I'll be Closing FXP-China Short Soon

I like FXP, I like China short, however FXP has too much of an inverse correlation with the market right now, I do think it will be among the first to break, but for now, China short is moving too closely (inversely) correlated with the market, thus this morning's drop allows me to exit the position at just about zero loss on the position or pretty close, depending on where the exit is.

While the FXP longer term charts look excellent in FXP, the short term charts are not there and this is a perfect example of an asset that is up this morning, but NOT seeing any short term chart confirmation.

FXP charts...

 Longer term FXP should see a huge move up, I thin it will have to wait though for a market move up/shakeout. 15 min chart leading positive over a long period, a large base.

 FXP 60 min chart with another large positive divergence.

 This is what bothers me right now and looks like opportunity cost as the 1 min chart didn't even move up to confirm FXP's gap up on the market gap down (remember inverse correlation).

 The 2 min chart is worse.

The 5 min chart hasn't made any move.

In fact, looking at intraday trade, I'll probably be closing FXP now, for now, but longer term I'll be coming back to this one.

Opening Indications

Opening Indication have held up surprisingly well, this is part of the reason I decided to go ahead and fill out the TQQQ position, it was phased in to so it could be added to at better prices so long as the charts held up, that happened this morning so I went ahead with that move. Early morning extreme's tend to be faded by the close more often than not.

I wanted to wait and see how Financials and other sectors like Energy come along before making any decisions there.

Here are the opening charts as well as the NYSE TICK chart.

 DIA 1 min didn't even skip a beat, this i the fastest chart and would have responded well before now, especially on heavy movement in underlying trade, it didn't.


 Since I feel the 1 min chart is a little fluffy over the last 30 minutes of yesterday, I looked a t a little longer 3 min chart, still fast enough to respond intraday and it has held up very well also. Longer timeframes are fine too.


 This is the first really CLEAR positive divergence of the entire overnight session and quite clear, this is another reason for adding to the TQQQ position early on today to fill it out.

 Yesterday I talked a lot about ranges and this morning certainly disrupts a range, but we have seen that before on more than 1 occasion, sometimes such disruptions serve as a sort of head fake move, still compared to the last 2 ranges in the QQQ, even this morning's drop doesn't destroy the range, it widens it for now, but it's still well within the volatility of previous ranges before reversals, although we will be looking for a larger reversal so the range may in fact be larger or more volatile.

 QQQ 1 min also didn't make any real movement of any note on today's opening move or since.

 The slightly longer 3 min chart looks even better than the DIA, this is part of the reason for choosing the TQQQ position this a.m.

 SPY 2 min also looks good, the 1 min held together fine as well, it just has more of an intraday look to it with an overreaction I feel to late yesterday's Market Watch F_O_M_C rumor.

 Going out further to  10 min chart, I don't expect these to react as quickly, but if there were large scale underlying deterioration it may very well show up on one of the larger scale charts, thus I checked the longer scale charts as well to make sure I wasn't missing anything.

As for the TICK chart, it definitely reacted to the opening drop with a sub-1500 print, but only for a minute before it returned to less extreme readings and is currently around the -500 to -800 range which is a range we have seen the last day so it's not too extreme. The TICK Index is all NYSE stocks advancing less all NYSE stocks declining for that bar or Tick.

Adding TQQQ second half Here

Looking at the opening indications, thus far they are holding up very well, I'll give them a bit more time before getting too aggressive, but I will complete the TQQQ position here and add the second half at these prices.

I'll put the opening indications up next.

Overnight Market Move

I have a feeling this is more gamesmanship than actual smart money moving big positions around simply because these events to a large degree are nothing new, nothing that likely hasn't been discounted, but market movement is money.

In any case, if you're looking for reasons ES went from a full tilt move up at the close yesterday on a r Watch article about the F_O_M_C announcement tomorrow to the depths of despair seemingly overnight, it was all about the EU's final domino, Spain.

Here's ES overnight...

 In the after hours session Moody's downgraded 5 of Spain's Regions, so it's as simple as that, Moody's downgrades 5 Spanish Regions, they are likely to need more money as borrowing costs move rise because of the downgrade and the $18bn Eur Spanish Regions bailout fund has .8bn left in it, but that has been known since last week. This really isn't news, but the market will react and did.

