SPX Channel Break

 The market, since it has been so "Blah" and choppy the last few days, is keying off the last known trend seen this a.m., as the market made a lower low, volume picked up big, it appears that's where the stops were hiding out, now to see if this was a stop fishing expedition or there's something more to it as I have expected based on what pieces of the puzzle we can put together.

 Here's a closer look at the volume surge right as the lower low was made from this morning's earlier, short trend up. (1 min chart).

This move normally would be VERY MUCH in line with what we are seeing on the 2 min trend of the SPY, it wouldn't be surprising at all, however there's still a lot of Central Bank uncertainty.

In Europe... Last week I said and showed you several charts that seemed to indicate that the market wasn't as trusting in Draghi's "We'll Save the Euro no matter what!" comments. Bonds are reflecting that as stocks are still in almost a numb state.

 Here the FTSE MB Italian Index (stocks) in red is seeing Italian bonds fall away as they don't seem to trust in Draghi.

The same thing is happening in Spain.

Has Draghi lost his credibility?

Risk Layout Update

If I'm not posting for a bit, know that it is because I'm running through charts, running scans, etc. I have been going through the risk asset layout which is a pretty extensive update with a lot of charts to capture and post.

I see general deterioration in some key metrics that have long served us well as leading indicators, I also see some contradicting moves or moves that just seem, well... confused or maybe apprehensive is a better word.

Here we go...

First CONTEXT for ES...

Now the Risk Asset Layout...

 Commodities seem to finally be falling off, that may be because of rumors going around that China will have a bad Flash PMI print overnight.

 DJP- Dow Jones UBS Commodity Index looks like it briefly hit a resistance area this a.m.

 Here's a closer look, yesterday's high volume on not much of a price move is also curious, while the candlestick for yesterday is not bearish, it's not very bullish either. This high volume has the look of churning or the handing off of shares from strong hands to weak hands, an event that typically precedes a downside reversal.

 High Yield Credit which is the risk on credit of choice has broken below it's nearly 3 day long range as it would not make higher highs with the SPX, today we see it lower.

 Here's a slightly longer view and shows how divergences in Credit are often an excellent leading indicator.


 Interestingly High Yield Corporate Credit which has also been rather flat recently made a move above the very recent highs, I'm very interested to see how this closes, a move back below the trendine would signify the increased potential of this being a head fake move and leading to a downside reversal. It is strange to see two forms of high yield credit moving the opposite directions.

 Yields I have explained are like a magnet for the market/SPX, they tend to be an excellent leading indicator and now for the 3rd day they have negatively diverged away from the SPX, this is not a good sign and has called many reversals for us in the past.

 A longer view example of Yields and diverging away from the SPX.

 The Euro is still dislocated from the SPX although it saw some strength since yesterday's close, albeit minor.


 Energy has made a sharp move lower vs the SPX's momentum today...

 You can see USO looks to be one of the causes on this 5 min intraday chart.

 Financials overall over the last couple of days have seen their momentum also fade vs the SPX, I consider Financials, Energy and Tech the 3 essential Industry groups to maintain a healthy move.

 Tech is moved up in line today, most of that move looks to have come from AAPL below.

 AAPL is still within the bull flag, I'll be keeping a close eye on AAPL.

The recent sector rotation over the last 3+ days shows how confused the market looks, just looking at the action in the defensive sectors as there's really no trend there when there should be one, or looking at financials at the bottom. Tech is the only group that seems to be able to hold on to any rotation.

Market Update

I'm not a huge fan of options expiration weeks, window dressing periods and worst of all Central Bank decision weeks and this week we have 2 of them. The market tends to look wishy-washy in those periods and I can't say that I find that strange, if you are managing billions of dollars, you too probably aren't going to make any big moves ahead of these very uncertain events-the money management industry just compounds that effect as they tend to herd together.

In any case, that's what this week has looked like thus far, indecision. There are few really decisive moves, the kind we normally see quite often. Here's where we stand so far.

 DIA 1 min shows some of yesterday's afternoon positive movement mentioned yesterday.

