Wednesday, February 4, 2015

MCP Alert...



From this morning's MCP Update...


 This would be something more probable to see near a close. If there's high volume, even higher than yesterday's, it becomes and even more likely correction."

Being USO was just posted with similar circumstances and churning, even though I already posted what to look out for, I thought whether you saw it or not, this would be a good opportunity to show you bearish churning in real time....

 This is the intraday 1 min chart of MCP, note the high volume bars and the lack of additional upside gains...

 This is the dailt MCP chart,  this is the kind of bearish reversal candle I was talking about earlier, a "Shooting Star" or what the Japanese candlestick chart practitioners call, "Trouble overhead".

Note the increase in volume on the daily chart, while it has not surpassed yesterday's closing volume, it is very high for this time of day and stands a good chance of doing so, that would be an exceptionally strong reversal signal, there's no target on such a reversal signal, just a change in the near term trend.

 MCP's intraday 1 min chart has seen a worsening leading negative divergence as has the 3 min chart below.

MCP 3 min.

I think we are pretty much at our correction/pullback area for MCP, after 200+% gains in less than 2 trading weeks, it shouldn't be surprising.

USO / EIA Report Out

Sometimes I'm surprised by some of the early warning signals we get and how often Mass Psychology is just as effective as any other technical tol.

For example, yesterday morning's USO Update at 10:05 a.m. said the following in the first few paragraphs...

"Oil is now on track for its 4th consecutive daily gain and it appears, as usual, the bottom callers are in, just in time for what should be a little consolidation which will likely kick them out of the trade and turn them bearish again just as USO makes another leg higher.

Other than the Mass Psychology of calling the obvious long after it has occurred and taking it to an extreme of a "Bottom", which this clearly is not, the market is finally noticing what we have been forecasting for weeks, but it does look like we are at an area of natural consolidation, one I'm sure will be interpreted as "Oil is not at a bottom, it was a false start"."


Sure enough the warning signals we were getting yesterday morning which seem to be leaked data with regard to the after hours release of the API Crude Inventories which were higher than hoped for, sent USO down just as our charts were calling for some kind of pullback in crude.

This morning at 10:30 a.m. was the EIA Petroleum Report with the Bloomberg estimate of a build of 3.25 mn barrels, well that missed as the report was just out at 10:30.

 The EIA Petroleum report with inventories coming in at a build of 6.3 mn barrels, nearly double Bloomberg's estimate, which is precisely why USO acted like this on the 10:30 release...

1 min chart of USO's gap down from the after hours API inventories yesterday and the 10:30 EIA inventories today.

Even though the 3C charts of USO and /CL (Brent Futures), were both ahead of the curve and showing the probable decline/consolidation/pullback (whatever you want to call it), I think the closing chart of USO alone was probably enough to know something was up after  oil made its biggest 3-day move in 6 years!

Counter trend rallies are something to behold, this is one of the reasons bear markets are my favorite markets, they move down faster than a bull market rises and their counter trend rallies are stronger than any bull market rally.

 USO's Daily chart shows a longer upper wick on yesterday's closing candle, this means higher prices were rejected, but prices did move higher and that large volume with such a candle typically is a good indication of "Churning", essentially strong hands passing off shares to weak hands, which fits nearly perfectly with the Mass Psychology sentiment posted in yesterday morning's update,

"Oil is now on track for its 4th consecutive daily gain and it appears, as usual, the bottom callers are in, just in time for what should be a little consolidation which will likely kick them out of the trade and turn them bearish again just as USO makes another leg higher."

I believe I relayed the story of the October lows and how bearish EVERYONE was, even the "Buy the Dip crowd" and for that reason my hypothesis was that we'd see a very strong rally, but I didn't have evidence of it at that point, just the mass psychology and the broad and overriding concept that the market is a zero sum game, for someone to make money, someone has to lose money so everyone can't be on the same side of the boat at extremes for long and shortly after we got the 3C data and other indications that the October lows would produce what we called at the time, "A Face Ripping Rally", which of course it did, only about 3 days after we had already known it was coming.

