FB-Update

I'm not crazy about adding before the F_O_M_C, but I have no problem with the partial position picked up yesterday, I have no problem with the 3C trade today. All the reasons I decided to start a partial position there yesterday remain today and have even increased.


Here are the charts...

 FB 1 min

 FB 2 min

 FB 3 min-the thing here is FB IS NOT confirming the downside move, in fact it is staying positive and getting more positive.

 FB 5 min

And now the 15 min is moving in to a leading positive position.

I'm VERY tempted to add here, if it weren't for the F_O_M_C I might have added here. I'll keep an eye on it, maybe I will see something that will change my mind and I will add?

Risk Asset Update

First of all, watching CNBC (I NEVER watch unless it's F_O_M_C day), but I can't believe how they are defending the algo trades and calling them a mistake, this was NYSE wide, this wasn't one fat finger trade, but CNBC needs people trading stocks to stay in business.

So earlier in the week I said that the Risk Asset Layout, may very well be the clue that gives us the best indication of what's going on with the market. Early in the week there were some negatives, but there were also some assets that looked confused or were just not negative, yesterday we saw them move a little closer to the negative side (and this layout has helped us call almost every major turn), today it is moving even more negative.

The F_O_M_C is a wild card event, but as I said, we have to work with the best information we have at the time, someone may know what the F_E_D will do and that may be reflected in the market, but we don't know so we have to use the information we have.

That said, here are the charts and where the changes today are.

 Commodities that were strong vs the SPX had started to break-away, I thought maybe it was China, being China wasn't that bad and the momentum in commods is worse today, I'm guessing it's the Global manufacturing numbers. In any case, commods peeling away from the SPX is not good for a risk on move.

 High Yield Credit shows the positive and now negative divergence, this has been in place and troublesome all week, it was HY Corp. credit that was going the other way causing some question.

 Yields which are like a magnet for equities are still dislocated and bad enough to take the market down, we have seen smaller dislocations take the market down in the past.

 Yesterday High Yield Corp. Credit did what I hoped to see by the close, today it's much worse, it is now dislocated, both HY credit indicators are negative.

As for Sectors, Tech, Discretionary and Industrials are lagging-these are risk on groups. For the most part, the defensive sectors are hanging in there.

This may be a clue as to what is coming, in any case, early in the week we were negative, but somewhat split, now we are moving much closer to totally negative.

URRE-Our Second Favorite Long Term Long

Members who have been here for a while know that there are only two stocks that I like for a long term secular hold, UNG and URRE, both benefit from the U.S.'s new power plant emission rules that would exclude even Clean Coal technologies. We actually found that out long after we had noticed the change in character in both of these stocks.

Yesterday some members who have had URRE for some time made some decent money as URRE closed up nearly 51% for the day with no leverage at all. Even though URRE is down from yesterday's spike, it is still up 17 or so percent from Monday. In the bigger picture I think this is great, but I'm more interested in the long term trend.

In any case, I'm not sure what sent URRE up, but here are the charts which do show some interesting concepts that we have talked about here for a long time.

 A longer term 5 day chart shows a change in character in volume.

 Taking a closer look, we have talked about how these long term price patterns, like this bullish descending wedge, that technical traders have been trading for nearly a century are manipulated and everything technical traders have grown to know about the market and price patterns, is used against them. The expectation of a descending wedge is when it reaches its apex, it should break out to the upside and retrace the base, or rally to the $3.50 area. Instead with both the bullish and bearish version of wedges, we often see an initial head fake in the correct direction (see yellow box) followed by a move that would stop out trades and THEN, a top or a base is formed and eventually price tends to move in the direction it was supposed to at the apex. We have seen probably well over a hundred of these in the last year and a half, almost all act the same.

 Here's a break below a VERY obvious trading range, most would think this is a negative for the stock, but many times these breaks offer smart money a chance to accumulate in size (as you can see the volume spike) and at much better prices.

 This is part of what also grabbed our attention for URRE, this is a daily chart! Look at the long term leading positive divergence, it appears URRE has been under serious accumulation for some time, I've seen charts like this before, specifically Home Builders during the 2000 Tech melt-down, their accumulation periods were about a year and a half and housing led the next bull market. They don't call them smart money for nothing.

 As URRE broke below the obvious range, look at the 60 min chart's positive divergence in to lower prices, especially right before yesterday's launch.

The 30 min chart with a little more detail shows the same positive divergence below the range and it looks like there was some decent selling in to the highs yesterday, I still think URRE will most likely continue to build a large base and eventually move to stage 2 mark up where it becomes a high probability trending stock.

URRE is still up 17% since Monday, my long term Trend Channel stop is around $.50

NYSE Investigating 148 Stocks from today's open

You can bet UNG is one of them

UNG the Target of Algo-Trading

NANEX has confirmed that UNG was one of the targets of berserk algorithmic trading this morning.

I have recently said that UNG NEEDS a volume spike to get traders to chase it in to Stage 2 "Mark Up", I don't know if this might be part of the process, but it seems whichever algo is responsible and the rumor is Knight Capital, it looks like they may have set the trade up yesterday to profit from it today-we are talking about thousands of trades executed per second.

