QQQ/IWM Chart Request

On Friday of last week I mentioned that the QQQ are not looking too good and off doing their own thing as opposed to the other averages.

Heres the SPY for comparison

 As of Friday last week, the SPY saw consecutive positive divergences at the lower triangle trendline (divergences marked with arrows, the areas of divergence in the boxes).

 The IWM has been a bit more neutral then the SPY, but nothing like the Qs. The posture of the 3C charts can clearly be seen in the % moves today in each average with the Q's being hit the hardest, the IWM in the middle and the DIA/SPY being the closest to unchanged. The 5 min chart above of the IWM doesnt look particularly good right now.

 The IWM 1 min chart makes a bit more sense, you can see the positive divergence late Friday and into this morning's open which lifted it into the green for a bit this morning. At a 1 pm there was another positive divergence lifting the IWM a fraction of a percent. Right now it appears a negative divergence may be early in the making.

 Contrast the above, especially the SPY chart with the QQQ which has been negative since Wednesday with NO signs of anything like a positive divergence.

On the 1 min chart, there was no opening positive divergence like the rest of the market saw, there was the 1 p.m. divergence, but that's the extent of anything positive. Right now I'd call the current divergence negative as it has moved down further since this screen capture.

The NASDAQ is performing roughly in line with the technology sector-See the last chart in this post covering XLK showing it's very negative disposition.

 In the post linked above, I mentioned the breakaway gap in XLK from Feb. that remains unfilled, which is very bearish.

 Compare to the 5 min QQQ chart and you will see every rally attempt in XLK has been met with selling. Both rally attempts here are very close to the resistance of the breakaway gap which is difficult to see, but it's the red trendline at the very top of the chart.

The longer term view on an hourly chart of XLK is also very bearish. Again, note the distribution at the attempts to fill the breakaway gap (in the white box-the same attempts seen above on the 5 min chart).

Economic Data

We'll start with the Empire Manufacturing Index, this was a HUGE miss. This month it was nearly cut in half coming in at 11.9 from a previous 21.7 with consensus coming in at 19.55.  While everything pretty much came in disappointing, from new orders to rising inventories and declining business conditions, the real problem (which is part of a long standing trend) was the prices paid input costs which climbed to the 2nd highest ever reading. Prices received remained unchanged.

This is the Bernanke Finger Trap with inflation soaring. I was a bit surprised that prices received hadn't seen price hikes passed onto consumers, but it can't be far behind.

While we could consider the above data "Bernanke's left finger caught in the trap", the Treasuries TIC data released this morning might be called "Bernanke's right finger caught in the Chinese Finger Trap" which is appropriately named since Chinese holdings of US debt have fallen for the 5th consecutive month, a drop of approximately -2.6%. This may not seem like a huge drop, but when you consider the amount we are talking about, it may equate to a drop of hundreds of billions of dollars. This is China alone, I'd be interested to see what Japan's holdings look like as the BOJ and insurance agencies have been selling USTs to finance rebuilding.

If Bernanke is going to end his path of monetizing debt, (the Fed is now the second largest holder of US debt) as he has suggested, their going to need to find a buyer for these auctions pretty quick. The fastest way to achieve that would be an interest rate hike, which is interesting as the Fed's Kocherlakota has twice floated the idea of a 50 basis point hike in the last week.

The NAHB Home Builder Confidence came in unchanged, which is a miss as consensus was looking for a more positive outlook-just waiting for that SRS trade to set up...

As a corollary to the conditions in China that have FXP (Ultrashort FTSE/China 25) on our long trade list, 2 short term Chinese bond auctions failed today. The problem is the yield on the bonds is not seen as worthwhile considering the rate of inflation in China. China is seeing wage inflation, of course the same rising input costs and a housing bubble much like our own in 2007 in addition to consumer inflation.

On the very bizarre weekend news concerning Dominique Strauss Kahn's arrest in NYC for rape allegations, we have another woman stepping forward in France claiming to also have been abused at DSK's hands. So effectively, DSK has nowhere to hide, not in the Washington based IMF, nor his homeland of France. Although that doesn't seem to matter much at this point as bail has been denied. Other then being a curious news story (you'd think he could pay for his sexual misconduct or at least abuse his position of power), this may have serious consequences for debt structuring/restructuring for Ireland, Portugal and most importantly, Greece as the clock is ticking. DSK had a more tolerant disposition toward Greek debt restructuring. Whether his predecessor will or not remains to be seen. However perhaps more importantly in the Greek situation is the ticking clock.

And finally, the Treasury Department confirms that today, the debt ceiling will be breached, which will certainly not help those UST auctions. In reality once you got past the creative accounting, the debt ceiling was actually breached last Monday. The Treasuries answer to this, as Congress certainly hasn't provided one, to dip into the Federal Pension Fund. So not only is Social Security insolvent, along with most state pension funds as well as corporate pension funds, now the Treasury will start to inflict damage on Federal Pension funds.

