OpEx today so volatilty and volume are worth watching especially at the open and at the close. The Israeli-Hamas conflict is growing. Air-raid sirens, not heard since the Gulf War in 2003, are sounding. Two rockets hit Tel Aviv but no causualties are reported. Israel has moved troops and equipment to Gaza so this weekend will likely escalate the turmoil. Brent oil is moving higher but WTIC not so much. It will be interesting to see how the broad indexes move into the close today. Typically, shorts tend to pare back positions on Fridays so markets tend to experience upward buoyancy. Today we see if the Middle East conflict dampens the trading mood.
European leaders now say a decision on Greece will occur on Tuesday. Keystone, channeling his inner Wimpy of Popeye fame, will gladly 'pay you Tuesday for a hamburger today'. The Greece deadlines have more lives than a cat. LaGarde says "it is not over until the fat lady sings." The continuous and worsening handling of the European debt mess is creating market concern. The euro falls to 1.2730. China expects slower growth in 2013. China's non-performing loan numbers are questioned, their reporting of bad loans appears far separated from reality. China's fudging numbers are reminiscent of Japan hiding the loan defaults in the early 1990's before they experienced a hard landing.
On top of all this world drama, the fiscal cliff is front and center in the States, with all the lawmakers on a bus without brakes careening towards the cliff edge. Today a dog and pony show occurs at the Whitehouse as all political leaders meet to discuss the path forward. No doubt a photo-op will occur with President Obama and Speaker Boehner exhibiting a strong handshake. What a circus, at least the clowns are on the job. Any serious solution does not begin with a Friday meeting. Keystone would call an early Monday morning meeting and tell both sides to come with rolled-up sleeves. A Friday meeting is simply a meaningless task, an excuse for a free buffet, a warm-up to the politico's drunken weekend ahead. The futures were down five S&P's early morning but at 8 AM EST, reversed strongly, to up five, a ten-point reverse on news that the Whitehouse is putting together a compromise plan. And so the circus continues.
TIC data to be released now will indicate foreign investment interest. Industrial Production is at 9:15 AM, a few minutes away. E-commerce retail sales data will be released at 10 AM. We remain in a Bradley turn window, the actual turn date was Wednesday, so a strong move may occur in the markets, in either direction, at any time. A market bottom should be close at hand considering the CPC put/call above 1.20. The VIX remains tame, however, a large spike higher in volatility would help identify a market bottom. The markets may bounce here and then pull back early next week to place the true bottom at SPX 1325-1345 before Thanksgiving. This near-term market bottom move would occur with elevated VIX readings. The bears are in firm control of the markets.
For an indicator on broad market direction today watch the confluence formed by the key moving averages of the VIX; the 20-day MA is 17.56, the 200-day MA is 17.72 and the 50-week MA is 18.14. Thus, a VIX battle zone is 17.6-18.1. Market bears win with the VIX above 18.1 and market bulls win with the VIX under 17.6. The VIX begins the day at 17.99, within the battle zone. For the SPX today, the bulls will accelerate the market upwards if the 1361 handle is touched. The bears will accelerate the downside if the 1348 level is lost. A move thru 1349-1360 is sideways actoin. DELL took the pipe on weaker earnings last evening but these stocks, HPQ, AMD, MRVL, INTC, etc..., they are all attractive chart-wise and likely have placed bottoms.
Note Added 11/16/12 at 9:16 AM: Industrial Production is weaker than expected shaving off a couple S&P's. The dollar index is higher. The euro is lower. Lots of traders are looking for a trend reversal right now, as Keystone has highlighted, so this hints that the boat may be too loaded with everyone nibbling and looking for the long side. Thus, markets may want to simply drop and place a panic bottom directly. These are treacherous markets that can only be handled hour to hour, minute to minute.
Note Added 11/16/12 at 9:41 AM: VIX is 17.76 exactly on top of the 20 and 200-day MA's. Market bulls will be happy with any lower move for VIX from here; the battle zone is 17.6-18.1. If the bulls want it today, here it is, push the VIX lower and it is all wine and roses for the longs today. The bears need to hold the VIX at these levels and send it back up and over 18 and higher. The SPX is at 1353.
