HGSI Update

I am waiting for the shorter timeframes, but here's the HGSI 5 min from yesterday, it looks pretty good on its own.

Don't Forget About the HGSI Long Idea

With a beta of nearly 5, HGSI being green today as the SPY is down over -1.15% is pretty bullish.

My idea is to look at HGSI as a long play above the $7.50 area. This would likely be more of a swing type trade as I believe a bigger bottom may still be in the works.

Here's HGSI on a 5 min chart, it has reclaimed green just moments ago.

After the a.m. trade settles a bit, I'll try to get a 3C update out.

Collecting Loose Change in Front of a Steam Roller

The last few weeks you have heard me use that phrase nearly every day about being long anything that is market correlated...

 Here over 2.5 trading weeks of longs in the SPY are now at a loss. Even if the loss doesn't hold, they likely were already stopped out...

It's too early for a good 3C reading, but this heavy volume is common at an intraday reversal, we just don't have the bullish candle to go along with it. The market has been filling all gaps so "if" this gap remains as a break away gap, it will be very bearish, I have a feeling the market won't hold this size loss this early, but for a lot of the longs, the damage is already done.

I'll update the market as soon as 3C catches up and gives a solid signal.

WMT Trade Idea Follow Up

Yesterday I updated Friday's original short trade idea in WMT as it was breaking above the bear flag just as I had hoped to see, today it is back inside the bear flag.

 This is WMT's close yesterday, I would have preferred a close outside of the bear flag and we may still get it, but we have to deal with what we have right now...

Intraday this is what WMT looks like back inside the flag, as I mentioned yesterday about phased entries, there's that possibility and some of you may have began that process yesterday, but the final phase for me personally would be the move below the lower support of the bear flag at the red arrow here.

Again, I have this on my watchlist, I'll let you know if anything big changes.

RCII Short Trade Idea Down More

RCII had a break away gap and a bear flag, our short idea was to short RCII on the price alert of it crossing below the lower bear flag support line. From the looks of the candles, we "may" see a bounce to kiss the flag good bye, which may make for a nice entry if you like the trade or an add to if you are already in the trade-it's on my watchlist...

FXP up big

FXP which was a trade idea on the break below support on 2/29 is up today another +6.7% or nearly 25% since the idea. However, I'm not crazy about the gap it created today.  I'll be keeping an eye on this one as I still like it, but this market has been diligent about filling gaps.

Risk Off

As Thursday nears the markets are getting jittery, the latest rumor from the sewing circle that is the EU is that the Greek PSI will not reach 75% and may be delayed, the Greek government denies any delays in the PSI offer deadline. Rumors are the PSI take up will come in below 70%, which is below the 75% needed to effect the debt swap and get their next bailout. An increasingly large blocking stake is being built, first by hedge funds that bought the Greek bonds (mostly the UK law ones with better bond holder protections)  and now Bloomberg reports:

Greece’s Swiss-Franc Bondholders Form Group Battling for Rights

March 6 (Bloomberg) -- Investors in Greece’s Swiss franc bonds have formed a group to fight for their rights as the country seeks to pare about 106 billion euros ($139 billion) of debt as part of an international bailout.

The group is concerned by the terms of the restructuring and is “exploring means to address its concerns and to protect the rights of holders of the bonds,” according to a statement from their legal adviser Bingham McCutchen LLP in New York. The group holds the 650 million Swiss francs ($708 million) of 2.125 percent notes due 2013.

This Bingham would be the same firm that is organizing the hedge funds to form a blocking stake, the idea being they will challenge the retroactive collective action clauses and any debt swap in courts outside of Greece and try to recover full par on bonds they may have bought at a discount of 50% or more, a major pay day for the hedge funds!

Meanwhile, banks are doing as we talked about last night and getting money out of the financial system and in too the safe harbor of the ECB deposit facility as it set yet another record for deposits overnight at $827 billion Euros and Euro-zone GDP data released today showed contraction in Q4 2011, re-igniting fears of another recession in the EU.

Furthermore the Czech banking system is now in crisis!

ES off nearly 13 points

Since yesterday's close until now, ES is off nearly 13 points @ $1349.50.

Here's the overnight action...

Daily Wrap...

Today was an interesting day in many ways. First the AAPL head fake, it's not what I quite envisioned, but a head fake move it was and AAPL lost quite a bit of ground in an intraday only head fake. Wall Street has conditioned traders so well to "Buy the dip" and AAPL longs are so loyal that we still could see the bigger AAPL head fake breakout that I hope to see as a signal of a market reversal and to set up a new trade as I closed the AAPL Put from Friday in the WOWS Options Model Portfolio at a 15% gain for  a day's trade, not bad overall, but still not exactly what I was looking for. I suppose the how doesn't matter as much as the result and that is the reversal.

As far as the liquidity addicted market, a few interesting things have happened over the last week. First the F_E_D conducted a reverse repo draining liquidity from the market last Wednesday and although they say it is not a policy change, it was kind of strange to see and I wonder how many more reverse repos are in the works.

