Market Update

 DIA is leading negative..

 Here again, the same on a longer timeframe.

 The QQQ demonstrates the change in character this week, last week we gapped down and finished strong, this week we gap up and seem to finish weak.

 The 2 min QQQ shows today's reading worse then yesterdays, "sell in to strength"

 The SPY looks the worst...

 SPY 2 min

And this is in the context of the larger recent trend in the head fake area already leading negative very badly.

USO Update

 USO Daily chart, as you know because of the 3C charts I've been bearish on oil for sometime. Despite all of the geo-political uncertainty (Iran especially), USO hasn't been able to substantially add to gains since November. From the November high to the highest close since then, USO has added just above 1%, from November through today, it's down nearly 1%, a whole lot of volatility and not much in the way of bullish gains. A sideways chart like this has only one use for institutional traders, to create liquidity so they can put on a position and I believe t's been a short position. The recent break of several days back on volume and the subsequent low volume pullback of the last few days is not a bullish event. can't recall the candlestick pattern off hand, but it is a negative continuation pattern similar to a bear flag.

 Long term on the daily chart you can see accumulation back in August-September that sent USO higher, but in the flat trading range which I suspect distribution, that s what 3C is showing and on a daily chart, which is a strong signal.

 Break it down a little more with an hourly chart  and we see the same accumulation zone that lifted prices as well as a leading negative divergence through the flat trading range.

 The USO 5 min chart may look a little confusing,  but the bottom line is distribution any time USO nears the highs and just enough accumulation to keep t range bound and continue to distribute at the highs, this fits well with the theme I laid out below the first chart.

A more recent 2 min chart shows the same, distribution at every high, except there's very little accumulation here, only 1 spot that is obvious around the 13th and that is now under distribution.

I have held my oil/energy shorts in the MP and don't plan on hanging that any time soon.

This recent (last few days) low volume pull back (bear flag) is probably worth looking in to as a place to start a new position or add t an existing position you may be building.

Some Long Candidates for the watch list

On the Custom Crossover Screen NFLX looks really good, all 3 indicators fired long signals, we have the first move up and the typical first pull back toward the 10-day moving average, usually a good place to buy. I'm not thrilled with the 3C charts right now, but I will watch them for improvement. As of now, I suspect the pullback may be a bit deeper, but longer term, something good seems to be going on with NFLX, I just am not convinced on the timing of an entry yet.

The long term underlying action looks like NFLX built a base between November and January. When the short term charts start showing a more positive character, it will likely be a decent low risk/high probability long trade.

MU I was looking at late last night and I hoped it wouldn't pop off yet, but it has made a move, however it is still worth keeping on your radar as the move this a.m. has been very parabolic and through a resistance level so the chances of an intraday pullback or a pullback in the coming days are high enough to keep it on the watch list.

 Here's the base and breakout today, it seems to be a large ascending triangle type base, the yellow arrow represents resistance that has been broken (now support).

 Here's the custom X-over screen and the pullback to the 10-day m.a. as is typical. The red trendline is one potential stop area if you can pick up MU on a pull back; I prefer not to chase.

 Here's the long term Trend Channel (day) which has held the uptrend and ADX which is still supportive of the trend. Note that coincidentally the stop on the Trend Channel, which will move higher, is in the same area as the stop above I suggested as a potential stop.

 This positive short term divergence is what is missing from NFLX, this is what we look for on the pullback, accumulation for the next leg higher.

For now I would treat MU as a Swig Trade, unlike NFLX, the longer term chart has to prove itself and start moving higher.

MRVL Like the others, all of these stocks are from my Russell 2000 top performers for 2012, they were put on a watchlist and I was waiting for pullbacks in each, however, I consider them to be counter trend to the underlying primary trend, which as you know I feel is bearish, so stops on all of these trades should limit risk or you can use wider stops with smaller position sizes. While many of the price only charts look great, the underlying 3C charts look ok, not great, yet these are the early 2012 top performers in the R2k, just a word of caution.

 MRVL seems to have put in a triangle bottom, this is a 2-day chart so it is a little bigger then it appears, it has also broken out and pulled back.

 Here's the X-over screen, you can see the pullback here was deeper to the 22 day moving average.

 Here's the short term accumulation on the pullback.

 And the long term 60 min chart showing the original base accumulation and it is still in confirmation and slightly leading positive. Holding this beyond a swing trade, I would want to see this and other 3C charts improve.

For a tight stop, the lows of today would be my choice on a closing basis, there's no reason for a break out to pullback any further then this. If you choose a wider stop to accommodate market volatility, then I would buy less shares and under no circumstances would I hold this long below $13.75.