Note Added 11/16/12 at 10:02 AM: VIX takes a wild ride, under 17.60 to suck in market long,s and then spikes violently higher over 18 in a heatbeat. The SPX teases 1348.
Note Added 11/16/12 at 10:06 AM: Whoa, VIX 18.41. SPX drops to test the strong 1345 support. Keystone took profits on SPXS exiting the trade.
Note Added 11/16/12 at 10:15 AM: The SPX tags the 1345 support that Keystone has been preachin' about. The LOD is 1344.98. The 1348 failed as described above so three handles quickly disappeared. If the markets bounce, the 1345 would be an attractive base area for the SPX to bounce from. Keystone bot CY opening a new long position, this is a semiconductor play. Keystone added more BBY and HPQ, ongoing long plays. The semi's and PC computer plays all appear beaten-down and the positive divergence is very attractive including USD, HPQ, DELL, AMD, CY, etc... In additioin, the media pundits continue to bad-mouth all these plays so that makes them even more attractive from a long perspective. Keystone bot DNDN opening a new long position in this sometimes psycho biotech. SHLD is takin' the pipe, down 16%, perhaps going the way of Montgomery Wards, if any of you remember them from decades ago, affectionately called Monkey Wards at the time, up until they went belly-up. JCP is a disaster.
Note Added 11/16/12 at 12:11 PM: Markets react violently positive to the dog and pony show at the Whitehouse. Political leaders don top hats and canes and tap dance in front of the cameras as the markets go wild, cheering for more. The fiscal cliff talks end on a positive tone so the VIX drops from 18.5, thru the battle zone, and out the bottom now at 17.38. The SPX jumps higher to test the strong 1358 resistance level. The move is not impressive at this time. If the VIX simply moves up 20 or 30 cents the markets will leak lower again. Of interest is the 10-year Treasury yield, remaining at 1.58%-ish, exactly where it was before the trading session began. So traders have hit the buy button over the hope of fiscal cliff resolution, however, the bond market yawns and is not impressed at all. The euro remains down as well now at 1.2714. Tech is not leading the broad markets higher so this does not supply the bulls with upside oomph. AAPL is negative. Upside levels to watch for the SPX as potential shorting opportunities are 1358, 1365.50 (50-week MA), 1369 (12-month MA), 1375, 1382.18 (200-day MA), and 1391. A test of the extremely important 12-month MA (one of Keystone's cyclical signals) at 1367-1370 would be a likely target since a back kiss has not yet occurred. BBY is down on negative rumors. The source of the negative rumors are typically the traders that are short talking their own book, the pump and dump in reverse, but, as always, you never know in trading. Keystone likes BBY, hey, it's the holiday season, be happy, buy your honey an HDTV.
Note Added 11/16/12 at 12:34 PM: The SPX punches thru 1358 resistance, which now becomes support, so 1365.50 and 1369 serve as upside resistance targets as highlighted above. VIX is at 17.30 not drastically lower, which would allow the market bulls to run higher, although the VIX is printing the lows of the day right now. There sure is a lot of uber bullishness by folks for a seven point S&P gain thus far today. The 10-year yield is flat at 1.59%. Dr. Copper remains ill, likely on the lack of stimulus news from China, despite the 18th Party Congress hooplah over recent days.
Note Added 11/16/12 at 1:01 PM: The COMPQ moved above the SPX today so tech is now leading the upside which will provide some bull oomph. AAPL is flat. VIX is 17.44. The SPX struggles at the important 1358 S/R. The SPX 2-hour, 1-hour and 30-minute charts are constructive to print higher price highs, so that would be above the 1360-1361 thus far today. So, perhaps we see a test of the 1365.50 resistance this afternoon, even the 12-month MA, if so, that could serve as an entry area to nibble on shorts anticipating market weakness to return for early next week.
Note Added 11/16/12 at 2:55 PM: Markets languish sideways. Tech leads the upside keeping the market buoyant. VIX is 17.22 bull favorable today but overall on a larger perspective, the bulls will not receive serious market oomph unless the VIX moves under 16. The 10-year yield drops to 1.57%; this is not consistent with a happy equity market. The yields should move up with upwards moving markets, not down when the equities markets are moving up. Holy schmolies, look at volatility now with the OpEx shenanigans. VIX plummets from 17.2 to 16.7, now back to 17.14, in only five minutes time. Looks like traders simply want the week to end so a two-day rest can be used to regroup. Keystone bot RSH opening a new long position. This is a very dangerous and speculative trade with folks singing death derges while standing over RadioShack's body, but the attractive positive divergence across charts of multiple-time frames provides confidence to give it a go from the long side. Will likely add to RSH anywhere between 1.75 and 2.00 moving forward.
