Market Update

Once again, like yesterday afternoon, the market is losing momentum is what looks like a desperate mov to the upside. This doesn't look at all like an organic risk on environment, but rather like a struggle to move higher as if it were on a timetable with some head winds, I'll look at the risk assets to see what those headwinds are. As the candles get smaller and smaller intraday, it looks like there's been some more support anted up specifically in ES. After the risk assets we'll take a look at AAPL, but the momentum stocks like PCLN are using this time well to reach the maximum emotional levels we have talked about (fear for short, greed for longs). This is why the market moves in such extremes (other than the volatility associated with tops), the moves in the market are no longer about a discounting mechanism, trying to find fair value for a stock, but purely emotional manipulation, head fakes, bear and bull traps, etc. I wonder if there are any fundamental value investors out there anymore? If so, I wonder what their portfolios look like.

ES was losing momentum to the upside, 3C wasn't showing any support, rather leading negative, then there appears to be a move to lend support. It is only noticeable in ES.

The order I chose is first target areas, then midterm charts intraday charts to reduce noise, then the effect on the 15 min and finally what the intraday 1 min chart looks like.

 For the DIA, it has hit several levels needed to cast the April 10th move in doubt, the only place really it has left is a new high which would be good for bringing longs in, although from looking at the flow of domestic equity funds, it seems even dumb money is not buying the ponzi anymore. Note volume in all of these chart falling off.

 The 5 min here continues to look bad, the opening gap was a pretty decent sell area, we are at resistance in that same area with a bullish looking ascending triangle, it will be interesting to see if this triangle is a bull trap, the leading negative divergence continues as DIA reaches the opening levels. The price percentage gain in most of the averages is taking on a churning feel, although volume would need to increase dramatically, which could happen if we saw what appeared to be a strong breakout from today's triangle.

 The 15 min chart is a clear mess, at the worst level for any bounce over the last 3 months, but note the volatility of this bounce and how much further it has travelled compared to the previous ones, again a function of increased volatility and desperation to get that (what I firmly believe will be) one last shakeout move and bull trap.

 Intraday, the DIA looks to be one of the worst negative divergences, similar to yesterday in the DIA/IWM.

 IWM price levels and this is why I have thought the IWM is less important as the price levels are pretty far to get a real shakeout. The IWM is such a mess I don't think bulls would find any credibility in any move other than a new high. What is telling about the IWM is it should be the leader of a risk one move and outperform all of the other averages. Volume is also falling off here.

 IWM 5 min probably needs no commentary.

 The 30 min is in a leading negative position

 Like yesterday, the 1 min IWM/DIA are looking the worst. Do you see what I mean about the look of desperation in the move today, very parabolic moves up, but the candles are very small, no real strength in price when you view the actual individual candles, just a very thin looking market.

 QQQ I think need to at least break above the red trendline, AAPL is not helpful today. There's also a gap area in yellow that would be helpful. Volume is falling off.

 QQQ 5 min, much like yesterday in the IWM/DIA, look at how wobbly the price trend is filled with bearish candles, this looks a lot like those dog tail moves I mentioned in IBM that all failed with big gaps to the downside.

 QQQ 15 min lagged for most of the bounce since April 10th until we identified this 15 min positive divergence before AAPL earnings, it is still in line, so I'm guessing they aren't putting too much pressure on the Q's right now, at least until they break above the basic support line all of the other averages have crossed days ago.

 QQQ 1 min losing momentum in the 1 min chart.

 SPY, the $140 level was an accomplishment, the gap just above would seem likely as all gaps have been filled lately, volume is leaking off. If the SPY could fill the gap, it's not a stretch that it could make a new high. Imagine that, from a new low on April 10th to a new high the same month, that's volatility.

 SPY 5 min needs no commentary, note the struggle in momentum in the yellow box I mentioned as head winds.

 SPY 15 min

SPY intraday 1 min losing intraday momentum

IBM Follow Up

IBM was another late Wednesday night post among several stocks I was pointing out target areas, we've had some head winds and yesterday it looked like Wall Street had to ante up a little support to keep these stocks moving toward their likely targets as well.

I also mentioned IBM yesterday, I haven't taken any position there, but noted that because of the low Beta in IBM, there's a specific price target I had in mind to make up for the low Beta. Please remember if you short a stock with a dividend and are holding while it goes ex-dividend, YOU are responsible for the dividend-If the position looks good I don't usually car too much bout that unless there's a monster dividend and in that case I might exit the trade before it goes ex-divy-IBM's is 1.5% per year.