ATML

 The daily chart, a triangle like base and breakout. While ATML is up a bit this a.m., there may be a pullback, otherwise another entry point may be at the green trend line which would  be a breakout from the next resistance zone. The red trend line is what I would consider a tight stop. If ATML is making its next Swing leg higher, there should be no reason for it to pull back any further.

 Here's the recent X-over signals, so it is a rather new long signal.

 The daily Trend Channel coincidentally has approximately the same stop as what I marked above, I would stick with that stop.

 The hourly chart doesn't look bad, it appears to have accumulated during the consolidation area which it has broken out of.

 The 5 min chart shows some accumulation recently on the pullback.

The very short term 2 min chart shows a little leading negative divergence, this could cause a consolidation or a pull back, I would consider this as a long on a pull back. You can always email me to see what things look like upon that happening.

More Coming...

Overnight...

IMF wants to raise it's resources to $885 billion from the current $385 billion by raising another $500 billion after its assessment is there is a $1 trillion global financing gap in the next two years alone. We've talked about this before as the MF sought to raise money from increased quotas, the only problem was and remains, 95% of contributor countries have not ratified the vote, good luck getting that through Congress.

In Europe...

Portugal holds another successful debt auction today with most yields falling across various maturities. The yield for 3 month short term debt was unchanged from their last auction at 4.346%. Six month bills saw a yield of 4.740% which is less then the last 6 month auction at 5.25%. The 11 month bills were the longest dated maturity which have not been issued since last April just before they sought their $78 billion euro bailout. Yields at this auction for the 11 month were down to 4.986% vs. the April auction at 5.9%. Demand was anywhere from a BTC of 4.1x for the 3 month to 2.1 (which is just considered a successful auction) on the 11 month with the 6 month bills at 3.0.

Germany sold $3.44 billion in 2 year notes at .17% yield vs .27% in December. The Bid to cover rose to 2.2x vs a December auction that saw a weak 1.4 BTC. Clearly this auction was a flght to safety. Ir was only a few weeks ago that Germany sold $3.9 bn euros in 6 month bonds at a negative yield for the first time ever.

World Bank Slashes GDP Outlook 
The World Bank warned developing countries on Wednesday to prepare for the "real" risk that an escalation in the euro area debt crisis could tip the world into a slump on a par with the global downturn in 2008/09.


According to the World bank, Europe entered a recession during Q4 2011.
World Bank urges developing economies to “prepare for the worst” as it sees risk for European turmoil to turn into global financial crisis reminiscent of 2008




Goldman Sachs Earnings...
Goldman missed on revenues,beat on EPS. The underlying theme in financial earnings continues, a decline in investment banking, in Goldman's case, -43% y.o.y.


As for Eco-data:


The Producer Price Index.

Prior	Consensus	Consensus Range	Actual
PPI - M/M change	0.3 %	0.0 %	-0.3 % to 0.3 %	-0.1 %
PPI -Yr/Yr change	5.7 %			4.8 %
PPI less food & energy - M/M change	0.1 %	0.1 %	0.0 % to 0.2 %	0.3 %
PPI less food & energy - Yr/Yr change	2.9 %			3.0 %

The headline PPI declined at -.1% vs consensus of +.1%, but the report was mixed. Core PPI rose .3 on consensus of .1%. The Year over year change in the NSA PPI at 3.0% s the largest since summer (June) 2009. 


Industrial Production

Released on 1/18/2012 9:15:00 AM For Dec, 2011

Prior Consensus Consensus Range Actual Production - M/M change -0.2 % 0.5 % 0.0 % to 0.7 % 0.4 % Manufacturing - M/M 0.5 % 0.4 % to 0.8 % 0.9 % Capacity Utilization Rate - Level 77.8 % 78.1 %

 IP missed at .4% vs consensus of .5%, but did rise vs the previous at -.2. Demand was seen in business equipment, automobiles and construction.


ES didn't like something around 7 a.m. and  8:45 a.m., still not sure what it was except maybe a Euro down tick around the latter.

ES. 


ES opens about 2 points lower then yesterday's NY close after having rallied overnight as high as 9 points above the NY close, so t gave up close to 11 points from the overnight highs.

Alarming Rise in the Black Swan Indicator

This Sunday I showed you the SKEW Index which is brought to you by the CBOE (same place the VIX comes from). The SKEW is a rather new tool for the CBOE and is meant to reflect the probability of a "Black Swan" event.

The SKEW runs between around 100 (probability of a market crash very small) to 150 with an average of 115. I noticed the rate of change of the SKEW had increased in the post linked above and thus it was worth a post as a possible warning.

