Stock market analysis and commentary from a trader's perspective

Friday, May 22, 2015

Friday -- Long The Weekend

ES Futures:
Didn't like April CPI figures but still hanging at highs.

News:
April CPI up 0.1% with core prices "spike" 0.3%. More cover for the Fed to raise.

Reuters called out BOJ's Kuroda after he presented a rosy case for growth (and thus no additional stimulus). Reuters reminded readers that the biggest contributor to Japan's latest GDP growth was higher inventories, while "private consumption, housing investment and exports all rose but at a feeble pace."

Love the use of feeble . . . love it.

FX:
Quiet generally. USD crosses ripping though post-CPI.

Treasuries:
The more I view the price patterns, the more I feel they're headed lower and yields are headed higher. Whether it persists is another matter, but for now, it's the way it appears.

Energy:
WTI is hanging at highs as well. NG needs a rally today or else it will print a bearish weekly candle.

Metals:
Gold blew a rally on the hot CPI figures -- go figure. Actually, it confirms higher rates coming.

S&P Outlook:
So far, seasonals have the upper hand over Turtle Soup. This could turn out even more bearish, because if the market makes a new high today or Tuesday, it will likely do so on extremely light volume. Not healthy, and not what bulls want. A/Ds are pretty mediocre as well, and new highs continue to be quite muted.

VIX made a new low, but the 3-month VIX curve -- at +4.10 -- is frothy.

OEX made a new high too, but ES & S&P cash have not.

The closest Fib extension targets remain at 2135.33 & 2135.88. Another close below 2125.92 would be a bad set up for next week. If so, have a soup spoon ready.


Thursday, May 21, 2015

Thursday -- False Breakout, Turtle Soup, Loud & Clear Seasonals

ES Futures:
Down but continue to look corrective.

News:
The only news that matters to me today is that the S&P closed below the previous 2125.92 high, a "false breakout" in technical parlance, and a potential for "Turtle Soup."

FX:
Quiet today but for GBP which is showing strength on the back on Cameron's hawkish immigration comments and strong UK retail sales.

Treasuries:
Still seeing weird, non-definitive play here.

Energy:
WTI crude and NG seem to be taking a breather ahead of the long weekend -- unusual for crude which loves to get pumped on oft-cited BS about Memorial Day being the kickoff to the "summer driving season." Whatevs.

Metals:
Gold has decided to turn lower after yesterday's strong impulse down. Watching this.

S&P Outlook:
There is usually a pre-holiday upward bias to the markets, but with yesterday's false breakout -- which is about as big a deal as a breach of the 50dma to large traders -- there is a real possibility that "Turtle Soup" could come into play.

Turtle Soup is short for "cooking the turtles" and became popular in the early 90s when the Richard Dennis' group of trend followers known as the Turtles got blown out in 1992 due to the lack of breakouts. One of them, Russell Sands, resorted to teaching the highly secretive Turtle method of trend following. As other traders and especially institutional trading desks began to learn when, where & how the Turtles traded, it became great sport to trade against them. The false breakout trade became one of the favorites. Yesterday's action, so far, is almost textbook.

Today, entrepreneurs keep the Turtle dream alive by selling books and webinars that present trend following as the Holy Grail. Trends are persistent today because the Fed has been persistent in managing them, and it seems that everyone's a trend follower now. Even Paul Tudor Jones calls himself one. And a "nationally ranked" options trader that used to trade high-gamma options (aggressive counter trend) now calls himself a trend follower.

As the Fed's trend support wanes, "followers" begins to sound a lot like Lemmings to me, but perhaps not yet.

How do I ride trends? Very carefully. I scale out on the way up rather than add. And rather than add to the position at breakouts which increases my cost basis and leaves me prone to a massive drawdown in a normal correction, I add on retracements and so do with smaller increments. I also trade around the position aggressively and use hedging.

Regardless of all this, I still feel higher highs are on the way, but the gap below and coincident volume shelf make great targets too. I would love to be a buyer there -- 2098.48 and 2100.

If the wedge is correct 2085 or lower could be in play. But for now, there is pre-holiday seasonal strength to deal with. However, if the seasonals don't hold, that will speak loud and clear.

Wednesday, May 20, 2015

Wednesday -- Tic, Tic, Tic...Fed Minutes

ES Futures:
Shallow pullback, still suggests higher.

News:
Fed minutes today at 2pm. Quiet.

Japan's GDP surprised higher, yet a peek behind the numbers courtesy of Zero Hedge revealed 2% of the 2.4% print was inventory stocking.

"Wage gains" may end up providing the perfect foil for the Fed to raise rates. Chicago Fed president Charles Evans stated earlier that if wage gains were to increase, it could prompt an earlier rate rise -- however, as a noted dove, he does not anticipate strong wage growth . . . so let's keep 'em low.

