and looks like this...

 SPY daily chart, today's candle thus far is taking on the shape of a hanging man, one of the things I'd like to see in a reversal candle is increased volume.

The intraday 1 min chart continues to act as a steering mechanism, going negative as price moves too far away from the median and going positive as price drops too far from the median.

This has allowed stocks like NFLX to do what we expected for this week as the charts look good for a short entry, it was the reversal process that was missing, that's why last Friday's forecast for this week said,

"Essentially, if you take the NFLX Trade Idea Follow Up from earlier today and apply the same expectations and the same logic, you have the market forecast in to next week, which doesn't end well for the market. However, you do have time to position, I would not try to chase the market, just be patient and let it come to you."

Referencing NFLX, I had previously (just an hour before) said, 

"As far as adding the other half, I'm going to wait, I'm thinking 1-2 days and I'll show you why....The 15 min chart is leading negative, i'd like to see a new leading low, but more importantly I think the reversal process needs at least another day or 2, the left shoulder's took about 4-days.

Today's charts...

 As has been the trend, this morning's longer charts beyond the 1 min intraday steering divergences continue to deteriorate.

Here's the same chart with a trend view.

SPY 2 min trend. Of course we saw the divergences fro last week (negative/distribution) which have carried over to this week and as BAC so generously provided, the detailed transactions last week showing Institutional money selling everything across the board except the defensive utilities sector and that was still very small accumulation, and who were they selling to? The same reason the SPX had to break above the range, RETAIL. Here's that post...3C Distribution Confirmed by BofAML