The Earlier Local's Depth of the Book

I just got this update which concerns our Opening Indications post in which a former local talked about the depth of the book, he just said he had a typo and published this (Thanks to George for sending it)...

 Yesterday I had a typo. I wrote that there were buy stops 1472.50 up to 1478.00 and I actually meant 1462.50 to to 1468.00. 

So it's lower than the original and now you also know why I said, "Take it with a grain of salt" and why I don't care for other people's analysis when doing my own.

Thanks for keeping us up to date GG

URRE Update

URRE is another possible secular long like UNG, although I like UNG a lot more at this point, I do think URRE should be on the radar.

On Jan. 10th we had a chance to take some profits out of URRE and it was giving signals that it was about to reverse and at least pullback; hopefully you were able to take some $ from URRE and we want to watch the pullback to see if there's an opportunity to be a buyer of URRE again.

Here are the current charts.

 Here's the typical failed descending wedge (all wedges both bullish and bearish were failing then as Technical traders were whipped pout of positions). We noticed the bullish wedges like this, instead of breaking out, went on to form bases and the bearish wedges didn't break down, but formed longer term tops.

 Here's the 10th when we last posted about taking action in URRE, so far the daily candles have been smaller and smaller, I'd watch this one near the close and see if there's a bullish reversal like a doji, hammer or star and also watch for volume to be higher than yesterday's. My gut feeling is that this will be more of a process reversal to the upside than an event so I'd expect some more lateral movement or "U" shaped.

 This is a 3 day X-Over Screen which is appropriate for URRE, it's giving 1 of 3 long signals and the other two are moving in the right direction, this would be a long term long signal, not just a trade.

 As far as near term, the $.44 level or actually just above it is what we want to be watching, we may get a pop above and back down to make a lateral range, but I do think there will be a chance to buy URRE at a good price with low risk.

 The long term case is much easier to make, take a look at this daily Money Stream chart with a huge leading positive divergence. Like UNG, I'd prefer to look at URE as a longer term trade, but because of the price, it's hard not to trade around shorter term signals like the last one.

 The daily 3C chart is also leading positive. You might decide how you want to treat this position, like UNG (long term and just put it away or more active management).

So far since distribution in to the highs of the 10th, we are just getting the start of a positive divergence, this doesn't mean URRE is a buy, it means that it seems someone is spending some money to buy the pullback which is good for a future long trade, I don't think there's a strong enough signal yet to be a buyer, but I would watch the daily candle near the close, that might change my mind, at least for a short term trade.

Leading Indicators

It's really early to be looking at leading indicators, but with my suspicion of how the market will behave in to a reversal, I'm not neglecting anything that could provide that glimpse.

So far there's not any big changes, but Leading Indicators are turning like 3C did, slowly at first and then picking up momentum.

Here's a look at a few (and there's some element of the market moving with the $USD again or pretty close like yesterday, indicative of manipulation of the averages).

This is what initially caught my attention.

VXX with an unusually large leading positive spike

 As for Leading Indicators, Yields are definitely the best looking (within the context of what we are looking for-underlying market weakness); this is without doubt the largest divergence with the SPX and it added a little more so far today.

 High Yield Credit was the first to break, at first slow, but it's picking up downside momentum vs the SPX.

 This is a longer view, finally HY Credit is starting to show a divergence that is more than just intraday.

 As suspected, HY would lead and bleed in to HY Corp, that started yesterday with the afternoon plunge, the failure to get back in line at the close and this morning a near mirror opposite divergence so far.

Junk Credit is acting the same way. We'll really see where they stand later this afternoon, but when the SPX diverges with other risk assets, that's a set up for a pretty decent reversal. We only had 2 good ones last year, maybe a 3rd smaller one. This I suspect will be a good one.

Both VXX and UVXY are Leading

Last night I mentioned, when we already have the longer term or big picture divergence in place, how I look for the short term charts not only to go positive, but start showing some extreme momentum-I think I was specifically talking about volatility and UVXY at the moment. Just a few minutes ago VXX's 2 min made one of these huge leading positive spikes and UVXY wasn't too far behind.

Keep your eyes open, volatility is shifting and right now fast so the market is likely to see a quick move if these charts hold up and move to longer, stronger timeframes. Time to look at leading indicators.

AAPL Update

This is a picture perfect example of why you should use you greatest edge over Wall St., "PATIENCE" and let the trade come to you. Too many traders think they have to be busy bodies or else they are missing opportunities when they're really just taking a bunch of sub-par trades and hoping something sticks. This AAPL set up yesterday (at least for a short term trade and maybe more-I'm more interested in the short term) is a perfect example of letting the trade come to you which included two head fakes or what I call a "Crazy Ivan" shakeout.

We should have a pretty decent profit right now in yesterday's AAPL long, here's the Feb $485 Call Trade idea from yesterday and AAPL is up around +3.5% with signs of an intraday consolidation or correction, but also some new signals.

You recall the price pattern, how Technical traders would read this, how Wall St. shook them out twice and the level we are just under that completes head fake #2 and the Crazy Ivan. This is how Technical Analysis is used against traders, this is a perfect example.

