Market Breadth

Price is one component of market analysis and while the saying, "Only price pays", it's good to understand as much as you can about the market. There's another saying, "What everyone else knows isn't worth knowing".
As for price pays and basing analysis on price only, here's one of the pitfalls of ignoring market breadth....

We live at the right side of the chart, this day down in the Dow-30 on March 6th was only a 1.57% drop, yet it surely stopped out a fair amount of traders as there were as many as 24 days of longs caught at a potential loss in 1 day and on a very small move, that's about 1 trading month.
As for recent market breadth, here's 1 of many charts available from Worden in their T2 series of market indicators.

Over the last 6 weeks as the SPX has moved higher, the % of NYSE stocks that are 1 standard deviation above their 40 day price moving average has fallen nearly in half from 78.5% to 44.17%.
How can the averages continue to move higher while nearly half the stocks that were 1 standard deviation above their 40 day moving average are now lower? 
The answer is in the weighting of market averages, here's an example of the Dow's recent weight from Indexarb.com

As you can see, all stocks are not equal when it comes to weight n the averages, IBM alone accounts for 11.78% of the Dow's weight while Bank of America (BAC) accounts for only .56% of the Dow's weight.
The NASDAQ is similar in their weighting approach, although their formula is proprietary and costs $10,000 a year for a subscription to know what the true weight is. Before the last re-weight, AAPL accounted for nearly 20% of the NASDAQ 100's weight. To put that in perspective, that was about the same as the bottom 50 NASDAQ 100 stocks combined.
There are many great indicators and correlations out there, but it's like a big puzzle, each is just a piece and price is often relied on too heavily.




Brandt Uses Worden's TeleChart and StockFinder 5 Exclusively

Another Red Flag

This is the second time in a week that the CBOE's SKEW Index has spiked well above the historical average of $115. The SKEW attempts to predict the probability of an improbable event such as a market crash or Black Swan.

Brandt Uses Worden's TeleChart and StockFinder 5 Exclusively

JPM Front Running

I wanted to take a look at JPM leading up to their 3 p.m. front run of the F_E_D, it appears they may have front run more then the F_E_D...

 This is JPM yesterday just before the 3 p.m. announcement. The red negative divergence makes sense as they lost about 20% of that move in after hours,  but just how early did thy know?

A case could be made for the 9th, sending shares a bit lower to be accumulated, but that's speculation, it appears the 12th would be a pretty good bet as there's a leading positive divergence followed by another on the 13th.

Today's action in the failing banks is also intriguing. Of the 19 tested, C, STI, GJM and MET failed.

While the trading action in these 3 today made sense...

 Citi

 Ally

MET

The action in Suntrust didn't make a lot of sense.

In other strange trade, GS which came in at 5.8 and 5.7 on the stress test (the first number assumes no changes in the bank's dividends, share buybacks, etc after Q1 2012 and the second number is the capital ratio with any proposed changes to dividends, etc through Q4 2013), banks needed a ratio greater then 5 to pass, by comparison, JPM was at 6.3 and 5.4 (the second number is lower as JPM announced a dividend hike and share buybacks) and to give you an idea of what the strongest looked lie, State Street at 15.1 and 12.5. In fact, here's the chart...

In any case, GS looked like this today...

There were some other banks with worse numbers that looked a whole lot better, so what is up with Goldman Sachs...

Greg Smith, a 12 year former Executive Director from GS released an op-ed in the NYT 

Why I Am Leaving Goldman Sachs


This is a must read. I as well as many others have noted GS's reputation for cannibalizing their own clients, this 12 year veteran tells it like it is and it's just as bad if not worse then I thought. If you want to know what Wall Street is, take the time to read this 2-page op-ed from someone who knows.

Brandt Uses Worden's TeleChart and StockFinder 5 Exclusively

An Important Note From Wolf on Wall Street

Of course members of Wolf on Wall Street get the benefit of the full picture analysis, what we expect to happen and ideas on how to trade it. However for my long term readers of Trade-Guild, I feel I owe it to you to share this post from Wolf on Wall Street that just went out as an Alert.
As of last Sunday (a week ago), I published a very specific set of events I expected to occur, since then, they have played out almost exactly as expected (or as close as you can get considering it's the market and there are always twists and turns). I have to save that information for members of course, which typically see 15-20 posts a day in real time, but this is one I want to share with you.
From Wolf on Wall Street....
ALERT

I haven't done my nightly routine yet, still answering emails when I got an email about the CBOE's SKEW. I looked at it and was shocked, I figured maybe it's a corrupt data feed so I checked it on TOS, the same result. Then to rule out a corrupt feed for the exchanges, I went directly to the CBOE website to confirm and it is confirmed.

