Quick Market Update

As expected the averages have sen some upside since the TLT continued negative divergence which has not seen the kind of decline I expected to see, but has gone from a parabolic (intraday) uptrend to lateral over the last 3 hours. This leaves a pretty substantial Leading Indicator divergence between yields and the broad market. Whether TLT will pullback (which I would have thought would have happened by now), it's a very small, short term divergence in TLT.

VIX has obviously been smacked down, which I'll post in a follow up, however VIX short term futures (VXX) are already showing signs of accumulation on today's move.

As for the averages, there's a surprising lack of even intraday support, this may be manifesting itself right now in some downside that has taken hold of the major averages.

I'll be posting a full update with charts, but as I have been trying to get across (specifically in last night's Daily Wrap) is that the move to NASDAQ 5000, the market is "Rising in agony".

I don't know if there's some influence being felt ahead of tomorrow's Yellen Congressional testimony to complete the 2-day Humphrey Hawkins semi-annual report , but things are not nearly as strong as they may look.

USO Trade Set-Up

Plan your trades, trade your plan. I really don't understand how traders can simply chase price with no rhyme or reason, simply chasing price with no other edge. While I have engaged in this in the past and found various levels of success, I also found it puts your position at usually unacceptably high levels of risk which are usually evident in the risk:reward ratio which I use to set at 3:1, but have since decided that if I'm going to risk my money in the market, the risk:reward ration better be well more worth my while and generally look for at least 7 times more reward than risk, which puts some entries and exits at very uncomfortable areas emotionally, but after a decade of following underlying activity, I've found that emotion is not your friend, clear objective data no matter how hard it is to accept, is the best if not the only (legal) edge you have. It's not for everyone, that's for sure, but the market needs its losers to make its winners.

As we are now over a week past the original USO trade idea as it first started to take shape after the consolidation we called after the first leg up, I think it's time to give you the link to the newly emerging trade set-up and forward looking expectations posted on Tuesday Feb. 17th (a week ago) USO Update. 

Truthfully you could have and I believe a few of you have taken the information from that post and created trades (short USO) as a piggy back to our larger set up. This kind of free thinking and use of the data is what my ultimate goal is in helping to provide you an edge to supplement your own trading styles and strategies. Nothing makes me more happy than to hear of your successes based on the data and your own initiative. There are no gurus at Wolf on Wall Street and there's no intention to make you eternally dependent on what I post. In short hand everything I've ever published from my free site started a decade ago to Wolf on Wall Street has had the intention of leveling the playing field and teaching a person to fish rather than give them a fish as so many sites would prefer to do to keep you eternally bonded to their proprietary analysis. I believe good karma will take care of the rest and thus far it has as I couldn't be more proud and thankful for the members of Wolf on Wall Street and my ability to make helping others my profession. I love my job, I love my members.

Sorry about the sappy stuff, my larger point was simply about initiative using the data and concepts we've uncovered.

From the USO Update of a week ago as new information was coming to light and new probabilities, here's the very initial creation of the USO outlook and trade set-up... (all commentary from last week's post will be in italics).

"USO Daily Feb. 17th...

A lateral consolidation or rectangle. The technical implications, considering the preceding trend would be to look for a breakout to the upside and a new leg higher, but we also have a defined level of support, which makes a stop run before any upside breakout an increasingly likely prospect. Remember this chart or come back to it for the trade set up."

"the short term charts and the rectangle make an increasingly compelling case for a stop run below the rectangle which would be an excellent entry so long as the move was confirmed as a head fake with short term 1-3 min charts showing positive divergences in to any break of the rectangle's support in the area of $17.95-$18 and below....The 30 min chart shows plenty of gas in the tank, the counter trend rally we were looking for and I think that is still very much on the table, a head fake move below the rectangle would make for a nice call entry or just a long entry."

And since last Tuesday...

 We have seen the decline to the bottom end of the rectangle range, it's important to remember that in Technical Analysis dogma a rectangle is an unbiased consolidation/continuation pattern, meaning it carries no directional bias of its own, but rather depends on the preceding trend in to the correction which was up to give the consolidation its directional bias.