 The 1 min chart has a slight negative, one the 1 min that could lead to intraday consolidation or a correction (either correcting through time or price).

 The 2 min went negative to create the downside shakeout and then positive yesterday which is why we thought the Q's were going positive as well. This is a new leading positive high for the 2 min.


 The 5 min is also at a new leading positive high so I'm guessing this trade has some legs.

 I mentioned yesterday that even the 10 min chart was showing hints of a positive divergence and here it is today leading.

Now the bigger question is whether the 15 min chart's longer term pattern that looks to me like a larger base is part of this move. If so, I'd take profits on the calls at the first sign of a significant pullback and look at AAPL equity long.

We'll cross that bridge when we get there, for now I like the AAPL trade and unless the charts beyond 1 min deteriorate, I see no reason to close it yet.

Opening Indications

First on Monday it was clear the underlying strength in the short term and now we know that right now a 5 min chart's divergence = about 1 day (so we can define short term), was in the IWM and the weakness late Monday was in the QQQ. As of yesterday the IWM was up about the same percentage the QQQ was down, however there was another shift, this time the IWM was seeing negative divergences in to higher prices and the QQQ was seeing positive divergences in to lower prices so in last night's "Wrap" the clear assumption was for at least a difference in relative performance if not outright divergence between the two averages. As of right now, just as expected the IWM is down and the QQQ up.

Here's what the opening indications look like so far.

 The DIA actually has had some decent short term underlying strength and this 1 min chart on the open shows a positive divergence, the Dow is down in large part because of the Boeing Dreamliner problems.

 Although this really isn't part of opening indications, just for perspective, if you back out the same DIA 1 min chart you can see where the short term accumulation/positive divergences were to the left and you can see yesterday's strength did see some distribution in to it.

 The IWM went from strong underlying activity in the 3C charts Monday to negative divergences all day yesterday as the price strength was sold in to laving the IWM with this 1 min negative divergence from yesterday which is part of last night's analysis suggesting relative underperformance in the IWM vs the Q's. The actual open is pretty flat as far as 3C is concerned, pretty much in line so we see where the IWM goes from here.

 Here's yesterday's close with a negative divergence sending the IWM lower this morning, but again it's pretty much in line at the green arrow this morning.

 The QQQ however was looking better (it was not looking as good as the IWM Monday though) and I suspect that has to do with AAPL, as noted last night we entered AAPL and later DeMark made an AAPL bottom call, here's our view of AAPL yesterday including the 3 posts and the trade from yesterday. Although our analysis had nothing to do with DeMark's, I do find it interesting as I rarely like options except for very good signals and yesterday's AAPL call trade should do pretty well with AAPL already up over 3.5% this morning.

 The SPY opened in line so far.

 The same chart longer term doesn't look so good, but this is what we expected, these are the signals I said we wouldn't see until we were above the 1/4 SPX highs.

I was forwarded this from a member, the author is a former local (floor trader) and you know how I talk about the depth of the order book, well according to him, this is where there are limit orders congregated. I don't know that it means anything, but part of being above the 1/4 highs is to create demand to sell in to and higher prices do that and you know about the money Wall St. can make hitting these orders, so I put it out there for you, but it's not part of my analysis, I take it with a grain of salt and let the market tell me, but this does demonstrate why I don't ever place orders with brokers unless I'm executing right now, you are giving them this kind of information and most of you don't have access to the depth of the book.


There is a large line of buy stops that start above 1472 that run to 1478 and again above 1479.70 up to 1484.00

Open

This morning JPM and GS both beat.

There was, of course, the old loan loss reserve shuffle which was used to achieve that, but that's the new way to report for investment banks.

BA isn't having a very good time with two 787 Dreamliner fleets grounded after continued problems with the forward batteries.

ES slid about 5 points overnight, but is looking a bit better in pre-market.

3C looks better in pre-market, as expected, NQ (NASDAQ futures) look even better.

As of just a moment ago on the open, the theory from last night about index rotation seemed to be verified with the SPX and IWM gapping down and the QQQ gapping up.

You know what we are looking for, we just stay patient and move quickly when the opportunity is ripe, which could be any hour.

Quick Wrap

One of the things that struck me today was last night's summary of the averages in which the IWM was highlighted as the strongest of them all (among rather weak charts) and how the Q's in the same timeframe were quite weak. I wouldn't say today was a mirror reversal because the Q' don't look as strong in underlying trade as the IWM did last night, but they did improve with AAPL's improvement and the IWM sure looked pretty bad as it performed pretty well as far as price goes. It almost seems they switched and it almost seems we are very close to some top. The EUR/USD seems it has finally been shut down, the market as predicted is now focussed on the EU again and for good reason as the core is feeling contagion-Germany, as core as you get.

