TRADES

Tonight I'm featuring MSPD, I've liked this short trade for a long time, but it threw a lot of people for a loop.

Above, MSPD was progressing well into a nice Head and Shoulders Top, it even broke down in early August sucking shorts into the trade. Then it fooled everyone by forming a bear flag which is a bearish continuation pattern, meaning it is expected to consolidate upwards and then breakdown hard again. Because the bear flag continued up through the neckline resistance that had been broken earlier in August, many shorts would have stayed in the trade, even though that resistance point should have not been crossed, but the bear flag kept them in the trade.

A closer look at the bear flag. Typically most consolidation patterns (this one is bearish) have 5 points of contact before they break in the anticipated direction. Each of the blue arrows represents a point of contact within the flag. The Blue box is the area in which the flag was expected to break down. This trade was heavily manipulated and it followed the market up and broke out to the upside, burning many shorts (white box). This gave market makers and smart money excellent positioning on an otherwise nearly flawless H&S top. As the flag progressed, weakness could be seen as the breakout turned out to be a false upside breakout and price shortly re-entered the bear flag. The 3 days up after that (small bodied candles) was very reminiscent of a bearish candlestick pattern called a "Falling 3 Methods". The breakdown below the bear flag on heavy volume is the confirmation of the false breakout and manipulated pattern. It now looks like a decent short set-up.

Above is a 15-min 3C chart inside the bear flag showing the false breakout in the white box. Note the negative divergence in 3C confirming there was short selling  into the false breakout, not buying. The pink arrow now shows a leading negative divergence which is very bearish.

First we look at the stops. The red horizontal line would be my first choice. According to our risk management though, you'd have to take on fewer shares as the risk is greater. The second choice would be the white line. This is not a bad alternative either, just with the volatility in the markets I'd hate to lose a good trade due to volatility.

The entry could be at Market price at Market open. You could also wait for a new intraday lo below today's low to enter on a limit trade but do not place a limit trade with your broker, only place the trade when you are ready to execute. You don't want to show the market maker your hand. Or you could enter part of the position, maybe half at market or limit and add either on any bounce or on a breakdown through the neckline as that is your ultimate confirmation. You have less risk, but less profit as well.

Any way you look at it, this trade now looks ready for a big slide down. I thought it would be an excellent example of how the market works and how emotions -FEAR and HOPE work in this trade. Hope kept shorts in the bull flag even as it broke through the neckline resistance. Fear of the large breakout kept people from getting excellent positioning as price showed it to be a false breakout.  For Longs Hope was brought into play on the breakout of the bear flag, Hope also probably kept many longs in the trade as it re-entered the bear flag, thinking this was a simple pullback. The volume today shows capitulation by longs.

NEW TRADES WILL BE UP MOMENTARILY 

Some of these trades are ready to go, some require some patience. I highly suggest you put in alerts via whatever system you use. TeleChart tabbed at the top of the site has an excellent alert system, for price, news and more.

Ugly Close

As I pointed out earlier, the market saviors such as AAPL are going through a change of character as are the markets. Today we saw 3 key reversal days in the major 3 averages and on some of the biggest volume of the entire rally. Today was definitively bearish.

The DIA daily

The SPY Daily

The QQQQ Daily

Here's the AAPL 3C 15 minute chart, you can clearly see the change of character.

3C was making higher highs and higher lows with price in confirmation of the trend until 9/23, since then it has had a rapid shift in it's position of confirmation to the most powerful leading negative divergence on an important timeframe. Remember, AAPL acted as the Patron Saint of the market for quite some time. 9/23 corresponds to the first dip down we had on a 3C confirmation day in which all of the timeframes lined up negatively, this is usually the reversal point and rather rare to see.

Again, I can not stress enough how $115 on the SPY was in easy reach and today's economic data was not so horrible, the market could not or did not want to hold it. This is very strange in itself as this makes nearly a dozen times that $115 was in reach and the market failed, usually on increasing downside volume.

Whatever it is we are seeing, it now seems to be lining up with our expectations. The volume in the market today, considering past days, was quite impressive and makes you wonder, "where did it come from?" My guess is this was an attention getter.