FX:
From yesterday: "USD needs above 95.26 in my opinion to maintain a corrective quality of the recent decline from the 100 level. Inversely ditto for EUR where the level is 1.11302." Both happened right out of the gate. Commodities got hit. Even JPY weakened further. Today is much quieter thus far.

Treasuries:
Volume increased substantially on yesterday's pullback in treasury prices, yet not enough to blow away previous up volume. Still, not a good sign.

Energy:
Ditto WTI crude. A terrible day, but volume-wise not the end of the world.

Metals:
Gold continues to hover below last week's high, but did print a five-wave impulse from the high which should be monitored.

S&P Outlook:
Likewise, the S&P printed a clear five-waves down from yesterday's high, while ES futures did not. This action usually indicates a potential correction rather than a trend break. If true, yesterday could have been "A" of an A-B-C down. So maybe a healthy bounce then another decline.

Still like higher targets in the 2135 and 2150 area. Would be a buyer, ideally below 2085, but possibly even at the culmination of the proposed A-B-C which might only test the 2100 area where there is a volume shelf and Fib support.

Tuesday, May 19, 2015

Tuesday -- When Victory Defeats

ES Futures:
Up, but not as up as one would think given the news from the ECB.

News:
ECB announced that they will increase their purchases of euro-area assets in May & June. Perhaps the non-permanence of it is the reason why futures are lower this morning than they were last night. The more important thing is that euro-area bond yields have calmed down.

Merkel is sounding more and more like a globalist rather than the Chancellor of Germany for her hesitance to kick Greece to the curb. Her allegiance seems to be to the Euro Zone project rather than the voters of her own country.

And hey, Picasso's recent record-setting sale may actually mean something. Check this out from Bloomberg:


"Jason Goepfert, president of Sundial Capital Research, has a note analyzing the relationship between record art sales and the stock market.

"Previous bouts of expensive art sales have indicated over-confident conditions in the stock market as well. There is broad overlap between the markets, now more than ever. Wealth concentration is near an all-time high, and with stocks doing so well, it has helped to fuel massive confidence in other "greater fool" markets like art. Like any trend in an unhinged market, it's next to impossible to predict when the confidence will peak. Based on previous peaks, it could (should) be any time. The market is relatively isolated and a plateau in art prices wouldn't have much affect on broader assets, though it would likely be coincident with a plateau in stock and bond markets."

FX:
USD needs above 95.26 in my opinion to maintain a corrective quality of the recent decline from the 100 level. Inversely ditto for EUR where the level is 1.11302. Both crosses are getting major play today.

Treasuries:
Euro area yields may have calmed down, but yields here still look precarious.

Energy:
WTI crude has not broken out nor broken down. This keeps pressure on for higher prices, perhaps, but it may be signal that the current bounce is a fourth wave (as expected) with a fifth and final wave to new lows at some point.

NG continues to power on. 3.352 is a possible target, as well as a weekly gap at 3.446.

Metals:
Gold had a great week last week and may need to rest.

S&P Outlook:
The VIX closed yesterday 5.2% higher than its most recent low with the S&P printing a new record high on weak A/Ds. This combined with the misleading narrative of "the most hated bull market of all time" could spell trouble once certain targets are met.

The fact is that this market has produced record high levels of bullishness amid record low levels of bearishness as recorded by AAII, II, and DSI, and has done so not once but multiple times. That the data goes back to the glory days of 1987 is of no concern. Most of the participants probably don't remember the euphoric mood.

Here's another representation of historic bullishness: cash-to-assets ratio of mutual funds, courtesy of Elliott Wave International, via Twitter. Epic euphoria.


Eventually, in both bull and bear markets, victory defeats those who believe too deeply.

Also, the VIX has printed three higher lows since April 14th. It may pay to be aware. Yet if this chart is accurate, the big move might not occur until the fall. Sounds catchy.



Monday, May 18, 2015

Monday -- Time Accelerating

ES Futures:
Shallow pullback thus far.

News:
It's Greece again. Nothing new, except that time is accelerating.

Recall Hemingway from The Sun Also Rises:

"How did you go bankrupt?"

"Two ways. Gradually, then suddenly."

European equity markets are down across the board, while yields are up across the board. Pressure builds.

FX:
USD has held the 93.16 target (bouncing from 93.13), yet has not done so convincingly. 38% Fib support is just below at 92.18 and could be a magnet.

AUD has printed seven waves from its most recent low: corrective.

EUR looks like it has completed an ABC pattern up. Bearish potential.

Treasuries:
Still not seeing anything encouraging from price charts in 2s-30s of late.

Energy:
WTI crude seems to have stalled or is in the midst of a consolidation before higher prices.

NG continues to look good. There will be plenty of time to get long if the bottom has truly been put in.

Metals:
Gold could rally further but would probably fall short of besting 1307.80. Continue to feel that the entire move from 1130.40 has been corrective. But, since 1130.40 could have ended a large wave-A down, gold could also be in a larger B-wave up, in which case higher targets could be in store. Frost & Prechter cautioned that B-waves are sucker plays, however, which is why I haven't been fully interested...

