ES Update

I don't see any news on this latest EUR/USD move...

 It is obviously what is causing the market to pullback again... Do I see a couple of hammers there?

For whatever reason, ES is showing a leading positive divergence on this latest pullback. Maybe it's time to take a look at Credit.

Euro is the party-pooper

 The Euro on the "news" of the Greek failure to form a government... Is that really news or?

 The SPY range is holding up and not too far from the lower trendline of the bear flag.

The SPY is even holding up pretty well compared to the EUR action, if the Euro would give the market a little breathing room we might be able to get this short squeeze moving.

ES Update

 You may recall ES from earlier today, on the first update this morning pre-market it started leading negative, at point "A" the negative divergence was quite clear. Just before the open, the ES lows saw a relative positive divergence. As Es moved off those lows, there was another smaller negative divergence and ES dropped in to the 11:15 a.m. lows, since I would call 3C on ES "in line", although when comparing where price and 3C are between points "A" and "B", 3C has a much firmer tone.

The CONTEST model for ES has shifted dramatically, this is CaptialContext's proprietary model and I don't know exactly what components are in it and how they are weighted, but the last time I looked (this morning around 7:45 a.m.), the model was DEEP in the red, it has improved considerably since then, currently ES is slightly over-valued compared to the model (although this model is not real time and lags by about 45 minutes).

The point is, the model looks VERY different than it did this morning, I suspect because of the distortions in the Credit markets because of JPM's hedge gone wrong and the effects of that (which could include front running by other funds in anticipation of JPM trying to unwind the monster position; JPM's activities in the Credit markets related to the position and numerous hedge and pair trades) CapitalContext may have re-weighted the CONTEXT ES model.

As you may recall yesterday when looking at our own Risk Asset Layout, I was distrustful of some of the credit charts because of what is going on with JPM. I can't imagine that the situation, even if JPM already unwound it (which is doubtful), they haven't confirmed it so there would be a lot of activity trying to front run them as they look to cover their credit shorts.

In retrospect, the HYG Credit trend that saw what I believed to be an upside shakeout of the downtrend channel, may have been part of JPM moving things around in an effort to unwind the position without giving away their problems before they announced.

As you may recall, we looked at JPM when they came out with the news and it appears VERY LIKELY that Wall Street firms or at least several large ones had already known about JPM's problems as early as April or even late March.

This is just one example...

First I have backed the chart up two days as to not reflect any 3C activity AFTER the JPM announcement. This is a VERY typical (4 stage) move, the first stage is accumulation at the positive divergence at the white area, then Stage 2 in Green as 3C confirms higher prices, "Mark up" and then what is probably an early Stage 3 in red "Distribution". This is a daily chart, the initial distribution looks quite normal, although compared to the size of the accumulation stage, it looks like Mark Up was cut short and distribution set in earlier than it should have with as much accumulation as there was. The leading negative divergence in red that moved below the accumulation stage shows VERY HEAVY distribution and all of this on a daily chart and BEFORE JPM announced. I think JPM might have a hard time explaining selling their own stock short with the information they had, so I think it is very likely some larger institutional money knew about JPM's problems back in March/April as we have discussed before. Remember the 15 min chart also pinpointed the exact same timeframe as the daily chart.

This makes credit a little hard to completely trust, which is unfortunate, especially HYG that we use as it is a vet liquid, cheap hedge/trade.

Full AAPL Update

As you know, I have a longer term equity short in AAPL at an 8+% profit with a little room to add to the position, I won't be closing this position no matter what happens, I also have two small spec positions in AAPL Calls, I'm almost considering adding to those, but I want to be very careful not to move those beyond spec. position size considering my big picture view of AAPL. As ALWAYS, if I make any changes to the model portfolios, I will let you know BEFORE.

Speaking of head fake moves today, AAPL is one to look at...