Here's what the SKEW looked like Sunday

And here is what it looks like today (1-day change), note that it has increased significantly in one day, near multi-month highs. This is one indicator you may want to keep an eye on, especially with 3C long term charts looking the way they do.

Baltic Dry Index Update

About a week ago I featured a chart of the Baltic Dry Index which track the worldwide price of dry shipping cargo. The Index can be quite volatile, but the trend of the index is telling.

The BDI tells us what demand is for the shipping dry goods (meaning it excludes Oil, Natural Gas, etc) across the world. When prices are low, there is plenty of capacity and it tells us that worldwide economic activity is slowing, demand for imported goods is slowing, exports are slowing, when prices are high it tells us the economy is running at a healthy clip as demand for everything from textiles to I-phones is strong.

The last BDI update skipped the volatility and an underlying downtrend was clear.

Here's today's update (note the BDI is updated every day).

Here's the recent Trend...

And on a 3 year chart, the BDI just hit 1014, levels not seen since 1/27/2009.

Obviously this is macro data and you probably could have guessed it wouldn't be good, but at the levels of early 2009 is quite dramatic, especially when one considers where the stock market is now compared to early 2009.

This is not an I told you so, it's just sad

Just saying, when the Federal Government breaches the debt ceiling as they did last week, the first place they turn to (before Congress) is the US Federal Employee Pension System, yep, they cannibalize Federal workers' retirement funds. I mentioned this would happen last week, just saying...

Bloomberg BusinessWeek

U.S. Suspends Pension-Fund Payments Amid Debt-Limit Debate

Something Smells in Euroland Again

This morning, my first post of the day talked about the large number of short term notes/debt that were by and large, well received despite last week's S&P downgrade. Also the EFSF was downgraded and also placed $1.5 billion euros in short term debt (barely a drop in the bucket compared to the $1 trillion plus leverage of the EFSF that was conceived and went no where). 


This morning I specifically said,  (note highlighted portions)

Overnight as European markets opened, there was some good news; the EFSF after being downgraded successfully auctioned off $1.5 bn euros in 6 month bills at a yield of .2664% with a healthy bid to cover ratio. 

The bottom line, even after the downgrade, EU countries are not having much trouble selling short term debt. Who knows if there was ECB "round-about" intervention, they did make some interesting comments about the ratings agencies.

Overnight and this is kind of the strange part, the ECB's deposit facility hit another record high at $502 bn Euros. I wouldn't expect an increase if money, especially any LTRO money was being used to buy the short dated debt sold today. 


And as far as those Draghi comments:

Draghi Questions Role of Ratings Companies After Downgrades

Draghi said,

“I will never comment on ratings as such, but certainly one needs to ask how important are these ratings for the marketplace overall, for investors?” Draghi said late yesterday at the European Parliament in Strasbourg. “It seems to a great extent markets have anticipated these ratings changes and priced them in. We should learn to do without ratings, or at least we should learn to assess creditworthiness” 


And you may be wondering where I'm going with this...


As in the U.S., the ECB is forbidden to participate in direct/primary soveriegn debt auctions. They can buy all they want in the secondary market for many of the countries and support yields that way, but primary markets are off limits and that is what these auctions were today, primary offerings.


I mentioned Draghi's seeming disdain for the ratings agencies and also said, "Who knows if there was ECB "round-about" intervention,".


I mentioned this specifically because there were several primary auctions that came in with yields below that of the secondary market, this would suggest that the ECB "may" have intervened in the primary auctions via some mechanism like passing cash on to several banks to do the buying for them in a clandestine-type of POMO operation which if they bid aggressively enough, would cause the auction to come in below the secondary market yields.


Given Draghi's view on the rating agencies, given the past oddities in several auctions in which the ECB has been suspect, it's not so far fetched that they might want to do some damage control after the ratings downgrades.


Here is where it gets interesting...

This is the spread on the EFSF, note today it dropped from about $142.50 to the $138 area based on the solid auction. However, one the auction passed, the EFSF hit $146.94 later in the day, or the highest level since December 21st (the date of the LTRO). If sentiment was positive enough to have a successful auction and knock the spread down, why didn't it stay down? It appears there may in fact have been some intervention in not only the EFSF auction, but most likely all of them to, once again, do damage control and suggest to investors in bonds that the ratings downgrades had no effect on a sovereigns ability to rase short term borrowing at favorable yields.

Just something to chew over.