Furthermore Spain is also reported to miss their EU imposed 2012 deficit targets (not really new news).
(EU open at the white arrow)

European open at the white arrow.

ES has a positive divergence, the first of the night in to the open.

Next market moving event comes tomorrow as the F_O_M_C meeting ends and they make their policy announcement.

Opening ES

We'll get to what rocked ES futures overnight, for now here's the opening indications for ES, which have at least something on the positive side this a.m.

ES positive divergence in to the open, the first of the night

GLD Analysis

It's been a long time since we looked at the long term charts for gold, I will say although I think in the short to intermediate term we will see some upside in gold, I don't see the exact set up here yet. Longer term the picture doesn't look as bright for gold.

 The long term Trend Channel in GLD has been broken, thus the uptrend that was in place is broken, any new uptrends will have to start with a new channel. Volatility has also increased, a tell-tale sign of a top, look at channel width in 2009 vs now.

 The long term 5 day MoneyStream chart of GLD is very negative

 As is the daily, this is a totally different indicator than 3C.

 The longer term 4 hour chart of 3C is leading negative as well, the long term prospects for gold or at least GLD don't look good.

 The hourly trend is leading negative, but...

 A close up view shows a positive divergence developing within that trend, the trend takes precedence over the longer term and probabilities, but there's no reason this relative positive divergence can't send GLD higher within this topping area it is in.

 The 30 min trend is like the 60 min, leading negative, but again, within the price area in the red box, this doesn't mean GLD will simply fall straight down in a straight line, a closer look at the 30 min chart...

 Also shows a relative and a slightly leading positive divergence. These are much shorter term indications, but they are just as real.

 The 15 min chart after having gone negative and GLD having fell is now in a leading positive divergence, for these reasons, I think GLD has a perfectly reasonable probability of moving higher within the congestion/top area it is in.

The 10 min chart has the same signals as the 15, first negative sending GLD lower and then a leading positive indicating GLD is likely to make a move higher, but not a new primary up trend, the long term trends of these timeframes all argue against such a scenario.

The 5 min chart is accurate from negative to a positive that is developing, there's not much below the 5 min chart and when those signals start developing GLD will most probably be a decent long TRADE, not a trend. We'll keep an eye out for that entry, but with a 10 and 15 min leading positive divergence, it is almost sure to see a tradable move to the upside, it is just the longer term prospects for GLD which is different than gold itself, do not look good.

Currencies

Currencies are an important part of analysis as the Euro and market are correlated fairly high, the $USD and the market have an inverse correlation (stronger dollar =weaker market) and the $AUD is predictive in telling us what large funds are doing with the currency carry trade which they finance a lot of their stock market and other asset class purchases with.

Currency markets are a bit harder to analyze as Central Bank policy can change the outlook in a snap as well as a number of other fundamental events.

We'll take a look at what we have thus far, however I think some of the biggest news of the day (whether true or not) is the market watch article that Bernie is about to turn up the heat on asset purchases. If this does happen, it will be very hard to argue that the F_E_D is reacting to and focussing on the jobs market since the program isn't even off the ground. However the reaction in the stock market since the announcement might be more appropriate, if QE3 with its open ended nature sent the market lower and the F_O-M_C decides to add more assets, particularly treasuries, then it looks like they are very obviously targeting the stock market or things are REALLY bad at the banks and I think we'd have more confirmation or rumors if this was the case.

Finally it may just be a rumor, but it certainly seemed to move the market in to the close.

The Euro...

 Friday the Euro was in a leading positive divergence, this was part of the reason I decided to add leveraged longs Friday in to an otherwise, "Blood in the streets" day. I'm sure you've heard the saying and that it is the time to buy, but only with proper confirmation (without it you're just trying to catch a falling knife and get lucky) which we saw or at least begin in the last 2 hours or so.

 3 min Euro leading positive, there was some backing off in 3C today, but near the afternoon we saw 3C move up.

 The 5 min chart is in leading positive position. If we stick with our latest trend expectations, after a range and accumulation a short burst higher to shakeout longs was expected followed by a larger move down to new lows, we wanted or still want to get short on the move up as others are buying and covering shorts. We will continue to listen to the message of the market on this new F_E_D data rumor and of course the policy announcement which fits just about perfectly with what I would anticipate to be the approximate time the market would be ready to make this shakeout move higher.

