The Deal-The Scam

If you have been here at WOWS for more then a week you know that I've been talking about and expecting what I call a malicious bounce. Some bounces in a decline are just the result of profit taking from shorts, the market never goes straight up or down, we have twists and turns along the way, but a malicious bounce is one that is pre-planned, a bounce with a purpose. I also warned it was likely to be a scary bounce, the scarier, the better. This all ties into what I have been calling “the Judo Concept”. If I understand Judo correctly(I did study martial arts for several years, but not Judo), Judo is different then others as it's not so much about striking and initiating an attack, but rather letting your attacker initiate the attack and then using the momentum of their attack against them. Many martial arts use this concept. In the form I studied, Aki-Jutsu, a round house punch thrown by an attacker was a gift, it allowed us to use dozens of parry defenses to use the momentum of that punch to put our opponent in a hip toss, or an arm lock or a move in which they would literally somersault through the air to fall 5 feet and land on the hard ground on their backs. The point is this, the market does the same type of thing.

Recently I posted 3 bearflags in the major averages. At one point in time, when the internet and online brokers were just coming onto the scene, Technical Analysis was considered to be voodoo, few understood it and it wasn't popular, the more forensic Fundamental analysis was popular. People researched P/E's , growth rates, debt to equity, cash flow, everything that was derived from financial releases. That's actually how I started with my first trade. The problem is you nearly need to be an accountant to figure it out, the information going into the equation was bad from the start-consider Enron and the whole cooking the books. Eventually Technical Analysis became the more popular form of analysis as it studied what smart money was doing and tried to emulate their actions. It got to the point where it was so popular, as it is now, that everything on a chart was obvious to all and still is. When the market knows all traders are focused on something like those bear flags that I warned would be likely to see a false breakout of some type, then they can easily knock all of the technical traders out of the trade as they did today. Much of today's gains were caused by shorts buying to cover their positions. In the technical analysis world, what happened today wasn't suppose to happen, the market was suppose to break out to the down side. The ironic part is the market-in my opinion has a 98% chance of actually breaking down below those bear flags, but before that, the market will take out the shorts, force them to cover and sell short themselves as they fill the optimistic buying of longs who just saw a bear flag fail and feel the market is showing extremely bullish resilience. However, as the charts I posted and the one below illustrate, smart money wasn't on the buy side of the trade, they bought awhile ago when we first saw the hourly positive divergence. They bought at cheap prices and distribute into days like today.

As you can see, we have yesterday's late afternoon positive divergence in white-I warned of this last night and then we have today. Prices move higher, 3C moves lower, this an indication of smart money selling or shorting into strength. This is evidence of our malicious bounce. It ruined the technical trader's setups as they expected what technical analysis has told them to expect, a downside breakout. The smarties intentionally did this, they set it up when we saw the hourly positive divergence-that's when they bought, at the lows and today, they didn't chase the rally, they sold into demand so they could fetch higher prices and better short positioning. When they are done, which will probably coincide with some bad news that causes traders to sell perhaps like tomorrow morning's initial claims (this information has no doubt been leaked already to the smarties) , then it's the longs turn to be at a loss. The longs who bought today's strength (institutions were the ones selling to them) will be at a loss, they'll sell, which will create more supply ten demand and prices will fall, which will cause more longs to sell, and over and over again. At some point the shorts will re-enter the market seeing the false breakout and they will add to the supply imbalance and lower prices. So all smart money had to do was break a technical pattern, the fast decline that will follow will all be regular Joes feeding the downside move. Remember, failed breakouts almost always cause a severe reaction in the opposite direction for the reason I just mentioned. This is a malicious bounce, this is the Judo Concept-use the momentum of your adversaries to your advantage. THIS IS HOW WALL STREET OPERATES NOW.

power to finish their plan.

This is why I said I would be looking to exit shorts on a bounce and start looking at adding shorts, just the same way they are. They know more then we ever could, so why not just piggy back them?

As for the market, it was an out of place, over-reaction if it were a fair and free market. Being it is not fair or free, it was an obvious set up and the one we've been looking for.

The hourly charts which DID NOT go into a negative posture during the down days we have seen the last few weeks, went into a negative posture today on a huge rally. That seemingly makes no sense, unless you understand how the market really works, then it makes perfect sense, it's showing the smarties distributing into the bounce.

Above you see price moving in a downtrend on the 60 minute 3C chart of the SPY-accumulation. Today, if this market had no institutional activity, 3C would have made a higher high with price, it didn't, it moved lower into a negative divergence. It's clear what they are doing. It's been clear that this was coming in some form eventually.

