Some people are wondering, "Is it time to add to FAZ?" Lets take a quick look....
Here's the 30 minute chart. 3C doesn't just automatically confirm each time frame, each one is treated separately, so if I don't see multiple timeframes, I don't consider the equity a strong candidate. I've removed the boxes, but you can still see cause and effect of the divergences.
The 15 minute chart is easily capable of detecting month long swings and we have a positive divergence here too. What's interesting is the support that was broken today (see red trendline). Remember, anything obvious is usually taken out as most technicians believe that support will hold so they put their stops just below or at it. The market maker or in this case the specialist CAN SEE the orders, so triggering them is a FREE LUNCH, plus it allows them to stock up on the cheap and to remove any "weak hands" that may sell into the rally, thus diminishing it's momentum.
The 1 minute chart above shows that the specialist is not selling this break of resistance like most technical analysts would, instead, they appear to be buying it as it reaches the highest level of accumulation-a leading positive divergence.
KEEP FAZ ON YOUR RADAR!
AS FOR THE MARKET...
Right now there are some weak negative divergences, they don't look strong enough to turn the market yet. As we see with FAZ above, it is quite common to see a stock like that, especially on a double bottom, make a new shakeout low as the market may be trying to make a shake out high. We'll see, Fed day is tomorrow. I'll keep you posted on the divergences, but don't forget to watch FAZ for entries-this one can move-take a look at its history.
13 comments:
The EURO has been showing some weakness over the last 4 hours.
We've been seeing these 'distribution' signs by the 'smart money' since the start of September. Trouble is we are now entering our fourth week of gains, and it's started off strong.
We are now well above the much talked about $130 SPY level (nearly over $140).
So, when's it going to reverse? Not much help showing smart money distributing daily, if the market goes up regardless and carries on to new highs for the next few months even with the smart money distributing.
We had lots and lots of bad news over the summer, everything from the BP spill to consistent bad unemployment numbers to big problems in Greece, and yet the SPY is only 60 points off the April highs. If all those problems didn't knock the market down, what will?
We need a high probability of 'when'?
While I agree with your sentiment, it only made sense to go after the $114 area. Probably alot of orders lined up in that area. I know I will be a little more cautious in the time frame I look at going forward for confirmation. It seems these direction changes by 3C take about a good 10-12 trading days to carry out. Just an observation that hasn't been confirmed yet. Looks as if we are getting a little selling pressure now.
Jack,
Why stop at $114? I'm sure there are plenty of orders at $115 and $116 too, etc.
This is the 14th trading day since September 1st already.
The previous 3C leading divergence accumulation that 'foresaw' the bounce only lasted around 5 days i believe before the bounce actually happened. That's a big difference.
I think we need a high probability of when. The higher it goes, the less it may go down maybe? Who's to say when the trend turns that new lows will be made? It might go up another $10 on the SPY to $115 and then only reverse, say, $30 down to $111? What use is that since we have been seeing the signs of distribution since $104.
I would say what you are feeling right now is exactly what Wall Street is trying to accomplish. You feel like a long tailed cat in a room filled with rocking chairs. I have been here many times before, sold a position and lost because I went long. Each trader has to look at him or herself and decide their own risk tolerance. If you can't sleep at night, you are probably trading outside your risk tolerance. Why not $115, probably because they don't want it to get so far out of control that the shorts they have set up are at risk.
Jack,
I think the main thing i feel is that i haven't followed the smart money.
The smart money showed signs distributed as the DOW bounced off of 10,000. 3C showed that the silver looked to be going down when it was around $19.80 an ounce and yet it has gone up another $1.00 an ounce since! Same with gold. It would seem that the smart thing to do was do the opposite to what 3C was suggesting in these cases. Why didn't 3C see any hint of todays 150+ rise on the DOW? That's quite a big move to miss out on.
Everyday i see the 'smart money' distributing, and every day i see the market higher. I need to see confirmation that 3C is right on this call and sooner rather than later.
I think I stated last week that it might be until Tuesday or Wednesday before the selloff. Which I made based on some previous trading trends that I saw. I myself didn't recogonize that when 3C starts a trend it can last 2 weeks or longer before the turn starts. Current is about 2 and half weeks. If I had waited and stayed long until the 10 or so trading day, I would only have been short the last couple of days. It not so much about following smart money as it is trying to figure out the length of time it takes for the turns to happen. By the way, I think I mentioned also that I was going to start buying long (short term specaulative positions)on the days when Omama speaks. I guess I should of followed my own advice. I have plenty of shares in TZA, FAZ and EDZ to make a day like today seem like the end of the world.
