Look....
Here we have a perfect symmetrical triangle, this is an upside consolidation/continuation pattern. In the last few weeks and even months, I've showed you numerous triangles that were manipulated by false breakouts, this is the way Wall Street operates now. They know every technical trader is watching that triangle for an upside breakout, it's what they've learned for nearly 100 years. Wall Street did not play any games with this triangle, volume even rose on the breakout and the pullback we see in the Technical Analysis books was picture perfect, no false moves, it pulled back on lighter volume to a reasonable area of support. Next prices advanced into rising volume-in a T.A. textbook you always look for rising volume into rising prices. If you look at the 2003 rally, that's exactly what you will see. If you look at the bear market rally of 2009, you will see the opposite which was a dead give away that this was not a new bull market, just an extraordinary bear market rally. So everything traders saw on this chart invited them to join the party, it was everything they have seen and learned in T.A. textbooks. We know Wall Street doesn't operate this way anymore, so this looks to me like they were luring in the longs with a familiar and friendly trading environment.
Look at the advancing volume and prices, exactly what the typical technical trader wants to see.
But pull the curtain back.... and Wall Street is doing what they do best. If all of this was legitimate, then this minute chart of 3C would show 3C rising with prices. Obviously 3C, nor the long term 3C below followed prices, they showed indications of market makers/specialists selling into the rally. They could be trading their own accounts, they could be filling institutional orders and the selling could wither be of long positions acquired at lower prices or it could be short selling-we just know it was selling so Wall Street created a friendly environment and sold into it. Remember I said this would be a "malicious bounce" and a "Scary bounce" for shorts. I also said we need to be on the lookout for distribution into rising prices, we obviously have that on this chart. Both versions of 3C are coded differently so they give independent confirmation, both look the same at and after the triangle.
The 5 minute 3C chart which (version 2 in 5 minute works extremely well for the SPY) is the earliest timeframe where institutional activity can be seen (1-minute charts are almost exclusively market makers/specialists). Remember I showed you the institutional accumulation into the afternoon lows of 8/31 and this was one reason we believed there would be a bounce the next day, well look now. Prices are rising and 3C is making consecutively lower highs, this is a strong negative divergence suggesting institutional selling into the rally.
Given the job reports due out at 8:30 Friday morning, it's not surprising to see some trepidation, traders don't want to get heavily long in front of a report like that, but the rise in price taken with the negative divergence shows institutional money getting out of the way. We know and have seen the evidence of leaked reports. Either the report is going to be bad and they're closing bounce longs and going short or they are just starting to wrap up the bounce trade. I wouldn't be surprised to see the report come in worse then expected, remember my initial opinion was that the bounce would end this week, although we got a late start because of the Mexican Stock Market bomb scare.
The trading activity today was "pleasant" and familiar for most technical traders, I'd call it inviting for longs. This is all part of what we expected to see, a scare bounce that forced shorts to cover, longs enter the market and when the bounce is done, it reverses, longs are now at a loss and become sellers, shorts dive in, the supply demand equation is shifted toward supply which causes the market to fall fast and hard. That would be the purpose of a malicious bounce as we have discussed. The only unknown is how high, but again tomorrow we have the potential catalyst to start the snowball effect. I can not see going long this market in a position trade with GDP like we've seen. The short term reports today that the media says, "reflect an improving economy, albeit slowly" are soon to be forgotten, they are small time. The big picture is GDP falling from 5% to 1.6% in 3 quarters and the fact that neither the Fed that made some cryptic allusion to something akin to a "super weapon" that can be deployed, in my mind was rubbish. If you have a fall in GDP like that after everything they threw at supporting this economy and it didn't stick, why would you wait for it to get worse then 5% to 1.6%? If you had the "super weapon" you'd be out in front of this mess now trying to reverse that trend which, by the calculations, is on track for a double dip unless something amazing were to happen.
There's something in the timing of all this too that doesn't sit right with me, right before a 3 day weekend when most traders will be back from vacation and active in the market. Certainly a big sell-off on Friday would give those returning traders something to think about over the long weekend. I'd think a sell-off tomorrow would inflict maximum damage, but I can only speculate, however the underlying truth of the market is there for you to see in 3C.
Lastly you know that I have a bearish opinion of gold. Checkout these charts.
As you know, I'm very open about my life, maybe too much so, but I think it's important for my subscribers to get a feel for who I am. There are a lot of self-proclaimed gurus that are great marketing people, but don't always have the insight to back up their claims. I AM NO GURU and I have nothing in my life I can't share because I have nothing I'm ashamed of that I haven't already made amends. I'm going to give you a personal example of why, when I see a chart like gold, despite the fact I know there are probably more gains to be had, I won't enter a sick trade.
My father died several years ago. It may be morose and I apologize if this touches anyone the wrong way, but I remember to this day one of the most surprising things to me was how much the human body can take before it gives in. For years he looked so bad that I thought it would be any day, but it went on for years.
The point being, gold is a sickly chart. If I told you to buy gold because I knew that despite it's sickness there were possible gains left, at some point you would most likely be caught in a trap, this chart may be the start of that trap. I can't and won't for any member of WOWS, set an example that would cause you to develop poor trading habits. I don't care how much gold gained after I saw the problems in it, I don't care if it gains more, it could and did already go on for a long time. The point is there are thousands of equities to trade. You only trade those that have the highest probabilities. It's hard enough to make money in the market, so even if you like the trade for whatever reason, when you see the red flag, move on. If you entered the Gold trade a month ago, you may feel justified by the gains, but what happens when it drops 5% in a day or something worse?
Perhaps a better analogy would have been this. Imagine a captain in the army leading his troops and they come up upon a mine field. The captain after thinking about it for a moment, decides the best course of action is to close his eyes and walk right through. Amazingly he makes it the other side. Has that captain now learned a lesson that will serve him well? The idea that every time he encounters a mine field the best course of action is to simply close your eyes and walk across?
I know it's a bit ridiculous, but imagine you knew gold was sick and bought it and made great money. Did you learn a lesson that will serve you well as you continue your trading career? This is one of the biggest reasons people do not take the time to understand risk management and apply it, they figure, "I've survived this long without it". Remember that genius young oil trader who made billions before he caught one final trade that took down his entire company. It's amazing to me they let him trade billions with no risk management oversight, but they did and as good as he was, in the end, he took down the whole company with one bad trade.
Finally, my wife Anna would like to say a few words....
Thank you for all of your prayers, all of the wishes of happiness and success and today all of the great emails welcoming me to this country. I feel really good about the members of the Wolf on Wall Street because Brandt works so much, I share him with you and I'm happy because you all are such nice people. I see all the congratulations and personal experiences and your life stories that you share with us. It seems like a big happy trading family. It's good to know that behind the computers, I can feel like I know some of you and I like that.
I share Brandt with you and in return you share your life and our life together and I really appreciate that because I feel like I have friends and people that care about us all over the world and that share my husbands passion and like his work. I think it would be a good idea to have a cruise ship seminar one day where we can all meet. Thank you for all of your support.
Sincerely,
Anna (Panni) -from Hungary :)
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