That's a Wrap

The market ended the week just like it traded all week, on a VERY ugly note, ES looks to have taken the brunt of the downside.

I will of course have some updates out, but for now, it's time to do some holiday shopping and maybe a little fishing and surfing.

SPY Action

The worst tell today as the 3C ES chart, it's not too busy today, 'm not getting a lot of emails, but I suggested a fade of the market and I know at least 1 member just made some nice Holiday spending money in a few hours!

This was a perfect intraday/day trade short and worked well for at least 1 member that emailed me that she took the trade, is now out and has some Christmas money to spend!

The big news today, as predicted right here last night over the DEXIA problems, the S&P Ratings Agency downgraded Belgium from their much coveted AAa rating by one notch, outlook negative.

Guess who will be next with DEXIA exposure,

Pouvez-vous dire la France?

KCG Trade Idea (short)

As I mentioned, "As the trend starts developing, we'll be moving away from directional trades and in to sector trades with financials being the first target", this is why you are starting to see more individual names rather then directional market trades.

This is a financial and looking bad...

 First on a daily chart, KCG formed a positive divergence in MACD, as well as a bull flag with perfect volume, bit volume on the up days as well as big volume on the lows of the flag which was a reversal doji candle. A top formed and MACD/RSI has been negative throughout, there are two red trendlines of support, 1 broken, the second close.

 On an hourly chart, look at where the volume picked up, as support from a closing as well as gap.

 The 3C hourly chart shows what MACD showed us, accumulation to start the move and then distribution throughout it, this entire move was used to sell KCG shares as distribution started almost immediately.

 A 30 min chart shows more detail with the accumulation in white and distribution in red, note both highs at 1 and 2 were head fake breakouts marking the top and saw a vert fast move down, "From failed moves come fast moves".
The 30 min is leading negative.

 On a 2 min chart, we see the last head fake move in yellow, short term accumulation and distribution in to new high as momentum chasers would have bought a breakout new high as Wall Street went short taking the other side of retail's long trade.

Here's my daily Trend Channel in a solid down trend, if at all possible, I would want to short any strength in the white box, but not above the trend channel. This is a position that I would consider entering in phases, maybe a little now, wait for the next and last support level to be hit, see if there's a bounce and add the rest on that bounce.

Keep this one on your watchlist.

UNG Update-Trade Idea

You may remember the article I posted about Natural Gas and the government (USGS/Army Corp. of Engineers) in a study released right around the time UNG cracked lower, found a connection between the wells that are used to extract Nat. Gas and earthquakes, this must have been a VERY long ongoing study and in my opinion is the sole reason that UNG has been under daily chart leading positive accumulation for some time. I believe the initial knee jerk reaction was "This is not good for Nat Gas" and sent UNG lower, but the larger view is, "This may restrict supply, which would send Nat Gas prices much higher". 3C seems to confirm this line of thought and as I often say, 3C shows us what smart money is doing under the price action, but we rarely know why until later, I think we found out why UNG has been under long term heavy accumulation. Here's an update and my argument for the above theory as well as some key levels in which UNG becomes attractive as a new or Add-To trade.

 The top trendline break is about when the report was released, of course these are routinely leaked. Currently the lower trendline looks like an area that we may want to look at getting long nat gas whether through UNG or another entity.

 On a shorter term intraday chart, I don't think this breaks out today, but this $8-ish level should be watched.

 3 60 min went into a very positive leading divergence as support was broken. One thing I've noticed about long term bases, they almost always head fake/crack lower, right before they start their move up, this is in total contradiction to what Technical Analysis teaches and thus is a very good reason as to why it happens; shares can be accumulated en masse and on the cheap as the weak hands fold.

 The 30 min chart shows the same intensifying leading positive divergence on the recent "U" shaped move lower.

 Here's today's intraday action and why I think it likely will not pop today, besides, the volume and trading day are too thin/short to attract momentum buyers that will flock to the stock once it breaks in to stage 2 markup, which will be represented by a move higher on surging green volume.

