Unless something dramatic changes in the last 30 minutes, this is what we look like thus far, some longer term progress for a bounce, but not the short term progress needed to make investing in a bounce worthwhile at this point.
7 years ago
Tuesday, August 13, 2013
Market Update
Today has been a very difficult day, but by judging by the moves so far in the market today, being patient and waiting for confirming evidence has been the right thing to do, it was the right thing to do each and every afternoon last week, yesterday afternoon and all of today and thus far the afternoon trade as well, it makes for a boring day, but at least not a boring day with unnecessary losses as well.
Unless something dramatic changes in the last 30 minutes, this is what we look like thus far, some longer term progress for a bounce, but not the short term progress needed to make investing in a bounce worthwhile at this point.
DIA 1 min was showing weakness yesterday afternoon and again today in afternoon trade.
The 3 min chart just confirms the above.
Even the 5 min chart which has made progress is showing negative activity in the afternoon.
IWM 1 min is flat to negative in the afternoon trade.
2 min makes it clear it's negative intraday day during the afternoon
QQQ 1 min losing strength in to the afternoon
QQQ 3 min overall stronger, but losing strength this afternoon.
Even the QQQ 5 min shows a negative afternoon divergence.
QQQ 5 min chart (same as above, but in perspective)
SPY going negative in the afternoon
2 min SPY negative as well
3 min SPY negative
5 min SPY is almost in line, all in all, not worth the risk yet.
Unless something dramatic changes in the last 30 minutes, this is what we look like thus far, some longer term progress for a bounce, but not the short term progress needed to make investing in a bounce worthwhile at this point.
Increasing the Equity Long Position in URRE
On August 7th I opened a MCP call which was closed I believe the next day for a gain and I decided (mostly because of liquidity, but also because URRE can move on its own without a lot the need for leverage) to go with URRE long equity, URRE was opened on a speculative basis, but I'll add to the position, still not a full size long, but more than a half-size position.
URRE looks to me, unlike MCP, to be moving in to stage 2 mark up, but like MCP it looks like a stock that has its own legs and doesn't depend on the market for gains, although there's always going to be a clear relationship between them.
The daily URRE chart says a lot when you consider most stocks were heavily accumulated at the 2009 lows, URRE was accumulated there, but it now looks so minimal because of the size of the current positive divergence in a beautiful basing pattern of quite some time, meaning the 3C signals as well as the base and size of base are all there to support a large upside move in URRE.
The 30 min chart looks good since its had time to settle and build off the last run up.
Pay attention to the accumulation dates on this 15 min chart.
The 10 min chart leading positive...
The 1 min is close to in line, but at 2 min look at the accumulation dates again, the same as the 15 min chart, the 7th, 9th and 11/12th.
This is the larger picture 5 min chart, it actually looks stronger here than it did just previous to the last launch.
The 5 min chart with accumulation on the 9th as well as 12/13th again.
I feel ok with adding a bit to this position here.
URRE looks to me, unlike MCP, to be moving in to stage 2 mark up, but like MCP it looks like a stock that has its own legs and doesn't depend on the market for gains, although there's always going to be a clear relationship between them.
I feel ok with adding a bit to this position here.
AAMRQ / LCC
This is really ironic timing, last night before I went to bed I was setting my alerts on my Galaxy S4 (Yes, I finally gave up on the IP after owning every single model until the IP5 which I described as "evolutionary" rather than "revolutionary" for the first time in AAPL's IP history and although there's a learning curve and AAPL is really the best at simple, intuitive interfaces, I love the S4).
In any case on the news feed I saw an ex-girlfriend who recently became a Flight Attendant for US Airways and something really irked me about it, I don't know if it was her ID badge she had posted with WAY too much makeup, the fact that the entire time we dated she REFUSED to work, the fact that she talks about it non-stop on FB while my wife has been an international flight attendant for 15+ years or the cheerleading end of the update that said something about LCC being, "Part of the NEW American Airlines", which just came off like a AA commercial, in any case, this morning AAMRQ was cut in half on news that DOJ is bringing suit to block the merger on "Anti-Trust" grounds, so I'm a little petty in being irked and then kind of feeling better about it, ok, VERY petty.
In any case, a lot of you have asked if AAMRQ is a "Dead cat bounce" play. In my view, you can probably guess what I'll say, I don't see any evidence based charts to support that at this time, to me it's probably not even as good of odds as "Black or Red" at this point. This would be the most speculative of speculative longs looking for a dead cat bounce, they simply need more time in most cases like FSLR today and it's decline wasn't anything like AMRQ's.