While there aren't many good books on Mass Psychology and the markets and there are a lot of very general mottos like Warren Buffet's "Blood in the streets", this is one area of analysis that is very effective and if you have a basic understanding of candlesticks and volume, you can pretty much get a handle on Mass Psychology and sentiment.

USO's 5 min chart's positive divgerence, confirmation and relative negative divegrence, although some of the best signals were in Crude Futures (Brent)...
 The 7 min CL (Brent Crude Futures) shows the churning point at the highs which correlates with yesterday's closing candle and volume as well as the clear negative divegrence.

Longer term the 2 hour chart still shows USO as having gas in the tank.

I personally wouldn't be jumping on a USO long right now, people often react to quickly yo a price move they desire to see to get involved and forget or don't realize that things take a bit longer than we usually expect, there's almost always a reversal process rather than a reversal event and I'd want to make sure USO is being accumulated in to a pullback before I considered buying it, I suspect it will given this 2 hour chart's divergence, but lets let the market tell us that.

NFLX Trade Opportunity Follow Up

NFLX popped on earnings, probably not a very deserved pop either if the tone of price didn't set the perception long before the full earnings report could be read.

On Jan. 28th I posted, NFLX (Short) Trade Set-Up Looking Ripe

"I think the trade set-up in NFLX, let the trade come to us, is looking pretty decent in this area."

Which was immediately followed up with, NFLX Follow Up , the excerpts posted below are the gist of the trade set-up...

"Here are the previous posts on NFLX's less than stellar earnings, to understand all of the concepts, how NFLX could move like it did on those earnings, why it likely needed to move where it did and what we'd be looking for as a set up in to a NFLX short...

Jan. 21st NFLX trade Set-Up

Jan 22nd NFLX Follow Up


 NFLX Daily Chart. This looks to be a large Broadening Top. the gap down likely left market makers with inventory at higher levels, thus our upside target was a gap fill, also one of the reasons the trade appears to have been set up in advance of earnings.

While I'd prefer to wait for this 2 hour chart to go negative before entering a NFLX short, the fact is it's a longer term timeframe that takes more time to move and price could be well on its way down before the lagging element of a timeframe this long reflects a negative divergence.

We expected this to be a process, we expected the gap to be filled which it was not on the first day of the earnings gap up, since it has been and price looks a lot more like a reversal process is in place right now than it did on the day of the gap.

As for our custom Trend Channel and this particular trend, it is breaking below the channel which has held the entire trend since the green arrow started to the left, it is moving below the Trend Channel stop out level now and will confirm at a close < 4445.50, probably $445 as a psychological magnet.

Remember, there can be some choppy volatility after a Trend Channel stop out, but for the most part, you are usually best of taking the signal as the bulk of the trend is over and the rest is just dangerous volatility for very small jiggles."

Since then, the Trend Channel stop has been broken...
 Trend Channel stop broken and...

"Remember, there can be some choppy volatility after a Trend Channel stop out, but for the most part, you are usually best of taking the signal as the bulk of the trend is over and the rest is just dangerous volatility for very small jiggles."

The volatility after a Trend Channel stop out is there as is what looks a lot more like a reversal process than price on the 28th.

Additionally the 3C charts we wanted to see deteriorate....
 The 2 min chart's trend. Note the yellow trendline and resistance area. Ideally and conceptually, this would make for a nice head fake move above the resistance area to set a bull trap (that's the generic reasoning, there are many more reasons , some of which are crucial for smart money in the size they trade).

A head fake move would also make for a better entry and lower risk, generally better timing, it doesn't happen all of the time, but I'd definitely say a majority of the time. More importantly, I'd like a NFLX trade to align with the broad market, if we feel the market is ready to make its move lower, that will be one of the highest probability factors in moving NFLX lower, an Ebb Tide drops all boats. Beyond that, I like the general area and we haven't strayed too far from where we first looked at NFLX as we were looking for a few additional things to happen.