 For me, any pullback into the white zone is probably a very low risk buy area, or a break above resistance at this $8-ish level, especially on heavy volume.

 My crossover system on an intraday basis is now moving to a buy signal.

My Trend Channel has flattened out and a move above $8.15 changed the trend by two standard deviations.

Keep UNG on your radar.

GLD Update

While at the moment I remain bearish for now on GLD and question longer term whether a top is building in gold (I have some very unusual ways to judge bubbles which have been successful), this is not the place I would be adding or establishing new shorts on GLD. Here's why...

 GLD is at a support level, you can see at the red arrows this level acted as resistance, once resistance is broken as you can see at the two vertical white arrows and on heavy volume, it becomes support. We have seen 3 days of support at this level which could lead to a bounce or just lateral consolidation, but I don't want to have dead money in the market for any reason and until support is broken, it's dead money at risk.

 Short term there are some relative positive divergences, not very strong, but enough to maintain support for now.

 The 15 min chart is much more bearish and more important to the trend, it shows in white exactly where accumulation occurred, in red where distribution happened and the red box is a leading negative divergence, the worst kind, so the trend remains bearish, it's just the tactical entry that I am concerned with in this post.

Very short term-the last 2 trading days, 3C shows us distribution taking GLD lower and a near perfect signal of accumulation on today's opening lows. There is some distribution in to the early rally, but once again, until support in GLD at $163.00 is broken, my thought is that you have money in a trade that for the time being, isn't doing anything. I DON'T WANT MONEY IN THE MARKET AT RISK UNLESS IT IS DOING SOMETHING OR HAS A HIGH PROBABILITY OF DOING SOMETHING. Our greatest edge over Wall Street is we don't have to always be active in the market (although longer term established GLD shorts I would hold), we can pick and choose out battles and wait for the highest probability entry. I don't believe this is the highest probability as of right now, but soon I imagine.

USO Update/Trade

Remember we were looking for USO to fill the gap created Wednesday and if you listened to my thoughts, (if not already short USO) you would have a partial position. For me, (so long as I can stand the uncertainty of mid-east events over the long weekend), this is a nice looking spot to add another 25% to the short via long SCO/DTO bringing the total planned position to 50%.

 The USO gap is nearly filled today, just off by a little.

 Short term 3C on USO is negative

 Today's intraday is negative (reversal to the downside)

And the 15 min chart is negative.

Something to consider.

And the CONTEXT Model....

As of 10:27 a.m.

 The risk basket is severely underperforming ES

Here's the difference in the model.

Market Update 2- 3C

Oh my...

 That SNB stick save didn't fool smart money, look at the distribution in the DIA

 Same in the Russell 2000 thus far

 The NASDAQ 100 looks even worse and is now lateral, perfect distribution environment.

 And the S&P.... Distribution on this morning's move up.

 Slightly longer S&P distribution.

However without a doubt, the worst 3C readings are in the E-Minis/ S&P futures.

Look at that leading negative divergence.

Short term traders may want to fade this move up.

Early Risk on- Market Update

The early chatter is the Swiss National Bank is or will adjust the EUR/CHF peg as the Euro was approaching the $1.32 level (side note: the last Goldman Sachs "Buy the Euro" note of 10 days ago was stopped out with their customers taking a substantial loss, I believe their call was buy to $1.40!)

The Euro (EUR/USD) almost breaking the important $1.32 level with a low this morning of $1.3211 and Goldman's stop at $1.34. Of course while Goldman clients lost, the GS trading desk likely took the other side of those trades and made out. As another aside, GS has announced they are giving up on EU calls due to the volatility and unpredictability in the EU. Unpredictability? Everything is going down, why would they issue a long EUR call? That's a rhetorical question.

The Broad risk basket according to my new indicators looks like this, which seems to simply be a legacy arbitrage Euro/FX trade.

 The commodities basket vs the S&P is higher this morning, however it is not higher over the last day as the S&P has broken above the 11/23 highs (white trendline) while the commodity basket is still below the 11/23 highs, so briefly put, commodities are doing what they are supposed to do when the dollar weakness, however ES/S&P 500 is a bit more excited then the typical risk assets that rally with it.