From NANEX, their chart of UNG this morning showing the algo activity...

 NANEX also confirmed some very big and strange trade in ES yesterday 3 seconds before the market closed at 4 pm, if I have time I'll dig that story up too, it will be interesting to see if this volume shock helps or hurts UNG. As of right now, I can't imagine that this is anything more than an algo executing super fast trades, false bids/asks, etc to make some quick money.

As for UNG...

 Here's the daily volume, if this increases and goes green, that might be the mark up signal traders look for as they run their volume scans, few will realize that it's algos and rather assume it's smart money.

 Here's some context of the last week+ on a 5 min chart, look at the volume this a.m.

 Here's the actual volume, at this size they only need to make fractions of a penny on the number of trades that went through to make a killing, maybe one day the SEC will do something about this non-sense.

 The UNG 1 min chart shows a positive divergence from 12 yesterday nearly to the close, if shares were sold at the top of the range, they made a good chunk of extra money.

 Here's the 3 min chart which clearly shows the algos buying at the lows and selling at the highs and very quickly.

I'm not sure if it means anything yet or not, but the 5 min chart is looking more positive since this started.

Opening Indications

It's pretty clear that there were sellers on the open, there may be some other charts changing character a bit too, like I said yesterday, movement is good, that's where we can really see who is buying weakness or selling strength.

We also had the 10 a.m. release of the US ISM Manufacturing Index, coming in at a miss

Released On 8/1/2012 10:00:00 AM For Jul, 2012

	Prior	Consensus	Consensus Range	Actual
ISM Mfg Index - Level	49.7	50.1	48.5  to 51.1	49.8

This is the second month in a row the report has missed, while not far off consensus, below 50 is contraction and this shows last months dip wasn't just a blip in the series (last month at 49.7). The employment index fell from 56.6 to 52, this is why I didn't bother covering this morning's ADP employment report, after years of following it, they are no better, if even, a coin toss.

Now, given yesterday's better than expected data which is bad news for market participants that know pretty much the only thing that will send the market higher is new QE from the F_E_D (I'll play either side of the market), the question is, was this a bad enough miss to be considered "Good news"? From GLD's price action, which is pulling back as we expected, so far the jury is out.

Here are the charts for this morning thus far...

 DIA 1 min negative on the gap ip, but seeing some modest positive activity on the 1 min, this is regarded as intraday, meaning swings in the intraday trade.

 The 3 min DIA also showed that there appeared to be fairly substantial distribution on the gap up, there is a relative positive divergence from that 1 min leading positive above bleeding through, still in the intraday territory and not as impressive as the negative on the open.

 Looking at the trend of the 3 min chart, you may remember this relative positive divergence from this week, one of the reasons I expected a gap up yesterday, we got it today, but not as impressive as I had hoped for. There is now a negative divergence from today , the first one since the positive started.

 When in doubt, try to reduce noise and go to the longer term charts-this is true of almost any indicator or price chart, the DIA 15 min in a leading negative divergence, the probabilities according to the charts are still for a decent move down-of course the right words or wrong words from the F_O_M_C today could change everything, either for the better or much worse, but we have to make decisions based on what we know when we know it, it's called, "Living at the right side of the chart"

 QQQ 1 min also negative on the gap up open

 The same trend of a relative positive divergence on the same 3 min timeframe as the DIA, is also seeing the same negative divergence this morning, again the first since the positive divergence started. I should remind you that short term positive divergences on short term charts, "can" be support to hold the market in place or in a consolidation.

 The longer term QQQ 5 min, leading negative still

 And a very long term picture of the 15 min QQQ and what it has taken to turn it in the recent past.

 Like the others, the SPY was negative on the 1 min right on the open.

 The 3 min chart that I have shown you above in the QQ/DIA looks the same here except a worse negative divergence, a leading negative that has formed quickly and is fairly large for the time in which it formed.

The 5 min chart, still leading negative.

ACI- Follow Up

I also mentioned ACI on July 30th as a potential long we might get  shot at on a pullback.

Here are the charts thus far, although it's still very early in the day and a funky day at that. Perhaps we will get a shot at this one playing in to our hands, it's worth keeping on your radar.

 This 60 min leading positive divergence in a small base-like area is what caught my attention, the recent parabolic move is what made me think we might get a shot at this one long on a pullback as parabolic moves rarely hold. In addition, for a divergence of this size already, I'd expect a little bigger price base as we rarely see "V" shaped reversals.

 Here's the daily chart, today's candle THUS FAR, is a short term bearish reversal candle called a "shooting star", at least it's VERY close to one, the psychology is the same.

 Here's the short term 3 min 3C trend, which looks like a near term pullback was in the works any way.

As for target areas...

 The 10/22 day ma's are a reasonable target, however the market isn't always reasonable.

Here's a longer term Trend Channel stop , the area is around $6.00, this doesn't preclude the possibility of a move below the bottom of the base at $5.00, which would be a VERY interesting set up.

