MCP Addendum

I forgot to include, the big move up which we bought calls for on 6/3 as MCP dropped below the psychological level of $2.50 which we waited nearly the whole day for, resulted in an equity move up the next day of nearly 12%, the calls did much better of course and were sold that same day.

What actually moved MCP was a competitor had received financing which often leads to other stocks in the same industry group seeing similar treatment, that's what sent MCP up.

For some reason, like RIMM after it got hammered, the long term 3C charts stayed very positive, we didn't know why for a couple of months until the management restructuring took place, that was what the market had known and 3C was reflecting, it seems there's something the market knows about MCP as the charts are still holding up, the long term ones like RIMM which ended up being a nice winner for us.

 60 min MCP longer term leading positive divergence

15 min MCP , more detailed leading positive divegrence with a larger leading positive move recently than at the point we last traded options in MCP at the green arrow.

MCP Update

MCP's price has been moving a lot recently on Seeking Alpha Articles, but this one is of particular interest and may explain why MCP's longer term charts have stayed intact, much like RIMM's when it was in similar position, we simply didn't know why until the massive management shake-up and letting go of the dual CEO's took place, someone knew about it just as someone seems to know something about MCP as we find out today.

The key will remain in the charts. Here's the article which has some interesting insights that could have a profound effect on MCP...

Apollo Hedge Fund Backdoor Takeover of MolyCorp.

As for price and whether I "might" take out calls, it just leveled off and is starting to move laterally, think about the markets yesterday, that's where we saw accumulation so if we are to see it, it will be soon as price has started to flatten out. If it is exceptionally strong as it was on the move below $2.50 on 6/3, then calls may be just the ticket. Volume also looks like an intraday if not longer, capitulation event.

Possible Scenario

This possibility was building since early yesterday starting with the USD/JPY. We already know that equities and retail bag holders are more than happy to chase any ramp or buy any dip, just like any bubble, there's always a sense among those participating in it that, "This time it's different" and so long as the F_E_D was able to back-stop the market and print unabated, that would be true, but they can't do that forever, even if the spent 4 years convincing the market they could and would if need be. Those days are over as we are well in to the taper and inflation is carrying us much faster than expected toward a rate hike, I had said this on the CPI data a day or two before the June F_O_M_C, JP Morgan just moved their rate increase date up 2 quarters (6 months) this week, for the same reasons I cited, INFLATION.

For those who haven't seen a F_E_D Funds rate hike and the effect it has on the market, this should give you a pretty good idea...

The Tech Bubble was popped as rates were hiked by the F_E_D and make no mistake, while we are talking about when the "first" rate hike will come, there will be more than 1, that is evidenced by the committee's estimates of where rates will be at the end of 2015, 2016, etc, that means multiple rate hikes.

It seems Yellen is trying to inoculate the F_E_D from blame for the coming bear market by saying, "It's not the F_E_D's job to burst bubbles", but when we have prices move up like this, whether due to dot.coms or housing prices during subprime, inflation rises and it is the F_E_D's mandate (one of only 2) to keep prices stabile, so while Yellen says it's not the F_E_D's job to burst asset bubbles, the asset bubbles are typically what causes inflation so in a round-a-bout kind of way, she is being disingenuous. We all know without any hesitation this market was of the F_E_D's making so it's the F_E_D's job to intentionally create asset bubbles as Bernanke liked to call them, "The Wealth Effect", but not to pop them when inflation gets out of control?

That being said, as the Central Banks' Central bank, the "Bank for International Settlements" (BIS) recently said in their annual report, not only has accommodative policy been ineffective, it has created nasty side effects that will likely cause more trouble and in the end the central banks' policy will have gained them nothing which couldn't be more timely after 5 years of F_E_D balance sheet expansion of nearly 4 TRILLION dollars to buy themselves the worst quarterly GDP print of the last 5 years, one more and we are in recession. And on recession, the BIS noted that the "Leading" central banks (read as F_E_D) are stretched so thin, it's unlikely they have the resources to deal with even a garden variety recession, but this looks much worse. 

