Last Minute F_O_M_C Post

I wish I had more time to look at these charts because a lot made very interesting things changed right around that 10:30 area when stocks shot up higher only to see intraday distribution and move lower again.

Keep in mind the knee jerk effect when looking at these charts, that is the initial move in the market after an F_O_M_C announcement tends to be very volatile, but wrong and typically reverses within a few hours to a couple of days.

Generally speaking, if the market is expecting a taper sooner than later or an end to QE sooner than later, we'd expect to see Gold moving down, bonds moving down, yields moving up and the $USD moving up.

There are interesting differences between the short term charts and the longer term charts and many around that 10:30 mark this morning, keeping in mind what some have said about a possible leak and what I have said about the knee jerk effect.

I'll never be able to post these in time and let you look at them in time.

However as we know Credit (HYG) dropped off today, not good for the market generally, but that 5 min short term (days/weeks maybe) is still positive, it's possible it hasn't had enough time to let that divergence fall apart like the shorter ones have. The longer term charts in HYG are solidly negative.

As for Gold, the 1 min chart right now is seeing a pretty darn strong positive divergence, but anything in the more serious timeframe of 30-60 mins is solidly negative. The positive 1 min in gold didn't start forming until around 11 a.m. this morning.

The 30 year bond looks like it saw a positive divergence in futures also this morning.

The $USD, short term it's not doing anything exciting, the 60 min is in a raging positive divergence.

I have to get this out now, but the initial signs , many of which started around 10:30 this morning show what looks like a F_O_M_C "Do nothing" policy statement as the initial reaction, followed by a realization that something wicked comes this way sooner than later as far as QE.

I know that''s not as easy to understand as I'd like it to be, but there were several changes very quickly this morning, I DON'T THINK THERE'S ENOGUH ACCUMULATION OR DISTRIBUTION ON THESE SHORT TERM SIGNALS TO MEAN ANYTHING MORE THAN A KNEE JERK REACTION.

ALSO THE INDEX FUTURES ON 5 MIN CHARTS HAVE BECOME MORE NEGATIVE, WHILE THE RUSSELL 2000 1 MIN FUTURES IS MORE POSITIVE, AGAIN TO ME IT LOOKS LIKE AN INITIAL POSITIVE KNEE JERK FOLLOWED BY SOMETHING TOTALLY DIFFERENT.

Leak?

That's part of what I'm looking for, but in reference to this earlier post and the subsequent 3C distribution intraday, I see ZH is running an article,

"Who Leaked What At 10:26 AM?"

"Did another Federal reserve employee 'accidentally' email the right people again?"

MY ONLY POINT IS WHAT I SAID BEFORE, "IF I KNEW WHAT THE F_O_M_C WAS GOING TO SAY AND IT WAS BAD FOR THE MARKET, I'D BE RUNNING THE MARKET UP AS MUCH AS I CAN BEFORE THE POLICY STATEMENT.

Here's the current update for the averages & HYG Credit with one more point at the bottom.

 DIA 1 min

DIA 10 min

IWM 2 min

QQQ 2 min

QQQ 10 min

SPY 1 min

SPY 2 min

HYG 2 min hasn't only dropped today, but is seeing negative divergences in early timeframes starting to migrate to longer ones.

As far as ZH's perspective, they are seeing price only and yes, that gives a certain perspective if you think there's a leak, but looking at underlying action in the averages and credit... well to me that looks more like some last minute distribution in to higher prices than accumulation on any potential leak....

GS Update

GS is a stock that a lot of members are interested in, I've been interested in it because for so many months I've been saying, "No, I would not short GS right now" so it has been somewhat of a bellwether for the market in a sense.

There has been clear deterioration and there is a very specific area that I'd like to see GS hit for a large short position or a put position.

If you are somewhat interested in GS there were several updates yesterday, but this last one sums things up pretty well.

As far as what we have today...

