I'm VERY pleased to bring you this USO Update

To date I still do not have a clue as to why USO broke 180 degrees with it's $USD correlation, after all, crude is traded the world over in $USD. When the $USD falls, crude moves up to compensate, when $USD strengthens as we have seen recently, crude moves down to compensate, it is one of the most predictable FX correlations out there, so why the disconnect? I have no idea, but through it all, 3C signaled distribution in to higher prices and finally USO has felt the gravitational pull of that distribution.

Recently I have pointed out the bearish ascending wedge in USO and 3 days ago we had a very reliable Japanese Candlestick "Evening Doji Star' reversal pattern, it worked perfectly and USO confirmed with a major break yesterday and continues to move lower, which made some members a decent chunk of change in the last 2 days. This is why the market action that you can see, can rarely be trusted and why we put so much emphasis on the underlying action that shows us institutional money's footsteps in the sand.

Here's an update for USO today.

 This is a daily chart of USO, at the green arrow is the bearish ascending wedge (that's right, even with climbing prices, the wedge makes the pattern bearish and the initial downside target is usually the base of the wedge around $34 in this case, but often a reversal like this is more significant). The white arrow shows the bearish evening star doji, which also broke out of the ascending wedge, something the dogma of technical analysis says it should not do, the volume was very heavy so many technical traders likely bought that breakout thinking the wedge was a failed pattern and this is likely where smart money dumped their entire position and went short, leaving retail traders holding USO at the highs at a significant loss. The two red arrows are very bearish candlesticks that are confirmation of the evening star reversal. Remember volume analysis, that doji, evening star was on heavy volume, but intraday it closed exactly where it opened, which is a sign of churning or strong hands selling to weak hands. Even simple volume could have helped tell the story of what happens next.

 Short term 3C 2 min charts also showed a very negative divergence (distribution) at the doji star reversal and since USO has moved down over the last 2 days, 3C has confirmed the downtrend as being strong thus far.

 The longer term 15 min hart went negative in late October and USO did fall briefly, that is when it reversed correlation to the $USD and started forming the bearish wedge, that entire period remained negative in 3C's view, showing us likely distribution in to higher pries,such is the way of Wall Street. The downside negative divergence in the red box, further confirms the strength of the downtrend.

 The long term trend represented by the 30 min chart showed, just like all the other 3C timeframes, that this was indeed a distribution event with those who chased USO higher, taking on losses or soon to be taking on losses as USO moves lower. There's also more downside confirmation in the red box.

 Here is the daily chart compared to the Euro, USO should trade almost exactly like the Euro, instead it broke the FX correlation right as it formed the bearish wedge. Again, as for volume analysis, the doji star and volume on that day at the red arrows, told us it was very likely that bearish churning was under way. Sometimes it is very difficult to believe the charts showing the underlying action (I've had years of experience with them and have trusted them even in situations like this where there seems to be no rationale to the price action), but when we look back at this a month from now, it is highly likely that those who entered USO short will be glad they did.

As far as my stop or where I consider USO to be beyond the point of no return, I have maintained the $36.50 level and my Trend Channel is at that exact spot, so a break of that level may offer another opportunity to short or add to USO shorts. There may be short term volatility in the area, but that may be useful in getting better positioning.

Risk Indicators

From last night's post... As I mentioned last night, on a short term basis, the markets fell to roughly in line with what the credit and other risk markets had been predicting, on a longer term, those credit/risk markets still show the S&P overvalued compared to their lead. Here's the updated look for this morning, but first here's the market overnight action in ES (S&P E-mini futures) as well as FX (currencies).

 Over night we saw a positive divergence, lkely based on renewed rumors in Europe of the ECB lending to the IMF so the IMF can in turn lend to the EU, yes it is circular and doesn't make a lot of sense as to why the European Central Bank wouldn't lend directly to the EU, but they are prohibited from doing so, so this is the work around that the banks are hoping for, this rumor was floated last week and promptly shot down in the very article/interview with an ECB member ver the weekend.

There have been some negative divergences since, likely on the ECB/German rebuttal of those rumors and ES is off the best levels from premarket trade and roughly in line with 3C.

 A closer look as of the 9:30 New York open shows 3C is in fact in line with ES, there are no positive divergences, so this again appears to be a strictly news driven event on this chart.

 Here is how the Euro opened at 9:30 EDT

However, since yesterday's close, this is what happened on the rumors last night.

Here are the new indicators from last night. First the macro view, then the micro.

 Commodities as pointed out last night have underperformed the S&P

 Again this morning so far the S&P is outperforming commodities, so the "risk on cycle" is not a full risk on, as commodities refuse so far to make any higher highs and are rangebound.

