Major Industry Sectors and the one Investment that Seems to be Getting a LOT of Attention

While broad market averages aren't looking good, many other related indicators such as the carry trade, aren't looking good, High Yield Credit, Corp. Credit (especially in light of BAC's disclosure last week that Corp. loan origination has fallen off at the fastest pace and at lows not seen since Lehman Brothers when the entire financial market froze up) aren't looking good, there are one or two sectors from what I see that money is PILING in to at an incredible pace, this is the same general sector that we have been watching as it bottoms and the same sector I have said numerous times in the past that I expect to see a long term primary bull trend in.

First lets just take a look at a number of sectors that I've been able to get very clean, clear and confirmed signals in so we can compare.

*With the Dow Industry groups, I used Multiple Timeframe Analysis of the prevailing trend and confirmed when possible via multiple asset confirmation. The charts I chose to represent each trend where the median of my analysis for each group (the chart that gives the best feel of all of the different charts looked at). In some cases there have been recent changes in Industry groups so there may be two charts, one showing the longer term trend and the second showing the more recent trend changes.

This is the DJ-US Telecom Index, this is a 2-part chart as the longer trend above shows weakness at the 2007 top and even more weakness at the current area, the next chart is also the same Index, but a closer view or more detailed view.

 DJ US Telecom Index, has shown some very recent weakness as the longer term trend has well defined weakness. I'm using the longer and shorter charts to show trends and probabilities the same way I'd use a 60 min chart for strategic probabilities and something like a 5 or 15 min chart for more tactical probabilities/timing. This chart looks to weaken more form here.

 I find this very interesting because I believe most of QE was a stealth bank bailout, these are US retail banks, what is interesting is the sharp deterioration from 2013-2014, the same time the F_E_D was making it VERY clear they were about to and then started to, back out of accommodative policy (QE-Taper). Before that had been made clear for those who were paying attention, this index was moving largely in line.

 This is another example of the above, The Dj US Financial Index, which saw distribution in 2007 , accumulation at the 2009 lows when it became apparent the F_E_D would expand their balance sheet in what I firmly believe was a stealth bank bailout as the public's reaction to the AIG (and other bailouts like GM) was very extreme and angry, how may average Americans do you think understand QE and the method by which money is transferred from the F_E_D to the banks at US taxpayers' cost?

Again, around the time it was clear the F_E_D was backing out of accommodative policy, a very strong chart turned very ugly.

 The DJ US Basic Materials Index, this chart is not surprising at all as QE had the consequence of driving up commodity prices (especially in QE1 and 2 as you can see on the chart in to the second red arrow) causing producer input prices to rise exponentially, while their output prices fell. This looks to be a very interesting area to do more digging around, essentially commodities, Steel, Aluminum, etc.

 DJ US Biotech Index which was seeing confirmation, then additional accumulation at the white trend line and a nearly parabolic run in to very recent, strong distribution, thus this is worth a closer look at more recent action.

 Daily chart of the US Biotech Index, late 2013-2014 hasn't been looking good and the failure to make a new high with the rest of the market in generally very high beta stocks is also weak-looking.

 This is the DJ Corporate Bond Index, Credit... Remember BAC's shocker last week that Corporate loan origination had fallen at the fastest pace since Lehaman in 2008, it's little wonder the chart and candlesticks look the way they do.

One of my questions is without QE, without US first time home buyers taking out loans, without corps. taking out loans, what happens to the traditional banking model which they haven't had to rely on since 2008 when QE is fully tapered out? and rates begin to rise?

I think this could be one of the most dangerous sectors in the economy (Financials).

 The DJ US Healthcare Index. This is another interesting one as Obama had certainly made Healthcare reform a staple of his run for presidency, thus the extreme accumulation around 2008-2009 makes sense,however, something was clearly lost in the execution of Obama_care and the 3C chart seems to be reflecting that sharply.

This is a closer Daily chart view of the US HealthCare Index.

 This is the DJ US Retail Index, if you understand what QE did to savers/consumers (they paid the heaviest toll), the Retail Index probably makes some sense as well, none of this is out of line with the broad market averages either.

 This is a close daily chart view of an apparent top in the Retail Index.

Here's where we see an enormous change in character, the DJ Precious Metals Index. 