As for ECB liquidity, LTRO has been an abysmal failure. To save face and make a bad ECB decision look like the banks's fault, ECB members were making noises about this being the last LTRO operations banks were becoming "too dependent on the ECB", so there goes ECB liquidity and who can blame them as the ECB's deposit facility soared to new highs today as ALL of the new liquidity from LTRO 1 and LTRO 2 plus an extra $35 billion went in to the ECB's deposit facility. It is reminiscent of the 0% treasury auctions or the negative yield auction by which banks are willing to take 0% or even pay just to get their money OUT of the financial system. The same is happening in Europe, I'll ask the rhetorical question, "Just what are these banks so afraid of?"Oh and of the 800 banks taking LTRO 2 money, 400 were German! What to make of that?

Speaking of liquidity, the Dallas F_E_D's Fisher was quoted today as saying,


Wall Street has a "continued preoccupation, bordering upon fetish" with QE3. "Trillions of dollars are lying fallow, not being employed in the real economy. (Yes, the banks are getting them out of the financial system) Yet financial market operators keep looking and hoping for more. Why? I think it may be because they have become hooked on the monetary morphine we provided when we performed massive reconstructive surgery, rescuing the economy from the Financial Panic of 2008–09, and then kept the medication in the financial bloodstream to ensure recovery....I believe adding to the accommodative doses we have applied rather than beginning to wean the patient might be the equivalent of medical malpractice."


Does this explain the start of NY F_E_D reverse repos last week? One thing is certain, the longs who hope at EVERY F_E_D event or whenever any F_E_D president speaks, they will hear some hint of QE 3, today's Fisher comments were likely not welcomed by the buy the dip crowd.


The FT ran a story and Bloomberg published some numbers regarding the Greek PSI which comes due this Thursday at 3 p,m., the FT noted, 

"A large grouping of private creditors agreed on Monday to take part in the multibillion-euro Greek debt swap in a significant step forward for Athens as the country struggles to avert a sovereign default. Twelve banks, insurers, asset managers and hedge funds in the steering committee of bank lobby group the Institute of International Finance said in a statement that they would take part in the bond exchange. "

At first this sounds like a big win for Greece, after all, analysts wrongly assumed the IIF steering committee held 50% of the Greek bonds, according to Bloomberg:

"Private Investors Holding About 20% of Greek Debt to Join Swap...The 12 members of the creditors’ steering committee that said today they would join in the exchange have debt with a face value of about 40b euros ($53b), compared with the 206b euros of Greek bonds in private hands, according to data compiled by Bloomberg from company reports."

So apparently once again the analysts were wrong and 50% suddenly becomes 20% with 80% still unaccounted for-the PSI needs 75% participation as a precondition for the next Greek bailout or Germany will axe it. Thursday is shaping up to be a European "D" day -"D" for Debt and maybe decimation.

As for some individual Industries, as noted last week, copper looked like it was in trouble, COPX closed down today -3.6%

In case you were wondering what Dr. Copper is saying about the market, here's a look at the SPY in green vs COPX.

This is a similar divergence to the Dow-30 and Dow 20 (transport) if you are in to Dow Theory or pick any major average and compare to the Russell 2000 and remember the R2K should be the leader of risk on rallies.

SPY in green vs the R2K in white, note the last higher high the R2k made and that it is divergent with the SPX, again for those of you who follow Dow Theory.


Semi-Conductors were crushed today on volume, here's SMH vs the Q's

Not only is that a break of support, but look at the volume. With AAPL acting badly and semis too, I don't think the Q's will hold out much longer.


The internals keep getting worse, today's action came on lower than avg. volume (NYSE 700 mln, vs. 768 mln avg; Nasdaq 1636 mln, vs. 1692 mln avg), with decliners outpacing advancers (NYSE 1223/1816; Nasdaq 1140/1370). We have watched Advancers/Decliners go from positive to less positive to about equal to negative to worse and all in about a week.


AAPL's decline today came on no apparent news, so it looks like the 3C negative divergences are taking effect.

 If this is what a small intraday head fake that barely broke out can do on the downside, imagine what a closing head fake can do.

Considering AAPL longs are not traders typically, but lovers of the stock and the "Buy the Dip " mentality Wall Street has brainwashed traders with as if it is impossible for the market to decline, AAPL could still see a daily closing head fake move and that would be truly destructive. I didn't see much in the way of accumulation today in AAPL on the "dip", but we'll be watching for it as a sign of an impending breakout/head fake move larger then today's.


As for other charts...

 Here's commodities on a daily chart, look at that close with the long upper wick which is a rejection of higher prices and commodities never even made it up to the top channel, Commods are very close to breaking that channel.

 Intraday commodities showed early "realtive" strength vs the SPX, but by the afternoon they were underperforming, thus the closing candle in the chart above this one.

This is part a risk asset divergence and partly trouble with China. Remember my FXP trade idea?

The idea was 3 days ago on a shakeout move below support, the trade is now up about 7% in the last 3.5 days. This is another version of a head fake, or shakeout and was a decent buying opportunity at low risk.