 High yield Credit has also underperformed the S&P refusing to follow the October rally in making a higher high, remember that credit has led equities as you can see to the left, just before the July sell-off.

 This morning high yield opened higher, but promptly gave those gains back to near the worst levels of the morning while the S&P outperforms HY.

 This is the Euro open which is significantly higher today because of the overnight action.

 On a longer term bis though, the market has quite a bit of downside left to catch up to the natural arbitrage relationship between equities/the Euro/The $USD.

 On a tit for tat scale, the market is roughly following the micro moves of the Euro -2 minute chart.

 High yield corporate did open higher then the S&P this morning, remember on a short term basis, the fall in the S&P the last several days brought them in to line with each other.

 The financials indicator on a longer term view showing the serious under-performance of financials vs the market.

 This morning they are in line with the market, not out or under performing.

 As far as Rates go, the market tends to move toward rates as they are a leading indicator, the longer term picture of course is clearly ugly for the market.

Short term today, rates moved higher on the open, however looking at the chart above this one, while it may seem to be a big move, it isn't even perceptible on the longer term hart above this one.

So that's the opening indications, we'll watch for developments.

Early Update

Some of the early optimism I saw late yesterday in the 5 min chart, which caused me to speculate we may see a gap up this morning, has started to fade, but of course it is early and it is Op-Ex Friday.

It seems the catalyst for the move has been centered on renewed rumors of the ECB lending money directly to the IMF and the IMF acting as the bailout mechanism for Europe as the ECB has its hands tied by law and convention treaties as just how far they can go.

The split between those who want massive printing and monitization of EU debt (that crowd includes France and just about every bank that has exposure to Europe and that is a very high % of banks) and those who oppose it (the Germans who hold all the money and now most of the power in the EU) is coming to a crescendo.

The possibility that Germany simply walks away or continues with treaty reforms to kick out countries from the monetary union, which could include recent secondary EU super power France, is gaining traction in Germany and plans for this eventuality seem to be much more advanced then Sarkozy new as Merkel may have been buying time in the Mer-Kozy phase of cooperation to keep working on Germany's super secret weapon.

So the rumors have come this morning, they have been dismissed, but they are still sticking. I have some interesting perspectives to share with you, but for the moment, the initial strength that was developing late yesterday, has begun to moderate.

Here they are

Just remember my central thesis, the game is about putting as many pieces of the puzzle together as you can and then making a decision based on the information you have. These comparative indicators (I tried several ways of creating actual indicators, but in all but 1 case, comparative indicator were easier to read). That being said, no 1 indicator by itself is the answer, it's taking the sum of them, 3C and other analysis and finding the sweet spots where agreement is high probability.

Here's a first look.

First commodities, they are a risk asset and should follow the market pretty closely, divergences can show that a risk on trade has limited breadth and I suspect this will also be a good indication of the Chinese economy moving forward.

 This daily chart points out commodities giving early warning at the QE 1 top and made for a good short trade from the SPY's (always green) top. Commodities also gave at least 1 month of early notice of a new uptrend before equities or while equities where bottoming. In 2011, they pointed to the top right before the July crash, right now they are significantly underperforming equities, suggesting this is indeed a top.

 On an intraday scale, they pointed to a decline as the market went higher, a good short entry and now on a short term scale equities have caught up to the risk off in commodities, but the daily divergence still remains wide, suggesting more downside and that this is a top, there's also obvious implications for the world's largest commodity importer, China and as such, the global economy as well as acute issues such as the EU.

The Euro. Over the last few years the Euro which is more indicative of the dollar relationship, has been somewhat meaningless because of QE1/QE2 where Fed monetization via the primary dealers drove all risk assets up as the PDs took billions in middle man profits and put them to work n the market, but not that QE/POMO is over, the FX correlation is taking on renewed meaning.

 Here we see several small divergences that would have worked for quick short sales to the left, the bigger issue is now with the dollar moving higher, the Euro lower and risk assets haven't moved much at all, there's an expectation for reversion to the mean and risk assets to eventually catch up to the fall in the Euro, again suggesting we are in a topping process.

 Very short term, there's an uptrend in the euro in white that led the market higher and several dislocation is equities that have led to sharp sell-offs, these dislocations, when taken with 3C and other indicators make for good short sale entries. Short term risk assets have fallen to catch up with the already low euro, but the chart above this shows there's more downside to cover in equities.

