In Europe, while the EU leaders are calling for greater integration of the EU, we may be seeing the start of the "European Spring" as protests in Spanish Regions, such as Catalonia calling for early elections/referendum to break away from Spain have apparently spread to Italy where reports this weekend say Venice is said to be looking to break away from Italy and pressure is mounting in Sardinia and Sicily as well. Scotland has also been planning on a 2014 referendum vote and pressure is mounting in areas of Belgium, Germany and France. In Venice, the reports called the situation, "Almost Explosive" where the new Venetian autonoumous region would be called "Repubblica Veneta".
Turkey and Syria exchanged artillery again Sunday in what is becoming a nearly daily event since it started last week
Saturday morning started off with some odd Middle East conflict, an unidentified, unmanned drone was shot down in Israeli airspace, so far as far as I now, the drone' origin is unknown, however Iran recently unveiled their own drone which was likely reverse engineered from a US drone that crashed in Iran.
Some in Israel have said the drone was launched by Iranian-backed Hezbollah, Israeli war planes buzzed Lebanese villages where Hezbollah has operated camps over the weekend.
In Venezuela Hugo Chavez has won re-election with 54% of the vote, but all is not well in Venezuela, exit polls contradict the election results as well as Chavez's win. There are now soldiers and tanks on the street's of the country with the largest PROVEN oil reserves.
Here's crude's reaction thus far in early futures trade...
While crude certainly seems to be taking all of this in stride, crude is a bit stronger than the EUR/USD correlation would suggest.
The Euro weaker on the open, the dollar stronger, so while crude's reaction seems tempered, it is stronger than the $USD arbitrage relationship would normally suggest. Meanwhile California Gas prices have just hit a new record as mom and pop shops and even Costco shut down pumps as the wholesale price vs what gas can be sold for has such a tight margin, it's simply not worth keeping the pumps or stations on line in many cases.
USO is actually looking pretty good for a long position for at least a decent swing move up, perhaps a leveraged long ETF would be an interesting choice-UCO. ERX (long position Energy) is still an open long.
USO Charts
Since the 14th, crude hasn't performed well, but the downside momentum has faded, although still very volatile and choppy, often we need lateral movement to get enough accumulation for a reversal in place.
1 min USO with a negative divergence Thursday afternoon leading to a gap down Friday, but a nice leading positive divergence Friday afternoon.
The 2 min chart shows the exact same action.
The longer 10 min chart shows the trend more clearly with a leading positive divergence in place.
The 60 min chart makes the trend even more clear, this looks like a very tradeable move to the upside, I'd consider a leveraged long ETF for this one, at least for an initial move before a consolidation.
Over the weekend from twitter accounts to cable talk shows, much has been made of Friday's Non-Farm Payrolls number, many calling it a pre-election sham. While much of the debate has been on blogs and late night cable, Gallup weighed in over the weekend and pointed out what they consider to be some serious problems with the "Household Survey" which is in large part responsible for the unexpected drop in the unemployment rate Friday with Gallup suggesting a new, more accurate measure- "Payroll to Population". This may explain some of the price action on Friday which did have a feel as if the market was suspicious of the NFP, but there's also the "Good news is bad news dynamic" as it could effect the QE3 program according to new yard stick the F_E_D discussed during the last F_O_M_C meeting according to the minutes, one that moves away from forward guidance using dates and one that is more dynamic that moves according to how the economic reports/economic situation develops-in short, uncertainty with regard to F_E_D policy.
Speaking fo the F_E_D, gold being very sensitive to F_E_D policy also looks interesting. Last week we saw negative divergences in to the GLD move above the recent trading range (the last 2 breakouts were head fake moves that failed), we did see some downside Friday, however I was reluctant to make a short call on a head fake move in GLD for one reason, I didn't feel confident the head fake move was over, it may not be. There are some interesting developments unfolding in both the short and intermediate timeframes.
Here's Thursday's negative divergence leading GLD down Friday, however on this 3 min chart, late in the afternoon, about the last 30-60 minutes of trade a positive divergence developed.
The positive divergence didn't show up on the 5 min chart so at this point, it looks like GLD may see a quick move to the upside, perhaps a gap fill.
The 10 min chart's trend is quite negative, the last 3 head fake breakouts have all shows a worsening negative divergence. I still like the GLL long and still think in the sub-intermediate to perhaps even intermediate term trend, GLD will see some downside. The upside gap I mentioned can be seen in the yellow box from Friday's gap down, I'd be tempted to look at an inverse or bear leveraged short gold ETF for a sub-intermediate move down (like a swing trade, but a bit bigger).
The 15 min chart also shows this change of character in GLD, going from an uptrend that saw 3C in decent trend confirmation to a leading negative divergence.
This doesn't have long term implications for gold and I'm not making any statements about longer term probabilities, I actually think a move down in gold might offer a decent buying opportunity, sort of like USO, but on a larger/longer basis. We'll cross that bridge as the data develops, but for now, it looks like very short term we could see some upside in to the gap, maybe a bit more, but that would make for an interesting downside trade opportunity (thus GLL-shortgold) is still an open long position. Gold/YG futures seem to agree with the charts above.
As for the general market itself...
EUR/USD
Here's the EUR/USD 5 min chart with opening trade for the week tonight showing some weakness, I'd think the dollar would have to show some weakness to help out crude, thus some Euro strength.
The Euro did just break under some support, so it wouldn't be surprising if this were a stop run and we saw a bounce from here, I'm not talking about anything like a new high above the September highs, more of a shorter term technical move.
