If one thing is certain, it's that the market is like a box of chocolates in the words of Forrest Gump. Luckily 3C is like that little map of what's inside the box you find on the lid. Think about yesterday, seeing accumulation, the news yesterday alone, then the news today, both for the market and oil, yet 3C kept saying accumulation.
One could argue the market was oversold and die for a bounce, but what argument can be made for the advance we saw in oil today? A horrible Inventory report that was way off base and suggested no reason for a rally, but in fact a sell-off, the only other thing that could really move oil was the dollar if it fell and it actually closed up a bit, how can this rally that 3C has been calling possibly occur?
Like I tell you and show you whenever I can, the markets are heavily manipulated and it is a rare occurrence that anything happens by accident. These rallies, in the face of overwhelmingly negative sentiment could only take place by institutional manipulation. Tomorrow we have more reports, the rest of the week and I just can't see any of them being good for the market, so why this bounce?
I learned a long time ago to stop arguing with what I see on the charts, it took me even longer to actually stop doing it. I think the last time I argued with the chart was when 3C was showing a reversal in the dollar as early as October of 2009. I argued that there was no reason whatsoever for the dollar to gain, but it did, it reversed and rallied to my exact analytical target. I first saw this in October, I didn't call for the reversal, but I saw the makings of accumulation-the dollar reversed in December. The point I'm making is that it wasn't by accident, it was by design. Months into the rally reasons started coming out. Since then, I've tried not to argue with a chart, even at times like yesterday where it seemed impossible and like this morning when it seemed even more impossible, but it happened.
Now we face the management side of this. I don't see this as a one day event but in my mind there are two distinctly different kinds of bounces. One is a pure oversold bounce and short sellers are taking profits, some long swing traders jump in and we have a little bounce and resume our trend. The second is a malicious bounce, it's meant to squeeze shorts, lead enthusiastic bulls back into the market and then slam the door in their faces and use their losses to propel the market lower in a fast and frenzied sell-off. I don't know what the intention is, I figure it's probably the second, but we won't know until we see the character, the length and the intensity of the bounce. I want you to see what some of these bounces look like so you are prepared.
This is USO and you can see a down trend has started. The first bounce in red nearly makes new highs, this is what I would consider an orchestrated malicious bounce. It squeezes out the shorts as they start to become unsure, they see prices nearing new highs, longs thinking the same are drawn in and when it's done, we get a pretty mean drop over the next 3-4 days. The second bounce in the yellow box is just a correction, it is partially through a small price advance and partially through time as the trend is a little lateral. It threatens no new highs, no resistance levels, it doesn't have any real energy behind it. As of today, we saw a pretty fierce move which created a few bullish engulfing candles.
Here's USO today, the highest volume we've seen in months, new lows that completely devoured yesterday's entire range and on bad news. This has to have oil shorts worried.
This is the QQQQ-the NASDAQ and the Russell 2000 have been hardest hit in this decline, shorts are likely thick in both averages or the derivative ETF's . This is a picture perfect Bullish Engulfing Pattern in the red box, it completely swallows the entire range of the previous day, it opens at new lows and closes near the highs and even more impressive, it does it on rising volume. There were very few days since the March 2009 rally that we even saw a solid up day on rising volume, to see it here and now, with this market's sentiment, has to be striking fear in the hearts of shorts in either average.
In any case, they come in all shapes and flavors. We could see a down or neutral day tomorrow and then a roaring 2.5% gain the next day. It's difficult to say, but the more important aspect of all of this is what it does to our big picture which if you don't already know, is solidly bearish. The important, market trend divergences have this market in tons of trouble. As I mentioned last night, my short sale list is around 200 candidates strong, plus leverages ETFs. A good bounce will put us in fantastic position for high probability, and extremely low risk trades, the same trades I believe Institutional money is looking to set up.
Understand that there's a bubble being created in treasuries, it's just the Fed's law of.... (I leave out unintended because I'm not so sure) consequences. Junk bonds are soaring at auction as investors flock to anything with a higher yield-this is particular is extremely dangerous because it sets up a whole new round of a new kind of default and one that will have a severe impact directly on the companies that issued them. You think unemployment is high now.... These companies are creating their own version of the home-owner, extreme leveraged equity line mess that started all of this. IT won't be external influences of the economy that hit these companies, it will be their very own actions and the investors flocking to them, I have a feeling probably include pension funds that count on an 8% rate of return and are severely underfunded as is, from public companies, to municipalities to the States.
I think smart money sees this and where is the action going to be? The downside in the market. That is why I said, I think being able to trade short and effectively is probably one of the few recession proof jobs left and why we have an unprecedented opportunity before us.
One last thing I want to address. If you have followed Trade Guild for awhile, you know that I was able to call the top of a 5+ year mega-uptrend in oil within 1 week of the crash. That same week, Cramer was on Mad Money telling the public, ....(I can barely contain myself still) that the next time we get a bad Oil inventories report, to go long(and this is the part I can barely type without laughing) and he told millions of his viewers that they were going to be doing this as a "Contrarian Trade"! To be contrarian is to go against the main stream view and here he is telling the mainstream that they will be contrarians! Millions of Americans all doing the same thing, yet they are contrarians! (OK, I'm smiling).
But it gets better! Within about a week of that call from Cramer, oil collapsed and never recovered and guess who got to hold the bag? So yesterday when I heard that Cramer doing his "Stop Trading " segment and was telling millions of Americans how bad the market was, I couldn't resist and had to tell you that those words alone could be reason enough to believe we'd see a bounce today. How many of his viewers put in limit sell orders today before heading off to work? And you saw as it happened, the accumulation at today's lows.
Think about these things. Who is really on your side?
OK, enough for tonight, I just want you to take more away from your experience here at Wolf on Wall Street then trade ideas. I want you to understand how the market really works. I want to see the little guys win.
Off to my scans, but I think today was proof enough for you to get out there and put these trades in a system that allows alerts.
One last thing-sorry, I think I talked to every member today. I'm here to help you in any way I can so emails are fine, but if the market is moving fast and your email is really important or time sensitive, please put "URGENT" in the subject line, otherwise I'll do my best with my two fingers to answer your emails ASAP.
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