Stock market analysis and commentary from a trader's perspective

Thursday, July 2, 2015

Thursday -- "Yes" Means "Go"

ES Futures:
Hanging at highs, appears to be building a bullish rising wedge for the third day.

News:
Tsipras & Varoufakis promise to resign if Greece votes "yes" on the referendum. With polls tilting "yes" so far, the game theorists may have blinked for the last time.

Sweden's Riksbank unexpectedly cut interest rates 10bps further to -0.35%. Not a typo.

China relaxed rules on using borrowed money to speculate on stock markets, Reuters reported. Still down another 3.5%.

June jobs number: 223,000 vs. 225,000 expected. Downward revisions to April & May. Fed watchers may see this as fodder for postponing rate hikes.

FX:
AUD under pressure. EUR slightly stronger.

Treasuries:
Prices are higher on the jobs number, but the charts still look rather suspect.

Energy:
WTI crude did not hold 57.94, cratered on a build in inventories, and closed below 23.6% Fib resistance.

Metals:
Gold 1159s.

S&P Outlook:
Lower targets still remain (2040-2050 area), yet with futures holding strong ahead of the long weekend perhaps the higher targets are gaining focus. The S&P built value at the 2075 level and closed above it after successfully testing Tuesday's value area.

The 2101.49 gap and 2104 volume shelf remain viable targets.

Fib 38/61.8% confluence is from 2086.11-2086.47.

Still feels like the market is not expecting higher prices.


Wednesday, July 1, 2015

Wednesday -- Rumors & Late Shorts

ES Futures:
Have now retraced over 78.6% of Monday's decline. Rumors of compromise abound . . .

News:
Financial markets buzzing over an FT story citing a leaked letter that Greek prime minister Tsipras is prepared to accept bailout conditions. This should be treated as rumor and realize that all gains could be erased at some point. However, it's a welcome sign.

Europe is green with optimism. Asia ex-China had a good night as well. China down 5.3% after yesterday's ripfest.

FX:
USD strong today, safe haven flows coming out of CHF again.

Treasuries:
Still not confident of the rally. Prices coming in and yields higher across the curve.

Energy:
If WTI crude wants to rally, it should do so now, and hold above 57.94.

Metals:
Gold 1169s.

S&P Outlook:
With futures retracing 78.6% of Monday's decline, pressure is building on late shorts.

The S&P built volume yesterday at about the 2063.50 level. The next volume level of note is 2104 just above the 2101.49 gap.

Pressure is building on bearish wave counts, too.

It's possible that an ABC down is forming from 2129.87. "A" could be 2056.32. "B" could be put in over the next few days and could reach as high as the gap and volume shelf above. "C" could target the 2028 area, but would be dependent on where "B" ends. This area could mark the end of the correction, if it hasn't already ended.

Pre-holiday bullish bias and compromise optimism could ignite violent short covering. If rally builds more slowly, perhaps there is more to it. Something to watch.

Tuesday, June 30, 2015

Tuesday -- Shanghai Recovery, Trial Balloons, Ah Ha Moment

ES Futures:
Rebounded an exact (& healthy) 61.8% of yesterday's decline.

News:
Life after reaching a 38% retracement level -- China's Shanghai Composite rebounded 400 points after being down 5% to close up 5.5%, its biggest daily swing in over 20 years. For now, the uptrend is still intact.

Rumors of last minute offers and dealmaking in Europe and Greece.

Rumors of globally coordinated central bank policy being floated by The Washington Post, a Jeff Bezos production, which is basically a Bilderberg production.

The Fed may play second fiddle to the IMF and the BIS? This could soon be the beginning of formalized centralized central banking.

Watch the full CNBC trial balloon video right here.

FX:
Safe haven flows coming out of CHF.

Treasuries:
Largely held price, but not convincingly.

Energy:
WTI crude still hovering at the 23.6% level. NG still confused about higher or lower.

Metals:
Gold still out of it -- 1168s

S&P Outlook:
Yesterday had everything the bears needed. Volume, price destruction, breadth, fear. It was all there.