Looking at the same 2 min chart on an intraday basis...
 This most recent little jiggle higher is in to a negative divegrence.

The stronger charts like the 5 min and beyond are what we wanted to see deteriorate and that has happened.

The divergence has migrated as we were expecting to see to this longer term 30 min chart,

To a 60 min chart and even to...

The 2 hour chart I said I'd like to see turn negative.

I'd say that these divergences could be sharper and lead negative more so than they are now, but I'd also consider a head fake move as a great opportunity to look at NFLX short and/or a pretty well confirmed expectation of the broad market getting ready to drop as that will have the most directional influence on NFLX.

All in all, since the trade set-up idea was posted, NFLX has moved in the direction we had hoped and expected to see.

MCP Update

As posted yesterday in MCP Blazing, Up 182% in 7 Days, except MCP is now up 232% in 8 days, it feels like it needs a breather, a consolidation of those gains.

The charts haven't moved much since yesterday's update above, but I did say in yesterday's update that I don't think a 1- day reversal or a "V" shaped reversal event is likely, it would be more likely we'd see some kind of reversal candle like a Star, Doji Star, something along those lines.

Right now MCP doesn't look like that, but I did capture an earlier shot that would be more along the lines of what to look for on a closing basis...
 This would be something more probable to see near a close. If there's high volume, even higher than yesterday's, it becomes and even more likely correction.

There are still signs that profit taking is occurring, although I wouldn't say heavy distribution, more along the lines of the kind of action that would lead to a consolidation thus far.

As for the bigger picture, like this 60 min chart with a rounding bottom and head fake move (the Igloo with chimney, just inverted), it looks like MCP has more strength ahead of it so while I think a consolidation is important and likely (look at that parabolic move up), all in all, I'd expect MCP to eventually add even more to those gains.



A.M. Update

European markets are lower and red, US markets will open lower as well, the culprit, remember our call for a pullback in oil yesterday morning? After the close last night API oil inventories showed a build of 6.1 mm barrels last week, thus crude is trading down on the inventory news.

 Crude futures 1 min chart overnight

And one of several negative divergences we saw yesterday morning , this a 5 min crude chart.

As such, the Energy sector in Europe is lagging and keeping the major bourses in the red, which is what I expect today's US (at least opening) session will all be about as well, this is obviously tied specifically to the unintended consequences of the crude move higher.

Remember those commodity sensitive currencies I talked about last night as showing divergences? Well AUD/JPY and AUD/USD are lower, to Draghi's brief relief, EUR/USD is lower as we predicted last night in response to a pullback in oil.

Not even a surprise RRR  cut of .50 bps from the People's Bank of China this morning could turn things around, although it did give gold an area of support for the time.

For example...

Like AUD which is now sliding again after initially popping on the PBoC RRR cut as its very sensitive to Chine, Index Futures did the same...
 NQ futures overnight are easiest to see, the Chinese RRR cut at the green arrows popped things higher including AUD and Index futures, but they gave up the gains,  even with USD/JPY making gains, for now oil is the story and what the market is tracking, so much for the cheap gas narrative!

 The divergences seen last night on 5 min Index futures have started to move to the 7 min charts, above is ES 5 min...

This is ES 7 min so it will be interesting to see if that HYG divergence is signaling a bigger move lower in the markets.

We have the EIA petroleum report out this morning at 10:30, look for that to be a potential market mover, Bloomberg's estimate is for a 3.25 mm barrel build.

We have the important Non-Farm Payrolls Friday, if the ADP jobs report from this morning is any indication, than we'll see how the F_E_D spins this as we just heard from the CEO of Gallup that the unemployment rate was bunk as I think we all know.