 One thing we look for is obvious/magnetic areas that will cause movement, for GS it's right above this yellow trendline, the point I was making in yesterday's last update linked above is that from a risk perspective, that's only about 5 or 6 points, somewhere around 3% or so which is really not much if you are looking at an equity short, for an options/put position, it's a big deal.

 This 5 min chart shows several areas I pointed out yesterday, accumulation at the late June/early July area and then distribution at the recent downside reversal. We have a current 3C move that is improved, but still in a negative area overall. I also point out in the linked post above, this is the reason I haven't called a specific GS trade as of yet, but I do think it's one that is showing deterioration, it's important for the position and the market.

 This is a closer intraday look at that same 5 min chart and how it made a sort of "W" accumulation area that it has lifted from today, however...

As stated above, the overall position is still much weaker than GS has been in past months, this 10 min chart is a good example of that, it does show the same positive divergence the 5 min chart shows above, but that is much less important than the overall leading negative position.

This 1 min intraday chart is interesting because it looks a lot like the market averages I showed earlier.

"If" GS continues to deteriorate from this area, this could be very significant for wither an equity short or a put position so I want to keep you up to date, especially considering how many people are interested in GS.

OK, I have some broad market charts to look at pre-F_O_M_C, if you have stock specific questions, unless they are really interesting and look like fantastic opportunities, I'll be a little bit slower on email responses because there are a hundred different things to look at in front of the F_O_M_C policy statement, especially with no press conference after.

Please do remember that there is a well documented "knee-jerk" effect after F_E_D events, so keep that in mind whichever way the market initially moves, it typically doesn't hold.

Market Update... The Trend Continues

When I came back from my mini-vacation Sunday night, it was already late, I was exhausted, but I spent about 90 minutes looking at the market and what I missed, Sunday night I posted that there was a very clear trend of selling in to any strength and that the words, "Price strength" were very relative, whether actual, as in a green close up a half a percent or intraday like the Dow losing 150 points in the morning and then moving up all day to close 2 points in the green, not actual strength by most people's standard, but intraday strength. The point is, in just about every case, wherever there has been an opportunity to sell in to higher prices (even if they are simply higher than the intraday low), that opportunity has been taken. This morning's run looks to be no different.

Also don't forget that we had window dressing for month end last week and today is the last day of the month, trades won't count toward window dressing because of the T+3 Settlement rule, but overall monthly percentages count and underlying action in to the end of the month certainly counts.

 SPY 1 min intraday leading negative in to this morning's run.

 SPY 2 min leading negative

SPY 3 min leading negative with the positive divergence that stemmed from HYG as shown in last night's "Daily Wrap" post.

SPY 5 min showing some trend and some intraday.

DIA 1 min leading negative in to this morning's run.

The positive divergence is the one I talked about at the 11 a.m. lows on Friday or Thursday depending on the average.

 The IWM has had a very clear trend of selling in to almost any strength more so than any of the other major averages, this morning is no different with a sharp negative divegrence this morning.

IWM 2 min confirming as migration of the divergence continues...

IWM 3 min showing the same and all of the concepts discussed (recent trend).

QQQ 2 min intraday, not even close to confirmation and in fact a lower 3C reading.

I'll have more, I'm really looking for anything that stands out of place, we have had some signals before F_E_D / F_O_M_C events, one meeting about two hours before the policy statement 3C just dropped like a rock, I'd rarely take a position back then before a policy statement, but we did and were paid handsomely for doing so.

Volatility Futures, VXX, UVXY, VIX

Things are getting more and more interesting.

Last night I had wanted to post several examples, specifically MCP and why we didn't take the position which was good as it did not do what we wanted it to do to enter a position and VXX/UVXY in which I explained exactly what I'd be looking for, but... as I wrote in last night's "Daily Wrap"

"VXX was another,  in this post  I outlined exactly what I expected from VXX to open a long position/call position today including the following...

"the only thing holding me back right now would be looking for a head fake move below that triangle"

This is something we see 4 out of 5 times before a reversal, I jumped the gun a bit early, although I think the position will be fine as there WAS the accumulation on the head fake move that MCP did not have, but it is the concept that we follow that showed again to be the correct way to enter the position."

