The F_E_D and BOJ Working Together?

Last night I mentioned the San-Fran F_E_D's president talking about the possibility of more QE, QE4 if in fact the market data suggested it. I dismissed this out of hand right away as a Draghi jaw-boning gimmick in which he has no intention of doing anything, but tlks big to manipulate the Euro.

We know from last week's minutes that the F_E_D is concerned about the $USD's strength on the global economy, I suspect that's what those noises from the San Fran F_E_D were about yesterday. Interestingly, overnight the outgoing Chief economist of the Bank of Japan said it may be time to start looking at exiting QE, this would create a strong Yen.

Take a look at the $USD weakness this morning on the back of Yen strength...

 The 1 min Yen chart this morning...

The 1 min $USDX chart this morning.

I've seen recent weakness in the $USd prompting me to believe that it was going to not only help crude, but US stocks and other dollar denominated assets as well.

This is the 5 min #USDX with a negative divegrence calling for a near term drop in the $USD.

And the bigger picture 60 min $USDX negative divegrence.

As for oil, it looks like it benefitted from the drop this morning in the $USDX...

Crude Futures (Brent).

It's hard to say if stocks have too at this early stage in the morning session, but it appears they are finding footing.

So did the BOJ and F_E_D just coordinate to knock the dollar lower on Yen strength and could that have something to do with yesterday's peak in order cancellations that some believe is a secret F_E_D buy signal?

A.M. Update

Good Morning.

This makes the 4th consecutive overnight session in which futures were ramped after the regular hours close, this time ES was sent roughly 16 points higher, but by the time Europe opened and the Greek market fell apart, ES lost all and then some...

 ES ramped after the US close last night by about 16 points...

And by 3 a.m. EDT when Europe opened, downhill again as the Greek stock market is in shambles, down -34% from recent highs.

The Asian markets fared much better with Shanghai up +.60%, Hang Seng +.40 and the Nikkei +.92, but at last look the DAX was down 2.16%, the FTSE 100 -1.68$ and the CAC-40 -2.10% after a batch of bad US earnings and economic data came in starting with BAC taking a $5.3bn dollar 1-time non-recurring legal charge sending EPS to -.01, however if the legal charges were added back the EPS would have come in on a non-GAAP basis at a profit of +.42, this is the same thing JPPM did yesterday in their EPS miss.

Oil continues to take a beating with the EIA forecast seeing the slowest consumption growth since 2009.

The Empire F_E_D went bi-polar in a month with the former month posting a 5 year high and the current posting a 6 month low, missing by the moist since June 2010; New Orders collapsed, the work week fell, but the employment sub-index rose.

And Retail Sales came in ugly with a headline miss of .3% vs consensus of -.1 and a previous in August of +.6%.

Rounding things out where the second case of Ebola in Dallas.

So far on the open, intraday Index futures have a slight positive divegrence and look as if they may have found some early footing, but we'll have to see if the decline is accumulated, which we should see in the next 30 minutes or so.

On a side note, NANEX, the collector of all things market data posted last night that there was a surge in cancelled quotes yesterday, noting previously when this has happened it has led to a sharp V-shape upside move,

Here's the chart some are calling the F_E_D's hidden buy signal...

 Previous quote cancellation highs and the effect on the SPX (we had the most recent yesterday)...

The effect of these quote cancellation spikes...

I'll stick with our data, but NANEX has found some very interesting things combing through HFT data in the past...

Opening Indications coming shortly.

Daily Wrap...

I'm going to keep it short tonight since everyone knows what we're looking for. As prices came down around mid-day on an intraday negative divegrence, I was looking for signs of accumulation in that pullback, I found them in SPY/UPRO and XLF/FAS, although I didn't enter full size position because I think there can be some more work done in the area. Other averages showed some nice signals too, but not the same level of confirmation, for example...

 SPY intraday going positive in to the afternoon decline off intraday highs as I was hoping to see.

the 3x short SPX shows the exact same signal, except opposite as it is an inverse ETF and UPRO...