The noisy ADP report that has beaten the last 4 weeks missed at 213k on consensus of 222k and last of 253 k (December revised up).

So we'll be watching to see where things go from here, but I think the HYG movement in the charts is one of the bigger developments. Obviously our call for an oil pullback yesterday morning is what the market is focussed on right now.


Tuesday, February 3, 2015

Daily Wrap...

Again today there was more macro economic data coming in on the very poor side, NY ISM with a significant miss and a huge month over month swing to the downside. I really don't know how the F_O_M_C can reasonably upgrade the economy and if you saw the today's post by the CEO of Gallup polls, it went something like this,

"The Big Lie: 5.6% Unemployment
Here’s something that many Americans -- including some of the smartest and most educated among us -- don’t know: The official unemployment rate, as reported by the U.S. Department of Labor, is extremely misleading."

You can get the rest of the story here...

I probably don't need to go in to the F_O_M_C economic upgrades and the mainstream narrative of where unemployment is, I think we all know enough people to know 5.6 is not accurate, but it is what's needed to hike rates. again, I'm not going to go on another rant on the subject, I think I've been pretty clear.
One of the other major ordeals brewing is Greece. Yesterday's market strength was claimed to be because of some FT headlines about Greece and essentially making progress, in last night's Daily Wrap I refused to go in to any more detail as I knew it would be a complete waste of time and as of today, it's exactly that.

The initial combative Syriza one had the Troika nearly on their knees begging to work something out, whether the Greek Finmin was misunderstood or just tried to be too cooperative, away from the hard line they initially took, it didn't end well and the EU started strong-arming them immediately once they smelled weakness. As a result, today we had this from Greece and their FinMin...

"There has been no "U-turn" on the Greek debt position, adding that "Our promise is solid, debt will be rendered sustainable even if haircut replaced with euphemisms, swaps" Greece’s Finance Minister Yanis Varoufakis comments in Twitter post.

However, that 1-day of weakness may have been too much and too late as Germany calls the Greek plan "Half baked " and reflects it, shortly after the ECB rejects it out of hand as well, that''s what the Greeks get when they try to play ball with the Troika, they were in a much better position when they were combative and meeting with Russia, at that point all of Europe was falling all over themselves to find a solution that works for the Greeks, so this is obviously going to be a knock-down, drag-out brawl as Syriza learns in one day what happens when you try to tone things down and find a settlement in good faith, even if it isn't immediately acceptable on the first pass. Expect things to heat up and Striza to go back to what they know which could lead to...? Yeah, those three dots (...) are the great unknown and the real danger for Europe and the global economy.

The $USD has its worst 2-day decline in 16 months, this has a lot to do with oil-related currencies- see below.

Yields also popped higher as we saw yesterday in TLT as being highly probable, remember yields move opposite bond prices and tend to draw equity prices toward them like a magnet.

We also have all 3 levers in effect today accounting for up to $1.75 of the SPY's $2.92 move and additionally we had the AUD/JPY lever leading the market, also see below.


The 3-day move in oil is now the biggest 3-0day move in 6 years, I hope lots of you were able to make a play there, stay tuned for updates (again see below).

The market put in some solid gains today, but as I showed in this post, USO and Effects Part 2 while sentiment has been massively swayed, technically the move is nothing to write home about and the averages are all still red year to date.

MCP as you have probably seen is tearing it up, I would like to see a consolidation and keep this move healthy, I'll stay on top of updates there as well. 

I'm sure you have a pretty good feel from yesterday and today what the levers moving the market and additional conditions like energy sector performance are, however one of the biggest smoking guns I noticed developing quickly today was among the Leading Indicators and the ramping levers, HYG (High Yield Corp. Credit) in specific as yesterday we saw the positive divegrence that we forecast would lead the market higher, today in addition to a very parabolic price move which I never trust (up or down), we had these charts develop quite fast.

