Goodbye 2010!

Tomorrow is the last trading day of the year. We have seen the volatility intraday as I thought we'd see this week due to extremely low volume, but for all of the volatility, the market mostly did nothing this week, perhaps Friday will be different.

The S&P-500 has logged a paltry .09% gain thus far for the week and was down .15% today. The Dow-30 is down -.03% for the week and down .14% on the day and the NASDAQ 100 is down .20% for the week and down -.27% on the day. As an aside, today's movement in the market was the biggest percentage move we've seen all week, a dull market indeed, but there's always a trade somewhere and we've had some great one-4 day returns chasing the Cats and Dogs rally. As I've noted, in the past, my experience has been the cats and dogs rally at the very end of a bull move so are we at the end of the September rally?

Despite the do-nothing market this week, we do have some interesting 3C charts that have developed, especially since the start of the December move up.

The line in the sand on SLV, $30 acting as resistance has held.

As you can see above, we had an intraday high of $30.08 and a close at $29.76 so once gain, SLV hasn't been able to cross and hold the $30 level. Perhaps JPM is indeed protecting a large short position in SLV as is rumored.

The SLV 10 min 3C chart best depicts the battle at resistance that the silver vigilantes are seemingly loosing.

Above you can see as SLV made higher highs this week, a negative divergence set in which is the same thing as distribution. On intraday charts all this week, we have seen distribution as SLV climbed higher, but the 10-min chart summarizes it best. Today SLV opened above resistance on a gap up, 3C logged a pretty serious negative divergence right on the open, distribution was there first thing in the morning defending the $30 resistance level and now it looks as if SLV will retreat to regroup, it may become more serious, but for now it looks like a pullback at least is in the works.

Semiconductors, one of the groups that supports rallies in the NASDAQ has been lateral for over two trading weeks now.

The slight accumulation we saw at the 12/27 lows led to slightly higher prices, but once gain we see a 3C negative divergence into today's highs

Volume on the decline today during the last 25 minutes of trading was rather high and SMH looks as if it may start a series of lower highs and lower lows (a downtrend) at least intraday.

The 5 minute 3C chart for SMH which called the last intraday pullback on 12/27-12/28 is now signaling a worse negative divergence that has gone into a leading negative divergence-these are the worst kinds and tend to lead price lower.

The 15 min chart shows the same thing, but its implications are more serious then the above 3C charts.

As for the driver of the S&P, financials, today we saw a pretty distinct change in character.

Above you can see accumulation at a small double bottom in white at 11/23-11/29. There seems to be a resistance zone around the $16 level and while we saw a negative divergence at the 12/13 highs that led to a pullback, the distribution really kicked in as XLF moved toward the resistance zone. While price is higher then November, 3C is now at the November equivalent showing quite serious distribution, perhaps short selling in financials.

Two of the financial bellwethers we've been watching, BAC and JPM are also caught in this downdraft.

As I said earlier in the week, maybe last week as well, BAC is seeing resistance around the $39.40 level which has been an active technical level from early and mid July support, the break of that support in October and several recent attempts to break through and hold the level which BAC has failed to do

The 10 min 3C chart has shown this distribution at the resistance level, starting with the gap up on 12/28, distribution has been fairly steady.

JPM recently broke out of a multi-month rectangular trading zone. I warned this week that the breakout is in question and a false breakout can fall very fast.

A closer look at the breakout reveals a candlestick pattern that is associated with reversals, it's a shooting star-like pattern and we have seen a reversal thus far. Should JPM cross back below the support level around $41.50, the fall back to the bottom of the trading range could occur quickly so this is a trade you want to keep an eye on. As of now we can't call this anything more then a pullback on a successful reversal, but things could go south quickly.

The hourly 3C chart shows both the positive divergence/accumulation in late November that took JPM up through resistance, but now we have a negative divergence which suggests that support is not likely to hold.

A closer look using a 15 minute 3C chart shows the negative divergence since the breakout.

The 5 min chart look especially bad for the breakout.

Tuesday, during the trading day, as USO broke down from an ascending wedge, I suggested a short trade on USO (in the white box), since then USO has moved lower on a gap down today.

The 60 min USO 3C chart looks especially bad and a negative divergence took hold about the same time the ascending wedge formed, making this a fairly high probability trade. Of course USO isn't a huge mover and there are several leveraged ETFs you could use to increase the gains on the drop in oil.

The 30 min chart shows accumulation in white in November, however, 3C 30 min shows just how bad the distribution phase has been in USO, it seems they accumulated a position for the sole purpose of selling it, not because of any bullish sentiment in USO. The two negative divergences have both responded well with price falling on each. The 60 min chart above suggests this second fall will be worse then the first earlier in the month.

Looking at the averages,

The SPY 15 minute seems to be a more pronounced version of what I just said about USO. Distribution during the rally has been quite heavy.

The same holds true for the DIA, except here, once the initial shares were accumulated (and note accumulation takes place often in a trading range, they're buying up shares and trying to buy at the best prices, thus keeping the index flat while they accumulate shares.) distribution was underway here in the DIA almost immediately after they accumulated the shares needed to distribute into higher prices.

The Q's also show the same distribution through the same period.

My feeling is that we are seeing HFT traders simply forcing trades, accumulating, pushing up prices to distribute into. This is very much different then accumulating because you believe the market is headed higher. In that case distribution would not be so evident. It's been a low volume environment and making money is more difficult for these firms, but everything I see seems to be just manufactured trades, no real bullish outlook on the market whatsoever, just a way to make some money.

As such, and in light of the extreme bullish sentiment and the lack of reaction to the news (and why would there be reaction to negative news when these firms are pushing a manufactured trade?) I feel sentiment is at extremes and once volume enters the market again come next week, it will be very interesting to see if the negative outlook by way of distribution takes hold and accelerates early on in January. If so, there are plenty of good looking short trades (short selling), but I knew this week was not likely to produce that kind of environment and the cats and dogs were rallying, so why not make some money ourselves? There certainly wasn't much to be made for the average investor/trader by buying index funds, only those wielding massive leverage and near total dominance of the market.

So keep the alerts set for the C&D trades that still have not triggered. If you are in any of the trades, feel free to email me for the most current outlook. Over the weekend, I'll be preparing a list of real trades, trending trades that I believe will do well once volume has picked back up and traders return from vacation.