There's probably an intraday opportunity to fade this move in the market, but first I'd like to see a nice signal.
7 years ago
Wednesday, June 20, 2012
Closing AAPL $550 Calls
I don't trust this intraday move to hold, I still expect a pullback in the market so I'm going to use this strength to close the AAPL July $550 calls
There's probably an intraday opportunity to fade this move in the market, but first I'd like to see a nice signal.
There's probably an intraday opportunity to fade this move in the market, but first I'd like to see a nice signal.
F_O_M_C Statement
The F_O_M_C policy statement seemed kind of bland, no QE, but rather an extension of operation twist through 2012, specifically, purchase treasuries with a duration of 6-30 years and sell treasuries of 3 year less.
A couple of things stand out here, first the reaction in the long dated end of treasuries and yesterday's analysis of TLT (long dated Treasury ETF)
TLT sees a pop on the policy statement.
These are charts and their commentary from yesterday's analysis of TLT linked above...
As mentioned, there seems to be accumulation here which is odd considering it usually trades opposite to the market.
The daily chart is even more positive, this is why I suspect something positive will be announced tomorrow in the Treasury space.
I can't say these charts reflected a leak or inside knowledge of the F_O_M_C policy before hand because the extension of Twist isn't such a wild idea, however it seems clear that smart money was expecting policy action that would benefit long dated treasuries as these charts showing accumulation are from yesterday as is the commentary below them.
Also specifically from yesterday's analysis...
"I shouldn't be speculating like this, but after looking at the Risk Asset close and some other indications, my best guess is that the F_O_M_C will disappoint the market with a lack of QE, in fact I don't even think it will be mentioned (as in the Jackson Hole Speech of 2010) beyond some possibly more dovish than usual, "We stand ready with an array of policy tools to step in should market conditions warrant intervention" or something along those lines. This may bring the market pullback I've been expecting and the Euro may be the catalyst for the short squeeze, meanwhile GLD I expect to pullback, but most probably be accumulated for QE possibly later this year. By the looks of treasuries, I would not be surprised if some policy adjustment was made that may be favorable for treasuries."
As you know that was a gut feeling based on the charts, but thus far (we have to discount the knee jerk reaction), it seems to be right in line with the policy statement.
As for the market, we are at about unchanged on the initial knee jerk reaction, however we'd be up huge right now if QE3 were announced, this fits pretty much with yesterday's "SPY Full Update"
" The 3 min chart is negative after being in confirmation, but it's really not that bad, again, it looks more like the kind of divergence seen at a pullback."
"I suspect a pullback as I have maintained for the last 2 days, from there it looks like the market has plenty of juice left."
As for GLD, this is one asset class that would have gone through the roof on an announcement of QE as it did the last two times. From yesterday's update...
"I would think if smart money knew what the F_O_M_C was going to do (and we have seen instances in the past in which it looked very much like they have known in advance-not often, but there have been several very odd instances) it would be reflected in gold. "IF" the F_O_M_C creates some sort of QE3 program, historically gold has been one of the biggest beneficiaries."
As you may recall, we weren't seeing that kind of action in GLD that would have suggested a QE3 announcement, specifically...
" The 30 min chart shows the breakout to the upside-the exact opposite of what technical analysis teaches and 3C showing distribution in to that big move up and a recent negative divergence as well. To me, it looks like GLD is coming down."
"Everything looks like GLD will fall, which would suggest, "If smart money knew what the policy statement would be, it doesn't look good for QE and doesn't look good for gold". There's only 1 problem...
"This shows GLD negative in to the highs that formed the left side of the triangle, there's a positive at support in December, then GLD is run back down and now there's a positive at the support area from May/June.
If I had to guess, I would say there's no QE and GLD comes down, however perhaps there's QE later in the year.
I would think for GLD to come down, the F_E_D would not hint at QE coming. That's just my initial thoughts."
Thus far all of our analysis seems to be right on track, we may be seeing the typical knee-jerk reaction, however everything in the policy statement seems to be consistent with the themes outlined above.
I think it is more likely that this statement (another 180 reversal ) from Merkel is what the market is reacting to (this was also part of our analysis-"The Euro short squeeze would be what gets the market running higher")
MERKEL SAYS BOND PURCHASING BY BAILOUT FUND A POSSIBILITY
Now we have 2 more events at 2 pm (outlook) and 2:15 (questions).
