Market Update

 While I haven't yet taken the necessary time to look at our own more detailed version of CONTEXT (Risk Layout Indicators), CONTEXT is supportive of further risk gains in ES (S&P E-mini Futures) as the model is higher than ES.

 ES itself since the NY open (dark blue background) saw an early positive divergence off the lows of the day, as it has moved higher the divergence is starting to give way to a negative, still small, this could simply be a consolidation.

 The DIA is showing very similar behavior, a positive divergence, confirmation and then a negative divergence starting, this appears to be related to resistance from a head fake breakout move from an intraday triangle on 4/27 that quickly failed and rolled in to the April 30 lows.

 DIA 2 min is pretty much in line with price, so it's hard to read too much in to the 1 min negative divergence except for the immediate intraday movements.

 The 3 min chart of DIA is in line with price, this is relatively positive in the near term as this could be showing distribution.

 Here's a theory on the market using the DIA as an example, in last night's post at the end when discussing the bullish possibility that the bounce is not over, I mentioned a scenario as follows,

"Given the look of the SPY and DIA on the close (3C) I would say that the market would either have to pullback and/or consolidate to allow them to get a positive divergence under them before moving higher" 


So far that theory cannot be ruled out based on today's price/3C action. I drew on this chart to show what such a threory would look like, the DIA's/market's price would have to pullback (green arrow) allowing a consolidation-whether a "W", a rectangle, etc is not important. What would be important is that 3C charts on the whole continue to add to the positive divergence (yellow arrow).

 IWM 1 min showing the same thing ES and DIA have shown, a recent negative move in 3C.

 The 2 min chart shows relatively the same, although the positive divergence early today is stronger than ES's.

 The 3 min chart has a good amount of positive momentum, leading positive, but it too has seen a recent negative move in 3C.

 IWM 5 min is leading positive. Thus far the charts are in line with the theory laid out last night and mentioned in the DIA updated charts above.

 QQQ 1 min has been the biggest laggard today.

 QQQ 2 min shows the same failure to confirm prices moving higher intraday.

 Interestingly though the 3 min chart is leading positive and quite strong.

 Considering the longer timeframe, the 5 min is pretty positive.

 Remember yesterday at the close the DIA and SPY had no signs of positive divergences, this is one of the strongest 1 min positive 3C divergences today.

 The 2 min just fell out of line with price.

 Like the Q's above, the 3 min chart shows some unusual strength.

As does the 5 min.

Since capturing these charts, there has been a slight pullback in the averages that fits with the 1-2 min negative divergences seen in some averages.

As mentioned, the theory laid out last night (in a near term bullish scenario, meaning the bounce is not quite over) cannot be ruled out as thus far the market has done what would be expected for the early stages of such a scenario. I'm also not reading to much in to it until I see how 3C reacts on a price pullback of some consequence.

I would continue looking for shorts on price strength and underlying weakness.

GLD Follow Up

Although I can imagine more downside for GLD, the puts I used were $162 May expiration. A bounce and continuing time decay makes this particular position not the ideal one to take advantage of a possible larger move down in GLD. If we get a bounce in GLD, I'll look at a potentially longer expiration put position.

Here are the charts from Friday that persuaded me to take on the leveraged position (as you know I've been moving more toward equity shorts without leverage and away from short term options trades that have worked so well in this volatile and choppy market).

 I know the appeal options trading has, a 600% move is addictive, however when I was trading full time with no other source of income, I lost an options portfolio by doing all the wrong things which it seems many people do. Remember that options are a derivative product that came from Wall Street, they are set up like Vegas, give you a taste of the action and then keep you in the game chasing that action until the house finally wins. For this reason I've changed my options strategy, I buy in the money puts and calls, I use them for leverage and only when the trade looks high probability, but doesn't offer enough potential gain to take the risk; this is why in the past several months I have placed so many of these trades, we have huge volatility, but very short trends. I also tend to go out a little longer than I believe is necessary as the market always seems to throw some surprises your way and finally, I'm not looking for the home run of 600%, 20 trades that have made from 7 -244% (most being around 30-50%) is not a bad way to make money. Wall Street wants you to hold these as long as possible, every additional day gives them a greater statistical edge, so I want to get out of these options trades as soon as I have a decent profit.

 As of Friday the 30 min chart was looking bad, looking like GLD would head toward the lower boundary of the recent range.

 The 15 min chart saw a sharp negative divergence as price was lateral

 The 5 min chart showed the same strong negative divergence in the same area, as price was flat, they were engaged in heavy distribution.

 Finally, the 1 min chart went strongly leading negative at the end of the day, which looked like GLD was ready to break down from the flat range.

Current charts...