 The 3 min chart is in a very negative place, in the recent past I would have no problem at all calling this a short and downside reversal, the trend is that strong here.

 That has bled to the 5 min chart in a leading negative divergence and the 15 min chart has been negative since the get go, which is why I called this a noise move last week.

 DIA 15 min.

 QQQ 1 min distribution with a smaller positive divergence from yesterday afternoon.

 Here's the QQQ 1 min this morning, there's not much going on.

 QQQ 3 min showing strength from yesterday.

 However the more important 15 min chart lost a lot of ground yesterday. I usually default to the longer term charts when there is some question.


 SPY 1 min strength from yesterday

 SPY 1 min today.

 The SPY 2 min trend like many other looks very bad.

The SPY 5 in also looks pretty bad.

It seems to be the very near term action that is muddying the water as it seems there aren't any strong opinions being expressed in the market right now, at least the last several days.

I have a feeling the Risk Asset chart is going to be very important.

Overnight and In to the Open

I'm not quite sure Draghi had all of his ducks in a row before he started speaking last week. It seems there's a new plan proposed overnight by Euro-zone member states in which they can buy sovereign bonds and deposit them at the ECB as collateral and take out loans, this is another way around the ECB directly buying the bonds and from calling the money received a bailout, if I understand the plan correctly, interesting...


There are still rumblings that ECB will announce this week the reactivation of the SMP (Security Market Program) and as such, yields are generally declining in the EU.


We also found out from Bloomberg that Euro-area unemployment has hit a record high at 11.2%


Near-bankrupt Greece is fast running out of cash while it waits for its next installment of aid from international lenders, a deputy finance minister said on Tuesday. Greece's European partners have repeatedly promised the country will be funded through August, when it must repay a 3.2 billion euro bond, but the details of the funding have yet to be disclosed.


"Cash reserves are almost zero. It is risky to say until when (they will last) as it always depends on the budget execution, revenues and expenditure," Deputy Finance Minister Christos Staikouras told state NET television"


In addition, there is talk from Greek leaders as well seeking to defer painful austerity cuts (here comes a whole new can of worms).


RanSquak says there is unconfirmed market talk of a weaker-than-expected Chinese Manufacturing PMI heightens concerns towards China, with the data due to be released overnight.


In the US...


Personal Income and Outlays
Released On 7/31/2012 8:30:00 AM For Jun, 2012

	Prior	Consensus	Consensus Range	Actual
Personal Income - M/M change	0.2 %	0.4 %	0.2 % to 0.5 %	0.5 %
Consumer Spending - M/M change	0.0 %	0.1 %	0.0 % to 0.3 %	0.0 %
PCE Price Index -- M/M change	-0.2 %	0.1 %	-0.3 % to 0.1 %	0.1 %
Core PCE price index - M/M change	0.1 %	0.2 %	0.1 % to 0.2 %	0.2 %
PCE Price Index -- Y/Y change	1.5 %			1.5 %
Core PCE price index - Yr/Yr change	1.8 %			1.8 %

Consumer Spending came in at 0% on expectations of a small increase of 0.1% while at the same time incomes rose by 0.5% on expectations of a 0.4% increase. The big picture, Americans are NOT spending, despite having a little more income than expected. The personal savings rate since April has risen from 3.6% to 4% to 4.4% in June. This is probably not good news for I-pad sales.


Pre-market this morning, French President Hollande trumpeted the strong words of the ECB's Draghi from last week, he more or less repeated the ECB mantra, "All will be done to defend the Euro". It was only minutes later that  CNBC's Steve Liesman, by way of Germany's Bundesbank was told,


"MONETARY POLICY SHOULD FOCUS SOLELY ON PRICE STABILITY, STATES NEED FISCAL INTERVENTION"


Germany responded quickly to Hollande and forcefully using the Bundesbank to tell the world and the ECB, they DO NOT endorse the reactivation of the SMP program, I told you things were going to get hot between these two former allies (Germany and the ECB or Germany and France, you choose).


