UNG Nat Gas Update

The EIA Nat gas report was out today and despite an unseasonably warm start to the cold Fall/winter season, things are definitely picking up to unseasonably colder, Natural Gas supplies though, as revealed today in EAI's natural gas report only saw a draw of -111mm bcf vs last week's fall of -160, even with the draw, supply is above the 5 year average.

I think as posted on the 10th and yesterday that there was a head fake stop hunt in UNG below $14 and we are technically at a bullish ascending triangle which would suggest an upside breakout, the longer term charts are there as support, but looking at some of the shorter term NG futures charts, UNG like USO, also looks like a stop run first is a higher probability, as well as a better entry, less risk and stronger timing, although from a broader perspective, I have no problem holding UNG here.

 Daily UNG 3C chart with the stop run (yellow) and a positive divergence at the head fake/stop run

It's for this reason and charts like this that I don't mind holding UNG long here, but I suspect for new or add to positions there's probably a slightly better entry.

 While not textbook, on this 60 min chart the form of an ascending (bullish) triangle can be trraced out, the naural stop run would be below lower support, also at the psychological whole number of $14.

Today's churning bars with long upper wicks (60 kin) on heavier than normal volume suggest near term churning and a likely pullback, $14 or below would be ideal for letting the trade come to you with a better price point and lower risk.

 Long term charts look great for UNG like this 60 min which is why I wouldn't mind holding UNG long here and now.

The intermediate 10 min chart is the same.

At the 5 min chart we get our first taste of a negative divergence recently that looks like a pullback below the $14 level.

Futures charts don't have the same history on TOS, so their timeframes don't mean the same as the ones above, but in looking at them, it seems a pullback below $14 is probably likely and the sweet spot for new UNG long or add to positions.

 The 30  min natural gas futures chart suggests a pullback as do the 15, 10 min and others.

 This 7 min chart is near term so it would seem like if it were going to happen it wouldn't take long to start.

Again the longer term UNG charts are heavily biased to the upside, but that doesn't mean a near term pullback is out of the question, in fact they are usually hand in hand.

So I'm setting alerts for UNG< $14, that's where I think it has the highest probability set-up and the trade comes to you on your terms and has to prove itself first before any entries.

USO Update

In the USO potential trade set up for a second leg higher, the last two posts probably set it up best, the first from Tuesday, USO Update and the second from yesterday, USO Follow Up.

One of the areas that was a potential stop-run set off a lot of alerts for my system this morning, that would be...

 The break below the bullish ascending triangle,  this is just another example of how Technical Analysis principles, with a bullish consolidation price pattern, are used against technical traders because of their rigid adherence to technical concepts, it makes them predictable.

The stronger and probably more likely move is below the wider rectangle, this would also be a stronger and more profitable set up for a new leg higher.

Volume is up today so that means , "Pay attention", however it does not mean that the daily candle we have right now is what we'll have by the close which is what really matters.

Here's where the volume has come from so far intraday, not a lot of it has come from stop runs, only on this morning's gap down, that's where the set up is, hitting a big group of stops and accumulating on the cheap sort of like that mistranslated Japanese game's taunt, "All of your bases are belong to us ha ha ha ha!", in the market it's more like, "All of your shares are now belong to us ha ha ha !"

As for the other indications...

 Intraday there's support both in USO and Brent futures (/CL), however this is a 2 min chart, there's literally no base other than this morning's intraday lows and thus far price has filled a gap, not uncommon.

 It's when we get to the 10 or 15 min charts that we see not only the base/accumulation for a USO move higher, but also the pullback/negative signal to the right which does not look resolved and this is a much higher level of underlying money flow.

I know equity traders don't like to be compared to gamblers, but there's a similarity, however it's not as bad as it sounds. The typical Las Vegas vacationer is gambling 9 times out of 10, a professional card player knows what the odds are of a certain hand coming up, they know what cards have already been dealt and therefore they are making an educated guess based on probabilities, don't fool yourself, the best we can do in the market is make the BEST educated guess as to probabilities which is why trading is otherwise known as speculating, the only sure thing is surely illegal.

Based on the chart above, I think you "could" enter USO here, if you had the tolerance for drawdown below the $18 level and the ability to hold, the probabilities would be you'd be rewarded, you'd also most likely be jumping in early and not at the best price or lowest risk.