 This is my chart, SKEW just hit $139.25 in a +11.6% move today alone!This is the data directly from the CBOE website.

As you can see, it just surpassed its 52 week high. I'm going to try to find out how high the last high beyond 52 weeks was.For newer members, here's a brief summary of what the CBOE's SKEW Index is meant to do...From the CBOE website:"The CBOE S&P 500 Skew Index (ticker symbol: SKEW), a benchmark measure of the perceived risk of extreme negative moves — often referred to as "tail risk" or a "black swan" event — in U.S. equity markets. "In other words, SKEW attempts to measure the probability of an improbable event or a black swan/ market crash. For historical reference, the SKEW from 1990-2010 has only been at this level approximately .15% of the time, $115-$117 is where SKEW spends most of its time, so this reading is extremely high and extremely rare. Skew was $135 around the 2007 top.I will also remind you that the VIX hit a low of $15.23 today showing extreme complacency, the VIX typically trades inversely to the market, low readings often mark tops and high reading mark bottoms. The last time the VIX was lower was 7/1/2011 at $15.12, here's what the market looked like...

2 days later, the market started a decline, the S&P lost 18.8% at the August bottom and lost 20.7% to the October low, the Russell lost well over 30%.

Considering the 3C charts, the breadth charts, the Credit/Risk Asset charts and the events that I have expected and have started to unfold as expected, I take this huge climb in the SKEW as a major red flag.I'll bring you more in the daily wrap... 


Brandt Uses Worden's TeleChart and StockFinder 5 Exclusively

3 Quick Options Trades in 2 Days

Here are 3 quick options trades from Wolf on Wall Street over the last 2 days for a 12.5%, 20% and 40% gain.

This is the first entry in HGSI...

The next day HGSI was sold for a 20% gain

The same day this is the second in HGSI

This was the reason for the second trade...

This is the partial exit of the second trade at a 40% gain

This is yesterday's QQQ trade...

 And the QQQ trade exit for a 12.5% gain.

The QQQ entry was on a 3C positive divergence at the green arrow, the exit was on a 3C negative divergence at the red vertical arrow for a quick 12.5% gain.
Brandt Uses Worden's TeleChart and StockFinder 5 Exclusively

USO Follow Up-Channel Buster

This is a follow up post to Wednesday's "USO-Channel Buster" post
One of the last things I said as of Wednesday regarding USO was,
"Today's intraday trade suggests USO may get a little bounce tomorrow, it is not uncommon for these trades to revisit the channel."
And the last sentence is where we left off the USO Analysis (although at Wolf on Wall Street we have a longer term view of what we think is probable for USO).
Lets take a look at what has happened since then...

As of Wednesday's post, this is where USO stood, remember what I said above in red.

 Here's the initially, bullish looking breakout from the channel, but as we suspected, it was deceiving and a bearish event. One hint that things are about to change is when the character of the trade changes. USO had been in a steady, clearly definable uptrend/channel and traders where aware of this channel. Technical Analysis has taught traders to buy breakouts and this breakout would be no exception, the problem is, Wall Street knows Technical Analysis better or as well as anyone out there, so they use events like this "False Breakout" to leave weak hands holding the bag, when USO broke back inside the channel, those longs were at a loss, the lower USO goes, the greater their loss which causes them to sell, adding supply and driving prices down even faster. It wouldn't surprise me one bit if the professionals sold the breakout short, they were selling short in to strength and demand, making it an easy fill. Note how volume picked up as USO broke down from the channel. Too many times traders look for huge volume spikes, any change in volume should be noted, usually it is the more subtle changes that are more important then the big surges that everyone sees.  Note how volume picked up as USO headed lower, that's the longs selling at a loss and fueling the downside move for the pros.

 Remember what I said Wednesday in red above, " it is not uncommon for these trades to revisit the channel." and that is exactly what USO did, it kissed the channel "Good bye". Want proof? Look at the hourly candle with the large upper wick, a "shooting Star" showing higher prices were touched and then rejected, but this was more then a simple kiss, it was another head fake move. Look at the volume!  This is called churning, huge volume and no price advance, strong hands were dumping to weak hands AGAIN! USO declined from there, but that's not all-I'll show you in a minute.