I'm going to take a look around and see if there are some opportunities in what appears to be the "initial knee jerk reaction" that is typically reversed.
A couple of things stand out here, first the reaction in the long dated end of treasuries and yesterday's analysis of TLT (long dated Treasury ETF)
These are charts and their commentary from yesterday's analysis of TLT linked above...
I can't say these charts reflected a leak or inside knowledge of the F_O_M_C policy before hand because the extension of Twist isn't such a wild idea, however it seems clear that smart money was expecting policy action that would benefit long dated treasuries as these charts showing accumulation are from yesterday as is the commentary below them.
Also specifically from yesterday's analysis...
"I shouldn't be speculating like this, but after looking at the Risk Asset close and some other indications, my best guess is that the F_O_M_C will disappoint the market with a lack of QE, in fact I don't even think it will be mentioned (as in the Jackson Hole Speech of 2010) beyond some possibly more dovish than usual, "We stand ready with an array of policy tools to step in should market conditions warrant intervention" or something along those lines. This may bring the market pullback I've been expecting and the Euro may be the catalyst for the short squeeze, meanwhile GLD I expect to pullback, but most probably be accumulated for QE possibly later this year. By the looks of treasuries, I would not be surprised if some policy adjustment was made that may be favorable for treasuries."
As you know that was a gut feeling based on the charts, but thus far (we have to discount the knee jerk reaction), it seems to be right in line with the policy statement.
As for the market, we are at about unchanged on the initial knee jerk reaction, however we'd be up huge right now if QE3 were announced, this fits pretty much with yesterday's "SPY Full Update"
" The 3 min chart is negative after being in confirmation, but it's really not that bad, again, it looks more like the kind of divergence seen at a pullback."
"I suspect a pullback as I have maintained for the last 2 days, from there it looks like the market has plenty of juice left."
As for GLD, this is one asset class that would have gone through the roof on an announcement of QE as it did the last two times. From yesterday's update...
"I would think if smart money knew what the F_O_M_C was going to do (and we have seen instances in the past in which it looked very much like they have known in advance-not often, but there have been several very odd instances) it would be reflected in gold. "IF" the F_O_M_C creates some sort of QE3 program, historically gold has been one of the biggest beneficiaries."
As you may recall, we weren't seeing that kind of action in GLD that would have suggested a QE3 announcement, specifically...
"Everything looks like GLD will fall, which would suggest, "If smart money knew what the policy statement would be, it doesn't look good for QE and doesn't look good for gold". There's only 1 problem...
The daily chart..."
If I had to guess, I would say there's no QE and GLD comes down, however perhaps there's QE later in the year.
I would think for GLD to come down, the F_E_D would not hint at QE coming. That's just my initial thoughts."
Thus far all of our analysis seems to be right on track, we may be seeing the typical knee-jerk reaction, however everything in the policy statement seems to be consistent with the themes outlined above.
I think it is more likely that this statement (another 180 reversal ) from Merkel is what the market is reacting to (this was also part of our analysis-"The Euro short squeeze would be what gets the market running higher")
MERKEL SAYS BOND PURCHASING BY BAILOUT FUND A POSSIBILITY
Now we have 2 more events at 2 pm (outlook) and 2:15 (questions).
I'm going to take a look around and see if there are some opportunities in what appears to be the "initial knee jerk reaction" that is typically reversed.
Quick Market Update
As you probably recall from recent analysis, I have expected the market to pullback in the near term or short term trend (this is longer than intraday, it could be several days or more, but it is not nearly as long as the intermediate uptrend seen on the 30-60 min 3C charts).
The charts this morning are largely in line with price and a continued pullback. The sub-intermediate 3C trend (30-60 min charts) are still very positive.
Basically from the charts I'm expecting a pullback and then a resumption of the move up (sub-intermediate trend).
Watch out for F_O_M_C volatility, remember there's almost always a knee-jerk reaction, I'd be careful in not reading too much in to that action unless the policy statement changes policy dramatically, such as introducing QE3.
The charts this morning are largely in line with price and a continued pullback. The sub-intermediate 3C trend (30-60 min charts) are still very positive.
Basically from the charts I'm expecting a pullback and then a resumption of the move up (sub-intermediate trend).