This would also make some sense with regard to what we saw developing (some positive divergences Friday) and the general AAPL expectations for at least one more shoulder (bounce type move forming a final shoulder in a complex H&S top) which I have been talking about since before the last right shoulder was formed (somewhere around the $680-$690 area-why not go for $700 if you're in the area?).
This would also make some sense with the market's most recent choppy, bear flag-like recent price trend and the 60 min closing candle of Friday.
The choppy, bear-flag like price action on a 60 min SPY chart with a bullish closing candle Friday on higher volume which has been an excellent sign of at least a short term reversal.
Since the opening negative divergence in the SPY on Friday (2 min chart), here are the positive divergences I mentioned in Friday's market updates.
This also makes sense with what we have seen recently and AAPL's action, other than an initial positive divergence after the market fell from the 14th's highs, there hadn't been much in the way of signals, as if the market was in a holding pattern awaiting the F_O_M_C minutes, as you can see on this 10min chart, the signals cleaned up upon the release and don't look great, this doesn't mean an upside move along the lines of AAPL finishing a final shoulder and the market moving with it aren't possible as we clearly see on the shorter term chart above with positive divergences Friday.
The SPY 15 min chart shows all of this even better, the negative divergence in to the 14th's highs, an in line move down, not much in the way of signals at the yellow arrow before the minutes were released and a negative tone as they were.
The 4 hour chart showing the positive at the June lows and what looks like selling in to higher prices since, has gone in to a deeper negative divergence, leading negative.
So a shorter term bounce to the upside which would probably have to be played with a long leveraged ETF if you are nimble enough to get out when the time comes (which I think would be rather quick-several days maybe), loos like it will set up a nice short entry-let the trade come to you as the probabilities of the longer chart are clearly more negative and especially since the minutes were released.
AAPL having a lot of influence on the NASDAQ and market in general makes for a good illustration which is very similar to all that's been said above.
Here's the complex H&S price pattern in AAPL, I posted almost 2 weeks ago about symmetry in these patterns, since AAPL went on to make a first and second right shoulder, it would appear that a 3rd is coming which is why I closed an AAPL short position at a small loss as I saw this pattern forming and it looked like a better short entry could be had. The white arrow is a guess as to where price would end up on a 3rd shoulder. To play this 3rd shoulder long, you'd probably need to use some calls for the leverage and be able to close them quickly, it would be at the top of this 3rd shoulder I'd be looking to start a new short position. If AAPL traded somewhat laterally tomorrow and accumulated a little more, I'd be very tempted to take that long Call option trade for the 3rd shoulder, not so much if it just moved right in to the shoulder early tomorrow. There have been several H&S price patterns in the market since 2009 that were not legitimate, the volume which is important in these formations was totally wrong and the patterns turned out to be just random as volume analysis suggested, but volume in AAPL is correct for a H&S top, I showed the analysis last week, but the major component can be seen on the increase in volume on the decline from the top of the head.
The trend of the 5 min chart also looks perfect for distribution in a H&S top in AAPL, it should be bad at the head which it is and get worse in to the right shoulders which it has.
The short term intraday 2 min chart shows a positive divergence starting in AAPL Friday, if this were to give us just a little more time laterally or slightly down with a positive divergence, I'd seriously look at a quick call position to play the bounce in to the 3rd shoulder, I'm not sure it would be worth playing without some leverage. I'll be keeping an eye on this tomorrow.
The longer term 4 hour chart's trend shows some key areas in which we called with 3C, namely the first short position on a leading negative divergence in March/April. I also said I thought there would be 1 large accumulation event that is sold at higher prices, that I believe happened at the May lows at the white arrow and the H&S price pattern is in the yellow box, which is now leading negative like the earlier reversal from the year, considering price position, it' actually worse at this point. I don't think I'd use any leverage on a short position on the 3rd shoulder in AAPL, I don't think it would be necessary.
This arithmetic chart doesn't give you a good feel for the percentage gains in AAPL which despite the 2012 parabolic move, are not as impressive as they look, the period in which AAPL's volume was rising was a much better percentage gain move and a much healthier move, these parabolic moves tend to end badly and I have said I think AAPL will have more of a "U" shaped reversal rather than a large top, even though the H&S top is several months in the making, in context vs the parabolic move up, it is nearly the perfect size for that "U" shaped top. I could see perhaps a bigger top unfold around the $525-$550 level, but we'd have to see what it looks like at that point.
Here's AAPL's gains on a Log chart...
From 2009 until the end of 2011=375%, this year about 56%.
From 1998 while volume was healthy with the trend, nearly 6000%, from there as volume was not been in line with a healthy trend, about 250%.
AAPL is not only an interesting trade and analysis for both short and longer term scenarios on its own, but it's a good proxy for the market as the examples are exactly in line with the market signals discussed above.
With QE3, what could go wrong? I won't get in to all of that now and I'm not saying that the market is on a 1-way ticket down, it just looks like it's not in a good position now and has tradeable downside, this may improve next year or...? This is what the probabilities look like now and one thing that could certainly go wrong as it has been going wrong is earnings and we are fast approaching the frenzy of earnings season.
The average S&P P/E is historically rich, especially in context of the economic environment, but more telling, negative pre-announcements have been 4 times higher than positive pre-announcments and nearly 1 in 5 S&P components have come out with downward pre-announcements. This ratio may seem interesting, but not significant, historically though it is the highest since 2001 and we all remember what the market looked like then, especially in tech.
See you in a few hours.
