A Closer Look at BIDU

BIDU was a short trade idea from 3/28

A quick overview and today's action...

BIDU has formed a large triangle after an extended rally, triangles of this size are almost always tops, if the preceding trend was down and then a large triangle formed, those are almost always bottoms. They are simply too big to be consolidation patterns. MoneyStream on a daily chart shows a negative divergence going in to the highs of BIDU's run which is the start of the triangle. Since then MS has gone in to a leading negative divergence.

I don't know why, but whenever the subject of triangle tops come up, I think back to a short call in ADM which formed a triangle, it wasn't a huge triangle so I don't know why it sticks with me like it does, but it will do for our purposes.

 The preceding trend in ADM was up and the triangle formed. Like I said, it wasn't huge, but the price pattern implied target was a little over $30 and as usual, price overshot the target (that pendulum effect in the market) and hit a low of about $24, declining almost 36% from the highs and about 35% from the head fake move.

 Here's a closer look at the ADM triangle.  As with BIDU and MANY top formations, there's typically about 5 points of contact between support and resistance. You can even see a head fake move below support just before ADM made its last run which was also a head fake move. Traders see these triangles and they chase the breakouts, which sets up a bull trap, which sets up a snow ball move down-"From failed moves come fast moves" as my friend says and you can see that at the red arrow which in 1 day, put 3 months of longs at a loss.

 I first became interested in BIDU when I saw the triangle forming, I waited to see if there would be a breakout and that's about the time I brought you the trade idea. In the red box, note we have a nearly textbook Harami X Shooting Star reversal with confirmation coming on a bearish engulfing candle. I've seen many of these confirmed reversal patterns drift for a week or so before breaking down; the strongest gravitational pull on any given stock on any given day is the market's direction. Of course that's a general rule, but it holds true, hence the saying, "A Rising Tide Lifts All Boats".

 Here's the intraday action on a 60 min chart since BIDU broke out of the triangle (lower trendline). There's some intraday support which would probably make for a nice entry upon that being broken and of course a move back in to the triangle.

 Here's the daily 3C signal with a positive divergence at the 2009 lows and a leading negative divergence much like Money Stream now.

 Here's a smaller triangle within the larger one and the breakout of the larger triangle coinciding with this triangle roughly, the 60 min chart showed a relative negative divergence at the breakout, this is when BIDU became interesting, since it has started leading negative.

 As the shorter timeframes flow in to the longer ones, it's no surprise the 15 min chart's divergence at the breakout is much sharper. Even at the breakout, 3C's position was leading negative, it has grown worse.

 On a 5 min chart, BIDU shows the same accumulation last week as the market on the same days, directionally it even moved the same way on the same days. That short term positive divergence has gone negative today (selling in to strength).

 Here'a a longer term trend of the 2 min chart, note the intraday positive divergence to the left at the white arrow on a shakeout below the triangle's support, as usual, stops were hit and those shares were accumulated for the breakout run, this is a mini version of what happened in ADM.  As you can see, it was negative at the breakout suggesting smart money was selling or shorting in to demand by those buying the breakout. The intraday accumulation we saw in the market last week that is feeding the bounce of Friday/Today is present in BIDU as well, but only intraday and on short term charts.

Here's a closer view of BIDU on the 2 min from Friday through today, BIDU went negative at the morning highs and at the test of resistance around 2:45.

I'll be looking for an entry in BIDU, I know several of you are already in. Another thing I like about BIDU and this kind of trade in general, a stop can be placed above the recent highs so the risk factor isn't too bad.

BIDU Worth Considering (Short)

AMZN Puts From Friday up 51% Today

Going to pull the trigger on AAPL

I'm going to go ahead with some April or May Puts depending on the price, but this will be a partial position for the time being.

Quick Update

 SPY intraday , check RSI's divergence. SPY also broke first intraday support.

 As usual, the 50 bar 5 min is where the stops are piled as volume surges as it breaks.

 The TICK is starting to see the negative downside readings, it's down to about -850

 The SPY 1 min chart is worse, it is below Friday's close, leading negative

 The two min chart is the same

Earlier the 5 min was stronger, it's now leading and close to Friday's close.

AAPL is still up and I'm still itching to take at least a partial Put position there, haven't pulled the trigger yet though.

Market Update

 DIA 1 min zoomed out trend, as I mentioned, this bounce would start from a much weaker place because of the damage done last week.