The reaction was immediate in the bond market as the lower yields in the sovereigns were stopped dad in their tracks. 


In addition Germany fired another salve, GERMAN SAVINGS BANKS GROUP REJECTS BANK LICENSE FOR ESM.


Germany was not done... minutes later German Finance Minister Shauble (as Merkel is still on vacation) said:

• GERMAN FINANCE MINISTRY SEES NO NEED TO GIVE ESM BANK LICENSE
• GERMAN MINISTRY SAYS THERE ARE NO SECRET TALKS ON BANK LICENSE
• GERMAN MINISTRY SAYS NOT HOLDING TALKS ON BANK LICENSE FOR ESM

Back to the US...

At 9:45 Chicago PMI was released...

Released On 7/31/2012 9:45:00 AM For Jul, 2012

	Prior	Consensus	Consensus Range	Actual
Business Barometer Index - Level	52.9	52.5	49.0  to 54.3	53.7

As you can see, it's a beat and not good for the QE hopefuls with regard to the F_O_M_C, especially after the 9 a.m. Case-Shiller beat.


As for the QE sentiment indicator, gold, here's the reaction after the 9:45 release.

We'll take a closer look at GLD as well as the rest of the market's opening indications, but for now, it's all about what, if anything can or will the Central Banks do as the F_E_D just got some not so QE friendly data and the ECB got some not so friendly German statements-remember who controls the EU.

UNG-Patience Pays

It's been a long time since we first noticed a change in character of UNG, some of yo got in at very good prices, the core long position for the equities model portfolio is doing well...

Up 29% and I know many of you got in at better prices.

UNG which is one of the few, if not only long term long positions I like, gained nearly 6% today and still remains above the basing area. It does look like it could see some gap filling in the near term (correction), but it seems to be just sitting there waiting for sentiment to change and a volume surge from retail to set it in to motion in stage 2 mark up. If our trend expectations or ideas hold up, then the resumption of the sub-intermediate trend (up) could be the area where UNG is picked up as a stage 2 (mark up) stock and that's where the trending action is usually found.

Here's an update for UNG...

 UNG's base we had been patient with and the recent breakout. What's missing is the volume surge that fools retail in to thinking that smart money is buying, smart money was in long ago. That volume surge is also typically the marker setting the stock up for stage 2 "Mark Up".

 In the very near term, today's gap up looks like there was profit taking in to the move, I wouldn't be surprised to see some backing and filling, but it would be nice if the gap held as a break away gap.

 The daily trend channel has held the recent trend well so the $20 area should hold, but for my purposes, UNG is a longer term position and I'd have a wider stop than just the 1 day TC.

 The 2 min chart also looks like there was profit taking in to the gap up, but it seems to stop right around the 2 min chart so I don't think this was serious distribution.

 The 3 min is in line and confirming the move up, hence the reason I think it was just profit taking on the decent move.

 The 5 min chart also confirms today's gap up, I wouldn't expect too much of a correction in UNG.

 The 15 min chart is also in line, it will probably take more time for the 30/60 min charts to catch up as this was a quick move up in a day.

The bigger picture 4 hour chart shows how UNG went from downside confirmation to leading positive divergences or accumulation, like I said, smart money was in a while ago, but traders still want to see that volume spike as they still believe that's smart money entering the position, that's when they'll chase.

For my purposes, I just leave UNG alone, I feel confident it will take care of itself.

Market Update

Here are the short term charts that I believe support my theory of a short term gap up probably tomorrow, followed by negative downside action to pull u down in to a pull back. Remember the longer the timeframe, the more important the signal.

 DIA 2 min small positive divergence today, this would represent very short term price upside like a gap up tomorrow.

 The DIA 15 min chart represents the more serious trend, it is leading negative with a lot of damage done today.

 QQQ 2 min intraday positive

 QQQ 5 min leading negative

 QQQ 15 min leading negative.

 SPY 1 min leading positive short term...

SPY 5 min leading negative longer term with a lot of damage done today.

This is why I'm patient today, just look at price.