Something we want to watch carefully

If you haven't figured out why in 2005 the economy was humming along, consumers had tons of cash from the insane valuations of their homes and HELOCS and they were spending it, yet now we are in the middle of an economic abyss and the market is higher than 2005, the simple answer would be F_E_D liquidity provided by a number of mechanisms including QE1 and 2 and as you know, the ever hopeful bulls salivate at each F_O_M_C meeting hoping to hear something about QE3.

In effect (or reality) the F_E_D injects liquidity in to the market, that liquidity ends up in stocks and the market heads higher, that's why I call the rally from the 2009 a "House of cards", it's not built on fundamental strength, but F_E_D liquidity injections and the hope of more.

However, this may just be a simple exercise, but there's more than one way to skin a cat. At 9:55 a.m. today the F_E_D conducted a repo-not a reverse repo which drains liquidity from the system, but a repot, under the guise of an "Operational readiness program announced August 2, 2012".

The total amount today, $600 million for a 3 day repo and $210 million from last Friday.

While this is nothing like the QE amounts from POMO operations, it's something worth watching.

Market Update for the other averages

There's no real surprises here, the only average that looks different from the rest as you might have guessed is the IWM/Russell 2k, the reason? If you recall why we see head fake moves above important resistance roughly before 80% of reversals, you'll understand why; as pointed out yesterday, the IWM / R2KWAS THE ONLY average NOT above an important resistance area, which means there's not an ability to do all those things that bull traps are useful for. Today that has changed and with it, the complexion of the IWM is starting to change. I should also point out that as risk moves go, the R2K should always be the leader, not the laggard.

 DIA1 min relative negative on the open and the start of a leading negative divergence just like the SPY.

 DIA 2 min in a deep leading negative divergence, negative on the open.

 DIA 3 min in a deep leading negative divergence, relative negative on the open-no confirmation of price/trend.

 DIA 5 min showing the very fast 1-day accumulation from last Thursday we noticed, that seems to be the apparent catalyst for lifting the averages above resistance and as we can see with the leading negative divergence since that is now lower, I'd say all of those shares that were accumulated have likely been distributed and we are in to institutional short selling, just based on where 3C is now on this chart.

 As mentioned yesterday, it wasn't until today the IWM/R2K made it above resistance.

 1 min leading negative divergence, negative on the open as well intraday.

 2 min leading negative divergence, confirmation on the open intraday, but very small within the context of the leading negative divergence.

 3 min IWM leading negative, negative intraday on the open, you can also see Thursday's accumulation in white.

 IWM 5 min with 2 accumulation areas in white incl. Thursday of last week, overall large relative negative divergence, intraday negative on the open.

IWM 15 min leading negative trend, note Thursday's relative and leading positive divergence/accumulation.



 QQQ 1 min deeply leading negative trend, a slight confirmation move intraday on the open, very insignificant compared to the leading neg. trend.

 QQQ 2 min with Thursday's accumulation and a deeper leading negative trend, there's confirmation on the intraday open

 3 min with Thursday again and an even deeper leading negative trend since, again, I'd suspect distribution is complete and short selling is likely occuring by institutional money.

5 min QQQ totally leading negative-negative intraday on the open.

Additional SPY Charts

Not considering the trend of 3C, just the intraday readings, it looks like the 5 min chart gave the SPY some breathing room, but with the 1 min chart just posted (last post) starting to really deteriorate, that (so long as it keeps up) should migrate through the timeframes and at the 5 min timeframe, should cause some damage.

We'll look at both the more important trend and the intraday signals.

 Since you already saw the 1 min, here's the 2 min trend, leading negative for the SPY and VERY CLEARLY.

 Intraday 2 min shows the negative divergence at all 3 of yesterday's reaction highs and the pullbacks from those highs on the intraday negative divergences. As you can see, the 2 min chart doesn't look quite as bad as the 1 min chart did in the last post yet, but remember, divergences start on the shorter timeframe charts and migrate to the longer timeframes. Still, the 2 min is in leading negative position even on an intraday basis.