In the 1920's the F_E_D engaged in QE as recession hit hard, the policy was successful at first causing the "Roaring 20's" and assets went sky high, QE was still ongoing in 1928, just a year before the 1929 crash as the market was , well, a bubble. However this time what did QE buy? The economy hasn't recovered, the only way to get the unemployment rate down is to have a record number of Americans not counted as part of the labor force rather than unemployed,when they are in fact unemployed- 91 million right about now which is the highest ever. As soon as you fall off unemployment benefits, if you don't have a job, you are not counted as unemployed, you are not counted at all, you are no longer part of the labor force so of course the unemployment rate drops. Three million more Americans are set to fall off unemployment benefits for 2014 alone, shrinking the labor force and sending the U.E. rate lower. 

But what does the F_E_D really have to show for $4 trillion in money thrown at the economy? Inflation and a high probability of recession with the economy NEVER having recovered.

The reason I have said for years that I think this bear market will be the opportunity no one alive has seen if you are on the right side of the trade is because it is unprecedented in scale. The US faces a "Spent" F_E_D while it is inches away from being hit hard with Stag-Flation, economic stagnation and price inflation which is already evident in falling REAL WAGES and CPI/Inflation trending higher, especially in food and energy which the F_E_D doesn't like to count. We have a globally interconnected economy like never before and there are few countries any better off than the US. China is in trouble, Japan is in more trouble than ever, Europe is in trouble, South America is in trouble. Talk about the butterfly effect! And we have central banks that not only have blown most of their dry powder or as much as they can (remember the F_E_D is not a government agency, it's a bank issued exclusive rights to print money and make policy decisions within a certain framework, which only Congress is suppose to do. The F_E_D has shareholders and is a FOR PROFIT corporation with a quasi/public/private twist, but they aren't going to threaten their livelihood.

1929 was bad, but the world was never as interconnected as it is now, this is part of the logic of why I think this will be one of the greatest opportunities ever seen if you are on the right side of the market and from what I see now, very few on the retail side even know the market has two sides.

Looking more closely at what we are dealing with, I'm sure you noticed a trend in the MOMO stocks that I posted last night as potential trade set ups, we just need to let the trade come to us. Of those stocks, how many have already hit their top and are already moving to lower highs? Almost all of them and this is the dominant theme among my watchlists.

In yesterday's, A.M. Update I said,

"US Index Futures have a slightly weaker tone, don't forget the Dominant Price Volume theme that I track which was the most bearish of the 4 possibilities last night, Price Down/Volume Up, however this can create a short term oversold situation with the market bouncing the next day (today)." 

Remember, last night we had the same Dominant P/V relationship giving stronger evidence that the market is either in HUGE trouble right now or it is in a very strong short term oversold condition, we'll know soon by intraday 3C charts (if they continue to act like yesterday).

Just minutes after the open yesterday I posted, POSSIBLE EARLY HINT in which one of the market manipulation levers and part of the SPY Arbitrage market manipulation lever were acting better than should be very early right after the open, so much so it stood out enough to warrant a post. 

What would smart money need to create a bounce that can be sold/shorted in to? They'd need lower prices as they aren't going to accumulate (intraday) to kick start a market move higher (a short squeeze should do the rest, you saw our Most Shorted Index being smashed lower, it's ripe for a short squeeze). The USD/JPY did that pre-market yesterday with the break under the 200-day moving average.

As I said in a market update yesterday, "Look for lateral trade, if you see it you can nearly be sure it's being accumulated intraday", we got that and we got the positive divergences expected to be seen with lateral trade as the losses to the downside were stemmed. 