All of this simply means that from a Technical trader's viewpoint, the expected move out of the rectangle is a breakout to the upside. For numerous reasons which if you haven't read about already (from why this changed, what motivations are, what the advantages for Wall Street are and how we can use these to our own advantage) my two posts on the subject are always linked on the member's site, it may be some of our most important discoveries about how the market uses technical analysis against traders and how we can turn that to our advantage.

Part 1: Understanding the Head-Fake Move... How Technical Analysis Went From an Asset to a Trap

Part 2: Understanding the Head-Fake Move... Motivation

The USO / Oil trade set-up is a classic take on all of the concepts in these two posts and should serve you well in any asset, any type of trading and any timeframe.

As you know, I like to use multiple timeframe analysis and multiple asset confirmation so I've just went back and checked on /CL (Brent Crude Futures which are different from USO's WTI crude, but the signals are just as useful).

 This is the Brent Crude Futures 30 min chart. The positive divergence to the left is the formation of the rectangle's support area and the negative divergence is last Tuesday's negative divegrence forming the rectangle's resistance area. Since then, the move to the downside has seen 3C confirmation as it makes lower lows with price. This is the trade that at least a few of you took in anticipation of the larger (long) trade set-up. Thus far it appears your position is ok, but as a head fake move starts I would not push it, the long trade is the higher probability or larger move.

The longer 60 min CL (oil futures) chart shows the first leg up before the lateral consolidation which we also called to the day and the most recent top of the range. Note the continuing leading negative divergence to the far right strongly implying the highest near term probabilities are for that break below the rectangle's support-EXACTLY THE OPPOSITE OF WHAT TECHNICAL TRADERS ARE TAUGHT AND HAVE BEEN FOR NEARLY A CENTURY.

 The larger 4 hour oil futures chart has a strong positive divergence and plenty of gas in the tank once the near term shenanigans are complete. Thursday I posted USO's chart and analysis since last Tuesday confirming our suspicions as well as forecasting the movements we are seeing now. The post is useful to see how all of this has unfolded, but also contains numerous charts including the longer 2 hour USO chart showing the same thing as above, still plenty of gas in the tank for additional upside moves, this is the strategic outlook. The head fake/stop run is the tactical execution of that strategic plan, but as always with the "Come to us" trades, we have the benefit of confirming our expectations before entering the trade and at very favorable areas.

 USO's intermediate 10 min chart is similar to the CL/ Crude Futures 30 min chart in that its leading negative, implying the head fake move below the rectangle is the highest probability which it was just based on our concepts which you can read about in the links provided above. In other words, the manipulation of technical traders is so predictable because of their predictability that we can forecast probabilities before we even have the signals to back them up.

This is today's intraday 3C confirmation of Crude's gap up and retracement and near break of the rectangle's support.

From here. if you are interested in the trade set-up, I'd set price alerts for a break and close below the psychological whole number of $18 (currently at $18.05). A break below $18 alone is not cause for an entry, it is our trade plan going according to expectations, after that we look for 1) Volume on the break below $18 where traders will naturally have placed stops and limit orders being the whole number is a psychological magnet. As I said yesterday, there's a reason retailers price items away from whole numbers such as $9.99 (in fact there are reasons they use specific colors like red and yellow which you'll see in McDonald's, Wendy's and Burger King's color scheme as red is the first color your eye focuses on upon entering new scenery and yellow has a subconscious connection with hunger).

2) We'll look for signs of a decrease in price's ROC and a more lateral, "U" shaped or "W" shaped price trend.

3) Accumulation of the stopped out or short sold shares at volume and increasing positive divergences... Confirming the move is indeed a stop-run or false breakdown.

Take a look at the CL 4 hour chart and USO's 2 hour chart, there's still plenty of gas for a new leg higher in what is usually one of the strongest types of rallies, a "Bear market counter trend rally". These rallies have to be strong to overcome the overall bearish bias and get traders to buy, this is why they are some of my favorite long trades, they move faster and further than most bull market rallies.

USO is on the radar...

