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Tuesday, July 22, 2014

What a Wall Street Manipulated Trade in Gold Looks Like

From Wolf on Wall Street this morning...
(Don't miss yesterday's post below or HERE)

Gold Update


Yesterday I updated Silver and some newer theories I'm toying with, but if anything seems to be clear (as it was before and again this morning)  it is that inflationary data seems to be driving precious metals which are starting to act like they use to before the F_E_D intervention, which is to say, move opposite the $USD.

I still have concerns about an all out asset class sell-off as the catalyst for stocks would be the same that would potentially hedge back inflation, therefore precious metals, but there's a very large base to be unwound if that's the case and it can't be done this quickly (year or so long base).

As for this morning, if you want to see what leaked data or smart money making a decent bet looks like (which if not leaked was certainly based on the inflationary trend that Yellen calls "noise"), look at gold futures below.

As mentioned earlier, just about 10 minutes before the CPI data was released this morning there was a dump of nearly $400 mn notional in gold futures, at "B" CPI was released and gold jumped 12 points to $1316, a nice pay day if you facilitated and then accumulated the pre-CPI dump.

 It looks like that's exactly what happened, gold futures were accumulated in to the pre-CPI dump and rode 12 points higher and then distributed for a quick morning trade.

 Here Gold futures are moving inversely against the $USDX as is their normal correlation that we haven't seen while the Bernanke put has been in place.

As for GLD itself, it looks like it will be coming down, there was a clear negative divegrence in to yesterday afternoon so this morning's action isn't too much of a surprise.

The 5 min chart shows a larger negative divegrence along the lines of a pullback divergence and a flag in GLD, the bottom of the flag is what I'm interested in now to see whether Gold is accumulated there or not.

The larger 30 min chart is similar to what we saw in Silver yesterday so one of the primary questions I'm looking to answer is whether the initial GDX base and higher trend we expected is still on track or whether the cure for inflation (rate hikes) will see an across the board asset class sell-off in both equities and the PMs.

Monday, July 21, 2014

If You're Not Worried About The Stock Market, Here are Some Reasons YOU SHOULD BE

This isn't really a concern for us, as they say, Bulls make money and BEARS make money, it's knowing when to move from one to the other as to not become the PIG that gets slaughtered.

Just a few charts that should raise the red flags...

 It took a while, but the mainstream media finally caught on to the elevated SKEW Index...


 The Russell 3000 A/D line (green) vs the Russell 3000 (red)

The NASDAQ COMPOSITE (red) vs the NASDAQ Composite's A/D line (green)

These are the Percentage of NYSE Stocks Trading Above their 40-day, 200 day or 1 or 2 standard deviations above their 40-day or 200 day moving averages.
 %> 40-day moving average (green) / SPX (red)

% Stocks > 1 standard deviation above 40-day

% of Stocks trading > 2 standard deviations above 40-day moving average

% of stocks trading above 2 standard deviations above their 200-day moving average.

Seeing red flags yet? Unfortunately for most traders, Wall Street never makes it that simple...

 New 4 week Highs/Lows

10-year Rates vs the SPX (green)

High Yield Corporate Credit vs the SPX (green)

Junk Credit vs the SPX (green)...

Wednesday, July 16, 2014

The FED is Shouting "RATES ARE GOING TO RISE SOONER AND STRONGER THAN YOU THINK"

BE SURE TO SEE OUR PROPRIETARY 3C INDICATOR USED AT OUR MEMBERS' SITE, WOLF ON WALL STREET,  COMPARISON BETWEEN THE 1929 TOP AND NOW.


We picked up on the changing F_E_D tone at 2:26 p.m. on September 13th of 2012, when Bernanke gave the first hint during a press conference on the day the F_E_D announced QE 3 of all days, that the F_E_D was changing metrics that would allow them to create an exit (although he didn't say it, it was clear) from accommodative policy which sent the market down for the rest of the year -8% from the F_O_M_C meeting's high at 2:26 p.m. September 13th, when Bernanke was asked a question about inflation and the market DID NOT like his new "tone".

If you didn't get the message when the F_E_D changed guidance from quantitative to the arbitrary and easy to manipulate, "Qualitative, you can be forgiven, although we did point this out at the time that the only reason to do such a thing was to allow the F_E_D to find an exit from their $4 trillion plus expansion of their balance sheet.