It wasn't about Fibs or wave structure; it was basically a test of the 200dma. And so far it was successful.

And I still feel like it's yet another bear trap.

I've been uneasy about the lack of Elliott rules and guideline concerning ending diagonal patterns for some time, and have been operating under the assumption that wave 4 cannot move below the fulcrum of wave 3 (in this case, 2039.69). That's why I've placed such a Big Deal on that level.

Well, I did some digging and found what I was looking for: an old Elliott Wave Theorist by Robert Prechter which gave specific rules and guidelines for ending diagonals not found in his current edition of the Elliott Wave Principle with A.J Frost.

Get this:

Wave 4 never moves beyond the end of wave 2.

Waves 2 and 4 each usually retrace .66 to .81 of the preceding wave.

Ah ha.

While wave 2 was "strong" and didn't retrace nearly .66, wave 4 could do so & easily dip below 2039.69 all the way to the 2010 area as long as it held 1980.90.

Here's what it could look like:


Obviously, it could turn around without testing lower. And with EOQ window dressing, pre-holiday bullish bias, an open gap at 2101.49 and a huge volume shelf at the 2104 area, why not.

Monday, June 29, 2015

Monday -- The Unexpected

ES Futures:
Down sharply overnight yet have climbed back inside the recent trading range.

Context: -1% . . .

Note that the September contract -- ESU15 -- did not break the May swing point which equates to 2067.93 on the cash index, yet the continuous contract has.

News:
Tsipras surprised the markets with an unexpected referendum proposal. This should remind people that the Greek situation is bigger than most think.

Take 350 billion euros in Greek debt, securitize it, syndicate it, and otherwise lever it up to a post-Lehman 20:1, and soon you're talking 7 trillion of exposure. God only knows who is holding it.

FX:
Nothing out of the ordinary yet. JPY stronger though -- always a red flag to me.

Treasuries:
Well bid on safe haven flows, but coming off. Price gains not holding their best levels.

Energy:
WTI crude back down to the 23.6% Fib level, backtesting this? NG looking precarious thus far.

Metals:
Not much joy in gold. 1182s

S&P Outlook:
It appears the market may be in "C" of the ABC down noted last Thursday.

Potential also remains for a larger ABC down to 2067.29 which would just undercut the earlier 2067.93 swing point by a few ticks and likely trigger a tremendous number of stop orders. Something to consider.

Then:

Now:

In other words, today or tomorrow are key days. Perhaps an equally unexpected news development could occur (a sudden deal?).

If no reversal occurs, the market may be in the larger fourth wave down to the 1800 level at least. Will need to manage recent adds in SSO and SPXL carefully.

2039.69 is the far more important level to watch near term.

In hindsight, VIX gave a pretty good sell signal.

Meanwhile, from a social mood standpoint, here are two reasons why I continue to think today's mini-crash is a smaller fourth-wave warning rather than evidence that we're headed directly to 1800:




Yet, we may want to file this one for use in a few weeks. It could be more bearish than anything; if space is suddenly not working out, we may have a problem.

SpaceX explosion delivers blow to Elon Musk’s ambitions


Friday, June 26, 2015

Friday -- Positioning Before The Deadline

ES Futures:
Another early morning levitation. More hope out of Greece. Keeps the choppiness of the choppy pullback intact.

News:
The deadline for a Greek debt deal is --supposedly -- Monday before the European markets open. Somehow, someway, they will probably cobble together another stop gap -- with a shelf life of a month or two.

China down another 7%. Wall Street firms warning not to buy the dip, but I bet they are.

CNBC seems especially preoccupied with self-driving cars this morning. What if this building auto-pilot mentality is manifestation of entrenched market psychology?

FX:
AUD getting crushed. News lows probable in a month or two if things work out they way they appear.

Treasuries:
125'055 in the crosshairs on 10s, day two.

Energy:
WTI crude looks interested in below 58.73 at least. Or at least that's where I might be interested. NG still too middle-of-page to be interesting to me.

Metals:
Gold 1171s.

