SLV

SLV is in an area and flashing signals that make this a fairly high probability area for a pullback.

 As mentioned last week, SLV has had a very parabolic move up thus far, today's exceptionally heavy volume suggests some churning may be in play. What I'm looking at is a pullback, I'm not talking about anything beyond a pullback which in SLV's case right now, would be healthy for the ETF. There is a chance as some negative press has been coming out about the Silver Trust itself, that this has something to do with that as well as a dissection of the prospectus recently has left open many loopholes that would allow the Trust to avoid having to actually deliver physical. There have also been rumors swirling for months that they simply don't have the physical to meet the trust's obligations or that it may be leased, etc.

 The 1 min chart has negative divergences including this morning's gap up, that was not confirmed by 3C and SLV fell, the second move up today is also not in confirmation and is negatively divergence.

 The 10 min chart with negative divergences

 And the same on the 15 min chart.

On a daily chart of my x-over screen, SLV still looks strong, the yellow/blue moving averages tend to be the typical pullback points as you can see in the red box. Considering the momentum of this move, usually you'd expect a pullback to be a bit shallower. However, the ever changing complexion of the dollar is the wild card here in a target area. Personally if I were long this one, I'd be taking profits off the table and letting some run with a trailing stop, I'd probably use a 20-bar moving average on an hourly chart as my trailing stop.

SPY Analysis

To summarize in a nutshell, the market was entering an up cycle (short term)

Here you can see the accumulation period on 4/12-4/14. On 4/15 which was the Friday the S&P ratings outlook news hit Wall Street (we didn't find out until Monday) I posted that 3C and breadth were falling apart quickly and it looked like short selling on that Friday. Sure enough, Monday we dropped hard and interrupted an up cycle that was only in its second day. On Monday, 4/18 I posted the following:

"I would think if there was a fairly certain fear on Wall Street that they've lost control, we'd be seeing a lot more negative looking charts. Unless we see something really nasty toward the close, my guess is they try to salvage what they can of the last cycle that was in effect; that may cause it to be shorter then originally planned, but it also gives you the chance to let the trade come to you.

If tomorrow (and I don't see a high probability of this right now) the market falls apart, then the entire game changes and Wall Street would be in a position it's rarely in. So for now, my vote is that they'll try to regain today's lost ground. If that happens, then we'll have to see if they intend to continue with the original plan or if they will modify it by shortening the cycle (we'd see pretty heavy distribution) and try to make up the rest on the downside."

 If we take away the S&P effect to the market (the days in the white box) and follow the green arrow, they did exactly what I suspected they'd do from my post above on Monday the 18th, the continued the cycle. Right now it's close to an area i which I'd expect to see distribution in play.

 Looking at the 5 min chart, we can see there are negative divergences starting Thursday of last week and today.

The 10-min is also in a negative divergence, so it appears that this cycle is coming close to having run it's course. Because we are so close to the April highs, I wouldn't be surprised to see an attempted move intraday or otherwise to breach those highs before a reversal takes effect. It's not a mandatory event, but it happens more often then not. The main point is the cycle seems to be near the end and we can start to look for the next cycle which would most likely be down, although there' also a 3rd trend which is lateral, however I feel that is less likely.

There are several trades members have emailed me about this a.m. that look to be in good position to start phasing into, mostly short trades or inverse ETFs. You may want to consider using any strength we see to phase into trades for the next cycle as your risk is now substantially lower then it was a week ago as you can place stops a few percent above recent intraday highs. If there are any specific trades you'd like to talk about, as always feel free to email me.

AAPL, Second Verse Same as the First

Thursday AAPL set up a triangle for a directional move, according to mainstream technical analysis this should have been a continuation pattern that broke out to the upside and continued an uptrend, but in real life, these patterns are used to whipsaw traders as we saw this morning in AAPL coming out of the first triangle. AAPL has formed a second triangle this morning, so watch for more volatility around the apex of this triangle-upside breakouts, then moves below the apex, etc. It should be happening as I'm writing this.

 This morning's second, smaller triangle

Thursday's triangle, today's triangle and a Bollinger band squeeze suggesting a directional move.