During the early afternoon hours I posted, Important Market Update,

"The last market update I warned to watch for lateral (sideways) price movement and that would very likely indicate positive divergences building, well both have happened since my last market update....this bowl shaped intraday bottom may turn down to form a larger "W" type base which would give the base a greater ability to sustain a longer move. How long in duration? I can't say, I'd guess if it was a full "W" maybe a day and then a day of reversal process, but the minutes could be a fundamental game changer as they "shouldn't" be discounted, but as we all saw, the F_E_D itself leaked the minutes about a year ago to 154 of the largest institutional and private equity firms via email almost 2 days ahead of the release. "

Then I posted this around 2:30, MARKET UPDATE/ LEADING INDICATORS, FX...t

This showed the USD/JPY as well as Yen and $USDX futures in line with our short term theory and how we could use it covered in last night's Daily Wrap with a half dozen momentum stocks that have topped and can be entered if our theory is correct at better prices and much lower risk, let the trade come to you. It also showed a number of our Leading Indicators either cooperative or at least not standing in the way of a bounce, which we still have to confirm, but that's the working theory and if there is one, I suspect the F_O_M_C minutes were leaked AGAIN.

What do we need today to get a short term market bounce? Simple, the same thing I was talking about yesterday...

A few charts from MARKET UPDATE/ LEADING INDICATORS, FX...t yesterday...

 TLT /Treasuries would need to move down, the 10-year has sold off consecutively over the last 10- F_O_M_C minute releases, as of yesterday, 20+ year treasuries were going short term negative for a move lower which is what we'd need for a bounce, this morning so far...

They are within the range still and adding to the short term negative divegrence which would send them lower for a market bounce if not help perpetuate it through the SPY Arbitrage scheme.

However as shown yesterday, this is more than likely a short term move, which is why I'd want to use it as the stronger underlying money flow for TLT looked like this as of yesterday....

 15 min , strong positive divegrence. In fact...

It was a good thing we closed the leveraged TLT trade as it came down, but now we have a leading positive 60 min chart and even a head fake move (yellow arrow) seen before a reversal 80% of the time, this tells me that any move down in TLT will likely be short lived and the market typically trades opposite TLT.

From yesterday, HYG....

 

a 5 min positive divegrence which we'd need HYG to move up to support the market via the SPY Arbitrage manipulation scheme as well as TLT and VXX down, this short term divegrence seems to indicate just that.

Why would there be such a clear, strong divergence in such a short term if the market had no idea of what the minutes said or didn't plan to shape the knee-jerk reaction? As you saw in the trade set ups from last night, such a bounce would be just as useful (more so) to them as it would be to us.

 However, also shown yesterday HYG's longer term 60 min chart with a leading negative divegrence at a toppy area, this is what we'd expect to see, HYG and the market moving down as the bigger picture, the bounce just sets up the trades for that bigger picture and I'd think probably the last time before the multitude of H&S tops break below their necklines as many have already broken below the top of the right shoulder as seen in many of last night's trade ideas.

Also from yesterday's post linked above, VXX which would need to move down, guess what? It already has started today.

 This was yesterday's short term negative divegrence and this morning VXX followed 3C's forecast or at least the underlying trade 3C was depicting from yesterday (short term distribution).

However, once again...

The longer term, stronger charts in VXX as well indicate a strong base area being created for an upside move in VIX, just remember VIX moves opposite the market so short term VIX down for a market bounce and longer term (as in after the bounce) market down on a larger scale if for no other reason than where we are in these toppy price patterns in the biggest momo stock names.

As for today, what I suspected we'd see is a move back toward yesterday's intraday lows where smart money will accumulate on the cheap, they won't chase prices higher. As of now, IWM, QQQ and DIA intraday charts have negative intraday divergences in them suggesting they hold here and move no higher or more likely they come down a bit.

The overall short term condition/divergence however is what is most important as to whether we get a bounce and that is most easily seen when prices of the averages fall and we see if 3C shows accumulation of lower prices, but it seems we don';t have long unless the minutes are part of what sends them lower?

Index futures are hinting at lower intraday prices, I imagined something like a "W" base between yesterday and today, here are the current Index futures...

 ES with a relative negative divergence since the open.

NQ accumulated the lows and headed higher in to a relative negative divegrence at intraday highs thus far, this is the weaker form of divergence and a weak one at that, however if the short term goal is accumulation (2-days), then you don't want to put out too much inventory that you've accumulated to send prices lower, only the bare minimum needed.

And TF with an early a.m. positive divergence sending it higher and a relative negative divergence since the open.

The plan would be this, if we see lower prices intraday, we need 3C confirmation that those lower prices are being accumulated. A "W" like base would be probable, but a head fake move below it would be just as probable so it would look something like this...

