Gold/GLD

Gold as it turns out, is worth a lot; there's a lot on information to be had in the price action of gold, we simply need some movement to collect it (at least additional evidence).

So far Gold futures and GLD look similar to the market update, some short term positive signals and negative signals on the longer term charts which are almost always more important and give a better picture of what smart money is up to.

There are several possibilities to consider with gold, obviously the strongest correlation is not really even the dollar value any more, it's the inflation outlook so in this sense in many or all ways, gold would seem attractive.

From the information gathered so far, it looks probable that other than intraday jiggles or volatility, gold is looking to pullback. The information most useful there is how underlying trade acts on a gold pullback, smart money rarely chases anything higher so just as QE2 when first introduced saw a 4 day pullback allowing smart money to buy on the cheap, we can get similar information on a gold/GLD pullback.

On the more non-conventional side of things, we might find through the underlying trade that the market or aspects of the market have already priced in QE3 as this is the first of 5 LSAP programs the F_E_D has undertaken in which prices were already elevated as QE was announced (all indications point to the price strength being a direct reflection of QE3 anticipation), all other 4 times the F_O_M_C has used non-conventional policy (QE 1, QE 2, Operation Twist, the extension of Operation Twist) market prices have been depressed, therefore the market had something to be excited about and start moving prices higher to discount the unexpected programs; the only exception would be the ACTUAL announcement of QE2, prices were already higher, but that was because Bernie had clearly telegraphed QE2 was coming at Jackson Hole in 2010. However at Jackson Hole pre-announcement, prices were depressed.

So while it is less likely in gold specifically due to inflationary fears, a pullback would give us additional IMPORTANT information that can only be gathered during a move lower. Without getting too far in to the possible reasons why an already discounted QE3 may not be as positive as conventional wisdom would suggest, is the very same reason gold would appreciate, INFLATION. Remember, Bernie said they wanted to foster maximum employment WITHIN THE CONTEXT OF PRICE STABILITY. In other words, the potential conditionality of QE3 is to be found in what it is best known for creating (not jobs), inflation and there's the catch 22 in a nutshell. To put that in to personal perspective, no one wants to chase prices higher and in to bubble territory and have a sudden halt to the asset purchases until inflation cools; this is sort of like flipping houses during the housing boom, prices of homes have appreciated for years, there's no reason to believe it is coming to an end, but you pay way more than a property would normally be worth to flip it and the music stops.

That's a very simple look at only a few aspects of the possibilities on either side, what we want is to see evidence that changes possibilities in to probabilities.

As to gold futures and GLD, they're not too far off from each other, nor the market for that matter.

 YG (Gold mini Futures) 15 min has the same theme that has been seen in most risk assets since Friday.

 I was a bit hesitant to go out to 30 mins. on the Gold Futures chart because I'm interested in the data recently confirming or not confirming the longer charts and signals in place before last Thursday, but since this chart has given effective signals in the recent past, I thought it was worth publishing.

 Shorter term on the 5 min chart there is in fact a positive relative divergence, much like the rest of the market.

 That can be seen in GLD as well on the1 min chart starting late Friday.

 The 5 min chart also shows a similar signal, although I think this reflects more of the attempt to close the market higher on Friday until the US downgrade spoiled the party.

And GLD out to 10 min which seems to be all fairly new enough information post the F_O_M_C.

A decline would be the next area in which important information regarding the bigger outlook market wide can be collected.

Market Update

I suspect the market is about to shake up this course we've been on since Friday's open with an upside pop, however the information thus far collected since Friday shows a larger probability building of a decent pullback (one bridge at a time as to what that will mean).

 IWM 1 min intraday chart.

 IWM 10 min, very similar to the 5 min.

 QQQ 1 min positive from Friday, but continuing today.

 QQQ 2 min with a much smaller positive divergence within a larger leading negative position.

 QQQ 10 min leading negative also.

 SPY 1 min positiv divergence from Friday and continuing today, we should see some upside from here at least intraday.

 While there's not much in the way of positive signals that have migrated to the 2 min chart

And the SPY 10 min...