Note Added 11/16/12 at 3:15 PM: Keystone took profits on CY, using it as a day trade today, the blind squirrel found a nut again. CY remains very attractive as a long trade here forward, will look to reenter, perhaps before the close today.
Note Added 11/16/12 at 3:31 PM: Keystone bot WLT opening a new long position. This bludgeoned and beaten-down coal stock shows attractive positive divergence.
Note Added 11/16/12 at 3:38 PM: The SPX is maintaining the 1358 support, now printing 1361 so price did make it back up to the prior highs this afternoon as the 2-hour, 1-hour and 30-minute charts projected. The VIX fell under 17 becoming more and more bull friendly and helping the markets rise into the close.
Note Added 11/16/12 at 3:52 PM: Keystone bot CY opening up a new long position.
Note Added 11/16/12 at 4:03 PM: The SPX closes at 1360-ish. VIX is 16.48 which drifted lower all day long and keeps the market bulls in business, also closing under the moving average confluence discussed this morning. With the market bounce today, and high CPC yesterday, but the low VIX today not confirming the CPC, this hints at a short term top forming now and the broad indexes will likely come back down, early next week, to place the true bottom. Today may not have been the near-term bottom, it may simply be a dead cat style bounce. Perhaps next week we see an elevated CPC put/call over 1.20 and an elevated VIX at 18, 19, in the 20's maybe, that will more clearly identify the tradeable market bottom. In addition, AAPL is the leader and it does not appear to have placed its near term bottom yet, it may need a smidge more downside. For this rally move higher, the 50-week MA at 1365.50 may be a nice entry to short, or a back test of the critical 12-month MA at 1367-1370. Trannies remain weak. Ditto dividend stocks like telecom and utes. Copper is sick. Time to allow the smoke to clear and enjoy a slice of blueberry pie.
Note Added 11/17/12 at 8:08 AM: The 8 MA moved up thru the 34 MA on the SPX 30-minute chart which signals bullishness for the hours and days ahead (see the Turn Signal page). This cross favors further bullish oomph, however, the market bears can reverse this cross and have the 8 MA stab back down thru the 34 MA if Monday opens with a strong down move.
I have changed my mind again (is anyone surprised?). I am now chasing this market. Much of my target short position has been re-entered on the pop this morning. The distortions at very small degree threw me off, but backing up merely to the 2 hour chart shows an unmistakable massive 1,2 nest. This market is simply ready to crash, all the way, without stopping. Now that the picture has clarified I consider the risk:reward favorable enough to increase positions again.
ReplyDeletehttp://i.imgur.com/6gmVU.png
As noted on the chart, I am disagreeing with Keystone on the bottoming indications (e.g. $CPC) now, as these need to be far higher first to properly wash out the far larger than usual weak hands that have been built up from this multi-year contracting ending diagonal triangle (wedge) that has prevented real selloffs for so long. Catch up time. Other market counts are in agreement with this scenario.
After more careful consideration this weekend, here is a more likely interpretation (and based on the Wilshire for definitive form):
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KS, today's meeting with Congressional leaders will be short (the Pres. and V-P both have 2:00 meetings with civic leaders, and then the President travels to Asia for next week). I can't imagine traders being anything but disappointed by today's outcome - perhaps there will be short press conferences as they leave the White House. Also, markets have been peaking at 2:00 the past couple of days. Will be real interesting.
ReplyDeleteTrader, interesting chart, a large impulse move lower. On the SPX daily chart, the indicators are favoring positive divergence for a bounce but many times the key is the MACD line which keeps dropping. Price will typically bounce, but then come back down to test and print a lower low, then the MACD line will be positively diverged, and a near term bottom can firmly occur. But, yes, anyting can happen, trading is like the Wild West these day, if you get up and go to the can, the screens are all a different color when you come back.
