IMPORTANT: AAPL Set-up & Market Movement

Beyond last week's (Friday's) very clear signals that we would see downside in to this week and early on, as we have, the rest of this week has been absolute torture to get anything out of the charts and I know better than to try to twist some meaning out of the charts, they need to have strong signals just like last Friday and with those strong signals we get strong probabilities as we have seen this week.

However, once again as you can probably tell by the frequency of my posts, I've been spending a lot of time looking at a lot of different assets and trying different perspectives in case I was missing something. I don't think I'm missing anything, I just think the market is in one of those dull areas that we get from time to time. I have heard from a lot of members who are short term traders, quick option trades in and out and they have been pulling back and sitting on the sidelines as this bit of a range has been developing.

I first saw what I thought might be a triangle-like range in the broader market, but didn't mention it because I didn't have any decent objective evidence to support that conclusion at the time, but in looking at AAPL, it brought me right back to what I saw in the market over a week ago.

Here's an example...

 Perhaps one of the reasons I didn't mention it is because it's not a well formed triangle as you can see above, but just watching the gist of price action, you can see there's a triangle like structure and I suspect as the range has narrowed in to the apex at the right, this is one of the reasons short term traders have been having more difficulty with positions, the chop is just picking up in frequency.

However the daily range and Index Futures have been showing increasing volatility.

What is a triangle when it comes to volatility? It's like a Bollinger Band squeeze in which the ATR might be getting more volatile on an individual day, but the range in the market is squeezing like a Bollinger band pinch, which is THE PROMISE OF A HIGHLY DIRECTIONAL INCREASE IN VOLATILITY. 

THIS MAY BE EXACTLY THE REASON MY ANALYSIS AS OF YESTERDAY AND LAST NIGHT'S DAILY WRAP FORSAW A WEAK MOVE IN THE MARKET NEAR TERM UNTIL LEADING INDICATORS PICKED UP WITH STRONGER SIGNALS AS THE RANGE TIGHTENS MORE.

This is the SPY's triangle, slightly different in that it's a right angle triangle rather than a symmetrical, but neither triangle looks like a true consolidation/continuation pattern, just look at volume which should show a clear trend of decreasing as the triangle matures.

In other words, it looks like a set up for some kind of head fake or Crazy Ivan move, the problem at present is there aren't strong short term charts indicating short term direction. However we can guess based on how Technical traders will react and how Wall St. uses that against them to get an idea of what might happen short term and what would be the resolution from there.

Remember as of yesterday we had charts in the 7-15 min range in Index Futures that were more on the positive side than the negative? This was part of our analysis for the near term trend of the market and why we haven't made any strong moves to short in to price strength as the charts just haven't been supportive of that yet, as if the market isn't done in this area.

Perhaps those intermediate timeframe charts are the answer to the Triangle question and what we'd normally assume to be a head fake move to the upside,  which would also be the set up needed to enter shorts that are setting up like GPRO and Biotechs both of which were featured last night in the Daily Wrap.

The intermediate timeframes for Index futures...

 The intermediate 7 min ES/SPX futures chart shows the negative divergence from last week that sent prices lower this week as per our "Week Ahead" forecast from last Friday.

Note the slightly positive divegrence in white to the right. This is not a SCREAMING strong divergence, but for what I have in mind, it may not have to be.

This is the NASDAQ 100 futures on the same 7 min chart showing the same exact thing, I just didn't draw on this chart so you could have a clearer view of the divergences.

While the 10 min charts are biased to the positive as well, this 15 min chart of NASDAQ 100 futures (
a stronger timeframe and signal than the 7 min charts) shows exactly what happened from last week's negative divegrence coming in to this Monday and sending prices lower this week. 

To the far right we have the same positive divergence seen on the 7 min and 10 min charts of Index futures.

The 3C charts have been very clear as to what's going to happen with significant moves like this week's... I have no reason to doubt the positive on this 15 min chart.

This would suggest some kind of head fake move to the upside of the apex (point) of the triangle which is what we'd normally suspect anyway just on a conceptual basis and our observations of the market. The one thing this would do that we have been looking for recently and have seen on an intraday basis, is increase volatility which is needed for a strong move to the downside.

But how do we know an upside move would be a head fake (A failed or false breakout)?

