USO update

USO is a trade I've been a bit bearish on and yesterday it went up with the market, today it's back below support. I like it in this area with a stop above $39.00 maybe $39.17 or something like that, the more room you give it, the better chance it will work out.

A Few More Cats and Dogs

PSID just triggered, but I only like this one above .72 (long trade)

MVIS has broken resistance at @ $2.02

BQI if it can get above $.44 it may be worth a shot

AEN also triggered, breaking out above resistance.

At this point any 1-day double digit gains I would consider locking in a good portion if not all of the profits, depending on your risk management and tolerance.

PEIX

For those of you who traded PEAIX, it's broken out this a.m. There's still a trade there, but you need to be able to watch it and really tighten up the risk management

Daily Wrap

Well insider transactions were released today and it's the same as it has ever been at least for the majority of 2010. Insiders were heavily skewed toward the sell side. We saw a smaller ratio this week then in previous weeks and months, nearly 19 shares sold for every 1 bought, in dollar terms that comes to $4.3 million in buys and $81 million in sales for the week, not as high as the 5 digit to 1 ratio we have seen, but still selling.

This is not a spotty trend, it has been consecutive for months and unrelenting and as I've said before, there's lot of reasons insiders may sell, but “I believe my company's stock is going higher” is not one of them.

Until last week for the first time in seven months, the same was true of domestic equity fund flows, retail had been taking money out of the market every week for 7 consecutive months until last week we saw the first inflow, 1 week a trend does not make. However, when we look at the overwhelmingly bullish sentiment, it makes sense that retail is dipping its toes back in the water, just remember that when the market trades at extremes, we are generally close to a change in sentiment. We also got data today from Smithers and Co. that finds the S&P to be 70% overvalued. I'm not following the actual input that have allowed them to reach this conclussion, but if you look at the S&P pricing now, vs. the S&P pricing around early 2006 (at comprable levels) the market was in a lot different place then it is now. Back then we were still in the midst of a consumer led bull market rally based on homeowners spending like drunken pirates based on rising home valuations, the market was still in a place in which growth was attainable, even though we'd soon pay dearly. Now we are pretty far from growth with unemployment clinging to stubbornly high levels, consumers not spending and a whole cornucopia of negative events taking shape including fraudclosure, the wholsale buying of US debt by the Fed as no one else is interested or trusts the US to make good on its debt obligations, record levels of banks closing their doors in 2010, pension fund unfunded liabilities, municipal bond selling on a huge scale, so on and so forth. The fact is simple, back then we were still looking forward, now we are stuck in an economic hole and those on Capital Hill won't stop digging. So overvalued? I buy it, but the market has always been and always will be the perpetual pendulum that swings way too far one way and then way to far the other with only a brief amount of time spent at the median.

As I mentioned last night, it was likely we'd see gains in the market today. Window dressing by institutional money “The Art of Looking Smart” is often found at quarter and year end, it's a time when they offload underperforming assets so they won't show up on the next quarter's prospectus. After the quarter's end, many of those companies sold are added back to the portfolio and judging by the market action today, it looks like that's exactly what happened. It may take a few days for the market to start acting normally, meaning for the second part of window dressing to be complete. So right now is a good time to take the market's temperature so to speak; to uncover the early 2011 trends taking shape in institutional allocation.

Silver has been an ongoing battle, I'm indifferent to a long trade in Silver, I have nothing against it, I just don't know that the real facts of the Silver/JPM vigilantes, vs the JPM Silver short are truly out and in the open. The one observable fact has been SLV has seen several battles at a line in the sand around $30. It looked like overnight that line had been decisively crossed with silver over $31. SLV, however told a story today that the battle still rages. See my earlier posts today on Silver and the obvious distribution/negativedivergences that sent SLV packing from a plus $30 level to a close of $29.99

Remember the earlier article in which I said the triangle looked like the $30 level would be tested, and how'd we know that?