USO Head's Up

USO is now moving to our projected break of its range, this is the area in which if there's a trade to be found which I suspect there is (on the upside), this area will offer the best entry , lowest risk and with the right signal, the best timing as a head fake move (stop run variety)...

I'll have charts up soon, but I think there's a very nice opportunity here on the upside with an asset that is coming to us on our terms as the trade idea was laid out last week. Patience Pays .

Charts on the way as USO is now moving to our forecasted break.

Greece is still PURE Downside Risk

You may have gone to your computer screens tis morning and seen that the Troika, ah, excuse me the "Institutions" (remember that fish remanned meat meme) had indeed accepted the first draft of the Greek additional and substantial reforms it intends to make to keep the current "bailout", oops, sorry again, "program" that Syriza came to power by promising to defeat and remove Greece from once and for all.

We know by now that Syriza's populace, left wing ideology was no more than talk and has morphed the current Syriza leadership (Tsipras and Varoufakis ) in to nothing more than the HATED Samaras regime who acepted the basilout and all of the humiliating, pride stripping agreements that have been an anchor around the Greek people's collective economic leg.

What you may not have known and what I didn't even imagine as I saw the additional and "substantial" measures that Greece only had the weekend to draft and submit to the Troika for acceptance otherwise the entire deal from Friday would be dead,  as a punitive action undertaken by the Troika, was nothing even close.

It now appears (with evidence) that the Greeks or Syriza's current leadership did not even draft the "substantial" additional measures Greece would undertake to secure the bailout that Syriza came to power promising to vanquish. The draft which initially was surrounded by confusion as it was said that it HAD NOT been turned in by the midnight deadline Monday, was accepted with no alterations by the Troika. However the draft was not written by Greece, but in fact drafted by none other than the Troika itself.

While others were focussed on the content of the LEAKED Greek reforms,  Yannis Koutsomitis (I don't know who he is) posted this on Twitter after having taken a quick look at the "Author" tab of the document which not only gave the author, but the time the draft was written, from Twitter...

In case it's not visible, when clicking on the document properties, the author is revealed as Costello, Declan (ECFIN) at 10:09m pm on 2/23.

Who is Costello, Declan? Here's a link to his bio.

In short, "Declan Costello is an Economist working in the Directorate General for Economic and Financial Affairs of the European Commission since 1991. Currently he is Head of Unit in the department responsible for the 'Coordination of structural refroms and of the economic service, which is involved in developing the economic framework for analysing progress with structural reforms at EU and Member State level towards raising growth potential (the so-called Lisbon strategy), and developing EU policies in response to the economic crisis."

In other words, the agreement of additional and significant reforms the Greeks were to submit was written by the Troika's own hand and thus easily and quickly accepted as having gone far enough as they dictated the very terms.

While this scandal is unfolding and countermeasures are being launched by the IMF to try to defuse the situation, the second and very influential leader of Syriza has launched in to a tyrade against what the newly appointed Syriza leaders did on Friday and soon the talk will be on the subsequent actions above. Syriza who swept in to power promising to take Greece out of the Troika Bailout and return Greek's sense of pride as well as their economic well-being, is now seeing a near full-scale revolt within the party itself, which may make it very difficult in the coming days for this agreement and for Syrixa's survival as it is in which the latest author ponders if there's even a reason for Syriza's existence and goes on to outline what would need to be done to validate the reason for Syriza's existence and what must be done, what was promised. 

You can read Stathis Kouvelakis, a member of Syriza's central committee, rebuke of the latest Greek/Syriza actions here.

The translated document starts with the following...

This coming from the Central Committee member...

The Greek drama is far from over and as I have said since the acceptance on Friday, represents nothing but downside risk to the markets and moreover to the existence and sustainability of the EU & its Financial sector.

While this may seem trivial, I assure you it's not. Germany has not gone to the extremes it has for nothing, they understand that this represents more than just a loss of their lion's share of the loan to Greece, it represents a total loss to numerous banks and central banks throughout the Euro-zone and beyond.

