Credit may have been the ugliest today

 High Yield Corporate started selling off in the morning and while the market was lateral, HYG continued to sell off the entire day.

It looks like the robots tried to get an end of day momentum rally going, it failed miserably and took the SPY to the worst levels of the day on volume right in to the close. As a matter of fact, the SPY in the last few minutes took out all intraday lows and closed  below intraday support/lows as well as only  $.06 off the very low of the day in the last minute on some of the heaviest 1 min volume of the week!

ES is still open, but saw the same right in to 4 pm, very ugly indeed. As I mentioned before, bullish indications (once you have entered a real bear market) in a bear market often fail, statistically price patterns are no better then a coin toss, whereas they perform 50% better in a bull market. The opposite can be said of bearish patterns in a bear market, they are much more likely to be effective. I look at this market and all I can think of (as it was tough staying short through October) is the 30/60 min charts which, next to the daily harts, are the most important and just how bad they look; probably the worst I can remember seeing. So I'm sticking with the trend.

From last Friday's S&P close, the S&P has lost more then 6%. We also broke through some October gap support today and the next level of important support is at $114, once that is taken out, there isn't much from sending the market to test the October lows or put another way, the lows of the year, that's where we are for some perspective.

The WOWS Model portfolio just made history and entered the top 10 at number 9 of 8113 portfolios and a weekly gain of an amazing 51.44%, the monthly rank also hit a new high at #22 out of 18,730 portfolios and an 85.72% gain (gotta love those leveraged ETFs). The best thing is, I haven't made a trade in the portfolio since mid-October, just stuck with the longer term 3C charts and my trust in them.

I'll have more for you as I have time, I have to start cooking and I hope everyone in the US has a fantastic Thanksgiving.

Seasonal Tidbit

Just browsing for any potential news while the risk/credit template loads and saw this,

The week on Thanksgiving over the last 10 years has averages -.02%, or nearly flat. This week the S&P is down -3.8%, making this week worse then the same week in 2008.

Just in case you were wondering where we stand as I have often mentioned, Fear is a stronger emotion then greed, thus markets fall much faster then they rise, have a look at the October rally retracement.

The rally top to bottom has retraced nearly 62% with the majority happening in the last 6 days, and nearly the total retacement happened over 7 days whereas it took 18 (what seemed like 18 very long days) days to rally.

I think the question of the triangle top that caused so much controversy in technical circles has been put to bed and just in case you don't recall were WOWS came down on the issue (usually I'd say false upside breakout), it was simply too obvious of a pattern and everyone thought, "Head Fake", so once again the market did what it does best.

ES Update

And here comes the volatility...

3C/ES shows roughly the same negative divergences as the SPY did, no accumulation on that move up on volume and interestingly ES has some ugly downside price movement which is even contradicting the Euro as you can see in the very bottom window, the correlation went negative meaning that even as the Euro was rising during that short period, ES was seeing some nasty downward movement.

USO Update

As I suspected earlier, the DOE draw on crude announced earlier this morning, seems to have been a non-event as the practicality of restocking is pretty obvious, Crude looks to be headed lower, so why restock now?

 This is the Euro in red vs USO, FX arbitrage isn't giving USO any opportunities to the upside.

 The 1 min chart saw the early knee jerk reaction on the draw, which is you remember was accumulated before the report was released in what appears to have been an obvious leak of the report ahead of time. It seems that intraday knee jerk rally was promptly distributed.

There's the early positive divergence before the report came out, distribution of the intrady rally and a slight positive now. I would like to add to oil shorts in the gap above which seems to be the new target, lower then the previous. Gaps are normally filled and with tension in the Mideast, this may be filled, for now I default to yesterday's idea of having some exposure, maybe adding in that gap so long as 3C is negative looking and maybe adding the rest on a break of today's lows. I don't want to add too much with a long weekend and the potential for a lot of news out of the Mideast/Syria. I'd rather take that risk when the market is open next week rather then the few trading hours we have left this week with 4 days or so of possible Mideast news.

Interesting Burst of Volume

At first I thought, ok, here comes the closing rumor to lift the market in to the close, I don't see much support for it though in underlying action. Maybe the robots tried to get a momentum chasing rally started?

 SPY volume and price spikes a bit

 Even on the shortest term chart, there's no accumulation and in fact some distribution thus far.

Watch the Diplomats...

OK, problems in Syria, we know that. The Arab League is considering a no fly zone, France pulled their ambassador and when that happened last week I said, watch for other countries to quietly pull their diplomats as well as this would be an indication that military action is about to be undertaken.

Well guess what, CBS news reported the following in the last hour or so:

U.S. urges Americans to leave Syria "immediately"

Furthermore:

The U.S. Embassy in Damascus urged its citizens in Syria to depart "immediately," and Turkey's foreign ministry urged Turkish pilgrims to opt for flights to return home from Saudi Arabia to avoid traveling through Syria.