 Shows the exact same signal, this was the confirmation missing from timeframes and multiple assets as well as averages, but it was here in the SPY and XLF...

 The 10 min UPRO 3x long SPY shows the base area in white, the divergences, the suspected head fake and a stronger leading positive divegrence in to the head fake as we'd expect, this is out to 10 min, ES is out to 60 min.

 XLF, which is similar to SPX as SPX has a heavy weighting of Financials shows the exact same divegrence today at the same time as SPY, the confirmation I was looking for in multiple asset classes as well as timeframes.

FAZ the 3x short has the mirror opposite signal of XLF, confirmation.

And FAS, 3x long Financials has the exact same positive divegrence in to lower prices as I was hoping to see today.

FAZ's 15 min chart is leading negative so it looks like smart money is getting out of the short positions quickly as that's a fairly sharp divergence.

There was no Dominant Price/Volume relationship today and that's a reflection of the averages not confirming as SPY/XLF did. However there were still some scattered positive signals, I entered partial positions in UPRO and FAS to account for what I believe will be some extra lateral base building.

Transports diverged hugely with industrials as the Dow was -.04% and Dow Trannies were +2.61%, an interesting positive divergence.

Also the averages were flat on the Day, SPX +0.16%, NDX +0.06%, only the R2K was up 1.17%, but I suspect it comes down and finished building out the shorter timeframes like SPY / XLf were doing in to lower intraday prices.

VIX futures were going negative on the 5 and 7 min charts very clearly and a bit further out, they move opposite the market averages...

I may consider a VIX futures short given a little more on the 3C signal.


Also note the major averages except RUT put in Doji Stars today, a bullish reversal candlestick, at the least a loss of downside momentum opening the door to a reversal. Also interestingly considering the VIX futures negative divegrence was VIX putting in a bearish Doji Star reversal candle on the close today.

Leading indicators weren't all that special today, HYG slightly outperformed the SPX, Credit was in line with prices, the market reverted to the mean with Yields which is a more neutral environment rather than bearish and the SPX/RUT Ratio is deeply inverted both longer term (base) and intraday.

 Longer term positive signal around the base area and...

Intraday, especially in to the close.

Of the 9 S&P sectors, 6 closed green with Industrials leading at +1.39% and Energy lagging at -1.26%. Of the 238 MS groups we follow, 181 of 238 closed green, much better intraday breadth than we have seen lately and there were no stealth slippage in breadth as I checked breadth indicators, they were flat to improving in certain area.

All of the averages are below important moving averages and important support, perfect for a volatility shakeout  like the kind we see on the initial break of a H&S top.

I suspect we still have work to do, which is why I went with partial positions, but I believe I'll be adding to them and others in the next day or so, just as I thought I'd have some added today earlier in the day after waiting patiently for 4 days now.

We are not at the area in which I'd enter a call options trade, but I suspect we will see that in the next day or so. Honestly I can't wait to get back on the short side of the market, but we take what the market gives so for now, I think we can look for a deeply oversold breadth bounce like early August, although I doubt it looks the same.

That will do it for tonight, I have some family matters to attend to, but I'll see you in the morning.

Trade Ideas: (Swing+) UPRO / FAS Long

That last move toward the lows in SPY and XLF got some nice, sharp positive divegrences going. I have a feeling these may be a little early so I'm not going in full size, but about 3/4 size in UPRO long (3x long SPX) and 1/2 size in FAS long (3x long Financials), that way I have some rom to add, but they looked very good on that last little dip toward intraday lows.

Market Update

Today feels exceptionally dull, those tend to be the most dangerous markets.

Since the averages and industry groups have either come off their intraday highs or have pulled back to their intraday lows, there have been some sharp signals that I would expect to see such as...

 SQQQ 3x short QQQ 1 min leading negative intraday...


SPXU, 3x short SPX 10 min leading negative divergence...

