Broader Market Picture

Last Friday in the post, REVERSAL PROCESS WELL UNDERWAY I posted the reversal process as I'm use to seeing changes in character, but it was a little more difficult at the time as it was earlier in the process.

This is the chart of the QQQ's reversal process from the post linked above almost a week ago.

 The orange indicator is Rate of Change applied to price via a 10-day moving average, you can see the turn to the downside. ROC is very helpful in identifying changes in character before they've become very apparent.

We also knew from early August that HYG was one of the main market manipulation levers that was to support this move, as they say, "Credit leads, stocks follow".

HYG in red vs the SPY in green had a 4-day head start of leading the market while it was still in a lateral / slightly declining base. Then HYG went lateral itself in its own reversal process, again leading the market and in the reversal/lateral/process for 8 days now.

I doubt at this point it's difficult to see what the ROC chart from last Friday was already telling us...

The 30 min SPY chart of the move off the early August base, the only break in the trendline was that Friday in which the Ukraine first claimed to have destroyed most of a Russian military convoy inside Ukraine with two independent journalists tweeting that they witnessed the Russian convoy cross in to Ukraine, obviously upsetting the market until the weekend past with no evidence (photos, videos, etc.) of said Ukrainian destruction of the convoy.

At this point the lateral reversal process in the SPY should be clear to the naked eye, but it was underway last week. As I mentioned several times recently, the upside topping process is usually about twice as long as the bottom/base reversal process (as the base had just come out of a 4-8% downside move depending on the average.

So as I have been saying the last couple of nights in the daily wrap, from many perspectives, HYG/HY Credit, 3C, and most importantly market breadth and the lack of any follow through of SPX 2000 with 4 consecutive days of new record low volume on the upswing; this move looks to be in its dying days with only a head fake move missing (an upside move that creates retail excitement) buying pressure and sets a bull trap which creates the downside momentum early in the reversal as longs are trapped at a loss and begins selling.

Again Ukraine/Russia figure in to the market here as we looked set for the start of the head fake move late yesterday and even overnight futures hitting the lows of the week on escalation in Ukraine, didn't send the averages lower, they still saw early morning strength as we expected from yesterday afternoon despite the overnight risk off tone.

HYG as of now doesn't look like it's going to give the helping hand, at least not in front of a 3-day weekend with escalation tensions rising so for now it seems the market is on its own as to whether it can pull this move off, however from some of my watchlist assets I've reviewed, it looks like they'll give it a shot (SCTY was one just added as it looks great for a short set up in to a head fake move).

Here's where we seem to be at present as far as the long pivot/buy for this move and the second pivot, the larger trade which is the short entry on strength as posted on 8/11with targets for the market averages, this is the IWM chart from 8/11 which is nearly 3 trading weeks ago (14 trading days)...

This rough estimation of the upside IWM move and reversal process was only off by half a percent at least thus far in to the reversal process.

So far there's no help from any of the carry trades, HYG looked as if it would try, but so far that's a scratch.

For the last 2 hours, the NYSE TICK has been maintaining a tight range of +/- 500 which is virtually no movement on the bullish/bearish side, just limbo.

I would think a test of SPY 1991 would need to be shown as holding, whether SPX 2000 holds on the close or not, it would have to regain it by Friday or early next week to keep a head fake move possibility alive.

While these intraday charts can move quickly and often do by the time they are posted, there seems to be a trend developing here.

 The SPY intraday is collapsing, I doubt that SPX 2000 will be recaptured today.

SPY 3 min which was the strongest of the intraday charts is also falling apart, not massively, but enough to send it a bit lower.

And SPY 5 min isn't showing any heavy distribution today as there's really not much to sell in to without risking collapsing the market, the main point though is that it's holding ground, not leaking lower and certainly not going positive.

The Q's are also giving up 3C ground intraday

As is the DIA which had a nice positive divegrence.

My best guess is that the attempt for a head fake move to the upside as we have expected is still on barring any sudden escalation beyond what we've seen today in Ukraine.

I think the market's best chance to pull off such a head fake from where it is is to let prices drop, maybe even test SPX 1991 which is being watched and let the "BUY THE DIP" crew come in and buy the dip, but first they need to give them a dip as they are not likely to buy a red, rolling over market (intraday).

With SPX 2000 recaptured, I think that's the best chance of running the head fake move which is not just out of tradition, there are real strategic and tactical reasons they almost need to run a head fake move which you can read more about on the member's site, "Understanding the Head Fake Move" parts 1  & 2 always linked on the member's site.

From a bigger picture perspective, I am glad to have added back the partial FAZ position, I'm glad to have my core shorts in place. On a tactical note, I'd like to add to those on an upside pop which is one of the best entries we'll get for a reversal to the downside which usually comes right after that upside pop or head fake move.