The SPY 2 min chart. First we'd need price to move lower, likely toward yesterday's intraday lows and we'd need to see 3C accumulation, if it's not there, then the chances of a lower low in the market rise substantially and the bounce idea goes out the window.

However as you know, before a reversal to the upside off a "W" type base formed over yesterday and today would almost certainly see a head fake move/stop run (yellow), this is where 3C would have to be positive as well as accumulating stops is the easiest, fastest and quietest way to accumulate for a bounce. I'm thinking the initial knee jerk volatility on the initial release of the minutes could cause such price action, but that's just a gut feeling, we need to confirm.

If we can confirm the following, then I'd look at some short term Call plays on the market averages, as of yesterday I liked the Q's and IWM, but we'd check to see which looks best.

The calls are only a short term hitch-hiking play, the real trade is to short price strength as we confirm 3C negative divergences (distribution) in to higher prices on the bounce, that's the idea in every one of the trades presented last night in momentum stocks.

So, 1 step at a time, but remember for the release of the minutes, anything F_E_D / F_O_M_C related almost always sees a knee-jerk move and that move is almost always the wrong move that is retraced or reversed as I showed last night we can already see that in the Russell 2000 since the 6/18 F_O_M_C as well as credit and Yields.

More to come as the market moves...

A.M. Update

Yesterday's internals I follow daily are consistient with the building of a small base for the kind of bounce that is useful to sell or short in to as I posted last night, we'll see if we get continued positive divergences today and build a larger base than just yesterday (or half of yesterday), which still wouldn't be very big, but enough for a decent bounce.

The internals I spoke of included Monday's Dominant price/Volume Relationship among the component stocks of the major averages that I track daily which was a short term oversold, Price Down/Volume Up on Monday and A VERY Dominant relationship with 282 of the SPX 500 falling in to this category of Price Down/Volume Up which is the same as Monday, a short term oversold condition, but also a generally bearish condition that usually results in a near term correction (bounce in this case). Yesterday's tone was more dominant than Monday's.

Of the 9 S&P sectors I track, 8 of 9 all came in red, the only green sector you might guess was the defensive, Flight to safety Utilities which were up +0.68% on the day.

AA's earnings beat after market also contributed to a firmer tone as Index futures were largely flat overnight (until just a bit ago) even as Asia was in the red as China's PPI came in printing the 28th consecutive contraction and Consumer Prices missed as well. This sent the Hang Seng down -1.55% which puts it in bed with the SShanghai Composite and the Nikkei as it has now lost all gains YTD (-.056% with the Shanghai Comp -3.66% and Nikkei -6.07% YTD).

Hang Seng YTD

Europe is trading with a mixed tone which has improved recently the last hour or so with US futures, at last look FTSE -0.31%, DAX +0.07% and CAC-40 -0.07%.

Treasury Futures were in a large range with a slight negative bias overnight, but have started selling off more aggressively the last hour as the USD/JPY and US Index futures have gained ground.

USD/JPY has lit US Index futures up this morning after more subdued trading overnight.

It's not surprising Treasury Futures are selling off as the last 10 consecutive F_O_M_C minutes' release has seen 10 year yields climb.

Crude is accelerating losses on the downside it had already been seeing overnight with Bent Crude now down 7-days in a row and 12 of the last 14 and WTI down 10 of the last 12.

Gold and Silver were up overnight.

The Minutes are released at 2 p.m. if they weren't already leaked, judging by yesterday's trade activity, I'd guess they were leaked, which may have me reconsidering some positions I was considering such as NUGT, I'm thinking it may see a head fake move through resistance and then a pullback, but I'll wait to see if that happens and what underlying trade looks like if it does.

This is now the 56th consecutive day the SPX has gone without a move (plus or minus) of 1%, a record not seen since the early 1990's.

