Strategic Update

This is one of the Tweets that is right about what I was saying yesterday about longs being frustrated, shorts being frustrated.

By the way, I do think the market is coming down intraday, ES and others really look very clear about that.

First let me show you the CONTEXT chart, now Capital Context admits openly that they re-weight their ES model whenever the feel it is needed, I believe they do their SPY Arbitrage every day in the morning.

Remember last week when the ES model was +70 points above ES and then all of the sudden it was 10 points or so the next day and ES hasn't moved, but what did change was the Carry trades that are part of their model, the USD/.JPY flipped 180 degrees on the F_O_M_C day. Since then, the $USD correlation with the market has changed AGAIN! Yes, Again so I think they'll have to readjust the model again as the market is moving with the $USD unlike the last several days!!! It's crazy.

There may be an $AUD/JPY correlation, there was yesterday, but the JPY doesn't look right for it today, it must be driving them insane.

Take a look at ES and 3C, this is where I think we have some stability, some consistiency.

 3C on the 1 min Es chart (SPX futures) as reported in the last 1 or 2 posts is suggesting strongly that ES pulls back intraday. This "could" be because the $AUD is down and market participants saw the $AUD/JPY correlation yesterday and expect the same today, but that's just conjecture, all we know is three's a solid 1 min negative divergence.

 There's no damage at all on the 5 min chart, it's in line and looks like whatever pullback could come from the chart above, it's noise, it's throwing traders off, but it's not serious.

The 15 min chart is leading positive at the perfect area, this Inverse H&S-like price pattern. This suggests the 5 min will stay strong, prices will ultimately move strongly to high levels that are being telegraphed here.

The 30 min chart is just as positive, you've seen it many times and below the 60 min chart is really giving this a lot of credibility.

60 min ES leading positive divergence, and all of the Index averages show the same so there's excellent confirmation.

Some other assets and indicators....

 Again like the last 3 days, commodities are not in sync with the SPX, however, they are in sync with the correlation we expected to see this week with the Dollar.

Commodities in brown and the $USD in green, so commodities are acting like they should, the market is not following the correlation anymore, although it was nearly perfectly late last week and at the start of this week.

This is the $AUD, yesterday, remember I said yesterday the market followed the AUD/JPY? You can see that here.

Today the $AUD is nose diving, this is why I wondered if traders are lightening up on their long intraday positions, thus the ES 1 min 3C divergence because they see the AUD today and recall it's near perfect correlation with the SPX yesterday.

 The $USD vs the SPX in green, the correlation (Legacy or normal USD correlation) that we saw late last week when there was a flip and early this week has flipped AGAIN and the SPX is moving WITH the $USD, how weird, yet commodities are not.

And the FXY isn't in the right position TODAY for the same AUD/JPY correlation. 

This has to be driving FX traders, arbitrage traders and Capital Context nuts.

Some more assets....

 This is the NYSE TICK, recall yesterday, the day I called "Pause", "Stuck", etc, the day that seemed to be purposefully controlled and not allowed to pop like it seemed to want to, even though it had a respectable finish near 1%.

The TICK chart yesterday was somewhat dull, today it's nearly absolutely trend-less.

ONCE AGAIN, I GET THE SAME FEELING AS YESTERDAY, THERE'S A SPECIFIC EFFORT TO KEEP THE MARKET AT A CERTAIN LEVEL AND THAT IS TO SAY, NOT TO PUSH IT HIGHER, BUT TO CONTROL IT FROM MOVING TO MUCH HIGHER.  

Try to recall the flatness/trend-less chart and what I just said.

 Short term Yields vs the SPX saw reversion to the mean again today like yesterday at the green box, the red yields tend to pull the market toward them.

However if we adjust the zoom to its proper scale...

The SPY still has quite a bit of upside before it meets up with yields and this usually happens.

This is suggesting that the ES charts as well as the other Index futures are indeed correct about a strong move to the upside.

Take a look at HYG- High Yield Corporate Credit, "Credit leads, stocks follow...", HYG is in very good position for the market to move higher near term, it is SUPPORTIVE.

The less liquid High Yield Credit is the first to run scared because of low liquidity, but even it (as you see has led the market to the left and in the market's base area)  is making a leading positive divergence, it can easily be said that High Yield Credit is supportive of the market right now AND AS SMART MONEY ALMOST EXCLUSIVELY ARE THE ONES TRADING CREDIT, IT'S ALMOST AN ENDORSEMENT FROM SMART MONEY THAT THE MARKET HEADS HIGHER.