UPRO 3x long SPX 10 min leading positive divergence.

TECL 3x long Technology 2 min leading positive divergence.

FAZ 3x short Financials 15 min leading negative divegrence.

There are a lot of these scattered charts, but at a solid base, there's a lot of consistiency through multiple timeframes and multiple assets, that's what I'm missing at the moment, not to say it won't develop or won't do so quickly.

Index futures look pretty darn good, it's hard to stay patient with them looking as they do, but I know what a strong base that's ready to reverse should look like and this is not there yet.

On a side note, QE 4 was mentioned today by the F_E_D's president of the San Francisco F_E_D, more in terms of, "I could see additional QE if...", but normally any talk of additional QE would send the market in to a rampfest, this didn't do much and I think the pros know it's hot air, it's the old Draghi trick. The F_E_D has a problem or concern with a strong $USD, even though I believe the 12 week gain is breaking up, QE does one thing and that's knock the dollar down, Draghi is famous for putting stuff like this out to move the Euro and I suspect this was jawboning to talk the $USD down, but retail would usually latch on to that and run.

For the time, I think we just keep staying patient and letting the market sort itself out, I still think it ends with a nice upside move followed by a new low, but until we have a sharp edge, I am not ready to gamble on probabilities, I want strong evidence , especially to trade against the prevailing trend/sentiment.

XLF & Market Update

Most everything still looks like it's coming down intraday, take the SPY for example...

Intraday 1 min leading negative divegrence, this is what we saw a while ago before price even started to come down, but index futures , the averages and TICK were negative.

This is also where we'd start seeing increased improvement, in to lower prices, which I'm assuming will likely be somewhere around intraday lows.

I'm going to use XLF/FAS/FAZ (Financials, 3x long Financials & 3x short Financials) as an example, but I could use almost anything, the SPY, QQQ, IWM, etc.

 XLF 1 min just like SPY 1 min above...
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 However there's already improvement on the 2 min chart .

The FAS-3x long 5 min chart which is heavier underlying flow of funds is also looking better, leading positive, these are the charts that really needed repair as they were mostly in line with lower price action going in to yesterday.

 FAs's longer term 15 min trend is where smaller divergences seem to be accruing and building a wider, stronger positive divergence.

 FAZ, the 3x short Financials on a 3 min chart is showing distribution, if I had any inverse/short trading positions, this is where I'd be thinking about taking whatever is left of them off the table.

FAZ 5 min chart, also a heavier underlying flow is negative on the day and starting to lead deeper.

And the 15 min FAZ trend is near the mirror opposite of the 15 min FAS trend with a leading negative divegrence.

As for leading indicators, HYG continues to outperform, but we have seen this lead the market by several days to about a week.

HYG (blue) vs SPX intraday

And perhaps most notable, our SPX/RUT and VIX Inversion...

 The intrday charts continue to show positive SPX/RUT ratio indications, not confirming the market lows.

Also the VIX Inversion is at a typical buy signal.

Comparing to the last time we had such a signal at the August lows leading to the August cycle higher, then topping and eventually making a new lower low as was expected from the start...

The SPX/RUT signal is not quite as big, but the VIX Inversion signal is quite a bit larger.

There's a chance that this is a base that forms a move that creates a right shoulder a some people have been expecting in averages like the SPX...

In this scenario a right shoulder would be formed, about the size of the bounce at the red arrow creating a H&S top, it seems a bit too obvious to me and I have viewed the SPX as a Broadening top, however all H&S tops start as Broadening tops, but this one has broke down and just like the H&S shakeout I described yesterday, this as a broadening top would have pulled in the retail shorts and just like the H&S shakeout, this would be a perfect place to shake them out with a move above the trendline that shakes them out and then fails to a lower low, whether it makes a right shoulder or not almost seems like a moot point being the neckline is already broken.

