The apparent capitulation by Greek leadership does not necessarily equate with Greece "being saved" as one Greek lawmaker put it yesterday. The agreement to extend the current Troika (excuse me, "the creditors") bailout program, the same program that Syria has railed against for nearly 5 months, in which time more than 30 billion Euros have left its banking system, essentially making it an ECB asset as they have back-stopped all of the cash withdraws and put the country in to recession, is not necessarily going to pass Greek parliament and the German Bundestag won't vote on the extension until the Greeks do.
In other words, nearly 5 months after Syria received its electoral mandate to end the Bail-out program and "bury the Troika", they are in worse position then when they started as the country was not in recession and the banking system did not lose $30 bn euros which were replaced by the ECB with ECB loans amounting to more than all Greek deposits and collateral. You could say the ECB owns the Greek Financial sector. Greece could have avoided all of this pain had they simply went along or had a plan "B". You don't bluff like this unless you have a plan "B" which Syria didn't.
To make matters worse, if Tsipras can somehow get the Syria idealouges on board, the same ones who came to power by swearing to defeat the very thing they are now being asked to approve, there's still no guarantee that the rest of the EU parliaments will pass the bailout extension, particularly Germany where the Finance Minister and Merkel's own CDU party have a wide rift between them over what they see as her coddling of Greece. So nothing's sure, but even if it was, it appears it wouldn't matter. Why?
Because the "T" in Troika, the group of 3 which is the IMF has already stated they do not agree with the Greek plan (or rather the EU bailout extension plan) as submitted to yesterday.
Wednesday when Tsipras flies t Brussels to meet with the Troika: Juncker, Draghi and LaGarde, it apparently will be the IMF's LaGarde who tells Greece that this simply will not due and to come back with something else.
The sticking point for the IMF is in hiking taxes in Greece where the IMF believes they are not only not collectable as has been true, but they are already over-taxed which won't foster an environment for investment which Greece desperately needs to get back on its feet. Almost 92% of the Greek proposed methods of coming up with capital are all tax based, especially corporate. The IMF will insist on no more tax hikes or at least much , much less and spending cuts instead which will be directly aimed at pensions which is the one red line that Syriza hardliners will not cross, thus it's very unlikely that Greece will be able to pass a new draft version even if they can come up with it, get ECB and EU approval as well as IMF approval and then pass it through their parliament who doesn't like the current version, they'll like the pension cuts a lot less as will the populace and they have 7-day to do all of this, hardly even enough time to call for snap-elections or a referendum to shake up the government to make it passable.
In other words, while Greece has been able to dance pretty well and extend and pretend, in the end it looks like it did at the beginning, this is a can of worms they should not have opened without a plan "B".
OK so that's the basics of where Greece stands. Now some very interesting information that confirms not only our expectations in forecasts, but the charts since putting forth our expectations.
This interesting bit of information comes to us from BofAML (Bank of America/Merrill Lynch), and it is the recent and YTD net buying/selling of 3 client types, Institutional, Hedge Fund and private.
At this time I'd like to point out last Thursday's Daily Wrap which chronicles what has happened back to last Monday and since. You may recall last Tuesday the Fear in the market which was posted on with the Fear/Greed Index which fit with Monday's proposition that the SPX would create support at the 150-day moving average and bounce from there. The information posted Tuesday in support of such a move looked like this...
This was posted Tuesday as I had only seen it on Tuesday, but was posted in support of what was posted Monday June 15th about the market creating a support zone at the SPX 150-ma that would allow the market to bounce from there and specifically posted Monday,
"The one thing I don't like is the increased market perception and fear, that tilts the ship too far one way and it's very lucrative for Wall Street to rock the boat in the other direction quickly, stopping out or triggering trades, it''s short term maneuvering that has little to do with the bigger picture, but it makes them money."
The idea as of Monday was the SPX 150-day support and extreme fear in the market tilted the boat too far in one direction, making it easy for Wall St. to earn a quick buck and to sell in to price strength or short in to it, that has looked a lot like we expected. As of today's close...
I think the idea that we put forward last Monday and Tuesday of a bounce off obvious support with the SPX 150 ma being tagged twice and such overwhelming fear, making a short squeeze easy ad making the upside move look impressive to get new longs behind it as we saw in sentiment posts from last week.
This entire idea has been posted in chart depictions of 3C distribution in to the move, however today we got something additional confirming our expectations of how smart money would use this to their advantage. Bank of America has released their net selling/buying by client type and it's a doozie...
Last week saw broad-based institutional selling throughout all 10 sectors, led with distribution in Financials which have been a recent favorite, Trade Idea: XLF Trend (short) and Wednesday's XLF/Financials Broad Update. Last week alone there were over $4.1bn in net sales led by Institutional clients, THE MOST SINCE JANUARY OF 2008! While hedge funds and Institutions all sold alike, this was the biggest institutional selling bonanza on record with BofA's data base.