 Intraday the DIA is negative, I'm just not convinced here yet as the market always moves in extremes, but we did see the start of the sell off last week in the last hour of Tuesday.

 2 min trend, this is also as you'd expect, leading negative.

 Intraday, the same negative divergence seen through Friday in the DIA/SPY.

 5 min trend

 5 min leading negative, and this is where I'm really on the fence, I expected distribution in to the bounce even before the bounce started and this looks pretty bad.

 QQQ had the weakest positive divergence last week, the 1 min is leading negative.

 the 2 min intraday the same

 The green arrows are only confirmation, they are not positive divergences, only the white arrow is, the 5 min trend here is ugly too, leading negative like the DIA.

 SPY 1 min trend and Friday/Today's negative divergences in to price strength

 The 2 min leading negative

The 5 mi not quite as bad as the DIA/QQQ

As for ES...

After the pre-market positive divergences, ES has remained either relative negative or leading negative all day.

TICK Chart

As mentioned earlier, the NYSE TICK chart was looking like it was going to break the early morning/afternoon trend...

While it hasn't hit extreme readings of -1000 to -1250, it certainly looks to have broken the trend.

AAPL Update

I'm really watching AAPL as a barometer for a reversal and because I want to re-enter another put on it and I'm really having a hard time staying patient with AAPL at this point and am itching to pull the trigger on some puts for the MP.

Yo already saw the 30-60 min charts earlier, here are the intraday charts.

 1 min zoomed out is not in confirmation, it is leading negative, you can see Friday's positive divergence for today's bounce.

 1 min intraday is turning here.

 2 min zoomed out, with Friday's relative positive divergence (a relative divergence is weaker then a leading divergence) and a leading negative in to today as expected.

 2 min zoomed in, there's a relative negative divergence here.

 5 min zoomed out showing the negative divergence at last week's move on Mon-Tues. and the positive divergence from Friday that had me wait on a position in AAPL.

Zoomed in the 5 min is leading negative.

Although the market tends to act like a pendulum and swing much further then you expect both ways, I'm pretty much at the point I'm willing to take the risk of a little more upside if it comes as AAPL is looking juicy here. I'm going to look at the averages and ES before making a decision, but I'm leaning toward at least a partial position using Puts.

RISK Layout Update

So far, I like what I see....

 Yields which are leading more often then not, spiked Friday, this would be in line with some of the indications of late Friday that today we would see a better looking bounce as expected last week, but in to weakness. Today Yields have come undone and are negatively divergent with the market, they tend to act like a magnet for equities.

 Although the daily chart shows a severe dislocation, for our purposes of looking at the recent activity, Yields are trending down, they have been divergent at some key areas sending the market lower as it transitions from a solid uptrend to a lateral trend, I believe this is the topping process as tops are almost never "V" shaped, but rather U-shaped.  Right now there's a significant divergence between yields and the SPX in green,

 The $AUD as part of a carry trade and as an excellent leading indicator for the market clearly went negative early last week, leading the market lower and is negatively divergent today as well.

 The more recent longer term shows the $AUD going from a move in sync with the market to a downtrend in the same area the market is in lateral chop. This would also signify that the carry trades used in FX land to purchase stocks are being unwound.

 Here's the Yen, it has an inverse correlation with the market, when it moves up, the Yn carry trade becomes more expensive and is taken off, so this move may look like confirmation, it is in fact a very negative divergence.

 Also note the recent change of trend in the Yen, again, this is not good for the market, traditionally when the Yen spikes or rises, the market sells off so to se it moving up in this area where so many other indicators are confirming the same is good to see as far as confirmation in the market's activity.

 High Yield Corp. Credit I showed you yesterday as having sold off below Thursday's close late Friday, that sell-off has continued, the rule of thumb with the credit markets which are much larger then the equity markets and traded by smart money, is "Credit leads, Equity follows" so in my theory of what to expect in to a market bounce, thus far all is lining up better then I would have imagined.

Here's the longer term trend of HY Corp. Credit, note the down trend in effect and as the SPX breaks resistance, HYG is going in the opposite direction and just broke support!

Items of importance

I'm preparing a post as ES stays negative and rather lateral. I said earlier that it is too early in my opinion for the markets to move to losses or lose ground and sustain that throughout the rest of the day, but a lateral trend with a negative divergence is a much better solution. All averages are lateral now and have been since about noon time. In the meantime while I'm looking through some of the leading indicators, here are a few items of importance in the macro economic trend.

