NYSE Short Interest

Here are the latest short interest figures from the NYSE. Mid September Short Interest hit the highest level sine March of 2009, which was also the market bottom and the start of a 2+ year bear market rally. The latest reading saw Short Interest drop over 5% in a flat market more or less. The S&P last week put in its strongest rally in over 2 years, it will be interesting to see the October 15th short interest levels. Note the low volume of the rally, this is a classic short squeeze environment and the lack of pullback is classic short squeeze price action. This was the point of the market making a new low before heading off on what I said would be the biggest rally we have seen in awhile, although I'm even surprised by the intensity of the last 9 days.  If there's one lesson I've learned the hard way, it's that when the market starts acting like this, there's a pendulum effect and as irrational as it moves in one direction, watch out, it will do the same in the other direction-that's the kind of volatility of a wounded, dying wild animal and usually portends a big change.

A Very Interesting Article

I think ZeroHedge is a site with an ability to bring an unparalleled amount of information to sophisticated investors, far more then CNBC or other finance media outlets that break everything down (as far as what the market did) to 1 sentence explanations. I think they are right on with much of their data, which is ALWAYS bearish, but have such a bearish bias that they miss the opportunity to bring bullish data that can be used, even though we are in what I would call a long and short term bear market rally mode.

In any case, this article which is actually from Deutsche Bank, is very good and shows just how complicated the market truly is, how many interconnections there are and how the 1 sentence explanations are so much easier to swallow, but are the furtherest thing from the truth. Just imagine the typical CNBC Fast Money or Mad Money viewer try to grapple with understanding this article. I like to keep it simple, but I also won't bury my head in the sand when confronted with the complexities f the market, nor will  shy away from bringing you information from a site that I believe to be a little too biased, because sometimes it simply comes down a very simple statement, "Truth is true" no matter where you find it and this rings of truth. I will highlight in red and underline some things I think are important or agree strongly with. Here's the article and link to the full article.

The Biggest Market Headfake Ever: Is A Wholesale French Bank Liquidity Run The Sole Reason For The Euro, And S&P, Surge?

Over the past two weeks, there is one simple thing that has been bugging skeptical macro observers: namely the paradox of i) just how ugly the European funding and liquidity situations have gotten, on the one hand, confirmed by the blow out in French bond yields (the French-Bund 10 year spread just hit an all time record yesterday) as well as continuing deterioration in credit spreads across core European nations, yet, on the other, ii) the euro, especially in that critical pair the EURUSD, has seen one of its most explosive rises in recent history, which as Zero Hedge pointed out yesterday, has totally decorrelated with the French-Bund spread, to which it had been firmly 'pegged' previously. As a result of ii), equity markets have surged due to legacy correlation arbs, which see Euro strength, and hence dollar weakness, as an empirical signal of equity "cheapness", which in turn leads all algos to treat a rise in the EURUSD as a buying signal. So how is it that even with the interbank liquidity situation in Europe frozen and getting worse, further keeping in mind that European banks are now expected to (or have already commenced - see yesterday's move in PrimeX) engage in widespread asset liquidations, that broad market risk is perceived as cheap? Simple. As the following note by Deutsche Bank's Alan Ruskin explains, the sole reason for the EUR (and hence S&P and global 100% correlated equity risk) surge in the past 9 days is not driven by any latent "optimism" that Europe will fix itself, but simply due to the previously discussed wholesale asset liquidations (as none other than the FT already noted), which on the margin are explicitly EUR positive due to FX repatriation, courtesy of the post-sale conversion of USDs to EURs. Which means that the ever so gullible equity market has just experienced one of the biggest headfakes in history, and has misinterpreted a pervasive European, though mostly French, scramble to procure liquidity at any cost by dumping various USD-denominated assets, as a risk on signal!

In other words, an internal bank run has somehow been interpreted to be stock positive... And there is your explanation for not only the paradoxical surge in the EURUSD and S&P, but why the correlation between the EURUSD and the Bund-France spread has completely broken down. Expect all of this to promptly, and very violently, correct once the market understand what an idiot it has been in the past two weeks.