Jack,
I think the problem is we need to see one heck of a sell-off now for 3C to justify the 'distribution' it has been showing since the start of September... the DOW has risen 800 points since the 'bounce' started and the SPY 100 points... what's the point of a 200 point or 30 point sell-off on the SPY?
What's the probability of a huge sell-off? Seeing, as i said before, all the bad news over the summer could make the market sell-off (and stay down!)
Jack-Mr. Pink, you can't count the days in 3C to determine a change, it has nothing to do with that. You have to understand the indicator to understand it's strength and weakness.
Imagine price hits $10 in XYZ stock and falls then it rallies to $11. With 3C you are comparing two relative points, in this case the $10 level and say several weeks later a new high to $11. 3C shows a certain amount of institutional involvement at the $10 level. If 3C is higher when price hits $11 then the uptrend is confirmed, institutional money, that bought on the dip between the two relative points has held their position, therefore there is institutional support for the stock and it's likely to go higher. If you want to consider everything, then through in breadth readings, the VIX, etc.
However, if we reach the second rally that sets a new high at $11 and 3C is lower, whether it be relative or leading meaning the indicator is making new lows, it shows that institutional money has sold out of the stock and most likely is also short. So 3C is showing that at a higher price there's less or no institutional support and stocks do not advance without institutional support.
Typically they will buy low when nobody cares about the stock, like during the top of the tech bubble, they were buying home builders, no one was thinking about homebuilders, everyone was still enthralled with anything with a "dot com". So they buy then, then when they have accumulated the size position they want (and 3C can not tell us this, only someone at the firm could tell you this) they create a high volume day with a big price advance and basically call attention to their position. This is stage 2 "mark up". They'll let the stock rise due to retail buying as retail thinks a volume spike on an advance means institutions just bought, they didn't-they bought the year preceding that, the volume spike was a relatively small expenditure working with MMs to push price up. At some point, they start feeding their shares out slowly into rising demand. As price moves up, more buyers are attracted , they feed out more, this is when we see them selling. Now how much they have to sell and how quickly they are doing it, depends on a lot of thins including demand and volume. The last thing they want to do is put too much supply on the market and drive prices down. THIS IS DISTRIBUTION. I'm talking in terms of a long timeframe bull market of years. When 3C starts moving into leading negative divergences, they are heavily selling and usually at this point you can assume they are going short, after all, once there is no more institutional money in the stock, it's only retail and at some point retail will have saturated the market. Smart money knows that the price will not be able to support it self, that's when they are taking the other side of the trade for a stage 3 top and ultimately a stage 4 decline. So unless there's a way to figure out how much inventory they have (that may be roughly possible with 3C and a VWAP) and at what pace they are selling it, it' difficult to determine when a divergence turns into a reversal. there are a few hints, one is when most or all of the 3C timeframes are all negative, this shows that even the market maker is aware of the decline to come because the market maker filled and distributed the institutional order. When they all line up, that's the best indication we have.
In terms of now. How much did they accumulate in late August? Being we see daily distribution, multiple timeframes going negative, and leading negative divergences, it is likely they have started or are completing a short position. Again though, the question remains-"How much, how big of a position?"
So you can see mid-timeframe divergences or longer like a 60 minute ll negative. YOU KNOW SOMETHING 90% OF RETAIL TRADERS DON'T, YOU KNOW THEY ARE TAKING THE OTHER SIDE OF THE TRADE WHILE RETAIL THINKS THEY ARE STILL BUYING INTO HIGHER PRICES. What you don't know is when they are done. It can be days, wekks, months, depending on where we are in the 4 stages, the size of the rallies, declines and volume. With volume so low I'd think it would take a bit longer to fill their order without affecting market price.
This is where you have to start gathering all information, breadth, advance/declines, sentiment, etc. I've been showing you that stuff almost daily. When a market gets so thin that prices advance on declining volume and fewer stocks-in some cases we have seen advances in this rally where more stocks fell then gained for the day. The post last night should explain the dynamics of it.