 HYG 1 min leading negative

HYG 2 min leading negative

HYG 3 min leading negative

HYG 5 min negative, very different than yesterday and giving some early hints as to market probabilities near term, perhaps closer than thought.

I posted the VXX and TLT divergences, relatively positive considering so this is a biggie.

As the last post just made clear, USO and Effects Part 2,  just about everything is connected to everything. In fact some of the most beaten down currencies in this world currency debasement war (with the US obviously the big loser) have seen a nice pop much to their disliking, take commodity linked currencies...

After a surprise rate cut overnight from the Australian Central Bank, the $AUD plunged only to be lifted back to unchanged on the back of the move in oil...
 The $AUD rate cut ($AUD currency futures) almost looks as if someone knew about the rate cut or was just very nervous in advance as 3C shows a strong leading negative divegrence. On the cut, the $AUD plunged, on oil strength, it regained all CB related losses.

You may recall earlier today my contention that the AUD/JPY, which was a sponsor for today's market...
(AUD/JPY in candlesticks vs. ES in purple with the cash market between the green and red arrows)...

looked as if it may see some downside soon.
AUD/JPY...1 min intraday negative divegrence.

It's hard to say what the $AUD will do caught between a CB policy action and oil prices, for now the Yen looks a bit weak and that is helping the AUD/JPY move higher, at least through today.


 Yen 10 min negative divegrence. I would think the Yen should be headed lower, lifting the AUD/JPY, unless we see a change in the $AUD with a change in oil (or less likely a change in the Yen).

The $USD has been beaten down pretty good on the move in oil, but that too looks to be ready to change, watch the USD/JPY for upside in the very near term with a negative Yen and positive $USDX divergence developing...
$USDX 5 min leading positive divergence.


As for the EUR/USD, which has got to have Draghi near a coronary between the Euro's gains and Greece, may give him a break, at least a brief repreive. You saw the $USDX positive divegrence building above, now the Euro negative...
Euro gains with a negative 7 min leading divegrence, thus between a leading positive $USDX and a leading negative Euro, all should be right again with the EUR/USD shortly, for a short period assuming oil does as expected and pulls back briefly before making another run higher.

From this morning's USO Update,

"Oil is now on track for its 4th consecutive daily gain and it appears, as usual, the bottom callers are in, just in time for what should be a little consolidation which will likely kick them out of the trade and turn them bearish again just as USO makes another leg higher.

Other than the Mass Psychology of calling the obvious long after it has occurred and taking it to an extreme of a "Bottom", which this clearly is not, the market is finally noticing what we have been forecasting for weeks, but it does look like we are at an area of natural consolidation, one I'm sure will be interpreted as "Oil is not at a bottom, it was a false start".

To the 5 min chart that looks more serious and the 7 min chart, by the 10 min chart price and 3C are in line, thus I don't see this as much more than a consolidation setting up, unless things were to materially deteriorate from here"

Taking a look after the close as this was a VERY early look at Brent Crude and WTI (USO) futures and the ETF, 

 The 7 min Cl/Brent Futures looks like it will see a consolidation/pullback with this negative divegrence in place, but...

The CL 10 min chart is still in line so from what I can see now, I'd think, as mentioned early this morning, Oil is headed for a little consolidation and charts like the USO 60 min below, make me think USO has plenty of upside left in it...

USO 60 min leading positive,  but a bottom?

I don't think so, this is just one of numerous charts I could post that argue against a bottom in oil being in place.
USO 4hr still in line with the primary downtrend.

Now, since I did post the USO and Effects Part 2 as well as the effect it has had on Energy stocks which has seen the Energy Sector lead the market the last 3-days in a row, I'm going to borrow some research from Zero Hedge because credit where credit is due, although this is the other side of the coin I've been thinking about this, but haven't felt we were close enough to address it. What I'm talking about is Energy stock valuations since the bounce in oil and what the end game may look like if (and most likely when) the bounce ends...