The article continues and you an see the rest at the link above, but that's the synopsis.

Continuous Commodity Index vs The Market

As Mark Twain said, History doesn't repeat, but it rhythms. Large Technical patterns occur over and over again over hundreds of years of charting because human nature doesn't change. However if you have the book  "Technical Analysis of Stock Trends" by Edwards and McGee, considered to be the bible of T.A., it's interesting to see how things have changed by looking at the old chart patterns from decades ago as this is an old book.

What you will generally find is that the large patterns caused by unchanging human emotions, still appear, it's just small, short term manipulations by Wall Street are now present most of the time as Wall Street knows how to through off Technical Traders.

Lets take a look at the Continuous Commodity Index, which looked like a Macro version of the market.

 This pattern in the CCI is bigger and across more time, but psychologically is the same pattern as what we see in the market now. Below is the SPY for comparison. The only difference is the CCI collapsed already.

We see the same major events, a market top, some stabilization of the fall from the top and a consolidation in a parallelogram. At the end of the pattern there's a breakout of the pattern-this is Wall Street's game and you won't see it in the much older charts found in the book I mentioned above. From there, a nasty sell-off, which as I have said this week, I believe we are heading for a move to the downside much nastier then I originally thought.

 3C wise, there are similarities as well. First the break from the top at a negative divergence, then a low stabilizes on a relative positive divergence and this large consolidation pattern forms. Between late July and early August, there's a relative positive divergence (as I explained Friday about the SPY 15 min chart, I think this last rally is an accruement of accumulation from the entire pattern and the CCI puts in its biggest rally, which breaks the trendline to the upside (this is the Wall Street head fake that you don't find on older charts, simply because Technical Analysis didn't go mainstream until the late 90's and early 2000 so Wall Street found ways to throw traders off patterns they had been following for decades, even a century or longer). From the false breakout, 3C daily made a lower low on a relative basis and CCI plunged.

All of the same ingredients are here on the SPY chart (which is usually orange, but the original 3C was the yellow version, I only created the other two to deal with intraday trade which the yellow version wasn't very good at, but for those of you using 3C, for daily charts, the yellow version has been the most accurate). We see the same plunge from the market top, a 3C relative positive divergence that stopped the fall and created the consolidation, accrued accumulation through the pattern so there is a positive divergence at the start of this rally and the strongest rally in the price pattern, which also creates a head fake move above resistance in to a relative negative divergence.

The CCI Looks like this currently...

It is now testing resistance, but from the equivalent spot in the SPY right now, it took a nearly -15% fall.  So you get an idea for comparison, the last rally (which was the strongest-like the SPY/Market now) was 7%. The SPY's recent rally is double that at 14%, so if we stick with the relative comparison, that would imply a move of -28% down on the next leg.

Hide it, by Releasing it Friday Night.

Any good political operative knows that if you have to release a story, but want it not to be seen, you release it Friday night, which is exactly what the US Treasury as well as Canadian and Australian Finance ministers did late Friday in telling the Europeans that they were opposed to expanding the IMF bailout fund. Rough translation: Europe's problems are Europe's.

G-20 sources said the BRIC countries are open to the idea, however, China just spent billions this week bailing out its own banking sector, not sure they'll be of much help.

In other news the French Finance minister speaking about private Greek bondholder haircuts, up to now supposedly capped at a 21% voluntary loss, in his words, will be "More, that's more or less certain". There is talk that Greek bondholders could take up to 50% losses, but anything above 21%, even 21.0001% is no longer considered "voluntary" be the rating's agencies, which triggers a credit event and CDS (insurance policies against default that banks have been selling and are the latest subject of banking sector problems) kick in, which will cause a multi billion dollar collapse in the banking sector, mostly in Europe. You may remember the news article I brought you this week about Austria's biggest bank, ERSTE, having hid billions of dollars of CDS they had written in the European banking stress tests and will cost the bank 14% of book value right off the bat when forced to mark the CDS to market. This created a bigger panic in questioning how many other banks did the same and what the real amount of undisclosed CDS positions are. When those are forced to be marked to market, the banks will take huge losses, should a credit event be triggered, I'm not sure there's enough money in even an expanded EFSF and IMF combined to hold back the flood waters. This is akin to the next housing bubble, but this time it won't be 2 Wall Street banks that cause a near financial system collapse, but perhaps hundreds of banks.