The flip side of that coin is you miss the boat entirely if you're not right and decide to wait it out a bit longer. However from a probabilities standpoint and from a risk:reward standpoint, I think $18 has to be broken and in that area you'll find the highest probability/lowest risk position. So you can either take a pair of Jacks here or wait for a full house below $18 and have the ability to know whether or not it is a full house (confirmation of the 3C signals on timeframes like the one above).

From a probabilities perspective...

The 2 hour chart which went negative and is now positive suggests a high probability move higher, but as to where the best entry is and the most timely, I think the probabilities are highest below $18 based on what I see right now.

This is where fear and greed come in to the decision making process, the Fear and/or greed of missing the trade vs the higher probability/lower risk position under $18, I'd rather go with a probable full house than a pair of Jacks, I think that Full House is likely below $18.

Market Update

I almost have to laugh at the brazenness of the Greek government, but it's actually nice to see David stand up to Goliath.

After the Euro-group/Germany rejected the Greek proposal for a 6 month bridge loan earlier today, the Greeks came back with an ultimatum of their own, "Either accept or reject our proposal", the thing is, just hours ago it was rejected, that's what's kind of entertaining about this new Greek government, what's even funnier is to watch the market respond to the news which I don't think will be well received by the Germans, especially considering that folding here could embolden countless other far left anti-establishment groups across the EU, something I think many people don't give enough credit in the decision making process, the EU can't afford to look like they are being pushed around by the "Beggar".

In any case, here's the morning update/charts, as ridiculous as the Greek ultimatum is, although done for a specific theatrical and negotiating purpose (We won't give any ground, but if we do, you better take it because that's all you're going to get), just as ridiculous is the market's pop on the news. As Goldman has said in analysis, they are now in the very red danger zone (every player in this drama).

 The SPY intraday chart shows no support for the move off the Greek Ultimatum to the EU.

This is the rounding top/reversal process area for the SPY, one of the common price patterns for such a reversal is what we call the "Igloo with a chimney", which is a rounding top and to the right of the chart, a small failed breakout from the rounding top forming a chimney looking pattern as drawn in above, this chimney is the best timing indicator for a reversal in the reversal process, it's where I'd enter put positions, not just shorts. 

Sometimes we don't get them, but they are just as common at bottoms (mirror opposite) as they are at tops, for instance,

 Here are a couple of rounding bottom/tops in the SPX's 2015 range, the first two were just rounding, no chimney, the 3rd, the base to the current cycle, has the chimney or what is otherwise a stop-run head fake move and it happens just before the reversal process turns to a reversal.

It's a fairly common pattern, but whether we get it or to what extent is really up in the air. IF we do get it, that's the kind of move and discount on puts as well as timing, I like to use for option entries (puts) just because of the discount from the move and because of its timing qualities which are important to me in option positions.

 The Q's this morning, also not seeing any support.

And what "may" be considered a Chimney" on a rounding top, it's a bit small, but the question is whether it's effective, usually volume will tell us that. I don't see a very effective volume spike, meaning traders fell for it as of yet.

Here's a better example of a larger one off the August cycle in to the October lows, the head fake/rounding top, igloo/chimney was in September.

That one we knew was coming and made for an excellent short entry or puts.

Here's IWM this morning, very little to no support.

And since the cycle from 2/2 started, here's the IWM's reversal process.

Quick Market Update

The market bounce this morning on the Greek counter-ultimatum is silly, I'll show you the charts on a post I'm working on now, but this move isn't going to hold intraday, just look at TICK.

I'll have the charts out in just a few minutes.

GLD Next Set-Up

We had been looking for a pullback in Gold/GLD which has taken place or is still underway, but I believe it's getting close enough now that it's time to start looking at the next set-up as the trade comes to us rather than chasing it. For any gold shorts out there, you likely have more time, but probably not too much more upside in the short or better put, the upside that remains, may not be worth the volatility, I'll include a Trend Channel stop.

 This is the longer term daily chart of GLD, although it's a bearish looking descending triangle, the price pattern is too large to be a real descending triangle consolidation/continuation pattern, I think it's more likely this is a longer term base that has been forming, but we'll leave plenty of room for the market to tell us when we get there. Inflation expectations are going to have to see a drastic change in expectations if gold is to lift off.

 Here's the pullback we were calling for. Just for perspective, look how many days within the downtrend that it seemed GLD was doing nothing (2 trading weeks). Sometimes we expect things to happen much quicker than they do, especially if you watch the market all day every day, but if I remove that yellow box you'd likely only see a downtrend.