 First there's the gap in GLD, most gaps are filled, so that is a negative for the trade.

 Today's 2 min positive divergence looks like GLD wants to fill that gap.

 While the 30 min chart is still very negative as it was on Friday...

The 15 min chart at least suggests that this could be more than just a gap fill. I'm not willing to risk the profits with these charts in place.

I will consider opening a new put position on a decent move in GLD.

Closing Friday, April 27th's GLD Put Position

This trade was from late last Friday...

I have a nice profit of nearly 46% for 3 day, I'll follow up in a moment on my reasoning

BIDU Follow Up

Here's yesterday's update on BIDU, it also covers the larger trade perspective in a bit more detail.

I have a short position in the equities portfolio started in BIDU from higher prices that is at a nice profit, but I'm looking to add to the position as I left room to add and as I see BIDU as a trade with good longer term potential, in other words not just a 10% correction which has already happened.

 The long term daily 3C chart shows BIDU with very strong negative divergences, this is part of why I like BIDU as a longer term trade as well as the price pattern implied target.

 Here's the head fake move we shorted in to, BIDU is a good example of how a head fake move adds momentum to the reversal, take a look at the decline from the yellow area, that move is well over -12% in a short period. I'm expecting a downside target longer term of at least $80 and probably better. The Yellow arrow (part of a bear flag) shows large volume on a bullish candle, these are often short term reversal markers. There's a well defined area of resistance that would make for another head fake trap as traders would be expecting the bear flag to break to the downside, a had fake move up first will knock some of the shorts out, possibly bring in a few longs and give more momentum to the next leg down as well as giving us a better entry with less risk on new or add-to positions.

 BIDU really didn't decline much from yesterday's rollover and technically speaking from the traditional perspective, BIDU's price pattern looks very bearish for technical traders, the expectation among technical traders (which is just about everyone now) would be for BIDU to be among the stocks hit the hardest on yesterday's decline. Today there's also a potential symmetrical triangle forming, this would make for a nice spring board on a move through local resistance.

 The 1 min chart is nearly perfectly in line, there was no strong negative divergence here yesterday. If the intention is to distribute BIDU at breakout (higher) levels, you wouldn't expect to see any strong distribution before that event too place.

 The 2 min chart is already giving some flavor to today' triangle-looking price pattern as 3C is in a positive divergence here.

 The 5 min chart has seen a positive divergence form since yesterday's intraday weakness that has continued to move higher.

Finally the 15 min chart has several positive divergences as BIDU came to the end of its decline from the head fake breakout, there's a current leading positive divergence. If this holds, this suggests BIDU could make quite a nice head fake breakout move, certainly worth looking at shorting it or adding to a short.

A move above $136 should signal the start of a head fake move higher, you may want to set some price alerts.

AAPL Update

As you know, most every expectation we've had for this bounce off the April 10th lows has been met, even AAPL/Techs rotation identified on the 24th before AAPL earnings. Not that I can say I have evidence to suggest this should happen, but my gut feeling has been that AAPL would lead the very end of the bounce and be the trigger stock.

This morning AAPL is in the green and leading the Technology sector as well as the Tech heavy NASDAQ 100.

 AAPL has managed to hold up in a support zone, I am not a believer in exact support such as $580.17. If you think about what creates the buying and selling that form support and resistance zones, it has a strong emotional component and therefore I view support and resistance as areas, not exact levels. For instance, if you bought AAPL at the close on Monday (far left of the red box) and then held it, saw it rise yesterday and then same a quick decline with the market declining also, you might look to get out of the position at what would be close to break even for you. When emotions drive expectations, that means you may have sold a little above or below, this is an example of what creates support, although probably not my best explanation.

 I mentioned last night that AAPL was vey close to having put in a "Tweezer Bottom" candlestick pattern on the Monday/Tuesday close, it's not textbook, but they rarely are. This would be considered to be a support area and typically see a short term reversal from the pattern. Thus far AAPL has moved up today around .50% off that candlestick pattern.

 The 1 min chart shows a very clear, unambiguous relative, then leading positive 1 min divergence.

 The 2 min chart after seeing some heavy intraday distribution has put in a 2 min relative positive divergence, so the 1 min strength is bleeding in to the 2 min chart.

 The 3 min chart which has less noise and is a bit longer trend shows an accrual of several smaller positive divergences and is showing the best leading positive divergence since last Friday, maybe even before that.

 The 5 min chart is also positive, AAPL has moved up off that initial relative positive divergence and the chart is still leading price a bit.

 The 15 min chart is where we would expect to see the accrual of positive divergences, specially at the tweezer bottom area. The signal that AAPL and Tech would rotate in can be seen on the 24th, the next day that rotation came in to play, the recent slide from the earnings pop has not been confirmed by a 3C downside move, instead it's actually been positive.