However, if you didn't get the message when St. Louis F_E_D president James Bullard said , "The Markets are Wrong, the market doesn't appreciate how close we are to our goals" which should be read as tightening rates, then you didn't want to get it.

However if you missed Yellen's 180 degree turn yesterday, chronicled last night in the Daily Wrap.. Don't Want to Miss post, you just weren't paying attention. The F_E_D is SCREAMING exactly what I thought the day before the last F_O_M_C meeting, 

"THEIR HANDS ARE TIED BECAUSE OF INFLATION AND REAL FALLING WAGES, THEY HAVE TO HIKE RATES WHETHER THEY WANT TO OR NOT. "

NOW, in addition to Bullard, Yellen, Kocherlakota and several others, Dallas F_E_D president, Richard Fisher said today,

  • DALLAS FED PRESIDENT FISHER SAYS 'MARKETS ARE OVERSHOOTING'
  • FISHER CONCERNED FED MAY 'BE STAYING TOO LOOSE TOO LONG'
  • FISHER: I DON'T THINK YOU SHOULD 'POP' A BUBBLE, BUT SHOULD LET SOME SPECULATIVE STEAM OUT OF MARKETS
Lets just take out the "Greenspeak".... Markets are "Frothy and overvalued, the F_E_D's "Reach for Yield" has created a monster and if you think for one second that valuations as the talking heads are rampaging on about are not high enough to warrant a crash, just know that almost every previous crash did not have exceedingly high valuations except in 2000, but they certainly are high considering the economic situation in the US and world economy.

He's telling us that markets (like every other F_E_D president) are not accurately pricing in the F_E_D's "NEW" rate guidance which says, they'll hike sooner and faster than the market has ever considered, this is EXACTLY what the Bank for International Settlements (BIS) which is the central banks' bank,  said in their annual report urging "Leading" central banks not to hike rates too late or too slowly and also telling them that they opted for the short term sugar rush policy which has left them with nothing in the end, a clear reference to 6 years of accommodative policy that bought the F_E_D the worst quarterly GDP print of -2.9% in 5 years!

Finally, we have heard over and over from Yellen that the market is NOT a bubble, until yesterday when she singled out Social Media stocks and biotechs, the stocks that move the market.

If there's no bubble, why is Fisher saying what Yellen said about a week and a half ago, that it's not the F_E_D's job to "pop" bubbles? Fisher clearly alluded to a bubble.

Think about the SKEW, the 3C charts and most recently last night's breadth charts that I've only seen look like they did twice in probably 15+ years of using them. Smart money gets it, that's why SKEW is elevated, that's why market breadth has dropped in many cases by more than half in less than a month as more stocks are selling off despite the averages printing "record highs", remember the top of the 2007 market was a record high for the SPX.

THE F_E_D HAS GONE IN TO MASSIVE DAMAGE CONTROL, TRYING TO GET THE WORD OUT QUICKLY IN RECENT WEEKS THAT THEY WILL BE RAISING RATES MUCH SOONER THAN ANYONE ANTICIPATES AS THE MARKET AND ECONOMY ARE IN REAL TROUBLE, FACING STAG-FLATION.

IF YOU ARE NOT GETTING THE MESSAGE BY NOW, YOU SIMPLY DON'T WANT TO HEAR IT.

Here's typically what happens when THE F_E_D HIKES RATES WHICH WILL SLOW OUR ECONOMY MORE THAN IT ALREADY IS....Higher interest rates is the main effect.

 Some of these declines don't look very large so to give some perspective, at 1 to the far left when the F_E_D started hiking rates, the market fell -45%, at 2 when the first rate hikes hit, the market fell -45% at the more recognizable tech bubble in 2000, there was at least a -38% SPX decline, the NASDAQ was worse. And at B in 2007 after a series of hikes failed to cool the housing market , they finally took hold and there was at least a -56% decline. *Note the effect of ZERO Interest Rate Policy (ZIRP) on the market to the far right.

The effects of QE which will end for good in October...

Here are past QE episodes and their effect of the SPX.

Any questions where this rally really came from and what happens when QE stops and the F_E_D hikes?

Just from a 3C point of view...
 Dow Jones 30 at the market top of 1929, 1-day chart. 

Did you know the F_E_D had engaged in QE in the 1920's, but this time it worked for a while leading to the roaring 20's, a time of economic expansion, but it seems the market ultimately paid the price for QE even back then. Note the year long 3C negative divegrence. 