Watch out for F_O_M_C volatility, remember there's almost always a knee-jerk reaction, I'd be careful in not reading too much in to that action unless the policy statement changes policy dramatically, such as introducing QE3.
FB Update
As you know, I've been looking for a pullback in FB, I suspect I will look to open some new call positions in FB on the pullback so long as the underlying trade remains positive as the very positive 60 min chart suggests. Yesterday I showed you a clear technical price pattern and speculated that it would be used in a head fake manner to start the pullback, today FB is starting to pullback (-1.85%).
This is the chart shown yesterday with a clear bull flag (bullish continuation/consolidation pattern), which means technical traders expect FB to break higher.
From yesterday below this chart... "FB has formed a bull flag/pennant, this is a bullish consolidation/continuation pattern, while I'm not sure how many people are buying FB, obviously some are so there's a chance for a head fake move on this price pattern as price now is right around yesterday's resistance."
Today's move...
Here's the initial suspected False break higher, I'm looking for a pullback even deeper from here.
The 1 min chart's trend suggesting the pullback, I'll wait to see a positive divergence in to the pullback.
The 60 min chart suggests we will see higher prices and an opportunity to enter a long position at a better price with less risk.
The hourly Trend Channel started with a stop below $26, it has now locked in gains to $31.
I'm going radio silent until after the F_O_M_C unless I see something that needs to be reported.
This is the chart shown yesterday with a clear bull flag (bullish continuation/consolidation pattern), which means technical traders expect FB to break higher.
From yesterday below this chart... "FB has formed a bull flag/pennant, this is a bullish consolidation/continuation pattern, while I'm not sure how many people are buying FB, obviously some are so there's a chance for a head fake move on this price pattern as price now is right around yesterday's resistance."
Today's move...
I'm going radio silent until after the F_O_M_C unless I see something that needs to be reported.
GLD/GDX/GDXJ
As mentioned earlier, we expected a near term pullback in GLD and miners, I also showed you early signs of intraday positive divergences in GLD and miners, those are growing. I'm not going to read in to this too much, but as you know, GLD has been acting as a QE sentiment indicator.
As for GDX, this is what I said in an update,
"I'm going to post the charts, but basically it looks like a near term pullback in GDX, perhaps a little base building and another move higher."
My view on GDX was that it appeared that the negative divergences were not that bad and only looked like they were there to create a pullback, while the longer term charts still looked very good, so we would expect to see accumulation in to the pullback, however I would have also expected a deeper pullback, but there's nothing stopping the miners from pulling back more in the coming days. Thus far it is good to see the positive divergences in to the pullback as it agrees with the analysis from yesterday, the timeframe issue is what is the question in my mind and whether this has anything to do with the F_O_M_C policy statement on 30 mins away.
GLD 2 min leading positive intraday
3 min is starting to lead positive in GLD
As is the 5 min
GDX/Gold Miners 1 min leading positive intraday
GDX 3 min leading positive
Junior Miners/GDXJ 1 min leading positive
2 min leading positive
5 min leading positive
As for GDX, this is what I said in an update,
"I'm going to post the charts, but basically it looks like a near term pullback in GDX, perhaps a little base building and another move higher."
My view on GDX was that it appeared that the negative divergences were not that bad and only looked like they were there to create a pullback, while the longer term charts still looked very good, so we would expect to see accumulation in to the pullback, however I would have also expected a deeper pullback, but there's nothing stopping the miners from pulling back more in the coming days. Thus far it is good to see the positive divergences in to the pullback as it agrees with the analysis from yesterday, the timeframe issue is what is the question in my mind and whether this has anything to do with the F_O_M_C policy statement on 30 mins away.
CONTEXT
A quick look at our risk asset indicators shows High Yield Corp. Credit outperforming the SPX intraday, it's off a bit from yesterday's highs, but diverging positively with the SPX.
The Euro and especially the $AUD (which is my favorite leading indicator among the currencies) are diverging positively with the SPX, the $AUD thus far looks very good.
Yields are also outperforming significantly intraday.
High Yield credit is in line with the SPX intraday.
Commodities are underperforming.
As for relative momentum in the 3 major industry groups, Financials and Tech are showing much better relative momentum.