You never know what lurks behind a move, but for what is obvious and what is seen, it looks like we are seeing the start of a reversal.

Market is churning

Churning is what we see near a top. It had a great opportunity today to hold onto $115 (SPY) and gave it up.

As you can see, today we have thus far a bearish engulfing candle on high volume. The gain in the last 14 days is pathetic. This is really not looking like a rally continuation, but rather a top.

Semis look to be breaking down

Again, the DIA LEADS

With a negative divergence....

Interestingly, the Q's lead the upside moves and the DIA leads the downside moves.

SPY and DIA

Seem to be trading together. While the Q's remain in a positive leading divergence, the current stance on both the SPY and DIA is still in negative territory and ripe for a negative divergence.

Q's

It's strange that banking seems to be leading the charge today, yet the Q's are leading the averages. The Q's failed to confirm the negative divergence and are now in a positive leading divergence.

You Heard It Here For Years

Here means here and at Trade-Guild. I've noted and shown charts several times that seemed to indicate smart money knew what the Fed was up to before the Fed released policy statements. Even Bernanke's congressional testimony was a day in which we caught smart money slipping out the back door before  words to the effect of "uncertain economic outlook" slipped out of Bernake's lips.

Now we have THIS (click the link)


This partly explains why smart money's actions seems so at odds with the current sentiment and market conditions.

SPY !-min Confirming

The 3C 1min on the SPY is now confirming a soon to come reversal, the Q's are still not quite there.

MSPD Back on Track?

I've liked this trade for quite a while, we had several false breakouts, the bear flag downside continuation pattern and the break of the neckline in the H&S top, both seem to be resolving to the downside and I still love this trade, I never lost hope in it as a short.

Daily showing the H&S top, the bear flag and the break back into the bearflag. A move below the neckline will be strong confirmation.

The 15 min 3C chart

The negative divergence at the breakout is why I felt this was a false breakout.

DIA Telling Us Something?

The DIA is the first to put in a solid 1 min negative divergence. We'll see if the others follow and if this holds, but it looks pretty solid right now.

Changes of Character.

I switched to Chrome Browser and pics seem to be uploading. Here's AAPL and GLD

GLD

12 pm

is where the positive divergence completed, the price action since then has been based on that divergence. Right now it's in line with price, which is to be expected until the next divergence develops, it is not stronger then an average 1-min divergence at this point so it should be a leg or two and hopefully we'll see the negative form up. The fat $115 was given up so easily is strange.

Afternoon Update

It's looking more like a positive 1 min divergence, so we should see a move up, I'm not sure how significant with the 5 and 10 as negative as they are.

GLD

So far today GLD is taking a licking. It did something very commonly sen at the end of an uptrend and broke out for a day or so above the top of a fairly even channel. Then it plunged back into the ascending channel. It's now approaching the channel bottom around $126.50, the place I said several days ago I'd consider getting my toes wet in a short position if that is fulfilled on the close.

I'm still having trouble uploading the pictures except through 3rd parties and by the time I get those up, the data has changed, it takes long enough the easy way. I'll keep trying though and if anything really important comes up, I'll use a 3rd party like Flickr or Screencast. Any other ideas are appreciated. If you are on twitter and following me I can upload them to www.Chart.ly

The SPY/Market is still pretty much in gear to the downside except the one minute chart is not as enthusiastic about going down as fast as price, this may be the start of a 1 min positive divergence. The 5 and 10 are very enthusiastic.

Charts.

For now this is how I'll have to upload them.

spy 1

spy 5

spy 10

AM UPDATE

Sorry for the late update, I lost all my realtime feeds. I looked at 3C 1, 5, and 10 minute, they all look pretty negative. I'll try to get some charts up, I'm having trouble with that as well.

So far the price action down is inline with 3C.

NEW TRADES ARE UP

WE HAD 3 TRADES TRIGGER FROM LAST NIGHT'S LIST, ALL UP-ONE OVER 5+%

SET THOSE ALERTS!

