PCLN Trade Opportunity

I already have a PCLN short position in the equity model portfolio, it's doing well, up over 12%, but this is in my view, just the start. I would say the PCLN hort trade hasn't even begun yet. This is a perfect example of the type of trade set up in which you let the trade come to you. I have a little room in the PCLN position to add to it and just need some price strength to do that, we may get it. For those who haven't seen the idea before or those who have and just need a refresher as to why, this post should cover it all for you. Even if you aren't interested in PCLN short, this is a good example of letting the trade come to you rather than chasing it, which gives you better positioning, beter timing, better probabilities and less risk.

 On a 5 day chart I have just colored the zones in which PCLN went from rising prices and volume to an uncharacteristic rise, to an area in which it looks like it nearly broke (the market saved it) to a very parabolic move on diminishing volume which is really the ugliest part of the chart and the most dangerous for PCLN longs.

 Here's the daily chart, after that parabolic run up, which is starting to fail, PCLN posted a small double top, wasn't able to make a higher high and downside volume picked up, this looks very much like a top and although I would normally expect a much larger top, at least the parabolic portion of the tun should be easily retraced and then some.

 The daily 3C chart is clearly negative at the second top, daily chart divergences are strong divergences.

 Money Stream looks very similar to 3C, although it's a totally different kind of money-flow indicator, it confirmed PCLN's rally and went leading negative also at the second top.

 Just to verify, the 60 min chart went negative in to the first top and leading negative in to the second-thus far everything looks perfect for PCLN as a short trade.

 Now all we need is some strength to short in to. I shorted in to strength at the previous highs, thus the position is in the green, but left a little room in case we saw a better short entry, at this time I'm willing to fill out the rest of the trade (about 25% more to a full position size) on any decent strength. The 1 min chart's overall trend shows a positive leading divergence in the near term, as if PCLN, which just broke below support, is getting ready to run a volatility shakeout of the shorts.

 Looking for timing, the 2 min chart has been leading positive for several days

 The 3 min chart is hitting new leading positive highs.

And the 5 min chart is showing that strength migrate to it. I'm only showing the near term view of these shorter timeframes, but if I were to zoom out, they have longer lasting positive trend, but for now, I'm looking more to pinpoint a reversal to the upside.

Here the 15 min chart looks really good, as if PCLN is just about ready to go.

It's difficult to say what the target area would be, but anything near the 2 previous tops would be good enough for me, if we got even more upside, all the better-I'll rely on 3C to give me an idea as to when the time is right to add more shares. The long term charts show real trouble here.

I wouldn't get caught up in the price, a percentage move is the same on $10k invested whether you own 30 shares or 1000.

AAPL Update

 AAPL daily-AAPL has transitioned from a pretty solid trend down to a trend sideways, it is not so much in a bear flag as it is a rectangle consolidation that has been holdingsupport from the May 8th Closing Hammer Candlestick (Hammers form support) at the white arrow.

 On a 60 min chart you can see the support area that AAPL is yet to break below (it could on a head fake move a the rectangle is obvious in a closely watched stock), but this looks a lot like a consolidation  (a rectangle is a consolidation pattern) and volume is diminishing which is typical of consolidations.

 Thus far this morning the 1 min chart is leading positive.

The 2 min chart is starting to see the bleed over from the 1 min's strength.

XLF/XLE Making some progress

Financials and Energy seem to be making some progress, while all stocks have a correlation to the EUR/USD (more specifically to the $USD-dollar strength translated to market weakness), Energy has a stronger correlation.

 XLE-Energy 1 min positive as it remains in a range.

 XLE 2 min is a perfect example of the 1 min divergence migrating to the longer 2 min chart.

 XLE/Energy vs the Euro (red), you can see the correlation between the two is strong, yet XLE is working on a positive divergence.

 XLF/Financials 1 min

XLF 2 min.

Remember last night I mentioned that we'd need to see some strength in at least 2 of the 3 most important groups (ideally all 3), Tech, Financials and Energy.

