Jobs, a Market Changing Event?

We start out this week where we left off last week; late Friday I posted this update on the Euro and true to the pattern volatility and the 3C charts on the Euro, it does look like that was a reversal formation/distribution area.

The square is the pattern mentioned in last week's post, the arrow is the start of this week's FX trading on a 15 minute chart. As you can see, the Euro appears to have reversed, for now at least. How far this is going will remain to be seen when the market opens tomorrow, I'll take a look at FXE/ UUP and see how serious this move looks to be.

Some other notable events last week included the VIX closing at new lows since 2007.

This is not the first time we have seen the VIX hit 2007 lows, however as you may know the VIX typically trades inversely to the market and extremes are often reversal points.

The huge positive divergence in 3C on the VIX remains. You can see what happened last time we had a much smaller positive divergence last year, the market sold off hard. This divergence below is much, much bigger.

In some other news, Steve Jobs has taken a medical leave of absence Monday-THIS IS NOT RUMOR. In the past, speculation over Jobs' health has negatively impacted shareholder value. Thus far we don't know what the indication will be in US markets, some speculate AAPL could take a 15% hit. In Frankfurt on Monday, AAPL traded -6.2% to -8% lower.

Effect on the market...
Considering AAPL's weight on the NASDAQ 100 is near 20% or about equal to the bottom half of the NASDAQ 100 combined, any downturn will significantly impact the NASDAQ 100's performance this week. This is one of the reasons I did not want to try any earnings plays for Friday A.H. or Monday, there's just to much that you can't control over a long weekend and we want to be able to control as much as we can, especially in speculative earnings trades.

Another angle to the Jobs story is the amount of hedge and mutual funds holding AAPL. It's difficult to predict what may happen, but should a run out of AAPL shares take place, we could see some very interesting trade this week. The averages tend to move together and the NASDAQ won't take a -2% hit with the S&P and Dow in positive territory.

Furthermore, the market is about sentiment, not valuation. If the later were true we wouldn't be trading up here where we are. Should sentiment shift as a result of the AAPL catalyst (and I've talked recently about sentiment having shifted as evidenced by poor market breadth), we could be in for a real ride, especially with European contagion ad the reversal in the dollar thus far which won't help the multinationals and our short trade in MCD.

I don't want to speculate too much here as we do have a market moving catalyst at hand. As I've said, this market's poor breadth leaves it one headline away from a major shift.

I will say that we had a 3rd day on Friday of a dual price/volume dominance, both were price up-one volume up the other volume down. 3 Consecutive days of this behavior puts the market in an overbought position, with the AAPL news, the poor market breadth, the cracks in the bellwether names and the extremely low VIX, this could be a watershed week for the market.

Lets get a feel for the sentiment and see where the opportunities pop up.

Have a great week.

Last Post Until the Weekend Wrap

Back to that JPM earnings play.

Here's XLF (ETF for financials) closing chart.

XLF closed near the highs of the day, volume was up from yesterday, but not overwhelming or curious volume.

And JPM...

After being up as much as 3.35%, JPM gave back a majority of today's gains closing well off its highs and forming a shooting star-like candle (negative implications). Also volume was the highest we've seen since the -4.3% sell-off on October 15th- 65 trading days!  This was not good volume for today, taken with the 3C charts I provided in the earlier post, it's clear that today was a distribution day. I'd almost call it churning if JPM didn't give up 2.32% of today's gains (about 2/3rds) and if we didn't see the actual distribution via the 3C charts. I didn't dig into JPM' earnings, but this was a "Sell the news" kind of day.

Intraday, looking at today on a 1-minute chart, we see a rounding formation/top. Note the price advance on the way up had its corrections and looked very much like a retail driven advance. Volume was substantial during the earlier part of the day, but nothing like the afternoon meltdown. During the afternoon sell-off, which we did not see broadly in financials as XLF closed near its highs, note the relative lack of corrections. This is indicative of computer driven trade. The decline was faster and the volume much heavier.