Even if you have no interest in IBM, what is worthwhile in monitoring the price action is that we are seeing the purpose of the move off the April 10th SPX lows being confirmed.

 IBM's volatility shakeout is on decreasing volume, the general idea is that traders are less and less willing to step up and buy IBM at these levels.
So far we have broken through the 2 levels I saw as essential for the purposes of the market bounce, the yellow small gap area is the price level in which I would consider IBM as a concession for the low Beta, the bigger the bull trap that is set, generally the harder and faster the stock falls, that's why a small move higher is important to me, it's not the extra buck or so, it's the extra bulls caught in the trap.

 The 5 min chart is doing what I'd expect and need to see, going negative in to higher prices and doing so with more momentum.

 I mentioned yesterday that IBM has these "Dog Tail" moves up that fail on big gaps down, we are now seeing one of the biggest dog tail moves in IBM, which is to be expected on increased volatility.

I have a trend Channel stop for this particular move, it is at the $205.50 area, a break of that should mean the end of this move. I don't know how helpful this will be as IBM's breaks though the Trend Channel usually are on gaps down, but it's still a level worth throwing a price alert on just in case there is that intraday move below the Channel.

PCLN Update-in the target zone

Very late Wednesday night I posted a PCLN target area,

"On the daily, PCLN already broke support, this is when we always see the volatility shakeout of the shorts, which happened today moving above resistance. There are two more levels, I don't think $750 is out of the question and that's where I'd love to get  position started."

Today PCLN has reached that target area and then some, so it's time to take a closer look.

 PCLN Going from a stable uptrend with expanding volume to a more parabolic trend with declining volume (volume should rise with price in a healthy uptrend). In red, a very parabolic move that looks like a blow-off top. For newer members, I NEVER trust parabolic move like this to hold, they usually fall just as spectacularly as they rise and with little relative warning-this is a 5 day chart.

 The 60 min chart shows a cycle, these are planned moves by smart money, there's the accumulation period in white, the mark up period in red, also called stage 2, then we start to see stage 3)- distribution in red which typically is accompanied by a top formation, finally stage 4 decline completes the cycle. This 60 min leading negative divergence is a far cry from the confirmation of the trend at the green arrow and nearly as low as when the position was first accumulated. In other words, the trend implication of the underlying 3C trade is very bearish looking.

 Yesterday you may recall the consolidation period, I was looking for smart money to step up with some intraday support to move prices higher, that happened market wide. This morning's gap on large volume and flat price trend since, looks suspiciously like churning, the handing off of shares from strong hands to weak hands, a form of distribution. Note yesterday's consolidation was just below one of our resistance target levels.

 Today all 3 resistance target levels have been taken out. There's a chance PCLN goes for the ultimate head fake with a new high, but I feel comfortable entering at least a partial position here, I can certainly ride out a 3 or 4% draw down if push comes to shove. what is most important to me is the $750 level was taken out, this is where I wanted to consider PCLN.

 1 min shows a negative divergence on the gap up today, you can also see the support from Wall Street yesterday as the market was stuck in a consolidation range.

 The 2 min with a smaller cycle, we have relative negative divergences, negative on the open and as PCLN hits this morning's intraday highs, another leading negative divergence. These are not the really strong leading negatives I'd like to see, but it is still early, I don't think I'd be dissuaded from entering a partial position in the area.

 The 5 min trend, 3C has been clearly trending negative, the relative comparison between the start of the divergence to the left and the end of it to the right is actually quite large when you look at the two relative price levels. In essence, the underlying trade looks worse now than it did at the $680 area.

 The 15 min trend, this divergence is nearly as big as the first, sending PCLN lower.

Another look at the 15 min in the top area, it is leading negative.

I'd like to establish a position on stronger divergences, but I'm very tech heavy and the market can move fast. If I have time, I will likely enter a small equity short position (not using options) at this level.

Market Update

I suspect this will be a fast moving day, I may be slow on the emails as you know what I'm watching for.

