Important Update

As I've recently been saying, I have a feeling we are going to see a sharp reversal that happens quickly with a strong upside move, this isn't a change in the underlying bearish trend as I believe 99% that as soon as it's done, we make a severe new lower low, however there are a lot of indications piling up now that make this scenario look more and more probable.

The issue is the turn could be so quick, it's hard to get in to which is part of the reason I went with partial (75%) UPRO and (50%) FAS positions yesterday, still expecting some lower prices as this base is worked out.

While I don't like relying or even including information that is not my own, the NANEX discovery yesterday mentioned earlier today of the high number of quote cancellations yesterday and the correlation with sharp "V" upside reversals (as what some are calling a secret F_E_D buy signal) fits well with this scenario. I do believe we will have good confirmation as far as timing, but I also think it will be very fast and you'll see what I mean after we look at some of these charts and get to the 3C charts below.

First...

Sentiment is extreme which makes for sharp, strong reversals, this is part of the reason bear market counter trend rallies are some of the strongest you'll ever see. Above on the SPX chart it has not only walked the lower Bollinger Band which is very bearish, but broken below it as well as all reasonable support and the 200-day moving averages like the rest of the market, now with all averages negative on the year, this is a selling and short selling massive sentiment environment, ripe for sharp , fast moves. The Fear and Greed Index is at zero, the most bearish it can be, Wall Street often flips the script when there are too many people on the same side of the trade, you can't make money like that in a zero sum game.

My custom DeMark inspired "Buy/Sell" indicator is giving a buy signal as well to the far right.

 One of the more interesting set of indicators is the SPX/RUT Ratio which called the July decline, the August rally, the August top, the head fake top and is now calling a bottom area.

The VIX Term Structure is inverted, the last time that happened was at the base of the August rally as you can see in white, although this time the structure is more inverted for a longer period, suggesting a stronger move.

 This is a closer look at the most recent divergence in the SPX/RUT Ratio vs the SPX.

And even intraday it continues to diverge.

Leading Indicators are not performing as usual, this may be a shift in market sentiment and we may need to adjust the way we look at them as we are clearly in a different market than just a month ago, however HYG continues to get near term 3C support and has been leading the SPX, even though it's not flying.

HYG blue vs SPX green, even today it's leading strongly to the upside.

As of this capture, spot VIX (blue) is overreacting vs the SPX and the normal correlation which is partly why the VIX term structure is inverted.

Commodities (brown) have led the SPX on this larger 5 min chart of the late August cycle and a weaker $USD should help even more, so far today 3C shows it as likely going lower.

Looking at the IWM and its leveraged ETFs as an example (as suspected yesterday, it had to come down )... The danger here is the short term divergences have accrued on the long term charts, in essence the rocket booster is there and fueled, it just needs the spark which is the intraday charts which have and can flip to strong leading signals in hours...

 IWM 5 min positive and leading, this can really take off leading positive from here which would flip the script pretty quickly.

However, the rocket booster is the longer charts.

Like this leading positive 15 min IWM with the base starting on the 2nd, so it's already a large base and a large divergence and as we have seen so many times before, price almost always significantly surpasses the area in which the positive divegrence first began, lets call that the 2nd and around IWM $109 , this tends to be the minimum upside target and is often far surpassed.

The IWM 60 min is also leading positive and at the same area, around the 2nd.

The 3x long URTY is confirming as well...

A 15 min leading positive divergence

A 30 min leading positive divegrence and...

A 60 min leading positive divegrence starting at the 2nd of the month.

This is a big base with very strong timeframes in leading positive positions.

Even the 3x short IWM inverse leveraged ETF, SRTY's 60 min chart confirms with a leading negative divegrence and again, around the 2nd of the month.

I'm not worried about the size of the move, I'm worried about how fast it can flip and that's why I'm spending most of my day flipping back and forth between about 20 assets looking for those signals as I suspect this is a move we don't want to miss.

Also I want to post this to anchor expectations as this gives us another chance to sell short in to strength, but it will be emotionally difficult which is why I bring it up now before there's any upside or emotions that come in the way of your emotions and making the trade, the market will make a lower low, but look at the 1929 breakdown and the first counter trend rally of about 50% shortly after, they are strong, impressive and their job is to be convincing, you just have to know it's not going to last.