You also have to consider what is their master plan? Do they know something about the Fed tomorrow and are trying to hurry up and fill the short position? If so, wouldn't you agree they need demand -they need buyers so they can sell short to those buyers? Wouldn't you agree that this H&S bottom pattern (which by the way in no way meets the criteria for such a pattern-much like the false H&S top seen 2Q 2009) is about the only thing the bulls are excited about? Also, realistically, how many obvious price patterns have we seen fail? I'm going to say it's near 90%. So this was an obvious one. There's little profit to be made by Wall Street being on the sme side of the trade as retail.
Back to timeframes, you can't judge or count because each is different. You can't know, if this is the exoected big plunge, just how much they want to accumulate (short position). The only real tool is seeing multiple chart/timeframes all pointing the same direction. When I called the top in oil, a 5+ year rally, it was still within 7-10 days-that sounds like a lot, but consider it's probably about 1 week out of nearly 300 weeks in the rally. Day to day it seems long, in perspective later, it's not.
As for the time frames-a 1-min chart will turn the market from minutes to an hour-usually about 15 minutes before the reversal. a 5 min stand alone divergence is usually reversed between several hours to a day+, when you get into 10 min. you are out of the market maker field and strictly in smart money. 15 minutes can signal from a week to about a month.
A 30 minute is usually a couple of weeks buy can be more or less. An hour chart can change an intermediate trend, so this can go on for months, or it can turn very quickly depending on hoe heavy the accumulation/distribution is. Daily charts are usually months and they are where you find the primary trend changes from bull to bear market.
However there are lot of multiples to consider. I thought your comment earlier Jack about emotional panic and the cat's tail in a room full of rocking chairs showed a lot of understanding of the market. In the end, no matter what indicator you use, you will find that major trnd changes-whether a month long swing os multi year primary trend changes are all about emotion and the extremes in emotion which cause people to act.
If I'm correct and they are accumulating a short position, today's move up would have caused an emotional extreme, the market always seems to go further then you imagine. for whatever shorts are left in the market. Their buying to cover-must be sold on the other end of the trade which would allow smarties to clean up a pretty decent short position today and the best thing is their selling short won't move the market against their position as an emotional extreme has been reached and short's covering just drives the market in the smarties direction.
Honestly, the guy I advise with lots of $$$ in the market is a great tool for me. He's got about the right tolerance and his emotional meter is pretty darned accurate. About 10 times I've received the panic email or text, I"I have to start covering tomorrow", the next day the market reverses. So his panic has been right every time about 10 times. Today was obviously one of those days. In my experience with him thus far, he's been a flawless reverse indicator.
Above all else, emotion drives the market. Fundamentals, a stock's value, they all mean nothing, that is why we see extreme's in the market's behavior. Of course this is a generalization, there are many more dynamics involved, but that's the broad strokes.
Brandt, I have a significat position of shorts. I am spread out of several sectors (3) and the only thing that is keeping me short is my emotion radar. In the past I would of been knocked out todays trade, because I wasn't certian of the direction. Today would of told me (in the past) I was on the wrong side of the tracks. I would of sold, bought long and probably lost another several thousand dollars. My current loss is manageable with the knowledge that the future drop will recover all plus some. My speculation of 3C timing is relative to my recent trade in which I went short way to early and have done so the past several times. Usually many days early. In fact, same goes for the long side. I might compare 3c to a cruise ship. Once it decides to turn, it is going to take it awhile to complete this maneuver. Depending on the degree of the turn will depend on the length of time it takes it to complete. I estimated it would be roughly 10-12 trading days based on some previous chart trends of 3C. Unfortunatly for me, I have been short since day 3, added some around day 7 and 8, then again on day 13. I think that I was trying to get across the point that I need to reign in my enthusiasim for going short and let the market play out a little bit. We know it takes the MM's awhile to accumulate a position and 10-12 days would seem minimumal provided there is not any outside unexpected market influence. I understand what you are implying about the relevance of the divergence, makes sense that a strong divergence may not allow for a longer time frame, where as a weaker one may take much longer to play out.
I hear you Jack, the problem is that the short timeframes lining uo often are a signal, we've had a lot of that. You've probably heard me say several times, "you might consider getting your toes wet", but in the end, you need confirmation and there's so much room on the downside, if you miss the first 5%, who cares? It's not been all that long historically, but each day seems like forever, looking back things will make sense, but we don't have that luxury as we live on the right side of the chart. You do the best you can with the information you have and always apply risk management-whatever works for you. I'm always available to discuss it with anyone. I actually won my first award for concepts in risk management.
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