 We use a lot of our own custom indicators to determine accumulation and distribution, but here using a simple overlay of FXE (the Euro) can tell you a lot. True that oil is priced in $USD so a weak dollar sends oil higher and a strong dollar send oil lower, but that is an inverse relationship and harder to see, using the Euro as the comparison symbol is a correlated symbol and easier to read and the EUR/USD pair accounts for 50% of the dollar index so whatever the Euro does, the dollar generally is doing the opposite. In January and February the Euro was making higher lows and highs, it was trending up while USO was still moving down, this was a clue that USO was about to reverse on Euro strength/Dollar weakness. The "Kiss" at the channel this week slightly surpassed the channel buster highs, however the Euro didn't confirm, this was another clue along with the chart above, that the move was a head fake and bound to fail as it did.

 We use my proprietary accumulation/distribution indicator, 3C to judge accumulation and distribution. At the green arrow, price and 3C were moving up together, this is trend confirmation, but at the channel buster breakout, 3C went negative, from there it went down. The "Kiss the channel good bye" bounce was not confirmed at all by 3C as 3C moved down opposite price, showing the bounce was being used to sell or short by smart money, another clue that this was another head fake move bound to fail. All of these moves could be traded profitably using options, I prefer to use options for a few days to leverage up the trade, but I don't hold until expiration, rather just until I get the move I'm looking for. As an options buyer, you have a lot going against you and the longer you hold, the worse it is as most options expire worthless, so I'm only using them to leverage high probability moves, but quick trades.

Even the candlesticks in the red box all look negative with a shooting star.

 Here's the other head fake traders would be watching, a break of straight resistance and USO did that for about 15 minutes, drawing in longs on the breakout and then slamming the door on them. This 3C chart is longer, 15 minutes. When there's weakness in the shorter timeframe 3C charts, it migrates to the longer term charts and as you can see, the breakout that was negatively divergent in 3C, 3C didn't make a similar high or a higher high, this showed distribution on the move as we already expected last Wednesday BEFORE the move even started. Yes, Wall Street is predictable, but that's only because technical traders are predictable and Wall Street uses technical analysis against them.

 This is GLD, if you saw my GLD post and our trade posted on Wednesday as well,  then you know we were looking for a head fake move in GLD, again technical analysis being used against traders. This traded netted us over 211% in about 4 days. The breakout from resistance in yellow saw NO follow through buying, a hint, but we suspected a head fake move even before the breakout as you'll see in the GLD post linked above. Look at how a head fake move gives GLD downside momentum and this was one of the biggest 1-day declines (that wasn't part of an existing downtrend) in years. The head fake move provided the extra fuel on the downside. The volume on the breakdown shows how many longs were at  loss.

Here GLD (with 3C) breaks out above resistance at the white trendline, 3C had already been negative before the breakout and at the breakout, it got worse on the 29th as you can see just before GLD dropped.
If you read the GLD post, you know we were looking for a head fake move the day before GLD even broke out. This is how Wall Street uses technical analysis against you and we see it every day at Wolf on Wall Street. If you want to beat the market, you need to think outside the box. Once you understand how predictable technical traders are, you can see how predictable Wall Street is. In both USO and GLD, we expected head fake moves BEDORE they even began!

Brandt Uses Worden's TeleChart and StockFinder 5 Exclusively

The 200+% GLD Trade

This is an options trade from Wolf on Wall Street, as early as Feb. 21st, we expected a head fake move in GLD.
Here are the charts from Chart.ly you can see posted on Feb 23rd
http://chart.ly/nspt2vphttp://chart.ly/box9veshttp://chart.ly/kl9pvkj
The trade netted over 200% in 4 days

Now we see something even bigger, should play out next week.
Brandt Uses Worden's TeleChart and StockFinder 5 Exclusively

Dow $13,000

As of yesterday the Dow had crossed above and below $13,000 52 times in the last 3 days, 

You can add another 9 times this morning alone.
For some perspective, the Dow-30 is up .96% over the last 19 days or 4 trading weeks!
Brandt Uses Worden's TeleChart and StockFinder 5 Exclusively

Greece In Bigger Trouble Then Thought

I just read that Greek bonds, which only 5 short months ago recorded a new record high yield of 100%, are now at 920%, very close to a 1000% yield! 