GLD Update
From yesterday's GLD update
"3C showing distribution in to that big move up and a recent negative divergence as well. To me, it looks like GLD is coming down."
GLD 5 min chart sees GLD gap down over 1% this morning.
The daily chart of GLD today
This is the very negative looking 60 min chart, remember we had a very positive signal on May 30th which sent GLD higher, that move was sold in to and 3C has been leading negative since, this is why I said I thought GLD was coming down near term, however the daily chart has a positive divergence which is strange and we discussed some possibilities yesterday as to what this may mean.
The 1 min chart this a.m. looks to be in line, but...
The 2 min chart looks much more positive. Is it possible they are moving GLD down to buy at lower prices? We'll have to see if the divergences really show a strong signal, but we don't have much time before the policy statement.
Interestingly, as I suspected as well in the GDX update, miners have also dropped nearly 1.75% this a.m. as expected, however they are seeing some stronger intraday positive divergences on the 1 and 3 min charts.
I'll be keeping a close eye on GLD, the daily positive divergence is a most interesting feature.
"3C showing distribution in to that big move up and a recent negative divergence as well. To me, it looks like GLD is coming down."
I'll be keeping a close eye on GLD, the daily positive divergence is a most interesting feature.
EIA Petroleum Report
Released at 10:30...
Released On 6/20/2012 10:30:00 AM For wk6/15, 2012
Crude saw a build of 2.9 mm barrels, I don't know what consensus was, but generally a build is not great for oil's price.
As for the charts...
The reaction on a 1 min chart to the 10:30 release
The daily USO chart with a downtrend and a bearish descending triangle (consolidation/continuation pattern) implying the next leg down is set to start. We have seen quite a few of these patterns lately head faked to the upside on at least brief, but strong moves, take GLD for example which looked nearly identical before seeing its biggest 1 day gain since 2009.
The 5 min chart mentioned earlier showing a negative divergence going in to this gap/island-like area.
The longer term 15 min chart looking somewhat positive at the bearish price pattern.
The 60 min chart looking pretty good at the bearish price pattern.
The 1 min intraday response to the report, it looks muted, but there appears to be some stabilization.
I'll keep an eye on this to see if we may get a move worth trading.
Released On 6/20/2012 10:30:00 AM For wk6/15, 2012
| Prior | Actual | |
| Crude oil inventories (weekly change) | -0.2 M barrels | 2.9 M barrels |
| Gasoline (weekly change) | -1.7 M barrels | 0.9 M barrels |
| Distillates (weekly change) | -0.1 M barrels | 1.2 M barrels |
Crude saw a build of 2.9 mm barrels, I don't know what consensus was, but generally a build is not great for oil's price.
As for the charts...
I'll keep an eye on this to see if we may get a move worth trading.
Overnight and in to the open
Overnight rumors and press articles have been speculating about the possible size of the EFSF and yet to be ratified permanent bailout mechanism, the ESM. Furthermore there has been a lot of talk regarding the size of the temporary and permanent facility in terms of what Italy and Spain may need.
The June Bank of England minute for June were released showing a vote of 5/4 to keep asset purchases (QE) at the current level of $325bn, the surprise in the minutes was that 4 people had voted to increase QE as the market had only thought 2 had called for additional asset purchases.
The market is waiting for the Greek coalition government to be sworn in which is expected today or tomorrow.
As has been expected partly as collateral damage, Italian yields are at the unsustainable level which gave rise to yesterday's rumor/rampfest which was based on the headlines that Italy had proposed at the G-20 conference in Mexico that the EFSF and ESM bailout mechanisms should effectively be used to replace the ECB's SMP program and that Germany had taken the proposal favorably and it was being discussed. Broken down in to English, this would mean the traditional role of supporting sovereign yields by the ECB buying in the secondary market through their SMP mechanism would be taken up by the ESM and EFSF, as we found out later in the day this was pure rumor and had been denied as only an idea, no discussions were held regarding implementing anything and at VERY BEST, it was simply an idea proposed by Italian PM, Monti, but the real news was that Italy was in a round-a-bout way, asking for a bailout of shorts confirming the notion that Italian debt burdens were reaching the critical stage with the denial of the rumor leaving Italy with no recourse or hope of their bonds being supported to hold down unsustainable yields.
Overnight this idea/rumor was put to rest once and for all by the real authority and decision maker in the EU, Germany.