 There was VERY clear distribution around the 2011 top, that's when we called a top in Gold and expected at least an Intermediate Down trend if not primary, we got a solid intermediate downtrend, but something has changed recently. Often interest in gold picks up on the EXPECTATION of inflation. 

Pay attention to where the chart goes strongly positive divergent, in to 2014. This area also looks like a bottom being carved out as I have said for some time and coincides with the exit of the F_E_D from highly accommodative policy. I wonder how well the F_E_D's inflation expectations are truly anchored? This could have a very interesting twist on the F_E_D's time-table for rate hikes, this is something I'll be listening to very carefully this Wednesday as I've already said I expect some kind of hawkish tone.

 DJ Gold Mining Index

Note the similarity between the DJ Gold Index above this chart and the AMEX Gold Mining Index, especially as it relates to 3C action around 2014.

Now note the similarity between the two above charts and this one of GDX, the Gold Miners ETF.

 And GLD, recall we called the 2011 top nearly on the nose, but look at action in to 2014.

Here are some individual gold mining companies, note the similarity in their charts as well...

 NEM

RBY

GFI

GG- these are large bases, some along the lines of the 1999-2000/2001 Home Builder accumulation that lead to gains of +2500% in some instances.

 ABX

I'm not quite as excited about Silver, but it is worth noting...

 SLV

And some individual mining companies with very similar trends to the gold miners...

 SLW

HL

PAAS

EXK

GPL

IT should be fairly obvious that there's a large movement and flow of funds in to the miners, traditionally (except during QE) they tend to lead gold prices, without QE they may again, but in any case, someone is very interested in precious metals in a big way. I prefer to trade in and out of leveraged ETFs like NUGT and DUST, but there may be some mining companies above that have decent dividends, I didn't look at those yet, but I will, that may make a longer term position even more interesting.

Quick Market Update

Since the last update there have been some not so exciting intraday trade in both price and 3C; they have managed to keep the market in a range, as you can see there's VERY little movement in the major averages, for all intents and purposes this is a FLAT market or you might call it consolidating. Weak divergences have been known to create consolidation patterns like what looks like a bear flag in the SPY...

However, unlike the bear flag of mid-May in which we could see accumulation and knew it was a false price pattern or a bear trap that set up a short squeeze, so far this continued consolidation isn't adding anything to the mostly weak divergences in the market. 

I'll keep watching, I am nearly finished with a larger and very interesting post.

Opening Indications

I'm putting together an interesting set of charts that I went through this weekend, especially as it pertains  to not only the macro market, but more specifically miners (both Gold -primarily and silver).

In any case, even though it's very early in the day still, the averages and the Index futures have both seen early negative intraday divergences at the a.m. bounce highs, using the SPY as an example...

 The positive divergences I talked about Friday that are still quite weak in most averages as we had at least 2 sets last week run over, as I said the last time I remember that happening (clearly any way) was the decline (early) from AAPL's all-time highs as a panic selling mode set in which brought AAPL from all time highs, down -45% in 8 months, almost cut in half! The early positives, one which I chased to get better shorting position in AAPL near the highs, crumbled as panic sellers flooded the same small door all at the same time.

I wouldn't say these divergences (positive, but still weak) which I thought may bounce up until the F_O_M_C Wednesday, are run over, it's too early to determine that, but it's not a great start, index futures confirm and TICK data is coming in at -1400 this morning!!! A VERY bearish EXTREME.

 This morning's negative at intraday bounce highs.

 And as I said, most of these are not well developed or very strong, thus the reason I'm not keen on trying to chase them, this is the SPY 5 min chart with no hint of a positive, just the negative sending it lower from its highs as we expected for last week.

There were several trades in which a bounce would set up a nice entry, allowing the trades to come to us. NFLX was mentioned Friday, NFLX (Long Term) Trade Set-Up

 This is part of the small positive divegrence in NFLX that I suspected might give a second chance to any who were considering NFLX short, but didn't want to chase it down.

 This is this morning's action with an intraday negative at the NFLX small bounce highs.

PCLN was also mentioned as the same kind of trade idea, For Those PCLN Hunters

 Here's the negative sending it lower which we don't want to chase and a positive that is large enough for a bounce that can be used to short in to as the strategic view of PCLN looks quite bad...