 Here's the 3C pullback signal we got in January and the pullback, but you've probably noticed a positive divergence "building", it's not complete, but it is suggesting that GLD is going to look for a bottom and start a reversal process sooner than later, thus my reason for tightening stops for GLD/gold shorts on the pullback.

In buying a pullback we always look for a "Constructive" pullback, that means it can be there for numerous reasons like strengthening an already large/strong base, but we HAVE TO SEE ACCUMULATION OF LOWER PRICES, that's the real judge of whether the pullback is constructive and worth looking at for a purchase at lower prices and lower risk.

The intraday charts are showing accumulation taking place and accruing on the longer term charts like the 10-15 min charts.

 However there's no reversal process (rounding or "W" bottom) in place and the 5 min chart is not positive, these should materialize before we enter a long position and shorts will probably want to be out of the position by then if for no other reason than it's dead money.

If you look at the second chart (daily) you'll see we are approaching a support area, there may be a head fake/stop run below that, we'll have a better idea as we get closer, if there is, I may prefer a call position as the calls can be had on the cheap.

For current GLD shorts, this is a bit of a wide Trend Channel stop, but it's on a daily/closing basis and it will lock in additional gains before price can cross it which now stands at $118.90 and locking in about an additional $.50 a day (likely $118.40 tomorrow).

So we'll look for the reversal process, but GLD has already shown accumulation so I suspect this one will come to us at better prices and much lower risk, you might want to set some price alerts near long term support.

A.M. Update

Markets in China, Hong Kong, Twain and South Korea remain closed for the Lunar New Year.

Futures slid most of the night until the Emergency Euro-Group meeting to consider a Greek proposal for a loan extension or bridge loan, her's what happened next...

Shortly after the European open the algos lifted prices on the resolution of the Greek dilemma, and that sharp peak and reversal you see is the Euro-Group, specifically the paymaster, Germany, saying "Nien!" to the Greek proposal.

The exact reason why the Greek loan extension/bridge loan was rejected, it's the same reason I've had since day one of thinking this was going to end ugly:

GREEK PLAN SEEKS BRIDGE FUNDING W/O FULFILLING PROGRAM: JAEGER

Of all of the bullet headlines, the one above is the most important as it illustrates the gulf between Greece and Europe and the fundamental issue at hand that has prevented even negotiations on a proposal, the two sides have goals that are completely at odds with one and another, the Greeks seeking to exit the bailout and find an alternative solution and the Germans who have the most vested, seeking to keep the loan on the books at all costs, even if they have to extend terms and even if the Greeks exit the Euro, that has been the problem since day 1 and why this will not be easy to resolve, the market just doesn't seem to get that sticky point as you can see.

In another bullet point headline, 

`WE HAVE REASONS WHY CAN'T SAY YES TO GREEK PROPOSALS'

They have been the same reasons throughout. 

Daily Wrap

Greece was much less of an event today than implied by "sources" yesterday who said they'd submit an application today to extend terms, which would be negotiated later, which is a complete non-sequitor, it makes no more sense than, "I'll gladly pay you on Monday for a hamburger today, but I can't tell you which Monday yet". No wonder the Germans immediately shot it down and it wasn't a pivot in the market.

The F_E_D minutes on the other hand were a little surprising vs the policy statement. Did you notice the underperformance in Financials for the most part? Sort of like Yellen's last warning about biotech and Social media stock valuations, the minutes revealed the following today...

"Relatively high levels of capital and liquidity in the banking sector, moderate levels of maturity transformation in the financial sector, and a relatively subdued pace of borrowing by the nonfinancial sector continued to be seen as important factors limiting the vulnerability of the financial system to adverse shocks. However, the staff report noted valuation pressures in some asset markets. Such pressures were most notable in corporate debt markets, despite some easing in recent months. In addition, valuation pressures appear to be building in the CRE sector, as indicated by rising prices and the easing in lending standards on CRE loans. Finally, theincreased role of bond and loan mutual funds, in conjunction with other factors, may have increased the risk that liquidity pressures could emerge in related markets if investor appetite for such assets wanes. The effects on the largest banking firms of the sharp decline in oil prices and developments in foreign exchange markets appeared limited, although other institutions with more concentrated exposures could face strains if oil prices remain at current levels for a prolonged period"

We went in to today with Leading Indicators and 3C charts on the defensive, some that have been in line since the first trading day of the year finally turned divergent vs the SPX, the point of Leading Indicators. VIX protection was one of the more notable indicators the last several days among others. I'm not sure the minutes, knee jerk or not did much to change that as you can see by the limited information of the last 2 hours of the day, but still quite negative...Closing Market Update.