 Here again the correlation between the Euro and the S&P is a bit off, while both are moving in the same direction as they should, the S&P is a bit more excited.

 Part of this may be explained by the Euro losing ground over the US holiday and the S&P just hasn't been marked to the Euro, one easy way to find out is to count how many pips the Euro moved since the 4 p.m. 11/23 close and see what the difference is in Dow points; 1 pip in the EUR should equal 2 Dow-30 points, I suspect that correlation is a bit higher this morning, but I will make the count after this post.

 Early momentum in Financials is clearly leading the S&P on an intraday basis.

 On a longer term basis, and this was also an easy way to identify the top and one of the reasons I told you to short the S&P on that Friday I wasn't feeling well (11/11) , Financials are leading the market much lower. That 11/11 trade as a straight S&P trade even with today's early bump was worth 7.20% and using SPXU as I have been recommending, well over 23%.

 Interestingly, because High Yield isn't correlated to the EUR, it is moving down this a.m., so while equities are risk on, High Yield Credit is leaking lower and as we know, credit leads stocks.

 After Wednesday's sell-off in High Yield Corporates, it is just about in line with the S&P this morning.

 Rates also sold off on Wednesday and the market tends to revert to rates, there's a fairly decent correlation this a.m., but just recently in the red box rates are starting to diverge from equities.

On a long term scale, rates predicted the top as well as 3C both in July and in November and there's still substantial downside before equities revert to rates, assuming rates don't move lower.

I just loaded the SF 3C template and will update that next.

Black Friday-half day

I hope everyone enjoyed their holiday, it was a nice break for me, but I kept up on what happened. ES is lower then Wednesday's close and so far doesn't look great, but 3 a.m. is the magic hour.

Negative leading divergence in ES and about 3 points below Wed. close.


Some of the major events over Thursday and late Wednesday...


As I pointed out late Wednesday, High Yield Corporates looked the worst and lost ground all day, important because credit leads equities. The credit markets which are much larger certainly seemed to have been aware of the risks over the holiday and were clearly telegraphing those risks Wednesday as you can see in this post from Wed.


ES hasn't been able to hold a rally whatsoever as every situation from Syria, to Egypt, to the EU to the US has deteriorated at break neck speed. As I mentioned Wednesday, what we see in a single day use to be 6 months worth of news so we have in my opinion, hit the point of no return. The credit markets are as frozen as they have ever been, I have showed you the proof of that, there are too many canaries keeling over in the coal mines. Liquidity and interbank lending is so bad that the London stock exchange is providing EU banks loans against the exchange's customer's trades, this is a disaster that will make what is happening in the Futures market do to the liquidation process of MF Global, look like a pale shadow in comparison. People are leaving the futures exchanges out of a lack of trust, the London Exchange faces an all out collapse. How regulators killed the Lehman/Barclay's deal in 2008 allow this to go on, which is a far greater systemic risk,  have no clue. The collapse of Lehman is one thing, an entire exchange is another, but even that will seem like a minor event compared to what caused it.


As predicted when the "new and improved" leveraged EFSF idea was put out and has since been a dismal failure, Ireland is now looking for the same concession Greece got, Portugal will be next and this even in spite of the fact that there is no leveraged EFSF to even make good on Greece. I think it's probably more telling of the negative impact austerity measures that Ireland agreed to in exchange for a bailout are having on the growth or lack of growth in the economy. It's a Chinese finger trap and the more the EU brainiacs do to halt the crisis or slow it, the worse they make it at every turn which is precisely why French Yields are rising and Germany had its first failed Bund auction this week in as long as any one can remember.


When I posted the conditions that lead to the point of no return, chief among them was lack of trust. There's no trust in the EU and this is why they can't even credibly sell $3 bb euros of EFSF bonds when they need to raise over a trillion!  This is why there is a liquidity freeze and Italian banks make you place an order for a withdrawal that you pick up several days later, AFTER they place an order with the London Stock Exchange for the money. This is why in Germany and other countries, there are maximum withdrawal levels set and customers having to answer why they are withdrawing their own money!