Borrowed from Zero Hedge because as we've already seen, the move in oil is connected to the move in the Energy Sector which is connected to the move in the broad market and currencies, so the other side of the coin...

Several days ago the forward P/E for Energy stocks either had to come down by 40% or oil had to move to $88 a barrel to justify valuations based on forward Energy Sector multiple which stood at 24x (forward) P/E. Since the bounce in oil, here's the new valuation...
That would be back at levels last seen in 2000 during the Dot.Com bubble.

At a forward P/E of 26 with the historical average at 13x, apparently Energy companies are expected to "DOUBLE" forward earnings.  Thus, one of the unintended consequences of the Oil bounce may just be some amazing short set ups in the Energy sector which I'll be looking in to very closely as we start to get the hints and signals that the oil short squeeze and counter trend rally (which can be much stronger than what we've already seen), looks to be coming to an end.

I think this goes without saying , if the Energy sector can support and bounce the market based on the expected oil bounce, what exactly do you imagine happens to the market once the pil bounce and revaluation of the energy sector takes place?

OOPS... I should have said,  "Spoiler alert"

Amazing where the market can lead you when you pull on one string.

As for the GLD outlook, I don't even want to consider the long possibility which is there, until we see what GLD looks like on a pullback. Gold has been fooling around it's reversal process, but I haven't changed my expectations for a deeper pullback in the yellow metal.
 GLD 5 min negative

GLD 15 min negative

Gold futures 60 min negative.

As to why it's been loitering in the area and a possible downside target...
The 200-day moving average is in blue where price has been loitering, but I think it breaks and the 100-day is in purple which allows for a gap fill and is a reasonable downside target, typically we see a break just below the average as a head fake move and to put together a new base to make a move higher, but first we want to see how it acts on the way down. That's my best guess as for a downside target as of now and I think we still see that move take place.

As for near term market expectations, I made clear before the move started I expected a Crazy Ivan shakeout which is in place and I expected a head fake move above the triangle, we are above the triangle, while the averages' short term 3C charts are not there yet, HYG is giving a leading indication and the longer or even 5 min 3C charts of the averages skew the probabilities heavily to the downside, ad in some other things like CGreece, what happens to the Energy sector when the oil bounce is over, the break of numerous moving average acting as support in the area and things get ugly real quick.

As already mentioned, 9 of 9 S&P sectors closed green again, this would be moving toward an overbought condition (1-day overbought) with Energy leading for the 3rd day in a row at +2.74% vs yesterday's +3.06% and like yesterday the laggard is Utilities at a gain of +.37%.

Of the 238 Morningstar industry and sub-industry groups I track, an overwhelming 223 of 238 closed green vs. yesterday's 215 of 238, also another short term overbought condition developing.

As for the Dominant Price / Volume Relationship which was squarely bearish yesterday and in a big way, today we have a mixed or co-dominant relationship with almost all of the averages having a Close Up/Volume Down and Close Up/Volume Up dual relationship. Ironically although Close Up/ Volume Down is the most bearish of the 4 possibilities, Close Up /Volume Up which is the most bullish relationship, most often (leads to a 1-day overbought condition with the next day closing red.

For now, I'm not going to read in to the Dominant P/V, but the sector performance is getting very close to an overbought condition and if the 3C charts of the averages follow HYG, we may be heading down sooner than thought.

Finally for tonight, Index Futures are not looking great on the intraday 1 min chart which has bled over to the 5 min chart, a lot of the damage was done after the close, but not in all cases.

 ES1 min

TF 1 min deeply leading negative

NQ 1 min.

While I don't usually pay 1 min charts in futures too much attention on an overnight basis, they are seeping over to the 5 min charts...

TF 5 min.

If these move to the 7 min charts, things will start to look much different and I suspect the averages during the cash market will turn sour quickly. Just as I said last Thursday not to forget what HYG (short term positive) looked like as well as yesterday, don't forget what the HYG negatives look like tonight.