Friday nights are alright for lying...

Closing

For those who don't already know, 3C which is my proprietary indicator, is named so after something Don Worden (one of the most under-appreciated pioneers of moneyflow indicators) said in one of his books, I think "Street Smart Charting", which I have to tell you, if you want a perspective that veers from traditional TA, he offers it. Any way, he said something that stuck with me and has served me well and it the basis for the name, "3C" and that was, "COMPARE, COMPARE, COMPARE". You'll notice I have 3 versions of 3C, I compare every timeframe, I compare every index, I compare short ETFs to the averages they represent, FX, breadth, anything I can. There's no reason in the world that 3C would be negative the S&P/SPY and positive the inverse ETF, SPXU unless there was something that was really going on. 

Now with some help from a friend and member, we have ES and the ability to see 3C in extended hours trading, again, why would ES, a totally different market-Futures, not stocks, show the same thing if there wasn't something to it?

So here are the closing ES and extended hours SPY charts.

 ES 1 min today, closely mirrored what we saw all day in the market, nearly exactly. That last run into the close, ended on the strongest kind of divergence, a leading negative which means there was some heavy duty distribution/short selling in to that run.

 Here's the ES 5 min for Thursday/Friday 24 hours -And again today produced the worst negative divergence I have seen since I started looking at ES with 3C. This also is a leading negative divergence. Note they accumulated in the very thin volume hours of 3 -4 a.m. to push futures up and in the heavy volume regular hours, they distributed in to the highs. That should tell you something about how Wall Street really works. Manipulate the market higher when there's no volume and it costs very little and then sell in to that strength or short it when there's plenty of volume to fill their large positions. That's being gamed.

 Here's the continuous data 3C hourly which includes regular hours plus pre market and after market trade. This is a 20 day chart. Again, note the leading negative divergence now and as usual, in to price strength. Think about the meaning of these actions, why and you'll better understand how Wall Street really works or works people over.

This is the weekly 3C continuous data, the green arrow is where we called for a halt to the sell off and started buying while others thought the market would keep falling, but now this hart is leading negative again.

Some things to chew over. I'm starting to think this next leg down is going to be a lot bigger then expected. I'll be looking in to that this weekend.

Have a great weekend!

GOOG

I've been keeping an eye on this all day and wanted to give it a chance so I waited until the close, this is very surprising activity in GOOG.

 This is the 1 min 3C chart for GOOG, this , at least on the 1 min timeframe, should have raced up to confirm GOOG's price and been in the same area as price. Typically this will happen in the first hour of trade, even if there's distribution on other timeframes, confirmation of the high on a 1 min chart almost always happens or gets very close. Not only did it not happen, but look at the depth chart below which is sort of a MACD for 3C as you will se with very shallow readings or troughs in accumulation areas and very deep readings or crests in distribution areas.

 I checked other charts to see if any confirmed, just very deep readings on the 3C depth chart. Below is an example.

 I included the S&P-500 in blue below for timeframe reference, you can click on the chart for a larger view. Notice when the market broke down and moved much lower, GOOG also made a move lower, the depth chart is marked with red arrows at distribution/reversal points and green arrows at accumulation/reversal points. You can see the deeper the crest and longer it persists, the bigger the move down, conversely at accumulation points, the shallower the trough and longer lasting, the bigger the resulting rally. The October rally was the biggest rally on the chart (the last green arrow to the right). In the middle of the chart, you can see small accumulation zones that caused bounces, note how they are not as shallow as the bigger moves. So hopefully you get a feel for how this works. Then look at how deep the crest was in a 1 day jump today, nearly the same as the distribution at the July 25th top and the rally that led to that top was a 31% rally, this latest October rally was only 19%.

