Gist of the Day

This is not the Daily Wrap, I need to look at a lot of indicators, assets, futures, market breadth, etc.

However, the basic theme of today was there was strong underlying (3C) activity and the probabilities for an upside reversal went up, but that's not the same as a "High Probability Position".

Over the last month, every time we've had sufficient downside market action I've looked at the "Tracking Portfolio" which is dozens of mostly core (trend) short equity positions and they have consistently been beating the market on a relative basis somewhere between 6.5 and 7.5 to 1. Normally you can expect a lot of stocks to just about double the market's performance on a strong up or down day, but 7x better performance (not once, but every time we've measured over the last 2 months or so) for a tracking portfolio which is WAY over-diversified (which kills the portfolio's average performance) is excellent.

So the gist is, while I have no problem entering specific positions that are throwing good signals, for the most part I wasn't in any rush today to add to short duration leveraged longs as I don't want to tie up dry powder on positions that may not only be sub-par, but really are positions entered solely because we're afraid to miss a move, that's not a good reason to commit capital to a position.

I think there are VERY good chances tomorrow may be a very busy day with a lot of potential trade ideas, I just didn't feel the process was mature today.

Here's an example using the SPY.

 This 30 min chart shows the F_O_M_C knee-jerk reaction we're always on the lookout for. Then we have a range that showed accumulation although the majority of the range had fairly weak signals until the end when they started to pick up.

The range is VERY obvious, which makes it a high probability target for stop runs as well as triggering shorts to enter, both provide supply in large quantity and lower prices which is exactly what institutional money needs to enter positions in the size they  trade.  I was watching something last night with a hedge fund trying to fill their own orders rather than use a market maker or specialist and in the first day (they didn't say what stock it was), they moved price AGAINST their order by $5.00. Of course that's relative, but the way they mentioned it, they were clearly saying, they had no skill in filling a large order like that without moving the market against them. A good fill for an institution will be at progressively better prices for an average fill.

Point being, taking the market below this obvious range is an easy way to generate the volume needed to accumulate and to keep prices from going against your position while accumulating, THIS IS ONE OF THE MAIN CONCEPTS IN THE TWO ARTICLES I PUT UP ON THE MEMBER'S SITE, "UNDERSTANDING THE HEAD FAKE MOVE".

However as I said, today didn't feel "mature" to me.

 The 3 min chart for the SPY did what it should in transitioning from a weaker relative positive divegrence to a stronger leading positive divergence.

For me the main concern was I thought the signals could standout more and the reversal process is a little too tight, if it were to reverse up tomorrow on the open, we'd have a wide "V" or an event, if we pulled back and established a larger footprint, we'd have a "U" or "W" reversal which is a process and much more common, much better equipped to support a stronger upside move and gives 3C time to add to the positive divegrence as I drew in on the chart above (both price and 3C).

That's about the gist of today's trade, tempting, but I'd rather miss a short duration trade than enter a position that I don't feel very positive about, especially when the difference between the two is roughly 4 hours.