3C HAS THE SIGNALS THAT SAYS SMART MONEY HAS PREPARED FOR A MARKET MOVE HIGHER.

There are plenty of signals above.

Now listen to the "Sample" sentiment from StockTwits....

"I am back to my stupid ways. I am now 70% invested as of Monday. Only problem is they are all shorts and the market is ramping. I have IWM 91 Puts for Aug. I effed it up again. A week late on my trades."

Ok so as we knew before, longs and shorts are frustrated.

Now finally, these are the closest thing we have to Institutional Sentiment indicators.

As you see the first in blue vs the green SPX led the market down to the left and went positive right around the start of this pattern I showed earlier when talking about where 3C will usually go to vs where a divergence starts.

It is also leading the SPX today, so this is telling us that in addition to credit, Index futures and everything else, even their sentiment is expecting more upside!

Now this is our second version of institutional sentiment, it is a good indication because it is NOT correlated to any other asset, just what they feel about risk.

It too led the market lower to the left, it too went positive at the start of the price pattern and it too IS LEADING THE MARKET, IN FACT AT A NEW LEADING POSITIVE HIGH!

So, this is my theory.

Shorts are frustrated, but they are obviously in the market.

Look at Monday's recovery, it wasn't threatening to shorts, yesterday's near 1% gain was up, but not threatening to shorts.

My gut feeling is that this is a "Boiling the Frog" scenario.

They say as an analogy that if you want to boil a frog, if you throw it in boiling water it will jump right out, but if you start it out at room temperature and slowly increase the heat in small increments, sooner or later, the frog will stay put and you will have boiled the frog.

It seems to me to be the same way with the market.

If you are Wall St. and counting on a short squeeze to help propel the markets higher, do you want that squeeze to fire off at SPX $1575 or at SPX $1625?

So perhaps what I noticed yesterday and most of today is the market being moved up, but not enough to make the retail frogs fearful and jump out of the pot. However as soon as they have the market in a higher place, they unleash the market and let the short squeeze start 50 points higher.

Everything I've seen seems to at least make this plausible if not offer confirmation.

That's what I think is happening.

Market Update

I'm going to try to explain the strategic thought, the theory I had earlier, but in the next post. For now, here's ES 1 min, it's 2 p.m., I think it's highly likely the market comes down from here, being 2 p.m., there's still time for that to happen and a closing ramp.

ES as well as others are intraday negatively divergence, don't jump to conclusions beyond that though, I'll explain in the next post which I'm working on already.

Quick Update

All of the Index futures and a lot of the averages look like that intraday pullback is coming, actually there it is in the IWM any way, what the QQQ does will be interesting.

The key here to my theory is to verify accumulation in to a move down, it doesn't need to be really strong, in fact I wouldn't expect it to be.

I'm almost there.

Sentiment Update (Retail)

These updates are based on watching the stream (Twitter/StockTwits) and getting a feel for sentiment the same as one gets a feel for market action. Yesterday I showed the price action on a chart and showed how it would frustrate both shorts and longs, that's their job, to make as many people wrong at any one time as they can.


"Shorts are ANGRY, Longs are Selling"

"Sold all my trading longs this AM. Flipped short"

That update being said, I do have an interesting theory, it started based on yesterday's odd price action, remember I likened it to a "PAUSE", not even a consolidation, but literally like a book mark or a pause.

I want to gather a little more data in L.I.'s and the Bellwether stocks to see if this trend is there like I see it in other places and then I'll share the theory with you if I find it to be credible, right now I think it is and even the sentiment update above helps to establish the probabilities.

Quick Update

This market and gaps is just so predictable and its a shame, ever since HFT entered the market, Ggaps are almost always filled and its a shame because certain gaps like break-away and exhaustion gaps were very useful, not to mention things like Island tops, etc.

In any case we have largely a gap fill, there doesn't seem to be much more to it than that. The DIA and IWM continue to improve, the Q's are in line intraday and haven't made any effort to fill their gap, the SPY I would say is slightly improved in that at least it's in line with the recent small turn up around 12 pm.

The R2K Futures, TF, are seeing a strong leading positive signal, it keeps getting stronger, here it is.

TF R2K 1 min leading positive

ES is improving a bit, but not what I'd call positive viewed on its own. Strangely just as the IWM and TF (both R2K) are the strongest and looking good, NQ which is the NASDAQ 100 futures are almost perfectly in line, just like the QQQ chart. I don't see that too often, but I'd call it good confirmation.