Market Update

As mentioned in the last market update, the divergences have to start somewhere and then if they keep building they get stronger and migrate to longer term charts. Another factor in the timeframes we look at is the time of day, it takes a 5 min chart longer to catch up to opening action than it does a 1 or 2 min chart (this is a function of 3C's coding as it does not use averaging because when you average data you lose data), so while there are some developing signals on some longer timeframes, they are still in the developing stage, but the next longest timeframes are showing the early 1 min positive divergences have started migrating through the longer timeframes as the market starts to show some momentum.

 DIA 2 min leading positive-this is now stronger than the last update.

 IWM 2 min leading positive.

 The QQQ is where I have suspected relative strength would be found and has a clear leading divergence now out to the 3 min timeframe.

And the SPY's previous 1 min chart that "looked" like it wanted to lead positive, is now leading positive on the 2 min timeframe.

TLT-Flight To Safety Trade

One of the 5/15 min charts I featured last night was TLT (30+ year Treasuries). This morning TLT, which moves inverse to the market, looks vulnerable up here.

I noted the break below the channel on increasing volume (head fake move) in white that occurred before the upside reversal in TLT/Treasuries. The uptrend that looks a little like a bear flag, although the scaling of the flag vs. the preceding downtrend is all wrong, has been on diminishing volume. Today's gap up in TLT not only looks vulnerable from a gap perspective, but also from a possible head fake move outside the  more recent (April-May) uptrend. Last night's 5/15 min TLT charts had negative 3C trends/divergences as well.

If the market were to move up, TLT would almost certainly have to move down.

Early Market Update

There may be some interesting action developing...

These are all short term charts, but it has to start somewhere and we've seen some stocks fill the gaps already in financials and Tech (specifically BAC/QCOM).

 DIA 1 min now leading positive from an earlier relative positive (leading divergences are stronger than relative).

 IWM both a relative positive on the open and now a leading positive above most of Friday's 3C highs.

 QQQ 1 min a very nice looking leading positive in the Tech heavy NASDAQ 100

The SPY is working on a positive divergence, it looks like it wants to lead.

We'll see if they build from here with shorts surely having entered on the break below the bear flag this morning.

Miners Filling the Gap

Gold hasn't moved like the miners have this morning, which are moving toward filling the gap.

GLD not doing much...

GDX

 GDX is moving fairly aggressively to fill the gap (1 min)

 GDX 2 min

 GDXJ (Junior Miners) 1 min

GDXJ 2 min

Market Trends

Lately, like last Friday afternoon and last night, when I'm talking about market "Trends", I've tied to make clear I'm talking about the behavior of the market or the games Wall Street plays rather than price trends.

On Friday at the end of the day I posted 2 charts, last night I re-posted those same 2 charts with the exact commentary from Friday, I did so for a very specific reason, I wanted to show you the "Market trends", I mentioned above, the behavioral trends.

Here are those two charts and commentary from last Friday and last night one more time, not to beat a dead horse, but I want to make sure everyone understands the reason I posted those charts twice (now 3 times) as they relate to the market's behavior.


Here are the 2 charts and the same commentary from Friday. The reason for posting these is not to try to convince you of anything relating to near term market action, but just to make the trends that have effected near term market action clear. I've highlighted the most relevant parts in bold.

  " First this is where we are, it looks like a rectangle here after an extended downtrend (on this timeframe), but it's really closer to a flag, a bear flag, which means most traders are viewing the immediate future as one in which the market will break down shortly and the NYSE record 2012 short interest speaks to that. I don't think I need to convince anyone of my bearish perspective, but I also know the market is not as simple as that."