Energy, Financials and Tech

Looking a the 3 groups, there's a short term positive intraday divergence, it seems clear that damage was done on Friday primarily to the 5 min charts but that is partly because I'm not looking too far out as I'm trying to get information that is post F_O_M_C, if I look further out, then there's deterioration on longer charts as well like 10-15 min in the industry groups except for 1, you might have guessed, Energy. It seems obvious that Energy is discounting the rapidly deteriorating situation in not only the Muslim world (vis-a-vis sentiment toward the west), but the Chinese/Japanese situation is getting out of hand and probably most importantly is the Armada of 25 nations gathering at the Straits of Hormuz.

 Energy above looks much different than Financials and Tech, the 1 min chart with a fairly long positive divergence in place.

 The 2 min chart also showing some initial deterioration early Friday which sent the sector drifting lower, but that price weakness seems to have been accumulated.

 The 5 min chart shows the same situation as described above, just with a different divergence.
I'd expect Energy to make a move higher shortly.

 Financials are showing a 1 min relative positive divergence, I can't say whether it grows more or not and if it is a simple consolidation divergence sending the group lateral or an intraday move higher, I suspect an intraday move higher probably off some weak dollar catalyst that kick starts energy as well.

 At 2 min on the Financials, there's a small relative positive divergence that migrated from the 1 min chart, but it is within a much larger and stronger leading negative divergence; that doesn't mean financials can't move higher from here intraday, they can, it just means there's likely a cap on the move unless this negative divergence were to improve.

 The 5 min chart, like I mentioned in the BIDU post and also IWM and the other averages, they all pretty much saw similar action on the 5 min chart of a leading negative divergence.

 Tech strangely isn't showing a short term 1 min positive divergence, in fact quite the opposite, it's strange to see these 3 sectors looking so different as they usually all move together as the risk on trifecta.

 Tech 2 min with a leading negative divergence as well from Friday and continuing today.

And there's nothing unique about the 5 min chart here, it looks like many, many charts from Friday.

BIDU Update

BIDU is worth keeping an eye on, it is still a core short equity position and since closing the last Put options position I've just been looking for the next opportunity in BIDU. There's weakness right now, although there hasn't been quite enough strength to make the risk/reward profile enticing. As I said, it's worth keeping an eye on.

 BIDU did make a higher high which interrupts the down trend, I had been hoping to see it stage a stronger bounce to look at it for a new position which I have been waiting on. The gap area in yellow would be decent, but ultimately a stronger higher high above the larger red resistance zone would be more enticing on a risk/reward basis, there may be enough energy in BIDU to make it there; this morning's nearly 1.5% decline is getting close to overdone.

On an hourly chart this is called a "Tower Top", the gap up this a.m. just hit a new bounce high before reversing.

 The 1 min chart with accumulation on the 12th and some distribution late last week.

 2 min chart is similar.

 As is the 3 min chart, but here we start to see a larger positive divergence area suggesting to me that BIDU is capable of moving higher.

 The 5 min BIDU chart.

 A close up of the 5 min chart shows similar action as to what we saw Friday in the averages, for example...

The IWM 5 min chart looks very similar on Friday as did most of the averages. I'm trying to look at data post-F_O_M_C before deciding on whether the larger picture and longer chart data is still valid.

I personally would wait on BIDU and see if it does give an opportunity of lower risk, higher reward and then double check that the probabilities are still lined up toward continued downside momentum.

Opening Indications

There's some short term positives on the charts, for the most part these were formed during the later part of the afternoon Friday when it looked like they'd try to move the market higher in to the close and after the divergences (short term charts) were formed, the market was hit with the U.S. downgrade, apparently crushing the hope of a strong close Friday. Most divergences are simply left over from Friday afternoon.

 DIA with a 1 min positive divergence, most left over from Friday and in line currently.

 DIA 2 min has a slight relative positive divergence in the position 3C is in now, but it hasn't made a definitive turn up yet so this could simply be catching the chart at a "transitory" moment.

 IWM 1 min was positive already in to Friday's close, it is one of the exceptions that has added a bit to the 1 min chart on the positive side.

 No strength beyond 1 min as the 2 min chart continues the negative action seen Friday.

 QQQ 1 min with a left over positive divergence from Friday.