It will be interesting to see what happens next week, but for today, JPM underperformed financials and did not show us a strong day after earnings. This is why I explained that the 3C earnings calls are NOT about beat or miss, they are about the trading action after earnings. Remember last night after INTC's earnings, they were up I think close to 2% in after hours and look at INTC today- down 1.03% on a 1.11% Beta vs the S&P 500 up +.72% and INTC also saw the heaviest daily volume since October 13th.

Neither's trading action was favorable and I think JPM will join INTC as a probable second correct call-2 for 2 thus far? We'll see next week.


Look for the weekend wrap up and have a FANTASTIC WEEKEND!

There will be no Earnings Plays Until Monday

EURO CONTINUED

Earlier today (and yesterday) I showed you the probability of the Euro's volatility becoming a likely area for distribution and a trend reversal.

Below I'm using a slightly faster version of 3C

 FXE 10 min-Negative

 FXE 15 minute-NEGATIVE

 UUP 10 min -POSITIVE

UUP 15 min POSITIVE.

JPM, the second earnings Play

Yesterday INTC and JPM were both earnings plays, both looking negative. I warned that these will have initial reactions and then the real reaction. After market when INTC reported, it was strong, when it opened today and subsequently it's been down over 1% on a good report, on heavy volume. I think we have the first successful earnings play, I'd let it play out a bit.

Likewise, JPM's earnings seemed to be well received by the price action today, but as you'll see below, there's no confirmation and I'm thinking it's very likely with a day or two we'll have our second successful earnings play on JPM-just like INTC, it seems the initial reaction will not be the final reaction to earnings. These are complicated trades, if you enter them please stay in touch so we can monitor them together.

In the meantime, here's what JPM's melt-up has looked like from a 3C perspective-it's not pretty.

 1 min.

 5 min.

 10 min.


 15 min.

30 min.

NO CONFIRMATION, ALL NEGATIVE DIVERGENCES.

Municipals-Request

Thursday's daily wrap featured MUB and several other posts this week and in past months have talked about unfunded pensions liabilities and municipal bonds being in trouble and the trouble municipals may cause for pensioners.

Today MUB-(S&P National Municipal Bond Index ETF) is being taken to the woodshed once again. This is a trend I expect to continue with various oversold bounces in-between each leg down. I think for those so inclined, this is a trade that can be taken AT THE RIGHT SPOT.

MUB breaks support on heavy volume today.

3C WARNED OF TROUBLE IN MUNICIPALS ON THE DAILY AND REMAINS NEGATIVE ON THEM.

After a year of confirmation, 3C shows a very negative daily profile just before the fall. Yes, smart money was moving out, perhaps PIMCO.

What we need now if you are interested in shorting munis is an entry with low risk. This may be your chance. The 1, 5 and 10 minute 3C charts are all showing Specialist accumulation for what I believe will be a bounce. If you are interested in the trade on the short side, keep in touch and when we see the same charts showing negative divergences/distribution, we'll have our low/lower risk entry.

 1 min.

 5 min.

10 min.

GLD/SLV

Earlier in the week, after 3C correctly called the attempt of both GLD and SLV to breakout to new highs as a zone of distribution, we saw a fast move (as is often the case when a breakout fails) sending both below their support levels. This week we saw a bounce, I've posted numerous times my belief that it was "just a bounce" as late as yesterday around 1 p.m.

As I've said, I'm not opposed to a longer bullish view on either, I'm just not buying the talking points about both, "This time it's different". Analysis is based on market action and market action has shown us another failed move in both as they tried to test resistance. Here are the charts...

 GLD's chart on a 5 min 3C-Clearly the attempt at resistance at $135.50 showed the first clear divergence in this timeframe and led to my continuing belief we were seeing nothing more then a bounce. GLD is off those levels at $132.72.