 This is one indicator, not comparison, that may serve as a model indicator for others, it is the difference of performance between financials and the market, not financials vs the market. In other words, it is the spread between the market and financials, almost like replacing MACD's short and long term moving averages with the SPY and XLF instead. In 2007 it was very early in warning of the top

 At the 2011 top, it was also an early warning of the top and currently is warning again that we are at another top.

 Here it shows on an intraday basis, several good short sale entry points and the market saw sharp 1-4 day drops from each point, it continues to suggest more downside is coming.

 Here is the SPY vs high yield pointing out the 2000 tech bubble top and also giving at least 3 months early notice of the new bull market bottom before the market moved.

 It gave the same early warning in 2007 while CNBC pundits were still calling for Dow 20,000 and also gave early warning at the 2009 market bottom 3 months before the market bottomed.

 In 2010 after QE1 the market made a top before QE2 was announced, this gave nearly a full quarter or 3 months early notice of that top and again was trending up nearly 3 months before the market started on it's next QE2 leg up, a great time for investors to have accumulated at the market lows and with intraday information, the timing probably was superb.

 Here's warning of the 2011 top just before it crashed in July if anyone remembers that horrible rash, also early warning on the October rally, the same as 3C. Currently it is short of equities and seems to be warning of another top right now.

 For intraday use, it nailed the exact top of the October rally.

 On even shorter timeframes, entries can be optimized as several warnings have led to sharp and quick equity sell offs.

 This is high yield corporate credit vs the SPY and on a daily basis also warned of the QE1 end/top as well as early warning of the new QE2 uptrend, again about 3 months early, It also shows the 2011 top.

 On an hourly chart, HYC started topping and broke down before the market's sharp break of the last few days, this would have warned as far back as the 8th of a coming fall in equities.

 On a shorter term chart, it gave a buy signal for a sharp equity move up as well as 3 sell signals for sharp moves down, and all of this in a lateral market that most people would otherwise have a very hard time making any money.

 On an even shorter chart, the same signals are there, the signals are in the boxes, the move in equities are represented by the arrows.

 This is interest rates and warning of the 2000 tech bubble top as well as confirmation of the ongoing downtrend-you'd known to stay short.

 Here's warning of the 2007 top and it shows how serious the market fall would be long before the fall got serious.

 Here's the 2009 bottom and a good 2 months of early warning, while most expected the market to break to new lows.

 Here's very clear warning of the 2011 top as well as how serious the coming July fall would be. Once again, it refuses to move higher, indicating that we are currently at another top in the market.

 On an intraday basis, it gave several buy signals that would have been confirmed by 3C and a sell signal right at the very top of the October rally, recently it has suggested more downside and recently we have seen that since Friday's pop in the market, which was an excellent entry.

On a 5 min chart, there's a buy signal for a quick move up and at least 2 short term sell signals that the market reacted to very quickly and a larger sell signal that we have seen play out over the last few days. These signals are excellent and would have made money, and that's not easy to do with the market having been in a lateral consolidation recently.


Right now in the short term equities have moved lower as credit and the other measures have indicated, longer term, there's still apparent, significant downside. Taking with 3C and using multiple timeframes of each of these, we can lock in to excellent entry points and even get an idea of how serious the coming move will be.

3C for ES tonight

 Above was Thursday early am action that went negative and you can see the rapid fall in price today, toward the EOD it went slightly positive and ES moved up, in after hours it went negative and ES moved down.

This was the last capture of ES with Es responding to each of the divergences.

3 a.m. will be the start of a new day, I can see the probability of lateral action or even a bounce, but the longer term implications continue to suggest we are in a top.

As for tomorrow...

 Long term trend, 3c is showing not only the top, but significant downside ahead.

Short term 5 min, it looks like a bounce to start the day, how it ends remains to be seen and the credit indicators will likely give us a good indication as well as 3C. This divergence could also represent a consilidation as we saw through the afternoon and the early lift in ES after hours.

Some Fantastic New Indicators

I've been fooling around with some indicators the last few days, but tonight I buckled down and really did the work and have a great new template to share with you. I've looked at the historical accuracy of the different versions and they are fantastic, combined with 3C, we not only have confirmation of what 3C has been showing us, but we have some great new tools for tactical entries, in other words, we have a much better timing apparatus at our disposal as well as a more definitive way to call ambiguous market patterns.

I'm going to take a little break as I'm exhausted mentally and otherwise, but I will share these with you tonight. The Wolf Pack has a whole new way of thinking outside the box and I think you are going to love what you see.

In the meantime, here's an amusing, but spot on video by long time and outspoken Euro-skeptic, Nigel Farage just lambasting the EU leaders. He's doing the I told you so, but he's right and its entertaining to see the top EU figure heads so openly mocked.