 QQQ 2 min isn't seeing any of that positive positioning migrate.

 SPY 1 min also positive here, but largely as a function of what was already developed from Friday afternoon.

The 2 min SPY chart is pretty much in line with price, (price / trend confirmation).

Latest Stagflation Data

Last week, the week before and now with the only tier 1 US data released today, this week we have more proof of the US economy and specifically manufacturing, going deeply in to stagflation.

The F_E_D Empire State Manufacturing Survey...
Released On 9/17/2012 8:30:00 AM For Sep, 2012

	Prior	Consensus	Consensus Range	Actual
General Business Conditions Index - Level	-5.85	-2.00	-10.00  to 5.00	-10.41

Another big headline miss for manufacturing printing at -10.41 on consensus on -2.0 and below even the lowest consensus estimate. Today's print is down from the previous of -5.85 and is the lowest print since April 2009 (notice how all of these surveys and data points are the worst  since the early to mid 2009 era?); this is also the biggest drop in 6 months since the Survey first began keeping records.

As always, the devil is in the details and they point again to the dichotomy in the F_E_D's recently released QE3 policy as the F_E_D can only hope some of these stagflationary numbers (especially on the inflation side) are transitory as they call all rises in inflation. The sub-indicies point to more trouble than just the crushing headline print, for instance the Employment Index dropped from 16.47 to 4.26! As seen in the ISM Manufacuturing data, New Orders dropped hard from -5.5 to -14.03, confirming manufacturing everywhere is losing all demand and existing shipments fell as well. It should be noted the New Orders index was positive until July when it went negative around -2 , so the acceleration is picking up. However it gets worse, Prices Paid (raw materials), just as with the ISM manufacturing Input Costs data, rose from 16.47 to 19.15 confirming not only an accelerating slowdown in manufacturing, but inflationary pressures at the same time which is called "Stagflation".

Pre-Market Futures

European markets have been rangebound and in a consolidation today, you can see via the futures with closing action from Friday at the far left, futures gave up some ground before the European open, in some cases a positive divergence (white arrow) was seen going inn to the European open (green arrow), this still wasn't enough to lift futures to the unchanged mark from Friday's 4 p.m. closing prices (all closing prices are as of 4 p.m. EDT, Friday)

ES is still a few points below Friday's close, there was a positive divergence in to an overnight double bottom, the second of which was at the European open. European markets are said to be rotating out of equities and in to fixed income today with the peripheral markets underperforming the core markets.

NQ (NASDAQ mini-size Futures)-Again a positive divergence at the 3 a.m. EDT European open and a current positive divergence now.

Light Sweet Crude Oil drifted slightly lower overnight, tight now it's seeing a quick move higher to the $99.21 level on a fast change in the EUR/USD.

Gold Futures initially opened higher and lost ground from last Friday's close, now they are about $.20 below break-even with a positive divergence right now.

The EUR/USD since FX markets opened last night, rather flat.

There is this recent move higher in the Euro.

There's no major economic data and volume is expected to be light with the Rosh Hashanah holiday.

Additional Events

Al Qaeda-led Salafis hit three Egyptian Sinai bases, down Egyptian chopper

I hadn't heard about this, I wonder why?

 More than 1,000 MFO peacemakers including hundreds of American officers have been under Salafi-Al Qaeda-Bedouin siege for three days since their Al Ghora base was raided Friday. They have a fleet of helicopters and small reconnaissance aircraft with American crews,  but they don’t dare take off because it is feared that al Qaeda gunmen will shoot them down with FIM-92 Stinger anti-air missiles smuggled into Sinai from Libya.

The IDF high command is tensed now for the jihadis to again turn their guns and rockets on Israel.

Something Bigger Than the Government Wants Us to Believe

While the US keeps repeating, "The attack in Libya was not premeditated" as if it were a chanting mantra, evidence everywhere suggests otherwise. Not only did the Egyptians warn the US nearly a week before, but the Libyan president says there's no doubt the attacks were pre-planned starting months ago and officials warned the US 3 days before the attack (a Libyan Security official met with diplomat in the city 3 days before the attack to warn them), again refuting the popular theory that an anti-muslim film was the reason behind a protest that turned deadly as the US would have us believe, yet if you look around the world at the numerous protests, even the violent ones are largely rocks, bottles and the like, not Rocket propelled grenades and artillery pieces as well as automatic weapons.

