A Question of When?

So far we've been right on with the bounce and the intention apparently. i said the next thing to look for would be negative divergences, we have those. So they are selling any longs accumulated for the bounce into higher prices and going short. When retail Joe steps into the market to buy, the smarties sell, they effectively take the other side of the trade in other words, they are short.

Now, they need a catalyst. It seems to me that everything on Wall Street is planned in advance, they aren't called smart money for nothing. It seems everything is leaked to them and knowing in advance what the unemployment rate will be allows them allows them to make these plans in advance.

Tomorrow a.m. at 8:30 we have non-farm payrolls and the unemployment rate, those will be the biggies. Watch for the "U6" number for unemployment, I'm sure I'll post it, it's a broader and more accurate measure of unemployment and is nearly twice as high, that is really what is important to our economy.

So I'm going to share with you some breadth charts, these are like taking the market's vital signs. One that you hear often is the dominant  Price/Volume relationship. Today on a decent follow through day, the dominant relationship for NYSE stocks was Price Up/Volume down. Even though price advanced, this is considered to be the most bearish of the 4 possible configurations. And... IT WAS DOMINANT. PU/VD came in at 3055 vs Price Up/ Volume Up (the most bullish) at 1386. Other averages with Price Up Volume down dominance included the Dow Jones 30 with 22 stocks vs. 2 that closed up on higher volume. The NASDAQ 100 was 74 vs 16. The Russell 2000 (one of the best barometers of market vitality) came in at  948 on lighter volume vs 313 on higher volume. The S&P 500 345 vs 84.

You get the picture, clearly the most dominant relationship, which was super dominant today, was the most bearish.

Here's more Breadth information

The NASDAQ 100 15 min Advance / Decline Ratio. In a healthy market, the A/D ratio should move up with price. This is showing the market advancing higher on fewer and fewer stocks-it's called a thin market and we see this often before a collapse.

Another breadth indicator, New highs, New Lows on a 5 min chart and it counts new highs over a 250 bar period-not days, but bars (in this case 5 minute bars). Again, you want to see this climb with price in a healthy market. Clearly this is a negative divergence as price advances and the New Highs decline.

As I said, the Russell 2000 is a good barometer of the market and economy as it has so many stocks in it. This is another way to look at an Advance/Decline line. the green is the AD line and the red is the Russell 2000. Clearly the Russell is advancing on fewer stocks-this is a daily chart. It really became a problem recently.

This is the same as above, but for the Russell 3000, the same situation exists here and the Russell has been outperforming the other averages recently.

Here's today's 1 min Tick index vs. the NYSE composite. The white arrow shows positive tick divergence and the red shows negative tick divergence. We had a strong price rally into the close, the Tick index should have followed price higher, instead it headed lower creating a negative divergence.

All of these taken together shows a market that is advancing on bad breadth. It's not a robust or health bounce, but we never expected it to be, we expected selling and shorting into it, that was the entire point of the bounce, so it is not the start of a healthy move, it is what we expected.

The TRIN yesterday came in very low suggesting a close lower, it's not a perfect indicator, just a piece of the puzzle of probabilities. Today we had another reading of .52 which is extremely low and suggests probabilities of a close lower. I think today the market was clearly being manipulated higher and the reason may be that the unemployment numbers are leaked and if you want to break the market, it's best to have a good reason for people to attach to and create negative sentiment. We'll see at 8:30 tomorrow what we get. If we do get a bad number that causes sentiment to sour, then it would in my mind really be a perfect set up for taking this market down.

As for 3C readings, I took some different readings across different timeframes, here's what I came up with...

Again today we saw the hourly 3C give ground, it's in a negative divergence that is borderline leading. Even when we were waiting for the bounce and the market was going lower, 3C 60 min held a positive posture, now that price is gaining ground it's going negative, this is clearly institutional selling/short selling.

5 min. 3C of the Russell 2000, as prices rallied into that friendly environment I mentioned in an earlier post, behind the scenes the smarties were doing the same as above, selling hard into higher prices. Really from their perspective, the higher they can sell/sell short the better. The same goes for us.

The QQQQ on a 1 minute 3C chart, again the same thing but this is more market makers getting out of their long inventory and shifting into shorts. One advantage of being a market maker is the ability to go "naked short" meaning they don't have to borrow the shares to initiate the short like we do. Remember I said Scottrade was closing down members profitable shorts,  it's supposed to happen when they can no longer borrow the shares, but if you short a company like AAPL or GOOG

The SPY 5 min 3C shows a lot of recent distribution into the price highs, it is a leading divergence which is serious, so they are doing what we were watching for. A reversal should be close.

If you look at the price of the SPY (red) at a comparable level, you can see (white arrows) that the VIX has moved lower, which is complacency, which is what is needed to get a god sell-off rolling. This is a good sign for our longer term short strategy.

As for a few trades I want to show you...

DBRN is on the short list twice, the first time I used a more appropriate stop. This is a head and shoulders top, and a big one. The downside target is at least $14. We have a break of support and a rally back up to it which makes for a low risk, high probability trade.

Here's an effective Trend Channel stop for DBRN and it is on the close only, not intraday prices. Note that it has already captured the entire downtrend thus far from the top of the head of the H&S pattern.

Here's a proxy for gold, it's a 60 minute 3C chart in a major leading divergence, as I've stated, the metal is in big bubble trouble. It's a trade you may want short exposure to.

Another version of 3C 1 hour and we see a major leading negative divergence. Gold has been very popular and they are trying hard to keep up that perception, but behind the scenes, it's being sold off hard.

Here we have a 15 min chart of gold with a leading positive divergence suggesting it may bounce, that would be an ideal time to initiate a short or to add to one.

One of my favorite shorts, MSPD is a great looking short. It has rallied, but in a bear flag, a downside break of the flag would make for a safer entry, but I'd take it here with appropriate risk management, stops and position sizing. the target is at least $4, maybe lower.

Again, using my Trend channel (which won an award) you can see it was able to keep you in the long trade for well over a year and now it's suggesting a stop at $7.85. If you ever get TeleChart or StockFinder (there's links at the top of the site about them), email me for this indicator, it is a must for trade management.

Last, 3C 15 minute is showing apparent accumulation in a former long trade, RINO. If you are interested email me for updates. You can have long trades that work even in a bear market, this could be one.

Tomorrow morning will be important, we'll see if the Judo concept takes hold tomorrow or if we have to wait, I have a gut feeling that tomorrow is an ideal day to sell the market off and based on a few charts, it looks like that may be the plan, so if it is, they obviously have the leaked report already. The way they rallied into the close on horrible breadth and distribution really suggests they were trying to quickly get the most bang out of this setup. That's my gut feel but we need to see the numbers to back it up. If that comes to pass, don't be slow about getting your feet wet on the short side, whether using equities or inverse ETFs.

Again, thank you all for all your kind emails and support for my wife and I. Today meant the world to us.