PCLN 4 hour leading negative as it seems to have already have hit a top.

However again this morning, PCLN's bounce attempt ran in to early selling.

AAPL was another recent idea along the exact same lines, mentioned in Thursday's Daily Wrap, looking for a bounce to short in to.

 The 3 min positive divergence

 The longer term 60 min chart (see the update as there are many charts in line all negative as I have been watching and waiting for a set-up in AAPL...

And this morning's action.

This is the same as the market action. As I said, until the strongest positives like AAPL's 3 min are taken out, these can't be considered as "run-over yet, but if they are, it would be the 3rd time in less than a week and that has tended to indicate panic selling in the past, although rare to see.

A.M. Update

Good morning, I hope all had an enjoyable weekend.

This morning futures are down, some blame it on geopolitical risks including Iraq's incredibly genocidal insurgency which is now attracting the attention of the US Aircraft carrier, USS G.W. Bush as well as another ship loaded with 550 Marines, the US's largest embassy in the world, in Iraq, staffed by some 5500 people is being evacuated (to what degree is unknown) as it appears apparent the US will be launching air assaults on the sectarian (Sunni) ISIS insurgency which has bulldozed over all Iraqi security forces with unbridled brutality, releasing photos that are the buzz of the internet this weekend of mass executions of 1700 people at once, making this worse than the Gas attack in Syria (which we still don't know who launched). In any case, US fighters and drones should be over the skies soon as the insurgency has taken a town only 30 miles from Bagdad and has moved lightening fast from the north and south, converging on Bagdad.

Of course other geo-political tensions are on the rise, Ukraine's civil war saw it's bloodiest day this weekend as intelligence is released by the US that Russia is providing Pro-Russian forces with tanks and on the other hand more evidence of the US's involvement in the overthrow that started all of this is also released. Russia's state owned Gazprom which provides Ukraine with Natural Gas and about 1/3rd of Europe, just shut down all gas deloiveries to Ukraine unless they pay for the gas ahead of time, this is nearly impossible without outside assistance as they already have a $2+bn bill in arrears with Gazprom.

Also China and Vietnam are at each other's throats over the placement of an oil rig in waters each claim to be their own.

As for the market, last week we saw several small divergences (positive) getting started and promptly run over, the only time I've seen this is when there's a panic, AAPL was the last time I saw this as it lost -45%, however as of the close Friday some new, but still small divergences (positive) had taken shape and I'd say the probability for a bounce is higher than not, but it's still difficult to say, although a bounce would be perfectly normal at this point.

 The market has seen 5-days of selling off, which is what we forecasted Friday a week ago in the "Week Ahead" afternoon post. A bounce here would be normal, the only thing is the averages don't have STRONG bounce signals, they have been run-over last week and Friday's Dominant Price Volume Relationship (these are the component stocks in the averages, not the averages themselves) had a Dominant relationship of over half, Close Up / Volume Down which is most typically associated with a short term oversold condition and usually closes lower the next trading day, it is also the most bearish of the 4 possible relationships.

As for the averages...

 A 3 min relative positive in the SPY and that's about as far as that one goes...

The higher probability (this does not preclude a bounce, just shows the highest probability of longer term (longer than bounce) resolution is to the downside as can be seen by this SPY 15 min and...

SPY 60 min where the move above the range looks to have been distributed hard.

As for the Index futures, they add a little more color for a bounce and the higher probability continued resolution of price...

 ES 5 min with a negative last week sending it lower and a small positive now.

ES 15 min with a clearer positive as more noise is removed, but as far as highest probability resolution...

 The 30 min leading negative which is worse than it appears, I just can't get enough history on the chart...

 And the leading negative 60 min suggest the same as the averages do.

As for Treasuries, I'll use the 30 year futures as an example but 5 and 10 year look similar, they look set for a pullback and then a resumption of an uptrend they seem to have just carved out a base to support (see TLT recently).

 30 year Treasury Futures 5 min looks like a pullback, perhaps in to the base area.

 30 year 30 min Treasury Futures positive

 60 min T. Futures positive and showing the base area.

This action would fit and make sense with the normal Treasury/Equity relationship, but not the recent one (of the last several months seeing both rise).