As usual on any F_E_D event day, watch out for the knee jerk reaction. If the minutes were leaked (and I say this because the F_E_D was caught red-handed leaking them about a year ago almost 2 days in advance), then our bounce scenario would be the knee jerk reaction and that's why we would have seen the positive intraday divergences yesterday and should see them today, the resolution of the knee jerk would be to retrace the move and head lower which fits nearly perfectly with the macro theme presented last night in the momo stocks, short in to strength as almost all are in large tops that are at or near one of the best entries with lowest risk and great timing.

We will of course confirm that and let the market tell us, it's just a theory based on what I've seen. 

Have a great Wednesday.

It's F_O_M_C Minutes

Daily Wrap

You probably don't need much more in the way of evidence to see how the market has been reacting (especially the bond market) since the F_O_M_C and tomorrow we get the minutes, just like any other F_E_D event, I always warn, "Beware the initial knee jerk reaction, it's almost always wrong" and this time it took a bit longer than usual, but we are retracing the last F_O_M_C knee jerk.

In Europe, the major averages are down 6% the last 3-days, the biggest such drop in 13 months with banks/financials getting whipped around the worst and safe haven utilities catching a bid.

As for the US, a few graphs/charts since the F_O_M_C and Non-Farm Payrolls from last Thursday which the equity market took as a positive while the bond market took as a negative, the last 2 days of market action since then seems to be showing (as usual) the bond market was right. However in the mean time, we have documented a number of assets that have been behaving the exact opposite of what you'd expect, I posted them in last night's and Monday night's Daily Wrap.

 The market leading Russell 2000 is red since the F_O_M_C in June, the last 2-days have been brutal with a loss of -2.95%, oh there's volatility in the market, you just need to know the important places to look for it.

 The R2K on the year is nearly in the red, from the close of trade 2013 to today, the R2K is only up 0.76% on the year (2014).

 Since the Non-Farm Payrolls which equities took as bullish and at the same time there was a flight to safety as bonds were bought as evidenced by the 10-year yield (salmon) vs the SPX

The major averages since the NFP with the R2K leading to the downside.

speaking of money moving out of equities and in to safety (bonds / VIX), these are the momentum names since the NFP as well as the end of window dressing, Pandora, Facebook, Twitter, Netflix and Amazon, not looking too hot, whether they are catching up to bonds' reality at the end of window dressing means managers have a free hand to do what they want until the end of the next quarter.

Speaking of flight to safety, the VIX was shown last night in the Daily Wrap and the importance of multiple timeframe analysis which revealed the VIX had 2- major candlestick reversal patterns, today...

Coming off multi-year lows and the reversal candles, VIX hit 3 week highs today.

As for intraday action, you saw it in all of the updates, I suspect a slightly larger base for a bounce is being put together, I don't think the story ends well, but in case the divergence was for today only to lift stocks off lows, here would be one reason...

To move Es/SPX futures to VWAP, which is where the market makers and specialists try to sell (or buy) for their clients, intraday ES hits VWAP after the intraday 3C divergences.

I still suspect a bounce to the upside  and I think it's a great shorting opportunity, maybe the last.

I've compiled some of the momo names and I want to show you the possible set ups, the way they all look very much like the market not only intraday but also as a major top.

AMZN

 3-day chart, notice anything in the character of price between 1, 2 and 3? Remember the "seemingly" bullish increase in price's rate of change right before a change in character, even here AMZN looks like a clear top at #3.

A closer look and another H&S top at the top of the right shoulder, I already confirmed every stock below with volume analysis for probable tops, especially the H&S ones. This is much like the IWM and many stocks on my watchlists, when you have this many looking alike, it's not coincidence.

 The daily 3C chart for AMZN with confirmation at the green arrow and distribution through the top which gets worse as it goes as it should.

 2 hour chart showing the head and right shoulder distribution/negative 3C divergences.

The right shoulder is one of my favorite places to short a H&S top the point being, IF WE ARE WORKING ON A SHORT TERM BOUNCE, ALL OF THESE MAKE EXCELLENT SHORT SALE CANDIDATES.

 60 min chart distribution in to the head and right shoulder with some accumulation to lift AMZN off the neckline to form the right shoulder.

10 min chart at the top of the right shoulder.

And today's 3 min chart with a positive divergence, a bounce here would open up an already great shorting opportunity, you know I don't like chasing stocks, but letting the trade come to us.

