SRS and China

 China has pulled a couple of fast ones when everyone was focused on the EU finance minister's meeting, first the PBoC cut the Reserve Ratio for bans by 50 basis points, this is directly attributed to their real estate market troubles, then they made their exports more competitive with a tax scheme, but for our purposes, the real estate bubble bursting there is the topic and specifically SRS.

 I've covered the long term SRS chart ad nauseum so I won't go there except to point out the typical behavior of a wedge and the recent small changes in character from volume to RSI.

 Today's intraday move looks pretty solid, other then getting a little tight recently.

 The 30 min chart in the flat area after the wedge broke and SRS went lateral.

And short term it appears as if someone knew what was coming from China before they announced the RR cut for banks.

SRS is certainly worth a look here.

AMAT update

Earlier today I showed you what appears to be a pretty clear set up in AMAT and reminded you to keep this on your watchlist.

 AMAT daily chart...

 Intraday range is broken...

I mentioned a weak positive divergence and that I wasn't sure what the tactical endgame set up was, but that divergence turned tail exactly at 12:05 as the Dow broke 13k and then failed. Right now the short term chart is confirming the downside. As per the earlier posts, the long term charts from 15-60 mins are all negative.

Risk management wise, this is somewhat of a difficult area to take this trade, the daily swing trade template shows roughly the $12.50 area being an important break.

On an intraday swing basis with a 15 min chart, it's a bit easier to stomach.

$12.85 would be the stop on an intraday basis, which may be an easier way to enter the trade to give it a shot. If you have StockFinder I can email you this format, but a 22 bar 15 min moving average is a rough proxy for the trend channel and volatility indicator stops.

Second Verse Same as the First

In case you were wondering why the Russell 2k just went negative on the day and the other averages just saw a min-parabolic dump....

 IWM now negative on the day...

 QQQ a clear under performer as well.

 And the SPY breaking intraday support...

Look no further then the Dow-30

The second attempt to break 13k has failed and with even less volume this time.

I'm not prepared to say the Dow can't close above $13k, it would make for a nice bull trap on limit orders tomorrow morning, but the action around the area is clearly not very enthusiastic.

Volatility / VIX / VXX

As mentioned last week we have some members trading the VIX options and making good money (40% on a quick trade). So this VIX/VXX update is for them, but as the VIX has an inverse relationship with the market, it is also an update that addresses market conditions more broadly. A move up in the volatility indices is bad for the market, a move down is generally good for the market. The VIX has longer term implications, the VXX has longer term implications as well, but also intraday implications. Last week I updated both as well as the long term daily positive divergence in the VIX which is about as strong as we have seen in several years, that does not bode well for the market, along with the rising SKEW index, nor does the fact that the DOW had no volume at 13k and couldn't hold it.

 VIX intraday is looking worse then the VXX intraday below.

 The VXX looks like it is forming a consolidation symmetrical triangle with volume confirming, this is sort of like a Bollinger Band Squeeze and the closer we get to the apex, the more likely we see a highly directional move in the index and the market.

 This 2 min VXX chart has a lot of green arrows just to demonstrate how often 3C has confirmed price action, so the divergences are rare, the first was a negative in red sending the VXX lower, but that has now gone positive and much stronger then the negative divergence that sent it lower.

 The same indications are seen on a 5 min chart, the negative divergence is the same as above and current positive leading divergence.

Today for the first time, the 5 min strength has bled in to the longer 15 min chart and it is now leading positive. It appears the volatility indices are preparing for a move higher.

Market Update

Considering the "Headline" news, essentially, "Greece has been saved", the European and US equity markets are severely underperforming in what is being called a "sell the news event". I don't think this has anything to do with sell the news in a positive news sense, rather sell the news as it is devoid of any real substance as we have seen so many times before with EU plans and meetings.

 The QQQ in red is underperforming the SPY, the SPY is at a .32% gain on the day and the NASDAQ 100 at .26% gain. The NASDAQ Internals are more disturbing then its performance with NASDAQ advancers just barely beating out decliners at 1260/1255.