Bond Yields which have been supportive the last day or two of the market plunged on the F_O_M_C minutes, the 5 year shows the immediate plunge on their release and the 30y shows the more gradual decline which of course as a leading indicator acts as a magnet and pressures equity prices lower.

 5 year yields (red) plunge at 2 p.m. vs SPX

30 year also plunge, but have a longer intraday trend making their way lower.

The $USD cratered, oil fell lower, although it wasn't something we didn't expect (although it is counter to the traditional $USD legacy arbitrage), while gold and silver gained after the minutes with GLD +.23% and SLV gaining but still finishing red at -.51%.

Equities as you saw for yourself saw an initial knee jerk higher and then retraced the entirety of the move.

On the weak $USD, USD/JPY fell hard and EUR/USD gained ground...

 USD/JPY v ES intraday

EUR/USD v ES intraday

The day was an overall chop-fest to start with, in fact looking at the intraday chart, you'd not even know there was a F_E_D release being the knee jerk was so subdued and retraced while the $USD and treasuries had a much firmer opinion.

 The major averges intraday display little trend, however in the larger context of the base/bounce cycle from 1/29-2/2, today's action fits right in.

Stage 1 base, stage 2 mark up and stage 3 reversal process (rounding). It's always the flat, quiet markets you have to be worried about, they are easy to become complacent in and they have the most underlying action. For the most part, I'd call this (today) one of those choppy flat markets with the averages closing between down -.10% to up +.24%. These flat ranges are where we often see the heaviest underlying activity which was obvious from the futures update today, INDEX FUTURES LOOK HORRIBLE I guess the name of the post says it all.

I believe the slippage in crude is likely part of what we expected in yesterday's USO Update. The API crude inventories likely aren't going to be of help and probably get us closer to our expected trade set up as API came out with a 14.3 million barrel build, the EIA petroleum report comes out tomorrow morning, but with such an enormous build in the API data, I doubt EIA varies significantly from a massive build, thereby moving USO in our intended direction as posted yesterday, USO Update.

Leading Indicators were active again today, the VIX gains seen over the past several days obviously were in some large measure protection in front of the F_O_M_C as it appears some hedges were lifted after the minutes were released.

 VIX outperforming the SPX (inverted) correlation pre-F_O_M_C and a dump of some VIX after the minutes as hedges were taken off.

 Still our pro sentiment indicators like the one above and below continue to move lower, in one case this is the first time this year.

You already saw yields above and it's hard not to suspect that commodities are once again acting as a leading indicator as they have called every major pivot of this year.

Commods in brown vs the SPX have called 2 and maybe 3 tops and two bottoms, they are negatively dislocated with the SPX now which fits well with other leading indicators, 3C data and Index futures' charts.

HY Credit is also selling off on a larger basis and on this shorter term intraday basis on the minutes release as well.

HY credit.

With the market in a head fake zone and everything going negative rather than supportive, it looks like a downside reversal is building up and the Index futures are one of the sharpest displays of that negative tone. This is nothing new, this is what we expected BEFORE any upside move even began when we had placed our initial upside targets (above the ascending triangle that is now part of the rectangle's chop). As far as I'm concerned, everything is running as would be expected, although the specifics with all of the global fundamental events are difficult, the broad strokes are in the probabilities and have been.  If you decide to piggy-back trade that bounce, that's great, if you decide to keep positions in line with highest probabilities and be less active in trading, that's really where the highest pay-off comes in to play any way, it just depends on your risk tolerance, the time you have and your trading style or aptitude, we called all 3 bases in advance of any upside move with the most probable outcomes after their moves which is where we sit now.

MCP is an example of this with yesterday's MCP Alert, this is one I'd chose to act on just because the percentage moves are so big, but we had nailed that perfectly yesterday as it closed down almost -18% today!

As for internals, the Dominant Price/Volume Relationship today is better than yesterday's non-existient one, but just barely. The Dow (15) and the NDX (42) were both Close Down/Volume Down, this is the least influential P/V relationship, I describe it as, "Carry on" as in keep doing what you are doing because there's no strong dominant factor that typically influences near term trade. The Russell 2000 had no dominant P/V and the SPX (180) was just barely dominant at Close Up/Volume Down, which is the most bearish of the 4 possibilities, although I wouldn't consider any of this material as it's so weak overall.