 For almost a month now High Yield Credit has been selling off and divergent with the SPX, why do we follow credit? Because it is traded almost exclusively by the pros and as they say, "Credit leads. equities follow".

 Intraday, High Yield sold off all day and didn't even participate in the end of day minor bounce.

 The Euro/Market correlation has been waving red flags too, the divergence starting on the 29th and getting worse on the 1st led the market lower. Some people say the correlation doesn't work anymore, I think it works fine, they just can't comprehend how dislocated the EUR/USD is from equities and can't comprehend the fall in equities that would take place to revert to the mean,

 Intraday there was a little outperformance by the Euro, short loved though and by the end of the day, the Euro/$USD wanted nothing to do with the market bounce.

 High Yield Corporate Credit has seen the biggest 3 day sell-off since late November and is leading equities lower.

 Here you ca see the divergence between credit in blue and the SPX, it was another red flag pointed out and led stocks lower.

 Here's energy. Remember that channel buster in USO? That happened to be the same day in the red box in Energy, look at the rounding nature of trade and volume. I say Energy, Tech and Financials are the 3 pillars of the market, all 3 are starting to come undone.

 This is Energy vs the SPX over the last several days, look at the divergences and yes, they have helped lead the market lower,

 Financials saw a high volume churning day followed by a breakout of resistance, I'm willing to bet this is a head fake move that will lead financials much lower, we are already seeing it in individual names and the confirmation of a head fake move is just below that red trendline. I don't mean to suggest we can't or won't see volatility to the upside, we can, I just think the back is broken.

 And unlike what you will see in Edwards and MgGee Technical Analysis, I have been pointing out for nearly a year that bearish and bullish wedges no longer break when they reach the apex, but rather trade sideways first, then they break. Sometimes we see a head fake like in SRS, but this is the new norm for these patterns.

 Here's XLF vs the SPX over the last month or so, look at the trajectory of each, that's a nasty divergence.

 Here's XLF intraday, it outperformed on a relative basis, but still closed in the red.

 This is energy, , note the breakout (probable head fake) and absolutely ZERO follow through, today was very close if not a confirmation of the head fake move. Below the red trendline is the confirmation, I suspect it is right at the level as I would expect Energy to head much lower on confirmation and probably on larger volume like we saw intraday in AAPL or in GLD last week.

Energy intraday vs the SPX, it pretty much sold off all day.

 Here are the E-minis (ES), look at the negative divergence in after hours sending ES lower, granted a lot can happen overnight, but this isn't a good start. If I recall correctly, we saw a negative divergence in ES toward the close as well and I can see a small one on the chart, so this AH negative is all the larger.

 Look at ES and VWAP, it lost VWAP on the open and couldn't even get near it most of the day, it made it above later in the day and lost it again in after hours. This tells me market makers are having trouble filling orders at VWAP on market weakness, so much so they can't even manipulate the market intraday toward VWAP.

The only 1 dominant Price/Volume relationship was in the only major average to close green, the Russell 2000 at a +.15% gain! The P/V dominant relationship is price up/ volume down which also happens to be the most bearish relationship.

 Sectors today... Financials on a relative basis vs the SPX held their own, Utilities pointed out the risk off nature of trade today. Basic Materials, Industrials and Tech all lost ground in to the close.

Finally TLT, I was asked quite a few questions tonight about my views on TLT...

 Remember last Friday I said TLT was prepped for a pullback, if smart money wants to move to a risk off trade, TLT will be it even though treasuries are yielding next to nothing, it is still the safe haven trade and they would be likely to want to accumulate on a pullback (buy weakness).

 Here is the 3C negative divergence on a 5 min chart from Friday showing the probability TLT would pullback today as it did.

This is where TLT and Treasuries in general get interesting. They had a positive divergence sending them up higher and then went negative in 3C, 3C was in line on the decline and then around December it was if smart money just totally changed their mind and we saw a positive divergence form, this is the same time we have seen the market rally, a rally which I have consistently called a bear market rally, so if smart money is accumulating treasuries, then they are moving to a safe haven trade and they would have been doing it while the market was rallying. That's something to think about and in my meeting with the hedge fund manager tonight, we looked at this chart for more then a few minutes.


In our conversation, there wasn't a single issue we disagreed on. He trades way different then anything I've ever seen, to say he trades options would be an understatement, he teaches options for the CBOE! The modeling sytems they had (3 dimensional) were like nothing I've ever seen. In any case, his interest in this TLT chart was striking. His volatility analysis was, well lets say in line with my long term 3C analysis and I'm not talking about a single volatility indicator, I'm talking about a system I can't even begin to describe, very impressive to say the VERY least.

Long day....

Well I just got home about 30 minutes ago from  5+ hour meeting with a hedge fund manger at his office, what an incredible set up! What a great meeting!

I think this will be good for my analysis. I'll share more details as well as look at the market (as I had to get ready to leave right after the market close), I'll also be answering emails as I was not able to check my email during the meeting.

I'm going to have dinner real quick and get to my nightly routine.

Talk to you soon