Broad Market Update

Although I have marked divergences to make them easier to see and I've tried to show today's action as well, try to look at the price trend vs. the 3C trend, try to block out my annotations and just visualize the trend of each. Remember when prices are down and 3C is up, it's a positive for the market, when prices are up and 3C is trending down, it's a negative and when price and 3C travel together, it is confirmation of the trend (marked with green arrows).

 DIA long term 1 min trend, the yellow arrow marks a bullish triangle head fake. While many individual divergences are marked, the most important is the recent leading negative in the red box.

 This is the recent action on the 1 min chart in the DIA, there's a nice head fake, today's overall trend has been negative, not following prices.

 The 5 min chart also reveals the bigger trend, the red box is the worst divergence, a leading negative.

 This long term 30 min chart is a good one to try to visualize just the price and 3 trend.


 IWM 1 min shows distribution in to today's move.

 The longer 2 min trend, 3C fails to make higher highs.

 An even longer 2 min perspective, another good one to try to ignore the annotations. This is also showing the IWM in the most dangerous spot on this chart.

 IWM 5 min, I have marked divergences with arrows and the effected price region with boxes around price, white positive/ red negative. Note how small the positive divergences are vs the negative divergences in length.

 IWM 5 min for today, hitting apparent resistance or a sell/short zone.

 There are many interesting divergences on the 30 min chart, but again, the trend is what is most telling and the recent leading negative divergence also makes this a dangerous area for the IWM

 The IWM 60 min reduces the noise and the trend is apparent.

 QQQ 1 min action for today, note it is going negative in to a price spike, note past price spikes w/ negative divergences like the one to the left.

 long term QQQ 1 min trend

 Long term QQQ 2 min trend, also in a dangerous spot right now.

 QQQ 2 min close up of yesterday and today

 QQQ 10 min trend

 Another area I have marked divergences and the effected price area, but the overall trend is most telling.
Although this is a good chart to study to see how divergences effect price.

 The QQQ hourly is very clear as far as the trend goes and it's one of the most important timeframes.

 SPY 1 min for recent action

 The longer term 1 min trend.

 Recent SPY 2 min action

 Longer term 5 min SPY trend.

 The 30 min sPY trend is very dangerous here.

 Here's the long term daily XLE trend.

 Some interesting action in the XLF 2 min chart, remember the rotation I showed earlier.

 XLF 15 min is in trouble too.

 The long term 30 min XLF trend.

 XLK recent action is quite troublesome

 The 15 min chart looks very bad here.

The hourly really tells the story though.

Take a look at this when you have more time to study it closer. There's good short/long term confirmation, good confirmation between averages and industry groups and the trends are quite clearly negative

GLD Analysis

GLD started as a long opportunity we were looking for back around the summer of 2012. There's a long term moving average (150-day) that has provided excellent entry points in GLD since 2009, it's an opportunity that only comes a few times a year and we were looking forward to this.

However as the opportunity came, many things had changed and we didn't take the trade, the character of GLD had changed and it was looking suspiciously like a top, whether a gold bubble or an intermediate top, I urged patience rather then jumping in on the trade.

Here's why and here's where we stand now.

 Here's the 150 day and how many times it provided a low risk/high probability entry, but GLD had started to peel away from the moving average making the opportunities less frequent as 2011 came. By the time we had an entry signal, GLD had been extremely volatile, a major change in character. A Triangle top had started to develop and we put the long position on hold.

 Here's a closer view, note the top-ish looking triangle and how fast GLD dipped to the long term average, finally GLD broke below the average for the first time since early 2009. Currently we are seeing a very typical bounce back toward the major support of the moving average, we see this so often that it's predictable. Whether the 150 day acts as resistance or whether GLD tries to move closer to the Apex of the triangle in anyone's guess. The current move toward both is on declining volume.

 A linear regression channel stretching back to 2009 shows GLD's immense volatility and what I all a "Channel Buster" above the channel. This appears to be a bullish event, but more often then not, the volatility signals a change in trend after a nice clean channel and price action within it.

 Daily Money Stream shows a negative divergence and a leading one which is a strong signal.

 The hourly 3C chart shows roughly where things started to go wrong in GLD.

 On a 15 min chart we see several accumulation and distribution areas, all along the lines of swing moves. The current move up has a relative negative divergence, it's not exceptionally strong at this point, but it is a warning about the current move.

 a 5 min chart reveals the move toward resistance levels, with each positive and negative divergence marked as well as the effect they had on price, either tops or swing bottoms. We are also seeing a relative negative divergence here as well, this is not as strong as a leading negative in which I might consider a trade, but trouble is growing.