Now the same 1-day 3C chart on the Dow 30 now...
 A significant difference hugh? Any questions as to why I say that "Whoever figures out the new market dynamics first, will see an opportunity that no one alive has seen"?

Now, as usual, the longer 3C charts show heavier underlying flow, it seems in 1929 it wasn't as heavy and had not made it to the 4-day chart very much (3C migration)
 However there was a quick, but sharp 3C decline and negative divegrence as it made a lower low as price made a higher high in to the 1929 top just before the crash.

For reference, here's the same 4 day chart, notice it was similar in 2007 to 1929, but not quite as sharp, but did make a lower low in to a higher high. Now contrast that with the QE/ZIRP fueled Sugar rush rally even the BIS said was a band aide that has made no appreciable results.

I think we are well positioned to be among the first to understand and work out the new market dynamics.

Tuesday, July 15, 2014

A Strong Case for a Market Top

This is from our member's site, 

Click the link above for more information

Today's Daily Wrap

Lots of interesting things going on today, whether it be the EU's Lehman moment with wildfire like contagion or Ms. Yellen's 180 reversal which as I suspected, she sent Bullard out on the "Market is Wrong" tour.

I showed you earlier the reasons I think we have a bounce coming or really it already started as we expected it this week as posted most of last week and on Friday in, THE WEEK AHEAD.

There are some VERY interesting signals I haven't seen since the 2007 top and that just adds to my suspicion that we are at the market top (bounce and all) and further reinforces my decision to let core shorts stand and not to get too fancy trying to trade around them,

First, yesterday we closed what was only a piggy back trade, not the real destination which is the pullback and re-entry of GDX/NUGT long, but we needed a pullback first. I suspected the breakout in GDX above the base was a head fake move as volume and 3C was totally off, yesterday I closed the DUST longClosing Friday's DUST Long For Now for an 8% gain thinking (as we saw some positive divergences) that GDX would see a 1-day bounce off support of the base and GLD a 1-day bounce off support of the 100-day moving average and that's what 3C was showing, a short term bounce for maybe a day before these two continued the pullback we've been expecting. Some of you wondered what happened as DUST headed higher today and GDX and GLD, here's what happened...


 Note right around 11 a.m. GLD dropped hard, I showed you the tight correlation between GLD and GDX earlier today... GLD found short term support yesterday at the 100-day moving average, but after today, GLD saw the worst 2-day drop in 10-months, this is along the lines of the pullback we've been expecting.

GDX saw a similar break, the red trendline is the base support from the breakout which it found support at yesterday. Note the time of the GDX break, the same time (DUST moves opposite GDX).

That gave us a closing GDX candle that looks like this, a clear break back below the base's resistance, volume was up as the long chasers were stopped out as they predictably place their stops just below the trendline breakout area.

GLD ended the day like this, breaking right through yesterday's 100-day support/

Now there are differing opinions as to why this happened, but at the same time as the GDX and GLD break, someone sold 17,000 gold futures contracts at a notional value of $2.3 Billion dollars, that's what sent GDX down and DUST up, there's no way we could have known that yesterday as most institutional investors don't want you to see their cards, this one did, this was a purposeful trade as no one would trade that many contracts at once as it drives price against your position.

This was done for a different reason, whether to try to rescue the market from the Yellen decline or to break support of GLD and GDX and kick start the pullback we have had strong signals for, who knows, but it was intentional and the cause of the GLD/GDX and thus DUST moves today.

Remember, DUST was just a piggy back ride to make some extra cheese and we did okay with +8% for a day, but that's not the trade we are looking for.

The reason I went with IWM calls today and left the Core Short in IWM (SRTY) alone, is because of the incredible market weakness, not just since we called for a bounce and the weakness started right with the bounce yesterday, but because of many reasons I've been highlighting and I have a new one to show you in a bit.

For now, Yellen...

Unbelievably, Yellen, "Ms. The market valuations are fine" actually came out and spanked the momentum crew.

We were proven correct again... Remember when Jim Bullard of the St. Louis F_E_D came out on Fox Business News a few weeks back and said, "The market is wrong" and interest rates may rise as soon as Q1 2015, back then this was TOTALLY at odds with everything Yellen had said at the post F_O_M_C press conference. At the time I said, "There's no way a regional F_E_D president comes out and says things like that without Yellen's approval". Later we saw the F_O_M_C minutes and sure enough, they were more hawkish than Yellen's press conference, but there's more starting today at her Congressional testimony and this is what I've been saying the market has been reacting very negatively to since the F_O_M_C,  and in particular, SINCE THE END OF Q2 WINDOW DRESSING STARTING 7/1 AS I HAVE POINTED OUT NUMEROUS TIMES IN NUMEROUS ASSETS.