Also note the changes in character since the end of Window Dressing on 7/1.

FB

 2-day chart, with stage 1 accumulation, stage 2 mark up or rally, stage 3 top, stage 4 is next and that is decline. A big part of knowing where an asset is going is knowing where it is, FB seems to be clearly right in stage 3 distribution/top, decline is next.

 FB 2 hour chart at the head and the right shoulder, note the deep leading negative divergence at new lows.

10 min chart at the right shoulder, there's accumulation to create the rally off the neckline and to form the right shoulder then distribution in to those highs, the best entry is as close to the top of that right shoulder as possible so today's intraday divergences may lead to a bounce that gets us closer to a better, lower risk entry.

 5 min chart at the right shoulder top.

2 min intraday, hopefully this will bounce and give us a great shorting opportunity and extremely timely at that as the right shoulder has officially already broken.

IBB-NASDAQ Biotech

 On a weekly chart, notice anything strange about the price's change in character?

We have another semi-H&S top with distribution right where you'd expect it.

the 60 min chart confirming the same, but showing some accumulation to form the right shoulder or second top, Wall Street knows what they are doing long in advance, I've showed this with housing/home builder accumulation during the 2000 tech bubble pop, how did they know housing would lead the next bull market?

 30 min chart at top 1 and 2

15 min chart at the most recent top with distribution

And the 5 min chart distribution at the very top of that top, also note the date, 7/1 the first day after Window Dressing is over.

This is not coincidence, it is seen on almost every chart that goes south after having been strong the weeks before the end of the quarter.

And today's 3 min chart as well as the top to the left. A bounce here would give us excellent short positioning at much lower risk.

NFLX which I've already gone over...

 Intraday and the top of the right shoulder to the left.

15 min chart at the top of the right shoulder, again note the date of 7/1 and the changes after.

The 15 min chart in context of the entire right shoulder.

And the entire H&S on a more powerful 60 min chart with distribution at each shoulder and the head.

P

 Pandora's stages, 1 base, 2 mark-up, 3 distribution/top and 4 would be decline. ANOTHER H&S TOP.

 THESE ARE MY 2 FAVORITE SPOTS TO SHORT A H&S, THE 3RD COMES LATER.

 60 MIN CHART SHOWING UPTREND CONFIRMATION AND DISTRIBUTION IN TO THE HEAD AND RIGHT SHOULDER WHICH IS AT A NEW LEADING NEGATIVE LOW.

 The 30 min chart confirming the exact same thing.

And the 10 min chart going negative at the top of the right shoulder.

This 5 min chart shows distribution right after Q2 window dressing is complete, note today's positive divegrence, if it can build a slightly bigger base, we can get a much better entry and much lower risk.

TWTR

 Again the importance of multiple timeframe analysis reveals TWTR at a massive 5-day candle bearish engulfing downside reversal.

The 60 min chart, mostly in line, but recently at the last rally seeing extreme distribution, this is the major underlying trend I want to be on the right side of (short).

The 30 min chart showing the exact same, good multiple timeframe confirmation.

And the 15 min chart with the mid-May accumulation we saw assuming the market would produce a head fake above the SPX's 3 month range as it did, the distribution is what tells us whether it's a head fake or a real move, this is strong distribution. Note the accumulation, again, Wall St. knows what is going on months in advance as they are pulling the strings, this is why we want to follow what they are doing.

And the intraday chart with a positive divegrence, note the gap up/distribution on 7/1, the first day after window dressing where managers sell their worst performing assets and buy the quarter's best performing assets so they look smart when they distribute their filings to clients at quarter's end, it's deceptive and they can't get away with underperformance very long, but they still window dress. What is interesting is their apparent rush to get out of risk assets as soon as the window dressing/quarter's end is over, the very next day in fact.

So we are looking for bounces here, I'd set price alerts and we'll see what intraday trade brings tomorrow. If we can get stronger intraday positive divergences and a wider base, we can get closer to the top of these right shoulders in momentum stocks that will likely be hit the hardest as they have the least fundamentals underpinning them and many as you can see are some form of social media.