I have reversed the order of the charts from longer 2 min charts first to uncover noise and 1 min charts second. The theme I see is the market was artificially lifted on Italian debt auctions that weren't fundamentally strong, they were the opposite, but the market is using the fact they even could sell debt outside the LTRO 3 year window as a ploy to celebrate. The other mover is SPX $1400, which is nothing more than a pure psychological benchmark as it is a centennial (whole number) that the human mind gravitates toward. Just look at the super market, the $3.99 milk is 1 cent cheaper because $4 seems a lot more expensive than Three-something. There's a reason and method to understanding the human mind's gravitation and $1400 SPX was purposefully and thoughtfully my target for a reason. Lets see what happened on the gap open...

 Remember the 2 min (longer intraday) charts are first, the gap open saw an aggressive negative divergence, again the theme for the last several months has been to sell in to any strength.

 A very slight positiv divergence on the lows.

 IWM again with a strong negative divergence on the gap up open

 And a small relative positive divergence at the intraday morning lows.

 The QQQ saw a strong leading negative divergence on the gap open.

 and a little stronger than the other averages, positive 1 min divergence at the lows.

 The SPY with the 4th strong negative  divergence on the open

and on the 1 min chart a positive divergence at the lows.

This is very consistent throughout. Strength is being sold and in this morning's case, quite aggressively being there wasn't that big of a gap up.

WHAT MATTERS

Overnight Spain saw their second credit rating downgraded from the S&P Credit rating agency for 2012, now joining Italy with a solid, but very soft BBB rating which is just a few notches above "Junk" status. The bad news for Spain, which has been battered all week (this has been the country we have been focussed on) just wouldn't end. Retail Sales fell again making it 21 declines of the last 21 reports. Then unemployment skyrocketed to 24.44%; for historical reference, this is the same as the unemployment during the height of the Great Depression in the US! For comparison purposes, at the end of December it stood at 22.85% and consensus for this period was 23.8% so this was a huge miss as 1/4 of the country is unemployed. Considering the fudge factor or political deception (for instance, in the US we use seasonal adjustments to make unemployment look lower than it is or the 99 week unemployment benefits cliff to lower the number. We also use the U-3 data as headline unemployment, but if you work 1 hour a week you r are considered employed, even if you need to work 40-this data can be found on our seldom seen U-6 number, which by the way is the same way unemployment was counted during the Great Recession, so US unemployment is much higher than reported), real unemployment in Spain is likely far greater than even the abysmal number reported. For young people in Spain, 25 years old or below, unemployment is 52%, this must be doing wonders for their crime rate and has long term social implications for the country, perhaps even generational. You need to use that mind or lose it!

Spain is now solidly locked in its second recession over the last three years. The Spanish Foreign Minister , after seeing the UE number said, "Spain is in a crisis of huge proportions", how's that for political theater for public consumption!

Italy for its part sold some 5 and 10 year debt, which the market seemed to like, even though they missed their target amount by nearly 20%, the bid to cover ratio dropped like a rock and yields of course went up.

Here's what ES looked like after the Spanish downgrade and in to the European open with the Italian auction.

 ES selling off after Spain, a positive divergence in to the European open, likely because Spain was able to sell debt outside of the 3 year LTRO window, even though it is unsustainable debt with higher yields.

From there to the open, the positive divergence in ES lifted the market until a negative divergence kicked in at 9 a.m.

Politically the EU is now turning on Germany, their financial savior/ and task master. This is an important development as Germany is now being seen as the bully that Greece has long said it was. Most dramatically, the once super-BFFs, "Mer-Kozy" (the alliance between France and Germany), is as we have been noting, shifting with France joining the PIIGS side of the table as Sarkozy looks to be defeated. Even once strong PIIGS allies are turning on Germany's vision for the EU.

Monti has turned on Germany today, from the FT...

Mario Monti, Italy’s prime minister, has added his weight to criticisms of austerity-led reform efforts in the eurozone, saying the policies were shrinking Europe’s economy and could deepen a double-dip recession."
And Monti is a technocrat that was installed by the German led Troika!


France's probable next president, Hollande, also struck out...


From Bloomberg:

Hollande Says Germany Can’t Make Europe’s Decisions Alone

The intensifying war of words between the French presidential race frontrunner and Merkel is putting the two politicians from Europe’s two largest economies on a collision course over ending the region’s sovereign debt crisis.


As Europe accelerates in to the abyss, whatever political consensus there was to form a road map out of harm's way is now crumbling, which may be a good thing as everything the Troika has done has been an absolute failure, most notably the ridiculous ESFS super-failure.