As the Dexia deal collapses and France's AAa rating is in more danger then ever, bank runs are only weeks away at this pace, expect the EU to lock down accounts-bank holidays.


In Syria, not only is the George Bush Aircraft Carrier Strike group right off the coastal waters, but so are 3 Russian warships. Medved's answer to the movement of the GB carrier group from the Strait of Hormuz to Syrian waters?  






Hit the closed caption button for a translation, the crisis just escalated and the placement of Iskander Missiles in the  Kaliningrad Region is to say the least, provocative. Look at a map of where the region is, Russia couldn't put those missiles any closer to the heart of Europe.

Virtually in the heart of Europe!


Yesterday China, how also vehemently opposes any UN/Nato/US intervention is Syria (as an aside) downgraded Portugal's rating to JUNK, this morning Fitch Rating's followed suit. But it gets worse for Portugal and the EU, that's coming in a moment. Also, while not much of a surprise since Hungary's move for IMF help last week, Moody's cut Hungary to JUNK status.


While we are talking about Global Strategic affairs, any member who was with us during the Mubarak removal, NOT BY THE PEOPLE, but by the military, I pointed out that the trouble in Egypt will flair right back up. The military has run Egypt since Nasser, they choose the leaders and the leaders all come from within the military. I told everyone here that the promise of democratic elections would NEVER happen in Egypt. Mubarak was removed under the cover of the Arab Spring, but the real reason was he was grooming his son to succeed him, which bypassed the military, so the people's uprising was convenient cover to remove him which would have happened in any case. The people of Egypt have seen the "Elections" come and go and realize what was pointed out here, the military won't allow it, so once again protestors have taken to the streets, thus time the military won't be there to protect them, but to crush them. We've already seen in Iraq and Afghanistan, even with massive US logistical, political, monetary and military support, neither country has been able to put together a credible government in 9 years that can project power outside of the capital, how much worse will it be for the Arab Spring nations? This is precisely what Hamas has been slipping in to the country ever since it started, they are organizing in the soon to be, total power vacuum.


I mentioned the last few weeks that commodities performance have raised serious questions as to the real condition in China, this week we saw Chinese PMI in contraction for the first time in 32 months-commodities were telling us that if we just listened. The Chinese fear 1 thing above all others, political unrest of their massive population-IT'S COMING.


Remember what I said about Sarkozy's VERY strange 180 degree reversal on Wednesday after the German Bund auction and after the Dexia deal fell apart?



Specifically:

• SARKOZY SAYS EURO ZONE MUST FURTHER INTEGRATE (This means fewer EU nations, not more)
• SARKOZY SAYS TROUBLED EURO COUNTRIES DIDN'T UNDERTAKE REFORMS(Translation: It's your own fault, don't cry when you are left hanging out to dry) and even more interestingly, France has been one of the countries (thus the divide between Germany and France recently that has seen some very barbed comments from both sides) that has been screaming for the ECB to PRINT. Now they seem to be abandoning that position-something big is happening between Germany and France on the issue or France is making overtures to Germany as they see their AAa rating in more danger everyday-today was Dexia. The importance of this should not escape you, think hard about this one, it's much bigger then a bullet point headline.
• SARKOZY SAYS EURO ZONE MEMBERSHIP IMPLIES OBLIGATIONS (Taken with the comment above, he's saying the same thing, you had your chance, you blew it, you will be out). Again, a 180 degree turn from PRINT!
• SARKOZY SAYS EUROPE'S FUTURE REQUIRES CONVERGENCE (Here is is simply moving toward the German position).

Today Merkel, Sarkozy and an awkward looking Monti held a presser. Besides saying they would do everything to save the Eurozone, which in political talk pretty much means, "we have already done everything we can do", it is nothing like the talk of the last 2 years which was more along the lines of "The Eurozone will NOT be allowed to fail". While interesting to watch politicians pare words, what was interesting was 1 day after I pointed out Sarkozy's TOTAL 180 degree about face, he adds this,  Sarkozy just said they have agreed to abstain from making demands on the ECB. 

