Energy Sector/Oil Update

I've had a number of requests for both crude (USO/Brent) updates as well as the energy sector more broadly, XLE. I'm going to try to cover what I think is significant because there are more than just trade ideas (or not) apparent in what we are seeing, there are broad macro-economic concepts that will have an effect not only on the economy (which is what they are reflecting), but the market as the economy goes. So please forgive all of the charts, but there's a continuity between them and there are some possibilities, although I'd say nearly all are extremely speculative.

First, I'm going to show you XLE, which is the S&P Energy Sector which broadly includes oil, gas as well as services such as exploration, pipelines, drillers, transportation, storage, etc.

XLE (Energy Sector)

 Fist on this weekly chart one of the themes you'll see over and over whether we look at the entire sector, the services side or the oil/crude side is this channel through 2012-2014 and a type of  head fake move called a "Channel Buster" which , as usual with transitional areas, looks very bullish as the upside ROC increases, but they are red flags telling you that you are transitioning in to a stage 3 top, thus this is a great time to tighten up stops, take partial profits, etc., but understand that what you see and what you'll eventually get are two very different things.

The failure of the Channel Buster to maintain above the channel (which almost always happens), leads to stops that are just inside the channel being hit as price comes back down, which creates a rapid sell-off usually piercing the bottom of the channel, "From failed moves come fast reversals", and again it's a type of head fake move that is specifically there to generate a momentum move (down here) without having to get too involved in selling large quantities of shares , you just let the stops do the work just like a short squeeze.

You'll notice this pattern is common in Energy related issues. *This also looks like a double top, commodities tend not to see the same level of head fake moves (on the larger double top) as individual equities and I think that's because there's true fundamentals that move price, real supply and demand.

Here's a closer view on a daily chart of XLE breaking both the Channel Buster, the decline through the bottom of the mullti-year channel (talk about a change in character) as well as the resistance/support of the long term double top.

However notice the last 2 days' candlesticks, bullish reversal, hammer like candles.

These carry no target or duration estimation except to say if you saw it on a 5-day chart, you'd expect the reversal to last at least 1 bar, a week.

 The daily XLE 3C chart shows the channel pretty much in line, but horrendous distribution in to mid-2014 with a leading negative divegrence on one of the strongest charts we have-DAILY.

The 60 min chart is clearly confirming the daily chart.

Everything between that 60 min and this 5 min is negative, in fact the 5 min is probably the best looking as it is in line or confirming the price trend and not leading negative, but I don't see anything worthwhile beyond the candlesticks if there's not even a 5 min positive divergence.

DJUSEN- Dow Jones Oil & Gas Index...

 Again on a weekly chart, the first thing that jumps out is the channel, the red flag Channel Buster and its failure, if nothing else, this is a textbook Channel Buster, which is one of our concepts, not particularly a technical analysis concept as they look for the downside break first and miss the head fake part and how and why the head fake generates its own momentum.

 Here's a closer look on a daily chart, the yellow arrow representing the head fake Channel Buster, as soon as it fails, there's a strong downside move that penetrates the lower channel.  Also note the two days' bullish candles right below former support, now resistance.

This is about the best trade signal I can see and I think the probability is up for a short term move, but there's a difference between a probability and a high probability/low risk trade with good potential returns.

The daily 3C chart looks a lot like XLE's, CLEAR distribution on a huge scale as a daily chart is one of the largest signs of underlying trade.

OIH  Oil Services...

 And once again on a 5-day chart, the trend is your friend until the end when it starts to bend.

And the multi-day (3) 3C chart, again with the same heavy distribution.

While Energy the above Energy 3C charts don't look good, at some point demand will come back unlike an equity that could just go broke, but this is a strong sign.

What this tells me is that all of the ISM and PMI manufacturing and services data are on target, there's less demand for energy as there's less demand for goods and products as seen in manufacturing and services economic data, thus the probability of a European Triple Dip recession is high. The probability of China seeing a bubble explode and go through the first significant change from a growth story to a country facing the problems every one else has (as China is not outsourcing labor due to higher wages in China).

My point is simple, this one chart is telling you a lot about the global economy which in turn, in the absence of F_E_D free money, is telling you a lot about the stock market and all of the potential spider web cracks that we always fail to imagine.

 A closer look at OIH on a daily chart shows the same two day, bullish reversal candlesticks, they are in a good area for a reversal as short stops will be triggered on a move inside the channel and a squeeze is likely, IF it can get going that far.