 Since AAPL's downtrend that started after earnings, it has transitioned to a lateral trend. This morning support was tested and we saw what looks like a head fake move below support, suckering in shorts for  what I have expected to be a nice short squeeze move in which the spec Calls should make money and I hopefully can fill out the last 15-20% of the AAPL equity short.

 Here's a 5 min intraday look at today's move below support (as you know I view support/resistance as areas rather than exact levels), after that apparent shakeout move (bear trap) AAPL found some support at the old trendline.

 The 1 min chart shows a positive divergence at the move below support and a leading positive since then.

 The longer view of the 1 min chart's trend shows a positive divergence on the 8th near the lows and a recent leading positive divergence to the right that is leading as AAPL broke below the support trendline this a.m.

 The 2 min chart shows the same original positive divergence in at the start of the lateral range and a leading positive divergence in to lower prices. This is no different than the way in which we want to short strength and buy weakness so long as we have an edge in doing so; it's just institutional positions are much larger than ours and ned time to be put together without tipping off the market and driving price against them.

 The 3 min chart has even less noise, more trend and shows a sizable positive divergence as the lateral tend started, since AAPL has been leading positive with better divergences at lower price points.

 Here's the 10 min chart (this timeframe is only on Telechart and doesn't have the same amount of history as StockFinder) showing a very nice positive divergence on the move below support today, it also shows a relative negative divergence near the top of AAPL's range. I suspect prices may have been moving a bit too high compared to the average accumulation area.

 The 15 min chart gave us a good negative divergent signal at the April top to the left, as you may remember we saw a positive divergence in AAPL, Tech itself and a bunch of other tech names on the 23rd and 24th just before AAPL's earnings were released after hours on the 24th. We saw multiple signals showing a negative divergence or distribution in to AAPL's earnings gap higher on the 25th and AAPL trended lower, however as it has been trending lower, the 15 min chart has been positive through most of that move and has seen 3C make a higher low at today's intraday price low.

The close up view of the hourly chart has shown all the same, the April top negative divergence, the negative divergence on the earnings gap and a positive divergence building in to lower prices. However, this is not the big picture view of AAPL which is the reason I have the equity short.

 This is the larger view of the 60 min chart which was confirming higher prices and went deeply negative in to AAPL's top, since then it has been leading negative severely (you can see the recent positive divergence from the chart above at the white arrow. This is the longer term view and why longer term I'm bearish on AAPL.

 In addition, this 5-day chart shows a very parabolic move, you know I never trust these and see them as blow-off moves that usually fail just as spectacularly as they rise.

In addition, the daily chart shows confirmation of the move higher through most of 2012 with a leading negative divergence since AAPL's price highs. A leading negative divergence on a daily chart that forms this fast is rare and quite bearish.

So short term, I'm looking for an AAPL bounce (the stronger the better), longer term after that bounce (as I have suspected we have 1 more bounce that will be tech led), I'll be looking to fill out the rest of the equity model portfolio short in AAPL.

Market Update

It's looking more like that move in the SPY was indeed and intraday head fake move, the SPY would now need to move above the $134.75 area

Here are the other averages...

 For analysis purposes, the SPY is the best this morning as it did make a move below a.m. support, the DIA is the second best as it did not make a move below, but held at support which gives us two relative points to compare; the first in white is the initial support from a large hammer candlestick, the second in yellow was the test which formed a Tweezer bottom area of support (1 min chart)

 As for today, the DIA has been trading in line on the 1 min 3C chart all of the morning and made a relative positive divergence at the test of support around 11:15 and is currently in a small leading positive divergence (white box).

 On the 3 min chart, here's the range of the last 2 days (less actually), note the DIA is at a new leading positive high this morning at the test of intraday support.

 The 5 min chart shows a negative divergence to the left (red) and a decent relative positive divergence at the test at 11:15 and is starting to lead as the 3 min chart's strength starts to bleed over to the 5 min.

 The IWM 1 min-This isn't as useful as it didn't move toward lower support.