A lot of the selling was Large Caps, in fact the most ever in their data base which is odd because during the 2007-2008 market meltdown, Large caps held up the best, they seemed to be the flight to safety, this time they were sold to the greatest degree BofA has seen in the history of their data. This didn't preclude small or mid-cap selling, they were sold as well, it's just a bit surprising that large caps were targeted so seriously as they usually hold up the best in a bear market.
Hedge funds were net sellers last week in 8 of 19 sectors and led with selling in healthcare, which has also been a recent trade set-up, specifically in biotechs as posted last Thursday in Trade Set-Up: IBB NASDAQ Biotech Index (short) and coming in second was Materials.
As for biotech, the post above, Trade Set-Up: IBB NASDAQ Biotech Index (short) was from June 18th as Biotechs made what I assessed as a head fake move above a easily recognizable resistance area...
"IBB/NDX Biotechs is what I'd call a screaming head fake set-up... Beyond that, the reasoning for their existence is a bit longer to explain than is appropriate in this post, but it has everything to do with the size of institutional positions and entering and exiting them at the best prices for smart money without attracting attention to the trade and without driving the trade against themselves because of the size of their positions (basic supply/demand dynamics)...it's a perfect head fake set-up because technical traders who have been following IBB and waiting for a new high, expecting it to return to last year's trend have their buy orders set right above the clear resistance level, a breakout to the upside triggers them, at the same time triggering demand which can be used to sell in to... Here comes today, a perfect break above the trendily,a convincing break for technical traders, one they'll buy, one they'll chase giving larger institutional money the demand they need to either sell or sell short into, both transactions come across the tape as sales."
A NEAR PERFECT DESCRIPTION POSTED LAST WEEK OF WHAT WOULD HAPPEN WHICH WE NOW HAVE CONFIRMATION OF ACTUALLY HAPPENING IN HC STOCKS.
Hedge Funds have been bet sellers the last 9 consecutive weeks! This wasn't just about last week's F_O_M_C or Greek "Lehman Weekend", the selling has been broad based for much longer, but last week in specific saw new records hit as the bounce and distribution off the 150-SPX moving average was exactly what we expected and our charts have shown.
Again...
"EXTREME FEAR just yesterday triggering the comments above also from yesterday, And What does Wall Street do when the boat is leaning too far in one direction? They take advantage of it."
"The one thing I don't like is the increased market perception and fear, that tilts the ship too far one way and it's very lucrative for Wall Street to rock the boat in the other direction quickly, stopping out or triggering trades, it''s short term maneuvering that has little to do with the bigger picture, but it makes them money."
On a 4 week smoothed average basis, Hedge Funds have been net sellers since late April. What happened late April that we forecast nearly a month in advance on April 2nd.
First our forecast in March was there would be no significant downside until obvious resistance that had been forming in the market was broken to the upside. More specifically on April 2nd we forecast that the market would breakout above Triangles in the major averages like this ascending triangle in the SPX and that the breakout would be a head fake move or false breakout used to sell in to as you see in yellow at the May head fake move above the triangle.
YTD, hedge funds have been net sellers. Retail was a net seller last week, although YTD Retail has been a net buyer. So who was buying last week? Believe it or not, corporations seeking to boost their share price, but there's bad news for the market and part of our The Week Ahead forecast nailed it...
From the Week Ahead...
"I think the short term chart craziness reflects knee jerk possibilities over Greek news. We've all been wisely conditioned not to expect much from Greece, but this is now a country with the clock ticking down. I can't figure out why the ECB keeps extending them just enough Emergency liquidity to just about even out the outflows each day and I can't figure out why after the horrible failure of a EuroGroup meeting yesterday, Tsipras would go to such trouble as to get an emergency meeting scheduled for Monday and why the Troika who clearly thinks or says Greece is not serious, would give them the chance. So the very near term looks a bit cloudy, although I doubt smart money is carrying much of anything in to the weekend which is largely what I think this week was all about, not just the close today."
In retrospect the reason Tsipras asked for the meeting and the reason the EuroGroup agreed was Tsipras had resigned himself to accept whatever the EuroGroup demanded, which was an extension of the current bailout program as we saw accepted yesterday so our early week forecast was right on or at least the gut feeling in addition to...
"As for short term charts, I don't think anything overcomes the news and we really don't know what the news is going to be. However thus far I have not put out the VXX long call/add-to call, one of the reasons is this SPY chart (1 min), if we close like this then the concept of 3C charts picking up where they left off kicks in and the most probable outcome would be some early week/Monday market strength..."
And beyond early in the week,
"The larger trends and higher probabilities are quite negative thus I think we see significant downside next week, but beware the Greek rumors unless sourced.. The 2 min chart shows the same as everything else, distribution in to this week's price strength...The longer term trend charts through this week look horrible, it was a hollow counter trend bounce off the 150- I suspect we slice right below it next week."