Although, as I said, I still expected the position in VXX / UVXY to be fine, this morning some interesting developments are taking place there too. "If" these developments continue on this course, I'd consider broadening the scope of that position and would certainly highlight it as a new position for anyone who might be interested. Don't forget, we did just see the Buy signal in the VIX which has only happened twice this year, the first one was beautiful.

 This is what the "reversal process" looks like in context and proportion, at the bottom before a reversal we usually get some technical pattern that retail technical traders can be sucked in to and a head fake move, it's that head fake move where we usually find the best entry, the lowest risk and highest probabilities and that was the plan for VXX yesterday, it was the plan for MCP and while MCP did the first two things, it didn't confirm on the third, that's what VXX is doing now and why I said last night, "I think the position will be fine".

Here's the close up, the plan was to wait for a head fake move BELOW the bearish descending triangle that retail technical traders will bite, unlike MCP though, VXX/ UVXY are confirming a head fake move, but with some of the charts like the one below, I would have said the probability was at least 80% the move would be a head fake for VXX, not quite the same for MCP as that was only envisioned to be a 1 or 2 day call position.

MCP didn't have this kind of power behind it in the near term I believe it will after a decent pullback, but the point is VXX / UVXY and this 60 min VERY positive divergence.

Here's the break that I said above in last night's post, I didn't wait for and this is why I wanted to post this last night as a "CONCEPT" because they prove to be so useful and consistent.

The other or important part of the concept is that we see positive divergences on the break below, that's what distinguishes a break from a head fake and an edge from just another break like MCP saw yesterday.

We do wait for confirmation, just a different kind.

UVXY 2 min is seeing migration of the positive divergence so it is on its way so far.

I want to see more positives and longer timeframes and there is still a reversal process, although much shorter, it should be in proportion to the break below support.

If things keep developing as they have started to and I think there's a very high probability, then VXX/UVXY will make for a decent add to position or a new position for those interested, first lets get some more confirmation.

Quick Update

That last run looks like it's seeing distribution already, the SPY, DIA and IWM are the most notable at this moment.

I'll have some charts up in just a few minutes.

Chicago PMI / Goldman Opens Their Mouth

Chicago PMI came in at 9:45, remember, as far as retail is concerned, "Bad news is good news" with regard to the QE Taper / Future; I suspect at the F_E_D level and the Wall Street level things are a bit more complicated than that considering bank's unrealized gains, oops, I meant losses because of treasuries, the lack of good collateral for banks to pick up as the F_E_D's QE has been sucking it all up and the Treasury's estimate that they'll need 30% less funding (Treasury Issuance) next year which exacerbates the entire situation as the F_E_D would be sucking up a bigger percentage of the already scarce high quality bank collateral, the point being is it's more complicated than "Bad news=good news " for QE.

That said, Chicago PMI missed...

Prior	Consensus	Consensus Range	Actual
Business Barometer Index - Level	51.6	54.0	52.0  to 56.0	52.3

However as always, the devil is in the details and they weren't pretty here. Prices paid vs prices received in the last PMI was showing margin contraction, in other words the raw materials to produce goods were costing more while the net prices the goods were selling for were declining, that's a margin (profit margin) squeeze, that continued at Prices Paid up from 59.9 to 63.3 .

To make matters worse... New Orders  fell from 54.6 to 53.9, Production fell from 57.0 to 53.6 and Employment fell from 57.8 to 56.6! Not a good report at all, but I doubt retail realizes how bad it was beyond the headline print.

Yesterday I said, "If I had some idea of what the F_O_M_C was going to do and it wasn't market positive, I'd run prices up as fast as I could before the policy statement" and the key part was the F_E_D emailing some 150+ hedge funds and private equity firms the minutes from one of the F_O_M_C meetings a full day before their official release. I DON'T KNOW WHAT WAS MORE TROUBLING, THE FACT THEY SENT THEM OUT TO WALL ST. A DAY EARLY OR THE FACT THAT THEY CATER TO WALL ST. WITH AN EMAIL SERVICE FOR DATA THAT IS SUPPOSED TO BE RELEASED TO THE MARKET ALL AT THE SAME TIME. WHY WOULD WALL ST. NEED AN EMAIL IF THEY ALREADY HAVE THE FASTEST NEWS CONNECTIONS?