Also just as the negative divergences started slowly after we moved above the 1/4 highs on 1/10 and then picked up steam, the credit divergences started slowly yesterday and today started picking up more steam. When Credit and 3C (which is really already there) are both negative, it's an easy call. I don't feel any sense of pride that our market call and AAPL call are almost identical to DeMark's, but I do respect his work and find it very interesting as I almost never hear him come out and make calls, both almost identical to what we are looking for.

 The IWM had good strength yesterday, but as it moved up today as yesterday's short term positive charts would indicate, there were plenty of negative divergences suggesting selling in to the move higher, the IWM lost its positive posture really quick.

 The IWM 5 min chart that was positive yesterday as mentioned in last night's Market Wrap, totally in a negative divergence today in to higher prices, this is how it happens.

 The Q's on the other hand built in a little strength, no doubt because of the order flow seen in AAPL, when yo have the depth of the order book, there's a lot of information you might as well call inside information, but that's what being a market maker is all about.

 The 3x leveraged IWM short, SRTY is in a huge leading positive 30 min divergence so this appears to be the set up accumulated for trend #2.

 URTY, the 3x leveraged IWM long is the exact opposite in a deep leading negative divergence, the red arrow is 11/16-the start of this cycle, trend 2 would be the end of the cycle and likely the start of a new down cycle even lower than 11/16 lows.

 Also interesting was the end of day leading positive divergence in SRTY (IWM short ETF).

 Take a look at the unusual 1 min volume in SRTY at the same time as that positive divergence. Interesting.

 URTY (the 3x long version) on the other hand saw a leading negative divergence in to the EOD trade.

Take a look at the volume there, again... interesting.

I'm not saying the IWM can't move higher intraday or very, very short term, I'm just pointing out the relative performance of the IWM vs the Q's within the context of last night's wrap talking about the divergences and positions of both. The IWM closed green +.43% and the QQQ closed red -.49%, but I'm willing to bet they flip sides tomorrow, which is also interesting that the market is not moving together, especially in light of the fact the EUR/USD now seems to be done and that parabolic move up is a pretty dangerous pattern on the chart that can still see violent downside resolution.

In addition to that, EUR/USD is one of our leading indicators we have been looking for to go negative, it looks like it will be. Here's what the start of that looks like...

1 min chart, SPY =green, Euro=red. Instead of the Euro leading, it's not lagging and this is one of the indications we were looking for to occur.

I also found volatility interesting. The longer term positive divergence is expected, that's part of forecasting trend #2, but when the faster charts start getting really positive intraday, we're usually close to an event. Take a look at UVXY...

 The big picture on a 60 min chart, leading positive

 Note the strength though at the intraday lows-1 min

 2 min

 3 min

5 min-perfect migration through the timeframes in to a slightly down to flat area, an almost perfect accumulation environment.

There was no dominant Price/Volume relationship today so there's no short term bias as far as short term oversold/overbought and a few other clues from the P/V relationship.

As for Leading Indicators...

I've been hesitant to call a top and jump headlong in to a bunch of positions because my experience is that 3C is great, but 3C with Leading indicators, is almost infallible.

Just as the 3C divergences started out slow on the 10th and11th and built pretty quickly, we are seeing something similar play out in L.I.s.

 First commodities as a risk asset acted more in line with the EUR/USD correlation, which means something about the short term market movement, I'll show you next

 The EURO has finally broken and Germany is BIG trouble, people don't realize how big today's news was, but when the market starts discounting it, then people will realize, this was a milestone in the European saga and a very negative one. The point here though is the SPX in green is taking off without the backing of the Euro or $USD, that's typical of short term manipulation. It also starts our divergence.

 Here the SPX in green has a nearly mirror opposite relationship with the $USD as it should, but today it rallied with the $USD, again indicative of short term manipulation because it IS NOT a natural correlation.

 The $AUD doesn't appear to be that striking vs the SPX here, but I can't tell you how many divergences I have drawn on the $AUD that started just like this, they usually have a day or two more with serious downside, but it's that divergence right there that is where it started and was important.

 Just remember, Yields are like a magnet for equities, they almost always revert to yields and yields have a major negative divergence going which it added to today.


 Just so you can see better, this is High Yield Credit (risk on credit) from yesterday. I said this is the start of the negative divergence in HY credit and it would probably be the leader that would bring the other two around.

Look at today's negative divergence in HY credit, even worse than yesterday and sold off as the SPX rallied in to the close, this is what we are looking for.

 Yesterday I said High Yield Corp. Credit traded nearly tick for tick with the SPX, which is pretty rare, but today it got hammered in to the second afternoon low, diverging with the SPX and lagging in to the close, like HY above and how it started small yesterday and grew today, I think this is the start for HY Corp. Credit.

Junk credit has been acting the exact same, it also was hit hard in the afternoon and failed to keep up in to the close. Credit is so very important to what the market is doing, few realize it, but the credit markets are much larger and they are much smarter, they move first because of their size, thus they make an excellent leading indicator.

As for futures right now, there's a slightly negative bias to them, but it's a long night ahead. I'd still love to see futures prices run up really high pre-market with a huge leading negative 3C divergence, that would be a bust morning for us, but a great set up.

See ya in a few hours.