http://www.trade-guild.net/2010/05/today-smart-money-took-drastic-action.html
Something rather amazing happened today and if you look at the charts and understand divergence analysis or my 3C indicator, you will see with your own eyes that smart money has been pulling this market down the last few days, even though it originally appeared that they had the intent of a bump up in price along the order that we anticipated.
SOMETHING CHANGED and probably over the weekend. Smart money pushed the market lower and between 11:30 and 2:30 today-which includes a significant portion of the lows, they accumulated en massse . I do not think I have ever seen such an impressive shift in the longer 3C charts (15-60 minutes) so quickly and so obviously, it was very distinct and confirmed on all 3 major averages and all 3 independently written 3C indicators. You will be surprised to see that the accumulation occurred during light volume, except for a spike or two, but that is exactly why accumulation is so difficult to see, they don't show their hand and say "We Are Buying!" as that would drive up price, instead accumulation almost always happens on low volatility and low volume as we saw during the period we are interested in.
This chart is just for you, I did not post it at Trade Guild, but you can see at the lows of the day, 3C 1-min went into a huge upside divergence-positive accumulation-Amazing
So what does this mean? It means that as of now, it seems that either they were covering a lot of shorts and or buying. Of course the two actions are one in the same, either way the intention would be to be ready for a move higher. This move could be as short lived and reverse as quickly as it did today in two hours, or we could see the pendulum swing hard in the other direction.
This is a trick time, in technical analysis all we can see is what they are doing, we don't know why and won't until it doesn't matter anymore so there's no point in trying to reason the actions taken this week and especially today. I was shocked to see what I saw as I went from chart to chart and confirmed with all 3 versions of 3C.
So there are many possibilities, I tend to be skeptical and a bit paranoid which is good for a trader so I'm concerned that they will make an effort to move this market below the two closest support levels at $109.41 and $105 on the SPY (add a zero to see the levels for the S&P-500).
So we have the trades that are most useful right now-those would be the longs, ultra and 3x leveraged long ETFs I've listed the past few days. Those are the trading vehicles I'd use for the time being. The question is when to buy. A break below either support level would be a gift and you'd be a buyer as soon as prices rose back above those levels. Or they could have all the inventory they need now and take prices up now with an obvious Doji reversal signal it is what most traders are expecting anyway, which helps them mark-up prices.
You'll have to choose your plan. You could, if you haven't already, accumulate portions of your intended position so if there is a break below support you don't have huge exposure and you have dry powder to load up the truck. You could wait for a pullback or for a move up or you could sit this one out. I have a feeling you'll need to be nimble toward the top of the move.
In any case, choose your stops before you enter the trade, do not make them so tight that you are easily stopped out and make sure that you position size accordingly so that you don't risk more then 1-3% on any single trade or for more conservative traders, on the portfolio.
The bottom line is at some point, probably very soon (day/days) we will see a move up unless something drastic happens to shift sentiment again, which I can't see at this point with the level of planned accumulation.
As usual, if you have questions, please feel free to email me.
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