 The 50 day m.a. has tracked recent support, you can see the break of it yesterday and today. I might be looking for a test of that moving average soon.

 GLD's Daily 3C chart showing deterioration/distribution at each test of $30-the last failed test led to the fast move down below support. Currently GLD is starting a leading negative divergence which is the worst kind.

 SLV's 5 min 3C chart showing an attempt to take out resistance near $29 and a negative 3C divergence. There's a small bit of strength currently that may test the moving average seen below.

SLV has tracked the simple 10-day moving average well, you can see the break of both the average and support. The possible 5 min strength seen above may lead to a test of the 10-day average.

All in all, both are deteriorating and starting what looks to be possible trends lower. If this is a shakeout, then it's a big one. However when we see these right angle patterns of this size, they often function as tops. I personally am not calling a short trade in either, but I also wouldn't go along with the mass hype of the precious metals until they can show some resilience. For the time being, I'd just be an observer and not have my money at risk in a long trade.

Another Reason for the EDZ Long and Bearish Emerging Market Group Think

Here's a story from Bloomberg about Indian inflation, especially food prices. India is one of the BRIC countries or emerging economies and another that may very well be on the heel of China with tightening monetary policy as they try to head off the Federal Reserve's main export... inflation.

NEM Update

This was a trade idea from 12/10/2010 and looked like it would be a good trending trade, it has been. Since a few members are in the trade-I've received to emails about it today, I figured we'd take a closer look.

 December 10th Trade Idea featured on the site. As you can see, it was a top and the short call worked out well as support has been broken.

The trending stop has kept you in the trade the entire time.

Now if you wish to use a tighter stop, here's a few alternatives

 This stop is a standard deviation tighter.

This is a swing trade based stop if you want to try to trade around bounces. Every time NEM moves down, the Trend Channel will lock in further gains so keep in touch for the latest or if you are using Telechart or StockFinder (click the links for more information on the two charting platforms I use) I'll be glad to share the Trend Channel formula with you.

The break of support is important, especially the increased volume we've seen. Here's a 3C perspective on the trade.

10 min 3C chart showing distribution right before the break of support-yes smart money is smarter then most people realize and act before most people realize.

The 5 min chart shows a little Specialist accumulation preparing for a bounce which is perfectly normal, especially after the break and volume. Even being short, if we have a trend-term perspective, bounces are healthy in keeping the stock from becoming oversold and going into a major bounce. Which stop you choose depends on your trading style and what you are comfortable with. If you need any help or have questions, as always, email me and I'll do what I can to help.

The Argument for EDZ and Other Emerging Market Shorts

China's PBoC overnight hikes Reserve Ratio Requirements by 50 basis points. This hits the basic materials sector the hardest as it has done in last night's Asian and European markets. This is the 4^th raise in the RRR in 2 months as compared to 6 for the entirety of 2010. The Chinese are increasingly worried as you can see,  about inflation after the November Consumer Price Index rose by 5.1% y.o.y.; this was the biggest inflationary move in China in two years. This is essentially the opposite of what is happening in the U.S., the U.S. is flooding the market with cash while the Chinese are requiring their major banks to keep more money in reserve at their central bank, essentially withdrawing liquidity from the market an curbing speculative activity. This is one of the reasons I'm not bullish on emerging markets. The US action is sending hot money flows into these markets and they are taking action to protect their economies from the unwanted excess of hot money flows which create inflation in their economies. This is also the reason that the Fed's QE program is unpopular with emerging market countries.

Do not underestimate their willingness to defend their economies against rising inflation which the US QE program is essentially exporting, food riots have already been seen this week on the African continent and parts of Asia. Food costs in China are up an astounding 11.7% y.oy. The Chinese RRR action puts the Reserve Requirement at an all time high of 19%. Again, this is why, as a theme for 2011, I favor a short side bias on emerging markets with leveraged ETFs like EDZ which have already shown a bullish long-term chart.

This trade has been added to the January Trade List.