Volume will be very important to watch, thus far this morning it's been bearish

I'm Still Here

My Internet provider, Comcast, just changed their network to Xfinity today, for some reason their online switch-over program isn't working so I'm on the phone the last 45 minutes waiting to talk to someone. Meanwhile I found a weak signal I'm able to leach off of and using that, but it's extremely slow. Hopefully this will be resolved shortly.

AAPL Follow Up

Picking up where we left off Thursday, AAPL has spent this morning whiplashing traders at several resistance/support levels including Thursday intraday lows, especially the Apex of the triangle mentioned on Thursday and a few other intraday resistance areas.

I have a quick cumulative volume indicator I use (it's especially helpful in confirming patterns like H&S tops/Bottoms) and if you have TeleChart or another Worden product, the formula is a simple custom indicator with the following " V+V1 " and you have it.

A stock that's healthy should see rising volume on rallies, falling volume on declines, the exact opposite of AAPL's action this a.m.

The white line is cumulative volume, you can easily see what I'm talking about. This is typical early action taking advantage of stop, limit orders. I'd think they'll dry up soon and we'll start to see something more like a trend establish.

Keep an eye on CAT

Last week I mentioned a possible short trade in CAT, but first to let CAT come to you as an up-cycle was disrupted over a week ago on Friday April 15. The idea was that the cycle would resume and Thursday I mentioned CAT has moved into the distribution phase, where I'd like to start accumulating shorts.

CAT has seen some early downside this morning so we could be through with the distribution phase, although I'd much prefer to see an intraday move above $109.50 fail, there's no telling we'll see that so hopefully you were able to start a position last week at the highs where the risk is less. I prefer to fill out the position on a confirmed reversal, that could be today. We'll continue to monitor CAT.

Commods and PMs

This morning has been interesting so far for the commodity complex as a whole and precious metals specifically. It appears they are reacting to the bounce in the dollar off the opening lows, at one point in time that would make perfect sense, but silver and gold are reacting in a way that seems to suggest it's more then the dollar. For now, I'm just making a very short term observation, but I am wondering if there isn't something else behind this.

The IMF Bombshell

I'm a proud American, most of the time. Our leaders have certainly let us down and led us into some moments in which pride is hard to come by. However the IMF just dropped a bombshell that was most unexpected, even for someone who feels the chances of a secular bear market in the US are very high and very close. The IMF predicts China will overtake the US as the world's #1 power in the next five years with the US declining and China expanding. Forecasts are always tricky, the further out you forecast, the less accurate they tend to be and China is facing many problems now that may make this forecast true, but through the timing off.

I just wrote this weekend about the problem of US Treasuries/Debt. It's Ironic that within a week or so, the S&P has put the U.S. on a downgrade watch, China has talked of diversifying out of 60+% of their American debt holdings and now the IMF prediction. It all fits well with my opinion of a secular bear market, but goes way past that in its implications and the implications for our debt.

While forecasts may be difficult, trends show clearly the trajectory and how the IMF came t it's conclusions. The most clear fact in the article is this, a decade ago the US economy was 3x the size of China's. That's a rapid decline and one that has left the US middle class falling lower and lower while the richer get richer by escalating China through their business doctrine.

More on this later.

Bernanke's Chinese Fingertrap

I don't know if any of you remember the Chinese finger traps that you could buy when a few decades ago? You stuck a finger in each side and the harder you pulled, the tighter the trap became. For at least 6 months I've been describing Bernanke's policies as leading to the Chinese finger trap.

Late last week China warned the US to protect its debt holders, that wouldn't be the first time, just ask Hilary. However, after seeing the last congressional farce perpetrated by both political parties, including the Republican's who rode the Tea Party wave right into office on fiscal responsibility, the Chinese have a real and credible concern and no one in US policy takes it serious despite the occasional Geithner/ Bernanke warnings. These guys are smarter then this, they know congress isn't making any meaningful cuts to reduce the budget deficit. The last proposal was quickly unravelled to show what it really was, a few hundred million-far less then the billions they were touting.