Above you can see the false breakout from the triangle was met with several 3C negative divergences that played out exactly as we'd expect. A pretty volatile decline on big volume. Silver will be on the radar.

As will housing. I'm bearish on housing, now it's time to find the trade setups. I just went through the process of house hunting and what we saw out there was ugly. Agents are literally walking over each other and they don't care who you're working with, there was a time when they did and wouldn't waste their time, not anymore. Short Sales... no one wants to touch them. 80% of first time bids on short sales, the buyer walks away due to the process taking so long not to mention the banks deciding to just halt them and then restart them and most everything out there is a short sale or a bank REO.

Housing will certainly be a 2011 theme that should produce some lucrative trades. You've seen the recent data, it's not getting better, we are in a double dip recession in housing prices which leads to a lot of other worm holes.

As for today's market's Price Volume relationship, I bet you can guess...

The market finally closed above 1% for the first time in over two trading weeks, so the winner is..... Close up and Volume up by a wide margin. On the Dow we had 25 that fell into that category-this is the most bullish price/volume relationship of the four. The NASDAQ 100 had 86 and the Russell 2k had nearly 1400-the S&P had 400. Sounds pretty bullish right? Except this, when we see such an overwhelming dominance in the P/V relationship, it can often signal a one day overbought condition and as I showed in the last post, we had many stocks that took very bullish gaps and turned them into very bearish closing reversal candles.

As of now Asia is in the green and futures are higher, however, as we saw with silver and names like INTC today, things can change in a hurry and Asia (other then on Mondays) is usually a lagging indicator following what the US did the day before.

At 12:52 today I posted the first market update showing a change in character in 3C, here's what it looked like.

As you can see, 3C had already gone into negative divergences before the market hit its highs earlier in the day, the negative divergences in 3C cut off any further gains and it was time to give some back from there through the close.

Interestingly, the 5 min 3C chart hit the highs right on the head and look at the leading divergence from there to the downside in 3C. It's no wonder that was the peak in the market and many stocks gave back almost everything they gained from their gaps on.

The NASDAQ (QQQQ) did end the day with a nice looking positive divergence though so I'd expect, barring any unforseen surprises, the Q's should see a strong early morning. The Dow didn't look quite as good on the close but not horrible, the SPY was inline so it looked the worst. Perhaps we'll see some strength in tech in the early going.

XLF had a strong day, it'll definitely be on the radar tomorrow.

However as I pointed out in today's intraday trade, several market bellwhethers are falling apart-MCD and INTC were two I covered. We'll be watching more of the bellwhethers as some of the cats and dogs trades seem to be winding down, it's time to watch for weakness in bellwhether stocks and probably tomorrow I'll cover market breadth, it seems like a good time to do so.

Now that volume has returned, we should be able to pick up a few good trending trades, look for an updated, new January trade list tomorrow, but don't miss the featured trades I chart out in the posts, bookmark them if you have to, right now, it seems like it's turning into swing trading season as soon as window dressing-”the aftermath” is complete.

One final note, Friday I set a bunch of Cats and Dogs trade alerts, many of those triggered today. As you know since I downloaded the beta version of TC2000 (one of the perks of being an affiliate) I had a system crash that wasn't resolved until mid-morning today, so those trades weren't put on a list, I just called them out as they triggered. I think they can still be played, but if you entered any, please email me for the current outlook, stops and targets. It's easier to do that then to list 100 + trades that may not be worth playing much longer as the January list will be looking at swing trades that I'm running scans on tonight.

Looking Beyond the Gap

Morning trade and pre-market is always interesting. Hedge Fund managers and people even like Cramer admit that futures are heavily manipulated to influence the open. When I see a gap up, I don't automatically assume that it's bullish, in fact a gap up can set up some of the best reversal signals.