ReplyDeleteWeaver, no one expects any results from the politicans today, so there is no fear of low expectations. Everyone knows it is all fluff. Perhaps they can get down to some workable solutions between Thanksgiving and Christmas. In fact today, any positive news bite will be more likely to help bounce the markets. The news on the Whitehouse compromise plan bounced the futures this morning so the traders are definitely reacting strongly to all this fiscal cliff drama.
"Your money goes farther at...Montgomery Waaaaarrrddss"
ReplyDeleteWe are way oversold, but doubtful much is turning around on Friday. At least we are getting some action $$$$.
Yep, the trading action should improve into the end of the year, if volatility can move up, it will be trader's heaven moving forward. VIX is 17.37, the 17.70 level is key, the 20 and 200-day MA's, so bears need that and higher. If bulls can keep the VIX under 17.70, they will be happy all day, however, the bulls have no reason to celebrate unless the VIX drops under 16, so that remains a ways away. Today may be the pop as discussed for the CPC chart last evening, the red line path in the right margin, up today, then we place the true market bottom early next week as CPC will spike up to 1.3 or more, then eat turkey on Thursday, and pumpkin pie.
ReplyDeleteThis is for myself only:
ReplyDeleteNever catch a falling knife
Ever catch a falling knife
Ever catch a falling knife
Never average down
Never average down
Ever average down
If in doubt see above!
Great advice Anon and very true, especially for a trend-following trader which is highly suggested especially in the inital years of trading. If a speculator, however, the opposite applies, otherwise, it is not speculation, the speculator creates the liquidity at the most dangerous times.
ReplyDeleteThis market is still weak. I think the bounce everyone was looking for just happened. Exited longs. Rentered shorts.
ReplyDeleteKS,
ReplyDeleteWhat were you looking at in the 2 hour, 1 hour, 30 minute spx charts that told you to expect a high at the close? Other than a few stochastics pointing up, I could not see that tell. tks in advance.
OK as a contrarian I am seeing a lot of media gloom over "the stuff we all knew before the election." No real surprises in anything. That suggests any sort of bogus "compromise" in the fiscal cliff will launch a rally. Ditto some kick-the-can action in EU. All the problems are well known, setting up a "white swan" event.
ReplyDeleteI am also thinking of all those fund managers who need a positive Dec. to close the year. There is something slightly dodgy about the decline here, as in major players triggering stops to set up nice cheap buys for a Santa rally.
Let's not forget the PPT exists to reverse any serious decline, and that tech has by and large been taken out and shot. Many tech names have already crashed and are priced as if they're heading for bankruptcy.
I am not calling a bottom, just noting a few things that could turn the decline into a bear trap--and I say that as a default bear.
Bag you may be on the right track, perhaps the bulls may want to touch SPX 1365.50 or 1369, however, before it rolls over. Israel is in positionto start an offensive this weekend, this may seriously worry traders come Monday. However, if the Middle East is quiet this weekend, the markets may float up to start the new week, a relief rally of sorts, and perhaps tag the numbers listed.
ReplyDeleteTesty, the divergences were the tell. Set your charts up where you have RSI, MACD, stochastics and money flow as your indicators, this covers the major necessities, trend, momo and volume. So it is simpoly a matter of watching price, peak to peak, or trough to trough, and noting any divergences in the indicators. This morning the minute charts were all favorable to price weakness ahead due to neg. div., but these are minute charts so everything you see is going to happen within an hour or two. For the 30-min, 1-hour adn 2-hour, that showed a long and strong profile for the indicators wanting to see higher highs in price, and the price high was 1360-1361 this morning. That tells you that after the near term weakness due to the minute charts, the other three indicate that price wants to print a matching or higher high than this morning. Hence, price was weak or flat thru lunch, 1 Pm, 2 PM, then she came back up into the close to satisfy those hourly charts. Still may be some buoyancy ahead for Monday, but that can be looked at on the weekend, the blueberry pie is much more important.
Divergences are one of the most important things to watch in trading, you can basically trade divergences with almost not looking at anything else technically and looking at nothing fundamentally. But of course you do not want to, everything is a tool and you always want to use multiple tools before entering a trade long or short.