We can keep tracking it to see if there is a point in which evidenced based charts start putting probabilities on a dead cat bounce, but as of now, I think it's a total Las Vegas style gamble.
In any case on the news feed I saw an ex-girlfriend who recently became a Flight Attendant for US Airways and something really irked me about it, I don't know if it was her ID badge she had posted with WAY too much makeup, the fact that the entire time we dated she REFUSED to work, the fact that she talks about it non-stop on FB while my wife has been an international flight attendant for 15+ years or the cheerleading end of the update that said something about LCC being, "Part of the NEW American Airlines", which just came off like a AA commercial, in any case, this morning AAMRQ was cut in half on news that DOJ is bringing suit to block the merger on "Anti-Trust" grounds, so I'm a little petty in being irked and then kind of feeling better about it, ok, VERY petty.
In any case, a lot of you have asked if AAMRQ is a "Dead cat bounce" play. In my view, you can probably guess what I'll say, I don't see any evidence based charts to support that at this time, to me it's probably not even as good of odds as "Black or Red" at this point. This would be the most speculative of speculative longs looking for a dead cat bounce, they simply need more time in most cases like FSLR today and it's decline wasn't anything like AMRQ's.
We can keep tracking it to see if there is a point in which evidenced based charts start putting probabilities on a dead cat bounce, but as of now, I think it's a total Las Vegas style gamble.
FSLR / Market Update
The reason I keep including FSLR is because it seems to be a good market proxy in terms of the timing and completion of the reversal process.
A dump in the market like this morning at the end of a short pullback phase wouldn't be surprising, it's like the opposite, but same concept as a "Blow-off top" at the end of a market rally just before a reversal. FSLR just happens to have a nice proportionality to it that represents that reversal process pretty well.
The first 3 charts of FSLR represent the longer term charts and how they have basically held up allowing FSLR the opportunity to bounce (dead cat likely, but still a decent bounce).
The last FSLR charts are more specific to today's process itself and the market averages below are confirmation of what I see intraday in FSLR. I already have the September $38 FSLR Call ticker ready so when I feel it's time (if), I can just move to open the position.
FSLR 60 min
FSLR 10 min
FSLR 5 min and the VERY clear range which increases the probabilities of a head fake move below support to run stops which is often the last thing we see before a reversal and that's why a head fake move makes for such a great timing indication.
The overall 1 min chart trend is very positive, it's not as obvious when looking at it on an intraday basis.
This is the 1 min chart on an intraday basis, although the reversal process has come together nicely, it still looks like it needs a bit more time and the 1 min negative divergence suggests that it pulls back a little intraday to allow for that. You'll see the market averages confirm the 1 min FSLR chart.
The 2 min chart has been growing stronger all day as I'd like to see. You can see the uptick in volume as stops are run just below the support zone of the recent range.
The market averages confirm the FSLLR 1 min chart's negative intraday divergence to give the reversal process some more time. I don't consider FSLR to be the only opportunity, I just consider it to be a great proxy for all of the different moving pieces that need to come together before the risk:reward profile starts to make sense.
DIA 1 min intraday negative for a pullback most likely.
IWM 1 min negative
QQQ 1 min negative
SPY 1 min negative
A dump in the market like this morning at the end of a short pullback phase wouldn't be surprising, it's like the opposite, but same concept as a "Blow-off top" at the end of a market rally just before a reversal. FSLR just happens to have a nice proportionality to it that represents that reversal process pretty well.
The first 3 charts of FSLR represent the longer term charts and how they have basically held up allowing FSLR the opportunity to bounce (dead cat likely, but still a decent bounce).
The last FSLR charts are more specific to today's process itself and the market averages below are confirmation of what I see intraday in FSLR. I already have the September $38 FSLR Call ticker ready so when I feel it's time (if), I can just move to open the position.
The market averages confirm the FSLLR 1 min chart's negative intraday divergence to give the reversal process some more time. I don't consider FSLR to be the only opportunity, I just consider it to be a great proxy for all of the different moving pieces that need to come together before the risk:reward profile starts to make sense.
The Carry Connection
Personally I think it's suicidal to be engaged in any carry trades right now (one of the only reasons to be in them is to leverage up your AUM and with carry trades the leverage is often 10:1 but can be as high as 200:1 which can make a very small move in the currencies absolutely devastating to your position), however as we have seen numerous times in the past, Amaranth Advisors or Long Term Capital Management, sometimes the smartest guys in the room are so smart they need to be carried inside from the rain, or in other words, they do suicidal things thinking they can outsmart the market; it didn't work out too well for either of these firms and the second almost took down the US financial system and this was the dream team founded by two Nobel Prize winners in economics including Myron Scholes who won for his work in the Black and Scholes options pricing model.