This is part of the equation

http://www.zerohedge.com/article/21st-weekly-outflow-confirms-investors-refuse-be-suckered-market


21 WEEKS! Investors are apparently a little smarter then the Fed realized. This would tend to explain why the pros have seemingly put on the short position that 3C has been showing. At some point money down the drain is going to find a more useful spot. Like I said in my 2007 5-part video series on "Bubbles" -"It's like food poisoning and you'll do anything not to get throw-up because who likes that? But until that poison is out of your system, you aren't going to feel better". The same applies for this market. I've been expecting the second shoe to drop for awhile, I thought it would be worse then the first, now I'm sure it will be and we'll all probably have to figure out, and fast, how to trade a secular bear market. Investors know that we can't be at higher level then a year ago when the data was optimistic. We have sliding GDP headed straight for a double dip, you can't ignore that with a good housing report here and there. I've never seen market averages behave so erratically, penny stocks yes, averages, no.

If the government ever wants the institution of capital markets to return, to see insiders willing to invest in their own companies, there's going to have to be a purge. The pension funds screwed up, no hyping the market is going to give them the 8% a year they have figured in to make up for their underwater funds.

Investors are getting out while the getting is still good. So who's going to be holding that position when the damn breaks, it doesn't look like institutional money?

I do believe in karma, the law of the harvest, you get what you give, sometimes it just takes awhile before it's realized. What they have done with this market in any other circumstance would be outright criminal.

Maybe this time next year traders will be trading foreign exchanges where outright corruption isn't called "policy".

On that note, unless something changes, I'll stay largely short because it seems to me that the writing is on the wall and the fall could make 1929 look like a pullback. I don't think "Bubbles Bernanke" has enough fingers and toes to plug the leaks in the damn.

You Never Know Until You Do.. Or, You Don't

For sure, you never know at the time what the plan is. If the Fed is artificially acting as bidder of last resort, then that raises serious questions as to why Market Makers and Specialist who are obliged by law to take on that responsibility are being overshadowed? Is it that the middlemen know something and the spreads at which they are willing to take an offer are so ridiculously low that the Fed has stepped in?

Market makers have sure been busy busting apart price patterns with false breakouts to earn a living lately.

And why, if the Fed is indeed bent on being in the market, assume to keep it artificially high (think about prices a year ago and the sentiment then versus prices now and the sentiment-you have a huge conundrum as there was HOPE a year ago and now the economic news is nowhere near what it was back then-still we are higher) then why in the world will they not go to $115-this chart below shows at least 10 opportunities, and we've seen what they can do when they want, in which the SPY was within $.20 or $.03 of above $115 intraday. Why won't they close it above $115? Is it a case of the higher you go the further you fall? I can't imagine a reason why mutual funds wouldn't want to see that to stem the outflow of money, hedgies apparently or someone apparently is on the other side of the trade with all the distribution.

One thing is for sure, we're not getting the story and there's a reason for that, I'm sure it's not a story that would inspire confidence in our markets. What will happen though when there really are no bidders and the Fed finally steps back? We've already seen a couple examples this week of the circuit breakers fail.

This market is far more insane then I've seen in 12 years and I thought Q1 2009 was crazy.

Here's the chart

Maybe we'll find out, it won't be before what's going to happen, happens though.

Another Waterfall Sell-off

Just more evidence of two things, no human bids in the market, and algorithmic black boxes running the market. It's possible that they may have kicked in as the SPY failed for a fourth day to take out $115.  This volatility is gut-wrenching for day traders on 10:1 margin and for anyone else in the market and it is causing more and more people to flee the market. SKY NET is here and another example of the Fed's law of unintended consequences-at least that is what we'd hope.

Unstable

The last several days, the market has done essentially nothing, it's trend can only be classified as lateral, these are times when w see distribution historically, but what is really disturbing is the volatility in an INDEX. Below is the SPY, look how many parabolic moves there are, this is from a lack of participants. This index is trading like a penny stock. The huge gaps, parabolic moves, etc.

The next 3 charts are the SPY, DIA and QQQQ in the longer term 3C, note the similarity in the divergences, all of which are classified as leading at this point although they could be worse. This shows a pattern of underlying distribution. These are uncharted waters with the Fed's POMO, but I sure would be leery of being excessively long right now and truthfully I'd cut my risk back by 50% until we see a resolution.

I Wish I could type with more then 2 fingers

"hunt and peck" I call it.