A closer look at the Tweezer bottom specifically on the 15 min chart shows a positive divergence as well at that formation.

EIA Petroleum Status report

Here it is, released at 10:30

Released On 5/2/2012 10:30:00 AM For wk4/27, 2012

	Prior	Actual
Crude oil inventories (weekly change)	4.0 M barrels	2.8 M barrels
Gasoline (weekly change)	-2.2 M barrels	-2.0 M barrels
Distillates (weekly change)	-3.1 M barrels	-1.9 M barrels

Since there's no consensus information, it is difficult to judge the report, the build in crude was obviously smaller than last week's. With Gasoline and Distillates seeing a draw again, it may be the build isn't enough to offset the demand in finished product.


USO's reaction...

 Here's the reaction at the 10:30 release. The EIA report seems to be one of the most leaked reports we see and often there's strange behavior in USO on Wednesday, once in a while given us some short term trades, we'll be on the lookout for that.

 Yesterday USO broke against the Euro/$USD correlation and rallied as the Euro had sold off, it seems the market knew it was getting away with something and as you'll see they took advantage of it. The drop in the Euro today (rise in the $USD) is lower than USO, this would suggest via the traditional legacy arbitrage correlation that USO should head lower, but yesterday we saw that correlation flipped on its head.

 USO 1 min positive at the 10:30 release.

The longer 5 min chart shows what they did with the strength in crude yesterday, as the negative divergence in to higher prices is clear.

Early Market Update

Just going with the market's trend, we'd expect a gap fill on the opening gap down this morning, the market has been very diligent about filling gaps. A failure to fill a gap would be a change in character that would be noteworthy, we should be expecting to see more changes in the market's character just as we expected to see increased volatility.

 You may recall it was the DIA and SPY yesterday at the close that had no hint of a positive divergence, conflicting with the QQQ/IWM. This morning there's a hint of a positive divergence in the DIA, as to be expected it has appeared on the fastest 1 min chart first, whether it builds or not from here will tell us more.

 The DIA a.m. positive divergence has even made it to the 2 min chart. A divergence of this size and length (assuming it halted here) would generally be enough to halt a decline and put in a consolidation before moving lower. The divergence could grow and it could do that in a lateral trend or a declining trend intraday.

 The IWM 1 min positive from yesterday has grown in to a leading positive, this is the strongest positive divergence among the major averages thus far.

 The 2 min chart has continued its divergence from late yesterday

 And the 5 min chart is showing signs as well, again overall the IWM has the strongest divergences this morning.

 QQQ 1 min positive divergence, not very big or impressive as of now.

 As the SPY finds a floor to likely build an a.m. range, the chart below is showing a positive divergence.

There was no positive in the SPY as of the close, this is the first.

We'll see if a range develops or there's an attempt to fill the gap.

What's Happened-Europe Opened

First as we have known for sometime via commodity prices, China, which released their Manufacturing PMI saw a slight revision higher, still is in its 6th month of contraction. Within the sub-indexes of their PMI, employment was found to be declining at the fastest pace in 3 years. The trend though is what is most important and 6 months of contraction in manufacturing is not a good trend.

However Europe, as usual is where the damage was done.

ES overnight decline at the European open.

 April Eurozone Manufacturing PMI printed at 45.9 vs an initial print of 46.0, a 9 month low.Italy, Austria, Ireland, The Netherlands, Spain, Greece, France and most importantly Germany, all missed expectations, most printing at multi-month lows with Germany at a 33 month low and this is the manufacturing powerhouse of Europe.


Germany also had a bad unemployment report today. Italian unemployment gained .4% at 9.8%, youth unemployment rose from 33.9 to 35.9 in one month. The overall Eurozone unemployment printed at 10.9 which is the highest ever in EZ history.


In the US, the ADP Employment report had a big surprise and an ugly one at that. The ADP estimate of private employment growth was +119k for April, below the consensus expectation for a 170k gain.


US Factory Orders just released...


Released On 5/2/2012 10:00:00 AM For Mar, 2012

	Prior	Consensus	Consensus Range	Actual
Factory Orders - M/M change	1.3 %	-1.6 %	-2.5 % to 0.5 %	-1.5 %

The report itself doesn't look very surprising, but the prior of 1.3 was revised tower to 1.1, the 2 month 2.6 decline is the largest decline since 2009.


As usual, GLD reacted to the negative Factory orders report, remember gold is the new sentiment indicator for more easing and any bad reports are considered good for easing-hopeful traders.

Note the Factory Orders was released at 10 .m. , at the same time GLD moved higher.


Market Update up next.