 The trend though in the 2 min chart has been leading positive during the entire consolidation area and put in a positive divergence at 11:15 today (smaller white arrow).

 The 5 min chart has much less noise as it should, it also shows the trend being leading positive with another leading positive move on the 11:15 dip.

 The Q's for intraday analysis aren't as useful as the SPY/DIA for the same reason as the IWM, but considering I have expected a final bounce to be led by Tech, the QQQ's relative strength today is important.

 QQQ 1 min 3C shows a very strong move today at 11:15 toward a leading positive divergence hitting new highs (leading divergences are always stronger than relative divergences).

 QQQ 2 min is seeing the 1 min strength bleed over  and this chart is leading positive at the 11:15 dip.

Even the 5 min today is starting to lead positive, so just as we saw yesterday, the migration from the faster timeframes to the longer timeframes is taking place. The Q's new leading high is encouraging.

I haven't felt right about the move lower on the news of the failure of the Greeks to form a coalition government, we have known as everyone has known that it wouldn't happen, New Democracy gave up after 1 day when they had 3, Syriza didn't give up, but passed on the baton as they know that if the ND couldn't form a government, the 3rd place PASOK wouldn't fare any better and Syriza knows that this means new elections which they are nearly guaranteed to win hands down with no need for a coalition government as they are tracking in the polls so well it looks like they'll get more seats than New Democracy and PASOK combined. So why would the market act so surprised? I doubt that it was.

Email Response

I just wanted to share this email response to a member's question of "How" a potential bounce might look from here, this was before the SPY moved below the morning range...

Answer: "Either it (SPY) could hold support or dip below it triggering stops and short orders and then move aggressively back above the support area, that would be the two most likely ways the market could bounce from here."


The second option would be the head fake concept, as mentioned we see it one every timeframe. The 2 charts posted of the recent hourly bear flag and the daily bear flag were my attempt to show you how every major reversal over the last several months has started with some kind of head fake move, like the April 23/24 move below a daily bear flag, then the SPY bounced.


As far as what the intraday market looks like now, the second option I mentioned in the email above would normally be the most likely option as support is defined this a.m. giving traders a place to place limit orders that pile up on the books and often are run just by virtue of them being there, the volume rebates and the momentum a head fake move creates.


Here's the SPY's move...

 The dip below support of the morning range (1 min chart) in yellow-possible head fake move.

 The larger "support AREA" from yesterday/today and the dip below that.

 The 2 min chart didn't confirm the move lower as 3C made a higher low (positive divergence).

The 5 min chart should be caught up by this time in the day, another positive divergence.


I'll check the other major averages and Industry groups.

Early Market Update

As you probably know, I'm not a huge fan of a.m. trade with all of the games that go on, but this morning's SPY open is worth taking a look at.

 This is the 60 min bear flag talked about since last Friday, Sunday and yesterday. As you are aware, we see head fake moves like this very often, sucking in new shorts as the NYSE short interest is already at 2012 highs.

 There's an interesting little double bottom in place just below the bear flag, a break above the "W" pattern and a move in to the flag would likely make the bears very uncomfortable, that could prompt the start of a short squeeze.

 As you know, when we see high volume at a bullish looking candle at a low, it is often a reversal point (mini-capitulation).

 The 3 min trend is in a leading positive position here and specifically both bottoms of the "W" pattern over the last 2 days are at a leading positive 3C trend.

I've been using the 15 min charts to reduce noise (of which there has been a lot in the lower intraday timeframes), here the 15 min chart is at a significant leading positive divergence on this morning's open.

Eco-Data

So what turned ES?