Back in the US, GDP was today's main event and it came in a a stunner of a miss at 2.2 with consensus of 2.5, but the whisper number on Wall Street was much more optimistic, making the miss that much more important, they were looking for 3%!


Probably starting today, economists will start lowering their Q2 GDP guidance, which was already uglier than Q1 as Q1 had several benefits that were supposed to make it a strong quarter, like the increase in inventories, which will stagnate inventory growth in Q2 as Q1 inventories remain on the shelf.


This now puts official US Debt to GDP at 100.8% (not only is it increasing, but think of Greece in which all that was done was in hope of lowering their ratio to 120% over the next decade). It is obvious decoupling of the US from the rest of the world is a myth, we just managed to hide it and kick the can down the road better than the others, but it is now emerging for the brainy-econmists, the argument over decoupling and lagging is clearly leaning toward lagging, meaning tougher times are ahead.


With the SPX now at our target zone of $1400, things could get interesting very fast. Be ready.


Market update coming...

Another prediction from this week comes true

With the market not looking too hot, there has been a clear trend I have pointed out at least a dozen or more times in the Risk Asset update (our more detailed version of the CONTEXT indicator) and that has been a rising Yen as smart money unwinds the Yen carry trade, meaning they are delveraging risk and closing out the cheap funding source of risk on market moves. To close an open Yen carry trade, the last step (usually after taking profits in stocks) is to buy back the Yen that was initially sold to enter the carry trade. This has seen the Yen appreciate, something the Bank of Japan does not appreciate as it makes their exports less competitive.

I warned or maybe better said, predicted there would be some BOJ intervention as the carry trade unwind accelerates sending the Yen higher and Japanese exports lower. Sure enough, the BOJ has intervened tonight. The second half of that prediction/analysis was that is the past BOJ interventions in the currency market are short lived and not very effective. While it's too early to say, initially this looks like the shortest lived effect from intervention by the Japanese Central Bank.

The spike in the $USD equals a drop in the Yen/JPY, so the intervention was pretty short lived thus far.  If it just so happens that the BOJ is able to create a more carry friendly environment, the next question would be (this is somewhat rhetorical), "Would anyone care?" If you are deleveraging and the market is crumbling, what's the point of opening a new carry trade?

In any case, this is just another sign that another economy-the world's 3rd largest, is feeling the pain and will probably be made clear soon in trade reports and GDP as the Japanese who never really recovered from the lost decade to the lost 2 decades, try their hardest to intervene as it is likely their economy is feeling some intense shocks which should manifest in exports and GDP. Just another sign of the times, but if the CNBC talking heads want to continue arguing that the US has decoupled from the world economy based on several month old economic data which was heavily massaged with arbitrary seasonal adjustments, let them keep talking. Someone should ask them the question though, "As the rest of the world takes a turn for the worse, where exactly are American exports headed to?

China is finding out the hard way that their biggest trade partner is soon going to need net 30 billing, but in years instead of days.

Was Spanish Downgrade Leaked?

In looking at this chart of FXE (Euro ETF), I have to wonder whether the Spanish downgrade was leaked to FX traders and Wall Street. If so, that gives a whole new meaning to the strong 3C negative divergences in the DIA and IWM today.

The 3C trend was largely lateral and listless before today when it went clearly leading negative. With divergences this clear and out of recent character, I don't put much faith in coincidence.

My Crystal Ball is Working!

I may have to give up on the market and join the circus, set up a little booth with a crystal (or glass) ball and charge $5 per sitting.

On a more serious note, this isn't a victory lap, this is my way of pointing out something I think is important. I'm no fan of company specific fundamental data, but I am a huge advocate of understanding the principle, concepts and trends in economic fundamentals. There's a fine line that I try to observe between having too much news on the site which you can get on your own and having the right news that gives you insights in to the market by way of understanding the fundamentals of the world economy.

I don't think we have to be experts and know the 2018 projected debt to GDP for Belgium, but understanding the macro trends can only help you in understanding the market, understanding the extent to which something is important and understanding certain things, for example, the EU banking sector's capital shortfall and how Euro repatriation effects the EUR/USD pair and how that gave the market some breathing room to move to the upside, but still understanding that the catalyst behind the short term strength is rooted in EU bank problems, VERY BIG ones.