 The QQQ intraday

The Russell 2k is also underperforming (as you know, the R2k should be a leader in a risk on move) at a .01% gain or virtually unchanged.

 This is the Dow-30, not the DIA, as it passed the psychologically important 13k level, note there was no volume on the move and it could not hold it.

 The DIA intraday seems to show a strengthening negative divergence precisely when the Dow crossed 13k. The lack of volume is very curious, it's as if it was left to retail alone.

 The IWM 5 min chart continues it's downward slide, both in 3C's trend which is more clear and the general IWM trend.

The IWM 15 min chart looks pretty bad here as well in the same area.

 Here's the IWM intraday chart, again the divergence strengthening as the Dow crossed and lost 13k

 The QQQ at the same area also saw a significant leading negative move at the exact same time.

 The same chart zoomed out shows the same action as the IWM, although it is sharper here because it is a more detailed 2 min chart.

 The 15 min chart looks worse then the IWM's.

The SPY intraday negative divergence did the same thing as all the others at the same time, when the Dow crossed and lost 13k.

The Tick chart, which is very reminiscent of the NASDAQ's Advancers/Decliners, is starting to see a little more volatility around 12 p.m. with a +1000 and negative -1000 reading, but by and large is still hovering around the Zero mark. As a reminder, the TICK is all NYSE stocks ticking up less those ticking down.

AMAT

I would certainly put AMAT on your watchlist. It isn't clear what the end game is here yet, but there has been plenty of funny business.

Last Thursday after hours, AMAT reported earnings;  they beat consensus on EPS and Revenues and issued what was viewed as a positive outlook going forward. I don't know if they missed a whisper number or if guidance wasn't what Wall Street was looking for, but it does look like earnings were leaked and AMAT, which was up in after hours Thursday, gave up a 7% gain on Friday to close at a -1.67% loss. There is clearly something going on with the stock that is out of the norm and thus I would at least keep it on a watchlist and check on it periodically as I will.

 In red you can see the very ugly "Dark Cloud Cover" reversal candle and on rising volume.

 On a 5-day chart it appears this is part of a much larger top formation that is 3 years old, if that is the case, AMAT could be in for some spectacular downside. The recent action in white under price, has the look of a small double bottom, however double bottom's now (unlike in the past) almost always have a lower low at the second bottom (a head fake/shakeout move), this one doesn't and volume on a double bottom should increase dramatically in the second half of the formation, the opposite happened here. On a weekly chart, there's a very long legged doji-star reversal candle and right at resistance.

 On a 30 or 60 min chart, there was accumulation in October and again in December, but the move up was never confirmed. About 3 weeks before earnings a strong negative divergence appeared on all long term charts from 15-60 minutes as if Wall Street knew something and were going to use the initially positive earnings as a catalyst for their play.

 Accumulation on a 15 min chart, yet again, no confirmation suggesting AMAT was accumulated low and sold/sold short in to higher prices. There was a sharp negative divergence on the open Friday and it was all downhill from there for price. There is also a deep leading negative divergence from Friday, usually Wall Street is quiet about accumulation and distribution, but I think the large volume allowed them to easily establish a position without raising any suspicions.

 Very short term today on a 2 min chart, it looks like a bounce is in the making, notice the flat range (the quiet Wall Street uses to conduct transactions) and relatively low volume. This isn't heavy accumulation, it looks like middleman being aware of a bounce and positioning for it. Given the chart above, I would suspect AMAT is going to be taken down hard, it seems like the only thing left is the tactical set up and this is why I would keep AMAT on a watch list.

60 min intraday... As I said, I don't know what the tactical end game set up is, but I imagine when it comes, there will be signs.

FCX-Copper

 The Copper Index 9green) vs the SPX (white), as is the case with commodities in general, Copper has been underperforming since the market put in the Oct. 4th low, more notably, Copper has recently turned down over the last week or two.


 FCX hit resistance and topped with a clear "Shooting Star" candle at the yellow area, right in an area of heavy overhead resistance, after a few weeks of lateral action it gapped down on increased volume.

