FTSE MIB Italian Market Closes Down -4.29%

Here's the chart, you can clearly see where the ECB announcement was made

In addition, 10 year BTPS are wider on the day at a yield of 6.44% heading back toward the 7% level.

USO/SCO Update

"It's not the news, it's the market's reaction to the news"

And in that one statement, USO has been performing incredibly considering the news, of course a stronger dollar and a weaker China don't hurt either. In any case, some of our members took the intraday USO trade yesterday and some held for a swing move as well as longer term positions, which I still have Crude shorts in the Model Portfolio. Here's the USO/SCO update.

 As for the intraday trade (short) on USO from yesterday, here's the area it was taken, even with the late day ramp it closed at a gain and today added to that gain.

 Very short term it looks like a bounce or consolidation is possible here in USO on a 2 min chart.

 The 5 min chart remains in line and has no positive divergence.

 The 15 min chart seems to show a cycle pretty well from accumulation in white to distribution in red and a new leading negative divergence which looks pretty good for longer term trades/shorts on crude.

 The hourly chart confirms this negative outlook thus far.

 And another longer term daily cycle in USO from accumulation in white, confirmation in green and the first negative divergence of the entire trend in red. If we get a decline from here, this will be a 4 stage completed cycle: accumulation, mark up, distribution, decline.

 Here's the daily trend channel which is turning lateral from up and very lose to breaking the uptrend represented by the channel which is a custom indicator I wrote that considers the recent volatility in formulating the channel to show any changes of character. A break below the channel represents a 2 standard deviation change of character, which has been successful for a long time in identifying trend reversals.

 For short term traders from yesterday's short idea, if you are still holding, you might consider a 50 bar average on a 5 min chart, it's fairly tight and will allow you to keep the most profit, but may not be wide enough to allow for a consolidation or intraday counter trend move, in that case you can widen the stop to a 10 or 15 min chart, depending on how much risk you are comfortable with.

 SCO shows one of those high volume/Doji candle reversals that are quite common. This is what is in the model portfolio as a leveraged short on USO.

 The 5 min chart appears to show 2 areas of accumulation, the second being stronger then the first and I explained why accumulation stops when prices rise, as there is a level in which orders are expected to be filled for customers by market makers and other middle men.

 The 15 min chart shows the same thing, 2 areas with the second being stronger then the first and is essentially the opposite of what we see in USO so it looks like pretty good confirmation.

 The 30 min chart looks even more bullish for SCO and the accumulation area is marked to the right, at least my best guess.

Even the hourly chart comes to the same conclusions and is now leading positive in the SCO/USO short.

 I don't like the geopolitical events, but SCO has responded well to them, furthermore 3C looks pretty darn good so for now, I'm sticking with my SCO position/short crude.

Update JEF/KCG Short Trades

These were two of the first non-market directional "stock pick" trades we looked at, which I had said, financials would be first; JEF and KCG, both in the WOWS model portfolio as short trades.

The recent bounce we had been looking for a few weeks ago to initiate and/or add to some short positions seems to have worked out very well for both of these trades as pointed out yesterday.

Here's the updated charts with some potential stops.

 JEF's bounce on light volume made it an ideal area to look at initiating or adding to a short trade on the troubled financial stock.

 As pointed out yesterday, the 15 min chart which tends to be decisive on reversals in this timeframe has been leading negative, an ideal time to add or start a new position.

 Yesterday's late day pop was negative just as almost every other hart I've seen.

 The longer term hourly hart is also leading negative, which is not a good sign for the intermediate term trend in JEF.

 The 3 day trend channel has held the entire downtrend, it was close, but it did not break the downtrend (always use the channel on a closing basis and use the lowest point of the channel as the stop.)

 KCG is still in a complex top, but coming off what appears to be the final right shoulder.

 Here's the bounce where we wanted to consider adding or initiating a short on KCG.

 Again the 15 min 3C chart which is a strong indication of a reversal with a trend this length has been leading negative.

 Yesterday's pop was also negative.

 And the 30 min chart remains leading negative, not a good sign moving forward for this financial.

 The 3 day trend channel has a stop right now around $13, but it will move down with price fairly quickly and once out of the top, should be able to be tightened.

Here's today's drop thus far, over 3%.

FXE/Euro Update

Today seemingly was a decisive event for the Euro.

 Small consolidation/continuation triangle in FXE/Euro ETF. Since it is a symmetrical triangle, it doesn't carry a bias by itself unlike some other triangles, but depends on the preceding trend to give it a bias, which was down, which makes it a bearish continuation triangle which has resolved to the downside today.

 Here's a closer look, this is important because equities have a high correlation to the Euro, moving in unison to a large degree.

 Here's short term 3C on yesterday's rumor pop, like the averages, it was a negative divergence.

The 5 min was as well and is in line with price now or confirming the downtrend in the Euro.

Market Update

All of the averages on a 5 min chart which is appropriate for this time in the morning, have confirmed the downside.

 DIA is negative like all the other averages in to yesterday's late day rally, more importantly as mentioned last night, there was no positive divergence, the market moved purely on the IMF rumor which has sine been denied by the IMF.

 The QQQ shows the same exact thing as the DIA and the SPY below does as well.

European Reaction to ECB

 In the aftermath, ES leads CONTEXT lower

 EU banks go from highs of the day to near lows almost instantly.

 The Euro plunges.

Context Model went from all risk assets selling off/equities included.

To the updated version.

Risk assets are now outpacing ES to the downside.

3C update and Credit Risk coming up.

Syrian Tensions Rise in Aftermath of Draghi/ECB

From FOX NEWS:


Terrorists Blow Up Syrian Oil Pipeline, State Media Says

Armed "terrorists" blew up an oil pipeline west of the flashpoint Syrian city of Homs, state media reported Thursday, but an anti-regime group said the government was behind the blast.