 Euro 10 min has a slight leading positive and saw some improvement in the afternoon today, this of course could be F_E_D rumor related as more asset purchases would mean a weaker dollar/stronger Euro.

 The 30 min Euro is where things get ugly and this is about in line with the market averages and expectations for a move higher followed by new lows, so far this fits together pretty well.

$USD intraday

 30 min $USD with a positive divergence confirms the Euro 30 min negative divergence as they move opposite each other and a stronger dollar would send stocks lower. So far this still all fits the trend expectations we have been working from.

 USD intraday 15 min shows a positive divergence from mid last week, this is the same time the market was in a negative divergence, this is near perfect confirmation, the 15 min chart now though is just barely a tad better than confirmation, I expect it hasn't had enough time to move just as the market averages are not yet at 15 min charts.

 The 5 min was positive as the market was turning negative-this fits with the correlation, but near term on the 5 min there is a leading negative divergence which correlates with the market averages' 5 min positives today.

USD daily

 Here we see the USD top out just after the market lows at June 4th, rising market and falling dollar make sense, that's the correlation bit recently we have a positive divergence which makes sense with the market fall last week/Friday and a slightly leading positive divergence. This is a longer trend and further out, if it kept developing in this manner it would make sense with market expectations of new lows AFTER we get a shakeout bounce higher.

 4 day USD is negative in to the 2002 market lows and keeps moving lower in to the mid 2007 market highs, however since 2009 we have now a leading positive divergence in the dollar, very long term this would make sense with the market dropping as the F_E_D ultimately has to unwind all the stimulus they have created, it's the exit strategy that is the most difficult for central banks and usually pops bubbles in the market, even housing. This is still very far out, but it does suggest the market has been a house of cards since 2009 based of F_E_D liquidity and not real economic or fundamental business strength. If this plays out as it would seemingly have to ultimately, the historic F_E_D intervention would have a historic unwind which would send the market down in a historic way. As I said, this is still pretty far out.

The Australian Dollar (other than the carry trade, this is also sensitive to China).

 Near term 2 min leading positive divergence makes sense with the trend expectation of a sharp shakeout move higher as it started developing late last week (remember the $AUD tends to lead the market).

 $AUD 5 min in a relative positive divergence, this makes some sense as the market averages are trying to improve in the same timeframe. The negative divergence of the 18th fits perfectly with the market action of the 19th.

 10 min we see the same negative on the 18th, the market followed on the 19th and we see the same attempt to go positive in to 10 and 15 min timeframes as the market averages are trying or actually doing, so far this makes sense.

On the 4 hour chart the $AUD is leading negative, this fits with the same charts for the market averages and the same trend expectation of a move to new lows AFTER we get a sharp move to the upside or what I have been calling a shakeout move. This also may have some implications for the future of China and not bullish either.

We'll continue to monitor any and all signals wherever we find them, but broadly speaking, things seem to make sense with the other signals we are getting in the market averages, specific and important stocks, leading indicators, etc. The real wild card is F_E_D policy.

I was very careful last F_O-M_C when QE3 was announced not to follow the knee jerk reaction and cover all shorts and go full long, I demanded evidence first and the evidence we gathered pointed to the direction the market took. Will more asset purchases by the F_E_D change things over the long haul or just another 2 day rally followed by MAJOR BREAKS IN THE MARKET AVERAGES?

Again, we will follow the evidence.

The Importance of the Range-Charts

I talked about it last night, a lot today and now I can show you why it is important to have a range where we see declines and bounces, why stability is in the range is important and most of all, price action is not always what it seems; a decline is not always a bearish thing, sometimes its the most bullish thing that happens all day.

Here are some example charts.

 DIA 3 min, note the positive leading divergence mostly takes place at the lows of the day.

 DIA 10 min is leading positive in a big way, again, most of the leading is positive at the lows of the day.

 The IWM had a pretty good range all day like the QQQ- 2 min chart

 IWM 15 min leading positive divergence with a lot of leading near the lows of the day for the IWM.

 The QQQ also had a nice range in place today on lower volume-perfect for divergences and saw a  steady positive divergence all day.

 The 10 min QQQ also lead to the upside in today's range.

 SPY 3 min with a huge improvement at the lows of the range today.

SPY 10 min also a big improvement in a leading positive divergence at the lows of the day.

Now it's not just me talking about it, you have charts and evidence.