 OIH, 60 min chart with distribution and enough accumulation to create more distribution in to better prices.

USDX-US Dollar Index.  The Historical Legacy Arbitrage relationship between $USD and $USD denominated assets has been gone for almost 6 years as the F_E_D devalued the $USD with money printing, ironically, doing the most damage to the people who were the most responsible, savers. Not only did the F_E_D cut the value of their savings through dilution / printing, but then forced them to seek some yield as the F_E_D has set Zero Interest Rates for 5 years, causing many to chase assets they have no idea how to trade including Junk Bonds/Credit, thus further endangering the most responsible people while the scam banks that are "Too big to prosecute"
 (Holder should have been fired that day) have been giving BILLIONS in near risk free money.

In any case, as POMO/QE winds down and ends this month, the $USD historical relationship is ever increasing, higher $USD should mean lower oil, gold, silver and stocks while a lower $USD means the opposite.

The daily $USDX chart shows a new high not seen since June of 2010 as F_E_D policy begins to normalize.

However there is a 60 min negative, I don't think it's ready to fire off yet as we don't have solid multiple timeframe confirmation yet.

This is the 5 min chart still in line with a recent positive divegrence sending it higher today.

Intraday there's some distribution, but this isn't useful beyond today.

If I see the $USD negative on 5, 15 and 30 min charts, then I would say, we'd probably have a sizable base in Energy related issues and a solid chance for an upside trade, although I would view it as a trade only, not a long term position like UNG.

USO-WTI Crude

 Here we have a similar Double top as seen above on a daily chart.

 Here's the daily downtrend and a recent break below what looks like a head fake area .

Also increasing volume suggests there's going to be some change in trend shortly.

USO Daily 3C chart shows the cycle of accumulation and distribution, but this is a different cycle than a stock, this is an asset that has fundamentals based on supply and demand, not accounting gimmicks, buy backs, insane fP/E multiples and largely moving on sentiment. So the accumulation and distribution here is not part of a wider pattern, it's just the season for oil demand and the season when it dissipates.

This is a hard trend to trade against long.

 BNO-Brent Crude (USO is WTI)

 The BNO 30 min chart is perfectly in line with the downtrend, confirmation.

The USO 30 min is the same after distribution.

I don't see any charts that are strong enough to risk a long position here.

I can see the chance of a larger base being made and within that base those hammer candlesticks may be a part of creating the base and perhaps they do fire off to the upside, but I don't see any support for anything sustained beyond a couple of days based on the candlestick ONLY, no 3C support.

And Finally...

CL...Brent Crude Oil Futures

 This is the 4 hour chart, perfectly in line with the decline

 The 15 min chart is the first place I see any possible positive divergence and it's short, maybe along the lines of the Hammer Candlesticks creating a reversal, but again there's no target on a candlestick reversal, it could be a single day.

 The 5 min chart shows NOTHING, this is my minimum chart for a long and there's nothing there.

Intraday 1 min, also nothing other than downside confirmation.

At best, from my perspective, unless you want to try to trade the candlestick probabilities, the best we can hope for in the near future is some lateral trade and a base being built for a pop to the upside, I think it would be an oversold bounce, but although we may be oin oversold territory or we may not, I don't see any support anywhere in the energy complex other than Natural Gas.

I'd stay away personally. However, I would consider what these charts are telling you about the global economy and how that impacts the stock market as well as our businesses, our homes, our every day life.

Quick Market Update

While it's not as obvious in the SPY, DIA and QQQ, the IWM is definitely throwing negative divegrence signals to the point,  it is coming down intraday, that may help answer some of the other questions as we see how it acts as it comes down.

I'd expect the other averages to follow, but perhaps the IWM leads and has the worst relative performance.

Closing Out Oct. 3rd XLF $23 Calls

On September 24th I posted, Trade Idea: (Short term options) XLF Calls which was a speculative long position on Financials, those expire today and are up 144% from yesterday, while still being at about a 50% loss.

These were a speculative size so it's not anything that hurts, but I figure I might as well take what's left of them rather than take a chance on the rest of the day and them perhaps losing all value.

If I has an expiration that was a week or more longer, I'd hold them without question, but they do expire today for me so I'm going to go ahead and take the loss of about 50?% of the position and salvage what's left.