Any way, while posting the GLD post, SPY, DIA and to a lesser extent the Q's all went negative. They are lower then their last negative divergence.

Fool's Gold

Watch out in GLD, this leading divergence on a 5 minute chart developed quite quickly.

Market Update

The DIA and SPY are in negative position, but not negative divergences yet, I'll show you.

As you can see, our last negative divergence where the red arrow starts shows 3C sloping down and prices are higher. Until 3C makes a move lower, I can't call it a negative divergence, I added an orange arrow to the end of 3C at the right to demonstrate what I'd be looking for.

As for AAPL, remember I said the first break was likely to be a false break and we'd likely see AAPL move back into the triangle.

As you can see, the first arrow gave us a hint at a relative positive divergence, the second is a leading positive divergence so AAPL is likely headed back above the breakdown point, this is done to take money from technical traders as they all pile their orders right at support or resistance, it makes the market maker money, it doesn't really mean much as far as the trend goes. We've seen the same support level broken, crossed and broken 3x in one day. Traders just don't learn, instead of listening to the chart, they read books and that causes them to all do the same thing and make them easy pickings for a market maker or specialist.

So You Understand- SMH Charts

This is a 1-min 3C chart for intraday moves. The first white arrow shows at the end of it, price making a new low just before 11 a.m. The blue 3C indicator is significant;y higher then it was around 10:15 indicating accumulation and from there prices reverse to the upside. The red arrow starts where distribution of the accumulated (probably market maker/specialist trading their own account) shares begins. You can see a new high in price around 12:15 or so, yet 3C is significantly lower then it's 11:30 position, this indicates distribution and marks a turning point. The current white arrow looks like early accumulation.

This is a more significant 5 min chart which can call changes in the day to day trend. You can see accumulation at the white arrow at the price lows. Then 3 subsequent negative divergences, price is higher in all 3 then the 11 a.m. area, but 3C is lower. The horizontal line at the bottom is the area where I'd like to see 3C cross below, this would be the start of a leading negative divergence as all the others were less powerful relative divergences (relative between 2 points on the chart). A leading divergence tends to pull price down with it. This is what I was talking about in the last post.

SMH back to a small positive divergence

with the Q's the way they look, the SPY now in limbo, I'd expect we'll see another move up in this very choppy market. There are 5 min divergences in many of these stocks that are borderline leading negative. If that happens then we should see a more definitive character to today's trading.

The Q's Hanging on stubbornly

The Q's have actually formed a small positive divergence. It's on the 1-min chart. The 5 min chart-which is more substantial and takes longer to turn is in a negative divergence, so maybe a move up and then the 5 min divergence kicks in....

SMH/SPY

The correlation seems to be back to a degree, the same consolidation in the SPY right now is exactly the same as SMH, so when/if  SMH reverses down, SPY should continue down

SMH

Looks like it is getting set to make a turn downward on 1 min charts.

Leading Divergences 2/3

The SPY and the DIA have gone into leading negative divergences, suggesting in the short term-over the next half hour or so, price should follow them down, the QQQQ is negative, but trading with price and not leading, not yet any way.

AAPL

There's a huge triangle forming in AAPL. Yesterday there were a few sales that really knocked AAPL down, I'm not sure where this is headed, but the initial breakout, may be correct in direction, but it probably won't be the only breakout as this pattern is so obvious. I'd keep an eye on this one as a barometer of the market.

Right on the nose

Literally one minute after I hit the "post" button. Lets see where this is going.

3/3

We now have 3 negative 1 minute divergences, so there should be a turn down soon, -how far down... we'll have to wait for the 5 min divergences to form.

Market Makers/Specialists Games

They just took the SPY down to 114.02, with a one -minute hammer reversal, thereby insinuating support is safe at 114.00 as the human mind gravitates toward the whole numbers anyway. Now watch the volume when the market breaks $114.

Morning Update IT'S ALIVE

APPL's 1 min chart yesterday looked like it flatlined, I guess that's what happens when your not the Patron Saint of the market on a POMO day, today it's actually got some movement. It's a little difficult figuring out who the market's following today and maybe it's not following any Patron Saint, this may be one of our better opportunities to see what exists in the absence of POMO, what real investor sentiment is like, or as close to it as we can get.