MF Global as the Canary in the Coal Mine-Must READ

Bounce or no bounce, while it may seem meaningful, I will tell you that whether we get a bounce today tomorrow or over the next week, what has occurred and continues to unfold, is something as I have often said, we as traders will see unbelieaveable repersucussions of the financial crisis that started or at least started to unfold in the summer of 2007. Back then I was so alarmed that I spent a weekend putting together a 5 part video series to give people and my readers some idea of just how bad this will be. There have been many surprises along the way and still more to come, but as far as my analysis back in 2007, events are now unfolding that may make my original projections of Dow 5000 by the time this is over, seem like a VERY conservative estimate and this is why I have maintained ever since, for those traders who are able and willing to adjust to the market quickly, think out of the box and see the forest rather then just the trees, we stand before unprecedented opportunity in a market that no other trader has ever seen, at least not in equities-a SECULAR BEAR MARKET. Little did I know in 2007 that events would ramp up from a US financial crisis to a complete world crisis in which we now face the prospect of not only the very simple and tame reality of "Too Big To Fail" banks actually failing, we face the very real and almost inevitable reality of the possibility of the majority on an entire continent doing something that will make TBTF seem like an after thought, sovereign nations-the ultimate "Too Big To Fail", doing exactly that.

In this simple letter offered by a business owner, which also happens to be a futures broker, we see someone who has real and true honesty and has put her money where her mouth is and in this letter, what you are about to read is maybe not the most significant event that we will witness, but is a sign of the times. I recommend that you read it in its entirety as the ramifications are one of those unintended consequences that have arisen from the MF Global bankruptcy and as I have often compared MFG to the canary in the coal mine, it looks like they may be much more then 2011's Bear Stearns, they may be the dynamite that collapsed the entire mine and by that, I mean a huge portion of the financial system.

In light of this letter, it is little wonder that gold and crude are trading the way they are and this may in fact be part of the answer as to why Crude became so disconnected. If so, we are just at the start.

Here's the letter with no further commentary by me.

BCM Has Ceased Operations (source)

Posted by Ann Barnhardt - November 17, AD 2011 10:27 AM MST

Dear Clients, Industry Colleagues and Friends of Barnhardt Capital Management,

It is with regret and unflinching moral certainty that I announce that Barnhardt Capital Management has ceased operations. After six years of operating as an independent introducing brokerage, and eight years of employment as a broker before that, I found myself, this morning, for the first time since I was 20 years old, watching the futures and options markets open not as a participant, but as a mere spectator.

The reason for my decision to pull the plug was excruciatingly simple: I could no longer tell my clients that their monies and positions were safe in the futures and options markets – because they are not. And this goes not just for my clients, but for every futures and options account in the United States. The entire system has been utterly destroyed by the MF Global collapse. Given this sad reality, I could not in good conscience take one more step as a commodity broker, soliciting trades that I knew were unsafe or holding funds that I knew to be in jeopardy.

The futures markets are very highly-leveraged and thus require an exceptionally firm base upon which to function. That base was the sacrosanct segregation of customer funds from clearing firm capital, with additional emergency financial backing provided by the exchanges themselves. Up until a few weeks ago, that base existed, and had worked flawlessly. Firms came and went, with some imploding in spectacular fashion. Whenever a firm failure happened, the customer funds were intact and the exchanges would step in to backstop everything and keep customers 100% liquid – even as their clearing firm collapsed and was quickly replaced by another firm within the system.

Everything changed just a few short weeks ago. A firm, led by a crony of the Obama regime, stole all of the non-margined cash held by customers of his firm. Let’s not sugar-coat this or make this crime seem “complex” and “abstract” by drowning ourselves in six-dollar words and uber-technical jargon. Jon Corzine STOLE the customer cash at MF Global. Knowing Jon Corzine, and knowing the abject lawlessness and contempt for humanity of the Marxist Obama regime and its cronies, this is not really a surprise. What was a surprise was the reaction of the exchanges and regulators. Their reaction has been to take a bad situation and make it orders of magnitude worse. Specifically, they froze customers out of their accounts WHILE THE MARKETS CONTINUED TO TRADE, refusing to even allow them to liquidate. This is unfathomable. The risk exposure precedent that has been set is completely intolerable and has destroyed the entire industry paradigm. No informed person can continue to engage these markets, and no moral person can continue to broker or facilitate customer engagement in what is now a massive game of Russian Roulette.