In any case, the point being, I'd think by now FC "carry traders" would be completely unwound, but apparently they aren't.
This is the daily chart of the AUD/JPY (one of 3 popular carry trades from November of 2012 to April of 2013), you may remember these white FX charts as I was tracking the carry trades every day looking for the reversal in them which I found around April/May this year.
The carry trades were started just previous to the November 16th market low.
USD/JPY 1 day
A closer look at the daily chart of USD/JPY which shows the carry is underway as the market bottoms on November 16th of 2012 and it tops in the April/May Period.
The more specific point is another site that does good work or is submitted good work from other sites, made the argument this morning that the USD/JPY carry suddenly and VERY abruptly switched from US equities and Treasuries around 4 a.m. this morning on the better than expected German Zew Business confidence survey and instead went in to European peripheral sovereign debt, the example they used was Spain, which I think is a hard case to make as Spain's Bond Spreads were already trending lower yesterday, gapped down lower and about 2 hours after the open saw a severe draw down, meaning Spanish debt was being bought with the USD/JPY carry rather than US equities and Treasuries, they make a pretty convincing argument, but provide only one European peripheral sovereign to back up the claim. There are a number of reasons the PIIGS Bonds could be bid which include secondary market intervention from the ECB, perhaps just a simple rotation or it could be the USD/JPY did flip and that would make sense if the market were finishing up on the pullback we expected, it's hard to knock a market down when it's receiving carry support, but that doesn't seem to be the whole story in my view; I don't think 1 chart can explain a situation credibly, you need confirmation.
I did notice last week that the AU?D/JPY carry cross did slip in as market support for a short time last week in leu of the USD/JPY so I looked closer in to the pairs and the single currency futures that make up the pairs.
*Remember when we look at a pair like USD/JPY moving up, that means the first currency is the long in the pair and the second currency is the short of the pair. So the USD/JPY moving up means there's $USD strength and relative JPY weakness, buying USD/JPY is like being long the $USD and short the JPY.
Looking at the correlation with /ES futures (SPX E-minis) here's what we get.
This is the USD/JPY 1 min overnight and to the present in the candlesticks vs ES in purple.
According to this chart it does look like Carry traders jumped ship before pre-market today as ES fell and the USD/JPY carry held strength suggesting it was put to work somewhere else, what would cause such a sudden and large shift is hard to imagine, I doubt the German ZEW poll alone could do it, but perhaps if they needed to create a final flush to the pullback we have expected and that has been taking place right under out noses, then that makes more sense.
The thing is the AUD/JPY carry cross looks VERY similar to ES, ES is a bit more extreme, but that happens when stops are hit. Could the AUD/JPY have switched out like it did briefly last week? It seems it has.
So now we have to look at the single currency futures to better understand what each carry trade is likely to do, we'll start with the JPY first, anything that looks like JPY strength is going to be bad for either carry cross and ultimately the market. JPY weakness is good for the carry and market strength, AS USUAL, TIMEFRAME ANALYSIS IS ESSENTIAL TO UNDERSTANDING THE MOST LIKELY SHORT TERM AND LONGER TRENDS.
JPY 1 min short term shows some strength building, this would suggest some near term market weakness or that the JPY is just starting to build a larger base of support that would match up with our ultimate "Big Picture" market view, the JPY would strengthen and weaken all carry crosses and help send the market lower.
The 5 min JPY is seeing positive divergences, but it's missing the process, so it looks like the start of more positive action, but more like it will spend more time building out that positive divergence in the area.
The rules of the "Reversal Process" apply to the huge FX market just as they do to the equity market.
The 15 min JPY shows "top" weakness and since the decline the kind of positive signals we look for in a pullback, again suggesting the JPY is likely working on a larger reversal that would likely sync up with our "Big picture " view of the market and help it move to the downside.
As far as the long $USD charts...
$USDX 1 min intraday the $USD looks like it will lose some strength, that would not be good for the market or if the USD carry traders are indeed operating exclusively in European peripheral bonds, then it wouldn't be good for them.
$USDX 5 min the 5 min chart shows weakness which matches up with the $JPY strength building so this makes sense, it's a question of what timeframe will this effect, is it building for near term movement or longer term divergennces?