Consumer Price Index 8:30
Released On 5/15/2012 8:30:00 AM For Apr, 2012

	Prior	Consensus	Consensus Range	Actual
CPI - M/M change	0.3 %	0.0 %	-0.1 % to 0.4 %	0.0 %
CPI less food & energy	0.2 %	0.2 %	0.0 % to 0.2 %	0.2 %

This came in at consensus

April Retail Sals 8:30

Released On 5/15/2012 8:30:00 AM For Apr, 2012

Prior Consensus Consensus Range Actual Retail Sales - M/M change 0.8 % 0.1 % -0.3 % to 0.8 % 0.1 % Retail Sales less autos - M/M change 0.8 % 0.2 % -0.4 % to 0.8 % 0.1 % Less Autos & Gas - M/M Change 0.7 % 0.3 % -0.2 % to 0.5 % 0.1 %

Retail Sales headline print came in at consensus, "Less Auto's" missed, "Less Autos and gas" missed even bigger. Not a good report overall.

Empire State Manufacturing Survey

Released On 5/15/2012 8:30:00 AM For May, 2012 Prior Consensus Consensus Range Actual General Business Conditions Index - Level 6.56  10.00  2.00  to 15.00  17.09

The headline print was a beat over consensus and prior. New Orders and Shipments are picking up momentum, number of employees are up and there's easing in price pressure. Inventories are up. This appears to be a good report, the devil is in the details, the 6 month outlook is not good, you can get it straight from the NY F_E_D right here.

Now for Greece...

As expected, the meeting between the Greek President and the top 3 parties in the vote failed to reach any agreement to form a unity government and Greece is heading to elections in which Syriza will surely win; not good news for the Troika, Germany, the Euro-zone, etc.

In the meantime, until elections, a caretaker government will be appointed tomorrow.

And why does the Euro look like this after having crossed the resistance trendline from all of last week?

One word, "Syriza". Since Syriza shocked the world and defied the polls coming in second place beating out PASOK and with the all of the "Anti-Bailot" parties gathering about 60% of the vote, preventing New Democracy and PASOK from forming a coalition government by a handful of seats lost in the election; Syriza has been gaining about 1% point in the pols EVERY DAY and it looks like new elections held in mid-June will see Syriza gather enough votes to control parliament on their own with no coalition government. You saw the letter Syriza leader Tsipras sent to the Trokia delegation, in no way was it modest or conciliatory. Tsipras pretty much said exactly what he would do and that creates a huge problem for the Euro-zone task masters, it's even likely they take a TOTAL loss on Greece and then there's the unintended or unanticipated consequences. The market hates uncertainty, this is uncertainty at its height.

This pretty much explains why the EUR/USD looks the way it does, however it's still a bit surprising that the markt wouldn't have discounted this, it was predictable since the first day after the elections Monday a week ago.

Opening Action

The first update this morning showed ES largely trading in line with 3C (price confirmation), however there was a negative divergence forming, the chart looked like this...

 First ES Update this a.m. pre-market with a leading negative divergence developing

That leading negative turned in to a larger divergence at the 8:30-ish move just before the ES dump, there's a relative positive divergence at the open, it's not huge, but it's a start.

Overnight.

Euro-zone GDP was flat Q to Q and YoY, Germany saw a 0.5% above consensus of .1, France was 0, Italy contracted at 0.8% below consensus .7%; Portugal down .1% and Greece also came in lower than expected at a 6.2% decline, but because of the much stronger than expected German print, the overall Euro-zone Q1 GDP was flat on consensus of a -.2% dip, avoiding a recession in the EZ which has been taking as relatively good news.

The German ZEW Investor confidence was a miss at 10.8 on expectations of 19 and previous of 23.4, but that has been largely ignored.

Essentially Germany is decoupled with the rest of the Euro-zone and keeping it from recession.

Perhaps more important, a Greek source has said they will pay the $435 debt redemption today.

The Eco-Fin meeting is coming up in Brussels as well as US economic data.

Thus far this is what ES looks like from overnight...

ES traded mostly in line with 3C the entire night, there's a bit of a negative divergence coming in to US data, but overall a pretty respectable session.

The bounce is still within grasp.