Did you catch it today? In Yellen's testimony (the very same woman who made the market feel like interest rates would not be hiked until LATE 2015 or 2016 if she had her way), is obviously feeling the pressure of inflation as she said today to Congress... This is exactly what we've been saying since CPT came out a day before the F_O_M_C.

Yellen today:

"If the labor market continues to improve more quickly than anticipated by the Committee, resulting in faster convergence toward our dual objectives, then increases in the federal funds rate target likely would occur sooner and be more rapid than currently envisioned," 

Well of course the labor market is going to continue to improve, the F_E_D and BLS found the secret to lowering the unemployment rate, here's how simple it is...
from Zero Hedge

All you do is reduce the number of Americans counted in the Labor Force Participation Rate which as you can see, has crashed. With less unemployed people counted, of course the unemployment rate drops, in fact from 10.1% to the current 6.1%. That's easy, so yes, rate hikes are coming sooner than later just as we have been saying since just before the F_O_M_C when we saw the trend in Core Inflation/CPI. As I said back then, this is the one metric that ties the F_E_D's hands and makes them hike, Yellen is just finally getting around to slow-boiling the frog and letting the market know a little at a time, but when the hikes come, they won't be so easy to hide and Wall St. has known this, look at the size/length of the base in gold and gold miners which are bought on INFLATION EXPECTATIONS.


Lets see... According to Yellen's testimony, the economic outlook has "considerable uncertainty", the housing market has been disappointing, showing "little progress" as interest rates have "edged" higher. So what's the prescription for a weak economy and a weak housing market being hurt by slightly higher interest rates?

A RATE HIKE, sooner and bigger than expected. Nothing will send mortgage rates higher than rate hikes from Zero to 4% and what does that do for the economy, Cap-Ex and consumer spending? Well as bad as it has been, guess what? It will get worse! However, not as bad in the F_E_D's view anyway as rising and out of control inflation.

In fact, Yellen actually managed to turn the whole thing around 180 degrees and said...

"If economic performance is disappointing, then the future path of interest rates likely would be more accommodative than currently anticipated," 

According to Yellen's F_O_M_C press conference, she gave the market the impression that rates were likely to be held "LOWER" for longer and raised in small increments, that was the market's anticipation listening to Yellen who they obviously didn't believe as the SKEW jumped right after. However, now "Current Anticipation" is for larger rate hikes sooner!!!

She didn't even use coconut shells (the shell game)!

 Asked about the timing of the first rate hike, Yellen noted that "almost all" participants expected the first rate hike at some time in 2015, and that the median projection for the fed funds rate at the end of 2015 was "around 1%." At the May Joint Economic Committee testimony, she said "most members believe that in 2015 or 2016 normalization would begin under their baseline outlook." 


Lets assume 4 rate hikes of 25 basis points each through 2015 and the expectation is for a 1% F_E_D Funds rate at the end of 2015, that puts the first rate hike SIGNIFICANTLY before the market expects, likely Q1 of 2015! That's pretty far from the May statement of beginning normalization in 2015 or 2016!


It seems  we may have only been half right about inflation as she noted concerns regarding wage growth failing  which would  significantly outpace inflation.

In another development, someone in the mainstream financial media has finally pointed out that major red flag I've been highlighting nearly every day since late June...SKEW!!!
Bloomberg: More Costly Protection Seen in S&P 500 Options
"Investors are paying up for protection against a drop in U.S. stocks as they never have before, judging by the performance of an option-based indicator."

The SKEW “is flashing a big warning signal for equity markets right now,” Kevin Cook, a senior stock strategist at Zacks Investment Research Inc.
Speaking of which...
Note SKEW advanced right after the F_O_M_C . It's not just the reading is elevated in the red zone for a market crash,  it's how fast the rate of change took place and how long it has been elevated.
Our Leading indicators as recently shown are flashing bright red signals, among them, High Yield Corporate Credit and Junk Credit, "Credit leads, stocks follow.

 I thought HYG would help lead a bounce this week, instead it has sold off.

And look at the divergence vs the SPX since... You might have guessed it, July 1, the first day after Q2 Window Dressing ended.

Junk Credit also sold off today, but more importantly...