The S&P's rating action (from CC to Selective Default) and the subsequent ECB decision not to accept Greek bonds as collateral in light of the S&P rating's action has reduced these bonds to virtual scrap paper. The yield rises as the bond price falls, so to get where it is at, there has been immense dumping of these bonds.

Furthermore, as I understand it, the retroactive collective action clauses Greece passed (which almost certainly led to the S&P downgrade) are not a true 75% of all bond holders to pass the PSI, they need only 50% of bondholders to respond and of that, 75% to respond favorably.

In addition, yesterday I addressed the problem of the bailout as the money allocated to recapitalize the Greek banking system is now most likely severely insufficient since Greek banks holding mostly Greek debt were not able to use that as collateral in this week's LTRO and to make matters worse, there's been a huge bank run by the citizen's of Greece which has prompted the Finance Minister to plead with the ordinary people to put their money back in the banks.

Furthermore...

I don't understand how austerity measures which will cause even worse unemployment will help Greece grow its economy when the very measures are tearing it apart. However, we need not wait for the effect of austerity to do its damage, details are emerging today of the collapse or further collapse in the Greek economy.

From Reuters:

Greek manufacturing shrank at its fastest rate in at least thirteen years in February as production and new orders declined at record rates, driving the sector deeper into recession and forcing firms to shed more jobs, a survey showed on Thursday.

The Markit Manufacturing Purchasing Managers' Index (PMI) for Greece fell to a survey low of 37.7 points in February from 41.0 in January, staying below the 50 mark that divides growth in activity from contraction for each of the past 30 months.

Production and new order volumes fell at the sharpest pace in the near 13 year history of the survey as austerity sapped demand. New export orders fell for a sixth straight month and at the steepest rate since May 2010.

Greece's 215 billion euro economy shrank by an estimated 6.8 percent in 2011, its fourth straight year of recession. It is seen contracting this year as well.

Greece's unemployment rate hit 20.9 percent in November, the latest available data, highlighting the pain of higher taxes and cuts in public sector pay and pensions which suppress economic activity.

And these are only a few excerpts, you should read the entire article. These are the hard facts that were released in the top secret "Greek Sustainability Report" that was leaked showing that even with the next bailout (if they get it), Greece will be nowhere near sustainability as envisioned in the bailout and bailout terms. As usual, EU plans make conditions worse not better, but as most recognize, the bailout isn't for Greece, it is for all of Greece's creditors.

Brandt Uses Worden's TeleChart and StockFinder 5 Exclusively

GLD / Gold drops and WOWS makes a killing on the trade

Here is a timeline and excerpts of Wolf on Wall Street posts related to our GLD trade which made nearly 215% in less then a week.

On February 21st as part of a larger post that covered out longer term perspective on gold/GLD, I posted this chart.

Below the chart I said,
" A trading range has been established, this is a set up for T.A. traders, a breakout from the range is supposed to be bought, but look at the first break to a new high around early Feb. The breakout volume was low, the failure to hold it was on increased volume, longs were stopped out. Now we have another possible breakout of the range and again volume is low. To entice longs to buy this breakout, it will have to make a new high and surpass the former breakout to remove any lingering doubts.?

The next day, GLD did exactly that. This set up what I considered to be a head fake / shakeout and I posted on the 22nd,
"So now is the time to pay attention for signs of a possible head fake now that the conditions have been fulfilled. "
That Same afternoon, I posted another GLD update and ended it with this...
"The trade potential here keeps getting more interesting..."
The next day, the 24th in another update as 3C showed continued distribution on the breakout, I said...
 "Since the breakout that I said needed to happen to sucker in longs, there has been no follow through. The next step was to see if there was 3C deterioration which has been picking up. Thus far GLD is moving closer to our theory and a nice potential trade."
About 15 mins later I bought March $173 Puts for the WOWS Options Model Portfolio.
The negative 3C divergence in GLD continued confirming our head fake trade, here's what the chart looked like...

 This is the longer term distribution in 3C on the head fake move...

And here's the distribution and negative divergence today before GLD dropped...
Today at 2:58 I posted,
" I will be selling my GLD Put in the model portfolio as it is at a 215% gain and look for a bounce to re-enter."
And Here's the gain

March $173 Puts bought for $2.04 and sold 3 days later for $6.35 for a 211.27% gain.
See our earlier trade below in PEIX closed this week for a huge profit!
For more information about the Wolf on Wall Street program, click the link .


Brandt Uses Worden's TeleChart and StockFinder 5 Exclusively