It's absolutely amazing that the US is still able to sell treasuries (even with monetization), and what will happen once the Fed curbs quantitative easing? I'd expect to see rising rates. Take rising rates and add them to an inflation trend that has proven to be more then "transitory" and the US starts to look amazingly like Greece, except Greece has actually implemented austerity measures!

None of this bodes well for the market and most likely explains the following charts...

 The current negative divergence in which Wall Street has had plenty of warning and an environment in which to sell into thanks to the Fed's POMO operations.

The above chart looks a little like the 2007 top. OF course the more drawn out nature of the current divergence is due to the Fed's extraordinary loose monetary policy, giving Wall Street plenty of time to prepare.

Follow Up on the Morganza Spillway

Last night I listed the energy companies that would likely be impacted by the opening of the Morganza spillway over the weekend. You may recall that there was a short term positive divergence throughout the sector (in both stocks effected and not effected by the opening of the spill way). Here are the stocks listed last night and what they look like this morning.

APA

 Heres APA's 1 min 3C chart this morning, it gapped lower only to head into positive territory for the day, since a negative divergence on the 1 min chart has set in and APA is back in the red.

COP-This one would have been effected either way, but it seems the opening of the spillway is more advantageous as their downstream production which would have been effected should the Morganza remained closed is about 247,000 barrels a day as compared to the site which could be effected by the opening which produces about 2600 barrels a day. Still, theres been a short term negative divergence and a slight pulback, although COP remains in the green.

CVX-

 CVX is right at the last level of support for the top. This intraday chart depicts 4 attempts in the last 3 days to break above that resistance. Each one has been met with a negative divergence sending CVX back below the important support line. Although CVX gapped lower on the open today, it did make another run above that support level, only to see another negative divergence turn it back down below the support level. This seems like a good candidate.

 PQ has seen a nice move off the positive divergence.

 PQ also happened to be one of the stronger positive divergences as you can see on this 10 min chart.

SFY

 SFY also gapped lower and headed into the green, most likely off that short term positive divergence. Right now, although its still in the green, there is a leading negative divergence.

SGY

 SGY, like most others, also opened lower and moved higher, again most likely off the short term positive divergence noted last night. Since a negative divergence has set in. This is also another that showed a more positive disposition then the rest of the group as you'll see below.

a 15 min 3 day positive divergence.

USO UPDATE

Last week there were signs of some accumulation in USO, last night I mentioned USO is a likely candidate for some upside momentum this week based on the fundamental situation in the MENA region with regard to Israel.

 While this daily chart doesn't seem to depict anything ominous today, USO was 1% lower this morning which is a pretty decent drop for morning trade. However, like most of the market which was also down this morning and has since made up the lost ground to trade in the green, with the exception of the QQQ/NASDAQ 100 which I pointed out last Friday, did not look good compared to the S&P, Dow and Russell 2k.

Here USO shows a 15 min relative and leading positive divergence.

PSLV Chart Request

Interestingly, after 4 nearly consecutive margin hikes in silver from the CME, there are rumors of more coming down the line. However, theres a source of new competition on the block from the Shanghai Exchange who have actually lowered silver margins and are floating the idea of another drop in margin on silver at the end of business today if silver doesn't show any wild volatility. The CME seems to be operating more like the tax system, once there's a hike, it's there to stay despite what fundamental conditions may have changed.

Here's a look at PSLV which I now favor over SLV for trading.

 PSLV 15 min. is showing a positive divergence into a lateral environment with both divergences occurring at support.

On the hourly chart, there are also 2 positive divergences (although not as well developed as should be expected with the longer timeframe). Again, both divergences occurred when PSLV touched support. It appears as if PSLV is under an accumulation cycle, the question now is how long does it last. It may be worthwhile if you like trading silver, to start building a position whenever PSLV is near support around the $15.50 level. Do be aware that $15.50 is a very obvious stop level and stops may be run before a move higher begins.

XOMA Chart Request

XOMA was a long idea from last Monday, May 9th.

 Heres the recent daily chart, XOMA is holding in a steady lateral consolidation which appears to be part of a larger base. A breakout of the base would occur around $3.19 which would mark the start of stage 2 mark up where the stock usually sees a nice move up.

 The recent 10 min chart is bullish looking and appears as if XOMA is preparing to move higher.

Here's the bigger picture on a 60 min chart and shows the extent of the larger base with a positive divergence throughout the lateral basing phase.

If you want to take a shot at this particular move, a tight stop can be set around $3.02. ADX is just crossing up through 20 which generally denotes the start of a new trend.

I still like this trade.

SPY Update

 The SPY broke below the lower trendline, an obvious stop level.

This looked very much like an intentional move. As I pointed out in my last market post, there seems to be a consistent pattern of positive divergences or accumulation at the lower trendline of this obvious price pattern.