 The 3 min chart on an intraday basis also shows all of yesterday in a leading negative divergence, no confirmation in 3C which would mean a higher high than the Aug3rd reading. This morning we see an intraday negative divergence on the open just like the 1 and 2 min charts, it is still pointing up, but as I mentioned, we have to wait for migration of the 1 min chart through the timeframes.

 5 min trend is actually quite negative when comparing where 3C was on June 25th compared to now. Also note the leading negative divergence of the last 2 days and today.

Here's what I meant at the top of the post about the 5 min giving the SPY a little breathing room, we have a higher high (see white trendline) although this is very weak compared to the overall trend of a leading negative divergence, it is however the intraday trade signal. So we'll see if we get migration from the short term charts to the longer term charts. The SPY/SPX is above the bull flag, technical traders like that for buying confirmation, when they buy, they allow Wall Street to sell in to strength or short, that's why I mentioned how almost all of the averages and momentum stocks were above some important resistance level yesterday, one of the last things we see before about 80% of reversals is a head fake move such as this appears to be as I explained in the last posts from yesterday-both AAPL and the SPY.

SPY Opening Indications

1 min leading negative divergence in the SPY on the open, it's only grown worse...

MCP Follow Up

MCP is VERY interesting, you rarely see a stock put in a leading positive 15 min divergence like MCP did in one day, yet on intraday charts we have signals for a pullback. I was wrestling with what type of position to open in MCP, options or equity and decided on equity as it would give me more breathing room to see what MCP is really up to, a simple gap fill or a larger base? If MCP is going to make a larger base, then a pullback makes perfect sense, but there's something very interesting about how quickly the divergences developed there. I'm going to try to give MCP as much room as possible without violating risk management rules out of curiosity, some of you may have had nice profits on options positions and maybe even took them this morning on the 3% move, I feel I have more room to be patient because I don't have some of the burdens of options hanging around, that's why I chose an equity long instead.

 The 15 min leading positive divergence that developed so quickly, it is not seeing any migration of weakness from shorter term charts, although I think it would take a little longer before we saw anything like that, I will be watching for that today.

 The 5 min chart is leading positive as well, it has seen a little loss of momentum bleeding through from the shorter term charts, I'll be watching this as well.

 Starting at the fastest 1 min intraday, yesterday we saw some intraday negative divergences and MCP responded to them as you can see, both negative and positive, we had a relative negative divergence on the 35 opening move, so it's not surprising to see a pullback, however this isn't a horrible divergence.

 The 2 min chart has less noise and shows what looks like a pullback from today's early highs with a negative divergence, still in the intraday timeframe though.

 And the 3 min chart shows the same.

 So this 5 min chart will be important in judging how strong those intraday divergences are.

For a very short term stop, the 60 min trend channel is at $11.60, it at least keeps you at a stop that is still profitable. I may give it a little more room depending on how the 5/15 min charts develop.

AAPL Follow Up

Since the shortest timeframes will be the first to catch up to today's price action and the longer timeframes will take a little longer, I'm going to present the big picture first and start with the longer, more important AAPL 3C charts as they represent the larger underlying action or strategic outlook and work my way down to the shortest intraday timeframe that represent the intraday moves and more of the tactical or short term outlook.

While the initial opening move is nice to see, remember I son't like early a.m. trade as it is full of noise and market manipulation of overnight and pre-market orders, the better data comes from later in the day (on most days).

 AAPL 30 min chart, this is an important timeframe for the longer term outlook, as mentioned, the last several reaction highs through June and July have seen lower 3C readings, the most recent reaction high has seen the worst, leading negative 3C reading. If I had to guess, which I always do, I'd say this is probably a pivotal moment for AAPL at least for short term to sub-intermediate trends. If 3C were confirming price action, it would be making a new high with price.

 The 5 min chart is the first timeframe of the faster timeframes where we typically see important, longer term underlying action, this leading negative divergence in to yesterday and today's highs is pretty ugly. I don't think the 5 min chart has fully caught up yet to the opening action.

 The faster 3 min chart is probably the most important of the intraday or day to day timeframes, clearly it looks like AAPL saw distribution in to yesterday's price strength, this is why I say, "Let the trade come to you" rather than chase it as I'm sure so many longs did yesterday and opened the September put in the options model portfolio yesterday.