IWM Gives Up

By now you are probably familiar with the importance I place on the Russell 2000's performance, it's not just me, but when Bern-ak-acide was before Congress, he cited the Russell 2000's performance in what he called the "QE Wealth Effect", the idea being that the market had risen and caused average Americans to gain in wealth, of course we know this to be a ridicolous arguement and certainly well beyond the F_E_D's dual mandate of inflation and maximum employment, levitating the stock market via a shell game that was Quantitative Easing, is certainly not one of their mandates and the ridicolous volatility QE on and/or off created an envirornment in which many Americans simply could no longer have faith in free, fair and open markets and as we know, they left the market by the billions ($).

In any case, the IWM/R2k was also the basis for my pre-Santa Claus rally period analysis. The bottom line was then, as now, the defensive Dow Jones Index led the market, while the broad Russell (a much larger sample size then the Dow and a much more diverse group of stocks) lagged. The end result? No Seasonal Santa Rally, despite very high expectations for one.

Looking at the market today, we see some green in the S&P, Dow and NASDAQ, although they did give up significant portions of their gains today. The Russell gave back all of its gains and then some to close red. On an intraday basis, from the IWM's high to the close, it gave back over 1.2% and it couldn't have happened in a worse place for the bulls.

Looking at the price pattern and volume, it's not hard to guess which way to the path of least resistance as the bearish wedge and the breakouts above the bearish wedge have all come on decreasing volume. In fact, considering today's gap up, even had the WM held onto its gains, the volume would make today very suspicious as volume hits a new low for the year. However, this new low in volume doesn't effect the bearish case, stocks need volume to rise in a healthy/ (Centrally) non-manipulated market, but stocks DO NOT need volume to confirm bearishness. It is said that stocks fall of their own weight, implying volume is not a major consideration, furthermore, lower volume is a distinguishing hallmark of a bear market.

If we look back to the last real bull market (void of manipulation by the F_E_D), we see what volume should look like.

Compare and contrast volume during the bull market starting in 2002/2003 vs the bull market starting in 2009 (while technically the 2009 market is considered a bull market by Dow Theory, I have a feeling when history looks back at this period, Dow Theory will have to be revised and the 2009 bull will likely be called "the biggest bear market rally ever" once we have a historical perspective).

I used a 200-day moving average on volume to illustrate the trend in volume compared to price.

As for the case for declining volume being a hallmark of bear markets, let's go back to the greatest bear in US market history.

Dow Crash of 1929 and subsequent bear market.

I think it is fair to look at the Financial sectors lost gains today as the sector was identified last week as coming out of rotation; while never attaining the same gains as the other 2 main industry groups, it did manage to climb in to the green and gave back 1.8% from highs to close.

XLF/Financials

Also noteworthy, if we average the gains of the 4 major averages, the Dow-30, SP-500, NASDAQ 100 and Russell 2000, we get an average gain of +.46%. Considering the gain, I find it interesting that the VIX was up 6.26% today (the VIX usually has an inverse relationship with the market).

The VIX is coming out of its own wedge, a bullish descending wedge. Low readings in the VIX imply complacency and as the VIX turns up toward fear, the market typically falls. The message of the VIX today was one of increased fear.

I'll have more for you in a bit, these are just some preliminary observations.

The 3 Pillars and the Market's Model

I refer to the 3 Pillars as being 3 of the most important 10 industry groups. The market can rally without Staples or Discretionary, but Financials, Energy and Tech are the 3 Industry groups the market surely needs to move. Just look at the composition of the major averages, the S&P is stacked with Financials, The Dow with some Financials and Energy, the NASDAQ 100 with Tech, these 3 need to move up together for there to be any kind of convincing arguement to be made.

Here's the model sen through out the market I keep talking about as represented by JPM

 JPM represents the bearish wedge with a false breakout that has now been confirmed, look at the major groups and averages that have some variation of this pattern.

 XLK-Technology

 XLE Energy

 XLF Financials

 The SPX

 The Dow-30

 The IWM Russell 2000

 QQQ/ NASDAQ 100

 AAPL

 Now for their 3C charts, XLK 1 min has called this gap very early as a false move seeing distribution, thus my earlier call to fade the gap.

 XLK 2 min is leading, so things are getting worse and distribution is picking up on a false breakout which is part of the reason to stage a false breakout

 XLK's major trend in the swing move has confirmed the bearish nature of the wedge and what t was being used for, distribution.

 Look how far XLK's 15 min chart has led negative in just the last few days!

 And the long term 30 min trend.

 XLF financials seeing distribution today

 Again the 15 min is leading badly on the breakout

XLE's longer term trend....

It looks like trouble and this area looks to be the same false breakout JPM printed, JPM is in a way a blueprint for not only what I expect, but what I have suspected.