The warning followed an announcement in Washington this week that Ambassador Robert Ford would not return to Syria this month as planned, indicating concerns over his safety.

Here it is...

The Obama administration quietly pulled Ford out of Syria last month, citing credible personal threats against him.

The warning came two days after Syrian soldiers opened fire on at least two buses carrying Turkish citizens, witnesses and officials said, apparent retaliation for Turkey's criticism of Assad. The Turks were returning from Saudi Arabia after performing the annual Muslim pilgrimage to Mecca in Saudi Arabia.


Here's the kicker from Stratfor (Strategic Forecasting):

Focus on the CVN-77, George Bush Aircraft Carrier, it has moved from its traditional parking spot, the Straits of Hormuz which is a strategic position the US maintains and has moved right in to striking distance (or thereabouts) of Syria. 


What makes this a VERY volatile situation is that the Chinese and Russians absolutely are against ANY intervention in Syria and are so serious about it that the Russians have moved warships in to Syrian waters.


Russia has a naval base in Syria at the port of Tartus.


Perhaps even more serious (I'm not sure if you get too much more serious then having a US Aircraft Carrier Battle Group and Russian warships in close proximity), but Iran has said explicitly that any attack on Syria would be grounds for Iranian retaliation.


If there is 1 thing the market hates, it is uncertainty and going into a long holiday weekend, it is not likely to take this news well. That is why there is the old Wall Street saying, "When the missiles fly it is time to buy", it is not because Wall Street wants or loves war (but that is up for debate), it is because the start of war removes the uncertainty before it.


I would say the timing of the CBS release and the market's failure to break resistance are NOT coincidental.

Market Update

Oh my, did the SPY just blow it?

Two very simple charts

 Volume is picking up as the SPY was unable to break resistance.

3C shows the failure pretty clearly.

Trade Alert JEF Short

I have been talking about this one possibly being the next MF Global, it just gave a lower risk/Higher probability short trade entry and it's confirmed. Egan-Jones, the only rating agency that has any (fill in the adjective) is not backing down from a potential credit cut in JEF.

JEF rallied to EXACT resistance.

 3C 15 min negative divergence.

 3C 5 min negative divergence and leading

And 2 min negative.

I would not swing for the fences and forget risk management, this is dangerous like a dying and cornered wild animal, but it is a trade I would certainly take here with a possible stop a few percent north of the resistance area, NOT AT RESISTANCE, above it.

I want your opinion

We have a bunch of smart traders here and a bunch of people who naturally think out of the box or as you have seen with your own eyes, the market is much different then you probably thought before you joined the Wolf pack and you likely have a new, out of the box perspective.

You all know what I have been reporting, Germany is up to something and that something looks like 1 of 2 things and in fact there may be a plan "A" and a back up.

First plan "A" seems to be to kick out the countries that are causing core contagion, we have seen France on the radar as they have caught the bug and most notably today, we saw a German auction FAIL! If the country with the best of everything in the EU can not sell its debt, we know what the market is thinking, "Any backstop Germany may provide or has in the past committed to provide is now an outright liability to Germany" and the banks don't want to be caught flat footed again like they were when buying Spanish, Italian and French debt, just to see it fall in value putting the very banks at risk of credit downgrades as well as outright failure (examples include ERSTE, Dexia, recently Commerzbank in Germany, and many more). Look at what buying these bonds did to MF Global and look at what Jefferies is going through now, which I maintain is likely a bank that will not exist in present form if at all come Q1 2012 and maybe before.

These banks that hold massive Italian (mostly) and Spanish debt are backing away from Germany and France as they realize they are trapped with the Italian and Spanish debt. They are trying to offload it, but Italian banks hold so much they have decided to roll the dice and hold it because they know if they try to sell it on the secondary market, the value will plunge, yields will sky rocket and they (whether their math is correct or not) figure they would take a bigger loss in trying to sell it then just hold it and HOPE for a miracle. Any investor/trader knows when you are reduced to HOPE rather then an edge, you are likely on the path to destruction.

So banks a) are not buying the strongest debt in Europe, Germany's because Germany is seen as the ultimate back stop. Secondly they most likely don't have the capital to buy anything and as mentioned, don't want to be in the Italian finger trap. Interestingly, after several months of massive selling in US treasuries as European banks sell everything they can to raise capital/money, the last 2 US treasury auctions have been a rather smashing success, which tells us that foreign banks and wealth funds see the US as the safest place to park money right now (which may end up being a big mistake considering our canaries in the coal mine-MFG, JEF, and the Congressional Super Committee's predictable failure to do what they were supposed to do-it's Wednesday, deadline has past, they have admitted defeat).