$USDX 15 min The 15 min chart is showing weakness RIGHT NOW, but it has a base with a good amount of accumulation that should push the $USD higher before it loses momentum, short term though it may indeed fall, it comes back to the timing question which is difficult to answer.
$USDX 60 min. Ultimately the 60 min seems to confirm the $USD has more strength in it.
As for the $AUD...
The $AUD 5 min chart on the other hand looks stronger than the $USD short term so if it is the carry cross operating in US equity and treasury markets, it looks like it has the ability to provide market upside support along the lines of our expected bounce.
The $AUD 15 min also shows the same support.
Longer term though at 60 mins, the $AUD has failed.
Right now, THE AUD/JPY LOOKS LIKE THE CARRY CROSS MOST IN LINE WITH MARKET EXPECTATIONS OF A NEAR TERM BOUNCE, BUT "BIG PICTURE" WEAKNESS.
I have a feeling the other site had it half right, but didn't follow all of the clues.
It seems the AUD/JPY is now steering the US markets and the way it looks, it seems to make perfect sense with our market expectations.
In any case, the point being, I'd think by now FC "carry traders" would be completely unwound, but apparently they aren't.
The carry trades were started just previous to the November 16th market low.
The more specific point is another site that does good work or is submitted good work from other sites, made the argument this morning that the USD/JPY carry suddenly and VERY abruptly switched from US equities and Treasuries around 4 a.m. this morning on the better than expected German Zew Business confidence survey and instead went in to European peripheral sovereign debt, the example they used was Spain, which I think is a hard case to make as Spain's Bond Spreads were already trending lower yesterday, gapped down lower and about 2 hours after the open saw a severe draw down, meaning Spanish debt was being bought with the USD/JPY carry rather than US equities and Treasuries, they make a pretty convincing argument, but provide only one European peripheral sovereign to back up the claim. There are a number of reasons the PIIGS Bonds could be bid which include secondary market intervention from the ECB, perhaps just a simple rotation or it could be the USD/JPY did flip and that would make sense if the market were finishing up on the pullback we expected, it's hard to knock a market down when it's receiving carry support, but that doesn't seem to be the whole story in my view; I don't think 1 chart can explain a situation credibly, you need confirmation.
I did notice last week that the AU?D/JPY carry cross did slip in as market support for a short time last week in leu of the USD/JPY so I looked closer in to the pairs and the single currency futures that make up the pairs.
*Remember when we look at a pair like USD/JPY moving up, that means the first currency is the long in the pair and the second currency is the short of the pair. So the USD/JPY moving up means there's $USD strength and relative JPY weakness, buying USD/JPY is like being long the $USD and short the JPY.
Looking at the correlation with /ES futures (SPX E-minis) here's what we get.
According to this chart it does look like Carry traders jumped ship before pre-market today as ES fell and the USD/JPY carry held strength suggesting it was put to work somewhere else, what would cause such a sudden and large shift is hard to imagine, I doubt the German ZEW poll alone could do it, but perhaps if they needed to create a final flush to the pullback we have expected and that has been taking place right under out noses, then that makes more sense.
The thing is the AUD/JPY carry cross looks VERY similar to ES, ES is a bit more extreme, but that happens when stops are hit. Could the AUD/JPY have switched out like it did briefly last week? It seems it has.
So now we have to look at the single currency futures to better understand what each carry trade is likely to do, we'll start with the JPY first, anything that looks like JPY strength is going to be bad for either carry cross and ultimately the market. JPY weakness is good for the carry and market strength, AS USUAL, TIMEFRAME ANALYSIS IS ESSENTIAL TO UNDERSTANDING THE MOST LIKELY SHORT TERM AND LONGER TRENDS.
The rules of the "Reversal Process" apply to the huge FX market just as they do to the equity market.
As far as the long $USD charts...
As for the $AUD...
Right now, THE AUD/JPY LOOKS LIKE THE CARRY CROSS MOST IN LINE WITH MARKET EXPECTATIONS OF A NEAR TERM BOUNCE, BUT "BIG PICTURE" WEAKNESS.
I have a feeling the other site had it half right, but didn't follow all of the clues.
It seems the AUD/JPY is now steering the US markets and the way it looks, it seems to make perfect sense with our market expectations.
FSLR Update / Market Update
I mentioned in the last post that nothing looks very good right now and I suspect it's because this move to the downside is probably the ending, blow-off type move of what has been a multi-day, somewhat stealth pullback.
I gave FSLR as an example of the reversal process I think is underway and now I'm updating FSLR to show the continuation of that move which I see in other places as well like HYG, the averages to one degree or another, but it's still fairly subtle.