S&P Outlook:
...yet remain fully interested as always in the S&P 500 cash market. Even though Friday was rather subdued, there is no evidence as yet that it marked a top of any kind.

Today is the new moon, so be aware that a new direction could ensue for a week or two.

Still think the wedge pattern is in wave three. If so, wave four could test the 2066 area, or lower, but should keep above 2039.69.

There is a gap at 2098.48 to be aware of.

Otherwise, two higher target zones remain in play and could function as targets for wave three: 2132.50, 2135.33, 2135.88 and 2148.70, 2149.35, and 2149.55.

Friday, May 15, 2015

Friday -- What 12,249 Contracts Look Like

ES Futures:
Hovering...seems to be a theme thus far today.

News:
Today's news is secondary to how ES was hoisted above a key level yesterday so headlines could scream "record close."

To see what it took to keep the dream alive, keep reading.

Other news is that May's Empire Manufacturing results missed for the 4th time in a row, back to levels last seen in January 2008.

FX:
Misinformative Reuters headline -- "futures rise as dollar weakens" -- as USD was up over .5% on the day after having bounced from the 93.16 Fib target, just three ticks off from a perfect hit.

Treasuries:
Bounces continue across the price spectrum, but the patterns continue to look ominous.

Energy:
WTI crude is spending a little too much time doing some hovering of its own around the 23.6% Fib level, and is beginning to appear ominous as well.

NG already appears to be tracing out a wedge, which, this close from the "bottom" is rather odd, usually being a more late stage pattern.

Metals:
Gold hovering too, above 1200. 1217 last.

S&P Outlook:
It was worth $1,299,006,450 to someone, or some entity -- probably the Fed (from their new "operations center" in Chicago) -- to get the S&P 500 to close above 2120.95 yesterday.

How does one accomplish this? Simple. Press the futures buy button hard.

The market was having a bit of trouble with the target level, reversing from 2120.94 at 3:17pm EST for what was then probably a terrifying period of time for some. A rally ensued but began to reverse again -- at 3:59pm! -- when someone or something stepped in and said that's enough.

This is what 12,249 ES contracts -- with a notional value of just under $1.3 billion -- look like on a 1-second chart. No one sells after a trade that big crosses the tape.


I prefer to see marathoners cross the line on their own two feet, not pushed in a wheelchair.

Regardless, the S&P closed above 2120.95.

The highs are next. So are two Fib confluence levels above that are very tight: 2132.50, 2135.33, 2135.88 and 2148.70, 2149.35, and 2149.55.

The way the market has been acting of late, I've been considering that it may still be in wave three of the rising wedge with four and five still to come. If correct, it could take us into the all-important September/October timeframe.


A/D closed quite respectable yesterday (2.95-1) but did not break out. Volume was muted, however, and ticks, while showing earlier strength, did not close well, another tell tale that the large futures trade likely did the heavy lifting.



Thursday, May 14, 2015

Thursday -- Christie's Big Week

ES Futures:
Overnight pop after yesterday's weird action.

News:
Not much. But there was this to follow up the record-setting Picasso auction:


"Christie’s made history Wednesday by becoming the first auction house to cross the $1 billion mark in total art sales in one week."

Turning to Greece, finance minister Varoufakis said Greek debt needs to be "redesigned." This sounds like restructuring and debt forgiveness, two things that do not sound forthcoming.

FX:
EUR is getting headlines today for setting a three-month high. The overnight low in USD was 93.13, three ticks below the 93.16 target. Both moves look like ending patterns but will require price to reverse promptly, or nearly so. AUD appears nearing completion. GBP continues its ripping reversal higher.

Treasuries:
Of concern is that as prices have fallen, they have done so on volume, meaning at least there might be more behind it.

Energy:
WTI crude came off yesterday's high with big volume and thus has flashed another warning. NG appears prepping for another possible rally soon.

Metals:
Need to add to yesterday's gold comment , "looks like it's trying to rally, but can't. Or won't." ...but did. Would have been better for bulls if it broke above 1224.50, however.

S&P Outlook:
Yesterday was unimpressive on both sides. Bulls need to rally above 2110.19. The lower 1:1 Fib extension target remains at 2059.67. And there are now two higher lows in the VIX to go with the three most recent higher highs since April. I would love a probe lower to add more longs.

Mini Travelogue:
Was out in the middle of nowhere yesterday looking for some land for sale that I never found. It was near the rain forest and was said to have a fresh water spring running year-round.

I did find this when I drove past a tiny little place nearby called Antojito's, which means "little cravings." I was craving lunch and saw the words pollo guisado on a chalkboard outside and skidded to a stop. Always glad when the brakes work so well.

Amazing, soulful flavors.
Got back to San Juan and headed up to Old San Juan. See something new there every time.

Who needs Christie's? Art is everywhere.