This partly explains the recent run up in the market this morning pictured here...

But that move up started at 10:25, quite a bit after the Chicago PMI.

However Goldman was out with this just a few minutes before the run up,

"We Expect A Downward Revision To The Fed's 2013 Growth Forecast"

Never trust GS, no Wall St. firm gives out their edge for free to the public, especially GS.

Of course there is the revised Q1 GDP data that makes the F_E_D's 2013 full year forecast impossible to meet.

Bravo Goldman!

Credit Breaking or Head Faking?

You might recall my preoccupation with credit and specifically HYG (High Yield Corp. Credit). Last night I talked about HYG quite a bit and posted more charts of it than any other asset.

For one, Credit typically leads and stocks follow, for two, HYG is an arbitrage asset that has been used recently to prop the market up, this is why HY Credit is so important to me right now.

From last night's post.... HYG was mentioned 20 times!

"This is a 1 min intraday chart of the SPY today, HYG (Credit) has been VERY interesting as it seems to be the sole leg the market stands on,"

" The other interesting part is the 5 min HYG positive, but there's no sign at all on the next timeframe of 10 mins, in fact it's quite ugly."

You can check out the post for all of the details and mysteries of credit recently, now you can add this to them...

 HYG's 10 min chart that I said above (from last night) looks quite ugly and 3C led HYG as well as the market lower from these highs.

The range is what is interesting because the 5 min chart "looks" like it is set to send HYG and the market higher, albeit briefly as the 10 min above is stronger and much more negative.

This is a close up of HYG's intraday close yesterday and this morning's plunge lower, with a range like this (just as I explained with regard to VXX yesterday), we almost always see a head fake move before a break out, so whether this is a head fake or a real break down is the interesting question.

Other forms of HY credit haven't been acting as well as HYG, but they are not arbitrage assets so they'd act as they are meant to with no manipulative interference to support the market.

 Junk Credit which usually trades EXACTLY like HYG has been acting worse lately and also broke lower this morning.

HY credit has held support for 4 days and just broke it this morning.

This will be a VERY interesting development to watch as the credit markets are much better informed than the equity markets.

Yields Acting Like They Expect a Taper

Looking at the yields of the 5, 10 and 30 year treasuries, they sure look like they expect a taper, but in fact, several of them have looked like they were preparing for a launch higher since late yesterday

 5 year yields popped this morning after GDP was released.

As did 10 year, but 10 year looks like there was a positive divergence at the lows.

30 year Yields popped as well so right across the duration, here too it looks like there was a significant positive divergence at the lows.

GDP Prints on the + Side

So far the Index futures haven't reacted much to the strong beat in Q2 GDP at 1.7 vs consensus of 1. Qi GDP was revised down to the worst miss in over 2 years from 1.8 to 1.1, today the BEA also revises all GDP data back to 1929, rewriting economic history as it were.

The F_O_M_C meets today and then the policy announcement this afternoon with NO press conference so we'll have to wait until Aug. 21 for the minutes to see what was said.

So far stocks aren't acting like anything has happened, gold is down which means the PM market is acting like the taper is coming, but gold has been sliding for several hours since before GDP came out. The USD is probably the most notable mark of market sentiment leaning toward a sooner than later taper.

USDX after the GDP print.

The only other thing I see is in the 5 min area of Index futures...

1 min charts are noise, the 5 min chart looks pretty negative and getting a bit worse.

I suspect we won't see much until we get a look at leading indicators, but I also suspect the market will be largely in wait and see mode pre-F_O_M_C, however we have caught some "apparent" leaks before so I'll be on the lookout for a hint before the statement.

Remember to Beware the Knee-Jerk reaction today.