FB Update

We had a great run playing FB long, as you know I have been looking for a pullback to consider starting a new long position. As of last week I was wondering whether we were seeing that pullback or a trend reversal. Today we have some more information that seems to suggest it may very well be the pullback I had warned we might see in this area some time ago when the long trade first started.

 Back when the trade first started I warned that this level of resistance may see FB back off from the area, gather some strength and try to break out above this level. As a reminder, I'm no FB fan, but we did get a solid signal and a solid long trade.

 The 60 min chart when it first went positive and around the time we were entering long FB trades (Calls and longs). The 60 min chart has been more or less in line, it hasn't turned negative on us.

 The 30 min chart did turn negative and this is part of the reason I was looking for a pullback and also part of the reason I was concerned last week that this may be more than just a pullback as 30 min is a pretty long timeframe for a pullback move, however....

 Since the negative divergence and pullback started the 3 min chart is already showing a positive divergence in to the pullback. It is not strong enough yet to have effected the 5 min chart, that may be something I'd like to see before entering a new long position. We may very well see more pullback or consolidation, we ant to continue seeing this positive divergence build in to that pullback or consolidation (lateral trade).

 On a 5 min chart we can see the positive sending FB higher, the confirmation of the move up and then the negative divergence, this is strange to see, a 5 min chart still negative with a 15 min  chart positive, but as you may recall, last week we did see an accumulation event rather than a process that skipped the shorter timeframes and went directly to the longer ones. This 5 min chart also would suggest to me that FB is not quite there yet, but certainly worth keeping a close eye on as a break out above those resistance areas would send FB in to stage 2 mark up.

 Here's the 15 min chart (pretty powerful timeframe) and a fairly quick leading positive divergence in to a flat trading range where we often see divergences.

 The intraday 1 min chart still seems to suggest more pullback or consolidation as you can see the negative divergence that finally turned FB down.

A closer view of the 1 min chart, this still looks like FB wants to pullback or consolidate a bit more.

In conclusion, I know there are some strange charts there, the interpretation I have is that the 15 min chart is showing the typical positive divergence in to a normal, healthy pullback that we want to see, the divergence is not yet strong enough to have migrated to the 30 min chart which is something I'd like to see. Locally the shorter intraday 1 min chart is suggesting FB pulls back or consolidates some more, but this is a much different looking set of charts than last week when FB just looked bad on the pullback.

I have a feeling FB may very well offer us another long opportunity at better prices, but for now I'd be a little patient with it and let these charts develop and let the market tell us when or if the timing is right, however I did want to show you the improvement over what we saw last week.

GLD Update

The last trade in the GLD in the options model portfolio was to close GLD July $155 puts at a 45% gain on Thursday the 28th of June last week.

For the time being, because of the 30-60 min charts and their negative positioning, I'm only interested in short term trades either short GLD or using puts. Although GLD did respond well to the bad US data as a QE sentiment indicator, GLD is again at an interesting price level in which I may consider another quick put position. Lets take a look at the charts.

 This 15 min chart of GLD shows where the last Put position in GLD as closed before it jumped higher Friday.

 To me the intraday trade look a little too obvious as a potential short, I'd like to see GLD make a new high above Friday's intraday highs in to a negative divergence, that would be an interesting entry for a new put position in GLD. I don't think a straight short is worth it from a % gain perspective, I think you need a little leverage. I think it goes without saying I would treat a trade like this as speculative for risk management purposes.

 The 60 min chart is telling me, for the time being, the trades I want to take in GLD are on the short side as it has put in some nasty negative divergences and has not recovered yet from them.

 The 1 min intraday chart of GLD today looks like GLD wants to move a bit higher, that new intraday high above Friday's highs with this chart turning negative would interest me.

 As you can see the intraday positive of the 1 min chart has not migrated to the 2 min chart which is largely in line with price, so I don't see the 1 min positive divergence as being very strong, it makes sense with the trade set up I'd considering.

 The 3 min chart is actually negative, this again fits well with the trade idea/set up. You can also see Thursday's positive divergence and the reason the puts were closed at a 47% gain.