This is the obvious price pattern and I still believe the most probable outcome will be an upside breakout from the triangle. I'd also be very wary of that breakout and suspect it will end up turning into a bull trap/false breakout.

However it can be used tactically to enter inverse or short positions that you may have your eye on.

On Another Front in a Surreal Weekend...

The Arrest of Dominique Strauss Kahn, the head of the IMF "may" have some repercussions in the debt restructuring in Greece, which has now spread to Ireland as well as dealing with Portugal. I have a feeling we'll see some pressure on the Euro this week, the level to watch will be $1.40 as a breach below that level may force technical selling. This should be a strong week for the USD, which could very well have an effect on the market, commodities as well as PMs.

Here's about 5 days of accumulation on a 15 minute chart. We've seen about 6 days up since then, so there's certainly room for more upside just based on the last accumulation cycle.

The EU/USD is trading around $1.4098 right now, so if it loses about a point, we could see a real downdraft  in the Euro. You could use FXE as a short if that happened or go long the dollar, although I think a direct short on the Euro would be more advantageous.

More From This Weekned

Last week a positive divergence was apparent in oil, it seems nothing moves oil like tension in Israel so that's something to watch for this week as tensions are rising rapidly with Egyptian police firing tear gas and killing at least one protester as they tried to storm the Israeli embassy in Cairo. What really heightened tensions though was a group of Syrians and Palestinians that may have numbered in the thousands climbing the security fences which partition off the Golan Heights from Syria. Israeli security forces opened fire with tear gas and live ammo. There were other protests across occupied territories as well.

I just read a good piece from Stratfor this weekend about what it would take to attack Israel and I did a bunch of research about the 6 day war. Whenever there's internal tension within a country like Egypt or Syria right now, there is often a move to create a nationalistic fervor to deflect tensions. Israel would certainly be a target for those seeking to externalize internal  unrest. In any case, fundamentally speaking, oil should see some upside this week.

Energy Stocks Effected by the Opening of the Morganza Spillway

President Obama chose to open the Morganza Spillway  this weekend. Whether the spillway was opened or remained shut, there were a group of refineries and nuclear power-plants that could be threatened. Below is a list of those that are threatened from the opening of the spillway.

Interestingly, short term, most (the entire group, threatened either way) looked like they were seeing short term accumulation as you will see. This may be because of broader based bounce in the energy sector or in the case of these specific stocks below, it may have been a short term bounce that was going to occur because there was a probability that action would not be taken for about a week regarding the decision to open the spillway as the Mississippi River was not expected to crest at the spillway for approximately one week. Theres also the chance that these stocks (all of which are in some sort of long term top) may see a quick bounce regardless of the decision as production at most will likely not be effected for close to a week as it will take some time for flood waters to reach them. In either case these all look like good long term short positions. If they bounce a bit it will present an opportunity to take a short position at a better price. If they will not bounce because the decision was a surprise with regard to timing and they continue lower, that's fine as well, we'll know either way within days. The point being, these should be viewed as longer term trades.

APA-Apache

 APA is barely holding an important support level, a break of that trendline should occur on some volume.

 APA showing signs of recent short term accumulation for a short bounce.

COP-Conoco Phillips-this one was threatened either way, with facilities in the flood zone and in what would have been a flood zone if the spillway was not opened.

 This is a H&S top. Volume on the break of the trendline was helpful in identifying the correct trendline to draw. This has a 6-10 point drop based on the top, maybe a bit more.

 The 3C daily chart showing confirmation of the uptrend and a negative divergence at the top. Also the combo of Stochastics and divergent RSI I use to identify major tops is a pretty clean signal.

 Here's the recent positive (short term) divergence I mentioned. It's right below the break of the top's trendline.

CVX-Chevron

 Agian, volume was helpful in identifying the top's support trendline, which is now broken. MACD (long version) is also negatively divergent.

 CVX daily 3C chart showing uptrend confirmation and a negative divergence at the top.

 Again, the short term positive divergence mentioned above.

PO-Petroquest Energy

 Here's another well formed H&S top that is already broken as of Friday.

 Here's the daily 3C negative divergence at the top

 And again another short term positive divergence like all the others.

SFY-Swift Energy

 The  trendline  here was easy to identify, volume confirmed it on the break. This is already in a primary downtrend and is likely to retrace back to the summer lows, maybe further.

 3C daily did a great job calling distribution and accumulation, right now it's not only confirming the downtrend, but is also in a leading negative position.

 Another short term positive divergence.

SGY-Stone Energy

 Volume again was helpful in identifying the important support level which is now broken. MACD is negatively divergent.

 3C daily did a good job in identifying summer accumulation before the move up and recent distribution. The Stoch/RSI combo is also signaling a major top.

Once again, here's another short term positive divergence.

I suspect these divergences will play out which would be good for setting up a short position. There is the chance though that the earlier then anticipated decision to open the spillway may have caught the accumulators off guard. Either way, when viewing these as longer term positions, a bounce is not very significant.