Futures and Leading Indicators

Earlier in the week and numerous times in the past I have said that the 5 min Index futures' charts divergences were a minimum for me to take a TRADE, we quickly got those for confirmation and we have some other interesting things going on. Leading Indicators are proving the concept, but also are giving us a message, right now it's very early in that message so although I understand what the bias is, I don't yet understand what the timing is as they are rather new.

There are quite a few charts here so if you don't have time to look at them now, maybe swing back later as these are probably very pivotal in understanding short term trade, the Week Ahead as well as how you can use the price movement right now (not by chasing it) to your advantage.

Lets take a look...

What I'm considering is multiple timeframe analysis and multiple asset confirmation.

 As already proposed, it seems as soon as 4 p.m. Tuesday hit, we already started seeing accumulation for Oct. 11st which is where I expected some accumulation and a bounce to start forming because the accumulation would have to wait until the Window Dressing period had passed, there's no point in selling poor performers to get them out of your portfolio in your holdings filing only to add them back in accumulation for a bounce. The end of the quarter, which I'm not entirely sure where it ends (may be different for different types of funds) for reporting, but I suspect 4 p.m. on the last day as there were signs of accumulation right after Tuesday's 4 p.m. close.

In any case, the bare minimum 5 min chart (NASDAQ 100 futures) above is in place.

We even have a strong SPX Futures 15 min divegrence, again note the heavy accumulation late Wednesday when I made the quick end of day changes out of SRTY and SQQQ and in to URTY and TQQQ which paid off yesterday alone and continues to today.

 NQ (NASDAQ Futures) are also confirming the divegrence on a 15 min chart so this looks to be a strong divegrence, even though a fairly small base.

As mentioned earlier, get use to seeing sharper bases like this as counter trend rallies in a declining market or bear market are quick, rip your face off and very strong rallies, they have to be to have any effect.

And the Russell 2000 Futures (TF) also confirm.

We have positives out to a 30 min chart on ES above.

Also NQ

And TF, that's multiple timeframes and a strong divegrence itself even though the base is small. How is this possible to get that much gas in the tank in such a short period? It was the size of the declines and all the stops they hit, look at volume as these were being accumulated. As I said at the time, "There's huge supply available at cheap prices" and I wondered why traders never ask themselves, "Who's on the other side of this trade?" Someone is and that;s an easy way to accumulate in size , quickly with apparently no one catching on to what they are doing as everyone is focussed on price rather than underlying trade.

 We even have a 60 min positive in SPX Futures, however...

NQ and TF 60 min charts are closer to in line.

So the feeling I get is that this bounce has the capacity for a significantly higher move than what we've seen thus far, but does it pullback and widen out its base?

I also mentioned treasuries this week looking like they are seeing rotation out of their safety and in to risk assets, this is 30 year treasury futures on a 5 min chart with a negative divegrence

 ... and look at the day, out of T's and in to Index futures.

 The 15 min 30 year Treasuries also have a leading negative divegrence, so I'd expect to see TLT lower in the days ahead, but there definitely looks to have been rotation from safety to risk, which I would think wouldn't be worthwhile for a 1 or 2 day bounce so again this points to a bigger move than what we have seen thus far.

 Even the 30 min futures show a negative divegrence.

And as far as multiple asset confirmation, the 10-year Treasury futures on a 30 min chart also have a negative divegrence.

 As do the 5 year T's, which is what we use for a leading indicator, the 5 year yields, so a dropping 5 year treasury means a rising yield and they tend to attract the market toward them like a magnet, so more leading indications of a higher move.

As for TLT, the 20+ year Bond Fund... I have to wonder how much of this may have to do with PIMCO redemptions as Bill Gross, co-founder of PIMCO in 1971 just left the company to join Janus, thus there are bound to be redemptions just from loyal clients who want to follow him to Janus,. The question is, how much of the 3C signals of distribution are PIMCO liquidating to meet redemption calls (while  bill Gross gets to pick up the very same treasuries on the cheap) and how much is rotation in risk off to risk on?

 TLT 30 min showing our August 28th "pullback" call at #1, then at #2 our call for the end of a constructive pullback and gains from there  with more recent negative divergences like the Treasury Futures above. Again, the same questions regarding PIMCO swirl around.

 TLT 5 min negative and a turn down

 And the sharper TLT 2 min negative with a little support today, this makes me wonder if we see lower prices today and whether those are op-ex related or perhaps base widening or just messing with sentiment before the weekend and taking the market higher early next week.

My custom VIX inversion indicator is not seen above as there's no signal, but the custom SPX/RUT ration shows every confirmation/non-confirmation signal that has guided the SPX above with a current positive signal in the indicator.