Thus far, it seems pretty appropriate we're in a trading range, "Dazed and Confused", but that won't last for long, the market makers have to make their nut too and with little volume they'll be looking for the stops, which right now are probably sitting above and below the trading range, so watch out for a CRAZY IVAN.

NEW TRADES ARE UP

Reality Is NEVER As It Seems in the Stock Market

Here's a reminder... August we were in a pretty nasty decline. Short interest was high and rising toward the end of the month, but for several days as the market declined, 3C started making higher lows indicating accumulation. Several days after that we started the September rally. So for those 7-10 days reality was that the market looked like this-

but the true reality was that all the hopes of the bears about cracking the $104 level had already been decided by smart money and those plans weren't in the cards. (See below-white arrow=accumulation)

So as I wrote last night, “It's Precisely When Your charts Don't Make Any Sense” I was trying to convey to you that all that you can imagine now and all that seems obvious now, is likely nothing at all like reality.

For instance, "if" I were to “speculate” about the Fed's shady POMO, I might look at some of the numbers I wrote about in last night's article, how much money has fled the markets, how many insiders are selling and what we already know- how few retail investors and traders remain in the market, and then look at this story today....

“Mega Hedge Fund DE Shaw Cuts 10% Of Staff Following $7 Billion In Redemptions”

And I might think, “The end of the quarter is coming this week, if the market were to show anymore weakness, there will likely be even more redemptions”. Redemptions mean selling of stock (more supply-lowe prices), they mean work force layoffs, they threaten Wall Street financial firms again much as it was in tatters in 2008. Being money is exiting the market from every direction, what is holding it up? The bullish inverse bottom? No, we saw that breakout 7 trading days ago, if bulls were excited we'd see follow through by now and while today was strong, it failed to set a new closing high.

We all went through economics 101, “supply and demand”. What happens when you have a market with little to no bids (demand)? The ask (supply) must be lowered until they find a level in which there are bids, but there will only be a limited number of bids there, so when those dry up, the ask must be lowered again until the next patch of buyers are willing to step in, but remember, sentiment is going south, there are few participants left meaning the pool of demand is greatly diminished.

Imagine this, the market left to its own devices with the outflows of capital and participants, more firms laying off workers and price discovery leads us down a path that falls well below $104, even below $101. Heck maybe in a matter of days we have price at $85 on the SPY. Does that seem like such a far fetched idea? So in the absence of bids, the Fed steps into the market to wear the shoes of the bidders that aren't there. We've already seen proof today that the September rally did nothing for consumer confidence, but what would a plunge of 15 or 20% do to consumer confidence? What about the pension funds that are already broke and have their models set to ridiculously high 8% a year returns? Could it be 1929 all over again? I submit to you that it could be worse. Why do you think the SEC is expanding its circuit breaker program and expanding other initiatives? I believe that it's possible, even likely that the Fed got a lot of calls from a lot of their former Wall Street co-workers letting them know that if something isn't done and fast, that were going to have a real situation on our hands.

So is it the Fed's objective to rally prices higher, to create (I mean that literally) a bull market? I don't think so. I think what we are seeing is damage control. I think the distribution we are seeing is partly outflows and partly smart money understanding what is about to happen. Could the end of the quarter be D-Day? Possible. I just know that what we are seeing does not have the hallmarks of accumulation in any fashion whatsoever. I believe the more you manipulate a market, the worse the eventual reckoning will be.

As for the markets..

As you can see above, AAPL has had near perfect correlation with the SPY, it's obviously been used recently because of it's hefty weighting on multiple indices.

The parabolic move with few pullbacks is also reminiscent of program trading.

Today though we took a turn down a different path. Semiconductors were used, why, I don't know but look at today's correlation between the SPY and SMH

As to why we see an afternoon ramp up on POMO days, I can only speculate, but there has been a trend among black-box systems to be in the market at very particular times and out of the market the rest of the time. So assuming (and I know for a fact that at least one system runs from 3:30 to 4 p.m. Only) they can get price to a level in which it will trigger a black-box algorithm, that black box system will due the rest of the buying into the close.