Going out longer, the 15 min chart remains largely in line with the move down and shows a leading negative divergence today.

I'll keep watching GLD for a possible head fake move above Friday's highs, that's where I'd like to consider a GLD put position.

Another Update

As it takes some time to capture, upload and post all of those charts for the opening indications, I went back and took a look at the intraday timeframes, the QQQ and IWM still look the worst on an intraday basis, the SPY and DIA are not showing anything interesting, no strong positive or negative divergences and the market looks set to drift in a morning range, with the exception of the QQQ/IWM as mentioned, they do have a clear negative divergence on the shorter intraday timeframes.

For now, I don't see any reason to change the view from Friday that we will see some backing and filling today of Friday's gap up.

Market Update

The most recent chart captures are the IWM, QQQ, DIA and the SPY was captured first.

 DIA 1 min did not confirm the open, there was a slight positive at the reactionary lows after the 10 a.m. data release.

 The trend of the DIA 1 min was quite negative Friday, but this is still only an intraday chart.

 The DIA 2 min made an effort to confirm but still wasn't able to confirm the open, again we see that intraday positive at the reactionary lows after the 10 a.m. data. The divergence isn't very big and we'll have to see if a subsequent positive divergence can be put in.

 The longer 3 min intraday also did not confirm the open so it isn't surprising the market drifted off the early highs, despite the data as the divergence was in effect before the release.

 Only the longer term 5 min chart is in confirmation which tends to fit with Friday's idea of some backing and filling today as the negative divergences are on shorter term timeframes here and were not able to reach or migrate to the 5 min chart as thy were not strong enough, at least in the DIA, the 5 min chart also did not see the early positive divergence after the data put in a reactionary low because the positive divergence was not strong enough to migrate to the 5 min chart. This will be a key chart to follow today as far as a intraday movement goes for the rest of the day.

 The IWM 1 min also did not confirm on the open and was in a negative divergence

 The same for the 2 min chart

 The 3 min chart was also negative on the open, which is in line with expectations from Friday for today's market activity.

 The one chart that is a bit disturbing is the IWM 5 min which is clearly negative and the IWM tends to be a leader in a risk on or risk off move.

 The QQQ 1 min like all the others was negative on the open and did NOT see a positive intraday divergence at the reactionary lows after the 10 a.m. data release.

 The QQQ 2 min chart also did not confirm the move up on the open as it too was negatively divergent.

 The QQQ 3 min was also negatively divergent, but note how the 3 min which is stronger than the 1 and 2 min, does not look quite as bad.

 The 5 min is in a similar situation, it was negative on the open, but the divergence of the 1 and 2 min charts did not migrate as much to the 3 and 5 min charts, thus the reason I suspected some backing and filling, but not a deep negative divergence.

 The 1 min SPY was in line, not positive, but in line with price on the open and showed a positive divergence at the reactionary lows from the 10 a.m. decline.

 The 2 min is also in line or confirming the price trend this a.m.

 The 3 min shows the same.

Only the 5 min which I showed you last night was negative on the open as it saw a negative divergence Friday, but it did make an attempt and saw a positive divergence at the reactionary lows.

We'll have to see how 3C reacts in the a.m. range, as you know I'm not a fan of reading too much in to morning trade, especially on Monday's as there's a lot of game playing with limit orders and such.

Overnight and in to the open

Overnight markets have seen a good deal of volatility-Manufacturing prints are the main story.

 One of the issues I mentioned in last night's post is the EU's permanent bailout mechanism, the ESM and particularly how Finland, Germany and the Netherlands may handle certain issues pertaining to debt seniority in bailouts, specifically the Spanish banking sector bailout which when first announced came along with the caveat that all debt would be subordinated to ESM loans, meaning that sovereign debt holders (bond buyers) would now be subordinated to the ESM. This announcement drove Spanish yields on the benchmark 10-year note through the 7% level (as a reminder 6% is considered to be unsustainable yields and the rate at which Greece, Ireland and Portugal all sought bailouts as the yield was so high it effectively locked them out of the debt markets).