 The 2 min chart "appears" to be confirming the move up on a short term basis.

 As does a close up on the 1 min chart, but back out on the zoom factor...

And the 1 min chart is showing trouble, actually leading negative. This is the way negative divergences proceed, they look the worst initially on the short term charts and start to bleed in to the longer term charts. That is what we are seeing.

I personally don't think this move up is the start of a new primary bull move in gold, but rather the volatility we see one a major support level is broken. I'd say odds are high that there will be a test of the 150 day and maybe even the triangle's apex a bit higher. At that point there may be an actionable trade, but for now, in my view we are still looking at the topping process in GLD, the longer term question is whether GLD has hit a long term bubble or an intermediate top which would pullback significantly before trying to re-establish a primary uptrend.

PEIX on Deck

I've been featuring PEIX lately, I don't have time now to link to the posts, but they have been this week/yesterday.

 PEIX is at the apex of the triangle, this is pretty much where something should happen, I've liked PEIX long so I'm happy to see it breaking up today. The volume has been correct for the triangle and it may seem low today, but wait for the next chart.

 Volume has been low until 11 a.m., it's picking up nicely.

I remember specifically featuring PEIX on this day in the white box where we have a 60 min buy signal, I remember because I said it was a low risk area (buying at support) to go long.

Good luck for those of you who did, it's probably still not too late.

I'll update as conditions warrant.

Credit/Risk Indications-Industry Rotation

 CONTEXT and ES are both moving down, although ES (red) is moving at a faster clip. It seems the CONTEXT model didn't start to top out until after the 8:30 economic data came out, whereas ES topped out a bit before, in one of my first posts I showed that topping in ES with a negative divergence 45 minutes BEFORE the economic data came out. CONTEXT can only respond to price moves and incorporate them in to the model after they happen, which means that my question as to whether the economic reports were leaked earlier seems to be backed up here as well.

 Commodities which were strong Tuesday started falling apart yesterday, especially toward the close as equities melted up, right now they are underperforming the SPX slightly.

 As you can see Commods in green and the Euro in red, the Euro strength which is normally tied to Commodity strength, is not helping commodities much thus far.

 Nor is the orange Euro helping the SPX this morning.

 Credit refused to participate in yesterday's melt up off the lows and is now in sync with the SPX.

 For the first time all week, Financial momentum is in line, rather then outperforming the SPX.

 On a short term Sector chart, you can see Financials (green) underperforming. Energy is also underperforming while Industrials and Basic Materials are outperforming the S&P (Basic Materials seems a bit odd).

On a longer horizon gong back to December 23rd, you can see how financials have been coming in to rotation, Utilities were moving out of rotation (today they are holding their own), Staples had been moving out of rotation and today they are stronger, Energy has recently started moving out of rotation, Basic materials and Industrials remain in rotation while Tech falls. The 3 main pillars, Tech, Energy and Financials all seem to be moving out of rotation, although Financials really just got started today and 1 day a trend does not make.

Events

Take a look at the ES chart from overnight...

Es was flat even in to the European open 93 a.m. EDT- green arrow), it was around 4 a.m. EDT after successful Spanish and Italian debt auctions that the market shot up . The auctions were very successful with Spain selling nearly double their target and Italy meeting their target. This is NOT what the market expected, but after listening back to Draghi's press conference I tried to imagine what the tone would have been had the debt auctions failed. Draghi sidestepped a question about LTRO-Sarkozy trade pretty smoothly as the facts show plainly it is just not there. We have seen at least 1 and probably 2 times when the auctions were almost certainly supported by the ECB via arrangements with several banks as the ECB is not allowed to directly participate in primary offerings and it certainly raises questions in my mind whether that may have happened again considering the questions Draghi would be taking at the press conference, many LTRO related.

Yesterday rumors started circulating again that a French downgrade is imminent, Sarkozy'z comments overnight that a downgrade isn't "insurmountable", almost seems to confirm the French government has already been notified. Why not point out that Fitch just said 2 days ago that they don't see a French downgrade in 2012?

Not that this is news, just the latest, a senior cabinet member in Merkel's party said that Greece would have to exit the Eurozone. There have been many events n Greece this week that are to put it mildly, strange, that have gone largely unnoticed (i.e.- Weapons purchases with bailout cash). That statement was followed up by Draghi in his press conference calling the Greek situation, "unique".

After the ECB's rate decision, to leave rates alone, the Euro caught a bit of a bid, however it doesn't seem to be helping the market much as of now.