The larger point is this looks to be shaping up as a rather larger or strong counter trend move/correction, so once again I mention that to anchor expectations as it's one thing now when sentiment is bearish to say, "I'll use any price strength to short in to", but when sentiment changes on a strong move, emotions take over, this is why I try to anchor expectations before we get to an emotional stage with objective data.

The name of the game for now however is still patience unless you are doing some day trading which I'm putting out the market signals fi like the last pullback signal intraday.

Intraday Forecast

I'm seeing changes in character in the market and changes in character lead to changes in trend. Right now they are subtle, but they always are.

I suspect we are going to pullback intraday, the index futures and a number of other assets are indicating that...

 intraday 1 min index futures like the Russell 2000 above look like they'll pullback intraday as I said earlier, the divergence is clearly there right now, this is where I suspect we'll start to see more overt signals.

The NYSE intraday TICK is about to break it's intraday channel to the downside as well.

I've been finding a lot of changes in the leveraged ETFs as usual, they tend to have earlier signals. This is UPRO, 3x long SPX and the 1 min chart has been in line this morning, but is going negative intraday like the index futures and a number of other assets.

It's the longer intraday charts that are getting interesting like UPRO's 2 min leading positive...

And 3 min leading positive.

The 10 min leading positive is a big change and a bridge between some of the longer 15-60 min charts.

So I'll be looking for the way 3C acts on a pullback, I suspect that's where we'll see rapidly increased activity.

Closing UGLD Trading Position for now

Last week I closed NUGT trading position which was a half size position, UGLD made the other half as they are so similar, I treated them as 1 position for risk management purposes. As I said yesterday, I think GLD is going to pullback near term, I do think it will open a new long trade on the pullback, but for now, I'd rather take the small gain and use the resources elsewhere.

UGLD P/L

For longer term GDX/NUGT/GLD positions I'd have little problem holding through a pullback here, but since there looks to be some nice volatile trading opportunities building, I see no reason to leave this trading position in place just to lose the gain when I can re-enter it, likely next week at better prices.

 GLD 3 min negative

GLD 5 min negative

GLD 10 min negative, these all tell me "Pull back".

Starting to get some interesting activity...

This isn't a buy signal, but I'm finally seeing leading indicators coming alive. VXX is underperforming, HYG is out-performing, sentiment indicators are a step away from outperforming and their character has changed significantly and HY credit is starting to out perform.

Also I'm seeing those intraday positive divergences starting to pop up in the various averages as well as HYG, so far SPY/UPRO looks the best, it's not there yet,  but if I'm correct in my thinking that this will be a fast reversal, we may be entering positions soon, as in today.

Today definitely feels a lot more like a day in which I am not going to be able to leave the computer screen even for a glass of water.

I'll keep you up to speed....

Opening Indications

And this is why we don't chase anything and specifically why I never trade pre-post market...

 Pre-market ES futures ramp faded right on the open, of course there was no 3C support, in fact a negative divegrence.

 And SPY's gap up on the open faded.

 The IWM looks like it too will come down...

 However the base area and the head fake area's size (I said yesterday it was too sharp and needed to be widened out), is now reaching the area where it should start looking good for a trade, I wouldn't say we are there yet with intraday charts, but these can change in a matter of hours.

What's getting interesting is the accrual of all of the smaller positive divergences on longer term charts like this SPY 60 min positive.

 Or the IWM 15 min positive...

Out to a 60 min positive

DIA 30 min positive

And DIA 60 min positive.

The VIX Inversion has a rather large buy signal as fear is at very high highs and the SPX/RUT Ratio is showing a sharp positive divegrence.

I suspect we see some intraday charts shape up soon,  I also suspect any upside reversal will come with little warning as that's the most effective way to catch the most number of traders off guard and with strong momentum, to change sentiment the fastest.

So I'll be busy looking at the averages, futures, leveraged ETFs and leading indicators looking for that signal as I suspect we won't have much time, but I'm not entering anything without a solid foundation and solid signals, I'd rather miss the trade than risk money on a sub par trade because I'm worried about missing a trade.