We had overnight news from the EU that Finland and the Netherlands (two of the 3 Northern countries we suspect will be trouble in ESM dealings as the French election have seen France shift alliances from Germany to its mostly southern PIIGS neighbors in what I term, "The north/south divide") are seeking to block any buying of sovereign bonds in the secondary market via the ESM; a role traditionally fulfilled by the ECB, but the ECB has been all but absent in the secondary markets as yields have risen to 7+% for Spain and over 6% for Italy.

More from Reuters:

Finland and the Netherlands will block the euro zone's permanent bailout fund from buying bonds in secondary markets, the Finnish government said on Monday, despite European leaders' decision last week that rescue funds be available to stabilise markets.

Euro zone leaders agreed at the summit on steps to shore up their monetary union and bring down borrowing costs for Spain and Italy, but they had given few details on the use of the temporary EFSF and permanent ESM rescue funds.

ESM bond buying from secondary markets would require unanimity and that seems unlikely because Finland and the Netherlands are against it, the Finnish government said a report to a parliamentary committee.

The German lower house passed the Fiscal Compact, but since passing it Friday there have been 6 appeals to the German Constitutional Court.  As mentioned last week, the headlines and intentions that were born of last week's EU summit are a totally separate issue when it comes to actually passing those proposed measures; to this date Germany still has NOT ratified the ESM and now there may be required changes that stem from the EU summit proposals which could force more countries, such as Finland and the Netherlands to vote on the ESM again - Proposals vs. Reality, this usually does not work out well for the EU.

Germany, AGAIN, for good measure, once again reiterated over the weekend that they are against Euro-bonds any time soon.

The Economics Minister from Spain also said that they expect a slightly deeper contraction for Q2 as compared to Q1 which has seen Spanish 10-year debt rise from the best levels of the day.

Both Chinese official PMI and EU PMI came in weaker than expected with the pan-European PMI below the 50 level signifying contraction and the 11th consecutive month of declining manufacturing readings. Production and New Orders were hit especially hard leading to the sharpest job-losses since January of 2010. The rate of decline in the German numbers was the worst in 3 years with this being the 4th consecutive dip in German Manufacturing PMI (as we all know Germany is the manufacturing powerhouse in Europe).

From the Markit report:

"The Euro-zone Manufacturing PMI suggests that the goods-producing sector contracted by around 1% in the second quarter, with this steep rate of decline looking set to accelerate further as we move into the second half of the year. Companies are clearly preparing for worse to come, cutting back on both staff numbers and stocks of raw materials at the fastest rates for two-and-a-half years.



From Reuters:

"Joblessness in the euro zone rose to a new record high in May, pushed up by lay-offs in France, Spain and even stable Austria, as the 2-1/2 year debt crisis continued to eat away at the currency bloc's fragile economy.

Around 17.56 million people were out of work in the 17-nation euro zone in May, or 11.1 percent of the working population, a new high since euro-area records began in 1995, the EU's statistics office Eurostat said on Monday.

"Unemployment will continue to rise until we see an improvement in the economy, and that may not be until next year," said Steen Jakobsen, chief economist at Saxobank. "The next few months are likely to constitute a low in the growth cycle," he said, predicting the euro zone's economic output to show a contraction in the July-to-September period.

Economists at ING see unemployment reaching as high as 12 percent if European manufacturing does not stage a recovery."

On Chinese Manufacturing PMI...

More from Bloomberg:

"Chinese manufacturing indexes slipped to seven-month lows as overseas orders dropped, andSouth Korea cut its estimate for exports this year, underscoring risks to Asian economies fromEurope’s debt crisis.

A purchasing managers’ index for China fell to 48.2 in June from 48.4 in May, HSBC Holdings Plc and Markit said today. A similar measure released by the government yesterday also slid. South Korea yesterday lowered its export growth forecast to 3.5 percent from 6.7 percent.

China, the world’s biggest exporter, may need to add more stimulus to arrest an economic slowdown after the HSBC report showed the steepest decline in overseas orders since the global financial crisis. The nation’s weaker growth is rippling through Asia, with South Korea’s sales to China, its largest market, failing to increase in the first 20 days of June."

Additional Manufacturing PMI released overnight and this morning saw Japan, Korea, Norway, South Africa and Taiwan all dropped below 50,  which is contraction.