The TICK is just starting to form an up-trend channel, it will be useful to keep an eye on.

VXX overall looks very much in line with the market going higher, almost all timeframes are in line with that concept, however there is 1, a 3 min that still has maintained, which doesn't suggest any strong probabilities at this point, but it leaves the door open for a correction in the market again until that chart disappears, but we are really getting fussy with this. The 15, 30, 60 min charts of the futures I showed last night are really the big story, all of the other details I think just contribute to high blood pressure if you get too wrapped up in every intraday move while volatility throughout the market is this high.

I sid we'd look at TLT and we will, it's very interesting.

For now my general feeling is that some more consolidation behavior is probable and during that, I'd like to see the positive divergence develop strongly in to that side-way range.

Here's the intraday IWM, compare to TF (R2K futures above), but my main point is the consolidation and longer timeframes seeing divergences like the IWM's 1 and 2 min for today during its pullback.

IWM 1 min, the divergence should keep moving up, but they aren;t typically going to accumulate prices moving up, thus the range with prices falling down to the lower area where the divergence continues to build, that's what I'm looking for, at least for at least until maybe 2 pm as of this point.

Quick Update

The DIA and IWM are now starting to go positive from the a.m. pullback toward the gaps, the index futures are not there yet, except TF (R2K futures) are showing a positive signal.

I'd say the IWM has the strongest signal so far, which is still an early signal, although it's also found on the 2 min chart as well. That happens to be the same average as TF in the Index futures (Russell 2000).

I'll keep an eye on them, but nothing so far seems out of place, a gap up, a gap fill, pretty standard. NYSR 1 min TICK is very helpful right now for determining the change in character that will precede a change in trend (intraday pullback).

Initial Read on the PM Complex

The initial read is actually rather surprising. I guess we shouldn't forget this move occurred during the light volume overnight session.

I'll show you the opening indications in GLD, SLV and GDX as well as the charts for Gold and Silver E-mini futures.

As far as reasons, I don't know, I mentioned it could be an effort to raise capital by Chinese banks facing liquidity shortages that are spiraling out of control for the same reason they did in 2008, the overnight lending between banks absolutely comes to a grinding halt when you don't know if the counter-party (the other bank you are lending to ) is a "Bad bank", so the banks just stop lending to every other bank. Thus it's the  PBoC who becomes the liquidity provider of last resort, however just last week they were trying to drain liquidity out of the system as they have been doing all year to sop op the QE hot money that was flowing in from the US, but more so from Japan recently, so they can try to keep a lid on inflation (mainly housing) - recall they even put in housing curbs to keep citizens from becoming real-estate speculators. In any case it was interesting to recall that the liquidity draining operation from last week failed, I wrote about it at the time, now we know why.

The Rupee hitting all time new lows against the USD (and gold is traded worldwide in USD's except for a few experimental markets) and I think we all know how much gold India as a culture alone, absorbs.

There's the chance as well that these may have been aggravating factors in something that is otherwise totally unrelated. As we know and see very often, a shakeout move is often the last thing we see before a reversal, I was going to mention that in yesterday's post, however I got sidetracked and started talking about the range instead as I had been talking a lot about the range yesterday and how you have to be careful that you aren't lulled in to complacency because of, well "boredom:.

In any case, so far the results are a little surprising, unless of course that is a head fake move, then they'd be right on track.

 GLD 60 min with a clear support zone, that makes running stops more attractive because they congregate just below the support TRENDLINE, I use the word trendline specifically to point out that retail traders view support and resistance in terms of exact numbers, thus we see large volume spikes on a break of support by a penny or two (for instance if that support line were exactly at $130.00, most stops would be around $129.90 to $129.99- they take support/resistance that literally). This makes it very easy for Wall St. to shakeout traders, especially when they place orders on the books with their brokers rather than mental as almost anyone with decent software knows exactly where all the orders are.

* Think about what creates support and resistance (outside of market manipulation), put yourself in the shoes emotionally of a trader in a position with a break of support/resistance and think about how you'd react when you get close to being able to get out of a position at break-even after having been down. Would you hold out for $130.00 exactly or if things started getting a little shaky at 129.90 would you just get out there and then? For most its the latter, that's why true support/resistance is an area, not an exact number.

