Broad Market Formation: Kind of a Big Deal

/ES Lined Up

S&P Fear Regression

The regression area of 7/11/11 – 7/18/11 correlates to a spike in the VIX.

Market Conditions: 6/30/11

The S&P move on Thursday was not genuine. The tape’s price action and correlation to leading stocks was off. The market moved at a peculiar time: An hour earlier than usual and with unusually sudden volume at a time when the market is rising on low volume. Fund window dressing has been mentioned and that’s likely the reason.

Parts of the market are at their tipping point:

  • Food prices have gotten attention lately because of their volatility and crop reports. Corn and wheat proved to be good shorts with sugar about to follow suit (/ZC, /ZW, /SB).
  • Crude and NatGas are on the up and up (/CL, /NG). NatGas had a positive EIA report Thursday and crude has faded the increase in supply from the US and IEA last week by gaining $5/barrel over the last three days.
  • Equity primary leaders are failing to retrace to their highs while stocks in secondary sectors extend from their base to all time highs.
  • The Euro is showing volatility (indecision) after the Greek bailout while the USD sits just above it’s inflationary lows ready to break out. The two currencies prove to be on different timelines with the US dollar leading the Euro.

Treasuries (/ZN)

  • (Over)Sold with exuberance on austerity measures vote (raises yield, decreases nominal).
  • June 30, 2011 marks the end of QE2. Today the US gov’t auctioned the last of the treasuries and “QE2.5” is supposedly in the works for another temporary fix.
  • Treasuries are also known as a safe haven for equities i.e. S&P 500 and DJIA [r(/ES) && r(/YM) == -1] = 1.

Crude (/CL)

  • Crude prices normally rise following economic strength because the more money made and spent in an economy means more can be charged for a tank of gas i.e. crude demand increases through a revaluation of buying power vs necessity to determine value, and price/barrel is adjusted on this basis.
  • Crude is a few points above its recent low of 90 a barrel and its recent range goes up to 115 which it will inevitably go back to and above. Look at price data 10, 30, 50, and 100 years previous to see how inflation trends.
  • The U.S. economy is about to enter a state of recession within nine months (Europe has time in the bank for the same reason we did with QE about 3 years).

NatGas (/NG)

Equity
  • Stocks making all time highs include LULU, FOSL, CMG, CAT. Primary leaders like AAPL aren’t reaching previous highs.
  • Broad market indices the last 3 days had the largest percent increase since February.

Currency

  • EUR/USD fluctuating through pips by the hundreds.
  • US Dollar (/DX) hovering above extreme inflationary lows.

SPX/ES Support Levels

/ES
CHART

SPX
CHART

These are important levels to watch. Anticipate further downside on Monday.

Good plays: long VIX, UUP, SDS, and short the /ES.
I picked up strong stocks at good values on Friday but this not something I would continue to do if the market weakness continues on Monday which is statistically likely.  There is a strong correlation between weak Fridays and weak Mondays.

Friday Trades

IN
AAPL – MAR-11 355 CALLS @ 4.98 (average)

Intraday
AAPL (1/4): +0.30 (scalp)
/GC: +6.30
/ES: -0.50

Thursday Trades

OUT
IEF: +0.0

Intraday
/ES: -8.75
/ZN: -‘160

Emini Pivot Points

These continue to be meaningful in the long run.  We watch these interesting levels.

Emini After Hours Breakout

Looking forward to a pop in the market tomorrow.

Emini Daily Consolidation (update)

At 5p PST the Emini broke out of yesterday’s tight consolidation.  This is the bullish signal for today we have been looking for.

 

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