As details become more clear, there were in fact ex-Seal Team members among the Benghazi dead, this team arrived at an airport in Libya and was escorted to the safe house I mentioned where some embassy staff members escaped to, which also came under attack. The heavily armed seal team (or ex-seal team in civilian clothes) was picked up at the airport and accompanied in to the fight by a Libyan militia group and were ambushed again by RPGs and mortars as soon a they arrived. The Libyan militia was instrumental in the rescue of the staff in the safe house, two of which were killed.

As mentioned, Libyans have condemned the attacks and stage solidarity protests saying the attacks did not represent the Libyan people.

Protests and attacks at embassies and other diplomatic missions in Egypt, Libya, Tunisia (Arab Spring countries) as well as Morocco, Sudan, Lebanon, India, Bangladesh and Indonesia continue. Causalities have been reported at many of the protests.

In Afganistan a recent string attacks by militants who have infiltrated police and other security organizations has left 4 US troops dead this morning, this marks the 3rd such attack in 3 days killing 8 US troops thus far and a similar attack killed two British troops yesterday. The US/NATO response was bombing of an area in which insurgents were thought to be in hiding, which led to the death of 8 women and young girls. Villagers drove the bodies to the provincial capital and chanted, "Death to America". The civilian casualties have caused a deep divide between the Afghan government and NATO and the US led ISAF forces, it appears a break down in cooperation is in the making. The point of al of this is not the individual events, but the seeming coordination invoking muslim rage against the West, which when looked at with a broader perspective, all seems to be very intentional.

Israel condemned the US for not recognizing the rise in militancy, instead choosing to ignore it. This is very similar to the long term analysis right here on our own pages as the Arab Spring saw very weak governments after the fall of the establishment governments. In fact the ruling party in Egypt is the Muslim Brotherhood, the same group I had mentioned which was being aided by militants who crossed the border in to Egypt during the Mubarak crisis, back then I warned they were preparing the Muslim Brotherhood to step in to the power vacuum. The bigger picture presented in that analysis was looking at Iraq and Afghanistan as a model for the Arab Spring nations, the main point being that after a decade and with strong international and US military presence, neither countries governments can project power outside of their capital, even with all of the US/NATO military support. The ugly question was, "What happens to the Arab Spring Nations? What radicals step in to the power vacuum there?"

Meanwhile in China, anti-Japanese protests have swelled, engulfing dozens of cities and attacks have been carried out against Chinese people themselves for driving Toyota's or other Japanese cars. The Chinese owners of such cars are now covering the brand with Chinese flags and stickers. The Chinese have stepped up Naval operations since 6 Chinese "observation" ships crossed in to the Japanese territorial waters surrounding the disputed islands and refused for some time to turn back when confronted by the Japanese Coast Guard. Since then, starting today, Chinese naval assets have begun military drills in the East China Sea, also known as the West Japanese Sea.

In what can only be called, "strange coincidence" for the time being, the new Japanese designated ambassador to China was found unconscious in the streets of Tokyo as he was walking from home to work, he later died in a hospital today with no apparent or as of yet released cause of death.

In Europe, first it was the Spanish marching/protesting austerity measures imposed by the government, today somewhere around 150,000 Portuguese took to the street protesting austerity measures imposed by the EU and IMF in exchange for a bailout. A 20-year old Portuguese protestor was taken to the hospital after trying to set himself ablaze, echoing the event in Tunisia that marked the start of the Arab Spring uprisings. The protestors are calling on the government to step down after austerity measures have pushed unemployment to its highest ever at 15% with even greater tax hikes planned.

In other flair-ups, the protests turned violent by South African miners saw a return to escalating violence as negotiations over the weekend failed to halt a planned strike to start today among the miners. There has already been violence in these protests, today the police fired rubber bullets at miners/protestors.

To tie it all together, the massive naval armada from 25 nations is growing larger in anticipation of an Israeli strike on Iran, with the US aircraft carrier, The Stennis, is en route. To really stir things up, Iran has announced their elite Revolutionary Guard is now "boots on the ground" in Syria!