The bigger picture , again since 7/1
We also suspected our Most shorted Index would be squeezed...
 MSI intraday vs the SPX (yellow)

MSI since, you guessed it...
The Dominant Price/Volume Relationship of the major Averages' component stocks today was one that fits with a bounce as envisioned in the IWM today, that is Close Down/Volume Up, this usually is a 1-day oversold signal with the next day closing higher.

However as I was going through my Breadth Indicators, I saw a strange pattern I haven't seen in some time, not like this, take a look.
 These are Breadth indicators, pure numbers. This particular kind compares the indicator which in this case is the Percentage of NYSE stocks trading 1 standard deviation ABOVE their 200 day moving average. As you can see, there's an odd, almost straight down move, in this time the percentage has gone from 59% to 48%, meaning fewer stocks are 1 standard deviation ABOVE their 200-day moving average  or more stocks are trading under it. Again, it's the rate of change that is really surprising and noteworthy.

 This is the percentage of NYSE stocks trading 2 standard deviations above their 200-day, it has fallen from 27% to 17% very quickly.

This is the percentage trading one standard deviation above their 40-day moving average, this has fallen from 57% to a mere 28%! Look at that ROC!

 This is the percentage of NYSE stocks trading 2 SD's above their 40-day moving average, momentum stocks and they have fallen from 31% to 29% and now to 9%!!!

 And the percentage of all NYSE stocks trading above their 40-day moving average, down from 74% on July 1, remember that Window Dressing ended as of 7/1, and fallen to 54%, only 54% on NYSE stocks are above their 40-day moving average.

I knew I recognized this pattern so I looked back...
This is the percentage of NYSE stocks trading 2 standard deviations above their 40 day moving average at the EXACT 2007 top, notice anything about the pattern in the Rate of Change? That's a move of about 22.5% to 4.5%, not too much unlike our current move from  28% to 9%.
Hmmm...


Monday, July 14, 2014

MCP & DUST Gains Taken Today

We have a lot of trade ideas at


For more information about Wolf on Wall Street, click the link above.


I think what makes the MCP calls we closed today and the DUST long opened Friday and closed today are the timing in what have been otherwise, very tricky assets, but the timing is all based on the signals.

From the original Wolf on Wall Street posts...


This is the entry post from July 10th, we saw some very interesting signals on what had just been a short term selling climax, which makes it easy for smart money to accumulate on the cheap and in size, exactly what they need with their position sizes without ever alerting anyone to what they are up to as few people who are stopped out ever consider who's taking the other side of the trade, still we need good signals giving us strong objective evidence that the shares were accumulated. For MCP, there were nearly a dozen charts in the "charts" post, but here's the gist of the signal in one chart.

This 5 min 3C chart is actually quite a strong underlying timeframe, our long entry was near the lows of the run through stops and where shorts would have entered on a break of support, 3C has the power to contradict price, showing us clear accumulation of the short term selling climax.

I like using options as tools rather than trading systems and usually want to be out before the first correction, I gave MCP a little more time as I do have reasons to like this on a longer term, but today was enough. Thus the next post from today below...

As for the DUST long entered Friday for about an 8% gain today, we were expecting a pullback in GLD and GDX, GLD saw the biggest -day drop of all of 2014 today and GDX is pretty closely correlated, being we expected this drop, we went ahead on Friday with a DUST position long until we get the signal to re-enter NUGT/GDX which we recently closed out for a +40 and +50% gain.

Here's the post for Friday's entry in DUST,

Again, one chart doesn't do our analysis justice, but to sum up the reason for the entry, here's DUST's positive divergence/accumulation Friday, one of the reasons we entered.
DUST accumulation Friday afternoon, this was in line with a broader pullback expected in GDX/NUGT which we will be buyers of when the signals come in.

Here's today's exit post for DUST at an +8% gain for a single day.

I suspect we'll be back in DUST for a bit longer, but GLD found support around the 100-day moving average and GDX found support right around its breakout level, thus it seemed like a short term correction was likely and time to take DUST gains off the table, especially because it's pointless if we're going to eat in to the NUGT long gains already booked.


DUST intraday 3C distribution, smaller scale, but still noteworthy.

The support areas weren't what caused the closure of the DUST position, it was the intraday negative divegrence which was likely caused by the support areas, at least near term so as I said, I expect we'll be back in DUST for a bit longer, but we'll wait on the market signals to tell us when.




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