If corporations/share buybacks were the marginal buyers last week, that leaves the market in a bit of trouble this week as we enter earning's season and the Blackout period for buyback begins, being Corps were the only real net buyer of stocks last week. By the way, along the lines of our "Week Ahead" forecast and weakness after initial strength, the Blackout period begins this week!
Otherwise, everything from BofAML's data is right in line with our YTD projections, our April 2nd forecast and even last week's closing The Week Ahead forecast so far. This doesn't mean we sit on laurels and take the BofA information as a victory, we listen to the message of the market as it is one of the most dynamic systems you'll ever encounter, it's just good to know we have been on the right track with hard evidence.
Last night in the Daily Wrap, I expected a similar Doji/Star type of candle close today...
"As for the market, I showed the daily SPY and the star daily candle looks bad, but I'd think it would be more reliable on some real volume...
And a slightly different reversal candle in the Russell 2000, a Hanging man, again volume didn't pick up which is not a prerequisite, but it increases the probabilities just as two consecutive reversal candles do.
While the bearish reversal candles today were right on, internals were virtually no where to be found as you saw them writing most of the day via the TICK. There's nothing even close to a Dominant Price/Volume Relationship tonight and of the 9 S&P sectors, 8 closed green leaving the short term / next day directionality up in the air.
Our forecast for the EUR/JPY was right on today as the pair lost ground and the $USD saw it's best 1-day move in about 3 months.
And the decline forecast in EUR/USD, as the charts have been pointing in that direction, however as puzzling as it was this morning with Greece accepting the terms and the forecast being a bit larger and further out as seen here, EUR/USD, Greece and Goldman, perhaps it does make some sense given the IMF's position and the unlikely probability of Greece being able to get through an entirely new reformed package of cuts they absolutely don't want to make and then through the various parliaments within the next 7-days.
Earlier I covered Crude, USO Should be Coming Down Intraday and I'd think the strong $USD today is not going to be helpful as the slight weakness earlier in the day was for crude.
The API data for crude came in at a draw of -3.2 mm bbl tonight, there was very little reaction from crude futures.
Other than a quick knee jerk at the release of the data (white arrow) the chart looks the same as when I posted the afternoon, USO Should be Coming Down Intraday with negative 1 & 3 min CL charts, as well as negative 1-5 min intraday USO charts. I'll be looking for an early short entry near the open and before or up until the 10:30 EIA data, otherwise I intend to still hold the crude puts and equity short as the 10-15 min charts are the primary / strongest charts for near term action and still pointing to a move well inside the 2015 base range.
As for tomorrow, while we got the candlestick in all of the averages I was looking for, we didn't get the volume and internals aren't telling us much tonight. However all of the averages saw negative divergences in to the close today to go along with the second Star/Doji Star daily candles in the major averages, I have little reason to doubt the Week Ahead forecast of early strength and later in the week weakness as there's rarely a "V" shaped , immediate reversal, but some process or time which the second daily candlestick charts today gave us.
As for Index futures going in to tonight, ES is still in line as it has been all day, but Russell 2000 and NDX futures have a significantly more negative tone.
I never use to trust the 1 min charts to hold up until the morning, so in that spirit I'm going back to 5 min charts which have shown recent weakness as posted earlier today in, Quick Index Futures Update and Index Futures Update with examples.
The 5 min charts...
And Russell 2000 futures looking worse.
Last week I had waited for a VXX long call, I mentioned it in Friday's The Week Ahead forecast,
"As for short term charts, I don't think anything overcomes the news and we really don't know what the news is going to be. However thus far I have not put out the VXX long call/add-to call, one of the reasons is this SPY chart (1 min), if we close like this then the concept of 3C charts picking up where they left off kicks in and the most probable outcome would be some early week/Monday market strength"
In retrospect the 3C concept of picking up where it left off was completely right in sending the market higher yesterday and VXX lower which is why, despite the fact I really like VXX long here, I did not feel the timing was right.
With the Index futures above and those shown earlier today, I think we are exceptionally close to that long/add-to call position for VXX and that means a negative forecast for the market as they trade opposite each other.
In other words, I expect the second half, the more important half of the week ahead forecast to take shape. The expectation of what would happen last week and why was proved to us with hard data today, Wall St. used the extreme bearishness to push a bounce through, force shorts to cover, create a somewhat impressive bounce that changed sentiment and CLEARLY sold in to it last week, to the point of record breaking stats in many cases. I seriously doubt that the market reacts like that last week, as anticipated and then finds footing with 44.1 bn in equity support sold by strong hands.
However as I said earlier, we'll let the charts tell us when the time is right and what the right asset is, I just have little doubt in my mind that the forecast for the rest of the week is close to the downside turn that slices through the SPX 150 sma.