 The 2 min chart shows a leading negative divergence from yesterday and continuing in to today thus far.

The 1 min chart which should be caught up shows non-confirmation of the move higher this a.m., 3C did not make a higher high, the intraday action thus far is in line as price and 3C both made lower lows. There is a relative positive divergence and that seems to be what AAPL bounced off thus far, but remember this is intraday moves, the more important charts are the longer and they are not looking good.

I wouldn't expect a total break down this early in the day any way, the market is way too volatile for that, instead I think we'll see lots of running of stops and triggering orders until later in the day.

AAPL Update

Yesterday we (or I) opened an AAPL September 630 Put position in the options model portfolio, it's off to a good start this a.m. and remember AAPL is a bellwether stock.

Again, lets give 3C a few minutes to catch up to the opening action and take a look. So far I like it.

MCP Up 3% this a.m.

Yesterday I posted MCP One , Two, Three times.... As well as starting a position there in the equities model portfolio as something definitely seemed to be going on. This a.m.

MCP's accumulation period was small so I don't expect a long move, but it was intense. I personally would consider trailing some sort of stop depending on your position and risk tolerance. Lets give it a few minutes and take a look at the 3C charts

Overnight and in to the open

Other than another market breaking-Japan's this time and California's largest refinery posing a serious health risk, Europe was once again in the spotlight.

We saw Dutch Industrial Production miss, Italy miss even worse, and the UK which was an all out collapse with the largest 1 month decline since November of 2008, but get this, BETTER THAN CONSENSUS !!!

June Industrial Production, which was much worse than expected, can only be called, "DISAPPOINTING."

Next German Factory Orders plunged from +0.7 to -1.7 on consensus of -0.8.

Considering several of those countries are still Aaa rated, this might be what we would call, "Contagion of the core", this is what the EU has been trying to avoid for years now with bailouts and mechanisms and as our favorite EU official would say, "When things get serious, you have to lie", so lies as well.

The Italian Q2 GDP was a disappointment as Italy is CLEARLY in recession. The year on year contraction now stands at -2.5%!

In Spain, perhaps the final domino in the fall of the EU, Mariano Rajoy’s confidence and popularity in a poll of voters has eroded to just above 22% support and as they pointed out yesterday, they haven't even officially asked for a bailout yet! Wait until they do and the Trokia makes their economy and unemployment twice as bad as it is now. It's worth noting that Rajoy won in a landslide victory only last November, how quickly they fall.

However, despite all of this, most of Europe has been trading fairly well except the FTSE 100 which is suffering because of the Standard Chartered (down -23% as they broke US trade sanctions) Iranian scandal. Also, surprisingly Italian 10 year benchmark yields have fallen below the key 6% level. The Spanish short end which started to outperform after Draghi's, "Anything it takes to save the Euro" (as well as any bond buying from the ECB would be in the short end or the useless end) comments, is now turning and underperforming. The Spanish 10-year has managed to stay under the 7% level. Basically the market is still benefitting from Draghi comments, but is yet to discount his inaction at the ECB meeting last week, in my opinion this is more tactical set up than anything else as we saw a number of averages and key momentum stocks slip above key resistance levels where buyers would step in, giving Wall Street and the rest of smart money enough demand to sell in to or short in to.

On Central bank action, the AUD/USD saw some strength overnight as the Reserve Bank of Australia left rates unchanged at 3.5%. 

There's not much key data coming out of the US today so I'm not sure we'll see anything market moving, Bernie is speaking, but it's more of an educational lecture, I doubt policy comes up. We do have US Consumer Credit at 3 p.m. EDT today.

Here's the EUR/USD

 EUR/USD since yesterday's 4 p.m. close, ES has roughly followed the Euro overnight.

 A closer look as the US market opens, the Euro struggling to make a higher high...

And the pair since FX trade opened this week.

ES on the open

Our normal overnight opening post is coming, for now, ES

There's an intraday negative divergence in ES on the open from pre-market, don't be surprised to see the gap faded to the downside.