 HYG, High Yield Corp. Credit's longer term picture as it leads the market since June and in to our August cycle , it once again is leading this bounce as well.

Here's a closer look at HYG's positive divegrence vs the SPX, again another sign of early warning that allows us to enter at the best prices and lowest risk.

 Look at the HYG/SPX correlation intraday!

And HYG's divergences, a 10 min positive so there's good support from HYG.

The 3 min chart is in line or better

The 1 min chart doesn't look like the market is going to lose much ground today, at least thus far so the pullback and wider base theory don't look strong right now.

 Longer term HYG's 4 hour chart should leave no question as to where this market is headed.

Sentiment is all over the place, our first indicator has a nice leading positive for the bounce

Intraday it has a slight negative, again, the question of whether a bigger base is coming,  which would be useful to any who wanted to enter a leveraged long ETF.

Our second sentiment indicator seems to suggest we do see near term, maybe an intraday pullback.

Right now yields are perfectly in line with the SPX, however if the Treasury Futures (5 year) charts are correct, then yields should rise and they tend to pull the market like a magnet.

Finally HY Credit put in a leading positive signal, but looks a little like it's in consolidation move here.

The questions are pretty simple, I do think we get nice additional gains in to next week, but do we pullback a bit today to widen the base, if so, the gains could be even larger than I anticipate at present and you may have a chance to enter or add to long trade positions.

As we see weakness building in, like the Sentiment chart above, we'll want to watch for more of that as that's our key to start entering and filling out short positions, many of which are still in set up mode and just needed some upside market support for near perfect entries from a risk/reward and timing perspective.

This is a good baseline to judge additional market updates by.

A.M. Update

It's a rough morning after a 7 hour drive last night and getting about an hour of sleep so hang in there with me as I get up to speed (connection problems and everything else this a.m.).

Futures were up overnight, presumably or at least in part due to worse than expected European Services or non-Manufacturing PMI's with only Russia and Germany beating, however Germany missed on the all important manufacturing earlier this week as Germany is the manufacturing dynamo and growth engine of the EU.

So it seems bad news is good news , either that or the op-ex pin was higher, but either way, all of our recent data has pointed to higher prices in the near term which is why some of the leveraged core short positions were flopped over to long late Wednesday.

On the Non-Farm Payrolls, we have good news is good news as the 248k beat over consensus of 215k and above Augusts's revised +180k (up from 142k), which breaks the +200k addition streak, but has now created the longest job growth streak in the US's history since tracked. The unemployment rate dropped from 6.1 to 5.9.   F_E_D... steady as she goes, QE will end this month.

However the F_E_D whisperer (not my creation, but a great name) from the WSJ warns not to get too giddy about the jobs beat as it is a F_E_D net negative, earlier rate hikes perhaps?

In any case I'm interested in what the market does and thus far here's what we have...

There was a bit of an MSI short squeeze, nothing impressive enough to capture.

 While the SPY, DIA and QQQ's 1 min intraday chart is trying to catch up to confirm the gap up,  because late yesterday we had negative divergences in to the close in the 1-3 min range suggesting a little more base building before we move too far north on the bounce.

However, this 5 min positive is still the bottom line, this is still the sponsor of the bounce and it still looks great, even though the bottom is very "V" shaped, but we'll be seeing more of that as downtrends continue like the IWM's and bearish trend counter trend bounces will be sharper like this so we'll have to get use to seeing this.

 DIA trying to catch up as well, but the bottom line is this 10 min positive (note the prior negative,nearly perfect forecasting).

 QQQ 2 min shows the negative afternoon divergence from yesterday.

QQQ 1 min shows the market trying to confirm the gap up...

And the QQQ 15 min leading positive divergence is still the bottom line or the most important chart for the bounce itself regardless of intraday trade.

 The IWM 5 min and the IWM is the only average that seems to not be trying to confirm the gap up this morning.

 Here's the 2 min negative from yesterday

And the 1 min chart not trying.

Since capturing these, all averages EXCEPT the IWM, have confirmed the gap up on a 1 min timeframe, we'll see what happens , if they can get to 2 min, if so, then our base building is probably done and we continue to bounce from here.

Is anyone glad we closed FXP yesterday?

I'll be adding some additional small updates as I catch up and find new indications that are of use to us in either entering the long trade if you haven't already or managing it, depending on what those 2 min charts do now and the IWM of course.