HBI-A Heads Up

I set a lot of alerts looking for certain things to happen, mostly trades to come our way, HBI was set off this morning and while I'm not saying it is a short right now, it may become one shortly, as I have mentioned from time to time, a friend coined it best, "From failed moves come fast moves", HBI is in position that a failed move here could send it to the bottom of it's long term trading range and that may be a trade worthwhile, especially with a little leverage.

 a 5-day chart of the range...

 Today's daily chart with HBI so far showing a bearish long upper wick as higher prices this morning have been rejected as it breaks above the recent resistance range. Volume is also suspect for a move like this.

The intraday 5 min chart shows what looks like churning in the first 10 minutes of the day, this is one to keep on the radar, a move back below the $30.50 area could present an interesting short sale for a ride back to the bottom of the long term range, I'll also keep an eye on developments.

The Calm Before the Storm?

With the F_O_M_C meeting announcement coming this afternoon and both the ECB and the Bank of England coming tomorrow, it would be understandable if the market were relatively dull in to the F_O_M_C announcement. As you know, dull markets are dangerous markets; I compare them to, "The kids being a little too quiet" and it's best to try to stay on your toes and keep your eyes peeled for any clues, hints or information. We have seen F_O_M_C statements that looked VERY much like they were leaked in the past, although quite rare.


As I ALWAYS warn before an F_O_M_C event, "BEWARE the knee jerk reaction", sometimes it is turned around in minutes, sometimes days, but the initial reaction usually is not what the market finally settles on.


As with every F_O_M_C meeting, the market is waiting to hear the term, "Quantitative Easing" or QE3, yesterday's US macro data didn't help their cause sending gold down a bit, although gold is up %50 an oz. since Draghi said last week that the  ECB would do whatever it takes to save the Euro. The US Housing data also wasn't helpful, now we have 4 months of increasing housing prices which makes QE3 harder to justify, especially at a time when the F_E_D could be accused of playing politics. Speaking of politics, the "Fiscal Cliff" is only 5 months away, if Congress takes no action, the US economy could drop like a stone, that has to be playing in to F_E_D thinking as well. 


As for the ECB, yesterday German Finance Minister, Schauble said to a newspaper,“The rules of the European Stability Mechanism don’t foresee a banking license to allow refinancing at the European Central Bank” 


Also moving the European markets were comments from the ECB's Weidmann saying, "Governments overestimate ECB possibilities", until it was realized that the comments were a month old and Draghi only changed his views dramatically last week.


The market also saw some volatility after talk that there was a $4bn asset re-allocation from fixed income in to equities.


As for macro data, the UK's PMI Manufacturing saw a sharp decline. Global PMI also released shows the global print in contraction led by Europe with 10 of 11 countries now in contraction. Globally of 23 countries to report, 16 are in contraction, as noted most of that stems from Europe so far, but the one I was most interested in given commodity volatility early yesterday was China's overnight read. China's PMI dropped to its lowest print in 8 months at 50.1 (consensus 50.5), the devil in the details were that 10 of 11 sub-indicies are now in contraction including new orders and employment.


HSBC's Flash China PMI also came out and smoothed the volatility as it beat, coming in at 49.3 which is contraction (below 50), but up from last month, the HSBC and official Chinese data have been at odds for months, but are finally starting to close in on each other. Given China's opaque nature, I'm more inclined to trust HSBC's read.


UBS also released a report today entitled, "Don't hold your breath for another stimulus in China". 


" While the Chinese government has been very concerned about the economic slowdown and has taken policies to support growth, we would not be holding our breath for another big stimulus. The previous stimulus in 2008-09 did lift growth much higher than otherwise would have been, but the excessive credit expansion also worsened the imbalance in the economy and left serious negative consequences which are still been dealt with today. Chinese government has clearly recognized this and is keen to avoid making a similar mistake this time."


The report went on to say China will still try to foster growth, just not via stimulus.




I'm not even going to cover the US ADP payroll data beat as they have a horrible track record.


Today is certainly all about the F_E_D, I'm not sure I would put too much emphasis on price action until the announcement, depending on what the committee decides, tomorrow will be crucial with the ECB's announcement, if Draghi falls short, watch out below is the general consensus.


If one thing we absolutely nailed is clear as daylight now, it's the North/South divide in Europe, I just didn't foresee the ECB stepping in to the fray in such a big way as they have been nearly totally missing from the picture for the last 4 months or so.


As for ES overnight...

 ES from yesterday's 4 p.m. close to the European opening at the green arrow-part 1

ES from the Euro. opening to the US open-part 2


So lets see what we can dig out of this market going in to the F_O_M_C statement.

EOD Risk Asset Update

I was hoping to see one thing happen today in the Risk Asset Layout and it wasn't huge, but it happened.

CONTEXT for ES has started to deteriorate in to the close.

 Commodities have come unglued from the SPX, I still think this may be based on fears of weak Chinese data, we'll find out overnight. The closing candle for DJP is a bearish engulfing candle, a typical reversal candle.

 High Yield Credit has stayed negative through the day.

 Yields have stayed negative through the day.

As you might recall, High Yield Corporate Credit had made a move to a new high, I was hoping this would not hold in to the close, it did not.

What is happening here is we are seeing the risk layout indicators start to diverge negatively, actually they have been, but we are seeing more consistiency in that negative divergence.