 Here's a close up view of the 15 min chart / October rally. Note the 3C leading positive divergence and the very shallow depth chart. Today that same 15 min chart went down and no matter what time frame I use, there was a huge jump in the 3C depth chart today.

 This blue version of 3C is not the appropriate version for GOOG, but it is the fastest hart to move, yet again, even on a 1 min timeframe, there wasn't even an attempt at confirmation and again the depth chart jumped.

It will be interesting to watch GOOG next week, this looks very much like a sell the news event.

Euro/FXE

Since the Euro has largely been driving trade, we'll take a quick look at it, some bad news is out of Europe as you have probably heard, the latest centers around Dexia Bank.

The fundamental flow of information makes the Euro difficult to analyze, but we'll look any way as it has reached a resistance level.

 Intraday 1 min of EUR/USD

 FXE/Euro 1 min

 Longer term daily chart

Here are the same levels as above.

It seems the Euro is nearing the end of it's short squeeze.

NYSE TICK Chart

Here's the NYSE TICK Index, this is issues ticking up less issues ticking down, you can see a trend that resembles market prices, however that trend was just broken to the downside, which often is an important signal for the Index

Market Update

 DIA 1 min longer term view with a leading negative divergence on the day

 DIA 1 min close up, the DIA 1 min never really showed the accumulation the other averages saw, it just floated with then, there was an afternoon brief period of accumulation, but on the day, there's a steep relative negative divergences as price is in the same area as the open. This is why I said earlier, I would consider phasing in, getting my toes wet, but leave room for any additional upside to short in to higher prices.

 DIA 2 min shows accumulation but 3C is dropping in to rising prices, which is what we want to see when shorting higher prices.

 QQQ 1 min long term view

 QQQ 1 min short term view, accumulation and trading in line with price.

 QQQ 2 min is seeing negative divergences in to higher prices.

 The 15 min was able to use today's price strength to add to the size of the negative divergence, although zoomed out, it has been in a leading negative position.

 SPY 1 min accumulation areas.

 SPY 2 min like the others, showing negative divergences in to higher prices, again what we want to see when shorting in to higher prices
.

 SPY 5 min showing the same

 And today's gap up also provided the SPY an chance to put in a deeper 15 min negative divergence, which was missing in the SPY.

ES made that new low and then went lateral for a bit, as prices have moved up, 3C has started lower again

GLD Update

 As many of you know, I have been talking about an opportunity to buy GLD that only comes around a few times a year, that is a pullback to the 150 day moving average. This time unlike other times over the past year or two, GLD was taken down pretty hard to the 150 m.a. and as such, I said that I think it is best if GLD consolidates along that moving average for several weeks, being the way it arrived at the average was a steep plunge. The declining volume is a sign of a consolidation, however recently it has pulled up and away from the m.a. which is not something I'd prefer to see until GLD is healthy enough to make a run higher.

 GLD 1 min 3C chart -Some recent updates I've noted GLD pulling a bit too far away from the long term moving average and showed a negative divergence suggesting it would fall a bit, which it did at the orange arrow, however not for long as accumulation started and it has moved higher today-it doesn't know if it wants to move as a flight to safety trade or as a week dollar trade, it keeps moving back and worth. Today's price action has run into some resistance and there has been a negative divergence on that.

 GLD 2 min 3C chart the 2 min chart shows the same accumulation as above from yesterday morning and a negative divergence today, which is slight really.

 GLD 5 min 3C chart Here we see the negative divergence suggesting the pullback we saw yesterday and today again it's a bit negative,

 GLD 10 min 3C chart This hart remains negative as long as it is away from the moving average.

 GLD 15 min 3C chart the red line is the moving average area and we see a leading positive divergence here, not quite as strong as the one that lifted prices from the near lows.

GLD 60 min 3C chart-The hourly looks a lot like a consolidation, however, the more it pulls away from the moving average, the more apparent distribution we see. For a healthy consolidation, we want to see accumulation here and I don't think we see that in strong measure while it is off the 150 day average.