Things Aren't Always What They Seem

In the market, things are rarely what they seem; everything is a deception. From level II to earnings reports, interviews, the pundits, it's all deception.

Today seemed like an incredibly strong day and a huge victory for the bulls. The fact is, Geithner's expedition was what the market and the insiders needed to push this thing higher. Since there was so much distribution yesterday, I assume they sold out of the long position and today was all about selling short. Why? The candlestick that is deceptively bullish and the percentage gain as well. Here's some of the proof of that-

A quick reminder on the lost art of volume. Any move up should see volume move up as well, it shows that traders are aggressive and they are bidding prices up. Therefore the most bullish of price/volume relationships is price up/volume up. Can you guess what the most bearish is? You might say price down and volume up, but actually you'd be wrong. The most bearish price/volume relationship is rising prices and falling volume. This shows traders are not aggressively pursuing prices and there's most likely an element of temporary manipulation which drives prices higher. This is why I have this custom scan to look at each of the major averages when we have a day like this. First I have my 5%+ Gainers; you'll see we had 928 of the NYSE stocks close up 5% or greater, but all on falling volume-BEARISH. Then we had 499 close up with volume up-BULLISH. However, we are looking for the dominant relationship, it could be by 30-50%, today nearly 100%; the dominant relationship was extremely bearish.

We do the same for the averages. In the NYSE we had 3946 stocks close up on falling volume which is nearly double the 2042 that closed up on rising volume, again the dominant relationship was extremely bearish. In the Dow that bearish dominance was nearly 5:1! The NASDAQ 100 was 6:1. Remember, I said 50% would qualify as dominant, here we have 600%! The S&P was nearly 4:1 so today was a big deception.

It's always good to look at the market's breadth, here's an indicator on the QQQQ that like MACD, should rise with price

Above is today's QQQQ 15-min Advance/Decline Histogram-again, rising prices should see more stocks rising, instead we see fewer stocks advancing into the close

Here's the 5 min SPY-the white arrows show divergences-where the arrow end you should see the result of the divergence-a reversal. White=positive divergences, red= negative divergences. the blue line is a very long version of 3C. You can see today we saw no positive divergence, again suggesting this was a manipulative move, there appears to be no accumulation whatsoever.

Here's the 1 min 3C chart, while it did rise with prices, it formed no positive divergence and when compared to lower prices a few days ago, both 3c indicators are significantly lower-this is bearish.

Again, the white arrows show positive divergences or accumulation. Note today was a fairly spectacular negative divergence which tends to confirm my suspicions, today we saw a lot of short selling into the rally.

Another 15-min 3C chart used for confirmation, again, 3C does follow price, but the only divergence created is a negative divergence as 3C moves down from much lower prices several days ago and especially into the close. This could very well be a false breakout.

Finally the 3rd version of 3C 15 -min. Again, today saw distribution or short selling into higher prices.

As I have said, we can only make decisions with the information we have at hand, but I do not recall seeing any failed divergences on these charts, just some that take longer than others for a multitude of reasons.

For those of you who have started a short position, if you want to hedge the shorts against any further upside, which I do not find likely based on what we are seeing and holding over a 3 day weekend, you can always buy something like FAS. If the market goes down your shorts hedge the FAS position until you sell it. If the market goes up, the FAS position hedges your shorts, , eventually we will add at the reversal and you'll have a quick profitable trade and a better position on your shorts.

If you are not already short, I do not recommend this course of action. Any short positions being put together should be at 50% or less of the intended final position. We may add a little before, but the trigger to go all in will be a break on the SPY of $104.50

For that reason, I will not be positing any new trades tonight, I do not trust this market to go up in any consistent manner that is worth the risk. We also don't want to add any shorts until  we have a reversal.

If you have specific questions, email me at BT46n2@gmail.com

Update

Look for a move below $108.70 on the SPY, that would be a decent area to add. In the area we are in now, it's also a good ares, but up here the position should be smaller, then under the support level it can be a bit bigger. We are trying to end today (if the market cooperates) with 50% of our position in place.

This may be it

it looks like the market has finally broken down as the charts pointed to, but I think we get one last bounce maybe to 109.70-109.80 on the SPY. Possibly a new high as a false breakout, but that is the least likely.

Opening Gap

There are small almost indistinguishable positive 1 min divergences, the only one that really stands out is in the QQQQ 

This would be enough to rise to the gap we are seeing this am, if I had any longs left I would be using the gap to sell into. Instead I'll be selling short into the gap, but again in small pieces, perhaps 15% (initial short positions taken yesterday at 25% on our intended position)

Here's the more dominant 5-min chart. Granted it could change to a bullish divergence if the 1-min carries far enough, but at this point it does not look likely and we make decisions based on the information we have and the probabilities at that time.

So we are not concerned with this gap up and expect to see it dissipate by early afternoon. If anything changes I'll do my best to keep you up to date.