Above is a 1-minute chart, you can see the market makers getting ready for the bounce as I showed last night with a late day accumulation session close to the lows of the day on Tuesday-they sold as you can see into the rally today. From the stance of most of the charts, I would guess this bounce doesn't carry any further, but that's a guess because I have no way of knowing what their inventory levels and targets are. There was no positive divergence at the end of the day, on fact we closed near the highs, but 3C did not follow so it seems they were getting rid of their long exposure, perhaps going short; this suggests to me that the bounce is done. We need confirmation of that though. Even with the uncertainty, it didn't and wouldn't stop me from shorting into today's strength.

Getting the picture of how manipulated the market is? They had to know all of these news events that were released in advance so they could schedule their bounce and their reversal. Wall Street's tentacles reach everywhere, the media, the government, foreign governments, the Federal Reserve-all leak as do individual companies. Remember our earnings experiment? The final result was something like 19 of 21 earnings called correctly using only 3C to tell us what smarties were doing in the stocks in advance of the earnings reports. In the past I've showed people these relations after the fact, this was different, the results were posted by me before the earnings were released. PROOF POSITIVE!

Again, today USO had the improbable rally. The recent trend in US oil inventories gives oil no reason to rally, the falling dollar did, but last Wednesday there was no falling dollar and a report that should have caused a sell-off-we were buying oil for one of the most improbable rallies ever, and it worked. Yesterday they bought USO on the cheap with that horrible decline, today they cashed in.

The hourly 3C chart shows their accumulation into lower prices, remember the accumulation into the low of the day last Wednesday when many of us bought and the bounce following it in the white box... Today however, we saw distribution on the hourly chart into a nearly 3.25% gain in USO.

You can see above where they took oil down with the first negative divergence, then at yesterdays closing lows they accumulated for today's bounce. Look at where 3C is right now into the bounce in the red square. In the case of confirmation, 3Cwould be significantly higher which tells me they sold into this rally as well. They accumulated for awhile so I don't know if oil has more upside, if it does, surely we will see more distribution into the uptrend.

Last night I showed you the negative divergence in the dollar (UUP as a proxy)-today we got a huge move down. Is it not obvious that the smarties moved out of the dollar because they knew what would happen today? I don't know how anyone can view this chart and not make that connection. Today there was a negative divergence in the dollar, nowhere as extreme so direction of the dollar/oil trade is difficult to say. I act on strong signals because they have high probability, today is a signal, but not a high probability strong signal. There are 1-5 minute charts that do look like UUP may see a bounce tomorrow, but for me it's not so consistent that I would say anything more then that at this point.

Last night I said I believed we'd see a drop in GLD today, we did although minor.

Here's the longer term outlook for GLD on an hourly chart, it seems clear that the divergence is quite negative and the huge positions that have been accumulated in GLD seem to be unwinding, I mentioned SOROS selling some of his GLD position. The only reason I can see is if the market were to crash, which I'm a firm believer it will and soon, then investors may move out of GLD to raise cash. One thing is for certain, there is a sentiment bubble if not a real bubble in gold, at least as represented by GLD.

In connection to gold, I was asked to look at PHYS, here's one of the hourly charts-remember-white= accumulation, red = distribution.

Both charts look different, it's because they are written differently to confirm. The results are the same, there was accumulation and now both are in leading negative divergences, so it looks like gold again is quietly being sold off into a media frenzy which sings it's praises. Typical!

Above the 3^rd version of 3C on a 30 minute chart shows the EXACT same thing, accumulation, a rally, then a negative divergence that turns into a worse negative leading divergence. The long term outlook is not good and this is the kind of confirmation that is obvious.

A 15 minute chart-EXACTLY the same!

A 5 minute chart the same, except today we see a slight positive divergence into the close

And here's the positive divergence on a 1 minute chart I said occurred toward the close, it's actually leading so probabilities are a move up in at least the earlier part of the day, maybe a close up, maybe even a bounce. However, it seems that GOLD is rapidly becoming an excellent short sale candidate.

OK, that's it for tonight. The initial claims report should let us know if the scare bounce gets scarier, just remember, that's the point of it, we are not entering a bull market if we see upside tomorrow, we are just getting a stronger fall at the reversal and better short positioning.

I have to now go and get all our paper work ready for the big interview tomorrow-the biggest of my life. So I posted trades on the site-not on the spread sheet yet, earlier today. I also gave you a list of ETFs with broad coverage. If you need to get short in a hurry, those a great ways to do it. PLEASE make sure you read our risk management and go over former short trades posted on the SS, many are still excellent trades. When I get back tomorrow, I will give you that list of shorts and my attention will be 100% back on the Wolf pack.

Have a great day. Study these charts, they are the key to understanding how crooked the game is, but how you can beat the street and you can.