Hello? What? Sarkozy was the head of the ECB must print crowd. Something is definitely going on behind the scenes and Merkel hold the key to the new EU, Sarkozy has realized that without the much needed AAa rating, which is in more danger then ever, he's not any better (for Merkel's purposes) then Monti. The leader of France, who clearly has a Napoleon complex with his 4 inch shoe soles and podium box that makes him look as tall as Merkel, must feel the bitter sting of going from a political celebrity A lister to a B lister in little more then 3 weeks. G-PAP and Berlusconi must be feeling some satisfaction right about now and surely must be tempted to send sympathy cards to Sarkozy.

However the big news today which took an early European rally and sent it to another risk off decline came when as has been obvious to any one paying attention, Merkel announced,


She stands firmly against joint Euro-bonds.


The Euro lost 40 pips in about 4 mins and the European rally was dead, another data point for those paying attention that Germany is clearly up to something that ill change the EU forever.


Exactly what the CDU is up to is hard to say, as I mentioned in the post liked above about Sarkozy, there's either 2 plans, 1 a much smaller Europe or 2 Germany is busy printing Deutsche Marks and simply letting the ECB keep contagion out of German borders until the transition is complete at which point, ALL PIIGS fall and likely take Austria, France, maybe Belgium and several others with them.


This of course devastates China's main trading partner and expect their PMI to continue to post consecutive new lows. They obviously se the writing on the wall, thus the EFSF dream box remains empty as China, much like out F_E_D becomes reluctant to spend any more treasure until they see where their own leaks are first.


The bond vigilantes WILL punish yields across Europe for Merkel's statement and watch for Italian BTPs back above the bailout threshold of 7% next week, despite ECB secondary buying-Spain too.


The French yields are the true measure of risk as they are NOT able to be bought up by the ECB, at least not yet, but I suspect Sarkozy will be forced to change positions as French rates continue to climb into the red zone.


In a very little noticed piece, the IMF says Japan could quickly become unstable over bond yields, making the 3rd largest world economy just another one of the PIIGS and who bails out Japan when yields become so high that they can no longer service them? These are the tidbits that many investors miss, but this has all been predictable, Ireland, Portugal, Italy, Span, France-contagion was predictable. What is surprising is to hear that the coming global recession could put Japan in a position in which they may actually default. UST's will long be sold en masse before then and America would soon be in a very similar situation, regardless of the last 3 treasury auctions that have been almost spectacular as the USTs seem to be the only safe haven left. With the Super Committee becoming the super flop that i was always intended to be, watch for another US downgrade before 2012 is finished.


As earlier mentioned, the all but done Dexia deal started falling apart this week, exposing Belgium to big problems, they showed up today in their yields which hit record highs as well as record highs vs Bunds. Historians will look back and debate whether MF Global or Dexia was 2011's Bear Stears/Lehman Brothers. Austria's ERSTE will get an honorable mention and our own Jefferies will be in the cliff notes.




3 a.m. EDT is rapidly approaching and we will get our first view of our credit indicators, I expect credit to continue Wednesday's decline and equities to follow. Yields in Italy and Spain hitting 7% will be a disaster even as the ECB embarks on the 20th intervention. France is the one to watch though, that's the only one the ECB can't support and therefore is the only accurate mechanism for actual price discovery.


Not sure if I did or did not mention it, but as you know 3C has been calling this since mid October and it's been rough holding positions when the market is going the opposite way, but 3C is what matters to me. So the weekly WOWS portfolio for the first time has cracked in to the top 10 at #9 with nearly a 52% return on the week and #22 for the month with an 85% return- this out of almost 19,000 portfolios! 


3C has always come through for me, even if it was hard to maintain the faith, but as I have implored all of you, keep your eye on the forest, not the trees. Take emotion out of the trade.