So the debt ceiling will have to be raised by summer (or before) or else we default on debt service, but it's already a done deal. So a few short days later, the Chinese are now talking about reducing their exposure to US debt by 60+%. I've talked in the past about the nightmare scenario in which demand for US debt dries up, followed by wholesale liquidation by China. It's simple supply/demand economics. If you can't sell debt now, which we've had a hard time doing for quite some time, thus the Fed is monetizing the debt, despite Bernanke's promise before Congress not to do so, then how much worse does it get when you have China selling our debt as well?

Japan isn't saving the day, they've got bigger fish to fry and China seems to be more interested in buying PIIGS debt then even holding US debt and unfortunately for Spain, the Chinese real estate bubble and swarming inflation are likely to end that arrangement leaving Portugal wondering if they'll get a bailout as Finland looks likely to veto it, and Spain and Italy seeing the last of the EU bailout funds spent rescuing Portugal. The political will to increase the bailout mechanism in the EU isn't there as evidenced by the recent German and Finnish elections.

When you can't sell U.S. debt and the market is flooded with additional sources of US debt for sale to the tune of $3 trillion dollars, what's the answer? One the Fed can't stop buying debt, so some sort of QE 3 in some form is looking more likely. Secondly to sell whatever is possible ( and the Fed can't buy it without the Primary Dealers buying it from the Treasury, which until now has been a risk free handout of billions of dollars to the PD's) even the Primary Dealers now are going to want a higher rate of interest as the holding period which has been a few weeks typically before the Fed monetizes it, is no longer a risk free assumption. So I'm willing to bet that the yield is going way up in the very near term, especially if China makes good on the threats they're making now, even if they turn out to be only a fraction of the reported amount.

Where does that lead us, higher costs for everything. A housing market that will be so dead that the banks will be better off bulldozing foreclosures. Of course consumer credit will drop off the very low cliff it's on now, small businesses will fail and investment in technology (about the only thing the US has left after debasing our manufacturing sector) will drop off. The jobless rate will soon hit the double digits on the much manipulated U3 data. The U6 data will most likely surpass the great depression at 25+% and the US will enter one of the worst periods of stagflation in the western world. I can't wait to see what the new $10,000 US greenbacks look like, you'll probably need one to fill your gas tank.

This is Bernanke's Chinese finger trap. QE and risk free/free money to the Primary dealers have driven inflation up, that's a trend likely to get worse. Forget the term "margin squeeze" when it comes to EPS, there won't be any margin left. So just run the math real quick, rapidly appreciating prices, higher interest rates and greater unemployment=stagflation.With the rest of the word, including China, entering in to the next worldwide recession, I don't think I even have the imagination to paint a picture of the consequences, but even worse (as with all Fed policy) are the unintended, unforeseen consequences.

Bernanke created what I've been calling a Chinese Finger Trap and isn't it ironic that it's precisely the Chinese that are likely to escalate this situation from an unbelievable mess to an unimaginable mess.

Hawaii Premium Gas Hits $4.078 a Gallon

And here is sunny Florida, an Orlando gas station is now charging $5.69 a gallon for REGULAR!  

Meanwhile as you may have heard, the two nastiest words in Chinese politics "Social Unrest" have developed into protests throughout the transportation industry because of high gas prices and pay related issues; could it be the start of the Jasmine Revolution? I doubt it, but it's a sign of the times and it won't be helpful for the world economy or political leaders.

Meanwhile the Saudis are cutting back production, saying the market is saturated. I have to wonder if this is in some way connected to the Libyan export on/export off scenario that's developed the last few weeks. Italy depends on Libyan crude, the Saudi crude is a poor replacement. The Italian refineries need to buy 3 barrels of Saudi to get 1 barrel of Libyan because of the high sulfur content in Saudi Crude.

One also has to wonder if the Saudis are about to pull out another cash drop to keep the peasantry from rebelling and contrary to popular belief, they aren't as well financed as you'd think. Higher Crude prices may be a political necessity for the Saudis to escape the wrath of revolutions spreading across MENA like wildfire.