 All cumulative indicators float on the chart unlike oscillators, not just 3C, but any cumulative indicator so it makes it hard to properly scale the indicator with price, but that doesn't matter for signals, all that matters is the relationship between price and 3C, it doesn't matter if price is above or below as that can all be changed as a function of zoom. What matters is price making a new low and 3C making a higher low, that's a divergence no matter how the chart is scaled.

The point is this morning in GLD on the fastest timeframe of 1 min, there's no downside confirmation, that would happen almost immediately on the open, it didn't, that's telling us something, thus far (although we need some longer term charts to catch up to today's trade), it looks like it's telling us this is a shakeout move, whether intentional or not, that's the way its being dealt with.

GLD- The 2 min chart is very hard to scale too, but the signal is the exact same on a chart that would have moved by now if it was to confirm the downside, thus it still looks like a shakeout and again, if not an intentional one, it seems it is being handled as one.

 GLD 3 min is confirming as well. It's a little early to go too much further past this timeframe until the longer charts have a chance to catch up to the new day's trade.

Silver looks amazingly similar.

 SLV 60 min chart and support, nearly exactly the same as GLD, to the left there's churning which is a form of distribution, you can tell by the long upper candle wick, the lack of any price movement and huge volume, it is most often associated with the handing off of shares from strong hands to weak hands.

 SLV 1 min, again difficult to scale, but the signal remains the same as GLD.

 SLV 2 min, again the same

SLV 3 min, again nearly exactly the same, these are not two ETFs with the same underlying asset, these are two different assets, although both PMs, the signals being so similar is good confirmation.

GDX-Gold Miners

 The 1 min in GDX, but I wanted to show you NUGT because these are the ones that will move because of the leverage, leveraged ETFs are often good leading indicators for the underlying asset.

 NUGT 1 min confirms the drop, it's in line right now

However the 2 min chart is not doing the same, that's not an error, it just shows the depth of underlying trade, I'd interpret this as retail giving out quickly and stronger hands staying on board.

It's way too early to tell anything about the open with a 10-min chart, but I wanted to show the support area and the break. If the 10 min chart looks like this at the end of the day, I'd say we have a very high probability shakeout, again whether intentional or not, but with such defined support intentional would not be surprising at all.

Gold and Silver E-mini Futures (YG and SI respectively).

 GLD 1 min with a positive at the 5:30 a.m. lows shown in the last post and since the capture, in line.

YG 5 min with a clearer trend

YG 30 min This is the big picture, the move overnight is emotional, it's strong, but it doesn't look very important in the big picture, if it is a shakeout move it is important form a timing sense for the big picture.

 SI 1 min, very similar to YG at 5:30 lows

SI 5 min not looking like sellers were dominating the underlying action; the support issue is the same here as GLD/SLV/GDX

SI 30 min, again along the lines of the Index futures

I'll keep following all 3 assets and see if the longer term charts also confirm the shorter term charts for today specifically.

Quick Update

This is why I don't trust parabolic moves like ES saw on the open. Right now ES is getting ready to correct, typically the correction from a parabolic move looks the same (as far as volatility) as the first part, but often corrects in a more extreme manner, this is why they are called parabolic, they look like a parabola.

More ES, More Likely Our Move Did Start Yesterday

If the above is true, then our timing was just about right on as my thoughts before the new week were early this week, Tuesday, possibly even Monday afternoon. It looks more like Tuesday, but the point is the 30 min positive on all of the Index futures was a very strong signal and still is, the fact it grew to reach 60 min is just a bonus confirmation.

Remember my email from Saturday that I posted regarding a member's question as to the catalyst and I agreed that the normal or usual suspects were likely, but I wouldn't be surprised to hear some F_E_D rumors, yesterday as you know we got even better with the two biggest F_E_D hawks coming out and speaking in little, sweet "Dovish" tones.

Add to that today's ECB promise by Draghi, that's he's "Ready to act" and you have the makings of a nice catalyst.


As I already showed the 1 and 5 min (and most Index futures look pretty similar, there are some variations, but not enough to change the basic premise of the move)..

*The opening parabolic move is nice and all, but it's really not where the meat and potatoes of the ES strength is, it's just a flashy open and that doesn't impress me much, what's below does (plus you know I don't trust parabolic moves)

 15 min ES looks a lot like that Inverse H&S pattern, although far from textbook, the point is ES is moving at the right places, the divergence strengthened at the right time. This doesn't mean we should expect a straight line up, far from it, but as far as the next tradable trend, and probably the last to the upside, I think we are well on our way.