Things are going from bad to worse at a frightening rate. We'll see tonight how the futures market is handling all of the sudden and escalating crisis around the world.

More Immediate Concerns

***This is a post I had been working on yesterday for some time, I put out a later, briefer post, but since writing the below comments which in my view suggested a direct Al Qaeda link to events in the Muslim world using that crudely made film as an excuse for this kind of wild-fire discontent, just didn't sit well with me, it seemed there was much more behind the protest, although the protestors by and large are simple pawns, it is an effective strategy by Al Qaeda, divide and conquer as they say. The US can't deploy assets to 50 or 60 regions at once. In light of developments since I wrote this yesterday, I figured I'd release this post as a sort of background information before updating the most recent events. Tonight we'll see how the futures market is taking all of this in.****


As Thursday the market got what it has been seeking since 2011, quickly it may have to deal with more pressing concerns. It's difficult to say if Friday's lack of a strong follow through rally was connected to a ground swell anti-American (as well as other Western Countries -German and British as well) movement gains momentum that makes even the Arab Spring look tame; however I think there's little question that oil prices clearly reflect growing concern over events.

It turns out my "4 nations a day joining the protests " estimate was too conservative as can be seen below...

 At present, I count at least 42 different ares where protests have taken place since the September 11th killing of a US ambassador and 3 aides in Libya and this doesn't include other areas such as Australia and Germany. While hostilities are being blamed on a crudely made trailer for a film that insults Mohammed, Egyptian Intelligence warned the US as early as September 4th that the Global Jihad group was planning at least two embassy attacks on both American and Israeli embassies. 

The Libyan attack was not anything like the global protests that have erupted, blamed on the film. The group said to be responsible for the attack is a Al Qaeda spin-off, named after a blind Sheik serving a life sentence in the US for his part in planning the 1993 attack on the World Trade Center.  This group was heavily armed including rocket launchers and heavy artillery. Look at the damage to the Consulate...

In addition there have been a wave of protests against the terror plot by Libyans, carrying signs saying, "This does not represent us".

Many Libyans also expressed their high regard for Ambassador Stevens, saying he was a friend to all Libyans.

I won't show the photo because of its graphic nature, but the Libyan people had come to the ambassador's aid after the attack and tried to revive him.

The US response in the hot spots has obviously been to step up security with more marines stationed at embassies and consulates, a very different response to the Libyan event in which two warships were sent as well as predator drones, an elite team of marines and CIA/FBI assets as well. Obviously this seems natural as those responsible are tracked down, but the point is the US government seems to be acutely aware that this event was much different than other protests taking place, as whoever is truly behind the plot (An Al Qaeda-produced Web video recently released called for Libyans to avenge the death of a terror leader killed by a drone strike in their country in June) uses the film as being justification.

Just today, Al Qaeda has released more videos calling for Muslims to carry out more attacks on US diplomats in Muslim nations.

The assault on the consulate lasted 4 hours where Ambassador Stevens and Smith died,  with some staff members escaping to a second site which was also attacked killing 2 more US embassy staff. 

The September 11th date stands out as does the location as American support for anti-Gadafi forces helped topple the regime. Initial protests also were notable in that they were all Arab Spring countries such as Tunisia and Egypt. 

This seems much more well coordinated than simple waves of protest. The US government has sent Marine FAST teams to several embassies and consulates, but the widespread nature of the protests and the ability for militants to blend in to crowds as large as 500,000 is typical Al Qaeda guerilla tactics that divide thin US assets.

In other escalating tensions, China has sent 6 ships including warships in to what are considered to be Japanese territorial waters off the coast of the Senkaku Islands islands which Japan has recently purchased from private owners, but have been under Japanese jurisdiction for decades, however that jurisdiction has been disputed by China for years. This has inflamed tensions with thousands of Chinese protesting outside Japanese Embassies in multiple locations throughout China. Japanese restaurants and businesses have also been attacked.

The US is not clear of this incident either, as recently as 2010 the US reiterated that the islands fall under the scope of the US-Japanese Security Treaty.