 There remains a gap in FCX which we must assume will be filled as most gaps are, however it looks like the back of this year's trend has been broken.

 Longer term 60 min 3C shows the negative divergence at the late July decline (that took the entire market), however there were no gaps in that decline (yellow), FCX'x performance since early August when the market gained a foothold has been very poor. There's an accumulation area in early October (same as the market) and then FCX went in to a triangle as the market went lateral after the strong October rally (white box), since then FCX has turned down sharply in what appears to be the back of the trend being broken.

 On short term charts like this 5 min, it appears FCX wants to attempt to fill the gap mentioned above, which has been the market norm for nearly a year now.

 The Copper Index, JJC looks similar on a 60 min chart, with accumulation in early October and what looks to be the back of the trend broken.

While not as impressive in terms of time, there was a late day positive leading divergence in JJC late Friday afternoon.

I suspect after attempting to fill the gap, FCX will likely head for the $36 area initially.

Financials Losing Momentum?

Financials have been an early laggard....

 Here financials in red are losing momentum vs the SPX... Financials have been hovering around .30% on the day, the other notable laggard is the Russell 2000 at .21% on the day (below).

 Financials intraday...

 A sharp move down over the last 5-10 minutes...

 On the 5 min chart Financials still have that same look they had on the 9th before the market dropped the next day on the 10th.

The NYSE TICK chart is pretty much in line with Financials and the market, although very flat and yet to break a +1000 reading which has been the norm nearly every day (1250-1500 being regular readings as well), right now the TICK is almost even suggesting there's near balance between the number of stocks ticking up vs ticking down.

The Greek Deal

Just reading the financial media, you would think all is done, all is well, that is not at all what was said in the Finance Minister's statement last night. A few key take aways:

-A successful PSI operation is a necessary condition for a successor  program.

The Eurogroup acknowledges the common understanding that has been reached between the Greek authorities and the private sector on the general terms of the PSI exchange offer,covering all private sector bondholders. This common understanding provides for a nominalhaircut amounting to 53.5%. The Eurogroup considers that this agreement constitutes anappropriate basis for launching the invitation for the exchange to holders of Greek government bonds (PSI). A successful PSI operation is a necessary condition for a successor  programme. The Eurogroup looks forward to a high participation of private creditors in thedebt exchange, which should deliver a significant positive contribution to Greece's debtsustainability.



 The terms of which just got a lot worse. The IIF who supposedly is negotiating on behalf of the private bond holders in the Greek Debt Swap (PSI) can agree to anything in principle, it has been shown they represent about 12.2% of Greek bondholders. The leaked Greek Sustainability report envisioned 95% of bond holders agreeing to a swap, the report alone probably severely diminishes that probability. Furthermore the haircut is deeper since last night from 50% to nearly 54% or about 74% of present net value. A "successful" PSI program is a key precondition to the program, however the key definition of successful went totally undefined.  The PSI results will determine the exact size of the official sector’s contribution to the second bailout package. You can see the potential for the PSI not getting done or not to the satisfaction of the Troika giving them an easy out on a VERY complicated issue that is thus unresolved.




-The Agreed upon plan must still pass all Parliaments involved, this was simply an outline of a plan for them to vote on.

The Eurogroup considers that the necessary elements are now in place for Member States to carry out the relevant national procedures to allow for the provision by EFSF of (i) a buy back scheme for Greek marketable debt instruments for Eurosystem monetary policy operations,(ii) the euro area's contribution to the PSI exercise, (iii) the repayment of accrued interest on Greek government bonds, and (iv) the residual (post PSI) financing for the second Greek adjustment programme, including the necessary financing for recapitalisation of Greek banksin case of financial stability concerns.

 National procedures for the ratification of this amendment to the Greek Loan Facility Agreement need to be urgently initiated so that it can enter into force as soon as possible.

As you can see, there is no deal until it is ratified by each of the member states. These quotes are directly from the press release. The German parliament will seek to approve deal on Feb. 27, Finland expects to discuss bailout in week of March 12, Dutch Finance Minister Jan Kees de Jager has mooted possibility of waiting until after Greek elections (expected April 8), according to Rabobank.