 The 30 min chart is what has been the "High probability" aspect, with a divergence or accumulation like that sitting there, it's just a matter of a few days before it fires.

And the 60 min joining the party just adds more weight. Interestingly, all gained and built stronger overnight, that's not too much of a feat for a 15 min chart, but for a 30 or 60 min, it's impressive.

As far as gold's move last night, I suspect that the liquidity problem that Chinese banks have been facing, that has been getting worse every day until today in which Chinese banks are actually no longer lending because of the freeze (it's been confirmed that branches of two bigger banks, Bank of China (BOC) and Industrial and Commercial Bank of China (ICBC)) have halted all lending to commercial and personal lines, right now this is being attributed to debt to loan ratios that they must maintain, there are also lending quotas set for banks and being near the end of the month some may be running in to those and with liquidity drying up, halting loans may not seem like such a bad idea.

Remember this started only 3 weeks ago and China is not considered by many to be transparent, as many lies as we saw about the health of US banks in 2007-2009, you can just imagine what the real situation on the ground is like in China.

It's possible gold was a victim of the liquidity freeze, that's what nearly took down the US banking sector and claimed victims like Lehman Bros. so its very possible gold was sold to try to create some liquidity.

In addition China or more accurately, the PBoC (China's Central bank) has said it will rescue certain banks, this is vague and leaves huge counter party risk wide open just like the US in 2008 and exacerbates the liquidity freeze as no one knows who that "other bank" that needs to be saved is, thus they shut down all overnight lending and the liquidity situation freezes, you'd think they'd have learned from the US circa 2008, but perhaps political interests don't want to name the banks, perhaps they are just trying to avoid a panic/bank run. Either way, they are in between a rock and a hard place.

The other obvious culprit may be the crash of the Indian Rupee which hit all time lows against the USD last night, and we know how much gold India takes up.

*****I would like to say this for all those that believe in the simpleton CNBC cause and effect of market movements, Do you really think ES would look the way it does now considering the Chinese situation if cause and effect  (as in news) where what moved this market?

Along those same lines, look at US Q1 GDP on the second and final revision this morning at 8:30, first revised lower from the initial print of 2.5 to 2.4, today was expected to be unchanged, however to many people's surprise it came in MUCH worse at 1.77% which is odd (well perhaps not that odd) considering yesterday's beat in Durable Goods,  Housing and Consumer Confidence. Expectations/Consensus was for an unchanged 2.4 print, they got a big surprise at 1.77%! Capex/Fixed Investment (especially non-residential) and Consumer Spending were responsible for much of the downward revision, in other words the F_E_D wants out, they have their reasons and I think we know what they are (Balance sheet and bubbles), but as far as the "Economic" face saving excuse, I think the GDP revision put a nail in that excuse.

Finally for now as I need to take a look at some opening indications, the $USD which flipped back the the historical correlation last week right in sync with the F_O_M_C, looks like this...

 $USDX 1 min not looking good intraday, that has been good for the market since the new (old/historical) correlation came roaring back last week.

The $USDX 15 min chart I mentioned yesterday as it was deteriorating more...

And finally the 30 min that went from a large positive that fired off (while the correlation flipped) and now the negative, which is so far (correlation wise) supportive of the market and the 30-60 min Index futures making an impressive upside move.

If we go to 60 min, things don't look the same and that is a reflection of "What comes next", that's why I say any strong upside is a means to an end, it's not the main focus.

I'm going to check out some other assets, not the least of which would include the PM complex.

Futures

Asian Liquidation on Chinese banking collapse fears? It sounds that way, but the futures are all I'm concerned with at the moment.

Last night within 5 minutes of each other (same time as China opening), Japanese stocks and gold both fell at the same time, right around 11 p.m. EDT, while Japanese futures didn't look very good as of the time I published the Daily Wrap last night, gold wasn't showing anything that looked like a drop was coming, Silver did have a small negative divegrence going in to the 11 p.m. hour. Both Silver and Gold went positive around the 5:30 a.m. lows

 Silver Futures 1 min negative divergence in to 11 pm last night

Silver Futures 5 min positive in to this mornings lows.

Gold's 5 min positive in to this morning's lows.

ES has a 1 min negative, I'm not concerned about this, volatility in the a.m. is the norm, the 5 min chart is pretty good back up...

ES 5 min and take a look at this..

You might remember ES being positive with the other Index futures through 30 and 60 min, the 15 min looks like our move has started.

ES 15 min-looking good.

I'll have more in a moment.