You should be able to look at any chart and within seconds tell if it is positively diverged, negatively diverged, or a combination of both. If you cannot, research 'divergence' on the Internet and read multiple sources until you understand how to immediately and consistently see these divergences without even thinking. Divergences may seem tricky but once you see them (price dropping but indicators sloping up -- positive divergence go long, or, price moving up but indicators sloping down -- negative divergence go short), the lightbulb will og off in your head. If you use divergences in your trading you will immediatley increase your success.
Nice explanation Keystone, always something to learn here, but question for you:
DeleteWhile what you stated makes sense to me and I am familiar with what divergences look like, can you explain a bit how to actually enter and exit trades with them? For instance, while you can look at a top/bottom and see whether divergences exist after the fact, when you are actually trading, how do you know that a so-far divergence does not turn into a confirmation as price keeps going and the indicator follows to a lower low as well? i.e. how long do you wait to actually enter the trade to confirm that "yep, that divergence printed". Is this just something you lean to "feel out" as you become experienced trading with them?
There in is the experience you develop over the years. In its most pure form, if you use the four indicators as listed above, one way to approach trading is to look at chart after chart until you find a ticker that has universal, say, positive divergence, for a long play, across both the weekly and daily charts. This set up is typically an over 90% success rate. The trick is you may have to look thru 50 or 100 tickers before you find this nugget. RSH would be an example of this.
DeleteBut you are correct in what you are asking, sometimes divergences are divergences, until they aren't. One technique you can develop over time is to play a stock long based on postive divergence, but only for a quickie bounce, since the MACD line may remain weak and bleak, then exit the trade when you make some money, then wait to reload when price falls again and then you will see the MACD line with positive divergence and you will know the firm bottom is in place. If a stock is falling (flaling knife a smentioned above) you do not want to buy it unless there is positive divergence, and preferably positive divergence across all indicators on both the weekly and daily charts, then it is not so much knife catching, more of an educated and risk-reduced knife-catch. Of course, in speculation, anything can happen. But experience is likely the answer to your question about playing all the VST trades based on divergence. Look for the universal divergence across both the weekly and daily chart for a ticker, or universal negative divergence, and that can be a starting point to play around with this style of trading.
Also a simple response to your question would be to watch for the number of divergences among the indicators. If you use RSI, MACD histo and line, stochastics and money flow that is 5 indicators. For both weekly and daily charts that would be ten total. That is why if a stock is set up 10 for 10 it is over a 90% success rate trade. You can use the number of divergences as a gauge, if only one or two indicators are say negatively diverged, that means the others are long and strong so higher highs in price will occur, once you see 7,8 or all 10 of the indicators with divergence, that will give you a high level of confidence.
DeleteI'm still waiting for that crap-your-pants moment when know-nothing sheep begged to be slaughtered. I think you'll know because CNBC will bring on Jim Cramer at an odd time. He'll be obviously off his Prozac and probably slurring a little bit. He'll say something unintelligible about Bernanke, which may make sense in the right context (but we'll be bemused by what the correct context actually is). He'll hit a sell-sell-sell lever and all the sheep will commence crapping in their pants. There's your bottom.
ReplyDeleteHey Charlie, you are on target, it is a matter of if today was a bottom or if we see it next week, the charts say next week, but any news event can change things quickly. The setup next week may be like July 2011 where we bounce next week but this may be the last move up before a larger roll over. Thus, to pull numbers out of thin air, perhaps SPX up to 1369 or 1375 Monday morning, then back down to 1325-1335 for a near term bottom, then back up to 1375-1391, then roll over, perhaps down to low 1300's and into the 1200's, but, we just have to make it thru Monday first.
ReplyDeleteFunny stuff Shane. Yep, the emotional extremes are great inflection points, that is why we are watching the CPC and VIX, two fear indexes that help gauge the trader emotion, and can be used as contrarian signals.
ReplyDeleteI think your big news event is currently being reported. Another oil rig explosion in the Gulf of Mexico. It's owned by a company called Black Elk (never heard of them). There's often a tendency to toss the baby out with the bathwater.
ReplyDeleteLooks like it's not actively leaking. So maybe not, but then there's the whole Israel mess. May you live in interesting times.
DeleteKS - longtime no blog been climbing out of a hole I dug...
ReplyDeletehttp://scharts.co/MZac7U
interesting tis the season