In the US...

Just moments ago at 10 a.m. US ISM Manufacturing was released....

Released On 7/2/2012 10:00:00 AM For Jun, 2012

Prior Consensus Consensus Range Actual ISM Mfg Index - Level 53.5  52.0  51.0  to 53.4  49.7

As you can see, the print came in at a substantial miss to consensus of 52  with a contractionary reading of 49.7 from a previous print of 53.5 in May and 54.8 in April. This is the first sub "50" print since July of 2009. Corp. margins are once again being squeezed as prices which were expected to come in at 57 came in at 37! The Employment sub-index was down from 56.9 to 56.6, and New Orders dropped sharply from 60.1 to 47.8. 


Here's the market's response this morning to the US ISM...

 The sharp intraday drop is at the 10 a.m. release, bringing the SPX just below the major resistance level.

Gold as a QE/Easing indicator had the opposite reaction as bad news is good news for those looking for the F_E_D to step in with new easing measures and as gold has the most to gain from such easing, GLD reacted favorably to the release.

As for ES and EUR/USD...

 ES when it opened yesterday for the new week saw a negative divergence on the open and lost ground from there. Going in to the European open (at the green arrow) there was a 3C positive divergence which sent ES to the best levels of the start of trade for the week, but soon after saw a negative divergence at those highs.

 Here's ES going in to the US open with the European open again at the green arrow, we saw a negative divergence on the open and the reaction to the US data release. We have a possible relative positive divergence brewing right now.

 EUR/USD since opening for the week (at the green arrow) as mentioned last night, lost major support/resistance and is now trading under that level.

The FX pair since the US open...


Market Updates coming next....

Start of Trade for the new week

As of late Friday, I expected a bit of a pullback from Friday's gap up, although we are above major resistance in the SPX and were above major resistance in the EUR/USD, both of which could create a short squeeze.

The SPY chart that summarizes my view Friday of some backing and filling Monday can be seen below...

As you can see the trend was in line on this 5 min chart on the 26 and part of the 27th, later on the 27th a negative divergence made a pullback the next day likely which happened, late in the afternoon on the 28th we saw a jump in 3C on some of the longer intraday timeframes leading to Friday's gap up. Although that played havoc with some of the shorter term intraday charts, the 5 min looks like the SPX is ready to back and fill in to the gap. I don't see this as a major move, but we'll see how it develops, it may very well open some opportunities to set up some long trades in to price weakness, assuming the EUR/USD and ES don't jump higher overnight, which would increase the chances of a short squeeze.

As for EUR/USD and ES opening tonight...

 From Friday's confirmation of the move up, we have a negative 1 min divergence in ES tonight as it reached highs near the open of trade tonight. The divergence in place now suggests that Friday's assumption of some backing and filling was correct, but we have a long night ahead and the European open at 3 a.m. EDT which can obviously change a lot.

EUR/USD...

 Last week we broke above the major resistance level for the ER/USD, but not yet above the June highs, that's where a short squeeze becomes much more likely.

Longer term you can see the June highs in the Euro, this is the level that needs to be broken above to see the chances of a short squeeze increase.

So far the sub-intermeduate trend expectations from a 3C perspective have held up pretty well, also our risk asset layout has held up pretty well, in other words we are not seeing the kind of divergences that suggest a return to the primary downtrend that we see in the longer term 3C charts.

As mentioned above, we have a long night ahead of us and a lot can happen, but thus far we seem to be on track with expectations. We just have to keep in mind the insane choppiness and volatility of the market and not get "lost in the lines", but rather use that to our advantage, which often means using your greatest edge over Wall Street, patience and the fact you don't ALWAYS have to be in the market.

Here's the economic calendar for the US this week:

As usual though, most of the focus will be on Europe. I'm particularly interested in the yields on Spanish and Italian 10-year debt to get a feel for whether bond traders really believe the EU will drop the debt seniority of the bank bailout in particular which makes sovereign debt holders junior to any EU bailout (that which caused Spanish yields to jump above 7% in the first place). It will also be interesting to see if a new ESM treaty on the bailout mechanism will be needed and if it will be ratified, there's a lot up in the air in the bond markets and that flows to the stock markets.