Of the 9 S&P sectors, 6 of 9 closed Green with the Defensive Utilities leading at +2.37% and Energy lagging at -1.19%.

The Morningstar sectors don't add much to internals with 150 of 238 closing green, no real oversold/overbought conditions in any of the above for next day/near term influence.

Considering where we are (head fake move above an obvious range and a psychological magnet (SPX)), what the shape of price looks like (rounding over), how we got here (short squeeze with record low levels of shorts via the AAII bear sentiment ) and a VIX slam (on record CFTC net long spec VIX positions), I find the Index futures' 3C charts to be the most exciting, maybe not the most important at this point or in the very near future, but the closest to "SCREAMING".

For example, ES with 3C, MACD and RSI looks like this...

Note 3C on this ES 60 min chart, although you saw it earlier, this is what I call, "Screaming" or popping off the chart. The RSI in the middle is also negative as is the MACD histogram, two of the conventional indicators I like as they show the momentum and ROC or what I'd call, "Changes in character" as they lead t changes in trends.

As far as tonight, I wouldn't go skipping around the house, but here's what the Index futures look like thus far...

 ES 1 min... I didn't take off RSI/MACD just because I'm being lazy, I wouldn't apply them to such a short time period, but as long as they have divergences, I thought I'd point them out just for those who aren't use to using these traditional indicators in that manner which is by far the most useful.

NQ 1 min also not looking great ...

And TF/R2K futures.

I will check in on futures before turning in and if I see anything of interest, I'll post it.

What I am starting to see of interest are some of the inverse ETFs like FAZ, SPXU, etc that are looking very interesting so perhaps we'll take a look at more of those and some other interesting stocks like NFLX which we have been keeping tabs on and AAPL along with others.

Closing Market Update

Interestingly, for a F_E_D knee jerk day, the market is not looking that good right now and I suspect the cycle's stage 3 rounding top is taking more precedence than the F_O_M_C minutes, unless there's something I don't understand in the minutes yet which is possible as I didn't get to read all of them yet.

For example, you already saw Index futures earlier in INDEX FUTURES LOOK HORRIBLE. Nothing has changed there since the release of the minutes.

As for the averages... There hasn't been any support for higher prices, indeed the opposite.

Since the 2 p.m. F_O_M_C Minutes release...

 IWM 1 min leading negative

IWM 5 min leading negative

QQQ 1 min leading negative

QQQ 2 min negative

SPY 1 min negative

SPY 2 min leading negative.

Something is not sitting right with the market and I haven't even added leading indicators, but the  Index futures should be telling on the longer end of recent price action (5-60 min charts).

MCP Alert Right on Track

If you were involved with MCP (long), by the way, one of the components of the MSI, then yesterday's post, MCP Alert should have been indispensable.

The gist of the post was found in the first sentence,

"I think it may be time to take some or all of MCP off the table for now." 

That left us with a gain yesterday of about +9.25% vs today's loss of over -11%.

I do think MCP has a chance to add t upside gains, but nothing or very few things in the market are immediate reactions or events, they tend to be a process. If you look at yesterday's MCP post, even the sell alert was a process that had started days earlier, we just happened to hit it right on the nose.

Here's where we stand with longer term probabilities which were actually covered in yesterday's post and more specifically today's action.

 The daily candlesticks were but one hint in yesterday's post with two consecutive bearish/resistance depicting daily candles with long upper wicks and higher than average volume, typically indicative of bearish churning.

Today's engulfing candle took out the last two days of gains and anyone chasing MCP over the last 2 days, this is another example of why we don't chase assets.

 On an intraday basis, the most recent trendline was broken on heavy volume (stops), why wait for the stops/trendline to be hit when you have good information suggesting a high probability pullback a day earlier and you can exit at an additional gain rather than a  loss?

 I won't go in to the longer term probabilities of MCP as they were covered yesterday, but the near term probabilities represented by this 5 min chart were screaming that we have moved from confirmation to near term distribution and there was no edge, no objective reason to stay any longer than we had.

Intraday thus far we have downside 3C confirmation, we'd need to see accumulation of lower prices , a constructive pullback before re-entering MCP long which still is a decent probability, it just isn't right now. We need accumulation and a reversal process large enough to support a second leg up.

I hope any of you in MCP did ok in getting out yesterday.