So what is Germany planning? The ultimate Bazooka that the market's are begging for is, "Let the ECB print', let the ECB lend to the IMF and let the IMF buy up all the debt, Germany, because of their experience with hyper inflation in the Weimar Republic is loathe to do so and if they were to do so, I think they would already have moved in that direction. We know from Wikileaks and US embassy cables that Germany has a plan to exit the Euro. We also know from many sources that Germany wants to consolidate the Euro area to far fewer countries and any that remain will ultimately give up their sovereignty in a bid to look more like the US and Germany/Brussels will be the overlord. This is a bad situation as it leaves a lot of countries hanging out to dry and default.

So we have this today from the second half of "Mer-Kozy", Sarkozy says today, exactly what the German CDU party has been voting for:

• SARKOZY SAYS EURO ZONE MUST FURTHER INTEGRATE (This means fewer EU nations, not more)
• SARKOZY SAYS TROUBLED EURO COUNTRIES DIDN'T UNDERTAKE REFORMS (Translation: It's your own fault, don't cry when you are left hanging out to dry) and even more interestingly, France has been one of the countries (thus the divide between Germany and France recently that has seen some very barbed comments from both sides) that has been screaming for the ECB to PRINT. Now they seem to be abandoning that position-something big is happening between Germany and France on the issue or France is making overtures to Germany as they see their AAa rating in more danger everyday-today was Dexia. The importance of this should not escape you, think hard about this one, it's much bigger then a bullet point headline.
• SARKOZY SAYS EURO ZONE MEMBERSHIP IMPLIES OBLIGATIONS (Taken with the comment above, he's saying the same thing, you had your chance, you blew it, you will be out). Again, a 180 degree turn from PRINT!
• SARKOZY SAYS EUROPE'S FUTURE REQUIRES CONVERGENCE (Here is is simply moving toward the German position).

So, here's what we should be thinking about, what is the end game. The ECB is buying debt for the time, but they lowered the quota for how much they can buy. The ECB has been vocal about not monetizing debt like the US and that is Germany's position. So if they are buying debt which they know is toxic and will cost them eventually, why are they doing it? It seems they are trying to buy time, trying to keep Spain and Italy from imploding which will drag down all the potential members of the new EU.

This is important. If Germany walks and they may just do that after seeing they can't sell their own debt without their yields spiking too, it means a whole lot of recessionary trouble as country after country defaults. If they are moving toward a new , smaller EU, the same result will happen, except maybe some of the core nations will be spared. It's bad or worse.

The timing of Sarkozy's 180 degree about face, coming on the heels of Germany's major wake up call today in a failed bund auction may be Sarkozy trying to get in the good graces of Germany that holds the future of the EU.

Think about what is happening here, it is important and whatever you come up with, I'd love to hear it.

Some Traditional Analysis and Gut Feeling

This is a 2 purpose post, maybe 3, 1) to show you the difference between the forest and the trees 2) maybe it helps you in some traditional analysis and 3) I actually want the market to bounce, I want a good tactical entry as the forest is very negative, but a short term bullish move would be much appreciated in setting up new shorts or adding to existing ones.

Even when you are 100% right about the market, the market will try to make you doubt yourself, I think that is one of the reasons that statistically, we see as many or more up days in a bear market then down days, however the down days are much more severe.

 Here is the S&P-500 on a daily chart with standard Bollinger Bands, when an index as big as the S&P-500 "Walks the bands" as you can see at the red arrows as the S&P tracks along the lower band, this is exceptionally bearish for the market.

 On an hourly BB hart, note that the market bounces between the lower band and the median and sometimes to the upper band. We have a gap in yellow and a bounce to the upper band would fill that gap and allow for good short trade positioning, just know if it happens, this is the "Trees", not the "Forest".

 The short term 10 min BB's are pinching which indicates a directional move is coming, with my Demark inspired indicators firing a long signal (on a 10-min chart),  would guess the break will be to the upside.

 Here's an intrday base-like pattern with resistance nearly broken, it may be broken by the time I post this. The implied price pattern target is between $118.30-$118.50, that's in the yellow gap zone, but not a complete fill. Volume is picking up to the right as it should for a base breakout, again, this is nothing that concerns me or my short positioning, but an opportunity for some members to get positions at a better/safer level.

 The hourly crossover chart has as it should, seen a few retracements to the yellow 10-bar average at the white arrows, usually the 2nd/3rd retracement is deeper and hits the blue 22 bar moving average, which would put the market in the gap and possibly fill it, however, even if that happens, all the sell signals (this screen uses 3 signals for a short/long trade) remain intact, again, separating the forest from the trees.

 My proprietary Trend Channel has held the entire move down on a 60 min chart, a bounce to the top of the channel would not change the trend, but it would nearly fill the gap and offer a SCSO (Second Chance Shorting Opportunity).

The daily Trend Channel really defines the trend and the market would have a pretty big boune to break that which I do not see happening. This Trend Channel on a daily chart does an incredible job of defining trends and keeping you in the trade when your emotions say otherwise.

So that's my take or at least "Gut feeling".