So in this post, "Wrap Up For Monday" posted April 24th (Monday-2 days ago), I covered a lot of topics, but this is what I want to point out to justify the usefulness of the news and analysis of that news presented here.

From the post,

"OK, so the market today, in one word, "Europe". Europe was quiet for too long in the beginning of the year. Most of you probably remember me saying a month or so ago, "Europe will once again be the market focus very soon", today was a great example of that. "


"As you might know, the Dutch cabinet resigned en masse today after failing to reduce their budget to the EU mandates. PREDICTION: Get ready for more sovereign downgrades and then the government raiding the offices of S&P, Fitch and the other ratings agencies that downgraded them."


I wasn't being facetious or spewing hyperbole, I meant what I said, thus the capital letters on the word, "PREDICTION".


Even I'm shocked at the timing of this update and the news tonight from the S&P Ratings agency and you know how much I've been talking about Spain lately...


From the S&P:


"NEW YORK (Standard & Poor's) April 26, 2012--Standard & Poor's Ratings Services today said it lowered its long-term sovereign credit rating on the Kingdom of Spain to 'BBB+' from 'A'. At the same time, we lowered the short-term sovereign credit rating to 'A-2' from 'A-1'. The outlook on the long-term rating is negative."


And there you have it. Now watch Spanish (and every other EU sovereign except maybe Germany) yields explode to the upside through 6% and probably 7%. This makes it a whole lot harder for Spain to go to the market to raise finds through debt issuance and when that happens they have no other choice than to try to raise capital the good ole European way, through bailouts. The convergence of Black Swans is staggering. Just today we learned that the ESM bailout mechanism, the one Spain will probably soon try to tap (although it is not nearly big enough even with the EFSF running in tandem to help Spain and deal with the fallout across the EU), may be used to fund EU banks that have huge holes where there should be capital and they have run out of options for raising capital, otherwise the incredibly desperate idea of funding EU banks through their soveirgn debt firewall, the ESM, would have never been proposed.


The plot thickens and the market-well you know what I think about that.

Closing indications for the averages

I don't know if anyone else feels it, but this market is moving fast, an effect of the volatility. I use to have time to check just about everything I wanted to, FX, Risk Assets, news, etc; now important signals can develop in a few minutes while I'm positing an update. The day goes by fast, faster than I can remember. Around 2007 and before, there use to be the summer doldrums when you could look at 100 charts and not be able to find a trade to save your life, what a difference.

The Dow and the Russell 2000 were the clear percentage winners today and it shows in the charts. Wall Street sells/short in to higher prices, the Dow and R2K gave the market that today and the market used it, you'll see in the update.

 DIA 1 min with a strong leading negative divergence, if you need to, comeback and compare the SPY's 1 min chart to the DIA or IWM.

 2 min DIA, another very strong negative divergence

 The 5 min has a relative negative divergence which is pretty deep.

 Although the 15 min chart is moving in line with price, it is at a clear relative negative divergence, usually the next step is the transition to the stronger leading negative divergence.

 A longer term trend of the same chart shows the damage that has occurred from the 3 previous bounces, this leaves the DIA 15 min  in a deep negative divergence.

 The IWM was the other top percentage mover today and the 1 min leading negative divergence is sharp

 That weakness has bled over to the 2 min chart which is also leading negative.

 And the 5 min leading negative.

 The 15 min chart is moving with the IWM and pretty close to confirmation, just slightly lower.

 The QQQ 1 min is leading negative at the end of the day, but compared to the DIA/IWM, it's not as sharp.

 The 5 min is still in line.

 The 15 min is in a positive position, but I suppose that isn't surprising considering how long the tech sector lagged the market.

 The SPY 1 min, again, compare to the DIA or IWM which performed nearly twice as well in percentage terms.

 2 min SPY is leading negative, again nowhere near the DIA/IWM-you can't sell aggressively in to strength if the strength isn't there.

 The SPY 2 min leading negative in to the close. I suspect this may have been some risk off profit taking ahead of the GDP tomorrow.

 The 5 min is slightly leading negative.

 The 15 min appears to be in line...

However when the longer trend is viewed, you can see it is not in line, it is lagging compared to the 17th, like I mentioned, the last 3 bounces did some major damage.

Dont't Forget GDP tomorrow at 8:30

This is another one that will be very difficult to interpret as the QE crowd sees bad eco data as good news. However I would think that the F_E_D knew well in advance of their policy statement what GDP would look like.