"An armed terrorist group targeted in a sabotage operation the pipeline of Tal al Shor, west of Homs," Syria's third-largest city, the official SANA news agency said.

Here's the video:









Oil is actually down on the event as well as commodities in general on dollar strength.

A Neat and Clean Warp of the ECB's Stance

This from Peter Tchir of TF Market Advisors which has been largely in line with my opinion of the Summit, perhaps a hand-holding photo-op of a "Plan", however a backdoor escape as the plan would have to be approved by each country later giving them time to weigh their options and back out back out:

Well, it seems like the ECB is telling the countries they need to change the treaty if they want the ECB to act more like the Fed (giving up the pretense of sterilization).  Maybe the move is designed to push the issue and make the summit come up with an even bigger plan (regardless of how unlikely it would be to get implemented).

That is certainly a possibility.  On the other hand, more countries have to be getting nervous about the control they are ceding.  Solid countries like Finland and the Netherlands may question why they should give up more control.  Why they should let the central bank do more than was originally intended.  Are they confident that the changes will fix the problem, or are they more scared that the situation will be made worse, and they will have greater difficulties in the future, all because they gave up more control?  Small countries must also be getting nervous.  It is clear that power is shifting to Germany and to a less extent France.  They have to weigh the benefit of remaining in a euro where they give up more and more of their sovereignty. 

It is clear why Germany and France want treaty changes, and may be willing to give the ECB more rights.  It is equally clear why Spain and Italy would support any form of agreement, especially if it needs approvals before being implemented, so they can keep their options open.  Belgium is probably in for whatever it takes since the Dexia bailout is adding to their existing problems, and more power for the EU politicians in Brussels is beneficial to their economy.  What Ireland and Portugal are thinking is a bit of a mystery.  No matter what they are saying publicly, they must be wondering if default and a fresh start isn’t a better option than giving up more power to the EU.

It isn’t just the fear of too much influence on all policies by the Germans and French, but that policies will be too focused on Spain and Italy that may make them even more reluctant to sign up.

The chance of a smiling hand-holding photo op has greatly diminished.

ECB Rate decision and Press Conference drive wild volatility

Ok, I had to finish watching Draghi's Press conference to see if any surprises came out and a few did as you can probably see in the market or if you followed pre-market and currency activity.


First of all, the ECB cut rates by 25 basis points which was expected and priced in to the market, although many participants hoped they would cut by 50 basis points, this brings the rate to 1%.


In addition, the interest rate on the marginal lending facility will be decreased by 25 basis points to 1.75%, combined with a decrease for the interest rate on the deposit facility by 25 basis points to 0.25%.


In essence, stronger banks have been parking excess money at the ECB as a safe haven storage and received .50% interest, while that same money was lent by the ECB through the marginal lending facility to weaker banks at a rate of 2%. What the EB appears to be trying to do is make borrowing for the weaker banks a bit cheaper while trying to discourage the stronger banks from depositing money at the ECB where it serves no purpose economically, it is not being lent in overnight transactions to other banks, it is not being loaned out, so they are trying to reverse that situation by making the interest rate paid less attractive, this is in essence to try to help unfreeze the liquidity situation that is getting worse in the EU.


Here's how the market reacted to the 7:45 EDT 25 basis point cut in ES and EUR/USD FX and the subsequent press conference Draghi held.

 ES -Rate cut at the green arrow and the press conference disappointment at the red arrow.

The same for the EUR/$USD, 7:45 cut at the green arrow and the press conference at the red arrow.


Here's what ES/3c looked like.

As I noted last night, ES looked ready to give back some gains from yesterday's late day false rumor from Nikkei about the IMF pledging $600 bb to an EU bailout which was promptly refuted.ES did leak lower slowly through the night, we saw a positive divergence that gained a little traction, but the market was largely unchanged waiting for the ECB announcement.


Here's what disappointed the market in Draghi's press conference:


-"lending money to IMF to buy Euro bonds is not compatible with the treaty"


-that the ECB is not the IMF, and that lending to the IMF would be very complex legally, and ii) that the liquidity situation is comparable to post Lehman


*When the above was mentioned, everything in Europe moved to overnight lows


Furthermore:


-DRAGHI SAYS ECB NON-STANDARD MEASURES ARE TEMPORARY IN NATURE


-ECB SEES 2012 GDP GROWTH OF -0.4% TO 1.0% VS 0.4% TO 2.2%

 

-ECB SEES 2012 INFLATION OF 1.5% TO 2.5% VS 1.2% TO 2.2%

The last two are damning as the ECB says that they see higher inflation and negative growth in GDP or recession, which put together=Stagflation.

Continuing:

-DRAGHI SAYS HE DIDN'T SIGNAL MORE BOND PURCHASES LAST WEEK

-Draghi says, "The Primary mandate of the F__E_D_ is different then the ECB."

As far as other actions taken:

-ECB will ease collateral criteria for loans to banks. Will reduce rating threshold on ABS collateral

Right now sovereign risk is catapulting higher. What Mario Draghi did today is the worst of all possible worlds: on one hand he is allowing more financial risk-taking on the ECB's dime courtesy of increased liquidity and relaxed collateral requirements as well as longer LTROs, on the other he essentially killed any provisional bailout rumors, saying that the ECB will not monetize, nor lend to the IMF. The result: just look at the market right now and since the post cut highs.

Draghi is considered a dove, but as he pointed out, the ECB's mandate is different then the F_E_D's, he is focussed on banks and not sovereigns as is his mandate, the end result, a lot of disappointment in the market.

Update Coming-Still listening to Draghi's Press Conference