On an unrelated subject, I remember the Orange Revolution in Ukraine, the Rose Revolution in Georgia (former Soviet Satellite) , the "Jeans Revolution" in Belarus and even the Velvet Revolution in Czechoslovakia as the US and NATO cut in to key former Soviet satellite states such as the Ukraine, Georgia, etc. Apparently the worm has turned starting with Ukraine's former peninsula, Crimea as Russia starts cutting in to NATO and NATO allys' back yards returning the favor. I wouldn't underestimate the risks involved in Greece turning to Russia or China for aid.
I read a piece today by one of the most interesting fund managers (and influential), Dan Loeb of Third Point. If the name is not familiar, you may recall some very nasty negative divergences in AAPL in 2011/2012 in which we were calling for a move to the downside. You have to understand that at the time, this was blasphemy of the highest order as AAPL could do NO wrong, it was the market darling and hitting all time new record highs. However, the divergences were sharp they were clear and whether I understood them or not, we had opened short positions in AAPL (a lesson for me in making long term decisions based on short term data). Suddenly, AAPL plunged faster than anything at the time and the reason was Third Point's top 5 holdings no longer included AAPL. Dan Loeb had been selling AAPL and the hedge fund herd had stampeded until AAPL took a nearly -45% loss in 8 months as fund managers just kept trying to all fit out the same small door at the same time.
Loeb said in his Q4 investors' letter that he had pulled back on long market positions/leverage as we were in a ,"Haunted House Market" where "a new scary event lurks around each corner" and nothing was scarier than the outcome of the Greek scenario. If you thought Lehman was bad, the potential fall-out from a Greek-exit or even worse has overtones that we can't even imagine and those are the ones that get you if you're on the wrong side of the market. I wonder how long it will take the market to follow Loeb's latest moves if it hasn't already. I suspect some of those very nasty charts from Thursday and Friday were not run of the mill, normal distribution.
In any case, one might ask with tomorrow's looming Emergency EU Finance Ministers' meeting to discuss Greece as well as a plethora of bad news from Chinese inflation data overnight (essentially deflation) to record lows in the Baltic Dry Index, , US macro data wetting the bed, earnings turning and today;s news that now Haliburton is cutting 5,000- to 65000 employees after Baker-Hughes and others, "Why would the market be in a risk on mode in front of all of these potentially devastating events?"
I think the answer is simply retail. There's almost always a give-away to a cycle whether a base that's about to rally or a top that's about to come crashing down.
Last night was my latest warning of the potential probabilities of a head fake move being the range in the market had just been defined after the descending triangle breakout that we expected and such a range is just too juicy to pass up, you may recall form the past several days and specifically last night this chart as trendlines are redrawn after the breakout above the descending triangle.
The EU/Greek rumors which were promptly shot down and had nothing (intentionally) to do with this move, gave the market a head start via USD/JPY which later dislocated form the Index futures as the news that AAPL would be issuing debt (as you've already probably heard) in Switzerland (which you probably did not hear until today) took over from there.
According to the WSJ, the 3 reasons AAPL decided to issue debt in Switzerland included:
"One: the lure of cheap rates. Switzerland’s government debt yields below 0% all the way out to 11 years, meaning corporate bonds–the price of which is typically linked to government debt–is super cheap too.
Two: Apple can use proceeds from debt sales to fund buybacks and dividends, a less expensive option than using cash earned outside the U.S., which would be taxed if brought back from overseas.
And third: Selling bonds in Switzerland allows Apple to tap a new set of fixed-income investors."
In any case, like all market tops, the money is being used to buy back shares (keep the price as high as possible so Corporate officers can make as hefty a bonus as possible as their bonuses are tied to the stock price (ever wonder why buybacks are always at market tops when they are most expensive rather than market bottoms?) and the other purpose will be to pay dividends. While I won't get in to it now, look at MSFT from the 1990's in to early 2000's, it went from a massive growth story (bigger than AAPL) to a more or less range bound , blue chip which is what AAPL is transforming in to.
In pre-market on the early EU/Greek rumors USd/JPY led Index futures higher, but after the open and the denials you can see a correlation to the downside, I took the fat way out and used the cash market only, but as I said, that's what happened pre-market.
And then AAPL in white vs the SPX during the cash market after the EU/Greek rumors were shot down.
AAPL was what you'd call the "Fulcrum" of the market today. While HY Credit languished and actually headed in the opposite direction, 30-year Treasury yields fell and the USD/JPY dare not tread where ES and NQ go, some might wonder, what do stocks know that the rest of the market seems not to? The answer is simply, "nothing".After 6 or more consecutive days of mostly positive leading indicators, today was the first day many that had previously been supportive, broke ranks.
The clear winner among the averages today was the NDX which is heavily weighted by AAPL, at one point around 20% of the NDX's weight was AAPL, if you want the current weighting, you have to pay NASDAQ $10,000 a year for a subscription, but to give you some context, if you took the bottom 50 weighted stocks in the NASDAQ 100 and combined them, they'd have about the same weight as AAPL has had in the not too distant past on the NASDAQ 100.
While AAPL is far from my favorite short, I'll be keeping close tabs on it in to the coming days, in fact if it hadn't had the job of lifting the market and all of the momentum monkeys chasing it, I'd be surprised it didn't break down today to lower levels.
Gold and Oil thus far have done exactly what we've expected although I suspect oil makes a turn to the upside (unless inventories are way out of line) soon and before Gold, although I do expect gold to make a turn to the upside, it just has more work to do off a much larger negative/pullback divergence.
MCP's consolidation divergence (positive) continues...
HYG was used as a lever today, but its general divergence and trend remain as I'd expect and as I was looking for yesterday and today.
As I was saying earlier, HYG is often the first give-away, take the January 14-16th base and bounce, HYG gave early warning and confirmation of that base on the bottom just as it's doing above on the top...
In fact it has been so reliable, I'm testing some long and short term trading systems using HYG and some custom indicators.
While I didn't se as much action as I'd like to have seen in VXX today, there was some, I suspect it needs a little more downside.
TLT on the other hand put in a lot of work for the day.
As for internals, I wouldn't consider the averages as having a Dominant Price/Volume Relationship today except for the NASDAQ 100 at 61 stocks at Close Up/Volume Up, which is the most bullish of the 4 possibilities, but ironically also the most likely short term overbought condition causing a next day close lower, we'll have to keep an eye on AAPL and see if that plays out. All of the other averages were mixed.
Both the S&P sectors and the Morningstar Industry/Sub-Industry groups are flashing overbought with 8 of 9 S&P sectors green, but surprisingly the leader was the defensive Utilities at a gain of +2.06% with the laggard being Energy, but just barely red at -0.05%.
Of the 238 Morningstar groups, 195 of 238 were green, these are the kind of numbers we see in an overbought market that lead to a decline, although the Dominant P/V relationship is usually the 3rd factor in a probable move and that was missing today.
As for futures, tomorrow is a big day for the EU and likely the market. USD/JPY has been sloppy looking all day, but that's because the carry pair has been range bound, however there is a clear negative signal developing right now.
I have to run out for a "prior engagement" for a few hours, but I'll check on futures upon my return, I wouldn't be surprised to see USD/JPY showing a more risk off position and despite AAPL today which discounted the Swiss news, I really don't think the market can hold off too far removed from USD/JPY, especially if it moves to risk off as I suspect it is starting to flash right now.
NQ/NDX futures can't hold up long looking like this with no support.
I'll be checking in and reporting on (if warranted) futures in a few hours.
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