BERLIN (MNI) - The German government on Wednesday reaffirmed that
Last night ES wasn't looking very good on 3C, it fell and remained range bound in to the European open at the green arrow.
Pre-market ES saw a large relative negative divergence which sent ES lower in to the NY open.
EUR/USD since yesterday's 4 pm close to present
The pair since open of FX trade for the week, above major resistance, but near Sunday's opening gap level acting as resistance
The June Bank of England minute for June were released showing a vote of 5/4 to keep asset purchases (QE) at the current level of $325bn, the surprise in the minutes was that 4 people had voted to increase QE as the market had only thought 2 had called for additional asset purchases.
The market is waiting for the Greek coalition government to be sworn in which is expected today or tomorrow.
As has been expected partly as collateral damage, Italian yields are at the unsustainable level which gave rise to yesterday's rumor/rampfest which was based on the headlines that Italy had proposed at the G-20 conference in Mexico that the EFSF and ESM bailout mechanisms should effectively be used to replace the ECB's SMP program and that Germany had taken the proposal favorably and it was being discussed. Broken down in to English, this would mean the traditional role of supporting sovereign yields by the ECB buying in the secondary market through their SMP mechanism would be taken up by the ESM and EFSF, as we found out later in the day this was pure rumor and had been denied as only an idea, no discussions were held regarding implementing anything and at VERY BEST, it was simply an idea proposed by Italian PM, Monti, but the real news was that Italy was in a round-a-bout way, asking for a bailout of shorts confirming the notion that Italian debt burdens were reaching the critical stage with the denial of the rumor leaving Italy with no recourse or hope of their bonds being supported to hold down unsustainable yields.
Overnight this idea/rumor was put to rest once and for all by the real authority and decision maker in the EU, Germany.
BERLIN (MNI) - The German government on Wednesday reaffirmed that
the European bailout funds EFSF and ESM won't be able to buy bonds of
EMU member states on the secondary markets without these countries
applying formally for such aid and accepting the conditions tied to it.
"Such secondary market purchases are foreseen as one of several
instruments in the EFSF as well as in the future ESM," government
spokesman Georg Streiter said at a regular press conference here. "They
are naturally tied to conditions and there won't ever be any purchases
without conditions."
On Greece:
Commenting on Greece, Streiter said Germany expected that the new
government there will abide by the fiscal consolidation and reform
program agreed with the EU, the ECB and the IMF.
German Finance Minister Wolfgang Schaeuble told German weekly Die
Zeit in an interview to be published Thursday that "we did not ask too
much of Greece and we won't ask too much of Greece."
From Bloomberg:
VENIZELOS SAYS CONDITIONS FOR COALITION BEING MET, He adds that the key issue will be to form a bailout renegotiation team. - Says ND, Pasok, Dem Left will take on burdens; caretaker finance minister to go to Eurogroup
- Greek party leaders to meet Finance Minister Zanias tonight
- Venizelos says EU summit will be battleground for bailout talks
This is not really overnight news, but the term financing for inter-bank lending has seen an inverted curve, meaning it is more expensive to fund short term loans like overnight loans that are used to meet withdrawals of deposits. In essence the cost is rising as we are seeing the same counter-party risk we saw in the US in 2008-2009 that locked up our credit markets. This is a sign of 2 things: 1) The flight of deposits capital in EU banks is accelerating 2) the distrust of counter-party lending is increasing. All in all, not a good sign for the already severely undercapitalized European banks. Longer term loans are being nearly avoided altogether.
_______________________________
Just around the time of the US open, we get the following news:
GREEK NEW DEMOCRACY LEADER SAMARAS SWORN IN AS PRIME MINISTER
In the US:
The F_O_M_C policy decision comes at 12:30 with F_E_D forecasts at 2 p.m. and the Bernie presser at 2:15.
There have been tons of projections from QE to Twist to LSAP purchases, in a pol about 70% of market participants expect some F_E_D easing, I'll not speculate any further than what was said yesterday.
As for ES/FX...
Since this morning's 9:30 open...
Market Updates up next
EIA due out in mins
Quickly the USO 1-5 min charts have fallen apart badly bringing USO down, the 15 min chart though is holding up well as is the 60. We'll watch for possible trades in USO on the EIA data