This is the 2 min FSLR chart now positive whereas only the 1 min was positive before.
More importantly is the rounding bottom in FSLR, this is distinguishing the reversal process which is what we see 95% of the time vs a reversal event, the difference being one is a process, the other happens instantly in a "V" shape which is quite rare.
In any case, I would almost consider FSLR calls / add to or new in this area, but I'd still like to see something more solid than a 2 min chart, that isn't to say progress isn't being made and probabilities aren't shifting, just that I would rarely enter any position on a 2 min chart alone.
I gave FSLR as an example of the reversal process I think is underway and now I'm updating FSLR to show the continuation of that move which I see in other places as well like HYG, the averages to one degree or another, but it's still fairly subtle.
More importantly is the rounding bottom in FSLR, this is distinguishing the reversal process which is what we see 95% of the time vs a reversal event, the difference being one is a process, the other happens instantly in a "V" shape which is quite rare.
In any case, I would almost consider FSLR calls / add to or new in this area, but I'd still like to see something more solid than a 2 min chart, that isn't to say progress isn't being made and probabilities aren't shifting, just that I would rarely enter any position on a 2 min chart alone.
Market Update
I've been looking around through multiple watchlists and I'm really surprised that virtually nothing is standing out as a potential short term trade. There are plenty of positions that would be great to short in to with a bounce, tons of those, but for a bounce, not much at all.
The closest thing I even see to a bounce is an intraday 1 min positive in ES.
ES 1 min positive divergence building
However, take FSLR as a bounce candidate which is probably one of the better looking ones right now.
The 5 min chart is what makes it a nice looking bounce candidate and as it has created a very clear support zone, we know where a head fake move would be to hit the stops which is exactly what happened this morning.
However the 1 min chart doesn't look like FSLR is ready to enter since the decline below support at all, it looks like it could be, but it looks like it needs more of a reversal process before that happens which may happen in several more hours, or...
However as of right now, there's almost nothing I'd be interested in from a risk:reward standpoint, so we just keep watching.
The closest thing I even see to a bounce is an intraday 1 min positive in ES.
However, take FSLR as a bounce candidate which is probably one of the better looking ones right now.
However as of right now, there's almost nothing I'd be interested in from a risk:reward standpoint, so we just keep watching.
Pullback
As you might recall, last week I was expecting a pullback (slight) before a bounce and at the pullback lows we'd take a look and see if there's anything worth hitch-hiking a ride up with.
Forget just this morning's obvious continuation of the trail of a.m. weakness as a pullback, it's much easier to see if you look at the SPY 60 min chart with a line chart instead of bar or candle, the pullback has been sitting right under our noses.
Since last week when it was expected and continuing today, but we should be pretty close to a bottom for the move. I'll be looking around to see if there's anything that has a worthwhile risk/reward ratio.
Forget just this morning's obvious continuation of the trail of a.m. weakness as a pullback, it's much easier to see if you look at the SPY 60 min chart with a line chart instead of bar or candle, the pullback has been sitting right under our noses.
Pre-Market
The conventional wisdom is that overnight futures ran up (SPX about 8 points) based on "hopes" that the Japanese government would cut corporate tax rates in hopes of promoting a "consumption tax", which the market is said to have liked and therefore rallied overnight... I guess so?!?
Retail Sales at 8:30 didn't move the market much either way because the headline was a slight miss at .2% vs consensus of .3%, but the internals like sales "ex autos" came in at .5%, were much better so the report was a non-factor coming up before the September meeting in which most think the FO_M_C will begin the taper.
I'm guessing we see the same early weakness, there were signs of it yesterday, but as you recall they were mixed between the SPY and IWM/DIA so not quite as strong as last week's afternoon signals. We'll just go along with the market, look for our windows of opportunity and take what is worth taking at this point, at least until we reach the area in which the big picture really takes on a new and probably very last chance to get involved.
Retail Sales at 8:30 didn't move the market much either way because the headline was a slight miss at .2% vs consensus of .3%, but the internals like sales "ex autos" came in at .5%, were much better so the report was a non-factor coming up before the September meeting in which most think the FO_M_C will begin the taper.
I'm guessing we see the same early weakness, there were signs of it yesterday, but as you recall they were mixed between the SPY and IWM/DIA so not quite as strong as last week's afternoon signals. We'll just go along with the market, look for our windows of opportunity and take what is worth taking at this point, at least until we reach the area in which the big picture really takes on a new and probably very last chance to get involved.