TLT / TBT Spec Position

I still expect a very short term TLT pullback as I have maintained since yesterday, this is very short term. That should loosen up downside pressure on the market during any such move. I think it is a tradable move for those who are very nimble, but rather than using any of the averages, I chose TBT, 2x leveraged short 20 year bonds, or 2x short TLT, the reason being is it has the 1 min positive divergence that confirms TLT's 1 min negative, the averages don't have positive divergences and I don't like trading something that isn't showing an edge. Again, this would be a quick trade/scalp and speculative, but here's how it's shaping up both very near term and right after (longer term or bigger picture that is right on the door step)...

 TLT's gains this morning sending yields plummeting as not only TLT, but the larger bond complex rallies, but as I said earlier, a little too parabolic for me intraday and I was expecting a TLT pullback as of yesterday in to today anyway so the chart makes sense.

 This is TBT, it is the 2x leveraged inverse or short TLT ETF/Bond Fund. Note that like TLT's 2 min chart which is perfectly in line with the upside gains (confirmation), the TBT 2 min chart is perfectly in line with the downside losses on the same 2 min chart.

Generally speaking, TLT trades opposite the market, TBT with the market so the very short term looks like TLT pullback, TBT bounce/market bounce, but only TBT is showing a positive divegrence on the intraday 1 min unlike the averages.

 Remember TLT's 10+ min charts leading positive, this is TBT's 10 min chart confirming TLT by leading negative and rolling over as I expect the market to do as it forms the Igloo/chimney price pattern seen just before reversals. Even the dates that started TBT's rally are exactly the same as the broad market averages. In other words, this chart alone is bad news for the market to the downside for both and that's without even including TLT's confirmation.

However intraday, TBT 1 min has a small positive divergence unlike the averages, thus TBT long for a VERY quick speculative scalp looks entirely possible and reasonable if you have that kind of risk tolerance.

And There it Goes-Quick Market Update

The market just made a pretty nasty dip and on some volume, particularly in the S&P with a TICK reading of -1440.

I'm still a bit concerned about the parabolic rise in TLT and the 1 min negative divergence, actually concerned is not the right word looking at the charts, I'd say I still think that TLT near term / intraday is in danger of a pullback, but not much else, the danger lies else where in the broader market looking at the rest of the charts.

 SPY breaks on the divegrence that has been forming all morning and on some significant volume.

Same with the IWM

And the Q's.

As mentioned above and last night, TLT's intraday 1 min chart is negative and this is a very parabolic move, I don't trust them and I expected a pullback in TLT, taking some pressure off the market for a short period, but I wouldn't call this concern, I just think the signal makes it a probability still.

However as near as the very next timeframe at 2 mins, there's no TLT negative divegrence and a perfect in line signal, thus the divergence on the 1 min chart is not very large and likely nothing more than an intraday move if it's not run over.

The really meaningful chart for TLT remains the basing/leading divergence on longer timeframes taken with the market's Igloo/Chimney formations and the divergences (negative) at the chimneys on timing timeframes.

TLT 10 min.

My own trade plan would be, "if" TLT's 1 min chart does in fact pull it back, the market should bounce a bit intraday, I'd say probabilities are in the 90% area that it's the same head fake that we have seen in the signals, thus I'd want to use that market bounce for shorting in to or entering puts so long as the continued negative divegrence in to any such bounce continues. I'll be looking more at specific assets as they should be giving strong trade set-up signals in this case, in other words, it is looking more and more like now is the time to start adding those positions.

Lets see what TLT does...

Market Update

In the earlier Market Update I posted the general feel of the market today, not including the NASDAQ which was, "I do see some underlying activity that shows some softness in underlying activity ".

To that end, it seems some of that softness is coming home to roost now. Yesterday we saw a clear Igloo/Chimney in the SPY after the Q's created the same last week. Today we have the same in the IWM now, I think this is an important market development as I would expect all of the averages to put in the same warning flag around the same time so one day after the next, each average has put that price pattern in.

Lets get back to the update....

 The SPY intraday weakness has continued on the 1 min chart, this continues as I type.

To give a little more perspective on how sharp this particular chart actually is, let me zoom out the intraday chart a bit.