 A quick study of the math reveals that Greece will get about 19 cents on the Dollar and the rest of the money is the sovereign nations of Europe paying back their banks with the money they have supposedly lent to Greece. Greece is now nothing more than a conduit for the nations of Europe to pay back their own financial institutions. 

-The IMF is "expected" to participate, but has given no assurances.

"with the expectation that the IMF will make a significant contribution,additional official programme of up to 130 bn euro until 2014"

There are serious assumptions here that leading nations in the IMF such as the US will participate, when Congress is considering a law banning the use of IMF money in a EU bailout, remember, the IMF is largely the US. The IMF no longer wants to supply EUR 30bln to the bailout fund because of Greece’s failure to implement reforms, according to German press.

-Greece’s government has reserved right to enact CACs

Successful PSI operation is a necessary condition for a success of the program: now this is an issue, since the PSI will almost certainly fail and CACs will have to be enforced which bring up the question - Are the usage of CACs in the "bailout" a Material Adverse Change clause, and is thus the loophole for collapsing the deal altogether? CACs would almost certainly trigger Credit default and CDS.

-Greek Parliament must change constitution to allow for Troika oversight

"Greek parliament to vote on a constitutional provision to ensure debt servicing payments prioritized

Quarterly interest rate payments to be paid into a segregated account. A permanent ‘troika’ task force will be in Greece to ensure adherence to the terms and conditions of the package"

We knew this was coming, either from Germany or the Troika. This is part of the deal announced, Greece must submit to the will of the Troika, can they pass such a vote in which they give up a large part of their sovereignty? This is a constitutional change. 

-The deal includes a list of requirements which Greece must meet in the next week to get final approval for the bailout

Such as: "Passing a supplementary budget with €3.3bn in cuts this year, cuts to minimum wage, increase labour market flexibility and reforms opening up numerous professions to greater competition."

Essentially, more austerity measures.

-The EFSF will have to raise €70.5bn ahead of the bond swap – €30bn in sweeteners for the private sector, €5.5bn to pay off interest and €35bn to provide Greek banks with assets to use to gain liquidity from the ECB.

The EFSF has had trouble raising $3 bn in the past, how they pull this off so quickly will be interesting, especially considering they need national parliamentary approvals first and the date for approving these measures in certain countries may stretch out to April!

Lastly, in my brief presentation of only a few of the issues, is multiple lawsuits from private creditors, at least  $18 bn of the Greek debt is governed under English law with stronger bond holder protections. The ECB transfer of Greek bonds last week may have been illegal and trigger a default, the use of retroactive CACS will almost certainly be considered illegal and challenged in court along with a likely default from the rating's agencies. So as you can see, a deal is no where near done and leaves so many holes wide open for this to collapse, it almost seems it was written with the sole intent of failure. There are so many contradictions, misrepresentations, and timelines for official actions that are necessary that all conflict with the terms, it is simply mind-boggling.

This is about 1/4 of the issues and questions I have collected and more pop up every hour. At least Europe is consistent in putting together a plan that is full of loopholes and has been able to get the media to pass it off as a done deal like they have so many times before, the leveraging of the EFSF which has been a total failure certainly comes to mind.

Mind-boggling...

With headlines like this dotting the financial press:

Bloomberg:

Greece Wins Second Bailout as Europe Picks Aid Over Default

the FT:

Eurozone agrees €130bn Greek bail-out




You may be wondering why the market isn't up 3% and instead looks like this...

 ES overnight declining

 Since the Reuters report of a deal, the Euro has fallen since the real details or lack of them came out.

And the SPY at .04%


It's because there is no Greek Debt Deal, not one that is done. There has been agreement and a 3-4 page statement that raises dozens of pages of questions and reality checks. I was hoping to get the statement and what it means out before the market open, but this looks like a post that will take hours to complete as each passing hour raises more questions then answers. I'll try to touch on a few bullet points, but that would be far from doing this "Deal' justice. Smoke and Mirrors may be the most appropriate description of what happened last night.