Today's US Macro Economic Data definitely put a damper on enthusiasm in the market as I showed you with the earlier ES chart. There are two camps in the market, those that think the US can and is decoupling from the world economy and those that think it is simply lagging it. Today's economic data suggests the lag theory is more appropriate. Even the Sears news falls along those lines as the early perceived holiday retail strength is being shown to have been at the cost of margins, in some cases, negative margins just to move inventory. When we hear Walmart is having vendor financing pulled, then we know it's game over in a way that we have never seen. Remember Sears=Kmart as well.

I'm very interested in what Credit is doing this morning, I had some problems with the template that I just resolved and it is loading so we'll see shortly.

Oh and one other thing, the ECB will be lowering collateral standards from the already low single A to....? Well something lower. The next LTRO should see massive subscription as the ECB further opens their balance sheet to the junk on the books of the EU banks, there's probably more then 1 reason for them doing this, I would think at least temporarily it will boost the bank's Tier 1 capital ratios, albeit for 3 years. I don't know that it will lead to the Sarkozy dream of a carry trade. Just imagine the banks being able to take junk paper and turn it in to tier 1 capital, I doubt they'll be eager about letting go of that capital.

American Retail Icon, Sears, Headed for Trouble

As per the WSJ:

Sears Suffers Setback as Large Lender Balks

Struggling Sears Holdings Corp. suffered another setback when a large lender said it would no longer finance loans to suppliers awaiting payment from the company.

Sears representatives played down the decision by CIT Group Inc., the largest U.S. provider of what are known as factoring services for vendors

Nonetheless, the decision highlights growing anxiety among companies doing business with the amalgam of Sears and Kmart stores created by hedge fund financier Edward S. Lampert, which announced that it would be closing up to 120 stores and taking up to $2.4 billion in quarterly charges last month after reporting weak holiday sales.

Sears has been seeking to reassure investors and business partners in recent days that it remains financially sound. All three major credit-rating firms have downgraded its debt, citing the deterioration of its earnings over the past 12 months, including a $421 million loss last quarter.

ECB/ Draghi

First the ECB left rates unchanged at 1.00%

Draghi Comments:

*DRAGHI SAYS ECONOMIC OUTLOOK FACING SUBSTANTIAL DOWNSIDE RISKS
*DRAGHI SAYS FISCAL CONSOLIDATIONS ARE UNAVOIDABLE
*DRAGHI SAYS FISCAL CONSOLIDATIONS ARE UNAVOIDABLE
*DRAGHI SAYS ECB DIDN'T DISCUSS CUTTING DEPOSIT, MARGINAL RATE

*DRAGHI SAYS ONGOING TENSIONS KEEP DAMPING ECONOMIC ACTIVITY

*DRAGHI SAYS ECB `VERY CONCERNED' ON HUNGARY

*DRAGHI SAYS ECB `VERY CONCERNED' ON HUNGARY

Jobless Claims Miss Big-Retail Sales Miss

Here's the breakdown:

Released on 1/12/2012 8:30:00 AM For wk1/7, 2012

	Prior	Consensus	Consensus Range	Actual
New Claims - Level	372 K	375 K	352 K to 405 K	399 K
4-week Moving Average - Level	373.25 K			381.75 K
New Claims - Change	-15 K			24 K

And you know that this will be revised to a 400k+ print just as the December 31 was revised higher by 3k, that will make a 400k print.

The reaction?



Interestingly, 3C was at a negative divergence at the 7:45 highs, 45 minutes before Jobless Clams hit the wire.

Here are the Retail Sales Numbers

Released on 1/12/2012 8:30:00 AM For Dec, 2011

	Prior	Consensus	Consensus Range	Actual
Retail Sales - M/M change	0.2 %	0.4 %	-0.2 % to 0.9 %	0.1 %
Retail Sales less autos - M/M change	0.2 %	0.4 %	-0.2 % to 1.0 %	-0.2 %
Less Autos & Gas - M/M Change	0.2 %	0.4 %	0.1 % to 0.6 %	0.0 %

The .1% print came due almost entirely due to auto sales which were ramped up with cheap government loans for GM vehicles, ex-autos would have printed a decline of -.2%

Comments from Bloomberg:

• Control sales drop “a very bad sign for the condition of the consumer, bodes ill for personal spending” in 1Q, says Bloomberg economist Joseph Brusuelas
• Underlying detail “suggests a very difficult holiday sales season,” points to “difficult earnings season for retailers"
• Supply/production estimates on commodities ‘‘much stronger than expected,’’ means ‘‘several commodities could weaken further,’
• "Big surprise” in 0.4% decline for non-store retailers, proxy for Internet sales