I have learned over the last week that MF Global is almost certainly the mere tip of the iceberg. There is massive industry-wide exposure to European sovereign junk debt. While other firms may not be as heavily leveraged as Corzine had MFG leveraged, and it is now thought that MFG’s leverage may have been in excess of 100:1, they are still suicidally leveraged and will likely stand massive, unmeetable collateral calls in the coming days and weeks as Europe inevitably collapses. I now suspect that the reason the Chicago Mercantile Exchange did not immediately step in to backstop the MFG implosion was because they knew and know that if they backstopped MFG, they would then be expected to backstop all of the other firms in the system when the failures began to cascade – and there simply isn’t that much money in the entire system. In short, the problem is a SYSTEMIC problem, not merely isolated to one firm.

Perhaps the most ominous dynamic that I have yet heard of in regards to this mess is that of the risk of potential CLAWBACK actions. For those who do not know, “clawback” is the process by which a bankruptcy trustee is legally permitted to re-seize assets that left a bankrupt entity in the time period immediately preceding the entity’s collapse. So, using the MF Global customers as an example, any funds that were withdrawn from MFG accounts in the run-up to the collapse, either because of suspicions the customer may have had about MFG from, say, watching the company’s bond yields rise sharply, or from purely organic day-to-day withdrawls, the bankruptcy trustee COULD initiate action to “clawback” those funds. As a hedge broker, this makes my blood run cold. Generally, as the markets move in favor of a hedge position and equity builds in a client’s account, that excess equity is sent back to the customer who then uses that equity to offset cash market transactions OR to pay down a revolving line of credit. Even the possibility that a customer could be penalized and additionally raped AGAIN via a clawback action after already having their customer funds stolen is simply villainous. While there has been no open indication of clawback actions being initiated by the MF Global trustee, I have been told that it is a possibility.

And so, to the very unpleasant crux of the matter. The futures and options markets are no longer viable. It is my recommendation that ALL customers withdraw from all of the markets as soon as possible so that they have the best chance of protecting themselves and their equity. The system is no longer functioning with integrity and is suicidally risk-laden. The rule of law is non-existent, instead replaced with godless, criminal political cronyism.

Remember, derivatives contracts are NOT NECESSARY in the commodities markets. The cash commodity itself is the underlying reality and is not dependent on the futures or options markets. Many people seem to have gotten that backwards over the past decades. From Abel the animal husbandman up until the year 1964, there were no cattle futures contracts at all, and no options contracts until 1984, and yet the cash cattle markets got along just fine.

Finally, I will not, under any circumstance, consider reforming and re-opening Barnhardt Capital Management, or any other iteration of a brokerage business, until Barack Obama has been removed from office AND the government of the United States has been sufficiently reformed and repopulated so as to engender my total and complete confidence in the government, its adherence to and enforcement of the rule of law, and in its competent and just regulatory oversight of any commodities markets that may reform. So long as the government remains criminal, it would serve no purpose whatsoever to attempt to rebuild the futures industry or my firm, because in a lawless environment, the same thievery and fraud would simply happen again, and the criminals would go unpunished, sheltered by the criminal oligarchy.

To my clients, who literally TO THE MAN agreed with my assessment of the situation, and were relieved to be exiting the markets, and many whom I now suspect stayed in the markets as long as they did only out of personal loyalty to me, I can only say thank you for the honor and pleasure of serving you over these last years, with some of my clients having been with me for over twelve years. I will continue to blog at Barnhardt.biz, which will be subtly re-skinned soon, and will continue my cattle marketing consultation business. I will still be here in the office, answering my phones, with the same phone numbers. Alas, my retirement came a few years earlier than I had anticipated, but there was no possible way to continue given the inevitability of the collapse of the global financial markets, the overthrow of our government, and the resulting collapse in the rule of law.

As for me, I can only echo the words of David:

“This is the Lord’s doing; and it is wonderful in our eyes.”

With Best Regards-
Ann Barnhardt

Credit may provide a hint

As you know the longer term or bigger picture still shows the market trading rich to credit, but on a short term basis, this may be a hint of a market bounce.

Short term 1 min chart shows credit a little higher then the SPY, this would be reason or a hint toward the market bouncing from these levels.

Market Update

Bounce /consolidation or a soon to be overwhelmed divergence?

 DIA 5 min positive divergence, not huge, but it is 5 min.

 ES 1 min positive divergence

SPY 5 min positive divergence.


The TICK chart is lateral like the market so it is not shedding any light, but after a 1 day 1.5 to 2.5% sell-off, it would not be unusual to see an oversold bounce and considering the recent break, as you know, we often see prices linger and test the broken trendline, plus we have op-ex tomorrow.