We simply look at the charts with the strongest signals and highest probabilities... The 30 and 60 min charts are close to inline which means they don't have this positive divegrence that the 7-15 min charts have, this also means that if the divegrence (positive) from the 7-15 min charts is not on the 30 and 60 min charts, it's not that strong, thus the upside move can either be expected to not be that strong or more probable to fail just based on the 30-60 min charts, but these are not the charts with the strongest signals or highest probabilities, these are:

 ES 4 hour with a very strong and obvious 3C leading negative divegrence right in the area of the triangle price pattern.

And the strongest underlying 3C trend, the ES/SPX futures daily chart with an incredibly strong leading negative divergences telling us smart money has not only been selling, but selling at a pace we haven't seen on a long time if ever, despite the negative divergences we have seen up until this point.

To recap:  We have a triangle like price pattern and with it the promise of increasing volatility (low day to day volatility has made short term traders' lives very difficult to the point many are just stepping aside for the moment. With that triangle we have the 1 thing we were looking for to start increasing as a prerequisite to a strong move down, that is higher volatility and we have seen that on daily charts as I pointed out yesterday, just on an intraday basis rather than a day to day trend basis. The things we have been looking for and the things the market needs to make a strong break of the 100-day moving averages that have been acting as support are set up right now with these triangle like prices and the intermediate (slightly strong) charts suggesting a head fake breakout (something else we'd need to have a strong reversal to the downside as it creates a bull trap).

We also already have the highest probability resolution of any move to the upside, above the apex of the triangles in the averages and that's the 4hour/daily charts.

We also have the same on the charts of the averages...

The QQQ 4 hour which is a very strong chart, in fact so strong we usually never had to use these, 60 min charts were strong enough to forecast moves, but as you see there's confirmation of the price trend as 3C moves with price until we get to the October lows which were a break of an important trendline.

In to the new year (red arrow), the 3C leading negative divegrence just got worse and worse with heavier distribution by smart money. This is exactly the same thing we see on the futures charts above,  and this is the highest probability resolution to any short term move, meaning any upside move that perhaps breaks above the triangle's apex is already showing extremely high probabilities of failing making it a head fake move.

However, it wasn't the Index futures or the averages that helped me put this together, but looking at potential short set ups like the ones posted last night in the Daily Wrap from last night, Leading Indicators: A Tale of Two Tells

I started looking at more assets that are on my short list in to some price strength like Biotechs, transports, financials, etc and I came to AAPL looking for trade set ups that may be ready now and started noticing that same trend seen in the market, the triangle that I suspected may form, but hadn't mentioned it until today.

Looking at AAPL as a market bellwether and market proxy...

The Daily AAPL chart has the same triangle configuration and its daily trend is squeezing in to the apex of a triangle, the promise of increased volatility and in AAPL's case (as well as the broad market and numerous assets that move with it), the promise of a short set up in to strength, the one thing we were looking for at some point soon from last night's analysis, Leading Indicators: A Tale of Two Tells.

The NFP tomorrow could be the catalyst for such a move, especially if it comes in on the light side and even more so, if the conspiracy minded crowd is right that the F_E_D could use that as an excuse to kill $US Dollar Strength by mentioning something DOVISH like, "We probably won't hike rates this year" or something mentioned about QE4. 

THIS DOES NOT MEAN THIS IS WHAT THEY ARE REALLY THINKING, IT'S AN EASY WAY TO TALK THE DOLLAR DOWN WITHOUT HAVING TO CHANGE THE COURSE OF THEIR TIGHTENING PLANS.  After all, it's not like any such comment would be coming from the F_O_M_C itself, but rather from a F_E_D member like Bullard who has their right to their opinion, kit has no reflection on how the F_O_M_C actually votes, especially if the F_O_M_C needs to kill the $US Dollar before they feel comfortable hiking rates as a rate hike would send it higher and the US is already at a trade disadvantage with the weak Euro and Yen from their ongoing QE programs, this kills US exports and thus GDP, THE F_E_D NEEDS TO KILL THE $US DOLLAR'S STRENGTH. HOW BETTER TO DO THAT WITHOUT ACTUALLY LOOSENING MONETARY POLICY WHICH IS EXACTLY WHAT THEY DON'T WANT TO DO?