I've been following the market today and have had little time to catch up with the fundamental macro-economic situation. Several weeks what seems like months of queit on the European front, I warned that the EU problems were about to re-emerge front and center.

There are several places where this is happeneing, first the blowout in PIIGS 10 year yields we saw last week, most above 5% and heading toward 6% where debt is considered unsustainable and where each of the PIIGS that have sought bailouts did so, right at the 6% 10 year yield. So LTRO 1/2 from the ECB has run it's course, it's half life reduced and the effect now over as PIIGS yields widened in a huge way last week.

Spain is of primary concern as the ESM/EFSF bailout mechanisms running in tandem from this weekend's EU Finance Minister meeting, leaves, as Shaueble himself was quoted, $500 bn left to deal with the next emergency, hardly a firewall and likely not even close to contain problems in Spain should the current yield trajectory keep up.

Thought Greece was fixed, the bondholder swap complete? Think again. As has been noted probably 100 times on these pages, the primary problem for Greece has been the Greek law bonds that offer little in the way of bondholder protections and the UK Greek bonds that fall under UK law, which hold significantly more protections for bondholders. Hedge Funds bought up these UK law bonds at a discount looking to recover full par as they take Greece to court.

From Bloomberg:

Investors in Greek bonds issued under foreign law rejected the nation’s attempts to restructure the debt at talks last week.

In 20 out of 36 meetings, bondholders either turned down the government’s proposal, adjourned the talks or failed to achieve a quorum, according to a press release today from the Greek Public Debt Management Office.

The meetings involved holders of about $26.8 billion of foreign-law notes denominated in dollars, euros, Swiss francs and yen. Investors owning $15.3 billion of securities agreed to a restructuring, leaving $11.5 billion still to be dealt with.

Greece’s options include opening talks with holdouts to reach a mutually acceptable compromise, paying up in full or refusing to pay at all, according to London-based Costerg.

“Paying up in full would raise the issue of fairness regarding the domestic-law bondholders, while a hard default would make litigation likely,” said Costerg. “The bottom line is that this reminds investors that the Greek crisis and the euro-area crisis aren’t over.”




Last week Mark Grant gave us the TRUE debt to GDP figures for Spain which I published.


The bottom line was the official debt to GDP for Spain at 68.5% vs what a little due diligence revealed, a true number nearly double that at 133.8% and to think the gaol is to get Greece to 120% in the next 10 years or so! SPAIN IS a problem.

Mark Follows up this week with France's TRUE Debt to GDP and finds the 86.1% is way off the mark as the EU has used various accounting gimmicks, the real number... 146%! So much for the worry of contagion of the core....

Last week as the European markets came undone, I mentioned that they would bounce as they hit support... Here's the EURO Top 100 Index...

It hit support last Thursday and Friday put in a bullish reversal Harami and closed up today. This is no more then simple technical trade, it is not reflective of the fundamentals which are deteriorating badly.

Despite the bounce in Europe today, sovereign debt continued to be weak as did EU credit markets, this was an equity only rally. Spain, Italy and Portugal were the notable underperformers in European sovereign debt today, the key word being SPAIN and that being the problem in Europe that they aren't prepared to even look like they are prepared to handle.

Finally, last Monday the market was in some trouble and only saw strength after Bernie made some ambiguous "easing" comments that JPM already debunked. Last week we saw Plosser contradicting what it "seemed" Bernie was implying, although as we covered in what he said and JPM's chief financial analyst said, "accommodative policy" would still be in place with the end of Twist, so Bernie's comments were just ambiguous enough to move the market after the first week of red in the market all year, but allowed enough room for "plausible deniability".

Plosser followed up last week and threw a wet rag on the QE hopium crowd.

This week it is Fisher's turn...
As Bloomberg noted, Fisher said the 2014 pledge to keep rates low will need to be adjusted, he also said the economy is improving (the economic data would not suggest this is true, however for the purpose of the QE crowd, this was not good news from  F_E_D president. He also said, the f_E_D should take a SIT, WAIT AND WATCH' ON POLICY and that the F_E_D has DONE ENOUGH on the easing front. All contradictory to Bernie's statements, in line with Plosser and not a happy moment for those looking for QE 3.