As for Crude, geopolitical risks have driven it higher, but it looks like there may be some change in trend or at least a short term pullback which may make for an interesting trade.

15 min Crude charts are showing a negative divegrence, still the longer term...

Is in line with a hint of a small pullback, this "may" be worth trading, surely worth keeping an eye on.

As for Gold, it was my opinion last week a GDX/GLD pullback is close, gold futures show...

 a 5 min negative suggesting that pullback...

a 15 min negative also suggesting a pullback which may be worth trading, perhaps a move out of NUGT and in to DUST, I'll be looking at that.

However the strongest probability 60 min chart shows gold has a very high probability of resolving to the upside.

I confirmed several different gold/silver miners indices , all looked the same, very positive so it may be worth looking at individual names like HL, PAAS, GG, etc, although I prefer the 3x leverage of ?DUST/NUGT.

As for events this week, the main event iof the F_O_M_C at 2 p.m. Wednesday, they have made abundantly clear they are not comfortable with investor complacency and the lofty valuations, I would not be surprised if they moved up an interest rate hike time table or came out with some other hawkish comment to knock the market down.

The Market Into Next Week

Going through the charts, there's a lot today that looks similar to yesterday, which is to say quite a few newly formed divergences have been either run-over like yesterday or deteriorated pretty badly.

Right now, the 1 min charts for the averages and Index futures are negative. There are scattered positives, mostly in the 2 min area, a few out to 3 min and the IWM has been able to maintain a 5 min positive looking signal, but not quite a clean, clear divergence. I mention this to contrast it with the 5 min SPY which is just seeing more damage today. It has been a while since I've seen this kind of activity, but I'd say there's a real sense of fear and the hedge fund herd that usually moves together, seems to be breaking up in to an every man for themselves or "Whoever sells first, sells best" mentality. I believe that's why it has been so difficult to hold together positives that have formed.

HYG is still supportive of a bounce, although the asset itself has seen deterioration which I showed in last night's Daily Wrap; whatever deterioration was on the charts in last night's post, you can pretty much triple that today, yes, massive deterioration in HYG so I am amazed it's still able to hold in position.

Professional sentiment indicators are similar to last night, 1 is showing what looks to be a very short term bounce, the other is pretty much in line with price which in itself is a bit on the bullish side as it's not leading price lower.

Yields and commodities look the same as last night, yields are in line with price, commodities, apparently because of Iraq and perhaps some safe haven gold buying, are leading the market.

The dominant theme among watchlist candidates is a fairly large H&S top like NFLX that appear to be at the top or the right shoulder and close to the decline to form the right side of the right shoulder.

It's my opinion based on F_E_D communication and the way the 3C has acted since SPX 1900 was crossed (along with these right shoulders everywhere) that the F_E_D / F_O_M_C next Wednesday is going to do or say something to pop the exuberance they see in the market, I suspect it will be subtle so they aren't charged with manipulating the market as we all know they do, but they are clearly unhappy suddenly with the lack of respect for market risk.

The bounce I had envisioned considering I used a partial IWM call position with expiration next Friday, would be along the lines of pre-F_O_M_C and looking at the market as a whole, right now I can't say that I would expect much. In fact I am starting to wonder if it is even possible given it seems any kind of underlying strength that builds is so quickly torn down.

This is why I'll leave all shorts in place, add to them where appropriate and essentially have a small IWM call position as a short term hedge that I know the max. risk of. 

I'm not going to make the mistake of chasing small, ill-formed short term moves when there are large, well formed negative divergences and right at an area where there are so many right shoulders.

Last Friday I said I expected the head fake move that began on 5/23-5/27 to start to be resolved to the downside this week, thus far, that's exactly what has happened.

From what I see right now, I'd expect a pre-F_O_M_C relief bounce and the move to really start generating downside momentum, however as to any bounce, I don't think (at this point) you can count on positive divergences much past 3 mins, meaning I think you'll need to be nimble to capture gains and likely need a fair deal of leverage to make it worth the risk, while also pre-dfining that risk to a tolerable level which you can do with options as the premium paid is the maximum risk.

Beyond that, there has been an exceptional amount of damage done this week and I'm talking about damage being done while the market has lost ground as we usually see distribution in to higher prices, this week we have seen it in to lower prices as well, which is what gives off an aura of panic.