IT'S SIMPLE, DO THE SAME THING THE F_E_D HAS DONE MANY TIMES USING BULLARD OR WHAT THE ECB'S DRAGHI DOES ALL OF THE TIME TO THE POINT THE MARKET DOESN'T EVEN TRUST WHAT HE SAYS ANYMORE, JUST TALK THE DOLLAR DOWN WITH SOME QE4 OR LOOSE MONETARY POLICY COMMENTS.

It's not like we haven't been expecting this any way, we know the F_E_D wants to hike rates which would send the $USD even higher, we know that they are scared to death of the strong dollar. We know that they can't engage in actual QE when they are trying to do the opposite by tightening monetary policy including ending QE and prepping the market for interest rate hikes.

However, you saw the market's reaction to yesterday's TSLA April Fool's day joke, the TESLA model "W" to be released...

The market ran TSLA up by almost 1% in a few seconds on Huge volume, but no one actually knew what TSLA's model "W" which stood for "Watch" actually was. If they had done some quick homework they would have found out the April Fool's day prank was the following...

Meet the Tesla Model "W" Smart Watch!!!!!

That just goes to show how dumb the market can be, how much more would they react to a F_E_D member planting a RUMOR? We've already seen Bullard, the F_E_D's go to guy do this about 4 times in the last year. I predict if the F_E_D does come out with some half-baked story about QE4 or something similar to kill the $USD's strength, Bullard will deliver the message.

What would be the market's near term knee jerk reaction to such news?

Well we'd have the breakout or head fake move above our triangle's apex...

If tomorrow's Non-Farm Payrolls come in significantly below consensus and in the mid 100 thousand (150k) level, I think the chance of the F_E_D putting a rumor like QE4 or something else extremely dovish and extremely ridiculous, could be pretty high, it also gives us the move that we need to sell short in to strength and the volatility we need for the move down to break the 100-day moving averages and challenge the October lows.

Once again, LET ME REITERATE, I WOULD NOT TRY TO TRADE THIS ON THE LONG SIDE, THE RISK IS SIMPLY TOO HIGH VS THE REWARD.

Now back to the AAPL set up and AAPL as a market proxy...

We have a triangle in AAPL, I wouldn't short it here just because I know that triangle is likely to break out either to the upside or downside, from everything I can see, my prediction would be to the upside on a failed move that leaves longs stuck at higher prices as price turns down and breaks below the triangle.

Now, lets see if we have the signals in AAPL to make this theory a probability...

Looking at the trend for the short term 3 min chart, the timeframe that steers short term price movement, note the negative and positive divergences, at first you may not notice anything, but if I take away 3C and just show you the exact same chart with price only you'll realize something...

And that realization is...That triangle in AAPL is no coincidence or random price pattern, it was created, just look at the divergences above sending it lower and higher to create this triangle.

And as AAPL is a market bellwether and has the same triangle as the market, you can bet your bottom dollar that the triangle in the market averages is not random either.

Why would someone want to create a triangle in AAPL? Consider this, we have 3 trends, Up, Down and Sideways. Yesterday the market moved sideways almost all day and right along VWAP, why do you think that is?

Hint, what's the trend classification of this triangle in AAPL?

If you step back and look at the forest rather than the trees, the trend classification is sideways, the 3rd price trend. To prove this, from the start of the triangle until this VERY second, from February 11th to this very moment ...

AAPL has moved EXACTLY 0.03%, less than 3/10ths of a percent, for all intents and purposes over the last nearly the last SEVEN TRADING WEEKS, AAPL HAS NOT MOVED AT ALL!

WHY? Remember why VWAP is used. Lets look at the longer term, true underlying trend of what has been happening in AAPL during this lateral trend...

That's a 4 hour (very strong) leading negative divegrence in AAPL during the time frame of the triangle which also happens to be Q1 2015. There's so much distribution in AAPL that it's a wonder they were able to hold it in place without it crashing, but as we have seen time and time again, the heaviest accumulation or distribution often occurs in to a flat price trend where prices are stable and market makers and now specialists can fill large institutional orders at a particular price or an average price, which judging by the chart of AAPL's movement over the last 7 weeks, is probably around $125.