Everyone have a great week ahead and don't forget the markets will be closed in the US Wednesday with an early close of the NYSE Tuesday for the 4th of July.

A New 3C Timeframe

I consider myself a student of the market, not a guru or anything like that. With the market changing so fast, how can you not be an eternal student of the market? Just last Thursday we witnessed a 3C event, a literal event, that differed greatly from the normal process of a positive divergence. What I mean for some of our newer members is that distribution and accumulation are typically a process, Thursday we witnessed an event which is rare, in fact I don't recall the last time I saw something like this, so there's always something new to learn.

One of our members who has picked up on the proper use of 3C much faster than I did as its creator, shared with me a new timeframe that I hadn't used before (I learned something new again) and as yo know, I commonly say, "When in doubt, go to the longer timeframes" as they show more of the trend and less noise, although they lack the intraday detail, they are indispensable for understanding the big picture from micro to macro. So it is with much appreciation (thank you Tina) that I share this new 4 hour timeframe, which just so happens to confirm our view that we would see a strong short squeeze move up before the next primary leg down.

I'll share both the sub-intermediate view as well as the longer term charts representing the primary trend view.

 The DIA 4 hour chart shows the distribution that we saw through various charts back in March when we started building Primary trend core short positions, this divergence ran right through May 1 which  was the last area we were actively building primary trend short positions. As many of you know, by mid-May we were looking for a halt to the down trend (among some gimmicks and a bear trap) and eventually a short squeeze move higher. The leading positive divergence in the DIA now suggests that short squeeze move is still coming. Key notable positive divergences were at the bear trap lows of June 4th and the perceived failure of a test of resistance and the lows that came after that at June 25th.

As for the larger picture and primary trend...

 I'm using a DIA 3 day chart to show quite a bit of history going back to distribution during mid-2007, the leading positive divergence of March 2009 and how QE has created the rally from 2009 which I call a "house of cards", as we have a new leading negative low below the 2009 3C lows. Other notable negative divergences other than 2011 include the very fast and sharp March 2012 divergence.

 The 4 hour QQQ chart which I would equate with the sub-intermediate-close to intermediate trend, also shows the negative divergence in to March 2012, the final May 1 high negative divergence and then the positive divergence we watched build in to a bear flag/pennant through May with a positive divergence at the bear trap lows of June 4th, a leading positive at the perceived failed test of resistance and the low that followed on June 25th and a current leading positive divergence that is well above the 3C reading at the May 1 highs. Again, this suggests the market DOES have more upside as we have felt for well over a month now, most likely a short squeeze move which I have said, "Could be VERY impressive", which would also allow us to add to or start new primary trend core short positions in to price strength.

 The daily QQQ 3C chart showing the distribution "process" during 2011, the August lows we called as the market was in seeming free-fall, the October low we also called and the March 2012 negative divergence, since a leading negative divergence suggesting the Primary trend is alive and well and very bearish, however as you know, nothing moves straight up r down and the market is never going to make things easy. In fact I often say, "If it does look easy, you are probably being set up".

 The SPY 4 hour chart is the one that Tina was telling me about, that ultimately got me working on getting the 4 hour timeframe on the layout. Again, the March 2012 distribution process is evident going in to the Mat 1 highs, the bear trap we expected at the June 4 lows with a positive divergence and at June 25th, 3C is in leading positive position, currently leading positive well above the 3C readings at May 1 and moving toward the readings from the March highs.

The daily 3C chart shows the primary trend with a positive divergence at the Oct. lows, th sharp distribution at the March highs and a leading negative divergence since then.

For perspective, the 2 day chart showing the major primary trend...

Here we see the positive divergence of the 203-207 bull market rally with confirmation of the ptrend at the green arrow, a negative divergence starting in 2007, the positive divergence of March 2009 and negative divergences at 2011 and March 2012 with a current leading negative divergence below the 2009 3C readings.

This should hopefully help to illustrate our view of the market from the near term sub-intermediate trend to the major primary trend.

Thanks again Tina for your help and dedication to bettering our understanding of the market.