This should give you a better idea of how sharp this intraday divergence actually is which is quite sharp this early intraday on gains that aren't all that impressive.

As you know, when a divergence is strong enough, it migrates to the next longest (stronger) timeframe, that is what is happening in the SPY right now as this 2 min leading negative divergence has taken shape. I did see this earlier at the last update, but it wasn't significantly interesting at that point to be worth the post, it is getting more interesting now and is worth the time to post.

 The Q's are still struggling, still largely in line at this point, weakness could build in pretty quick from here so we'll keep an eye on that.

The IWM has continues on the earlier trend I posted, not much new there except the IWM joining the SPY/QQQ in the Igloo/Chimney price pattern.

Please forgive my horrible drawing, I can't draw a straight line, but I think you'll get the point.

 IWM with a Chimney, not a large one, but it has joined the other averages and like them, it too has a sharp leading negative divergence (in the intraday timing time frame) at that chimney which is what we look for in this price pattern.

 Additionally, that divergence HAS migrated out to the 3 min chart as it has formed, but is close to a new leading negative low, which is already a worse signal when you look at the relative level of 3C vs the relative level of price.

Now for the broader market.

Last week the TLT/Bond divergence which I'll remind you at the bottom of its importance, shows the 1 min intraday small negative divegrence which made me think we'd see a small pullback in TLT today, that hasn't happened yet and may be run over.

1 min short term TLT

This is why TLT is important as a broader market signal/measure...

TLT's 2 min trend, but beyond that...

10 min TLT.

The reason this is important, it goes back to the relation or  correlation between bonds/yields and the market

This is the SPY off the Jan 29-Feb 2 base and TLT topping at the same time (red). Now it's easy to see the flat TLT trend rather than down with the very strong 3C positive divegrence above, in other words, a base for TLT to move up from. Note the inverse relationship with the SPY and as TLT makes a respectable base and divergence, look at the SPY with its Igloo/Chimney and negative signals in the exact same area (to the right).

Thus intraday/short term timing charts become more and more important.

Market Update

This morning so far, there isn't much in short term underlying action that is surprising or differs too much from price movement, price movement at this point appears to me to be fundamentally flowing, meaning moving in reaction to each question.

I do see some underlying activity that shows some softness in underlying activity except in one average, the NASDAQ of course which is 32-33 points from the $5k magnet.

A picture is worth a thousand words, there's little doubt that NASDAQ $5k is being targeted, however there's also little doubt that the market is struggling to get there.

 SPY intraday getting a little frothy and at some risk of seeing some downside from here.

 The IWM in the same situation...

However the Q's are perfectly in line intraday.

I think the reason for this is pretty clear.

Unreal

One of the most over-used reason to justify why auditing the F_E_D by Congress is a bad thing (even though everything they carry out is constitutionally a Congressional mandated responsibility) is political pressure to cajole the F_E_D in to doing one thing or another, in short, political pressure.

After Yellen aggressively and panicked, goes on to defend the F_E_D's ability to do whatever it wants with no oversight and "strongly opposing Audit the F_E_D", Senator Chuck Schummer just comes out in a prepared statement and tells Yellen that the F_E_D NEEDS to act with caution and advises her to stay committed to "current accommodative policy".

Why wouldn't Yellen simply say, "This is exactly the kind of political pressure we oppose at the F_E_D"? Instead she gives a calm, polite answer to which Schumer's final response is another warning to be cautious with regard to monetary policy.

Pay attention to the players, that was Obama talking, virtually her only ally between the 2 branches of government (excluding judicial).

Yellen

I'm still listening to Yellen and watching the market's reaction.

Of everything she has said from rate hikes, guidance, valuations, macro economics, oil prices etc. I think the most surprising and interesting answers is her continuing answer to the question about how she feels about the "Audit the F_E_D" possible legislation.

I don't think Yellen was the best person to give an answer to this question.

Did anyone else hear a very palpable sounding panic in her voice? I'm not kidding, the panic just jumped through the screen. Why would this transparent Bank be so terrified of being audited like any other organization including government?

I'll have a market update out in a few minutes, there's just too much here to break-away.