Why would hedge fund managers, private equity and otherwise institutional managers of money want to sell AAPL? For one they'd want to sell if they thought the market was about to make a major move to the downside, but another reason which saw massive selling in AAPL in 2012 and 2013 was because the hedge fund herd who all buy and sell the same stuff some they don't underperform other hedge funds and lose their jobs (even if that means underperforming the market), follow the leader and the 2012-2013 AAPL sell-off of -45% in 8 months was because Third Point's Dan Loeb, one of the few managers who is his own man and doesn't follow the hedge fund herd, but leads them, no longer had AAPL as a top 5 holding causing the hedge fund herd to all sell at once which caused AAPL to crash by 45% in 8 short months.

WHO DO WE KNOW WHO RECENTLY SOLD A LOT OF STOCK INCLUDING AAPL? HERE'S A HINT... If you guessed the best paid fund manager the last 3 years running, then you probably remember it was Appaloosa Fund's David Tepper who took the following actions last quarter (Q4 2014)...

-Tepper reduced his overall equity positions by more than 40% in a single quarter. He sold ALL of his 1.16 million shares of AAPL, in addition to selling all of 11 other stocks including 7.3 million shares of FB, 8.3 million shares of CBS, 725,000 shares of BABA and 5 million shares of HAL (along with about 5 or 6 others that he sold every share of his position).

If the 4 hour chart's divegrence in AAPL doesn't show the 1.16 million shares of AAPL he sold, although other charts do, can you imagine how many have been sold this quarter to produce a divergence like that on a 4 hour chart?

In any case, the point is, a head fake move to the upside in say AAPL, and the broad market based on the triangle which is something technical traders are watching and WILL buy a breakout from the triangle, would give smart money a chance to sell or short (like Soros in Q4 who increased his sPY put position by 600% to the largest it has been since Lehman /2008).

Ironically, AAPL's 10 min chart has a positive divergence for an upside move just like the 7-15 min charts in the Index futures.

The yellow arrow covers the span of time in which AAPL shows a triangle in price just like the market averages. Only very recently in the past week or so has there been a positive divergence for an upside move, just like the Index futures, this would be at the same time a breakout is expected as the triangle comes to an apex (point).

If / when that breakout in AAPL (and the broad market) comes, which side of the trade would you want to be on? As a reminder, this is the strongest signal of the underlying flow of funds during the last quarter (Q1 2015) which just ended Tuesday...

4 hour AAPL chart/leading negative divergence/distribution through the triangle, exactly the kind of price pattern market makers and specialists would want (stable prices) to sell large institutional orders in to.

I SEE NO REASON THIS SHOULD NOT BE A TEMPLATE FOR THE BROAD MARKET AS WELL, BUT CONSIDERING THE WEAKER DIVEGRENCES, THE MARKET MAY NEED THE HELP OF A F_E_D RUMOR ALONG THE LINES OF "MAYBE WE SHOULD DO QE 4", TO KILL THE STRONG $US DOLLAR...

Look at the strength of the $USD on this daily chart of $USDX. As far as I can tell by the first major dip the $USD has seen on this entire chart just over the last week or two and the negative divegrence, it seems to me that smart money is already betting that the $USD will come down THE F_E_D NEEDS IT TO TO HIKE INTEREST RATES!


bWhile this isn't a fantastically detailed version of events, watch for the NFP to miss tomorrow and whether it does or not, some F_E_D or F_O_M_C member (my money is on Bullard of the St. Louis F_E_D) to make some ridiculous statement about the F_E_D needing to take strong dovish action like mentioning QE4 which will send the market crazy if they are dumb enough to fall for yesterday's TSLA Model ""W" April Fool's joke.

Smart money knows the F_E_D is likely to hike in June, otherwise they wouldn't be distributing as strongly as they are and the market wouldn't keep oscillating between Green on the Year to Date and Red every other week.

This is where we'll look to make our stand as the trade will have certainly have come to us. Again, I WOULD NOT trade this long, there's too much risk and it's a pretty crazy forecast without great confirmation, but the lack of confirmation is part of what makes it so probable as the market doesn't seem ready yet. JUST REMEMBER ALL OF THE IMPORTANT CHARTS ARE POINTING TO A LARGE DOWNSIDE MOVE, ONE I THINK WILL EVENTUALLY BE HISTORIC LIKE THE 1929 CRASH.

Sorry this took so long to get out, there's a lot of work in this.