We've been using 3C on ES for probably 9 months now, it gives incredibly accurate intraday signals of each and every jiggle in the market intraday. In March for the first time we saw this kind of action, a persistent divergence. I remember the first time I saw it, I didn't know what to think and thus far we have only seen negative ones.
Looking back it makes sense, for the amount of time we have been using 3C on ES, there were no major accumulation or distribution events. The accumulation that kicked off the October rally from the October lows had been accumulated from August to October, we weren't using 3c/ES then so we wouldn't have seen it. There was enough accumulation during that 2 month period to pretty much push the market higher and there was distribution in to higher prices, but nothing as extreme as what we saw in March as the market started to top, so that was the first time there was a really strong accumulation/distribution event. It was strange, but it was correct. As the market rallied or bounced (the last day of each bounce event included 3/19/2012, 3/26/2012, 4/2/2012, 4/17/2012 and 5/1/2012) we were selling short for longer term short positions or "core" positions for the longer term. We also ran a bunch of options trades during that period both long and short and made from 7%-244% on those short trades, usually only 2-3 days, but the main focus was selling short in to strength as our goal is, 'Let the trade come to you". There are too many assets to trade to take sub-par set ups. Nearly every short we initiated or added to was stalked, meaning we were patient, we waited for the price strength, then the 3C signal that the move up was failing and then we shorted. GLD was a classic stalking trade that took about a week, but gave us a 215% gain in several days. BIDU took even longer, but it did EVERYTHING we expected from breaking out to the upside, to the breakout being head fake move, to moving down on strong momentum from the head fake breakout. This entire trade was planned before it even made the first step of breaking out and is now at a 22% gain with no leverage and hasn't even come close to the halfway point of our target. We also had a BIDU put that made something close to 100%.
I got away from the point, the point being is this rare event in 3C/ES only seems to happen when institutional activity is extreme. This is actually the first persistent ES divergence we have seen that is positive so something big is going on, we've known something big was coming, but it is even bigger now. I'll try to figure out what the tactics are as the larger strategy seems to already be in place.
However, just to avoid confusion, my next post will show you how much trouble this market is really in. A lot of people have targets of a 20% decline (we're at less than 10% from the top as of today), we have a much different view on the long term picture, one that could include the true first secular bear market in equities, we've seen them in commodities, but no one alive has traded a secular bear in stocks. He who figures it out first will be the winner and considering technical traders still haven't adapted to Wall Street using TA against them (over 10 years now and worse each passing year), I doubt the retail crowd will fare very well.
So next post will show you the big picture, ironically I did a 5 part video series in 2007 predicting this very event, I didn't know how we'd get there, how long it would take, but I thought we'd see the Dow below 5000 before it was over, things have only gotten worse since then.
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