We saw some strong closes today, like AAPL on a daily chart, but an intraday chart reveals that all of the gains in AAPl were made in approximately the first hour an a half of trading, the rest of the day was lateral, so the daily candlestick which looks strong, doesn't tell the entire story.

Some charts that gapped up, however that gap turned out not to be such a great thing on the close....

VALE gapped up and held the gap, but in doing so created a nearly perfect "Evening Star" which is a reversal candle-to the downside.

DO also had a nice gap up, however, this turned into another reliable reversal pattern, a "Bearish Engulfing Candle"-another reversal candle to the downside.

M put in a "Shooting Star" reversal candle off the gap up.

GDX gapped up only to create a very bearish engulfing candle. Look at the reversals that occurred after the last 2 bearish engulfing reversals.

As you can see, the nice gap up in WDC turned out to be a perfectly formed Evening Star Reversal Candle.

The point being, what you see is not always what you expect. You have to look closer, beyond the daily candle, beyond the headlines and look at the market. The market will tell you a lot about itself, unfortunately too many of us get caught up in the % gain, that's called pure laziness. Anyone with 30 seconds to spare can get that information. Taking the time to understand the breadth of the market, the stability of the move, confirmation, etc-will give you a better understanding of what comes next, not just what occurred today.

Here's an Example

MRVL which was just mentioned as a short sale candidate on December 30th had a nice gap up to work with this morning, here' what it did with that advantage...

The red box is today's trade in MRVL-took a gap up and thus far has turned it into a loss, which only reinforces my feelings about MRVL being a good short trade to take a serous look at.

Follow Up on Market Update

At 12:52 I posted the Market Update and showed negative divergences building in as the market neared its peak. I said we should see "downside/weakness from here"

Since then that's what we've seen, not a market just in full decline, but a market that lost momentum to the upside and started seeing distribution/selling. Here's the current 3C chart for the SPY.

It's not so much how much ground the SPY has given up since then, it's how much stronger the negative divergence has become since then that is concerning.

Many of the charts that I'm looking at have risen with the market as is usual, but standing alone, without considering the market, they don't look too impressive and as I told a subscriber in an email. many of them I'd even consider a speculative short on as the breakouts or moves up just don't look strong technically/3C.

SLV Update

SLV has broken below $30, we'll have to see where it closes.

USO, Another False Breakout?

There's plenty of charts today that are showing breakouts above resistance that do not hae the volume to back up the move, they also don't have positive 3C profiles and are falling in afternoon trade. This is a questionable day right now in my opinion. USO is just the next I've stumbled across.

Here' USO breaking out above recent resistance from December. Note the volume should be much higher at this point in the day for a solid technical breakout, it should be at least double or triple what we are seeing.

Furthermore, the 5 min 3C was negative right off the open and we saw the price decline from there, it continues to look negative and USO has filed the gap, so the chances of the breakout occurring on a strong breakaway gap have already been erased. The question now is will support hold or do we see another false breakout. If it's the latter, then USO could tumble pretty hard in a short period of time.

And There It Is!

Just an hour and a half ago I warned about SLV looking like it wants to test the $30 support, it's also why I have been tepid about a long Silver trade until this level can prove itself to be solid.

Here's the recent chart just taken.

I forgot to mention the false breakouts that we've seen for months around patterns like this triangle for our new members, those of you who have been here for awhile know to expect a bit of volatility and false moves around these patterns. In any case, in yellow, that's exactly what we saw, a false upside breakout and what happens to failed moves? they reverse quick and hard in the opposite direction. Look at that sell-off in SLV and this is a 1 min chart. Look at the volume on the sell-off and note the price level-$30.04 from an intraday high of $30.44. So the Silver battle between the vigilantes and JP Morgan looks like it's still on, this is why I cautioned to go easy into the trade-it needs to prove itself and today's performance in the afternoon is not inspiring a lot of confidence as of now. Also note in the last chart posted (click the link above to go to the last post) 3C was telegraphing this test with negative divergences.