 "Lets just take a look a several months and what the market did, what traders expected and how the market made sure it wasn't as simple as it appeared. First we had 3 bounces that made higher highs/higher lows (I believe we called all 3 from bottom to top and back to bottom again near perfectly). Traders would take this as an uptrend, that is what it is (higher highs/higher lows), but we had additional information and used those moves higher to start short positions, then instead of the trend continuing up, the market saw a sharp decline and formed a bear flag. Now traders see a bear flag and expect the market to break down, the market did (in the yellow box), but it was a head fake, drawing in shorts on the break and then stopping them out as the market moved higher, we shorted here again. In the orange box there was strong upward momentum, that same day that it started we not only predicted what would happen, but 3C confirmed it and that strong, bullish momentum fell just as quickly as it went up. Since then we've been in decline and have formed another bear flag. Technical traders will view this as a bearish lag that will break down to start a new leg down, but as you can see over the past 4 major moves, Technical Analysis said one thing and the market did the opposite in the near term. If you don't believe traders see this bear flag and are shorting it, just look at yesterday's 2012 record NYSE short interest.

If we follow what we have known for a long time, the probabilities are for a solid bounce knocking those shorts out again, making the average trader wrong again. That's where the signals have been lining up, that's where the market trend probabilities are."

Here's where we are now on a SPY daily chart with a 50-day moving average...

Below is a current 60 min chart, note the same bear flag formation that is mentioned in the two charts posted Friday/Sunday, although this bear flag is much smaller, being visible on a 60 min chart (the last one was larger and visible on a daily chart).

 As far as the market's behavioral trends, as noted in the charts posted Friday and last night, nearly every major reversal had some kind of head fake move before the reversal, but specifically the large bear flag on the daily chart saw a break below the flag before reversing to the upside- we are at that same point right now with today's open. The last one saw 2 days below the flag before a reversal, but that was also a much bigger flag and longer timeframe.

This is the flag from before on a daily chart, note the break below the flag as traders would expect before the upside reversal.

I wanted to post this one more time so I'm sure that everyone is clear as to why I posted those charts. This will be an important test as we are obviously in a much more unpredictable market environment, but we'll know very soon whether Wall Street is still in control of near term market cycles or whether that final change in character has arrived, which would be sort of like the Lehman moment of 2008, just this time it's the EU uncertainty driving the market.

ES Overnight Through the Open

 The Sunday night open to the left, Europe opens at the white arrow, after the Italian debt auction ES enters a lateral trading range.

ES had several overnight negative divergences and one decent size positive at the lows pre-market. The price pattern has an inverted H&S look to it, ES would need to move above $1341 to confirm an upside breakout from the pattern (currently at $1336.25).

More of the same in Europe

We discussed how the process would unfold in Greece to try to form a coalitions government, first the first place party (by votes), The New Democracy (pro-bailout) would have 3 days, they gave up on the first day. Then the second place party, Syriza (anti-bailout) would be given 3 days, they didn't so much give up I believe as passed the baton knowing new elections would push them over the top to a position of leadership, in any case, less than a day. Finally 3rd place pro-bailout party, PASOK was given 3 days, they failed for form a coaliton government as of the end of the weekend.

The next step is the President of Greece will call all 3 parties together to a meeting and try to form a unity government, should that fail, then Greece heads to new elections around mid-June. It seems this has already failed as Syriza leader Tsparias has said through a spokesman that he would not be attending the final meeting, which makes sense as polls show Syriza gaining so much momentum that if new elections were held they'd get more votes than the ND and PASOK combined and have an automatic government in place. This has weighed on the Euro, but I can't believe that any reasonable person didn't see this coming.

More of the same in Spain as well as their 10-year benchmark yield jumped to 6.26% (6% is the level that is unsustainable in which Greece, Ireland, Portugal, etc have all sought bailouts as it's too expensive to raise funds via bond issuance), so Spain is heading down the same road and we know there isn't a bailout fund large enough to handle Spain and Portugal which is already in need of new funding.

Also more of the same in Spain, more banks are rotting from the inside out and expected to fail or be nationalized.

Asian trade ended showing the Chinese RRR cut really didn't have much of an effect.

Thus far the only thing that has settled ES in to a range is the fact Italy was able to issue some 10+ year debt, which is seen as a success, even though the rates were higher.