S&P Outlook:
The market stopped just above the 2100 level after blowing through the Fib levels. Plenty of room to head lower, but still looking choppy, thus corrective.

2095 & 2085 starting to look interesting if 2100 doesn't hold. Not using options, but adding slowly to SSO and SPXL against UVXY.

Still prefer to see 2088.86 hold, however.


Thursday, June 25, 2015

Thursday -- Of VIX, Fibs & Levels To Consider

ES Futures:
Coming off an overnight pop higher.

News:
More Greek drama.

The VIX rose 8% yesterday to close well inside its lower 2 standard deviation band thus providing a sell signal. It is possible that there could be a few of these before the market turns.

FX:
Quiet but for CHF weakness and modest AUD strength.

Treasuries:
Eyes on 10s which seem to have eyes on the 125'055 swing point from June 17th.

Energy:
WTI crude and NG largely the same as yesterday.

Metals:
Gold 1173s.

S&P Outlook:
The VIX sell signal has occurred amid a choppy pullback. The market got below the 2110 level and basically tested two separate 38% Fib retracement areas (exact numbers are 2105.962107.82). Futures have rallied overnight, but the cash index could still surprise.

Therefore, 2100 and 2085 are still possible, but so is a reversal from current levels. My own preference would be a test lower with 2088.86 holding. (2091.20 is also a 61.8% Fib target related to the 05.96 cited above.)

Potential also remains for a larger ABC down to 2067.29 which would just undercut the earlier 2067.93 swing point by a few ticks and likely trigger a tremendous number of stop orders. Something to consider.

Something else to consider: from a Fib extension & Elliott standpoint, the way the wedge is currently labeled, a 5th-wave rally could extend as high as 2,225.95.

While not expected, it could happen.

If it did, during such time one could expect the roar of the bulls to become deafening, with at least one call for 3,000 on the S&P.


Wednesday, June 24, 2015

Wednesday -- Slipping, Suspect, Dependent

ES Futures:
Slipping, but choppy.

News:
Very tired. Last night was Noche de San Juan or Saint John's Night, a celebration of the patron Saint of Puerto Rico. The tradition is to wade into the ocean backwards precisely at midnight and dip yourself into the water for good luck for the ocean is said to be "blessed." The tradition says to do this three times, but many people do it several times, I'm told.

Did I do it? No, but I might as well have. Since I live near the beach, I was up all night listening to it. It's an enormous party and very loud.

Elsewhere, the Greek deal may be slipping. No deal will ever be a good deal. The math simply doesn't add up.

Watching the VIX which finally closed below its 2 standard deviation band yesterday. A close back inside it is a sell signal. The last one was right before the 2012 highs in March and April (there was another one later in 2012, but it was during a rally).

FX:
Quiet thus far, which is good.

Treasuries:
Only 10s have failed to break a swing point. All remain suspect.

Energy:
WTI crude remains above 60 but is suspect as well. Ditto NG.

Metals:
Have switched back to a weekly chart of gold. Probably won't be bullish on gold or silver until gold gets below 1100.

S&P Outlook:
As if to add to yesterday's take on a potential pullback, the VIX has finally given at least a set up for a classic sell signal. The signal occurs when the VIX closes outside its 2 standard deviation band and then closes back inside it.

The VIX can merrily slide along the lower band all it wants, however. Especially if the market shoots for the upper targets.

Still seeing 2110, 2100, and 2085 as potential areas of near-term support. Still seeing potential for new highs, too. But the point is that the market is closing in on the culmination of a large pattern that just so happens to be about as bearish as they get, and when sell signals start occurring, it pays to take note.

And I don't mean like this:


Maintaining a bullish stance because your methodology tells you so is one thing. Being bullish for the sake of being bullish is dangerous.

Maybe another perspective would help these people see both sides.

Source: Compustat, Goldman Sachs Investment Research

Yet again, as if no one learned anything in 2007, buybacks (fueled by multi-year interest rate compression) have fueled another multi-year rally.

Being bullish for bullishness sake without comprehending the hidden hand at work is simply being completely dependent on buybacks and low rates to continue.