As for 3C today, the 1 min chart did a fantastic job at what it is supposed to do, call swings intraday

As for the longer view....

This 5 minute chart shows the first relative divergence that ended at 2 p.m. And the decline it caused after that. Looking at the longest arrow, it shows us a leading negative divergence, suggesting we are getting closer to a more serious decline.

Longer...

Just like it took 7 market days of accumulation to produce the September rally, it will take time for the decline to begin. 3C shows us one important thing, the rally is not being bought so I'd be very skeptical of being long here when this could reverse any day. What it shows is distribution into higher prices and this one chart explains exactly how the market works. Most people think rising prices are a function of smart money buying the rally, WRONG! As you can see, smart money bought on the decline, getting a better and better average entry price each day. The same is true of the rally, they sell into demand, therefore they get better and better average exits prices. Typically when they are done distributing shares they'll establish a short position for the next decline, that may be under way now or finished-both distribution and accumulating a short position are both acts of selling. So what determines the reversal on these longer charts? A) How big of a position they had to distribute B) How aggressive buyers were C) How much volume/demand was present during distribution D) How big of a short position are they accumulating E) Volume and Supply at higher prices. Once all of this is complete we see a reversal. The key information that 3C provides besides a look at how the market really works is to know whether smart money is supporting the rally or selling it.

Personally I feel that if the goal was to take the market higher, they had several opportunities to do so on breakouts that failed and failed on big volume as if they were being pushed down. Remember, the higher they take it the further it has to fall.

So for now I haven't changed my stance, objective data suggests to me that this market is teetering on the edge of a huge sell-off. There are a lot of unknowns, but as I said in last night's article, when I have strong 3C signals and nothing can be rationalized, we're usually near a turning point and only later will we understand the reasons. Stay on top of risk management, set the limit alerts for the trades, many have triggered and many are doing quite well.

I'm going to run some scans and see if anything pops up. Good night.

There's Definitely More to This Story

If you haven't already, first read my article last night, then read THIS

KFN

Just triggered what I suspect may be a false upside breakout. You may want to wait for a little more downside, but this looks like a big top

Correlation Between the SPY and SMH

Well that SMH pattern broke down, just to show you that SMH is being used today to move the market, look at the correlation, SPY in green, SMH in red

Interesting Dollar chart

UUP is showing signs of life.

SMH

Keep an eye on SMH, this could take the market down with it.

3C's Update

SPY

DIA

QQQQ

Another Reason For Stops on the Close

I doubt this was a "fat finger trade", nevertheless, I can imagine there are a lot of AAPL longs who were stopped out and not very happy about it. SKY NET seems to be operational.

Dollar Update

This is a very slight positive divergence, so slight that it may be erased soon if the dollar doesn't pull it together. Despite the Treasury/Fed's statement of a strong dollar policy in early 2010, I don't see the support for the dollar which leads me to believe it was all just to chase the banks out of the risky dollar carry trade. Now we have the makings of a currency war underway with each country trying to devalue their currency. Japan has already intervened at least once, more likely twice but they won't admit to the second intervention. How the US responds is an unknown. Do we still care what China thinks about our currency printing?

I'd like to see at least one reversal candle formation set up before looking to the short term 3C charts. A move above $23.35 would be a huge plus for the dollar appreciating, but I don't feel very strongly about the possibility of that happening. If you are wondering what this means for the market, it could mean next to nothing as correlations are falling apart everywhere you look, most probably due to Fed intervention. It isn't the first time correlations have failed so it's not something new.

Keep an eye on SMH

It just broke out of an obvious ascending triangle, could make for a quick short day trade.

TLT-Head Fake or Breakout

20 year Treasury bond fund seems to be breaking out of an OBVIOUS pattern. Lets see.

Maybe another round

of accumulation in AAPl and AMZN building here. I'll keep an eye on it, they may try to go for a leg higher.

Semis Getting Hit Too...

Who's the Frontrunner?

Last night I speculated that the face of POMO run-ups may quickly change. On Wall Street, as soon as behavior becomes predictable, it will be taken advantage of.

Looking at the charts that are reported to be the beneficiaries of POMO, it seems as soon as they get in now, they look to be getting out just as fast.